Miller Herman Inc (MLHR) SEC Annual Report (10-K) for 2013

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 December 1, 2012 , was $1,218,929,288 (based on $21.12 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 25, 2013 : Common stock, $.20 par value - 58,886,582 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 7, 2013, 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 through independent contract office furniture dealers as well as the following channels: owned contract office furniture dealers, direct customer sales, independent retailers, and the company's online store. 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 15 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, seating products, textiles, and related services. Most of these systems and products are designed to be used together.

The company's mission statement is "Inspiring Designs To Help People Do Great Things." The company's ingenuity and design excellence creates award-winning products and services, that makes us a leader in design and development of furniture, furniture systems, and textiles. This leadership is exemplified by the innovative concepts introduced by the company in its modular systems (including Action Office®, Canvas Office Landscape™, Ethospace®, Resolve®, and My Studio Environments™). The company also offers a broad array of seating (including Embody®, Aeron®, Mirra®, Setu®, Sayl®, 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®), healthcare products (including Compass®, Nala®, and other Nemschoff® products) the Thrive portfolio of ergonomic solutions, and the recently acquired textiles of Maharam Fabric Corporation (Maharam).

The company's products are marketed worldwide by its own sales staff, independent dealers and retailers, its owned dealer network, and via its e-commerce website. Salespersons work with dealers, the architecture and design 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 74 percent of the company's sales in the fiscal year ended June 1, 2013 , 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 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, casegood and textile products, and related services are used in (1) institutional 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, plastic, 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 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 137 active United States utility patents on various components used in its products and 33 active United States design patents. Many of the inventions covered by the United States patents also have been patented in a number of for eign 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®, Maharam®, Geiger®, Nemschoff®, Action Office®, Ethospace®, Aeron®, Mirra®, Embody®, Setu®, Sayl®, Eames®, PostureFit®, Meridian® and Canvas Office Landscape®. It is estimated that the average remaining life of such patents and trademarks is approximately 5 years and 7 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 t han 4.5 perc ent of the company's net sales in the fiscal year ended June 1, 2013 . It is also estimated that the largest single end-user customer, the U.S. federal government, accounted for $114 million , $164 million and $226 million of the company's net sales in fiscal 2013 , 2012 , and 2011 , respectively. This represents approximately 6 percent , 9.5 percent and 14 percent of the company's net sales in fiscal 2013 , 2012 , and 2011 , respectively. The 10 largest customers accounted for approximately 23 percent , 22 percent , and 28 percent of net sales in fiscal 2013 , 2012 , and 2011 , respectively

Backlog of Unfilled Orders

As of June 1, 2013 , the company's backlog of unfilled orders was $274.4 million . At June 2, 2012 , the company's backlog totaled $278.0 million . It is expected that substantially all the orders forming the backlog at June 1, 2013 , 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 apply list price increases 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 solve their problems. The company uses both internal and independent research resources and independent design resoures. Exclusive of royalty payments, the company spent approximately $48.3 million , $41.0 million , and $35.4 million , on research and development activities in fiscal 2013 , 2012 , and 2011 , 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 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. Approxima tely 10 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 June 1, 2013 , the compa ny em ployed 5,704 full-time and 161 part-time employees, representing a 4.0 percent increase and a 5.3 percent decrease, respectively, compared with June 2, 2012 . 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 (including POSH products). The company conducts business in the following major international markets: Europe, Canada, the Middle East, Latin America, South 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 15 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 funding obligations and 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.

The future funding obligations for the company's U.S. defined benefit pension plans depend upon 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. The company has taken steps to mitigate the risk related to the company's pension plans by beginning the process to terminate our U.S. defined benefit pension plans in favor of a new defined contribution retirement program. During the second quarter of fiscal 2013, we converted active employees to this new defined contribution program. Concurrent with this change, effective September 1, 2012, we ceased ongoing benefit accruals under the defined benefit pension plans that we plan to terminate in the future. We expect the termination process for the defined benefit pension plans to be completed during the second quarter of fiscal 2014. At the time of termination, we will be required to make additional cash contributions to the plans, which we currently estimate will total between $50 million to $55 million. Due to the plan to terminate this defined benefit plan, the company has changed the plan assets target allocation to 100% fixed income to reduce the risk of exposure to equities as we proceed to a planned termination. The plan is in process of transitioning the asset mix to meet this target. However, the plan still holds 10% of it's assets in equities as of year end. If the market values of the plan assets 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 the company's obligations under such plans. The company may be legally required to make contributions to it's 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 the company's defined benefit pension plan outside the United States, the company could be required to contribute more funds, which would negatively affect operating cash flows.

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 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.

Other macroeconomic developments, such as the recent recessions in Europe, the debt crisis in certain countries in the European Union, and the economic slow down in Asia could negatively affect the company's ability to conduct business in those geographies. The continuing debt crisis in certain European countries could cause the value of the Euro to deteriorate, reducing the purchasing power of the company's European customers and potentially undermine the financial health of the company's suppliers and customers in other parts of the world. Financial difficulties experienced by the company's suppliers and customers, including distributors, could result in product delays and inventory issues; risks to accounts receivable could also include delays in collection and greater bad debt expense.

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, Hong Kong, 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, 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.

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 the sale of 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 June 1, 2013 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 good condition 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 consolidated 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.

Ms. McDonald joined Herman Miller in 2013 as President of Healthcare, and prior to this she worked for Welch Allyn for 6 years serving mostly as an Executive Vice President.

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.

Item 4 MINE SAFETY DISCLOSURES - Not applicable

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 Sy stem (Symbol: MLHR). As of July 25, 2013, there were approximately 16,500 record holders, including individual participants in security position li stings, 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 2013 and 2012 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 June 1, 2013 .

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

The company has a share repurchase 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 2013.

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 June 1, 2013 . The graph assumes an investment of $100 on May 31, 2008 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 divided by net sales.

