Notice of
Annual Meeting of Shareholders
Proxy Statement
2YY118
Herman Miller, Inc., and Subsidiaries
August 28, 2018
Dear Shareholder,
On February 5, 2018, Herman Miller announced that Brian C. Walker planned to retire as President and Chief Executive Officer and a member
of our Board of Directors by August 31, 2018. Following the announcement, our Board established a CEO Search Committee composed of
independent directors to identify and evaluate internal and external candidates. To begin the search process, the Search Committee created
a CEO profile outlining desired qualities relating to cultural fit and leadership style, differentiating competencies, motivational fit and experience.
To assist in identifying potential candidates based on the desired CEO profile, the Search Committee selected the search firm of Korn Ferry,
who identified a number of external candidates. Upon evaluation of the final slate of impressive candidates, the Search Committee selected
Ms. Andrea Owen as its recommendation to the Board of Directors to become the new President and Chief Executive Officer and a member of
the Board of Directors. After careful consideration, the Board approved the Search Committee’s recommendation.
Prior to joining Herman Miller, Ms. Owen enjoyed a 25-year career at Gap Inc., where she most recently served as Global President of Banana
Republic, a division of Gap Inc., leading 11,000 employees across over 600 wholly-owned and franchise specialty and outlet stores in over 27
countries. During her tenure at Gap, her career spanned many verticals and brands within the global business. She developed a diversified
skillset that aligns with the strategic direction of Herman Miller today, ranging from digital and omnichannel transformation to design, product
development and supply chain management. Ms. Owen achieved impressive results with a strong focus on building people-first teams centered
on the values shared by Herman Miller today. Her background demonstrates that she will be able to effectively serve as a market visionary,
performance strategist, change sponsor and organization builder at Herman Miller.
As we look ahead, Ms. Owen will be focused on solidifying the momentum of our business and identifying opportunities that will lead to growth
in new markets for both contract and consumer customers. The Board and I are confident that Ms. Owen, in partnership with our existing
leadership team, is the perfect candidate to take our portfolio of brands to the next level and to seize opportunities that will ultimately unearth
long-term value for our shareholders.
Please join me in welcoming Ms. Owen to the role and we thank you for your continued commitment to Herman Miller.
Sincerely,
Michael A. Volkema
Chairman of the Board
August 28, 2018
Dear Fellow Herman Miller Shareholder,
For several years now, we’ve had a clear vision to transform Herman Miller into a global provider of inspiring designs to help people do great
things. We have focused on expanding our addressable markets and creating new channels of distribution to serve our customers. This strategy
includes five key priorities, which I will provide an update on shortly. Achieving this vision requires imagination, stretches our resources, and
pulls us to constantly re-examine what we do and how we do it. I’m proud that Herman Miller’s 8,000 employees continue to respond with the
spirit and creativity that have propelled Herman Miller for more than 100 years.
Sales of $2.38 billion for fiscal 2018 marked a record level for the third year in a row and reflected growth across each of our business segments.
The organization did a great job of managing operating expenses over the full year, helping to mitigate gross margin pressures. We reported
EPS on a GAAP basis of $2.12 for fiscal 2018, and adjusted EPS of $2.30(1) increased by 6% over the prior year. Reflecting the strength of our
current financial position and confidence in our growth strategy, we announced a 10% dividend increase in July.
Our business and the realities our customers face continue to evolve. The following five key priorities aim to help us create value for both our
customers and Herman Miller, and we made meaningful progress on each of them over the past year.
Realize the Living Office
The Living Office is a research-based framework to help our customers design compelling, high-performing work spaces and a critical foundation
for setting our innovation agenda and leveraging our dealer eco-system. In the past year, we added significantly to our research into workplace
environments, and through a combination of partnerships and a new range of technology-focused work space settings, we are integrating
technology more powerfully than ever before. We also launched the Live OS technology platform to improve workplace performance and help
achieve wellness goals with real-time data.
Deliver Innovation
Innovation remains at the forefront for Herman Miller. Sales from new products in 2018 reflected 29% of total sales for the year, well above our
annual target of 20%. We launched 46 new products in the past year and announced a number of upcoming launches at the NeoCon industry
tradeshow this past June. These launches included Cosm, a performance task chair designed by our long-time design partner in Berlin, Studio
7.5., that won a Best of NeoCon Gold award in the ergonomic seating category for its innovative design. Altogether, our new products have the
Herman Miller and dealer sales teams energized and well-positioned for the opportunities ahead.
Leverage our Dealer Eco-system
Strengthening our dealer eco-system remains a focal point. We expanded our product offerings into growing categories like performance seating
and enclosures. The seating launches of Cosm, Verus, and Lino expand our leading line-up of seating designs. With the recently announced
investment in Maars Living Walls, a global leader in interior wall solutions; the launch of Overlay, a system of sub-architectural, moveable walls;
and an alliance with Framery, a provider of high performance soundproof enclosures, we have made a strong push into the enclosures category.
The Herman Miller Elements team continues to help our dealers fully understand the breadth of our offering across the Herman Miller group of
brands in the fast-growing ancillary space. To further support our dealers, we’ve made significant progress this year enhancing our digital tools
to make it as easy as possible for dealers to order, specify, and visualize the entire product offering across all of our group of brands. We’ll
continue to enhance these tools with new search and visualization features planned for the year ahead.
Scale our Consumer Business
Fiscal 2018 was a year of great progress scaling our Consumer business. Revenues grew by 12% over last year, as comparable brand sales
increased each quarter and we expanded selling space by 40,000 square feet. Our mix of exclusive modern designs also continues to grow.
Finally, our June investment in HAY, a Denmark-based design leader in ancillary furnishings in Europe and Asia, supports our priorities around
scaling our Consumer business and the Dealer Eco-System. Active in both the contract and residential furnishing markets, the HAY brand
expands our portfolio of leading global brands and allows us to scale the Consumer business by accessing a growing customer base that prizes
both industry-leading design and value. Over the course of the coming fiscal year, HAY’s goods will be available through our Design Within
Reach channels. HAY products will also be integrated into the contract furnishings business across our dealer network as part of the Herman
Miller family of brands.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations on pg 54.
Drive Profit Optimization
We made progress this year on our corporate-wide profit optimization goal, our fifth strategic priority. Given inflationary pressures over the past
year, this work, combined with pricing actions we implemented in the third quarter of fiscal 2018 and a planned price increase in January of
2019, is proving to be critical to helping to address those pressures and drive improvements in operating margins. Across three phases of work
that are in progress, we are building line of sight toward achieving between $60 million and $90 million of profit optimization, including run rate
savings of approximately $30 million that we have generated to date.
Let me provide more perspective on each of the phases. The initial corporate-wide push that we began 18 months ago has generated a run-
rate of $23 million of annual savings to date and we believe will realize another $5 million from our recent manufacturing consolidation efforts.
In August of 2017, we also began a focused initiative aimed at profit optimization within our Consumer business. We believe we can drive $15
million to $20 million of profit improvement in the Consumer segment as part of our drive to achieve sustained operating margins of 8% to 10%
in that business. This includes $2 million of initial benefits realized in the fourth quarter in fiscal 2018. As most of the benefits of the work to date
have been offset by increased inflation and discounting, we have recently increased the scope of our efforts to include the North America
business. While we are still in the opportunity confirmation stage, we see the potential for $20 million to $40 million of benefit based on the
distinct work streams identified to date. All together, these phases will be critical in helping us fund growth initiatives, offset potential inflationary
pressures and, ultimately, achieve or exceed our goal of consolidated operating margins of 10% by the end of fiscal year 2020.
We made important progress on all five strategic priorities in the past year. As we enter fiscal 2019 with tremendous momentum toward delivering
sustainable, profitable growth for our stakeholders, these five priorities will remain a focus for us. At the same time, we will support these priorities
with three additional areas that will require our attention, effort and investment.
First, we must increase our efforts and commitment toward building an inclusive and diverse culture. Diverse perspectives, thoughts, and
experiences are critical to attracting and keeping the best talent, as well as to understanding the diverse perspectives and needs of our customers.
While this is not new to us, we are committed to continuing to grow in this area. We’re building intentionality and purpose into everything we do
to ensure we’re creating systems that afford every person at Herman Miller the opportunity to achieve their full potential.
The second area we are ramping up is modernizing our manufacturing capabilities. The first step is to stabilize our core competencies and bring
our capacities in line with market demands. This work is well underway. We’re in the process of resetting our footprint in China by consolidating
the Dongguan and Ningbo plants, and in the U.S., we have approved nearly $100M in investments to modernize our capabilities. Along with
stabilizing our core, we must also further integrate technology with our manufacturing equipment and processes. Increasing computing power,
combined with proven manufacturing techniques, will help us redefine what’s possible. We’ll build the next stage of our lean journey by
incorporating automation into all of our thinking.
Last, and a more long-range objective, is “becoming a digital enterprise.” This begins with a shift in perspective. Our information technology
teams are moving from a “boxes and wires” focus to helping drive growth as digital business partners. This work will build on the progress we
have already made and will happen in four areas. First, we are simplifying and expanding the digital highway in the dealer eco-system. Second,
we are expanding our digital service offering with platforms like Live OS. Third, artificial intelligence, data, and visualization tools will help us
become better at core competencies like customer service, training, and design. Finally, technology will help us with the modernization of
manufacturing.
Considering the wide and deep array of products, capabilities, and brands now available from the Herman Miller Group and a clear set of priorities
for the work ahead of us, we’re more confident than ever in our future. The diversity of our portfolio and the capabilities we are building within
the Herman Miller community will enable us to provide our customers with the most comprehensive solutions to meet their needs in working,
living, healing, and learning environments.
On a personal note, as Herman Miller moves with commitment toward the goals mentioned above, a new CEO will see us achieve them. With
a career of 29 years and a tenure of 14 years as CEO, my time at Herman Miller has been an inimitable period of wonderful relationships, great
personal growth, and tremendous learning. I’m humbled to join the list of Herman Miller leaders, and I’m still awed by the chance I was given
to help this great community change and grow. With the announcement of Andrea Owen as CEO of Herman Miller, I am looking forward to
working with Andrea through a seamless transition. Herman Miller is only just beginning to scratch the surface of our addressable market
opportunity. Andrea’s experience driving results as a seasoned leader, coupled with our outstanding leadership team, will take our family of
brands to the next level.
Thank you for your ongoing support of Herman Miller. I wish this community called Herman Miller only the best in the future.
Sincerely,
Brian C. Walker
Retired President and Chief Executive Officer (as of August 21, 2018)
Notice of Annual Meeting of Shareholders
The Annual Meeting of the Shareholders of Herman Miller, Inc. (the “Company”) will be held on October 8, 2018, by means of remote
communication on the Internet at www.virtualshareholdermeeting.com/MLHR18, at 10:30 a.m. (ET) for the following purposes:
1. To elect four directors, each for a term of three years
2. To approve an amendment to our Articles of Incorporation to allow our by-laws to provide for a majority voting standard for the election of
directors in uncontested elections
3. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm
4. To vote, on an advisory basis, to approve the annual compensation paid to the company's named executive officers
5. 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 10, 2018, 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/MLHR18 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 28, 2018
Table of Contents
Solicitation of Proxies and Voting (Q&A)
Proxy Statement Summary
Financial Highlights from 2018
Proposal #1 - Election of Directors
Corporate Governance and Board Matters
Board Committees
Proposal #2 - Approval of Amendment to Articles of Incorporation
Proposal #3 - Ratification of Appointment of Independent Registered Public Accounting Firm
Report of the Audit Committee
Proposal #4 - Proposal to Approve, on an Advisory Basis, the Annual Compensation Paid to the Company's Named
Executive Officers
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
Miscellaneous
Page No.
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Herman Miller, Inc.
855 East Main Avenue
PO Box 302
Zeeland, Michigan 49464-0302
Proxy Statement Dated August 28, 2018
This Proxy Statement and the accompanying Proxy, which we are making available to shareholders on or about August 28, 2018, 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 8, 2018, 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 28, 2018.
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 costs associated with mailing the proxy materials to shareholders.
On or about August 28, 2018, 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 2018 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 10, 2018 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 2018 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 7, 2018.
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 7, 2018.
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/MLHR18. 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 proposal to approve an amendment to our Articles of Incorporation to allow our by-laws to provide for a majority voting
standard for the election of directors in uncontested elections; 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 1, 2019; and for the non-binding advisory proposal to approve the
compensation of our Named Executive Officers.
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 59,497,056 shares of common stock issued and outstanding. Therefore, at least 29,748,529 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 2021; (ii) a proposal to approve an amendment
to our Articles of Incorporation to allow our by-laws to provide for a majority voting standard for the election of directors in an uncontested election:
(iii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending
June 1, 2019; and (iv) a non-binding advisory proposal on the compensation of our Named Executive Officers, otherwise known as a “say-on-
pay” proposal. 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 and approval of the amendment to our Articles of Incorporation to allow our by-laws to provide
for a majority voting standard for the election of directors in uncontested elections, 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 cast. 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.
The amendment to our Articles of Incorporation to allow our by-laws to provide for a majority voting standard for the election of directors will be
approved if it receives the affirmative vote of a majority of the outstanding shares entitled to vote on the proposed amendment.
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, the
proposal to amend our Articles of Incorporation, 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. However, abstentions and broker non-votes
have the effect of a vote "against" the amendment to our Articles of Incorporation to allow our by-laws to provide for a majority voting standard
for the election of directors.
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/MLHR18. At this
site, you will be able to vote electronically and submit questions during the meeting. You will need the 16-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 8, 2018
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 2, 2018, 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.
8 2018 Proxy Statement
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
2018 performance, please review the company’s Annual Report on Form 10-K for the year ended June 2, 2018.
Proxy Statement Availability and Annual Meeting Information
This Proxy Statement and the accompanying Proxy, which we are making available to shareholders on or about August 28, 2018, 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 2018 Annual
Meeting of Shareholders. This meeting will be held on October 8, 2018, 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.
We hold the Annual Meeting via the Internet due to the ease and convenience in attending, which is likely to increase participation levels. We
also believe that holding the Annual Meeting via the Internet is beneficial to both shareholders and the company because it eliminates travel
costs to shareholders and it eliminates costs to the company associated with holding an in-person meeting.
Voting Matters and Board Recommendations
The Board is not aware of any matter that will be presented for a vote at the 2018 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 - Approval of Amendment to Articles of Incorporation
The Board has adopted, subject to shareholder approval, an amendment to our Articles of
Incorporation that would allow us to amend our Bylaws to provide that, in an uncontested election,
a nominee must receive a majority of the votes cast to be elected as a director. Under this
proposal, in contested elections, where the number of nominees exceeds the number of directors
to be elected, the voting standard would continue to be a plurality of the votes cast.
Proposal #3 - 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 2019 is in the best interest of the company and its shareholders and we are
asking shareholders to ratify the Audit Committee's selection of Ernst & Young LLP for fiscal
2019.
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.
FOR
FOR
FOR
Herman Miller, Inc., and Subsidiaries 9
Financial Highlights from Fiscal 2018
Company Performance
Net sales increased in 2018 to $2,381.2 million, an increase of 4.5% from the prior fiscal year and a record level of sales for the company. On
an organic basis, which adjusts for dealer divestitures, changes in foreign currency translation rates and the impact of the extra week in fiscal
2017, net sales increased by 6.5%(1) compared to last fiscal year. Each of our business segments delivered sales growth over last year, led by
double digit growth in the ELA and Consumer segments during the year.
While gross margins were impacted by higher commodity costs, unfavorable product mix and a competitive pricing environment compared to
last year, operating expenses were well controlled during the year, and we continued to execute on our profit optimization efforts to help mitigate
these factors. Consolidated diluted earnings per share of $2.12 and adjusted diluted earnings per share of $2.30(1) increased compared to prior
year diluted earnings per share of $2.05 and adjusted diluted earnings per share of $2.16(1), respectively. Operating cash flow generation of
$167 million for the year enabled the company to fund capital expenditures supporting the business, repurchase $46 million of company shares
and, subsequent to the end of the fiscal year, announce a 10% increase in the quarterly dividend to $0.1975 per share, the highest quarterly
rate in Herman Miller's history.
Despite choppy industry order levels in the North America and an uncertain political environment, the North America business segment delivered
reported sales growth of 0.6% and organic growth of 4.2%(1) compared to the prior fiscal year. The North America segment continued to deliver
the highest operating margins of the company's business units. We made meaningful investments in design and innovation during the year,
launching a full slate of new products and services aimed at delivering high performing solutions that meet our evolving customers’ needs.
The ELA segment recorded an increase in net sales of 12.7% for the year. After adjusting for the impact of changes in foreign currency and the
impact of the extra week of operations in the prior fiscal year, organic net sales grew at a rate of 11.3%(1) for the year. The improvement in net
sales reflected growth across each of our geographic regions of EMEA, Asia-Pacific and Latin America. The ELA segment posted a decline in
operating earnings of 1% relative to the prior year. However, after adjusting for the impact of restructuring and other special charges, adjusted
operating earnings improved by 14%(1).
Sales for the Specialty segment were 2.5% higher than prior year, as reported, and 3.9% higher than prior year on an organic basis(1). Operating
earnings increased by 10% compared to the prior year, while adjusted operating earnings decreased by 45%(1). Lower profitability for the
Nemschoff and Maharam businesses for the year primarily tied to lower demand levels and unfavorable product mix was partially offset by
operating earnings growth for Geiger and the Herman Miller Collection. We believe the Specialty brands of Geiger, Maharam, Nemschoff and
the Herman Miller Collection represent a powerful combination of inspiring brands that connect us to architect and design specifiers, expand
our market opportunity in both traditional and ancillary workspaces, and serve as an important part of our economic engine.
Our Consumer segment reported strong momentum with net sales growth of 12.2% over last year, including four quarters of comparable brand(2)
growth from Design Within Reach during the year and the addition of approximately 40,000 square feet of retail selling space. Growth was
delivered from multiple channels this year, including studios, eCommerce, catalog and contract channels. Operating earnings and adjusted
operating earnings increased by 190% and 157%(1), respectively. While the real estate expansion and investments to support long-term growth
in the consumer business have limited near-term profitability over the past two years, the expansion of operating earnings this year, particularly
in the second half of fiscal 2018, highlights the traction we are gaining as we scale the Consumer business.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations on pg 54.
(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 2018 Proxy Statement
Proposal #1 - Election of Directors
The Board of Directors of the company has nominated David A. Brandon, Douglas D. French, John R. Hoke III, and Heidi J. Manheimer for
election as directors. All nominees would serve until the 2021 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 of Directors currently consists of ten directors, nine of whom are independent. Mr. David O. Ulrich resigned from the Board effective
December 8, 2017, and Mr. Brian C. Walker is scheduled to retire as President and Chief Executive Officer and from the Board, effective August
21, 2018. 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.
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 2021
Age
Director
Since
Independent
David A. Brandon
Former Chairman and Chief Executive Officer
Toys "R" Us, Inc.
66
2011
Other Public
Directorships
(past 5 years)
Domino's Pizza, Inc.
DTE Energy
Company
Kaydon Corporation
(formerly publicly
traded)
Board Committees
NGC
AC
ECC
EC
Douglas D. French
Managing Director
Santé Health Ventures
64
2002
N/A
X
X
John R. Hoke III
Vice President Global Design
Nike, Inc.
53
2005
Heidi J. Manheimer
Executive Chairman of Surratt Cosmetics, LLC
55
2014
N/A
N/A
X
X
X
Herman Miller, Inc., and Subsidiaries 11
Directors Whose Term Expires in 2019
Age
Director
Since
Independent
Other Public
Directorships
(past 5 years)
Board Committees
NGC
AC
ECC
EC
Lisa A. Kro
Co-Founder, Managing Director
Mill City Capital L.P.
53
2012
Famous Dave's of
America, Inc.
C
Michael A. Volkema
Chairman of the Board
Herman Miller, Inc.
62
1995
Wolverine
Worldwide, Inc.
X
C
Directors Whose Term Expires in 2020
Age
Director
Since
Independent
Other Public
Directorships
(past 5 years)
Board Committees
NGC
AC
ECC
EC
Mary Vermeer Andringa
Chief Executive Officer and Board Chair
Vermeer Corporation
68
1999
N/A
Brenda Freeman
Chief Marketing Officer
Magic Leap
54
2016
Caleres Inc.
Under Armour, Inc
J. Barry Griswell
Retired, President and Chief Executive Officer
Community Foundation of Greater Des Moines
69
2004
Andrea Owen
President and Chief Executive Officer
Herman Miller, Inc.
53
2018
Voya Financial Inc.
OZ Management
Taylor Morrison
Home Corporation
C
X
X
C
X
NGC: Nominating and Governance Committee
AC: Audit Committee
ECC: Executive Compensation Committee
EC: Executive Committee
C: Chair
X: Member
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. We also include additional information below and on the following pages about each Director describing some of the specific
experiences, qualifications, attributes or skills that each Director possesses which the Board believes has prepared them to be effective Directors.
12 2018 Proxy Statement
Name and Age
David A. Brandon, 66
Year First
Became
a Director
2011
Nominees for Election as Directors for Term to Expire in 2021
Principal Occupation(s) During Past 5 years
Other Directorships of Public Companies
held during Past 5 years
Chairman and CEO, Toys "R" Us, Inc.
2015 to 2018
Director of Intercollegiate Athletics, University of Michigan
2010 to 2014
Domino's Pizza, Inc.
DTE Energy Company
Kaydon Corporation
(formerly publicly traded)
Mr. Brandon is the former Chairman and Chief Executive Officer of Toys "R" Us, Inc., a retailer of toys and juvenile products. Mr. Brandon joined Toys "R"
Us in 2015 and officially left the company in May 2018. On September 18, 2017, Toys "R" Us filed a voluntary petition for relief under the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of Virginia (Richmond Division). 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. These factors contributed to his recommendation by the Board
for continued service as a director.
Douglas D. French, 64
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; accordingly, the Board recommended his nomination for re-election as a director.
John R. Hoke III, 53
2005
Chief Design Officer, Nike, Inc.
since 2017
Vice President, Nike Global Design 2010 to 2017
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 Chief Design Officer of Nike, Inc. having previously served as 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, and contributed to his recommendation by the Board for continued service as a director.
Heidi J. Manheimer, 55
2014
Executive Chairman, Surratt Cosmetics LLC
since December 2017
Independent Consultant 2015 to 2017
Chief Executive Officer, Shiseido Cosmetics America
from 2006 to 2015
None
Ms. Manheimer is the Executive Chairman of Surratt Cosmetics LLC, a customizable beauty products and cosmetics company. Ms. Manheimer served as
the Chief Executive Officer of Shiseido Cosmetics America, a global leader in skincare and cosmetics, from 2006 to 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 provide a valuable resource to management and the Board of Directors, accordingly,
the Board recommended her nomination for re-election as a director.
Herman Miller, Inc., and Subsidiaries 13
Name and Age
Lisa A. Kro, 53
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
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.
Michael A. Volkema, 62
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.
Name and Age
Mary Vermeer Andringa, 68
Year First
Became
a Director
1999
Directors Whose Terms Expire in 2020
Principal Occupation(s) During Past 5 years
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
Other Directorships of Public Companies
held during Past 5 years
None
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 14,000 U.S.-based manufacturing entities. Ms. Andringa has served the
last four years as the co-chair for the B20 Task Force for Small and Medium Enterprises. The B20 is a group of business leaders from the G20 countries
who develop and advise the political leaders for the G20 on proposals to improve global growth.
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 provide an important resource to management and the Board of Directors.
14 2018 Proxy Statement
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
Directors Whose Terms Expire in 2020 (continued)
2016
Brenda Freeman, 54
Caleres, Inc.
Under Armour, Inc.
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 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
Chief Marketing Officer for the National Geographic Channels, a naturalist cable television production platform, where she oversaw brand development,
multi-platform creative architecture and consumer communication. She was also global head of television marketing for DreamWorks, a television and
movie production and distribution company, Chief Marketing Officer of Cartoon Network at Turner Broadcasting and Senior Vice President 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.
Ms. Freeman's experience as marketing executive and her specific experience with 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, 69
2004
Retired President and CEO, Community Foundation of Greater
Des Moines 2008 to 2013
Voya Financial Inc.
OZ Management
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 a director of Voya Financial, where he serves on the Executive Committee and as chair of the Risk, Investment and
Finance 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.
Andrea Owen, 53
2018
President and Chief Executive Officer
Herman Miller, Inc. since 2018
Global President, Banana Republic 2014 to 2017
Executive Vice President GAP Global Outlet
2010 to 2014
Taylor Morrison Home Corporation
Ms. Owen has been elected by the Board of Directors to succeed Brian C. Walker as the company’s next President and Chief Executive Officer, effective
August 22, 2018. Ms. Owen was also elected to the company’s Board of Directors as of August 22. She joins Herman Miller after a 25-year career at Gap
Inc., where she most recently served as Global President of Banana Republic, leading 11,000 employees in over 600 stores across 27 countries. She has
developed a diversified skillset that aligns with the strategic direction of Herman Miller today and ranges from digital and omni-channel transformation to
design, development and supply chain management, making her an important contributor to the Board.
The Nominating and Governance Committee has not received any nominations from any of our shareholders in connection with our 2018 Annual
Meeting. The nominees who are standing for election as directors at the 2018 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. 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 to act 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 reasonably likely to have a material adverse impact on the company. The Business Risk Group conducted its review in late
2017 and provided a report to the Committee in January 2018. 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 concurs with management's determination that the company's compensation
policies and practices are not reasonably 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 2018. 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 Ms. Owen (effective August 22, 2018), 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 SEC.
16 2018 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, and Directors are encouraged to join
the webcast for the Annual Meeting. All of our then current directors did so for our 2017 Annual Shareholders Meeting, including Ms. Dorothy
Terrell, Mr. David O. Ulrich, and Mr. Brian C. Walker, who ceased to be directors subsequent to the meeting. During fiscal 2018, the Board held
seven meetings; each director attended at least 75 percent of the aggregate number of meetings of our Board and Board Committees on which
they served. 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, experience as a senior executive of a public company, and diversity.
The Nominating and Governance Committee may also consider 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 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 Douglas French. 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, including overseeing and regularly evaluating (quarterly) the company's cybersecurity risks, which is regularly reported to
and discussed among members 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 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 Discussion and Analysis - Executive Summary” 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 Executive Compensation
Committee.
18 2018 Proxy Statement
Proposal #2 - Approval of Amendment to Articles of Incorporation
Current Standard and Policy
Michigan law provides that directors are elected by a plurality of the votes cast unless otherwise provided in a corporation’s articles of incorporation.
