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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended May 29, 2021
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number: 001-15141
__________________________________________
HERMAN MILLER, INC.
(Exact name of registrant as specified in its charter)
__________________________________________
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Michigan
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38-0837640
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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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:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock |
MLHR |
NASDAQ |
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No o
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 o No ☒
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 ☒ 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 ☒ 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.
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Large accelerated filer
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☒
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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Emerging growth company
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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.
o
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report.
☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
The aggregate market value of the voting stock held by
“nonaffiliates” of the registrant (for this purpose only, the
affiliates of the registrant have been assumed to be the executive
officers and directors of the registrant and their associates) as
of November 27, 2020, was $2.2 billion (based on $37.56 per share
which was the closing sale price as reported by Nasdaq). As of
July 18, 2021, the registrant had 59,052,202 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the 2021
Annual Meeting of Stockholders are incorporated by reference into
Part III of this report.
Herman Miller, Inc.
Annual Report on Form 10-K
Table of Contents
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Page No. |
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Part I |
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Item 1 Business |
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Item 1A Risk Factors |
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Item 1B Unresolved Staff Comments |
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Item 2 Properties |
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Item 3 Legal Proceedings |
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Additional Item: Executive Officers of the Registrant |
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Item 4 Mine Safety Disclosures |
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Part II |
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Item 5 Market for the Registrant's Common Equity, Related
Stockholder Matters, and Issuer Purchases of Equity
Securities |
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Item 6 Selected Financial Data |
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Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations |
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Item 7A Quantitative and Qualitative Disclosures about Market
Risk |
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Item 8 Financial Statements and Supplementary Data |
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Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures |
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Item 9A Controls and Procedures |
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Item 9B Other Information |
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Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections |
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Part III |
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Item 10 Directors, Executive Officers, and Corporate
Governance |
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Item 11 Executive Compensation |
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Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
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Item 13 Certain Relationships and Related Transactions, and
Director Independence |
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Item 14 Principal Accountant Fees and Services |
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Part IV |
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Item 15 Exhibits and Financial Statement Schedule |
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Exhibit Index |
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Schedule II Valuation and Qualifying Accounts |
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Item 16 Form 10-K Summary |
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Signatures |
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PART I
Item 1 Business
General Development of Business
Herman Miller's purpose statement is design for the good of
humankind. The Company researches, designs, manufactures and
distributes interior furnishings for use in various environments
including residential, office, healthcare and educational 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 and to design products, systems and services that serve as
innovative solutions to those 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 eCommerce platforms.
Herman Miller, Inc. and Subsidiaries
2
The Company was incorporated in Michigan in 1905. As a global
design leader the Company established Herman Miller Group, a
purposefully selected, complementary family of brands that
collectively offers a variety of products for environments where
people live, learn, work, heal and play. The family of brands
includes Herman Miller®, Colebrook Bosson Saunders®, Design Within
Reach®, Geiger®, HAY®, Maars® Living Walls, Maharam®, naughtone®
and Nemschoff®. All of these companies are considered controlled
subsidiaries, except for Maars of which the Company owns 48.2% of
as of May 29, 2021. Herman Miller's 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, all references to
"Herman Miller," "we," "our," "Company" and similar references are
to Herman Miller, Inc. and its controlled 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.
Segments
The Company has three reportable segments: North America Contract,
International Contact and Retail. The Company also reports a
corporate category consisting primarily of unallocated corporate
expenses. For a more detailed description of the Company's
segments, refer to Item 7 of this report.
Financial information relating to segments is provided in Note 14
to the Consolidated Financial Statements included in Item 8 of this
report.
Description of Business
The Company's principal business consists of the research, design,
manufacture, selling and distribution of seating products, office
furniture systems, other freestanding furniture elements, textiles,
home furnishings and related services.
The Company's ingenuity and design excellence create award-winning
products and services, which have made the Company a leader in the
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 broad array of
seating products (including Embody®, Aeron®, Mirra2™, Setu®, Sayl®,
Verus®, Cosm®, Lino®, Verus®, Celle®, Equa®, Taper™ and Ergon®
office chairs) and modular systems (including Canvas Office
Landscape®, Locale®, Public Office Landscape®, Layout Studio®,
Action Office®, Ethospace®, Arras®, Prospect®, Overlay™, Resolve®,
and OE1®). The Company also offers 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, ergonomic and technology support products
(including Colebrook Bosson Saunders® products) and the textiles of
Maharam Fabric Corporation (Maharam®). The Live Platform™ system of
cloud-connected furnishings, applications and dashboards provides
data-enabled solutions 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™, HAY®, 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 also offers residential
and ancillary products through its subsidiaries, including: the
Line™ Storage Collection, Lina™ Swivel Chair, Matera™ Bedroom
Collection, Emmy™ Sofa Collection, Story™ Bookcase and Sømmer™
Outdoor Collection for Design Within Reach®; the Always™ Lounge
Chair, Always™ Chair, Polly™ Chair, Viv™ Chair, and Hush™ Chair for
naughtone®; and the Mags™ Sofa and About A™ Chair Collections for
HAY®.
The Company's products are marketed worldwide by its own sales
staff, independent dealers and retailers, owned dealers, via its
eCommerce websites, and through its owned Herman Miller, Design
Within Reach ("DWR") and HAY retail stores and studios. Salespeople
work with dealers, the architecture and design community, and
directly with end-users. Independent dealerships concentrate on the
sale of Herman Miller Group products and some complementary product
lines of other manufacturers. It is estimated that approximately 63
percent of the Company's sales in the fiscal year ended
May 29, 2021, 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, owned dealer network, retail
channels, or independent retailers.
The Company is a recognized leader within its industry for the use,
development, and integration of customer-centered technologies that
enhance the reliability, speed, and efficiency of our customers'
operations. This includes proprietary sales tools, interior design
and product specification software, order entry and manufacturing
scheduling and production systems, and direct connectivity to the
Company's suppliers.
The Company's furniture systems, seating, freestanding furniture,
storage, casegoods, textile products, and related services are used
in (1) institutional environments including offices and related
conference, lobby, and lounge areas and general public areas
including transportation terminals; (2) health/science
environments including hospitals, clinics and other healthcare
facilities; (3) industrial and educational settings; and (4)
residential and other environments.
Raw Materials
The Company's manufacturing materials are available from a
significant number of sources within North America, South America,
Europe and Asia. 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”.
Herman Miller, Inc. and Subsidiaries
4
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 and 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®, HAY®, naughtone®, Nemschoff®, Action
Office®, Aeron®, Mirra®, Embody®, Setu®, Sayl®, Cosm®, Caper®,
Eames®, Eames Lounge & Ottoman Configurations, Eames Aluminum
Group Configuration, and Canvas Office Landscape®.
Working Capital Practices
Information concerning the Company's working capital 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 approximates that no single dealer accounted for more
than three percent of the Company's net sales in the fiscal year
ended May 29, 2021.
The Company estimates that the largest single end-user customer
accounted for $113.0 million, $122.9 million and $129.6 million of
the Company's net sales in fiscal 2021, 2020, and 2019,
respectively. This represents approximately five percent of the
Company's net sales in fiscal 2021, 2020 and 2019. The Company's
ten largest customers in the aggregate accounted for approximately
17 percent of net sales in fiscal 2021 and 18 percent of net sales
in fiscal 2020 and 2019.
Backlog of Unfilled Orders
As of May 29, 2021, the Company's backlog of unfilled orders
was $446.9 million. At May 30, 2020, the Company's backlog
totaled $470.8 million. The decrease in backlog in the current year
was primarily due to delays in processing customer orders in the
fourth quarter of fiscal 2020 caused by the outbreak of COVID-19
and related facility shut-downs. It is expected that substantially
all the orders forming the backlog at May 29, 2021, 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, and
Steelcase.
The Company also competes in the home furnishings industry,
primarily against national, regional and independent home
furnishings retailers who market high-craft furniture to end-user
customers and the interior design community.
These competitors include companies such as Crate & Barrel
Holdings, Inc., Hive Modern, Restoration Hardware, Room &
Board, Wayfair and Williams-Sonoma, Inc. Similar to its office
furniture product offerings, the Company competes primarily on
design, product and service quality, speed of delivery and product
pricing in this market.
On July 19, 2021, we completed the acquisition of Knoll,
Inc.
Refer to the "Executive Overview" and "Business Overview" sections
within Item 7 for further discussion of the acquisition of Knoll as
well as in Note 18 to the Consolidated Financial Statements
included in Item 8 of this report.
Research, Design and Development
The Company believes it draws great competitive strength from its
research, design and development programs. 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 $50.8 million, $54.3
million and $58.8 million on design and research activities in
fiscal 2021, 2020 and 2019, 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
The Company believes that a business must stand for more than just
its products and services and the Company's people around the globe
share a commitment to using business as a force for good. The
Company’s commitment to the planet is embedded in its corporate
strategy and will continue to develop as the Company outlines next
steps in its sustainability strategy. As part of this commitment,
the Company focuses on operating its global footprint with minimal
impact on the environment and designing products with materials and
processes that are safe for both people and the planet. 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 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 May 29, 2021, approximately four
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 May 29, 2021, the Company had approximately 7,600
employees, which was consistent with May 30, 2020. In addition
to its employee workforce, the Company uses temporary labor to meet
fluctuating 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®, Embody®,
Layout Studio®, Imagine Desking System®, Ratio®, Cosm®, and other
seating and storage products and ergonomic accessories such as
About A Chair®, Palissade®, and the Flo® monitor arm. The Company
conducts business in the following major international markets:
Europe, the Middle East, Africa, Latin America and the Asia/Pacific
region.
The Company's products currently sold in international markets are
manufactured primarily by controlled subsidiaries in the United
States, the United Kingdom, China, Brazil and India. A portion of
the Company's products sold internationally are also manufactured
by third-party suppliers. Sales are made through wholly owned
subsidiaries or branches in Canada, the United Kingdom, Denmark,
Mexico, Australia, Singapore, Japan, China (including Hong
Kong),
Herman Miller, Inc. and Subsidiaries
6
India and Brazil. The Company's products are offered in Canada,
Europe, the Middle East, Africa, Latin America and the Asia/Pacific
region primarily through dealers.
Additional information with respect to operations by geographic
area appears in Note 14 of the Consolidated Financial Statements
included in Item 8 of this report. Fluctuating exchange rates and
factors beyond the control of the Company, such as tariff and
foreign economic policies, may affect future results of
international operations. Refer to Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, for further discussion
regarding the Company's foreign exchange risk.
Available Information
The Company's annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those
reports are made available free of charge through the “Investors”
section of the Company's internet website at www.hermanmiller.com,
as soon as practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission (SEC).
The Company's filings with the SEC are also available for the
public to read via the SEC's internet website at
www.sec.gov.
Item 1A Risk Factors
The following risk factors and other information included in this
report should be carefully considered. The risks and uncertainties
described below are not the only ones we face; others, either
unforeseen or currently deemed not material, may also have a
negative impact on our Company. If any of the following occurs, our
business, operating results, cash flows, and financial condition
could be materially adversely affected.
Business and Acquisition Related Risks
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 and working from
home.
To that end, we intend to grow in certain targeted ways. First, we
will unlock the power of One Herman Miller by building an agile,
collaborative, globally-connected organization fit for continuous
evolution. This will also include simplifying and tailoring our
go-to-market approach, as well as continuing to lead in product
innovation across all businesses. Second, we intend to build a
customer-centric, digitally enabled business model by leveraging
our deep understanding of customer journeys to deliver inspired
products and frictionless customer experiences. Inclusive of this
will be to drive step-change in our data, analytics, marketing, and
brand capabilities, as well as to strengthen our core technology
backbone. Third, we intend to accelerate profitable growth by
strengthening and evolving our core contract business, driving
outsized growth in our international business and expanding our
retail business. Finally, we believe it is a business imperative to
reinforce our commitment to our people, planet and communities in a
more integrated way than ever before. Beyond simply being the right
thing to do, we are confident that elevating our focus on positive
social and environmental business practices will beneficially
impact our customers and enhance returns for our shareholders over
the long term. Refer to the "Executive Overview" section within
Item 7 for further discussion of our areas of strategic
focus.
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, if available, 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.
We may be unable to successfully integrate our businesses and Knoll
and realize the anticipated benefits of the acquisition of
Knoll.
The success of the acquisition of Knoll will depend, in part, on
our ability to successfully combine and integrate the businesses of
Herman Miller and Knoll, which previously operated as independent
public companies, and realize the anticipated benefits, including
synergies, cost savings, innovation opportunities and operational
efficiencies, from the acquisition, in a manner that does not
materially disrupt existing customer, payer, dealer, supplier,
employee and other stakeholder relations nor result in decreased
revenues due to losses of, or decreases in orders by, customers and
payers. If we are unable to achieve these objectives within the
anticipated time frame, or at all, the anticipated benefits may not
be realized fully, or at all, or may take longer to realize than
expected, and the value of our common stock may
decline.
The integration of the two companies may result in material
challenges, including, without limitation:
•the
diversion of management’s attention from ongoing business concerns
and performance shortfalls at one or both of the companies as a
result of the devotion of management’s attention to the transaction
and related integration work;
•managing
a larger and more complex combined business;
•maintaining
employee morale, retaining key management and other employees and
the possibility that the integration process and potential
organizational changes may adversely impact the ability to maintain
employee relationships;
•retaining
existing business and operational relationships, including
customers, dealers, suppliers, employees and other counterparties,
as may be impacted by contracts containing consent and/or other
provisions that may be triggered by the transaction, and attracting
new business and operational relationships;
•the
integration process not proceeding as expected, including due to a
possibility of faulty assumptions or expectations regarding the
integration process or Herman Miller’s or Knoll’s
operations;
•consolidating
corporate, administrative and compliance infrastructures and
eliminating duplicative operations;
•coordinating
geographically separate organizations, including in international
markets with differing business, legal and regulatory
climates;
•unanticipated
issues in integrating information technology, communications and
other systems; and
•unforeseen
expenses, costs, liabilities or delays associated with the
acquisition or the integration.
Many of these factors will be outside of our control, and any one
of them could result in delays, increased costs, decreases in the
amount of expected revenues or synergies and diversion of
management’s time and energy, which could materially affect Herman
Miller’s financial position, results of operations and cash
flows.
The actual integration may result in additional and unforeseen
expenses, and the anticipated benefits of the integration plan may
not be realized on a timely basis, if at all.
Herman Miller, Inc. and Subsidiaries
8
The indebtedness incurred in connection with the acquisition of
Knoll contains various covenants that impose restrictions on us and
certain of our subsidiaries that may affect their ability to
operate their businesses.
