HNI Corporation 600 East Second Street, Muscatine, Iowa 52761, Tel ###-###-####, Fax ###-###-####, www.hnicorp.com News Release

Contract Categories: Business Finance - Release Agreements
EX-2.02 2 hni-q117ex991.htm EXHIBIT 2.02 Exhibit

HNI Corporation 600 East Second Street, Muscatine, Iowa 52761, Tel ###-###-####, Fax ###-###-####, www.hnicorp.com

                        
News Release
                                    
For Information Contact:
Marshall H. Bridges, Vice President and Chief Financial Officer ###-###-####
Jack D. Herring, Treasurer, Director of Finance and Investor Relations ###-###-####

HNI CORPORATION REPORTS EARNINGS
FOR FIRST QUARTER FISCAL YEAR 2017

MUSCATINE, Iowa (April 19, 2017) – HNI Corporation (NYSE: HNI) today announced sales for the first quarter ended April 1, 2017 of $477.7 million and net income of $4.8 million. GAAP net income per diluted share was $0.11. Non-GAAP net income per diluted share was $0.26 compared to $0.31 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Summary Comments
"First quarter results were better than expected. Our businesses continue to compete well and generated sales at the high end of our anticipated range. As expected, the demand environment started slowly and improved throughout the quarter. We are pleased with the positive customer response to our recent investments and remain committed to driving long-term shareholder value," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.



1


First Quarter - Financial Performance
(Dollars in millions, except per share data)
 
          Three Months Ended
 
 
4/1/2017

4/2/2016

Change
GAAP
 
 
 
Net Sales

$477.7


$501.0

(4.7
%)
Gross Profit %
36.4
%
37.1
%
-70 bps

SG&A %
34.3
%
33.0
%
130 bps

Restructuring charges %
0.4
%
0.2
%
20 bps

Operating Income

$7.9


$19.5

(59.4
%)
Operating Income %
1.7
%
3.9
%
-220 bps

Net Income %
1.0
%
2.4
%
-140 bps

EPS – diluted

$0.11


$0.26

(57.7
%)
 
 
 
 
Non-GAAP
 
 
 
Organic Sales

$471.9


$486.0

(2.9
%)
Gross Profit %
38.0
%
37.4
%
60 bps

SG&A %
34.3
%
33.0
%
130 bps

Operating Income

$18.1


$22.4

(19.3
%)
Operating Income %
3.8
%
4.5
%
-70 bps

EPS – diluted

$0.26


$0.31

(16.1
%)

First Quarter Summary Comments
Consolidated net sales decreased $23.4 million or 4.7 percent to $477.7 million. Acquisitions and divestitures of small office furniture companies decreased sales $9.3 million compared to the prior year quarter. On an organic basis, sales decreased 2.9 percent.
GAAP gross profit margin decreased 70 basis points compared to prior year driven by restructuring and transition costs. Non-GAAP gross profit margin, which excludes these costs, increased 60 basis points compared to prior year driven by productivity, impact of divestitures and net price realization, partially offset by lower volume.
Selling and administrative expenses increased as a percentage of sales due to strategic growth investments and lower volume, partially offset by the impact of divestitures, lower incentive based compensation and the impact of stock price change on deferred compensation.
The Corporation recorded $6.3 million of restructuring costs and $3.8 million of transition costs in the first quarter in connection with previously announced facility closures and structural realignments. $8.0 million of these charges were included in cost of sales. Specific items incurred include severance, accelerated depreciation and production move costs.






2


Office Furniture – Financial Performance
(Dollars in millions)
 
          Three Months Ended
 
 
4/1/2017

4/2/2016

Change
GAAP
 
 
 
Net Sales

$360.0


$387.3

(7.1
%)
Operating Profit

$6.4


$21.3

(69.7
%)
Operating Profit %
1.8
%
5.5
%
-370 bps

 
 
 
 
Non-GAAP
 
 
 
Organic Sales

$354.2


$372.3

(4.9
%)
Operating Profit

$12.8


$23.0

(44.4
%)
Operating Profit %
3.5
%
5.9
%
-240 bps



First quarter net sales decreased $27.4 million or 7.1 percent to $360.0 million. Sales for the quarter decreased in the supplies, North American contract and international businesses. Acquisitions and divestitures of small office furniture companies decreased sales $9.3 million compared to the prior year quarter. On an organic basis, sales decreased 4.9 percent.
First quarter GAAP operating profit margin decreased 370 basis points. Excluding restructuring and transition costs, non-GAAP operating profit margin declined 240 basis points due to lower volume and strategic growth investments, partially offset by productivity, impact of divestitures and lower incentive based compensation.

