Annual Report
2 1 4Y
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 31, 2014
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).
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 30, 2013, was $1,864,534,305 (based on
$31.91 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 24, 2014: Common stock, $.20 par value - 59,404,641 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 6, 2014, are incorporated into Part
III of this report.
Yes [__] No [ X ]
This page intentionally left blank.
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
Item 4 Mine Safety Disclosures
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
Exhibit Index
4
7
9
9
10
10
11
12
14
16
36
38
79
79
79
80
80
80
80
80
81
82
83
84
85
Herman Miller, Inc. and Subsidiaries 3
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 through independent contract office furniture dealers as well as the following channels: owned contract office furniture
dealers, direct customer sales, independent retailers, and the company's online store. Through research, the company seeks to define and
clarify customer needs and problems existing in its markets and to design, through innovation where appropriate and feasible, products, systems,
and services that serve as compelling solutions to such problems. Ultimately, the company seeks to create and enable inspiring designs, inventive
technologies, and strategic services that help people to do great things and organizations to perform at their best.
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 14 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, seating products,
other freestanding furniture elements, textiles, and related services. Most of these systems and products are designed to be used together.
The company's mission statement is "Inspiring Designs To Help People Do Great Things." The company's ingenuity and design excellence
creates award-winning products and services, which has made us a leader in design and development of furniture, furniture systems, and
textiles. This leadership is exemplified by the innovative concepts introduced by the company in its modular systems (including Canvas Office
Landscape™, Locale®, Metaform Portfolio™, Public Office Landscape™, Action Office®, Ethospace®, Resolve®, and My Studio
Environments™). The company also offers a broad array of seating (including Embody®, Aeron®, Mirra®, Mirra2™, Setu®, Sayl®, Celle®,
Equa®, and Ergon® office chairs), storage (including Meridian® and Tu™ products), wooden casegoods (including Geiger® products),
freestanding furniture products (including Abak®, Intent®, Sense™ and Envelop®), healthcare products (including Compass®, Nala®, and other
Nemschoff® products) the Thrive portfolio of ergonomic solutions, and the recently acquired textiles of Maharam Fabric Corporation (Maharam).
The company's products are marketed worldwide by its own sales staff, independent dealers and retailers, its owned dealer network, and via
its e-commerce website. Salespeople work with dealers, the architecture and design community, and directly with end-users. Independent
dealerships concentrate on the sale of Herman Miller products and some complementary product lines of other manufacturers. It is estimated
that approximately 80 percent of the company's sales in the fiscal year ended May 31, 2014, were made to or through independent dealers.
The remaining sales were made directly to end-users, including federal, state, and local governments, and several major corporations, by the
company's own sales staff, its owned dealer network, or independent retailers.
The company is a recognized leader within its industry for the use, development, and integration of customer-centered technologies that enhance
the reliability, speed, and efficiency of our customers' operations. This includes proprietary sales tools, interior design and product specification
software; order entry and manufacturing scheduling and production systems; and direct connectivity to the company's suppliers.
The company's furniture systems, seating, freestanding furniture, storage, casegood and textile products, and related services are used in (1)
institutional environments including offices and related conference, lobby, and lounge areas, and general public areas including transportation
terminals; (2) health/science environments including hospitals, clinics, and other healthcare facilities; (3) industrial and educational settings; and
(4) residential and other environments.
Raw Materials
The company's manufacturing materials are available from a significant number of sources within the United States, Canada, Europe, and Asia.
To date, the company has not experienced any difficulties in obtaining its raw materials. The costs of certain direct materials used in the company's
manufacturing and assembly operations are sensitive to shifts in commodity market prices. In particular, the costs of steel, plastic, aluminum
components, and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum, crude oil, lumber, and resins.
Increases in the market prices for these commodities can have an adverse impact on the company's profitability. Further information regarding
the impact of direct material costs on the company's financial results is provided in Management's Discussion and Analysis in Item 7 of this
report.
4 2014 Annual Report
Patents, Trademarks, Licenses, Etc.
The company has 108 active United States utility patents on various components used in its products and 49 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®, Maharam®, Geiger®, Nemschoff®, Action Office®, Ethospace®, Aeron®, Mirra®, Embody®,
Setu®, Sayl®, Eames®, PostureFit®, Meridian®, and Canvas Office Landscape®. It is estimated that the average remaining life of such patents
and trademarks is approximately 5 years and 6 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 5 percent of the company's net sales in the fiscal year ended May 31, 2014. It is
also estimated that the largest single end-user customer, the U.S. federal government, accounted for $102 million, $114 million and $164 million
of the company's net sales in fiscal 2014, 2013, and 2012, respectively. This represents approximately 5 percent, 6 percent and 9.5 percent of
the company's net sales in fiscal 2014, 2013, and 2012, respectively. The 10 largest customers accounted for approximately 23 percent, 23
percent, and 22 percent of net sales in fiscal 2014, 2013, and 2012, respectively.
Backlog of Unfilled Orders
As of May 31, 2014, the company's backlog of unfilled orders was $306.4 million. At June 1, 2013, the company's backlog totaled $274.4 million.
It is expected that substantially all the orders forming the backlog at May 31, 2014, 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 General Services Administration ("GSA") Multiple Award Schedule Contract
and through competitive bids. The GSA Multiple Award Schedule Contract pricing is principally based upon the company's commercial price list
in effect when the contract is initiated, rather than being determined on a cost-plus-basis. The company is required to receive GSA approval to
apply list price increases during the term of the Multiple Award Schedule Contract period.
Competition
All aspects of the company's business are highly competitive. The company competes largely on design, product and service quality, speed of
delivery, and product pricing. Although the company is one of the largest office furniture manufacturers in the world, it competes with manufacturers
that have significant resources and sales as well as many smaller companies. In the United States, the company's most significant competitors
are Haworth, HNI Corporation, Kimball International, Knoll, and Steelcase.
Research, Design and Development
The company draws great competitive strength from its research, design and development programs. Accordingly, the company believes that
its research and design activities are of significant importance. Through research, the company seeks to define and clarify customers and the
problems which they are trying to solve. The company designs innovative products and services that address customer needs and solve their
problems. The company uses both internal and independent research resources and independent design resources. Exclusive of royalty
payments, the company spent approximately $53.9 million, $48.3 million, and $41.0 million on research and development activities in fiscal
2014, 2013, and 2012, 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
We believe the environment is a cause every corporation should put high on its agenda. Ten years ago, we put into place a set of environmental
goals that included a zero operational footprint. We have sharpened our goals around the smart use of resources, eco-inspired design, and
becoming community driven. Our new 10-year sustainability strategy - Earthright - begins with three principles; positive transparency, products
as living things, and becoming greener together. Most important, we are finding new ways to involve more employees
Herman Miller, Inc. and Subsidiaries 5
and suppliers. Based on current facts known to management, the company does not believe that existing environmental laws and regulations
have had or will have any material effect upon the capital expenditures, earnings, or competitive position of the company. However, there can
be no assurance that 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 8.0 percent of
the company's employees are covered by collective bargaining agreements, most of whom are employees of its Nemschoff and Herman Miller
Ningbo subsidiaries.
As of May 31, 2014, the company employed 6,630 full-time and 162 part-time employees, representing a 16.2 percent increase and a 0.6 percent
increase, respectively, compared with June 1, 2013. The increase in employees was driven principally by our acquisition of the manufacturing
and distribution facilities in Dongguan, China, during fiscal 2014. Refer to Note 2 of the Consolidated Financial Statements for further information
regarding this acquisition. 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 Abak®, Aeron®, Mirra®, Celle®, Sayl®, Layout Studio®, and other seating and storage products (including POSH products).
The company conducts business in the following major international markets: Europe, Canada, the Middle East, Latin America, South America
and the Asia/Pacific region. In certain foreign markets, the company's products are offered through licensing of foreign manufacturers on a
royalty basis.
The company's products currently sold in international markets are manufactured by wholly owned subsidiaries in the United States, the United
Kingdom, and China. Sales are made through wholly owned subsidiaries or branches in Canada, France, Germany, Italy, Japan, Mexico,
Australia, Singapore, China, India, and the Netherlands. The company's products are offered in the Middle East, South America, and Asia through
dealers.
Additional information with respect to operations by geographic area appears in Note 14 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.
6 2014 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.
Sustained downturn in the economy could adversely impact our access to capital.
The recent disruptions in the global economic and financial markets 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 growth strategy for the business based on a changing and evolving world. Through this strategy we are positioning the
company to take advantage of existing markets, explore growth opportunities in new markets with supportive demographics, increase demand
by addressing unmet needs, and expanding into areas that yield higher prospects for margins and profitability.
We ultimately aspire to create a lifestyle brand, and we intend to grow in certain targeted ways. First, we will invest in areas that increase our
addressable markets across focused customer segments (such as healthcare, education, small and medium business, and consumer). Second,
we will expand into emerging geographic markets that offer growth potential based upon their supportive demographics. Third, we will continue
to invest in innovative products, which has been a hallmark of our success for many years. And finally, we will grow through targeted acquisitions.
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 and may involve the assumption of business, operational, or other risks that are new to our business.
Future efforts to expand our business within developing economies, particularly within China and India, may expose us to the effects of political
and economic instability. Such instability may impact our ability to compete for business. It may also put the availability and/or value of our
capital investments within these regions at risk. These expansion efforts expose us to operating environments with complex, changing, and in
some cases, inconsistently applied legal and regulatory requirements. Developing knowledge and understanding of these requirements poses
a significant challenge, and failure to remain compliant with them could limit our ability to continue doing business in these locations.
Pursuing our strategic 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.
Herman Miller, Inc. and Subsidiaries 7
Adverse economic and industry conditions could have a negative impact on our business, results of operations, and financial condition.
Customer demand within the contract office furniture industry is affected by various macro-economic factors; general corporate profitability,
white-collar employment levels, new office construction rates, and existing office vacancy rates are among the most influential factors. History
has shown that declines in these measures can have an adverse effect on overall office furniture demand. Additionally, factors and changes
specific to our industry, such as developments in technology, governmental standards and regulations, and health and safety issues can influence
demand. There are current and future economic and industry conditions, which could adversely affect our business, operating results, or financial
condition.
Other macroeconomic developments, such as the recent recessions in Europe, the debt crisis in certain countries in the European Union, and
the economic slow down in Asia could negatively affect the company's ability to conduct business in those geographies. The continuing debt
crisis in certain European countries could cause the value of the Euro to deteriorate, reducing the purchasing power of the company's European
customers and potentially undermine the financial health of the company's suppliers and customers in other parts of the world. Financial difficulties
experienced by the company's suppliers and customers, including distributors, could result in product delays and inventory issues; risks to
accounts receivable could result in delays in collection and greater bad debt expense.
Our business presence outside the United States exposes us to certain risks that could negatively affect our results of operations
and financial condition.
We have significant manufacturing and sales operations in the United Kingdom, which represents our largest marketplace outside the United
States. We also have manufacturing operations in China. Additionally, our products are sold internationally through wholly-owned subsidiaries
or branches in various countries including Canada, Mexico, Brazil, France, Germany, Italy, Netherlands, Japan, Australia, Singapore, China,
Hong Kong, and India. In certain other regions of the world, our products are offered primarily through independent dealerships.
Doing business internationally exposes us to certain risks, many of which are beyond our control and could potentially impact our ability to
design, develop, manufacture, or sell products in certain countries. These factors could include, but would not necessarily be limited to:
•
•
•
•
•
•
•
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, 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.
8 2014 Annual Report
Increasing competition for highly skilled and talented workers could adversely affect our business.
The successful implementation of our business strategy depends, in part, on our ability to attract and retain a skilled workforce. The increasing
competition for highly skilled and talented employees could result in higher compensation costs, difficulties in maintaining a capable workforce,
and leadership succession planning challenges.
Costs related to product defects could adversely affect our profitability.
We incur various expenses related to product defects, including product warranty costs, product recall and retrofit costs, and product liability
costs. These expenses relative to product sales vary and could increase. We maintain reserves for product defect-related costs based on
estimates and our knowledge of circumstances that indicate the need for such reserves. We cannot, however, be certain that these reserves
will be adequate to cover actual product defect-related claims in the future. Any significant increase in the rate of our product defect expenses
could have a material adverse effect on operations.
We are subject to risks associated with self-insurance related to health benefits.
We are self-insured for our health benefits and maintain per employee stop loss coverage; however, we retain the insurable risk at an aggregate
level. Therefore unforeseen or catastrophic losses in excess of our insured limits could have a material adverse effect on the company’s financial
condition and operating results. See Note 1 of the Consolidated Financial Statements for information regarding the company’s retention level.
Government and other regulations could adversely affect our business.
Government and other regulations apply to the sale of many of our products. Failure to comply with these regulations or failure to obtain approval
of products from certifying agencies could adversely affect the sales of these products and have a material negative impact on operating results.
Item 1B UNRESOLVED STAFF COMMENTS
None
Item 2 PROPERTIES
The company owns or leases facilities located throughout the United States and several foreign countries. The location, square footage, and
use of the most significant facilities at May 31, 2014 were as follows:
Owned Locations
Holland, Michigan
Spring Lake, Michigan
Zeeland, Michigan
Dongguan, China
Sheboygan, Wisconsin
Hildebran, North Carolina
Bath, United Kingdom
Leased Locations
Atlanta, Georgia
Chippenham, United Kingdom
Ningbo, China
Hong Kong, China
Yaphank, New York
Square
Footage
917,400
582,700
750,800
224,019
207,700
93,000
85,000
Square
Footage
176,700
100,800
94,700
104,402
92,000
Use
Manufacturing, Distribution, Warehouse, Design, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Distribution, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Office
Manufacturing, Office
Use
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Warehouse, Office
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 good condition and adequate for its design, production, distribution,
and selling requirements.
Herman Miller, Inc. and Subsidiaries 9
Item 3 LEGAL PROCEEDINGS
The company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome
of such proceedings and litigation currently pending will not materially affect the company’s consolidated operations, cash flows and financial
condition.
ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information relating to Executive Officers of the company is as follows.
Name
Gregory J. Bylsma
Steven C. Gane
Donald D. Goeman
Jeffrey L. Kurburski
Andrew J. Lock
H. Timothy Lopez
Louise McDonald
Curtis S. Pullen
Michael F. Ramirez
Jeffrey M. Stutz
Brian C. Walker
B. Ben Watson
Age
Year Elected an
Executive Officer
49
59
57
48
60
43
59
54
49
43
52
49
2009
2009
2005
2014
2003
2014
2013
2007
2011
2009
1996
2010
Position with the Company
Executive Vice President, Chief Financial Officer
Senior Vice President, President, Geiger & Specialty/Consumer
Executive Vice President, Research, Design & Development
Vice President, Information Technology
Executive Vice President, President, International
Senior Vice President, Legal Services and Secretary
Executive Vice President, President, Healthcare
Executive Vice President, President, North American Office and Learning
Environments
Senior Vice President, People, Places and Administration
Treasurer and Chief Accounting Officer
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. Kurburski joined Herman Miller in 1990. He served as Director of IT, Herman Miller Casegoods from 1998 to 2003, Director of IT Infrastructure
from 2003 to 2007, and has served in his current capacity of Vice President of Information Technology since 2007.
Mr. Lopez joined Herman Miller in 2012 and serves as Senior Vice President of Legal Services, General Counsel and Secretary. Prior to this
he was an Associate General Counsel with A. O. Smith Corporation from 2008 to 2012 and Senior Staff Attorney to Kohler Co. from 2002 to
2008.
Ms. McDonald joined Herman Miller in 2013 as President of Healthcare, and prior to this she worked for Welch Allyn for 31 years serving mostly
as an Executive Vice President.
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 2014 Annual Report
Item 4 MINE SAFETY DISCLOSURES - Not applicable
Herman Miller, Inc. and Subsidiaries 11
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 24, 2014, there were
approximately 20,000 record holders, including individual participants in security position listings, of the company's common stock.
Per Share and Unaudited
Year ended May 31, 2014:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Year ended June 1, 2013:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Market
Price
High
(at close)
Market
Price
Low
(at close)
Market
Price
Close
Earnings (loss)
Per Share-
Diluted (1)
Dividends
Declared Per
Share
$
$
$
$
29.13 $
31.91
30.95
32.43
32.43 $
20.24 $
21.73
24.96
28.17
28.17 $
25.47 $
25.56
26.47
27.83
25.47 $
16.35 $
18.58
20.61
23.58
16.35 $
25.47 $
31.91
28.18
31.27
31.27 $
19.56 $
21.12
24.20
28.11
28.11 $
0.38 $
(1.37)
0.33
0.28
(0.37) $
0.34 $
0.14
0.28
0.40
1.16 $
0.125
0.125
0.140
0.140
0.530
0.090
0.090
0.125
0.125
0.430
(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 2014 and 2013 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 31, 2014.
(c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
76 $
247,510 $
13,573 $
261,159
(d) Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet be
Purchased Under the
Plans or Programs (1)
158,747,587
150,725,365
150,311,218
Period
3/2/14-3/29/14
3/30/14-4/26/14
4/27/14-5/31/14
Total
(a) Total Number of
Shares (or Units)
Purchased
(b) Average Price
Paid
per Share or Unit
76
247,510
13,573
261,159
28.43
32.41
30.51
32.31
(1) Amounts are as of the end of the period indicated
12 2014 Annual Report
The company has a share repurchase plan authorized by the Board of Directors on September 28, 2007, which provided share repurchase
authorization of $300,000,000 with no specified expiration date.
No repurchase plans expired or were terminated during the fourth quarter of fiscal 2014.
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 31, 2014. The graph assumes an investment of $100 on May 31, 2009 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
2009
100 $
100 $
100 $
2010
137 $
119 $
128 $
2011
178 $
145 $
163 $
2012
132 $
139 $
164 $
2013
208 $
177 $
203 $
2014
232
209
253
$
$
$
Information required by this item is also contained in Item 12 of this report.
Herman Miller, Inc. and Subsidiaries 13
Item 6 SELECTED FINANCIAL DATA
Review of Operations
(In millions, except key ratios and per share data)
2014
2013
2012
2011
2010
Operating Results
Net sales
Gross margin
Selling, general, and administrative (8)
Design and research
Operating earnings (loss)
Earnings (loss) before income taxes
Net earnings (loss)
Cash flow from operating activities
Cash flow used in investing activities
Cash flow used in financing 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 (1)
Operating earnings (1)
Net earnings 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 (loss) 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
$
$
$
1,882.0
631.0
590.8
65.9
(25.7)
(43.4)
(22.1)
90.1
(48.2)
(22.4)
42.4
40.8
$
1,774.9
605.2
430.4
59.9
114.9
97.2
68.2
136.5
(209.7)
(16.0)
37.5
50.2
$
1,724.1
590.6
400.3
52.7
137.6
119.5
75.2
90.1
(58.4)
(1.6)
37.2
28.5
$
1,649.2
538.1
369.0
45.8
123.3
102.5
70.8
89.0
(31.4)
(50.2)
39.1
30.5
1,318.8
428.5
334.4
40.5
53.6
34.8
28.3
98.7
(77.6)
(78.9)
42.6
22.3
43.0
22.7
7.9
6.0
5.7
6.0 %
33.5
31.4
3.5
(1.4)
(132.4)
(1.2)
(2.3)
(6.4)%
2.9%
34.1
24.3
3.4
6.5
(9.3)
3.8
7.6
24.0%
4.5%
34.3
23.2
3.1
8.0
6.2
4.4
9.1
33.2%
25.1%
32.6
22.4
2.8
7.5
150.2
4.3
9.0
49.7%
$
(0.37)
0.53
6.27
31.27
59.0
$
1.16
0.43
5.44
28.11
58.8
$
1.29
0.09
4.25
17.87
58.5
$
1.06
0.09
3.53
24.56
57.7
$
$
$
$
$
946.5
109.3
1.4
839.1
201.6
1.8
990.9
145.7
1.3
Financial Condition
Total assets
Working capital (3)
Current ratio (2)
Interest-bearing debt and related swap
agreements
Stockholders' equity
Total capital (7)
(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 (loss) divided by net sales.
(5) Calculated as net earnings (loss) divided by average assets.
(6) Calculated as net earnings (loss) divided by average equity.
(7) Calculated as interest-bearing debt plus stockholders' equity.
(8) Selling, general, and administrative expenses includes restructuring and impairment expenses in years that are applicable.
