Ladies and gentlemen, thank you for standing by. Welcome to the HNI Corporation first quarter results conference call. At this time, all participant lines are in a listen-only mode and later there will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to the Vice President of Corporate Finance, Derek Schmidt. Please go ahead.

Good morning and thank you for joining us today for the HNI Corporation conference call to discuss first quarter 2011 results which were announced yesterday after the market closed. My name is Derek Schmidt, Treasurer and Vice President of Corporate Finance for HNI Corporation. If you have not received a copy of the financial news release, please call 563-272-7927 and we will send it to you. The release is also available at our website, www.hnicorp.com. A presentation intended to accompany this call has been posted to our website. The presentation contains details of our financial performance, including the non-GAAP to GAAP reconciliation. It can be found by accessing the webcast link under the investor information section of our website. We encourage you to review this presentation. Joining me on the line today from HNI Corporation are Kurt Tjaden, Vice President and Chief Financial Officer; and Stan Askren, Chairman, President and CEO. Stan and Kurt 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 risks. Actual results could differ materially from expected results. Additional information concerning the 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, Derek. Good morning, everyone. As usual, we will share our assessment of the first quarter of 2011 and then provide some thoughts on our outlook for second quarter and then we'll open the call up for questions. Kurt Tjaden, our CFO, will be joining me back and forth on these comments. So we're pleased with our year-over-year performance improvement this quarter. We experienced strong growth across all of our businesses, strength in our Office Furniture contract and international businesses driven by large projects continued at a substantial pace with 16% top line growth. Our supply driven channel in Office Furniture grew 5% over prior year as small business confidence gradually improved. Our Hearth business exceeded expectations. Remodel retrofit sales increased 16% as our alternative fuel products were positively impacted by higher oil prices. The new construction channel was down 14% due to the negative housing market and the prior year benefit of the home buyer tax credit. Overall, profitability improved from the prior year in both our Office Furniture and Hearth segments. I'll turn the call over to Kurt to review the specific financial data for the first quarter.

Thank you, Stan. For the first quarter of 2011, consolidated net sales increased 9% to $396 million, while sales for the Office Furniture segment increased 10.4% to $331 million. Net sales for our Hearth products segment increased 2.4% to $65 million and consolidated gross margins, including restructuring and transition charges, improved to 34% compared to 32.8% in the prior year quarter. Total selling and administrative expenses as a percent of sales, including restructuring charges, improved 0.5 percentage points. The first quarter of 2011 included $1.4 million of restructuring costs. These included $1 million associated with the shutdown and consolidation of Office Furniture facilities and $400,000 related to the restructuring of our Hearth operations. We ended the first quarter with $52 million of cash and we used $22 million of cash in the quarter compared to $25 million in the prior year quarter. I'll remind you the first quarter has historically been our lowest quarter for operating cash flow due to the seasonal business patters and funding requirements of our business. Stan?

So as we look forward, we enter the second quarter with solid momentum across our businesses. We anticipate double-digit growth to continue in our contract business. Our contract brands are performing well and represent outstanding value propositions for our customers. We continue to see significant opportunities in our international business, particularly in China. Our strategy to invest in new products and expand our sales presence is driving our success in the region. Our supply driven business is strong and steadily improving. We're investing in new products, selling capabilities, e-business and resources to strengthen our channel partners. Our Hearth business will continue to be challenged by new construction weakness. We do expect the remodel retrofit category to continue to perform well. We're on track to grow sales and increase profits in 2011. We expect pressure on second quarter margins caused by material inflation, strategic investments and a higher mix of large project and bid business. We are adjusting pricing in response to material inflation. Strategic investments are tracking well. I feel good about our new products and our selling initiatives. Discounting remains competitive on large projects. Margin pressure is expected to lessen in the back half of the year as mix of business returns to historical norms. I'm optimistic about the economy and the prospects for our growth initiatives. Our split and focus model with leverage drives the broadest and deepest coverage across the industry. We are uniquely positioned to benefit from these multiple growth platforms. Kurt, why don’t you go ahead and provide the financial outlook for the second quarter.

