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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 28, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-15141
__________________________________________
https://cdn.kscope.io/af9a89f5dbe597a657ce59c5d66e6a0b-mlhr-20210828_g1.jpg
HERMAN MILLER, INC.
(Exact name of registrant as specified in its charter)
__________________________________________
Michigan38-0837640
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
855 East Main Avenue
Zeeland, MI 49464
(Address of principal executive offices and zip code)
(616) 654-3000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.20 per shareMLHRNasdaq Global Select Market

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  o 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).    Yes  x    No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 filerxAccelerated fileroNon-accelerated filer  oSmaller reporting companyEmerging 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 Act).     Yes  ☐  No  

As of October 1, 2021, Herman Miller, Inc. had 75,773,618 shares of common stock outstanding.



Herman Miller, Inc.
Form 10-Q
Table of Contents
 Page No.
Part I — Financial Information 
Item 1 Financial Statements (Unaudited) 
Condensed Consolidated Statements of Comprehensive Income — Three Months ended August 28, 2021 and August 29, 2020
Condensed Consolidated Balance Sheets — August 28, 2021 and May 29, 2021
Condensed Consolidated Statements of Cash Flows — Three Months Ended August 28, 2021 and August 29, 2020
Condensed Consolidated Statements of Stockholders' Equity — Three Months Ended August 28, 2021 and August 29, 2020
Notes to Condensed Consolidated Financial Statements
Note 4 - Leases
Note 5 - Acquisitions
Note 11 - Income Taxes
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Item 4 Controls and Procedures
Part II — Other Information
Item 1   Legal Proceedings
Item 1A Risk Factors
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
Item 6   Exhibits
Signatures
 



PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Herman Miller, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Dollars in millions, except share data) Three Months Ended
(Unaudited) August 28, 2021August 29, 2020
Net sales$789.7 $626.8 
Cost of sales512.2 376.8 
Gross margin277.5 250.0 
Operating expenses:
Selling, general and administrative306.8 139.7 
Restructuring expense, net (1.2)
Design and research23.5 16.1 
Total operating expenses330.3 154.6 
Operating (loss) earnings(52.8)95.4 
Interest expense5.6 3.7 
Interest and other investment income0.3 0.4 
Other expense (income), net12.7 (1.7)
(Loss) earnings before income taxes and equity income(70.8)93.8 
Income tax (benefit) expense(10.8)20.6 
Equity income from nonconsolidated affiliates, net of tax0.1 0.2 
Net (loss) earnings(59.9)73.4 
Net earnings attributable to redeemable noncontrolling interests1.6 0.4 
Net (loss) earnings attributable to Herman Miller, Inc.$(61.5)$73.0 
(Loss) Earnings per share — basic$(0.93)$1.24 
(Loss) Earnings per share — diluted$(0.93)$1.24 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments$(16.0)$30.1 
Pension and post-retirement liability adjustments2.3 1.2 
Unrealized (loss) gains on interest rate swap agreement(1.0)0.3 
Unrealized holding loss on available for sale securities (0.1)
Other comprehensive (loss) income, net of tax(14.7)31.5 
Comprehensive (loss) income(74.6)104.9 
Comprehensive income attributable to redeemable noncontrolling interests2.1 3.0 
Comprehensive (loss) income attributable to Herman Miller, Inc.$(76.7)$101.9 
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller, Inc. and Subsidiaries 3


