Notice of
Annual Meeting of Shareholders
Proxy Statement
2Y 1
2Y 1 7
Herman Miller, Inc., and Subsidiaries
August 29, 2017
Dear Fellow Herman Miller Shareholder,
Over the past five years, Herman Miller’s nearly 8,000 employees have expanded our addressable markets and built a strong multi-channel
business to deliver our designs and innovations to new audiences virtually anywhere in the world. In the face of an unpredictable macro-
economic and geopolitical environment, we made important strategic progress against our agenda in fiscal 2017 and delivered sales of $2.28
billion - a record for the second year in a row. Adjusted earnings per share (1) of $2.16 were in line with the prior year, as the organization did an
excellent job of managing costs against a backdrop of higher commodity costs and a challenging pricing environment stemming from choppy
industry order levels.
As our business and industry continue to evolve, we see new ways of living and working, new customer demands for greater variety and choice,
new competition from inside and outside the industry, new demand for data insights, and new service models for creating and fulfilling demand.
Given our view of the future, we have centered our value creation strategy on five key objectives as we move into the coming year. These
objectives will be instrumental in achieving our overarching goal of sustainable, profitable growth.
Realize the Living Office
Over the last five years, the Living Office concept has provided an important framework for speaking to our customers about their workplaces
and understanding and navigating the changes we see in their worlds. In the new phase of the Living Office story, we will more fully focus on
customer outcomes - solving not just for furniture needs, but for business needs.
Through a series of smart partnerships, we are integrating technology more powerfully than ever before. As we showed at our industry’s annual
exhibition in Chicago, with smart desks, chairs, and technology-focused settings, we’re able to help deliver a better experience of work for
people, and get organizations the data and insights they need to make better informed decisions about how they use their space.
Leverage our Dealer Eco-system
We intend to deliver more value to our customers by leveraging our powerful dealer network to its fullest. We will remove the friction of doing
business with multiple brands and companies and help our dealers manage an increasingly diverse line of products and services, we will position
them and Herman Miller to win more business. As customer needs have evolved towards a greater mix of collaborative furnishings, we created
dedicated resources this past year under the Herman Miller Elements umbrella to best position the Herman Miller Collection, Geiger, Maharam,
Design Within Reach and naughtone brands for further growth in this space.
Moving forward, we need to make it easier for contract customers to find, order, and acquire products from any company in the Herman Miller
group. We rolled out a digital platform as a first step toward accomplishing this goal in Europe last year, and we are working on similar
enhancements to our order fulfillment technology in the U.S.
Scale our Consumer Business
Driving both top line growth and improved profitability through scaling our Consumer business is a top priority for our team. The Consumer
business made excellent progress on the top line this year as sales grew 10% in fiscal 2017. We have expanded the real estate footprint of our
Consumer business significantly, opening eight new Design Within Reach studios plus the Herman Miller flagship location in New York, that
collectively added around 70,000 square feet of selling space this year. The New York flagship showcases the entirety of the Herman Miller
group of brands in one place. We also expanded our mix of exclusive product designs, launching over 100 new proprietary products designed
for Design Within Reach and Herman Miller, which bring with them a higher gross margin profile. We implemented changes to the way we target
and execute our direct-to-consumer catalog mailing program, and the results have been dramatic - marked by significant improvements in
virtually every metric - including total circulation, average order value, mailing response rates, and orders per book. Throughout the fiscal year
we also demonstrated continued growth across our eCommerce platforms and within our Design Within Reach Contract channel, while at the
same time optimizing our marketing investments in these areas.
Moving forward, we will focus on driving increased profitability. We’ll continue to expand the studio footprint, increase the mix of exclusive product
designs and drive further growth in our contract, catalog and digital channels. We’ll support these efforts by re-envisioning the customer experience
from browsing and shopping through delivery, and by deepening our connection to younger buyers for which our designs represent an aspirational
purchase. Our goal here is simple: To accelerate our path toward sustained growth and profitability across each of our Consumer channels.
These actions bring the opportunity to meaningfully increase operating margins for the Consumer business over the next three years.
Drive Cost Savings
We announced a three-year cost savings initiative in March of this year to deliver $25 million to $35 million in gross annual cost reductions by
fiscal 2020. Our operating expenses during the fourth quarter of 2017 began to show early results from this effort, and we recently announced
a facility consolidation in the U.K. that will contribute to these savings going forward. The realignment of our organizational structure that we put
in place during the third quarter of fiscal 2017 to help speed decision making and place more authority into business units is already contributing
to our progress on this front and we expect it to be a key enabler of this initiative going forward.
Deliver Innovation
Finally, in the past year, our innovation agenda remained at the forefront. We launched number of new products, including the remastered Aeron
chair with meaningful material and technology innovations that will extend the life of this powerful franchise. We showcased two new products
- Prospect, which is a line of freestanding furniture designed to foster collaborative and individual creativity, and the Taper executive chair from
Geiger, both of which won Best of NeoCon Gold awards this past June. New products represented 24% of our consolidated revenue during
fiscal 2017 - exceeding our annual target of 20%.
Product innovation has been a traditional strength at Herman Miller, and we’re determined to keep this dimension of our business as a competitive
edge. The creative direction of product development and new product commercialization now function under common leadership, and over the
coming year we’ll further reduce our time to market and ensure design and development at Herman Miller responds to our customers’ most
critical needs through a robust pipeline of new products and solutions.
These five key objectives were developed with sustainable, profitable growth as the ultimate goal for a new Herman Miller that our work over
the past decades has allowed us to imagine. Over that time we have worked hard to put in place the building blocks to enable us to re-invent
who we are and expand our opportunity. In the mid-90s we first achieved sales of $1 billion. At the turn of the 2000s, we achieved $2 billion in
sales for the first time. Now we must set our sights on a new horizon, where Herman Miller is a $3-billion global and multi-channel enterprise
serving customers across a number of segments.
We believe we are reaching a tipping point in our strategy, where the new realities we have been talking about for several years - multi-channel
capabilities, need for product innovation and customization, global connections with consumers - all begin to converge to deliver sustainable
sales and profit growth. Our vision for transforming Herman Miller into a global provider of inspiring designs to help people live, work, heal and
learn better is bold and challenging. Our vision includes an agenda that requires imagination, stretches our resources and pulls us to constantly
re-examine what and how we do things. We are confident that the progress we have made combined with our talented group of employee-
owners will propel us to achieve our vision.
Last year, I ended this letter by re-stating our mission - inspiring designs to help people do great things. We continue to believe that these words
accurately sum up the aspirations of all the companies in the Herman Miller community. This mission requires innovative thinking and high-
level execution of our business strategy. The result? Lasting relationships with customers whose business objectives we help them meet, great
returns for our shareholders, and rewarding work for our employees.
Thank you once again for your connection to Herman Miller. We don’t take your investment for granted, and we will work hard to use your
investment in wise and rewarding ways.
Sincerely,
Brian C. Walker
President and Chief Executive Officer
Notice of Annual Meeting of Shareholders
The Annual Meeting of the Shareholders of Herman Miller, Inc. (the “Company”) will be held on October 9, 2017, by means of remote
communication on the Internet at www.virtualshareholdermeeting.com/MLHR17, at 10:30 a.m. (ET) for the following purposes:
1. To elect four directors, each for a term of three years
2. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm
3. To approve the Fourth Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan
4. To vote, on an advisory basis, to approve the annual compensation paid to the Company's named executive officers
5. To consider, on an advisory basis, the frequency of future advisory votes on compensation
6. To transact such other business as may properly come before the meeting or any adjournment thereof
Shareholders of record at the close of business on August 11, 2017, will be entitled to vote at the meeting.
Please note that this year's Annual Shareholders' Meeting will be held via the Internet only. The accompanying proxy materials include instructions
on how to participate in the meeting and the means by which you may vote your shares of Company stock.
We encourage you to vote your Proxy, at your earliest convenience, by one of the following means:
By visiting www.proxyvote.com on the Internet
And if you request paper materials:
By calling (within the U.S. or Canada) toll free at 1-800-690-6903; or
By signing and returning your Proxy card
You may also vote at the meeting via the internet by visiting www.virtualshareholdermeeting.com/MLHR17 and following the instructions.
Regardless of whether you expect to attend the meeting through the Internet, please vote your shares in one of the ways listed above.
By order of the Board of Directors
H. Timothy Lopez, Secretary
August 29, 2017
Table of Contents
Solicitation of Proxies and Voting (Q&A)
Financial Highlights from 2017
Proposal #1 - Election of Directors
Corporate Governance and Board Matters
Board Committees
Proposal #2 - Ratification of Appointment of Independent Registered Public Accounting Firm
Report of the Audit Committee
Proposal #3 - Proposal to Approve the Fourth Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan
Proposal #4 - Proposal to Approve, on an Advisory Basis, the Annual Compensation Paid to the Company's Named
Executive Officers
Proposal #5 - Consider, on an Advisory Basis, the Frequency of Future Advisory Votes on Executive Compensation
Voting Securities and Principal Shareholders
Director and Executive Officer Information
Compensation Discussion and Analysis
Executive Compensation Committee Report
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
Equity Compensation Plan Information
Section 16(a) Beneficial Ownership Reporting Compliance
Certain Relationships and Related Party Transactions
Reconciliation of Non-GAAP Financial Measures
Submission of Shareholder Proposals for the 2018 Annual Meeting
Miscellaneous
Appendix I - Herman Miller, Inc. 2011 Long-Term Incentive Plan as Amended
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Herman Miller, Inc.
855 East Main Avenue
PO Box 302
Zeeland, Michigan 49464-0302
Proxy Statement Dated August 29, 2017
This Proxy Statement and the accompanying Proxy, which we are making available to shareholders on or about August 29, 2017, are furnished
to the shareholders of Herman Miller, Inc. in connection with the solicitation by the Board of Directors of proxies to be used at the Annual Meeting
of Shareholders. This meeting will be held on October 9, 2017, at 10:30 a.m. (ET). Please note that this year's Annual Meeting will once again
be held via the Internet rather than in person.
What is a proxy?
A proxy is your authorization for someone else to vote your shares for you in the way that you want to vote and allows you to be represented
at our Annual Meeting if you are unable to attend the meeting. When you complete and submit a proxy card or use the automated telephone
voting system or the Internet voting system, you are submitting a proxy. As used in this proxy statement, the terms “the Company,” “we,” “our”
and “us” all refer to Herman Miller, Inc. and its subsidiaries.
What is a proxy statement?
A proxy statement is a document the United States Securities and Exchange Commission (“SEC”) requires to explain the matters on which we
are asking you to vote at our Annual Meeting by proxy and to disclose certain information that may be helpful to you in deciding how to vote.
This proxy statement was first made available to the shareholders on or about August 29, 2017.
Why am I receiving my proxy materials electronically instead of receiving paper copies through the mail?
We are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing printed copies of the proxy statement and
annual report. This supports our on-going commitment to sustainability by reducing the amount of paper needed to circulate the proxy material
and at the same time reducing our cost associated with mailing the proxy materials to shareholders.
On or about August 29, 2017, we mailed to our shareholders of record (other than those who previously requested electronic delivery) a Notice
of Internet Availability of Proxy Materials containing instructions on how to access this proxy statement and our annual report online. If you
received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials in the mail. The
Notice of Internet Availability of Proxy Materials instructs you how to electronically access and review all information contained in this proxy
statement and the annual report, and it provides you with information on voting.
If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a paper copy of our proxy materials, follow
the instructions contained in the Notice of Internet Availability of Proxy Materials about how you may request to receive your materials in printed
form on a one-time or ongoing basis.
Where is this year’s proxy statement available electronically?
You may view this proxy statement and the 2017 annual report electronically by going to www.proxyvote.com.
Who can vote?
Only record holders of our common stock at the close of business on August 11, 2017 can vote at the Annual Meeting. We refer to that date as
the Record Date for the meeting. Each shareholder of record has one vote, for each share of common stock owned, on each matter presented
for a vote at the Annual Meeting.
What is the difference between a shareholder of record and a “street name” holder?
If your shares are registered directly in your name on the records of our transfer agent, then you are the shareholder of record with respect
to those shares.
If your shares are held in a stock brokerage account or by a bank or other nominee, then the brokerage firm, bank or other nominee is considered
to be the shareholder of record with respect to those shares. However, you still are considered the beneficial owner of those shares, and your
shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct the
brokerage firm, bank or other nominee how to vote their shares. See “How can I vote?” below.
6 2017 Proxy Statement
How can I vote?
If your shares are held in “street name,” follow the instructions provided by your brokerage firm, bank, or other nominee. If your shares are
registered directly in your name on our records, you can vote in one of four ways:
•
•
•
•
Via Internet before the Annual Meeting: Go to www.proxyvote.com and follow the instructions. You may do this at your convenience,
24 hours a day, 7 days a week. You will need to have your proxy card or Notice of Internet Availability of Proxy Materials in hand.
The deadline for Internet voting is 11:59 p.m., Eastern Time, October 8, 2017.
By Telephone: If you have requested paper materials, call toll-free 1-800-690-6903 and follow the instructions. You may do this at
your convenience, 24 hours a day, 7 days a week. You will need to have your proxy card or Notice of Internet Availability of Proxy
Materials in hand. The deadline for voting by phone is 11:59 p.m., Eastern Time, October 8, 2017.
In Writing: If you received a proxy card, complete, sign, and date the proxy card and return it in the return envelope that we provided
with your proxy card.
At the Annual Meeting: Log on to the Internet at www.virtualshareholdermeeting.com/MLHR17. At this site, you will be able to vote
electronically. You will also be able to submit questions.
If you submit a proxy to the Company before the Annual Meeting, whether by proxy card, by telephone or by Internet, the persons named as
proxies will vote your shares as you direct. If no instructions are specified, the proxy will be voted for the four directors nominated by the Board
of Directors; for the approval of the proposed Amendment to the 2011 Long-Term Incentive Plan; for the ratification of the appointment of Ernst
& Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 2, 2018; for the non-binding,
advisory proposal to approve the compensation of our Named Executive Officers and for the approval of the advisory vote on executive
compensation each year.
Can I revoke my proxy?
You may revoke a proxy at any time before the proxy is exercised by:
(1) delivering written notice of revocation to the Corporate Secretary of the Company, 855 East Main Street, P.O. Box 302, Zeeland,
Michigan 49464-0302;
(2) submitting another properly completed proxy card that is later dated;
(3) voting by telephone at a subsequent time;
(4) voting via the Internet at a subsequent time; or
(5) voting at the Annual Meeting.
If you hold your shares in “street name,” you must vote your shares in the manner that your brokerage firm, bank or other nominee has
prescribed.
How many votes do we need to hold the Annual Meeting?
To carry on the business of the meeting, we must have a quorum. This means that at least a majority of the shares that are outstanding and
entitled to vote as of the Record Date must be present in person or by proxy.
Shares are counted as present at the meeting if the shareholder either:
•
•
has properly submitted a signed proxy card or other form of proxy (through the telephone or Internet); or
is present at the Annual Meeting and votes electronically at the meeting.
On the Record Date, there were 59,802,577 shares of common stock issued and outstanding. Therefore, at least 29,901,289 shares need to
be present at the Annual Meeting.
What matters will be voted on at the meeting?
We are asking you to vote on: (i) the election of four directors to serve three-year terms expiring in 2020; (ii) the ratification of the appointment
of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending June 2, 2018; (iii) the fourth amendment
to the long - term incentive plan; (iv) a non-binding advisory proposal on the compensation of our Named Executive Officers, otherwise known
as a “say-on-pay” proposal and (v) the frequency of future advisory votes on executive compensation. We describe these matters more fully in
this proxy statement.
Herman Miller, Inc., and Subsidiaries 7
How many votes are needed for each proposal?
Except with respect to the election of directors, a majority of votes cast at the meeting will approve each matter that arises at the Annual Meeting.
The directors are elected by a plurality of votes. This means that the four individuals receiving the highest number of votes cast “for” their election
will be elected as directors of the Company. A “withhold authority” vote will have no effect on the election of a particular nominee. However, our
Board's Governance Guidelines include a form of majority voting for directors. Under the Governance Guidelines, in an election where the only
nominees are those recommended by the Board, any director who receives a greater number of votes "withheld" than those "for" must tender
his or her resignation. Under the Guidelines, the Nominating and Governance Committee will consider the resignation and recommend to the
Board whether to accept or reject the tendered resignation. The Board must act on the resignation no later than 90 days after certification of
the shareholder vote at the meeting. The Company will publicly disclose the Board's decision whether to accept any resignation or the reasons
for rejecting the resignation, if applicable.
If your shares are held by a broker, bank or other nominee, the holder of your shares cannot vote your shares on the election of directors or
the say-on-pay vote unless it has received voting instructions from you. Each of these matters is considered a non-routine matter, and if you
fail to provide instructions, the result is a “broker non-vote”.
Abstentions and broker non-votes are counted for the purpose of determining the presence or absence of a quorum. Abstentions and broker
non-votes are not, however, counted as votes cast on matters submitted for shareholder vote.
What happens if a nominee is unable to stand for re-election?
The Board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented
by proxies may be voted for a substitute nominee. Proxies cannot be voted for more than four nominees. We have no reason to believe any
nominee will be unable to stand for re-election.
What alternatives do I have in voting on each of the proposals?
Except with respect to the election of directors, you may vote “for,” “against,” or “abstain” on each proposal. In the election of directors, you may
vote “for” or “withhold authority to vote for” each nominee.
Will the Annual Meeting be Webcast?
Yes. You may attend and participate in the Annual Meeting by logging onto the Internet at www.virtualshareholdermeeting.com/MLHR17. At this
site, you will be able to vote electronically and submit questions during the meeting. You will need the 12-digit control number that you received
with your proxy card or Notice of Internet Availability to enter and attend the meeting.
Where do I find the voting results of the meeting?
If available, we will announce voting results at the Annual Meeting. We will also disclose the voting results on a Current Report on Form 8-K
that we will file with the SEC within four business days after the meeting.
Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be Held on October 9, 2017
This proxy statement along with our annual report are available at: www.proxyvote.com.
You may obtain a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended June 3, 2017, as filed with the SEC, without
charge upon written request to the Secretary of the Company, Herman Miller, Inc., 855 East Main Street, P.O. Box 302, Zeeland, Michigan
49464-0302.
Proxy Statement Summary
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all information that you should
consider, and you should read the entire proxy statement carefully before voting. For more complete information regarding the Company’s fiscal
2017 performance, please review the Company’s Annual Report on Form 10-K for the year ended June 3, 2017.
8 2017 Proxy Statement
Voting Matters and Board Recommendations
The Board is not aware of any matter that will be presented for a vote at the 2017 Annual Meeting of Shareholders other than those shown
below.
Proposal 1 - Election of Directors
The Board and Nominating and Governance Committee believe that the nominees described in
this proxy statement have the necessary skills and qualifications to provide effective oversight
and strategic guidance.
FOR each Director Nominee
Board Vote Recommendation
Proposal #2 - Ratification of Appointment of Independent Registered Public Accounting
Firm
The Audit Committee believes that the retention of Ernst & Young LLP to serve as the Independent
Auditors for fiscal 2018 is in the best intention of the Company and its shareholders and we are
asking shareholders to ratify the Audit Committee's selection of Ernst & Young LLP for fiscal
2018.
Proposal #3 - Proposal to Approve the Fourth Amendment to the Herman Miller, Inc.
2011 Long-Term Incentive Plan
The Company seeks to amend the Plan to make an additional 2 million shares available for
issuance under the Plan.
Proposal #4 - Proposal to Approve, on an Advisory Basis, the Annual Compensation
Paid to the Company's Named Executive Officers
The Company seeks a non-binding advisory vote to approve the compensation of its named
executive officers as described in the Compensation Discussion and Analysis section of this
proxy statement. The Board of Directors and Executive Compensation Committee value
shareholders' opinions and will review and consider the voting results in connection with future
deliberations concerning our executive compensation program.
Proposal #5 - Proposal to Consider, on an Advisory Basis, the frequency of future
advisory votes on executive compensation
The Company is requesting our shareholders vote on how often the Board should ask our
shareholders to provide an advisory vote on executive compensation. The Board believes that
an annual vote on executive compensation is most appropriate.
FOR
FOR
FOR
FOR
Herman Miller, Inc., and Subsidiaries 9
Financial Highlights from Fiscal 2017
Fiscal 2017 included 53 weeks of operations as compared to a standard 52-week fiscal year. The additional week is required periodically in
order to more closely align the company's fiscal year with the calendar months. This additional week of operations increased fiscal 2017 net
sales by approximately $37 million. This is a factor that should be considered when comparing the company's financial results to the prior year,
which included 52 weeks of operations.
Net sales increased in 2017 to $2,278.2 million, an increase of 0.6 percent from the prior fiscal year. On an organic basis, which adjusts for
dealer divestitures, changes in foreign currency translation rates and the impact of the extra week, net sales increased by 1.4 percent (1) compared
to last fiscal year. Growth in the Consumer segment helped offset a mixed demand environment across the contract business segments tied to
macro - economic and geopolitical uncertainty throughout the year.
While relatively high commodity costs and a challenging competitive pricing environment pressured gross margins compared to last year,
operating expenses were well controlled during the year, helping to deliver diluted earnings per share of $2.05 and adjusted diluted earnings
per share of $2.16 (1), which compares to prior year diluted earnings per share of $2.26 and was in line with adjusted diluted earnings per share
of $2.17 (1). Operating cash flow generation of $202.1 million for the year enabled the company to fully repay outstanding debt related to its line
of credit by the end of the year, repurchase $24 million of company shares and, subsequent to the end of the fiscal year, announce a 6 percent
increase in the quarterly dividend to $0.18 per share, the highest quarterly rate in Herman Miller's history.
While sales in North America were essentially flat for the year, both as reported and on an organic basis(1), in the face of an uncertain political
environment in the United States, the North America business segment continued to deliver the highest operating margins of the company's
business units. Research highlighting the benefits of the Living Office framework for the company's customers and the release of several new
products and solutions, including the newly remastered Aeron chair, helped to position the business for the future.
The ELA segment recorded a decline in net sales of 7 percent for the year, but after adjusting for the impact of changes in foreign currency, the
divestiture of an owned dealer in Australia and the impact of the extra week of operations in the current fiscal year, organic net sales grew at a
rate of 3 percent (1) for the year. The improvement in organic net sales was driven by growth in China, Latin America and mainland Europe,
which more than offset lower demand levels in the U.K. and the Middle East, where Brexit and the impact of lower oil prices, respectively,
weighed on results. The ELA segment posted a decline in operating earnings of 13 percent relative to the prior year. However, after adjusting
for the impact of restructuring and impairment charges recognized in the current fiscal year and non-recurring gains related to the prior year,
adjusted operating earnings improved by 9 percent (1) in spite of the uncertain environment.
Sales for the Specialty segment were slightly higher than prior year, as reported, and were slightly lower than prior year on an organic basis(1).
Operating earnings and adjusted operating earnings increased by 8 percent and 12 percent (1), respectively, driven by operational improvements
and well-managed spending. These leading design brands continue to provide a strong connection with the architect and design community
and help the company to meet its customer’s needs for both traditional workspaces and collaborative areas.
Our Consumer segment reported sales growth of 10 percent over last year on an as reported basis and sales growth of 9 percent on an
organic basis(1). Design Within Reach delivered four quarters of comparable brand (2) growth during the year. Operating earnings and adjusted
operating earnings decreased by 35 percent and 27 percent (1), respectively. The real estate expansion and investments to support long-term
growth in the consumer business have limited near-term profitability. To that end, the company is focusing extensively on the profitability of the
Consumer business as it moves into the new fiscal year. As part of its real estate transformation, the Consumer segment also added approximately
70,000 square feet of new selling space during the year as it opened eight new Design Within Reach Studios and a Herman Miller flagship retail
location. The business also launched over 100 exclusive new products for Design Within Reach, as part of the plan to increase the mix of higher
margin exclusive designs over time. Growth this year from studios, eCommerce, catalog and contract channels highlight the management's
focus to improve the segment's performance.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
(2) DWR comparable brand sales reflects the year-over-year change in net sales across the multiple channels that DWR serves, including studios, outlets,
contract, catalog, phone and e-commerce. Comparable brand growth was presented on a pro forma basis using a 52-week average to normalize results for
the impact of an extra week of operations in the first quarter of fiscal 2017.
10 2017 Proxy Statement
Proposal #1 - Election of Directors
The Board of Directors of the Company has nominated Mary Vermeer Andringa, Brenda Freeman, J. Barry Griswell, and Brian C. Walker for
election as directors. All nominees would serve until the 2020 annual meeting. Each of the nominees is now serving as a director and previously
has been elected as a director by our shareholders, and the Board approved each of the nominees following the recommendation of our
Nominating and Governance Committee.
We include more information about the nominees and the directors who will continue in office following the Annual Meeting below. Unless
otherwise directed by a shareholder’s proxy, the persons named as proxy holders in the accompanying proxy will vote for the nominees named
above. If any of the nominees becomes unavailable, which we do not anticipate, then the Board of Directors, at its discretion, may designate
substitute nominees, in which event your proxy will be voted for such substituted nominees unless you have withheld authority to vote for
directors. Shares cannot be voted for a greater number of people than the number of nominees named.
A plurality of the votes cast at the Annual Meeting is required to elect the nominees as our directors. Accordingly, the four individuals who receive
the largest number of votes cast at the Annual Meeting will be elected as directors. Shares not voted at the Annual Meeting, whether by abstention,
broker non-vote, or otherwise, will not be treated as votes cast at the Annual Meeting. In an election where the only nominees are those that
the Board recommended, any director who receives a greater number of votes “withheld” than those “for” must tender his or her resignation
under the majority voting provisions of our Board Governance Guidelines. Under those Guidelines, the Nominating and Corporate Governance
Committee will consider the resignation and recommend to the Board whether to accept or reject the tendered resignation. The Board must act
on the resignation no later than 90 days after certification of the shareholder vote at that meeting. The Company will publicly disclose the Board’s
decision whether to accept any resignation or the reasons for rejecting the resignation, if applicable.
The Board currently consists of twelve directors, one of whom is retiring at the Annual Meeting. Following this year’s Annual Meeting, the Board
of Directors will consist of eleven directors, ten of whom are independent. The maximum number of directors for the Board is thirteen. The
Amended and Restated Bylaws of Herman Miller, Inc. require that directors be divided into three classes, each class to be as nearly equal in
number as possible. Members of each class hold office until the third succeeding annual meeting following their election and until their successors
are duly elected and qualified or until their removal or resignation. Ms. Brenda Freeman was appointed to replace Ms. Dorothy Terrell, who will
retire in October 2017. Ms. Terrell remained on the Board for an additional year after Ms. Freeman’s appointment to mentor Ms. Freeman and
to allow for a proper transition. Another director will not be appointed due to Ms. Terrell’s retirement.
The Board of Directors recommends a vote FOR the election of each person nominated by the Board.
Nominees for Election as Directors for Term to Expire in 2020
Age
Director
Since
Independent
Other Public
Directorships
NGC
AC
ECC
EC
Board Committees
Mary Vermeer Andringa
Chief Executive Officer and Board Chair
Vermeer Corporation
67
1999
Brenda Freeman
Chief Marketing Officer
Magic Leap
48
2016
J. Barry Griswell
Retired, President and Chief Executive Officer
Community Foundation of Greater Des Moines
68
2004
Brian C. Walker
President and Chief Executive Officer
Herman Miller, Inc.
55
2003
X
X
X
C
X
N/A
Caleres Inc.
Under Armour, Inc
Och-Ziff Capital
Management
Group LLC
Voya Financial Inc.
National Financial
Partners Corp.
(formerly publicly
traded)
Briggs & Stratton
Universal Forest
Products
X
C
X
Herman Miller, Inc., and Subsidiaries 11
Directors Whose Term Expires in 2018
Age
Director
Since
Independent
Other Public
Directorships
NGC
AC
ECC
EC
Board Committees
David A. Brandon
Chairman and Chief Executive Officer
Toys "R" Us, Inc.
65
2011
Douglas D. French
Managing Director
Santé Health Ventures
63
2002
John R. Hoke III
Vice President Global Design
Nike, Inc.
52
2005
Heidi J. Manheimer
Independent Consultant
54
2014
X
X
X
X
Domino's Pizza, Inc.
DTE Energy
Company
Kaydon Corporation
(formerly publicly
traded)
N/A
N/A
N/A
X
X
X
X
Directors Whose Term Expires in 2019
Age
Director
Since
Independent
Other Public
Directorships
NGC
AC
ECC
EC
Board Committees
Lisa A. Kro
Co-Founder, Managing Director
Mill City Capital L.P.
52
2012
David O. Ulrich
Rensis Likert Collegiate
Professor of Business Administration
University of Michigan
63
2001
Michael A. Volkema
Chairman of the Board
Herman Miller, Inc.
61
1995
X
X
X
Famous Dave's of
America, Inc.
C
N/A
X
Wolverine
Worldwide, Inc.
X
C
NGC: Nominating and Governance Committee
AC: Audit Committee
ECC: Executive Compensation Committee
EC: Executive Committee
C: Chair
X: Member
12 2017 Proxy Statement
Information about the Nominees and Directors
Certain information with respect to the nominees for election at Annual Meeting, as well as each of the other Directors, is set forth below and
on the following pages, including their names, ages, a brief description of their recent business experience, including present occupations and
employment, certain directorships that each person held during the last five years, and the year in which each person became a Director of the
Company. Additional information about each continuing Director is also included that describes some of the specific experiences, qualifications,
attributes or skills that each Director possesses which the Board believes has prepared them to be effective Directors.
Name and Age
Year First
Became
a Director
Principal Occupation(s) During Past 5 years
Other Directorships of Public Companies
held during Past 5 years
Nominees for Election as Directors for Term to Expire in 2020
1999
Mary Vermeer Andringa, 67
Chair of the Board
Vermeer Corporation since 2015
Chief Executive Officer and Chair of the Board
Vermeer Corporation from 2014 to 2015
President and Chief Executive Officer
Vermeer Corporation from 2003 to 2014
Since 1989, Ms. Andringa has been an executive officer of Vermeer Corporation, a leading manufacturer of agricultural, construction, environmental and
industrial equipment located in Pella, Iowa. She served as President and Chief Executive Officer of Vermeer from 2003 to 2014. At that time, she became
Chief Executive Officer and Chair of the Board. She transitioned exclusively to Chair of the Board in 2015. Ms. Andringa's tenure with Vermeer has spanned
the gamut of functional expertise from marketing to international sales and acquisitions. With over thirty years of manufacturing experience, Ms. Andringa
is past Chair of the National Association of Manufacturers which represents over 10,000 U.S.-based manufacturing entities.
None
Ms. Andringa's experience as a chief executive officer coupled with her focused efforts on lean manufacturing and continuous improvement initiatives as
well as her involvement in international product sales and distribution provides an important resource to management and the Board of Directors.
2016
Brenda Freeman, 48
Chief Marketing Officer, Magic Leap since 2017
Chief Marketing Officer, National Geographic Channel
2015 to 2017
Global Head of Television Marketing, DreamWorks Animation SKG
2014 to 2015
Chief Marketing Officer, Turner Animation
2008 to April 2014
Ms. Brenda Freeman is the Chief Marketing Officer for Magic Leap, a technology company that is developing a Mixed Reality computing platform that is on
the cutting edge of the virtual and augmented reality world of wearable technology. She is responsible for all aspects of brand and product marketing, including
the customer journey experience - CRM, social, digital, publicity, experiential and influencer marketing. Prior to her current role, Freeman was CMO for the
National Geographic Channels where she oversaw brand development, multi-platform creative architecture and consumer communication. She was also
global head of television marketing for DreamWorks, CMO of Cartoon Network at Turner Broadcasting and SVP for Nickelodeon integrated marketing and
partnerships at Viacom. Early in her career, she held consumer marketing and product development positions for Frito-Lay and Pepsi-Cola, both divisions of
PepsiCo.
Caleres, Inc.
Under Armour, Inc.
Ms. Freeman's experience as marketing executive and her specific experience with the digital marketing and programming brings significant strength to the
Board in advising management as it develops and executes the company’s brand and demand pull marketing strategies.
J. Barry Griswell, 68
2004
President and CEO, Community Foundation of Greater
Des Moines 2008 to 2013
Och-Ziff Capital Management
Group LLC
Voya Financial Inc.
National Financial Partners Corp.
Mr. Griswell is the retired Chairman and Chief Executive Officer of the Principal Financial Group and Principal Life, a global financial services provider which
offers a wide range of insurance and financial products and services. With more than thirty years of financial services experience, Mr. Griswell was the
President and CEO of MetLife Marketing Corporation prior to joining The Principal. He is a former director and non-executive chairman of the board of the
Principal Financial Group. Mr. Griswell is currently a director of Och-Ziff Capital Management Group where he serves as a member of the Audit Committee.
He also is a director of Voya Financial where he serves on the Audit Committee and the Nominating and Governance Committee and as chair of the Executive
Compensation and Benefits Committee.
Mr. Griswell's financial expertise, governance experience and service as an executive of a publicly-traded corporation make him a key contributor to the Board
of Directors.
Herman Miller, Inc., and Subsidiaries 13
Nominees for Election as Directors for Term to Expire in 2020 (continued)
2003
Brian C. Walker, 55
President and Chief Executive Officer
Herman Miller, Inc. since 2004
Since 2004, Mr. Walker has served as President and Chief Executive Officer of the Company. Previously, he held other executive leadership positions with
the Company having served as the Chief Operating Officer of Herman Miller Inc., President of Herman Miller North America and Chief Financial Officer. Mr.
Walker is a Certified Public Accountant and serves as the lead director and chairs the Compensation Committee of Briggs & Stratton Corporation.
Briggs & Stratton Corporation
Universal Forest Products
Mr. Walker is the only member of Company management on the Board of Directors, which provides an important link to the Company's ongoing business
operations and challenges. Moreover, Mr. Walker's knowledge of the Company's history and culture, operational and executive leadership roles with the
Company, accounting acumen and governance experience make him an important contributor to the Board's deliberations.
Name and Age
David A. Brandon, 65
Year First
Became
a Director
2011
Directors Whose Terms Expire in 2018
Principal Occupation(s) During Past 5 years
Chairman and CEO, Toys "R" Us, Inc.
since 2015
Director of Intercollegiate Athletics, University of Michigan
2010 to 2014
Other Directorships of Public Companies
held during Past 5 years
Domino's Pizza, Inc.
DTE Energy Company
Kaydon Corporation
Mr. Brandon is the Chairman and Chief Executive Officer of Toys "R" Us, Inc., a retailer of toys and juvenile products. Mr. Brandon served as the Director
of Intercollegiate Athletics at the University of Michigan from 2010 to 2014. Prior to that, he served as Chairman and Chief Executive Officer of Domino's
Pizza, Inc., an international pizza delivery company operating over 9,000 stores in over 60 countries. Mr. Brandon was also President and Chief Executive
Officer of Valassis, Inc. from 1989 to 1998 and Chairman of its Board of Directors from 1997 to 1998.
Mr. Brandon's years of experience as a Chief Executive Officer of several publicly-traded companies, his experience in global brand management and his
for-profit and non-profit board service bring a unique perspective to the Board of Directors.
Douglas D. French, 63
2002
Managing Director, Santé Health Ventures
since 2007
None
Mr. French has served as the founding partner of Santé Health Ventures, an early-stage healthcare venture fund since 2007. Prior to joining Santé Health
Ventures, he served as the President and Chief Executive Officer of Ascension Health, the largest not-for-profit health system in the U.S. Mr. French has
also served as CEO for St. Mary's Medical Center and St. Vincent Health System, both of Midwest Indiana. He has more than three decades of health
management experience including serving as a director for numerous public and private companies.
Mr. French's governance experience, as well as his leadership roles and expertise in the health management industry, provides a valuable resource to
management and the Board of Directors.
John R. Hoke III, 52
2005
Vice President, Nike Global Design,
since 2010
None
Since joining Nike, Inc., a marketer of athletic footwear, apparel, equipment, accessories and services in 1993, Mr. Hoke has led the communication of Nike's
culture of creativity internally and externally. He is currently the Vice President of Global Design, inspiring and overseeing an international team of designers.
Mr. Hoke also serves as a director to several not-for-profit organizations relating to art and design.
Mr. Hoke's design expertise, both domestically and internationally, including his leadership role in a major, global enterprise, brings additional, insightful
perspective to our Board discussions and decisions.
Heidi J. Manheimer, 54
2014
Independent Consultant since 2015
Chief Executive Officer, Shiseido Cosmetics America
from 2006 to 2015
None
Ms. Manheimer is an independent consultant. Ms. Manheimer served as the Chief Executive Officer of Shiseido Cosmetics America, a global leader in skincare
and cosmetics, from January 2006 to September 2015, as President of U.S. Operations from 2002 to 2006 and as Executive Vice President and General
Manager from 2000 to 2002. Prior to that she spent seven years at Barney's New York and seven years at Bloomingdales in the beauty care divisions, rising
to senior leadership positions within each company. Ms. Manheimer currently sits on the Board of Directors of Burton Snowboards having been appointed
in 2006. For many years, she has served on nonprofit and trade association boards, and she was elected Chairwoman of the Cosmetic Executive Women
Foundation in 2014.
Ms. Manheimer’s extensive experience as a senior executive in the retail industry, experience with both e-commerce and international business practices
and service as a board member for both profit and nonprofit businesses provides a valuable resource to management and the Board of Directors.
14 2017 Proxy Statement
Name and Age
Lisa A. Kro, 52
Year First
Became
a Director
2012
Directors Whose Terms Expire in 2019
Principal Occupation(s) During Past 5 years
Co-Founder, Managing Director
Mill City Capital L.P. since 2010
Managing Director and CFO, Goldner Hawn Johnson & Morrison
2004 to 2010
Other Directorships of Public Companies
held during Past 5 years
Famous Dave's of America, Inc.
Ms. Kro is a founding partner of Mill City Capital, L.P., a private equity firm, where she is Managing Director. From 2004 to 2010, Ms. Kro was the Chief
Financial Officer and a Managing Director of Goldner Hawn Johnson & Morrison, also a private equity firm. Prior to joining Goldner Hawn, she was a partner
at KPMG LLP, an international public accounting firm.
Ms. Kro's service in auditing as well as her experience in the finance and capital environments enable her to contribute to a number of financial and strategic
areas of the Company. Her experience on other boards, including previous service as the financial expert on the audit committee of another publicly-traded
company, contributes to the oversight of the Company's financial accounting controls and reporting; accordingly, the Board recommended her nomination
for re-election as a director.
David O. Ulrich, 63
2001
Professor, University of Michigan since 1982
None
Dr. Ulrich is the Rensis Likert Collegiate Professor of Business Administration at the University of Michigan. He also provides counsel to more than half of
the Fortune 200 companies, focusing on strategic management and competitive advantage issues as well as human resource management, leadership
culture and talent. He has published thirty books and hundreds of articles on these and related topics. He has received numerous lifetime awards for his
contributions to these fields.
Dr. Ulrich's academic research and consulting on strategic management and other business issues, among other factors, contributed to the recommendation
by the Board of Directors that his service continue as a director.
Michael A. Volkema, 61
1995
Chairman of the Board, Herman Miller, Inc.
since 2000
Wolverine Worldwide, Inc.
Mr. Volkema has been Chairman of the Board of Directors of Herman Miller, Inc. since 2000, serving as non-executive Chairman since 2004. He also served
as CEO and President of the Company from 1995 to 2004. Mr. Volkema has more than thirty years of experience as a senior executive in the home and
office furnishings industry. This experience includes corporate leadership, branded marketing, international operations, and public company finance and
accounting through audit committee service.
Mr. Volkema is a key contributor to the Board based upon his knowledge of the Company's history and culture, operational experience, board governance
knowledge, service on boards of other publicly held companies and industry experience. These factors contributed to his recommendation by the Board for
continued service as a director.
The Nominating and Governance Committee has not received any nominations from any of our shareholders in connection with our 2017 Annual
Meeting. The nominees who are standing for election as directors at the 2017 Annual Meeting are incumbent directors.
Herman Miller, Inc., and Subsidiaries 15
Corporate Governance and Board Matters
Board Governance Guidelines
Our Board of Directors is committed to sound and effective corporate governance practices, strong oversight of corporate risk management,
ethical conduct and compensation. These practices reflect the Board's long-standing philosophy that a proper structure, appropriate policies
and procedures, and reflective cultural factors provide the cornerstone to good governance. The Board documented those practices by adopting
our Board Governance Guidelines ("Guidelines"). These Guidelines address director responsibilities, the composition of the Board, required
Board meetings and materials, Board committee composition and responsibilities, and other corporate governance matters. Under our Guidelines,
a majority of the members of our Board must qualify as independent under the listing standards of the NASDAQ National Markets requirements.
Our Guidelines also require the Board to have, among other committees, an Audit Committee, an Executive Compensation Committee, and a
Nominating and Governance Committee, and that each member of those committees qualifies as an independent director under the NASDAQ
listing standards. Our Guidelines, as well as the charters of each of the foregoing committees, are available for review on our website at
www.hermanmiller.com/governance.
The Guidelines, with respect to the position of Chief Executive Officer (“CEO”) and Chairperson, state that “the Board believes the roles of CEO
and Chairperson should normally be separated. If the positions are combined, the Board will closely monitor the performance and working
relationship between the CEO/Chairperson and the Board and will establish a Lead Director who acts as a liaison between directors and the
CEO/Chairperson and who chairs meetings of the independent directors.” Consistent with our Guidelines, the roles of CEO and Chairperson
are currently separate. Mr. Volkema currently serves as Chairman of the Board. As Mr. Volkema is not an employee of the Company, he serves
as a non-executive Chairman.
The Board's Role in Risk Oversight
The Company's management annually engages in an enterprise risk management process, the key output of which is a series of risk matrices
intended to identify and categorize strategic risks. The matrices also identify (1) those members of senior management who are responsible for
monitoring each major risk, and (2) whether that risk is reviewed by the Board or a committee of the Board. The development of the matrices
is facilitated by the Company's Business Risk Group, through discussions with executive and senior management. Management and the Business
Risk Group annually review and discuss the risk assessment process and results with the Audit Committee and, if applicable, recommend what
risks are being adequately addressed, directly or indirectly, on a regular basis and what risks should be further discussed with the full Board or
other committees and the appropriate form and timing of such discussions. The Business Risk Group is the internal audit group of the Company.
During the past fiscal year, the Business Risk Group reviewed the Company's compensation policies and practices to determine if those policies
or practices are likely to have a material adverse impact on the Company. The Business Risk Group conducted its review in late 2016 and
provided a report to the Committee in January 2017. In conducting its review of the compensation plans, the Committee considered both the
structure of the compensation plans and the presence of risk mitigating features such as caps, multi-year earning requirements, vesting provisions
and “clawbacks.” Based on the evaluation, the Committee determined that the Company's compensation policies and practices are not likely
to create a material adverse impact on the Company.
Under the Guidelines, the Board of Directors is responsible for evaluating CEO performance, monitoring succession planning, reviewing the
Company's major financial objectives, evaluating whether the business is being properly managed and overseeing the processes for maintaining
the integrity of the Company with respect to its financial statements, public disclosures and compliance with laws. The Board has delegated the
primary oversight for managing the risk with respect to some of these to the various board committees as described in the committee charters.
Code of Conduct
Our Board has adopted a Code of Conduct that applies to all our employees, officers, and directors. This code also serves as the code of ethics
for our CEO and senior financial officers. This code is posted on our website at http://www.hermanmiller.com/about-us/who-is-herman-miller/
legal/corporate-code-of-conduct.html. Any changes to or waivers of the code must be approved by the Board of Directors and will be disclosed
on the Company's website. The Code of Conduct was last modified in December 2015. The Code of Conduct is reviewed annually and there
were no modifications to or waivers of the code in fiscal 2017. The Code of Conduct meets the requirements of the NASDAQ listing standards.
Determination of Independence of Board Members
As required by our Guidelines, our Board has determined that each of our directors, other than Mr. Walker, qualifies as an “Independent Director,”
as such term is defined in the NASDAQ listing standards, and that none of those independent directors has a material relationship with the
Company. The Board's determination was made as a result of its review of completed individual questionnaires addressing the nature and extent
of each member's relationship with the Company and taking into consideration the definition of “Independent Director” under the NASDAQ rules.
Our Board also determined that each member of the Audit Committee, and Executive Compensation Committee meets the independence
requirements applicable to those committees as prescribed by the NASDAQ listing standards and, as to the Audit Committee, the applicable
rules of the Securities and Exchange Commission.
16 2017 Proxy Statement
Corporate Governance and Board Matters (continued)
Meeting Attendance
Each of our directors is expected to attend all meetings of the Board and applicable committee meetings. We hold the Annual Meeting via the
Internet, and the directors are encouraged to join the webcast. All twelve of our directors did so for our 2016 Annual Shareholders Meeting.
During fiscal 2017, the Board held four meetings; each director attended at least 75 percent of the aggregate number of meetings of our Board
and Board committees on which they served except for Dorothy Terrell (Board member, whose term expires in October) who attended 73%.
Consistent with the requirements of our Guidelines, the independent members of our Board met in executive sessions, without the presence of
management, at the conclusion of each regularly scheduled Board meeting.
Communications with the Board
Shareholders and other parties interested in communicating directly with one or more of our directors may do so by writing to us, c/o Corporate
Secretary, 855 East Main Avenue, PO Box 302, Zeeland, Michigan 49464-0302. The Corporate Secretary will forward all relevant correspondence
to the director or directors to whom the communication is directed.
Director Nominations
Our Bylaws contain certain procedural requirements applicable to shareholder nominations of directors. Shareholders may nominate a person
to serve as a director if they provide written notice to us not earlier than the close of business on the 120th day and not later than the close of
business on the 90th day prior to the first anniversary of the preceding year's Annual Meeting of Shareholders and, with respect to any special
meeting of shareholders, not later than the close of business on the 10th day following the date on which the meeting is first publicly announced
or, if there is no announcement, the 10th day following the date on which the notice of that meeting was first sent to our shareholders. The notice
must include (1) the name and address of the shareholder providing notice and of the person or persons nominated, including information on
the securities of the Company held by those individuals, including any derivative securities, the details of which are set forth in our Bylaws, (2)
a representation that the shareholder is a current record holder and will continue to hold those shares through the date of the meeting and
intends to attend the meeting in person or by proxy, (3) for each proposed nominee, (a) all information relating to that person that would be
required to be disclosed in a proxy statement required to be made in connection with solicitations or proxies for election of directors in a contested
election pursuant to Section 14 of the Securities and Exchange Act of 1934 (including that person's written consent to be named in the proxy
statement as a nominee and to serve as a director if elected) and (b) a description of all direct and indirect compensation and other material
monetary arrangements existing during the past three years, as well as any other material relationships between or among the shareholders
(and beneficial owner, if any) and their respective affiliates and associates and the proposed nominee and his or her respective affiliates and
associates, including all information required to be disclosed pursuant to Rule 404 under Regulation S-K, and (4) the completed and signed
questionnaire from each nominee with respect to the background and qualification of such person and the background of any other person or
entity on whose behalf the nomination is being made.
Our Nominating and Governance Committee is responsible for reviewing the qualifications and independence of the members of the Board. To
meet the needs of the Company in a rapidly changing environment, the Guidelines explain that the Company requires a high-performance board
of directors whose members subscribe to our values and meet the specific resource needs of the business. To that end, the Nominating and
Governance Committee considers a number of factors it deems appropriate when considering candidates for the Board; such factors may
include experience and knowledge of the Company's history and culture, technical experience and backgrounds such as manufacturing, design,
marketing, technology, finance, management structure and philosophy, and experience as a senior executive of a public company. The Nominating
and Governance Committee may also consider such factors as race and gender as well as experience in a variety of industries in annually
assessing and reviewing the current slate of directors and potential director candidates as the need arises. The Nominating and Governance
Committee is responsible for assessing the appropriate skills and characteristics required of Board members. These factors, and others as
considered useful by the Nominating and Governance Committee or the Board, are reviewed in the context of an assessment of the perceived
needs of the Board at a particular point in time.
A shareholder may also make a recommendation to the Nominating and Governance Committee regarding any individual that the shareholder
desires the Committee to consider for possible nomination as a candidate for election to the Board. The Board believes that all candidates,
including those that shareholders recommend, should be evaluated in the same manner.
Under our Bylaws and Governance Guidelines, no person is to be elected as a director: (a) after he or she attains age 72 or (b) for a term that
expires later than the annual meeting of shareholders at or immediately after such person attains age 72.
Herman Miller, Inc., and Subsidiaries 17
Board Committees
Our Board has four standing committees. Committee responsibilities are detailed in written charters. These charters are available on our Internet
website at www.hermanmiller.com/charters. The committees are as follows:
Nominating and Governance Committee
We have a Nominating and Governance Committee comprised of Mary Vermeer Andringa (chair), Brenda Freeman and David O. Ulrich. The
Nominating and Governance Committee develops and recommends to the Board governance standards and policies and board compensation
including that of the Chairman of the Board. In addition, the committee identifies and recommends to the Board candidates for election to the
Board. The Committee met four times during the last fiscal year.
Audit Committee
We have an Audit Committee comprised of Lisa A. Kro (chair), Douglas D. French and Heidi J. Manheimer. The Board has determined that Ms.
Kro is qualified as an “Audit Committee financial expert” within the meaning of the applicable SEC regulations. This committee, composed
entirely of independent directors under the applicable listing standards of the NASDAQ listing requirements, as well as the requirements of the
Sarbanes-Oxley Act of 2002, is responsible for overseeing management's reporting practices, internal controls and risk management on behalf
of the Board of Directors. The Committee is also responsible for appointing, approving the compensation of, and overseeing our independent
registered public accounting firm. The Audit Committee met eight times during the last fiscal year.
Executive Compensation Committee
We have an Executive Compensation Committee comprised of J. Barry Griswell (chair), David A. Brandon and John R. Hoke III. The Executive
Compensation Committee recommends to the Board the annual executive incentive plan and the annual remuneration of our Chief Executive
Officer and President, approves the annual remuneration and executive incentive plan for the other executive officers, approves the grants of
employee stock options and other equity awards, and acts as the administrative committee for our equity-based compensation plans. A description
of the Committee's processes and procedures for the consideration and determination of executive and director compensation is set forth under
the caption “Compensation Disclosure and Analysis -The Executive Compensation Committee” below in this Proxy Statement. The Committee
met four times during the last fiscal year.
