The following is management's discussion and analysis of certain significant factors that affected the company's financial condition, earnings and cash flow during the periods included in the accompanying condensed consolidated financial statements. References to "Notes" are to the footnote disclosures included in the condensed consolidated financial statements.

Discussion of Current Business Conditions In the second quarter of fiscal 2009, we began to experience a negative impact from the slowing global economy. While net sales were modestly lower than the prior year, order rates declined significantly from the prior year. As a result of the slowing order rate and uncertain outlook, we continued on our path of reducing operating expenses by announcing our intent to initiate a number of actions aimed at reducing costs. These initiatives, which will be implemented in the third quarter, include a workforce reduction eliminating approximately 1,100 positions. This action will include voluntary and involuntary reductions of salaried, hourly, and temporary positions.

Our top line of $476.6 million for the quarter was down 5.8 percent from the same period last year, when we reported net sales of $505.9 million. The sales decline was driven by a challenging economic environment and affected most areas across the globe. Non-North American net sales, which experienced a reduction in project business, were down 13.4 percent while North American sales were down 4.5 percent.

Orders declined in the second quarter by $146.5 million or 25.6 percent from the same period in fiscal 2008. Orders were negatively affected during the quarter by the slowing global economy and by foreign currency translation as the US dollar strengthened. Additionally, we estimate that our general price increase which was effective in August 2008 moved approximately $35 million in orders out of the second quarter into the first quarter of fiscal 2009. In total, North American orders declined by 22.9 percent and non-North American orders declined by 30.5 percent compared to the second quarter of the prior year.

Our ability to control operating expenses was a highlight for the quarter. Operating expense was 21.1 percent of net sales, 60 basis points below last year. This allowed us to generate operating earnings of 11.5 percent in a very challenging economic environment. In part, our reduction in operating expense is a result of the cost reduction actions that we took in the second quarter of last year, which included an adjustment to our capital structure.

The Accelerated Share Repurchase (ASR) program we implemented last year, and completed in the second quarter, has reduced our average share count by 11.7 percent compared to the second quarter last year. When considering incremental interest costs associated with debt used to fund the ASR, this share reduction increased earnings per share by $0.03 in the quarter.

The Business Institutional Furniture Manufacturers Association (BIFMA) issued its most recent domestic industry forecast in November 2008. In its report, BIFMA anticipates the growth in orders and shipments will continue to be negative for the balance of calendar 2008 and for all of 2009. This negative growth is primarily due to a weakening job market, falling home prices, and tighter credit. BIFMA also revised its outlook downward for corporate profits in 2009 which will again challenge the U.S. furniture market.

Analysis of Second Quarter Results
The quarters ended November 29, 2008 and December 1, 2007 each included 13 weeks
of operations. The following table presents certain key highlights from the
results of operations for the periods indicated.

In millions, except per
share data                             Three Months Ended                           Six Months Ended
                            ----------------------------------------    ----------------------------------------
                            November 29,     December 1,    Percent     November 29,     December 1,    Percent
                                2008            2007         Change         2008            2007         Change
                            -------------   -------------   --------    -------------   -------------   --------

Net Sales                    $      476.6    $      505.9       (5.8 )%  $      955.7    $      997.6       (4.2 )%
Gross Margin                        155.4           180.1      (13.7 )          317.8           347.7       (8.6 )
Operating Expenses                  100.4           109.7       (8.5 )          206.2           223.6       (7.8 )
Restructuring                         0.4             5.2      (92.3 )            0.4             5.2      (92.3 )
Operating Earnings                   54.6            65.2      (16.3 )          111.2           118.9       (6.5 )
Net Earnings                         32.6            41.0      (20.5 )           66.0            74.4      (11.3 )
Earnings per share -
diluted                              0.60            0.67      (10.4 )           1.20            1.20          -
Orders                              426.0           572.5      (25.6 )          961.2         1,056.3       (9.0 )
Backlog                             281.7           346.5      (18.7 )%         281.7           346.5      (18.7 )%

The following table presents, for the periods indicated, the components of the company's Condensed Consolidated Statements of Operations as a percentage of net sales.

