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 December 29, 2007 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 three-month and six-monthnine-month periods ended June 28,September 27, 2008 are not necessarily indicative of the results that may be expected for the year ending January 3, 2009.  For further information, refer to the consolidated financial statements and footnotes included in HNI Corporation's (the "Corporation") annual report on Form 10-K for the year ended December 29, 2007.

Effective January 1, 2006, the Corporation adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment."  Accordingly, stock-based compensation expense is measured at grant date, based on the fair value of the award and is recognized as expense over the employee requisite service period.  For the three and sixnine months ended June 28,September 27, 2008, and June 30,September 29, 2007, the Corporation recognized $0.7$0.4 million and $1.0$1.4 million, and $0.9 million and $1.9$2.8 million, respectively, of stock-based compensation for the cost of stock options issued under the Corporation's Stock-Based Compensation Plan and shares issued under the Corporation's Members' Stock Purchase Plan.

The Corporation values its inventory at the lower of cost or market with approximately 81% valued by the last-in, first-out ("LIFO") method.

Components of accumulated other comprehensive income (loss) consist of the following:

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

Certain exercisable and non-exercisable stock options were not included in the computation of diluted EPS at June 28,September 27, 2008, and June 30,September 29, 2007, because their inclusion would have been anti-dilutive.  The number of stock options outstanding, which met this anti-dilutive criterion for the three and sixnine months ended June 28,September 27, 2008 was 1,186,4281,403,584 and 1,166,602,1,352,258, respectively.   The number of stock options outstanding which met this anti-dilutive criterion for the three and sixnine months ended June 30,September 29, 2007 was 469,878.424,584 and 419,584, respectively.

As a result of the Corporation's ongoing business simplification and cost reduction strategies, management made the decision in the third quarter of 2007 to close an office furniture facility, consolidate production into other manufacturing locations, close two distribution centers, and start up a new distribution center.  The Corporation expects that the closures and consolidations will be completed in the third quarter of 2008.are substantially completed.  The Corporation anticipates additional restructuring charges and transition costs of approximately $0.9$0.5 million.

The following is a summary of changes in restructuring accruals during the sixnine months ended June 28,September 27, 2008:

The Corporation completed the acquisition of Hickory Business Furniture, LLC ("HBF"), a leading provider of premium upholstered seating, textiles, wood tables and wood case goods for the office environment on March 29, 2008 for a purchase price of approximately $75 million.  The transaction was funded on March 31, 2008 with the proceeds of the Corporation's revolving credit facility.  The Corporation is in the process of finalizing the allocation of the purchase price, with valuations and determination of working capital adjustments to be completed.  There are approximately $65.5$44.2 million of intangiblesintangible assets other than goodwill associated with this acquisition.  Of these acquired intangible assets, the Corporation has categorized $26.9 million as indefinite-lived intangibles, $11.8was assigned to a trade name that is not subject to amortization.  The remaining $17.3 million as definite-lived intangibles and $26.8 million as goodwillhave estimated useful lives ranging from four to twenty years with amortization recorded based on a preliminary valuation.  These amounts will be reclassified, as necessary, based on final valuations.the projected cash flow associated with the respective intangible assets’ existing relationship.  There is approximately $21.5 million of goodwill associated with this acquisition assigned to the office furniture segment.

The Corporation completed the sale of a small non-core component of its office furniture segment during the second quarter of 2007.  Revenues and expenses associated with this component are presented as discontinued operations for the periods presented.

The table below summarizes amortizable definite-lived intangible assets as of June 28,September 27, 2008 and December 29, 2007, which are reflected in the "Other Assets" line item in the Corporation's condensed consolidated balance sheets:

Aggregate amortization expense for the three and sixnine months ended June 28,September 27, 2008 and June 30,September 29, 2007 was $2.7$3.1 million and $4.9$8.0 million, and $2.3$2.4 million and $4.7$7.1 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:

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 $72.6 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 December 29, 2007, are as follows by reporting segment:

In accordance with SFAS No. 142 "Goodwill and Other Intangible Assets," the Corporation evaluates its goodwill for impairment on an annual basis based on values atduring the end of the thirdfourth quarter, or whenever indicators of impairment exist.  The Corporation has previously evaluated

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 period:

In accordance with the interim disclosure requirements of revised SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement Benefits," the following table sets forth the components of net periodic benefit cost included in the Corporation's income statement for:

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133."  SFAS 161 expands disclosures for derivative instruments by requiring entities to disclose the fair value of derivative instruments and their gains or losses in tabular format.  SFAS 161 also requires disclosure of information about credit risk-related contingent features in derivative agreements, counterparty credit risk, and strategies, and objectives for using derivative instruments.  SFAS 161 will become effective for fiscal years beginning after November 15, 2008.  The Corporation will adopt this new accounting standard on January 4, 2009, the beginning of its fiscal year.  The Corporation does not expect the adoption to have a material impact on its financial statements.

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 file cabinets, desks, credenzas, chairs, storage cabinets, 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-, pellet-, and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems 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.  The decrease in unallocated corporate expenses for the nine-month period ended September 27, 2008 compared to the same period in the prior year is due to decreased interest expense and group medical and incentive compensation costs.costs as well as cost containment initiatives.  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.

