UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 27, 202126, 2022
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-15141
HERMAN MILLER, INC.MillerKnoll, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Michigan | | 38-0837640 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
855 East Main Avenue
Zeeland, MI 49464
(Address of principal executive offices and zip code)
(616) 654-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $0.20 per share | MLHRMLKN | NASDAQNasdaq Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | x | Accelerated filer | o | Non-accelerated filer | o | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x☒
As of April 1, 2021, Herman Miller,2022, MillerKnoll, Inc. had 59,001,78775,792,770 shares of common stock outstanding.
Herman Miller,
MillerKnoll, Inc.
Form 10-Q
Table of Contents
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| | Page No. |
| Part I — Financial Information | |
| Item 1 Financial Statements (Unaudited) | |
Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Nine Months Ended February 27, 202126, 2022 and February 29, 202027, 2021 | |
Condensed Consolidated Balance Sheets — February 27, 202126, 2022 and May 30, 202029, 2021 | |
Condensed Consolidated Statements of Cash Flows — Nine Months Ended February 27, 202126, 2022 and February 29, 202027, 2021 | |
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Condensed Consolidated Statements of Stockholders' Equity — Nine Months Ended February 27, 202126, 2022 and February 29, 202027, 2021 | |
| Notes to Condensed Consolidated Financial Statements | |
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| Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3 Quantitative and Qualitative Disclosures about Market Risk | |
| Item 4 Controls and Procedures | |
| Part II — Other Information | |
| Item 1 Legal Proceedings | |
| Item 1A Risk Factors | |
| Item 2 Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 6 Exhibits | |
| Signatures | |
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Herman Miller,MillerKnoll, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
| | (Dollars in millions, except share data) | (Dollars in millions, except share data) | Three Months Ended | | Nine Months Ended | (Dollars in millions, except share data) | Three Months Ended | | Nine Months Ended |
| (Unaudited) | (Unaudited) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 | (Unaudited) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Net sales | Net sales | $ | 590.5 | | | $ | 665.7 | | | $ | 1,843.6 | | | $ | 2,010.8 | | Net sales | $ | 1,029.5 | | | $ | 590.5 | | | $ | 2,845.5 | | | $ | 1,843.6 | |
| Cost of sales | Cost of sales | 359.6 | | | 422.4 | | | 1,118.4 | | | 1,265.9 | | Cost of sales | 692.7 | | | 359.6 | | | 1,880.6 | | | 1,118.4 | |
| Gross margin | Gross margin | 230.9 | | | 243.3 | | | 725.2 | | | 744.9 | | Gross margin | 336.8 | | | 230.9 | | | 964.9 | | | 725.2 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Selling, general and administrative | Selling, general and administrative | 157.4 | | | 170.5 | | | 450.2 | | | 504.9 | | Selling, general and administrative | 282.3 | | | 157.4 | | | 907.8 | | | 450.2 | |
| Restructuring expense, net | Restructuring expense, net | 0.3 | | | 3.5 | | | 1.5 | | | 9.6 | | Restructuring expense, net | — | | | 0.3 | | | — | | | 1.5 | |
| Design and research | Design and research | 18.1 | | | 18.9 | | | 52.0 | | | 57.4 | | Design and research | 28.0 | | | 18.1 | | | 79.6 | | | 52.0 | |
| Total operating expenses | Total operating expenses | 175.8 | | | 192.9 | | | 503.7 | | | 571.9 | | Total operating expenses | 310.3 | | | 175.8 | | | 987.4 | | | 503.7 | |
| Operating earnings | 55.1 | | | 50.4 | | | 221.5 | | | 173.0 | | |
| Gain on consolidation of equity method investment | 0 | | | 0 | | | 0 | | | 30.5 | | |
| Operating earnings (loss) | | Operating earnings (loss) | 26.5 | | | 55.1 | | | (22.5) | | | 221.5 | |
| | Interest expense | Interest expense | 3.6 | | | 2.9 | | | 10.8 | | | 8.9 | | Interest expense | 10.2 | | | 3.6 | | | 24.9 | | | 10.8 | |
| Interest and other investment income | Interest and other investment income | 0.5 | | | 0.6 | | | 1.3 | | | 2.0 | | Interest and other investment income | 0.6 | | | 0.5 | | | 1.2 | | | 1.3 | |
| Other (income) expense, net | Other (income) expense, net | (4.6) | | | 0.5 | | | (7.3) | | | 0.6 | | Other (income) expense, net | (0.2) | | | (4.6) | | | 11.9 | | | (7.3) | |
| Earnings before income taxes and equity income | 56.6 | | | 47.6 | | | 219.3 | | | 196.0 | | |
| Income tax expense | 13.0 | | | 10.6 | | | 49.9 | | | 35.8 | | |
| Earnings (loss) before income taxes and equity income | | Earnings (loss) before income taxes and equity income | 17.1 | | | 56.6 | | | (58.1) | | | 219.3 | |
| Income tax expense (benefit) | | Income tax expense (benefit) | 2.7 | | | 13.0 | | | (11.5) | | | 49.9 | |
| Equity (loss) income from nonconsolidated affiliates, net of tax | Equity (loss) income from nonconsolidated affiliates, net of tax | (0.3) | | | 0.3 | | | 0.1 | | | 3.7 | | Equity (loss) income from nonconsolidated affiliates, net of tax | — | | | (0.3) | | | — | | | 0.1 | |
| Net earnings | 43.3 | | | 37.3 | | | 169.5 | | | 163.9 | | |
| Net earnings (loss) attributable to redeemable noncontrolling interests | 1.8 | | | (0.4) | | | 3.8 | | | (0.6) | | |
| Net earnings attributable to Herman Miller, Inc. | $ | 41.5 | | | $ | 37.7 | | | $ | 165.7 | | | $ | 164.5 | | |
| Net earnings (loss) | | Net earnings (loss) | 14.4 | | | 43.3 | | | (46.6) | | | 169.5 | |
| Net earnings attributable to redeemable noncontrolling interests | | Net earnings attributable to redeemable noncontrolling interests | 1.8 | | | 1.8 | | | 5.7 | | | 3.8 | |
| Net earnings (loss) attributable to MillerKnoll, Inc. | | Net earnings (loss) attributable to MillerKnoll, Inc. | $ | 12.6 | | | $ | 41.5 | | | $ | (52.3) | | | $ | 165.7 | |
| | Earnings per share — basic | $ | 0.70 | | | $ | 0.64 | | | $ | 2.81 | | | $ | 2.79 | | |
| Earnings per share — diluted | $ | 0.70 | | | $ | 0.64 | | | $ | 2.80 | | | $ | 2.78 | | |
| Earnings (loss) per share — basic | | Earnings (loss) per share — basic | $ | 0.17 | | | $ | 0.70 | | | $ | (0.72) | | | $ | 2.81 | |
| Earnings (loss) per share — diluted | | Earnings (loss) per share — diluted | $ | 0.16 | | | $ | 0.70 | | | $ | (0.72) | | | $ | 2.80 | |
| | Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | $ | 10.8 | | | $ | (1.9) | | | $ | 45.9 | | | $ | 2.5 | | Foreign currency translation adjustments | $ | 5.4 | | | $ | 10.8 | | | $ | (48.7) | | | $ | 45.9 | |
| Pension and post-retirement liability adjustments | Pension and post-retirement liability adjustments | 1.1 | | | 0.7 | | | 3.7 | | | 2.1 | | Pension and post-retirement liability adjustments | 1.5 | | | 1.1 | | | 5.6 | | | 3.7 | |
| Unrealized gains (losses) on interest rate swap agreement | 6.7 | | | (6.6) | | | 7.8 | | | (11.9) | | |
| Unrealized gains on interest rate swap agreement | | Unrealized gains on interest rate swap agreement | 10.2 | | | 6.7 | | | 13.2 | | | 7.8 | |
| Unrealized holding loss on available for sale securities | Unrealized holding loss on available for sale securities | 0 | | | 0 | | | (0.1) | | | 0 | | Unrealized holding loss on available for sale securities | — | | | — | | | — | | | (0.1) | |
| Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | 18.6 | | | (7.8) | | | 57.3 | | | (7.3) | | Other comprehensive income (loss), net of tax | 17.1 | | | 18.6 | | | (29.9) | | | 57.3 | |
| Comprehensive income | 61.9 | | | 29.5 | | | 226.8 | | | 156.6 | | |
| Comprehensive income (loss) | | Comprehensive income (loss) | 31.5 | | | 61.9 | | | (76.5) | | | 226.8 | |
| Comprehensive income (loss) attributable to redeemable noncontrolling interests | Comprehensive income (loss) attributable to redeemable noncontrolling interests | 2.1 | | | (0.4) | | | 6.9 | | | (0.6) | | Comprehensive income (loss) attributable to redeemable noncontrolling interests | 1.8 | | | 2.1 | | | 3.7 | | | 6.9 | |
| Comprehensive income attributable to Herman Miller, Inc. | $ | 59.8 | | | $ | 29.9 | | | $ | 219.9 | | | $ | 157.2 | | |
| Comprehensive income (loss) attributable to MillerKnoll, Inc. | | Comprehensive income (loss) attributable to MillerKnoll, Inc. | $ | 29.7 | | | $ | 59.8 | | | $ | (80.2) | | | $ | 219.9 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller,MillerKnoll, Inc. and Subsidiaries 3
Herman Miller,MillerKnoll, Inc.
Condensed Consolidated Balance Sheets
| | (Dollars in millions, except share data) | (Dollars in millions, except share data) | | (Dollars in millions, except share data) | |
| (Unaudited) | (Unaudited) | February 27, 2021 | | May 30, 2020 | (Unaudited) | February 26, 2022 | | May 29, 2021 |
| ASSETS | ASSETS | | | | ASSETS | | | |
| Current Assets: | Current Assets: | | Current Assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 397.4 | | | $ | 454.0 | | Cash and cash equivalents | $ | 245.9 | | | $ | 396.4 | |
| Short-term investments | Short-term investments | 7.5 | | | 7.0 | | Short-term investments | — | | | 7.7 | |
| Accounts receivable, net of allowances of $5.1 and $4.7 | 190.7 | | | 180.0 | | |
| Accounts receivable, net of allowances of $8 and $5.5 | | Accounts receivable, net of allowances of $8 and $5.5 | 313.8 | | | 204.7 | |
| Unbilled accounts receivable | Unbilled accounts receivable | 29.1 | | | 19.5 | | Unbilled accounts receivable | 42.1 | | | 16.4 | |
| Inventories, net | 201.0 | | | 197.3 | | |
| Inventories | | Inventories | 520.8 | | | 213.6 | |
| Prepaid expenses | Prepaid expenses | 35.1 | | | 43.3 | | Prepaid expenses | 139.9 | | | 45.1 | |
| Other current assets | Other current assets | 7.7 | | | 16.0 | | Other current assets | 8.6 | | | 7.6 | |
| Total current assets | Total current assets | 868.5 | | | 917.1 | | Total current assets | 1,271.1 | | | 891.5 | |
| Property and equipment, at cost | Property and equipment, at cost | 1,141.5 | | | 1,111.3 | | Property and equipment, at cost | 1,488.9 | | | 1,159.7 | |
| Less — accumulated depreciation | Less — accumulated depreciation | (815.5) | | | (780.5) | | Less — accumulated depreciation | (904.6) | | | (832.5) | |
| Net property and equipment | Net property and equipment | 326.0 | | | 330.8 | | Net property and equipment | 584.3 | | | 327.2 | |
| Right-of-use assets | Right-of-use assets | 222.9 | | | 193.9 | | Right-of-use assets | 418.6 | | | 214.7 | |
| Goodwill | Goodwill | 362.6 | | | 346.0 | | Goodwill | 1,282.7 | | | 364.2 | |
| Indefinite-lived intangibles | Indefinite-lived intangibles | 97.1 | | | 92.8 | | Indefinite-lived intangibles | 503.8 | | | 97.6 | |
| Other amortizable intangibles, net of accumulated amortization of $74.8 and $62.7 | 110.5 | | | 112.4 | | |
| Other amortizable intangibles, net of accumulated amortization of $120.7 and $68.6 | | Other amortizable intangibles, net of accumulated amortization of $120.7 and $68.6 | 378.1 | | | 105.2 | |
| Other noncurrent assets | Other noncurrent assets | 67.3 | | | 60.9 | | Other noncurrent assets | 79.1 | | | 61.5 | |
| Total Assets | Total Assets | $ | 2,054.9 | | | $ | 2,053.9 | | Total Assets | $ | 4,517.7 | | | $ | 2,061.9 | |
| | LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY | LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY | LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY |
| Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
| Accounts payable | Accounts payable | $ | 159.4 | | | $ | 128.8 | | Accounts payable | $ | 340.8 | | | $ | 178.4 | |
| Short-term borrowings and current portion of long-term debt | Short-term borrowings and current portion of long-term debt | 52.1 | | | 51.4 | | Short-term borrowings and current portion of long-term debt | 28.8 | | | 2.2 | |
| Accrued compensation and benefits | Accrued compensation and benefits | 71.7 | | | 71.1 | | Accrued compensation and benefits | 102.1 | | | 90.2 | |
| Short-term lease liability | | Short-term lease liability | 78.7 | | | 44.8 | |
| Accrued warranty | Accrued warranty | 14.7 | | | 16.1 | | Accrued warranty | 19.9 | | | 14.5 | |
| Customer deposits | Customer deposits | 43.4 | | | 39.8 | | Customer deposits | 126.9 | | | 43.1 | |
| Other accrued liabilities | Other accrued liabilities | 158.6 | | | 163.0 | | Other accrued liabilities | 136.4 | | | 103.4 | |
| Total current liabilities | Total current liabilities | 499.9 | | | 470.2 | | Total current liabilities | 833.6 | | | 476.6 | |
| Long-term debt | Long-term debt | 274.9 | | | 539.9 | | Long-term debt | 1,384.9 | | | 274.9 | |
| Pension and post-retirement benefits | Pension and post-retirement benefits | 41.3 | | | 42.4 | | Pension and post-retirement benefits | 37.9 | | | 34.5 | |
| Lease liabilities | Lease liabilities | 200.6 | | | 178.8 | | Lease liabilities | 392.4 | | | 221.1 | |
| Other liabilities | Other liabilities | 129.0 | | | 129.2 | | Other liabilities | 344.9 | | | 128.2 | |
| Total Liabilities | Total Liabilities | 1,145.7 | | | 1,360.5 | | Total Liabilities | 2,993.7 | | | 1,135.3 | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 59.1 | | | 50.4 | | Redeemable noncontrolling interests | 68.1 | | | 77.0 | |
| Stockholders' Equity: | Stockholders' Equity: | | Stockholders' Equity: | |
| Preferred stock, 0 par value (10,000,000 shares authorized, NaN issued) | 0 | | | 0 | | |
| Common stock, $0.20 par value (240,000,000 shares authorized, 59,001,135 and 58,793,275 shares issued and outstanding in fiscal 2021 and 2020, respectively) | 11.8 | | | 11.8 | | |
| Preferred stock, no par value (10,000,000 shares authorized, none issued) | | Preferred stock, no par value (10,000,000 shares authorized, none issued) | — | | | — | |
| Common stock, $0.20 par value (240,000,000 shares authorized, 75,798,552 and 59,029,165 shares issued and outstanding in fiscal 2022 and 2021, respectively) | | Common stock, $0.20 par value (240,000,000 shares authorized, 75,798,552 and 59,029,165 shares issued and outstanding in fiscal 2022 and 2021, respectively) | 15.2 | | | 11.8 | |
| Additional paid-in capital | Additional paid-in capital | 90.8 | | | 81.6 | | Additional paid-in capital | 820.6 | | | 94.7 | |
| Retained earnings | Retained earnings | 827.5 | | | 683.9 | | Retained earnings | 713.1 | | | 808.4 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (79.8) | | | (134.0) | | Accumulated other comprehensive loss | (93.0) | | | (65.1) | |
| Deferred compensation plan | Deferred compensation plan | (0.2) | | | (0.3) | | Deferred compensation plan | — | | | (0.2) | |
| | Total Stockholders' Equity | Total Stockholders' Equity | 850.1 | | | 643.0 | | Total Stockholders' Equity | 1,455.9 | | | 849.6 | |
| Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity | Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity | $ | 2,054.9 | | | $ | 2,053.9 | | Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity | $ | 4,517.7 | | | $ | 2,061.9 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller,MillerKnoll, Inc.
Condensed Consolidated Statements of Cash Flows
| | (Dollars in millions) | (Dollars in millions) | Nine Months Ended | (Dollars in millions) | Nine Months Ended |
| (Unaudited) | (Unaudited) | February 27, 2021 | | February 29, 2020 | (Unaudited) | February 26, 2022 | | February 27, 2021 |
| Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | Cash Flows from Operating Activities: | | | |
| Net earnings | $ | 169.5 | | | $ | 163.9 | | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | |
| Net (loss) earnings | | Net (loss) earnings | $ | (46.6) | | | $ | 169.5 | |
| Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | | Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 64.8 | | | 59.7 | | Depreciation and amortization | 150.3 | | | 64.8 | |
| Stock-based compensation | Stock-based compensation | 6.1 | | | 7.9 | | Stock-based compensation | 27.0 | | | 6.1 | |
| | Pension and post-retirement expenses | | Pension and post-retirement expenses | (6.2) | | | 2.3 | |
| | Deferred taxes | | Deferred taxes | (16.4) | | | 4.1 | |
| | (Gain) loss on sales of property and dealers | | (Gain) loss on sales of property and dealers | (2.0) | | | 0.2 | |
| | Loss on impairment | | Loss on impairment | 15.5 | | | — | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | 13.4 | | | — | |
| (Increase) in current assets | | (Increase) in current assets | (219.6) | | | (6.4) | |
| | Gain on consolidation of equity method investment | 0 | | | (30.5) | | |
| Restructuring expense | 1.5 | | | 9.6 | | |
| | (Increase) decrease in current assets | (6.4) | | | 17.8 | | |
| | Increase (decrease) in current liabilities | 9.7 | | | (36.7) | | |
| Increase (decrease) in non-current liabilities | 11.0 | | | (1.2) | | |
| Increase in current liabilities | | Increase in current liabilities | 33.5 | | | 9.7 | |
| (Decrease) increase in non-current liabilities | | (Decrease) increase in non-current liabilities | (8.6) | | | 11.0 | |
| Other, net | Other, net | 3.9 | | | 1.3 | | Other, net | 1.8 | | | (1.2) | |
| Net Cash Provided by Operating Activities | 260.1 | | | 191.8 | | |
| Net Cash (Used in) Provided by Operating Activities | | Net Cash (Used in) Provided by Operating Activities | (57.9) | | | 260.1 | |
| | Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | Cash Flows from Investing Activities: | |
| Proceeds from sale of subsidiary | | Proceeds from sale of subsidiary | — | | | 11.5 | |
| Proceeds from sale of property and dealers | Proceeds from sale of property and dealers | 11.5 | | | 0.3 | | Proceeds from sale of property and dealers | 2.8 | | | — | |
| | Capital expenditures | Capital expenditures | (42.8) | | | (56.5) | | Capital expenditures | (65.8) | | | (42.8) | |
| | | Acquisitions, net of cash received | Acquisitions, net of cash received | 0 | | | (111.2) | | Acquisitions, net of cash received | (1,088.5) | | | — | |
| Proceeds from the sale of investments | | Proceeds from the sale of investments | 7.7 | | | — | |
| | Other, net | Other, net | (11.6) | | | (3.9) | | Other, net | (1.2) | | | (11.6) | |
| Net Cash Used in Investing Activities | (42.9) | | | (171.3) | | |
| Net Cash Used for Investing Activities | | Net Cash Used for Investing Activities | (1,145.0) | | | (42.9) | |
| | Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | Cash Flows from Financing Activities: | |
| | Repayments of long-term debt | | Repayments of long-term debt | (56.6) | | | — | |
| Proceeds from issuance of debt, net of discounts | | Proceeds from issuance of debt, net of discounts | 1,007.0 | | | — | |
| | Payments of deferred financing costs | | Payments of deferred financing costs | (9.3) | | | — | |
| Proceeds from credit facility | | Proceeds from credit facility | 815.7 | | | — | |
| Repayments of credit facility | Repayments of credit facility | (265.0) | | | 0 | | Repayments of credit facility | (627.7) | | | (265.0) | |
| Payment of make whole premium on debt | | Payment of make whole premium on debt | (13.4) | | | — | |
| | Dividends paid | Dividends paid | (23.4) | | | (36.4) | | Dividends paid | (39.8) | | | (23.4) | |
| Common stock issued | Common stock issued | 3.9 | | | 15.1 | | Common stock issued | 6.8 | | | 3.9 | |
| Common stock repurchased and retired | Common stock repurchased and retired | (0.9) | | | (25.9) | | Common stock repurchased and retired | (16.0) | | | (0.9) | |
| | Purchase of redeemable noncontrolling interests | 0 | | | (20.3) | | |
| | | Other, net | Other, net | (1.9) | | | (2.3) | | Other, net | (5.3) | | | (1.9) | |
| Net Cash Used in Financing Activities | (287.3) | | | (69.8) | | |
| Net Cash Provided by (Used in) Financing Activities | | Net Cash Provided by (Used in) Financing Activities | 1,061.4 | | | (287.3) | |
| | Effect of Exchange Rate Changes on Cash and Cash Equivalents | Effect of Exchange Rate Changes on Cash and Cash Equivalents | 13.5 | | | 0.7 | | Effect of Exchange Rate Changes on Cash and Cash Equivalents | (9.0) | | | 13.5 | |
| Net Decrease in Cash and Cash Equivalents | Net Decrease in Cash and Cash Equivalents | (56.6) | | | (48.6) | | Net Decrease in Cash and Cash Equivalents | (150.5) | | | (56.6) | |
| | Cash and Cash Equivalents, Beginning of Period | Cash and Cash Equivalents, Beginning of Period | 454.0 | | | 159.2 | | Cash and Cash Equivalents, Beginning of Period | 396.4 | | | 454.0 | |
| Cash and Cash Equivalents, End of Period | Cash and Cash Equivalents, End of Period | $ | 397.4 | | | $ | 110.6 | | Cash and Cash Equivalents, End of Period | $ | 245.9 | | | $ | 397.4 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller,MillerKnoll, Inc. and Subsidiaries 5
Herman Miller,MillerKnoll, Inc.