Because our Articles of Incorporation do not provide otherwise, our directors are currently elected by a plurality of the votes cast. This means
that the director nominees with the most votes cast in their favor are elected, regardless of any withheld votes.
Description of Amendment Generally
The Board has adopted, subject to shareholder approval, an amendment to our Articles of Incorporation that would allow us to amend our Bylaws
to provide that, in an uncontested election, a nominee must receive a majority of the votes cast to be elected as a director. Under this proposal,
in contested elections, where the number of nominees exceeds the number of directors to be elected, the voting standard would continue to be
a plurality of votes cast.
Background
Shareholders of many public companies have urged that directors be elected by a majority of the votes cast rather than being elected by a
plurality of the votes cast. Under the plurality standard, the directors who receive the most votes are elected. Because the number of nominees
and the number of open seats are the same in an uncontested election, a nominee need only receive a single affirmative vote to be elected. As
a result, a number of public companies have adopted charter or bylaw provisions implementing a majority vote standard or have adopted bylaws
or corporate governance guidelines requiring a director who does not receive a majority of votes to submit his or her resignation to the board
or one of its committees. Charter or bylaw provisions implementing a majority vote standard also typically require a director who does not receive
a majority of votes to submit his or her resignation to the board or one of its committees to address the typical state law provision that provides
that a director remains in office until his successor is elected, even if the director has not received a vote sufficient for re-election. Michigan law
has such a provision regarding director succession. As discussed above under the heading “How many votes are needed for each proposal?,”
we have a resignation policy in our Governance Guidelines.
The Nominating and Governance Committee and the Board have carefully considered the arguments for and against a majority voting standard.
We believe that the plurality voting standard provides greater certainty that the annual election will result in a full and duly elected board of
directors. However, the Board also recognizes that requiring a majority of the votes cast ensures that only directors with broad acceptability
among the voting shareholders will serve on the Board and enhances the accountability of each director to our shareholders. While the current
resignation policy in our Governance Guidelines seeks to address the same issues as the proposed amendment, the proposed amendment, if
adopted by the shareholders, would enable us to implement a majority voting standard and provide more certainty regarding the majority voting
standard over the longer term. In recent elections, our director nominees have received votes for election that exceeded a majority of the number
of our shares outstanding. As a result, the difference in voting standards would have had no impact on us. On balance, the Board has concluded
that the proposed amendment to allow for a majority voting standard is in the best interest of the company and our shareholders and therefore
recommends that you approve this Proposal 2.
Amendment of Articles of Incorporation
Under Michigan law, a standard for election of directors other than a plurality may be used only if the articles of incorporation provide for a
different standard. If shareholders approve the amendment, then a new Article IX of our Articles of Incorporation will be added which will read
as follows:
ARTICLE IX
The Bylaws of the Corporation may provide that, to the extent provided in such Bylaws, each director of the Corporation
shall be elected by the affirmative vote of a majority of the votes cast with respect to the director at any meeting for the
election of directors at which a quorum is present, subject to the terms and conditions set forth within such Bylaws. For
purposes of clarity, the provisions of the foregoing sentence do not apply to vacancies or newly created directorships filled
by a vote of the Board of Directors.
Amendments to Bylaws and Board Governance Guidelines
The Board has adopted, subject to shareholder approval of the amendment to the Articles of Incorporation described above, amendments to
our Bylaws and Governance Guidelines that will become effective upon filing the Certificate of Amendment to the Articles of Incorporation with
the Michigan Department of Licensing and Regulatory Affairs. The amendments to our Bylaws and Governance Guidelines do not require any
shareholder action. If the shareholders do not approve the proposed amendment to the Articles of Incorporation, then the amendments to our
Bylaws and Governance Guidelines will not become effective.
Herman Miller, Inc., and Subsidiaries 19
Proposal #2 - Approval of Amendment to Articles of Incorporation (continued)
The amendments to the Bylaws provide that each director will be elected by the majority of the votes cast with respect to that director’s election
at any meeting of shareholders for the election of directors, other than a contested election. A majority of the votes cast will mean that the number
of votes cast “for” a director’s election exceeds the number of votes “withheld” with respect to that director’s election. In a contested election,
each director will be elected by a plurality of the votes cast with respect to that director’s election at the meeting.
The amendments to the Bylaws further provide that, in an uncontested election of directors, any nominee for director who is already serving as
a director and receives a greater number of votes “withheld” from his or her election than votes “for” his or her election (a “Majority Against Vote”)
will promptly tender his or her resignation. The Nominating and Governance Committee of the Board will then promptly consider the resignation
submitted by a director receiving a Majority Against Vote, and the committee will recommend to the Board whether to accept the tendered
resignation or reject it.
The Board will act on the committee’s recommendation no later than 90 days following the date of the shareholders’ meeting at which the election
occurred. In considering the committee’s recommendation, the Board will consider the factors considered by the committee and such additional
information and factors the Board believes to be relevant. Following the Board’s decision, we will promptly publicly disclose the Board’s decision
whether to accept the resignation as tendered, including a full explanation of the process by which the decision was reached and, if applicable,
the reasons for rejecting the tendered resignation.
Any director who tenders a resignation pursuant to this provision will not participate in the committee recommendation or the Board consideration
regarding whether to accept the tendered resignation. The amendments to the Bylaws also set forth a procedure for acting if a majority of the
members of the committee receive Majority Against Votes at the same election.
In light of the proposed addition of a director resignation policy in our Bylaws, the amendment to the Governance Guidelines that the Board has
adopted, subject to shareholder approval of the amendment to the Articles of Incorporation, would remove the director resignation policy that
is currently part of that document.
Required Vote
The approval of the amendment to the Articles of Incorporation requires the affirmative vote of a majority of the outstanding shares entitled to
vote on this proposal.
The Board of Directors recommends a vote FOR this proposal.
Proposal #3 - 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 1,
2019. Representatives of Ernst & Young will participate in the Annual Meeting of Shareholders and will be available to respond to appropriate
questions submitted in advance. Shareholders may submit questions in advance by logging on to www.virtualshareholdermeeting.com/MLHR18.
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.
20 2018 Proxy Statement
Disclosure of Fees Paid to Independent Auditors
Aggregate fees billed to us for the fiscal years ended June 3, 2017 and June 2, 2018, 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
June 3, 2017
June 2, 2018
$
1,865,000 $
2,153,500
—
—
136,920
445,000
$
2,001,920 $
2,598,500
(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.
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 2, 2018, 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 2, 2018, and we selected Ernst & Young LLP as the
independent auditor for fiscal year 2019. The Board is recommending that shareholders ratify that selection at the annual meeting.
Lisa A. Kro (Chair)
Heidi J. Manheimer
Douglas D. French
Herman Miller, Inc., and Subsidiaries 21
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 ("say on pay"). Thus, you are asked to vote upon the following resolution at this year's annual meeting.
We have designed the compensation of the named executive officers to vary based on the performance of the business and to reward consistent
improvement in the results delivered to shareholders. In fiscal 2018, we approved changes in the compensation of each executive officer primarily
to maintain competitive pay levels for each position. 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.
The Executive Compensation Committee ("Committee") has considered the results of the 2017 Say on Pay vote - in which approximately 82%
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
2017 Proxy Statement. Around the time of that advisory vote, members of management contacted 13 of our largest shareholders, representing
approximately 25% of total shares outstanding. Some investors shared their desire to see a relative measure of performance as part of our
executive long-term incentive awards. The Committee considered our investors' feedback and the outcome of the vote in general when considering
future NEO compensation design features, including the addition of relative total shareholder return (TSR) measure to the long-term incentive
awards for fiscal 2019. See page 27 for more information regarding our shareholder outreach process.
Shareholders are being asked to approve the following resolution at the 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 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.
Voting Securities and Principal Shareholders
On August 10, 2018, we had 59,497,056 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 10, 2018, 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 10, 2018, 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, 2018, contained in filings with the SEC on August 9, 2018 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 6,749,436 shares and sole dispositive power as to 6,934,391
shares.
6,934,391
5,796,909
11.66
9.74
(2) This information is based solely upon information as of June 30, 2018, contained in a filing with the SEC on August 14, 2018 by The Vanguard Group Inc., including notice that
it has sole voting power as to 113,274 shares and sole dispositive power as to 5,681,210 shares, and shared voting power with respect to 8,106 shares and shared dispositive
power with respect to 115,699 shares.
22 2018 Proxy Statement
Director and Executive Officer Information
Security Ownership of Directors
The following table shows, as of August 10, 2018, the number of shares beneficially owned by each of the nominees and directors. 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(2)
Douglas D. French
J. Barry Griswell
John R. Hoke III
Lisa A. Kro
Heidi J. Manheimer
Brian C. Walker
Michael A. Volkema
Amount and Nature of
Beneficial Ownership
Percent of
Class(1)
41,550
16,809
—
11,618
20,913
30,269
19,978
13,193
0.07
0.03
—
0.02
0.04
0.05
0.03
0.02
see table below
75,000
0.13
(1) Percentages are calculated based upon shares outstanding plus shares that may be acquired under stock options exercisable within 60 days.
(2) Ms. Freeman’s deferred compensation account allocation holds 8,171 shares of Herman Miller stock which would equate to a Percent of Class of 0.01. Mr. French's deferred
compensation account holds 3,756 shares which would equate to an additional Percent of Class of 0.01.
Security Ownership of Management
The following table shows, as of August 10, 2018, 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 (20 persons)(3)
Amount and Nature of
Beneficial Ownership(1)
Percent of
Class(2)
56,301
64,232
109,333
4
72,989
626,185
0.09
0.11
0.18
—
0.12
1.05
(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: no
shares for Mr. Walker; 48,423 shares for Mr. Stutz; 59,795 shares for Mr. Bylsma; no shares for Mr. Lock; and 49,423 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 226,915 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 23
Letter from the Committee Chair
Dear Fellow Herman Miller Shareholder,
Fiscal 2018 was underpinned by positive financial performance and advancement of key initiatives, while also marking the start of a key leadership
transition. We announced the retirement of Brian Walker and we are both grateful for his many contributions to Herman Miller over his long
career and excited for our new CEO, Ms. Andrea Owen, to lead Herman Miller going-forward.
We are proud of the successes we achieved financially and operationally during fiscal 2018 as discussed in the Financial Highlights from Fiscal
2018 section of this proxy statement. Our executive compensation programs exhibited strong alignment with this performance:
•
•
•
Executive annual incentive awards were paid at 92.5% of target, which reflected adjusted EBITDA performance (as described in the
"Reconciliation of Non-GAAP Measures" on pg. 54) of $266.4 million versus a target of $269.0 million
Our HMVA units granted for the 2016-2018 performance period were earned at 137% of target
Our Relative TSR units granted for the 2016-2018 performance period were earned at 200% of target reflecting our 40.81% cumulative
TSR over the three-year period
We conducted shareholder outreach meetings and calls before and after our fiscal 2017 Say on Pay vote, connecting with 13 holders representing
approximately 25% of total outstanding shares. Our shareholders provided feedback on a number of aspects of our executive compensation
program. The Executive Compensation Committee (the Committee) and management discussed this feedback, and the Committee approved
changes to the programs in response. Because the feedback was received after the start of our fiscal 2018, we have made these changes
effective for fiscal 2019 and beyond:
•
•
•
Elimination of single-trigger vesting in our equity award agreements - while our long-term incentive plan provides for double-trigger vesting
it also provides for Committee discretion to define vesting treatment in individual award agreements. Beginning with the annual awards
granted in July 2018, the Committee has prohibited award agreements from providing for anything other than double-trigger vesting in the
event of a change-in-control.
Incorporation of performance-based long-term incentive (LTI) awards tied to the relative performance of our total shareholder return (TSR).
While the company moved away from relative TSR PSUs in fiscal years 2017 and 2018 (choosing to focus on absolute TSR via stock
options instead), our shareholders indicated a strong preference for a relative TSR component. Therefore, awards granted in fiscal 2019,
tie 25% of our executives’ LTI awards to PSUs earned based on our relative TSR performance compared to our peer group.
Enhanced disclosure of the robust nature and conclusions of the Committee’s incentive goal setting process - shareholders expressed a
desire for more clarity about the means by which we set targets for fiscal 2017 in the Herman Miller Value Added (HMVA) program. In this
year’s Compensation Discussion and Analysis (CD&A), we have provided detailed information on the factors the Committee considered
when setting the 2018 HMVA goals, and we will continue to provide such detail in future years’ CD&As.
These changes complement the existing strong governance and best practices already underlying our executive compensation programs to
balance the inherent need to retain, motivate and attract top-quality executives while aligning them directly with long-term shareholder interests.
Our Say on Pay Proposal is found on page 22 of this proxy statement, and the Board recommends that you vote ‘FOR’ this proposal. We also
invite you to consider additional information on our compensation philosophy and decisions in the CD&A, which can be found on the following
pages. I am confident that our executive compensation programs motivate the behaviors and results the Board and our shareholders expect.
Sincerely,
J. Barry Griswell
Chair, Board Executive Compensation Committee
24 2018 Proxy Statement
Compensation Discussion and Analysis
Executive Summary
Executive Officers Covered by this Compensation Discussion and Analysis
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”. We intend this Compensation Discussion and Analysis to provide information regarding, among other things, the overall objectives
of our compensation program and each element of compensation provided to the NEOs.
The NEOs for fiscal 2018 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 (retiring effective August 21, 2018)
Executive Vice President and Chief Financial Officer
President, North America Contract
Former President, Herman Miller International (retired July 31, 2018)
Chief Creative Officer
Fiscal 2018 Company Performance
We continued to make significant progress in fiscal 2018 toward our long-term vision and financial objectives: delivering on our 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 eighth consecutive year and delivered
consolidated revenue of $2,381.2 million in fiscal 2018. Revenue growth, strong expense management and a lower tax rate helped offset
commodity and pricing headwinds to deliver adjusted EPS 6%(1) ahead of 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
10% increase to our quarterly dividend rate beginning in October 2018.
Alignment of Pay and Performance
In fiscal 2018, consistent with prior years, the Board’s Executive Compensation Committee (Committee) reviewed multi-year analyses that
evaluated the relationship between CEO realizable pay and financial performance (including total shareholder return) for Herman Miller and its
peer group companies (described below in detail in the section entitled "Benchmarking of Compensation"). The Committee conducts these
analyses to ensure the desired linkage between executive pay and company performance.
The following graph illustrates the relationship, compared to our peers, between:
•
CEO Realizable Pay (fiscal years 2015 through 2017 which is the most recent 3-year time period for which peer data is available): Calculated
as the sum of annual base salary, actual annual incentive award paid and the value of stock awards granted (based on each company’s
fiscal year end closing stock price) divided by target pay
•
Total Shareholder Return (TSR): Annualized TSR for fiscal years 2015 through 2017
(1) Non-GAAP measurements; see accompanying reconciliations and explanations on pg 54.
Herman Miller, Inc., and Subsidiaries 25
Compensation Discussion and Analysis (continued)
2017 Say on Pay Vote and Shareholder Outreach During Fiscal Year 2018
Prior to our 2017 Say on Pay Vote, we had historically received overwhelming support of our executive compensation program, averaging 98%.
Around the time of the 2017 Annual Shareholders Meeting, we contacted shareholders over the course of the proxy voting period to hear their
views regarding our executive compensation program. A majority of the investors with whom we spoke supported our compensation program,
which was further exhibited by 82% of shareholders voting in favor of our 2017 Say on Pay proposal.
When engaging with shareholders in fiscal 2018, around the time of our 2017 Annual Shareholders Meeting, the discussions focused primarily
on the following items regarding our compensation program:
What We Heard:
A portion of our long-term incentive awards should factor in
relative performance measures
It is not clear how the Committee sets goals for the Herman
Miller Value Added Performance Share Units
All equity awards should be double-trigger
What We Did:
We added PSUs, based on relative TSR compared to the peer group
to the fiscal 2019 LTI mix
We have provided additional details below to provide further clarity
on our goal setting process and will continue to do so in future years
At its June 2018 meeting the Committee decided that all equity
awards, starting with those granted in July 2018, will be double-
trigger.
1. Our Long-Term Incentive Mix. Our Committee regularly reviews the mix of our incentives. For awards granted to NEOs in fiscal 2018, the
LTI value was equally split among performance shares units, restricted stock units and stock options. Based on investor feedback, we
increased the weighting for performance share units (from 33% to 50%) and added a relative TSR metric (see the "Compensation Program
Changes for Fiscal 2019" section for additional details).
2. How We Set Performance Goals for our Herman Miller Value Added Performance Share Units. Our Herman Miller value added performance
share units vest if the company’s annual earnings before interest, taxes, depreciation and amortization (EBITDA) less a capital charge
exceed certain pre-established goals. We refer to EBITDA less a capital charge as HMVA. Each year we set the level of HMVA needed
for threshold, target, and maximum payout based on a certain average annual percentage increase over the three year performance period.
In absolute terms, the threshold and maximum performance goals for the 2018-2020 awards were lower than those for the 2017-2019
awards.
26 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
This was primarily due to our fiscal 2017 year being comprised of 53 weeks, but our 2018 fiscal year only being comprised of 52 weeks.
As a result, we adjusted our fiscal 2017 HMVA to exclude the impact of the extra week of operations for the purpose of setting our fiscal
2018 HMVA performance goals. After such adjustment, our actual fiscal 2016 HMVA (which served as the starting point for our fiscal
2017-2019 HMVA performance goals) was higher than our actual fiscal 2017 HMVA (which served as the starting point for our fiscal 2018
HMVA performance goals). When adjusted for this factor, our 2018-2020 goals are equally aggressive to those of the prior cycle and reflect
significant growth over prior years. As such, our threshold and maximum goals for our fiscal 2018-2020 HMVA awards were, in absolute
dollar terms, less than our threshold and maximum goals for our fiscal 2017-2019 HMVA awards. But, they remained unchanged from our
fiscal 2017-2019 HMVA in terms of the percentage increase required for threshold and maximum payout. The table below illustrates our
HMVA goals for the three most recent performance cycles.
Payout % of Target
200% of Target PSUs
100% of Target PSUs
No PSUs earned
Capital Charge
2018-2020 Average
Value Added
$230 million or more
$210 million
Less than $183 million
10%
2017-2019 Average
Value Added
$239 million or more
$210 million
Less than $191 million
10%
2016-2018 Average
Value Added
$193 million or more
$170 million
Less than $154 million
10%
3. How We Treat Equity Awards Upon a Change in Control. Our 2011 Long-Term Incentive Plan provides that, upon a change in control, if
the surviving company assumes an award (or if we are the surviving company), then the vesting of the award will be accelerated only if
the award recipient’s employment is terminated under certain circumstances within two years of the change in control (a “double-trigger”).
However, the plan allows an award agreement to provide for different treatment, and the terms of certain restricted stock unit and performance
share unit award agreements that we have provided to our NEOs state that the awards will vest immediately upon a change in control. We
quantify the benefits that each named executive officer would receive upon a change in control in the table under the heading “Potential
Payments upon Termination, Death, Disability, Retirement or Change in Control.” Starting in July 2018, all equity award agreements will
be double-trigger.
The Committee believes that the performance of our executive compensation program during fiscal 2018 was consistent with our compensation
philosophy and objectives, as we describe below, and that the compensation we paid to our NEOs was appropriate and reflective of our overall
performance. However, we value investor input and, based on the suggestions of our investors, we made several changes to our long-term
incentive compensation for fiscal 2019 (see the “Changes to Compensation Program for 2019 -Long-Term Equity Incentives” section below).
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 program.
Overview of Compensation Philosophy and How We Set Pay
Overview of Compensation Program
We have designed our compensation program to provide corporate officers who perform their duties at a proficient level with the opportunity to
earn compensation that reflects the market median compensation for their position based upon data that our independent compensation
consultant provides (as we describe in the section on Benchmarking of Compensation). The compensation program requires that a majority 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, an annual incentive and long-term incentive awards, 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.
Herman Miller, Inc., and Subsidiaries 27
Compensation Discussion and Analysis (continued)
Compensation Philosophy
The Committee's 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
x
No Gross-Ups for Taxes
No "Single Trigger" Severance
No Repricing of Options
No Guaranteed Compensation
No Dividends on Unvested Equity
28 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
Elements of the Compensation Program
The following table provides an executive summary of our fiscal 2018 compensation program for our corporate officers:
Compensation Element
General Description
Objective of Compensation Element
Base Salary
Base salaries reflect market rates for comparative
positions and each NEO's historical level of
proficiency and performance.
Annual Incentive
Long-Term
Equity Incentives
We provide corporate officers the opportunity to
earn an incentive bonus pursuant to the Annual
Executive Incentive Cash Bonus Plan. The plan
provides for the annual payment of a cash bonus
(incentive 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 bonus is
the company's
represents
EBITDA, which
earnings before interest, taxes, depreciation and
amortization
non-controlling
(excluding
ownership interests).
An executive's
is
comprised of both base salary and annual
incentive bonus.
total cash compensation
The Committee and Board have historically
granted various types of long-term incentive
awards: Restricted Stock, Restricted Stock Units,
Herman Miller Value Added Performance Share
Units, Relative TSR Performance Share Units,
and Stock Options.
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 base salary of NEOs typically varies around the
individual’s experience,
median depending on an
performance and internal equity considerations. 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.
The purpose of the EBITDA-based Annual Executive
Incentive Cash Bonus Plan is to closely link incentive cash
compensation to the creation of shareholder value. 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' cash bonus to the overall
performance of the various operating units and vertical
business that is within the officer's span of control.
Additionally, some corporate officers have functional
objectives that determine up to 25% of their annual
incentive bonus.
The key objectives of granting long-term equity incentive
awards 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 for
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 shareholder 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.
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.
Herman Miller, Inc., and Subsidiaries 29
Compensation Discussion and Analysis (continued)
Other Executive
Compensation Plans
We provide limited 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 of
between $20,000 (CEO) and $12,000 (other
NEOs) per year.
It is our goal to provide market competitive benefits which
allow us to attract and retain critical executive talent.
The following charts illustrate the key elements of our compensation for our NEOs:
Current Compensation
FY18 and FY19 Long-Term Incentives
Base Salary
Paid in Cash
Short-Term Incentive
Paid in Cash
Based on EBITDA Performance
30 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
The Committee determined that the total direct compensation for each NEO for fiscal 2018, and as approved for fiscal 2019, is within the
benchmarked range given each NEO’s performance, position and the company’s performance. We provide more detail regarding each element
of compensation for fiscal 2018 in the sections below.
Base Salary
The Committee and the Board granted merit increases for fiscal 2018 to our employees, including the NEOs. The base salaries of each of our
NEOs was within the range established based on market data for their position. Salary changes went into effect July 18, 2017 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 1.2794 would yield £268,876.
Salary for
Fiscal 2018
975,000
$
450,000
$
465,000
$
344,000
$
430,000
$
Percent
Increase
6.0%
12.5%
5.7%
2.7%
6.2%
The Board approved the fiscal 2018 salary for each of the NEOs based on its review of market data, corporate results and individual performance.
Specifically, 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, his efforts to structure a financial strategy that
aligns with the company’s business objectives and the gap between prior salary and market rates. 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 his
implementation of 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.
Annual Incentive Bonus
Setting Target Bonuses
The Committee, at the beginning of each fiscal year, establishes a target bonus pool representing the amount of incentive bonuses that may
be paid under the Annual Executive Cash Incentive Bonus 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, which is the bonus amount the NEO would receive if all performance goals were achieved at target. The NEOs
each have the opportunity to earn up to 200% of the target bonus and may earn zero bonus if our goals are not achieved. The annual cash
incentive opportunity levels for each of our NEOs for 2018, as a percentage of base salary, were as follows:
Name
Threshold Bonus as
% of Base Salary
Target Bonus as % of
Base Salary
Maximum Bonus as
% of Base Salary
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
0%
0%
0%
0%
0%
100%
65%
65%
65%
65%
200%
130%
130%
130%
130%
We set the target incentive bonus percentage for the NEOs so that the incentive bonus at target performance will generally equal 100% of the
market median bonus amount for comparable positions as shown in the market data, although we may adjust base pay and bonus to maintain
total compensation in an amount that is consistent with our compensation philosophy. The Committee believes that this use of incentive bonus
is consistent with the objective of making compensation for senior corporate officers more variable with the company’s performance.
Herman Miller, Inc., and Subsidiaries 31
Compensation Discussion and Analysis (continued)
The Committee is responsible for setting performance goals for our annual incentive bonuses for each of our NEOs, other than our CEO, whose
goals the full Board sets. For fiscal 2018, we based each NEO’s annual incentive bonus on our 2018 consolidated EBITDA results. Messrs.
Bylsma, Lock and Watson also had a portion of their compensation based on functional goals and/or business unit operating results. Specifically,
for fiscal 2018, the table below illustrates the portion of each NEO’s bonus that is tied to corporate and functional or business unit goals.
The consolidated Corporate EBITDA target for fiscal 2018, which would result in 100% payout of the EBITDA portion of the annual incentive
bonus, was $269.0 million. Achieving 113% of the EBITDA target ($304.0 million) would result in a 200% payout of the eligible bonus payout,
and anything below 94.4% of the target EBITDA ($254.0 million) would result in no payout. The maximum payout for the portion of our NEOs’
bonuses based on functional goals or business unit EBITDA was also limited to 200%.
2018 Performance Results and Bonus Payouts
For fiscal 2018, the company’s actual EBITDA (as adjusted in the manner we describe below) was $266.4 million, which was between the target
amount of $269.0 million (100%) and the minimum amount of $254.0 million (0%) and resulted in a payout percentage of approximately 93%
of the target value for the fiscal year. The EBITDA bonus amounts we paid 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
26,143
(1) - This amount represents the portion of the bonus that the NEO elected to defer under the Herman Miller, Inc. Executive Equalization Retirement Plan described later in this
Compensation Discussion and Analysis.
894,142 $
265,888 $
269,423 $
343,464
261,429 $
0.9253 $
0.9253 $
0.9253 $
0.9253 $
0.9253 $
100.00%
65.00%
32.50%
32.50%
48.75%
894,142
265,888
138,160
108,635
192,195
0.8761 $
2.0000 $
1.0000 $
32.50%
32.50%
16.25%
71,531
26,589
26,990
Total Bonus
Amount
Paid
$
$
131,263 $
234,829 $
69,234 $
Bonus
Amount
Deferred (1)
Prior to payout of the bonuses, the Audit Committee approves the calculation of EBITDA results for the year and the resulting company performance
factor. The Committee also certifies the company performance factor and the function/business unit performance factors for use in the Incentive
bonus calculation.