Hearth Products – Financial Performance
(Dollars in millions)
 
          Three Months Ended
 
 
4/1/2017

4/2/2016

Change
GAAP
 
 
 
Net Sales

$117.7


$113.7

3.5
%
Operating Profit

$11.8


$12.6

(6.0
%)
Operating Profit %
10.0
%
11.0
%
-100 bps

 
 
 
 
Non-GAAP
 
 
 
Operating Profit

$15.6


$13.8

13.5
%
Operating Profit %
13.3
%
12.1
%
120 bps


First quarter net sales increased $4.0 million or 3.5 percent to $117.7 million. Sales for the quarter increased in the new construction, retail wood/gas and retail pellet businesses.
First quarter GAAP operating profit margin declined 100 basis points. Excluding restructuring and transition costs, non-GAAP operating profit margin increased 120 basis points due to higher volume and favorable operational performance.


3



Outlook
"We remain confident in our strategies. We continue to streamline our core businesses while significantly investing for long term profitable growth. We are continuously bolstering our industry leading, best cost producer position, which allows us to deliver greater value to customers and drives both growth and profitability.

Our markets continue to improve. We expect solid organic sales growth during 2017 driven by a strengthening economy and investments in new products and selling capabilities,” said Mr. Askren.

The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.80 to $3.10, which excludes restructuring and transition costs. Full year organic sales are expected to be up 3 to 6 percent. Including the impacts of acquisitions and divestitures, sales are expected to be up 2 percent to down 1 percent.

For the second quarter, organic sales are expected to be up 4 to 7 percent led by 12 to 15 percent organic growth in the contract office furniture business. Including the impacts of acquisitions and divestitures, total sales are expected to be flat to up 3 percent. Non-GAAP earnings per share are anticipated to be in the range of $0.65 to $0.72 for the second quarter, which excludes restructuring and transition costs.


Conference Call
HNI Corporation will host a conference call on Thursday, April 20, 2017 at 10:00 a.m. (Central) to discuss first quarter fiscal year 2017 results. To participate, call ###-###-#### – conference ID number 78985944. 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 be made available at this website address. An audio replay of the call will be available until Thursday, April 27, 2017, 10:59 p.m. (Central) by dialing ###-###-#### or ###-###-#### – Conference ID number 78985944.

About HNI Corporation
HNI Corporation is a NYSE traded company (ticker symbol:  HNI) providing products and solutions for the home and workplace environments. HNI Corporation is a leading global provider and designer of office furniture and the leading manufacturer and marketer of hearth products. We sell the broadest and deepest selection of quality office furniture solutions available to meet the needs of every customer through an extensive portfolio of well-known and trusted brands. Our hearth products are the strongest, most respected brands in the industry and include a full array of gas, electric, wood and biomass burning fireplaces, inserts, stoves, facings and accessories. More information can be found on the Corporation's website at www.hnicorp.com.









4



Forward-looking Statements

This release contains "forward-looking" statements based on current expectations regarding future plans, events, outlook, objectives and financial performance, expectations for future sales growth and earnings per diluted share (GAAP and non-GAAP). 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: general economic conditions in the United States and internationally; unfavorable changes in the United States housing market; industry and competitive conditions; a decline in corporate spending on office furniture; changes in raw material, component or commodity pricing; future acquisitions, divestitures or investments; the cost of energy; changing legal, regulatory, environmental and healthcare conditions; the Corporation’s ability to successfully complete its business software system implementation; the Corporation’s ability to implement price increases; changes in the sales mix of products; the Corporation's ability to achieve the anticipated benefits from closures and structural alignment initiatives; 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 undertakes no obligation to update, amend or clarify forward-looking statements.

5


HNI CORPORATION
Unaudited Condensed Consolidated Statement of Operations

(Dollars in thousands, except per share data)
      Three Months Ended
4/1/2017

4/2/2016

Net sales

$477,667


$501,037

Cost of products sold
303,944

315,326

Gross profit
173,723

185,711

Selling and administrative expenses
163,666

165,106

Restructuring charges
2,123

1,086

Operating income
7,934

19,519

Interest income
71

78

Interest expense
1,046

1,874

Income before income taxes
6,959

17,723

Income taxes
2,178

5,881

Net income
4,781

11,842

Less: Net loss attributable to the noncontrolling interest
(56
)
(1
)
Net income attributable to HNI Corporation

$4,837


$11,843

 
 
 
Net income attributable to HNI Corporation common shareholders – basic

$0.11


$0.27

Average number of common shares outstanding – basic
44,050,040

44,258,357

 
 
