HNI 10-Q Quarterly Report July 3, 2010

HNI CORP

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10-Q 1 r10q2q2010.htm FORM 10-Q r10q2q2010.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2010.

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission File Number: 1-14225

HNI Corporation (Exact name of registrant as specified in its charter)

Iowa (State or other jurisdiction of incorporation or organization)	42-0617510 (I.R.S. Employer Identification Number)

P. O. Box 1109, 408 East Second Street Muscatine, Iowa 52761-0071 (Address of principal executive offices)	52761-0071 (Zip Code)

Registrant's telephone number, including area code: 563/272-7400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Class Common Shares, $1 Par Value	Outstanding at July 3, 2010 45,040,418

HNI Corporation and SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION
	Page

Item 1. Financial Statements

Condensed Consolidated Balance Sheets July 3, 2010, and January 2, 2010	3

Condensed Consolidated Statements of Income Three Months Ended July 3, 2010, and July 4, 2009	5

Condensed Consolidated Statements of Income Six Months Ended July 3, 2010, and July 4, 2009	6

Condensed Consolidated Statements of Cash Flows Three Months Ended July 3, 2010, and July 4, 2009	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3. Quantitative and Qualitative Disclosures About Market Risk	26

Item 4. Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	27

Item 1A. Risk Factors	27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3. Defaults Upon Senior Securities - None	-

Item 5. Other Information - None	-

Item 6. Exhibits	28

SIGNATURES	29

EXHIBIT INDEX	30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HNI Corporation and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

	July 3, 2010 (Unaudited)		Jan. 2, 2010
ASSETS	(In thousands)

CURRENT ASSETS
Cash and cash equivalents	$	44,323	$	87,374
Short-term investments		8,397		5,994
Receivables		182,882		163,732
Inventories (Note C)		82,714		65,144
Deferred income taxes		19,253		20,299
Prepaid expenses and other current assets		24,570		17,728
Total Current Assets		362,139		360,271

PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements		21,378		21,815
Buildings		259,335		267,596
Machinery and equipment		482,806		490,287
Construction in progress		11,597		8,377
		775,116		788,075
Less accumulated depreciation		531,390		527,973

Net Property, Plant, and Equipment		243,726		260,102

GOODWILL		260,628		261,114

OTHER ASSETS		106,313		112,839

Total Assets	$	972,806	$	994,326

See accompanying Notes to Condensed Consolidated Financial Statements.

HNI Corporation and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

	July 3, 2010 (Unaudited)			Jan. 2, 2010
LIABILITIES AND EQUITY	(In thousands, except share and per share value data)

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	303,251		$	299,718
Note payable and current maturities of long-term debt and capital lease obligations		50,002			39
Current maturities of other long-term obligations		343			385
Total Current Liabilities		353,596			300,142

LONG-TERM DEBT		150,000			200,000

CAPITAL LEASE OBLIGATIONS		-			-

OTHER LONG-TERM LIABILITIES		48,255			50,332

DEFERRED INCOME TAXES		21,244			24,227

EQUITY
HNI Corporation shareholders' equity:
Capital Stock:
Preferred, $1 par value, authorized 2,000,000 shares, no shares outstanding		-			-

Common, $1 par value, authorized 200,000,000 shares, outstanding -
July 3, 2010 – 45,040,418 shares;
January 2, 2010 – 45,093,504 shares		45,040			45,093

Additional paid-in capital		20,226			19,695
Retained earnings		334,514			355,270
Accumulated other comprehensive income		(606	)		(774	)
Total HNI Corporation shareholders' equity		399,174			419,284

Noncontrolling interest		537			341

Total Equity		399,711			419,625

Total Liabilities and Equity	$	972,806		$	994,326

See accompanying Notes to Condensed Consolidated Financial Statements.

HNI Corporation and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
	Three Months Ended
	July 3, 2010			July 4, 2009 (As Adjusted)
	(In thousands, except share and per share data)
Net sales	$	398,222		$	374,773
Cost of sales		256,905			247,215
Gross profit		141,317			127,558
Selling and administrative expenses		128,032			122,637
Restructuring and impairment		1,238			3,878
Operating income (loss)		12,047			1,043
Interest income		92			125
Interest expense		3,054			3,049
Earnings (loss) before income taxes		9,085			(1,881	)
Income taxes		3,493			(635	)
Income (loss) from continuing operations, less applicable income taxes		5,592			(1,246	)
Discontinued operations, less applicable income taxes		(827	)		(144	)
Net income (loss)		4,765			(1,390	)
Less: Net income attributable to the noncontrolling interest		62			7
Net income (loss) attributable to HNI Corporation	$	4,703		$	(1,397	)

Income (loss) from continuing operations attributable to HNI Corporation per common share – basic	$	0.12		$	(0.03	)
Discontinued operations attributable to HNI Corporation per common share – basic	$	(0.02	)	$	(0.00	)
Net income (loss) attributable to HNI Corporation per common share – basic	$	0.10		$	(0.03	)
Average number of common shares outstanding – basic		45,193,336			44,894,656
Income (loss) from continuing operations attributable to HNI Corporation per common share – diluted	$	0.12		$	(0.03	)
Discontinued operations attributable to HNI Corporation per common share – diluted	$	(0.02	)	$	(0.00	)
Net income (loss) attributable to HNI Corporation per common share – diluted	$	0.10		$	(0.03	)
Average number of common shares outstanding – diluted		46,011,691			44,894,656
Cash dividends per common share	$	0.215		$	0.215
See accompanying Notes to Condensed Consolidated Financial Statements.

HNI Corporation and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
	Six Months Ended
	July 3, 2010			July 4, 2009 (As Adjusted)
	(In thousands, except share and per share data)
Net sales	$	761,728		$	771,602
Cost of sales		501,231			521,398
Gross profit		260,497			250,204
Selling and administrative expenses		250,832			256,575
Restructuring and impairment		3,072			8,963
Operating income (loss)		6,593			(15,334	)
Interest income		180			260
Interest expense		5,777			6,247
Earnings (loss) before income taxes		996			(21,321	)
Income taxes		(454	)		(8,377	)
Income (loss) from continuing operations, less applicable income taxes		1,450			(12,944	)
Discontinued operations, less applicable income taxes		(2,538	)		(305	)
Net income (loss)		(1,088	)		(13,249	)
Less: Net income attributable to the noncontrolling interest		195			34
Net income (loss) attributable to HNI Corporation	$	(1,283	)	$	(13,283	)

Income (loss) from continuing operations attributable to HNI Corporation per common share – basic	$	0.03		$	(0.29	)
Discontinued operations attributable to HNI Corporation per common share – basic	$	(0.06	)	$	(0.01	)
Net income (loss) attributable to HNI Corporation per common share – basic	$	(0.03	)	$	(0.30	)
Average number of common shares outstanding – basic		45,179,893			44,753,368
Income (loss) from continuing operations attributable to HNI Corporation per common share – diluted	$	0.03		$	(0.29	)
Discontinued operations attributable to HNI Corporation per common share – diluted	$	(0.06	)	$	(0.01	)
Net income (loss) attributable to HNI Corporation per common share – diluted	$	(0.03	)	$	(0.30	)
Average number of common shares outstanding – diluted		45,179,893			44,753,368
Cash dividends per common share	$	0.43		$	0.43
See accompanying Notes to Condensed Consolidated Financial Statements.