Long-Term Equity Incentives
Setting Target LTI Values
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
and determines the percent of the target LTI value that should be allocated to each award type. The Committee sets the total target value of
the LTI grants for each NEO at a level intended to ensure that the NEO’s total direct compensation would correspond with the market median
of the market 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 NEO 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 and performance share units based on the closing price of our stock on the date of
grant and grants of stock options using a Black-Scholes valuation on the date of grant, using the share price on the date of grant as the exercise
price.
Grants Awarded in Fiscal 2018
The table below illustrates the target value of the LTI grants, expressed as a percentage of their base salary, to our NEOs that the Committee
and Board established and granted in July 2017. The target values associated with these grants were allocated approximately equally among
the following three award types: RSUs, Herman Miller Value Added Performance Share Units and stock options.
The following table discloses the types of awards granted in July 2017 (fiscal 2018). It does not include grants of restricted stock units that we
awarded to the NEOs (excluding Brian Walker) in connection with the retention agreements discussed in the paragraph entitled "Retention
Agreements" later in this Compensation Discussion and Analysis. Those units are disclosed in the "Grants of Plan-Based Awards" table.
32 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Key Features of Each Award
Target of LTI
as a % of
Salary
300%
110%
125%
95%
80%
Herman
Miller Value
Added
Performance
Share Units
Number of
Options
Option
Exercise
Price
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
Restricted
Stock Units
27,259
4,346
5,432
3,145
3,200
Restricted Stock Units: The restricted stock units (RSU) represent 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
upon vesting. Dividends are not paid over the vesting period but 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 goals 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 at the start of each three-year performance period. The awards also provide 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 upon vesting. 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 for each cycle is determined by multiplying the company’s capital
by its cost of capital. The Committee approves the determination of the cost of capital and EBITDA for purposes of the Herman Miller Value
Added Performance Share Units.
For grants made in 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
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 2018, we granted stock options to all NEOs.
Details of our Executive Compensation Program
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 and broad-based equity
and benefit plans.
Herman Miller, Inc., and Subsidiaries 33
Compensation Discussion and Analysis (continued)
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 Annual 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 July of fiscal 2018, the Committee retained Pay Governance LLC as its independent compensation
consultants with respect to the compensation matters regarding our corporate officers. Prior to that time, Pearl Meyer & Partners served as the
Committee's independent compensation consultant, including advisory services related to compensation of corporate officers for fiscal 2018.
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 do not permit Pearl Meyer or Pay Governance 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
2018 to provide marketplace compensation data and compensation consulting services to management for employees other than the corporate
officers.
Benchmarking of Compensation
To ensure that executive compensation is competitive, the Committee uses marketplace compensation data to compare our compensation
program to market pay practices. The Committee, in determining fiscal 2018 compensation, also used a specific peer group for benchmarking
pay (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 included both direct competitors as well as comparable companies in other industries to reflect the competitive
market for talent in which we compete.
Pearl Meyer used the peer group information along with the following survey sources when analyzing the fiscal 2018 market competitiveness
of pay levels of corporate officers: Willis Towers Watson Executive Compensation Database, Aon Hewitt Executive Total Compensation
Measurement Database, Mercer Executive Database and Equilar Insight Database (we refer to the peer group information and these survey
sources collectively as “market data”). We use the market data to determine competitiveness of base pay, annual incentive 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
compared the base salary, target total cash and target total direct compensation of each corporate officer to the 25th, 50th (market median) and
75th percentile of the Market 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 made recommendations to the Committee
regarding the compensation package for each of the corporate officers (other than himself). The CEO based 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 based 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 made a recommendation to the full Board for the CEO’s compensation. The Board of Directors
determines the compensation of the CEO and the CEO did not participate in any conversations about his own compensation.
34 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
The Committee reviews and approves the peer group that we use in benchmarking compensation on an annual basis. The peers that we used
for fiscal 2018 are set forth below:
Aaron's Inc.
Acuity Brands, Inc.
Belden Inc.
Brunswick Corporation
Ethan Allen Interiors, Inc.
Hill-Rom Holdings, Inc.
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.
During fiscal 2018, after we had already set executive compensation for 2018, the Committee worked with Pay Governance to revise our peer
group. We are using this revised peer group when setting executive compensation for fiscal year 2019. The revised peer group is set forth
below:
American Woodmark Corporation
Armstrong World Industries, Inc.
Ethan Allen Interiors, Inc.
Hill-Rom Holdings, Inc.
HNI Corporation
Interface, Inc.
JELD-WEN Holdings, Inc.
Kimball International, Inc.
Knoll, Inc.
La-Z-Boy, Inc.
Leggett & Platt, Inc.
Masonite International Corporation
RH aka Restoration Hardware Holdings, Inc.
Sleep Number Corporation
Steelcase, Inc.
Tempur Sealy International, Inc.
Universal Forest Products, Inc.
Williams-Sonoma, Inc.
Our peer group is intended to represent companies against which we may compete for talent, with an emphasis on a number of criteria. For
fiscal 2019, we made a number of changes to the peer group in light of these criteria: We removed Aaron’s, Acuity Brands, Belden, Brunswick,
Lennox International and Polaris because of differences in industry and customer focus. We replaced these six companies with American
Woodmark, Armstrong World Industries, JELD-WEN, Masonite, Universal Forest Products and Williams Sonoma which better meet our selection
criteria and enable us to maintain a peer group of robust size.
EBITDA Adjustments
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).
For fiscal 2018, company EBITDA performance was adjusted for incentive plan purposes to reflect the following items (refer to the section
“Reconciliation of Non-GAAP Measures” for further information):
Herman Miller, Inc., and Subsidiaries 35
Compensation Discussion and Analysis (continued)
Description
1. Amortization of previously excluded restructuring
Adjustment
to EBITDA
($ millions)
$(1.9)
2. Current year pre-tax restructuring expense
$8.2
3. Third party consulting costs related to profit
optimization plans, net of amortization
$4.8
4. Costs associated with the CEO transition plan
announced in February 2018
$4.4
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 from the
calculation of EBITDA the third party consulting costs associated
with the company's profit optimization plans for the Consumer and
North America business segments 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 against EBITDA as the savings from the initiatives are
realized on a dollar-for-dollar basis.
The Committee determined it is appropriate to exclude the costs
associated with the CEO transition plan announced in February
2018 as the costs are not reflective of the ongoing operation of the
business.
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.
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.
Other Considerations
Tally Sheet Review
In June 2017, the Committee reviewed executive compensation tally sheets that Pearl Meyer provided 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.
36 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
Impact of Prior 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 above, the Committee uses tally sheets to track all elements of current compensation. The Committee, however,
has the ability to consider the impact of any special equity grants upon the value of future grants that we make to corporate officers under the
2011 Long-Term Incentive Plan.
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 two parts. First, we make a core contribution
to an employee’s 401(k) account equal to 4% of base salary on a quarterly basis. The amount of salary included in the calculation is limited to
the maximum salary level permitted by the IRS. Second, the 401(k) portion of the plan permits employees to make salary deferrals into the
plan up to the maximum amount permitted by law. We also make a matching contribution to fully match employee contributions up to 4% of the
employee’s compensation contribution.
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
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 $275,000). Investment options under this plan are the same
as those available under the 401(k) Plan. company contributions for amounts deferred in fiscal 2018 appear in the 2018 Summary Compensation
Table under All Other Compensation.
Executive Long-Term Disability Plan
The plan covers 60% of the rolling two-year average of 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.
Herman Miller, Inc., and Subsidiaries 37
Compensation Discussion and Analysis (continued)
Perquisites
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 variety of approved perquisites. These perquisites include financial planning, life insurance, spousal travel and other benefits. The
Committee has adopted a policy that specifically restricts the use of corporate aircraft for non-business purposes. The 2018 calendar year
perquisite maximum was $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 this benefit. 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 addition to the above perquisite allowances, in fiscal 2018, we also provided the NEOs and all other corporate officers with the opportunity
to obtain comprehensive physicals at our cost.
Retirement, Retention, and Change in Control Agreements
Mr. Brian C. Walker’s Retirement
As we have previously disclosed, Mr. Walker announced his intention to retire from his position with the company by August 31, 2018. In
connection with his retirement, Mr. Walker agreed to extend his post-employment non-compete and non-solicitation covenants from 12 to 18
months and to an unlimited confidential information and non-disparagement covenant. He also agreed to be available on a consultative basis
for 18-months after his retirement to help with the transition to the new CEO and specifically to provide the new CEO with guidance and back-
ground on our unique “contract” furniture business. In exchange for agreeing to extend his post-employment non-compete and non-solicitation
covenants and to provide consulting services for up to 18 months, we agreed to pay Mr. Walker his base salary for an additional six months.
Because Mr. Walker was already entitled to 12 months of base salary in exchange for his original 12 months of non-compete and non-solicitation
covenants, he will receive base salary continuation for a total of 18 months following his retirement. We also agreed to provide Mr. Walker with
a lump sum payment equal to 18 months of the employer portion of the premiums for his health and dental benefits. In the unlikely event Mr.
Walker resigns prior to the identification of the new President and CEO of the company or is terminated for cause prior to August 31, 2018, he
will not receive any of these payments. Given his retirement, the Committee determined that Mr. Walker would not be eligible for any equity
compensation grants for fiscal 2019 or for a 2019 annual incentive opportunity.
Retention Agreements
Recognizing that the transition to a new CEO creates a period of uncertainty for our other employees, the Committee approved retention
agreements for certain key executives, including our NEOs (other than the CEO), in February 2018. These agreements, which were intended
to ensure the executives’ commitment to the company while we search for a new CEO, provide the following benefits:
•
•
A retention bonus equal to the executive’s actual annual bonus for fiscal 2018. The retention bonus will be payable in two equal installments
on (a) the date the fiscal 2018 annual incentives are payable and (b) as part of the last payroll in December 2018, provided the executive
remains employed on those dates and, in the discretion of the Board, a successful transition of the CEO position from Mr. Walker to the
new CEO has occurred.
A grant of restricted stock units with a value equal to the executive’s base salary, which we granted in February 2018. Such restricted stock
units will vest on the second anniversary of the grant date provided the executive remains employed on that date. These units are disclosed
in the "Grants of Plan-Based Awards" table.
However, if we terminate the executive’s employment without cause or the executive elects to cease employment with the company for good
reason prior to payment of the retention bonus or vesting of the RSUs, then the executive will continue to be eligible to receive the retention
bonus and his or her RSUs will automatically vest if he or she signs and does not revoke a general release of claims. If no release is signed,
the executive forfeits the retention bonus.
As we also previously disclosed, on March 2, 2018, Mr. Lock announced his intent to retire, and did so retire, effective July 31, 2018. As a
result, Mr. Lock will receive a prorated (up to July 31,018) value of his restricted stock and will only receive 50% of the retention bonus, in
accordance with the terms of his agreement described above. Mr. Lock has agreed to provide consulting services to our new President of
International for 12 months following his retirement for no additional compensation.
38 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
Change in Control Agreements
Each NEO is party to a change in control agreement with us. The Committee believes the use of change in control agreements is appropriate
as they help ensure a continuity of management during a possible 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 that the Committee reviews annually.
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.
Compensation Program Changes for Fiscal 2019
The following is a summary of changes that our Committee and Board of Directors have made to our executive compensation program for fiscal
2019 as of the date of this proxy statement.
Base Salary in Fiscal 2019
The Committee and Board of Directors approved the following changes in the base salaries of the continuing NEOs for fiscal 2019 as we discuss
below:
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Percent
Increase
Salary for
Fiscal 2019
$
$
$
$
$
—
480,000
480,000
—
445,000
—%
6.7%
3.2%
—%
3.5%
The Committee decided not to increase Mr. Walker’s compensation in light of his impending retirement. Mr. Stutz's increase is the result of his
proficient performance in his role having completed a full three years in 2018 as CFO particularly in light of complexities in the global financial
environment. 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 has no increase due to his retirement on July 31, 2018. 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.
Each of the base salaries set for the NEOs was within the range established for his performance and position.
Incentive Cash Bonus for Fiscal 2019
For fiscal 2019, the measure of achievement under the Executive Incentive Cash Bonus Plan continues to be EBITDA. For fiscal 2019 awards,
we are eliminating the function goals for Mr. Watson and other functional leaders, such that their 2019 annual incentive bonus will be based
100% on corporate EBITDA. Other provisions of the fiscal 2019 plan, such as the use of business unit goals, are the same as the fiscal 2018
plan. As discussed above, Mr. Walker is not eligible for a 2019 annual incentive bonus given that he is retiring by August 31, 2018.
LTI Grants Awarded in Fiscal 2019
The Committee approved several changes to our LTI grants for fiscal 2019. First, based on feedback we received from shareholders during
fiscal 2018, we decided to add to our fiscal 2019 LTI mix for our executive leadership team performance share units that vest based on our TSR
relative to our peer group. For fiscal 2019, applicable executives (including NEOs) received a mix of relative TSR performance share units,
Herman Miller Value-Added performance share units, restricted stock units, and stock options, each making up 25% of the total LTI grant value.
Herman Miller, Inc., and Subsidiaries 39
Compensation Discussion and Analysis (continued)
The target levels for the relative TSR performance share unit payouts are as follows:
Relative TSR Performance Percentile Compared to Peers
80th percentile or greater
65th percentile
50th percentile = target performance
40th percentile
30th percentile = minimum performance
Below 30th percentile
Payout % of Target
200%
150%
100%
75%
50%
0%
Second, we eliminated the share pool concept for fiscal 2019. The share pool was intended to allow all of our LTI awards to be fully deductible
under Section 162(m) as performance-based compensation, but given the elimination of the performance-based exception under 162(m) due
to the Tax Cuts and Jobs Act, the pool is no longer relevant. (See the discussion under the heading “Deductibility of Compensation” below for
more information.)
The target value of the LTI grants that the Committee and Board established for our NEOs (including all types) in July 2017 for final grants to
occur in July 2018 (fiscal 2019) based on fiscal 2018 performance as a percent of base salary was 125% for Jeffrey Stutz and Gregory Bylsma
and 90% for Ben Watson. The total target value was allocated approximately equaling among the award types that we granted to each NEO:
RSUs, Herman Miller Value Added Performance Share Units, Relative Total Shareholder Return Performance Share Units and stock options.
Mr. Walker is not eligible to receive a fiscal 2019 LTI award due to his retirement.
The following table discloses the types of awards granted in July 2018 (fiscal 2019) based upon fiscal 2018 performance:
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Hedging Policy
Restricted
Stock Units
Herman Miller
Value Added
Performance
Share Units
Relative Total
Shareholder Return
Performance Share
Units
Number of
Options
Option
Exercise
Price
—
3,672
3,794
—
2,526
—
3,672
3,794
—
2,526
—
2,633
2,721
—
1,812
—
17,512
18,096
—
12,049
—
$38.30
$38.30
—
$38.30
The Committee and the Board of Directors have 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.
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. As such, we have established stock ownership guidelines, which apply to the nine
members of the executive leadership team and, beginning January 1, 2018, certain other corporate officers who work alongside the Executive
Leadership Team to ensure global strategic alignment across business units and functions. The stock ownership guidelines require these
individuals to own shares of our 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% of salary
Certain other direct reports to the CEO
Other corporate officers
6 times base salary
4 times base salary
3 times base salary
1 times base salary
40 2018 Proxy Statement
Compensation Discussion and Analysis (continued)
Stock Retention Requirements
Until the ownership guidelines are met, the executive must retain 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.
Incentive Clawback
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 Annual Executive Incentive Cash
Bonus Plan give the Committee the ability to “claw back” incentive bonus payments and LTI grants in the event of certain restatements.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation in excess of $1 million
paid for any fiscal year to individuals who are covered executives. For compensation paid for fiscal 2018, our covered executives were limited
to our CEO and our other three most highly compensated corporate officers for that year, other than our CFO. However, for compensation that
we paid for fiscal 2018, Section 162(m) generally exempted compensation that qualified as “performance based” from the $1 million deduction
limit. It was generally our intention that the compensation we paid to our covered executives for fiscal 2018 was deductible under Section 162(m)
of the Code. Despite our intentions, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the
regulations issued under that section, we cannot assure that compensation we intend to satisfy the requirements for deductibility under Section
162(m) will so qualify. In addition, the Committee reserved the right to provide compensation during fiscal 2018 that did not qualify as performance-
based compensation under Section 162(m) to the extent it believed such compensation was 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.
Starting with our fiscal 2019, as a result of changes made to the applicability of Section 162(m) of the Code pursuant to the Tax Cuts and Jobs
Act, our number of covered executives will expand to include our covered executives for 2018 plus any executive who, starting with fiscal 2019,
serves as our CEO or CFO, or who is among the three most highly compensated executive officers, for any fiscal year. In addition, only qualifying
performance-based compensation that is paid pursuant to a binding contract in effect on November 2, 2017 will be exempt from the deduction
limit. Accordingly, any compensation that we pay in the future pursuant to new compensation arrangements entered into after November 2,
2017, even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive. Because of these
changes to Code Section 162(m) by the Tax Cuts and Jobs Act, some of the compensation that we provide to our named executive officers in
2019 and future years may not be deductible under Section 162(m).
Post-Employment Compensation
The NEOs are generally “at will” employees. This means that they can be discharged at any time and for no reason. We have agreed to pay
corporate officers severance if they are terminated for reasons other than malfeasance or voluntary separation. For each NEO, severance would
be equal to 18 months of base salary subject to the employee not competing with us during that period. The Committee’s determination as to
the amount of severance payments for these NEOs is the result of benchmarking our practices to the Market Data. In addition, we maintain the
health insurance on such employee during the salary continuation period. In exchange for such payments the employee provides the company
with a mutual release of all claims and agrees not to work for a competitor or solicit our employees during the salary continuation period.
Executive Compensation Committee Report
The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with
Management and, based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and
Analysis be included in the Proxy Statement.
J. Barry Griswell (chair)
David Brandon
John R. Hoke III
Herman Miller, Inc., and Subsidiaries 41
Summary Compensation Table
The summary compensation table below shows the compensation for the NEOs for the fiscal years ended June 2, 2018 (2018), June 3, 2017
(2017) and May 28, 2016 (2016). The details of the company's executive compensation program are found in the Compensation Discussion
and Analysis (or CD&A) above.
Name and Principal Position
Year
Salary
($)
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
2018
966,327 1,782,466
920,000
President and Chief Executive Officer
2017
916,846 1,626,984 1,240,002
894,142
684,059
2016
896,635 1,800,797
612,500
1,287,926
Jeffrey M. Stutz
2018
442,116
734,197
146,670
Executive Vice President and Chief
2017
392,115
225,982
316,667
Financial Officer
Gregory J. Bylsma
2016
336,538
122,480
2018
461,058
820,191
183,335
President, North America Contract
2017
438,423
347,057
379,166
2016
426,904
478,629
Andrew J. Lock(5)
2018
360,062
549,812
106,144
President, Herman Miller International
2017
334,713
237,645
272,695
2016
386,188
371,695
B. Ben Watson
2018
426,058
639,249
107,997
Chief Creative Officer
2017
403,108
190,314
223,246
2016
391,923
283,019
265,888
190,176
314,226
269,903
214,257
437,662
343,464
230,863
346,899
261,429
227,474
354,377
165,106
4,728,041
233,597
4,701,488
116,742
4,714,600
40,183
1,629,054
57,383
1,182,323
11,432
784,676
49,080
1,783,567
83,616
1,462,519
42,984
1,386,179
12,882
207,131
1,579,495
144,700
205,312
1,425,928
59,521
90,709
1,255,012
40,737
1,475,470
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 2, 2018 included in our Annual
Report on Form 10-K.
Includes the amounts earned in fiscal 2018 and paid in fiscal 2019 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 2018 is calculated based on the
The amounts for fiscal 2018 for all other compensation are described in the table below.
average annual conversion rate for fiscal 2018 of £1=$1.34303.
Bundled Benefits(a)
Car allowance
(UK only)
Payment in lieu of
Pension
Contribution
Long-term Disability
Insurance
Nonqualified
Deferred
Compensation
Contribution(b)
134,835
33,877
39,364
3,888
2,417
3,435
Total Other
Compensation
165,106
40,183
49,080
207,131
40,737
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock(c)
B. Ben Watson
26,383
3,889
6,281
33,679
12,007
161,445
3,543
37,194
(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. Walker include the approved amount for calendar 2018 plus carryover for calendar years 2017 and 2016.
(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 2018 of £1=$1.34303.
42 2018 Proxy Statement
Grants of Plan-Based Awards
The Grants of Plan-Based Awards table below sets forth information on equity awards granted by the company to the NEOs during fiscal 2018
under the Long-Term Incentive Plan (LTI Plan) and the possible payouts to the NEOs under the Annual Executive Incentive Cash Bonus Plan
(Annual Cash Bonus Plan) for fiscal 2017. The Compensation Discussion and Analysis provides further details of grants under the LTI Plan, as
well as the performance criteria under the Annual Cash Bonus Plan. (The LTI grants are discussed in the CD&A under the heading Long-Term
Equity Incentives Grants Awarded in Fiscal 2018).
Name
Grant
Date
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity Incentive Plan
Awards (2)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Brian C. Walker
Jeffrey M. Stutz
07/18/17
07/18/17
07/18/17
07/18/17
07/18/17
07/18/17
02/09/18
0
27,259
54,518
0
966,327
1,932,654
0
4,346
8,692
Gregory J. Bylsma
07/18/17
0
5,432
10,864
0
287,375
574,750
Andrew J. Lock
B. Ben Watson
07/18/17
07/18/17
02/09/18
07/18/17
07/18/17
07/18/17
02/09/18
07/18/17
07/18/17
07/18/17
02/09/18
0
299,688
599,376
0
3,145
6,290
0
234,040
468,080
0
3,200
6,400
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)
27,259
4,346
12,346
5,432
12,757
3,145
9,442
3,200
11,797
143,975
33.75
22,953
33.75
28,691
33.75
16,611
33.75
16,901
33.75
862,475
919,991
920,000
137,507
146,678
146,670
450,012
171,868
183,330
183,335
464,993
99,508
106,144
106,144
344,161
101,248
108,000
107,997
430,001
0
276,938
553,876
(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 as 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 PSUs provide 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.
Herman Miller, Inc., and Subsidiaries 43
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 2,
2018. 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
07/13/15
30,362
29.030 07/13/25
07/19/16
07/18/17
150,198
31.860 07/19/26
143,975
33.750 07/18/27
Jeffrey M. Stutz
01/19/11
07/18/11
07/13/15
646
1,773
25.060 01/19/21
25.750 07/18/21
07/19/16
19,177
38,356
31.860 07/19/26
07/18/17
02/09/18
22,953
33.750 07/18/27
Gregory J. Bylsma
07/18/11
4,310
25.750 07/18/21
07/13/15
07/19/16
22,962
45,926
31.860 07/19/26
07/18/17
02/09/18
Andrew J. Lock
07/13/15
28,691
33.750 07/18/27
07/19/16
16,514
33,030
31.860 07/19/26
07/18/17
02/09/18
B. Ben Watson
07/18/11
07/17/12
07/13/15
16,611
33.750 07/18/27
7,388
9,363
25.750 07/18/21
18.170 07/17/22
07/19/16
13,520
27,040
31.860 07/19/26
07/18/17
02/09/18
16,901
33.750 07/18/27
22,339
27,359
27,671
1,519
3,800
4,412
12,415
5,938
5,836
5,514
12,828
4,610
3,996
3,193
9,494
3,510
3,200
3,248
11,863
733,836
898,743
908,992
—
—
49,899
124,830
144,934
407,833
—
195,063
191,713
181,135
421,400
151,439
131,269
104,890
311,878
—
—
115,304
105,120
106,697
389,700
38,565
26,365
27,259
2,623
3,662
4,346
10,250
5,624
5,432
7,960
3,851
3,145
6,061
3,084
3,200
1,266,860
866,090
895,458
—
—
86,166
120,297
142,766
—
—
336,713
184,748
178,441
—
261,486
126,505
103,313
—
—
—
199,104
101,309
105,120
—
(1) Options vest in three equal annual installments beginning on the first anniversary of the grant date.
(2)
The 02/09/18 awards issued reflect credited dividends through the end of fiscal 2018 and cliff vest after two years. The remaining awards reflect credited dividends through
the end of fiscal 2018 and cliff vest after three years.
(3) Assumes a stock price of $32.85 per share, which was the closing price of a share of common stock on the last trading day of fiscal 2018.
The Performance Share Unit awards cliff vest after three years, depending upon the achievement of certain EBITDA and TSR return goals.
(4)
44 2018 Proxy Statement
Option Exercises and Stock Vested
This table provides information on the number and value of options exercised in fiscal 2018 and the vesting of restricted stock (on an aggregate
basis).
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Option Awards
Stock Awards
Number of
Shares
Acquired on
Exercise (#)
Value
Realized
on Exercise
($)(1)
Number of
Shares
Acquired on
Vesting (#)
Value Realized
on Vesting ($)(2)
306,860
2,134,198
5,765
20,631
22,491
93,469
257,951
312,582
55,252
3,069
17,535
13,359
9,118
1,892,379
105,130
599,583
456,883
311,813
(1) Represents the difference between the exercise price and the fair market value of our common stock on the date of exercise.
(2) Value based on the closing market price of the company's common stock on the vesting date.
Pension Benefits
The Pension Benefits table below provides certain information regarding the retirement benefits available under the only retirement plan of the
company that is not a defined contribution plan to the only NEO that participates in the plan at the end of fiscal 2018.
The retirement plan is described in the Compensation Discussion and Analysis.
Name
Plan Name
Number of Years
Credited Service (#)
Present Value of
Accumulated Benefit ($)
Payments During Last
Fiscal Year ($)
Andrew J. Lock(1)
Herman Miller Limited Retirement Plan
14
1,323,243
(1) Mr. Lock was covered from 1990-2002 and beginning again during fiscal 2011 under the UK Pension Plan which is now frozen.
Herman Miller, Inc., and Subsidiaries 45
Nonqualified Deferred Compensation
The Nonqualified Deferred Compensation table below provides certain information relating to our two compensation plans that provide for the
deferral of compensation on a basis that is not tax-qualified.
