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HNI Corp. (NYSE:HNI)

Annual Shareholder Meeting Call

May 8, 2012 11:30 am ET

Executives

Stan Askren - Chairman, President & CEO

Steve Bradford - VP, General Counsel and Secretary

Analysts

Stan Askren

Good morning. I would like to call the 2012 annual meeting to shareholders to order. Welcome to those shareholders joining us here today and those participating in the webcast. I am pleased that attending today's meeting are all of the corporation’s directors. I would like to introduce each of them to you. They will stand as I call their name. Please hold your applause until I have completed all introductions. Mary Bell, Vice President of Caterpillar leading their business, Building Construction Products division; Miguel Calado, Director and the Chief Financial Officer of Hovione; Cheryl Francis, Independent Business and Financial Advisor, Co-Chairman of the Corporate Leadership Center and the Director of Aon and Morning Star; James R. Jenkins, Senior Vice President and General Counsel, of John Deere; Dennis Martin, Director, President and Chief Executive Officer of Federal Signal and the Director of Coleman Cable; Larry Porcellato, Chief Executive Officer of The Homax Group and a Director of OMNOVA Solutions; Abbie Smith, Chaired Professor of The University of Chicago’s Booth School of Business and the Director of DFA Investment Dimensions Group, Dimensional Investment Group and Rizor; Brian Stern, Director of Starboard Capital Partners and a retired Senior Vice President of Xerox; and then Ronald Waters, III, Independent Business Consultant and retired Director and President and Chief Executive Officer of Lojack and the Director of Fortune Brands Home & Security and Ron is also currently our lead Director.

Finally I would like to introduce Gary Christensen, active with Wind Point Partners Private Equity Investments and retired President and CEO of Pella Corporation. Gary is retiring from our board at this meeting. I would like take a moment to offer a special thanks to Gary for his dedicated and long service as a director of this corporation. Gary joined our board 12 years ago and has served as our first lead director for 3 years. And Gary, last night we had an opportunity to chat with Gary and expressed our appreciation for his many years of outstanding service. Gary has had a huge impact on this corporation and on this board and has been a great friend and mentor to me as well. So Gary thank you so much for all your years, all your contributions and we wish you the best and we look forward to staying in touch and leaning on you every now and then for counsel.

Ladies and gentleman, I can tell you this is an extremely capable board that is very active engaged in this corporation’s business and we are fortunate to have such an outstanding Board of Directors serve you. So thank you board very much.

Now with all current members, the retired members of HNI please stand. I would like to thank you for your many contributions over the years and we will chat a bit about this. This is what makes us a great corporation. So thank you for what you have done, thank you for what you are doing and thank you for what you will do in the future.

I would also like to acknowledge a presence of a couple of very important contributors to the corporation’s historic success. Stan now stands down here. Stan is member, director, builder, huge influence on this corporation for something like 52 years. So Sam, Helen thank you so much for all that you have done for the corporation. Also Dick Stanley, Dick's father was one of the founders of this corporation. Dick serves on the board for 42 years. Dick I saw you earlier, there is Dick. Dick, thank you.

And then finally Jack Michaels, former CEO, Director great friend, great mentor to me and many of the management team here. Jack thanks so much for coming and joining us and thanks for all that you have done over the years as well. Also in attendance are Bill Kelly, Amy Graves and Brad Jenson, our Pricewaterhousecoopers, the corporation's independent public accountant. They will be available after the meeting, should you have any questions, I am sure they will be glad to chat with you.

In the back is Steve Hoffman, representative for Wells Fargo Shareowners Services, the corporation's transfer agent and he has been appointed Inspector of Elections for this meeting. And has taken his oath as Inspector of Elections. As it has become a long tradition excuse me we have in attendance today a group of Muscatine High School business students. So stand up, come on.

Including in that group is Muscatine Community School District Superintendent Bill Decker, Assistant Principal Corri Guy and Business teacher Mike Fladlien. I don’t know every year I think probably as good as he, outstanding teacher I’ve been around Mike and let's just hope that our school system finds more o Mike Fladliens that have the passion and the commitment to students that Mike does.

