Acquisitions and Divestitures | 3 Months Ended |
Aug. 30, 2014 |
Business Combinations [Abstract] | ' |
Acquisitions and Divestitures | ' |
ACQUISITIONS AND DIVESTITURES |
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Design Within Reach Acquisition |
On July 28, 2014, the company acquired the majority of the outstanding equity of Design Within Reach, Inc. ("DWR"), a Stamford, Connecticut based, leading North American marketer and seller of modern furniture, lighting, and accessories primarily serving consumers and design trade professionals. The acquisition of DWR advances the company's strategy of being both an industry and consumer brand by expanding the company's reach into the consumer sector. |
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The company purchased an ownership interest in DWR equal to approximately 81 percent for $155.0 million in cash. As a result of the transaction, the company estimates it will receive future tax benefits with a present value of approximately $10 million. Additionally, certain senior management of DWR received fully-vested stock options, with a value of $1.7 million, in the equity of a newly formed consumer-facing subsidiary that DWR merged into as a result of the transaction. These fully-vested equity awards are recorded in the Condensed Consolidated Balance Sheet within "Redeemable noncontrolling interests". |
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Subsequent to the initial transaction, the company purchased an additional 4 percent of DWR stock from the remaining public shareholders for approximately $5.8 million in cash, of which $0.3 million was still yet to be paid at the end of the quarter. The remaining 15 percent of DWR stock was contributed by DWR executives into the newly formed consumer business subsidiary, along with the assets of the company's existing Consumer business. After these transactions, the redeemable noncontrolling interests in the newly formed subsidiary, known as Herman Miller Consumer Holdings, Inc. ("HMCH"), was approximately 7 percent. The remaining HMCH shareholders have a put option to require the company to repurchase their remaining interest over a five year period from the date of issuance of such shares. As a result, these noncontrolling interests are not included within Stockholders' Equity within the Condensed Consolidated Balance Sheets, but rather, are included within Redeemable Noncontrolling Interests. |
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The company financed the acquisition of DWR using a combination of existing cash and $127.0 million of borrowings on its available unsecured credit facility. Acquisition-related expenses for the transaction were $2.0 million for the quarter and included legal and professional services fees. |
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The following table summarizes the fair values of the assets acquired and the liabilities assumed from Design Within Reach on July 28, 2014. The allocation of the purchase price is still considered preliminary and is based upon valuation information available and estimates made at July 28, 2014. The company is still finalizing information related to the valuation and useful lives of intangible assets, deferred income taxes, and goodwill. The valuation process is not complete and the final determination of the fair values may result in further adjustments to the values presented below: |
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Valuation as of July 28, 2014 | |
(In millions) | Fair Value | |
Purchase price | $ | 155 | | |
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Fair value of the assets acquired: | | |
Cash | 1.2 | | |
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Accounts receivable | 2.4 | | |
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Inventory | 47.4 | | |
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Other current assets | 5.5 | | |
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Long term deferred tax asset | 3.7 | | |
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Goodwill | 74.4 | | |
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Other intangible assets | 69.6 | | |
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Property | 32 | | |
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Other long term assets | 2.4 | | |
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Total assets acquired | 238.6 | | |
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Fair value of liabilities assumed: | | |
Accounts payable | 20.8 | | |
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Current deferred tax liabilities | 0.6 | | |
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Accrued compensation and benefits | 1.6 | | |
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Other accrued liabilities | 12.3 | | |
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Long term deferred tax liability | 16.4 | | |
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Other long term liabilities | 0.4 | | |
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Total liabilities assumed | 52.1 | | |
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Redeemable noncontrolling interests | 25.7 | | |
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Noncontrolling interests | 5.8 | | |
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Net assets acquired | $ | 155 | | |
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The goodwill stemming from the transaction in the amount of $74.4 million was preliminarily recorded as "Goodwill" in the Condensed Consolidated Balance Sheet and allocated to the Consumer reportable segment. The goodwill recognized is attributable primarily to the assembled workforce and expected synergies from DWR and the total amount of this goodwill is not deductible for tax purposes. |
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Intangible assets acquired as a result of the acquisition of Design Within Reach were preliminarily valued at $69.6 million. These amounts are reflected in the values presented in the table below: |
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Intangible Assets Acquired from the DWR Acquisition | |
(In millions) | Fair Value | Useful Life |
Trade Names and Trademarks | $ | 55.1 | | Indefinite |
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Exclusive Distribution Agreements | 0.2 | | 1.5 years |
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Customer Relationships | 13.1 | | 10 - 16 years |
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Product Development Designs | 1.2 | | 7 years |
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Total Intangible Assets Acquired | $ | 69.6 | | |
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The following table provides net sales and results of operations from DWR included in the company’s results since the July 28, 2014 acquisition. Included in the results from DWR was an increase in cost of sales of $1.6 million and a decrease in sales of $1.4 million stemming from inventory-related purchase accounting adjustments. |
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DWR Results of Operations | |
(In millions) | July 28, 2014 - August 30, 2014 | |
DWR Net sales | $ | 21.6 | | |
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Intercompany sales elimination | (1.6 | ) | |
Net sales impact to Herman Miller, Inc. | $ | 20 | | |
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Net loss | $ | (1.6 | ) | |
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China Manufacturing and Distribution Acquisition |
On September 30, 2013, the company acquired certain assets from Dongguan Sun Hing Steel Furniture Factory Ltd (DGSH) which together, constituted the acquisition of a business. The acquired business is a manufacturing and distribution operation in Dongguan, China. Subject to the finalization of certain post-closing adjustments, consideration transferred to acquire the net assets of DGSH consisted of $8.2 million in cash, of which $6.7 million was paid during the second and third quarters of fiscal 2014. The final payment is expected to be made within the next 12 months. |
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Divestitures |
During the first quarter of fiscal 2014, the company completed the sale of one wholly-owned contract furniture dealership in Oregon. The effect of this transaction on the company's consolidated financial statements was not material. |