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 During our first fiscal quarter of 2010, we completed the acquisition of Nemschoff, a healthcare furniture manufacturer in Sheboygan, Wisconsin. This acquisition will affect the comparisons for quarterly and full-year reporting throughout the current fiscal year. Net sales, orders, backlog, and operating expenses are higher as a result of this acquisition.

While current business conditions continue to be challenging, it appears we have reached a level of stability in our order patterns over the last two quarters. We continue to manage the business, keeping our eyes on both the long-term future and current conditions, to ensure our costs are aligned with business levels. This was certainly the case in the first quarter of fiscal 2010, during which we completed the above-referenced acquisition to secure our leadership in the Healthcare furniture sector, de-levered our balance sheet by retiring $75 million in bonds, and continued to produce mid-single digit operating margin performance with strong cash flow. Coming off a fiscal year marked with several challenges and uncertainties, we continued to control operating expenses and manage our business through a continuing turbulent economic environment that is affecting most businesses, including our customers.

Our sales of $324.0 million for the quarter is down 32.4 percent from the same period last year, when we reported net sales of $479.1 million. This decline matches a similar decline in the overall U.S. office furniture market. Contributing to the decline were even more challenging conditions outside of North America as well as unfavorable currency trends.

Despite the decline in sales, we were able to generate operating margin of 6.5 percent, exclusive of restructuring costs and the costs associated with the early retirement of a portion of our bonds above par value (4.4 percent operating margin including these items). This operating performance, coupled with our cash flow from operations of $27.2 million in the quarter, demonstrates the flexibility of our business model and our ongoing commitment to shareholders to look to the future while performing for today.

We are encouraged by our performance in the first quarter of fiscal 2010. However, we remain appropriately cautious about the near term in light of the continued challenges in the economy. The Business Institutional Furniture Manufacturers Association's (BIFMA) most recent domestic industry forecast in August 2009 anticipates that orders and shipments will continue to be significantly lower for the balance of calendar 2009 with a slight increase in 2010. While this prospective increase is somewhat encouraging, the comparison is to a very low point in the industry.

Analysis of First Quarter Results
The quarters ended August 29, 2009 and August 30, 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
                                              --------------------------------------------------------------
                                               August 29, 2009        August 30, 2008        Percent Change
                                              -----------------      -----------------      ----------------

Net Sales                                       $         324.0        $         479.1                 (32.4 )%
Gross Margin                                              107.5                  162.4                 (33.8 )
Operating Expenses                                         90.8                  105.8                 (14.2 )
Restructuring Expense                                       2.6                     --                   n/a
Operating Earnings                                         14.1                   56.6                 (75.1 )
Net Earnings                                                8.4                   33.4                 (74.9 )
Earnings per share - diluted                               0.14                   0.60                 (76.7 )
Orders                                                    322.1                  535.2                 (39.8 )
Backlog                                                   237.3                  332.4                 (28.6 )%

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
                                 -------------------------------------------
                                 August 29, 2009(1)      August 30, 2008(1)
                                 -------------------    --------------------

Net Sales                                      100.0 %                 100.0 %
Cost of Sales                                   66.8                    66.1
Gross Profit                                    33.2                    33.9
Operating Expenses                              28.0                    22.1
Restructuring Expenses                           0.8                      --
Operating Income                                 4.4                    11.8
Other Expense, net                               1.8                     1.1
Earnings Before Income Taxes                     2.6                    10.7
Income Tax Expense                                --                     3.8
Net Earnings                                     2.6 %                   7.0 %

(1) Percentages do not foot due to rounding

Consolidated Sales, Orders, and Backlog
Net sales in the first quarter of fiscal 2010 were $324.0 million, a decline of 32.4 percent from the same period last year. This decline was expected, given the current U.S. economic climate. Foreign exchange rate changes lowered net sales by approximately $6.0 million in the first quarter of fiscal year 2010.

On a sequential quarter basis, consolidated net sales were up $4.1 million from $319.9 million reported in our fourth quarter of fiscal 2009. While this represents a 1.3 percent sequential increase, the current quarter includes $15.3 million of sales from our acquisition of Nemschoff that was completed at the end of June.