250.0
248.3
498.3
250.0
319.5
569.5
250.0
205.0
455.0
250.0
372.1
622.1
808.0
205.9
1.8
14 2014 Annual Report
(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
Review of Operations
(In millions, except key ratios and per share data)
2009
2008
2007
2006
2005
$
$
$
Operating Results
Net sales
Gross margin
Selling, general, and administrative (8)
Design and research
Operating earnings
Earnings before income taxes
Net earnings
Cash flow from operating activities
Cash flow used in investing activities
Cash flow used in financing 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 (1)
Operating earnings (1)
Net earnings 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
Stockholders' equity
Total capital (7)
$
1,630.0
527.7
359.2
45.7
122.8
98.9
68.0
91.7
(29.5)
(16.5)
41.7
25.3
$
2,012.1
698.7
400.9
51.2
246.6
230.4
152.3
213.6
(51.0)
(86.5)
43.2
40.5
$
1,918.9
645.9
395.8
52.0
198.1
187.0
129.1
137.7
(37.4)
(131.5)
41.2
41.3
$
1,737.2
574.8
371.7
45.4
157.7
147.6
99.2
150.4
(47.6)
(151.4)
41.6
50.8
1,515.6
489.8
327.7
40.2
121.9
112.8
68.0
109.3
(40.1)
(106.6)
46.9
34.9
19.5
287.9
185.6
175.4
152.0
(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
$
$
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
$
$
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
$
$
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
$
$
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
Herman Miller, Inc. and Subsidiaries 15
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis
You should read the issues discussed in Management's Discussion and Analysis in conjunction with the company's Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements included in this Form 10-K.
Executive Overview
Herman Miller’s inspiring designs, inventive technologies and strategic services help people do great things and organizations to perform at
their best. At present, most of our customers come to us for interior environments in corporate office and healthcare settings. We also have a
growing presence in educational and consumer markets. Our primary products include furniture systems, seating, storage, freestanding
furniture, healthcare environment products, casegoods and textiles.
More than 100 years of innovative business practices and a commitment to social responsibility have established Herman Miller as a
recognized global company. A past recipient of the Smithsonian Institution's Cooper-Hewitt National Design Award, Herman Miller designs
can be found in the permanent collections of museums worldwide. In 2013, Herman Miller again received the Human Rights Campaign
Foundation’s top rating in its annual Corporate Equality Index and was named among the 50 Best U.S. Manufacturers by Industry Week.
Herman Miller is included in the Dow Jones Sustainability World Index.
Herman Miller's products are sold internationally through wholly-owned subsidiaries or branches in various countries including the United
Kingdom, Canada, France, Germany, Italy, Japan, Mexico, Australia, Singapore, China, Hong Kong, India, and the Netherlands. The company's
products are offered elsewhere in the world primarily through independent dealerships or joint ventures with customers in over 100 countries.
The company is globally positioned in terms of manufacturing operations. In the United States, the manufacturing operations are located in
Michigan, Georgia, Wisconsin and North Carolina. In Europe, the manufacturing presence is located within the United Kingdom. The
manufacturing operations in Asia include facilities located in Dongguan and Ningbo, China. The company manufactures products using a system
of lean manufacturing techniques collectively referred to as the Herman Miller Performance System (HMPS). Herman Miller strives to maintain
efficiencies and cost savings by minimizing the amount of inventory on hand. Accordingly, production is order-driven with direct materials and
components purchased as needed to meet demand. The standard lead time for the majority of our products is 10 to 20 days. These factors
result in a high rate of inventory turns and typically cause our inventory levels to appear relatively low compared to sales volume.
A key element of the company's manufacturing strategy is to limit fixed production costs by sourcing component parts from strategic suppliers.
This strategy has allowed the company to increase the variable nature of our cost structure while retaining proprietary control over those
production processes that we believe provide us a competitive advantage. As a result of this strategy, our manufacturing operations are largely
assembly-based.
The business is comprised of various operating segments as defined by generally accepted accounting principles in the United States (U.S.
GAAP). The operating segments are determined on the basis of how the company internally reports and evaluates financial information used
to make operating decisions. For external reporting purposes, the company has identified the following reportable segments:
•
•
•
North American Furniture Solutions — 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
North American Furniture Solutions reportable segment is the aggregation of two operating segments. In addition, the company has
determined that both operating segments within the North American Furniture Solutions reportable segment represent reporting units.
ELA Furniture Solutions — During fiscal 2014, the company renamed its international reportable business segment ELA Furniture
Solutions in order to better describe the geographic regions it serves, which include EMEA, Latin America, and Asia-Pacific. Prior to
this name change, the company referred to this segment as "Non-North America." ELA Furniture Solutions includes the operations
associated with the design, manufacture, and sale of furniture products, primarily for work-related settings, in these aforementioned
geographic regions
Specialty and Consumer — Includes the operations associated with the design, manufacture, and sale of high-end furniture products
and textiles including Geiger wood products, Maharam textiles, Herman Miller Collection products and the company's North American
consumer retail business.
The company also reports a corporate category consisting primarily of unallocated corporate expenses including restructuring and impairment
costs.
16 2014 Annual Report
Core Strengths
The company relies on the following core strengths in delivering workplace solutions to customers.
•
•
•
•
Brands - The Herman Miller brand is recognized by customers as a pioneer in design and sustainability, and as an advocate that
supports their needs and interests. Within the industries the company operates, Herman Miller, Nemschoff, Geiger, Maharam, POSH,
and Colbrook Bosson Saunders (CBS) are acknowledged as leading brands that inspire architects and designers to create their best
design solutions. Leveraging the company's brand equity across the lines of business to extend the company's reach to customers
and consumers is an important element of the company's business strategy.
Problem-Solving Design and Innovation - The company is committed to developing research-based functionality and aesthetically
innovative new products and has a history of doing so, in collaboration with a global network of leading independent designers. The
company believes its skills and experience in matching problem-solving design with the workplace needs of customers provides the
company with a competitive advantage in the marketplace. An important component of the company's business strategy is to actively
pursue a program of new product research, design, and development. The company accomplishes this through the use of an internal
research and engineering staff, engaging with third party design resources generally compensated on a royalty basis.
Operational Excellence - The company was among the first in our industry to embrace the concepts of lean manufacturing. HMPS
provides the foundation for all of our manufacturing operations. The company is committed to continuously improving both product
quality and production and operational efficiency. The company has extended this lean process work to its non-manufacturing processes
as well as externally to our manufacturing supply chain and distribution channel. The company believes these concepts hold significant
promise for further gains in reliability, quality and efficiency.
Building and Leading Networks - The company values relationships in all areas of the business. The company considers its network
of innovative designers, owned and independent dealers, and suppliers to be among the most important competitive factors and vital
to the long-term success of the business.
Channels of Distribution
The company's products and services are offered to most of its customers under standard trade credit terms between 30 and 45 days and are
sold through the following distribution channels.
•
•
•
•
•
Independent Contract Furniture Dealers - Most of the company's 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 the company's
products and distribute them to end customers. The company recognizes revenue on product sales through this channel once 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 31, 2014, the company owned 3 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. The company
recognizes revenue on these sales once products are shipped to the end customer and installation is substantially complete. The
company believes independent ownership of contract furniture dealers is generally the best model for a financially strong distribution
network. With this in mind, the company's strategy is to continue to pursue opportunities to transition the remaining owned dealerships
to independent owners. Where possible, the goal is to involve local managers in these ownership transitions.
Direct Customer Sales - The company also sells products and services directly to end customers without an intermediary (e.g. sales
to the U.S. federal government). In most of these instances, the company contracts separately with a dealership or third-party installation
company to provide sales-related services. The company recognizes 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 - The company sells products through its online store, in which products are available for sale via the company's website,
hermanmiller.com. This site complements our existing methods of distribution and extends the company's brand to new customers.
The company recognizes revenue on these sales upon shipment of the product.
Challenges Ahead
Like all businesses, the company is faced with a host of challenges and risks. The company believes its core strengths and values, which provide
the foundation for its strategic direction, have us well prepared to respond to the inevitable challenges the company will face in the future. While
the company is confident in its direction, the company acknowledges the risks specific to the business and industry. Refer to Item 1A for discussion
of certain of these risk factors.
Herman Miller, Inc. and Subsidiaries 17
Future Avenues of Growth
In spite of the risks and challenges it faces, the company believes it's well positioned to successfully pursue its mission: Inspiring designs to
help people do great things. To find opportunities for growth, at Herman Miller we're always examining the ways in which the world is changing
and evolving. This helps us better meet the needs of our customers and ultimately, to exceed their expectations. We have identified 3 areas of
fundamental social and technological change that are informing our business strategy.
•
•
•
Globalization & Demographics — Demographic shifts in the global workforce are significantly changing how and where value creation
happens. Not only will the millennial generation overtake the majority representation of the workforce by 2015, but economies that
once relied on industrial production are increasingly becoming driven by knowledge work.
Inherently Global & Seamlessly Digital — The ubiquity of technology allows people to connect with other people, content, work,
businesses, and ideas wherever and whenever they want. This means the way people work is changing, where people work is changing,
and how people work with each other is changing.
The Era of Ideas — With the ongoing optimization of industrial production and information sharing, the demand for more innovative
business solutions increases. The global focus of work is shifting to the successful generation and deployment of new ideas. As
creativity and idea generation drive greater value - people, not process, provide the distinguishing capability. In this shift, workplaces
are fundamentally changing from standardized and process-driven designs to diverse places that harness human capability, creativity,
and relationships.
We have developed a strategy to grow our business by shifting our focus in four fundamental ares in response to these changes. Through
these shifts we are positioning the company to take advantage of existing markets, explore growth opportunities in new markets with
supportive demographics, increase demand by addressing unmet needs, and expanding into areas that yield higher prospects for margins
and profitability. The four fundamental shifts are described below:
•
•
•
•
From Product Centric to Solutions — The first strategic shift is to move from a product centric focus to one based upon delivering
broader solutions to our customers. Herman Miller is retooling its core business to speak to customers with fresh insights, to spur new
demand, and to change the game with unique solutions and services.
From North America Centric to Global — The second shift in our strategy aims to transform the business into a truly global organization.
Herman Miller has a solid existing customer base, but we see fantastic opportunity in emerging markets with supportive demographics.
We’re positioning ourselves to take maximum advantage of these shifts.
From The Office to Everywhere — We describe the third fundamental strategic shift as moving from the office to everywhere. Herman
Miller envisions continued leadership and viability in the contract furniture industry, but also sees distinct targeted opportunities through
focused market segmentation. We envision a total offering for customers to enable “a lifestyle of purpose.”
From Industry brand to Industry + Consumer brand — The fourth shift in our strategy involves our ambition to expand the connection
of our powerful brand more directly with the consumers of our products. With a legacy of decades of design leadership, Herman Miller
is a brand that people desire and want to know. We envision a business that harnesses our brand vision to pull consumers to us.
We ultimately aspire to create a lifestyle brand, and we intend to grow in targeted ways. First, we will invest in areas that increase our addressable
markets across focused customer segments (such as healthcare, education, small and medium business, and consumer). Second, we will
expand into emerging geographic markets that offer growth potential based upon their supportive demographics. Third, we will continue to invest
in innovative products, which has been a hallmark of our success for many years. And finally, we will grow through targeted acquisitions.
Industry Analysis
The Business and Institutional Furniture Manufacturer's Association (BIFMA) is the trade association for the U.S. domestic office furniture
industry. The company monitors the trade statistics reported by BIFMA and considers them an indicator of industry-wide sales and order
performance. BIFMA publishes statistical data for the contract segment and the office supply segment within the U.S. furniture market. The U.S.
contract segment relates primarily to large to mid-size corporations installed via a network of dealers. The office supply segment relates primarily
to smaller customers via wholesalers and retailers. The company primarily participates, and is a leader in, the contract segment. The company's
diversification strategy lessens our dependence on the U.S. office furniture market.
The company also analyzes BIFMA statistical information as a benchmark comparison against the performance of the domestic U.S. business
and also to that of competitors. The timing of large project-based business may affect comparisons to this data in any one period. Finally, BIFMA
regularly provides its members with industry forecast information, which the company uses internally as one of several considerations in its
short and long-range planning process.
Looking forward, the general economic outlook for our industry in the U.S. is expected to be positive. BIFMA issued its most recent report in
May 2014, which forecasts that the growth rate of office furniture orders in the U.S. will be 4.9 percent and 9.5 percent in calendar 2014 and
2015, respectively, while the growth rate of shipments will be 4.8 percent and 8.8 percent for calendar 2014 and 2015, respectively. This forecasted
growth is based on an improvement in the U.S. economy, primarily driven by an improvement in employment and non-residential construction.
18 2014 Annual Report
Discussion of Business Conditions
We finished fiscal 2014 with net sales of $1,882.0 million, which is an increase of 6.0 percent from fiscal 2013. The largest contributor to the
growth in sales during the year was the recent acquisition of Maharam, which continues to prove its strategic value and operational excellence.
Compared to the prior fiscal year, Maharam provided additional sales of approximately $96.5 million to our fiscal 2014 results. In addition to the
integration and strong performance of Maharam, we made significant progress in a number of other important areas, including acquiring the
manufacturing capabilities of POSH - our Chinese affiliate, continuing to build momentum on our Living Office initiative, and completing our plan
to reduce balance sheet volatility by restructuring our retirement plans.
This year marked an important strategic step in expanding our international market coverage and fulfillment capability by completing the acquisition
of a manufacturing and distribution operation in Dongguan, China. Going forward, this provides us with expanded operational capabilities and
an established workforce of more than 850 employees to serve China and greater Asia. We also furthered our shift to solution-centered
environments through the advancement of our Living Office initiative. At NeoCon, we displayed our Living Office, earning the International Interior
Design Association’s award for best large showroom. We also contributed approximately $48.8 million in order to complete the termination of
our domestic defined benefit pension plan, improving the health of our balance sheet and giving us greater control and visibility of retirement
plan costs to make further strategic investments and return more cash to our shareholders. To that end, we increased our quarterly shareholder
dividend by 12% to $0.14 per share during the third quarter of fiscal 2014. This represented the third such action in the past two years, over
which time we’ve raised the dividend payout by more than 500%. In spite of the increased spending related to the strategic initiative surrounding
the pension termination, we delivered solid cash flows from operations of $90.1 million for fiscal 2014.
The results for fiscal 2014 reflect restructuring and impairment charges of $26.5 million. Of this amount, $21.4 million related to the impairment
of intangible asset values associated with our Nemschoff and POSH trade names. This partial write-down of asset carrying values was required
based upon our assessment of forecasted sales and earnings performance for these businesses - both of which continue to grow and contribute
profits, though not to levels initially forecasted at their respective acquisition dates. It is important to note that the purchase consideration for
both the POSH and Nemschoff acquisitions included forms of contingent consideration that decreased in value significantly, subsequent to their
respective acquisition dates. This resulted in net purchase consideration that was markedly lower than the initial purchase accounting would
have indicated for both POSH and Nemschoff. In short, the impairment expenses were largely offset by cumulative life-to-date reductions in the
amounts potentially owed under the contingent consideration provisions.
Our North American Furniture Solutions segment continued to experience headwinds from reductions in U.S. federal government spending, as
fiscal 2014 sales were lower than fiscal 2013 sales by approximately $12.0 million. However, U.S. federal government orders for the third and
fourth quarters both showed year over year improvements, which was clearly a welcome sign to the business.
ELA Furniture Solutions experienced mixed demand in its markets, with strong sales in Europe, particularly the United Kingdom (U.K.), as well
as Latin America. This was partially offset by lagging sales in the Asia Pacific region. Overall, we are generally encouraged by the improving
fundamentals in Europe and parts of Asia, as well as the opportunities that we are seeing in Mexico and greater Latin America.
Our Specialty and Consumer segment posted solid sales growth this fiscal year, driven principally by Maharam. However, sales for the segment
grew organically as well, through the continued growth of Herman Miller Collection and our consumer focused business, which sells through
independent retail distributors and our own e-commerce platforms. The investments we've made in the continued development of our channels
to market, including the investment in our online marketing and fulfillment capabilities, have been a primary factor in this growth.
Subsequent to the end of the fiscal year, we made a significant move in expanding our reach into the consumer market with the acquisition of
Design Within Reach, Inc. The transaction closed on July 28, 2014 and additional information is available in Note 18 to the Consolidated Financial
Statements.
As we head into fiscal year 2015, there are a number of encouraging signs within the macroeconomic environment of the business. In North
America, we are encouraged by what continues to be a generally improving economic backdrop that is highlighted by healthy service sector
employment levels, stabilizing U.S. federal government demand, positive trends in non-residential construction, and an improvement in the AIA
Architecture Billings Index. Internationally the picture also appears to be improving, with more encouraging signals from the UK and Europe and
greater stability in parts of Asia. Of course there are still areas of concern, particularly given the unfolding geopolitical events in the Ukraine and
more recently the Middle East. In total, however, we appear to be in a period of improving industry dynamics and are optimistic about the overall
direction and momentum of the business.
Herman Miller, Inc. and Subsidiaries 19
Reconciliation of Non-GAAP Financial Measures
This report contains Adjusted operating earnings measures and Adjusted earnings per share – diluted that are Non-GAAP financial measures.
Adjusted operating earnings and Adjusted earnings per share – diluted are calculated by excluding from Operating earnings and Earnings per
share – diluted items that we believe are not indicative of our ongoing operating performance. Such items consist of the following:
•
•
•
•
•
Expenses associated with restructuring actions taken to adjust our cost structure to the current business climate
Transition-related expenses, including amortization and settlement expenses, relating to defined benefit pension plans that we
have terminated
Increases in cost of sales related to the fair value step-up of inventories acquired
Non-cash impairment expenses, and
Changes in contingent consideration
We present Adjusted operating earnings and Adjusted earnings per share – diluted because we consider them to be important supplemental
measures of our performance and believe them to be useful in analyzing ongoing results from operations. Adjusted operating earnings and
Adjusted earnings per share – diluted are not measurements of our financial performance under GAAP and should not be considered an
alternative to Operating earnings (loss) and Earnings (loss) per share – diluted under GAAP. Adjusted operating earnings and Adjusted earnings
per share – diluted have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as
reported under GAAP. In addition, in evaluating Adjusted operating earnings and Adjusted earnings per share – diluted, you should be aware
that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted operating earnings and
Adjusted earnings per share – diluted should not be construed as an indication that our future results will be unaffected by unusual or infrequent
items. We compensate for these limitations by providing prominence of our GAAP results and using Adjusted operating earnings and Adjusted
earnings per share – diluted only as a supplement.
The following table reconciles Operating earnings (loss) to Adjusted operating earnings for the years indicated.
(Dollars In millions)
Operating earnings (loss)
Percentage of net sales
Add: Restructuring and impairment expense
Add: Inventory step-up
Add: Legacy pension expenses (1)
Less: POSH contingent consideration
Adjusted operating earnings
Percentage of net sales
$
$
Fiscal Year Ended
May 31, 2014
June 1, 2013
$
(25.7)
(1.4)%
26.5
1.4
164.4
(2.6)
164.0
8.7 %
$
114.9
6.5%
1.2
—
28.2
—
144.3
8.1%
The following table reconciles Earnings (loss) per share – diluted to Adjusted earnings per share – diluted for the years indicated.
Fiscal Year Ended
May 31, 2014
June 1, 2013
Earnings (loss) per share – diluted
Add: Restructuring and impairment expense
Add: Inventory step-up
Add: Legacy pension expenses (1)
Less: POSH contingent consideration
Adjusted earnings per share – diluted
$
$
(0.37) $
0.32
0.01
1.76
(0.04)
1.68 $
1.16
0.01
—
0.30
—
1.47
(1) At the end of fiscal 2012, the company modified the asset allocations strategy of its U.S. defined benefit pension plans. This change was
made in response to the decision to close and ultimately terminate these plans. Legacy pension expenses are included as an adjustment to
Operating earnings (loss) and Earnings (loss) per share – diluted only in periods subsequent to this change in allocation.
20 2014 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 (loss)
Net other expenses
Earnings (loss) before income taxes
Income tax expense (benefit)
Equity income (loss) from
nonconsolidated affiliates, net of tax
Net earnings (loss)
Fiscal 2014
52 weeks
% Change
from 2013
Fiscal 2013
52 weeks
% Change
from 2012
Fiscal 2012
53 weeks
$
$
1,882.0
1,251.0
631.0
656.7
(25.7)
17.7
(43.4)
(21.2)
0.1
(22.1)
6.0 % $
7.0 %
4.3 %
33.9 %
(122.4)%
— %
(144.7)%
(173.4)%
200.0 %
(132.4)% $
1,774.9
1,169.7
605.2
490.3
114.9
17.7
97.2
28.9
(0.1)
68.2
2.9 % $
3.2 %
2.5 %
8.2 %
(16.5)%
(2.2)%
(18.7)%
(34.8)%
— %
(9.3)% $
1,724.1
1,133.5
590.6
453.0
137.6
18.1
119.5
44.3
—
75.2
The following table presents, for the periods indicated, the components of the company's Consolidated Statements of Comprehensive Income
as a percentage of net sales.
