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

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Paragraph-level year-over-year comparison of HNI CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+181 added−180 removedSource: 10-K (2023-02-28) vs 10-K (2022-03-01)

Top changes in HNI CORP's 2023 10-K

181 paragraphs added · 180 removed · 139 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWhile 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. 7 Table of Contents 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.
Biggest changeThe 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.
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; potential disruptions in the global supply chain; the effects of prolonged periods of inflation; potential 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 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.
These wholesalers maintain inventories of standard product lines for quick delivery to customers. • Direct sales of products to federal, state, and local government offices or in certain circumstances a lead selling relationship with an end-user. The Corporation's workplace furnishings sales force consists of sales managers, salespersons, and independent manufacturers' representatives who collectively provide national sales coverage.
These wholesalers maintain inventories of standard product lines for quick delivery to customers. • Direct sales of products to federal, state, and local government offices, or in certain circumstances a lead selling relationship with an end-user. The Corporation’s workplace furnishings sales force consists of sales managers, salespeople, and independent manufacturers’ representatives who collectively provide national sales coverage.
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.
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.
The Corporation competes with large workplace furnishings manufacturers, which cover a substantial portion of the North America market share in the contract-oriented 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.
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.
Through the broad product offering 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, 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.
This is made possible, in part, by the Corporation's on-going 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 primary end-users for both channels are business customers.
The SMB channel, in which the Corporation is a market leader, primarily represents smaller orders of office furniture that are less likely to involve an architect and/or designer. Sales in this channel are driven on the basis of price, product quality, selection, and 4 Table of Contents the speed and reliability of delivery.
The SMB channel, in which the Corporation is a market leader, primarily represents smaller orders of office furniture that are less likely to involve an architect and/or designer. Sales in this channel are driven on the basis of price, product quality, selection, and the speed and reliability of delivery.
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.
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.
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 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 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.
These products are sold primarily through a national system of independent dealers, office product distributors, eCommerce retailers, and wholesalers but also directly to end-user customers and federal, state, and local governments. Residential building products include a full array of gas, wood, electric, and pellet-fueled fireplaces, inserts, stoves, facings, and accessories.
These products are sold primarily through a national system of independent dealers, office product distributors, eCommerce retailers, and wholesalers but also directly to end-user customers and federal, state, and local governments. Residential building products include a full array of gas, wood, electric, and pellet-fueled fireplaces, inserts, stoves, facings, outdoor fire pits and fire tables, and accessories.
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 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.
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 ® 6 Table of Contents The Corporation’s line of hearth products includes a full array of gas, wood, electric, and pellet fueled fireplaces, inserts, stoves, facings, 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 ® 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.
Sales managers and salespersons are compensated by a combination of salary and variable performance compensation. The Corporation also makes export sales through HNI International to independent office furniture dealers and wholesale distributors serving select foreign markets. Distributors are principally located in the Middle East, Mexico, Latin America, and the Caribbean.
Sales managers and salespeople are compensated by a combination of salary and variable performance compensation. The Corporation also makes export sales through HNI International to independent office furniture dealers and wholesale distributors serving select foreign markets. Distributors are principally located in the Caribbean, Latin America, and Mexico.
In addition, the Corporation holds 175 United States and 404 foreign trademark registrations and has applications pending for 19 United States and 3 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.
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.
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 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.
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. Major raw materials include coil steel, aluminum, zinc, lumber, veneer, particleboard, textiles, paint, hardware, glass, plastic products, shipping cartons, foam, and fiberglass.
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.
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 January 1, 2022, the Corporation owned 97 United States and 140 foreign patents with expiration dates through 2042 and had applications pending for 23 United States and 12 foreign patents.
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.
For further information with respect to acquisitions, divestitures, operating segment information, and the Corporation’s operations in general, refer to "Item 7. 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 "Note 16.
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".
As of January 1, 2022, the Corporation employed approximately 8,100 persons, 7,900 of whom were full-time and 200 of whom were temporary personnel. 8 Table of Contents Available Information Information regarding the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, on the Corporation’s website at www.hnicorp.com , as soon as reasonably practicable after the Corporation electronically files such reports with or furnishes them to the Securities and Exchange Commission (''SEC'').
Available Information Information regarding the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, will be made available, free of charge, on the Corporation’s website at www.hnicorp.com , as soon as reasonably practicable after the Corporation electronically files such reports with or furnishes them to the Securities and Exchange Commission ("SEC").
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. Hearth products are typically purchased by builders during the construction of new homes and homeowners during the renovation of existing homes.
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.
The Corporation also pays royalties in certain instances for the use of patents on products and processes owned by others. 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 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 is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution centers, and sales showrooms in the United States, China, India, Mexico, United Arab Emirates, Taiwan, and Singapore. See "Item 2. Properties" for additional related discussion.
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.
The Corporation offers a complete line of office panel system products, benching, tables, architectural products, storage, and social collaborative products 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, and social collaborative items in order to meet the needs of a wide spectrum of organizations.
The Corporation has a field sales organization of sales managers, salespersons, and independent manufacturers' representatives. Largest Customers In fiscal 2021, the Corporation's five largest customers represented approximately 21 percent of its consolidated net sales.
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.
An important part of the Corporation's member-owner culture is fostering a safe, respectful, fair, and inclusive environment that promotes diversity, equity, and inclusion. 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.
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.
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 dealers, installing distributors, and retail outlets. The hearth products market is highly competitive, with products manufactured by a number of national and regional competitors.
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.
No single customer accounted for 10 percent or more of the Corporation’s consolidated net sales in fiscal 2021, and management does not consider the Corporation's operations or financial performance to be 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.
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.
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.
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).
Through Lamex and HNI India, the Corporation manufactures and distributes office furniture directly to end-users and through independent dealers and distributors in Asia, primarily China and India. Residential Building Products The Corporation is North America’s largest manufacturer and marketer of prefabricated fireplaces, hearth stoves, and related products.