Orders in the first quarter were $322.1 million, a decrease of $213.1 million or 39.8 percent over the same period last year. In August 2008, we implemented a general price increase which had the effect of pulling ahead approximately $35 million in orders that would have been received in the second quarter. Excluding the impact of these orders, the comparison with last year would be a decrease of 35.6 percent. We experienced year-over-year order decreases throughout our business, consistent with the rate of decline we have seen over the last few quarters. North American orders decreased 38.3 percent, while non-North American orders decreased 46.1 percent. Orders within our "Other" category decreased 46.1 percent for

Our backlog of unfilled orders at August 29, 2009 was $237.3 million, a decrease of $95.1 million or 28.6 percent over the balances at the end of our first quarter last year. After adjusting for the benefit in last year's backlog from the previously mentioned 2008 price increase, the decline in the backlog is 20.2 percent compared to the prior year. Our acquisition of Nemschoff contributed $15.4 million to the backlog at the end of the quarter.

Performance versus the Domestic Contract Furniture Industry We monitor the trade statistics reported by BIFMA, the trade association for the U.S. domestic office furniture industry, 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 composed of large to mid-size corporations serviced by a network of dealers. The office supply segment is primarily made up of smaller customers serviced by wholesalers and retailers. We primarily participate in, 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 use BIFMA statistical information as a benchmark for 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.

While the sales and order data for our U.S. operations provide a relative comparison to BIFMA, it is not intended to be an exact comparison. The data we report to BIFMA is consistent with the BIFMA definition of office furniture "consumption." This definition differs slightly from the categorization we have presented in this report. Notwithstanding this difference, we believe our presentation provides the reader with a more relevant comparison.

For the three-month period ended August 29, 2009, our domestic U.S. net sales decreased 29.5 percent year-over-year while domestic orders declined 38.1 percent over the same period last year, or 32.4 percent adjusted for the prior year price increase pull-forward. By comparison, BIFMA reported an estimated year-over-year decrease in shipments and orders of 31.7 percent and 33.5 percent, respectively for the comparable period.

Consolidated Gross Margin
Consolidated gross margin in the first quarter declined 70 basis points to 33.2 percent of net sales compared to the first quarter last year. As a percentage of sales, we experienced declines in the costs of direct materials. Direct labor was higher on a year-over-year basis, nearly all attributable to a higher labor content of the Nemschoff products. Overhead increased as a percentage of sales but declined $10.4 million mainly as a result of the restructuring actions implemented in the third quarter of fiscal 2009. The general price increase effective in August 2008 did not have an impact on gross margins in the current quarter, as the increase was offset with incremental discounts off list price. Details relative to the major components of consolidated gross margin are as follows.

Direct material costs declined 190 basis points from the first quarter last year primarily due to lower cost of raw materials. We estimate that commodity costs decreased $7 million for the quarter compared to the first quarter of fiscal 2009. The biggest decreases were for steel and aluminum. Offsetting these declines in cost was the loss of leverage on fixed overhead as a result of the decline in volume.

Manufacturing overhead increased 240 basis points as a percentage of sales. This increase was driven by a loss of leverage as a result of the decline in volume, despite our actions to reduce fixed costs as part of our restructuring actions. Our ability to right size our manufacturing environment in connection with our commitment to lean manufacturing principles under the Herman Miller Performance System (HMPS), continues to be our primary means of addressing the financial impact of the cyclical nature of the industry.

Freight costs were 50 basis points lower in the first quarter of fiscal 2010 as compared to the same period last year, a direct result of lower diesel costs when compared to the prior year same period.

On a sequential-quarter basis, consolidated gross margins increased 70 basis points from 32.5 percent of sales reported in the fourth quarter of fiscal 2009. The primary drivers of this improvement are the elimination of the costs related to our wage recovery program, which was not earned in the current quarter, and improvement in commodity pricing. These were partially offset by deeper discounts off our list prices.