The indebtedness incurred in connection with the merger and
preferred stock purchase contains various affirmative and negative
covenants that, subject to certain significant exceptions, restrict
the ability of us and certain of our subsidiaries to, among other
things, incur liens on our property, incur additional indebtedness,
enter into sale and lease-back transactions, make loans, advances
or other investments, make non-ordinary course asset sales, declare
or pay dividends or make other distributions with respect to equity
interests, and/or merge or consolidate with any other person or
sell or convey certain of its assets to any one person, among other
things. In addition, the definitive documentation governing such
indebtedness contains a financial maintenance covenant that will
require us to maintain a certain leverage ratio at the end of each
fiscal quarter. Our and our subsidiaries’ ability to comply with
these provisions may be affected by events beyond our control.
Failure to comply with these covenants could result in an event of
default, which, if not cured or waived, could accelerate our
repayment obligations under such indebtedness.
In connection with the acquisition of Knoll, we incurred
significant additional indebtedness, which could adversely affect
Herman Miller, including by decreasing our business flexibility,
and will increase our interest expense.
The consolidated long-term debt of Herman Miller as of May 29, 2021
was $274.9 million. Our long-term debt as of July 27, 2021, after
giving effect to the acquisition and the incurrence and
extinguishment of indebtedness in connection therewith, is
approximately $1.3 billion. We have substantially increased our
indebtedness in comparison to that of Herman Miller on a recent
historical basis, which could have the effect, among other things,
of reducing our flexibility to respond to changing business and
economic conditions and increasing our interest expense. We have
also incurred various costs and expenses associated with such
indebtedness. The amount of cash required to pay interest on our
increased indebtedness levels and thus the demands on our cash
resources will be greater than the amount of cash flows previously
required to service our indebtedness. The increased levels of
indebtedness could also reduce funds available for working capital,
capital expenditures, acquisitions and other general corporate
purposes and may create competitive disadvantages for Herman Miller
relative to other companies with lower debt levels. If we do not
achieve the expected benefits and cost savings from the
acquisition, or if the financial performance of the combined
company does not meet current expectations, then our ability to
service our indebtedness may be adversely impacted.
In addition, we may be required to raise substantial additional
financing to fund working capital, capital expenditures,
acquisitions or other general corporate requirements. Our ability
to arrange additional financing will depend on, among other
factors, our financial position and performance, as well as
prevailing market conditions and other factors beyond our control.
We cannot assure you that it will be able to obtain additional
financing on terms acceptable to us or at all.
Uncertainties associated with the acquisition of Knoll may cause a
loss of management personnel and other key employees, which could
adversely affect the future business and operations of the combined
company following completion of the acquisition.
Herman Miller is dependent on the experience and industry knowledge
of its officers and other key employees to execute its business
plans. Our success will depend in part upon our ability to retain
certain key management personnel and employees. Current and
prospective employees of Herman Miller may experience uncertainty
about their roles, which may have an adverse effect on our ability
to attract or retain key management and other key personnel.
Accordingly, no assurance can be given that we will be able to
attract or retain key management personnel and other key employees
to the same extent that Herman Miller and Knoll have previously
been able to attract or retain their own employees.
We have incurred and expect to continue to incur significant costs
in connection with the acquisition of Knoll, which may be in excess
of those we anticipate.
We have incurred and expect to continue to incur a number of
non-recurring fees and costs associated with negotiating and
completing the transactions, combining the operations of Herman
Miller and Knoll and achieving desired synergies. These fees and
costs have been, and will continue to be, substantial. The
substantial majority of non-recurring expenses will consist of
transaction costs related to the merger and include, among others,
the preferred
stock purchase, employee retention costs, fees paid to financial,
legal, strategic and accounting advisors, severance and benefit
costs, proxy solicitation costs and filing fees.
We will also incur transaction fees and costs related to
formulating and implementing integration plans, including
facilities and systems consolidation costs and employment-related
costs. We will continue to assess the magnitude of these costs, and
additional unanticipated costs may be incurred in the merger and
the integration of the two companies’ businesses. Although we
expect that the elimination of duplicative costs, as well as the
realization of other efficiencies related to the integration of the
businesses, should allow us to offset integration-related costs
over time, this net benefit may not be achieved in the near term,
or at all.
The costs described above, as well as other unanticipated costs and
expenses, could have a material adverse effect on the financial
condition and operating results of Herman Miller.
Macroeconomic and Workplace Trends Related Risks
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 and retail
furnishings industries is affected by various macro-economic
factors; general corporate profitability, service sector employment
levels, new office construction rates and existing office vacancy
rates are among the most influential factors. History has shown
that declines in these measures can have an adverse effect on
overall office furniture demand. Additionally, factors and changes
specific to our industry, such as developments in technology,
governmental standards and regulations, and health and safety
issues can influence demand. There are current and future economic
and industry conditions 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)
could negatively affect the Company's ability to conduct business
in those geographies. The Company is monitoring the resolution of
various trade policy negotiations between the U.S. and key trading
partners as well as the post-Brexit impact on the U.K. and European
Union. These negotiations create uncertainty in key markets, which,
if unresolved in the near term, could negatively impact customer
demand. Furthermore, concerns exist relating to potential tariffs
and customs regulations and the potential for short term logistics
disruption as any such changes are implemented. This will impact
both the Company's suppliers and customers, including distributors,
and could result in product delays and inventory issues. Further
uncertainty in the marketplace also brings risk to accounts
receivable and could result in delays in collection and greater bad
debt expense. There also remains a risk for 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.
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 office 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, 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
Herman Miller, Inc. and Subsidiaries
10
policies, including free shipping offers. In addition, increased
catalog mailings and/or digital marketing campaigns by our
competitors may adversely affect response rates to our own
marketing efforts. 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 controlled subsidiaries or branches in
Canada, Denmark, Korea, Mexico, Australia, China (including Hong
Kong), India and Brazil. The Company's products are offered in
Canada, Europe, the Middle East, Africa, Latin America and the
Asia/Pacific region primarily through dealers.
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.
A sustained downturn in the economy could adversely impact our
access to capital.
The disruptions in the global economic and financial markets during
2007 to 2009 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 adverse
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.
Disease outbreaks, such as the COVID-19 pandemic, could have an
adverse impact on the Company's operations and financial
results.
From time to time, various disease outbreaks may adversely impact
our business, consolidated results of operations and financial
condition, such as the current COVID-19 pandemic which has had such
an adverse impact. The Company has global manufacturing facilities,
suppliers, dealers and customers. Therefore, COVID-19, as well as
measures taken
by governmental authorities and other organizations and individuals
to limit the spread of this virus, may interfere with the ability
of our employees, suppliers and other business providers to carry
out their assigned tasks or supply materials at ordinary levels of
performance relative to the conduct of our business. In addition,
the COVID-19 pandemic has caused a significant percentage of the
traditional office workforce to work away from their office
location. It is reasonable to assume, at least in the near-term,
that this will have an adverse impact on the demand for office
furniture and related products. This has in the past caused, and
may continue to cause, us to materially curtail certain of our
business operations, and has had and could continue to have, a
material adverse effect on our results of operations and cash
flow.
Manufacturing, Supply Chain and Distribution Related
Risks
Tariffs imposed by the U.S. government could have a material
adverse effect on our results of operations.
The imposition of tariffs by the U.S. government on various
products imported from certain countries, as well as countering
tariffs on the export of U.S. goods, has and will likely continue
to adversely impact the cost of certain of our raw materials and
finished goods as well as products that we export to other
countries. Accordingly, 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, most notably imports from China, also
impacted the cost of steel in both fiscal year 2020 and fiscal
2021, a key commodity that we consume in producing products. Given
the significance of steel costs to our direct materials costs, we
are closely monitoring escalating trade tensions between the U.S.
and China. The potential impact to our direct material costs due to
tariffs on Chinese imports is somewhat limited, however, as
purchases of direct materials (mainly component parts and products
manufactured by third parties) from China represented an estimated
5% of our consolidated cost of sales for fiscal 2021. Going
forward, continued or increased tariffs could negatively impact our
gross margin and operating performance. These factors also have the
potential to significantly impact global trade and economic
conditions in many of the regions where we do
business.
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. Disruptions in
this flow of delivery may have a negative impact on our business,
results of operations, and financial condition.
In the fourth quarter of 2021, the price of steel was impacted by
shortages and disruptions in the steel industry as a result of the
COVID-19 pandemic. These disruptions have not had a significant
impact on our ability to manufacture and supply products to our
customers, but they have negatively impacted the cost of procuring
such materials. In the short-term, significant increases in raw
material, commodity and other input costs can be difficult to
offset with price increases because of existing contractual
commitments with our customers. As a result, our gross margins can
be adversely affected in the short-term by significant increases in
these costs. If we are not successful in passing along higher
commodity and other input costs to our customers over the long-term
because of competitive pressures, our profitability could be
negatively impacted.
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, including 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 in fiscal 2019 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
Herman Miller, Inc. and Subsidiaries
12
business within a given market could be negatively impacted by
disruptions in our dealer network caused by the termination of
commercial working relationships, ownership transitions, or dealer
financial difficulties.
If dealers go out of business or restructure, we may suffer losses
because they may not be able to pay for products already delivered
to them. Also, dealers may experience financial difficulties,
creating the need for outside financial support, which may not be
easily obtained. In the past, we have, on occasion, agreed to
provide direct financial assistance through term loans, lines of
credit, and/or loan guarantees to certain dealers. Those activities
increase our financial exposure.
Financial Related Risks
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.
Goodwill and indefinite-lived intangible asset impairment charges
may adversely affect our operating results.
We have a substantial amount of goodwill and indefinite-lived
intangible assets, primarily trademarks, on our balance sheet. We
test the goodwill and intangible assets for impairment on an annual
basis and when events occur or circumstances change that indicate
that the fair value of the reporting unit or intangible asset may
be below its carrying amount. Fair value determinations require
considerable judgment and are sensitive to inherent uncertainties
and changes in estimates and assumptions regarding actual and
forecasted revenue growth rates and operating margins and discount
rates. Declines in market conditions, a trend of weaker than
anticipated financial performance for our reporting units or
declines in projected revenue for our trademarks, a decline in our
share price for a sustained period of time, an increase in the
market-based weighted average cost of capital or a decrease in
royalty rates, among other factors, are indicators that the
carrying value of our goodwill or indefinite-life intangible assets
may not be recoverable. We may be required to record a goodwill or
intangible asset impairment charge that, if incurred, could have a
material adverse effect on our financial statements.
Impairment of long-lived assets may adversely affect our operating
results.
Our long-lived asset groups are subject to an impairment assessment
when certain triggering events or circumstances indicate that their
carrying value may be impaired. If the carrying value exceeds our
estimate of future undiscounted cash flows of the operations
related to the asset group, an impairment is recorded for the
difference between the carrying amount and the fair value of the
asset group. The results of these tests for potential impairment
may be adversely affected by unfavorable market conditions, our
financial performance trends, or an increase in interest rates,
among other factors. If as a result of the impairment test we
determine that the fair value of any of our long-lived asset groups
is less than its carrying amount, we may incur an impairment charge
that could have a material adverse effect on our financial
statements.
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.
General Risks
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 eCommerce
websites, direct-mail catalog marketing program, and retail
studios. For these sales channels to function and develop
successfully, we and other parties involved in processing customer
transactions must be able to transmit confidential information,
including credit card information and other personal information
regarding our customers, securely over public and private networks.
Third parties may have or develop the technology or knowledge to
breach, disable, disrupt or interfere with our systems or processes
or those of our vendors. While 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 eCommerce websites or retail
studios 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
damage 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.
The United States federal and state governments 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 fines, claims for
damages and other remedies, which could harm our
business.
We are unable to control many of the factors affecting consumer
spending. Declines in consumer spending on furnishings could reduce
demand for our products.
The operations of our Retail 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 32 percent of the sales within our Retail segment are
transacted within our retail studios. Additionally, we believe our
retail studios have a direct influence on the volume of business
transacted through other channels, including our consumer eCommerce
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
Herman Miller, Inc. and Subsidiaries
14
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
•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 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.
Government and other regulations could adversely affect our
business.
Government and other regulations apply to the manufacture and sale
of many of our products. Failure to comply with these regulations
or failure to obtain approval of products from certifying agencies
could adversely affect the sales of these products and have a
material negative impact on operating results.
Item 1B Unresolved Staff Comments
None
Item 2 Properties
The Company owns or leases facilities located throughout the United
States and several foreign countries. The location, square footage
and use of the most significant facilities at May 29, 2021
were as follows:
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Owned Locations |
Square Footage
(in Thousands)
|
|
Use |
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Zeeland, Michigan |
771 |
|
|
Manufacturing, Warehouse, Office |
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Spring Lake, Michigan |
583 |
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|
Manufacturing, Warehouse, Office |
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Holland, Michigan |
357 |
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Warehouse |
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Holland, Michigan |
293 |
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|
Manufacturing, Office |
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Holland, Michigan |
238 |
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Office, Design |
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Sheboygan, Wisconsin |
208 |
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Manufacturing, Warehouse, Office |
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Melksham, United Kingdom |
170 |
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Manufacturing, Warehouse, Office |
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Hildebran, North Carolina |
93 |
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Manufacturing, Office |
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Leased Locations |
Square Footage
(in Thousands)
|
|
Use |
|
Batavia, Ohio |
618 |
|
|
Warehouse |
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Dongguan, China |
429 |
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|
Manufacturing, Office |
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Atlanta, Georgia |
180 |
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Manufacturing, Warehouse, Office |
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Bangalore, India |
105 |
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Manufacturing, Warehouse |
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Yaphank, New York |
92 |
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Warehouse, Office |
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Mexico City, Mexico |
77 |
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|
Warehouse |
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New York City, New York |
67 |
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|
Office, Retail |
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Hong Kong, China |
54 |
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Warehouse |
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Chicago, Illinois |
45 |
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Office, Retail |
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Brooklyn, New York |
39 |
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Warehouse, Retail |
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Stamford, Connecticut |
35 |
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|
Office, Retail |
The properties above are primarily used in the Company's segments
as indicated below:
Herman Miller, Inc. and Subsidiaries
16
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Segment Primarily Supported |
Owned |
|
Leased |
|
Total |
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North America Contract |
6 |
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|
2 |
|
8 |
|
International Contract |
1 |
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4 |
|
5 |
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Retail |
— |
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5 |
|
5 |
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Corporate |
1 |
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— |
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1 |
As of May 29, 2021, the Company operated 45 retail studios
(including 35 operating under the DWR brand, 4 under the HAY brand,
5 Herman Miller stores and a multi-brand Chicago store) that
totaled approximately 414,000 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.