Thanks. So for the second quarter of 2011, we anticipate overall sales to be 8% to 11%. Office Furniture sales are expected to be up 10% to 13% with growth in both channels. Sales in the supplies driven channel are expected to increase 7% to 9% while sales in the rest of our Office Furniture businesses are expected to increase 14% to 17%. Hearth sales are expected to be flat to down 4% driven by a decline in the new construction channel due to the comparative impact of the home buyer tax credit experienced in 2010. Excluding restructuring and transition charges, gross profit margins is expected to decrease approximately 0.8 to 1.2 percentage points versus the second quarter 2010 when it was 35.8%. This decrease is driven mainly by increased material costs and it stands at a higher mix of large projects and bid business. Second quarter 2010 included $1.1 million of restructuring and transition costs. Excluding restructuring and transition charges, SG&A as a percentage of sales is expected to increase 0.3 to 0.6 percentage points versus the second quarter of 2010 when it was 32.2%. We do anticipate SG&A related restructuring and transition costs to be approximately $500,000 in the second quarter. These charges relate to the shutdown of previously announced facilities. Net interest expense is projected to be $3 million and the effective tax rate is projected to be approximately 36% for the second quarter. Capital expenditures are expected to be approximately $30 million to $35 million primarily focused on new products. We project appreciation and amortization will be $46 million to $48 million for the year. So that summarizes our outlook for the second quarter of 2011. I'll now turn the call back to Stan for closing comments.

Thank you, Kurt. So let me finish up here. As I address you today, I’m more optimistic about our markets, the improving economy and the prospects of our business. We remain on track to increase sales and profits in the year 2011. [I'll comment] on our investments in selling, marketing and product initiatives will continue to derive growth. We see sales momentum continuing in our Office Furniture business and the Hearth remodel retrofit channel. We continue to be focused on improving operations, reducing cost and generating cash. Our business is strong and well-positioned for future growth. So with those comment complete, we'll now open it up to questions.

(Operator Instructions). Your first question comes from the line of Mark Rupe - Longbow Research.

I was wondering if you could talk a little bit more about your margin outlook for the second quarter, maybe quantify some of the assumptions that went into that outlook in terms of raw material costs and mix and maybe some more detail about how to think about the rest of the year.

So materials costs are one of the key things and we see that continuing. We had about $4 million of inflation in the first quarter year-on-year and would expect to see a $5 million equation in the second quarter. That is one of those key components. The second area you asked about was discounting and expect to see, again, a similar number that we talked about for inflation, so somewhere in that $5 million range. Again, as Stan said, as you think about that through the back half of the year, as our mix of business would return to normal levels, we see that flatten out.

That's all year-over-year, right?

That is year-over-year, correct.

In terms of quarter-over-quarter, what are you seeing?

In terms of material costs, we've seen material costs go up and as we look out in the year, see that flattening. Does that answer your question?

It does. In terms of the mix of business?

Mix of business, fairly similar Q1 to Q2. Again, as you look at those first quarter results, certainly discounting [or] mix of that project and day-to-day business was an impact as we looked at first quarter results. But, again, as we look in the back half of the year we'd expect to see that return to more historical norms.

In terms of the supply side of your Office Furniture business, can you talk a little bit about how that trended through the quarter and a little bit more about what you're expecting for the second quarter?

Well, I think as it trended through the first quarter, we saw it increase about 5%. As we see it going forward, it's going to continue, we think, to increase. Our numbers that we gave you were 7% to 9% looking forward. So we're seeing marginal slight improvement with small business confidence, number one. Number two, I think we're getting traction with some of our growth initiatives, some of our strategic investments, which is bowing that growth as well.

It looked like it was a lot stronger since it looks like it's a more difficult comparison in the second quarter. Is that fair or is it pretty stable, steady growth?