Executive Committee
We have an Executive Committee comprised of Michael A. Volkema (chair), Mary Vermeer Andringa, J. Barry Griswell and Lisa A. Kro. The
Executive Committee acts from time to time on behalf of the Board in managing our business and affairs (except as limited by law or our Bylaws)
and is delegated certain assignments and functions by the Board of Directors. The Committee met four times during the last fiscal year.
Executive Compensation Committee Interlocks and Insider Participation
No member of the Executive Compensation Committee is or has been an officer or employee of the Company or had any relationship that is
required to be disclosed as a transaction with a related party except as noted under Certain Relationships and Related Party Transactions. In
addition, no current executive officer of the Company has ever served as a member of the Board of Directors or Compensation Committee of
any other entity that has or has had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
18 2017 Proxy Statement
Proposal #2 - Ratification of Appointment of Independent Registered Public Accounting Firm
Our Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending June 2,
2018. Representatives of Ernst & Young will be present at the Annual Meeting of Shareholders and available to respond to appropriate questions
submitted in advance. The Ernst & Young representatives will have the opportunity to make a statement if they so desire.
Although the submission of this matter for approval by shareholders is not legally required, our Board of Directors believes that such submission
follows sound corporate business practice and is in the best interests of our shareholders. If our shareholders do not approve the selection of
Ernst & Young, the selection of this firm as our independent registered public accounting firm will be reconsidered by the Audit Committee. This
ratification of the appointment of Ernst & Young requires the affirmative vote of a majority of the votes cast on this proposal. Unless otherwise
instructed by you, brokers, banks, and other street name holders will have the discretionary authority to vote your shares on this matter.
The Board of Directors recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered
public accounting firm.
Disclosure of Fees Paid to Independent Auditors
Aggregate fees billed to us for the fiscal years ended May 28, 2016 and June 3, 2017, by our independent registered public accounting firm,
Ernst & Young were as follows:
Fiscal Year Ended
Audit Fees (1)
Audit Related Fees
Tax Fees (2)
Total
May 28, 2016
June 3, 2017
1,585,552
1,865,000
—
—
20,773
136,920
$
1,606,325 $
2,001,920
(1) Includes fees billed for the audit of and accounting consultations related to our consolidated financial statements included in our annual report
on Form 10-K, including the associated audit of our internal controls, the review of our financial statements included in our quarterly reports on
Form 10-Q, and services in connection with statutory and regulatory filings.
(2) Includes fees billed for tax compliance, tax advice and tax planning.
Our Audit Committee has adopted a policy for pre-approving services performed by Ernst & Young and other firms. This policy requires the
Committee's pre-approval of all services that may be provided by our independent registered public accounting firm and certain audit services
provided by other firms. The policy authorizes the committee to delegate to one or more of its members pre-approval authority with respect to
permitted services. All services provided by Ernst & Young under the captions “Audit Fees,” “Audit Related Fees,” and “Tax Fees” were approved
by the Audit Committee under this policy.
Herman Miller, Inc., and Subsidiaries 19
Report of the Audit Committee
The Audit Committee’s purpose is to oversee the accounting and financial reporting processes of the Company; the audits of the Company’s
financial statements and management’s assessment of the Company’s internal controls; the qualifications of the public accounting firm engaged
as the Company’s independent registered public accounting firm; and the performance of the Company’s internal auditors and independent
registered public accounting firm. The Committee’s function is more fully described in its charter, which the Board has adopted and is available
on the Company's web site at http://www.hermanmiller.com/content/dam/hermanmiller/documents/investors/audit_committee_charter.pdf.
The Committee reviews the charter on an annual basis. The Board annually reviews the NASDAQ listing standards definition of independence
for audit committee members and has determined that each member of the Committee meets that standard.
Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements, accounting and financial
reporting principles, internal controls, and procedures designed to ensure compliance with accounting standards, applicable laws, and
regulations. The Company’s independent registered public accounting firm, Ernst & Young LLP, is responsible for performing an independent
audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally
accepted accounting principles. Ernst & Young LLP is also responsible for auditing and providing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
We have reviewed and discussed, with management and Ernst & Young LLP, the Company’s audited financial statements for the year ended
June 3, 2017, management’s assessment of the effectiveness of the company’s internal Controls over financial reporting, and Ernst & Young
LLP’s evaluation of the Company’s internal controls over financial reporting.
We have discussed with Ernst & Young LLP the results of the independent auditors’ examinations and the judgments of the independent
auditors concerning the quality, as well as the acceptability, of the Company’s accounting principles and such other matters that we are required
to discuss with the independent auditors under applicable rules, regulations or generally accepted auditing standards, including the matters
required to be discussed by applicable rules of the Public Company Accounting Oversight Board (PCAOB). We have also received and
reviewed the written disclosures and the letter from Ernst & Young LLP per the applicable requirements of the PCAOB regarding Ernst and
Young LLP's communications with the Audit Committee around independence and we have discussed with Ernst & Young LLP their
independence including a consideration of the compatibility of non-audit services with their independence.
Based on the reviews and discussions referred to above, we recommended to the Board of Directors that the financial statements referred
to above be included in the Company’s Form 10-K Report for the year ended June 3, 2017, and we selected Ernst & Young LLP as the
independent auditor for fiscal year 2018. The Board is recommending that shareholders ratify that selection at the annual meeting.
Lisa A. Kro (chair)
Heidi J. Manheimer
Douglas D. French
20 2017 Proxy Statement
Proposal #3 - Proposal to Approve the Fourth Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan
In 2011, our Board of Directors adopted, and our shareholders approved, the Herman Miller, Inc. 2011 Long-Term Incentive Plan (the "Plan").
The Plan provides for the grant of a variety of equity-based awards, described in more detail below, such as stock options, including incentive
stock options as defined in Section 422 of the Internal Revenue Code, as amended (the "Code"), stock appreciation rights, restricted stock,
restricted stock units, performance shares, and other stock-based awards.
The Plan is intended to promote the long-term success of the Company for the benefit of our shareholders through stock-based compensation,
by aligning the personal interests of Plan participants with those of our shareholders. The Plan is designed to allow selected Plan participants
to participate financially in our future, as well as to enable us to attract, retain, and reward those individuals.
The Amendment and its Purpose
On July 17, 2017, our Board adopted an amendment to the Plan, subject to shareholder approval (the "Amendment"). The purpose of the
Amendment is to make an additional 2 million shares available for issuance under the Plan . Shareholders last approved an amendment to the
Plan at the 2015 Annual Meeting.
As of August 11, 2017, there were 810,357 shares of common stock available for the grant of future awards under the Plan before giving effect
to the Amendment, subject to adjustment under the Plan.
We believe we have demonstrated our commitment to sound equity compensation practices. We recognize that equity compensation awards
can dilute shareholder equity; therefore, we have carefully managed our equity incentive compensation to assure that the cost of equity
compensation to our shareholders is reasonable in relation to the important benefits gained. Consistent with this commitment, the Plan includes
the following features:
•
•
•
•
•
Contingent forfeiture of awards for certain conduct in violation of Company policies or agreements (Section 3.3)
"Claw-back" provision to recoup awards under specific circumstances (Section 3.4)
No repricing of stock options and stock appreciation rights without prior shareholder approval (Section 3.5)
Prohibition on certain share recycling practices (Section 4.2.d)
Prohibition on grants of discounted stock options and stock appreciation rights (Sections 6.4.b and 7.2.b)
Description of the Plan
The following paragraphs summarize the material features of the Plan. The full text of the Plan, as amended by the amendment approved by
our Board and that we are submitting to our shareholders for approval, is included as Appendix I to this proxy statement.
Administration
The Plan is administered by the Executive Compensation Committee of the Board (the "Committee"), which is required to consist of no fewer
than three non-employee directors, as defined in Rule 16b-3(b)(3) of the Securities Exchange Act of 1934 and each of whom must qualify as
an "outside director" under Section 162(m) of the Code. The Committee determines who may participate in the Plan, the types of awards (or
combinations thereof) to be granted, the number of shares of common stock to be covered by each award, the terms and conditions of any
award, such as conditions of forfeiture, transfer restrictions, and vesting requirements.
Eligible Participants
The Plan authorizes awards to consultants, directors and employees of the Company or its subsidiaries. As of August 11, 2017, consultants, 11
non-employee directors, and all employees were eligible to participate in the Plan.
Shares Available for Awards
As of August 11, 2017, there were 810,357 shares of common stock available for the grant of future awards under the Plan before giving effect
to the Amendment, subject to adjustment under the Plan. Our Restated Articles of Incorporation authorize the issuance of 240,000,000 shares
of common stock. There were 59,802,577shares of our common stock issued and outstanding as of August 11, 2017, and the market value of
a share of our common stock as of that date was $32.80.
Any shares subject to an award that terminates without the issuance of the shares, including awards that are settled in cash in lieu of shares,
will be available again for issuance under the Plan and will increase the total number of shares available for grant by (1) two shares if such
share is subject to a Full Value Award and (2) one share if such share was subject to any other type of award. The number of shares available
for issuance under the Plan will not, however, be increased by the number of shares that are (a) tendered by the participant or withheld by the
Herman Miller, Inc., and Subsidiaries 21
Company in payment of the purchase price of an option, (b) tendered by the participant or withheld by the Company to satisfy any tax withholding
obligation with respect to an award, (c) purchased by the Company with proceeds received from the exercise of an option, (d) subject to a stock
appreciation right that is not issued in connection with the stock settlement of that right upon its exercise, (e) subject to the cancellation of a
stock appreciation right granted in tandem with an option upon the exercise of the option and (f) subject to the cancellation of an option granted
in tandem with a stock appreciation right upon the exercise of that right.
The maximum number of shares of common stock that may be subject to any Full Value Award under the Plan to any one employee during any
fiscal year may not exceed 250,000 shares. Also, the maximum number of shares of common stock that may be subject to any award under
the Plan that is not a Full Value Award to any one employee during any fiscal year may not exceed 500,000 shares. All limitations are subject
to adjustment from time to time in accordance with the provisions of the Plan. Finally, there is a maximum annual limit of 40,000 shares of
common stock that may be subject to any award granted to a non-employee director.
Types of Awards
The following types of awards may be granted under the Plan:
An "Option" is a contractual right to purchase a number of shares at a price determined at the date the option is granted. The exercise price
included in both incentive stock options and nonqualified stock options must equal at least 100 percent of the fair market value of our stock at
the date of the grant. The Plan prohibits the repricing of options. Except as otherwise provided in the Plan, options may not be exercised prior
to the first anniversary of the date they are granted and options that vest solely by the passage of time cannot vest in full in less than three years
from the date they are granted, although they may vest pro-rata during such period. Subject to these limitations, options will be exercisable at
such time or times and subject to such terms and conditions as shall be determined by the Committee and set forth in the option agreement.
A "Stock Appreciation Right" is an award with the right to receive stock or cash of an equivalent value in an amount equal to the difference
between the price specified in the stock appreciation right and the prevailing market price of the company's common stock at the time of exercise.
As with options, the per share exercise price for a stock appreciation right may not be less than 100 percent of the fair market value of our stock
on the date of grant. The Plan prohibits the repricing of stock appreciation rights. Except as otherwise provided in the Plan, stock appreciation
rights may not be exercised prior to the first anniversary of the date they are granted and stock appreciation rights that vest solely by the passage
of time cannot vest in full in less than three years from the date they are granted, although they may vest pro-rata during such period. Subject
to these limitations, stock appreciation rights will be exercisable at such time or times and subject to such terms and conditions as shall be
determined by the Committee on the date the award is made.
"Restricted Stock" is an award of common stock granted to an employee for no or nominal consideration. A recipient of a restricted stock award
will have all the rights of a shareholder, including the right to vote and receive dividends. In general, shares of restricted stock are subject to
forfeiture if the participant does not meet certain conditions such as continued employment over a specified vesting period and/or the attainment
of specified Company performance objectives.
"Restricted Stock Unit" is an award representing the right to receive, in cash and/or shares of common stock, subject to certain conditions such
as continuing employment and/or the achievement of specified performance or other objectives.
"Performance Share Unit" is an award of the right to receive stock or cash of an equivalent value at the end of the designated performance
period upon the attainment of specified performance goals. Performance Awards are a type of award where the grant, exercise and/or settlement
of such award is contingent upon the achievement of pre-established performance goals and other terms established by the Committee. The
Committee may designate certain Performance Awards as qualified awards under section 162(m) of the Code, entitling the cost of such awards
to be deductible by the Company for income tax purposes. Performance goals for the Performance Awards may include any of the following
business criteria:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
adjusted earnings;
return on equity (which includes adjusted return on equity);
earnings per share growth (which includes adjusted earnings per share growth);
basic earnings per common share;
diluted earnings per common share;
adjusted earnings per common share;
net income;
adjusted earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization;
operating cash flow;
EVA® performance under the Company's EVA® Management System Technical Manual;
operations and maintenance expense;
22 2017 Proxy Statement
(13)
(14)
(15)
(16)
(17)
total shareholder return;
operating income;
strategic business objectives, consisting of one or more objectives based upon meeting specified cost targets, business
expansion goals, new growth opportunities, market penetrations, and goals relating to the acquisitions or divestitures, or
goals relating to capital-raising and capital management.
common share price; and
any combination of the foregoing.
An "Other Stock-Based Award" is any other award that may be granted under the Plan that is valued in whole or in part by reference to or is
payable in or otherwise based, on common stock.
Forfeiture of Awards
Awards may be subject to forfeiture by participants to the extent a participant violates or breaches any agreement between the participant and
the Company or any Company policy or procedure, including the Company's Code of Conduct. Also, awards may be subject to forfeiture if a
participant is terminated for cause. Awards under the Plan are subject to mandatory repayment by a participant to the extent that participant is
or becomes subject to any Company clawback or recoupment policy or any law or regulation that imposes mandatory recoupment.
Amendment or Termination of the Plan
The Board may at any time amend, discontinue, or terminate all or any part of the Plan. No amendment may be made without shareholder
approval that would increase the aggregate number of shares of common stock that may be issued under the Plan, change the definition of
employees eligible to receive awards under the Plan, or otherwise materially increase the benefits to participants in the Plan. Except as required
by law, the termination or any amendment of the Plan may not impair the rights of any participant, without his or her consent.
Federal Tax Consequences
The following summarizes the consequences of the grant and acquisition of awards under the Plan for federal income tax purposes, based on
management's understanding of existing federal income tax laws. This summary is necessarily general in nature and does not purport to be
complete. Also, state and local income tax consequences are not discussed and may vary from locality to locality. The exact federal income
tax treatment of transactions under the Plan will vary depending upon the specific facts and circumstances involved and participants are advised
to consult their personal tax advisors with regard to all consequences arising from the grant or exercise of awards and the disposition of any
acquired shares.
Options
Plan participants will not recognize taxable income at the time an option is granted under the Plan unless the option has readily ascertainable
market value at the time of grant. Management understands that options to be granted under the Plan will not have readily ascertainable market
value; therefore, income will not be recognized by participants before the time of exercise of an option. For Nonqualified Stock Options, the
difference between the fair market value of the shares at the time an option is exercised and the option price generally will be treated as ordinary
income to the optionee, in which case the Company will be entitled to a deduction equal to the amount of the optionee's ordinary income.
Stock Appreciation Rights
Upon the grant of stock appreciation right, the participant will realize no taxable income, and the Company will receive no deduction. Upon the
exercise of the stock appreciation right, the value of the shares and/or cash received is generally taxable to the participant as ordinary income,
and the Company generally will be entitled to a corresponding tax deduction. If the stock appreciation right is settled in shares of common stock,
upon the participant’s subsequent disposition of such shares, the participant will recognize a capital gain or loss (long-term or short-term,
depending on the holding period) to the extent the amount realized from the sale differs from the tax basis (i.e., the fair market value of the
common stock on the exercise date).
Restricted Stock
Recipients of shares of restricted stock that are not "transferable" and are subject to "substantial risk of forfeiture" at the time of grant will not
be subject to federal income taxes until the lapse or release of the restrictions or sale of the shares, unless the recipient files a specific election
under the Code to be taxed at the time of grant. The recipient's income and the Company's deduction will be equal to the excess of the then
fair market value (or sale price) of the shares less any purchase price. Any otherwise taxable disposition of the restricted stock after the time
the restrictions lapse or are released will result in a capital gain or loss (long-term or short-term, depending on the holding period) to the extent
the amount realized from the sale differs from the tax basis (i.e., the fair market value of the common stock on the date the restrictions lapse or
are released). Dividends paid in cash and received by a participant prior to the time the restrictions lapse or are released will constitute ordinary
income to the participant in the year paid and we will generally be entitled to a corresponding deduction for such dividends. Any dividends paid
in stock may be treated as an award of additional restricted stock subject to the tax treatment described herein.
Herman Miller, Inc., and Subsidiaries 23
Restricted Stock Units
No taxable income is realized by a participant upon the grant of a restricted stock unit award. Upon distribution of the shares subject to the
award or payment of cash, the participant would recognize ordinary income based upon the fair market value of the shares at the time the stock
is delivered or in the amount of cash received by the participant. The Company will be entitled to a deduction at the time and in the amount that
the participant recognized ordinary income. If the restricted stock units are settled in whole or in part in shares, upon the participant’s subsequent
disposition of the shares the participant will recognize a capital gain or loss (long-term or short-term, depending on the holding period) to the
extend the amount realized upon disposition differs from the shares’ tax basis (i.e., the fair market value of the shares on the date the participant
received the shares).
Performance-Based Awards
Participants are not taxed upon the grant of performance-based awards. Upon receipt of the underlying shares or cash, a participant will be
taxed at ordinary income tax rates on the amount of cash received and/or the current fair market value of stock received; the Company will be
entitled to a corresponding deduction. Upon the participant’s subsequent disposition of any shares received, the participant will recognize a
capital gain or loss (long-term or short-term depending on the holding period) to the extend the amount realized from the disposition differs from
the shares’ tax basis (i.e., the fair market value of the shares on the date the participant received the shares).
Tax Deductibility Limitations
The Plan is intended to enable the Company to provide certain forms of performance-based compensation to executive officers that will meet
the requirements for tax deductibility under Section 162(m) of the Code. The Code limits the allowable tax deduction that may be taken by the
Company for compensation paid to it's chief executive officer, chief financial officer and the three other highest paid executive officers (other
than the CEO and the CFO). The limit is currently set at $1,000,000 per executive per year; however, compensation payable solely on the
account of the attainment of performance goals is excluded from this limitation. By approving the Amendment discussed above, in Proposal
#3, shareholders will also re-approve the business criteria described above, under the definition of "Performance Shares" for use as possible
performance goals under the Plan.
Adjustments for Certain Corporate Transactions
General Anti-Dilution Adjustments
The Plan provides for the adjustment of the terms of outstanding awards in order to preserve the proportionate interest of the holders in those
awards if the number of outstanding shares of the Company's common stock has increased or decreased or other changes in the Company's
stock occur due to the result of any recapitalization, reclassification, stock split, adverse stock split, spin-off, combination of stock, exchange of
stock, stock dividend or other distributions payable in capital stock or other similar adjustments in the Company's common stock. If the Company
is the surviving entity in any reorganization, merger or similar transaction with one or more entities which does not result in the change of control,
any options, stock appreciation rights, restricted stock or restricted stock units will pertain to and apply to the securities to which a holder of the
number of shares of common stock subject to those awards would have been entitled immediately after the transaction, with any corresponding,
proportionate adjustment to the per share option price or SAR price. In addition, as a result of any such transaction, performance-based awards
will be adjusted to apply to the securities that a holder of the number of shares of stock subject to such performance-based awards would have
been entitled to receive immediately after the transaction. The Plan also provides for the adjustment of the share limits in the Plan, including
those under the Amendment, under these circumstances.
Adjustments for Change in Control Transactions in Which Awards Are Assumed or the Company is the Surviving Entity
Except as otherwise provided in an award agreement, in the event of a change in control in which the Company is the surviving entity or under
which outstanding awards are assumed or continued, the Plan provides for a corresponding adjustment to the outstanding awards to preserve
the intrinsic value of those awards by the Company or its successor; provided, those outstanding awards would be subject to accelerated vesting,
if, within a two (2) year period following a change in control, the participant's employment is terminated without cause, the participant terminates
for good reason or the participant’s employment terminates under circumstances that entitle the participant to accelerated exercisability under
any individual employment agreement with the participant.
Adjustments for Change in Control Transactions in Which Awards Are Not Assumed
Except as otherwise provided in an award agreement, upon a change in control of the Company in which the outstanding awards are not
assumed or continued, awards other than performance-based awards, will be deemed to be immediately vested, or the Committee, at its election,
may cancel those awards and pay the value of those awards to participants. With respect to performance-based awards under any such
transaction, if less than half the performance period has lapsed, those awards will be converted into shares or similar securities assuming target
performance has been achieved. It at least half of the performance period has lapsed, those performance-based awards will be converted into
shares or similar securities based upon actual performance to date.
24 2017 Proxy Statement
Required Vote for Approval
The affirmative vote of the majority of the Company's outstanding common stock represented and voted at the Annual Meeting, by person or
by proxy, is required to approve the proposed Amendment. Broker non-votes and abstentions will not be treated as votes cast on the proposal.
Unless otherwise directed by marking the accompanying proxy the proxy holders named therein will vote for the approval of the proposed
Amendment.
The Board of Directors recommends a vote FOR the approval of the proposed Amendment.
Proposal #4 - Proposal to Approve, on an Advisory Basis, the Compensation Paid to the Company's Named Executive
Officers
Consistent with our Board's recommendation, as approved by our shareholders and as required pursuant to Section 14A of the Securities
Exchange Act, we allow our shareholders the opportunity to vote, on an advisory and annual basis, on the compensation of our named executive
officers. Thus, you are asked to vote upon the following resolution at this year's annual meeting.
“RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed in the Company's proxy statement for this
annual meeting pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and narrative
disclosure, is hereby APPROVED."
The Executive Compensation Committee ("Committee") has considered the results of the 2016 advisory vote on executive compensation in
which more than 96% of the votes cast were voted for the approval, on an advisory basis, of the compensation of our named executive officers
as described in the 2016 Proxy Statement. Consistent with those voting results, the Committee believes that the total compensation paid to the
Chief Executive Officer and the other named executive officers, as disclosed in the Compensation Discussion and Analysis, is fair and appropriate
and should be approved by our shareholders. The compensation of the named executive officers is designed to vary with the results of the
business and to reward consistent improvement in the results delivered to shareholders. In fiscal year 2017, changes in the base compensation
of each executive officer primarily reflect changes in the benchmarking data for the position. The change in the variable element of each
executive's compensation reflects our financial and related performance relative to performance criteria approved by the Committee and Board.
The Committee believes that the compensation to each named executive officer as disclosed in the Compensation Discussion and Analysis is
appropriate in the light of the Company's and the officer's performance during the fiscal year. In addition, each of the elements of compensation
at target has been benchmarked against comparable positions.
The Board of Directors recommends a vote FOR this proposal
This vote is advisory and non-binding; however, the Board of Directors and Committee will review and consider the voting results in connection
with future deliberations concerning our executive compensation program.
Herman Miller, Inc., and Subsidiaries 25
Proposal #5 - Proposal to Consider, on an Advisory Basis, the Frequency of Future Advisory Votes on Executive
Compensation
We are also offering our shareholders the opportunity to vote on how often the Board should ask our shareholders to provide an advisory vote
on executive compensation. The Board believes that because our current executive incentive targets are set annually, an annual vote on executive
compensation is most appropriate. You may choose to vote in any one of four manners on the proxy. You may indicate that you prefer this vote
every one, two or three years or you may abstain. If no choice is specified, the shares represented by your proxy will be voted in favor of
management's recommendation that the vote be conducted every year. The shareholder vote on this issue is advisory. Because it is not binding
upon us, the Committee and our Board of Directors may decide that it is in the best interest of our shareholders and our Company to hold an
advisory vote on executive compensation more or less frequently than the option approved by our shareholders. However, the Committee and
the Board will consider the outcome of the vote when making future decisions on executive compensation.
The Board of Directors recommends a vote FOR the approval of the proposed advisory vote on executive compensation each year.
Voting Securities and Principal Shareholders
On August 11, 2017, we had 59,802,577 shares of common stock issued and outstanding, par value $.20 per share. Shareholders are entitled
to one vote for each share of common stock registered in their names at the close of business on August 11, 2017, the record date for the Annual
Meeting fixed by our Board of Directors. Votes cast at the meeting and submitted by proxy will be tabulated by Broadridge Financial Solutions,
Inc. As of August 11, 2017, no person was known by management to be the beneficial owner of more than five percent of our common stock,
except as follows.
Name and Address of Beneficial Owner
Amount and
Nature
of Beneficial
Ownership
Percent
of Class
BlackRock, Inc.(1)
55 East 52nd Street
New York, NY 10055
The Vanguard Group, Inc.(2)
PO Box 2600
Valley Forge, PA 19482
(1) This information is based solely upon information as of June 30, 2017, contained in filings with the SEC on August 10, 2017 by BlackRock, Inc., including notice that it has,
along with certain institutional investment managers for which it is the parent holding company, sole voting power as to 5,958,502 shares and sole dispositive power as to
6,078,598 shares.
6,078,598
5,524,361
10.16
9.24
(2) This information is based solely upon information as of June 30, 2017, contained in a filing with the SEC on August 11, 2017 by The Vanguard Group Inc., including notice that
it has sole voting power as to 109,572 shares and sole dispositive power as to 5,411,919 shares, and shared voting power with respect to 7,006 shares and shared dispositive
power with respect to 112,442 shares.
26 2017 Proxy Statement
Director and Executive Officer Information
Security Ownership of Directors
The following table shows, as of August 11, 2017, the number of shares beneficially owned by each of the nominees and directors, except for
Brian Walker who is reported in Security Ownership of Management below. Except as described in the notes following the table, the following
persons have sole voting and dispositive power as to all their respective shares.
Name
Mary Vermeer Andringa
David A. Brandon
Brenda Freeman(3)
Douglas D. French
J. Barry Griswell
John R. Hoke III
Lisa A. Kro
Heidi J. Manheimer
Dorothy A. Terrell
David O. Ulrich
Brian C. Walker
Michael A. Volkema
Amount and Nature of
Beneficial Ownership(1)
Percent of
Class(2)
41,714
16,809
—
10,397
20,910
29,684
18,383
10,666
24,877
37,121
0.07
0.03
0.00
0.02
0.03
0.05
0.03
0.02
0.04
0.06
see table below
75,000
0.13
(1) Shares shown for each director include the following number of shares that each director has the right to acquire beneficial ownership under stock options exercisable within
60 days: 15,183 shares for Ms. Terrell; and 28,554 shares for Dr. Ulrich.
(2) Percentages are calculated based upon shares outstanding plus shares that may be acquired under stock options exercisable within 60 days.
(3) Ms. Freeman’s deferred compensation account allocation holds 5,826 shares of Herman Miller stock which would equate to a Percent of Class of 0.01.
Security Ownership of Management
The following table shows, as of August 11, 2017, the number of shares beneficially owned by each of the Named Executive Officers (NEOs)
identified in the executive compensation tables of this Proxy Statement, and by all directors and executive officers as a group. Except as described
in the notes following the table, the following persons have sole voting and dispositive power as to all their respective shares.
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
All executive officers and directors as a group (23 persons)(3)
Amount and Nature of
Beneficial Ownership(1)
Percent of
Class(2)
501,971
33,970
91,004
46,597
43,832
1,139,484
0.84
0.06
0.15
0.08
0.07
1.91
(1) Includes the following number of shares with respect to which the NEOs have the right to acquire beneficial ownership under stock options exercisable within 60 days:
211,751 shares for Mr. Walker; 21,596 shares for Mr. Stutz; 45,179 shares for Mr. Bylsma; 16,514 shares for Mr. Lock; and 30,271 shares for Mr. Watson.
(2) Percentages are calculated based upon shares outstanding plus shares that may be acquired under stock options exercisable within 60 days.
(3) Included in this number are 450,115 shares with respect to which executive officers and directors have the right to acquire beneficial ownership under options exercisable
within 60 days.
Herman Miller, Inc., and Subsidiaries 27
Compensation Discussion and Analysis
Executive Summary
Fiscal Year 2017 Company Performance
We continued to make significant progress in fiscal year 2017 toward our long-term vision and financial objectives: delivering on our SHIFT
strategy for diversified growth, expanding into higher margin segments and categories, and continuing to enhance the Herman Miller global
brand. In addition to meaningful progress on our long-term objectives, we achieved increased sales and orders for the seventh consecutive
year and delivered consolidated revenue of $2.28 billion in fiscal year 2017. Strong expense management helped offset commodity and pricing
headwinds to deliver adjusted EPS in line with the prior year, which is discussed elsewhere in this Proxy Statement. We also continued to
maintain a strong balance sheet and cash flow profile. As a result of this financial performance, we recently announced a 6% increase to our
quarterly dividend rate beginning in October 2017.
As discussed below, the compensation that we paid to our named executive officers for fiscal year 2017 reflects a strong link between executives’
total annual compensation and the company’s performance. In fiscal year 2017, we modified our executive compensation program by increasing
the amount of compensation that is classified as performance-based. In prior years, our LTI was comprised of RSUs, PSUs, TSRs, and, in some
cases, options; and our LTI was partially performance-based because our RSUs acted primarily as a retention tool. Going forward, all components
of our LTI will be performance-based as the entire LTI pool is a function of prior year’s EBITDA performance. This action, among others listed
below, better aligns our long-term incentive compensation program with long-term shareholder value. Other examples of these actions include:
•
•
•
we increased the significance of amounts earned dependent on performance objectives;
we elected to grant options in lieu of Relative TSR Performance Share Units to all NEOs, commencing with LTI grants in fiscal year 2017,
as we believe options will provide an additional incentive to increase the underlying stock price; and
we approved a cap on the total value of LTI grants in a fiscal year to tie the aggregate cost of LTI grants to the company’s ability to maintain
and grow EBITDA, with the cap equal to 4.5% of the preceding fiscal year’s EBITDA.
With respect to the aforementioned cap, there are several components. First, it may not exceed 4.5% of prior year's EBITDA. Thus, providing
management an incentive to annually improve EBITDA. Second, of the 4.5%, .5% is made available to the CEO to issue discretionary awards
for high performers. Third, award allocations must be established and approved by the Board, and the Board may use negative discretion in
making awards to participants. Fourth, the CEO's award may not exceed 30% of the pool. Lastly, if the pool is not large enough to provide a
grant at 100% of target, the participants' actual grants would be reduced pro-rata by the level of EBITDA performance.
We believe our compensation programs are structured to correlate strongly with our company strategy to attain our business objectives and to
deliver significant shareholder value. We discuss our compensation plans and philosophy in greater detail in this Compensation Discussion and
Analysis.
The Board Executive Compensation Committee (Committee) annually requests that Pearl Meyer & Partners evaluate the relationship between
our executive compensation and our financial performance. For fiscal year 2017, the Committee reviewed a historical assessment of the
relationship between the company’s financial performance and executive pay relative to our fiscal year 2017 peer group (as set forth below).
The following graph illustrates the results of the Committee’s core assessment and illustrates the relationship between:
(1) Our CEO’s (and other NEOs’) total direct compensation (base salary earned, incentives earned, value of restricted stock units or (RSUs)
that vest during the period, performance share units (PSUs) that vested during the period, value of stock options (where applicable) exercised
during the period, and changes in value of unvested RSUs/PSUs and unexercised options held during the period; and
(2) The company’s performance as measured by total shareholder return (“TSR”) - over a three-year period (fiscal 2015 - 2017).
The data points within the shaded area of the graph designate ideal relationships between pay and performance. Data points below the shaded
area identify an area where pay was lower than expected given the organization’s performance. The data points above the shaded area identify
an area where pay was higher than expected given the organization’s performance.
28 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
In the graph above referencing CEO Pay for Performance compensation that our CEO realized in fiscal year 2016 ranked at the 22nd percentile,
our TSR ranked at the 33rd percentile, indicating that our CEO’s compensation was within the range expected given our performance relative
to peer results.
In the graph above referencing Ranks 2-5 Pay for Performance compensation that our other NEOs realized in fiscal year 2016 ranked at the
12th percentile, our TSR ranked at the 33rd percentile, indicating that our other NEOs’ compensation was within the range expected given our
performance relative to peer results.
Executive Officers Covered by this Compensation Discussion and Analysis
For fiscal year 2017, we are required to provide information regarding our compensation policies and decisions relating to our President and
Chief Executive Officer (CEO), our Chief Financial Officer (CFO) and the three other most highly compensated executive officers serving as
executive officers at the end of the year. We refer to our CEO, our CFO and the other executive officers for whom disclosure is required as our
“named executive officers” or “NEOs.” This Compensation Discussion and Analysis is intended to provide information regarding, among other
things, the overall objectives of our compensation programs and each element of compensation we provided to the NEOs.
The NEOs for fiscal year 2017 and their titles are listed in the following table:
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Title
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
President, North America Contract
President, Herman Miller International
Chief Creative Officer
2016 Say on Pay Vote
At the 2016 annual shareholders’ meeting, our shareholders overwhelmingly approved, on an advisory basis, the compensation we paid to our
NEOs during fiscal year 2016.
The Committee believes that the performance of our executive compensation programs during fiscal year 2017 was consistent with our
compensation philosophy and objectives, as described below, and that the compensation we paid to our NEOs was appropriate given our overall
performance.
Our shareholders will have the opportunity to cast an advisory “Say on Pay” vote at this year’s annual meeting as well. The Committee will take
the vote into consideration when evaluating the effectiveness of the company’s executive compensation programs.
Herman Miller, Inc., and Subsidiaries 29
Compensation Discussion and Analysis (continued)
Compensation Philosophy
The goal of our compensation philosophy is to allow for an appropriate level of risk and a corresponding compensation reward within a range
that bears a relationship to the competitive market, to the responsibilities of the employee and to the performance of the employee and our
company. Consistent with this philosophy, the key objectives of our executive compensation program are to:
•
•
•
•
Link a material portion of executives' total annual compensation directly to the company's performance
Reinforce our values, build corporate community, and focus employees on common goals
Align the interests of executives with the long-term interests of shareholders
Attract, motivate, and retain executives of outstanding ability
Compensation Policies and Practices That Reflect Our Compensation Philosophy
What We Do
Pay for Performance
Balance Long-Term and Short-Term Incentives
Benchmark Compensation Against an Appropriate Peer Group
Maintain Clawback Right
Monitor for Risk-Taking Incentives
Maintain Stock Ownership Requirements
Prohibit Hedging
Limit Perquisites
Engage an Independent Compensation Consultant
Hold Executive Sessions at Each Committee Meeting
What We Do Not Do
x
x
x
x
No Gross-Ups for Taxes
No "Single Trigger" Severance Agreements
No Repricing of Options
No Guaranteed Bonuses or Salary Increases
30 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
Role of the Committee
The Committee consists of three directors, each qualifying as independent under NASDAQ’s listing requirements. The Board has determined
that each member of the Committee also meets the definition of independence under our corporate governance guidelines and qualifies as a
non-employee director for purposes of Rule 16b-3 under the Securities Exchange Act of 1934.
The Committee’s primary functions are to oversee the compensation philosophy and strategy, to determine or recommend the compensation
of company officers, including the NEOs, and to act as the Administrative Committee for our executive compensation plans.
The Committee is also responsible for providing recommendations to the full Board with respect to all aspects of the annual compensation of
our President and CEO. In addition, the Committee, based upon recommendations from our CEO, approves the annual compensation for all
other officers covered by Section 16 of the Securities Exchange Act of 1934 including the NEOs and other Corporate Officers. Our President
and CEO establishes the base salary of all other executives.
Among other responsibilities, the Committee establishes the performance objectives for the Executive Incentive Cash Bonus Plan and our
equity-based compensation plans, which cover the President and CEO, NEOs, other Corporate Officers and other executive employees.
The Committee is also tasked to review and advise on the compensation philosophy and strategy of the company, review and approve
compensation and benefit plans as required by the Committee Charter, and review the annual compensation plans’ risk analysis.
Role of the External Compensation Consultants
The Committee has the authority and sole discretion to select independent compensation consultants, legal consultants and other advisors to
provide it independent advice. During fiscal year 2017, the Committee retained Pearl Meyer as independent compensation consultants with
respect to the compensation matters regarding our Corporate Officers. The independent services that Pearl Meyer provided to the Committee
included reviewing the elements of compensation of the President and CEO as well as the other Corporate Officers and comparing those
elements to our compensation philosophy and objectives and to market practices. We did not permit Pearl Meyer to provide other consulting
services to the company.
Pearl Meyer concluded that our compensation program established for those officers is consistent with our compensation philosophy and
objectives as well as with market practices.
With the approval of the Committee, we retained Meridian Compensation Partners LLC in fiscal year 2017 to provide marketplace compensation
data and compensation consulting services to management for employees other than the Corporate Officers.
Overview of Compensation Program
Our compensation program is designed to provide Corporate Officers who perform their duties at a proficient level with compensation that
reflects the market median compensation for their position based upon data that our independent compensation consultant provides (as described
in the section on Benchmarking of Compensation). The compensation program also requires that a portion of the Corporate Officer’s compensation
be determined based upon the company’s performance. The Committee believes that the compensation program, through the use of base
salary, annual incentive cash bonus and long-term incentives, operates in a manner consistent with these objectives. The Committee also
believes that the compensation program rewards performance that generates both consistent and long-term enhancement of shareholder value.
Benchmarking of Compensation
To ensure that executive compensation is competitive, the Committee uses marketplace compensation data to compare our compensation
programs to general market pay practices. The Committee in fiscal year 2017 also used a specific peer group for benchmarking compensation
(we list the members of the peer group in the Additional Compensation Information, Peer Group section later in this Compensation Discussion
and Analysis). This peer group includes both direct competitors as well as comparable companies in other industries. The Committee believes
the competitive market for executive talent in which we operate extends beyond the office furniture industry.
Pearl Meyer used the peer group information along with the following survey sources when analyzing fiscal year 2017 market competitiveness
pay levels of Corporate Officers: Willis Towers Watson Executive Compensation Database, Aon Hewitt Executive Total Compensation Database,
Mercer Executive Database and Equilar Insight Database (we refer to the peer group information and these survey sources collectively as
“Survey Data”). We use the Survey Data to determine competitiveness of base pay, cash incentive bonus and long-term incentive awards. Pearl
Meyer uses a regression analysis and aging to make allowances for time differences in the data and to align the data so that it is representative
of companies having revenues equivalent to the operations that our individual Corporate Officers manage. Pearl Meyer compares the base
Herman Miller, Inc., and Subsidiaries 31
Compensation Discussion and Analysis (continued)
salary, target total cash and target total direct compensation of each Corporate Officer to the 25th, 50th (market median) and 75th percentile of
the Survey Data for a comparable benchmark position.
Pearl Meyer provided the Committee with benchmarking data, market practices and trends, peer group selection and pay for performance
evaluation information to provide appropriate context for the Committee’s deliberations. Our CEO makes recommendations to the Committee
regarding the compensation package for each of the Corporate Officers (other than himself). The CEO bases his recommendations with respect
to Corporate Officers on the Pearl Meyer information, his evaluation of the individual’s performance, the company’s performance and other
factors. The Committee bases its approval of the CEO’s recommendations for the compensation of Corporate Officers (other than the CEO) on
the Committee’s review of the information from Pearl Meyer relative to market pay, advice from Pearl Meyer and the Committee members’ own
judgment, including their judgment on the relative performance of both the company and its Corporate Officers. Based upon these same factors
relative to the CEO's performance, the Committee makes a recommendation to the full Board for the CEO’s compensation. The Board of Directors
determines the compensation of the CEO.
Elements of the Compensation Program
The following table provides an executive summary of our fiscal year 2017 compensation programs for our Corporate Officers:
General Description
Strategic Objective of
Compensation Program/Element
Base salaries reflect market rates for comparative
positions and each NEO's historical level of
proficiency and performance.
The base salary of NEOs assessed by the CEO and the
Committee to be proficient is generally targeted at the
market median of
the Survey Data. The base
compensation of NEOs with less experience in general
would be below the market median and those judged to be
performing at a higher level of proficiency, generally would
be above the market median. The Committee or the Board
in each circumstance uses its judgment and experience in
setting the specific level of base salary relative to the
general market median data.
We pay the annual executive incentive cash
bonus for the Corporate Officers pursuant to the
Executive Incentive Cash Bonus Plan. This plan
is intended to link annual incentive compensation
to
the creation of shareholder value. The
Executive Incentive Cash Bonus Plan provides for
the annual payment of a cash bonus (Incentive
Cash Bonus) to selected Corporate Officers
based upon the performance of the company (and
in some cases, various business units and/or
functional goals) during the fiscal year. The
primary measure of performance for the Incentive
Cash Bonus is EBITDA, which represents the
taxes,
company's earnings before
depreciation and amortization (excluding non-
controlling ownership interests).
An executive's
is
total cash compensation
comprised of both base salary and annual
executive incentive cash bonus.
The purpose of the EBITDA-based Annual Incentive Cash
Bonus Plan is to closely link incentive cash compensation
to the creation of shareholder wealth. We intend for the
Plan to foster a culture of performance and ownership,
promote employee accountability, and establish a
framework of manageable risks imposed by variable pay.
We also intend the Plan to reward long-term, continued
improvements in shareholder value with a share of the
wealth created.
The Committee believes that, in support of the Company's
strategy organizing around operating as a business unit
and vertical markets, it is important to tie a significant
portion of the Corporate Officers' annual incentive cash
bonus to the performance of the various operating units
and vertical markets for which they are responsible.
Additionally, some Corporate Officers have functional
objectives that determine no more than 25% of their annual
incentive bonus.
interest,
Compensation
Program/Element
Base Salary
Annual Executive
Incentive Cash Bonus
32 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
Long-Term
Equity Incentives
The Committee and Board have historically
granted various types of long-term incentive
awards: Restricted Stock Grants and Units,
Herman Miller Value Added Performance Share
Units, Relative TSR Performance Share Units,
and Stock Options. The Long-Term Equity
Incentives may not exceed 4.5% of prior year's
EBITDA.
Total Direct
Compensation
An executive's total direct compensation is
comprised of base salary earned, incentives
earned, value of restricted stock units (RSUs) that
vested during the period, performance share units
(PSUs) that vested during the period, value of
stock options (where applicable) exercised during
the period, and changes in value of unvested
RSUs/PSUs and unexercised options held during
the period.
The key objectives of making Long-Term Incentive Grants
under the LTI Plan are:
- To provide an appropriate level of equity reward to
Corporate Officers that ties a meaningful part of their
compensation to the long-term returns generated from
shareholders.
- To provide an appropriate equity award to the next level
of Corporate Officers where market data would support
their inclusion in an annual equity award plan.
- To assist the achievement of our share ownership
requirements.
- To attract, retain and reward key employees. We believe
a significant portion of executive pay should be aligned with
long-term share-holder returns and that encouraging long-
term strategic thinking and decision-making requires that
Corporate Officers have a significant stake in the long-term
success of Herman Miller.
It is our goal to align the compensation packages with
prevailing market rates. The alignment is accomplished
primarily through adjustments to each Corporate Officer's
total direct compensation.
Retirement and
Health Benefits
We maintain retirement plans along with a broad
base of health insurance plans available to full-
time and most part-time employees.
The NEOs participate in such retirement plans and health
insurance plans on the same terms as all other employees
within their respective geographic region or business unit.
Other Executive
Compensation Plans
We provide additional compensation programs to
our corporate officers including a compensation
protection program in the form of executive long-
term disability; a retirement equalization program
in the form of a non-qualified retirement match
program with an optional deferred compensation
element; and in the case of NEOs, a perquisites
program with a value between $12,000 and
$20,000 per year.
It is our goal to provide market competitive benefits which
allow us to attract and retain critical executive talent.
Herman Miller, Inc., and Subsidiaries 33
Compensation Discussion and Analysis (continued)
The following charts illustrate the key elements of our compensation for our NEOs:
Current Compensation
FY17 and FY18 Long-Term Incentive
Base Salary
Paid in Cash
Short-Term Incentive
Paid in Cash
Based on EBITDA Performance
The Committee determined that the total direct compensation (as above described) for each NEO for fiscal year 2017, and as approved for
fiscal year 2018, is within the benchmarked range given the NEO’s performance, position and the company’s performance.
34 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
Base Salary in Fiscal 2017
The Committee and the Board granted merit increases for fiscal year 2017 to our employees, including the NEOs. Each of the base salaries of
our NEOs was within the range established for their performance and position. Salary changes went into effect July 19, 2016 and are detailed
as follows:
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock *
B. Ben Watson
* Measured in pounds sterling at an exchange rate of 1.4955 would yield £261,686.
Salary for Fiscal
Year 2017
$
$
$
$
$
920,000
400,000
440,000
391,000
405,000
Percent
Increase
2.2%
14.3%
2.3%
1.0%
3.1%
Mr. Walker’s increase reflects the Board’s recognition of Mr. Walker’s continued efforts to grow the business opportunities for the company. Mr.
Stutz’s increase was a result of his continued growth and development in his role along with his efforts to structure a financial strategy that aligns
with the company’s business objectives. Mr. Bylsma’s increase is a reflection of his continued improvement of the company’s operations
capabilities. Mr. Lock’s increase is in recognition of putting in place infrastructure to grow the company’s International business. Mr. Watson’s
increase is in recognition of the improvement in the company’s brand strategy and messaging during his tenure as creative director.
Base Salary in Fiscal 2018
The Committee and Board of Directors approved the following changes in the base salaries of the continuing NEOs for fiscal year 2018 as we
discuss below:
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock *
B. Ben Watson
* Measured in pounds sterling at an exchange rate of 1.2794 would yield £268,876.
Salary for Fiscal
Year 2018
$
$
$
$
$
975,000
450,000
465,000
344,000
430,000
Percent
Increase
6.0%
12.5%
5.7%
2.7%
6.2%
Mr. Walker’s increase reflects the Board’s recognition of Mr. Walker’s continued efforts to grow the business opportunities for the company. Mr.
Stutz’s increase was a result of his continued growth and development in his role along with his efforts to structure a financial strategy that aligns
with the company’s business objectives. Mr. Bylsma’s increase is a reflection of his continued improvement of the company’s operations
capabilities as well as his new responsibility for the overall North America Contract business which includes North America Work, Government,
Healthcare and Education businesses. Mr. Lock’s increase is in recognition of putting in place infrastructure to grow the company’s International
business. Mr. Watson’s increase is in recognition of the improvement in the company’s brand strategy and messaging, his new responsibility
for R&D and his new responsibility for streamlining our global portfolio of new products.
Effective Fiscal Year 2018, we will change the design of the retirement plan for US-based employees. Specifically, we will eliminate the 3% profit
sharing component and reallocate as follows:
•
•
•
For all employees, an additional 1% of base salary will be added to the 401(k) matching program, resulting in a matching contribution
of up to 4%,
Section16 participants will receive a 1% base salary increase; and
This 1% increase is reflected in the base salary increases for each of the NEO’s; excluding Mr. Lock, who is not a participant in the
Profit Sharing Plan.
Each of the base salaries set for the NEOs by the Committee or the Board was within the range established for his performance and position.
Herman Miller, Inc., and Subsidiaries 35
Compensation Discussion and Analysis (continued)
Annual Executive Incentive Cash Bonus
The Committee at the beginning of each fiscal year establishes a target bonus pool representing the amount of Incentive Cash Bonuses that
may be paid under the Plan if the company achieves the EBITDA amount contained in the company’s annual financial plan as approved by the
Committee and the Board. The Committee also establishes a target bonus for each participant, expressed as a percentage of base salary, the
target amount of EBITDA for the company and the amount of variation from target EBITDA that would result in either a doubling of the target
bonus or no bonus, referred to as maximum and minimum threshold performance, respectively. The target EBITDA and the interval used for
maximum and minimum threshold performance are the three points that are used to determine the slope of the bonus factor line. The actual
bonus factor paid to an employee represents a point on the line.
The Committee sets the EBITDA targets annually. The Committee also establishes annually any Incentive Cash Bonus targets based upon
divisional, functional or operational EBITDA or other goals for each participant. The Incentive Cash Bonus earned by participants is expected
over time to average 100% of his or her individual target provided the appropriate performance measures are met. The target Incentive Cash
Bonus percentage for the NEOs generally is set so that the incentive cash bonus at on-target performance will equal 100% of the market median
bonus amount for comparable positions as shown in the Survey Data, although base pay and bonus may be adjusted to maintain total
compensation in an amount that is consistent with our compensation philosophy. The Committee believes that this use of Incentive Cash Bonus
is consistent with the objective of making compensation for senior Corporate Officers more variable with the company’s performance.
The Committee has adopted guidelines for determining when adjustments to the company’s EBITDA are appropriate in calculating incentive
plan performance. Under these guidelines, the Committee will consider whether adjustments are appropriate to best reflect the operating results
of our business and appropriately incent management in a manner that is in the best interest of shareholders. Some common examples of
potential adjustments under the guidelines include excluding restructuring costs from EBITDA in the period incurred and amortizing them back
into the calculation over a five-year period, certain contingent consideration, transaction costs, effects of purchase accounting and income
associated with acquisitions. We may exclude these items only in limited circumstances or only for certain periods or specified awards. The
guidelines also include a framework for evaluating potential EBITDA adjustments that considers as to a potential item of adjustment:
Its impact on near-term cash flows;
• Whether it is material to the result of the business;
•
• Whether it is an accounting adjustment that does not reflect the ongoing operations of the business;
• Whether it aligns the company’s performance outlook with long-term shareholder interests;
• Whether the adjustment unfairly impacts one particular business unit;
• Whether the company has made similar adjustments in recent reporting periods; and
• Whether the related income or expense was offset in a prior reporting period (and, if so, if it was excluded from EBITDA).
We intend this framework to be used by management in recommending adjustments and by the Committee in evaluating potential adjustments.
The adjustments that we disclose below were based on the Committee’s conclusion that they were consistent with the guidelines.
The Committee is responsible for administering all elements of the Executive Incentive Cash Bonus Plan, except those elements of the plan
relating to the CEO (including target percentage payment), which the Board approves. The Committee approves participants in the Plan, the
target payment percentage and the plan EBITDA goals. The Audit Committee at the end of each fiscal year approves the calculation of EBITDA
results for the year and the EBITDA change from the previous year and the resulting bonus factor. The Committee certifies the use of the bonus
factor for use in the Incentive Cash Bonus calculation.