                                         Three Months Ended                  Six Months Ended
                                  --------------------------------    -------------------------------
                                   November 29,      December 1,       November 29,      December 1,
                                     2008(1)           2007(1)           2008(1)           2007(1)
                                  --------------    --------------    --------------    -------------

Net Sales                                  100.0 %           100.0 %           100.0 %          100.0 %
Cost of Sales                               67.4              64.4              66.7             65.1
Gross Margin                                32.6              35.6              33.3             34.9
Operating Expenses                          21.1              21.7              21.6             22.4
Restructuring                                0.1               1.0               0.0              0.5
Operating Margin                            11.5              12.9              11.6             11.9
Other Expense, net                           1.2               0.6               1.1              0.7
Earnings Before Income Taxes                10.3              12.3              10.5             11.3
Income Tax Expense                           3.4               4.2               3.6              3.8
Net Earnings                                 6.8 %             8.1 %             6.9 %            7.5 %

(1) Percentages do not foot due to rounding

Consolidated Sales, Orders, and Backlog
Net sales in the second quarter of fiscal 2009 were $476.6 million which represents a decline of 5.8 percent from the same period last year. This level of sales decline was more than expected, as orders early in the quarter were lower than anticipated, driven by the economic climate. Additionally, the U.S. dollar strengthened significantly against most foreign currencies during the second quarter which negatively impacted net sales by approximately $10.4 million.

For the six-month period ended November 29, 2008, net sales were $955.7 million. This represents a decrease of 4.2 percent from the prior year period. Currency exchange rate fluctuations drove an estimated $6.4 million decrease in consolidated net sales relative to the prior year six-month period.

On a sequential quarter basis, consolidated net sales decreased slightly from $479.1 million in the first quarter of fiscal 2009. This represents a 0.5 percent decline from the prior quarter.

Through the first six months of fiscal 2009, orders of $961.2 million were down $95.1 million, or 9.0 percent versus the prior year.

Our backlog of unfilled orders at November 29, 2008 was $281.7 million, which represents a decrease of $64.8 million or 18.7 percent over the balances at the end of the second quarter last year.

Performance versus the Domestic Contract Furniture Industry BIFMA is the trade association for the U.S. domestic office furniture industry. We monitor the trade statistics reported by BIFMA and consider them an indicator of industry-wide sales and order performance. BIFMA publishes statistical data for the contract segment and the office supply segment within the U.S. furniture market. The U.S. contract segment is primarily with large to mid-size corporations installed via a network of dealers. The office supply segment is primarily to smaller customers via wholesalers and retailers. We primarily participate, and believe we are a leader in, the contract segment. While comparisons to BIFMA are important, we continue to pursue a strategy of revenue diversification that makes us less reliant on the drivers that impact BIFMA and lessens our dependence on the U.S. office furniture market.

We also analyze BIFMA statistical information as a benchmark comparison against the performance of our domestic U.S. business and also to that of our competitors. The timing of large project-based business may affect comparisons to this data. We remain cautious about reaching conclusions regarding changes in market share based on analysis of data on a short term basis. Instead, we believe such conclusions should only be reached by analyzing comparative data over several quarters.

Our BIFMA comparable net sales and orders decreased 0.3% and 17.1% respectively during the second quarter of fiscal 2009 compared to the same quarter last year. The orders decrease would have been approximately 8% if the second quarter orders were adjusted for the $35 million that were pulled into the first quarter as a result of the price increase. By comparison, BIFMA reported an estimated year-over-year decrease in U.S. office furniture shipments of 2.9% for the three-months ended November 2009. Industry orders for the quarter as reported by BIFMA declined 9.4% from the same period last year.