Net sales
Cost of sales
Gross margin
Selling, general, and administrative expenses
Restructuring and impairment expenses
Design and research expenses
Total operating expenses
Operating earnings (loss)
Net other expenses
Earnings (loss) before income taxes
Income tax expense (benefit)
Net earnings (loss)
Fiscal 2014
Fiscal 2013
Fiscal 2012
100.0%
66.5
33.5
30.0
1.4
3.5
34.9
(1.4)
0.9
(2.3)
(1.1)
(1.2)
100.0%
65.9
34.1
24.2
0.1
3.4
27.6
6.5
1.0
5.5
1.6
3.8
100.0%
65.7
34.3
22.9
0.3
3.1
26.3
8.0
1.0
6.9
2.6
4.4
Net Sales, Orders, and Backlog - Fiscal 2014 Compared to Fiscal 2013
For the fiscal year ended May 31, 2014, consolidated net sales increased $107.1 million to $1,882.0 million from $1,774.9 million for the fiscal
year ended June 1, 2013. The acquisition of Maharam Fabric Corporation (Maharam) increased net sales by approximately $96.5 million versus
the prior fiscal year. The impact of dealer divestitures throughout fiscal 2014 had the effect of reducing sales approximately $25.6 million compared
to fiscal 2013. The overall impact of foreign currency changes for the fiscal year was to decrease net sales by approximately $8.9 million. The
company has also experienced a $12 million decrease in sales volumes to the U.S. federal government as compared to fiscal 2013. The impact
of net changes in pricing is estimated to have had a $10.5 million increase on net sales during fiscal 2014. The remaining increase compared
to fiscal 2013 was driven by increased volumes. The increase in volumes was not driven by any single factor, but rather, was due mainly to an
improvement in general economic factors, primarily in the North America and ELA business segments.
Herman Miller, Inc. and Subsidiaries 21
The following table presents the quantification of the changes in net sales from fiscal 2013 to fiscal 2014.
(In millions)
Fiscal 2013 Net sales
Maharam acquisition
Dealer divestitures
Impact from foreign currency
Net changes in pricing
U.S. federal government volumes
Change in sales - general
Fiscal 2014 Net sales
$
$
1,774.9
96.5
(25.6)
(8.9)
10.5
(12.0)
46.6
1,882.0
Consolidated net trade orders for fiscal 2014 totaled $1,917.7 million compared to $1,771.6 million in fiscal 2013, an increase of 8.2 percent.
Order rates began the year at a steady pace with orders averaging approximately $36 million per week for the first quarter and $39 million per
week for the second quarter. For the third quarter, weekly order rates decreased back down to average approximately $36 million per week,
which is consistent with the company's typical seasonal slowdown. The fourth quarter finished the year with average weekly order rates increasing
to approximately $37 million. The weekly order pacing in the third quarter and the fourth quarter of fiscal 2014 was impacted by the price increase
that was announced during the third quarter. This caused approximately $22 million of orders that otherwise would have been entered in the
fourth quarter, to be entered in the third quarter. When adjusting for this impact, the weekly pacing of orders for the third quarter and fourth
quarter was $34 million per week and $39 million per week, respectively. The overall impact of foreign currency changes for the fiscal year
decreased net orders by approximately $9.6 million.
Our backlog of unfilled orders at the end of fiscal 2014 totaled $306.4 million, a 11.7 percent increase from the $274.4 million of backlog at the
end of fiscal 2013.
BIFMA reported an estimated year-over-year increase in U.S. office furniture shipments of approximately 1.2 percent for the twelve-month period
ended May 2014. By comparison, the net sales increased for the company's domestic U.S. business by approximately 3.0 percent. The company
believes that while comparisons to BIFMA are important, the company continues to pursue a strategy of revenue diversification that makes us
less reliant on the drivers that impact BIFMA.
Net Sales, Orders, and Backlog - Fiscal 2013 Compared to Fiscal 2012
For the fiscal year ended June 1, 2013, consolidated net sales increased 2.9 percent to $1,774.9 million from $1,724.1 million for the fiscal year
ended June 2, 2012. The acquisitions of Maharam on April 29, 2013 and Sun Hing POSH Holdings Limited (POSH) on April 3, 2012 increased
fiscal 2013 net sales approximately $56.6 million. The impact of dealer divestitures in the second quarter of fiscal 2012 and the third quarter of
fiscal 2013 had the effect of reducing sales approximately $10 million compared to fiscal 2012. The overall impact of foreign currency changes
for the fiscal year was to decrease net sales by approximately $8 million. The year ended June 2, 2012 contained 53 weeks. An extra week in
the company's fiscal year is required approximately every six years in order to realign its fiscal calendar-end dates with the actual calendar
months. The additional week in Fiscal 2012 is estimated to have increased net sales $32 million. The company also experienced a $50 million
decrease in sales volumes to the U.S. federal government as compared to fiscal 2012. The impact of net changes in pricing is estimated to
have had a $5.0 million increase on net sales during fiscal 2013. The remaining increase compared to fiscal 2012 was driven by increased
volumes. The increase in volumes was not driven by any single factor, but rather, was generally attributable to overall improvements in the
economic environment in which the company operates, primarily in North America as these increases were attributable to the North American
Furniture Solutions and Specialty and Consumer reportable segments.
22 2014 Annual Report
The following table presents the quantification of the changes in net sales from fiscal 2012 to fiscal 2013.
(In millions)
Fiscal 2012 Net sales
Acquisitions and divestitures
Maharam acquisition
POSH acquisition
Dealer divestitures
Impact from foreign currency
Net changes in pricing
Extra week in fiscal 2012
U.S. federal government volumes
Change in sales - general
Fiscal 2013 Net sales
$
1,724.1
10.6
46.0
(10.0)
(8.0)
5.0
(32.0)
(50.0)
89.2
$
1,774.9
Consolidated net trade orders for fiscal 2013 totaled $1,771.6 million compared to $1,725.7 million in fiscal 2012, an increase of 2.7 percent.
Order rates began the year at a steady pace with orders averaging approximately $36 million per week through the second quarter. The third
quarter weekly order rates averaged approximately $29 million per week, which is consistent with the company's typical seasonal slowdown.
The fourth quarter finished the year with average weekly order rates increasing to approximately $35 million. The overall impact of foreign
currency changes for the fiscal year decreased net orders by approximately $8.4 million.
Our backlog of unfilled orders at the end of fiscal 2013 totaled $274.4 million, a 1.3 percent decrease from the $278.0 million of backlog at the
end of fiscal 2012.
BIFMA reported an estimated year-over-year decrease in U.S. office furniture shipments of approximately 0.6 percent for the twelve-month
period ended May 2013. By comparison, the net sales increased for the company's domestic U.S. business by approximately 0.8 percent. The
company believes that while comparisons to BIFMA are important, the company continues to pursue a strategy of revenue diversification that
makes us less reliant on the drivers that impact BIFMA.
Gross Margin - Fiscal 2014 Compared to Fiscal 2013
Fiscal 2014 gross margin as a percentage of sales was 33.5 percent, which is a decrease of 60 basis points from the fiscal 2013 level. Gross
margin in 2014 was reduced by 250 basis points due to the termination of the company's primary domestic defined benefit pension plan. The
total fiscal 2014 expense included within gross margin related to the terminated plan was $51.3 million. Of this expense, $49.3 million was
settlement expense related to the termination of the plan.
The decrease in gross margin from incremental pension expenses was offset by increases related to the acquisition of Maharam (100 basis
points), the benefit captured from price increases - net of incremental discounting (40 basis points), and the impact of in-sourcing (60 basis
points).
The following table presents, for the periods indicated, the components of the company's cost of sales as a percentage of net sales.
Fiscal Year Ended
Direct materials
Direct labor
Manufacturing overhead
Manufacturing overhead - excluding legacy pension
Legacy pension impact on manufacturing overhead
Total manufacturing overhead
Freight and distribution
Cost of sales
May 31, 2014
June 1, 2013
Change
41.3%
6.4
10.1
2.7
12.8
6.0
66.5%
42.7%
6.4
10.6
0.2
10.8
6.0
65.9%
(1.4)%
—
(0.5)
2.5
2.0
—
0.6 %
Direct material costs as a percent of net sales for fiscal 2014 decreased 140 basis points as compared to fiscal 2013. The favorable impact
related to product in-sourcing, price increases - net of incremental discounting, commodity pricing, and the acquisition of Maharam, had the
Herman Miller, Inc. and Subsidiaries 23
effect of improving the direct material cost percentage by 60 basis points, 20 basis points, 10 basis points, and 10 basis points, respectively.
The remaining decrease is related to favorable impact of changes in the product and channel mix compared to the prior year.
Direct labor was 6.4 percent of net sales for fiscal 2014, unchanged from the prior year. The direct labor costs as a percentage of net sales was
impacted by a 30 point basis point decrease related to the acquisition of Maharam, offset by the overall unfavorable impact of product mix.
Manufacturing overhead was 12.8 percent of net sales for fiscal 2014, an increase of 200 basis points from the prior year. Overhead costs in
fiscal 2014 included the impact of the previously mentioned pension termination, which drove an increase in overhead costs of $47.2 million or
250 basis points. This increase was offset by a 50 basis point decrease related to the acquisition of Maharam.
Freight and distribution expenses, as a percentage of sales, was 6.0 percent for fiscal 2014 and were flat compared to the prior year.
Gross Margin - Fiscal 2013 Compared to Fiscal 2012
Fiscal 2013 gross margin as a percentage of sales was 34.1 percent which is a decrease of 20 basis points from the fiscal 2012 level. The
benefit captured from price increases net of incremental discounting had the affect of increasing gross margin by approximately 30 basis points.
This benefit drove an increase in net sales of approximately $5 million during fiscal 2013 relative to the prior year period. An improvement in
pricing net of incremental discounting increases net sales relative to prior periods. This has the effect of decreasing the components of the
Consolidated Statements of Comprehensive Income as a percentage of net sales.
The following table presents, for the periods indicated, the components of the company's cost of sales as a percentage of net sales.
Fiscal Year Ended
Direct materials
Direct labor
Manufacturing overhead
Freight and distribution
Cost of sales
June 1, 2013
June 2, 2012
Change
42.7%
6.4
10.8
6.0
65.9%
42.2%
6.6
10.9
6.0
65.7%
0.5%
(0.2)
(0.1)
—
0.2%
Direct material costs as a percent of net sales increased 50 basis points as compared to fiscal 2012. The material costs as a percent of net
sales was impacted by approximately a 30 basis point increase related to the acquisition of POSH. Offsetting this increase were favorable
impacts from lower commodity costs of 30 basis points. The remaining increase is related to unfavorable impact of changes in the product and
channel mix compared to the prior year.
Direct labor was 6.4 percent of net sales for fiscal 2013, a decrease of 20 basis points from the prior year. The decrease is primarily related to
a change in product mix compared to fiscal 2012.
Manufacturing overhead was 10.8 percent of net sales for fiscal 2013; decreasing 10 basis points from the prior year. Overhead costs in fiscal
2013 included approximately $4.1 million of legacy pension expenses related to the transition from (and planned termination of) the domestic
defined benefit pension plans, accounting for a 20 basis point increase in overhead as a percent of net sales. Overhead costs as a percent of
net sales were also increased by approximately 10 basis points due to higher employee incentive costs. The remaining change in was primarily
related to a change in product mix compared to fiscal 2012.
Freight and distribution expenses, as a percentage of sales, was 6.0 percent for fiscal 2013 and were flat compared to the prior year.
Operating Expenses - Fiscal 2014 Compared to Fiscal 2013
Operating expenses in fiscal 2014 were $656.7 million, or 34.9 percent of net sales, which compares to $490.3 million, or 27.6 percent of net
sales in fiscal 2013. The increase in operating expenses primarily relates to legacy pension expenses of $89.0 million. The acquisition of Maharam
contributed an additional $48.2 million of operating expenses. The impact of dealer divestitures had the effect of reducing operating expenses
approximately $7.9 million compared to fiscal 2013. In addition, design and research expenses increased $4.0 million. Warranty expenses for
the year were lower by approximately $3.2 million, primarily due to lower customer specific claims. The company recorded approximately $4.3
million more employee incentive expenses during fiscal 2014 compared to the prior year period. Also, operating expenses were impacted
favorably in the current year by the reduction of contingent consideration from the acquisition of POSH in the amount of $2.6 million. The
remaining change was due to net increases in various other operating expenses compared to the prior year period.
Year-over-year changes in currency exchange rates, associated with the company's international operations, decreased operating expenses
by an estimated $2.3 million.
24 2014 Annual Report
Design and research costs included in total operating expenses for fiscal 2014 were $65.9 million, or 3.5 percent of net sales, compared to fiscal
2013 expenses of $59.9 million, or 3.4 percent of net sales. This increase was primarily driven by the company's increased investment in various
projects. Royalty payments for the company products, which are included within design and research costs, totaled $12.0 million and $11.6
million in fiscal years 2014 and 2013, respectively.
Restructuring and Impairment - Fiscal 2014 and Fiscal 2013
Restructuring and impairment charges increased $25.3 million from fiscal 2013 to fiscal 2014 to $26.5 million. Restructuring and impairment
expenses included $1.1 million related to restructuring actions taken to improve the efficiency of the North American sales and distribution
channel and Geiger manufacturing operations, $21.4 million in impairment expenses related to the impairment of the POSH and Nemschoff
trade names, and $4.0 million related to the impairment of property in Ningbo, China. The company incurred $1.2 million of restructuring expenses
in fiscal 2013, all of which related to its 2012 Plan. The 2012 Plan represents the restructuring actions initiated in fiscal 2012 to consolidate the
Nemschoff manufacturing operations in Sheboygan, Wisconsin with the closure of the Sioux City, Iowa seating plant. These restructuring
expenses consisted of $0.3 million related to severance and the $0.9 million related to building exit costs.
During fiscal 2012, the company incurred restructuring expense of $1.6 million of which $0.2 million related to severance and $1.4 million related
to impairment of building and equipment. In addition, the company recorded impairment of $3.8 million for the indefinite-lived intangible assets
related to two healthcare trade names that were terminated during the fourth quarter of fiscal 2012. The impairment was the result of the
company’s strategy to reduce its portfolio of healthcare brands and begin marketing the related products under the Nemschoff trade name.
The restructuring liabilities of $0.4 million and $0.2 million for fiscal years 2014 and 2013, respectively, are included in, "Accrued liabilities" within
the Consolidated Balance Sheet.
See Note 16 of the Consolidated Financial Statements for additional information on restructuring and impairment expenses.
The following table presents the quantification of the changes in total operating expenses from fiscal 2013 to fiscal 2014.
(In millions)
Fiscal 2013 Operating expenses
$
490.3
Selling, general & administrative change
Acquisitions and divestitures
Maharam acquisition
Dealer divestitures
Contingent consideration change
Legacy pension expenses
Warranty
Marketing and selling
Employee incentive costs
Impact from foreign currency
Other
Restructuring and impairment change
Design and research change
Fiscal 2014 Operating expenses
48.2
(7.9)
(2.6)
89.0
(3.2)
(0.3)
4.3
(2.3)
11.9
25.3
4.0
$
656.7
Operating Expenses - Fiscal 2013 Compared to Fiscal 2012
Operating expenses in fiscal 2013 were $490.3 million, or 27.6 percent of net sales, which compares to $453.0 million, or 26.3 percent of net
sales in fiscal 2012. The company experienced a year-over-year increase in operating expense dollars of $37.3 million, and a 130 basis point
increase to operating expenses as a percentage of net sales. The increase in operating expenses primarily relates to the legacy pension expenses
of $24.1 million. The acquisitions of POSH and Maharam contributed an additional $7.0 million and $4.7 million of operating expenses, respectively.
The impact of dealer divestitures had the effect of reducing operating expenses approximately $4.5 million compared to fiscal 2012. In addition,
design and research expenses increased $7.2 million. Fiscal 2012 also included an extra week of operations, which drove approximately $3
million in additional compensation expense compared to fiscal 2013. Warranty expenses for the year were lower by approximately $6 million,
primarily due to lower customer specific claims and changes in estimate in the prior year related to higher warranty claims loss experience which
drove additional expense of approximately $5 million in fiscal 2012. The company recorded approximately $3 million more employee incentive
Herman Miller, Inc. and Subsidiaries 25
expense during fiscal 2013 compared to the prior year period. The remaining change was due to net increases in various other operating
expenses compared to the prior year period.
Year-over-year changes in currency exchange rates, associated with the company's international operations, decreased operating expenses
by an estimated $2 million.
Design and research costs included in total operating expenses for fiscal 2013 was $59.9 million, or 3.4 percent of net sales, compared to fiscal
2012 expenses of $52.7 million, or 3.1 percent of net sales. This increase was primarily driven by the company's increased investment in various
projects. Royalty payments for the company products, which are included within design and research costs, totaled $11.6 million and $11.7
million in fiscal years 2013 and 2012, respectively.
The following table presents the quantification of the changes in total operating expenses from fiscal 2012 to fiscal 2013.
(In millions)
Fiscal 2012 Operating expenses
$
453.0
Selling, general & administrative change
Acquisitions and divestitures
Maharam acquisition
POSH acquisition
Dealer divestitures
Legacy pension expenses
Warranty
Marketing and selling
Employee incentive costs
Impact from foreign currency
Extra week in fiscal 2012
Other
Restructuring and impairment change
Design and research change
Fiscal 2013 Operating expenses
Operating Earnings (Loss)
4.7
7.0
(4.5)
24.1
(6.0)
3.5
3.0
(2.0)
(3.0)
7.5
(4.2)
7.2
$
490.3
In fiscal 2014, the company generated an operating loss of $25.7 million, a decrease of $140.6 million from fiscal 2013 operating earnings of
$114.9 million. This decrease was attributable to legacy pension expenses of $164.4 million and restructuring and impairment expenses of $26.5
million. The fiscal 2013 operating earnings of $114.9 million represented a 16.5 percent decrease from fiscal 2012 operating earnings of $137.6
million. This decrease was driven by legacy pension costs of $28.2 million.
Other Expenses and Income
Net other expenses were flat in fiscal 2014 as compared to fiscal 2013, totaling $17.7 million for each year. For fiscal 2012, net other expenses
were $18.1 million. The decrease in net other expenses in fiscal 2013 as compared to fiscal 2012 was primarily related to an increase in
investment income during fiscal 2013.
Income Taxes
The company's effective tax rate was 48.9 percent in fiscal 2014 versus 28.9 percent in fiscal 2013 and 37.1 percent in fiscal 2012. The effective
tax rate in fiscal 2014 was above the statutory rate of 35 percent, primarily due to a shift in the relative mix of income and loss between the
taxing jurisdictions. This change in mix was driven primarily by legacy pension expenses recorded in fiscal 2014.
The effective tax rate in fiscal 2013 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing deduction and
international tax rate differential. The effective tax rate in fiscal 2012 was above the statutory rate of 35 percent, primarily due to a lower than
anticipated manufacturing deduction, non-deductible expenses associated with contingent purchase consideration, and other adjustments
required to reconcile income tax expense with the tax return of a foreign subsidiary.
For further information regarding income taxes, refer to Note 10 of the Consolidated Financial Statements.
26 2014 Annual Report
Net Earnings (Loss); Earnings (Loss) per Share
In fiscal 2014, fiscal 2013, and fiscal 2012, we generated a net loss of $22.1 million, net earnings of $68.2 million, and net earnings of $75.2
million, respectively. In fiscal 2014, diluted loss per share was $(0.37), while diluted earnings per share in fiscal 2013 were $1.16 and $1.29 in
fiscal 2012.
Discussion of Segments - Fiscal 2014 Compared to Fiscal 2013
North America
Net sales within the North American Furniture Solutions (North America) reportable segment decreased to $1,216.3 million in fiscal 2014, a
decrease of $5.6 million from fiscal 2013 net sales of $1,221.9 million. The impact of dealer divestitures in fiscal 2014 had the effect of reducing
sales approximately $25.6 million compared to fiscal 2013. The impact of foreign currency changes was to decrease fiscal 2014 net sales for
North America by approximately $5.2 million. The impact of changes in pricing, net of discounting, is estimated to have had a $7.9 million increase
on net sales during fiscal 2014 over the prior year. The segment has also experienced a $12.0 million decrease in sales volumes to the U.S.
federal government as compared to fiscal 2013. The remaining change in net sales was due to an increase in unit volumes during fiscal 2014.
Operating losses for North America in fiscal 2014 were $27.0 million, a $103.6 million decrease from fiscal 2013. The decrease is attributable
to the legacy pension expenses of $123.9 million. The impact of dealer divestitures had the effect of decreasing operating earnings approximately
$0.9 million compared to fiscal 2013. Warranty expenses were lower by $3 million for fiscal 2014 due to lower customer specific claims. North
America also had approximately $7.0 million in additional employee incentive expense during fiscal 2014 compared to the prior year. The impact
of foreign currency changes decreased fiscal 2014 operating earnings for North America by approximately $3.6 million. The remaining change
in operating earnings was driven by improvements in gross margin, which was primarily attributable to in-sourcing initiatives.
