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

The global economic decline, the effects of which we began seeing in the second quarter, continued to negatively impact our financial results. The credit crisis and general pull-back in capital spending by our customers continued through the third quarter. Order rates declined rapidly through the majority of the quarter but the level in the latter part increased slightly and appears to have stabilized. As the economy slowed last quarter we announced several actions to reduce our expense base. During the third quarter, the majority of our announced cost reduction initiatives were completed and charges recognized. The uncertainty of the economic outlook continues to be the dominant issue we are facing. The unpredictability of the depth and duration of this downturn continues to be our major focus. Due to the lack of general market clarity across all fronts of our business we took further cost reduction steps at the end of the quarter. We added a temporary change to our compensation and benefit structure to increase the variability of our costs for the near term. The combination of our recent actions coupled with this latest step will reduce our operating expenses by approximately 26 percent compared to fiscal 2008. Our management teams are experienced in adapting during economic cycles and we have built our business model to adjust quickly. While we remain confident in our strategic direction and continue to aggressively pursue revenue opportunities in this tough market, we are determined to maintain our financial strength and flexibility.

Our top line of $354.4 million for the quarter was down 28.5 percent from the same period last year, when we reported net sales of $495.4 million. The sales decline was driven by a challenging economic environment and affected most areas across the globe. North American net sales were down 27.7 percent while our non-North American business continued to experience a significant reduction in project business resulting in a decline of 28.0 percent.

Orders of $279.4, declined in the third quarter by $174.8 million or 38.5 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. North American orders declined by 35.5 percent and non-North American orders declined by 49.8 percent compared to the third quarter of the prior year.

Operating expenses totaled $108.7 million, which includes restructure charges of $23.4 million. This expense level is essentially flat with the same period last year despite the restructuring charge. Operating loss for the quarter was $2.8 million, or 0.8 percent of revenue, with the restructuring expenses of $23.4 million, or 6.6 percent of revenue, contributing significantly to that result.

For the quarter, our consolidated earnings resulted in a loss of $0.10 per share. We were, however, able to generate operating cash of $18.7 million for the quarter and added to our cash balance, bringing it to $172.4 million.

The Business Institutional Furniture Manufacturers Association (BIFMA) issued its most recent domestic industry forecast in January 2009. In its report, BIFMA anticipates the growth in orders and shipments will continue to be negative for the balance of calendar 2009 with a slight decline expected to continue in 2010. 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 Third Quarter Results

The quarters ended February 28, 2009 and March 1, 2008 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                          Nine Months Ended
                                  February 28,      March 1,     Percent       February 28,    March 1,    Percent
                                      2009            2008       Change            2009          2008       Change
Net Sales                         $      354.4      $   495.4      (28.5) %    $     1,310.1   $ 1,493.0     (12.3) %
Gross Margin                             105.9          170.0      (37.7)              423.7       517.7     (18.2)
Operating Expenses                        85.3          108.3      (21.2)              291.5       331.9     (12.2)
Restructuring                             23.4              -           -               23.8         5.2      357.7
Operating Earnings (Loss)                 (2.8)          61.7     (104.5)              108.4       180.6     (40.0)
Net Earnings (Loss)               $       (5.2)     $    38.3     (113.6)      $        60.8   $   112.8     (46.1)
Earnings (Loss) per share -
diluted                                  (0.10)          0.65     (115.4)               1.11        1.86     (40.3)
Orders                                   279.4          454.2      (38.5)            1,240.6     1,510.5     (17.9) %
Backlog                                   206.8         307.2      (32.7) %

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           Nine Months Ended
                                   February 28,     March 1,    February 28,     March 1,
                                      2009(1)        2008(1)       2009(1)        2008(1)
Net Sales                              100.0 %        100.0 %        100.0 %       100.0 %
Cost of Sales                           70.1           65.7           67.7          65.3
Gross Margin                            29.9           34.3           32.3          34.7
Operating Expenses                      24.1           21.9           22.3          22.2
Restructuring                            6.6            0.0            1.8           0.3
Operating Margin                        (0.8 )         12.5            8.3          12.1
Other Expense, net                       1.7            0.9            1.3           0.7
Earnings Before Income Taxes            (2.5 )         11.5            7.0          11.4
Income Tax Expense                      (1.0 )          3.8            2.4           3.8
Net Earnings                            (1.5 )%         7.7 %          4.6 %         7.6 %

(1) Percentages do not foot due to rounding

Consolidated Sales, Orders, and Backlog
Net sales in the third quarter of fiscal 2009 were $354.4 million which represents a decline of 28.5 percent from the same period last year. This level of sales decline was steeper than expected, as orders fell rapidly during the first half of the quarter. The global economic downturn cancelled or placed many projects on hold, which reduced normal activity within our customer base. Additionally, the U.S. dollar continued to strengthen against most foreign currencies which negatively impacted net sales compared to the same period last year by approximately $10.4 million.