Incentive Cash Bonus for Fiscal 2017
The Committee approved basing a portion of certain NEOs’ incentive cash bonus on functional goals or business unit operating results. The
payment target percentages for our CEO and NEOs are listed below. The incentive cash bonuses for Brian Walker and Jeffrey Stutz was based
100% upon consolidated EBITDA for the entire company. The incentive cash bonus for Andrew Lock, Gregory Bylsma and Ben Watson was
based 25% upon the modified EBITDA driven metrics of their respective business units/vertical markets and/or functional goals and 75% upon
the consolidated EBITDA. Andrew Lock and Greg Bylsma had Business Unit/Vertical Market goals. Ben Watson had a blend of Business Unit/
Vertical Market goals and Functional Goals. The Committee believes that the Incentive Cash Bonus target percentages reflect the appropriate
market information provided by the Survey Data and are within the appropriate range for each NEO.
Vertical market EBITDA goals were limited such that they could not exceed 200% of vertical market targeted EBITDA or the blended multiple
could not exceed the corporate EBITDA multiple plus 100 basis points. Functional goals were limited such that they could not exceed 200% of
the individual Functional Goal target or the blended multiple could not exceed the corporate EBITDA multiple plus 50 basis points.
36 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
The Committee believes that the incentive plan calculation should be focused on and reward for EBITDA resulting from operating performance.
Therefore, the annual calculation of EBITDA for incentive plan purposes is subject to various adjustments to minimize the impact of non-operating
results. The Corporate EBITDA target established by the Committee was $278.0 million with a minimum threshold set at 85% of target ($236.3
million) and a maximum at 120% of the target ($333.6 million). EBITDA performance below the minimum threshold would result in a payout of
0%, EBITDA performance at the target threshold would result in a payout of 100% and EBITDA performance at or above the maximum threshold
would result in a payout of 200% of the eligible bonus dollars.
For fiscal year 2017, the company’s actual EBITDA (as adjusted in the manner described in the table below) was $263.9 million, which was
between the target amount of $278.0 million (100%) and the minimum amount of $236.3 million (0%). Interpolating the relative position of the
company’s actual adjusted EBITDA along the payout slope line yielded a payout percentage of approximately 75% of the target value for the
fiscal year. For fiscal year 2017, the company’s EBITDA performance for incentive plan purposes has been adjusted to reflect the following items
(refer to the section “Reconciliation of Non-GAAP Measures” for further information):
Description
1. Amortization of previously excluded restructuring
Adjustment
to EBITDA
($ millions)
$(0.9)
2. Current year pre-tax restructuring expense
$4.6
3. Pre-tax impairment expense relating to the carrying
value of the Nemschoff trade name intangible asset
$7.1
Rationale for the Adjustment
Board approved restructuring actions are not included in the
calculation of adjusted EBITDA to help ensure management’s near-
term compensation goals are not in conflict with the long-term
strategic objectives of the business. Instead, related costs are
amortized over a 5-year period and such amortization will be
included in the calculation.
Board approved restructuring actions are not included in the
calculation of adjusted EBITDA to help ensure management’s near-
term compensation goals are not in conflict with the long-term
strategic objectives of the business. Instead, these costs will be
amortized over a 5-year period and such amortization will be
included in the EBITDA calculation.
The Committee determined it is appropriate to exclude the
Nemschoff impairment charge from the calculation on the basis that
the charge is non-cash in nature and does not reflect the ongoing
operation of the business.
The Committee and Board review the adjustments, and in certain instances the Committee and/or the Board decides whether certain adjustments
should apply to the bonus calculations for specific participants.
The EBITDA bonus amounts awarded to the NEOs were as follows:
Target
Bonus
Percent Tied
to Company
EBITDA
Company
Performance
Factor
Bonus Earned
For Company
Performance
Target Bonus
Percent tied
to Function/
Bus Unit
Function/
Bus Unit
Performance
Factor
Bonus Earned
For Function/
Bus Unit
Performance
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson (2)
13,648
(1) - This amount represents the portion of his bonus that the NEO elected to defer under the Herman Miller, Inc. Executive Equalization Retirement Plan described later in this
Compensation Discussion and Analysis.
(2) - Mr. Watson's Function/Business Unit Performance Factor is a blend of 8.13% Business Unit (bonus factor of 1.2986) and 8.13% Functional (bonus factor of 1.1700).
684,059 $
190,176 $
214,258 $
230,863
227,473 $
0.7461 $
0.7461 $
0.7461 $
0.7461 $
0.7461 $
100.00%
65.00%
48.75%
48.75%
48.75%
684,059
190,176
159,455
121,922
146,610
0.7695 $
2.0000 $
1.2343 $
16.25%
16.25%
16.25%
54,725
5,705
21,426
Total Bonus
Amount
Paid
$
$
54,803 $
108,941 $
80,863 $
Bonus
Amount
Deferred (1)
Herman Miller, Inc., and Subsidiaries 37
Compensation Discussion and Analysis (continued)
Incentive Cash Bonus for Fiscal 2018
For fiscal year 2018, the measure of achievement under the Executive Incentive Cash Bonus Plan continues to be EBITDA. The Corporate
EBITDA target established by the Committee is $269.0 million with a minimum threshold set at $254.0 million and maximum at $304.0 million.
Other provisions of the fiscal year 2018 plan, such as the use of functional and business unit goals, are the same as the fiscal year 2017 plan
described above. The incentive cash bonuses for Brian Walker and Jeffrey Stutz remain based 100% upon consolidated EBITDA for the entire
company. The incentive cash bonus for Gregory Bylsma and Andrew Lock is based 50% upon the modified EBITDA driven metrics of their
respective business units and 50% upon the consolidated EBITDA. Mr. Watson's incentive will be based 25% upon the functional goals and
75% upon consolidated EBITDA. The Committee believes that the Incentive Cash Bonus target percentages reflect the appropriate market
information provided by the Survey Data and are within the appropriate range for each NEO.
Long-Term Equity Incentives
Our 2011 Long-Term Incentive Plan (which we refer to as the LTI Plan) authorizes us to grant various forms of equity-based compensation
(which we refer to as Long-Term Incentive Grants or LTI grants or awards). The Committee is responsible for administering all elements of the
LTI Plan and for making all Long-Term Incentive Grants, with the exception of the CEO whose grants the Board approves.
Historically, the Committee has established targets relating to Long-Term Incentive awards at the beginning of each fiscal year (during the month
of July for that fiscal year) and made actual grants of awards during the month of July following the end of the fiscal year considering the
company’s financial performance for that year. Typically, the Committee and the Board at their June and July meetings take four actions in
connection with our LTI Plan: (a) set the target value for the LTI awards for the current fiscal year, (b) determine the types of awards to be used
for the current fiscal year, (c) establish the performance criteria, if any, for certain awards for the current fiscal year and (d) grant the long-term
incentive awards for the just completed fiscal year based upon the company’s performance relative to target.
For each NEO, the Committee calculates a target value of LTI grants for the current fiscal year that is expressed as a percentage of base salary.
The Committee sets the total target value of the LTI grants for each of these NEOs at a level intended to ensure that the NEO’s total direct
compensation would correspond with the market median of the Survey Data for a comparable NEO’s individual position. Following the end of
the fiscal year, the Committee determines the total value of LTI grants for each of these NEOs based on each NEO’s target value and the
company’s financial performance for that year relative to target. We convert that value for each NEO into grants of Restricted Stock Units,
Herman Miller Value Added Performance Share Units and Stock Options using the closing price of our stock on the date of grant for RSUs and
PSUs and using a Black-Scholes valuation for stock options.
The key features of each award are as follows:
Restricted Stock Units: The restricted stock units (RSU) consist of units representing the right to receive shares of Herman Miller, Inc. common
stock. Each unit represents the equivalent of one share of the common stock as of the date of grant and cliff vests after three years. RSUs
convert into shares after they vest. Dividends accrue on the RSUs and are added to the total value of the units at the time of vesting.
Herman Miller Value Added Performance Share Units: The Herman Miller value added performance share units are units representing the right
to receive shares of Herman Miller, Inc. at the end of the specified performance period. These units cliff vest after three years if certain Herman
Miller Value Added tests are met. The awards provide that the total number of shares that finally vest may vary between 0 and 200% of the
number of units awarded depending upon performance relative to the established Herman Miller Value Added goal. The Committee establishes
the Herman Miller Value Added goals. The Herman Miller Value Added goal for on target vesting is a 3-year average. The awards also grant
the Committee the ability to extend the performance period to a total of five years; however, if the extension is granted, then no more than 34%
of the target grant may vest. Units convert into shares after they vest. Dividends do not accrue on the awards.
Herman Miller Value Added is defined as the company’s annual earnings before interest, taxes, depreciation and amortization (EBITDA) (excluding
non-controlling ownership interests) less a capital charge. The capital charge is determined annually by multiplying the company’s capital by its
cost of capital. The determination of the cost of capital and EBITDA for purposes of the Herman Miller Value Added Performance Share Units
is approved by the Committee.
38 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
For grants made in fiscal 2017 and fiscal 2018, the Value-Added goals are as follows:
Payout % of Target
200% of Target PSUs
100% of Target PSUs
No PSUs Earned
Capital Charge
2017 - 2019 Average Value Added
$239 million or more
$210 million
Below $191 million
10%
2018 - 2020 Average Value Added
$230 million or more
$210 million
Below $183 million
10%
Stock Options: The options vest ratably over three years and have a ten-year life, and the exercise price of each option equals the fair market
value of our stock on the date of grant. In fiscal years 2017 and 2018, we granted stock options to all NEOs.
In June and July 2016 (fiscal year 2017), the Committee approved two changes impacting LTI grants:
•
•
First, the Committee elected to grant options in lieu of Relative TSR Performance Share Units to all NEOs, commencing with the LTI grants
in July 2016 (fiscal year 2017) relating to fiscal year 2016. The Committee concluded that stock options provide greater clarity and simplicity
compared to Relative TSR Performance Share Unit Awards. Stock options provide value to the recipient only if the price of the stock
increases after the grant date, and the Committee therefore intends that option grants will provide an additional incentive to increase the
underlying stock price.
Second, the Committee approved imposing a cap on the total value of LTI grants effective with the grants that the Committee approved in
July 2017 to tie the aggregate cost of LTI grants to the company’s ability to maintain and grow EBITDA. The cap will equal 4.5% of the
preceding fiscal year’s EBITDA (fiscal year 2017 in the case of the July 2017 grants). Of the available amount, 0.5% of the preceding fiscal
year’s EBITDA will be available for LTI grants to be used by the CEO for discretionary awards. If the amount of LTI grants that the Committee
would otherwise make based upon target awards and actual results exceeds the cap based on the preceding fiscal year’s EBITDA, then
the Committee will reduce actual grant sizes pro rata.
Tax Deductibility of Long-Term Equity Incentive Grants
In June 2016, the Committee created a pool of shares from which the 2017 LTI awards to selected participants could be made provided that
certain operating results approved by the Board are achieved. The Committee retained the authority to award less than the full value of the pool
even if the performance targets were met. The provisions of this arrangement are intended to meet the requirements of Internal Revenue Code
section 162(m) for the deductibility of certain compensation. The value of equity awards that could be made from the pool with respect to
performance during fiscal year 2017 may not exceed 4.5% of prior year's EBITDA, with the requirement of achieving Board-approved fiscal
2017 EBITDA goal, and that the grants given to any individual could not exceed 30% of the pool. The participants in the pool were the Corporate
Officers. The results we achieved in fiscal year 2017 permitted granting of awards having a total value of $11.88 million, of which $1.32 million
represents .05% of the preceding fiscal year's EBITDA that will be made available for use by the CEO for discretionary awards.
LTI Grants Awarded in Fiscal 2017
The target value of the LTI grants that the Committee and Board established for our NEOs (including all types) in July 2015 for final grants to
occur in July 2016 based on fiscal year 2016 performance as a percent of base salary was 280% for Brian Walker, 100% for Jeffrey Stutz, 125%
for Gregory Bylsma, 95% for Andrew Lock, and 75% for Ben Watson. The total target value was allocated approximately equally among the
award types that we intended to grant to each NEO. The Committee originally determined that our CEO would receive all four types of LTI
awards - RSUs, Herman Miller Value Added Performance Share Units, Relative TSR Performance Share Units and stock options, while our
other NEOs would receive only three types of awards: RSUs, Herman Miller Value Added Performance Share Units and Relative TSR Performance
Share Units.
Subsequently, as discussed above, the Committee elected to grant options in lieu of Relative TSR Performance Share Units to all NEOs,
commencing with the LTI grants in July 2016 (fiscal year 2017) relating to fiscal year 2016. In fiscal year 2017, stock option grants were made
in the same proportion as were the Relative TSR Performance Share Unit Awards (1/3).
Herman Miller, Inc., and Subsidiaries 39
Compensation Discussion and Analysis (continued)
The following table discloses the types of awards granted in July 2016 (fiscal year 2017) based upon fiscal year 2016 performance:
Name
Brian Walker
Jeffrey Stutz
Gregory Bylsma
Andrew Lock
B. Ben Watson
Restricted
Stock Units
Herman Miller
Value Added
Performance
Share Units
Number of
Options
Option
Exercise
Price
26,365
3,662
5,624
3,851
3,084
26,365
3,662
5,624
3,851
3,084
152,614 $
21,196
32,551
22,292
17,850
31.86
31.86
31.86
31.86
31.86
In July 2015 (fiscal year 2016), the Committee and the Board also approved a special award of conditional stock options to our executive
leadership team, including the NEOs, that was conditioned on achievement of one-year performance objectives in fiscal year 2016. We based
the number of shares subject to the special award granted to each recipient at the end of the one-year performance period upon the relative
achievement of sales and EBITDA performance objectives for fiscal year 2016, as well as targeted EBITDA as a percent of sales for the upcoming
fiscal year (fiscal year 2017), which is established by the CEO and management, and approved by the Committee as part of the company’s
annual fiscal planning process starting in January and continuing through June. Each of these performance objectives was weighted equally.
The actual number of shares that would be subject to each option grant would vary based upon performance relative to the special award
objectives, the targeted value for each NEO and the value of our stock at the end of fiscal year 2016. The options vest ratably over a three-year
period following the date of grant, the exercise price was the fair market value of our stock as of the date of the grant ($31.86), and each option
has a term of 10 years. The Committee made the special awards to provide an additional incentive for the executive leadership team to drive
further growth across the Company’s business. The Committee determined the amount of the special award to each executive on the basis of
the Committee’s view of the relative impact of the executive to the improvement in the Company’s business. The Committee made the final
special option awards in July 2016 (fiscal year 2017). The target and actual results for fiscal year 2016 sales and EBITDA and the target and
actual targeted EBITDA growth for fiscal year 2017 as well as the target award value and options awarded for each NEO are set forth in the
below tables.
Components (Dollars in 000)
FY 16 Sales Plan
FY 16 EBITDA Plan
FY 17 Plan EBITDA as a % of Sales
Target
$
$
Actual
$
$
2,242.0
237.0
11.6%
2,264.9
257.7
11.7%
Name
Brian Walker
Jeffrey Stutz
Gregory Bylsma
Andrew Lock
B. Ben Watson
Targeted Value
$
$
$
$
$
400,000 $
200,000 $
200,000 $
150,000 $
125,000 $
Options Awarded
72,673
36,337
36,337
27,252
22,710
LTI Grants Awarded in Fiscal 2018
The target value of the LTI grants that the Committee and Board established for our NEOs (including all types) in July 2016 for final grants to
occur in July 2017 based on fiscal year 2017 performance as a percent of base salary was 300% for Brian Walker, 110% for Jeffrey Stutz, 125%
for Gregory Bylsma, 95% for Andrew Lock, and 80% for Ben Watson. The total target value was allocated approximately equal among the award
types that we intended to grant to each NEO: RSUs, Herman Miller Value Added Performance Share Units and stock options.
40 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
The following table discloses the types of awards granted in July 2017 (fiscal year 2018) based upon fiscal year 2017 performance:
Name
Brian Walker
Jeffrey Stutz
Gregory Bylsma
Andrew Lock
B. Ben Watson
Restricted
Stock Units
Herman Miller
Value Added
Performance
Share Units
Number of
Options
Option
Exercise
Price
27,259
4,346
5,432
3,145
3,200
27,259
4,346
5,432
3,145
3,200
143,975 $
22,953
28,691
16,611
16,901
33.75
33.75
33.75
33.75
33.75
Practices Concerning Grant Dates
Grants under the LTI Plan are typically made in connection with the Board of Directors meeting in July of each year following the public release
of our fiscal year-end financial results. We do not attempt to influence the amount of executive compensation by timing equity grants in connection
with the disclosure of material information to the public. The backdating of equity award dates is specifically prohibited under policies adopted
by the Board of Directors.
Retirement and Health Benefits
Health Plans
We maintain a broad base of health insurance plans available to all full-time and most part-time employees. The NEOs participate in such health
insurance plans on the same terms as all other employees within their respective geographic region or business unit.
Retirement Plans
We maintain broad based retirement plans available for employees in the United States and the United Kingdom (UK). Our retirement plans
are designed to provide an appropriate level of replacement income upon retirement. The benefits available to NEOs are the same as those
available to other non-executive employees in their respective geographic region subject to limitations provided by law or regulation. The
retirement plans include:
•
•
The Herman Miller, Inc. Profit Sharing and 401(k) Plan
The Herman Miller Limited Retirement Benefits Plan (UK)
Profit Sharing Plan and 401(k) Plan: The Herman Miller, Inc. Profit Sharing and 401(k) Plan consists of three parts. We contribute annually to
the profit-sharing portion based upon our EBITDA results for the year that may range from 0% to 6% of base salaries, with a target contribution
of 3% of base salary. Based upon our EBITDA results, the actual percentage contributed for fiscal year 2017 was 2.24%. The amount of salary
included in the base for the calculation is limited to the maximum salary level permitted by the IRS. We also make a 4% core contribution to an
employee’s 401(k) account on a quarterly basis. The 401(k) portion of the plan is a salary deferral plan. Each employee may elect to defer up
to the maximum amount permitted by law. We also make a matching contribution to fully match employee contributions up to 3% of the employee’s
compensation contribution.
Effective Fiscal Year 2018, we will change the design of the retirement plan for US-based employees. Specifically, we will eliminate the 3% profit
sharing component and reallocate as follows:
•
•
•
•
For all employees, an additional 1% of base salary will be added to the 401(k) matching program, resulting in a matching contribution
of up to 4%,
All hourly employees will receive a 2% base salary increase,
All non-Section 16 salaried employees will receive a 2% increase to their target bonus percentage; and
Section16 participants will receive a 1% base salary increase.
Herman Miller, Inc., and Subsidiaries 41
Compensation Discussion and Analysis (continued)
We will maintain the 4% core contribution element of the employees' 401(k) accounts.
Herman Miller Limited Retirement Plan: Herman Miller Limited, our wholly owned UK subsidiary, provides a defined contribution retirement plan
which provides for a non-discretionary fixed company contribution and a company matching contribution. The fixed company contribution for
employees varies between 2.4% and 6.4% of the employee’s eligible compensation depending upon age and date of hire. In addition, the
company will match an employee’s contributions up to an additional 2.8% of eligible compensation. Andrew Lock is the only NEO who participates
in this defined contribution retirement plan. He is also a participant in the frozen defined benefit plan sponsored by Herman Miller Limited for
employees hired prior to March 1, 2012.
Other Executive Compensation Plans
Deferred Compensation Plan
The Herman Miller, Inc. Executive Equalization Retirement Plan was approved by the Committee and the Board in 2007. The plan is a supplemental
deferred compensation plan and became available for salary deferrals beginning in January 2008. The plan is available to highly compensated
United States employees who are selected for participation by the Committee. All NEOs are currently able to participate, except Andrew Lock
due to his employment outside the United States. The plan allows participants to defer up to 50% of their base salary and 100% of their Incentive
Cash Bonus. Company contributions to the plan “mirror” the amounts we would have contributed to the Herman Miller Profit Sharing and 401
(k) Plan had the employee’s compensation not been above the statutory ceiling (currently $270,000). Investment options under this plan are
the same as those available under the 401(k) Plan. Company contributions for amounts deferred in fiscal year 2017 appear in the 2017 Summary
Compensation Table under All Other Compensation.
Effective fiscal year 2018, as discussed above under the "Retirement Plans" subheading, we will eliminate the profit sharing component of the
Herman Miller, Inc. Profit Sharing and 401(k) Plan.
Executive Long-Term Disability Plan
The plan covers 60% of the rolling two-year average of executive incentive compensation. Corporate Officers are eligible to participate when
they have earned over $6,000 in annual executive incentive compensation. This benefit continues as long as the executive remains disabled
until age 65. The monthly benefit is capped at $10,000.
Perquisites
We are conservative in our approach to executive perquisite benefits. Company compensation practices in general do not provide for personal
perquisites and the Committee has adopted a policy which specifically restricts the use of corporate aircraft for non-business purposes. We
provide a limited number of perquisites to Corporate Officers. We normally provide each NEO with a specified dollar amount which can be used
for a range of perquisites. These perquisites include financial planning, life insurance, spousal travel and other benefits. The 2017 calendar year
benefit is $20,000 for the CEO and $12,000 for each of the other NEOs. Unspent allowances may be carried over into the next calendar year
provided an executive continues to participate in the program. The total maximum allowance (new calendar year allowance plus amount carried
over) may not exceed the sum of reimbursement allowances approved for the prior two calendar years.
In fiscal year 2017, we also provided the NEOs and all other Corporate Officers with the opportunity to obtain comprehensive physicals at our
cost.
Additional Compensation Information
Change in Control Agreements
Each NEO is party to a change in control agreement with us. The Committee believes that the use of change in control agreements is appropriate
as they help ensure a continuity of management during a threatened take-over and help ensure that management remains focused on completing
a transaction that is likely to maximize shareholder value. Potential payments under the change in control agreements are included in the tally
sheets provided annually to the Committee.
The narrative and footnotes to the tables entitled Potential Payments upon Termination, Death, Disability, Retirement or Change in Control
describe the change in control payments in greater detail.
42 2017 Proxy Statement
Compensation Discussion and Analysis (continued)
Deductibility of Compensation
The income tax laws of the United States (Section 162(m)) limit the amount we may deduct for compensation paid to our CEO, CFO and the
other three most highly-paid Corporate Officers. Under Section 162(m) compensation that qualifies as “performance based” is not subject to
this limit. It is generally our intention to qualify compensation payments for tax deductibility under Section 162(m). Notwithstanding our intentions,
because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, we
cannot assure that compensation intended to satisfy the requirements for deductibility under Section 162(m) will so qualify.
In addition, the Committee reserves the right to provide compensation that does not qualify as performance based compensation under Section
162(m) to the extent it believes such compensation is necessary or appropriate to continue to provide competitive arrangements intended to
attract and retain, and provide appropriate incentives to, Corporate Officers and other key employees.
Hedging Policy
The Committee and the Board of Directors has adopted a policy prohibiting the Board of Directors and the Corporate Officers from hedging the
economic risk of their ownership of our stock, including options or other derivatives related to the stock.
Impact of Prior Compensation in Setting Elements of Compensation
Prior compensation of the NEOs does not normally impact how the Committee sets the current elements of compensation. The Committee
believes the current competitive environment is more relevant in determining an NEO’s current total level of compensation. As described earlier
the Committee uses tally sheets to track all elements of current compensation to enable the Committee to determine whether the compensation
which the NEO is currently receiving is consistent with market practices. The Committee, however, has the ability to consider the impact of any
special equity grants upon the value of future grants made to Corporate Officers under the LTI Plan.
Impact of Restatements Retroactively Impacting Financial Goals
We have not had any material restatement of prior financial results. If such restatements were to occur, the Committee would review the matter
and determine what, if any, adjustment to current compensation might be appropriate. The LTI Plan and the Executive Incentive Bonus Plan
give the Committee the right to “claw back” Incentive Cash Bonus payments and LTI grants in the event of certain restatements.
Peer Group
The peer group that we use in benchmarking compensation is reviewed and approved by the Committee on an annual basis. The peers that
we used for fiscal year 2017 are set forth below:
Aaron's Inc.
Acuity Brands, Inc.
Belden Inc.
Brunswick Corporation
Ethan Allen Interiors, Inc.
Hill-Rom Holdings, Inc.
Post-Employment Compensation
HNI Corporation
Interface, Inc.
Kimball International, Inc.
Knoll, Inc.
La-Z-Boy, Inc.
Leggett & Platt, Inc.
Lennox International, Inc.
Polaris Industries, Inc.
Restoration Hardware Holdings, Inc.
Select Comfort Corporation
Steelcase, Inc.
Tempur-Pedic International, Inc.
Change in control and discharge for other than cause can result in additional compensation being paid to or for certain NEOs. In addition, as
described above, certain of the Long-Term Incentive Bonus payments continue if the NEO leaves employment as the result of death, disability
or retirement.
Stock Ownership Guidelines
The Committee believes that significant stock ownership by top management is of critical importance to our ongoing success, as it helps link
the interests of senior management and our shareholders. Stock ownership requirements apply to the nine members of the Executive Leadership
Team; who are required to own shares of common stock equal to a specified multiple of their annual base salary. The applicable levels are as
follows:
•
•
•
President and Chief Executive Officer
Corporate Officers with LTIP target equal to or greater than 100%
Certain other direct reports to the CEO
6 times base salary
4 times base salary
3 times base salary
Herman Miller, Inc., and Subsidiaries 43
Compensation Discussion and Analysis (continued)
Until the executive meets the ownership guidelines, 40% of the pretax spread value of vested restricted stock, performance shares, restricted
stock units, deferred stock, and 40% of the pretax spread value of exercised stock options must be retained in company stock. Compliance with
the requirements is determined at each time an executive disposes of company stock.
Tally Sheet Review
In June 2017, the Committee reviewed executive compensation tally sheets provided by Pearl Meyer with respect to each Corporate Officer
which reflected the total direct compensation to the NEOs and also information relating to all other elements of compensation including payments
under severance or change in control obligations. The Committee uses this information to help it determine that our compensation program is
consistent with market norms and with our compensation philosophy and the objectives referenced above.
Termination and Retention Payments
The NEOs are generally “at will” employees. This means that they can be discharged at any time and for no reason. We have agreed to pay
Corporate Officers severance if they are terminated for reasons other than malfeasance or voluntary separation. For each NEO, severance
would be equal to 18 months of base salary subject to the employee not competing with us during that period. The Committee’s determination
as to the amount of severance payments for these NEOs is the result of benchmarking our practices to the Published Survey Data. In addition,
we maintain the health insurance on such employee during the salary continuation period. In exchange for such payments the employee provides
the company with a mutual release of all claims and agrees not to work for a competitor or solicit our employees during the salary continuation
period.
Executive Compensation Committee Report
The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
Management and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and
Analysis be included in the Proxy Statement.
J. Barry Griswell (chair)
David Brandon
John R. Hoke III
44 2017 Proxy Statement
Summary Compensation Table
The summary compensation table below shows the compensation for the NEOs for the fiscal years ended June 3, 2017 (2017), May 28, 2016
(2016) and May 30, 2015 (2015). The details of the Company's executive compensation programs are found in the Compensation Discussion
and Analysis (or CD&A) above.
Name and Principal Position
Year
Salary
($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation ($)(2)
Change in Pension
Value and Nonqualified
Deferred Compensation
Earnings ($)(3)
All Other
Compensation
($)(4)
Total ($)
Brian C. Walker
2017
916,846 1,626,984 1,240,002
President and Chief Executive Officer
2016
896,635 1,800,797
612,500
2015
870,289 1,731,868
587,998
Jeffrey M. Stutz
2017
392,115
225,982
316,667
Executive Vice President and Chief
2016
336,538
122,480
Financial Officer
Gregory J. Bylsma
2015
249,327
96,210
2017
438,423
347,057
379,166
President, North America Contract
2016
426,904
478,629
2015
405,385
445,968
Andrew J. Lock(5)
2017
334,713
237,645
272,695
President, Herman Miller International
2016
386,188
371,695
2015
398,054
349,624
B. Ben Watson
2017
403,108
190,314
223,246
Chief Creative Officer
2016
391,923
283,019
684,059
1,287,926
440,714
190,176
314,226
80,882
214,257
437,662
170,951
230,863
346,899
203,047
227,474
354,377
233,597
4,701,488
116,742
4,714,600
150,142
3,781,011
57,383
1,182,323
11,432
784,676
7,997
434,416
83,616
1,462,519
42,984
1,386,179
48,453
1,070,757
144,700
205,312
1,425,928
59,521
90,709
1,255,012
200,388
146,387
1,297,500
66,257
1,110,399
60,450
1,089,769
(1)
(2)
For all NEOs, amounts represent the aggregate grant date fair value of stock awards and option awards computed in accordance with FASB ASC Topic 718. The assumptions
used in calculating these amounts are set forth in Note 9 of the Company's consolidated financial statements for the fiscal year ended June 3, 2017 included in our Annual
Report on Form 10-K.
Includes the amounts earned in fiscal 2017 and paid in fiscal 2018 under the Executive Incentive Cash Bonus Plan as described in the Compensation Discussion and Analysis
for the NEOs. Certain executives have elected to defer a part of the bonus under the Key Executive Deferred Compensation Plan. The amount of the deferrals and the
corresponding Company contributions will be shown in next year's Nonqualified Deferred Compensation Table.
(3) Amounts represent the aggregate change in the actuarial present value of the accumulated benefits under the Company's Retirement Plans.
(4)
(5) All amounts reported for Mr. Lock were paid to him in British pounds sterling. The U.S. dollar value of the amounts paid to him for the fiscal 2017 is calculated based on the
The amounts for fiscal 2017 for all other compensation are described in the table below.
average annual conversion rate for fiscal 2017 - £1=$1.2794.
Bundled Benefits(a)
Car allowance
(UK only)
Payment in lieu of
Pension
Contribution
Long-term Disability
Insurance
Nonqualified
Deferred
Compensation
Contribution(b)
214,478
40,446
67,066
3,259
1,520
2,981
Total Other
Compensation
233,597
57,383
83,616
205,312
66,257
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock(c)
B. Ben Watson
15,860
15,417
13,569
32,072
7,927
11,438
161,802
2,980
55,350
(a) Bundled Benefits are provided on a calendar year basis and include accounting fees, cell phone fees, club dues, family travel, education and training, home office expenses,
vehicle expenses, and life insurance. Benefits for Mr. Lock include the approved amount for calendar 2017 plus carryover for calendar years 2016 and 2015.
(b) Amounts represent the Company's contribution to the Herman Miller, Inc. Executive Equalization Retirement Plan.
(c) Mr. Lock serves the company through its United Kingdom subsidiary. As such, his benefits are paid according to the benefits paid in the United Kingdom, which are different
from the benefits in the United States. His benefits include medical insurance, car allowance, spouse travel, and contributions to a pension plan. All amounts are converted
from GBP to USD at the average annual conversion rate for fiscal 2017 - £1=$1.2794.
Herman Miller, Inc., and Subsidiaries 45
Grants of Plan-Based Awards
The Grants of Plan-Based Awards table below sets forth information on equity awards granted by the Company to the NEOs during fiscal 2017
under the Long-Term Incentive Plan (LTI Plan) and the possible payouts to the NEOs under the Executive Incentive Cash Bonus Plan (Annual
Cash Bonus Plan) for fiscal 2016. The Compensation Discussion and Analysis provides further details of grants under the LTI Plan, as well as
the performance criteria under the Annual Cash Bonus Plan. (The LTI grants are discussed in the CD&A under the heading LTI Grants Awarded
in Fiscal 2017).
Name
Grant
Date
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity Incentive Plan
Awards (2)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
All Other
Stock
Awards:
Number
of Shares of
Stock or
Units (#)(3)
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)(4)
Exercise
or
Base Price
of Option
Awards
($/Sh)(5)
Grant Date
Fair Value
of Stock
and Option
Awards ($)(6)
Brian C. Walker
Jeffrey M. Stutz
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
0
26,365
52,730
26,365
0
916,846
1,833,692
0
3,662
7,324
Gregory J. Bylsma
07/19/16
0
5,624
11,248
0
254,875
509,750
Andrew J. Lock
B. Ben Watson
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
07/19/16
0
284,975
569,950
0
3,851
7,702
0
217,563
435,126
0
3,084
6,168
786,995
839,989
840,003
399,999
109,311
116,671
116,665
200,002
167,876
179,181
179,164
200,002
114,952
122,693
122,697
149,998
92,057
98,256
98,248
124,998
152,614
72,673
31.86
31.86
21,196
36,337
31.86
31.86
32,551
36,337
31.86
31.86
22,292
27,252
31.86
31.86
17,850
22,710
31.86
31.86
3,662
5,624
3,851
3,084
0
262,020
524,040
(1) Under the Annual Cash Bonus Plan executives can earn incentive compensation based on the achievement of certain company performance goals. The actual Cash Bonus
amount paid with respect to any year may range from 0 to 2 times of the target based upon the relative achievement of our EBITDA targets and are set forth in the Summary
Compensation Table above.
(2) The performance share units represent the right to receive shares of the Company's common stock, and such shares are to be issued to participants at the end of a measurement
period beginning in the year that performance shares are granted. The units reflect the number of shares of common stock that may be issued if certain EBITDA (earnings before
interest, taxes, depreciation and amortization) and TSR return goals are met. The PSU provides that the total number of shares which finally vest may vary between 0 and 200%
of the target amount depending upon performance relative to the established EBITDA and TSR goals, respectively, and cliff vest after three years.
(3) The restricted stock units represent the right to receive shares of the Company's common stock. These units reflect fair market value of the common stock as of the date of
grant and cliff vest after three years.
(4) Each option has a term of ten years and vests pro rata over three years.
(5) Stock options are awarded at an option price not less than the market value of the Company's common stock at the grant date in accordance with the LTI Plan.
(6) Aggregate grant date values are computed in accordance with FASB ASC Topic 718. For performance share units, the grant date fair value was determined based upon the
vesting at 100% of the target units awarded.
46 2017 Proxy Statement
Outstanding Equity Awards at Fiscal Year-End
The Outstanding Equity Awards at Fiscal Year-End table below shows the option awards and stock awards that were outstanding as of June 3,
2017. The table shows both exercisable and unexercisable options. The table also shows share units and equity plan awards that have not
vested.
Name
Grant Date
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Exercisable
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Unexercisable
Option
Exercise
Price
($)
Stock Awards
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)(2)
Market
Value of
Shares or
Units of
Stock That Have
Not Vested ($)(3)
Equity Incentive
Plan Awards:
Number
of Unearned
Shares, Units or
Other Rights That
Have Not Vested
(#)(4)
Equity Incentive
Plan Awards: Market
or Payout Value
of Unearned Shares,
Units or Other
Rights That Have
Not Vested ($)(3)
Brian C. Walker
07/18/11
07/15/13
07/14/14
07/13/15
07/19/16
Jeffrey M. Stutz
07/19/10
01/19/11
07/18/11
07/17/12
07/14/14
07/13/15
07/19/16
Gregory J. Bylsma
07/24/07
07/18/11
48,280
46,829
50,631
30,354
1,877
646
1,773
3,888
2,724
4,310
07/17/12
17,907
07/14/14
07/13/15
07/19/16
25.750 07/18/21
28.740 07/15/23
25,323
30.220 07/14/24
60,716
29.030 07/13/25
225,287
31.860 07/19/26
20,588
21,897
26,819
673,228
716,032
876,981
34,977
38,565
26,365
1,143,748
1,261,076
862,136
17.300 07/19/20
25.060 01/19/21
25.750 07/18/21
18.170 07/17/22
57,533
31.860 07/19/26
31.840 07/24/17
25.750 07/18/21
18.170 07/17/22
68,888
31.860 07/19/26
1,144
1,489
3,725
3,291
5,301
5,820
5,721
37,409
48,690
121,808
107,616
173,343
190,314
187,077
1,943
2,623
3,662
9,007
10,250
5,624
63,536
85,772
119,747
294,529
335,175
183,905
Herman Miller, Inc., and Subsidiaries 47
Outstanding Equity Awards at Fiscal Year-End (continued)
Name
Grant Date
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)(1)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)(2)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)(3)
Equity Incentive
Plan Awards:
Number
of Unearned Shares,
Units or Other Rights
That Have Not
Vested (#)(4)
Equity Incentive
Plan Awards: Market
or Payout Value
of Unearned Shares,
Units or Other
Rights That Have
Not Vested ($)(3)
Andrew J. Lock
07/18/11
4,199
07/17/12
18,292
25.750 07/18/21
18.170 07/17/22
07/14/14
07/13/15
07/19/16
B. Ben Watson
07/18/11
07/17/12
07/14/14
08/14/14
07/13/15
07/19/16
49,544
31.860 07/19/26
7,388
9,363
25.750 07/18/21
18.170 07/17/22
40,560
31.860 07/19/26
2,194
4,156
4,520
3,917
3,239
423
3,441
3,137
71,744
135,901
147,804
128,086
105,915
13,832
112,521
102,580
7,061
7,960
3,851
230,895
260,292
125,928
5,503
179,948
6,061
3,084
198,195
100,847
(1) Options vest in three equal annual installments beginning on the first anniversary of the grant date.
(2)
The 07/17/12 awards issued to Mr. Bylsma for 3,291 and Mr. Lock for 2,194 reflect credited dividends through the end of fiscal 2017 and cliff vested after five years. The
remaining awards reflect credited dividends through the end of fiscal 2017 and cliff vest after three years.
(3) Assumes a stock price of $32.70 per share, which was the closing price of a share of common stock on the last trading day of fiscal 2017.
The Performance Share Unit awards cliff vest after three years, depending upon the achievement of certain EBITDA and TSR return goals.
(4)
Option Exercises and Stock Vested
This table provides information on the number and value of options exercised in fiscal 2017 and the vesting of restricted stock (on an aggregate
basis).
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Number of
Shares
Acquired on
Exercise (#)
Option Awards
Value
Realized
on Exercise
($)(1)
Number of
Shares
Acquired on
Vesting (#)
Stock Awards
Value Realized
on Vesting ($)(2)
87,816
107,164
23,315
23,257
48,239
2,831
12,059
9,047
7,644
1,540,282
90,399
385,054
288,881
244,089
(1) Represents the difference between the exercise price and the fair market value of our common stock on the date of exercise.
(2) Value based on the closing market price of the Company's common stock on the vesting date.
48 2017 Proxy Statement
Pension Benefits
The Pension Benefits table below provides certain information on the retirement benefits available under each retirement plan to each NEO at
the end of fiscal 2017.
The retirement plans are described in the Compensation Discussion and Analysis.
Name
Plan Name
Number of Years
Credited Service (#)
Present Value of
Accumulated Benefit ($)
Payments During Last
Fiscal Year ($)
Andrew J. Lock(1)
Herman Miller Limited Retirement Plan
14
1,310,361
(1) Mr. Lock was covered from 1990-2002 and beginning again during fiscal 2011 under the UK Pension Plan which is now frozen.
Nonqualified Deferred Compensation
The Nonqualified Deferred Compensation table below provides certain information relating to our two compensation plans that provide for the
deferral of compensation on a basis that is not tax-qualified.
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Executive Contributions
in Last Fiscal Year ($)(1)
Registrant
Contributions in Last
Fiscal Year ($)(2)
Aggregate Earnings in
Last Fiscal Year ($)(3)
Aggregate
Withdrawals/
Distributions ($)
Aggregate Balance at
Last Fiscal Year End
($)
176,382
21,190
26,305
214,478
40,446
67,066
45,449
55,350
334,075
18,767
39,728
42,645
41,577
3,028,181
164,012
450,849
277,037
369,962
(1) Amounts in this column represent the deferrals of base salary earned in fiscal 2017 which are included in Summary Compensation Table under Salary, plus deferral of amounts
earned in fiscal 2016 and paid in fiscal 2017 under the Executive Incentive Cash Bonus Plan which was included in the fiscal 2016 Summary Compensation Table under Non-
Equity Incentive Plan Compensation.
(2) Amounts in this column represent the Company's contribution and are included in the "All Other Compensation" column of the Summary Compensation Table.
(3) Amounts reflect increases (decreases) in value of the employee's account during the year, based upon deemed investment of deferred amounts.
The Company's Nonqualified Deferred Compensation Plan, which was terminated in fiscal 2007, allowed certain employees to defer part or all
of their Executive Incentive Cash Bonus payment each year. The Company matched any such deferral, up to 50 percent of the incentive cash
bonus payment. The matching payment vested over three years and vesting was dependent upon the executive remaining employed with the
Company. Amounts deferred were converted into units having the same value as the Company's stock and were credited with amounts at the
same rate as the Company's dividend on its common stock. Units are converted into shares of the Company's common stock at the time of
distribution.
The Committee approved The Herman Miller, Inc. Executive Equalization Retirement Plan for salary deferrals that began in January 2008, which
replaced the Company's Nonqualified Deferred Compensation Plan. The Plan allows all United States employees who have compensation
above the statutory ceiling to defer income in the same proportion as if the statutory ceiling did not exist. The Company makes contributions to
the plan such that the amounts in the plan “mirror” the amounts the Company would have contributed to the Company’s tax-qualified 401(k)
plan had the employee's compensation not been above the statutory ceiling. Distributions from the plan are paid out in cash based on the deferral
election specified by the participant. We do not guarantee a rate of return under the Plan. Instead, participants make investment elections for
their deferrals and company contributions. Investment options are the same as those available under our 401(k) plan.
Herman Miller, Inc., and Subsidiaries 49
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control
The following table quantifies both the estimated payments that would be made to each NEO in the event of his termination by the Company
without cause, and in the event of his termination under circumstances that would trigger payments under the change in control agreements,
in each case assuming that termination occurred June 3, 2017. The table also provides information regarding the incremental amounts that
would have vested and become payable on June 3, 2017, if a change in control occurred on that date or if the NEO's employment had terminated
on that date because of death, disability or retirement. The amounts potentially payable to each NEO in the event of separation without cause,
death, disability, or retirement or in connection with a change in control in which a termination occurs are illustrated below. The narrative that
follows the tables gives more details concerning the plans and the circumstances under which either accelerated payment or vesting would
occur.
Name
Benefit
Brian C. Walker
Jeffrey M. Stutz
Cash Severance
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(1)
Unexercisable Options
Total
Retirement Benefits(2)
Other Benefits
Health and Welfare
Outplacement
Total
Total
Cash Severance
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(1)
Unexercisable Options
Total
Retirement Benefits(2)
Other Benefits
Health and Welfare
Outplacement
Total
Total
Death
—
Disability
Retirement Without Cause Change in Control
—
—
1,380,000
5,520,000
2,266,250
2,518,884
—
4,785,134
2,266,250
2,518,884
—
4,785,134
2,120,086
3,658,834
453,482
6,232,402
1,317,009
2,518,884
—
3,835,893
2,266,250
3,726,368
474,848
6,467,466
—
—
—
4,785,134
—
—
—
4,785,134
—
—
—
6,232,402
18,386
25,000
43,386
5,259,279
36,773
25,000
61,773
12,049,239
—
—
—
600,000
1,320,000
207,913
165,999
—
373,912
—
—
—
373,912
207,913
165,999
—
373,912
—
—
—
373,912
—
—
—
—
—
—
—
—
98,922
165,999
—
264,921
11,999
25,000
36,999
901,920
207,913
268,087
48,328
524,328
15,999
25,000
40,999
1,885,327
50 2017 Proxy Statement
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control (continued)
Name
Benefit
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Cash Severance
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(1)
Unexercisable Options
Total
Retirement Benefits(2)
Other Benefits
Health and Welfare
Outplacement
Total
Total
Cash Severance
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(1)
Unexercisable Options
Total
Retirement Benefits(2)
Other Benefits
Health and Welfare
Outplacement
Total
Total
Cash Severance
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(1)
Unexercisable Options
Total
Retirement Benefits(2)
Other Benefits
Health and Welfare
Outplacement
Total
Total
Death
—
Disability
Retirement Without Cause Change in Control
—
—
660,000
1,452,000
658,365
654,737
—
1,313,102
658,365
654,737
—
1,313,102
—
—
—
1,313,102
—
—
—
1,313,102
—
—
—
—
—
—
—
—
—
—
—
436,025
654,737
—
1,090,762
18,379
25,000
43,379
1,794,141
658,365
959,791
57,866
1,676,022
24,506
25,000
49,506
3,177,528
586,500
1,290,300
483,553
508,285
—
991,838
—
—
—
991,838
—
334,872
391,529
—
726,401
—
—
—
726,401
483,553
508,285
—
991,838
—
—
—
991,838
—
334,872
391,529
—
726,401
—
—
—
726,401
462,204
729,708
38,496
1,230,408
323,620
508,285
—
831,905
—
—
—
1,230,408
7,866
25,000
32,866
1,451,271
483,553
739,572
41,617
1,264,742
10,488
25,000
35,488
2,590,530
—
607,500
1,336,500
—
—
—
—
—
—
—
209,982
391,529
—
601,511
334,872
569,550
34,070
938,492
7,475
25,000
32,475
1,241,486
9,966
25,000
34,966
2,309,958
(1) Performance shares vest based on actual performance, and estimated performance at the end of fiscal year 2017 is as follows: TSR performance shares granted in 2014 =
71% of target, Herman Miller Value Added performance shares granted in 2014 = 121% of target, TSR performance shares granted in 2015 = 200% of target, Herman Miller
Value Added performance shares granted in 2015 = 152% of target, TSR performance shares granted in 2016 = 47% of target.
The retirement benefits available to the Named Executive Officers are the same as those available to all salaried employees.
(2)
Herman Miller, Inc., and Subsidiaries 51
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control (continued)
Potential Payments upon Termination without Change in Control
The Company under its salary continuation plan has agreed to pay Corporate Officers and other executives severance if they are terminated
for reasons other than cause. The payments are equal to 18 months' base salary continuation for the NEOs. In addition, the Company maintains
the health insurance on such employee during the salary continuation period. In exchange for such payments, the employee provides the
Company with a mutual release of all claims and agrees not to work for a competitor during the salary continuation period. In the event of a
termination covered by the change in control agreements described below, the payments under those agreements is reduced by any amounts
received under the salary continuation plan.
The Executive Long-Term Disability Plan provides a monthly benefit to an executive of 60% of their two-year average executive incentive up to
a monthly maximum of $10,000. Each of the NEOs would be entitled to a $10,000 monthly benefit if they became disabled as of June 3, 2017,
as long as they are disabled or until age 65.
Potential Payments upon Termination in Connection with Change in Control
In fiscal 2017, each NEO was party to a change in control agreement with the Company. The change in control agreements are all “dual trigger”
agreements. This means there both must be a change in control and the employee must incur an actual or constructive termination of employment
by us to be entitled to a payment.
The agreements define change in control as having occurred (1) when a third party becomes the owner of 35 percent or more of the Company's
stock, (2) when a majority of the Board of Directors is composed of persons who are not recommended by the existing Board, or (3) under
certain transactions involving a merger or reorganization, sale of all or substantially all of the company's assets or a liquidation in which the
Company does not maintain certain control thresholds.
An employee is entitled to a payment under the change in control agreement if within 2 years after a change in control he or she (1) has his or
her employment with the Company terminated by the Company for reasons other than cause or (2) voluntarily terminates his or her employment
if (a) the responsibilities of his or her job are significantly reduced, (b) the base salary or bonus he or she receives is reduced, (c) the benefits
he or she receives are reduced by more than 5 percent, (d) the location of his or her job is relocated more than 50 miles from its current location,
or (e) the obligations of the change in control agreement is not assumed by any successor company.
If both triggering events occur, then the NEO is entitled to a change in control payment. The change in control payment consists of three elements
(1) amounts owed for current year base salary, on target bonus prorated to the date of termination and all amounts of deferred income, (2)
medical and other insurance benefits, and (3) a separation payment. In addition, all existing unvested options and other equity units become
immediately vested and exercisable. The separation payment in the case of the CEO is to be equal to three times the amount described below
and in the case of all other NEOs the payment is equal to two times the amount described below. The separation payment is a lump sum equal
to either two or three times the sum of (a) the executive's base salary plus (b) the greater of the executive's actual bonus for the preceding year
or his or her on-target bonus for the current year. This amount is reduced by any severance payment that executive receives under the severance
program described above.
The Company has no obligation to make a “gross up” payment to the executive if the amount of the payments under the change in control
agreements is subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986.
To receive the payments, the NEO is obligated to comply with the non-competition covenant of the agreement, committing him or her to refrain
from competing with the Company for a period equal to the number of years of compensation received by the NEO under the agreement.
Accelerated Vesting upon Death, Disability, Retirement or Change in Control
Various compensation plans contain provisions that permit accelerated vesting upon death, disability or change in control. In the event of a
change in control, the Key Executive Deferred Compensation Plan, the Long-Term Incentive Plan, and the Executive Incentive Cash Bonus
Plan provide for the acceleration of vesting and/or payment even if the NEO has not been terminated. These are so-called single trigger payment
provisions. The Long-Term Incentive Plan, Executive Incentive Cash Bonus Plan and Key Executive Deferred Compensation Plan each has
provisions dealing with vesting upon death, disability or retirement. The definition of change in control for these plans is the definition contained
in Treasury Regulations for Section 409A of the Internal Revenue Code.
52 2017 Proxy Statement
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control (continued)
Key Executive Deferred Compensation Plan
The Key Executive Deferred Compensation Plan, which terminated in fiscal 2007, permits a participant to elect to have his or her account
distributed immediately upon his or her death, disability, or termination of employment in addition to change in control. The plan also permits
the Committee to distribute to the employee amounts deferred before December 31, 2005 in the event of his death, disability or termination of
employment.
Long-Term Incentive Plan
Under our 2011 Long-Term Incentive Plan, except as otherwise provided in an award agreement, in the event of a change in control transaction,
awards that are not assumed or continued (other than performance-based awards) will be deemed to be immediately vested, or at the Committee's
election, it may cancel those awards and pay the value of those awards to participants. With respect to performance-based awards under a
change in control transaction in which awards are not assumed, if less than half the performance period has lapsed, those awards will be
converted into shares or similar securities assuming target performance has been achieved. If at least half of the performance period has lapsed,
those performance-based awards will be converted into shares or similar securities based upon actual performance-to-date. Conversely, and
except as otherwise provided in an award agreement, upon a change in control in which the Company is the surviving entity or under which
outstanding awards are assumed or continued, the Plan provides for a corresponding adjustment to the outstanding awards to preserve the
intrinsic value of those awards; those outstanding awards will be subject to accelerated vesting if, within a one-year period following the change
in control, the participant's employment is terminated without cause or the participant terminates for good reason.
