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Section 1: 8-K (8-K)

hni-20201019
0000048287false00000482872020-10-192020-10-19





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
______________________

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):  October 19, 2020

Commission File Number: 1-14225

HNI Corporation
Iowa42-0617510
(State of incorporation)(IRS Employer No.)
600 East Second Street
P. O. Box 1109
Muscatine, Iowa 52761-0071
(563) 272-7400

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockHNINew York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Section 2 — Financial Information

Item 2.02    Results of Operations and Financial Condition.
    
On October 19, 2020, HNI Corporation (the "Corporation") issued a press release announcing its financial results for its third fiscal quarter ended September 26, 2020.  A copy of the press release is attached hereto as Exhibit 99.1.

The information furnished in this Item 2.02, including the attached Exhibit, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Section 9 — Financial Statements and Exhibits

Item 9.01          Financial Statements and Exhibits.
Exhibit No.Description
  
99.1






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

   
HNI CORPORATION
 
 
Date:October 19, 2020 By/s/ Marshall H. Bridges
    Marshall H. Bridges
Senior Vice President and Chief Financial Officer

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Section 2: EX-99.1 (EX-99.1)

Document


HNI Corporation 600 East Second Street, Muscatine, Iowa 52761, Tel 563 272 7400, Fax 563 272 7347, www.hnicorp.com

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News Release
                                    
For Information Contact:
Marshall H. Bridges, Senior Vice President and Chief Financial Officer (563) 272-7400
Matthew S. McCall, Vice President, Investor Relations and Corporate Development (563) 275-8898

HNI CORPORATION REPORTS EARNINGS
FOR THIRD QUARTER FISCAL YEAR 2020

MUSCATINE, Iowa (October 19, 2020) – HNI Corporation (NYSE: HNI) today announced sales for the third quarter ended September 26, 2020 of $507.1 million and net income of $30.7 million. GAAP net income per diluted share was $0.71, compared to $1.07 in the prior year. Non-GAAP net income per diluted share was $0.71, compared to $1.08 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Third Quarter Highlights
Strong results in Residential Building Products: Third quarter operating profit increased 27 percent; operating margin expanded 270 basis points; and net sales grew 9.3 percent on a year-over-year basis.
Solid profits in Workplace Furnishings: Third quarter 2020 operating profit was nearly $17 million, despite a 27 percent year-over-year contraction on the segment’s top line.
Continued strong cash flow: Third quarter operating cash flow increased $12.7 million or 12 percent versus the prior year quarter despite continued pandemic related top-line pressures. Operating cash flow for the first three quarters of 2020 totaled $143 million, which represents a 24 percent increase compared to the prior year period.
High-quality balance sheet: Quarter-ending debt levels were $175 million with a gross leverage ratio of approximately 0.9x. Cash totaled $109 million as of the end of the third quarter, representing an increase of $83 million from the second quarter balance.

“Our members delivered another solid quarter in an environment that remains uniquely challenging. And, again in the third quarter, our results demonstrate much of what is unique about HNI. Our diversified revenue streams, our ability and willingness to invest despite ongoing uncertainty, and our cost and expense
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management efforts combined to deliver strong free cash flow in the third quarter, positioning us well for the future,” stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.

HNI Corporation – Financial Performance
(Dollars in millions, except per share data)
Three Months Ended
September 26,
2020
September 28,
2019
Change
GAAP
Net Sales$507.1 $625.4 (18.9 %)
Gross Profit %36.6 %38.0 %-140 bps 
SG&A %28.9 %28.3 %60 bps 
Operating Income$38.8 $60.7 (36.1 %)
Operating Income %7.6 %9.7 %-210 bps 
Effective Tax Rate17.6 %21.2 %
Net Income %6.1 %7.4 %-130 bps 
EPS – diluted$0.71 $1.07 (33.6 %)
Non-GAAP
Gross Profit %36.6 %38.0 %-140 bps 
Operating Income$38.8 $61.1 (36.6 %)
Operating Income %7.6 %9.8 %-220 bps 
EPS – diluted$0.71 $1.08 (34.3 %)

