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HNI CORP

HNI CORPHNIEarnings & Financial Report

NYSE · Consumer Discretionary · Office Furniture (No Wood)

HNI Corporation is one of the largest office furniture manufacturers in the world in regard to revenues resulting from office segment sales. HNI is also the world's leading hearth products company, manufacturing and marketing gas, electric, wood and biomass burning fireplaces, inserts, stoves, facings and accessories. The company was founded in 1944 by engineer C. Maxwell Stanley, advertising executive Clem Hanson, and industrial designer H. Wood Miller. Its headquarters are in Muscatine, Iow...

What changed in HNI CORP's 10-K — 2022 vs 2023

Top changes in HNI CORP's 2023 10-K

253 paragraphs added · 186 removed · 154 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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To support these goals, the Corporation has established metrics to divert waste from landfill, reduce energy use, and lower greenhouse gas emissions from its operations. The Corporation also committed to reducing the impacts of its products through evaluations of design and development, suppliers, and supply chain performance.
To support these goals, the Corporation has established metrics to divert waste from landfill, reduce energy use, and lower greenhouse gas emissions from its operations. The Corporation also has committed to reducing the impacts of its products through evaluations of design and development, suppliers, and supply chain performance.
Compliance with federal, state, and local environmental regulations has not had a material effect on the capital expenditures, earnings, or competitive position of the Corporation to date and is not expected to have material effect in the near future.
Compliance with federal, state, and local environmental regulations has not had a material effect on the capital expenditures, earnings, or competitive position of the Corporation to date and is not expected to have such a material effect in the near future.
These products are primarily for the home and are sold under the following widely recognized brands: Heatilator ® Heat & Glo ® Majestic ® Monessen ® Quadra-Fire ® Harman ® Vermont Castings ® PelPro ® Stellar TM SimpliFire ® The Outdoor GreatRoom Company ® The Corporation’s line of hearth products includes a full array of gas, wood, electric, and pellet-fueled fireplaces, inserts, stoves, facings, outdoor fire pits and fire tables, and accessories.
These products are primarily for the home and are sold under the following widely recognized brands: Heatilator ® Heat & Glo ® Majestic ® Monessen ® Quadra-Fire ® Harman ® Vermont Castings ® PelPro ® Stellar TM SimpliFire ® The Outdoor GreatRoom Company ® Forge & Flame TM The Corporation’s line of hearth products includes a full array of gas, wood, electric, and pellet-fueled fireplaces, inserts, stoves, facings, outdoor fire pits and fire tables, and accessories.
In addition, the Corporation is a market leader in wood and pellet-burning stoves with its Quadra-Fire ® , Harman ® , Vermont Castings ® , and PelPro ® product lines, which provide home heating solutions using renewable fuels. Hearth & Home sells its products through independent dealers, distributors, and 29 Corporation-owned installing distribution and retail outlets.
In addition, the Corporation is a market leader in wood and pellet-burning stoves with its Quadra-Fire ® , Harman ® , Vermont Castings ® , and PelPro ® product lines, which provide home heating solutions using renewable fuels. Hearth & Home sells its products through independent dealers, distributors, and 28 Corporation-owned installing distribution and retail outlets.
Markets The Corporation competes in the workplace furnishings and residential building products markets principally by providing compelling value products designed to be among the best in their price range for product quality and performance, along with superior customer service and short lead-times.
Reportable Segment Information." Markets The Corporation competes in the workplace furnishings and residential building products markets principally by providing compelling value products designed to be among the best in their price range for product quality and performance, along with superior customer service and short lead-times.
Members utilize Rapid Continuous Improvement (RCI), which scrutinizes every facet of the business to identify areas of waste, and then refine and streamline. RCI can be seen in action throughout the Corporation’s value chain from the manufacturing floor to the administrative offices to customer interactions, as members always look to find a better, more efficient, and more environmentally-friendly approach.
Members utilize Rapid Continuous Improvement (RCI), which scrutinizes every facet of the business to identify areas of waste, and then refines and streamlines. RCI can be seen in action throughout the Corporation’s value chain from the manufacturing floor to the administrative offices to customer interactions, as members always look to find a better, more efficient, and more environmentally-friendly approach.
The information on the Corporation’s website is not, and shall not be, 8 Table of Contents deemed to be a part hereof or incorporated into this or any of the Corporation’s other filings with the SEC. The Corporation’s SEC filings are also available on the SEC website at www.sec.gov.
The information on the Corporation’s website is not, and shall not be, deemed to be a part hereof or incorporated into this or any of the Corporation’s other filings with the SEC. The Corporation’s SEC filings are also available on the SEC website at www.sec.gov.
The Corporation believes neither the loss of any individual trademark nor the loss of the Corporation’s trademarks in the aggregate would materially or adversely affect the Corporation’s business as a whole, except for HON ® , Allsteel ® , Heat & Glo ® , and Heatilator ® .
The Corporation believes neither the loss of any individual trademark nor the loss of the Corporation’s trademarks in the aggregate would materially adversely affect the Corporation’s business as a whole, except for HON ® , Allsteel ® , Kimball ® , National ® , Heat & Glo ® , and Heatilator ® .
Member Developmen t All members have the opportunity to achieve and succeed in their careers. The Corporation invests in apprenticeships, on-the-job training, robust performance and talent-management processes, and leadership development programs. Member Compensation and Benefits The Corporation’s compensation and benefits programs are competitive and equitable, designed to attract, retain, and motivate its members.
Member Developmen t All members have the opportunity to achieve and succeed in their careers. The Corporation invests in apprenticeships, on-the-job training, robust performance and talent-management processes, and leadership development programs. 8 Table of Contents Member Compensation and Benefits The Corporation’s compensation and benefits programs are competitive and equitable, designed to attract, retain, and motivate its members.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this report and the following sections in the Notes to Consolidated Financial Statements: "Note 1. Nature of Operations", "Note 4. Acquisitions and Divestitures", and "Note 16. Reportable Segment Information".
Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II of this report and the following sections in the Notes to Consolidated Financial Statements: "Note 1. Nature of Operations," "Note 4. Acquisitions and Divestitures," and "Note 16.
The foundation of the Corporation’s strategy continues to be its distinct member-owner culture, which has enabled HNI to attract, develop, retain, and motivate skilled, experienced, and efficient member-owners (i.e., employees), and which drives a unique level of commitment to the Corporation’s success.
The foundation of the Corporation’s strategy continues to be its distinct member-owner culture, which has enabled HNI to attract, develop, retain, and motivate skilled, experienced, and efficient member-owners who are its employees, and which drives a unique level of commitment to the Corporation’s success.
Sales Workplace Furnishings The Corporation designs, manufactures, and markets a broad range of workplace furnishings. The Corporation offers a complete line of panel-based and freestanding office furniture systems, seating, benching, tables, architectural products, storage, and social collaborative items in order to meet the needs of a wide spectrum of organizations.
Sales Workplace Furnishings The Corporation designs, manufactures, and markets a broad range of workplace furnishings. The Corporation offers a complete line of panel-based and freestanding office furniture systems, seating, benching, tables, architectural products, storage, ancillary 5 Table of Contents products, hospitality products, and social collaborative items in order to meet the needs of a wide spectrum of organizations.
The Corporation advises you, however, to consult any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC.
The Corporation advises you, however, to consult any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K filed with or furnished to the SEC. 9 Table of Contents
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 duration and scope of the COVID-19 pandemic, including any emerging variants of the virus, and its effect on people and the economy; 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 under the heading "Item 1A.
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 under the heading "Item 1A.
This is made possible, in part, by the Corporation’s ongoing investment in its brands, research and development efforts, efficient manufacturing operations, and extensive distribution network. Workplace Furnishings The North American workplace furnishings market consists of two primary channels — the contract channel and the small and medium-sized business ("SMB") channel. The primary end-users for both channels are business customers.
This is made possible, in part, by the Corporation’s ongoing investment in its brands, research and development efforts, efficient manufacturing operations, and extensive distribution network. Workplace Furnishings The North American workplace furnishings market consists of two primary channels — the contract channel and the small and medium-sized business ("SMB") channel.
The Corporation’s staff works with responsible personnel at each manufacturing facility, the Corporation’s legal counsel, and consultants on the management of 7 Table of Contents environmental, health, and safety issues. The Corporation’s environmental objective is to reduce and, when practical, eliminate the human and ecosystem impacts of materials and manufacturing processes.
The Corporation’s staff works with responsible personnel at each manufacturing facility, the Corporation’s legal counsel, and consultants on the management of environmental, health, and safety issues. The Corporation’s environmental objective is to reduce and, when practicable, eliminate the human and ecosystem impacts of materials and manufacturing processes.
The Corporation is a leader in "direct vent" fireplaces, which replaces the chimney-venting system used in traditional fireplaces with a less expensive vent through the roof or an outer wall.
The Corporation is a leader in 6 Table of Contents "direct vent" fireplaces, which replaces the chimney-venting system used in traditional fireplaces with a less expensive vent through the roof or an outer wall.
The distribution and retail brand of this operating unit is Fireside Hearth & Home. The Corporation has a field sales organization of sales managers, salespeople, and independent manufacturers’ representatives. Largest Customers In fiscal 2022, the Corporation’s five largest customers represented approximately 18 percent of its consolidated net sales.
The distribution and retail brand of this operating unit is Fireside Hearth & Home. The business has a field sales organization of sales managers, salespeople, and independent manufacturers’ representatives. Largest Customers In fiscal 2023, the Corporation’s five largest customers represented approximately 17 percent of its consolidated net sales.
The Corporation’s patents covering its residential building products protect various technical innovations. While the acquisition of patents reflects Hearth & Home’s position in the market as an innovation leader, the Corporation believes neither any individual residential building product patent nor the Corporation’s residential building product patents in the aggregate are material to the Corporation’s business as a whole.
While the acquisition of patents reflects Hearth & Home’s position in the market as an innovation leader, the Corporation believes neither any individual residential building product patent nor the Corporation’s residential building product patents in the aggregate are material to the Corporation’s business as a whole.
The contract channel has traditionally been characterized by sales of office furniture and services to large corporations, primarily for new office facilities, relocations, and/or office redesigns. Sales made through the contract channel are frequently customized to meet specific client and architect/designer preferences.
End-users across both channels are a mix of commercial, financial, healthcare, government, and education customers. The contract channel has traditionally been characterized by sales of office furniture and services to large corporations and organizations, primarily for new office facilities, relocations, and/or office redesigns. Sales made through the contract channel are frequently customized to meet specific client and architect/designer preferences.
Through stock-based plans and profit sharing, most members benefit from the success of the Corporation as a whole. This creates a strong culture of shared responsibility, empowered accountability for all outcomes, and an ongoing enthusiasm for improvement.
Through stock-based plans and profit sharing, most members benefit from the success of the Corporation as a whole. This creates a strong culture of shared responsibility, empowered accountability for all outcomes, and an ongoing enthusiasm for improvement. The Corporate Social Responsibility report does not form a part of and is not incorporated into this Annual Report on Form 10-K.
A summary of each channel is as follows: • Independent, local office products dealers that specialize in the sale of office furniture and/or office products to business, government, education, and health care entities. • National office product distributors that sell furniture and office supplies through a national network of dealerships and sales offices.
The Corporation sells its products through various distribution channels, including the following: • Independent, local office products dealers that specialize in the sale of office furniture and/or office products to business, government, education, and health care entities. • National office product distributors that sell furniture and office supplies through a national network of dealerships and sales offices.
Item 1. Business General HNI Corporation (the "Corporation", "we", "us", or "our") is an Iowa corporation incorporated in 1944. The Corporation is a provider of workplace furnishings and residential building products. Workplace furnishings include furniture systems, seating, storage, tables, and architectural products.
Item 1. Business General HNI Corporation (the "Corporation," "we," "us," or "our") is a provider of workplace furnishings and residential building products, which are its two reportable segments. Workplace furnishings include furniture systems, seating, storage, tables, architectural products, ancillary products, and hospitality products.
The Corporation applies for patent protection when it believes the expense of doing so is justified and the duration of its registered patents is adequate to protect these rights. The Corporation also pays royalties in certain instances for the use of patents on products and processes owned by others.