(5) Calculated as net earnings divided by average assets.

(6) Calculated as net earnings divided by average equity.

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

(8) Selling, general, and administrative expenses includes restructuring and impairment 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

Herman Miller's inspiring designs, inventive technologies and strategic services help people do great things and organizations to perform at their best. At present, most of our customers come to us for interior environments in corporate office and healthcare settings. We also have a growing presence in educational and consumer markets. Our primary products include furniture systems, seating, storage, freestanding furniture, patient care products, casegoods and textiles.

More than 100 years of innovative business practices and a commitment to social responsibility have established Herman Miller as a recognized global company. A past recipient of the Smithsonian Institution's Cooper-Hewitt National Design Award, Herman Miller designs can be found in the permanent collections of museums worldwide. Innovative business practices and a commitment to social responsibility have also helped establish Herman Miller as a recognized global leader. In 2012, Herman Miller again received the Human Rights Campaign Foundation's top rating in its annual Corporate Equality Index and was named among the 50 Best U.S. Manufacturers by Industry Week.  Herman Miller is included in the Dow Jones Sustainability World Index.

Herman Miller's 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, Hong Kong, India, and the Netherlands. The company's products are offered elsewhere in the world primarily through independent dealerships or joint ventures with customers in over 100 countries.

The company is globally positioned in terms of manufacturing operations. In the United States, the manufacturing operations are located in Michigan, Georgia, Wisconsin and North Carolina. In Europe, the manufacturing presence is located within the United Kingdom. The manufacturing operations in Asia include a facility located in Ningbo, China. The company manufactures products using a system of lean manufacturing techniques collectively referred to as the Herman Miller Performance System (HMPS). Herman Miller strives 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 sales volume.

A key element of the company's manufacturing strategy is to limit fixed production costs by sourcing component parts from strategic suppliers. This strategy has allowed the company 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.

The business is comprised of various operating segments as defined by generally accepted accounting principles in the United States (U.S. GAAP). These operating segments are determined on the basis of how the company internally reports and evaluates financial information used to make operating decisions. For external reporting purposes, the company has identified the following reportable segments:

The company also reports a corporate category consisting primarily of unallocated corporate expenses including restructuring and impairment costs.

Core Strengths

The company relies on the following core strengths in delivering workplace solutions to customers.

Channels of Distribution

The company's products and services are offered to most of its customers under standard trade credit terms between 30 and 45 days and are sold through the following distribution channels.

Challenges Ahead

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

Future Avenues of Growth

The company believes it's well positioned to successfully pursue its mission in spite of the risks and challenges it faces. That is, inspiring designs to help people do great things. In pursuing our mission, we are shifting our business model to focus on increasing the size of our addressable market, faster growing segments driven by demographics, and higher margin products. This shift relies on the following key avenues of growth.

Industry Analysis

The Business and Institutional Furniture Manufacturer's Association (BIFMA) is the trade association for the U.S. domestic office furniture industry. The company monitors the trade statistics reported by BIFMA and considers 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 relates primarily to large to mid-size corporations installed via a network of dealers. The office supply segment relates primarily to smaller customers via wholesalers and retailers. The company primarily participates, and is a leader in, the contract segment. It is important to note that the company's diversification strategy lessens our dependence on the U.S. office furniture market.

The company also analyzes BIFMA statistical information as a benchmark comparison against the performance of the domestic U.S. business and also to that of 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 the company uses internally as one of several considerations in its short and long-range planning process.

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 2013 expecting that the growth rate of office furniture orders in the U.S. will be 4.8 percent and 5.8 percent in calendar 2013 and 2014, respectively, while the forecasted growth rate of shipments was 2.1 percent and 7.2 percent for calendar 2013 and 2014, respectively. This forecasted growth is based on an improvement in the U.S. economy, primarily driven by an improvement in employment.

Discussion of Business Conditions

The fiscal years ended June 1, 2013 and June 2, 2012 contained 52 and 53 weeks of operations, respectively. The extra week in fiscal 2012 was included in the first quarter. The extra week in the prior year is required approximately every six years in order to re-align our fiscal reporting dates with the actual calendar months. This is a factor that should be considered when comparing our financial results to the prior year period.

Net sales in fiscal 2013 totaled $1,774.9 million , an increase of 2.9 percent over the level we reported in fiscal 2012. This marked our third consecutive year of growth, over which time our net sales have increased by more than $450 million. Importantly, the sales growth we achieved this past year was accompanied by strong profitability and cash generation. We balanced our focus on forward strategic investment with our responsibility to deliver solid current period returns. In doing so, we achieved an operating earnings percentage and earnings per share equal to 6.5 percent and $1.16 , respectively ( 8.1 percent and $1.47 on an adjusted Non-GAAP basis ( 1) ) and an after-tax return on invested capital of approximately 24 percent . Cash flows generated from operations totaled $136.5 million , up 51.5 percent from last year's level. This improved cash flow from operations allowed us to increase strategic spending across a number of important areas including new products, acquisitions, infrastructure improvements, and brand building.

Throughout the fiscal year, our North American Furniture Solutions segment faced the headwind of sluggish demand from U.S. federal government and healthcare buyers. With that said, robust business activity across the remainder of our core non-government office furniture business helped drive growth for the segment as a whole relative to fiscal 2012.

Our Non-North America Furniture Solutions segment also experienced a mixed demand picture, with lagging sales in the United Kingdom (U.K.) and other European economies being more than offset by increases in China and the Middle East. We are improving our existing production capabilities and preparing for new growth in emerging markets. The integration of POSH manufacturing in China continues and we will begin the construction of a new facility next spring to consolidate our U.K. operations serving EMEA (Europe, Middle East and Africa). We also have plans in development for India and Latin America that hold further promise for growth in those markets.