HNI Corporation and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended
	July 3, 2010			July 4, 2009
	(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income (loss)	$	(1,088	)	$	(13,249	)
Noncash items included in net income:
Depreciation and amortization		31,105			37,782
Other postretirement and post employment benefits		846			924
Stock-based compensation		3,081			1,859
Deferred income taxes		(1,950	)		1,307
(Gain)/Loss on sale, retirement and impairment of long-lived assets and intangibles		3,495			118
Stock issued to retirement plan		5,400			6,565
Other – net		292			232
Net increase (decrease) in operating assets and liabilities		(38,833	)		18,683
Increase (decrease) in other liabilities		(807	)		(4,775	)
Net cash flows from (to) operating activities		1,541			49,446

Net Cash Flows From (To) Investing Activities:
Capital expenditures		(12,300	)		(6,958	)
Proceeds from sale of property, plant and equipment		1,669			1,938
Acquisition spending, net of cash acquired		-			(500	)
Capitalized software		(128	)		(795	)
Purchase of long-term investments		(4,805	)		(2,810	)
Sales or maturities of long-term investments		2,570			26,601
Other - Net		603			-
Net cash flows from (to) investing activities		(12,391	)		17,476

Net Cash Flows From (To) Financing Activities:
Proceeds from sales of HNI Corporation common stock		1,651			1,265
Purchase of HNI Corporation common stock		(10,297	)		-
Proceeds from long-term debt		50,000			77,000
Payments of note and long-term debt and other financing		(54,081	)		(145,797	)
Dividends paid		(19,474	)		(19,303	)
Net cash flows from (to) financing activities		(32,201	)		(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

See accompanying Notes to Condensed Consolidated Financial Statements.

HNI Corporation and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

July 3, 2010

Note A. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The January 2, 2010 consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended July 3, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending January 1, 2011. For further information, refer to the consolidated financial statements and accompanying notes included in HNI Corporation's (the "Corporation") Annual Report on Form 10-K for the fiscal year ended January 2, 2010.

Note B. Stock-Based Compensation

The Corporation measures stock-based compensation expense at grant date, based on the fair value of the award and recognizes expense over the employee requisite service period. For the three and six months ended July 3, 2010, and July 4, 2009, the Corporation recognized $1.6 million and $3.1 million, and $1.1 million and $1.9 million, respectively, of stock-based compensation expense for the cost of stock options and time-based restricted stock units issued under the HNI Corporation 2007 Stock-Based Compensation Plan and shares issued under the HNI Corporation 2002 Members' Stock Purchase Plan.

At July 3, 2010, there was $12.4 million of unrecognized compensation cost related to nonvested stock-based compensation awards, which the Corporation expects to recognize over a weighted-average remaining requisite service period of 1.4 years.

Note C. Inventories

The Corporation values its inventory at the lower of cost or market with approximately 84% valued by the last-in, first-out ("LIFO") method.

(In thousands)	July 3, 2010 (Unaudited)			Jan. 2, 2010
Finished products	$	61,970		$	48,198
Materials and work in process		44,120			40,322
LIFO allowance		(23,376	)		(23,376	)
	$	82,714		$	65,144

Note D. Comprehensive Income and Shareholders' Equity

The following table reconciles net income to comprehensive income attributable to HNI Corporation:

	Three Months Ended						Six Months Ended
(In thousands)	July 3, 2010			July 4, 2009			July 3, 2010			July 4, 2009
Net income (loss)	$	4,765		$	(1,390	)	$	(1,088	)	$	(13,249	)
Other comprehensive income, net of income tax as applicable:
Foreign currency translation adjustments		151			(10	)		146			(101	)
Change in unrealized gains (losses) on marketable securities		-			267			-			134
Change in pension and postretirement liability		79			79			158			158
Change in derivative financial instruments		(310	)		113			(136	)		102
Comprehensive income (loss)		4,685			(941	)		(920	)		(12,956	)
Comprehensive income attributable to noncontrolling interest		62			7			195			34
Comprehensive income (loss) attributable to HNI Corporation	$	4,623		$	(948	)	$	(1,115	)	$	(12,990	)

The following table summarizes the components of accumulated other comprehensive loss and the changes in accumulated other comprehensive loss, net of tax, as applicable for the six months ended July 3, 2010:

(in thousands)	Foreign Currency Translation Adjustment		Pension Postretirement Liability			Derivative Financial Instruments			Accumulated Other Comprehensive Loss
Balance at January 2, 2010	$	3,526	$	(2,710	)	$	(1,590	)	$	(774	)
Year-to date change		146		158			(136	)		168
Balance at July 3, 2010	$	3,672	$	(2,552	)	$	(1,726	)	$	(606	)

During the six months ended July 3, 2010, the Corporation repurchased 372,822 shares of its common stock at a cost of approximately $10.3 million. As of July 3, 2010, $153.3 million of the Corporation's Board of Directors' current repurchase authorization remained unspent.

Note E. Earnings Per Share

The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS"):

	Three Months Ended					Six Months Ended
(In thousands, except per share data)	July 3, 2010		July 4, 2009			July 3, 2010			July 4, 2009
Numerators:
Numerator for both basic and diluted EPS attributable to Parent Company net income (loss)	$	4,703	$	(1,397	)	$	(1,283	)	$	(13,283	)
Denominators:
Denominator for basic EPS weighted-average common shares outstanding		45,193		44,895			45,180			44,753
Potentially dilutive shares from stock-based compensation plans		819		-			-			-
Denominator for diluted EPS		46,012		44,895			45,180			44,753
Earnings per share – basic	$	0.10	$	(0.03	)	$	(0.03	)	$	(0.30	)
Earnings per share – diluted	$	0.10	$	(0.03	)	$	(0.03	)	$	(0.30	)

Certain exercisable and non-exercisable stock options totaling 1,752,242 were not included in the computation of diluted EPS for the three months ended July 3, 2010 because their inclusion would have been anti-dilutive. None of the outstanding stock options or restricted stock units were included in the computation of diluted EPS for the three-month and six-month computation of diluted EPS at July 4, 2009 or the six-month computation of diluted EPS at July 3, 2010, as all would be anti-dilutive due to the current period loss.

Note F. Restructuring Reserve and Plant Closures

As a result of challenging market conditions and the Corporation's ongoing business simplification and cost reduction strategies, management made the decision in the first quarter of fiscal 2010 to close an office furniture manufacturing facility located in Salisbury, North Carolina and consolidate production into existing office furniture manufacturing facilities. In connection with the closure of the Salisbury location and other office furniture plant closures announced in 2009, the Corporation recorded $2.1 million of charges during the quarter ended July 3, 2010 which included $0.9 million of accelerated depreciation recorded in cost of sales and $1.2 million of other costs which were recorded as restructuring costs. The Corporation had previously recorded $1.3 million of severance costs for approximately 125 members during the first quarter in connection with the closure of the Salisbury facility. The closure and consolidation of the Salisbury facility is expected to be substantially completed by the end of 2010.