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.
Information About Our Executive Officers
Certain information relating to executive officers of the Company
as of May 29, 2021 is as follows:
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Andrea R. Owen
President and
Chief Executive Officer
Age 56, elected as an
executive officer in 2018
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Benjamin P.T. Groom
Chief Digital Officer
Age 37, elected as an
executive officer in 2019
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B. Ben Watson
Chief Creative Officer
Age 56, elected as an
executive officer in 2010
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Debbie Propst
President, Retail
Age 40, elected as an
executive officer in 2020
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Jacqueline H. Rice
General Counsel
Age 49, elected as an
executive officer in 2019
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Jeffrey L. Kurburski
Chief Technology Officer
Age 55, elected as an
executive officer in 2018
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Jeffrey M. Stutz
Chief Financial Officer
Age 50, elected as an
executive officer in 2009
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Jeremy Hocking
President,
International Contract
Age 60, elected as an
executive officer in 2017
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John Michael
President,
The
Americas
Age 59, elected as an
executive officer in 2020
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Kevin Veltman
Vice President, Investor
Relations & Treasurer
Age 46, elected as an
executive officer in 2015
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Megan Lyon
Chief Strategy Officer
Age 41, elected as an
executive officer in 2019
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Tim Straker
Chief Marketing Officer
Age 55, elected as an
executive officer in 2020
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Richard Scott
Chief
Manufacturing and Operations Officer
Age 53, elected as an
executive officer in 2020
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Except as discussed below, each of the named officers has served
the Company in their current executive position for more than five
years.
Ms. Owen joined Herman Miller, Inc. in 2018 and serves as President
and Chief Executive Officer. Prior to joining Herman Miller, Ms.
Owen spent twenty-five years at The Gap, Inc. where she most
recently served as Global President of Banana
Republic.
Mr. Groom joined Herman Miller, Inc. in 2019 and serves as Chief
Digital Officer. Prior to joining Herman Miller, Mr. Groom spent
six years with The Boston Consulting Group where he was a Principal
member of the firm’s Technology Advantage, Retail and Consumer
practices.
Ms. Propst joined Herman Miller, Inc. in 2020 and serves as
President of the Company's Retail segment. Prior to joining Herman
Miller, Ms. Propst spent seven years at Bed Bath and Beyond where
she most recently served as President and Chief Merchandising
Officer of One Kings Lanes, as well as Chief Brand Officer for Bed
Bath and Beyond.
Ms. Rice joined Herman Miller, Inc. in 2019 and serves as General
Counsel. Prior to joining Herman Miller, Ms. Rice served as
Executive Vice President, Chief Risk & Compliance Officer at
Target Corporation as well as Senior Counsel and Chief Compliance
Officer at General Motors Co.
Mr. Kurburski joined Herman Miller in 1990 and serves as Chief
Technology Officer. Prior to joining Herman Miller, Mr. Kurburski
spent time in both the government and private IT
sectors.
Mr. Hocking joined Herman Miller in 1984 and serves as President of
Herman Miller International. Throughout his 37-year career at
Herman Miller, Mr. Hocking has held many international leadership
positions, including UK Sales Director, Vice President of Sales for
Northern Europe, Vice President of International Marketing, Vice
President Asia Pacific, Senior Vice President of Strategic
Planning, and Executive Vice President of Strategic Planning &
Business Development.
Mr. Michael joined Herman Miller, Inc. in 2017 and serves as
President, The Americas. Prior to joining Herman Miller, Mr.
Michael held leadership positions at Staples, Ivan Allen Workspace,
and Steelcase.
Herman Miller, Inc. and Subsidiaries
18
Ms. Lyon joined Herman Miller, Inc. in 2019 and serves as Chief
Strategy Officer. Prior to joining Herman Miller, Ms. Lyon spent
eleven years with The Boston Consulting Group where she was a
Partner and Managing Director leading the firm’s West Coast
Consumer and Retail Practice.
Mr. Straker joined Herman Miller in 2012 and serves as Chief
Marketing Officer. Prior to joining Herman Miller, Mr. Straker held
a variety of design leadership and strategy roles for companies
such as Apple, Lowe’s, Goodyear Tire & Rubber, McDonald’s,
Nationwide Insurance, SFERRA, Netjets, and the Food
Network.
Mr. Scott joined Herman Miller, Inc. in 2006 and serves as Chief
Manufacturing and Operations Officer. Prior to joining Herman
Miller, Mr. Scott spent his career in engineering and manufacturing
with Jacobs Suchard Germany, Eurotunnel, and DS Smith
Packaging.
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
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.'s common stock is traded on the Nasdaq Global
Select Market System (Symbol: MLHR). As of July 18, 2021,
there were approximately 38,000 shareholders of record, including
individual participants in security position listings, of the
Company's common stock.
Dividends were declared for the last three quarters of fiscal 2021
as approved by the Board of Directors. On April 13, 2021 the
company's Board of Directors approved a quarterly cash dividend of
18.75 cents ($0.1875) per share that was paid on July 15, 2021, to
shareholders of record on May 29, 2021. 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 Company has one share repurchase plan authorized by the Board
of Directors on January 16, 2019, which provides a share repurchase
authorization of $250.0 million with no specified expiration date.
The approximate dollar value of shares available for purchase under
the plans at May 29, 2021 was $236.7 million.
The following is a summary of share repurchase activity during the
Company's fourth fiscal quarter ended May 29,
2021:
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|
Period |
Total Number of Shares (or Units) Purchased |
|
Average Price Paid per Share or Unit |
|
Total Number of Shares (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)
|
|
2/28/21-3/27/21 |
— |
|
|
$ |
— |
|
|
— |
|
|
$ |
236,731,127 |
|
|
3/28/21-4/24/21 |
400 |
|
|
$ |
43.56 |
|
|
400 |
|
|
$ |
236,713,705 |
|
|
4/25/21-5/29/21 |
111 |
|
|
$ |
44.95 |
|
|
111 |
|
|
$ |
236,708,715 |
|
|
Total |
511 |
|
|
|
|
511 |
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|
|
(1) Amounts are as of the end of the period indicated
The Company may repurchase shares from time to time for cash in
open market transactions, privately negotiated transactions,
pursuant to accelerated share repurchase programs or otherwise in
accordance with applicable federal securities laws. The timing and
amount of the repurchases will be determined by the Company's
management based on their evaluation of market conditions, share
price and other factors. The share repurchase program may be
suspended or discontinued at any time.
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.
Herman Miller, Inc. and Subsidiaries
20
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 Nasdaq Composite
Total Return for the five-year period ended May 29, 2021. The
graph assumes an investment of $100 on May 28, 2016 in the
Company's common stock, the Standard & Poor's 500 Stock Index
and the Nasdaq Composite Total Return, with dividends
reinvested.
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|
|
|
|
|
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
Herman Miller, Inc. |
$ |
100 |
|
|
$ |
105 |
|
|
$ |
108 |
|
|
$ |
119 |
|
|
$ |
80 |
|
|
$ |
167 |
|
|
S&P 500 Index |
$ |
100 |
|
|
$ |
116 |
|
|
$ |
130 |
|
|
$ |
131 |
|
|
$ |
145 |
|
|
$ |
200 |
|
|
Nasdaq Composite Total Return |
$ |
100 |
|
|
$ |
129 |
|
|
$ |
157 |
|
|
$ |
156 |
|
|
$ |
201 |
|
|
$ |
293 |
|
Information required by this item is also contained in Item 12 of
this report.
Item 6 Selected Financial Data
|
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|
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|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except key ratios and per share data) |
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
|
|
Operating Results |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$2,465.1 |
|
$2,486.6 |
|
$2,567.2 |
|
$2,381.2 |
|
$2,278.2 |
|
|
|
Gross margin |
949.2 |
|
910.7 |
|
929.9 |
|
873.0 |
|
864.2 |
|
|
|
Selling, general, and administrative
(1)
|
646.5 |
|
669.7 |
|
649.5 |
|
621.0 |
|
592.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
— |
|
205.4 |
|
— |
|
— |
|
7.1 |
|
|
|
Design and research |
72.1 |
|
74.0 |
|
76.9 |
|
73.1 |
|
73.1 |
|
|
|
Operating earnings (loss) |
230.6 |
|
(38.4) |
|
203.5 |
|
178.9 |
|
191.1 |
|
|
|
Earnings (loss) before income taxes and equity income |
226.4 |
|
(13.4) |
|
195.1 |
|
168.1 |
|
177.6 |
|
|
|
Net earnings (loss) |
178.8 |
|
(14.4) |
|
160.5 |
|
128.7 |
|
124.1 |
|
|
|
Net cash provided by operating activities |
332.3 |
|
221.8 |
|
216.4 |
|
166.5 |
|
202.1 |
|
|
|
Net cash used in investing activities |
(59.9) |
|
(168.1) |
|
(165.0) |
|
(62.7) |
|
(116.3) |
|
|
|
Net cash (used in) provided by financing activities |
(347.7) |
|
244.0 |
|
(91.9) |
|
2.5 |
|
(74.6) |
|
|
|
Depreciation and amortization |
87.2 |
|
79.5 |
|
72.1 |
|
66.9 |
|
58.9 |
|
|
|
Capital expenditures |
59.8 |
|
69.0 |
|
85.8 |
|
70.6 |
|
87.3 |
|
|
|
Common stock repurchased plus cash dividends paid |
35.4 |
|
63.0 |
|
93.5 |
|
88.9 |
|
63.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
Sales (decline) growth |
(0.9)% |
|
(3.1)% |
|
7.8% |
|
4.5% |
|
0.6% |
|
|
|
Gross margin
(2)
|
38.5 |
|
36.6 |
|
36.2 |
|
36.7 |
|
37.9 |
|
|
|
Selling, general, and administrative
(1) (2)
|
26.2 |
|
26.9 |
|
25.3 |
|
26.1 |
|
26.0 |
|
|
|
Design and research
(2)
|
2.9 |
|
3.0 |
|
3.0 |
|
3.1 |
|
3.2 |
|
|
|
Operating earnings (loss)
(2)
|
9.4 |
|
(1.5) |
|
7.9 |
|
7.5 |
|
8.4 |
|
|
|
Net earnings growth (decline) |
1,341.7 |
|
(109.0) |
|
24.7 |
|
3.7 |
|
(9.7) |
|
|
|
After-tax return on net sales
(3)
|
7.3 |
|
(0.6) |
|
6.3 |
|
5.4 |
|
5.4 |
|
|
|
After-tax return on average assets
(4)
|
8.7 |
|
(0.8) |
|
10.5 |
|
9.2 |
|
9.8 |
|
|
|
After-tax return on average equity
(5)
|
24.0 |
|
(2.1) |
|
23.2 |
|
20.6 |
|
22.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share and Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share-diluted |
$2.92 |
|
$(0.15) |
|
$2.70 |
|
$2.12 |
|
$2.05 |
|
|
|
Cash dividends declared per share |
0.56 |
|
0.63 |
|
0.79 |
|
0.72 |
|
0.68 |
|
|
|
Book value per share at year end
(6)
|
14.39 |
|
10.94 |
|
12.23 |
|
11.22 |
|
9.84 |
|
|
|
Market price per share at year end |
47.80 |
|
23.02 |
|
35.49 |
|
32.85 |
|
32.70 |
|
|
|
Weighted average shares outstanding-diluted |
59.4 |
|
58.9 |
|
59.4 |
|
60.3 |
|
60.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$2,061.9 |
|
$2,053.9 |
|
$1,569.3 |
|
$1,479.5 |
|
$1,306.3 |
|
|
|
Working capital
(7)
|
390.7 |
|
403.8 |
|
215.2 |
|
231.6 |
|
106.2 |
|
|
|
Current ratio
(8)
|
1.8 |
|
1.8 |
|
1.5 |
|
1.6 |
|
1.3 |
|
|
|
Interest-bearing debt and related swap agreements
(9)
|
285.7 |
|
558.8 |
|
282.8 |
|
265.1 |
|
197.8 |
|
|
|
Stockholders' equity |
849.6 |
|
643.0 |
|
719.2 |
|
664.8 |
|
587.7 |
|
|
|
Total capital
(10)
|
1,135.3 |
|
1,201.8 |
|
1,002.0 |
|
929.9 |
|
785.5 |
|
|
(1) Selling, general, and administrative expenses include
restructuring expenses in years that are applicable.
(2) Shown as a percent of net sales.
(3) Calculated as net earnings (loss) divided by net
sales.
(4) Calculated as net earnings (loss) divided by average
assets.
(5) Calculated as net earnings (loss) divided by average
equity.
(6) Calculated as total stockholders' equity divided by common
shares of stock outstanding.
(7) Calculated using current assets less current
liabilities.
(8) Calculated using current assets divided by current
liabilities.
(9) Amounts shown include the fair market value of the Company’s
interest rate swap arrangement(s).
(10) Calculated as interest-bearing debt and related swap
agreements plus stockholders' equity.
Herman Miller, Inc. and Subsidiaries
22
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. Refer also to the
information provided under the heading "Forward-Looking Statements"
in this Annual Report on Form 10-K.
Executive Overview
Herman Miller’s purpose statement is design for the good of
humankind. 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. The Company trades on the Nasdaq
Global Select Market under the symbol MLHR.
Subsequent to the end of fiscal 2021, the Company finalized the
acquisition of Knoll, Inc. (“Knoll”) in a cash and stock
transaction valued at approximately $1.8 billion. This combination
brings together two pioneering and iconic brands to create
MillerKnoll, one of the largest and most influential modern design
companies in the world. Together we will transform our industry and
redefine modern design. With a broader portfolio, global footprint,
and advanced digital capabilities, our combined company will be
poised to innovate and design the future for all the places where
life happens.
Herman Miller's products are sold internationally through
controlled subsidiaries or branches in various countries including
the United Kingdom, Denmark, Canada, Japan, Mexico, Australia,
Singapore, China, Hong Kong, India and Brazil. 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, the Company's 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). For its contract furniture business,
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
Retail business through the Company's Design Within Reach (DWR),
HAY and Herman Miller retail operations. The Retail 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 its Retail business through 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, as well as the HAY brand, which was
launched in North America in fiscal 2019.
The Company 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 segments:
•North
America Contract — Includes the operations associated with the
design, manufacture, and sale of furniture and textile 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 America Contract segment. In addition to
the Herman Miller brand, this 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 naughtone.
