Miller Herman Inc (MLHR) SEC Annual Report (10-K) for 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

Herman Miller, Inc.

(Exact name of registrant as specified in its charter)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ X ]    Accelerated filer [__]  Non-accelerated filer [__]    Smaller reporting company [__]

The aggregate market value of the voting stock held by "nonaffiliates" of the registrant (for this purpose only, the affiliates of the registrant have been assumed to be the executive officers and directors of the registrant and their associates) as of November 27, 2010, was $1,214,081,835 (based on $21.55 per share which was the closing sale price as reported by NASDAQ).

The number of shares outstanding of the registrant's common stock, as of July 19 , 2011: Common stock, $.20 par value - 58,134,281 shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on October 10, 2011, are incorporated into Part III of this report.

TABLE OF CONTENTS

PART I

Item 1 BUSINESS

General Development of Business

The company researches, designs, manufactures, and distributes interior furnishings, for use in various environments including office, healthcare, educational, and residential settings, and provides related services that support organizations and individuals all over the world. The company's products are sold primarily to or through independent contract office furniture dealers. Through research, the company seeks to define and clarify customer needs and problems existing in its markets and to design, through innovation where appropriate and feasible, products, systems, and services as solutions to such problems. Ultimately, the company seeks to enhance the performance of human habitats worldwide, making its customers' lives more productive, rewarding, delightful, and meaningful.

Herman Miller, Inc. was incorporated in Michigan in 1905. One of the company's major plants and its corporate offices are located at 855 East Main Avenue, PO Box 302, Zeeland, Michigan, 49464-0302, and its telephone number is (616) 654-3000. Unless otherwise noted or indicated by the context, the term "company" includes Herman Miller, Inc., its predecessors, and majority-owned subsidiaries. Further information relating to principles of consolidation is provided in Note 1 to the Consolidated Financial Statements included in Item 8 of this report.

Financial Information about Segments

Information relating to segments is provided in Note 18 to t he Consolidated Financial Statements included in Item 8 of this report.

Narrative Description of Business

The company's principal business consists of the research, design, manufacture, and distribution of office furniture systems, products, and related services. Most of these systems and products are designed to be used together.

The company works for a better world around our customers by designing furnishings and related services that improve the human experience wherever people work, heal, learn and live. The company's ingenuity and design excellence creates award-winning products and services, that makes us a leader in design and development of furniture and furniture systems. This leadership is exemplified by the innovative concepts introduced by the company in its modular systems (including Action Office®, Canvas Office Landscape™, Ethospace®, Resolve®, My Studio Environments™ and Vivo Interiors®). The company also offers a broad array of seating (including Embody®, Aeron®, Mirra®, Setu®, Sayl®, Advo™, Celle®, Equa®, and Ergon® office chairs), storage (including Meridian® and Tu™ products), wooden casegoods (including Geiger® products), freestanding furniture products (including , Abak®, Intent®, Sense™ and Envelop®) and the recently introduced Thrive portfolio of ergonomic solutions. These, along with innovative business practices and a commitment to responsible leadership, has resulted in the company being recognized as the most admired company in the industry by FORTUNE.

The company's products are marketed worldwide by its own sales staff, independent dealers and retailers, its owned dealer network, and via our e-commerce website. Salespersons work with dealers, the design and architectural community, and directly with end-users. Independent dealerships concentrate on the sale of Herman Miller products and some complementary product lines of other manufacturers. It is estimated that approximately 73 percent of the company's sales in the fiscal year ended May 28, 2011 , were made to or through independent dealers. The remaining sales were made directly to end-users, including federal, state, and local governments, and several major corporations, by the company's own sales staff, its owned dealer network, or independent retailers.

The company is also a recognized leader within its industry for the use, development, and integration of customer-centered technologies that enhance the reliability, speed, and efficiency of our customers' operations. This includes proprietary sales tools, interior design and product specification software; order entry and manufacturing scheduling and production systems; and direct connectivity to the company's suppliers.

The company's furniture systems, seating, freestanding furniture, storage and casegood products, and related services are used in (1) office/institution environments including offices and related conference, lobby, and lounge areas, and general public areas including transportation terminals; (2) health/science environments including hospitals, clinics, and other healthcare facilities; (3) industrial and educational settings; and (4) residential and other environments.

Raw Materials

The company's manufacturing materials are available from a significant number of sources within the United States, Canada, Europe, and Asia. To date, the company has not experienced any difficulties in obtaining its raw materials. The costs of certain direct materials used in the company's manufacturing and assembly operations are sensitive to shifts in commodity market prices. In particular, the costs of steel components, plastics, and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum, crude oil, lumber, and resins. Increases in the

market prices for these commodities can have an adverse impact on the company's profitability. Further information regarding the impact of direct material costs on the company's financial results is provided in Management's Discussion and Analysis in Item 7 of this report.

Patents, Trademark s, Licenses, Etc.

The company has 160 active United States utility patents on various components used in its products and 72 active United States design patents. Many of the inventions covered by the United States patents also have been patented in a number of foreign countries. Various trademarks, including the name and stylized "Herman Miller" and the "Herman Miller Circled Symbolic M" trademark are registered in the United States and many foreign countries. The company does not believe that any material part of its business depends on the continued availability of any one or all of its patents or trademarks, or that its business would be materially adversely affected by the loss of any thereof, except for Herman Miller®, Herman Miller Circled Symbolic M®, Geiger®, Nemschoff®, Action Office®, Ethospace®, Aeron®, Mirra®, Eames®, PostureFit®, and Vivo Interiors™. It is estimated that the average remaining life of such patents and trademarks is approximately 6 years and 9 years, respectively.

Working Capital Practices

Information concerning the company's inventory levels relative to its sales volume can be found under the Executive Overview section in Item 7 of this report. Beyond this discussion, the company does not believe that it or the industry in general, has any special practices or special conditions affecting working capital items that are significant for understanding the company's business.

Customer Base

It is estimated that no single dealer accounted for more than 4 percent of the company's net sales in the fiscal year ended May 28, 2011 . It is also estimated that the largest single end-user customer, the U.S. federal government, accounted fo r $226.2 million or approximately 14 percent of the company's fiscal 2011 net sales. The 10 largest customers accounted for approximately 28 percent of net sales.

Backlog of Unfilled Orders

As of May 28, 2011 , the company's backlog of unfilled orders was $275.8 million . At May 29, 2010 , the company's backlog totaled $243.6 million . It is expected that substantially all the orders forming the backlog at May 28, 2011 , will be filled during the next fiscal year. Many orders received by the company are reflected in the backlog for only a short period while other orders specify delayed shipments and are carried in the backlog for up to one year. Accordingly, the amount of the backlog at any particular time does not necessarily indicate the level of net sales for a particular succeeding period.

Government Contracts

Other than standard provisions contained in contracts with the United States Government, the company does not believe that any significant portion of its business is subject to material renegotiation of profits or termination of contracts or subcontracts at the election of various government entities. The company sells to the U.S. Government both through a GSA Multiple Award Schedule Contract and through competitive bids. The GSA Multiple Award Schedule Contract pricing is principally based upon the company's commercial price list in effect when the contract is initiated, rather than being determined on a cost-plus-basis. The company is required to receive GSA approval to increase its list prices during the term of the Multiple Award Schedule Contract period.

Competition

All aspects of the company's business are highly competitive. The company competes largely on design, product and service quality, speed of delivery, and product pricing. Although the company is one of the largest office furniture manufacturers in the world, it competes with manufacturers that have significant resources and sales as well as many smaller companies. In the United States, the company's most significant competitors are Haworth, HNI Corporation, Kimball International, Knoll, and Steelcase.

Research, Design and Development

The company draws great competitive strength from its research, design and development programs. Accordingly, the company believes that its research and design activities are of significant importance. Through research, the company seeks to define and clarify customers and the problems which they are trying to solve. The company designs innovative products and services that address customer needs and solves their problems. The company uses both internal and independent research and design resources. Exclusive of royalty payments, the company spent approximately $35.4 million, $33.2 million, and $36.2 million, on research and development activities in fiscal 2011, 2010, and 2009, respectively. Generally, royalties are paid to designers of the company's products as the products are sold and are not included in research and development costs since they are variable based on product sales.

Environmental Matters

Living with integrity and respecting the environment stands as one of the company's core values. This is based in part, on the belief that environmental sustainability and commercial success are not exclusive ends, but instead exist side by side in a mutually beneficial relationship. The company continues to rigorously reduce, recycle, and reuse solid waste generated by its manufacturing processes and the company's efforts and accomplishments have been widely recognized. Herman Miller continues to power 100% of our global electrical energy demand using green energy. We continue to explore and make progress in achieving our goal of zero impact on the environment by the year 2020. Based on current facts known to management, the company does not believe that existing environmental laws and regulations have had or will

have any material effect upon the capital expenditures, earnings, or competitive position of the company. However, there can be no assurance new environmental legislation and technology in this area will not result in or require material capital expenditures or additional costs to our manufacturing process.

Human Resources

The company considers its employees to be another of its major competitive strengths. The company stresses individual employee participation and incentives, believing that this emphasis has helped attract and retain a competent and motivated workforce. The company's human resources group provides employee recruitment, education and development, and compensation planning and counseling. There have been no work stoppages or labor disputes in the company's history, and its relations with its employees are considered good. Approximately 5 percent of the company's employees are covered by collective bargaining agreements, most of whom are employees of its Nemschoff and Herman Miller Limited (U.K.) subsidiaries.