The Corporation has two reportable core operating 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 secondthird quarter of fiscal 2008 decreased 0.81.7 percent to $613.1$663.1 million.  The decrease was driven by a decline in the new construction channel of the hearth products business and weakness in the supplies-driven channel of the office furniture business.  Gross margins for the quarter decreased from prior year levels due primarily to decreased volume and increased material costs and accelerated depreciation and transition costs related to consolidation of office furniture facilities.offset partially by increased price realization.  Selling and administrative expenses increased due to higher non-volume related freight and distribution costs increased restructuring and transition costs associated with the facility consolidation and costs associated with new acquisitions.impact of non-operating gains on prior year results.

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 December 29, 2007.  During the first sixnine months of fiscal 2008, there were no material changes in the accounting policies and assumptions previously disclosed, except for the Corporation's adoption of SFAS No. 157 and the derivative financial instrument activity as described in Note M.

TheOn December 30, 2007, the beginning of its 2008 fiscal year, the Corporation partially adopted SFAS No. 157 "Fair Value Measurements" which provides enhanced guidance for using fair value to measure assets and liabilities on December 30, 2007, the beginning of its 2008 fiscal year.liabilities.  The standard also expands the amount of disclosure regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.  The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances.  The Corporation has not applied the provisions of SFAS No. 157 to goodwill and intangibles in accordance with FASB Staff Position 157-2.  The Corporation will adopt this new standard on January 4, 2009, the beginning of its 2009 fiscal year.  The Corporation does not expect the adoption to have a material impact on its financial statements.

On December 30, 2007, the beginning of its 2008 fiscal year, the Corporation adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159") which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value on December 30, 2007, the beginning of its 2008 fiscal year.value.  The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The Corporation’s adoption of this Statement did not have a material impact on its financial statements.

In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141(Revised), "Business Combinations" ("SFAS No. 141(R)"), replacing SFAS No. 141, "Business Combinations" and SFAS No. 160, "Noncontrolling Interests in Consolidation Financial Statements – An Amendment of ARB No. 51" ("SFAS No. 160").  SFAS No. 141(R) retains the fundamental requirements of SFAS No. 141, broadens its scope by applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, and requires, among other things, that assets acquired and liabilities assumed be measured at fair value as of the acquisition date, that liabilities related to contingent considerations be recognized at the acquisition date and remeasured at fair value in each subsequent reporting period, that acquisition-related costs be expensed as incurred, and that income be recognized if the fair value of the net assets acquired exceeds the fair value of the consideration transferred.  SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests (i.e., minority interests) in a subsidiary, including changes in a parent's ownership interest in a subsidiary and requires among other things, that noncontrolling interests in subsidiaries be classified as a separate component of equity.  Except for the presentation and disclosure requirements of SFAS No. 160, which are to be applied retrospectively for all periods presented, SFAS No. 141(R) and SFAS No. 160 are to be applied prospectively in financial statements issued for fiscal years beginning after December 15, 2008.  The Corporation does not anticipate any material impact to its financial statements from the adoption of SFAS No. 160.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133."  SFAS 161 expands disclosures for derivative instruments by requiring entities to disclose the fair value of derivative instruments and their gains or losses in tabular format.  SFAS 161 also requires disclosure of information about credit risk-related contingent features in derivative agreements, counterparty credit risk, and strategies, and objectives for using derivative instruments.  SFAS 161 will become effective for fiscal years beginning after November 15, 2008.  The Corporation will adopt this new accounting standard on January 4, 2009, the beginning of its fiscal year.  The Corporation does not expect the adoption to have a material impact on its financial statements.

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

Consolidated net sales for the secondthird quarter decreased 0.81.7 percent or $5.0$11.5 million compared to the same quarter last year.  Acquisitions contributed $36.5$30.9 million or 5.94.6 percentage points of sales.  Organic sales growth was down due primarily to the decline in the new construction channel of the hearth products business and weakness in the supplies-driven channel of the office furniture business.

Gross margins for the secondthird quarter decreased to 34.233.9 percent compared to 34.935.6 percent for the same quarter last year.  The reduction in gross margin was due to decreased volume and increased material costs as well as accelerated depreciation and transition costs related to the consolidation of office furniture facilities.offset partially by increased price realization.

Total selling and administrative expenses, including restructuring charges, as a percent of sales increased to 30.128.8 percent compared to 27.526.9 percent for the same quarter last year.  The increase was driven by higher freight and distribution costs increased investment in product development and selling initiatives,the impact of $5 million of non-operating gains on prior years' results.  These were partially offset by lower volume-related spending, incentive-based compensation, and increased restructuring and transition costs associated with facility consolidation.as well as cost containment initiatives.

The Corporation continued its plan of a facility shutdown, a facility ramp-up, closure of two distribution centers and consolidation and start-up of a new distribution center that was announced in 2007.  SecondThird quarter 2008 included $3.6$1.5 million of restructuring charges and transition costs in connection with this project.  These included $0.1project compared to $4.3 million of accelerated depreciation and $1.5 million of other transition costs recorded in cost of sales, and $2.0 million of costs recorded as restructuring costs.the prior year quarter.

