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DEAR SHAREHOLDER Our Business Reality Has

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DEAR SHAREHOLDER Our Business Reality Has 2003 HE DEAR SHAREHOLDER Our business reality has been—in a word—unreal. Over the past year, the economy— especially the business-to-business sector in which we operate—was suspended in a state of wait-and-see. Wars and rumors of terrorist threats kept many people and businesses awash in anxiety. When the present is characterized by chaos and confusion, and the future prospects are just too uncertain to predict, buying o÷ce furniture generally drops near the bottom of the priority list. But it is counterproductive to dwell on the things you can’t control—so we spent our time working on the things within our control. Our central aim was to better position the company for growth and profitability in the future. None of the work was easy. A great deal of it was joyless—telling good people that we no longer had enough work for them . eliminating programs . consolidating operations and facilities. We’re not thrilled about the kind of work we’ve had to do, but we are proud of how we’ve handled the situation. Although our sales fell $132 million last year, cash flow from operations was $145 million, an increase of more than $90 million from the prior year. On a percent-of-sales basis, our gross margin improved 1.7 percentage points, a testimony to our continuous improvement e≈orts and the Herman Miller Production System. Total R operating expenses, which include restructuring charges, declined by MAN M I L L E more than $144 million from the prior year. Through all of this, we were able to maintain our level of spending on research and development. Finally, we reported net earnings of $23 million for the year—far less than our ambition, but a step in the right direction. In some ways—as we’ve grown in experience and wisdom through this period of recession—Herman Miller has been forever changed. We are leaner, more nimble, and we are becoming a fiercer competitor. In some other ways—thank goodness—we are still the same company we have been for the past 80 years. R For as long as we’ve competed in the o÷ce furniture business, Herman Miller has distinguished itself as a leader and an innovator. 1968 ANNUAL R We introduced Action O÷ce in , which gave birth to open-plan o÷ce furniture. We defined and promoted facilities management as a profession. We reinvented systems furniture in the 1980s with Ethospace, the first frame-and-tile system, and again at the dawn of the 21st century with Resolve, the point-based system that joined 36 other Herman Miller designs in the permanent collection of the New York Museum of Modern Art. We introduced in 1976 the Ergon chair, the first ergonomic task chair, which then begat the Equa chair in 1984, and then the Aeron chair in 1994, and now in 2003 the Mirra chair. E PORT L 2003 Report to Shareholders Herman Miller Inc., and Subsidiaries The Mirra chair (pictured on the front cover, and presented in detail at the end of this report) is fresh evidence of George Nelson’s declaration some 50 years ago that Herman Miller’s products lead rather than follow. In addition to innovative products, our clients and customers increasingly are looking for knowledge and insights from us. Herman Miller always has been a research-driven company. Within our industry, we are known for our knowledge about the working environment. More than ever before, an organization’s success will hinge on its ability to create a great work experience, and its ability to attract and retain the very best people. It is our plan to make this knowledge more available to our business partners and the people we serve. In fact, we believe that our knowledge and innovative spirit will pay real dividends in the future. In a rapidly changing world where new technologies are being invented that will change the character and nature of the work environment, the innovators will be redefining the industry and altering the competitive landscape. During the downturn, we made a conscious decision to maintain our investment in research and development and the work of the Herman Miller Creative O÷ce—which is taking our legacy of problem-solving design into new territories and seeking to enlarge our market opportunity in the years ahead. We decided to safeguard these investments during the downturn, because it’s the best way we know to create lasting value for our customers, shareholders and our employee-owners. Beyond that business advantage, being a pioneering company is also a breathtaking adventure that takes you on a path whose destination is usually unknown, with almost certain high risk and potentially great reward. I am deeply thankful to the people of our corporate community—leaders and followers alike—who have used their gifts and talents creatively despite the grim conditions. Not all the work has been energizing, but through it all we have lived our values. Our leaders within people services have dealt with this industry-wide contraction with skill, compassion, discipline, and as much grace as can be summoned under the