Third Quarter Summary Comments
Consolidated net sales decreased 18.9 percent from the prior-year quarter to $507.1 million. On an organic basis, sales decreased 19.3 percent. The impact of residential building products distributors acquired in 2020 increased sales $2.4 million compared to the prior-year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
Gross profit margin decreased 140 basis points compared to the prior-year quarter. This decrease was primarily driven by lower Workplace Furnishings volume, partially offset by volume growth in Residential Building Products and net productivity.
Selling and administrative expenses as a percent of sales increased 60 basis points compared to prior-year quarter due to lower volume, partially offset by lower core SG&A spend, and freight & distribution productivity.
Consolidated operating income declined $21.9 million or 36.1 percent versus the prior year quarter. On a non-GAAP basis, the decline was $22.4 million, which equates to a decremental margin of 19 percent.
Non-GAAP net income per diluted share was $0.71 compared to $1.08 in the prior-year quarter.  The $0.37 decrease was due to lower Workplace Furnishings volume, partially offset by year-over-year SG&A expense management, net productivity benefits, and volume growth in Residential Building Products.



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Third Quarter Balance Sheet and Cash Flow
The Corporation’s cash balance totaled $109 million—representing an increase of $83 million from the second quarter’s total of $26 million.
Quarter-ending debt levels were $175 million, consisting of $100 million in private placement notes and $75 million drawn on the Corporation’s $450 million revolving line of credit. The gross leverage ratio was approximately 0.9x and well below the Corporation’s debt covenant of 3.5x.
Compared to the prior year period, cash flow from operating activities on a year-to-date basis increased 24 percent to $143 million. Improved working capital efficiency primarily drove the increase.
Capital expenditures on a year-to-date basis declined $21 million or 46 percent year-over-year. The decrease reflects the Corporation’s response to pandemic-related pressures. Investment in capitalized software increased $3.2 million or 77 percent year-over-year on a year-to-date basis, reflecting the Corporation’s emphasis on digital initiatives.
Third Quarter Orders
Orders in the Workplace Furnishings segment excluding eCommerce declined 25 percent year-over-year. This compares favorably to the 35 percent order decline in the second quarter of 2020. Monthly year-over-year order declines moderated through the third quarter; however, market conditions remain uncertain and volatile.
Orders in eCommerce increased 35 percent year-over-year. Much of the moderation from the second quarter’s triple-digit order increase was a result of tougher comparables and supply constraints. September eCommerce orders re-accelerated and are indicative of continued strong demand and improving inventory positions.
Orders in the Residential Building Products segment increased 13 percent compared to the prior year quarter. Remodel-retrofit activity was strong throughout the third quarter, and orders related to new home construction gained momentum over the period.






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Workplace Furnishings – Financial Performance
(Dollars in millions)
Three Months Ended
September 26,
2020
September 28,
2019
Change
GAAP
Net Sales$353.4 $484.8 (27.1 %)
Operating Profit$16.8 $51.2 (67.1 %)
Operating Profit %4.8 %10.6 %-580 bps 
Non-GAAP
Operating Profit$16.8 $51.7 (67.4 %)
Operating Profit %4.8 %10.7 %-590 bps 

Workplace Furnishings net sales decreased 27.1 percent from the prior-year quarter to $353.4 million.
Workplace Furnishings GAAP operating profit margin decreased 580 basis points versus the prior-year quarter. On a non-GAAP basis, segment operating margin decreased 590 basis points year-over-year driven by lower volume, partially offset by net productivity and lower core SG&A spend.

Residential Building Products – Financial Performance
(Dollars in millions)
Three Months Ended
September 26,
2020
September 28,
2019
Change
GAAP
Net Sales$153.7 $140.6 9.3 %
Operating Profit$30.2 $23.8 27.0 %
Operating Profit %19.6 %16.9 %270 bps 
Non-GAAP
Operating Profit$30.2 $23.8 27.0 %
Operating Profit %19.6 %16.9 %270 bps 

Residential Building Products net sales increased 9.3 percent from the prior-year quarter to $153.7 million. On an organic basis, sales increased 7.6 percent. The impact of building products distributors acquired in 2020 increased sales $2.4 million compared to the prior-year quarter.
Residential Building Products operating profit margin expanded 270 basis points, primarily driven by higher volume, favorable price-cost, lower core SG&A spend, and net productivity.

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Concluding Remarks
“As we look ahead, we are prepared to confront the continued near-term macro challenges. However, we see longer-term opportunity and signs our strategies are gaining momentum. I am extremely proud of all our HNI members and of the company’s collective perseverance and ability to adapt.