EMEA, Latin America, and Asia Pacific (ELA)
Net sales in th ELA Furniture Solutions (ELA) reportable segment increased 3.9 percent, or $14.9 million, in fiscal 2014. The impact of foreign
currency changes was a decrease to fiscal 2014 net sales for ELA by approximately $3.5 million. The impact of changes in pricing, net of
discounting, is estimated to have had a $0.3 million increase on net sales during fiscal 2014 over the prior year. The remaining change in net
sales was due to changes in unit volumes during fiscal 2014.
Operating earnings within ELA were 5.9 percent of net sales for the segment in fiscal year 2014, compared to 6.5 percent in fiscal 2013, a
decrease of $1.6 million from fiscal 2013. The impact of foreign currency changes decreased fiscal 2014 operating earnings for ELA by
approximately $2.8 million. This was partially offset by a decrease in marketing and selling costs in fiscal 2014.
Specialty and Consumer
Net sales within the Specialty and Consumer reportable segment increased 55.7 percent compared to fiscal 2013. The acquisition of Maharam
in the fourth quarter of fiscal 2013 contributed an additional $96.5 million of net sales in fiscal 2014. The impact changes in pricing, net of
discounting, is estimated to have had a $2.3 million increase on net sales during fiscal 2014 over the prior year. The remaining change was due
to a decrease in unit volumes during fiscal 2014.
Operating earnings within Specialty and Consumer totaled $4.6 million for the year, or 1.7 percent of net sales, a decrease of $10.8 million from
fiscal 2013. The decrease was driven principally by increased legacy pension expenses of $16.0 million, offset by an increase in operating
earnings from Maharam of $4.2 million.
Discussion of Segments - Fiscal 2013 Compared to Fiscal 2012
North America
Net sales within the North American Furniture Solutions (North America) reportable segment increased $3.4 million to $1,221.9 million in fiscal
2013, a 0.3 percent increase from fiscal 2012. The impact of dealer divestitures in the second quarter of fiscal 2012 and the third quarter of
fiscal 2013 had the effect of reducing sales approximately $10 million compared to fiscal 2012. The impact of foreign currency changes was to
decrease fiscal 2013 net sales for North America by approximately $0.5 million. The impact of net changes in pricing is estimated to have had
a $6 million increase on net sales during fiscal 2013 over the prior year. The additional week in fiscal 2012 is estimated to have increased net
sales $23 million in fiscal 2012. The company has also experienced a $50 million decrease in sales volumes to the U.S. federal government as
compared to fiscal 2012. The remaining change in net sales was due to an increase in unit volumes during fiscal 2013.
Operating earnings for North America in fiscal 2013 were 6.3 percent of net sales, a $20.3 million decrease from fiscal 2012. The decrease is
attributable to the legacy pension expenses of $26.5 million. The extra week of operations had the effect of decreasing operating earnings in
fiscal 2013 by approximately $1.8 million. The impact of dealer divestitures had the effect of increasing operating earnings approximately $3
million compared to fiscal 2012. Warranty expenses were lower by $6.0 million for fiscal 2013 due to lower customer specific claims and changes
in estimates in the prior year related to higher warranty claims loss experience which drove additional expense of approximately $5 million in
fiscal 2012. North America also had approximately $5.0 million in additional employee incentive expense during fiscal 2013 compared to the
Herman Miller, Inc. and Subsidiaries 27
prior year. The impact of foreign currency changes increased fiscal 2013 operating earnings for North America by approximately $1.0 million.
The remaining change in operating earnings as a percent of net sales in the current fiscal year is primarily driven by the ability to spread fixed
manufacturing, sales and other costs over increased net sales.
EMEA, Latin America, and Asia Pacific (ELA)
Net sales in the ELA Furniture Solutions (ELA) reportable segment increased 8.6 percent, or $30.0 million, in fiscal 2013. The extra week of
operations contributed approximately $6 million towards the fiscal 2012 net sales. Additionally, the acquisition of POSH in the fourth quarter of
fiscal 2012 contributed an additional $46 million to net sales in fiscal 2013. The impact of foreign currency changes was to decrease fiscal 2013
net sales for ELA by approximately $7.5 million. The impact of net changes in pricing is estimated to have had a $1.5 million decrease on net
sales during fiscal 2013 over the prior year. The remaining change in net sales was due to changes in unit volumes during fiscal 2013.
Operating earnings within ELA represents 6.5 percent of net sales for fiscal year 2013, a decrease of $7.4 million from fiscal 2012. The acquisition
of POSH contributed an additional $4.0 million of operating earnings to fiscal 2013. The increase from POSH was more than offset by increased
marketing and selling costs of $3.0 million, the impact of foreign currency changes of $4.0 million, the impact of the extra week in fiscal 2012
of $0.6 million, and declining leverage.
Specialty and Consumer
Net sales within the Specialty and Consumer reportable segment increased 11.0 percent compared to fiscal 2012. The acquisition of Maharam
in the fourth quarter of fiscal 2013 contributed an additional $10.6 million of net sales in fiscal 2013. The remaining increase was due to increased
volumes which was partially offset by the impact of the extra week of operations in fiscal 2012 which is estimated to have increased net sales
$3.0 million.
Operating earnings within Specialty and Consumer totaled $15.4 million for fiscal 2013, or 8.8 percent of net sales. This represents an increase
of $0.3 million from fiscal 2012. The extra week of operations had the effect of increasing operating earnings in fiscal 2012 by approximately
$0.3 million. Specialty and Consumer also included legacy pension expenses of $1.7 million in fiscal 2013. The remaining increase in operating
earnings was driven by the ability to spread fixed manufacturing, sales and other costs over increased volumes.
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 (1)
Capital expenditures
Stock repurchased and retired
Interest-bearing debt, end of period (3)
Available unsecured credit facility, end of period (2) (3)
Fiscal Year Ended
2014
2013
2012
$
$
$
$
$
$
$
$
$
$
101.5
11.1
90.1
$
$
$
(48.2) $
(22.4) $
(50.2) $
(40.8) $
(12.7) $
250.0
145.1
$
$
82.7
10.8
136.5
$
$
$
(209.7) $
(16.0) $
(4.5) $
(50.2) $
(3.6) $
250.0
142.3
$
$
172.2
9.6
90.1
(58.4)
(1.6)
(64.9)
(28.5)
(2.7)
250.0
140.3
(1) Amount shown for fiscal 2014 includes $48.8 million due to the termination of the company’s primary domestic defined benefit pension
plan.
(2) Amounts shown are net of outstanding letters of credit, which are applied against the company's unsecured credit facility.
(3) During fiscal 2012 we renegotiated the unsecured revolving credit facility. Refer to Note 5 of the Consolidated Financial Statements for
additional information.
Cash Flow — Operating Activities
Cash generated from operating activities in fiscal 2014 totaled $90.1 million compared to $136.5 million generated in the prior year. This represents
a decrease of $46.4 million compared to fiscal 2013. This decrease was driven principally by pension contributions of $50.2 million, net of the
related tax benefits, primarily related to the termination of the company's primary domestic defined benefit pension plan. The pension contributions
during fiscal 2014 were $45.7 million more than the fiscal 2013 contributions of $4.5 million.
28 2014 Annual Report
Changes in working capital balances resulted in a $21.2 million use of cash in the current fiscal year compared to a $17.2 million source of cash
in the prior year. The use of cash related to changes in working capital balances in fiscal 2014 consisted primarily of an increase in trade
receivables of $26.7 million and an increase in net inventories and prepaid expenses of $2.2 million and $3.2 million, respectively. These amounts
were partially offset by increases in accounts payable and other accruals of $2.6 million and $8.3 million, respectively.
The $46.4 million increase in cash from operations in fiscal 2013, as compared to fiscal 2012, was driven mainly by less cash contributions to
the primary domestic defined benefit pension plan. These cash contributions were $4.5 million for fiscal 2013 and $64.9 million for fiscal 2012.
Changes in working capital balances resulted in a $17.2 million source of cash in fiscal 2013 compared to an $8.8 million source of cash in fiscal
2012. The source of cash related to changes in working capital balances in fiscal 2013 consisted primarily of a decrease in estimated tax
payments of $9.5 million and increases in accrued liabilities related to dividends and employee incentive costs of $6.0 million and $12.5 million,
respectively. These amounts were partially offset by increases in trade receivables and inventories of $7.7 million and $4.6 million, respectively.
The source of cash related to changes in working capital balances in fiscal 2012 consisted primarily of decreases in trade receivables of $17.5
million, prepaids of $2.7 million, an increase in trade payables of $4.8 million and an increase in accrued warranty of $5.3 million. These amounts
were partially offset by decreases in accrued compensation and other accruals of $20.1 million and $1.4 million, respectively.
Collections of accounts receivable remained strong throughout fiscal 2014, and the company's recorded accounts receivable allowances at the
end of the year are believed to be adequate to cover the risk of potential bad debts. Allowances for non-collectible accounts receivable, as a
percent of gross accounts receivable, totaled 1.9 percent, 2.4 percent, and 2.7 percent at the end of fiscal years 2014, 2013, and 2012, respectively.
Cash Flow — Investing Activities
Capital expenditures totaled $40.8 million, $50.2 million and $28.5 million in fiscal 2014, 2013 and 2012, respectively. Outstanding commitments
for future capital purchases at the end of fiscal 2014 were approximately $12.7 million. The company expects capital spending in fiscal 2015 to
be between $65 million and $75 million. The expected increase over fiscal 2014 is primarily due to planned investments in the company's
manufacturing facilities.
Included in the fiscal 2014, 2013 and 2012 investing activities, are net cash outflows of $6.7 million, $157.5 million and $47.1 million, respectively,
related to acquisitions. These amounts relate to the acquisition of certain assets from Dongguan Sun Hing Steel Furniture Factory Ltd (DGSH)
in fiscal 2014 in the amount of $6.7 million, the acquisition of Maharam Fabric Corporation (Maharam) in fiscal 2013 in the amount of $155.8
million, and the acquisition of Sun Hing POSH Holdings Limited (POSH) in fiscal 2013 ($1.7 million) and fiscal 2012 ($47.1 million).
Our net marketable securities transactions for fiscal 2014 yielded a $0.3 million use of cash. This compares to a $1.2 million use of cash and a
$1.4 million source of cash in fiscal 2013 and fiscal 2012, respectively.
Cash Flow — Financing Activities
(In millions, except share and per share data)
2014
Fiscal Year Ended
2013
2012
Shares acquired
Cost of shares acquired
Shares issued
Average cash received per share issued
Cash dividends paid
408,391
154,917
115,012
12.7
$
3.6
$
2.7
1,040,255
461,944
442,085
20.00 $
15.54 $
30.3
$
19.1
$
19.20
5.2
$
$
$
In fiscal 2014, cash used in financing activities increased to $22.4 million, as compared to $16.0 million in fiscal 2013. This was driven principally
by an increase in cash outflows from dividends paid and common stock purchased and retired. Dividends paid increased in the current year
due to the increase in the quarterly dividend from $0.125 per share to $0.140 per share. Cash paid for the retirement of common stock was
$12.7 million in the current as compared to $3.6 million in the prior year. These increased cash outflows were reduced by an increase in cash
received for the issuance of shares related to stock-based compensation plans. The company received $20.8 million related to stock-based
compensation plans in fiscal 2014 compared to $7.2 million in fiscal 2013.
Cash used in financing activities increased by $14.4 million from fiscal 2012 to fiscal 2013. An increase in the quarterly dividend from $0.090
per share to $0.125 was the main driver of the increase in financing cash outflows during fiscal 2013.
Herman Miller, Inc. and Subsidiaries 29
Because the company's Series A Senior Notes are due on January 3, 2015, $50 million was reclassified within the Consolidated Balance Sheet
from "Long-term debt" to "Current maturities of long-term debt" during fiscal 2014.
During the second quarter of fiscal 2013, the company entered into a revolving line of credit, which provides the company with approximately
$5.0 million in revolving variable interest borrowing capacity. The company intends to utilize the revolver, which is denominated in Chinese
Renminbi, to meet working capital cash flow needs at its Ningbo, China operations. The uncommitted facility is subject to changes in bank
approval and outstanding borrowings bear interest at rates based on a benchmark lending rate as outlined in the agreement. Each draw on the
line of credit is subject to a maximum period of one year, and corresponding interest is payable on the maturity date of each draw. As of May
31, 2014, there were no borrowings against this facility.
During the second quarter of fiscal 2012, the company entered into an amendment and restatement of the syndicated revolving line of credit,
which provides the company with up to $150 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing
the company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the facility by
$75 million. The facility expires in November 2016 and outstanding borrowings bear interest at rates based on the prime rate, federal funds rate,
LIBOR, or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the period a borrowing is outstanding. The
only usage against the company's unsecured revolving credit facility at the end of fiscal 2014, 2013, and 2012 represented outstanding standby
letters of credit totaling $4.9 million, $7.7 million and $9.7 million, respectively.
Interest-bearing debt at the end of fiscal 2014, 2013, and 2012 was $250.0 million. The provisions of the company's private placement notes
and unsecured credit facility require the company to adhere to certain covenants and maintain certain performance ratios. The company was
in compliance with all such covenants and performance ratios during fiscal 2014.
On July 21, 2014, subsequent to the end of the fiscal year, the company entered into an amendment and restatement of an existing unsecured
credit facility which provides the company with up to $250 million in revolving variable interest borrowing capacity and includes an “accordion
feature” allowing the company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity
of the facility by up to $125 million. Amounts borrowed under the agreement are subject to variable rates of interest tied to a base rate (either
Prime, LIBOR or U.S. Federal Funds) depending on the form of borrowing selected by the company.
At the end of the fourth quarter fiscal 2014, the company had cash and cash equivalents of $101.5 million including foreign cash of $44.1 million.
In addition, the company had foreign marketable securities of $11.1 million. The foreign subsidiary holding the company's marketable securities
is taxed as a U.S. taxpayer at the company's election; consequently, for tax purposes all U.S tax impacts for this subsidiary have been recorded.
The company has no plans to repatriate earnings from foreign subsidiaries in fiscal 2015. The company's intent is to permanently reinvest the
remainder of the foreign cash amounts outside the U.S. The company's plans do not demonstrate a need to repatriate these balances to fund
U.S. operations. During fiscal 2014, the company did not repatriate any undistributed foreign earnings. During fiscal 2013, the company repatriated
$3.0 million of undistributed foreign earnings.
We believe cash on hand, cash generated from operations, and our borrowing capacity will provide adequate liquidity to fund near term and
future business operations, capital needs and future dividends, subject to financing availability in the marketplace.
Contingencies
The company leases a facility in the United Kingdom under an agreement that expired in June 2011, and the company is currently leasing the
facility on a month to month basis. Under the terms of the lease, the company is required to perform the maintenance and repairs necessary to
address the general dilapidation of the facility over the lease term. The ultimate cost of this provision to the company is dependent on a number
of factors including, but not limited to, the future use of the facility by the lessor and whether the company chooses and is permitted to renew
the lease term. The company has estimated the cost of these maintenance and repairs to be between $0 million 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 $1.5
million as of May 31, 2014, and was estimated to be $1.3 million as of June 1, 2013. As a result, these amounts have been recorded as a liability
reflected under the caption “Accrued Liabilities” for fiscal 2014 and fiscal 2013 in the Consolidated Balance Sheets.
The company is also involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially affect the company's Consolidated Financial Statements.
Basis of Presentation
The company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 31, 2014 and June 1, 2013 each contained 52
weeks of operations. Fiscal year ended June 2, 2012 included 53 weeks of operations. This is the basis upon which weekly-average data is
presented.
30 2014 Annual Report
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 5 of the Consolidated Financial Statements. Likewise, further information related to operating leases can be found in Note 6 of the
Consolidated Financial Statements.
(In millions)
Payments due by fiscal year
Total
2015
2016-2017
2018-2019
Thereafter
Long-term debt
$
Current maturities of long-term debt
200.0 $
50.0
Estimated interest on debt
obligations (1)
Operating leases
Purchase obligations (2)
Pension plan funding (3)
Stockholder dividends (4)
Other (5)
Total
— $
50.0
14.4
21.0
44.3
0.6
8.3
3.3
— $
—
150.0 $
—
25.3
28.8
9.8
0.2
—
9.9
11.7
16.9
0.1
0.2
—
6
56.7
85.4
54.2
1.4
8.3
30.0
50.0
—
5.3
18.7
—
0.4
—
10.8
85.2
$
486.0 $
141.9 $
74.0 $
184.9 $
(1) Estimated future interest payments on our outstanding debt obligations are based on interest rates as of May 31, 2014. 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 31, 2014, the total projected benefit obligation for
our domestic and international employee pension benefit plans was $106.5 million.
(4) Represents the recorded dividend payable as of May 31, 2014. Future dividend payments are not considered contractual obligations until
declared.
(5) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee compensation
benefits, and other post-employment benefits.
Off-Balance Sheet Arrangements — Guarantees
We provide certain guarantees to third parties under various arrangements in the form of product warranties, loan guarantees, standby letters
of credit, lease guarantees, performance bonds, and indemnification provisions. These arrangements are accounted for and disclosed in
accordance with Accounting Standards Codification (ASC) Topic 460, "Guarantees" as described in Note 13 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 five 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.
Herman Miller, Inc. and Subsidiaries 31
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 outstanding accounts receivable and historical
experience. 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 $4.0 million and $4.4 million at May 31, 2014 and June 1, 2013, respectively. As a percentage of
gross accounts receivable, these allowances totaled 1.9 percent and 2.4 percent for fiscal 2014 and fiscal 2013, respectively. The year-over-
year decrease in the allowance 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 31, 2014 and June 1, 2013, were $269.1 million and $289.3
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 company completed the required annual goodwill impairment test in the fourth quarter of fiscal 2014, as of March 29, 2014, performing a
combination of the qualitative assessment and the quantitative impairment test. For the reporting units that were tested under the qualitative
assessment, the company determined that it was more likely than not that the goodwill of the reporting units were not impaired and thus, the
two-step quantitative impairment test was unnecessary. For the reporting units that were tested under the quantitative impairment test, the
company determined that the fair value of the reporting units exceeded the carrying amount and as such, the reporting units were not impaired.
The test for impairment requires the company to make several estimates about fair value, most of which are based on projected future cash
flows and market valuation multiples. We estimated the fair value of the reporting units using a discounted cash flow analysis and reconciled
the sum of the fair values of the reporting units to total market capitalization of the company plus a control premium. The control premium
represents an estimate associated with obtaining control of the company in an acquisition. The discounted cash flow analysis used the present
value of projected cash flows and a residual value.
The company employs 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 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 quantitative assessment are appropriate in that, in all cases,
they meet or exceed the estimated weighted average cost of capital for our business as a whole. The results of the impairment test are sensitive
to changes in the discount rates and changes in the discount rate may result in future impairment.
The company performs both qualitative and quantitative assessments to determine whether an indefinite-lived intangible asset is impaired. A
qualitative assessment is performed first to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If,
after considering the totality of events and circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset
is not impaired, then calculating the fair value of such asset is unnecessary. The quantitative impairment test, when necessary, is based on the
relief from royalty method to determine the fair value of the indefinite-lived intangible assets, which is both a market-based approach and an
income-based approach. The relief from royalty method focuses on the level of royalty payments that the user of an intangible asset would have
to pay a third party for the use of the asset if it were not owned by the user. This method involves estimating theoretical future after tax royalty
payments based on the company's forecasted revenues attributable to the trade names. These payments are then discounted to present value
utilizing a discount rate that considers the after-corporate tax required rate of return applicable to the asset. The projected revenues reflect the
best estimate of management for the trade names, however, actual revenues could differ from our estimates.
The discount rates selected represent market rates of return equal to what the company believes a reasonable investor would expect to achieve
on investments of similar size and type to the indefinite-lived intangible asset being tested. The company believes the discount rates selected
are appropriate in that, in all cases, they exceed the estimated weighted average cost of capital for our business as a whole. The results of the
impairment test are sensitive to changes in the discount rates and changes in the discount rate may result in future impairment.
The company completed the required annual indefinite-lived intangible asset impairment tests in the fourth quarter of fiscal 2014, as of March
29, 2014, and concluded that two trade names, Nemschoff and POSH, were impaired. The company recognized pre-tax asset impairment
expenses totaling $21.4 million associated with the Nemschoff and POSH trade name intangibles for fiscal 2014. These impairment expenses
were incurred due to the fact that the forecasted revenue and profitability for each business did not support the recorded fair value for the trade
names.
32 2014 Annual Report
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.
Due to the acquisition of a manufacturing and distribution operation in Dongguan, China during fiscal 2014, the company has decided not to
pursue the construction of a new manufacturing and distribution facility on previously acquired property in Ningbo, China. The company evaluated
the fair value of this property and recorded a pre-tax asset impairment of $4.0 million during the second quarter. See Note 16 to the Consolidated
FInancial Statements for additional information regarding this impairment charge.
During the fourth quarter of fiscal 2012, the company recorded a pre-tax fixed asset impairment charge of $1.4 million. This asset impairment
relates to the Nemschoff plant closure and consolidation. See Note 16 to the Consolidated Financial Statements for additional information on
the restructuring action which included this fixed asset impairment.
