HNI Corporation Announces Results for Second Quarter Fiscal 2010

Company Release - 7/21/2010 5:30 PM ET

MUSCATINE, Iowa, July 21 /PRNewswire-FirstCall/ -- HNI Corporation (NYSE: HNI) today announced sales of $398.2 million and income from continuing operations of $5.6 million for the second quarter ending July 3, 2010.  Net income per diluted share from continuing operations for the quarter was $0.12 or $0.15 on a non-GAAP basis when excluding restructuring and impairment charges and transition costs.  

Second Quarter Summary Comments

"Strengthening demand in office furniture combined with outstanding execution across the businesses drove strong second quarter results.  We continue to leverage our reset cost structure, enhance our network distribution model and invest in selling and growth initiatives. Our performance allowed us to deliver significantly improved results versus prior year and exceed second quarter expectations," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.


Second Quarter


Three Months Ended

Percent Change

Dollars in millions

except per share data

7/03/2010


7/04/2009








Net sales

$398.2


$374.8


6.3%

Gross margin

$141.3


$127.6


10.8%

Gross margin %

35.5%


34.0%



SG&A

$129.3


$126.5


2.2%

SG&A %

32.5%


33.8%



Operating income

$12.0


$1.0


NM

Operating income %

3.0%


0.3%



Income (loss) from continuing operations

$5.6


$(1.2)


566.7%







Earnings per share from continuing operations attributable to Parent Company - diluted

$0.12


$(0.03)


500.0%




Second Quarter Results – Continuing Operations

  • Consolidated net sales increased $23.5 million or 6.3 percent to $398.2 million.  
  • Gross margins were 1.5 percentage points higher than prior year primarily due to higher volume and cost reduction initiatives partially offset by lower price realization and higher mix of lower margin products in the office furniture segment.
  • Total selling and administrative expenses as a percent of net sales, including restructuring charges, improved 1.3 percentage points due to higher volume and cost reduction initiatives partially offset by investments in selling initiatives and increased incentive based compensation.
  • The Corporation's second quarter results included $2.4 million of restructuring and transition costs associated with shutdown and consolidation of production of office furniture manufacturing locations of which $1.1 million were included in cost of sales.  Included in 2009 were $5.2 million of restructuring charges of which $1.4 million were included in cost of sales.  Second quarter 2009 also included a non-operating gain of $1.3 million.
  • The Corporation estimates additional charges related to various restructuring initiatives will impact pre-tax earnings by $2.6 million over the remainder of 2010.








Second Quarter – Non-GAAP Financial Measures – Continuing Operations

(Reconciled with most comparable GAAP financial measures)








Dollars in millions







except per share data

Three Months Ended


Three Months Ended




7/03/2010




7/04/2009




Gross
Profit


Operating
Income


EPS


Gross
Profit


Operating
Income


EPS





As reported (GAAP)

$141.3


$12.0


$0.12


$127.6


$1.0


$(0.03)


% of net sales

35.5%


3.0%


34.0%


0.3%



















Restructuring and impairment

$0.9


$2.1


$0.03


$1.4


$5.2


$0.08


Transition costs

$0.3


$0.3


$0.00


-


-


-


Non-operating gain

-


-


-


-


$(1.3)


$(0.02)















Results (non-GAAP)

$142.4


$14.4


$0.15


$128.9


$5.0


$0.03




Year-to-Date Results

Consolidated net sales for the first six months of 2010 decreased $9.9 million, or 1.3 percent, to $761.7 million compared to $771.6 million in 2009.  Gross margins increased to 34.2 percent compared to 32.4 percent last year.  Income from continuing operations was $6.6 million compared to a loss of $15.3 million in 2009.  Earnings per share from continuing operations increased to $0.03 per diluted share compared to ($0.29) per diluted share last year.

Cash flow from operations for the first six months of 2010 was $1.5 million compared to $49.4 million last year.  Operating cash flow results in 2009 were positively impacted by reductions in accounts receivable due to decreased revenue.  Capital expenditures were $12.4 million in 2010 compared to $7.8 million in 2009.  The Corporation repurchased 372,822 shares of its common stock at a cost of $10.3 million during the first six months of 2010.  There is approximately $153.3 million remaining under the current repurchase authorization.  

