Management's discussion and analysis of financial condition and results of operations provides a discussion of our financial performance and financial condition that should be read in conjunction with the accompanying unaudited condensed consolidated financial statements.

Overview

The third quarter of 2008 proved to be a very successful quarter despite growing global economic concerns. We were able to deliver double digit growth in sales, gross profit, operating profit, net income, diluted earnings per share and backlog. Diluted earnings per share grew 40.5% from $0.37 during the third quarter for 2007 to $0.52, during the third quarter of 2008. Net sales increased 11.6% from $254.0 million during the third quarter of 2007 to $283.5 million during the third quarter of 2008. Our Specialty and International products continue to generate our strongest growth. Incremental sales from Edelman Leather acquired during the fourth quarter of 2007 added to the increase in sales in our Specialty product category.

Gross margin for the third quarter 2008 increased to 36.8% from 34.7% a year ago. Better pricing, favorable product mix and our continuous improvement efforts contributed to the increase. We also benefited from favorable foreign exchange, which helped offset higher inflation. Increased volumes also allowed for better absorption of our fixed costs.

Operating expenses were $63.1 million, or 22.3% of sales, compared to $54.0 million, or 21.3% of sales, a year ago. The increase in operating expenses during the third quarter of 2008 was in large part due to the inclusion of operating expenses associated with Edelman Leather, which we acquired in the fourth quarter of 2007. Operating income for the third quarter of 2008 was $41.1 million, an increase of $6.8 million, or 19.8%, over the same period in 2007. Operating income as a percentage of sales was 14.5% for the third quarter of 2008, compared to 13.5% during the same period a year ago.

During the quarter, our interest rate cap agreement that we entered into in September of 2006 expired. There was no impact to earnings at expiration because the value of the agreement was previously written down to zero. Our current swap agreements which were entered into during the second quarter of 2008 are currently valued at a $648 thousand loss. These swaps are accounted for using hedge accounting under FAS 133.

For the quarter, we used cash from operations to pay down $21.0 million of debt, repurchase approximately one million shares of stock, fund capital expenditures of $3.2 million, and pay a quarterly dividend of $0.12 per share.

Overall 2008 has been a successful year as we have continued to do well despite growing economic concerns. Given the growth in our backlog, we are also expecting a solid fourth quarter. Although 2009 appears uncertain, we will continue to do the things that have made us successful to date. In 2009 and 2010, we will introduce some of the most important new products in our history and will continue to push our growth internationally.

Critical Accounting Policies

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosure of certain contingent assets and liabilities. Actual results may differ from such estimates. On an ongoing basis, we review our accounting policies and procedures. A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2007.

Results of Operations

Comparison of the Three Months and Nine Months Ended September 30, 2008 and 2007



                                             Three Months Ended                           Nine Months Ended
                                     September 30,         September 30,         September 30,         September 30,
                                         2008                  2007                  2008                  2007
                                                                     (in thousands)
Consolidated Statement of
Operations Data:
Net Sales                           $       283,517       $       253,962       $       843,861       $       773,998
Gross Profit                                104,198                88,249               295,608               266,166
Operating Income                             41,089                34,282               108,089               102,697
Interest Expense                              3,766                 5,629                12,663                18,584
Other Income (Expense), net                   2,137                  (794 )               1,878                (3,907 )
Income Tax Expense                           15,398                 9,446                35,046                29,451

Net Income                          $        24,062       $        18,413       $        62,258       $        50,755

Statistical and Other Data:
Sales Growth from Comparable
Prior Period                                   11.6 %                 4.3 %                 9.0 %                 9.1 %
Gross Profit Margin                            36.8 %                34.7 %                35.0 %                34.4 %
Backlog                             $       203,077       $       169,762       $       203,077       $       169,762

Sales

Our sales for the third quarter of 2008 were $283.5 million, an increase of $29.5 million, or 11.6%, from sales of $254.0 million for the same period in the prior year. Sales for the nine months ended September 30, 2008 were $843.9 million, an increase of $69.9 million, or 9.0%, over the first nine months of 2007. Our growth in sales for the three months and nine months ended September 30, 2008 was the result of increased sales volumes and previously implemented price increases. The addition of Edelman Leather which was acquired during the fourth quarter of 2007 also added to the increase in sales. Specialty and International businesses reflected the strongest growth for the three months ended September 30, 2008.