Condensed Consolidated Statements of Stockholders' Equity
| | | | Nine Months Ended February 27, 2021 | | | | Nine Months Ended February 26, 2022 | |
| (Dollars in millions, except share data) | (Dollars in millions, except share data) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Deferred Compensation Plan | | Herman Miller, Inc. Stockholders' Equity | | Noncontrolling Interests | | Total
Stockholders' Equity | | (Dollars in millions, except share data) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Deferred Compensation Plan | | MillerKnoll, Inc. Stockholders' Equity | |
| (Unaudited) | (Unaudited) | | Shares | | Amount | | | (Unaudited) | | Shares | | Amount | | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Deferred Compensation Plan | MillerKnoll, Inc. Stockholders' Equity | |
| May 30, 2020 | | 58,793,275 | | | $ | 11.8 | | | $ | 81.6 | | | $ | 683.9 | | | $ | (134.0) | | | $ | (0.3) | | | $ | 643.0 | | | $ | 0 | | | $ | 643.0 | | | |
| Net earnings | | — | | | — | | | — | | | 73.0 | | | — | | | — | | | 73.0 | | | — | | | 73.0 | | | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 28.9 | | | — | | | 28.9 | | | — | | | 28.9 | | | |
| Stock-based compensation expense | | — | | | — | | | 1.5 | | | — | | | — | | | — | | | 1.5 | | | — | | | 1.5 | | | |
| Exercise of stock options | | 8,133 | | | 0 | | | 0.2 | | | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | | | |
| Restricted and performance stock units released | | 106,607 | | | 0 | | | — | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | | |
| Employee stock purchase plan issuances | | 25,116 | | | — | | | 0.6 | | | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | | | |
| Repurchase and retirement of common stock | | (36,644) | | | 0 | | | (0.9) | | | — | | | — | | | — | | | (0.9) | | | — | | | (0.9) | | | |
| Directors' fees | | 3,013 | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | | | |
| | August 29, 2020 | | 58,899,500 | | | $ | 11.8 | | | $ | 83.1 | | | $ | 756.9 | | | $ | (105.1) | | | $ | (0.3) | | | $ | 746.4 | | | $ | 0 | | | $ | 746.4 | | | |
| Net earnings | | — | | | — | | | — | | | 51.3 | | | — | | | —�� | | | 51.3 | | | — | | | 51.3 | | | |
| Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 7.0 | | | — | | | 7.0 | | | — | | | 7.0 | | | |
| Stock-based compensation expense | | — | | | — | | | 2.4 | | | — | | | — | | | — | | | 2.4 | | | — | | | 2.4 | | | |
| Exercise of stock options | | 54,771 | | | 0 | | | 1.9 | | | — | | | — | | | — | | | 1.9 | | | — | | | 1.9 | | | |
| Restricted and performance stock units released | | 3,688 | | | 0 | | | — | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | | |
| Employee stock purchase plan issuances | | 14,880 | | | — | | | 0.4 | | | — | | | — | | | — | | | 0.4 | | | — | | | 0.4 | | | |
| Repurchase and retirement of common stock | | (1,198) | | | 0 | | | 0 | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | | |
| Dividends declared ($0.1875 per share) | | — | | | — | | | — | | | (11.1) | | | — | | | — | | | (11.1) | | | — | | | (11.1) | | | |
| | November 28, 2020 | | 58,971,641 | | | $ | 11.8 | | | $ | 87.8 | | | $ | 797.1 | | | $ | (98.1) | | | $ | (0.3) | | | $ | 798.3 | | | $ | 0 | | | $ | 798.3 | | | |
| May 29, 2021 | | May 29, 2021 | | 59,029,165 | | | $ | 11.8 | | | $ | 94.7 | | | $ | 808.4 | | | $ | (65.1) | | | $ | (0.2) | | | $ | 849.6 | | |
| Net earnings | Net earnings | | — | | | — | | | — | | | 41.5 | | | — | | | — | | | 41.5 | | | — | | | 41.5 | | | Net earnings | | — | | | — | | | — | | | (61.5) | | | — | | | — | | | (61.5) | | |
| Other comprehensive income, net of tax | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 18.3 | | | — | | | 18.3 | | | — | | | 18.3 | | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | (15.2) | | | — | | | (15.2) | | |
| Stock-based compensation expense | Stock-based compensation expense | | — | | | — | | | 2.2 | | | — | | | — | | | — | | | 2.2 | | | — | | | 2.2 | | | Stock-based compensation expense | | — | | | — | | | 15.1 | | | — | | | — | | | — | | | 15.1 | | |
| Exercise of stock options | Exercise of stock options | | 10,628 | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | | | Exercise of stock options | | 49,584 | | | — | | | 1.3 | | | — | | | — | | | — | | | 1.3 | | |
| Restricted and performance stock units released | Restricted and performance stock units released | | 1,736 | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | | | Restricted and performance stock units released | | 358,016 | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Employee stock purchase plan issuances | Employee stock purchase plan issuances | | 17,709 | | | — | | | 0.6 | | | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | | | Employee stock purchase plan issuances | | 19,020 | | | — | | | 0.7 | | | — | | | — | | | — | | | 0.7 | | |
| Repurchase and retirement of common stock | Repurchase and retirement of common stock | | (579) | | | — | | | 0 | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | | Repurchase and retirement of common stock | | (267,522) | | | — | | | (11.0) | | | — | | | — | | | — | | | (11.0) | | |
| | Deferred compensation plan | | — | | | — | | | 0 | | | — | | | — | | | 0.1 | | | 0.1 | | | — | | | 0.1 | | | |
| Dividends declared ($0.1875 per share) | | — | | | — | | | — | | | (11.1) | | | — | | | — | | | (11.1) | | | — | | | (11.1) | | | |
| Shares issued for the acquisition of Knoll | | Shares issued for the acquisition of Knoll | | 15,843,921 | | | 3.2 | | | 685.1 | | | — | | | — | | | — | | | 688.3 | | |
| Pre-combination expense from Knoll rollover | | Pre-combination expense from Knoll rollover | | 751,907 | | | 0.2 | | | 22.4 | | | — | | | — | | | — | | | 22.6 | | |
| | Dividends declared $0.1875 per share) | | Dividends declared $0.1875 per share) | | — | | | — | | | — | | | (14.3) | | | — | | | — | | | (14.3) | | |
| | February 27, 2021 | | 59,001,135 | | | $ | 11.8 | | | $ | 90.8 | | | $ | 827.5 | | | $ | (79.8) | | | $ | (0.2) | | | $ | 850.1 | | | $ | 0 | | | $ | 850.1 | | | |
| August 28, 2021 | | August 28, 2021 | | 75,784,091 | | | $ | 15.2 | | | $ | 808.3 | | | $ | 732.6 | | | $ | (80.3) | | | $ | (0.2) | | | $ | 1,475.6 | | |
| Net earnings | | Net earnings | | — | | | — | | | — | | | (3.4) | | | — | | | — | | | (3.4) | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | (27.8) | | | — | | | (27.8) | | |
| Stock-based compensation expense | | Stock-based compensation expense | | — | | | — | | | 7.0 | | | — | | | — | | | — | | | 7.0 | | |
| Exercise of stock options | | Exercise of stock options | | 52,697 | | | — | | | 1.5 | | | — | | | — | | | — | | | 1.5 | | |
| Restricted and performance stock units released | | Restricted and performance stock units released | | 91,443 | | | — | | | 0.2 | | | — | | | — | | | — | | | 0.2 | | |
| Employee stock purchase plan issuances | | Employee stock purchase plan issuances | | 18,813 | | | — | | | 0.6 | | | — | | | — | | | — | | | 0.6 | | |
| Repurchase and retirement of common stock | | Repurchase and retirement of common stock | | (76,246) | | | — | | | (3.3) | | | — | | | — | | | — | | | (3.3) | | |
| | Forfeiture of shares | | Forfeiture of shares | | (130,410) | | | (0.1) | | | — | | | — | | | — | | | — | | | (0.1) | | |
| NCI Adjustment | | NCI Adjustment | | — | | | — | | | 0.5 | | | — | | | — | | | — | | | 0.5 | | |
| Dividends declared ($0.1875 per share) | | Dividends declared ($0.1875 per share) | | — | | | — | | | — | | | (14.4) | | | — | | | — | | | (14.4) | | |
| November 27, 2021 | | November 27, 2021 | | 75,740,388 | | | $ | 15.1 | | | $ | 814.8 | | | $ | 714.8 | | | $ | (108.1) | | | $ | (0.2) | | | $ | 1,436.4 | | |
| Net earnings | | Net earnings | | | | — | | | — | | | 12.6 | | | — | | | — | | | 12.6 | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 15.1 | | | — | | | 15.1 | | |
| Stock-based compensation expense | | Stock-based compensation expense | | — | | | — | | | 4.9 | | | — | | | — | | | — | | | 4.9 | | |
| Exercise of stock options | | Exercise of stock options | | 11,053 | | | — | | | 0.3 | | | — | | | — | | | — | | | 0.3 | | |
| Restricted and performance stock units released | | Restricted and performance stock units released | | 45,417 | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Employee stock purchase plan issuances | | Employee stock purchase plan issuances | | 20,437 | | | — | | | 0.7 | | | — | | | — | | | — | | | 0.7 | | |
| Directors Fees | | Directors Fees | | 23,255 | | | 0.1 | | | 1.5 | | | 1.6 | | |
| Deferred compensation plan | | Deferred compensation plan | | — | | | — | | | — | | | — | | | — | | | 0.2 | | | 0.2 | | |
| Repurchase and retirement of common stock | | Repurchase and retirement of common stock | | (41,346) | | | — | | | (1.6) | | | — | | | — | | | — | | | (1.6) | | |
| Forfeiture of shares | | Forfeiture of shares | | (652) | | | — | | | — | | | — | | | — | | | — | | | — | | |
| | Dividends declared ($0.1875 per share) | | Dividends declared ($0.1875 per share) | | — | | | — | | | — | | | (14.3) | | | — | | | — | | | (14.3) | | |
| February 26, 2022 | | February 26, 2022 | | 75,798,552 | | | $ | 15.2 | | | $ | 820.6 | | | $ | 713.1 | | | $ | (93.0) | | | $ | — | | | $ | 1,455.9 | | |
|
| | | | Nine Months Ended February 29, 2020 | | | | |
| | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Deferred Compensation Plan | | Herman Miller, Inc. Stockholders' Equity | | Noncontrolling Interests | | Total Stockholders' Equity | | | Nine Months Ended February 27, 2021 | |
| | Shares | | Amount | | Total Stockholders' Equity | |
| June 1, 2019 | | 58,794,148 | | | $ | 11.7 | | | $ | 89.8 | | | $ | 712.7 | | | $ | (94.2) | | | $ | (0.8) | | | $ | 719.2 | | | $ | 0 | | $ | 719.2 | | |
| Net earnings | | — | | | — | | | — | | | 48.2 | | | — | | | — | | | 48.2 | | | (0.2) | | | 48.0 | | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (17.3) | | | — | | | (17.3) | | | — | | | (17.3) | | |
| Stock-based compensation expense | | — | | | — | | | 2.6 | | | — | | | — | | | — | | | 2.6 | | | — | | | 2.6 | | |
| Exercise of stock options | | 382,898 | | | 0.1 | | | 12.1 | | | — | | | — | | | — | | | 12.2 | | | — | | | 12.2 | | |
| Restricted and performance stock units released | | 45,105 | | | 0 | | | — | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | |
| Employee stock purchase plan issuances | | 14,750 | | | — | | | 0.5 | | | — | | | — | | | — | | | 0.5 | | | — | | | 0.5 | | |
| Repurchase and retirement of common stock | | (173,001) | | | 0 | | | (7.6) | | | — | | | — | | | — | | | (7.6) | | | — | | | (7.6) | | |
| Deferred compensation plan | | — | | | — | | | — | | | — | | | — | | | 0.2 | | | 0.2 | | | — | | | 0.2 | | |
| Dividends declared ($0.21 per share) | | — | | | — | | | — | | | (12.5) | | | — | | | — | | | (12.5) | | | — | | | (12.5) | | |
| Redemption value adjustment | | — | | | — | | | — | | | (0.2) | | | — | | | — | | | (0.2) | | | 0.2 | | | — | | |
| | August 31, 2019 | | 59,063,900 | | | $ | 11.8 | | | $ | 97.4 | | | $ | 748.2 | | | $ | (111.5) | | | $ | (0.6) | | | $ | 745.3 | | | $ | 0 | | | $ | 745.3 | | |
| (Dollars in millions, except share data) | | (Dollars in millions, except share data) | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Deferred Compensation Plan | | MillerKnoll, Inc. Stockholders' Equity | |
| (Unaudited) | | (Unaudited) | | Shares | | Amount | | |
| May 30, 2020 | | May 30, 2020 | | 58,793,275 | | | $ | 11.8 | | | $ | 81.6 | | | $ | 683.9 | | | $ | (134.0) | | | $ | (0.3) | | | $ | 643.0 | | |
| Net earnings | Net earnings | | — | | | $ | — | | | $ | — | | | $ | 78.6 | | | $ | — | | | $ | — | | | $ | 78.6 | | | $ | — | | | $ | 78.6 | | Net earnings | | — | | | — | | | — | | | 73.0 | | | — | | | — | | | 73.0 | | |
| Other comprehensive income, net of tax | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 17.8 | | | — | | | 17.8 | | | — | | | 17.8 | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 28.9 | | | — | | | 28.9 | | |
| Stock-based compensation expense | Stock-based compensation expense | | — | | | — | | | 2.8 | | | — | | | — | | | — | | | 2.8 | | | — | | | 2.8 | | Stock-based compensation expense | | — | | | — | | | 1.5 | | | — | | | — | | | — | | | 1.5 | | |
| Exercise of stock options | Exercise of stock options | | 5,227 | | | 0 | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | | Exercise of stock options | | 8,133 | | | — | | | 0.2 | | | — | | | — | | | — | | | 0.2 | | |
| Restricted and performance stock units released | Restricted and performance stock units released | | 3,653 | | | 0 | | | — | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | Restricted and performance stock units released | | 106,607 | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Employee stock purchase plan issuances | Employee stock purchase plan issuances | | 12,467 | | | — | | | 0.5 | | | — | | | — | | | — | | | 0.5 | | | — | | | 0.5 | | Employee stock purchase plan issuances | | 25,116 | | | — | | | 0.6 | | | — | | | — | | | — | | | 0.6 | | |
| Repurchase and retirement of common stock | Repurchase and retirement of common stock | | (10,006) | | | 0 | | | (0.4) | | | — | | | — | | | — | | | (0.4) | | | — | | | (0.4) | | Repurchase and retirement of common stock | | (36,644) | | | — | | | (0.9) | | | — | | | — | | | — | | | (0.9) | | |
| Dividends declared ($0.21 per share) | | — | | | — | | | — | | | (0.1) | | | — | | | — | | | (0.1) | | | — | | | (0.1) | | |
| Directors' fees | | Directors' fees | | 3,013 | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | |
| | November 30, 2019 | | 59,075,241 | | | $ | 11.8 | | | $ | 100.4 | | | $ | 826.7 | | | $ | (93.7) | | | $ | (0.6) | | | $ | 844.6 | | | $ | 0 | | | $ | 844.6 | | |
| | August 29, 2020 | | August 29, 2020 | | 58,899,500 | | | $ | 11.8 | | | $ | 83.1 | | | $ | 756.9 | | | $ | (105.1) | | | $ | (0.3) | | | $ | 746.4 | | |
| Net earnings | Net earnings | | — | | | $ | — | | | $ | — | | | $ | 37.7 | | | $ | — | | | $ | — | | | $ | 37.7 | | | $ | 0 | | | $ | 37.7 | | Net earnings | | — | | | — | | | — | | | 51.3 | | | — | | | — | | | 51.3 | | |
| Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (7.8) | | | — | | | (7.8) | | | — | | | (7.8) | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 7.0 | | | — | | | 7.0 | | |
| Stock-base compensation expense | | Stock-base compensation expense | | — | | | — | | | 2.4 | | | — | | | — | | | — | | | 2.4 | | |
| Exercise of stock options | | Exercise of stock options | | 54,771 | | | — | | | 1.9 | | | — | | | — | | | — | | | 1.9 | | |
| Restricted and performance stock units released | | Restricted and performance stock units released | | 3,688 | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Employee stock purchase plan issuances | | Employee stock purchase plan issuances | | 14,880 | | | — | | | 0.4 | | | — | | | — | | | — | | | 0.4 | | |
| Repurchase and retirement of common stock | | Repurchase and retirement of common stock | | (1,198) | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Dividends declared ($0.1875 per share) | | Dividends declared ($0.1875 per share) | | — | | | — | | | $ | — | | | (11.1) | | | — | | | — | | | (11.1) | | |
| November 28, 2020 | | November 28, 2020 | | 58,971,641 | | | $ | 11.8 | | | $ | 87.8 | | | $ | 797.1 | | | $ | (98.1) | | | $ | (0.3) | | | $ | 798.3 | | |
| Net earnings | | Net earnings | | — | | | $ | — | | | — | | | 41.5 | | | — | | | — | | | 41.5 | | |
| Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 18.3 | | | — | | | 18.3 | | |
| Stock-based compensation expense | Stock-based compensation expense | | — | | | — | | | 2.5 | | | — | | | — | | | — | | | 2.5 | | | 0 | | | 2.5 | | Stock-based compensation expense | | — | | | — | | | 2.2 | | | — | | | — | | | — | | | 2.2 | | |
| Exercise of stock options | Exercise of stock options | | 35,690 | | | — | | | 1.1 | | | — | | | — | | | — | | | 1.1 | | | — | | | 1.1 | | Exercise of stock options | | 10,628 | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | |
| Restricted and performance stock units released | Restricted and performance stock units released | | 87,461 | | | — | | | 0.2 | | | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | | Restricted and performance stock units released | | 1,736 | | | — | | | 0.1 | | | — | | | — | | | — | | | 0.1 | | |
| Employee stock purchase plan issuances | Employee stock purchase plan issuances | | 20,021 | | | — | | | 0.6 | | | — | | | — | | | — | | | 0.6 | | | — | | | 0.6 | | Employee stock purchase plan issuances | | 17,709 | | | — | | | 0.6 | | | — | | | — | | | — | | | 0.6 | | |
| Repurchase and retirement of common stock | Repurchase and retirement of common stock | | (440,954) | | | — | | | (17.9) | | | — | | | — | | | — | | | (17.9) | | | — | | | (17.9) | | Repurchase and retirement of common stock | | (579) | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Directors' fees | | 7,769 | | | — | | | 0.3 | | | — | | | — | | | — | | | 0.3 | | | — | | | 0.3 | | |
| Deferred compensation plan | Deferred compensation plan | | — | | | — | | | (0.3) | | | — | | | — | | | 0.3 | | | 0 | | | — | | | 0 | | Deferred compensation plan | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 | | |
| Dividends declared ($0.21 per share) | | — | | | — | | | — | | | (24.5) | | | — | | | — | | | (24.5) | | | — | | | (24.5) | | |
| Dividends declared ($0.1875 per share) | | Dividends declared ($0.1875 per share) | | — | | | — | | | — | | | (11.1) | | | — | | | — | | | (11.1) | | |
| February 27, 2021 | | February 27, 2021 | | 59,001,135 | | | $ | 11.8 | | | $ | 90.8 | | | $ | 827.5 | | | $ | (79.8) | | | $ | (0.2) | | | $ | 850.1 | | |
| | February 29, 2020 | | 58,785,228 | | | 11.8 | | | 86.9 | | | 839.9 | | | (101.5) | | | (0.3) | | | 836.8 | | | 0 | | | 836.8 | | |
|
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller,MillerKnoll, Inc. and Subsidiaries 7
Notes to Condensed Consolidated Financial Statements
(Dollars in millions, except share data)
(unaudited)
1. Description of Business
MillerKnoll, Inc. (the "Company") researches, designs, manufactures, sells, and distributes interior furnishings for use in various environments including office, healthcare, educational, and residential settings and provides related services that support companies all over the world. The Company's products are sold through independent contract office furniture dealers, owned retail studios, the Company’s eCommerce platforms, direct mail catalogs, as well as direct customer sales and independent retailers.
On July 19, 2021 the Company acquired Knoll, Inc. ("Knoll") (See Note 5. "Acquisitions"). Knoll is a leading global manufacturer of commercial and residential furniture, accessories, lighting, and coverings. The Company has included the financial results of Knoll in the condensed consolidated financial statements from the date of acquisition. On October 11, 2021, our shareholders approved an amendment to our Restated Articles of Incorporation to change our corporate name from Herman Miller, Inc. to MillerKnoll, Inc. On November 1, 2021, the change in corporate name and ticker symbol to MLKN became effective.
MillerKnoll is a collective of dynamic brands that comes together to design the world we live in. A global leader in design, MillerKnoll includes Herman Miller® and Knoll®, as well as Colebrook Bosson Saunders®, DatesWeiser®, Design Within Reach®, Edelman® Leather, Fully®, Geiger®, HAY®, Holly Hunt®, KnollTextiles®, Maars® Living Walls, Maharam®, Muuto®, naughtone®, and Spinneybeck®|FilzFelt®. Combined, MillerKnoll represents over 100 years of design research and exploration in service of humanity. The company is united by a belief in design as a tool to create positive impact and shape a more sustainable, caring, and beautiful future for all people and the planet.
Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared by Herman Miller,MillerKnoll, Inc. (“the Company”) in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Management believes the disclosures made in this document are adequate with respect to interim reporting requirements. Unless otherwise noted or indicated by the context, all references to "Herman Miller,"MillerKnoll," "Herman Miller, Group," "we," "our," "Company" and similar references are to Herman Miller,MillerKnoll, Inc., its predecessors, and controlled subsidiaries.
The accompanying unaudited Condensed Consolidated Financial Statements, taken as a whole, contain all adjustments that are of a normal recurring nature necessary to present fairly the financial position of the Company as of February 27, 2021.26, 2022. Operating results for the three and nine months ended February 27, 202126, 2022 are not necessarily indicative of the results that may be expected for the year ending May 29, 202128, 2022 ("Fiscal 2021"fiscal 2022"). It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 30, 202029, 2021 ("Fiscal 2020"fiscal 2021"). All intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The financial statements of equity method investments are not consolidated. Certain prior
Immaterial Correction of Error
The Company’s previously issued financial statements have been revised to reclassify certain lease liabilities that were inappropriately presented within the Consolidated Balance Sheet as of May 29, 2021. As a result, $24.2 million was reclassified from Short-term lease liability to Lease liabilities on the Consolidated Balance Sheet as of May 29, 2021. The error had no impact on the Company's Consolidated Statements of Comprehensive Income (Loss), Cash Flows or Stockholders’ Equity. Management has evaluated the error and has determined, based on quantitative and qualitative factors, that it is not material to the May 29, 2021 Consolidated Balance Sheet.
Segment Reorganization
Effective as of May 30, 2021, the beginning of fiscal year amounts2022, the Company implemented an organizational change that resulted in a change in the Condensed Consolidated Financial Statements have been reclassifiedreportable segments. The Company has recast historical results to conformreflect this change. Below is a
description of each reportable segment. Intersegment sales are eliminated within each segment, with current year presentation.the exception of sales to and from the Knoll segment, which are presented as intersegment eliminations.
•Americas Contract ("Americas") – reflects the legacy Herman Miller North America Contract segment combined with Latin America and Design Within Reach Contract
•International Contract ("International") – reflects global Contract activity outside the Americas, excluding the international activity of Knoll
•Knoll – the Knoll segment includes the global operations associated with the design, manufacture, and sale of furniture products within the Knoll constellation of brands. The acquired Knoll business will initially be reflected as a stand-alone segment.
2. Recently Issued Accounting Standards
Recently Adopted Accounting Standards
On May 31, 2020,30, 2021, the Company adopted Accounting Standards Update ("ASU")ASU No. 2016-13, "Financial Instruments2018-14, "Compensation - Credit Losses (Topic 326)Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Measurement of Credit Losses on Financial Instruments" usingDisclosure Framework - Changes to the modified retrospective method.Disclosure Requirements for Defined Benefit Plans." This update replaceseliminates, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The eliminated disclosures include (a) the existing incurred loss impairment model with anamounts in accumulated other comprehensive income expected loss modelto be recognized in net periodic benefit costs over the next fiscal year and requires consideration(b) the effects of a broader range of reasonable and supportable information to inform credit loss estimates including customer credit quality, historical write-off trends and general information regarding industry trendsone percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the macroeconomic environment.benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The adoption of this guidance did not have a material effect on our consolidated financial statements and additional disclosures will be made in our annual report.
On May 30, 2021, the Company adopted ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This update removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. The update also adds guidance to reduce complexity in certain areas. The adoption of this guidance did not have a material impact on the Company's financial statements, accounting policies or methods utilized to determine the allowance for doubtful accounts.
On May 31, 2020, the Company adopted ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" using the prospective method. This update modifies certain disclosure requirements for fair value measurements. The adoption did not have a material impact on the Company's financial statements.
Recently Issued Accounting Standards Not Yet Adopted
The Company is currently evaluating the impact of adopting the following relevant standards issued by the Financial Accounting Standards Board ("FASB"):FASB:
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| Standard | | | | Description | | Effective Date |
| 2021-10 | | Government Assistance | | This update requires disclosures to increase the transparency of transactions with governments accounted for by applying a grant or contribution accounting model by analogy, including the (1) types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity's financial statements. Early adoption is permitted. The Company is evaluating the effect of adopting this new accounting guidance. | | May 29, 2022 |
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2018-14 | Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans | | This update eliminates, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements. | | May 30, 2021 | | |
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AllWe have assessed all other ASUs issued andbut not yet effective accounting standardsadopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.
8 MillerKnoll, Inc. and SubsidiariesForm 10-Q 9
3. Revenue from Contracts with Customers
Disaggregated Revenue
Revenue disaggregated by contract type has beenis provided in the table below:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (In millions) | (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 | (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Net Sales: | Net Sales: | | | | | | Net Sales: | | | | | |
| Single performance obligation | Single performance obligation | | Single performance obligation | |
| Product revenue | Product revenue | $ | 531.2 | | | $ | 561.1 | | | $ | 1,618.8 | | | $ | 1,699.9 | | Product revenue | $ | 953.3 | | | $ | 531.2 | | | $ | 2,632.0 | | | $ | 1,618.8 | |
| Multiple performance obligations | Multiple performance obligations | | Multiple performance obligations | |
| Product revenue | Product revenue | 54.9 | | | 98.9 | | | 210.5 | | | 294.5 | | Product revenue | 69.9 | | | 54.9 | | | 197.9 | | | 210.5 | |
| Service revenue | Service revenue | 2.0 | | | 2.5 | | | 8.1 | | | 7.8 | | Service revenue | 2.5 | | | 2.0 | | | 7.3 | | | 8.1 | |
| Other | Other | 2.4 | | | 3.2 | | | 6.2 | | | 8.6 | | Other | 3.8 | | | 2.4 | | | 8.3 | | | 6.2 | |
| Total | Total | $ | 590.5 | | | $ | 665.7 | | | $ | 1,843.6 | | | $ | 2,010.8 | | Total | $ | 1,029.5 | | | $ | 590.5 | | | $ | 2,845.5 | | | $ | 1,843.6 | |
Effective inThe Company internally reports and evaluates products based on the first quarter of fiscal 2021, the Company has revised its product categories in the table below to consist of Workplace, Performance Seating, Lifestyle, and Other. The change inA description of these product categories reflects how the Company internally reports and evaluates products when making operational decisions. Prior year results disclosed in the table below have been revised to reflect these changes.
The Workplace category includes products centered on creating highly functional and productive settings for both groups and individuals. This category focuses on the development of products, beyond seating, that define boundaries, support work, and enable productivity.
The Performance Seating category includes products centered on seating ergonomics, productivity, and function across an evolving and diverse range of settings. This category focuses on the development of ergonomic seating solutions for specific use cases requiring more than basic utility.
The Lifestyle category includes products focused on bringing spaces to life through beautiful yet functional products. This category focuses on the development of products that support a way of living, in thoughtful yet elevated ways. The products in this category help create emotive and visually appealing spaces via a portfolio that offers diversity in aesthetics, price, and performance.
