UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 30, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-15141
__________________________________________
HERMAN MILLER, INC.
(Exact name of registrant as specified in its charter)
__________________________________________
Michigan
(State or other jurisdiction of
incorporation or organization)
38-0837640
(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
Common Stock
Trading Symbol(s)
Name of each exchange on which registered
MLHR
NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by “nonaffiliates” of the registrant (for this purpose only, the affiliates of the registrant have been assumed to be
the executive officers and directors of the registrant and their associates) as of November 30, 2019, was $2.8 million (based on $47.78 per share which was the closing
sale price as reported by NASDAQ). As of July 22, 2020, Herman Miller, Inc. had 58,866,863 shares of common stock outstanding.
Certain portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders expected to be held on October 12, 2020, are incorporated by reference into
Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
Herman Miller, Inc.
Annual Report on Form 10-K
Table of Contents
Part I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2 Properties
Item 3 Legal Proceedings
Additional Item: Executive Officers of the Registrant
Item 4 Mine Safety Disclosures
Part II
Item 5 Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures about Market Risk
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers, and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accountant Fees and Services
Part IV
Item 15 Exhibits and Financial Statement Schedule
Exhibit Index
Schedule II Valuation and Qualifying Accounts
Item 16 Form 10-K Summary
Signatures
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PART I
Item 1 Business
General Development of Business
Herman Miller's mission statement is Inspiring Designs to Help People Do Great Things. To this end, the Company
researches, designs, manufactures and distributes interior furnishings for use in various environments including office,
healthcare, educational and residential settings and provides related services that support organizations and
individuals all over the world. Through research, the Company seeks to understand, define and clarify customer needs
and problems existing in its markets and to design products, systems and services that serve as innovative solutions to
those needs and problems. The Company's products are sold primarily through the following channels: Owned and
independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs
and the Company's e-commerce platforms.
Herman Miller, Inc. and Subsidiaries 2
The Company was incorporated in Michigan in 1905. As the global design leader in our market, we established Herman
Miller Group, a family of brands that collectively offers a variety of products for environments where people live, learn,
work, heal and play. The family of brands includes Herman Miller®, Design Within Reach®, Geiger®, Maharam®,
Nemschoff®, Colebrook Bosson Saunders®, naughtone®, Maars® Living Walls and HAY®. All of these companies are
considered controlled subsidiaries, except for Maars of which the Company owns 48.2% of as of May 30, 2020. Herman
Miller's corporate offices are located at 855 East Main Avenue, PO Box 302, Zeeland, Michigan, 49464-0302 and its
telephone number is (616) 654-3000. Unless otherwise noted or indicated by the context, all references to "Herman
Miller," "we," "our," "Company" and similar references are to Herman Miller, Inc. and its controlled subsidiaries. Further
information relating to principles of consolidation is provided in Note 1 to the Consolidated Financial Statements
included in Item 8 of this report.
Financial Information about Segments
Information relating to segments is provided in Note 14 to the Consolidated Financial Statements included in Item 8 of
this report.
Narrative Description of Business
The Company's principal business consists of the research, design, manufacture, selling and distribution of seating
products, office furniture systems, other freestanding furniture elements, textiles, home furnishings and related
services.
The Company's ingenuity and design excellence create award-winning products and services, which have made the
Company a leader in the design and development of furniture, furniture systems, textiles and technology solutions.
This leadership is exemplified by the innovative concepts introduced by the Company in its broad array of seating
products (including Embody®, Aeron®, Mirra2™, Setu®, Sayl®, Verus®, Cosm®, Lino®, Verus®, Celle®, Equa®,
3 2020 Annual Report
Taper™ and Ergon® office chairs) and modular systems (including Canvas Office Landscape®, Locale®, Public Office
Landscape®, Layout Studio®, Action Office®, Ethospace®, Arras®, Prospect®, Overlay™ and Resolve®). The
Company also offers storage (including Meridian® and Tu® products), wood casegoods (including Geiger® products),
freestanding furniture products (including Abak™, Intent®, Sense™ and Envelop®), healthcare products (including
Palisade™, Compass™, Nala®, Ava® and other Nemschoff® products), the Thrive portfolio of ergonomic solutions,
ergonomic and technology support products (including Colebrook Bosson Saunders® products) and the textiles of
Maharam Fabric Corporation (Maharam®). The Live Platform™ system of cloud-connected furnishings, applications
and dashboards provides data-enabled solutions for the Company's customers.
The Company also offers products for residential settings, including Eames®, Eames (lounge chair configuration)®,
Eames (management chair configuration)®, Eames Soft Pad™, HAY®, Nelson™ basic cabinet series, Nelson™ end
table, Nelson™ lanterns, Nelson™ marshmallow sofa, Nelson™ miniature chests, Nelson™ platform bench, Nelson™
swag leg group, Nelson™ tray table, Bubble Lamps®, Airia™, Ardea®, Bumper™, Burdick Group™, Everywhere™
tables, Claw™, Caper®, Distil™, Envelope™, Formwork®, Full Round™, H Frame™, I Beam™, Landmark™, Logic
Mini™, Logic Power Access Solutions™, Renew™, Rolled Arm™, Scissor™, Sled™, Soft Pad™, Swoop™, Tone™,
Twist™, Ward Bennett™ and Wireframe™. The Company also offers residential and ancillary products through its
subsidiaries, including: the Line™ Storage Collection, Lina™ Swivel Chair, Matera™ Bedroom Collection, Emmy™ Sofa
Collection, Story™ Bookcase and Sømmer™ Outdoor Collection for Design Within Reach®; the Always™ Lounge Chair,
Always™ Chair, Polly™ Chair, Viv™ Chair, and Hush™ Chair for naughtone®; and the Mags™ Sofa and About A™
Chair Collections for HAY®.
The Company's products are marketed worldwide by its own sales staff, independent dealers and retailers, its owned
dealers, via its e-commerce websites and through its owned Design Within Reach ("DWR") and HAY retail studios.
Salespeople work with dealers, the architecture and design community, and directly with end-users. Independent
dealerships concentrate on the sale of Herman Miller Group products and some complementary product lines of other
manufacturers. It is estimated that approximately 70 percent of the Company's sales in the fiscal year ended May 30,
2020, were made to or through independent dealers. The remaining sales were made directly to end-users, including
federal, state and local governments and several business organizations by the Company's own sales staff, its owned
dealer network, its retail channels or independent retailers.
The Company is a recognized leader within its industry for the use, development and integration of customer-centered
technologies that enhance the reliability, speed and efficiency of our customers' operations. This includes proprietary
sales tools, interior design and product specification software; order entry and manufacturing scheduling and
production systems; and direct connectivity to the Company's suppliers.
The Company's furniture systems, seating, freestanding furniture, storage, casegood and textile products, and related
services are used in (1) institutional environments including offices and related conference, lobby, and lounge areas
and general public areas including transportation terminals; (2) health/science environments including hospitals,
clinics and other healthcare facilities; (3) industrial and educational settings; and (4) residential and other
environments.
Raw Materials
The Company's manufacturing materials are available from a significant number of sources within North America,
South America, Europe and Asia. To date, the Company experienced limited disruptions during the fourth quarter of
fiscal 2020 as result of the COVID-19 pandemic in its supply chain, but subsequently has not experienced any
difficulties in obtaining its raw materials. The costs of certain direct materials used in the Company's manufacturing
and assembly operations are sensitive to shifts in commodity market prices. In particular, the costs of steel, plastic,
aluminum components and particleboard are sensitive to the market prices of commodities such as raw steel,
aluminum, crude oil, lumber and resins. Increases in the market prices for these commodities can have an adverse
impact on the Company's profitability. Further information regarding the impact of direct material costs on the
Company's financial results is provided in Management's Discussion and Analysis in Item 7 of this report,
"Management's Discussion and Analysis of Financial Condition and Results of Operations”.
Herman Miller, Inc. and Subsidiaries 4
Patents, Trademarks, Licenses, Etc.
The Company has active utility and design patents in the United States. Many of the inventions covered by these
patents also have been patented in a number of foreign countries. Various trademarks, including the name and stylized
“Herman Miller” and the “Herman Miller Circled Symbolic M” trademark are registered in the United States and many
foreign countries. The Company does not believe that any material part of its business depends on the continued
availability of any one or all of its patents or trademarks, or that its business would be materially and adversely
affected by the loss of any such marks, except for the following trademarks: Herman Miller®, Herman Miller Circled
Symbolic M®, Maharam®, Geiger®, Design Within Reach®, DWR®, HAY®, naughtone®, Nemschoff®, Action
Office®, Aeron®, Mirra®, Embody®, Setu®, Sayl®, Cosm®, Caper®, Eames®, Eames Lounge & Ottoman
Configurations, Eames Aluminum Group Configuration, and Canvas Office Landscape®.
Working Capital Practices
Information concerning the Company's working capital levels relative to its sales volume can be found under the
Executive Overview section in Item 7 of this report, “Management's Discussion and Analysis of Financial Condition and
Results of Operations”. Beyond this discussion, the Company does not believe that it or the industry in general has any
special practices or special conditions affecting working capital items that are significant for understanding the
Company's business.
Customer Base
The Company estimates that no single dealer accounted for more than 4 percent of the Company's net sales in the
fiscal year ended May 30, 2020. The Company estimates that the largest single end-user customer accounted for
$122.9 million, $129.6 million and $109.8 million of the Company's net sales in fiscal 2020, 2019, and 2018,
respectively. This represents approximately 5 percent of the Company's net sales in fiscal 2020, 2019 and 2018. The
Company's 10 largest customers in the aggregate accounted for approximately 18 percent, 18 percent, and 19 percent
of net sales in fiscal 2020, 2019, and 2018, respectively.
Backlog of Unfilled Orders
As of May 30, 2020, the Company's backlog of unfilled orders was $470.8 million. At June 1, 2019, the Company's
backlog totaled $394.2 million. The increase in backlog in the current year was primarily due to delays in processing
customer orders in the fourth quarter of fiscal 2020 caused by the outbreak of COVID-19 and related facility shut-
downs. It is expected that substantially all the orders forming the backlog at May 30, 2020, will be filled during the next
fiscal year. Many orders received by the Company are reflected in the backlog for only a short period while other orders
specify delayed shipments and are carried in the backlog for up to one year. Accordingly, the amount of the backlog at
any particular time does not necessarily indicate the level of net sales for a particular succeeding period.
Government Contracts
Other than standard provisions contained in contracts with the United States Government, the Company does not
believe that any significant portion of its business is subject to material renegotiation of profits or termination of
contracts or subcontracts at the election of various government entities. The Company sells to the U.S. Government
both through a General Services Administration ("GSA") Multiple Award Schedule Contract and through competitive
bids. The GSA Multiple Award Schedule Contract pricing is principally based upon the Company's commercial price list
in effect when the contract is initiated, rather than being determined on a cost-plus-basis. The Company is required to
receive GSA approval to apply list price increases during the term of the Multiple Award Schedule Contract period.
Competition
All aspects of the Company's business are highly competitive. From an office furniture perspective, the Company
competes largely on design, product and service quality, speed of delivery and product pricing. Although the Company
is one of the largest office furniture manufacturers in the world, it competes with manufacturers that have significant
resources and sales as well as many smaller companies. The Company's most significant competitors are Haworth, HNI
Corporation, Kimball International, Knoll and Steelcase.
The Company also competes in the home furnishings industry, primarily against national, regional and independent
home furnishings retailers who market high-craft furniture to end-user customers and the interior design community.
5 2020 Annual Report
These competitors include companies such as Crate & Barrel Holdings, Inc., Hive Modern, Restoration Hardware, Room
& Board, Wayfair and Williams-Sonoma, Inc. Similar to its office furniture product offerings, the Company competes
primarily on design, product and service quality, speed of delivery and product pricing in this market.
Research, Design and Development
The Company believes it draws great competitive strength from its research, design and development programs.
Through research, the Company seeks to understand, define and clarify customer needs and problems they are trying
to solve. The Company designs innovative products and services that address customer needs and solve their
problems. The Company uses both internal and independent research resources and independent design resources.
Exclusive of royalty payments, the Company spent approximately $54.3 million, $58.8 million and $57.1 million on
research and development activities in fiscal 2020, 2019 and 2018, respectively. Generally, royalties are paid to
designers of the Company's products as the products are sold and are included in the Design and Research line item
within the Consolidated Statements of Comprehensive Income.
Environmental Matters
Respecting the environment has been more than good business practice for the Company - it is the right thing to do.
The Company’s commitment to the planet is embedded in its corporate strategy and will continue to develop as the
Company outlines next steps in its sustainability strategy. As part of this commitment, the Company focuses on
operating its global footprint with minimal impact on the environment and designing products with materials and
processes that are safe for both people and the planet. Based on current facts known to management, the Company
does not believe that existing environmental laws and regulations have had or will have any material effect upon the
capital expenditures, earnings or competitive position of the Company. However, there can be no assurance that
environmental legislation will not result in or require material capital expenditures or additional costs to our
manufacturing process.
Human Resources
The Company considers its employees to be another of its major competitive strengths. The Company stresses
individual employee participation and incentives, believing that this emphasis has helped attract and retain a
competent and motivated workforce. The Company's human resources group provides employee recruitment,
education and development, as well as compensation planning and counseling. Additionally, there have been no work
stoppages or labor disputes in the Company's history. As of May 30, 2020, approximately 3 percent of the Company's
employees are covered by collective bargaining agreements, most of whom are employees of its Nemschoff and
Herman Miller Holdings Limited subsidiaries.
As of May 30, 2020, the Company had approximately 7,600 employees, representing a 5 percent decrease as compared
with June 1, 2019. In addition to its employee workforce, the Company uses temporary labor to meet fluctuating
demand in its manufacturing operations.
Information about International Operations
The Company's sales in international markets are made primarily to office/institutional customers. Foreign sales
consist mostly of office furniture products such as Aeron®, Mirra®, Sayl®, Setu®, Layout Studio®, Imagine Desking
System®, Ratio®, Cosm®, and other seating and storage products and ergonomic accessories such as the Flo®
monitor arm. The Company conducts business in the following major international markets: Europe, the Middle East,
Africa, Latin America and the Asia/Pacific region.
The Company's products currently sold in international markets are manufactured primarily by wholly owned
subsidiaries in the United States, the United Kingdom, China, Brazil and India. A portion of the Company's products
sold internationally are also manufactured by third-party suppliers. Sales are made through wholly owned subsidiaries
or branches in Canada, the United Kingdom, Denmark, Korea, Mexico, Australia, Singapore, China (including Hong
Kong), India and Brazil. The Company's products are offered in Canada, Europe, the Middle East, Africa, Latin America
and the Asia/Pacific region primarily through dealers.
Herman Miller, Inc. and Subsidiaries 6
Additional information with respect to operations by geographic area appears in Note 14 of the Consolidated Financial
Statements included in Item 8 of this report. Fluctuating exchange rates and factors beyond the control of the
Company, such as tariff and foreign economic policies, may affect future results of international operations. Refer to
Item 7A, Quantitative and Qualitative Disclosures about Market Risk, for further discussion regarding the Company's
foreign exchange risk.
Available Information
The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports are made available free of charge through the “Investors” section of the Company's
internet website at www.hermanmiller.com, as soon as practicable after such material is electronically filed with or
furnished to the Securities and Exchange Commission (SEC). The Company's filings with the SEC are also available for
the public to read via the SEC's internet website at www.sec.gov. You may read and copy any materials we file with the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Item 1A Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully
considered. The risks and uncertainties described below are not the only ones we face; others, either unforeseen or
currently deemed less significant, may also have a negative impact on our Company. If any of the following occurs, our
business, operating results, cash flows, and financial condition could be materially adversely affected.
We may not be successful in implementing and managing our growth strategy.
We have established a growth strategy for the business based on a changing and evolving world. Through this strategy
we are focused on taking advantage of the changing composition of the office floor plate, the greater desire for
customization from our customers, new technologies and trends towards urbanization and working from home.
To that end, we intend to grow in certain targeted ways. First, we will unlock the power of One Herman Miller by building
an agile, collaborative, globally-connected organization fit for continuous evolution. This will also include simplifying
and tailoring our go-to-market approach, as well as continuing to lead in product innovation across all businesses.
Second, we intend to build a customer-centric, digitally enabled business model by leveraging our deep understanding
of customer journeys to deliver inspired products and frictionless customer experiences. Inclusive of this will be to
drive step-change in our data, analytics, marketing, and brand capabilities, as well as to strengthen our core
technology backbone. Third, we intend to accelerate profitable growth by strengthening and evolving our core contract
business, driving outsized growth in our international business and expanding our retail business. Finally, we believe it
is a business imperative to reinforce our commitment to our people, planet and communities in a more integrated way
than ever before. Beyond simply being the right thing to do, we are confident that elevating our focus on positive social
and environmental business practices will beneficially impact our customers and enhance returns for our shareholders
over the long term. Refer to the "Executive Overview" section within Item 7 for further discussion of our areas of
strategic focus.
While we have confidence that our strategic plan reflects opportunities that are appropriate and achievable and that
we have anticipated and will manage the associated risks, there is the possibility that the strategy may not deliver the
projected results due to inadequate execution, incorrect assumptions, sub-optimal resource allocation, or changing
customer requirements.
To meet these goals, we believe we will be required to continually invest in the research, design and development of
new products and services, and there is no assurance that such investments will have commercially successful results.
Certain growth opportunities may require us to invest in acquisitions, alliances and the startup of new business
ventures. These investments, if available, may not perform according to plan and may involve the assumption of
business, operational or other risks that are new to our business.
7 2020 Annual Report
Future efforts to expand our business within developing economies, particularly within China and India, may expose us
to the effects of political and economic instability. Such instability may impact our ability to compete for business. It
may also put the availability and/or value of our capital investments within these regions at risk. These expansion
efforts expose us to operating environments with complex, changing and in some cases, inconsistently-applied legal
and regulatory requirements. Developing knowledge and understanding of these requirements poses a significant
challenge and failure to remain compliant with them could limit our ability to continue doing business in these
locations.
Pursuing our strategic plan in new and adjacent markets, as well as within developing economies, will require us to
find effective new channels of distribution. There is no assurance that we can develop or otherwise identify these
channels of distribution.
Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and
financial results.
From time to time, various disease outbreaks may adversely impact our business, consolidated results of operations
and financial condition, such as the current COVID-19 pandemic which has had such an adverse impact. The Company
has global manufacturing facilities, suppliers, dealers and customers. Therefore, COVID-19, as well as measures taken
by governmental authorities and other organizations and individuals to limit the spread of this virus, may interfere with
the ability of our employees, suppliers and other business providers to carry out their assigned tasks or supply
materials at ordinary levels of performance relative to the conduct of our business. In addition, the COVID-19 pandemic
has caused a significant percentage of the traditional office workforce to work away from their office location. It is
reasonable to assume, at least in the near-term, that this will have an adverse impact on the demand for office furniture
and related products. This has caused, and may continue to cause, us to materially curtail certain of our business
operations, and has had and could continue to have, a material adverse effect on our results of operations and cash
flow.
Tariffs imposed by the U.S. government could have a material adverse effect on our results of operations.
The imposition of tariffs by the U.S. government on various products imported from certain countries, as well as
countering tariffs on the export of U.S. goods, has and will likely continue to adversely impact the cost of certain of our
raw materials and finished goods as well as products that we export to other countries. Accordingly, these tariffs and
the possibility of broader trade conflicts stemming from the tariffs could negatively impact our business in the future.
The tariffs on imports, most notably imports from China, also impacted the cost of steel in fiscal year 2020, a key
commodity that we consume in producing products. Given the significance of steel costs to our direct materials costs,
we are closely monitoring escalating trade tensions between the U.S. and China. The potential impact to our direct
material costs due to tariffs on Chinese imports is somewhat limited, however, as purchases of direct materials (mainly
component parts and products manufactured by third parties) from China represented an estimated 6% of our
consolidated cost of sales for fiscal 2020. Going forward, continued or increased tariffs could negatively impact our
gross margin and operating performance. These factors also have the potential to significantly impact global trade and
economic conditions in many of the regions where we do business.
Adverse economic and industry conditions could have a negative impact on our business, results of operations and
financial condition.
Customer demand within the contract office furniture and retail furnishings industries is affected by various macro-
economic factors; general corporate profitability, service sector employment levels, new office construction rates and
existing office vacancy rates are among the most influential factors. History has shown that declines in these measures
can have an adverse effect on overall office furniture demand. Additionally, factors and changes specific to our
industry, such as developments in technology, governmental standards and regulations, and health and safety issues
can influence demand. There are current and future economic and industry conditions that could adversely affect our
business, operating results, or financial condition.
Other macroeconomic developments, such as the United Kingdom referendum on European Union membership
(commonly known as Brexit) could negatively affect the Company's ability to conduct business in those geographies.
The current political and economic uncertainty relating to Brexit brings caution to the Company’s customer base as
Herman Miller, Inc. and Subsidiaries 8
capital investments are potentially put on hold pending the outcome of the negotiations. Furthermore, concerns exist
relating to potential tariffs and customs regulations and the potential for short term logistics disruption as any such
changes are implemented. This will impact both the Company's suppliers and customers, including distributors, and
could result in product delays and inventory issues. Further uncertainty in the marketplace also brings risk to accounts
receivable and could result in delays in collection and greater bad debt expense. There also remains a risk for the value
of the British Pound and/or the Euro to further deteriorate, reducing the purchasing power of customers in these
regions and potentially undermining the financial health of the Company's suppliers and customers in other parts of
the world.
The markets in which we operate are highly competitive and we may not be successful in winning new business.
We are one of several companies competing for new business within the office furniture industry. Many of our
competitors offer similar categories of products, including office seating, systems and freestanding office furniture,
casegoods, storage as well as residential, education and healthcare furniture solutions. Although we believe that our
innovative product design, functionality, quality, depth of knowledge, and strong network of distribution partners
differentiate us in the marketplace, increased market pricing pressure could make it difficult for us to win new business
with certain customers and within certain market segments at acceptable profit margins.
The retail furnishings market is highly competitive. We compete with national and regional furniture retailers, mail
order catalogs and online retailers focused on home furnishings. We compete with these and other retailers for
customers, suitable retail locations, vendors, qualified employees and management personnel. Some of our
competitors have significantly greater financial, marketing and other resources than we possess. This may result in our
competitors being quicker at the following: adapting to changes, devoting greater resources to the marketing and sale
of their products, generating greater national brand recognition, or adopting more aggressive pricing and promotional
policies, including free shipping offers. In addition, increased catalog mailings and/or digital marketing campaigns by
our competitors may adversely affect response rates to our own marketing efforts. As a result, increased competition
may adversely affect our future financial performance.
Our business presence outside the United States exposes us to certain risks that could negatively affect our results of
operations and financial condition.
We have significant manufacturing and sales operations in the United Kingdom, which represents our largest
marketplace outside the United States. We also have manufacturing operations in China, India, and Brazil.
Additionally, our products are sold internationally through controlled subsidiaries or branches in Canada, Denmark,
Korea, Mexico, Australia, China (including Hong Kong), India and Brazil. The Company's products are offered in Canada,
Europe, the Middle East, Africa, Latin America and the Asia/Pacific region primarily through dealers.
Doing business internationally exposes us to certain risks, many of which are beyond our control and could potentially
impact our ability to design, develop, manufacture, or sell products in certain countries. These factors could include,
but would not necessarily be limited to:
•
Political, social and economic conditions
• Global trade conflicts and trade policies
Legal and regulatory requirements
•
Labor and employment practices
•
•
Cultural practices and norms
• Natural disasters
•
•
•
Security and health concerns
Protection of intellectual property
Changes in foreign currency exchange rates
In some countries, the currencies in which we import and export products can differ. Fluctuations in the rate of
exchange between these currencies could negatively impact our business and our financial performance. Additionally,
tariff and import regulations, international tax policies and rates, and changes in U.S. and international monetary
policies may have an adverse impact on results of operations and financial condition.
9 2020 Annual Report
We are subject to risks and costs associated with protecting the integrity and security of our systems and confidential
information.
We collect certain customer-specific data, including credit card information, in connection with orders placed through
our e-commerce websites, direct-mail catalog marketing program, and retail studios. For these sales channels to
function and develop successfully, we and other parties involved in processing customer transactions must be able to
transmit confidential information, including credit card information and other personal information regarding our
customers, securely over public and private networks. Third parties may have or develop the technology or knowledge
to breach, disable, disrupt or interfere with our systems or processes or those of our vendors. While we believe we take
reasonable steps to protect the security and confidentiality of the information we collect, we cannot guarantee that our
security measures will effectively prevent others from obtaining unauthorized access to our information and our
customers’ information. The techniques used to obtain unauthorized access to systems change frequently and are not
often recognized until after they have been launched.