As we emerge from this period, we will do so as a stronger company— well positioned to grow revenue, expand margins, and generate cash flow,” Mr. Lorenger concluded.

Fourth Quarter 2020 Outlook
Limited visibility and volatile conditions: Pandemic-related uncertainty remains and limits the Corporation’s visibility.
Workplace Furnishings revenue: Recent order trends suggest year-over-year revenue declines will moderate slightly in the fourth quarter. Additionally, the fourth quarter 2020 benefits from an extra week in the fiscal calendar. Assuming the recent trends continue, the combination of these factors point to fourth quarter revenue declines in the mid-teens on a year-over-year rate basis.
Residential Building Products revenue: The Corporation believes cyclical strength, secular support, company-specific initiatives, and its strong competitive position support revenue growth acceleration. Recent order trends, housing construction activity, and the fourth quarter’s extra week suggest fourth quarter growth rates in the mid to high teens compared to the prior year quarter.
HNI decremental margins: The Corporation expects decremental margins for the full year to be less than 20 percent on a consolidated basis. This implies higher decremental margins in the fourth quarter, primarily driven by unfavorable business mix and accelerating investment levels.
Balance sheet: The Corporation continues to expect strong cash generation and estimates the year-ending debt to be approximately $175 million, consistent with the third quarter balance and the level reported at the end of 2019.


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Conference Call
HNI Corporation will host a conference call on Monday, October 19, 2020 at 10:00 a.m. (Central) to discuss third quarter fiscal year 2020 results. To participate, call 1-877-512-9166 – conference ID number 6673387. A live webcast of the call will be available on HNI Corporation’s website at http://www.hnicorp.com (under Investors – News Releases & Events). A replay of the webcast will also be made available at that website address. An audio replay of the call will be available until Monday, October 26, 2020, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 6673387.


About HNI Corporation
HNI Corporation (NYSE: HNI) is a manufacturer of workplace furnishings and residential building products, operating under two segments. The Workplace Furnishings segment is a leading global designer and provider of commercial furnishings, going to market under multiple unique brands. The Residential Building Products segment is the nation’s leading manufacturer and marketer of hearth products, which include a full array of gas, electric, wood, and pellet-burning fireplaces, inserts, stoves, facings, and accessories. More information can be found on the Corporation’s website at www.hnicorp.com.