Herman Miller, Inc. and Subsidiaries10 9Form 10-Q
Revenue disaggregated by product type and reportable segment has beenis provided in the table below:
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| Three Months Ended | | Nine Months Ended |
| (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| North America Contract: | | | | | | | |
| Workplace | $ | 160.0 | | | $ | 249.6 | | | $ | 564.6 | | | $ | 810.4 | |
| Performance Seating | 64.5 | | | 96.2 | | | 216.7 | | | 316.7 | |
| Lifestyle | 18.6 | | | 28.0 | | | 61.2 | | | 75.8 | |
| Other | 25.1 | | | 39.6 | | | 87.7 | | | 119.6 | |
| Total North America Contract | $ | 268.2 | | | $ | 413.4 | | | $ | 930.2 | | | $ | 1,322.5 | |
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| International Contract: | | | | | | | |
| Workplace | $ | 29.8 | | | $ | 45.4 | | | $ | 106.8 | | | $ | 138.2 | |
| Performance Seating | 75.2 | | | 59.4 | | | 211.5 | | | 178.2 | |
| Lifestyle | 56.6 | | | 49.1 | | | 160.1 | | | 62.5 | |
| Other | 4.1 | | | 2.2 | | | 9.0 | | | 9.2 | |
| Total International Contract | $ | 165.7 | | | $ | 156.1 | | | $ | 487.4 | | | $ | 388.1 | |
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| Retail: | | | | | | | |
| Workplace | $ | 2.2 | | | $ | 1.0 | | | $ | 6.2 | | | $ | 3.1 | |
| Performance Seating | 58.7 | | | 11.7 | | | 155.3 | | | 33.4 | |
| Lifestyle | 95.4 | | | 83.5 | | | 263.7 | | | 263.7 | |
| Other | 0.3 | | | 0 | | | 0.8 | | | 0 | |
| Total Retail | $ | 156.6 | | | $ | 96.2 | | | $ | 426.0 | | | $ | 300.2 | |
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| Total | $ | 590.5 | | | $ | 665.7 | | | $ | 1,843.6 | | | $ | 2,010.8 | |
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| Three Months Ended | | Nine Months Ended |
| (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Americas Contract: | | | | | | | |
| Workplace | $ | 204.2 | | | $ | 163.9 | | | $ | 578.0 | | | $ | 580.7 | |
| Performance Seating | 90.3 | | | 71.7 | | | 271.9 | | | 241.0 | |
| Lifestyle | 37.9 | | | 27.1 | | | 105.1 | | | 88.6 | |
| Other | 32.7 | | | 28.0 | | | 97.0 | | | 97.7 | |
| Total Americas Contract | $ | 365.1 | | | $ | 290.7 | | | $ | 1,052.0 | | | $ | 1,008.0 | |
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| International Contract: | | | | | | | |
| Workplace | $ | 30.1 | | | $ | 23.3 | | | $ | 91.2 | | | $ | 82.9 | |
| Performance Seating | 61.0 | | | 51.4 | | | 167.8 | | | 146.3 | |
| Lifestyle | 27.2 | | | 20.0 | | | 78.6 | | | 59.3 | |
| Other | 5.1 | | | 3.3 | | | 9.8 | | | 5.0 | |
| Total International Contract | $ | 123.4 | | | $ | 98.0 | | | $ | 347.4 | | | $ | 293.5 | |
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| Global Retail: | | | | | | | |
| Workplace | $ | 3.2 | | | $ | 2.7 | | | $ | 9.6 | | | $ | 7.6 | |
| Performance Seating | 63.4 | | | 75.2 | | | 184.5 | | | 196.3 | |
| Lifestyle | 145.4 | | | 123.5 | | | 439.6 | | | 337.2 | |
| Other | 0.8 | | | 0.4 | | | 1.7 | | | 1.0 | |
| Total Global Retail | $ | 212.8 | | | $ | 201.8 | | | $ | 635.4 | | | $ | 542.1 | |
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| Knoll: | | | | | | | |
| Workplace | $ | 155.0 | | | $ | — | | | $ | 388.0 | | | $ | — | |
| Performance Seating | 29.1 | | | — | | | 66.8 | | | — | |
| Lifestyle | 125.7 | | | — | | | 310.6 | | | — | |
| Other | 27.1 | | | — | | | 64.1 | | | — | |
| Total Knoll | $ | 336.9 | | | $ | — | | | $ | 829.5 | | | $ | — | |
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| Intersegment sales elimination | $ | (8.7) | | | $ | — | | | $ | (18.8) | | | $ | — | |
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| Total | $ | 1,029.5 | | | $ | 590.5 | | | $ | 2,845.5 | | | $ | 1,843.6 | |
Refer to Note 16 of the Condensed Consolidated Financial Statements for further information related to our reportable segments.
Contract Balances
Customers may make payments before the satisfaction of the Company's performance obligation and recognition of revenue. These payments represent contract liabilities and are included within the caption “Customer deposits” in the Condensed Consolidated Balance Sheets. During the three and nine months ended February 27, 2021,26, 2022, the Company recognized Net sales of $21.8$14.2 million and $28.9$85.5 million, respectively, related to customer deposits that were included in the balance sheet as of November 28, 2020May 29, 2021. The Company assumed a contract liability of $55.5 million related to the acquisition of Knoll, Inc on July 19, 2021.
MillerKnoll, Inc. and May 30, 2020, respectively.Subsidiaries 11
4. Leases
The components of lease expense are provided in the table below:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (In millions) | (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 | (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Operating lease costs | Operating lease costs | $ | 13.3 | | | $ | 13.1 | | | $ | 36.8 | | | $ | 38.5 | | Operating lease costs | $ | 23.7 | | | $ | 13.3 | | | $ | 64.8 | | | $ | 36.8 | |
| Short-term lease costs | Short-term lease costs | 0.9 | | | 0.7 | | | 2.4 | | | 1.9 | | Short-term lease costs | 3.0 | | | 0.9 | | | 7.4 | | | 2.4 | |
| Variable lease costs* | Variable lease costs* | 2.3 | | | 2.1 | | | 5.9 | | | 6.5 | | Variable lease costs* | 2.4 | | | 2.3 | | | 7.3 | | | 5.9 | |
| Total | Total | $ | 16.5 | | | $ | 15.9 | | | $ | 45.1 | | | $ | 46.9 | | Total | $ | 29.1 | | | $ | 16.5 | | | $ | 79.5 | | | $ | 45.1 | |
*Not included in the table above for the three and nine months ended February 27, 202126, 2022 are variable lease costs of $22.8$22.7 million and $61.4$68.4 million, respectively, for raw material purchases under certain supply arrangements that the Company has determined meet the definition of a lease. This compares to purchases of $18.6$22.8 million and $64.3$61.40 million for the three and nine months ended February 29, 2020,27, 2021, respectively.
At February 27, 2021,26, 2022, the Company had no financing leases.
The undiscounted annual future minimum lease payments related to the Company's right-of-use assets are summarized by fiscal year in the following table:
| | (In millions) | (In millions) | | (In millions) | |
| 2021 | $ | 13.1 | | |
| 2022 | 2022 | 50.7 | | 2022 | $ | 75.5 | |
| 2023 | 2023 | 48.2 | | 2023 | 83.4 | |
| 2024 | 2024 | 42.9 | | 2024 | 74.0 | |
| 2025 | 2025 | 37.9 | | 2025 | 63.3 | |
| 2026 | | 2026 | 50.4 | |
| Thereafter | Thereafter | 105.1 | | Thereafter | 145.7 | |
| Total lease payments* | Total lease payments* | $ | 297.9 | | Total lease payments* | $ | 492.3 | |
| Less interest | Less interest | 29.1 | | Less interest | 21.2 | |
| Present value of lease liabilities | Present value of lease liabilities | $ | 268.8 | | Present value of lease liabilities | $ | 471.1 | |
*Lease payments exclude $17.3$1.8 million of legally binding minimum lease payments for leases signed but not yet commenced.
The long-term portion of the lease liabilities included in the amounts above is $200.6 million and the remainder of the lease liabilities are included in "Other accrued liabilities" in the Condensed Consolidated Balance Sheets.
At February 27, 2021,26, 2022, the weighted average remaining lease term and weighted average discount rate for operating leases were 77.1 years and 2.8%2.5%, respectively.
Supplemental cash flow and other information related to leases are provided in the table below:
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| Three Months Ended | | Nine Months Ended |
| (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| Operating cash flows used for operating leases | $ | 13.5 | | | $ | 12.5 | | | $ | 36.3 | | | $ | 38.4 | |
| Right-of-use assets obtained in exchange for new liabilities | $ | 7.1 | | | $ | 0.3 | | | $ | 55.7 | | | $ | 9.1 | |
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| Three Months Ended | | Nine Months Ended |
| (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Operating cash flows used in operating leases | $ | 28.9 | | | $ | 13.5 | | | $ | 62.6 | | | $ | 36.3 | |
| Right-of-use assets obtained in exchange for new liabilities | $ | 28.4 | | | $ | 7.1 | | | $ | 54.3 | | | $ | 55.7 | |
5. Acquisitions and Divestitures
Nine United Denmark A/SKnoll, Inc.
On June 7, 2018,July 19, 2021, the Company acquired 33%completed its previously announced acquisition of the outstanding equity of Nine United Denmark A/S, d/b/a HAY and subsequently renamed to HAY ApS ("HAY”Knoll, Inc. (“Knoll"), a Copenhagen, Denmark-based, design leader in the design, manufacture, marketing, and sale of high-end furniture products and ancillary furnishingsaccessories for workplace and residential and contract markets in Europe and Asia.markets. The Company acquired its 33% ownership interesthas included the financial results of Knoll in HAY for approximately $65.5 million in cash.the condensed consolidated financial statements from the date of acquisition. The Company also acquired the rights to the HAY brand in North America under a long-term license agreement for approximately $4.8 million in cash.
On December 2, 2019, the Company obtained a controlling financial interest in HAY through the purchase of an additional 34% ownership interest. This acquisition allows the Company to further promote growth and development of HAY's ancillary product lines and continue to support product innovation and sales growth. The Company previously accounted for its ownership interest in HAY as an equity method investment, but upon increasing its ownership to 67%, the Company consolidated the operations of HAY. Total consideration paid for an additional 34% ownership interest of HAY was $79.0 million, exclusive of HAY cash on hand. The Company fundedtransaction costs associated with the acquisition, with cashwhich included financial advisory, legal, proxy filing, regulatory and cash equivalents.financing fees, were approximately $1.2 million and $28.8 million for the three and nine months ended February 26, 2022 and were recorded in general and administrative expenses.
The previously mentioned HAY long-term license agreement was deemed to be a contractual preexisting relationship. As a resultUnder the terms of the business combination,Agreement and Plan of Merger, each issued and outstanding share of Knoll common stock (excluding shares exercising dissenters rights, shares owned by Knoll as treasury stock, shares owned by the Company recorded this arrangement at its December 2, 2019 fair value, which resulted in an increase in goodwilldeal parties or their subsidiaries, or shares subject to Knoll restricted stock awards) was converted into a right to receive 0.32 shares of $10.0 million and a net gain of approximately $6 million, which was recorded within “Gain on consolidation of equity method investments" within the Condensed Consolidated Statements of Comprehensive Income during the three months ended May 30, 2020. The goodwill was recorded within the Company’s Retail segment.
Herman Miller, Inc. (now MillerKnoll, Inc.) common stock and Subsidiaries$11.00 in cash, without interest. The preliminary acquisition date fair
value of the consideration transferred for Knoll was approximately $1,887.3 million, which consisted of the following (in millions, except share amounts):
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| Knoll Shares | | Herman Miller, Inc (now MillerKnoll, Inc.) Shares Exchanged | | Fair Value |
| Cash Consideration: | | | | | |
| Shares of Knoll Common Stock issued and outstanding at July 19, 2021 | 49,444,825 | | | | | $ | 543.9 | |
| Knoll equivalent shares for outstanding option awards, outstanding awards of restricted common stock held by non-employee directors and outstanding awards of performance units held by individuals who are former employees of Knoll and remain eligible to vest at July 19, 2021 | 184,857 | | | | | 1.4 | |
| Total number of Knoll shares for cash consideration | 49,629,682 | | | | | |
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| Shares of Knoll Preferred Stock issued and outstanding at July 19, 2021 | 169,165 | | | | | 254.4 | |
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| Consideration for payment to settle Knoll's outstanding debt | | | | | 376.9 | |
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| Share Consideration: | | | | | |
| Shares of Knoll Common Stock issued and outstanding at July 19, 2021 | 49,444,825 | | | | | |
| Knoll equivalent shares for outstanding awards of restricted common stock held by non-employee directors and outstanding awards of performance units held by individuals who are former employees of Knoll and remain eligible to vest at July 19, 2021 | 74,857 | | | | | |
| Total number of Knoll shares for share consideration | 49,519,682 | | | 15,843,921 | | | 688.3 | |
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| Replacement Share-Based Awards: | | | | | |
| Outstanding awards of Knoll Restricted Stock and Performance units relating to Knoll Common Stock at July 19, 2021 | | | | | 22.4 | |
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| Total preliminary acquisition date fair value of consideration transferred | | | | | $ | 1,887.3 | |
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The aggregate cash paid in connection with the Knoll acquisition was $1,176.6 million. MillerKnoll funded the acquisition through cash on-hand and debt proceeds, as described in "Note 14. Short-Term Borrowings and Long-Term Debt."
Outstanding unvested restricted stock awards, performance stock awards, performance stock units, and restricted stock units with a preliminary estimated fair value of $53.4 million automatically converted into Company is a party to options, that if exercised, could require itawards. Of the total fair value, $22.4 million was preliminarily allocated to purchase consideration and $31.0 million was preliminarily allocated to future services and will be expensed over the remaining 33%service periods on a straight-line basis. Per the terms of the equityconverted awards any qualifying termination within the twelve months subsequent to the acquisition will result in HAY, at fair market value. This remaining redeemable noncontrolling interest in HAY is classified outsideaccelerated vesting and related recognition of permanent equity in the Condensed Consolidated Balance Sheets and is carried at the current estimated redemption amount.
The allocationtransaction was accounted for as a business combination which requires that assets and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price wasallocation is preliminary and subject to change as the valuation of inventory, property, plant and equipment, intangible assets and income taxes among other items is not complete. The amounts recognized will be finalized duringas the first quarter of fiscal 2021. information necessary to complete the analysis is obtained, but no later than one year after the acquisition date.
The following table presentssummarizes the allocationpreliminary fair value of purchase price related toassets acquired tangible assets:and liabilities assumed as of the date of acquisition:
MillerKnoll, Inc. and Subsidiaries 13
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| (In millions) | Fair Value |
| Cash | $ | 12.188.0 | |
Working capital, net of cash and inventory step-upAccounts receivable | 12.382.3 | |
Net property and equipmentInventories | 0.9219.9 | |
| Other current assets | 3.936.2 | |
| Property and equipment | 292.5 | |
| Right-of-use assets | 202.7 | |
| Intangible assets | 748.6 | |
| Goodwill | 941.4 | |
| Other noncurrent assets | 23.6 | |
| Total assets acquired | 2,635.2 | |
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| Accounts payable | 144.0 | |
| Other current liabilities | 134.1 | |
| Lease liabilities | 177.8 | |
| Other liabilities | (3.1)292.0 | |
| Total liabilities assumed | 747.9 | |
Net assets acquiredAssets Acquired | $ | 26.11,887.3 | |
The excess of purchase of the additional equity interest in HAY was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured as of the acquisition date. The Company considered multiple factors in determiningconsideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. Goodwill is primarily attributed to the previously held equity method investment, includingassembled workforce of Knoll and anticipated operational synergies. Goodwill related to the price negotiated with the selling shareholder for the 34% equity interest in HAY, an income valuation model (discounted cash flow) and current trading multiples for comparable companies. Based on this analysis, the Company recognized an immaterial non-taxable gain on the remeasurement of the previously held equity method investment of $67.8 million in the third quarter of fiscal 2020. The net gain has been recognized in “Gain on consolidation of equity method investments"acquisition was recorded within the Condensed Consolidated Statements of Comprehensive IncomeKnoll segment at $941.4 million. Goodwill arising from the acquisition is not expected to be deductible for tax reporting purposes.
The fair values assigned to tangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received and certain tax matters are finalized. Certain adjustments were made during the three months ended May 30, 2020.
The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company atas of the acquisition date:
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| (In millions) | Valuation Method | | Useful Life (years) | | Fair Value |
| Inventory Step-up | Comparative Sales Approach | | 0.8 | | $ | 3.4 | |
| Backlog | Multi-Period Excess Earnings | | 0.3 | | 1.7 | |
| Deferred Revenue | Adjusted Fulfillment Cost Method | | 0.1 | | (2.2) | |
| Trade name | Relief from Royalty | | Indefinite | | 60.0 | |
| Product Development | Relief from Royalty | | 8.0 | | 22.0 | |
| Customer Relationships | Multi-Period Excess Earnings | | 9.0 | | 34.0 | |
| Total | | | | | $ | 118.9 | |
Goodwill related to the acquisition was recorded within the International Contract segment for $101.1 million and the Retail segment for $10.0 million. Subsequent to the acquisition, the goodwill recorded to the Retail segment was fully impaired in the fourth quarter of fiscal 2020 based on the results of the Company's annual goodwill impairment assessment.
naughtone
On October 25, 2019 (“Acquisition Date”), the Company purchased the remaining 47.5% equity voting interest in naughtone (Holdings) Limited and naughtone Manufacturing Ltd. (together “naughtone”). naughtone is an upscale, contemporary furniture manufacturer based in Harrogate, North Yorkshire, UK. The completion of the acquisition allows the Company to further promote growth and development of naughtone's ancillary product lines, and continue to support product innovation and sales growth. The Company previously accounted for its ownership interest in naughtone as an equity method investment. Upon increasing its ownership to 100% on the Acquisition Date, the Company obtained a controlling financial interest and consolidated the operations of naughtone. Total consideration paid for naughtone on the Acquisition Date was $45.9 million, exclusive of naughtone cash on hand. The Company funded the acquisition with cash and cash equivalents. The allocation of the purchase price was finalized during the fourth quarter of fiscal 2020.
The following table presents the allocation of purchase price related to acquired tangible assets:
| | | | | | | | | | | | | | | | | |
| (In millions) | Valuation Method | | Useful Life (years) | | Fair Value |
CashBacklog | Multi-Period Excess Earnings | | Less than 1 Year | | $ | 27.6 | |
| Trade name - indefinite lived | Relief from Royalty | | Indefinite | | 413.0 | |
| Trade name - amortizing | Relief from Royalty | | 5-10 Years | | 23.0 | |
| Designs | Relief from Royalty | | 9-15 years | | 31.0 | |
| Customer Relationships | Multi-Period Excess Earnings | | 2-15 years | | 254.0 | |
| Total | | | | | $ | 748.6 | |
Revenue and Net Loss of Knoll included in the Company's Condensed Consolidated Statements of Comprehensive Income (Loss) from the acquisition date of July 19, 2021 through February 26, 2022 are as follows (in millions):
| | | | | |
| Total Revenue | $ | 5.1 | |
Working capital, net of cash and inventory step-up | 1.3829.5 | |
Net property and equipment | 0.8 | |
Net assets acquiredLoss | $ | 7.2 (63.4) | |
The purchase of the remaining equity interest in naughtone was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured as of the Acquisition Date. The Company considered multiple factors in determining the fair value of the previously held equity method investment, including the price negotiated with the selling shareholder for the 47.5% equity interest in naughtone, an income valuation model (discounted cash flow) and current trading multiples for comparable companies. Based on this analysis, the Company recognized a non-taxable gain of approximately $30 million on the remeasurement of the previously held equity method investment of $20.5 million. The net gain has been recognized in “Gain on consolidation of equity method investments" within the Condensed Consolidated Statements of Comprehensive Income during the nine months ended February 29, 2020.
The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company at the acquisition date:
| | | | | | | | | | | | | | | | | |
| (In millions) | Valuation Method | | Useful Life (years) | | Fair Value |
| Inventory Step-up | Comparative Sales Approach | | 0.3 | | $ | 0.2 | |
| Backlog | Multi-Period Excess Earnings | | 0.3 | | 0.8 | |
| Trade name | Relief from Royalty | | Indefinite | | 8.5 | |
| Customer Relationships | Multi-Period Excess Earnings | | 9.0 | | 29.4 | |
| Total | | | | | $ | 38.9 | |
Goodwill related to the acquisition was recorded within the North America Contract and International Contract segments for $35.0 million and $22.5 million, respectively.
Unaudited Pro Forma Results of Operations
The results of naughtone and HAY’sKnoll's operations have been included in the Consolidated Financial Statements beginning on October 25, 2019 and December 2, 2019, respectively.July 19, 2021. The following table provides pro forma results of operations for the three and nine months ended February 29, 2020,26, 2022 and February 27, 2021, as if naughtone and HAYKnoll had been acquired as of June 2, 2019.May 31, 2020. The pro forma results include certain purchase accounting adjustments such as the estimated change in depreciation and amortization expense on the acquired tangible and
intangible assets. The impact of these adjustments is subject to change as valuations are finalized. The pro forma results also include the impact of incremental interest expense incurred to finance the merger. Transaction related costs, including debt extinguishment costs related to the transaction, have been eliminated from the pro forma amounts presented in both periods. Pro forma results do not include any anticipated cost savings from the planned integration of these acquisitions.this acquisition. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisitionsacquisition had occurred on the datesdate indicated or that may result in the future.
| | | | | | | |
| | | Nine Months Ended |
(In millions) | | | February 29, 2020 |
Net sales | | | $ | 2,104.9 | |
Net earnings attributable to Herman Miller, Inc. | | | $ | 139.9 | |
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | Nine Months Ended |
| (In millions) | | | February 26, 2022 | February 27, 2021 | February 26, 2022 | February 27, 2021 |
| Net sales | | | $ | 1,029.5 | | $ | 848.7 | | $ | 2,999.7 | | $ | 2,681.0 | |
| Net earnings (loss) attributable to MillerKnoll, Inc. | | | $ | 8.0 | | $ | 30.1 | | $ | (18.0) | | $ | 140.2 | |
On January 31, 2022, the Company completed the sale of a wholly-owned contract furniture dealership in Toronto, Canada for cash consideration of $2.8 million. A pre-tax gain of $2.0 million was recognized as a result of the sale within the caption Selling, general and administrative within the Condensed Consolidated Statements of Comprehensive Income.
6. Inventories, net
| | (In millions) | (In millions) | February 27, 2021 | | May 30, 2020 | (In millions) | February 26, 2022 | | May 29, 2021 |
| Finished goods | $ | 155.0 | | | $ | 151.1 | | |
| Finished goods and work in process | | Finished goods and work in process | $ | 371.6 | | | $ | 166.7 | |
| Raw materials | Raw materials | 46.0 | | | 46.2 | | Raw materials | 149.2 | | | 46.9 | |
| Total | Total | $ | 201.0 | | | $ | 197.3 | | Total | $ | 520.8 | | | $ | 213.6 | |
Inventories are valued at the lower of cost or market and include material, labor, and overhead. Certain inventories within our North America ContractUnited States-based manufacturing operations are valued using the last-in, first-out (LIFO) method. Inventories of all other operations are primarily valued using the first-in, first-out (FIFO) method.
Herman Miller, Inc.Inventories valued using LIFO amounted to $25.9 million and Subsidiaries 13
7. Goodwill and Indefinite-Lived Intangibles
Goodwill and other indefinite-lived intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following as of February 27, 202126, 2022 and May 30, 2020:29, 2021:
| | | | | | | | | | | | | |
| (In millions) | Goodwill | | Indefinite-lived Intangible Assets | | |
| May 30, 2020 | $ | 346.0 | | | $ | 92.8 | | | |
| Foreign currency translation adjustments | 16.6 | | | 4.3 | | | |
| | | | | |
| | | | | |
| February 27, 2021 | $ | 362.6 | | | $ | 97.1 | | | |
| | | | | | | | | | | | | |
| (In millions) | Goodwill | | Indefinite-lived Intangible Assets | | |
| May 29, 2021 | $ | 364.2 | | | $ | 97.6 | | | |
| Foreign currency translation adjustments | (22.6) | | | (6.8) | | | |
| Sale of owned dealer | (0.3) | | | — | | | |
| Acquisition of Knoll | 941.4 | | | 413.0 | | | |
| February 26, 2022 | $ | 1,282.7 | | | $ | 503.8 | | | |
Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. When testing goodwill for impairment, the Company may first assess qualitative factors. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, additional quantitative testing is performed. The Company may also elect to bypass the qualitative testing and proceed directly to the quantitative testing. If the quantitative testing indicates that goodwill is impaired, the carrying value of goodwill is written down to fair value.
Each of the reporting units, with the exception of Knoll, were reviewed for impairment using a quantitative assessment as of March 31, 2020,2021, our annual testing date. In performing the quantitative impairment test for fiscal year 2021, the Company
MillerKnoll, Inc. and Subsidiaries 15
determined that the fair value of the North America and Internationalits reporting units exceeded the carrying amount and, as such, these reporting units were not impaired. The assessment
In connection with the segment reorganization, certain Company reporting units have changed in composition, and goodwill was reallocated between such reporting units using a relative fair value approach. Accordingly, the Company performed interim goodwill impairment tests in the first quarter of 2022 for each reporting unit, with the exception of Knoll. Based on the results of the Retail and Maharam reporting units indicatedtests performed, the Company determined that the carryingfair value of theseeach reporting unitsunit, as reorganized, exceeded their fair values, andits respective carrying amount in each case.