•International
Contract — Includes the operations associated with the design,
manufacture and sale of furniture products, primarily for
work-related settings in EMEA, Latin America, and
Asia-Pacific.
•Retail
— Includes the operations associated with the sale of modern design
furnishings and accessories to third-party retail distributors, as
well as direct to consumer sales through eCommerce, direct mailing
catalogs and Herman Miller, DWR and HAY stores and
studios.
The Company also reports a corporate category consisting primarily
of unallocated corporate expenses related to general corporate
functions, including, but not limited to, certain legal, executive,
corporate finance, information technology, administrative and
acquisition-related costs.
Core Strengths
The Company relies on the following core strengths in delivering
solutions to customers:
•Portfolio
of Leading Brands and Products - Herman Miller is a
globally-recognized, design brand known for working with some of
the most well-known and respected designers in the world. Over the
years, it has evolved into Herman Miller Group, a family of brands
that collectively offers a variety of products for environments
where people live, learn, work, heal and play. Within the
industries in which the Company operates, Herman Miller, DWR,
Geiger, Maharam, POSH, Nemschoff, Colebrook Bosson Saunders
("CBS"), HAY, Maars Living Walls 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 collective brand equity of the
Herman Miller Group 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 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.
Herman Miller, Inc. and Subsidiaries
24
•Omni-Channel
Reach - The Company has built a multi-channel distribution
capability that it considers unique. Through contract furniture
dealers, direct customer sales, retail stores and studios,
eCommerce, catalogs, and independent retailers, the Company serves
contract and residential customers across a range of channels and
geographies.
•Global
Scale - In addition to its global omni-channel distribution
capability, the Company has a global network of designers,
suppliers, manufacturing operations and research and development
centers that position the Company to serve contract and residential
customers globally. The Company believes that leveraging this
global scale will be an important enabler to executing its
strategy.
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.
For all the items below, revenue is recognized when control
transfers to the customer. The Company's products and services 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. Many of these
dealers also offer furniture-related services, including product
installation.
•Direct
Contract Sales - The Company also sells products and services
directly to end customers without an intermediary (e.g., sales to
the US federal government). In most of these instances, the Company
contracts separately with a dealer or third-party installation
company to provide sales-related services.
•Retail
Studios - At the end of fiscal 2021 the Retail business unit
included 45 retail studios (including 35 operating under the DWR
brand, 4 under the HAY brand, 5 Herman Miller stores and a
multi-brand Chicago store). This business also operates 3 outlet
studios. The retail and outlet studios are located in metropolitan
areas throughout North America.
•eCommerce
- The Company sells products through its online stores, in which
products are available for sale via the Company's website,
hermanmiller.com, global eCommerce platforms, as well as through
the dwr.com and us.hay.com online stores. These sites complement
our existing methods of distribution and extend the Company's brand
to new customers.
•Direct-Mail
Catalogs - The Company’s Retail 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 eCommerce
websites.
•Wholesale
- Certain of the Company's products are sold on a wholesale basis
to third-party retailers located in various markets around the
world.
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 our business and
industry. Refer to Item 1A for discussion of certain of these risk
factors and Item 7A for disclosures of market risk.
Areas of Strategic Focus
Despite a number of risks and challenges, the Company believes it
is well positioned to successfully pursue its purpose of design for
the good of humankind. 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 four key
priorities.
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|
Unlock the Power of One Herman Miller
Coming together as a family of complementary brands will help
achieve our goals of more actively moving into the consumer
marketplace, growing globally and making it easier to do business
with us. We strive to become more agile, invest in responsive
innovation, simplify our go-to-market strategy and continue to lead
in product innovation across all our businesses
globally.
|
|
|
|
|
|
|
Build a Customer-centric, Digitally Enabled Business
Model
Building a customer centric and digitally enabled business model is
at the forefront of our goal to become easier to do business with
us. We will leverage our deep understanding of customer journeys to
deliver inspired products and a frictionless customer experience.
Along with strengthening the core technology backbone, we will also
drive step-change in data, analytics, marketing and brand
capabilities.
|
|
|
|
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|
|
Accelerate Profitable Growth
There are identified opportunities for growth ahead in each of our
business segments. We believe we are the only company in our
industry with access to meaningful contract and residential growth
opportunities on a global scale. At the same time, with our ongoing
focus on operational excellence and specific profit improvement
initiatives, we are focused on continuous improvement of our cost
structure.
|
|
|
|
|
|
|
Reinforce Our Commitment to Our People, Planet,
Communities
With a legacy of corporate social responsibility that is deeply
ingrained in our culture, we will reinforce our commitment to our
people, planet and communities in a more integrated and deliberate
way than ever before. We will focus on building, developing and
retaining world-class talent, shaping an inclusive and diverse
workforce and elevating our Better World commitment. Doing so will
enable us to create value for our shareholders, customers and
employees, as well as for the broader communities and environment
in which we operate.
|
The Company believes its strategy continues to respond well to
current and future realities in its markets. The Company's
strategic priorities are aimed at creating a sustainable and
diverse revenue model that puts the customer at the center of
everything we do and leverages enabling digital capabilities to
fully realize that vision.
Herman Miller, Inc. and Subsidiaries
26
Business Overview
The following is a summary of the significant events and items
impacting the Company's operations for the year ended May 29,
2021:
•The
Company entered into strategic agreements during the fiscal year,
including agreements for (i) the acquisition of Knoll’s common
stock for $11.00 per share in cash, without interest, and 0.32
shares of Herman Miller common stock for each outstanding share of
Knoll common stock and (ii) the acquisition of all of the
outstanding shares of Knoll's preferred stock for approximately
$253 million in cash in the aggregate. This transaction was
finalized subsequent to the end of the fiscal year.
•Net
sales were $2,465.1 million, representing a decrease of 0.9%
when compared to the prior year. The decrease in net sales was
driven primarily by decreased sales volumes in the North America
Contract segment, partially offset by increased demand with the
Retail segment, the impact the acquisition of HAY and naughtone;
and incremental list price increases, net of contract price
discounting. On an organic basis, net sales were $2,345.3
million(*), representing a decrease of 5.7% when compared to
the prior year.
•Gross
margin was 38.5% as compared to 36.6% in the
prior year. The increase in gross margin was driven primarily
by favorable channel and product mix combined with incremental list
price increases, partially offset by lower overhead leverage due to
decreased volumes as well as an increase in commodity market
prices.
•Operating
expenses decreased by $230.5
million or 24.3% as compared to the prior year.
Operating expenses in the prior year included non-cash impairment
charges of $205 million. In the current year, operating expenses
included acquisition and integration charges of $11.0 million, and
restructuring costs of $2.7 million. Restructuring costs related
mainly to severance and outplacement benefits associated with
workforce reductions and profit improvement initiatives implemented
during the previous year.
•The
effective tax rate was 21.2% for fiscal 2021 compared to
negative 44.9% for the prior year. Excluding the impact
of adjustments related to restructuring and other special charges
recorded, a portion of which were not deductible for tax purposes,
the effective tax rate for the prior year was 19.9%(*). This rate
reflected both provision to return adjustments and the accrual of
withholding taxes related to planned repatriation of cash from
certain foreign jurisdictions.
•Diluted
earnings per share for the full year totaled $2.92 compared to a
loss per share of $0.15 last year. On an adjusted basis, diluted
earnings per share totaled
$3.05(*) in
fiscal 2021 compared to $2.61(*) in fiscal 2020, behind the
strength of improved gross margins and well-managed operating
expenses.
•The
Company declared cash dividends of $0.56 per share
compared to $0.63 per share in the prior
year.
The following summary includes the Company's view on the economic
environment in which it operates:
•The
Company's Retail segment supports a range of furniture categories
aimed at the home environment. Several of these categories,
including Home Office, Upholstery, Outdoor, Storage, and
Accessories, saw a ramp-up in demand during the first three
quarters of fiscal 2021 and this continued into the fourth quarter
of fiscal 2021.
•The
disruption from the COVID-19 pandemic has adversely impacted our
fiscal 2021 results as contract furniture industry order trends, as
reported by the Business and Institutional Furniture Manufacturers
Herman Miller, Inc. and Subsidiaries 25 Association ("BIFMA"), have
highlighted near-term demand pressures from the slowdown in
economic activity from the pandemic in our North America Contract
segment. Our International Contract segment has also been impacted,
although many of the markets internationally have shown signs of
faster economic recovery.
•The
Company is monitoring the resolution of various trade policy
negotiations between the U.S. and key trading partners as well as
the post-Brexit impact on the U.K. and European Union. These
negotiations create uncertainty in key markets, which, if
unresolved in the near term, could negatively impact customer
demand.
•The
Company continues to navigate the impact of global tariffs. The
Company believes, based upon existing circumstances, that pricing,
strategic sourcing actions and profit optimization initiatives have
fully offset the current level of tariffs imposed on imports from
China.
•The
Company's financial performance is sensitive to changes in certain
input costs, including steel and steel component parts. The market
price of steel in the fourth quarter of fiscal 2021 was higher than
the same period of the prior year and negatively impacted
consolidated results on a year-over-year basis. The price of steel
unfavorably impacted consolidated gross margin in the fourth
quarter of fiscal 2021. However, ongoing cost reduction initiatives
and a planned price increase in the first quarter of fiscal 2022
will help offset these pressures over time.
The remaining sections of Item 7 include additional analysis of the
fiscal year ended May 29, 2021, including discussion of
significant variances compared to the prior year period. A detailed
review of our fiscal 2020 performance compared to our fiscal 2019
performance is set forth in Part II, Item 7 of our Form 10-K
for the fiscal year ended May 30, 2020.
(*) Non-GAAP measurements; see accompanying reconciliations and
explanations.
COVID-19 Update
The Company continues to respond to the challenges brought about by
the COVID-19 pandemic. Workplace restrictions are regionally
applied based on the recommendations of local government and health
authorities. While demand for the Company's products and services,
particularly in the Contract channel of the business, has been
adversely impacted, our multi-channel go-to-market approach has
enabled us to serve customers where, and how, they need to be
served. In addition, the investments we’ve made in people,
technology, and products have positioned us well to capitalize on
emerging opportunities as our customers' needs have changed
throughout the COVID-19 crisis. This has allowed for our Retail
business to take advantage of the unanticipated emerging
work-from-home trend as well as "home is my castle" trends as
consumers are focusing on and upgrading their broader home
environments.
Employee Safety and Health
The health and well-being of employees remains top of mind. We are
taking a regional approach to restrictions based on active COVID-19
case levels and local health authority recommendations. Contact
tracing is active in all regions to help track and control the
spread of the virus. We also continue to employ a variety of other
safety measures including domestic and international travel
restrictions, extensive cleaning protocols, temperature and health
screenings, personal protective equipment, and visitor safety
guidelines. We will be working with our employees around the globe
to understand vaccine distribution and create time for every
employee to be vaccinated if they wish to do so.
Herman Miller, Inc. and Subsidiaries
28
Customer Focus
The digital investments we’ve made allowed us to pivot quickly and
capitalize on a new set of opportunities when our customers’
purchasing behaviors changed. These investments include reimagined
Design Within Reach and Herman Miller websites, a Work from Home
landing page on Herman Miller’s website, a Work from Home online
assessment tool, and new digital platforms that are creating
greater efficiencies for contract and dealer audiences. The latest
in a series of innovative solutions designed to accelerate growth
in the Contract business is Herman Miller Professional – a digital
ecosystem designed to meet customer demand for a simple and
efficient design and product specification solution. Herman Miller
Professional will deliver seamless online experiences to small- and
medium sized businesses, a segment that has historically been
underserved by the traditional contract furniture model, while also
helping our dealers capture new clients and revenue. Businesses
will be able to design their spaces with product from the Herman
Miller family of brands, leverage an online quoting and purchasing
process to complete their order, and select from several delivery
options, including white glove service where appropriate. Our first
Herman Miller retail seating concept stores are open in Los
Angeles, New York Hudson Yards, Tokyo, Austin, Chicago Fulton
Market, Century City Los Angeles and Greenwich, CT. In the early
days, these stores have exceeded our initial revenue and operating
profit expectations as we seek to educate customers about the
health benefits of ergonomic seating. We remain uniquely positioned
to serve our customers through multiple channels with the most
comprehensive portfolio of products in the industry.
As our customers develop their post-pandemic work plans, there is a
notable shift to work being done from a number of places, with the
office as a destination – a place where employees want to be rather
than are required to be. Herman Miller Group is ready to capture
the many opportunities caused by this shift as our commercial
customers rethink their real estate portfolios, redesign their
workplaces, and seek to provide healthy and productive home work
environments.
Manufacturing and Retail Operations
Manufacturing facilities continue to operate at near-normal
capacity with enhanced safety precautions. All retail studios and
stores are open in some capacity; with some open to the public and
some open in limited capacity. All facilities operate within the
context of and are subject to local guidance from government and
health authorities and we will continue to adjust to ensure we are
acting in accordance with these guidelines.
Cost Reductions
In fiscal 2020, the Company implemented a range of actions aimed at
temporarily reducing costs and preserving liquidity. In fiscal
2021, the Company, together with its Board of Directors, made the
decision to move forward with several restorative actions. This
included eliminating the 10% reduction in compensation, the
introduction of a modified bonus program and re-establishing a
quarterly cash dividend program. In addition, the Company has
reinstated the previously suspended employer-paid retirement plan
contributions in the fourth quarter of fiscal 2021, and has also
elected to make a catch-up contribution for the employer-paid
retirement plan contributions that were suspended for a majority of
fiscal 2021. Despite these various reinstatements, the Company
continues to tightly control operating expenses in the face of
lingering economic uncertainty.
Reconciliation of Non-GAAP Financial Measures
This report contains references to Organic net sales, Adjusted
earnings per share - diluted, and adjusted effective tax rate which
are non-GAAP financial measures. Organic Growth (Decline)
represents the change in reported Net sales, excluding currency
translation effects and the impact of acquisitions. Adjusted
Earnings per Share represents reported diluted earnings per share
excluding the impact from adjustments related to purchase
accounting adjustments related to the HAY and naughtone
investments, impairment charges, restructuring expenses and other
special charges or gains, including related taxes. Restructuring
expenses include actions involving facilities consolidation and
optimization, targeted workforce reductions, and costs associated
with an early retirement program. Special charges include certain
costs arising as a direct result of COVID-19, and retroactive
payments related to reinstated employee benefits. Retroactive
payments related to reinstated employee benefits were an adjustment
to Earnings per Share in fourth quarter, but not for the full year.