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 our West Michigan 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 10 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 31,
2014, are as follows.
(In millions)
General liability and auto liability/physical damage
Workers' compensation and property
Retention Level (per occurrence)
1.00
$
$
0.75
Herman Miller, Inc. and Subsidiaries 33
Pension and other Post-Retirement Benefits
The determination of the obligation and expense for pension and other post-retirement benefits depends on certain actuarial assumptions.
Among the most significant of these assumptions are the discount rate, interest-crediting rate, and expected long-term rate of return on plan
assets. We determine these assumptions as follows.
•
•
•
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 31, 2014, and June 1, 2013, the net actuarial loss associated with the employee pension and post-retirement benefit plans
totaled approximately $35.0 million and $169.7 million, respectively. The unrecognized loss decreased from 2013 to 2014 due primarily
to settlement losses that were recognized related to the payment of lump sum benefits from the primary domestic pension plan.
Changes in the discount rate and return on assets can have a significant effect on the expense and 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 31, 2014 pension
funded status and 2015 expense are affected by year-end 2014 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
2015 Expense
May 31, 2014 Obligation
Discount rate
+/- 1.0
$ 0.1 / (0.1)
U.S.
International
$ (1.3) / 1.4
U.S.
$ (0.5) / 0.6
International
$ (17.8) / 22.5
Expected return on
assets
+/- 1.0
—
$ (1.0) / 1.0
—
—
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-
year period. Accordingly, a portion of the net actuarial loss is deferred. As of May 31, 2014, the deferred net actuarial loss (i.e. the
portion of the total net actuarial loss not subject to amortization) was zero.
Refer to Note 7 of the Consolidated Financial Statements for more information regarding costs and assumptions used for employee
benefit plans.
34 2014 Annual Report
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 2014, we utilized an expected volatility
of 46 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 2014.
Refer to Note 9 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 13 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” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions,
current expectations, estimates, and projections about the office furniture industry, the economy, and the company itself. Words like “anticipates,”
“believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions
identify such 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, extent, likelihood, and degree of occurrence. These risks include, without limitation,
employment and general economic conditions, the pace of economic recovery in the U.S. and international markets, the pace and level of
government procurement, the impact of the Affordable Care Act on healthcare markets, the increase in white-collar employment, the willingness
of customers to undertake capital expenditures, the types of products purchased by customers, competitive-pricing pressures, the availability
and pricing of raw materials, our reliance on a limited number of suppliers, currency fluctuations, the ability to increase prices to absorb the
additional costs of raw materials, the financial strength of our dealers and 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 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, political risk in the markets we serve, 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. undertakes no obligation to update, amend or clarify forward-looking statements.
Herman Miller, Inc. and Subsidiaries 35
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. The impact from
changes in commodity prices decreased the company's costs by approximately $1.2 million during fiscal 2014 compared to the prior year. The
net impact of changes in pricing increased net sales by $10.5 million.
The impact from changes in commodity prices decreased the company's costs by approximately $4.5 million during fiscal 2013. The net impact
of changes in pricing in fiscal 2013 increased net sales by approximately $5.0 million. This increase in net sales had the effect of decreasing
the company's costs as a percent of net sales compared to fiscal 2012. The net impact of changes in pricing in fiscal 2012 increased net sales
by $35.0 million, which had the effect of decreasing the company's costs as a percent of net sales compared to fiscal 2011.
The company believes market prices for commodities will fluctuate 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 effected 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 effect 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, Hong Kong dollar and
Chinese renminbi. As of May 31, 2014, 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. One forward contract was placed to offset a 10.5 million Hong Kong
dollar-denominated net asset exposure. Two forward contracts were placed to offset a 7.7 million euro-denominated net asset exposure. Two
forward contracts were placed to offset a 5.4 million U.S. dollar-denominated net asset exposure. One forward contract was placed to offset a
10.0 million South African rand-denominated net asset exposure. One forward contract was placed to offset a 1.1 million Canadian dollar-
denominated net asset exposure. And one forward contract was placed to offset a 0.4 million Australian dollar-denominated net asset exposure.
One forward contract was placed to offset a 0.5 million British pound sterling-denominated net liability exposure. One forward contract was
placed to offset a 0.7 million euro-denominated net liability exposure. And six forward contracts were placed to offset a 18.5 million U.S.dollar-
denominated net liability exposure.
As of June 1, 2013, the company had outstanding, thirteen 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 to offset a 9.5 million Hong Kong dollar-denominated
net asset exposure. Two forward contracts were placed to offset a 6.4 million euro-denominated net asset exposure. Two forward contracts
were placed to offset a 5.4 million U.S. dollar-denominated net asset exposure. And one forward contract was placed to offset a 0.6 million
Australian dollar-denominated net asset exposure. One forward contract was placed to offset 1.3 million British pound sterling-denominated net
liability exposure and six forward contracts were placed to offset a 6.7 million U.S.dollar-denominated net liability exposure.
A net loss of $1.2 million, $1.3 million and $1.3 million related to the cost of the foreign currency hedges and remeasuring all foreign currency
transactions into the appropriate functional currency was included in net earnings for the years ended May 31, 2014, June 1, 2013 and June 2,
2012, respectively. These amounts are included in “Other Expenses (Income)” in the Consolidated Statements of Comprehensive Income.
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 $2.9 million as of fiscal 2014 and
increased the accumulated comprehensive loss component of total stockholders' equity by $1.0 million as of the end of fiscal 2013. Conversely,
the effect decreased the accumulated comprehensive loss component of total stockholders equity by $6.1 million as of the end of fiscal 2012.
36 2014 Annual Report
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.
Expected cash outflows (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%
2015
2016
2017
2018
2019
Thereafter
Total
$
50.0 $ — $ — $ 150.0 $
— $
50.0 $
250.0
Herman Miller, Inc. and Subsidiaries 37
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Comprehensive Income
(In millions, except per share data)
May 31, 2014
June 1, 2013
June 2, 2012
Fiscal Years Ended
$
1,882.0 $
1,774.9 $
1,251.0
631.0
1,169.7
605.2
1,724.1
1,133.5
590.6
564.3
26.5
65.9
656.7
(25.7)
17.6
(0.4)
0.5
17.7
(43.4)
(21.2)
0.1
(22.1) $
(0.37) $
(0.37) $
429.2
1.2
59.9
490.3
114.9
17.2
(0.4)
0.9
17.7
97.2
28.9
(0.1)
68.2 $
1.17 $
1.16 $
2.9
$
(1.0)
$
83.5
86.4
64.3
$
17.3
16.3
84.5
$
394.9
5.4
52.7
453.0
137.6
17.5
(1.0)
1.6
18.1
119.5
44.3
—
75.2
1.29
1.29
(7.1)
(29.3)
(36.4)
38.8
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 (loss)
Other expenses (income):
Interest expense
Interest and other investment income
Other, net
Net other expenses
Earnings (loss) before income taxes
Income tax expense (benefit)
Equity earnings (loss) from nonconsolidated affiliates, net of tax
Net earnings (loss)
Earnings (loss) per share — basic
Earnings (loss) per share — diluted
Other comprehensive income (loss):
Foreign currency translation adjustments
Pension and post-retirement liability adjustments (net of tax of
$(50.9), $(8.8), and $12.2)
Total other comprehensive income (loss)
Comprehensive income
$
$
$
$
$
38 2014 Annual Report
May 31, 2014
June 1, 2013
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 $4.0 in 2014 and $4.4 in 2013
Inventories, net
Deferred income taxes
Prepaid property and other taxes
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
Indefinite-lived intangibles
Other amortizable intangibles, net
Other assets
Total Assets
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt
Accounts payable
Accrued compensation and benefits
Accrued warranty
Other accrued liabilities
Total Current Liabilities
Long-term debt
Pension and post-retirement benefits
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, 59,314,822 and
58,682,958 shares issued and outstanding in 2014 and 2013, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Key executive deferred compensation
$
$
$
$
$
$
101.5
11.1
204.3
78.4
23.9
12.7
19.9
451.8
21.5
161.1
576.7
29.9
789.2
(594.0)
195.2
228.2
40.9
44.2
30.6
990.9
50.0
136.9
65.0
25.2
79.0
356.1
200.0
18.2
44.5
618.8
—
11.9
122.4
277.4
(37.9)
(1.7)
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
372.1
990.9
$
$
82.7
10.8
178.4
76.2
22.1
8.1
21.0
399.3
26.7
160.0
558.3
20.3
765.3
(581.2)
184.1
227.0
62.3
48.0
25.8
946.5
—
130.1
65.9
24.8
69.2
290.0
250.0
39.6
47.4
627.0
—
11.7
102.9
331.1
(124.3)
(1.9)
319.5
946.5
Herman Miller, Inc. and Subsidiaries 39
Consolidated Statements of Stockholders' Equity
(In millions, except share
and per share data)
Shares of
Common
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Key Executive
Deferred
Compensation
Total
Stockholders'
Equity
Balance, May 28, 2011
58,048,858 $
11.6 $
82.0 $
218.2 $
(104.2) $
(2.6) $
Net earnings
Other comprehensive loss
Total comprehensive
income
Cash dividends declared
($0.088 per share)
—
—
—
Exercise of stock options
215,524
Employee stock purchase
plan
Excess tax benefit for stock-
based compensation
Repurchase and retirement
of common stock
Restricted stock units
released
Stock option compensation
expense
Deferred compensation plan
Directors' fees
109,435
—
(115,012)
99,007
—
—
18,119
—
—
—
0.1
—
—
—
—
—
—
—
—
—
—
4.2
2.1
(0.1)
(2.7)
2.9
2.8
(0.6)
0.3
75.2
—
(5.2)
—
—
—
—
—
—
—
—
—
(36.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.7
—
Balance, June 2, 2012
58,375,931 $
11.7 $
90.9 $
288.2 $
(140.6) $
(1.9) $
Net earnings
Other comprehensive
income
Total comprehensive
income
Cash dividends declared
($0.43 per share)
—
—
—
Exercise of stock options
297,255
Employee stock purchase
plan
Excess tax benefit for stock-
based compensation
Repurchase and retirement
of common stock
Restricted stock units
released
Stock grants compensation
expense
Stock option compensation
expense
Deferred compensation plan
Performance stock units
compensation expense
84,075
—
(154,917)
64,868
—
—
—
—
Directors' fees
15,746
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.2
1.9
0.3
(3.6)
3.2
0.3
3.6
—
0.7
0.4
68.2
—
(25.3)
—
—
—
—
—
—
—
—
—
—
—
16.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
205.0
75.2
(36.4)
38.8
(5.2)
4.3
2.1
(0.1)
(2.7)
2.9
2.8
0.1
0.3
248.3
68.2
16.3
84.5
(25.3)
5.2
1.9
0.3
(3.6)
3.2
0.3
3.6
—
0.7
0.4
Balance, June 1, 2013
58,682,958 $
11.7 $
102.9 $
331.1 $
(124.3) $
(1.9) $
319.5
40 2014 Annual Report
Consolidated Statements of Stockholders' Equity
(In millions, except share
and per share data)
Shares of
Common
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Key Executive
Deferred
Compensation
Total
Stockholders'
Equity
Balance, June 1, 2013
58,682,958 $
11.7 $
102.9 $
331.1 $
(124.3) $
(1.9) $
Net loss
Other comprehensive
income
Total comprehensive
income
Cash dividends declared
($0.53 per share)
—
—
—
Exercise of stock options
821,050
Employee stock purchase
plan
Excess tax benefit for stock-
based compensation
Repurchase and retirement
of common stock
Restricted stock units
released
Stock grants compensation
expense
Stock option compensation
expense
Deferred compensation plan
Performance stock units
compensation expense
63,753
—
(408,391)
143,094
—
—
—
—
Directors' fees
12,358
—
—
—
0.2
—
—
—
—
—
—
—
—
—
—
—
18.8
1.8
0.5
(12.7)
5.4
0.2
2.3
(0.2)
3.0
0.4
(22.1)
—
(31.6)
—
—
—
—
—
—
—
—
—
—
86.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.2
—
—
319.5
(22.1)
86.4
64.3
(31.6)
19.0
1.8
0.5
(12.7)
5.4
0.2
2.3
—
3.0
0.4
Balance, May 31, 2014
59,314,822 $
11.9 $
122.4 $
277.4 $
(37.9) $
(1.7) $
372.1
Herman Miller, Inc. and Subsidiaries 41
Fiscal Years Ended
May 31, 2014
June 1, 2013
June 2, 2012
Consolidated Statements of Cash Flows
(In millions)
Cash Flows from Operating Activities:
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Marketable securities purchases
Marketable securities sales
Capital expenditures
Proceeds from sales of property and dealers
Acquisitions, net of cash received
Other, net
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Notes payable payments
Proceeds from notes payable
Dividends paid
Common stock issued
Common stock repurchased and retired
Excess tax benefits from stock-based compensation
Payment of contingent consideration obligation
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
Cash and Cash Equivalents, End of Year
$
(22.1) $
68.2
$
112.2
90.1
(5.2)
4.9
(40.8)
1.3
(6.7)
(1.7)
(48.2)
—
—
(30.3)
20.8
(12.7)
1.1
(1.3)
(22.4)
(0.7)
18.8
82.7
101.5
68.3
136.5
(3.7)
2.5
(50.2)
1.2
(157.5)
(2.0)
(209.7)
(2.4)
2.4
(19.1)
7.2
(3.6)
0.3
(0.8)
(16.0)
(0.3)
(89.5)
172.2
82.7
Other Cash Flow Information
Interest paid
Income taxes paid, net of cash received
$
15.6
34.5
$
14.9
37.7
$
42 2014 Annual Report
75.2
14.9
90.1
(7.1)
8.5
(28.5)
17.4
(47.1)
(1.6)
(58.4)
—
—
(5.2)
6.4
(2.7)
(0.1)
—
(1.6)
(0.1)
30.0
142.2
172.2
16.4
19.7
Notes to the Consolidated Financial Statements
Table of Contents
Note 1 - Significant Accounting and Reporting Policies
Note 2 - Acquisitions and Divestitures
Note 3 - Inventories
Note 4 - Investments in Nonconsolidated Affiliates
Note 5 - Long-Term Debt
Note 6 - Operating Leases
Note 7 - Employee Benefit Plans
Note 8 - Common Stock and Per Share Information
Note 9 - Stock-Based Compensation
Note 10 - Income Taxes
Note 11 - Fair Value of Financial Instruments
Note 12 - Supplemental Disclosures of Cash Flow Information
Note 13 - Warranties, Guarantees, and Contingencies
Note 14 - Operating Segments
Note 15 - Accumulated Other Comprehensive Loss
Note 16 - Restructuring and Impairment Activities
Note 17 - Quarterly Financial Data (Unaudited)
Note 18 - Subsequent Events
Page No.
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49
51
51
52
53
53
58
59
64
67
69
69
70
73
73
74
75
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 have been eliminated in the
Consolidated Financial Statements. Nonconsolidated affiliates (20-50 percent owned companies) are accounted for using the equity method.
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 as well as the following channels: owned contract office furniture dealers, direct
customer sales, independent retailers, and the company's online store. 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. The fiscal years ended May 31, 2014 and June 1, 2013 each contain 52
weeks, while the fiscal year ended June 2, 2012 contains 53 weeks. An extra week in the company's fiscal year is required approximately every
six years in order to realign its fiscal calendar-end dates with the actual calendar months.
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 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 $1.2 million, $1.3 million and $1.3 million for the fiscal years ended May 31, 2014, June 1, 2013 and June 2, 2012, respectively.
These amounts are included in “Other expenses (income)” in the Consolidated Statements of Comprehensive Income.
Herman Miller, Inc. and Subsidiaries 43
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 $5.6 million and $5.9 million as of May 31, 2014 and June 1, 2013, 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 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 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 Comprehensive Income. See Note 11 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 potentially uncollectible accounts. 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
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 and include material, labor, and overhead. Inventory cost is determined using the last-in,
first-out (LIFO) method at the manufacturing sites in Michigan, whereas inventories of the company's 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. 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 Consolidated Statements of Comprehensive Income in the "Cost of sales", "Selling, general and administrative" and "Design
and research" line items.
As of the end of fiscal 2014, outstanding commitments for future capital purchases approximated $12.7 million.
Goodwill and Indefinite-lived Intangible Assets
The company performs an annual goodwill 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.
The company also evaluates its acquired intangible assets at acquisition 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 trade names
valued at approximately $40.9 million and $62.3 million as of fiscal year 2014 and 2013, respectively. These assets have indefinite useful lives
and are evaluated annually for impairment using the relief from royalty method. Inputs for the relief from royalty method include revenue forecasts,
44 2014 Annual Report
royalty rate and discount rate. The company measures and records an impairment loss for the excess of the carrying value of the asset over
its fair value.
The company recognized asset impairment expenses totaling $21.4 million associated with the Nemschoff and POSH trade name intangibles
for the fiscal year 2014. The Nemschoff and Posh trade name assets are included in the North American Furniture Solutions reportable segment
and ELA Furniture Solutions segment, respectively. During the fiscal year 2012, the company also recorded impairment expenses of $3.8 million
for the indefinite-lived intangible assets related to two healthcare trade names. These impairment expenses are recorded in the restructuring
and impairment expense line in the Consolidated Statements of Comprehensive Income and are included in the "Corporate" category within
the segment reporting and represent level 3 fair value measurements.
Goodwill and other indefinite-lived assets included in the Consolidated Balance Sheets consist of the following:
(In millions)
Balance, June 2, 2012
Sale of owned dealers
Maharam acquisition
Balance, June 1, 2013
Foreign currency translation adjustments
Sale of owned dealers
China manufacturing and distribution acquisition
Impairment charges
Balance, May 31, 2014
Goodwill
Indefinite-lived
Intangible Assets
Total Goodwill and
Indefinite-lived Intangible
Assets
$
146.4
$
39.3
$
(0.1)
80.7
227.0
0.6
(0.4)
1.0
—
$
228.2
$
—
23.0
62.3
—
—
—
(21.4)
40.9
$
185.7
(0.1)
103.7
289.3
0.6
(0.4)
1.0
(21.4)
269.1
Goodwill stemming from the acquisition of Maharam in fiscal 2013 was allocated to the North-American Furniture Solutions and Specialty and
Consumer reportable segments. The indefinite-lived intangible assets that were acquired from the Maharam business combination are all
included within the Specialty and Consumer reportable segment.
Long-Lived Assets
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 or in some cases by prices for
similar assets. 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.
Impairment expense of $4.0 million was recording during fiscal 2014 related to property in Ningbo, China. This was due to the acquisition of
manufacturing-related assets, including a production facility and related equipment, in Dongguan, China, and as a result, the company decided
not to pursue the construction of a new manufacturing and distribution facility on the previously acquired property in Ningbo. The company
evaluated the fair value of this property and recorded an asset impairment, equal to the excess of carrying value over fair value. During fiscal
2012, the company recorded an impairment expense of $1.4 million related to fixed assets in connection with the 2012 restructuring plan. Both
of these impairment charges were recorded in "Restructuring and impairment expenses" and were classified in the "Corporate" category for
segment reporting purposes and represent level 3 fair value measurements.
Amortizable intangible assets within "Other amortizable intangibles, net" in the Consolidated Balance Sheets consists primarily of patents,
trademarks and customer relationships. The "customer relationships" intangible asset is comprised of relationships with customers and specifiers
and networks and relationships with dealers and distributors. Refer to the following table for the combined gross carrying value and accumulated
amortization for these amortizable intangibles.
Herman Miller, Inc. and Subsidiaries 45
(In millions)
Patent and Trademarks Customer Relationships
Other
Total
May 31, 2014
Gross carrying value
Accumulated amortization
Net
$
$
19.2
12.7
6.5
$
$
43.6
8.3
35.3
$
$
June 1, 2013
Patent and Trademarks Customer Relationships
Other
Gross carrying value
Accumulated amortization
Net
$
$
21.6
12.3
9.3
$
$
40.1
4.8
35.3
$
$
4.8
2.4
2.4
5.0
1.6
3.4
$
$
$
$
67.6
23.4
44.2
66.7
18.7
48.0
Total
The company amortizes these assets over their remaining useful lives using the straight-line method over periods ranging from 5 to 20 years.
It is estimated that the average remaining life of such patents and trademarks is approximately 5 years and 6 years, respectively. The estimated
average remaining life of the customer relationships is 13 years.
Estimated amortization expense on existing amortizable intangible assets as of May 31, 2014, for each of the succeeding five fiscal years is as
follows:
(In millions)
2015
2016
2017
2018
2019
Self-Insurance
$
$
$
$
$
4.4
4.4
4.4
4.4
3.8
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 31, 2014, are as follows:
(In millions)
Retention Level (per occurrence)
General liability and auto liability/physical damage
Workers' compensation and property
$
$
1.00
0.75
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 Comprehensive Income are $53.9 million, $48.3 million, and $41.0 million,
in fiscal 2014, 2013, and 2012, respectively.