The Corporation applies for patent protection when it believes the expense of doing so is justified and the duration of its registered patents is adequate to protect these rights.
In fiscal 2022, the Corporation had net sales of $2.4 billion, of which $1.5 billion or 63 percent was attributable to the workplace furnishings segment and $0.9 billion or 37 percent was attributable to the residential building products segment.
In fiscal 2023, the Corporation had net sales of $2.4 billion, of which $1.7 billion or 71 percent was attributable to the workplace furnishings segment and $0.7 billion or 29 percent was attributable to the residential building products segment. The Corporation is an Iowa corporation incorporated in 1944.
Through its broad product offerings the Corporation is able to service business furniture needs in virtually any setting, including private office, open plan, conference rooms, training areas, cafes, lounges, and collaborative spaces, among many others. The Corporation possesses significant expertise and vertical manufacturing capabilities allowing it the flexibility to design and manufacture new products in-house to meet changing market needs.
Through its broad product offerings the Corporation is able to service business furniture needs in virtually any setting, including private office, open plan, conference rooms, training areas, cafes, lounges, collaborative spaces, healthcare, and hospitality spaces, among many others.
The Corporation believes in: • Unique perspectives . Diverse backgrounds bring unique perspectives, helping to drive innovation and growth. • Fair and inclusive treatment . All people are treated with fairness and respect, ensuring all voices are heard, and allowing everyone to make meaningful contributions. • Accountability .
Diverse backgrounds bring unique perspectives, helping to drive innovation and growth. • Fair and inclusive treatment . The Corporation seeks to treat all members with fairness and respect, ensuring all voices are heard, and allowing everyone to make meaningful contributions. • Accountability . Through regular training and everyday business practices, the Corporation promotes accountability for diversity. • Transparent communication .
The Corporation applies for trademark protection for brands and products when it believes the expense of doing so is justified. The Corporation actively protects trademarks it believes have significant value.
The Corporation also pays royalties in certain instances for the use of patents on products and processes owned by others. 7 Table of Contents The Corporation applies for trademark protection for brands and products when it believes the expense of doing so is justified. The Corporation actively protects trademarks it believes have significant value.
Hearth products are typically purchased by builders during the construction of new homes and homeowners during the renovation 4 Table of Contents of existing homes. Both types of purchases involve seasonality with remodel/retrofit activity being particularly concentrated in the September to December timeframe. Distribution is primarily through independent and company-owned installing distributors and retail outlets.
Both types of purchases involve seasonality with remodel/retrofit activity being particularly concentrated in the September to December timeframe. Distribution is primarily through independent and company-owned installing distributors and retail outlets. The hearth products market is highly competitive with products manufactured by a number of national and regional competitors.
The application of RCI has increased productivity by reducing set-up, processing times, square footage, inventory levels, product costs, and delivery times, while improving quality and enhancing member safety. The Corporation’s RCI process involves members, customers, and suppliers.
The Corporation applies the principles of RCI and a lean manufacturing philosophy to leverage the creativity of its members to reduce and/or eliminate costs. The application of RCI has increased productivity by reducing set-up, processing times, square footage, inventory levels, product costs, and delivery times, while improving quality and enhancing member safety.
The Corporation is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution centers, and sales showrooms primarily in the United States, India, and Mexico. See "Item 2. Properties" for additional related discussion. For further information with respect to acquisitions, divestitures, operating segment information, and the Corporation’s operations in general, refer to "Item 7.
It is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution centers, and sales showrooms primarily in the United States, India, and Mexico. See "Item 2. Properties" for additional related discussion. On June 1, 2023, the Corporation acquired Kimball International, Inc. ("Kimball International") in a cash and stock transaction valued at $503.7 million.
No single customer accounted for 10 percent or more of the Corporation’s consolidated net sales in fiscal 2022, and management 6 Table of Contents does not consider the Corporation’s operations or financial performance to be dependent on any individual customer.
No single customer accounted for 10 percent or more of the Corporation’s consolidated net sales in fiscal 2023, and management does not consider the Corporation’s operations or financial performance to be materially dependent on any individual customer. The substantial purchasing power exercised by large customers may adversely affect the prices at which the Corporation can successfully offer its products.
The hearth products market is highly competitive, with products manufactured by a number of national and regional competitors. The Corporation competes against a broad range of manufacturers, including Travis Industries, Inc., Innovative Hearth Products, Wolf Steel Ltd. (Napoleon), and FPI Fireplace Products International Ltd. (Regency).
The Corporation competes against a broad range of manufacturers, including Travis Industries, Inc., Innovative Hearth Products, Wolf Steel Ltd. (Napoleon), and FPI Fireplace Products International Ltd. (Regency). Strategy The Corporation’s strategy is to build on its position as a leading manufacturer of workplace furnishings and residential building products.
Manufacturing also plays a key role in the Corporation’s concurrent research and development process in order to design new products for ease of manufacturability. Research and Development The Corporation’s research and development efforts are primarily focused on developing relevant and differentiated end-user solutions focused on quality, aesthetics, style, sustainable design, and reduced manufacturing costs.
The Corporation’s RCI process involves members, customers, and suppliers. Manufacturing also plays a key role in the Corporation’s concurrent research and development process in order to design new products for ease of manufacturability.
To meet the demands of various markets, the Corporation’s products are sold primarily under the Corporation’s brands: HON ® Allsteel ® Beyond ® Gunlocke ® HBF ® HBF Textiles ® 5 Table of Contents OFM ® Respawn ® HNI India ® In third quarter 2022 the Corporation sold its China- and Hong Kong- based Lamex office furniture business ("Lamex").
To meet the demands of various markets, the Corporation’s products are sold primarily under the Corporation’s brands: HON ® Allsteel ® Beyond ® Gunlocke ® HBF ® HBF Textiles ® HNI India ® Kimball ® National ® Etc. ® Interwoven ® David Edward ® Kimball ® Hospitality D’style ® In 2023, the Corporation completed the previously announced exit of its OFM and Respawn brands.
The Corporate Social Responsibility report is not incorporated into this Annual Report on Form 10-K Human Capital As of December 31, 2022, the Corporation employed approximately 7,300 persons, including approximately 200 of whom were temporary personnel. Diversity, Equity, and Inclusion The Corporation’s goal is for every member to always feel represented, included, and heard.
Human Capital As of December 30, 2023, the Corporation employed approximately 8,200 persons, including fewer than 100 temporary personnel. Diversity, Equity, and Inclusion The Corporation’s goal is for every member to always feel represented, included, and heard. The Corporation believes in: • Unique perspectives .
For further information regarding its member-owner culture, initiatives, and goals, including in the areas of diversity, equity, and inclusion, please refer to the Corporation’s Corporate Social Responsibility report available on its website. The Corporate Social Responsibility report is not incorporated into this Annual Report on Form 10-K.
Members at every level have frequent opportunities to raise and address concerns with company leaders and attend meetings to learn and ask questions about the business. For further information regarding its member-owner culture, initiatives, and goals, including in the areas of diversity, equity, and inclusion, please refer to the Corporation’s Corporate Social Responsibility report available on its website.
Independent dealers, national office product distributors, eCommerce retailers, and wholesalers are the primary distribution channels in this market. The workplace furnishings industry is highly competitive, with a significant number of competitors offering similar products. The Corporation competes by emphasizing its ability to deliver compelling value products, solutions, and a high level of tailored customer service.
The Corporation competes by emphasizing its ability to deliver compelling value products, solutions, and a high level of tailored customer service. The Corporation competes with large workplace furnishings manufacturers, which cover a substantial portion of the North America market share in the workplace furnishings market.
The Corporation competes with large workplace furnishings manufacturers, which cover a substantial portion of the North America market share in the workplace furnishings market. Competitors include manufacturers such as MillerKnoll, Inc., Steelcase, Inc., Haworth, Inc., The Global Group, Kimball International, Inc., Krueger International, Inc., and Teknion Corporation, as well as global importers.
Competitors include manufacturers such as MillerKnoll, Inc., Steelcase, Inc., Haworth, Inc., The Global Group, Krueger International, Inc., and Teknion Corporation, as well as global importers. The Corporation faces significant price competition from its competitors and may encounter competition from new market entrants.
In addition, the Corporation holds 168 United States and 323 foreign trademark registrations and has applications pending for 19 United States and 5 foreign trademarks. The Corporation believes neither any individual workplace furnishings patent nor the Corporation’s workplace furnishings patents in the aggregate are material to the Corporation’s business as a whole.
The acquisition of Kimball International in 2023 included a number of patents and trademarks. The Corporation believes neither any individual workplace furnishings patent nor the Corporation’s workplace furnishings patents in the aggregate are material to the Corporation’s business as a whole. The Corporation’s patents covering its residential building products protect various technical innovations.
The Corporation accomplishes this through improving existing products, extending product lines, applying ergonomic research, improving manufacturing processes, and leveraging alternative materials. The Corporation conducts its research and development efforts at both the corporate and operating unit levels. See "Note 2.
Research and Development The Corporation’s research and development efforts are primarily focused on developing relevant and differentiated end-user solutions emphasizing quality, aesthetics, style, sustainable design, and reduced manufacturing costs. The Corporation accomplishes this through improving existing products, extending product lines, applying ergonomic research, improving manufacturing processes, and leveraging alternative materials.
The Corporation faces significant price competition from its competitors and may encounter competition from new market entrants. Residential Building Products The Corporation also competes in the residential building products industry, where it is the market leader in hearth products.
Residential Building Products The Corporation also competes in the residential building products industry, where it is the North American market leader in hearth products. Hearth products are typically purchased by builders during the construction of new homes and homeowners during the renovation of existing homes.
Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements for amounts that the Corporation has invested in research and development. Intellectual Property As of December 31, 2022, the Corporation owned 83 United States and 76 foreign patents with expiration dates through 2042 and had applications pending for 26 United States and 14 foreign patents.
Intellectual Property As of December 30, 2023, the Corporation owned 183 United States and 127 foreign patents with expiration dates through 2042 and had applications pending for 41 United States and 23 foreign patents. In addition, the Corporation holds 281 United States and 420 foreign trademark registrations and has applications pending for 48 United States and 58 foreign trademarks.
Since its inception, the Corporation has focused on making its manufacturing facilities and processes more flexible while reducing cost, eliminating waste, and improving product quality. The Corporation applies the principles of RCI and a lean manufacturing philosophy leveraging the creativity of its members to reduce and/or eliminate costs.
Major raw materials include steel, aluminum, zinc, lumber, veneer, particleboard, textiles, paint, hardware, glass, plastic products, packaging, foam, and fiberglass. Since its inception, the Corporation has focused on making its manufacturing facilities and processes more flexible while reducing cost, eliminating waste, and improving product quality.
The substantial purchasing power exercised by large customers may adversely affect the prices at which the Corporation can successfully offer its products. Resources Manufacturing The Corporation manufactures workplace furnishings in Georgia, Iowa, New York, North Carolina, India, and Mexico. The Corporation manufactures hearth products in Iowa, Minnesota, Pennsylvania, and Vermont.
Resources Manufacturing The Corporation manufactures workplace furnishings in Georgia, Indiana, Iowa, Kentucky, New York, North Carolina, India, and Mexico. The Corporation manufactures hearth products in Iowa, Minnesota, Pennsylvania, and Vermont. The Corporation purchases raw materials, components, and finished goods from a variety of suppliers, and most items are generally available from multiple sources.
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Strategy The Corporation’s strategy is to build on its position as a leading manufacturer of workplace furnishings and residential building products.
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The Corporation included the financial results of Kimball International in the Consolidated Financial Statements starting as of the date of acquisition. References to "legacy" herein exclude the impact of Kimball International. For further information with respect to acquisitions, divestitures, operating segment information, and the Corporation’s operations in general, refer to "Item 7.
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In late 2022, management approved a plan to exit the OFM and Respawn brands, effective in 2023. The Corporation sells its products through various distribution channels.
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Independent dealers, national office product distributors, eCommerce retailers, and wholesalers are the primary distribution channels in this market. In addition to the above channels, the Corporation sells direct into the hospitality market through the Kimball Hospitality brand.
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The Corporation purchases raw materials, components, and finished goods from a variety of suppliers, and most items are generally available from multiple sources. Major raw materials include coil steel, aluminum, zinc, lumber, veneer, particleboard, textiles, paint, hardware, glass, plastic products, packaging, foam, and fiberglass.