Through HNI India, the Corporation manufactures and distributes office furniture directly to end-users and through independent dealers and distributors primarily in India. Residential Building Products The Corporation’s residential building products segment includes the Hearth & Home Technologies LLC ("Hearth & Home") operating unit.
To meet the demands of various markets, the Corporation's products are sold primarily under the Corporation's brands: HON ® Allsteel ® Beyond ® Gunlocke ® Maxon ® HBF ® OFM ® Respawn ® Lamex ® HNI India ® In late 2021, management approved a plan to retire the Maxon brand, effective in 2022.
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").
Management believes that the skillful execution of these strategic initiatives will support robust organic sales growth, margin expansion, improved returns, strong free cash flow, and position the Corporation for continued success. 5 Table of Contents Sales Workplace Furnishings The Corporation designs, manufactures, and markets a broad range of workplace furnishings.
This focus on RCI benefits stakeholders as the Corporation consistently delivers productivity and cost savings that allow it to grow earnings and invest in the future. Management believes that the skillful execution of these strategic initiatives will support robust organic sales growth, margin expansion, improved returns, strong free cash flow, and position the Corporation for continued success.
These products are sold through a national system of independent dealers and distributors, as well as Corporation-owned installing distribution and retail outlets. In fiscal 2021, the Corporation had net sales of $2.2 billion, of which $1.4 billion or 66 percent was attributable to workplace furnishing products and $0.8 billion or 34 percent was attributable to residential building products.
These products are sold through a national system of independent dealers and distributors, as well as Corporation-owned installing distribution and retail outlets.
The Corporation sells its products through various distribution channels.
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.
Removed
The Corporation’s workplace furnishings segment includes several operating units, marketed under various brand names, that participate in the office furniture industry. These units include: Allsteel Inc. Design Holdings Inc. Hickory Business Furniture LLC HNI Hong Kong Limited (''Lamex'') HNI Office India Limited ("HNI India") Maxon Furniture Inc.
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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.
Removed
OFM LLC The HON Company LLC The Corporation’s residential building products segment includes the Hearth & Home Technologies LLC (''Hearth & Home'') operating unit. This unit, which sells hearth products within the residential building products industry, manufactures and markets products under various brand names. The retail and distribution brand for this operating unit is Fireside Hearth & Home.
Added
Strategy The Corporation’s strategy is to build on its position as a leading manufacturer of workplace furnishings and residential building products.
Removed
Again in 2021, driven by the remote and hybrid work environments caused by the ongoing COVID-19 pandemic, a portion of the Corporation's sales were to consumers utilizing the products in work-from-home office environments. These sales were conducted through both the contract and SMB channels.
Added
Hearth & Home is North America’s largest manufacturer and marketer of prefabricated fireplaces, hearth stoves, and related products.
Removed
This focus on RCI benefits stakeholders as the Corporation consistently delivers productivity and cost savings that allow it to grow earnings and invest in the future.
Added
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.
Removed
Resources Manufacturing The Corporation manufactures workplace furnishings in Georgia, Iowa, New York, North Carolina, China, and India. During 2021, the Corporation announced plans to open a Workplace Furnishings manufacturing operation in Saltillo, Mexico. As of year-end, this facility was still in start-up with manufacturing expected to initiate in early 2022.
Added
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.
Removed
The Corporation’s patents covering its residential building products protect various technical innovations.
Added
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.
Removed
Human Capital The Corporation strives to attract exceptional talent to its workforce while integrating diversity, equity, and inclusion principles in its hiring and retention process. An important element of the Corporation's success has been its member-owner culture, which has enabled it to attract, develop, retain, and motivate skilled, experienced, and talented members.
Added
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 .
Removed
The Corporate Social Responsibility Report is not incorporated into this Annual Report on Form 10-K. Additionally, each of the Corporation's eligible members has the opportunity to own stock in the Corporation through a number of stock-based plans, including a member stock purchase plan and a defined contribution retirement plan.
Added
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.
Removed
These ownership opportunities drive a unique level of commitment to the Corporation’s success throughout the workforce. Members own approximately seven percent of the Corporation's stock through these plans.
Added
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.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeDeterioration of economic conditions or a slowdown in the homebuilding industry and the hearth products market could decrease demand for residential building products and have additional adverse effects on operating results. A deterioration of economic conditions in the Corporation's key international markets, including China and India, could have adverse effects on the Corporation's international workplace furnishings sales and operating results.
Biggest changeIndustry factors, such as technology changes, health and safety concerns, and environmental regulation, including indoor air quality standards, also influence residential building products industry revenues. Deterioration of economic conditions or a slowdown in the homebuilding industry and the hearth products market could decrease demand for residential building products and have additional adverse effects on operating results.
Additionally, the Corporation has facilities located in areas that may be impacted by the physical risks of climate change, including flooding, and faces the risk of losses incurred as a result of physical damage to its facilities and inventory as well business interruption caused by such events.
Additionally, the Corporation has facilities located in areas that may be impacted by the physical risks of climate change, including flooding, and faces the risk of losses incurred as a result of physical damage to its facilities and inventory as well as business interruption caused by such events.
If, in the future, the results of operations for a particular period do not meet its guidance or the expectations of investment analysts or if the Corporation reduces its guidance for future periods, the market price of common stock could decline significantly.
If, in the future, the results of operations for a particular period do not meet its guidance or the expectations of investment analysts or if the Corporation reduces its guidance for future periods, the market price of its common stock could decline significantly.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for products, costs, customers, suppliers, and the United States economy, which in turn could have a material adverse effect on the business, operating results, and financial condition.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for products, costs, customers, suppliers, and the United States economy, which in turn could have a material adverse effect on the Corporation’s business, operating results, and financial condition.
Further, certain countries have complex regulatory systems that impose administrative and legal requirements, which make managing international operations more difficult, including approvals to transfer funds among certain countries. If the Corporation is unable to provide financial support to the international operations in a timely manner, business, operating results, and financial condition could be adversely affected.