Our Specialty and Consumer segment posted solid sales growth this fiscal year, driven by the investments we've made in developing our offering across both commercial and retail markets. The Herman Miller Collection continues to grow in reach and quality, with multiple newly reissued iconic designs and including innovative new material options. In the last year we have also introduced wholly new designs, through both our Herman Miller and Geiger brands. Our Italian alliances with Magis and Mattiazzi are another source for new products and enhance our brand with consumers and specifiers. We have been developing our channels to market, with new shop-in-shop merchandising initiatives in the retail channel, as well as continued investment in our online marketing and fulfillment capabilities.

In April, we reached a major milestone with our acquisition of Maharam Fabric Corporation, a premier design brand in commercial interiors and recognized internationally for the highest quality textiles and wall coverings. The addition of Maharam to our Specialty and Consumer segment is a powerful strategic accelerator for our entire business, on multiple levels. We instantly became a North American market leader in their core product areas, with the ability to leverage our resources to further Maharam's reach into new markets. We have made it clear that Maharam will continue to be Maharam, maintaining their identity, design and operational excellence that made them a successful business, but we are also excited by the mutual brand reinforcement we gain in bringing the companies together.

We made significant progress this year toward our commitment to further strengthen our balance sheet while returning greater cash to shareholders. This includes the actions we've taken to terminate our U.S. defined benefit pension plans in favor of a defined contribution retirement program. We believe this plan to terminate our U.S. defined benefit pension plans will improve the predictability of cash flows and expenses associated with our employee benefit programs and significantly reduce balance sheet risk. We expect the process to be completed during the second quarter of fiscal 2014. At the time of termination, we will be required to make additional cash contributions to the plans, which we currently estimate will total between $50 million and $55 million.

Our results for the year ended June 1, 2013 include expenses associated with the transition from (and planned termination of) the domestic defined benefit pension plans. These expenses, referred to as, "legacy pension expenses" throughout this document, include settlements caused by the transition and net periodic benefit expenses, subsequent to September 1, 2012, related to the defined benefit plans in question. They also include incremental pension expenses in the first quarter of fiscal 2013 resulting from modifications we made to the investment strategy of our defined benefit plan assets in order to prepare for the termination process. We recognized legacy pension expenses totaling $28.2 million for the year ended June 1, 2013 . Of this amount, $24.1 million is recorded within Operating expenses and the remaining portion is included in Cost of sales, thus reducing gross margin by approximately 20 basis points .

(1) Non-GAAP measurements; see accompanying reconciliations and explanations.

Concurrent with the progress we made on the termination of our U.S. defined benefit pension plans and transition to a defined contribution retirement program, we also implemented two dividend increases, raising our annualized payout from $5 million in fiscal 2012 , to today's run rate of approximately $29 million.

Capital expenditures totaled $50.2 million for the year ended June 1, 2013 , an increase of $21.7 million compared to fiscal 2012 . The ramp up in capital spending was in support of our shift strategy which includes investments in new product development, customer showroom refreshes, and other facilities. We expect capital expenditures to increase $10 to $20 million in fiscal 2014 in continued support of our avenues of growth.

Reconciliation of Non-GAAP Financial Measures

This report contains Adjusted operating earnings measures and Adjusted earnings per share – diluted that are Non-GAAP financial measures. Adjusted operating earnings and Adjusted earnings per share – diluted are calculated by excluding from Operating earnings and Earnings per share – diluted items that we believe are not indicative of our ongoing operating performance. Such items consist of expenses associated with restructuring actions taken to adjust our cost structure to the current business climate and transition-related expenses, including amortization and settlement expenses, relating to defined benefit pension plans that we intend to terminate. We present Adjusted operating earnings and Adjusted earnings per share – diluted because we consider them to be important supplemental measures of our performance and believe them to be useful in analyzing ongoing results from operations.

Adjusted operating earnings and Adjusted earnings per share – diluted are not measurements of our financial performance under GAAP and should not be considered an alternative to Operating earnings and Earnings per share – diluted under GAAP. Adjusted operating earnings and Adjusted earnings per share – diluted have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating Adjusted operating earnings and Adjusted earnings per share – diluted, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted operating earnings and Adjusted earnings per share – diluted should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using Adjusted operating earnings and Adjusted earnings per share – diluted only as a supplement.

The following table reconciles Operating earnings to Adjusted operating earnings for the years indicated.

The following table reconciles Earnings per share – diluted to Adjusted earnings per share – diluted for the years indicated.

(1) At the end of fiscal 2012, the company modified the asset allocations strategy of its U.S. defined benefit pension plans. This change was made in response to the decision to close and ultimately terminate these plans. Legacy pension expenses are included as an adjustment to Operating earnings and Earnings per share – diluted only in periods subsequent to this change in allocation.

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 Comprehensive Income as a percentage of net sales.

Net Sales, Orders, and Backlog - Fiscal 2013 Compared to Fiscal 2012

For the fiscal year ended June 1, 2013 , consolidated net sales increased 2.9 percent to $1,774.9 million from $1,724.1 million for the fiscal year ended June 2, 2012 . The acquisitions of Maharam Fabric Corporation (Maharam) on April 29, 2013 and Sun Hing POSH Holdings Limited (POSH) on April 3, 2012 increased fiscal 2013 net sales approximately $56.6 million. The impact of dealer divestitures in the second quarter of fiscal 2012 and the third quarter of fiscal 2013 had the effect of reducing sales approximately $10 million compared to fiscal 2012. The overall impact of foreign currency changes for the fiscal year was to decrease net sales by approximately $8 million. The year ended June 2, 2012 contained 53 weeks. An extra week in the company's fiscal year is required approximately every six years in order to realign its fiscal calendar-end dates with the actual calendar months. The additional week in Fiscal 2012 is estimated to have increased net sales $32 million. The company has also experienced a $50 million decrease in sales volumes to the U.S. federal government as compared to fiscal 2012. The impact of net changes in pricing is estimated to have had a $5.0 million increase on net sales during fiscal 2013. The remaining increase compared to fiscal 2012 was driven by increased volumes.