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The hospitality end market is served with a complete package of products for guest rooms and public spaces plus service support to the hospitality industry.
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Through regular training and everyday business practices, the Corporation promotes accountability for diversity. • Transparent communication . Members at every level have frequent opportunities to raise and address concerns with company leaders and attend meetings to learn and ask questions about the business.
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Serving the hospitality market includes partnering with the most recognized hotel brands to meet their specific requirements for properties throughout the world by working with worldwide manufacturing partners to offer the best solution to fulfill the project. 4 Table of Contents The workplace furnishings industry is highly competitive, with a significant number of competitors offering similar products.
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The Corporation possesses significant expertise and vertical manufacturing capabilities allowing it the flexibility to design and manufacture new products in-house to meet changing market needs.
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The Corporation conducts its research and development efforts at both the corporate and operating unit levels. See "Note 2. Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements for amounts that the Corporation has invested in research and development.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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The introduction of new products requires the coordination of the design, manufacturing, and marketing of the products, which may be affected by uncontrollable factors. The design and engineering of certain new products varies but can extend beyond a year; further time may be required to achieve client acceptance.
The introduction of new products requires the coordination of the design, manufacturing, and marketing of the products, which may be affected by uncontrollable factors. The design and engineering of certain new products varies but can extend beyond a year, and further time may be required to achieve client acceptance.
From both domestic and international suppliers, the cost and availability of commodities, raw materials, components, and finished goods including steel, have been significantly affected in recent years by, among other things, changes in global supply and demand, the ongoing COVID-19 pandemic, changes in laws and regulations (including tariffs and duties), changes in exchange rates and worldwide price levels, inflationary forces, natural disasters, labor disputes, military action, terrorism, and political unrest or instability.
From both domestic and international suppliers, the cost and availability of commodities, raw materials, components, and finished goods including steel have been significantly affected in recent years by, among other things, changes in global supply and demand, the COVID-19 pandemic, changes in laws and regulations (including tariffs and duties), changes in exchange rates and worldwide price levels, inflationary forces, natural disasters, labor disputes, military action, terrorism, and political unrest or instability.
In both the workplace furnishings and residential building products industries, the Corporation faces price competition from competitors and from new market entrants who may manufacture and source products from lower cost countries. Price competition impacts the ability to implement price increases or, in some cases, even maintain prices, which could lower profit margins and adversely affect future financial performance.
In both the workplace furnishings and residential building products industries, the Corporation faces price competition from competitors and from new market entrants who may manufacture and source products from lower cost countries. Price competition impacts the Corporation’s ability to implement price increases or, in some cases, even maintain prices, which could lower profit margins and adversely affect future financial performance.
The Corporation’s success is also dependent on keeping pace with technological advancements and adapting services to provide manufacturing capabilities that meet customers’ changing needs. To do that, the Corporation must retain qualified engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner.
The Corporation’s success is also dependent on keeping pace with technological advancements and adapting services to provide manufacturing capabilities that meet customers’ changing needs. To do so, the Corporation must retain qualified engineering and technical personnel and successfully anticipate and respond to technological changes in a cost effective and timely manner.
Acquisitions and alliances involve a number of risks, including: • diversion of management’s attention; • difficulties in assimilating the operations and products of an acquired business or in realizing projected efficiencies, cost savings and revenue synergies; • potential loss of key employees or customers of the acquired businesses or adverse effects on existing business relationships with suppliers and customers; • negative impact on member morale and performance as a result of job changes and reassignments; • reallocation of amounts of capital from other operating initiatives or an increase in leverage and debt service requirements to pay the acquisition purchase prices, which could in turn restrict the ability to access additional capital when needed or to pursue other important elements of the business strategy; • inaccurate assessment of undisclosed, contingent, or other liabilities or problems and unanticipated costs associated with the acquisition; • possible tax costs or inefficiencies associated with integrating the operations of a combined company; and • incorrect estimates made in accounting for acquisitions, incurrence of non-recurring charges, and write-off of significant amounts of goodwill that could adversely affect the financial results.
Acquisitions and alliances involve a number of risks, including: 13 Table of Contents • diversion of management’s attention from operations; • difficulties in assimilating the operations and products of an acquired business or in realizing projected efficiencies, cost savings and revenue synergies; • potential loss of key employees or customers of the acquired businesses or adverse effects on existing business relationships with suppliers and customers; • negative impact on member morale and performance as a result of job changes and reassignments; • reallocation of amounts of capital from other operating initiatives or an increase in leverage and debt service requirements to pay the acquisition purchase prices, which could in turn restrict the ability to access additional capital when needed or to pursue other important elements of the business strategy; • inaccurate assessment of undisclosed, contingent, or other liabilities or problems and unanticipated costs associated with the acquisition; • possible tax costs or inefficiencies associated with integrating the operations of a combined company; and • incorrect estimates made in accounting for acquisitions, incurrence of non-recurring charges, and write-off of significant amounts of goodwill that could adversely affect the financial results.
The Corporation’s international sales and operations are subject to a number of additional risks, including: • social and political turmoil, official corruption, and civil and labor unrest; • restrictive government actions, including the imposition of trade quotas and tariffs and restrictions on transfers of funds; • changes in labor laws and regulations affecting the ability to hire, retain, or dismiss employees; • the need to comply with multiple and potentially conflicting laws and regulations, including environmental and corporate laws and regulations; 14 Table of Contents • the failure of the Corporation’s compliance programs and internal training to prevent violations of the United States Foreign Corrupt Practices Act and similar anti-bribery laws; • preference for locally branded products and laws and business practices favoring local competition; • less effective protection of intellectual property and increased possibility of loss due to cyber-theft and ransomware attacks; • unfavorable business conditions or economic instability in any country or region; • infrastructure disruptions; • potentially conflicting cultural and business practices; • difficulty in obtaining distribution and support; and • changes to border taxes or other international tax reforms.
The Corporation’s international sales and operations are subject to a number of additional risks, including: • social and political turmoil, official corruption, and civil and labor unrest; • restrictive government actions, including the imposition of trade quotas and tariffs and restrictions on transfers of funds; • changes in labor laws and regulations affecting the ability to hire, retain, or dismiss employees; • the need to comply with multiple and potentially conflicting laws and regulations, including environmental and corporate laws and regulations; • the failure of the Corporation’s compliance programs and internal training to prevent violations of the United States Foreign Corrupt Practices Act and similar anti-bribery laws; • preference for locally branded products and laws and business practices favoring local competition; • less effective protection of intellectual property and increased possibility of loss due to cyber-theft and ransomware attacks; • unfavorable business conditions or economic instability in any country or region; • infrastructure disruptions; • potentially conflicting cultural and business practices; • difficulty in obtaining distribution and support; and • changes to border taxes or other international tax reforms.
Specifically, the debt agreements restrict its ability to incur additional indebtedness, create or incur certain liens with respect to any properties or assets, engage in lines of business substantially different than those currently conducted, sell, lease, license, or dispose of certain assets, enter into certain transactions with affiliates, make certain restricted payments or take certain restricted actions, and enter into certain sale-leaseback arrangements.
Specifically, the debt agreements restrict the Corporation’s ability to incur additional indebtedness, create or incur certain liens with respect to any properties or assets, engage in lines of business substantially different than those currently conducted, sell, lease, license, or dispose of certain assets, enter into certain transactions with affiliates, make certain restricted payments or take certain restricted actions, and enter into certain sale-leaseback arrangements.
Several of the Corporation’s production facilities, members, and key management are located within a small geographic area in eastern Iowa located near the Mississippi River, and a natural disaster or catastrophe in the area, such as flooding or severe storms, could have a significant adverse effect on the results of operations and business conditions.
Some of the Corporation’s production facilities, members, and key management are located within a small geographic area in eastern Iowa located near the Mississippi River, and a natural disaster or catastrophe in the area, such as flooding or severe storms, could have a significant adverse effect on the results of operations and business conditions.
Any claims of patent or other intellectual property infringement, even those without merit, could be expensive and time consuming to defend, cause the Corporation to cease making, licensing, or using products that incorporate the challenged intellectual property, require the Corporation to redesign, re-engineer, or re-brand the products or packaging, if feasible, or require the Corporation to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property.
Any claims of patent or other intellectual property infringement, even those without merit, could be expensive and time consuming to defend, cause the Corporation to cease making, licensing, or using products that incorporate the challenged intellectual property, require the Corporation to redesign, re-engineer, or re-brand the 18 Table of Contents products or packaging, if feasible, or require the Corporation to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property.
The Corporation’s sales to the United States federal, state, and local governments are subject to uncertain future funding levels and federal, state, and local procurement laws and are governed by restrictive contract terms; any of these factors could limit current or future business.
The Corporation’s sales to the United States federal, state, and local governments are subject to uncertain future funding levels and federal, state, and local procurement laws and are governed by restrictive contract terms, any of which factors could limit current or future business.
Furthermore, periods of extended inclement weather or associated flooding may inhibit construction activity utilizing the Corporation’s products and delay shipments of products to customers. The Corporation uses natural gas, diesel fuel, gasoline and electricity in its operations, all of which could face increased regulation as a result of climate change or other environmental concerns.
Furthermore, periods of extended inclement weather or 12 Table of Contents associated flooding may inhibit construction activity utilizing the Corporation’s products and delay shipments of products to customers. The Corporation uses natural gas, diesel fuel, gasoline and electricity in its operations, all of which could face increased regulation as a result of climate change or other environmental concerns.
This government business is highly sensitive to changes in procurement laws, national, international, state, and local public priorities, and budgets at all levels of government, which frequently experience downward pressure and are subject to uncertainty, including the potential for a temporary shutdown of the United States federal government.
This government business is highly sensitive to 16 Table of Contents changes in procurement laws, national, international, state, and local public priorities, and budgets at all levels of government, which frequently experience downward pressure and are subject to uncertainty, including the potential for a temporary shutdown of the United States federal government.
Additionally, the Corporation primarily sells products and reports the financial results in United States dollars; however, increased business in countries outside the United States creates exposure to fluctuations in foreign currency exchange rates.
Additionally, although the Corporation primarily sells products and reports the financial results in United States dollars, increased business in countries outside the United States creates exposure to fluctuations in foreign currency exchange rates.
Iowa law and provisions in the Corporation’s charter documents may have the effect of preventing or hindering a change in control and adversely affecting the market price of its common stock.
Iowa law and provisions in the Corporation’s charter and bylaws may have the effect of preventing or hindering a change in control and adversely affecting the market price of its common stock.
See "Note 6. Goodwill and Other Intangible Assets" for information on impairment charges. Increasing healthcare costs could adversely affect the Corporation’s business, operating results, and financial condition. The Corporation provides healthcare benefits to the majority of its members and is self-insured.
See "Note 6. Goodwill and Other Intangible Assets" for information on impairment charges. 15 Table of Contents Increasing healthcare costs could adversely affect the Corporation’s business, operating results, and financial condition. The Corporation provides healthcare benefits to the majority of its members and is self-insured.
The loss of a dealer relationship could negatively affect the Corporation’s ability to maintain market share in the affected geographic market and to compete for and service clients in that market until a new dealer relationship is established. Establishing 10 Table of Contents a viable dealer in a market can take a significant amount of time and resources.
The loss of a dealer relationship could negatively affect the Corporation’s ability to maintain market share in the affected geographic market and to compete for and service clients in that market until a new dealer relationship is established. Establishing a viable dealer in a market can take a significant amount of time and resources.
The Corporation relies upon information technology networks and systems to process, transmit, and store electronic information, as well as to manage numerous aspects of the business and provide information to management. Additionally, the Corporation 15 Table of Contents collects and stores sensitive data of its customers, suppliers, and members in data centers and on information technology networks.
The Corporation relies upon information technology networks and systems to process, transmit, and store electronic information, as well as to manage numerous aspects of the business and provide information to management. Additionally, the Corporation collects and stores sensitive data of its customers, suppliers, and members in data centers and on information technology networks.
Furthermore, this preferred stock could be issued 16 Table of Contents with other rights, including economic rights, senior to common stock, thereby having a potentially adverse effect on the market price of the Corporation’s common stock. The Board is divided into three classes.