I think Stan characterized it rightly. Fourth quarter we were up 10%. We had some buy ahead into the first quarter, up 4.85% in the second quarter and then 7% to 9% is the guidance for second. So it's been steady, consistent improvement in that business quarter-to-quarter over the last six months and as we look out. As we look at that business, there is a significant seasonality to it that's driven by tax fees. It's driven by education fees and it's driven by government purchases. It's a pretty consistent look, if you look back historically at that. So that may be what you're looking at if you look at sequential is a ramp up. Again, that's historic, consistent with how that business flows.

Your next question comes from the line of Budd Bugatch - Raymond James.

Here's my question. I think when you were talking to the previous questioner and you quantified the material and discounting costs expected for the second quarter, if my math is right, that's somewhere 200 to 250 basis points on the gross margin in terms of the negatives. Then you -- your guidance is 80 to 120 basis points, which would tell you then that you've got a recovery of probably 120 to 130 basis points. Is that -- first of all, is that math correct? Can we -- what can we expect with the forward look beyond the second quarter on all of those three items?

So your math is correct, Budd. As you talk about mix and materials cost and you have offsets in the second quarter. As we see the benefits of pricing and increased volume as that offsets those two negatives. I think as we look forward, as Stan said earlier, and I think I noted in the comments to Leah's question, certainly we're working pricing in the back half of the year to mitigate that material inflation and would see that gap close as we go through the year.

So, Kurt, as you look forward, where do you think the dollar value of inflation -- when do you start to cycle through that?

I think it pumps back -- as we near the end of the year that gap gets completely closed and really as we go into 2012, with the material inflation and pricing actions that we have in place today.

So does gross margin start to get better year-over-year as you get third quarter?

That would be a fair assumption.

Looking beyond -- you've talked a little bit, Stan, about your growth initiatives and I think you were putting $5 million a quarter into that, if I remember right. Correct me if I’m wrong. Talk about where they are, what you're seeing and what the results are. I think you told us that you might start to see results in third and fourth quarter.

Yes, so the number is more like $3 million because we're starting to anniversary some of our increased investment and once we get towards the back half of the year, that begins to completely anniversary. So the investments, Budd, are in multiple areas and they range all the way from accelerated new product, selling resources to help our channel partners grow their business, e-business investment and multiple areas of geographic investment in Asia, etc cetera. We feel good about those investments. We have a process that tracks each of those with each of the companies. None of them alone are huge investments but we, as you know with our split and focus business model, we serve multiple markets, multiple channels and it really is working with the operating companies to give them additional ammunition to invest and grow their business where we think we can drive a good return for shareholders, so we feel good about those. We feel good about the investments. We feel good about the process and we're feeling good about the results. As I said to you, if you look at, for instance, the supplies driven channel, we are starting to see some improved growth despite, I think, some very challenging core macroeconomic factors there around small business confidence.

Two more questions; one, do you see more opportunity then for investment beyond what you've done and beyond what we're expecting?

Yes, I think, Budd, it's an ongoing dialogue for us, so that's what we get paid to do obviously is invest shareholders' money where we think there's going to return. So it's a rolling process where we look and say are we getting traction? Are we doing what we thought we could do? Are we getting a return? If so, we'll continue to invest. If not, we'll go work the plan, adjust and then come back. So to answer your question specifically, yes, I'm sure there are additional investment opportunities but I think we're consistent today with our guidance, which is it's $3 million a quarter, begins to anniversary the rest of the year.

My final then is -- I did visit this. I think you know the [Lamex] facility in China and I'd seen it a couple years earlier. It's just significantly different and better than what I saw and I'd be just curious to give us any thoughts on what you're seeing over there in terms of that market and what the ultimate opportunity might be.

Yes, and we appreciate you taking the time, Budd, to stop by there and see that. The performance there has been very strong. We anticipate the performance going forward to continue to be strong. Those emerging markets, China, as we look forward in the next five to 10 years, is a significant portion of our value creation strategy. So I -- our objective is to continue to invest and smartly move in that part of the world where there's a big opportunity and as we look forward we believe that will go from being a relatively small, important part of our business to a large, very important part of our business. Our time and resources -- I'm sure you probably heard -- in my level even are invested heavily in making sure that happens.