The following table presents the quantification of the changes in net sales from fiscal 2012 to fiscal 2013.

Consolidated net trade orders for fiscal 2013 totaled $1,771.6 million compared to $1,725.7 million in fiscal 2012 , an increase of 2.7 percent. Order rates began the year at a steady pace with orders averaging approximately $36 million per week through the second quarter. The third quarter weekly order rates averaged approximately $29 million per week, which is consistent with the company's 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 decreased net orders by approximately $8.4 million.

Our backlog of unfilled orders at the end of fiscal 2013 totaled $274.4 million, a 1.3 percent decrease from the $278.0 million of backlog at the end of fiscal 2012 .

BIFMA reported an estimated year-over-year decrease in U.S. office furniture shipments of approximately 0.6 percent for the twelve-month period ended May 2013. By comparison, the net sales increased for the company's domestic U.S. business by approximately 0.8 percent. The company believes that while comparisons to BIFMA are important, the company continues to pursue a strategy of revenue diversification that makes us less reliant on the drivers that impact BIFMA.

Net Sales, Orders, and Backlog - Fiscal 2012 Compared to Fiscal 2011

For the fiscal year ended June 2, 2012 , consolidated net sales increased 4.5 percent to $1,724.1 million from $1,649.2 million for the fiscal year ended May 28, 2011 . Net sales increased approximately $4.9 million in fiscal 2012 from the acquisition of Sun Hing POSH Holdings Limited (POSH). The overall impact of foreign currency changes for the fiscal year was to increase net sales by approximately $4.9 million. The impact of net changes in pricing is estimated to have had a $35.0 million increase on net sales during fiscal 2012 over the prior year. The divestiture of the three dealers sold during fiscal 2012 lead to approximately a $53 million decrease in both net sales and orders for fiscal 2012. The extra week of operations contributed approximately $32 million towards the increase. The company has also experienced a $62 million decrease in sales volumes to the U.S. federal government as compared to fiscal 2011. The remainder of the fiscal 2012 increase was driven by increased unit volumes.

The following table presents the quantification of the changes in net sales from fiscal 2011 to fiscal 2012.

Consolidated net trade orders for fiscal 2012 totaled $1,725.7 million compared to $1,672.3 million in fiscal 2011, an increase of 3.2 percent. Order rates began the year at a steady pace with orders averaging approximately $34 million per week through the second quarter. The third quarter weekly order rates averaged approximately $28 million per week, which is consistent with the company's typical seasonal slowdown. The fourth quarter finished the year with average weekly order rates increasing to approximately $34 million. The overall impact of foreign currency changes for the fiscal year increased net orders by approximately $5.7 million.

Our backlog of unfilled orders at the end of fiscal 2012 totaled $278.0 million, a 0.8 percent increase from the $275.8 million backlog at the end of fiscal 2011.

BIFMA reported an estimated year-over-year increase in U.S. office furniture shipments of approximately 4.1 percent for the twelve-month period ended May 2012. By comparison, the net sales increase for the company's domestic U.S. business was approximately 6.9 percent.

Gross Margin - Fiscal 2013 Compared to Fiscal 2012

Fiscal 2013 gross margin as a percentage of sales was 34.1 percent which is a decrease of 20 basis points from the fiscal 2012 level. The benefit captured from price increases net of incremental discounting had the effect of increasing gross margin by approximately 30 basis points. This benefit drove an increase in net sales of approximately $5 million during fiscal 2013 relative to the prior year period. An improvement in pricing net of incremental discounting increases net sales relative to prior periods. This has the effect of decreasing the components of the Condensed Consolidated Statement of Comprehensive Income as a percentage of net sales.

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

Direct material costs as a percent of net sales increased 50 basis points as compared to fiscal 2012. The material costs as a percent of net sales was impacted by approximately a 30 basis point increase related to the acquisition of POSH. Offsetting this increase were favorable impacts from lower commodity costs of 30 basis points. The remaining increase is related to unfavorable impact of changes in the product and channel mix compared to the prior year.

Direct labor was 6.4 percent of net sales for fiscal 2013, a decrease of 20 basis points from the prior year. The decrease is primarily related to a change in product mix compared to fiscal 2012.

Manufacturing overhead was 10.8 percent of net sales for fiscal 2013; decreasing 10 basis points from the prior year. Overhead costs in fiscal 2013 included approximately $4.1 million of legacy pension expenses related to the transition from (and planned termination of) the domestic defined benefit pension plans, accounting for a 20 basis point increase in overhead as a percent of net sales. Overhead costs as a percent of net sales were also increased by approximately 10 basis points due to higher employee incentive costs. The remaining change in was primarily related to a change in product mix compared to fiscal 2012.

Freight and distribution expenses, as a percentage of sales, was 6.0 percent for fiscal 2013 and were flat compared to the prior year.

Gross Margin - Fiscal 2012 Compared to Fiscal 2011

Fiscal 2012 gross margin as a percentage of sales was 34.3 percent which is an increase of 170 basis points from the fiscal 2011 level. Approximately 130 basis points of the increase was driven by the benefit captured from price increases net of incremental discounting. This benefit drove an increase in net sales of approximately $35 million during fiscal 2012 relative to the prior year period. An improvement in pricing net of incremental discounting increases net sales relative to prior periods. This has the effect of decreasing the components of the Condensed Consolidated Statement of Comprehensive Income as a percentage of net sales.

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

Direct material costs as a percentage of sales in the current year remained consistent with fiscal 2011 levels.