At September 30, 2008, sales backlog was $203.1 million, an increase of $33.3 million, from sales backlog of $169.8 million as of September 30, 2007.

Gross Profit and Operating Income

Gross profit for the third quarter of 2008 was $104.2 million, an increase of $16.0 million, or 18.1%, from gross profit of $88.2 million for third quarter of 2007. Gross profit for the nine months ended September 30, 2008 was $295.6 million, an increase of $29.4 million, or 11.1%, from gross profit of $266.2 million for the same period in the prior year. Operating income for the third quarter of 2008 was $41.1 million, an increase of $6.8 million, or 19.9%, from operating income of $34.3 million for the third quarter of 2007. Operating income for the nine months ended September 30, 2008 was $108.1 million, an increase of $5.4 million, or 5.3%, from operating income of $102.7 million for the same period in 2007. As a percentage of sales, gross profit increased to 36.8% for the third quarter of 2008 from 34.7% for the third quarter of 2007. For the nine months ended September 30, 2008, gross profit as a percentage of sales increased to 35.0% from 34.4% in 2007. Operating income as a percentage of sales increased to 14.5% in the third quarter of 2008 from 13.5% over the same period in 2007. For the nine months ended September 30, 2008, operating income as a percentage of sales decreased to 12.8% from 13.3% in 2007. Operating income for the nine months ended, September 30, 2008, includes a restructuring charge of $3.4 million.

The increase in gross profit is due to better pricing, favorable product mix, and our continuous improvement programs. We were also able to mitigate inflation through our global sourcing initiatives and favorable foreign exchange.

Operating expenses for the third quarter of 2008 were $63.1 million, or 22.3% of sales, compared to $54.0 million, or 21.3% of sales, for the third quarter 2007. Operating expenses for the nine months ended September 30, 2008 were $187.5 million, or 22.2% of sales, compared to $163.5 million, or 21.1% of sales, for the same period in 2007. During the third quarter and nine months ended September 30, 2008 the increase in operating expenses were primarily due to the addition of operating expenses associated with Edelman Leather, which we acquired in the fourth quarter of 2007 and some incremental spending on growth initiatives and compensation.

Interest Expense

Interest expense for the three months and nine months ended September 30, 2008 was $3.8 million and $12.7 million respectively, a decrease of $1.9 million and $5.9 million, respectively, from the same periods in 2007. The decrease in interest for the three months and nine months ended September 30, 2008 is due to lower average interest rates.

Other Income (Expense), net

Other income was $2.1 million in the third quarter of 2008 which compares to other expense of $0.8 million in the third quarter of 2007, both consisted of foreign exchange gains and losses on currency. For the nine months ended September 30, 2008 other income was $1.9 million which consisted primarily of foreign exchange gains on currency. For the nine months ended September 30, 2007, other expense was $3.9 million and consisted primarily of foreign exchange losses on currency. It also included $1.2 million of deferred financing fees associated with the refinancing of our credit facility in June 2007 which were written off during the second quarter of 2007.

Income Tax Expense

The mix of pretax income and the varying effective tax rates in the countries in which we operate directly affects our consolidated effective tax rate. The effective tax rate was 39.0% for the third quarter of 2008, as compared to 33.9% for the same period in 2007. The increase in the effective tax rate is largely due to the mix of pretax income in the countries in which we operate. During the third quarter 2007, we also benefited from adjustments to our contingent tax reserve. The effective tax rate for the nine months ended September 30, 2008 was 36.0% and 36.7% for the same period in 2007.