What number is large?

Well, it's hard to tell based on the emerging markets. But that international business ought to go from being 6%, 20% to 25% of our business in the next five to 10 years.

Your next question comes from the line of Peter Lisnic - Robert Baird.

I was wondering when you guys are talking about lower price realization in the Office Furniture business, do you actually mean that you had an unfavorable mix so that your average price was down or do you mean that you're seeing lower pricing on a like-for-like product as well?

Josh, you've got to come back to think about this size of projects is probably the best way to think about it. So any normal time period you have to [technical difficulty] large public bid projects and then you have different size of projects and then you have day-to-day transaction business. What we're experiencing is the day-to-day business is still rather muted, I guess is the best way to say that. The other side is the large public bid projects where there is keen, keen competition is the heavier mix of our business. It just has to do with the economic recovery and how we're positioned. So it's really like-for-like on size of project is what we're seeing; not seeing any big movement in pricing on apples-to-apples but seeing the basket is a different mix than normal.

So it sounds like it's more of a mix issue. Then with respect to that contract business, are you at least seeing better pricing for projects that are in your backlog relative to those that are shipping now?

Ask that question again, Josh, because I'm not sure I understand what you asked.

I guess, are the pricing that you're getting for contracts that you're bidding on right now better than those that you were bidding for say nine to 12 months ago?

No, I don't think we're seeing any movement on pricing up either, Josh. It's still a competitive environment. I think we said in our comments, in fact, that discounting remains competitive and so no significant change there.

Then looking in your guidance for SG&A, growing faster than sales in the second quarter, you talked about anniversarying those growth investments, so as we go into the second half, could we expect that SG&A as a percent of sales ratio to come down versus the prior year?

I think, Josh, as you see volume come up and those -- exactly. As those strategic investments anniversary you should expect to see SG&A as a percent of sales decline.

Your next question comes from the line of Matt McCall - BB&T.

Back to the growth initiatives, so the anniversary -- I missed the $3 million number. So you're anniversarying, so it's going to be now an incremental $3 million just because you're anniversarying some spending we did last year. Is that the way you described it?

Correct, second quarter incremental $3 million anniversary all of it pretty much in the back half, Matt.

Then so remind us of the pricing actions you've taken. What's the timing of some -- I think you said, Kurt, that it would help the price cost -- it would be in a better position in the back half. But what was the timing of pricing in all three of the [inaudible] of the business?

I'll give you a general sense and then I'll let Kurt provide some of the specific detail. So, as you recall, because we are a split and focus business, the different companies will put through price actions depending on their specific where they plan to market, the competitive set, impact of inflation, competitive response, all of that. So you'll see it across the board. We have some increases that are taking effective in May. The supply channel really because of the cycle around [Cam logging], etc cetera it will be effective in October. So, Kurt, I don't know if you want to provide any more comment.

So on the supply side, one had announced an increase effective January 1 that will see full-year impact from. On the contract side, as Stan said, we've got some in May and then other companies throughout the back half of the year. The Hearth business, they've announced a price increase effective June of 3%. So it really starts now for what we did already with HON and then accelerated through the year as these various businesses put price increases through.

So HON on January 1 and then there's another. So is there an additional supply channel increase in October?

Yes, you would say that's correct.

So there we could probably be Q4 before we see price cost at [priority] based on cost today.

Yes, that's what we said in the comments, Matt. That's exactly right. It's typical I think of what you've seen with us in the past when we run into these high inflations. We are able to close that gap. It does take us a few months to do that but we are able to get back to where we were.

Then, Kurt, I think you provided the expected discounting impact in Q2. What was the discounting impact in Q1?

Similar number, I think the number I told Leah was about $4 million.

So I thought that was inflation, so $4 million for discounting. Then on the government side you talked -- Stan, you talked about some of the large public bid. I think that is just the commercial or corporate projects in general. What about the impact of the government? Talk about the government as a percent of total, maybe last year, what you're seeing there and what your expectations are this year. Then from a mix and margin perspective what the impact has been.