The following is a summary of changes in restructuring accruals during the six months ended July 3, 2010. This summary does not include accelerated depreciation as this item was not accounted for through the restructuring accrual on the Condensed Consolidated Balance Sheets but is included as a component of "Restructuring and Impairment" in the Condensed Consolidated Statements of Income.

(In thousands)	Severance			Facility Exit Costs & Other			Total
Balance as of January 2, 2010	$	4,389		$	1,569		$	5,958
Restructuring charges		1,440			1,633			3,072
Cash payments		(2,360	)		(2,487	)		(4,847	)
Balance as of July 3, 2010	$	3,469		$	714		$	4,183

Note G. Discontinued Operations

During the first quarter of fiscal 2010, the Corporation committed to a plan to sell a small non-core business of its office furniture segment. The Corporation also sold a small non-core component of its hearth product segment during the first quarter. Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented.

During the first quarter of fiscal 2010, the Corporation recorded a pre-tax charge of $1.0 million to reduce the assets of the office furniture business to fair market value. During the fiscal quarter ended July 3, 2010, the Corporation recorded an additional charge of $1.7 million to reduce the assets held for sale to the current fair market value based on changes in negotiations with prospective buyers. The charges were principally due to the write-down of intangibles not deductible for tax purposes. A pre-tax loss of $0.4 million was recorded at the time of sale of the hearth products component referred to above.

Summarized financial information for discontinued operations is as follows:

	Three Months Ended						Six Months Ended
(in thousands)	July 3, 2010			July 4, 2009			July 3, 2010			July 4, 2009
Discontinued operations:
Operating profit (loss) before tax	$	296		$	(204	)	$	(994	)	$	(434	)
Benefit for income tax		118			(60	)		(353	)		(129	)
Net profit (loss) from discontinued operations, net of income tax		178			(144	)		(641	)		(305	)
Impairment loss and loss on sale of discontinued operations:
Impairment loss and loss on sale of discontinued operations before tax		(1,673	)		-			(3,076	)		-
Benefit for income tax		(668	)		-			(1,179	)		-
Net impairment loss and loss on sale of discontinued operations		(1,005	)		-			(1,897	)		-
Loss from discontinued operations, net of income tax benefit	$	(827	)	$	(144	)	$	(2,538	)	$	(305	)

Assets to be disposed of as of July 3, 2010 are recorded as follows:

(in thousands)	July 3, 2010
Prepaid Expenses and Other Current Assets
Receivables	$	3,918
Prepaid expenses		346
		4,264
Other Assets
Property and equipment		454
Intangible assets		-
		454
Accounts Payable and Accrued Expenses
Accounts Payable		340
Accrued Expenses		1,628
		1,968
Total net assets held for sale	$	2,750

Note H. Goodwill and Other Intangible Assets

The table below summarizes amortizable definite-lived intangible assets as of July 3, 2010 and January 2, 2010, which are reflected in the "Other Assets" line item in the Corporation's Condensed Consolidated Balance Sheets:

(In thousands)	July 3, 2010		Jan. 2, 2010
Patents	$	19,325	$	19,325
Customer relationships and other		108,464		115,451
Less: accumulated amortization		67,696		68,004
	$	60,093	$	66,772

Aggregate amortization expense for the six months ended July 3, 2010 and July 4, 2009 was $4.9 million and $4.9 million, respectively. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:

(In millions)		2010				2011				2012				2013				2014
Amortization Expense		$	8.5			$	6.3			$	5.7			$	5.3			$	4.7

As events such as potential acquisitions, dispositions or impairments occur in the future, these amounts may change.

The Corporation also owns trademarks and trade names with a net carrying amount of $41.0 million. The trademarks are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely.

The changes in the carrying amount of goodwill since January 2, 2010, are as follows by reporting segment:

(In thousands)	Office Furniture			Hearth Products			Total
Balance as of January 2, 2010
Goodwill	$	123,948		$	166,525		$	290,473
Accumulated impairment losses		(29,359	)		-			(29,359	)
		94,589			166,525			261,114
Goodwill acquired during the quarter		-			-			-
Impairment losses		-			-			-
Goodwill related to the sale of business units		-			(486	)		(486	)
Balance as of July 3, 2010
Goodwill		123,948			166,039			289,987
Accumulated impairment losses		(29,359	)		-			(29,359	)
	$	94,589		$	166,039		$	260,628

The Corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter, or whenever indicators of impairment exist. The Corporation estimates the fair value of its reporting units using various valuation techniques, with the primary technique being a discounted cash flow method. This method employs assumptions that are market participant based. The decrease in the hearth products segment related to the sale of a non-core component during the first quarter.

Note I. Product Warranties

The Corporation issues certain warranty policies on its office furniture and hearth products that provide for repair or replacement of any covered product or component that fails during normal use because of a defect in design or workmanship.

A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims that are expected to be incurred based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Activity associated with warranty obligations was as follows during the periods noted:

	Six Months Ended
(In thousands)	July 3, 2010			July 4, 2009
Balance at beginning of period	$	12,684		$	13,948
Accruals for warranties issued during period		7,913			7,093
Adjustments related to pre-existing warranties		750			13
Settlements made during the period		(8,582	)		(7,790	)
Balance at end of period	$	12,765		$	13,264

Note J. Postretirement Health Care

The following table sets forth the components of net periodic benefit cost included in the Corporation's income statement for:

	Six Months Ended
(In thousands)	July 3, 2010			July 4, 2009
Service cost	$	181		$	195
Interest cost		420			480
Amortization of transition obligation		254			254
Amortization of (gain)/loss		(9	)		(5	)
Net periodic benefit cost	$	846		$	924

Note K. Income Taxes

The provision for income taxes in the second quarter of 2010 reflects an actual effective tax rate of 38.5 percent, compared to a discrete period effective tax rate of 33.3 percent for the second quarter 2009. The 2010 estimated annual effective tax rate including discontinued operations is expected to be 36 percent, slightly higher than the U.S. tax rate of 35 percent, primarily due to increased profitability and the lack of U.S. research and development tax credits which have not been extended past 2009. A discrete calculation was used to report the 2009 second quarter tax provision rather than an estimated annual tax rate as uncertainty in the full year outlook produced significant variability and made it difficult to reasonably estimate the 2009 annual effective tax rate.

Note L. Derivative Financial Instruments

The Corporation uses derivative financial instruments to reduce its exposure to adverse fluctuations in interest rates and diesel fuel. On the date a derivative is entered into, the Corporation designates the derivative as (i) a fair value hedge, (ii) a cash flow hedge, (iii) a hedge of a net investment in a foreign operation, or (iv) a risk management instrument not designated for hedge accounting. The Corporation recognizes all derivatives on its consolidated balance sheet at fair value.