Liquidity and Capital Resources

The following table highlights certain key cash flows and capital information
pertinent to the discussion that follows:



                                                       Nine Months Ended
                                               September 30,       September 30,
                                                   2008                2007
                                                        (in thousands)
     Cash provided by operating activities    $        97,537     $        64,469
     Capital expenditures                               9,803              10,837
     Net cash used in investing activities              9,803              10,705
     Purchase of common stock                          34,282              30,043
     Net repayment of debt                            (26,129 )           (41,806 )
     Payment of dividend                               16,952              15,960
     Net proceeds from issuance of stock                1,697              28,204
     Net cash used for financing activities            75,471              53,262

Historically, we have carried significant amounts of debt, and cash generated by operating activities has been used to fund working capital, capital expenditures, repurchase shares and scheduled payments of principal and interest under our credit facility. Our capital expenditures are typically for new product tooling and manufacturing equipment. These capital expenditures support new products and continuous improvements in our manufacturing processes.

We use our revolving credit facility in the ordinary course of business to fund our working capital needs, and at times make significant borrowings and repayments under the revolving facility depending on our cash needs and availability at such time.

Year to date, net cash provided by operations was $97.5 million of which $83.7 million was provided from net income plus non-cash amortizations, plus $13.8 million of favorable changes primarily in working capital in deferred income taxes and other current liabilities.

For the nine month period ended September 30, 2008, we used available cash, including the $97.5 million of net cash from operating activities, and $1.7 million of proceeds from the issuance of common stock, to fund $9.8 million in capital expenditures, repurchase $34.3 million of common stock for treasury, fund dividend payments to shareholders totaling $17.0 million, pay down debt of $26.1 million, and fund working capital.

For the nine month period ended September 30, 2007, we used available cash, including the $64.5 million of net cash from operating activities and $28.2 million of proceeds from the issuance of common stock, to fund $10.8 million in capital expenditures, repurchase $30.0 million of common stock for treasury, fund dividend payments to shareholders totaling $16.0 million, and fund working capital.

Cash used in investing activities was $9.8 million for the nine month period ended September 30, 2008 and $10.7 million for the same period in 2007. Fluctuations in cash used in investing activities are primarily attributable to the levels of capital expenditures.

We are currently in compliance with all of the covenants and conditions under our credit facility. We believe that existing cash balances and internally generated cash flows, together with borrowings available under our revolving credit facility, will be sufficient to fund normal working capital needs, capital spending requirements, debt service requirements and dividend payments for at least the next twelve months. In addition, we believe that we will have adequate funds available to meet long-term cash requirements and that we will be able to comply with the covenants under the credit facility. However, our ability to pay interest on or to refinance our indebtedness, to satisfy our other debt obligations and to pay dividends to stockholders will depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

Environmental Matters

Our past and present business operations and the past and present ownership and operation of manufacturing plants on real property are subject to extensive and changing federal, state, local and foreign environmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. As a result, we are involved from time-to-time in administrative and judicial proceedings and inquiries relating to environmental matters and could become subject to fines or penalties related thereto. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may be material. We have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") for remediation costs associated with waste disposal sites that we previously used. The remediation costs and our allocated share at some of these CERCLA sites are unknown. We may also be subject to claims for personal injury or contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are probable and reasonably estimatable.

Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Forward-looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, principally in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Statements and financial discussion and analysis contained in this Form 10-Q that are not historical facts are forward-looking statements. These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on our current beliefs as well as assumptions made by us and information currently available to us. Forward-looking statements generally will be accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project," or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: the risks described in Item 1A and in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2007; changes in the financial stability of our clients or the overall economic environment, resulting in decreased corporate spending and service sector employment; changes in relationships with clients; the mix of products sold and of clients purchasing our products; the success of new technology initiatives; changes in business strategies and decisions; competition from our competitors; our ability to recruit and retain an experienced management team; changes in raw material prices and availability; restrictions on government spending resulting in fewer sales to one of our largest customers; our debt restrictions on spending; our ability to protect our patents, copyrights and trademarks; our reliance on furniture dealers to produce sales; lawsuits arising from patents, copyrights and trademark infringements; violations of environment laws and regulations; potential labor disruptions; adequacy of our insurance policies; the availability of future capital; the overall strength and stability of our dealers and customers; access to necessary capital; and currency rate fluctuations. The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on us. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. Except as required under the Federal securities laws and rules regulations of the SEC, we undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.