Yes, so you've got a bunch of questions there, Matt. Let me see if I can pick these off if you want to take me back that's fine. So what I was referring to when I say large public bid is government. So our mix is heavier of large public government bids, is another way of saying public, I guess. The other is corporate and then small day-to-day. That mix is heavy on the large public bid contracts this period. We think, as we said, going forward that that's going to rebalance back to more normal balances. Our progress in the government continues. We've had, as you know, strong growth. I would say as we look year-to-date, we continue to have some strong growth in both federal and state and local business. Then I'm not sure, Matt, what else you asked there.

Just what the expectation was for the percent of the total that's going to come from government either state and local or federal and then what the mix and margin impact would be relative to last year.

I don't have the mix for you going forward, Matt, but I would expect -- I think last year we ran something like 20% plus and I would guess going forward it's going to be similar.

Then one final question on the growth initiatives; have you talked about what these investments could mean to your top line in '11 and '12 whenever, if the industry -- some debate about what the industry growth is going to be this year if the industry's up low to mid teens, what these could mean?

No, we don't -- as you know, Matt, we're not big on calling the shot that far out. A, it's very hard to do because there's so many different factors. B, I just go back and say we have a high level of confidence and the investments make sense. We have a high level of confidence that we're on the right stuff and it is going to drive accelerated growth. Beyond that I'd hesitate to give you a lot more.

Your next question comes from the line of Todd Schwartzman - Sidoti & Company.

I just wanted to get some clarifications, first on the gross margins. I wanted to be clear. Discounting as well as raw material inflation, each represented a $4 million hit for the quarter. Is that correct?

You're talking second quarter, correct, Todd, or first quarter?

First quarter.

Yes, first quarter -- so material inflation was about $4 million. The discount number I may have misquoted with Matt was about $8 million in total, about $4 million more than we expected in first quarter. As we look going into second quarter, we've got about $5 million of material inflation and expect discounting to fully be offset by price.

On the commentary regarding SG&A to sales, it seems typically the historical pattern is for a decline -- correct me if I’m wrong -- in the back half of the year. Is that correct?

By volume.

Yes.

So in terms of your incremental expenses that are occurring in the first half of the year, is there any way to strip out the normal seasonal effect, separate that from the puts and takes for this year?

We would hesitate to do that, Todd.

On the investments, I hope you could maybe shed some light maybe with some color on the comment about providing selling resources to help your partners grow their business. Can you talk about that a little bit in more detail?

Well, as I said to Budd I believe, it is across the board and it's specific to each operating company. So [technical difficutly] a distributed product to the market, it's critical that we help our channel partners reach the market and grow their profitability. So it ranges across the board all the way from A&D investment resources at the top end to really help in our wholesalers and our national supply dealers and our independent dealers reach the market. So it's a very broad menu of resource investments.

You'd normally provide that type of support under normal circumstances, don't you?

Sure, that's how we go to market, Todd, is through distribution. So it's really about finding additional ways that we can leverage our combined strength with the channel partner to find targets of opportunity for growth. It's a continuous improvement mindset around where we go. Keep in mind the whole industry went through a major reset and went down 35% and everybody adjusted cost and the whole market went through a significant convulsion. So now as you come back out you're looking for what are the new ways that we can help those channel partners grow?

Is stepping up that type of spend at this point in time, is that also largely due to the volume of product launches coming up?

That's a significant portion of that is the resources around launch and helping those channel partners get that product to market and helping to get it seeded with them.

I know that the upcoming launches are pretty varies, pretty diverse. I know I've asked this in the past, but can you give any additional highlight, any color on something that you're particularly excited about for this NeoCon and beyond?

I'm excited about all of our new product launches, Todd. I think, as we come out NeoCon you're going to see that all of the operating companies are investing, I think aggressively investing smartly in new product launches that will hit the market here in the back half of the year.

(Operator Instructions).

Well, I want to thank you all for your interest and your attention to HNI and we look forward to speaking with you in the future. Have a good day.

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