Furthermore, this preferred stock could be issued with other rights, including economic rights, senior to common stock, thereby having a potentially adverse effect on the market price of the Corporation’s common stock. The Board is divided into three classes.
In certain parts of the market, promotion and enhancement of the Corporation’s name and brands will depend on the effectiveness of marketing and advertising efforts and on successfully providing design-driven, innovative, and high-quality 11 Table of Contents products and superior services.
In certain parts of the market, promotion and enhancement of the Corporation’s name and brands will depend on the effectiveness of marketing and advertising efforts and on successfully providing design-driven, innovative, and high-quality products and superior services.
INDUSTRY AND ECONOMIC RISKS Unfavorable economic and industry factors could adversely affect the Corporation’s business, operating results, or financial condition. Workplace furnishings industry sales are impacted by a variety of macroeconomic factors including service-sector employment levels, corporate profits, business confidence, commercial construction, and office vacancy rates.
INDUSTRY AND ECONOMIC RISKS Unfavorable economic and industry factors could adversely affect the Corporation’s business, operating results, or financial condition. Workplace, health care, and hospitality furnishings industry sales are impacted by a variety of macroeconomic factors including service-sector employment levels, corporate profits, business confidence, commercial construction, office vacancy rates, and new hospitality refurbishment rates.
These risks may be elevated given the current uncertainties around the impact of the global COVID-19 pandemic, ongoing disputes and increased tensions related to global trade, and complexities with foreign regulatory environments including the decreased ability of United States regulators to exercise oversight of subsidiaries of United States companies based in certain international jurisdictions.
These risks may be elevated given the current uncertainties around the impact of the conflicts in Europe and the Middle East, ongoing disputes and increased tensions related to global trade, and complexities with foreign regulatory environments including the decreased ability of United States regulators to exercise oversight of subsidiaries of United States companies based in certain international jurisdictions.
In addition, financings could result in dilution to shareholders or the securities may have rights, preferences, and privileges senior to those of the Corporation’s common stock. If the need for capital arises because of significant losses, the occurrence of these losses may make it more difficult to raise the necessary capital. Item 1B. Unresolved Staff Comments None.
In addition, financings could result in dilution to shareholders or the securities may have rights, preferences, and privileges senior to those of the Corporation’s common stock. If 19 Table of Contents the need for capital arises because of significant losses, the occurrence of these losses may make it more difficult to raise the necessary capital. Item 1B.
Members are an integral part of the business and events including an epidemic such as COVID-19 have reduced, and could negatively impact, the availability of members reporting for work. In the event the Corporation experiences a temporary or permanent interruption in its ability to produce or deliver product, revenues could be reduced, and business could be materially adversely affected.
Members are an integral part of the business and events such as those described above could negatively impact the availability of members reporting for work. In the event the Corporation experiences a temporary or permanent interruption in its ability to produce or deliver product, revenues could be reduced, and business could be materially adversely affected.
The long-term effects of global climate change could present both physical risks and transition risks (such as regulatory, supply chain, or technology changes), which could be widespread and unpredictable.
The Corporation’s business and operations are subject to risks related to climate change. The long-term effects of global climate change could present both physical risks and transition risks (such as regulatory, supply chain, or technology changes), which could be widespread and unpredictable.
Compliance with environmental regulations has not had a material effect on capital expenditures, earnings, or competitive position to date; however, compliance with current laws or more stringent laws or regulations which may be imposed in the future, stricter interpretation of existing laws or discoveries of contamination at the Corporation’s real property sites which occurred prior to ownership, or the advent of environmental regulation may require additional expenditures in the future, some of which may be material.
Compliance with environmental regulations has not had a material effect on capital expenditures, earnings, or competitive position to date, but compliance with current laws or more stringent laws or regulations which may be imposed in the future, stricter interpretation of existing laws or discoveries of contamination at the Corporation’s real property sites which occurred prior to ownership, or the advent of environmental regulation may require additional expenditures in the future, some of which may be material. 17 Table of Contents Costs related to product defects could adversely affect the Corporation’s profitability.
In addition, any continuing disruption in the Corporation’s computer system could adversely affect the ability to receive and process customers’ orders, procure materials, manufacture products and ship products on a timely basis, which could adversely affect relations with customers and potentially reduce customer orders or result in the loss of customers. 12 Table of Contents The Corporation’s business and operations are subject to risks related to climate change.
In addition, any continuing disruption in the Corporation’s computer system could adversely affect the ability to receive and process customers’ orders, procure materials, manufacture products and ship products on a timely basis, which could adversely affect relations with customers and potentially reduce customer orders or result in the loss of customers.
Profit margins could be adversely affected if commodity, raw material, component, and finished good costs increase and the Corporation is either unable to offset such costs through strategic sourcing initiatives and continuous improvement programs or, as a result of competitive market dynamics, unable to pass along a portion of the higher costs to customers.
Profit margins could be adversely affected if commodity, raw material, component, and finished good costs increase and the Corporation is either unable to offset such costs through strategic sourcing initiatives and continuous improvement programs or, as a result of competitive market dynamics, unable to pass along a portion of the higher costs to customers. 11 Table of Contents The Corporation relies primarily on third-party freight and transportation providers to deliver products to customers.
Natural disasters, acts of God, force majeure events, or other catastrophic events may impact the Corporation’s production capacity and, in turn, negatively impact profitability. Natural disasters, acts of God, force majeure events, or other catastrophic events, including severe weather, military action, terrorist attacks, power interruptions, floods, and fires, could disrupt operations and likewise, the ability to produce or deliver products.
Natural disasters, acts of God, global pandemics or epidemics, force majeure events, or other catastrophic events, including severe weather, military action, terrorist attacks, power interruptions, floods, and fires, could disrupt operations and the ability to produce or deliver products.
In a recessionary economy, business confidence, service-sector employment, corporate cash flows, and residential and non-residential commercial construction often decrease, which typically leads to a decrease in demand for workplace furnishings and residential building products. The workplace furnishings and residential building products industries are highly competitive and, as a result, the Corporation may not be successful in winning new business.
In a recessionary economy, business confidence, service-sector employment, corporate cash flows, and residential and non-residential commercial construction often decrease, which typically leads to a decrease in demand for workplace furnishings and residential building products.
The Corporation maintains reserves for product defect-related costs but there can be no certainty these reserves will be adequate to cover actual claims. Incorrect estimates or any significant increase in the rate of product defect expenses could have a material adverse effect on operations.
Harmful effects, however, may later become known, which could subject the Corporation to litigation and significant losses. The Corporation maintains reserves for product defect-related costs but these reserves may not be adequate to cover actual claims. Incorrect estimates or any significant increase in the rate of product defect expenses could have a material adverse effect on operations.
Lower office occupancy levels have had and could continue to have an adverse impact on the demand for workplace furnishings. Residential building products industry sales are impacted by a variety of macroeconomic factors including housing starts, housing inventory, overall employment levels, interest rates, home affordability, consumer confidence, energy costs, disposable income, and changing demographics.
Residential building products industry sales are impacted by a variety of macroeconomic factors including housing starts, housing inventory, home sales, overall employment levels, interest rates, home affordability, consumer confidence, energy costs, disposable income, and changing demographics.
The benefits of acquisitions or alliances may take more time than expected to develop or integrate into operations. In addition, an acquisition or alliance may not perform as anticipated, be accretive to earnings, or prove to be beneficial to the Corporation’s operations and cash flow.
In addition, an acquisition or alliance may not perform as anticipated, be accretive to earnings, or prove to be beneficial to the Corporation’s operations and cash flow.
Both the workplace furnishings and residential building products industries are highly competitive. Many of the Corporation’s competitors in both industries offer similar products. Competitive factors include price, delivery and service, brand recognition, product design, product quality, strength of dealers and other distributors, and relationships with customers and key influencers, including architects, designers, home-builders, and facility managers.
Competitive factors include price, delivery and service, brand recognition, product design, product quality, strength of dealers and other distributors, and relationships with customers and key influencers, including architects, designers, home-builders, and facility managers.
In addition, further consolidations may lead to fluctuations in revenue, increases in costs to meet demands of large customers, and pressure to accept onerous contract terms, and the Corporation’s business, financial condition, and operating results could be harmed. The Corporation sells products through multiple distribution channels, which primarily include independent dealers, national dealers, wholesalers, and eCommerce channels.
In addition, further consolidations may lead to fluctuations in revenue, increases in costs to meet demands 10 Table of Contents of large customers, and pressure to accept onerous contract terms, and the Corporation’s business, financial condition, and operating results could be harmed.
The Corporation’s ability to grow through future acquisitions will depend, in part, on the availability of suitable acquisition candidates at an acceptable price, the ability to compete effectively for these acquisition candidates, and the availability of capital to 13 Table of Contents complete the acquisitions.
The Corporation’s ability to grow through future acquisitions will depend, in part, on the availability of suitable acquisition candidates at an acceptable price, the ability to compete effectively for these acquisition candidates, and the availability of capital to complete the acquisitions. Any potential acquisition may not be successful and could adversely affect the Corporation’s business, operating results, or financial condition.
The Corporation relies primarily on third-party freight and transportation providers to deliver products to customers. Increasing demand for freight providers and a shortage of qualified drivers has caused delays and may cause future delays in shipments and increase the cost to ship its products, which may adversely affect profitability.
Increasing demand for freight providers and a shortage of qualified drivers has caused delays and may cause future delays in shipments and increase the cost to ship its products, which may adversely affect profitability. The Corporation also imports and exports products and components, primarily using container ships, which load and unload through North American ports.
In both industries, most of the top competitors have an installed base of products that can be a source of significant future sales through repeat and expansion orders. The Corporation’s main competitors manufacture products with strong acceptance in the marketplace and are capable of developing products that have a competitive advantage, which could make it difficult to win new business.
The Corporation’s main competitors manufacture products with strong acceptance in the marketplace and are capable of developing products that have a competitive advantage, which could make it difficult for the Corporation to win new business.
Within these distribution channels, there has been, and may continue to be, consolidation. The Corporation relies on distribution partners to provide a variety of important specification, installation, and after-market services to customers. Some distribution partners may terminate their relationship with the Corporation at any time and for any reason.
The Corporation sells products through multiple distribution channels, which primarily include independent dealers, national dealers, wholesalers, sales representatives, and eCommerce. Within these distribution channels, there has been, and may continue to be, consolidation. The Corporation relies on distribution partners to provide a variety of important specification, installation, and after-market services to customers.
The Corporation also imports and exports products and components, primarily using container ships, which load and unload through North American ports. Capacity-related and/or port-caused delays in the shipment or receipt of products and components, including labor disputes, have caused and could cause delayed receipt of products and components.
Capacity-related and/or port-caused delays in the shipment or receipt of products and components, including labor disputes, have caused and could cause delayed receipt of products and components, which may adversely affect sales and profitability.
Loss or termination of a significant number of reseller relationships could cause difficulties in marketing and distributing products, resulting in a decline in sales, which may adversely affect the Corporation’s business, operating results, or financial condition. In addition, individual dealers may not continue to be viable and profitable and may suffer from a lack of available credit.
Some distribution partners may terminate their relationship with the Corporation at any time and for any reason. Loss or termination of a significant number of reseller relationships could cause difficulties in marketing and distributing products, resulting in a decline in sales, which may adversely affect the Corporation’s business, operating results, or financial condition.
Industry factors, including corporate restructuring, technology changes, corporate relocations, health and safety concerns, including ergonomic considerations, and the globalization of companies also influence workplace furnishings industry revenues.
Industry factors, including corporate restructuring, technology changes, corporate relocations, health and safety concerns, including ergonomic considerations, and the globalization of companies also influence workplace furnishings industry revenues. In addition, adoption of hybrid working models following the COVID-19 pandemic has resulted in a significant decrease in worker attendance at their office location.
Goodwill and other intangible assets represent a significant amount of the Corporation’s total assets, and an impairment charge would adversely affect the Corporation’s financial results.
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. Goodwill and other intangible assets represent a significant amount of the Corporation’s total assets, and an impairment charge would adversely affect the Corporation’s financial results.
