Annual Report
2 11Y
2 11Y
Herman Miller, Inc., and Subsidiaries
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ]
[__]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended May 28, 2011
Commission File No. 001-15141
Herman Miller, Inc.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation
or organization)
38-0837640
(I.R.S. Employer Identification No.)
855 East Main Avenue
PO Box 302
Zeeland, Michigan
(Address of principal
executive offices)
Registrant's telephone number, including area code: (616) 654 3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
49464-0302
(Zip Code)
Common Stock, $.20 Par Value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ X ] No [__]
Yes [__] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [__]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Yes [ X ] No [__]
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 [__]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [__] No [ X ]
The aggregate market value of the voting stock held by “nonaffiliates” of the registrant (for this purpose only, the affiliates of the registrant have been
assumed to be the executive officers and directors of the registrant and their associates) as of November 27, 2010, was $1,214,081,835 (based on
$21.55 per share which was the closing sale price as reported by NASDAQ).
The number of shares outstanding of the registrant's common stock, as of July 19, 2011: Common stock, $.20 par value - 58,134,281 shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on October 10, 2011, are incorporated into
Part III of this report.
TABLE OF CONTENTS
Page No.
Part I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Additional Item: Executive Officers of the Registrant
Part II
Item 5 Market for the Registrant's Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers, and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accountant Fees and Services
Part IV
Item 15 Exhibits and Financial Statement Schedule
Signatures
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
Exhibits
3
6
9
9
9
10
11
13
15
32
34
82
82
82
83
83
83
83
83
84
85
86
87
88
Item 1 BUSINESS
General Development of Business
PART I
The company researches, designs, manufactures, and distributes interior furnishings, for use in various environments including office, healthcare,
educational, and residential settings, and provides related services that support organizations and individuals all over the world. The company's
products are sold primarily to or through independent contract office furniture dealers. Through research, the company seeks to define and
clarify customer needs and problems existing in its markets and to design, through innovation where appropriate and feasible, products, systems,
and services as solutions to such problems. Ultimately, the company seeks to enhance the performance of human habitats worldwide, making
its customers' lives more productive, rewarding, delightful, and meaningful.
Herman Miller, Inc. was incorporated in Michigan in 1905. One of the company's major plants and its corporate offices are located at 855 East
Main Avenue, PO Box 302, Zeeland, Michigan, 49464-0302, and its telephone number is (616) 654-3000. Unless otherwise noted or indicated
by the context, the term “company” includes Herman Miller, Inc., its predecessors, and majority-owned subsidiaries. Further information relating
to principles of consolidation is provided in Note 1 to the Consolidated Financial Statements included in Item 8 of this report.
Financial Information about Segments
Information relating to segments is provided in Note 18 to the Consolidated Financial Statements included in Item 8 of this report.
Narrative Description of Business
The company's principal business consists of the research, design, manufacture, and distribution of office furniture systems, products, and
related services. Most of these systems and products are designed to be used together.
The company works for a better world around our customers by designing furnishings and related services that improve the human experience
wherever people work, heal, learn and live. The company's ingenuity and design excellence creates award-winning products and services, that
makes us a leader in design and development of furniture and furniture systems. This leadership is exemplified by the innovative concepts
introduced by the company in its modular systems (including Action Office®, Canvas Office Landscape™, Ethospace®, Resolve®, My Studio
Environments™ and Vivo Interiors®). The company also offers a broad array of seating (including Embody®, Aeron®, Mirra®, Setu®, Sayl®,
Advo™, Celle®, Equa®, and Ergon® office chairs), storage (including Meridian® and Tu™ products), wooden casegoods (including Geiger®
products), freestanding furniture products (including , Abak®, Intent®, Sense™ and Envelop®) and the recently introduced Thrive portfolio of
ergonomic solutions. These, along with innovative business practices and a commitment to responsible leadership, has resulted in the company
being recognized as the most admired company in the industry by FORTUNE.
The company's products are marketed worldwide by its own sales staff, independent dealers and retailers, its owned dealer network, and via
our e-commerce website. Salespersons work with dealers, the design and architectural community, and directly with end-users. Independent
dealerships concentrate on the sale of Herman Miller products and some complementary product lines of other manufacturers. It is estimated
that approximately 73 percent of the company's sales in the fiscal year ended May 28, 2011, were made to or through independent dealers.
The remaining sales were made directly to end-users, including federal, state, and local governments, and several major corporations, by the
company's own sales staff, its owned dealer network, or independent retailers.
The company is also a recognized leader within its industry for the use, development, and integration of customer-centered technologies that
enhance the reliability, speed, and efficiency of our customers' operations. This includes proprietary sales tools, interior design and product
specification software; order entry and manufacturing scheduling and production systems; and direct connectivity to the company's suppliers.
The company's furniture systems, seating, freestanding furniture, storage and casegood products, and related services are used in (1) office/
institution environments including offices and related conference, lobby, and lounge areas, and general public areas including transportation
terminals; (2) health/science environments including hospitals, clinics, and other healthcare facilities; (3) industrial and educational settings; and
(4) residential and other environments.
Raw Materials
The company's manufacturing materials are available from a significant number of sources within the United States, Canada, Europe, and Asia.
To date, the company has not experienced any difficulties in obtaining its raw materials. The costs of certain direct materials used in the company's
manufacturing and assembly operations are sensitive to shifts in commodity market prices. In particular, the costs of steel components, plastics,
and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum, crude oil, lumber, and resins. Increases in the
3 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
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, Trademarks, Licenses, Etc.
The company has 160 active United States utility patents on various components used in its products and 72 active United States design patents.
Many of the inventions covered by the United States patents also have been patented in a number of foreign countries. Various trademarks,
including the name and stylized “Herman Miller” and the “Herman Miller Circled Symbolic M” trademark are registered in the United States and
many foreign countries. The company does not believe that any material part of its business depends on the continued availability of any one
or all of its patents or trademarks, or that its business would be materially adversely affected by the loss of any thereof, except for Herman
Miller®, Herman Miller Circled Symbolic M®, Geiger®, Nemschoff®, Action Office®, Ethospace®, Aeron®, Mirra®, Eames®, PostureFit®, and
Vivo Interiors™. It is estimated that the average remaining life of such patents and trademarks is approximately 6 years and 9 years, respectively.
Working Capital Practices
Information concerning the company's inventory levels relative to its sales volume can be found under the Executive Overview section in Item
7 of this report. Beyond this discussion, the company does not believe that it or the industry in general, has any special practices or special
conditions affecting working capital items that are significant for understanding the company's business.
Customer Base
It is estimated that no single dealer accounted for more than 4 percent of the company's net sales in the fiscal year ended May 28, 2011. It is
also estimated that the largest single end-user customer, the U.S. federal government, accounted for $226.2 million or approximately 14 percent
of the company's fiscal 2011 net sales. The 10 largest customers accounted for approximately 28 percent of net sales.
Backlog of Unfilled Orders
As of May 28, 2011, the company's backlog of unfilled orders was $275.8 million. At May 29, 2010, the company's backlog totaled $243.6 million.
It is expected that substantially all the orders forming the backlog at May 28, 2011, will be filled during the next fiscal year. Many orders received
by the company are reflected in the backlog for only a short period while other orders specify delayed shipments and are carried in the backlog
for up to one year. Accordingly, the amount of the backlog at any particular time does not necessarily indicate the level of net sales for a particular
succeeding period.
Government Contracts
Other than standard provisions contained in contracts with the United States Government, the company does not believe that any significant
portion of its business is subject to material renegotiation of profits or termination of contracts or subcontracts at the election of various government
entities. The company sells to the U.S. Government both through a GSA Multiple Award Schedule Contract and through competitive bids. The
GSA Multiple Award Schedule Contract pricing is principally based upon the company's commercial price list in effect when the contract is
initiated, rather than being determined on a cost-plus-basis. The company is required to receive GSA approval to increase its list prices during
the term of the Multiple Award Schedule Contract period.
Competition
All aspects of the company's business are highly competitive. The company competes largely on design, product and service quality, speed of
delivery, and product pricing. Although the company is one of the largest office furniture manufacturers in the world, it competes with manufacturers
that have significant resources and sales as well as many smaller companies. In the United States, the company's most significant competitors
are Haworth, HNI Corporation, Kimball International, Knoll, and Steelcase.
Research, Design and Development
The company draws great competitive strength from its research, design and development programs. Accordingly, the company believes that
its research and design activities are of significant importance. Through research, the company seeks to define and clarify customers and the
problems which they are trying to solve. The company designs innovative products and services that address customer needs and solves their
problems. The company uses both internal and independent research and design resources. Exclusive of royalty payments, the company spent
approximately $35.4 million, $33.2 million, and $36.2 million, on research and development activities in fiscal 2011, 2010, and 2009, respectively.
Generally, royalties are paid to designers of the company's products as the products are sold and are not included in research and development
costs since they are variable based on product sales.
Environmental Matters
Living with integrity and respecting the environment stands as one of the company's core values. This is based in part, on the belief that
environmental sustainability and commercial success are not exclusive ends, but instead exist side by side in a mutually beneficial relationship.
The company continues to rigorously reduce, recycle, and reuse solid waste generated by its manufacturing processes and the company's
efforts and accomplishments have been widely recognized. Herman Miller continues to power 100% of our global electrical energy demand
using green energy. We continue to explore and make progress in achieving our goal of zero impact on the environment by the year 2020.
Based on current facts known to management, the company does not believe that existing environmental laws and regulations have had or will
4 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
have any material effect upon the capital expenditures, earnings, or competitive position of the company. However, there can be no assurance
new environmental legislation and technology in this area will not result in or require material capital expenditures or additional costs to our
manufacturing process.
Human Resources
The company considers its employees to be another of its major competitive strengths. The company stresses individual employee participation
and incentives, believing that this emphasis has helped attract and retain a competent and motivated workforce. The company's human resources
group provides employee recruitment, education and development, and compensation planning and counseling. There have been no work
stoppages or labor disputes in the company's history, and its relations with its employees are considered good. Approximately 5 percent of the
company's employees are covered by collective bargaining agreements, most of whom are employees of its Nemschoff and Herman Miller
Limited (U.K.) subsidiaries.
As of May 28, 2011, the company employed 5,616 full-time and 189 part-time employees, representing a 2.9 percent increase and a 8.0 percent
increase, respectively, compared with May 29, 2010. In addition to its employee work force, the company uses temporary purchased labor to
meet uneven demand in its manufacturing operations.
Information about International Operations
The company's sales in international markets are made primarily to office/institutional customers. Foreign sales consist mostly of office furniture
products such as Ethospace®, Abak®, Aeron®, Mirra®, Celle®, Sayl® and other seating and storage products. The company conducts business
in the following major international markets: Europe, Canada, the Middle East, Latin America, and the Asia/Pacific region. In certain foreign
markets, the company's products are offered through licensing of foreign manufacturers on a royalty basis.
The company's products currently sold in international markets are manufactured by wholly owned subsidiaries in the United States, the United
Kingdom, and China. Sales are made through wholly owned subsidiaries or branches in Canada, France, Germany, Italy, Japan, Mexico,
Australia, Singapore, China, India, and the Netherlands. The company's products are offered in the Middle East, South America, and Asia through
dealers.
In several other countries, the company licenses manufacturing and selling rights. Historically, these licensing arrangements have not required
a significant investment of funds or personnel by the company, and in the aggregate, have not produced material net earnings for the company.
Additional information with respect to operations by geographic area appears in Note 18 of the Consolidated Financial Statements included in
Item 8 of this report. Fluctuating exchange rates and factors beyond the control of the company, such as tariff and foreign economic policies,
may affect future results of international operations. Refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, for further
discussion regarding the company's foreign exchange risk.
Available Information
The company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports
are made available free of charge through the “Investors” section of the company's internet website at www.hermanmiller.com, as soon as
practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). The company's filings
with the SEC are also available for the public to read and copy in person at the SEC's Public Reference Room at 100 F Street NE, Washington,
DC 20549, by phone at 1-800-SEC-0330, or via their internet website at www.sec.gov.
5 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 1A RISK FACTORS
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and
uncertainties described below are not the only ones we face; others, either unforeseen or currently deemed less significant, may also have a
negative impact on our company. If any of the following actually occurs, our business, operating results, cash flows, and financial condition could
be materially adversely affected.
Our pension expenses are affected by factors outside our control, including the performance of plan assets, interest rates, actuarial
data and experience and changes in laws and regulations.
Our future funding obligations for our U.S. defined benefit pension plans depend upon changes in the level of benefits provided for by the plans,
the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine funding levels, actuarial data
and experience and any changes in government laws and regulations. In addition, our employee benefit plans hold a significant amount of equity
securities. If the market values of these securities decline significantly, our future pension expenses and funding obligations could increase
significantly. Decreases in interest rates that are not offset by contributions and asset returns could also increase our obligations under such
plans. We may be legally required to make contributions to our U.S. pension plans in the future, and those contributions could be material. In
addition, if local legal authorities increase the minimum funding requirements for our pension plan outside the United States, we could be required
to contribute more funds, which would negatively affect our cash flow.
Sustained downturn in the economy could adversely impact our access to capital.
The disruption experienced in the global economic and financial markets has adversely impacted the broader financial and credit markets, at
times reducing the availability of debt and equity capital for the market as a whole. Conditions such as these could re-emerge in the future.
Accordingly, our ability to access the capital markets could be restricted at a time when we would like, or need, to access those markets, which
could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, increased
volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of
operations, our ability to take advantage of market opportunities and our ability to obtain and manage our liquidity. In addition, the cost of debt
financing and the proceeds of equity financing may be materially and adversely impacted by these market conditions. The extent of any impact
would depend on several factors, including our operating cash flows, the duration of tight credit conditions and volatile equity markets, our credit
capacity, the cost of financing, and other general economic and business conditions. Our credit agreements contain performance covenants,
such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, and limits on subsidiary debt and incurrence
of liens. Although we believe none of these covenants are presently restrictive to our operations, our ability to meet the financial covenants can
be affected by events beyond our control.
We may not be successful in implementing and managing our growth strategy.
We have established a set of key strategic goals for our business. Included among these are specific targets for growth in net sales and operating
profit as a percentage of net sales. Our strategic plan assumes growth targets will be achieved by pursuing and winning new business in the
following areas:
•
•
•
•
Primary Markets — Capturing additional market share within our primary markets by offering superior solutions to customers who
value space as a strategic tool.
Adjacent Markets — Further applying our core skills in space environments such as healthcare, higher education, and residential.
Developing Economies — Expanding our geographic reach in areas of the world with significant growth potential.
New Markets — Developing new products and technologies that serve wholly new markets.
While we have confidence that our strategic plan reflects opportunities that are appropriate and achievable and that we have anticipated and
will manage the associated risks, there is the possibility that the strategy may not deliver the projected results due to inadequate execution,
incorrect assumptions, sub-optimal resource allocation, or changing customer requirements.
There is no assurance that our current product and service offering will allow us to meet these goals. Accordingly, we believe we will be required
to continually invest in the research, design, and development of new products and services. There is no assurance that such investments will
have commercially successful results.
Certain growth opportunities may require us to invest in acquisitions, alliances, and the startup of new business ventures. These investments
may not perform according to plan.
Future efforts to expand our business within developing economies, particularly within China and India, may expose us to the effects of political
and economic instability. Such instability may impact our ability to in compete for business. It may also put the availability and/or value of our
capital investments within these regions at risk. These expansion efforts expose us to operating environments with complex, changing, and in
some cases, inconsistently applied legal and regulatory requirements. Developing knowledge and understanding of these requirements poses
a significant challenge, and failure to remain compliant with them could limit our ability to continue doing business in these locations.
6 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Pursuing our growth plan in new and adjacent markets, as well as within developing economies, will require us to find effective new channels
of distribution. There is no assurance that we can develop or otherwise identify these channels of distribution.
The markets in which we operate are highly competitive, and we may not be successful in winning new business.
We are one of several companies competing for new business within the furniture industry. Many of our competitors offer similar categories of
products, including office seating, systems and freestanding office furniture, casegoods, storage, and residential and healthcare furniture
solutions. We believe that our innovative product design, functionality, quality, depth of knowledge, and strong network of distribution partners
differentiates us in the marketplace. However, increased market pricing pressure could make it difficult for us to win new business with certain
customers and within certain market segments at acceptable profit margins.
Adverse economic and industry conditions could have a negative impact on our business, results of operations, and financial condition.
Customer demand within the contract office furniture industry is affected by various macro-economic factors; general corporate profitability,
white-collar employment levels, new office construction rates, and existing office vacancy rates are among the most influential factors. History
has shown that declines in these measures can have an adverse effect on overall office furniture demand. Additionally, factors and changes
specific to our industry, such as developments in technology, governmental standards and regulations, and health and safety issues can influence
demand. There are current and future economic and industry conditions, which could adversely affect our business, operating results, or financial
condition.
Our business presence outside the United States exposes us to certain risks that could negatively affect our results of operations
and financial condition.
We have significant manufacturing and sales operations in the United Kingdom, which represents our largest marketplace outside the United
States. We also have manufacturing operations in China. Additionally, our products are sold internationally through wholly-owned subsidiaries
or branches in various countries including Canada, Mexico, Brazil, France, Germany, Italy, Netherlands, Japan, Australia, Singapore, China,
and India. In certain other regions of the world, our products are offered primarily through independent dealerships.
Doing business internationally exposes us to certain risks, many of which are beyond our control and could potentially impact our ability to
design, develop, manufacture, or sell products in certain countries. These factors could include, but would not necessarily be limited to:
•
•
•
•
•
•
•
Political, social, and economic conditions
Legal and regulatory requirements
Labor and employment practices
Cultural practices and norms
Natural disasters
Security and health concerns
Protection of intellectual property
In some countries, the currencies in which we import and export products can differ. Fluctuations in the rate of exchange between these currencies
could negatively impact our business. Additionally, tariff and import regulations, international tax policies and rates, and changes in U.S. and
international monetary policies may have an adverse impact on results of operations and financial condition.
Disruptions in the supply of raw and component materials could adversely affect our manufacturing and assembly operations.
We rely on outside suppliers to provide on-time shipments of the various raw materials and component parts used in our manufacturing and
assembly processes. The timeliness of these deliveries is critical to our ability to meet customer demand. Any disruptions in this flow of delivery
could have a negative impact on our business, results of operations, and financial condition.
Increases in the market prices of manufacturing materials may negatively affect our profitability.
The costs of certain manufacturing materials used in our operations are sensitive to shifts in commodity market prices. In particular, the costs
of steel, plastic and aluminum components and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum,
crude oil, lumber, and resins. Increases in the market prices of these commodities may have an adverse impact on our profitability if we are
unable to offset them with strategic sourcing, continuous improvement initiatives or increased prices to our customers.
Disruptions within our dealer network could adversely affect our business.
Our ability to manage existing relationships within our network of independent dealers is crucial to our ongoing success. Although the loss of
any single dealer would not have a material adverse effect on the overall business, our business within a given market could be negatively
affected by disruptions in our dealer network caused by the termination of commercial working relationships, ownership transitions, or dealer
financial difficulties.
If dealers go out of business or restructure, we may suffer losses because they may not be able to pay for products already delivered to them.
Also, dealers may experience financial difficulties, creating the need for outside financial support, which may not be easily obtained. In the past,
we have, on occasion, agreed to provide direct financial assistance through term loans, lines of credit, and/or loan guarantees to certain dealers.
7 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
There is no assurance that these dealers will be able to repay amounts owed to us or to banks with which we have offered guarantees.
Increasing competition for highly skilled and talented workers could adversely affect our business.
The successful implementation of our business strategy depends, in part, on our ability to attract and retain a skilled workforce. The increasing
competition for highly skilled and talented employees could result in higher compensation costs, difficulties in maintaining a capable workforce,
and leadership succession planning challenges.
Costs related to product defects could adversely affect our profitability.
We incur various expenses related to product defects, including product warranty costs, product recall and retrofit costs, and product liability
costs. These expenses relative to product sales vary and could increase. We maintain reserves for product defect-related costs based on
estimates and our knowledge of circumstances that indicate the need for such reserves. We cannot, however, be certain that these reserves
will be adequate to cover actual product defect-related claims in the future. Any significant increase in the rate of our product defect expenses
could have a material adverse effect on operations.
We are subject to risks associated with self-insurance related to health benefits.
We are self-insured for our health benefits and maintain per employee stop loss coverage however we retain the insurable risk at an aggregate
level, therefore unforeseen or catastrophic losses in excess of our insured limits could have a material adverse effect on the company’s financial
condition and operating results. See Note 1 of the Consolidated Financial Statements for information regarding the company’s retention level.
Government and other regulations could adversely affect our business.
Government and other regulations apply to many of our products. Failure to comply with these regulations or failure to obtain approval of products
from certifying agencies could adversely affect the sales of these products and have a material negative impact on operating results.
8 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 1B UNRESOLVED STAFF COMMENTS — none
Item 2 PROPERTIES
The company owns or leases facilities located throughout the United States and several foreign countries. The location, square footage, and
use of the most significant facilities at May 28, 2011 were as follows:
Owned Locations
Holland, Michigan
Spring Lake, Michigan
Zeeland, Michigan
Sheboygan, Wisconsin
England, U.K.
Leased Locations
Atlanta, Georgia
England, U.K.
Ningbo, China
Square
Footage
Use
917,400
818,300
750,800
207,700
85,000
Manufacturing, Distribution, Warehouse, Design, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Office
176,700
Manufacturing, Warehouse, Office
93,500
94,700
Manufacturing, Warehouse
Manufacturing, Warehouse, Office
The company also maintains showrooms or sales offices near many major metropolitan areas throughout North America, Europe, Asia/Pacific,
and Latin America. The company considers its existing facilities to be in excellent condition, efficiently utilized, well suited, and adequate for its
design, production, distribution, and selling requirements.
Item 3 LEGAL PROCEEDINGS
The company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome
of such proceedings and litigation currently pending will not materially affect the company’s operations, cash flows and financial condition.
9 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information relating to Executive Officers of the company is as follows.
Name
Gregory J. Bylsma
James E. Christenson
Steven C. Gane
Donald D. Goeman
Kenneth L. Goodson, Jr.
Andrew J. Lock
Elizabeth A. Nickels
Curtis S. Pullen
Michael F. Ramirez
Jeffrey M. Stutz
Brian C. Walker
B. Ben Watson
Age
46
64
56
54
59
57
49
51
46
40
49
46
Year Elected an
Executive Officer
2009
1989
2009
2005
2003
2003
2000
2007
2011
2009
1996
2010
Position with the Company
Executive Vice President, Chief Financial Officer
Senior Vice President, Legal Services, and Secretary
Senior Vice President, President, Geiger International
Executive Vice President, Research, Design & Development
Executive Vice President, Operations
Executive Vice President, President, International
Executive Vice President, President, Herman Miller Healthcare
Executive Vice President, President, North American Office and Learning
Environments
Senior Vice President of People, Places and Administration
Treasurer and Vice President, Investor Relations
President and Chief Executive Officer
Executive Creative Director
Except as discussed below, each of the named officers has served the company in an executive capacity for more than five years.
Mr. Bylsma joined Herman Miller, Inc. in 2000 as Director of Reporting & Planning for North America prior to being appointed Corporate Controller
in 2005.
Mr. Gane joined Herman Miller in 2007 as President of Geiger International. Prior to this he worked for Furniture Brands International for 16
years serving mostly as President of HBF.
Mr. Pullen joined Herman Miller in 1991 and served as Chief Financial Officer from 2007 to 2009, Senior Vice President of Dealer Distribution
from 2003 to 2007, Senior Vice President of Finance for North America from 2000 to 2003, and Vice President of Finance, Herman Miller
International from 1994 to 2000.
Mr. Ramirez joined Herman Miller in 1998 and served as Director of Purchasing from 1998 to 2005, Vice President of Inclusiveness and
Diversity from 2005 to 2009, and Vice President of Sales Operations from 2009 to 2011.
Mr. Stutz joined Herman Miller in 2009 as Treasurer and Vice President, Investor Relations. Previously he served as Chief Financial Officer for
Izzy Designs Inc., subsequent to holding various positions within Herman Miller finance.
Mr. Watson joined Herman Miller in 2010 as Executive Creative Director, and prior to this he served as Managing Director and CEO of Moroso
USA. Prior to this Mr. Watson served in creative roles as Global Creative Director of Apparel at Nike, and Global Marketing Director at Vitra.
There are no family relationships between or among the above-named executive officers. There are no arrangements or understandings between
any of the above-named officers pursuant to which any of them was named an officer.
10 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
Share Price, Earnings, and Dividends Summary
Herman Miller, Inc., common stock is traded on the NASDAQ-Global Select Market System (Symbol: MLHR). As of July 26, 2011, there were
approximately 17,600 record holders, including individual participants in security position listings, of the company's common stock.
Per Share and Unaudited
Year ended May 28, 2011:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Year ended May 29, 2010:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Market
Price
High
(at close)
Market
Price
Low
(at close)
Market
Price
Close
Earnings
Per Share-
Diluted (1)
Dividends
Declared Per
Share
$
$
$
$
20.13
21.62
27.35
27.77
27.77
17.20
19.15
18.23
22.37
22.37
$
$
$
$
16.62
16.39
21.54
22.67
16.39
13.43
15.17
15.19
18.06
13.43
$
$
$
$
16.93
21.54
26.36
24.56
24.56
16.13
15.17
18.20
19.23
19.23
$
$
$
$
0.22
0.26
0.29
0.30
1.06
0.14
0.17
0.12
—
0.43
$
$
$
$
0.02200
0.02200
0.02200
0.02200
0.08800
0.02200
0.02200
0.02200
0.02200
0.08800
(1) The sum of the quarters may not equal the annual balance due to rounding associated with the calculation of earnings per share on an
individual quarter basis
Dividends were declared and paid quarterly during fiscal 2011 and 2010 as approved by the Board of Directors. While it is anticipated that the
company will continue to pay quarterly cash dividends, the amount and timing of such dividends is subject to the discretion of the Board depending
on the company's future results of operations, financial condition, capital requirements, and other relevant factors.
Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during the fourth quarter ended May 28, 2011.
Period
2/27/11-3/26/11
3/27/11-4/23/11
4/24/11-5/28/11
Total
(a) Total Number of
Shares (or Units)
Purchased
(b) Average Price
Paid
per Share or Unit
41
2,441
—
2,482
25.63
26.03
—
26.02
(1) Amounts are as of the end of the period indicated
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
$
$
$
41
2,441
—
2,482
(d) Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet be
Purchased Under the
Plans or Programs (1)
169,412,077
169,348,538
169,348,538
The company repurchases shares under a previously announced plan authorized by the Board of Directors on September 28, 2007, which
provided share repurchase authorization of $300,000,000 with no specified expiration date.
11 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
No repurchase plans expired or were terminated during the fourth quarter of fiscal 2011.
During the period covered by this report the company did not sell any of its equity shares that were not registered under the Securities Act of
1933.
Stockholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company's common
stock with that of the cumulative total return of the Standard & Poor's 500 Stock Index and the NASD Non-Financial Index for the five-year period
ended May 28, 2011. The graph assumes an investment of $100 on May 28, 2005 in the company's common stock, the Standard & Poor's 500
Stock Index and the NASD Non-Financial Index, with dividends reinvested.
Herman Miller, Inc.
S&P 500 Index
NASD Non-Financial
2006
100
100
100
$
$
$
2007
121
119
122
$
$
$
2008
83
109
121
$
$
$
2009
49
71
86
$
$
$
2010
67
85
133
$
$
$
2011
85
103
144
$
$
$
Information required by this item is also contained in Item 12 of this report.
