Stock-Based Compensation

Under the Corporation’s 2007 Stock-Based Compensation Plan (the “Plan”), effective May 8, 2007, as amended, the Corporation may award options to purchase shares of the Corporation’s common stock and grant other stock awards to executives, managers and key personnel. Upon shareholder approval of the Plan in May 2007, no future awards were granted under the Corporation’s 1995 Stock-Based Compensation Plan, but all outstanding awards previously granted under that plan shall remain outstanding in accordance with their terms. As of December 31, 2011, there were approximately 1.9 million shares available for future issuance under the Plan. The Plan is administered by the Human Resources and Compensation Committee of the Board. Restricted stock units awarded under the Plan are expensed ratably over the vesting period of the awards. Stock options awarded to members under the Plan must be at exercise prices equal to or exceeding the fair market value of the Corporation’s common stock on the date of grant. Stock options are generally subject to four-year cliff vesting and must be exercised within 10 years from the date of grant.

As discussed above, the Corporation also has the shareholder approved Purchase Plan. The price of the stock purchased under the Purchase Plan is 85% of the closing price on the applicable purchase date. During 2011, 104,379 shares of the Corporation’s common stock were issued under the Purchase Plan at an average price of $17.39.

The Corporation measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes cost over the requisite service period.

Compensation cost charged against operations for the Plan and Purchase Plan described above was $7.2 million, $6.6 million and $3.8 million for the years ended December 31, 2011, January 1, 2011 and January 2, 2010, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $2.5 million, $2.3 million and $1.3 million for the years ended December 31, 2011, January 1, 2011 and January 2, 2010, respectively.

The stock compensation expense for the years ended December 31, 2011, January 1, 2011 and January 2, 2010, was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions by grant year:



	Year Ended Dec. 31, 2011		Year Ended Jan. 1, 2011		Year Ended Jan. 2, 2010
Expected term	6 years		6 years		7 years
Expected volatility:
Range used	45.22	%	42.54	%	33.83	%
Weighted-average	45.22	%	42.54	%	33.83	%
Expected dividend yield:
Range used	2.88%-3.42%		3.58	%	4.00	%
Weighted-average	2.90	%	3.58	%	4.00	%
Risk-free interest rate:
Range used	1.99%-3.70%		4.02	%	3.04	%

Expected volatilities are based on historical volatility as the Corporation does not feel that future volatility over the expected term of the options is likely to differ from the past. The Corporation used a simple-average calculation method based on monthly frequency points for the prior seven years. The Corporation normally uses the current dividend yield as there are no plans to substantially increase or decrease its dividends. For options issued in February 2009, the Corporation used the average dividend yield over the prior two years due to the large drop in the market price at the date of grant resulting in an unsustainable dividend yield. The Corporation uses historical exercise experience to determine the expected term. The risk-free interest rate was selected based on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options being valued.

The following table summarizes the changes in outstanding stock options since the beginning of fiscal 2008.



	Number of Shares		Weighted-Average Exercise Price
Outstanding at January 3, 2009	1,465,059		$	35.17
Granted	497,734		10.36
Exercised	(41,750	)	18.31
Forfeited or Expired	(65,409	)	31.22
Outstanding at January 2, 2010	1,855,634		$	29.03
Granted	776,159		23.99
Exercised	(53,216	)	19.87
Forfeited or Expired	(13,778	)	37.20
Outstanding at January 1, 2011	2,564,799		$	27.65
Granted	499,735		31.82
Exercised	(34,000	)	26.45
Forfeited or Expired	(33,783	)	30.84
Outstanding at December 31, 2011	2,996,751		$	28.33

A summary of the Corporation’s nonvested shares as of December 31, 2011 and changes during the year are presented below:



Nonvested Shares	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2011	1,861,515		$	6.69
Granted	499,735		11.58
Vested	(137,207	)	15.67
Forfeited	(22,533	)	5.95
Nonvested at December 31, 2011	2,201,510		$	7.27

At December 31, 2011, there was $6.5 million of unrecognized compensation cost related to nonvested stock option awards, which the Corporation expects to recognize over a weighted-average period of 1.4 years. Information about stock options vested or expected to vest and are exercisable at December 31, 2011, is as follows:



Options	Number	Weighted-Average Exercise Price		Weighted-Average Remaining Life in Years	Aggregate Intrinsic Value ($000s)
Vested or expected to vest	2,792,824	$	28.72	2.9	$	—
Exercisable	795,241	$	41.00	3.8	—

The weighted-average grant-date fair value of options granted was $11.58, $7.84 and $2.53, for 2011, 2010 and 2009, respectively. Other information for the last three years is as follows:



(In thousands)	Dec. 31, 2011		Jan. 1, 2011		Jan. 2, 2010
Total fair value of shares vested	$	2,150	$	2,083	$	1,911
Total intrinsic value of options exercised	178		526		312
Cash received from exercise of stock options	232		681		307
Tax benefit realized from exercise of stock options	63		180		109

In 2011, 2010 and 2009, the Corporation issued restricted stock units (“RSUs”) to executives, managers and key personnel. The RSUs vest at the end of three years after the grant date. No dividends are accrued on the RSUs. The share-based compensation expense associated with the RSUs is based on the quoted market price of HNI Corporation shares on the date of grant less the discounted present value of dividends not received on the shares and is amortized using the straight-line method from the grant date through the earlier of the vesting date or the estimated retirement eligibility date.

The following table summarizes the changes in outstanding RSUs since the beginning of fiscal 2009:



	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at January 3, 2009	—
Granted	698,641		$	7.87
Vested	—		—
Forfeited	(17,685	)	7.84
Outstanding at January 2, 2010	680,956		$	7.87
Granted	153,799		21.50
Vested	(13,384	)	24.05
Forfeited	(18,574	)	12.32
Outstanding at January 1, 2011	802,797		$	10.37
Granted	14,000		24.37
Vested	(16,048	)	7.84
Forfeited	(13,944	)	13.94
Outstanding at December 31, 2011	786,805		$	10.61

At December 31, 2011, there was $1.8 million of unrecognized compensation cost related to RSUs which the Corporation expects to recognize over a weighted-average period of 0.7 year.