The students are from various business classes including law, logistics, economics and accounting and they are going to go from here I believe and go on some plant tours and (inaudible) the launch and have a chance to ask questions about the corporation, the business and careers at HNI and it is a great, great opportunity for us and for you and so thank you very much.

I should mention one of the students is my son's (inaudible) a junior in Muscatine High School. I promised them I wouldn’t make him stand individually. So kind of going this way. Alright so again we are so glad that you are here today and we look forward to sharing with you here in a little bit a sort of state of your business, the state of your company, but now I will turn the meeting back over to Steven so he can conduct the formal business portion of the meeting. Steven?

Steve Bradford

Thank you. As secretary of the corporation I certify that notice of this annual meeting was mailed to all shareholders of record in accordance with the corporation's bylaws and the laws of the state of Iowa. As of March 9th 2012 the record date for this meeting there were 45,507,733 shares of common stock issued outstanding and entitled to vote at this meeting. On behalf of the Board of Directors and the leadership of the corporation I want to express my appreciation to all shareholders and those present today and those who have returned their proxies. I have been advised by Inspector of Elections that more than a majority of the corporation's outstanding shares of common stock are represented at this meeting either in person or by proxy, therefore we have a quorum present to conduct business. There are three proposals properly brought for consideration by shareholders at this meeting. The first matter for approval is the election of directors. Two directors are nominated by the board to be elected for a term of three years each. The two nominees are Ronald Waters, III, a director since 2002 and Stan Askren, a director since 2003. The Board of Directors recommends a vote for election of each nominee. The next proposal is ratification of the Audit Committee selection of the corporation's independent registered public accounting for fiscal 2012. The Board of Directors recommends ratification of PricewaterhouseCoopers as the corporation’s independent registered public accountant for fiscal 2012. The final proposal for consideration is the advisory non-binding vote to approve Named Executive Officers compensation.

Recent legislation provides shareholders with an opportunity to vote to approve on an advisory basis, the compensation of the corporation’s Named Executive Officers. The Board of Directors recommends shareholders approve the compensation of the named executive officers. Voting is now open for the three proposals. If you have voted by proxy, there's nothing else you need to do. We encourage you to let your proxy stand. If you have not voted and you are in the room and want to do so now, please go to the table at the back of the room where our Inspector of Elections will provide you with the ballot and instructions for voting. It appears the voting is complete and voting has now closed.

I have been advised by the Inspector of Elections, a majority of the votes cast are in favor of the election of the two nominees for Director, the ratification of the independent auditor and the approval of named executive officer compensation. I am happy to announce that each proposal presented at this meeting has been approved by the shareholders and the Director nominees have been elected. A report of the Inspector of Elections with final vote counts would be included in the minutes of this meeting. That concludes the formal portions of this meeting and the meeting has now adjourned.

It is now my pleasure to turn the remaining time over to our Chairman, President and Chief Executive Officer Stan Askren, who will present his report on the state of the corporation. Following Stan’s presentation, those present in the room will have an opportunity to ask questions. Statements made in Mr. Askren’s presentation which are not strictly historical or forward-looking statements. Forward-looking statements involve known and unknown risks. Actual results may vary materially from expected results. Additional information concerning factors that could affect actual results can be found in the copy of Mr. Askren’s presentation posted on the corporation’s website. Stan?

Stan Askren

Thank you Steve. Anybody wants a copy of the forward-looking statements, we are glad to provide it to you. So as usually the case here, I am going to talk a bit about the company, state of the business, where we are at, where we are going and how we are going to get there and as Steven said I am glad to take questions at the end. The challenge for us always is that finds the right content and not to make it informative but not so much that should become bored with the details. So, again as we go through this and again if you have questions, I will be around afterwards. I am more than happy to share with you, answer anything else you want to know at the end of the meeting as well.

2011 was an excellent year for us. We saw the results of our cost resets during the global recession. We experienced the benefits of the investments we made in the recent past and all of our companies experienced growth in the corporate profitability improved some 70% and I am excited and we are determined to continue to build on that success into 2012.

