Ladies and gentlemen thank you for standing by and welcome to the HNI Corporation's Second Quarter Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder this conference is being recorded. I would like to turn the conference over to our host Vice President and Treasurer, Marshall Bridges, please go ahead sir.

Good morning and thank you for joining us today for the HNI Corporation conference call to discuss second quarter 2008 results, which were announced yesterday after the market close. My name is Marshall Bridges, Treasurer and Vice President for HNI Corporation. If you have not received a copy of the financial news release, please call 563-272-7927, and we will send one to you. The release is also available at our website, www.hnicorp.com. We have also posted a presentation intending to accompany this call to our website. It can found under the Investor Information presentation's link. We encourage you to review the presentation with us during today's call. Joining me on the line today from HNI Corporation are Bob Driessnack, Vice President and Controller, and Stan Askren, Chairman, President and Chief Executive Officer. Stan and Bob will review the results and then open the call for questions. Before we begin, please be advised that statements made by the Corporation during this call that are not strictly historical facts are forward-looking statements. Forward-looking statements are subject to known and unknown risk. Actual results could differ materially from expected results. Additional information concerning factors that could affect actual results can be found in the conference call presentation posted to the HNI Corporation website. The corporation assumes no obligation to update any forward-looking statements made during the call. I now have the pleasure of turning the call over to Stan Askren. Stan?

Thank you Marshall and good morning everyone. I'll share our brief assessment of the business and then turn the call over to Bob Driessnack our Vice President and Controller to review some of the specific financial details. I'll then comeback and share some thoughts on our outlook and then finally we will open the call up for questions. Over all we managed well during the quarter, confronting the challenging economic conditions and adapting our businesses accordingly. Demand continued to be weak in two of our major channels, organic hearth sales declined 27% driven by the continued and severe weakness in the new construction channel. Builders continued to be stressed by low levels and new home construction, which were down 31% in the quarter. In our office furniture business sales in the supply driven channel fell approximately 6% in line with our expectations. Small office, home office customers who buy through this channel continued to be impacted by the weaker economy, inflationary pressures and reduced credit availability. The lower demand levels along with dramatically higher freight cost pressured profitability. Diesel fuel costs were up more than 6% over the prior year driving the significant increase in freight cost. We are also seeing other inflationary pressures particularly fuel costs, these impacts will be felt more in the upcoming quarters. We effectively responded to the demand and inflationary pressures with broad based cost management and as a result exceeded our expectations for the quarter. Simultaneously to our cost management efforts we continue to increase our investment in new products and selling initiatives. We are improving our competitive position and laying the foundation for long term value creation. There were other bright spots in the quarter as well. Our office furniture sales grew due to the continued organic growth of our primary contract brands, which continued to gain market share combined with our acquisition of HBF. The integration of HBF is progressing nicely, the market reaction to our acquisition is positive. HBF's product launches are going well and they won three NeoCon awards at the recent NeoCon show. In our hearth business there was extremely strong demand for alternative fuel biomass products. High energy costs are driving demand in this category to record levels. Due in part to these demand levels our acquisition of Harman Stove, company's exceeding expectations. Harman sales were significantly higher than we anticipated. Our hearth team has done a very fine job integrating the business and we reduced their business working capital by more than 75%. I will provide more comment in our outlook, but will now turn the call over to Bob Driessnack to review some of the specific numbers for the first quarter. Bob?

Thank you, Stan. If you would like to follow along I will occasionally make reference to the presentation Marshall mentioned, which is posted on our website. Please note the presentation just summarizes our comments and you do not need to view it to understand these comments. For the second quarter 2008, slide 6 shows consolidated net sales decreased 0.8% to $613 million. Organic sales were down 6.7% or $41.5 million due to weakness in the supplies driven channel of our office furniture business and the continuing decline in the hearth business. Acquisitions added $36.5 million or 5.9 percentage points. Slide 7 shows net sales for the Office Furniture segment increased 2.2% to $515 million. We experienced a 6% decline in the supplies driven channel. The remainder of our business was up approximately 3% with our primary contract brands up more. Acquisitions added $21.5 million or 4.3 percentage points. Slide 8 shows net sales for the Hearth Product segment decreased 13.9% to $99 million. Organic sales declined 27% driven by a 36.5% decrease in new construction channel revenues. Acquisitions added $15 million or 13.1 percentage points. Gross margins were 34.2% compared to 34.9% in the prior year quarter the reduction in gross margin was due to decreased volume, increased material costs, as well as accelerated depreciation and transition costs related to the consolidation of several office furniture facilities. SG&A as a percentage of sales was 30.1% compared to 27.5% in the prior year quarter. The increase was driven by higher freight cost, increased investment in product development and selling initiatives and increased restructuring costs associated with the plant consolidation. Included in SG&A were freight and distribution costs, which as a percentage of sales were 10.5% during the second quarter. This compares to 9% during the same period last year. The increase…