circumstances. Especially now, we are fortunate to have these extraordinary leaders and followers. I wish there was the space here to give due credit to each of the hundreds of people who contributed something above and beyond the expected at Herman Miller. You will see many names elsewhere in this report, highlighting the people who were responsible for a great piece of work—bringing the Mirra from conception and gestation to the marketplace. I do want to acknowledge several leaders with whom I worked closely last year—Brian Walker, who was recently appointed President and Chief Operating O÷cer; Beth Nickels, our Chief Financial O÷cer; and John Portlock, President of International. Dear Shareholder 1 Those leaders, and their respective teams, managed through the turbulent waters of this industry downturn with steady resolve and acumen. Gary Miller, our Chief Development O÷cer, and Gary Van Spronsen, Senior Vice President of New Business Development, kept the work of the Herman Miller Creative O÷ce alive and moving forward. I’m honored to work alongside these remarkable colleagues. This is a gifted leadership team, tested by the firestorms of the past couple of years and well equipped to lead our corporate community to a bright and promising future. We are eager to move forward, after operating in contracting market opportunity for the past 24 months. The promise of the future is in our people and our products, our imagination and resourcefulness, our operational excellence and fiscal discipline, our dealer network and designers, and, of course, our powerful brand. We will fulfill our mission of helping people create great places to work, to learn, to heal, to live. As we have learned over the past few years, it is perilous to predict what the future holds. But this much I promise you—we will work hard to make certain that you get an extraordinary return on your investment in the years to come. Michael A. Volkema Chairman and Chief Executive O÷cer Ruth Alkema Reister retired from the Herman Miller Board of Directors during 2003, after 18 years of dedicated service. We’re grateful for her contributions to the board and to the spirit of our company. 2 Herman Miller, Inc., and Subsidiaries SHARE PRICE, EARNINGS, AND DIVIDENDS SUMMARY Herman Miller, Inc., common stock is quoted in the NASDAQ-National Market System (NASDAQ-NMS Symbol: MLHR). As of August 11, 2003, there were approximately 18,500 shareholders of record of the company’s common stock. Market Price Market Price Market Price Earnings Dividends High Low Close Per Per PerShare and Unaudited Share–Diluted(1) Share Year Ended May 31, 2003 First quarter $23.77 $15.49 $15.49 $ .13 $ .03625 Second quarter 19.94 14.58 19.94 .16 .03625 Third quarter 19.95 15.37 15.63 .04 .03625 Fourth quarter 19.34 15.46 19.34 (.02) .03625 Year $23.77 $14.58 $19.34 $ .31 $ .14500 Year Ended June 1, 2002 First quarter $26.91 $22.82 $22.82 $ (.04) $ .03625 Second quarter 23.00 18.25 21.86 (.30) .03625 Third quarter 25.65 21.76 24.85 (.15) .03625 Fourth quarter 25.41 21.53 23.46 (.25) .03625 Year $26.91 $18.25 $23.46 $ (.74) $ .14500 (1) For fiscal quarters ending with a reported loss, shares resulting from stock option plans would be anti-dilutive to earnings per share and have not been included in diluted earnings per share. Dear Shareholder Share Price, Earnings, and Dividends Summary 3 REVIEW OF OPERATIONS (In Millions, Except Per Share Data) 2003 2002 2001 2000 OPERATING RESULTS Net Sales(3) $1,336.5 $1,468.7 $2,236.2 $2,010.2 Gross Margin(3) 423.6 440.3 755.7 680.4 Selling, General, and Administrative(3) 319.8 399.7 475.4 404.4 Design and Research Expense 39.1 38.9 44.3 41.3 Operating Earnings 48.3 (79.9) 236.0 234.7 Earnings Before Income Taxes 35.8 (91.0) 225.1 221.8 Net Earnings 23.3 (56.0) 140.6 139.7 Cash Flow from Operating Activities 144.7 54.6 211.8 202.1 Depreciation and Amortization 69.4 112.9 92.6 77.1 Capital Expenditures 29.0 52.4 105.0 135.7 Common Stock Repurchased plus Cash Dividends Paid $ 72.7 $ 30.3 $ 105.3 $ 101.6 KEY RATIOS Sales Growth (Decline)(3) (9.0) (34.3) 11.2 9.9 Gross Margin(1, 3) 31.7 30.0 33.8 33.8 Selling, General, and Administrative(1, 3) 23.9 27.3 21.3 20.1 Design and Research Expense(1, 3) 2.9 2.6 2.0 2.1 Operating Earnings(1, 3) 3.6 (5.4) 10.6 11.7 Net Earnings Growth (Decline) 141.6 (139.8) 0.6 (1.5) After-Tax Return on Net Sales(3, 5) 1.7 (3.8) 6.3 6.9 After-Tax Return on Average Assets(6) 3.0 (6.3) 14.5 16.5 After-Tax Return on Average Equity(7) 10.3 (18.2) 43.5 55.5 SHARE AND PER SHARE DATA(2) Earnings per Share-Diluted $ .31 $ (.74) $ 1.81 $ 1.74 Cash DividendsDeclared perShare .15 .15 .15 .15 Book Value perShare atYear End 2.62 3.45 4.63 3.76 Market Price per Share at Year End $ 19.34 $ 23.46 $ 26.90 $ 29.75 Weighted Average Shares Outstanding-Diluted 74.5 75.9 77.6 80.5 FINANCIAL CONDITION Total Assets $ 767.5 $ 788.0 $ 996.5 $ 941.2 Working Capital(4) 189.9 188.7 191.6 99.1 Current Ratio 1.7 1.8 1.5 .9 Interest-Bearing Debt 223.0 235.1 259.3 225.6 Shareholders’ Equity 191.0 263.0 351.5 294.5 Total Capital 414.0 498.1 610.8 520.1 (1) Shown as a percent of net sales.
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