Operating Expenses and Operating Earnings First quarter operating expenses were $93.4 million or 28.8 percent of net sales, a decrease of $12.4 million from the first quarter in fiscal 2009. Our operating expense included $2.6 million of restructuring costs, and $4.5 million of costs associated with the previously mentioned debt retirement actions. Excluding these items, our operating expense would have been $86.3 million, or 18.4 percent lower year-over-year. The current quarter also included $3.9 million in operating expense contributed by Nemschoff. We remain committed to adjusting our operating expenses with business levels as we navigate through a difficult economic environment. A significant driver of the year-over-year improvement is the cost-reduction actions we implemented in the third quarter of fiscal 2009. These were in part offset by continued increases in cost related to our defined benefit plans and our health insurance coverage, which were $2.8 million higher than the prior year same quarter.

Operating expenses and the resulting operating earnings are impacted by changes in foreign currency exchange rates. We estimate this impact to decrease operating expenses by $1.5 million for the quarter.

Operating earnings in the first quarter were $14.1 million compared to $56.6 million in the same period last year. This decline reflects the significant drop in volume affecting the industry. As a percentage of net sales, operating earnings were 4.4 percent as compared to 11.8 percent in the prior year. Excluding the restructuring costs and the cost of the debt retirement, operating income would have been $21.2 million or 6.5 percent of sales. The foreign currency impact on operating earnings was a decrease of approximately $0.2 million for the quarter.

Other Income/Expense and Income Taxes
Net other expenses of $5.8 million in the three-month period ended August 29, 2009 were $0.6 million higher compared to the prior year quarter of $5.2 million. The decline in interest expense is due to lower interest costs, a result of the retirement of $75 million of our 7.125 percent bonds. For the quarter, interest expense of $5.9 million is $0.3 million lower than the same period last year.

We recorded a foreign currency transaction loss in the first quarter of $0.1 million. This compares to a net foreign currency transaction gain of $0.1 million in the same period last year.

The effective tax rates for the three months ended August 29, 2009 and August 30, 2008 were a benefit of 0.7 percent and expense of 35.0 percent, respectively. Driving the decrease in effective tax rates is the finalization of audit years 2005 through 2008 with the Internal Revenue Service. We are anticipating a more normalized tax rate for the rest of the fiscal year and expect our full year rate to be in the range of 28 percent to 30 percent.

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 Solutions - 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, 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 31.9 percent to $269.7 million from $395.9 million reported in the first quarter last year. The decrease is a result of a challenging economic environment. Orders within the North American segment decreased by 38.3 percent; in part the decline was exacerbated by the pull-ahead effect of orders in advance of the August 2008 general price increase previously discussed.

Operating earnings in the first quarter within the North American segment were $21.4 million, down from $48.5 million in the first quarter last year. This represents a decrease of $27.1 million or 55.9 percent over the same period last year. This significant decrease in operating earnings is a result of the significant decline in volume, which could not be fully offset by our restructuring actions. As a percentage of sales, operating earnings declined 740 basis points from our first quarter in fiscal 2009.

Net sales within our non-North American Furniture Solutions segment were $41.8 million in the first quarter, a decrease of 40.3 percent from the first quarter of fiscal 2009 when we reported net sales of $70.1 million. This decline is attributed to worldwide recession, as well as the negative impact of currency fluctuations, which reduced sales by $3 million.

The Operating loss in the quarter for our non-North American segment was $1.6 million, a decline of $7.9 million from the prior year. We increased our reserves for bad debt by $1.5 million in the quarter which accounts for nearly all of the operating loss this quarter.

Net sales within the "Other" category were $12.5 million, down only 5.1 percent from the prior year level of $13.1 million. These sales are primarily related to our Herman Miller for the Home business. Orders within this category were $10.7 million, down 46.1 percent over prior year levels. The pull ahead effect of the prior year general price increase contributed significantly to the year over year decline. Operating loss in the quarter for this category was $5.7 million, a decrease of $7.5 million from the operating income of $1.8 million in the prior year first quarter. Operating income for this category includes expenses associated with the operations of Convia.