Interest Rate Risk

In June 2008, the Corporation entered into an interest rate swap agreement, designated as a cash flow hedge, for purposes of managing its benchmark interest rate fluctuation risk. Under the interest rate swap agreement, the Corporation pays a fixed rate of interest and receives a variable rate of interest equal to the one-month London Interbank Offered Rate (LIBOR) as determined on the last day of each monthly settlement period on an aggregated notional principal amount of $50 million. The net amount paid or received upon monthly settlements is recorded as an adjustment to interest expense, while the effective change in fair value is recorded as a component of accumulated other comprehensive income in the equity section of the Corporation's consolidated balance sheet. The interest rate swap agreement matures on May 27, 2011.

As of July 3, 2010, $1,145,506 of deferred net losses, net of tax, included in equity ("Accumulated other comprehensive income (loss)" in the Condensed Consolidated Balance Sheet) related to this interest rate swap, are expected to be reclassified to current earnings ("Interest expense" in the Condensed Consolidated Statements of Income) over the next twelve months.

Diesel Fuel Risk

The Corporation uses independent freight carriers to deliver its products. These carries charge the Corporation a basic rate per mile that is subject to a mileage surcharge for diesel fuel price increases. The Corporation entered into variable to fixed rate commodity swap agreements beginning in April 2010 with two financial counterparties to manage fluctuations in fuel costs. The Corporation will hedge approximately 40% of its diesel fuel requirements for the next twelve months. The Corporation uses the hedge agreements to mitigate the volatility of diesel fuel prices and related fuel surcharges, and not to speculate the future price of diesel fuel. The hedge agreements are designed to add stability to the Corporation's costs, enabling the Corporation to make pricing decisions and lessen the economic impact of abrupt changes in diesel fuel prices over the term of the contract. The hedging instruments consist of a series of financially settled fixed forward contracts with expiration dates ranging up to twelve months. The contracts have been designated as cash flow hedges of future diesel purchases, and as such, the net amount paid or received upon monthly settlements is recorded as an adjustment to freight expense, while the effective change in fair value is recorded as a component of accumulated other comprehensive income in the equity section of the Corporation's consolidated balance sheet.

As of July 3, 2010, $580,838 of deferred net losses, net of tax, included in equity ("Accumulated other comprehensive income (loss)" in the Condensed Consolidated Balance Sheet) related to the diesel hedge agreements, are expected to be reclassified to current earnings ("Selling and administrative expense" in the Condensed Consolidated Statements of Income) over the next twelve months.

The location and fair value of derivative instruments reported in the Condensed Consolidated Balance Sheet are as follows (in thousands):

	Balance Sheet Location	Jul. 3, 2010		Jan. 2, 2010
Interest rate swap	Accounts payable and accrued expenses	$	1,836	$	1,922
Interest rate swap	Other long-term liabilities		-	$	626
Diesel fuel swap	Accounts payable and accrued expenses	$	931		-
		$	2,767	$	2,548

The effect of derivative instruments on the Condensed Consolidated Statements of Income for the six months ended July 3, 2010 was as follows (in thousands):

Derivatives in Cash Flow Hedge Relationship	Before-tax Gain (Loss) Recognized in OCI on Derivative (Effective Portion)			Locations of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Before-Tax Gain (Loss) Reclassified from AOCI Into Income (Effective Portion)			Locations of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)	Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	(333	)	Interest expense	$	(1,045	)	None		-
Diesel fuel swap		(931	)	Selling and administrative expense		(82	)	None		-
Total	$	(1,263	)		$	(1,127	)			-

The effect of derivative instruments on the Condensed Consolidated Statements of Income for the six months ended July 4, 2009 was as follows (in thousands):

Derivatives in Cash Flow Hedge Relationship	Before-tax Gain (Loss) Recognized in OCI on Derivative (Effective Portion)			Locations of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Before-Tax Gain (Loss) Reclassified from AOCI Into Income (Effective Portion)			Locations of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)	Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	(644	)	Interest expense	$	(807	)	None		-
Diesel fuel swap		-		Selling and administrative expense		-		None		-
Total	$	(644	)		$	(807	)			-

Note M. Fair Value Measurements

For recognition purposes, on a recurring basis the Corporation is required to measure at fair value its investment in target funds. The target funds are reported as both current and noncurrent assets based on the portion that is anticipated to be used for current operations. When available the Corporation uses quoted market prices to determine fair value and classify such measurements within Level 1. In some cases where market prices are not available, the Corporation makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2.

On a nonrecurring basis, during the three month period ended July 3, 2010 the Corporation measured the fair value of assets held for sale using the market approach. The Corporation used

comparable prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities, thus classified the measurements as Level 2.

Assets measured at fair value during the three months ended July 3, 2010 were as follows:

(in thousands)	Fair value as of measurement date			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Investment in target funds	$	8,142			-	$	8,142			-
Derivative financial instrument	$	(2,767	)		-	$	(2,767	)		-
Assets held for sale	$	2,750			-	$	2,750			-

Assets measured at fair value for the year ended January 2, 2010 were as follows:

(in thousands)	Fair value as of measurement date			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
Investment in target funds	$	5,744		$	-	$	5,744		$	-
Derivative financial instrument	$	(2,548	)	$	-	$	(2,548	)	$	-

In addition to the methods and assumptions the Corporation uses to record the fair value of financial instruments as discussed in the section above, it uses the following methods and assumptions to estimate the fair value of its financial instruments.

Cash and cash equivalents

The carrying amount approximated fair value.

Long-term debt (including current portion)

The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at July 3, 2010 and January 2, 2010, the end of the Corporation's 2009 fiscal year, approximates the fair value. The fair value of the Corporation's outstanding fixed-rate, long-term debt obligations is estimated to be $155 million at July 3, 2010 and $151 million at January 2, 2010, compared to the carrying value of $150 million.

Note N. Commitments and Contingencies

The Corporation utilizes letters of credit in the amount of $18.4 million to back certain insurance policies and payment obligations. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.

The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including pending litigation, environmental remediation, taxes, and other claims. It is the Corporation's opinion that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, although such matters could have a material effect on the Corporation's quarterly or annual operating results and cash flows when resolved in a future period.

Note O. New Accounting Standards

There were no new accounting standards issued during the quarter that the Corporation expects to have a material impact on the financial statements.

Note P. Business Segment Information

Management views the Corporation as operating in two business segments: office furniture and hearth products with the former being the principal business segment.

The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes storage products, desks, credenzas, chairs, tables, bookcases, freestanding office partitions and panel systems and other related products. The hearth products segment manufactures and markets a broad line of manufactured gas, electric, wood and biomass burning fireplaces, inserts, stoves, facings and accessories, principally for the home.

For purposes of segment reporting, intercompany sales transfers between segments are not material and operating profit is income before income taxes exclusive of certain unallocated corporate expenses. These unallocated corporate expenses include the net cost of the Corporation's corporate operations, interest income and interest expense. Management views interest income and expense as corporate financing costs rather than a business segment cost. In addition, management applies one effective tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis.

The Corporation's primary market and capital investments are concentrated in the United States.