46 2014 Annual Report
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 $12.0 million, $11.6 million, and $11.7 million in fiscal years 2014, 2013, and 2012 respectively. They are included in "Design
and research" expense in the accompanying Consolidated Statements of Comprehensive Income.
Customer Payments and Incentives
We offer various sales incentive programs to our customers, such as rebates, discounts and cooperative advertising programs. Programs such
as rebates and discounts 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 Statements of Comprehensive Income. We recognized
operating expense related to our cooperative advertising program of $2.0 million for each of the fiscal years ended 2014, 2013, and 2012.
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, if applicable, 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 Comprehensive
Income.
Cost of Sales
We include material, labor and overhead in cost of sales. Included within these categories are such items as 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 the "Selling, general, and administrative" line within the Consolidated
Statements of Comprehensive Income. 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.
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. 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 assets
and 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 in Note 9 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 2014, 2013, and 2012, 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. Refer to Note 8 of the Consolidated Financial
Statements for further information regarding the computation of EPS.
Herman Miller, Inc. and Subsidiaries 47
Comprehensive Income (Loss)
Comprehensive income consists of net earnings, foreign currency translation adjustments, and unrealized holding gain (loss) on “available-
for-sale” securities and pension liability adjustments. Refer to Note 15 of the Consolidated Financial Statements for further information
regarding Comprehensive income (loss).
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.
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 11 of the Consolidated Financial Statements for the required fair value disclosures.
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-functional currencies on the balance sheets of our foreign subsidiaries. These foreign currency forward
contracts generally settle within 30 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 Sheets
with changes in fair value recorded within the Consolidated Statements of Comprehensive Income. The balance sheet classification for the fair
values of these forward contracts is to "Other" current assets for unrealized gains and to "Other accrued liabilities" for unrealized losses. The
Consolidated Statements of Comprehensive Income 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 31, 2014, the notional amounts of the forward contracts held to purchase and sell U.S. dollars in exchange for other major international
currencies were $26.7 million and the notional amounts of the foreign currency forward contracts held to purchase and sell British pound sterling
in exchange for other major international currencies were £15.2 million. The company also has other forward contracts related to other currency
pairs at varying notional amounts.
The effects of derivative instruments on the consolidated financial statements were as follows for the fiscal years ended 2014 and 2013 (amounts
presented exclude any income tax effects):
Fair Value of Derivative Instruments in Consolidated Balance Sheet
(In millions)
Fiscal Year
Foreign currency forward contracts not
designated as hedges
Foreign currency forward contracts not
designated as hedges
Balance Sheet Location
May 31, 2014
June 1, 2013
Other current assets
Other current liabilities
$
$
0.2
0.1
$
$
0.3
0.3
48 2014 Annual Report
Effects of Derivative Instruments on Income
(In millions)
Fiscal Year
Recognized Income on Derivative (Gain)
Loss Location
May 31, 2014
June 1, 2013
June 2, 2012
Foreign currency forward contracts
Other expenses (income): Other, net
$
(0.1) $
— $
0.1
New Accounting Standards
Recently Adopted Accounting Guidance
During the first quarter of fiscal 2014, the company adopted Accounting Standards Update ("ASU") 2013-02, "Comprehensive Income (ASC
Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information
about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present,
either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified
to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their
entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on
these amounts. Refer to Note 15 for the disclosures related to this adoption.
Accounting Guidance Issued But Not Adopted as of May 31, 2014
In July 2013, the Financial Accounting Standards Board issued ASU 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which defines the presentation
requirements of an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements. This ASU is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted and retrospective application
is permitted, but not required. The company is currently evaluating the impact of adopting this guidance.
In May 2014, the Financial Accounting Standards Board issued a new standard on revenue recognition. The new standard outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across
industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2016. Early adoption is not permitted. The company is currently evaluating the impact of adopting this
guidance.
2. Acquisitions and Divestitures
China Manufacturing and Distribution Acquisition
On September 30, 2013, the company acquired certain assets from Dongguan Sun Hing Steel Furniture Factory Ltd (DGSH) which together,
constituted the acquisition of a business. The acquired business is a manufacturing and distribution operation in Dongguan, China, where product
sold under the POSH trade name are produced. Subject to the finalization of certain post-closing adjustments, consideration transferred to
acquire the net assets of DGSH consisted of $8.2 million in cash, of which $6.7 million was paid during the second and third quarters of fiscal
2014. The final payment is expected to be made within the next 12 months. The company is still finalizing information related to the valuation
of the assets acquired and expects to finalize these matters within the measurement period.
Maharam Acquisition
On April 23, 2013, the company entered into an agreement to purchase Maharam Fabric Corporation, a New York-based, global designer and
provider of high quality interior textiles for commercial, healthcare, and residential interiors. The company pursued the acquisition of Maharam
in order to reinforce and accelerate Herman Miller’s Specialty and Consumer initiative and support further opportunities in commercial markets.
The company closed the transaction on April 29, 2013 for consideration of $155.8 million. As a result of the transaction, 100 percent of the voting
equity interests of Maharam were acquired. Furthermore, the company estimates it will receive future tax benefits with a present value of
approximately $20 million. The allocation of the purchase price was finalized during the fourth quarter of fiscal 2014. The following table
summarizes the fair values of the assets acquired and the liabilities assumed from Maharam on April 29, 2013:
Herman Miller, Inc. and Subsidiaries 49
Assets Acquired and Liabilities Assumed on April 29, 2013
(In millions)
Purchase price
Fair value of the assets acquired
Accounts receivable
Inventory
Other current assets
Investments in nonconsolidated affiliates
Other intangible assets
Goodwill
Property
Long term deferred tax asset
Other assets
Total assets acquired
Fair value of liabilities assumed
Accounts payable
Current deferred tax liabilities
Accrued compensation and benefits
Other accrued liabilities
Other long term liabilities
Total liabilities assumed
Net assets acquired
Fair Value
$
$
155.8
11.1
14.1
4.4
4.3
42.4
80.7
12.1
1.6
0.2
170.9
6.5
1.6
4.7
1.0
1.3
15.1
155.8
The goodwill stemming from the transaction in the amount of $80.7 million was recorded as "Goodwill" in the Consolidated Balance Sheet and
allocated to the North American Furniture Solutions and the Specialty and Consumer reportable segments. The amounts were allocated based
on the expected synergies to be realized by the reportable segments that will benefit from combining the operations of Maharam into the company.
The goodwill amounts allocated to the reportable segments were as follows:
Goodwill Segment Allocation as of April 29, 2013
(In millions)
North American Furniture Solutions
Specialty and Consumer
Total Goodwill
Fair Value
31.9
48.8
80.7
$
$
Intangible assets acquired as a result of the April 29, 2013 acquisition of Maharam were valued at $42.4 million. These amounts are reflected
in the values presented in the table below:
Intangible Assets Acquired on April 29, 2013
(In millions)
Trade name
Designs and patterns
Specifier and customer relationships
Non-compete agreements
Total Intangibles Acquired
POSH Acquisition
Fair Value
Useful Life
23.0
3.1
16.0
0.3
42.4
Indefinite
5
15
2
$
$
On April 3, 2012, the company acquired Sun Hing POSH Holdings Limited (POSH). POSH is a Hong Kong-based designer, and distributor of
office furniture systems, freestanding furniture, seating, and filing and storage with distribution in Hong Kong and China. The total purchase
50 2014 Annual Report
price to acquire POSH was approximately $58.9 million, which included $48.8 million in net cash and contingent consideration valued at $10.1
million.
During fiscal 2014, the portion of the contingent consideration that was related to the targeted sales growth of POSH was reduced by $2.6
million. The benefit of this change in value is reflected within “Total operating expenses” in the Consolidated Statements of Comprehensive
Income. Since the acquisition of POSH, payments of $1.4 million have been made related to the contingent consideration obligation. The
remaining contingent consideration will be in the form of a cash payment, which the company currently estimates to be $4.1 million. This payment
is expected to be made in the next twelve months.
The company acquired assets valued at $15.8 million, consisting primarily of cash, accounts receivable, inventory and property and equipment,
and acquired liabilities valued at $8.6 million. The company also established a deferred tax liability of $4.9 million. Resulting goodwill, indefinite-
lived intangibles, and amortizable intangibles were $34.5 million, $19.9 million, and $8.9 million, respectively. The allocation of the purchase
price was finalized during the third quarter of fiscal 2013 and the amounts included above are final. POSH is reported within the ELA Furniture
Solutions reportable operating segment.
Divestitures
During fiscal 2014, the company completed the sale of four wholly-owned contract furniture dealerships. The sale of these dealerships, that
were located in Canada, Arkansas, Oregon, and Oklahoma, was not material to the consolidated financial statements. A gain on sale of $1.3
million was recognized as a result of the sale of the Oklahoma dealership.
During fiscal 2013, the company completed the sale of one wholly-owned contract furniture dealership in Florida, the impact of which was not
material to the consolidated financial statements.
During fiscal 2012, the company completed the sale of three wholly-owned contract furniture dealerships. The sale of these dealerships, that
were located in Texas, Colorado, and California, was not material to the consolidated financial statements.
3. Inventories
(In millions)
Finished goods and work in process
Raw materials
Total
May 31, 2014
June 1, 2013
$
$
58.2 $
20.2
78.4 $
57.5
18.7
76.2
The inventories of the manufacturing sites in Michigan 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 $20.5 million and $22.4 million as of May 31, 2014
and June 1, 2013, respectively. If all inventories had been valued using the first-in first-out method, inventories would have been $89.6 million
and $86.9 million at May 31, 2014 and June 1, 2013, respectively.
During 2014, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior
years. This LIFO liquidation decreased cost of goods sold by a negligible amount in 2014.
During 2012, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior
years. This LIFO liquidation decreased cost of goods sold by a negligible amount in 2012.
4. Investments in Nonconsolidated Affiliates
The company had an ownership interest in four nonconsolidated affiliates at May 31, 2014. These equity method investments were acquired
through the Maharam business combination. Refer to the company's ownership percentages shown below:
Ownership Interest
Kvadrat Maharam Arabia DMCC
Kvadrat Maharam Pty Limited
Kvadrat Maharam Turkey JSC
Danskina B.V.
May 31, 2014
June 1, 2013
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
Herman Miller, Inc. and Subsidiaries 51
The Kvadrat Maharam nonconsolidated affiliates are distribution entities that are engaged in selling decorative upholstery, drapery, and wall
covering products. Danskina B.V. is a manufacturer and distributor of designer rugs and floor covering products.
At May 31, 2014, the company's investment value in Kvadrat Maharam Pty was $2.3 million more than the company's proportionate share of
the underlying net assets ($2.5 million more at June 1, 2013). This difference was driven by a step-up in fair value of the investment in Kvadrat
Maharam Pty, stemming from the Maharam business combination. This amount is considered to be a permanent basis difference.
At May 31, 2014, the company's investment value in Danskina B.V. was $1.1 million more than the company's proportionate share of the
underlying net assets ($1.1 million more at June 1, 2013). This amount represents the difference in value between the capital contribution made
to the joint venture by Maharam and the proportionate share of equity received. This amount is considered to be a permanent basis difference.
The company's investment in its nonconsolidated affiliates was $4.1 million at May 31, 2014 and $4.2 million at June 1, 2013. The company's
proportionate share of equity earnings from these companies was $0.1 million for the year ended May 31, 2014 and $(0.1) million for the year
ended June 1, 2013.
For the year ended May 31, 2014 and June 1, 2013, the purchases from and sales to nonconsolidated affiliates were immaterial. At May 31,
2014 and June 1, 2013, balances due to and from nonconsolidated affiliates were also immaterial.
5. Long-Term Debt
Long-term debt consisted of the following obligations:
(In millions)
Series A senior notes, 5.94%, due January 3, 2015
Series B senior notes, 6.42%, due January 3, 2018
Debt securities, 6.0%, due March 1, 2021
Total
May 31, 2014
June 1, 2013
50.0 $
150.0
50.0
250.0 $
50.0
150.0
50.0
250.0
$
$
Because the company's Series A Senior Notes are due on January 3, 2015, $50 million was reclassified within the Consolidated Balance Sheet
from "Long-term debt" to "Current maturities of long-term debt" during fiscal 2014.
During the second quarter of fiscal 2014, the company entered into a revolving line of credit, which provides the company with approximately
$5 million in revolving variable interest borrowing capacity. The company intends to utilize the revolver, which is denominated in Chinese
Renminbi, to meet working capital cash flow needs at its South China operations. The uncommitted facility is subject to changes in bank approval
and outstanding borrowings bear interest at rates based on a benchmark lending rate. As of May 31, 2014, there were no borrowings against
this facility.
During the second quarter of fiscal 2013, the company entered into a revolving line of credit, which provides the company with approximately
$5 million in revolving variable interest borrowing capacity. The company intends to utilize the revolver, which is denominated in Chinese
Renminbi, to meet working capital cash flow needs at its Ningbo, China operations. The uncommitted facility is subject to changes in bank
approval and outstanding borrowings bear interest at rates based on a benchmark lending rate. Each draw on the line of credit is subject to a
maximum period of one year, and corresponding interest is payable on the maturity date of each draw. As of May 31, 2014, there were no
borrowings against this facility.
During the second quarter of fiscal 2012, the company entered into an amendment and restatement of the syndicated revolving line of credit,
which provided the company with up to $150 million in revolving variable interest borrowing capacity and includes an "accordion feature", which
allows the company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the
facility by $75 million. The facility expires in November 2016 and outstanding borrowings bear interest at rates based on the prime rate, federal
funds rate, LIBOR, or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the period a borrowing is
outstanding. As of May 31, 2014 and June 1, 2013, total usage against this facility was $4.9 million and $7.7 million respectively, all of which
related to outstanding letters of credit.
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, except that we may elect, under certain conditions, to increase the maximum Leverage Ratio to 4.0 to 1.0 for four consecutive fiscal
quarter end dates. The covenants also require 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
52 2014 Annual Report
defined in the credit agreement as EBITDA adjusted by certain items which include non-cash share-based compensation, non-recurring
restructuring costs, legacy pension expenses and extraordinary items. At May 31, 2014 and June 1, 2013, the company was in compliance with
all of these restrictions and performance ratios.
Annual maturities of long-term debt for the five fiscal years subsequent to May 31, 2014, are as follows:
(In millions)
2015
2016
2017
2018
2019
Thereafter
6. Operating Leases
$
$
$
$
$
$
50.0
—
—
150.0
—
50.0
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 31, 2014, are as follows:
(In millions)
2015
2016
2017
2018
2019
Thereafter
$
$
$
$
$
$
21.0
17.0
11.8
9.8
7.1
18.7
Total rental expense charged to operations was $25.6 million, $23.0 million, and $20.7 million, in fiscal 2014, 2013, and 2012, respectively.
Substantially all such rental expense represented the minimum rental payments under operating leases.
7. Employee Benefit Plans
The company maintains retirement benefit plans for substantially all of its employees.
Pension Plans and Post-Retirement Medical Insurance
During fiscal 2014, the company settled the remaining obligations associated with its primary domestic defined benefit pension plans. Plan
participants received vested benefits from the plan assets by electing either a lump sum distribution, roll-over contribution to other 401(k) or
individual retirement plans, or an annuity contract with a qualifying third-party provider. As a result of the settlement, the company was relieved
of any further obligation. Pension settlement charges of $158.2 million, before tax, were recorded during the current year. The settlement
expenses included the pre-tax reclassifications of actuarial gains and losses from accumulated other comprehensive loss of $137.7 million,
cash contributions to the plan of $48.8 million, net of the outstanding pension plan liability prior to settlement. Cost of goods sold included $49.3
million of the settlement expense, while $108.9 million of the expense was included in operating expenses. After the settlement, the remaining
pension assets of $0.9 million were transferred to the company's defined contribution 401(k) plan.
The primary domestic defined-benefit plan included benefits determined by a cash balance calculation. Benefits under this plan were 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 plan, is the
last day of the fiscal year.
Herman Miller, Inc. and Subsidiaries 53
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:
(In millions)
Domestic
International
Domestic
International
Pension Benefits
2014
2013
Post-Retirement Benefits
2014
2013
Change in benefit obligation:
Benefit obligation at beginning of
year
$
Service cost
Interest cost
Curtailments
Plan settlements
Foreign exchange impact
Actuarial (gain)/loss
Employee contributions
Expenses paid
Benefits paid
314.7 $
91.2 $
332.7 $
86.1 $
9.0 $
—
5.2
—
(331.1)
—
16.8
—
(0.4)
(4.1)
—
4.2
—
—
9.6
2.3
—
—
(1.9)
1.9
10.9
—
(40.0)
—
15.6
—
—
(6.4)
—
3.7
—
—
(1.2)
4.5
—
—
(1.9)
—
0.3
—
—
—
(1.0)
—
—
(0.8)
Benefit obligation at end of year
$
1.1 $
105.4 $
314.7 $
91.2 $
7.5 $
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
Plan settlements
Expenses paid
Benefits paid
Transfers out to 401(k) plan
Fair value of plan assets at end of
year
Funded status:
Under funded status at end of
year
$
$
$
290.0 $
84.2 $
316.9 $
72.6 $
— $
(2.3)
—
48.8
—
(331.1)
(0.4)
(4.1)
(0.9)
2.4
8.6
1.5
—
—
—
(1.9)
—
19.5
—
—
—
(40.0)
—
(6.4)
—
11.1
(1.2)
3.6
—
—
—
(1.9)
—
—
—
0.8
—
—
—
(0.8)
—
— $
94.8
$
290.0
$
84.2
$
— $
(1.1) $
(10.6) $
(24.7) $
(7.0) $
(7.5) $
(9.0)
Components of the amounts recognized in the Consolidated Balance Sheets:
Current liabilities
Non-current liabilities
$
$
(0.1) $
(1.0) $
— $
(10.6) $
(0.1) $
(24.6) $
— $
(7.0) $
(0.9) $
(6.6) $
(1.0)
(8.0)
Components of the amounts recognized in accumulated other comprehensive loss before the effect of income taxes:
Unrecognized net actuarial loss
$
0.4
$
34.3
$
140.5
$
27.9
$
0.3
$
Unrecognized prior service cost
(credit)
Accumulated other
comprehensive loss
54 2014 Annual Report
—
—
—
—
—
$
0.4
$
34.3
$
140.5
$
27.9
$
0.3
$
1.3
—
1.3
9.8
—
0.3
—
—
—
(0.2)
—
—
(0.9)
9.0
—
—
—
0.9
—
—
—
(0.9)
—
—
The accumulated benefit obligation for the company's domestic pension benefit plans totaled $1.1 million and $314.7 million as of the end of
fiscal years 2014 and 2013, respectively. For its international plans, these amounts totaled $102.4 million and $88.3 million as of the same
dates, respectively.
The following table is a summary of the annual cost of the company's pension and post-retirement plans:
Components of Net Periodic Benefit Costs and Other Changes Recognized in Other Comprehensive Income:
(In millions)
Domestic:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Curtailment (gain)
Settlement Loss
Net periodic benefit cost
International:
Service cost
Interest cost
Expected return on plan assets
Net amortization
Net periodic benefit cost
Pension Benefits
2013
2014
2012
$
$
$
$
— $
5.2
(3.6)
4.7
—
158.2
164.5
$
— $
4.2
(5.2)
1.8
0.8
$
1.9 $
10.9
(12.1)
11.8
—
18.8
31.3
$
— $
3.7
(4.9)
1.4
0.2
$
7.0
14.4
(19.3)
7.2
(1.7)
—
7.6
$
$
1.3
3.9
(4.8)
0.3
0.7
Post-Retirement Benefits
2013
2012
2014
— $
0.3
—
—
—
—
0.3 $
— $
0.3
—
0.1
—
—
0.4 $
—
0.4
—
0.1
—
—
0.5
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income):
Post-Retirement Benefits
Pension Benefits
(In millions)
Domestic:
Net actuarial (gain) loss
Net amortization, curtailment, and settlements
Total recognized in other comprehensive
(income) loss
International:
Net actuarial (gain) loss
Effect of exchange rates on amounts included in
accumulated other comprehensive income
Net amortization
Total recognized in other comprehensive
(income) loss
$
$
$
$
2014
2013
2014
2013
$
22.9
(163.0)
$
8.2
(30.6)
(1.0) $
—
(140.1) $
(22.4) $
(1.0) $
(0.3)
(0.1)
(0.4)
5.2
$
3.0
(1.8)
6.4
$
(1.7)
(0.2)
(1.4)
(3.3)
The net actuarial loss, included in accumulated other comprehensive loss (pretax), expected to be recognized in net periodic benefit cost during
fiscal 2015 is $1.9 million.