As of May 28, 2011 , the compa ny employed 5,616 full-time and 189 part-time employees, representing a 2.9 percent increase and a 8.0 perce nt increase, respectively, compared with May 29, 2010 . In addition to its employee work force, the company uses temporary purchased labor to meet uneven demand in its manufacturing operations.

Information about International Operations

The company's sales in international markets are made primarily to office/institutional customers. Foreign sales consist mostly of office furniture products such as Ethospace®, Abak®, Aeron®, Mirra®, Celle®, Sayl® and other seating and storage products. The company conducts business in the following major international markets: Europe, Canada, the Middle East, Latin America, and the Asia/Pacific region. In certain foreign markets, the company's products are offered through licensing of foreign manufacturers on a royalty basis.

The company's products currently sold in international markets are manufactured by wholly owned subsidiaries in the United States, the United Kingdom, and China. Sales are made through wholly owned subsidiaries or branches in Canada, France, Germany, Italy, Japan, Mexico, Australia, Singapore, China, India, and the Netherlands. The company's products are offered in the Middle East, South America, and Asia through dealers.

In several other countries, the company licenses manufacturing and selling rights. Historically, these licensing arrangements have not required a significant investment of funds or personnel by the company, and in the aggregate, have not produced material net earnings for the company.

Additional information with respect to operations by geographic area appears i n Note 18 of the Consolidated Financial Statements included in Item 8 of this report. Fluctuating exchange rates and factors beyond the control of the company, such as tariff and foreign economic policies, may affect future results of international operations. Refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk , for further discussion regarding the company's foreign exchange risk.

Available Information

The company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available free of charge through the "Investors" section of the company's internet website at www.hermanmiller.com , as soon as practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). The company's filings with the SEC are also available for the public to read and copy in person at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549, by phone at 1-800-SEC-0330, or via their internet website at www.sec.gov .

Item 1A RISK FACTORS

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face; others, either unforeseen or currently deemed less significant, may also have a negative impact on our company. If any of the following actually occurs, our business, operating results, cash flows, and financial condition could be materially adversely affected.

Our pension expenses are affected by factors outside our control, including the performance of plan assets, interest rates, actuarial data and experience and changes in laws and regulations.

Our future funding obligations for our U.S. defined benefit pension plans depend upon changes in the level of benefits provided for by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine funding levels, actuarial data and experience and any changes in government laws and regulations. In addition, our employee benefit plans hold a significant amount of equity securities. If the market values of these securities decline significantly, our future pension expenses and funding obligations could increase significantly. Decreases in interest rates that are not offset by contributions and asset returns could also increase our obligations under such plans. We may be legally required to make contributions to our U.S. pension plans in the future, and those contributions could be material. In addition, if local legal authorities increase the minimum funding requirements for our pension plan outside the United States, we could be required to contribute more funds, which would negatively affect our cash flow.

Sustained downturn in the economy could adversely impact our access to capital.

The disruption experienced in the global economic and financial markets has adversely impacted the broader financial and credit markets, at times reducing the availability of debt and equity capital for the market as a whole. Conditions such as these could re-emerge in the future. Accordingly, our ability to access the capital markets could be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations, our ability to take advantage of market opportunities and our ability to obtain and manage our liquidity. In addition, the cost of debt financing and the proceeds of equity financing may be materially and adversely impacted by these market conditions. The extent of any impact would depend on several factors, including our operating cash flows, the duration of tight credit conditions and volatile equity markets, our credit capacity, the cost of financing, and other general economic and business conditions. Our credit agreements contain performance covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, and limits on subsidiary debt and incurrence of liens. Although we believe none of these covenants are presently restrictive to our operations, our ability to meet the financial covenants can be affected by events beyond our control.

We may not be successful in implementing and managing our growth strategy.

We have established a set of key strategic goals for our business. Included among these are specific targets for growth in net sales and operating profit as a percentage of net sales. Our strategic plan assumes growth targets will be achieved by pursuing and winning new business in the following areas:

While we have confidence that our strategic plan reflects opportunities that are appropriate and achievable and that we have anticipated and will manage the associated risks, there is the possibility that the strategy may not deliver the projected results due to inadequate execution, incorrect assumptions, sub-optimal resource allocation, or changing customer requirements.

There is no assurance that our current product and service offering will allow us to meet these goals. Accordingly, we believe we will be required to continually invest in the research, design, and development of new products and services. There is no assurance that such investments will have commercially successful results.

Certain growth opportunities may require us to invest in acquisitions, alliances, and the startup of new business ventures. These investments may not perform according to plan.

Future efforts to expand our business within developing economies, particularly within China and India, may expose us to the effects of political and economic instability. Such instability may impact our ability to in compete for business. It may also put the availability and/or value of our capital investments within these regions at risk. These expansion efforts expose us to operating environments with complex, changing, and in some cases, inconsistently applied legal and regulatory requirements. Developing knowledge and understanding of these requirements poses a significant challenge, and failure to remain compliant with them could limit our ability to continue doing business in these locations.

Pursuing our growth plan in new and adjacent markets, as well as within developing economies, will require us to find effective new channels of distribution. There is no assurance that we can develop or otherwise identify these channels of distribution.

The markets in which we operate are highly competitive, and we may not be successful in winning new business.

We are one of several companies competing for new business within the furniture industry. Many of our competitors offer similar categories of products, including office seating, systems and freestanding office furniture, casegoods, storage, and residential and healthcare furniture solutions. We believe that our innovative product design, functionality, quality, depth of knowledge, and strong network of distribution partners differentiates us in the marketplace. However, increased market pricing pressure could make it difficult for us to win new business with certain customers and within certain market segments at acceptable profit margins.

Adverse economic and industry conditions could have a negative impact on our business, results of operations, and financial condition.

Customer demand within the contract office furniture industry is affected by various macro-economic factors; general corporate profitability, white-collar employment levels, new office construction rates, and existing office vacancy rates are among the most influential factors. History has shown that declines in these measures can have an adverse effect on overall office furniture demand. Additionally, factors and changes specific to our industry, such as developments in technology, governmental standards and regulations, and health and safety issues can influence demand. There are current and future economic and industry conditions, which could adversely affect our business, operating results, or financial condition.

Our business presence outside the United States exposes us to certain risks that could negatively affect our results of operations and financial condition.

We have significant manufacturing and sales operations in the United Kingdom, which represents our largest marketplace outside the United States. We also have manufacturing operations in China. Additionally, our products are sold internationally through wholly-owned subsidiaries or branches in various countries including Canada, Mexico, Brazil, France, Germany, Italy, Netherlands, Japan, Australia, Singapore, China, and India. In certain other regions of the world, our products are offered primarily through independent dealerships.

Doing business internationally exposes us to certain risks, many of which are beyond our control and could potentially impact our ability to design, develop, manufacture, or sell products in certain countries. These factors could include, but would not necessarily be limited to:

In some countries, the currencies in which we import and export products can differ. Fluctuations in the rate of exchange between these currencies could negatively impact our business. Additionally, tariff and import regulations, international tax policies and rates, and changes in U.S. and international monetary policies may have an adverse impact on results of operations and financial condition.

Disruptions in the supply of raw and component materials could adversely affect our manufacturing and assembly operations.

We rely on outside suppliers to provide on-time shipments of the various raw materials and component parts used in our manufacturing and assembly processes. The timeliness of these deliveries is critical to our ability to meet customer demand. Any disruptions in this flow of delivery could have a negative impact on our business, results of operations, and financial condition.

Increases in the market prices of manufacturing materials may negatively affect our profitability.

The costs of certain manufacturing materials used in our operations are sensitive to shifts in commodity market prices. In particular, the costs of steel, plastic and aluminum components and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum, crude oil, lumber, and resins. Increases in the market prices of these commodities may have an adverse impact on our profitability if we are unable to offset them with strategic sourcing, continuous improvement initiatives or increased prices to our customers.

Disruptions within our dealer network could adversely affect our business.

Our ability to manage existing relationships within our network of independent dealers is crucial to our ongoing success. Although the loss of any single dealer would not have a material adverse effect on the overall business, our business within a given market could be negatively affected by disruptions in our dealer network caused by the termination of commercial working relationships, ownership transitions, or dealer financial difficulties.

If dealers go out of business or restructure, we may suffer losses because they may not be able to pay for products already delivered to them. Also, dealers may experience financial difficulties, creating the need for outside financial support, which may not be easily obtained. In the past, we have, on occasion, agreed to provide direct financial assistance through term loans, lines of credit, and/or loan guarantees to certain dealers.

There is no assurance that these dealers will be able to repay amounts owed to us or to banks with which we have offered guarantees.

Increasing competition for highly skilled and talented workers could adversely affect our business.

The successful implementation of our business strategy depends, in part, on our ability to attract and retain a skilled workforce. The increasing competition for highly skilled and talented employees could result in higher compensation costs, difficulties in maintaining a capable workforce, and leadership succession planning challenges.

Costs related to product defects could adversely affect our profitability.

We incur various expenses related to product defects, including product warranty costs, product recall and retrofit costs, and product liability costs. These expenses relative to product sales vary and could increase. We maintain reserves for product defect-related costs based on estimates and our knowledge of circumstances that indicate the need for such reserves. We cannot, however, be certain that these reserves will be adequate to cover actual product defect-related claims in the future. Any significant increase in the rate of our product defect expenses could have a material adverse effect on operations.