12 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 6 SELECTED FINANCIAL DATA
Review of Operations
(In millions, except key ratios and per share data)
2011
2010
2009
2008
2007
Operating Results
Net sales
Gross margin
Selling, general, and administrative (8)
Design and research
Operating earnings
Earnings before income taxes
Net earnings attributable to controlling interest
Cash flow from operating activities
Depreciation and amortization
Capital expenditures
Common stock repurchased plus cash dividends paid
Key Ratios
Sales growth (decline)
Gross margin (1)
Selling, general, and administrative (1) (8)
Design and research expense (1)
Operating earnings (1)
Net earnings attributable to controlling interest growth
(decline)
After-tax return on net sales (4)
After-tax return on average assets (5)
After-tax return on average equity (6)
Share and Per Share Data
Earnings per share-diluted
Cash dividends declared per share
Book value per share at year end
Market price per share at year end
Weighted average shares outstanding-diluted
Financial Condition
Total assets
Working capital (3)
Current ratio (2)
Interest-bearing debt and related swap agreements
Shareholders' equity
Total capital (7)
$
$
$
$
$
$
1,649.2
538.1
369.0
45.8
123.3
102.5
70.8
91.1
39.1
30.5
6.0
25.1%
32.6
22.4
2.8
7.5
150.2
4.3
8.9
49.7%
1.06
0.09
3.53
24.56
57.7
814.4
205.9
1.8
250.0
205.0
455.0
$
$
$
1,318.8
428.5
334.4
40.5
53.6
34.8
28.3
99.1
42.6
22.3
5.7
(19.1)%
32.5
25.4
3.1
4.1
(58.4)
2.1
3.7
64.2 %
0.43
0.09
1.41
19.23
57.5
770.6
182.9
1.3
301.2
80.1
381.3
$
$
$
1,630.0
527.7
359.2
45.7
122.8
98.9
68.0
91.7
41.7
25.3
19.5
(19.0)%
32.4
22.0
2.8
7.5
(55.4)
4.2
8.8
433.1 %
1.25
0.29
0.15
14.23
54.5
767.3
243.7
1.6
377.4
8.0
385.4
$
$
$
2,012.1
698.7
400.9
51.2
246.6
230.4
152.3
213.6
43.2
40.5
287.9
4.9%
34.7
19.9
2.5
12.3
18.0
7.6
21.0
170.5%
2.56
0.35
0.42
24.80
59.6
783.2
182.7
1.6
375.5
23.4
398.9
1,918.9
645.9
395.8
52.0
198.1
187.0
129.1
137.7
41.2
41.3
185.6
10.5%
33.7
20.6
2.7
10.3
30.1
6.7
19.4
87.9%
1.98
0.33
2.47
36.53
65.1
666.2
103.2
1.4
176.2
155.3
331.5
(1) Shown as a percent of net sales.
(2) Calculated using current assets divided by current liabilities.
(3) Calculated using current assets less non-interest bearing current liabilities.
(4) Calculated as net earnings attributable to controlling interest divided by net sales.
(5) Calculated as net earnings attributable to controlling interest divided by average assets.
(6) Calculated as net earnings attributable to controlling interest divided by average equity.
(7) Calculated as interest-bearing debt plus stockholders' equity.
(8) Selling, general, and administrative expenses include restructuring expenses in years that are applicable.
13 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
$
$
$
2006
2005
2004
2003
2002
2001
$
$
$
1,737.2
574.8
371.7
45.4
157.7
147.6
99.2
150.4
41.6
50.8
175.4
14.6%
33.1
21.4
2.6
9.1
45.9
5.7
14.4
64.2%
1.45
0.31
2.10
30.34
68.5
668.0
93.8
1.3
178.8
138.4
317.2
$
$
$
1,515.6
489.8
327.7
40.2
121.9
112.8
68.0
109.3
46.9
34.9
152.0
13.2%
32.3
21.6
2.7
8.0
60.8
4.5
9.6
37.3%
0.96
0.29
2.45
29.80
70.8
707.8
162.3
1.5
194.0
170.5
364.5
$
1,338.3
415.6
304.1
40.0
61.2
51.6
42.3
82.7
59.3
26.7
72.6
0.1%
31.1
22.7
3.0
4.6
81.5
3.2
5.7
21.9%
0.58
0.18
2.71
24.08
73.1
714.7
207.8
1.8
207.2
194.6
401.8
$
$
$
$
$
1,336.5
423.6
319.8
39.1
48.3
35.8
23.3
144.7
69.4
29.0
72.7
(9.0)%
31.7
23.9
2.9
3.6
141.6
1.7
3.0
10.3 %
0.31
0.15
2.62
19.34
74.5
757.3
189.9
1.7
223.0
191.0
414.0
$
$
$
1,468.7
440.3
399.7
38.9
(79.9)
(91.0)
(56.0)
54.6
112.9
52.4
30.3
(34.3)%
30.0
27.3
2.6
(5.4)
(139.8)
(3.8)
(6.3)
(18.2)%
(0.74)
0.15
3.45
23.46
75.9
788.0
188.7
1.8
235.1
263.0
498.1
2,236.2
755.7
475.4
44.3
236.0
225.1
140.6
211.8
92.6
105.0
105.3
11.2%
33.8
21.3
2.0
10.6
0.6
6.3
14.5
43.5%
1.81
0.15
4.63
26.90
77.6
996.5
191.6
1.5
259.3
351.5
610.8
14 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis
You should read the issues discussed in Management's Discussion and Analysis in conjunction with the company's Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements included in this Form 10-K.
Executive Overview
At Herman Miller, we work for a better world around you. We do this by designing and developing award-winning furniture and related services
and technologies that improve your environment, whether it's an office, hospital, school, home, an entire building, or the world at large. At present,
most of our customers come to us for interior environments in both corporate office and healthcare settings. We also have a growing presence
in educational and residential markets. Our primary products include furniture systems, seating, storage and material handling solutions,
freestanding furniture, patient care products, and casegoods. Our other services extend from workplace solutions to furniture asset management.
More than 100 years of innovative business practices and a commitment to social responsibility have established Herman Miller as a recognized
global company. In 2011, Herman Miller again received the Human Rights Campaign (HRC) Foundation’s top rating in its annual Corporate
Equality Index and was also cited by FORTUNE as the "Most Admired" company in the contract furniture industry.
Our products are sold internationally through wholly-owned subsidiaries or branches in various countries including the United Kingdom, Canada,
France, Germany, Italy, Japan, Mexico, Australia, Singapore, China, India, and the Netherlands. Our products are offered elsewhere in the world
primarily through independent dealerships. We have customers in over 100 countries.
We are globally positioned in terms of manufacturing operations. In the United States, our manufacturing operations are located in Michigan,
Georgia, Iowa and Wisconsin. In Europe, we have a manufacturing presence in the United Kingdom, our largest marketplace outside of the
United States. In Asia, we have manufacturing operations in Ningbo, China. We manufacture our products using a system of lean manufacturing
techniques collectively referred to as the Herman Miller Performance System (HMPS). We strive to maintain efficiencies and cost savings by
minimizing the amount of inventory on hand. Accordingly, production is order-driven with direct materials and components purchased as needed
to meet demand. The standard lead time for the majority of our products is 10 to 20 days. These factors result in a high rate of inventory turns
and typically cause our inventory levels to appear relatively low compared to our sales volume.
A key element of our manufacturing strategy is to limit fixed production costs by sourcing component parts from strategic suppliers. This strategy
has allowed us to increase the variable nature of our cost structure while retaining proprietary control over those production processes that we
believe provide us a competitive advantage. As a result of this strategy, our manufacturing operations are largely assembly-based.
Our business consists of various operating segments as defined by generally accepted accounting principles. These operating segments are
determined on the basis of how we internally report and evaluate financial information used to make operating decisions and are organized by
the various markets we serve. For external reporting purposes, we aggregate these operating segments as follows.
•
•
North American Furniture Solutions - Includes the business associated with the design, manufacture, and sale of furniture products
for office, learning and healthcare environments throughout the United States and Canada.
Non-North American Furniture Solutions - Includes the business associated with the design, manufacture, and sale of furniture products
primarily for work-related settings for Mexico and outside North America.
•
Other - Includes our North American residential furniture business as well as unallocated corporate expenses, and restructuring costs.
Core Strengths
We rely on the following core strengths in delivering workplace solutions to our customers.
•
•
Brand - Our brand is recognized by customers as a pioneer in design and sustainability, and as an advocate that supports their needs
and interests. Within our industry, Herman Miller is acknowledged as one of the leading brands that inspires architects and designers
to create their best commercial design solutions. Leveraging our brand equity across our lines of business to extend our reach to
customers and consumers is an important element of our business strategy.
Problem - Solving Design and Innovation - We are committed to developing research-based functionality and aesthetically innovative
new products and have a history of doing so. We believe our skills and experience in matching problem-solving design with the
workplace needs of our customers provide us with a competitive advantage in the marketplace. An important component of our business
15 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
strategy is to actively pursue a program of new product research, design, and development. We accomplish this through the use of
an internal research, engineering, and design staff as well as third party design resources generally compensated on a royalty basis.
Operational Excellence - We were among the first in our industry to embrace the concepts of lean manufacturing. HMPS provides the
foundation for all of our manufacturing operations. We are committed to continuously improving both product quality and production
and operational efficiency. We have extended this lean process work to our non-manufacturing processes as well as externally to our
manufacturing supply chain and distribution channel. We believe this work holds great promise for further gains in reliability, quality
and efficiency.
Building and Leading Networks - We value relationships in all areas of our business. We consider our networks of innovative designers,
owned and independent dealers, and suppliers to be among our most important competitive factors and vital to the long-term success
of our business.
•
•
Channels of Distribution
Our products and services are offered to most of our customers under standard trade credit terms between 30 and 45 days and are sold through
the following distribution channels.
•
•
•
•
•
Independent Contract Furniture Dealers and Licensees - Most of our product sales are made to a network of independently owned
and operated contract furniture dealerships doing business in many countries around the world. These dealers purchase our products
and distribute them to end customers. We recognize revenue on product sales through this channel once our products are shipped
and title passes to the dealer. Many of these dealers also offer furniture-related services, including product installation.
Owned Contract Furniture Dealers - At May 28, 2011, we owned 9 contract furniture dealerships, some of which have operations in
multiple locations. The financial results of these owned dealers are included in our Consolidated Financial Statements. Product sales
to these dealerships are eliminated as inter-company transactions from our consolidated financial results. We recognize revenue on
these sales once products are shipped to the end customer and installation is substantially complete. We believe independent ownership
of contract furniture dealers is generally the best model for a financially strong distribution network. With this in mind, our strategy is
to continue to pursue opportunities to transition our owned dealerships to independent owners. Where possible, our goal is to involve
local managers in these ownership transitions. Subsequent to the end of fiscal 2011 we completed the sale of two contract furniture
dealerships.
Direct Customer Sales - We sometimes sell products and services directly to end customers without an intermediary (e.g. sales to
the U.S. federal government). In most of these instances, we contract separately with a dealership or third-party installation company
to provide sales-related services. We recognize revenue on these sales once products are shipped and installation is substantially
complete.
Independent Retailers - Certain products are sold to end customers through independent retail operations. Revenue is recognized
on these sales once products are shipped and title passes to the independent retailer.
E-Commerce - During fiscal 2011 the company launched its own internet based sales business, in which products are now available
for sale via the company's website. This site complements our existing methods of distribution and exemplifies the company's brand
to new customers. The company recognizes revenue on these sales once products are shipped.
Challenges Ahead
Like all businesses, we are faced with a host of challenges and risks. We believe our core strengths and values, which provide the foundation
for our strategic direction, have us well prepared to respond to the inevitable challenges we will face in the future. While we are confident in our
direction, we acknowledge the risks specific to our business and industry. Refer to Item 1A for discussion of certain of these risk factors.
Future Avenues of Growth
We believe we are well positioned to successfully pursue our mission in spite of the risks and challenges we face. That is, we will design and
develop furniture and related services and technologies that reflect sustainable business practices that improve environments and help to create
a better world. In pursuing our mission, we have identified the following as key avenues for our future growth.
•
Primary Markets - Capture additional market share within our primary markets by offering superior solutions and ever expanding
product categories, to customers who value space as a strategic tool.
•
Adjacent Markets - Further apply our core skills in space environments such as healthcare, higher education, and residential.
16 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
•
•
Developing Economies - Expand our geographic reach in areas of the world with significant growth potential.
New Markets - Develop or acquire new products and technologies that serve new markets.
Industry Analysis
The Business and Institutional Furniture Manufacturer's Association (BIFMA) is the trade association for the U.S. domestic office furniture
industry. We monitor the trade statistics reported by BIFMA and consider them an indicator of industry-wide sales and order performance. BIFMA
publishes statistical data for the contract segment and the office supply segment within the U.S. furniture market. The U.S. contract segment is
primarily with large to mid-size corporations installed via a network of dealers. The office supply segment is primarily to smaller customers via
wholesalers and retailers. We primarily participate, and are a leader in, the contract segment. It is important to note that our diversification
strategy lessens our dependence on the U.S. office furniture market.
We also analyze BIFMA statistical information as a benchmark comparison against the performance of our domestic U.S. business and also to
that of our competitors. The timing of large project-based business may affect comparisons to this data in any one period. Finally, BIFMA regularly
provides its members with industry forecast information, which we use internally as one of several considerations in our short and long-range
planning process.
17 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Discussion of Business Conditions
Our fiscal years ended May 28, 2011 and May 29, 2010 each included 52 weeks of operations.
Fiscal 2011 benefited from a more robust global economic environment impacting most areas of our business from a net sales and orders
perspective. Net sales and net trade orders rebounded 25.1 percent and 26.5 percent, respectively, from the prior year. Operating earnings
were 7.5 percent of sales (including the positive impact on operating expense resulting from reducing the estimated liability related to contingent
payments associated with the Nemschoff acquisition of $15.1 million, refer to Note 2 of the Consolidated Financial Statements). From an
economic perspective, the macro drivers of demand in the contract office furniture industry have strengthened within the year with office moves
and low rental rates continuing to drive new orders. However, this continues to be tempered by fairly stagnant unemployment rates.
We have made great progress this year toward our strategic goals while delivering solid financial results. We took action to de-leverage our
balance sheet in the fourth quarter by paying off $100 million of our public bond issue, partially funded by $50 million of newly issued private
placement notes. We also took action to reduce our long-term pension commitments during the year by contributing approximately $53 million
in the form of cash and stock to the pension plan. We continued our focus on operational excellence with our manufacturing operations maintaining
a reliability score of 99 percent throughout the year and, for the fifth time in six years, we received the Office Furniture Dealers Alliance (OFDA)
Gold award as the Manufacturer of the Year.
The development of new products has remained a critical element of our business strategy as we worked continue to deliver superior products
and services to our dealer network. During the year we launched the Thrive portfolio of ergonomic solutions which includes the technology
support products we acquired through the purchase of Colebrook Bosson & Saunders in May 2010. We also introduced the Sayl® family of
chairs which furthered our leadership position in office seating as well as launched Canvas Office Landscape™ - a collection of work station,
desking and storage elements that work in harmony to address multiple space applications, from open plan to private office. At this year's
NeoCon we introduced 13 new products. Among the most significant achievements was a new healthcare Overbed Table called OasisTM, which
won a Gold award in the healthcare furniture category and the Geiger SottoTM executive chair which won silver in the ergonomic/task seating
category.
During the fourth quarter of fiscal 2011 we announced the plans to acquire POSH Office Systems Ltd., a Hong Kong-based designer, manufacturer,
and distributor of office furniture systems, freestanding furniture, seating, filing and storage with manufacturing in China and distribution in Hong
Kong and China. With POSH we gain immediate access to the Chinese market. As the demand for high quality seating and furniture continues
to grow in the region, we anticipate a significant increase in the sales of Herman Miller products through the POSH dealer network. With an
expanded product offering through POSH, we can also look beyond China to other markets and customers we are not presently serving. We
anticipate this acquisition to close during late calendar 2011.
With business conditions seemingly improving, there's a growing sense of optimism within the company backed by the innovative spirit of our
people and a brand that we believe is second-to-none in our industry. Our continued investments in product and business development throughout
the downturn enhanced both the depth and diversity of our product offering, leaving us well positioned to grow in each of our markets.
Looking forward, the general economic outlook for our industry in the U.S. is expected to be positive. BIFMA issued its most recent report in
May 2011 expecting that the growth rate of office furniture orders and shipments in the U.S. for calendar 2011 will be 14.5 percent and 17.5
percent, respectively. This forecasted growth is based on an improvement in the U.S. economy, including the assumption that businesses will
continue to invest in office furniture in order to boost employee productivity. The forecast projects both orders and shipments will moderate in
calendar 2012.
18 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Financial Results
The following is a comparison of our annual results of operations and year-over-year percentage changes for the periods indicated.
(Dollars In millions)
Net sales
Cost of sales
Gross margin
Operating expenses
Operating earnings
Net other expenses
Earnings before income taxes
Income tax expense
Net loss attributable to noncontrolling
interest
Net earnings attributable to
controlling interest
Fiscal 2011
1,649.2
1,111.1
538.1
414.8
123.3
20.8
102.5
31.7
—
70.8
$
$
% Chg from
2010
Fiscal 2010
% Chg from
2009
Fiscal 2009
25.1%
$
1,318.8
(19.1)%
$
24.8%
25.6%
10.6%
130.0%
10.6%
194.5%
387.7%
—%
150.2%
$
890.3
428.5
374.9
53.6
18.8
34.8
6.5
—
28.3
(19.2)%
(18.8)%
(7.4)%
(56.4)%
(21.3)%
(64.8)%
(79.0)%
(100.0)%
(58.4)%
$
1,630.0
1,102.3
527.7
404.9
122.8
23.9
98.9
31.0
(0.1)
68.0
The following table presents, for the periods indicated, the components of the company's Consolidated Statements of Operations as a percentage
of net sales.
Fiscal Year Ended
Net sales
Cost of sales
Gross margin
Selling, general, and administrative expenses
Restructuring
Design and research expenses
Total operating expenses
Operating earnings
Net other expenses
Earnings before income taxes
Income tax expense
Net earnings attributable to controlling interest
May 28, 2011
May 29, 2010
May 30, 2009
100.0%
67.4
32.6
22.2
0.2
2.8
25.2
7.5
1.3
6.2
1.9
4.3
100.0%
67.5
32.5
24.1
1.3
3.1
28.4
4.1
1.4
2.6
0.5
2.1
100.0%
67.6
32.4
20.3
1.7
2.8
24.8
7.5
1.5
6.1
1.9
4.2
Net Sales, Orders, and Backlog - Fiscal 2011 Compared to Fiscal 2010
For the fiscal year ended May 28, 2011, consolidated net sales increased 25.1 percent to $1,649.2 million from $1,318.8 million for the fiscal
year ended May 29, 2010. This year-over-year increase was driven by a more robust global economic environment and was experienced across
nearly all operating and geographic units. The overall impact of foreign currency changes for the fiscal year was to increase net sales by
approximately $10 million.
Consolidated net trade orders for fiscal 2011 totaled $1,672.3 million compared to $1,322.4 million in fiscal 2010, an increase of 26.5 percent.
Order rates began the year at a steady pace with orders averaging approximately $30 million per week through the first quarter. The second
and third quarter weekly orders rates averaged approximately $36 million and $28 million, respectively, with the third quarter experiencing our
typical seasonal slowdown. The fourth quarter finished the year with average weekly order rates increasing to approximately $35 million. The
overall impact of foreign currency changes for the fiscal year increased net orders by approximately $8 million.
Our backlog of unfilled orders at the end of fiscal 2011 totaled $275.8 million, a 13.2 percent increase from the $243.6 million backlog at the
end of fiscal 2010.
19 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
BIFMA reported an estimated year-over-year increase in U.S. office furniture shipments of approximately 17.6 percent for the twelve-month
period ended May 2011. By comparison, the net sales increase for our domestic U.S. business was approximately 24.8 percent. We believe
that while comparisons to BIFMA are important, we continue to pursue a strategy of revenue diversification that makes us less reliant on the
drivers that impact BIFMA.
Net Sales, Orders, and Backlog - Fiscal 2010 Compared to Fiscal 2009
For the fiscal year ended May 29, 2010, consolidated net sales declined 19.1 percent to $1,318.8 million from $1,630.0 million for the fiscal year
ended May 30, 2009. This year-over-year decline was driven by the global economic environment and was experienced across nearly all
operating and geographic units. While the U.S. dollar strengthened against many major currencies during fiscal 2010, it weakened against
others, notably the Canadian dollar. The overall impact of foreign currency changes for fiscal year 2010 was to increase net sales by approximately
$5 million.
Consolidated net trade orders for fiscal 2010 totaled $1,322.4 million compared to $1,564.7 million in fiscal 2009, a decrease of 15.5 percent.
Order rates began the year at a steady pace with orders averaging between approximately $25 million and $27 million per week through the
first two quarters. These order rates, and other economic inputs, gave a solid signal that the business had hit bottom and was stabilized. Moving
into the second half of the fiscal 2010, the third quarter, which historically has the weakest order rate of the year, orders dipped down to an
average weekly rate of approximately $22 million per week. Although low, this order rate represented a slight increase in order rates from the
prior year. The fourth quarter order rates averaged approximately $28 million per week, which represented our highest order rate in 18 months.
The overall impact of foreign currency changes for fiscal year 2010 was to increase net orders by approximately $4 million.
The backlog of unfilled orders at the end of fiscal 2010 totaled $243.6 million, a 17.2 percent increase from the $207.8 million backlog at the
end of fiscal 2009.
BIFMA reported an estimated year-over-year decline in U.S. office furniture shipments of approximately 22.3 percent for the twelve-month period
ended May 2010. By comparison, the net sales decline for our domestic U.S. business was approximately 18.8 percent. We believe that while
comparisons to BIFMA are important, we continue to pursue a strategy of revenue diversification that makes us less reliant on the drivers that
impact BIFMA.
Discussion of Operating Segments - Fiscal 2011 Compared to Fiscal 2010
Effective as of the second quarter of fiscal 2011, management has modified the company's segment reporting in order to better align with changes
made in the second quarter to the organizational and management reporting structure. Specifically, the company is now reporting operations
in Mexico within its non-North American Furniture Solutions operating segment rather than in North American Furniture Solutions. Prior year
results have been revised to reflect this change.
Net sales within the North American Furniture Solutions (North America) segment were $1,304.9 million in fiscal 2011, a 24.5 percent increase
from fiscal 2010 net sales of $1,048.1 million. We experienced an increase across all sectors of our North American business during fiscal 2011.
Operating earnings for the segment in fiscal 2011 were $98.1 million, or 7.5 percent of net sales. This compares to segment earnings of $71.5
million or 6.8 percent of net sales in fiscal 2010. The increase in operating earnings as a percent of net sales in the current fiscal year is primarily
driven by leverage.
Net sales from the non-North American Furniture Solutions (non-North America) segment were $290.4 million in fiscal 2011, a $67.7 million or
a 30.4 percent increase from fiscal 2010 net sales of $222.7 million. All regions experienced year-over-year sales growth. Operating earnings
within the non-North American segment totaled $18.8 million for the year or 6.5 percent of net sales. This compares to an operating loss of $0.2
million or a negative 0.1 percent of net sales in fiscal 2010, an increase of 660 basis points. The operating loss in fiscal 2010 was significantly
affected by an independent dealer in Australia that went into receivership and resulted in bad debt expense of approximately $5 million.
Net sales within the “Other” segment category were $53.9 million in fiscal 2011 an increase of $5.9 million, or 12.3 percent, compared to fiscal
2010 net sales of $48.0 million. The increase in net sales is the result of strong sales by our North American Retail business. It should be noted
that while the majority of corporate costs are allocated to the operating segments, certain costs that are generally considered the result of isolated
business decisions are not subject to allocation. These costs include restructuring and asset impairment expenses, which have been allocated
entirely to the "Other" category in fiscal 2011, fiscal 2010 and fiscal 2009. Restructuring and asset impairment expenses totaled $3.0 million,
$16.7 million and $28.4 million in fiscal 2011, fiscal 2010 and fiscal 2009, respectively. These costs are discussed further in Note 19 of the
Consolidated Financial Statements.
Operating earnings within the “Other” segment category totaled $6.4 million for the year. This compares to a loss of $17.7 million in the prior
year. The significant drivers of operating losses in the prior year were restructuring expenses and a $2.5 million asset impairment charge related
to the Convia business.
20 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
We estimate changes in foreign exchange rates during the year effectively increased our fiscal 2011 net sales within the North American segment
by approximately $5 million, driven primarily by the U.S. dollar / Canadian dollar impact, while the impact on net sales within the non-North
American segment was approximately $5 million driven primarily by the U.S. dollar / Australian dollar impact. It is important to note that period-
to-period changes in currency exchange rates have a directionally similar impact on our international cost structures, which reduces the impact
of currency fluctuations on operating earnings. Operating earnings within our North American segment increased an estimated $4 million in
fiscal 2011 due to currency changes. The estimated impact on operating earnings of our non-North American business segment due to currency
changes, was an increase of approximately $2 million.
Discussion of Operating Segments - Fiscal 2010 Compared to Fiscal 2009
Net sales within the North American Furniture Solutions (North America) segment were $1,048.1 million in fiscal 2010, a $262.4 million or 20.0
percent decrease from fiscal 2009 net sales of $1,310.5 million. We experienced a decline throughout our North American business operations
in fiscal 2010, except for healthcare which benefited from the acquisition of Nemschoff in the first quarter. Nemschoff sales were $67.6 million
during fiscal 2010 or 6.4 percent of net sales. Within this segment, we experienced increased sales from education, government and healthcare
customers. Operating earnings for the segment in fiscal 2010 were $71.5 million, or 6.8 percent of net sales. This compares to segment earnings
of $129.0 million or 9.8 percent in fiscal 2009.
Net sales from the non-North American Furniture Solutions (non-North America) segment were $222.7 million in fiscal 2010, a $54.6 million, or
19.7 percent, decrease from fiscal 2009 net sales of $277.3 million. There were regions that experienced year-over-year sales growth, including
India, China and Brazil. The areas hardest hit during the year were the Middle East and North Latin America which were down 41 and 37 percent
from prior year, respectively. Operating losses within the non-North American segment totaled $0.2 million for the year or a negative 0.1 percent
of net sales in fiscal 2010. This compares to operating earnings of $19.1 million or 6.9 percent of net sales in fiscal 2009. The operating loss in
fiscal 2010 was significantly affected by an independent dealer in Australia that went into receivership and resulted in bad debt expense of
approximately $5 million.
Net sales within the “Other” segment category were $48.0 million in fiscal 2010 an increase of $5.8 million, or 13.7 percent, compared to fiscal
2009 net sales of $42.2 million. The increase in net sales was the result of strong sales by our North American Retail business. It should be
noted that while the majority of corporate costs are allocated to the operating segments, certain costs that are generally considered the result
of isolated business decisions are not subject to allocation. Restructuring and asset impairment expenses are some of these costs, and have
been allocated entirely to the "Other" category in fiscal 2010 and 2009. Restructuring and asset impairment expenses totaled $16.7 million in
fiscal 2010 and $28.4 million in fiscal 2009 and are discussed further in Note 19 of the Consolidated Financial Statements.
Operating losses within the “Other” segment category totaled $17.7 million for fiscal year 2010. This compares to a loss of $25.3 million in fiscal
2009. The significant driver of operating losses in both years were restructuring expenses, though it should be noted that in the fiscal year 2010
there was also a $2.5 million asset impairment charges related to the Convia business that contributed to the operating loss.