Options granted under the LTI Plan to the extent vested at the date of death or disability remain exercisable for the balance of their original term
but not more than 60 months following the date of termination of employment. If an employee retires, the options granted prior to fiscal 2013 to
the extent vested remain exercisable for the balance of their original term but not more than 60 months following the date of termination of
employment. For options granted beginning in fiscal 2013, the grant will be prorated over 12 months if retiring within one year of the grant; after
the initial 12 months, they will vest in full. They remain exercisable for the balance of their original term but not more than 60 months following
the date of termination of employment. In all other cases, the vested options terminate three months after the termination of employment.
In the case of restricted stock units, if an employee dies or becomes disabled, units vest immediately. All vest ratably if the employee is terminated
for reasons other than cause. Vesting is determined by comparing the number of months the employee has been with the Company between
the date of grant and the date of termination to the original vesting period. If an employee retires, units will be prorated over 12 months if retiring
within one year of the grant; after the initial 12 months, they will vest in full.
Performance shares, as explained earlier, are granted at a target value and the actual number of units converted into shares is determined at
the end of a 3-year measurement period. The percentage of the performance share target grant that is eligible to vest if an employee dies,
becomes disabled, or is terminated for reasons other than cause is determined by comparing the number of months between the date of grant
and the date of termination to the original vesting period. If an employee retires in the first year, the target performance share grant subject to
vesting will be prorated over 12 months. If the employee retires after the first year, 100 percent of the target performance share grant is subject
to vesting.
The Executive Incentive Cash Bonus Plan
The Executive Incentive Cash Bonus Plan requires that an employee be employed by the Company on the last day of a fiscal year to be eligible
to receive the Incentive Cash Bonus, with certain exceptions noted below. The plan provides that in the events of death, disability or retirement
an employee does not need to be employed on the last day of the fiscal year to receive a bonus. The employee's bonus will be reduced to reflect
the portion of the year that he or she was employed by the Company. In the event of a change in control, the Incentive Cash Bonus is immediately
vested (based upon EBITDA results achieved through the date of the change in control) and payable and is not reduced by virtue of the fact
that it is calculated upon a partial year. The same provisions governing payment in the event of death, disability, retirement or change in control
are also found in the bonus plan applicable to all other employees.
Herman Miller, Inc., and Subsidiaries 53
Director Compensation
The following Director Compensation table provides information on the compensation of each director for fiscal 2017. The standard annual
compensation of each director is $160,000 (prorated if a director serves for less than a full year). The Audit Committee Chair receives an
additional $20,000, the Executive Compensation Committee Chair receives an additional $15,000 and the Nominating and Governance
Committee Chair receives an additional $10,000. Non-chair members of the Audit Committee receive an additional $8,000 per year, non-chair
members of the Executive Compensation Committee receive an additional $6,000 per year and non-chair members of the Nominating and
Governance Committee receive an additional $4,000 per year due to the increased workload of these committees. The Chairman of the Board
of Directors receives additional annual compensation of $75,000 and is eligible to participate in the Company's health insurance plan. Brian
Walker, the Company's CEO, does not receive any additional compensation for serving on the Board of Directors.
The annual retainer and any chairperson or additional fees (collectively, the "Annual Fee") is payable by one or more of the following means,
as selected by each director: (1) in cash; (2) in shares of our stock valued as of January 15 of each year; (3) credit under the Director Deferred
Compensation Plan described below; (4) stock options valued as of January 15 of each year under the Black-Scholes Valuation Model; or (5)
as a contribution to our Company employee scholarship fund. Any director who does not meet the stock ownership guideline must take at least
50 percent of his or her Annual Fee in one of the permissible forms of equity.
Stock Compensation Plan
Under our 2011 Long-Term Incentive Plan, nonemployee officers and directors may be granted options to purchase shares of our stock if they
elect to receive their compensation in stock options. Subject to certain exceptions, no options are exercisable prior to the first anniversary of
the award date and expire 10 years after the date of the grant. The option price is payable upon exercise in cash or, subject to certain limitations,
in shares of our stock already owned by the optionee, or a combination of shares and cash.
Deferred Compensation Plan
We also maintain a Nonemployee Officer and Director Deferred Compensation Stock Purchase Plan. The Plan permits a participant to defer
receipt of all or a portion of his or her Annual Fee to his or her deferred account. The account is held in a Rabbi Trust. Each account is credited
with a number of stock units equal to a number of shares of the investment selected by the director including Company stock and other investment
alternatives. The initial value of the deferral is equal to the dollar amount of the deferral, divided by the per share fair market value of the selected
investment at the time of the deferral. The units are credited with any dividends paid on the investment.
Stock Ownership Guidelines
Director stock ownership guidelines have been in effect since 1997. These guidelines, like those of the management team, are intended to
reinforce the importance of linking shareholder and director interests. Under these guidelines, beginning in 2000, each director is encouraged
to reach a minimum level of share ownership having a value of at least three times the annual director retainer over a five-year period after first
becoming a director.
Other
Directors are reimbursed for travel and other necessary business expenses incurred in the performance of their services for the Company, and
they are covered under the Company's business travel insurance policies and under the Director and Officer Liability Insurance Policy.
Perquisites
Some directors' spouses accompany them to Board meetings. The Company pays for their expenses and for some amenities for the Directors
and their spouses, including some meals and social events. The total of these perquisites is less than $10,000 per Director. Directors are
approved to purchase Company products under employee discount pricing. The value of this perquisite was less than $10,000 for all but one
Director as to whom the value has been included in All Other Compensation in the Director Compensation Table.
54 2017 Proxy Statement
Director Compensation (continued)
Director Compensation Table
Name
Mary Vermeer Andringa
David A. Brandon
Brenda Freeman
Douglas D. French
J. Barry Griswell
John R. Hoke III
Lisa A. Kro
Heidi Manheimer
Dorothy A. Terrell
David O. Ulrich
Michael A. Volkema
Fees Earned or
Paid in Cash ($)(1)
Stock Awards ($)(2) Option Awards ($)(2)
All Other
Compensation ($)(3)
Total ($)
100,000
15,000
45,000
72,000
85,000
70,000
151,000
164,000
168,000
130,000
166,000
108,000
83,000
160,000
164,000
235,000
10,907
170,000
166,000
164,000
178,907
175,000
166,000
180,000
168,000
160,000
164,000
235,000
(1) The amounts shown in the “Fees Earned or Paid in Cash” column include amounts that may be deferred under the Non-employee Officer and Director Deferred Compensation Plan. Amounts deferred
are retained as units equal to shares of stock under the plan. The plan permits non-employee directors to elect to defer amounts that they would otherwise receive as director fees. Directors at the time
of deferral elect the deferral period. These amounts may also reflect contributions to the Michael Volkema Scholarship fund which awards college scholarships to children of employees. During fiscal
2016, ten of the directors who received fees contributed a portion to the fund.
(2) Amounts represent the aggregate grant date fair value of stock awards and option awards computed in accordance with FASB ASC Topic 718. The assumptions used in calculating these amounts are
set forth in Note 9, in the Company's consolidated financial statements for the fiscal year ended May 28, 2016, included in our Annual Report on Form 10-K.
(3) Represents value received on product purchases under employee discount program.
As of June 3, 2017, each Director had the following aggregate number of outstanding options:
Name
Mary Vermeer Andringa
David A. Brandon
Douglas D. French
J. Barry Griswell
John R. Hoke III
Lisa A. Kro
Heidi Manheimer
Dorothy A. Terrell
David O. Ulrich
Michael A. Volkema
Aggregate Number of Outstanding Options
15,183
28,554
Herman Miller, Inc., and Subsidiaries 55
Equity Compensation Plan Information
As noted in the Compensation Discussion and Analysis, we maintain certain equity compensation plans under which common stock is authorized
for issuance to employees and directors in exchange for services. We maintain our 2011 Long-Term Incentive Plan (LTI Plan) and Employees'
Stock Purchase Plan.
The following table sets forth certain information regarding the above referenced equity compensation plans as of June 3, 2017.
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
Equity compensation plans approved by security holders
2,135,237 $
28.3796
Equity compensation plans not approved by security holders
Total
2,135,237 $
28.3796
(a)
(b)
(c)
2,815,156
2,815,156
(1) The number of shares that remain available for future issuance under our plans is 2,815,156 which includes 1,756,083 under the Long-Term Incentive Plan and 1,059,073 under
the Employees' Stock Purchase Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
Our directors and officers, as well as any person holding more than 10 percent of our common stock, are required to report initial statements
of ownership of our securities and changes in such ownership to the Securities and Exchange Commission. Based upon written representations
by each director and officer, all the reports were timely filed by such persons during the last fiscal year except for Jeremy Hocking who had four
delinquent filings related to his initial Form 3 filing, a same-day sale stock option exercise, a sale of stock and a trade for taxes on a restricted
stock vesting.
Certain Relationships and Related Party Transactions
The Board of Directors has adopted a policy on Related Party Transactions. Under that policy, with certain limited exceptions, all proposed
transactions between the Company and any directors or officers or their respective affiliates are required to be reported to the Nominating and
Governance Committee prior to entering such a transaction. Management is obligated to provide the Nominating and Governance Committee
with information relating to the terms and conditions of the proposed transaction, how it complies with the policy, and if the proposed transaction
is with a director, advise the Nominating and Governance Committee if the transaction would impact that director's status as an independent
director. The Nominating and Governance Committee has the authority to determine whether the proposed transaction is exempt from approval
or, if not, approve the transaction as compliant with the policy or refer the matter to the Board of Directors. All approved or exempted transactions
must be reported by the Nominating and Governance Committee to the full Board of Directors.
To approve a transaction under the policy, the Nominating and Governance Committee must determine that either (1) the dollar amount of the
transaction and other transactions with the director during that year is less than $100,000, and, for any director that is a member of the Audit
Committee, does not constitute a proscribed consulting, advisory, or other compensated fee, or (2) if the proposed transaction is for the acquisition
of products or services and is less than $100,000 or is subject to a bid process involving three or more competing parties, and the transaction
is in the best interest of the Company and its shareholders, provided that (a) management determined that the proposed transaction will provide
the best value for the Company, (b) the compensation is consistent with the proposals submitted by the other bidders, and (c) the director did
not directly participate in the proposal process.
56 2017 Proxy Statement
Reconciliation of Non-GAAP Financial Measures
This report contains references to Adjusted diluted earnings per share ("Adjusted EPS"), Organic net sales, Adjusted operating earnings and
Adjusted EBITDA all of which are non-GAAP financial measures (referred to collectively as the "Adjusted financial measures"). Adjusted diluted
EPS and Adjusted operating earnings are calculated by excluding from Earnings per share - diluted and Operating earnings, items that we
believe are not indicative of our ongoing operating performance, such as non-recurring gains, expenses associated with restructuring actions
taken to adjust our cost structure to the current business climate and non-cash impairment expenses. Organic net sales represents the change
in sales excluding currency translation effects, the divestiture of owned dealers and the impact of an extra week of operations in fiscal 2017 as
compared to fiscal 2016. Adjusted EBITDA is calculated by excluding depreciation, amortization, interest expense, income taxes and other net
income or expense from Current Year Net Income.
The company presents the Adjusted financial measures because we consider them to be important supplemental measures of our performance
and believe them to be useful in analyzing ongoing results from operations. The adjusted financial measures are not measurements of our
financial performance under GAAP and should not be considered an alternative to Earnings per share - diluted, Operating earnings or the
company's reported Net sales under GAAP. The Adjusted financial measures have limitations as analytical tools and should not be considered
in isolation or as a substitute for analysis of the company's results as reported under GAAP. The company's presentation of the Adjusted financial
measures should not be construed as an indication that its future results will be unaffected by unusual or infrequent items. The company
compensates for these limitations by providing prominence of the GAAP results and using the Adjusted financial measures only as a supplement.
The following table reconciles EPS to Adjusted EPS for the years indicated:
Earnings per Share - Diluted
Less: Non-recurring gains
Add: Restructuring and impairment expense
Adjusted EPS
Fiscal Year Ended
June 3, 2017
2.05 $
(0.02)
0.13
2.16 $
May 28, 2016
2.26
(0.09)
—
2.17
$
$
The following table reconciles Net Sales to Organic Sales Growth by segment:
Net sales, as reported
% change from PY
Adjustments
Dealer divestitures
Currency translation effects (1)
Impact of extra week in FY17
Organic net sales
% change from PY
Fiscal Year Ended
June 3, 2017
ELA
Specialty Consumer
Total
Fiscal Year Ended
May 28, 2016
North
America
$ 1,331.8
ELA
Specialty Consumer
Total
$
412.6
$
231.8
$
288.7 $ 2,264.9
North
America
$1,342.2
$ 385.5
$ 232.4
$
0.8 %
(6.6)%
0.3 %
318.1
10.2%
$ 2,278.2
0.6%
—
0.7
(22.7)
—
13.9
(6.3)
—
—
(3.3)
$1,320.2
$ 393.1
$ 229.1
$
—
—
(4.7)
313.4
—
14.6
(37.0)
(8.8)
(30.8)
—
—
—
—
—
—
—
$ 2,255.8
$ 1,323.0
$
381.8
$
231.8
$
—
—
(39.6)
—
—
—
288.7 $ 2,225.3
(0.2)%
3.0 %
(1.2)%
8.6%
1.4%
(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable
prior year period
Herman Miller, Inc., and Subsidiaries 57
Reconciliation of Non-GAAP Financial Measures (continued)
The following table reconciles Operating earnings to Adjusted operating earnings by segment:
Fiscal Year Ended
June 3, 2017
Fiscal Year Ended
May 28, 2016
North
America
$ 137.7 $
ELA
Specialty Consumer Corporate
Total
North
America
ELA
Specialty Consumer Corporate
Total
30.8 $
17.7 $
5.3 $
(0.7) $ 190.8 $ 152.0 $
35.3 $
16.4 $
8.1 $
(0.3) $ 211.5
10.3%
8.0%
7.6%
1.7%
n/a
8.4%
11.4%
8.6%
7.1%
2.8%
n/a
9.3%
Operating earnings (loss)
% Net sales
Adjustments
Less: Non-recurring gain
Less: Gain on sale of dealer
Add: Restructuring and impairment
expenses
—
(0.7)
—
—
10.3
1.0
—
—
0.6
—
—
0.6
—
—
—
—
(0.7)
12.5
—
—
—
(6.1)
—
—
—
—
—
—
—
—
—
—
—
(6.1)
—
—
Adjusted operating earnings (loss)
$ 147.3 $
31.8 $
18.3 $
5.9 $
(0.7) $ 202.6 $ 152.0 $
29.2 $
16.4 $
8.1 $
(0.3) $ 205.4
The following table reconciles Current Year Net Income to Adjusted EBITDA used for the Annual Executive Incentive Cash Bonus:
(Dollars In millions)
Current Year Net Income
Standard Add Backs:
Interest Expense
Income Taxes
Depreciation and Amortization
EBITDA
Standard Adjustments per Guidelines
Amortization of Previously Excluded Restructuring
Non-Standard Adjustments Requiring Approval
Restructuring expense
Nemschoff tradename impairment
Adjusted EBITDA
Fiscal Year Ended
June 3, 2017
$
$
$
123.9
15.2
55.1
58.9
253.1
(0.9)
4.6
7.1
263.9
58 2017 Proxy Statement
Submission of Shareholder Proposals for the 2018 Annual Meeting
Shareholders wishing to submit proposals on matters appropriate for shareholder action to be presented at our 2017 Annual Meeting of
Shareholders and to be included in our proxy materials for that meeting may do so in accordance with Rule 14a-8 promulgated under the
Exchange Act, whereby (1) all applicable requirements of Rule 14a-8 must be satisfied, (2) the notice must include various stock ownership and
related information detailed in our Bylaws, and (3) such proposals must be received by us at our principal executive offices at 855 East Main
Avenue, PO Box 302, Zeeland, Michigan 49464-0302, no later than May 1, 2018.
Our bylaws, which are available on our website at www.hermanmiller.com/bylaws, contain certain procedural requirements that shareholders
must follow to nominate a person for election as a director at an annual meeting or to bring an item of business before the annual meeting.
These procedures require that notice of an intention to nominate a person for election to the Board and/or to bring an item of business before
our 2018 annual meeting must be received in writing by our secretary at 855 East Main Avenue, PO Box 302, Zeeland, Michigan 49464-0302
no earlier than June 11, 2018 and no later than July 11, 2018. The notice must contain certain information about the shareholder making the
proposal for nomination, including a representation that the shareholder intends to appear in person or by proxy at the annual meeting to nominate
the person named in the notice or bring the item of business before the meeting, and about the nominee and/or the item of business and, in the
case of a nomination, must be accompanied by a written consent of the proposed nominee to be named as a nominee and to serve as a director,
if elected. We did not receive any proposals to be presented at the 2017 Annual Meeting.
Miscellaneous
The cost of the solicitation of proxies will be borne by us. In addition to the use of the mails, proxies may be solicited personally or by telephone
or electronic means by a few of our regular employees. We may reimburse brokers and other people holding stock in their names or in the
names of nominees for their expenses in sending proxy materials to the principals and obtaining their proxies.
Our mailing for the fiscal year ended June 3, 2017, includes the Notice Regarding the Availability of Proxy Materials. A copy of the Notice of
2017 Annual Meeting of Shareholders and the 2017 Form 10-K (Annual Report) as well as the Proxy Statement, both filed with the Securities
and Exchange Commission, are available, without charge, upon written request from the Secretary of the Company, 855 East Main Avenue,
PO Box 302, Zeeland, Michigan 49464-0302.
Shareholders are urged to vote promptly. Questions related to your registered holdings can be directed as follows:
Computershare Investor Services, LLC, 250 Royall Street, Canton, Massachusetts 02021 Phone: 1-866-768-5723 inside the United States
Phone: 1-781-575-2723 outside the United States http://www.computershare.com
By Order of the Board of Directors
H. Timothy Lopez, Secretary
August 29, 2017
Herman Miller, Inc., and Subsidiaries 59
Appendix I - Herman Miller, Inc. 2011 Long-Term Incentive Plan as Amended
ARTICLE 1
ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1
Establishment of the Plan. Herman Miller, Inc., a Michigan corporation (the "Company"), hereby establishes an incentive
compensation plan known as the "2011 Herman Miller, Inc. Long-Term Incentive Plan" (the "Plan"), as set forth in this document. The Plan
permits the granting of stock-based awards to key employees of the Company and its subsidiaries as well as Consultants and Directors. The
Plan was approved by the Company's shareholders on October 10, 2011 (the "Effective Date").
1.2
Purpose of the Plan. The purpose of the Plan is to promote the long-term success of the Company for the benefit of the
Company's shareholders, through stock-based compensation, by aligning the personal interests of the Plan Participants with those of its
shareholders. The Plan is also designed to allow Plan Participants to participate in the Company's future, as well as to enable the Company to
attract, retain and award individuals that qualify as Participants in the Plan.
1.3
Term of Plan. The Plan shall terminate automatically on the tenth (10th) anniversary of the Effective Date and may be
terminated earlier by the Board as provided in Article 11.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings set forth below:
2.1
"Award" shall mean any award under this Plan of any Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares or other Performance-Based Awards or Other Stock-Based Awards.
2.2
"Award Agreement" shall mean an agreement evidencing the grant of an Award under this Plan. Awards under the Plan
shall be evidenced by Award Agreements that set forth the details, conditions and limitations for each Award, as established by the Committee
and shall be subject to the terms and conditions of the Plan.
2.3
2.4
2.5
"Award Date" shall mean the date that an Award is made, as specified in an Award Agreement.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean:
(a)
A material breach by the Participant of those duties and responsibilities of the Participant which (i) do not differ in
any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to such breach
(other than due to Disability), (ii) is demonstrably willful and deliberate on the Participant's part, (iii) is committed in bad faith or without
reasonable belief that such breach is in the best interests of the Company, and (iv) is not remedied in a reasonable period of time
after receipt of written notice from the Company specifying such breach; or
(b)
The commission by the Participant of a felony involving moral turpitude.
2.6
"Change in Control" shall mean:
(a) the acquisition by any individual, entity, or group (including any "person" within the meaning of Section 13(d)(3) of the
Exchange Act, hereinafter "Person") of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of 35 percent or more of either (i) the then outstanding shares of Common Stock (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control:
(A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of a conversion or exchange
privilege in respect of outstanding convertible or exchangeable securities unless such outstanding convertible or exchangeable
securities were acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition
by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if, immediately after such
reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section
2.6 shall be satisfied; and provided further that, for purposes of clause (B), (i) a Change in Control shall not occur solely because any
60 2017 Proxy Statement
Person becomes the beneficial owner of 35 percent or more of the Outstanding Company Common Stock or 35 percent or more of
the Outstanding Company Voting Securities by reason of an acquisition by the Company of Outstanding Company Common Stock
or Outstanding Company Voting Securities that reduces the number of outstanding shares of Outstanding Company Common Stock
or Outstanding Company Voting Securities and (ii) if, after such acquisition by the Company, such Person becomes the beneficial
owner of any additional shares of Outstanding Company Common Stock or any additional Outstanding Company Voting Securities,
such additional beneficial ownership shall constitute a Change in Control;
(b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason within any 24-
month period to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the
Company subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved
by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of
the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed
to have been a member of the Incumbent Board;
(c) consummation of a reorganization, merger or consolidation unless, in any such case, immediately after such
reorganization, merger or consolidation, (i) more than 60 percent of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation (the "Surviving Corporation") (or, if applicable, the ultimate parent
corporation that beneficially owns all or substantially all of the outstanding voting securities entitled to vote generally in the election
of directors of the Surviving Corporation) and more than 60 percent of the combined voting power of the then outstanding securities
of the Surviving Corporation (or such ultimate parent corporation) entitled to vote generally in the election of directors is represented
by the shares of Outstanding Company Common Stock and the Outstanding Company Voting Securities, respectively, that were
outstanding immediately prior to such reorganization, merger or consolidation (or, if applicable, is represented by shares into which
such Outstanding Company Common Stock and Outstanding Company Voting Securities were converted pursuant to such
reorganization, merger or consolidation) and such ownership of common stock and voting power among the holders thereof is in
substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than
the Company, any employee benefit plan [or related trust] sponsored or maintained by the Company or the corporation resulting from
such reorganization, merger or consolidation [or any corporation controlled by the Company] and any Person which beneficially owned,
immediately prior to such reorganization, merger or consolidation, directly or indirectly, 35 percent or more of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 35 percent
or more of the then outstanding shares of common stock of such corporation or 35 percent or more of the combined voting power of
the then outstanding securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of
the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members
of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization,
merger or consolidation; or
(d) consummation of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of
all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or
other disposition, (A) more than 60 percent of the then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation (the "Surviving Corporation") (or, if applicable, the ultimate parent corporation that beneficially
owns all or substantially all of the outstanding voting securities entitled to vote generally in the election of directors of the Surviving
Corporation) and more than 60 percent of the combined voting power of the then outstanding securities of the Surviving Corporation
(or such ultimate parent corporation) entitled to vote generally in the election of directors is represented by the shares of Outstanding
Company Common Stock and the Outstanding Company Voting Securities, respectively, that were outstanding immediately prior to
such reorganization, merger or consolidation (or, if applicable, is represented by shares into which such Outstanding Company Common
Stock and Outstanding Company Voting Securities were converted pursuant to such reorganization, merger or consolidation) and
such ownership of common stock and voting power among the holders thereof is in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan [or
related trust] sponsored or maintained by the Company or such corporation [or any corporation controlled by the Company] and any
Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 35 percent or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly
or indirectly, 35 percent or more of the then outstanding shares of common stock thereof or 35 percent or more of the combined voting
power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the
members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement
or action of the Board providing for such sale of other disposition.
Herman Miller, Inc., and Subsidiaries 61
2.7
2.8
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee, as specified in Article 3, appointed by the Board to administer the Plan, no members
of which shall be eligible to receive an Award pursuant to the Plan.
2.9
"Common Stock" shall mean the Common Stock, $.20 par value per share, of the Company.
2.10
on a contractual basis.
"Consultant" means an individual retained by the Company or a Subsidiary to provide services to the Company or a Subsidiary
2.11
"Covered Employee" shall mean a Participant who is a "covered employee" within the meaning of Section 162(m)(3) of the
Code.
2.12
"Director" means a member of the Board of Directors.
2.13
"Disability" shall mean:
(a) The inability of a Participant to engage in any substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12
months; or
(b) The receipt of income replacement benefits by a Participant for a period of not less than 3 months under an accident
and health plan covering the Company's employees by reason of any medically determinable physical or mental impairment of the
Participant which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.
2.14
"Employee" means any common-law employee of the Company or a Subsidiary.
2.15
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, as now in effect or as hereafter amended.
2.16
"Fair Market Value" shall mean the closing sales price per share of the Common Stock for such date on the National
Association of Securities Dealers Automated Quotation System or any successor system then in use ("NASDAQ"). If no sale of shares of
Common Stock is reflected on the NASDAQ on a date, "Fair Market Value" shall be determined on the next preceding day on which there was
a sale of shares of Common Stock reflected on NASDAQ. If shares of Common Stock are not traded on a national securities exchange or
through any other nationally recognized quotation service, "Fair Market Values" shall be determined by the Board of Directors for the Committee
acting in good faith, in either case pursuant to any method consistent with the Code.
2.17
"Full Value Award" shall mean any Award under the Plan other than an Option or Stock Appreciation Right.
2.18
after a Change in Control:
"Good Reason" shall mean without the Participant's express written consent, the occurrence of any of the following events
(a) any of (i) the assignment to the Participant of any duties inconsistent in any material adverse respect with the Participant's
position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in any material
adverse respect in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such
Change in Control or (iii) any removal or involuntary termination of the Participant from any position held by the Participant with the
Company immediately prior to such Change in Control or any failure to re-elect the Participant to any position with the Company held
by the Participant immediately prior to such Change in Control;
(b) a reduction by the Company in the Participant's rate of annual base salary or annual target bonus as in effect immediately
prior to such Change in Control or as the same may be increased from time to time thereafter;
(c) any requirement of the Company that the Participant be based at a location in excess of 50 miles from the facility which
is the Participant's principal business office at the time of the Change in Control; or
(d) a reduction of at least 5% in the aggregate benefits provided to the Participant and the Participant's dependents under
the Company's employee benefit plans (including, without limitation, retirement, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel, accident insurance plans and programs) in which the Participant
is participating immediately prior to such Change in Control.
62 2017 Proxy Statement
2.19
"Incentive Stock Option" or "ISO" shall mean an option to purchase shares of Common Stock granted under Article 6, which
is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.
2.20
"Insider" shall mean an employee who is an officer (as defined in Rule 16a-1(f) of the Exchange Act) or director of the
Company, or holder of more than ten percent (10%) of its outstanding shares of Common Stock.
2.21
"Nonemployee Director" shall have the meaning set forth in Rule 16b-3(b)(3), as promulgated by the Securities and Exchange
Commission (the "SEC") under the Exchange Act.
2.22
"Nonqualified Stock Option" or "NQSO" shall mean an option to purchase shares of Common Stock, granted under Article
6, which is not an Incentive Stock Option.
2.23
"Option" means an Incentive Stock Option or a Nonqualified Stock Option.
2.24
"Other Stock-Based Award" shall mean an Award under Article 10 of this Plan that is valued in whole or in part by reference
to, or is payable in or otherwise based on, Common Stock.
2.25
"Participant" means a Consultant, Director or an Employee who holds an outstanding Award under the Plan.
2.26
"Performance-Based Award" shall mean an Award of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares or Other Stock-Based Awards made subject to the achievement of performance goals specified by the Committee
under the terms of Article 9.
2.27
"Performance Shares" shall mean an Award granted under Article 9 of this Plan evidencing the right to receive Common
Stock or cash of an equivalent value at the end of a specified performance period.
2.28
"Permitted Transferee" shall mean (i) the spouse, children or grandchildren of a Participant (each an "Immediate Family
Member"), (ii) a trust or trusts for the exclusive benefit of the Participant and/or one or more Immediate Family Members, or (iii) a partnership
or limited liability company whose only partners or members are the Participant and/or one or more Immediate Family Members.
2.29
"Prior Plan" shall mean the Herman Miller, Inc. Long-Term Incentive Plan, as amended.
2.30
"Retirement" shall mean the termination of a Participant's employment with the Company or a Subsidiary after the Participant
attains normal retirement age as established by the Committee at the time an Award is made.
2.31
"Restricted Stock" shall mean an Award granted to a Participant under Article 8 of this Plan.
2.32
"Restricted Stock Unit" shall mean a bookkeeping entry representing the equivalent of one (1) share of Common Stock
awarded to a Participant under Article 8 of this Plan.
2.33
"Stock Appreciation Right" or "SAR" shall mean a right granted to a Participant under Article 7 of this Plan.
2.34
"Subsidiary" shall mean any corporation in which the Company owns directly, or indirectly through subsidiaries, at least fifty
percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint
ventures) in which the Company owns at least fifty percent (50%) of the combined equity thereof.
2.35
"Termination of Service" shall mean the termination of a Participant's employment with the Company or a Subsidiary, and
with respect to a Participant that is not an Employee, the termination of that person's service as a Director or as a Consultant to the Company
or a Subsidiary. A Participant employed by a Subsidiary shall also be deemed to incur a Termination of Service if the Subsidiary ceases to be
a Subsidiary and the Participant does not immediately thereafter become an Employee of the Company or another Subsidiary.
Herman Miller, Inc., and Subsidiaries 63
ARTICLE 3
ADMINISTRATION
3.1
Committee Composition. The Plan shall be administered by a Committee designated by the Board consisting of not less
than three (3) directors who shall be appointed from time to time by the Board, each of whom shall qualify as (a) a Nonemployee Director, and
(b) as an "outside director" within the meaning of Section 162(m)(4)(c)(i) of the Code. Without limiting the generality of the foregoing, the
Committee may be the Compensation Committee of the Board or a subcommittee thereof if the Compensation Committee of the Board or such
subcommittee satisfies the foregoing requirements.
3.2
Committee Authority. Subject to the Company's Articles of Incorporation, Bylaws, and the provisions of this Plan, the
Committee shall have full authority to grant Awards to key employees of the Company or a Subsidiary, including the following:
(a)
To select those key Employees and Consultants to whom Awards may be granted under the Plan and, based
upon recommendations of the Board or a committee of the Board, those Directors to whom Awards may be granted under the Plan;
(b)
To determine whether and to what extent Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock
Units, Performance Shares or other Performance-Based Awards, and Other Stock-Based Awards, or any combination thereof are to be granted
under the Plan;
(c)
To determine the number of shares of Common Stock to be covered by each Award;
(d)
To determine the terms and conditions of any Award Agreement, including, but not limited to, the Option Price,
SAR Price, any vesting restriction or limitation, any vesting schedule or acceleration thereof, any performance conditions or any forfeiture
restrictions or waiver thereof, regarding any Award and the shares Common Stock relating thereto, based on such factors as the Committee
shall determine in its sole discretion;
To determine whether, to what extent and under what circumstances grants of Awards are to operate on a tandem
basis and/or in conjunction with or apart from other cash compensation arrangement made by Company other than under the terms of this Plan;
(e)
(f)
To determine under what circumstances an Award may be settled in cash, Common Stock, or a combination
thereof; and
(g)
To determine to what extent and under what circumstances shares of Common Stock and other amounts payable
with respect to an Award shall be deferred, provided that any such deferrals shall be made in a manner that complies with Section 409A of the
Code.
The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the
Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan
(including any Award Agreement) and to otherwise supervise the administration of the Plan. A majority of the Committee shall constitute a
quorum, and the acts of a majority of a quorum at any meeting, or acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. The interpretation and construction by the Committee of any provisions of the Plan or any
Award granted under the Plan shall be final and binding upon the Company, the Board and Participants, including their respective heirs, executors
and assigns. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the
Plan or an Award granted hereunder.
3.3
Forfeiture. The Committee may reserve the right in an Award Agreement to cause a forfeiture of the gain realized by a
Participant with respect to an Award on an account of actions taken by, or failed to be taken by, that Participant in violation or breach of or in
conflict with any (a) agreement between the Company and each Participant, or (b) any Company policy or procedure (including the Code of
Business Conduct and Ethics and the Code of Ethics for Senior Financial Officers), or (c) any other obligation of such Participant to the Company
as and to the extent specified in such Award Agreement. The Committee may terminate an outstanding Award if the Participant is terminated
for Cause as defined in the Plan or the applicable Award Agreement or for "cause" as defined in any other agreement between the Company
and such Participant, as applicable.
3.4
Recoupment. Any Award granted pursuant to the Plan shall be subject to mandatory repayment by the Participant to the
Company to the extent the Participant is, or in the future becomes, subject to (a) any Company "clawback" or recoupment policy that is adopted
to comply with the requirements of any applicable law, rule or regulation, or otherwise, or (b) any law, rule or regulation which imposes mandatory
recoupment under circumstances set forth in such law, rule or regulation.
3.5
No Repricing. Subject to any adjustments that may be made under Article 13 of the Plan, the Company may not, without
obtaining shareholder approval; (a) amend the terms of outstanding Options or SARs to reduce the exercise price of such outstanding Options
64 2017 Proxy Statement
or SARs; (b) cancel outstanding Options or SARs in exchange for Options or SARs with an exercise price that is less than the exercise price
of the original Options or SARs; or (c) cancel outstanding Options or SARs with an exercise price above the current stock price in exchange for
cash or other securities.
ARTICLE 4
COMMON STOCK SUBJECT TO THE PLAN
4.1
General. Subject to adjustment as provided in Section 4.2 and Article 14, the maximum aggregate number of shares of
Common Stock which may be issued under this Plan shall not exceed 7,509,751 shares, which may be either unauthorized and unissued
Common Stock or issued Common Stock reacquired by the Company ("Plan Shares"). Determinations as to the number of Plan Shares that
remain available for issuance under the Plan shall be made in accordance with this Article 4 and Article 14 and with such rules and procedures
as the Committee shall determine from time to time.
4.2
Share Usage.
(a)
General. Shares of Common Stock subject to an Award shall be counted as used as of the Award Date.
(b)
Counting of Shares Subject to Awards. Any shares of Common Stock that are subject to Awards shall be counted
against the share issuance limit set forth in Section 4.1 as (i) two (2) shares of Common Stock for every one (1) share of Common
Stock subject to a Full Value Award, and (ii) one (1) share of Common Stock for every one (1) share of Common Stock subject to any
Award that is not a Full Value Award. If the number of shares of Common Stock subject to an Award is variable as of the Award Date,
the number of shares of Common Stock to be counted against the share issuance limit set forth in Section 4.1, prior to the settlement
of the Award, shall be the maximum number of shares of Common Stock that can be received under that Award.
(c)
Conditions Under Which Shares Subject to Awards Become Available for Future Awards. Any shares of Common
Stock subject to an Award under the Plan which thereafter terminate by expiration, forfeiture, cancellation, or otherwise, without the
issuance of such shares, including Awards that are settled in cash in lieu of shares of Common Stock, shall be available again for
issuance under the Plan. Each share of Common Stock that again becomes available for issuance under the Plan under the preceding
sentence shall increase the total number of shares available for grant by (i) two (2) shares if such share is subject to a Full Value
Award and (ii) one (1) share if such share was subject to any Award that is not a Full Value Award.
(d)
Conditions Under Which Shares Subject to Awards Are Not Available for Future Awards. The number of shares
of stock available for issuance under the Plan shall not be increased by the number of shares of Common Stock (i) tendered by the
Participant or withheld by the Company in payment of the purchase price of an Option, (ii) tendered by the Participant or withheld by
the Company to satisfy any tax withholding obligation with respect to an Award, (iii) purchased by the Company with proceeds received
from the exercise of an Option, (iv) subject to an SAR that are not issued in connection with the stock settlement of that SAR upon
its exercise, (v) subject to the cancellation of an SAR granted in tandem with an Option upon the exercise of the Option and (vi) subject
to the cancellation of an Option granted in tandem with an SAR upon the exercise of the SAR.
4.3
Award Limits. Notwithstanding any provision in the Plan to the contrary, and to the extent an Award is intended to comply
with the requirements of Section 162(m) of the Code,
(a)
the maximum number of shares of Common Stock that may be subject to any Full Value Award granted under the
Plan to any one Participant during any fiscal year of the Company may not exceed 250,000 shares (as adjusted from time to time in
accordance with the provisions of the Plan);
(b)
the maximum number of shares of Common Stock that may be subject to any Award granted under the Plan that
is not a Full Value Award to any one Participant during any fiscal year of the Company may not exceed 500,000 shares (as adjusted
from time to time in accordance with the provisions of the Plan); and
(c)
the maximum number of shares of Common Stock that may be subject to any Award granted under the Plan to
any individual Director during any fiscal year of the Company may not exceed 40,000 shares (as adjusted from time to time in accordance
with the provisions of the Plan).
Herman Miller, Inc., and Subsidiaries 65
ARTICLE 5
ELIGIBILITY
The persons who shall be eligible to receive Awards under the Plan shall be such key employees of the Company or a Subsidiary as
the Committee shall select from time to time. In making such selections, the Committee shall consider the nature of the services rendered by
such employees, their present and potential contribution to the Company's success and the success of the particular subsidiary or division of
the Company by which they are employed, and such other factors as the Committee in its discretion shall deem relevant. Participants may hold
more than one Award, but only on the terms and subject to the restrictions set forth in the Plan and their respective Award Agreements.
ARTICLE 6
STOCK OPTIONS
6.1
Options. Options may be granted alone or in addition to other Awards granted under this Plan. Each Option granted under
this Plan shall be either an Incentive Stock Option (ISO) or a Nonqualified Stock Option (NQSO).
6.2
Grants. The Committee shall have the authority to grant to any Participant one or more Incentive Stock Options, Nonqualified
Stock Options, or both types of Options, provided that Incentive Stock Options shall not be granted to any non-Employee Director or Consultant.
To the extent that any Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its
exercise or otherwise), such Option or the portion thereof which does not qualify shall constitute a separate Nonqualified Stock Option.
6.3
Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify
the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such
Section 422. An Incentive Stock Option shall not be granted to an individual who, on the date of grant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the Company. The aggregate Fair Market Value, determined on the
Award Date of the shares of Common Stock with respect to which one or more Incentive Stock Options (or other incentive stock options within
the meaning of Section 422 of the Code, under all other option plans of the Company) that are exercisable for the first time by a Participant
during any calendar year shall not exceed the $100,000 limitation imposed by Section 422(d) of the Code.
6.4
Terms of Options. Options granted under the Plan shall be evidenced by Award Agreements in such form as the Committee
shall, from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions:
(a)
Participant's Agreement. Each Participant who is an employee shall agree to remain in the continuous employ of
the Company for a period of at least twelve (12) months from the Award Date or until Retirement, if Retirement occurs prior to twelve
(12) months from the date of the Option.
(b)
Option Price. The Option Price per share of Common Stock purchasable under an Option shall be determined
by the Committee at the time of grant but shall be not less than one hundred percent (100%) of the Fair Market Value of one (1) share
of Common Stock on the Award Date.
(c)
Option Term. The term of each Option shall be fixed by the Committee, but no Option shall be exercisable more
than ten (10) years after the date the Option is granted.
(d)
Exercisability. Except as provided in Article 11 and Article 14, (i) no Option shall be exercisable either in whole or
in part prior to the first anniversary of the Award Date and (ii) Options that vest solely by the passage of time shall not vest in full in
less than three (3) years from the Award Date (but may vest pro-rata during such period). Thereafter, an Option shall be exercisable
at such time or times and subject to such terms and conditions as shall be determined by the Committee and set forth in the Award
Agreement.
(e)
Method of Exercise. Subject to whatever installment exercise and waiting period provisions apply under subsection
(d) above, Options may be exercised in whole or in part at any time during the term of the Option, by giving notice of exercise specifying
the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price in such form as
the Committee may accept. If and to the extent determined by the Committee in its sole discretion at or after grant, payment in full
or in part may also be made in the form of Common Stock owned by the Participant (and for which the Participant has good title free
and clear of any liens and encumbrances) or Restricted Stock, or by reduction in the number of shares issuable upon such exercise
based, in each case, on the Fair Market Value of the Common Stock on the last trading date preceding payment as determined by
the Committee (without regard to any forfeiture restrictions applicable to Restricted Stock). No shares of stock shall be issued until
payment has been made. A Participant shall generally have the rights to dividends or other rights of a shareholder with respect to
shares subject to the Option when the person exercising such option has given written notice of exercise, has paid for such shares
66 2017 Proxy Statement
as provided herein, and, if requested, has given the representation described in Section 15.1 of the Plan. Notwithstanding anything
to the contrary in this Section 6.4(e), but subject to the other terms and conditions of the Plan, the Committee may, but shall not be
required to, provide that an Option (other than an Incentive Stock Option) shall be deemed exercised automatically prior to the expiration
or termination of the Option without any notice to or from the Participant. Upon any such automatic exercise, the exercise price and
applicable withholding taxes shall, unless the Committee provides otherwise, be paid in the form of a reduction in the number of shares
issuable upon such exercise.
(f)
Transferability of Options. No Option may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution, provided, however, the Committee may, in its discretion,
authorize all or a portion of a Nonqualified Stock Option to be granted to an optionee to be on terms which permit transfer by such
optionee to a Permitted Transferee, provided that (i) there may be no consideration for any such transfer (other than the receipt of or
interest in a family partnership or limited liability company), (ii) the stock option agreement pursuant to which such options are granted
must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section 6.4(f),
and (iii) subsequent transfers of transferred options shall be prohibited except those in accordance with Section 6.4(i). Following
transfer, any such options shall continue to be subject to the same terms and conditions as were applicable immediately prior to
transfer. The events of termination of service of Sections 6.4(g), (h) and (i) hereof, and the tax withholding obligations of Section 15.3
shall continue to be applied with respect to the original optionee, following which the options shall be exercisable by the Permitted
Transferee only to the extent, and for the periods specified in Sections 6(g), (h), and (i). The Company shall not be obligated to notify
Permitted Transferee(s) of the expiration or termination of any option. Further, all Options shall be exercisable during the Participant's
lifetime only by such Participant and, in the case of a Nonqualified Stock Option, by a Permitted Transferee. The designation of a
person entitled to exercise an Option after a person's death will not be deemed a transfer.
(g)
Termination of Options. Any Option that is not exercised within whichever of the exercise periods specified in
Article 11 is applicable shall terminate upon expiration of such exercise period.
(h)
Purchase and Settlement Provisions. The Committee may at any time offer to purchase an Option previously
granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that
such offer is made. In addition, if an Award Agreement so provides at the Award Date or is thereafter amended to so provide, the
Committee may require that all or part of the shares of Common Stock to be issued with respect to the exercise of an Option, in an
amount not greater than the Fair Market Value of the shares that is in excess of the aggregate Option Price, take the form of Performance
Shares or Restricted Stock, which shall be valued on the date of exercise on the basis of the Fair Market Value of such Performance
Shares or Restricted Stock determined without regard to the deferral limitations and/or forfeiture restrictions involved.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1
Awards of Stock Appreciation Rights or "SARs." A SAR shall confer on the Participant to whom it is granted a right to receive,
upon exercise thereof, the excess of (a) the Fair Market Value of one (1) share of Common Stock on the date of exercise over (b) the per-share
exercise price of such SAR (the "SAR Price") as determined by the Committee. SARs may be granted in tandem with all or part of an Option
granted under the Plan or at any subsequent time during the term of such Option, in combination with all or any part of any other Award or
without regard to any Option or other Award; provided that a SAR that is granted subsequent to the Award Date of a related Option must have
a SAR Price that is no less than the Fair Market Value of one (1) share of Common Stock on the Award Date of such SAR.
7.2
Terms of SARs. Stock Appreciation Rights granted under the Plan shall be evidenced by an Award Agreement in such form
as the Committee shall, from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions:
(a)
Participant's Agreement. Each Participant who is an employee shall agree to remain in the continuous employ of
the Company for a period of at least twelve (12) months from the Award Date or until Retirement, if Retirement occurs prior to twelve
(12) months from the date of the Award.
(b)
SAR Price. The SAR Price per share of Common Stock shall be determined by the Committee at the time of grant
but shall not be less than one hundred percent (100%) of the Fair Market Value of one (1) share of Common Stock on the Award Date.
(c)
Term. The term of each SAR shall be fixed by the Committee, but no SAR shall be exercisable more than ten
(10) years after the date the SAR is granted.
(d)
Exercisability and Settlement. The Committee shall determine, on the Award Date, the time or times at which and
the circumstances under which a SAR may be exercised, in whole or in part (including based on the achievement of performance
Herman Miller, Inc., and Subsidiaries 67
goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following Termination
of Employment or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement,
method by or forms in which shares of Common Stock shall be delivered or deemed to be delivered to a Participant, regardless of
whether a SAR shall be granted in tandem or in combination with any other Award, and any and all other terms and conditions of any
SAR. Notwithstanding the foregoing, except as provided in Article 11 and Article 14, (i) no SAR shall be exercisable either in whole
or in part prior to the first anniversary of the Award Date, and (ii) SARs that vest solely by the passage of time shall not vest in full in
less than three (3) years from the Award Date (but may vest pro rata during such period).
7.3
Transferability. SARs shall be subject to the transfer conditions of Options set forth in Section 6.4(f) above.
ARTICLE 8
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1
Awards of Restricted Stock and Restricted Stock Units. Shares of Restricted Stock and Restricted Stock Units may be
issued either alone or in addition to other Awards granted under the Plan. The Committee shall determine the time or times at which, grants of
Restricted Stock or Restricted Stock Units will be made, the number of shares to be awarded, the price (if any) to be paid by the Participant,
the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof (a "Restriction
Period"), and all other terms and conditions of the Awards. The Committee may condition the grant of Restricted Stock or Restricted Stock
Units upon the achievement of specific business objectives, measurements of individual or business unit or Company performances, or such
other factors as the Committee may determine. The provisions of Restricted Stock or Restricted Stock Unit Awards need not be the same with
respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years. Notwithstanding the foregoing,
and except for Awards of Restricted Stock or Restricted Stock Units granted to non-Employee Directors or Consultants or as provided in Article
11 and Article 14: (a) Restricted Stock and Restricted Stock Units that vest solely by the passage of time shall not vest in full in less than three
(3) years from the Award Date (but may vest pro-rata during such period), and (b) Restricted Stock and Restricted Stock Units that vest upon
the achievement of performance goals shall not vest, in full, in less than one (1) year from the Award Date.
8.2
Awards and Certificates. A prospective Participant selected to receive a Restricted Stock shall not have any rights with
respect to such Award, unless and until such Participant has executed an Award Agreement evidencing the Award and has delivered a fully
executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award. Further, such
Award shall be subject to the following conditions:
a.
Acceptance. Awards under this Article 8 must be accepted within a period of thirty (30) days (or such shorter
period as the Committee may specify at grant) after the Award Date, by executing an Award Agreement and by paying whatever price
(if any) the Committee has designated for such shares of Restricted Stock or Restricted Stock Units.
b.
Legend for Restricted Stock Awards. To the extent that ownership of Restricted Stock is evidenced by a book-
entry registration or a similar registration, such registration shall be notated to evidence that restrictions imposed on such Award of
Restricted Stock under this Plan and the applicable Award Agreement. If the Company issues, in the name of the Participant to whom
the Restricted Stock has been granted, a stock certificate in respect of such shares of Restricted Stock such certificate shall be
registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the following form:
"The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions
(including forfeiture) of the 2011 Herman Miller, Inc. Long-Term Incentive Plan and related Award Agreement entered into between
the registered owner and the Company, dated _______. Copies of such Plan and Agreement are on file in the offices of the Company,
855 East Main Avenue, Zeeland, Michigan 49464."
c.
Custody. The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in
custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Stock,
the Participant shall have delivered a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such
Award.
8.3
Rights of Holders of Restricted Stock. Unless the Committee otherwise provides in an Award Agreement, holders of Restricted
Stock shall have the right to vote such shares of Restricted Stock and the right to receive any dividends declared or paid with respect to such
shares of Restricted Stock. Unless the Committee otherwise provides in an Award Agreement, dividends paid on Restricted Stock which vest
or are earned based upon the achievement of performance goals shall not vest unless such performance goals for such Restricted Stock are
achieved. All stock distributions, if any, received by a Participant with respect to Restricted Stock as a result of any stock split, stock dividend,
combination of stock, or other similar transaction shall be subject to the vesting conditions and restrictions applicable to such Restricted Stock.
68 2017 Proxy Statement
8.4
Rights of Holders of Restricted Stock Units. Holders of Restricted Stock Units shall have no rights as shareholders of the
Company, including the right to receive cash or dividend payments or distributions attributable to the shares of Common Stock subject to such
Restricted Stock Units, or to direct the voting of the shares of Common Stock subject to such Restricted Stock Units. The Committee may
provide in an Award Agreement evidencing a grant of Restricted Stock Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding shares of Common Stock, a cash payment for each such Restricted
Stock Unit which is equal to the per-share dividend paid on such shares of Common Stock. Such Award Agreement also may provide that a
cash payment shall be deemed reinvested in additional Restricted Stock Units at a price per unit equal to the Fair Market Value of a share of
Common Stock on the date that such cash dividend is paid. Such cash payments paid in connection with Restricted Stock Units which vest or
are earned based upon the achievement of performance goals shall not vest unless such performance goals for such Restricted Stock Units
are achieved. A holder of Restricted Stock Units shall have no rights other than those of a general unsecured creditor of the Company. Restricted
Stock Units shall represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award
Agreement.
8.5
Delivery of Shares. Upon the expiration or termination of the Restriction Period and the satisfaction of any other conditions
prescribed by the Committee, the restrictions applicable to Restricted Stock or Restricted Stock Units settled in shares of Common Stock shall
lapse, and, unless otherwise provided in the applicable Award Agreement, a book entry or direct registration or a share certificate evidencing
ownership of such shares of Common Stock shall be issued, free of all such restrictions, to the Participant or such Participant's beneficiary or
estate, as the case may be.