We are subject to risks associated with self-insurance related to health benefits.

We are self-insured for our health benefits and maintain per employee stop loss coverage however we retain the insurable risk at an aggregate level, therefore unforeseen or catastrophic losses in excess of our insured limits could have a material adverse effect on the company's financial condition and operating results. See Note 1 of the Consolidated Financial Statements for information regarding the company's retention level.

Government and other regulations could adversely affect our business.

Government and other regulations apply to many of our products. Failure to comply with these regulations or failure to obtain approval of products from certifying agencies could adversely affect the sales of these products and have a material negative impact on operating results.

Item 1B UNRESOLVED STAFF COMMENTS - none

Item 2 PROPERTIES

The company owns or leases facilities located throughout the United States and several foreign countries. The location, square footage, and use of the most significant facilities at May 28, 2011 were as follows:

The company also maintains showrooms or sales offices near many major metropolitan areas throughout North America, Europe, Asia/Pacific, and Latin America. The company considers its existing facilities to be in excellent condition, efficiently utilized, well suited, and adequate for its design, production, distribution, and selling requirements.

Item 3 LEGAL PROCEEDINGS

The company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the company's operations, cash flows and financial condition.

ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information relating to Executive Officers of the company is as follows.

Except as discussed below, each of the named officers has served the company in an executive capacity for more than five years.

Mr. Bylsma joined Herman Miller, Inc. in 2000 as Director of Reporting & Planning for North America prior to being appointed Corporate Controller in 2005.

Mr. Gane joined Herman Miller in 2007 as President of Geiger International. Prior to this he worked for Furniture Brands International for 16 years serving mostly as President of HBF.

Mr. Pullen joined Herman Miller in 1991 and served as Chief Financial Officer from 2007 to 2009, Senior Vice President of Dealer Distribution from 2003 to 2007, Senior Vice President of Finance for North America from 2000 to 2003, and Vice President of Finance, Herman Miller International from 1994 to 2000.

Mr. Ramirez joined Herman Miller in 1998 and served as Director of Purchasing from 1998 to 2005, Vice President of Inclusiveness and Diversity from 2005 to 2009, and Vice President of Sales Operations from 2009 to 2011.

Mr. Stutz joined Herman Miller in 2009 as Treasurer and Vice President, Investor Relations. Previously he served as Chief Financial Officer for Izzy Designs Inc., subsequent to holding various positions within Herman Miller finance.

Mr. Watson joined Herman Miller in 2010 as Executive Creative Director, and prior to this he served as Managing Director and CEO of Moroso USA. Prior to this Mr. Watson served in creative roles as Global Creative Director of Apparel at Nike, and Global Marketing Director at Vitra.

There are no family relationships between or among the above-named executive officers. There are no arrangements or understandings between any of the above-named officers pursuant to which any of them was named an officer.

PART II

Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Share Price, Earnings, and Dividends Summary

Herman Miller, Inc., common stock is traded on the NASDAQ-Global Select Market System (Symbol: MLHR). As of Ju ly 26, 2011, there were approxima tely 17,600 record h olders, including individual participants in security position listings, of the company's common stock.

(1) The sum of the quarters may not equal the annual balance due to rounding associated with the calculation of earnings per share on an individual quarter basis

Dividends were declared and paid quarterly during fiscal 2011 and 2010 as approved by the Board of Directors. While it is anticipated that the company will continue to pay quarterly cash dividends, the amount and timing of such dividends is subject to the discretion of the Board depending on the company's future results of operations, financial condition, capital requirements, and other relevant factors.

Issuer Purchases of Equity Securities

The following is a summary of share repurchase activity during the fourth quarter ended May 28, 2011 .

(1) Amounts are as of the end of the period indicated

The company repurchases shares under a previously announced plan authorized by the Board of Directors on September 28, 2007, which provided share repurchase authorization of $300,000,000 with no specified expiration date.

No repurchase plans expired or were terminated during the fourth quarter of fiscal 2011.

During the period covered by this report the company did not sell any of its equity shares that were not registered under the Securities Act of 1933.

Stockholder Return Performance Graph

Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company's common stock with that of the cumulative total return of the Standard & Poor's 500 Stock Index and the NASD Non-Financial Index for the five-year period ended May 28, 2011 . The graph assumes an investment of $100 on May 28, 2005 in the company's common stock, the Standard & Poor's 500 Stock Index and the NASD Non-Financial Index, with dividends reinvested.

Information required by this item is also contained in Item 12 of this report.

Item 6 SELECTED FINANCIAL DATA

(1) Shown as a percent of net sales.

(2) Calculated using current assets divided by current liabilities.

(3) Calculated using current assets less non-interest bearing current liabilities.

(4) Calculated as net earnings attributable to controlling interest divided by net sales.

(5) Calculated as net earnings attributable to controlling interest divided by average assets.

(6) Calculated as net earnings attributable to controlling interest divided by average equity.

(7) Calculated as interest-bearing debt plus stockholders' equity.

(8) Selling, general, and administrative expenses include restructuring expenses in years that are applicable.

Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis

You should read the issues discussed in Management's Discussion and Analysis in conjunction with the company's Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in this Form 10-K.

Executive Overview

At Herman Miller, we work for a better world around you. We do this by designing and developing award-winning furniture and related services and technologies that improve your environment, whether it's an office, hospital, school, home, an entire building, or the world at large. At present, most of our customers come to us for interior environments in both corporate office and healthcare settings. We also have a growing presence in educational and residential markets. Our primary products include furniture systems, seating, storage and material handling solutions, freestanding furniture, patient care products, and casegoods. Our other services extend from workplace solutions to furniture asset management.

More than 100 years of innovative business practices and a commitment to social responsibility have established Herman Miller as a recognized global company. In 2011, Herman Miller again received the Human Rights Campaign (HRC) Foundation's top rating in its annual Corporate Equality Index and was also cited by FORTUNE as the "Most Admired" company in the contract furniture industry.

Our products are sold internationally through wholly-owned subsidiaries or branches in various countries including the United Kingdom, Canada, France, Germany, Italy, Japan, Mexico, Australia, Singapore, China, India, and the Netherlands. Our products are offered elsewhere in the world primarily through independent dealerships. We have customers in over 100 countries.

We are globally positioned in terms of manufacturing operations. In the United States, our manufacturing operations are located in Michigan, Georgia, Iowa and Wisconsin. In Europe, we have a manufacturing presence in the United Kingdom, our largest marketplace outside of the United States. In Asia, we have manufacturing operations in Ningbo, China. We manufacture our products using a system of lean manufacturing techniques collectively referred to as the Herman Miller Performance System (HMPS). We strive to maintain efficiencies and cost savings by minimizing the amount of inventory on hand. Accordingly, production is order-driven with direct materials and components purchased as needed to meet demand. The standard lead time for the majority of our products is 10 to 20 days. These factors result in a high rate of inventory turns and typically cause our inventory levels to appear relatively low compared to our sales volume.

A key element of our manufacturing strategy is to limit fixed production costs by sourcing component parts from strategic suppliers. This strategy has allowed us to increase the variable nature of our cost structure while retaining proprietary control over those production processes that we believe provide us a competitive advantage. As a result of this strategy, our manufacturing operations are largely assembly-based.

Our business consists of various operating segments as defined by generally accepted accounting principles. These operating segments are determined on the basis of how we internally report and evaluate financial information used to make operating decisions and are organized by the various markets we serve. For external reporting purposes, we aggregate these operating segments as follows.

Core Strengths

We rely on the following core strengths in delivering workplace solutions to our customers.

an internal research, engineering, and design staff as well as third party design resources generally compensated on a royalty basis.

Channels of Distribution

Our products and services are offered to most of our customers under standard trade credit terms between 30 and 45 days and are sold through the following distribution channels.

Challenges Ahead

Like all businesses, we are faced with a host of challenges and risks. We believe our core strengths and values, which provide the foundation for our strategic direction, have us well prepared to respond to the inevitable challenges we will face in the future. While we are confident in our direction, we acknowledge the risks specific to our business and industry. Refer to Item 1A for discussion of certain of these risk factors.

Future Avenues of Growth

We believe we are well positioned to successfully pursue our mission in spite of the risks and challenges we face. That is, we will design and develop furniture and related services and technologies that reflect sustainable business practices that improve environments and help to create a better world. In pursuing our mission, we have identified the following as key avenues for our future growth.

Industry Analysis

The Business and Institutional Furniture Manufacturer's Association (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. It is important to note that our diversification strategy 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 in any one period. Finally, BIFMA regularly provides its members with industry forecast information, which we use internally as one of several considerations in our short and long-range planning process.

Discussion of Business Conditions

Our fiscal years ended May 28, 2011 and May 29, 2010 each included 52 weeks of operations.

Fiscal 2011 benefited from a more robust global economic environment impacting most areas of our business from a net sales and orders perspective. Net sales and net trade orders rebounded 25.1 percent and 26.5 percent, respectively, from the prior year. Operating earnings were 7.5 percent of sales (including the positive impact on operating expense resulting from reducing the estimated liability related to contingent payments associated with the Nemschoff acquisition of $15.1 million, refer to Note 2 of the Consolidated Financial Statements). From an economic perspective, the macro drivers of demand in the contract office furniture industry have strengthened within the year with office moves and low rental rates continuing to drive new orders. However, this continues to be tempered by fairly stagnant unemployment rates.