Forward-Looking Statements
This release contains "forward-looking" statements based on current expectations regarding future plans, events, outlook, objectives, financial performance, expectations for sales growth, and earnings per diluted share (GAAP and non-GAAP), including statements regarding the expected effects on our business, financial condition and results of operations from the COVID-19 pandemic. Forward-looking statements can be identified by words including “expect,” “believe,” “anticipate,” “estimate,” “may,” “will,” “would,” “could,” “confident”, or other similar words, phrases, or expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation’s actual future results and performance to differ materially from expected results. These risks include but are not limited to: the duration and scope of the COVID-19 pandemic, and its effect on people and the economy; 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; change 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; impacts of tax legislation; and force majeure events outside the Corporation’s control. A description of these risks and additional risks can be found in the Corporation’s annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation assumes no obligation to update, amend, or clarify forward-looking statements, except as required by applicable law.
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HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)
Three Months EndedNine Months Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
Net sales$507,063 $625,386 $1,393,224 $1,630,868 
Cost of sales321,516 387,715 880,754 1,030,993 
Gross profit185,547 237,671 512,470 599,875 
Selling and administrative expenses146,785 176,731 449,933 511,080 
Impairment and restructuring charges— 284 32,661 1,214 
Operating income38,762 60,656 29,876 87,581 
Interest expense, net 1,517 2,205 5,271 6,795 
Income before income taxes37,245 58,451 24,605 80,786 
Income taxes6,558 12,375 5,259 17,878 
Net income30,687 46,076 19,346 62,908 
Less: Net loss attributable to non-controlling interest(1)(2)(3)(2)
Net income attributable to HNI Corporation$30,688 $46,078 $19,349 $62,910 
Average number of common shares outstanding – basic42,684 42,899 42,651 43,217 
Net income attributable to HNI Corporation per common share – basic$0.72 $1.07 $0.45 $1.46 
Average number of common shares outstanding – diluted43,010 43,186 42,905 43,620 
Net income attributable to HNI Corporation per common share – diluted$0.71 $1.07 $0.45 $1.44 
Foreign currency translation adjustments$923 $(1,035)$368 $(406)
Change in unrealized gains (losses) on marketable securities, net of tax(33)36 269 252 
Change in pension and post-retirement liability, net of tax— — — (1,185)
Change in derivative financial instruments, net of tax106 (477)(2,393)(2,112)
Other comprehensive income (loss), net of tax996 (1,476)(1,756)(3,451)
Comprehensive income31,683 44,600 17,590 59,457 
Less: Comprehensive loss attributable to non-controlling interest(1)(2)(3)(2)
Comprehensive income attributable to HNI Corporation$31,684 $44,602 $17,593 $59,459 
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HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
September 26,
2020
December 28,
2019
Assets
Current Assets:
   Cash and cash equivalents$109,385 $52,073 
   Short-term investments1,495 1,096 
   Receivables209,921 278,124 
   Allowance for doubtful accounts(5,991)(3,559)
   Inventories144,135 163,465 
   Prepaid expenses and other current assets41,490 37,635 
     Total Current Assets500,435 528,834 
Property, Plant, and Equipment:
   Land and land improvements29,782 29,394 
   Buildings295,998 295,517 
   Machinery and equipment577,442 581,225 
   Construction in progress12,142 20,881 
915,364 927,017 
   Less accumulated depreciation551,031 545,510 
     Net Property, Plant, and Equipment364,333 381,507 
Right-of-use Finance Leases2,193 2,129 
Right-of-use Operating Leases73,896 72,883 
Goodwill and Other Intangible Assets412,287 445,709 
Other Assets21,581 21,450 
     Total Assets$1,374,725 $1,452,512 
Liabilities and Equity
Current Liabilities:
   Accounts payable and accrued expenses$390,535 $453,202 
   Current maturities of long-term debt— 790 
   Current maturities of other long-term obligations2,890 1,931 
   Current lease obligations - Finance691 564 
   Current lease obligations - Operating23,124 22,218 
     Total Current Liabilities417,240 478,705 
Long-Term Debt174,502 174,439 
Long-Term Lease Obligations - Finance1,522 1,581 
Long-Term Lease Obligations - Operating57,948 58,233 
Other Long-Term Liabilities67,187 67,990 
Deferred Income Taxes82,736 87,196 
Equity:
HNI Corporation shareholders' equity573,269 584,044 
Non-controlling interest321 324 
     Total Equity573,590 584,368 
     Total Liabilities and Equity$1,374,725 $1,452,512 
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HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 26,
2020
September 28,
2019
Net Cash Flows From (To) Operating Activities:
Net income$19,346 $62,908 
Non-cash items included in net income:
Depreciation and amortization57,917 57,838 
Other post-retirement and post-employment benefits1,104 1,106 
Stock-based compensation6,746 5,408 
Reduction in carrying amount of right-of-use assets16,965 17,252 
Deferred income taxes(3,730)4,798 
Impairment of goodwill and intangible assets32,661 — 
Other – net815 4,473 
Net increase (decrease) in operating assets and liabilities, net of divestitures13,316 (28,359)
Increase (decrease) in other liabilities(1,779)(9,802)
Net cash flows from (to) operating activities143,361 115,622 
Net Cash Flows From (To) Investing Activities:
Capital expenditures(24,751)(46,093)
Proceeds from sale of property, plant, and equipment81 247 
Acquisition spending, net of cash acquired(10,857)— 
Capitalized software(7,250)(4,098)
Purchase of investments(3,922)(6,140)
Sales or maturities of investments3,246 3,889 
Other – net— 2,327 
Net cash flows from (to) investing activities(43,453)(49,868)
Net Cash Flows From (To) Financing Activities:
Payments of long-term debt(82,828)(125,039)
Proceeds from long-term debt82,119 115,775 
Dividends paid(39,060)(39,164)
Purchase of HNI Corporation common stock(6,764)(65,106)
Proceeds from sales of HNI Corporation common stock2,210 22,338 
Other – net1,727 1,636 
Net cash flows from (to) financing activities(42,596)(89,560)
Net increase (decrease) in cash and cash equivalents57,312 (23,806)
Cash and cash equivalents at beginning of period52,073 76,819 
Cash and cash equivalents at end of period$109,385 $53,013 
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HNI Corporation and Subsidiaries
Reportable Segment Data
(In thousands)