 
Net income attributable to HNI Corporation common shareholders – diluted

$0.11


$0.26

Average number of common shares outstanding – diluted
45,452,664

45,039,918


6


Unaudited Condensed Consolidated Balance Sheet
 
As of

 
As of

(Dollars in thousands)
4/1/2017

 
12/31/2016

Assets
 
 
 
Current Assets
 
 
 
   Cash and cash equivalents

$29,128

 

$36,312

   Short-term investments
1,261

 
2,252

   Receivables
191,892

 
229,436

   Inventories
143,713

 
118,438

   Prepaid expenses and other current assets
52,024

 
46,603

     Total Current Assets
418,018

 
433,041

Property, Plant and Equipment
 
 
 
   Land and land improvements
28,960

 
27,403

   Buildings
303,904

 
283,930

   Machinery and equipment
533,771

 
528,099

   Construction in progress
38,843

 
51,343

     Gross Property, Plant, and Equipment
905,478

 
890,775

   Less accumulated depreciation
542,172

 
534,330

     Net Property, Plant, and Equipment
363,306

 
356,445

Goodwill
290,687

 
290,699

Deferred Income Taxes
757

 
719

Other Assets
253,515

 
249,330

     Total Assets

$1,326,283

 

$1,330,234

 
 
 
 
Liabilities and Equity
 
 
 
Current Liabilities
 
 
 
   Accounts payable and accrued expenses

$346,141

 

$425,046

   Current maturities of long-term debt
116,674

 
34,017

   Current maturities of other long-term obligations
3,176

 
4,410

     Total Current Liabilities
465,991

 
463,473

Long-term Debt
175,000

 
180,000

Other Long-term Liabilities
72,166

 
75,044

Deferred Income Taxes
111,666

 
110,708

 
 
 
 
Parent Company Shareholders' Equity
501,110

 
500,603

Noncontrolling Interest
350

 
406

     Total Shareholders' Equity
501,460

 
501,009

     Total Liabilities and Shareholders' Equity

$1,326,283

 

$1,330,234



7


Unaudited Condensed Consolidated Statement of Cash Flows
 
            Three Months Ended
(Dollars in thousands)
4/1/2017

4/2/2016

Net cash flows from (to) operating activities

($36,141
)

($20,230
)
Net cash flows from (to) investing activities
(31,118
)
(60,926
)
Net cash flows from (to) financing activities
60,075

91,174

Net increase (decrease) in cash and cash equivalents
(7,184
)
10,018

Cash and cash equivalents at beginning of period
36,312

28,548

Cash and cash equivalents at end of period

$29,128


$38,566


Business Segment Data
 
      Three Months Ended
(Dollars in thousands)
4/1/2017

4/2/2016

Net sales:
 
 
Office furniture

$359,981


$387,339

Hearth products
117,686

113,698

 

$477,667


$501,037

 
 
 
Operating profit:
 
 
Office furniture

$6,444


$21,300

Hearth products
11,811

12,561

Total operating profit
18,255

33,861

Unallocated corporate expense
(11,296
)
(16,138
)
Income before income taxes

$6,959


$17,723

 
 
 
Depreciation and amortization expense:
 
 
Office furniture

$12,885


$10,693

Hearth products
3,488

2,656

General corporate
2,466

1,902

 

$18,839


$15,251

 
 
 
Capital expenditures (including capitalized software):
 
 
Office furniture

$21,020


$16,468

Hearth products
2,078

2,553

General corporate
9,678

8,436

 

$32,776


$27,457

 
 
 
 
As of

As of

 
4/1/2017

12/31/2016

Identifiable assets:
 
 
Office furniture

$752,115


$749,145

Hearth products
340,544

340,494

General corporate
233,624

240,595

 

$1,326,283


$1,330,234


8



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. HNI’s management believes providing investors with this information gives additional insights into HNI’s financial performance and operations. While HNI’s management believes that the non-GAAP financial measures herein are useful in evaluating HNI’s operations, this information should be considered supplemental and should not be considered 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 our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures within this earnings release: organic sales, gross profit, operating income, operating profit, and net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the after-tax impacts of the selected items as summarized in the table below. Non-GAAP EPS is calculated using HNI’s overall effective tax rate for the period.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release include the impacts of acquisitions and divestitures. The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release include restructuring and transition costs. The restructuring and transition costs are costs incurred as part of the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana and structural realignments between office furniture facilities in Muscatine, Iowa and China. Specific restructuring items incurred include severance and accelerated depreciation. Specific transition items incurred include severance and production move costs.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the fiscal year. We provide such non-GAAP measures to investors on a prospective basis for the same reasons we provide them to investors on a historical basis. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP earnings per diluted share to a forward-looking estimate of GAAP earnings per diluted share without unreasonable efforts because certain information needed to make a reasonable forward-looking estimate of GAAP earnings per diluted share is highly variable and difficult to predict and estimate, and is dependent on future events which are uncertain or outside of our control. These may include unanticipated charges related to asset impairments (fixed assets, intangibles or goodwill), unanticipated acquisition related costs and other unanticipated nonrecurring items not reflective of ongoing operations. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our GAAP earnings per diluted share.