Name
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Andrew J. Lock
B. Ben Watson
Executive Contributions
in Last Fiscal Year ($)(1)
Registrant
Contributions in Last
Fiscal Year ($)(2)
Aggregate Earnings in
Last Fiscal Year ($)(3)
Aggregate
Withdrawals/
Distributions ($)
Aggregate Balance at
Last Fiscal Year End
($)
131,876
24,680
49,089
134,835
33,877
39,364
46,489
37,194
325,032
17,041
22,591
38,373
34,866
324,477
1,913
87,751
3,295,447
237,697
474,141
315,411
488,511
(1) Amounts in this column represent the deferrals of base salary earned in fiscal 2018 which are included in Summary Compensation Table under Salary, plus deferral of amounts
earned in fiscal 2017 and paid in fiscal 2018 under the Annual Executive Incentive Cash Bonus Plan which was included in the fiscal 2017 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 Annual Executive Incentive Cash Bonus Plan payment each year. The company matched any such deferral, up to 50 percent of the
incentive 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 and incentive compensation 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.
46 2018 Proxy Statement
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control
The following table quantifies the estimated payments that would be made to each NEO in the event of his termination by the company
without cause, in the event of his termination under circumstances that would trigger payments under change in control agreements, and
upon a change in control without a termination of employment, in each case assuming that the change in control and/or termination occurred
June 2, 2018.
Name
Benefit
Death
Disability
Retirement Without Cause Change in Control
Brian C. Walker
Jeffrey M. Stutz
Gregory J. Bylsma
Cash Severance(1) (2)
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(3) (4)
Unexercisable Options
Total
Retirement Benefits
Other Benefits
Health and Welfare(5)
Outplacement
Total
Total
Cash Severance(1) (2)
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(3) (4)
Unexercisable Options
Total
Retirement Benefits
Other Benefits
Health and Welfare(5)
Outplacement
Total
Total
Cash Severance(1) (2)
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(3) (4)
Unexercisable Options
Total
Retirement Benefits
Other Benefits
Health and Welfare(5)
Outplacement
Total
Total
$1,462,500
$5,850,000
2,541,575
1,366,466
2,541,575
1,366,466
2,427,018
1,532,427
1,366,466
3,908,041
3,908,041
2,427,018
2,898,893
2,541,575
2,001,056
264,679
4,807,310
—
—
—
$3,908,041
—
—
—
$3,908,041
—
—
—
$2,427,018
26,637
25,000
51,637
$4,413,030
53,274
25,000
78,274
$10,735,584
$945,650
$1,755,650
727,487
116,792
727,487
116,792
709,222
575,990
116,792
844,279
844,279
709,222
692,782
727,487
217,967
37,972
983,426
—
—
—
$844,279
—
—
—
$844,279
—
—
—
$709,222
6,107
25,000
31,107
$1,669,539
8,142
25,000
33,142
$2,772,218
$969,767
$1,806,767
989,298
345,823
989,298
345,823
966,469
781,670
345,823
1,335,121
1,335,121
966,469
1,127,493
989,298
472,280
45,467
1,507,045
—
—
—
$1,335,121
—
—
—
$1,335,121
—
—
—
$966,469
23,013
25,000
48,013
$2,145,273
30,684
25,000
55,684
$3,369,496
Herman Miller, Inc., and Subsidiaries 47
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control (continued)
Name
Benefit
Death
Disability
Retirement Without Cause Change in Control
Andrew J. Lock
B. Ben Watson
Cash Severance(1) (2)
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(3) (4)
Unexercisable Options
Total
Retirement Benefits
Other Benefits
Health and Welfare(5)
Outplacement
Total
Total
Cash Severance(1) (2)
Prorated Annual Incentive
Equity
Restricted Stock Units
Performance Shares(3) (4)
Unexercisable Options
Total
Retirement Benefits
Other Benefits
Health and Welfare(5)
Outplacement
Total
Total
$843,060
$1,476,786
699,512
258,294
699,512
258,294
686,295
570,263
258,294
957,806
957,806
686,295
828,557
699,512
331,510
17,986
1,049,008
—
—
—
$957,806
—
—
—
$957,806
—
—
—
$686,295
8,010
25,000
33,010
$1,704,627
10,681
25,000
35,681
$2,561,475
$908,848
$1,682,848
716,855
204,383
716,855
204,383
703,605
587,966
204,383
921,238
921,238
703,605
792,349
716,855
278,879
26,770
1,022,504
—
—
—
$921,238
—
—
—
$921,238
—
—
—
$703,605
18,978
25,000
43,978
$1,745,175
25,304
25,000
50,304
$2,755,656
(1)
"Without Cause" amount equals 18 months of base salary and "CIC" amount equals 3x (CEO) or 2x (Other NEOs) base salary + greater of prior year actual bonus or
current year target bonus.
Includes 2018 retention bonus (1x actual 2018 bonus amount) for all NEOs, other than the CEO.
(2)
(3) Actual shares earned are based on actual performance through the end of the performance period for outstanding performance share units (PSUs) where more than 50%
of the performance period has elapsed and target for outstanding PSUs where less than 50% of the performance period has elapsed. For PSUs with a performance period
ending after June 2, 2018 (our 2018 fiscal year end), the following performance estimates were used: Relative TSR PSUs granted in 2015 = 200% of target, Herman Miller
Value Added PSUs granted in 2016 = 0% of target, Herman Miller Value Added PSUs granted in 2017 =100% of target (less than 50% of the performance period has elapsed).
There is no accelerated vesting of performance share units or stock options under a "Retirement" scenario (awards either continue to vest or are pro-rated for time employed
since grant).
"Without Cause" amount equals 18 months of benefits continuation and "CIC" amount equals 36 months (CEO) or 24 months (Other NEOs) benefits continuation.
(5)
(4)
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 are 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 his 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 he became disabled as of June 2, 2018,
for as long as he is disabled or until age 65.
48 2018 Proxy Statement
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control (continued)
Potential Payments upon Termination in Connection with Change in Control
In fiscal 2018, each NEO was party to a change in control agreement with the company. The change in control agreements are all “double
trigger” agreements. This means that both these 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 agreements are 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
benefit 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 and the Executive Incentive Cash Bonus Plan provide for the acceleration
of payment even if the NEO has not been terminated. In addition, the vesting of each restricted stock unit and performance share unit will
accelerate upon a change in control under the terms of the award agreements. These are so-called single trigger payment provisions. These
so-called single trigger payments will no longer exist starting with grants in July 2018. 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.
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.
Herman Miller, Inc., and Subsidiaries 49
Potential Payments upon Termination, Death, Disability, Retirement or Change in Control (continued)
Long-Term Incentive Plan
Change in Control
Under our 2011 Long-Term Incentive Plan, except as otherwise provided in an award agreement, awards that are outstanding at the time of a
change in control transaction, will accelerate and immediately vest if (1) awards are not assumed or continued by the surviving corporation or
(2) if the participant’s employment is terminated without cause or by the participant with good reason within a one-year period following the
change in control. However, all our award agreements for currently outstanding awards provide that the awards will vest immediately upon a
change in control. Going forward starting in July 2018, all awards shall be double-trigger awards. Specifically, with respect to performance-based
awards,, 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. We quantify the benefits that each named executive officer would receive
upon a change in control in the table under the heading "Potential Payments upon Termination, Death, Disability, Retirement or Change in
Control."
Death, Disability and Retirement
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 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 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.
50 2018 Proxy Statement
Pay Ratio
Pursuant to the SEC’s guidance under Item 402(u) of Regulation S-K, we are required to disclose the annual total compensation for both our
Chief Executive Officer and median employee and the ratio of those two amounts. For 2018:
•
•
•
The annual total compensation of our Chief Executive Officer was $4,728,041.
The annual total compensation of our identified median employee was $47,721.
The ratio of the annual total compensation of our Chief Executive Officer to that of our identified median employee was 99 to 1.
The methodology we used to identify our median employee is summarized in the following table:
Item
Determination Date
Employee Population
Consistently Applied Compensation
Measure (CACM)
Description
March 31, 2018
Total employee population (excluding the CEO) as of the determination date was
7,626
Gross wages, measured over the twelve-months ending on the determination date.
For new hires, we annualized gross wages for any employees hired during the
twelve-month period ending on March 31, 2018. For non-U.S. employees, values
were converted into U.S. Dollars using the exchange rates in effect on the
determination date
Director Compensation
The following Director Compensation table provides information on the compensation of each director for fiscal 2018. The standard annual
compensation of each director is $175,000. 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 guidelines 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 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, options are not 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. Each account is credited with a number of 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. The company maintains a Rabbi-Trust relating to obligations under
this plan.
Herman Miller, Inc., and Subsidiaries 51
Director Compensation (continued)
Stock Ownership Guidelines
Director stock ownership guidelines have been in effect since 1997. These guidelines, like those applicable to 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 $10,000 for all but two
Directors as to whom the value has been included in All Other Compensation in the Director Compensation Table.
Director Compensation Table
Name
Mary Vermeer Andringa
David A. Brandon
Brenda Freeman
Douglas D. French
J. Barry Griswell
John R. Hoke III
Lisa A. Kro
Heidi Manheimer
Michael A. Volkema
Fees Earned or
Paid in Cash ($)(1)
Stock Awards ($)(2) Option Awards ($)(2)
All Other
Compensation ($)(3)
Total ($)
85,000
181,000
179,000
183,000
75,000
181,000
145,000
90,000
250,000
100,000
115,000
50,000
93,000
25,907
13,203
185,000
206,907
179,000
183,000
190,000
194,203
195,000
183,000
250,000
(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 associated with hypothetical investments 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 2018, seven 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 June 2, 2018, included in our Annual Report on Form 10-K.
(3) Represents value received on product purchases under employee discount program.
As of June 2, 2018, 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
Michael A. Volkema
52 2018 Proxy Statement
Aggregate Number of Outstanding Options
—
—
—
—
—
—
—
—
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 2, 2018.
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))
(a)
Equity compensation plans approved by security holders
1,922,049 $
30.6345
Equity compensation plans not approved by security holders
Total
1,922,049 $
30.6345
3,689,364
3,689,364
(1) The number of shares that remain available for future issuance under our plans is 3,689,364 which includes 2,697,625 under the Long-Term Incentive Plan and 991,739 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 SEC. 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 Andrew Lock who had one delinquent filing representing three
same-day-sale stock option exercises and H. Timothy Lopez who had one delinquent filing representing one award vest.
Certain Relationships and Related Party Transactions
The Board of Directors has adopted a written 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, whether to 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.
Herman Miller, Inc., and Subsidiaries 53
Reconciliation of Non-GAAP Financial Measures
This report contains references to Adjusted diluted earnings per share ("EPS"), Organic net sales and 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; other special charges not indicative of ongoing performance such as costs associated
with the CEO transition plan announced in fiscal 2018; and non-cash impairment expenses. Organic net sales represents the change in sales
excluding currency translation effects, the divestiture of owned dealers, the impact of the change in DWR shipping terms in fiscal 2018 and the
impact of an extra week of operations in fiscal 2017 as compared to fiscal 2018. Adjusted EBITDA is calculated by excluding depreciation and
amortization from Adjusted Operating Earnings (Loss) and including equity income and other income and expenses. 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 EPS to Adjusted EPS for the fiscal years indicated:
Earnings per Share - Diluted
Less: One-time impact of adopting U.S. Tax Cuts and Job Acts
Add: Other special charges
Less: Gain on sale of dealer
Add: Impairment charges
Add: Restructuring expenses
Adjusted Earnings Per Share - Diluted
June 2, 2018
June 3, 2017
$
2.12 $
2.05
(0.05)
0.16
—
—
0.07
2.30 $
—
—
(0.02)
0.07
0.06
2.16
$
Weighted average shares outstanding (used for calculating Adjusted Earnings per share)
60,311,305
60,554,589
The following table reconciles Net Sales to Organic net sales by segment for the fiscal years ended:
Net Sales, as reported
% change from PY
Proforma Adjustments
Dealer divestitures
Currency translation effects (1)
Impact of extra week in FY17
Impact of Change in DWR Shipping
Terms
Organic net sales
% change from PY
June 2, 2018
June 3, 2017
North
America
$1,284.4
ELA
Specialty Consumer
Total
$ 434.5
$ 305.4
$ 356.9
$2,381.2
North
America
$1,276.6
ELA
Specialty Consumer
Total
$ 385.5
$ 298.0
$ 318.1
$2,278.2
0.6%
12.7%
2.5%
12.2%
4.5%
—
(3.9)
—
—
—
(12.6)
—
—
—
(0.1)
—
—
—
(0.2)
—
—
(25.8)
(16.8)
—
—
—
—
—
—
—
(25.8)
—
—
(21.7)
(6.3)
(4.3)
(4.7)
(37.0)
(5.0)
(5.0)
$1,280.5
$ 421.9
$ 305.3
$ 351.7
$2,359.4
$1,229.1
$ 379.2
$ 293.7
$ 313.4
$2,215.4
4.2%
11.3%
3.9%
12.2%
6.5%
(1) Currency translation effects represent the estimated net impact of translating current period sales using the average exchange rates applicable to the comparable prior year
period.
54 2018 Proxy Statement
Reconciliation of Non-GAAP Financial Measures (continued)
The following table reconciles Operating earnings to Adjusted operating earnings by segment for the fiscal years ended:
June 2, 2018
June 3, 2017
North
America
$ 166.3 $ 35.5 $
ELA
Specialty Consumer Corporate
Total
North
America
ELA
Specialty Consumer Corporate
Total
Operating earnings (loss)
8.9 $
13.9 $
(47.1) $177.5 $ 176.0 $ 35.9 $
8.1 $
4.8 $
(34.0) $190.8
% Net sales
12.9% 8.2%
2.9%
3.9%
n/a
7.5% 13.8% 9.3%
2.7%
1.5%
n/a
8.4%
Add: Special charges
Add: Impairment charges
Less: Gain on sale of dealer
Add: Restructuring expenses
—
—
—
1.8
2.5
—
—
3.9
—
—
—
—
11.3
13.8
—
5.7
—
—
—
—
—
(0.7)
2.9
—
—
—
1.0
—
7.1
—
0.9
—
—
—
—
—
—
0.6
—
—
—
—
—
7.1
(0.7)
5.4
Adjusted operating earnings (loss) $ 168.1 $ 41.9 $
8.9 $
13.9 $
(35.8) $197.0 $ 178.2 $ 36.9 $
16.1 $
5.4 $
(34.0) $202.6
The following table reconciles Current Year Net Income to Adjusted EBITDA used for the Annual Executive Incentive Cash Bonus Plan:
$
$
(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
Third party consulting costs, net of amortization
Costs associated with the CEO transition plan
Adjusted EBITDA
Fiscal Year Ended
June 2, 2018
128.1
13.5
42.4
66.9
250.9
(1.9)
8.2
4.8
4.4
266.4
Herman Miller, Inc., and Subsidiaries 55
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 2, 2018, includes the Notice Regarding the Availability of Proxy Materials. A copy of the Notice of
2018 Annual Meeting of Shareholders and the 2018 Form 10-K (Annual Report) as well as the Proxy Statement, both filed with the SEC, 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 28, 2018
56 2018 Proxy Statement
© 2018 Herman Miller, Inc., Zeeland, Michigan Printed in U.S.A. please recycle P.MS2854-1
® 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
2Y18
Annual Report
2Y18
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 2, 2018
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)
Name of exchange on which registered
NASDAQ Stock Market LLC
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 2, 2017, was $2,040,363,044 (based on
$34.55 per share which was the closing sale price as reported by NASDAQ).
The number of shares outstanding of the registrant's common stock, as of July 26, 2018: Common stock, $.20 par value - 59,694,316 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 8, 2018, are incorporated into Part
III of this report.
Yes [__] No [ X ]
This page intentionally left blank.
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
Exhibit Index
Signatures
Schedule II Valuation and Qualifying Accounts
2
5
9
10
11
11
11
12
14
16
41
43
84
84
84
85
85
85
85
85
86
87
89
90
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®, Overlay™ and Resolve®). The company also offers a broad array of seating (including Embody®, Aeron®,
Mirra2™, Setu®, Sayl®, Verus®, Cosm™, Lino™, 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 78 percent of the company's sales in the fiscal year
ended June 2, 2018, 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.
2 2018 Annual Report
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 4 percent of the company's net sales in the fiscal year ended June 2,
2018. The company estimates that the largest single end-user customer accounted for $109.8 million, $102.3 million and $95.7 million of the
company's net sales in fiscal 2018, 2017, and 2016, respectively. This represents approximately 5 percent, 5 percent and 4 percent of the
company's net sales in fiscal 2018, 2017 and 2016, respectively. The company's 10 largest customers in the aggregate accounted for
approximately 19 percent, 18 percent, and 18 percent of net sales in fiscal 2018, 2017, and 2016, respectively.
Backlog of Unfilled Orders
As of June 2, 2018, the company's backlog of unfilled orders was $344.5 million. At June 3, 2017, the company's backlog totaled $322.6 million.
It is expected that substantially all the orders forming the backlog at June 2, 2018, 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.
Herman Miller, Inc. and Subsidiaries 3
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 $57.1 million, $58.6 million and $62.4 million on research and development
activities in fiscal 2018, 2017 and 2016, 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 2, 2018, approximately 5 percent of the company's employees
are covered by collective bargaining agreements, most of whom are employees of its Nemschoff and Herman Miller Holdings Limited subsidiaries.
As of June 2, 2018, the company had 7,681 employees, representing a 3 percent increase as compared with June 3, 2017. 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®, POSH Imagine Desking System®, Ratio®, other seating and storage 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, Brazil and India. Sales are made through wholly owned subsidiaries or branches in Canada, France, Germany, Italy, Japan,
Korea, 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. You may read and copy any materials we
file with the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.
4 2018 Annual Report
Item 1A Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and
uncertainties described below are not the only ones we face; others, either unforeseen or currently deemed less significant, may also have a
negative impact on our company. If any of the following actually occurs, our business, operating results, cash flows, and financial condition could
be materially adversely affected.
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 intend to 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 intend to 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 intend to implement a range of initiatives aimed at optimizing
profitability. These include implementing targeted cost reductions as well as actions aimed at optimizing product pricing and promotions, product
and component sourcing, logistics, and distribution. Finally, we intend to 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.
To meet these goals, we believe we will be required to continually invest in the research, design, and development of new products and services,
and 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.
Tariffs imposed by the U.S. government could have a material adverse effect on our results of operations.
Earlier this year, the U.S. recently announced tariffs of 25 percent on steel and 10 percent on aluminum imported from several countries where
we conduct business. These tariffs were met with countering tariffs from trade partners of the U.S. as well as increased, broader tariffs to be
levied by the U.S. on targeted countries, including China. These tariffs and the possibility of broader trade conflicts stemming from the tariffs
could negatively impact our business in the future. The tariffs on imports have significantly impacted the cost of domestic U.S. steel in recent
months, a key commodity that we consume in producing our products, which will negatively impact our future gross margin and our operating
performance if U.S. costs do not stabilize. Additionally, there is a risk that the U.S. tariffs on imports and the countering tariffs on U.S. produced
exports will trigger a broader global trade conflict. This has the potential to significantly impact global trade and economic conditions in many
of the regions where we do business.
Adverse economic and industry conditions could have a negative impact on our business, results of operations, and financial condition.
Customer demand within the contract office furniture industry is affected by various macro-economic factors; general corporate profitability,
white-collar employment levels, new office construction rates, and existing office vacancy rates are among the most influential factors. History
has shown that declines in these measures can have an adverse effect on overall office furniture demand. Additionally, factors and changes
Herman Miller, Inc. and Subsidiaries 5
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
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, India and Brazil. 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
Global trade conflicts and trade policies
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
6 2018 Annual Report
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
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, include the impact of
the U.S. and retaliatory tariffs previously noted. 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 2018 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.
Herman Miller, Inc. and Subsidiaries 7
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.
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 53 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.
8 2018 Annual Report
Our business could be adversely impacted if we do not successfully manage the transition associated with the retirement of our
Chief Executive Officer and the appointment of a new Chief Executive Officer.
On February 5, 2018, we announced that Brian C. Walker plans to retire as President and Chief Executive Officer of the Company by August
31, 2018. Our Board of Directors has initiated a search for his successor and expects that search to be completed relatively soon. Such
leadership transitions can be difficult to manage and could present challenges associated with our relationships with our dealers, suppliers
and employees.
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 2, 2018 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
Dongguan, China*
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
423,700
422,600
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, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse
Manufacturing, Warehouse, Office
Warehouse, Office
Office, Retail
Warehouse
Warehouse, Retail
Office, Retail
As of June 2, 2018, the company leased 32 DWR retail studios, including the Herman Miller Flagship store in New York that totaled approximately
360,000 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.
* On March 14, 2018, the company announced a facilities consolidation plan related to its China Manufacturing facilities. Plans are underway
to close and consolidate the owned Dongguan and leased Ningbo facilities into a new leased facility in Dongguan. The company expects the
facilities consolidation to be completed by the first quarter of fiscal 2020.
10 2018 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 2, 2018 is as follows:
Name
Brian C. Walker
Andrew J. Lock
Gregory J. Bylsma
Steven C. Gane
Jeffrey M. Stutz
B. Ben Watson
H. Timothy Lopez
John McPhee
John Edelman
Kevin Veltman
Jeremy Hocking
Year Elected an
Executive Officer Position with the Company
Age
56
64
53
63
47
53
47
55
51
43
57
1996
2003
2009
2009
2009
2010
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
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.
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 26, 2018, there were
approximately 19,500 record holders, including individual participants in security position listings, of the company's common stock.
The high and low 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 2, 2018:
First quarter
Second quarter
Third quarter
Fourth quarter
Year
Year ended June 3, 2017:
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
$
$
$
$
35.30
37.00
41.84
39.20
41.84
36.46
36.14
36.45
34.05
36.46
$
$
$
$
29.25
32.05
33.65
29.95
29.25
27.87
26.99
29.75
28.55
26.99
$
$
$
$
34.00 $
34.55
36.75
32.85
32.85 $
35.94 $
32.65
30.45
32.70
32.70 $
0.55 $
0.55
0.49
0.53
2.12 $
0.60 $
0.53
0.37
0.55
2.05 $
0.1800
0.1800
0.1800
0.1800
0.7200
0.1700
0.1700
0.1700
0.1700
0.6800
Dividends were declared and paid quarterly during fiscal 2018 and 2017 as approved by the Board of Directors.
On July 2, 2018, the company's board of directors approved an increase in the quarterly dividend to $0.1975 per share. This payment will be
made on October 15, 2018 to shareholders of record at the close of business on September 1, 2018. 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 2, 2018:
Period
3/4/18 - 3/31/18
4/1/18 - 4/28/18
4/29/18 - 6/2/18
Total
Total Number of
Shares (or
Units) Purchased
Average Price
Paid per
Share or Unit
Total Number of Share (or
Units) Purchased as Part of
Publicly Announced Plans
or Programs
Maximum Number (or Approximate
Dollar Value) of Shares(or Units) that
May Yet be Purchased Under the Plans
or Programs (1)
65,767
301,500
143,566
510,833
32.24
32.10
31.75
65,767
301,500
143,566
$
$
$
510,833
76,324,290
66,647,521
62,088,967
(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 $300.0 million with no specified expiration date. The company may purchase up to an additional $62.1 million of shares under
its existing common stock repurchase program.
No repurchase plans expired or were terminated during the fourth quarter of fiscal 2018. 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 2018 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 2, 2018. The graph assumes an investment of $100 on June 2, 2013 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
2013
2014
2015
2016
2017
2018
$
$
$
100
100
100
$
$
$
113
118
124
$
$
$
102
129
150
$
$
$
119
129
148
$
$
$
125
150
192
$
$
$
129
168
228
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)
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
2018
2017
2016
2015
2014
$ 2,381.2
873.0
622.4
73.1
177.5
168.1
128.7
166.5
(62.7)
2.5
66.9
70.6
88.9
$ 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
4.5%
36.7
26.1
3.1
7.5
3.7
5.4
9.2
20.5%
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%
$
$
$
2.12
0.72
11.22
32.85
60.3
2.05
0.68
9.82
32.70
60.6
$
2.26
0.59
8.76
31.64
60.5
13.8%
36.9
26.0
3.3
7.6
543.9
4.6
9.0
25.0%
1.62
0.56
7.04
27.70
60.1
6.0 %
33.5
31.4
3.5
(1.4)
(132.4)
(1.2)
(2.3)
(6.5)%
$
(0.37)
0.53
6.14
31.27
59.0
$
$
$ 1,479.5
231.6
1.6
265.1
664.8
929.9
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 $(9.9) million at
June 3, 2018, $(2.1) million at June 3, 2017, $1.2 million at May 29, 2010, $2.4 million at May 30, 2009, and $0.5 million at May 31, 2008.
$ 1,306.3
106.2
1.3
197.8
587.7
785.5
$ 1,192.7
110.1
1.3
290.0
420.3
710.3
1,235.2
90.5
1.2
221.9
524.7
746.6
995.6
83.2
1.2
250.0
364.3
614.3
14 2018 Annual Report
Review of Operations
(In millions, except key ratios and per share data)
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
2013
2012
2011
2010
2009
2008
$ 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
$ 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
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)
2.9%
34.1
24.3
3.4
6.5
(9.3)
3.8
7.6
24.7%
4.5%
34.3
23.2
3.1
8.0
6.2
4.4
9
34.4%
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)
$
$
$
$
1.16
0.43
5.31
28.11
58.8
951.2
96.8
1.3
250.0
311.7
561.7
$
$
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
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, Korea, 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 in the United Kingdom. Manufacturing operations
globally also include facilities located in 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.
A key element of the company's growth strategy is to scale the Consumer business through the company's subsidiary, Design Within Reach
(DWR). The Consumer business provides a channel to bring Herman Miller's iconic and design-centric products to retail customers along with
other proprietary and third party products with a focus on design. The company continues 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 DWR's contract, catalog and digital channels.
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, Nemschoff 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.
16 2018 Annual Report
The company also reports a corporate category consisting primarily of unallocated corporate expenses including acquisition-related costs and
other unallocated corporate costs.
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 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.
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 2018, the Consumer business unit included 32 retail studios (including 31 operating under
the DWR brand and a Herman Miller Flagship store in New York City). This business also operates two outlet studios. The retail 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.
E-Commerce - The company sells products through its online stores, in which products are available for sale via the company's
website, hermanmiller.com, global e-commerce platforms, 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.
Herman Miller, Inc. and Subsidiaries 17
•
•
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 has recently 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 and profitability 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 with new products
and technology solutions, along with research that quantifies the positive impact to organizations from applying these concepts.
Delivering 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 creative direction and new product commercialization under common
leadership, the company is focused on reducing its time to market and meeting our customers' most critical needs through a robust
pipeline of new products and solutions.
Leveraging 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 complements this focused selling effort with enhanced digital platforms designed to make it easier for its contract
customers and dealer partners to find, specify and order products from any brand within the Herman Miller Group.