ARTICLE 9
PERFORMANCE-BASED AWARDS
9.1
Performance-Based Awards. The Committee, at any time, and from time to time, may grant Performance-Based Awards
to a Participant in such amounts and upon such terms as the Committee shall determine. Each grant of a Performance-Based Award shall have
an initial value or target number of shares of Common Stock that is established by the Committee at the time of grant. The Committee shall
establish (a) performance goals in its discretion which, depending on the extent to which they are achieved, shall determine the value and/or
number of shares subject to a Performance-Based Award that will be paid out to the Participant, and (b) the Performance Period, which shall
mean the period of time during which the performance goals must be achieved in order to determine the degree of payout after vesting with
respect to any such Performance-Based Award. Except as provided in Article 11 and Article 13, the Performance Period may not be less than
one (1) year from the applicable Award Date.
9.2
Form of Payment and Timing of Performance-Based Awards. Payment of earned Performance-Based Awards shall be as
determined by the Committee and as evidenced in the applicable Award Agreement. Earned Performance-Based Awards may be paid in shares
of Common Stock and shall be payable, to the extent earned, at the close of the applicable Performance Period, or as soon as reasonably
practicable after the Committee has determined that the performance goal or goals have been achieved. Any shares of Common Stock paid
out under such Awards may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee
with respect to the form of payout of such Awards shall be set forth in the Award Agreement.
9.3
Performance-Based Awards Granted to Designated Covered Employees. If and to the extent that the Committee determines
that a Performance-Based Award to be granted to a Participant should constitute "qualified performance-based compensation" for purposes of
Section 162(m) of the Code, the grant, exercise and/or settlement of such Award shall be contingent upon the achievement of pre-established
performance goals and other terms set forth in this Section 9.3.
(a)
Performance Goals Generally. The performance goals for Performance-Based Awards shall consist of one or
more business criteria and a targeted level or levels of performance with respect to each such criteria, as specified by the Committee,
consistent with this Section 9.3. Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m)
of the Code. The Committee may determine that such Awards shall be granted, exercised and/or settled upon the achievement of
any single performance goal or that two (2) or more of the performance goals must be achieved as a condition to grant, exercise and/
or settlement of such Awards. Performance goals may differ for Awards granted among Participants.
(b)
Performance Measures. The performance goals for Performance-Based Awards to a Covered Employee which
are intended to qualify as qualified performance-based compensation, shall be limited to the following "Performance Measures," with
or without adjustment:
(1)
(2)
(3)
(4)
(5)
(6)
adjusted earnings;
return on equity (which includes adjusted return on equity);
earnings per share growth (which includes adjusted earnings per share growth);
basic earnings per common share;
diluted earnings per common share;
adjusted earnings per common share;
Herman Miller, Inc., and Subsidiaries 69
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
net income;
adjusted earnings before interest and taxes;
earnings before interest, taxes, depreciation and amortization;
operating cash flow;
EVA® performance under the Company's EVA® Management System Technical Manual;
operations and maintenance expense;
total shareholder return;
operating income;
strategic business objectives, consisting of one or more objectives based upon meeting
specified cost targets, business expansion goals, new growth opportunities, market penetrations, and goals relating to the
acquisitions or divestitures, or goals relating to capital-raising and capital management.
common share price; and
any combination of the foregoing.
(16)
(17)
The Committee also shall have the authority to provide for accelerated vesting of any Performance-Based Award based on the
achievement of the Performance Measures specified in this Article 9.
(c)
Evaluation of Performance. The Committee may provide in any Performance-Based Award that any evaluation
of performance may include or exclude any of the following events that occur during a Performance Period: (a) a Change in Control;
(b) a declaration and distribution of stock dividends or stock splits; (c) mergers, consolidations or reorganizations; (d) acquisitions or
dispositions of material business units; (e) extraordinary, non-core, non-operating or non-recurring items; (f) infrequently occurring
or extraordinary gains or losses; and (g) any restructuring. To the extent such inclusions or exclusions affect Awards to Covered
Employees that are intended to qualify as performance-based compensation, such inclusions or exclusions shall be prescribed in a
form that meets the requirements of Section 162(m) of the Code for deductibility.
(d)
Adjustment of Performance-Based Compensation. The Committee shall have the sole discretion to adjust Awards
that are intended to qualify as Performance-Based Compensation, either on a formula or discretionary basis, or on any combination
thereof, as the Committee determines consistent with the requirements of Section 162(m) of the Code for deductibility. In the event
that applicable laws or regulations change to permit Committee discretion to alter the governing Performance Measures without
obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining
shareholder approval, provided that the exercise of such discretion shall not be inconsistent with the requirements of Section 162(m)
of the Code.
(e)
Status of Awards Under Section 162(m). It is the intent of the Company that Awards under Section 9.3 granted
to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Section 162(m) of the
Code and the regulations promulgated thereunder shall, if so designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code. Accordingly, the terms of Section 9.3, including the definitions of
Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Section 162(m) of the Code. If any
provision of the Plan or any Award Agreement does not comply or is inconsistent with the requirements of Section 162(m) of the Code,
such provision shall be construed or deemed amended to the extent necessary to conform to such requirement.
ARTICLE 10
OTHER STOCK-BASED AWARDS
10.1
Other Awards. Other Awards of Common Stock and other Awards that are valued in whole or in part by reference to, or are
payable in or otherwise based on, Common Stock ("Other Stock-Based Awards"), may be granted either alone or in addition to other Awards
under this Plan. Subject to the provisions of this Plan, the Committee shall have authority to determine the persons to whom and the time or
times at which such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such awards, and all other
conditions of the Awards. The Committee may also provide for the grant of Common Stock under such Awards upon the completion of a specified
performance period. The provisions of Other Stock-Based Awards need not be the same with respect to each Participant and such Awards to
individual Participants need not be the same in subsequent years.
10.2
Terms and Conditions. Other Stock-Based Awards made pursuant to this Article 9 shall be set forth in an Award Agreement
and shall be subject to the following terms and conditions:
(a)
Nontransferability. Subject to the provisions of this Plan and the Award Agreement, shares of Common Stock
subject to Awards made under this Article 10 may not be sold, assigned, transferred, pledged, or otherwise encumbered prior to the
date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.
70 2017 Proxy Statement
(b)
Dividends. Unless otherwise determined by the Committee at the time of Award, subject to the provisions of this
Plan and the Award Agreement, the recipient of an Award under this Article 10 shall be entitled to receive on a deferred stock basis,
dividends or other distributions with respect to the number of shares of Common Stock covered by the Award.
(c)
Vesting. Any Award under this Article 10 and any Common Stock covered by any such Award shall vest or be
forfeited to the extent so provided in the Award Agreement, as determined by the Committee, in its sole discretion.
(d)
Waiver of Limitation. In the event of the Participant's Disability or death, the Committee may, in its sole discretion,
waive in whole or in part any or all of the limitations imposed hereunder (if any) with respect to any or all of an Award under this Article
10.
(e)
Price. Common Stock issued or sold under this Article 10 may be issued or sold for no cash consideration or such
consideration as the Committee shall determine and specify in the Award Agreement.
ARTICLE 11
TREATMENT OF AWARDS UPON AND SUBSEQUENT TO
TERMINATION OF SERVICE
11.1
Termination of Service for Reasons other than Retirement, Disability or Death. Except as otherwise provided by the
Committee and as set forth in the Award Agreement, upon Termination of Service for any reason other than Retirement or on account of Disability
or death, Awards under this Plan shall be treated as follows:
(a)
Options and SAR's. Each Option and SAR held by the Participant shall, to the extent rights to purchase shares
under such Option and/or SAR have vested at the date of such Termination of Service shall not have been fully exercised, be exercisable,
in whole or in part, at any time and within a period of three (3) months following Termination of Service, subject to prior expiration of
the term of such Option and/or SAR.
(b)
Restricted Stock and Restricted Stock Units. Any shares of Restricted Stock or Restricted Stock Units held by
the Participant that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately
be deemed forfeited.
(c)
Performance-Based Awards. Any Performance-Based Awards held by the Participant that have not vested, or
with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited.
11.2
Termination of Service for Disability. Except as otherwise provided by the Committee and as set forth in the Award Agreement,
upon Termination of Service by reason of Disability, Awards under this Plan shall be treated as follows:
(a)
Options and SAR's. Each Option and SAR held by the Participant shall, to the extent rights to purchase shares
under such Option and/or SAR have vested at the date of such Termination of Service and shall not have been fully exercised, be
exercisable in whole or in part, for a period of five (5) years following such Termination of Service, subject, however, to prior expiration
according to its terms and other limitations imposed by the Plan. If the Participant dies after Disability, the Participant's Options and/
or SAR's shall be exercisable in accordance with Section 11.4 below.
(b)
Restricted Stock and Restricted Stock Units. Any shares of Restricted Stock or Restricted Stock Units held by a
Participant as of the date of his or her Disability shall become immediately vested as of such date.
(c)
Performance Shares. The number of shares subject to a Participant's Performance-Based Award shall be
determined by multiplying the number of shares subject to that Award by a fraction, the numerator of which shall be the number of full
calendar months of employment service subsequent to the Award Date, and the denominator of which shall be the number of full
calendar months during the Performance Period. The Participant's actual number of shares subject to the Award shall vest, in full, at
the end of the Performance Period.
11.3
Termination of Service for Retirement. Except as otherwise provided by the Committee and as set forth in the Award
Agreement, upon Termination of Service by reason of Retirement, Awards under this Plan shall be treated as follows:
(a)
Options and SAR's. Each Option and SAR held by the Participant for a period of less than twelve (12) consecutive
months after the Award Date shall be deemed vested by multiplying the number of shares subject to the Award by a fraction, the
numerator of which is the number of full calendar months of employment or service subsequent to the date of the Award, and the
Herman Miller, Inc., and Subsidiaries 71
denominator of which is twelve (12). Conditioned upon Participant's compliance with the non-compete covenant set forth in the Award
Agreement, each Option and SAR held by the Participant for a period of twelve (12) consecutive months or greater after the Award
Date shall continue to vest in accordance with the stated vesting period, provided that such period not exceed five (5) years from the
Participant's Termination of Service. Conditioned upon Participant's compliance with the non-compete covenant set forth in the Award
Agreement, the Participant shall have the right to exercise such Option and/or SAR, to the extent vested, following the expiration of
the non-compete covenant and prior to the fifth (5th) anniversary of the Participant's Termination of Service, subject, however, to prior
expiration according to its terms and other limitations imposed by the Plan. If the Participant dies after such Retirement, the Participant's
Options and/or SAR's shall be exercisable in accordance with Section 11.4 below.
(b)
Restricted Stock and Restricted Stock Units. Any shares of Restricted Stock or Restricted Stock Units held by
the Participant for a period of less than twelve (12) consecutive months after the Award Date shall be deemed vested by multiplying
the number of shares subject to the Award by a fraction, the numerator of which is the number of full calendar months of employment
or service subsequent to the date of the Award, and the denominator of which is twelve (12). Any shares of Restricted Stock or
Restricted Stock Units held by the Participant for a period of twelve (12) consecutive months or greater after the Award Date shall be
deemed vested in full. Conditioned upon Participant's compliance with the non-compete covenant set forth in the Award Agreement,
the shares subject to the Restricted Stock or Restricted Stock Units shall be distributable to the Participant following the expiration of
the non-compete covenant.
(c)
Performance-Based Awards. The number of shares subject to a Participant's Performance-Based Award shall
be determined by multiplying the number of shares subject to that Award by a fraction, the numerator of which shall be the number
of full calendar months of employment or service subsequent to the Award Date and the denominator of which is twelve (12). Condition
upon Participant's compliance with the non-compete covenant set forth in the Award Agreement, the Participant's actual number of
shares subject to the Award shall vest, in full, at the end of the later of the Performance Period or the expiration of the non-compete
covenant.
11.4
Termination of Service for Death. Except as otherwise provided by the Committee and as set forth in the Award Agreement,
upon Termination of Service due to death, Awards under this Plan, shall be treated as follows:
(a)
Options and SAR's. Each Option and SAR held by the Participant shall, to the extent rights to purchase shares
under such Option and/or SAR have vested at the date of death and shall not have been fully exercised, be exercisable, in whole or
in part, by the personal representative or the estate of the Participant, or Permitted Transferee or by any person or persons who shall
have acquired the Option directly from the Participant or Permitted Transferee by bequest or inheritance, only under the following
circumstances and during the following periods: (i) if the Participant dies while employed by the Company, at any time within five (5)
years after the date of death, or (ii) if the Participant dies during the extended exercise period following Termination of Service specified
in Sections 11.2 and 11.3, at any time within the longer of such extended period or one (1) year after death, subject, however, in any
case, to the prior expiration of the term of the Option and/or SAR and any other limitation on the exercise of such Option and/or SAR
in effect at the date of exercise.
(b)
Restricted Stock and Restricted Stock Units. Any shares of Restricted Stock or Restricted Stock Units held by
the Participant at the date of death while employed by or in the service of the Company shall become immediately vested as of the
date of death.
(c)
Performance-Based Awards. The number of shares subject to a Participant's Performance-Based Award shall
be determined by multiplying the number of shares subject to that Award by a fraction, the numerator of which shall be the number
of full calendar months of employment or service subsequent to the date of death, and the denominator of which shall be the number
of full calendar months during the Performance Period. The Participant's actual number of shares subject to the Award shall vest, in
full, at the end of the Performance Period.
ARTICLE 12
TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time amend, discontinue or terminate this Plan or any part thereof (including any amendment deemed necessary
to ensure that the Company may comply with any applicable regulatory requirement); provided, however, that, unless otherwise required by
law, the rights of a Participant with respect to Awards granted prior to such amendment, discontinuance or termination, may not be impaired
without the consent of such Participant and, provided further, without the approval of the Company's shareholders, no amendment may be made
which would (i) increase the aggregate number of shares of Common Stock that may be issued under this Plan (except by operation of Article
14); (ii) change the definition of employees eligible to receive Awards under this Plan; or (iii) otherwise materially increase the benefits to
Participants under the Plan. The Committee may amend the terms of any Award previously granted, prospectively or retroactively, but, subject
72 2017 Proxy Statement
to Article 14, no such amendment or other action by the Committee shall impair the rights of any Participant without the Participant's consent.
Awards may not be granted under the Plan after the Termination Date, but Awards granted prior to such date shall remain in effect or become
exercisable pursuant to their respective terms and the terms of this Plan.
ARTICLE 13
UNFUNDED PLAN
This Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
ARTICLE 14
ADJUSTMENT PROVISIONS
14.1
Antidilution. If the number of outstanding shares of Common Stock is increased or decreased or the shares of Common
Stock are changed into or exchanged for a different number of shares or kind of capital stock or other securities of the Company on account of
any recapitalization, reclassification, stock split, reverse stock split, spin-off, combination of stock, exchange of stock, stock dividend or other
distribution payable in capital stock, or other increase or decrease in shares of Common Stock effected without receipt of consideration by the
Company, the number and kinds of shares of stock for which grants of Awards may be made under the Plan, including the share limits set forth
in Article 4, shall be adjusted proportionately and accordingly by the Committee so that the proportionate interest of the Participant in such Award
immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in
outstanding Options or SARs shall not change the aggregate Option Price or SAR Price payable with respect to shares that are subject to the
unexercised portion of such outstanding Options or SARs, as applicable, but shall include a corresponding proportionate adjustment in the per
share Option Price or SAR Price, as the case may be. Notwithstanding the foregoing, in the event of any distribution to the Company's
shareholders of securities of any other entity or other asset (including an extraordinary dividend, but excluding a non-extraordinary dividend,
declared and paid by the Company) without receipt of consideration by the Company, the Board or the Committee shall, in such manner as the
Board or the Committee deems appropriate, adjust (a) the number and kind of shares of stock subject to outstanding Awards and/or (b) the
aggregate and per share Option Price of outstanding Options and the aggregate and per share SAR Price of outstanding Stock Appreciation
Rights as required to reflect such distribution.
14.2
Reorganization in Which the Company is the Surviving Entity Which Does Not Constitute a Change in Control. If the Company
is the surviving entity in any reorganization, merger or consolidation of the Company with one or more entities which does not constitute a
Change in Control, any Option, SAR, Restricted Stock or Restricted Stock Unit granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Common Stock subject to such Option, SAR, Restricted Stock or Restricted Stock Unit
would have been entitled immediately following such transaction, with a corresponding, proportionate adjustment of the per share Option Price
or SAR Price so that the aggregate Option Price or SAR Price thereafter shall be the same as the aggregate Option Price or SAR Price of the
shares of Common Stock remaining subject to the Option or SAR as in effect immediately prior to such transaction. Subject to the contrary
language in an Award Agreement, any restrictions applicable to such Award shall apply as well to any replacement shares received by the
Participant as a result of such transaction. In the event of any transaction referred to in this Section 14.2, Performance-Based Awards shall be
adjusted (including any adjustment to the performance goals or Performance Measures applicable to such Awards deemed appropriate by the
Committee) so as to apply to the securities that a holder of the number of shares of Common Stock subject to the Performance-Based Awards
would have been entitled to receive immediately following such transaction.
In connection with a transaction under this Section 14.2 or transaction involving the acquisition by the Company of the equity interests of another
enterprise, the Committee shall have the right to cause the Company to assume awards previously granted under a compensatory plan by
another business entity that is a party to such transaction and to substitute Awards under the Plan for such awards. The number of shares of
Common Stock available for issuance under the Plan pursuant to Section 4.1 shall be increased by the number of shares of Common Stock
subject to any such assumed awards and substitute awards. Shares available for issuance under a shareholder-approved plan of a business
entity that is a party to such transaction (as appropriately adjusted, if necessary, to reflect such transaction) may be used for Awards under the
Plan and shall not reduce the number of Plan Shares otherwise available for issuance under the Plan, subject to applicable rules of NASDAQ
or of any stock exchange on which the Common Stock is listed.
14.3
Change in Control in Which Awards Are Not Assumed. Except as otherwise provided in the applicable Award Agreement,
upon the occurrence of a Change in Control in which outstanding Awards are not being assumed or continued, the following provisions shall
apply to such Awards:
(a)
for Awards, other than Performance-Based Awards,
Herman Miller, Inc., and Subsidiaries 73
(i)
all outstanding Restricted Stock and Restricted Stock Units shall be deemed to have vested and the
shares of Common Stock subject thereto shall be delivered immediately prior to the occurrence of such Change in Control,
and fifteen (15) days prior to the scheduled consummation of such Change in Control, all outstanding Options and SARs
shall become immediately exercisable and shall remain exercisable for a period of fifteen (15) days; or
(ii)
the Committee may elect, in its sole discretion, to cancel any outstanding awards of Options, SARs,
Restricted Stock and Restricted Stock Units and pay or deliver, or cause to be paid or delivered, to the holder thereof an
amount in cash or securities having a value (as determined by the Committee acting in good faith), in the case of Restricted
Stock and Restricted Stock Units (for shares of Common Stock subject thereto) equal to the formula or fixed price per share
paid or payable to holders of shares of Common Stock pursuant to such Change in Control and, in the case of Options or
SARs, equal to the product of the number of shares of Common Stock subject to such Options or SARs (the "Award Stock")
multiplied by the amount, if any, by which (x) the formula or fixed price per share paid or payable to holders of shares of
Common Stock pursuant to such transaction exceeds (y) the Option Price or SAR Price applicable to such Award Stock.
(b)
For Performance-Based Awards, if less than half of the Performance Period has lapsed, such Performance-Based
Awards shall be converted into Restricted Stock or Performance Shares assuming target performance has been achieved (or into
Unrestricted Stock if no further restrictions apply). If at least half the Performance Period has lapsed, such Performance-Based Awards
shall be converted into Restricted Stock or Performance Shares based on actual performance to date (or into Unrestricted Stock if no
further restrictions apply). If actual performance is not determinable, such Performance-Based Awards shall be converted into
Restricted Stock or Performance Shares assuming target performance has been achieved, based on the discretion of the Committee
(or into Unrestricted Stock if no further restrictions apply).
(c)
Other Equity-Based Awards shall be governed by the terms of the applicable Award Agreement.
With respect to the Company's establishment of an exercise window, (a) any exercise of an Option or SAR during the fifteen (15)-day
period referred above shall be conditioned upon the consummation of the applicable Change in Control and shall be effective only immediately
before the consummation thereof, and (B) upon consummation of any Change in Control, the Plan and all outstanding but unexercised Options
and SARs shall terminate. The Committee shall send notice of an event that shall result in such termination to all Participants or Permitted
Transferees who hold Options and SARs not later than the time at which the Company gives notice thereof to its shareholders.
14.4
Change in Control in which Awards are Assumed or the Company is the Surviving Entity. If a Change in Control occurs and
the Company is the surviving entity and any adjustments necessary to preserve the intrinsic value of the Participant's outstanding Awards have
been made, or the Company's successor at the time of the Change in Control irrevocably assumes the Company's obligations under this Plan
or replaces the Participants' outstanding Awards having substantially the same intrinsic value and having terms and conditions no less favorable
to the Participant than those applicable to the Participants' Awards immediately prior to the Change in Control, then such Awards or their
replacement awards shall become immediately exercisable, in full, only if within two years after the Change in Control the Participant's
employment:
(a)
(b)
(c)
is terminated without Cause;
terminates with "Good Reason"; or
terminates under circumstances that entitle the Participant to accelerated exercisability under any individual
employment agreement between the Participant and the Company, a Subsidiary, or any successor thereof.
14.5
Adjustments by Committee. Any adjustments pursuant to this Article 13 will be made by the Committee, whose determination
as to what adjustments will be made and the extent thereof will be final, binding, and conclusive. No fractional interest will be issued under the
Plan on account of any such adjustments. Only cash payments will be made in lieu of fractional shares.
ARTICLE 15
GENERAL PROVISIONS
15.1
Legend. The Committee may require each person purchasing shares pursuant to an Award under the Plan to represent to
and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend
required by this Plan, the certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions
on transfer.
74 2017 Proxy Statement
All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any
stock exchange upon which the Stock is then listed, any applicable Federal or state securities law, and any applicable corporate law, and the
Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
15.2
No Right to Employment. Neither this Plan nor the grant of any Award hereunder shall give any Participant or other employee
any right with respect to continuance of employment by the Company or any Subsidiary, nor shall there be a limitation in any way on the right
of the Company or any Subsidiary by which an employee is employed to terminate his or her employment at any time.
15.3
Withholding of Taxes. The Company shall have the right to deduct from any payment to be made pursuant to this Plan, or
to otherwise require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the
Participant of, any Federal, state or local taxes required by law to be withheld. Unless otherwise prohibited by the Committee, each Participant
may satisfy any such withholding tax obligation by any of the following means or by a combination of such means: (a) tendering a cash payment;
(b) authorizing the Company to withhold from the shares otherwise issuable to the Participant a number of shares having a Fair Market Value
as of the "Tax Date" up to the amount of the withholding tax obligation; or (c) delivering to the Company unencumbered shares owned by the
Participant having a Fair Market Value, as of the Tax Date, up to the amount of the withholding tax obligation. The "Tax Date" shall be the date
that the amount of tax to be withheld is determined.
15.4
No Assignment of Benefits. No Option, Award or other benefit payable under this Plan shall, except as otherwise specifically
transfer, provided by law, be subject in any manner to anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, attach, sell, transfer, assign, pledge, encumber or charge, any such benefits shall be void, and
any such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall
be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person.
15.5
Governing Law. This Plan and actions taken in connection herewith shall be governed and construed in accordance with
the laws and in the courts of the state of Michigan.
15.6
Application of Funds. The proceeds received by the Company from the sale of shares of Common Stock pursuant to Awards
granted under this Plan will be used for general corporate purposes.
15.7
Rights as a Shareholder. Except as otherwise provided in an Award Agreement, a Participant shall have no rights as a
shareholder of the Company until he or she becomes the holder of record of Common Stock.
15.8
Section 409A of the Code. The Company intends to administer this Plan in order to comply with Section 409A of the Code,
or an exemption to Section 409A of the Code, with regard to Awards that constitute nonqualified deferred compensation within the meaning of
Section 409A of the Code. To the extent that the Company determines that a Participant would be subject to the additional twenty percent (20%)
tax imposed on certain nonqualified deferred compensation plans pursuant to Section 409A of the Code as a result of any provision of any
Award granted under the Plan, such provision shall be deemed amended to the minimum extent necessary to avoid application of such additional
tax. The nature of any such amendment shall be determined by the Committee.
Herman Miller, Inc., and Subsidiaries 75
© 2017 Herman Miller, Inc., Zeeland, Michigan Printed in U.S.A. please recycle P.MS2853-1
® Herman Miller,
subsidiaries
, Design Within Reach, Geiger, Maharam and Nemschoff are among the trademarks of Herman Miller, Inc., and its
All other trademarks are the property of their respective owners
Annual Report
2Y 1 7
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 June 3, 2017
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, smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and “emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ X ] Accelerated filer [__] Non-accelerated filer [__] Smaller reporting company [__] Emerging growth company [__]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
[__]
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 December 3, 2016, was $1,932,194,648 (based on
$32.65 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 27, 2017: Common stock, $.20 par value - 59,848,326 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 9, 2017, are incorporated into Part
III of this report.
Yes [__] No [ X ]
Herman Miller, Inc. Form 10-K
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
3
6
9
10
11
11
11
12
14
16
39
41
80
80
80
81
81
81
81
81
82
83
84
85
86
Item 1 Business
General Development of Business
PART I
Herman Miller's mission statement is Inspiring Designs to Help People Do Great Things. To this end, 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. Through research, the company seeks to understand,
define and clarify customer needs and problems existing in its markets and to design products, systems and services that serve as innovative
solutions to such needs and problems. The company's products are sold primarily through the following channels: Owned and independent
contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs, and the company's online stores.
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 13 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, selling and distribution of office furniture systems, seating
products, other freestanding furniture elements, textiles, home furnishings and related services. Most of these systems and products are designed
to be used together.
The company's ingenuity and design excellence create award-winning products and services, which have made us a leader in design and
development of furniture, furniture systems, textiles and technology solutions. This leadership is exemplified by the innovative concepts introduced
by the company in its modular systems (including Canvas Office Landscape®, Locale®, Public Office Landscape®, Layout Studio®, Action
Office®, Ethospace®, Arras® and Resolve®). The company also offers a broad array of seating (including Embody®, Aeron®, Mirra2™, Setu®,
Sayl®, Verus®, Celle®, Equa®, Taper™ and Ergon® office chairs), storage (including Meridian® and Tu® products), wood casegoods (including
Geiger® products), freestanding furniture products (including Abak™, Intent®, Sense™ and Envelop®), healthcare products (including
Palisade™, Compass™, Nala®, Ava® and other Nemschoff® products), the Thrive portfolio of ergonomic solutions and the textiles of Maharam
Fabric Corporation (Maharam). The Live OSSM system of cloud-connected furnishings, applications and dashboards provides a data analytics
solution for the company's customers.
The company also offers products for residential settings, including Eames®, Eames (lounge chair configuration)®, Eames (management chair
configuration)®, Eames Soft Pad™, Nelson™ basic cabinet series, Nelson™ end table, Nelson™ lanterns, Nelson™ marshmallow sofa, Nelson™
miniature chests, Nelson™ platform bench, Nelson™ swag leg group, Nelson™ tray table, Bubble Lamps®, Airia™, Ardea®, Bumper™, Burdick
Group™, Everywhere™ tables, Claw™, Caper®, Distil™, Envelope™, Formwork®, Full Round™, H Frame™, I Beam™, Landmark™, Logic
Mini™, Logic Power Access Solutions™, Renew™, Rolled Arm™, Scissor™, Sled™, Soft Pad™, Swoop™, Tone™, Twist™, Ward Bennett™
and Wireframe™.
The company's products are marketed worldwide by its own sales staff, independent dealers and retailers, its owned dealer network, via its e-
commerce website and through its owned Design Within Reach ("DWR") retail studios. 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 63 percent of the company's sales in the fiscal year
ended June 3, 2017, were made to or through independent dealers. The remaining sales were made directly to end-users, including federal,
state and local governments and several business organizations by the company's own sales staff, its owned dealer network, its DWR retail
studios or independent dealers and 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.
Herman Miller, Inc. and Subsidiaries 3
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, "Management's Discussion and Analysis of Financial Condition and Results of Operations”.
Patents, Trademarks, Licenses, Etc.
The company has active utility and design patents in the United States. Many of the inventions covered by these 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 such marks, except for the following trademarks: Herman Miller®, Herman Miller Circled Symbolic M®, Maharam®, Geiger®,
Design Within Reach®, DWR®, Nemschoff®, Action Office®, Living Office®, Ethospace®, Aeron®, Mirra®, Embody®, Setu®, Sayl®, Eames®,
PostureFit®, Meridian®, and Canvas Office Landscape®. It is estimated that the average remaining life of the company's patents and trademarks
is approximately 6 years.
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 “Management's Discussion and Analysis of Financial Condition and Results of Operations”. 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
The company estimates that no single dealer accounted for more than 5 percent of the company's net sales in the fiscal year ended June 3,
2017. The company estimates that the largest single end-user customer accounted for $102 million, $88 million and $97 million of the company's
net sales in fiscal 2017, 2016, and 2015, respectively. This represents approximately 5 percent, 4 percent and 5 percent of the company's net
sales in fiscal 2017, 2016 and 2015, respectively. The company's 10 largest customers in the aggregate accounted for approximately 18 percent,
18 percent, and 20 percent of net sales in fiscal 2017, 2016, and 2015, respectively.
Backlog of Unfilled Orders
As of June 3, 2017, the company's backlog of unfilled orders was $322.6 million. At May 28, 2016, the company's backlog totaled $323.5 million.
The backlog as of the end of fiscal 2017 was lower as compared to the ending backlog as of the end of fiscal 2016 due in part to the sale of an
owned dealer in Philadelphia, which resulted in a decrease in backlog of $11.6 million. It is expected that substantially all the orders forming the
backlog at June 3, 2017, 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. From an office furniture perspective, 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. The company's most
significant competitors are Haworth, HNI Corporation, Kimball International, Knoll and Steelcase.
The company also competes in the home furnishings industry, primarily against regional and national independent home furnishings retailers
who market high-craft furniture to the interior design community. Similar to our office furniture product offerings, the company competes primarily
on design, product and service quality, speed of delivery and product pricing in this consumer market.
4 2017 Annual Report
Research, Design and Development
The company believes it 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 understand, define and
clarify customer needs and problems 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 $58.6 million, $62.4 million and $56.7 million on research and development
activities in fiscal 2017, 2016 and 2015, respectively. Generally, royalties are paid to designers of the company's products as the products are
sold and are included in the Design and Research line item within the Consolidated Statements of Comprehensive Income.
Environmental Matters
For over 50 years, respecting the environment has been more than good business practice for us - it is the right thing to do. Our 10-year
sustainability strategy - Earthright - begins with three principles: positive transparency, products as living things, and becoming greener together.
Our goals are focused around the smart use of resources, eco-inspired design, and becoming community driven. 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, as well as compensation planning and counseling. Additionally, there have
been no work stoppages or labor disputes in the company's history. As of June 3, 2017, approximately 15 percent of the company's employees
are covered by collective bargaining agreements, most of whom are employees of its Nemschoff, Herman Miller Ningbo and Herman Miller
Dongguan subsidiaries.
As of June 3, 2017, the company had 7,478 employees, representing a 2 percent decrease as compared with May 28, 2016. In addition to its
employee workforce, the company uses temporary 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 Aeron®, Mirra®, Sayl®, Setu®, Layout Studio®, other seating and storage products (including POSH products) and ergonomic
accessories Colebrook, Bosson and Saunders. The company conducts business in the following major international markets: Canada, Europe,
the Middle East, Africa, Latin America, and the Asia/Pacific region.
The company's products currently sold in international markets are manufactured by wholly owned subsidiaries in the United States, the United
Kingdom, China and India. Sales are made through wholly owned subsidiaries or branches in Canada, France, Germany, Italy, Japan, Mexico,
Australia, Singapore, China (including Hong Kong), India, Brazil and the Netherlands. The company's products are offered in Europe, the Middle
East, Africa, Latin America and the Asia/Pacific region through dealers.
Additional information with respect to operations by geographic area appears in Note 13 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 via the SEC's internet website at www.sec.gov.
Herman Miller, Inc. and Subsidiaries 5
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.
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 focused on
taking advantage of the changing composition of the office floor plate, the greater desire for customization from our customers, new technologies
and trends towards urbanization.
To that end, we intend to grow in certain targeted ways. First, we will scale the Consumer business by continuing to transform the DWR retail
studio footprint, which will be complemented by a continued focus on improving margins through the development of exclusive product designs
and leveraging additional sales in our contract, catalog and digital channels. Second, we will elevate our research-based Living Office framework
to the next level by accelerating its evolution, through adding new products and technology solutions, as well as performing research that
quantifies the positive impact to organizations from applying these concepts. Third, we intend to leverage the dealer eco-system through a
focused selling effort with enhanced digital platforms that will make it easier for our contract customers and dealer partners to find, specify and
order products from any brand within the company. Fourth, we will implement cost savings initiatives aimed at achieving between $25 million
and $35 million in gross annual cost reductions by fiscal 2020. Finally, we will continue to deliver innovation. With the alignment of creative
direction and new product commercialization under common leadership, we will further reduce our time to market and ensure design and
development at Herman Miller responds to our customers most critical needs through a robust pipeline of new products and solutions.
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.
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. We are subject to income taxes in
the U.S. (federal and state) and numerous foreign jurisdictions. The U.S., the European Union and a number of other countries are actively
pursuing changes to fiscal and tax policies. Such tax reforms, if enacted, could have a material effect on our business, operating results or
financial position. 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 that could
adversely affect our business, operating results, or financial condition.
Other macroeconomic developments, such as the United Kingdom referendum on European Union membership (commonly known as Brexit),
the debt crisis in certain countries in the European Union, and the economic slow down in oil producing regions such as the Middle East could
negatively affect the company's ability to conduct business in those geographies. The current political and economic uncertainty in the United
Kingdom surrounding European Union membership and ongoing debt pressures in certain European countries could cause the value of the
British Pound and/or the Euro to further deteriorate, reducing the purchasing power of customers in these regions and potentially undermining
6 2017 Annual Report
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.
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 as well as residential, education and healthcare
furniture solutions. Although we believe that our innovative product design, functionality, quality, depth of knowledge, and strong network of
distribution partners differentiate us in the marketplace, 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.
The retail furnishings market is highly competitive. We compete with national and regional furniture retailers and department stores. In addition,
we compete with mail order catalogs and online retailers focused on home furnishings. We compete with these and other retailers for customers,
suitable retail locations, vendors, qualified employees, and management personnel. Some of our competitors have significantly greater financial,
marketing and other resources than we possess. This may result in our competitors being quicker at the following: adapting to changes, devoting
greater resources to the marketing and sale of their products, generating greater national brand recognition, or adopting more aggressive pricing
and promotional policies. In addition, increased catalog mailings by our competitors may adversely affect response rates to our own catalog
mailings. As a result, increased competition may adversely affect our future financial performance.
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 and India. 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
Changes in foreign currency exchange rates
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 and our financial performance. 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.
We are Subject to Risks and Costs Associated with Protecting the Integrity and Security of Our Systems and Confidential Information.
We collect certain customer-specific data, including credit card information, in connection with orders placed through our e-commerce websites,
direct-mail catalog marketing program, and DWR retail studios. For these sales channels to function and develop successfully, we and other
parties involved in processing customer transactions must be able to transmit confidential information, including credit card information and
other personal information regarding our customers, securely over public and private networks. Third parties may have or develop the technology
or knowledge to breach, disable, disrupt or interfere with our systems or processes or those of our vendors. Although we take the security of
our systems and the privacy of our customers’ confidential information seriously and we believe we take reasonable steps to protect the security
and confidentiality of the information we collect, we cannot guarantee that our security measures will effectively prevent others from obtaining
unauthorized access to our information and our customers’ information. The techniques used to obtain unauthorized access to systems change
frequently and are not often recognized until after they have been launched.
Any person who circumvents our security measures could destroy or steal valuable information or disrupt our operations. Any security breach
could cause consumers to lose confidence in the security of our information systems, including our e-commerce websites or stores and choose
not to purchase from us. Any security breach could also expose us to risks of data loss, litigation, regulatory investigations, and other significant
Herman Miller, Inc. and Subsidiaries 7
liabilities. Such a breach could also seriously disrupt, slow or hinder our operations and harm our reputation and customer relationships, any of
which could harm our business.
A security breach includes a third party wrongfully gaining unauthorized access to our systems for the purpose of misappropriating assets or
sensitive information, loading corrupting data, or causing operational disruption. These actions may lead to a significant disruption of the
company’s IT systems and/or cause the loss of business and business information resulting in an adverse business impact, including: (1) an
adverse impact on future financial results due to theft, destruction, loss misappropriation, or release of confidential data or intellectual property;
(2) operational or business delays resulting from the disruption of IT systems, and subsequent clean-up and mitigation activities; and (3) negative
publicity resulting in reputation or brand damage with customers, partners or industry peers.
In addition, states and the federal government are increasingly enacting laws and regulations to protect consumers against identity theft. Also,
as our business expands globally, we are subject to data privacy and other similar laws in various foreign jurisdictions. If we are the target of a
cybersecurity attack resulting in unauthorized disclosure of our customer data, we may be required to undertake costly notification procedures.
Compliance with these laws will likely increase the costs of doing business. If we fail to implement appropriate safeguards or to detect and
provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential claims for damages and other
remedies, which could harm our business.
A sustained downturn in the economy could adversely impact our access to capital.
The disruptions in the global economic and financial markets of the last decade 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 is currently restrictive to our operations, our ability to meet the financial covenants can
be affected by events beyond our control.
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
may 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, such as what we experienced throughout fiscal 2017 for steel, 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.
Those activities increase our financial exposure.
We are unable to control many of the factors affecting consumer spending, and declines in consumer spending on furnishings could
reduce demand for our products.
8 2017 Annual Report
The operations of our Consumer segment are sensitive to a number of factors that influence consumer spending, including general economic
conditions, consumer disposable income, unemployment, inclement weather, availability of consumer credit, consumer debt levels, conditions
in the housing market, interest rates, sales tax rates and rate increases, inflation, and consumer confidence in future economic conditions.
Adverse changes in these factors may reduce consumer demand for our products, resulting in reduced sales and profitability.
A number of factors that affect our ability to successfully implement our retail studio strategy, including opening new locations and
closing existing studios, are beyond our control. These factors may harm our ability to increase the sales and profitability of our retail
operations.
Approximately 55 percent of the sales within our Consumer segment are transacted within our DWR retail studios. Additionally, we believe our
retail studios have a direct influence on the volume of business transacted through other channels, including our consumer e-commerce and
direct-mail catalog platforms, as many customers utilize these physical spaces to view and experience products prior to placing an order online
or through the catalog call center. Our ability to open additional studios or close existing studios successfully will depend upon a number of
factors beyond our control, including:
•
•
•
•
•
•
•
General economic conditions
Identification and availability of suitable studio locations
Success in negotiating new leases and amending or terminating existing leases on acceptable terms
The success of other retailers in and around our retail locations
Ability to secure required governmental permits and approvals
Hiring and training skilled studio operating personnel
Landlord financial stability
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 manufacture and 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
Herman Miller, Inc. and Subsidiaries 9
Item 2 Properties
The company owns or leases facilities located throughout the United States and several foreign countries. The location, square footage and
use of the most significant facilities at June 3, 2017 were as follows:
Owned Locations
Zeeland, Michigan
Spring Lake, Michigan
Holland, Michigan
Holland, Michigan
Holland, Michigan
Dongguan, China
Sheboygan, Wisconsin
Melksham, United Kingdom
Hildebran, North Carolina
Leased Locations
Hebron, Kentucky
Atlanta, Georgia
Bangalore, India
Ningbo, China
Yaphank, New York
New York City, New York
Hong Kong, China
Brooklyn, New York
Stamford, Connecticut
Square
Footage
750,800
582,700
357,400
293,100
238,200
431,600
207,700
170,000
93,000
Square
Footage
316,800
180,200
104,800
185,100
92,000
59,000
54,400
39,400
35,300
Use
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Warehouse
Manufacturing, Office
Office, Design
Manufacturing, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Office
Use
Warehouse
Manufacturing, Warehouse, Office
Manufacturing, Warehouse
Manufacturing, Warehouse, Office
Warehouse, Office
Office, Retail
Warehouse
Warehouse, Retail
Office, Retail
As of June 3, 2017, the company leased 31 DWR retail studios, including the Herman Miller Flagship store in New York that totaled approximately
320,000 square feet of selling space. The company also maintains administrative and sales offices and showrooms in various other locations
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.
10 2017 Annual Report
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 as of June 3, 2017 is as follows:
Name
Brian C. Walker
Andrew J. Lock
Gregory J. Bylsma
Steven C. Gane
Jeffrey M. Stutz
B. Ben Watson
Michael F. Ramirez
H. Timothy Lopez
John McPhee
John Edelman
Kevin Veltman
Jeremy Hocking
Year Elected an
Executive Officer Position with the Company
Age
55
63
52
62
46
52
52
46
54
50
42
56
1996
2003
2009
2009
2009
2010
2011
2014
2015
2015
2015
2017
President and Chief Executive Officer
President, Herman Miller International
President, North America Contract
President, Specialty Brands
Executive Vice President, Chief Financial Officer
Chief Creative Officer
Executive Vice President, People, Places & Administration
Senior Vice President of Legal Services, General Counsel and Secretary
President, Herman Miller Consumer
Chief Executive Officer, Herman Miller Consumer
Vice President, Investor Relations & Treasurer
Executive Vice President, Strategy and Business Development
Except as discussed below, each of the named officers has served the company in an executive capacity for more than five years.
Mr. Edelman joined Herman Miller, Inc. in 2015 subsequent to the company's acquisition of DWR. Prior to joining DWR as President and Chief
Executive Officer in 2010, he served as President and CEO of Edelman Leather and Sam & Libby, Inc., where he was responsible for its U.S.
business.
Mr. McPhee joined Herman Miller, Inc. in 2015 subsequent to the company's acquisition of DWR. Prior to that, he served in various roles at
DWR including Chief Operating Officer and President from 2010. Mr. McPhee previously held senior management positions with Edelman
Leather, Candie's, Inc. and Sam & Libby, Inc.
Mr. Veltman joined Herman Miller in 2014 and serves as Vice President - Investor Relations and Treasurer. Prior to joining Herman Miller, he
spent 8 years at BISSELL, Inc, most recently as Vice President - Finance.
Mr. Lopez joined Herman Miller in 2012 and serves as Senior Vice President of Legal Services, General Counsel and Secretary.
There are no family relationships between or among the above-named executive officers. There are no arrangements or understandings between
any of the above-named officers pursuant to which any of them was named an officer.
Item 4 Mine Safety Disclosures - Not applicable
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 27, 2017, there were
approximately 19,500 record holders, including individual participants in security position listings, of the company's common stock.
The high, low and closing market prices of the company's common stock, dividends and diluted earnings per share for each quarterly period
during the past two years were as follows:
Per Share and Unaudited
Year ended June 3, 2017:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Year ended May 28, 2016:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Market
Price
High
(at close)
Market
Price
Low
(at close)
Market
Price
Close
Earnings
Per Share-
Diluted
Dividends
Declared Per
Share
$
$
$
$
36.46
36.14
36.45
34.05
36.46
30.50
32.69
32.11
31.64
32.69
$
$
$
$
27.87
26.99
29.75
28.55
26.99
26.75
26.28
22.92
26.09
22.92
$
$
$
$
35.94 $
32.65
30.45
32.70
32.70 $
26.99 $
32.14
26.29
31.64
31.64 $
0.60 $
0.53
0.37
0.55
2.05 $
0.56 $
0.57
0.46
0.67
2.26 $
0.1700
0.1700
0.1700
0.1700
0.6800
0.1475
0.1475
0.1475
0.1475
0.5900
Dividends were declared and paid quarterly during fiscal 2017 and 2016 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 company's fourth fiscal quarter ended June 3, 2017.
Period
3/5/17 - 4/1/17
4/2/17 - 4/29/17
4/30/17 - 6/3/17
Total
(a) Total Number
of
Shares (or Units)
Purchased
—
146,255
58,697
204,952
(b) Average
Price Paid
per Share or
Unit
—
32.17
33.04
(c) Total Number of Share
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
(d) Maximum Number (or
Approximate Dollar Value)
of Shares(or Units) that May
Yet be Purchased Under the
Plans or Programs (1)
115,162,898
110,457,467
108,517,876
— $
$
$
146,255
58,697
204,952
(1) Amounts are as of the end of the period indicated
The company has a share repurchase plan authorized by the Board of Directors on September 28, 2007, which provided share repurchase
authorization of $300,000,000 with no specified expiration date.
No repurchase plans expired or were terminated during the fourth quarter of fiscal 2017.
During the period covered by this report, the company did not sell any shares of common stock that were not registered under the Securities
Act of 1933.
12 2017 Annual Report
Stockholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the company's common
stock with that of the cumulative total return of the Standard & Poor's 500 Stock Index and the NASD Non-Financial Index for the five-year period
ended June 3, 2017. The graph assumes an investment of $100 on June 3, 2012 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
2012
2013
2014
2015
2016
2017
$
$
$
100
100
100
$
$
$
159
128
128
$
$
$
180
151
159
$
$
$
163
165
192
$
$
$
189
164
189
$
$
$
199
191
240
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)
2017
2016
2015
2014
2013
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) provided by financing activities
Depreciation and amortization
Capital expenditures
Common stock repurchased plus cash dividends paid
Key Ratios
Sales growth
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 (9)
Market price per share at year end
Weighted average shares outstanding-diluted
$ 2,278.2
864.2
600.3
73.1
190.8
177.6
124.1
202.1
(116.3)
(74.6)
58.9
87.3
63.2
$ 2,264.9
874.2
585.6
77.1
211.5
196.6
137.5
210.4
(80.8)
(106.5)
53.0
85.1
49.0
$
2,142.2
791.4
556.6
71.4
163.4
145.2
98.1
167.7
(213.6)
6.8
49.8
63.6
37.0
$ 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
43.0
$ 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
22.7
0.6%
37.9
26.3
3.2
8.4
(9.7)
5.4
9.8
22.3%
5.7%
38.6
25.9
3.4
9.3
40.2
6.1
11.3
29.1%
13.8%
36.9
26.0
3.3
7.6
543.9
4.6
9.0
25.0%
6.0 %
33.5
31.4
3.5
(1.4)
(132.4)
(1.2)
(2.3)
(6.5)%
2.9%
34.1
24.3
3.4
6.5
(9.3)
3.8
7.6
24.7%
$
$
$
2.05
0.68
9.82
32.70
60.6
2.26
0.59
8.76
31.64
60.5
$
1.62
0.56
7.04
27.70
60.1
$
(0.37)
0.53
6.14
31.27
59.0
1.16
0.43
5.31
28.11
58.8
$
$
$
$ 1,306.3
106.2
1.3
197.8
587.7
785.5
Financial Condition
Total assets
Working capital (3)
Current ratio (2)
Interest-bearing debt and related swap agreements (10)
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 include restructuring and impairment expenses in years that are applicable.
(9) Calculated as total stockholders' equity divided by common shares of stock outstanding.
(10) Amounts shown include the fair market value of the company’s interest rate swap arrangement(s). The net fair value of this/these arrangement(s) was/were $(2.1) million at
June 3, 2017, $1.2 million at May 29, 2010, $2.4 million at May 30, 2009, $0.5 million at May 31, 2008, and $(1.8) million at June 2, 2007.
$ 1,235.2
90.5
1.2
221.9
524.7
746.6
1,192.7
110.1
1.3
290.0
420.3
710.3
951.2
96.8
1.3
250.0
311.7
561.7
995.6
83.2
1.2
250.0
364.3
614.3
14 2017 Annual Report
Review of Operations
(In millions, except key ratios and per share data)
2012
2011
2010
2009
2008
2007
Operating Results
Net sales
Gross margin
Selling, general, and administrative (8)
Design and research
Operating earnings
Earnings before income taxes
Net earnings
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
$ 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
7.9
$ 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
6.0
$ 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
5.7
$ 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
19.5
$ 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
287.9
$ 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
185.6
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 (9)
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 agreement (10)
Stockholders' equity
Total capital (7)
I
4.5%
34.3
23.2
3.1
8.0
6.2
4.4
9.0
34.4%
$
$
$
$
1.29
0.09
4.13
17.87
58.5
843.8
189.1
1.7
250.0
240.5
490.5
25.1%
32.6
22.4
2.8
7.5
150.2
4.3
8.9
52.5%
1.06
0.09
3.42
24.56
57.7
819.1
193.4
1.7
250.0
197.2
447.2
(19.1)%
32.5
25.4
3.1
4.1
(58.4)
2.1
3.7
78.1 %
(19.0)%
32.4
22.0
2.8
7.5
(55.4)
4.2
8.7
860.8 %
$
$
$
0.43
0.09
1.27
19.23
57.5
$ 775.3
69.2
1.2
301.2
72.3
373.5
$
1.25
0.29
—
14.23
54.5
$ 772.0
155.2
1.5
377.4
0.2
377.6
4.9%
34.7
19.9
2.5
12.3
18.0
7.6
20.9
186.4%
2.56
0.35
0.28
24.80
59.6
787.9
170.2
1.5
375.5
15.6
391.1
10.5%
33.7
20.6
2.7
10.3
30.1
6.7
19.2
92.7%
$
$
1.98
0.33
2.35
36.53
65.1
670.9
87.7
1.3
176.2
147.8
324.0
Herman Miller, Inc. and Subsidiaries 15
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
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 Annual Report on Form 10-K.
Executive Overview
Herman Miller’s mission statement is Inspiring Designs to Help People Do Great Things. At present, most customers come to the company for
furnishing interior environments in corporate offices, healthcare settings, higher education institutions and residential spaces. The company's
primary products include furniture systems, seating, storage, freestanding furniture, healthcare environment products, casegoods, textiles and
related technologies and services.
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. Herman Miller maintains its listing in the Human Rights Campaign Foundation’s top rating in
its annual Corporate Equality Index. The company trades on the NASDAQ Global Select Market under the symbol MLHR.