Goodwill related to the acquisition of Knoll was recorded within the Knoll segment at $941.4 million. The increase in goodwill impairment chargesfrom the acquisition of $88.8 million and $36.7 million, respectively, were recordedKnoll was offset in part by foreign currency translation adjustments as well a reduction due to the fourth quartersale of fiscal 2020an owned dealer, resulting in noa goodwill remaining in either the Retail or Maharam reporting units. Accumulated goodwill impairment losses were $125.3balance of $1,282.7 million as of February 27, 2021 and May 30, 2020.
The fair value of the Company's International reporting unit, which includes $163.7 million of goodwill as of May 30, 2020, exceeded its carrying value by 17%. Due to the level that the reporting unit fair value exceeded the carrying amount and the results of the sensitivity analysis, the Company may need to record an impairment charge if the operating results of its International reporting unit were to decline in future periods.
Intangible assets with indefinite useful lives are not subject to amortization and are evaluated annually for impairment, or more frequently when events or changes in circumstances indicate that the fair value of an intangible asset may not be recoverable.
In fiscal 2020,2021, the Company performed quantitative assessments in testing indefinite-lived intangible assets for impairment, which resulted in theimpairment. The carrying valuesvalue of the DWR, Maharam,Company's HAY and naughtone trade names exceeding theirname indefinite-lived intangible asset was $41.7 million as of March 31, 2021. The calculated fair values by $53.3value of the HAY trade name was $43.8 million and impairment chargeswhich represents an excess fair value of this amount were recognized during the fourth quarter of fiscal 2020.$2.1 million or 5.0%. If the residual cash flowsflow related to thesethis trade namesname were to decline in future periods, the Company may need to record an additional impairment charge.
During the nine months ended February 27, 2021,26, 2022, there were no identified indicators of impairment that required the Company to complete an interim quantitative impairment assessment related to any of the Company's reporting units or indefinitely-lived intangible assets.
8. Employee Benefit Plans
The following table summarizes the components of net periodic benefit cost for the Company's defined benefit pension plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | | | | | |
| Three Months Ended February 26, 2022 | | Three Months Ended February 27, 2021 | | | | |
| (In millions) | Domestic | | International | | Domestic | | International | | | | | | | | |
| Service cost | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | |
| Interest cost | 1.1 | | | 0.8 | | | — | | | 0.7 | | | | | | | | | |
Expected return on plan assets(1) | (2.1) | | | (1.8) | | | — | | | (1.5) | | | | | | | | | |
| Net amortization loss | — | | | 1.7 | | | — | | | 1.7 | | | | | | | | | |
| Net periodic benefit cost | $ | (0.9) | | | $ | 0.7 | | | $ | — | | | $ | 0.9 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Nine Months Ended February 26, 2022 | | Nine Months Ended February 27, 2021 | | | | | | | | |
| (In millions) | Domestic | | International | | Domestic | | International | | | | | | | | |
| Service cost | $ | 0.3 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | |
| Interest cost | 2.6 | | | 2.5 | | | — | | | 2.1 | | | | | | | | | |
Expected return on plan assets(1) | (5.2) | | | (5.4) | | | — | | | (4.3) | | | | | | | | | |
| Net amortization loss | — | | | 5.0 | | | — | | | 5.0 | | | | | | | | | |
| Net periodic benefit cost | $ | (2.3) | | | $ | 2.1 | | | $ | — | | | $ | 2.8 | | | | | | | | | |
(1)The weighted-average expected long-term rate of return on plan for the three and nine months ended:assets is 4.98%.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| Interest cost | $ | 0.7 | | | $ | 0.6 | | | $ | 2.1 | | | $ | 1.8 | |
| Expected return on plan assets | (1.5) | | | (1.1) | | | (4.3) | | | (3.3) | |
| Net amortization loss | 1.7 | | | 0.9 | | | 5.0 | | | 2.5 | |
| Net periodic benefit cost | $ | 0.9 | | | $ | 0.4 | | | $ | 2.8 | | | $ | 1.0 | |
9. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculations of basic and diluted earnings per share ("EPS") for the three and nine months ended:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
Numerators: | | | | | | | |
| Numerator for both basic and diluted EPS, Net earnings attributable to Herman Miller, Inc. - in millions | $ | 41.5 | | | $ | 37.7 | | | $ | 165.7 | | | $ | 164.5 | |
| | | | | | | |
Denominators: | | | | | | | |
| Denominator for basic EPS, weighted-average common shares outstanding | 58,979,730 | | | 58,940,060 | | | 58,906,376 | | | 58,970,264 | |
| Potentially dilutive shares resulting from stock plans | 622,908 | | | 278,041 | | | 306,071 | | | 296,665 | |
| Denominator for diluted EPS | 59,602,638 | | | 59,218,101 | | | 59,212,447 | | | 59,266,929 | |
| Antidilutive equity awards not included in weighted-average common shares - diluted | 128,046 | | | 164,443 | | | 314,293 | | | 74,932 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
Numerators: | | | | | | | |
| Numerator for both basic and diluted EPS, Net earnings (loss) attributable to MillerKnoll, Inc. - in millions | $ | 12.6 | | | $ | 41.5 | | | $ | (52.3) | | | $ | 165.7 | |
| | | | | | | |
Denominators: | | | | | | | |
| Denominator for basic EPS, weighted-average common shares outstanding | 75,461,462 | | | 58,979,730 | | | 72,356,143 | | | 58,906,376 | |
| Potentially dilutive shares resulting from stock plans | 1,049,972 | | | 622,908 | | | — | | | 306,071 | |
| Denominator for diluted EPS | 76,511,434 | | | 59,602,638 | | | 72,356,143 | | | 59,212,447 | |
| Antidilutive equity awards not included in weighted-average common shares - diluted | 307,218 | | | 128,046 | | | 1,320,891 | | | 314,293 | |
10. Stock-Based Compensation
The following table summarizes the stock-based compensation expense and related income tax effect for the three and nine months ended:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (In millions) | (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 | (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Stock-based compensation expense | Stock-based compensation expense | $ | 2.2 | | | $ | 2.5 | | | $ | 6.1 | | | $ | 7.9 | | Stock-based compensation expense | $ | 4.9 | | | $ | 2.2 | | | $ | 27.0 | | | $ | 6.1 | |
| Related income tax effect | Related income tax effect | $ | 0.5 | | | $ | 0.6 | | | $ | 1.4 | | | $ | 1.8 | | Related income tax effect | $ | 1.2 | | | $ | 0.5 | | | $ | 6.6 | | | $ | 1.4 | |
Certain of the Company's equity-based compensation awards contain provisions that allow for continued vesting into retirement. Stock-based awards are considered fully vested for expense attribution purposes when the employee's retention of the award is no longer contingent on providing subsequent service.
11. Income Taxes
The Company's process for determining the provision for income taxes for the three and nine months ended February 27, 202126, 2022 involved using an estimated annual effective tax rate which was based on expected annual income and statutory tax rates across the various jurisdictions in which it operates. The effective tax rates were 22.9%15.6% and 22.4%22.9%, respectively, for the three month periods ended February 27, 202126, 2022 and February 29, 2020.27, 2021. The year over year change in the effective tax rate for the three months ended February 26, 2022 resulted from an adjustment in the quarter resulting from the impact of the annual effective tax rate and the majority of the pre-tax loss for the year previously recorded through the first six months of the fiscal year. The same quarter of the prior year had no comparable impacts. For boththe three months ended February 26, 2022, the effective tax rate is lower than the United States federal statutory rate due to the impact of applying the estimated annual effective tax rate to the year to date pre-tax loss. For the three months ended February 27, 2021, and February 29, 2020, the effective tax rate iswas higher than the United States federal
Herman Miller, Inc. and Subsidiaries 15
statutory rate due to United States state income taxes and the mix of earnings in tax jurisdictions that had rates that were higher than the United States federal statutory rate.
The effective tax rates were 22.7%19.8% and 18.3%22.7%, respectively, for the nine month periodsmonths ended February 27, 202126, 2022 and February 29, 2020.27, 2021. The year over year decrease in the effective rate for the nine months ended February 26, 2022 resulted from an overall pre-tax book loss reported for the nine months coupled with non-deductible discrete compensation and acquisition costs in
MillerKnoll, Inc. and Subsidiaries 17
connection with the Knoll acquisition. The same periodnine months in the prior year included a non-taxable gain on consolidation of an equity method investment which ishad no comparable impacts from the primary driver ofacquisition. For the year over year increase innine months ended February 26, 2022, the effective tax rate.rate is lower than the United States federal statutory rate due to the impact of applying the estimated annual effective tax rate to the year to date pre-tax loss, which includes an adjustment impacted by non-deductible Knoll acquisition related costs. For the nine months ended February 27, 2021, the effective tax rate iswas higher than the United States federal statutory rate mainly due to United States state income taxes and the mix of earnings in tax jurisdictions that had rates that were higher than the United States federal statutory rate. For the nine months ended February 29, 2020, the effective tax rate was lower than the United States federal statutory rate mainly due to the non-taxable gain on consolidation of an equity method investment.
The Company recognizes interest and penalties related to uncertain tax benefits through income tax expense in its Condensed Consolidated Statements of Comprehensive Income. Interest and penalties recognized in the Company's Condensed Consolidated Statements of Comprehensive Income were negligible for the three and nine months ended February 27, 202126, 2022 and February 29, 2020.
The Company's recorded liability for potential interest and penalties related to uncertain tax benefits was:
| | | | | | | | | | | |
| (In millions) | February 27, 2021 | | May 30, 2020 |
| Liability for interest and penalties | $ | 1.1 | | | $ | 0.8 | |
| Liability for uncertain tax positions, current | $ | 2.5 | | | $ | 1.9 | |
| | | |
| | | | | | | | | | | |
| (In millions) | February 26, 2022 | | May 29, 2021 |
| Liability for interest and penalties | $ | 1.0 | | | $ | 0.9 | |
| Liability for uncertain tax positions, current | $ | 2.7 | | | $ | 2.1 | |
| | | |
The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next twelve months because of the audits. Tax payments related to these audits, if any, are not expected to be material to the Company's Condensed Consolidated Statements of Comprehensive Income.
For the majority of tax jurisdictions, the Company is no longer subject to state, local, or non-United States income tax examinations by tax authorities for fiscal years before 2016.
12. Fair Value Measurements
The Company's financial instruments consist of cash equivalents, marketable securities, accounts and notes receivable, a deferred compensation plan, accounts payable, debt, interest rate swaps, foreign currency exchange contracts, redeemable noncontrolling interests, indefinite-lived intangible assets, and right-of-use assets. The Company's financial instruments, other than long-term debt, are recorded at fair value.
The carrying value and fair value of the Company's long-term debt, including current maturities, is as follows for the periods indicated:
| | | | | | | | | | | |
| (In millions) | February 27, 2021 | | May 30, 2020 |
| Carrying value | $ | 327.0 | | | $ | 591.3 | |
| Fair value | $ | 334.6 | | | $ | 594.0 | |
| | | | | | | | | | | |
| (In millions) | February 26, 2022 | | May 29, 2021 |
| Carrying value | $ | 1,434.0 | | | $ | 277.1 | |
| Fair value | $ | 1,308.5 | | | $ | 284.8 | |
The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities recorded in net earnings, which have not significantly changed in the current period:
Cash and cash equivalents — The Company invests excess cash in short term investments in the form of money market funds, andwhich are valued using net asset value ("NAV").
Mutual Funds-equity — The Company's equity securities primarily include equity mutual funds. The equity mutual fund investments are recorded at fair value using quoted prices for similar securities.
Deferred compensation plan — The Company's deferred compensation plan primarily includes various domestic and international mutual funds that are recorded at fair value using quoted prices for similar securities.
Foreign currency exchange contracts — The Company's foreign currency exchange contracts are valued using an approach based on foreign currency exchange rates obtained from active markets. The estimated fair value of forward currency exchange contracts is based on month-end spot rates as adjusted by market-based current activity. These forward contracts are not designated as hedging instruments.
The following table sets forth financial assets and liabilities measured at fair value through net income and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy as of February 27, 202126, 2022 and May 30, 2020.29, 2021.
| | (In millions) | (In millions) | February 27, 2021 | | | May 30, 2020 | (In millions) | February 26, 2022 | | | May 29, 2021 |
| Financial Assets | Financial Assets | NAV | | Quoted Prices with Other
Observable Inputs (Level 2) | | | NAV | | Quoted Prices with Other
Observable Inputs (Level 2) | | Financial Assets | NAV | | Quoted Prices with Other
Observable Inputs (Level 2) | | | NAV | | Quoted Prices with Other
Observable Inputs (Level 2) | |
| Cash equivalents: | Cash equivalents: | | | | | | | | | | Cash equivalents: | | | | | | | | | |
| Money market funds | Money market funds | $ | 201.8 | | | $ | 0 | | | | $ | 283.7 | | | $ | 0 | | | Money market funds | $ | 28.0 | | | $ | — | | | | $ | 162.2 | | | $ | — | | |
| Mutual funds - equity | Mutual funds - equity | 0 | | | 0.7 | | | | 0 | | | 0.7 | | | Mutual funds - equity | — | | | — | | | | — | | | 0.8 | | |
| Foreign currency forward contracts | Foreign currency forward contracts | — | | | 1.2 | | | | — | | | 1.1 | | | Foreign currency forward contracts | — | | | 0.5 | | | | — | | | 1.6 | | |
| Deferred compensation plan | Deferred compensation plan | 0 | | | 14.8 | | | | 0 | | | 13.2 | | | Deferred compensation plan | — | | | 16.2 | | | | — | | | 16.1 | | |
| Total | Total | $ | 201.8 | | | $ | 16.7 | | | | $ | 283.7 | | | $ | 15.0 | | | Total | $ | 28.0 | | | $ | 16.7 | | | | $ | 162.2 | | | $ | 18.5 | | |
| | Financial Liabilities | Financial Liabilities | | | | | Financial Liabilities | | | | |
| Foreign currency forward contracts | Foreign currency forward contracts | $ | 0 | | | $ | 0.2 | | | | $ | 0 | | | $ | 0.8 | | | Foreign currency forward contracts | $ | — | | | $ | 0.4 | | | | $ | — | | | $ | 0.1 | | |
| | Total | Total | $ | 0 | | | $ | 0.2 | | | | $ | 0 | | | $ | 0.8 | | | Total | $ | — | | | $ | 0.4 | | | | $ | — | | | $ | 0.1 | | |
The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities recorded in other comprehensive income, whichthe estimates have not significantly changed in the current period:
Mutual funds-fixed income — The Company's fixed-income securities primarily include fixed income mutual funds and government obligations. These investments are recorded at fair value using quoted prices for similar securities.
Interest rate swap agreements — The value of the Company's interest rate swap agreements isare determined using a market approach based on rates obtained from active markets. The interest rate swap agreements are designated as cash flow hedging instruments.
The following table sets forth financial assets and liabilities measured at fair value through other comprehensive income and the respective balance sheet locations and pricing levels to which the fair value measurements are classified within the fair value hierarchy as of February 27, 202126, 2022 and May 30, 2020.29, 2021.
| | | | | | | | | | | |
| (In millions) | February 27, 2021 | | May 30, 2020 |
| Financial Assets | Quoted Prices with Other Observable Inputs (Level 2) | | Quoted Prices with Other Observable Inputs (Level 2) |
| Mutual funds - fixed income | $ | 6.8 | | | $ | 6.3 | |
| | | |
| Total | $ | 6.8 | | | $ | 6.3 | |
| | | |
| Financial Liabilities | | | |
| Interest rate swap agreement | $ | 14.7 | | | $ | 25.0 | |
| | | |
| Total | $ | 14.7 | | | $ | 25.0 | |
Herman Miller, Inc. and Subsidiaries 17
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | | | February 26, 2022 | | May 29, 2021 |
| Financial Assets | | Balance Sheet Location | | Quoted Prices with Other Observable Inputs (Level 2) | | Quoted Prices with Other Observable Inputs (Level 2) |
| Mutual funds - fixed income | | Short-term investments | | $ | — | | | $ | 6.9 | |
| Interest rate swap agreement | | Other noncurrent assets | | 5.3 | | — | |
| Total | | | | $ | 5.3 | | | $ | 6.9 | |
| | | | | | |
| Financial Liabilities | | | | | | |
| Interest rate swap agreement | | Other liabilities | | $ | 2.3 | | | $ | 14.4 | |
| | | | | | |
| Total | | | | $ | 2.3 | | | $ | 14.4 | |
The following is a summary of the carrying and market values of the Company's fixed income mutual funds and equity mutual funds as of the dates indicated:
| | | February 27, 2021 | | May 30, 2020 | | February 26, 2022 | | May 29, 2021 |
| (In millions) | (In millions) | Cost | | Unrealized
Gain/(Loss) | | Market
Value | | Cost | | Unrealized
Gain/(Loss) | | Market
Value | (In millions) | Cost | | Unrealized
Gain/(Loss) | | Market
Value | | Cost | | Unrealized
Gain/(Loss) | | Market
Value |
| Mutual funds - fixed income | Mutual funds - fixed income | $ | 6.7 | | | $ | 0.1 | | | $ | 6.8 | | | $ | 6.2 | | | $ | 0.1 | | | $ | 6.3 | | Mutual funds - fixed income | $ | — | | | $ | — | | | $ | — | | | $ | 6.9 | | | $ | — | | | $ | 6.9 | |
| Mutual funds - equity | Mutual funds - equity | 0.5 | | | 0.2 | | | 0.7 | | | 0.6 | | | 0.1 | | | 0.7 | | Mutual funds - equity | — | | | — | | | — | | | 0.5 | | | 0.3 | | | 0.8 | |
| Total | Total | $ | 7.2 | | | $ | 0.3 | | | $ | 7.5 | | | $ | 6.8 | | | $ | 0.2 | | | $ | 7.0 | | Total | $ | — | | | $ | — | | | $ | — | | | $ | 7.4 | | | $ | 0.3 | | | $ | 7.7 | |
During the third Quarter, the fixed income mutual funds and equity mutual funds were dissolved and converted to cash. The cost of securities sold is based on the specific identification method; realized gains and losses resulting from such sales are included in the Condensed Consolidated Statements of Comprehensive Income within "Other (income) expense, net". The Company views its equity and fixed income mutual funds as available for use in its current operations. Accordingly, the investments are recorded within Current Assets within the Condensed Consolidated Balance Sheets.
Derivative Instruments and Hedging Activities
MillerKnoll, Inc. and Subsidiaries 19
Foreign Currency Forward Contracts
The Company transacts business in various foreign currencies and has established a program that primarily utilizes foreign currency forward contracts to reduce the risks associated with the effects of certain foreign currency exposures. Under this program, the Company's strategy is to have increases or decreases in our foreign currency exposures offset by gains or losses on the foreign currency forward contracts to mitigate the risks and volatility associated with foreign currency transaction gains or losses. Foreign currency exposures typically arise from net liability or asset exposures in non-functional currencies on the balance sheets of our foreign subsidiaries. Foreign currency forward contracts generally settle within 30 days and are not used for trading purposes.
These forward contracts are not designated as hedging instruments. Accordingly, we record the fair value of these contracts as of the end of the reporting period in the Consolidated Balance Sheets with changes in fair value recorded within the Consolidated Statements of Comprehensive Income. The balance sheet classification for the fair values of these forward contracts is to "Other current assets" for unrealized gains and to "Other accrued liabilities" for unrealized losses. The Consolidated Statements of Comprehensive Income classification for the fair values of these forward contracts is to "Other (income) expense, net", for both realized and unrealized gains and losses.
Interest Rate Swaps
The Company enters into interest rate swap agreements to manage its exposure to interest rate changes and its overall cost of borrowing. The Company's interest rate swap agreements were entered into to exchange variable rate interest payments for fixed rate payments over the life of the agreement without the exchange of the underlying notional amounts. The notional amount of the interest rate swap agreements is used to measure interest to be paid or received. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.
The interest rate swaps were designated as cash flow hedges at inception and the facts and circumstances of the hedged relationship remainsrelationships remain consistent with the initial quantitative effectiveness assessment in that the hedged instruments remain an effective accounting hedge as of February 27, 2021.26, 2022. Since a designated derivative meets hedge accounting criteria, the fair value of the hedge is recorded in the Consolidated Statements of Stockholders’ Equity as a component of "Accumulated other comprehensive loss, net of tax." The ineffective portion of the change in fair value of the derivatives is immediately recognized in earnings. The interest rate swap agreements are assessed for hedge effectiveness on a quarterly basis.
As of February 27, 2021,26, 2022, the Company had the following two3 outstanding interest rate swap agreements:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Notional Amount | | Forward Start Date | | Termination Date | | Effective Fixed Interest Rate |
| September 2016 Interest Rate Swap | $ | 150.0 | | | January 3, 2018 | | January 3, 2028 | | 1.949 | % |
| June 2017 Interest Rate Swap | $ | 75.0 | | | January 3, 2018 | | January 3, 2028 | | 2.387 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Notional Amount | | Forward Start Date | | Termination Date | | Effective Fixed Interest Rate |
| September 2016 Interest Rate Swap | $ | 150.0 | | | January 3, 2018 | | January 3, 2028 | | 1.949 | % |
| June 2017 Interest Rate Swap | $ | 75.0 | | | January 3, 2018 | | January 3, 2028 | | 2.387 | % |
| January 2022 Interest Rates Swap | $ | 575.0 | | | January 31, 2022 | | January 29, 2027 | | 1.689 | % |
The swaps above effectively converted indebtedness anticipated to be borrowed on the Company's revolving line of credit up to the notional amounts from a LIBOR-based floating interest rate plus applicable margin to an effective fixed interest rate plus applicable margin under the agreements as of the forward start date.
As of February 27, 2021, the fair value of the Company’s two outstanding interest rate swap agreements was a liability of $14.7 million. The liability fair value was recorded within "Other liabilities" in the Condensed Consolidated Balance Sheets.
The following table summarizes the effects of the interest rate swap agreements for the three and nine months ended:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| Gain (loss) recognized in Other comprehensive loss (effective portion) | $ | 6.7 | | | $ | (6.6) | | | $ | 7.8 | | | $ | (11.9) | |
| (Loss) gain reclassified from Accumulated other comprehensive loss into earnings | $ | (1.1) | | | $ | 0.1 | | | $ | (3.3) | | | $ | 0.1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Gain recognized in Other comprehensive loss (effective portion) | $ | 10.2 | | | $ | 6.7 | | | $ | 13.2 | | | $ | 7.8 | |
| (Loss) reclassified from Accumulated other comprehensive loss into earnings | $ | (1.1) | | | $ | (1.1) | | | $ | (3.1) | | | $ | (3.3) | |
There were 0no gains or losses recognized in earnings for hedge ineffectiveness for the three and nine month periods ended February 27, 202126, 2022 and February 29, 2020.27, 2021. The amount of loss expected to be reclassified from Accumulated other comprehensive loss into earnings during the next twelve months is $4.5$2.7 million, and net of tax is $3.4$2.0 million.
Redeemable Noncontrolling Interests
Changes in the Company's redeemable noncontrolling interest in HAY for the nine months ended February 27, 202126, 2022 and February 29, 202027, 2021 are as follows:
| | (In millions) | (In millions) | February 27, 2021 | | February 29, 2020 | (In millions) | February 26, 2022 | | February 27, 2021 |
| Beginning Balance | Beginning Balance | $ | 50.4 | | | $ | 0 | | Beginning Balance | $ | 77.0 | | | $ | 50.4 | |
| Increase due to HAY acquisition | 0 | | | 72.1 | | |
| | Net income attributable to redeemable noncontrolling interests | Net income attributable to redeemable noncontrolling interests | 3.8 | | | (0.4) | | Net income attributable to redeemable noncontrolling interests | 5.7 | | | 3.8 | |
| | Distributions to redeemable noncontrolling interests | Distributions to redeemable noncontrolling interests | (2.7) | | | 0 | | Distributions to redeemable noncontrolling interests | (6.6) | | | (2.7) | |
| Cumulative translation adjustments attributable to redeemable noncontrolling interests | Cumulative translation adjustments attributable to redeemable noncontrolling interests | 3.1 | | | 0 | | Cumulative translation adjustments attributable to redeemable noncontrolling interests | (2.0) | | | 3.1 | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 4.5 | | | 0 | | Foreign currency translation adjustments | (6.0) | | | 4.5 | |
| Ending Balance | Ending Balance | $ | 59.1 | | | $ | 71.7 | | Ending Balance | $ | 68.1 | | | $ | 59.1 | |
During August 2019, the Company acquired all of the remaining redeemable noncontrolling equity interests in the Company's subsidiary, Herman Miller Consumer Holdings, Inc., for $20.4 million.
Other
The following table summarizes the valuation of the Company's assets measured at fair value on a non-recurring basis as of May 30, 2020:
| | | | | | | |
(In millions) | May 30, 2020 | | |
Assets: | Level 3 | | |
Indefinite-lived intangible assets | $ | 92.8 | | | |
DWR right-of-use assets | 110.9 | | | |
| | | |
Not included in the above is goodwill related to the Retail and Maharam reporting units, as these were fully written off with a resulting impairment charge of $125.5 million in the fourth quarter of fiscal 2020.