9


HNI Corporation Reconciliation
(Dollars in millions)
 
Three Months Ended 4/1/2017
 
Three Months Ended 4/2/2016
 
Office Furniture
Hearth
Total
 
Office Furniture
Hearth
Total
Sales as reported (GAAP)

$360.0


$117.7


$477.7

 

$387.3


$113.7


$501.0

% change from PY
(7.1
%)
3.5
%
(4.7
%)
 
 
 
 
 
 
 
 
 
 
 
 
Less: Impact of Acquisitions and Divestitures
5.8


5.8

 
15.0


15.0

 
 
 
 
 
 
 
 
Organic Sales (non-GAAP)

$354.2


$117.7


$471.9

 

$372.3


$113.7


$486.0

% change from PY
(4.9
%)
3.5
%
(2.9
%)
 
 
 
 





HNI Corporation Reconciliation
(Dollars in millions, except per share data)
 
Three Months Ended 4/1/2017
 
Gross Profit
 
Operating Income
 
Tax
 
Net Income
 

EPS
As reported (GAAP)

$173.7

 

$7.9

 

$2.2

 

$4.8

 

$0.11

% of net sales
36.4
%
 
1.7
%
 
 
 
1.0
%
 
 
Tax %
 
 
 
 
31.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
4.2

 
6.4

 
1.9

 
4.4

 

$0.09

Transition costs
3.8

 
3.8

 
1.2

 
2.6

 

$0.06

 
 
 
 
 
 
 
 
 
 
Results (non-GAAP)

$181.7

 

$18.1

 

$5.3

 

$11.8

 

$0.26

% of net sales
38.0
%
 
3.8
%
 
 
 
2.5
%
 
 
Tax %
 
 
 
 
31.0
%
 
 
 
 




10


HNI Corporation Reconciliation
(Dollars in millions, except per share data)
 
Three Months Ended 4/2/2016
 
Gross Profit
 
Operating Income
 
Tax
 
Net Income
 

EPS
As reported (GAAP)

$185.7

 

$19.5

 

$5.9

 

$11.8

 

$0.26

% of net sales
37.1
%
 
3.9
%
 
 
 
2.4
%
 
 
Tax %
 
 
 
 
33.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
0.0

 
1.1

 
0.3

 
0.7

 

$0.02

Transition costs
1.8

 
1.8

 
0.6

 
1.2

 

$0.03

 
 
 
 
 
 
 
 
 
 
Results (non-GAAP)

$187.5

 

$22.4

 

$6.8

 

$13.7

 

$0.31

% of net sales
37.4
%
 
4.5
%
 
 
 
2.7
%
 
 
Tax %
 
 
 
 
33.2
%
 
 
 
 

Office Furniture Reconciliation
(Dollars in millions)
 
Three Months Ended
 
Percent
Change
 
4/1/2017
 
4/2/2016
 
Operating profit as reported (GAAP)

$6.4

 

$21.3

 
(69.7
%)
% of net sales
1.8
%
 
5.5
%
 
 
 
 
 
 
 
 
Restructuring charges
3.4

 
0.2

 
 
Transition costs
3.0

 
1.5

 
 
 
 
 
 
 
 
Operating profit (non-GAAP)

$12.8

 

$23.0

 
(44.4
%)
% of net sales
3.5
%
 
5.9
%
 
 
 
Hearth Reconciliation
(Dollars in millions)
 
Three Months Ended
 
Percent
Change
 
4/1/2017
 
4/2/2016
 
Operating profit as reported (GAAP)

$11.8

 

$12.6

 
(6.0
%)
% of net sales
10.0
%
 
11.0
%
 
 
 
 
 
 
 
 
Restructuring charges
3.0

 
0.9

 
 
Transition costs
0.8

 
0.3

 
 
 
 
 
 
 
 
Operating profit (non-GAAP)

$15.6

 

$13.8

 
13.5
%
% of net sales
13.3
%
 
12.1
%
 
 

11