As I indicated to you, we executed well and all. Virtually all of the financial metrics showed improvements. So we grew sales. We saw a significant profit improvement. That generates positive earnings per share or profit per share of stock and we did, I think, an effective job on operating cash flow. So we grew our business without adding working capital which allowed us to reinvest for growth and raise the dividend, which I know, you all appreciate.

During the year, we saw office furniture experienced some really excellent growth. I am encouraged to say that the growth was led by the contract and international business. So if you recall, we’re talking about our business, our office furniture, two segments, we are talking about contract and international and we are talking about the supply driven side of the business. So for you, local folks, the supplier side is on. The contract, international as all the other stuff, all still part of that contract side. And so what we saw is office furniture grew about 9% last year. The contract and international business grew more than 15%, excellent growth and that was driven by the return of corporate profitability during the recession. A lot of corporations began to think about reducing costs, consolidating the footprint. And if you think about more service businesses, more than half of their cost is people and then the second largest cost most often is real estate. And so during that recession as people were thinking about how to reduce costs, they start thinking about how do we office different, how do we get more out of less space. That drives the furniture event which means they want to buy furniture to reconfigure the space and that’s all good for us.

The other thing that we experienced is excellent international growth, primarily in China. We saw excellent, very high levels of growth in Asia and I will talk more about that as we go through. So the other side is the supply side of our business. We experienced modest growth in that side, although we did more than 1.5% growth. Now that’s driven in large part by small business and small business you’ll see on the overhang of sort of the uncertainly economy, additional regulations and is coming out of that downturn much slower. I have to tell you that we’ve been investing aggressively in that segment of the market and as we finish the year, we begin to experience some significant momentum and we came out of the year strong and I’ll talk about first quarter here in the second. And I think we are seeing the strength of that whole brand. So I am very optimistic and encourage with the supply side even though the growth was not at the same level as the rest in 2011.

So Hearth story continues to be an impressive story around profit improvement and will show you in the short-term, show you in the past, its show the crash of housing. We played in that. We’re right at the accident scene and the Hearth team has done a tremendous shop of readjusting that business, resetting cost and investing in the future and we saw increased sales of over 8% and despite those challenging market conditions, our new construction segment of that business went down about 4% consistent with the market. Remodel retrofit side went up 17% driven by alternative fuel and probably the most impressive story here is that team delivered $12 million additional profit on $24 million of sale. So really a tremendous effort by that group and I continue to be excited about this business for the future. We are well positioned as the market recovers.

We enter 2012 with strong momentum. The top line for the corporation grew about 12%, we saw organic growth. So, without acquisition, more than 8.5% growth. The supply side of the business I talked about, so the housing side of the business performed exceptionally well and grew 10% at the top line and that’s very, very encouraging. The contracts international side grew about 9% and the great news in addition to the supply side resurgence is the new construction side of our fireplace business grew 16%.

So I mean (inaudible), so what I see is the stabilization of the economy and I think a modest recovery, more broadly based certainly we are going to see some ups and downs and if you watch the news day-in and day-out, you see also it’s different than it appears.

But I feel where I sit these are levels, we are looking at in our markets that we are on a solid albeit modest recovery and this corporation well benefit well as we go forward. We continue to invest, we continue to find market opportunities that put us in a good position regardless of what have the economy, but I am feeling better about that situation.

Let me shift to some of the market drivers. These are charts we shared with you in the past. This is the Business Industry Furniture Manufacturers Association, so the great news here is recently we’re seeing about 9% compound annual growth rate after a significant recession in ‘08 and ‘09 and I think that’s going to continue to grow; it’s going to have sort of lag in itself and we’re going to see some modest growth, but I think still a very healthy indicator.

Corporate profits have improved; I think corporate profits have improved, CEO confidence has improved, as CEO confidence improves there is additional investment in business, there is additional investment in people and additional investment in office furniture. So this is a great linear indicator for us especially in that that contract side of the business.