Herman Miller, Inc. and Subsidiaries 19
13. Commitments and Contingencies
Product Warranties
The Company provides coverage to the end-user for parts and labor on products sold under its warranty policy and for other product-related matters. The standardspecific terms, conditions, and length of warranty is 12 years for the majority of products sold; however, this variesthose warranties vary depending onupon the product classification.sold. The Company does not sell or otherwise issue warranties or warranty extensions as stand-alone products. Reserves have been established for various costs associated with the Company's warranty program. General warranty reserves are based on historical claims experience and other currently available information and are periodically adjusted for business levels and other factors. Specific reserves are established once an issue is identified with the amounts for such reserves based on the estimated cost of correction. The Company provides an assurance-type warranty that ensures that products will function as intended. As such, the Company's estimated warranty obligation is accounted for as a liability and is recorded within current and long-term liabilities within the Condensed Consolidated Balance Sheets.
Changes in the warranty reserve for the stated periods were as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (In millions) | (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 | (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Accrual Balance — beginning | Accrual Balance — beginning | $ | 59.9 | | | $ | 54.6 | | | $ | 59.2 | | | $ | 53.1 | | Accrual Balance — beginning | $ | 69.9 | | | $ | 59.9 | | | $ | 60.1 | | | $ | 59.2 | |
| Accrual for warranty matters | Accrual for warranty matters | 2.5 | | | 7.5 | | | 8.5 | | | 19.1 | | Accrual for warranty matters | 2.8 | | | 2.5 | | | 12.0 | | | 8.5 | |
| Settlements and adjustments | Settlements and adjustments | (3.3) | | | (4.7) | | | (8.6) | | | (14.8) | | Settlements and adjustments | (3.8) | | | (3.3) | | | (13.3) | | | (8.6) | |
| Measurement period adjustment to opening balance sheet | | Measurement period adjustment to opening balance sheet | 5.0 | | | — | | | — | | | — | |
| Acquired through business acquisition | | Acquired through business acquisition | — | | | — | | | 15.1 | | | $ | — | |
| Accrual Balance — ending | Accrual Balance — ending | $ | 59.1 | | | $ | 57.4 | | | $ | 59.1 | | | $ | 57.4 | | Accrual Balance — ending | $ | 73.9 | | | $ | 59.1 | | | $ | 73.9 | | | $ | 59.1 | |
During the third quarter of 2022, MillerKnoll revised the fair value of warranty reserve liability acquired in the Knoll transaction as a measurement period adjustment. This measurement period adjustment resulted in a $5.0 million change in the warranty reserve as of the July 19th opening balance sheet, with the offset of the change impacting goodwill recorded in the transaction.
Guarantees
MillerKnoll, Inc. and Subsidiaries 21
Guarantees
The Company is periodically required to provide performance bonds to do business with certain customers. These arrangements are common in the industry and generally have terms ranging between one year and three years. The bonds are required to provide assurance to customers that the products and services they have purchased will be installed and/or provided properly and without damage to their facilities. The bonds are provided by various bonding agencies. However, the Company is ultimately liable for claims that may occur against them. As of February 27, 2021,26, 2022, the Company had a maximum financial exposure related to performance bonds totaling approximately $5.5$6.6 million. The Company has no history of claims, nor is it aware of circumstances that would require it to pay, under any of these arrangements. The Company also believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the Company's Consolidated Financial Statements. Accordingly, 0no liability has been recorded in respect to these bonds as of either February 27, 202126, 2022 or May 30, 2020.
The Company has entered into standby letter of credit arrangements for purposes of protecting various insurance companies and lessors against default on insurance premium and lease payments. As of February 27, 2021,26, 2022, the Company had a maximum financial exposure from these standby letters of credit totaling approximately $10.2$15.4 million, all of which is considered usage against the Company's revolving line of credit. The Company has no history of claims, nor is it aware of circumstances that would require it to perform, under any of these arrangements and believes that the resolution of any claims that might arise in the future, either individually or in the aggregate, would not materially affect the Company's Consolidated Financial Statements. Accordingly, 0no liability has been recorded in respect to these arrangements as of February 27, 202126, 2022 or May 30, 2020.
Contingencies
The Company is also involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not have a material adverse effect, if any, on the Company's Consolidated Financial Statements.
14. Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt as of February 27, 202126, 2022 and May 30, 202029, 2021 consisted of the following obligations:following:
| | | | | | | | | | | |
| (In millions) | February 27, 2021 | | May 30, 2020 |
| | | |
| Debt securities, 6.0%, due March 1, 2021 | $ | 50.0 | | | $ | 50.0 | |
| Debt securities, 4.95%, due May 20, 2030 | 49.9 | | | 49.9 | |
| Syndicated revolving line of credit, due August 2024 | 225.0 | | | 490.0 | |
| | | |
| Supplier financing program | 2.1 | | | 1.4 | |
| Total debt | $ | 327.0 | | | $ | 591.3 | |
| Less: Current debt | (52.1) | | | (51.4) | |
| Long-term debt | $ | 274.9 | | | $ | 539.9 | |
| | | | | | | | | | | |
| (In millions) | February 26, 2022 | | May 29, 2021 |
| | | |
| | | |
| Debt securities, 4.95%, due May 20, 2030 | $ | — | | | $ | 49.9 | |
| Syndicated revolving line of credit, due August 2024 | — | | | 225.0 | |
| Syndicated revolving line of credit, due July 2026 | 413.0 | | | — | |
| | | |
| Term Loan A, 1.875%, due July 2026 | 395.0 | | | — | |
| Term Loan B, 2.125%, due July 2028 | 623.4 | | | — | |
| Supplier financing program | 2.6 | | | 2.2 | |
| Total debt | $ | 1,434.0 | | | $ | 277.1 | |
| Less: Unamortized discount and issuance costs | (20.3) | | | — | |
| Less: Current portion of long-term debt | (28.8) | | | (2.2) | |
| Long-term debt | $ | 1,384.9 | | | $ | 274.9 | |
As of May 30, 2020,29, 2021, the Company's syndicated revolving line of credit provided the Company with up to $500 million in revolving variable interest borrowing capacity and included 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.
In June 2020, The Company paid off the Company repaidoutstanding balance due on the $265 million draw on its syndicated revolving line of credit that was taken as a precautionary measureduring the first quarter of 2022.
In connection with the acquisition of Knoll, in March 2020 to provide additional near-term liquidity given the uncertainty related to COVID-19. After the end of the quarter ended February 27,July, 2021, the Company entered into a credit agreement that provided for a syndicated revolving line of credit and 2 term loans. The revolving line of credit provides the Company with up to $725 million in revolving variable interest borrowing capacity that matures in July 2026, replacing the previous $500 million syndicated revolving line of credit. The term loans consist of a five-year senior secured term loan "A" facility with an aggregate principal amount of $400 million and a seven-year senior secured term loan "B" facility with an aggregate principal amount of $625 million, the proceeds of which were used to finance a portion of the cash consideration for the acquisition of Knoll, for the repayment of certain debt of Knoll, and to pay fees, costs, and expenses related thereto. Both term loans have a variable interest
rate. The Company also repaid $50$64 million of private placement notes due March 1, 2021 with available cashMay 20, 2030. A loss on hand.
Available borrowings under the syndicated revolving line of credit were as follows for the periods indicated:
| | | | | | | | | | | | |
| (In millions) | | February 27, 2021 | | May 30, 2020 |
| Syndicated revolving line of credit borrowing capacity | | $ | 500.0 | | | $ | 500.0 | |
| Less: Borrowings under the syndicated revolving line of credit | | 225.0 | | | 490.0 | |
| Less: Outstanding letters of credit | | 10.2 | | | 9.4 | |
| Available borrowings under the syndicated revolving line of credit | | $ | 264.8 | | | $ | 0.6 | |
| | | | | | | | | | | | |
| (In millions) | | February 26, 2022 | | May 29, 2021 |
| Syndicated revolving line of credit borrowing capacity | | $ | 725.0 | | | $ | 500.0 | |
| Less: Borrowings under the syndicated revolving line of credit | | 413.0 | | | 225.0 | |
| Less: Outstanding letters of credit | | 15.4 | | | 9.8 | |
| Available borrowings under the syndicated revolving line of credit | | $ | 296.6 | | | $ | 265.2 | |
Supplier Financing Program
The Company has an agreement with a third-party financial institution that allows certain participating suppliers the ability to finance payment obligations of the Company. Under this program, participating suppliers may finance payment obligations of the Company, prior to their scheduled due dates, at a discounted price to the third-party financial institution.
The Company has lengthened the payment terms for certain suppliers that have chosen to participate in the program. As a result, certain amounts due to suppliers have payment terms that are longer than standard industry practice and as such, these amounts have been excluded from the caption “Accounts payable” in the Condensed Consolidated Balance Sheets as the amounts have been accounted for by the Company as current debt, within the caption “Short-term borrowings and current portion of long-term debt”.
Herman Miller, Inc. and Subsidiaries 21
15. Accumulated Other Comprehensive Loss
The following table provides an analysis of the changes in accumulated other comprehensive loss for the nine months ended February 27, 202126, 2022 and February 29, 2020:27, 2021:
| | (In millions) | (In millions) | Cumulative Translation Adjustments | | Pension and Other Post-retirement Benefit Plans | | Unrealized
Gains on Available-for-sale Securities | | Interest Rate Swap Agreement | | Accumulated Other Comprehensive Loss | (In millions) | Cumulative Translation Adjustments | | Pension and Other Post-retirement Benefit Plans | | Unrealized
Gains on Available-for-sale Securities | | Interest Rate Swap Agreements | | Accumulated Other Comprehensive Loss |
| Balance at May 29, 2021 | | Balance at May 29, 2021 | $ | (3.9) | | | $ | (50.4) | | | $ | — | | | $ | (10.8) | | | $ | (65.1) | |
| | Other comprehensive (loss) income, net of tax before reclassifications | | Other comprehensive (loss) income, net of tax before reclassifications | (46.7) | | | — | | | — | | | 16.3 | | | (30.4) | |
| Reclassification from accumulated other comprehensive loss - Other, net | | Reclassification from accumulated other comprehensive loss - Other, net | — | | | 6.4 | | | — | | | (3.1) | | | 3.3 | |
| Tax benefit | | Tax benefit | — | | | (0.8) | | | — | | | — | | | (0.8) | |
| Net reclassifications | | Net reclassifications | — | | | 5.6 | | | — | | | (3.1) | | | 2.5 | |
| Net current period other comprehensive (loss) income | | Net current period other comprehensive (loss) income | (46.7) | | | 5.6 | | | — | | | 13.2 | | | (27.9) | |
| Balance at February 26, 2022 | | Balance at February 26, 2022 | $ | (50.6) | | | $ | (44.8) | | | $ | — | | | $ | 2.4 | | | $ | (93.0) | |
| | Balance at May 30, 2020 | Balance at May 30, 2020 | $ | (56.0) | | | $ | (59.2) | | | $ | 0.1 | | | $ | (18.9) | | | $ | (134.0) | | Balance at May 30, 2020 | $ | (56.0) | | | $ | (59.2) | | | $ | 0.1 | | | $ | (18.9) | | | $ | (134.0) | |
| | Other comprehensive income (loss), net of tax before reclassifications | Other comprehensive income (loss), net of tax before reclassifications | 42.8 | | | 0 | | | (0.1) | | | 11.1 | | | 53.8 | | Other comprehensive income (loss), net of tax before reclassifications | 42.8 | | | — | | | (0.1) | | | 11.1 | | | 53.8 | |
| Reclassification from accumulated other comprehensive loss - Other, net | Reclassification from accumulated other comprehensive loss - Other, net | 0 | | | 4.5 | | | 0 | | | (3.3) | | | 1.2 | | Reclassification from accumulated other comprehensive loss - Other, net | — | | | 4.5 | | | — | | | (3.3) | | | 1.2 | |
| Tax benefit | Tax benefit | 0 | | | (0.8) | | | 0 | | | 0 | | | (0.8) | | Tax benefit | — | | | (0.8) | | | — | | | — | | | (0.8) | |
| Net reclassifications | Net reclassifications | 0 | | | 3.7 | | | 0 | | | (3.3) | | | 0.4 | | Net reclassifications | — | | | 3.7 | | | — | | | (3.3) | | | 0.4 | |
| Net current period other comprehensive income (loss) | Net current period other comprehensive income (loss) | 42.8 | | | 3.7 | | | (0.1) | | | 7.8 | | | 54.2 | | Net current period other comprehensive income (loss) | 42.8 | | | 3.7 | | | (0.1) | | | 7.8 | | | 54.2 | |
| Balance at February 27, 2021 | Balance at February 27, 2021 | $ | (13.2) | | | $ | (55.5) | | | $ | 0 | | | $ | (11.1) | | | $ | (79.8) | | Balance at February 27, 2021 | $ | (13.2) | | | $ | (55.5) | | | $ | — | | | $ | (11.1) | | | $ | (79.8) | |
| | Balance at June 1, 2019 | $ | (48.3) | | | $ | (45.0) | | | $ | 0 | | | $ | (0.9) | | | $ | (94.2) | | |
| | Other comprehensive income (loss), net of tax before reclassifications | 2.5 | | | 0 | | | 0 | | | (12.0) | | | (9.5) | | |
| Reclassification from accumulated other comprehensive loss - Other, net | 0 | | | 2.5 | | | 0 | | | 0.1 | | | 2.6 | | |
| Tax benefit | 0 | | | (0.4) | | | 0 | | | 0 | | | (0.4) | | |
| Net reclassifications | 0 | | | 2.1 | | | 0 | | | 0.1 | | | 2.2 | | |
| Net current period other comprehensive income (loss) | 2.5 | | | 2.1 | | | 0 | | | (11.9) | | | (7.3) | | |
| Balance at February 29, 2020 | $ | (45.8) | | | (42.9) | | | $ | 0 | | | $ | (12.8) | | | $ | (101.5) | | |
16. Operating Segments
MillerKnoll, Inc. and Subsidiaries 23
Effective as of May 30, 2021, the beginning of fiscal year 2022, the Company implemented an organizational change that resulted in a change in the reportable segments. The Company has restated historical results to reflect this change. Below is a summary of the change in reportable segments.
•The activities related to the manufacture and sale of furniture products direct to consumers and to third-party retailers that previously resided within the International Contract segment moved to the Global Retail segment.
•The operations associated with the design, manufacture and sale of furniture products for work-related settings in Latin America moved from the International Contract segment to the North America Contract segment to form a new Americas Contract segment.
•Operations of the DWR Contract business, a division of DWR that sells design furnishings and accessories for use in work-related settings moved into the Americas Contract segment.
The Company's reportable segments now consist of North AmericaAmericas Contract, International Contract, Global Retail, and Retail.
The North AmericaAmericas Contract segment includes the operations associated with the design, manufacture and sale of furniture and textile products for work-related settings, including office, healthcare, and educational 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.and South America. In addition to the Herman Miller brand and the DWR Contract business, 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,Herman Miller Healthcare, naughtone and Herman Miller Collection products.
The International Contract segment includes the operations associated with the design, manufacture and sale of furniture products, primarily for work-related settings in Europe, the Middle East and Africa ("EMEA"), Latin America and Asia-Pacific.
The Global Retail segment includes operations associated with the sale of modern design furnishings and accessories to third party retailers, as well as direct to consumer sales through e-commerce,eCommerce, direct-mail catalogs, DWR studios and HAY stores.
Intersegment sales are eliminated within each segment, with the exception of sales to and from the Knoll segment, which are presented as intersegment eliminations.
The Company also reports a “Corporate” category consisting primarily of unallocated expenses related to general corporate functions, including, but not limited to, certain legal, executive, corporate finance, information technology, administrative and acquisition-related costs. Management regularly reviews corporate costs and believes disclosing such information provides more visibility and transparency regarding how the chief operating decision maker reviews results of the Company. The accounting policies of the operating segments are the same as those of the Company.
The following is a summary of certain key financial measures for the respective periods indicated:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| (In millions) | (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 | (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Net Sales: | Net Sales: | | | | | | | | Net Sales: | | | | | | | |
| North America Contract | $ | 268.2 | | | $ | 413.4 | | | $ | 930.2 | | | $ | 1,322.5 | | |
| Americas Contract | | Americas Contract | $ | 365.1 | | | $ | 290.7 | | | $ | 1,052.0 | | | $ | 1,008.0 | |
| International Contract | International Contract | 165.7 | | | 156.1 | | | 487.4 | | | 388.1 | | International Contract | 123.4 | | | 98.0 | | | 347.4 | | | 293.5 | |
| Retail | 156.6 | | | 96.2 | | | 426.0 | | | 300.2 | | |
| Global Retail | | Global Retail | 212.8 | | | 201.8 | | | 635.4 | | | 542.1 | |
| Knoll | | Knoll | 336.9 | | | — | | | 829.5 | | | — | |
| Intersegment Eliminations | | Intersegment Eliminations | (8.7) | | | — | | | (18.8) | | | — | |
| Total | Total | $ | 590.5 | | | $ | 665.7 | | | $ | 1,843.6 | | | $ | 2,010.8 | | Total | $ | 1,029.5 | | | $ | 590.5 | | | $ | 2,845.5 | | | $ | 1,843.6 | |
| | Operating Earnings (Loss): | Operating Earnings (Loss): | | Operating Earnings (Loss): | |
| North America Contract | $ | 11.9 | | | $ | 51.2 | | | $ | 99.3 | | | $ | 176.4 | | |
| Americas Contract | | Americas Contract | $ | 2.7 | | | $ | 14.6 | | | $ | 18.5 | | | $ | 111.6 | |
| International Contract | International Contract | 22.5 | | | 11.3 | | | 70.9 | | | 37.3 | | International Contract | 12.5 | | | 11.0 | | | 40.8 | | | 40.1 | |
| Retail | 31.5 | | | (1.6) | | | 83.3 | | | (6.4) | | |
| Global Retail | | Global Retail | 24.0 | | | 39.9 | | | 74.2 | | | 100.7 | |
| Knoll | | Knoll | 1.5 | | | — | | | (72.8) | | | — | |
| Corporate | Corporate | (10.8) | | | (10.5) | | | (32.0) | | | (34.3) | | Corporate | (14.2) | | | (10.4) | | | (83.2) | | | (30.9) | |
| Total | Total | $ | 55.1 | | | $ | 50.4 | | | $ | 221.5 | | | $ | 173.0 | | Total | $ | 26.5 | | | $ | 55.1 | | | $ | (22.5) | | | $ | 221.5 | |
| | | | | | | | | | | | | | | |
| (In millions) | February 27, 2021 | | May 30, 2020 | | | | |
| Total Assets: | | | | | | | |
| North America Contract | $ | 745.7 | | | $ | 769.5 | | | | | |
| International Contract | 575.1 | | | 512.5 | | | | | |
| Retail | 329.2 | | | 310.9 | | | | | |
| Corporate | 404.9 | | | 461.0 | | | | | |
| Total | $ | 2,054.9 | | | $ | 2,053.9 | | | | | |
17. Restructuring and Integration Expense
As part of restructuring and integration activities the Company has incurred expenses that qualify as exit and disposal costs under U.S. GAAP. These include severance and employee benefit costs as well as other direct separation benefit costs. Severance and employee benefit costs primarily relate to cash severance and non-cash severance, including accelerated equity award compensation expense. The Company also incurs expenses that are an integral component of, and directly attribute to, our restructuring and integration activities, which do not qualify as exit and disposal costs under U.S. GAAP. These include integration implementation costs that relate primarily to professional fees and non-cash losses incurred on debt extinguishment.
The expense associated with integration initiatives are included in Selling, General, and Administrative and the expense associated with restructuring activities are included in Restructuring expense in the Condensed Consolidated Statements of Comprehensive Income. Non-cash costs related to debt extinguishment in the financing of the transaction is recorded in Other expense (income), net in the Condensed Consolidated Statements of Comprehensive Income.
Knoll Integration:
Following the Knoll merger the Company announced a multi-year program (the "Knoll Integration") designed to reduce costs, integrate and optimize the combined organization. The Company currently expects that the Knoll Integration will result in pre-tax costs that are expected not to exceed approximately $100 million to $120 million, comprised of the following categories:
•Severance and employee benefit costs associated with plans to integrate our operating structure, resulting in workforce reductions. These costs will primarily include: severance and employee benefits (cash severance and non-cash severance, including accelerated stock-compensation award expense and other termination benefits).
•Exit and disposal activities include those incurred as a direct result of integration activities, primarily including contract and lease terminations and asset impairment charges.
•Other integration costs include professional fees and other incremental third-party expenses, including a loss on extinguishment of debt associated with financing of the merger.
For the nine months ended February 26, 2022, we have incurred $101.7 million of costs related to the Knoll Integration including: $49.9 million of severance and employee benefit costs, $15.5 million of non-cash asset impairments, $13.4 million of non-cash costs related to debt-extinguishment in the financing of the transaction, and $22.9 million of other integration costs.
MillerKnoll, Inc. and Subsidiaries 25
The following table provides an analysis of the changes in liability balance for Knoll Integration costs that qualify as exit and disposal costs under U.S. GAAP (i.e., severance and employee benefit costs and exit and disposal activities) for the nine months ended February 26, 2022:
| | | | | | | | | | | |
| (In millions) | Severance and Employee Benefit | Exit and Disposal Activities | Total |
| May 29, 2021 | $ | — | | $ | — | | $ | — | |
| Integration Costs | 49.9 | | 15.5 | | 65.4 | |
| Amounts Paid | (28.7) | | — | | (28.7) | |
| Non-cash costs | (14.3) | | (15.5) | | (29.8) | |
| February 26, 2022 | $ | 6.9 | | $ | — | | $ | 6.9 | |
The Company's expects that a substantial portion of the liability for the Knoll Integration as of February 26, 2022 to be paid in fiscal year 2022.
The following is a summary of integration expenses by segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Americas Contract | $ | 0.5 | | | $ | — | | | $ | 4.9 | | | $ | — | |
| International Contract | 0.4 | | | — | | | 1.1 | | | — | |
| Retail | — | | | — | | | 0.5 | | | — | |
| Knoll | 2.6 | | | — | | | 59.0 | | | — | |
| Corporate | 2.4 | | | — | | | 36.2 | | | — | |
| Total | $ | 5.9 | | | $ | — | | | $ | 101.7 | | | $ | — | |
Restructuring Activities:During the fourth quarter of fiscal 2018, the Company announced a facilities consolidation plan related to its International Contract segment. This impacted certain office and manufacturing facilities in the United Kingdom and China. The plan is expected to generate cost savings of approximately $3 million. To date, the Company recognized restructuring and impairment expenses of $5.9 million, with a net credit of $1.9 million recognized to-date in fiscal 2021 and the remainder in fiscal 2020, 2019, and 2018. These expenses related to the facilities consolidation plan, comprised primarily of an asset impairment recorded against an office building in the United Kingdom that was vacated and the consolidation of the Company's manufacturing facilities in China. No future restructuring costs related to the plan are expected as the plan is substantially complete.
The office building and related assets in China were sold in the first quarter of fiscal 2021, resulting in a gain of approximately $3.4 million. The office building and related assets in the United Kingdom were sold in the second quarter of fiscal 2021, resulting in a nominal gain. Both of these gains are included within "Restructuring expense" in the Condensed Consolidated Statements of Comprehensive Income.
In the second quarter of fiscal 2020, the North AmericaAmericas Contract segment initiated restructuring discussions with labor unions related to its NemschoffHealthcare operation in Wisconsin. The discussions were concluded in the third quarter of fiscal 2020 and as a result, the Company anticipates the total estimated costs related to the actions will be approximately $5 million. These restructuring costs relate to potential partial outsourcing and in-sourcing strategies, long-lived asset impairments and employee-related costs. To date, the Company has recorded approximately $3.1 million in pre-tax restructuring expense related to this plan, with a net credit of $0.1 million recognized in fiscal 2021 and the remainder in fiscal 2020. The plan is expected complete and no future costs related to be completed in fiscal 2021.
In the second quarter of fiscal 2020, the Company initiated a reorganization of the Global Sales and Product teams. The reorganization activities occurred primarily in the North America business with additional costs incurred internationally. To date, the Company has recorded a total of $2.6 million in pre-tax restructuring expense related to this plan. The reorganization is complete and no future costs related to this plan are expected.
Herman Miller, Inc. and Subsidiaries 23
In the third quarter of fiscal 2020, the Company announced a reorganization of the Retail segment's leadership team. The Company recognized pre-tax severance and employee related restructuring expense of $2.2 million related to the plan. No future restructuring costs related to the plan are expected as the plan is complete.
The following table provides an analysis of the changes in the restructuring costs reserve for the above plans for the nine months ended February 27, 2021:26, 2022:
| | | | | | | | | | | | |
| (In millions) | Severance and Employee-Related | | Exit or Disposal Activities | Total |
| May 30, 2020 | $ | 5.9 | | | $ | 0.8 | | $ | 6.7 | |
| Restructuring Costs | 0.1 | | | (2.0) | | $ | (1.9) | |
| Amounts Paid | (3.0) | | | (0.1) | | $ | (3.1) | |
| Other* | $ | — | | | $ | 1.9 | | $ | 1.9 | |
| February 27, 2021 | $ | 3.0 | | | $ | 0.6 | | $ | 3.6 | |
*This represents the gains on the sales of office buildings and related assets in China and the United Kingdom offset by other non-cash charges. The gains and other non-cash charges were recorded as restructuring cost, but do not impact the restructuring reserve.
| | | | | | | | | | | | |
| (In millions) | Severance and Employee-Related | | Exit or Disposal Activities | Total |
| May 29, 2021 | $ | 0.9 | | | $ | 0.6 | | $ | 1.5 | |
| Restructuring Costs | — | | | — | | — | |
| Amounts Paid | (0.5) | | | — | | (0.5) | |
| | | | |
| February 26, 2022 | $ | 0.4 | | | $ | 0.6 | | $ | 1.0 | |
In the fourth quarter of fiscal 2020, the Company announced a restructuring planplan (“May 2020 restructuring plan") to substantially reduce expenses in response to the impact of the COVID-19 pandemic and related restrictions. These activities included voluntary and involuntary reductions in its North American and International workforces. Combined, these actions resulted in the elimination of approximately 400 full-time positions throughout the Company in various businesses and functions. As the result of these actions, the Company projects an annualized expense reduction of approximately $40 million. To date, the Company incurred severance and related charges of $18.7 million with $3.4 million recognized in fiscal 2021 and the remainder in fiscal 2020. No material future restructuring costs related to the plan are expected and thethe remaining amounts will be paid in fiscal 2022.