Direct labor costs remained substantially the same as a percentage of sales compared to fiscal 2011 levels. The reduction in net sales due to the dealer divestitures during fiscal 2012 had the effect of increasing the direct labor percent as the incremental dealer sales had a lower direct labor component, however, this was offset by the net increase in pricing and favorable product labor content.

Overhead costs as a percent of net sales were lower by 170 basis points. The decrease in manufacturing overhead percent was due to both a $16.2 million reduction in overhead costs and a reduction in net sales due to the divested dealers. The additional decrease in manufacturing overhead percent was due to a decrease in employee incentive costs of approximately $6.8 million, and the net increase in pricing. The remainder of the decrease is due to increased absorption of overhead costs.

Freight and distribution expenses, as a percentage of sales, were modestly higher by 20 basis points compared to fiscal 2011 levels. In dollars these costs were higher by $5.5 million due to increased volume. The largest contributing factor to the increase in freight expense was increased fuel costs.

Operating Expenses - Fiscal 2013 Compared to Fiscal 2012

Operating expenses in fiscal 2013 were $490.3 million , or 27.6 percent of net sales, which compares to $453.0 million , or 26.3 percent of net sales in fiscal 2012. The company experienced a year-over-year increase in operating expense dollars of $37.3 million , and a 130 basis point increase to operating expenses as a percentage of net sales. The increase in operating expenses primarily relates to the legacy pension expenses of $24.1 million. The acquisitions of POSH and Maharam contributed an additional $7.0 million and $4.7 million of operating expenses, respectively. The impact of dealer divestitures had the effect of reducing operating expenses approximately $4.5 million compared to fiscal 2012. In addition, design and research expenses increased $7.2 million. Fiscal 2012 also included an extra week of operations, which drove approximately $3 million in additional compensation expense compared to fiscal 2013. Warranty expenses for the year were lower by approximately $6 million, primarily due to lower customer specific claims and changes in estimate in the prior year related to higher warranty claims loss experience which drove additional expense of approximately $5 million in fiscal 2012. The company recorded approximately $3 million more employee incentive expense during fiscal 2013 compared to the prior year period. The remaining change was due to net increases in various other operating expenses compared to the prior year period.

Year-over-year changes in currency exchange rates, associated with the company's international operations, decreased operating expenses by an estimated $2 million.

Design and research costs included in total operating expenses for fiscal 2013 was $59.9 million , or 3.4 percent of net sales, compared to fiscal 2012 expenses of $52.7 million , or 3.1 percent of net sales. This increase was primarily driven by the company's increased investment in various projects. Royalty payments for the company products, which are included within design and research costs, totaled $11.6 million and $11.7 million in fiscal years 2013 and 2012, respectively.

The following table presents the quantification of the changes in total operating expenses from fiscal 2012 to fiscal 2013.

Operating Expense - Fiscal 2012 Compared to Fiscal 2011

Operating expenses in fiscal 2012 were $453.0 million, or 26.3 percent of net sales, which compares to $414.8 million, or 25.2 percent of net sales in fiscal 2011. The company experienced a year-over-year increase in operating expense dollars of $38.2 million. The fiscal 2012 increase in operating expenses was partially driven by the fiscal 2011 settlement of the liability related to contingent payments associated with the Nemschoff acquisition. The settlement of this liability had the impact of reducing operating expenses by $15.1 million in fiscal 2011. The company also incurred approximately $3 million and $1.6 million in additional operating expenses due to the extra week of operations and the acquisition of POSH, respectively, during fiscal 2012. The company recorded approximately $7 million less employee incentive expense during fiscal 2012 compared to the prior year period. The remaining change was due to net increases in various other operating expenses compared to the prior year period.

Warranty expenses increased by $10.9 million in fiscal 2012. Approximately $1.2 million of the increase related to product warranty claims in excess of historical experience for older life cycle products. When applying this increased warranty claims loss experience to the remaining historical periods, this resulted in a change in estimate related to our general warranty reserve which drove additional expense of approximately $5 million. Higher sales in fiscal 2012 compared to fiscal 2011 drove an increase in product warranty expense of approximately $1.5 million. The remaining increase in warranty expense related to specific customer claims.

Year-over-year changes in currency exchange rates, associated with the company's international operations, increased operating expenses by an estimated $1 million.

Design and research costs included in total operating expenses for fiscal 2012 was $52.7 million, or 3.1 percent of net sales, compared to fiscal 2011 expenses of $45.8 million, or 2.8 percent of net sales. This increase was primarily driven by the company's increased investment in various projects. The remaining increase of $1.3 million was due to an increase in royalty payments to designers due to increases in net sales. Royalty payments for the company products, which are included within design and research costs, totaled $11.7 million and $10.4 million in fiscal years 2012 and 2011, respectively.

The following table presents the quantification of the changes in total operating expenses from fiscal 2011 to fiscal 2012.

Restructuring - Fiscal 2013 and Fiscal 2012

During fiscal 2012, the company took action to decrease its cost structure. In the fourth quarter the company announced a plan (the 2012 Plan) to consolidate the Nemschoff manufacturing operations in Sheboygan, Wisconsin with the closure of the Sioux City, Iowa seating plant. The 2012 Plan also includes the consolidation of the Nemschoff Sheboygan manufacturing sites into one location. This plan reduced fixed costs and operating expenses in order to improve operating performance, profitability and further enhance productivity. The 2012 Plan reduced the workforce by approximately 70 employees. The company anticipates no additional restructuring expense will be incurred under the 2012 Plan.

The fiscal 2013 restructuring expenses related to the 2012 Plan were $1.2 million . The restructuring expense consisted of $0.3 million related to severance and the $0.9 million related to building exit costs.

During fiscal 2012, the company incurred restructuring expense of $1.6 million of which consisted of $0.2 million related to severance and the $1.4 million related to impairment of building and equipment. In addition, the company recorded impairment of $3.8 million for the indefinite-lived intangible assets related to two healthcare trade names that were terminated during the fourth quarter of fiscal 2012. The impairment was the result of the company's strategy to reduce its portfolio of healthcare brands and begin marketing the related products under the Nemschoff trade name.