Discontinued Operations

The Corporation made a decision during the first quarter to sell a small, non-core business of the office furniture segment and recorded a pre-tax charge of $1.0 million to reduce the assets held for sale to fair market value.  In addition the Corporation sold a small, non-core component of the hearth products segment during the first quarter.  A pre-tax charge of $0.4 million was recorded at the time of sale.  During the second quarter an additional pre-tax charge of $1.7 million was recorded related to the office furniture business to reduce the assets held for sale to the fair market value based on changes in negotiations with prospective buyers.  Revenues and expenses associated with these business operations are shown as discontinued operations for all periods presented in the financial statements.


Office Furniture



Dollars in millions

Three Months Ended


Percent Change

7/03/2010


7/04/2009


Sales

$342.7


$318.0


7.8%

Operating profit

$22.7


$17.1


32.8%

Operating profit %

6.6%


5.4%







Second Quarter – Non-GAAP Financial Measures

(Reconciled with most comparable GAAP financial measures)



Three Months Ended


Percent


Dollars in millions

7/03/2010


7/04/2009


Change









Operating profit as reported (GAAP)

$22.7


$17.1


32.8%


% of Net Sales

6.6%


5.4%











Restructuring and impairment

$2.1


$3.7




Transition costs

$0.3


-











Operating profit (non-GAAP)

$25.1


$20.8


20.4%


% of Net Sales

7.3%


6.5%







  • Second quarter sales for the office furniture segment increased to $342.7 million.  The increase was across all channels of the Corporation's office furniture segment.  
  • Second quarter operating profit increased $5.6 million.  Operating profit was positively impacted by higher volume, improved distribution efficiencies, cost reduction initiatives and lower restructuring and transition costs.  These were partially offset by lower price realization, higher mix of lower margin products, increased fuel costs, investments in selling initiatives and higher incentive based compensation.


Hearth Products



Dollars in millions

Three Months Ended


Percent Change


7/03/2010


7/04/2009


Sales

$55.5


$56.8


-2.3%


Operating profit (loss)

$(2.6)


$(9.0)


70.8%


Operating profit %

-4.7%


-15.9%








Second Quarter – Non-GAAP Financial Measures

(Reconciled with most comparable GAAP financial measures)



Three Months Ended


Percent


Dollars in millions

7/03/2010


7/04/2009


Change









Operating profit (loss) as reported (GAAP)

$(2.6)


$(9.0)


70.8%


% of Net Sales

-4.7%


-15.9%











Restructuring and impairment

-


$1.5




Transition costs

-


-











Operating profit (loss) (non-GAAP)

$(2.6)


$(7.5)


64.9%


% of net sales

-4.7%


-13.2%







  • Second quarter sales for the hearth products segment decreased $1.3 million driven by a decline in the remodel-retrofit channel partially offset by an increase in the new construction channel.  
  • Second quarter operating profit increased $6.4 million.  Operating profit was positively impacted by cost reduction initiatives and lower restructuring costs partially offset by lower volume and higher material costs.

Outlook

"I am encouraged by the strengthened demand across our businesses, despite the ongoing economic uncertainty.  We are accelerating investments in selling, marketing and product initiatives to grow our businesses and deliver long-term shareholder value.   We remain focused on improving operations and reducing our cost structure.   The Corporation is financially strong and well positioned for the future," said Mr. Askren.

The Corporation remains focused on creating long-term shareholder value by growing its business through investment in building brands, product solutions and selling models, enhancing its strong member-owner culture, and remaining focused on its long-standing rapid continuous improvement programs to build best total cost and a lean enterprise.

Conference Call

HNI Corporation will host a conference call on Thursday, July 22, 2010 at 10:00 a.m. (Central) to discuss first quarter results.  To participate, call the conference call line at 1-800-288-8975.  A replay of the conference call will be available until Thursday, July 29, 11:59 p.m. (Central).  To access this replay, dial 1-800-475-6701 – Access Code:  164082.  A link to the simultaneous webcast can be found on the Corporation's website at www.hnicorp.com.

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures.  A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flow of the company.  Pursuant to the requirements of Regulation G, the Corporation has provided a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures used within this earnings release are:  gross profit, operating income (loss), operating profit (loss) and net income (loss) per diluted share from continuing operations (i.e., EPS), excluding restructuring and impairment charges, transition costs and non-operating gains.  These measures are presented because management uses this information to monitor and evaluate financial results and trends.  Management believes this information is also useful for investors.