The following table provides an analysis of the changes in the restructuring cost reserve for the May 2020 restructuring plan for the nine months ended February 27, 2021:26, 2022:
| | | | | | | |
| (In millions) | Severance and Employee-Related | | |
May 30, 202029, 2021 | $ | 15.31.0 | | | |
| Restructuring Costs | 3.4— | | | |
| Amounts Paid | (17.3)(0.7) | | | |
February 27, 202126, 2022 | $ | 1.40.3 | | | |
The following is a summary of restructuring expenses by segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| North America Contract | $ | 0.2 | | | $ | 1.4 | | | $ | 2.6 | | | $ | 6.9 | |
| International Contract | 0.1 | | | 0.4 | | | (1.1) | | | 1.0 | |
| Retail | — | | | 1.7 | | | 0 | | | 1.7 | |
| | | | | | | |
| Total | $ | 0.3 | | | $ | 3.5 | | | $ | 1.5 | | | $ | 9.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (In millions) | February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Americas Contract | $ | — | | | $ | 0.2 | | | $ | — | | | $ | 2.6 | |
| International Contract | — | | | 0.1 | | | — | | | (1.1) | |
| Global Retail | — | | | — | | | — | | | — | |
| Knoll | — | | | — | | | — | | | — | |
| | | | | | | |
| Total | $ | — | | | $ | 0.3 | | | $ | — | | | $ | 1.5 | |
18. Variable Interest Entities
TheDuring the three months ended February 26, 2022,the Company hasentered into long-term notes receivable with acertain of its third-party owned dealerdealers that are deemed to be variable interests in a variable interest entity.entities. The carrying value of these long-term notes receivable was $1.2 million and $1.5 million as of February 27, 2021 and May 30, 2020, respectively,26, 2022 and represents the Company’s maximum exposure to loss. The Company is not deemed to be the primary beneficiary for any of thethese variable interest entityentities as theeach entity controls the activities that most significantly impact the entity’s economic performance, including sales, marketing, and operations.
The Company previously held a long-term note receivable with a third-party dealer that was deemed to be a variable interest in a variable interest entity. The carrying value of this long-term note receivable was $1.2 million as of May 29, 2021 and was paid in full during the quarter ended August 28, 2021.
24 MillerKnoll, Inc. and SubsidiariesForm 10-Q 27
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in millions, except share data)
The following is management's discussion and analysis of certain significant factors that affected the Company's financial condition, earnings, and cash flows during the periods included in the accompanying Condensed Consolidated Financial Statements and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 2020.29, 2021. References to “Notes” are to the footnotes included in the accompanyingNotes to Condensed Consolidated Financial Statements.
Business Overview
The Company researches, designs, manufactures, sells, and distributes furnishings and accessories, for use in various environments including office, healthcare, educational, and residential settings, and provides related services that support companies all over the world. The Company's products are sold through independent contract office furniture dealers as well as the following channels: owned contract office furniture dealers, direct customer sales, independent retailers, owned retail studios and stores, direct-mail catalogs, architects and designers and the Company's e-commerceeCommerce platforms. The following is a summary of results for the three months ended February 27, 2021:
•Net sales were $590.5$1,029.5 million and orders were $566.1$1,095.9 million, representing a decreasean increase of 11.3%74.3% and 13.1%93.6%, respectively, when compared to the same quarter of the prior year. The decreaseincrease in net sales was driven primarily by decreased sales volumes in the North America Contract segment, partially offset by increased demand withinconsolidation of Knoll results, as well as growth across each of our segments, as compared to the Retail segment and incremental list price increases.same quarter of the prior year. On an organic basis, which excludes the impact of acquisitions, divestitures and foreign currency translation, net sales were $582.1$709.7 million(*) and orders were $557.6$742.9 million(*), representing a decreasean increase of 12.6%20.3%(*) and 14.4%31.5%(*) , respectively, when compared to the same quarter of the prior year.
•Gross margin was 39.1%32.7% as compared to 36.5%39.1% for the same quarter of the prior year. In the current year, this included the negative impact of charges totaling $1.7 million related to the initial purchase accounting effects of the Company's acquisition of Knoll. The increasedecrease in gross margin was also driven primarily by favorable channelthe impact of rising commodity prices, particularly steel, and productother inflationary pressures, including labor and transportation. Additionally, in the prior year, our business benefited from a relatively high mix combined with incremental listof office seating sales as individuals purchased products for home office use during the pandemic. While we continue to realize strong demand for these products in our Retail segment, the mix of these products sold in the current quarter was not as high. This contributed to the year-over-year gross margin decline. We expect to see our second and third quarter price increases partiallybegin to flow through our fourth quarter results, which will help offset by lower overhead leverage due to decreased volumes.
•Operating expenses decreasedincreased by $17.1$134.5 million or 8.9%76.5% as compared to the same quarter of the prior year. The decreaseOperating expenses in the current quarter included $7.1 million of transaction and integration related costs associated with the Knoll acquisition and $6.3 million(*) of charges related to the purchase accounting amortization effects of the merger. Operating expenses increased primarily due to the inclusion of Knoll adjusted operating expenses was driven primarilyof $100.1 million and additional variable selling expenses as a result of increased sales in the current year. Operating expenses were reduced by lower restructuring & special charges, lower warranty costs, lower marketing and selling costs, lower compensation and benefit costs, and lower travel costs.$2.0 million(*) of gain recorded on the divestiture of the owned dealership in Toronto, Canada during the quarter.
•The effective tax rate was 22.9%15.6% compared to 22.4%22.9% for the same quarter of the prior year.
•Diluted earnings per share were $0.70,was $0.16, a 9.4% increase77.1% decrease as compared to the prior year. Excluding restructuring expensestransaction and other special charges, which consisted primarilyintegration related costs, the amortization of purchased intangible assets and the impact of a non-recurring gain from a favorable legal settlement,on divestiture of an owned dealership, adjusted diluted earnings per share were $0.65was $0.28(*), a 12.2%56.9%(*) decrease as compared to prior year adjusted diluted earnings per share.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
The following summary includes the Company's view onof 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 Upholstery, Outdoor, Storage, and Accessories, saw a ramp-up in demand during the first two quarters of fiscal 2021 and this continued into the third 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 Subsidiaries28 25Form 10-Q
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 monitoringhas continued to experience operational challenges within its production facilities and supply networks. Broad-based shortages of production labor and rising material and freight expenses negatively impacted net sales and gross margins during the resolutionquarter. We estimate these disruptions adversely impacted net sales by approximately $34 million during the quarter. The Company has implemented a range of various trade policy negotiations betweencountermeasures to combat these pressures and began to see improvement in production and shipment levels in the U.S. and key trading partners as well as the impactsecond half of the U.K. exit from the European Union ("Brexit"). These negotiations create uncertainty in key markets, particularly the U.K., continental Europe and China, 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 third quarter of fiscal 20212022 was higher than the same period of the prior year and negatively impacted consolidated results on a year-over-year basis. While the impact to the current quarter was nominal, theThe price of steel continues to increase and is expected to unfavorably impact consolidated gross margin inhas decreased over the fourth quarter of fiscal 2021. However, ongoingpast six months with the current price still above the prior year cost. Ongoing cost reduction initiatives and a planned price increaseincreases implemented in the first quarterthree quarters of fiscal 2022 willhave begun to help offset these pressures. The impact of recent price increases is expected to continue to offset these inflationary pressures over time.in future quarters.
•Overall demand levels within the Company's Global Retail business segment showed continued strength in the first three quarters of this fiscal year.
The remaining sections within Item 2 include additional analysis of the three and nine months ended February 27, 2021,26, 2022, including discussion of significant variances compared to the prior year periods.
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 demandDemand for certain of 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 usnegatively impacted. In addition, the Company's ability to serve customers where, and how, they needtimely fulfill orders across all channels continues to be served. In addition,challenged by supply chain constraints. We believe 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.pandemic. This has allowed for our Retail business to take advantage of the unanticipated emerging work-from-home trendcompanies moving towards hybrid working arrangements as well as "home is my castle" trends as consumers are focusing on and upgrading their broader home environments. Despite this, the duration of this virus, the impact on ourpandemic, supply chain constraints, future demand for our products, and related impactimpacts remain difficult to estimate with any degree of certainty.
Employee Safety and Health
The health and well-being of our employees remains top of mind. We are takingcontinue to take a regional approach to restrictions based on active COVID-19 case levels and recommendations from local health authority recommendations. Contact tracing is active in all regions to help track and control the spread of the virus. We also continue toauthorities. Where needed, we 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.guidelines that align with current recommendations. We will be workingcontinue to encourage vaccinations with our employees aroundemployees.
Federal Contractor Vaccine Mandate
On September 9, 2021, President Biden signed Executive Order 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors (Order). The Order directs executive departments and agencies to contractually obligate federal contractors and their subcontractors to comply with certain workplace safety standards concerning COVID-19. To implement the globeOrder, the Safer Federal Workforce Task Force (Task Force) issued its COVID-19 Workplace Safety Guidance for federal contractors on September 24, 2021. Through a series of subsequent orders and memoranda, the Federal Acquisition Regulation Council and other federal agencies published their own instructions for implementation of the Order by federal contractors and their subcontractors. The Order and subsequent guidance by the federal government are facing legal challenges in federal courts.
MillerKnoll is a party to understand vaccine distributionnumerous federal government contracts. We are actively monitoring instructions and create time for every employee to be vaccinated if they wish to do so.
Customer Focus
The digital investments we’ve made allowed us to pivot quicklyMillerKnoll, Inc. and capitalize on a new set of opportunities when our customers’ purchasing behaviors changed. These investments include a reimagined Design Within Reach website, 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. Our first Herman Miller retail seating concept stores are open in Los Angeles, New York Hudson Yards, Tokyo, and Austin, with a fifth store soon to be open in 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. Subsidiaries 29
We remain uniquely positioned to serve our customers through multiple channels with the mosta 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,places. We are an advocate that work happens everywhere. The office is not going away; rather, it is a re-imagined purposeful space. We are taking a human-centered, people first approach to space. We are uniquely equipped with the officeexpertise to help customers build healthy and inspirational spaces in their offices and home. We are committed to inclusive design and believe that a hybrid environment can deliver inclusive, flexible experiences.
Our focus and digital investments in our retail business continue to pay off as a destination – a placewe meet customers where employees wantthey are looking to do business with us. We have begun to offer products from MillerKnoll brands across websites. Investments in our retail operations and systems are making it easier for customers to do business with us, we are introducing new and enhanced eCommerce sites globally, and social media and email marketing continue to drive conversion.
We also are continuing to invest in brick-and-mortar retail spaces that allow our customers to experience our products firsthand. Our global fleet of stores, studios, and showrooms continues to be rather than are requireda strong customer acquisition tool, bringing new customers to be. Herman Miller Group is ready to captureour brands around 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 continueCurrent labor and supply chain constraints have put pressure on the ability of our manufacturing operations to operate at near-normalincrease capacity as order volume has increased; however, we are making strong progress towards returning to previous lead times and reliability across the Americas.
In connection with the ongoing war between Russia and Ukraine, the U.S. government has imposed enhanced safety precautions. Nearlyexport controls on certain products and sanctions on certain industry sectors and parties in Russia. Further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which could adversely affect our supply chain.
Following new guidance from the CDC, our Americas-based operations recently lifted all retail studiosCOVID-19 restrictions due to low community levels of spread. We are carefully monitoring and stores are open in some capacity; with some open to the public, some in limited capacity, and others by appointment only. All facilities operate within the context of and are subjectadapting to local guidance from government and health authorities in other regions around the world 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 2020. 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 and adjusted earnings per share - diluted, which are non-GAAP financial measures. Organic growth (decline) represents the change in 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 restructuring expenses and other special charges or gains, including related taxes. Restructuring expenses in the current period included actions involving facilities consolidation and optimization and targeted workforce reductions, while in the comparative period included actions involving facilities consolidation and optimization and costs associated with an early retirement program.
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 itemsmeasures that are not representative of the ongoing operations of the Company.
Organic net salesin accordance with, nor an alternative to, generally accepted accounting principles (GAAP) and adjusted earnings per share - dilutedmay be different from non-GAAP measures presented by other companies. These non-GAAP financial measures are not measurements of our financial performance under "U.S. GAAP"GAAP and should not be considered as alternativesan alternative to the related GAAP measurement. These non-GAAP measurementsmeasures 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 equal prominence of our GAAP resultsresults. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and usingpresented in accordance with GAAP are provided in the financial tables included within this report. The Company believes these non-GAAP measures are useful for investors as they provide financial information on a more comparative basis for the periods presented.
The non-GAAP financial measures onlyreferenced within this presentation include: Adjusted Earnings per Share and Organic Sales Growth (Decline).
Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from adjustments related to acquisition and integration charges, amortization of purchased intangibles, debt restructuring charges, restructuring expenses and other special charges or gains, including related taxes. These adjustments are described further below.
Organic Sales Growth (Decline) represents the change in sales and orders, excluding currency translation effects and the impact of acquisitions and divestitures.
Acquisition and Integration Charges: Costs related directly to the Knoll acquisition including legal, accounting, and other professional fees as well as integration-related costs. Integration-related costs include severance, accelerated stock-based compensation expenses, asset impairment charges and other cost reduction efforts or reorganization initiatives.
Amortization of Purchased Intangibles: Includes expenses associated with the fair value adjustment to inventory and amortization of acquisition related intangibles acquired as part of the Knoll acquisition. The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. We exclude the impact of the
amortization of purchased intangibles, including the fair value adjustment to inventory, as such non-cash amounts were significantly impacted by the size of the Knoll acquisition. Furthermore, we believe that this adjustment enables better comparison of our results as Amortization of Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. Although we exclude the Amortization of Purchased Intangibles in these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.
Debt Restructuring Charges: Includes expenses associated with the restructuring of debt as part of financing the Knoll acquisition. We excluded these items from our non-GAAP measures because they relate to a specific transaction and are not reflective of our ongoing financial performance.
Gain on Sale of Dealer: Includes the gain recorded on the divestiture of an owned dealership.
Legal settlement Gain: Includes the gain recorded on the settlement of a legal matter in the prior year.
Restructuring expenses: Includes actions involving facilities consolidation and optimization, targeted workforce reductions, and costs associated with an early retirement program.
Special charges: Includes certain costs arising as a supplement.direct result of our response to the COVID-19 pandemic, incurred in the prior year.
Herman Miller,MillerKnoll, Inc. and Subsidiaries 2731
The following tables reconcile net sales to organic net sales for the periods ended as indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | Three Months Ended |
| February 27, 2021 | February 29, 2020 |
| (In millions) | North America | International | Retail | Total | North America | International | Retail | Total |
| Net sales, as reported | $ | 268.2 | | $ | 165.7 | | $ | 156.6 | | $ | 590.5 | | $ | 413.4 | | $ | 156.1 | | $ | 96.2 | | $ | 665.7 | |
| % change from PY | (35.1) | % | 6.1 | % | 62.8 | % | (11.3) | % | | | | |
| Adjustments | | | | | | | | |
| | | | | | | | |
Currency translation effects (1) | (0.5) | | (7.8) | | (0.1) | | (8.4) | | — | | — | | — | | — | |
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| Net sales, organic | $ | 267.7 | | $ | 157.9 | | $ | 156.5 | | $ | 582.1 | | $ | 413.4 | | $ | 156.1 | | $ | 96.2 | | $ | 665.7 | |
| % change from PY | (35.2) | % | 1.2 | % | 62.7 | % | (12.6) | % | | | | |
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| (1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period. |
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| Three Months Ended |
| February 26, 2022 |
| Americas | International | Retail | Knoll | Intersegment Elimination | Total |
| Net Sales, as reported | $ | 365.1 | | $ | 123.4 | | $ | 212.8 | | $ | 336.9 | | $ | (8.7) | | $ | 1,029.5 | |
| % change from PY | 25.6 | % | 25.9 | % | 5.5 | % | N/A | N/A | 74.3 | % |
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| Adjustments | | | | | | |
| Acquisitions | — | | — | | — | | (336.9) | | 8.7 | (328.2) | |
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| Currency Translation Effects (1) | 0.3 | | 4.1 | | 4.0 | | — | | — | | 8.4 | |
| Net Sales, organic | $ | 365.4 | | $ | 127.5 | | $ | 216.8 | | $ | — | | $ | — | | $ | 709.7 | |
| % change from PY | 25.9 | % | 30.1 | % | 7.4 | % | N/A | N/A | 20.3 | % |
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| Three Months Ended |
| February 27, 2021 |
| Americas | International | Retail | Knoll | Intersegment Elimination | Total |
| Net Sales, as reported | $ | 290.7 | | $ | 98.0 | | $ | 201.8 | | $ | — | | $ | — | | $ | 590.5 | |
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| Adjustments | | | | | | |
| Dealer Divestitures | (0.4) | | — | | — | | — | | — | | (0.4) | |
| Net Sales, organic | $ | 290.3 | | $ | 98.0 | | $ | 201.8 | | $ | — | | $ | — | | $ | 590.1 | |
| (1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period |
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| Nine Months Ended |
| February 26, 2022 |
| Americas | International | Retail | Knoll | Intersegment Elimination | Total |
| Net Sales, as reported | $ | 1,052.0 | | $ | 347.4 | | $ | 635.4 | | $ | 829.5 | | $ | (18.8) | | $ | 2,845.5 | |
| % change from PY | 4.4 | % | 18.4 | % | 17.2 | % | N/A | N/A | 54.3 | % |
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| Adjustments | | | | | | |
| Acquisitions | — | | — | | — | | (829.5) | | 18.8 | (810.7) | |
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| Currency Translation Effects (1) | (1.4) | | (0.7) | | 2.3 | | — | | — | | 0.2 | |
| Net Sales, organic | $ | 1,050.6 | | $ | 346.7 | | $ | 637.7 | | $ | — | | $ | — | | $ | 2,035.0 | |
| % change from PY | 4.3 | % | 18.1 | % | 17.6 | % | N/A | N/A | 10.4 | % |
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| Nine Months Ended |
| February 27, 2021 |
| Americas | International | Retail | Knoll | Intersegment Elimination | Total |
| Net Sales, as reported | $ | 1,008.0 | | $ | 293.5 | | $ | 542.1 | | $ | — | | $ | — | | $ | 1,843.6 | |
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| Adjustments | | | | | | |
| Dealer Divestitures | (0.4) | | — | | — | | — | | — | | (0.4) | |
| Net Sales, organic | $ | 1,007.6 | | $ | 293.5 | | $ | 542.1 | | $ | — | | $ | — | | $ | 1,843.2 | |
| (1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period |
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| Nine Months Ended | Nine Months Ended |
| February 27, 2021 | February 29, 2020 |
| (In millions) | North America | International | Retail | Total | North America | International | Retail | Total |
| Net sales, as reported | $ | 930.2 | | $ | 487.4 | | $ | 426.0 | | $ | 1,843.6 | | $ | 1,322.5 | | $ | 388.1 | | $ | 300.2 | | $ | 2,010.8 | |
| % change from PY | (29.7) | % | 25.6 | % | 41.9 | % | (8.3) | % | | | | |
| Adjustments | | | | | | | | |
| Acquisitions | (10.6) | | (87.3) | | — | | (97.9) | | — | | — | | — | | — | |
Currency translation effects (1) | (0.3) | | (8.1) | | (0.1) | | (8.5) | | — | | — | | — | | — | |
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| Net sales, organic | $ | 919.3 | | $ | 392.0 | | $ | 425.9 | | $ | 1,737.2 | | $ | 1,322.5 | | $ | 388.1 | | $ | 300.2 | | $ | 2,010.8 | |
| % change from PY | (30.5) | % | 1.0 | % | 41.9 | % | (13.6) | % | | | | |
| (1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period. |
The following table reconciles earnings per share - diluted to adjusted earnings per share - diluted for the three and nine months ended:
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| Three Months Ended | Nine Months Ended |
| February 27, 2021 | February 29, 2020 | February 27, 2021 | February 29, 2020 |
| Earnings per share - diluted | $ | 0.70 | | $ | 0.64 | | $ | 2.80 | | $ | 2.78 | |
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| Less: Gain on consolidation of equity method investment | — | | — | | — | | (0.51) | |
| Less: Gain on legal settlement, after tax | (0.05) | | — | | (0.05) | | — | |
| Add: Special charges, after tax | — | | 0.06 | | 0.01 | | 0.08 | |
| Add: Restructuring expenses, after tax | — | | 0.04 | | 0.02 | | 0.12 | |
| Adjusted earnings per share - diluted | $ | 0.65 | | $ | 0.74 | | $ | 2.78 | | $ | 2.47 | |
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| Weighted average shares outstanding (used for calculating adjusted earnings per share) – diluted | 59,602,638 | | 59,218,101 | | 59,212,447 | | 59,266,929 | |
| Note: The adjustments above are net of tax. For the three and nine months ended February 27, 2021 and February 29, 2020, the tax impact of the adjustments were immaterial. |
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| Three Months Ended | Nine Months Ended |
| February 26, 2022 | February 27, 2021 | February 26, 2022 | February 27, 2021 |
| Earnings (Loss) per Share - Diluted | $ | 0.16 | | $ | 0.70 | | $ | (0.72) | | $ | 2.80 | |
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| Non-comparable items: | | | | |
| Less: Gain on legal settlement, after tax | — | | (0.05) | | — | | (0.05) | |
| Less: Gain on sale of dealer | (0.02) | | — | | (0.02) | | — | |
| Add: Special charges, after tax | — | | — | | — | | 0.01 | |
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| Add: Amortization of purchased intangibles, after tax | 0.08 | | — | | 0.59 | | — | |
| Add: Acquisition and integration charges, after tax | 0.06 | | — | | 1.29 | | — | |
| Add: Debt extinguishment, after tax | — | | — | | 0.14 | | — | |
| Add: Restructuring expenses, after tax | — | | — | | — | | 0.02 | |
| Adjusted Earnings per Share - Diluted | $ | 0.28 | | $ | 0.65 | | $ | 1.28 | | $ | 2.78 | |
| Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) – Diluted | 76,511,434 | | 59,602,638 | | 72,356,143 | | 59,212,447 | |
| Note: The adjustments above are net of tax. For the three and nine months ended February 26, 2022, the tax impact of the adjustments were $0.06 and $0.55. For the three and nine months ended February 27, 2021, the tax impact of the adjustments was immaterial. |
Analysis of Results for Three and Nine Months
The following table presents certain key highlights from the results of operations for the three and nine months ended:
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| Three Months Ended | | Nine Months Ended |
| (In millions, except share data) | February 27, 2021 | | February 29, 2020 | | % Change | | February 27, 2021 | | February 29, 2020 | | % Change |
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| Net sales | $ | 590.5 | | | $ | 665.7 | | | (11.3) | % | | $ | 1,843.6 | | | $ | 2,010.8 | | | (8.3) | % |
| Cost of sales | 359.6 | | | 422.4 | | | (14.9) | % | | 1,118.4 | | | 1,265.9 | | | (11.7) | % |
| Gross margin | 230.9 | | | 243.3 | | | (5.1) | % | | 725.2 | | | 744.9 | | | (2.6) | % |
| Operating expenses | 175.8 | | | 192.9 | | | (8.9) | % | | 503.7 | | | 571.9 | | | (11.9) | % |
| Operating earnings | 55.1 | | | 50.4 | | | 9.3 | % | | 221.5 | | | 173.0 | | | 28.0 | % |
| Gain on consolidation of equity method investment | — | | | — | | | n/a | | — | | | 30.5 | | | n/a |
| Other (income) expenses, net | (1.5) | | | 2.8 | | | (153.6) | % | | 2.2 | | | 7.5 | | | (70.7) | % |
| Earnings before income taxes and equity income | 56.6 | | | 47.6 | | | 18.9 | % | | 219.3 | | | 196.0 | | | 11.9 | % |
| Income tax expense | 13.0 | | | 10.6 | | | 22.6 | % | | 49.9 | | | 35.8 | | | 39.4 | % |
| Equity (loss) income from nonconsolidated affiliates, net of tax | (0.3) | | | 0.3 | | | (200.0) | % | | 0.1 | | | 3.7 | | | (97.3) | % |
| Net earnings | 43.3 | | | 37.3 | | | 16.1 | % | | 169.5 | | | 163.9 | | | 3.4 | % |
| Net earnings (loss) attributable to redeemable noncontrolling interests | 1.8 | | | (0.4) | | | n/a | | 3.8 | | | (0.6) | | | n/a |
| Net earnings attributable to Herman Miller, Inc. | $ | 41.5 | | | $ | 37.7 | | | 10.1 | % | | $ | 165.7 | | | $ | 164.5 | | | 0.7 | % |
| Earnings per share — diluted | $ | 0.70 | | | $ | 0.64 | | | 9.4 | % | | $ | 2.80 | | | $ | 2.78 | | | 0.7 | % |
| Orders | $ | 566.1 | | | $ | 651.7 | | | (13.1) | % | | $ | 1,751.9�� | | | $ | 2,003.3 | | | (12.5) | % |
| Backlog | $ | 379.0 | | | $ | 411.2 | | | (7.8) | % | | | | | | |
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| Three Months Ended | | Nine Months Ended |
| (In millions, except share data) | February 26, 2022 | | February 27, 2021 | | % Change | | February 26, 2022 | | February 27, 2021 | | % Change |
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| Net sales | $ | 1,029.5 | | | $ | 590.5 | | | 74.3 | % | | $ | 2,845.5 | | | $ | 1,843.6 | | | 54.3 | % |
| Cost of sales | 692.7 | | | 359.6 | | | 92.6 | % | | 1,880.6 | | | 1,118.4 | | | 68.2 | % |
| Gross margin | 336.8 | | | 230.9 | | | 45.9 | % | | 964.9 | | | 725.2 | | | 33.1 | % |
| Operating expenses | 310.3 | | | 175.8 | | | 76.5 | % | | 987.4 | | | 503.7 | | | 96.0 | % |
| Operating earnings (loss) | 26.5 | | | 55.1 | | | (51.9) | % | | (22.5) | | | 221.5 | | | (110.2) | % |
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| Other expenses, net | 9.4 | | | (1.5) | | | 726.7 | % | | 35.6 | | | 2.2 | | | 1,518.2 | % |
| Earnings (Loss) before income taxes and equity income | 17.1 | | | 56.6 | | | (69.8) | % | | (58.1) | | | 219.3 | | | (126.5) | % |
| Income tax (benefit) expense | 2.7 | | | 13.0 | | | (79.2) | % | | (11.5) | | | 49.9 | | | (123.0) | % |
| Equity (loss) income from nonconsolidated affiliates, net of tax | — | | | (0.3) | | | 100.0 | % | | — | | | 0.1 | | | (100.0) | % |
| Net earnings (loss) | 14.4 | | | 43.3 | | | (66.7) | % | | (46.6) | | | 169.5 | | | (127.5) | % |
| Net earnings attributable to redeemable noncontrolling interests | 1.8 | | | 1.8 | | | N/A | | 5.7 | | | 3.8 | | | N/A |
| Net earnings (loss) attributable to MillerKnoll, Inc. | $ | 12.6 | | | $ | 41.5 | | | (69.6) | % | | $ | (52.3) | | | $ | 165.7 | | | (131.6) | % |
| Earnings (Loss) per share — diluted | $ | 0.16 | | | $ | 0.70 | | | (77.1) | % | | $ | (0.72) | | | $ | 2.80 | | | (125.7) | % |
| Orders | $ | 1,095.9 | | | $ | 566.1 | | | 93.6 | % | | $ | 3,170.2 | | | $ | 1,751.9 | | | 81.0 | % |
| Backlog | $ | 1,020.6 | | | $ | 379.0 | | | 169.3 | % | | | | | | |
MillerKnoll, Inc. and Subsidiaries 33
The following table presents select components of the Company's Condensed Consolidated Statements of Comprehensive (Loss) Income as a percentage of net sales, for the three and nine months ended:
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| Three Months Ended | | Nine Months Ended |
| February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | 60.9 | | | 63.5 | | | 60.7 | | | 63.0 | |
| Gross margin | 39.1 | | | 36.5 | | | 39.3 | | | 37.0 | |
| Operating expenses | 29.8 | | | 29.0 | | | 27.3 | | | 28.4 | |
| Operating earnings | 9.3 | | | 7.6 | | | 12.0 | | | 8.6 | |
| Gain on consolidation of equity method investment | — | | | — | | | — | | | 1.5 | |
| Other (income) expenses, net | (0.3) | | | 0.4 | | | 0.1 | | | 0.4 | |
| Earnings before income taxes and equity income | 9.6 | | | 7.2 | | | 11.9 | | | 9.7 | |
| Income tax expense | 2.2 | | | 1.6 | | | 2.7 | | | 1.8 | |
| Equity (loss) income from nonconsolidated affiliates, net of tax | (0.1) | | | — | | | — | | | 0.2 | |
| Net earnings | 7.3 | | | 5.6 | | | 9.2 | | | 8.2 | |
| Net earnings (loss) attributable to redeemable noncontrolling interests | 0.3 | | | (0.1) | | | 0.2 | | | — | |
| Net earnings attributable to Herman Miller, Inc. | 7.0 | | | 5.7 | | | 9.0 | | | 8.2 | |
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| Three Months Ended | | Nine Months Ended |
| February 26, 2022 | | February 27, 2021 | | February 26, 2022 | | February 27, 2021 |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | 67.3 | | | 60.9 | | | 66.1 | | | 60.7 | |
| Gross margin | 32.7 | | | 39.1 | | | 33.9 | | | 39.3 | |
| Operating expenses | 30.1 | | | 29.8 | | | 34.7 | | | 27.3 | |
| Operating earnings (loss) | 2.6 | | | 9.3 | | | (0.8) | | | 12.0 | |
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| Other expenses, net | 0.9 | | | (0.3) | | | 1.3 | | | 0.1 | |
| Earnings (loss) before income taxes and equity income | 1.7 | | | 9.6 | | | (2.0) | | | 11.9 | |
| Income tax expense (benefit) | 0.3 | | | 2.2 | | | (0.4) | | | 2.7 | |
| Equity (loss) from nonconsolidated affiliates, net of tax | — | | | (0.1) | | | — | | | — | |
| Net earnings (loss) | 1.4 | | | 7.3 | | | (1.6) | | | 9.2 | |
| Net earnings attributable to redeemable noncontrolling interests | 0.2 | | | 0.3 | | | 0.2 | | | 0.2 | |
| Net earnings (loss) attributable to MillerKnoll, Inc. | 1.2 | | | 7.0 | | | (1.8) | | | 9.0 | |
Herman Miller, Inc. and Subsidiaries 29
Net Sales
The following charts present graphically the primary drivers of the year-over-year change in net sales for the three and nine months ended February 27, 2021.26, 2022. The amounts presented in the graphs are expressed in millions and have been rounded.
