Overview

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

Net sales for the first quarter of fiscal 2009 decreased 28.0 percent to $405.7 million. The decrease was driven by large declines in both segments due to adverse market conditions. Gross margins for the quarter decreased from prior year levels due primarily to decreased volume. Selling and administrative expenses decreased due to cost control initiatives, lower volume related costs and incentive-based compensation offset partially by increased restructuring and transition costs.

Due to challenging market conditions and its ongoing business simplification and cost reduction strategies the Corporation is taking actions to reset its cost structure. The Corporation recently announced the decision to shutdown an office furniture manufacturing facility and recorded $3.0 million of severance costs in connection with the shutdown in the first quarter. In addition $2.1 million of charges related to the disposition and consolidation of several hearth retail and distribution locations were recorded during the first quarter.

Critical Accounting Policies

The preparation of the financial statements requires the Corporation to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Corporation continually evaluates its accounting policies and estimates. The Corporation bases its estimates on historical experience and on a variety of other assumptions believed by management to be reasonable in order to make judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Corporation's Annual Report on Form 10-K for the year ended January 3, 2009. During the first three months of fiscal 2009, there were no material changes in the accounting policies and assumptions previously disclosed. Given the continued challenging market condition and the operating loss for the current period, the Corporation evaluated paragraph 28 of FAS 142 to determine whether an interim triggering even existed. Refer to Note G. Goodwill and Other Intangible Assets for further discussion.

New Accounting Standards

For information pertaining to the Corporation's adoption of new accounting standards and any resulting impact to the Corporation's financial statements, please refer to the first paragraph of Note L. Fair Value Measurements and the entirety of Note N. New Accounting Standards of the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

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

                                                            Three Months Ended
                                                    Apr. 4,      Mar. 29,      Percent
(In thousands)                                       2009          2008         Change
Net sales                                          $ 405,666     $ 563,383        -28.0 %
Cost of sales                                        280,931       379,345        -25.9
Gross profit                                         124,735       184,038        -32.2
Selling & administrative expenses                    136,257       172,555        -21.0
Restructuring & impairment charges                     5,085           818        521.6
Operating income (loss)                              (16,607 )      10,665       -255.7
Interest expense, net                                  3,063         3,414        -10.3
Earnings (loss) before income taxes                  (19,670 )       7,251       -371.3
Income taxes                                          (7,802 )       3,180       -345.3
Less: Net income attributable to the
noncontrolling interest                                  (18 )         (94 )      -80.9
Net income (loss) attributable to Parent Company   $ (11,886 )   $   3,977       -398.9

Consolidated net sales for the first quarter decreased 28.0 percent or $157.7 million compared to the same quarter last year. Acquisitions contributed $10.2 million or 1.8 percentage points of sales. Organic sales growth was down due to challenging market conditions in both the office furniture and hearth products segments.

Gross margins for the first quarter decreased to 30.7 percent compared to 32.7 percent for the same quarter last year. The reduction in gross margin was due to decreased volume and increased material costs offset partially by increased price realization. First quarter 2008 included $4.3 million of accelerated depreciation and transition costs related to the shutdown and consolidation of an office furniture manufacturing facility.

As a result of challenging market conditions and the Corporation's ongoing business simplification and cost reduction strategies, management made the decision to close an office furniture facility located in South Gate, California and consolidate production into its Cedartown, Georgia and Muscatine, Iowa facilities. The Corporation's first quarter 2009 results include $3.0 million of severance costs in connection with the South Gate shutdown. The Corporation anticipates additional restructuring charges of approximately $7.2 million related to this shutdown during the remainder of 2009. The Corporation also recorded $2.1 million of restructuring costs due to the disposition and consolidation of five hearth retail and distribution locations during the first quarter of 2009.

Total selling and administrative expenses, including restructuring charges, as a percent of sales increased to 34.8 percent compared to 30.8 percent for the same quarter last year due to lower volume. Actual selling and administrative expenses decreased $32.0 million as a result of cost control initiatives, lower volume related expenses and reduced incentive-based compensation expense. First quarter 2008 included $0.8 million of restructuring charges and $3.4 million of other transition costs associated with a plant consolidation.

The Corporation experienced a net loss of ($11.9) million or ($0.27) per diluted share in the first quarter of 2009 compared to net income of $4.0 million or $0.09 per diluted share in first quarter

2008. Net interest expense decreased $0.4 million during the quarter due to lower average interest rates and lower borrowing.

The provision for income taxes in the first quarter reflects an actual effective tax rate of 39.7 percent, compared to an estimated annual tax rate of 43.9 percent for the first quarter 2008 and actual tax rate for the full year 2008 of 34.2 percent. A discrete calculation was used to report the first quarter tax provision rather than an estimated annual tax rate as uncertainty in the full year outlook produces significant variability in the estimated annual effective tax rate.

Office Furniture

First quarter sales for the office furniture segment decreased 27.5 percent or $128.2 million to $337.9 million from $466.0 million for the same quarter last year driven by substantial weakness in all channels of the office furniture industry. Acquisitions contributed $10.2 million or 2.2 percentage points of sales. Operating profit prior to unallocated corporate expenses decreased $18.2 million to $0.5 million as a result of lower organic volume and higher material costs. These were partially offset by price realization, contributions from acquisitions, cost control initiatives and lower variable compensation expense.