Driving Profit Optimization - 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. In 2018, two additional profit optimization phases were initiated in partnership with a third party consulting firm. The first
phase is a Consumer-focused initiative targeting $15 million to $20 million of gross annual profit improvement that began producing
benefits in the fourth quarter of fiscal 2018 and aims to achieve its run-rate savings target by the end of fiscal 2019. The second phase,
focusing on the company's North American Furniture Solutions segment, is in the early planning phases with initial opportunity estimates
of $20 million to $40 million that will be further defined over the upcoming fiscal year.
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 2018 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 the United States is expected to be positive.
BIFMA issued its most recent report in April 2018, which forecasts that the growth rate of office furniture sales will be 1.9 percent and 3.6 percent
in calendar 2018 and 2019, respectively. This forecast of growth is based primarily on GDP growth, industrial production, business fixed
investments and a favorable tax and regulatory environment in the U.S., tempered by the current global economic uncertainty.
Herman Miller, Inc. and Subsidiaries 19
Discussion of Business Conditions
Fiscal 2018 and fiscal 2017 contain 52 and 53 weeks, respectively. 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.
Net sales increased in 2018 to $2,381.2 million, an increase of 4.5 percent from the prior fiscal year. On an organic basis, which adjusts for
dealer divestitures, changes in foreign currency translation rates, a change in shipping terms at DWR and the impact of the extra week, net
sales increased by 6.5 percent(1) compared to last fiscal year. Each of our segments generated year-over-year net sales growth through a general
increase in demand when compared to the prior year. This growth was led by the ELA segment behind strong order generation in the EMEA
and Latin America regions as well as the Consumer segment, with growth in net sales driven by the recent work to transform the DWR retail
studio footprint as well as other growth initiatives at DWR.
While relatively high commodity costs and a competitive pricing environment pressured gross margins compared to last year, operating expenses
were controlled during the year, helping to deliver diluted earnings per share of $2.12 and adjusted diluted earnings per share of $2.30(1), which
represents growth of 3 percent and 6 percent, respectively, when compared to prior year diluted earnings per share of $2.05 and adjusted diluted
earnings per share of $2.16(1). Operating cash flow generation of $166.5 million for the year enabled the company to invest $70.6 million in
property, plant and equipment; repurchase $46.5 million of company shares; and, subsequent to the end of the fiscal year, announce both a 10
percent increase in the quarterly dividend to $0.1975 per share - the highest quarterly rate in Herman Miller's history - as well as investments
in Maars Living Walls and HAY.
Following a relatively flat year for sales growth in fiscal 2017, the North America segment saw order generation improve during fiscal 2018 and
generated sales growth of 0.6 percent during the year and 4.2 percent growth on an organic basis(1). While the prior year results were tempered
by an uncertain political environment in the United States, the current year results reflect improved confidence in the U.S. economy and a
generally positive response to the 2018 U.S. corporate income tax reform. Additionally, the North America segment continues to realize the
benefits of the Living Office framework and the recent improvements within the company's new product development process and focus on an
enhanced product offering. The North America segment saw a $10 million decrease in operating earnings during the year due to increased
discounting and pricing pressures in the market; increased commodity costs and incremental out-sourcing costs earlier in the year due to capacity
constraints in certain product lines. The $166.3 million of operating earnings generated during the year represented 12.9 percent of net sales
for fiscal 2018.
The ELA segment recorded a 12.7 percent increase in net sales during the year, 11.3 percent(1) after adjusting for the impact of changes in
foreign currency and the extra week of operations in the prior fiscal year. The growth in net sales reflects a significant increase in order generation
during the current year with order growth of 17.2 percent or 16.9 percent(1) on an organic basis. The ELA segment saw broad-based growth
across much of its business, with the EMEA and Latin America regions leading the way. This reflects an improved economic outlook in key
regional markets such as Mexico and Brazil as well as growth across mainland Europe helping to offset the continued uncertainty around the
United Kingdom's Brexit within the EMEA region. The ELA segment posted a $0.4 million decline in operating earnings relative to the prior year.
However, after adjusting for the impact of restructuring and other special charges recognized in the current fiscal year, adjusted operating
earnings improved by 14 percent(1) behind the significant orders and net sales growth during the year.
Sales for the Specialty segment were 2.5 percent higher than prior year, as reported, and were 3.9 percent higher on an organic basis(1), adjusting
primarily for the impact of the extra week in the fiscal 2017 results. The growth in the Specialty businesses was led by the Geiger and Herman
Miller Collection components which saw net sales growth of 13 percent and 12 percent, respectively, as reported during the year. This growth
was partially offset by lighter sales performance at Nemschoff and Maharam. While operating earnings for the segment increased by 10 percent
during the year, adjusted operating earnings decreased by 45 percent(1) during the year primarily due to challenges faced by Nemschoff in fiscal
2018 from lower volume, unfavorable product mix, a supplier disruption earlier in the year and increased warranty costs. Specialty did see strong
profitability from other components of the segment during the current year, and 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 generated net sales growth of 12.2 percent on an as reported and on an organic basis(1). DWR delivered
four quarters of comparable brand(2) growth during the year. Operating earnings and adjusted operating earnings increased by 190 percent and
157 percent(1), respectively, behind the strong net sales growth. The studio real estate expansion and investments to support long-term growth
in the Consumer business generated top-line growth, as well as improved profitability. During the fourth quarter, the Consumer segment also
began realizing the initial benefits from the profit optimization efforts that began earlier in the year. Additionally, growth this year from studios,
eCommerce, catalog and contract channels highlighted management's focus to improve the segment's performance across all channels.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
20 2018 Annual Report
(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 in fiscal 2017 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.
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 gains; expenses associated with restructuring actions taken to adjust our cost structure
to the current business climate; other special charges not indicative of ongoing performance such as costs associated with the CEO transition
plan announced in fiscal 2018; and non-cash impairment expenses. Organic net sales represents the change in sales excluding currency
translation effects, the divestiture of owned dealers, the impact of the change in DWR shipping terms in fiscal 2018 and the impact of an extra
week of operations in fiscal 2017 as compared to fiscal 2018. 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 for the fiscal years ended:
June 2, 2018
June 3, 2017
Net Sales, as reported
% change from PY
Proforma Adjustments
Dealer Divestitures
Currency Translation Effects (1)
Impact of Extra Week in FY17
Impact of Change in DWR Shipping Terms
Organic net sales
% change from PY
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
North
America
$ 1,284.4
ELA
Specialty Consumer
Total
$
434.5
$ 305.4
$
0.6%
12.7%
2.5%
356.9
12.2%
$ 2,381.2
4.5%
North
America
$ 1,276.6
ELA
Specialty Consumer
Total
$
385.5
$
298.0
$
318.1 $ 2,278.2
—
(3.9)
—
—
—
(12.6)
—
—
—
(0.1)
—
—
$ 1,280.5
$
421.9
$ 305.3
$
4.2%
11.3%
3.9%
—
(0.2)
—
(5.0)
351.7
12.2%
—
(16.8)
—
(5.0)
(25.8)
—
(21.7)
—
—
—
(6.3)
—
—
—
(4.3)
—
$ 2,359.4
$ 1,229.1
$
379.2
$
293.7
$
6.5%
(25.8)
—
—
—
(4.7)
—
(37.0)
—
313.4 $ 2,215.4
June 3, 2017
May 28, 2016
North
America
ELA
Specialty Consumer
Total
North
America
ELA
Specialty Consumer
Total
$ 1,276.6
$ 385.5
$
298.0
$
318.1
$ 2,278.2
$ 1,269.4
$
412.6
$
294.2
$
288.7
$ 2,264.9
0.6%
(6.6)%
1.3%
10.2%
0.6%
—
0.7
(21.7)
—
13.9
(6.3)
—
—
—
—
(4.3)
(4.7)
—
14.6
(37.0)
(8.8)
(30.8)
—
—
—
—
—
—
—
—
—
—
(39.6)
—
—
$ 1,255.6
$ 393.1
$
293.7
$
313.4
$ 2,255.8
$ 1,260.6
$
381.8
$
294.2
$
288.7
$ 2,225.3
(0.4)%
3.0%
(0.2)%
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 21
The following table reconciles Operating earnings to Adjusted operating earnings by segment for the fiscal years ended:
Operating Earnings (Loss)
% Net Sales
Add: Special charges
Add: Impairment charges
Less: Gain on sale of dealer
Add: Restructuring expenses
June 2, 2018
June 3, 2017
North
America
$ 166.3
ELA
Specialty Consumer Corporate
Total
$ 35.5
$
8.9
$
13.9
$
(47.1) $177.5
North
America
$ 176.0
ELA
Specialty Consumer Corporate
Total
$ 35.9
$
8.1
$
4.8
$
(34.0) $190.8
12.9%
8.2%
2.9%
3.9%
n/a
7.5%
13.8%
9.3%
2.7%
1.5%
n/a
8.4%
—
—
—
1.8
2.5
—
—
3.9
—
—
—
—
—
—
—
—
11.3
13.8
—
—
—
—
—
5.7
—
—
(0.7)
2.9
—
—
—
1.0
—
7.1
—
0.9
—
—
—
0.6
5.4
$
—
—
—
—
7.1
(0.7)
5.4
(34.0) $202.6
—
Adjusted Operating Earnings (Loss)
$ 168.1
$ 41.9
$
8.9
$
13.9
$
(35.8) $197.0
$ 178.2
$ 36.9
$
16.1
$
The following table reconciles EPS to Adjusted EPS for the years indicated:
Earnings per Share - Diluted
Add: Other special charges
Add: Impairment charges
Less: Gain on sale of dealer
Add: Restructuring expenses
Less: One-time impact of adopting U.S. Tax Cuts and Jobs Act
Adjusted Earnings per Share - Diluted
June 2, 2018
June 3, 2017
2.12 $
2.05
0.16
—
—
0.07
(0.05)
2.30 $
—
0.07
(0.02)
0.06
—
2.16
$
$
Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) – Diluted
60,311,305
60,554,589
22 2018 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 2018 % Change
from 2017
52 weeks
Fiscal 2017 % Change
from 2016
53 weeks
Fiscal 2016
52 weeks
$
$
2,381.2
1,508.2
873.0
695.5
177.5
9.4
168.1
42.4
3.0
128.7
0.6
128.1
4.5 % $
6.7 %
1.0 %
3.3 %
(7.0)%
(28.8)%
(5.3)%
(23.0)%
87.5 %
3.7 %
200.0 %
3.4 % $
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
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 2018
Fiscal 2017
Fiscal 2016
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%
63.3
36.7
25.9
0.2
3.1
29.2
7.5
0.4
7.1
1.8
0.1
5.4
—
5.4
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
Herman Miller, Inc. and Subsidiaries 23
Net Sales, Orders and Backlog - Fiscal 2018 Compared to Fiscal 2017
Consolidated net sales increased $103.0 million to $2,381.2 million from $2,278.2 million for the fiscal year ended June 2, 2018 compared to
the fiscal year ended June 3, 2017. The following items contributed to the change:
•
•
•
•
•
•
•
•
Sales volumes within the North American segment increased by approximately $61 million, resulting from increased demand within
the company's North America office furniture businesses.
Increased sales volumes within the ELA segment of approximately $54 million were driven by broad-based growth, primarily within
the Latin America and EMEA regions.
Incremental sales volumes within the Consumer segment of approximately $44 million were driven by growth across the DWR studio,
e-commerce and contract channels and by a change in shipping terms at Design Within Reach that resulted in approximately $5
million of net sales being accelerated into the first quarter of fiscal 2018.
Foreign currency translation had a positive impact on net sales of approximately $16 million.
Increased sales volumes within the Specialty segment of approximately $12 million due primarily to increased sales volumes for the
Herman Miller Collection and Geiger subsidiary.
Deeper contract price discounting, net of incremental price increases, reduced net sales in fiscal 2018 by roughly $21 million as
compared to the prior year. Of this change, approximately $11 million related to the ELA operating segment and approximately $10
million related to the North American operating segment.
The impact of the divestiture of the company's dealerships in Vancouver, Canada in the first quarter of fiscal 2018 and Philadelphia,
Pennsylvania in the third quarter of fiscal 2017 had the effect of reducing sales by $26 million as compared to the prior fiscal year.
Fiscal 2018 had 52 weeks as compared to fiscal 2017, which had 53 weeks. The impact of one less week in the current year
decreased net sales by approximately $37 million compared to the prior fiscal year.
Consolidated net trade orders for fiscal 2018 totaled $2,408.2 million compared to $2,282.9 million in fiscal 2017, an increase of 5.5 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 7.7 percent from last fiscal year. Order rates began the year at an average pace of approximately $46 million per week for
the first quarter and $48 million per week for the second quarter. For the third quarter, weekly order rates decreased to an average of approximately
$43 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 $48 million. The impact of changes in foreign currency for the fiscal year increased net
orders by approximately $14.6 million as compared to the prior year. Dealer divestitures had a $24.2 million unfavorable impact on current year
orders, and the extra week in fiscal 2017 generated an additional $36.9 million of orders in the prior fiscal year.
The company's backlog of unfilled orders at the end of fiscal 2018 totaled $344.5 million, a 6.8 percent increase from fiscal 2017 ending backlog
of $322.6 million. In fiscal 2018, the company completed the sale of its dealership in Vancouver. This dealer divestiture resulted in a reduction
to the consolidated ending fiscal 2018 backlog of approximately $5.0 million.
BIFMA reported an estimated period-over-period increase in U.S. office furniture shipments of approximately 1.4 percent for the twelve-month
period ended May 2018. By comparison, net sales increased for the company's North America segment by approximately 0.6 percent for the
twelve month period ended May 2018 as compared to the prior year. However, on an organic basis, net sales within the North America segment
increased 4.2 percent(1) when compared to the prior year.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
24 2018 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 2, 2018, was approximately 5.3 percent. By comparison, net sales growth
for the company's Consumer segment was approximately 12.2 percent during fiscal 2018.
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 $21 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.
Foreign currency translation had a negative impact on net sales of approximately $15 million.
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.
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.
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 fiscal 2016. Order rates began the year at an average pace of approximately $43 million per week for the
first quarter of fiscal 2017 and $44 million per week for the second quarter of fiscal 2017. For the third quarter of fiscal 2017, 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 of fiscal 2017 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 of fiscal 2017
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 fiscal 2016.
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.
(1) Non-GAAP measurements; see accompanying reconciliations and explanations.
Herman Miller, Inc. and Subsidiaries 25
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 increased for the company's North American Contract segment by approximately 0.8 percent
over the twelve months ended May 2017.
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.
Gross Margin - Fiscal 2018 Compared to Fiscal 2017
Consolidated gross margin for fiscal 2018 was 36.7 percent, a decrease of 120 basis points from the fiscal 2017 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 100 basis
points relative to the same period of last fiscal year.
• Material cost performance was impacted favorably as a result of value engineering, insourcing and supplier cost reductions at the
company's West Michigan manufacturing facilities, which increased gross margin by approximately 60 basis points as compared to
the same period of the prior fiscal year.
An unfavorable change in product mix that was driven by a shift out of seating and into lower margin product categories, as well as
a move from higher margin seating to lower margin seating, drove a decrease of approximately 40 basis points as compared to last
fiscal year.
Higher commodity costs drove an unfavorable year-over-year margin impact of approximately 40 basis points.
•
•
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 fiscal 2017 drove an unfavorable impact of approximately
40 basis points relative to fiscal 2016.
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 in fiscal 2017 relative to fiscal 2016.
A decrease in employee incentive costs increased consolidated gross margin by 30 basis points in fiscal 2017 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 in fiscal 2017 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 in fiscal 2017 as compared to fiscal 2016.
26 2018 Annual Report
Operating Expenses - Fiscal 2018 Compared to Fiscal 2017
Operating expenses in fiscal 2018 were $695.5 million, or 29.2 percent of net sales, which compares to $673.4 million, or 29.6 percent of net
sales in fiscal 2017. The following factors contributed to the change:
•
•
•
•
•
•
•
•
Restructuring and special charges, primarily associated with the planned CEO transition, consulting fees related to the company's
profit optimization initiatives and costs related to the International facilities consolidation plan increased operating expenses by $7.7
million compared to last fiscal year.
Compensation and benefit costs increased approximately $8 million relative to last fiscal year due to headcount increases, wage
inflation and higher employee incentive costs that are variable based on the achievement of earnings levels for the fiscal year relative
to plan.
Sales volume based costs, such as sales commissions and royalties, drove an increase in operating expenses of approximately $7
million.
Incremental costs related to the continued growth and expansion of DWR retail studios increased operating expenses by
approximately $5 million.
Foreign currency translation had an incremental unfavorable impact on operating expenses of approximately $3 million.
Depreciation expense increased by approximately $2 million and was driven primarily by investment in facilities.
The divestiture of the company's dealerships in Vancouver and Philadelphia in fiscal 2018 and 2017, respectively, resulted in a decrease
in operating expenses of $5.4 million.
Operating expenses were approximately $9 million lower in the current year due to the extra week of operations included in the results
of the prior year.
During fiscal 2018, the company reduced operating expenses by an estimated $14 million related to its previously announced cost savings
initiatives. These cost savings were realized across several of the company's operating expense categories and offset spending on strategic
initiatives, general inflationary pressures on operating expenses and lower relative gross margin performance in the current fiscal year compared
to the same period in fiscal 2017.
Herman Miller, Inc. and Subsidiaries 27
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 during fiscal 2017, relative to fiscal 2016.
•
•
The impact of an extra week in fiscal 2017 increased operating expenses by approximately $9 million.
Incremental costs of approximately $8 million related to the continued growth and expansion of DWR retail studios increased operating
expenses in fiscal 2017 as compared to fiscal 2016.
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 in fiscal 2017 as compared to fiscal 2016. 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 during fiscal 2017 as compared to fiscal 2016.
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.
•
•
•
•
Operating Earnings
In fiscal 2018, the company generated operating earnings of $177.5 million, a decrease of $13.3 million from fiscal 2017 operating earnings of
$190.8 million. Fiscal 2018 had 52 weeks as compared to fiscal 2017, which had 53 weeks. The impact of the additional week in the prior year
decreased operating earnings in fiscal 2018 relative to the prior fiscal year by approximately $5 million. Operating earnings of $190.8 million in
fiscal 2017 represented a $20.7 million decrease from fiscal 2016 operating earnings of $211.5 million.
Other Expenses and Income
Net other expenses for fiscal 2018 were $9.4 million, a decrease of $3.8 million compared to net other expenses in fiscal 2017 of $13.2 million.
The decrease in net other expenses in fiscal 2018 was primarily related to lower interest expense on outstanding debt, higher investment income
on cash equivalents and foreign currency gains recorded in the current fiscal year relative to foreign currency losses recorded in the prior fiscal
year.
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 as compared to fiscal 2016.
Equity earnings from nonconsolidated affiliates for fiscal 2018 were $3.0 million, an increase of $1.4 million compared to Equity earnings from
nonconsolidated affiliates of $1.6 million in fiscal 2017. This increase was driven by incremental earnings from the company's investment in
Naughtone Holdings Limited ("Naughtone").
28 2018 Annual Report
Equity earnings from nonconsolidated affiliates for fiscal 2017 were $1.6 million, an increase of $1.2 million compared to Equity earnings from
nonconsolidated affiliates of $0.4 million in fiscal 2016. This increase was driven by incremental earnings from the company's Naughtone equity
method investment. The company acquired a 50 percent noncontrolling equity interest in Naughtone on June 3, 2016.
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law in the United States. The results of operations for fiscal 2018
included the effect of the enactment of the Act. The effects of the Act included the reduction of the federal corporate income tax rate from 35
percent to 21 percent and a new participation exemption system of taxation on foreign earnings, among other provisions.
Effective January 1, 2018 the federal income tax rate was reduced from 35 percent to 21 percent. For fiscal tax payers a full year federal income
tax rate is calculated based upon the number of days in the year subject to the 35 percent and the 21 percent tax rates. As a result, the company’s
statutory federal tax rate for the fiscal year ended June 2, 2018 was 29.1 percent.
The significant impacts of the Act include reduced fiscal 2018 income tax expense resulting from the reduced federal income tax rate;
remeasurement of the deferred tax assets and liabilities to reflect the anticipated new, lower rate at which the deferred items will be realized;
and the impact of the one-time transition tax on undistributed foreign earnings. See Note 10 of the Consolidated Financial Statements for
additional information.
The company's effective tax rate was 25.2 percent in fiscal 2018, 31.1 percent in fiscal 2017 and 30.3 percent in fiscal 2016. The effective tax
rate in fiscal 2018 was below the United States statutory rate of 29.1 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 2017 was below the 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 AJCA and the research and development
tax credit under the PATH.
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.
For further information regarding income taxes, refer to Note 10 of the Consolidated Financial Statements.
Net Earnings; Earnings per Share
In fiscal 2018, fiscal 2017, and fiscal 2016, the company generated net earnings attributable to Herman Miller, Inc. of $128.1 million, $123.9
million and $136.7 million, respectively. Diluted earnings per share were $2.12, $2.05 and $2.26 for fiscal 2018, fiscal 2017 and fiscal 2016,
respectively.
Herman Miller, Inc. and Subsidiaries 29
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.
Effective in the first quarter of fiscal 2018, the company moved the operating results of its Nemschoff subsidiary, which primarily focuses on
healthcare, from its North America Furniture Solutions operating segment to its Specialty operating segment. This change was made to better
leverage the skills and capabilities of the company's Specialty business teams, particularly in the areas of craft wood and upholstery manufacturing.
Additionally, the company has refreshed its methodology of allocating selling, general and administrative costs to the operating segments. The
company has also identified certain corporate support costs that will no longer be allocated to the operating segments and that will be tracked
and reported as "Corporate Unallocated Expenses". The company made these changes in the way that it allocates and reports its costs to better
reflect the utilization of functional services across its operating segments and to also more closely align to industry practice. Prior year results
disclosed in the table below have been revised to reflect these changes.
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, Nemschoff 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.
Corporate — Consists primarily of unallocated expenses related to general corporate functions, including, but not limited to, certain
legal, executive, corporate finance, information technology, administrative and acquisition-related costs.
The charts below present the relative mix of net sales and operating earnings 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.
30 2018 Annual Report
North American Furniture Solutions ("North America")
Fiscal 2018 Compared to Fiscal 2017
Net sales in the North America segment were $1,284.4 million in fiscal 2018, an increase of 0.6 percent from fiscal 2017 net sales of $1,276.6
million. Orders for fiscal 2018 totaled $1,294.1 million, an increase of 0.7 percent from the prior year. Operating earnings for North America in
fiscal 2018 were $166.3 million or 12.9 percent of sales as compared to $176.0 million or 13.8 percent of sales in the prior year.
•
•
•
•
•
Sales volumes within the North America segment increased by approximately $61 million, resulting from increased demand within the
company's North America office furniture businesses.
Fiscal 2017 included the full results of operations for the company’s dealership in Vancouver, Canada that was divested in the first
quarter of fiscal 2018. Fiscal 2017 also included seven months of operations for the company's dealership in Philadelphia, Pennsylvania
that was divested in the third quarter of fiscal 2017. Accordingly, the increase in sales volumes for the North American segment for
fiscal 2018 was partially offset by a $25.8 million decrease in net sales due to these divestitures. The sale of these dealerships also
decreased consolidated orders for the North American segment in fiscal 2018 as compared to fiscal 2017 by $24.2 million.
The impact of an extra week in fiscal 2017 caused net sales and orders in fiscal 2018 to be lower than the prior year by approximately
$21.7 million and $20.0 million, respectively.
Incremental price discounting, net of price increases, in fiscal 2018 decreased net sales by approximately $10 million compared to
the prior year.
Operating earnings decreased in fiscal 2018 relative to the prior fiscal year due to the following items: incremental price discounting
of roughly $10 million, increased commodity costs of approximately $10 million, a change in product mix with an unfavorable impact
to earnings of an estimated $7 million, higher outsourcing costs of approximately $4 million and the impact of an extra week in fiscal
2017 which generated approximately $3 million of additional earnings in the prior fiscal year. These decreases were partially offset
by increased operating earnings of an estimated $14 million from incremental sales volumes and the benefit of improved material cost
performance of $11 million from value engineering, insourcing and supplier cost reductions.
Fiscal 2017 Compared to Fiscal 2016
Net sales in the North American segment were $1,276.6 million in fiscal 2017, an increase of 0.6 percent from fiscal 2016 net sales of $1,269.4
million. Orders for fiscal 2017 totaled $1,285.4 million, an increase of 1.2 percent from fiscal 2016. Operating earnings for North America in fiscal
2017 were $176.0 million or 13.8 percent of sales as compared to $187.6 million or 14.8 percent of sales in fiscal 2016.
•
•
•
•
•
•
•
The impact of the extra week increased net sales by an estimated $21.7 million and increased orders by $20.0 million for fiscal 2017
as compared to fiscal 2016.
Incremental price discounting, net of price increases, in fiscal 2017 decreased net sales by approximately $26 million compared to
fiscal 2016.
Sales volumes within the North American segment increased by approximately $21 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.
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 $10.8
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.
Restructuring charges related to targeted workforce reductions increased operating expenses by $2.9 million.
Herman Miller, Inc. and Subsidiaries 31
•
•
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.
ELA Furniture Solutions (EMEA, Latin America, and Asia Pacific)
Fiscal 2018 Compared to Fiscal 2017
Net sales in the ELA segment were $434.5 million in fiscal 2018, an increase of 12.7 percent from fiscal 2017 net sales of $385.5 million. Orders
for fiscal 2018 totaled $451.2 million, an increase of 17.2 percent from fiscal 2017. Operating earnings within ELA for fiscal 2018 were $35.5
million, or 8.2 percent of sales as compared to $35.9 million or 9.3 percent of sales in the prior year.
•
•
•
•
•
Increased sales volumes within the ELA segment of approximately $54 million were driven by broad-based growth across all regions,
most significantly within the Latin America and EMEA regions.
Deeper contract price discounting, net of incremental price increases, reduced net sales in fiscal 2018 by roughly $11 million as
compared to the prior year.
Foreign currency translation had a positive impact on net sales of approximately $13 million.
The impact of an extra week in fiscal 2017 caused net sales and orders in fiscal 2018 to be lower than the prior year by approximately
$6.3 million and $8.1 million, respectively.
Operating earnings were reduced in fiscal 2018 by roughly $11 million due to incremental price discounting and by $5.4 million due
to restructuring and other special charges that were driven mainly by the consolidation of manufacturing facilities in China. These
decreases were partially offset by increased operating earnings of an estimated $17 million from incremental sales volumes.
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 $35.9
million or 9.3 percent of sales as compared to $40.2 million or 9.7 percent of sales in 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 $16 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 and orders by $6.3 million and $8.1 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.
