Business Wire | Oct 19, 2020 08:00AM EDT

HNI Corporation Reports Earnings for Third Quarter Fiscal Year 2020

Oct. 19, 2020

MUSCATINE, Iowa--(BUSINESS WIRE)--Oct. 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 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, September 28, Change 2020 2019

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 Rate 17.6 % 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.

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.

Workplace Furnishings - Financial Performance

(Dollars in millions)

Three Months Ended

September 26, September 28, Change 2020 2019

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, September 28, Change 2020 2019

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.

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.

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.

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended September 26, September 28, September 26, September 28, 2020 2019 2020 2019

Net sales $ 507,063 $ 625,386 $ 1,393,224 $ 1,630,868

Cost of sales 321,516 387,715 880,754 1,030,993

Gross profit 185,547 237,671 512,470 599,875

Selling andadministrative 146,785 176,731 449,933 511,080 expenses

Impairment andrestructuring - 284 32,661 1,214 charges

Operating 38,762 60,656 29,876 87,581 income

Interest 1,517 2,205 5,271 6,795 expense, net

Income before 37,245 58,451 24,605 80,786 income taxes

Income taxes 6,558 12,375 5,259 17,878

Net income 30,687 46,076 19,346 62,908

Less: Net lossattributable to (1 ) (2 ) (3 ) (2 ) non-controllinginterest

Net incomeattributable to $ 30,688 $ 46,078 $ 19,349 $ 62,910 HNI Corporation



Average numberof commonshares 42,684 42,899 42,651 43,217 outstanding -basic

Net incomeattributable toHNI Corporation $ 0.72 $ 1.07 $ 0.45 $ 1.46 per commonshare - basic

Average numberof commonshares 43,010 43,186 42,905 43,620 outstanding -diluted

Net incomeattributable toHNI Corporation $ 0.71 $ 1.07 $ 0.45 $ 1.44 per commonshare - diluted



Foreigncurrency $ 923 $ (1,035 ) $ 368 $ (406 ) translationadjustments

Change inunrealizedgains (losses) (33 ) 36 269 252 on marketablesecurities, netof tax

Change inpension andpost-retirement - - - (1,185 ) liability, netof tax

Change inderivativefinancial 106 (477 ) (2,393 ) (2,112 ) instruments,net of tax

Othercomprehensive 996 (1,476 ) (1,756 ) (3,451 ) income (loss),net of tax

Comprehensive 31,683 44,600 17,590 59,457 income

Less:Comprehensiveloss (1 ) (2 ) (3 ) (2 ) attributable tonon-controllinginterest

Comprehensiveincome $ 31,684 $ 44,602 $ 17,593 $ 59,459 attributable toHNI Corporation

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 investments

1,495

1,096

Receivables

209,921

278,124

Allowance for doubtful accounts

(5,991

)

(3,559

)

Inventories

144,135

163,465

Prepaid expenses and other current assets

41,490

37,635

Total Current Assets

500,435

528,834

Property, Plant, and Equipment:

Land and land improvements

29,782

29,394

Buildings

295,998

295,517

Machinery and equipment

577,442

581,225

Construction in progress

12,142

20,881

915,364

927,017

Less accumulated depreciation

551,031

545,510

Net Property, Plant, and Equipment

364,333

381,507

Right-of-use Finance Leases

2,193

2,129

Right-of-use Operating Leases

73,896

72,883

Goodwill and Other Intangible Assets

412,287

445,709

Other Assets

21,581

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 obligations

2,890

1,931

Current lease obligations - Finance

691

564

Current lease obligations - Operating

23,124

22,218

Total Current Liabilities

417,240

478,705

Long-Term Debt

174,502

174,439

Long-Term Lease Obligations - Finance

1,522

1,581

Long-Term Lease Obligations - Operating

57,948

58,233

Other Long-Term Liabilities

67,187

67,990

Deferred Income Taxes

82,736

87,196

Equity:

HNI Corporation shareholders' equity

573,269

584,044

Non-controlling interest

321

324

Total Equity

573,590

584,368

Total Liabilities and Equity

$

1,374,725

$

1,452,512

HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

September 26, December 28, 2020 2019

Assets

Current Assets:

Cash and cash equivalents $ 109,385 $ 52,073

Short-term investments 1,495 1,096

Receivables 209,921 278,124

Allowance for doubtful accounts (5,991 ) (3,559 )

Inventories 144,135 163,465

Prepaid expenses and other current assets 41,490 37,635

Total Current Assets 500,435 528,834

Property, Plant, and Equipment:

Land and land improvements 29,782 29,394

Buildings 295,998 295,517

Machinery and equipment 577,442 581,225

Construction in progress 12,142 20,881

915,364 927,017

Less accumulated depreciation 551,031 545,510

Net Property, Plant, and Equipment 364,333 381,507

Right-of-use Finance Leases 2,193 2,129

Right-of-use Operating Leases 73,896 72,883

Goodwill and Other Intangible Assets 412,287 445,709

Other Assets 21,581 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 2,890 1,931 obligations

Current lease obligations - Finance 691 564

Current lease obligations - Operating 23,124 22,218

Total Current Liabilities 417,240 478,705

Long-Term Debt 174,502 174,439

Long-Term Lease Obligations - Finance 1,522 1,581

Long-Term Lease Obligations - Operating 57,948 58,233

Other Long-Term Liabilities 67,187 67,990

Deferred Income Taxes 82,736 87,196

Equity:

HNI Corporation shareholders' equity 573,269 584,044

Non-controlling interest 321 324

Total Equity 573,590 584,368

Total Liabilities and Equity $ 1,374,725 $ 1,452,512

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 amortization

57,917

57,838

Other post-retirement and post-employment benefits

1,104

1,106

Stock-based compensation

6,746

5,408

Reduction in carrying amount of right-of-use assets

16,965

17,252

Deferred income taxes

(3,730

)

4,798

Impairment of goodwill and intangible assets

32,661

-

Other - net

815

4,473

Net increase (decrease) in operating assets and liabilities, net of divestitures

13,316

(28,359

)

Increase (decrease) in other liabilities

(1,779

)

(9,802

)

Net cash flows from (to) operating activities

143,361

115,622

Net Cash Flows From (To) Investing Activities:

Capital expenditures

(24,751

)

(46,093

)

Proceeds from sale of property, plant, and equipment

81

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 investments

3,246

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 debt

82,119

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 stock

2,210

22,338

Other - net

1,727

1,636

Net cash flows from (to) financing activities

(42,596

)

(89,560

)

Net increase (decrease) in cash and cash equivalents

57,312

(23,806

)

Cash and cash equivalents at beginning of period

52,073

76,819

Cash and cash equivalents at end of period

$

109,385

$

53,013

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

September 26, September 2020 28, 2019

Net Cash Flows From (To) Operating Activities:

Net income $ 19,346 $ 62,908

Non-cash items included in net income:

Depreciation and amortization 57,917 57,838

Other post-retirement and post-employment benefits 1,104 1,106

Stock-based compensation 6,746 5,408

Reduction in carrying amount of right-of-use 16,965 17,252 assets

Deferred income taxes (3,730 ) 4,798

Impairment of goodwill and intangible assets 32,661 -

Other - net 815 4,473

Net increase (decrease) in operating assets and 13,316 (28,359 ) liabilities, net of divestitures

Increase (decrease) in other liabilities (1,779 ) (9,802 )

Net cash flows from (to) operating activities 143,361 115,622



Net Cash Flows From (To) Investing Activities:

Capital expenditures (24,751 ) (46,093 )

Proceeds from sale of property, plant, and 81 247 equipment

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 investments 3,246 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 debt 82,119 115,775

Dividends paid (39,060 ) (39,164 )

Purchase of HNI Corporation common stock (6,764 ) (65,106 )

Proceeds from sales of HNI Corporation common 2,210 22,338 stock

Other - net 1,727 1,636

Net cash flows from (to) financing activities (42,596 ) (89,560 )