We have made great progress this year toward our strategic goals while delivering solid financial results. We took action to de-leverage our balance sheet in the fourth quarter by paying off $100 million of our public bond issue, partially funded by $50 million of newly issued private placement notes. We also took action to reduce our long-term pension commitments during the year by contributing approximately $53 million in the form of cash and stock to the pension plan. We continued our focus on operational excellence with our manufacturing operations maintaining a reliability score of 99 percent throughout the year and, for the fifth time in six years, we received the Office Furniture Dealers Alliance (OFDA) Gold award as the Manufacturer of the Year.

The development of new products has remained a critical element of our business strategy as we worked continue to deliver superior products and services to our dealer network. During the year we launched the Thrive portfolio of ergonomic solutions which includes the technology support products we acquired through the purchase of Colebrook Bosson & Saunders in May 2010. We also introduced the Sayl® family of chairs which furthered our leadership position in office seating as well as launched Canvas Office Landscape™ - a collection of work station, desking and storage elements that work in harmony to address multiple space applications, from open plan to private office. At this year's NeoCon we introduced 13 new products. Among the most significant achievements was a new healthcare Overbed Table called Oasis TM , which won a Gold award in the healthcare furniture category and the Geiger Sotto TM executive chair which won silver in the ergonomic/task seating category.

During the fourth quarter of fiscal 2011 we announced the plans to acquire POSH Office Systems Ltd., a Hong Kong-based designer, manufacturer, and distributor of office furniture systems, freestanding furniture, seating, filing and storage with manufacturing in China and distribution in Hong Kong and China. With POSH we gain immediate access to the Chinese market. As the demand for high quality seating and furniture continues to grow in the region, we anticipate a significant increase in the sales of Herman Miller products through the POSH dealer network. With an expanded product offering through POSH, we can also look beyond China to other markets and customers we are not presently serving. We anticipate this acquisition to close during late calendar 2011.

With business conditions seemingly improving, there's a growing sense of optimism within the company backed by the innovative spirit of our people and a brand that we believe is second-to-none in our industry. Our continued investments in product and business development throughout the downturn enhanced both the depth and diversity of our product offering, leaving us well positioned to grow in each of our markets.

Looking forward, the general economic outlook for our industry in the U.S. is expected to be positive. BIFMA issued its most recent report in May 2011 expecting that the growth rate of office furniture orders and shipments in the U.S. for calendar 2011 will be 14.5 percent and 17.5 percent, respectively. This forecasted growth is based on an improvement in the U.S. economy, including the assumption that businesses will continue to invest in office furniture in order to boost employee productivity. The forecast projects both orders and shipments will moderate in calendar 2012.

Financial Results

The following is a comparison of our annual results of operations and year-over-year percentage changes for the periods indicated.

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

Net Sales, Orders, and Backlog - Fiscal 2011 Compared to Fiscal 2010

For the fiscal year ende d May 28, 2011 , consolidated net sales increased 25.1 percent to $1,649.2 million from $1,318.8 million for the fiscal year ended May 29, 2010 . This year-over-year increase was driven by a more robust global economic environment and was experienced across nearly all operating and geographic units. The overall impact of foreign currency changes for the fiscal year was to increase net sales by approximately $10 million.

Consolidated net trade orders for fiscal 2011 totaled $1,672.3 million compared to $1,322.4 million in fiscal 2010 , an increase of 26.5 percent . Order rates began the year at a steady pace with orders averaging approximately $30 million per week through the first quarter. The second and third quarter weekly orders rates averaged approximately $36 million and $28 million, respectively, with the third quarter experiencing our typical seasonal slowdown. The fourth quarter finished the year with average weekly order rates increasing to approximately $35 million. The overall impact of foreign currency changes for the fiscal year increased net orders by approximately $8 million.

Our backlog of unfilled orders at the end of fiscal 2011 totaled $275.8 million , a 13.2 percent increase from the $243.6 million backlog at the

end of fiscal 2010 .

BIFMA reported an estimated year-over-year increase in U.S. office furniture shipments of approximately 17.6 percent for the twelve-month period ended May 2011. By comparison, the net sales increase for our domestic U.S. business was approximately 24.8 percent. We believe that 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.

Net Sales, Orders, and Backlog - Fiscal 2010 Compared to Fiscal 2009

For the fiscal year ended May 29, 2010, consolidated net sales declined 19.1 percent to $1,318.8 million from $1,630.0 million for the fiscal year ended May 30, 2009. This year-over-year decline was driven by the global economic environment and was experienced across nearly all operating and geographic units. While the U.S. dollar strengthened against many major currencies during fiscal 2010, it weakened against others, notably the Canadian dollar. The overall impact of foreign currency changes for fiscal year 2010 was to increase net sales by approximately $5 million.

Consolidated net trade orders for fiscal 2010 totaled $1,322.4 million compared to $1,564.7 million in fiscal 2009, a decrease of 15.5 percent. Order rates began the year at a steady pace with orders averaging between approximately $25 million and $27 million per week through the first two quarters. These order rates, and other economic inputs, gave a solid signal that the business had hit bottom and was stabilized. Moving into the second half of the fiscal 2010, the third quarter, which historically has the weakest order rate of the year, orders dipped down to an average weekly rate of approximately $22 million per week. Although low, this order rate represented a slight increase in order rates from the prior year. The fourth quarter order rates averaged approximately $28 million per week, which represented our highest order rate in 18 months. The overall impact of foreign currency changes for fiscal year 2010 was to increase net orders by approximately $4 million.

The backlog of unfilled orders at the end of fiscal 2010 totaled $243.6 million, a 17.2 percent increase from the $207.8 million backlog at the end of fiscal 2009.

BIFMA reported an estimated year-over-year decline in U.S. office furniture shipments of approximately 22.3 percent for the twelve-month period ended May 2010. By comparison, the net sales decline for our domestic U.S. business was approximately 18.8 percent. We believe that 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.

Discussion of Operating Segments - Fiscal 2011 Compared to Fiscal 2010

Effective as of the second quarter of fiscal 2011, management has modified the company's segment reporting in order to better align with changes made in the second quarter to the organizational and management reporting structure. Specifically, the company is now reporting operations in Mexico within its non-North American Furniture Solutions operating segment rather than in North American Furniture Solutions. Prior year results have been revised to reflect this change.

Net sales within the North American Furniture Solutions (North America) segment were $1,304.9 million in fiscal 2011, a 24.5 percent increase from fiscal 2010 net sales of $1,048.1 million. We experienced an increase across all sectors of our North American business during fiscal 2011. Operating earnings for the segment in fiscal 2011 were $98.1 million, or 7.5 percent of net sales. This compares to segment earnings of $71.5 million or 6.8 percent of net sales in fiscal 2010. The increase in operating earnings as a percent of net sales in the current fiscal year is primarily driven by leverage.

Net sales from the non-North American Furniture Solutions (non-North America) segment were $290.4 million in fiscal 2011, a $67.7 million or a 30.4 percent increase from fiscal 2010 net sales of $ 222.7 million . All regions experienced year-over-year sales growth. Operating earnings within the non-North American segment totaled $18.8 million for the year or 6.5 percent of net sales. This compares to an operating loss of $0.2 million or a negative 0.1 percent of net sales in fiscal 2010, an increase of 660 basis points. The operating loss in fiscal 2010 was significantly affected by an independent dealer in Australia that went into receivership and resulted in bad debt expense of approximately $5 million.

Net sales within the "Other" segment category were $53.9 million in fiscal 2011 an increase of $5.9 million , or 12.3 percent , compared to fiscal 2010 net sales of $48.0 million . The increase in net sales is the result of strong sales by our North American Retail business. It should be noted that while the majority of corporate costs are allocated to the operating segments, certain costs that are generally considered the result of isolated business decisions are not subject to allocation. These costs include restructuring and asset impairment expenses, which have been allocated entirely to the "Other" category in fiscal 2011, fiscal 2010 and fiscal 2009. Restructuring and asset impairment expenses totaled $3.0 million, $16.7 million and $28.4 million in fiscal 2011, fiscal 2010 and fiscal 2009, respectively. These costs are discussed further in Note 19 of the Consolidated Financial Statements.

Operating earnings within the "Other" segment category totaled $6.4 million for the year. This compares to a loss of $17.7 million in the prior

year. The significant drivers of operating losses in the prior year were restructuring expenses and a $2.5 million asset impairment charge related to the Convia business.

We estimate changes in foreign exchange rates during the year effectively increased our fiscal 2011 net sales within the North American segment by approximately $5 million, driven primarily by the U.S. dollar / Canadian dollar impact, while the impact on net sales within the non-North American segment was approximately $5 million driven primarily by the U.S. dollar / Australian dollar impact. It is important to note that period-to-period changes in currency exchange rates have a directionally similar impact on our international cost structures, which reduces the impact of currency fluctuations on operating earnings. Operating earnings within our North American segment increased an estimated $4 million in fiscal 2011 due to currency changes. The estimated impact on operating earnings of our non-North American business segment due to currency changes, was an increase of approximately $2 million.