This is one of the really great news to point you as well. You can see that during the recession small business confidence crashed. It reached levels that it never been seen and such as then been recording and taking the survey and now we are starting to see a recovery. It’s a little bit slow relative to historical norms, it still has a way to go, but we are really excited about the trend and we believe this is going to continue and as a result of that our supplies business will benefit greatly as this comes back.

We think about the hearth business, two big factors here. On the left hand side of the chart is housing starts and you can see this decline of epic proportions in the six year housing slump we've been in. I would tell you that we are beginning to see recovery here, certainly stabilization. Again, we've been watching this for several years and there has been some head fix here, but I believe, we are starting to see the fundamentals improve here.

So pricing is starting to stabilize, the affordability of homes is in a great position, mortgage rates are historic lows, you are starting to hear markets where there is actually bidding taking place for existing home sales and all of that I believe leads us to an improving housing position and that will benefit us greatly as we go forward.

The other side of the chart is the other half of our hearths business. So new constructions have a hearth business, the other half is remodel retrofits, largely driven by alternative fuel appliances. So the code would tell us those as what we talked about in the past.

There is a direct correlation between fuel oil prices, the costs of fuel oil or homes in particular in the Northeast, they use fuel oil to heat their homes, the higher the cost of fuel oil, the better, the more attractive an alternative fuels appliance of pellet stove is to heat their home and so this continues to be a positive factor in that business.

During 2011 certainly and early 2012, the seasonally, unreasonably warm weather put a damper on those alternative fuel appliances. But overtime, we believe that business is going to continue to grow. I think there is more than 1 million of those appliances out in our country, based on the numbers I have seen, by 2014 that’s expected to double. We have about 70% share of that market right now and so that’s all good news for our shareholders and for the hearth business.

So let me tell you about our company a little bit. Let me shift from those market factors and kind of rebase on who is HNI and how do we compete, how do we go-to-market, and how do we create value. So remind you we are the second largest office furniture company in the world. We’re one of the few companies that have gained significant share in the last 10 to 20 years. We have a leading market position in many of these different segments; I’ll talk a bit more about that.

We’re the number one largest hearth’s products company in the world. It takes something like the next three to four competitors to match our size, so we have an excellent spot there. We are the strongest product, we have the strongest brands, we have the best distribution and the best manufacturing and I say that all humbly and I say that all with the spirit that we are always thinking about continues improvement. So we have an excellent position in this market that will serve us well in the future.

So HNI is well positioned for profitable growth. This is a picture of our value proposition; how do we create value in the market. So what we do as we take our leading market position, we apply the split and focus with leverage business model. We take advantage of this tremendous asset we have around a member/owner culture combined with RCI, growing a little bit of financial strength and then our investment strategy around Core Plus and you have a powerful engine for long-term shareholder value creation.

So I am going to cover some of those aspects of that, not go into great detail, but just refresh you on who we are and how we go-to-market. So our business model, our go-to-market model, our management model is significantly different than our competitors.

The benefit of split and focus allows us to offer the broadest and deepest product. It covers a widest range of segments, the most channels, and allows us to be the market leader in supplier’s channel, but also a significant player in the contracts in international markets. And we in fact our, the company has had broadest deepest products and we’re the only company that covers all of the channels, all of the ways of going to market in office furniture.

The split and focus model allows us to go after these different segments of the market with individual teams of people that every morning wake up thinking about how does they take care of their particular customer segment; how does they stay close of those customers; how they stay close to those requirements and how do they continue to refine, continues to improve their product offering, their value proposition to those customers and it makes for very nimble and agile yet focused organization.

But it doesn’t stop there; we don’t just split it and focus it and then sort of skip to leverage side, we also leverage very aggressively the common sort of attributes of the business. So we leverage the buy, the procurement, we leverage the IT platform, we leverage logistics; we are spending a lot more time and efforts these day on leveraging manufacturing and product platform. We leverage the management practices; the lean practices, the people development and those management capabilities as well.

And finally the common denominator to all of this is the member/ owner culture and then makes for extremely powerful business model that puts us in a very unique advantage in the market.