The U.S. dollar was up and down against the British pound and the euro during fiscal 2010, and weakened throughout the year against the
Canadian dollar. The changes in currency exchange rates from fiscal 2009 affected the U.S. dollar value of net sales only in the North American
operating segment. The non-North American segment ended fiscal 2010 with essentially no impact from currency on year-over-year net sales.
We estimate these changes effectively increased our fiscal 2010 net sales within the North American Furniture Solutions segment by approximately
$5 million, driven entirely by the U.S. dollar / Canadian dollar impact. It is important to note that period-to-period changes in currency exchange
rates have a directionally similar impact on our international cost structures. Operating earnings within our non-North American segment increased
an estimated $1.0 million in fiscal 2010. The estimated impact on operating earnings of our North American business segment due to currency
changes, was an increase of approximately $3.5 million.
Gross Margin - Fiscal 2011 Compared to Fiscal 2010
Our fiscal 2011 gross margin as a percentage of sales was 32.6 percent which is an increase of 10 basis points from the fiscal 2010 level. This
modest increase was driven primarily by cost leverage on higher production, which was partially offset by deeper discounting, higher employee
benefit and incentive costs, and higher costs of key direct materials, most notably steel and steel components. Deeper discounting reduced net
sales relative to prior periods. This has the effect of increasing the components of the Condensed Consolidated Statement of Operations as a
percentage of net sales.
Direct material costs as a percentage of sales in the current year increased 150 basis points from fiscal 2010. This was primarily driven by an
increase in the cost of commodities and the increase in discounting, which has the effect of reducing net sales.
Direct labor costs were lower by 20 basis points as a percentage of sales, although higher in dollars by $19.5 million driven by an increase in
volume from fiscal 2010 levels. This percentage decrease was driven primarily by improved efficiencies and product mix, which was partially
offset by deeper discounting and increased employee incentives and benefit costs.
21 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Overhead costs as a percent of net sales were lower by 170 basis points but increased by $20.7 million driven by higher volumes from fiscal
2010. The percentage decrease resulted from increased leverage from higher volumes, which was partially offset by deeper discounting and
increased employee incentives and benefit costs.
Freight expenses, as a percentage of sales, were modestly higher by 30 basis points compared to fiscal 2010 levels. In dollars these costs were
higher by $17.4 million due to increased volume. The largest contributing factor to the percentage of sales increase was the increase in fuel
costs during the year.
Gross Margin - Fiscal 2010 Compared to Fiscal 2009
Our fiscal 2010 gross margin as a percentage of sales was 32.5 percent which is a increase of 10 basis points from the fiscal 2009 level. Lower
direct material costs due to a reduction in commodity prices along with reduced compensation and benefits from a reduced work schedule,
offset deeper discounting and loss of leverage from lower volume. Details relative to each component of gross margin follow.
Direct material costs in fiscal 2010, as a percentage of sales in fiscal year 2010 decreased 200 basis points. Compared to fiscal 2009, raw
material prices were lower in the first half of the year and then gradually increased throughout the second half. The overall impact in the fiscal
year 2010 was positive.
Direct labor costs in fiscal 2010 were higher by 50 basis points as a percentage of sales, though lower in dollars by $13.1 million, from fiscal
2009 levels. This percentage increase was driven by higher benefit expenses and deeper discounting though it was partially offset by increased
operational efficiencies.
Overhead costs in fiscal 2010 decreased by $25.7 million from fiscal 2009, though as a percentage of sales these costs increased 110 basis
points. The percentage increase resulted from lost leverage from lower volume and the impact from deeper discounting in fiscal 2010, though
this was partially offset by our ability to realize cost reductions associated with restructuring actions.
Freight expenses in fiscal 2010, as a percentage of sales, were modestly higher by 10 basis points compared to fiscal 2009 levels. In dollars
these costs were lower by $10.7 million. While fuel costs did rise throughout the year, the largest contributing factor to the increase as a percentage
of sales was the loss of volume which created more less-than-full loads.
Restructuring - Fiscal 2011 and Fiscal 2010
During fiscal 2011, we continued to experience some impact from the previous restructuring actions initiated in prior years. Total restructuring
expense for the year was $3.0 million.
The restructuring accrual balances of $1.0 million and $7.0 million for fiscal years 2011 and 2010, respectively are included in, "Accrued liabilities"
within the Consolidated Balance Sheet.
Throughout fiscal 2010, we continued to take actions to decrease our cost structure. In the first quarter we announced a plan to consolidate
manufacturing operations by closing the Brandrud manufacturing facility in Auburn, Washington and consolidating it with the acquired Nemschoff
manufacturing facilities. We had previously announced the decision to consolidate our Integrated Metal Technologies (IMT) subsidiary in Spring
Lake, Michigan with other existing manufacturing facilities. Our operations team worked diligently throughout fiscal 2010 to complete both
consolidation projects in the fourth quarter. The total expense of these plant consolidations in the fiscal year totaled approximately $9.7 million.
We expected to realize incremental annual savings from these consolidation actions of approximately $5 million to $7 million from the fiscal
2010 expense levels. These savings relate primarily in cost of sales, from reductions in rent expense, depreciation and utilities, as well as savings
of approximately $1 million in selling, general, and administrative expenses. We realized approximately $3 million of savings in fiscal 2010.
In the fourth quarter of fiscal 2010, we took further action to reduce our salaried workforce, primarily in North America, with the reduction of
approximately 70 employees. This action resulted in severance and related expenses of approximately $3.2 million and was largely offset by a
5 percent wage restoration for employees impacted by the fiscal 2010 wage reduction action.
Included in the fourth quarter of fiscal 2010 restructuring expenses is an impairment of long-lived assets totaling $2.5 million that were related
to our Convia line of business. These assets related to products that we determined had no future revenue stream to the company.
See Note 19 of the Consolidated Financial Statements for additional information on restructuring.
22 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Operating Expense - Fiscal 2011 Compared to Fiscal 2010
Operating expenses in fiscal 2011 were $414.8 million, or 25.2 percent of net sales, which compares to $374.9 million, or 28.4 percent of net
sales in fiscal 2010. We experienced a year-over-year increase in operating expense dollars of $39.9 million, and a 320 basis point decrease
to operating expenses as a percentage of net sales. The increase in operating expenses was primarily driven by the increase in net sales during
the year. In addition, we also incurred $3.8 million and $16.6 million of additional operating expenses during fiscal 2011 due to the reinstatement
of all of our employee benefits and employee incentive expenses, respectively. Restructuring expenses were $3.0 million, compared to
restructuring and impairment expenses of $16.7 million in fiscal 2010, which included an impairment of $2.5 million for Convia assets (See the
discussion on restructuring expense above for additional detail.) Operating expenses were partially offset during fiscal 2011 by the positive
impact resulting from the settlement of the liability related to contingent payments associated with the Nemschoff acquisition of $15.1 million.
Year-over-year changes in currency exchange rates increased operating expenses by an estimated $2 million associated with our international
operations.
Design and research costs included in total operating expenses for fiscal 2011 was $45.8 million, or 2.8 percent of net sales, compared to fiscal
2010 expenses of $40.5 million, or 3.1 percent of net sales. This increase in dollars of $5.3 million resulted in a decrease of 30 basis points as
a percent of sales. This increase in dollars was primarily driven by royalty payments to designers and the reinstatement of employee benefits.
Royalty payments to the designers of our products totaled $10.4 million and $7.3 million in fiscal years 2011 and 2010, respectively.
Operating Expense - Fiscal 2010 Compared to Fiscal 2009
Operating expenses in fiscal 2010 were $374.9 million, or 28.4 percent of net sales, which compares to $404.9 million, or 24.8 percent of net
sales in fiscal 2009. We experienced a year-over-year decrease in operating expense dollars of $30.0 million, and a 360 basis point increase
to operating expenses as a percentage of sales. Restructuring and impairment expenses, which included an impairment charge for Convia
assets of $2.5 million, were $16.7 million in fiscal 2010, which was a decrease of $11.7 million from the $28.4 million of restructuring expense
in fiscal 2009. (Please see the discussion on restructuring expense above for additional detail.) The operating expenses from Nemschoff during
fiscal year 2010 were $18.3 million, which were partially offset by the positive impact on operating expense resulting from reducing the estimated
liability related to contingent payments associated with the Nemschoff acquisition of $6.5 million.
The year-over-year dollar decline in total expenses of $30.0 million was the result of an $11.7 million decrease in restructuring and impairment
expenses and a continued decrease in employee compensation and benefit costs. These decreases in compensation and benefit costs were
a result of a combination of current and prior year restructuring as well as the full year effect of the suspension of the 401(k) match and the 10
percent reduction in salary expense that resulted from shutting down facilities on every other Friday.
Year-over-year changes in currency exchange rates had a slightly inflationary effect of approximately $0.7 million on operating expenses
associated with our international operations for fiscal 2010.
Design and research costs included in total operating expenses for fiscal 2010 was $40.5 million, or 3.1 percent of sales, compared to fiscal
2009 expenses of $45.7 million, or 2.8 percent of sales. This decrease in dollars of $5.2 million was an increase of 30 basis points as a percent
of sales and was primarily driven by the timing of various projects being brought to market as well as a reduction or delay of projects. We have
continued to carefully balance the overall need to control costs with the critical need to continue investing in our strategic priorities. These
expenses include royalty payments to the designers of our products totaling $7.3 million and $9.5 million in fiscal years 2010 and 2009, respectively.
Operating Earnings
In fiscal 2011 operating earnings were $123.3 million, a 130.0 percent increase from fiscal 2010 operating earnings of $53.6 million. The fiscal
2010 earnings represented a 56.4 percent percent decrease from fiscal 2009 operating earnings of $122.8 million. Operating earnings as a
percentage of sales for fiscal years 2011, 2010 and 2009 were 7.5 percent, 4.1 percent and 7.5 percent, respectively.
Other Expenses and Income
Net other expenses totaled $20.8 million in fiscal 2011 compared to $18.8 million in fiscal 2010 and $23.9 million in fiscal 2009. The increase
in fiscal 2011 expense compared to fiscal 2010 was primarily the result of higher foreign currency transaction losses and lower interest and
investment income, which were partially offset by lower interest expense compared to the prior year.
The decrease in fiscal 2010 expense compared to fiscal 2009 was primarily the result of decreased interest expense associated with the first
quarter repurchase of $75 million of outstanding debt securities.
23 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Income Taxes
Our effective tax rate was 30.9 percent in fiscal 2011 versus 18.8 percent in fiscal 2010 and 31.4 percent in fiscal 2009. The effective tax rate
in fiscal 2011 was below the statutory rate of 35%, primarily due to the domestic U.S. manufacturing deduction and realization of foreign tax
credits. The effective rate in fiscal 2010 was below the statutory rate of 35 percent, primarily due to the release of tax reserves that were no
longer needed due to the closure of an IRS audit of the company's tax returns through fiscal 2009 and the domestic U.S. manufacturing tax
incentive. The effective rate in fiscal 2009 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing tax
incentive and the realization of foreign tax credits.
We expect our effective tax rate for fiscal 2012 to be between 31 and 33 percent. For further information regarding income taxes, refer to Note
13 of the Consolidated Financial Statements.
Net Earnings Attributable to Controlling Interest; Earnings per Share
In fiscal 2011 and fiscal 2010 we generated $70.8 million and $28.3 million of net earnings, respectively. This compares to net earnings attributable
to controlling interest in fiscal 2009 of $68.0 million. In fiscal 2011 diluted earnings per share were $1.06 while diluted earnings per share in
fiscal 2010 were $0.43 and $1.25 in fiscal 2009.
24 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Liquidity and Capital Resources
The table below presents certain key cash flow and capital highlights for the fiscal years indicated.
(In millions)
Cash and cash equivalents, end of period
Marketable securities, end of period
Cash generated from operating activities
Cash used for investing activities
Cash used for financing activities
Pension and post-retirement benefit plan contributions (4)
Capital expenditures
Stock repurchased and retired
Interest-bearing debt, end of period (1) (3)
Available unsecured credit facility, end of period (2) (3)
Fiscal Year Ended
2011
148.6
11.0
91.1
(31.4)
(50.2)
(52.8)
(30.5)
(1.0)
250.0
140.6
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2010
134.8
12.1
99.1
(77.6)
(78.9)
(19.3)
(22.3)
(0.8)
301.2
138.8
$
$
$
$
$
$
$
$
$
$
2009
192.9
11.3
91.7
(29.5)
(16.5)
(5.3)
(25.3)
(0.3)
377.4
236.9
(1) Amounts shown include the fair market value of the company's interest rate swap arrangement(s). The net fair value of this/these
arrangement(s) was/were $1.2 million at May 29, 2010 and $2.4 million at May 30, 2009.
(2) Amounts shown are net of outstanding letters of credit, which are applied against the company's unsecured credit facility.
(3) During the first quarter of fiscal 2010 we renegotiated the unsecured revolving credit facility. Refer to Note 8 of the Consolidated Financial
Statements for additional information.
(4) Amount shown for fiscal 2011 and fiscal 2010 includes a $14.6 million and $16.7 million contribution made in the company's common
stock, respectively.
Cash Flow — Operating Activities
Cash generated from operating activities in fiscal 2011 totaled $91.1 million compared to $99.1 million generated in the prior year. This represents
a decrease of $8.0 million compared to fiscal 2010. Changes in working capital balances resulted in a $13.5 million use of cash in the current
fiscal year compared to a $4.8 million source of cash in the prior year. Cash from operations in the prior year also included proceeds of $4.8
million from company owned life insurance policies.
The use of cash related to working capital balances in fiscal 2011 consist primarily of increases in trade receivables of $48.5 million, inventory
of $8.3 million and prepaids of $14.5 million. These changes were partially offset by increases in trade payables of $16.4 million, and regular
and incentive based compensation of $34.8 million.
The source of cash related to working capital balances in fiscal 2010 consist primarily of decreases in trade receivables of $9.0 million, prepaids
of $23.6 million and an increase in trade payables of $13.9 million, offset by increased inventory of $7.1 million and a decrease in other accruals.
The other accruals decreased primarily due to restructuring payments of $15.5 million during fiscal 2010.
The use of cash related to working capital balances in fiscal 2009 consist primarily of decreased current liabilities of $126.8 million over fiscal
2008. The reduction in liabilities is primarily related to reductions in accounts payable related to inventory, and accruals related to regular and
incentive compensation. The use of cash was partially offset by volume related declines in accounts receivables of $53.5 million and inventories
of $15.3 million.
Collections of accounts receivable remained strong throughout fiscal 2011, and we believe our recorded accounts receivable valuation allowances
at the end of the year are adequate to cover the risk of potential bad debts. Allowances for non-collectible accounts receivable, as a percent of
gross accounts receivable, totaled 2.3 percent, 3.0 percent, and 4.7 percent at the end of fiscal years 2011, 2010, and 2009, respectively.
During fiscal 2011 $38.2 million in cash contributions were made to our employee pension and post-retirement benefit plans. Cash contributions
during fiscal years 2010 and 2009 made to our employee pension and post-retirement benefit plans totaled $2.6 million and $5.3 million,
respectively. For further information regarding the company's pension and post-retirement benefit plans, including information relative to the
funded status of these plans, refer to Note 10 of the Consolidated Financial Statements.
25 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Cash Flow — Investing Activities
Capital expenditures totaled $30.5 million, $22.3 million and $25.3 million in fiscal 2011, 2010 and 2009, respectively. Outstanding commitments
for future capital purchases at the end of fiscal 2011 were approximately $4.9 million. We expect capital spending in fiscal 2012 to be between
$34 million and $38 million.
Included in our fiscal 2010 investing activities, is a net cash outflow of $46.1 million related to our acquisitions of Nemschoff, CBS, and two
furniture dealerships. Also included within fiscal 2010 investing activities is a note receivable for $6.9 million related to our acquisition of Nemschoff.
In fiscal 2010 we repaid loans held against the value of company owned life insurance policies for $2.9 million. Also included in fiscal 2009 is a
net cash outflow of $29.5 million related to the completion of the acquisition of Brandrud and the acquisition of Ruskin Industries.
Our net marketable securities transactions for fiscal 2011 yielded a $1.3 million source of cash. This compares to a $0.1 million source of cash
in fiscal 2010 and a $3.4 million source of cash in fiscal 2009.
Cash Flow — Financing Activities
(In millions, except share and per share data)
Shares acquired
Cost of shares acquired
Shares issued (1)
Average price per share issued
Cash dividends paid
2011
49,694
1.0
1,095,819
22.59
5.0
$
$
$
Fiscal Year Ended
2010
44,654
0.8
3,221,326
14.9
4.9
$
$
$
$
$
$
2009
2,138,701
0.1
257,765
14.7
19.2
(1) Includes 2,041,666 shares issued in connection with the Nemschoff acquisition during fiscal 2010. Includes 582,000 shares and 967,000
shares issued as a contribution to the company's pension plans during fiscal 2011 and fiscal 2010, respectively.
During the first quarter of fiscal 2010 we renegotiated the syndicated revolving line of credit, reducing our availability from $250 million to $150
million, while giving us additional covenant flexibility. This facility expires in June 2012 and outstanding borrowings bear interest at rates based
on the prime rate, federal funds rate, LIBOR, or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the
period a borrowing is outstanding. During the first quarter of fiscal 2010, we also completed the repurchase of $75 million of registered debt
securities. In addition to improving our covenant metrics this action also reduced our future interest expense by approximately $1.3 million per
quarter.
In the fourth quarter of fiscal 2009 we announced a reduction in the cash dividend effective for the first quarter of fiscal 2010 payment. This
change reduced the cash dividend to $0.088 per share annually versus a total quarterly cash dividend of $0.088 per share that was paid through
the third quarter of fiscal 2009. As part of our decision to conserve cash we suspended significant share repurchases beginning in fiscal 2009.
The amount remaining under our share repurchase authorization at the end of fiscal 2011 totaled $169.3 million.
Interest-bearing debt at the end of fiscal 2011 of $250 million decreased from $301.2 million at the end of fiscal 2010, as compared to $377.4
million at the end of fiscal 2009. The decrease in fiscal 2011 is a result of the repayment of the remaining $100 million in principal due under
the 2001 public bond issue. The payment was made using a combination of existing cash and proceeds from newly-issued senior unsecured
private placement notes of $50 million maturing in March 2021.
The only usage against our unsecured revolving credit facility at the end of fiscal years 2011 and 2010 represented outstanding standby letters
of credit totaling $9.4 million and $11.2 million, respectively. The provisions of our private placement notes and unsecured credit facility require
that we adhere to certain covenants and maintain certain performance ratios. We were in compliance with all such covenants and performance
ratios during fiscal 2011.
In fiscal 2011, we received $8.6 million related to the issuance of shares in connection with stock-based compensation plans. This compares
to receiving $2.5 million and $3.4 million in fiscal 2010 and fiscal 2009, respectively.
During fiscal 2011 we repatriated $18.8 million of undistributed foreign earnings. During fiscal 2010 we did not repatriate any undistributed foreign
earnings as compared to $8.0 million in fiscal 2009.
26 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
We believe cash on hand, cash generated from operations, and our borrowing capacity will provide adequate liquidity to fund near term and
future business operations and capital needs, subject to financing availability in the marketplace.
Contingencies
The company leases a facility in the U.K. under an agreement that expired in June 2011, and the company plans to continue to lease the facility
on a month to month basis after the lease expires. Under the terms of the lease, the company is required to perform the maintenance and repairs
necessary to address the general dilapidation of the facility over the lease term. The ultimate cost of this provision to the company is dependent
on a number of factors including, but not limited to, the future use of the facility by the lessor and whether the company chooses and is permitted
to renew the lease term. The company has estimated the cost of these maintenance and repairs to be between $0 and $3 million, depending
on the outcome of future plans and negotiations. Based on existing circumstances, it is estimated that these costs will be approximately $1.3
million. As a result, this amount has been recorded as a liability reflected under the caption “Other Liabilities” in the Consolidated Balance
Sheets as of May 28, 2011. Based on circumstances existing in fiscal 2010, the amount recorded in the Consolidated Balance Sheets as of
May 29, 2010 was $1.1 million.
The company has a lease obligation in the U.K. until May 2014 for a facility that it has exited. Current market rates for comparable office space
are lower than the rental payments owed under the lease agreement, as such, the company would remain liable to pay the difference if it were
subleased. As of May 28, 2011 and May 29, 2010 the future cost of this arrangement was estimated to be $1.7 million and $1.5 million, respectively.
Accordingly this amount is reflected within “Other Liabilities” on the Consolidated Balance Sheets as of these dates.
The company is involved in legal proceedings and litigation arising in the ordinary course of business. It is the company's opinion that the
outcome of such proceedings and litigation currently pending will not materially affect the company's operations, cash flows, and financial
condition.
Basis of Presentation
The company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 28, 2011, May 29, 2010, and May 30, 2009
each included 52 weeks of operations. This is the basis upon which weekly-average data is presented. Certain prior year information has been
reclassified to conform to the current year presentation.
Contractual Obligations
Contractual obligations associated with our ongoing business and financing activities will result in cash payments in future periods. The following
table summarizes the amounts and estimated timing of these future cash payments. Further information regarding debt obligations can be found
in Note 8 of the Consolidated Financial Statements. Likewise, further information related to operating leases can be found in Note 9 of the
Consolidated Financial Statements.
(In millions)
Payments due by fiscal year
Long-term debt
$
250.0
$
—
$
—
$
50.0
$
200.0
Total
2012
2013-2014
2015-2016
Thereafter
Estimated interest on debt
obligations (1)
Operating leases
Purchase obligations (2)
Pension plan funding (3)
Stockholder dividends (4)
Other (5)
Total
103.5
79.7
39.5
16.1
1.3
18.2
15.6
19.7
36.3
15.2
1.3
1.8
31.2
26.8
2.8
0.2
—
3.5
27.0
15.6
0.4
0.2
—
3.4
29.7
17.6
—
0.5
—
9.5
$
508.3
$
89.9
$
64.5
$
96.6
$
257.3
(1) Estimated future interest payments on our outstanding debt obligations are based on interest rates as of May 28, 2011. Actual cash outflows may differ
significantly due to changes in underlying interest rates and timing of principal payments.
(2) Purchase obligations consist of non-cancelable purchase orders and commitments for goods, services, and capital assets.
(3) Pension plan funding commitments are known for a 12-month period for those plans that are funded; unfunded pension and post-retirement plan funding
amounts are equal to the estimated benefit payments. As of May 28, 2011, the total projected benefit obligation for our domestic and international
employee pension benefit plans was $384.9 million.
(4) Represents the recorded dividend payable as of May 28, 2011. Future dividend payments are not considered contractual obligations until declared.
(5) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee compensation benefits, and
other post-employment benefits.
27 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Off-Balance Sheet Arrangements
Guarantees
We provide certain guarantees to third parties under various arrangements in the form of product warranties, loan guarantees, standby letters
of credit, lease guarantees, performance bonds, and indemnification provisions. These arrangements are accounted for and disclosed in
accordance with Accounting Standards Codification (ASC) Topic 460, "Guarantees" as described in Note 17 of the Consolidated Financial
Statements.
Critical Accounting Policies and Estimates
Our goal is to report financial results clearly and understandably. We follow accounting principles generally accepted in the United States of
America in preparing our Consolidated Financial Statements, which require us to make certain estimates and apply judgments that affect our
financial position and results of operations. We continually review our accounting policies and financial information disclosures. These policies
and disclosures are reviewed at least annually with the Audit Committee of the Board of Directors. Following is a summary of our more significant
accounting policies that require the use of estimates and judgments in preparing the financial statements.
Revenue Recognition
As described in the “Executive Overview,” the majority of our products and services are sold through one of four channels: Independent contract
furniture dealers and licensees, owned contract furniture dealers, direct to end customers, and independent retailers. We recognize revenue
on sales to independent dealers, licensees, and retailers once the product is shipped and title passes to the buyer. When we sell product directly
to the end customer or through owned dealers, we recognize revenue once the product and services are delivered and installation thereof is
substantially complete.
Amounts recorded as net sales generally include any freight charged to customers, with the related freight expenses recognized within cost of
sales. Items such as discounts off list price, rebates, and other sale-related marketing program expenses are recorded as reductions to net
sales. We record accruals for rebates and other marketing programs, which require us to make estimates about future customer buying patterns
and market conditions. Customer sales that reach (or fail to reach) certain levels can affect the amount of such estimates, and actual results
could differ from our estimates
Receivable Allowances
We base our allowances for receivables on known customer exposures, historical credit experience, and the specific identification of other
potential problems, including the current economic climate. These methods are applied to all major receivables, including trade, lease, and
notes receivable. In addition, we follow a policy that consistently applies reserve rates based on the age of outstanding accounts receivable.
Actual collections can differ from our historical experience, and if economic or business conditions deteriorate significantly, adjustments to these
reserves may be required.
The accounts receivable allowance totaled $4.5 million and $4.4 million at May 28, 2011 and May 29, 2010, respectively. As a percentage of
gross accounts receivable, these allowances totaled 2.3 percent and 3.0 percent for fiscal 2011 and fiscal 2010, respectively. The year-over-
year decrease in the allowance percentage is primarily due to the stabilization of economic conditions and continued financial health of our
customers.
Goodwill and Indefinite-lived Intangibles
The carrying value of goodwill and indefinite-lived intangible assets as of May 28, 2011 and May 29, 2010, were $133.6 million and $132.6
million, respectively. The company is required to perform an annual test of goodwill and indefinite-lived intangible assets to determine if the
asset values are impaired.
The impairment-testing model is based on the present value of projected cash flows and the resulting residual value and includes a reconciliation
to market capitalization. In completing the test under this approach, the company assumes that one of the drivers of the value of a business
today is the cash flows it will generate in the future. The company also assumes that such future cash flows can be reasonably estimated. While
these projected cash flows reflect the best estimate of future reporting unit performance, actual cash flows could differ significantly.
The company completed the required annual impairment tests in the fourth quarter of fiscal 2011 and concluded that the goodwill asset values
and indefinite-lived assets were not impaired. For goodwill, the company employed a market-based approach in selecting the discount rates
used in our analysis.The discount rates selected represent market rates of return equal to what the company believes is what a reasonable
investor would expect to achieve on investments of similar size to the company's reporting units. The company believes the discount rates
selected in the testing are appropriate in that, in all cases, they exceed the estimated weighted average cost of capital for our business as a
28 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
whole. The results of the impairment test are sensitive to changes in discount rates, though the testing performed in fiscal 2011 indicates that
even a significant increase in the discount rate would not have changed the conclusion. For indefinite-lived assets a relief of royalty method
was utilized, which indicated the assets were not impaired.
Long-lived Assets
The company evaluates other long-lived assets and acquired business units for indicators of impairment when events or circumstances indicate
that an impairment risk may be present. The judgments regarding the existence of impairment are based on market conditions, operational
performance, and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded
to adjust the asset to its estimated fair value. During the fourth quarter of fiscal 2010 the company recorded an impairment charge of $2.5 million
that was related to our Convia line of business. These assets related to products that we determined had no future revenue stream to the
company. The impairment charge was comprised of $1.4 million of expense related to an intangible asset and $1.1 million of expense in relation
to fixed assets, respectively.
Warranty Reserve
The company stands behind company products and the promises it makes to customers. From time to time, quality issues arise resulting in the
need to incur costs to correct problems with products or services. The company has established warranty reserves for the various costs associated
with these obligations. General warranty reserves are based on historical claims experience and periodically adjusted for business levels. Specific
reserves are established once an issue is identified. The valuation of such reserves is based on the estimated costs to correct the problem.
Actual costs may vary and may result in an adjustment to these reserves.