Discussion of Operating Segments - Fiscal 2010 Compared to Fiscal 2009

Net sales within the North American Furniture Solutions (North America) segment were $1,048.1 million in fiscal 2010, a $262.4 million or 20.0 percent decrease from fiscal 2009 net sales of $1,310.5 million . We experienced a decline throughout our North American business operations in fiscal 2010, except for healthcare which benefited from the acquisition of Nemschoff in the first quarter. Nemschoff sales were $67.6 million during fiscal 2010 or 6.4 percent of net sales. Within this segment, we experienced increased sales from education, government and healthcare customers. Operating earnings for the segment in fiscal 2010 were $71.5 million , or 6.8 percent of net sales. This compares to segment earnings of $129.0 million or 9.8 percent in fiscal 2009.

Net sales from the non-North American Furniture Solutions (non-North America) segment were $222.7 million in fiscal 2010, a $54.6 million , or 19.7 percent , decrease from fiscal 2009 net sales of $277.3 million . There were regions that experienced year-over-year sales growth, including India, China and Brazil. The areas hardest hit during the year were the Middle East and North Latin America which were down 41 and 37 percent from prior year, respectively. Operating losses within the non-North American segment totaled $0.2 million for the year or a negative 0.1 percent of net sales in fiscal 2010. This compares to operating earnings of $19.1 million or 6.9 percent of net sales in fiscal 2009. The operating loss in fiscal 2010 was significantly affected by an independent dealer in Australia that went into receivership and resulted in bad debt expense of approximately $5 million.

Net sales within the "Other" segment category were $48.0 million in fiscal 2010 an increase of $5.8 million , or 13.7 percent , compared to fiscal 2009 net sales of $42.2 million . The increase in net sales was the result of strong sales by our North American Retail business. It should be noted that while the majority of corporate costs are allocated to the operating segments, certain costs that are generally considered the result of isolated business decisions are not subject to allocation. Restructuring and asset impairment expenses are some of these costs, and have been allocated entirely to the "Other" category in fiscal 2010 and 2009. Restructuring and asset impairment expenses totaled $16.7 million in fiscal 2010 and $28.4 million in fiscal 2009 and are discussed further in Note 19 of the Consolidated Financial Statements.

Operating losses within the "Other" segment category totaled $17.7 million for fiscal year 2010. This compares to a loss of $25.3 million in fiscal 2009. The significant driver of operating losses in both years were restructuring expenses, though it should be noted that in the fiscal year 2010 there was also a $2.5 million asset impairment charges related to the Convia business that contributed to the operating loss.

The U.S. dollar was up and down against the British pound and the euro during fiscal 2010, and weakened throughout the year against the Canadian dollar. The changes in currency exchange rates from fiscal 2009 affected the U.S. dollar value of net sales only in the North American operating segment. The non-North American segment ended fiscal 2010 with essentially no impact from currency on year-over-year net sales. We estimate these changes effectively increased our fiscal 2010 net sales within the North American Furniture Solutions segment by approximately $5 million, driven entirely by the U.S. dollar / Canadian dollar impact. It is important to note that period-to-period changes in currency exchange rates have a directionally similar impact on our international cost structures. Operating earnings within our non-North American segment increased an estimated $1.0 million in fiscal 2010. The estimated impact on operating earnings of our North American business segment due to currency changes, was an increase of approximately $3.5 million.

Gross Margin - Fiscal 2011 Compared to Fiscal 2010

Our fiscal 2011 gross margin as a percentage of sales was 32.6 percent which is an increase of 10 basis points from the fiscal 2010 level. This modest increase was driven primarily by cost leverage on higher production, which was partially offset by deeper discounting, higher employee benefit and incentive costs, and higher costs of key direct materials, most notably steel and steel components. Deeper discounting reduced net sales relative to prior periods. This has the effect of increasing the components of the Condensed Consolidated Statement of Operations as a percentage of net sales.

Direct material costs as a percentage of sales in the current year increased 150 basis points from fiscal 2010. This was primarily driven by an increase in the cost of commodities and the increase in discounting, which has the effect of reducing net sales.

Direct labor costs were lower by 20 basis points as a percentage of sales, although higher in dollars by $19.5 million driven by an increase in volume from fiscal 2010 levels. This percentage decrease was driven primarily by improved efficiencies and product mix, which was partially offset by deeper discounting and increased employee incentives and benefit costs.

Overhead costs as a percent of net sales were lower by 170 basis points but increased by $20.7 million driven by higher volumes from fiscal 2010. The percentage decrease resulted from increased leverage from higher volumes, which was partially offset by deeper discounting and increased employee incentives and benefit costs.

Freight expenses, as a percentage of sales, were modestly higher by 30 basis points compared to fiscal 2010 levels. In dollars these costs were higher by $17.4 million due to increased volume. The largest contributing factor to the percentage of sales increase was the increase in fuel costs during the year.

Gross Margin - Fiscal 2010 Compared to Fiscal 2009

Our fiscal 2010 gross margin as a percentage of sales was 32.5 percent which is a increase of 10 basis points from the fiscal 2009 level. Lower direct material costs due to a reduction in commodity prices along with reduced compensation and benefits from a reduced work schedule, offset deeper discounting and loss of leverage from lower volume. Details relative to each component of gross margin follow.

Direct material costs in fiscal 2010, as a percentage of sales in fiscal year 2010 decreased 200 basis points. Compared to fiscal 2009, raw material prices were lower in the first half of the year and then gradually increased throughout the second half. The overall impact in the fiscal year 2010 was positive.

Direct labor costs in fiscal 2010 were higher by 50 basis points as a percentage of sales, though lower in dollars by $13.1 million, from fiscal 2009 levels. This percentage increase was driven by higher benefit expenses and deeper discounting though it was partially offset by increased operational efficiencies.

Overhead costs in fiscal 2010 decreased by $25.7 million from fiscal 2009, though as a percentage of sales these costs increased 110 basis points. The percentage increase resulted from lost leverage from lower volume and the impact from deeper discounting in fiscal 2010, though this was partially offset by our ability to realize cost reductions associated with restructuring actions.

Freight expenses in fiscal 2010, as a percentage of sales, were modestly higher by 10 basis points compared to fiscal 2009 levels. In dollars these costs were lower by $10.7 million. While fuel costs did rise throughout the year, the largest contributing factor to the increase as a percentage of sales was the loss of volume which created more less-than-full loads.

Restructuring - Fiscal 2011 and Fiscal 2010

During fiscal 2011, we continued to experience some impact from the previous restructuring actions initiated in prior years. Total restructuring expense for the year was $3.0 million .

The restructuring accrual balances of $1.0 million and $7.0 million for fiscal years 2011 and 2010, respectively are included in, "Accrued liabilities" within the Consolidated Balance Sheet.

Throughout fiscal 2010, we continued to take actions to decrease our cost structure. In the first quarter we announced a plan to consolidate manufacturing operations by closing the Brandrud manufacturing facility in Auburn, Washington and consolidating it with the acquired Nemschoff manufacturing facilities. We had previously announced the decision to consolidate our Integrated Metal Technologies (IMT) subsidiary in Spring Lake, Michigan with other existing manufacturing facilities. Our operations team worked diligently throughout fiscal 2010 to complete both consolidation projects in the fourth quarter. The total expense of these plant consolidations in the fiscal year totaled approximately $9.7 million. We expected to realize incremental annual savings from these consolidation actions of approximately $5 million to $7 million from the fiscal 2010 expense levels. These savings relate primarily in cost of sales, from reductions in rent expense, depreciation and utilities, as well as savings of approximately $1 million in selling, general, and administrative expenses. We realized approximately $3 million of savings in fiscal 2010.

In the fourth quarter of fiscal 2010, we took further action to reduce our salaried workforce, primarily in North America, with the reduction of approximately 70 employees. This action resulted in severance and related expenses of approximately $3.2 million and was largely offset by a 5 percent wage restoration for employees impacted by the fiscal 2010 wage reduction action.

Included in the fourth quarter of fiscal 2010 restructuring expenses is an impairment of long-lived assets totaling $2.5 million that were related to our Convia line of business. These assets related to products that we determined had no future revenue stream to the company.

See Note 19 of the Consolidated Financial Statements for additional information on restructuring.

Operating Expense - Fiscal 2011 Compared to Fiscal 2010

Operating expenses in fiscal 2011 were $414.8 million , or 25.2 percent of net sales, which compares to $374.9 million , or 28.4 percent of net sales in fiscal 2010. We experienced a year-over-year increase in operating expense dollars of $39.9 million , and a 320 basis point decrease to operating expenses as a percentage of net sales. The increase in operating expenses was primarily driven by the increase in net sales during the year. In addition, we also incurred $3.8 million and $16.6 million of additional operating expenses during fiscal 2011 due to the reinstatement of all of our employee benefits and employee incentive expenses, respectively. Restructuring expenses were $3.0 million , compared to restructuring and impairment expenses of $16.7 million in fiscal 2010, which included an impairment of $2.5 million for Convia assets (See the discussion on restructuring expense above for additional detail.) Operating expenses were partially offset during fiscal 2011 by the positive impact resulting from the settlement of the liability related to contingent payments associated with the Nemschoff acquisition of $15.1 million.

Year-over-year changes in currency exchange rates increased operating expenses by an estimated $2 million associated with our international operations.

Design and research costs included in total operating expenses for fiscal 2011 was $45.8 million , or 2.8 percent of net sales, compared to fiscal 2010 expenses of $40.5 million , or 3.1 percent of net sales. This increase in dollars of $5.3 million resulted in a decrease of 30 basis points as a percent of sales. This increase in dollars was primarily driven by royalty payments to designers and the reinstatement of employee benefits. R oyalty payments to the designers of our products totaled $10.4 million and $7.3 million in fiscal years 2011 and 2010, respectively.

