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HNI Corporation Announces Results for Second Quarter Fiscal 2008

Tuesday 15 July 2008

HNI today announced second quarter sales of $613.1 million and net income of $13.5 million for the quarter ending June 28, 2008. Net income per diluted share for the quarter was $0.30. When excluding restructuring charges and transition costs, non-GAAP net income per diluted share was $0.36.
Second Quarter Summary Comments
\"We managed well during the quarter, confronting the challenging economic conditions and adapting our businesses to them. Demand continued to be weak in our hearth business and in the supplies-driven channel of our office furniture business. The lower demand levels along with dramatically higher freight costs pressured our profitability. We responded to these pressures with broad-based cost management and, as a result, were able to exceed our expectations for the quarter.
\"Simultaneous to our cost management efforts, we continued 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,\" said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

-- Consolidated net sales for the second quarter decreased 0.8 percent to $613.1 million. Acquisitions contributed $36.5 million or 5.9 percentage points of sales.
-- Gross margins were 0.7 percentage points lower than prior year primarily due to decreased volume, increased material costs and accelerated depreciation and transition costs related to the shutdown of office furniture facilities partially offset by increased price realization.
-- Total selling and administrative expenses, including restructuring charges, as a percent of sales, increased due to costs associated with new acquisitions, higher non-volume related freight costs, increased investments in selling initiatives and product development, and increased restructuring costs associated with plant consolidation. These were partially offset by lower volume-related and incentive-based compensation costs and cost containment initiatives.
-- The Corporation incurred $3.6 million of restructuring charges and transition costs during the second quarter in connection with a facility shutdown, a facility ramp-up, closure of two distribution centers and start up of a new distribution center. These included $0.1 million of accelerated depreciation and $1.5 million of other transition costs recorded in cost of sales, and $2.0 million of costs recorded as restructuring costs.
-- The effective tax rate for the second quarter 2008 was 34.5 percent compared to 35.3 percent in second quarter 2007 primarily due to a reduction in state taxes. The Corporation anticipates its annualized tax rate for 2008 to be approximately 35.7 percent.
-- Net income per share was favorably impacted $0.01 per share as a result of the Corporation\'s share repurchase program.

Year-to-Date Results - Continuing Operations
Consolidated net sales for the first six months of 2008 decreased $50.9 million, or 4.1 percent, to $1.18 billion compared to $1.23 billion in 2007. Acquisitions added $56.7 million or 4.6 percentage points of sales. Gross margins decreased to 33.4 percent compared to 34.4 percent last year. Income from continuing operations was $17.4 million compared to $47.0 million in 2007, a decrease of 62.9 percent. Earnings per share from continuing operations decreased 60.6 percent to $0.39 per diluted share compared to $0.99 per diluted share last year. Earnings per share was positively impacted $0.02 as a result of the Corporation\'s share repurchase program.
Cash flow from operations for the first six months was $60.2 million compared to $95.7 million last year. The decrease was due to lower earnings and an increase in working capital requirements in the current year. Capital expenditures increased to $35.9 million in 2008 from $29.1 million in 2007 primarily due to new product introductions and the previously mentioned facility consolidation. The Corporation completed the acquisition of HBF, an office furniture provider, for a total purchase price of $75.3 million. The Corporation repurchased 1,004,700 shares of its common stock at a cost of approximately $28.6 million during the first six months of 2008, compared to $85.0 million in the same period last year. Approximately $163.6 million remains under the current repurchase authorization.
Discontinued Operations
The Corporation completed the sale of a small, non-core component of the office furniture segment during the second quarter of 2007. Revenues and expenses associated with the business operations are presented as discontinued operations for all periods presented in the financial statements.

-- Second quarter net sales for the office furniture segment increased $10.9 million to $514.5 million due to acquisitions contributing $21.5 million or 4.3 percentage points of sales. Organic sales decreased due to lower sales in the supplies-driven channel.
-- Operating profit for the quarter decreased $14.5 million as a result of lower organic volume, increased freight costs, restructuring and transition costs related to a plant shutdown, a facility ramp-up, closure of two distribution centers and start-up of a new distribution center, and increased investments in selling initiatives and product development.

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