Herman Miller, Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions, except share data)
(Unaudited) August 28, 2021May 29, 2021
ASSETS
Current Assets:
Cash and cash equivalents$235.1 $396.4 
Short-term investments8.0 7.7 
Accounts receivable, net of allowances of $5.0 and $5.5
283.3 204.7 
Unbilled accounts receivable24.3 16.4 
Inventories446.2 213.6 
Prepaid expenses122.3 45.1 
Other current assets16.5 7.6 
Total current assets1,135.7 891.5 
Property and equipment, at cost1,464.8 1,159.7 
Less — accumulated depreciation(853.1)(832.5)
Net property and equipment611.7 327.2 
Right-of-use assets421.9 214.7 
Goodwill1,283.9 364.2 
Indefinite-lived intangibles493.0 97.6 
Other amortizable intangibles, net of accumulated amortization of $97.7 and $68.6
446.2 105.2 
Other noncurrent assets68.1 61.5 
Total Assets$4,460.5 $2,061.9 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable$327.4 $178.4 
Short-term borrowings and current portion of long-term debt22.6 2.2 
Accrued compensation and benefits92.0 90.2 
Short-term lease liability101.2 69.0 
Accrued warranty17.5 14.5 
Customer deposits106.8 43.1 
Other accrued liabilities139.3 103.4 
Total current liabilities806.8 500.8 
Long-term debt1,298.4 274.9 
Pension and post-retirement benefits45.6 34.5 
Lease liabilities376.2 196.9 
Other liabilities385.3 128.2 
Total Liabilities2,912.3 1,135.3 
Redeemable noncontrolling interests72.6 77.0 
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, 75,784,091 and 59,029,165 shares issued and outstanding in fiscal 2022 and 2021, respectively)
15.2 11.8 
Additional paid-in capital808.3 94.7 
Retained earnings732.6 808.4 
Accumulated other comprehensive loss(80.3)(65.1)
Deferred compensation plan(0.2)(0.2)
Total Stockholders' Equity 1,475.6 849.6 
Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity$4,460.5 $2,061.9 
See accompanying notes to Condensed Consolidated Financial Statements.
4 Form 10-Q


Herman Miller, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in millions) Three Months Ended
(Unaudited) August 28, 2021August 29, 2020
Cash Flows from Operating Activities:
Net (loss) earnings$(59.9)$73.4 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization59.7 21.2 
Stock-based compensation15.1 1.5 
Pension and post-retirement expenses(1.9)0.7 
Deferred taxes(8.2)(0.3)
Restructuring expense (1.2)
Loss on extinguishment of debt13.4  
(Increase) decrease in current assets(65.6)3.9 
(Decrease) increase in current liabilities(5.1)13.3 
Increase (decrease) in non-current liabilities3.5 5.2 
Other, net(2.7)(1.8)
Net Cash (Used in) Provided by Operating Activities(51.7)115.9 
Cash Flows from Investing Activities:
Proceeds from sale of property and dealers 6.4 
Capital expenditures(18.6)(11.3)
Acquisitions, net of cash received(1,088.5) 
Other, net2.4 (0.2)
Net Cash Used in Investing Activities(1,104.7)(5.1)
Cash Flows from Financing Activities:
Repayments of long-term debt(50.0) 
Proceeds from issuance of debt, net of discounts1,007.0  
Payments of deferred financing costs(9.3) 
Proceeds from credit facility366.6  
Repayments of credit facility(276.6)(265.0)
Payment of make whole premium on debt(13.4) 
Dividends paid(11.1)(12.3)
Common stock issued2.2 0.8 
Common stock repurchased and retired(11.0)(0.9)
Other, net(2.8)0.9 
Net Cash Provided by (Used in) Financing Activities1,001.6 (276.5)
Effect of Exchange Rate Changes on Cash and Cash Equivalents(6.5)8.3 
Net Decrease in Cash and Cash Equivalents(161.3)(157.4)
Cash and Cash Equivalents, Beginning of Period396.4 454.0 
Cash and Cash Equivalents, End of Period$235.1 $296.6 
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller, Inc. and Subsidiaries 5