Operating Expense - Fiscal 2010 Compared to Fiscal 2009

Operating expenses in fiscal 2010 were $374.9 million, or 28.4 percent of net sales, which compares to $404.9 million, or 24.8 percent of net sales in fiscal 2009. We experienced a year-over-year decrease in operating expense dollars of $30.0 million, and a 360 basis point increase to operating expenses as a percentage of sales. Restructuring and impairment expenses, which included an impairment charge for Convia assets of $2.5 million, were $16.7 million in fiscal 2010, which was a decrease of $11.7 million from the $28.4 million of restructuring expense in fiscal 2009. (Please see the discussion on restructuring expense above for additional detail.) The operating expenses from Nemschoff during fiscal year 2010 were $18.3 million, which were partially offset by the positive impact on operating expense resulting from reducing the estimated liability related to contingent payments associated with the Nemschoff acquisition of $6.5 million.

The year-over-year dollar decline in total expenses of $30.0 million was the result of an $11.7 million decrease in restructuring and impairment expenses and a continued decrease in employee compensation and benefit costs. These decreases in compensation and benefit costs were a result of a combination of current and prior year restructuring as well as the full year effect of the suspension of the 401(k) match and the 10 percent reduction in salary expense that resulted from shutting down facilities on every other Friday.

Year-over-year changes in currency exchange rates had a slightly inflationary effect of approximately $0.7 million on operating expenses associated with our international operations for fiscal 2010.

Design and research costs included in total operating expenses for fiscal 2010 was $40.5 million, or 3.1 percent of sales, compared to fiscal 2009 expenses of $45.7 million, or 2.8 percent of sales. This decrease in dollars of $5.2 million was an increase of 30 basis points as a percent of sales and was primarily driven by the timing of various projects being brought to market as well as a reduction or delay of projects. We have continued to carefully balance the overall need to control costs with the critical need to continue investing in our strategic priorities. These expenses include royalty payments to the designers of our products totaling $7.3 million and $9.5 million in fiscal years 2010 and 2009, respectively.

Operating Earnings

In fiscal 2011 operating earnings were $123.3 million , a 130.0 percent increase from fiscal 2010 operating earnings of $53.6 million . The fiscal 2010 earnings represented a 56.4 percent percent decrease from fiscal 2009 operating earnings of $122.8 million . Operating earnings as a percentage of sales for fiscal years 2011 , 2010 and 2009 were 7.5 percent , 4.1 percent and 7.5 percent , respectively.

Other Expenses and Income

Net other expenses totaled $20.8 million in fiscal 2011 compared to $18.8 million in fiscal 2010 and $23.9 million in fiscal 2009 . The increase in fiscal 2011 expense compared to fiscal 2010 was primarily the result of higher foreign currency transaction losses and lower interest and investment income, which were partially offset by lower interest expense compared to the prior year.

The decrease in fiscal 2010 expense compared to fiscal 2009 was primarily the result of decreased interest expense associated with the first quarter repurchase of $75 million of outstanding debt securities.

Income Taxes

Our effective tax rate was 30.9 percent in fiscal 2011 versus 18.8 percent in fiscal 2010 and 31.4 percent in fiscal 2009. The effective tax rate in fiscal 2011 was below the statutory rate of 35%, primarily due to the domestic U.S. manufacturing deduction and realization of foreign tax credits. The effective rate in fiscal 2010 was below the statutory rate of 35 percent, primarily due to the release of tax reserves that were no longer needed due to the closure of an IRS audit of the company's tax returns through fiscal 2009 and the domestic U.S. manufacturing tax incentive. The effective rate in fiscal 2009 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing tax incentive and the realization of foreign tax credits.

We expect our effective tax rate for fiscal 2012 to be between 31 and 33 percent. For further information regarding income taxes, refer to Note 13 of the Consolidated Financial Statements.

Net Earnings Attributable to Controlling Interest; Earnings per Share

In fiscal 2011 and fiscal 2010 we generated $70.8 million and $28.3 million of net earnings, respectively. This compares to net earnings attributable to controlling interest in fiscal 2009 of $68.0 million . In fiscal 2011 diluted earnings per share were $1.06 while diluted earnings per share in fiscal 2010 were $0.43 and $1.25 in fiscal 2009 .

Liquidity and Capital Resources

The table below presents certain key cash flow and capital highlights for the fiscal years indicated.

(1) Amounts shown include the fair market value of the company's interest rate swap arrangement(s). The net fair value of this/these arrangement(s) was/were $1.2 million at May 29, 2010 and $2.4 million at May 30, 2009.

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

(3) During the first quarter of fiscal 2010 we renegotiated the unsecured revolving credit facility. Refer to Note 8 of the Consolidated Financial Statements for additional information.

(4) Amount shown for fiscal 2011 and fiscal 2010 includes a $14.6 million and $16.7 million contribution made in the company's common stock, respectively.

Cash Flow - Operating Activities

Cash generated from operating activities in fiscal 2011 totaled $91.1 million compared to $ 99.1 million generated in the prior year. This represents a decrease of $8.0 million compared to fiscal 2010 . Changes in working capital balances resulted in a $13.5 million use of cash in the current fiscal year compared to a $4.8 million source of cash in the prior year. Cash from operations in the prior year also included proceeds of $4.8 million from company owned life insurance policies.

The use of cash related to working capital balances in fiscal 2011 consist primarily of increases in trade receivables of $48.5 million, inventory of $8.3 million and prepaids of $14.5 million. These changes were partially offset by increases in trade payables of $16.4 million, and regular and incentive based compensation of $34.8 million.

The source of cash related to working capital balances in fiscal 2010 consist primarily of decreases in trade receivables of $9.0 million, prepaids of $23.6 million and an increase in trade payables of $13.9 million, offset by increased inventory of $7.1 million and a decrease in other accruals. The other accruals decreased primarily due to restructuring payments of $15.5 million during fiscal 2010.

The use of cash related to working capital balances in fiscal 2009 consist primarily of decreased current liabilities of $126.8 million over fiscal 2008. The reduction in liabilities is primarily related to reductions in accounts payable related to inventory, and accruals related to regular and incentive compensation. The use of cash was partially offset by volume related declines in accounts receivables of $53.5 million and inventories of $15.3 million.

Collections of accounts receivable remained strong throughout fiscal 2011, and we believe our recorded accounts receivable valuation allowances at the end of the year are adequate to cover the risk of potential bad debts. Allowances for non-collectible accounts receivable, as a percent of gross accounts receivable, totaled 2.3 percent, 3.0 percent, and 4.7 percent at the end of fiscal years 2011, 2010, and 2009, respectively.

During fiscal 2011 $38.2 million in cash contributions were made to our employee pension and post-retirement benefit plans. Cash contributions during fiscal years 2010 and 2009 made to our employee pension and post-retirement benefit plans totaled $2.6 million and $5.3 million, respectively. For further information regarding the company's pension and post-retirement benefit plans, including information relative to the funded status of these plans, refer to Note 10 of the Consolidated Financial Statements.

Cash Flow - Investing Activities

Capital expenditures totaled $30.5 million , $22.3 million and $25.3 million in fiscal 2011, 2010 and 2009, respectively. Outstanding commitments for future capital purchases at the end of fiscal 2011 were approximately $4.9 million . We expect capital spending in fiscal 2012 to be between $34 million and $38 million.

Included in our fiscal 2010 investing activities, is a net cash outflow of $46.1 million related to our acquisitions of Nemschoff, CBS, and two furniture dealerships. Also included within fiscal 2010 investing activities is a note receivable for $6.9 million related to our acquisition of Nemschoff. In fiscal 2010 we repaid loans held against the value of company owned life insurance policies for $2.9 million. Also included in fiscal 2009 is a net cash outflow of $29.5 million related to the completion of the acquisition of Brandrud and the acquisition of Ruskin Industries.

Our net marketable securities transactions for fiscal 2011 yielded a $1.3 million source of cash. This compares to a $0.1 million source of cash in fiscal 2010 and a $3.4 million source of cash in fiscal 2009.

Cash Flow - Financing Activities

(1) Includes 2,041,666 shares issued in connection with the Nemschoff acquisition during fiscal 2010. Includes 582,000 shares and 967,000

shares issued as a contribution to the company's pension plans during fiscal 2011 and fiscal 2010, respectively.

During the first quarter of fiscal 2010 we renegotiated the syndicated revolving line of credit, reducing our availability from $250 million to $150 million, while giving us additional covenant flexibility. This facility expires in June 2012 and outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR, or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the period a borrowing is outstanding. During the first quarter of fiscal 2010, we also completed the repurchase of $75 million of registered debt securities. In addition to improving our covenant metrics this action also reduced our future interest expense by approximately $1.3 million per quarter.

In the fourth quarter of fiscal 2009 we announced a reduction in the cash dividend effective for the first quarter of fiscal 2010 payment. This change reduced the cash dividend to $0.088 per share annually versus a total quarterly cash dividend of $0.088 per share that was paid through the third quarter of fiscal 2009. As part of our decision to conserve cash we suspended significant share repurchases beginning in fiscal 2009. The amount remaining under our share repurchase authorization at the end of fiscal 2011 totaled $169.3 million.