Further, certain countries have complex regulatory systems that impose administrative and legal requirements, which make managing international operations more difficult, including approvals to transfer funds among certain countries. If the Corporation is unable to provide financial support to the international operations in a timely manner, its business, operating results, and financial condition could be adversely affected.
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, small 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 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.
Member recruitment, development, and retention efforts may not be successful, which could result in a continued shortage of qualified individuals in future periods. Any such shortage could decrease the Corporation’s ability to effectively produce workplace furnishings and residential building products and meet customer demand.
Member recruitment, development, and retention efforts may not be successful, which could result in a shortage of qualified individuals in future periods. Any such shortage could decrease the Corporation’s ability to effectively produce workplace furnishings and residential building products and meet customer demand.
The success of the Corporation’s operations depends on its ability, and the ability of third parties upon which the Corporation relies, to identify, recruit, develop, and retain qualified and talented individuals in order to supply and deliver the Corporation’s products. A continued shortage of qualified labor could have a negative effect on the Corporation’s business.
The success of the Corporation’s operations depends on its ability, and the ability of third parties upon which the Corporation relies, to identify, recruit, develop, and retain qualified and talented individuals in order to supply and deliver the Corporation’s products. A shortage of qualified labor could have a negative effect on the Corporation’s business.
The Corporation manufactures, markets, and sells products in international markets, including China and India. 14 Table of Contents 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.
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.
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 any assets, enter into certain transactions 17 Table of Contents with affiliates, make certain restricted payments or take certain restricted actions, and enter into certain sale-leaseback arrangements.
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.
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, particularly involving the United States and China, 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 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.
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 onset of 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, 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 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.
Any such events could have a material adverse effect on the Corporation’s costs or results of operations. A continued shortage of qualified labor could negatively affect the Corporation’s business and materially reduce earnings. During 2021, the Corporation experienced shortages of qualified labor across its operations. Outside suppliers that the Corporation relies upon have also experienced shortages of qualified labor.
Any such events could have a material adverse effect on the Corporation’s costs or results of operations. A continued shortage of qualified labor could negatively affect the Corporation’s business and materially reduce earnings. The Corporation has experienced shortages of qualified labor across its operations. Outside suppliers that the Corporation relies upon have also experienced shortages of qualified labor.
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 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 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.
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.
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 business, operating results, or financial condition. 10 Table of Contents In addition, individual dealers may not continue to be viable and profitable and may suffer from a lack of available credit.
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.
See "Note 6. Goodwill and Other Intangible Assets" for information on impairment charges recorded in 2020 and 2021. 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. 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 Corporation may not be successful in identifying suitable acquisition or alliance opportunities, prevailing against competing potential acquirers, negotiating appropriate acquisition terms, 13 Table of Contents obtaining financing, completing proposed acquisitions or alliances, or expanding into new markets or product categories.
The Corporation may not be successful in identifying suitable acquisition or alliance opportunities, prevailing against competing potential acquirers, negotiating appropriate acquisition terms, obtaining financing, completing proposed acquisitions or alliances, or expanding into new markets or product categories.
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 common stock. The Board is divided into three classes.
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.
Industry factors, 9 Table of Contents 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.
Healthcare costs have continued to rise over time, which increases the annual spending on healthcare and could adversely affect the Corporation's business, operating results, and financial condition. The Corporation's international operations expose it to risks related to conducting business in multiple jurisdictions outside the United States.
Healthcare costs have continued to rise over time, which increases the annual spending on healthcare and could adversely affect the Corporation’s business, operating results, and financial condition. The Corporation’s international operations expose it to risks related to conducting business in multiple jurisdictions outside the United States. The Corporation manufactures, markets, and sells products in international markets.
Goodwill and other intangible assets represent a significant amount of the Corporation's net worth, and an impairment charge would adversely affect the Corporation's financial results.
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.
In the current operating environment, the Corporation is experiencing a shortage of qualified labor in certain geographies, particularly with plant production workers, resulting in increased costs from certain temporary wage actions, such as hiring and referral bonus programs. A continuation of such shortages for a prolonged period of time could have a material adverse effect on the Corporation’s operating results.
A shortage of qualified labor in certain geographies, particularly with plant production workers, could result in increased costs from certain temporary wage actions, such as hiring and referral bonus programs. Such shortages for a prolonged period of time could have a material adverse effect on the Corporation’s operating results.
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.
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.
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, 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.
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.
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.
Certain foreign governments have imposed tariffs on goods that their countries import from the United States. Changes in United States trade policy could result in one or more foreign governments adopting trade policies that make it more difficult or costly for the Corporation to do business in or import products from those countries.
Changes in United States trade policy could result in one or more foreign governments adopting trade policies that make it more difficult or costly for the Corporation to do business in those countries.
Deteriorating economic conditions could affect the Corporation's business significantly, including reduced demand for products, insolvency of independent dealers resulting in increased provisions for credit losses, insolvency of key suppliers resulting in product delays, inability of customers to obtain credit to finance purchases of products, and decreased customer demand, including order delays or cancellations.
Deteriorating economic conditions, which may be caused by uncertainties and volatility in the financial markets, rising or sustained inflation and interest rates, and potential economic recessions, could affect the Corporation’s business significantly, including reduced demand for products, insolvency of independent dealers resulting in increased provisions for credit losses, insolvency of key suppliers resulting in product delays, inability of customers to obtain credit to finance purchases of products, and decreased customer demand, including order delays or cancellations.
The United States government, as well as state and local governments, can typically terminate or modify their contracts either for their convenience or if the Corporation defaults by failing to perform under the terms of the applicable contract.
The Corporation’s contracts with government entities are subject to various statutes and regulations that apply to companies doing business with the government. The United States government, as well as state and local governments, can typically terminate or modify their contracts either for their convenience or if the Corporation defaults by failing to perform under the terms of the applicable contract.