I talked about the broadest and deepest product offering. So if you think about customers and organization categories down here in the southwest corner of the map here, we service all types of businesses, large, small, government, non-government, federal, state, local communities. We service business, education, financial services, technology services, manufacturing, healthcare, we service them all and we service them effectively with a disciplined focused business model. We provide product solutions, product offerings that cover all the way from steel to upholstered, to wood, to veneer, to laminate, to filing, to dusking, to seating, to conference, all the way through the whole categories.

We cover a broad set of spaces, open office, private office, training, learning, conference rooms, cafes, reception lounges, collaborative thinking spaces and you can go on and on. We service multiple price points so we actually have products that lift all the way from $40 to $4000. We actually have CDs for $40 that goes all the way to $4000. So we are able to do that again through disciplined focused business model. And then finally we service the most extensive set of channels. We go all the way from quick to buy on the internet through very heavy consulted A&D architect and designs supported in everything in between. And so what does that mean. It simply means that we have more growth platforms than anybody else in the industry. We are able to service those growth platforms I think more effectively than anybody else in the industry.

We will go ahead and do the internet interestingly enough as I think about quick to buy. If you type in (inaudible) office I think you get more than 25 million sort of hits on that and so we have extensive positions in these emerging channels as well. Member owner culture in RCI quite honestly we could spend hours on this topic. It's one of the most powerful aspects attributes of this corporation, yet the most difficult to explain. It’s a little bit like the wind, it's powerful, you can see the force, you can even hear it, but it's very hard to put your hand around and describe accurately, but it's been a core fundamental element all the way from the founding of this company by Max Stanley, Wood Miller, Clem Hanson built and continue to be built by Stan Howe and Jack Michaels all the way through and I can tell you in my 20 years here at this corporation it is the key differentiator between this corporation and all the rest.

This whole idea of a member engaged in the business to have this ownership type of mentality combined with the sense of tools around taking the waste out, a rapid continuous improvement we call it is an incredible engine and then when you release that, when you turn that loose, when you enable that into the everyday work, it’s a very, very powerful and productive force.

I would tell you that in recent years we've implemented a My Idea Program, it's really a way to engage members on the production floor that come up with ideas and implement them, it’s a little bit like the Pacman type of the best, lots of little bites consumed by the big animal over time and last year we had more than 38,000 formally implemented suggestions I will tell you I just looked at this last week. The first quarter we had more than 25,000 programs implemented and so we are on a runrate to expand this whole member owner engagement at the production floor even further. We continue to invest in programs around aspects like safety.

Last year was a record year for safety for our corporation. We care deeply about our members and care deeply about how they work, we care deeply about making sure that they don't get hurt at work but last year our recordable incident rate improved 24% and our loss time rate improved 40% and I think that's a testimony to sort of the management and the engagement of our member owners in this business.

And I can go on and on. I am going to move on this and if you want to chat some more about it, I would like to talk to you about what member owner, culturally with ICI means to us. The other aspect of this corporation over the years is we are financially strong. We have a solid capital structure, we have strong cash flow, we have conservative debt levels and conservative financial ratios and what that means is we have the power to invest in the business and we have the power to go through multiple economic cycles, some really tough signs of global recession sort of time and so hold firm and that's our plan is to stay in that position as we manage this business going forward.

Now there's a thing called dividend which I think you all are keenly interested in. We understand that dividend is very important to you, to shareholders. Our dividend has more than doubled in the last ten years. We increased the dividend last year 7% and I am proud to announce today this morning we increased the dividend again by 4.3%. So this is something that we believe strongly in that our financial strength. I thought I need a clap on that. Okay alright. So one of things we talked about is investing for growth.

So go back and say what’s that HNI value proposition. It's leading market position with disciplined focus with the leverage, the financial strength of member owner culture along with this investing for growth core plus. So I am going to chat with you about this and this really is what drives our market leadership and our profitable growth across the businesses.

So what does core plus means, it’s a pretty simple concept. And the concept is that we must do two things simultaneously. A; we need to invest in the business. We must that we know today. We must refresh, we must renew the products, the customer relationships, all the aspects of our business that we are doing today. Because that’s where there is huge growth and if you don’t do that you lose that dividend.