Specialty
Fiscal 2018 Compared to Fiscal 2017
Net sales within the Specialty reportable segment were $305.4 million in fiscal 2018, an improvement of $7.4 million as compared to $298.0
million in fiscal 2017. Orders for fiscal 2018 totaled $308.4 million, an increase of $14.2 million from $294.2 million in fiscal 2017. Operating
earnings within the Specialty reportable segment totaled $8.9 million or 2.9 percent of sales for the year, an increase of $0.8 million from $8.1
million or 2.7 percent of sales in fiscal 2017.
•
•
•
Net sales increased in fiscal 2018 as compared to the prior fiscal year due primarily to increased sales volumes of approximately $12
million, which was driven primarily by the company's Herman Miller Collection and Geiger businesses.
The impact of an extra week in fiscal 2017 caused net sales and orders in fiscal 2018 to be lower than the prior year by approximately
$4.3 million and $4.8 million, respectively.
Excluding the favorable year-over-year impact of $8.0 million of restructuring and impairment expenses that were recorded in fiscal
2017, operating earnings decreased in fiscal 2018 as compared to fiscal 2017. Operating earnings were adversely impacted by the
company's Nemschoff subsidiary, which experienced a decrease driven by unfavorable product mix, the negative impact on operating
earnings from decreased sales volumes and higher warranty costs.
32 2018 Annual Report
Fiscal 2017 Compared to Fiscal 2016
Net sales within the Specialty reportable segment were $298.0 million in fiscal 2017, an improvement of $3.8 million as compared to $294.2
million in fiscal 2016. Orders for fiscal 2017 totaled $294.2 million, a decrease of $7.0 million from $301.2 million in fiscal 2016. Operating
earnings within the Specialty reportable segment totaled $8.1 million or 2.7 percent of sales for the year, a decrease of $6.9 million from $15.0
million or 5.1 percent of sales in fiscal 2016.
•
•
The impact of an extra week in fiscal 2017 increased net sales and orders by approximately $4.3 million and $4.8 million, respectively,
as compared to the prior year.
The decrease in operating earnings in fiscal 2017 relative to fiscal 2016 was driven mainly by impairment and restructuring expenses
totaling $8.0 million that were primarily attributable to the impairment of the Nemschoff tradename.
Consumer
Fiscal 2018 Compared to Fiscal 2017
Net sales totaled $356.9 million for the year, an increase of 12.2 percent over the fiscal 2017 amount of $318.1. Orders of $354.5 million increased
11.3 percent over fiscal 2017. Operating earnings for the year were $13.9 million or 3.9 percent of sales as compared to operating earnings of
$4.8 million or 1.5 percent of sales for fiscal 2017.
•
•
•
Incremental sales volumes of approximately $44 million were driven by growth across the DWR studio, e-commerce and contract
channels and by a change in shipping terms at Design Within Reach that resulted in approximately $5 million of net sales being
accelerated into the first quarter of fiscal 2018.
The impact of the extra week in fiscal 2017 caused net sales and orders in fiscal 2018 to be lower than the prior year by approximately
$4.7 million and $4.0 million, respectively.
Operating earnings were higher in fiscal 2018 relative to the prior fiscal year due to an estimated $14 million benefit from increased
sales volumes and an estimated $2 million benefit from the company's profit enhancement initiatives; partially offset by increased
employee incentive costs of $2.6 million, increased compensation and benefits costs of $2.3 million and increased depreciation costs
of approximately $2 million.
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 9.2 percent over fiscal 2016. Operating earnings for the year were $4.8 million or 1.5 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 $25 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.
Herman Miller, Inc. and Subsidiaries 33
Liquidity and Capital Resources
The table below presents certain key cash flow and capital highlights for the fiscal years indicated.
Fiscal Year Ended
2017
2018
(In millions)
Cash and cash equivalents, end of period
Marketable securities, end of period
Cash provided by operating activities
Cash used for investing activities
Cash provided by (used for) financing activities
Pension and post-retirement benefit plan contributions
Capital expenditures
Stock repurchased
Interest-bearing debt, end of period
Available unsecured credit facilities, end of period (1)
(1) Amounts shown are net of outstanding letters of credit, which are applied against the company's unsecured credit facility.
$
203.9
$
8.6
166.5
$
(62.7) $
$
2.5
(13.4) $
(70.6) $
(46.5) $
$
275.0
$
166.8
$
$
$
$
$
$
$
$
$
$
$
96.2
$
8.6
202.1
$
(116.3) $
(74.6) $
(1.1) $
(87.3) $
(23.8) $
$
199.9
$
391.7
2016
84.9
7.5
210.4
(80.8)
(106.5)
(1.2)
(85.1)
(14.1)
221.9
232.1
Cash Flow — Operating Activities
Cash generated from operating activities in fiscal 2018 totaled $166.5 million compared to $202.1 million generated in the prior year.
Changes in working capital balances in fiscal 2018 resulted in a $32.8 million use of cash compared to a $23.5 million use of cash in the prior
fiscal year. The cash outflow related to changes in working capital balances was driven primarily by an increase in inventory of $12.4 million
and an increase in accounts receivable of $33.1 million. The increase in inventory as of the end of fiscal 2018 as compared to fiscal 2017 was
due mainly to growth in demand at DWR, as well as a build of inventory in the ELA segment to fulfill demand. The increase in accounts receivable
was driven by the timing of customer payments and shipments in the fourth quarter of the fiscal year. These cash outflows were partially offset
by an increase in accounts payable of $16.0 million.
In addition to changes in working capital, changes in pension contributions also impacted cash generated from operating activities. The company
increased pension contributions by $12.3 million in fiscal 2018 as compared to fiscal 2017, which was driven primarily by a contribution of $12.0
million that was made to the international defined benefit pension plan in the first quarter of fiscal 2018.
During fiscal 2017, changes in working capital balances resulted in a $23.5 million use of cash compared to a $6.0 million use of cash in fiscal
2016. 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 the end 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.
The company believes its recorded accounts receivable allowances at the end of the year are adequate to cover the risk of potential bad debts.
Allowances for non-collectible accounts receivable, as a percent of gross accounts receivable, totaled 1.4 percent, 1.8 percent, and 2.0 percent
at the end of fiscal years 2018, 2017 and 2016, respectively.
Cash Flow — Investing Activities
Capital expenditures totaled $70.6 million, $87.3 million and $85.1 million in fiscal 2018, 2017, and 2016, respectively. The decrease in capital
expenditures of $16.7 million from fiscal 2017 to fiscal 2018 was driven primarily by a reduction in expenditures related to manufacturing assets
in West Michigan and a reduction in expenditures in connection with Design Within Reach studio build outs.
The increase in capital expenditures of $2.2 million in fiscal 2017 from 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.
Cash proceeds from sale of dealers and properties were $2.1 million, zero and $10.7 million in fiscal 2018, 2017, and 2016 , respectively. Cash
proceeds received in fiscal 2018 was primarily attributable to the sale of a wholly-owned contract furniture dealership in Vancouver, Canada for
initial cash consideration of $2.0 million. 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 fiscal 2016 was primarily attributable to 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.
34 2018 Annual Report
Included in the fiscal 2018, 2017 and 2016 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
2018
2017
2016
$
$
— $
— $
11.6
$
— $
—
3.6
In fiscal 2018, the company received cash proceeds from a company-owned life insurance policy in the amount of $8.1 million. In fiscal 2017,
the repayment of loans against the cash surrender value of life insurance policies was $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.
Outstanding commitments for future capital purchases at the end of fiscal 2018 were approximately $49.5 million. The company expects capital
spending in fiscal 2019 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.
The company's net marketable securities transactions for fiscal 2018 yielded a zero change in cash flows. This compares to a $1.1 million use
of cash and $1.7 million source of cash in fiscal 2017 and fiscal 2016, respectively.
Cash Flow — Financing Activities
Cash provided by financing activities was $2.5 million in fiscal 2018 as compared to cash used for financing activities of $74.6 million in fiscal
2017. During fiscal 2018, the company borrowed $225.0 million on its revolving line of credit and of these proceeds, $150.0 million was used
to repay its Series B Notes. By comparison, cash outflows from net payments on the revolving credit facility were $22.0 million during fiscal
2017.
Cash paid for repurchases of common stock was $46.5 million in the current year as compared to $23.8 million in the prior year. Additionally, in
fiscal 2018 there was an increase in cash inflows from the issuance of shares related to stock-based compensation plans. The company received
$17.0 million related to stock-based compensation plans in fiscal 2018 compared to $11.7 million in fiscal 2017.
Cash paid for repurchases of common stock was $23.8 million in fiscal 2017 as compared to $14.1 million in fiscal 2016. 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 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 outflows for dividend payments were $42.4 million, $39.4 million and $34.9 million fiscal 2018, 2017 and 2016, respectively.
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 between June 2, 2018 and the first half of fiscal 2020 that the company could be required
to acquire this ownership interest. The fair value of this redeemable noncontrolling interest as of June 2, 2018 was $30.5 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 2, 2018
203.9
$
8.6
$
166.8
$
June 3, 2017
96.2
$
8.6
$
391.7
$
At the end of fiscal 2018, the company had cash and cash equivalents of $203.9 million, including foreign cash and cash equivalents of $75.0
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.Historically, the company’s intent was to permanently reinvest the remainder of the cash outside the United States. However,
Herman Miller, Inc. and Subsidiaries 35
the Tax Cuts and Jobs Act (the “Act”), enacted on December 22, 2017, assesses a one-time tax on deferred foreign income upon transition to
a participation exemption system of taxation. The company is considering the impact of the Act and the one-time transition tax on its foreign
earnings which are invested in liquidable assets. As a result, the company may repatriate certain amounts in the future and is assessing the
amount of cash that will remain permanently reinvested.
Subsequent to the end of fiscal 2018, on June 7, 2018, the company used cash of approximately $66 million to acquire 33 percent of the
outstanding equity of Nine United Denmark A/S, d/b/a HAY ("HAY”), a Copenhagen, Denmark-based, design leader in furniture and ancillary
furnishings for residential and contract markets in Europe and Asia. The company also used cash of approximately $5 million to acquire the
rights to the HAY brand in North America under a long-term license agreement.
Subsequent to year end, on June 6, 2018, Herman Miller Holdings Limited, a wholly owned subsidiary of the company, announced its intent to
lead a group of buyers to acquire the outstanding equity of Maars Holding B.V. ("MAARS”), a Harderwijk, Netherlands-based worldwide leader
in the design and manufacturing of interior wall solutions. In the first quarter of fiscal 2019, the company will acquire a 48 percent ownership
interest in MAARS for an estimated $6 million in cash.
The company believes cash on hand, cash generated from operations, and borrowing capacity will provide adequate liquidity to fund near term
and foreseeable 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 2, 2018 had 52 weeks of operations, the fiscal
year ended June 3, 2017 had 53 weeks of operations and the fiscal year ended May 28, 2016 had 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 (1)
Operating leases
Purchase obligations (2)
Pension and other post employment benefit plans funding (3)
Stockholder dividends (4)
Other (5)
Total
Total
$
275.0
71.9
328.5
93.5
0.9
10.7
15.3
795.8 $
$
$
2019
Payments due by fiscal year
2020-2021
50.0
18.5
83.3
2.9
0.1
—
2.5
157.3 $
— $
9.6
45.8
88.1
0.4
10.7
1.3
155.9 $
2022-2023
225.0
$
13.3
75.6
0.4
0.1
—
2.3
316.7 $
Thereafter
—
$
30.5
123.8
2.1
0.3
—
9.2
165.9
(1) Estimated future interest payments on our outstanding debt obligations are based on interest rates as of June 2, 2018. Actual cash outflows
may differ significantly due to changes in underlying timing of principal payments.
(2) Purchase obligations consist of non-cancelable purchase orders and commitments for goods, services, and capital assets.
(3) Pension plan funding commitments are known for a 12-month period for those plans that are funded; unfunded pension and post-retirement
plan funding amounts are equal to the estimated benefit payments. As of June 2, 2018, the total projected benefit obligation for our domestic
and international employee pension benefit plans was $106.9 million.
(4) Represents the dividend payable as of June 2, 2018. Future dividend payments are not considered contractual obligations until declared.
(5) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee compensation
benefits, and other post-employment benefits.
36 2018 Annual Report
Off-Balance Sheet Arrangements — Guarantees
We provide certain guarantees to third parties under various arrangements in the form of product warranties, loan guarantees, standby letters
of credit, lease guarantees, performance bonds and indemnification provisions. These arrangements are accounted for and disclosed in
accordance with Accounting Standards Codification (ASC) Topic 460, "Guarantees" as described in Note 12 of the Consolidated Financial
Statements.
Critical Accounting Policies and Estimates
Our goal is to report financial results clearly and understandably. We follow accounting principles generally accepted in the United States 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 $3.1 million and $3.3 million at June 2, 2018 and June 3, 2017, respectively. As a percentage of
gross accounts receivable, these allowances totaled 1.4 percent and 1.8 percent for fiscal 2018 and fiscal 2017, 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 2, 2018 and June 3, 2017, was $382.2 million and $382.6 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 2018, as of March 31, 2018, performing a
quantitative impairment test for all goodwill reporting units and other indefinite-lived intangible assets. In performing 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 company performed a sensitivity analysis over key valuation
assumptions, noting low risk of impairment. Also, due to the level that the reporting unit fair values exceeded the carrying amounts and the
results of our sensitivity analysis, the company did not deem any reporting units to be at risk of impairment.
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
Herman Miller, Inc. and Subsidiaries 37
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.
Historically, the company has performed both qualitative and quantitative assessments to determine whether an indefinite-lived intangible asset
is impaired. In fiscal 2018, the company performed only quantitative assessments in testing indefinite-lived intangible assets for impairment.
The quantitative impairment test is based on the relief from royalty method to determine the fair value of the indefinite-lived intangible assets,
which is both a market-based approach and an income-based approach. The relief from royalty method focuses on the level of royalty payments
that the user of an intangible asset would have to pay a third party for the use of the asset if it were not owned by the user. This method involves
estimating theoretical future after tax royalty payments based on the company's forecasted revenues attributable to the trade names. These
payments are then discounted to present value utilizing a discount rate that considers the after-corporate tax required rate of return applicable
to the asset. The projected revenues reflect the best estimate of management for the trade names; however, actual revenues could differ from
our estimates.
The discount rates selected represent market rates of return equal to what the company believes a reasonable investor would expect to achieve
on investments of similar size and type to the indefinite-lived intangible asset being tested. The company believes the discount rates selected
are appropriate in that, in all cases, they exceed the estimated weighted average cost of capital for our business as a whole. The results of the
impairment test are sensitive to changes in the discount rates and changes in the discount rate may result in future impairment. The company
performed a sensitivity analysis over key valuation assumptions, noting low risk of impairment. Also, due to the level that the indefinite-lived
intangible assets exceeded the carrying amounts and the results of our sensitivity analysis, the company did not deem any of these assets to
be at risk of 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 2018 or fiscal 2016 as a result of our impairment testing.
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 Reserves
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 net realizable value. 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
38 2018 Annual Report
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
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 benefit and auto liability
retention levels do not include an aggregate stop loss policy. The company's retention levels designated within significant insurance arrangements
as of June 2, 2018, are as follows:
(In millions)
General liability
Auto liability
Workers' compensation
Retention Level (per occurrence)
1.00
$
1.00
$
0.75
$
Pension and other Post-Retirement Benefits
The determination of the obligation and expense for pension and other post-retirement benefits depends on certain actuarial assumptions.
Among the most significant of these assumptions are the discount rate 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 2, 2018, and
June 3, 2017, the net actuarial loss associated with the employee pension and post-retirement benefit plans totaled approximately $40.0 million
and $50.6 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 2, 2018 pension funded status and fiscal 2018 expense are affected by year end fiscal 2018 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.
Herman Miller, Inc. and Subsidiaries 39
The effect of a 1 percent increase/(decrease) in discount rates and expected return on assets on the projected fiscal 2019 expense and the
pension obligation as at June 2, 2018 is shown below:
(In millions)
Assumption
Discount rate
Expected return on assets
2019 Expense
U.S.
International
$(1.4) / 1.7
$(1.0) / 1.0
—
—
June 2, 2018 Obligation
U.S.
$(0.3) / 0.3
International
$(18.4) / 24.6
—
—
For purposes of determining annual net pension expense, the company uses a calculated method for determining the market-related value of
plan assets. Under this method, the company recognizes the change in fair value of plan assets systematically over a five-year period. Accordingly,
a portion of the net actuarial loss is deferred. As of June 2, 2018, the deferred net actuarial loss (i.e., the portion of the total net actuarial loss
not subject to amortization) was $2.4 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 stock options, restricted stock units, performance share units, and
employee stock purchases. 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 2018, 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 2, 2018, 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 4.6 years in calculating the fair
values of the majority of stock options issued during fiscal 2018, except for the HMCH Stock Option Plan, where we utilized an average
expected term of 1.1 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.
40 2018 Annual Report
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 retail 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
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 $10 million during fiscal 2018 compared to the prior year. The
impact from changes in commodity prices increased the company's costs by approximately $9 million during fiscal 2017 as compared to fiscal
2016.
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 2, 2018, 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. Three forward contracts were placed to offset a 18.5 million U.S. dollar-
denominated net liability exposure. Two forward contracts were placed to offset a 13.7 million euro-denominated net asset exposure. One forward
contract was placed to offset an 10.5 million South African rand-denominated net asset exposure. Five forward contracts were placed to offset
a 13.0 million U.S.dollar-denominated net liability exposure. One forward contract was placed to offset a 1.2 million euro-denominated net liability
exposure.
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
Herman Miller, Inc. and Subsidiaries 41
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.
The cost of the foreign currency hedges and remeasuring all foreign currency transactions into the appropriate functional currency was a net
gain of $0.4 million in fiscal 2018 in contrast to net loss of $0.7 million and $0.7 million in fiscal 2017 and 2016 included in net earnings, 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 $2.7 million, $7.2 million and $8.8 million as of the end of as of the
end of fiscal 2018, 2017 and 2016, respectively.
Interest Rate Risk
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.
In September 2016, the company entered into an interest rate swap agreement. The interest rate swap is for an aggregate notional amount of
$150.0 million with 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 converted indebtedness anticipated to be borrowed on the company’s revolving line of credit up to the notional amount 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.
In June 2017, the company entered into an interest rate swap agreement. The interest rate swap 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. As a result of the transaction, the company
effectively converted the company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable
margin to a 2.387 percent fixed interest rate plus applicable margin under the agreement as of the forward start date.
The combined fair market value and net asset amount of the effective interest rate swap instruments was $9.9 million at June 2, 2018 compared
to $2.1 million at June 3, 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 = 6.00%
Interest rate = 1.949%(2)
Interest rate = 2.387%(2)
2019
2020
2021
2022
2023
Thereafter
Total(1)
$ — $ — $ 50.0 $ — $ — $
$ — $ — $ — $ 150.0 $ — $
$ — $ — $ — $ 75.0 $ — $
— $
— $
— $
50.0
150.0
75.0
(1) Amount does not include the recorded fair value of the swap instrument, which totaled $9.9 million and $2.1 million at the end of fiscal 2018
and 2017, respectively.
(2) The company's revolving credit facility has a variable interest rate, but due to the interest rate swaps, the rate on $150.0 million and $75.0
million will be fixed at 1.949% and 2.387%, respectively as demonstrated in the table above.
42 2018 Annual Report
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Herman Miller, Inc.
Consolidated Statements of Comprehensive Income
(In millions, except per share data)
June 2, 2018
June 3, 2017
May 28, 2016
Fiscal Years Ended
$
2,381.2 $
2,278.2 $
1,508.2
873.0
1,414.0
864.2
2,264.9
1,390.7
874.2
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 income (loss)
Comprehensive income
Comprehensive income attributable to noncontrolling interests
616.7
5.7
73.1
695.5
177.5
13.5
(4.4)
0.3
9.4
168.1
42.4
3.0
128.7
0.6
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
$
$
$
$
128.1
$
123.9
$
2.15 $
2.12 $
2.07 $
2.05 $
2.7
$
10.4
7.8
—
20.9
149.6
0.6
(7.2) $
(12.7)
2.1
0.1
(17.7)
106.4
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
136.7
2.28
2.26
(8.8)
0.5
—
—
(8.3)
129.2
0.8
128.4
Herman Miller, Inc. and Subsidiaries 43
Comprehensive income attributable to Herman Miller, Inc.
$
149.0
$
106.2
$
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 $3.1 in 2018 and $3.3 in 2017
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, less current portion
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, 59,230,974 and
59,715,824 shares issued and outstanding in 2018 and 2017, 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
44 2018 Annual Report
June 2, 2018
June 3, 2017
$
$
$
$
$
$
203.9
8.6
219.3
162.4
9.9
41.3
645.4
24.4
238.6
700.0
57.8
1,020.8
(689.4)
331.4
304.1
78.1
41.3
79.2
1,479.5
171.4
86.3
51.5
30.4
74.2
413.8
275.0
15.6
79.8
784.2
30.5
—
11.7
116.6
598.3
(61.3)
(0.7)
664.6
0.2
664.8
$
1,479.5
$
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
Herman Miller, Inc.
Consolidated Statements of Stockholders' Equity
(In millions)
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
Cumulative effect of accounting change
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
Cumulative effect of accounting change
Net income attributable to Herman Miller, Inc.
Dividends declared on common stock (per share - 2018: $0.72; 2017: $0.68; 2016: $0.59)
Noncontrolling interests redemption value adjustment
Balance at end year
Accumulated Other Comprehensive Loss
Balance at beginning of year
Other comprehensive income (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
Net income attributable to noncontrolling interests
Deconsolidation of entity with noncontrolling interests
Stock-based compensation expense
Balance at end of year
Total Stockholders' Equity
Fiscal Years Ended
June 2, 2018
June 3, 2017 May 28, 2016
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
—
11.9
$
12.0
$
$
$
$
$
(0.3)
0.1
11.7
139.3
(0.3)
14.6
(46.2)
2.0
7.0
—
0.2
(0.4)
0.4
116.6
519.5
0.1
128.1
(43.2)
(6.2)
$
$
$
$
(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
598.3
$
519.5
$
(82.2) $
(64.5) $
20.9
(17.7)
(61.3) $
(82.2) $
(1.0) $
0.3
(0.7) $
664.6
0.2
—
—
—
0.2
664.8
$
$
$
$
(1.1) $
0.1
(1.0) $
587.5
0.3
—
—
(0.1)
0.2
587.7
$
$
$
$
11.9
—
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
435.3
(56.2)
(8.3)
(64.5)
(1.2)
0.1
(1.1)
524.4
0.5
0.3
(0.5)
—
0.3
524.7
Herman Miller, Inc. and Subsidiaries 45
Herman Miller, Inc.
Consolidated Statements of Cash Flows
(In millions)
Cash Flows from Operating Activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
June 2, 2018
Fiscal Years Ended
June 3, 2017
May 28, 2016
$
128.7
$
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 contributions
Pension and post-retirement expenses
Restructuring and impairment expenses
Stock-based compensation
Excess tax benefits from stock-based compensation
Increase in long-term liabilities
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable
Increase in inventories
Increase in prepaid expenses and other
Increase (decrease) in accounts payable
(Decrease) increase in accrued liabilities
Other
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Net (advances) 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
Proceeds from life insurance policy
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 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
46 2018 Annual Report
60.9
6.0
0.9
(0.2)
(0.5)
(0.8)
(13.4)
2.9
5.7
7.7
—
3.4
(33.1)
(12.4)
(3.0)
16.0
(0.3)
(2.0)
166.5
(1.1)
(1.0)
1.0
(70.6)
2.1
—
8.1
—
—
(1.2)
(62.7)
(150.0)
340.4
(115.4)
(42.4)
17.0
(46.5)
—
(0.1)
(1.0)
0.5
2.5
1.4
107.7
96.2
203.9
16.4
34.2
$
$
$
52.9
6.0
—
(1.5)
—
14.8
(1.1)
0.5
12.5
8.7
(0.5)
6.2
17.3
(29.9)
(0.5)
(11.2)
0.8
3.0
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
(23.8)
0.5
(2.0)
(1.5)
1.9
(74.6)
0.1
11.3
84.9
96.2
13.4
35.6
$
$
$
47.0
6.0
2.2
—
(5.8)
10.4
(1.2)
1.4
—
11.9
(1.4)
6.7
(30.5)
(6.0)
(11.7)
8.7
33.5
1.7
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
$
$
$
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.
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55
56
57
59
59
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70
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80
80
Herman Miller, Inc. and Subsidiaries 47
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 2, 2018 contained 52 weeks, while the fiscal
year ended June 3, 2017 contained 53 weeks. The fiscal year ended May 28, 2016 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 gain $0.4 million for fiscal year ended June 2, 2018, and a net loss of $0.7 million and $0.7 million for the fiscal years
ended June 3, 2017 and May 28, 2016, 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
$148.8 million and $33.6 million as of June 2, 2018 and June 3, 2017, 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
The company's trade receivables are primarily due from independent dealers who, in turn, carry receivables from their customers. The company
monitors and manages 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
48 2018 Annual Report
enhancement measures. Some sales contracts are structured such that the customer payment or obligation is direct to the company. In those
cases, the company may assume the credit risk. Whether from dealers or customers, the company's 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 net realizable value 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 the
company's 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
as of the end of fiscal 2018 and fiscal 2017. These assets have indefinite useful lives.
During fiscal 2017, the company recognized asset impairment expense totaling $7.1 million associated with the Nemschoff trade name, which
was recorded within the Specialty operating segment. As of the end of fiscal 2017, the carrying value of the Nemschoff trade name was zero.
These impairment expenses are recorded in the Restructuring and impairment expenses line item within the Consolidated Statements of
Comprehensive Income.
Goodwill and other indefinite-lived assets included in the Consolidated Balance Sheets consist of the following:
(In millions)
Balance, May 28, 2016
Foreign currency translation adjustments
Sale of owned dealer
Impairment charges
Balance, June 03, 2017
Foreign currency translation adjustments
Sale of owned dealer
Balance, June 02, 2018
Goodwill
Indefinite-lived
Intangible Assets
Total Goodwill and Indefinite-
lived Intangible Assets
$
$
$
305.3
(0.7)
(0.1)
—
304.5
(0.1)
(0.3)
304.1
$
$
$
85.2
—
—
(7.1)
78.1
—
—
78.1
$
$
$
390.5
(0.7)
(0.1)
(7.1)
382.6
(0.1)
(0.3)
382.2
Herman Miller, Inc. and Subsidiaries 49
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. The company capitalizes 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 2018, outstanding commitments for future capital purchases approximated $49.5 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.