Herman Miller, Inc.
Condensed Consolidated Statements of Stockholders' Equity
Three Months Ended August 28, 2021
(Dollars in millions, except share data)Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossDeferred Compensation PlanHerman Miller, Inc. Stockholders' Equity
(Unaudited)SharesAmount
May 29, 202159,029,165 $11.8 $94.7 $808.4 $(65.1)$(0.2)$849.6 
Net earnings(61.5)(61.5)
Other comprehensive income, net of tax(15.2)(15.2)
Stock-based compensation expense15.1 15.1 
Exercise of stock options49,584 1.3 1.3 
Restricted and performance stock units released358,016  
Employee stock purchase plan issuances19,020 0.7 0.7 
Repurchase and retirement of common stock(267,522)(11.0)(11.0)
Shares issued for the acquisition of Knoll 15,843,921 3.2 685.1 688.3 
Pre-combination expense from Knoll rollover751,907 0.2 22.4 22.6 
Dividends declared $0.1875 per share)
(14.3)(14.3)
August 28, 202175,784,091 $15.2 $808.3 $732.6 $(80.3)$(0.2)$1,475.6 
Three Months Ended August 29, 2020
(Dollars in millions, except share data) Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossDeferred Compensation PlanHerman Miller, Inc. Stockholders' Equity
(Unaudited) SharesAmount
May 30, 202058,793,275 $11.8 $81.6 $683.9 $(134.0)$(0.3)$643.0 
Net earnings— — — 73.0 — — 73.0 
Other comprehensive income, net of tax— — — — 28.9 — 28.9 
Stock-based compensation expense— — 1.5 — — — 1.5 
Exercise of stock options8,133 — 0.2 — — — 0.2 
Restricted and performance stock units released106,607 — — — — —  
Employee stock purchase plan issuances25,116 — 0.6 — — — 0.6 
Repurchase and retirement of common stock(36,644)— (0.9)— — — (0.9)
Directors' fees3,013 — 0.1 — — — 0.1 
August 29, 202058,899,500 $11.8 $83.1 $756.9 $(105.1)$(0.3)$746.4 
See accompanying notes to Condensed Consolidated Financial Statements.
6 Form 10-Q


Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share data)
(unaudited)

1. Description of Business
Herman Miller, Inc. ( 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: direct customer sales, independent retailers, owned retail studios, direct-mail catalogs, owned contract office furniture dealerships and the Company's eCommerce platforms.

On July 19, 2021 the Company acquired Knoll, Inc. ("Knoll") (See Note 5. "Acquisitions"). Knoll is a leading global manufacturer of commercial and residential furniture, accessories, lighting and coverings. The Company has included the financial results of Knoll in the condensed consolidated financial statements from the date of acquisition. On July 13, 2021, the Company's Board of Directors unanimously recommended approval to shareholders of an amendment to our Restated Articles of Incorporation to change our corporate name from Herman Miller, Inc. to MillerKnoll, Inc. This proposed change is subject to shareholder approval at the upcoming shareholder meeting on October 11, 2021.

MillerKnoll is a collective of dynamic brands that comes together to design the world we live in. Powering the world's most dynamic design brands, MillerKnoll includes Herman Miller® and Knoll®, plus Colebrook Bosson Saunders®, DatesWeiser®, Design Within Reach®, Edelman® Leather, Fully®, Geiger®, HAY®, Holly Hunt®, KnollExtra®, Knoll Office, KnollStudio® , KnollTextiles®, Maars® Living Walls, Maharam®, Muuto®, naughtone®, and Spinneybeck®|FilzFelt®. Together we are redefining modern design for the 21st century.

Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared by Herman Miller, Inc. (“the Company”) in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Management believes the disclosures made in this document are adequate with respect to interim reporting requirements. Unless otherwise noted or indicated by the context, all references to "Herman Miller," "MillerKnoll," "Herman Miller Group," "we," "our," "Company" and similar references are to Herman Miller, Inc., its predecessors, and controlled subsidiaries. 

The accompanying unaudited Condensed Consolidated Financial Statements, taken as a whole, contain all adjustments that are of a normal recurring nature necessary to present fairly the financial position of the Company as of August 28, 2021. Operating results for the three months ended August 28, 2021 are not necessarily indicative of the results that may be expected for the year ending May 28, 2022 ("fiscal 2022"). It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 29, 2021 ("fiscal 2021"). All intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The financial statements of equity method investments are not consolidated.