Adjusted effective tax rate reflects both provision to return
adjustments and the accrual of withholding taxes related to planned
repatriation of cash from certain foreign
jurisdictions.
Herman Miller, Inc. and Subsidiaries
29
The Company believes presenting Organic net sales and Adjusted
earnings per share - diluted is useful for investors as it provides
financial information on a more comparative basis for the periods
presented by excluding items that are not representative of the
ongoing operations of the Company.
Organic net sales and Adjusted earnings per share - diluted are not
measurements of our financial performance under GAAP and should not
be considered as alternatives to the related GAAP measurement.
These non-GAAP measurements have limitations as analytical tools
and should not be considered in isolation or as a substitute for
analysis of our results as reported under GAAP. Our presentation of
non-GAAP measures should not be construed as an indication that our
future results will be unaffected by unusual or infrequent items.
We compensate for these limitations by providing prominence of our
GAAP results and using the non-GAAP financial measures only as a
supplement.
The following table reconciles Net sales to Organic net sales for
the years ended as indicated below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2021 |
May 30, 2020 |
|
North America |
International |
Retail |
Total |
North America |
International |
Retail |
Total |
|
Net Sales, as reported |
$1,194.0 |
$669.0 |
$602.1 |
$2,465.1 |
$1,598.2 |
$502.8 |
$385.6 |
$2,486.6 |
|
% change from PY |
(25.3)% |
33.1% |
56.1% |
(0.9)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma Adjustments |
|
|
|
|
|
|
|
|
|
Acquisitions |
(10.6) |
(87.3) |
— |
(97.9) |
— |
— |
— |
— |
|
Currency Translation Effects
(1)
|
(1.8) |
(19.6) |
(0.5) |
(21.9) |
— |
— |
— |
— |
|
Organic net sales |
$1,181.6 |
$562.1 |
$601.6 |
$2,345.3 |
$1,598.2 |
$502.8 |
$385.6 |
$2,486.6 |
|
% change from PY |
(26.1)% |
11.8% |
56.0% |
(5.7)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
The following table reconciles EPS to Adjusted EPS for the years
ended as of indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
May 29, 2021 |
May 30, 2020 |
|
Earning (Loss) per Share - Diluted |
$ |
2.92 |
|
$ |
(0.15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Gain on consolidation of equity method
investments |
— |
|
(0.63) |
|
|
Less: Gain on legal settlement, after tax |
(0.06) |
|
— |
|
|
Add: Special charges, after tax |
0.02 |
|
0.15 |
|
|
Add: Impairment charges, after tax |
— |
|
2.90 |
|
|
Add: Acquisition and integration charges, after tax |
0.15 |
|
— |
|
|
Add: Restructuring expenses, after tax |
0.02 |
|
0.34 |
|
|
Adjusted Earnings per Share - Diluted |
$ |
3.05 |
|
$ |
2.61 |
|
|
|
|
|
|
Weighted Average Shares Outstanding (used for Calculating Adjusted
Earnings per Share) – Diluted |
59,389,598 |
|
58,920,653 |
|
Note: The adjustments above are net of tax. For the twelve months
ended May 29, 2021 and May 30, 2020, the tax impact of the
adjustments were $0.01 and $0.62, respectively.
Herman Miller, Inc. and Subsidiaries
30
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) |
Fiscal 2021 |
|
Fiscal 2020 |
|
% Change |
|
Net sales |
$ |
2,465.1 |
|
|
$ |
2,486.6 |
|
|
(0.9) |
% |
|
Cost of sales |
1,515.9 |
|
|
1,575.9 |
|
|
(3.8) |
% |
|
Gross margin |
949.2 |
|
|
910.7 |
|
|
4.2 |
% |
|
Operating expenses |
718.6 |
|
|
949.1 |
|
|
(24.3) |
% |
|
Operating earnings (loss) |
230.6 |
|
|
(38.4) |
|
|
n/a |
|
Gain on consolidation of equity method investments |
— |
|
|
36.2 |
|
|
n/a |
|
Other expenses, net |
4.2 |
|
|
11.2 |
|
|
(62.5) |
% |
|
Earnings (loss) before income taxes and equity income |
226.4 |
|
|
(13.4) |
|
|
n/a |
|
Income tax expense |
47.9 |
|
|
6.0 |
|
|
n/a |
|
Equity income from nonconsolidated affiliates, net of
tax |
0.3 |
|
|
5.0 |
|
|
(94.0) |
% |
|
Net earnings (loss) |
178.8 |
|
|
(14.4) |
|
|
n/a |
|
Net earnings (loss) attributable to redeemable noncontrolling
interests |
5.7 |
|
|
(5.3) |
|
|
n/a |
|
Net earnings (loss) attributable to Herman Miller, Inc. |
$ |
173.1 |
|
|
$ |
(9.1) |
|
|
n/a |
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 2021 |
|
Fiscal 2020 |
|
Net sales |
100.0 |
% |
|
100.0 |
% |
|
Cost of sales |
61.5 |
|
|
63.4 |
|
|
Gross margin |
38.5 |
|
|
36.6 |
|
|
Operating expenses |
29.2 |
|
|
38.2 |
|
|
Operating (loss) earnings |
9.4 |
|
|
(1.5) |
|
|
Gain on consolidation of equity method investments |
— |
|
|
1.5 |
|
|
Other expenses, net |
0.2 |
|
|
0.5 |
|
|
Earnings (loss) before income taxes and equity income |
9.2 |
|
|
(0.5) |
|
|
Income tax expense |
1.9 |
|
|
0.2 |
|
|
Equity income from nonconsolidated affiliates, net of
tax |
— |
|
|
0.2 |
|
|
Net earnings (loss) |
7.3 |
|
|
(0.6) |
|
|
Net earnings (loss) attributable to redeemable noncontrolling
interests |
0.2 |
|
|
(0.2) |
|
|
Net earnings (loss) attributable to Herman Miller, Inc. |
7.0 |
|
|
(0.4) |
|
Net Sales
The following chart presents graphically the primary drivers of the
year-over-year change in Net sales. The amounts presented in the
bar graph are expressed in millions and have been
rounded.
Net sales decreased $21.5 million or 0.9% compared to the prior
year fiscal period. The following items primarily contributed to
the change:
•Increased
sales volumes within the Retail segment of approximately $201
million and the International segment of approximately $65
million.
•Increase
of approximately $98 million due to the acquisitions of
HAY and naughtone.
•Incremental
list price increases, net of contract price discounting, of
approximately $17 million.
•Foreign
currency translation had a favorable impact on net sales of
approximately $22 million.
•Decreased
sales volumes within the North America segment of approximately
$425 million, primarily due to the impact of the COVID-19
pandemic.
Gross Margin
Gross margin was 38.5% for fiscal 2021 as compared to 36.6% for
fiscal 2020. The following factors summarize the major drivers of
the year-over-year change in gross margin percentage:
•A
favorable shift in channel mix increased gross margin by
approximately 80 basis points.
•Product
mix, material performance and ongoing profitability improvement
efforts increased gross margin by approximately 140 basis
points.
•Incremental
list price increases, net of contract price discounting, increased
gross margin by approximately 40 basis points.
•Lower
overhead leverage decreased gross margin by approximately 70 basis
points.
Herman Miller, Inc. and Subsidiaries
32
Operating Expenses
The following chart presents graphically the primary drivers of the
year-over-year change in Operating expenses. The amounts presented
in the bar graph are expressed in millions and have been
rounded.
Operating expenses decreased by $230.5 million or 24.3% compared to
the prior year fiscal period. The following factors contributed to
the change:
•The
acquisition of HAY and naughtone increased Operating expenses by
approximately $23 million and charges related to the Knoll
acquisition increased current year Operating expenses by
approximately $11 million.
•IT
costs increased approximately $4 million driven primarily by
increased investments within the Company's digital and eCommerce
platforms.
•Non-cash
charges of $205 million in the prior year for the impairment of
goodwill, intangible assets and right of use assets related to
Design Within Reach, Maharam, HAY and naughtone.
•Restructuring
expenses decreased by approximately $24 million, primarily related
to voluntary and involuntary reductions in the Company's North
American and International workforces that were substantially
completed in the prior year.
•Lower
marketing and selling expenses of approximately $16 million
primarily within the North America Contract segment due to lower
sales volume.
•Travel
costs were approximately
$14 million lower
due to decreased travel as a result of COVID-19.
•Lower
warranty expense of approximately $9 million. Decreased warranty
costs were due to lower sales volumes and claims experience within
the North America Contract segment.
Other Income/Expense
Net other expenses for fiscal 2021 was $4.2 million compared to
$11.2 million in fiscal 2020. The change was primarily the result
of favorable legal settlements of approximately $4.3 million in
fiscal 2021.
Income Taxes
See Note 11 of the Consolidated Financial Statements for additional
information.
Operating Segments Results
The business is comprised of various operating segments as defined
by generally accepted accounting principles in the United States.
These operating segments are determined on the basis of how the
Company internally reports and evaluates financial information used
to make operating decisions. The segments identified by the Company
include North America Contract, International Contract, Retail and
Corporate. For descriptions of each segment, refer to Note 14
of the Consolidated Financial Statements.
The charts below present the relative mix of Net sales and
Operating earnings across each of the Company's segments. This is
followed by a discussion of the Company's results, by
segment.
Herman Miller, Inc. and Subsidiaries
34
North America Contract ("North America")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
Fiscal 2021 |
|
Fiscal 2020 |
|
Change |
|
Net sales |
$ |
1,194.0 |
|
|
$ |
1,598.2 |
|
|
$ |
(404.2) |
|
|
Gross margin |
413.4 |
|
|
580.6 |
|
|
(167.2) |
|
|
Gross margin % |
34.6 |
% |
|
36.3 |
% |
|
(1.7) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
74.1 |
|
|
130.9 |
|
|
(56.8) |
|
|
Operating earnings % |
6.2 |
% |
|
8.2 |
% |
|
(2.0) |
% |
Net sales decreased 25.3%, or 26.1%(*)
on an organic basis, over the prior year due to:
•Decreased
sales volumes within the North America segment of approximately
$424.5 million, primarily due to the outbreak of COVID-19; offset
by
•Incremental
list price increases, net of discounting, of approximately $7.9
million
•Approximately
$10.6 million due to the acquisition of naughtone; and
•The
impact of foreign currency translation which increased sales by
approximately $1.8 million.
Operating earnings decreased $56.8 million, or 43.4%, over the
prior year due to:
•Decreased
gross margin of $167.2 million due to decreased sales volumes as
well as a decrease in gross margin percentage of 170 basis points.
The decrease in gross margin percentage was due primarily to lower
overhead and labor leverage offset in part by lower overhead spend;
offset by
•Decrease
in operating expenses of $110.4 million. This reduction was driven
by lower marketing and selling expenses of approximately $15
million, lower travel costs of approximately $8 million, lower
warranty costs of approximately $9 million and lower restructuring
expenses of $14.9 million.
International Contract ("International")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
Fiscal 2021 |
|
Fiscal 2020 |
|
Change |
|
Net sales |
$ |
669.0 |
|
|
$ |
502.8 |
|
|
$ |
166.2 |
|
|
Gross margin |
238.9 |
|
|
168.5 |
|
|
70.4 |
|
|
Gross margin % |
35.7 |
% |
|
33.5 |
% |
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
93.0 |
|
|
18.2 |
|
|
74.8 |
|
|
Operating earnings % |
13.9 |
% |
|
3.6 |
% |
|
10.3 |
% |
Net sales increased 33.1%, or 11.8%(*)
on an organic basis, over the prior year due to:
•Approximately
$87 million due to the acquisition of HAY and
naughtone
•Increased
sales volumes within the International segment of approximately
$64.9 million, primarily driven by growth within the Asia-Pacific
and EMEA regions. These regions benefited from a relatively early
recovery to the COVID pandemic and associated return to the
office.
•The
impact of foreign currency translation which increased sales by
approximately $19.6 million; offset by
•Incremental
discounting, net of list price increases, of approximately $5.6
million.
Operating earnings increased $74.8 million, or 411.0%, compared to
the prior year due to:
•Increased
gross margin of $70.4 million due to the increase in sales
explained above, and increased gross margin percentage of 220 basis
points due primarily to favorable changes in channel and product
mix.; and
•Decreased
operating expenses of $4.4 million driven primarily by the prior
year non-cash charge of $23.2 million for the impairment of
intangible assets related to HAY and naughtone. This was offset in
part by increased operating expenses related to the acquisition of
Hay and naughtone.
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
Fiscal 2021 |
|
Fiscal 2020 |
|
Change |
|
Net sales |
$ |
602.1 |
|
|
$ |
385.6 |
|
|
$ |
216.5 |
|
|
Gross margin |
296.9 |
|
|
161.6 |
|
|
135.3 |
|
|
Gross margin % |
49.3 |
% |
|
41.9 |
% |
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
117.2 |
|
|
(148.3) |
|
|
265.5 |
|
|
Operating earnings % |
19.5 |
% |
|
(38.5) |
% |
|
58.0 |
% |
Net sales increased 56.1% as reported and 56.0% on an
organic(*)
basis, over the prior year due to:
•Increased
sales volumes of approximately $201.0 million which were driven by
increased demand across multiple product categories, with the
largest increase relating to workplace furnishings;
and
•Incremental
price increases, net of discounting, of approximately $15.0
million.
Operating earnings increased $265.5 million over the prior year due
to:
•Increased
gross margin of $135.3 million due to the increase in sales
explained above, as well as an increased gross margin percentage of
740 basis points due primarily to changes in channel and product
mix and the impact of incremental price increases; and
•Decreased
operating expenses of $130.2 million were driven primarily by
non-cash charges recorded in the prior year of 139.0 million
related to the impairment of goodwill, intangible assets and right
of use assets held by DWR. This was offset in part by increased
investment in digital and eCommerce capabilities, the initial
rollout of Herman Miller-branded seating stores, and increased
variable selling expenses and incentives.
Corporate
Corporate unallocated expenses totaled $53.7 million for
fiscal 2021, an increase of $14.5 million from
fiscal 2020. The increase was driven primarily by $11.0 million of
acquisition and integration costs associated with the Knoll
acquisition that was finalized subsequent to the close of fiscal
2021.
(*) Non-GAAP measurements; see accompanying reconciliations and
explanations.