Consolidated Gross Margin
Consolidated gross margin in the second quarter declined 300 basis points to 32.6 percent of net sales compared to the second quarter last year. As a percentage of sales, we experienced a significant increase in the cost of direct materials. Direct labor was up slightly on a year-over-year basis. These increases in cost relative to sales were partially offset by reductions in overhead. Details relative to the major components of consolidated gross margin follow.

Direct materials increased 300 basis points from the second quarter last year primarily due to the increase of commodity costs. This increase was expected, as most of our fixed-price contracts for raw inputs expired during the fourth quarter of last year. We estimate commodity costs increased $12 million for the quarter compared to the second quarter of fiscal 2008. Offsetting some of the increased cost of materials were value engineering improvements made in our Systems product lines. The general price increase announced at the beginning of August 2008 had only a modest impact on our results for the quarter. This is primarily due to our strong backlog of orders at the start of the quarter, which was comprised of pre-price increase orders, and customer contracts which expire at various times throughout the year, and therefore were not yet subject to the increase. Our product pricing strategy, combined with our commitment to lean manufacturing principles under the Herman Miller Production System (HMPS), continue to be our primary means of addressing the financial impact of these volatile input costs. Based on commodity contracts, we expect the commodity impact to begin to reverse in the third quarter, and be reduced substantially by the fourth quarter.

Manufacturing overhead improved 50 basis points as a percentage of sales. This improvement is primarily the result of a reduction in incentive compensation when compared to the prior year quarter. Incentive compensation accruals are based upon a measure of economic profitability relative to the prior year period as opposed to an absolute measure of profitability in any one period.

Freight and product distribution costs were flat as a percentage of sales in the second quarter of fiscal 2009 as compared to the same period last year.

On a sequential-quarter basis, consolidated gross margins decreased 130 basis points from 33.9 percent of sales reported in the first quarter of fiscal 2009. The primary driver of the decrease in gross margin is the continued increase in the cost of direct materials.

Gross margin in the first six months of fiscal 2009 was 33.3 percent compared to 34.9 percent in the prior year. The decrease was driven mainly by increases in prices for raw material and manufacturing components. On a year-to-date basis, we estimate these increases to be approximately $21 million higher than the same period last year.

Cost Reduction Actions
During the second quarter we announced a cost reduction plan designed to reduce expenses and improve profitability. The cost reduction actions, which will take place early in the third quarter, include the elimination of approximately 1,100 positions. These eliminations include salaried, hourly and temporary workers. The positions that will be eliminated represent a variety of functional areas. Many of the employees affected will be offered one-time termination benefits, including severance and outplacement services. Additionally we will be consolidating our office space in West Michigan by exiting a leased facility. In connection with these actions, we anticipate a pre-tax restructuring expense of approximately $21 million, see Note 18.

Operating Expenses and Operating Earnings The second quarter operating expenses were $100.4 million or 21.1 percent of net sales, a decrease of $9.3 million from the second quarter of fiscal 2008. As a percentage of sales, this is a 60 basis point improvement. We remain committed to reducing costs as we navigate our business through a difficult economic environment. A significant driver of the year-over-year savings is the reduction in incentive compensation expenses which were $8.3 million lower than the same period last year. The cost reduction actions which were implemented in the second quarter of last year had the impact of offsetting inflationary cost in the current quarter.

Through the first six months of fiscal 2009, operating expenses totaled $206.2 million or 21.6 percent of sales. This compares to $223.6 million or 22.4 percent of sales in the same period last year and represents an expense decrease in the current year-to-date period of $17.4 million

Operating earnings in the second quarter were $54.6 million compared to $65.2 million in the same period last year, representing a decrease of 16.3 percent. Although our top line was 5.8 percent lower than the second quarter of fiscal 2008, and material increased 300 basis points from the same period, our variable cost business model and cost reduction efforts resulted in only a 140 basis point contraction in operating earnings. As a percentage of net sales, operating earnings were 11.5 percent versus 12.9 percent in the prior year. The foreign currency impact on operating earnings was negligible for the quarter. On a year-to-date basis, operating earnings in the current year of $111.2 million were down 6.5 percent from $118.9 million last year. As a percentage of net sales, operating earnings through six months were 11.6 percent versus 11.9 percent last year.