The restructuring liabilities of $0.2 million for fiscal years 2013 and 2012 are included in, "Accrued liabilities" within the Consolidated Balance Sheet.

See Note 16 of the Consolidated Financial Statements for additional information on restructuring.

Operating Earnings

In fiscal 2013 operating earnings were $114.9 million, a 16.5 percent decrease from fiscal 2012 operating earnings of $137.6 million. This decrease was attributable to legacy pension expenses of $28.2 million. The fiscal 2012 operating earnings of $137.6 million represented a 11.6 percent increase from fiscal 2011 operating earnings of $123.3 million.

Other Expenses and Income

Net other expenses totaled $17.7 million in fiscal 2013 compared to $18.1 million in fiscal 2012 and $20.8 million in fiscal 2011. The decrease in the fiscal 2013 net other expenses is primarily related to an increase in investment income.

The decrease in fiscal 2012 expense compared to fiscal 2011 was a result of lower interest expense of $2.4 million due to a net reduction in the company's long-term debt levels in the fourth quarter of fiscal 2011. Lower foreign currency transaction losses in fiscal 2012 contributed to the remainder of the decrease in expense compared to fiscal 2011.

Income Taxes

The company's effective tax rate was 29.8 percent in fiscal 2013 versus 37.1 percent in fiscal 2012 and 30.9 percent in fiscal 2011. The effective tax rate in fiscal 2013 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing deduction and international tax rate differential. The effective tax rate in fiscal 2012 was above the statutory rate of 35 percent, primarily due to a lower than anticipated manufacturing deduction, non-deductible expenses associated with contingent purchase consideration, and other adjustments required to reconcile income tax expense with the tax return of a foreign subsidiary. The effective tax rate in fiscal 2011 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing deduction and realization of foreign tax credits.

For further information regarding income taxes, refer to Note 11 of the Consolidated Financial Statements.

Net Earnings; Earnings per Share

In fiscal 2013 and fiscal 2012 we generated $68.2 million and $75.2 million of net earnings, respectively. This compares to net earnings in fiscal 2011 of $70.8 million . In fiscal 2013 diluted earnings per share were $1.16 while diluted earnings per share in fiscal 2012 were $1.29 and $1.06 in fiscal 2011 .

Discussion of Segments - Fiscal 2013 Compared to Fiscal 2012

North America

Net sales within the North American Furniture Solutions (North America) reportable segment increased $3.4 million to $1,221.9 million in fiscal 2013 , a 0.3 percent increase from fiscal 2012 . The impact of dealer divestitures in the second quarter of fiscal 2012 and the third quarter of fiscal 2013 had the effect of reducing sales approximately $10 million compared to fiscal 2012. The impact of foreign currency changes was to decrease fiscal 2013 net sales for North America by approximately $0.5 million. The impact of net changes in pricing is estimated to have had a $6 million increase on net sales during fiscal 2013 over the prior year. The additional week in fiscal 2012 is estimated to have increased net sales $23 million in fiscal 2012. The company has also experienced a $50 million decrease in sales volumes to the U.S. federal government as compared to fiscal 2012. The remaining change in net sales was due to an increase in unit volumes during fiscal 2013.

Operating earnings for North America in fiscal 2013 were 6.3 percent of net sales, a $20.3 million decrease from fiscal 2012. The decrease is attributable to the legacy pension expenses of $26.5 million. The extra week of operations had the effect of decreasing operating earnings in fiscal 2013 by approximately $1.8 million. The impact of dealer divestitures had the effect of increasing operating earnings approximately $3 million compared to fiscal 2012. Warranty expenses were lower by $6.0 million for fiscal 2013 due to lower customer specific claims and changes in estimates in the prior year related to higher warranty claims loss experience which drove additional expense of approximately $5 million in fiscal 2012. North America also had approximately $5.0 million in additional employee incentive expense during fiscal 2013 compared to the prior year. The impact of foreign currency changes increased fiscal 2013 operating earnings for North America by approximately $1.0 million. The remaining change in operating earnings as a percent of net sales in the current fiscal year is primarily driven by the ability to spread fixed manufacturing, sales and other costs over increased net sales.

Non-North America

Net sales in the Non-North American Furniture Solutions (Non-North America) reportable segment increased 8.6 percent, or $30.0 million, in fiscal 2013. The extra week of operations contributed approximately $6 million towards the fiscal 2012 net sales. Additionally, the acquisition of POSH in the fourth quarter of fiscal 2012 contributed an additional $46 million to net sales in fiscal 2013. The impact of foreign currency changes was to decrease fiscal 2013 net sales for Non-North America by approximately $7.5 million. The impact of net changes in pricing is estimated to have had a $1.5 million decrease on net sales during fiscal 2013 over the prior year. The remaining change in net sales was due to changes in unit volumes during fiscal 2013.

Operating earnings within Non-North America represents 6.5 percent of net sales for fiscal year 2013, a decrease of $7.4 million from fiscal 2012. The acquisition of POSH contributed an additional $4.0 million of operating earnings to fiscal 2013. The increase from POSH was more than offset by increased marketing and selling costs of $3.0 million, the impact of foreign currency changes of $4.0 million, the impact of the extra week in fiscal 2012 of $0.6 million, and declining leverage.

Specialty and Consumer

Net sales within the Specialty and Consumer reportable segment (Specialty and Consumer) increased 11.0 percent compared to fiscal 2012. The acquisition of Maharam in the fourth quarter of fiscal 2013 contributed an additional $10.6 million of net sales in fiscal 2013. The remaining increase was due to increased volumes which was partially offset by the impact of the extra week of operations in fiscal 2012 which is estimated to have increased net sales $3.0 million.