Costs related to product defects could adversely affect the Corporation’s profitability. The Corporation incurs various expenses related to product defects, including product warranty costs, product recall and retrofit costs, and product liability costs. These expenses relative to product sales vary and could increase.
The Corporation incurs various expenses related to product defects, including product warranty costs, product recall and retrofit costs, and product liability costs. These expenses relative to product sales vary and could increase. The Corporation uses chemicals and materials in products and includes components in products from external suppliers, which it believes to be safe and appropriate for their designated use.
Any potential acquisition may not be successful and could adversely affect the Corporation’s business, operating results, or financial condition. The Corporation may not be able to successfully integrate and manage acquired businesses and alliances. One of the Corporation’s growth strategies is to supplement its organic growth through acquisitions and strategic alliances.
The Corporation may not be able to successfully integrate and manage acquired businesses and alliances. The benefits of acquisitions or alliances pursued as one of the Corporation’s growth strategies may take more time than expected to develop or integrate into operations.
Removed
In addition, measures taken to limit spread of COVID-19 have resulted in a significant decrease in worker attendance at their office location, and have 9 Table of Contents fueled current work-from-home and hybrid work trends. Despite office re-entry in many markets, office occupancy levels remain below historic levels.
Added
Despite office re-entry in many markets, office occupancy levels remain below historic levels. Lower office occupancy levels have had and could continue to have an adverse impact on the demand for workplace furnishings.
Removed
While these risks are ever present, the COVID-19 pandemic has and continues to cause such delays, leading to manufacturing disruptions, increased expense from current and alternate shipping methods, and the inability to meet customer delivery expectations, which may adversely affect sales and profitability.
Added
The workplace, health care, and hospitality furnishings and residential building products industries are highly competitive and, as a result, the Corporation may not be successful in winning new business. The workplace, health care, and hospitality furnishings and residential building products industries are highly competitive. Many of the Corporation’s competitors in both industries offer similar products.
Removed
The Corporation’s financial condition and results of operation have been and may continue to be adversely affected by COVID-19. To date, the COVID-19 pandemic has caused, and is continuing to cause, economic disruption both globally and in the United States.
Added
In both industries, most of the top competitors have an installed base of products that can be a source of significant future sales through repeat and expansion orders.
Removed
Such economic disruption lowered demand for workplace furnishings, which demand has not fully recovered in the wake of business slowdowns, shutdowns, and other preventative measures implemented in 2020 and 2021. The initial and continuing disruption associated with the COVID-19 pandemic created a material negative impact on the Corporation’s business, sales, financial condition, and results of operations.
Added
In addition, individual dealers may not continue to be viable and profitable and may suffer from a lack of available credit.
Removed
Other continuing impacts of the COVID-19 pandemic may include, but are not limited to: • labor shortages; • adverse impacts to the Corporation’s supply chain, which may increase operating costs and result in supply disruptions; and • impairment of independent dealers’, wholesalers’, and office product distributors’ ability to sell the Corporation’s products.
Added
Natural disasters, acts of God, force majeure events, or other catastrophic events may impact the Corporation’s production capacity and, in turn, negatively impact profitability.
Removed
In addition, the impact of the COVID-19 pandemic on the Corporation’s members could adversely impact the Corporation’s sales and operations.
Added
The Corporation may not achieve the intended benefits of its recent merger with Kimball International. 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).
Removed
At this point, the extent to which the COVID-19 pandemic will continue to impact the Corporation’s results is uncertain and depends on future developments, such as the emergence of variant strains of the virus, the continued effectiveness of vaccines and treatments, and office reentry trends in key markets. These future developments are uncertain, and could be material.
Added
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.
Removed
The Corporation uses chemicals and materials in products and includes components in products from external suppliers, which are believed to be safe and appropriate for their designated use; however, harmful effects may later become known, which could subject the Corporation to litigation and significant losses.
Added
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.
Removed
FINANCING RISKS Restrictions imposed by the terms of the Corporation’s debt agreements limit the Corporation’s operating and financial flexibility . The Corporation’s credit facility and other financing arrangements limit the ability of the Corporation to finance operations, service debt, or engage in other business activities that may be in its interests.
Added
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 with Kimball International. The Corporation’s business is significantly larger than the pre-merger size of either the Corporation’s or Kimball International’s respective businesses.
Removed
The debt agreements also require the Corporation to maintain certain financial covenants. The failure to comply with the obligations under the debt agreements may result in an event of default, which, if not cured or waived, may cause accelerated repayment of the indebtedness under the agreements.
Added
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.
Removed
The Corporation cannot be certain it will 17 Table of Contents have sufficient funds available to pay any accelerated repayments or will have the ability to refinance accelerated repayments on favorable terms or at all. The Corporation may require additional capital in the future, which may not be available or may be available only on unfavorable terms.
Added
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.
Added
The combined company incurred substantial expenses related to the completion of the merger of the Corporation with Kimball International and expects to continue to incur substantial expenses relating to their integration. In connection with the merger and ongoing integration efforts, the combined company incurred and is expected to continue to incur substantial expenses.
Added
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.
Added
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.
Added
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. 14 Table of Contents Uncertainties associated with the merger with Kimball International 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.
Added
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 with Kimball International depends in part upon the ability of the Corporation to attract, motivate and retain key management personnel and other key employees.
Added
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.
Added
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.
Added
The merger with Kimball International 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.
Added
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.
Added
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.
Added
Upon completion of the merger, the Corporation incurred approximately $390.2 million in additional indebtedness and as of December 30, 2023 has consolidated indebtedness of approximately $435.8 million, up from $207.9 million before the merger.
Added
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.
Added
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 with Kimball International.
Added
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 affected the Corporation before the merger.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed2 unchanged
Refer to the Property, Plant, and Equipment section in "Consolidated Balance Sheets" for related cost, accumulated depreciation, and net book value data.
Refer to the Property, Plant, and Equipment section in the "Consolidated Balance Sheets" for related cost, accumulated depreciation, and net book value data.
Item 2. Properties The Corporation maintains its corporate headquarters in Muscatine, Iowa, conducting operations at locations throughout the United States as well as in India and Mexico, which house manufacturing, distribution, and retail operations and offices totaling an aggregate of approximately 8.4 million square feet. Of this total, approximately 2.9 million square feet are leased.
Item 2. Properties The Corporation maintains its corporate headquarters in Muscatine, Iowa, and conducts operations at locations throughout the United States as well as in India and Mexico, which house manufacturing, distribution, and retail operations and offices totaling an aggregate of approximately 11.6 million square feet. Of this total, approximately 3.2 million square feet are leased.
The Corporation’s principal manufacturing and distribution facilities (100,000 square feet or larger in size) are as follows: Number of Facilities Square Feet (in thousands) Location Workplace Furnishings Residential Building Products Owned Leased Muscatine, IA 6 — 2,211 — Lake City, MN — 2 342 — Other U.S. 9 6 1,966 1,556 Outside U.S. 2 — 355 159 There are no major encumbrances on Corporation-owned properties.
The Corporation’s principal manufacturing and distribution facilities (100,000 square feet or larger in size) are as follows: Number of Facilities Square Feet (in thousands) Location Workplace Furnishings Residential Building Products Owned Leased Muscatine, IA 6 — 2,211 — Jasper, IN 5 — 1,223 — Santa Claus, IN 2 — 684 — Lake City, MN — 2 342 — Other U.S. 11 6 2,669 1,554 Outside U.S. 2 — 355 540 There are no major third-party encumbrances on Corporation-owned properties.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Item 4. Mine Safety Disclosures Not applicable. 18 Table of Contents Table I Information about Executive Officers Name Age Family Relationship Position Position Held Since Other Business Experience During Past Five Years Vincent P. Berger 50 None Executive Vice President, HNI Corporation President, Hearth & Home Technologies 2018 2016 Steven M.
Item 4. Mine Safety Disclosures Not applicable. 21 Table of Contents Table I Information about our Executive Officers Name Age Family Relationship Position Position Held Since Other Business Experience During Past Five Years Vincent P. Berger 51 None Executive Vice President, HNI Corporation President, Hearth & Home Technologies 2018 2016 Steven M.
Bradford 65 None Senior Vice President, General Counsel and Secretary 2015 Marshall H. Bridges 53 None Senior Vice President and Chief Financial Officer 2018 Vice President and Chief Financial Officer (2017-2018) B. Brandon Bullock 45 None President, The HON Company 2018 Advanced Development and Innovation Leader, Whirlpool Corporation (2017-2018) Jason D.
Bradford 66 None Senior Vice President, General Counsel and Secretary 2015 Marshall H. Bridges 54 None Senior Vice President and Chief Financial Officer 2018 B. Brandon Bullock 47 None President, The HON Company 2018 Jason D. Hagedorn 51 None President, Allsteel LLC 2020 Vice President & General Manager, Product Strategy and Finance, HNI Corporation (2017-2020) Jeffrey D.
Hagedorn 49 None President, Allsteel, Inc. 2020 VP & GM, Product Strategy and Finance, HNI Corporation (2017-2020) Jeffrey D. Lorenger 57 None Chairman President and Chief Executive Officer 2020 2018 President, Office Furniture, HNI Corporation (2017-2018) Donna D. Meade 57 None Vice President, Member and Community Relations 2014 19 Table of Contents PART II
Lorenger 58 None Chairman President and Chief Executive Officer 2020 2018 Donna D. Meade 58 None Vice President, Member and Community Relations 2014 Gregory A. Meunier 54 None Executive Vice President, Global Operations, Kimball International 2020 Vice President, Global Operations, National Office Furniture (a subsidiary of Kimball International) (2016-2020) Radhakrishna S.
Added
Rao 58 None Vice President, Chief Information & Digital Officer 2019 Vice President & Chief Information Officer at Ricoh Americas (2016-2019) Michael J. Roch 46 None Chief Customer Officer, Kimball International 2021 Senior Vice President, Sales, Kimball International (2020-2021); Vice President, Sales, National Office Furniture (a subsidiary of Kimball International) (2014-2020) Kourtney L.
Added
Smith 54 None Chief Operating Officer, Kimball International 2023 Chief Operating Officer Kimball Workplace & Health (2021-2023); President, Kimball Workplace (2020-2021); President, National Office Furniture (a subsidiary of Kimball International) (2018-2020) 22 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities The Corporation’s common stock is listed for trading on the New York Stock Exchange (NYSE) under the trading symbol HNI. As of December 31, 2022, the Corporation had approximately 5,804 shareholders of record. EQ Shareowner Services, St.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities The Corporation’s common stock is listed for trading on the New York Stock Exchange (NYSE) under the trading symbol HNI. As of December 30, 2023, the Corporation had approximately 6,588 shareholders of record. EQ Shareowner Services, St.
The authorization does not obligate the Corporation to purchase any shares and the authorization may be terminated, increased, or decreased by the Board at any time. No repurchase plans expired or were terminated during the fourth quarter of fiscal 2022, and no plans are expected to expire or terminate.
The authorization does not obligate the Corporation to purchase any shares and the authorization may be terminated, increased, or decreased by the Board at any time.
Dividends have been paid each quarter since the Corporation paid its first dividend in 1955. The average dividend payout percentage for the most recent three-year period has been 75 percent of prior year earnings. Future dividends are dependent on future earnings, capital requirements, and the Corporation’s financial condition, and are declared in the sole discretion of the Board.
Dividends have been paid each quarter since the Corporation paid its first dividend in 1955. The average dividend payout percentage for the most recent three-year period has been 73 percent of prior year earnings or 39 percent of prior year cash flow from operating activities.
Issuer Purchases of Equity Securities: The Corporation repurchases shares under previously announced plans authorized by the Board. The Corporation’s most recent share purchase authorization from May 17, 2022, provides for repurchase of an additional $200 million with no specific expiration date.
The Corporation’s most recent share purchase authorization from May 17, 2022, authorized repurchase of $200 million of shares in addition to the previously available amount, with no specific expiration date. As of December 30, 2023, $233.5 million was authorized and available for the repurchase of shares by the Corporation.
Removed
The Corporation did not repurchase any of its shares during the fourth quarter of 2022. As of December 31, 2022, $234.0 million was authorized and available for the repurchase of shares by the Corporation.