Segment Reorganization
Effective as of May 30, 2021, the beginning of fiscal year 2022, the Company implemented an organizational change that resulted in a change in the reportable segments. The Company has recast historical results to reflect this change. Below is a description of each reportable segment. Intersegment sales are eliminated within each segment, with the exception of sales to and from the Knoll segment, which are presented as intersegment eliminations.

Global Retail – reflects the legacy North America Retail segment and now includes International Retail
Herman Miller, Inc. and Subsidiaries 7


Americas Contract ("Americas") – reflects the legacy Herman Miller North America Contract segment combined with Latin America and Design Within Reach Contract
International Contract ("International") – reflects global Contract activity outside the Americas, excluding the international activity of Knoll
Knoll – the Knoll segment includes the global operations associated with the design, manufacture, and sale of furniture products within the Knoll constellation of brands. The acquired Knoll business will initially be reflected as a stand-alone segment.

2. Recently Issued Accounting Standards
Recently Adopted Accounting Standards
On May 30, 2021, the Company adopted ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This update eliminates, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The eliminated disclosures include (a) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The adoption of this guidance did not have a material effect on our consolidated financial statements and additional disclosures will be made in our annual report.

On May 30, 2021, the Company adopted ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This update removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The update also adds guidance to reduce complexity in certain areas. The adoption of this guidance did not have a material impact on the Company's financial statements.

Recently Issued Accounting Standards Not Yet Adopted
The Company evaluates all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability to our consolidated financial statements. We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.

3. Revenue from Contracts with Customers
Disaggregated Revenue
Revenue disaggregated by contract type is provided in the table below:
Three Months Ended
(In millions)August 28, 2021August 29, 2020
Net Sales:
Single performance obligation
Product revenue$736.3 $543.3 
Multiple performance obligations
Product revenue49.6 78.4 
Service revenue1.9 3.1 
Other1.9 2.0 
Total$789.7 $626.8 

The Company internally reports and evaluates products based on the categories Workplace, Performance Seating, Lifestyle and Other. A description of these categories is included below.

8 Form 10-Q


The Workplace category includes products centered on creating highly functional and productive settings for both groups and individuals. This category focuses on the development of products, beyond seating, that define boundaries, support work and enable productivity.

The Performance Seating category includes products centered on seating ergonomics, productivity and function across an evolving and diverse range of settings. This category focuses on the development of ergonomic seating solutions for specific use cases requiring more than basic utility.

The Lifestyle category includes products focused on bringing spaces to life through beautiful yet functional products. This category focuses on the development of products that support a way of living, in thoughtful yet elevated ways. The products in this category help create emotive and visually appealing spaces via a portfolio that offers diversity in aesthetics, price and performance.

Revenue disaggregated by product type and reportable segment is provided in the table below:
Three Months Ended
(In millions)August 28, 2021August 29, 2020
Americas Contract:
Workplace$176.4 $213.7 
Performance Seating84.9 86.7 
Lifestyle32.7 32.8 
Other31.3 36.9 
Total Americas Contract$325.3 $370.1 
International Contract:
Workplace$25.7 $31.7 
Performance Seating49.2 43.7 
Lifestyle22.5 17.8 
Other1.6 0.8 
Total International Contract$99.0 $94.0 
Retail:
Workplace$3.5 $2.3 
Performance Seating61.1 57.6 
Lifestyle147.6 103.0 
Other0.4 (0.2)
Total Retail$212.6 $162.7 
Knoll:
Workplace$75.2 $ 
Performance Seating12.1  
Lifestyle56.4  
Other12.7  
Total Knoll$156.4 $ 
Intersegment sales elimination $(3.6)$ 
Total$789.7 $626.8 

Refer to Note 16 of the Condensed Consolidated Financial Statements for further information related to our reportable segments.

Herman Miller, Inc. and Subsidiaries 9


Contract Balances
Customers may make payments before the satisfaction of the Company's performance obligation and recognition of revenue. These payments represent contract liabilities and are included within the caption “Customer deposits” in the Condensed Consolidated Balance Sheets. During the three months ended August 28, 2021 and August 29, 2020, the Company recognized Net sales of $41.1 million and $18.1 million related to customer deposits that were included in the balance sheet as of May 29, 2021 and May 30, 2020, respectively. The Company assumed a contract liability of $55.5 million related to the acquisition of Knoll, Inc on July 19, 2021.