In addition, the impact of the COVID-19 pandemic on the Corporation’s members could adversely impact the Corporation’s sales and operations. 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 and the effectiveness of vaccines.
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.
The Corporation sources commodities, raw materials, components, and finished goods from domestic and international suppliers for both the workplace furnishings and residential building products.
The Corporation sources commodities, raw materials, components, and finished goods from domestic and international suppliers.
To the extent existing cash, available borrowings, and cash flows are insufficient to meet these requirements and cover any losses, the Corporation may need to raise additional funds through financings or curtail its growth and reduce the Corporation's assets.
The Corporation’s capital requirements depend on many factors, including its need for capital improvements, tooling, research and development, and acquisitions. To the extent existing cash, available borrowings, and cash flows are insufficient to meet these requirements, the Corporation may need to raise additional funds through financings or curtail its growth and reduce the Corporation’s assets.
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.
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.
The Corporation cannot be certain it will 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 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.
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. 11 Table of Contents STRATEGIC AND OPERATIONAL RISKS If customers do not perceive the Corporation's products and services to be of good value, the Corporation's brand and name recognition and reputation could suffer.
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.
The Corporation believes that establishing and maintaining good brand and name recognition and a good reputation is critical to its business. 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.
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.
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 business, operating results, or financial condition.
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.
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. The Corporation's contracts with government entities are subject to various statutes and regulations that apply to companies doing business with the government.
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.
Incorrect estimates or any significant increase in the rate of product defect expenses could have a material adverse effect on operations. 16 Table of Contents 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 documents may have the effect of preventing or hindering a change in control and adversely affecting the market price of its common stock.
The Corporation has a global supply chain for products used in workplace furnishings and residential building products. Actions taken by the United States government to apply tariffs on certain products could have long-term impacts on existing supply chains. The situation could impact the competitive environment depending on the severity and duration of current and future policy changes.
Actions taken by the United States government to apply tariffs on certain products could have long-term impacts on existing supply chains. The situation could impact the competitive environment depending on the severity and duration of current and future policy changes. This may manifest in additional costs on the business, including costs with respect to products upon which the business depends.
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 fueled current work-from-home and hybrid work trends. Lower office occupancy levels could have an adverse impact on the demand for workplace furnishings.
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.
If the Corporation were found to not be a responsible supplier or to have committed fraud or certain criminal offenses, it could be suspended or debarred from all further federal, state, or local government contracting. 15 Table of Contents The Corporation relies on information technology systems to manage numerous aspects of the business and a disruption or failure of these systems could adversely affect business, operating results, and financial condition.
If the Corporation were found to not be a responsible supplier or to have committed fraud or certain criminal offenses, it could be suspended or debarred from all further federal, state, or local government contracting.
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 benefits of acquisitions or alliances may take more time than expected to develop or integrate into operations.
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.
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 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.
The Corporation maintains reserves for product defect-related costs but there can be no certainty these reserves will be adequate to cover actual claims.
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.
Other 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; • disruptions to the Corporation’s manufacturing facilities and distribution centers, including through the effects of reductions in operating hours, and real-time changes in operating procedures, including for social distancing and quarantine protocols; and • the inability or impairment of independent dealers, wholesalers, and office product distributors to sell the Corporation’s products.
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.
This may manifest in additional costs on the business, including costs with respect to products upon which the business depends. Increased costs could further lower profit margins as the Corporation may be challenged in effectively increasing the prices of its products, and its business and results of operations may be adversely affected.
Increased costs could further lower profit margins as the Corporation may be challenged in effectively increasing the prices of its products, and its business and results of operations may be adversely affected. Certain foreign governments have imposed tariffs on goods that their countries import from the United States.
Such economic disruption has lowered demand for workplace furnishings, and in turn create a material negative impact on the Corporation’s business, sales, financial condition, and results of operations.
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.
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. Industry factors, such as technology changes, health and safety concerns, and environmental regulation, including indoor air quality standards, also influence residential building products industry revenues.
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.
The loss or termination of a significant dealer or a substantial number of dealer relationships could cause significant difficulties in marketing and distributing the Corporation's products, resulting in a decline in sales. Evolving trade policy between the United States and other countries may have an adverse effect on the Corporation's business and results of operations.
Evolving trade policy between the United States and other countries may have an adverse effect on the Corporation’s business and results of operations. The Corporation has a global supply chain for products used in workplace furnishings and residential building products.
The Corporation’s financial condition and results of operation have been and are expected to continue to be adversely affected by the coronavirus outbreak.
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.
Removed
To date, the COVID-19 pandemic and preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdown or shutdown in affected areas and significant economic disruption both globally and in the United States.
Added
The loss or termination of a significant dealer or a substantial number of dealer relationships could cause significant difficulties in marketing and distributing the Corporation’s products, resulting in a decline in sales and/or impairment of the Corporation’s contract assets related to distribution agreements with the respective dealers.
Removed
These future developments are highly uncertain, cannot be predicted, and could be material. 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.
Added
STRATEGIC AND OPERATIONAL RISKS If customers do not perceive the Corporation’s products and services to be of good value, the Corporation’s brand and name recognition and reputation could suffer. The Corporation believes that establishing and maintaining good brand and name recognition and a good reputation is critical to its business.
Removed
Members are an integral part of the business and events including an epidemic such as COVID-19 have reduced, and could 12 Table of Contents negatively impact, the availability of members reporting for work.
Added
In addition, the impact of the COVID-19 pandemic on the Corporation’s members could adversely impact the Corporation’s sales and operations.
Removed
Phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate or modification of the method used to calculate LIBOR, may adversely impact interest rates affecting the Corporation.
Added
The Corporation relies on information technology systems to manage numerous aspects of the business and a disruption or failure of these systems could adversely affect business, operating results, and financial condition.