Reportable segment data reconciled to the consolidated financial statements for the three- and six-month periods ended July 3, 2010, and July 4, 2009, is as follows:

	Three Months Ended						Six Months Ended
(In thousands)	July 3, 2010			July 4, 2009			July 3, 2010			July 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 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 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 (loss) before income taxes	$	9,085		$	(1,881	)	$	996		$	(21,321	)

Depreciation & 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:
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 July 3, 2010			As of July 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

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Corporation has two reportable segments: office furniture and hearth products. The Corporation is the second largest office furniture manufacturer in the world and the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces. The Corporation utilizes its split and focus, decentralized business model to deliver value to its customers with its various brands and selling models. The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth.

Net sales for the second quarter of fiscal 2010 increased 6.3 percent to $398.2 million when compared to the second quarter of fiscal 2009. The increase was driven by the office furniture segment and the new construction channel of the hearth products segment. Gross margins for the quarter increased from prior year levels due to higher volume and cost reduction initiatives partially offset by decreased price realization and higher mix of lower margin product in the office furniture segment. Selling and administrative expenses, as a percent of sales, decreased due to higher volume and cost control initiatives partially offset by investments in selling initiatives and incentive based compensation.

The Corporation recorded $2.4 million of restructuring and transition costs in the second quarter in connection with office furniture plant closures announced in first quarter 2010 and 2009.

The Corporation made a decision to sell a non-core business of the office furniture segment and sold a non-core component of the hearth products segment during the first quarter of 2010. Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented in the condensed consolidated financial statements.

Critical Accounting Policies

The preparation of the financial statements requires the Corporation to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Corporation continually evaluates its accounting policies and estimates. The Corporation bases its estimates on historical experience and on a variety of other assumptions believed by management to be reasonable in order to make judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Corporation's Annual Report on Form 10-K for the year ended January 2, 2010. During the first six months of fiscal 2010, there were no material changes in the accounting policies and assumptions previously disclosed.

New Accounting Standards

There were no new accounting standards issued during the quarter that the Corporation expects to have a material impact on the financial statements.

Results of Operations

The following table presents certain key highlights from the results of operations for the periods indicated:

	Three Months Ended								Six Months Ended
(In thousands)	July 3, 2010		July 4, 2009			Percent Change			July 3, 2010			July 4, 2009			Percent Change
Net sales	$	398,222	$	374,773			6.3	%	$	761,728		$	771,602			(1.3	)%
Cost of sales		256,905		247,215			3.9	%		501,231			521,398			(3.9	)%
Gross profit		141,317		127,558			10.8	%		260,497			250,204			4.1	%
Selling & administrative expenses		128,032		122,637			4.4	%		250,832			256,575			(2.2	)%
Restructuring & impairment charges		1,238		3,878			(68.1	)%		3,072			8,963			(65.7	)%
Operating income (loss)		12,047		1,043		NM*				6,593			(15,334	)		143.0	%
Interest expense, net		2,962		2,924			1.3	%		5,597			5,987			(6.5	)%
Earnings (loss) before income taxes		9,085		(1,881	)		583.0	%		996			(21,321	)		104.7	%
Income taxes		3,493		(635	)		650.1	%		(454	)		(8,377	)		94.6	%
Income (loss) from continuing operations	$	5,592	$	(1,246	)		548.8	%	$	1,450		$	(12,944	)		111.2	%
*NM=Not Meaningful

Consolidated net sales for the second quarter increased 6.3 percent or $23.5 million compared to the same quarter last year. The increase occurred in the office furniture segment offset by a small decline in the hearth products segment.

Gross margin for the second quarter increased to 35.5 percent compared to 34.0 percent for the same quarter last year. The improvement in gross margin was driven by higher volume and cost reduction initiatives offset partially by decreased price realization and higher mix of lower margin products in the office furniture segment. Second quarter 2010 included $1.1 million of accelerated depreciation and transition costs related to the closure and consolidation of office furniture manufacturing facilities.

Total selling and administrative expenses, including restructuring charges, as a percent of sales decreased to 32.5 percent compared to 33.8 percent for the same quarter last year due to higher volume and cost reduction initiatives partially offset by investments in selling initiatives and increased incentive based compensation. Second quarter 2009 included $3.9 million of restructuring charges associated with plant consolidations.

Income from continuing operations for the second quarter of 2010 was $5.6 million or $0.12 per diluted share in the second quarter of 2010 compared to a net loss of ($1.2) million or ($0.03) per diluted share in the second quarter of 2009.

The provision for income taxes in the second quarter of 2010 reflects an actual effective tax rate of 38.5 percent, compared to a discrete period effective tax rate of 33.3 percent for the second quarter of 2009. The 2010 estimated annual effective tax rate including discontinued operations is expected to be 36 percent, slightly higher than the U.S. tax rate of 35 percent, primarily due to increased profitability and the lack of U.S. research and development tax credits which have not been extended past 2009. A discrete calculation was used to report the 2009 second quarter tax provision rather than an estimated annual tax rate as uncertainty in the full year outlook produced significant variability and made it difficult to reasonably estimate the 2009 annual effective tax rate.

The Corporation made a decision to sell a small, non-core business of the office furniture segment during the first quarter of 2010. A pre-tax charge of $1.0 million was recorded during the first quarter to reduce the assets held for sale to fair market value. An additional pre-tax charge of $1.7 million was recorded in second quarter of 2010 to reduce the assets held for sale to the current fair market value based on changes in negotiations with prospective buyers. In addition, the Corporation sold a small non-core component of its hearth products segment during the first quarter. A pre-tax charge of $0.4 million was recorded at the time of the sale. Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented in the financial statements.

For the first six months of 2010, consolidated net sales 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 for the same period last year. Income from continuing operations was $1.5 million for the first six months of 2009 compared to a loss of $12.9 million for the first six months of 2009. Earnings per share from continuing operations increased to $0.03 per diluted share compared to ($0.29) per diluted share for the same period last year.

Office Furniture

Second quarter 2010 sales for the office furniture segment increased 7.8 percent or $24.7 million to $342.7 million from $318.0 million for the same quarter last year driven by growth in all channels of the office furniture industry. Operating profit prior to unallocated corporate expenses increased $5.6 million to $22.7 million as a result of 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. Second quarter 2010 included $2.4 million of restructuring and transition costs including accelerated depreciation compared to $3.7 million of restructuring costs in second quarter 2009.

Net sales for the first six months of 2010 decreased 0.9 percent or $6.0 million to $642.7 million compared to $648.8 million for the same period in 2009. Operating profit increased 63.0 percent or $11.2 million to $29.0 million.

Hearth Products

Second quarter 2010 net sales for the hearth products segment decreased 2.3 percent or $1.3 million to $55.5 million from $56.8 million for the same quarter last year driven by a decline in the remodel-retrofit channel partially offset by an increase in the new construction channel. Operating profit prior to unallocated corporate expenses increased $6.4 million to a $2.6 million loss due to cost reduction initiatives and lower restructuring costs partially offset by lower volume and higher material costs. Second quarter 2009 included $1.5 million of restructuring and transition costs.