Inventory Reserves
Inventories are valued at the lower of cost or market. The inventories at the majority of our manufacturing operations are valued using the last-
in, first-out (LIFO) method, whereas inventories of certain other subsidiaries are valued using the first-in, first-out (FIFO) method. The company
establishes reserves for excess and obsolete inventory, based on prevailing circumstances and judgment for consideration of current events,
such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or market may be adjusted in
response to changing conditions.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
See Note 13 of the Consolidated Financial Statements for information regarding the company's uncertain tax positions.
The company has net operating loss (NOL) carryforwards available in certain jurisdictions to reduce future taxable income. The company also
has foreign tax credits available in certain jurisdictions to reduce future tax due. Future tax benefits for NOL carryforwards and foreign tax credits
are recognized to the extent that realization of these benefits is considered more likely than not. This determination is based on the expectation
that related operations will be sufficiently profitable or various tax planning strategies available to us will enable us to utilize the NOL carryforwards
and/or foreign tax credits. When information becomes available that raises doubts about the realization of a deferred income tax asset, a valuation
allowance is established.
Self-Insurance Reserves
With the assistance of independent actuaries, reserves are established for workers' compensation and general liability exposures. The reserves
are established based on expected future claims for incurred losses. The company also establishes reserves for health, prescription drugs, and
dental benefit exposures based on historical claims information along with certain assumptions about future trends. The methods and assumptions
used to determine the liabilities are applied consistently, although actual claims experience can vary. The company also maintains insurance
coverage for certain risk exposures through traditional premium-based insurance policies. The company's health benefits retention level does
not include an aggregate stop loss policy. The company's retention levels designated within significant insurance arrangements as of
May 28, 2011, are as follows.
29 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
General liability and auto liability/physical damage
Workers' compensation and property
Health benefits
Pension and other Post-Retirement Benefits
Retention Level
$1.00 million per occurrence
$0.75 million per occurrence
$0.30 million per employee
The determination of the obligation and expense for pension and other post-retirement benefits depends on certain actuarial assumptions.
Among the most significant of these assumptions are the discount rate, interest-crediting rate, and expected long-term rate of return on plan
assets. We determine these assumptions as follows.
•
•
•
Discount Rate — This assumption is established at the end of the fiscal year based on high-quality corporate bond yields. The company
utilizes the services of an independent actuarial firm to assist in determining the rate. For the domestic pension and other post-
retirement benefit plans, the actuary uses a “cash flow matching” technique, which compares the estimated future cash flows of the
plan to a published discount curve showing the relationship between interest rates and duration for hypothetical zero-coupon fixed
income investments. The discount rate is set for the international pension plan based on the yield level of a commonly used corporate
bond index in that jurisdiction. Because the average duration of the bonds underlying this index is less than that of our international
pension plan liabilities, the index yield is used as a reference point. The final discount rate takes into consideration the index yield and
the difference in comparative durations.
Interest Crediting Rate — The company uses this assumption in accounting for our primary domestic pension plan, which is a cash
balance-type plan. The rate, which represents the annual rate of interest applied to each plan participant's account balance, is
established at an assumed level, or spread, below the discount rate. The company bases this methodology on the historical spread
between the 30-year U.S. Treasury and high-quality corporate bond yields. This relationship is examined annually to determine whether
the methodology is still appropriate.
Expected Long-Term Rate of Return — The company bases this assumption on our long-term assumed rates of return for equities
and fixed income securities, weighted by the allocation of the invested assets of the pension plan. The company considers likely
returns and risk factors specific to the various classes of investments and advice from independent actuaries in establishing this rate.
Changes in the investment allocation of plan assets would impact this assumption. A shift to a higher relative percentage of fixed
income securities, for example, would result in a lower assumed rate.
While this assumption represents the long-term market return expectation, actual asset returns can and do differ from year-to-year.
Such differences give rise to actuarial gains and losses. In years where actual market returns are lower than the assumed rate, an
actuarial loss is generated. Conversely, an actuarial gain results when actual market returns exceed the assumed rate in a given year.
As of May 28, 2011, and May 29, 2010, the net actuarial loss associated with the employee pension and post-retirement benefit plans
totaled approximately $158.2 million and $192.3 million, respectively. The majority of this unrecognized loss was associated with
lower than expected return on assets for fiscal 2011 and fiscal 2010. Changes in the discount rate and return on assets can have a
significant effect on the expense or obligations related to our pension plans. The company cannot accurately predict these changes
in discount rates or investment returns and, therefore, cannot reasonably estimate whether adjustments to the expense or obligation
in subsequent years will be significant. Both the May 28, 2011 pension funded status and 2012 expense are affected by year-end 2011
discount rate and expected return on assets assumptions. Any change to these assumptions will be specific to the time periods noted
and may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual
sensitivities shown. The effect of the indicated increase/(decrease) in discount rates and expected return on assets is shown below:
(In millions)
Assumption
1 Percent
Change
2012 Expense
May 28, 2011 Obligation
Discount rate
+/- 1.0
$ 1.5 / (1.4)
U.S.
International
$ (0.8) / 1.8
U.S.
$ (12.7) / 15.9
International
$ (13.5) / 17.5
Expected return on
assets
+/- 1.0
$(2.8) / 2.8
$ (0.7) / 0.7
—
—
For purposes of determining annual net pension expense, the company uses a calculated method for determining the market-related
value of plan assets. Under this method, the company recognizes the change in fair value of plan assets systematically over a five-
30 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
year period. Accordingly, a portion of the net actuarial loss is deferred. The remaining portion of the net actuarial loss is subject to
amortization expense each year. The amortization period used in determining this expense is the estimated remaining working life of
active pension plan participants. The company currently estimates this period to be approximately 13 years. As of May 28, 2011, the
deferred net actuarial loss (i.e. the portion of the total net actuarial loss not subject to amortization) was approximately $42.5 million.
Refer to Note 10 of the Consolidated Financial Statements for more information regarding costs and assumptions used for employee
benefit plans.
Stock-Based Compensation
The company views stock-based compensation as a key component of total compensation for certain employees, non-employee directors and
officers. The stock-based compensation programs include grants of restricted stock, restricted stock units, performance share units, employee
stock purchases, and stock options. The company recognizes expense related to each of these share-based arrangements. The Black-Scholes
option pricing model is used in estimating the fair value of stock options issued in connection with compensation programs. This pricing model
requires the use of several input assumptions. Among the most significant of these assumptions are the expected volatility of the common stock
price, and the expected timing of future stock option exercises.
•
•
Expected Volatility — This represents a measure, expressed as a percentage, of the expected fluctuation in the market price of the
company's common stock. As a point of reference, a high volatility percentage would assume a wider expected range of market returns
for a particular security. All other assumptions held constant, this would yield a higher stock option valuation than a calculation using
a lower measure of volatility. In measuring the fair value of stock options issued during fiscal year 2011, we utilized an expected
volatility of 42 percent.
Expected Term of Options — This assumption represents the expected length of time between the grant date of a stock option and
the date at which it is exercised (option life). The company assumed an average expected term of 5.5 years in calculating the fair
values of the majority of stock options issued during fiscal 2011.
Refer to Note 12 of the Consolidated Financial Statements for further discussion on our stock-based compensation plans.
Contingencies
In the ordinary course of business, the company encounters matters that raise the potential for contingent liabilities. In evaluating these matters
for accounting treatment and disclosure, the company is required to apply judgment in order to determine the probability that a liability has been
incurred. The company is also required to measure, if possible, the dollar value of such liabilities in determining whether or not recognition in
our financial statements is required. This process involves the use of estimates which may differ from actual outcomes. Refer to Note 17 of the
Consolidated Financial Statements for more information relating to contingencies.
New Accounting Standards
Refer to Note 1 of the Consolidated Financial Statements for information related to new accounting standards.
Forward Looking Statements
Certain statements in this filing are not historical facts but are “forward-looking statements” as defined under Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Such statements are based on management's belief,
assumptions, current expectations, estimates and projections about the office furniture industry, the economy and the company itself. Words
like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecast,” “likely,” “plans,” “projects,” and “should,” and variations of such words
and similar expressions identify forward-looking statements. These statements do not guarantee future performance and involve certain risks,
uncertainties, and assumptions that are difficult to predict with regard to timing, expense, likelihood, and degree of occurrence. These risks
include, without limitation, employment and general economic conditions in the U.S. and in our international markets, the increase in white collar
employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, the possibility of
order cancellations or deferrals by customers, competitive pricing pressures, the availability and pricing of direct materials, our reliance on a
limited number of suppliers, currency fluctuations, the ability to increase prices to absorb the additional costs of direct materials, the financial
strength of our dealers, the financial strength of our customers, the mix of our products purchased by customers, our ability to attract and retain
key executives and other qualified employees, our ability to continue to make product innovations, the strength of the intellectual property relating
to our products, the success of newly introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances,
the outcome of pending litigation or governmental audits or investigations, and other risks identified in this Form 10-K and our other filings with
the Securities and Exchange Commission. Therefore, actual results and outcomes may materially differ from what we express or forecast.
Furthermore, Herman Miller, Inc., takes no obligation to update, amend, or clarify forward-looking statements.
31 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company manufactures, markets, and sells its products throughout the world and, as a result, is subject to changing economic conditions,
which could reduce the demand for its products.
Direct Material Costs
The company is exposed to risks arising from price changes for certain direct materials and assembly components used in its operations. The
largest such costs incurred by the company are for steel, plastics, textiles, wood particleboard, and aluminum components. Commodity prices
steadily increased during the first three quarters and moderated during the fourth quarter of fiscal 2011. The net impact of price changes during
fiscal 2011 was an increase to our costs of approximately $12 million during fiscal 2011.
The net impact of price changes during fiscal 2010 was an decrease to our costs of $24 million to $25 million over fiscal 2009. Commodity prices
were volatile during fiscal 2009, resulting in sharp increases in costs for the first half of the year. As the year progressed, prices receded back
to approximately the same level that they began the year at. The net impact of price changes during fiscal 2009 was an increase to our costs
of $24 million to $26 million.
The company believes market prices for commodities in the near term may move higher and acknowledges that over time increases on its key
direct materials and assembly components are likely. Consequently, it views the prospect of such increases as an outlook risk to the business.
Foreign Exchange Risk
The company primarily manufactures its products in the United States, United Kingdom, and China. It also sources completed products and
product components from outside the United States. The company's completed products are sold in numerous countries around the world. Sales
in foreign countries as well as certain expenses related to those sales are transacted in currencies other than the company's reporting currency,
the U.S. dollar. Accordingly, production costs and profit margins related to these sales are affected by the currency exchange relationship between
the countries where the sales take place and the countries where the products are sourced or manufactured. These currency exchange
relationships can also affect the company's competitive positions within these markets.
In the normal course of business, the company enters into contracts denominated in foreign currencies. The principal foreign currencies in which
the company conducts its business are the British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, and Chinese renminbi.
As of May 28, 2011, the company had outstanding, sixteen forward currency instruments designed to offset either net asset or net liability
exposure that is denominated in non-functional currencies. Two forward contracts were placed to offset a 3.1 million euro-denominated net asset
exposure and five forward contracts were placed to offset a 7.6 million U.S. dollar-denominated net asset exposure. One forward contract was
placed to offset 0.4 million Australian dollar-denominated net asset exposure. Eight forward contracts were placed to offset a 2.4 million U.S.dollar-
denominated net liability exposure.
As of May 29, 2010, the company had outstanding, nine forward currency instruments designed to offset either net asset or net liability exposure
that is denominated in non-functional currencies. One forward contract was placed in order to offset a 4.1 million euro-denominated net asset
exposure and three forward contracts were placed in order to offset a 5.6 million U.S. dollar-denominated net asset exposure. Four forward
contracts were placed to offset a 14.0 million U.S. dollar-denominated net liability exposure and one forward contract was placed to offset a 1.6
million British pound sterling-denominated net liability exposure. The fair value of the forward currency instruments at May 28, 2011 was $0.7
million and $0.3 million within current assets and current liabilities, respectively. At May 29, 2010 the fair value of the forward currency instruments
was a negligible amount.
For fiscal year 2011, a net loss of $2.0 million related to remeasuring all foreign currency transactions into the appropriate functional currency
was included in net earnings. For fiscal year 2010, a net gain of $0.4 million impacted net earnings. For fiscal year 2009, a net loss of $1.1
million impacted net earnings. Additionally, the cumulative effect of translating the balance sheet and income statement accounts from the
functional currency into the United States dollar decreased the accumulated comprehensive loss component of total stockholders' equity by
$6.4 million as of the end of fiscal 2011. Conversely, the effect increased the accumulated comprehensive loss component of total stockholders
equity by $2.9 million and $14.0 million as of the end of fiscal 2010 and fiscal 2009, respectively.
Interest Rate Risk
The company maintains fixed-rate debt for which changes in interest rates generally affect fair market value but not earnings or cash flows.
During the fourth quarter of fiscal 2011 the company's interest rate swap agreement expired as planned on March 15, 2011. As of the end of
fiscal years 2010 and 2009 the company held one interest rate swap agreement that effectively converted $50.0 million of fixed-rate debt
securities to a variable rate.
32 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The combined fair market value and net asset amount of the effective interest rate swap instruments was $1.2 million at May 29, 2010. The
swap arrangement effectively reduced interest expense by $1.5 million, $1.9 million, and $1.2 million in fiscal 2011, fiscal 2010 and fiscal 2009,
respectively. All cash flows related to the company's interest rate swap instruments are denominated in U.S. dollars. For further information,
refer to Notes 14 and 15 of the Consolidated Financial Statements.
Expected cash flows (notional amounts) over the next five years and thereafter related to debt instruments are as follows.
(In millions)
Long-Term Debt:
Fixed rate
Wtd. average interest rate = 6.2%
2012
2013
2014
2015
2016
Thereafter
Total
$
—
$ —
$ —
$ 50.0
$
—
$
200.0
$
250.0
33 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Operations
(In millions, except per share data)
May 28, 2011
May 29, 2010
May 30, 2009
Fiscal Years Ended
Net sales
Cost of sales
Gross margin
Operating expenses:
Selling, general, and administrative
Restructuring and impairment expenses
Design and research
Total operating expenses
Operating earnings
Other expenses (income):
Interest expense
Interest and other investment income
Other, net
Net other expenses
Earnings before income taxes
Income tax expense
Net loss attributable to non-controlling interest
Net Earnings Attributable to Controlling Interest
Earnings per share —basic
Earnings per share —diluted
$
1,649.2
$
1,318.8
$
1,111.1
538.1
366.0
3.0
45.8
414.8
123.3
19.9
(1.5)
2.4
20.8
102.5
31.7
—
890.3
428.5
317.7
16.7
40.5
374.9
53.6
21.7
(4.6)
1.7
18.8
34.8
6.5
—
$
$
$
70.8
$
28.3
$
1.24
1.06
$
$
0.51
0.43
$
$
1,630.0
1,102.3
527.7
330.8
28.4
45.7
404.9
122.8
25.6
(2.6)
0.9
23.9
98.9
31.0
(0.1)
68.0
1.26
1.25
34 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Consolidated Balance Sheets
(In millions, except share and per share data)
Assets
Current Assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, less allowances of $4.5 in 2011 and $4.4 in 2010
Inventories, net
Prepaid expenses and other
Total Current Assets
Property and Equipment:
Land and improvements
Buildings and improvements
Machinery and equipment
Construction in progress
Gross Property and Equipment
Less: accumulated depreciation
Net Property and Equipment
Goodwill and indefinite-lived intangibles
Other amortizable intangibles, net
Other assets
Total Assets
Liabilities and Stockholders' Equity
Current Liabilities:
Unfunded checks
Current maturities of long-term debt
Accounts payable
Accrued liabilities
Total Current Liabilities
Long-term debt, less current maturities
Other liabilities
Total Liabilities
Stockholders' Equity:
Preferred stock, no par value (10,000,000 shares authorized, none issued)
Common stock, $0.20 par value (240,000,000 shares authorized, 58,048,858 and
57,002,733 shares issued and outstanding in 2011 and 2010, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Key executive deferred compensation
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
May 28, 2011
May 29, 2010
$
$
$
$
148.6
11.0
193.1
66.2
59.2
478.1
19.9
149.5
531.0
13.0
713.4
(544.3)
169.1
133.6
24.3
9.3
814.4
6.4
—
112.7
153.1
272.2
250.0
87.2
609.4
—
11.6
82.0
218.2
(104.2)
(2.6)
205.0
814.4
$
$
$
$
134.8
12.1
144.7
57.9
46.4
395.9
19.4
147.6
546.4
10.7
724.1
(548.9)
175.2
132.6
25.0
41.9
770.6
4.3
101.2
96.3
112.4
314.2
200.0
176.3
690.5
—
11.4
55.9
152.4
(136.2)
(3.4)
80.1
770.6
35 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Consolidated Statements of Stockholders' Equity
(In millions, except share data)
Shares of
Common Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated Other
Comprehensive Loss
Key Exec.
Deferred
Comp.
Total
Stockholders'
Equity
Balance, May 31, 2008
55,706,997
$
11.1
$
—
$
76.7
$
(60.1)
$
(4.3)
$
Net earnings attributable to
controlling interest
Foreign currency translation
adjustment
Pension liability adjustments (net
of tax of $35.3 million)
Unrealized holding loss on
available-for-sale securities
Total comprehensive loss
Cash dividends declared ($0.286
per share)
—
—
—
—
—
Exercise of stock options
23,050
Employee stock purchase plan
187,037
Tax benefit relating to stock-based
compensation
Excess tax benefit relating to
stock-based compensation
Repurchase and retirement of
common stock
Restricted stock units
compensation expense
—
—
—
Restricted stock units released
14,074
Stock grants compensation
expense
Stock grants issued
Stock option compensation
expense
Deferred compensation plan
Directors' fees
Performance share units
compensation expense
—
3,600
—
—
30,004
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.5
2.7
0.1
(0.3)
0.2
0.2
0.4
0.7
—
2.9
(0.5)
0.4
(1.4)
68.0
—
—
—
(15.5)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(14.0)
(59.9)
(0.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.5
—
—
(2,138,701)
(0.3)
Balance, May 30, 2009
53,826,061
$
10.8
$
5.9
$
129.2
$
(134.1)
$
(3.8)
$
23.4
68.0
(14.0)
(59.9)
(0.1)
(6.0)
(15.5)
0.5
2.7
0.1
(0.3)
(0.1)
0.2
0.4
0.7
—
2.9
—
0.4
(1.4)
8.0
36 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Consolidated Statements of Stockholders' Equity
(In millions, except share data)
Shares of
Common
Stock
Common
Stock
Additional
Paid-In Capital
Retained
Earnings
Accumulated Other
Comprehensive
Gain (Loss)
Key Exec.
Deferred Comp.
Total
Stockholders'
Equity
Balance, May 30, 2009
53,826,061
$
10.8
$
5.9
$
129.2
$
(134.1)
$
(3.8)
$
Net earnings
Foreign currency translation
adjustment
Pension and post-retirement
liability adjustments (net of tax
benefit of $0.9 million)
Unrealized holding gain on
available-for-sale securities
Total comprehensive income
Cash dividends declared ($0.088
per share)
Issuance of common stock in
connection with business
acquisition
Contribution of common stock to
defined benefit pension plan
Exercise of stock options
—
—
—
—
—
2,041,666
967,000
10,000
Employee stock purchase plan
133,048
Tax benefit relating to stock-
based compensation
Excess tax benefit relating to
stock-based compensation
—
—
Repurchase and retirement of
common stock
(44,654)
Restricted stock units
compensation expense
Restricted stock units released
Stock grants compensation
expense
Stock grants issued
Stock option compensation
expense
Deferred compensation plan
Directors' fees
—
8,896
—
41,981
—
—
18,735
—
—
—
—
—
0.4
0.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
28.3
—
—
—
—
(5.1)
28.3
16.5
0.2
2.2
0.1
(0.5)
(0.8)
1.0
0.2
0.4
—
2.5
(0.4)
0.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2.9)
0.6
0.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.4
—
8.0
28.3
(2.9)
0.6
0.2
26.2
(5.1)
28.7
16.7
0.2
2.2
0.1
(0.5)
(0.8)
1.0
0.2
0.4
—
2.5
—
0.3
Balance, May 29, 2010
57,002,733
$
11.4
$
55.9
$
152.4
$
(136.2)
$
(3.4)
$
80.1
37 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Consolidated Statements of Stockholders' Equity
(In millions, except share data)
Shares of
Common
Stock
Common
Stock
Additional
Paid-In Capital
Retained
Earnings
Accumulated Other
Comprehensive
Gain (Loss)
Key Exec.
Deferred Comp.
Total
Stockholders'
Equity
Balance, May 29, 2010
57,002,733
$
11.4
$
55.9
$
152.4
$
(136.2)
$
(3.4)
$
Net earnings
Foreign currency translation
adjustment
Pension and post-retirement
liability adjustments (net of tax
benefit of $11.8 million)
Unrealized holding gain on
available-for-sale securities
Total comprehensive income
Cash dividends declared ($0.088
per share)
—
—
—
—
—
Contribution of common stock to
defined benefit pension plan
Exercise of stock options
582,000
309,252
Employee stock purchase plan
99,593
Excess tax benefit relating to
stock-based compensation
Repurchase and retirement of
common stock
Restricted stock units released
Stock grants issued
Stock option compensation
expense
Deferred compensation plan
Directors' fees
—
(49,694)
64,958
30,907
—
—
9,109
—
—
—
—
—
0.1
0.1
—
—
—
—
—
—
—
—
—
—
—
—
70.8
—
—
—
—
(5.0)
14.5
6.5
2.1
0.1
(1.0)
1.5
0.5
2.5
(0.8)
0.2
—
—
—
—
—
—
—
—
—
—
—
6.4
25.5
0.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.8
—
80.1
70.8
6.4
25.5
0.1
102.8
(5.0)
14.6
6.6
2.1
0.1
(1.0)
1.5
0.5
2.5
—
0.2
Balance, May 28, 2011
58,048,858
$
11.6
$
82.0
$
218.2
$
(104.2)
$
(2.6)
$
205.0
38 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Consolidated Statements of Cash Flows
(In millions)
Cash Flows from Operating Activities:
May 28, 2011
Fiscal Years Ended
May 29, 2010
May 30, 2009
Net earnings attributable to controlling interest
$
70.8
$
28.3
$
Adjustments to reconcile net earnings attributable to controlling
interest to net cash provided by operating activities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Notes receivable repayments
Notes receivable issued
Marketable securities purchases
Marketable securities sales
Capital expenditures
Proceeds from sales of property and equipment
Proceeds from disposal of owned dealers
Acquisitions, net of cash received
Payments on loan on cash surrender value of life insurance
Proceeds from loan on cash surrender value of life insurance
Other, net
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Long-term debt repayments
Long-term debt borrowings
Dividends paid
Common stock issued
Common stock repurchased and retired
Excess tax benefits from stock-based compensation
Payment of contingent consideration obligation
Other, net
Net Cash Used for Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and cash equivalents, beginning of year
20.3
91.1
—
—
(3.1)
4.4
(30.5)
1.0
—
—
—
—
(3.2)
(31.4)
(100.0)
50.0
(5.0)
8.6
(1.0)
0.1
(3.0)
0.1
(50.2)
4.3
13.8
134.8
70.8
99.1
—
(6.5)
(16.3)
16.4
(22.3)
0.7
—
(46.1)
(2.9)
—
(0.6)
(77.6)
(75.0)
—
(4.9)
2.5
(0.8)
(0.5)
—
(0.2)
(78.9)
(0.7)
(58.1)
192.9
Cash and Cash Equivalents, End of Year
$
148.6
$
134.8
$
68.0
23.7
91.7
60.6
(60.3)
(3.0)
6.4
(25.3)
0.3
1.3
(29.5)
—
19.3
0.7
(29.5)
—
—
(19.2)
3.4
(0.3)
(0.3)
—
(0.1)
(16.5)
(8.2)
37.5
155.4
192.9
39 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Notes to the Consolidated Financial Statements
1. Significant Accounting and Reporting Policies
The following is a summary of significant accounting and reporting policies not reflected elsewhere in the accompanying financial statements.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Herman Miller, Inc., and its majority-owned domestic and foreign subsidiaries.
The consolidated entities are collectively referred to as “the company.” All intercompany accounts and transactions, including any involving
Variable Interest Entities (VIEs), have been eliminated in the Consolidated Financial Statements.
Description 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 companies all over the world. The company's products are sold
primarily through independent contract office furniture dealers. Accordingly, accounts and notes receivable in the accompanying balance sheets
are principally amounts due from the dealers.
Fiscal Year
The company's fiscal year ends on the Saturday closest to May 31. Fiscal years ended May 28, 2011, May 29, 2010 and May 30, 2009, each
contain 52 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.
Foreign Currency Translation
The functional currency for foreign subsidiaries is their local currency. The cumulative effects of translating the balance sheet accounts from the
functional currency into the United States dollar using fiscal year-end exchange rates and translating revenue and expense accounts using
average exchange rates for the period is reflected as a component of “Accumulated Other Comprehensive Gain (Loss)” in the Consolidated
Balance Sheets. The financial statement impact of remeasuring all foreign currency transactions into the appropriate functional currency resulted
in a net loss of $2.0 million, net gain of $0.4 million and a net loss of $1.1 million for the fiscal years ended May 28, 2011, May 29, 2010 and
May 30, 2009, respectively. These amounts are included in “Other Expenses (Income)” in the Consolidated Statements of Operations.
Cash Equivalents
The company holds cash equivalents as part of its cash management function. Cash equivalents include money market funds, time deposit
investments, and treasury bills with original maturities of less than three months. The carrying value of cash equivalents, which approximates
fair value, totaled $9.7 million and $54.6 million as of May 28, 2011, and May 29, 2010, respectively. All cash and cash equivalents are high-
credit quality financial instruments, and the amount of credit exposure to any one financial institution or instrument is limited.
Marketable Securities
The company maintains a portfolio of marketable securities primarily comprised of investment-grade, fixed-income securities. These investments
are held by the company's wholly owned insurance captive and are considered “available-for-sale” securities. Accordingly, they have been
recorded at fair market value based on quoted market prices, with the resulting net unrealized holding gains or losses reflected net of tax as a
component of “Accumulated Other Comprehensive Gain (Loss)” in the Consolidated Balance Sheets.
All marketable security transactions are recognized on the trade date. Realized gains and losses on disposal of available-for-sale investments
are included in “Interest and other investment income” in the Consolidated Statements of Operations. See Note 14 of the Consolidated Financial
Statements for additional disclosures of marketable securities.
Accounts Receivable Allowances
Reserves for uncollectible accounts receivable balances are based on known customer exposures, historical credit experience, and the specific
identification of other potential problems. Balances are written off against the reserve once the company determines the probability of collection
to be remote. The company generally does not require collateral or other security on trade accounts receivable.
Concentrations of Credit Risk
Our trade receivables are primarily due from independent dealers who, in turn, carry receivables from their customers. We monitor and manage
the credit risk associated with individual dealers and direct customers where applicable. Dealers are responsible for assessing and assuming
credit risk of their customers and may require their customers to provide deposits, letters of credit or other credit enhancement measures. Some
40 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
sales contracts are structured such that the customer payment or obligation is direct to us. In those cases, we may assume the credit risk.
Whether from dealers or customers, our trade credit exposures are not concentrated with any particular entity.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined at the majority of the company's manufacturing operations using the
last-in, first-out (LIFO) cost method, whereas inventories of certain other of the company's subsidiaries are valued using the first-in, first-out
(FIFO) cost method. Primarily the company's international entities and domestic entities which are newly acquired or insignificant are on the
FIFO cost method and the remaining domestic entities are on the LIFO cost method. The company establishes reserves for excess and obsolete
inventory, based on prevailing circumstances and judgment for consideration of current events, such as economic conditions, that may affect
inventory. The reserve required to record inventory at lower of cost or market may be adjusted in response to changing conditions. Once elected,
the company has applied these inventory cost valuation methods consistently from year to year. Further information on the company's recorded
inventory balances can be found in Note 3 of the Consolidated Financial Statements.