4. Leases
The components of lease expense are provided in the table below:
Three Months Ended
(In millions)August 28, 2021August 29, 2020
Operating lease costs$17.9 $11.0 
Short-term lease costs1.6 0.8 
Variable lease costs*2.5 1.6 
Total$22.0 $13.4 
*Not included in the table above for the three months ended August 28, 2021 and August 29, 2020 are variable lease costs of $20.7 million and $16.9 million, respectively, for raw material purchases under certain supply arrangements that the Company has determined meet the definition of a lease.

At August 28, 2021, the Company had no financing leases.

The undiscounted annual future minimum lease payments related to the Company's right-of-use assets are summarized by fiscal year in the following table:
(In millions)
2022$88.5 
202383.5 
202474.3 
202565.8 
202650.3 
Thereafter153.8 
Total lease payments*$516.2 
Less interest38.8 
Present value of lease liabilities$477.4 
*Lease payments exclude $3.9 million of legally binding minimum lease payments for leases signed but not yet commenced.

The long-term portion of the lease liabilities included in the amounts above is $376.2 million and the remainder of the lease liabilities are included in "Other accrued liabilities" in the Condensed Consolidated Balance Sheets.

At August 28, 2021, the weighted average remaining lease term and weighted average discount rate for operating leases were 7 years and 2.4%, respectively.

Supplemental cash flow and other information related to leases are provided in the table below:
Three Months Ended
(In millions)August 28, 2021August 29, 2020
Operating cash flows used for operating leases$16.7 $11.1 
Right-of-use assets obtained in exchange for new liabilities$20.0 $11.4 

5. Acquisitions
10 Form 10-Q


Knoll, Inc.
On July 19, 2021, the Company completed its previously announced acquisition of Knoll, Inc. (“Knoll"), a leader in the design, manufacture, marketing and sale of high-end furniture products and accessories for workplace and residential markets. The Company has included the financial results of Knoll in the condensed consolidated financial statements from the date of acquisition. The transaction costs associated with the acquisition, which included financial advisory, legal, proxy filing, regulatory and financing fees, were approximately $26.7 million and were recorded in general and administrative expenses during the three months ended August 28, 2021.

Under the terms of the Agreement and Plan of Merger, each issued and outstanding share of Knoll common stock (excluding shares exercising dissenters rights, shares owned by Knoll as treasury stock, shares owned by the deal parties or their subsidiaries, or shares subject to Knoll restricted stock awards) was converted into a right to receive 0.32 shares of Herman Miller common stock and $11.00 in cash, without interest. The preliminary acquisition date fair value of the consideration transferred for Knoll was approximately $1,887.3 million, which consisted of the following (in millions, except share amounts):
Knoll SharesHerman Miller Shares ExchangedFair Value
Cash Consideration:
Shares of Knoll Common Stock issued and outstanding at July 19, 202149,444,825 $543.9 
Knoll equivalent shares for outstanding option awards, outstanding awards of restricted common stock held by non-employee directors and outstanding awards of performance units held by individuals who are former employees of Knoll and remain eligible to vest at July 19, 2021184,857 1.4 
Total number of Knoll shares for cash consideration49,629,682 
Shares of Knoll Preferred Stock issued and outstanding at July 19, 2021169,165 254.4 
Consideration for payment to settle Knoll's outstanding debt376.9 
Share Consideration:
Shares of Knoll Common Stock issued and outstanding at July 19, 202149,444,825 
Knoll equivalent shares for outstanding awards of restricted common stock held by non-employee directors and outstanding awards of performance units held by individuals who are former employees of Knoll and remain eligible to vest at July 19, 202174,857 
Total number of Knoll shares for share consideration49,519,682 15,843,921 688.3 
Replacement Share-Based Awards:
Outstanding awards of Knoll Restricted Stock and Performance units relating to Knoll Common Stock at July 19, 202122.4 
Total preliminary acquisition date fair value of consideration transferred$1,887.3 

The aggregate cash paid in connection with the Knoll acquisition was $1,176.6 million. Herman Miller funded the acquisition through cash on-hand and debt proceeds, as described in "Note 14. Short-Term Borrowings and Long-Term Debt."