Likewise simultaneously we must find a new frontiers to move forward in and continue to growth with and in the history of this corporation, you've seen that time in and time out and there is big one. It went from metal filing to sealing to metal storage to wood storage. And then from dealers to wholesalers, from office furniture to fire places and office furniture. Office furniture, sort of supply is driven to contract, to international and you see that going forward and that’s what makes a strong corporation.

That’s what makes long-term shareholder value creation possible. It's focused on the core, find new frontiers as you move forward. If you don’t you lose track of the core while you are moving forward, you are going to hurt yourself. But in this straight path, you don’t take the risk, you don’t move forward, then you are not going to grow. And so we have been investing aggressively even during the downturn. We have in some cases given up the short-term gain, the short-term profitability to make sure that we are thinking long term and we have invested in new products. We have invested in new selling capabilities. We have invested in branding. We have invested in e-business systems. We have invested in new fulfillment models on and on in growth. And from that we believe we are building a strong value creation engine for this corporation over the long term.

I am going to shift to products, because product you can see is the most tangible thing to show you; it’s hard to relate to selling model and it’s hard to relate to branding, but I know you relate to product solution. So we continue to be committed to this market leadership.

Now, as I go through this, I am going to share some pictures with you, we have some product categories that I am going to demonstrate. There is a significant shift taking place in the work place in this country and you are seeing the work place shift from primarily a focused heads down area of private office to a much higher collaboration, open work space, you are seeing the impact of technology which allows mobility, you are seeing in the next generational sort of the impact of younger people coming in the work place who have the capacity I guess watching kind of new home working; he’s got the capacity of multiplex better than I do, I would say that.

So you see this younger generation that is capable of moving from spaces and they want more options and less about sitting in one space, one depth and grinding through their work. And so we are investing in those sort of changes as well and you will see a lot of this as we go through and I am going to show you some core products and I am going to show you some plus products as we walk through this.

We’ll start with hearths here; this is a key letter air loom product. If you look at that it has a very strong masonry appearance; that’s a sheet metal, a large unit and this allows you to have a masonry look at a fraction of the cost.

This is an example of another core product; this is a core wood appliance, top loading wood appliance from Harman Stove; again a great category as I said we are a market leader in that and we continue to invest aggressively to make sure we have that covered.

This is a bit of a plus, not a huge plus, but core extension maybe this is called the Heat & Glo rock. Now I don’t know if you can see, and I would put my glasses on for me to see, what’s burning in the middle of it is not wood, it’s actually rock and those are metal tubes burning.

This is hottest thing going in this whole category and these contemporary look, the European looks, you will see a lot them, more of a rectangle and it is a modern happening thing in the product category and Heatilator, Heat & Glo hearth company is in a great position to take advantage of that and they are leading in that.

This is another plus; this is (inaudible) this product line is [Ski]. This a very small example of what’s in the total collection. This collection is being developed by iconic designer women named Barbara Barry; you go Google Barbara Barry you will find an incredible collection of products and designs out there and we are very excited about this (inaudible) sort of legacy design, modern and luxurious comfort.

It reflects and unlocks the layer of products; that’s the way our contemporary key skews line are very flexible multi-material. They are actually major extension and is coming out this year in more of the open space moving outside private office into the open space allowing for more sort of collaborated work and solutions.

So now let me move to some of the new contemporary work. This is part of gather, so Allsteel, their data collection is over here, and Allsteel is there out consulting with their potential clients about the needs of the workplace. They discovered and they begin to identify a need for better solutions around collaborations, teaming and technology.

And so they are engaged with a design firm called IIDA, Mitch Bakker, we have done a lot of work with and one of the leading design firms, C&D firms that spends lots of time in the market talking to clients. And they begin to go out and do original research with clients and talk about what works and what doesn't work and what are your needs and where are you going and they developed this product called Gather.