Property, Equipment, and Depreciation
Property and equipment are stated at cost. The cost is depreciated over the estimated useful lives of the assets, using the straight-line method.
Estimated useful lives range from 3 to 10 years for machinery and equipment and do not exceed 40 years for buildings. Leasehold improvements
are depreciated over the lesser of the lease term or the useful life of the asset, not to exceed 10 years. We capitalize certain external and internal
costs incurred in connection with the development, testing, and installation of software for internal use. Software for internal use is included in
property and equipment and is depreciated over an estimated useful life not exceeding 5 years. Depreciation and amortization expense is
included in the statement of operations in the cost of sales, operating expenses; selling, general and administrative, and design and research
line items.
As of the end of fiscal 2011, outstanding commitments for future capital purchases approximated $4.9 million.
Goodwill and Indefinite-lived Intangible Assets
We perform an annual impairment test, by reporting unit, to determine whether the asset values are impaired. A reporting unit is defined as an
operating segment or one level below an operating segment. Substantially all of our goodwill and indefinite-lived assets are within the North
American operating segment (see Note 18 of the Consolidated Financial Statements), which has been determined to be made up of two reporting
units.The annual test is comprised of two steps, the first step compares the fair value of the reporting unit with its carrying amount, including
goodwill and indefinite-lived assets and the second step is used to measure the amount of impairment loss by comparing the implied fair value
of the reporting unit asset with the carrying amount of that asset. If the first step of the test is passed then the asset is not considered impaired
and the second step is unnecessary. If an impairment results from these tests, we are required to reduce the net carrying value of the assets
to their estimated fair value.
Our impairment testing model is based on an income approach that considers the present value of projected cash flows and the resulting residual
value and includes a reconciliation to market capitalization values. In completing the test under this approach, we assume that one of the drivers
of the value of a business today is the cash flows it will generate in the future. We also assume that such future cash flows can be reasonably
estimated. While these projected cash flows reflect our best estimate of future reporting unit performance, actual cash flows could differ
significantly.
We performed our goodwill and indefinite-lived asset tests at the beginning of the fourth quarter of fiscal 2011. Goodwill passed the step-one
tests by substantial margins for all reporting units, which indicate that our goodwill is not impaired. The discount rates selected for use in our
income approach test represent market rates of return equal to what we believe a reasonable investor would expect to achieve on investments
of similar size to our reporting units. We believe the market participant based discount rates selected in our testing exceed the estimated weighted
average cost of capital for our specific business as a whole. The results of the impairment test are sensitive to changes in discount rates, though
the testing performed in fiscal 2011 would indicate that even a significant increase in the discount rate would not have changed the results of
passing the tests.
The company also evaluates its acquired intangible assets to determine whether any have “indefinite useful lives.” Intangible assets with indefinite
useful lives, are not subject to amortization. The company's indefinite-lived intangible-assets consist of certain tradenames valued at
approximately $23.2 million as of fiscal year 2011 and 2010. These assets have indefinite useful lives and are evaluated annually using the
relief of royalty method. The company measures and records an impairment loss for the excess of the carrying value of the asset over its fair
value.
41 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Goodwill and other indefinite-lived assets included in the Consolidated Balance Sheet consist of the following:
(In millions)
Balance, May 29, 2010
Currency-related adjustments
Balance, May 28, 2011
Long-Lived Assets
Goodwill
Indefinite-lived
Intangible Assets
Total Goodwill and
Indefinite-lived Assets
$
$
109.4
1.0
110.4
$
$
23.2
—
23.2
$
$
132.6
1.0
133.6
The company reviews other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or
asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to
be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. During
the fourth quarter of fiscal 2010 the company recorded an impairment charge of $2.5 million recorded in "Restructuring and impairment expenses"
within the "Other" operating segment. Of this amount, $1.4 million related to an amortizable intangible asset and $1.1 million was in relation to
fixed assets, respectively. These assets related to products that we determined had no future revenue stream to the company.
Amortizable intangible assets within "Other amortizable intangibles, net" consists primarily of patents, trademarks and customer relationships.
The combined gross carrying value and accumulated amortization for these amortizable intangibles was $37.2 million and $12.9 million,
respectively as of May 28, 2011. As of May 29, 2010, these amounts totaled $35.2 million and $10.2 million, respectively. The company amortizes
these assets over their remaining useful lives using the straight-line method over periods ranging from 5 to 17 years. It is estimated that the
average remaining life of such patents and trademarks is approximately 6 years and 9 years, respectively. The estimated average remaining
life of the customer relationships is 12 years.
Estimated amortization expense on existing amortizable intangible assets as of May 28, 2011, for each of the succeeding five fiscal years is as
follows.
(In millions)
2012
2013
2014
2015
2016
Unfunded Checks
$
$
$
$
$
2.5
2.4
2.3
2.0
1.9
As a result of maintaining a consolidated cash management system, the company utilizes controlled disbursement bank accounts. These
accounts are funded as checks are presented for payment, not when checks are issued. Any resulting book overdraft position is included in
current liabilities as unfunded checks.
Self-Insurance
The company is partially self-insured for general liability, workers' compensation, and certain employee health and dental benefits under insurance
arrangements that provide for third-party coverage of claims exceeding the company's loss retention levels. The company's health benefits
retention level does not include an aggregate stop loss policy. The company's retention levels designated within significant insurance
arrangements as of May 28, 2011, are as follows:
General liability and auto liability/physical damage
Workers' compensation and property
Health benefits
Retention Level
$1.00 million per occurrence
$0.75 million per occurrence
$0.30 million per employee
42 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The company's policy is to accrue amounts equal to the actuarially-determined liabilities for loss and loss adjustment expenses, which are
included in “Other liabilities” in the Consolidated Balance Sheets. 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 costs, and changes in actual experience
could cause these estimates to change. The general and workers' compensation liabilities are managed through the company's wholly-owned
insurance captive.
Research, Development, and Other Related Costs
Research, development, pre-production, and start-up costs are expensed as incurred. Research and development (R&D) costs consist of
expenditures incurred during the course of planned research and investigation aimed at discovery of new knowledge useful in developing new
products or processes. R&D costs also include the significant enhancement of existing products or production processes and the implementation
of such through design, testing of product alternatives, or construction of prototypes. Research and development costs included in “Design and
Research” expense in the accompanying Consolidated Statements of Operations of $35.4 million, $33.2 million, and $36.2 million, in fiscal 2011,
2010, and 2009, respectively.
Royalty payments made to designers of the company's products as the products are sold are a variable cost based on product sales. These
expenses totaled $10.4 million, $7.3 million, and $9.5 million in fiscal years 2011, 2010, and 2009 respectively. They are included in "Design
and Research" expense in the accompanying Consolidated Statements of Operations.
Advertising Costs
Advertising costs are expensed as incurred and are included in “Selling, general, and administrative” expense in the accompanying Consolidated
Statements of Operations. Advertising costs were $2.3 million, $2.4 million, and $2.2 million, in fiscal 2011, 2010, and 2009, respectively.
Customer Payments and Incentives
We offer various sales incentive programs to our customers, such as rebates, discounts, buy-downs and cooperative advertising programs.
Programs such as rebates, discounts and buy-downs are adjustments to the selling price and are therefore characterized as a reduction to net
sales. The cooperative advertising program, whereby customers are reimbursed for company approved advertising expenditures, provides us
with an identifiable benefit from the advertisement at a verifiable market rate. Therefore, the cost of the cooperative advertising program is
recognized as an operating expense and is included in the "Selling, general and administrative" line in the Consolidated Statement of Operations.
We recognized operating expense related to our cooperative advertising program of $1.5 million, $1.8 million, and $1.5 million in fiscal 2011,
2010, and 2009, respectively.
Revenue Recognition
The company recognizes revenue on sales through its network of independent contract furniture dealers and independent retailers once the
related product is shipped and title passes. In situations where products are sold through subsidiary dealers or directly to the end customer,
revenue is recognized once the related product is shipped to the end customer and installation is substantially complete. Offers such as rebates
and discounts are recorded as reductions to net sales. Unearned revenue occurs during the normal course of business due to advance payments
from customers for future delivery of products and services.
Shipping and Handling Expenses
The company records shipping and handling related expenses under the caption “Cost of Sales” in the
Consolidated Statements of Operations.
Cost of Sales
We include material, labor and overhead in cost of sales. Included within these categories are such items as inbound freight charges, warehousing
costs, internal transfer costs, and other costs of our distribution network.
Selling, General, and Administrative
We include costs not directly related to the manufacturing of our products in selling, general, and administrative. Included in these expenses
are items such as compensation expense, rental expense, royalty expense, warranty expense, and travel and entertainment expense.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
43 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The company's annual effective tax rate is based on income, statutory tax rates and tax planning strategies available in the various jurisdictions
the company operates in. Complex tax laws can be subject to different interpretations by the company and the respective government authorities.
Significant judgment is required in evaluating tax positions and determining our tax expense. Tax positions are reviewed quarterly and tax
liabilities are adjusted as new information becomes available.
In evaluating the company's ability to recover deferred tax assets within the jurisdiction from which they arise, the company considers all positive
and negative evidence. These assumptions require significant judgment about forecasts of future taxable income.
Stock-Based Compensation
The company has several stock-based compensation plans, which are described fully in Note 12 of the Consolidated Financial Statements. Our
policy is to expense stock-based compensation using the fair-value based method of accounting for all awards granted.
Earnings per Share
Basic earnings per share (EPS) excludes the dilutive effect of common shares that could potentially be issued, due to the exercise of stock
options or the vesting of restricted shares, and is computed by dividing net earnings by the weighted-average number of common shares
outstanding for the period. Diluted EPS for fiscal years 2011, 2010, and 2009, was computed by dividing net earnings by the sum of the weighted-
average number of shares outstanding, plus all dilutive shares that could potentially be issued. During fiscal 2011 and fiscal 2010 the numerator
for diluted earnings per share excluded the earnings impact from the Nemschoff contingent consideration from the Consolidated Statement of
Operations. Previously, this contingent consideration could be settled in cash or stock at the discretion of the company and, therefore, any
income or loss associated with adjustments to these liabilities is excluded from the numerator when computing diluted earnings per share. Refer
to Note 11 of the Consolidated Financial Statements, for further information regarding the computation of EPS.
Comprehensive Income/(Loss)
The company's comprehensive income (loss) consists of net earnings, foreign currency translation adjustments, pension and post-retirement
liability adjustments, and unrealized holding gains (losses) on “available-for-sale” investments. The components of “Accumulated other
comprehensive loss” in each of the last three fiscal years are as follows:
(In millions)
Balance, May 31, 2008
Other comprehensive loss in fiscal 2009
Balance, May 30, 2009
Other comprehensive gain/(loss) in fiscal 2010
Balance, May 29, 2010
Other comprehensive gain/(loss) in fiscal 2011
Balance, May 28, 2011
$
$
Foreign
Currency
Translation
Adjustments
Pension
and Post-
Retirement
Liability
Adjustments
(net of tax)
Unrealized
Holding
Period
Gains
(Losses)
(net of tax)
Total
Accumulated
Other
Comprehensive
Income (Loss)
4.6
$
(64.5)
$
(0.2)
$
(14.0)
(9.4)
(2.9)
(12.3)
(59.9)
(124.4)
0.6
(123.8)
(0.1)
(0.3)
0.2
(0.1)
6.4
(5.9)
$
25.5
(98.3)
$
0.1
—
$
(60.1)
(74.0)
(134.1)
(2.1)
(136.2)
32.0
(104.2)
Use of Estimates in the Preparation of Financial Statements
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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Variable Interest Entities
The company has provided subordinated debt to and/or guarantees on behalf of certain independent contract furniture dealerships. These
relationships under certain circumstances may constitute variable interests. On May 28, 2011 and May 29, 2010, the company was not considered
the primary beneficiary of any such dealer relationships and therefore, no entities were included as VIEs as of these dates.
44 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Fair Value
The Company follows ASC Topic 820, Fair Value Measurements and Disclosures, which provides a consistent definition of fair value, focuses
on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy
for fair value measurements. This topic requires fair value measurements to be classified and disclosed in one of the following three categories:
•
•
•
Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.
Level 2 — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded
financial instruments. Financial instrument values are determined using prices for recently traded financial instruments with similar
underlying terms and direct or indirect observational inputs, such as interest rates and yield curves at commonly quoted intervals.
Level 3 — Financial instruments not actively traded on a market exchange and there is little, if any, market activity. Values are determined
using significant unobservable inputs or valuation techniques.
See Note 14 of the Consolidated Financial Statements for the required fair value disclosures.
Interest Rate Swap Agreements
The company has used interest rate swaps in order for a portion of interest bearing debt to be variable, which matches interest expense with
the company's business cycle. These swaps were fair-value hedges and qualified for hedge-accounting treatment, whereby the change in the
fair value of the interest rate swap is equal to the change in value of the related hedged debt and, as a result, there is no net effect on earnings.
The agreement required the company to pay floating-rate interest payments in return for receiving fixed-rate interest payments that coincide
with the semi-annual payments to the debt holders at the same date. The periodic interest settlements, which occur at the same interval as the
public debt securities, are recorded as interest expense. Accordingly, as of May 29, 2010, a total of $50.0 million of the company's outstanding
debt was effectively converted to a variable-rate basis as a result of the interest rate swap arrangement. During the fourth quarter of fiscal 2011
the interest rate swap agreement expired as planned on March 15, 2011.
Foreign Currency Forward Contracts Not Designated as Hedges
The company transacts business in various foreign currencies and has established a program that primarily utilizes foreign currency forward
contracts to offset the risks associated with the effects of certain foreign currency exposures. Under this program, the company's strategy is to
have increases or decreases in our foreign currency exposures offset by gains or losses on the foreign currency forward contracts to mitigate
the risks and volatility associated with foreign currency transaction gains or losses. These foreign currency exposures typically arise from net
liability or asset exposures in non-local currencies on the balance sheets of our foreign subsidiaries. These foreign currency forward contracts
generally settle within 90 days and are not used for trading purposes. These forward contracts are not designated as hedging instruments.
Accordingly, we record the fair value of these contracts as of the end of the reporting period in the consolidated balance sheet with changes in
fair value recorded in the Consolidated Statement of Operations. The balance sheet classification for the fair values of these forward contracts
is to "Prepaid expenses and other" for unrealized gains and to "Accrued liabilities" for unrealized losses. The Consolidated Statement of Operations
classification for the fair values of these forward contracts is to "Other expenses (income): Other, net", for both realized and unrealized gains
and losses.
As of May 28, 2011, the notional amounts of the forward contracts held to purchase and sell U.S. dollars in exchange for other major international
currencies were $28.4 million and the notional amounts of the foreign currency forward contracts held to sell British pound sterling in exchange
for other major international currencies were 2.6 million GBP.
45 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The effects of derivative instruments on the condensed consolidated financial statements were as follows for the fiscal years ended 2011 and
2010 (amounts presented exclude any income tax effects) are shown below.
Fair Value of Derivative Instruments in Condensed Consolidated Balance Sheet
(In millions)
Balance Sheet Location
May 28, 2011
May 29, 2010
Interest rate swap agreement - fair market
value
Other current assets
Foreign currency forward contracts not
designated as hedges
Other current assets
Foreign currency forward contracts not
designated as hedges
Other current liabilities
$
$
$
Effects of Derivative Instruments of Income
1.2
0.1
0.1
—
$
0.7
$
0.3
$
Fiscal Year
(In millions)
Recognized Income on Derivative (Gain) Loss
Location
May 28, 2011
May 29, 2010
Foreign currency forward contracts
Other Expense (Income): Other, net
$
(0.5)
$
—
New Accounting Standards
In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2010-13, Compensation-Stock
Compensation (Topic 718)-Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which
the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force. The company adopted the disclosure requirements
of ASU 2010-13 in the fourth quarter of fiscal 2011.
In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860)-Accounting for Transfers of Financial Assets. ASU
2009-16 revises previous authoritative guidance related to accounting for transfers of financial assets and requires more disclosures about
transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred
financial assets. The company adopted the disclosure requirements of ASU 2009-16 in the first quarter of fiscal 2011.
In December 2009, the FASB issued ASU No. 2009-17, Consolidations (Topic 810)-Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities. ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. ASU 2009-17 also requires a reporting entity to provide additional disclosures
about its involvement with variable interest entities including the effect on financial statements and any significant changes in risk exposure due
to that involvement. The company adopted the disclosure requirements of ASU 2009-17 in the first quarter of fiscal 2011.
2. Acquisitions and Divestitures
Nemschoff
On June 24, 2009, the company acquired all of the outstanding equity ownership interest of Nemschoff Chairs, LLC (Nemschoff) a Sheboygan,
Wisconsin based manufacturer, with additional manufacturing capabilities in Sioux Center, Iowa. Nemschoff manufactures healthcare furnishings,
with an emphasis on seating products for patient rooms, patient treatment areas, and public spaces such as lobbies and waiting areas. Nemschoff
also serves the higher education and office markets.
46 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The company incurred acquisition-related costs of approximately $1.1 million and $0.3 million during the fourth quarter of fiscal 2009 and first
quarter of fiscal 2010, respectively. These expenses are included in the Statement of Operations, "Operating Expenses" line item. The purchase
price for Nemschoff, which represents the estimated fair value of consideration transferred as of the acquisition date, consisted of the following:
(In millions)
Cash
Common stock (2,041,666 shares)
Contingent success fee
Contingent value rights
Total
Fair Value
30.4
28.7
14.4
16.3
89.8
$
$
The fair value of the common shares issued was determined based on the closing market price of the company's common stock on the acquisition
date.
There were two forms of contingent consideration provided to the sellers, a success fee and contingent value rights (CVRs). These contingent
liabilities were presented net of a $6.9 million note receivable that was issued by the sellers in exchange for cash at the acquisition date, and
was payable only to the extent it could be offset against the contingent consideration. On January 31, 2011, the company signed an agreement
to settle the two contingent consideration matters and the note receivable with the sellers of Nemschoff for a lump sum cash payment of $3
million, which approximated the fair value of these obligations as discussed in the following paragraphs.
Previously, the success fee payment ranged between $0 and $25 million based on performance from June 2010 through May 2011, and could
be settled in the form of cash or stock at the company's discretion. At the acquisition date, the fair value of the success fee was $14.4 million
and as of January 31, 2011, the success fee was valued at $5.6 million, with the change in value reflected within “Operating expenses" in the
Condensed Consolidated Statements of Operations. The fair value of the success fee was estimated based on projected revenues for fiscal
2011.
The CVR previously associated with each of the 2,041,666 shares of common stock issued in the transaction entitled the holder to compensation
in the event that the company's share price was below $24.00 per share at June 30, 2011. A floor price of $13.28 per share was established
that provided a maximum payout of $10.72 per share to be paid at the time of share redemption and could be settled in the form of cash or
stock at the company's discretion. At the acquisition date, the fair value of the CVRs was $16.3 million and as of January 31, 2011, the CVRs
were valued at $4.4 million with the change in value reflected within “Operating expenses” in the Condensed Consolidated Statements of
Operations. The fair value of the CVR was estimated using a Black-Scholes model which uses several key assumptions, including the current
share price of the company.
Risk-free interest rates
Expected term
Expected volatility
Dividend yield
January 31, 2011
1.04%
0.4 years
59%
0.46%
During the third quarter of fiscal 2011 and prior to the settlement of the CVR's, approximately 680,000 shares of the company's common stock
relating to the CVR were sold on exchange in excess of $24 per share, which reduced the obligation by approximately $3.3 million.
47 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition.
The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to
goodwill. Allocation of the purchase price resulted in acquired assets and liabilities assumed consisting of the following:
(In millions)
Cash
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Identifiable intangible assets
Goodwill
Total acquired assets
Accrued warranty
Accounts payable
Customer deposits
Deferred tax liability
Other accrued liabilities
Total acquired liabilities
$
Fair Value
1.6
7.6
6.5
0.8
15.6
33.2
34.3
99.6
0.5
2.3
0.6
2.8
3.6
9.8
Net Assets Acquired
$
89.8
The fair values and useful lives assigned to identifiable intangible assets as of the acquisition date consisted of the following:
(In millions)
Trade name
Customer relationships
Non-compete agreements
Total
Fair Value
20.0
12.9
0.3
33.2
$
$
Useful Life
Indefinite
15 years
2 years
Nemschoff is included in the company's North American segment; therefore, all of the goodwill recorded in the acquisition has been allocated
to that segment. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce. The company expects
substantially all of the goodwill to be amortizable for income tax purposes.
CBS
On April 6, 2010, the company acquired all the outstanding equity interest in Colebrook Bosson Saunders, (CBS) a worldwide leader in the
design, manufacture and distribution of ergonomic work tools with headquarters located in London, England and additional showrooms in New
York and Australia. CBS has annualized net sales of approximately $15 million. Cash used for the acquisition of CBS was approximately $14.4
million.
Additionally, CBS may be entitled to contingent consideration in the form of performance-based payments in the range of zero and $14.1 million,
payable in British pound sterling, that would be earned over the next five years. The contingent consideration is based on a combination of
attained revenue and profitability targets. Any payment due will be settled in cash. At the acquisition date, the fair value of the contingent
consideration was $2.9 million. As of May 28, 2011, the contingent consideration value was $3.1 million with $1.6 million recorded as a current
liability and $1.5 million recorded as a long-term liability. Any change in value due to change in estimates will be reflected within “Operating
expenses” in the Condensed Consolidated Statements of Operations.
48 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The purchase price for CBS, which represents the estimated fair value of consideration transferred as of the acquisition date, consisted of the
following:
(In millions)
Cash
Contingent consideration
Total
Fair Value
14.4
2.9
17.3
$
$
The purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition.
The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to
goodwill. Allocation of the purchase price resulted in acquired assets and liabilities assumed consisting of the following:
(In millions)
Cash
Accounts receivable
Inventory
Goodwill
Identifiable intangibles
Other assets
Total acquired assets
Accounts payable
Other accrued liabilities
Total acquired liabilities
Net Assets Acquired
Fair Value
1.5
2.5
4.2
5.6
4.1
0.8
18.7
0.6
0.8
1.4
17.3
$
$
The fair values and useful lives assigned to identifiable intangible assets as of the acquisition date consisted of the following:
(In millions)
Trade names and trademarks
Dealer relationships
Total
Fair Value
Useful Life
15 years
15 years
0.9
3.2
4.1
$
$
The majority of CBS operations are included in the company's non-North American segment; therefore, the majority of the goodwill recorded in
the acquisition has been allocated to that segment. The goodwill recognized is attributable primarily to expected synergies through the company's
dealer network and the assembled workforce. The company expects substantially all of the goodwill to be amortizable for income tax purposes.
Other Acquisitions
During the second quarter of fiscal 2009, the company completed the purchase of selected elements of Ruskin Industries, a specialized
manufacturer of complex wood chair frames and wood frame components, based in Hickory, North Carolina. The purchase consideration for
this transaction was approximately $2.9 million allocated primarily to accounts receivable, inventory, and machinery and equipment.
During the first quarter of fiscal 2010, the company completed the purchase of certain assets of a contract furniture dealership in Virginia. The
purchase consideration was $1.6 million of cash and the assets purchased were primarily accounts receivable and inventory.
During the fourth quarter of fiscal 2010, the company completed the purchase of certain assets of a contract and retail furniture dealership in
Australia. The purchase consideration was $2.8 million of cash and the assets purchased were primarily inventory, accounts receivable and
property plant and equipment. Goodwill recognized from the acquisition was $0.4 million.
During the fourth quarter of fiscal 2011, the company announced an agreement to acquire POSH Office Systems Ltd., a Hong Kong-based
designer, manufacturer, and distributor of office furniture systems, freestanding furniture, seating, and filing and storage. POSH, with annual
49 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
revenues of approximately $50 million, is a market leader in commercial furnishings in both Hong Kong and the People's Republic of China.
Completion of the acquisition is pending the company's establishment of a legal structure in China necessary to complete the transaction. The
company currently anticipates the closing for the acquisition of POSH will be completed during calendar 2012. The final purchase price is
expected to include an upfront cash payment, due at closing, followed by a performance-based payment at the conclusion of an earn-out period.
The acquisition is not expected to be a material acquisition for the company.
Divestitures
During the first quarter of fiscal 2009, the company completed the sale of a wholly-owned contract furniture dealership in Texas. The effect of
this transaction on the company's consolidated financial statements was not material.
Subsequent to the end of fiscal 2011 the company completed the sale of two wholly-owned contract furniture dealerships in Texas and Colorado.
The effect of these transactions on the company's consolidated financial statements was not material.
Proforma Information
The results of operations for entities acquired by the company have been included in the Condensed Consolidated Statements of Operations
since the dates of the respective acquisitions. The amount of net sales and net earnings attributable to these acquisitions included in the
Condensed Consolidated Statements of Operations consists of the following:
(In millions)
Net sales
Net loss
Year ended
May 29, 2010
$
$
71.8
(0.5)
The following supplemental pro forma information presents net sales and net earnings for the company as if the acquisitions had occurred at
the beginning of the fiscal period presented. This pro forma information is not necessarily indicative of the results that would have actually been
obtained if the acquisitions had occurred at the beginning of the period presented or that may be attained in the future.
(In millions)
Pro forma net sales
Pro forma net earnings
3. Inventories
(In millions)
Finished goods
Work in process
Raw materials
Total
Year ended
May 29, 2010
$
$
1,359.8
29.5
May 28, 2011
May 29, 2010
$
$
34.6
11.6
20.0
66.2
$
$
32.9
8.9
16.1
57.9
Inventories are valued at the lower of cost or market and include material, labor, and overhead. The inventories of the majority of domestic
manufacturing subsidiaries are valued using the last-in, first-out method (LIFO). The inventories of all other subsidiaries are valued using the
first-in, first-out method. Inventories valued using LIFO amounted to $24.1 million and $19.5 million as of May 28, 2011 and May 29, 2010,
respectively. If all inventories had been valued using the first-in first-out method, inventories would have been $11.6 million and $10.7 million
higher than reported at May 28, 2011 and May 29, 2010, respectively.
4. Prepaid Expenses and Other
(In millions)
Deferred income taxes
Prepaid property and other taxes
Other
Total
May 28, 2011
May 29, 2010
$
$
21.2
25.4
12.6
59.2
$
$
21.9
9.9
14.6
46.4
50 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
5. Other Assets
(In millions)
Deferred income taxes
Cash surrender value of life insurance
Other
Total
6. Accrued Liabilities
(In millions)
Compensation and employee benefits
Income taxes
Other taxes
Unearned revenue
Warranty reserves
Interest payable
Restructuring
Pension and post-retirement benefits
Contingent consideration
Other
Total
7. Other Liabilities
(In millions)
Pension benefits
Post-retirement benefits
Contingent consideration
Other
Total
8. Long-Term Debt
(In millions)
Series A senior notes, 5.94%, due January 3, 2015
Series B senior notes, 6.42%, due January 3, 2018
Debt securities, 7.125%, due March 15, 2011
Debt securities, 6.0%, due March 1, 2021
Fair value of interest rate swap arrangements
Less: current portion
Total
May 28, 2011
May 29, 2010
2.8
1.6
4.9
9.3
$
May 28, 2011
May 29, 2010
75.9
$
2.5
6.8
13.5
17.0
6.1
1.0
1.2
1.6
27.5
153.1
$
May 28, 2011
May 29, 2010
May 28, 2011
42.4
9.2
1.5
34.1
87.2
50.0
150.0
—
50.0
—
250.0
—
250.0
$
$
$
$
May 29, 2010
37.0
0.8
4.1
41.9
41.1
1.1
5.4
10.1
16.0
7.1
7.0
1.2
1.4
22.0
112.4
114.2
10.0
19.4
32.7
176.3
50.0
150.0
100.0
—
1.2
301.2
(101.2)
200.0
$
$
$
$
$
$
$
In January 2008, the company issued a total of $200 million in senior unsecured private placement notes. Notes in the principal amount of $150
million bear interest at 6.42 percent and are due in January 2018. The remaining $50 million in private placement notes bear interest at 5.94
percent and are due in January 2015. Related interest payments are due semi-annually.