Outstanding unvested restricted stock awards, performance stock awards, performance stock units and restricted stock units with a preliminary estimated fair value of $53.4 million automatically converted into Company awards. Of the total fair value, $22.4 million was preliminarily allocated to purchase consideration and $31.0 million was preliminarily allocated to future services and will be expensed over the remaining service periods on a straight-line basis. Per the terms of the converted awards any qualifying termination within the twelve months subsequent to the acquisition will result in accelerated vesting and related recognition of expense.
Herman Miller, Inc. and Subsidiaries 11



The transaction was accounted for as a business combination which requires that assets and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price allocation is preliminary and subject to change, including as a result of the valuation of inventory, property, plant and equipment, intangible assets and income taxes among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date.

The following table summarizes the preliminary fair value of assets acquired and liabilities assumed as of the date of acquisition:
(In millions)Fair Value
Cash$88.0 
Accounts receivable82.3 
Inventories224.4 
Other current assets37.9 
Property and equipment292.1 
Right-of-use assets202.7 
Intangible assets770.4 
Goodwill925.9 
Other noncurrent assets22.7 
Total assets acquired2,646.4 
Accounts payable150.7 
Other current liabilities131.9 
Lease liabilities177.8 
Other liabilities298.8 
Total liabilities assumed759.2 
Net Assets Acquired$1,887.2 

The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is not deductible for tax purposes. Goodwill is primarily attributed to the assembled workforce of Knoll and anticipated operational synergies. Goodwill related to the acquisition was recorded within the Knoll segment at $925.9 million. Goodwill arising from the acquisition is not expected to be deductible for tax reporting purposes.

The fair values assigned to tangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received and certain tax matters are finalized. The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, income and non-income-based taxes and residual goodwill. The Company expects to finalize the valuations as soon as practicable, but not later than one year from the acquisition date.

The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company at the acquisition date:

(In millions)Valuation MethodUseful Life (years)Fair Value
BacklogMulti-Period Excess Earnings
Less than 1 Year
$53.4 
Trade name - indefinite livedRelief from RoyaltyIndefinite397.0 
Trade name - amortizingRelief from Royalty
5-10 Years
23.0 
DesignsRelief from Royalty
9-15 years
29.0 
Customer RelationshipsMulti-Period Excess Earnings
2-15 years
268.0 
Total$770.4 

12 Form 10-Q


The Company's Condensed Consolidated Statements of Comprehensive Income for the period ended August 28, 2021, include $156.4 million of Revenue and $45.9 million of Net Loss associated with the result of operations of Knoll from the acquisition date to August 28, 2021.

Pro Forma Results of Operations
The results of Knoll's operations have been included in the Consolidated Financial Statements beginning on July 19, 2021. The following table provides pro forma results of operations for the three months ended August 28, 2021 and August 29, 2020, as if Knoll had been acquired as of May 31, 2020. The pro forma results include certain purchase accounting adjustments such as the estimated change in depreciation and amortization expense on the acquired tangible and intangible assets. The impact of these adjustments is subject to change as valuations are finalized. The pro forma results also include the impact of incremental interest expense incurred to finance the merger. Transaction related costs, including debt extinguishment costs related to the transaction, have been eliminated from the pro forma amounts presented in both periods. Pro forma results do not include any anticipated cost savings from the integration of this acquisition. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.
Three Months Ended
(In millions)August 28, 2021August 29, 2020
Net sales$943.9 $891.8 
Net earnings attributable to Herman Miller, Inc.$(30.2)$30.9 

6. Inventories, net
(In millions)August 28, 2021May 29, 2021
Finished goods and work in process$329.1 $166.7 
Raw materials117.1 46.9 
Total$446.2 $213.6 
Inventories are valued at the lower of cost or market and include material, labor, and overhead. Certain inventories within our United States-based manufacturing operations are valued using the last-in, first-out (LIFO) method. Inventories of all other operations are valued using the first-in, first-out (FIFO) method.