Now Gather, you can see a solution here, so let's just guess on some of the names are given to you, you ask that wall system there is called Hedge; that TV solution monitor is called View. Those little chairs that you see there in the side, we call them Hatchets when I was growing up, I don't know what you call them now, it’s called Scooch. There's 13 different products in this collection and it has been a huge success.

This is the example of a customer’s installation, its kind of a collaborative area, kind of a social area as well I guess I would call it. This is another application of Gather, more of a coffee shop café, so all of that is Allsteel products here, so very different than a panel system, very different than the traditional office. So we are responding to changes in work place.

This is actually a financial services company I think the Chicago, this is actually their customer, their application of this product and you will see for some of this it looks like chaos or maybe the younger generation this looks like a fantastic place, it would be a great place to be recruited and working. So again, an excellent solution set and an excellent application of the changing work place.

This is maybe a step back towards a more traditional solution set again, this is Allsteel product, called Evolve, and you can see this mix open lower scale, lighter scale, excuse me, lower panel system mix with casual heating, so its much more of a home to the office, collaboration space along with focus space as you go forward. This is a major product launch laminar solution, multiple sort of solution set here, very exciting.

This is a new arm application. This product is called Motivate. This is a table chair sort of selection here and this product statement is much broader than this. But if you look at this product back here, this is part of the voice solution.

So we are seeing more of the sort of multi-use space as well where I have got head down focus space, then I have got collaboration, chain space, storage has changed dramatically in the work place, lot more laminate, and this is part of the solution here, Motivate is in the back room. It’s very creative, very well done. Large part of this is very interesting; arm to it this is designed with our internal team along with a German designer, Wolfgang Deisig and the applications are corporate learning centers, higher add is a major application media rooms as well.

This is plus, so that was core, core session. Here is the plus side. So what you are looking at here, the new products here is the product being launched by Allsteel, here are some of first images of this, so here on the front end. So I was talking about the product; it’s wall system ladies and gentleman. It’s not a furniture. The furniture happens to be ours as well, but it’s a wall system.

So what’s happening in the work place is driven by sustainability issues, so green issues about we want more light in the work places, on lighter scale. We want panels that can be moved, walls that can be moved along with privacy etcetera. We are growing other products that is unitized construction. So these are actually, will be produced here in Muscatine and move in our Allsteel operation; we are ramping our production now, (inaudible) shipped out, they bring up one another, they adjust, have adjustability at the bottom. So they adjust, they have the work systems and then I’ll get here. And then we also have a very unique capability to provide these panels, these are near panels here to provide privacy et cetera. So this market is, our estimate is 700 million or so it's growing very, very quickly. It’s a great leverage for us and providing the same sort of solution sets that the (inaudible) client is typically looking for a corporate space. This is the sustainability standard. It's right in with our sort of capabilities around manufacturing and producing product for the large projects and so we very excited about this and this is a new frontier for us.

International has been one of our major focuses in previous years and continues to be and I will tell you that our international progress continues to be excellent. It’s a exciting part of our future, it's less than 10%. This is our Lamex group this is our Chinese company that's a trusted leader in Hong Kong and Mainland China. This China itself is growing two to three times faster than the US [arbitration] market and we’re growing two to three times faster than the Chinese market.

So we've seen some tremendous sales result here. It’s a profitable business, it's fast going forward and we are just scratching the surface. We are industry leader there and we’re still very, very small and so we are continuing to find ways to invest in that country to grow that business and I think as you look forward to the next 5 to 10 years you should see international I believe grow from less than 10% of our business I believe it will be 20 to 25% of our business before I am done.

So exciting, exciting growth and that again is part of the plus. We are sure this is example some of our clients of the top 100 Chinese corporations we serve somewhere around 60. We are after the other 40 by the way to go get them we serve the largest banks, we serve the largest airlines, transportation, energy. I mean we are right in the middle of that country's transformation and that country's growth and it's very, very exciting. One of the other plus is this K12 education work and we talked about this in the past and so we do pursue acquisitions where we think we can understand them, where we can acquire them smartly, where there are values that are values and we can create value with them.