Any person who circumvents our security measures could destroy or steal valuable information or disrupt our
operations. Any security breach could cause consumers to lose confidence in the security of our information systems,
including our e-commerce websites or retail studios and choose not to purchase from us. Any security breach could
also expose us to risks of data loss, litigation, regulatory investigations, and other significant liabilities. Such a breach
could also seriously disrupt, slow or hinder our operations and harm our reputation and customer relationships, any of
which could damage our business.
A security breach includes a third party wrongfully gaining unauthorized access to our systems for the purpose of
misappropriating assets or sensitive information, loading corrupting data, or causing operational disruption. These
actions may lead to a significant disruption of the Company’s IT systems and/or cause the loss of business and
business information resulting in an adverse business impact, including: (1) an adverse impact on future financial
results due to theft, destruction, loss misappropriation, or release of confidential data or intellectual property; (2)
operational or business delays resulting from the disruption of IT systems, and subsequent clean-up and mitigation
activities; and (3) negative publicity resulting in reputation or brand damage with customers, partners or industry
peers.
The United States federal and state governments are increasingly enacting laws and regulations to protect consumers
against identity theft. Also, as our business expands globally, we are subject to data privacy and other similar laws in
various foreign jurisdictions. If we are the target of a cybersecurity attack resulting in unauthorized disclosure of our
customer data, we may be required to undertake costly notification procedures. Compliance with these laws will likely
increase the costs of doing business. If we fail to implement appropriate safeguards or to detect and provide prompt
notice of unauthorized access as required by some of these laws, we could be subject to potential fines, claims for
damages and other remedies, which could harm our business.
A sustained downturn in the economy could adversely impact our access to capital.
The disruptions in the global economic and financial markets during 2007 to 2009 adversely impacted the broader
financial and credit markets, at times reducing the availability of debt and equity capital for the market as a whole.
Conditions such as these could re-emerge in the future. Accordingly, our ability to access the capital markets could be
restricted at a time when we would like, or need, to access those markets, which could have an adverse impact on our
flexibility to react to changing economic and business conditions. The resulting lack of available credit, increased
volatility in the financial markets and reduced business activity could materially and adversely affect our business,
financial condition, results of operations, our ability to take advantage of market opportunities and our ability to obtain
and manage our liquidity. In addition, the cost of debt financing and the proceeds of equity financing may be materially
and adversely impacted by these market conditions. The extent of any impact would depend on several factors,
including our operating cash flows, the duration of tight credit conditions and volatile equity markets, our credit
capacity, the cost of financing, and other general economic and business conditions. Our credit agreements contain
performance covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and
amortization, and limits on subsidiary debt and incurrence of liens. Although we believe none of these covenants is
currently restrictive to our operations, our ability to meet the financial covenants can be affected by events beyond our
control.
Herman Miller, Inc. and Subsidiaries 10
Disruptions in the supply of raw and component materials could adversely affect our manufacturing and assembly
operations.
We rely on outside suppliers to provide on-time shipments of the various raw materials and component parts used in
our manufacturing and assembly processes. The timeliness of these deliveries is critical to our ability to meet customer
demand. Disruptions in this flow of delivery may have a negative impact on our business, results of operations, and
financial condition.
Increases in the market prices of manufacturing materials may negatively affect our profitability.
The costs of certain manufacturing materials used in our operations are sensitive to shifts in commodity market prices,
including the impact of the U.S. and retaliatory tariffs previously noted. In particular, the costs of steel, plastic,
aluminum components, and particleboard are sensitive to the market prices of commodities such as raw steel,
aluminum, crude oil, lumber, and resins. Increases in the market prices of these commodities, such as what we
experienced in fiscal 2019 for steel, may have an adverse impact on our profitability if we are unable to offset them
with strategic sourcing, continuous improvement initiatives or increased prices to our customers.
Disruptions within our dealer network could adversely affect our business.
Our ability to manage existing relationships within our network of independent dealers is crucial to our ongoing
success. Although the loss of any single dealer would not have a material adverse effect on the overall business, our
business within a given market could be negatively impacted by disruptions in our dealer network caused by the
termination of commercial working relationships, ownership transitions, or dealer financial difficulties.
If dealers go out of business or restructure, we may suffer losses because they may not be able to pay for products
already delivered to them. Also, dealers may experience financial difficulties, creating the need for outside financial
support, which may not be easily obtained. In the past, we have, on occasion, agreed to provide direct financial
assistance through term loans, lines of credit, and/or loan guarantees to certain dealers. Those activities increase our
financial exposure.
We are unable to control many of the factors affecting consumer spending. Declines in consumer spending on
furnishings could reduce demand for our products.
The operations of our Retail segment are sensitive to a number of factors that influence consumer spending, including
general economic conditions, consumer disposable income, unemployment, inclement weather, availability of
consumer credit, consumer debt levels, conditions in the housing market, interest rates, sales tax rates and rate
increases, inflation, and consumer confidence in future economic conditions. Adverse changes in these factors may
reduce consumer demand for our products, resulting in reduced sales and profitability.
A number of factors that affect our ability to successfully implement our retail studio strategy, including opening new
locations and closing existing studios, are beyond our control. These factors may harm our ability to increase the
sales and profitability of our retail operations.
Approximately 45 percent of the sales within our Retail segment are transacted within our retail studios. Additionally,
we believe our retail studios have a direct influence on the volume of business transacted through other channels,
including our consumer e-commerce and direct-mail catalog platforms, as many customers utilize these physical
spaces to view and experience products prior to placing an order online or through the catalog call center. Our ability to
open additional studios or close existing studios successfully will depend upon a number of factors beyond our
control, including:
Identification and availability of suitable studio locations
Success in negotiating new leases and amending or terminating existing leases on acceptable terms
Success of other retailers in and around our retail locations
Ability to secure required governmental permits and approvals
• General economic conditions
•
•
•
•
• Hiring and training skilled studio operating personnel
•
Landlord financial stability
11 2020 Annual Report
Increasing competition for highly skilled and talented workers could adversely affect our business.
The successful implementation of our business strategy depends on our ability to attract and retain a skilled workforce.
The increasing competition for highly skilled and talented employees could result in higher compensation costs,
difficulties in maintaining a capable workforce, and leadership succession planning challenges.
Costs related to product defects could adversely affect our profitability.
We incur various expenses related to product defects, including product warranty costs, product recall and retrofit
costs, and product liability costs. These expenses relative to product sales vary and could increase. We maintain
reserves for product defect-related costs based on estimates and our knowledge of circumstances that indicate the
need for such reserves. We cannot, however, be certain that these reserves will be adequate to cover actual product
defect-related claims in the future. Any significant increase in the rate of our product defect expenses could have a
material adverse effect on operations.
We are subject to risks associated with self-insurance related to health benefits.
We are self-insured for our health benefits and maintain per employee stop loss coverage; however, we retain the
insurable risk at an aggregate level. Therefore unforeseen or catastrophic losses in excess of our insured limits could
have a material adverse effect on the Company’s financial condition and operating results. See Note 1 of the
Consolidated Financial Statements for information regarding the Company’s retention level.
Government and other regulations could adversely affect our business.
Government and other regulations apply to the manufacture and sale of many of our products. Failure to comply with
these regulations or failure to obtain approval of products from certifying agencies could adversely affect the sales of
these products and have a material negative impact on operating results.
Goodwill and indefinite-lived intangible asset impairment charges may adversely affect our operating results.
We have a substantial amount of goodwill and indefinite-lived intangible assets, primarily trademarks, on our balance
sheet. We test the goodwill and intangible assets for impairment on an annual basis and when events occur or
circumstances change that indicate that the fair value of the reporting unit or intangible asset may be below its carrying
amount. Fair value determinations require considerable judgment and are sensitive to inherent uncertainties and
changes in estimates and assumptions regarding actual and forecasted revenue growth rates and operating margins
and discount rates. Declines in market conditions, a trend of weaker than anticipated financial performance for our
reporting units or declines in projected revenue for our trademarks, a decline in our share price for a sustained period
of time, an increase in the market-based weighted average cost of capital or a decrease in royalty rates, among other
factors, are indicators that the carrying value of our goodwill or indefinite-life intangible assets may not be recoverable.
We may be required to record a goodwill or intangible asset impairment charge that, if incurred, could have a material
adverse effect on our financial statements.
Impairment of long-lived assets may adversely affect our operating results.
Our long-lived asset groups are subject to an impairment assessment when certain triggering events or circumstances
indicate that their carrying value may be impaired. If the carrying value exceeds our estimate of future undiscounted
cash flows of the operations related to the asset group, an impairment is recorded for the difference between the
carrying amount and the fair value of the asset group. The results of these tests for potential impairment may be
adversely affected by unfavorable market conditions, our financial performance trends, or an increase in interest rates,
among other factors. If as a result of the impairment test we determine that the fair value of any of our long-lived asset
groups is less than its carrying amount, we may incur an impairment charge that could have a material adverse effect
on our financial statements.
Item 1B Unresolved Staff Comments
None
Herman Miller, Inc. and Subsidiaries 12
Item 2 Properties
The Company owns or leases facilities located throughout the United States and several foreign countries. The location,
square footage and use of the most significant facilities at May 30, 2020 were as follows:
Owned Locations
Zeeland, Michigan
Spring Lake, Michigan
Holland, Michigan
Holland, Michigan
Holland, Michigan
Sheboygan, Wisconsin
Melksham, United Kingdom
Hildebran, North Carolina
Leased Locations
Square Footage
(in Thousands)
Use
771
583
357
293
238
208
170
93
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Warehouse
Manufacturing, Office
Office, Design
Manufacturing, Warehouse, Office
Manufacturing, Warehouse, Office
Manufacturing, Office
Batavia, Ohio
Dongguan, China
Atlanta, Georgia
Bangalore, India
Yaphank, New York
Mexico City, Mexico
New York City, New York
Hong Kong, China
Chicago, Illinois*
Brooklyn, New York
Stamford, Connecticut
*Under construction and expected to open in FY21.
Square Footage
(in Thousands)
618
429
180
105
92
77
67
54
45
39
35
Use
Warehouse
Manufacturing, Office
Manufacturing, Warehouse, Office
Manufacturing, Warehouse
Warehouse, Office
Warehouse
Office, Retail
Warehouse
Office, Retail
Warehouse, Retail
Office, Retail
As of May 30, 2020, the Company operated 39 retail studios (including 35 operating under the DWR brand, 3 under the
HAY brand, and a Herman Miller Flagship store in New York) that totaled approximately 400,000 square feet of selling
space. The Company also maintains administrative and sales offices and showrooms in various other locations
throughout North America, Europe, Asia/Pacific and Latin America. The Company considers its existing facilities to be
in good condition and adequate for its design, production, distribution, and selling requirements.
13 2020 Annual Report
Item 3 Legal Proceedings
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such proceedings and litigation currently pending will not materially affect the
Company’s consolidated operations, cash flows and financial condition.
Additional Item: Executive Officers of the Registrant
Certain information relating to Executive Officers of the Company as of May 30, 2020 is as follows:
Andrea R. Owen
President and
Chief Executive Officer
Age 55, elected as an
Executive Officer in 2018
B. Ben Watson
Chief Creative Officer
Age 55, elected as an
Executive Officer in 2010
Gregory J. Bylsma
President,
North America Contract
Age 55, elected as an
Executive Officer in 2009
Jeffrey L. Kurburski
Chief Technology Officer
Age 52, elected as an
Executive Officer in 2018
Jeremy Hocking
President,
International Contract
Age 59, elected as an
Executive Officer in 2017
Megan Lyon
Chief Strategy Officer
Age 40, elected as an
Executive Officer in 2019
Benjamin P.T. Groom
Chief Digital Officer
Age 36, elected as an
Executive Officer in 2019
Debbie Propst
President, Retail
Age 39, elected as an
Executive Officer in 2020
Jacqueline H. Rice
General Counsel
Age 48, elected as an
Executive Officer in 2019
Jeffrey M. Stutz
Chief Financial Officer
Age 49, elected as an
Executive Officer in 2009
Kevin Veltman
Vice President, Investor
Relations & Treasurer
Age 45, elected as an
Executive Officer in 2015
Tim Straker
Chief Marketing Officer
Age 54, elected as an
Executive Officer in 2020
Herman Miller, Inc. and Subsidiaries 14
Except as discussed below, each of the named officers has served the Company in an executive capacity for more than
five years.
Ms. Owen joined Herman Miller, Inc. in 2018 and serves as President and Chief Executive Officer. Prior to joining
Herman Miller, Ms. Owen spent twenty-five years at The Gap, Inc. where she most recently served as Global President of
Banana Republic.
Mr. Groom joined Herman Miller, Inc. in 2019 and serves as Chief Digital Officer. Prior to joining Herman Miller, Mr.
Groom spent six years with The Boston Consulting Group where he was a Principal member of the firm’s Technology
Advantage, Retail and Consumer practices.
Ms. Propst joined Herman Miller, Inc. in 2020 and serves as President of the Company's Retail segment. Prior to joining
Herman Miller, Ms. Propst spent seven years at Bed Bath and Beyond where she most recently served as President and
Chief Merchandising Officer of One Kings Lanes, as well as Chief Brand Officer for Bed Bath and Beyond.
Ms. Rice joined Herman Miller, Inc. in 2019 and serves as General Counsel. Prior to joining Herman Miller, Ms. Rice
served as Executive Vice President, Chief Risk & Compliance Officer at Target Corporation as well as Senior Counsel and
Chief Compliance Officer at General Motors Co.
Ms. Lyon joined Herman Miller, Inc. in 2019 and serves as Chief Strategy Officer. Prior to joining Herman Miller, Ms.
Lyon spent eleven years with The Boston Consulting Group where she was a Partner and Managing Director leading the
firm’s West Coast Consumer and Retail Practice.
There are no family relationships between or among the above-named executive officers. There are no arrangements or
understandings between any of the above-named officers pursuant to which any of them was named an officer.
Item 4 Mine Safety Disclosures
Not applicable
15 2020 Annual Report
PART II
Item 5 Market for the Registrant's Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
Share Price, Earnings and Dividends Summary
Herman Miller, Inc.'s common stock is traded on the NASDAQ-Global Select Market System (Symbol: MLHR). As of
July 22, 2020, there were approximately 26,000 shareholders of record, including individual participants in security
position listings, of the Company's common stock.
Dividends were declared for the first three quarters of fiscal 2020 and all quarters of fiscal 2019 as approved by the
Board of Directors. Herman Miller previously announced the deferral of its third quarter fiscal 2020 dividend payment
to shareholders of record as of February 29, 2020. That dividend was originally scheduled to be paid on April 15, 2020.
The Company's Board of Directors subsequently approved the payment of this dividend, which was made on July 15,
2020. The Company has suspended future dividend payments given the ongoing uncertainty caused by COVID–19.
Issuer Purchases of Equity Securities
The Company has one share repurchase plan authorized by the Board of Directors on January 16, 2019, which provides
a share repurchase authorization of $250.0 million with no specified expiration date. The approximate dollar value of
shares available for purchase under the plans at May 30, 2020 was $237.6 million.
The following is a summary of share repurchase activity during the Company's fourth fiscal quarter ended May 30,
2020:
Total Number
of Shares (or
Units)
Purchased
Average
Price Paid
per Share
or Unit
Total Number of Shares (or
Units) Purchased as Part
of Publicly Announced
Plans or Programs
Maximum Number (or Approximate
Dollar Value) of Shares (or Units)
that May Yet be Purchased Under
the Plans or Programs (1)
15,026 $
404 $
1,801 $
17,231
32.20
24.08
20.63
15,026 $
404 $
1,801 $
17,231
237,689,005
237,679,278
237,642,176
Period
3/1/20-3/28/20
3/29/20-4/25/20
4/26/20-5/30/20
Total
During the period covered by this report, the Company did not sell any shares of common stock that were not registered
under the Securities Act of 1933.
Herman Miller, Inc. and Subsidiaries 16
Stockholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on
the Company's common stock with that of the cumulative total return of the Standard & Poor's 500 Stock Index and the
NASDAQ Composite Total Return for the five-year period ended May 30, 2020. The graph assumes an investment of
$100 on May 30, 2015 in the Company's common stock, the Standard & Poor's 500 Stock Index and the NASDAQ
Composite Total Return, with dividends reinvested.
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
2015
2016
2017
2018
2019
2020
Herman Miller, Inc.
S&P 500 Index
NASDAQ Composite Total Return
Herman Miller, Inc.
S&P 500 Index
NASDAQ Composite Total Return
2015
2016
2017
2018
2019
2020
$
$
$
100
100
100
$
$
$
116
100
99
$
$
$
123
116
127
$
$
$
126
130
154
$
$
$
139
131
154
$
$
$
93
144
198
Information required by this item is also contained in Item 12 of this report.
17 2020 Annual Report
Item 6 Selected Financial Data
(In millions, except key ratios and per share data)
Operating Results
Net sales
Gross margin
Selling, general, and administrative (1)
Impairment charges
Design and research
Operating (loss) earnings
(Loss) earnings before income taxes and equity income
Net (loss) earnings
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Depreciation and amortization
Capital expenditures
Common stock repurchased plus cash dividends paid
Key Ratios
Sales (decline) growth
Gross margin (2)
Selling, general, and administrative (1) (2)
Design and research (2)
Operating (loss) earnings (2)
Net earnings growth (decline)
After-tax return on net sales (3)
After-tax return on average assets (4)
After-tax return on average equity (5)
Share and Per Share Data
(Loss) earnings per share-diluted
Cash dividends declared per share
Book value per share at year end (6)
Market price per share at year end
Weighted average shares outstanding-diluted
Financial Condition
Total assets
Working capital (7)
Current ratio (8)
Interest-bearing debt and related swap agreements (9)
Stockholders' equity
Total capital (10)
$
(0.15)
0.63
10.94
23.02
58.9
$ 2,053.9
403.8
1.8
558.8
643.0
1,201.8
2020
2019
2018
2017
2016
$ 2,486.6
910.7
669.7
205.4
74.0
(38.4)
(13.4)
$ 2,567.2
929.9
649.5
—
76.9
203.5
195.1
$ 2,381.2
873.0
621.0
—
73.1
178.9
168.1
$ 2,278.2
864.2
592.9
7.1
73.1
191.1
177.6
$ 2,264.9
874.2
585.6
—
77.1
211.5
196.6
(14.4)
221.8
(168.1)
244.0
79.5
69.0
63.0
(3.1)%
36.6
26.9
3.0
(1.5)
(109.0)
(0.6)
(0.8)
(2.1)
160.5
216.4
(165.0)
(91.9)
72.1
85.8
93.5
128.7
166.5
(62.7)
2.5
66.9
70.6
88.9
7.8 %
4.5%
36.7
26.1
3.1
7.5
3.7
5.4
9.2
20.6
2.12
0.72
11.22
32.85
60.3
36.2
25.3
3.0
7.9
24.7
6.3
10.5
23.2
2.70
0.79
12.23
35.49
59.4
$
$ 1,569.3
215.2
1.5
282.8
719.2
1,002.0
$
$
124.1
202.1
(116.3)
(74.6)
58.9
87.3
63.1
0.6%
37.9
26.0
3.2
8.4
(9.7)
5.4
9.8
22.3
$
2.05
0.68
9.84
32.70
60.6
137.5
210.4
(80.8)
(106.5)
53.0
85.1
49.0
5.7%
38.6
25.9
3.4
9.3
40.2
6.1
11.3
29.1
2.26
0.59
8.76
31.64
60.5
1,235.2
90.5
1.2
221.9
524.7
746.6
$
$
1,479.5
231.6
1.6
265.1
664.8
929.9
$ 1,306.3
106.2
1.3
197.8
587.7
785.5
(1) Selling, general, and administrative expenses include restructuring expenses in years that are applicable.
(2) Shown as a percent of net sales.
(3) Calculated as net earnings divided by net sales.
(4) Calculated as net earnings divided by average assets.
(5) Calculated as net earnings divided by average equity.
(6) Calculated as total stockholders' equity divided by common shares of stock outstanding.
(7) Calculated using current assets less current liabilities.
(8) Calculated using current assets divided by current liabilities.
(9) Amounts shown include the fair market value of the Company’s interest rate swap arrangement(s).
(10) Calculated as interest-bearing debt and related swap agreements plus stockholders' equity.
Herman Miller, Inc. and Subsidiaries 18
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
You should read the issues discussed in Management's Discussion and Analysis in conjunction with the Company's
Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in this Annual
Report on Form 10-K.
Executive Overview
Herman Miller’s mission statement is Inspiring Designs to Help People Do Great Things. At present, most customers
come to the Company for furnishing interior environments in corporate offices, healthcare settings, higher education
institutions and residential spaces. The Company's primary products include furniture systems, seating, storage,
freestanding furniture, healthcare environment products, casegoods, textiles and related technologies and services.
More than 100 years of innovative business practices and a commitment to social responsibility have established
Herman Miller as a recognized global company. The Company trades on the NASDAQ Global Select Market under the
symbol MLHR.
Herman Miller's products are sold internationally through wholly-owned subsidiaries or branches in various countries
including the United Kingdom, Denmark, Canada, Japan, Korea, Mexico, Australia, Singapore, China, Hong Kong, India
and Brazil. The Company's products are offered elsewhere in the world primarily through independent dealerships or
joint ventures with customers in over 100 countries.
The Company is globally positioned in terms of manufacturing operations. In the United States, manufacturing
operations are located in Michigan, Georgia, Wisconsin and North Carolina. In Europe, its manufacturing presence is
located in the United Kingdom. Manufacturing operations globally also include facilities located in China, Brazil and
India. The Company manufactures products using a system of lean manufacturing techniques collectively referred to as
the Herman Miller Performance System (HMPS). For its contract furniture business, Herman Miller strives to maintain
efficiencies and cost savings by minimizing the amount of inventory on hand. Accordingly, production is order-driven
with direct materials and components purchased as needed to meet demand. The standard manufacturing lead time
for the majority of our products is 10 to 20 days. These factors result in a high rate of inventory turns related to our
manufactured inventories.
A key element of the Company's manufacturing strategy is to limit fixed production costs by sourcing component parts
from strategic suppliers. This strategy has allowed the Company to increase the variable nature of its cost structure,
while retaining proprietary control over those production processes that the Company believes provide a competitive
advantage. As a result of this strategy, the Company's manufacturing operations are largely assembly-based.
A key element of the Company's growth strategy is to scale the Retail business through the Company's Design Within
Reach (DWR), HAY and Herman Miller retail operations. The Retail business provides a channel to bring Herman Miller's
iconic and design-centric products to retail customers, along with other proprietary and third-party products, with a
focus on design. The Company continues to transform its Retail business through the DWR retail studio footprint, which
will be complemented by a continued focus on improving margins through the development of exclusive product
designs and leveraging additional sales in DWR's contract, catalog and digital channels, as well as the HAY brand,
which was launched in North America in fiscal 2019.
The Company is comprised of various operating segments as defined by generally accepted accounting principles in
the United States (U.S. GAAP). The operating segments are determined on the basis of how the Company internally
reports and evaluates financial information used to make operating decisions. The Company has identified the
following segments:
• North America Contract — Includes the operations associated with the design, manufacture, and sale of
furniture and textile products for work-related settings, including office, education and healthcare
environments, throughout the United States and Canada. The business associated with the Company's owned
19 2020 Annual Report
contract furniture dealers is also included in the North America Contract segment. In addition to the Herman
Miller brand, this segment includes the operations associated with the design, manufacture and sale of high-
craft furniture products and textiles, including Geiger wood products, Maharam textiles, Nemschoff,
naughtone, and Herman Miller Collection products.
•
•
International Contract — Includes the operations associated with the design, manufacture and sale of furniture
products, primarily for work-related settings in EMEA, Latin America and Asia-Pacific.
Retail — Includes the operations associated with the sale of modern design furnishings and accessories to
third party retail distributors, as well as direct to consumer sales through e-commerce, direct mailing catalogs
and DWR and HAY studios.
The Company also reports a corporate category consisting primarily of unallocated corporate expenses related to
general corporate functions, including, but not limited to, certain legal, executive, corporate finance, information
technology, administrative and acquisition-related costs.
