Summary of Significant Accounting Policies

Principles of Consolidation and Fiscal Year-End

The consolidated financial statements include the accounts and transactions of the Corporation and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The Corporation follows a 52/53 week fiscal year which ends on the Saturday nearest December 31. Fiscal year 2012 ended on December 29, 2012; 2011 ended on December 31, 2011; and 2010 ended on January 1, 2011. The financial statements for fiscal years 2012, 2011 and 2010 are on a 52-week basis. A 53-week year occurs approximately every sixth year.

Cash, Cash Equivalents and Investments

Cash and cash equivalents generally consist of cash and money market accounts. The fair value approximates the carrying value due to the short duration of the securities. These securities have original maturity dates not exceeding three months. The Corporation has short-term investments with maturities of less than one year and also has investments with maturities greater than one year included in Other Assets on the Consolidated Balance Sheets. Management classifies investments in marketable securities at the time of purchase and reevaluates such classification at each balance sheet date. Debt securities including government and corporate bonds are classified as available-for-sale and stated at current market value with unrealized gains and losses included as a separate component of equity, net of any related tax effect. The specific identification method is used to determine realized gains and losses on the trade date. The Corporation has invested in an investment fund which is valued at fair market value with changes recorded through the income statement.

At December 29, 2012, December 31, 2011 and January 1, 2011, cash, cash equivalents and investments consisted of the following:



Year-End 2012 (In thousands)	Cash and cash equivalents		Short-term investments		Long-term investments
Held-to-maturity securities
Certificates of deposit	$	—	$	250	$	—
Available-for-sale securities
Debt securities	—		7,000		13,356
Cash and money market accounts	41,782		—		—
Total	$	41,782	$	7,250	$	13,356



Year-End 2011 (In thousands)	Cash and cash equivalents		Short-term investments		Long-term investments
Held-to-maturity securities
Certificates of deposit	$	—	$	257	$	—
Available-for-sale securities
Debt securities	—		8,900		10,714
Cash and money market accounts	72,812		—		—
Total	$	72,812	$	9,157	$	10,714



Year-End 2010 (In thousands)	Cash and cash equivalents		Short-term investments		Long-term investments
Held-to-maturity securities
Certificates of deposit	$	—	$	255	$	—
Available-for-sale securities
Debt securities	—		9,607		—
Investment in target fund	—		705		—
Cash and money market accounts	99,096		—		—
Total	$	99,096	$	10,567	$	—

Receivables

Accounts receivable are presented net of allowance for doubtful accounts of $5.2 million, $4.8 million and $5.5 million, for 2012, 2011 and 2010, respectively. The allowance is developed based on several factors including overall customer credit quality, historical write-off experience, and specific account analyses projecting the ultimate collectibility of the account. As such, these factors may change over time causing the reserve level to adjust accordingly.

Inventories

The Corporation valued 70%, 67% and 77% of its inventory by the LIFO method at December 29, 2012, December 31, 2011 and January 1, 2011, respectively. During 2012 and 2010, inventory quantities were reduced at certain reporting units. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of current year purchases, the effect of which decreased cost of goods sold by approximately $0.8 million and $1.5 million in 2012 and 2010, respectively. If the FIFO method had been in use, inventories would have been $25.5 million, $25.9 million and $23.8 million higher than reported at December 29, 2012, December 31, 2011 and January 1, 2011, respectively.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation has been computed using the straight-line method over estimated useful lives: land improvements, 10 – 20 years; buildings, 10 – 40 years; and machinery and equipment, 3 – 12 years.

Long-Lived Assets

Long-lived assets are reviewed for impairment as events or changes in circumstances occur indicating the amount of the asset reflected in the Corporation’s balance sheet may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management’s estimates due to changes in business conditions, operating performance and economic conditions. Asset impairment charges recorded in connection with the Corporation’s restructuring activities are discussed in Restructuring Related Charges. These assets included real estate, manufacturing equipment and certain other fixed assets. The Corporation’s continuous focus on improving the manufacturing process tends to increase the likelihood of assets being replaced; therefore, the Corporation is regularly evaluating the expected lives of its equipment and accelerating depreciation where appropriate.

Goodwill and Other Intangible Assets

The Corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist. In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment. This guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. The Corporation utilized this guidance for certain reporting units for the annual impairment evaluation during the fourth quarter of 2012 where the fair value was well in excess of carrying value in prior year analysis. The qualitative factors considered included, but were not limited to, general economic conditions, outlook for the office furniture and hearth products industries and recent and forecasted financial performance. The Corporation performed the two-step goodwill impairment test for all other reporting units and used various valuation techniques with the primary technique being a discounted cash flow method. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Management bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates.

The Corporation also determines the fair value of indefinite-lived trade names on an annual basis or whenever indications of impairment exist. The Corporation estimates the fair value of the trade names based on a discounted cash flow model using inputs which include projected revenues from management’s long-term plan, assumed royalty rates that could be payable if the trade names were not owned and a discount rate. Determining the fair value of a trade name involves the use of significant estimates and assumptions. Actual results may differ from those estimates.

The Corporation has definite-lived intangibles that are amortized over their estimated useful lives. Impairment losses are recognized if the carrying amount of an intangible, subject to amortization, is not recoverable from expected future cash flows and its carrying amount exceeds its fair value. Intangibles, net of amortization, of approximately $87 million are included in other assets on the consolidated balance sheet as of the end of fiscal 2012.

See Goodwill and Other Intangible Assets footnote for further information.