51 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Our senior notes and the unsecured senior revolving credit facility restrict, without prior consent, our borrowings, capital leases, and the sale of
certain assets. In addition, we have agreed to maintain certain financial performance ratios, which include a maximum leverage ratio covenant,
which is measured by the ratio of debt to trailing four quarter adjusted EBITDA (as defined in the credit agreement) and is required to be less
than 3.5:1, with a minimum interest coverage ratio, which is measured by the ratio of trailing four quarter EBITDA to trailing four quarter interest
expense (as defined in the credit agreement) and is required to be greater than 4:1. Adjusted EBITDA is generally defined in the credit agreement
to adjust EBITDA by certain items which include non-cash, share-based compensation, non-recurring restructuring costs and extraordinary
items. At May 28, 2011 and May 29, 2010, the company was in compliance with all of these restrictions and performance ratios.
During the first quarter of fiscal 2010 the company renegotiated the syndicated revolving line of credit, reducing availability from $250 million to
$150 million, while giving the company additional covenant flexibility. This facility expires in June 2012 and outstanding borrowings bear interest
at rates based on the prime rate, federal funds rate, LIBOR, or negotiated rates as outlined in the agreement. Interest is payable periodically
throughout the period a borrowing is outstanding. As of May 28, 2011 and May 29, 2010, total usage against this facility was $9.4 million and
$11.2 million respectively, all of which related to outstanding letters of credit.
In March 2001, the company sold publicly registered debt securities totaling $175 million. These senior notes matured on March 15, 2011 and
bore an annual interest rate of 7.125 percent, with interest payments due semi-annually. During the first quarter of fiscal 2010, the company
completed the repurchase of $75 million of the registered debt securities. In addition to improving our covenant metrics this action reduced our
interest expense run rate by approximately $1.3 million per quarter. During the fourth quarter, on March 15, 2011, the company repaid the
remaining $100 million in principal due under the 2001 public bond issue. The payment was made using a combination of existing cash and
proceeds from newly-issued senior unsecured private placement notes of $50 million maturing in March 2021. The completion of this partial
debt refinancing reduced the company’s total debt obligations to $250 million, none of which is current.
Annual maturities of long-term debt for the five fiscal years subsequent to May 28, 2011, are as follows:
(In millions)
2012
2013
2014
2015
2016
Thereafter
9. Operating Leases
$
$
$
$
$
$
—
—
—
50.0
—
200.0
The company leases real property and equipment under agreements that expire on various dates. Certain leases contain renewal provisions
and generally require the company to pay utilities, insurance, taxes, and other operating expenses.
Future minimum rental payments required under operating leases that have non-cancelable lease terms as of May 28, 2011, are as follows:
(In millions)
2012
2013
2014
2015
2016
Thereafter
$
$
$
$
$
$
19.7
16.1
10.7
8.9
6.7
17.6
Total rental expense charged to operations was $22.8 million, $22.4 million, and $27.8 million, in fiscal 2011, 2010, and 2009, respectively.
Substantially all such rental expense represented the minimum rental payments under operating leases.
52 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
10. Employee Benefit Plans
The company maintains retirement benefit plans for substantially all of its employees.
Pension Plans and Post-Retirement Medical Insurance
The principal domestic retirement plan is a defined-benefit plan with benefits determined by a cash balance calculation. Benefits under this plan
are based upon an employee's years of service and earnings. The company also offers certain employees retirement benefits under other
domestic defined benefit plans. The company provides healthcare benefits to employees who retired from service on or before a qualifying
date in 1998. As of the qualifying date, the company discontinued offering post-retirement medical to future retirees. Benefits to qualifying retirees
under this plan are based on the employee's years of service and age at the date of retirement.
In addition to the domestic pension and retiree healthcare plan, one of the company's wholly owned foreign subsidiaries has a defined-benefit
pension plan based upon an average final pay benefit calculation.
The measurement date for the company's principal domestic and international pension plans, as well as its post-retirement medical, is the last
day of the fiscal year.
Benefit Obligations and Funded Status
The following table presents, for the fiscal years noted, a summary of the changes in the projected benefit obligation, plan assets, and funded
status of the company's domestic and international pension plans and post-retirement plan.
53 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
(In millions)
Domestic
International
Domestic
International
Pension Benefits
2011
2010
Post-Retirement Benefits
2011
2010
Change in benefit obligation:
Benefit obligation at beginning of
year
$
Service cost
Interest cost
Amendments
Foreign exchange impact
Actuarial (gain)/loss
Employee contributions
Benefits paid
296.0
$
71.6
$
281.2
$
66.0
$
11.1
$
13.6
6.9
15.1
—
—
9.0
—
(17.1)
1.9
4.3
—
9.2
(10.5)
0.3
(1.8)
8.1
17.9
—
—
12.2
—
(23.4)
—
4.2
0.3
(7.6)
11.9
—
(3.2)
—
0.5
—
—
(0.4)
—
(0.9)
—
0.6
—
—
(2.1)
—
(1.0)
Benefit obligation at end of year
$
309.9
$
75.0
$
296.0
$
71.6
$
10.3
$
11.1
Change in plan assets:
Fair value of plan assets at
beginning of year
Actual return on plan assets
Foreign exchange impact
Employer contributions
Employee contributions
Benefits paid
Fair value of plan assets at end of
year
Under funded status at end of
year
$
200.1
$
53.2
$
175.3
$
50.6
$
—
$
40.2
—
50.2
—
(17.1)
8.2
7.4
1.7
0.3
(1.8)
30.8
—
17.4
—
(23.4)
273.4
69.0
200.1
10.6
(5.7)
0.9
—
(3.2)
53.2
—
—
—
1.0
—
—
—
0.9
—
(0.9)
(1.0)
—
—
$
(36.5)
$
(6.0)
$
(95.9)
$
(18.4)
$
(10.3)
$
(11.1)
The components of the amounts recognized in the Consolidated Balance Sheets are as follows.
Pension Benefits
2011
2010
Post-Retirement Benefits
2011
2010
(In millions)
Current liabilities
Non-current liabilities
Domestic
International
Domestic
International
$
$
(0.1)
$
(36.4)
(36.5)
$
—
(6.0)
(6.0)
$
$
(0.1)
$
(95.8)
(95.9)
$
—
(18.4)
(18.4)
$
$
(1.1)
$
(9.2)
(10.3)
$
(1.1)
(10.0)
(11.1)
The accumulated benefit obligation for the company's domestic pension benefit plans totaled $307.2 million and $289.6 million as of the end of
fiscal years 2011 and 2010, respectively. For its international plans, these amounts totaled $72.8 million and $68.4 million as of the same dates,
respectively.
54 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The components of the amounts recognized in accumulated other comprehensive loss before the effect of income taxes are as follows.
(In millions)
Domestic
International
Domestic
International
Pension Benefits
2011
2010
Post-Retirement Benefits
2011
2010
Unrecognized net actuarial loss
$
144.9
$
11.6
$
165.6
$
24.7
$
1.7
$
Unrecognized prior service cost
(credit)
(3.9)
Unrecognized transition amount
—
141.0
$
$
—
—
11.6
(6.2)
—
—
159.4
$
$
—
24.7
$
0.1
—
1.8
$
2.0
0.2
—
2.2
Components of Net Periodic Benefit Costs and Other Changes Recognized in Other Comprehensive Income
The following table is a summary of the annual cost of the company's pension and post-retirement plans.
(In millions)
Domestic:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Net periodic benefit cost
International:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Net periodic benefit cost
Total net periodic benefit cost
Pension Benefits
2010
2011
2009
Post-Retirement Benefits
2010
2009
2011
$
$
$
$
$
6.9
15.1
(18.7)
6.0
9.3
1.9
4.3
(4.2)
1.2
3.2
12.5
$
$
$
$
$
8.1
17.9
(18.9)
3.1
10.2
—
4.2
(4.4)
1.3
1.1
11.3
$
$
$
$
$
$
$
—
0.5
—
0.1
0.6
$
$
—
0.6
—
0.1
0.7
$
$
—
0.8
—
0.2
1.0
8.4
18.3
(22.2)
2.5
7.0
2.1
4.6
(4.6)
1.0
3.1
10.1
$
0.6
$
0.7
$
1.0
The net prior service credit and actuarial loss included in accumulated other comprehensive income expected to be recognized in net periodic
benefit cost during fiscal 2012 is prior service cost of $2.1 million ($1.3 million, net of tax) and actuarial loss of $9.2 million ($5.5 million, net of
tax), respectively.
55 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income) Loss
(In millions)
Domestic:
Prior service cost
Net actuarial (gain) loss
Net amortization
Total recognized in other comprehensive (income) loss
Total recognized net pension cost and other comprehensive (income) loss
International:
Prior service cost
Net actuarial loss
Effect of exchange rates on amounts included in accumulated other
comprehensive income
Net amortization
Total recognized in other comprehensive loss
Total recognized net pension cost and other comprehensive loss
Total:
Total recognized in other comprehensive (income) loss
Total recognized net pension cost and other comprehensive (income) loss
Actuarial Assumptions
$
$
$
$
$
$
Pension Benefits
Post-Retirement Benefits
2011
2010
2011
2010
$
—
(12.5)
(6.0)
(18.5)
$
—
0.3
(3.1)
(2.8)
$
—
(0.3)
(0.1)
(0.4)
—
(2.2)
(0.1)
(2.3)
(9.2)
$
7.4
$
0.2
$
(1.6)
$
—
(14.5)
2.6
(1.2)
(13.1)
(9.9)
$
(31.6)
$
0.3
5.5
—
(1.0)
4.8
5.9
2.0
(19.1)
$
13.3
$
$
(0.4)
$
(2.3)
0.2
$
(1.6)
The weighted-average actuarial assumptions used to determine the benefit obligation amounts as of the end of the fiscal year for the company's
pension plans and post-retirement plans are as follows.
2011
2010
2009
U.S.
International
U.S.
International
U.S.
International
(Percentages)
Discount rate
Compensation increase rate
4.75
3.00
5.40
3.50
5.25
4.50
5.50
4.90
6.75
4.50
6.50
4.80
The weighted-average actuarial assumptions used to determine the net periodic benefit cost are established at the end of the previous fiscal
year for the subsequent fiscal years as follows.
2011
2010
2009
U.S.
International
U.S.
International
U.S.
International
(Percentages)
Discount rate
Compensation increase rate
Expected return on plan assets
5.25
4.50
7.75
5.50
4.90
6.80
6.75
4.50
7.75
6.50
4.80
7.25
6.75
4.50
8.50
6.25
5.00
7.30
56 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
In calculating post-retirement benefit obligations, a 7.6 percent annual rate of increase in the per capita cost of covered healthcare benefits was
assumed for 2011, decreasing gradually to 4.5 percent by 2029 and remaining at that level thereafter. For purposes of calculating post-retirement
benefit costs, a 7.7 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2010, decreasing
gradually to 4.5 percent by 2029 and remaining at that level thereafter.
Assumed health care cost-trend rates have a significant effect on the amounts reported for retiree health care costs. A one-percentage-point
change in the assumed health care cost-trend rates would have the following effects:
(In millions)
Effect on total fiscal 2011 service and interest cost components
Effect on post-retirement benefit obligation at May 28, 2011
Plan Assets and Investment Strategies
1 Percent
Increase
1 Percent
Decrease
$
$
—
0.5
$
$
—
(0.4)
The company's primary domestic and international employee benefit plans' assets consist mainly of listed common stocks, mutual funds, fixed
income obligations and cash. The company's primary objective for invested pension plan assets is to provide for sufficient long-term growth and
liquidity to satisfy all of its benefit obligations over time. Accordingly, the company has developed an investment strategy that it believes maximizes
the probability of meeting this overall objective. This strategy includes the development of a target investment allocation by asset category in
order to provide guidelines for making investment decisions. This target allocation emphasizes the long-term characteristics of individual asset
classes as well as the diversification among multiple asset classes. In developing its strategy, the company considered the need to balance the
varying risks associated with each asset class with the long-term nature of its benefit obligations. The company's strategy moving forward will
be to increase the level of fixed income investments as the funding status improves, thereby more closely matching the return on assets with
the liabilities of the plans.
The company utilizes independent investment managers to assist with investment decisions within the overall guidelines of the investment
strategy.
The company has assumed an average long-term expected return on defined benefit plan assets of 7.75 percent and 6.80 percent for its primary
domestic plan and international plan, respectively, as of May 28, 2011. The expected return is determined by applying the target allocation in
each asset category of plan investments to the anticipated return for each asset category based on historical and projected returns.
The asset allocation for the company's primary pension plans at the end of fiscal 2011 and 2010 are as follows:
Primary Domestic Plan
Asset Category
Targeted Asset Allocation
Percentage
Actual Percentage of Plan Assets at Year end
2011
2010
Equities
Fixed Income
Other
Total
54 - 66
35 - 43
0 - 5
57
43
—
100
Primary International Plan
Asset Category
Targeted Asset Allocation
Percentage
2011
2010
Actual Percentage of Plan Assets at Year end
Equities
Fixed Income
Other
Total
54 - 66
35 - 43
0 - 5
58
39
3
100
54
45
1
100
59
39
2
100
57 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The following tables summarize the fair value of the company's domestic and international pension plans by asset category as of May 28, 2011.
The company currently does not hold any level three investments within any of its pension plans.
(In millions)
Asset Category
Cash and cash equivalents
Common collective trusts-equities
Debt securities-corporate
Common collective trusts-fixed income
Equities - Herman Miller stock
Total
(in millions)
Asset Category
Cash and cash equivalents
Common collective trusts-balanced
Total
Level 1
Domestic Plans
Level 2
Total
$
$
$
$
—
—
—
—
20.0
20.0
$
$
0.4
136.0
4.8
112.2
—
253.4
Level 1
International Plan
Level 2
0.2
—
0.2
$
$
—
68.8
68.8
$
$
$
$
0.4
136.0
4.8
112.2
20.0
273.4
Total
0.2
68.8
69.0
The following tables summarize the fair value of the company's domestic and international pension plans by asset category as of May 29, 2010.
(In millions)
Asset Category
Cash and cash equivalents
Common collective trusts-equities
Debt securities-corporate
Common collective trusts-fixed income
Equities - Herman Miller stock
Total
(in millions)
Asset Category
Cash and cash equivalents
Common collective trusts-equities
Debt securities-government
Debt securities-corporate
Other
Total
Cash Flows
Level 1
Domestic Plans
Level 2
Total
$
$
$
$
0.6
—
—
—
16.5
17.1
$
$
0.5
92.0
4.5
86.0
—
183.0
Level 1
International Plan
Level 2
6.1
—
—
—
—
6.1
$
$
—
32.7
0.6
13.4
0.4
47.1
$
$
$
$
1.1
92.0
4.5
86.0
16.5
200.1
Total
6.1
32.7
0.6
13.4
0.4
53.2
The company anticipates contributing $16.3 million to its pension and other post-retirement plans in fiscal 2012 and is reviewing whether any
voluntary pension plan contributions will be made in the next year. Actual contributions will be dependent upon investment returns, changes in
pension obligations, and other economic and regulatory factors. In fiscal 2011 the company made a non-cash contribution of company stock to
its domestic benefit plan which was valued at $14.6 million at the contribution date. The company also made cash contributions totaling $38.2
million to its benefit plans.
58 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
In August 2006, the Pension Protection Act of 2006 (the “Act”) was signed into law. Beginning in 2008, the Act replaces prevailing statutory
minimum funding requirements, and will generally require contributions to the company's U.S. defined benefit pension plans in amounts necessary
to fund the cost of currently-accruing benefits, and to fully-fund any unfunded accrued benefits over a period of seven years. In the long-term,
the new law is not expected to materially change aggregate contributions required to be made to the U.S. pension plans, although such
contributions may vary on a year to year basis from what otherwise would have been required. The extent of these variations is not expected
to have a material impact on the company's financial position or cash flows.
The following represents a summary of the benefits expected to be paid by the plans in future fiscal years. These expected benefits were
estimated based on the same actuarial valuation assumptions used to determine benefit obligations at May 28, 2011.
(In millions)
2012
2013
2014
2015
2016
2017-2021
Profit Sharing and 401(k) Plan
Pension Benefits
Domestic
Pension Benefits
International
Post-Retirement
Benefits
$
$
25.0
26.2
27.0
27.8
20.8
112.8
$
1.4
1.5
1.5
1.6
1.6
8.9
1.1
1.1
1.0
1.0
1.0
4.0
Herman Miller, Inc. has a trusteed profit sharing plan that includes substantially all domestic employees. These employees are eligible to begin
participating on their date of hire. The plan provides for discretionary contributions, payable in the company's common stock, of not more than
6.0 percent of employees' wages based on the company's financial performance. The cost of the profit sharing contribution during fiscal 2011
was $7.7 million. The company made no profit sharing contributions in fiscal years 2010 and 2009. The company has traditionally matched 50
percent of employee contributions to their 401(k) accounts up to 6.0 percent of their pay. The company indefinitely suspended the 401(k) matching
program in the fourth quarter of fiscal 2009 and the suspension remained in effect until the second half of fiscal 2011. The company, therefore,
did not incur any costs for this program in fiscal 2010. The cost of the company's matching contributions charged against operations was
approximately $2.0 million and $4.7 million in fiscal years 2011 and 2009, respectively.
59 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
11. Common Stock and Per Share Information
The following table reconciles the numerators and denominators used in the calculations of basic and diluted EPS for each of the last three
fiscal years.
(In millions, except shares)
Numerators:
Numerators for basic EPS, net earnings attributable to controlling interest
Income from adjustments to contingent consideration that can be settled in
common stock at the company's option, net of tax
Numerator for diluted EPS
Denominators:
2011
2010
2009
$
$
70.8
$
28.3
$
(9.5)
61.3
$
(3.6)
24.7
$
68.0
—
68.0
Denominators for basic EPS, weighted-average common shares outstanding
Potentially dilutive shares resulting from stock plans
Denominator for diluted EPS
57,118,777
556,343
57,675,120
55,997,781
1,492,587
57,490,368
54,138,570
396,921
54,535,491
Options to purchase 2,290,471 shares, 2,777,406 shares and 3,029,844 shares of common stock have not been included in the denominator
for the computation of diluted earnings per share for the fiscal years ended May 28, 2011, May 29, 2010, and May 30, 2009, respectively, because
they were anti-dilutive.
12. Stock-Based Compensation
The company utilizes equity-based compensation incentives as a component of its employee and non-employee director and officer compensation
philosophy. Currently, these incentives consist principally of stock options, restricted stock, restricted stock units and performance share units.
The company also offers a discounted stock purchase plan for its domestic and international employees. The company issues shares in connection
with its share-based compensation plans from authorized, but unissued, shares.
Valuation and Expense Information
The company measures the cost of employee services received in exchange for an award of equity instruments based on their grant-date fair
market value and to recognize this cost over the requisite service period.
Certain of the company's equity-based compensation awards contain provisions that allow for continued vesting into retirement. Stock-based
awards are considered fully vested for expense attribution purposes when the employee's retention of the award is no longer contingent on
providing subsequent service.
Pre-tax compensation expense for all types of stock-based programs was $4.8 million, $4.4 million, and $3.2 million for the fiscal years ended
May 28, 2011, May 29, 2010, and May 30, 2009, respectively. The company classifies pre-tax stock-based compensation expense primarily
within “Operating Expenses” in the Consolidated Statements of Operations. Related expenses charged to “Cost of Sales” are not material. The
corresponding income tax benefit recognized for the fiscal years ended May 28, 2011, May 29, 2010, May 30, 2009, was $1.6 million, $1.5
million, and $1.0 million, respectively.
As of May 28, 2011, total pre-tax stock-based compensation cost not yet recognized related to non-vested awards was approximately $6.1
million. The weighted-average period over which this amount is expected to be recognized is 1.64 years.
60 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The company estimated the fair value of employee stock options on the date of grant using the Black-Scholes model. In determining these
values, the following weighted-average assumptions were used for the options granted during the fiscal years indicated.
Risk-free interest rates (1)
Expected term of options (2)
Expected volatility (3)
Dividend yield (4)
2011
2010
2009
2.00-2.25%
2.71-2.84%
1.96-3.55%
5.5 years
5.5 years
5.5 years
42%
0.49%
41%
0.56%
33%
1.4%
Weighted-average grant-date fair value of stock options:
Granted with exercise prices equal to the fair market value of the
stock on the date of grant
$
7.01
$
6.24
$
7.25
(1) Represents the U.S. Treasury yield over the same period as the expected option term.
(2) Represents the period of time that options granted are expected to be outstanding. Based on analysis of historical option exercise activity,
the company has determined that all employee groups exhibit similar exercise and post-vesting termination behavior.
(3) Amount is determined based on analysis of historical price volatility of the company's common stock over a period equal to the expected
term of the options. The company also utilizes a market-based or “implied volatility” measure, on exchange-traded options in the company's
common stock, as a reference in determining this assumption.
(4) Represents the company's estimated cash dividend yield over the expected term of options.
Stock-based compensation expense recognized in the Consolidated Statements of Operations, has been reduced for estimated forfeitures, as
it is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.
Employee Stock Purchase Program
Under the terms of the company's Employee Stock Purchase Plan, 4 million shares of authorized common stock were reserved for purchase
by plan participants at 85.0 percent of the market price. The company recognized pre-tax compensation expense related to employee stock
purchases of $0.3 million, $0.3 million, and $0.4 million for the fiscal years ended May 28, 2011, May 29, 2010, and May 30, 2009, respectively.
61 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Stock Option Plans
The company has stock option plans under which options to purchase the company's stock are granted to employees and non-employee directors
and officers at a price not less than the market price of the company's common stock on the date of grant. Under the current award program,
all options become exercisable between one year and three years from date of grant and expire two to ten years from date of grant. Most options
are subject to graded vesting with the related compensation expense recognized on a straight-line basis over the requisite service period. At
May 28, 2011, there were 6.1 million shares available for future options.
The following is a summary of the transactions under the company's stock option plans:
Outstanding at May 31, 2008
Granted at market
Exercised
Forfeited or expired
Outstanding at May 30, 2009
Granted at market
Exercised
Forfeited or expired
Outstanding at May 29, 2010
Granted at market
Exercised
Forfeited or expired
Outstanding at May 28, 2011
Ending vested + expected to vest
Exercisable at end of period
Shares Under
Option
Weighted-Average
Exercise Prices
2,994,602
509,100
(23,050)
(656,440)
2,824,212
337,253
(10,000)
(372,829)
2,778,636
463,238
(309,251)
(354,033)
2,578,590
2,552,118
1,802,883
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
27.68
23.07
24.29
27.86
26.83
15.76
20.06
25.72
25.66
18.04
21.28
27.09
24.62
24.69
27.22
Weighted-Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic Value
(In millions)
4.36
$
1.5
4.86
$
0.2
4.79
$
1.8
5.46
5.42
4.19
$
$
$
6.6
6.5
1.9
Pre-tax compensation expense related to these options totaled $2.5 million, $2.5 million, and $2.9 million for fiscal 2011, 2010, and 2009,
respectively.
The total pre-tax intrinsic value of options exercised during fiscal 2011, 2010 and 2009 was $1.6 million, negligible, and $0.1 million, respectively.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the company's closing stock price as
of the end of the period presented, which would have been received by the option holders had all option holders exercised in-the-money options
as of that date.
62 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The following is a summary of stock options outstanding at May 28, 2011.
Outstanding Stock Options
Exercisable Stock Options
Weighted-
Average
Remaining
Contractual Term
(Years)
Weighted-
Average
Exercise Prices
Shares
Weighted-
Average
Exercise Prices
Range of Exercise Price
Shares
$12.33-22.63
$23.87-27.99
$28.57-38.13
879,299
860,450
838,841
2,578,590
7.4
4.2
4.8
5.5
$
$
$
$
17.08
25.19
31.96
24.62
259,682
704,360
838,841
1,802,883
$
$
$
$
17.56
25.14
31.96
27.22
Restricted Stock Grants
The company periodically grants restricted common stock to certain key employees. Shares are granted in the name of the employee, who has
all rights of a stockholder, subject to certain restrictions on transferability and a risk of forfeiture. The grants are subject to either cliff-based or
graded vesting over a period not exceeding five years, and are subject to forfeiture if the employee ceases to be employed by the company for
certain reasons. After the vesting period, the risk of forfeiture and restrictions on transferability lapse. The company recognizes the related
compensation expense on a straight-line basis over the requisite service period. A summary of shares subject to restrictions are as follows:
2011
2010
2009
Weighted
Average
Grant-Date
Fair Value
Shares
Weighted
Average
Grant-Date
Fair Value
Outstanding, at beginning of year
Granted
Vested
Forfeited or expired
Outstanding, at end of year
54,729
33,000
(15,041)
(2,093)
70,595
$
$
$
$
$
19.48
20.63
26.79
20.26
Shares
116,074
4,500
(2,814)
(900)
26.25
15.96
25.69
10.78
Shares
116,860
42,481
(104,112)
(500)
$
$
$
$
$
18.44
54,729
19.48
116,860
Weighted
Average
Grant-Date
Fair Value
$
$
$
$
$
26.59
20.04
29.02
30.06
26.25
Pre-tax compensation expense related to these awards totaled $0.5 million, $0.4 million, and $0.7 million for the fiscal years ended May 28, 2011,
May 29, 2010 and May 30, 2009 respectively. The weighted-average remaining recognition period of the outstanding restricted shares at
May 28, 2011, was 2.34 years. The fair value on the dates of vesting for shares that vested during the twelve months ended May 28, 2011, was
$0.3 million.
63 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Restricted Stock Units
The company grants restricted stock units to certain key employees. This program provides that the actual number of restricted stock units
awarded is based on the value of a portion of the participant's long-term incentive compensation divided by the fair market value of the company's
stock on the date of grant. In some years the awards have been partially tied to the company's financial performance for the year in which the
grant was based. The awards generally cliff-vest after a three-year service period, with prorated vesting under certain circumstances and full
or partial accelerated vesting upon retirement. Each restricted stock unit represents one equivalent share of the company's common stock to
be awarded, free of restrictions, after the vesting period. Compensation expense related to these awards is recognized over the requisite service
period, which includes any applicable performance period. Dividend equivalent awards are granted quarterly. The units do not entitle participants
the rights of stockholders of common stock, such as voting rights until shares are issued after the vesting period. The following is a summary
of restricted stock unit transactions for the fiscal years indicated.