Net sales for the first six months of 2010 decreased 3.0 percent or $3.8 million to $119.0 million compared to $122.8 million for the same period in 2009. Operating profit increased $14.8 million to a $5.5 million loss when compared to the same period last year.

Liquidity and Capital Resources

Cash Flow – Operating Activities

Cash generated from operating activities for the first six months of 2010 totaled $1.5 million compared to $49.4 million generated in the first six months of 2009. Changes in working capital performance resulted in a $38.8 million use of cash in the current fiscal year compared to $18.7 million source of cash in the prior year. Working capital in the first six months of 2009 was positively impacted by reductions in accounts receivable due to a significant decrease in revenue.

Cash Flow – Investing Activities

Capital expenditures including capitalized software for the first six months of fiscal 2010 were $12.4 million compared to $7.8 million in the same period of fiscal 2009 and were primarily for tooling and equipment for new products. For the full year 2010, capital expenditures are expected to be $25 to $30 million primarily focused on new product development and related tooling.

Cash Flow – Financing Activities

On June 11, 2010, the Corporation replaced a $300 million revolving credit facility entered into on January 28, 2005 with a new revolving credit facility that provided for a maximum borrowing of $150 million subject to increase (to a maximum amount of $250 million) or reduction from time to time according to the terms of the underlying credit agreement. Amounts borrowed under the Credit Agreement may be borrowed, repaid and reborrowed from time to time until June 11, 2014. The Corporation paid approximately $1.6 million of debt issuance costs that are being amortized straight-line over the term of the credit agreement. As of July 3, 2010, net borrowings under the revolving credit facility are at $50 million and are classified as short-term as the Corporation expects to repay the borrowings within a year.

The credit agreement governing the Corporation's revolving credit facility contains a number of covenants, including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter:

a consolidated interest coverage ratio of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA (as defined in the credit agreement) for the last four fiscal quarters to (b) the sum of consolidated interest charges; and

a consolidated leverage ratio of not greater than 3.0 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the credit agreement) to (b) consolidated EBITDA for the last four fiscal quarters.

The note purchase agreement pertaining to the Corporation's Senior Notes also contains a number of covenants, including a covenant requiring maintenance of consolidated debt to consolidated EBITDA (as defined in the note purchase agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the note purchase agreement) to (b) consolidated EBITDA for the last four fiscal quarters.

The revolving credit facility and Senior Notes are the primary sources of committed funding from which the Corporation finances its planned capital expenditures, strategic initiatives, such as acquisitions, repurchases of common stock and certain working capital needs. Non-compliance with the various financial covenant ratios could prevent the Corporation from being able to access further borrowings under the revolving credit facility, require immediate repayment of all amounts outstanding with respect to the revolving credit facility and Senior Notes and/or increase the cost of borrowing.

The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.0 to 1.0 included in the credit agreement governing the revolving credit facility. Under that credit agreement, adjusted EBITDA is defined as consolidated net income before interest expense, income taxes and depreciation and amortization of intangibles, as well as non-cash, nonrecurring charges and all non-cash items increasing net income. At July 3, 2010, the Corporation was well below this ratio and was in compliance with all of the covenants and other restrictions in the credit agreements and note purchase agreement. The Corporation currently expects to remain in compliance over the next twelve months.

The Corporation's Board of Directors (the "Board") declared a regular quarterly cash dividend of $0.215 per share on the Corporation's common stock on May 11, 2010, to shareholders of record at the close of business on May 21, 2010. It was paid on June 1, 2010.

During the six months ended July 3, 2010, the Corporation repurchased 372,822 shares of common stock at a cost of approximately $10.3 million, or an average price of $27.62 per share. For the six months ended July 4, 2009, the Corporation did not repurchase any shares of common stock. As of July 3, 2010, approximately $153.3 million of the Board's current repurchase authorization remained unspent.

Off-Balance Sheet Arrangements

The Corporation does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Corporation's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

Contractual obligations associated with ongoing business and financing activities will result in cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments was provided in the Corporation's Annual Report on Form 10-K for the year ended January 2, 2010. During the first six months of fiscal 2010 there were no material changes outside the ordinary course of business in the Corporation's contractual obligations or the estimated timing of the future cash payments.

Commitments and Contingencies

The Corporation is involved in various kinds of disputes and legal proceedings that have arisen in the ordinary course of its business, including pending litigation, environmental remediation, taxes and other claims. It is the Corporation's opinion that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, although such matters could have a material effect on the Corporation's quarterly or annual operating results and cash flows when resolved in a future period.

Looking Ahead

Management is encouraged by the strengthened demand in both the hearth and office furniture businesses despite the ongoing economic uncertainty. The Corporation is accelerating investments in core selling, marketing and product initiatives to strengthen its multiple platforms for growth. Management believes the Corporation is financially strong and well positioned for the future.

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

Forward-Looking Statements

Statements in this report 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 and are 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 housing market; lower industry growth than expected; major disruptions at our 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of July 3, 2010, there were no material changes to the financial market risks that affect the quantitative and qualitative disclosures presented in Item 7A of the Corporation's Annual Report on Form 10-K for the year ended January 2, 2010.

Item 4. Controls and Procedures

Disclosure controls and procedures are designed to ensure information required to be disclosed by the Corporation in the reports it files or submits under the Securities Exchange Act of 1934 (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Corporation carried out an evaluation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rules 13a – 15(e) and 15d – 15(e). As of July 3, 2010, and, based on this evaluation, the chief executive officer and chief financial officer have concluded these disclosure controls and procedures are effective.

Furthermore, there have been no changes in the Corporation's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no new legal proceedings or material developments to report other than ordinary routine litigation incidental to the business.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the "Risk Factors" section of the Corporation's Annual Report on Form 10-K for the year ended January 2, 2010 and the Corporation's Quarterly Report on Form 10-Q for the quarter ended April 3, 2010 except for the item listed below.

The Corporation's ability to realize financial benefits from its repurchases of common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Directors and members (i.e., employees) of the Corporation receive common stock equivalents pursuant to the HNI Corporation Executive Deferred Compensation Plan and the HNI Corporation Directors Deferred Compensation Plan, respectively (collectively, the "Deferred Plans"). Common stock equivalents are hypothetical shares of common stock having a value on any given date equal to the value of a share of common stock. Common stock equivalents earn dividend equivalents that are converted into additional common stock equivalents but carry no voting rights or other rights afforded to a holder of common stock. The common stock equivalents credited to members and directors under the Deferred Plans are exempt from registration under Section 4(2) of the Securities Act of 1933 as private offerings made only to directors and members of the Corporation in accordance with the provisions of the Deferred Plans.

Under the Deferred Plans, each director or member participating in the Deferred Plans, may elect to defer the receipt of all or any portion of the compensation paid to such director or member by the Corporation to a cash or stock sub-account. All deferred payments to the stock sub-account are held in the form of common stock equivalents. Payments out of the deferred stock sub-accounts are made in the form of common stock of the Corporation (and cash as to any fractional common stock equivalent). In the second quarter of 2010, the directors and members, as a group, were credited with 6,905 common stock equivalents under the Deferred Plans. The value of each common stock equivalent, when credited, ranged from $27.59 to $31.04.