Thank you, Bob. As we look forward we expect another challenging period in the third quarter primarily due to inflationary cost pressures and continuing declines in new home construction. We are implementing price increases, eliminating ways and attacking structural costs to offset inflationary cost pressures primarily from steel and freight. Rising cost will be the single biggest challenge during the quarter. We begin to see the benefit of our combined actions in the third and fourth quarter and anticipate it will fully offset the current inflationary pressures by the beginning of next year. Demand will remain mixed in the third quarter. Sales of our alternative fuel appliances driven by high energy costs will continue to be strong. However the category is not large enough to fully offset the new construction impact on our hearth business. We also expect office furniture sales to grow modestly due to relative strength in our international and contract oriented businesses and the HBF acquisition. We expect our supply driven channel to be down less in the third quarter driven by the seasonal ramp-up in strength of government in education sales. Our position in these vertical markets continues to improve. However, the underlying fundamentals of the small office, home office customer have not significantly changed, consistent with the overall economy. We expect the supply driven channel to remain soft in the near term. Consistent with our actions in the second quarter we'll continue to tightly manage our cost and maintain our increased investment in new product and selling initiatives. We remain excited about our strong business platforms and our position once the business cycle turns. I'll have Bob provide the financial outlook for the third quarter 2008. Bob?

Thank you, Stan. For the third quarter of '08 we anticipate overall sales will be approximately flat. Office furniture is anticipated to be flat to up 5% for the quarter driven by a modest decline in the supply driven channel, solid organic growth in the rest of the segments and the favorable impact of acquisitions. Hearth is anticipated to be down approximately 10% to 15% including the impact of acquisitions. Gross profit margin for the third quarter is expected to be approximately 2.3 to 2.5 percentage points lower than the third quarter of 2007. The gross margin decline is primarily due to inflationary cost pressures and lower volumes in the hearth business. As Stan indicated we are implementing price increases, eliminating waste and attacking structural costs to offset these inflationary pressures. We have implemented price increases averaging from 3.5% to 4.5% across most of our businesses since April, with a majority becoming effective July 1. Most of our companies have also announced additional price increases averaging 3% to 10% depending on the market and products effective between August and October. As a result of these increases we expect to realize approximately 2% or over $10 million in price during the third quarter and approximately 3% or approximately $20 million in the fourth quarter. However we anticipate input costs will increase over $30 million in each of the third and fourth quarters leaving us with a price-cost gap. We expect to completely offset the current inflationary pressures when the price increases become fully effective near the end of this year. SG&A excluding restructuring and transition charges as a percentage of sales for the third quarter is expected to increase 2.3 to 2.7 percentage points compared to the prior year period when it was 26.2%. Approximately half of the SG&A increase is from the impact of rising fuel costs. In the third quarter of 2007 freight and distribution was 9.3% of sales. We project it to increase approximately 1.25 to 1.5 percentage points in the third quarter 2008. The remainder of the increase primarily relates to not repeating a $5 million of non-operating gains that we had in the prior year period and additional investments related to product development and selling initiatives. We anticipate SG&A related restructuring and transition costs to be approximately 700,000 to 800,000 in the third quarter. We expect net interest expense to be $4.1 million to $4.3 million a slight decrease from the same period last year. We anticipate the effective tax rate during the third quarter will be 35%. I turn it back to Stan.

Thank you, Bob. So, overall we will continue to confront the economic challenges facing us and adapt our business to them. You should expect more strong cost management; aggressive pursuit of improvement, structural cost reduction and continued investment for growth. We are improving our competitive position shortly in our cost structure and laying the foundation for long-term value creation. We, I continued to be excited about our position, what the business cycle turns. With those comments complete, we'll now open it up to questions.