2011
Aggregate
Intrinsic
Value in
Millions
Share
Units
Weighted-
Average
Remaining
Contractual
Term (Years)
Share
Units
2010
Aggregate
Intrinsic
Value in
Millions
Weighted-
Average
Remaining
Contractual
Term (Years)
Share
Units
2009
Aggregate
Intrinsic
Value in
Millions
Weighted-
Average
Remaining
Contractual
Term (Years)
214,406
$
4.0
1.2
147,811
$
2.0
1.7
168,374
$
4.1
2.7
140,357
(4,704)
(64,958)
83,780
(8,289)
(8,896)
3,438
(9,927)
(14,074)
Outstanding, at
beginning of year
Granted
Forfeited
Released
Outstanding, at end of
year
Ending vested +
expected to vest
285,101
269,679
$
$
6.9
6.6
1.5
214,406
1.5
201,266
$
$
4.0
3.9
1.2
147,811
1.2
134,402
$
$
2.0
1.9
1.7
1.7
Pre-tax compensation expense related to restricted stock units totaled $1.5 million, $1.2 million, and $0.6 million for fiscal 2011, 2010 and 2009,
respectively.
Performance Share Units
The company has previously granted performance share units to certain key employees, none of which were granted prior to fiscal 2008. The
number of units initially awarded was based on the value of a portion of the participant's long-term incentive compensation, divided by the fair
value of the company's common stock on the date of grant. Each unit represents one equivalent share of the company's common stock. The
number of common shares ultimately issued in connection with these performance share units is determined based on the company's financial
performance over the related three-year service period. Compensation expense is determined based on the grant-date fair value and the number
of common shares projected to be issued, and is recognized over the requisite service period. The following is a summary of performance share
unit transactions for the fiscal years indicated.
2011
Aggregate
Intrinsic
Value in
Millions
$
$
$
—
—
—
Share
Units
178,862
—
(88,482)
90,380
—
Weighted-
Average
Remaining
Contractual
Term (Years)
0.7
Share
Units
182,977
—
(4,115)
0.2
178,862
—
—
2010
Aggregate
Intrinsic
Value in
Millions
$
$
$
—
—
—
Weighted-
Average
Remaining
Contractual
Term (Years)
1.7
Share
Units
93,023
101,426
(11,472)
0.7
182,977
—
—
2009
Aggregate
Intrinsic
Value in
Millions
Weighted-
Average
Remaining
Contractual
Term (Years)
$
$
$
2.3
2.2
—
—
1.7
1.7
Outstanding, at
beginning of year
Granted
Forfeited
Outstanding, at end of
year
Ending vested +
expected to vest
64 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Pre-tax compensation expense (income) related to performance stock units was zero for fiscal years 2011 and 2010, respectively and ($1.4)
million for fiscal 2009. The recognition of income during fiscal 2009 was the result of the reversal of prior period expense for performance stock
awards. This action was taken because it was no longer deemed probable that these awards would be earned due to the company's recent
financial performance.
Deferred Compensation Plans
In 2008 the company discontinued use of the existing Non-qualified Deferred Compensation Plan for new contributions and established the
Herman Miller, Inc. Executive Equalization Retirement Plan.
The Non-qualified Deferred Compensation Plan allowed selected employees to defer part or all of their executive incentive cash bonus payment
each year. The company could make a matching contribution of 30 percent of the executive's contribution up to 50 percent of the deferred cash
incentive bonus. The company's matching contribution vested at the rate of 33 1/3 percent annually. In accordance with the terms of the plan,
the executive deferral and company matching contribution were placed in a “Rabbi” trust, which invested solely in the company's common stock.
Rabbi trust arrangements offer the executive a degree of assurance for ultimate payment of benefits without causing constructive receipt for
income tax purposes. Distributions to the executive from the Rabbi trust can only be made in the form of the company's common stock. The
assets in the Rabbi trust remain subject to the claims of creditors of the company and are not the property of the executive and are, therefore,
included as a separate component of stockholders' equity under the caption Key Executive Deferred Compensation. Shares associated with
the Non-qualified Deferred Compensation Plan are included in the denominator for both basic and diluted EPS.
The Herman Miller, Inc. Executive Equalization Retirement Plan is a supplemental deferred compensation plan and was made available for
salary deferrals and company contributions beginning in January 2008. The plan is available to a select group of management or highly
compensated employees who are selected for participation by the Executive Compensation Committee of the Board of Directors. The plan
allows participants to defer up to 50 percent of their base salary and up to 100 percent of their incentive cash bonus. Company contributions to
the plan “mirror” the amounts the company would have contributed to the various qualified retirement plans had the employee's compensation
not been above the IRS statutory ceiling ($245,000 in 2011). The company does not guarantee a rate of return for these funds. Instead, participants
make investment elections for their deferrals and company contributions. Investment options are the same as those available under the Herman
Miller Profit Sharing and 401(k) Plan except for company stock which is not an investment option under this plan.
In accordance with the terms of the Executive Equalization Plan, the salary and bonus deferrals and company contributions have been placed
in a Rabbi trust. The assets in the Rabbi trust remain subject to the claims of creditors of the company and are not the property of the participant
and are, therefore, included as an asset on the company's balance sheet within the other assets line item. A liability of the same amount is
recorded on the consolidated balance sheet within the other liabilities line item. Investment assets are classified as trading, and accordingly,
realized and unrealized gains and losses are recognized within the company's consolidated statement of operations in the interest and other
investment income line item. The associated changes to the liability are recorded as compensation expense within the selling, general and
administrative line item within the company's consolidated statement of operations. The net effect of any change to the asset and corresponding
liability is offset and has no impact on the statement of operations.
Director Fees
Company directors may elect to receive their director fees in one or more of the following forms: cash, deferred compensation in the form of
shares or other selected investment funds, unrestricted company stock at the market value at the date of election, or stock options that vest in
one year and expire in ten years. The exercise price of the stock options granted may not be less than the market price of the company's common
stock on the date of grant. Under the plan, the Board members received the following shares or options in the fiscal years indicated.
Options
Shares of common stock
Shares through the deferred compensation program
2011
2010
2009
—
7,464
—
8,957
18,735
7,148
94,544
30,004
—
65 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
13. Income Taxes
The components of earnings before income taxes are as follows.
(In millions)
Domestic
Foreign
Total
The provision (benefit) for income taxes consists of the following.
(In millions)
Current: Domestic - Federal
Domestic - State
Foreign
Deferred: Domestic - Federal
Domestic - State
Foreign
Total income tax provision
2011
2010
2009
$
$
$
$
93.4
9.1
102.5
2011
1.4
0.8
5.7
7.9
26.4
1.4
(4.0)
23.8
31.7
$
$
$
$
38.4
(3.6)
34.8
2010
8.6
0.8
(0.2)
9.2
(2.6)
(0.2)
0.1
(2.7)
6.5
$
$
$
$
90.4
8.5
98.9
2009
22.2
2.2
3.2
27.6
4.3
(0.3)
(0.6)
3.4
31.0
The following table represents a reconciliation of income taxes at the United States statutory rate with the effective tax rate as follows.
(In millions)
Income taxes computed at the United States Statutory rate of 35%
Increase (decrease) in taxes resulting from:
Change in unrecognized tax benefits
Foreign statutory rate differences
Manufacturing deduction under the American Jobs Creation Act of
2004
Foreign tax credits
Other, net
Income tax expense
Effective tax rate
2011
2010
2009
$
35.8
$
12.2
$
34.6
(0.3)
(1.6)
(2.4)
(1.3)
1.5
31.7
30.9%
$
(4.9)
0.4
(1.2)
—
—
6.5
18.8%
$
0.7
(0.7)
(1.4)
(1.2)
(1.0)
31.0
31.4%
$
The company was granted a tax holiday from the Ningbo Economic and Technological Development Commission in China. This agreement
provides, starting with the first year of cumulative profits, for the company to be taxed at a reduced rate for five years. The company's Ningbo,
China operations started the first year of the tax holiday as of January 1, 2008.
66 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at May 28, 2011
and May 29, 2010, are as follows:
(In millions)
Deferred tax assets:
Compensation-related accruals
Accrued pension and post-retirement benefit obligations
Accrued health claims
Reserves for inventory
Reserves for uncollectible accounts and notes receivable
Other reserves and accruals
Warranty
State and local tax net operating loss carryforwards
Federal net operating loss carryforward
State credits
Foreign tax net operating loss carryforwards
Foreign tax credits
Other
Subtotal
Valuation allowance
Total
Deferred tax liabilities:
Book basis in property in excess of tax basis
Intangible assets
Other
Total
2011
2010
14.7
19.9
—
2.7
1.6
4.0
5.5
4.0
0.3
1.1
8.1
0.1
5.8
67.8
(11.6)
56.2
(19.4)
(12.8)
(1.1)
(33.3)
$
$
$
$
12.4
48.5
1.4
2.1
1.6
6.5
5.1
4.0
0.3
1.6
7.2
0.5
3.7
94.9
(11.0)
83.9
(18.1)
(6.4)
(0.5)
(25.0)
$
$
$
$
The future tax benefits of net operating loss (NOL) carry-forwards and foreign tax credits are recognized to the extent that realization of these
benefits is considered more likely than not. The company bases this determination on the expectation that related operations will be sufficiently
profitable or various tax planning strategies will enable the company to utilize the NOL carry-forwards and/or foreign tax credits. To the extent
that available evidence about the future raises doubt about the realization of these tax benefits, a valuation allowance is established.
At May 28, 2011, the company had state and local tax NOL carry-forwards of $61.9 million, the tax benefit of which is $4.0 million, which have
various expiration periods from one to twenty years. The company also had state credits with a tax benefit of $1.1 million that expire in one to
five years. For financial statement purposes, the NOL carry-forwards and state tax credits have been recognized as deferred tax assets, subject
to a valuation allowance of $3.7 million.
At May 28, 2011, the company had a federal NOL carry-forward of $0.9 million, the tax benefit of which is $0.3 million, which expires in 16 years.
For financial statement purposes, the NOL carry-forward has been recognized as a deferred tax asset.
At May 28, 2011, the company had a capital loss carry-forward of $1.8 million, the tax benefit of which is $0.7 million, which expires in 3 years.
For financial statement purposes, the capital loss carry-forward has been recognized as a deferred tax asset, subject to a valuation allowance
of $0.7 million.
At May 28, 2011, the company had foreign net operating loss carry-forwards of $30.9 million, the tax benefit of which is $8.1 million, which
have expiration periods from one year to an unlimited term. The company also had foreign tax credits with a tax benefit of $0.1 million that
expire in four to eight years. For financial statement purposes, NOL carry-forwards and foreign tax credits have been recognized as deferred
tax assets, subject to a valuation allowance of $7.2 million
67 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The company has not provided for United States income taxes on undistributed earnings of foreign subsidiaries totaling approximately $53.7
million. Recording deferred income taxes on these undistributed earnings is not required, because these earnings have been deemed to be
permanently reinvested. These amounts would be subject to possible U.S. taxation only if remitted as dividends. The determination of the
hypothetical amount of unrecognized deferred U.S. taxes on undistributed earnings of foreign entities is not practicable.
The components of the company's unrecognized tax benefits are as follows:
(In millions)
Balance at May 30, 2009
Increases related to current year income tax positions
Increases related to prior year income tax positions
Decreases related to prior year income tax positions
Decreases related to lapse of applicable statue of limitations
Balance at May 29, 2010
Increases related to current year income tax positions
Increases related to prior year income tax positions
Decreases related to prior year income tax positions
Decreases related to settlements
Balance at May 28, 2011
$
$
7.7
0.2
0.6
(5.1)
(1.3)
2.1
0.2
0.2
(0.6)
(0.3)
1.6
The company's effective tax rate would have been affected by the $1.6 million of unrecognized tax benefits had this amount been recognized
as a reduction to income tax expense.
The company recognizes interest and penalties related to unrecognized tax benefits through income tax expense in its statement of operations.
Interest and penalties recognized in the company's Consolidated Statements of Operations for the years ended May 28, 2011 and May 29, 2010
resulted in a favorable adjustments of $0.2 million and $0.3 million, respectively. As of May 28, 2011 and May 29, 2010, the company's recorded
liability for interest and penalties related to unrecognized tax benefits totaled $0.5 million and $0.7 million, respectively.
The company is subject to periodic audits by domestic and foreign tax authorities. Currently, the company is undergoing routine periodic audits
in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next
12 months as a result of new positions that may be taken on income tax returns, settlement of tax positions and the closing of statutes of
limitation. It is not expected that any of the changes will be material to the company's Consolidated Statement of Operations.
During the year, the company has closed the audit of fiscal year 2010 with the Internal Revenue Service under the Compliance Assurance
Process (CAP). For the majority of the remaining tax jurisdictions, the company is no longer subject to state and local, or non-U.S. income tax
examinations by tax authorities for fiscal years before 2008.
14. Fair Value of Financial Instruments
The company's financial instruments consist of cash equivalents, marketable securities, accounts and notes receivable, deferred compensation
plan, accounts payable, debt and foreign currency exchange contracts. The company's estimates of fair value for financial instruments, other
than marketable securities, approximate their carrying amounts as of May 28, 2011 and May 29, 2010. As of May 28, 2011, the carrying value
and the fair value of the company's long-term debt, including current maturities, was $250 million and $270.5 million, respectively. At May 29,
2010, the carrying value of the company's long-term debt including both current maturities and interest rate swap arrangements, was $301.2
million with a corresponding fair value of $309.7 million.
The following describes the methods the company uses to estimate the fair value of financial assets and liabilities, of which there have been
no significant changes in the current period:
Available-for-sale securities — The company's Level 2 available-for-sale marketable securities primarily include U.S. government and agency
securities, asset-backed debt securities and corporate debt securities and are valued using prices for recently traded financial instruments with
similar underlying terms and direct or indirect observational inputs, such as interest rates and yield curves at commonly quoted intervals.
Interest rate swap agreements and foreign currency forward contracts — The company's Level 2 interest rate swap agreements and foreign
currency forward contracts values are determined using a market approach based on rates obtained from active markets.
68 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Foreign currency exchange contracts — The company's Level 2 foreign currency exchange contracts are valued using an approach based on
foreign currency exchange rates obtained from active markets. The estimated fair value of forward currency exchange contracts is based on
month-end spot rates as adjusted by market-based current activity.
The following tables set forth financial assets and liabilities measured at fair value in the Condensed Consolidated Balance Sheets and the
respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of May 28, 2011 and May 29, 2010:
(In millions)
Financial Assets
Available-for-sale marketable securities
Asset-backed securities
Corporate securities
Government obligations
Mortgage-backed securities
Forward currency exchange contracts
Deferred compensation plan investments
Total
Financial Liabilities
Forward currency exchange contracts
Total
(In millions)
Financial Assets
Available-for-sale marketable securities
Asset-backed securities
Corporate securities
Government obligations
Mortgage-backed securities
Interest rate swap agreements
Forward currency exchange contracts
Deferred compensation plan investments
Total
Financial Liabilities
Forward currency exchange contracts
Total
Fair Value Measurements as of May 28, 2011
Total
Quoted Prices In
Active Markets
(Level 1)
Quoted Prices With
Other Observable
Inputs (Level 2)
2.3
3.6
1.1
4.0
0.7
2.6
14.3
0.3
0.3
$
$
$
$
—
—
—
—
—
—
—
—
—
$
$
$
$
2.3
3.6
1.1
4.0
0.7
2.6
14.3
0.3
0.3
Fair Value Measurements as of May 29, 2010
Total
Quoted Prices In
Active Markets
(Level 1)
Quoted Prices With
Other Observable
Inputs (Level 2)
0.8
5.1
5.3
0.9
1.2
0.1
1.9
15.3
0.1
0.1
$
$
$
$
—
—
—
—
—
—
—
—
—
—
$
$
$
$
0.8
5.1
5.3
0.9
1.2
0.1
1.9
15.3
0.1
0.1
$
$
$
$
$
$
$
$
69 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The following is a summary of the carrying and market values of the company's marketable securities as of the dates indicated.
(In millions)
Asset-backed securities
Corporate securities
Government obligations
Mortgage-backed securities
Total
(In millions)
Asset-backed securities
Corporate securities
Government obligations
Mortgage-backed securities
Total
May 28, 2011
Cost
Unrealized
Gain
Unrealized
Loss
$
$
$
$
2.3
3.6
1.1
3.9
10.9
0.8
5.1
5.3
1.0
12.2
$
$
$
$
Cost
—
—
—
0.1
0.1
$
$
—
—
—
—
—
May 29, 2010
Unrealized
Gain
Unrealized
Loss
—
—
—
0.1
0.1
$
$
—
—
—
(0.2)
(0.2)
Market Value
2.3
$
3.6
1.1
4.0
11.0
$
Market Value
0.8
$
5.1
5.3
0.9
12.1
$
The company does not hold any Level 3 financial instruments.
Net investment gain recognized in the Consolidated Statements of Operations for available-for-sale investments totaled $0.1 million and $0.9
million in fiscal 2011 and fiscal 2010, respectively. A net investment loss of $0.2 million was recognized in fiscal 2009. The net investment gain
of $0.9 million in fiscal 2010 included an other-than-temporary-impairment charge for certain debt securities of $0.4 million.
The company reviews its fixed income and equity investment portfolio for any unrealized losses that would be deemed other-than-temporary
and require the recognition of an impairment loss in income. If the cost of an investment exceeds its fair value, the company evaluates, among
other factors, general market conditions, the duration and extent to which the fair value is less than its cost, and the company's intent to hold
the investments and whether it is more likely than not that the company will be required to sell the investments before recovery of their amortized
cost basis. The company also considers the type of security, related-industry and sector performance, as well as published investment ratings
and analyst reports, to evaluate its portfolio. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is
recorded and a new cost basis in the investment is established. If conditions within individual markets, industry segments, or macro-economic
environments deteriorate, the company could incur future impairments. In the fourth quarter of fiscal 2009, the company determined that equity
investment losses of $0.6 million represented an other-than-temporary impairment and, accordingly, these losses were recognized in the
consolidated statement of operations. In the second quarter of fiscal 2010, the company determined that certain debt securities had other-than-
temporarily impaired assets in the amount of $0.8 million. Of these losses, $0.4 million were determined to be credit-related and were, therefore,
recognized in the Statement of Operations, “Other Expenses (Income): Other, net” line item. The remainder of the impairment is recognized as
a component of accumulated other comprehensive loss and is shown net in the company's Consolidated Statement of Stockholders' Equity.
The following is a summary of the credit loss component of the company's debt securities that have been written down for other-than-temporary-
impairment (OTTI) with the credit loss component recognized in earnings and the remaining impairment loss related to all other factors recognized
in accumulated other comprehensive loss:
(In millions)
Balance at May 29, 2010
Additions:
Credit losses for which OTTI was not previously recognized
Additional increases to the amount related to credit loss for which OTTI was previously recognized
Subtractions:
Realized losses recorded previously as credit losses
Balance at May 28, 2011
$
$
0.2
—
—
(0.2)
—
70 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Maturities of debt securities included in marketable securities as of May 28, 2011, are as follows:
(In millions)
Due within one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
There were no Investments in unrealized loss positions as of May 28, 2011.
15. Financial Instruments with Off-Balance Sheet Risk
Cost
Market
Value
3.8
7.0
0.1
—
10.9
$
$
3.8
7.1
0.1
—
11.0
$
$
The company has periodically utilized financial instruments to manage its foreign currency volatility at the transactional level as well as its
exposure to interest rate fluctuations.
Foreign Currency Contracts
In the normal course of business, the company enters into contracts denominated in foreign currencies. The principal foreign currencies in which
the company conducts its business are the British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, and Chinese renminbi.
As of May 28, 2011, the company had outstanding, sixteen forward currency instruments designed to offset either net asset or net liability
exposure that is denominated in non-functional currencies. Two forward contracts were placed in order to offset a 3.1 million euro-denominated
net asset exposure and five forward contracts were placed in order to offset a 7.6 million U.S. dollar-denominated net asset exposure. One
forward contract was placed to offset 0.4 million Australian dollar-denominated net asset exposure. Eight forward contracts were placed to offset
a 2.4 million U.S. dollar-denominated net liability exposure.
As of May 29, 2010, the company had outstanding, nine forward currency instruments designed to offset either net asset or net liability exposure
that is denominated in non-functional currencies. One forward contract was placed in order to offset a 4.1 million euro-denominated net asset
exposure and three forward contracts were placed in order to offset a 5.6 million U.S. dollar-denominated net asset exposure. Four forward
contracts were placed to offset a 14.0 million U.S. dollar-denominated net liability exposure and one forward contract was placed to offset a 1.6
million British pound sterling-denominated net liability exposure. The fair value of the forward currency instruments at May 28, 2011 was $0.7
million and $0.3 million within current assets and current liabilities, respectively. At May 29, 2010 the fair value of the forward currency instruments
was a negligible amount.
Interest Rate Swaps
The company has used interest rate swaps in order for a portion of interest bearing debt to be variable, which matches interest expense with
the company's business cycle. These swaps were fair-value hedges and qualified for hedge-accounting treatment, whereby the change in the
fair value of the interest rate swap is equal to the change in value of the related hedged debt and, as a result, there is no net effect on earnings.
The agreement required the company to pay floating-rate interest payments in return for receiving fixed-rate interest payments that coincide
with the semi-annual payments to the debt holders at the same date. The periodic interest settlements, which occur at the same interval as the
public debt securities, are recorded as interest expense.
As of May 29, 2010, the fair value of approximately $1.2 million was reflected as an addition to current maturities of long-term debt and an
offsetting addition to current assets. The floating interest rate for this agreement was based on the six-month LIBOR, set in-arrears at the end
of each semi-annual period, and was estimated to be approximately 3.8 percent at May 29, 2010.
The swap arrangement effectively reduced interest expense by $1.5 million, $1.9 million, and $1.2 million in fiscal 2011, fiscal 2010 and fiscal
2009, respectively. During the fourth quarter of fiscal 2011 the interest rate swap agreement expired as planned on March 15, 2011.
71 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
16. Supplemental Disclosures of Cash Flow Information
The following table presents the adjustments to reconcile net earnings to net cash provided by operating activities.
(In millions)
2011
2010
2009
$
$
36.2
2.9
$
39.7
2.9
Depreciation expense
Amortization expense
Provision for losses on accounts receivable and notes
receivable
Provision for (gain) loss on financial guarantees
Loss on sales of property, equipment, and other assets
Gain on disposal of owned dealers
Deferred taxes
Pension expense
Restructuring expense
Asset impairment expense
Contingent consideration income
Stock-based compensation
Excess tax benefits from stock-based compensation
Proceeds from death benefits on cash surrender value of life
insurance
Other changes in long-term liabilities
Other
Changes in current assets and liabilities:
Decrease (increase) in assets:
Accounts receivable
Inventories
Prepaid expenses and other
Increase (decrease) in liabilities:
Accounts payable
Accrued liabilities
Total changes in current assets and liabilities
Total adjustments
Cash payments for interest and income taxes were as follows:
(In millions)
Interest paid
Income taxes paid, net of cash received
17. Guarantees, Indemnifications, and Contingencies
Product Warranties
0.1
—
1.0
—
24.2
13.1
3.0
—
(15.0)
4.8
(0.1)
—
(36.0)
(0.4)
(48.5)
(8.3)
(14.5)
16.4
41.4
(13.5)
20.3
$
5.5
0.2
0.2
—
(1.5)
12.0
14.2
2.5
(5.7)
4.4
0.5
4.8
(13.3)
(0.4)
9.0
(7.1)
23.6
13.9
(34.6)
4.8
70.8
$
39.5
2.2
2.3
(0.1)
0.5
(0.8)
3.1
11.1
28.4
—
—
3.3
0.3
—
(3.7)
0.4
53.5
15.3
(4.8)
(37.8)
(89.0)
(62.8)
23.7
$
$
$
2011
2010
2009
17.7
20.3
$
$
17.7
14.6
$
$
24.1
70.4
The company provides warranty coverage to the end-user for parts and labor on products sold. The standard length of warranty is 12 years,
however, this varies depending on the product classification. The company does not sell or otherwise issue warranties or warranty extensions
as stand-alone products. Reserves have been established for various costs associated with the company's warranty program. General warranty
reserves are based on historical claims experience and other currently available information and are periodically adjusted for business levels
72 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
and other factors. Specific reserves are established once an issue is identified with the amounts for such reserves based on the estimated cost
of correction. Changes in the warranty reserve for the stated periods were as follows:
(In millions)
Accrual balance, beginning
Acquired warranty reserves
Accrual for warranty matters
Settlements and adjustments
Accrual balance, ending
Other Guarantees
2011
2010
16.0
—
14.5
(13.5)
17.0
$
$
15.4
0.5
12.1
(12.0)
16.0
$
$
The company is periodically required to provide performance bonds in order to conduct business with certain customers. These arrangements
are common and generally have terms ranging between one and three years. The bonds are required to provide assurances to customers that
the products and services they have purchased will be installed and/or provided properly and without damage to their facilities. The performance
bonds are provided by various bonding agencies and the company is ultimately liable for claims that may occur against them. As of May 28, 2011,
the company had a maximum financial exposure related to performance bonds of approximately $16.1 million. The company has no history of
claims, nor is it aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of any
claims that might arise in the future, either individually or in the aggregate, would not materially affect the company's financial statements.
Accordingly, no liability has been recorded as of May 28, 2011 and May 29, 2010.
The company periodically enters into agreements in the normal course of business that may include indemnification clauses regarding patent/
trademark infringement and service losses. Service losses represent all direct or consequential loss, liability, damages, costs and expenses
incurred by the customer or others resulting from services rendered by the company, the dealer, or certain sub-contractors due to a proven
negligent act. The company has no history of claims, nor is it aware of circumstances that would require it to perform under these arrangements
and believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect
the company's financial statements. Accordingly, no liability has been recorded as of May 28, 2011 and May 29, 2010.
The company has entered into standby letter of credit arrangements for the purpose of protecting various insurance companies against default
on the payment of certain premiums and claims. A majority of these arrangements are related to the company's wholly-owned captive insurance
company. As of May 28, 2011, the company had a maximum financial exposure from these insurance-related standby letters of credit of
approximately $9.4 million. The company has no history of claims, nor is it aware of circumstances that would require it to perform under any
of these arrangements and believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would
not materially affect the company's financial statements. Accordingly, no liability has been recorded as of May 28, 2011 and May 29, 2010.
Contingencies
The company leases a facility in the United Kingdom under an agreement that expired in June 2011, and the company plans to continue to
lease the facility on a month to month basis after the lease expires. Under the terms of the lease, the company is required to perform the
maintenance and repairs necessary to address the general dilapidation of the facility over the lease term. The ultimate cost of this provision to
the company is dependent on a number of factors including, but not limited to, the future use of the facility by the lessor and whether the company
chooses and is permitted to renew the lease term. The company has estimated the cost of these maintenance and repairs to be between $0
and $3 million, depending on the outcome of future plans and negotiations. Based on existing circumstances, it is estimated that these costs
will most likely approximate $1.3 million, as of May 28, 2011, and was estimated to be $1.1 million as of May 29, 2010. As a result, these amounts
have been recorded as a liability reflected under the caption “Accrued Liabilities” and "Other Liabilities" for fiscal 2011 and fiscal 2010, respectively
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 $1.7 million and $1.5 million is reflected under the caption “Other Liabilities” in the Condensed
Consolidated Balance Sheets at May 28, 2011 and May 29, 2010, respectively.
The company, for a number of years, has sold various products to the United States Government under General Services Administration (“GSA”)
multiple award schedule contracts. Under the terms of these contracts, the GSA is permitted to audit the company's compliance with the GSA
contracts. From time to time the company has notified the GSA of known instances of non-compliance (whether favorable or unfavorable to the
company) once such circumstances are identified and investigated. The company does not believe that any of the errors brought to the GSA's
attention will adversely affect its relationship with the GSA. Currently there are no GSA post-award audits either scheduled or in process.
Management does not expect resolution of potential future audits to have a material adverse effect on the company's Consolidated Financial
Statements.
73 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
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.
18. Operating Segments
The company aggregates its operating segments into two primary reportable segments as defined by ASC Topic 280, Segment Reporting, North
American Furniture Solutions and non-North American Furniture Solutions.