(In millions)                                                         Three Months Ended
                                                           ----------------------------------------
                                                            August 29, 2009        August 30, 2008
                                                           -----------------      -----------------

Cash and cash equivalents, end of period                      $        100.3          $       147.8
Marketable securities, end of period                                    11.3                   15.8
Cash generated from operating activities                                27.2                    3.9
Cash used for investing activities                                     (43.4 )                 (5.6 )
Cash used for financing activities                                     (76.7 )                 (3.8 )
Capital expenditures                                                    (5.8 )                 (8.2 )
Stock repurchased and retired                                           (0.7 )                   --
Interest-bearing debt, end of period (1)                               302.1                  375.8
Available unsecured credit facility, end of period (2)                 138.9                  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 $2.1 million and $0.8 million at August 29, 2009 and August 30, 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

Quarter Ended August 29, 2009
We generated $27.2 million in cash from operating activities in the first quarter of fiscal 2010. Working capital changes from the year-end balances drove a source of cash totaling $10.4 million. The main drivers of this improvement in working capital were a reduction in accounts receivable of $20.4 million and a reduction in prepaid assets of $22.4 million. This improvement was partially offset by an increase in the net inventory balance of $4.0 million. Approximately half of the inventory balance increase in the quarter was due to an increase in the amount of direct business, where revenues cannot be recognized until installation is complete.

Quarter Ended August 30, 2008
We generated $3.9 million in cash from operating activities in the first quarter of fiscal 2009. Working capital changes from the prior year-end balances drove a use of cash totaling $45.2 million. The driver of this working capital investment related to the payout for incentive compensation earned in fiscal 2008. In total, employee compensation and benefit accruals decreased $41.7 million from the balances at the end of fiscal 2008. Increased inventory levels drove a $4.5 million use of cash in the quarter.

Under HMPS, we strive to enhance efficiencies and cost savings by minimizing the amount of inventory on-hand. Accordingly, production is order-driven with raw materials purchased as needed to meet order demands. Often we take deliveries from our suppliers multiple times a day. The standard lead-time for the majority of our products is 10 to 20 days. As a result, our inventory turns are high, and these factors can cause our inventory levels to appear relatively low in relation to sales volume.

Cash Flow -Investing Activities
Our most significant cash outflow related to investing activities in the quarter was the acquisition of Nemschoff. The acquisition net of cash totaled $30.4 million. In addition as part of the acquisition we received a note in the amount of $6.7 million with full offset rights against potential contingent payments. We purchased $5.8 million in capital assets during the first quarter of fiscal 2010. This compares to capital spending of $8.2 million in the prior year first quarter. At the end of the first quarter, we had outstanding commitments for capital purchases of $4.0 million. We expect full-year capital purchases to be between $25 million and $30 million. This compares to a full-year capital spending of $25 million in fiscal 2009.

As a result of the debt retirement, our interest-bearing debt at the end of the first quarter totaled $302.1 million, down $75.3 million from the balance at the end of fiscal 2009.

Outstanding standby letters of credit totaling $11.1 million are considered as usage against our unsecured revolving credit facility. At the beginning of the fiscal year we amended our credit facility, reducing the amount available from $250 million to $150 million. As a result we received less restrictive financial performance covenants. At the end of the first quarter our availability under this credit facility was $138.9 million. The provisions of our private placement notes and unsecured credit facility require that we adhere to certain covenant restrictions and maintain certain performance ratios. We were in compliance with all such restrictions and performance ratios this quarter and expect to remain in compliance in the future.

We believe cash on hand, cash generated from operations, and our borrowing capacity will provide adequate liquidity to fund near term and future business operations and capital needs.

Contractual Obligations

Contractual obligations associated with our ongoing business and financing activities will require cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments was provided in the company's Form 10-K filing for the year ended May 30, 2009.

Off-Balance Sheet Arrangements

Guarantees
We provide certain guarantees to third parties under various arrangements in the form of product warranties, loan guarantees, standby letters of credit, lease guarantees, performance bonds and indemnification provisions. These arrangements are accounted for and/or disclosed in accordance with FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others" as described in Note 14.

Variable Interest Entities
On occasion, we provide financial support to certain independent dealers in the form of term loans, lines of credit, and/or loan guarantees that may represent variable interests in such entities. As of August 29, 2009, we were not considered the primary beneficiary of any such dealer relationships under FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." Accordingly, we were not required to consolidate the financial statements of any of these entities during the first quarter.

The risks and rewards associated with our interests in these dealerships are primarily limited to our outstanding loans and guarantee amounts. As of August 29, 2009, our maximum exposure to potential losses related to outstanding loans to these other entities totaled $0.4 million.

Contingencies

See Note 14 to the condensed consolidated financial statements.

. . .