Other Income/Expense and Income Taxes

Net other expenses in the quarter and the six months ended November 29, 2008 totaled $5.6 million and $10.8 million respectively. This compares to $3.1 million and $6.5 million respectively, in the same periods last year. The increase in expense over both comparative periods was driven primarily by higher interest cost due the long-term debt issued in the third quarter of fiscal 2008.

We incurred a net foreign currency transaction loss of $0.1 million in the current quarter compared to a gain of $0.5 million last year.

The effective tax rates for the three months ended November 29, 2008 and December 1, 2007, were 33.5 percent and 34.0 percent, respectively. The effective tax rates were 34.3 percent and 33.8 percent for the six months ended November 29, 2008, and December 1, 2007, respectively. The current quarter and year-to-date effective rates were below the United States federal statutory rate of 35 percent primarily due to the manufacturing deduction under the American Jobs Creation Act of 2004 (AJCA). We expect our full-year effective tax rate for fiscal 2009 to be between 32 percent and 34 percent.

In the first quarter of fiscal 2008, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" (FIN 48). Upon adoption, we recognized an increase in accrued liabilities associated with unrecognized tax benefits. We also recognized an increase in accruals for estimated interest and penalties associated with those unrecognized tax benefits. These accrual adjustments totaled $1.0 million, and were recorded net of tax within beginning retained earnings. This adjustment, which did not impact net earnings, is considered a Cumulative Effect of a Change in Accounting Principle as required by FIN 48. Additionally, in the first quarter of fiscal 2008, we reclassified $8.7 million from current accrued income taxes payable into non-current liabilities. This reclassification was made to match the anticipated timing of future income tax payments.

Further information regarding our income taxes can be found in Note 15

Reportable Operating Segments
Our business comprises various operating segments as defined by generally accepted accounting principles in the United States. These operating segments are determined on the basis of how we internally report and evaluate financial information used to make operating decisions. For external reporting purposes, we aggregate these operating segments as follows:

• Non-North American Furniture Solution - Includes the business associated with the design, manufacture and sale of furniture products, primarily for work-related settings, outside North America.

• Other - includes our North American residential furniture business as well as other business activities and certain unallocated corporate expenses, if any. Our North American residential furniture business includes the operations associated with the design, manufacture and sale of furniture products for residential settings in the United States, Canada, and Mexico. Our other business activities are discrete operations, such as Convia, or activities aimed at developing innovative products to serve current and new markets.

Further information regarding our reportable operating segments can be found in Note 9.

Net sales within our North American Furniture Solutions segment were down 4.5 percent to $389.3 million from $407.6 million reported in the second quarter last year. Orders within the North American segment declined by 22.9 percent, reflecting the slowing demand in the U.S. as well as the pull-ahead of orders in advance of the August 2008 general price increase previously discussed. Through the first six months sales and orders were down 3.5 percent and 8.4 percent, respectively.

Operating earnings in the second quarter within the North American segment were $47.3 million, down from $53.7 million in the second quarter last year. This represents a decrease of $6.4 million or 11.9 percent from the same period last year. This decrease in operating earnings performance is primarily a result of the significant increase in the cost of the commodities used in our furniture components, as previously discussed within the context of gross margin performance. Through the first six months operating income increased $0.1 million over the same period in the prior year. This increase in comparison with the prior year was driven by the cost reduction actions taken at the end of the second quarter last year, as well as a significant reduction in incentive compensation.

Net sales within our non-North American Furniture Solutions segment were $72.4 million in the second quarter. This represents a decrease of 13.5 percent from the second quarter of fiscal 2008 when we reported net sales of $83.7 million. While the second quarter decline of $11.3 million from the prior year quarter has affected most global regions, the most significant declines occurred in the United Kingdom and Europe. Sales for the six month period ending November 29, 2008 were down 9.2 percent over the same period last year.