Removed
In July 2017, the Financial Conduct Authority ("FCA"), a regulatory body in the United Kingdom, announced that it will no longer require banks to submit rates for LIBOR after 2021. On December 4, 2020, the FCA announced a consultation to extend the cessation date for certain tenors of USD LIBOR to June 2023.
Removed
Such extension will apply to the USD LIBOR rates currently referenced in the Corporation's respective financial agreements.
Removed
At this time the Corporation cannot predict the future impact of a departure from LIBOR as a reference rate; however, if future rates based upon the successor rate (or a new method of calculating LIBOR) are higher than LIBOR rates as currently determined, it may have a material adverse effect on the Corporation's financial condition and results of operations.
Removed
The Corporation may require additional capital in the future, which may not be available or may be available only on unfavorable terms. The Corporation's capital requirements depend on many factors, including its need for capital improvements, tooling, research and development, and acquisitions.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeApproximately 2.0 million square feet are used for the selling, manufacturing, and distribution of workplace furnishings, approximately 1.5 million square feet are used for the selling, manufacturing, and distribution of residential building products, and approximately 0.2 million square feet are used for corporate administration. There are no major encumbrances on Corporation-owned properties.
Biggest changeThe 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.
Although the plants are of varying ages, the Corporation believes they are well maintained, equipped with modern and efficient machinery and tooling, in good operating condition, and suitable for the purposes for which they are being used.
Although the manufacturing facilities are of varying ages, the Corporation believes they are well maintained, equipped with modern and efficient machinery and tooling, in good operating condition, and suitable for the purposes for which they are being used.
Item 2. Properties The Corporation maintains its corporate headquarters in Muscatine, Iowa, and conducts operations at locations throughout the United States, China, India, Mexico, United Arab Emirates, Taiwan, and Singapore, which house manufacturing, distribution, and retail operations and offices, totaling an aggregate of approximately 8.9 million square feet. Of this total, approximately 3.4 million square feet are leased.
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.
Removed
The Corporation has sufficient capacity to increase output at most locations by increasing the use of overtime or the number of production shifts employed. 18 Table of Contents The Corporation's principal manufacturing and distribution facilities (200,000 square feet in size or larger) are as follows: Location Approximate Square Feet Owned or Leased Description of Use Cedartown, Georgia 550,000 Owned Manufacturing workplace furnishings (1) Dongguan, China 373,000 Leased Manufacturing workplace furnishings (1) Garland, Texas 211,000 Leased Warehousing workplace furnishings Hickory, North Carolina 206,000 Owned Manufacturing workplace furnishings (1) Lake City, Minnesota 242,000 Owned Manufacturing residential building products Mechanicsburg, Pennsylvania 252,000 Leased Warehousing workplace furnishings Mt.
Added
The Corporation has sufficient capacity to increase output at most locations by increasing the use of overtime or the number of production shifts employed.
Removed
Pleasant, Iowa 378,000 Owned Manufacturing residential building products (1) Muscatine, Iowa 273,000 Owned Manufacturing workplace furnishings Muscatine, Iowa 540,000 Owned Manufacturing workplace furnishings (1) Muscatine, Iowa 810,000 Owned Manufacturing workplace furnishings (1) Muscatine, Iowa 238,000 Owned Manufacturing workplace furnishings Nagpur, India 355,000 Owned Manufacturing workplace furnishings Wayland, New York 716,000 Owned Manufacturing workplace furnishings (1) (1) Also includes a regional warehouse/distribution center Other facilities total approximately 3.7 million square feet, of which approximately 2.6 million square feet are leased.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeLorenger 56 None Chairman President and Chief Executive Officer 2020 2017 President, Office Furniture, HNI Corporation (2017-2018); Executive Vice President, HNI Corporation (2014-2017); President, HNI Contract Furniture Group (2014-2017) Donna D. Meade 56 None Vice President, Member and Community Relations 2014 Kurt A.
Biggest changeHagedorn 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
Item 4. Mine Safety Disclosures Not applicable. 19 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 49 None Executive Vice President, HNI Corporation President, Hearth & Home Technologies 2018 2016 Steven M.
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.
Bradford 64 None Senior Vice President, General Counsel and Secretary 2015 Marshall H. Bridges 52 None Senior Vice President and Chief Financial Officer 2018 Vice President and Chief Financial Officer (2017-2018); Vice President, Finance, HNI Contract Furniture Group (2014-2017) B.
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.
Removed
Brandon Bullock 44 None President, The HON Company 2018 Advanced Development and Innovation Leader, Whirlpool Corporation (2017-2018); Global Platform Leader and General Manager, Microwaves, Hong Kong, Whirlpool Corporation (2016-2017) Jason D. Hagedorn 48 None President, Allsteel, Inc. 2020 VP & GM, Product Strategy and Finance, HNI Corporation (2017-2020); VP, Product Management & Development, Allsteel (2015-2017) Jeffrey D.
Removed
Tjaden 58 None President, HNI International Senior Vice President, HNI Corporation 2017 2015 Senior Vice President and Chief Financial Officer (2015-2017) 20 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities: The Corporation repurchases shares under previously announced plans authorized by the Board. The Corporation's share purchase authorization from February 13, 2019, provides for repurchase of $200 million with no specific expiration date. As of January 1, 2022, $97.9 million was authorized and available for the repurchases of shares by the Corporation.
Biggest changeIssuer 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.
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 64 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 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.
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 2021, and no current 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. No repurchase plans expired or were terminated during the fourth quarter of fiscal 2022, and no plans are expected to expire or terminate.
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 January 1, 2022, the Corporation had approximately 5,643 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 31, 2022, the Corporation had approximately 5,804 shareholders of record. EQ Shareowner Services, St.
Removed
The following is a summary of share repurchase activity during the fourth quarter of fiscal 2021 (in thousands, except per share data): Period Total Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs 10/03/21 - 10/30/21 350 $ 38.05 350 $ 125,197 10/31/21 - 11/27/21 298 $ 40.69 298 $ 113,091 11/28/21 - 01/01/22 367 $ 41.51 367 $ 97,852 Total 1,015 1,015 (1) No shares were purchased outside of a publicly announced plan or program.