(Unaudited)
Three Months EndedNine Months Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
Net Sales:
Workplace furnishings$353,361 $484,755 $999,827 $1,247,778 
Residential building products153,702 140,631 393,397 383,090 
Total$507,063 $625,386 $1,393,224 $1,630,868 
Income (Loss) Before Income Taxes:
Workplace furnishings$16,826 $51,162 $(8,619)$68,180 
Residential building products30,197 23,772 65,232 54,743 
General corporate(8,261)(14,278)(26,737)(35,342)
Operating Income38,762 60,656 29,876 87,581 
Interest expense, net1,517 2,205 5,271 6,795 
Total$37,245 $58,451 $24,605 $80,786 
Depreciation and Amortization Expense:
Workplace furnishings $11,065 $11,232 $33,177 $33,540 
Residential building products2,351 2,291 6,976 6,521 
General corporate5,896 5,863 17,764 17,777 
Total$19,312 $19,386 $57,917 $57,838 
Capital Expenditures (including capitalized software):
Workplace furnishings$6,946 $6,524 $18,340 $29,190 
Residential building products2,695 3,204 5,874 10,779 
General corporate1,584 2,856 7,787 10,222 
Total$11,225 $12,584 $32,001 $50,191 
As of
September 26,
2020
As of
December 28, 2019
Identifiable Assets:
Workplace furnishings$714,896 $874,913 
Residential building products393,941 364,653 
General corporate265,888 212,946 
Total$1,374,725 $1,452,512 



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Non-GAAP Financial Measures

This earnings release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to HNI’s financial statements as prepared in accordance with GAAP are included below and throughout this earnings release. This information gives investors additional insights into HNI’s financial performance and operations. While HNI’s management believes the non-GAAP financial measures are useful in evaluating HNI’s operations, this information should be considered supplemental and not in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

To supplement condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, this earnings release uses the following non-GAAP financial measures: organic sales, gross profit, operating income, operating profit, income taxes, net income, and net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the impacts of the selected items as summarized in the table below. Generally, non-GAAP EPS is calculated using HNI’s overall effective tax rate for the year, as this rate is reflective of the tax applicable to most non-GAAP adjustments.

The sales adjustments to arrive at the non-GAAP organic sales information included in this earnings release excludes the impact of acquiring residential building products distributors. Restructuring charges incurred in the prior year period are primarily comprised of severance costs related to a structural realignment in the Workplace Furnishings segment. Transition items incurred in connection with this realignment include member relocation costs.

HNI Corporation Reconciliation
(Dollars in millions)
Three Months Ended
September 26, 2020September 28, 2019
Workplace FurnishingsResidential Building ProductsTotalWorkplace FurnishingsResidential Building ProductsTotal
Sales as reported (GAAP)$353.4 $153.7 $507.1 $484.8 $140.6 $625.4 
% change from PY(27.1 %)9.3 %(18.9 %)
Less: Acquisitions— 2.4 2.4 — — — 
Organic Sales (non-GAAP)$353.4 $151.3 $504.6 $484.8 $140.6 $625.4 
% change from PY(27.1 %)7.6 %(19.3 %)




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HNI Corporation Reconciliation
(Dollars in millions, except per share data)
Three Months Ended
September 28, 2019
Gross ProfitOperating Income
Tax
Net Income
EPS
As reported (GAAP)$237.7 $60.7 $12.4 $46.1 $1.07 
% of net sales38.0 %9.7 %7.4 %
Tax %21.2 %
Restructuring charges— 0.3 0.1 0.2 0.01 
Transition costs— 0.2 0.0 0.2 0.00 
Results (non-GAAP)$237.7 $61.1 $12.5 $46.5 $1.08 
% of net sales38.0 %9.8 %7.4 %
Tax %21.2 %


Workplace Furnishings Reconciliation
(Dollars in millions)
Three Months Ended
September 26,
2020
September 28,
2019
Percent Change
Operating profit as reported (GAAP)$16.8 $51.2 (67.1 %)
% of net sales4.8 %10.6 %
Restructuring charges— 0.3 
Transition costs— 0.2 
Operating profit (non-GAAP)$16.8 $51.7 (67.4 %)
% of net sales4.8 %10.7 %
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