Operating earnings in the quarter for our non-North American segment decreased $7.8 million to $5.7 million from second quarter of fiscal 2008 operating earnings of $13.5 million. As a percentage of sales, operating earnings in the current quarter were 7.9 percent, down 820 basis points from the same period last year. This is largely due to the loss of leverage from the lower sales volume, a sales mix shift towards less profitable products, and increases in commodity costs. On a year-to-date basis operating earnings were $12.0 million or 8.4 percent of sales. In the same period last year we reported earnings of $23.4 million or 14.9 percent of sales.

Net sales within the "Other" category were $14.9 million, up 2.1 percent from the prior year level of $14.6 million. These sales are primarily due to increased retail business within our Herman Miller for the Home business. On a year-to-date basis sales in this category were up 4.9 percent over the prior year. Orders within this category were $4.7 million, down 73.6 percent over prior year levels. This decrease was in part due to the August 2008 price increase. Retailers ordered inventory prior to the implementation of the price increase for the holiday season. On a year-to-date basis orders were $24.6 million, down 15.2 percent over the same period in the prior year. This decrease includes orders from a new retail customer of $2.7 million during the fiscal year.

Changes in currency exchange rates from the prior year affected the U.S. dollar value of net sales within both primary operating segments. We estimate these changes effectively decreased second quarter net sales within the North American segment by approximately $4.9 million. This was largely driven by the strengthening U.S. dollar compared to the Canadian dollar and the Mexican Peso during the period. Within the non-North American segment, exchange rate changes decreased second quarter net sales by an estimated $5.5 million. This decrease was mainly driven by movement in the U.S. dollar to British Pound Sterling and U.S. dollar to Euro exchange rates as compared to last year. It is important to note that period-to-period changes in exchange rates have a directionally similar impact on our international expenses as measured in U.S. dollars.

Financial Condition, Liquidity, and Capital Resources The table below presents certain key cash flow and capital highlights for the periods indicated.

(In Millions)                                                         Six Months Ended
                                                             ----------------------------------
                                                              November 29,         December 1,
                                                                  2008                2007
                                                             --------------       -------------

Cash and cash equivalents, end of period                        $       166 .1      $        74 .2
Short-term investments, end of period                                    14 .6               17 .7
Cash generated from operating activities                                 45 .7               87 .7
Cash used for investing activities                                      (16 .9)             (19 .7)
Cash used for financing activities                                       (8 .1)             (73 .7)
Capital expenditures                                                    (15 .9)             (19 .0)
Stock repurchased and retired                                            (0 .1)             (66 .1)
Interest-bearing debt, end of period(1)(3)                              377 .3              178 .8
Available unsecured credit facility, end of period(2)(3)                236 .9              136 .9

(1) Amounts shown include the fair market values of the company's interest rate swap arrangements. The net fair value of these arrangements totaled approximately $2.3 million and $0.8 million at November 29, 2008 and December 1, 2007, respectively.
(2) Amounts shown are net of outstanding letters of credit, which are applied against the company's unsecured credit facility.
(3) During the third quarter of fiscal 2008, the company issued new senior unsecured private placement notes and replaced its unsecured revolving credit facility. Refer to Note 13 for additional information.

Cash Flow - Operating Activities
Cash generated from operating activities in the second quarter was $41.8 million compared to $55.9 million in the prior year. For the first six months of fiscal 2009, cash generated from operations totaled $45.7 million. This compares to cash flows generated from operating activities of $87.7 million in the same period in fiscal 2008.

Quarter and Six -Months Ended November 29, 2008 Changes in working capital balances resulted in a net cash use of $5.7 million in the second quarter. The principal driver of this working capital investment is related to the reduction in incentive compensation and accounts payable, which more than offset reductions in the accounts receivable balance.

. . .