Added
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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeAcquisitions" in the Notes to the Consolidated Financial Statements for additional information. 22 Table of Contents Results of Operations The following table presents certain key highlights from the results of operations (in thousands): 2021 2020 Change Net sales $ 2,184,408 $ 1,955,363 11.7 % Cost of sales 1,427,048 1,234,243 15.6 % Gross profit 757,360 721,120 5.0 % Selling and administrative expenses 665,641 620,927 7.2 % Restructuring and impairment charges 6,299 38,818 (83.8) % Operating income 85,420 61,375 39.2 % Interest expense, net 7,153 6,990 2.3 % Income before income taxes 78,267 54,385 43.9 % Income tax expense 18,456 12,466 48.1 % Net income (loss) attributable to non-controlling interest (3) 2 (250.0) % Net income attributable to HNI Corporation $ 59,814 $ 41,917 42.7 % As a Percentage of Net Sales: Net sales 100.0 % 100.0 % Gross profit 34.7 36.9 -220 bps Selling and administrative expenses 30.5 31.8 -130 bps Restructuring and impairment charges 0.3 2.0 -170 bps Operating income 3.9 3.1 80 bps Income tax expense 0.8 0.6 20 bps Net income attributable to HNI Corporation 2.7 2.1 60 bps Net Sales Consolidated net sales for 2021 increased 11.7 percent compared to the prior year.
Biggest changeIn 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.
If such amounts were repatriated, it could result in additional foreign withholding and 25 Table of Contents 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, 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.
The average dividend payout percentage for the most recent three-year period has been 64 percent of prior year earnings or 25 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 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.
Cash Requirements As of January 1, 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 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.
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 February 13, 2019, 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. 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.
Management believes recorded trade receivable valuation allowances at the end of 2021 are adequate to cover the risk of potential bad debts. Allowances for non-collectible trade receivables, as a percent of gross trade receivables, totaled 1.2 percent and 2.7 percent at the end of 2021 and 2020, respectively.
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.
The Corporation’s inventory turns were 8.9 and 8.2 for 2021 and 2020, respectively. Cash Flow – Investing Activities Capital expenditures, including capitalized software, were $66.5 million in 2021 and $41.8 million in 2020. 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 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.
No changes were made to the methodologies utilized to estimate self-insurance reserves in 2021. 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.
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.
Cash Flow – Operating Activities Operating activities were a source of $131.6 million of cash in 2021, compared to a source of $214.5 million cash in 2020. 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 $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.
Additionally, in support of the Corporation's long-term strategy to create effortless winning experiences for customers, the Corporation continues to invest in technology and digital assets. The Corporation anticipates capital expenditures for 2022 in an estimated range of $70 million to $80 million.
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 general, auto, product, and workers’ compensation liabilities are managed via a wholly-owned insurance captive, with estimated liabilities of $26.3 million and $25.7 million as of January 1, 2022 27 Table of Contents and January 2, 2021, 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 $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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Corporation’s historical results of operations and of its liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements of the Corporation and related notes. Statements that are not historical are forward-looking and involve risks and uncertainties.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Corporation’s historical results of operations and of its liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements of the Corporation and related notes.
Liquidity and Capital Resources Cash, cash equivalents, and short-term investments totaled $53.7 million at the end of 2021, compared to $117.8 million at the end of 2020.
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.
Post-Retirement Benefit Plan - Post-retirement benefit plan payments are expected to be approximately $1 million during 2022 and $11 million in aggregate from 2023 through 2031. Refer to “Note 13. Post-Retirement Health Care" in the Notes to Consolidated Financial Statements for additional information.
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.
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. See "Note 7.
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.
Additionally, based on current earnings before interest, taxes, depreciation and amortization generation, the Corporation can access the full $450 million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants. As of the end of 2021, $9.2 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 $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.
Cash dividends declared and paid per share are as follows (in dollars): 2021 2020 Common shares $ 1.235 $ 1.220 The last quarterly dividend increase was from $0.305 to $0.310 per common share effective with the June 1, 2021 dividend payment for shareholders of record at the close of business on May 21, 2021.
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.
Of these charges, $7.6 million was included in "Cost of Sales" in the Consolidated Statements of Comprehensive Income. 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.
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.
As of January 1, 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. Recently Issued Accounting Standards Not Yet Adopted None
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.
Included in the 2021 sales results was a $12.4 million favorable impact from acquiring residential building products companies. Operating profit as a percentage of net sales increased 40 basis points in 2021 compared to 2020. The increase was driven by SG&A leverage from higher sales volume, partially offset by unfavorable price-cost.
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.
Selling and Administrative Expenses Selling and administrative expenses as a percentage of net sales decreased 130 basis points in 2021 compared to 2020, driven by higher residential building products volume and lower core SG&A, partially offset by increased freight costs, the return of costs related to temporary actions taken in 2020, and higher investment spend.
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.
Residential Building Products The following table presents certain key highlights from the results of operations in the residential building products segment (in thousands): 2021 2020 Change Net sales $ 750,423 $ 589,652 27.3 % Operating profit $ 141,871 $ 109,321 29.8 % Operating profit % 18.9 % 18.5 % 40 bps Net sales in 2021 for the residential building products segment increased 27.3 percent compared to 2020, driven by strong 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: 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.
Income Taxes" in the Notes to Consolidated Financial Statements for further information relating to income taxes. Net Income Attributable to HNI Corporation Net income attributable to the Corporation was $59.8 million or $1.36 per diluted share in 2021 compared to $41.9 million or $0.98 per diluted share in 2020.
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.