(Operator Instructions) We will take our first question from the line of Matt McCall with BB&T. Please go ahead. Matt McCall - BB&T: Thanks. Good morning everybody.

Good morning, Matt. Matt McCall - BB&T: Just to clarify the guidance first that you gave your SG&A guidance and you said that there is another 700,000 to 800,000 in charges, is the 700,000 to 800,000 included in the guidance range that you provided for the SG&A line?

No, Matt that would be on top of that. Matt McCall - BB&T: Okay, got it. Obviously you have done a great job managing costs in the quarter. First part of the question is can you provide a little bit more detail as to what you did? Second, what is left that you can do?

So Matt, We did a few big things and a lot more small things. This reminds you of our split in public business models, we have these multiple businesses each have focused management teams in a very disciplined process around managing their particular market; their particular cost structure. These are the things that we do well, and have done well over the years. So, first we look at what is the big structural cost and so we talked about plan consolidations and change in our logistics distribution network. Secondly, it is just good old fashion and cost managements of both in the operations as well as in SG&A. Matt McCall - BB&T: Right.

It is more of the same is what I would say. Matt McCall - BB&T: Yes.

There are still more structural costs that we are after. We have not really laid that out on a prospective basis, and as that develops we will share that with you, in addition to just grinding it out day-to-day in each of the operations, in each of the businesses. Matt McCall - BB&T: Help me understand; you beat my expectation or our expectations and also the implied guidance ranges that you gave last quarter? Where did this surprise come, and can we expect similar surprises to come in future quarters?

I can not tell you on the last one. The surprise really came, as I say, there is no one big area. It is just a combination of these eight to ten business units just grassroots, plant-by-plant, business-by-business just managing well, and the combination of that really is what the surprise ends up in. Matt McCall - BB&T: Okay. Then thanks for the detail on the expected price recognition and also your inflationary pressures. Can you tell us what that was? What the net effect maybe price versus inflation was in Q2?

The net effect Matt was probably about $5 million unfavorable to the year-over-year results. Matt McCall - BB&T: Alright. Thank you all. Good luck.

Thank you, Matt.

Our next question comes from the line of Todd Schwartzman with Sidoti & Company. Please go ahead. Todd Schwartzman - Sidoti & Company: Hi. Good morning, gentlemen. With respect to commodity cost, could you talk a little about what you have seen in foam?

Yes. I think Todd foam is a petrochemical base. So, we are seeing some modest increase there. Todd Schwartzman - Sidoti & Company: Perhaps, if you could some comment on the pace of contract furniture orders throughout 2Q?

The pace was good. I think we said that our business was solid there. So, I am not sure what else I can answer. Ask another question here Todd to make sure I cover what you want to know. Todd Schwartzman - Sidoti & Company: Bob fairly steady month-to-month throughout 2Q?

Yes. Obviously it is fairly steady month-to-month. Todd Schwartzman - Sidoti & Company: Okay. Again in office furniture, what were the strongest and weakest geographical markets?

We do not break that out. I mean certainly even in the past the New York financial markets are not great. The Southern markets are not great right now and this is due to -- where a lot of it is associated with housing as well. So, if you go to markets that are not great in housing the small office, home office guys are not doing great as well. Todd Schwartzman - Sidoti & Company: In terms of housing in those weakest residential real estate markets around the country are hearth sales down commensurately with housing or are they performing a little better or the worse?

I think in overall our business is so depended on new construction that our sales are going to be down commensurate with starts. Todd Schwartzman - Sidoti & Company: Got it, all right. Thanks.

You bet.

Our next question comes from the line of Budd Bugatch with Raymond James, please go ahead.

Good morning, Stan and good morning Bob. Good morning Marshall. Congratulations on the quarter.

Thanks Budd.

Thank you.

I know it is hard to say congratulations of this economy with what you have in the face but you have done a terrific job of managing through this or are you doing a terrific job of managing through it. So, congratulations to all your associates too.

Appreciate it.

Just a couple of issues on segment margins; pleased to see I think your original guidance was for hearth to be breakeven or so about and you did a little bit better than that. I should look down the road here in the third and fourth quarter, what do you see is the segment margin track?

Budd for the third quarter it will be comparable to the second quarter a little bit better, because it is a seasonal quarter for us, but still certainly under pressure. For the fourth quarter, I think its still far out. We are still waiting for that visibility and seeing, where the seasonal business goes, housing do not see it improving at all obviously in the near term.