Operating earnings within Specialty and Consumer totaled $15.4 million for the year, or 8.8 percent of net sales. The extra week of operations had the effect of increasing operating earnings in fiscal 2012 by approximately $0.3 million. Specialty and Consumer also included legacy pension expenses of $1.7 million in fiscal 2013. The remaining increase in operating earnings was driven by the ability to spread fixed manufacturing, sales and other costs over increased volumes.

Discussion of Segments - Fiscal 2012 Compared to Fiscal 2011

North America

Net sales within the North American Furniture Solutions (North America) reportable segment were $1,218.5 million in fiscal 2012, a 0.5 percent decrease from fiscal 2011 net sales of $1,224.8 million. The divestiture of the three dealers sold during fiscal 2012 lead to a decrease of approximately $53.0 million in net sales. The impact of net changes in pricing is estimated to have had a $31.0 million increase on net sales during fiscal 2012 over the prior year. The extra week of operations contributed approximately $23.0 million to the fiscal 2012 net sales. The impact of foreign currency changes was to increase fiscal 2012 net sales for North America by approximately $0.7 million. The company has also experienced a $62 million decrease in sales volumes to the U.S. federal government as compared to fiscal 2011. The remaining change in net sales was due to an increase in volumes during fiscal 2012.

Operating earnings for North America in fiscal 2012 were $96.9 million, or 8.0 percent of net sales. This compares to operating earnings of $99.4 million or 8.1 percent of net sales in fiscal 2011. The extra week of operations had the effect of increasing operating earnings in fiscal 2012 by approximately $1.8 million. Warranty expenses were higher by $9.2 million for fiscal 2012 due to increased spend and changes in estimates. North America also had a decrease of approximately $15.0 million in employee incentive expense during fiscal 2012 compared to the prior year. The impact of foreign currency changes increased fiscal 2012 operating earnings for North America by approximately $0.7 million. In addition, the fiscal 2011 operating earnings included the positive impact resulting from the settlement of the liability related to contingent payments associated with the Nemschoff acquisition of $15.1 million. The remaining change in operating earnings as a percent of net sales in the current fiscal year is primarily driven by the ability to spread fixed manufacturing, sales and other costs over increased net sales.

Non-North America

Net sales from the Non-North American Furniture Solutions (Non-North America) reportable segment were $347.3 million in fiscal 2012, a $56.9 million or a 19.6 percent increase from fiscal 2011 net sales of $290.4 million. The extra week of operations contributed approximately $6.0 million towards the increase. Additionally, net sales increased approximately $4.9 million in fiscal 2012 from the acquisition of POSH, which was acquired in the fourth quarter of fiscal 2012. The impact of foreign currency changes was to increase fiscal 2012 net sales for Non-North America by approximately $4.2 million. The remaining year-over-year sales growth was driven primarily from increased unit volumes during fiscal 2012.

Operating earnings within Non-North America totaled $32.1 million and $18.8 million for fiscal year 2012 and 2011, respectively, and represents 9.2 percent and 6.4 percent of net sales for fiscal year 2012 and 2011, respectively. The extra week of operations had the effect of increasing operating earnings in fiscal 2012 by approximately $0.6 million. The acquisition of POSH contributed an additional $0.4 million of operating earnings to fiscal 2012. The impact of foreign currency changes increased fiscal 2012 operating earnings for Non-North America by approximately $0.4 million. The remaining increase in operating earnings was driven by the ability to spread fixed manufacturing, sales and other costs over increased unit volumes.

Specialty and Consumer

Net sales within the Specialty and Consumer reportable segment (Specialty and Consumer) were $158.3 million in fiscal 2012, a $24.3 million or a 18.0 percent increase from fiscal 2011 net sales of $134.0 million. The impact of net changes in pricing is estimated to have had a $4.0 million increase on net sales during fiscal 2012 over the prior year. The extra week of operations contributed approximately $3.0 million towards the increase. The remaining increase in net sales was driven primarily from increased unit volumes during fiscal 2012.

Operating earnings within Specialty and Consumer totaled $15.1 million for the year, or 9.5 percent of net sales. This compares to operating earnings of $10.7 million, or 8.0 percent, of net sales in fiscal 2011, an increase of 150 basis points. The extra week of operations had the effect of increasing operating earnings in fiscal 2012 by approximately $0.3 million. Specialty and Consumer also had a decrease of approximately $1.0 million in employee incentive expense during fiscal 2012 compared to the prior year. Warranty expenses increased $2.2 million for fiscal 2012 due to increased spend and changes in estimates. The remaining increase in operating earnings was driven by the ability to spread fixed manufacturing, sales and other costs over increased unit volumes.

Liquidity and Capital Resources

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

(1) Amount shown for fiscal 2011 includes a $14.6 million contribution made in the company's common stock.

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

(3) During fiscal 2012 we renegotiated the unsecured revolving credit facility. Refer to Note 6 of the Consolidated Financial Statements for additional information.

Cash Flow - Operating Activities

Cash generated from operating activities in fiscal 2013 totaled $136.5 million compared to $ 90.1 million generated in the prior year. This represents an increase of $46.4 million compared to fiscal 2012 . Changes in working capital balances resulted in a $17.2 million source of cash in the current fiscal year compared to a $8.8 million source of cash in the prior year.

The source of cash related to changes in working capital balances in fiscal 2013 consist primarily of a decrease in estimated tax payments of $9.5 million and increases in accrued liabilities related to dividends and employee incentive costs of $6.0 million and $12.5 million, respectively. These amounts were partially offset by increases in trade receivables and inventories of $7.7 million and $4.6 million, respectively.

The source of cash related to changes in working capital balances in fiscal 2012 consist primarily of decreases in trade receivables of $17.5 million, prepaids of $2.7 million, an increase in trade payables of $4.8 million and an increase in accrued warranty of $5.3 million. These amounts were partially offset by decreases in accrued compensation and other accruals of $20.1 million and $1.4 million, respectively.