Core Strengths
The Company relies on the following core strengths in delivering solutions to customers:
•
•
Portfolio of Leading Brands and Products - Herman Miller is a globally-recognized, authentic brand known for
working with some of the most well-known and respected designers in the world. Over the years, it has evolved
into Herman Miller Group, a family of brands that collectively offers a variety of products for environments
where people live, learn, work, heal and play. Within the industries in which the Company operates, Herman
Miller, DWR, Geiger, Maharam, POSH, Nemschoff, Colebrook Bosson Saunders ("CBS"), HAY, Maars Living Walls
and naughtone are acknowledged as leading brands that inspire architects and designers to create their best
design solutions. This portfolio has enabled Herman Miller to connect with new audiences, channels,
geographies and product categories. Leveraging the collective brand equity of the Herman Miller Group across
the lines of business is an important element of the Company's business strategy.
Problem-Solving Design and Innovation - The Company is committed to developing research-based
functionality and aesthetically innovative new products and has a history of doing so, in collaboration with a
global network of leading independent designers. The Company believes its skills and experience in matching
problem-solving design with the workplace needs of customers provide the Company with a competitive
advantage in the marketplace. An important component of the Company's business strategy is to actively
pursue a program of new product research, design and development. The Company accomplishes this through
the use of an internal research and engineering staff that engages with third party design resources generally
compensated on a royalty basis.
• Operational Excellence - The Company was among the first in the industry to embrace the concepts of lean
manufacturing. HMPS provides the foundation for all the Company's manufacturing operations. The Company
is committed to continuously improving both product quality and production and operational efficiency. The
Company has extended this lean process work to its non-manufacturing processes as well as externally to its
manufacturing supply chain and distribution channel. The Company believes these concepts hold significant
promise for further gains in reliability, quality and efficiency.
• Omni-Channel Reach - The Company has built a multi-channel distribution capability that it considers unique.
Through contract furniture dealers, direct customer sales, retail studios, e-commerce, catalogs and
independent retailers, the Company serves contract and residential customers across a range of channels and
geographies.
• Global Scale - In addition to its global omni-channel distribution capability, the Company has a global network
of designers, suppliers, manufacturing operations and research and development centers that position the
Company to serve contract and residential customers globally. The Company believes that leveraging this
global scale will be an important enabler to executing its strategy.
Herman Miller, Inc. and Subsidiaries 20
Channels of Distribution
The Company's products and services are offered to most of its customers under standard trade credit terms between
30 and 45 days. For all the items below, revenue is recognized when control transfers to the customer. The Company's
products and services are sold through the following distribution channels:
•
•
•
•
•
Independent and Owned Contract Furniture Dealers - Most of the Company's product sales are made to a
network of independently owned and operated contract furniture dealerships doing business in many
countries around the world. These dealers purchase the Company's products and distribute them to end
customers. Many of these dealers also offer furniture-related services, including product installation.
Direct Contract Sales - The Company also sells products and services directly to end customers without an
intermediary (e.g., sales to the U.S. federal government). In most of these instances, the Company contracts
separately with a dealer or third-party installation company to provide sales-related services.
Retail Studios - At the end of fiscal 2020 the Retail business unit included 39 retail studios (including 35
operating under the DWR brand, 3 under the HAY brand, and a Herman Miller Flagship store in New York). This
business also operates 5 outlet studios. The retail and outlet studios are located in metropolitan areas
throughout North America.
E-commerce - The Company sells products through its online stores, in which products are available for sale
via the Company's website, hermanmiller.com, global e-commerce platforms, as well as through the dwr.com
and us.hay.com online stores. These sites complement our existing methods of distribution and extend the
Company's brand to new customers.
Direct-Mail Catalogs - The Company’s Retail business unit utilizes a direct-mail catalog program through its
DWR subsidiary. A regular schedule of catalog mailings is maintained throughout the fiscal year and these
serve as a key driver of sales across each of DWR’s channels, including retail studios and e-commerce
websites.
• Wholesale - Certain of the Company's products are sold on a wholesale basis to third-party retailers located in
various markets around the world.
Challenges Ahead
Like all businesses, the Company is faced with a host of challenges and risks. The Company believes its core strengths
and values, which provide the foundation for its strategic direction, have well prepared the Company to respond to the
inevitable challenges it will face in the future. While the Company is confident in its direction, it acknowledges the risks
specific to our business and industry. Refer to Item 1A for discussion of certain of these risk factors and Item 7A for
disclosures of market risk.
21 2020 Annual Report
Areas of Strategic Focus
Despite a number of risks and challenges, the Company believes it is well positioned to successfully pursue its mission
of inspiring designs to help people do great things. As our business and industry continue to evolve, we are constantly
focused on staying ahead of the curve. With the composition of the office floor plate moving toward a broader variety of
furnishings, a greater desire for customization from our customers, new technologies, and trends towards urbanization
and more seamless transactions in the retail world, we have centered our overall value creation strategy on four key
priorities.
Unlock the Power of One Herman Miller
Coming together as a family of complementary brands will help achieve our goals of more
actively moving into the consumer marketplace, growing globally and making it easier to do
business with us. We strive to become more agile, invest in responsive innovation, simplify
our go-to-market strategy and continue to lead in product innovation across all our
businesses globally.
Build a Customer-centric, Digitally-enabled Business Model
Building a customer centric and digitally enabled business model is at the forefront of our
goal to become easier to do business with us. We will leverage our deep understanding of
customer journeys to deliver inspired products and a frictionless customer experience.
Along with strengthening the core technology backbone, we will also drive step-change in
data, analytics, marketing and brand capabilities.
Accelerate Profitable Growth
There are identified opportunities for growth ahead in each of our business segments. We
believe we are the only company in our industry with access to meaningful contract and
residential growth opportunities on a global scale. At the same time, with our ongoing
focus on operational excellence and specific profit improvement initiatives, we are focused
on continuous improvement of our cost structure.
Reinforce Our Commitment to Our People, Planet, Communities
With a legacy of corporate social responsibility that is deeply ingrained in our culture, we
will reinforce our commitment to our people, planet and communities in a more integrated
and deliberate way than ever before. We will focus on building, developing and retaining
world-class talent, shaping an inclusive and diverse workforce and elevating our Better
World commitment. Doing so will enable us to create value for our shareholders, customers
and employees, as well as for the broader communities and environment in which we
operate.
The Company believes its strategy continues to respond well to current and future realities in its markets. The
Company's strategic priorities are aimed at creating a sustainable and diverse revenue model that puts the customer at
the center of everything we do and leverages enabling digital capabilities to fully realize that vision.
Herman Miller, Inc. and Subsidiaries 22
Business Overview
The following is a summary of the significant events and items impacting the Company's operations for the year ended
May 30, 2020:
• Net sales were $2,486.6 million, representing a decrease of 3.1% when compared to the prior year. The
decrease in net sales was driven primarily by decreased sales volumes in the fourth quarter of fiscal 2020 due
to the outbreak of COVID-19 and related facility shut-downs, offset by the acquisitions of HAY and naughtone
and incremental list price increases, net of contract price discounting. On an organic basis, net sales
were $2,398.7 million(*), representing a decrease of 6.6% when compared to the prior year.
• Gross margin was 36.6% as compared to 36.2% in the prior year. The increase in gross margin was driven
primarily by list price increases and profitability improvement efforts, partially offset by reduced leverage of
fixed overhead expenses across all segments due to the onset of COVID-19 during the fourth quarter of fiscal
2020 and higher net freight expenses within the Retail segment.
• Operating expenses increased by $222.7 million or 30.7% as compared to the prior year. Operating expenses
included non-cash charges of $205 million in the current year for the impairment of goodwill, intangible assets
and right of use assets related to Design Within Reach, Maharam, HAY and naughtone. These charges were
determined based on the Company's annual impairment review process and indicators of impairment arising
from the impact of COVID-19 on financial results. Refer below to "Critical Accounting Policies and Estimates" for
additional information. Operating expenses also included special charges totaling $12.3 million and
restructuring costs of $26.4 million. Special charges related mainly to certain costs arising as a direct result of
COVID-19 and initial purchase accounting effects of the Company's investments in HAY and naughtone.
Restructuring costs related mainly to severance and outplacement benefits associated with workforce
reductions and profit improvement initiatives implemented during the year.
• Other income in the current year reflected a pre-tax gain of $36.2 million related to the purchase accounting
treatment of initial equity-method investments in naughtone and HAY. The Company became the majority
owner of both naughtone and HAY in the current year and as a result was required to record certain fair value
adjustments which resulted in a non-taxable gain.
•
•
•
•
•
The effective tax rate was negative 44.9% for fiscal 2020 compared to 20.3% for the prior year. Excluding the
impact of adjustments related to impairment, restructuring and other special charges recorded during the year,
a portion of which were not deductible for tax purposes, the effective tax rate for the year was 19.9%. This rate
reflected both provision to return adjustments and the accrual of withholding taxes related to planned
repatriation of cash from certain foreign jurisdictions.
Diluted (loss) earnings per share decreased $2.85 to $(0.15), a 105.6% decrease as compared to the prior year.
Excluding the impact of the gain on consolidation of equity method investments, impairment charges,
restructuring expenses and other special charges, adjusted diluted earnings per share were $2.61(*),
a 12.1% decrease as compared to the prior year.
The Company declared cash dividends of $0.63 per share compared to $0.79 per share in the prior year. In the
fourth quarter of the current fiscal year, the Company's Board of Directors temporarily suspended all future
dividends in response to the economic uncertainty brought on by the onset of COVID-19.
The Company made strategic investments in the form of acquisitions during the fiscal year. These included $46
million to acquire the remaining outstanding shares of naughtone, and $79 million to acquire an additional
34% ownership stake in HAY.
In March 2020, the Company borrowed an additional $265 million under its syndicated revolving line of credit
as a precautionary measure to provide additional near-term liquidity given the uncertainty related to COVID-19,
23 2020 Annual Report
which was subsequently repaid in June 2020. On May 20, 2020, the Company issued unsecured senior private
placement debt securities in the amount of $50.0 million.
The following summary includes the Company's view on the economic environment in which it operates:
•
•
•
•
•
The North American macro-economic picture was generally positive through the first three quarters of the fiscal
year with positive job growth, corporate profitability and architectural billing activity.
The disruption from the COVID-19 pandemic adversely impacted the fourth quarter of our fiscal year as Gross
Domestic Product forecasts and industry order trends, as reported by the Business and Institutional Furniture
Manufacturers Association ("BIFMA"), have highlighted near-term demand pressures from the slowdown in
economic activity from the pandemic.
The Company is monitoring the resolution of various trade policy negotiations between the U.S. and key
trading partners as well as the ongoing negotiations concerning the U.K. referendum to exit the European
Union ("Brexit"). These negotiations create a level of uncertainty in key markets, particularly the U.K.,
continental Europe and China, which, if unresolved in the near term, will likely 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 Retail segment supports the home environment, including home offices, which is a category of
particular emphasis by consumers in the near-term. The Company also continues to optimize its business
model related to shipping with increasing customer expectations that the products they buy should come with
free or discounted shipping. In response, the Company is continuing to evaluate a variety of strategies,
including negotiating lower costs from third party freight providers, implementing actions aimed at improving
the efficiency of its logistics processes and more closely reflecting the cost of delivery into the base price of its
products.
The remaining sections of Item 7 include additional analysis of the fiscal year ended May 30, 2020, including
discussion of significant variances compared to the prior year period. A detailed review of our fiscal 2019 performance
compared to our fiscal 2018 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended June 1,
2019.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
COVID-19 Update
The outbreak of COVID-19 adversely impacted our financial performance for fiscal 2020 and will have an adverse
impact in fiscal 2021. This outbreak has impacted our supply base as well as resulted in temporary facility closures in
locations throughout the globe beginning in February and continuing into the fourth quarter. The extent of the
geographic spread and duration of this virus, the impact on our supply chain, demand for our products, and related
financial impact cannot be estimated at this time with any degree of certainty.
Employee Safety and Health
The Company has instituted a number of safety measures to contain the spread of COVID-19, including domestic and
international travel restrictions, work-from-home practices, extensive cleaning protocols, additional safety measures
including temperature checks and face coverings, measures to promote physical (social) distancing in the workplace,
and the temporary closure to the public of our showrooms and retail studios.
Herman Miller, Inc. and Subsidiaries 24
Customer Focus
The Company's customer service, sales, supplier and dealer teams are working closely with customers to meet current
demand. Sales teams are meeting with customers remotely via video calls, online chat functionality, and virtual reality
to continue the design and specification process that would normally take place in a showroom. Customer service
representatives are working remotely to stay connected to customers regarding order status and projected delivery
dates. The Company recently opened some showroom and retail locations around the globe to the public. Customers
can also make private appointments to shop in person or shop online with the Company's team virtually.
Manufacturing and Operations
As a global manufacturer, the Company responded to various shelter-in-place and similar government orders in
locations around the world in which it operates.
In Michigan, Governor Gretchen Whitmer’s “Stay Home, Stay Safe” executive order required all non-essential
businesses to close during the three week period that ended April 13, 2020. However, as the Company serves the
health care industry and the federal government, among other critical sectors, the Company continued to help support
customers actively engaged in the COVID-19 response. In an effort to support the thousands of medical workers on the
front lines of the battle against COVID-19, this work also included transforming a portion of its manufacturing footprint
to fulfill the immediate need for medical related products and personal protective equipment. The Company continues
to produce masks and face shields for its own employees and continues to donate to community members and
nonprofits in need of personal protection equipment. This work is being completed at many of the Company's U.S.
manufacturing locations.
Internationally, the status of the Company’s manufacturing and warehouse facilities vary based on government orders.
While certain facilities were temporarily closed during a portion of the year, the majority of the Company’s
manufacturing and warehouse locations are operating at full capacity, with some locations operating at reduced
capacity with flexible hours and shifts to ensure employee safety.
The Company continues to monitor similar executive orders to understand the potential impact on its operations in
other areas.
Retail Operations
DWR and HAY retail studios and stores across the US are currently open to the public in various capacities with safety
precautions in place. The Company’s distribution center in Batavia, Ohio has continued without disruption. Freight
carriers are delivering to every market domestically but changing policies and procedures daily that may affect
distribution. In some markets the Company is unable to offer white glove delivery currently, but can coordinate with
customers to deliver product to their door. Its e-commerce platforms are fully operational.
Cost Reductions
The Company has implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. These
actions include reducing our salaried workforce by approximately 400 through voluntary and involuntary workforce
reductions, a 10% reduction in cash compensation for the majority of the Company's salaried workforce and an
additional 15% salary deferral of the Company's executive leadership team. Additionally the Company has temporarily
suspended the quarterly dividend payout and certain employer-paid retirement contributions, compensation increases
and cash incentive bonus programs. The Company will continue to evaluate further ways to manage costs in line with
reduced revenue levels.
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 the adoption of the U.S. Tax Cuts and Jobs Act, purchase accounting
adjustments related to the HAY and naughtone investments, impairment charges, restructuring expenses and other
Herman Miller, Inc. and Subsidiaries 25
special charges or gains, including related taxes. Restructuring expenses include actions involving facilities
consolidation and optimization, targeted workforce reductions and costs associated with an early retirement program.
Special charges include costs related to CEO transition, third party consulting costs related to the Company's profit
enhancement initiatives, acquisition-related costs and certain costs arising as a direct result of COVID-19.
The Company believes presenting Organic net sales and Adjusted earnings per share - diluted is useful for investors as
it provides financial information on a more comparative basis for the periods presented by excluding items that are not
representative of the ongoing operations of the Company.
Organic net sales and Adjusted earnings per share - diluted are not measurements of our financial performance under
GAAP and should not be considered as alternatives to the related GAAP measurement. These non-GAAP measurements
have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our
results as reported under GAAP. Our presentation of non-GAAP measures should not be construed as an indication that
our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing
prominence of our GAAP results and using the non-GAAP financial measures only as a supplement.
The following table reconciles Net sales to Organic net sales for the periods ended as indicated below:
May 30, 2020
June 1, 2019
North
America
International
Retail
Total
North
America
International
Retail
Total
$ 1,598.2
$
502.8
$ 385.6
$ 2,486.6
$ 1,686.5
$
492.2
$
388.5 $ 2,567.2
(5.2)%
2.2 %
(0.7)%
(3.1)%
(11.8)
(83.8)
0.7
$ 1,587.1
$
(5.9)%
7.0
426.0
(13.4)%
—
—
(95.6)
7.7
—
—
—
—
—
—
—
—
$ 385.6
$ 2,398.7
$ 1,686.5
$
492.2
$
388.5 $ 2,567.2
(0.7)%
(6.6)%
Net Sales, as reported
% change from PY
Proforma Adjustments
Acquisitions
Currency Translation
Effects (1)
Organic net sales
% change from PY
(1) Currency translation effects represent the estimated net impact of translating current period sales using the average exchange
rates applicable to the comparable prior year period
The following table reconciles EPS to Adjusted EPS for the years indicated:
(Loss) Earnings per Share - Diluted
Less: Adjustments Related to Adoption of U.S. Tax Cuts and Jobs Act
Less: Investment fair value adjustments, after tax
Add: Inventory step up on HAY equity method investment, after tax
Less: Gain on consolidation of equity method investments
Add: Special charges, after tax
Add: Impairment charges, after tax
Add: Restructuring expenses, after tax
Adjusted Earnings per Share - Diluted
May 30, 2020
$
(0.15) $
—
—
—
(0.63)
0.15
2.90
0.34
2.61 $
$
June 1, 2019
2.70
(0.02)
(0.03)
0.01
—
0.18
—
0.13
2.97
Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per
Share) – Diluted
58,920,653
59,381,791
Note: The adjustments above are net of tax. For the twelve months ended May 30, 2020 and June 1, 2019, the tax impact of the
adjustments were $0.62 and $0.10, respectively.
Herman Miller, Inc. and Subsidiaries 26
Financial Results
The following is a comparison of our annual results of operations and year-over-year percentage changes for the
periods indicated:
(Dollars in millions)
Net sales
Cost of sales
Gross margin
Operating expenses
Operating (loss) earnings
Gain on consolidation of equity method investments
Other expenses, net
(Loss) earnings before income taxes and equity income
Income tax expense
Equity income from nonconsolidated affiliates, net of tax
Net (loss) earnings
Net loss attributable to redeemable noncontrolling interests
Net (loss) earnings attributable to Herman Miller, Inc.
Fiscal 2019 % Change
Fiscal 2020
$ 2,486.6 $ 2,567.2
1,637.3
929.9
726.4
203.5
—
8.4
195.1
39.6
5.0
160.5
—
160.5
1,575.9
910.7
949.1
(38.4)
36.2
11.2
(13.4)
6.0
5.0
(14.4)
(5.3)
(9.1) $
$
(3.1)%
(3.8)%
(2.1)%
30.7 %
(118.9)%
n/a
33.3 %
(106.9)%
(84.8)%
— %
(109.0)%
n/a
(105.7)%
The following table presents, for the periods indicated, the components of the Company's Consolidated Statements of
Comprehensive Income as a percentage of net sales:
Net sales
Cost of sales
Gross margin
Operating expenses
Operating (loss) earnings
Gain on consolidation of equity method investments
Other expenses, net
(Loss) earnings before income taxes and equity income
Income tax expense
Equity income from nonconsolidated affiliates, net of tax
Net (loss) earnings
Net loss attributable to redeemable noncontrolling interests
Net (loss) earnings attributable to Herman Miller, Inc.
Fiscal 2020
Fiscal 2019
100.0%
63.4
36.6
38.2
(1.5)
1.5
0.5
(0.5)
0.2
0.2
(0.6)
(0.2)
(0.4)
100.0%
63.8
36.2
28.3
7.9
—
0.3
7.6
1.5
0.2
6.3
—
6.3
27 2020 Annual Report
Net Sales
The following chart presents graphically the primary drivers of the year-over-year change in Net sales. The amounts
presented in the bar graph are expressed in millions and have been rounded.
Change in Net Sales
Fiscal 2020 Compared to Fiscal 2019
$45
$96
$2,567
1
Y
F
9
A
q
c
s
n
u i s iti o
e t P ri c
N
$(141)
$2,487
$(72)
$(8)
s
e
s
e ri c
m
a
A
o l u
V
a
I n t e r n
e
m
a ti o
a l V
n
e
m
o r e i g
o l u
F
y
c
n
u rr e
C
n
0
2
Y
F
c r e
e I n
o rt h
N
Net sales decreased $80.6 million or 3.1% compared to the prior year fiscal period. The following items contributed to
the change:
•
•
•
•
Increase of approximately $96 million due to the acquisitions of HAY and naughtone.
Incremental list price increases, net of contract price discounting, of approximately $45 million.
Decreased sales volumes within the North America segment of approximately $141 million and decreased
sales volumes within the International segment of approximately $72 million, both primarily due to the
outbreak of COVID-19 and related facility shut-downs.
Foreign currency translation had a negative impact on net sales of approximately $8 million.
Gross Margin
Gross margin was 36.6% for fiscal 2020 as compared to 36.2% for fiscal 2019. The following factors summarize the
major drivers of the year-over-year change in gross margin percentage:
•
Incremental list price increases, net of contract price discounting, increased gross margin by approximately
120 basis points.
• Ongoing profitability improvement efforts increased gross margin by approximately 70 basis points.
•
Reduced production leverage due to lower manufacturing volume resulting from COVID-19-related facility shut-
downs decreased gross margin by approximately 80 basis points.
• Higher net freight expenses within the Retail segment decreased gross margin by approximately 50 basis
•
points.
Special charges related to the initial purchase accounting of HAY and naughtone combined with unfavorable
product mix associated with the business acquisitions decreased gross margin by approximately 20 basis
points.
Herman Miller, Inc. and Subsidiaries 28
Operating Expenses
The following chart presents graphically the primary drivers of the year-over-year change in Operating expenses. The
amounts presented in the bar graph are expressed in millions and have been rounded.
Change in Operating Expenses
Fiscal 2020 Compared to Fiscal 2019
$27
$15
$205
$949
$(16)
$(3)
$(5)
$726
1
e
Y
F
a ir m
s
e
a r g
c
A
c t u ri n
9
R
h
C
n t
s tr u
e
p
I m
u i s iti o
p
S
&
e
q
g
s
e
a r g
h
n
s
c i a l C
g
d
e ti n
a
n
n
a r k
s i g
M
e
D
h
a r c
e
s
e
R
e r
O t h
0
2
Y
F
Operating expenses increased by $222.7 million or 30.7% compared to the prior year fiscal period. The following
factors contributed to the change:
• Non-cash charges of $205 million in the current year for the impairment of goodwill, intangible assets and right
of use assets related to Design Within Reach, Maharam, HAY and naughtone.
The acquisition of HAY and naughtone increased Operating expenses by approximately $27 million.
Restructuring expenses increased by approximately $16 million, primarily related to voluntary and involuntary
reductions in the Company's North American and International workforces, partially offset by lower special
charges.
Lower marketing and selling expenses primarily within the North America Contract segment of approximately
$16 million.
Lower design and research expenses of approximately $3 million.
•
•
•
•
Other Income/Expense
Other income/expense in the current year reflected a pre-tax gain of $36.2 million related to the purchase accounting
treatment of initial equity-method investments in naughtone and HAY. The Company became the majority owner of both
naughtone and HAY in the current year and as a result was required to record certain fair value adjustments which
resulted in a non-taxable gain.
Net other expenses for fiscal 2020 of $11.2 million increased compared to fiscal 2019 primarily as a result of a $2.1
million fair value adjustment gain in fiscal 2019.
Income Taxes
See Note 11 of the Consolidated Financial Statements for additional information.
29 2020 Annual Report
Operating Segments Results
The business is comprised of various operating segments as defined by generally accepted accounting principles in the
United States. These operating segments are determined on the basis of how the Company internally reports and
evaluates financial information used to make operating decisions. The segments identified by the Company include
North America Contract, International Contract, Retail and Corporate. For descriptions of each segment, refer to Note 14
of the Consolidated Financial Statements.
The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments.
This is followed by a discussion of the Company's results, by segment.