Net increase (decrease) in cash and cash 57,312 (23,806 ) equivalents

Cash and cash equivalents at beginning of period 52,073 76,819

Cash and cash equivalents at end of period $ 109,385 $ 53,013

HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)

Three Months Ended

Nine 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 products

153,702

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 products

30,197

23,772

65,232

54,743

General corporate

(8,261

)

(14,278

)

(26,737

)

(35,342

)

Operating Income

38,762

60,656

29,876

87,581

Interest expense, net

1,517

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 products

2,351

2,291

6,976

6,521

General corporate

5,896

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 products

2,695

3,204

5,874

10,779

General corporate

1,584

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 products

393,941

364,653

General corporate

265,888

212,946

Total

$

1,374,725

$

1,452,512

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 and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)

Three Months Ended Nine Months Ended

September 26, September 28, September 26, September 28, 2020 2019 2020 2019

Net Sales:

Workplace $ 353,361 $ 484,755 $ 999,827 $ 1,247,778 furnishings

Residentialbuilding 153,702 140,631 393,397 383,090 products

Total $ 507,063 $ 625,386 $ 1,393,224 $ 1,630,868



Income(Loss)Before IncomeTaxes:

Workplace $ 16,826 $ 51,162 $ (8,619 ) $ 68,180 furnishings

Residentialbuilding 30,197 23,772 65,232 54,743 products

General (8,261 ) (14,278 ) (26,737 ) (35,342 ) corporate

Operating 38,762 60,656 29,876 87,581 Income

Interest 1,517 2,205 5,271 6,795 expense, net

Total $ 37,245 $ 58,451 $ 24,605 $ 80,786



Depreciationand AmortizationExpense:

Workplace $ 11,065 $ 11,232 $ 33,177 $ 33,540 furnishings

Residentialbuilding 2,351 2,291 6,976 6,521 products

General 5,896 5,863 17,764 17,777 corporate

Total $ 19,312 $ 19,386 $ 57,917 $ 57,838



CapitalExpenditures(including capitalizedsoftware):

Workplace $ 6,946 $ 6,524 $ 18,340 $ 29,190 furnishings

Residentialbuilding 2,695 3,204 5,874 10,779 products

General 1,584 2,856 7,787 10,222 corporate

Total $ 11,225 $ 12,584 $ 32,001 $ 50,191



As of As of September 26, December 28, 2020 2019

Identifiable Assets:

Workplace $ 714,896 $ 874,913 furnishings

Residentialbuilding 393,941 364,653 products

General 265,888 212,946 corporate

Total $ 1,374,725 $ 1,452,512

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, 2020 September 28, 2019

Workplace Residential Workplace Residential Furnishings Building Total Furnishings Building Total Products Products

Sales asreported $ 353.4 $ 153.7 $ 507.1 $ 484.8 $ 140.6 $ 625.4 (GAAP)

% change from (27.1 %) 9.3 % (18.9 %) PY



Less: - 2.4 2.4 - - - Acquisitions



Organic Sales $ 353.4 $ 151.3 $ 504.6 $ 484.8 $ 140.6 $ 625.4 (non-GAAP)

% change from (27.1 %) 7.6 % (19.3 %) PY

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended September 28, 2019

Gross Profit

Operating Income

Tax

Net Income

EPS

As reported (GAAP)

$

237.7

$

60.7

$

12.4

$

46.1

$

1.07

% of net sales

38.0

%

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 sales

38.0

%

9.8

%

7.4

%

Tax %

21.2

%

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended September 28, 2019

Gross Operating Tax Net EPS Profit Income Income

As reported (GAAP) $ 237.7 $ 60.7 $ 12.4 $ 46.1 $ 1.07

% of net sales 38.0 % 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 sales 38.0 % 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 sales

4.8

%

10.6

%

Restructuring charges

-

0.3

Transition costs

-

0.2

Operating profit (non-GAAP)

$

16.8

$

51.7

(67.4

%)

% of net sales

4.8

%

10.7

%

View source version on businesswire.com: https://www.businesswire.com/news/home/20201019005164/en/

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