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, Brazil 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, manufacturing operations are located in Michigan,
Georgia, Wisconsin and North Carolina. In Europe, its manufacturing presence is located within the United Kingdom. Manufacturing operations
globally also include facilities located in Dongguan and Ningbo, China, Brazil and India. 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 manufacturing lead time for the majority of our products is 10 to 20 days.
These factors result in a high rate of inventory turns related to our manufactured inventories.
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 its cost structure, while retaining proprietary control over those production
processes that the company believes provide a competitive advantage. As a result of this strategy, the company's 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. 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.
ELA Furniture Solutions — ELA Furniture Solutions includes the operations associated with the design, manufacture and sale of
furniture products, primarily for work-related settings, in the Europe, Middle East and Africa (EMEA), Latin America and Asia-Pacific
geographic regions.
Specialty — Includes the operations associated with design, manufacture and sale of high-craft furniture products and textiles including
Geiger wood products, Maharam textiles and Herman Miller Collection products.
Consumer — Includes the operations associated with the sale of modern design furnishings and accessories to third party retail
distributors, as well as direct to consumer sales through e-commerce, direct mailing catalogs and Design Within Reach (DWR) studios.
The company also reports a corporate category consisting primarily of unallocated corporate expenses including acquisition-related costs and
other unallocated corporate costs.
16 2017 Annual Report
Core Strengths
The company relies on the following core strengths in delivering solutions to customers:
•
•
•
•
Portfolio of Leading Brands - Herman Miller is a globally-recognized, authentic brand known for working with some of the most
outstanding designers in the world. Within the industries in which the company operates, Herman Miller, DWR, Geiger, Maharam,
POSH, Nemschoff, Colbrook Bosson Saunders ("CBS") and Naughtone are acknowledged as leading brands that inspire architects
and designers to create their best design solutions. This portfolio has enabled Herman Miller to connect with new audiences, channels,
geographies and product categories. Leveraging the company's brand equity across the lines of business 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 provide 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 that engages with third party design resources generally compensated on a royalty basis.
Operational Excellence - The company was among the first in the industry to embrace the concepts of lean manufacturing. HMPS
provides the foundation for all of the company's 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 its manufacturing supply chain and distribution channel. The company believes these concepts
hold significant promise for further gains in reliability, quality and efficiency.
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.
• Multi-Channel Reach - The company has built a unique, multi-channel distribution capability that it considers unique. Through contract
furniture dealers, direct customer sales, retail studios, e-Commerce, catalogs and independent retailers, the company serves contract
and residential customers across a range of channels and geographies.
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 and Owned 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.
At June 3, 2017, the company owned one contract furniture dealership related to the North American segment, which has operations
in multiple locations. The financial results of this owned dealer are included in our Consolidated Financial Statements. Product sales
to this dealership 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 this owned dealership to an independent
owner. 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 the related product is shipped to
the end customer and installation, if applicable, is substantially complete.
DWR Retail Studios - At the end of fiscal 2017, the Consumer business unit included 31 retail studios (including 30 operating under
the DWR brand and a Herman Miller Flagship store in New York City). This business also operates one outlet studio. These studios
are located in metropolitan areas throughout North America. Revenue on sales from these studios is recognized upon shipment and
transfer to the customer of both title and risk of loss.
Herman Miller, Inc. and Subsidiaries 17
•
•
•
E-Commerce - The company sells products through its online stores, in which products are available for sale via the company's
website, hermanmiller.com as well as through the DWR online store, dwr.com. These sites complement our existing methods of
distribution and extend the company's brand to new customers. The company recognizes revenue on these sales upon shipment and
transfer to the customer of both title and risk of loss.
DWR Direct-Mail Catalogs - The company’s consumer business unit utilizes a direct-mail catalog program through its DWR subsidiary.
A regular schedule of catalog mailings is maintained throughout the fiscal year and these serve as a key driver of sales across each
of DWR’s channels, including retail studios and e-commerce websites. Revenue on sales transacted through this catalog program is
recognized upon shipment and transfer to the customer of both title and risk of loss.
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 and risk of loss passes to the independent retailer.
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 well prepared the company to respond to the inevitable challenges it will face in the future. While
the company is confident in its direction, it acknowledges the risks specific to the business and industry. Refer to Item 1A for discussion of certain
of these risk factors and Item 7A for disclosures of market risk. In particular, the company experienced the negative impact of higher steel costs
and increased pressures from competitive price discounting, particularly in the North America and ELA markets.
Areas of Strategic Focus
Despite a number of risks and challenges, the company believes it is well positioned to successfully pursue its mission of inspiring designs to
help people do great things. As our business and industry continue to evolve, we are constantly focused on staying ahead of the curve. With
the composition of the office floor plate moving toward a broader variety of furnishings, a greater desire for customization from our customers,
new technologies, and trends towards urbanization and more seamless transactions in the retail world, we have centered our overall value
creation strategy on five key priorities.
Scaling Consumer - The company has an ambition to expand the connection of its powerful brand more directly with the consumers
of its products. The transformation of the Design Within Reach retail studio footprint will continue to add incremental selling space
from a combination of new and repositioned studios. Studio expansions will be complemented by a continued focus on improving
margins through the development of exclusive product designs and leveraging additional sales in our contract, catalog and digital
channels.
Realizing the Living Office - In fiscal 2014, the company introduced Living Office, a research-based framework for designing high-
performing workplaces that deliver an elevated experience of work for people, and help organizations achieve their strategic goals.
The company is now focusing on taking the framework to the next level by accelerating the evolution of Living Office by with new
products and technology solutions, along with research that quantifies the positive impact to organizations from applying these concepts.
Leverage the “Dealer Eco-System” - The company recognizes that the preferences and needs of its customers are evolving in favor
of a greater mix of collaborative furnishings. The company intends to leverage the strength of its broad product offer in addressing
this shifting market need. To this end, the company has dedicated resources under the Herman Miller Elements umbrella to best
position the Herman Miller Collection, Maharam, Geiger, Design Within Reach and Naughtone brands for further growth in this space.
The company intends to complement this focused selling effort with enhanced digital platforms that will make it easier for its contract
customers and dealer partners to find, specify and order products from any brand within the Herman Miller Group.
Drive Cost Savings - A three-year cost savings initiative that was announced in fiscal 2017 is aimed at achieving between $25 million
and $35 million in gross annual cost reductions by fiscal 2020. While these efforts will help offset potential wage and material inflation
and help fund growth initiatives, the targeted cost reductions will also play a key role in achieving our goal to increase operating
margins.
Deliver Innovation - Product innovation has been a traditional strength at Herman Miller, and the company is determined to keep this
dimension of its business as a competitive edge. With the alignment of creative direction and new product commercialization under
common leadership, the company will further reduce its time to market and ensure design and development responds to its customers
most critical needs through a robust pipeline of new products and solutions.
The company believes its strategy continues to respond well to current and future realities in its markets. As the company has expanded
addressable market over the past five years, these initiatives will help leverage its unique multi-channel capabilities to deliver its leading
designs and innovations to new audiences virtually anywhere in the world.
18 2017 Annual Report
Industry Analysis
The Business and Institutional Furniture Manufacturer's Association (BIFMA) is the trade association for the North American contract 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, including healthcare and education end
markets, within the North American market. The contract segment of the industry relates primarily to products sold to large to mid-size corporations
and installed via a network of dealers. The office supply segment relates primarily to products sold to smaller customers via wholesalers and
retailers. The company participates, and is a leader in, the contract segment. Further, the company's business presence in the consumer sector
lessens its dependence on the North American contract office furniture market.
The company analyzes BIFMA statistical information as a benchmark comparison against the performance of its contract business in North
America and also to that of its 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.
The company also monitors trade statistics reported by the U.S. Census Bureau, which reports monthly retail sales growth data across a number
of retail categories, including Furniture and Home Furnishing Stores. This information provides a relative comparison to our Consumer reportable
segment.
Looking forward, BIFMA believes that the general economic outlook for the company's industry in North America is expected to be positive.
BIFMA issued its most recent report in May 2017, which forecasts that the growth rate of office furniture sales will be 5.1 percent and 5.0 percent
in calendar 2017 and 2018, respectively. This forecast of growth is based primarily on higher non-residential construction activity and overall
business investment in the U.S., tempered by the current global economic uncertainty.
Herman Miller, Inc. and Subsidiaries 19
Discussion of Business Conditions
Fiscal 2017 included 53 weeks of operations as compared to a standard 52-week fiscal year. The additional week is required periodically to
more closely align the company's fiscal year with the calendar months. This additional week of operations increased fiscal 2017 net sales by
approximately $37 million. This is a factor that should be considered when comparing the company's financial results to the prior year, which
included 52 weeks of operations.
Net sales increased in 2017 to $2,278.2 million, an increase of 0.6 percent from the prior fiscal year. On an organic basis, which adjusts for
dealer divestitures, changes in foreign currency translation rates and the impact of the extra week, net sales increased by 1.4 percent(1) compared
to last fiscal year. Growth in the Consumer segment helped offset a mixed demand environment across the contract business segments tied to
macro-economic and geopolitical uncertainty throughout the year.
While relatively high commodity costs and a challenging competitive pricing environment pressured gross margins compared to last year,
operating expenses were well controlled during the year, helping to deliver diluted earnings per share of $2.05 and adjusted diluted earnings
per share of $2.16(1), which was in line with prior year diluted earnings per share of $2.26 and adjusted diluted earnings per share of $2.17(1).
Operating cash flow generation of $202.1 million for the year enabled the company to fully repay outstanding debt related to its line of credit by
the end of the year, repurchase $24 million of company shares and, subsequent to the end of the fiscal year, announce a 6 percent increase in
the quarterly dividend to $0.18 per share per share - the highest quarterly rate in Herman Miller's history.
While sales in North America were essentially flat for the year, both as reported and on an organic basis(1), in the face of an uncertain political
environment in the United States, the North America business segment continued to deliver the highest operating margins of the company's
business units. Research highlighting the benefits of the Living Office framework for the company's customers and the release of several new
products and solutions, including the newly remastered Aeron chair, helped to position the business for the future.
The ELA segment recorded a decline in net sales of 7 percent, but after adjusting for the impact of changes in foreign currency, the divestiture
of an owned dealer in Australia and the impact of the extra week of operations in the current fiscal year, organic net sales grew at a rate of 3
percent(1) for the year. The improvement in organic net sales was driven by growth in China, Latin America and mainland Europe, which more
than offset lower demand levels in the U.K. and the Middle East, where Brexit and the impact of lower oil prices, respectively, weighed on results.
The ELA segment posted a decline in operating earnings of 13 percent relative to the prior year. However, after adjusting for the impact of
restructuring and impairment charges recognized in the current fiscal year and non-recurring gains related to the prior year, adjusted operating
earnings improved by 9 percent(1) in spite of the uncertain environment.
Sales for the Specialty segment were slightly higher than prior year, as reported, and were slightly lower than prior year on an organic basis(1).
Operating earnings and adjusted operating earnings increased by 8 percent and 12 percent(1), respectively, driven by operational improvements
and well-managed spending. These leading design brands continued to provide a strong connection with the architect and design community
and help the company to meet its customers' needs for both traditional workspaces and collaborative areas.
The company's Consumer segment reported sales growth of 10 percent over last year on an as reported basis and sales growth of 9 percent
on an organic basis(1). DWR delivered four quarters of comparable brand(2) growth during the year. Operating earnings and adjusted operating
earnings decreased by 35 percent and 27 percent(1), respectively. The real estate expansion and investments to support long-term growth in
the consumer business have limited near-term profitability. To that end, the company is focusing extensively on the profitability of the Consumer
business as it moves into the new fiscal year. As part of its real estate transformation. The Consumer segment also added approximately 70,000
square feet of new selling space during the year as it opened eight new Design Within Reach Studios and a Herman Miller flagship retail location.
The business also launched over 100 exclusive new products for Design Within Reach, as part of the plan to increase the mix of higher margin
exclusive designs over time. Growth this year from studios, eCommerce, catalog and contact channels highlighted management's focus to
improve the segment's performance.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
(2) DWR comparable brand sales reflects the year-over-year change in net sales across the multiple channels that DWR serves, including studios, outlets,
contract, catalog, phone and e-commerce. Comparable brand growth was presented on a pro forma basis using a 52-week average to normalize results for
the impact of an extra week of operations in the first quarter of fiscal 2017.
20 2017 Annual Report
Reconciliation of Non-GAAP Financial Measures
This report contains references to Adjusted diluted earnings per share ("EPS"), Organic net sales and Adjusted operating earnings, all of which
are non-GAAP financial measures (referred to collectively as the "Adjusted financial measures"). Adjusted diluted EPS and Adjusted operating
earnings are calculated by excluding from Earnings per share - diluted and Operating earnings, items that we believe are not indicative of our
ongoing operating performance, such as non-recurring gain, expenses associated with restructuring actions taken to adjust our cost structure
to the current business climate and non-cash impairment expenses. Organic net sales represents the change in sales excluding currency
translation effects, the divestiture of owned dealers and the impact of an extra week of operations in fiscal 2017 as compared to fiscal 2016.
These adjustments are made to provide enhanced comparability of the company's current results with historical results.
The company presents the Adjusted financial measures because we consider them to be important supplemental measures of our performance
and believe them to be useful in analyzing ongoing results from operations. The adjusted financial measures are not measurements of our
financial performance under GAAP and should not be considered an alternative to Earnings per share - diluted, Operating earnings or the
company's reported Net sales under GAAP. The Adjusted financial measures have limitations as analytical tools and should not be considered
in isolation or as a substitute for analysis of the company's results as reported under GAAP. The company's presentation of the Adjusted financial
measures should not be construed as an indication that its future results will be unaffected by unusual or infrequent items. The company
compensates for these limitations by providing prominence of the GAAP results and using the Adjusted financial measures only as a supplement.
The following table reconciles Net sales to Organic net sales by segment:
Net sales, as reported
% change from PY
Adjustments
Dealer divestitures
Currency translation effects (1)
Impact of extra week in FY17
Organic net sales
% change from PY
Net sales, as reported
% change from PY
Adjustments
Currency translation effects (1)
Acquisition
Organic net sales
% change from PY
Fiscal Year Ended
June 3, 2017
Fiscal Year Ended
May 28, 2016
North
America
$ 1,342.2
ELA
Specialty Consumer
Total
$ 385.5
$ 232.4
$
318.1
$2,278.2
North
America
$ 1,331.8
ELA
Specialty Consumer
Total
$
412.6
$
231.8
$
288.7 $ 2,264.9
0.8%
(6.6)%
0.3%
10.2%
0.6%
—
0.7
(22.7)
—
13.9
(6.3)
—
—
(3.3)
—
—
—
14.6
(4.7)
(37.0)
(8.8)
(30.8)
—
—
—
—
—
—
—
$ 1,320.2
$ 393.1
$ 229.1
$
313.4
$2,255.8
$ 1,323.0
$
381.8
$
231.8
$
—
—
(39.6)
—
—
—
288.7 $ 2,225.3
(0.2)%
3.0%
(1.2)%
8.6%
1.4%
Fiscal Year Ended
May 28, 2016
Fiscal Year Ended
May 30, 2015
North
America
ELA
Specialty Consumer
Total
North
America
ELA
Specialty Consumer
Total
$ 1,331.8 $
412.6 $
231.8 $
288.7 $ 2,264.9 $ 1,241.9
$
409.9
$
219.9
$
270.5
$ 2,142.2
7.2%
0.7%
5.4%
6.7%
5.7%
12.5
—
26.1
—
0.6
—
0.8
(30.2)
40.0
(30.2)
—
—
—
—
—
—
—
—
—
—
$ 1,344.3 $
438.7 $
232.4 $
259.3 $ 2,274.7 $ 1,241.9
$
409.9
$
219.9
$
270.5
$ 2,142.2
8.2%
7.0%
5.7%
(4.1)%
6.2%
(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable
prior year period
Herman Miller, Inc. and Subsidiaries 21
The following table reconciles Operating earnings to Adjusted operating earnings by segment:
Fiscal Year Ended
June 3, 2017
Fiscal Year Ended
May 28, 2016
Operating earnings (loss)
% Net sales
Adjustments
North
America
$ 137.7
ELA
Specialty Consumer Corporate
Total
$ 30.8
$
17.7
$
5.3
$
(0.7) $190.8
North
America
$ 152.0
10.3%
8.0%
7.6%
1.7%
n/a
8.4%
11.4%
8.6%
7.1%
2.8%
ELA
Specialty Consumer Corporate
Total
$ 35.3
$
16.4
$
8.1
$
(0.3) $211.5
9.3%
n/a
Less: Non-recurring gain
Less: Gain on sale of dealer
Add: Restructuring and impairment
expenses
—
(0.7)
—
—
10.3
1.0
—
—
0.6
Adjusted operating earnings (loss)
$ 147.3
$ 31.8
$
18.3
$
—
—
0.6
5.9
—
—
—
(0.7)
— 12.5
—
—
—
(6.1)
—
—
—
—
—
$
(0.7) $202.6
$ 152.0
$ 29.2
$
16.4
$
—
—
—
8.1
—
—
—
(6.1)
—
—
$
(0.3) $205.4
The following table reconciles EPS to Adjusted EPS for the years indicated:
Earnings per Share - Diluted
After Tax Adjustments
Less: Non-recurring gain
Less: Gain on sale of dealer
Add: Restructuring and impairment expenses
Adjusted Earnings per Share - Diluted
Fiscal Year Ended
June 3, 2017 May 28, 2016
$
2.05 $
2.26
—
(0.02)
0.13
$
2.16 $
(0.09)
—
—
2.17
Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) – Diluted
60,554,589
60,529,269
22 2017 Annual Report
Financial Results
The following is a comparison of our annual results of operations and year-over-year percentage changes for the periods indicated:
(Dollars In millions)
Net sales
Cost of sales
Gross margin
Operating expenses
Operating earnings
Net other expenses
Earnings before income taxes
Income tax expense
Equity income from nonconsolidated affiliates, net of tax
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to Herman Miller, Inc.
Fiscal 2017 % Change
from 2016
53 weeks
Fiscal 2016 % Change
from 2015
52 weeks
Fiscal 2015
52 weeks
$
$
2,278.2
1,414.0
864.2
673.4
190.8
13.2
177.6
55.1
1.6
124.1
0.2
123.9
0.6 % $
1.7 %
(1.1)%
1.6 %
(9.8)%
(11.4)%
(9.7)%
(7.4)%
300.0 %
(9.7)%
(75.0)%
(9.4)% $
2,264.9
1,390.7
874.2
662.7
211.5
14.9
196.6
59.5
0.4
137.5
0.8
136.7
5.7 % $
3.0 %
10.5 %
5.5 %
29.4 %
(18.1)%
35.4 %
26.1 %
300.0 %
40.2 %
33.3 %
40.2 % $
2,142.2
1,350.8
791.4
628.0
163.4
18.2
145.2
47.2
0.1
98.1
0.6
97.5
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:
Fiscal 2017
Fiscal 2016
Fiscal 2015
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
Net other expenses
Earnings before income taxes
Income tax expense
Equity income from nonconsolidated affiliates, net of tax
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to Herman Miller, Inc.
100.0%
62.1
37.9
25.8
0.5
3.2
29.6
8.4
0.6
7.8
2.4
0.1
5.4
—
5.4
100.0%
61.4
38.6
25.9
—
3.4
29.3
9.3
0.7
8.7
2.6
—
6.1
—
6.0
100.0%
63.1
36.9
25.4
0.6
3.3
29.3
7.6
0.8
6.8
2.2
—
4.6
—
4.6
Herman Miller, Inc. and Subsidiaries 23
Net Sales, Orders and Backlog - Fiscal 2017 Compared to Fiscal 2016
Consolidated net sales increased $13.3 million to $2,278.2 million from $2,264.9 million for the fiscal year ended June 3, 2017 compared to the
fiscal year ended May 28, 2016. The following items contributed to the change:
•
•
•
•
•
•
•
Fiscal 2017 had 53 weeks as compared to the same period of fiscal 2016, which had 52 weeks. The impact of this additional week
increased net sales by approximately $37 million.
Incremental sales volumes within the Consumer segment of approximately $25 million were due mainly to improvements across
several Consumer sales channels, including studios, contract, e-commerce and direct-mail catalogs.
Increased sales volumes within the North American segment of approximately $23 million resulted primarily from increased demand
within the company's Healthcare business unit, along with growth late in the fiscal year in the North America office furniture business.
Increased sales volumes within the ELA segment of approximately $17 million were driven by increases within the Europe, Latin
America and Asia regions. The largest increases were due to larger project activity in mainland Europe, Mexico, Brazil, Japan and
China.
The impact of the divestiture of the company's dealerships in Australia in fiscal 2016 and Philadelphia, Pennsylvania in fiscal 2017
had the effect of reducing net sales by $39.6 million in fiscal 2017 as compared to the prior fiscal year.
Deeper discounting, net of incremental price increases, reduced net sales in fiscal 2017 by roughly $32 million as compared to the
prior year. Of this change, $26 million related to the North American operating segment.
Foreign currency translation had a negative impact on net sales of approximately $15 million.
Consolidated net trade orders for fiscal 2017 totaled $2,282.9 million compared to $2,279.7 million in fiscal 2016, an increase of 0.1 percent.
On an organic basis, which excludes the impact of the extra week in fiscal 2017, as well as foreign currency translation and dealer divestitures,
orders increased by 0.9 percent from last fiscal year. Order rates began the year at an average pace of approximately $43 million per week for
the first quarter and $44 million per week for the second quarter. For the third quarter, weekly order rates decreased to an average of approximately
$42 million per week, reflecting typical seasonality in order pacing during that period of the fiscal year. The fourth quarter finished the year with
average weekly order rates increasing to approximately $44 million. The weekly order pacing in the third quarter and the fourth quarter of fiscal
2017 was impacted by the price increase that was announced during the third quarter of fiscal 2017. This caused approximately $21 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 $40 million per week and $45 million per week, respectively. The impact of changes
in foreign currency for the fiscal year decreased net orders by approximately $8.7 million as compared to the prior year.
The company's backlog of unfilled orders at the end of fiscal 2017 totaled $322.6 million, a 0.3 percent decrease from fiscal 2016 ending backlog
of $323.5 million. In fiscal 2017, the company completed the sale of its dealership in Philadelphia. This dealer divestiture resulted in a reduction
to the consolidated ending backlog of approximately $11.6 million.
BIFMA reported an estimated period-over-period increase in U.S. office furniture shipments of approximately 2.0 percent for the twelve-month
period ended May 2017. By comparison, net sales decreased for the company's domestic U.S. business by approximately 0.8 percent over the
twelve months ended May 2017.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
24 2017 Annual Report
The company also monitors trade statistics reported by the U.S. Census Bureau, which reports monthly retail sales growth data across a number
of retail categories, including Furniture and Home Furnishing Stores. This information provides a relative comparison to our Consumer reportable
segment, but is not intended to be an exact comparison. The average monthly year-over-year growth rate in sales for the Furniture and Home
Furnishing Stores category for the twelve month period ended June 3, 2017, was approximately 2.9 percent. By comparison, net sales growth
for the company's Consumer segment was approximately 10.2 percent.
Net Sales, Orders and Backlog - Fiscal 2016 Compared to Fiscal 2015
Consolidated net sales increased $122.7 million to $2,264.9 million from $2,142.2 million for the fiscal year ended May 28, 2016 compared to
the fiscal year ended May 30, 2015. The following items contributed to the change:
•
•
•
•
•
Increased sales volumes within the North American segment of approximately $108.0 million were driven by a combination of general
market growth and company-specific actions taken to improve selling capacity, launch innovative products and refresh showrooms.
Increased sales volumes within the ELA segment of $30.4 million were driven by increases within the Asia region. The largest increases
were due to larger project activity in Australia and China.
Incremental sales volume within the Consumer segment related to the acquisition of DWR, which increased sales by $30.2 million.
This increase was due the fact that 52 weeks of DWR results were included in our consolidated results for fiscal 2016 as compared
to 44 weeks in fiscal 2015.
Increased sales volumes within the Specialty segment of $10.9 million were driven principally by Geiger and the Herman Miller
Collection.
Foreign currency translation had a negative impact on sales of $40.0 million.
Consolidated net trade orders for fiscal 2016 totaled $2,279.7 million compared to $2,146.5 million in fiscal 2015, an increase of 6.2 percent.
Order rates began the year at an average pace of approximately $43 million per week for the first quarter and $46 million per week for the
second quarter. For the third quarter, weekly order rates decreased to an average of approximately $39 million per week, reflecting typical
seasonality in order pacing during that period of the fiscal year. The fourth quarter finished the year with average weekly order rates increasing
to approximately $47 million. The overall impact of foreign currency changes for the fiscal year decreased net orders by approximately $38.7
million as compared to the prior year. The company's backlog of unfilled orders at the end of fiscal 2016 totaled $323.5 million, a 0.4 percent
increase from the fiscal 2016 ending backlog of $322.2 million. At the end of fiscal 2016, the company completed the sale of its multi-location
dealership in Australia. This dealer divestiture resulted in a reduction to the consolidated ending backlog of approximately $14 million.
BIFMA reported an estimated period-over-period increase in U.S. office furniture shipments of approximately 3.2 percent for the twelve-month
period ended May 2016. By comparison, net sales increased for the company's domestic U.S. business by approximately 6.3 percent over the
twelve months ended May 2016, reflecting the strong results within our North America segment noted above.
The company also monitors trade statistics reported by the U.S. Census Bureau, which reports monthly retail sales growth data across a number
of retail categories, including Furniture and Home Furnishing Stores. This information provides a relative comparison to the company's Consumer
reportable segment, but is not intended to be an exact comparison. The average monthly year-over-year growth rate in sales for the Furniture
and Home Furnishing Stores category for the twelve month period ended May 31, 2017, was approximately 2.9 percent. By comparison, net
sales growth for the company's Consumer segment was approximately 6.7 percent due to improvements across several Consumer sales
channels, including studios, e-commerce, contract and direct-mail catalogs.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
Herman Miller, Inc. and Subsidiaries 25
Gross Margin - Fiscal 2017 Compared to Fiscal 2016
Consolidated gross margin for fiscal 2017 was 37.9 percent, a decrease of 70 basis points from the fiscal 2016 level. The following factors
summarize the major drivers of the year-over-year decrease in gross margin percentage:
•
•
•
•
•
•
Incremental price discounting, net of price increases, reduced the company's consolidated gross margin by approximately 90 basis
points relative to fiscal 2016.
Higher commodity costs within the North American operating segment in the current fiscal year drove an unfavorable year-over-year
margin impact of approximately 40 basis points.
The divestiture of the company's dealerships in Australia and Philadelphia, Pennsylvania in fiscal 2016 and 2017, respectively, resulted
in a favorable impact of approximately 30 basis points relative to fiscal 2016.
A decrease in employee incentive costs increased our consolidated gross margin by 30 basis points relative to fiscal 2016. The
decrease reflects lower employee incentive costs that are variable based on the achievement of earnings levels for the fiscal year
relative to plan.
Improved material cost performance at the company's West Michigan manufacturing facilities driven by process engineering initiatives
increased gross margin by approximately 20 basis points as compared to fiscal 2016.
Product mix at the company's West Michigan manufacturing facilities and material usage efficiencies at various international locations
had a favorable impact on gross margin.
Gross Margin - Fiscal 2016 Compared to Fiscal 2015
Consolidated gross margin for fiscal 2016 was 38.6 percent, an increase of 170 basis points from the fiscal 2015 level. The following factors
summarize the major drivers of the year-over-year improvement in gross margin percentage:
•
•
•
•
Lower commodity costs within the North American operating segment in the current fiscal year drove a favorable year-over-year margin
impact of approximately 90 basis points.
A decrease in freight expenses, due primarily to lower fuel costs and improved leverage of fixed product distribution costs, drove a
favorable impact to gross margin of approximately 40 basis points compared to fiscal 2015.
Inventory-related purchase accounting adjustments related to the acquisition of DWR unfavorably impacted gross margin in the prior
year by approximately 30 basis points.
Improved production volume leverage at the company's West Michigan manufacturing facilities increased gross margin by
approximately 30 basis points as compared to fiscal 2015.
• We estimate that relative changes in foreign currency exchange rates had a negative impact on our consolidated gross margin of
•
approximately 30 basis points relative to last fiscal year.
Improved operating efficiencies at certain international and domestic subsidiaries also provided a favorable impact to gross margin
compared to last fiscal year.
26 2017 Annual Report
Operating Expenses - Fiscal 2017 Compared to Fiscal 2016
Operating expenses in fiscal 2017 were $673.4 million, or 29.6 percent of net sales, which compares to $662.7 million, or 29.3 percent of net
sales in fiscal 2016. The following factors contributed to the change:
•
Fiscal 2017 results reflected restructuring and impairment expenses of $12.5 million. Restructuring charges related to targeted
workforce reductions increased operating expenses by $5.4 million, while the impairment of the Nemschoff trade name increased
operating expenses by $7.1 million.
• Marketing and selling expenses increased approximately $10 million relative to last fiscal year.
•
•
The impact of an extra week in fiscal 2017 increased operating expenses by approximately $9 million.
Incremental costs related to the continued growth and expansion of DWR retail studios of approximately $8 million for the twelve
month comparative period.
Increased costs within the company's DWR subsidiary of approximately $5 million as a result of increased investment in information
technology, infrastructure to support the contract channel and other business support functions.
Lower employee incentive costs decreased operating expenses by $8.8 million compared to prior fiscal year. The decrease reflects
lower incentive compensation costs that are variable based on the achievement of earnings levels for the fiscal year relative to plan.
The divestiture of the company's dealerships in Australia and Philadelphia in fiscal 2016 and 2017, respectively, resulted in a decrease
in operating expenses of $14.2 million for the twelve month comparative period.
The remainder of the change was driven mainly by company-wide cost savings initiatives, decreases in stock-based compensation,
research and development expenses and changes in foreign currency exchange rates.
•
•
•
•
Herman Miller, Inc. and Subsidiaries 27
Operating Expenses - Fiscal 2016 Compared to Fiscal 2015
Operating expenses in fiscal 2016 were $662.7 million, or 29.3 percent of net sales, which compares to $628.0 million, or 29.3 percent of net
sales in fiscal 2015. The following factors contributed to the change:
•
Employee incentive costs increased by $14.7 million relative to fiscal 2015. The increase reflects higher incentive compensation costs
that are tied to increased earnings for the comparative periods.
• Marketing and selling expenses increased $14.5 million relative to fiscal 2015. The increase resulted from new marketing initiatives,
•
•
•
•
•
particularly within the Consumer segment, as well as increases in selling capacity and sales growth during fiscal 2016.
Fiscal 2016 included a full 52 weeks of DWR results whereas fiscal 2015 included only 44 weeks. This difference accounts for
approximately $13.7 million of the year-over-year increase in consolidated operating expenses.
Design and research expenses increased $5.7 million in fiscal 2016 as compared to the prior year.
Year-over-year changes in currency exchange rates decreased operating expenses by an estimated $10 million.
Fiscal 2015 results reflected restructuring and impairment expenses of $12.7 million.
The remaining change relates to various contributing factors, including but not limited to higher costs for information technology
initiatives, wage and benefit inflation, and general variability with higher net sales.
Operating Earnings
In fiscal 2017, the company generated operating earnings of $190.8 million, a decrease of $20.7 million from fiscal 2016 operating earnings of
$211.5 million. Operating earnings of $211.5 million in fiscal 2016 represented a $48.1 million increase from fiscal 2015 operating earnings of
$163.4 million.
Other Expenses and Income
Net other expenses for fiscal 2017 were $13.2 million, a decrease of $1.7 million compared to net other expenses in fiscal 2016 of $14.9 million.
The decrease in net other expenses in fiscal 2017 was primarily related to higher investment income associated with the company's deferred
compensation plan.
Net other expenses for fiscal 2016 were $14.9 million, a decrease of $3.3 million compared to net other expenses in fiscal 2015 of $18.2 million.
The decrease in net other expenses in fiscal 2016 as compared to fiscal 2015 was primarily related to a reduction in interest expense related
to a decrease in long term debt. The reduction in long term debt resulted from the repayment of borrowings on the revolving line of credit.
Income Taxes
The company's effective tax rate was 31.1 percent in fiscal 2017, 30.3 percent in fiscal 2016 and 32.6 percent in fiscal 2015. The effective tax
rate in fiscal 2017 was below the United States statutory rate of 35 percent, primarily due to an increase in the mix of earnings in tax jurisdictions
that have rates lower than the United States statutory rate, the manufacturing deduction under the American Jobs Creation Act of 2004 (“AJCA”)
and the research and development tax credit under the Protecting Americans from Tax Hikes ("PATH") Act of 2015.
The effective tax rate in fiscal 2016 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing deduction
under the AJCA as well as a significant amount of foreign earnings subject to tax at foreign rates below 35 percent.
The effective tax rate in fiscal 2015 was below the statutory rate of 35 percent, primarily due to the domestic U.S. manufacturing deduction
under the AJCA and a $3.9 million tax benefit related to a foreign entity reorganization.
28 2017 Annual Report
For further information regarding income taxes, refer to Note 10 of the Consolidated Financial Statements.
Net Earnings; Earnings per Share
In fiscal 2017, fiscal 2016, and fiscal 2015, the company generated net earnings attributable to Herman Miller, Inc. of $123.9 million, $136.7
million and $97.5 million, respectively. Diluted earnings per share were $2.05, $2.26 and $1.62 for fiscal 2017, fiscal 2016 and fiscal 2015,
respectively.
Reportable Operating Segments
The business is comprised of various operating segments as defined by generally accepted accounting principles in the United States. These
operating segments are determined on the basis of how the company internally reports and evaluates financial information used to make
operating decisions. 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.
ELA Furniture Solutions — Includes EMEA, Latin America, and Asia-Pacific operations associated with the design, manufacture and
sale of furniture products, primarily for work-related settings.
Specialty — Includes operations associated with the design, manufacture, and sale of high-craft furniture products and textiles including
Geiger wood products, Maharam textiles and Herman Miller Collection products.
Consumer — Includes operations associated with the sale of modern design furnishings and accessories to third party retail distributors,
as well as direct to consumer sales through e-commerce, direct mailing catalogs and DWR retail studios.
The company also reports a corporate category consisting primarily of, as applicable, unallocated corporate expenses including acquisition-
related costs and other unallocated corporate costs.
The charts below present the relative mix of net sales across each of the company's reportable segments. This is followed by a discussion of
the company's results, by segment, for each reportable segment.
North American Furniture Solutions ("North America")
Fiscal 2017 Compared to Fiscal 2016
Net sales in the North American segment were $1,342.2 million in fiscal 2017, an increase of 0.8 percent from fiscal 2016 net sales of $1,331.8
million. Orders for fiscal 2017 totaled $1,347.6 million, an increase of 0.9 percent from the prior year. Operating earnings for North America in
fiscal 2017 were $137.7 million or 10.3 percent of sales as compared to $152.0 million or 11.4 percent of sales in the prior year.
•
•
•
The impact of the extra week increased net sales by an estimated $23 million and increased orders by $21 million for fiscal 2017 as
compared to the prior year.
Incremental price discounting, net of price increases, in fiscal 2017 decreased net sales by approximately $26 million compared to
the prior year.
Sales volumes within the North American segment increased by approximately $23 million resulting primarily from increased demand
within the company's Healthcare business unit, along with growth late in the year in the North America office furniture business.
Herman Miller, Inc. and Subsidiaries 29
•
•
•
•
•
•
The impact of the divestiture of the company's dealership in Philadelphia, Pennsylvania in fiscal 2017 had the effect of reducing net
sales by approximately $9 million as compared to fiscal 2016.
Commodity price increases and incremental discounting drove a decrease in gross margins and operating earnings.
Decreased employee incentive costs recorded in operating expenses and cost of goods sold increased operating earnings by $14.1
million compared to prior fiscal year. The decrease reflects lower incentive compensation costs that are variable based on the
achievement of earnings levels for the fiscal year relative to plan.
Restructuring charges related to targeted workforce reductions increased operating expenses by $5.4 million, while the impairment
of the Nemschoff trade name increased operating expenses by $7.1 million as compared to the prior year.
Operating expenses within the North American segment were higher than the prior year due to the extra week of operations.
Company-wide cost savings initiatives resulted in a decrease in operating expenses relative to the prior year period.
Fiscal 2016 Compared to Fiscal 2015
Net sales in the North American segment increased to $1,331.8 million in fiscal 2016, an increase of $89.9 million from fiscal 2015 net sales of
$1,241.9 million. Orders for fiscal 2016 totaled $1,336.1 million, an increase of $100.3 million from fiscal 2015. Operating earnings for North
America in fiscal 2016 were $152.0 million, an increase of $26.8 million from fiscal 2015.
•
•
•
•
•
Sales volumes within the North American segment increased by approximately $108 million. This was driven by a combination of
general market growth and company-specific actions taken to improve selling capacity, launch innovative products and refresh
showrooms.
The impact of foreign currency translation decreased net sales and operating earnings by approximately $13 million and $7 million,
respectively.
Changes in pricing, net of incremental discounting, decreased fiscal 2016 net sales by approximately $6 million compared to the prior
year.
Operating earnings increased mainly due to improvements in gross margin that were driven by increased sales volumes, improved
production volume leverage, a decrease in commodity costs and improved operational efficiency.
Higher incentive compensation expenses had an unfavorable impact on operating earnings of $18.6 million.
ELA Furniture Solutions (EMEA, Latin America, and Asia Pacific)
Fiscal 2017 Compared to Fiscal 2016
Net sales in the ELA segment were $385.5 million in fiscal 2017, a decrease of $27.1 million from fiscal 2016 net sales of $412.6 million. Orders
for fiscal 2017 totaled $384.9 million, a decrease of $32.2 million from fiscal 2016. Operating earnings within ELA for fiscal 2017 were $30.8
million, a $4.5 million decrease from fiscal 2016.
•
•
•
•
•
•
•
•
Fiscal 2016 included the results of the company’s dealership in Australia that was divested at the end of the fourth quarter of fiscal
2016. Accordingly, net sales for the ELA segment decreased by $30.8 million due to the divestiture. The divestiture also decreased
orders by $32.8 million year-over-year.
Increased sales volumes within the ELA segment of approximately $17 million were driven by increases within the Europe, Latin
America and Asia regions. The largest increases were due to larger project activity in mainland Europe, Mexico, Brazil, Japan and
China.
Deeper discounting, net of incremental price increases, decreased fiscal 2017 net sales by an estimated $6 million.
Foreign currency translation decreased net sales by approximately $13.9 million.
The impact of the extra week increased net sales by $6.3 million in fiscal 2017.
The divestiture of the company’s dealership in Australia decreased operating earnings by $1.6 million.
Operating earnings were also reduced in fiscal 2017 by $1.0 million due to restructuring expenses, related primarily to severance
costs.
Fiscal 2016 included nonrecurring gains related to the sale of a former manufacturing facility in the United Kingdom and the divestiture
of the company’s dealership in Australia. Accordingly, the operating earnings for the ELA segment decreased by $6.1 million due to
the nonrecurring gains recorded in fiscal 2016.
Fiscal 2016 Compared to Fiscal 2015
Net sales increased to $412.6 million in fiscal 2016, and increase of $2.7 million as compared to fiscal 2015 of $409.9 million. Orders for fiscal
2016 totaled $417.0 million, a decrease of $0.6 million from fiscal 2015. Operating earnings within ELA for fiscal 2016 were $35.3 million, a $9.4
million increase from fiscal 2015.
•
•
•
Improved sales volumes within Australia, Mexico and China increased in net sales by approximately $31 million.
Changes in pricing, net of incremental discounting, decreased fiscal 2016 net sales by about $2 million compared to the prior year.
The impact of foreign currency translation decreased net sales by approximately $26.1 million.
30 2017 Annual Report
•
•
•
Gross margin improvements driven by increased sales volumes, manufacturing efficiency as well as decreased material and freight
costs provided a favorable impact on operating earnings.
Nonrecurring gains related to the sale of a former manufacturing facility in the United Kingdom and the divestiture of the company’s
dealership in Australia increased operating earnings by $6.1 million.
The impact of foreign currency changes decreased fiscal 2015 operating earnings for ELA by approximately $7 million.
Specialty
Fiscal 2017 Compared to Fiscal 2016
Net sales within the Specialty reportable segment were $232.4 million in fiscal 2017, an improvement of $0.6 million as compared to $231.8
million in fiscal 2016. Orders for fiscal 2017 totaled $232.0 million, a decrease of $2.8 million from $234.8 million in fiscal 2016. Operating
earnings within the Specialty reportable segment totaled $17.7 million for the year, an increase of $1.3 million from $16.4 million in fiscal 2016.
•
•
•
The impact of an extra week in fiscal 2017 increased net sales by approximately $3.0 million as compared to the prior year.
Sales volumes within the Specialty segment decreased by approximately $2.0 million. This decrease was driven by lower sales volumes
within the Geiger and Maharam subsidiaries, offset by an increase in sales within the Herman Miller Collection business.
Improved operational efficiencies and lower benefit costs had a favorable impact on operating earnings, which was partially offset by
increased marketing and selling costs.
Fiscal 2016 Compared to Fiscal 2015
Net sales within the Specialty reportable segment were $231.8 million during fiscal 2016, an improvement of $11.9 million as compared to fiscal
2015. Orders for fiscal 2016 totaled $234.8 million, an increase of $13.4 million from fiscal 2015. Operating earnings within the Specialty reportable
segment totaled $16.4 million for the year, an increase of $2.9 million from fiscal 2015.
•
•
•
•
Improved sales volumes increased net sales by $10.9 million, which was driven by increases within the Herman Miller Collection and
Geiger subsidiary.
Changes in pricing, net of incremental discounting, increased fiscal 2016 net sales by an estimated $2 million compared to the prior
year.
Increased sales volumes and improved operational efficiencies had a favorable impact on operating earnings.
Higher incentive compensation expenses and increased marketing and selling costs had an unfavorable impact on operating earnings
of $2.3 million and $1.9 million, respectively.
Consumer
Fiscal 2017 Compared to Fiscal 2016
Net sales totaled $318.1 million for the year, an increase of 10.2 percent over the fiscal 2016 amount of $288.7 million. Orders of $318.4 million
increased 9.1 percent over fiscal 2016. Operating earnings for the year were $5.3 million or 1.7 percent of sales as compared to operating
earnings of $8.1 million or 2.8 percent of sales for fiscal 2016.
•
•
•
•
Increased sales volumes of approximately $29.4 million were due to improvements across several Consumer sales channels, including
studios, e-commerce, contract and direct-mail catalogs.
The impact of the extra week increased net sales by $4.7 million in fiscal 2017 as compared to prior year.
Operating expenses within the Consumer segment were higher than the prior year primarily as a result of increased investments in
information technology, marketing and investments in personnel supporting the contract and e-commerce channels.
Incremental pre-opening costs related to non-comparable studios increased operating expenses relative to the prior year and had a
negative impact on operating earnings of approximately $8 million compared to fiscal 2016.
Fiscal 2016 Compared to Fiscal 2015
Net sales for the Consumer reportable segment increased to $288.7 million in fiscal 2016, an increase of $18.2 million from fiscal 2015 net sales
of $270.5 million. Orders for fiscal 2016 totaled $291.7 million, an increase of $20.0 million from fiscal 2015. Operating earnings within the
Consumer segment were $8.1 million during fiscal 2016 as compared to operating earnings of $14.7 million in fiscal 2015.
•
•
The fiscal year ended May 30, 2015 included 44 weeks of DWR operations (as the acquisition of DWR was completed on July 28,
2014). Accordingly, approximately $30.2 million of the year-over-year net sales increase for this segment is due to the inclusion of
DWR operations for the full twelve months of fiscal year 2016.
Adjusted for the impact of this partial period consolidation during fiscal 2015 and the impact of foreign currency translation, which
increased net sales by $0.8 million, net sales for the Consumer segment decreased $11.2 million as compared to fiscal 2015. This
was driven by the closing of legacy DWR studios, selling activity interruptions from the implementation of a new ERP system at DWR
and the rationalization of independent retail distributors.
Herman Miller, Inc. and Subsidiaries 31
•
•
The decrease in operating earnings was driven by a reduction in the gross margin percentage at DWR due to a shift in mix to lower
margin channels, the impact of promotional activity related to shipping and certain period costs associated with an ERP implementation.
An increase in DWR operating expenses of $8.2 million decreased operating earnings. The increase in operating expenses was due
to increased marketing investment, higher staffing levels and incremental occupancy costs that were driven by studio opening costs
and double rent associated with new studio openings. These factors were partially offset by inventory-related purchase accounting
adjustments that reduced prior year operating earnings by approximately $7.8 million.
Liquidity and Capital Resources
The table below presents certain key cash flow and capital highlights for the fiscal years indicated.
Fiscal Year Ended
2016
2017
(In millions)
63.7
Cash and cash equivalents, end of period
5.7
Marketable securities, end of period
167.7
Cash provided by operating activities
(213.6)
Cash used for investing activities
6.8
Cash provided by (used for) financing activities
1.4
Pension and post-retirement benefit plan contributions
(63.6)
Capital expenditures
(3.7)
Stock repurchased
289.8
Interest-bearing debt, end of period
Available unsecured credit facilities, end of period (1)
164.5
(1) Amounts shown are net of outstanding letters of credit, which are applied against the company's unsecured credit facility. During fiscal 2015, the company
renegotiated the unsecured revolving credit facility. Refer to Note 5 of the Consolidated Financial Statements for additional information.
96.2
$
8.6
$
$
202.1
(116.3) $
(74.6) $
(1.1) $
(87.3) $
(23.7) $
$
199.9
$
391.7
84.9
$
7.5
$
$
210.4
(80.8) $
(106.5) $
(1.2) $
(85.1) $
(14.1) $
$
221.9
$
232.1
$
$
$
$
$
$
$
$
$
$
2015
Cash Flow — Operating Activities
Cash generated from operating activities in fiscal 2017 totaled $202.1 million compared to $210.4 million generated in the prior year.
Changes in working capital balances resulted in a $23.5 million use of cash compared to a $6.0 million use of cash in the prior year. The cash
outflow related to changes in working capital balances was driven primarily by an increase in inventory of $29.9 million and a decrease in
accounts payable of $11.2 million. The increase in inventory as of fiscal 2017 as compared to fiscal 2016 was driven mainly by an increase at
the company's DWR subsidiary, due to studio openings and year-end inventory stocking for upcoming promotional events and new product
launches. This was partially offset by a decrease in trade receivables of $17.3 million.
During fiscal 2016, changes in working capital balances resulted in a $6.0 million use of cash compared to a $3.5 million source of cash in the
prior year. The use of cash related to changes in working capital balances in fiscal 2016 consisted primarily of an increase in trade receivables
of $30.5 million, an increase in inventory of $6.0 million and an increase in prepaid expenses of $11.7 million. This was partially offset by an
increase in accrued compensation and benefits of $19.4 million, an increase in accounts payable of $8.7 million and an increase in other accrued
liabilities of $14.1 million.
Collections of accounts receivable remained strong throughout fiscal 2017, 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 1.7 percent, 2.0 percent and 1.7 percent at the end of fiscal years 2017, 2016 and 2015, respectively.
Cash Flow — Investing Activities
Capital expenditures totaled $87.3 million, $85.1 million and $63.6 million in fiscal 2017, 2016, and 2015, respectively. The increase in capital
expenditures of $2.2 million from fiscal 2017 to fiscal 2016 was driven primarily by capital expenditures associated with the opening of new
DWR retail studio locations.
The increase in capital expenditures of $21.5 million from fiscal 2015 to fiscal 2016 was driven primarily by payments related to the construction
of a new facility in the United Kingdom for the purpose of consolidating manufacturing and distribution activities, as well as capital expenditures
associated with product development and the opening of new DWR retail studio locations.
In fiscal 2017, the company repaid loans against the cash surrender value of life insurance policies in the amount of $15.3 million, which has
been recorded within investing activities. The cash surrender value of the company-owned life insurance policies and the loans were previously
recorded net within "Other noncurrent assets" within the Condensed Consolidated Balance Sheets.
32 2017 Annual Report
Cash proceeds from sale of dealers and properties were zero, $10.7 million and $0.6 million in fiscal 2017, 2016, and 2015 , respectively. During
fiscal 2017, the company sold its wholly-owned contract furniture dealership in Pennsylvania in exchange for a $3.0 million note receivable.
Cash proceeds received in the prior year was driven mainly by the sale of a former manufacturing facility in the United Kingdom for $4.8 million
and the divestiture of the company’s remaining 75 percent equity stake in its dealership in Australia for $2.7 million.
Outstanding commitments for future capital purchases at the end of fiscal 2017 were approximately $16.3 million. The company expects capital
spending in fiscal 2018 to be between $90 million and $100 million. The capital spending will be allocated primarily to planned investments in
product development and retail studio openings.
Included in the fiscal 2017, 2016 and 2015 investing activities are net cash outflows related to the acquisition of consolidated and non-consolidated
entities. The followings amounts represent the primary investments that drove the cash outflows:
(In millions)
Naughtone Holdings Limited
George Nelson Bubble Lamp Product Line
Design Within Reach (DWR)
2017
2016
2015
$
11.6
$
3.6
$
154.0
Our net marketable securities transactions for fiscal 2017 yielded a $1.1 million use of cash. This compares to a $1.7 million use of cash and
$5.3 million source of cash in fiscal 2016 and fiscal 2015, respectively.
Cash Flow — Financing Activities
In fiscal 2017, cash used for financing activities was $74.6 million as compared to cash used for financing activities of $106.5 million in fiscal
2016. Cash outflows from net payments on the revolving credit facility were $22 million during fiscal 2017. By comparison, cash outflows from
net payments on the revolving credit facility were $68.0 million during fiscal 2016.
Cash paid for repurchases of common stock was $23.7 million in the current year as compared to $14.1 million in the prior year. Additionally, in
fiscal 2017 there was an increase in cash inflows from the issuance of shares related to stock-based compensation plans. The company received
$11.7 million related to stock-based compensation plans in fiscal 2017 compared to $9.2 million in fiscal 2016.
In fiscal 2016, cash used for financing activities was $106.5 million, as compared to cash provided by financing activities of $6.8 million in fiscal
2015. Cash outflows from net payments on the revolving credit facility were $68.0 million during fiscal 2016. By comparison, cash inflows from
net borrowings were $40.0 million during fiscal 2015.
Cash outflows for dividend payments were $39.4 million, $34.9 million and $33.3 million fiscal 2017, 2016 and 2015, respectively.