HNI Corporation is a NYSE traded company (ticker symbol: HNI) providing products and solutions for the home and workplace environments.  HNI Corporation is the second largest office furniture manufacturer in the world and is also the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces.  The Corporation's strong brands, including HON®, Allsteel®, Gunlocke®, Paoli®, Maxon®, Lamex®, HBF® , Heatilator®, Heat & Glo™, Quadra-Fire® and Harman Stove™ have leading positions in their markets.  HNI Corporation is committed to maintaining its long-standing corporate values of integrity, financial soundness and a culture of service and responsiveness.  More information can be found on the Corporation's website at www.hnicorp.com.

Statements in this release that are not strictly historical, including statements as to plans, outlook, objectives and future financial performance, are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Words such as "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and variations of such words and similar expressions identify forward-looking statements.  Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual results in the future to differ materially from expected results.  These risks include, without limitation:  the Corporation's ability to realize financial benefits from its (a) price increases, (b) cost containment and business simplification initiatives for the entire Corporation, (c) investments in strategic acquisitions, new products and brand building, (d) investments in distribution and rapid continuous improvement, (e) ability to maintain its effective tax rate, (f) repurchases of common stock, and (g) consolidation and logistical realignment initiatives; uncertainty related to the availability of cash and credit, and the terms and interest rates on which credit would be available, to fund operations and future growth; lower than expected demand for the Corporation's products due to uncertain political and economic conditions, including the recent credit crisis, slow or negative growth rates in global and domestic economies and the protracted decline in the domestic housing market; lower industry growth than expected; major disruptions at key facilities or in the supply of any key raw materials, components or finished goods; uncertainty related to disruptions of business by terrorism, military action, epidemic, acts of God or other Force Majeure events; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials (including steel and petroleum based materials); higher than expected costs for energy and fuel; changes in the mix of products sold and of customers purchasing; relationships with distribution channel partners, including the financial viability of distributors and dealers; restrictions imposed by the terms of the Corporation's revolving credit facility and note purchase agreement; currency fluctuations and other factors described 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, whether as a result of new information, future events or otherwise, except as required by applicable law.

HNI CORPORATION

Unaudited Condensed Consolidated Statement of Operations



(Dollars in thousands, except per share data)

Three Months Ended

Six Months Ended

Jul. 3, 2010

Jul. 4, 2009

Jul. 3, 2010

Jul. 4, 2009

Net Sales

$398,222

$374,773

$761,728

$771,602

Cost of products sold

256,905

247,215

501,231

521,398

Gross profit

141,317

127,558

260,497

250,204

Selling and administrative expenses

128,032

122,637

250,832

256,575

Restructuring and impairment charges

1,238

3,878

3,072

8,963

Operating income (loss)

12,047

1,043

6,593

(15,334)

Interest income

92

125

180

260

Interest expense

3,054

3,049

5,777

6,247

Income (loss) from continuing operations before income taxes

9,085

(1,881)

996

(21,321)

Income taxes

3,493

(635)

(454)

(8,377)

Income (loss) from continuing operations, less applicable income taxes

5,592

(1,246)

1,450

(12,944)

Discontinued operations, less applicable income taxes

(827)

(144)

(2,538)

(305)

Net income (loss)

4,765

(1,390)

(1,088)

(13,249)

Less:  Net income attributable to the noncontrolling interest

62

7

195

34

Net income (loss) attributable to Parent Company

$  4,703

$ (1,397)

$ (1,283)

$(13,283)

Income (loss) from continuing operations attributable to Parent Company per common share-basic

$  0.12

$(0.03)

$  0.03

$(0.29)

Discontinued operations attributable to Parent Company per common share-basic

$(0.02)

$(0.00)

$(0.06)

$(0.01)

Net income (loss) attributable to Parent Company common shareholders – basic

$  0.10

$(0.03)

$(0.03)

$(0.30)

Average number of common shares outstanding – basic

45,193,336

44,894,656

45,179,893

44,753,368

Income (loss) from continuing operations attributable to Parent Company per common share-diluted

$  0.12

$(0.03)

$  0.03

$(0.29)

Discontinued operations attributable to Parent Company per common share-diluted

$(0.02)

$(0.00)

$(0.06)

$(0.01)

Net income (loss) attributable to Parent Company common shareholders – diluted

$  0.10

$(0.03)

$(0.03)

$(0.30)

Average number of common shares outstanding - diluted

46,011,691

44,894,656

45,179,893

44,753,368




Unaudited Condensed Consolidated Balance Sheet

Assets

Liabilities and Shareholders' Equity


As of


As of


(Dollars in thousands)