I think for you that is going to be even a late cycle when it does improve so at least for that side of the business. So, the biomass Stan seeing still good demand and any change in that?

No. In fact Budd there is tremendous demand there like we have never seen before and that just gets better. It is driven by factors like fuel oil costs in the northeast and also in the rural areas liquid propane costs and those both have seen very large escalation in previous months. We think that is going to continue to be strong until those changes.

I think you may have told me you were being challenged to keep up with the demand. Is that still the situation?

That is the situation. I mean the growth in those are several 100%, 200%, 300% numbers. So, we are sorting through what is the right capacity to bring online. Certainly when you see that type of growth just being smart about a sustainable profit model is that cycles is what we are looking for. The second part of the challenge is just suppliers.

Are you trying to rationalize some of that excess demand by pricing?

Yes. I mean certainly that is what is going on now. Now, a lot of that is supporting our dealers and our distribution. They are out there selling as well. So, pricing is clearly one of those things that we are putting through and is being discussed a lot in that channel.

Okay. In terms of office segment margins 6.5% normalized in this quarter or next year. Last year third quarter if I remember right seasonally you are like 11.7%, if I remember right or 11% obviously do not expect to see those kinds of off margins. What do you think?

Budd I think what we will see is the margin that is fairly comparable to the second quarter. The key reason being the material cost increases and the input cost with fuel and things that we talked about.

Some of the competition has imposed fuel surcharges, are those realistic in office? Can you get that?

It depends on which channel Budd. Our supply driven channel, which goes through wholesale of catalog et cetera it is more difficult for our channel partners to recover that. So, we are trying not to hang them with it. Some of the other channels are more direct through a dealer to end user client that it is easier to get it. So, we have a mix bag here. Some of our company's have it on. Some do not depending on their go to market channel partner situation.

If I have heard the numbers right it looks like your input costs as it is now today are running at incremental $30 million a quarter and that is what it needs to get before recovery and your pricing looks like you probably averages maybe 4% to 5%. So, it says you will start to get recovery of that then maybe a little bit of that gap you faced sometime first and second quarter next year?

Actually what we are seeing Budd is there is a gap that borrowing some additional step up inflation. We think that gap will be closed on a dollar basis by the beginning of next year. So, we begin to close a little bit in third quarter August, October price increases come on line we then begin to close some more fourth quarter, and then by the beginning of the year when it is fully implemented, we should be closed on a dollar basis.

Okay, but is that $30 million of incremental input cost a quarter about right?

That is correct.

Okay. That is where it is today, knowing what you know today, barring any future moves in the commodities?

Correct.

Okay, and then last question for me then goes to the, fundamental question is as we raise prices and have to cope with all of this, what are you seeing alternative, competitive nature that might worry people and investors about elasticity of demand and these kinds of issues?

Yes, I think, I mean it is a great question. I do not think we have a great answer on that. I think we will have to wait and see I mean certainly our diversity of product categories and material types and segments in the market gives us a better position, I think to a lot of folks. However, I think as prices go up, you may see people differ, pull back or move to a different price point product and that our advantage is we have all the price points in the industry covered for the most part. We will have to watch how this inflation and price increase impact demand. I do not see a big change but we will have to watch it.

Okay, well great and continue good work gentlemen.

Thank you, Budd.

(Operator Instructions) Now we go to the line of Christopher Agnew with Goldman Sachs. Please go ahead.

Thank you, good morning gentlemen. Congratulations on very strong execution in a very tough environment particularly on the acquisition side. How would you describe your appetite for acquisitions at the moment and are sellers out there or potential sellers, are their expectations in line with yours or is that a barrier to maybe you doing potentially some more deals.

Well I think Chris our acquisition strategy continues, which is we are always open and evaluating potential acquisitions that fit our business, so we can (inaudible) by only we can create value. So that continues, I think your question around pricing certainly there are some positive signs, the private equity leverage buyer is out of the market that makes things more attractive. The challenge though is in a down cycle many of the companies will wait till their earnings recover before they want to put themselves on the market. So it is probably a smaller available group with probably not as much competition there, but to go back our strategy continues finding companies that fit our business and we can create value with them.

Okay and on the contact side of the business let's say a longer tail and you will not comment on any particular numbers looking further out. However, are there any indications in terms of order activity, mark up activity, conversations with customers that you are seeing that you can provide to us?