Liquidity and Capital Resources
The table below summarizes the net change in cash and cash
equivalents for the fiscal years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
(In millions) |
2021 |
|
2020 |
|
Cash provided by (used in): |
|
|
|
|
Operating activities |
$ |
332.3 |
|
|
$ |
221.8 |
|
|
Investing activities |
$ |
(59.9) |
|
|
$ |
(168.1) |
|
|
Financing activities |
$ |
(347.7) |
|
|
$ |
244.0 |
|
|
Effect of exchange rate changes |
$ |
17.7 |
|
|
$ |
(2.9) |
|
|
Net change in cash and cash equivalents |
$ |
(57.6) |
|
|
$ |
294.8 |
|
Cash Flow — Operating Activities
Cash provided by operating activities in fiscal 2021 was $332.3
million compared to $221.8 million in the prior year. The increase
in cash generated from operations in the current year, compared to
the prior year, was primarily due to:
•Prior
year net earnings included a non-taxable non-cash gain on
consolidation of an equity method investment of $36.2 million as
well as a non-cash impact of $205.4 of impairment charges;
and
•Restructuring
expenses of $2.7 million compared to $26.4 million in the prior
year; and
•An
increase in current assets primarily driven by an increase in
accounts receivable of $14.8 million in the current year compared
to a decrease of $68.6 million in the prior year. The increase in
accounts receivable is primarily due to timing and increase in
sales at the end of fiscal 2021 compared to fiscal 2020;
and
Herman Miller, Inc. and Subsidiaries
36
•An
increase in current liabilities driven by the
following:
◦Increase
in accounts payable of $43.2 million in the current year compared
to a decrease of $59.5 million in the prior year which was a result
of timing and greater production in fiscal 2021 compared to fiscal
2020 due to manufacturing shut downs in the prior year;
and
◦Increase
in accrued liabilities of $15.1 million in the current year
compared to a decrease of $32.0 million in the prior year driven by
increases in compensation in the current year offset by a decrease
in accrued vacation.
Cash Flow — Investing Activities
Cash used in investing activities in fiscal 2021 totaled $59.9
million compared to $168.1 million in the prior year. The decrease
in cash outflow in the current year, compared to the prior year,
was primarily a result of the following:
•Prior
year cash outflows of $111.2 million for the additional investments
in naughtone and HAY; and
•A
decrease in capital expenditures of $9.2 million due to reduced
spending as a result of COVID-19; and
•Proceeds
from the sale of the Company's manufacturing facility in China and
the office facility in the United Kingdom in the current year of
$14.0 million.
At the end of the fiscal 2021, there were outstanding commitments
for capital purchases of $46.5 million. The Company plans to fund
these commitments with cash on hand and/or cash generated from
operations. The Company expects capital spending in fiscal 2022 to
be between $140 million and $150 million, which will be primarily
related to investments in the Company's facilities and equipment
along with the inclusion of Knoll in fiscal year 2022.
Cash Flow — Financing Activities
Cash used in financing activities was $347.7 million in fiscal 2021
as compared to cash provided by financing activities of $244.0
million in fiscal 2020. The items below represent the major factors
driving the year-over-year increase in cash flow used in financing
activities:
•During
the first quarter of fiscal 2021 the Company paid down the
$265.0
million draw on its syndicated revolving line of credit that was
taken in the fourth quarter of fiscal 2020. Additionally, in the
fourth quarter of fiscal 2021, the Company repaid
$50.0
million of private placement notes that were due March 1, 2021;
and
•Lower
employer-benefit related stock issuances in the current year. The
Company issued $5.0 million in common stock related to these
programs during the current fiscal year compared to $15.6 million
in fiscal 2020; offset in part by
•Common
stock repurchased of $0.9 million in the current year compared to
$26.6 million in the prior year; and
•The
prior year purchase of the remaining Herman Miller Consumer
Holdings, Inc. redeemable noncontrolling interests for $20.3
million.
Sources of Liquidity
In addition to steps taken to protect its workforce and manage
business operations, the Company has taken actions to safeguard its
capital position in the current environment. The Company is
closely managing spending levels, capital investments, and working
capital, and has temporarily suspended open market share repurchase
activity as part of managing cash flows.
At the end of fiscal 2021, the Company had a well-positioned
balance sheet and liquidity profile. 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, refer to Note 6 to the Consolidated
Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
May 29, 2021 |
|
May 30, 2020 |
|
Cash and cash equivalents |
$ |
396.4 |
|
|
$ |
454.0 |
|
|
Marketable securities |
$ |
7.7 |
|
|
$ |
7.0 |
|
|
Availability under revolving lines of credit |
$ |
265.2 |
|
|
$ |
0.6 |
|
Of the cash and cash equivalents noted above at the end of fiscal
2021, the Company had $213.7 million of cash and cash equivalents
held outside the United States. In addition, the Company had
marketable securities of $7.7 million held by one of its
international wholly-owned subsidiaries.
The Company’s syndicated revolving line of credit, which expires on
August 28, 2024, provides the Company with up to $500 million in
revolving variable interest borrowing capacity and includes an
"accordion feature" allowing the Company to increase, at its option
and subject to the approval of the participating banks, the
aggregate borrowing capacity of the facility by up to $250 million.
Outstanding borrowings bear interest at rates based on the prime
rate, federal funds rate, LIBOR or negotiated rates as outlined in
the agreement. Interest is payable periodically throughout the
period if borrowings are outstanding.
As of May 29, 2021, the total debt outstanding related to
borrowings under the syndicated revolving line of credit was $225.0
million with available borrowings against this facility of $265.2
million.
The subsidiary holding the Company's marketable securities is taxed
as a United States taxpayer at the Company's
election. Consequently, for tax purposes, all United States
tax impacts for this subsidiary have been recorded. The Company
intends to repatriate $107.0 million in cash held in certain
foreign jurisdictions and as such has recorded a deferred tax
liability related to foreign withholding taxes on these future
dividends received in the U.S. from foreign subsidiaries of $0.7
million.
The Company intends to remain indefinitely reinvested in the
remaining undistributed earnings outside the U.S.
The Company believes that its financial resources are adequate to
provide for its operations for at least the next 12 months and will
allow it to manage the impact of COVID-19 on the Company's business
operations for the foreseeable future. The Company will continue to
evaluate its financial position in light of future developments,
particularly those relating to COVID-19 and the Knoll
acquisition.
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. Refer to Note 13 of the Consolidated Financial
Statements for more information relating to
contingencies.
Basis of Presentation
The Company's fiscal year ends on the Saturday closest to May 31.
The fiscal years ended May 29, 2021, May 30, 2020 and
June 1, 2019 contained 52 weeks.
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 6 of the Consolidated
Financial Statements. Additional information related to operating
leases can be found in Note 7 of the Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by fiscal year |
|
(In millions) |
Total |
|
2022 |
|
2023-2024 |
|
2025-2026 |
|
Thereafter |
|
Short-term borrowings and long-term debt
(1)
|
$ |
277.1 |
|
|
$ |
2.2 |
|
|
$ |
— |
|
|
$ |
225.0 |
|
|
$ |
49.9 |
|
|
Estimated interest on debt obligations
(1)
|
66.0 |
|
|
9.1 |
|
|
18.2 |
|
|
18.2 |
|
|
20.5 |
|
|
Operating leases |
260.8 |
|
|
42.3 |
|
|
81.5 |
|
|
64.9 |
|
|
72.1 |
|
|
Purchase obligations
(2)
|
70.8 |
|
|
62.9 |
|
|
7.9 |
|
|
— |
|
|
— |
|
|
Pension and other post employment benefit plans funding
(3)
|
27.6 |
|
|
2.5 |
|
|
5.1 |
|
|
5.4 |
|
|
14.6 |
|
|
Stockholder dividends
(4)
|
11.1 |
|
|
11.1 |
|
|
— |
|
|
— |
|
|
— |
|
|
Other
(5)
|
15.1 |
|
|
5.2 |
|
|
4.1 |
|
|
1.4 |
|
|
4.4 |
|
|
Total |
$ |
728.5 |
|
|
$ |
135.3 |
|
|
$ |
116.8 |
|
|
$ |
314.9 |
|
|
$ |
161.5 |
|
Herman Miller, Inc. and Subsidiaries
38
(1) Includes the current portion of long-term debt. Contractual
cash payments on long-term debt obligations are disclosed herein
based on the amounts borrowed as of May 29, 2021 and the maturity
date of the underlying debt. Estimated future interest payments on
our outstanding interest-bearing debt obligations are based on
interest rates as of May 29, 2021. Actual cash outflows may
differ significantly due to changes in borrowings or interest
rates.
(2) Purchase obligations consist of non-cancelable purchase orders
and commitments for goods, services, and capital
assets.
(3) Pension plan funding commitments are known for a 12-month
period for those plans that are funded; unfunded pension and
post-retirement plan funding amounts are equal to the estimated
benefit payments.
As of May 29, 2021, the total projected benefit obligation for
our domestic and international employee pension benefit plans was
$141.9 million.
(4) Represents the dividend payable as of May 29, 2021. 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.
Other Future Obligations
The Company entered into strategic agreements during the fiscal
year, including agreements for (i) the acquisition of Knoll’s
common stock for $11.00 per share in cash, without interest, and
0.32 shares of Herman Miller common stock for each outstanding
share of Knoll common stock and (ii) the acquisition of all of the
outstanding shares of Knoll's preferred stock for approximately
$253 million in cash in the aggregate. This transaction was
finalized subsequent to the end of the fiscal year. The transaction
was funded with a combination of new debt, as discussed in Note 19
of the Consolidated Financial Statements, and cash on our balance
sheet.
Off-Balance Sheet Arrangements — Guarantees
We provide certain guarantees to third parties under various
arrangements in the form of product warranties, loan guarantees,
standby letters of credit, lease guarantees, performance bonds and
indemnification provisions. These arrangements are accounted for
and disclosed in accordance with Accounting Standards Codification
(ASC) Topic 460, "Guarantees" as described in
Note 13 of the Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our goal is to report financial results clearly and understandably.
We follow accounting principles generally accepted in the United
States 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. The following is a summary of our more significant
accounting policies that require the use of estimates and judgments
in preparing the financial statements.
Business Combinations
We allocate the fair value of purchase consideration to tangible
and intangible assets acquired and liabilities assumed based on
their estimated fair values. The excess of the fair value of
purchase consideration over the fair values of these identifiable
assets and liabilities is allocated to goodwill. The allocation of
the purchase consideration requires management to make significant
estimates and assumptions, especially with respect to intangible
assets. These estimates are reviewed with our advisors and can
include, but are not limited to, future expected cash flows related
to acquired customer relationships, trademarks and know-how/designs
and require estimation of discount rates and royalty rates. As
such, our estimates of fair value are based upon reasonable
assumptions but which are inherently uncertain and unpredictable,
and as a result, actual results may differ from these estimates.
During the measurement period, which is up to one year from the
acquisition date, we may record adjustments to the assets acquired
and liabilities assumed with the corresponding offset to goodwill.
Upon the conclusion of the measurement period, any subsequent
adjustments are recorded to earnings. During 2020, management
considered the acquisition of HAY a material acquisition. There
were no other material acquisitions during fiscal 2020 or 2021;
however, the acquisition of Knoll, which closed subsequent to year
end is a material acquisition. See Note 3 to the Consolidated
Financial Statements for more information.
Goodwill and Indefinite-lived Intangibles
We perform our annual impairment assessment for goodwill and other
indefinite-lived intangible assets each year as of March 31 or more
frequently if events or changes in circumstances indicate an
impairment maybe possible. We may
consider qualitative factors to assess if it is more likely than
not that the fair value for goodwill or indefinite-lived intangible
assets is below the carrying amount. We may also elect to bypass
the qualitative assessment and perform a quantitative
assessment.
To complete the impairment assessment the Company makes estimates
about fair value by using a weighting of the income and the market
approach. The income approach is based on projected discounted cash
flows using a market participant discount rate. The market approach
is based on financial multiples of companies comparable to each
reporting unit and applies a control premium. We corroborate the
fair value through a market capitalization reconciliation to
determine if the implied control premium is reasonable based on the
qualitative considerations, such as recent market
transactions.
The Company believes its assumptions for assessing the impairment
of its long-lived assets, goodwill and indefinite-lived trade names
are reasonable, but future changes in the underlying assumptions
could occur due to the inherent uncertainty in making such
estimates.
Further declines in the Company’s operating results due to
challenging economic conditions, an unfavorable industry or
macroeconomic development or other adverse changes in market
conditions could change one of the key assumptions the Company uses
to calculate the fair value of its long-lived assets, goodwill and
indefinite-lived trade names, which could result in a further
decline in fair value and require the Company to record an
impairment charge in future periods.
Goodwill
Certain business acquisitions have resulted in the recording of
goodwill. At May 29, 2021 and May 30, 2020, we had goodwill of
$364.2 million and $346.0 million, respectively.
We perform our annual impairment assessment for goodwill and other
indefinite-lived intangible assets as of March 31 or more
frequently if events or changes in circumstances indicate that the
asset might be impaired. We may consider qualitative factors to
assess if it is more likely than not that the fair value for
goodwill is below the carrying amount, however, we may also elect
to bypass the qualitative assessment and perform a quantitative
assessment. Each of the reporting units were reviewed for
impairment using a quantitative
assessment. 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. In fiscal 2020, the Company
recorded $125.5 million in goodwill impairment charges related to
both the Retail and Maharam reportable segments.
The Company adopted and applied ASU No. 2017-04, "Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment" using the prospective method in fiscal 2020. Refer to
Note 1 of the Consolidated Financial Statements for further
information regarding the adoption of ASU No. 2017-04.
To estimate the fair value of each reporting unit when performing
quantitative testing, the Company utilizes a weighting of the
income approach and the market method. These approaches are based
on a discounted cash flow analysis and observable comparable
company information that use several inputs,
including:
•actual
and forecasted revenue growth rates and operating
margins,
•discount
rates based on the reporting unit's weighted average cost of
capital, and
•revenue
and EBITDA of comparable companies
The Company corroborates the reasonableness of the inputs and
outcomes of our discounted cash flow analysis through a market
capitalization reconciliation to determine whether the implied
control premium is reasonable.
Generally, changes in estimates of expected future cash flows would
have a similar effect on the estimated fair value of the reporting
unit. For example, a 1.0% decrease in estimated annual future cash
flows would decrease the estimated fair value of the reporting unit
by approximately 1.0%. The estimated long-term growth rate can have
a significant impact on the estimated future cash flows, and
therefore, the fair value of each reporting unit. Of the other key
assumptions that impact the estimated fair values, most reporting
units have the greatest sensitivity to changes in the estimated
discount rate. In completing the annual goodwill impairment test,
the respective fair values were estimated using discount rates
ranging from 12.0% to 14.0% and long-term growth rates ranging from
2.5% to 3.0%.