Cash paid for repurchases of common stock was $14.1 million in fiscal 2016 as compared to $3.7 million in fiscal 2015. Additionally, in fiscal
2016 there was an increase in cash inflows from the issuance of shares related to stock-based compensation plans. The company received $9.2
million related to stock-based compensation plans in fiscal 2016 compared to $7.8 million in fiscal 2015.
Certain minority shareholders in a subsidiary have the right, at certain times, to require the company to acquire a portion of their ownership
interest in those entities at fair value. It is possible that within the next three fiscal years years the company could be required to acquire this
ownership interest. The fair value of this redeemable noncontrolling interest as of June 3, 2017 was $24.6 million and is included within
"Redeemable noncontrolling interests" on the Consolidated Balance Sheets.
Sources of Liquidity
In addition to cash flows from operating activities, the company has access to liquidity through credit facilities, cash and cash equivalents and
short-term investments. These sources have been summarized below. For additional information, see Note 5 to the consolidated financial
statements.
(In millions, )
Cash and cash equivalents
Marketable securities
Availability under revolving lines of credit
June 3, 2017
96.2
$
8.6
$
391.7
$
May 28, 2016
84.9
$
7.5
$
232.1
$
At the end of fiscal 2017, the company had cash and cash equivalents of $96.2 million, including foreign cash and cash equivalents of $78.5
million. In addition, the company had foreign marketable securities of $8.6 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's intent is to permanently reinvest the foreign cash amounts outside the U.S. The company's plans do not
Herman Miller, Inc. and Subsidiaries 33
demonstrate a need to repatriate these balances to fund U.S. operations. The company repatriated zero, $0.7 million and zero of foreign earnings
during fiscal years 2017, 2016 and 2015, respectively.
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, future dividends and share repurchases, subject to financing availability in the marketplace.
Contingencies
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 Financial Statements.
Basis of Presentation
The company's fiscal year ends on the Saturday closest to May 31. The fiscal year ended June 3, 2017 had 53 weeks of operations while fiscal
years ended May 28, 2016 and May 30, 2015 each contained 52 weeks of operations.
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. Additional information related to operating leases can be found in Note 6 of the Consolidated
Financial Statements.
(In millions)
Long-term debt (1)
Estimated interest on debt obligations (2)
Operating leases
Purchase obligations (3)
Pension plan funding (4)
Stockholder dividends (5)
Other (6)
Total
Total
Payments due by fiscal year
2019-2020
2021-2022
2018
Thereafter
$
$
$
199.9
83.3
329.2
45.4
0.9
10.2
18.9
687.8 $
— $
11.4
47.0
35.2
0.4
10.2
1.7
105.9 $
— $
19.3
77.5
6.2
0.1
—
3.3
106.4 $
$
50.0
15.5
63.2
1.0
0.1
—
3.1
132.9 $
149.9
37.1
141.5
3.0
0.3
—
10.8
342.6
(1) The notes maturing in fiscal 2018 have been included as long-term debt in the table above as the company has both the intent and ability
to refinance this short-term obligation on a long-term basis, through the use of its syndicated revolving line of credit.
(2) Estimated future interest payments on our outstanding debt obligations are based on interest rates as of June 3, 2017. Actual cash outflows
may differ significantly due to changes in underlying timing of principal payments.
(3) Purchase obligations consist of non-cancelable purchase orders and commitments for goods, services, and capital assets.
(4) 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 June 3, 2017, the total projected benefit obligation for our domestic
and international employee pension benefit plans was $114.8 million.
(5) Represents the dividend payable as of June 3, 2017. Future dividend payments are not considered contractual obligations until declared.
(6) 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 12 of the Consolidated Financial
Statements.
34 2017 Annual Report
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 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 six channels: independent and
owned contract furniture dealers, direct to end customers, DWR retail studios, e-commerce, DWR direct-mail catalogs and independent retailers.
We recognize revenue on sales to independent dealers, licensees and retailers once products are shipped and title passes to the buyer. When
we sell product directly to the end customer or through owned dealers or retail studios, we recognize revenue once the product and services
are shipped, title and risk of loss have transferred to the customer and installation is substantially complete, if applicable.
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 price related incentives are recorded as reductions to net sales. We record
accruals for rebates and other marketing programs, which require us to make estimates about future customer buying patterns and market
conditions. Customer sales that reach (or fail to reach) certain levels can affect the amount of such estimates and actual results could differ
from our estimates.
Receivable Allowances
We base our allowances for receivables on known customer exposures, historical credit experience and the specific identification of other
potential problems, including the current economic climate. These methods are applied to all major receivables, including trade, lease and notes
receivable. In addition, we follow a policy that consistently applies reserve rates based on the 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 $3.3 million and $4.3 million at June 3, 2017 and May 28, 2016, respectively. As a percentage of
gross accounts receivable, these allowances totaled 1.7 percent and 2.0 percent for fiscal 2017 and fiscal 2016, respectively. The year-over-
year decrease in the allowance is primarily due to fewer customer-specific reserves in the current year, relative to the prior year.
Goodwill and Indefinite-lived Intangibles
The carrying value of goodwill and indefinite-lived intangible assets as of June 3, 2017 and May 28, 2016, was $382.6 million and $390.5 million,
respectively. Goodwill and indefinite-lived intangible assets are tested for impairment annually, or more frequently, if changes in circumstances
or the occurrence of events suggest that impairment exists. The company performs the annual goodwill and indefinite-lived intangible assets
impairment testing during the fourth quarter of the fiscal year.
The company completed the required annual goodwill impairment test in the fourth quarter of fiscal 2017, as of April 1, 2017, 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
and the second step of the impairment test was not necessary.
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.
Herman Miller, Inc. and Subsidiaries 35
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.
During fiscal 2017, the company recognized pre-tax asset impairment expenses totaling $7.1 million associated with the Nemschoff trade name,
after which there is no remaining carrying value for this trade name. This impairment expense was incurred due to the fact that the forecasted
revenue and profitability of the business did not support the recorded fair value for the trade name. There was no impairment indicated on
indefinite-lived intangible assets in fiscal 2016 as a result of our impairment testing. In fiscal 2015, the company recognized pre-tax asset
impairment expenses totaling $10.8 million associated with the POSH trade name. Although profitability associated with the POSH trade name
increased as compared to fiscal 2014, forecasts developed during the fourth quarter of fiscal 2015 indicated that forecasts of revenue and
profitability no longer supported the value of the trade name intangible asset.
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.
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. In
evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and
negative evidence. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates
we are using to manage the underlying businesses.
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
36 2017 Annual Report
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 June 3,
2017, are as follows:
(In millions)
General liability and auto liability/physical damage
Workers' compensation and property
Pension and other Post-Retirement Benefits
Retention Level (per occurrence)
1.00
$
$
0.75
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 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. Future expected actuarially determined cash
flows for the company's domestic pension, international pension and post-retirement medical plans are individually discounted at the
spot rates under the Mercer Yield Curve to arrive at the plan’s obligations as of the measurement date.
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 the above 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 June 3, 2017, and
May 28, 2016, the net actuarial loss associated with the employee pension and post-retirement benefit plans totaled approximately $50.6 million
and $39.4 million, respectively.
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 reasonably predict if adjustments impacting the expense or obligation from changes in these estimates will be significant. Both
the June 3, 2017 pension funded status and 2018 expense are affected by year end 2017 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 a 1 percent increase/(decrease) in discount rates and expected return on assets on the projected fiscal 2018 expense and the
pension obligation as at June 3, 2017 is shown below:
(In millions)
Assumption
Discount rate
Expected return on assets
2018 Expense
U.S.
International
— $ (1.5) / 1.9
— $ (0.8) / 0.8
June 3, 2017 Obligation
U.S.
$ (0.3) / 0.4
International
$ (21.2) / 28.8
—
—
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,
Herman Miller, Inc. and Subsidiaries 37
a portion of the net actuarial loss is deferred. As of June 3, 2017, the deferred net actuarial loss (i.e., the portion of the total net actuarial loss
not subject to amortization) was $0.9 million.
Refer to Note 7 of the Consolidated Financial Statements for more information regarding costs and assumptions used for employee benefit
plans.
Stock-Based Compensation
The company views stock-based compensation as a key component of total compensation for certain employees, non-employee directors and
officers. The stock-based compensation programs have included 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 the majority of stock options issued during fiscal 2017, we utilized an
expected volatility of 26 percent. Certain options related to the Herman Miller Consumer Holdings (HMCH) Stock Option Plan are
classified as a liability within the Consolidated Balance Sheets. As of June 3, 2017, an expected volatility of 35 percent was used in
the year end liability valuation.
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 4.0 years in calculating the fair
values of the majority of stock options issued during fiscal 2017, except for the HMCH Stock Option Plan, where we utilized an average
expected term of 2.1 years.
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 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 12 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
This information contains 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, the success of our growth
strategy, employment and general economic conditions, the pace of economic recovery in the U.S and in our International markets, the increase
in white-collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers,
competitive-pricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand
globally given the risks associated with regulatory and legal compliance challenges and accompanying currency fluctuations, the ability to
increase prices to absorb the additional costs of raw materials, the financial strength of our dealers and the financial strength of our customers,
our ability to locate new DWR studios, negotiate favorable lease terms for new and existing locations and the implementation of our studio
portfolio transformation, 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
pace and level of government procurement, the outcome of pending litigation or governmental audits or investigations, political risk in the markets
38 2017 Annual Report
we serve, and other risks identified in our 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.
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 of such costs incurred by the company are for steel, plastics, textiles, wood particleboard, and aluminum components. The impact from
changes in all commodity prices increased the company's costs by approximately $9 million during fiscal 2017 compared to the prior year. The
impact from changes in commodity prices decreased the company's costs by approximately $20 million during fiscal 2016 as compared to fiscal
2015.
The market prices for commodities will fluctuate over time and the company acknowledges that such changes are likely to impact its costs for
key direct materials and assembly components. Consequently, it views the prospect of such changes as an outlook risk to the business.
Foreign Exchange Risk
The company primarily manufactures its products in the United States, United Kingdom, China and India. 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 impact 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 June 3, 2017, 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 35.0 million Hong Kong
dollar-denominated net asset exposure. Two forward contracts were placed to offset an 11.6 million euro-denominated net asset exposure.
Three forward contracts were placed to offset a 12.0 million U.S. dollar-denominated net liability exposure. One forward contract was placed to
offset an 8.5 million South African rand-denominated net asset exposure. Five forward contracts were placed to offset a 13.3 million U.S.dollar-
denominated net liability exposure. One forward contract was placed to offset a 5.8 million euro-denominated net liability exposure.
As of May 28, 2016, 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 52.9 million Hong Kong dollar-denominated
net asset exposure. Two forward contracts were placed to offset a 9.3 million euro-denominated net asset exposure. Five forward contracts
were placed to offset a 13.6 million U.S. dollar-denominated net asset exposure. One forward contract was placed to offset a 6.6 million South
African rand-denominated net asset exposure. One forward contract was placed to offset a 0.7 million Canadian dollar-denominated net asset
exposure. One forward contract was placed to offset a 1.0 million euro-denominated net liability exposure. Five forward contracts were placed
to offset a 13.1 million U.S.dollar-denominated net liability exposure.
A net loss of $0.7 million, $0.7 million and $2.1 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 fiscal years ended June 3, 2017, May 28, 2016 and
May 30, 2015, 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 increased the accumulated comprehensive loss component of total stockholders' equity by $7.2 million, $8.8 million and
$9.7 million as of the end of as of the end of fiscal 2017, 2016 and 2015, respectively.
Interest Rate Risk
During the fiscal year ended June 3, 2017, the company entered into an interest rate swap agreement with an aggregate notional amount
of $150.0 million, a forward start date of January 3, 2018 and a termination date of January 3, 2028. As a result of the transaction, the company
effectively will convert $150.0 million of its outstanding indebtedness from a LIBOR-based floating interest rate plus applicable margin to
a 1.949 percent fixed interest rate plus applicable margin under the agreement as of the forward start date. On January 3, 2018, the company
Herman Miller, Inc. and Subsidiaries 39
will borrow on its variable rate revolving credit facility in order to pay off $150.0 million of Series B Senior Notes. These variable rate borrowings
will be converted from variable to fixed through the use of the interest rate swap.
The company enters into interest rate swap agreements to manage its exposure to interest rate changes and its overall cost of borrowing. The
company's interest rate swap agreement was entered into to exchange variable rate interest payments for fixed rate payments over the life of
the agreement without the exchange of the underlying notional amounts. The notional amount of the interest rate swap agreement is used to
measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the
interest rate swap agreement is recognized as an adjustment to interest expense.
These interest rate swap derivative instruments are held and used by the company as a tool for managing interest rate risk. They are not used
for trading or speculative purposes. The counterparties to the swap instruments are large financial institutions that the company believes are of
high-quality creditworthiness. While the company may be exposed to potential losses due to the credit risk of non-performance by these
counterparties, such losses are not anticipated.
The combined fair market value and net asset amount of the effective interest rate swap instruments was $2.1 million at June 3, 2017. The swap
instrument has a forward start date of January 3, 2018 hence had no impact on total interest expense in fiscal 2017. All cash flows related to
the company's interest rate swap instruments are denominated in U.S. dollars. For further information, refer to Notes 5 and 11 of the Consolidated
Financial Statements.
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:
Interest rate = 6.42%(2)
Interest rate = 6.00%
2018
2019
2020
2021
2022
Thereafter
Total(1)
$ — $ — $ — $ — $ — $
$ — $
$ — $ — $ — $ 50.0
149.9 $
— $
149.9
50.0
(1) Amount does not include the recorded fair value of the swap instrument, which totaled $2.1 million at the end of fiscal 2017.
(2) The company will have debt outstanding related to its Series B Senior Notes at a fixed interest rate of 6.42 percent until January 3, 2018. At
that point in time, the company will borrow on its variable rate revolving credit facility in order to pay off notes. The company's revolving
credit facility has a variable interest rate, but due to the interest rate swap, the rate will be fixed at 1.949% as demonstrated in the table
above.
40 2017 Annual Report
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Herman Miller, Inc.
Consolidated Statements of Comprehensive Income
(In millions, except per share data)
June 3, 2017
May 28, 2016
May 30, 2015
Fiscal Years Ended
$
2,278.2 $
2,264.9 $
1,414.0
864.2
1,390.7
874.2
2,142.2
1,350.8
791.4
Net sales
Cost of sales
Gross margin
Operating expenses:
Selling, general and administrative
Restructuring and impairment expenses
Design and research
Total operating expenses
Operating earnings
Other expenses (income):
Interest expense
Interest and other investment income
Other, net
Net other expenses
Earnings before income taxes
Income tax expense
Equity earnings from nonconsolidated affiliates, net of tax
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to Herman Miller, Inc.
Earnings per share — basic
Earnings per share — diluted
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Pension and post-retirement liability adjustments
Unrealized gains on interest rate swap agreement
Unrealized holding gain on available for sale securities
Total other comprehensive loss
Comprehensive income
Comprehensive income attributable to noncontrolling interests
587.8
12.5
73.1
673.4
190.8
15.2
(2.2)
0.2
13.2
177.6
55.1
1.6
124.1
0.2
585.6
—
77.1
662.7
211.5
15.4
(0.8)
0.3
14.9
196.6
59.5
0.4
137.5
0.8
$
$
$
$
123.9
$
136.7
$
2.07 $
2.05 $
(7.2) $
(12.7)
2.1
0.1
(17.7)
106.4
0.2
2.28 $
2.26 $
(8.8) $
0.5
—
—
(8.3)
129.2
0.8
543.9
12.7
71.4
628.0
163.4
17.5
(0.6)
1.3
18.2
145.2
47.2
0.1
98.1
0.6
97.5
1.64
1.62
(9.7)
(8.6)
—
—
(18.3)
79.8
0.6
79.2
Herman Miller, Inc. and Subsidiaries 41
Comprehensive income attributable to Herman Miller, Inc.
$
106.2
$
128.4
$
Herman Miller, Inc.
Consolidated Balance Sheets
(In millions, except share and per share data)
Assets
Current Assets:
Cash and cash equivalents
Marketable securities
Accounts and notes receivable, less allowances of $3.3 in 2017 and $4.3 in 2016
Inventories, net
Prepaid 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, Redeemable Noncontrolling Interests and Stockholders' Equity
Current Liabilities:
Accounts payable
Accrued compensation and benefits
Accrued warranty
Unearned revenue
Other accrued liabilities
Total Current Liabilities
Long-term debt
Pension and post-retirement benefits
Other liabilities
Total Liabilities
Redeemable noncontrolling interests
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, 59,715,824 and
59,868,276 shares issued and outstanding in 2017 and 2016, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Key executive deferred compensation
Herman Miller, Inc. Stockholders' Equity
Noncontrolling interests
Total Stockholders' Equity
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity
42 2017 Annual Report
June 3, 2017
May 28, 2016
$
$
$
$
$
$
96.2
8.6
186.6
152.4
17.7
30.4
491.9
24.0
229.0
662.4
53.3
968.7
(654.1)
314.6
304.5
78.1
45.4
71.8
1,306.3
148.4
79.7
47.7
33.2
76.7
385.7
199.9
38.5
69.9
694.0
24.6
—
11.9
139.3
519.5
(82.2)
(1.0)
587.5
0.2
587.7
$
1,306.3
$
84.9
7.5
211.0
128.2
20.4
28.5
480.5
24.1
205.7
645.3
53.9
929.0
(648.9)
280.1
305.3
85.2
50.8
33.3
1,235.2
165.6
85.2
43.9
35.4
59.9
390.0
221.9
25.8
45.8
683.5
27.0
—
12.0
142.7
435.3
(64.5)
(1.1)
524.4
0.3
524.7
1,235.2
Herman Miller, Inc.
Consolidated Statements of Stockholders' Equity
Preferred Stock
Balance at beginning of year and end of year
Common Stock
Balance at beginning of year
Repurchase and retirement of common stock
Restricted stock units released
Balance at end of year
Additional Paid-in Capital
Balance at beginning of year
Exercise of stock options
Repurchase and retirement of common stock
Employee stock purchase plan issuances
Stock-based compensation expense
Excess tax benefit for stock-based compensation
Restricted stock units released
Deferred compensation plan
Directors' fees
Balance at end of year
Retained Earnings
Balance at beginning of year
Net income attributable to Herman Miller, Inc.
Dividends declared on common stock (per share - 2017: $0.68; 2016: $0.59; 2015: $0.56)
Noncontrolling interests redemption value adjustment
Balance at end year
Accumulated Other Comprehensive Loss
Balance at beginning of year
Other comprehensive loss
Balance at end of year
Key Executive Deferred Compensation
Balance at beginning of year
Deferred compensation plan
Balance at end of year
Herman Miller, Inc. Stockholders' Equity
Noncontrolling Interests
Balance at beginning of year
Initial origination of noncontrolling interests
Net income attributable to noncontrolling interests
Deconsolidation of entity with noncontrolling interests
Stock-based compensation expense
Purchase of noncontrolling interests
Balance at end of year
Total Stockholders' Equity
Fiscal Years Ended
June 3, 2017 May 28, 2016 May 30, 2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
—
12.0
$
11.9
$
$
$
$
$
(0.1)
—
11.9
142.7
9.4
(23.7)
1.9
9.1
(0.6)
0.3
(0.1)
0.3
139.3
435.3
123.9
(40.9)
1.2
$
$
$
$
—
0.1
12.0
135.1
6.6
(14.1)
1.7
11.9
0.8
0.2
(0.1)
0.6
142.7
330.2
136.7
(35.6)
4.0
519.5
$
435.3
$
(64.5) $
(56.2) $
(17.7)
(8.3)
(82.2) $
(64.5) $
(1.1) $
0.1
(1.0) $
587.5
0.3
—
—
—
(0.1)
—
0.2
587.7
$
$
$
$
(1.2) $
0.1
(1.1) $
524.4
0.5
—
0.3
(0.5)
—
—
0.3
524.7
$
$
$
$
11.9
—
—
11.9
122.4
5.7
(3.7)
1.6
8.6
0.4
0.2
(0.5)
0.4
135.1
269.6
97.5
(33.6)
(3.3)
330.2
(37.9)
(18.3)
(56.2)
(1.7)
0.5
(1.2)
419.8
—
6.0
0.1
—
0.2
(5.8)
0.5
420.3
Herman Miller, Inc. and Subsidiaries 43
Herman Miller, Inc.
Consolidated Statements of Cash Flows
(In millions)
Cash Flows from Operating Activities:
June 3, 2017
Fiscal Years Ended
May 28, 2016
May 30, 2015
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
$
124.1
$
137.5
$
Depreciation expense
Amortization expense
Provision for losses on accounts receivable and notes receivable
Earnings from nonconsolidated affiliates net of dividends received
Gain on sales of property and dealers
Deferred taxes
Pension and post-retirement expenses
Restructuring and impairment expenses
Stock-based compensation
Excess tax benefits from stock-based compensation
Increase (decrease) in long-term liabilities
Changes in current assets and liabilities:
Decrease (Increase) in accounts receivable
Increase in inventories
Increase in prepaid expenses and other
(Decrease) increase in accounts payable
Increase in accrued liabilities
Other
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Net receipts from notes receivable
Marketable securities purchases
Marketable securities sales
Capital expenditures
Proceeds from sales of property and dealers
Payments of loans on cash surrender value of life insurance
Acquisitions, net of cash received
Equity investment in non-controlled entities
Other, net
Net Cash Used for Investing Activities
Cash Flows from Financing Activities:
Repayments of long-term debt
Proceeds from credit facility
Repayments of credit facility
Dividends paid
Common stock issued
Common stock repurchased and retired
Excess tax benefits from stock-based compensation
Payment of contingent consideration obligation
Purchase of noncontrolling interests
Other, net
Net Cash Provided by (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
Other Cash Flow Information
Interest paid
Income taxes paid, net of cash received
44 2017 Annual Report
52.9
6.0
—
(1.5)
—
14.8
0.5
12.5
8.7
(0.5)
6.2
17.3
(29.9)
(0.5)
(11.2)
0.8
1.9
202.1
2.4
(2.0)
0.9
(87.3)
—
(15.3)
—
(13.1)
(1.9)
(116.3)
—
794.4
(816.4)
(39.4)
11.7
(23.7)
0.5
(2.0)
(1.5)
1.8
(74.6)
0.1
11.3
84.9
96.2
13.4
35.6
$
$
$
47.0
6.0
2.2
—
(5.8)
10.4
1.4
—
11.9
(1.4)
6.7
(30.5)
(6.0)
(11.7)
8.7
33.5
0.5
210.4
0.2
(7.8)
6.1
(85.1)
10.7
—
(3.6)
—
(1.3)
(80.8)
—
800.8
(868.8)
(34.9)
9.2
(14.1)
1.4
—
—
(0.1)
(106.5)
(1.9)
21.2
63.7
84.9
13.4
57.6
$
$
$
$
$
$
98.1
44.2
5.6
1.8
0.3
—
(8.8)
0.8
12.7
10.0
(0.7)
(1.2)
7.8
(9.0)
(2.5)
1.1
6.1
1.4
167.7
0.9
—
5.3
(63.6)
0.6
—
(154.0)
—
(2.8)
(213.6)
(50.0)
796.7
(706.7)
(33.3)
7.8
(3.7)
0.7
—
(5.8)
1.1
6.8
1.3
(37.8)
101.5
63.7
16.9
48.5
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 - Warranties, Guarantees, and Contingencies
Note 13 - Operating Segments
Note 14 - Accumulated Other Comprehensive Loss
Note 15 - Redeemable Noncontrolling Interests
Note 16 - Restructuring and Impairment Activities
Note 17 - Subsequent Event
Note 18 - Quarterly Financial Data (Unaudited)
Page No.
46
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54
54
55
56
56
60
60
65
67
70
71
74
74
74
75
75
Herman Miller, Inc. and Subsidiaries 45
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, sells, 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, owned retail studios, direct-mail catalogs and the company's e-commerce platforms.
Fiscal Year
The company's fiscal year ends on the Saturday closest to May 31. The fiscal year ended June 3, 2017 contained 53 weeks, while the fiscal
years ended May 28, 2016, and May 30, 2015 each contained 52 weeks.
Foreign Currency Translation
The functional currency for most of the 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 gains and losses resulting from remeasuring foreign currency transactions into the appropriate functional
currency resulted in a net loss of $0.7 million, $0.7 million and $2.1 million for the fiscal years ended June 3, 2017, May 28, 2016, and May 30,
2015, respectively. These amounts are included in “Other, net” in the Consolidated Statements of Comprehensive Income.
Cash Equivalents
The company holds cash equivalents as part of its cash management function. Cash equivalents include money market funds and time deposit
investments with original maturities of less than three months. The carrying value of cash equivalents, which approximates fair value, totaled
$33.6 million and $7.5 million as of June 3, 2017 and May 28, 2016, respectively. All 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 mutual funds. 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
46 2017 Annual Report
sales contracts are structured such that the customer payment or obligation is direct to us. In those cases, we may assume the credit risk.
Whether from dealers or customers, our trade credit exposures are not concentrated with any particular entity.
Inventories
Inventories are valued at the lower of cost or market and include material, labor and overhead. Inventory cost is determined using the last-in,
first-out (LIFO) method at manufacturing facilities in Michigan, whereas inventories of the company's other locations 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.
Goodwill and Indefinite-lived Intangible Assets
Goodwill is tested for impairment at the reporting unit level annually, or more frequently, when events or changes in circumstances indicate that
the fair value of a reporting unit has more likely than not declined below its carrying value. A reporting unit is defined as an operating segment
or one level below an operating segment. When testing goodwill for impairment, the company may first assess qualitative factors. If an initial
qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional
quantitative testing is performed. The company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. If
the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value.
To estimate the fair value of each reporting unit, the company utilizes a weighting of the income method and the market method. The income
method is based on a discounted future cash flow approach that uses a number of estimates, including revenue based on assumed growth
rates, estimated costs and discount rates based on the reporting unit's weighted average cost of capital. Growth rates for each reporting unit
are determined based on internal estimates, historical data and external sources. The growth estimates are also used in planning for our long-
term and short-term business planning and forecasting. We test the reasonableness of the inputs and outcomes of our discounted cash flow
analysis against comparable market data. The market method is based on financial multiples of companies comparable to each reporting unit
and applies a control premium. The carrying value of each reporting unit represents the assignment of various assets and liabilities, excluding
corporate assets and liabilities, such as cash, investments and debt.
Intangible assets with indefinite useful lives are not subject to amortization and are evaluated annually for impairment, or more frequently, when
events or changes in circumstances indicate that the fair value of an intangible asset may not be recoverable. The company utilizes the relief
from royalty methodology to test for impairment. The primary assumptions for the relief from royalty method include revenue forecasts, earnings
forecasts, royalty rates and discount rates. The company measures and records an impairment loss for the excess of the carrying value of the
asset over its fair value. The company's indefinite-lived intangible assets consist of certain trade names valued at approximately $78.1 million
and $85.2 million as of the end of fiscal 2017 and fiscal 2016, respectively. These assets have indefinite useful lives.
The company recognized asset impairment expense totaling $7.1 million associated with the Nemschoff trade name for the fiscal year 2017,
which was recorded within the North American Furniture Solutions operating segment. As of the end of fiscal 2017, the carrying value of the
Nemschoff trade name was zero. The company recognized asset impairment expense totaling $10.8 million associated with the POSH trade
name for the fiscal year 2015, which was recorded within the Corporate category within segment reporting. The POSH trade name asset is
included within the ELA Furniture Solutions segment and as of the end of fiscal 2015, the carrying value was zero. These impairment expenses
are recorded in the Restructuring and impairment expenses line item within the Consolidated Statements of Comprehensive Income. The trade
name assets represent level 3 fair value measurements and these assets are recorded at fair value only when an impairment charge is recognized.
Goodwill and other indefinite-lived assets included in the Consolidated Balance Sheets consist of the following:
(In millions)
Balance, May 30, 2015
Foreign currency translation adjustments
Acquisition of George Nelson Bubble Lamp product line
Sale of owned dealer
Balance, May 28, 2016
Foreign currency translation adjustments
Sale of owned dealer
Impairment charges
Balance, June 03, 2017
Goodwill
303.1
(0.4)
3.2
(0.6)
305.3
(0.7)
(0.1)
—
304.5
Indefinite-lived
Intangible Assets
85.2
—
—
—
85.2
—
—
(7.1)
78.1
$
$
$
$
$
$
Total Goodwill and Indefinite-
lived Intangible Assets
$
$
$
388.3
(0.4)
3.2
(0.6)
390.5
(0.7)
(0.1)
(7.1)
382.6
Herman Miller, Inc. and Subsidiaries 47
Goodwill stemming from the acquisition of the George Nelson Bubble Lamp Product Line in fiscal 2016 is included within the Consumer reportable
segment.
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. We capitalize certain 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 2017, outstanding commitments for future capital purchases approximated $16.3 million.
Other 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.
During the third quarter of fiscal 2015, the company entered into an agreement to sell property in Ningbo, China upon which the company had
previously intended to construct a new manufacturing and distribution facility. In the fiscal year preceding this agreement, the property had been
written down to its fair value. Subsequent to the end of fiscal 2015, the company completed the sale of the Ningbo property for cash consideration
of approximately $4.2 million. The cash consideration received approximated the carrying value of the property.
Amortizable intangible assets within Other amortizable intangibles, net in the Consolidated Balance Sheets consist primarily of patents,
trademarks and customer relationships. The customer relationships intangible asset is comprised of relationships with customers, specifiers,
networks, dealers and distributors. Refer to the following table for the combined gross carrying value and accumulated amortization for these
amortizable intangibles.
June 3, 2017
(In millions)
Gross carrying value
Accumulated amortization
Net
Gross carrying value
Accumulated amortization
Net
Other
Total
Patent and Trademarks Customer Relationships
55.3
$
19.7
35.6
20.5
13.3
7.2
$
$
$
$
$
May 28, 2016
Patent and Trademarks Customer Relationships
55.7
$
15.9
39.8
19.8
12.3
7.5
$
$
$
Other
$
$
7.5
4.9
2.6
7.5
4.0
3.5
$
$
$
$
83.3
37.9
45.4
83.0
32.2
50.8
Total
The company amortizes these assets over their remaining useful lives using the straight-line method over periods ranging from 5 years to 20
years, or on an accelerated basis, to reflect the expected realization of the economic benefits. It is estimated that the weighted-average remaining
useful life of patents and trademarks is approximately 6 years and the weighted-average remaining useful life of customer relationships is 9
years.
Estimated amortization expense on existing amortizable intangible assets as of June 3, 2017, for each of the succeeding five fiscal years, is as
follows:
(In millions)
2018
2019
2020
2021
2022
48 2017 Annual Report
$
$
$
$
$
6.3
5.8
5.7
5.7
5.6
Self-Insurance
The company is partially self-insured for general liability, workers' compensation and certain employee health and dental benefits under insurance
arrangements that provide for third-party coverage of claims exceeding the company's loss retention levels. The company's health benefit
retention levels do not include an aggregate stop loss policy. The company's retention levels designated within significant insurance arrangements
as of June 3, 2017, are as follows:
(In millions)
General liability and auto liability/physical damage
Workers' compensation and property
Retention Level (per occurrence)
1.00
$
0.75
$
The company accrues for its self-insurance arrangements based on actuarially-determined liabilities, which are recorded in “Other liabilities” in
the Consolidated Balance Sheets. The value of the liability as of June 3, 2017 and May 28, 2016 was $10.5 million and $10.6 million, respectively.
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.
Redeemable Noncontrolling Interests
Certain minority shareholders in the company's subsidiary Herman Miller Consumer Holdings, Inc. have the right, at specified times over a
period of five years, to require the company to acquire portions of their ownership interest in those entities at fair value. Their interests in these
subsidiaries are classified outside permanent equity in the Consolidated Balance Sheets and are carried at the current estimated redemption
amounts.
The redemption amounts have been estimated based on the fair value of the subsidiary, which was determined based on a weighting of the
discounted cash flow and market methods. The discounted cash flow analysis used the present value of projected cash flows and a residual
value. To determine the discount rate for the discounted cash flow method, a market-based approach was used to select the discount rates
used. Market multiples for comparable companies were used for the market method of valuation. The fair value of the subsidiary is sensitive to
changes in projected revenues and costs, the discount rate and the forward multiples of the comparable companies.
Changes in the estimated redemption amounts of the noncontrolling interests, subject to put options, are reflected at each reporting period with
a corresponding adjustment to Retained earnings. Future reductions in the carrying amounts are subject to a “floor” amount that is equal to the
fair value of the redeemable noncontrolling interests at the time they were originally recorded. See Note 15 - Redeemable Noncontrolling Interests
for additional information.
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. R&D costs included in “Design and research” expense in
the accompanying Consolidated Statements of Comprehensive Income are $58.6 million, $62.4 million and $56.7 million, in fiscal 2017, 2016,
and 2015, respectively.
Royalty payments made to designers of the company's products as the products are sold are a variable cost based on product sales. These
expenses totaled $14.5 million, $14.7 million and $14.7 million in fiscal years 2017, 2016 and 2015 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 and discounts. Programs such as rebates and discounts are
adjustments to the selling price and are therefore characterized as a reduction to net sales.
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.
Herman Miller, Inc. and Subsidiaries 49
In addition to independent retailers, the company also sells product through owned retail channels, including e-commerce and Consumer retail
studios. Revenue is recognized on these transactions upon shipment and transfer to the customer of both title and risk of loss. These sales may
include provisions involving a right of return. The company reduces revenue for an estimate of potential future product returns related to current
period product revenue. When developing the allowance for sales returns, the company considers historical returns and current economic trends.
Revenue is recorded net of sales taxes as the company is a pass-through entity for collecting and remitting sales tax.
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 items such 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 item within the
Consolidated Statements of Comprehensive Income. Included in these expenses are items such as compensation expense, rental 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 is 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. The company also evaluates the impact on EPS of all participating securities under the
two-class method. Refer to Note 8 of the Consolidated Financial Statements for further information regarding the computation of EPS.
Comprehensive Income
Comprehensive income consists of net earnings, foreign currency translation adjustments, unrealized holding gain (loss) on available-for-sale
securities and pension liability adjustments. Refer to Note 14 of the Consolidated Financial Statements for further information regarding
comprehensive income.
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.
50 2017 Annual Report
Fair Value
The company classifies and discloses its fair value measurements 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.
Derivatives and Hedging
The company calculates the fair value of financial instruments using quoted market prices whenever available. The company utilizes derivatives
to manage exposures to foreign currency exchange rates and interest rate risk. The fair values of all derivatives are recognized as assets or
liabilities at the balance sheet date. Changes in the fair value of these instruments are reported within Other expenses (income): Other, net in
the Consolidated Statements of Comprehensive Income, or Accumulated Other Comprehensive Loss within the Consolidated Balance Sheets,
depending on the use of the derivative and whether it qualifies for hedge accounting treatment.
Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in Accumulated Other
Comprehensive Loss, to the extent the hedges are effective, until the underlying transactions are recognized in the Consolidated Statements
of Comprehensive Income. Derivatives not designated as hedging instruments are marked-to-market at the end of each period with the results
included in Consolidated Statements of Comprehensive Income.
New Accounting Standards
Recently Issued Accounting Standards Not Yet Adopted
Standard
Simplifying the
Measurement of
Inventory
Improvements to
Employee Share-
Based Payment
Accounting
Description
Under the updated standard, an entity should measure inventory that
is measured using either the first-in, first-out ("FIFO") or average cost
methods at the lower of cost and net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and
transportation. The updated standard should be applied
prospectively.
The standard simplifies several aspects of the accounting for share-
based payment awards to employees, including the accounting for
income taxes, forfeitures, statutory tax withholding requirements and
classification in the statement of cash flows. Different adoption
methodologies exist (retrospectively, modified-retrospectively, or
prospectively) for the various different features of the standard being
updated.
Date of
Adoption
June 4,
2017
Effect on the Financial
Statements or Other Significant
Matters
The company has evaluated the
impact of the update and its expected
to be immaterial.
June 4,
2017
The company expects the most
significant impact from the share-
based compensation standard to be
driven by the treatment of excess tax
benefits/deficiencies and expects the
other impacts from the standard to be
nominal. The company intends to
adopt an entity-wide accounting
to account
policy election
for
forfeitures
in compensation cost
when they occur.
Herman Miller, Inc. and Subsidiaries 51
Recently Issued Accounting Standards Not Yet Adopted (continued)
Standard
Description
Revenue from
Contracts with
Customers
The 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 standard allows for two adoption methods, a full retrospective
or modified retrospective approach.
Date of
Adoption
June 3,
2018
Effect on the Financial
Statements or Other Significant
Matters
The company has completed a
preliminary review of the impact of the
new standard and expects changes
in how the company’s performance
obligations around product and
service revenue are accounted for.
Additionally, the company expects
changes in the way it recognizes
its
certain pricing elements of
commercial
These
changes are not expected to be
material to the financial statements.
The company expects to adopt the
standard in fiscal 2019 using the
modified-retrospective approach.
contracts.
June 3,
2018
The company is currently evaluating
the impact of adopting this guidance.
The standard provides guidance for the measurement, presentation
and disclosure of financial assets and liabilities. The standard
requires entities to measure equity investments that do not result in
consolidation and are not accounted for under the equity method at
fair value and recognize any change in fair value in net income. The
standard does not permit early adoption and at adoption a cumulative-
effect adjustment to beginning retained earnings should be recorded.
Financial
Instruments -
Overall:
Recognition and
Measurement of
Financial Assets
and Financial
Liabilities
Leases
Under the updated standard a lessee's rights and obligations under
most leases, including existing and new arrangements, would be
recognized as assets and liabilities, respectively, on the balance
sheet. The standard must be adopted under a modified retrospective
approach and early adoption is permitted.
June 2,
2019
The standard is expected to have a
significant
our
impact
Consolidated Financial Statements,
however the company is currently
evaluating the impact.
on
2. Acquisitions and Divestitures
Dealership
On January 1, 2017, the company completed the sale of a wholly-owned contract furniture dealership in Pennsylvania in exchange for a $3.0
million note receivable. A pre-tax gain of $0.7 million was recognized as a result of the sale within the caption Selling, general and administrative
within the Consolidated Statements of Comprehensive Income. The note receivable was deemed to be a variable interest in a variable interest
entity. The carrying value of the note was $1.4 million as of June 3, 2017 and represents the company's maximum exposure to loss. The company
is not deemed to be the primary beneficiary of the variable interest entity as the buyers of the dealership control the activities that most significantly
impact the entity's economic performance, including sales, marketing and operations.
George Nelson Bubble Lamp Product Line Acquisition
On September 17, 2015, the company acquired certain assets associated with the George Nelson Bubble Lamp product line, which together
constituted the acquisition of a business. Consideration transferred to acquire the assets consisted of $3.6 million in cash transferred during the
second quarter of fiscal 2016 and an additional component of performance-based contingent consideration with a fair value of $2.7 million as
of the acquisition date.
The assets acquired included an exclusive manufacturing agreement and customer relationships with fair values of $2.5 million and $0.6 million,
respectively, each having a useful life of 10 years. The excess of the purchase consideration over the fair value of the net assets acquired was
$3.2 million and recognized as goodwill within the Consumer reportable segment. The total amount of this goodwill is deductible for tax purposes.
Design Within Reach Acquisition
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 acquisition of DWR advances the company's strategy of being both an industry brand and a consumer brand by expanding
the company's reach into the consumer sector.
52 2017 Annual Report
The company purchased an ownership interest in DWR equal to approximately 81 percent for $155.2 million in cash. Subsequent to the initial
transaction, the company acquired an additional 4 percent of DWR stock from the remaining public shareholders for approximately $5.8 million
in cash, all of which was paid during the first and second quarters of fiscal 2015. The remaining 15 percent of DWR stock was contributed by
DWR executives into the newly formed consumer business subsidiary and the company contributed the assets of the existing Herman Miller
Consumer business. After these transactions, the redeemable noncontrolling interests in the newly formed subsidiary, known as Herman Miller
Consumer Holdings, Inc. ("HMCH"), were approximately 7 percent. The remaining HMCH shareholders have a put option to require the company
to purchase their remaining interest over a five years period from the date of issuance of such shares. As a result, these noncontrolling interests
are not included within Stockholders' Equity within the Condensed Consolidated Balance Sheets, but rather are included within Redeemable
noncontrolling interests.
DWR acquisition-related expenses were $2.2 million during fiscal year 2015. These expenses included legal and professional services fees.
Assets Acquired and Liabilities Assumed on July 28, 2014
(In millions)
Purchase price
Fair value of the assets acquired:
Fair Value
$
Cash
Accounts receivable
Inventory
Current deferred tax asset
Other current assets
Goodwill
Other intangible assets
Property
Other long term assets
Total assets acquired
Fair value of liabilities assumed:
Accounts payable
Accrued compensation and benefits
Other accrued liabilities
Long term deferred tax liability
Other long term liabilities
Total liabilities assumed
Redeemable noncontrolling interests
Noncontrolling interests
Net assets acquired
$
155.2
1.2
2.2
47.4
1.5
5.5
75.6
68.5
32.0
2.4
236.3
20.8
1.6
12.3
14.5
0.4
49.6
25.7
5.8
155.2
The goodwill stemming from the transaction in the amount of $75.6 million was recorded as "Goodwill" in the Condensed Consolidated Balance
Sheets and allocated to the Consumer reportable segment. The goodwill recognized is attributable primarily to the assembled workforce and
expected synergies from DWR and the total amount of this goodwill is not deductible for tax purposes.
Other intangible assets acquired as a result of the acquisition of DWR were valued at $68.5 million. These amounts are reflected in the values
presented in the following table:
Intangible Assets Acquired from the DWR Acquisition
(In millions)
Trade Names and Trademarks
Exclusive Distribution Agreements
Customer Relationships
Product Development Designs
Total Intangible Assets Acquired
Fair Value
Useful Life
Indefinite
1.5 years
10 - 16 years
7 years
55.1
0.2
12.0
1.2
68.5
$
$
Herman Miller, Inc. and Subsidiaries 53
3. Inventories
(In millions)
Finished goods and work in process
Raw materials
Total
June 3, 2017
May 28, 2016
$
$
119.0 $
33.4
152.4 $
102.1
26.1
128.2
Inventories valued using LIFO amounted to $25.2 million and $22.8 million as of June 3, 2017 and May 28, 2016, respectively. If all inventories
had been valued using the first-in first-out method, inventories would have been $164.6 million and $140.4 million at June 3, 2017 and May 28,
2016, respectively.
4. Investments in Nonconsolidated Affiliates
The company has certain investments in entities that are accounted for using the equity method (“nonconsolidated affiliates”). The investments
are included in Other assets in the Consolidated Balance Sheets and the equity earnings are included in Equity earnings from nonconsolidated
affiliates, net of tax in the Consolidated Statements of Comprehensive Income. Refer to the tables below for the investment balances that are
included in the Consolidated Balance Sheets and for the equity earnings that are included in the Consolidated Statements of Comprehensive
Income.
(in millions)
Investments in nonconsolidated affiliates
June 3, 2017
May 28, 2016
$
16.2 $
(in millions)
Equity earnings from nonconsolidated affiliates
June 3, 2017
May 28, 2016
May 30, 2015
$
1.6 $
0.4 $
4.2
0.1
The company had an ownership interest in five nonconsolidated affiliates at June 3, 2017. 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.
Naughtone Holdings Limited
Kvadrat Maharam
June 3, 2017
50.0%
50.0%
50.0%
50.0%
50.0%
May 28, 2016
50.0%
50.0%
50.0%
50.0%
—%
The Kvadrat Maharam nonconsolidated affiliates are distribution entities that are engaged in selling decorative upholstery, drapery and wall
covering products. At June 3, 2017 and May 28, 2016, the company's investment value in Kvadrat Maharam Pty was $1.8 million more than
the company's proportionate share of the underlying net assets. 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.
Naughtone
On June 3, 2016, the company acquired 50 percent of the outstanding equity of Naughtone Holdings Limited ("Naughtone"), a leader in soft
seating products, stools, occasional and meeting tables, for $12.4 million in consideration. Consequently, the company acquired a noncontrolling
equity interest in Naughtone that is accounted for under the equity method. In the second quarter of fiscal 2017, the company paid additional
purchase consideration of approximately $0.6 million as part of the final net equity adjustment.
As of the June 3, 2016 acquisition date, the company's investment value in Naughtone was $11.3 million more than the company's proportionate
share of the underlying net assets. This amount represented the difference between the price that the company paid to acquire 50 percent of
the outstanding equity and the carrying value of the net assets of Naughtone. Of this difference, $2.9 million was being amortized over the
remaining useful lives of the assets while, $8.4 million was considered a permanent difference.
At June 3, 2017, the company's investment value in Naughtone was $9.8 million more than the company's proportionate share of the underlying
net assets, of which $2.3 million was being amortized over the remaining useful lives of the assets, while $7.5 million was considered a permanent
basis difference. The change in the permanent basis difference from the prior year was due to changes in foreign currency exchange rates.
54 2017 Annual Report
Transactions with Nonconsolidated Affiliates
Sales to and purchases from nonconsolidated affiliates were as follows for the periods presented below:
(in millions)
Sales to nonconsolidated affiliates
Purchases from nonconsolidated affiliates
June 3, 2017
May 28, 2016
$
$
4.0 $
4.2 $
2.5 $
0.9 $
May 30, 2015
2.5
0.5
Balances due to or due from nonconsolidated affiliates were as follows for the periods presented below:
(in millions)
Receivables from nonconsolidated affiliates
Payables to nonconsolidated affiliates
5. Long-Term Debt
Long-term debt consisted of the following obligations:
(In millions)
Series B Senior Notes, 6.42%, due January 3, 2018
Debt securities, 6.0%, due March 1, 2021
Syndicated Revolving Line of Credit, due September 2021
Total
June 3, 2017
May 28, 2016
$
$
0.8 $
0.5 $
0.4
0.1
June 3, 2017
May 28, 2016
$
$
149.9 $
50.0
—
199.9 $
149.9
50.0
22.0
221.9
During the second quarter of fiscal 2017, the company entered into a fourth amendment and restatement of its syndicated revolving line of
credit, which provides the company with up to $400 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 $200 million. The facility expires in September 2021 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 if borrowings are
outstanding. As of June 3, 2017, there were zero outstanding borrowings against this facility and available borrowings were $391.7 million due
to $8.3 million outstanding letters of credit. As of May 28, 2016, total usage against this facility was $30.7 million, of which $8.7 million 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 4:1 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
defined in the credit agreement as EBITDA adjusted by certain items which include non-cash share-based compensation, non-recurring
restructuring costs and extraordinary items. At June 3, 2017 and May 28, 2016, the company was in compliance with all of these restrictions
and performance ratios.
During fiscal 2015, the company entered into a lease agreement for the occupancy of a new studio facility in Palo Alto, California. During fiscal
2017, the company became the deemed owner of the leased building for accounting purposes as a result of the company's involvement during
the construction phase of the project. The lease is therefore accounted for as a financing transaction and the recorded asset and related financing
obligation have been recorded in the Consolidated Balance Sheets within both Construction in progress and Other accrued liabilities for the
fiscal period ended June 3, 2017. The fair value of the building and the related financing liability was $7.0 million at June 3, 2017 and represented
a nonrecurring level 3 fair value measurement. The fair value of the building and financing liability was determined through a blend of an income
approach, comparable property sales approach and a replacement cost approach. Upon completion of construction, the liability will be reclassified
into Long-term debt.
Herman Miller, Inc. and Subsidiaries 55
Annual maturities of long-term debt for the five fiscal years subsequent to June 3, 2017 are as shown in the table below. Although the Series B
Senior Notes mature within 12 months, the company has classified these borrowings within Long-term debt in the Consolidated Balance Sheets
as the company has both the intent and ability to refinance this short-term obligation on a long-term basis, through the use of its syndicated
revolving line of credit.
(In millions)
2018
2019
2020
2021
2022
Thereafter
6. Operating Leases
$
$
$
$
$
$
—
—
—
50.0
—
149.9
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 June 3, 2017, are as follows:
(In millions)
2018
2019
2020
2021
2022
Thereafter
$
$
$
$
$
$
47.0
42.2
35.3
32.5
30.7
141.5
Total rental expense charged to operations was $45.3 million, $45.6 million and $40.2 million, in fiscal 2017, 2016 and 2015, 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
The company offers certain employees retirement benefits under 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 remaining domestic
and international pension plans, as well as its post-retirement medical plan, is the last day of the fiscal year.
56 2017 Annual Report
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)
Change in benefit obligation:
Benefit obligation at beginning of year
Interest cost
Foreign exchange impact
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Foreign exchange impact
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status:
Under funded status at end of year
$
$
$
$
$
Pension Benefits
2017
2016
Post-Retirement Benefits
2017
2016
Domestic
International
Domestic
International
1.0 $
0.1
—
—
(0.1)
1.0 $
— $
—
—
0.1
(0.1)
— $
104.4 $
2.7
(12.5)
23.4
(4.2)
113.8 $
85.0 $
9.6
(10.3)
0.4
(4.2)
80.5
$
1.1 $
—
—
—
(0.1)
1.0 $
— $
—
—
0.1
(0.1)
— $
112.0 $
3.8
(4.6)
(4.4)
(2.4)
104.4 $
92.0 $
(1.3)
(3.7)
0.4
(2.4)
85.0
$
5.9 $
0.2
—
(0.4)
(0.7)
5.0 $
— $
—
—
0.7
(0.7)
— $
7.7
0.2
—
(1.3)
(0.7)
5.9
—
—
—
0.7
(0.7)
—
(1.0) $
(33.3) $
(1.0) $
(19.4) $
(5.0) $
(5.9)
Components of the amounts recognized in the Consolidated Balance Sheets:
— $
Current liabilities
(33.3) $
Non-current liabilities
(0.1) $
(0.9) $
$
$
(0.1) $
(0.9) $
— $
(19.4) $
(0.7) $
(4.3) $
Components of the amounts recognized in Accumulated other comprehensive loss before the effect of income taxes:
Unrecognized net actuarial loss (gain)
Accumulated other comprehensive loss
39.3
39.3
50.9
50.9
(0.6) $
(0.6) $
0.3
0.3
0.3
0.3
$
$
$
$
$
$
$
$
$
$
(0.7)
(5.2)
(0.2)
(0.2)
The accumulated benefit obligation for the company's domestic pension benefit plans totaled $1.0 million as of the end of both fiscal 2017 and
fiscal 2016. For its international plans, the accumulated benefit obligation totaled $110.0 million and $100.8 million as of fiscal 2017 and fiscal
2016, respectively. The following table summarizes the totals for pension plans with accumulated benefit obligations in excess of plan assets:
Pension Plans with Accumulated Benefit Obligation in Excess of Plan Assets
(In millions)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2017
2016
$
$
$
114.8 $
111.0 $
$
80.5
105.4
101.8
85.0
Herman Miller, Inc. and Subsidiaries 57
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:
Interest cost
Net periodic benefit cost
International:
Interest cost
Expected return on plan assets
Net amortization
Net periodic benefit cost
$
$
$
$
Pension Benefits
2016
2017
2015
Post-Retirement Benefits
2016
2015
2017
0.1 $
$
0.1
— $
— $
— $
— $
0.2 $
0.2 $
0.2 $
0.2 $
0.2
0.2
2.7
(4.7)
2.2
0.2
$
$
3.8
(5.4)
2.8
1.2
$
$
4.3
(5.5)
1.8
0.6
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income):
(In millions)
Domestic:
Net actuarial gain
Total recognized in other comprehensive loss
International:
Net actuarial loss
Net amortization
Total recognized in other comprehensive loss
Pension Benefits
Post-Retirement Benefits
2017
2016
2017
2016
— $
— $
— $
— $
(0.4) $
(0.4) $
(1.3)
(1.3)
18.6
(2.2)
16.4
$
$
2.2
(2.8)
(0.6)
$
$
$
$
The net actuarial loss, included in accumulated other comprehensive loss (pretax), expected to be recognized in net periodic benefit cost during
fiscal 2018 is $4.0 million.