Net Sales by Reportable Operating Segment
Fiscal Year Ended May 30, 2020 (in Millions)
Net Sales by Reportable Operating Segment
Fiscal Year Ended June 1, 2019 (in Millions)
$1,598
$1,687
$503
$386
$492
$389
m eric a
N orth A
Intern atio n al
R etail
m eric a
N orth A
Intern atio n al
R etail
Operating Earnings (Loss)
by Reportable Operating Segment
Fiscal Year Ended May 30, 2020 (in Millions)
Operating Earnings (Loss)
by Reportable Operating Segment
Fiscal Year Ended June 1, 2019 (in Millions)
$131
$18
A merica
North
International
$(39)
$(148)
Retail
Corporate
$190
$58
$5
$(49)
A merica
North
International
Retail
Corporate
Herman Miller, Inc. and Subsidiaries 30
North America Contract ("North America")
(Dollars in millions)
Net sales
Gross margin
Gross margin %
Operating earnings
Operating earnings %
Fiscal 2020
$ 1,598.2
580.6
Fiscal 2019
$ 1,686.5
592.3
$
Change
(88.3)
(11.7)
36.3%
130.9
8.2%
35.1%
189.7
11.2%
1.2 %
(58.8)
(3.0)%
Net sales decreased 5.2%, or 5.9%(*) on an organic basis, over the prior year due to:
•
•
•
Decreased sales volumes within the North America segment of approximately $141 million, primarily due to the
outbreak of COVID-19 and related facility shut-downs; offset by
Incremental list price increases, net of contract price discounting, of approximately $43 million; and
Approximately $12 million due to the acquisition and partial-year consolidation of naughtone.
Operating earnings decreased $58.8 million, or 31.0%, over the prior year due to:
•
•
Decreased gross margin of $11.7 million due to decreased sales volumes, partially offset by an increase in
gross margin percentage of 120 basis points. The increase in gross margin percentage was due primarily to
incremental list price increases, net of contract price discounting, partially offset by lower volume leverage due
to the outbreak of COVID-19 described above; and
Increased operating expenses of $47.1 million driven primarily by non-cash charges of $43.2 million in the
current year for the impairment of goodwill and intangible assets related to Maharam, greater restructuring
expenses in the current year of $11.0 million related to severance and outplacement benefits associated with
workforce reductions implemented during the year, and greater special charges in the current year of $6.9
million related primarily to costs arising as a direct result of COVID-19. These increases were partially offset by
lower marketing and selling expenses of approximately $16 million from the comparative period.
International Contract ("International")
(Dollars in millions)
Net sales
Gross margin
Gross margin %
Operating earnings
Operating earnings %
Fiscal 2020
502.8
$
168.5
Fiscal 2019
492.2
$
166.9
$
33.5%
18.2
3.6%
33.9%
57.8
11.7%
Change
10.6
1.6
(0.4)%
(39.6)
(8.1)%
Net sales increased 2.2%, or 13.4%(*) on an organic basis, over the prior year due to:
•
•
•
Approximately $84 million due to the acquisition and partial-year consolidation of HAY and naughtone; offset
by
Decreased sales volumes within the International segment of approximately $72 million, primarily due to the
outbreak of COVID-19 and related facility shut-downs; and
The impact of foreign currency translation which decreased sales by approximately $7 million.
Operating earnings decreased $39.6 million, or 68.5%, compared to the prior year due to:
•
•
Increased operating expenses of $41.2 million driven primarily by non-cash charges of $23.2 million in the
current year for the impairment of intangible assets related to HAY and naughtone and increased expenses
of $21.6 million due to the acquisition and partial-year consolidation of HAY and naughtone; offset by
Increased gross margin of $1.6 million due mainly to the acquisition of HAY and naughtone offset by the
decreased sales volumes due to COVID-19 as described above.
31 2020 Annual Report
Retail
(Dollars in millions)
Net sales
Gross margin
Gross margin %
Operating earnings
Operating earnings %
Fiscal 2020
385.6
$
161.6
41.9 %
(148.3)
(38.5)%
Fiscal 2019
388.5
$
170.7
43.9%
5.3
1.4%
$
Change
(2.9)
(9.1)
(2.0)%
(153.6)
(39.9)%
Net sales decreased 0.7%, both on an as reported and organic(*) basis, over the prior year due primarily to lower freight
revenue in the current year.
Operating earnings decreased $153.6 million over the prior year due to:
•
•
Increased operating expenses of $144.5 million driven primarily by non-cash charges of $139.0 million in the
current year for the impairment of goodwill, intangible assets and right of use assets related to DWR; and
Decreased gross margin of $9.1 million and decreased gross margin percentage of 200 basis points due
primarily to higher net freight and distribution expenses.
Corporate
Corporate unallocated expenses totaled $39.2 million for fiscal 2020, a decrease of $10.1 million from fiscal 2019. The
decrease was driven primarily by lower special charges related to third-party consulting costs for the Company's profit
optimization initiatives, as well as transition costs incurred in the prior year related to the retirement of the Company's
previous CEO.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
Liquidity and Capital Resources
The table below summarizes the net change in cash and cash equivalents for the fiscal years indicated.
(In millions)
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Net change in cash and cash equivalents
Cash Flow — Operating Activities
Fiscal Year Ended
2019
2020
$
$
$
$
$
221.8 $
(168.1) $
244.0 $
(2.9) $
294.8 $
216.4
(165.0)
(91.9)
(4.2)
(44.7)
Cash provided by operating activities in fiscal 2020 was comparable to the prior year and included non-cash impacts of
impairment charges, restructuring expense and the gain on the consolidation of equity method investments.
Cash Flow — Investing Activities
Cash used in investing activities in fiscal 2020 totaled $168.1 million compared to $165.0 million in the prior year. The
increase in cash outflow in the current year, compared to the prior year, was primarily due to:
•
•
Current year cash outflows of $111.2 million for the additional investments in naughtone and HAY compared to
prior year cash outflows of $73.6 million for equity investments in HAY and Maars, and $4.8 million for the
purchase of the HAY licensing agreement; offset by
A decrease in capital expenditures of $16.8 million due to reduced spending as a result of COVID-19.
Herman Miller, Inc. and Subsidiaries 32
At the end of the fiscal 2020, there were outstanding commitments for capital purchases of $39.8 million. The
Company plans to fund these commitments with cash on hand and/or cash generated from operations. The Company
expects capital spending in fiscal 2021 to be between $50 million and $60 million, which will be primarily related to
investments in the Company's facilities and equipment.
Cash Flow — Financing Activities
Cash provided by financing activities was $244.0 million in fiscal 2020 as compared to cash used in financing activities
of $91.9 million in fiscal 2019. The items below represent the major factors driving the year-over-year increase in cash
flow provided by financing activities:
•
•
•
•
During the fourth quarter of fiscal 2020 the Company borrowed an additional $50.0 million under its existing
Private Shelf Agreement and received proceeds from a draw-down on its syndicated credit facility of $265.0
million;
Lower dividends paid of $36.4 million in the current year compared to $45.6 million in the prior year due to the
deferral of the third quarter fiscal 2020 dividend payment; and
Lower common stock repurchased of $26.6 million in the current year compared to $47.9 million in the prior
year; offset by
The purchase of the remaining Herman Miller Consumer Holdings, Inc. redeemable noncontrolling interests in
the current year for $20.3 million as described in Note 12 of the Consolidated Financial Statements, compared
to purchases of $10.1 million in the prior year.
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 share repurchase activity as part of managing cash
flows. In addition, the Company's Board of Directors has temporarily suspended all future dividends. For more
information on current cost reductions, refer to the COVID-19 Update section within Item 2: Management's Discussion
and Analysis of Financial Condition and Results of Operations.
At the end of fiscal 2020, the Company had a well-positioned balance sheet and liquidity profile. In addition to cash
flows from operating activities, the Company has access to liquidity through credit facilities, cash and cash equivalents
and short-term investments. These sources have been summarized below. For additional information, refer to Note 6 to
the Consolidated Financial Statements.
(In millions)
Cash and cash equivalents
Marketable securities
Availability under revolving lines of credit
May 30, 2020
$
$
$
454.0 $
7.0 $
0.6 $
June 1, 2019
159.2
8.8
165.0
Of the cash and cash equivalents noted above at the end of fiscal 2020, the Company had $106.8 million of cash and
cash equivalents held outside the United States. In addition, the Company had marketable securities of $7.0 million
held by one of its international wholly-owned subsidiaries.
The Company’s syndicated revolving line of credit, which expires on August 28, 2024, provides the Company with up to
$500 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing the
Company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing
capacity of the facility by up to $250 million. Outstanding borrowings bear interest at rates based on the prime rate,
federal funds rate, LIBOR or negotiated rates as outlined in the agreement. Interest is payable periodically throughout
the period if borrowings are outstanding.
As of May 30, 2020, the total debt outstanding related to borrowings under the syndicated revolving line of credit was
$490.0 million with available borrowings against this facility of $0.6 million. Subsequent to the end of the fiscal 2020,
the Company repaid borrowings of $265 million under the syndicated revolving line of credit.
33 2020 Annual Report
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 $29 million in cash held in certain foreign jurisdictions and as such has recorded a
deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S. from foreign
subsidiaries of $1.8 million. A significant portion of this cash was previously taxed under the U.S. Tax Cut 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 the Company's
business operations for the foreseeable future which could include materially reduced revenue and profits for the
Company. The Company will continue to evaluate its financial position in light of future developments, particularly
those relating to COVID-19.
Contingencies
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such proceedings and litigation currently pending will not materially affect the
Company's Consolidated Financial Statements. Refer to Note 13 of the Consolidated Financial Statements for more
information relating to contingencies.
Basis of Presentation
The Company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 30, 2020, June 1, 2019
and June 2, 2018 contained 52 weeks.
Contractual Obligations
Contractual obligations associated with our ongoing business and financing activities will result in cash payments in
future periods. The following table summarizes the amounts and estimated timing of these future cash payments.
Further information regarding debt obligations can be found in Note 6 of the Consolidated Financial Statements.
Additional information related to operating leases can be found in Note 7 of the Consolidated Financial Statements.
(In millions)
Short-term borrowings and long-term debt (1)
Estimated interest on debt obligations (1)
Operating leases (2)
Purchase obligations (3)
Pension and other post employment benefit plans
funding (4)
Payments due by fiscal year
Total
2021
2022-2023
2024-2025
$
591.4 $
75.4
270.4
79.8
51.4 $
9.1
48.5
77.2
5.4
4.9
— $
16.7
85.0
2.6
0.1
Thereafter
50.0
32.9
71.9
—
490.0 $
16.7
65.0
—
0.1
0.3
—
5.0
160.1
12.3
11.7
12.3
3.1
$ 1,046.4 $ 206.5 $
—
1.6
573.4 $
—
2.0
106.4 $
Stockholder dividends (5)
Other (6)
Total
(1) Includes the current portion of long-term debt. Contractual cash payments on long-term debt obligations are disclosed herein
based on the maturity date of the underlying debt. Estimated future interest payments on our outstanding interest-bearing debt
obligations are based on interest rates as of May 30, 2020. Actual cash outflows may differ significantly due to changes in interest
rates.
(2) Lease payments exclude $30.6 million of legally binding minimum lease payments for leases signed but not yet commenced,
primarily related to a new Chicago showroom expected to open in fiscal 2021.
(3) Purchase obligations consist of non-cancelable purchase orders and commitments for goods, services, and capital assets.
(4) Pension plan funding commitments are known for a 12-month period for those plans that are funded; unfunded pension and
post-retirement plan funding amounts are equal to the estimated benefit payments. As of May 30, 2020, the total projected benefit
obligation for our domestic and international employee pension benefit plans was $127.5 million.
(5) Represents the dividend payable as of May 30, 2020. Future dividend payments are not considered contractual obligations until
declared.
(6) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee
compensation benefits, and other post-employment benefits.
Herman Miller, Inc. and Subsidiaries 34
Off-Balance Sheet Arrangements — Guarantees
We provide certain guarantees to third parties under various arrangements in the form of product warranties, loan
guarantees, standby letters of credit, lease guarantees, performance bonds and indemnification provisions. These
arrangements are accounted for and disclosed in accordance with Accounting Standards Codification (ASC) Topic 460,
"Guarantees" as described in Note 13 of the Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our goal is to report financial results clearly and understandably. We follow accounting principles generally accepted in
the United States in preparing our Consolidated Financial Statements, which require us to make certain estimates and
apply judgments that affect our financial position and results of operations. We continually review our accounting
policies and financial information disclosures. These policies and disclosures are reviewed at least annually with the
Audit Committee of the Board of Directors. Following is a summary of our more significant accounting policies that
require the use of estimates and judgments in preparing the financial statements.
Business Combinations
We allocate the fair value of purchase consideration to tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these
identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires
management to make significant estimates and assumptions, especially with respect to intangible assets. These
estimates are reviewed with our advisors and can include, but are not limited to, future expected cash flows related to
acquired customer relationships, trademarks and know-how/designs and require estimation of discount rates and
royalty rates. Our estimates of fair value are based upon reasonable assumptions but which are inherently uncertain
and unpredictable, and as a result, actual results may differ from these estimates. During the measurement period,
which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities
assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent
adjustments are recorded to earnings. During 2020, management considered the acquisition of HAY a material
acquisition. There were no other material acquisitions. See Note 3 to the Consolidated Financial Statements for more
information.
Goodwill and Indefinite-lived Intangibles
We perform our annual impairment assessment for goodwill and other indefinite-lived intangible assets as of March 31
or more frequently if events or changes in circumstances indicate an impairment maybe possible. We may consider
qualitative factors to assess if it is more likely than not that the fair value for goodwill or indefinite-lived intangible
assets is below the carrying amount. We may also elect to bypass the qualitative assessment and perform a
quantitative assessment.
In connection with the preparation of fiscal 2020 annual impairment assessment, we identified indicators of goodwill
impairment for our Retail and Maharam reporting units and tradenames. A reporting unit is defined as an operating
segment or one level below an operating segment. We elected to bypass the qualitative assessment for all reporting
units and tradenames.
To complete the impairment assessment the Company makes estimates about fair value by using the income approach.
The income approach is based on projected discounted cash flows using a market participant discount rate. We
corroborate this fair value through a market capitalization reconciliation to determine if the implied control premium is
reasonable based on qualitative considerations, such as recent market transactions.
The Company believes its assumptions for assessing the impairment of its long-lived assets, goodwill and indefinite-
lived trade names are reasonable, but future changes in the underlying assumptions could occur due to the inherent
uncertainty in making such estimates. Additionally, the COVID-19 pandemic has created significant uncertainty in the
macroeconomic and business outlook.
35 2020 Annual Report
Further declines in the Company’s operating results due to challenging economic conditions, an unfavorable industry
or macroeconomic development or other adverse changes in market conditions could change one of the key
assumptions the Company uses to calculate the fair value of its long-lived assets, goodwill and indefinite-lived trade
names, which could result in a further decline in fair value and require the Company to record an additional impairment
charge in future periods.
Impairment Assessments of Goodwill, Indefinite-lived Intangibles and Long-Lived Assets
During 2020, the Company recognized impairment charges related to goodwill, indefinite-lived intangible assets and
long-lived assets. The table below provides information related to the impairments recognized during the fourth
quarter of fiscal 2020. These charges are included in "Impairment charges" within the Consolidated Statements of
Comprehensive Income.
(In millions)
Goodwill
Indefinite-lived intangible assets
Customer relationship intangible assets
Right of use assets and other long-lived assets
Total
Goodwill
Impairment Charge
125.5
53.3
7.0
19.6
205.4
$
$
Certain business acquisitions have resulted in the recording of goodwill. At May 30, 2020 and June 1, 2019, we had
goodwill of $346.0 million and $303.8 million, respectively.
We perform our annual impairment assessment for goodwill and other indefinite-lived intangible assets as of March 31
or more frequently if events or changes in circumstances indicate that the asset might be impaired. We may consider
qualitative factors to assess if it is more likely than not that the fair value for goodwill is below the carrying amount,
however, we may also elect to bypass the qualitative assessment and perform a quantitative assessment. Each of the
reporting units were reviewed for impairment using a quantitative assessment.
The Company adopted and applied ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment" using the prospective method in fiscal 2020. Refer to Note 1 of the Consolidated Financial
Statements for further information regarding the adoption of ASU No. 2017-04.
To estimate the fair value of each reporting unit when performing quantitative testing, the Company utilizes a weighting
of the income method and the market method. The income method is based on a discounted future cash flow analysis
that uses several inputs, including:
•
•
actual and forecasted revenue growth rates and operating margins, and
discount rates based on the reporting unit's weighted average cost of capital.
The Company corroborates the reasonableness of the inputs and outcomes of our discounted cash flow analysis
through a market capitalization reconciliation to determine whether the implied control premium is reasonable.
As a result of the 2020 annual goodwill impairment test, the Company recognized a total non-cash charge of $125.5
million in its Retail and Maharam reporting units, which reduced these reporting unit’s goodwill to zero. The goodwill
impairment charges were primarily caused by reduced sales and profitability projections, largely attributable to the
COVID-19 pandemic and related economic disruption that the Company began to experience in the fourth quarter of
fiscal 2020. Additionally, our annual quantitative assessment resulted in the fair values of the North America and
International Contract reporting units exceeding their respective carrying values (the "cushion") by the amounts
summarized in the table below.
Herman Miller, Inc. and Subsidiaries 36
(In millions)
Reporting Unit
Segment
Carrying
Value(1)
Fair
Value
Difference Cushion
Goodwill on
Measurement Date
Impairment
Charge
International Contract
Retail
North America Contract
North America North America Contract $
International
Retail
Maharam(2)
Total
(1) Carrying value inclusive of impairment charges for long-lived assets and indefinite lived trade names.
(2) As a result of the impairment the Company performed the simultaneous equation to determine the impact on its deferred tax
liability, which resulted in a full impairment of the reporting unit's goodwill.
317.7 $ 951.0 $
359.0
213.6
86.0
182.6 $
167.5
88.8
36.7
475.6 $
633.3
62.5
(91.2)
(28.1)
576.5
199% $
17%
N/A
N/A
$ 976.3 $ 1,552.8 $
421.5
122.4
57.9
$
—
—
88.8
36.7
125.5
Generally, changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of
the reporting unit. For example, a 1.0% decrease in estimated annual future cash flows would decrease the estimated
fair value of the reporting unit by approximately 1.0%. The estimated long-term growth rate can have a significant
impact on the estimated future cash flows, and therefore, the fair value of each reporting unit. Of the other key
assumptions that impact the estimated fair values, most reporting units have the greatest sensitivity to changes in the
estimated discount rate. In completing the annual goodwill impairment test, the respective fair values were estimated
using discount rates ranging from 10.25% to 14.0% and long-term growth rates ranging from 2.5% to 3.0%.
The Company evaluated the sensitivity of changes in projected growth rate, discount rates and long-term growth rates
for the reporting units with goodwill remaining as of May 30, 2020. Reducing the International Contract reporting unit's
projected revenue rate by 5% in all years, and leaving all other assumptions static, would decrease its cushion to
approximately 14%. Additionally if the Company combined a 100 basis point increase in discount rate and a 100 basis
point decline in the long-term growth rate, leaving all other assumptions static, it would not result in an impairment
charge in either the North America Contract or International reporting units.
If the estimated cash flows related to the Company's International Contract segment were to decline in future periods,
the Company may need to record an impairment charge.
Indefinite-lived Intangible Assets
Certain business acquisitions have resulted in the recording of trade names as indefinite-lived intangible assets, which
are not amortized. At May 30, 2020 and June 1, 2019, we had trade name assets with a carrying value of $92.8 million
and $78.1 million, respectively.
The Company evaluates indefinite-lived trade name intangible assets for impairment annually. The Company also tests
for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-
lived intangible asset is below its carrying amount. An impairment charge is recorded if the carrying amount of an
indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. During fiscal 2020, the
Company adjusted the carrying value of all its tradenames to fair value, and as a result recognized $53.3 million in non-
cash impairment charges on its indefinite-lived trade names.
In fiscal 2020, the Company performed only quantitative assessments in testing indefinite-lived intangible assets for
impairment. In performing this assessment, we estimate the fair value of these intangible assets using the relief-from-
royalty method which requires assumptions related to:
•
•
•
actual and forecasted revenue growth rates,
assumed royalty rates that could be payable if we did not own the trademark, and
a market participant discount rate based on a weighted-average cost of capital.
The assumptions above reflect management’s best estimate; however, actual results could differ from our estimates. If
the estimated fair value of the indefinite-lived intangible asset is less than its carrying value, we would recognize an
impairment charge.
37 2020 Annual Report
In the tables below, the Company has summarized the carrying values, fair values and the key assumptions used for
each of the Company’s indefinite-lived trade names:
(In millions)
Trade name
Maharam
DWR
HAY
naughtone
Total
Segment
North America Contract
Retail
International Contract
International Contract
Carrying Value
Fair Value
Impairment Charge
$
$
23.0 $
55.1
60.0
8.5
146.6 $
16.5 $
31.5
39.3
6.0
93.3 $
(6.5)
(23.6)
(20.7)
(2.5)
(53.3)
In completing our annual indefinite-lived trade name impairment test, the respective fair values were estimated using
discount rates ranging from 12.75% to 17.25%, royalty rates ranging from 1.00% to 3.00% and long-term growth rates
ranging from 2.5% to 3.0%. The Company’s estimates of the fair value of its indefinite-lived intangible assets are
sensitive to changes in the key assumptions above as well as projected financial performance. Therefore, a sensitivity
analysis was performed on certain key assumptions.
Keeping all other assumptions constant, a 5% decrease in forecasted revenue growth rates at May 30, 2020 would
have the following effects on the fair value of each trade name:
(In millions)
Trade name Segment
Maharam
DWR
HAY
naughtone
North America Contract
Retail
International Contract
International Contract
5% Decrease
$
$
$
$
(0.8)
(1.6)
(2.0)
(0.3)
Keeping all other assumptions constant, a 100 basis point change in the discount rate at May 30, 2020 would have the
following effects on the fair value of each trade name:
(In millions)
Trade name Segment
Maharam
DWR
HAY
naughtone
North America Contract
Retail
International Contract
International Contract
100 bps Increase 100 bps Decrease
$
$
$
$
(0.9) $
(3.0) $
(3.9) $
(0.5) $
2.1
3.7
4.1
0.5
Keeping all other assumptions constant, a 25 basis point change in the royalty rate at May 30, 2020 would have the
following effects on the fair value of each trade name:
(In millions)
Trade name Segment
Maharam
DWR
HAY
naughtone
North America Contract
Retail
International Contract
International Contract
25 bps Increase
25 bps Decrease
$
$
$
$
2.1 $
7.9 $
3.4 $
0.8 $
(2.1)
(7.9)
(4.3)
(0.8)
Keeping all other assumptions constant, a 50 basis point change in the long-term growth rate at May 30, 2020 would
have the following effects on the fair value of each trade name(1):
(In millions)
Trade name Segment
50 bps Increase
50 bps Decrease
Maharam
DWR
HAY
(1) Change in the fair value of the naughtone trade name from sensitizing growth rate was not meaningful.
North America Contract
Retail
International Contract
$
$
$
0.5 $
0.9 $
1.0 $
(0.5)
(0.8)
(0.9)
Herman Miller, Inc. and Subsidiaries 38
If the estimated cash flows related to the Company's indefinite-lived intangibles were to decline in future periods, the
Company may need to record an impairment charge.
Long-lived Assets
The Company reviews the carrying value of long–lived assets for impairment when events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. If such indicators are present, the future
undiscounted cash flows attributable to the asset group are compared to the carrying value of the asset or asset group.
Given the substantial reduction in forecasted revenue growth and cash flows due to the COVID-19 pandemic, the
Company determined that a triggering event occurred in the fourth quarter of 2020 and an impairment assessment was
warranted for certain asset groups. Accordingly, the Company compared the fair value of the asset groups to the
carrying value of the asset groups. Based on this assessment, the Company recorded long-lived asset impairment
charges of $26.6 million, primarily related to its right-of-use assets and definite-lived customer relationship intangible
assets within the DWR asset group.
The Company believes its assumptions for assessing the impairment of its long-lived assets, goodwill and indefinite-
lived trade names are reasonable, but if actual results are not consistent with management's estimates and
assumptions, a material impairment charge could occur, which could have a material adverse effect on our
consolidated financial statements.
New Accounting Standards
Refer to Note 1 of the Consolidated Financial Statements for information related to new accounting standards.