Added
Future dividends are dependent on future earnings, capital requirements, and the Corporation’s financial condition, and are declared in the sole discretion of the Board. Purchases of Equity Securities The Corporation repurchases shares under previously announced plans authorized by the Board.
Added
The following is a summary of share repurchase activity during the fourth quarter of fiscal 2023: Period Total Number of Shares (or Units) Purchased (in thousands) (1) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (in thousands) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs (in millions) 10/01/23 - 10/28/23 — $ — — $ 234.0 10/29/23 - 11/25/23 — $ — — $ 234.0 11/26/23 - 12/30/23 10.0 $ 41.98 10.0 $ 233.5 Total 10.0 10.0 (1) No shares were purchased outside of a publicly announced plan or program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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This transaction created valuation adjustment tax benefits related to existing deferred tax assets, as well as basis differences, which significantly reduced the Corporation’s full year effective tax rate. See "Note 8. Income Taxes" in the Notes to Consolidated Financial Statements for further information relating to income taxes.
This transaction created valuation allowance adjustment tax benefits related to existing deferred tax assets, as well as basis differences, which significantly reduced the Corporation’s effective tax rate in the prior year. See "Note 8. Income Taxes" in the Notes to Consolidated Financial Statements for further information relating to income taxes.
Management bases its estimates on historical experience and on various 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.
Management bases its estimates on historical experience and on various 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 29 Table of Contents sources.
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 11.
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 28 Table of Contents Other Comprehensive Income (Loss) and Shareholders’ Equity" and "Note 11.
The average dividend payout percentage for the most recent three-year period has been 75 percent of prior year earnings or 28 percent of prior year cash flow from operating activities. 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 average dividend payout percentage for the most recent three-year period has been 73 percent of prior year earnings or 39 percent of prior year cash flow from operating activities. 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.
Cash Requirements As of December 31, 2022, the Corporation has the following obligations and commitments to make future payments: Purchase Obligations - The Corporation’s purchase obligations include agreements to purchase goods or services that are enforceable, legally binding, and specify all significant terms, including the quantity to be purchased, the price to be paid, and the timing of the purchase.
Cash Requirements As of December 30, 2023, the Corporation has the following obligations and commitments to make future payments: Purchase Obligations - The Corporation’s purchase obligations include agreements to purchase goods or services that are enforceable, legally binding, and specify all significant terms, including the quantity to be purchased, the price to be paid, and the timing of the purchase.
Management believes recorded trade receivable valuation allowances at the end of 2022 are adequate to cover the risk of potential bad debts. Allowances for non-collectible trade receivables, as a percent of gross trade receivables, totaled 1.5 percent and 1.2 percent at the end of 2022 and 2021, respectively.
Management believes recorded trade receivable valuation allowances at the end of 2023 are adequate to cover the risk of potential bad debts. Allowances for non-collectible trade receivables, as a percent of gross trade receivables, totaled 1.4 percent and 1.5 percent at the end of 2023 and 2022, respectively.
Cash dividends declared and paid per share are as follows: 2022 2021 Dividends per common share $ 1.270 $ 1.235 The last quarterly dividend increase was from $0.31 to $0.32 per common share effective with the June 8, 2022 dividend payment for shareholders of record at the close of business on May 27, 2022.
Cash dividends declared and paid per share are as follows: 2023 2022 Dividends per common share $ 1.28 $ 1.27 The last quarterly dividend increase was from $0.31 to $0.32 per common share effective with the June 8, 2022 dividend payment for shareholders of record at the close of business on May 27, 2022.
As of December 31, 2022, the Corporation’s self-insurance reserve was accrued within an actuarial determined range, which accounts for the subjective nature of the estimate. The span of the current range is approximately $6 million.
As of December 30, 2023, the Corporation’s self-insurance reserve was accrued within an actuarial determined range, which accounts for the subjective nature of the estimate. The span of the current range is approximately $6 million.
If such amounts were repatriated, it could result in additional foreign withholding and state tax expense to the Corporation. The Corporation does not believe treating this cash as permanently reinvested will have any impact on the ability of the Corporation to meet its obligations as they come due.
If such amounts were repatriated, such an action could result in additional foreign withholding and state tax expense to the Corporation. The 27 Table of Contents Corporation does not believe treating this cash as permanently reinvested will have any impact on the ability of the Corporation to meet its obligations as they come due.
No changes were made to the methodologies utilized to estimate self-insurance reserves in 2022. While the recorded amounts are sensitive to the assumptions and factors described herein, 26 Table of Contents management believes that such assumptions and actuarial methods used to determine self-insurance reserves are reasonable and provide an appropriate basis for estimating the liabilities.
No changes were made to the methodologies utilized to estimate self-insurance reserves in 2023. While the recorded amounts are sensitive to the assumptions and factors described herein, management believes that such assumptions and actuarial methods used to determine self-insurance reserves are reasonable and provide an appropriate basis for estimating the liabilities.
The general, auto, product, and workers’ compensation liabilities are managed via a wholly-owned insurance captive, with estimated liabilities of $23.8 million and $26.3 million as of December 31, 2022 and January 1, 2022, respectively, included in the Consolidated Balance Sheets. Certain risk exposures are mitigated through the use of independent third party stop loss insurance coverages.
The general, auto, product, and workers’ compensation liabilities are managed via a wholly-owned insurance captive, with estimated liabilities of $24.8 million and $23.8 million as of December 30, 2023 and December 31, 2022, respectively, included in the Consolidated Balance Sheets. Certain risk exposures are mitigated through the use of independent third party stop loss insurance coverages.
These funds, coupled with cash flow from future operations, borrowing capacity under the Corporation’s existing credit agreement, 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.
These funds, coupled with cash flow from future operations, borrowings expected to be available under the Corporation’s 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.
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 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.
Based on current earnings before interest, taxes, depreciation and amortization, the Corporation can access the full $400 million of borrowing capacity available under the revolving credit facility, which includes the $89 million currently outstanding, and maintain compliance with applicable covenants. As of the end of 2022, $1.1 million of cash was held overseas and considered permanently reinvested.
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 $38.5 million currently outstanding, and maintain compliance with financial covenants under the facility. As of the end of 2023, $4.0 million of cash was held overseas and considered permanently reinvested.
Cash Flow – Operating Activities Operating activities were a source of $81.2 million of cash in 2022, compared to a source of $131.6 million cash in 2021. The lower cash generation compared to the prior year was primarily due to changes in working capital.
Cash Flow – Operating Activities Operating activities were a source of $267.5 million of cash in 2023, compared to a source of $81.2 million cash in 2022. The higher cash generation compared to the prior year was primarily due to changes in working capital.
Net Income Attributable to HNI Corporation Net income attributable to the Corporation was $123.9 million or $2.94 per diluted share in 2022 compared to $59.8 million or $1.36 per diluted share in 2021.
Net Income Attributable to HNI Corporation Net income attributable to the Corporation was $49.2 million or $1.09 per diluted share in 2023 compared to $123.9 million or $2.94 per diluted share in 2022.
Stock-Based Compensation" in the Notes to Consolidated Financial Statements for additional information. 25 Table of Contents Post-Retirement Benefit Plan - Post-retirement benefit plan payments are expected to be approximately $1 million during 2023 and $11 million in aggregate from 2024 through 2031. Refer to "Note 13. Post-Retirement Health Care" in the Notes to Consolidated Financial Statements for additional information.
Post-Retirement Benefit Plan - Post-retirement benefit plan payments are expected to be approximately $1 million during 2024 and $11 million in aggregate from 2025 through 2033. Refer to "Note 13. Post-Retirement Health Care" in the Notes to Consolidated Financial Statements for additional 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 decentralized business model to deliver value to customers via various brands and selling models.
A 53-week year occurs approximately every sixth year. 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 model to deliver value to customers via various brands and selling models.
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. Critical Accounting Policies and Estimates General 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").
Management believes the Kimball International acquisition will continue to generate new opportunities for growth, and the Corporation continues to compete well in its legacy business markets. Critical Accounting Policies and Estimates General 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").
Income Taxes The following table summarizes the Corporation’s income tax provision: 2022 2021 Income before income taxes $ 146.4 $ 78.3 Income tax expense $ 22.5 $ 18.5 Effective tax rate 15.4 % 23.6 % The income tax provision reflects a lower rate in 2022 compared to 2021, primarily due to the sale of the Lamex business in July 2022.
Income Taxes The following table summarizes the Corporation’s income tax provision: 2023 2022 Income before income taxes $ 64.8 $ 146.4 Income tax expense $ 15.6 $ 22.5 Effective tax rate 24.1 % 15.4 % The income tax provision reflects a higher rate in 2023 compared to 2022, primarily due to the sale of the Lamex business in the prior year.
The Corporation may elect to opportunistically purchase additional shares based on excess cash generation and/or share price considerations. The Board most recently authorized $200 million on May 17, 2022, for repurchases of the Corporation’s common stock. See "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity" in the Notes to Consolidated Financial Statements for further information.
The Corporation may elect to opportunistically purchase additional shares based on excess cash generation and/or share price considerations. As of December 30, 2023, $233.5 million was authorized and available for repurchase of shares by the Corporation. See "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity" in the Notes to Consolidated Financial Statements for further information.
Estimated purchase obligations total $149 million during 2023 and $4 million thereafter. Debt - Debt principal obligations are approximately $1 million during 2023, and $189 million thereafter. Interest obligations from debt are estimated to be approximately $9 million during 2023 and $31 million thereafter. Refer to "Note 7. Debt" in the Notes to Consolidated Financial Statements for additional information.
Estimated purchase obligations total $137 million during 2024 and $30 million thereafter. Debt - Debt principal obligations are approximately $8 million during 2024 and $431 million thereafter. Interest obligations from debt are estimated to be approximately $28 million during 2024 and $74 million thereafter. Refer to "Note 7. Debt" in the Notes to Consolidated Financial Statements for additional information.
For the Corporations’s estimated future obligations related to product warranties and self-insured liabilities, refer to "Note 2. Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements. Litigation and Uncertainties See "Note 15. Guarantees, Commitments, and Contingencies" in the Notes to Consolidated Financial Statements for further information.
The project is currently estimated to commence in 2025 with the Corporation’s future commitment totaling approximately $13 million. For the Corporation’s estimated future obligations related to product warranties and self-insured liabilities, refer to "Note 2. Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements. Litigation and Uncertainties See "Note 15.
Looking Ahead The Corporation continues to navigate near-term uncertainty driven by macroeconomic conditions including the impacts of the pandemic and recent dynamics around labor availability, supply chain capacity, and cost inflation. However, management remains optimistic about the long-term prospects in the workplace furnishings and residential building products markets.
Guarantees, Commitments, and Contingencies" in the Notes to Consolidated Financial Statements for further information. Looking Ahead The Corporation continues to navigate near-term uncertainty driven by macroeconomic conditions, including the recent dynamics around housing, cost inflation, and interest rates. However, management remains optimistic about the long-term prospects in the workplace furnishings and residential building products markets.
Restructuring and Impairment Charges In the current year and prior year, the Corporation recorded restructuring and impairment charges primarily related to efforts to drive business simplification and improve long-term profitability in the workplace furnishings segment, including the restructuring of an eCommerce business.
In the prior year, the Corporation recorded restructuring and impairment charges of $6.7 million primarily related to efforts to drive business simplification and improve long-term profitability in the workplace furnishings segment, including the restructuring of an eCommerce business. See "Note 17. Restructuring and Impairment" in the Notes to Consolidated Financial Statements for further information relating to these costs.
The impact of the sale of Lamex in the third quarter of 2022 decreased net sales by $48.7 million compared to prior year.
The impact of the acquisition of Kimball International increased net sales by $361.4 million, while the sale of Lamex in the third quarter of 2022 decreased net sales by $46.9 million compared to the prior year.
Comparison of Fiscal Year Ended January 1, 2022 with the Fiscal Year Ended January 2, 2021 To review commentary for the consolidated and segment-level results of operations comparison of the fiscal year ended January 1, 2022 with the fiscal year ended January 2, 2021, please refer to Item 7 of the Corporation’s Form 10-K filed March 1, 2022 with the Securities and Exchange Commission. 23 Table of Contents Workplace Furnishings The following table presents certain results of operations in the workplace furnishings segment: 2022 2021 Change Net sales $ 1,486.2 $ 1,434.0 3.6 % Operating profit (loss) $ 3.4 $ (0.5) 734.6 % Operating profit (loss) % 0.2 % (0.0) % 20 bps Net sales in 2022 for the workplace furnishings segment increased 3.6 percent compared to 2021.