Jul. 3,

2010

Jan. 2,

2010


Jul. 3,

2010

Jan. 2,

2010

Cash and cash equivalents

$  44,323

$   87,374

Accounts payable and



Short-term investments

8,397

5,994

  accrued expenses

$  303,251

$  299,718

Receivables

182,882

163,732

Note payable and current



Inventories

82,714

65,144

  maturities of long-term debt

50,002

39

Deferred income taxes

19,253

20,299

Current maturities of other



Prepaid expenses and



  long-term obligations

343

385

  other current assets

24,570

17,728




     Current assets

362,139

360,271

     Current liabilities

353,596

300,142










Long-term debt

150,000

200,000




Other long-term liabilities

48,255

50,332

Property and equipment – net

243,726

260,102

Deferred income taxes

21,244

24,227

Goodwill

260,628

261,114




Other assets

106,313

112,839

Parent Company shareholders'






  equity

399,174

419,284




Noncontrolling interest

537

341




Shareholders' equity

399,711

419,625




     Total liabilities and



Total assets

$ 972,806

$  994,326

       shareholders' equity

$ 972,806

$  994,326




Unaudited Condensed Consolidated Statement of Cash Flows


Six Months Ended

(Dollars in thousands)

Jul. 3, 2010

Jul. 4, 2009

Net cash flows from (to) operating activities

$  1,541

$ 49,446

Net cash flows from (to) investing activities:



  Capital expenditures

(12,428)

(7,753)

  Acquisition spending

-

(500)

  Other

36

25,729

Net cash flows from (to) financing activities

(32,200)

(86,835)

Net increase (decrease) in cash and cash equivalents

(43,051)

(19,913)

Cash and cash equivalents at beginning of period

87,374

39,538

Cash and cash equivalents at end of period

$ 44,323

$ 19,625




Business Segment Data


Three Months Ended

Six Months Ended

(Dollars in thousands)

Jul. 3, 2010

Jul. 4, 2009

Jul. 3, 2010

Jul. 4, 2009

Net sales:





 Office furniture

$ 342,698

$  317,955

$ 642,730

$  648,755

 Hearth products

55,524

56,818

118,998

122,847


$ 398,222

$  374,773

$ 761,728

$  771,602






Operating profit (loss):





 Office furniture





   Operations before restructuring and impairment charges

$  23,945

$    19,608

$  31,925

$    23,260

   Restructuring and impairment charges

(1,238)

(2,508)

(2,971)

(5,497)

      Office furniture – net

22,707

17,100

28,954

17,763

 Hearth products





   Operations before restructuring and impairment charges

(2,633)

(7,637)

(5,438)

(16,873)

   Restructuring and impairment charges

-

(1,370)

(101)

(3,466)

      Hearth products - net

(2,633)

(9,006)

(5,539)

(20,339)

 Total operating profit

20,074

8,094

23,415

(2,577)

      Unallocated corporate expense

(10,989)

(9,975)

(22,419)

(18,745)

 Income before income taxes

$    9,085

$    (1,881)

$       996

$   (21,321)






Depreciation and amortization expense:





 Office furniture

$ 11,731

$    13,734

$  23,372

$    26,899

 Hearth products

2,714

3,866

6,493

8,880

 General corporate

599

942

1,239

2,003


$ 15,044

$    18,542

$  31,104

$    37,782






Capital expenditures – net:





 Office furniture

$  7,046

$     2,819

$  10,607

$     5,729

 Hearth products

387

231

829

1,700

 General corporate

196

87

992

324


$  7,629

$     3,137

$  12,428

$     7,753









As of

Jul. 3, 2010

As of

Jul. 4, 2009

Identifiable assets:





 Office furniture



$  603,106

$  633,693

 Hearth products



286,072

308,437

 General corporate



83,628

76,966




$ 972,806

$1,019,096




For Information Contact:

Kelly J. McGriff, Treasurer and Vice President, Investor Relations (563) 272-7967

Kurt A. Tjaden, Vice President and Chief Financial Officer (563) 272-7400



SOURCE HNI Corporation

Contact: Kelly J. McGriff, Treasurer and Vice President, Investor Relations, +1-563-272-7967, or Kurt A. Tjaden, Vice President and Chief Financial Officer, +1-563-272-7400, both of HNI Corp.