Forward Looking Statements
This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs,
assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and
the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” "likely,”
“plans,” “projects,” and “should,” variations of such words, and similar expressions identify such forward-looking
statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and
assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks
include, without limitation, the success of our growth strategy, our success in initiatives aimed at achieving long-term
profit optimization goals, employment and general economic conditions, the pace of economic recovery in the U.S. and
in our International markets, the increase in white-collar employment, the willingness of customers to undertake
capital expenditures, the types of products purchased by customers, competitive-pricing pressures, the availability and
pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand globally given the risks
associated with regulatory and legal compliance challenges and accompanying currency fluctuations, changes in future
tax legislation or interpretation of current tax legislation, the ability to increase prices to absorb the additional costs of
raw materials, changes in global tariff regulations, the financial strength of our dealers and the financial strength of our
customers, our ability to locate new studios, negotiate favorable lease terms for new and existing locations and
implement our studio portfolio transformation, our ability to attract and retain key executives and other qualified
employees, our ability to continue to make product innovations, the success of newly-introduced products, our ability
to serve all of our markets, possible acquisitions, divestitures or alliances, our ability to integrate and benefit from
acquisitions and investments, the pace and level of government procurement, the outcome of pending litigation or
governmental audits or investigations, political risk in the markets we serve, natural disasters, public health crises,
disease outbreaks, and other risks identified in our filings with the Securities and Exchange Commission. Therefore,
actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc.
undertakes no obligation to update, amend or clarify forward-looking statements.
39 2020 Annual Report
Item 7A Quantitative and Qualitative Disclosures About Market Risk
The Company manufactures, markets, and sells its products throughout the world and, as a result, is subject to
changing economic conditions, which could reduce the demand for its products.
Direct Material Costs
The Company is exposed to risks arising from price changes for certain direct materials and assembly components
used in its operations. The largest of such costs incurred by the Company are for steel, plastics, textiles, wood
particleboard and aluminum components. The impact from changes in all commodity prices lowered the Company's
costs by approximately $4 million during fiscal 2020 compared to the prior year. The impact from changes in
commodity prices increased the Company's costs by approximately $16 million during fiscal 2019 as compared to fiscal
2018. Note that these changes include the impact of Chinese tariffs on the Company's direct material costs.
The market prices for commodities will fluctuate over time and the Company acknowledges that such changes are likely
to impact its costs for key direct materials and assembly components. Consequently, it views the prospect of such
changes as an outlook risk to the business.
Foreign Exchange Risk
The Company primarily manufactures its products in the United States, United Kingdom, China, India, and Brazil. It also
sources completed products and product components from outside the United States. The Company's completed
products are sold in numerous countries around the world. Sales in foreign countries as well as certain expenses
related to those sales are transacted in currencies other than the Company's reporting currency, the U.S. dollar.
Accordingly, production costs and profit margins related to these sales are effected by the currency exchange
relationship between the countries where the sales take place and the countries where the products are sourced or
manufactured. These currency exchange relationships can also impact the Company's competitive positions within
these markets.
In the normal course of business, the Company enters into contracts denominated in foreign currencies. The principal
foreign currencies in which the Company conducts its business are the British pound sterling, euro, Canadian dollar,
Japanese yen, Mexican peso, Hong Kong dollar and Chinese renminbi. As of May 30, 2020, the Company had
outstanding twenty forward currency instruments designed to offset either net asset or net liability exposure that is
denominated in non-functional currencies.
(In millions, except number of forward contracts)
Net Asset Exposure
Currency
Number of Forward Contracts
Net Exposure
USD
EUR
ZAR
NOK
SEK
GBP
Net Liability Exposure
Currency
USD
EUR
CAD
AED
7
2
1
1
1
1
Number of Forward Contracts
4
1
Net Exposure
1
1
41.6
18.2
3.7
7.7
10.5
1.4
7.4
1.3
3.1
3.9
Herman Miller, Inc. and Subsidiaries 40
As of June 1, 2019, the Company had outstanding, fourteen forward currency instruments designed to offset either net
asset or net liability exposure that is denominated in non-functional currencies.
(In millions, except number of forward contracts)
Net Asset Exposure
Currency
Number of Forward Contracts
Net Exposure
USD
EUR
ZAR
CAD
Net Liability Exposure
Currency
USD
EUR
4
2
1
1
Number of Forward Contracts
Net Exposure
5
1
21.5
21.0
8.0
0.6
14.0
1.5
The cost of the foreign currency hedges and remeasuring all foreign currency transactions into the appropriate
functional currency resulted in a net loss of $1.1 million in fiscal 2020 in contrast to net gain of $0.3 million in fiscal
2019 included in net earnings. These amounts are included in “Other expense (income), net” in the Consolidated
Statements of Comprehensive Income. Additionally, the cumulative effect of translating the balance sheet and income
statement accounts from the functional currency into the United States dollar decreased the accumulated
comprehensive loss component of total stockholders' equity by $7.7 million and $14.2 million as of the end of fiscal
2020 and 2019, respectively.
Interest Rate Risk
The Company enters into interest rate swap agreements to manage its exposure to interest rate changes and its overall
cost of borrowing. The Company's interest rate swap agreement was entered into to exchange variable rate interest
payments for fixed rate payments over the life of the agreement without the exchange of the underlying notional
amounts. The notional amount of the interest rate swap agreements is used to measure interest to be paid or received
and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap
agreements is recognized as an adjustment to interest expense.
These interest rate swap derivative instruments are held and used by the Company as a tool for managing interest rate
risk. They are not used for trading or speculative purposes. The counterparties to the swap instruments are large
financial institutions that the Company believes are of high-quality creditworthiness. While the Company may be
exposed to potential losses due to the credit risk of non-performance by these counterparties, such losses are not
anticipated.
In September 2016, the Company entered into an interest rate swap agreement. The interest rate swap is for an
aggregate notional amount of $150.0 million with a forward start date of January 3, 2018 and a termination date of
January 3, 2028. As a result of the transaction, the Company effectively converted indebtedness anticipated to be
borrowed on the Company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate
plus applicable margin to a 1.949 percent fixed interest rate plus applicable margin under the agreement as of the
forward start date.
In June 2017, the Company entered into an interest rate swap agreement. The interest rate swap is for an aggregate
notional amount of $75.0 million with a forward start date of January 3, 2018 and a termination date of January 3, 2028.
As a result of the transaction, the Company effectively converted the Company’s revolving line of credit up to the
notional amount from a LIBOR-based floating interest rate plus applicable margin to a 2.387 percent fixed interest rate
plus applicable margin under the agreement as of the forward start date.
The fair market value of the effective interest rate swap instruments was a net liability of $25.0 million at May 30, 2020
compared to $1.2 million at June 1, 2019. All cash flows related to the Company's interest rate swap instruments are
41 2020 Annual Report
denominated in U.S. dollars. For further information, refer to Note 6 and Note 12 of the Consolidated Financial
Statements.
Expected cash outflows (notional amounts) over the next five years and thereafter related to debt instruments are as
follows.
(In millions)
Long-Term Debt - Variable rate:
Syndicated Revolving Line of Credit, due
August 2024
Long-Term Debt - Fixed rate:
2021
2022
2023
2024
2025
Thereafter
Total(1)
$
— $
— $
— $
— $265.0 $
— $ 265.0
Interest rate 4.95%
Interest rate 6.00%
Interest rate 1.949%(2)
Interest rate 2.387%(2)
— $
— $
— $
— $
(1) Amount does not include the recorded fair value of the swap instruments.
(2) The Company's revolving credit facility has a variable interest rate, but due to the interest rate swaps, the rate on $150.0 million
and $75.0 million will be fixed at 1.949% and 2.387%, respectively.
— $
— $
— $
— $
— $ 150.0 $
— $ 75.0 $
50.0
50.0 $
— $
50.0
— $ 150.0
75.0
— $
— $
$
$ 50.0 $
— $
$
— $
$
— $
— $
— $
— $
Herman Miller, Inc. and Subsidiaries 42
Item 8 Financial Statements and Supplementary Data
Herman Miller, Inc.
Consolidated Statements of Comprehensive Income
(In millions, except per share data)
Net sales
Cost of sales
Gross margin
Operating expenses:
Selling, general and administrative
Impairment charges
Restructuring expenses
Design and research
Total operating expenses
Operating (loss) earnings
Gain on consolidation of equity method investments
Interest expense
Interest and other investment income
Other expense (income), net
(Loss) Earnings before income taxes and equity income
Income tax expense
Equity earnings from nonconsolidated affiliates, net of tax
Net (loss) earnings
Net (loss) earnings attributable to redeemable noncontrolling
interests
Net (loss) earnings attributable to Herman Miller, Inc.
(Loss) Earnings per share — basic
(Loss) Earnings per share — diluted
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Pension and post-retirement liability adjustments
Unrealized (losses) gains on interest rate swap agreement
Unrealized holding gains on securities
Total other comprehensive (loss) income, net of tax
Comprehensive (loss) income
Comprehensive (loss) income attributable to redeemable
noncontrolling interests
Year Ended
June 1, 2019
May 30, 2020
$
2,486.6 $
1,575.9
910.7
2,567.2 $
1,637.3
929.9
June 2, 2018
2,381.2
1,508.2
873.0
643.3
205.4
26.4
74.0
949.1
(38.4)
36.2
12.5
(2.3)
1.0
(13.4)
6.0
5.0
(14.4)
639.3
—
10.2
76.9
726.4
203.5
—
12.1
(2.1)
(1.6)
195.1
39.6
5.0
160.5
$
$
$
$
(5.3)
(9.1) $
—
160.5 $
(0.15) $
(0.15) $
2.72 $
2.70 $
(7.7) $
(14.2)
(18.0)
0.1
(39.8)
(54.2)
(5.3)
(14.2) $
(7.8)
(12.3)
—
(34.3)
126.2
—
615.3
—
5.7
73.1
694.1
178.9
—
13.5
(4.4)
1.7
168.1
42.4
3.0
128.7
0.6
128.1
2.15
2.12
2.7
10.4
7.8
—
20.9
149.6
0.6
149.0
Comprehensive (loss) income attributable to Herman Miller, Inc.
$
(48.9) $
126.2 $
43 2020 Annual Report
Herman Miller, Inc.
Consolidated Balance Sheets
(In millions, except share and per share data)
ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $4.7 and $3.8
Unbilled accounts receivable
Inventories, net
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net of accumulated depreciation of $780.5 and $736.1
Right of use assets
Goodwill
Indefinite-lived intangibles
Other amortizable intangibles, net of accumulated amortization of $62.7 and $46.2
Other noncurrent assets
Total Assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
Short-term borrowings and current portion of long-term debt
Accrued compensation and benefits
Accrued warranty
Customer deposits
Other accrued liabilities
Total current liabilities
Long-term debt
Pension and post-retirement benefits
Lease liabilities
Other liabilities
Total Liabilities
Redeemable noncontrolling interests
Stockholders' Equity:
$
$
$
Preferred stock, no par value (10,000,000 shares authorized, none issued)
Common stock, $0.20 par value (240,000,000 shares authorized, 58,793,275 and
58,794,148 shares issued and outstanding in 2020 and 2019, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Deferred compensation plan
Herman Miller, Inc. Stockholders' Equity
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity
$
May 30, 2020
June 1, 2019
454.0 $
7.0
180.0
19.5
197.3
43.3
16.0
917.1
330.8
193.9
346.0
92.8
112.4
60.9
2,053.9 $
128.8 $
51.4
71.1
59.2
39.8
163.0
513.3
539.9
42.4
178.8
86.1
1,360.5
50.4
—
11.8
81.6
683.9
(134.0)
(0.3)
643.0
2,053.9 $
159.2
8.8
218.0
34.3
184.2
45.8
11.0
661.3
348.6
—
303.8
78.1
41.1
136.4
1,569.3
177.7
3.1
85.5
53.1
30.7
96.0
446.1
281.9
24.5
—
77.0
829.5
20.6
—
11.7
89.8
712.7
(94.2)
(0.8)
719.2
1,569.3
Herman Miller, Inc. and Subsidiaries 44
Herman Miller, Inc.
Consolidated Statements of Stockholders' Equity
Common Stock
(In millions, except share and per share data)
June 3, 2017
Net earnings
Other comprehensive income, net of tax
Stock-based compensation expense
Exercise of stock options
Restricted and performance stock units released
Employee stock purchase plan issuances
Repurchase and retirement of common stock
Directors' fees
Deferred compensation plan
Dividends declared ($0.72 per share)
Redemption value adjustment
Cumulative effect of accounting changes
June 2, 2018
Net earnings
Other comprehensive loss, net of tax
Stock-based compensation expense
Exercise of stock options
Restricted and performance stock units released
Employee stock purchase plan issuances
Repurchase and retirement of common stock
Directors' fees
Deferred compensation plan
Dividends declared ($0.79 per share)
Cumulative effect of accounting changes
June 1, 2019
Net loss
Other comprehensive loss
Stock-based compensation expense
Exercise of stock options
Restricted and performance stock units released
Employee stock purchase plan issuances
Repurchase and retirement of common stock
Directors' fees
Deferred compensation plan
Dividends declared ($0.63 per share)
Redemption value adjustment
May 30, 2020
45 2020 Annual Report
Shares
59,715,824
—
—
—
538,259
256,884
67,335
(1,356,156)
8,828
—
—
—
—
59,230,974
—
—
—
347,248
468,807
62,957
(1,326,023)
10,185
—
—
—
58,794,148
—
—
—
423,815
138,590
70,145
(641,192)
7,769
—
—
—
58,793,275
$
Amount
11.9
$
—
—
—
—
0.1
—
(0.3)
—
—
—
—
—
11.7
—
—
—
0.1
0.1
—
(0.2)
—
—
—
—
11.7
—
—
—
0.2
—
—
(0.1)
—
—
—
—
11.8
$
$
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Deferred
Compensation
Plan
Herman
Miller, Inc.
Stockholders'
Equity
Noncontrolling
Interests
Total
Stockholders'
Equity
$
$
$
$
139.3
—
—
7.0
14.6
0.2
2.0
(46.2)
0.4
(0.4)
—
—
(0.3)
116.6
—
—
8.4
10.0
0.2
1.9
(47.6)
0.3
—
—
—
89.8
—
—
2.7
13.3
0.2
2.1
(26.5)
0.3
(0.3)
—
—
81.6
$
519.5
128.1
—
—
—
—
—
—
—
—
(43.2)
(6.2)
0.1
$ 598.3
160.5
—
—
—
—
—
—
—
—
(46.6)
0.5
712.7
(9.1)
—
—
—
—
—
—
—
—
(37.5)
17.8
$ 683.9
$
$
$
$
$
(82.2) $
—
20.9
—
—
—
—
—
—
—
—
—
—
(61.3) $
—
(34.3)
—
—
—
—
—
—
—
—
1.4
(94.2) $
—
(39.8)
—
—
—
—
—
—
—
—
—
(134.0) $
(1.0) $
—
—
—
—
—
—
—
—
0.3
—
—
—
(0.7) $
—
—
—
—
—
—
—
—
(0.1)
—
—
(0.8) $
—
—
—
—
—
—
—
—
0.5
—
—
(0.3) $
587.5
128.1
20.9
7.0
14.6
0.3
2.0
(46.5)
0.4
(0.1)
(43.2)
(6.2)
(0.2)
664.6
160.5
(34.3)
8.4
10.1
0.3
1.9
(47.8)
0.3
(0.1)
(46.6)
1.9
719.2
(9.1)
(39.8)
2.7
13.5
0.2
2.1
(26.6)
0.3
0.2
(37.5)
17.8
643.0
$
$
$
$
$
$
0.2
—
—
—
—
—
—
—
—
—
—
—
—
0.2
—
—
(0.2)
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
— $
587.7
128.1
20.9
7.0
14.6
0.3
2.0
(46.5)
0.4
(0.1)
(43.2)
(6.2)
(0.2)
664.8
160.5
(34.3)
8.2
10.1
0.3
1.9
(47.8)
0.3
(0.1)
(46.6)
1.9
719.2
(9.1)
(39.8)
2.7
13.5
0.2
2.1
(26.6)
0.3
0.2
(37.5)
17.8
643.0
Herman Miller, Inc.
Consolidated Statements of Cash Flows
(In millions)
Cash Flows from Operating Activities:
May 30, 2020
Year Ended
June 1, 2019
June 2, 2018
Net (loss) earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
$
(14.4) $
160.5 $
128.7
Depreciation expense
Amortization expense
Earnings from nonconsolidated affiliates net of dividends received
Investment fair value adjustment
Gain on consolidation of equity method investments
Deferred taxes
Pension contributions
Pension and post-retirement expenses
Impairment charges
Restructuring expenses
Stock-based compensation
Increase in long-term assets
Increase in long-term liabilities
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable & unbilled accounts receivable
Decrease (increase) in inventories
Increase in prepaid expenses and other
(Decrease) increase in accounts payable
(Decrease) increase in accrued liabilities
Other, net
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Marketable securities purchases
Marketable securities sales
Capital expenditures
Proceeds from sales of property and dealers
Proceeds from life insurance policy
Purchase of HAY licensing agreement
Acquisitions, net of cash received
Equity investment in non-controlled entities
Other, net
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Borrowings of long-term debt
Repayments of long-term debt
Proceeds from credit facility
Repayments of credit facility
Dividends paid
Common stock issued
Common stock repurchased and retired
Purchase of redeemable noncontrolling interests
Other, net
Net Cash Provided by (Used in) Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net Increase In Cash and Cash Equivalents
Cash and cash equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Other Cash Flow Information
Interest paid
Income taxes paid, net of cash received
$
$
$
68.1
11.4
(4.8)
—
(36.2)
(25.2)
(0.9)
1.6
205.4
26.4
2.7
(4.7)
5.8
68.6
6.0
(2.2)
(59.5)
(32.0)
5.7
221.8
(3.1)
5.0
(69.0)
0.2
—
—
(111.2)
(3.3)
13.3
(168.1)
65.9
6.2
(2.1)
(2.1)
—
0.8
(0.9)
1.2
—
10.2
7.3
(0.4)
1.6
(24.8)
(31.9)
(0.6)
0.5
22.7
2.3
216.4
(1.9)
1.7
(85.8)
0.5
—
(4.8)
—
(73.6)
(1.1)
(165.0)
50.0
—
265.0
—
(36.4)
15.6
(26.6)
(20.3)
(3.3)
244.0
(2.9)
294.8
159.2
454.0 $
—
—
—
—
(45.6)
12.3
(47.9)
(10.1)
(0.6)
(91.9)
(4.2)
(44.7)
203.9
159.2 $
60.9
6.0
(0.2)
—
—
(0.8)
(13.4)
2.9
—
5.7
7.7
(2.2)
3.4
(33.1)
(12.4)
(3.0)
16.0
(0.3)
0.6
166.5
(1.0)
1.0
(70.6)
2.1
8.1
—
—
—
(2.3)
(62.7)
—
(150.0)
340.4
(115.4)
(42.4)
17.0
(46.5)
(1.0)
0.4
2.5
1.4
107.7
96.2
203.9
11.4 $
39.6 $
11.5 $
41.0 $
16.4
34.2
Herman Miller, Inc. and Subsidiaries 46
Notes to the Consolidated Financial Statements
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Significant Accounting and Reporting Policies
Revenue from Contracts with Customers
Acquisitions and Divestitures
Inventories
Investments in Nonconsolidated Affiliates
Short-Term Borrowings and Long-Term Debt
Leases
Employee Benefit Plans
Common Stock and Per Share Information
Stock-Based Compensation
Income Taxes
Fair Value
Commitments and Contingencies
Operating Segments
Accumulated Other Comprehensive Loss
Restructuring Expenses
Variable Interest Entities
Quarterly Financial Data (Unaudited)
48
56
58
61
61
62
64
66
69
70
73
77
82
83
86
86
88
88
47 2020 Annual Report
1. Significant Accounting and Reporting Policies
The following is a summary of significant accounting and reporting policies not reflected elsewhere in the
accompanying financial statements.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Herman Miller, Inc. and its controlled domestic and
foreign subsidiaries. The consolidated entities are collectively referred to as “the Company.” All intercompany accounts
and transactions have been eliminated in the Consolidated Financial Statements.
Description of Business
The Company researches, designs, manufactures, sells and distributes interior furnishings for use in various
environments including office, healthcare, educational and residential settings and provides related services that
support companies all over the world. The Company's products are sold primarily through independent contract office
furniture dealers as well as the following channels: owned contract office furniture dealers, direct customer sales,
independent retailers, owned retail studios, direct-mail catalogs and the Company's e-commerce platforms.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 30, 2020, June 1, 2019,
and June 2, 2018 contained 52 weeks.
Foreign Currency Translation
The functional currency for most of the foreign subsidiaries is their local currency. The cumulative effects of translating
the balance sheet accounts from the functional currency into the United States dollar using fiscal year-end exchange
rates and translating revenue and expense accounts using average exchange rates for the period are reflected as a
component of Accumulated other comprehensive loss in the Consolidated Balance Sheets.
The financial statement impact of gains and losses resulting from remeasuring foreign currency transactions into the
appropriate functional currency resulted in a net loss of $1.1 million, net gain of $0.3 million, and a net gain of $0.4
million for the fiscal years ended May 30, 2020, June 1, 2019, and June 2, 2018, respectively. These amounts are
included in “Other expense (income), net” in the Consolidated Statements of Comprehensive Income.
Cash Equivalents
The Company holds cash equivalents as part of its cash management function. Cash equivalents include money market
funds and time deposit investments with original maturities of less than three months. The carrying value of cash
equivalents, which approximates fair value, totaled $364.0 million and $102.8 million as of May 30, 2020 and June 1,
2019, respectively. All cash equivalents are high-credit quality financial instruments and the amount of credit exposure
to any one financial institution or instrument is limited.
Marketable Securities
The Company maintains a portfolio of marketable securities primarily comprised of mutual funds. These mutual funds
are comprised of both equity and fixed income funds. These investments are held by the Company's wholly owned
insurance captive and have been recorded at fair value based on quoted market prices. Net unrealized holding gains or
losses related to the equity mutual funds are recorded through net income while net unrealized holding gains or losses
related to the fixed income mutual funds are recorded through other comprehensive income.
All marketable security transactions are recognized on the trade date. Realized gains and losses are included in
“Interest and other investment income” in the Consolidated Statements of Comprehensive Income. See Note 12 of the
Consolidated Financial Statements for additional disclosures of marketable securities.
Accounts Receivable Allowances
Reserves for uncollectible accounts receivable balances are based on known customer exposures, historical credit
experience and the specific identification of other potentially uncollectible accounts. Balances are written off against
Herman Miller, Inc. and Subsidiaries 48
the reserve once the Company determines the probability of collection to be remote. The Company generally does not
require collateral or other security on trade accounts receivable.
Concentrations of Credit Risk
The Company's trade receivables are primarily due from independent dealers who, in turn, carry receivables from their
customers. The Company monitors and manages the credit risk associated with individual dealers and direct customers
where applicable. Dealers are responsible for assessing and assuming credit risk of their customers and may require
their customers to provide deposits, letters of credit or other credit enhancement measures. Some sales contracts are
structured such that the customer payment or obligation is direct to the Company. In those cases, the Company may
assume the credit risk. Whether from dealers or customers, the Company's trade credit exposures are not concentrated
with any particular entity.
Inventories
Inventories are valued at the lower of cost or market and include material, labor and overhead. Inventory cost is
determined using the last-in, first-out (LIFO) method at manufacturing facilities in Michigan, whereas inventories of the
Company's other locations are valued using the first-in, first-out (FIFO) method. The Company establishes reserves for
excess and obsolete inventory based on prevailing circumstances and judgment for consideration of current events,
such as economic conditions, that may affect inventory. The reserve required to record inventory at lower of cost or net
realizable value may be adjusted in response to changing conditions. Further information on the Company's recorded
inventory balances can be found in Note 4 of the Consolidated Financial Statements.
Goodwill and Indefinite-lived Intangible Assets
Goodwill and other indefinite-lived assets included in the Consolidated Balance Sheets consist of the following:
(In millions)
Balance, June 2, 2018
Foreign currency translation adjustments
Balance, June 2, 2019
Foreign currency translation adjustments
Acquisition of HAY
Acquisition of naughtone
Impairment charges
Balance, May 30, 2020
Goodwill
Indefinite-lived
Intangible Assets
Total Goodwill and Indefinite-
lived Intangible Assets
$
$
$
304.1 $
(0.3)
303.8 $
(0.9)
111.1
57.5
(125.5)
346.0 $
78.1 $
—
78.1 $
(0.5)
60.0
8.5
(53.3)
92.8 $
382.2
(0.3)
381.9
(1.4)
171.1
66.0
(178.8)
438.8
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 were reviewed for impairment using a
quantitative assessment as of March 31, 2020.