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 2, 2018
(In millions)
Gross carrying value
Accumulated amortization
Net
Gross carrying value
Accumulated amortization
Net
Other
Total
Patent and Trademarks Customer Relationships
55.3
$
23.5
31.8
22.4
14.7
7.7
$
$
$
$
$
June 3, 2017
Patent and Trademarks Customer Relationships
55.3
$
19.7
35.6
20.5
13.3
7.2
$
$
$
Other
$
$
7.5
5.7
1.8
7.5
4.9
2.6
$
$
$
$
85.2
43.9
41.3
83.3
37.9
45.4
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 8
years.
Estimated amortization expense on existing amortizable intangible assets as of June 2, 2018, for each of the succeeding five fiscal years, is as
follows:
(In millions)
2019
2020
2021
2022
2023
Self-Insurance
$
$
$
$
$
5.9
5.6
5.6
5.6
5.6
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 and
auto liability retention levels do not include an aggregate stop loss policy. The company's retention levels designated within significant insurance
arrangements as of June 2, 2018, are as follows:
50 2018 Annual Report
(In millions)
General liability
Auto liability
Workers' compensation
Retention Level (per occurrence)
1.00
$
1.00
$
0.75
$
The company accrues for its self-insurance arrangements, as well as reserves for health, prescription drugs, and dental benefit exposures based
on actuarially-determined estimates, which are recorded in “Other liabilities” in the Consolidated Balance Sheets. The value of the liability as of
June 2, 2018 and June 3, 2017 was $11.2 million and $10.5 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 time, 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 $57.1 million, $58.6 million and $62.4 million, in fiscal 2018, 2017,
and 2016, 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 $16.0 million, $14.5 million and $14.7 million in fiscal years 2018, 2017 and 2016 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.
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
Herman Miller, Inc. and Subsidiaries 51
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. 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 on available-for-sale
securities, Unrealized gains on interest rate swap agreement and Pension and post-retirement 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.
52 2018 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 Adopted Accounting Standards
Standard
Description
Improvements to
Employee Share-
Based Payment
Accounting
Under the new guidance, all excess tax benefits/deficiencies should
be recognized as income tax expense/benefit, entities may elect how
to account for forfeitures and cash paid by an employer when directly
withholding shares for tax withholding purposes should be classified
as a financing activity on the cash flow.
Date of
Adoption
June 4,
2017
Effect on the Financial
Statements or Other Significant
Matters
The company adopted the
accounting standard in the first
quarter of fiscal 2018. As a result,
the company elected to change its
policy from estimating forfeitures to
recognizing forfeitures when they
occur, which resulted in an increase
in Retained earnings of $0.1 million,
a decrease in Additional paid
in capital of $0.3 million and an
increase in Other noncurrent assets
of $0.2 million in the Condensed
Consolidated Balance Sheets. The
other impacts resulting from
adoption did not have a material
impact on the company's Financial
Statements.
Herman Miller, Inc. and Subsidiaries 53
Recently Issued Accounting Standards Not Yet Adopted
Standard
Description
Date of
Adoption
Effect on the Financial Statements or Other
Significant Matters
Revenue from
Contracts with
Customers
June 3,
2018
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.
title and risk of
The company has completed its review of the
impact of the new standard and has identified
changes in the determination of performance
obligations around product and service revenue.
For commercial contracts in which the company
sells directly to end customers, in most cases, the
company currently delays revenue recognition
until the products are shipped and installed and
records third-party installation and certain other
fees net. However, under the new standard, in
most cases, the company will recognize product
revenue when
loss have
transferred and will recognize service revenue as
the services are performed. Additionally, the
company will record certain product pricing
elements related to its direct customer sales within
Cost of Sales rather than net within revenue as is
current practice. The company has determined
that
the product
performance obligation which the company is
considered to control under the new standard. The
company has
its
business processes, systems and controls to
support recognition and disclosure under the new
standard. The company is adopting the standard
in fiscal 2019 using the modified-retrospective
approach and as a result expects to record an
accumulative
of
approximately $2 million increase to fiscal 2019
beginning retained earnings.
these elements relate
implemented changes
adjustment
catch
up
to
to
Compensation -
Retirement
Benefits:
Improving the
Presentation of
Net Periodic
Pension Cost
and Net
Periodic
Postretirement
Benefit Cost
Reclassification
of Certain Tax
Effects from
Accumulated
Other
Comprehensive
Income
Derivatives and
Hedging:
Targeted
Improvements
to Accounting
for Hedging
Activities
June 3,
2018
This standard changes the rules related to the income
statement presentation of the components of net periodic
benefit cost for defined benefit pension and other
postretirement benefit plans. Under the new guidance,
entities must present the service cost component of net
periodic benefit cost in the same income statement line
items as other employee compensation costs related to
services rendered during the period. Other components
of net periodic benefit cost will be presented separately
from the line items that include the service cost. Early
adoption is permitted.
This update allows for the reclassification to retained
earnings of the tax effects stranded in Accumulated Other
Comprehensive Income resulting from The Tax Cuts and
Jobs Act. Early adoption is permitted.
June 2,
2019
to
impact
The standard
the
is expected
classification of certain costs within the company's
Consolidated Statements of Comprehensive
Income. No impact to the company's Consolidated
Balance Sheets or Consolidated Statements of
Cash Flow are expected as a result of the
standard.
is
company
still evaluating
these
The
its
amendments and has not determined
accounting policy and whether or not an election
will be made to reclassify the stranded effects.
June 2,
2019
The company is currently evaluating the impact of
adopting this guidance.
This update amends the hedge accounting recognition
and presentation with the objectives of improving the
financial reporting of hedging relationships to better
portray
the economic results of an entity's risk
management activities and simplifying the application of
hedge accounting. The update expands the strategies
eligible
timing
requirements of hedge documentation and effectiveness
assessments and permits
the use of qualitative
assessments on an ongoing basis to assess hedge
effectiveness. The new guidance also requires new
disclosures and presentation.
for hedge accounting, relaxes
the
54 2018 Annual Report
Recently Issued Accounting Standards Not Yet Adopted (continued)
Standard
Description
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.
Date of
Adoption
Effect on the Financial Statements or Other
Significant Matters
June 2,
2019
The standard is expected to have a significant
impact on our Consolidated Financial Statements,
however the company is currently evaluating the
impact.
2. Acquisitions and Divestitures
Contract Furniture Dealerships
On July 31, 2017, the company completed the sale of a wholly-owned contract furniture dealership in Vancouver, Canada for initial cash
consideration of $2.0 million. A pre-tax gain of $1.1 million was recognized as a result of the sale within the caption Selling, general and
administrative within the Condensed Consolidated Statements of Comprehensive Income.
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 $2.5 million as of June 2, 2018 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.
Naughtone Holdings Limited
On June 3, 2016, the company acquired a 50 percent noncontrolling equity interest in Naughtone, a leader in soft seating products, stools,
occasional tables and meeting tables, for $12.4 million in cash consideration. 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.
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.
3. Inventories
(In millions)
Finished goods and work in process
Raw materials
Total
June 2, 2018
June 3, 2017
$
$
124.2 $
38.2
162.4 $
119.0
33.4
152.4
Inventories valued using LIFO amounted to $25.5 million and $25.2 million as of June 2, 2018 and June 3, 2017, respectively. If all inventories
had been valued using the first-in first-out method, inventories would have been $175.3 million and $164.6 million at June 2, 2018 and June 3,
2017, respectively.
Herman Miller, Inc. and Subsidiaries 55
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 2, 2018
June 3, 2017
$
16.8 $
16.2
(in millions)
Equity earnings from nonconsolidated affiliates
June 2, 2018
June 3, 2017
May 28, 2016
$
3.0 $
1.6 $
0.4
The company had an ownership interest in five nonconsolidated affiliates at June 2, 2018. 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 2, 2018
50.0%
50.0%
50.0%
50.0%
50.0%
June 3, 2017
50.0%
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 2, 2018 and June 3, 2017, the company's investment value in Kvadrat Maharam Pty was $1.9 million and $1.8 million
more than the company's proportionate share of the underlying net assets, respectively. 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
At June 2, 2018, the company's investment value in Naughtone was $10.2 million more than the company's proportionate share of the underlying
net assets, of which $2.4 million was being amortized over the remaining useful lives of the assets, while $7.8 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.
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.
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 2, 2018
June 3, 2017
May 28, 2016
$
$
4.3 $
6.8 $
4.0 $
4.2 $
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
June 2, 2018
June 3, 2017
$
$
0.9 $
1.0 $
2.5
0.9
0.8
0.5
56 2018 Annual Report
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
Construction-Type Lease
Supplier financing program
Total debt
Less: Current debt
Long-term debt
June 2, 2018
June 3, 2017
$
$
$
— $
50.0
225.0
7.0
3.8
285.8 $
(10.8)
275.0
$
149.9
50.0
—
7.0
3.2
210.1
(10.2)
199.9
The company's syndicated revolving line of credit 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.
On January 3, 2018, the company borrowed $225.0 million on its existing revolving line of credit. Of these proceeds, $150.0 million was used
to repay its Series B senior notes upon maturity, while the rest of the proceeds was designated for general business purposes.
As of June 2, 2018, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $225.0 million. Available
borrowings against this facility were $166.8 million due to $8.2 million related to outstanding letters of credit. 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 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 2, 2018 and June 3, 2017, the company was in compliance with all of these restrictions and
performance ratios.
Supplier Financing Program
The company has an agreement with a third party financial institution to provide a platform that allows certain participating suppliers the ability
to finance payment obligations from the company. Under this program, participating suppliers may finance payment obligations of the company,
prior to their scheduled due dates, at a discounted price to the third party financial institution.
The company has lengthened the payment terms for certain suppliers that have chosen to participate in the program. As a result, certain amounts
due to suppliers have payment terms that are longer than standard industry practice and as such, these amounts have been excluded from the
caption “Accounts payable” in the Condensed Consolidated Balance Sheets as the amounts have been accounted for by the company as a
current debt obligation. Accordingly, $3.8 million and $3.2 million have been recorded within the caption “Other accrued liabilities” for the periods
ended June 2, 2018 and June 3, 2017, respectively.
Construction-Type Lease
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 periods ended June 2, 2018 and June 3, 2017. The value of the building and the related financing liability was $7.0 million at June 2, 2018
and June 3, 2017. The original fair value of the building and the related financing liability was determined through a blend of an income approach,
Herman Miller, Inc. and Subsidiaries 57
comparable property sales approach and a replacement cost approach. Upon completion of construction, the liability will be reclassified into
Long-term debt.
Annual maturities of long-term debt for the five fiscal years subsequent to June 2, 2018 are as shown in the table below.
(In millions)
2019
2020
2021
2022
2023
Thereafter
$
$
$
$
$
$
—
—
50.0
225.0
—
—
58 2018 Annual Report
6. Operating Leases
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 2, 2018, are as follows:
(In millions)
2019
2020
2021
2022
2023
Thereafter
$
$
$
$
$
$
45.8
42.8
40.5
43.1
32.5
123.8
Total rental expense charged to operations was $49.3 million, $45.3 million and $45.6 million, in fiscal 2018, 2017 and 2016, 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.
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:
Herman Miller, Inc. and Subsidiaries 59
(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
2018
2017
Post-Retirement Benefits
2018
2017
Domestic
International
Domestic
International
1.0 $
0.1
—
—
(0.1)
1.0 $
— $
—
—
0.1
(0.1)
— $
113.8 $
2.7
4.2
(12.2)
(2.6)
105.9 $
80.5 $
1.2
2.8
12.7
(2.6)
94.6
$
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
$
5.0 $
0.1
—
(0.5)
(0.6)
4.0 $
— $
—
—
0.6
(0.6)
— $
5.9
0.2
—
(0.4)
(0.7)
5.0
—
—
—
0.7
(0.7)
—
(1.0) $
(11.3) $
(1.0) $
(33.3) $
(4.0) $
(5.0)
Components of the amounts recognized in the Consolidated Balance Sheets:
— $
Current liabilities
(11.3) $
Non-current liabilities
(0.1) $
(0.9) $
$
$
(0.1) $
(0.9) $
— $
(33.3) $
(0.6) $
(3.4) $
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
50.9
50.9
40.8
40.8
(1.1) $
(1.1) $
0.3
0.3
0.3
0.3
$
$
$
$
$
$
$
$
$
$
(0.7)
(4.3)
(0.6)
(0.6)
The accumulated benefit obligation for the company's domestic pension benefit plans totaled $1.0 million as of the end of both fiscal 2018 and
fiscal 2017. For its international plans, the accumulated benefit obligation totaled $102.2 million and $110.0 million as of fiscal 2018 and fiscal
2017, 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
2018
2017
$
$
$
106.9 $
103.1 $
$
94.6
114.8
111.0
80.5
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:
Pension Benefits
2017
2018
2016
Post-Retirement Benefits
2017
2016
2018
0.1 $
$
0.1
0.1 $
$
0.1
— $
— $
0.1 $
0.1 $
0.2 $
0.2 $
0.2
0.2
2.7
(5.6)
4.2
1.3
$
$
2.7
(4.7)
2.2
0.2
$
$
3.8
(5.4)
2.8
1.2
(In millions)
Domestic:
Interest cost
Net periodic benefit cost
International:
Interest cost
Expected return on plan assets
Net amortization
Net periodic benefit cost
60 2018 Annual Report
$
$
$
$
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 (gain) loss
Net amortization
Total recognized in other comprehensive loss
Pension Benefits
Post-Retirement Benefits
2018
2017
2018
2017
— $
— $
— $
— $
(0.5) $
(0.5) $
(0.4)
(0.4)
(7.7) $
(4.2)
(11.9) $
18.6
(2.2)
16.4
$
$
$
$
The net actuarial loss, included in accumulated other comprehensive loss (pretax), expected to be recognized in net periodic benefit cost during
fiscal 2019 is $2.9 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:
2018
2017
2016
Domestic
International
Domestic
International
Domestic
(Percentages)
Discount rate
Compensation increase rate
Expected return on plan assets
3.53
n/a
n/a
2.49
3.25
6.10
The weighted-average used in the determination of the projected benefit obligations:
Discount rate
Compensation increase rate
2.87
3.10
3.99
n/a
3.51
n/a
n/a
3.53
n/a
3.43
2.95
6.10
2.49
3.25
3.41
n/a
n/a
3.51
n/a
International
3.50
3.20
6.10
3.43
2.95
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 2018 and 2017 was a reduction of the interest cost component of net periodic benefit cost of approximately $0.3
million and $0.4 million.
In calculating post-retirement benefit obligations for fiscal 2018, a 7.1 percent annual rate of increase in the per capita cost of covered healthcare
benefits was assumed for 2019, decreasing gradually to 4.3 percent by 2038 and remaining at that level thereafter. For purposes of calculating
post-retirement benefit costs, a 7.5 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2018,
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 2018 service and interest cost components
Effect on post-retirement benefit obligation at June 2, 2018
$
$
1 Percent Increase
1 Percent Decrease
—
(0.1)
— $
0.1 $
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
Herman Miller, Inc. and Subsidiaries 61
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 2018 and asset categories for the company's primary international pension plan for fiscal
2018 and 2017 are as follows:
Targeted Asset Allocation Percentage
Percentage of Plan Assets at Year End
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
2018
35
65
2017
20
80
2018
2017
36
64
100
International Plan as of June 2, 2018
Level 2
Total
Level 1
$
$
$
$
0.2
—
—
0.2
$
$
— $
33.4
61.0
94.4
$
International Plan as of June 3, 2017
Level 2
Total
Level 1
0.2
—
—
0.2
$
$
— $
21.4
58.9
80.3
$
27
73
100
0.2
33.4
61.0
94.6
0.2
21.4
58.9
80.5
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 2018, the company
made total cash contributions of $13.4 million to its benefit plans. In fiscal 2017, the company made total cash contributions of $1.1 million to
its benefit plans.
The following represents a summary of the benefits expected to be paid by the plans in future fiscal years. These expected benefits were
estimated based on the same actuarial valuation assumptions used to determine benefit obligations at June 2, 2018.
(In millions)
2019
2020
2021
2022
2023
2024-2028
Pension Benefits
Domestic
Pension Benefits
International
Post-Retirement
Benefits
$
$
$
$
$
$
0.1
0.1
0.1
0.1
0.1
0.3
$
$
$
$
$
$
2.0
2.0
2.1
2.5
2.4
16.5
$
$
$
$
$
$
0.6
0.5
0.5
0.4
0.4
1.4
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 (the "plan"). Employees under the plan are eligible to begin participating on their date of hire. Until
June 4, 2017, the plan provided 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. Effective June 4, 2017, the company discontinued the
Employer Profit Sharing Contribution and instead, began allocating those funds to other components of pay and retirement. Under the plan the
company matches 100 percent of employee contributions to their 401(k) accounts up to 3 percent of their pay. Effective September 3, 2017, the
company increased the Employer Matching Contribution from 3 percent to 4 percent for all eligible employees. A core contribution of 4 percent
62 2018 Annual Report
is also included for most participants of the plan. There was an additional 1 percent contribution added to the quarterly Core Contribution for
the quarter prior to the increased Employer Matching Contribution effective September 3, 2017. 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 and 2016 was $6.0 million and $10.9 million, respectively. No
profit sharing contribution was made in fiscal 2018. The expense recorded for the company's 401(k) matching contributions and core contributions
was approximately $24.9 million, $22.8 million and $21.9 million in fiscal years 2018, 2017 and 2016, 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. $
2018
2017
2016
128.1 $
123.9 $
136.7
Denominator:
Denominator for basic EPS, weighted-average common shares outstanding
Potentially dilutive shares resulting from stock plans
Denominator for diluted EPS
59,681,268
630,037
60,311,305
59,871,805
682,784
60,554,589
59,844,540
684,729
60,529,269
Equity awards of 348,089 shares, 764,154 shares and 528,676 shares of common stock were excluded from the denominator for the computation
of diluted earnings per share for the fiscal years ended June 2, 2018, June 3, 2017 and May 28, 2016, respectively, because they were anti-
dilutive. The company has certain share-based payment awards that meet the definition of participating securities.
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 2018, 2017, and 2016, shares repurchased and retired totaled
1,356,156, 765,556, and 482,040 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 2, 2018 there were 5,991,307 shares authorized under
the various stock-based compensation plans.
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:
Herman Miller, Inc. and Subsidiaries 63
(In millions)
Employee stock purchase program
Stock option plans
Restricted stock units
Performance share units
Total
Tax benefit
June 2, 2018
0.3
$
2.6
3.9
0.9
7.7
$
$
2.3
$
$
$
June 3, 2017
May 28, 2016
0.3
2.0
3.6
2.8
8.7
3.1
$
$
$
0.3
1.9
3.2
6.5
11.9
4.3
As of June 2, 2018, total pre-tax stock-based compensation cost not yet recognized related to non-vested awards was approximately $7.8
million. The weighted-average period over which this amount is expected to be recognized is 0.79 years.
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 67,335,
68,547, and 70,768 for the fiscal years ended 2018, 2017 and 2016 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:
2018
1.79%
4.6 years
26%
2.23%
2017
1.01%
4.0 years
26%
2.13%
2016
1.51%
4.0 years
33%
2.03%
Granted with exercise prices equal to the fair market value of the stock on the date of grant $
6.39
$
5.50
$
6.73
(1) Represents term-matched, zero-coupon risk-free rate from the Treasury Constant Maturity yield curve, continuously compounded.
(2) Represents historical settlement data, using midpoint scenario with 1-year grant date filter assumption for outstanding options.
(3) The blended volatility approach was used. 90% term-matched historical volatility from daily stock prices and 10% percent weighted average
implied volatility from the 90 days preceding the grant date.
(4) Represents the quarterly dividend divided by the three-month average stock price as of the grant date, annualized and continuously
compounded.
The following is a summary of the transactions under the company's stock option plans:
Outstanding at June 3, 2017
Granted at market
Exercised
Forfeited or expired
Outstanding at June 2, 2018
Ending vested + expected to vest
Exercisable at end of period
Shares Under
Option
Weighted-Average
Exercise Prices
$
1,329,702
323,412
$
(538,259) $
(51,606) $
$
$
$
1,063,249
1,063,249
265,519
28.36
33.75
27.28
32.83
30.33
30.33
23.96
Weighted-Average
Remaining Contractual
Term (Years)
Aggregate
Intrinsic Value
(In millions)
7.26
$
5.8
7.45 $
$
7.45
$
4.78
2.9
2.9
2.4
The weighted-average remaining recognition period of the outstanding stock options at June 2, 2018 was 0.75 years. The total pre-tax intrinsic
value of options exercised during fiscal 2018, 2017 and 2016 was $5.0 million, $1.3 million and $2.3 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
64 2018 Annual Report
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 2018 from the exercise of stock options was $4.4 million.
Restricted Stock Units
The company grants restricted stock units to certain key employees. This program provides that the actual number of restricted stock units
awarded is based on the value of a portion of the participant's long-term incentive compensation divided by the fair value of the company's stock
on the date of grant. In some years the awards have been partially tied to the company's financial performance for the year in which the grant
was based. The awards generally cliff-vest after a three-year service period, with prorated vesting under certain circumstances and full or partial
accelerated vesting upon retirement. Each restricted stock unit represents one equivalent share of the company's common stock to be awarded,
free of restrictions, after the vesting period. Compensation expense related to these awards is recognized over the requisite service period,
which includes any applicable performance period. Dividend equivalent awards are credited quarterly. The units do not entitle participants to
the rights of stockholders of common stock, such as voting rights, until shares are issued after vesting.
The following is a summary of restricted stock unit transactions for the fiscal years indicated:
Outstanding at June 3, 2017
Granted
Forfeited
Released
Outstanding at June 2, 2018
Ending vested + expected to vest
Share
Units
Weighted Average
Grant-Date
Fair Value
Aggregate
Intrinsic Value in
Millions
Weighted-Average
Remaining Contractual
Term (Years)
$
384,952
$
242,012
(19,233) $
(126,704) $
481,027
$
481,027
28.73 $
35.28
30.86
27.75
32.20 $
32.20 $
12.6
15.8
15.8
1.14
1.28
1.28
The weighted-average remaining recognition period of the outstanding restricted stock units at June 2, 2018, was 1.15 years. The fair value of
the share units that vested during the twelve months ended June 2, 2018, was $4.3 million. The weighted average grant-date fair value of
restricted stock units granted during 2018, 2017, and 2016 was $35.28, $31.83 and $29.03 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 June 3, 2017
Granted
Forfeited
Released
Outstanding at June 2, 2018
Ending vested + expected to vest
Share
Units
Weighted Average
Grant-Date Fair Value
31.18
$
417,947
31.28
129,131
$
34.27
(42,339) $
31.47
(130,179) $
30.76
$
374,560
30.76
$
374,560
Aggregate Intrinsic
Value in Millions
Weighted-Average Remaining
Contractual Term (Years)
$
$
$
13.7
12.3
12.3
1.03
1.01
1.01
The weighted-average remaining recognition period of the outstanding performance share units at June 2, 2018, was 0.73 years. The fair value
for shares that vested during the twelve months ended June 2, 2018, was $4.5 million. The weighted average grant-date fair value of performance
share units granted during 2018, 2017, and 2016 was $31.28, $29.40, and $30.81 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
Herman Miller, Inc. and Subsidiaries 65
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 $0.6
million during fiscal 2018 and the related liability for these awards was $0.9 million as of the end of fiscal 2018. The liability for the HMCH stock
options is recorded within the Consolidated Balance Sheets within the "Other liabilities" line item.
The following weighted-average assumptions were used to value the liability associated with HMCH stock options as of June 2, 2018 and June
3, 2017:
2018
2017
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
2.29%
1.1 years
35%
not applicable
30.64
8.24
1.29%
2.1 years
35%
not applicable
24.39
3.24
$
$
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 June 3, 2017
Granted
Forfeited
Outstanding at June 2, 2018
Exercisable at end of period
$
526,244
$
28,810
(10,928) $
$
544,126
$
75,568
24.20
21.08
24.39
24.04
21.83
Aggregate Intrinsic
Value (In millions)
0.1
$
2.20
1.20
1.20
$
$
3.6
0.6
There were no HMCH options exercised during fiscal 2018. 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 ($275,000 in 2018). 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.
66 2018 Annual Report
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.
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
2018
2017
2016
8,828
2,207
9,982
2,582
21,988
3,118
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law in the United States. The effects of the Act included the
reduction of the federal corporate income tax rate from 35 percent to 21 percent and a new participation exemption system of taxation on foreign
earnings, among other provisions.
Effective January 1, 2018 the federal income tax rate was reduced from 35 percent to 21 percent. For fiscal tax payers a full year federal income
tax rate is calculated based upon the number of days in the year subject to the 35 percent and the 21 percent tax rates. As a result, the company’s
statutory federal tax rate for the fiscal year ended June 2, 2018 was 29.1 percent.
Securities and Exchange Commission Staff Accounting Bulletin No. 118 allows the use of provisional amounts if accounting for certain income
tax effects of the Act has not been completed by the time the company’s financial statements are issued. A measurement period is provided
beginning December 22, 2017 and shall not last longer than one year. Provisional amounts must be adjusted during the measurement period
as accounting for the income tax effects of the Act is completed. For the fiscal year ended June 2, 2018, the company has not completed its
accounting for all of the effects of the Act.
The Act is comprehensive and further guidance is expected from the Internal Revenue Service and the U.S. Treasury Department. Based on
our analysis of the Act to date, we have provided the following reasonable estimates. The fiscal year ended June 2, 2018 included a provisional
amount of $3 million in reduced income tax expense resulting from the reduced federal income tax rate. Additionally, as part of the transition
towards the participation exemption system, in the fiscal period ended June 2, 2018, the company recorded a provisional U.S. tax liability of $9
million on certain undistributed foreign earnings, which is payable over eight years. The one-time tax is based in part on the amount of foreign
earnings held in cash and other specified assets as of June 2, 2018. Finally, a favorable impact totaling $8.9 million was recognized as a result
of applying the lower federal income tax rates to the company’s net deferred tax liabilities.
Upon enactment of the new law in our three-month period ended March 3, 2018, we had disclosed an initial favorable impact of $8.7 million
applying lower federal income tax rates to the company’s net deferred tax liabilities and an initial $9.2 million U.S. tax liability on certain
undistributed foreign earnings. These amounts, as noted above, were adjusted as of June 2, 2018 due to an analysis of additional available
information as well as further clarification with respect to the new laws. The company will continue to refine its calculations as additional analysis
is completed and further guidance is issued. These changes could be material to the consolidated financial statements.