Product Warranties

The Corporation issues certain warranty policies on its furniture and hearth products that provide for repair or replacement of any covered product or component failing during normal use because of a defect in design, materials or workmanship. Reserves have

been established for the various costs associated with the Corporation's warranty programs and are included in "Accounts payable and accrued expenses" in the Consolidated Balance Sheets.

A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims expected to be incurred based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Activity associated with warranty obligations was as follows:



(In thousands)	2012			2011			2010
Balance at the beginning of the period	$	12,910		$	12,930		$	12,684
Accrual assumed from acquisition	301			222			—
Accruals for warranties issued during the period	18,370			15,581			15,747
Accrual related to pre-existing warranties	432			(100		)	1,223
Settlements made during the period	(18,958		)	(15,723		)	(16,724		)
Balance at the end of the period	$	13,055		$	12,910		$	12,930

Revenue Recognition

Sales of office furniture and hearth products are generally recognized when title transfers and the risks and rewards of ownership have passed to customers. Typically title and risk of ownership transfer when the product is shipped. In certain circumstances, title and risk of ownership do not transfer until the goods are received by the customer or upon installation and customer acceptance. Revenue includes freight charged to customers; related costs are recorded in selling and administrative expense. Rebates, discounts and other marketing program expenses directly related to the sale are recorded as a reduction to net sales. Marketing program accruals require the use of management estimates and the consideration of contractual arrangements subject to interpretation. Customer sales that achieve or do not achieve certain award levels can affect the amount of such estimates and actual results could differ from these estimates.

Product Development Costs

Product development costs relating to development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. These costs include salaries, contractor fees, building costs, utilities and administrative fees. The amounts charged against income were $26.9 million in 2012, $23.1 million in 2011 and $21.8 million in 2010 and were recorded in Selling and Administrative Expenses on the Consolidated Statements of Income.

Freight Expense

The Corporation records freight expense to customers in Selling and Administrative Expenses on the Consolidated Statements of Income. Amounts recorded were $122.1 million in 2012, $112.3 million in 2011 and $97.8 million in 2010.

Stock-Based Compensation

The Corporation measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes cost over the requisite service period. See the Stock-Based Compensation footnote for further information.

Income Taxes

The Corporation uses an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Deferred income taxes are provided to reflect differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The Corporation provides for taxes that may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the United States, except for those earnings it considers to be permanently reinvested. There were approximately $25.3 million of accumulated earnings considered permanently reinvested in China, Hong Kong and India as of December 29, 2012. See the Income Tax footnote for further information.

Earnings Per Share

Basic earnings per share are based on the weighted-average number of common shares outstanding during the year. Shares potentially issuable under stock options, restricted stock units and common stock equivalents under the Corporation's deferred compensation plans have been considered outstanding for purposes of the diluted earnings per share calculation.

The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share (EPS):



(In thousands, except per share data)	2012		2011		2010
Numerators:
Numerators for both basic and diluted EPS net income (loss) attributable to parent company	$	48,967	$	45,986	$	26,941
Denominators:
Denominator for basic EPS weighted- average common shares outstanding	45,211		44,803		44,994
Potentially dilutive shares from stock option plans	609		891		815
Denominator for diluted EPS	45,820		45,694		45,809
Earnings per share – basic	$	1.08	$	1.03	$	0.60
Earnings per share – diluted	$	1.07	$	1.01	$	0.59

Certain exercisable and non-exercisable stock options were not included in the computation of diluted EPS for fiscal years 2012, 2011 and 2010 because inclusion would have been anti-dilutive. The number of stock options outstanding, which met this criterion was 1,760,220; 1,969,085 and 1,439,911 for 2012, 2011 and 2010, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The more significant areas requiring use of management estimates relate to allowance for doubtful accounts, inventory reserves, marketing program accruals, warranty accruals, accruals for self-insured medical claims, workers’ compensation, legal contingencies, general liability and auto insurance claims, valuation of long-lived assets, and useful lives for depreciation and amortization. Actual results could differ from those estimates.

Self-Insurance

The Corporation is primarily self-insured for general, auto and product liability, workers’ compensation, and certain employee health benefits. The general, auto, product and workers’ compensation liabilities are managed using a wholly owned insurance captive; the related liabilities are included in the accompanying consolidated financial statements. As of December 29, 2012, these liabilities totaled $25.7 million. The Corporation’s policy is to accrue amounts in accordance with the actuarially determined liabilities. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical cost inflation and magnitude of change in actual experience development could cause these estimates to change in the future.

Foreign Currency Translations

Foreign currency financial statements of foreign operations where the local currency is the functional currency are translated using exchange rates in effect at period end for assets and liabilities and average exchange rates during the period for results of operations. Related translation adjustments are reported as a component of Shareholders’ Equity. Gains and losses on foreign currency transactions are included in the “Selling and administrative expenses” caption of the Consolidated Statements of Income.

Reclassifications

Certain reclassifications have been made within the footnotes to conform to the current year presentation.

Recent Accounting Pronouncements

In June 2011, the FASB issued accounting guidance updating the presentation format of comprehensive income. The guidance provided two options for presenting net income and other comprehensive income. The total of comprehensive income, the components of net income and the components of other comprehensive income may be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Corporation adopted the new guidance beginning January 1, 2012. The guidance did not have a material impact on the Corporation's financial statements.

In July 2012, the FASB issued accounting guidance intended to reduce the cost and complexity of the annual impairment test

for indefinite-lived intangible assets other than goodwill by providing the option of performing a qualitative assessment to

determine whether future impairment testing is necessary. This guidance became effective December 30, 2012, the beginning of

the Corporation's 2013 fiscal year. The Corporation does not anticipate this guidance to have any impact on the Corporation's financial statements.