Interest-bearing debt at the end of fiscal 2011 of $250 million decreased from $301.2 million at the end of fiscal 2010, as compared to $377.4 million at the end of fiscal 2009. The decrease in fiscal 2011 is a result of the repayment of the remaining $100 million in principal due under the 2001 public bond issue. The payment was made using a combination of existing cash and proceeds from newly-issued senior unsecured private placement notes of $50 million maturing in March 2021.

The only usage against our unsecured revolving credit facility at the end of fiscal years 2011 and 2010 represented outstanding standby letters of credit totaling $9.4 million and $11.2 million, respectively. The provisions of our private placement notes and unsecured credit facility require that we adhere to certain covenants and maintain certain performance ratios. We were in compliance with all such covenants and performance ratios during fiscal 2011.

In fiscal 2011, we received $8.6 million related to the issuance of shares in connection with stock-based compensation plans. This compares to receiving $2.5 million and $3.4 million in fiscal 2010 and fiscal 2009, respectively.

During fiscal 2011 we repatriated $18.8 million of undistributed foreign earnings. During fiscal 2010 we did not repatriate any undistributed foreign earnings as compared to $8.0 million in fiscal 2009.

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, subject to financing availability in the marketplace.

Contingencies

The company leases a facility in the U.K. under an agreement that expired in June 2011, and the company plans to continue to lease the facility on a month to month basis after the lease expires. Under the terms of the lease, the company is required to perform the maintenance and repairs necessary to address the general dilapidation of the facility over the lease term. The ultimate cost of this provision to the company is dependent on a number of factors including, but not limited to, the future use of the facility by the lessor and whether the company chooses and is permitted to renew the lease term. The company has estimated the cost of these maintenance and repairs to be between $0 and $3 million, depending on the outcome of future plans and negotiations. Based on existing circumstances, it is estimated that these costs will be approximately $1.3 million. As a result, this amount has been recorded as a liability reflected under the caption "Other Liabilities" in the Consolidated Balance Sheets as of May 28, 2011 . Based on circumstances existing in fiscal 2010, the amount recorded in the Consolidated Balance Sheets as of May 29, 2010 was $1.1 million.

The company has a lease obligation in the U.K. until May 2014 for a facility that it has exited. Current market rates for comparable office space are lower than the rental payments owed under the lease agreement, as such, the company would remain liable to pay the difference if it were subleased. As of May 28, 2011 and May 29, 2010 the future cost of this arrangement was estimated to be $1.7 million and $1.5 million, respectively. Accordingly this amount is reflected within "Other Liabilities" on the Consolidated Balance Sheets as of these dates.

The company is involved in legal proceedings and litigation arising in the ordinary course of business. It is the company's opinion that the outcome of such proceedings and litigation currently pending will not materially affect the company's operations, cash flows, and financial condition.

Basis of Presentation

The company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 28, 2011, May 29, 2010, and May 30, 2009 each included 52 weeks of operations. This is the basis upon which weekly-average data is presented. Certain prior year information has been reclassified to conform to the current year presentation.

Contractual Obligations

Contractual obligations associated with our ongoing business and financing activities will result in cash payments in future periods. The following table summarizes the amounts and estimated timing of these future cash payments. Further information regarding debt obligations can be found in Note 8 of the Consolidated Financial Statements. Likewise, further information related to operating leases can be found in Note 9 of the Consolidated Financial Statements.

(1) Estimated future interest payments on our outstanding debt obligations are based on interest rates as of May 28, 2011 . Actual cash outflows may differ significantly due to changes in underlying interest rates and timing of principal payments.

(2) Purchase obligations consist of non-cancelable purchase orders and commitments for goods, services, and capital assets.

(3) Pension plan funding commitments are known for a 12-month period for those plans that are funded; unfunded pension and post-retirement plan funding amounts are equal to the estimated benefit payments. As of May 28, 2011 , the total projected benefit obligation for our domestic and international employee pension benefit plans was $ 384.9 million.

(4) Represents the recorded dividend payable as of May 28, 2011 . Future dividend payments are not considered contractual obligations until declared.

(5) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee compensation

benefits, and other post-employment benefits.

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 disclosed in accordance with Accounting Standards Codification (ASC) Topic 460, " Guarantees " as described in Note 17 of the Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Our goal is to report financial results clearly and understandably. We follow accounting principles generally accepted in the United States of America in preparing our Consolidated Financial Statements, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. These policies and disclosures are reviewed at least annually with the Audit Committee of the Board of Directors. Following is a summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements.

Revenue Recognition

As described in the "Executive Overview," the majority of our products and services are sold through one of four channels: Independent contract furniture dealers and licensees, owned contract furniture dealers, direct to end customers, and independent retailers. We recognize revenue on sales to independent dealers, licensees, and retailers once the product is shipped and title passes to the buyer. When we sell product directly to the end customer or through owned dealers, we recognize revenue once the product and services are delivered and installation thereof is substantially complete.

Amounts recorded as net sales generally include any freight charged to customers, with the related freight expenses recognized within cost of sales. Items such as discounts off list price, rebates, and other sale-related marketing program expenses are recorded as reductions to net sales. We record accruals for rebates and other marketing programs, which require us to make estimates about future customer buying patterns and market conditions. Customer sales that reach (or fail to reach) certain levels can affect the amount of such estimates, and actual results could differ from our estimates

Receivable Allowances

We base our allowances for receivables on known customer exposures, historical credit experience, and the specific identification of other potential problems, including the current economic climate. These methods are applied to all major receivables, including trade, lease, and notes receivable. In addition, we follow a policy that consistently applies reserve rates based on the age of outstanding accounts receivable. Actual collections can differ from our historical experience, and if economic or business conditions deteriorate significantly, adjustments to these reserves may be required.

The accounts receivable allowance totaled $4.5 million and $4.4 million at May 28, 2011 and May 29, 2010 , respectively. As a percentage of gross accounts receivable, these allowances to taled 2.3 perc ent and 3.0 percent for fiscal 2011 and fiscal 2010, respectively. The year-over-year decrease in the allowance percentage is primarily due to the stabilization of economic conditions and continued financial health of our customers.

Goodwill and Indefinite-lived Intangibles

The carrying value of goodwill and indefinite-lived intangible assets as of May 28, 2011 and May 29, 2010 , were $133.6 million and $132.6 million , respectively. The company is required to perform an annual test of goodwill and indefinite-lived intangible assets to determine if the asset values are impaired.

The impairment-testing model is based on the present value of projected cash flows and the resulting residual value and includes a reconciliation to market capitalization. In completing the test under this approach, the company assumes that one of the drivers of the value of a business today is the cash flows it will generate in the future. The company also assumes that such future cash flows can be reasonably estimated. While these projected cash flows reflect the best estimate of future reporting unit performance, actual cash flows could differ significantly.

The company completed the required annual impairment tests in the fourth quarter of fiscal 2011 and concluded that the goodwill asset values and indefinite-lived assets were not impaired. For goodwill, the company employed a market-based approach in selecting the discount rates

used in our analysis.The discount rates selected represent market rates of return equal to what the company believes is what a reasonable investor would expect to achieve on investments of similar size to the company's reporting units. The company believes the discount rates selected in the testing are appropriate in that, in all cases, they exceed the estimated weighted average cost of capital for our business as a whole. The results of the impairment test are sensitive to changes in discount rates, though the testing performed in fiscal 2011 indicates that even a significant increase in the discount rate would not have changed the conclusion. For indefinite-lived assets a relief of royalty method was utilized, which indicated the assets were not impaired.

Long-lived Assets

The company evaluates other long-lived assets and acquired business units for indicators of impairment when events or circumstances indicate that an impairment risk may be present. The judgments regarding the existence of impairment are based on market conditions, operational performance, and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded to adjust the asset to its estimated fair value. During the fourth quarter of fiscal 2010 the company recorded an impairment charge of $2.5 million that was related to our Convia line of business. These assets related to products that we determined had no future revenue stream to the company. The impairment charge was comprised of $1.4 million of expense related to an intangible asset and $1.1 million of expense in relation to fixed assets, respectively.

Warranty Reserve

The company stands behind company products and the promises it makes to customers. From time to time, quality issues arise resulting in the need to incur costs to correct problems with products or services. The company has established warranty reserves for the various costs associated with these obligations. General warranty reserves are based on historical claims experience and periodically adjusted for business levels. Specific reserves are established once an issue is identified. The valuation of such reserves is based on the estimated costs to correct the problem. Actual costs may vary and may result in an adjustment to these reserves.

Inventory Reserves

Inventories are valued at the lower of cost or market. The inventories at the majority of our manufacturing operations are valued using the last-in, first-out (LIFO) method, whereas inventories of certain other subsidiaries are valued using the first-in, first-out (FIFO) method. The company establishes reserves for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or market may be adjusted in response to changing conditions.

Income Taxes

Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

See Note 13 of the Consolidated Financial Statements for information regarding the company's uncertain tax positions.

The company has net operating loss (NOL) carryforwards available in certain jurisdictions to reduce future taxable income. The company also has foreign tax credits available in certain jurisdictions to reduce future tax due. Future tax benefits for NOL carryforwards and foreign tax credits are recognized to the extent that realization of these benefits is considered more likely than not. This determination is based on the expectation that related operations will be sufficiently profitable or various tax planning strategies available to us will enable us to utilize the NOL carryforwards and/or foreign tax credits. When information becomes available that raises doubts about the realization of a deferred income tax asset, a valuation allowance is established.