Issuer Purchases of Equity Securities:

The following is a summary of share repurchase activity during the quarter ended July 3, 2010.

Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average price Paid per Share or Unit		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs
04/04/10 – 05/01/10							$	160,320,828
05/02/10 – 05/29/10		84,285	$	29.83		84,285	$	157,806,607
05/30/10 – 07/03/10		153,537	$	29.25		153,537	$	153,315,195
Total		237,822				237,822

(1) No shares were purchased outside of a publicly announced plan or program.

The Corporation repurchases shares under previously announced plans authorized by the Board as follows:

·	Plan announced November 9, 2007, providing share repurchase authorization of $200,000,000 with no specific expiration date.

·	No repurchase plans expired or were terminated during the second quarter of fiscal 2010, nor do any plans exist under which the Corporation does not intend to make further purchases.

Item 6. Exhibits

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HNI Corporation

Date: August 5, 2010	By:	/s/ Kurt A. Tjaden
		Kurt A. Tjaden
		Vice President and Chief Financial Officer


EXHIBIT INDEX
(3.1)	By-laws of HNI Corporation, as amended +

(10.1)	Credit Agreement, dated as of June 11, 2010, by and among HNI Corporation, as Borrower, certain domestic subsidiaries of HNI Corporation from time to time party thereto, as Guarantors, certain lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed June 16, 2010

(31.1)	Certification of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)	Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

+ Filed herewith .

TABLE OF CONTENTS

Part I. Financial Informationprint Item 1. Financial Statementsprint Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operationsprint Item 2. Management's Discussion and Analysis Of Financial Condition and Results Ofprint Item 3. Quantitative and Qualitative Disclosures About Market Riskprint Item 4. Controls and Proceduresprint Part II. Other Informationprint Item 1. Legal Proceedingsprint Item 1A. Risk Factorsprint Item 2. Unregistered Sales Of Equity Securities and Use Of Proceedsprint Item 6. Exhibitsprint

DIRECTORS	AGE	BIO
Patrick Hallinan	64	Patrick D. Hallinan , age 57, has been a director of the Corporation since September 2022. Since 2023, Mr. Hallinan has served as Executive Vice President, Chief Financial Officer of Stanley Black & Decker, a manufacturer of industrial tools and household hardware. From 2017 through 2023, Mr. Hallinan served as the Senior Vice President and Chief Financial Officer of Fortune Brands Home & Security, Inc., a manufacturer of home and security products. From 2013 to 2017, Mr. Hallinan served as Fortune Brands’ Senior Vice President – Finance and Chief Financial Officer of its plumbing segment. Mr. Hallinan brings to the Board extensive expertise in finance, business strategy, general management, and business leadership derived from his service at Fortune Brands and Stanley Black & Decker. Mr. Hallinan currently serves on the Audit Committee and qualifies as an “audit committee financial expert” as defined in SEC rules.
Miguel Calado	69	Miguel M. Calado , age 69, has been a director of the Corporation since August 2004. Mr. Calado is a board member of WY Group, a digital marketing and technology holding company, and he also serves as Chairman of Nanoform Finland Limited, a publicly traded international drug particle engineering company. He also chairs the audit and compensation committee of Nanoform, a nanotechnology and drug particle engineering company. Mr. Calado previously was Chairman and President of WY Group from April 2017 until October 2023. From 2014 to April 2017, Mr. Calado was Vice President, Corporate Development and President of the iMax Diagnostic Imaging Business Unit of Hovione SA, an international fine chemicals company. From 2006 to 2014, he served as Vice President and Chief Financial Officer of Hovione. He has been President of GAMCAL, LLC, an investment company, since 2006. Mr. Calado brings to the Board extensive international, general management, manufacturing and financial expertise derived primarily from his previous service as Chief Financial Officer of an international manufacturing company and prior service in various roles at several large packaged and consumer goods public companies. These roles and companies include Executive Vice President and President, International for Dean Foods Company and several international finance roles for PepsiCo Foods International. Mr. Calado currently serves as Lead Director and on the Governance Committee. Although Mr. Calado does not serve on the Audit Committee, he qualifies as an “audit committee financial expert” as defined in SEC rules.
Mary Jones	64	Mary K.W. Jones , age 56, has been a director of the Corporation since February 2016. From 2013 until April 2024, Ms. Jones served as Senior Vice President, General Counsel and Worldwide Public Affairs of Deere & Company (“Deere”), a world-leading provider of advanced products and services for agriculture, construction, forestry and turf care. From 2010 through 2012, she served as Deere’s Vice President, Global Human Resources. Ms. Jones brings to the Board significant risk management, corporate governance and general legal expertise, derived largely from her role leading the Deere compliance and legal functions. In addition, she brings to the Board significant expertise in the areas of talent strategy, executive succession planning and compensation, derived from her former role as Deere’s Vice President, Global Human Resources. Ms. Jones currently serves as Chair of the Compensation Committee.
Mary Bell	64	Mary A. Bell , age 64, has been a director of the Corporation since November 2006. Ms. Bell has also served as a director of Husco International Inc., a privately-owned company specializing in hydraulic and electro-mechanical control systems, since November 2015 and as a director of PPC Partners, the holding company for several leading electrical, mechanical, automation, and construction companies, since June 2019. Prior to her retirement in July 2015, Ms. Bell was a Vice President of Caterpillar, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. From 2004 to 2007, she was the Vice President of Caterpillar’s Logistics Division and served as Chairman and President of Cat Logistics Services, Inc., formerly a wholly owned subsidiary of Caterpillar. Ms. Bell brings to the Board considerable logistics, manufacturing and dealer channel expertise and general management experience derived primarily from her service in various roles at Caterpillar. She currently serves as Chair of the Governance Committee.
Larry Porcellato	59	Larry B. Porcellato, age 66, has been a director of the Corporation since August 2004. Mr. Porcellato was Chief Executive Officer of The Homax Group, Inc. (“Homax”), a leading specialty application consumer products supplier to the home care and repair markets, a role from which he retired in July 2014. Previously, he was an independent business consultant and Chief Executive Officer of ICI Paints North America (“ICI Paints”). From 2008 to 2020, he was a director of OMNOVA Solutions, Inc., an innovator of emulsion polymers, specialty chemicals and decorative and functional surfaces, and a former director of privately held PSAV Holding LLC, an international, full-service technology in-house audiovisual provider. Mr. Porcellato brings to the Board chief executive officer experience in the building products industry through his former leadership of Homax and his former role as Chief Executive Officer of ICI Paints and financial expertise derived primarily from his service on the audit committee of another public company and previous finance and division leadership roles at other public companies. He also brings to the Board international and marketing expertise derived primarily from his service in various international and marketing roles at Rubbermaid Incorporated and Braun Canada Inc. and corporate governance experience through his service on the compensation and governance committees of another public company. Mr. Porcellato currently serves on the Compensation Committee.
John Hartnett	69	John R. Hartnett , age 64, has been a director of the Corporation since August 2016. Prior to his retirement in 2022, Mr. Hartnett was Executive Vice President at Illinois Tool Works Inc. (“ITW”), a Fortune 200 global multi-industrial manufacturing leader with seven industry-leading business segments. Mr. Hartnett was with ITW for 37 years and led its Welding segment prior to his retirement. Mr. Hartnett brings to the Board extensive engineering, marketing, manufacturing and management experience from his numerous business roles at ITW, including his previous role as head of ITW’s Construction Products segment. Mr. Hartnett currently serves as Chair of the Audit Committee and qualifies as an “audit committee financial expert” as defined in SEC rules.
David M Roberts	59	David M. Roberts, age 54, has been a director of the Corporation since June 2024. Since 2018, Mr. Roberts has been the President and Chief Executive Officer of Verra Mobility Corporation, a leading global provider of smart mobility technology solutions, including commercial fleet and toll management, automated safety and traffic enforcement, and commercial parking management. From August 2014 to May 2018, Mr. Roberts served as the Chief Operating Officer of American Traffic Solutions, Verra Mobility’s predecessor company. Mr. Roberts brings to the Board technology and innovation experience, as well as strategic business management skills, derived primarily from his leadership roles at Verra Mobility Corporation. Mr. Roberts currently serves on the Governance Committee.
Cheryl Francis	69	Cheryl A. Francis , age 71, has been a director of the Corporation since May 1999. Ms. Francis has been Co-Chairman of the Corporate Leadership Center, a not-for-profit organization focused on developing tomorrow’s business leaders, since 2008. Previously, from 2002 to 2008, she was the Vice Chairman of the Corporate Leadership Center. Ms. Francis is a director of Aon plc, a leading global professional services firm providing a broad range of risk, retirement and health solutions, and Morningstar, Inc., a leading provider of independent investment research in North America, Europe, Australia and Asia. Ms. Francis also chairs the audit committee of Morningstar and the Inclusion and Wellbeing Sub-committee of Aon. Ms. Francis brings to the Board significant financial expertise based primarily on her prior role as Chief Financial Officer of R.R. Donnelley & Sons Company and service on the audit and finance committees of other public companies. She also brings to the Board corporate governance experience through her service on the compensation and governance committees of other public companies, and executive leadership development experience based on Corporate Leadership Center work with CEOs, leading academic institutions and corporate executives. She currently serves on the Compensation Committee. Although Ms. Francis does not serve on the Audit Committee, she qualifies as an “audit committee financial expert” as defined in SEC rules.
Abbie Smith	71	Abbie J. Smith , age 71, has been a director of the Corporation since July 2000 and served as the Lead Director from May 2014 to May 2017. Since 1999, Ms. Smith has been a Chaired Professor at the University of Chicago Booth School of Business, a national leader in higher education, and is currently the Boris and Irene Stern Distinguished Service Professor of Accounting. She is a director of DFA Investment Dimensions Group Inc. and Dimensional Investment Group Inc.; a trustee of The DFA Investment Trust Company, the Dimensional Emerging Markets Value Fund, and Dimensional ETF Trust; and a director of Ryder System, Inc., a commercial transportation, logistics and supply chain management solutions company. Ms. Smith is also a trustee of The UBS Funds (Chicago) and SMA Relationship Trust. Ms. Smith brings to the Board considerable financial and corporate governance expertise based primarily on her extensive research and teaching at the University of Chicago and her service as a director of mutual fund complex and other public company audit, performance, finance and nominating committees. She currently is chair of the audit committee of the Dimensional Funds and a member of the audit committee of Ryder System, Inc. and the Chicago-based UBS Funds. Ms. Smith currently serves on the Governance Committee. Although Ms. Smith does not serve on the Audit Committee, she qualifies as an “audit committee financial expert” as defined in SEC rules.