To estimate the fair value of each reporting unit when performing the quantitative testing, the Company utilizes a
weighting of the income method and the market method. The income method is based on a discounted future cash
flow analysis that uses a number of inputs, including:
•
•
actual and forecasted revenue growth rates and operating margins, and
discount rates based on the reporting unit's weighted average cost of capital.
The Company corroborates the reasonableness of the inputs and outcomes of our discounted cash flow analysis
through a market capitalization reconciliation to determine whether the implied control premium is reasonable.
49 2020 Annual Report
The Company completed its annual goodwill impairment test in the fourth quarter of each year, as of March 31st. In
fiscal 2020, the Company elected to perform quantitative impairment tests for all goodwill reporting units and other
indefinite-lived intangible assets. In performing the quantitative impairment test, the Company determined that the fair
value of the North America and International reporting units exceeded the carrying amount and, as such, these
reporting units were not impaired. Our assessment of the Retail and Maharam reporting units indicated that the
carrying value of these reporting units exceeded their fair values, and goodwill impairment charges of $88.8
million and $36.7 million, respectively, were recorded in fiscal 2020 resulting in no goodwill in either the Retail or
Maharam reporting units.
The fair value of the Company's International reporting unit, which includes $163.7 million of goodwill as of May 30,
2020, exceeds 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.
In completing our annual goodwill impairment test, the respective fair values were estimated using an income
approach with market participant discount rates ranging from 10.25% to 14.0% developed using a weighted average
cost of capital analysis and long-term growth rates ranging from 2.5% to 3.0%.
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. The Company utilizes the relief from royalty methodology to test for impairment. The primary
assumptions for the relief from royalty method include forecasted revenue growth rates, royalty rates and discount
rates. The Company measures and records an impairment loss for the excess of the carrying value of the asset over its
fair value.
In fiscal 2020, the Company performed quantitative assessments in testing indefinite-lived intangible assets for
impairment, which resulted in the carrying values of the DWR, Maharam, HAY and naughtone trade names exceeding
their fair values by $53.3 million, and impairment charges of this amount were recognized. If the residual cash flows
related to these trade names were to decline in future periods, the Company may need to record an additional
impairment charge.
In completing our annual indefinite-lived trade name impairment test, the respective fair values were estimated using a
relief-from-royalty approach, applying market participant discount rates ranging from 12.75% to 17.25% developed
using a weighted average cost of capital analysis, royalty rates ranging from 1.00% to 3.00% and long-term growth
rates ranging from 2.5% to 3.0%.
The table below summarizes the carrying values and impairment charges recorded as of and for the fiscal year ended
May 30, 2020, for each of the Company’s indefinite-lived trade names:
(In millions)
Trade name
Maharam
DWR
HAY
naughtone
Total
Carrying Value Impairment Charge
$
$
16.5 $
31.5
39.3
6.0
93.3 $
(6.5)
(23.6)
(20.7)
(2.5)
(53.3)
The goodwill and indefinite-lived trade name impairment charges were primarily caused by reduced sales and
profitability projections, largely attributable to the COVID-19 pandemic and related economic disruption that the
Company began to experience in the fourth quarter of fiscal 2020.
Property, Equipment and Depreciation
Property and equipment are stated at cost. The cost is depreciated over the estimated useful lives of the assets using
the straight-line method. Estimated useful lives range from 3 to 10 years for machinery and equipment and do not
exceed 40 years for buildings. Leasehold improvements are depreciated over the lesser of the lease term or the useful
life of the asset. The Company capitalizes certain costs incurred in connection with the development, testing and
Herman Miller, Inc. and Subsidiaries 50
installation of software for internal use and cloud computing arrangements. Software for internal use is included in
property and equipment and is depreciated over an estimated useful life not exceeding 5 years. Depreciation and
amortization expense is included in the Consolidated Statements of Comprehensive Income in the Cost of sales,
Selling, general and administrative and Design and research line items.
The following table summarizes our property as of the dates indicated:
(In millions)
Land and improvements
Buildings and improvements
Machinery and equipment
Construction in progress
Accumulated depreciation
Property and equipment, net
May 30, 2020
June 1, 2019
$
$
23.7 $
266.5
791.9
29.2
(780.5)
330.8 $
24.2
267.6
733.0
59.9
(736.1)
348.6
As of the end of fiscal 2020, outstanding commitments for future capital purchases approximated $39.8 million.
Other Long-Lived Assets
The Company reviews the carrying value of long–lived assets for impairment when events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. If such indicators are present, the future
undiscounted cash flows attributable to the asset or asset group are compared to the carrying value of the asset or
asset group. Given the substantial reduction in forecasted revenue growth rates and cash flows due to the COVID-19
pandemic, the Company determined that a triggering event occurred in the fourth quarter of 2020 and an impairment
assessment was warranted for certain asset groups. Accordingly, the Company compared the fair value of the asset
groups to the carrying value of the asset groups. Based on this assessment, the Company recorded long-lived asset
impairment charges of $26.6 million, primarily related to its right-of-use assets and definite-lived customer
relationship intangible assets within the DWR asset group. The carrying value of the DWR asset group as of May 30,
2020 was $122.7 million.
The Company used available market-based rental comparatives and industry data trends, as well as considerations of
the remaining lease term, to determine the fair value of DWR’s right of use assets. As a result, the Company determined
that the carrying value for the right-of-use assets within the DWR asset group exceeded their fair value and an
impairment charge of $19.3 million was recorded. The carrying value of the DWR right of use assets at May 30, 2020 is
$110.9 million. If the residual cash flows related to these long-lived assets were to decline in future periods, the
Company may need to record an additional impairment charge.
Amortizable intangible assets within Other amortizable intangibles, net in the Consolidated Balance Sheets consist
primarily of patents, trademarks and customer relationships. The customer relationships intangible asset is comprised
of relationships with customers, specifiers, networks, dealers and distributors. Refer to the following table for the
combined gross carrying value and accumulated amortization for these amortizable intangibles.
(In millions)
Gross carrying value
Accumulated amortization
Net
Gross carrying value
Accumulated amortization
Net
Patent and Trademarks
May 30, 2020
Customer Relationships
Other
Total
$
$
41.7 $
14.4
27.3 $
118.7 $
38.3
80.4 $
14.7 $
10.0
4.7 $
175.1
62.7
112.4
Patent and Trademarks
$
20.1 $
12.5
7.6 $
$
June 1, 2019
Customer Relationships
Other
Total
55.2 $
27.6
27.6 $
12.0 $
6.1
5.9 $
87.3
46.2
41.1
The Company amortizes these assets over their remaining useful lives using the straight-line method over periods
ranging from 5 years to 20 years, or on an accelerated basis, to reflect the expected realization of the economic
51 2020 Annual Report
benefits. It is estimated that the weighted-average remaining useful life of the patents and trademarks is approximately
7 years and the weighted-average remaining useful life of the customer relationships is 7 years.
Estimated amortization expense on existing amortizable intangible assets as of May 30, 2020, for each of the
succeeding five fiscal years, is as follows:
(In millions)
2021
2022
2023
2024
2025
Self-Insurance
$ 14.9
$ 14.9
$ 14.4
$ 14.2
$ 13.3
The Company is partially self-insured for general liability, workers' compensation and certain employee health and
dental benefits under insurance arrangements that provide for third-party coverage of claims exceeding the Company's
loss retention levels. The Company's health benefit and auto liability retention levels do not include an aggregate stop
loss policy. The Company's retention levels designated within significant insurance arrangements as of May 30, 2020,
are as follows:
(In millions)
General liability
Auto liability
Workers' compensation
Health benefit
Retention Level (per occurrence)
1.00
$
1.00
$
0.75
$
0.50
$
The Company accrues for its self-insurance arrangements, as well as reserves for health, prescription drugs, and dental
benefit exposures based on actuarially-determined estimates, which are recorded in “Other liabilities” in the
Consolidated Balance Sheets. The value of the liability as of May 30, 2020 and June 1, 2019 was $13.1 million and $11.7
million, respectively. The actuarial valuations are based on historical information along with certain assumptions about
future events. Changes in assumptions for such matters as legal actions, medical costs, payment lag times and
changes in actual experience could cause these estimates to change. The general, auto, and workers' compensation
liabilities are managed through the Company's wholly-owned insurance captive.
Research, Development and Other Related Costs
Research, development, pre-production and start-up costs are expensed as incurred. Research and development
("R&D") costs consist of expenditures incurred during the course of planned research and investigation aimed at
discovery of new knowledge useful in developing new products or processes. R&D costs also include the enhancement
of existing products or production processes and the implementation of such through design, testing of product
alternatives or construction of prototypes. R&D costs included in “Design and research” expense in the accompanying
Consolidated Statements of Comprehensive Income are $54.3 million, $58.8 million and $57.1 million, in fiscal 2020,
2019, and 2018, respectively.
Royalty payments made to designers of the Company's products as the products are sold are variable costs based on
product sales. These expenses totaled $19.7 million, $18.1 million and $16.0 million in fiscal years 2020, 2019 and
2018 respectively. They are included in Design and research expense in the accompanying Consolidated Statements of
Comprehensive Income.
Customer Payments and Incentives
We offer various sales incentive programs to our customers, such as rebates and discounts. Programs such as rebates
and discounts are adjustments to the selling price and are therefore characterized as a reduction to net sales.
Herman Miller, Inc. and Subsidiaries 52
Revenue Recognition
The Company recognizes revenue when performance obligations, based on the terms of customer contracts, are
satisfied. This happens when control of goods and services based on the contract have been conveyed to the customer.
Revenue for the sale of products is typically recognized at the point in time when control transfers, generally upon
transfer of title and risk of loss to the customer. Revenue for services, including the installation of products by the
Company's owned dealers, is recognized over time as the services are provided. The method of revenue recognition
may vary, depending on the type of contract with the customer, as noted in the section "Disaggregated Revenue" in
Note 2 of the Consolidated Financial Statements.
The Company's contracts with customers include master agreements and certain other forms of contracts, which do not
reach the level of a performance obligation until a purchase order is received from a customer. At the point in time that
a purchase order under a contract is received by the Company, the collective group of documents represent an
enforceable contract between the Company and the customer. While certain customer contracts may have a duration of
greater than a year, all purchase orders are less than a year in duration. As of May 30, 2020, all unfulfilled performance
obligations are expected to be fulfilled in the next twelve months.
Variable consideration exists within certain contracts that the Company has with customers. When variable
consideration is present in a contract with a customer, the Company estimates the amount that should be included in
the transaction price utilizing either the expected value method or the most likely amount method, depending on the
nature of the variable consideration. These estimates are primarily related to rebate programs which involve estimating
future sales amounts and rebate percentages to use in the determination of transaction price. Variable consideration is
included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of
cumulative revenue under the contract will not occur. Adjustments to Net sales from changes in variable consideration
related to performance obligations completed in previous periods are not material to the Company's financial
statements. Also, the Company has no contracts with significant financing components.
The Company accounts for shipping and handling activities as fulfillment activities and these costs are accrued within
Cost of sales at the same time revenue is recognized. The Company does not record revenue for sales tax, value added
tax or other taxes that are collected on behalf of government entities. The Company’s revenue is recorded net of these
taxes as they are passed through to the relevant government entities. The Company has recognized incremental costs
to obtain a contract as an expense when incurred as the amortization period is less than one year. The Company has
not adjusted the amount of consideration to be received for any significant financing components as the Company’s
contracts have a duration of one year or less.
Leases
The Company adopted ASC 842 - Leases at the beginning of fiscal year 2020. The new standard required the Company
to recognize most leases on the balance sheet as right of use (ROU) assets with corresponding lease liabilities. All
necessary changes required by the new standard, including those to the Company’s accounting policies, business
processes, systems, controls and disclosures, were implemented as of the first quarter of fiscal year 2020. See Note 7
of the Consolidated Financial Statements for further information regarding the Company's lease accounting policies.
Cost of Sales
The Company includes material, labor and overhead in cost of sales. Included within these categories are items such
as freight charges, warehousing costs, internal transfer costs and other costs of its distribution network.
Selling, General and Administrative
The Company includes costs not directly related to the manufacturing of its products in the Selling, general and
administrative line item within the Consolidated Statements of Comprehensive Income. Included in these expenses are
items such as compensation expense, rental expense, warranty expense and travel and entertainment expense.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
53 2020 Annual Report
Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to reverse.
The Company's annual effective tax rate is based on income, statutory tax rates and tax planning strategies available in
the various jurisdictions the Company operates. Complex tax laws can be subject to different interpretations by the
Company and the respective government authorities. Significant judgment is required in evaluating tax positions and
determining our tax expense. Tax positions are reviewed quarterly and tax assets and liabilities are adjusted as new
information becomes available.
In evaluating the Company's ability to recover deferred tax assets within the jurisdiction from which they arise, the
Company considers all positive and negative evidence. These assumptions require significant judgment about
forecasts of future taxable income.
Stock-Based Compensation
The Company has several stock-based compensation plans, which are described in Note 10 of the Consolidated
Financial Statements. Our policy is to expense stock-based compensation using the fair-value based method of
accounting for all awards granted.
Earnings per Share
Basic earnings per share (EPS) excludes the dilutive effect of common shares that could potentially be issued, due to
the exercise of stock options or the vesting of restricted shares and is computed by dividing net earnings by the
weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net
earnings by the sum of the weighted-average number of shares outstanding, plus all dilutive shares that could
potentially be issued. When in a loss position, basic and diluted EPS use the same weighted-average number of shares
outstanding. Refer to Note 9 of the Consolidated Financial Statements for further information regarding the
computation of EPS.
Comprehensive Income
Comprehensive income consists of Net earnings, Foreign currency translation adjustments, Unrealized holding gains
on securities, Unrealized gains on interest rate swap agreement and Pension and post-retirement liability adjustments.
Refer to Note 15 of the Consolidated Financial Statements for further information regarding comprehensive income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value
The Company classifies and discloses its fair value measurements in one of the following three categories:
•
•
•
Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.
Level 2 — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including
over-the-counter traded financial instruments. Financial instrument values are determined using prices for
recently traded financial instruments with similar underlying terms and direct or indirect observational inputs,
such as interest rates and yield curves at commonly quoted intervals.
Level 3 — Financial instruments not actively traded on a market exchange and there is little, if any, market
activity. Values are determined using significant unobservable inputs or valuation techniques.
See Note 12 of the Consolidated Financial Statements for the required fair value disclosures.
Herman Miller, Inc. and Subsidiaries 54
Derivatives and Hedging
The Company calculates the fair value of financial instruments using quoted market prices whenever available. The
Company utilizes derivatives to manage exposures to foreign currency exchange rates and interest rate risk. The fair
values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of
these instruments are reported within "Other expense (income), net" in the Consolidated Statements of
Comprehensive Income, or "Accumulated other comprehensive loss" within the Consolidated Balance Sheets,
depending on the use of the derivative and whether it qualifies for hedge accounting treatment.
Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in
Accumulated Other Comprehensive Loss, to the extent the hedges are effective, until the underlying transactions are
recognized in the Consolidated Statements of Comprehensive Income. Derivatives not designated as hedging
instruments are marked-to-market at the end of each period with the results included in Consolidated Statements of
Comprehensive Income.
See Note 12 of the Consolidated Financial Statements for further information regarding derivatives.
Recently Adopted Accounting Standards
On June 2, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)" using
the modified retrospective method. Under the updated standard, a lessee's rights and obligations under most leases,
including existing and new arrangements, are recognized as assets and liabilities, respectively, on the balance sheet.
Refer to Note 7 to the Consolidated Financial Statements for further information regarding the adoption of the standard.
On June 2, 2019, the Company adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities" using the prospective method. This update amends the hedge accounting
recognition and presentation with the objectives of improving the financial reporting of hedging relationships to better
portray the economic results of an entity's risk management activities and simplifying the application of hedge
accounting. The update expands the strategies eligible for hedge accounting, relaxes the timing requirements of hedge
documentation and effectiveness assessments and permits the use of qualitative assessments on an ongoing basis to
assess hedge effectiveness. The new guidance also requires new disclosures and presentation. The adoption did not
have a material impact on the Company's financial statements. Refer to Note 12 to the Consolidated Financial
Statements for further information.
On March 1, 2020, the Company adopted ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment" using the prospective method. This update simplifies how an entity assesses
goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill
impairment test consists of one step comparing the fair value of a reporting unit with its carrying amount. An entity
then recognizes a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting
unit’s fair value. The adoption was utilized in the Company's current year goodwill impairment testing. Refer above to
the "Goodwill and Indefinite-lived Intangible Assets" section for further information.
55 2020 Annual Report
Recently Issued Accounting Standards Not Yet Adopted
The Company is currently evaluating the impact of adopting the following relevant standards issued by the FASB:
Standard
Description
2016-13 Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses
on Financial Instruments
2018-13 Fair Value Measurement (Topic 820):
Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value
Measurement
2018-14 Compensation - Retirement Benefits -
Defined Benefit Plans - General (Subtopic
715-20): Disclosure Framework - Changes
to the Disclosure Requirements for
Defined Benefit Plans
2019-12 Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes
This guidance replaces the existing incurred
loss impairment model with an expected loss
model and requires consideration of a broader
range of reasonable and supportable
information to inform credit loss estimates.
This update eliminates, adds and modifies
certain disclosure requirements for fair value
measurements. Early adoption is permitted.
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.
This update removes certain exceptions for
recognizing deferred taxes for investments,
performing intraperiod allocation and
calculating income taxes in interim periods.
The update also adds guidance to reduce
complexity in certain areas, including
recognizing deferred taxes for tax goodwill and
allocating taxes to members of a consolidated
group. Early adoption is permitted.
Effective Date
May 31, 2020
May 31, 2020
May 30, 2021
May 30, 2021
All other issued and not yet effective accounting standards are not relevant to the Company.
2. Revenue from Contracts with Customers
Disaggregated Revenue
The Company’s revenue is comprised primarily of sales of products and installation services. Depending on the type of
contract, the method of accounting and timing of revenue recognition may differ. Below, descriptions have been
provided that summarize the Company’s different types of contracts and how revenue is recognized for each.
•
Single Performance Obligation - these contracts are transacted with customers and include only the product
performance obligation. Most commonly, these contracts represent master agreements with independent third-
party dealers in which a purchase order represents the customer contract, point of sale transactions through the
Retail segment, as well as customer purchase orders for the Maharam subsidiary within the North America
Contract segment. For contracts that include a single performance obligation, the Company records revenue at the
point in time when title and risk of loss has transferred to the customer.
• Multiple Performance Obligations - these contracts are transacted with customers and include more than one
performance obligation; products, which are shipped to the customer by the Company and installation and other
services, which are primarily fulfilled by independent third-party dealers. For contracts that include multiple
performance obligations, the Company records revenue for the product performance obligation at the point in time
when control transfers, generally upon transfer of title and risk of loss to the customer. In most cases, the
Company has concluded that it is the agent for the installation services performance obligation and as such, the
revenue and costs of these services are recorded net within Net sales in the Company’s Consolidated Statements
of Comprehensive Income.
In certain instances, entities owned by the Company, rather than independent third-party dealers, perform
installation and other services. In these cases, Service revenue is generated by the Company’s entities that
provide installation services, which include owned dealers, and is recognized by the Company over time as the
services are provided. For contracts with multiple performance obligations, the Company allocates the transaction
price to each performance obligation based on relative standalone selling prices.
Herman Miller, Inc. and Subsidiaries 56
• Other - these contracts are comprised mainly of alliance fee arrangements, whereby the Company earns revenue
for allowing other furniture sellers access to its dealer distribution channel, as well as other miscellaneous selling
arrangements. Revenue from alliance contracts are recorded at the point in time in which the sale is made by other
furniture sellers through the Company’s sales channel.
Revenue disaggregated by contract type has been provided in the table below:
(In millions)
Net Sales:
Single performance obligation
Product revenue
Multiple performance obligations
Product revenue
Service revenue
Other
Total
Year Ended
May 30, 2020
June 1, 2019
$
2,116.6 $
2,155.0
347.8
9.7
12.5
2,486.6 $
390.0
12.6
9.6
2,567.2
$
Revenue disaggregated by product type and segment has been provided in the table below:
(In millions)
North America Contract:
Systems
Seating
Freestanding and storage
Textiles
Other
Total North America Contract
International Contract:
Systems
Seating
Freestanding and storage
Other
Total International Contract
Retail:
Seating
Freestanding and storage
Other
Total Retail
Total
Year Ended
May 30, 2020
June 1, 2019
$
$
$
$
$
$
$
512.7 $
459.1
379.8
138.8
107.8
1,598.2 $
76.6 $
321.2
51.1
53.9
502.8 $
261.3 $
66.0
58.3
385.6 $
564.4
501.8
384.9
113.8
121.6
1,686.5
103.6
276.1
53.0
59.5
492.2
235.6
67.5
85.4
388.5
2,486.6 $
2,567.2
Refer to Note 14 of the Consolidated Financial Statements for further information related to our segments.
Contract Assets and Contract Liabilities
The Company records contract assets and contract liabilities related to its revenue generating activities. Contract assets
include certain receivables from customers that are unconditional as all performance obligations with respect to the
contract with the customer have been completed. These amounts represent trade receivables and they are recorded
within the caption “Accounts receivable, net” in the Consolidated Balance Sheets.
Contract assets also include amounts that are conditional because certain performance obligations in contracts with
customers are incomplete as of the balance sheet date. These contract assets generally arise due to contracts with
customers that include multiple performance obligations, e.g., both the product that is shipped to the customer by the
Herman Miller, Inc. and Subsidiaries 57
Company, as well as installation services provided by independent third-party dealers. For these contracts, the
Company recognizes revenue upon satisfaction of the product performance obligation. These contract assets are
included in the caption "Unbilled accounts receivable" in the Consolidated Balance Sheets until all performance
obligations in the contract with the customer have been satisfied.
Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and
recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer
based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized. These
customer deposits are included within the caption “Customer deposits” in the Consolidated Balance Sheets. During
the year ended May 30, 2020, the Company recognized Net sales of $27.7 million related to customer deposits that
were included in the balance sheet as of June 1, 2019.
3. Acquisitions and Divestitures
Contract Furniture Dealerships
On July 31, 2017, the Company completed the sale of a wholly-owned contract furniture dealership in Vancouver,
Canada for initial cash consideration of $2.0 million. A pre-tax gain of $1.1 million was recognized as a result of the sale
within the caption Selling, general and administrative within the Consolidated Statements of Comprehensive Income.
Maars Holding B.V.
On August 31, 2018, the Company acquired 48.2% of the outstanding equity of Global Holdings Netherlands B.V.,
which owns 100% of Maars Holding B.V. ("Maars”), a Harderwijk, Netherlands-based worldwide leader in the design
and manufacturing of interior wall solutions. The Company acquired its 48.2% ownership interest in Maars for
approximately $6.1 million in cash. The entity is accounted for using the equity method of accounting as the Company
has significant influence, but not control, over the entity.
For the Maars equity method investment, the fair values assigned to the assets acquired were based on best estimates
and assumptions as of August 31, 2018, and the valuation analysis was completed in the fourth quarter of fiscal 2019.
Nine United Denmark A/S
On June 7, 2018, the Company acquired 33% of the outstanding equity of Nine United Denmark A/S, d/b/a HAY and
subsequently renamed to HAY ApS ("HAY”), a Copenhagen, Denmark-based, design leader in furniture and ancillary
furnishings for residential and contract markets in Europe and Asia. The Company acquired its 33% ownership interest
in HAY for approximately $65.5 million in cash. 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. In the fiscal periods leading up to
December 2, 2019 (“Acquisition Date”), the date when the Company purchased an additional 34% equity voting
interest in HAY, this licensing agreement was recorded as a definite life intangible asset and was being amortized over
its 15-year useful life. This asset was also recorded within Other amortizable intangibles, net within the Condensed
Consolidated Balance Sheets as of June 1, 2019.
On December 2, 2019, the Company obtained a controlling financial interest in HAY through the purchase of an
additional 34% equity voting interest. The completion of the acquisition will allow 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% on the Acquisition Date, the Company consolidated the operations of HAY. Total
consideration paid for HAY on the Acquisition Date was $79.0 million, exclusive of HAY cash on hand. The Company
funded the acquisition with cash and cash equivalents.
The previously mentioned HAY long-term licensing agreement was deemed to be a contractual preexisting relationship.
As a result of the business combination, the Company recorded this arrangement at its Acquisition Date fair value,
which resulted in an increase in goodwill of $10.0 million and a net gain of $5.9 million, which was recorded within
“Gain on consolidation of equity method investments" within the Consolidated Statements of Comprehensive Income.