Herman Miller, Inc. and Subsidiaries
40
Indefinite-lived Intangible Assets
Certain business acquisitions have resulted in the recording of
trade names as indefinite-lived intangible assets, which are not
amortized. At May 29, 2021 and May 30, 2020, we had trade
name assets with a carrying value of $97.6 million and $92.8
million, respectively.
The Company evaluates indefinite-lived trade name intangible assets
for impairment annually. The Company also tests for impairment if
events and circumstances indicate that it is more likely than not
that
the fair value of an indefinite-lived intangible asset is below its
carrying amount. An impairment charge is recorded if the carrying
amount of an indefinite-lived intangible asset exceeds the
estimated fair value on the measurement date. During fiscal 2020,
the Company adjusted the carrying value of all its tradenames to
fair value, and as a result recognized $53.3 million in non-cash
impairment charges on its indefinite-lived trade
names.
In fiscal 2021, the Company performed quantitative assessments in
testing indefinite-lived intangible assets for impairment. In
performing this assessment, we estimate the fair value of these
intangible assets using the relief-from-royalty method which
requires assumptions related to:
•actual
and forecasted revenue growth rates,
•assumed
royalty rates that could be payable if we did not own the
trademark, and
•a
market participant discount rate based on a weighted-average cost
of capital.
The assumptions above reflect management’s best estimate; however,
actual results could differ from our estimates. If the estimated
fair value of the indefinite-lived intangible asset is less than
its carrying value, we would recognize an impairment
charge.
In the table below, the Company has summarized the carrying values
and fair values of each of the Company’s indefinite-lived trade
names:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
|
|
|
|
Trade name |
Segment |
Carrying Value |
Fair Value |
|
|
|
|
|
|
Maharam |
North America Contract |
$ |
16.5 |
|
$ |
20.2 |
|
|
|
|
|
|
|
DWR |
Retail |
31.5 |
|
92.8 |
|
|
|
|
HAY |
International Contract |
43.1 |
|
43.8 |
|
|
|
|
naughtone |
International Contract |
6.5 |
|
10.9 |
|
|
|
|
Total |
|
$ |
97.6 |
|
$ |
167.7 |
|
|
|
|
|
|
In completing our annual indefinite-lived trade name impairment
test, the respective fair values were estimated using discount
rates ranging from 12.0% to 14.0%, royalty rates ranging from 2.00%
to 3.00% and long-term growth rates ranging from 2.5% to 3.0%. The
Company’s estimates of the fair value of its HAY indefinite-lived
intangible asset is sensitive to changes in the key assumptions
above as well as projected financial performance. Therefore, a
sensitivity analysis was performed on certain key
assumptions.
Keeping all other assumptions constant, a 10% decrease in
forecasted revenue growth rates at May 29, 2021 would have the
following effects on the fair value of the HAY trade
name:
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
Trade name |
Segment |
|
10% Decrease |
|
|
|
|
|
|
|
|
|
HAY |
International Contract |
|
$ |
(4.3) |
|
|
|
|
|
|
|
|
|
Keeping all other assumptions constant, a 100 basis point change in
the discount rate at May 29,2021 would have the following effects
on the fair value of the HAY trade name:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
Trade name |
Segment |
100 bps Increase |
100 bps Decrease |
|
|
|
|
|
|
|
|
|
HAY |
International Contract |
$ |
(3.9) |
|
$ |
4.8 |
|
|
|
|
|
|
|
|
|
Keeping all other assumptions constant, a 50 basis point change in
the royalty rate at May 29, 2021 would have the following effects
on the fair value of the HAY trade name:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
Trade name |
Segment |
50 bps Increase |
50 bps Decrease |
|
|
|
|
|
|
|
|
|
HAY |
International Contract |
$ |
8.8 |
|
$ |
(8.7) |
|
|
|
|
|
|
|
|
|
Keeping all other assumptions constant, a 50 basis point change in
the long-term growth rate at May 29, 2021 would have the following
effects on the fair value of the HAY trade name:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
Trade name |
Segment |
50 bps Increase |
50 bps Decrease |
|
|
|
|
|
|
|
|
|
HAY |
International Contract |
$ |
1.7 |
|
$ |
(1.5) |
|
If the estimated cash flows related to the Company's
indefinite-lived intangibles were to decline in future periods, the
Company may need to record an impairment charge.
Long-lived Assets
The Company evaluates other long-lived assets and acquired business
units for indicators of impairment when events or changes in
circumstances indicate that the carrying amount of assets may not
be recoverable. If such indicators are present, the future
undiscounted cash flows attributable to the asset group are
compared to the carrying value of the asset or asset group. 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.
The Company believes its assumptions for assessing the impairment
of its long-lived assets, goodwill and indefinite-lived trade names
are reasonable, but if actual results are not consistent with
management's estimates and assumptions, a material impairment
charge could occur, which could have a material adverse effect on
our consolidated financial statements.
New Accounting Standards
Refer to Note 1 of the Consolidated Financial Statements for
information related to new accounting standards.
Forward Looking Statements
This report 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,” "could," and “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, our success in initiatives aimed at
achieving long-term profit optimization goals;
•statements
regarding the acquisition of Knoll, including the anticipated
benefits of the acquisition, the anticipated impact of the
acquisition on the combined company’s business and future financial
and operating results, and the expected amount and timing of
synergies that might be realized from the acquisition;
•the
effect of the acquisition of Knoll on our ability of Herman Miller
to retain and hire key personnel and maintain relationships with
customers, suppliers and others with whom we do business, or on our
operating results and business generally;
•risks
that the acquisition of Knoll disrupts current plans and operations
and the potential difficulties in employee retention as a result of
the transaction;
•the
outcome of any legal proceedings related to the acquisition of
Knoll;
•our
ability to successfully integrate Knoll’s operations;
Herman Miller, Inc. and Subsidiaries
42
•our
ability to implement our plans, forecasts and other expectations
with respect to our business after the acquisition of Knoll and
realize expected synergies;
•business
disruptions following the acquisition of Knoll;
•the
ability to realize the anticipated benefits of the acquisition of
Knoll, including the possibility that the expected benefits from
the transaction will not be realized within the expected time
period;
•the
amount of the costs, fees, expenses and charges related to the
merger agreement, the preferred stock purchase agreement, and the
transactions contemplated by each agreement;
•unknown
liabilities;
•the
impact of foreign currency exchange rate and interest rate
fluctuations on Herman Miller’s or Knoll’s results;
•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, changes in future tax legislation or
interpretation of current tax legislation;
•the
ability to increase prices to absorb the additional costs of raw
materials;
•changes
in global tariff regulations;
•the
financial strength of our and Knoll’s dealers and the financial
strength of our and Knoll’s customers;
•our
ability to locate new retail studios, negotiate favorable lease
terms for new and existing locations and implement 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;
•our
ability to integrate and benefit from acquisitions and
investments;
•the
pace and level of government procurement;
•the
outcome of pending litigation or governmental audits or
investigations;
•political
risk in the markets we serve;
•natural
disasters, public health crises, disease outbreaks;
and
•other
risks identified in our filings with the SEC.
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 $0.9 million during
fiscal 2021 compared to the prior year. The impact from changes in
commodity prices lowered the Company's costs by approximately $4
million during fiscal 2020 as compared to fiscal 2019. Note that
these changes include the impact of Chinese tariffs on the
Company's direct material costs.
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.
Shortages and disruption in the steel industry as a result of the
COVID-19 pandemic negatively impacted the availability of steel.
While this reduction in availability has not had a significant
impact on our ability to produce and deliver products to our
customers, it has negatively impacted the cost of procuring steel.
Significant increases in raw materials can be difficult to offset
with price increases due to existing contractual agreements with
customers as well as difficulty finding effective financial
instruments to hedge these changes. In the short term, our gross
margin could be negatively impacted by significant increases in
these costs. Our profitability could be negatively impacted in the
long term if we are not able to pass along these higher raw
material costs to our customers.
Foreign Exchange Risk
The Company primarily manufactures its products in the United
States, United Kingdom, China, India, and Brazil. 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 May 29, 2021, the
Company had outstanding sixteen forward currency instruments
designed to offset either net asset or net liability exposure that
is denominated in non-functional currencies.
Herman Miller, Inc. and Subsidiaries
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except number of forward contracts) |
|
|
|
|
|
Net Asset Exposure |
|
|
|
|
|
Currency |
|
Number of Forward Contracts |
|
Net Exposure |
|
USD |
|
7 |
|
58.8 |
|
|
EUR |
|
3 |
|
44.3 |
|
|
NOK |
|
1 |
|
10.0 |
|
|
SEK |
|
1 |
|
17.5 |
|
|
GBP |
|
1 |
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Liability Exposure |
|
|
|
|
|
Currency |
|
Number of Forward Contracts |
|
Net Exposure |
|
USD |
|
2 |
|
3.1 |
|
|
CAD |
|
1 |
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
As of May 30, 2020, the
Company had outstanding, twenty forward currency instruments
designed to offset either net asset or net liability exposure that
is denominated in non-functional currencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except number of forward contracts) |
|
|
|
|
|
Net Asset Exposure |
|
|
|
|
|
Currency |
|
Number of Forward Contracts |
|
Net Exposure |
|
USD |
|
7 |
|
41.6 |
|
|
EUR |
|
2 |
|
18.2 |
|
|
ZAR |
|
1 |
|
3.7 |
|
|
NOK |
|
1 |
|
7.7 |
|
|
SEK |
|
1 |
|
10.5 |
|
|
GBP |
|
1 |
|
1.4 |
|
|
|
|
|
|
|
Net Liability Exposure |
|
|
|
|
|
Currency |
|
Number of Forward Contracts |
|
Net Exposure |
|
USD |
|
4 |
|
7.4 |
|
|
EUR |
|
1 |
|
1.3 |
|
|
CAD |
|
1 |
|
3.1 |
|
|
AED |
|
1 |
|
3.9 |
|
The cost of the foreign currency hedges and remeasuring all foreign
currency transactions into the appropriate functional currency
resulted in a net gain of $0.8 million in fiscal 2021 in contrast
to net loss of $1.1 million in fiscal 2020 included in net
earnings. These amounts are included in “Other (income) expense,
net” 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 $52.1
million compared to a decrease of $7.7 million as of the end of
fiscal 2021 and 2020, 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 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.
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 additional 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 market value of the effective interest rate swap
instruments was a net liability of $14.4 million at May 29,
2021 compared to $25.0 million at May 30, 2020. All cash flows
related to the Company's interest rate swap instruments are
denominated in U.S. dollars. For further information, refer to Note
6 and Note 12 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) |
2022 |
|
2023 |
|
2024 |
|
2025 |
|
2026 |
|
Thereafter |
|
Total(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt - Fixed rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate 4.95% |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
49.9 |
|
|
$ |
49.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate 1.949%(2)
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
150.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
150.0 |
|
|
Interest rate 2.387%(2)
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
75.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
75.0 |
|
(1) Amount does not include the recorded fair value of the swap
instruments.
(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.
Herman Miller, Inc. and Subsidiaries
46
Item 8 Financial Statements and Supplementary Data
Herman Miller, Inc.