Hearth Products

First quarter net sales for the hearth products segment decreased 30.4 percent or $29.6 million to $67.8 million from $97.4 million for the same quarter last year driven by significant declines in both the new construction and remodel-retrofit channels. Operating profit prior to unallocated corporate expenses decreased $8.6 million to a $11.4 million loss due to lower volume, higher material costs and restructuring expenses partially offset by price increases and cost reduction initiatives.

Liquidity and Capital Resources

Cash Flow - Operating Activities
Cash generated from operating activities in the first quarter 2009 totaled $5.6 million compared to $2.0 million generated in first quarter 2008. Improved working capital performance resulted in a $6.1 million use of cash in the current fiscal year compared to $25.5 million use of cash in the prior year.

Cash Flow - Investing Activities
Capital expenditures including capitalized software for the first three months of fiscal 2009 were $4.6 million compared to $17.6 million in the same period of fiscal 2008 and were primarily for tooling and equipment for new products. For the full year 2009, capital expenditures are expected to be approximately $30 million due to new product development and related tooling.

Cash Flow - Financing Activities
During the first three months of fiscal 2009, net borrowings under the Corporation's revolving credit facility increased $9.5 million primarily to pay off a short-term credit line associated with one of its foreign subsidiaries. As of April 4, 2009, $117 million of the revolving credit facility was outstanding with $50 million classified as short-term as the Corporation expects to repay that portion of the borrowings within the next twelve months.

The credit agreements governing the Corporation's revolving credit facility and term loan contain a number of covenants, including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter:

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

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

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

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

The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.0 to 1.0 included in the credit agreements governing both the revolving credit facility and term loan. Under both credit agreements, adjusted EBITDA is defined as consolidated net income before interest expense, income taxes and depreciation and amortization of intangibles, as well as non-cash, nonrecurring charges and all non-cash items increasing net income. At April 4, 2009, the Corporation was well below this ratio and was in compliance with all of the covenants and other restrictions in the credit agreements and note purchase agreement. The Corporation currently expects to remain in compliance over the next twelve months. If the Corporation's actual results over the next twelve months are lower than current projections, the margin by which the Corporation is below the consolidated leverage ratio will decrease. However, even if a 10 percent decline in expected results over the next twelve months were to occur, the Corporation would remain in compliance with the covenant.

The Corporation's Board of Directors (the "Board") declared a regular quarterly cash dividend of $0.215 per share on the Corporation's common stock on February 11, 2009, to shareholders of record at the close of business on February 20, 2009. It was paid on February 27, 2009.

The Corporation did not repurchase any shares of common stock during the first quarter of 2009. For the three months ended March 29, 2008, the Corporation repurchased 704,700 shares of its common stock at a cost of approximately $22.1 million, or an average price of $31.33 per share. As of April 4, 2009, approximately $163.6 million of the Board's current repurchase authorization remained unspent.

Off-Balance Sheet Arrangements

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

Contractual Obligations

Contractual obligations associated with ongoing business and financing activities will result in cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments was provided in the Corporation's Annual Report on Form 10-K for the year ended January 3, 2009. During the first three months of fiscal 2009 there were no material changes outside the ordinary course of business in the Corporation's contractual obligations or the estimated timing of the future cash payments.

Commitments and Contingencies

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

Looking Ahead

Management expects weak demand to continue across its businesses during the remainder of 2009. The Corporation will continue to reset its cost structure to the current challenging market conditions while investing in new products, selling initiatives and operational improvements.

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

Forward-Looking Statements

Statements in this report that are not strictly historical, including statements as to plans, outlook, objectives and future financial performance, are "forward-looking" statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words, such as "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and variations of such words, and similar expressions identify forward-looking statements. Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual results in the future to differ materially from expected results. These risks include, without limitation: the Corporation's ability to realize financial benefits from its (a) price increases, (b) cost containment and business simplification initiatives for the entire Corporation, (c) investments in strategic

acquisitions, new products and brand building, (d) investments in distribution and rapid continuous improvement, (e) ability to maintain its effective tax rate and (f) consolidation and logistical realignment initiatives; uncertainty related to the availability of cash and credit, and the terms and interest rates on which credit would be available, to fund operations and future growth; lower than expected demand for the Corporation's products due to uncertain political and economic conditions, including the current credit crisis, slow or negative growth rates in global and domestic economies and the protracted decline in the housing market; lower industry growth than expected; major disruptions at our key facilities or in the supply of any key raw materials, components or finished goods; uncertainty related to disruptions of business by terrorism, military action, epidemic, acts of God or other Force Majeure events; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials (including steel and petroleum based materials); higher than expected costs for energy and fuel; changes in the mix of products sold and of customers purchasing; relationships with distribution channel partners, including the financial viability of distributors and dealers; restrictions imposed by the terms of the Corporation's revolving credit facility, term loan credit agreement and note purchase agreement; currency fluctuations and other factors described in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.