Herman Miller, Inc. and Subsidiaries 55
5.40
3.50
7.00
4.20
3.00
Actuarial Assumptions
The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the company's
pension and post-retirement plans are as follows:
The weighted-average used in the determination of net periodic benefit cost:
(Percentages)
Discount rate
Compensation increase rate
Expected return on plan assets
2014
2013
2012
Domestic
International
Domestic
International
Domestic
International
3.43
n/a
n/a
4.40
3.50
6.00
3.34
3.00
4.20
4.20
3.00
6.00
4.75
3.00
7.00
The weighted-average used in the determination of the projected benefit obligations:
3.43
Discount rate
n/a
Compensation increase rate
3.44
n/a
4.40
3.35
4.40
3.50
3.57
3.00
In calculating post-retirement benefit obligations for fiscal 2014, a 7.2 percent annual rate of increase in the per capita cost of covered healthcare
benefits was assumed for 2015, decreasing gradually to 4.5 percent by 2029 and remaining at that level thereafter. For purposes of calculating
post-retirement benefit costs, a 7.4 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2014,
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 2014 service and interest cost components
Effect on post-retirement benefit obligation at May 31, 2014
Plan Assets and Investment Strategies
1 Percent
Increase
1 Percent
Decrease
$
$
— $
0.2 $
—
(0.2)
The assets related to the company's primary domestic employee benefit plans were liquidated in connection with the plan termination that
occurred during fiscal 2014. Accordingly, plan assets for the primary domestic employee benefit plans were zero as of the end of fiscal 2014.
The company's international employee benefit plan assets consist mainly of listed fixed income obligations and common/collective trusts. 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.
56 2014 Annual Report
The target asset allocation at the end of fiscal 2014 and asset categories for the company's primary pension plans for fiscal 2014 and 2013 are
as follows:
Primary Domestic Plan
Asset Category
Equities
Fixed Income
Other
Total
International Plan
Asset Category
Equities
Fixed Income
Common collective trusts
Total
Targeted Asset
Allocation
Percentage
—
—
—
—
20
80
Percentage of Plan Assets
at Year End
2014
—
—
—
—
—
26
74
100
2013
10
86
4
100
—
26
74
100
(In millions)
Asset Category
Cash and cash equivalents
US & international equity securities
Debt securities-corporate
Common collective trust-equities
Common collective trusts-fixed income
Total
(In millions)
Asset Category
Cash and cash equivalents
Foreign government obligations
Common collective trusts-balanced
Total
(In millions)
Asset Category
Cash and cash equivalents
US & international equity securities
Debt securities-corporate
Common collective trust-equities
Common collective trusts-fixed income
Total
(In millions)
Asset Category
Cash and cash equivalents
Foreign government obligations
Common collective trusts-balanced
Total
$
$
$
$
$
$
$
$
Domestic Plans as of May 31, 2014
Level 2
Total
Level 1
— $
—
—
—
—
— $
— $
—
—
—
—
— $
International Plan as of May 31, 2014
Level 2
Total
Level 1
0.2
—
—
0.2
$
$
— $
24.5
70.1
94.6
$
—
—
—
—
—
—
0.2
24.5
70.1
94.8
Domestic Plans as of June 1, 2013
Level 2
Total
Level 1
12.5
2.2
7.6
—
—
22.3
$
$
— $
—
—
26.5
241.2
267.7
$
12.5
2.2
7.6
26.5
241.2
290.0
International Plan as of June 1, 2013
Level 2
Total
Level 1
0.2
—
—
0.2
$
$
— $
22.0
62.0
84.0
$
0.2
22.0
62.0
84.2
Herman Miller, Inc. and Subsidiaries 57
Cash Flows
The company is reviewing whether any additional 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 2014, the company
made total cash contributions of $50.2 million to its benefit plans. Of these cash contributions, $48.8 million were due to the termination of the
company’s primary domestic defined benefit pension plans.
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 31, 2014.
(In millions)
2015
2016
2017
2018
2019
2020-2024
Pension Benefits
Domestic
Pension Benefits
International
Post-Retirement
Benefits
$
$
$
$
$
$
0.1
0.1
0.1
0.1
0.1
0.4
$
$
$
$
$
$
1.9
2.4
2.8
3.0
3.1
18.7
$
$
$
$
$
$
0.9
0.9
0.8
0.8
0.7
2.7
Profit Sharing, 401(k) Plan, and Core Contribution
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 percent of employees' wages based on the company's financial performance. The cost of the profit sharing contribution during fiscal 2014,
2013, and 2012 were $6.4 million, $5.3 million and $3.4 million, respectively.
The company has traditionally matched 50 percent of employee contributions to their 401(k) accounts up to 6 percent of their pay. On September
1, 2012, this was amended to a match of 100 percent up to 3 percent of their pay. A core contribution of 4 percent was also added to the plan.
This core contribution was effective as of January 1, 2012 for new employees starting after that date and September 1, 2012 for existing
employees. The cost of the company's 401(k) matching contributions and core contributions charged against operations was approximately
$20.3 million, $17.0 million, and $6.8 million in fiscal years 2014, 2013 and 2012, respectively.
8. 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)
Numerator:
Numerator for both basic and diluted EPS, net earnings (loss)
2014
2013
2012
$
(22.1) $
68.2 $
75.2
Denominator:
Denominator for basic EPS, weighted-average common shares outstanding
Potentially dilutive shares resulting from stock plans
Denominator for diluted EPS
58,955,487
—
58,955,487
58,425,522
418,992
58,844,514
58,171,472
285,404
58,456,876
Equity awards of 2,779,782 shares, 1,953,450 shares and 1,917,060 shares of common stock were excluded from the denominator for the
computation of diluted earnings per share for the fiscal years ended May 31, 2014, June 1, 2013, and June 2, 2012, respectively, because they
were anti-dilutive. The company has certain share-based payment awards that meet the definition of participating securities. The company has
evaluated the impact on EPS of all participating securities under the two-class method, noting the impact on EPS was immaterial.
58 2014 Annual Report
9. 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 stock purchase plan for its domestic and certain 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. This cost is recognized 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.
The company classifies pre-tax stock-based compensation expense primarily within “Operating expenses” in the Consolidated Statements of
Comprehensive Income. Related expenses charged to “Cost of sales” are not material. Pre-tax compensation expense and the related income
tax benefit for all types of stock-based programs was as follows for the periods indicated:
(In millions)
May 31, 2014
June 1, 2013
June 2, 2012
Employee stock purchase program
Stock option plans
Restricted stock grants
Restricted stock units
Performance share units
Total
Tax benefit
$
$
$
0.3
2.3
0.2
5.2
3.0
11.0
4.0
$
$
$
0.3
3.6
0.3
3.2
0.7
8.1
2.9
$
$
$
0.3
2.8
0.5
2.4
—
6.0
2.1
As of May 31, 2014, total pre-tax stock-based compensation cost not yet recognized related to non-vested awards was approximately $9.1
million. The weighted-average period over which this amount is expected to be recognized is 1.49 years.
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)
2014
2013
2012
1.62%
0.77%
5.5 years
5.5 years
46%
1.74%
47%
1.98%
1.75%
5.5 years
42%
0.34%
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
$
10.68
$
6.52
$
10.15
(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.
(4) Represents the company's estimated cash dividend yield over the expected term of options.
Herman Miller, Inc. and Subsidiaries 59
Stock-based compensation expense recognized in the Consolidated Statements of Comprehensive Income, 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 percent of the market price.
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 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 31, 2014, there were 2.3 million shares available for option awards.
The following is a summary of the transactions under the company's stock option plans:
Outstanding at May 28, 2011
Granted at market
Exercised
Forfeited or expired
Outstanding at June 2, 2012
Granted at market
Exercised
Forfeited or expired
Outstanding at June 1, 2013
Granted at market
Exercised
Forfeited or expired
Outstanding at May 31, 2014
Ending vested + expected to vest
Exercisable at end of period
Shares Under
Option
Weighted-Average
Exercise Prices
2,578,590
365,141
(215,524)
(398,958)
2,329,249
499,870
(297,255)
(120,490)
2,411,374
46,829
(821,050)
(40,169)
1,596,984
1,588,824
1,122,446
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
24.62
25.75
19.74
25.76
25.06
18.17
17.49
24.56
24.59
28.74
22.97
27.47
25.47
25.49
27.35
Weighted-Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic Value
(In millions)
5.5
$
6.6
5.7
$
0.9
5.7
$
11.2
4.7
4.6
3.3
$
$
$
9.9
9.8
5.1
The total pre-tax intrinsic value of options exercised during fiscal 2014, 2013 and 2012 was $6.2 million, $2.0 million, and $1.1 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.
60 2014 Annual Report
The following is a summary of stock options outstanding at May 31, 2014:
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
$12.33-18.17
$25.06-30.54
$31.84-38.13
553,690
627,041
416,253
1,596,984
7.1 $
4.3 $
2.0 $
4.7 $
17.18
27.90
32.85
25.47
238,880 $
467,313 $
416,253 $
1,122,446 $
15.87
28.33
32.85
27.35
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 the rights of a shareholder, subject to certain restrictions on transferability and 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:
2014
2013
2012
Weighted
Average
Grant-Date
Fair Value
Weighted
Average
Grant-Date
Fair Value
Weighted
Average
Grant-Date
Fair Value
Shares
Shares
Shares
Outstanding, at beginning of year
67,474 $
20.45
83,331 $
19.49
Granted
Vested
Forfeited or expired
Outstanding, at end of year
— $
(3,440) $
(2,000) $
62,034 $
—
15.82
21.98
20.66
— $
(14,357) $
(1,500) $
67,474 $
—
15.06
18.71
20.45
70,595 $
24,323 $
(7,787) $
(3,800) $
83,331 $
18.44
21.46
17.56
16.44
19.49
The weighted-average remaining recognition period of the outstanding restricted stock grants at May 31, 2014, was 1.65 years. The fair value
of the shares that vested during the twelve months ended May 31, 2014, was $0.1 million.
Herman Miller, Inc. and Subsidiaries 61
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 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 credited quarterly. The units do not entitle participants to
the rights of stockholders of common stock, such as voting rights, until shares are issued after vesting.
The following is a summary of restricted stock unit transactions for the fiscal years indicated:
Share
Units
Weighted Average
Grant-Date
Fair Value
Aggregate Intrinsic
Value in Millions
Weighted-Average
Remaining Contractual
Term (Years)
Outstanding at May 28, 2011
Granted
Forfeited
Released
Outstanding at June 2, 2012
Ending vested + expected to vest
Outstanding at June 2, 2012
Granted
Forfeited
Released
Outstanding at June 1, 2013
Ending vested + expected to vest
Outstanding at June 1, 2013
Granted
Forfeited
Released
Outstanding at May 31, 2014
Ending vested + expected to vest
285,101
$
$
125,589
(10,483) $
(78,484) $
$
321,723
308,645
321,723
$
$
341,534
(66,368) $
(17,569) $
$
579,320
547,093
579,320
$
$
142,004
(10,124) $
(145,094) $
$
566,106
550,322
21.72
25.72
25.13
26.56
21.06
21.06
20.49
19.00
16.14
21.35
$
$
$
$
$
$
21.35 $
28.55
22.94
20.30
23.31 $
$
6.9
5.7
5.4
5.7
16.0
15.0
16.0
17.2
16.0
1.5
1.4
1.4
1.4
1.7
1.6
1.7
1.5
1.5
The weighted-average remaining recognition period of the outstanding restricted stock units at May 31, 2014, was 1.35 years. The fair value of
the share units that vested during the twelve months ended May 31, 2014, was $4.1 million.
62 2014 Annual Report
Performance Share Units
The company grants performance share units to certain key employees. 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:
Outstanding at May 28, 2011
Granted
Forfeited
Outstanding at June 2, 2012
Ending vested + expected to vest
Outstanding at June 2, 2012
Granted
Forfeited
Outstanding at June 1, 2013
Ending vested + expected to vest
Outstanding at June 1, 2013
Granted
Forfeited
Outstanding at May 31, 2014
Ending vested + expected to vest
Share
Units
90,380
Weighted
Average Grant-
Date Fair Value
$
— $
(90,380) $
— $
—
25.52 $
—
25.52
— $
$
— $
$
— $
$
72,500
72,500
68,823
72,500
139,722
$
$
(2,026) $
$
210,196
203,752
— $
17.10
17.10
—
$
$
17.10
31.66
31.74
26.64
$
$
$
Aggregate Intrinsic
Value in Millions
Weighted-Average
Remaining Contractual
Term (Years)
—
—
—
—
2.0
1.9
2.0
6.6
6.4
0.2
0.0
0.0
0.0
2.1
2.1
2.1
1.8
1.8
The weighted-average remaining recognition period of the outstanding performance share units at May 31, 2014, was 1.46 years. The fair value
for shares that vested during the twelve months ended May 31, 2014, was zero.
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" in the Consolidated Balance
Sheets. 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 ($260,000 in 2014). 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.
Herman Miller, Inc. and Subsidiaries 63
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 Consolidated Balance Sheets within the "Other assets" line item. A liability of the
same amount is recorded on the Consolidated Balance Sheets 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 Statements of Comprehensive
Income 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 Statements of Comprehensive Income. The net
effect of any change to the asset and corresponding liability is offset and has no impact on the Consolidated Statements of Comprehensive
Income.
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:
2014
2013
2012
—
12,358
2,317
—
15,746
2,779
—
18,119
3,301
2014
2013
2012
(45.1)
$
1.7
(43.4)
$
89.9
7.3
97.2
$
$
107.6
11.9
119.5
2014
2013
2012
22.2
4.6
4.8
31.6
(43.6)
(5.6)
(3.6)
(52.8)
(21.2)
$
$
36.4
5.2
3.9
45.5
(14.9)
(1.4)
(0.3)
(16.6)
28.9
$
$
21.8
2.0
6.0
29.8
11.2
1.4
1.9
14.5
44.3
$
$
$
$
Options
Shares of common stock
Shares through the deferred compensation program
10. Income Taxes
The components of earnings (loss) 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
64 2014 Annual Report
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
Meals and entertainment
Manufacturing deduction under the American Jobs Creation Act of 2004
State taxes
Repatriated earnings and related foreign tax credits
Other, net
Income tax expense (benefit)
Effective tax rate
2014
2013
2012
$
(15.2)
$
34.0
$
41.8
0.4
(0.9)
1.0
(3.9)
(0.9)
(0.3)
(1.4)
(21.2)
48.9%
$
0.1
(1.9)
0.8
(4.0)
2.5
(0.6)
(2.0)
28.9
29.8%
$
(0.3)
(1.2)
0.8
(2.9)
3.0
(0.2)
3.3
44.3
37.1%
$
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at May 31,
2014 and June 1, 2013, are as follows:
(In millions)
Deferred tax assets:
Compensation-related accruals
Accrued pension and post-retirement benefit obligations
Inventory related
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
Foreign capital loss carryforward
Financing costs
Other
Subtotal
Valuation allowance
Total
Deferred tax liabilities:
Book basis in property in excess of tax basis
Intangible assets
Other
Total
2014
2013
$
$
$
$
19.5
9.7
3.7
1.5
4.6
8.5
3.2
0.1
0.2
9.9
0.1
0.1
1.2
3.4
65.7
(8.5)
57.2
(14.7)
(18.1)
(2.4)
(35.2)
$
$
$
$
17.7
19.4
2.7
1.8
3.9
8.2
3.0
0.2
0.6
9.2
0.1
0.1
2.1
3.6
72.6
(9.9)
62.7
(16.5)
(20.5)
(2.9)
(39.9)
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 31, 2014, the company had state and local tax NOL carry-forwards of $49.0 million, the tax benefit of which is $3.2 million, which have
various expiration periods from one to twenty-one years. The company also had state credits with a tax benefit of $0.2 million which expire in
one to two 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 $1.7 million.
Herman Miller, Inc. and Subsidiaries 65
At May 31, 2014, the company had a federal NOL carry-forward of $0.3 million, the tax benefit of which is $0.1 million, which expires in fourteen
years. For financial statement purposes, the NOL carry-forward has been recognized as a deferred tax asset.
At May 31, 2014, the company had a foreign capital loss carry-forward of $0.3 million, the tax benefit of which is $0.1 million, which has an
expiration period of an unlimited term. For financial statement purposes, the capital loss carry-forward has been recognized as a deferred tax
asset, subject to a valuation allowance of $0.1 million.
At May 31, 2014, the company had foreign net operating loss carry-forwards of $41.1 million, the tax benefit of which is $9.9 million, which have
expiration periods from five years to an unlimited term. The company also had foreign tax credits with a tax benefit of $0.1 million which expire
in two to six 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 $5.4 million.
At May 31, 2014, the company had foreign deferred assets of $6.5 million, the tax benefit of which is $1.3 million, which is primarily related to
financing costs. For financial statement purposes, the assets have been recognized as deferred tax assets, subject to a valuation allowance of
$1.3 million.
The company has not provided for United States income taxes on undistributed earnings of foreign subsidiaries totaling approximately $67.5
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 June 2, 2012
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 statute of limitations
Decreases related to settlements
Balance at June 1, 2013
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 statute of limitations
Decreases related to settlements
Balance at May 31, 2014
$
$
1.3
0.4
—
(0.1)
(0.2)
—
1.4
0.5
—
—
(0.1)
—
1.8
The company's effective tax rate would have been affected by the total amount 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 (benefit)" in its Consolidated
Statements of Comprehensive Income. Interest and penalties and the related liability were as follows for the periods indicated:
(In millions)
Interest and penalty expense
Liability for interest and penalties
May 31, 2014
June 1, 2013
June 2, 2012
$
$
0.2
0.6
$
$
— $
0.4
—
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 Statements of Comprehensive Income.
66 2014 Annual Report
During the year, the company has closed the audit of fiscal year 2013 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 2011.
11. 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 31, 2014 and June 1, 2013. The carrying value and fair value of the
company's long-term debt, including current maturities, is as follows for the periods indicated:
(In millions)
Carrying value
Fair value
May 31, 2014
June 1, 2013
$
$
250.0
279.2
$
$
250.0
283.5
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 available-for-sale marketable securities primarily include government obligations and mortgage-
backed securities and are valued using quoted prices for similar securities.
Foreign currency exchange contracts — The company's 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 current market-based activity.
Deferred compensation plan assets — The company's deferred compensation plan assets primarily include domestic equity large cap and
lifestyle mutual funds and are valued using quoted prices for similar securities.
The following tables set forth financial assets and liabilities measured at fair value in the Consolidated Balance Sheets and the respective pricing
levels to which the fair value measurements are classified within the fair value hierarchy as of May 31, 2014 and June 1, 2013:
(In millions)
Financial Assets
Available-for-sale marketable securities:
Asset-backed securities
Corporate debt securities
Government obligations
Mortgage-backed securities
Foreign currency forward contracts
Deferred compensation plan
Total
Financial Liabilities
Foreign currency forward contracts
Total
Fair Value Measurements
May 31, 2014
June 1, 2013
Quoted Prices With Other
Observable Inputs
(Level 2)
Quoted Prices With Other
Observable Inputs
(Level 2)
$
$
$
$
$
0.4
1.2
7.9
1.6
0.2
6.3
17.6
$
0.1
0.1
$
$
0.8
1.7
5.1
3.2
0.3
4.8
15.9
0.3
0.3
Herman Miller, Inc. and Subsidiaries 67
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 debt securities
Government obligations
Mortgage-backed securities
Total
(In millions)
Asset-backed securities
Corporate debt securities
Government obligations
Mortgage-backed securities
Total
$
$
$
$
May 31, 2014
Cost
Unrealized
Gain
Unrealized
Loss
0.4
1.2
7.9
1.6
11.1
$
$
— $
—
—
—
— $
Market Value
0.4
1.2
7.9
1.6
11.1
— $
—
—
—
— $
June 1, 2013
Cost
Unrealized
Gain
Unrealized
Loss
0.8
1.7
5.1
3.2
10.8
$
$
— $
—
—
—
— $
— $
—
—
—
— $
Market Value
0.8
1.7
5.1
3.2
10.8
The company does not hold any Level 3 financial instruments.
Maturities of debt securities included in marketable securities as of May 31, 2014, are as follows:
(In millions)
Due within one year
Due after one year through five years
Due after five years
Total
Cost
Market
Value
$
$
2.9
8.1
0.1
11.1
$
$
2.9
8.1
0.1
11.1
68 2014 Annual Report
12. 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)
2014
2013
2012
$
$
37.8
4.6
Depreciation expense
Amortization expense
Provision for losses on accounts receivable and notes
receivable
(Gain) Loss on sales of property and dealers
Deferred income tax expense (benefit)
Pension expense
Restructuring and impairment expenses
Stock-based compensation
Excess tax benefits from stock-based compensation
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
$
13. Warranties, Guarantees, and Contingencies
Product Warranties
34.4 $
3.1
0.6
0.8
(16.6)
31.9
1.2
8.1
(0.3)
(9.2)
(2.9)
(7.7)
(4.6)
9.3
6.0
14.2
17.2
68.3 $
34.4
2.8
1.6
0.9
14.5
8.8
5.4
6.0
0.1
(66.5)
(1.9)
17.5
0.2
2.7
4.8
(16.4)
8.8
14.9
1.0
(1.7)
(52.8)
115.4
26.2
11.0
(1.1)
(8.5)
1.5
(26.7)
(2.2)
(3.2)
2.6
8.3
(21.2)
112.2
$
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
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
Accrual for warranty matters
Change in estimate
Settlements
Accrual balance, ending
Other Guarantees
2014
2013
2012
$
$
24.8 $
20.2
—
(19.8)
25.2 $
22.2
23.3
—
(20.7)
24.8
$
$
17.0
24.9
5.0
(24.7)
22.2
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 31,
Herman Miller, Inc. and Subsidiaries 69
2014, the company had a maximum financial exposure related to performance bonds of approximately $7.5 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 31, 2014 and June 1, 2013.