Comparison of Fiscal Year Ended December 31, 2022 with the Fiscal Year Ended January 1, 2022 To review discussion and analysis of the consolidated and segment-level results of operations for the fiscal year ended December 31, 2022 compared with the fiscal year ended January 1, 2022, refer to "Part II - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission on February 28, 2023. 26 Table of Contents Workplace Furnishings The following table presents certain results of operations in the workplace furnishings segment: 2023 2022 Change Net sales $ 1,740.3 $ 1,486.2 17.1 % Operating profit $ 68.6 $ 3.4 NM Operating profit % 3.9 % 0.2 % 370 bps Net sales in 2023 for the workplace furnishings segment increased 17.1 percent compared to 2022.
Operating profit as a percentage of net sales increased 20 basis points in 2022 compared to 2021, driven by favorable price-cost and improved mix, partially offset by increased investments, reduced net productivity, and lower volume.
Gross Profit Gross profit as a percentage of net sales increased 360 basis points in 2023 compared to 2022, driven by favorable price-cost, improved net productivity, and the impact of the Kimball International acquisition, partially offset by lower volume in legacy HNI businesses.
Management believes the following critical accounting policy reflects its more significant estimates and assumptions used in the preparation of the Consolidated Financial Statements. Self-Insurance The Corporation is primarily self-insured or carries high deductibles for general, auto, and product liability, workers’ compensation, and certain employee health benefits.
Self-Insurance The Corporation is primarily self-insured or carries high deductibles for general, auto, and product liability, workers’ compensation, and certain employee health benefits.
Residential Building Products The following table presents certain results of operations in the residential building products segment: 2022 2021 Change Net sales $ 875.6 $ 750.4 16.7 % Operating profit $ 158.7 $ 141.9 11.9 % Operating profit % 18.1 % 18.9 % -80 bps Net sales in 2022 for the residential building products segment increased 16.7 percent compared to 2021, driven by price realization and volume growth in both the new construction and existing home channels.
Residential Building Products The following table presents certain results of operations in the residential building products segment: 2023 2022 Change Net sales $ 693.7 $ 875.6 (20.8 %) Operating profit $ 116.6 $ 158.7 (26.5 %) Operating profit % 16.8 % 18.1 % -130 bps Net sales in 2023 for the residential building products segment decreased 20.8 percent compared to 2022, driven by lower volume in both the new construction and existing home channels as a result of housing market weakness and reduced home remodeling activity due to higher interest rates and broader macroeconomic concerns, partially offset by price realization.
Favorable price-cost was attributable to the Corporation’s ability to implement price increases in response to recent inflationary pressures which have driven up the cost of labor, materials and transportation.
Favorable price-cost was attributable to the Corporation’s ability to implement price increases over the past several quarters in response to inflationary pressures.
Selling and Administrative Expenses Selling and administrative expenses ("SG&A") as a percentage of net sales increased 10 basis points in 2022 compared to 2021, driven by lower workplace furnishings volume, higher freight costs, and increased investment spend, partially offset by price realization.
Selling and Administrative Expenses Selling and administrative expenses as a percentage of net sales increased 280 basis points in 2023 compared to 2022, driven by $41.2 million of acquisition-related fees and expenses along with lower volume in legacy HNI businesses and higher variable compensation, partially offset by lower core SG&A and dilution from price realization.
In preparation for continued pressure from lower volumes heading into 2023, the Corporation initiated corporate-wide cost savings actions in third quarter 2022 that are estimated to save approximately $30 million on an annual basis. 21 Table of Contents Results of Operations The following table presents certain results of operations: 2022 2021 Change Net sales $ 2,361.8 $ 2,184.4 8.1 % Cost of sales 1,526.9 1,427.0 7.0 % Gross profit 834.9 757.4 10.2 % Selling and administrative expenses 723.4 665.6 8.7 % Gain on sale of subsidiary (50.4) — 100.0 % Restructuring and impairment charges 6.7 6.3 5.8 % Operating income 155.2 85.4 81.7 % Interest expense, net 8.8 7.2 23.0 % Income before income taxes 146.4 78.3 87.0 % Income tax expense 22.5 18.5 22.0 % Net loss attributable to non-controlling interest (0.0) (0.0) (95.7) % Net income attributable to HNI Corporation $ 123.9 $ 59.8 107.1 % As a Percentage of Net Sales: Net sales 100.0 % 100.0 % Gross profit 35.4 34.7 70 bps Selling and administrative expenses 30.6 30.5 10 bps Gain on sale of subsidiary 2.1 — 210 bps Restructuring and impairment charges 0.3 0.3 0 bps Operating income 6.6 3.9 270 bps Income tax expense 1.0 0.8 20 bps Net income attributable to HNI Corporation 5.2 2.7 250 bps Net Sales Consolidated net sales for 2022 increased 8.1 percent compared to the prior year.
Restructuring and Impairment" in the Notes to Consolidated Financial Statements for further information regarding restructuring and impairment charges. 24 Table of Contents Results of Operations The following table presents certain results of operations: 2023 2022 Change Net sales $ 2,434.0 $ 2,361.8 3.1 % Cost of sales 1,485.7 1,526.9 (2.7) % Gross profit 948.3 834.9 13.6 % Selling and administrative expenses 813.2 723.4 12.4 % Gain on sale of subsidiary — (50.4) (100) % Restructuring and impairment charges 44.8 6.7 572 % Operating income 90.3 155.2 (41.8) % Interest expense, net 25.5 8.8 189 % Income before income taxes 64.8 146.4 (55.7) % Income tax expense 15.6 22.5 (30.7) % Net income (loss) attributable to non-controlling interest 0.0 (0.0) NM Net income attributable to HNI Corporation $ 49.2 $ 123.9 (60.3) % As a Percentage of Net Sales: Net sales 100.0 % 100.0 % Gross profit 39.0 35.4 360 bps Selling and administrative expenses 33.4 30.6 280 bps Gain on sale of subsidiary — 2.1 -210 bps Restructuring and impairment charges 1.8 0.3 150 bps Operating income 3.7 6.6 -290 bps Income tax expense 0.6 1.0 -40 bps Net income attributable to HNI Corporation 2.0 5.2 -320 bps Net Sales Consolidated net sales for 2023 increased 3.1 percent compared to the prior year.
Additionally, in 2022 the Corporation entered into a long-term commitment to purchase solar energy from a local utility to satisfy a portion of the Corporation’s electricity demand in the Muscatine, IA area. The project is currently estimated to commence in 2025 with the Corporation’s future commitment approximating $13 million.
Other Obligations - Other long-term obligations of approximately $18 million are primarily comprised of a put option, interest rate swap, and uncertain tax liabilities. Additionally, in 2022 the Corporation entered into a long-term commitment to purchase solar energy from a local utility to satisfy a portion of the Corporation’s electricity demand in the Muscatine, Iowa area.
Gain on Sale of Subsidiary In the current year, the Corporation recorded a pre-tax gain of $50.4 million as a result of the divestiture of Lamex in July 2022.
Goodwill and 25 Table of Contents Other Intangible Assets" in the Notes to Consolidated Financial Statements for further information regarding the comparative expense levels for these items. Gain on Sale of Subsidiary In the prior year, the Corporation recorded a pre-tax gain of $50.4 million as a result of the divestiture of Lamex in July 2022.
Selling and administrative expenses include freight expense for shipments to customers, research and development costs, and amortization of intangible assets. Refer to "Note 2. Summary of Significant Accounting Policies" and "Note 6. Goodwill and 22 Table of Contents Other Intangible Assets" in the Notes to Consolidated Financial Statements for further information regarding the comparative expense levels for these items.
The prior year also included expenses of $8.0 million associated with a company-wide cost reduction initiative. Selling and administrative expenses include freight expense for shipments to customers, research and development costs, and amortization of intangible assets. Refer to "Note 2. Summary of Significant Accounting Policies" and "Note 6.
Liquidity and Capital Resources Cash, cash equivalents, and short-term investments totaled $19.5 million at the end of 2022, compared to $53.7 million at the end of 2021.
The decrease was driven by lower volume, partially offset by favorable price-cost, improved net productivity, lower core SG&A, and lower variable compensation. Liquidity and Capital Resources Cash, cash equivalents, and short-term investments totaled $34.5 million at the end of 2023, compared to $19.5 million at the end of 2022.
Operating and Finance Leases - Operating and finance lease obligations are expected to be approximately $27 million during 2023 and $94 million thereafter. In addition the Corporation has approximately $65 million in commitments related to leases which have been signed but not commenced as of the end of 2022; these commitments primarily relate to a manufacturing facility under construction.
Operating and Finance Leases - Operating and finance lease obligations are expected to be approximately $36 million during 2024 and $148 million thereafter. There were no material commitments related to leases which had been signed but not commenced as of the end of 2023. Refer to "Note 14. Leases" in the Notes to Consolidated Financial Statements for additional information.
The change was driven by a 16.7 percent increase in the residential building products segment, and 3.6 percent year-over-year sales growth in the workplace furnishings segment. The acquisition of residential building products companies added incremental year-over-year sales of $43.7 million, and the divestiture of Lamex reduced year-over-year sales by $48.7 million. See "Note 4.
The change was driven by 17.1 percent year-over-year sales growth in the workplace furnishings segment, partially offset by a 20.8 percent decrease in the residential building products segment. The acquisition of Kimball International increased year-over-year sales by $361.4 million and the acquisition of a residential building products company in 2022 increased year-over-year sales by $2.4 million.
The increase was driven by increased borrowings during 2022 and higher interest rates on the Corporation’s variable-rate revolving credit facility.
Interest Expense, Net Interest expense, net was $25.5 million and $8.8 million in 2023 and 2022, respectively. The increase was driven by higher average outstanding borrowings resulting from indebtedness incurred to fund the acquisition of Kimball International and higher interest rates in 2023 on the Corporation’s variable-rate revolving credit facility.
The change was driven by price realization in both the residential building products and workplace furnishings segments, along with higher residential building products volume, partially offset by lower volume in the workplace furnishings segment. The lower workplace volume was primarily driven by restructuring of an eCommerce business, which resulted in unfavorable year-over-year sales impact of approximately 5 percent.
The change was driven by the acquisition of Kimball International, which increased year-over-year sales by $361.4 million and price realization in both the residential building products and workplace furnishings segments, partially offset by lower volume in the legacy HNI businesses due to continued headwinds from macroeconomic conditions.
Additionally, in support of the Corporation’s long-term strategy to create effortless winning experiences for customers, the Corporation continues to invest in technology. The Corporation anticipates capital expenditures for 2023 in an estimated range of $60 million to $70 million.
The Corporation’s 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.
Included in the 2022 sales results was a $43.7 million favorable impact from acquiring residential building products companies. Operating profit as a percentage of net sales decreased 80 basis points in 2022 compared to 2021. The decrease was driven by the impact of acquisitions, higher SG&A, and reduced net productivity, partially offset by favorable price-cost and higher volume.
Sales in the existing home channel were also negatively impacted by the normalization of trade inventory. Included in the 2023 sales results was a $2.4 million favorable impact from the acquisition of a residential building products company in 2022. Operating profit as a percentage of net sales decreased 130 basis points in 2023 compared to 2022.
Changes in working capital balances resulted in a $72.7 million use of cash in 2022 compared to a $34.4 million use of cash in the prior year.
Changes in working capital balances resulted in a $76.5 million source of cash in 2023 compared to a $72.7 million use of cash in the prior year. Driving the working capital year-over-year change is lower inventory in the legacy HNI businesses as a result of reduced volume and stabilized cost and supply chain requirements.
Also affecting the year-over-year sales comparison was a $48.7 million unfavorable impact from the sale of Lamex, and a $43.7 million favorable impact from acquiring residential building products businesses.
Also included in the sales results for the current year is a $46.9 million unfavorable impact from the divestiture of Lamex in 2022, and a $2.4 million favorable impact from the acquisition of a residential building products business in 2022.