Self-Insurance Reserves

With the assistance of independent actuaries, reserves are established for workers' compensation and general liability exposures. The reserves are established based on expected future claims for incurred losses. The company also establishes reserves for health, prescription drugs, and dental benefit exposures based on historical claims information along with certain assumptions about future trends. The methods and assumptions used to determine the liabilities are applied consistently, although actual claims experience can vary. The company also maintains insurance coverage for certain risk exposures through traditional premium-based insurance policies. The company's health benefits retention level does not include an aggregate stop loss policy. The company's retention levels designated within significant insurance arrangements as of May 28, 2011 , ar e as follows.

Pension and other Post-Retirement Benefits

The determination of the obligation and expense for pension and other post-retirement benefits depends on certain actuarial assumptions. Among the most significant of these assumptions are the discount rate, interest-crediting rate, and expected long-term rate of return on plan assets. We determine these assumptions as follows.

While this assumption represents the long-term market return expectation, actual asset returns can and do differ from year-to-year. Such differences give rise to actuarial gains and losses. In years where actual market returns are lower than the assumed rate, an actuarial loss is generated. Conversely, an actuarial gain results when actual market returns exceed the assumed rate in a given year. As of May 28, 2011 , and May 29, 2010 , the net actuarial loss associated with the employee pension and post-retirement benefit plans totaled approximately $158.2 million and $192.3 million, respectively. The majority of this unrecognized loss was associated with lower than expected return on assets for fiscal 2011 and fiscal 2010. Changes in the discount rate and return on assets can have a significant effect on the expense or obligations related to our pension plans. The company cannot accurately predict these changes in discount rates or investment returns and, therefore, cannot reasonably estimate whether adjustments to the expense or obligation in subsequent years will be significant. Both the May 28, 2011 pension funded status and 2012 expense are affected by year-end 2011 discount rate and expected return on assets assumptions. Any change to these assumptions will be specific to the time periods noted and may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown. The effect of the indicated increase/(decrease) in discount rates and expected return on assets is shown below:

For purposes of determining annual net pension expense, the company uses a calculated method for determining the market-related

value of plan assets. Under this method, the company recognizes the change in fair value of plan assets systematically over a fiv e-year period. Accordingly, a portion of the net actuarial loss is deferred. The r emaining portion of the net actuarial loss is subject to amortization expense each year. The amortization period used in determining this expense is the estimated remaining working life of active pension plan participants. The company currently estimates this period to be approximately 13 years. As of May 28, 2011 , the deferred net actuarial loss (i.e. the portion of the total net actuarial loss not subject to amortization) was approximately $42.5 million.

R efer to Note 10 of t he Consolidated Financial Statements for more information regarding costs and assumptions used for employee benefit plans.

Stock-Based Compensation

The company views stock-based compensation as a key component of total compensation for certain employees, non-employee directors and officers. The stock-based compensation programs include grants of restricted stock, restricted stock units, performance share units, employee stock purchases, and stock options. The company recognizes expense related to each of these share-based arrangements. The Black-Scholes option pricing model is used in estimating the fair value of stock options issued in connection with compensation programs. This pricing model requires the use of several input assumptions. Among the most significant of these assumptions are the expected volatility of the common stock price, and the expected timing of future stock option exercises.

Refer to Note 12 of the Consolidated Financial Statements for further discussion on our stock-based compensation plans.

Contingencies

In the ordinary course of business, the company encounters matters that raise the potential for contingent liabilities. In evaluating these matters for accounting treatment and disclosure, the company is required to apply judgment in order to determine the probability that a liability has been incurred. The company is also required to measure, if possible, the dollar value of such liabilities in determining whether or not recognition in our financial statements is required. This process involves the use of estimates which may differ from actual outcomes. Refer to Note 17 of the Consolidated Financial Statements for more information relating to contingencies.

New Accounting Standards

Refer to Note 1 of the Consolidated Financial Statements for information related to new accounting standards.

Forward Looking Statements

Certain statements in this filing are not historical facts but are "forward-looking statements" as defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Such statements are based on management's belief, assumptions, current expectations, estimates and projections about the office furniture industry, the economy and the company itself. Words like "anticipates," "believes," "confident," "estimates," "expects," "forecast," "likely," "plans," "projects," and "should," and variations of such words and similar expressions identify forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, expense, likelihood, and degree of occurrence. These risks include, without limitation, employment and general economic conditions in the U.S. and in our international markets, the increase in white collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, the possibility of order cancellations or deferrals by customers, competitive pricing pressures, the availability and pricing of direct materials, our reliance on a limited number of suppliers, currency fluctuations, the ability to increase prices to absorb the additional costs of direct materials, the financial strength of our dealers, the financial strength of our customers, the mix of our products purchased by customers, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the strength of the intellectual property relating to our products, the success of newly introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, the outcome of pending litigation or governmental audits or investigations, and other risks identified in this Form 10-K and our other filings with the Securities and Exchange Commission. Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., takes no obligation to update, amend, or clarify forward-looking statements.

Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company manufactures, markets, and sells its products throughout the world and, as a result, is subject to changing economic conditions, which could reduce the demand for its products.

Direct Material Costs

The company is exposed to risks arising from price changes for certain direct materials and assembly components used in its operations. The largest such costs incurred by the company are for steel, plastics, textiles, wood particleboard, and aluminum components. Commodity prices steadily increased during the first three quarters and moderated during the fourth quarter of fiscal 2011. The net impact of price changes during fiscal 2011 was an increase to our costs of approximately $12 million during fiscal 2011.

The net impact of price changes during fiscal 2010 was an decrease to our costs of $24 million to $25 million over fiscal 2009. Commodity prices were volatile during fiscal 2009, resulting in sharp increases in costs for the first half of the year. As the year progressed, prices receded back to approximately the same level that they began the year at. The net impact of price changes during fiscal 2009 was an increase to our costs of $24 million to $26 million.

The company believes market prices for commodities in the near term may move higher and acknowledges that over time increases on its key direct materials and assembly components are likely. Consequently, it views the prospect of such increases as an outlook risk to the business.

Foreign Exchange Risk

The company primarily manufactures its products in the United States, United Kingdom, and China. It also sources completed products and product components from outside the United States. The company's completed products are sold in numerous countries around the world. Sales in foreign countries as well as certain expenses related to those sales are transacted in currencies other than the company's reporting currency, the U.S. dollar. Accordingly, production costs and profit margins related to these sales are affected by the currency exchange relationship between the countries where the sales take place and the countries where the products are sourced or manufactured. These currency exchange relationships can also affect the company's competitive positions within these markets.

In the normal course of business, the company enters into contracts denominated in foreign currencies. The principal foreign currencies in which the company conducts its business are the British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, and Chinese renminbi. As of May 28, 2011, the company had outstanding, sixteen forward currency instruments designed to offset either net asset or net liability exposure that is denominated in non-functional currencies. Two forward contracts were placed to offset a 3.1 million euro-denominated net asset exposure and five forward contracts were placed to offset a 7.6 million U.S. dollar-denominated net asset exposure. One forward contract was placed to offset 0.4 million Australian dollar-denominated net asset exposure. Eight forward contracts were placed to offset a 2.4 million U.S.dollar-denominated net liability exposure.

As of May 29, 2010, the company had outstanding, nine forward currency instruments designed to offset either net asset or net liability exposure that is denominated in non-functional currencies. One forward contract was placed in order to offset a 4.1 million euro-denominated net asset exposure and three forward contracts were placed in order to offset a 5.6 million U.S. dollar-denominated net asset exposure. Four forward contracts were placed to offset a 14.0 million U.S. dollar-denominated net liability exposure and one forward contract was placed to offset a 1.6 million British pound sterling-denominated net liability exposure. The fair value of the forward currency instruments at May 28, 2011 was $0.7 million and $0.3 million within current assets and current liabilities, respectively. At May 29, 2010 the fair value of the forward currency instruments was a negligible amount.

For fiscal year 2011, a net loss of $2.0 million related to remeasuring all foreign currency transactions into the appropriate functional currency was included in net earnings. For fiscal year 2010, a net gain of $0.4 million impacted net earnings. For fiscal year 2009, a net loss of $1.1 million impacted net earnings. Additionally, the cumulative effect of translating the balance sheet and income statement accounts from the functional currency into the United States dollar decreased the accumulated comprehensive loss component of total stockholders' equity by $6.4 million as of the end of fiscal 2011. Conversely, the effect increased the accumulated comprehensive loss component of total stockholders equity by $2.9 million and $14.0 million as of the end of fiscal 2010 and fiscal 2009, respectively.

Interest Rate Risk

The company maintains fixed-rate debt for which changes in interest rates generally affect fair market value but not earnings or cash flows. During the fourth quarter of fiscal 2011 the company's interest rate swap agreement expired as planned on March 15, 2011. As of the end of fiscal years 2010 and 2009 the company held one interest rate swap agreement that effectively converted $50.0 million of fixed-rate debt securities to a variable rate.

The combined fair market value and net asset amount of the effective interest rate swap instruments was $1.2 million at May 29, 2010. The swap ar rangement effectively reduced interest expense by $1.5 million, $1.9 million, and $1.2 million in fiscal 2011, fiscal 2010 and fiscal 2009, respectively. All cash flows related to the company's interest rate swap instruments are denominated in U.S. dollars. For further information, refer to Notes 14 and 15 of the Consolidated Financial Statements.

Expected cash flows (notional amounts) over the next five years and thereafter related to debt instruments are as follows.