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:
2017
2016
2015
Domestic
International
Domestic
International
Domestic
(Percentages)
Discount rate
Compensation increase rate
Expected return on plan assets
3.51
n/a
n/a
3.43
2.95
6.10
The weighted-average used in the determination of the projected benefit obligations:
Discount rate
Compensation increase rate
2.49
3.25
3.53
n/a
3.41
n/a
n/a
3.51
n/a
3.50
3.20
6.10
3.43
2.95
3.44
n/a
n/a
3.41
n/a
International
4.40
3.35
6.10
3.50
3.20
Effective May 28, 2016, the company changed the method it uses to estimate the interest component of net periodic benefit cost for pension
and other postretirement benefits. Historically, the company has estimated the interest cost component utilizing a single weighted-average
discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The company has elected to
utilize a full yield curve approach in the estimation of interest cost by applying the specific spot rates along the yield curve used in the determination
of the benefit obligation to the relevant projected cash flows. The company has made this change to provide a more precise measurement of
interest cost by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The company
accounted for this change as a change in accounting estimate and accordingly, accounted for it prospectively. The impact of this change on
consolidated earnings for fiscal 2017 was a reduction of the interest cost component of net periodic benefit cost of approximately $0.4 million.
58 2017 Annual Report
In calculating post-retirement benefit obligations for fiscal 2017, a 7.5 percent annual rate of increase in the per capita cost of covered healthcare
benefits was assumed for 2017, decreasing gradually to 4.3 percent by 2038 and remaining at that level thereafter. For purposes of calculating
post-retirement benefit costs, a 7.9 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2016,
decreasing gradually to 4.3 percent by 2038 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 2017 service and interest cost components
Effect on post-retirement benefit obligation at June 3, 2017
$
$
1 Percent Increase
1 Percent Decrease
—
(0.2)
— $
0.2 $
Plan Assets and Investment Strategies
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. The target asset allocation at the end of fiscal 2017 and asset categories for the company's primary international pension plan for fiscal
2017 and 2016 are as follows:
Asset Category
Fixed income
Common collective trusts
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
Foreign government obligations
Common collective trusts-balanced
Total
Cash Flows
Targeted Asset
Allocation Percentage
20
80
Percentage of Plan Assets at Year End
2017
2016
27
73
100
International Plan as of June 3, 2017
Level 2
Level 1
Total
0.2
—
—
0.2
$
$
— $
21.4
58.9
80.3
$
International Plan as of May 28, 2016
Level 2
Level 1
Total
0.2
—
—
0.2
$
$
— $
20.5
64.3
84.8
$
$
$
$
$
24
76
100
0.2
21.4
58.9
80.5
0.2
20.5
64.3
85.0
The company reviews pension funding requirements to determine the contribution to be made in the next year. Actual contributions will be
dependent upon investment returns, changes in pension obligations and other economic and regulatory factors. During fiscal 2017, the company
made total cash contributions of $1.1 million to its benefit plans. In fiscal 2016, the company made total cash contributions of $1.2 million to its
benefit plans.
Herman Miller, Inc. and Subsidiaries 59
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 June 3, 2017.
(In millions)
2018
2019
2020
2021
2022
2023-2027
Pension Benefits
Domestic
Pension Benefits
International
Post-Retirement
Benefits
$
$
$
$
$
$
0.1
0.1
0.1
0.1
0.1
0.3
$
$
$
$
$
$
1.7
2.1
2.1
2.1
2.6
15.5
$
$
$
$
$
$
0.7
0.6
0.6
0.5
0.5
1.7
Profit Sharing, 401(k) Plan, and Core Contribution
Substantially all of the company’s domestic employees are eligible to participate in a defined contribution retirement plan, primarily the Herman
Miller, Inc. profit sharing and 401(k) plan. Employees under the Herman Miller, Inc. profit sharing plan are eligible to begin participating on their
date of hire. The Profit Sharing plan provides for discretionary contributions for eligible participants, payable in the company's common stock,
of not more than 6 percent of employees' wages based on the company's financial performance. Under the Herman Miller, Inc. 401(k) plan the
company matches 100 percent of employee contributions to their 401(k) accounts up to 3 percent of their pay. A core contribution of 4 percent
is also included for most participants of the plan. The company’s other defined contribution retirement plans may provide for matching contributions,
non-elective contributions and discretionary contributions as declared by management.
The cost of the Herman Miller, Inc. profit sharing contribution during fiscal 2017, 2016 and 2015 was $6.0 million, $10.9 million and $4.8 million,
respectively. The expense recorded for the company's 401(k) matching contributions and core contributions was approximately $22.8 million,
$21.9 million and $20.8 million in fiscal years 2017, 2016 and 2015, 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 attributable to Herman Miller, Inc. $
2017
2016
2015
123.9 $
136.7 $
97.5
Denominator:
Denominator for basic EPS, weighted-average common shares outstanding
Potentially dilutive shares resulting from stock plans
Denominator for diluted EPS
59,871,805
682,784
60,554,589
59,844,540
684,729
60,529,269
59,475,297
649,069
60,124,366
Equity awards of 764,154 shares, 528,676 shares and 715,685 shares of common stock were excluded from the denominator for the computation
of diluted earnings per share for the fiscal years ended June 3, 2017, May 28, 2016 and May 30, 2015, 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 of all participating securities under the two-class method, noting there was no impact on EPS.
Common Stock
The company has a share repurchase plan authorized by the Board of Directors on September 28, 2007, which provided share repurchase
authorization of $300.0 million with no specified expiration date. During fiscal year 2017, 2016 and 2015, shares repurchased and retired totaled
765,556, 482,040 and 121,488 shares respectively.
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. At June 3, 2017 there were 3,991,307 shares authorized under
the various stock-based compensation plans.
60 2017 Annual Report
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. 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)
Employee stock purchase program
Stock option plans
Restricted stock grants
Restricted stock units
Performance share units
Total
Tax benefit
June 3, 2017
0.3
$
2.0
—
3.6
2.8
8.7
$
$
3.1
May 28, 2016
0.3
1.9
—
3.2
6.5
11.9
4.3
$
$
$
$
$
$
May 30, 2015
0.3
2.6
0.1
3.7
3.3
10.0
3.6
As of June 3, 2017, total pre-tax stock-based compensation cost not yet recognized related to non-vested awards was approximately $4.8
million. The weighted-average period over which this amount is expected to be recognized is 1.06 years.
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. Shares of common stock purchased under the employee stock purchase plan were 68,547,
70,768 and 62,467 for the fiscal years ended 2017, 2016 and 2015 respectively.
Stock Option Plans
The company has stock option plans under which options to purchase the company's stock may be granted to employees and non-employee
directors 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 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.
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)
Weighted-average grant-date fair value of stock options:
2017
1.01%
4.0 years
26%
2.13%
2016
1.51%
4.0 years
33%
2.03%
2015
1.46%
4.0 years
36%
1.85%
Granted with exercise prices equal to the fair market value of the stock on the date of grant $
5.50
$
6.73
$
7.74
(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 61
The following is a summary of the transactions under the company's stock option plans:
Outstanding at May 28, 2016
Granted at market
Exercised
Forfeited or expired
Outstanding at June 3, 2017
Ending vested + expected to vest
Exercisable at end of period
Shares Under
Option
Weighted-Average
Exercise Prices
$
921,380
745,141
$
(327,299) $
(9,520) $
$
$
$
1,329,702
1,325,647
498,522
25.80
31.86
28.84
38.11
28.36
28.35
22.95
Weighted-Average
Remaining Contractual
Term (Years)
Aggregate
Intrinsic Value
(In millions)
4.20
$
5.5
7.26 $
$
7.25
$
4.37
5.8
5.8
4.9
The weighted-average remaining recognition period of the outstanding stock options at June 3, 2017 was 0.90 years. The total pre-tax intrinsic
value of options exercised during fiscal 2017, 2016 and 2015 was $1.3 million, $2.3 million and $2.4 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. Total
cash received during fiscal 2017 from the exercise of stock options was $6.6 million.
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:
Outstanding at May 28, 2016
Vested
Forfeited
Outstanding at June 3, 2017
2017
Weighted Average Grant-
Date Fair Value
21.35
21.38
20.17
—
Shares
20,823 $
(20,323) $
(500) $
— $
The fair value of the shares that vested during the twelve months ended June 3, 2017, was $0.6 million. There were no restricted stock grants
granted during fiscal 2017, 2016 or 2015.
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.
62 2017 Annual Report
The following is a summary of restricted stock unit transactions for the fiscal years indicated:
Outstanding at May 28, 2016
Granted
Forfeited
Released
Outstanding at June 3, 2017
Ending vested + expected to vest
Share
Units
Weighted Average
Grant-Date
Fair Value
Aggregate
Intrinsic Value in
Millions
Weighted-Average
Remaining Contractual
Term (Years)
$
377,861
114,778
$
(12,951) $
(94,736) $
384,952
$
379,037
27.83 $
31.83
29.25
28.70
28.73 $
29.30 $
12.0
12.6
12.4
1.40
1.14
1.13
The weighted-average remaining recognition period of the outstanding restricted stock units at June 3, 2017, was 0.90 years. The fair value of
the share units that vested during the twelve months ended June 3, 2017, was $3.0 million. The weighted average grant-date fair value of
restricted stock units granted during 2017, 2016, and 2015 was $31.83, $29.03 and $30.38 respectively.
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 or
the company's financial performance based on certain total shareholder return results as compared to a selected group of peer companies.
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, 2016
Granted
Forfeited
Released
Outstanding at June 3, 2017
Ending vested + expected to vest
Share
Units
Weighted Average
Grant-Date Fair Value
31.74
$
433,714
29.40
141,218
$
35.75
(43,945) $
29.34
(113,040) $
31.18
$
417,947
31.23
$
413,358
Aggregate Intrinsic
Value in Millions
Weighted-Average Remaining
Contractual Term (Years)
$
$
$
13.7
13.7
13.5
1.20
1.03
1.03
The weighted-average remaining recognition period of the outstanding performance share units at June 3, 2017, was 0.81 years. The fair value
for shares that vested during the twelve months ended June 3, 2017, was $3.6 million. The weighted average grant-date fair value of performance
share units granted during 2017, 2016, and 2015 was $29.40, $30.81 and $32.71 respectively.
Herman Miller Consumer Holdings Stock (HMCH) Option Plan
Certain employees were granted options to purchase stock of HMCH at a price not less than the market price of HMCH common stock on the
date of grant. For the grants of options under the award program, options are potentially exercisable between one year and five years from date
of grant and expire at the end of the window period that follows the fifth anniversary of the grant date. Vesting is based on the performance of
HMCH over a period of five years. Certain of these options have been classified as liability awards as the holders have the right to put the
underlying shares to the company immediately upon exercise. Given this, the awards are measured at fair value at the end of each reporting
period and compensation expense is adjusted accordingly to reflect the fair value over the requisite service period. The company estimates the
issuance date fair value of HMCH stock options on the date of grant using the Black-Scholes model. The expense for these awards was a benefit
of $0.6 million during fiscal 2017 and the related liability for these awards was $0.3 million as of the end of fiscal 2017. The liability for the HMCH
stock options is recorded within the Consolidated Balance Sheets within the "Other liabilities" line item.
Herman Miller, Inc. and Subsidiaries 63
The following weighted-average assumptions were used to value the liability associated with HMCH stock options as of June 3, 2017 and May
28, 2016.
2017
2016
Risk-free interest rates (1)
Expected term of options (2)
Expected volatility (3)
Dividend yield
Strike price
Per share value (4)
(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.
(3) Amount is determined based on analysis of historical price volatility of the common stock of peer companies over a period equal to the
1.29%
2.1 years
35%
not applicable
24.39
3.24
1.07%
3.1 years
35%
not applicable
24.39
6.52
$
$
expected term of the options.
(4) Based on the Black-Scholes formula.
Shares Under
Option
Weighted-Average
Exercise Prices
Weighted-Average Remaining
Contractual Term (Years)
Outstanding at May 28, 2016
Granted
Exercised
Forfeited
Outstanding at June 3, 2017
Exercisable at end of period
$
500,376
40,425
$
(2,957) $
(11,600) $
$
526,244
$
46,758
24.07
24.63
6.40
24.39
24.20
22.30
Aggregate Intrinsic
Value (In millions)
0.4
$
3.20
2.20
2.20
$
$
0.1
0.1
The total pre-tax intrinsic value of HMCH options exercised during fiscal 2017 was $0.1 million. The aggregate intrinsic value in the preceding
table represents the total pre-tax intrinsic value, based on the HMCH market price, less the strike 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.
Deferred Compensation Plan
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 ($270,000 in 2017). 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.
The Nonemployee Officer and Director Deferred Compensation Plan allows the Board of Directors of the company to defer a portion of their
annual director fee. Investment options are the same as those available under the Herman Miller Profit Sharing and 401(k) Plan, including
company stock.
In accordance with the terms of the Executive Equalization Plan and Nonemployee Officer and Director Deferred Compensation Plan, the salary
and bonus deferrals, company contributions and director fee deferrals 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. Investments in securities other than the company's
common stock are included within the Other assets line item, while investments in the company's stock are included in the line item Key executive
deferred compensation in the company's Consolidated Balance Sheets. 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 Net earnings in the Consolidated Statements of Comprehensive Income.
64 2017 Annual Report
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:
Shares of common stock
Shares through the deferred compensation program
10. Income Taxes
The components of earnings before income taxes are as follows:
(In millions)
Domestic
Foreign
Total
The provision (benefit) for income taxes consists of the following:
(In millions)
Current: Domestic - Federal
Domestic - State
Foreign
Deferred: Domestic - Federal
Domestic - State
Foreign
Total income tax provision
2017
2016
2015
9,982
2,582
21,988
3,118
13,752
—
2017
2016
2015
131.4
46.2
177.6
$
$
154.9
41.7
196.6
$
$
142.5
2.7
145.2
2017
2016
2015
28.7
2.3
11.1
42.1
9.2
2.8
1.0
13.0
55.1
$
$
36.4
6.4
6.3
49.1
7.5
0.2
2.7
10.4
59.5
$
$
43.6
6.3
6.1
56.0
(5.9)
(0.6)
(2.3)
(8.8)
47.2
$
$
$
$
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:
Foreign statutory rate differences
Manufacturing deduction under the American Jobs Creation Act of 2004
State taxes
Tax on undistributed foreign earnings
United Kingdom patent box deduction for research and development
Sale of manufacturing facility in the United Kingdom
Other, net
Income tax expense
Effective tax rate
2017
2016
2015
$
62.2
$
68.8
$
50.8
(5.7)
(3.4)
3.8
—
(2.6)
—
0.8
55.1
31.1%
$
(4.3)
(4.8)
5.2
—
(1.7)
(1.6)
(2.1)
59.5
30.3%
$
(1.0)
(4.8)
4.2
(3.9)
(0.3)
—
2.2
47.2
32.6%
$
Herman Miller, Inc. and Subsidiaries 65
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at June 3,
2017 and May 28, 2016, are as follows:
(In millions)
Deferred tax assets:
Compensation-related accruals
Accrued pension and post-retirement benefit obligations
Deferred revenue
Inventory related
Reserves for uncollectible accounts and notes receivable
Other reserves and accruals
Warranty
State and local tax net operating loss carryforwards and credits
Federal net operating loss carryforward
Foreign tax net operating loss carryforwards and credits
Accrued step rent and tenant reimbursements
Other
Subtotal
Valuation allowance
Total
Deferred tax liabilities:
Book basis in property in excess of tax basis
Intangible assets
Other
Total
2017
2016
$
$
$
$
22.7
10.9
5.3
4.1
1.0
6.1
17.0
2.7
5.0
10.0
4.7
4.2
93.7
(10.0)
83.7
(37.4)
(47.3)
(3.2)
(87.9)
$
$
$
$
23.2
9.2
5.6
3.8
1.2
3.0
15.7
5.7
7.1
14.6
1.9
2.8
93.8
(10.6)
83.2
(24.8)
(47.4)
(2.2)
(74.4)
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 June 3, 2017, the company had state and local tax NOL carry-forwards of $36.0 million, the state tax benefit of which was $2.2 million, which
have various expiration periods from 2 to 21 years. The company also had state credits with a state tax benefit of $0.5 million, which expire in
3 to 6 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 $1.5 million.
At June 3, 2017, the company had federal NOL carry-forwards of $14.2 million, the tax benefit of which was $5.0 million, which expire in 12
years. For financial statement purposes, the NOL carry-forwards have been recognized as deferred tax assets.
At June 3, 2017, the company had federal deferred assets of $2.0 million, the tax benefit of which is $0.7 million, which is related to investments
in various foreign joint ventures. For financial statement purposes, the assets have been recognized as deferred tax assets, subject to a valuation
allowance of $0.7 million.
At June 3, 2017, the company had foreign net operating loss carry-forwards of $43.6 million, the tax benefit of which is $9.9 million, which have
expiration periods from 11 years to an unlimited term. The company also had foreign tax credits with a tax benefit of $0.1 million which expire
in 3 years. For financial statement purposes, NOL carry-forwards and foreign tax credits have been recognized as deferred tax assets, subject
to a valuation allowance of $7.4 million.
At June 3, 2017, the company had foreign deferred assets of $2.3 million, the tax benefit of which is $0.4 million, which is related to various
deferred taxes in Hong Kong and buildings in the United Kingdom. For financial statement purposes, the assets have been recognized as
deferred tax assets, subject to a valuation allowance of $0.4 million.
The company has not provided for United States income taxes on undistributed earnings of foreign subsidiaries totaling approximately $135.0
million. Recording deferred income taxes on these undistributed earnings is not required, because these earnings have been deemed to be
indefinitely 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.
66 2017 Annual Report
The components of the company's unrecognized tax benefits are as follows:
(In millions)
Balance at May 30, 2015
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 28, 2016
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 3, 2017
$
$
1.8
0.4
0.1
(0.1)
(0.1)
(0.4)
1.7
0.3
1.1
(0.1)
(0.1)
(0.1)
2.8
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 in its Consolidated Statements
of Comprehensive Income. Interest and penalties and the related liability, which are excluded from the table above, were as follows for the
periods indicated:
(In millions)
Interest and penalty expense (income)
Liability for interest and penalties
June 3, 2017
May 28, 2016
$
$
0.2
0.8
$
$
(0.1)
0.7
May 30, 2015
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.
During the year, the company has closed the audit of fiscal year 2016 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 2014.
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, redeemable noncontrolling interests and foreign currency exchange contracts. The company's financial instruments,
other than long-term debt, are recorded at fair value. The fair value of fixed rate debt was based on third-party quotes (Level 2). 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
June 3, 2017
May 28, 2016
$
$
199.9
213.0
$
$
221.9
241.7
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 exchange equity and fixed income
mutual funds and government obligations. These investments are recorded at fair value using quoted prices for similar securities.
Herman Miller, Inc. and Subsidiaries 67
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.
Interest rate swap agreement — The company's interest rate swap agreement value is determined using a market approach based on rates
obtained from active markets. The interest rate swap agreement is designated as a cash flow hedging instrument.
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.
Other — The company's redeemable noncontrolling interests are deemed to be a nonrecurring level 3 fair value measurement. Refer to Note
15 for further information regarding redeemable noncontrolling interests. The purchase price allocation performed to determine fair value of the
underlying assets and liabilities associated with the equity investment in Naughtone utilized nonrecurring level 3 fair value measurements. Refer
to Note 4 for further information regarding the investment in Naughtone. Nonrecurring level 3 fair value measurements were used to determine
the fair value of the Nemschoff trade name, which was impaired during fiscal 2017. Refer to Note 16 for further information regarding the
Nemschoff trade name impairment. Nonrecurring level 3 fair value measurements were used to determine the fair value of the building and the
related financing liability associated with a construction-type lease related to a new DWR studio in Palo Alto, California. Refer to Note 5 for
further information related to this lease.
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 June 3, 2017 and May 28, 2016:
(In millions)
Fair Value Measurements
June 3, 2017
May 28, 2016
Quoted Prices With Other
Observable Inputs (Level 2)
Management
Estimates (Level 3)
Quoted Prices With Other
Observable Inputs (Level 2)
Management
Estimates (Level 3)
Financial Assets
Available-for-sale securities:
Mutual funds - fixed income
Mutual funds - equity
Government obligations
Foreign currency forward contracts
Interest rate swap agreement
Deferred compensation plan
Total
$
$
Financial Liabilities
Foreign currency forward contracts $
Contingent consideration
Total
$
7.7 $
0.9
—
0.5
3.3
12.8
25.2 $
0.6 $
—
0.6 $
— $
—
—
—
—
—
— $
— $
0.5
0.5
$
6.4 $
0.7
0.4
0.5
—
7.9
15.9 $
0.8 $
—
0.8 $
The table below presents a reconciliation for liabilities measured at fair value using significant unobservable inputs (Level 3) (in millions):
(In millions)
Contingent Consideration
Beginning balance
Net realized gains
Foreign currency translation adjustments
Settlements
Purchases or additions
Ending balance
June 3, 2017
May 28, 2016
$
$
2.7
(0.2)
—
(2.0)
—
0.5
$
$
The contingent consideration liabilities represent future payment obligations that relate to business and product line acquisitions. These payments
are based on the future performance of the acquired businesses. The contingent consideration liabilities are valued using estimates based on
discount rates that reflect the risk involved and the projected sales and earnings of the acquired businesses. The estimates are updated and
the liabilities are adjusted to fair value on a quarterly basis.
68 2017 Annual Report
—
—
—
—
—
—
—
—
2.7
2.7
2.6
—
(0.1)
(2.5)
2.7
2.7
The following is a summary of the carrying and market values of the company's marketable securities as of the dates indicated:
June 3, 2017
May 28, 2016
(In millions)
Mutual funds - fixed income
Mutual funds - equity
Government obligations
Total
$
$
Cost
Unrealized
Gain
Unrealized
Loss
Market
Value
Cost
Unrealized
Gain
Unrealized
Loss
Market
Value
$
7.6
0.9
—
8.5 $
$
0.1
—
—
0.1 $
— $
—
—
— $
7.7
0.9
—
8.6
$
$
6.4 $
0.7
0.4
7.5 $
— $
—
—
— $
— $
—
—
— $
6.4
0.7
0.4
7.5
Adjustments to the fair value of available-for-sale securities are recorded as increases or decreases, net of income taxes, within Accumulated
other comprehensive loss in stockholders’ equity. These adjustments are also included within the caption Unrealized holding gain within the
Condensed Consolidated Statements of Comprehensive Income. Unrealized gains recognized in the company's Condensed Consolidated
Statement of Comprehensive Income related to available-for-sale securities were $0.1 million and zero for the fiscal years ended June 3, 2017
and May 28, 2016, respectively. The cost of securities sold is based on the specific identification method; realized gains and losses resulting
from such sales are included in the Condensed Consolidated Statements of Comprehensive Income within "Other, net".
The company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary and require the recognition
of an impairment loss in earnings. If the cost of an investment exceeds its fair value, the company evaluates, among other factors, general
market conditions, the duration and extent to which the fair value is less than its cost, the company's intent to hold the investment and whether
it is more likely than not that the company will be required to sell the investment before recovery of the cost basis. The company also considers
the type of security, related industry and sector performance and published investment ratings. Once a decline in fair value is determined to be
other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. If conditions within individual
markets, industry segments or macro-economic environments deteriorate, the company could incur future impairments.
The company views its available-for-sale portfolio as available for use in its current operations. Accordingly, the investments are recorded within
Current Assets within the Condensed Consolidated Balance Sheets.
Derivative Instruments and Hedging Activities
Foreign Currency Forward Contracts
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.
The notional amounts of the forward contracts held to purchase and sell U.S. dollars in exchange for other major international currencies were
$36.1 million and $64.3 million as of June 3, 2017 and May 28, 2016, respectively. 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 £19.4 million and £31.2 million as of
June 3, 2017 and May 28, 2016, respectively. The company also has other forward contracts related to other currency pairs at varying notional
amounts.
Interest Rate Swaps
During the fiscal year ended June 3, 2017, the company entered into an interest rate swap agreement with an aggregate notional amount of
$150.0 million, a forward start date of January 3, 2018 and a termination date of January 3, 2028. The company expects to borrow on its variable
rate LIBOR-based revolving credit facility in order to pay off the existing $150.0 million of Series B Senior Notes. The interest rate swap is
expected to be utilized to effectively convert the $150.0 million of outstanding indebtedness from a LIBOR-based floating interest rate, plus
applicable margin, to a 1.949 percent fixed interest rate plus applicable margin under the agreement as of the forward start date.
Herman Miller, Inc. and Subsidiaries 69
The company enters into interest rate swap agreements to manage its exposure to interest rate changes and its overall cost of borrowing. The
company's interest rate swap agreement was entered into to exchange variable rate interest payments for fixed rate payments over the life of
the agreement without the exchange of the underlying notional amounts. The notional amount of the interest rate swap agreement is used to
measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the
interest rate swap agreement is recognized as an adjustment to interest expense.
The interest rate swap was a designated cash flow hedge at inception and remains an effective accounting hedge as of June 3, 2017. Since a
designated derivative meets hedge accounting criteria, the fair value of the hedge is recorded in the Consolidated Statement of Stockholders’
Equity as a component of Accumulated other comprehensive loss, net of tax. The ineffective portion of the change in fair value of the derivative
is immediately recognized in earnings. The interest rate swap agreement is assessed for hedge effectiveness on a quarterly basis.
Effects of Derivatives on the Financial Statements
The effects of derivatives on the consolidated financial statements were as follows for the fiscal years ended 2017 and 2016 (amounts presented
exclude any income tax effects):
(In millions)
Designated derivatives:
Interest rate swap
Non-designated derivatives:
Foreign currency forward contracts
Foreign currency forward contracts
Current assets: Other
Current liabilities: Other accrued liabilities
Balance Sheet Location
June 3, 2017
May 28, 2016
Long-term assets: Other assets
$
$
$
3.3
0.5
0.6
$
$
$
—
0.5
0.8
(In millions)
Statement of Comprehensive
Income Location
June 3, 2017 May 28, 2016 May 30, 2015
Fiscal Year
Gain recognized on foreign currency forward
contracts
Other expenses (income): Other, net
$
(1.2) $
(0.7) $
(2.1)
The gain recorded, net of income taxes, in Other comprehensive loss for the effective portion of designated derivatives was as follows for the
periods presented below:
(In millions)
Interest rate swap
June 3, 2017
2.1
$
Fiscal Year
May 28, 2016
$
May 30, 2015
—
— $
For fiscal 2017, 2016 and 2015, there were zero gains or losses recognized against earnings for hedge ineffectiveness and zero gains or losses
reclassified from Accumulated other comprehensive loss into earnings. The company expects zero to be reclassified from Accumulated other
comprehensive loss to earnings, in the next fiscal year, related to the interest rate swap.
12. Warranties, Guarantees and Contingencies
Product Warranties
The company provides coverage to the end-user for parts and labor on products sold under its warranty policy and for other product-related
matters. 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
Settlements
Accrual balance, ending
70 2017 Annual Report
2017
2016
2015
$
$
43.9 $
22.8
(19.0)
47.7 $
39.3
25.5
(20.9)
43.9
$
$
37.7
25.0
(23.4)
39.3
Other Guarantees
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 June 3,
2017, the company had a maximum financial exposure related to performance bonds of approximately $9.7 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 significantly affect the company's financial statements.
Accordingly, no liability has been recorded as of June 3, 2017 and May 28, 2016.
The company periodically enters into agreements in the normal course of business that may include indemnification clauses regarding patent
or 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 significantly affect
the company's financial statements. Accordingly, no liability has been recorded as of June 3, 2017 and May 28, 2016.
The company has entered into standby letter of credit arrangements for the purpose of protecting various insurance companies and lessors
against default on insurance premium and lease payments. As of June 3, 2017, the company had a maximum financial exposure from these
standby letters of credit of approximately $8.3 million, all of which is considered usage against the company's revolving credit facility. 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 significantly affect the company's
financial statements. Accordingly, no liability has been recorded as of June 3, 2017 and May 28, 2016.
Contingencies
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 2017, outstanding commitments for future purchase obligations approximated $45.4 million.
13. Operating Segments
The company's reportable segments consist of North American Furniture Solutions, ELA ("EMEA, Latin America, and Asia Pacific") Furniture
Solutions, 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. ELA Furniture Solutions includes the operations associated with the design, manufacture, and sale of furniture
products, primarily for work-related settings, in the EMEA, Latin America and Asia-Pacific geographic regions. Specialty includes the operations
associated with the design, manufacture, and sale of high-craft furniture products and textiles including Geiger wood products, Maharam textiles,
and Herman Miller Collection products. The Consumer segment includes the operations associated with the sale of modern design furnishings
and accessories to third party retail distributors, as well as direct to consumer sales through eCommerce and DWR studios. The company also
reports a Corporate category consisting primarily of unallocated corporate expenses including acquisition-related costs and other unallocated
corporate costs.
Subsequent to the end of fiscal 2017, the company implemented an organizational change that will result in the Nemschoff subsidiary joining
the Specialty operating segment rather than the North American Furniture Solutions segment. Beginning in the first quarter of fiscal 2018, the
company will recast the results of the Specialty segment to include the results of the Nemschoff subsidiary.
Herman Miller, Inc. and Subsidiaries 71
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
Consumer
Corporate
Total
Depreciation and Amortization:
North American Furniture Solutions
ELA Furniture Solutions
Specialty
Consumer
Corporate
Total
Operating Earnings (Losses):
North American Furniture Solutions
ELA Furniture Solutions
Specialty
Consumer
Corporate
Total
Capital Expenditures:
North American Furniture Solutions
ELA Furniture Solutions
Specialty
Consumer
Corporate
Total
Total Assets:
North American Furniture Solutions
ELA Furniture Solutions
Specialty
Consumer
Corporate
Total
Goodwill:
North American Furniture Solutions
ELA Furniture Solutions
Specialty
Consumer
Corporate
Total
2017
2016
2015
$
1,342.2
$
1,331.8
$
385.5
232.4
318.1
—
412.6
231.8
288.7
—
2,278.2
$
2,264.9
$
$
$
$
$
$
32.0
8.8
7.5
10.2
0.4
58.9
137.7
30.8
17.7
5.3
(0.7)
190.8
47.1
8.5
9.7
22.0
$
$
$
$
$
27.9
8.5
7.4
8.6
0.6
53.0
152.0
35.3
16.4
8.1
(0.3)
211.5
56.8
15.0
3.1
10.2
—
87.3 $
—
85.1 $
$
533.6
230.3
157.9
276.4
108.1
$
531.7
218.4
147.3
245.3
92.5
1,306.3
$
1,235.2
$
135.8
40.1
49.8
78.8
—
304.5
$
$
135.8
40.9
49.8
78.8
—
305.3
$
$
$
$
$
$
$
$
$
$
$
$
$
1,241.9
409.9
219.9
270.5
—
2,142.2
26.5
8.2
7.4
7.3
0.4
49.8
125.2
25.9
13.5
14.7
(15.9)
163.4
31.7
20.3
3.7
7.9
—
63.6
504.5
235.4
151.6
231.8
69.4
1,192.7
135.8
41.9
49.8
75.6
—
303.1
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.
72 2017 Annual Report
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 estimated by product category for the respective fiscal years indicated:
(In millions)
Net Sales:
Systems
Seating
Freestanding and storage
Other (1)
Total
2017
2016
2015
$
$
639.0
894.8
428.8
315.6
$
656.8
855.5
456.9
295.7
$
2,278.2
$
2,264.9
$
563.4
805.5
484.1
289.2
2,142.2
(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
2017
2016
2015
1,690.1
$
1,757.0
$
588.1
507.9
2,278.2
$
2,264.9
$
1,640.6
501.6
2,142.2
2017
2016
2015
328.6
45.3
373.9
$
$
254.8
48.1
302.9
$
$
224.2
53.8
278.0
$
$
$
$
The company estimates that no single dealer accounted for more than 5 percent of the company's net sales in the fiscal year ended June 3,
2017. The company estimates that its largest single end-user customer accounted for $102 million, $88 million and $97 million of the company's
net sales in fiscal 2017, 2016 and 2015, respectively. This represents approximately 5 percent, 4 percent and 5 percent of the company's net
sales in fiscal 2017, 2016 and 2015, respectively.
Approximately 15 percent of the company's employees are covered by collective bargaining agreements, most of whom are employees of its
Nemschoff, Herman Miller Ningbo, and Herman Miller Dongguan subsidiaries.
Herman Miller, Inc. and Subsidiaries 73
14. Accumulated Other Comprehensive Loss
The following table provides an analysis of the changes in accumulated other comprehensive loss for the years ended June 3, 2017, May
28, 2016 and May 30, 2015:
Year Ended
(In millions)
June 3, 2017 May 28, 2016 May 30, 2015
Cumulative translation adjustments at beginning of period
$
(29.6) $
(20.8) $
Translation adjustments (net of tax of $ - , ($0.3) and $0.3)
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 (net of tax of $3.7,
($0.7) and $2.6)
Reclassification to earnings - operating expenses (net of tax of ($0.4), ($0.7) and ($0.4))
Balance at end of period
Interest rate swap agreement at beginning of period
Valuation adjustments (net of tax of ($1.2), $ - and $ -)
Balance at end of period
Available-for-sale Securities at beginning of period
Unrealized holding gain (net of tax of $ - , $ - and $ -)
Balance at end of period
Total accumulated other comprehensive loss
15. Redeemable Noncontrolling Interests
(7.2)
(36.8)
(34.9)
(14.5)
1.8
(47.6)
—
2.1
2.1
—
0.1
0.1
(8.8)
(29.6)
(35.4)
(2.0)
2.5
(34.9)
—
—
—
—
—
—
(11.1)
(9.7)
(20.8)
(26.8)
(10.0)
1.4
(35.4)
—
—
—
—
—
—
$
(82.2) $
(64.5) $
(56.2)
Redeemable noncontrolling interests are reported on the Consolidated Balance Sheets in mezzanine equity within the caption Redeemable
noncontrolling interests. The company recognizes changes to the redemption value of redeemable noncontrolling interests as they occur and
adjusts the carrying value to equal the redemption value at the end of each reporting period subject to a “floor” amount that is equal to the fair
value of the redeemable noncontrolling interests at the time they were originally recorded. The redemption amounts have been estimated based
on the fair value of the subsidiary, determined based on a weighting of the discounted cash flow and market methods. This represents a level
3 fair value measurement.
Changes in the company’s Redeemable noncontrolling interests for the years ended June 3, 2017 and May 28, 2016 are as follows:
(In millions)
Balance at beginning of period
Purchase of redeemable noncontrolling interests
Net income attributable to redeemable noncontrolling interests
Redemption value adjustment
Other adjustments
Balance at end of period
16. Restructuring and Impairment Activities
2017 Restructuring and Impairment Charges
Year Ended
June 3, 2017
May 28, 2016
$
$
27.0
(1.5)
0.2
(1.2)
0.1
24.6
$
$
30.4
—
0.5
(4.0)
0.1
27.0
The company recognized asset impairment expense totaling $7.1 million associated with the Nemschoff trade name for the fiscal year 2017.
Forecasts developed during the fourth quarter of fiscal 2017 indicated future revenue and profitability no longer supported the value of the trade
name intangible asset. The company also recognized restructuring expenses of $5.4 million related to targeted workforce reductions within the
North America, ELA, Specialty and Consumer segments. The restructuring actions were deemed to be complete at June 3, 2017 and final
payments are expected to be made over the course of the next fiscal year. These charges have been reflected separately as "Restructuring
and impairment expenses" in the Consolidated Statements of Comprehensive Income and are included within Operating earnings for the North
America, ELA, Specialty and Consumer segments within segment reporting in Note 13.
74 2017 Annual Report
The following table provides an analysis of the changes in restructuring costs reserve for the fiscal year ended June 3, 2017:
(In millions)
Beginning Balance
Restructuring expenses
Payments
Ending Balance
Year Ended
June 3, 2017
$
$
0.4
5.4
(3.4)
2.4
2015 Restructuring and Impairment Charges
The company recognized asset impairment expense totaling $10.8 million associated with the POSH trade name for the fiscal year 2015.
Although profitability associated with the POSH trade name increased as compared to the prior year, forecasts developed during the fourth
quarter of fiscal 2015 indicated that future revenue and profitability no longer supported the value of the trade name intangible asset.
The company also recognized restructuring expenses of $1.9 million during the third quarter of fiscal 2015 related to targeted workforce reductions
within the North American segment. These actions resulted in the recognition of restructuring expenses related to severance and outplacement
costs.
These charges have been reflected separately as "Restructuring and impairment expenses" in the Consolidated Statements of Comprehensive
Income and are included in the Corporate segment within the segment reporting within Note 13.
17. Subsequent Event
On June 12, 2017, the company entered into an interest rate swap agreement (“Swap Transaction”) to manage its exposure to fluctuations in
variable interest rates. The Swap Transaction is for an aggregate notional amount of $75.0 million with a forward start date of January 3, 2018
and a termination date of January 3, 2028.
On July 25, 2017, the company made a voluntary contribution of $12.0 million to the plan assets of the international pension benefit plan, which
will result in a reduction to the reported unfunded status of the international pension benefit plan in the next fiscal year.
On July 31, 2017, the company sold a branch of its wholly-owned, multi-location, contract furniture dealership in Canada. As a result of the
transaction, the company received an initial payment of approximately $2 million at closing. This payment excluded the purchase consideration
related to the value of accounts receivable of the divested dealership, which will be paid by the buyer in the future as such receivables are
collected, over a period not to exceed 120 days. The total gain related to the sale is not expected to be material to the company's financial
statements. The operations associated with the dealership related to the North American Furniture Solutions segment.
18. Quarterly Financial Data (Unaudited)
Set forth below is a summary of the quarterly operating results on a consolidated basis for the years ended June 3, 2017, May 28, 2016, and
May 30, 2015.
Herman Miller, Inc. and Subsidiaries 75
(In millions, except per share data)
2017 Net sales
Gross margin (1)
Net earnings attributable to Herman Miller, Inc.
Earnings per share-basic (1)
Earnings per share-diluted
2016 Net sales
Gross Margin
Net earnings attributable to Herman Miller, Inc. (1)
Earnings per share-basic
Earnings per share-diluted
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
598.6 $
230.0
36.3
0.61
0.60
565.4 $
216.8
33.5
0.56
0.56
$
577.5
218.0
31.7
0.53
0.53
580.4 $
224.4
34.7
0.58
0.57
$
$
524.9
195.5
22.5
0.38
0.37
536.5
207.8
27.9
0.46
0.46
577.2
220.9
33.4
0.56
0.55
582.6
225.2
40.7
0.68
0.67
$
2015 Net sales
Gross margin
Net earnings attributable to Herman Miller, Inc. (1)
Earnings per share-basic
Earnings per share-diluted
550.7
209.6
23.4
0.39
0.39
(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.
509.7 $
185.6
25.2
0.43
0.42
565.4 $
205.7
27.8
0.47
0.46
516.4
190.5
21.0
0.35
0.35
$
76 2017 Annual Report
Management's Report on Internal Control over Financial Reporting
To the Board of Directors and Stockholders of Herman Miller, Inc.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act
Rules 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.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not
prevent or detect all misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may
vary over time.
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 June 3, 2017, based on the original framework in Internal
Control — Integrated Framework (2013 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 June 3, 2017.
Ernst & Young LLP has issued an attestation report on the effectiveness of our internal control over financial reporting, which is included herein.
/s/ Brian C. Walker
Brian C. Walker
Chief Executive Officer
/s/ Jeffrey M. Stutz
Jeffrey M. Stutz
Chief Financial Officer
Herman Miller, Inc. and Subsidiaries 77
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Herman Miller, Inc.
We have audited Herman Miller, Inc.’s internal control over financial reporting as of June 3, 2017, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 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 June 3, 2017, 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 2017
consolidated financial statements of Herman Miller, Inc., and our report dated August 1, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
August 1, 2017
78 2017 Annual Report
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Herman Miller, Inc.
We have audited the accompanying consolidated balance sheets of Herman Miller, Inc. as of June 3, 2017 and May 28, 2016, and the related
consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended June
3, 2017. 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 June 3, 2017 and May 28, 2016, and the consolidated results of its operations and its cash flows for each of the three years in the
period ended June 3, 2017, 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 June 3, 2017, based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 1, 2017 expressed
unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
August 1, 2017
Herman Miller, Inc. and Subsidiaries 79
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 June 3, 2017 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 June 3, 2017, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B OTHER INFORMATION
None
80 2017 Annual Report
Item 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors, Executive Officers, Promoters and Control Persons
PART III
Information relating to directors and director nominees of the registrant is contained under the caption “Director and Executive Officer Information”
in the company's definitive Proxy Statement, relating to the company's 2017 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 2017 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 experts, 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 2017 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 2017 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 2017 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 Party Transactions,” and “Corporate
Governance and Board Matters — Determination of Independence of Board Members” in the definitive Proxy Statement, relating to the company's
2017 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 2017 Annual Meeting of
Stockholders, and the information within that section is incorporated by reference.
Herman Miller, Inc. and Subsidiaries 81
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 Annual Report on 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
41
42
43
44
45
77
78
79
The following financial statement schedule and related Report of Independent Public Accountants on the Financial Statement Schedule
are included in this Annual Report on 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 June 3, 2017,
May 28, 2016 and May 30, 2015
Page Number in
this Form 10-K
84
85
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 85-86.
82 2017 Annual Report
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HERMAN MILLER, INC.
By
/s/ Jeffrey M. Stutz
Jeffrey M. Stutz
Chief Financial Officer (Principal Accounting
Officer and Duly Authorized Signatory for
Registrant)
Date:
August 1, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on, August 1, 2017 by the following persons
on behalf of the Registrant in the capacities indicated.
/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/ Brenda Freeman
Brenda Freeman
(Director)
/s/ Lisa Kro
Lisa Kro
(Director)
/s/ Mary Vermeer Andringa
Mary Vermeer Andringa
(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 Financial Officer and Principal Accounting
Officer)
Herman Miller, Inc. and Subsidiaries 83
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Herman Miller, Inc.
We have audited the consolidated financial statements of Herman Miller, Inc. as of June 3, 2017 and May 28, 2016, and for each of the three
years in the period ended June 3, 2017, and have issued our report thereon dated August 1, 2017 (included elsewhere in this Form 10K). 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 on this schedule 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
August 1, 2017
84 2017 Annual Report
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Column A
Description
Year ended June 3, 2017:
Accounts receivable allowances — uncollectible accounts(1) $
Accounts receivable allowances — credit memo(2)
Allowance for possible losses on notes receivable
Valuation allowance for deferred tax asset
$
$
$
Year ended May 28, 2016:
Accounts receivable allowances — uncollectible accounts(1) $
Accounts receivable allowances — credit memo(2)
Allowance for possible losses on notes receivable
Valuation allowance for deferred tax asset
$
$
$
Year ended May 30, 2015:
Accounts receivable allowances — uncollectible accounts(1) $
Accounts receivable allowances — credit memo (2)
Allowance for possible losses on notes receivable
$
$
Column B
Balance at
beginning of
period
Column C
Charges to
expenses or
net sales
Column D
Column E
Deductions (3)
Balance at
end of period
3.4 $
0.4 $
0.9 $
— $
— $
— $
10.6 $
(0.6)
$
$
2.3
— $
(0.1)
(1.5)
0.9
$
$
$
— $
0.9
$
2.4 $
0.4 $
1.0 $
11.1 $
3.4 $
0.6 $
0.1 $
(1.1)
$
— $
— $
— $
(1.3)
$
— $
— $
1.0
(1.9)
(0.2)
$
$
$
— $
2.3
0.4
0.9
10.0
3.4
0.4
0.9
10.6
2.4
0.4
1.0
11.1
Valuation allowance for deferred tax asset
$
(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.
8.5 $
(0.6)
3.2
$
$
Herman Miller, Inc. and Subsidiaries 85
(3)
Articles of Incorporation and Bylaws
EXHIBIT INDEX
(a)
(b)
Restated Articles of Incorporation, dated October 4, 2013, is incorporated by reference from Exhibit 3(a) of Registrant's
2014 Form 10-K Annual Report (Commission File No. 001-15141).
Amended and Restated Bylaws, dated July 13, 2015, is incorporated by reference from Exhibit 3 of the Registrant's
Form 8-K dated July 17, 2015 (Commission File No. 001-15141).
.
(4)
Instruments Defining the Rights of Security Holders
(a)
(b)
(c)
(d)
Specimen copy of Herman Miller, Inc., common stock is incorporated by reference from Exhibit 4(a) of Registrant's 1981
Form 10-K Annual Report (Commission File No. 001-15141).
.
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 (Commission File No. 000-05813).
Third Amended and Restated Credit agreement dated as of July 21, 2014 among Herman Miller, Inc. and various lenders
is incorporated by reference from Exhibit 10.1 of the Registrant's Current Report on Form 8-K dated July 22, 2014
(Commission File No. 001-15141).
(10)
Material Contracts
(a)
(b)
(c)
(d)
Herman Miller, Inc. 2011 Long-Term Incentive Plan is incorporated by reference from Appendix I of the Registrant's
Definitive Proxy Statement dated August 26, 2014, as amended, filed with the Commission as of August 26, 2014
(Commission File No. 001-15141). (1)
Herman Miller, Inc. Nonemployee Officer and Director Deferred Compensation Plan is incorporated by reference to
Exhibit 10(b) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
Form of Change in Control Agreement of the Registrant and James E. Christenson.
Herman Miller, Inc. Executive Equalization Retirement Plan is incorporated by reference from Exhibit 10 (d) of the
Registrant's Form 10-K dated July 28, 2015 (Commission File No. 001-15141). (1)
(e)
Herman Miller, Inc. Executive Incentive Cash Bonus Plan dated April 24, 2006. (1)
(f)
(g)
Form of Herman Miller, Inc., Long-Term Incentive Plan Stock Option Agreement is incorporated by reference to Exhibit
10(f) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
Form of Herman Miller, Inc., Long-Term Incentive Restricted Stock Unit Award is incorporated by reference to Exhibit 10
(g) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
(h)
Form of Herman Miller, Inc., Long-Term Incentive Performance Stock Unit EBITDA Award.(1)
(i)
(j)
Second Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan is incorporated by reference to Exhibit 10
(i) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
Form of Herman Miller, Inc. 2011 Long-Term Incentive Plan Performance Share Unit Award is incorporated by reference
to Exhibit 10(j) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
86 2017 Annual Report
(k)
(l)
(m)
(n)
(o)
(p)
(q)
Employment Agreement between John Edelman and Design Within Reach is incorporated by reference from Exhibit 10
(b) of the Registrant's Form 10-Q dated October 8, 2014 (Commission File No. 001-15141). (1)
Employment Agreement between John McPhee and Design Within Reach is incorporated by reference from Exhibit 10
(c) of the Registrant's Form 10-Q dated October 8, 2014 (Commission File No. 001-15141). (1)
Stockholders' Agreement between HM Springboard, Inc., Herman Miller, Inc., John Edelman, and John McPhee is
incorporated by reference from Exhibit 10(d) of the Registrant's Form 10-Q dated October 8, 2014 (Commission File
No. 001-15141). (1)(3)
HM Springboard, Inc. Stock Option Plan is incorporated by reference from Exhibit 10(e) of the Registrant's Form 10-Q
dated October 8, 2014 (Commission File No. 001-15141). (1)(3)
Third Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan is incorporated by reference to Exhibit 10
(o) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
Form of Herman Miller, Inc. 2011 Long-Term Incentive Plan Conditional Stock Option Award is incorporated by reference
from Exhibit 10 (p) of the Registrant's Form 10-K dated July 28, 2015 (Commission File No. 001-15141). (1)
Trust Under the Herman Miller, Inc. Nonemployee Officer and Director Compensation Plan is incorporated by reference
to Exhibit 10(q) of the Registrant's Report on Form 10-K dated July 26, 2016 (Commission File No. 001-15141). (1)
(21)
Subsidiaries
(23)(a)
Consent of Independent Registered Public Accounting Firm
(24)
Power of Attorney (included on the signature page to this Registration Statement)
(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(2)
101.SCH XBRL Taxonomy Extension Schema Document(2)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document(2)
101.LAB XBRL Taxonomy Extension Label Linkbase Document(2)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document(2)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(2)
(1) Denotes compensatory plan or arrangement.
(2) 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.
(3) Subsequent to the agreement, the legal name of the company was changed from HM Springboard, Inc. to Herman Miller Consumer
Holdings, Inc.
Herman Miller, Inc. and Subsidiaries 87
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subsidiaries
, Design Within Reach, Geiger, Maharam and Nemschoff are among the trademarks of Herman Miller, Inc., and its
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