Income from continuing operations decreased 49.044.8 percent and income from continuing operations per diluted share decreased 46.442.1 percent compared to the same quarter in 2007.  Interest expense decreased $0.4$0.6 million during the quarter due to lower average interest rates partially offset by increased borrowings.  Income from continuing operations per share was positively impacted $0.01$0.02 per share as a result of the Corporation's share repurchase program.

The effective tax rate for secondthird quarter fiscal 2008 was 34.534.1 percent compared to 35.335.4 percent in secondthird quarter 2007 due to a reduction in state taxes.  The Corporation anticipates the annualized tax rate for fiscal 2008 to be approximately 35.7 percent.33.4 percent due to the reinstatement of the research tax credit in fourth quarter fiscal 2008.

For the first sixnine months of fiscal 2008, consolidated net sales decreased $50.9$62.4 million, or 4.13.3 percent, to $1.18$1.8 billion compared to $1.23$1.9 billion in the same period of fiscal 2007.  Acquisitions added $56.7$87.6 million or 4.6 percentage points of sales.  Gross margins decreased to 33.433.6 percent compared to 34.434.8 percent for the same period last year.  Income from continuing operations was $17.4$36.9 million for the first nine months of fiscal 2008 compared to $47.0$82.4 million in the same period of fiscal 2007, a decrease of 62.955.1 percent.  Earnings per share from continuing operations decreased 60.652.3 percent to $0.39$0.83 per diluted share compared to $0.99$1.74 per diluted share for the same period last year.  Earnings per share waswere positively impacted $0.02$0.05 as a result of the Corporation's share repurchase program.

SecondThird quarter sales for the office furniture segment increased 2.20.3 percent or $10.9$1.9 million to $514.5$560.7 million from $503.6$558.8 million for the same quarter last year due to acquisitions contributing $21.5$17.8 million or 4.33.2 percentage points of sales.  Organic sales decreased due to lower sales in the supplies-driven channel.  Operating profit prior to unallocated corporate expenses decreased $14.5$18.6 million to $30.1$39.5 million as a result of lower organic volume, increased non-volume related freight primarily due to higher fuel costs restructuring and transition costs related to a plant shutdown, a plant ramp-up, closure of two distribution centers and start-up of a new distribution center, and increased investments in selling initiatives and product development.development offset partially by lower restructuring costs, price increases, lower incentive-based compensation expense and cost reduction initiatives.

Net sales for the first sixnine months of fiscal 2008 decreased 2.11.2 percent or $20.9$19.0 million to $980.5 million$1.5 billion compared to $1,001.4 million$1.6 billion in the same period of fiscal 2007.  Operating profit decreased 41.637.6 percent or $34.8$53.4 million to $48.9$88.4 million.

SecondThird quarter net sales for the hearth products segment decreased 13.911.5 percent or $16.0$13.4 million to $98.6$102.5 million from $114.6$115.8 million for the same quarter last year.  The Corporation's acquisition completed during 2007 contributed $15.0$13.1 million or 13.111.3 percentage points.  Excluding acquisitions, sales declined 27.022.8 percent driven by a 36.535.7 percent decrease in new construction channel revenue.  The Corporation continued to be negatively impacted by housing market conditions.  The hearth products segment did experience strong demand for alternative fuel/biomass products during the quarter driven by high energy costs.  Operating profit prior to unallocated corporate expenses decreased $8.1$4.9 million to $1.6$3.7 million due to lower volume and a larger mix of lower margin remodel/retrofit business.

Net sales for the first sixnine months of fiscal 2008 decreased 13.312.7 percent or $30.0$43.3 million to $196.0$298.4 million compared to $225.9$341.8 million in the same period of fiscal 2007.  Operating profit decreased $18.7$23.7 million to a $1.3 million loss.$2.4 million.

Capital expenditures for the first sixnine months of fiscal 2008 were $35.9$54.6 million compared to $29.1$41.7 million in the same period of fiscal 2007 and were primarily for tooling and equipment for new products and facility consolidation and renovation.  For the full year 2008, capital expenditures are expected to be $65 toapproximately $70 million due to new product development and related tooling and other infrastructure efficiencies.

The Corporation completed the acquisition of HBF during the first quarter ended March 29, 2008 for a purchase price of approximately $75.3$75 million, however, the funding of the transaction did not occur until March 31, 2008.  During the first sixnine months of fiscal 2008, net borrowings under the Corporation's revolving credit facility increased $85$22 million and the Corporation entered into a $50 million three-year team loan to fund the acquisition and capital expenditures and share repurchase.expenditures.  As of June 28,September 27, 2008, $213$150 million of the revolving credit facility was outstanding with $23$30 million classified as short-term as the Corporation expects to repay that portion of the borrowings within the next twelve months.

For the sixnine months ended June 28,September 27, 2008, the Corporation repurchased 1,004,700 shares of its common stock at a cost of approximately $28.6 million, or an average price of $28.42 per share.  As of June 28,September 27, 2008, approximately $163.6 million of the Board's current repurchase authorization remained unspent.

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.