Effective as of the second quarter of fiscal 2011, management has modified the company's segment reporting in order to better align with changes
made in the second quarter to the organizational and management reporting structure. Specifically, the company is now reporting operations
in Mexico within its non-North American Furniture Solutions operating segment. Prior year results have been revised to reflect this change.
The North American Furniture Solutions segment includes the operations associated with the design, manufacture, and sale of furniture products
for work-related settings, including office, education, and healthcare environments, throughout the United States and Canada. The business
associated with the company's owned contract furniture dealers is also included in the North American Furniture Solutions segment. The non-
North American Furniture Solutions segment includes the operations associated with the design, manufacture, and sale of furniture products,
primarily for work-related settings, for Mexico and outside of North America.
The company also reports an “Other” category consisting primarily of its North American Retail and startup businesses and certain unallocated
corporate expenses. North American Home includes the operations associated with the design, manufacture and sale of furniture products for
residential settings in the United States, and Canada. This category also includes restructuring and impairment costs.
The performance of the operating segments is evaluated by the company's management using various financial measures. The following is a
summary of certain key financial measures for the respective fiscal years indicated:
(In millions)
Net Sales:
North American Furniture Solutions
Non-North American Furniture Solutions
Other
Total
Depreciation and Amortization:
North American Furniture Solutions
Non-North American Furniture Solutions
Other
Total
Operating Earnings (Losses):
North American Furniture Solutions
Non-North American Furniture Solutions
Other
Total
Capital Expenditures:
North American Furniture Solutions
Non-North American Furniture Solutions
Other
Total
Total Assets:
North American Furniture Solutions
Non-North American Furniture Solutions
Other
Total
2011
2010
2009
$
$
$
$
$
$
$
$
$
$
1,304.9
290.4
53.9
1,649.2
36.0
3.1
—
39.1
98.1
18.8
6.4
123.3
26.1
4.4
—
30.5
639.7
157.0
17.7
814.4
$
$
$
$
$
$
$
$
$
$
1,048.1
222.7
48.0
1,318.8
38.3
2.8
1.5
42.6
71.5
(0.2)
(17.7)
53.6
21.4
0.9
—
22.3
608.4
143.5
18.7
770.6
$
$
$
$
$
$
$
$
$
$
1,310.5
277.3
42.2
1,630.0
35.7
4.4
1.6
41.7
129.0
19.1
(25.3)
122.8
22.3
2.8
0.2
25.3
607.8
143.6
15.9
767.3
74 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Goodwill:
North American Furniture Solutions
Non-North American Furniture Solutions
Other
Total
$
$
104.3
6.1
—
110.4
$
$
104.4
5.0
—
109.4
$
$
69.4
0.1
—
69.5
The accounting policies of the reportable operating segments are the same as those of the company, which are disclosed in further detail within
Note 1 of the Consolidated Financial Statements. Additionally, the company employs a methodology for allocating corporate costs and assets
to the operating segments. The underlying objective of this methodology is to allocate corporate costs according to the relative “usage” of the
underlying resources and to allocate corporate assets according to the relative expected benefit. The company has determined that allocation
based on relative net sales is most appropriate for all expenses. The majority of corporate costs are allocated to the operating segments;
however, certain costs that are generally considered the result of isolated business decisions are not subject to allocation and are evaluated
separately from the rest of the regular ongoing business operations. The restructuring and asset impairment charges of $3.0 million, $16.7
million, and $28.4 million in fiscal 2011, fiscal 2010 and fiscal 2009, respectively are discussed in Note 19 of the Consolidated Financial Statements
and were allocated to the “Other” category.
The company's product offerings consist primarily of office furniture systems, seating, freestanding furniture, storage and casegoods. These
product offerings are marketed, distributed, and managed primarily as a group of similar products on an overall portfolio basis. The following is
a summary of net sales by product category for the respective fiscal years indicated. Given that formal product line information is not available
for the company as a whole, this summary is intended to represent a reasonable estimate of net sales by product category based on the best
information available.
(In millions)
Net Sales:
Systems
Seating
Freestanding and storage
International (1)
Other (2)
Total
2011
2010
2009
$
$
430.3
394.3
310.8
383.3
130.5
1,649.2
$
$
349.3
329.7
246.2
290.1
103.5
1,318.8
$
$
511.6
361.1
260.3
365.7
131.3
1,630.0
(1) The company has determined that the disclosure of international product line information is not practicable.
(2) “Other” primarily consists of miscellaneous or otherwise uncategorized product sales and service sales.
Sales by geographic area are based on the location of the customer. Long-lived assets consist of long-term assets of the company, excluding
financial instruments, deferred tax assets, and long-term intangibles. The following is a summary of geographic information for the respective
fiscal years indicated. Individual foreign country information is not provided as none of the individual foreign countries in which we operate are
considered material for separate disclosure based on quantitative and qualitative considerations.
(In millions)
Net Sales:
United States
International
Total
Long-lived assets:
United States
International
Total
2011
2010
2009
$
$
$
$
1,265.9
383.3
1,649.2
151.6
24.0
175.6
$
$
$
$
1,028.7
290.1
1,318.8
159.7
21.6
181.3
$
$
$
$
1,264.3
365.7
1,630.0
162.4
25.0
187.4
It is estimated that no single dealer accounted for more than 4 percent of the company's net sales in the fiscal year ended May 28, 2011. It is
also estimated that the largest single end-user customer, the U.S. federal government, accounted for approximately $226.2 million or 14 percent
of the company's fiscal 2011 net sales. The 10 largest customers accounted for approximately 28 percent of net sales.
75 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Approximately 5 percent of the company's employees are covered by collective bargaining agreements, most of whom are employees of its
Nemschoff, and Herman Miller Limited (U.K.) subsidiaries.
19. Restructuring Charges
2009 Action
During the third quarter of fiscal 2009, the company executed a restructuring plan (“the 2009 Plan”) that reduced operating expenses in order
to improve operating performance, profitability and further enhance productivity and efficiencies. The 2009 Plan eliminated approximately 1,400
salaried, hourly and temporary positions, primarily in the North American Furniture Solutions segment. A number of these employees were
offered termination benefits, including severance and outplacement services. Additionally, the company consolidated facilities and exited leased
buildings. In connection with these actions, the company recognized $28.4 million and $1.3 million of pre-tax charges during fiscal 2009 and
fiscal 2010, respectively. The Plan was completed in the first quarter of fiscal 2011.
The following is a summary of changes in restructuring accruals during fiscal 2009, fiscal 2010, and fiscal 2011 for the 2009 Plan.
(In millions)
Balance as of May 31, 2008
Restructuring expenses
Cash payments
Adjustments
Balance as of May 30, 2009
Restructuring expenses
Cash payments
Adjustments
Balance as of May 29, 2010
Restructuring expenses
Cash payments
Adjustments
Balance as of May 28, 2011
Manufacturing Consolidation
Total Plan Costs
Severance and
Outplacement
Costs
Leased Building
Exit Costs
$
—
$
—
$
28.4
(16.8)
(2.0)
9.6
1.3
(9.5)
(0.1)
1.3
—
(1.3)
—
—
$
25.0
(16.0)
(2.0)
7.0
0.7
(7.4)
(0.1)
0.2
—
(0.2)
—
—
$
$
—
3.4
(0.8)
—
2.6
0.6
(2.1)
—
1.1
—
(1.1)
—
—
In May and June 2009, the company announced a plan (“the Manufacturing Consolidation Plan”) to consolidate manufacturing operations with
the closure of its Integrated Metal Technologies (IMT) subsidiary in Spring Lake, Michigan and Brandrud facility in Auburn, Washington. Under
this plan for the IMT closure, the company retained existing West Michigan production capacity and enhanced operational efficiency, with the
majority of work and equipment move to other newer, larger facilities in the area. Relocation began during the first quarter of fiscal 2010, with
final closure completed in the fourth quarter. For the Brandrud closure, the company further consolidated manufacturing operations with the
transfer of substantially all of the manufacturing capabilities of Brandrud to its Nemschoff manufacturing plants. The cost for this action was
$12.6 million with approximately $2.0 million, $9.7 million, and $0.9 million of these costs having been recognized in fiscal 2009, fiscal 2010,
and fiscal 2011, respectively. The company does not anticipate any further significant costs for this action. The remaining accrued costs will be
paid for with cash generated from operations during fiscal 2012.
76 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
The following is a summary of changes in restructuring accruals during fiscal 2010 and fiscal 2011 for the Manufacturing Consolidation Plan.
(In millions)
Balance as of May 30, 2009
Restructuring expenses
Cash payments
Adjustments
Balance as of May 29, 2010
Restructuring expenses
Cash payments
Balance as of May 28, 2011
2010 Action
Total Plan Costs
Severance and
Outplacement
Costs
Leased Building
Exit Costs
$
$
—
9.7
(5.9)
(1.2)
2.6
0.9
(3.0)
0.5
$
$
$
—
5.3
(3.4)
(0.4)
1.5
0.2
(1.7)
—
$
—
4.4
(2.5)
(0.8)
1.1
0.7
(1.3)
0.5
During the fourth quarter of fiscal 2010, the company executed a restructuring plan (“the 2010 Plan”) that reduced operating expenses in order
to improve operating performance, profitability and further enhance productivity. This Plan reduced our salaried workforce, primarily in North
America, by approximately 70 employees. This Plan resulted in expenses of approximately $3.2 million during fiscal 2010 and $2.1 million during
fiscal 2011. The company does not anticipate significant costs in future periods for this Plan.
The following is a summary of changes in restructuring accruals during fiscal 2010 and fiscal 2011 for the 2010 Plan.
(In millions)
Balance as of May 30, 2009
Restructuring expenses
Cash payments
Balance as of May 29, 2010
Restructuring expenses
Cash payments
Adjustments
Balance as of May 28, 2011
Total Plan Costs
Severance and
Outplacement
Costs
Leased Building
Exit Costs
$
$
—
3.2
(0.1)
3.1
2.1
(4.5)
(0.2)
0.5
$
$
—
2.9
(0.1)
2.8
1.5
(4.1)
0.1
0.3
$
$
—
0.3
—
0.3
0.6
(0.4)
(0.3)
0.2
In addition to the restructuring expenses noted above, the 2010 action included an impairment of certain assets totaling $2.5 million that were
related to our Convia line of business. These assets related to products that we determined had no future revenue stream to the company.
These charges have been reflected separately as restructuring expenses in the Consolidated Statements of Operations. Refer to Note 18 of
the Consolidated Financial Statements for a discussion of the Plan's impact on the company's reportable operating segments.
77 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
20. Quarterly Financial Data (Unaudited)
Set forth below is a summary of the quarterly operating results on a consolidated basis for the years ended May 28, 2011, May 29, 2010, and
May 30, 2009.
(In millions, except per share data)
2011
Net sales
Gross margin
Net earnings attributable to controlling interest (1)
Earnings per share-basic
Earnings per share-diluted (1)
2010
Net sales
Gross margin
Net earnings attributable to controlling interest (1)
Earnings per share-basic
Earnings per share-diluted
2009
Net sales
Gross margin
Net earnings attributable to controlling interest
Earnings (loss) per share-basic (1)
Earnings (loss) per share-diluted (1)
First Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
380.7
123.6
16.1
0.28
0.22
324.0
107.5
8.4
0.15
0.14
479.1
162.4
33.4
0.60
0.60
$
$
$
412.2
135.8
17.9
0.31
0.26
343.7
110.8
9.6
0.17
0.17
476.6
155.4
32.6
0.61
0.60
$
$
$
414.8
133.0
19.8
0.35
0.29
329.6
104.8
8.3
0.15
0.12
354.4
105.9
(5.2)
(0.10)
(0.10)
441.5
145.7
17.1
0.30
0.30
321.5
105.4
2.1
0.04
—
319.9
104.0
7.2
0.14
0.14
(1) The sum of the quarters does not equal the annual balance reflected in the Consolidated Statements of Operations due to rounding
associated with the calculations on an individual quarter basis.
78 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Management's Report on Internal Control over Financial Reporting
To the Board of Directors and Stockholders of Herman Miller, Inc.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act
Rule 13a-15(f). The internal control over financial reporting at Herman Miller, Inc., is designed to provide reasonable assurance to our stakeholders
that the financial statements of the company fairly represent its financial condition and results of operations.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted
an assessment of the effectiveness of our internal control over financial reporting as of May 28, 2011, based on the framework in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our
management believes the company's internal control over financial reporting was effective as of May 28, 2011.
Ernst & Young LLP has issued an attestation report on the effectiveness of our internal control over financial reporting, which appears on page
80.
/s/ Brian C. Walker
Brian C. Walker
Chief Executive Officer
/s/ Gregory J. Bylsma
Gregory J. Bylsma
Chief Financial Officer
79 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
To the Board of Directors and Stockholders of Herman Miller, Inc.
We have audited Herman Miller Inc.'s internal control over financial reporting as of May 28, 2011, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Herman Miller,
Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Herman Miller, Inc. maintained, in all material respects, effective internal control over financial reporting as of May 28, 2011,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the fiscal 2011
consolidated financial statements of Herman Miller, Inc., and our report dated July 26, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 26, 2011
80 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Report of Independent Registered Public Accounting Firm on Financial Statements
To the Board of Directors and Stockholders of Herman Miller, Inc.
We have audited the accompanying consolidated balance sheets of Herman Miller, Inc. as of May 28, 2011 and May 29, 2010, and the related
consolidated statements of operations, stockholders' equity and cash flows for each of the three fiscal years in the period ended May 28, 2011.
These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Herman
Miller, Inc. at May 28, 2011 and May 29, 2010, and the consolidated results of their operations and their cash flows for each of the three fiscal
years in the period ended May 28, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Herman Miller,
Inc.'s internal control over financial reporting as of May 28, 2011, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 26, 2011 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 26, 2011
81 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
As defined in Item 304 of Regulation S-K, there have been no changes in, or disagreements with, accountants during the 24-month period ended
May 28, 2011.
Item 9A CONTROLS AND PROCEDURES
(a)
(b)
(c)
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of management, the company's
Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 28, 2011, and have concluded that as of that
date, the company's disclosure controls and procedures were effective.
Management's Annual Report on Internal Control Over Financial Reporting and Attestation Report of the Independent Registered
Public Accounting Firm. Refer to Item 8 for “Management's Report on Internal Control Over Financial Reporting.”
Changes in Internal Control Over Financial Reporting. There were no changes in the company's internal control over financial reporting
during the fourth quarter ended May 28, 2011, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B OTHER INFORMATION - None
82 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Item 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors, Executive Officers, Promoters and Control Persons
PART III
Information relating to directors and director nominees of the registrant is contained under the caption “Director and Executive Officer Information”
in the company's definitive Proxy Statement, relating to the company's 2011 Annual Meeting of Stockholders, and the information within that
section is incorporated by reference. Information relating to Executive Officers of the company is included in Part I hereof entitled “Executive
Officers of the Registrant.”
Compliance with Section 16(a) of the Exchange Act
Information relating to compliance with Section 16(a) of the Exchange Act is contained under the caption “Section 16(a) Beneficial Ownership
Reporting Compliance” in the company's definitive Proxy Statement, relating to the company's 2011 Annual Meeting of Stockholders, and the
information within that section is incorporated by reference.
Code of Ethics
The company has adopted a Code of Conduct that serves as the code of ethics for the executive officers and senior financial officers and as
the code of business conduct for all directors and employees of the registrant. This code is made available free of charge through the “Investors”
section of the company's internet website at www.hermanmiller.com. Any amendments to, or waivers from, a provision of this code also will be
posted to the company's internet website.
Corporate Governance
Information relating to the identification of the audit committee, audit committee financial expert, and director nomination procedures of the
registrant is contained under the captions “Board Committees” and “Corporate Governance and Board Matters — Director Nominations” in the
company's definitive Proxy Statement, relating to the company's 2011 Annual Meeting of Stockholders, and the information within these sections
is incorporated by reference.
Item 11 EXECUTIVE COMPENSATION
Information relating to management remuneration is contained under the captions “Compensation Discussion and Analysis,” “Summary
Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested,”
“Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential Payments Upon Termination, Death, Disability, Retirement or Change in
Control,” “Director Compensation,” “Director Compensation Table,” and “Compensation Committee Interlocks and Insider Participation” in the
company's definitive Proxy Statement, relating to the company's 2011 Annual Meeting of Stockholders, and the information within these sections
is incorporated by reference. The information under the caption “Compensation Committee Report” is incorporated by reference, however, such
information is not deemed filed with the Commission.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The sections entitled “Voting Securities and Principal Stockholders,” “Director and Executive Officer Information,” and “Equity Compensation
Plan Information” in the definitive Proxy Statement, relating to the company's 2011 Annual Meeting of Stockholders, and the information within
these sections is incorporated by reference.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions contained under the captions “Related Person Transactions,” and “Corporate
Governance and Board Matters — Determination of Independence of Board Members” in the definitive Proxy Statement, relating to the company's
2011 Annual Meeting of Stockholders and the information within these sections is incorporated by reference.
Item 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning the payments to our principal accountants and the services provided by our principal accounting firm set forth under the
caption “Disclosure of Fees Paid to Independent Auditors” in the Definitive Proxy Statement, relating to the company's 2011 Annual Meeting of
Stockholders, and the information within that section is incorporated by reference.
83 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
PART IV
Item 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a)
The following documents are filed as a part of this report:
1.
Financial Statements
The following Consolidated Financial Statements of the company are included in this Form 10-K on the pages noted:
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
2.
Financial Statement Schedule
Page Number in
this Form 10-K
34
35
36
39
40
79
80
81
The following financial statement schedule and related Report of Independent Public Accountants on the Financial Statement Schedule
are included in this Form 10-K on the pages noted:
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Schedule II-
Valuation and Qualifying Accounts and Reserves for the Years Ended May 28, 2011,
May 29, 2010, and May 30, 2009
Page Number in
this Form 10-K
86
87
All other schedules required by Form 10-K Annual Report have been omitted because they were not applicable, included in the Notes
to the Consolidated Financial Statements, or otherwise not required under instructions contained in Regulation S-X.
3.
Exhibits
Reference is made to the Exhibit Index which is included on pages 88-90.
84 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HERMAN MILLER, INC.
By
/s/ Brian C. Walker
Brian C. Walker
President and Chief Executive Officer
(Duly Authorized Signatory for Registrant)
Date:
July 26, 2011
and
/s/ Gregory J. Bylsma
Gregory J. Bylsma
Chief Financial Officer
(Principal Accounting Officer and Duly Authorized
Signatory for Registrant)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on, July 26, 2011 by the following
persons on behalf of the Registrant in the capacities indicated. Each Director of the Registrant, whose signature appears below, hereby appoints
Brian C. Walker as his attorney-in-fact, to sign in his or her name and on his or her behalf, as a Director of the Registrant, and to file with the
Commission any and all amendments to this Report on Form 10-K.
/s/ Michael A. Volkema
Michael A. Volkema
(Chairman of the Board)
/s/ David O. Ulrich
David O. Ulrich
(Director)
/s/ Dorothy A. Terrell
Dorothy A. Terrell
(Director)
/s/ David A. Brandon
David A. Brandon
(Director)
/s/ Douglas D. French
Douglas D. French
(Director)
/s/ J. Barry Griswell
J. Barry Griswell
(Director)
/s/ Lord Griffiths of Fforestfach
Lord Griffiths of Fforestfach
(Director)
/s/ Mary Vermeer Andringa
Mary Vermeer Andringa
(Director)
/s/ James R. Kackley
James R. Kackley
(Director)
/s/ John R. Hoke III
John R. Hoke III
(Director)
/s/ Brian C. Walker
Brian C. Walker
(President, Chief Executive Officer, and
Director)
85 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
To the Board of Directors and Stockholders of Herman Miller, Inc.
We have audited the consolidated financial statements of Herman Miller, Inc. and subsidiaries as of May 28, 2011 and May 29, 2010, and for
each of the three fiscal years in the period ended May 28, 2011, and have issued our report thereon dated July 26, 2011 (included elsewhere
in this Form 10-K). Our audits also included the financial statement schedule listed in Item 15(a) of this Form 10-K. This schedule is the
responsibility of the company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth therein.
Grand Rapids, Michigan
July 26, 2011
/s/ Ernst & Young LLP
86 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Column A
Column B
Column C
Column D
Column E
Description
Year ended May 28, 2011:
Accounts receivable allowances —
uncollectible accounts(1)
Accounts Receivable allowances — credit
memo(2)
Allowance for possible losses on notes
receivable
Valuation allowance for deferred tax asset
Year ended May 29, 2010:
Accounts receivable allowances —
uncollectible accounts(1)
Accounts Receivable allowances — credit
memo(2)
Allowance for possible losses on notes
receivable
Valuation allowance for deferred tax asset
Year ended May 30, 2009:
Accounts receivable allowances —
uncollectible accounts(1)
Accounts receivable allowances — credit
memo (2)
Allowance for possible losses on notes
receivable
Valuation allowance for deferred tax asset
Balance at
beginning of period
Charges to
expenses or net
sales
Deductions (3)
Balance at
end of period
$
$
$
$
$
$
$
$
$
$
$
$
4.0
$
0.1
$
—
$
4.1
0.4
$
0.3
$
(0.3)
$
0.4
0.4
$
—
$
(0.1)
$
0.3
11.0
$
1.8
$
(1.2)
$
11.6
6.9
$
0.3
$
(3.2)
$
4.0
0.4
$
2.5
$
(2.5)
$
0.4
0.5
$
2.0
$
(2.1)
$
0.4
9.2
$
2.0
$
(0.2)
$
11.0
5.0
$
3.6
$
(1.7)
$
6.9
0.6
$
2.8
$
(3.0)
$
0.4
3.2
$
(1.5)
$
(1.2)
$
0.5
8.8
$
0.9
$
(0.5)
$
9.2
(1) Activity under the “Charges to expense or net sales” column are recorded within selling, general and administrative expenses.
(2) Activity under the “Charges to expenses or net sales” column are recorded within net sales.
(3) Represents amounts written off, net of recoveries and other adjustments. Includes effects of foreign translation.
87 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
(3)
Articles of Incorporation and Bylaws
EXHIBIT INDEX
(a)
(b)
(c)
Articles of Incorporation are incorporated by reference from Exhibit 3(a) and 3(b) of the Registrant's 1986 Form 10-K
Annual Report.
Certificate of Amendment to the Articles of Incorporation, dated October 15, 1987, is incorporated by reference from
Exhibit 3(b) of the Registrant's 1988 Form 10-K Annual Report.
Certificate of Amendment to the Articles of Incorporation, dated May 10, 1988, is incorporated by reference from
Exhibit 3(c) of the Registrant's 1988 Form 10-K Annual Report.
(d)
Amended and Restated Bylaws, dated April 18, 2011, Exhibit 3.1
(4)
Instruments Defining the Rights of Security Holders
(a)
(b)
(c)
(d)
Specimen copy of Herman Miller, Inc., common stock is incorporated by reference from Exhibit 4(a) of Registrant's
1981 Form 10-K Annual Report.
Other instruments which define the rights of holders of long-term debt individually represent debt of less than 10% of
total assets. In accordance with item 601(b)(4)(iii)(A) of regulation S-K, the Registrant agrees to furnish to the
Commission copies of such agreements upon request.
Dividend Reinvestment Plan for Shareholders of Herman Miller, Inc., dated January 6, 1997, is incorporated by
reference from Exhibit 4(d) of the Registrant's 1997 Form 10-K Annual Report.
Note purchase agreement dated as of December 18, 2007 is incorporated by reference from Exhibit 10.2 of the
Registrant's Form 10-Q Quarterly Report for quarter ended December 1, 2007.
(10)
Material Contracts
(a)
(b)
Officers' Supplemental Retirement Income Plan is incorporated by reference from Exhibit 10(f) of the Registrant's 1986
Form 10-K Annual Report. *
Officers' Salary Continuation Plan is incorporated by reference from Exhibit 10(g) of the Registrant's 1982 Form 10-K
Annual Report.*
88 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
(c)
(d)
(e)
Form of Herman Miller, Inc. Long-Term Incentive Plan Restricted Stock Unit Award, is incorporated by reference from
Exhibit 99.1 of the Registrant's Form 8-K dated June 20, 2005. *
Herman Miller, Inc. Long-Term Incentive Plan as amended, effective January 1, 2005, is incorporated by reference
from Exhibit 10(aa) of the Registrant's 2005 Form 10-K Annual Report. *
Herman Miller, Inc. Amended and Restated Nonemployee Officer and Director Deferred Compensation Stock
Purchase Plan, is incorporated by reference from Exhibit 10(bb) of the Registrant's Form 10-Q Quarterly Report for
quarter ended September 3, 2005. *
(f)
Form of Change in Control Agreement of the Registrant Exhibit 10.1
(g)
(h)
(i)
(j)
Herman Miller, Inc. Amended and Restated Key Executive Deferred Compensation Plan, dated January 23, 2006, is
incorporated by reference from Exhibit 99.2 of the Registrant's Form 8-K dated January 23, 2006. *
Herman Miller, Inc. Executive Equalization Retirement Plan is incorporated by reference from Exhibit 99.1 of the
Registrant's Form 8-K dated July 25, 2007.*
Herman Miller, Inc. Executive Incentive Cash Bonus Plan dated April 24, 2006 is incorporated by reference from
Exhibit 10(x) of the Registrant's 2007 Form 10-K Annual Report. *
Credit agreement dated as of December 18, 2007 among Herman Miller, Inc. and various lenders, is incorporated by
reference from Exhibit 10.3 of the Registrant's Form 10-Q Quarterly Report for quarter ended December 1, 2007.
(k)
Form of Herman Miller, Inc. Long-Term Incentive Plan Stock Option Agreement is incorporated by reference from
Exhibit 99.1 of the Registrant's Form 8-K dated July 24, 2008. *
(l)
Form of Herman Miller, Inc. Long-Term Incentive Plan Performance Share Award is incorporated by reference from
Exhibit 99.2 of the Registrant's Form 8-K dated July 24, 2008. *
(m)
Form of Herman Miller, Inc. Long-Term Incentive Plan Stock Option Agreement is incorporated by reference from
Exhibit 10.1 of the Registrant's From 10-K dated July 27, 2010. *
* denotes compensatory plan or arrangement.
89 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
(21)
Subsidiaries
(23)(a)
Consent of Independent Registered Public Accounting Firm
(24)
Power of Attorney (Included in Item 15)
(31)(a)
Certificate of the Chief Executive Officer of Herman Miller, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
(31)(b)
Certificate of the Chief Financial Officer of Herman Miller, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)(a)
Certificate of the Chief Executive Officer of Herman Miller, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(32)(b)
Certificate of the Chief Financial Officer of Herman Miller, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended May 28, 2011,
formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of as of May 28, 2011
and May 29, 2010, (ii) Consolidated Statements of Operations for the fiscal years ended May 28, 2011, May 29, 2010 and
May 30, 2009, (iii) Consolidated Statements of Cash Flows for the fiscal years ended May 28, 2011, May 29, 2010 and
May 30, 2009, and (iv) Notes to the Consolidated Financial Statements, tagged as blocks of text.**
**Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not
filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability
under those sections.
90 Herman Miller, Inc., and Subsidiaries
2011 Annual Report
© 2011 Herman Miller, Inc., Zeeland, Michigan Printed in U.S.A. on recycled paper P.MS2847-2
® Herman Miller and
All other registered trademarks and trademarks noted herein are the property of Herman Miller, Inc., 855 East Main Avenue,
PO Box 302, Zeeland, MI 49464-0302
are among the registered trademarks of Herman Miller, Inc., and its owned subsidiaries