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Jeffrey D. Lorenger Chairman, President and Chief Executive Officer, HNI Corporation	2024	1,030,000	20,579	4,429,015	1,211,280	9,654	360,292	7,060,819
	2023	1,025,961	14,958	3,553,470	2,286,600	—	221,955	7,102,944
	2022	998,412	10,462	3,399,987	1,041,600	—	225,093	5,675,554
Marshall H. Bridges Chief Financial Officer; Senior Vice President, HNI Corporation	2024	579,414	15,943	871,080	443,364	7,369	121,851	2,039,021
	2023	557,160	13,233	837,591	774,780	—	90,082	2,272,847
	2022	535,567	10,462	805,369	349,522	—	90,412	1,791,332
Vincent P. Berger II President, Hearth & Home Technologies; Executive Vice President, HNI Corporation	2024	528,846	21,283	760,316	271,688	—	108,028	1,690,161
	2023	500,900	20,197	731,130	319,347	—	102,629	1,674,204
	2022	481,646	20,662	703,048	412,340	—	141,248	1,758,944
Steven M. Bradford Senior Vice President, General Counsel and Secretary, HNI Corporation	2024	497,625	20,579	374,906	386,173	—	137,088	1,416,371
	2023	481,101	13,233	362,230	661,469	—	76,927	1,594,960
	2022	466,908	10,462	351,656	312,287	—	77,799	1,219,112
B. Brandon Bullock III President, The HON Company	2024	462,369	11,834	460,562	364,998	—	105,492	1,405,255
	2023	444,602	6,155	442,894	639,083	—	49,394	1,582,128
	2022	423,311	—	407,611	184,689	—	53,506	1,069,117

Supplier name	Ticker
Emerson Electric Co.	EMR
Tyson Foods, Inc.	TSN
International Paper Company	IP
ArcelorMittal	MT
Masco Corporation	MAS
Expeditors International of Washington, Inc.	EXPD
Masco Corporation	MAS
ArcelorMittal	MT

Owner	Position	Direct Shares	Indirect Shares
Lorenger Jeffrey D	-	296,892	7,106
Lorenger Jeffrey D	-	294,893	6,721
SMITH ABBIE J	-	93,169	0
Berger Vincent P	-	88,434	2,053
Bridges Marshall H	-	78,346	1,915
Bell Mary A	-	77,972	0
Bridges Marshall H	-	72,320	1,741
Berger Vincent P	-	63,304	1,650
Bradford Steven M	-	61,642	2,527
Bradford Steven M	-	58,635	2,328
Porcellato Larry B	-	37,880	0
Hartnett John R.	-	37,735	0
SMITH KOURTNEY L	-	35,614	0
Meade Donna D	-	32,308	1,415
CALADO MIGUEL M	-	31,159	0
Roch Michael J.	-	18,769	0
Sivajee Dhanusha	-	18,513	0
Rao Radhakrishna S	-	15,123	1,438
Smith Brian Scott	-	13,171	1,499
Rao Radhakrishna S	-	10,926	806
Hallinan Patrick D	-	9,175	0
ROBERTS DAVID MARTIN	-	2,891	0

HNI 10-Q Quarter ended July 3, 2010