Well, I think what we said and we expect the contract business and our international business continue to chill some modest growth in the third quarter. So we are looking at 2 to 6. I think we have the same question as you do and its still relatively short cycle as this economy cycle is down what is the impact on some of those longer selling cycles. So bid activity is hard to even track right now, because it is moving around. So we are looking at this and when you take our non-supplies driven business, growth of 2% to 6% makes sense to us.

Supplies driven business, contract?

Yes, our non-supplies driven.

Non-supplies, right. Steel obviously its going to be up year-over-year and sequentially. However, in terms of, with the US economy softening are you seeing any opportunity for steel prices coming down as you are looking at the market, as your buyers are talking to the mills etcetera?

Yes I think you all watch us closely and you understand I think as well. What we are seeing is certainly the US economy the softening of auto, appliance is a plus and then its offset by the dollar and offset by global demand, China and India for infrastructure. I think the steel manufacturers are feeling big input cost pressures as well and they are going to work very hard to hold their price. The answer to your question we are not seeing pressure either way right now at this point, I hope we see pressures ought to go down but we are not banking on that right now.

And is there (inaudible) changed in the way you think about committing or think about how you go about buying steel or has there been any change on the supplier side as well?

Yes I think the challenge always in these situations is who wants to commit, who wants to lock down on contracts. It is fair to say that we had some longer-term contract commitments and along with lots of companies with the US economy and when steel input costs went up and steel prices went up, the steel suppliers all chose not to own of those contracts. So, now the question is where steel is going? I would say we have not changed how we think about this. We have the same set of tools, it is just how well you manage it and where is it going. So, I think it is a lot of what we have learned in the past in these situations.

Still would it be fair to say that future movements instill are probably going to have a more direct or immediate impact on your earnings?

Yes. I would say so because right now there is not many in the US economy that will last into longer term contracts.

Okay, great. Good luck. Thanks.

Thank you, Chris.

Our next question comes from the line of Craig Kennison with Robert Baird. Please go ahead.

Hi. Thanks for taking the question here. Congratulations on your cost cutting initiatives. Most of my questions have been addressed, but with respect to your hearth sales guidance. What is that assume in terms of acquisition revenue?

For the third quarter, we have got about $10 million or $11 million in acquisitions included in that guidance.

Would you remind me what it was in the second quarter?

Second quarter was about $15 million.

Is that mostly a seasonal downtick?

It is not really a seasonal downtick. I think we had a very strong second quarter probably a little bit better than we had initially expected and the third quarter is inline with our initial expectations.

Okay. Returning to Budd's question on the biomass market, how large potentially is that market and how significantly really could have moved the needle in the hearth business? I am asking what percentage of your hearth business is currently represented by that biomass market and how large could it be?

I think we recovered the biomass side of our business is about 15% of our total roughly right now and Craig, we will get a better answer here. About 15% of the total business it is growing at a very higher rate. The potential of that if you got due to the studies what the available market is potential market it can grow we think over the years at a significant numbers. The key driver to that is a relative cost of the biomass fuel, pellets and corn and other things relative to the cost of fuel oil and LP. We think there is a lot of legroom there. We have a significant share of that market I would say probably upwards 40% to 50% of that current market and we will participate in that I think at a nice rate.

Would you just walk through an example of the install process? Is this something that can be used both as a retrofit and for new construction and what is the cost to a customer looking to retrofit for example?

Yes, typically it is used as a retrofit or a supplemental zone heat thing. So, typically you are going to always put in a central system. Some of these biomass appliances can be actually integrated in with your key pump system or your [Porcher] system. However, typically you will find a room in the house on the main floor and you use it to be a boost to your central system. The cost of installing those depending on the system is in the $3,000 to $8,000 range depending on the type of appliance and the complexity of the install.

Any sense that current market prices for fuel, or what payback period it requires?

Again it depends on what part of the world you live in and the cold index, then it depends on availability of fuel, the closer you are to the fuel source, the better the cost, it depends on what part of country whether you are fuel oil or LP but typically we are seeing payback right now a couple of years.

Okay, thank you very much, helpful.

Got it.

With that Mr. Bridges, we turn the conference back to you.

Okay, we appreciate everybody's interest in HNI look forward to talking with you soon. Have a good day.

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