While this guidance will not impact the financial condition, results of operations, or cash flows of the Corporation, management is currently evaluating the impact on the notes to the consolidated financial statements.
The Corporation is currently evaluating the impact on the notes to the consolidated financial statements, and expects additional disclosures will be required on adoption. 31 Table of Contents
The Corporation’s inventory turns were 8.4 and 8.9 for 2022 and 2021, respectively. Cash Flow – Investing Activities Capital expenditures, including capitalized software, were $68.4 million in 2022 and $66.5 million in 2021. These expenditures are primarily focused on machinery, equipment, and tooling required to support new products, continuous improvements, and cost savings initiatives in manufacturing processes.
The Corporation’s inventory turns were 7.9 and 8.4 for 2023 and 2022, respectively. Cash Flow – Investing Activities Capital Expenditures - Capital expenditures, including capitalized software, were $79.1 million in 2023 and $68.4 million in 2022. The increase in capital expenditures over the prior year was driven by the addition of Kimball International.
Refer to "Note 14. Leases" in the Notes to Consolidated Financial Statements for additional information. Other Obligations - Other long-term obligations of approximately $10 million are primarily comprised of uncertain tax and put option liabilities.
Obligations related to this plan are expected to be $4 million during 2024 and $7 million thereafter. Refer to "Note 2. Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements for additional information.
Acquisitions and Divestitures" in the Notes to the Consolidated Financial Statements for additional information. Net income attributable to the Corporation in 2022 was $123.9 million compared to net income of $59.8 million in 2021.
The divestiture of Lamex in 2022 reduced year-over-year sales by $46.9 million. Net income attributable to the Corporation in 2023 was $49.2 million compared to net income of $123.9 million in 2022.
Aside from this item, segment sales were up 7.3 percent, primarily driven by price realization across most customer segments along with volume growth in the international and small and medium-sized business customer segments, partially offset by lower eCommerce and contract customer volume.
Excluding the effects of these transactions, segment sales were down 4.2 percent, with lower volume across most customer segments in the legacy HNI workplace businesses, partially offset by price realization.
Removed
The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth. In 2022, the Corporation achieved solid gross and operating margin improvement and strong earnings growth, despite a weakening macroeconomic environment that drove softer demand, particularly in the second half of the year.
Added
The Corporation follows a 52/53-week fiscal year, which ends on the Saturday nearest December 31. Fiscal year 2023 ended on December 30, 2023, fiscal year 2022 ended on December 31, 2022, and fiscal year 2021 ended on January 1, 2022. The financial statements for fiscal years 2023, 2022, and 2021 are on a 52-week basis.
Removed
Strong price realization in both reportable segments drove higher sales and helped the Corporation recover the unfavorable price-cost impact experienced in the prior year due to the rapid onset of material, freight, and labor cost inflation in 2021.
Added
The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for expansion. In 2023, significant developments included the second quarter acquisition of Kimball International in a cash and stock transaction valued at approximately $503.7 million, and the subsequent divestiture of Poppin Furniture, Inc, a business unit of Kimball International ("Poppin"), during the third quarter.
Removed
In workplace furnishings, business simplification plans and capacity actions, including restructuring of an eCommerce business, the addition of a new manufacturing facility in Mexico, and the divestiture of Lamex, have favorably impacted margins and are expected to deliver improved segment profitability going forward.
Added
In 2022, the Corporation completed its divestiture of its China- and Hong Kong-based Lamex office furniture business ("Lamex"), which was a component of the workplace furnishings segment. See "Note 4. Acquisitions and Divestitures" in the Notes to Consolidated Financial Statements for more details on the Kimball International acquisition, the Poppin divestiture, the Lamex divestiture, and other related information.
Removed
In residential building products, higher mortgage rates and macroeconomic concerns in 2022 have started to pressure volumes in this market, coming off several periods of historically strong sales and profit performance driven by COVID-19 pandemic-induced trends. However, the Corporation’s category-leading position and favorable housing demographics support the expectation of solid demand over the long-term in this segment.
Added
These acquisition and divestiture transactions affect the comparability of results between years. Consolidated net sales for 2023 were $2.434 billion, an increase of 3.1 percent compared to net sales of $2.362 billion in the prior year.
Removed
In spite of elevating economic pressures during the year, the Corporation maintained a solid balance sheet, which supported a strong level of investment in the business to allow for the continued execution of strategic initiatives. Consolidated net sales for 2022 were $2.362 billion, an increase of 8.1 percent compared to net sales of $2.184 billion in the prior year.
Added
The prior year included a pre-tax gain of $50.4 million on the sale of Lamex, while the current year included $41.2 million of acquisition costs associated with the Kimball International transaction and $31.0 million of goodwill and intangible asset impairment charges at small workplace furnishings business units.
Removed
The increase was driven by favorable price-cost and a net gain on the sale of Lamex of $49.4 million, partially offset by reduced net productivity, higher investment spend, and increased expenses related to restructuring, impairment, and cost reduction initiatives.
Added
Excluding these items, net income increased in the current year driven by favorable price-cost, improved net productivity, favorable impacts from the acquisition of Kimball International, and lower core selling and administrative expenses ("SG&A"), partially offset by lower volume in the legacy HNI businesses (excluding Kimball International), higher variable compensation, and increased interest expense. See "Note 6.
Removed
Gross Profit Gross profit as a percentage of net sales increased 70 basis points in 2022 compared to 2021, primarily driven by favorable price-cost, which was partially offset by operational investments and reduced net productivity.
Added
Goodwill and Other Intangible Assets" and "Note 17.
Removed
Charges include: 2022 2021 Cost of sales - restructuring charges $ 8.8 $ 7.6 Restructuring and impairment charges $ 6.7 $ 6.3 Refer to "Note 6. Goodwill and Other Intangible Assets" and "Note 17. Restructuring and Impairment Charges" in the Notes to Consolidated Financial Statements for further information regarding restructuring and impairment charges.
Added
Restructuring and Impairment Charges In the current year the Corporation recorded restructuring and impairment charges primarily comprised of $31.0 million of impairments of goodwill and intangible assets at small business units in the workplace furnishings segment as well as $9.8 million of restructuring charges associated with the divestiture of Poppin.
Removed
Operating Income For 2022, operating income as a percentage of net sales increased 270 basis points compared to 2021. The increase was driven by favorable price-cost and gain on the sale of Lamex, partially offset by reduced net productivity and higher investment spend. Interest Expense, Net Interest expense, net was $8.8 million and $7.2 million in 2022 and 2021, respectively.
Added
Operating Income For 2023, operating income as a percentage of net sales decreased 290 basis points compared to 2022.
Removed
The contract customer business was negatively affected by macroeconomic uncertainty which impacted return-to-office plans and investments by large corporate customers. Lower eCommerce volume was due to the previously announced restructuring of an eCommerce business, and had an unfavorable impact of approximately 8 percent on workplace furnishings year-over-year sales.
Added
The prior year included a pre-tax gain of $50.4 million on the sale of Lamex, while the current year included $41.2 million of acquisition costs associated with the Kimball International transaction and $31.0 million of goodwill and intangible asset impairment charges at small workplace furnishings business units.
Removed
As demand moderated toward the end of 2022, and a company-wide cost savings initiative was put into place, the Corporation’s accounts payable and accrued expense balances were reduced, resulting in a net use of cash. 24 Table of Contents The Corporation places special emphasis on management and control of working capital, including accounts receivable and inventory.
Added
Excluding these items, operating income as a percentage of net sales increased year-over-year driven by favorable price-cost, improved net productivity, favorable impacts from the acquisition of Kimball International, and lower core selling, general, and administrative expenses, partially offset by lower volume at legacy HNI businesses and higher variable compensation.
Removed
In the second quarter 2022, this facility was amended and the maturity extended until June 2027 with a revised maximum borrowing capacity of $400 million. Cash flows included in financing activities represent periodic borrowings and repayments under the revolving credit facility. See "Note 7. Debt" in the Notes to Consolidated Financial Statements for further information.
Added
In addition to macroeconomic headwinds that have negatively affected volume in the current year, 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.
Removed
Deferred Compensation - Deferred compensation obligations, which include both cash and Corporation stock, are expected to be approximately $0.5 million during 2023 and $6.6 million thereafter. Refer to "Note 11.
Added
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 compared to the prior year. Operating profit as a percentage of net sales increased 370 basis points in 2023 compared to 2022.
Removed
Recently Issued Accounting Standards Not Yet Adopted In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations .
Added
The current year included $31.0 million in goodwill and intangible asset impairment charges at small workplace furnishings business units and $12.5 million in transaction-related fees and expenses associated with the acquisition of Kimball International.
Removed
ASU 2022-04 enhances transparency of supplier finance programs by requiring disclosure of key terms, amounts outstanding, a rollforward of outstanding amounts, and a description of where in the financial statements outstanding amounts are presented. ASU 2022-04 is effective for the Corporation in the first quarter of fiscal 2023.
Added
Excluding these items, operating profit as a percentage of sales increased driven by favorable price-cost, favorable impacts from the acquisition of Kimball International, improved net productivity, lower core SG&A, and lower restructuring costs, partially offset by lower volume in the legacy HNI businesses and higher variable compensation.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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The market price of plastics and textiles, in particular, are sensitive to the cost of oil and natural gas. All of these materials are impacted increasingly by global market conditions. The Corporation works to offset these increased costs through global sourcing initiatives, product re-engineering, and price increases on its products.
The market price of plastics and textiles, in particular, are sensitive to the cost of oil and natural gas. All of these materials are increasingly impacted by global market conditions. The Corporation works to offset these increased costs through global sourcing initiatives, product re-engineering, and price increases on its products.
For information related to the Corporation’s long-term debt, refer to "Note 7. Debt" in the Notes to Consolidated Financial Statements. For information related to the Corporation’s interest rate swap activity, refer to "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity" in the Notes to Consolidated Financial Statements. The Corporation currently does not have significant foreign currency exposure.
For information related to the Corporation’s interest rate swap activity, refer to "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity" in the Notes to Consolidated Financial Statements. The Corporation currently does not have significant foreign currency exposure.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk During the normal course of business, the Corporation is subjected to market risk associated with interest rate movements. Interest rate risk arises from variable interest debt obligations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk During the normal course of business, the Corporation is subjected to market risk associated with interest rate movements. Interest rate risk arises from variable interest debt obligations. The Corporation terminated its prior interest rate swap agreement during 2022, and entered into a new interest rate swap agreement in November 2023.
As of December 31, 2022, the Corporation had $89 million of debt outstanding under the Corporation’s $400 million revolving credit facility, which bore variable interest based on the Secured Overnight Financing Rate ("SOFR") and is subject to market risk from interest rate fluctuations.
As of December 30, 2023, the Corporation had $39 million of debt outstanding under the Corporation’s $425 million revolving credit facility, and $300 million of debt outstanding under a term loan agreement, both of which bore variable interest based on the Secured Overnight Financing Rate ("SOFR") and are subject to market risk from interest rate fluctuations.
The Corporation may utilize additional borrowings over the course of the year, which will be subject to the variable borrowings rate as defined. Based on the Corporation’s variable-rate debt balance outstanding at December 31, 2022, a hypothetical 100 basis point change in the applicable interest rates would not have a material impact on the interest expense incurred by the Corporation.
Based on the Corporation’s variable-rate debt balance outstanding at December 30, 2023, a hypothetical 100 basis point change in the applicable interest rates would not have a material impact on the interest expense incurred by the Corporation. For information related to the Corporation’s long-term debt, refer to "Note 7. Debt" in the Notes to Consolidated Financial Statements.
Removed
The Corporation terminated its existing interest rate swap agreement during 2022, and does not currently have any interest rate swap agreements or other derivative instruments in place.
Added
The Corporation may utilize additional borrowings under the revolving credit facility over the course of the year, which will be subject to the variable borrowings rate as defined. As of November 2023, the Corporation had an interest rate swap agreement in place to fix the interest rate on $100 million principal amount of the Corporation’s term loan.
Added
Under the terms of this interest rate swap, the Corporation pays a fixed rate of 4.7 percent instead of SOFR. As of December 30, 2023, the Corporation had $200 million of borrowings under the term loan which were not covered by the interest rate swap agreement.

Other HNI 10-K year-over-year comparisons