Comparison of Fiscal Year Ended January 2, 2021 with the Fiscal Year Ended December 28, 2019 To review commentary for the consolidated and segment-level results of operations comparison of the fiscal year ended January 2, 2021 with the fiscal year ended December 28, 2019, please refer to Item 7 of the Corporation's Form 10-K filed March 2, 2021 with the Securities and Exchange Commission, or follow the link below: https://www.sec.gov/ix?doc=/Archives/edgar/data/48287/000004828721000038/hni-20210102.htm 24 Table of Contents Workplace Furnishings The following table presents certain key highlights from the results of operations in the workplace furnishings segment (in thousands): 2021 2020 Change Net sales $ 1,433,985 $ 1,365,711 5.0% Operating loss $ (539) $ (4,972) 89.1% Operating loss % (0.0) % (0.4 %) 40 bps Net sales in 2021 for the workplace furnishings segment increased 5.0 percent compared to 2020.
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.
Debt" in the Notes to Consolidated Financial Statements for further information. Dividend - The Corporation is committed to maintaining or modestly growing the quarterly dividend.
Dividend - The Corporation is committed to maintaining or modestly growing the quarterly dividend.
The change was driven by a 27.3 percent increase in the residential building products segment, and 5.0 percent year-over-year sales growth in the workplace furnishings segment. The acquisitions of Design Public Group ("DPG") and multiple residential building products companies added incremental year-over-year sales of $34.9 million and $12.4 million, respectively.
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.
Other Obligations - Other long-term obligations of approximately $13 million are primarily comprised of uncertain tax positions, acquisition-related holdbacks, and put option liabilities. Additionally, refer to “Note 2. Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for the Corporation’s estimated future obligations related to product warranties and self-insured liabilities. Litigation and Uncertainties See "Note 15.
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.
Net income attributable to the Corporation in 2021 was $59.8 million compared to net income of $41.9 million in 2020.
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.
Gross Profit Gross profit as a percentage of net sales decreased 220 basis points in 2021 compared to 2020, primarily driven by unfavorable price-cost, partially offset by higher residential building products volume and improved net productivity. Unfavorable price-cost was attributable to inflationary pressures in labor, materials, and transportation costs partially offset by increased price realization.
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.
Income Taxes The following table summarizes the Corporation's income tax provision (in thousands): 2021 2020 Income before income taxes $ 78,267 $ 54,385 Income tax expense $ 18,456 $ 12,466 Effective tax rate 23.6 % 22.9 % The income tax provision reflects a higher rate in 2021 compared to 2020.
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.
See "Item 1A. Risk Factors" and the Forward-Looking Statements section within "Item 1. Business" for further information. Overview The Corporation has two reportable segments: workplace furnishings and residential building products. The Corporation is a leading global designer and provider of commercial furnishings, and a leading manufacturer and marketer of hearth products.
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.
Debt" in the Notes to Consolidated Financial Statements for additional information. Deferred Compensation - Deferred compensation obligations, which include both cash and Corporation stock, are expected to be approximately $1 million during 2022 and $9 million thereafter. Refer to “Note 11. Stock-Based Compensation” in the Notes to Consolidated Financial Statements for additional information.
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.
As demand has rebounded in many markets in 2021, the Corporation's receivables, inventory, and accounts payable and accrued expenses have risen to more normal levels, resulting in a net use of cash. The Corporation places special emphasis on management and control of working capital, including accounts receivable and inventory.
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.
Furthermore, included in the 2021 sales results was a $34.9 million favorable impact from acquiring DPG. Operating loss as a percentage of net sales was 40 basis points more favorable in 2021 compared to 2020, driven by lower restructuring, impairment, and one-time costs and improved net productivity, partially offset by unfavorable price-cost.
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.
Included in current year and prior year SG&A was $1.4 million and $6.8 million, respectively, of one-time costs driven by conditions related to the COVID-19 pandemic. 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.
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.
Operating and Finance Leases - Operating and finance lease obligations are expected to be approximately $25 million during 2022 and $80 million thereafter. Refer to “Note 14. Leases" in the Notes to Consolidated Financial Statements for additional information.
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.
Estimated purchase obligations total $188 million during 2022 and $85 million thereafter. 26 Table of Contents Debt - Debt principal obligations are approximately $3 million during 2022, and $175 million thereafter. Interest obligations from debt are estimated to be approximately $6 million during 2022 and $18 million thereafter. Refer to "Note 7.
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.
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 the ongoing COVID-19 pandemic and recent dynamics around labor availability, supply chain capacity, and cost inflation. However, management believes the Corporation is well positioned to grow revenues, expand margins, and generate cash flows.
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.
The increase was driven by lower restructuring and impairment charges, higher residential building products volume, improved net productivity, and lower core selling and administrative expenses ("SG&A"), partially offset by unfavorable price-cost, the return of costs related to temporary actions taken in 2020, and higher investment levels.
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.
The increase was driven by higher residential building products volume, improved net productivity, lower core SG&A, and lower restructuring and impairment charges, partially offset by unfavorable price-cost, higher investment levels, and the return of costs related to temporary actions taken in 2020. Interest Expense, Net Interest expense, net was $7.2 million and $7.0 million in 2021 and 2020, respectively.
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.
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The Corporation utilizes a decentralized business model to deliver value to customers via various brands and selling models. The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth. Consolidated net sales for 2021 were $2.184 billion, an increase of 11.7 percent compared to net sales of $1.955 billion in the prior year.
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All dollar amounts presented are in millions, except per share data or where otherwise indicated. Amounts may not sum due to rounding. Statements that are not historical are forward-looking and involve risks and uncertainties. See "Item 1A. Risk Factors" and the Forward-Looking Statements section within "Item 1. Business" for further information.
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Overall, the Corporation has experienced positive order trends in both of its segments throughout much of 2021. However, ongoing pandemic-induced difficulties tied to labor availability, supply chain issues, and input cost inflation have persisted.
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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.
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These constraints, when combined with continued staffing shortages both internally and at the Corporation's suppliers, are limiting production capacity growth, and have negatively impacted revenue and profit levels in much of the second half of 2021.