For the nine-month period ended February 28, 2009, net sales were $1,310.1 million. This represents a decrease of 12.3 percent from the prior year period. Currency exchange rate fluctuations drove an estimated $20.2 million decrease in consolidated net sales relative to the prior year nine-month period.

Through the first nine months of fiscal 2009, orders of $1,240.6 million were down $269.9 million, or 17.9 percent versus the prior year.

Our backlog of unfilled orders at February 28, 2009 was $206.8 million, which represents a decrease of $100.4 million or 32.7 percent from the balances at the end of the third 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 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 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 impact short term comparisons to this data, therefore, we remain cautious about reaching conclusions regarding changes in market share based on analysis of short term data. Instead, we believe such conclusions should only be reached by analyzing comparative data over several quarters.

BIFMA comparable net sales and orders decreased 24.2 percent and 30.6 percent respectively during the third quarter of fiscal 2009 compared to the same quarter last year. By comparison, BIFMA reported an estimated year-over-year decrease in U.S. office furniture shipments of 21.3 percent for the three-months ended February 2009. Industry orders for the quarter as reported by BIFMA declined 24.8 percent from the same period last year.

Consolidated Gross Margin
Consolidated gross margin in the third quarter declined 440 basis points to 29.9 percent of net sales compared to the third quarter last year. As a percentage of sales, we experienced a large increase in the cost of direct materials. Direct labor was up on a year-over-year basis but relatively stable considering the significant decrease in production volume. These increases in cost relative to sales were partially offset by reductions in overhead and favorable impact from price increases put in place last August. Details relative to the major components of consolidated gross margin follow.

Direct materials increased 310 basis points from the third quarter last year primarily due to the increase in 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 $6 million for the quarter compared to the third quarter of fiscal 2008. The general price increase announced at the beginning of August 2008, net of higher discounts, offset a portion of material cost increases. Based on commodity contracts, we expect the commodity impact to begin to reverse in the fourth quarter and provide some margin relief against significantly lower volumes. 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.

Manufacturing overhead increased 120 basis points as a percentage of sales when compared to the third quarter last year. This increase is primarily the result of lower volume but was partially offset by a 100 basis point favorable impact related to incentive compensation. 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 favorable by 40 basis points in the third quarter of fiscal 2009 as compared to the same period last year. Lower fuel prices and continued efficiency gains accounted for this improvement.

Gross margin in the first nine months of fiscal 2009 was 32.3 percent compared to 34.7 percent in the prior year. The decrease was driven mainly by increases in prices for raw material and production declines. On a year-to-date basis, we estimate the raw materials cost was approximately $27 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 took place during the third quarter, eliminated approximately 1,400 positions. These work force reductions included salaried, hourly and temporary workers. The positions eliminated were across a variety of functional areas. Many of the employees were offered one-time termination benefits, including severance and outplacement services. Additionally we consolidated our office space in West Michigan by exiting a leased facility. In connection with these actions we recognized charges of $23.4 million, see Note 18.

Operating Expenses and Operating Earnings The third quarter operating expenses were $108.7 million, or 30.7 percent of net sales, which includes restructuring charges of $23.4 million, or 6.6 percent of net sales. In addition, we did not recognize a full quarter of benefits related to the recent restructuring actions. At the end of the quarter we implemented additional cost changes including temporary compensation and benefit reductions. The supplemental cost reductions take effect during the fourth quarter and are expected to reduce operating expenses by $20 million on an annualized basis. We remain committed to reducing costs as we navigate our business through a difficult and unpredictable economic environment.

Through the first nine months of fiscal 2009, operating expenses totaled $315.3 million or 24.1 percent of sales. This compares to $337.1 million or 22.6 percent of sales in the same period last year and represents an expense decrease in the current year-to-date period of $21.8 million. After considering the impact of all the realignment actions announced and implemented we are targeting an annualized operating expense run-rate of $110 to $115 million lower than fiscal 2008 levels.

Our investment in R&D, excluding royalties, totaled $8.8 million and $9.4 million for the quarterly periods ended February 28, 2009 and March 1, 2008, respectively. Through the first nine months of fiscal 2009, R&D expenses were $27.3 million. This compares to $28.5 million in the same period last fiscal year. Operating earnings in the third quarter were a loss of $2.8 million compared to a profit of $61.7 million in the same period last year. On a year-to-date basis, operating earnings totaled $108.4 million, or 40.0 percent below last year.