Net sales decreased $75.2increased $439 million or 11.3%74.3% in the third quarter of fiscal 20212022 compared to the third quarter of fiscal 2020.2021. The following items contributed to the change:
•Increased sales volumes within the Retail segmentIncremental list price increases, net of price discounting, of approximately $57 million which were driven primarily by increased demand within the segment's eCommerce channel.$16 million.
•Foreign currency translation had a positivenegative impact on net sales of approximately $8 million.
•Incremental list price increases, net of discounting, of approximately $6 million.
•DecreasedIncreased sales volumes within the North AmericaGlobal Retail, International Contract, ("NAC")and Americas Contract segments contributed to sales growth in the quarter. We believe that sales growth in the International and Americas Contract segments' was
driven by the implementation of customers return to office plans and investments in their workspaces. Growth within the Global Retail segment was driven by actions taken to increase sales channels, brands, price points and overall assortment available to customers.
•Sales growth within each of approximately $146 million, primarily due tothe segments experienced constraints from the impact of global supply chain and labor supply disruptions in the outbreak of COVID-19.
Net sales decreased $167.2increased $1,001.9 million or 8.3%54.3% in the first nine months of fiscal 20212022 compared to the first nine months of fiscal 2020.2021. The following items led to the change:
•Increased sales volumes within the Retail segment of approximately $119 million which were driven primarily by increased demand within the segment's eCommerce channel.
•Increase of approximately $98$810.7 million due to the acquisitionsacquisition of HAY and naughtone.Knoll.
•Incremental list price increases, net of price discounting, of approximately $18$20 million.
•Foreign currency translation had a positive impact on netIncreased sales volume within the Global Retail segment of approximately $9 million.$85 million, driven by investments made to strengthen operational foundations, efforts to drive new customer acquisition, and actions to increase sales channels, brands, price points, and overall assortment available for customers.
•DecreasedIncreased sales volumesvolume within the NACInternational Contract segment of approximately $411$57 million, primarily duewhich was driven by growth from both local customers and global corporate accounts.
•Increased sales volume within the Americas Contract segment of approximately $29 million, driven by continued improvement in the demand environment as organizations accelerated their return to the impact of the outbreak of COVID-19.
Gross Margin
Gross margin was 32.7% in the third quarter of fiscal 2022 as compared to 39.1% in the third quarter of fiscal 2021 as compared to 36.5% in the third quarter of fiscal 2020.2021. The following factors summarize the major drivers of the year-over-year change in gross margin percentage:
•A favorable shift in channel mix increasedCost pressures from commodities, freight, and product distribution costs had a negative impact on gross margin byof approximately 200390 basis points.
•Product mix and ongoing profitability improvement efforts increased grossIncreased labor costs, including the impact of benefits reinstated at the end of the last fiscal year, had a negative impact on margin by approximately 120 basis points.
•Incremental list price increases, net of discounting, increased gross margin by approximately 70 basis points.
•Lower special charges increasedAmortization of purchased intangibles related to the Knoll acquisition had a negative impact on gross margin byof approximately 3020 basis points duepoints.
•Unfavorable channel and product mix contributed to special chargesthe remaining decrease in gross margin. In the prior year, relatedour business benefited from a relatively high mix of office seating sales as individuals purchased products for home office use during the pandemic. While we continue to realize strong demand for these products in our Retail segment, the initial purchase accountingmix of HAY.these products sold in the current quarter was not as high as in the comparable period.
•Lower overhead and labor leverage partiallyPrice increases helped offset some of these pressures by lower overhead spend decreased gross margin by approximately 160an estimated 90 basis points.
Gross margin was 39.3%33.9% for the nine month periodmonths ended February 27, 202126, 2022 as compared to 37.0%39.3% for the same period of the prior fiscal year. The following factors summarize the major drivers of the year-over-year change in gross margin percentage:
•A favorable shift in channel mix increasedCost pressures from commodities, freight, and product distribution costs had a negative impact on gross margin byof approximately 170340 basis points.
•Product mix, material performance and ongoing profitability improvement efforts increasedIncreased labor costs, including the impact of benefits reinstated at the end of the last fiscal year, had a negative impact on margin of approximately 80 basis points.
•Amortization of purchased intangibles related to the Knoll acquisition has a negative impact on gross margin of approximately 50 basis points.
•Price increases helped offset some of these pressures by approximately 70 basis points.
•Incremental list price increases, netUnfavorable channel and product mix contributed to the remaining decrease in gross margin. In the prior year, our business benefited from a relatively high mix of discounting, increased gross margin by approximately 60 basis points.office seating sales as individuals purchased products for home office use during the pandemic. While we continue to realize strong demand for these products in our Retail segment, the mix of these products sold in the current quarter was not as high as in the comparable period.
•MillerKnoll, Inc. and SubsidiariesLower overhead leverage decreased gross margin by approximately 70 basis points. 35
Operating Expenses
The following charts present graphically the primary drivers of the year-over-year change in operating expenses for the three and nine months ended February 27, 2021.26, 2022. The amounts presented in the graphs are expressed in millions and have been rounded.
Herman Miller, Inc. and Subsidiaries 31
Operating expenses decreasedincreased by $17.1$134.5 million or 8.9%76.5% in the third quarter of fiscal 20212022 compared to the prior year period. The following factors contributed to the change:
•The acquisition of Knoll in the first quarter had the following impact on Operating Expenses as compared to the prior year.
◦$7 million of acquisition and integration charges, which include severance and related expenses for employee separations, asset impairment charges and professional fees, and other incremental third-party expenses directly related to the transaction and subsequent integration.
◦$6 million of expenses related to the amortization of purchased intangibles from the Knoll acquisition.
◦Knoll operating expenses in the quarter, excluding integration related costs incurred by Knoll and amortization of purchased intangibles, contributed $100 million to the increase as compared to the same quarter in the prior year.
•Restructuring expenses and special charges decreased approximately $8 million.
•Warranty costs decreased approximately $5 million due to lower sales volumes and favorable claims experience within the North America Contract segment.
•LowerIncreased marketing and selling costs of approximately $4$9 million, driven primarily withinfrom the North America Contract segment due to lower sales volume.
•Travel costs were approximately $5 million lower due to decreased travel as a result of COVID-19.Global Retail and Americas segments.
•Compensation and benefit costs decreasedincreased approximately $2$6 million as compared to the same period in the prior year due to benefits from the workforce actions initiated in the fourth quarter of fiscal 2020 and the temporary suspensionreturn of certain employee benefits that were temporarily suspended during the first quarter of approximately $6 million,the prior year to mitigate the financial impacts of the COVID-19 pandemic.
•The increases noted above are partially offset by incremental headcount added during fiscal 2021 and increased variable compensation.
•Foreign currency translation had a negative impact on operating expensesthe realization of approximately $2 million.
•IT costs increased approximately $2 million driven primarily by increased investments withinsynergies associated with the Company's digital and eCommerce platforms.
Operating expenses decreasedincreased by $68.2$483.7 million or 11.9%96.0% in the first nine months of fiscal 20212022 compared to the prior year period. The following factors contributed to the change:
•◦Lower marketing$117 million of acquisition and sellingintegration related charges, which include severance and related charges for employee separations, asset impairment charges and professional fees, and other incremental third-party expenses directly related to the transaction and subsequent integration.
◦$44 million of expenses related to the amortization of purchased intangibles from the Knoll acquisition.
◦Knoll operating expenses in the quarter, excluding integration related costs incurred by Knoll and amortization of approximately $28purchased intangibles, contributed $248 million primarily withinto the North America Contract segment dueincrease as compared to lower sales volume.the same quarter in the prior year.
•Compensation and benefit costs decreasedincreased approximately $17 million as compared to the same period in the prior year due to the return of certain employee benefits that were temporarily suspended during portions of the prior year to mitigate the financial impacts of the COVID-19 pandemic.
•Increased marketing and selling costs of approximately $23 million, due primarily to lower headcount associated withdriven by both the reduction in workforce actions initiated in the fourth quarter of fiscal 2020, as well as temporary wage reductions that were in effect during the first quarter of the year.Global Retail and Americas segments.
•Restructuring expensesIncreased spending in technology and special charges decreased approximately $14digital tools across the segments, representing an increase of $12 million.
•Travel costs were approximately $14An increase of $10 million lower duerelated to decreased travel as a resultthe expansion of COVID-19.
•Warranty costs decreased approximately $9 million due to lower sales volumes and claims experiencephysical store locations within the North America ContractGlobal Retail segment.
•Lower studio costsThe increases noted above are partially offset by the realization of approximately $6 million driven by lower lease expense.
•The acquisitionsynergies associated with the integration of HAY and naughtone increased operating expenses by approximately $23 million.
Other Income/Expense
During the three months ended February 27, 2021, net other income was $1.5 million. This compares to26, 2022, net other expense was $9.4 million, representing an increase of $2.8$10.9 million incompared to the same period ofin the prior year. The increase in expense as compared to the prior year representing a favorable changewas driven by increased interest expense of $6.6 million, related to higher levels of debt required to finance the acquisition of Knoll. A pre-tax gain of $4.3 million. million related to a legal settlement that was included in the three month period ended February 27, 2021, also contributed to the increase as compared to the prior year.
During the nine months ended February 27, 2021,26, 2022, net other income/expense was $2.2 million. This compares$35.6 million, representing an increase of $33.4 million compared to net other expense of $7.5 million in the same period ofin the prior year, representingyear. Other income/expense in the nine months ended February 26, 2022 included a decreaseloss on extinguishment of $5.3 million.debt of approximately $13.4 million, which represented the premium on early redemption as well as an increase in interest expense of $14.2 million, related to higher levels of debt required to finance the acquisition of Knoll. The decrease in expense for both the three and nine months ended February 27, 2021 was primarily the result ofincluded a pre-tax gain of $4.3 million related to a legal settlement.
Other income/ All of these items contributed to the increased expense as compared to the same period in the nine months ended February 29, 2020 reflected a pre-tax gain of $30.5 million related to the purchase accounting treatment of the initial equity-method investment in U.K.-based naughtone. The Company acquired the remaining shares of naughtone during the second quarter of fiscal 2020 and as a result, was required to adjust the value of the initial investment to fair value, resulting in a non-taxable gain.
Income Taxes
See Note 11 of the Condensed Consolidated Financial Statements for additional information.
32 MillerKnoll, Inc. and SubsidiariesForm 10-Q 37
Operating Segment 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 are North AmericaAmericas Contract, International Contract, Global Retail, and Corporate.Knoll. Unallocated expenses are reported within the Corporate category. For descriptions of each segment, refer to Note 16 of the Condensed Consolidated Financial Statements.
The charts below present the relative mix of Net salesSales and Operating earningsEarnings across each of the Company's segments during the three and nine month periods ended February 27, 2021.26, 2022. This is followed by a discussion of the Company's results, by reportable segment. The amounts presented in the charts are in millions and have been rounded.
Herman Miller, Inc. and Subsidiaries38 33Form 10-Q
North AmericaAmericas Contract ("North America"Americas")
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 27, 2021 | | February 29, 2020 | | Change | | February 27, 2021 | | February 29, 2020 | | Change |
| Net sales | $ | 268.2 | | | $ | 413.4 | | | $ | (145.2) | | | $ | 930.2 | | | $ | 1,322.5 | | | $ | (392.3) | |
| Gross margin | 93.0 | | | 150.1 | | | (57.1) | | | 338.4 | | | 487.0 | | | (148.6) | |
| Gross margin % | 34.7 | % | | 36.3 | % | | (1.6) | % | | 36.4 | % | | 36.8 | % | | (0.4) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings | 11.9 | | | 51.2 | | | (39.3) | | | 99.3 | | | 176.4 | | | (77.1) | |
| Operating earnings % | 4.4 | % | | 12.4 | % | | (8.0) | % | | 10.7 | % | | 13.3 | % | | (2.6) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 26, 2022 | | February 27, 2021 | | Change | | February 26, 2022 | | February 27, 2021 | | Change |
| Net sales | $ | 365.1 | | | $ | 290.7 | | | $ | 74.4 | | | $ | 1,052.0 | | | $ | 1,008.0 | | | $ | 44.0 | |
| Gross margin | 96.2 | | | 99.6 | | | (3.4) | | | 296.4 | | | 362.3 | | | (65.9) | |
| Gross margin % | 26.3 | % | | 34.3 | % | | (8.0) | % | | 28.2 | % | | 35.9 | % | | (7.7) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings | 2.7 | | | 14.6 | | | (11.9) | | | 18.5 | | | 111.6 | | | (93.1) | |
| Operating earnings % | 0.7 | % | | 5.0 | % | | (4.3) | % | | 1.8 | % | | 11.1 | % | | (9.3) | % |
For the three month comparative period, net sales decreased 35.1%,increased $74.4 million, or 35.2%(*) on an organic basis, over the prior year period due primarily to decreased sales volumes within the segment of approximately $146 million, primarily due to the outbreak of COVID-19.
For the nine month comparative period, net sales decreased 29.7%, or 30.5%25.9%(*) on an organic basis, over the prior year period due to:
•DecreasedIncreased sales volumes within the segment of approximately $411$67 million, due primarily due to increased demand as customers continued implementation of return to workplace plans after reduced order volume during the outbreakCOVID-19 pandemic and
•The favorable impact of COVID-19;price increases, net of incremental discounting of approximately $8 million; partially offset by
•Incremental listThe unfavorable impact of foreign currency translation which decreased sales by approximately $0.5 million and the impact of supply chain and internal manufacturing capacity disruption in the quarter, which impacted the ability to ship orders in the quarter.
For the nine month comparative period, net sales increased $44.0 million, or 4.3%(*) on an organic basis, over the prior year period due to:
•Increased sales volumes within the segment of approximately $29 million, due primarily to increased demand as customers implemented return to workplace plans after reduced order volume during the COVID-19 pandemic and;
•The favorable impact of price increases, net of incremental discounting of approximately $10 million;$13 million and
•Approximately $11 million due to the acquisitionfavorable impact of naughtone.
For the three month comparative period, operating earnings decreased $39.3$11.9 million, or 76.8%81.5%, over the prior year period due to:
•Decreased gross margin of $57.1$3.4 million due to decreased sales volumes and a decrease in gross margin percentage of 160800 basis points.points, offset in part by increased sales volumes. The decrease in gross margin percentage was due primarily to lower volume leverage due to the outbreakimpact of COVID-19, partially mitigated byhigher commodity, labor, performancefreight, and ongoing profitability improvement efforts; partially offset byproduct distribution costs; and
•DecreasedIncreased operating expenses of $17.8$8.5 million driven primarily by loweran increase in marketing and selling related expenses of approximately $5$3 million, lowerincreases in compensation and benefit costs of approximately $6 million, lower warranty costs of approximately $5 million, and lower travel costsbenefits related expenses of approximately $2 million, and increased expense from digital and technology programs of approximately $3 million.
For the nine month comparative period, operating earnings decreased $77.1$93.1 million, or 43.7%83.4%, over the prior year period due to:
•Decreased gross margin of $148.6$65.9 million due to decreaseda decrease in gross margin percentage of 770 basis points, offset in part by increased sales volumes; partially offset byvolumes. The decrease in gross margin percentage was due primarily to the impact of higher commodity, labor, freight, and product distribution costs; and
•DecreasedIncreased operating expenses of $71.5$27.2 million driven primarily by lower$5 million of integration related severance expenses related to the Knoll acquisition, increased marketing and selling expenses of approximately $26$8 million, lowerincreased product development expenses of approximately $5 million, increased compensation and benefit costsexpenses of $4 million, and increased expense from digital and technology programs of approximately $20 million, lower travel costs of approximately $8 million, lower warranty costs of approximately $8 million, and lower restructuring costs of approximately $4$6 million.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
34 MillerKnoll, Inc. and SubsidiariesForm 10-Q 39
International Contract ("International")
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 27, 2021 | | February 29, 2020 | | Change | | February 27, 2021 | | February 29, 2020 | | Change |
| Net sales | $ | 165.7 | | | $ | 156.1 | | | $ | 9.6 | | | $ | 487.4 | | | $ | 388.1 | | | $ | 99.3 | |
| Gross margin | 60.0 | | | 50.8 | | | 9.2 | | | 175.6 | | | 130.9 | | | 44.7 | |
| Gross margin % | 36.2 | % | | 32.5 | % | | 3.7 | % | | 36.0 | % | | 33.7 | % | | 2.3 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings | 22.5 | | | 11.3 | | | 11.2 | | | 70.9 | | | 37.3 | | | 33.6 | |
| Operating earnings % | 13.6 | % | | 7.2 | % | | 6.4 | % | | 14.5 | % | | 9.6 | % | | 4.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 26, 2022 | | February 27, 2021 | | Change | | February 26, 2022 | | February 27, 2021 | | Change |
| Net sales | $ | 123.4 | | | $ | 98.0 | | | $ | 25.4 | | | $ | 347.4 | | | $ | 293.5 | | | $ | 53.9 | |
| Gross margin | 38.1 | | | 33.6 | | | 4.5 | | | 114.1 | | | 102.1 | | | 12.0 | |
| Gross margin % | 30.9 | % | | 34.3 | % | | (3.4) | % | | 32.8 | % | | 34.8 | % | | (1.9) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings | 12.5 | | | 11.0 | | | 1.5 | | | 40.8 | | | 40.1 | | | 0.7 | |
| Operating earnings % | 10.1 | % | | 11.2 | % | | (1.1) | % | | 11.7 | % | | 13.7 | % | | (2.0) | % |
For the three month comparative period, net sales increased 6.1%,$25.4 million, or 1.2%(*) on an organic basis, over the prior year period due primarily to the impact of foreign currency translation which increased sales by approximately $8 million.
For the nine month comparative period, net sales increased 25.6%, or 1.0%30.1%(*) on an organic basis, over the prior year period due to:
•The acquisitionunfavorable impact of HAY and naughtoneforeign currency translation which increaseddecreased sales by approximately $87$4 million.
For the nine month comparative period, net sales increased $53.9 million, or 18.1%(*) on an organic basis, over the prior year period due to:
•TheIncreased sales volume of approximately $57 million, driven by growth across all geographies within the segment and the favorable impact of foreign currency translation which increased sales by approximately $8 million.$1 million; partially offset by
For the three month comparative period, operating earnings increased $11.2$1.5 million, or 99.1%13.6%, over the prior year period due to:
•Increased gross margin of $9.2$4.5 million due to the increase in sales explained above, as well as increasedoffset in part by decreased gross margin percentage of 370340 basis points due primarily to favorable changes in channelincreased material, freight and distribution costs, unfavorable impact from foreign currency translation, and the impact of unfavorable product mix; andoffset by
•DecreasedIncreased operating expenses of $2.0approximately $3.0 million driven primarily by lower special charges compared to the prior year which included the initial purchase accounting effects of HAYincreased marketing and lower travel costs, partially offset by unfavorable foreign currency translation impacts.