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 $14.3 million, and regular and incentive based compensation of $34.8 million during fiscal 2011.

Collections of accounts receivable remained strong throughout fiscal 2013, and the company's recorded accounts receivable valuation allowances at the end of the year are believed to be adequate to cover the risk of potential bad debts. Allowances for non-collectible accounts receivable, as a percent of gross accounts receivable, totaled 2.4 percent, 2.7 percent, and 2.3 percent at the end of fiscal years 2013, 2012, and 2011, respectively.

During fiscal 2013, $4.5 million in cash contributions were made to the company's employee pension and post-retirement benefit plans. Cash contributions during fiscal 2012 and 2011 made to the company's employee pension and post-retirement benefit plans totaled $64.9 million and $38.2 million, respectively. The company plans to terminate the primary domestic pension plan in fiscal 2014. At the time of termination, the company will be required to make additional cash contributions to the plans, which are currently estimated to total between $50 million to $55 million. 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 8 of the Consolidated Financial Statements.

Cash Flow - Investing Activities

Capital expenditures totaled $50.2 million , $28.5 million and $30.5 million in fiscal 2013 , 2012 and 2011 , respectively. Outstanding commitments for future capital purchases at the end of fiscal 2013 were approximately $10 million . The company expects capital spending in fiscal 2014 to be between $60 million and $70 million primarily due to planned investments in the company's facilities.

Included in the fiscal 2013 and fiscal 2012 investing activities, are net cash outflows of $155.8 million and $47.1 million related to the acquisition of Maharam Fabric Corporation (Maharam) in fiscal 2013 and Sun Hing POSH Holdings Limited (POSH) in fiscal 2012, respectively. Fiscal 2012 also includes proceeds of $13.8 million and $3.6 million from the sale of three furniture dealerships and a warehousing facility, respectively.

Our net marketable securities transactions for fiscal 2013 yielded a $1.2 million use of cash. This compares to a $1.4 million and $1.3 million source of cash in fiscal 2012 and fiscal 2011 , respectively.

Cash Flow - Financing Activities

(1) Includes 582,000 shares issued as a contribution to the company's pension plans during fiscal 2011.

During the second quarter of fiscal 2013 , the company entered into a revolving line of credit, which provides the company with approximately $5.0 million in revolving variable interest borrowing capacity. The company intends to utilize the revolver, which is denominated in Chinese Renminbi, to meet working capital cash flow needs at its Ningbo, China operations. The uncommitted facility is subject to changes in bank approval and outstanding borrowings bear interest at rates based on a benchmark lending rate as outlined in the agreement. Each draw on the line of credit is subject to a maximum period of one year, and corresponding interest is payable on the maturity date of each draw. As of June 1, 2013 , there were no borrowings against this facility.

During the second quarter of fiscal 2012, the company entered into an amendment and restatement of the syndicated revolving line of credit, which provides the company with up to $150 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing the company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the facility by $75 million. The facility expires in November 2016 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. The only usage against the company's unsecured revolving credit facility at the end of fiscal 2013 , 2012 , and 2011 represented outstanding standby letters of credit totaling $7.7 million , $9.7 million and $9.4 million, respectively.

Interest-bearing debt at the end of fiscal 2013 , 2012 , and 2011 was $250.0 million . The provisions of the company's private placement notes and unsecured credit facility require the company to adhere to certain covenants and maintain certain performance ratios. The company was in compliance with all such covenants and performance ratios during fiscal 2013.

In fiscal 2013 , we received $7.2 million related to the issuance of shares in connection with stock-based compensation plans. This compares to receiving $6.4 million and $8.6 million in fiscal 2012 and 2011 , respectively.

At the end of the fourth quarter fiscal 2013 , the company had cash and cash equivalents of $82.7 million including foreign cash of $42.0 million. In addition, the company had foreign marketable securities of $10.8 million . The foreign subsidiary holding the company's marketable securities is taxed as a U.S. taxpayer at the company's election; consequently, for tax purposes all U.S tax impacts for this subsidiary have been recorded. The company has no plans to repatriate earnings from foreign subsidiaries in fiscal 2014. The company's intent is to permanently reinvest the remainder of the foreign cash amounts outside the U.S. The company's plans do not demonstrate a need to repatriate these balances to fund U.S. operations. During fiscal 2013 the company repatriated $3.0 million of undistributed foreign earnings. During fiscal 2012 the company did not repatriate any undistributed foreign earnings. During fiscal 2011 the company repatriated $18.8 million of undistributed foreign earnings.

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, capital needs and future dividends, subject to financing availability in the marketplace.

Contingencies

The company leases a facility in the United Kingdom under an agreement that expired in June 2011, and the company is currently leasing the facility on a month to month basis. 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 most likely approximate $1.3 million as of June 1, 2013 , and was estimated to be $1.2 million as of June 2, 2012 . As a result, these amounts have been recorded as a liability reflected under the caption "Accrued Liabilities" for fiscal 2013 and fiscal 2012 in the Consolidated Balance Sheets.

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 a result, the estimated liability of $0.6 million and $1.1 million is reflected under the caption "Accrued Liabilities" and "Other Liabilities" in the Consolidated Balance Sheets at June 1, 2013 and June 2, 2012 , respectively.

The company is also 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 Consolidated Financial Statements.

Basis of Presentation

The company's fiscal year ends on the Saturday closest to May 31. Fiscal years ending June 1, 2013 and May 28, 2011 each contained 52 weeks of operations. Fiscal year ended June 2, 2012 included 53 weeks of operations. This is the basis upon which weekly-average data is presented.

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 6 of the Consolidated Financial Statements. Likewise, further information related to operating leases can be found in Note 7 of the Consolidated Financial Statements.