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 31, 2014 and June 1, 2013.
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 31, 2014, the company had a maximum financial exposure from these insurance-related standby letters of credit of
approximately $4.9 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 31, 2014 and June 1, 2013.
Contingencies
The company leases a facility in the United Kingdom under an agreement that expired in June 2011 and the company is currently leasing the
facility on a month to month basis. Under the terms of the lease, the company is required to perform the maintenance and repairs necessary to
address the general dilapidation of the facility over the lease term. The ultimate cost of this provision to the company is dependent on a number
of factors including, but not limited to, the future use of the facility by the lessor and whether the company chooses and is permitted to renew
the lease term. The company has estimated the cost of these maintenance and repairs to be between $0 million and $3.0 million, depending
on the outcome of future plans and negotiations. Based on existing circumstances, it is estimated that these costs will most likely approximate
$1.5 million as of May 31, 2014, and was estimated to be $1.3 million as of June 1, 2013. As a result, these amounts have been recorded as a
liability reflected under the caption “Accrued liabilities” for fiscal 2014 and fiscal 2013 in the Consolidated Balance Sheets.
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.
As of the end of fiscal 2014, outstanding commitments for future purchase obligations approximated $54.2 million.
On July 25, 2014, the company's Nemschoff subsidiary received observations from an inspection by the Food and Drug Administration (“FDA”)
at its manufacturing facility. The company will provide a written response to the FDA within 15 days of receipt of the observations. Following
the written response the company will have discussions with the FDA District Office regarding the observations to further determine the scope
and remedy for the observations. At this time no estimate of potential impact on the consolidated financial statements related to these observations
can be made.
14. Operating Segments
The company's reportable segments consist of North American Furniture Solutions, ELA ("EMEA, Latin America, and Asia Pacific") Furniture
Solutions, and Specialty and Consumer. The North American Furniture Solutions reportable 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 reportable segment.
During fiscal 2014, the company renamed its international reportable business segment ELA Furniture Solutions in order to better describe the
geographic regions it serves, which include EMEA, Latin America, and Asia-Pacific. Prior to this name change, the company referred to this
segment as "Non-North America." ELA Furniture Solutions includes the operations associated with the design, manufacture, and sale of furniture
products, primarily for work-related settings, in these aforementioned geographic regions.
The Specialty and Consumer reportable segment includes the operations associated with the design, manufacture, and sale of high-end furniture
products including Geiger wood products, Maharam textiles, Herman Miller Collection products and the company's North American consumer
business.
70 2014 Annual Report
The company also reports a “Corporate” category consisting primarily of unallocated corporate expenses including 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
ELA Furniture Solutions
Specialty and Consumer
Corporate
Total
Depreciation and Amortization:
North American Furniture Solutions
ELA Furniture Solutions
Specialty and Consumer
Corporate
Total
Operating Earnings (Losses):
North American Furniture Solutions
ELA Furniture Solutions
Specialty and Consumer
Corporate
Total
Capital Expenditures:
North American Furniture Solutions
ELA Furniture Solutions
Specialty and Consumer
Corporate
Total
Total Assets:
North American Furniture Solutions
ELA Furniture Solutions
Specialty and Consumer
Corporate
Total
Goodwill:
North American Furniture Solutions
ELA Furniture Solutions
Specialty and Consumer
Corporate
Total
2014
2013
2012
$
1,216.3
$
1,221.9
$
392.2
273.5
—
377.3
175.7
—
1,882.0
$
1,774.9
$
$
26.8
7.6
8.0
—
$
28.0
6.6
2.9
—
42.4
$
37.5
$
(27.0)
23.1
4.6
(26.4)
(25.7)
$
$
$
28.9
6.4
5.5
—
40.8 $
457.0
244.8
176.5
112.6
990.9
$
$
135.8
42.6
49.8
—
228.2
$
$
76.6
24.7
15.4
(1.8)
114.9
$
$
$
33.6
15.9
0.7
—
50.2 $
427.8
250.9
174.3
93.5
946.5
$
$
136.1
41.1
49.8
—
227.0
$
$
$
$
$
$
$
$
$
$
$
$
$
1,218.5
347.3
158.3
—
1,724.1
31.7
3.7
1.8
—
37.2
96.9
32.1
15.1
(6.5)
137.6
20.3
3.3
4.9
—
28.5
389.2
231.5
36.5
181.9
839.1
104.9
40.5
1.0
—
146.4
The accounting policies of the reportable operating segments are the same as those of the company. Additionally, the company employs a
methodology for allocating corporate costs and assets with the underlying objective of this methodology being 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
majority of the allocations for corporate expenses are based on relative net sales. However, certain corporate costs, 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. For example, restructuring and impairment expenses that are reflected in operating earnings are allocated to the “Corporate” category.
Herman Miller, Inc. and Subsidiaries 71
In addition, cash and cash equivalents and marketable securities are allocated to the “Corporate” category as the company views these as
corporate assets.
The restructuring and asset impairment charges of $26.5 million, $1.2 million, and $5.4 million in fiscal 2014, fiscal 2013 and fiscal 2012,
respectively are discussed in Note 16 of the Consolidated Financial Statements and were allocated to the “Corporate” 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
Other (1)
Total
2014
2013
2012
$
$
571.6
658.2
386.4
265.8
$
572.9
609.8
395.0
197.2
$
1,882.0
$
1,774.9
$
549.5
619.8
334.3
220.5
1,724.1
(1) “Other” primarily consists of textiles or 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 the company
operates are considered material for separate disclosure based on quantitative and qualitative considerations.
(In millions)
Net Sales:
United States
International
Total
(In millions)
Long-lived assets:
United States
International
Total
2014
2013
2012
1,406.3
$
1,291.5
$
475.7
483.4
1,882.0
$
1,774.9
$
1,271.9
452.2
1,724.1
2014
2013
2012
177.0
35.4
212.4
$
$
169.2
29.8
199.0
$
$
146.4
18.1
164.5
$
$
$
$
It is estimated that no single dealer accounted for more than 5 percent of the company's net sales in the fiscal year ended May 31, 2014. It is
also estimated that the largest single end-user customer, the U.S. federal government, accounted for approximately $102 million or 5 percent
of the company's fiscal 2014 net sales. These sales are recorded within the North American Furniture Solutions reportable segment.
Approximately 8.0 percent of the company's employees are covered by collective bargaining agreements, most of whom are employees of its
Nemschoff and Herman Miller Ningbo subsidiaries.
72 2014 Annual Report
15. Accumulated Other Comprehensive Loss
The following table provides an analysis of the changes in accumulated other comprehensive loss for the years ended May 31, 2014 and
June 1, 2013:
Year Ended
(In millions)
May 31, 2014
June 1, 2013
June 2, 2012
Cumulative translation adjustments at beginning of period
Translation adjustments
Balance at end of period
Pension and other post-retirement benefit plans at beginning of period
Adjustments to pension and other post-retirement benefit plans
Reclassification to earnings - cost of sales (net of tax $(15.8), $(1.0), $3.5)
Reclassification to earnings - operating expenses (net of tax $(35.1), $(7.8),
$8.7)
Balance at end of period
Total accumulated other comprehensive loss
16. Restructuring and Impairment Activities
2014 Restructuring and Impairment Charges
(14.0)
2.9
(11.1)
(110.3)
(3.1)
27.6
59.0
(26.8)
(37.9)
(13.0)
(1.0)
(14.0)
(127.6)
0.5
1.8
15.0
(110.3)
(124.3)
(5.9)
(7.1)
(13.0)
(98.3)
—
(8.5)
(20.8)
(127.6)
(140.6)
The company recognized asset impairment expenses totaling $21.4 million associated with the Nemschoff and POSH trade name intangibles
for the fiscal year 2014. The company also recognized restructuring expenses of $1.1 million during the third quarter of fiscal 2014. This
restructuring charge was related to actions taken to improve the efficiency of the North American sales and distribution channel and Geiger
manufacturing operations. These actions focused primarily on targeted workforce reductions.
Due to the acquisition of a manufacturing and distribution operation in Dongguan, China in the second quarter of 2014, the company has decided
not to pursue the construction of a new manufacturing and distribution facility on property that it previously acquired in Ningbo, China. In
connection with this decision, the company evaluated the fair value of this property and recorded an asset impairment of $4.0 million during the
second quarter. This impairment charge was recorded to the "Restructuring and impairment expenses" line item within the Consolidated
Statements of Comprehensive Income. The impairment charge is included within the "Corporate" category within the segment reporting.
2012 Plan
In May 2012, the company announced a plan ("The 2012 Plan") to consolidate the Nemschoff manufacturing operations in Sheboygan, Wisconsin
with the closure of the Sioux City, Iowa seating plant. The 2012 plan also included the consolidation of the Sheboygan manufacturing sites into
one location. This plan reduced fixed costs and operating expenses in order to improve operating performance, profitability and further enhance
productivity. This Plan reduced our workforce in North America, by approximately 70 employees. No additional restructuring expenses are
anticipated in future periods for the 2012 Plan.
Herman Miller, Inc. and Subsidiaries 73
2012 Action Plan
(In millions)
Balance as of May 28, 2011
Restructuring and impairment expenses
Cash payments
Adjustments
Balance as of June 2, 2012
Restructuring and impairment expenses
Cash payments
Adjustments
Balance as of June 1, 2013
Cash payments
Balance as of May 31, 2014
Total Plan
Costs
Severance and
Outplacement
Costs
Building
Impairment Costs
$
$
$
$
— $
— $
1.6
(0.1)
(1.3)
0.2
1.2
(1.0)
(0.2)
0.2
$
(0.2) $
— $
0.2
—
—
0.2
0.3
(0.5)
—
— $
— $
— $
—
1.4
(0.1)
(1.3)
—
0.9
(0.5)
(0.2)
0.2
(0.2)
—
In addition to the restructuring expenses noted above, the company recorded an impairment of certain assets for fiscal 2012 totaling $3.8 million.
These assets were related to products and trade names that we determined had no future revenue stream to the company.
These charges have been reflected separately as "Restructuring and impairment expenses" in the Consolidated Statements of Comprehensive
Income. The impairment and restructuring charges described above are recorded in the "Restructuring and impairment expenses" line in the
Consolidated Statements of Comprehensive Income and are included in the "Corporate" category within the segment reporting within Note 14.
17. Quarterly Financial Data (Unaudited)
Set forth below is a summary of the quarterly operating results on a consolidated basis for the years ended May 31, 2014, June 1, 2013, and
June 2, 2012.
(In millions, except per share data)
2014 Net sales
Gross margin (1)
Net earnings (loss)
Earnings (loss) per share-basic (1)
Earnings (loss) per share-diluted (1)
2013 Net sales (1)
Gross Margin
Net earnings (1)
Earnings per share-basic (1)
Earnings per share-diluted
2012 Net sales (1)
Gross margin (1)
Net earnings (1)
Earnings per share-basic (1)
Earnings per share-diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
468.1
$
170.0
22.5
0.38
0.38
$
470.5
118.9
(80.6)
(1.37)
(1.37)
$
449.7
$
441.8
$
149.7
20.0
0.34
0.34
148.5
8.4
0.14
0.14
$
458.1
$
445.6
$
154.3
24.6
0.42
0.42
152.1
23.7
0.41
0.41
$
$
$
455.9
162.9
19.4
0.33
0.33
423.5
144.4
16.5
0.28
0.28
399.8
134.2
14.9
0.26
0.26
487.5
179.1
16.6
0.28
0.28
460.0
162.6
23.4
0.40
0.40
420.7
150.1
11.9
0.21
0.20
(1) The sum of the quarters does not equal the annual balance reflected in the Consolidated Statements of Comprehensive Income due to
rounding associated with the calculations on an individual quarter basis.
74 2014 Annual Report
18. Subsequent Events
Amendment and Restatement of Credit Facility
On July 21, 2014, the company entered into an amendment and restatement of an existing unsecured credit facility (the “Agreement”). The
Agreement, which expires on July 21, 2019, provides the company with up to $250 million in revolving variable interest borrowing capacity. In
addition, the Agreement includes an “accordion feature” allowing the company to increase, at its option and subject to the approval of the
participating banks, the aggregate borrowing capacity of the facility by up to $125 million. Amounts borrowed under the Agreement are subject
to variable rates of interest tied to a base rate (either Prime, LIBOR or U.S. Federal Funds) depending on the form of borrowing selected by the
company.
Acquisition of Design Within Reach
On July 28, 2014, the company acquired the majority of the outstanding equity of Design Within Reach, Inc. ("DWR”), a Stamford, Connecticut-
based, leading North American marketer and seller of modern furniture, lighting and accessories primarily serving consumers and design trade
professionals. The Company acquired an ownership interest in DWR equal to approximately 83 percent, for $155 million in cash. An additional
payment will be made to DWR public shareholders following their election to tender their shares in exchange for cash. The final cash purchase
price will be subject to post-closing adjustments to be determined within 60 days of closing. As a result of the transaction, the Company estimates
it will receive future tax benefits with a present value of approximately $10 million. The results of DWR will be included within a newly created
"Consumer" reportable segment. This new segment will be comprised of DWR and the company's existing North American consumer business.
The company financed the acquisition of DWR using a combination of existing cash and $127 million of borrowings on its available unsecured
credit facility. The amount borrowed is subject to an initial rate of interest equal to 3.25% per annum. Immediately following this acquisition, the
unused borrowing capacity available to the company under the unsecured credit facility totaled $112.4 million.
Herman Miller, Inc. and Subsidiaries 75
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 31, 2014, based on the original framework in Internal
Control — Integrated Framework (1992 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 31, 2014.
Ernst & Young LLP has issued an attestation report on the effectiveness of our internal control over financial reporting, which appears on page
77.
/s/ Brian C. Walker
Brian C. Walker
Chief Executive Officer
/s/ Gregory J. Bylsma
Gregory J. Bylsma
Chief Financial Officer
76 2014 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 31, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (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 31, 2014,
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 2014
consolidated financial statements of Herman Miller, Inc., and our report dated July 29, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 29, 2014
Herman Miller, Inc. and Subsidiaries 77
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 31, 2014 and June 1, 2013, and the related
consolidated statements of comprehensive income, stockholders' equity, and cash flows for each of the three fiscal years in the period ended
May 31, 2014. 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 31, 2014 and June 1, 2013, and the consolidated results of their operations and their cash flows for each of the three fiscal
years in the period ended May 31, 2014, 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 31, 2014, based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated July 29, 2014 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 29, 2014
78 2014 Annual Report
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
Item 9A CONTROLS AND PROCEDURES
(a)
(b)
(c)
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 31, 2014, 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.” The effectiveness
of the company's internal control over financial reporting has been audited by Ernst and Young LLP, an independent registered
accounting firm, as stated in its report included in Item 8.
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 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B OTHER INFORMATION
None
Herman Miller, Inc. and Subsidiaries 79
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 2014 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 2014 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 2014 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 2014 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 2014 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
2014 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 2014 Annual Meeting of
Stockholders, and the information within that section is incorporated by reference.
80 2014 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 Comprehensive Income
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
38
39
40
42
43
76
77
78
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 31, 2014,
June 1, 2013, and June 2, 2012
Page Number in
this Form 10-K
83
84
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 85-87.
Herman Miller, Inc. and Subsidiaries 81
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/ Jeffrey M. Stutz
Jeffrey M. Stutz
Chief Accounting Officer
(Principal Accounting Officer and Duly Authorized
Signatory for Registrant)
Date:
July 29, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on, July 29, 2014 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/ Heidi Manheimer
Heidi Manheimer
(Director)
/s/ Gregory J. Bylsma
Gregory J. Bylsma
(Chief Financial Officer)
82 2014 Annual Report
/s/ Lisa Kro
Lisa Kro
(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/ J. Barry Griswell
J. Barry Griswell
(Director)
/s/ Brian C. Walker
Brian C. Walker
(President, Chief Executive Officer, and
Director)
/s/ Jeffrey M. Stutz
Jeffrey M. Stutz
(Chief Accounting Officer)
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. as of May 31, 2014 and June 1, 2013, and for each of the three
fiscal years in the period ended May 31, 2014, and have issued our report thereon dated July 29, 2014 (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.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 29, 2014
Herman Miller, Inc. and Subsidiaries 83
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Column A
Column B
Column C
Column D
Column E
Description
Year ended May 31, 2014:
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 June 1, 2013:
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 June 2, 2012:
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
$
$
$
$
$
$
$
$
$
$
$
$
3.9 $
1.0
$
(1.5)
$
3.4
0.5 $
0.1
$
— $
0.6
0.2 $
— $
(0.1)
$
0.1
9.9 $
(1.8)
$
0.4
$
8.5
4.1 $
0.4
$
(0.6)
$
3.9
0.3 $
0.2
$
— $
0.5
0.2 $
— $
— $
0.2
10.3 $
(0.5)
$
0.1
$
9.9
4.1 $
1.6
$
(1.6)
$
4.1
0.4 $
— $
(0.1)
$
0.3
0.3 $
— $
(0.1)
$
0.2
11.6 $
(0.7)
$
(0.6)
$
10.3
(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.
84 2014 Annual Report
EXHIBIT INDEX
(3)
Articles of Incorporation and Bylaws
(a)
Restated Articles of Incorporation, dated October 4, 2013.
(b)
Amended and Restated Bylaws, dated July 14, 2014.
(4)
Instruments Defining the Rights of Security Holders
(a)
(b)
(c)
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.
(10)
Material Contracts
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
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.*
Herman Miller, Inc. 2011 Long-Term Incentive Plan is incorporated by reference from Appendix I of the Registrant's
Definitive Proxy Statement dated August 30, 2011, filed with the Commission as of August 30, 2011*
Herman Miller, Inc. Amended and Restated Nonemployee Officer and Director Deferred Compensation Stock
Purchase Plan, is incorporated by reference from Exhibit 10.3 of the Registrant's Form 10-Q Quarterly Report for the
quarter ended September 3, 2011. *
Form of Change in Control Agreement of the Registrant, is incorporated by reference from Exhibit 10.1 of the
Registrant's Form 10-K dated July 26, 2011.
Herman Miller, Inc. Amended and Restated Key Executive Deferred Compensation Plan, dated January 23, 2006, is
incorporated by reference from Exhibit 10.4 of the Registrant's Form 10-Q Quarterly Report for the quarter ended
September 3, 2011. *
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 10.5 of the Registrant's Form 10-Q Quarterly Report for the quarter ended September 3, 2011. *
Herman Miller, Inc. and Subsidiaries 85
(i)
(j)
(k)
(l)
Second Amended and Restated Credit agreement dated as of November 18, 2011 among Herman Miller, Inc. and
various lenders, is incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-Q Quarterly Report for the
quarter ended December 1, 2012.
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. *
Form of Herman Miller, Inc., Long-Term Incentive Plan Stock Option Agreement is incorporated by reference from
Exhibit 99.1 of the Registrants Form 8-K dated July 23, 2012.*
Form of Herman Miller, Inc., Long-Term Incentive Restricted Stock Unit Award is incorporated by reference from
Exhibit 99.2 of the Registrants Form 8-K dated July 23, 2012.*
(m)
Form of Herman Miller, Inc., Long-Term Incentive Performance Stock Unit EBITDA Award is incorporated by reference
from Exhibit 99.3 of the Registrants Form 8-K dated July 23, 2012.*
(n)
Third Amended and Restated Credit agreement dated as of July 21, 2014 among Herman Miller, Inc. and various
lenders is incorporated by reference from 10.1 of the Registrant's Form 8-K dated July 22, 2014.
(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.INS XBRL Instance Document**
101.SCH XBRL Taxonomy Extension Schema Document**
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101.LAB XBRL Taxonomy Extension Label Linkbase Document**
86 2014 Annual Report
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**
101.DEF XBRL Taxonomy Extension Definition Linkbase Document**
* Denotes compensatory plan or arrangement.
** In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 shall be deemed “furnished” and not “filed” under
sections 11 or 12 of the Securities Act of 1933 and/or under section 18 of the Securities and Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
Herman Miller, Inc. and Subsidiaries 87
© 2014 Herman Miller, Inc., Zeeland, Michigan Printed in U.S.A. on recycled paper P.MS2850-2
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subsidiaries
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