For the nine month comparative period, operating earnings increased $33.6$0.7 million, or 90.1%1.7%, over the prior year period due to:
•Increased gross margin of $44.7$12.0 million due to the increase in sales explained above, and increasedoffset in part by decreased gross margin percentage of 230190 basis points due primarily to favorableunfavorable changes in channel and product mix; partiallymix as well as increased freight and distribution costs; offset by
•Increased operating expenses of $11.1approximately $11.3 million driven primarily by the acquisition of HAYincreased compensation and naughtonebenefit costs as well as increased costs associated with product development, technology and partially offset by lower special charges compared to the prior year which included the initial purchase accounting effects of HAY and lower travel costs.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
Herman Miller, Inc. and Subsidiaries40 35Form 10-Q
Global Retail
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 27, 2021 | | February 29, 2020 | | Change | | February 27, 2021 | | February 29, 2020 | | Change |
| Net sales | $ | 156.6 | | | 96.2 | | | $ | 60.4 | | | $ | 426.0 | | | $ | 300.2 | | | $ | 125.8 | |
| Gross margin | 77.9 | | | 42.4 | | | 35.5 | | | 211.2 | | | 127.0 | | | 84.2 | |
| Gross margin % | 49.7 | % | | 44.1 | % | | 5.6 | % | | 49.6 | % | | 42.3 | % | | 7.3 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings | 31.5 | | | (1.6) | | | 33.1 | | | 83.3 | | | (6.4) | | | 89.7 | |
| Operating earnings % | 20.1 | % | | (1.7) | % | | 21.8 | % | | 19.6 | % | | (2.1) | % | | 21.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 26, 2022 | | February 27, 2021 | | Change | | February 26, 2022 | | February 27, 2021 | | Change |
| Net sales | $ | 212.8 | | | $ | 201.8 | | | $ | 11.0 | | | $ | 635.4 | | | $ | 542.1 | | | $ | 93.3 | |
| Gross margin | 91.9 | | | 97.7 | | | (5.8) | | | 276.0 | | | 260.8 | | | 15.2 | |
| Gross margin % | 43.2 | % | | 48.4 | % | | (5.2) | % | | 43.4 | % | | 48.1 | % | | (4.7) | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings | 24.0 | | | 39.9 | | | (15.9) | | | 74.2 | | | 100.7 | | | (26.5) | |
| Operating earnings % | 11.3 | % | | 19.8 | % | | (8.5) | % | | 11.7 | % | | 18.6 | % | | (6.9) | % |
For the three month comparative period, net sales increased 62.8%,$11.0 million, or 62.7%7.4%(*) on an organic basis, over the prior year period due to:
•Increased sales volumes of approximately $57$9 million which were driven primarily by increased demand within the segment's e-commerce channel;DWR, International, and Global HAY businesses; and
•Incremental list price increases, net of discounting, of approximately $4 million.$5 million; partially offset by
For the nine month comparative period, net sales increased 41.9%$93.3 million or 17.6%(*), both on an as reported and organic(*) basis, over the prior year period due to:
•Increased sales volumes of approximately $119$85 million which were driven primarily by increased demandbroad growth across the brands and geographies within the segment's e-commerce channel;segment; and
•Incremental list price increases, net of discounting, of approximately $11 million; partially offset bymillion.
•Lower freight revenueThe unfavorable impact of foreign currency translation which decreased sales by approximately $3$2.5 million.
For the three month comparative period, operating earnings increased $33.1decreased $15.9 million or 39.8% over the prior year period due to:
•IncreasedDecreased gross margin of $35.5$5.8 million due to the increasea decrease in sales explained above, as well as increased gross margin percentage of 560520 basis points due primarily to favorablethe unfavorable impact of increased freight and product distribution costs and unfavorable changes in channel and product mix, and incremental list price increases, net of price discounting, partially offset in part by higher freight expenses; partially offset byincreased sales volumes; and
•Increased operating expenses of $2.4$10.1 million driven primarily by higher marketing expenses,increased store costs associated with the opening of new locations, increased compensation and benefit costs as certain benefits suspended in the prior year were returned, increased marketing and selling related costs, and higher IT costs driven by increased investments within the Company's digital and eCommerce platforms.
For the nine month comparative period, operating earnings increased $89.7decreased $26.5 million, or 26.3%, over the prior year period due to:
•Increased gross margin of $84.2$15.2 million due to the increase in sales explained above, as well as increasedoffset in part by a decrease in gross margin percentage of 730470 basis points due primarily to the unfavorable impact of increased freight and product distribution costs, pressure from increased product material costs and unfavorable changes in channel and product mix, and incremental list price increases, net of price discounting; andoffset in part by increased sales volumes.
•DecreasedIncreased operating expenses of $5.5$41.7 million driven primarily by lower studio costs.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
MillerKnoll, Inc. and Subsidiaries 41
Knoll
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| (Dollars in millions) | February 26, 2022 | | February 27, 2021 | | Change | | February 26, 2022 | | February 27, 2021 | | Change |
| Net sales | $ | 336.9 | | | $ | — | | | $ | 336.9 | | | $ | 829.5 | | | $ | — | | | $ | 829.5 | |
| Gross margin | 110.6 | | | — | | | 110.6 | | | 278.4 | | | — | | | 278.4 | |
| Gross margin % | 32.8 | % | | — | % | | 32.8 | % | | 33.6 | % | | — | % | | 33.6 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating earnings (loss) | 1.5 | | | — | | | 1.5 | | | (72.8) | | | — | | | (72.8) | |
| Operating earnings % | 0.4 | % | | — | % | | 0.4 | % | | (8.8) | % | | — | % | | (8.8) | % |
The Company acquired Knoll on July 19, 2021 and has consolidated the financial results of Knoll from the acquisition date through the period ended February 26, 2022. Knoll contributed $336.9 million in sales for the quarter and $110.6 million of gross margin.
Knoll operating earnings of $1.5 million for the three months ended includes the following items:
•$2.6 million related to integration related costs, which includes severance and related charges for employee separations.
•$8.0 million related to the impact of amortization expense of acquisition-related intangible assets.
Knoll operating loss of $72.8 million for the nine months ended includes the following items:
•$56.7 million related to the impact of amortization of acquisition-related intangible assets
•$59.0 million related to integration related costs, which include severance and related charges for employee separations and asset impairment charges.
Corporate
Corporate unallocated expenses totaled $10.8$14.2 million for the third quarter of fiscal 2021,2022, an increase of $0.3$3.8 million from the third quarter of fiscal 2020.
Corporate unallocated expenses totaled $32.0$83.2 million for the first nine months of fiscal 2021, a decrease2022, an increase of $2.3$52.3 million from the same period of fiscal 2020.2021. The decreaseincrease was driven primarily by lower special charges$51.6 million of integration and transaction costs recorded in the current period.quarter related to the Knoll acquisition.
Liquidity and Capital Resources
The table below summarizes the net change in cash and cash equivalents for the nine months ended as indicated.
| | | | | | | | | | | |
| (In millions) | February 27, 2021 | | February 29, 2020 |
| | | |
| Cash provided by (used in): | | | |
| Operating activities | $ | 260.1 | | | $ | 191.8 | |
| Investing activities | (42.9) | | | (171.3) | |
| Financing activities | (287.3) | | | (69.8) | |
| Effect of exchange rate changes | 13.5 | | | 0.7 | |
| Net change in cash and cash equivalents | $ | (56.6) | | | $ | (48.6) | |
| | | | | | | | | | | |
| (In millions) | February 26, 2022 | | February 27, 2021 |
| | | |
| Cash (used in) provided by: | | | |
| Operating activities | $ | (57.9) | | | $ | 260.1 | |
| Investing activities | (1,145.0) | | | (42.9) | |
| Financing activities | 1,061.4 | | | (287.3) | |
| Effect of exchange rate changes | (9.0) | | | 13.5 | |
| Net change in cash and cash equivalents | $ | (150.5) | | | $ | (56.6) | |
Cash Flows - Operating Activities
Cash provided byused in operating activities for the nine months ended February 27, 202126, 2022 was $260.1$57.9 million, as compared to $191.8cash provided of $260.1 million in the same period of the prior year. The increasechange in cash generated from operations in the current year,operating activities as compared to the prior year, was primarily due to:
•Prior yearA decrease in net earnings included a non-taxable non-cash gain on consolidation of an equity method investment of $30.5 million; and
•An increase in current liabilities in the current period of $9.7$216.1 million largely driven by an increaseacquisition and integration related charges of $117.1 million as well as cost pressures from commodities, labor, and freight and product distribution resulting in accounts payable and partially offset by a decrease in accrued liabilities. This compares to a decrease in current liabilities of $36.7 million in the prior year period. The decrease in the prior year period was driven primarily by a decrease in accrued liabilities and accounts payable; andlower gross margin;
•42 An increase in non-current liabilities in the current period of $11.0 million driven primarily by the deferral of payroll taxes as permitted under the CARES act; offset byForm 10-Q
•An increase in current assets in the current period of $6.4$219.6 million compared to a decrease in current assets of $17.8$6.4 million in the prior year period. The increase in current assets in the current periodyear was driven by an increase in accounts receivable and inventory as sales volumes increased from the end of fiscal 2020. The decrease2021 as well as an increase in current assets in the prior year period wasprepaid taxes driven by a decrease in accounts receivable and partiallyan expected benefit for the current year.
The increases above were offset by an increase of depreciation and amortization in prepaid expenses.
Cash Flows - Investing Activities
Cash used in investing activities for the nine months ended February 27, 202126, 2022 was $42.9$1,145.0 million, as compared to $171.3$42.9 million in the same period of the prior year. The decreaseincrease in cash outflow in the current year, compared to the prior year, was primarily due to:
•Prior yearto the acquisition of Knoll, which drove a cash outflow, net of $111.2 millioncash acquired, of $1,088.5 million. Additionally, capital expenditures for the purchasecurrent year were $65.8 million as compared to $42.8 million in the same period of naughtone and HAY;
•A decrease in capital expendituresthe prior year. These increases were offset by a cash inflow of $13.7$7.7 million due to reduced spendingfrom the liquidation of previously held short-term investments as a resultwell as proceeds of COVID-19; and
•Proceeds$2.8 million from the sale of the Company's manufacturing facility in China and office facility in the United Kingdom in the current year of $11.5 million.an owned dealer.
At the end of the third quarter of fiscal 2021,2022, there were outstanding commitments for capital purchases of $17.0$13.5 million. The Company plans to fund these commitments through a combination of cash on hand and cash flows from operations. The Company expects full-year capital purchases to be between $55$100 million and $65$120 million, which will be primarily related to investments in the Company's facilities and equipment.equipment along with the inclusion of Knoll in fiscal year 2022. This comparescompares to full-year capital spending of $69.0$59.8 million in fiscal 2020.
Cash Flows - Financing Activities
Cash used inprovided from financing activities for the nine months ended February 27, 202126, 2022 was $287.3$1,061.4 million, as compared to $69.8cash used in financing activities of $287.3 million in the samesame period of the prior year. The increase in cash outflowprovided in the current year, compared to the prior year, was primarily due to repaymentsnet borrowings of $265.0$1,007.0 million from the credit agreement the Company entered into during Q1 and proceeds of $815.7 million on the Company's credit facility in June 2020. facility.
These increases were offset by:
•AfterPayments of $63.4 million related to the endextinguishment of the quarter ended February 27, 2021,Company's former debt agreement
•Payments of $6.6 million related to the Company repaid $50Company's term loans
•Payments of $627.7 million of private placement notes due March 1, 2021 with available cash on hand.the Company's credit facility
Herman Miller, Inc.•Dividends paid of $39.8 million and Subsidiariesstock repurchases of $16.0 million 37
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. For more information on current cost reductions, refer to the COVID-19 Update section above.
At the end of the third quarter of fiscal 2021,2022, the Company had a well-positioned balance sheet and liquidity profile. In addition to cash flows from operating activities, theThe Company has access to liquidity through credit facilities and cash and cash equivalents, and short-term investments.equivalents. These sources have been summarized below. For additional information, refer to Note 14 to the Condensed Consolidated Financial Statements.
| | | | | | | | | | | |
| (In millions) | February 27, 2021 | | May 30, 2020 |
| Cash and cash equivalents | $ | 397.4 | | | $ | 454.0 | |
| Marketable securities | 7.5 | | | 7.0 | |
| Availability under syndicated revolving line of credit | 264.8 | | | 0.6 | |
| Total liquidity | $ | 669.7 | | | $ | 461.6 | |
| | | | | | | | | | | |
| (In millions) | February 26, 2022 | | May 29, 2021 |
| Cash and cash equivalents | $ | 245.9 | | | $ | 396.4 | |
| Marketable securities | — | | | 7.7 | |
| Availability under syndicated revolving line of credit | 296.6 | | | 265.2 | |
| Total liquidity | $ | 542.5 | | | $ | 669.3 | |
Of the cash and cash equivalents noted above at the end of the third quarter of fiscal 2021,2022, the Company had $192.6$222.3 million of cash and cash equivalents held outside the United States. In addition, the Company had marketable securities of $7.5 million held by one of its international wholly-owned subsidiaries.
The Company’s syndicated revolving line of credit, which expires on August 28, 2024,matures in July, 2026, provides the Company with up to $500$725 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowingallows the Company to increase,borrow incremental amounts, at its option,
MillerKnoll, Inc. and Subsidiaries 43
subject to negotiated terms as outlined in the approval of the participating banks, the aggregate borrowing capacity of the facility by up to $250 million.agreement. Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR, or negotiated ratesterms as outlined in the agreement. Interest is payable periodically throughout the period if borrowings are outstanding.
As of February 27, 2021,26, 2022, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $225.0$413.0 million with available borrowings against this facility of $264.8$296.6 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 $7.7$60.1 million in cash held in certain foreign jurisdictions over the next two years 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 $0.9$9.5 million. A significant portion of this cash was previously taxed under the U.S. Tax Cuts and Jobs Act (TCJA) one-time U.S. tax liability on undistributed foreign earnings. The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S.
The Company believes that its financial resources will allow it to manage the impact of COVID-19 on business operations for the foreseeable future which could include materially reduced revenue and profits. The Company will continue to evaluate its financial position in light of future developments, particularly those relating to COVID-19.
Contractual Obligations
Contractual obligations associated with ongoing business and financing activities will require cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments as of May 30, 202029, 2021 was provided in the Company's annual report on Form 10-K for the year ended May 30, 2020. 29, 2021.
There have been no material changes in suchcertain obligations since that date exceptas a result of the acquisition of Knoll. See the following Notes for additional discussion: Short-Term Borrowings and Long-Term Debt, Leases, Acquisitions, and Fair Value Measurements.
The following table summarizes the Company's repaymentamounts and estimated timing of $50 million in private placement notes at maturity with availablethese future cash on hand.payments for obligations of the Company as of February 26, 2022 for which there were material changes since May 29, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due by fiscal year |
| (in millions) | Total | | 2022 | | 2023-2024 | | 2025-2026 | | Thereafter |
Short-term borrowings and long-term debt(1) | $ | 1,258.5 | | | $ | 96.6 | | | $ | 57.5 | | | $ | 87.5 | | | $ | 1,016.9 | |
Estimated interest on debt obligations(1) | 187.4 | | | 26.8 | | | 57.9 | | | 73.8 | | | 28.9 | |
| Operating leases | 492.3 | | | 75.5 | | | 157.4 | | | 113.7 | | | 145.7 | |
| | | | | | | | | |
Pension and other post employment benefit plans funding(2) | 28.6 | | | 1.4 | | | 5.7 | | | 5.9 | | | 15.6 | |
Shareholder dividends (3) | 14.8 | | | 14.8 | | | — | | | — | | | — | |
Other liabilities(4) | 14.9 | | | 5.0 | | | 4.1 | | | 1.4 | | | 4.4 | |
| Total | $ | 1,996.5 | | | $ | 220.1 | | | $ | 282.6 | | | $ | 282.3 | | | $ | 1,211.5 | |
(2)Pension 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.
(3)Represents the dividend payable as of February 26, 2022. Future dividend payments are not considered contractual obligations until declared.
(4)Other contractual obligations include long-term commitments related to deferred and supplemental employee compensation benefits, and other post-employment benefits.
Guarantees
See Note 13 to the Condensed Consolidated Financial Statements.
Variable Interest Entities
See Note 18 to the Condensed Consolidated Financial Statements.
Contingencies
Contingencies
See Note 13 to the Condensed Consolidated Financial Statements.
Critical Accounting Policies
The Company strives to report financial results clearly and understandably. The Company follows accounting principles generally accepted in the United States in preparing its consolidated financial statements, which require certain estimates and judgments that affect the financial position and results of operations for the Company. The Company continually reviews the accounting policies and financial information disclosures. A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Company's Annual Report on Form 10-K for the year ended May 30, 2020.
New Accounting Standards
See Note 2 to the Condensed Consolidated Financial Statements.
Safe Harbor Provisions
Certain statements in this report are not historical facts but are “forward-looking statements” as defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry,industries in which the Company operates, the economy, and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” likely,” “plans,” “projects,” "could,"“could,” and “should,” variations of such words, and similar expressions identify such forward-looking statements. These forward-looking statements do not guarantee future performance and involve certain risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those indicated in such forward-looking statements, including but not limited to: inflationary pressures; supply chain disruptions and assumptionslabor shortages; the impact of the war in Ukraine on our global business, including the effects on our supply chain; the impact of public health crises, such as pandemics (including coronavirus (COVID-19)) and epidemics, and any related company or government policies and actions to protect the health and safety of individuals or government policies or actions to maintain the functioning of national or global economies and markets; risks related to the additional debt incurred in connection with the Knoll acquisition; the Company’s ability to comply with its debt covenants and obligations; the risk that are difficultthe anticipated benefits of the Knoll acquisition will be more costly to predictrealize than expected; the effect of the announcement of the acquisition on the ability of the Company to retain and hire key personnel and maintain relationships with regardcustomers, suppliers and others with whom the Company does business, or on the Company’s operating results and business generally; the ability to timing, extent, likelihood,successfully integrate Knoll’s operations; the ability of the Company to implement its plans, forecasts and degree of occurrence. These risks include, without limitation,other expectations with respect to the success of our growth strategy, our success in initiatives aimed at achieving long-term profit optimization goals, employmentKnoll acquisition and realize expected synergies; business disruption following the acquisition; 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,conditions; 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,materials; the financial strength of our dealers and the financial strength of our customers, our ability to locate new retail studios, negotiate favorable lease terms for new and existing locations and 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,customers; 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,products; the pace and level of government procurement,procurement; and 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 Securities and Exchange Commission. Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., undertakesWe undertake no obligation to update, amend or clarify forward-looking statements.
Herman Miller, Inc. and Subsidiaries 39
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The information concerning quantitative and qualitative disclosures about market risk contained in the Company’s Annual Report on Form 10-K for the year ended May 30, 202029, 2021 has not changed materially. The nature of market risks from interest rates and commodity prices has not changed materially during the first nine months of fiscal 2021.
Foreign Exchange Risk
The Company primarily manufactures its products in the United States, Canada, United Kingdom, Italy, China, and India. It also sources completed products and product components from outside the United States. The Company's completed products are sold in numerous countries around the world. Sales in foreign countries as well as certain expenses related to those sales are transacted in currencies other than the Company's reporting currency, the U.S. dollar. Accordingly, production costs and profit margins related to these sales are affected 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,
MillerKnoll, Inc. and Subsidiaries 45
Mexican peso, Hong Kong dollar, Chinese renminbi, and the Danish krone. Changes in the fair value of such contracts are reported in earnings in the period the value of the contract changes. The net gain or loss upon settlement and the change in fair value of outstanding contracts is recorded as a component of Other (income) expense, net.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including the Company's Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of February 27, 2021,26, 2022, and the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, the Company's disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There were no changesOn July 19, 2021, the Company completed its acquisition of Knoll. The Company is currently in the Company'sprocess of integrating Knoll’s internal controlcontrols over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Except for the inclusion of Knoll, there has been no change in our internal control over financial reporting that occurred during the quarterly period ended February 27, 2021,26, 2022, that havehas materially affected, or areis reasonably likely to materially affect, the Company'sour internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
There have been no material changes in the Company's legal proceedings from those set forth in the Company's Annual Report on Form 10-K for the year ended May 30, 2020.
Item 1A: Risk Factors
There have been no material changes in the Company'sThe risk factors from those set forth below update the risk factors in the Company'sour Annual Report on Form 10-K for the year ended May 30, 2020.29, 2021. In addition to the risk factors below, you should carefully consider the risk factors discussed in our most recent Form 10-K report, which could materially affect our business, operating results, cash flows, and financial condition. The risks and uncertainties described in our Annual Report on Form 10-K and 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.
A continued shortage of qualified labor could negatively affect our business and materially reduce earnings.
We have experienced shortages of qualified labor across our operations. Outside suppliers that we rely on have also experienced shortages of qualified labor. The future success of our operations depends on our ability, and the ability of third parties on which we rely, to identify, recruit, develop, and retain qualified and talented individuals in order to supply and deliver our products. Any shortage of qualified labor could have a negative impact on our business. Employee recruitment, development and retention efforts that we or such third parties undertake may not be successful, which could result in a shortage of qualified individuals in future periods. Any such shortage could decrease our ability to effectively produce and meet customer demand. Such a shortage would also likely lead to higher wages for employees (or higher costs to purchase the services of such third parties) and a corresponding reduction in our results of operations. In the current operating environment, we are experiencing a shortage of qualified labor in certain geographies, particularly with plant production workers, resulting in increased costs from certain temporary wage actions, such as hiring and referral bonus programs. A continuation of such shortages for a prolonged period of time could have a material adverse effect on our operating results.
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. 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 due to the recent ban on Russian oil imports as a result of the current war between Russia and Ukraine 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.
Our business presence outside the United States exposes us to certain risks that could negatively affect our results of operations and financial condition.
In connection with the ongoing war between Russia and Ukraine, the U.S. government has imposed enhanced export controls on certain products and sanctions on certain industry sectors and parties in Russia. MillerKnoll is not fulfilling any existing orders or accepting new orders from Russia or Belarus at this time. As a safety measure, we have also stopped taking new orders and fulfilling orders in Ukraine. This region represents a small portion of our International Contract business and we do not rely on any material goods from suppliers in these regions. Fiscal year 2021 annualized revenue was approximately $10 million. While we do not have manufacturing facilities or offices in the region, we have historically sold products to two dealers in Ukraine, two in Russia, and two in Belarus.
Further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which could adversely affect our business and/or our supply chain, business partners or customers in the broader region. The continued conflict in that region, as well as the current and additional international sanctions against Russia, are likely to further increase the cost of various supplies, particularly for petroleum based products. The impact from this conflict, as well as the international sanctions, cannot be predicted or anticipated with any reasonable degree of certainty, including the impact on the Company.
We are subject to risks and costs associated with protecting the integrity and security of our systems and confidential information.
MillerKnoll, Inc. and Subsidiaries 47
Due to the political uncertainty and military actions involving Russia, Ukraine, and surrounding regions, we and the third parties upon which we rely may be vulnerable to a currently heightened risk of information technology breaches, computer malware, or other cyber-attacks, including attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The Company has one outstanding share repurchase plan, which was authorized by the Board of Directors on January 16, 2019, whichand provides a share repurchase authorization of $250.0 million with no specified expiration date. No repurchase plans expired or were terminated during the third quarter of fiscal 2021,2022, nor do any plans exist under which the Company does not intend to make further purchases.
The following is a summary of share repurchase activity during the quarter ended February 27, 2021.26, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | (a) Total Number of Shares (or Units)
Purchased | | (b) Average price Paid per Share or Unit | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs (in millions) |
| 11/29/20-12/26/20 | — | | | $ | — | | | — | | | $ | 236,750,879 | |
| 12/27/20-1/23/21 | 579 | | | $ | 34.17 | | | 579 | | | $ | 236,731,094 | |
| 1/24/2021-2/27/21 | — | | | $ | — | | | — | | | $ | 236,731,094 | |
| Total | 579 | | | | | 579 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | (a) Total Number of Shares (or Units)
Purchased | | (b) Average price Paid per Share or Unit | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs (in millions) |
| 11/28/21-12/24/21 | 312 | | | $ | 34.71 | | | 312 | | | $ | 222,314,159 | |
| 12/25/21-1/22/22 | 4,858 | | | $ | 37.93 | | | 4,858 | | | $ | 222,129,872 | |
| 1/23/22-2/26/22 | 36,176 | | | $ | 39.13 | | | 36,176 | | | $ | 220,714,366 | |
| Total | 41,346 | | | | | 41,346 | | | |
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 Company has temporarily suspended open market share repurchase program may be suspended or discontinued at any time.
Item 6: Exhibits
The following exhibits (listed by number corresponding to the Exhibit table as Item 601 in Regulation S-K) are filed with this Report:
Exhibit Number Document
Herman Miller, Inc. and Subsidiaries 41
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned heretothereunto duly authorized.
HERMAN MILLER, INC.
| | | | | | | | | | | | | | |
April 6, 20212022 | | /s/ Andrea R. Owen | |
| | | Andrea R. Owen | |
| | | President and Chief Executive Officer | |
| | | (Duly Authorized Signatory for Registrant) |
| | | | |
April 6, 20212022 | | /s/ Jeffrey M. Stutz | |
| | | Jeffrey M. Stutz | |
| | | Chief Financial Officer | |
| | | (Duly Authorized Signatory for Registrant) |
Herman Miller,MillerKnoll, Inc. and Subsidiaries 4349