And this is a great example, the Sagus, about a $100 million business that we acquired in November of 2011. They are they are the leader in the K12. With this acquisition, HNI is a now the largest kindergarten through 12 office furniture – kindergarten through 12 classroom, school and furniture producer in the world. Now there are some short-term challenges we talked about this in the first quarter. This is a company that had a great market position strategically well placed but in need of some help around transformation. So in the short term we take a little bit of a financial hit, but we believe with RCI and our go to market capability, the process is, this will be a significant value creator for us forward.

So let me talk about these three companies within the Sagus acquisition. So the first is LSI. LSI does laminated furniture, this is lab, classroom, chemistry lab. They also do thing like (inaudible) lockers and other things with an (inaudible). This is Midwest Folding tables, they are big product here and I don’t know how many of you sat on these things before but folding cafeteria is a very significant player in that industry. They also do these round folding tables and they do rectangle folding tables and are a leader there. Then finally Artco-Bell. Artco-Bell is really the primary player in this whole acquisition as class furniture. We have this tremendous position through HON with features desk and we begin to do some classroom furniture. We saw the opportunity to acquire Artco-Bell, who is in fact the industry leader there and we are beginning now to really fully transform that business. We acquired great distribution, great product, this operation was planned down in [Temple], Texas. We are deep into our RCI process with them and seeing some great results here, relatively fast but quickly, led by Jerry Dittmer, Eric Jackson. Here, Jerry is EVP for HNI and also the HON Company, Eric is one of our internal executives that we've now made President of Vegas and bring our value and our capabilities to the business. And Ms. Feldman, I know this young lady who is sitting down here. Obviously is not sitting in your class or she wouldn't be sitting like that. She would be way more excited than that exactly. So we are very excited about these opportunities. We will continue to look for acquisitions. Again as I say we understand and we think we increased value and employ your money to continue to drive long-term shareholder value.

So that's the story. That's the power of HNI. The power to create long-term shareholder value. And I am confident in the future. I think we are on track to increase sales and profits in 2012 and more importantly I think we are on track to continue to grow your shareholder value in the long-term. We continue to, I think, wisely but aggressively invest in the future. We think about long-term profitable growth and as I say, I am very, very excited about the future. I want to take this point though and thank our members for your capabilities, your commitment, your everyday coming to work and giving it all or working together to make this a great corporation. And just as important, I want to thank our shareholders here today. Many of you are one and the same. For your faith and as your commitment in us that we do appreciate that deeply. So I am going to end with the Power of HON. The Power of Hon is a video that actually was developed by HON Company, our flagship company for a dealer group and I think it tells a story very, very well about HON and also about HNI and then I will come back and be glad to address any questions that you might have. So thank you.

Question-and-Answer Session

[No Q&A session for this event

[Video]

We are constantly launching new products and refreshing existing lines. Nucleus went from drawing board to (inaudible) in less than 18 months and with a few clicks, you can be sitting in beautiful, smartly priced list 24 hours from now. We are Green; 80% of our products are Green Certified. So Mother Nature smiles on our users.

Green is more than our favorite color. It’s in our philosophy from the start. When it comes to manufacturing no long distance relationships. Most materials used in production are collected less than 500 miles from the job done. HON is always innovating on behalf of (inaudible), converting products into an alternative fuel, creating forest saving technologies like nature core, innovations that saves 10,000 tons from landfills annually, equivalent of 651,000 bio-stocks.

We value our value and they end up in everything we do including almost 30,000 truck loads of value last year. We do more than make great furniture, product resources just like with animation, tablet family tool and brochures worth framing. Great resources about anyone to experience HON anywhere.

We are social media butterfly. You can find, follow or friend us almost anywhere and we have fun with it. Check out some great entries from our last Facebook contest, what’s been comfortable like Nucleus.

Our commitment extends to those who need it the most. HON team members have raised more than $3 million for the City of Hope. They continue to dedicate countless hours of service in local charity. Inspired by (inaudible) and invested in understanding needs of our customers; HON is ready. Ready to listen, ready to serve, ready to keep getting better; that’s the power of HON.

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