The goodwill was recorded within the Company’s Retail segment.
Herman Miller, Inc. and Subsidiaries 58
The Company is a party to options, that if exercised, would require it to purchase the remaining 33% of the equity in
HAY, at fair market value. This remaining redeemable noncontrolling interest in HAY is classified outside permanent
equity in the Consolidated Balance Sheets and is carried at the current estimated redemption amount.
The Company is in the process of finalizing assessments for the purpose of allocating the purchase price to the
individual assets acquired and liabilities assumed in the HAY acquisition. This has the potential to result in
adjustments to the carrying values of certain assets and liabilities as accounting policies are harmonized and purchase
price allocation assumptions are updated. The refinement of these estimates may impact residual amounts allocated
to goodwill. The preliminary allocation of the purchase prices included in the current period balance sheet is based on
the best estimates of management and is subject to revision based on final determination of asset fair values and
useful lives. As of May 30, 2020, the Company is in the process of finalizing the value associated with certain tax-
related matters.
The following table presents the preliminary allocation of purchase price related to acquired tangible assets:
(In millions)
Cash
Working capital, net of cash and inventory step-up
Net property and equipment
Other assets
Other liabilities
Net assets acquired
$
$
12.1
12.3
0.9
3.9
(3.1)
26.1
The 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 determining the fair value of the previously held equity method investment, including 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 a non-taxable
gain of approximately $0.3 million on the remeasurement of the previously held equity method investment of $67.8
million. The net gain has been recognized in “Gain on consolidation of equity method investments" within the
Consolidated Statements of Comprehensive Income.
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. Adjustments were made to the fair value of the
identified intangible assets during the measurement period ended May 30, 2020 as shown in the table below. Goodwill
related to the acquisition was recorded in the amount of $111.1 million and included deferred tax liabilities of $26.2
million, an increase of $6.3 million and $0.9 million, respectively, during the measurement period ended May 30,
2020. The changes in fair value of goodwill and the identified intangible assets were due to refinements in the
projected cash flow estimates of the individual intangible assets acquired.
(In millions)
Inventory Step-up
Backlog
Deferred Revenue
Tradename
Product Development
Customer Relationships
Total
Valuation Method
Comparative Sales Approach
Multi-Period Excess Earnings
Adjusted Fulfillment Cost Method
Relief from Royalty
Relief from Royalty
Multi-Period Excess Earnings
Useful Life
(years)
0.8
0.3
0.1
Indefinite
8.0
9.0
Acquisition Date Fair Value
Initial
Valuation at
February 29,
2020
Adjusted
Valuation
at May 30,
2020
Measurement
Period
Adjustments
$
$
3.4 $
3.4
(2.0)
56.0
21.0
33.0
114.8 $
3.4 $
1.7
(2.2)
60.0
22.0
34.0
118.9 $
—
(1.7)
(0.2)
4.0
1.0
1.0
4.1
Goodwill related to the acquisition was recorded within the International Contract segment for $101.1 million and the
Retail segment for $10.0 million.
59 2020 Annual Report
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 will
allow 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)
Cash
Working capital, net of cash and inventory step-up
Net property and equipment
Net assets acquired
$
$
5.1
1.3
0.8
7.2
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 $30.0 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 Consolidated Statements of Comprehensive Income.
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)
Inventory Step-up
Backlog
Tradename
Customer Relationships
Total
Valuation Method
Comparative Sales Approach
Multi-Period Excess Earnings
Relief from Royalty
Multi-Period Excess Earnings
Useful Life (years)
0.3
0.3
Indefinite
9.0
Fair Value
0.2
0.8
8.5
29.4
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.
The Company has finalized allocating the purchase price to the individual assets acquired and liabilities assumed in
the naughtone acquisition as of May 30, 2020.
Pro Forma Results of Operations
The results of naughtone and HAY’s operations have been included in the Consolidated Financial Statements
beginning on October 25, 2019 and December 2, 2019 respectively. The following table provides pro forma results of
operations for the years ended May 30, 2020 and June 1, 2019, as if naughtone and HAY had been acquired as of June
3, 2018. 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 acquired. Pro forma results do
not include any anticipated cost savings from the planned integration of these acquisitions, or the gain on the
consolidation of the HAY and naughtone equity method investments of approximately $36.2 million. Accordingly, such
amounts are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the
Herman Miller, Inc. and Subsidiaries 60
dates indicated or that may result in the future and are inclusive of pre-tax impairment charges of $205.4 million in the
year-end May 30, 2020.
(In millions)
Net sales
Net (loss) earnings attributable to Herman Miller, Inc.
Year Ended
May 30, 2020
$
$
2,580.6 $
(46.3) $
June 1, 2019
2,757.3
163.7
4. Inventories
(In millions)
Finished goods and work in process
Raw materials
Total
May 30, 2020
June 1, 2019
$
$
151.1 $
46.2
197.3 $
139.1
45.1
184.2
Inventories valued using LIFO amounted to $24.9 million and $26.5 million as of May 30, 2020 and June 1, 2019,
respectively. If all inventories had been valued using the first-in first-out method, inventories would have been $210.8
million and $198.0 million at May 30, 2020 and June 1, 2019, respectively.
5. Investments in Nonconsolidated Affiliates
The Company has certain investments in entities that are accounted for using the equity method (“nonconsolidated
affiliates”). The investments are included in "Other noncurrent assets" in the Consolidated Balance Sheets and the
equity earnings are included in "Equity earnings from nonconsolidated affiliates, net of tax" in the Consolidated
Statements of Comprehensive Income. Refer to the tables below for the investment balances that are included in the
Consolidated Balance Sheets and for the equity earnings that are included in the Consolidated Statements of
Comprehensive Income.
(In millions)
Investments in nonconsolidated affiliates
May 30, 2020
$
12.2 $
June 1, 2019
89.0
(In millions)
Equity earnings from nonconsolidated affiliates, net of tax
May 30, 2020
$
5.0 $
June 1, 2019
June 2, 2018
3.0
5.0 $
The Company had an ownership interest in five nonconsolidated affiliates at May 30, 2020. Refer to the Company's
ownership percentages shown below:
Ownership Interest
Kvadrat Maharam Arabia DMCC
Kvadrat Maharam Pty Limited
Kvadrat Maharam Turkey JSC
Danskina B.V.
Global Holdings Netherlands B.V.
Kvadrat Maharam
May 30, 2020
50.0%
50.0%
50.0%
50.0%
48.2%
June 1, 2019
50.0%
50.0%
50.0%
50.0%
48.2%
The Kvadrat Maharam nonconsolidated affiliates are distribution entities that are engaged in selling decorative
upholstery, drapery and wall covering products. At May 30, 2020 and June 1, 2019, the Company's investment value in
Kvadrat Maharam Pty was $1.7 million and $1.8 million more than the Company's proportionate share of the underlying
net assets, respectively. This difference was driven by a step-up in fair value of the investment in Kvadrat Maharam Pty,
stemming from the Maharam business combination. This amount is considered to be a permanent basis difference.
In fiscal 2020 the Company agreed to fully divest its interest in Kvadrat Maharam Arabia DMCC, Kvadrat Maharam
Turkey JSC and Danskina B.V for approximately $3 million. The divestitures are expected to be completed by the end of
the first half of fiscal 2021.
61 2020 Annual Report
Maars
On August 31, 2018, the Company acquired 48.2% of the outstanding equity of Global Holdings Netherlands B.V.,
which owns 100% of Maars Holding B.V. ("Maars”), a Harderwijk, Netherlands-based worldwide leader in the design
and manufacturing of interior wall solutions. The Company acquired its 48.2% ownership interest in Maars for
approximately $6.1 million in cash. The entity is accounted for using the equity method of accounting as the Company
has significant influence, but not control, over the entity.
As of the August 31, 2018 acquisition date, the Company's investment value in Maars was $3.1 million more than the
Company's proportionate share of the underlying net assets. This amount represented the difference between the price
that the Company paid to acquire 48.2% of the outstanding equity and the carrying value of the net assets of Maars. Of
this difference, $2.7 million was being amortized over the remaining useful lives of the assets, while $0.4 million was
considered a permanent difference.
At May 30, 2020, the Company's investment value in Maars was $2.5 million more than the Company's proportionate
share of the underlying net assets, of which $2.1 million was being amortized over the remaining useful lives of the
assets, while $0.4 million was considered a permanent basis difference.
naughtone & HAY
As described in Note 3 to the Consolidated Financial Statements, the Company increased its investment in both
naughtone & HAY during the year ended May 30, 2020 and obtained a controlling financial interest over each entity. As
a result, these two entities, which were previously accounted for as equity method investments, are now included
within the Company's consolidated operations.
Transactions with Nonconsolidated Affiliates
Sales to and purchases from nonconsolidated affiliates were as follows for the periods presented below:
(In millions)
Sales to nonconsolidated affiliates
Purchases from nonconsolidated affiliates
May 30, 2020
$
$
3.6 $
5.0 $
June 1, 2019
June 2, 2018
4.3
6.8
3.9 $
23.0 $
Balances due to or due from nonconsolidated affiliates were as follows for the periods presented below:
(In millions)
Receivables from nonconsolidated affiliates
Payables to nonconsolidated affiliates
May 30, 2020
$
$
0.6 $
— $
June 1, 2019
0.7
1.2
6. Short-Term Borrowings and Long-Term Debt
Long-term debt consisted of the following obligations:
(In millions)
Debt securities, 6.0%, due March 1, 2021
Debt securities, 4.95%, due May 20, 2030
Syndicated Revolving Line of Credit, due August 2024
Construction-Type Lease
Supplier financing program
Total debt
Less: Current debt
Long-term debt
May 30, 2020
June 1, 2019
$
$
$
50.0 $
49.9
490.0
—
1.4
591.3 $
(51.4)
539.9 $
50.0
—
225.0
6.9
3.1
285.0
(3.1)
281.9
As of June 1, 2019, the Company's syndicated revolving line of credit provided the Company with up to $400 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 $200 million. On August 28, 2019, the Company entered into an amendment and restatement of its existing
Herman Miller, Inc. and Subsidiaries 62
unsecured credit facility (the "Agreement"). The Agreement, which expires on August 28, 2024, provides the Company
with up to $500 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing
the Company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing
capacity of the facility by up to $250 million. Outstanding borrowings bear interest at rates based on the prime rate,
federal funds rate, LIBOR or negotiated rates as outlined in the agreement. Interest is payable periodically throughout
the period if borrowings are outstanding.
In March 2020, the Company borrowed an additional $265 million from its syndicated revolving line of credit as a
precautionary measure to provide additional near-term liquidity given the uncertainty related to COVID-19, which was
subsequently repaid in June 2020.
Available borrowings under the syndicated revolving line of credit were as follows for the periods indicated:
(In millions)
Syndicated revolving line of credit borrowing capacity
Less: Borrowings under the syndicated revolving line of credit
Less: Outstanding letters of credit
Available borrowings under the syndicated revolving line of credit
$
$
May 30, 2020
June 1, 2019
500.0 $
490.0
9.4
0.6 $
400.0
225.0
10.0
165.0
The unsecured senior revolving credit facility restrict, without prior consent, the Company's borrowings, capital leases
and the sale of certain assets. In addition, the Company has agreed to maintain certain financial performance ratios,
which include a maximum leverage ratio covenant, which is measured by the ratio of debt to trailing four quarter
adjusted EBITDA (as defined in the credit agreement) and is required to be less than 3.5:1, except that the Company
may elect, under certain conditions, to increase the maximum Leverage Ratio to 4:1 for four consecutive fiscal quarter
end dates. The covenants also require a minimum interest coverage ratio, which is measured by the ratio of trailing four
quarter EBITDA to trailing four quarter interest expense (as defined in the credit agreement) and is required to be
greater than 3.5:1. Adjusted EBITDA is generally defined in the credit agreement as EBITDA adjusted by certain items
which include non-cash share-based compensation, non-recurring restructuring costs and extraordinary items. At
May 30, 2020 and June 1, 2019, the Company was in compliance with all of these restrictions and performance ratios.
On May 20, 2020, the Company entered into a third amendment to its existing Private Shelf Agreement, dated
December 14, 2010, as amended (together with the third amendment, the "Agreement"), between the Company and
PGIM, Inc. (formerly known as Prudential Investment Management, Inc.) and certain of its affiliates (collectively,
“Prudential”). The Agreement provides for a $150.0 million revolving facility, which includes $50.0 million of
outstanding existing unsecured senior notes that are due on March 1, 2021 (the "Existing Notes") and an additional
$50.0 million aggregate principal amount of unsecured senior notes issued on May 20, 2020 (the "2020 Notes"). The
2020 Notes are due on May 20, 2030 and bear interest at a fixed annual coupon rate of 4.95%. The Company intends to
use the proceeds of the 2020 Notes for general corporate purposes and/or to refinance existing indebtedness,
including the Existing Notes. The Agreement also establishes an uncommitted shelf facility (the “Facility”), under which
Prudential will consider one or more requests from the Company to purchase up to an additional $50.0 million in
aggregate amount of the Company’s senior unsecured notes from time to time. The interest rate on any future notes
issued under the Facility will be based on the benchmark Treasury rate corresponding to the weighted average life of
the notes, plus a spread as determined by Prudential. The Facility will expire on May 20, 2023.
Annual maturities of debt for the five fiscal years subsequent to May 30, 2020 are as shown in the table below.
(In millions)
2021
2022
2023
2024
2025
Thereafter
63 2020 Annual Report
$
$
$
$
$
$
51.4
—
—
—
490.0
50.0
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 from 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 a current debt obligation. Accordingly,
$1.4 million and $3.1 million have been recorded within the caption “Short-term borrowings and current portion of
long-term debt” for the periods ended May 30, 2020 and June 1, 2019, respectively.
Construction-Type Lease
During fiscal 2015, the Company entered into a lease agreement for the occupancy of a new studio facility in Palo Alto,
California which runs through fiscal 2026. In fiscal 2017, the Company became the deemed owner of the leased
building for accounting purposes as a result of the Company's involvement during the construction phase of the
project. The lease was therefore accounted for as a financing lease and the building and related financing liability were
initially recorded at fair value in the Consolidated Balance Sheets within Construction in progress and Other accrued
liabilities. During the first quarter of fiscal 2019, the construction was substantially completed, and the property was
placed in service. As a result, the Company began depreciating the assets over their estimated useful lives. The
Company also reclassified the related financing liability to Long-term debt. The carrying value of the building was $6.7
million and the related financing liability was $6.9 million at June 1, 2019. As a result of the adoption of ASC 842 in the
first quarter of fiscal 2020, the Company derecognized its construction-type lease asset and financing liability and
there was no related cumulative adjustment to retained earnings.
7. Leases
Impact of Adoption
The Company adopted ASC 842 - Leases at the beginning of fiscal year 2020. The new standard required the Company
to recognize most leases on the balance sheet as right of use (ROU) assets with corresponding lease liabilities. All
necessary changes required by the new standard, including those to the Company’s accounting policies, business
processes, systems, controls and disclosures were implemented as of the first quarter of fiscal year 2020.
As part of the implementation process the Company made the following elections:
•
•
•
•
•
The Company elected the package of practical expedients to not reassess prior conclusions related to contracts
containing leases, lease classification and initial direct costs for all leases.
The Company elected to make the accounting policy election for short-term leases resulting in lease costs being
recorded as an expense on a straight-line basis over the lease term.
The Company elected to not separate lease and non-lease components, for all leases.
The Company did not elect the hindsight practical expedient in determining the lease term and in assessing the
likelihood that a lessee purchase option will be exercised, for all leases.
The Company did not elect the land easement practical expedient in determining whether land easements that
were not previously accounted for as leases are or contain a lease.
Upon adoption, the cumulative effect of initially applying this new standard resulted in the addition of approximately
$245 million of ROU assets, as well as corresponding short-term and long-term lease liabilities of approximately $275
million. Additionally, as a result of adoption, the Company derecognized its construction-type lease asset and
financing liability and there was no related cumulative adjustment to retained earnings.
Herman Miller, Inc. and Subsidiaries 64
Accounting Policies
The Company has leases for retail studios, showrooms, manufacturing facilities, warehouses and vehicles, which
expire at various dates through 2036. Certain lease agreements include contingent rental payments based on per unit
usage over a contractual amount and others include rental payments adjusted periodically for inflationary indexes.
Variable lease costs associated with the Company’s leases are recognized when the event, activity, or circumstance in
the lease agreement on which those payments are assessed occurs. Variable lease costs are presented as operating
expenses in the Company’s Consolidated Statements of Operations and Comprehensive Income in the same line item
as the expense arising from fixed lease payments for operating leases.
Additionally, certain leases include renewal or termination options, which can be exercised at the Company’s
discretion. Lease terms include the noncancelable portion of the underlying leases along with any reasonably certain
lease periods associated with available renewal periods. The Company’s leases do not contain any residual value
guarantees or material restrictive covenants.
The Company determines if an arrangement is a lease at contract inception. Arrangements that are leases with an
initial term of 12 months or less are not recorded in the Consolidated Balance Sheets, and the Company recognizes
lease expense for these leases on a straight-line basis over the lease term. If leased assets have leasehold
improvements, the depreciable life of those leasehold improvements are limited by the expected lease term.
As none of the Company’s leases provide an implicit discount rate, the Company uses an estimated incremental
borrowing rate at the lease commencement date in determining the present value of the lease payments. Relevant
information used in determining the Company’s incremental borrowing rate includes the duration of the lease, location
of the lease, and the Company’s credit risk relative to risk-free market rates.
Leases
During the year ended May 30, 2020, lease expense was $62.1 million. The components of lease expense were as
follows:
(In millions)
Operating lease costs
Short-term lease costs
Variable lease costs*
Total
*Not included in the table above for the year ended May 30, 2020 are variable lease costs of $81.3 million for raw material
purchases under certain supply arrangements that the Company has determined to meet the definition of a lease.
$
$
51.3
2.6
8.2
62.1
Year Ended
May 30, 2020
During the fourth quarter of fiscal 2020, the Company determined it was more likely than not that the fair value of
certain right of use assets were below their carrying values and assessed these assets for impairment. As result of this
assessment the Company recorded an impairment of $19.3 million in the Consolidated Statements of Comprehensive
income.
65 2020 Annual Report
At May 30, 2020, the Company has 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)
2021
2022
2023
2024
2025
Thereafter
Total lease payments*
Less interest
Present value of lease liabilities
*Lease payments exclude $30.6 million of legally binding minimum lease payments for leases signed but not yet commenced,
primarily related to a new Chicago showroom expected to open in fiscal 2021.
$
$
48.5
44.8
40.2
34.5
30.5
71.9
270.4
26.5
243.9
The long-term portion of the lease liabilities included in the amounts above is $178.8 million and the remainder of the
lease liabilities are included in Other accrued liabilities in the Condensed Consolidated Balance Sheets.
The following table summarizes future minimum rental payments required under operating leases that have non-
cancelable lease terms as of June 1, 2019, prior to the adoption of ASC 842:
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total
$
$
51.7
46.8
42.9
39.0
33.5
101.9
315.8
At May 30, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases
were 7 years and 3.1%, respectively.
During the year ended May 30, 2020, the cash paid for leases included in the measurement of the liabilities and the
operating cash flows was $49.2 million and the right of use assets obtained in exchange for new liabilities was $13.4
million.
8. Employee Benefit Plans
The Company maintains retirement benefit plans for substantially all of its employees.
Pension Plan
One of the Company's wholly owned foreign subsidiaries has a defined-benefit pension plan based upon an average
final pay benefit calculation. The measurement date for this plan is the last day of the fiscal year and the plan is frozen
to new participants.
Herman Miller, Inc. and Subsidiaries 66
Benefit Obligations and Funded Status
The following table presents, for the fiscal years noted, a summary of the changes in the projected benefit obligation,
plan assets and funded status of the Company's pension plan:
(In millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Interest cost
Plan Amendments
Foreign exchange impact
Actuarial loss (gain)
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Foreign exchange impact
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status:
Under funded status at end of year
Components of the amounts recognized in the Consolidated Balance Sheets:
Current liabilities
Non-current liabilities
Pension Benefit
2020
2019
109.1 $
2.4
—
(2.9)
21.0
(3.1)
126.5 $
88.2 $
4.7
(2.0)
0.3
(3.1)
88.1 $
105.9
2.7
0.9
(6.0)
9.7
(4.1)
109.1
94.6
2.5
(5.1)
0.3
(4.1)
88.2
(38.4) $
(20.9)
— $
(38.3) $
—
(20.9)
$
$
$
$
$
$
$
Components of the amounts recognized in Accumulated other comprehensive loss before the effect of income taxes:
0.8
Prior service cost
47.3
Unrecognized net actuarial loss (gain)
48.1
Accumulated other comprehensive loss
0.7 $
63.2 $
63.9 $
$
$
$
The accumulated benefit obligation for the Company's pension plan totaled $123.9 million and $105.4 million as of
fiscal 2020 and fiscal 2019, respectively.
The following table is a summary of the annual cost of the Company's pension plan:
Components of Net Periodic Benefit Costs and Other Changes Recognized in Other Comprehensive Income (Loss):
(In millions)
Interest cost
Expected return on plan assets
Amortization of prior service costs
Amortization of net (gain)/loss
Net periodic benefit cost
2.4 $
(4.4)
0.1
3.2
1.3 $
2.7 $
(4.5)
0.1
2.7
1.0 $
2020
2019
$
$
2018
2.7
(5.6)
—
4.2
1.3
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss):
(In millions)
Net actuarial (gain) loss
Net amortization
Total recognized in other comprehensive loss
20.6 $
(4.8)
15.8 $
2020
$
$
2019
11.7
(2.7)
9.0
The net actuarial loss, included in accumulated other comprehensive loss (pretax), expected to be recognized in net
periodic benefit cost during fiscal 2021 is $4.9 million.
67 2020 Annual Report
Actuarial Assumptions
The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic
benefit cost for the Company's pension plan are as follows:
Weighted-average assumptions used in the determination of net periodic benefit cost:
(Percentages)
Discount rate
Compensation increase rate
Expected return on plan assets
2.39
3.20
4.80
2020
Weighted-average assumptions used in the determination of the projected benefit obligations:
Discount rate
Compensation increase rate
1.66
2.75
2019
2018
2.87
3.10
4.80
2.39
3.20
2.49
3.25
6.10
2.87
3.10
The Company uses a full yield curve approach to estimate the interest component of net periodic benefit cost for
pension benefits. This method applies the specific spot rates along the yield curve used in the determination of the
benefit obligation to the relevant projected cash flows.
Plan Assets and Investment Strategies
The Company's employee benefit plan assets consist mainly of listed fixed income obligations and common/collective
trusts. The Company's primary objective for invested pension plan assets is to provide for sufficient long-term growth
and liquidity to satisfy all of its benefit obligations over time. Accordingly, the Company has developed an investment
strategy that it believes maximizes the probability of meeting this overall objective. This strategy includes the
development of a target investment allocation by asset category in order to provide guidelines for making investment
decisions. This target allocation emphasizes the long-term characteristics of individual asset classes as well as the
diversification among multiple asset classes. In developing its strategy, the Company considered the need to balance
the varying risks associated with each asset class with the long-term nature of its benefit obligations. The Company's
strategy moving forward will be to increase the level of fixed income investments as the funding status improves,
thereby more closely matching the return on assets with the liabilities of the plans.
The Company utilizes independent investment managers to assist with investment decisions within the overall
guidelines of the investment strategy. The target asset allocation at the end of fiscal 2020 and asset categories for the
Company's pension plan for fiscal 2020 and 2019 are as follows:
Asset Category
Fixed income
Common collective trusts
Total
(In millions)
Asset Category
Foreign government obligations
Common collective trusts-balanced
Total
(In millions)
Asset Category
Foreign government obligations
Common collective trusts-balanced
Total
Targeted Asset Allocation Percentage
Percentage of Plan Assets at Year End
2020
35%
65%
2019
35%
65%
2020
37%
63%
100%
Level 1
May 30, 2020
Level 2
2019
33%
67%
100%
Total
—
—
— $
—
—
— $
$
$
Level 1
31.4
56.7
88.1 $
June 1, 2019
Level 2
Total
29.3
58.9
88.2 $
31.4
56.7
88.1
29.3
58.9
88.2
Herman Miller, Inc. and Subsidiaries 68
Cash Flows
The Company reviews pension funding requirements to determine the contribution to be made in the next year. Actual
contributions will be dependent upon investment returns, changes in pension obligations and other economic and
regulatory factors. During fiscal 2020 and fiscal 2019, the Company made total cash contributions of $0.9 million to its
benefit plans.