7. Goodwill and Indefinite-Lived Intangibles
Goodwill and other indefinite-lived intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following as of August 28, 2021 and May 29, 2021:
(In millions)GoodwillIndefinite-lived Intangible Assets
May 29, 2021$364.2 $97.6 
Foreign currency translation adjustments(6.2)(1.5)
Acquisition of Knoll 925.9 396.9 
August 28, 2021$1,283.9 $493.0 

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. 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 bypass 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.

Each of the reporting units, with the exception of Knoll, were reviewed for impairment using a quantitative assessment as of March 31, 2021, our annual testing date. In performing the quantitative impairment test for fiscal year 2021, the Company determined that the fair value of its reporting units exceeded the carrying amount and, as such, these reporting units were not impaired.
Herman Miller, Inc. and Subsidiaries 13


In connection with the segment reorganization, certain of the Company’s reporting units have changed in composition, and goodwill was reallocated between such reporting units using a relative fair value approach. Accordingly, the Company performed interim goodwill impairment tests in the first quarter of 2022 for each reporting unit, with the exception of Knoll. Based on the results of the tests performed, the Company determined that the fair value of each reporting unit, as reorganized, exceeded its respective carrying amount in each case.

Goodwill related to the acquisition of Knoll was recorded within the Knoll segment at $925.9 million. This increase was offset by foreign currency translation adjustments, resulting in a goodwill balance of $1,283.9 million as of August 28, 2021.

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.

In fiscal 2021, the Company performed quantitative assessments in testing indefinite-lived intangible assets for impairment. The carrying value of the Company's HAY trade name indefinite-lived intangible asset was $41.7 million as of March 31, 2021. The calculated fair value of the HAY trade name was $43.8 million which represents an excess fair value of $2.1 million or 5.0%. If the residual cash flow related to this trade name were to decline in future periods, the Company may need to record an impairment charge.

During the three months ended August 28, 2021, there were no identified indicators of impairment that required the Company to complete an interim quantitative impairment assessment related to any of the Company's reporting units or indefinitely-lived intangible assets.

8. Employee Benefit Plans
The following table summarizes the components of net periodic benefit cost for the Company's defined benefit pension plans:
Pension Benefits
Three Months Ended August 28, 2021Three Months Ended August 29, 2020
(In millions)DomesticInternationalDomesticInternational
Service cost$0.1 $ $ $ 
Interest cost0.5 0.8  0.7 
Expected return on plan assets(1)
(1.0)(1.8) (1.4)
Net amortization loss 1.7  1.6 
Net periodic benefit cost$(0.4)$0.7 $ $0.9 
(1)The weighted-average expected long-term rate of return on plan assets is 4.98%.


9. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculations of basic and diluted earnings per share ("EPS") for the three months ended:
14 Form 10-Q


Three Months Ended
August 28, 2021August 29, 2020
Numerators:
Numerator for both basic and diluted EPS, Net earnings attributable to Herman Miller, Inc. - in millions$(61.5)$73.0 
Denominators:
Denominator for basic EPS, weighted-average common shares outstanding66,302,214 58,831,305 
Potentially dilutive shares resulting from stock plans 132,963 
Denominator for diluted EPS66,302,214 58,964,268 
Antidilutive equity awards not included in weighted-average common shares - diluted1,328,275 1,096,907 

10. Stock-Based Compensation
The following table summarizes the stock-based compensation expense and related income tax effect for the three months ended:
Three Months Ended
(In millions)August 28, 2021August 29, 2020
Stock-based compensation expense$15.1 $1.5 
Related income tax effect$3.7 $0.3 

The increase to Stock-based compensation expense was driven in part by the additional of Knoll's equity-based compensation awards. This impact includes the accelerated stock-compensation award expense related to workforce reductions as part of the Knoll integration.