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:

o North American Furniture Solutions - Includes the business associated with the design, manufacture and sale of furniture products for office, healthcare and educational environments, throughout the United States, Canada and Mexico.

o 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.

o Other - includes our North American residential furniture business as well as other business activities and certain unallocated corporate expenses. 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 27.7 percent to $295.9 million from $409.1 million reported in the third quarter last year. Orders within the North American segment declined by 35.5 percent, reflecting the sharp pull back in demand and project business in the U.S. Through the first nine months sales and orders were down 11.6 percent and 16.3 percent, respectively.

Net sales within our non-North American Furniture Solutions segment were $51.8 million in the third quarter. This represents a decrease of 28.0 percent from the third quarter of fiscal 2008 when we reported net sales of $71.9 million. The third quarter decline of $20.1 million from the prior year affected all global regions with the exception of South America. Sales for the nine month period ending February 28, 2009 were down 15.1 percent over the same period last year.

Operating earnings in the quarter for our non-North American segment decreased $7.2 million to $3.0 million from the third quarter of fiscal 2008 operating earnings of $10.2 million. On a year-to-date basis operating earnings were $15.0 million, a decrease of 55.4 percent from last year. This decline is directly related to lower sales levels.

Net sales within the "Other" category were $6.6 million, down 54.2 percent from the prior year level of $14.4 million. The reduction in revenues is primarily from the severe decline in consumer spending. Herman Miller for the Home sales were down 15.8 percent year-to-date from the same period last year, despite the addition of a large retailer to its retail products distribution network.

Operating earnings in the third quarter for the "Other" category were a loss of $23.2 million compared to a profit of $2.0 million last year. The majority of this loss relates to the $23.4 million of restructuring charges recorded during the quarter.

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 third quarter net sales within the North American segment by approximately $8.1 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 third quarter net sales by an estimated $2.3 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)                                                  Nine Months Ended
                                                            February 28,    March 1,
                                                                2009          2008
Cash and cash equivalents, end of period                     $      172.4    $   81.4
Short-term investments, end of period                                13.3        18.3
Cash generated from operating activities                             64.4       123.2
Cash used for investing activities                                  (20.8 )     (41.7 )
Cash used for financing activities                                  (12.0 )     (79.2 )
Capital expenditures                                                (20.3 )     (28.2 )
Stock repurchased and retired                                        (0.1 )    (266.7 )
Interest-bearing debt, end of period (1)                            377.4       380.5
Available unsecured credit facility, end of period (2)              236.9       236.9

(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 $2.4 million and $2.5 million at February 28, 2009 and March 1, 2008, respectively.

(2) Amounts shown are net of outstanding letters of credit, which are applied against the company's unsecured credit facility.

Cash Flow -Operating Activities
Cash generated from operating activities in the third quarter was $18.7 million compared to $35.5 million in the prior year. Cash payments of approximately $9.2 million are included in the third quarter cash from operating activities amount and are related to the restructure actions made during the quarter. For the first nine months of fiscal 2009, cash generated from operations totaled $64.4 million. This compares to cash flows generated from operating activities of $123.2 million in the same period in fiscal 2008.

Quarter and Nine -Months Ended February 28, 2009 Changes in working capital balances resulted in a net cash use of $0.5 million in the third quarter. The principal driver of this working capital investment is related to the reduction in incentive compensation and accounts payable, which offset reductions in the accounts receivable balance.

Through the first nine months of the year, changes in working capital balances accounted for a net $51.4 million use of cash. The majority of cash use was driven from the reduction of accrued compensation and benefits totaling $51.5 million. This reduction in the accrual relates to the payout of incentive compensation earned during fiscal 2008. Other items, such as accounts receivable, inventory, income taxes, and accounts payable, offset each other as revenue declines occurred through the period.

Quarter and Nine -Months Ended March 1, 2008 Changes in working capital balances resulted in a net cash use of $8.9 million in the third quarter of fiscal 2008. Volume-driven increases in accounts receivable were more than offset by increased inventory balances related to project timing and accounts payable balances. Through the first nine months of last year, changes in working capital balances accounted for a net $31.8 million use of cash. Included in this amount were increases in accounts receivable and inventories totaling $36.7 million. We also experienced a net reduction of $16.7 million in compensation and benefit accruals in the nine-month period, due largely to the payout of incentive bonuses earned during fiscal 2007. Partially offsetting these working capital investments were volume-driven increases in accounts payable of $6.2 million and unearned revenue liabilities of $8.3 million. Accruals for income taxes also increased from the prior year-end, further offsetting the investment in working capital in the year-to-date period.

Cash Flow -Investing Activities
Our most significant cash outflow related to investing activities continues to . . .