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
(In millions, except per share data) |
May 29, 2021 |
|
May 30, 2020 |
|
June 1, 2019 |
|
Net sales |
$ |
2,465.1 |
|
|
$ |
2,486.6 |
|
|
$ |
2,567.2 |
|
|
Cost of sales |
1,515.9 |
|
|
1,575.9 |
|
|
1,637.3 |
|
|
Gross margin |
949.2 |
|
|
910.7 |
|
|
929.9 |
|
|
Operating expenses: |
|
|
|
|
|
|
Selling, general and administrative |
643.8 |
|
|
643.3 |
|
|
639.3 |
|
|
Impairment charges |
— |
|
|
205.4 |
|
|
— |
|
|
Restructuring expenses |
2.7 |
|
|
26.4 |
|
|
10.2 |
|
|
Design and research
|
72.1 |
|
|
74.0 |
|
|
76.9 |
|
|
Total operating expenses |
718.6 |
|
|
949.1 |
|
|
726.4 |
|
|
Operating earnings (loss) |
230.6 |
|
|
(38.4) |
|
|
203.5 |
|
|
Gain on consolidation of equity method investments |
— |
|
|
36.2 |
|
|
— |
|
|
Interest expense
|
13.9 |
|
|
12.5 |
|
|
12.1 |
|
|
Interest and other investment income |
(2.1) |
|
|
(2.3) |
|
|
(2.1) |
|
|
Other (income) expense, net |
(7.6) |
|
|
1.0 |
|
|
(1.6) |
|
|
Earnings (loss) before income taxes and equity income |
226.4 |
|
|
(13.4) |
|
|
195.1 |
|
|
Income tax expense |
47.9 |
|
|
6.0 |
|
|
39.6 |
|
|
Equity earnings from nonconsolidated affiliates, net of
tax
|
0.3 |
|
|
5.0 |
|
|
5.0 |
|
|
Net earnings (loss) |
178.8 |
|
|
(14.4) |
|
|
160.5 |
|
|
Net earnings (loss) attributable to redeemable noncontrolling
interests |
5.7 |
|
|
(5.3) |
|
|
— |
|
|
Net earnings (loss) attributable to Herman Miller, Inc. |
$ |
173.1 |
|
|
$ |
(9.1) |
|
|
$ |
160.5 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — basic |
$ |
2.94 |
|
|
$ |
(0.15) |
|
|
$ |
2.72 |
|
|
Earnings (loss) per share — diluted |
$ |
2.92 |
|
|
$ |
(0.15) |
|
|
$ |
2.70 |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
Foreign currency translation adjustments |
$ |
52.1 |
|
|
$ |
(7.7) |
|
|
$ |
(14.2) |
|
|
Pension and post-retirement liability adjustments |
8.8 |
|
|
(14.2) |
|
|
(7.8) |
|
|
Unrealized gains (losses) on interest rate swap
agreement |
8.1 |
|
|
(18.0) |
|
|
(12.3) |
|
|
Unrealized holding (losses) gains on securities |
(0.1) |
|
|
0.1 |
|
|
— |
|
|
Total other comprehensive income (loss), net of tax |
68.9 |
|
|
(39.8) |
|
|
(34.3) |
|
|
Comprehensive income (loss) |
247.7 |
|
|
(54.2) |
|
|
126.2 |
|
|
Comprehensive income (loss) attributable to redeemable
noncontrolling interests |
5.7 |
|
|
(5.3) |
|
|
— |
|
|
Comprehensive income (loss) attributable to Herman Miller,
Inc. |
$ |
242.0 |
|
|
$ |
(48.9) |
|
|
$ |
126.2 |
|
Herman Miller, Inc.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except share and per share data) |
May 29, 2021 |
|
May 30, 2020 |
|
ASSETS |
|
|
|
|
Current Assets: |
|
|
|
|
Cash and cash equivalents |
$ |
396.4 |
|
|
$ |
454.0 |
|
|
Short-term investments |
7.7 |
|
|
7.0 |
|
|
Accounts receivable, net of allowances of $5.5 and $4.7 |
204.7 |
|
|
180.0 |
|
|
Unbilled accounts receivable |
16.4 |
|
|
19.5 |
|
|
Inventories, net |
213.6 |
|
|
197.3 |
|
|
Prepaid expenses |
45.1 |
|
|
43.3 |
|
|
Other current assets
|
7.6 |
|
|
16.0 |
|
|
Total current assets |
891.5 |
|
|
917.1 |
|
|
Property and equipment, net of accumulated depreciation of $832.5
and $780.5 |
327.2 |
|
|
330.8 |
|
|
Right of use assets |
214.7 |
|
|
193.9 |
|
|
Goodwill |
364.2 |
|
|
346.0 |
|
|
Indefinite-lived intangibles |
97.6 |
|
|
92.8 |
|
|
Other amortizable intangibles, net of accumulated amortization of
$68.6 and $62.7 |
105.2 |
|
|
112.4 |
|
|
Other noncurrent assets
|
61.5 |
|
|
60.9 |
|
|
Total Assets |
$ |
2,061.9 |
|
|
$ |
2,053.9 |
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS &
STOCKHOLDERS' EQUITY |
|
|
|
|
Current Liabilities: |
|
|
|
|
Accounts payable |
$ |
178.4 |
|
|
$ |
128.8 |
|
|
Short-term borrowings and current portion of long-term
debt |
2.2 |
|
|
51.4 |
|
|
Accrued compensation and benefits |
90.2 |
|
|
71.1 |
|
|
Accrued warranty |
14.5 |
|
|
16.1 |
|
|
Customer deposits |
43.1 |
|
|
39.8 |
|
|
Other accrued liabilities
|
172.4 |
|
|
163.0 |
|
|
Total current liabilities |
500.8 |
|
|
470.2 |
|
|
Long-term debt |
274.9 |
|
|
539.9 |
|
|
Pension and post-retirement benefits |
34.5 |
|
|
42.4 |
|
|
Lease liabilities |
196.9 |
|
|
178.8 |
|
|
Other liabilities
|
128.2 |
|
|
129.2 |
|
|
Total Liabilities |
1,135.3 |
|
|
1,360.5 |
|
|
Redeemable noncontrolling interests |
77.0 |
|
|
50.4 |
|
|
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,
59,029,165 and 58,793,275 shares issued and outstanding in 2021 and
2020, respectively)
|
11.8 |
|
|
11.8 |
|
|
Additional paid-in capital |
94.7 |
|
|
81.6 |
|
|
Retained earnings |
808.4 |
|
|
683.9 |
|
|
Accumulated other comprehensive loss
|
(65.1) |
|
|
(134.0) |
|
|
Deferred compensation plan
|
(0.2) |
|
|
(0.3) |
|
|
Herman Miller, Inc. Stockholders' Equity |
849.6 |
|
|
643.0 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Redeemable Noncontrolling Interests and
Stockholders' Equity |
$ |
2,061.9 |
|
|
$ |
2,053.9 |
|
Herman Miller, Inc. and Subsidiaries
48
Herman Miller, Inc.
Consolidated Statements of Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Additional Paid-in Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Income (Loss) |
|
Deferred Compensation Plan |
|
Herman Miller, Inc. Stockholders' Equity |
|
Noncontrolling Interests |
|
Total Stockholders' Equity |
|
(In millions, except share and per share data) |
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2, 2018 |
59,230,974 |
|
$11.7 |
|
$116.6 |
|
$598.3 |
|
$(61.3) |
|
$(0.7) |
|
$664.6 |
|
$0.2 |
|
$664.8 |
|
Net earnings |
— |
|
— |
|
— |
|
160.5 |
|
— |
|
— |
|
160.5 |
|
— |
|
160.5 |
|
Other comprehensive loss, net of tax |
— |
|
— |
|
— |
|
— |
|
(34.3) |
|
— |
|
(34.3) |
|
— |
|
(34.3) |
|
Stock-based compensation expense |
— |
|
— |
|
8.4 |
|
— |
|
— |
|
— |
|
8.4 |
|
(0.2) |
|
8.2 |
|
Exercise of stock options |
347,248 |
|
0.1 |
|
10.0 |
|
— |
|
— |
|
— |
|
10.1 |
|
— |
|
10.1 |
|
Restricted and performance stock units released |
468,807 |
|
0.1 |
|
0.2 |
|
— |
|
— |
|
— |
|
0.3 |
|
— |
|
0.3 |
|
Employee stock purchase plan issuances |
62,957 |
|
— |
|
1.9 |
|
— |
|
— |
|
— |
|
1.9 |
|
— |
|
1.9 |
|
Repurchase and retirement of common stock |
(1,326,023) |
|
(0.2) |
|
(47.6) |
|
— |
|
— |
|
— |
|
(47.8) |
|
— |
|
(47.8) |
|
Directors' fees |
10,185 |
|
— |
|
0.3 |
|
— |
|
— |
|
— |
|
0.3 |
|
— |
|
0.3 |
|
Deferred compensation plan |
— |
|
— |
|
— |
|
— |
|
— |
|
(0.1) |
|
(0.1) |
|
— |
|
(0.1) |
|
Dividends declared ($0.79 per share)
|
— |
|
— |
|
— |
|
(46.6) |
|
— |
|
— |
|
(46.6) |
|
— |
|
(46.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting changes |
— |
|
— |
|
— |
|
0.5 |
|
1.4 |
|
— |
|
1.9 |
|
— |
|
1.9 |
|
June 1, 2019 |
58,794,148 |
|
$11.7 |
|
$89.8 |
|
$712.7 |
|
$(94.2) |
|
$(0.8) |
|
$719.2 |
|
$— |
|
$719.2 |
|
Net loss |
— |
|
— |
|
— |
|
(9.1) |
|
— |
|
— |
|
(9.1) |
|
— |
|
(9.1) |
|
Other comprehensive loss |
— |
|
— |
|
— |
|
— |
|
(39.8) |
|
— |
|
(39.8) |
|
— |
|
(39.8) |
|
Stock-based compensation expense |
— |
|
— |
|
2.7 |
|
— |
|
— |
|
— |
|
2.7 |
|
— |
|
2.7 |
|
Exercise of stock options |
423,815 |
|
0.2 |
|
13.3 |
|
— |
|
— |
|
— |
|
13.5 |
|
— |
|
13.5 |
|
Restricted and performance stock units released |
138,590 |
|
— |
|
0.2 |
|
— |
|
— |
|
— |
|
0.2 |
|
— |
|
0.2 |
|
Employee stock purchase plan issuances |
70,145 |
|
— |
|
2.1 |
|
— |
|
— |
|
— |
|
2.1 |
|
— |
|
2.1 |
|
Repurchase and retirement of common stock |
(641,192) |
|
(0.1) |
|
(26.5) |
|
— |
|
— |
|
— |
|
(26.6) |
|
— |
|
(26.6) |
|
Directors' fees |
7,769 |
|
— |
|
0.3 |
|
— |
|
— |
|
— |
|
0.3 |
|
— |
|
0.3 |
|
Deferred compensation plan |
— |
|
— |
|
(0.3) |
|
— |
|
— |
|
0.5 |
|
0.2 |
|
— |
|
0.2 |
|
Dividends declared ($0.63 per share)
|
— |
|
— |
|
— |
|
(37.5) |
|
— |
|
— |
|
(37.5) |
|
— |
|
(37.5) |
|
Redemption value adjustment |
— |
|
— |
|
— |
|
17.8 |
|
— |
|
— |
|
17.8 |
|
— |
|
17.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2020 |
58,793,275 |
|
$11.8 |
|
$81.6 |
|
$683.9 |
|
$(134.0) |
|
$(0.3) |
|
$643.0 |
|
$— |
|
$643.0 |
|
Net earnings |
— |
|
— |
|
— |
|
173.1 |
|
— |
|
— |
|
173.1 |
|
— |
|
173.1 |
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
68.9 |
|
— |
|
68.9 |
|
— |
|
68.9 |
|
Stock-based compensation expense |
— |
|
— |
|
9.0 |
|
— |
|
— |
|
— |
|
9.0 |
|
— |
|
9.0 |
|
Exercise of stock options |
86,238 |
|
— |
|
2.6 |
|
— |
|
— |
|
— |
|
2.6 |
|
— |
|
2.6 |
|
Restricted and performance stock units released |
114,103 |
|
— |
|
0.2 |
|
— |
|
— |
|
— |
|
0.2 |
|
— |
|
0.2 |
|
Employee stock purchase plan issuances |
71,468 |
|
— |
|
2.1 |
|
— |
|
— |
|
— |
|
2.1 |
|
— |
|
2.1 |
|
Repurchase and retirement of common stock |
(38,932) |
|
— |
|
(0.9) |
|
— |
|
— |
|
— |
|
(0.9) |
|
— |
|
(0.9) |
|
Directors' fees |
3,013 |
|
— |
|
0.1 |
|
— |
|
— |
|
— |
|
0.1 |
|
— |
|
0.1 |
|
Deferred compensation plan |
— |
|
— |
|
— |
|
— |
|
— |
|
0.1 |
|
0.1 |
|
— |
|
0.1 |
|
Dividends declared ($0.56 per share)
|
— |
|
— |
|
— |
|
(33.4) |
|
— |
|
— |
|
(33.4) |
|
— |
|
(33.4) |
|
Redemption value adjustment |
— |
|
— |
|
— |
|
(15.0) |
|
— |
|
— |
|
(15.0) |
|
— |
|
(15.0) |
|
Other |
— |
|
— |
|
— |
|
(0.2) |
|
— |
|
— |
|
(0.2) |
|
— |
|
(0.2) |
|
May 29, 2021 |
59,029,165 |
|
$11.8 |
|
$94.7 |
|
808.4 |
|
$(65.1) |
|
$(0.2) |
|
$849.6 |
|
— |
|
$849.6 |
Herman Miller, Inc.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
(In millions) |
May 29, 2021 |
|
May 30, 2020 |
|
June 1, 2019 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
Net earnings (loss) |
$178.8 |
|
$(14.4) |
|
$160.5 |
|
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities: |
|
|
|
|
|
|
Depreciation expense |
72.0 |
|
68.1 |
|
65.9 |
|
Amortization expense |
15.2 |
|
11.4 |
|
6.2 |
|
Earnings from nonconsolidated affiliates net of dividends
received |
(0.4) |
|
(4.8) |
|
(2.1) |
|
Investment fair value adjustment |
— |
|
— |
|
(2.1) |
|
Gain on consolidation of equity method investments |
— |
|
(36.2) |
|
— |
|
|
|
|
|
|
|
Deferred taxes |
6.7 |
|
(25.2) |
|
0.8 |
|
Pension contributions |
(5.4) |
|
(0.9) |
|
(0.9) |
|
Pension and post-retirement expenses |
3.0 |
|
1.6 |
|
1.2 |
|
Impairment charges |
— |
|
205.4 |
|
— |
|
Restructuring expenses |
2.7 |
|
26.4 |
|
10.2 |
|
Stock-based compensation |
9.0 |
|
2.7 |
|
7.3 |
|
|
|
|
|
|
|
Decrease (increase) in long-term assets |
1.2 |
|
(4.7) |
|
(0.4) |
|
Increase in long-term liabilities |
16.0 |
|
5.8 |
|
1.6 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
Increase (decrease) in accounts receivable & unbilled accounts
receivable |
(14.8) |
|
68.6 |
|
(24.8) |
|
Increase (decrease) in inventories |
(8.5) |
|
6.0 |
|
(31.9) |
|
Increase in prepaid expenses and other |
(3.9) |
|
(2.2) |
|
(0.6) |
|
Increase (decrease) in accounts payable |
43.2 |
|
(59.5) |
|
0.5 |
|
Increase (decrease) in accrued liabilities |
15.1 |
|
(32.0) |
|
22.7 |
|
Other, net |
2.4 |
|
5.7 |
|
2.3 |
|
Net Cash Provided by Operating Activities |
332.3 |
|
221.8 |
|
216.4 |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities purchases |
(5.9) |
|
(3.1) |
|
(1.9) |
|
Marketable securities sales |
5.3 |
|
5.0 |
|
1.7 |
|
Capital expenditures |
(59.8) |
|
(69.0) |
|
(85.8) |
|
Proceeds from sales of property and dealers |
14.0 |
|
0.2 |
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of HAY licensing agreement |
— |
|
— |
|
(4.8) |
|
Acquisitions, net of cash received |
— |
|
(111.2) |
|
— |
|
Equity investment in non-controlled entities |
— |
|
(3.3) |
|
(73.6) |
|
Other, net |
(13.5) |
|
13.3 |
|
(1.1) |
|
Net Cash Used in Investing Activities |
(59.9) |
|
(168.1) |
|
(165.0) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt |
— |
|
50.0 |
|
— |
|
Repayments of long-term debt |
(50.0) |
|
— |
|
— |
|
Proceeds from credit facility |
— |
|
265.0 |
|
— |
|
Repayments of credit facility |
(265.0) |
|
— |
|
— |
|
Dividends paid |
(34.5) |
|
(36.4) |
|
(45.6) |
|
Common stock issued |
5.0 |
|
15.6 |
|
12.3 |
|
Common stock repurchased and retired |
(0.9) |
|
(26.6) |
|
(47.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of redeemable noncontrolling interests |
— |
|
(20.3) |
|
(10.1) |
|
Other, net |
(2.3) |
|
(3.3) |
|
(0.6) |
|
Net Cash (Used in) Provided by Financing Activities |
(347.7) |
|
244.0 |
|
(91.9) |
|
Effect of exchange rate changes on cash and cash
equivalents |
17.7 |
|
(2.9) |
|
(4.2) |
|
Net (Decrease) Increase In Cash and Cash Equivalents |
(57.6) |
|
294.8 |
|
(44.7) |
|
Cash and cash equivalents, Beginning of Year |
454.0 |
|
159.2 |
|
203. |