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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.
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The Corporation has taken action to mitigate these constraints, including the implementation of price increases across its brands, opening of a new manufacturing facility in Mexico, increased insourcing and strengthened resourcing of critical parts, and accelerated efforts to drive productivity through process changes and automation to reduce labor requirements.
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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.
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The Corporation also has embarked on business simplification initiatives, including plans to exit a small workplace furnishings brand and restructure an eCommerce business in the workplace furnishing segment. Both actions are aimed at improving long-term profitability. The Corporation also acquired two residential building products companies in the fourth quarter of 2021.
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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.
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The acquisition of Trinity Hearth & Home ("Trinity"), a leading installing distributor in the Dallas/Fort Worth area, builds on the Corporation's vertical integration strategy, and provides a hub for the segment to better serve its customers in the rapidly growing Southwest region.
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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.
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The Outdoor GreatRoom Company ("OGC"), a leading manufacturer and supplier of premium outdoor living products, primarily fire tables and fire pits, positions the Corporation to grow and develop a leading position in the fast-growing outdoor living market. See "Note 4.
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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.
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The change was driven by a significant increase in the residential building products segment, along with a moderate increase in the workplace furnishings segment. Included in the 2021 sales results was a $34.9 million favorable impact from acquiring DPG, and a $12.4 million favorable impact from acquiring residential building products businesses.
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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.
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Goodwill and Other Intangible Assets" in the Notes to Consolidated Financial Statements for further information regarding the comparative expense levels for these items. 23 Table of Contents Restructuring and Impairment Charges In 2021, the Corporation recorded $8.2 million of restructuring costs, as well as a $5.8 million goodwill impairment charge, in connection with business simplification actions taken in the workplace furnishings segment.
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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.
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In 2020, the Corporation recorded net charges of $38.8 million related to the impairment of goodwill, intangibles, and other assets in the workplace furnishings segment as a result of the COVID-19 pandemic and related economic disruption. Operating Income For 2021, operating income increased 39.2 percent to $85.4 million compared to $61.4 million in 2020.
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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.
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The variance was primarily driven by higher income in the current year which diluted the rate benefit from tax credits when compared to the prior year. Additionally, the increased rate in the current year is the result of an increase in current year equity-based compensation offset by the benefit of increased foreign earnings over prior year. See "Note 8.
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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.
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The results were driven by higher volumes in the small- and medium-sized business and international channels, both of which experienced a rebound in demand in 2021 relative to 2020, which was more adversely impacted by the COVID-19 pandemic. Volumes were lower in 2021 in the contract and eCommerce channels.
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The increase was driven by increased borrowings during 2022 and higher interest rates on the Corporation’s variable-rate revolving credit facility.
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The contract market has experienced a slower recovery in demand primarily due to inconsistency in return-to-office plans throughout the country. Demand moderated in the eCommerce channel in 2021, following strong sales growth in 2020 as a result of work-from-home trends driven by the onset of the pandemic. Price realization across most channels also contributed to the segment's sales growth.
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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.
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In the current year, the workplace furnishings segment recorded $7.9 million of restructuring costs and a $5.8 million goodwill impairment charge in connection with business simplification actions, as well as $1.4 million of one-time costs as a result of the COVID-19 pandemic.
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The impact of the sale of Lamex in the third quarter of 2022 decreased net sales by $48.7 million compared to prior year.
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In 2020, the workplace furnishings segment recorded net charges of $38.8 million related to the impairment of goodwill, intangibles, and other assets, as well as $5.2 million of one-time costs as a result of the COVID-19 pandemic.
Added
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.
Removed
Changes in working capital balances resulted in a $59.6 million use of cash in 2021 compared to a $24.2 million source of cash in the prior year. Prior year end working capital balances were lower than normal due to a significant decline in sales volume in 2020 as a result of the COVID-19 pandemic and related economic disruption.
Added
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.
Removed
Strength in residential building products is expected to continue, and conditions in workplace furnishings are expected to continue to improve. Management remains optimistic about the long-term prospects in the workplace furnishings and residential building products markets.
Added
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.
Added
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
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.
Added
Stock-Based Compensation" in the Notes to Consolidated Financial Statements for further information.
Added
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.
Added
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.
Added
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 .

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of January 1, 2022, the Corporation had no borrowings on the revolving credit facility in excess of the amount covered by the interest rate swap agreement. The Corporation may utilize additional borrowings over the course of the year, which will be subject to the variable borrowings rate as defined. The Corporation monitors market interest rate risk exposures.
Biggest changeThe 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.
Periodically, including in the current year, margins are negatively impacted due to the lag between cost increases and the Corporation’s ability to increase its prices. The Corporation believes future market price increases on its key direct materials and assembly components are likely. Consequently, it views the prospect of such increases as a risk to the business.
Periodically margins are negatively impacted due to the lag between cost increases and the Corporation’s ability to increase its prices. The Corporation believes future market price increases on its key direct materials and assembly components are likely. Consequently, it views the prospect of such increases as a risk to the business.
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. Interest rate swap derivative instruments are held and used by the Corporation as a tool for managing interest rate risk.
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.
They are not used for trading or speculative purposes. As of January 1, 2022, the Corporation had $75 million of debt outstanding under the Corporation's $450 million revolving credit facility, which bore variable interest based on one month LIBOR.
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.
Removed
As of January 1, 2022, the Corporation had an interest rate swap agreement in place to fix the interest rate on $75 million of the Corporation's revolving credit facility. Under the terms of this interest rate swap, the Corporation pays a fixed rate of 1.42 percent instead of LIBOR.
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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.
Removed
As the Corporation holds no borrowings subject to variable interest rate exposure as of January 1, 2022, there is not current exposure given the current borrowings outstanding. The impacts of any hypothetical changes in interest rates will be directly correlated to any necessary future borrowings above the current levels outstanding.

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