For tax years beginning after December 31, 2017, the Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”)
earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that
an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI
in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The company is still evaluating the effects of the
GILTI provisions and has not yet determined its accounting policy.
The components of earnings before income taxes are as follows:
(In millions)
Domestic
Foreign
Total
2018
2017
2016
$
$
121.6
46.5
168.1
$
$
131.4
46.2
177.6
$
$
154.9
41.7
196.6
Herman Miller, Inc. and Subsidiaries 67
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
2018
2017
2016
$
$
30.2
4.3
10.7
45.2
(4.1)
0.1
1.2
(2.8)
42.4
$
$
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
The following table represents a reconciliation of income taxes at the United States blended statutory rate of 29.1 percent for 2018 and 35.0
percent for 2017 and 2016 with the effective tax rate as follows:
(In millions)
Income taxes computed at the United States Statutory rate
Increase (decrease) in taxes resulting from:
Remeasurement of U.S. deferred tax assets and liabilities due to the Tax Act
U.S. tax liability on undistributed foreign earnings due to the Tax Act
Foreign statutory rate differences
Manufacturing deduction under the American Jobs Creation Act of 2004
State taxes
United Kingdom patent box deduction for research and development
Research and development credit
Sale of manufacturing facility in the United Kingdom
Other, net
Income tax expense
Effective tax rate
2018
2017
2016
$
49.0
$
62.2
$
68.8
(8.9)
9.0
(4.0)
(2.7)
3.3
(1.8)
(2.4)
—
0.9
42.4
25.2%
$
—
—
(5.7)
(3.4)
3.8
(2.6)
(1.4)
—
2.2
55.1
31.1%
$
—
—
(4.3)
(4.8)
5.2
(1.7)
(1.4)
(1.6)
(0.7)
59.5
30.3%
$
68 2018 Annual Report
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at June 2,
2018 and June 3, 2017, 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
2018
2017
$
$
$
$
15.3
6.6
5.6
1.0
0.6
5.2
11.9
2.3
1.7
10.0
3.8
3.9
67.9
(10.3)
57.6
(25.5)
(32.3)
(6.9)
(64.7)
$
$
$
$
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)
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 2, 2018, the company had state and local tax NOL carry-forwards of $29.4 million, the state tax benefit of which is $1.6 million, which
have various expiration periods from 1 to 21 years. The company also had state credits with a state tax benefit of $0.7 million, which expire in
2 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 $1.1 million.
At June 2, 2018, the company had federal NOL carry-forwards of $8.1 million, the tax benefit of which is $1.7 million, which expire in 11 years.
For financial statement purposes, the NOL carry-forwards have been recognized as deferred tax assets.
At June 2, 2018, the company had federal deferred assets of $2.0 million, the tax benefit of which is $0.4 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 $0.4 million.
At June 2, 2018, the company had foreign net operating loss carry-forwards of $43.8 million, the tax benefit of which is $10.0 million, which have
expiration periods from 6 years to an unlimited term. The company also had foreign tax credits with a tax benefit of $0.1 million which expire in
2 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 $8.1 million.
At June 2, 2018, the company had foreign deferred assets of $3.4 million, the tax benefit of which is $0.6 million, which is related to various
deferred taxes in Hong Kong and Brazil as well as buildings in the United Kingdom. For financial statement purposes, the assets have been
recognized as deferred tax assets, subject to a valuation allowance of $0.6 million.
The company has recorded transition tax on undistributed foreign earnings as required by the Act. No other provision was made for income
taxes that may result from future remittances of the undistributed earnings of foreign subsidiaries that are determined to be indefinitely reinvested,
which was $181.3 million on June 2, 2018. Determination of the total amount of unrecognized deferred income tax on undistributed earnings of
foreign subsidiaries is not practicable.
Herman Miller, Inc. and Subsidiaries 69
The components of the company's unrecognized tax benefits are as follows:
(In millions)
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
Increases related to current year income tax positions
Increases related to prior year income tax positions
Decreases related to lapse of applicable statute of limitations
Balance at June 2, 2018
$
$
1.7
0.3
1.1
(0.1)
(0.1)
(0.1)
2.8
0.3
0.4
(0.3)
3.2
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 2, 2018
June 3, 2017
May 28, 2016
$
$
0.1
1.0
$
$
$
0.2
0.8
(0.1)
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 2017 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 2015.
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 2, 2018
June 3, 2017
$
$
285.8
288.6
$
$
210.1
223.2
The following describes the methods the company uses to estimate the fair value of financial assets and liabilities. In fiscal 2018, the company
borrowed on its revolver and invested excess cash in cash and cash equivalents. There were no other no significant changes in the current
period.
Cash equivalents — The company invests excess cash in short term investments in the form of commercial paper and money market funds.
Commercial paper is valued at amortized costs while money market funds are valued using net asset value.
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.
70 2018 Annual Report
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 recurring 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 during fiscal 2017 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 2, 2018 and June 3, 2017:
Fair Value Measurements
June 2, 2018
June 3, 2017
Quoted Prices With Other
Observable Inputs (Level 2)
$
121.0 $
Management
Estimates (Level 3)
Quoted Prices With Other
Observable Inputs (Level 2)
Management
Estimates (Level 3)
—
— $
(In millions)
Financial Assets
Cash Equivalents
Available-for-sale securities:
Mutual funds - fixed income
Mutual funds - equity
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
0.4
15.0
15.1
160.1 $
0.3 $
—
0.3 $
— $
—
—
—
—
—
— $
— $
0.5
0.5
$
7.7
0.9
0.5
3.3
12.8
25.2 $
0.6 $
—
0.6 $
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 losses (gains)
Settlements
Ending balance
June 2, 2018
June 3, 2017
$
$
0.5
0.1
(0.1)
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.
Herman Miller, Inc. and Subsidiaries 71
—
—
—
—
—
—
—
0.5
0.5
2.7
(0.2)
(2.0)
0.5
The following is a summary of the carrying and market values of the company's marketable securities as of the dates indicated:
June 2, 2018
June 3, 2017
(In millions)
Mutual funds - fixed income
Mutual funds - equity
Total
Cost
Unrealized
Gain
Unrealized
Loss
Market
Value
Cost
Unrealized
Gain
Unrealized
Loss
Market
Value
$
$
$
7.8
0.7
8.5 $
— $
0.2
0.2 $
0.1
—
0.1
$
$
7.7
0.9
8.6
$
$
7.6 $
0.9
8.5 $
0.1 $
—
0.1 $
— $
—
— $
7.7
0.9
8.6
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 zero for the fiscal year ended June 2, 2018 and $0.1 million
for the fiscal year ended June 3, 2017. 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
$37.3 million and $36.1 million as of June 2, 2018 and June 3, 2017, 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 £19.9 million and £19.4 million as of
June 2, 2018 and June 3, 2017, respectively. The company also has other forward contracts related to other currency pairs at varying notional
amounts.
Interest Rate Swaps
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 agreements were 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 agreements 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 agreements is recognized as an adjustment to interest expense.
The interest rate swaps were designated cash flow hedges at inception and remain an effective accounting hedge as of June 2, 2018. Since a
designated derivative meets hedge accounting criteria, the fair value of the hedge is recorded in the Consolidated Statement of Stockholders’
72 2018 Annual Report
Equity as a component of Accumulated other comprehensive loss, net of tax. The ineffective portion of the change in fair value of the derivatives
is immediately recognized in earnings. The interest rate swap agreements are assessed for hedge effectiveness on a quarterly basis.
In September 2016, the company entered into an interest rate swap agreement. The interest rate swap is for an aggregate notional amount of
$150.0 million with 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 converted indebtedness anticipated to be borrowed on the company’s revolving line of credit up to the notional amount 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.
In June 2017, the company entered into an interest rate swap agreement. The interest rate swap 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. As a result of the transaction, the company
effectively converted the company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable
margin to a 2.387 percent fixed interest rate plus applicable margin under the agreement as of the forward start date.
The fair value of the company’s two outstanding interest rate swap agreements was an asset of $15.0 million and $3.3 million as of June 2,
2018 and June 3, 2017, respectively. The asset fair value was recorded within Other noncurrent assets within the Condensed Consolidated
Balance Sheets. The net unrealized gain recorded within Other comprehensive loss, net of tax, for the effective portion of the company's
designated cash flow hedges was $7.8 million and $2.1 million for the fiscal years ended June 2, 2018 and June 3, 2017, respectively.
For fiscal 2018, 2017 and 2016, there were no gains or losses recognized against earnings for hedge ineffectiveness.
Effects of Derivatives on the Financial Statements
The effects of derivatives on the consolidated financial statements were as follows for the fiscal years ended 2018 and 2017 (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 2, 2018
June 3, 2017
Long-term assets: Other assets
$
$
$
15.0
0.4
0.3
$
$
$
3.3
0.5
0.6
(In millions)
Gain recognized on foreign currency forward
contracts
Statement of Comprehensive
Income Location
June 2, 2018
June 3, 2017 May 28, 2016
Fiscal Year
Other expenses (income): Other, net
$
0.4
$
(1.2) $
(0.7)
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 2, 2018
7.5
$
Fiscal Year
June 3, 2017
2.1
$
May 28, 2016
—
$
Losses reclassified from Accumulated other comprehensive loss into earnings were $0.3 million. There were no reclassifications required in
fiscal 2017 and 2016.
Herman Miller, Inc. and Subsidiaries 73
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
Other Guarantees
2018
2017
2016
$
$
47.7 $
22.1
(18.3)
51.5 $
43.9
22.8
(19.0)
47.7
$
$
39.3
25.5
(20.9)
43.9
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 2,
2018, the company had a maximum financial exposure related to performance bonds of approximately $9.5 million. The company has no history
of claims, nor is it aware of circumstances that would require it to perform under any of these arrangements and believes that the resolution of
any claims that might arise in the future, either individually or in the aggregate, would not significantly affect the company's financial statements.
Accordingly, no liability has been recorded as of June 2, 2018 and June 3, 2017.
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 2, 2018 and June 3, 2017.
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 2, 2018, the company had a maximum financial exposure from these
standby letters of credit of approximately $8.2 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 2, 2018 and June 3, 2017.
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 2018, outstanding commitments for future purchase obligations approximated $93.5 million.
74 2018 Annual Report
13. Operating Segments
Effective in the first quarter of fiscal 2018, the company moved the operating results of its Nemschoff subsidiary, which primarily focuses on
healthcare, from its North America Furniture Solutions operating segment to its Specialty operating segment. This change was made to better
leverage the skills and capabilities of the company's Specialty business teams, particularly in the areas of craft wood and upholstery manufacturing.
Additionally, the company has refreshed its methodology of allocating selling, general and administrative costs to the operating segments. The
company has also identified certain corporate support costs that will no longer be allocated to the operating segments and that will be tracked
and reported as "Corporate Unallocated Expenses". The company made these changes in the way that it allocates and reports its costs to better
reflect the utilization of functional services across its operating segments and to also more closely align to industry practice. Prior year results
disclosed in the table below have been revised to reflect these changes.
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 segment includes the operations associated with the design,
manufacture and sale of furniture products for work-related settings, including office, education and healthcare environments, throughout the
United States and Canada. The business associated with the company's owned contract furniture dealers is also included in the North American
Furniture Solutions segment. The ELA Furniture Solutions segment includes EMEA, Latin America and Asia-Pacific. ELA includes the operations
associated with the design, manufacture, and sale of furniture products, primarily for work-related settings, in these geographic regions. The
Specialty segment includes the operations associated with the design, manufacture, and sale of high-craft furniture products and textiles including
Geiger wood products, Maharam textiles, Nemschoff and Herman Miller Collection products. The Consumer segment 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 eCommerce and Design Within Reach retail studios.
The company also reports a “Corporate” category consisting primarily of unallocated expenses related to general corporate functions, including,
but not limited to, certain legal, executive, corporate finance, information technology, administrative and acquisition-related costs. Management
regularly reviews corporate costs and believes disclosing such information provides more visibility and transparency regarding how the chief
operating decision maker reviews results of the Company. The accounting policies of the reportable operating segments are the same as those
of the company.
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:
Herman Miller, Inc. and Subsidiaries 75
(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
2018
2017
2016
$
1,284.4
$
1,276.6
$
434.5
305.4
356.9
—
385.5
298.0
318.1
—
2,381.2
$
2,278.2
$
$
$
$
$
$
33.4
10.2
10.5
12.1
0.7
66.9
166.3
35.5
8.9
13.9
(47.1)
177.5
38.9
11.4
7.1
13.2
$
$
$
$
$
28.3
9.4
9.4
10.2
1.6
58.9
176.0
35.9
8.1
4.8
(34.0)
190.8
46.2
8.5
10.6
22.0
—
70.6 $
—
87.3 $
$
488.7
283.4
188.7
291.2
227.5
$
519.3
230.3
172.2
276.4
108.1
1,479.5
$
1,306.3
$
133.2
40.0
52.1
78.8
—
304.1
$
$
133.5
40.1
52.1
78.8
—
304.5
$
$
$
$
$
$
$
$
$
$
$
$
$
1,269.4
412.6
294.2
288.7
—
2,264.9
24.5
9.1
9.4
8.6
1.4
53.0
187.6
40.2
15.0
8.1
(39.4)
211.5
56.1
15.0
3.8
10.2
—
85.1
503.4
218.4
175.6
245.3
92.4
1,235.1
133.5
40.9
52.1
78.8
—
305.3
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.
76 2018 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
Textiles
Other (1)
Total
2018
2017
2016
$
$
601.5
965.9
465.1
94.3
254.4
$
639.0
894.8
428.8
96.9
218.7
$
2,381.2
$
2,278.2
$
656.8
855.5
456.9
97.6
198.1
2,264.9
(1) “Other” primarily consists of 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
Long-lived assets:
United States
International
Total
2018
2017
2016
1,737.9
$
1,690.1
$
643.3
588.1
2,381.2
$
2,278.2
$
1,757.0
507.9
2,264.9
349.3
50.5
399.8
$
$
328.6
45.3
373.9
$
$
254.8
48.1
302.9
$
$
$
$
The company estimates that no single dealer accounted for more than 4 percent of the company's net sales in the fiscal year ended June 2,
2018. The company estimates that its largest single end-user customer accounted for $109.8 million, $102.3 million and $95.7 million of the
company's net sales in fiscal 2018, 2017 and 2016, respectively. This represents approximately 5 percent, 5 percent and 4 percent of the
company's net sales in fiscal 2018, 2017 and 2016, respectively.
Approximately 5 percent of the company's employees are covered by collective bargaining agreements, most of whom are employees of its
Nemschoff and Herman Miller Holdings Limited subsidiaries.
Herman Miller, Inc. and Subsidiaries 77
14. Accumulated Other Comprehensive Loss
The following table provides an analysis of the changes in accumulated other comprehensive loss for the years ended June 2, 2018, June 3,
2017 and May 28, 2016:
(In millions)
Cumulative translation adjustments at beginning of period
Other comprehensive income (loss) before reclassifications (net of tax of $- , $- and
($0.3))
Balance at end of period
Pension and other post-retirement benefit plans at beginning of period
Other comprehensive income (loss) before reclassifications (net of tax of ($2.9), $3.7
and ($0.7))
Reclassification from accumulated other comprehensive income - Selling, general and
administrative
Tax benefit
Net reclassifications
Net current period other comprehensive income
Balance at end of period
Interest rate swap agreement at beginning of period
Other comprehensive income before reclassifications (net of tax of ($4.0), ($1.2) and $-)
Reclassification from accumulated other comprehensive income - Interest expense
Net reclassifications
Net current period other comprehensive income
Balance at end of period
Available-for-sale Securities at beginning of period
Other comprehensive income before reclassifications (net of tax of $- , $- and $-)
Balance at end of period
Total accumulated other comprehensive loss
15. Redeemable Noncontrolling Interests
June 2, 2018
$
(36.8) $
Year Ended
June 3, 2017 May 28, 2016
(20.8)
(29.6) $
2.7
(34.1)
(47.6)
5.3
4.2
0.9
5.1
10.4
(37.2)
2.1
7.5
0.3
0.3
7.8
9.9
0.1
—
0.1
(61.3) $
(7.2)
(36.8)
(34.9)
(14.5)
2.2
(0.4)
1.8
(12.7)
(47.6)
—
2.1
—
—
2.1
2.1
—
0.1
0.1
(82.2) $
(8.8)
(29.6)
(35.4)
(2.0)
3.2
(0.7)
2.5
0.5
(34.9)
—
—
—
—
—
—
—
—
—
(64.5)
$
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 2, 2018 and June 3, 2017 are as follows:
(In millions)
Balance at beginning of period
Purchase of redeemable noncontrolling interests
Net income attributable to redeemable noncontrolling interests
Exercised options
Redemption value adjustment
Other adjustments
Balance at end of period
Year Ended
June 2, 2018
June 3, 2017
$
$
24.6
(1.0)
0.6
0.1
6.2
—
30.5
$
$
27.0
(1.5)
0.2
—
(1.2)
0.1
24.6
78 2018 Annual Report
16. Restructuring and Impairment Activities
2018 Restructuring Expenses
North America Contract segment
During the first quarter of fiscal 2018, the company announced restructuring actions involving targeted workforce reductions primarily within the
North American segment. These actions related to the company's cost savings initiatives and resulted in the recognition of restructuring expenses
of $1.4 million in the first quarter of fiscal 2018. The restructuring actions were completed, and final payments made in fiscal 2018.
During the second quarter of fiscal 2018, the company announced further restructuring actions involving targeted workforce reductions primarily
within the North American segment. These actions related to the company's previously announced cost savings initiatives and resulted in the
recognition of restructuring expenses of $0.4 million in the second quarter of fiscal 2018. The restructuring actions were completed, and final
payments made in fiscal 2018.
ELA segment
On March 14, 2018, the company announced a facilities consolidation plan related to its ELA segment. This impacted certain office and
manufacturing facilities in the United Kingdom and China. It is currently contemplated that this plan will generate approximately $4 million in
annual cost reductions as part of the company's three-year cost savings initiatives.
The company recognized restructuring expenses of $3.9 million of which $2.4 million related to workforce reductions and $1.5 million related
to the exit and disposal activities as a result of consolidating the United Kingdom office and China manufacturing facilities. The company expects
the ELA facilities consolidations to be completed by the first quarter of fiscal 2020. It is currently contemplated that this plan will incur an additional
estimated $2 million of future restructuring and related special charges.
The following table provides an analysis of the changes in ELA segment restructuring costs reserve for the fiscal year ended June 2, 2018
(In millions)
Beginning Balance
Restructuring expenses
Payments
Ending Balance
Severance and employee
related expenses
Costs associated with exit
and disposal activities
Total
June 2, 2018
$
$
— $
2.4
(2.4)
— $
— $
1.5
(1.5)
— $
—
3.9
(3.9)
—
2017 Restructuring and Impairment Charges
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 made in fiscal 2018.
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.
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
June 2, 2018
Severance and employee
related expenses
June 3, 2017
Severance and employee
related expenses
$
$
$
2.4
—
(2.4)
— $
0.4
5.4
(3.4)
2.4
Herman Miller, Inc. and Subsidiaries 79
17. Subsequent Event
On June 6, 2018, Herman Miller Holdings Limited, a wholly owned subsidiary of the company, announced its intent to lead a group of buyers
to acquire the outstanding equity of Maars Holding B.V. ("MAARS”), a Harderwijk, Netherlands-based worldwide leader in the design and
manufacturing of interior wall solutions. The transaction is expected to close in the first quarter of fiscal 2019. As a result of the deal, the company
will acquire a 48 percent ownership interest in MAARS for an estimated $6 million in cash.
On June 7, 2018, Herman Miller Holdings Limited, a wholly owned subsidiary of the company entered into an agreement to acquire 33 percent
of the outstanding equity of Nine United Denmark A/S, d/b/a HAY ("HAY”), a Copenhagen, Denmark-based, design leader in furniture and
ancillary furnishings for residential and contract markets in Europe and Asia. The company acquired its 33 percent ownership interest in HAY
for approximately $66 million in cash. The company also acquired the rights to the HAY brand in North America under a long-term license
agreement for approximately $5 million in cash.
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 2, 2018, June 3, 2017, and
May 28, 2016.
(In millions, except per share data)
2018 Net sales (1)
Gross margin (1)
Net earnings attributable to Herman Miller, Inc. (1)
Earnings per share-basic (1)
Earnings per share-diluted
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
$
$
$
580.3
216.9
33.1
0.55
0.55
598.6
230.0
36.3
0.61
0.60
565.4
216.8
33.5
0.56
0.56
$
$
$
604.6
222.1
33.5
0.56
0.55
577.5
218.0
31.7
0.53
0.53
580.4
224.4
34.7
0.58
0.57
$
$
$
578.4
205.8
29.8
0.50
0.49
524.9
195.5
22.5
0.38
0.37
536.5
207.8
27.9
0.46
0.46
618.0
228.3
31.8
0.53
0.53
577.2
220.9
33.4
0.56
0.55
582.6
225.2
40.7
0.68
0.67
(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.
80 2018 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 2, 2018, 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 2, 2018.
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 81
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Herman Miller, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Herman Miller, Inc. and subsidiaries’ internal control over financial reporting as of June 2, 2018, 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). In our opinion, Herman Miller, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal
control over financial reporting as of June 2, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of Herman Miller, Inc. and subsidiaries as of June 2, 2018 and June 3, 2017, and the related consolidated statements
of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended June 2, 2018, and the related
notes and financial statement schedule listed in the Index at Item 15(a) of the Company and our report dated July 31, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’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 are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 31, 2018
82 2018 Annual Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Herman Miller, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Herman Miller, Inc. and subsidiaries (the Company) as of June 2, 2018 and
June 3, 2017, and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three
years in the period ended June 2, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at June 2, 2018 and June 3, 2017, and the results of its operations and its cash flows for each of the three
years in the period ended June 2, 2018, 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) (PCAOB), the
Company’s internal control over financial reporting as of June 2, 2018, 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 July 31, 2018
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002
Grand Rapids, Michigan
July 31, 2018
Herman Miller, Inc. and Subsidiaries 83
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 2, 2018 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 2, 2018, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B OTHER INFORMATION
None
84 2018 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 2018 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 2018 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 2018 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 2018 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 2018 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
2018 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 2018 Annual Meeting of
Stockholders, and the information within that section is incorporated by reference.
Herman Miller, Inc. and Subsidiaries 85
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
The following financial statement schedule is included in this Annual Report on Form 10-K on the pages noted:
Schedule II-
Valuation and Qualifying Accounts and Reserves for the Years Ended June 2, 2018,
June 3, 2017 and May 28, 2016
Page Number in
this Form 10-K
43
44
45
46
47
81
82
83
Page Number in
this Form 10-K
90
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 89-90.
Item 16 FORM 10-K SUMMARY
None
86 2018 Annual Report
(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)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
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 is incorporated by reference from
Exhibit 10(c) of Registrant's June 3, 2017 Form 10-K Annual Report (Commission File No. 001-15141).(1)
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)
Herman Miller, Inc. Executive Incentive Cash Bonus Plan dated April 24, 2006 is incorporated by reference from Exhibit
10(e) of Registrant's June 3, 2017 Form 10-K (Commission File No. 001-15141).(1)
Form of Herman Miller, Inc., Long-Term Incentive Plan Stock Option Agreement is incorporated by reference to Exhibit
10(f) of the Registrant's July 26, 2016 Form 10-K (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 July 26, 2016 Form 10-K (Commission File No. 001-15141).(1)
Form of Herman Miller, Inc., Long-Term Incentive Performance Stock Unit EBITDA Award is incorporated by reference
from Exhibit 10(h) of the Registrant's June 3, 2017 Form 10-K (Commission File No. 001-15141).(1)
Second Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan is incorporated by reference to Exhibit
10(i) of the Registrant's July 26, 2016 Form 10-K (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 July 26, 2016 Form 10-K (Commission File No. 001-15141).(1)
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)
Herman Miller, Inc. and Subsidiaries 87
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
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)(2)
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)(2)
Third Amendment to the Herman Miller, Inc. 2011 Long-Term Incentive Plan is incorporated by reference to Exhibit 10(o)
of the Registrant's July 26, 2016 Form 10-K (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 July 28, 2015 Form 10-K (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 July 26, 2016 Form 10-K (Commission File No. 001-15141).(1)
Retirement Agreement dated February 5, 2018 between Herman Miller, Inc. and Brian C. Walker, Chief Executive Officer,
is incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q dated April 11, 2018 (Commission File No.
001-15141).(1)
Covenant Agreement dated February 5, 2018 between Herman Miller, Inc. and Brian C. Walker, Chief Executive Officer,
is incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-Q dated April 11, 2018 (Commission File No.
001-15141).(1)
Form of Retention Agreement dated February 5, 2018 between Herman Miller, Inc. and John Edelman, Steve Gane,
Jeremy Hocking, Timothy Lopez, and John McPhee. (1)
Form of Retention Agreement between Herman Miller, Inc. and Jeffrey M. Stutz, Gregory J. Bylsma, Andrew J. Lock,
and B. Ben Watson is incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K dated February 5, 2018
(Commission File No. 001-15141).(1)
The Share Purchase agreement dated June 7, 2018 between Herman Miller Holdings Limited, Nine United A/S and
Holdingselskabet af 1/7 2007 ApS.(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
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
(1) Denotes compensatory plan or arrangement.
(2) Subsequent to the agreement, the legal name of the company was changed from HM Springboard, Inc. to Herman Miller Consumer
Holdings, Inc.
88 2018 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:
July 31, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on, July 31, 2018 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 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 89
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Column A
Description
Year ended June 2, 2018:
Accounts receivable allowances — uncollectible accounts(1)
Accounts receivable allowances — credit memo(2)
Allowance for possible losses on notes receivable
Valuation allowance for deferred tax asset
Year ended June 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
$
$
$
$
$
$
$
$
$
$
$
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
2.3 $
0.4 $
0.9 $
10.0 $
3.4 $
0.4 $
0.9 $
0.6
0.1
(0.5)
0.5
$
$
$
$
— $
— $
— $
10.6 $
(0.6)
$
$
2.3
— $
(0.1)
$
2.4 $
0.4 $
1.0 $
(0.5)
$
— $
— $
(0.2)
(1.1)
$
$
— $
— $
— $
(1.3)
$
— $
— $
2.4
0.5
0.4
10.3
2.3
0.4
0.9
10.0
3.4
0.4
0.9
10.6
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.
11.1 $
(1.5)
1.0
$
$
90 2018 Annual Report
© 2018 Herman Miller, Inc., Zeeland, Michigan Printed in U.S.A. please recycle P.MS2854-2
® 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
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