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.

11. Income Taxes
The Company's process for determining the provision for income taxes for the three months ended August 28, 2021 involved using an estimated annual effective tax rate which was based on expected annual income and statutory tax rates across the various jurisdictions in which it operates. The effective tax rates were 15.3% and 22.0%, respectively, for the three month periods ended August 28, 2021 and August 29, 2020. The year over year decrease in the effective tax rate for the three months ended August 28, 2021 resulted from a pre-tax book loss reported for the quarter coupled with non-deductible discrete compensation and acquisition costs in the current quarter in connection with the Knoll acquisition as compared to pre-tax book income. The same quarter of the prior year had no comparable impact from acquisitions. For the three months ended August 28, 2021, the effective tax rate is lower than the United States federal statutory rate due to the impact of the Knoll acquisition related costs creating a pre-tax loss for the quarter coupled with non-deductible discrete compensation and acquisition costs in the quarter. For the three months ended August 29, 2020, the effective tax rate was higher than the United States federal statutory rate due to United States state income taxes and the mix of earnings in tax jurisdictions that had rates that were higher than the United States federal statutory rate.

The Company recognizes interest and penalties related to uncertain tax benefits through income tax expense in its Condensed Consolidated Statements of Comprehensive Income. Interest and penalties recognized in the Company's Condensed Consolidated Statements of Comprehensive Income were negligible for the three months ended August 28, 2021 and August 29, 2020.

The Company's recorded liability for potential interest and penalties related to uncertain tax benefits was:
Herman Miller, Inc. and Subsidiaries 15


(In millions)August 28, 2021May 29, 2021
Liability for interest and penalties$0.9 $0.9 
Liability for uncertain tax positions, current$2.8 $2.1 

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 twelve months because of the audits. Tax payments related to these audits, if any, are not expected to be material to the Company's Condensed Consolidated Statements of Comprehensive Income.

For the majority of tax jurisdictions, the Company is no longer subject to state, local, or non-United States income tax examinations by tax authorities for fiscal years before 2018.

12. Fair Value Measurements
The Company's financial instruments consist of cash equivalents, marketable securities, accounts and notes receivable, a deferred compensation plan, accounts payable, debt, interest rate swaps, foreign currency exchange contracts, redeemable noncontrolling interests, indefinite-lived intangible assets and right-of-use assets. The Company's financial instruments, other than long-term debt, are recorded at fair value.

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)August 28, 2021May 29, 2021
Carrying value$1,342.9 $277.1 
Fair value$1,317.2 $284.8 

The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities recorded in net earnings, which have not significantly changed in the current period:

Cash and cash equivalents — The Company invests excess cash in short term investments in the form of money market funds, which are valued using net asset value ("NAV").

Mutual Funds-equity — The Company's equity securities primarily include equity mutual funds. The equity mutual fund investments are recorded at fair value using quoted prices for similar securities.

Deferred compensation plan — The Company's deferred compensation plan primarily includes various domestic and international mutual funds that are recorded at fair value using quoted prices for similar securities.

Foreign currency exchange contracts — The Company's foreign currency exchange contracts are valued using an approach based on foreign currency exchange rates obtained from active markets. The estimated fair value of forward currency exchange contracts is based on month-end spot rates as adjusted by market-based current activity. These forward contracts are not designated as hedging instruments.

The following table sets forth financial assets and liabilities measured at fair value through net income and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of August 28, 2021 and May 29, 2021.

16 Form 10-Q


(In millions)August 28, 2021May 29, 2021
Financial AssetsNAVQuoted Prices with Other
Observable Inputs (Level 2)
NAVQuoted Prices with Other
Observable Inputs (Level 2)
Cash equivalents:
Money market funds$15.1 $ $162.2 $ 
Mutual funds - equity 0.8  0.8 
Foreign currency forward contracts 0.1  1.6 
Deferred compensation plan 17.7  16.1 
Total$15.1 $18.6 $162.2 $