The following represents a summary of the benefits expected to be paid by the plan in future fiscal years. These
expected benefits were estimated based on the same actuarial valuation assumptions used to determine benefit
obligations at May 30, 2020.
(In millions)
2021
2022
2023
2024
2025
2026-2030
Pension Benefits
2.4
2.4
2.5
2.5
2.6
13.9
$
$
$
$
$
$
Profit Sharing, 401(k) Plan, and Core Contribution
Substantially all of the Company’s domestic employees are eligible to participate in a defined contribution retirement
plan, primarily the Herman Miller, Inc. profit sharing and 401(k) plan (the "plan"). Employees under the plan are eligible
to begin participating on their date of hire. Effective June 2017, the Company matches 100 percent of employee
contributions to their 401(k) accounts up to 3 percent of their pay which was subsequently increased to 4 percent in
September 2017 for all eligible employees. A core contribution of 4 percent is also included for most participants of the
plan. There was an additional 1 percent contribution added to the quarterly Core Contribution for the quarter prior to
the increased Employer Matching Contribution effective September 3, 2017. During the fourth quarter of fiscal 2020, the
Company elected to temporarily suspend the Company's Core Contribution and 401(k) matches in order to reduce costs
and preserve liquidity.
There were no Herman Miller, Inc. profit sharing contributions made in fiscal 2020, fiscal 2019 or fiscal 2018. The
expense recorded for the Company's 401(k) matching and core contributions was $22.2 million, $25.4 million and
$24.9 million in fiscal years 2020, 2019 and 2018, respectively.
9. Common Stock and Per Share Information
The following table reconciles the numerators and denominators used in the calculations of basic and diluted EPS for
each of the last three fiscal years:
(In millions, except shares)
Numerator:
Numerator for both basic and diluted EPS, Net (loss) earnings
attributable to Herman Miller, Inc.
Denominator:
Denominator for basic EPS, weighted-average common shares
outstanding
Potentially dilutive shares resulting from stock plans
Denominator for diluted EPS
2020
2019
2018
$
(9.1) $
160.5 $
128.1
58,920,653
59,011,945
59,681,268
—
58,920,653
369,846
59,381,791
630,037
60,311,305
Equity awards of 142,224 shares, 218,037 shares and 348,089 shares of common stock were excluded from the
denominator for the computation of diluted earnings per share for the fiscal years ended May 30, 2020, June 1, 2019
and June 2, 2018, respectively, because they were anti-dilutive.
69 2020 Annual Report
Common Stock
The Company has a share repurchase plan authorized by the Board of Directors on January 16, 2019, which provides a
share repurchase authorization of $250.0 million with no specified expiration date. The approximate dollar value of
shares available for purchase under the plan at May 30, 2020 was $237.6 million. During fiscal year 2020, 2019, and
2018, shares repurchased and retired under the current and past repurchase plans totaled 641,192, 1,326,023, and
1,356,156 shares respectively.
10. Stock-Based Compensation
The Company utilizes equity-based compensation incentives as a component of its employee and non-employee
director and officer compensation philosophy. Currently, these incentives consist principally of stock options,
restricted stock, restricted stock units and performance share units. The Company also offers a stock purchase plan for
its domestic and certain international employees. The Company issues shares in connection with its share-based
compensation plans from authorized, but unissued, shares. At May 30, 2020 there were 5,991,307 shares authorized
under the various stock-based compensation plans.
Valuation and Expense Information
The Company measures the cost of employee services received in exchange for an award of equity instruments based
on their grant-date fair market value. This cost is recognized over the requisite service period.
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.
The Company classifies pre-tax stock-based compensation expense primarily within Operating expenses in the
Consolidated Statements of Comprehensive Income. Pre-tax compensation expense and the related income tax benefit
for all types of stock-based programs were as follows for the periods indicated:
(In millions)
Employee stock purchase program
Stock option plans
Restricted stock units
Performance share units
Total
Tax benefit
May 30, 2020
$
June 1, 2019
0.3 $
0.6
3.9
(2.1)
2.7 $
0.5 $
$
$
June 2, 2018
0.3
2.6
3.9
0.9
7.7
2.3
0.3 $
(0.4)
4.6
2.8
7.3 $
1.6 $
As of May 30, 2020, total pre-tax stock-based compensation cost not yet recognized related to non-vested awards was
approximately $3.2 million. The weighted-average period over which this amount is expected to be recognized is 1.2
years.
Employee Stock Purchase Program
Under the terms of the Company's Employee Stock Purchase Plan, 4 million shares of authorized common stock were
reserved for purchase by plan participants at 85 percent of the market price. Shares of common stock purchased under
the employee stock purchase plan were 70,145, 62,957, and 67,335 for the fiscal years ended 2020, 2019 and 2018
respectively.
Stock Options
The Company grants options to purchase the Company's stock to certain key employees and non-employee directors
under its Long-Term Incentive Plan, as amended (the "LTIP") at a price not less than the market price of the Company's
common stock on the date of grant. Under the current award program, all options become exercisable between one
year and three years from date of grant and expire ten years from date of grant. Most options are subject to graded
vesting with the related compensation expense recognized on a straight-line basis over the requisite service period.
Herman Miller, Inc. and Subsidiaries 70
In fiscal 2020 there were no stock option grants awarded to employees or non-employee directors. In fiscal 2019 there
were two separate stock option valuation dates. Therefore the table below has been presented with the assumptions
relevant to each valuation date. The Company estimated the fair value of employee stock options on the date of grant
using the Black-Scholes model. In determining these values, the following weighted-average assumptions were used
for the options granted during the fiscal years indicated:
Risk-free interest rates (1)
Expected term of options (2)
Expected volatility (3)
Dividend yield (4)
Weighted-average grant-date fair value of stock options:
2020
N/A
N/A
N/A
N/A
2019
2.65-2.70%
4.4 years
27%
2.18-2.33%
2018
1.79%
4.6 years
26%
2.23%
Granted with exercise prices equal to the fair market value of the stock on
the date of grant
N/A $
8.05
$
6.39
(1) Represents term-matched, zero-coupon risk-free rate from the Treasury Constant Maturity yield curve, continuously compounded.
(2) Represents historical settlement data, using midpoint scenario with 1-year grant date filter assumption for outstanding options.
(3) The blended volatility approach was used. 90% term-matched historical volatility from daily stock prices and 10% percent
weighted average implied volatility from the 90 days preceding the grant date.
(4) Represents the quarterly dividend divided by the three-month average stock price as of the grant date, annualized and
continuously compounded.
The following is a summary of the transactions under the Company's stock option plan:
Shares Under
Option
Weighted-Average
Exercise Prices
Aggregate
Intrinsic Value
(in millions)
Weighted-Average
Remaining Contractual
Term (Years)
Outstanding at June 1, 2019
Exercised
Forfeited or expired
Outstanding at May 30, 2020
Ending vested + expected to vest
Exercisable at end of period
790,059 $
(423,815) $
(4,828) $
361,416 $
361,416 $
186,952 $
32.17 $
31.63
33.38
32.80 $
32.80 $
29.80 $
3.0
0.2
0.2
0.2
5.8
5.8
5.8
5.2
The weighted-average remaining recognition period of the outstanding stock options at May 30, 2020 was 1.0 years.
The total pre-tax intrinsic value of options exercised during fiscal 2020, 2019 and 2018 was $5.5 million, $3.3 million
and $5.0 million, respectively. The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic
value, based on the Company's closing stock price as of the end of the period presented, which would have been
received by the option holders had all option holders exercised in-the-money options as of that date. Total cash
received during fiscal 2020 from the exercise of stock options was approximately $12 million.
Restricted Stock Units
The Company grants restricted stock units to certain key employees under its LTIP. This program provides that the actual
number of restricted stock units awarded is based on the value of a portion of the participant's long-term incentive
compensation divided by the fair value of the Company's stock on the date of grant. The awards generally cliff-vest after
a three-year service period, with prorated vesting under certain circumstances and full or partial accelerated vesting
upon retirement. Each restricted stock unit represents one equivalent share of the Company's common stock to be
awarded, free of restrictions, after the vesting period. Compensation expense related to these awards is recognized
over the requisite service period, which includes any applicable performance period. Dividend equivalent awards are
credited quarterly. The units do not entitle participants to the rights of stockholders of common stock, such as voting
rights, until shares are issued after vesting.
71 2020 Annual Report
The following is a summary of restricted stock unit transactions for the fiscal years indicated:
Share
Units
Weighted Average
Grant-Date
Fair Value
Aggregate
Intrinsic Value
(in millions)
Weighted-Average
Remaining Contractual
Term (Years)
Outstanding at June 1, 2019
Granted
Forfeited
Released
Outstanding at May 30, 2020
Ending vested + expected to vest
311,281 $
90,551 $
(14,378) $
(143,680) $
243,774 $
240,824 $
33.93 $
44.70
40.07
34.79
37.02 $
37.00 $
11.0
5.6
5.5
1.1
1.3
1.3
The weighted-average remaining recognition period of the outstanding restricted stock units at May 30, 2020, was 1.2
years. The fair value of the share units that vested during the twelve months ended May 30, 2020, was $5.9 million. The
weighted average grant-date fair value of restricted stock units granted during 2020, 2019, and 2018 was $44.70,
$37.81 and $35.28 respectively.
Performance Share Units
The Company grants performance share units to certain key employees under its LTIP. The number of units initially
awarded was based on the value of a portion of the participant's long-term incentive compensation, divided by the fair
value of the Company's common stock on the date of grant. Each unit represents one equivalent share of the
Company's common stock. The number of common shares ultimately issued in connection with these performance
share units is determined based on the Company's financial performance over the related three-year service period or
the Company's financial performance based on certain total shareholder return results as compared to a selected
group of peer companies. Compensation expense is determined based on the grant-date fair value and the number of
common shares projected to be issued and is recognized over the requisite service period.
The following is a summary of performance share unit transactions for the fiscal years indicated:
Share
Units
Weighted Average
Grant-Date Fair
Value
Aggregate
Intrinsic Value
(in millions)
Weighted-Average
Remaining Contractual
Term (Years)
Outstanding at June 1, 2019
Granted
Forfeited
Outstanding at May 30, 2020
Ending vested + expected to vest
323,356 $
188,719 $
(127,538) $
384,537 $
384,537 $
33.48 $
45.71
31.79
37.95 $
37.95 $
11.5
8.9
8.9
1.1
1.3
1.3
The weighted-average remaining recognition period of the outstanding performance share units at May 30, 2020, was
1.3 years. The fair value for shares that vested during the twelve months ended May 30, 2020, was zero. The weighted
average grant-date fair value of performance share units granted during 2020, 2019, and 2018 was $45.71, $36.37, and
$31.28 respectively.
Deferred Compensation Plan
The Herman Miller, Inc. Executive Equalization Retirement Plan is a supplemental deferred compensation plan and was
made available for salary deferrals and Company contributions beginning in January 2008. The plan is available to a
select group of management or highly compensated employees who are selected for participation by the Executive
Compensation Committee of the Board of Directors. The plan allows participants to defer up to 50 percent of their base
salary and up to 100 percent of their incentive cash bonus. Company contributions to the plan “mirror” the amounts
the Company would have contributed to the various qualified retirement plans had the employee's compensation not
been above the IRS statutory ceiling ($285,000 in 2020). The Company does not guarantee a rate of return for these
funds. Instead, participants make investment elections for their deferrals and Company contributions. Investment
options are closely aligned to those available under the Herman Miller Profit Sharing and 401(k) Plan.
Herman Miller, Inc. and Subsidiaries 72
The Nonemployee Officer and Director Deferred Compensation Plan allows the Board of Directors of the Company to
defer a portion of their annual director fee. Investment options are the same as those available under the Herman
Miller Profit Sharing and 401(k) Plan, including Company stock.
In accordance with the terms of the Executive Equalization Plan and Nonemployee Officer and Director Deferred
Compensation Plan, the salary and bonus deferrals, Company contributions and director fee deferrals have been
placed in a Rabbi trust. The assets in the Rabbi trust remain subject to the claims of creditors of the Company and are
not the property of the participant. Investments in securities other than the Company's common stock are included
within the Other assets line item, while investments in the Company's stock are included in the line item Deferred
compensation plan in the Company's Consolidated Balance Sheets. A liability of the same amount is recorded on the
Consolidated Balance Sheets within the Other liabilities line item. Investment asset realized and unrealized gains and
losses are recognized within the Company's Consolidated Statements of Comprehensive Income in the Interest and
other investment income line item. The associated changes to the liability are recorded as compensation expense
within the Selling, general and administrative line item within the Company's Consolidated Statements of
Comprehensive Income. The net effect of any change to the asset and corresponding liability is offset and has no
impact on Net earnings in the Consolidated Statements of Comprehensive Income.
Director Fees
Company directors may elect to receive their director fees in one or more of the following forms: cash, deferred
compensation in the form of shares or other selected investment funds, unrestricted Company stock at the market
value at the date of election or stock options that vest in one year and expire in ten years. The exercise price of the
stock options granted may not be less than the market price of the Company's common stock on the date of grant.
Under the plan, the Board members received the following shares or options in the fiscal years indicated:
Shares of common stock
Shares through the deferred compensation program
11. Income Taxes
2020
2019
2018
7,769
1,045
10,185
7,619
8,828
2,207
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law in the United States. The effects of the
Act included the reduction of the federal corporate income tax rate from 35 percent to 21 percent and a new
participation exemption system of taxation on foreign earnings, among other provisions.
In accordance with Staff Accounting Bulletin 118, for the year ended June 2, 2018, the Company recorded a provisional
tax benefit of $3.1 million from the impact of the Act, primarily related to the one-time U.S. tax liability on certain
undistributed foreign earnings and the remeasurement of current and deferred tax liabilities. Subsequently, as the U.S.
Treasury Department issued additional guidance, the Company recorded adjustments to the provisional tax benefit.
During the year ended June 1, 2019, the Company completed its accounting for all the effects of the Act and recorded
adjustments to the provisional amounts primarily for the one-time U.S. tax liability on certain undistributed foreign
earnings and also an adjustment related to foreign tax credits to increase the income tax benefit from the Act by $1.0
million.
For tax years beginning after December 31, 2017, the Act subjects a U.S. shareholder to tax on global intangible low-
taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company elected to account for tax expense related
to GILTI in the year the tax is incurred.
The components of (loss) earnings before income taxes are as follows:
(In millions)
Domestic
Foreign
Total
73 2020 Annual Report
2020
2019
2018
$
$
(75.6) $
62.2
(13.4) $
136.2 $
58.9
195.1 $
121.6
46.5
168.1
The provision (benefit) for income taxes consists of the following:
(In millions)
Current: Domestic - Federal
Domestic - State
Foreign
Deferred: Domestic - Federal
Domestic - State
Foreign
Total income tax provision
2020
2019
2018
$
12.0 $
5.7
13.3
31.0
(16.8)
(3.9)
(4.3)
(25.0)
$
6.0 $
19.0 $
6.4
12.9
38.3
1.0
(0.2)
0.5
1.3
39.6 $
30.2
4.3
10.7
45.2
(4.1)
0.1
1.2
(2.8)
42.4
The following table represents a reconciliation of income taxes at the United States statutory rate of 21% for 2020 and
2019, and 29.1% for 2018 with the effective tax rate as follows:
(In millions)
Income taxes computed at the United States Statutory rate
Increase (decrease) in taxes resulting from:
State and local income taxes, net of federal income tax benefit
Non-deductible goodwill impairment
Gain on consolidation of equity method investments
Remeasurement of U.S. deferred tax assets and liabilities due to the Tax Act
U.S. tax liability on undistributed foreign earnings due to the Tax Act
Foreign-derived intangible income
Global intangible low-taxed income
Foreign statutory rate differences
Manufacturing deduction under the American Jobs Creation Act of 2004
Research and development credit
Foreign offshore income claim
Foreign tax credit
Foreign withholding taxes and other miscellaneous foreign taxes
Other, net
Income tax expense
Effective tax rate
2020
2019
2018
$
(2.8)
$
41.0
$
49.0
1.4
17.1
(5.5)
—
—
(1.4)
5.9
0.7
—
(4.4)
(1.7)
(5.8)
2.7
(0.2)
6.0
(44.9)%
$
$
4.9
—
—
(0.2)
(2.6)
(3.1)
6.9
1.9
—
(5.3)
(0.7)
(5.7)
0.8
1.7
39.6
20.3%
$
3.3
—
—
(8.9)
9.0
—
—
(4.0)
(2.7)
(4.2)
—
(2.4)
1.9
1.4
42.4
25.2%
Herman Miller, Inc. and Subsidiaries 74
The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets
and liabilities at May 30, 2020 and June 1, 2019, are as follows:
(In millions)
Deferred tax assets:
Compensation-related accruals
Accrued pension and post-retirement benefit obligations
Deferred revenue
Inventory related
Other reserves and accruals
Warranty
State and local tax net operating loss carryforwards and credits
Federal net operating loss carryforward
Foreign tax net operating loss carryforwards and credits
Accrued step rent and tenant reimbursements
Interest rate swap
Lease liability
Other
Subtotal
Valuation allowance
Total
Deferred tax liabilities:
Book basis in property in excess of tax basis
Intangible assets
Right of use lease assets
Other
Total
2020
2019
$
$
$
$
14.2 $
9.6
3.7
3.9
7.9
14.0
2.5
1.2
8.4
0.7
6.1
52.5
6.9
131.6
(10.6)
121.0 $
32.0 $
43.6
44.7
3.4
123.7 $
13.1
7.2
6.1
1.2
8.1
12.3
2.5
1.4
9.1
4.2
0.3
—
4.7
70.2
(10.4)
59.8
26.6
34.6
—
2.4
63.6
The future tax benefits of net operating loss (NOL) carry-forwards and foreign tax credits are recognized to the extent
that realization of these benefits is considered more likely than not. The Company bases this determination on the
expectation that related operations will be sufficiently profitable or various tax planning strategies will enable the
Company to utilize the NOL carry-forwards and/or foreign tax credits. To the extent that available evidence about the
future raises doubt about the realization of these tax benefits, a valuation allowance is established.
At May 30, 2020, the Company had state and local tax NOL carry-forwards of $22.0 million, the state tax benefit of
which is $1.2 million, which have various expiration periods from 1 to 21 years. The Company also had state credits with
a state tax benefit of $1.3 million, which expire in 2 to 6 years. For financial statement purposes, the NOL carry-forwards
and state tax credits have been recognized as deferred tax assets, subject to a valuation allowance of $1.6 million.
At May 30, 2020, the Company had federal NOL carry-forwards of $5.9 million, the tax benefit of which is $1.2 million,
which expire in 9 years. For financial statement purposes, the NOL carry-forwards have been recognized as deferred tax
assets.
At May 30, 2020, the Company had federal deferred assets of $2.3 million, the tax benefit of which is $0.5 million,
which is related to investments in various foreign joint ventures. For financial statement purposes, the assets have
been recognized as deferred tax assets, subject to a valuation allowance of $0.5 million.
At May 30, 2020, the Company had foreign net operating loss carry-forwards of $37.7 million, the tax benefit of which is
$8.4 million, which have expiration periods from 8 years to an unlimited term. For financial statement purposes, the
NOL carry-forwards have been recognized as deferred tax assets, subject to a valuation allowance of $7.7 million.
At May 30, 2020, the Company had foreign deferred assets of $4.2 million, the tax benefit of which is $0.8 million,
which is related to various deferred taxes in Hong Kong and Brazil as well as buildings in the United Kingdom. For
financial statement purposes, the assets have been recognized as deferred tax assets, subject to a valuation allowance
of $0.8 million.
75 2020 Annual Report
The Company intends to repatriate $29.1 million in cash held in certain foreign jurisdictions and as such has recorded a
deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S. from foreign
subsidiaries of $1.8 million. A significant portion of this cash was previously taxed under the U.S. Tax Cut 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, which was $221.5 million on May 30, 2020.
Determination of the total amount of unrecognized deferred income tax on the remaining undistributed earnings of
foreign subsidiaries is not practicable.
The components of the Company's unrecognized tax benefits are as follows:
(In millions)
Balance at June 2, 2018
Increases related to current year income tax positions
Increases related to prior year income tax positions
Decreases related to prior year income tax positions
Decreases related to lapse of applicable statute of limitations
Decreases related to settlements
Balance at June 1, 2019
Increases related to current year income tax positions
Decreases related to prior year income tax positions
Decreases related to lapse of applicable statute of limitations
Balance at May 30, 2020
$
$
$
3.2
0.4
0.1
(0.4)
(0.3)
(1.1)
1.9
0.3
(0.1)
(0.2)
1.9
The Company's effective tax rate would have been affected by the total amount of unrecognized tax benefits had this
amount been recognized as a reduction to income tax expense.
The Company recognizes interest and penalties related to unrecognized tax benefits through Income tax expense in its
Consolidated Statements of Comprehensive Income. Interest and penalties and the related liability, which are excluded
from the table above, were as follows for the periods indicated:
(In millions)
Interest and penalty expense (income)
Liability for interest and penalties
May 30, 2020
$
$
0.1 $
0.8 $
June 1, 2019
June 2, 2018
0.1
(0.3) $
0.7
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 12 months as a result of new positions that may be
taken on income tax returns, settlement of tax positions and the closing of statutes of limitation. It is not expected that
any of the changes will be material to the Company's Consolidated Statements of Comprehensive Income.
During the year, the Company has partially closed the audit of fiscal 2019 with the Internal Revenue Service under the
Compliance Assurance Process (CAP). The audit of fiscal 2018 also remains partially closed. For the majority of the
remaining tax jurisdictions, the Company is no longer subject to state and local, or non-U.S. income tax examinations
by tax authorities for fiscal years before 2017.
Herman Miller, Inc. and Subsidiaries 76
12. Fair Value
The Company's financial instruments consist of cash equivalents, marketable securities, accounts and notes
receivable, 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)
Carrying value
Fair value
May 30, 2020
June 1, 2019
$
$
591.3 $
594.0 $
285.0
287.8
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 commercial
paper and money market funds. Commercial paper is valued at amortized costs while money market funds 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
May 30, 2020 and June 1, 2019:
(In millions)
Financial Assets
Cash equivalents:
May 30, 2020
Quoted Prices With Other
Observable Inputs (Level 2)
NAV
June 1, 2019
NAV
Quoted Prices With Other
Observable Inputs (Level 2)
Money market funds
Mutual funds - equity
Foreign currency forward contracts
Deferred compensation plan
Total
$ 283.7 $
—
—
—
$ 283.7 $
Financial Liabilities
Foreign currency forward contracts
Total
$
$
— $
— $
— $ 69.5 $
0.7
1.1
13.2
15.0 $ 69.5 $
—
—
—
0.8 $
0.8 $
— $
— $
—
0.9
—
12.5
13.4
1.4
1.4
The following describes the methods the Company uses to estimate the fair value of financial assets and liabilities
recorded in other comprehensive income, which 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.
77 2020 Annual Report
Interest rate swap agreements — The value of the Company's interest rate swap agreements is 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 pricing levels to which the fair value measurements are classified within the fair value
hierarchy as of May 30, 2020 and June 1, 2019.
(In millions)
Financial Assets
Mutual funds - fixed income
Interest rate swap agreement
Total
Financial Liabilities
Interest rate swap agreement
Total
May 30, 2020
Quoted Prices with Other
Observable Inputs (Level 2)
June 1, 2019
Quoted Prices with Other
Observable Inputs (Level 2)
$
$
$
$
6.3 $
—
6.3 $
25.0 $
25.0 $
7.9
1.0
8.9
2.2
2.2
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:
(In millions)
Mutual funds - fixed income
Mutual funds - equity
Total
May 30, 2020
Unrealized
Gain/(Loss)
Cost
Market
Value
Cost
June 1, 2019
Unrealized
Gain/(Loss)
Market
Value
$
$
6.2 $
0.6
6.8 $
0.1 $
0.1
0.2 $
6.3 $
0.7
7.0 $
7.9 $
0.8
8.7 $
— $
0.1
0.1 $
7.9
0.9
8.8
The cost of securities sold is based on the specific identification method; realized gains and losses resulting from such
sales are included in the Consolidated Statements of Comprehensive Income within "Other expense (income), net".
The Company reviews its investment portfolio for any unrealized losses that would be deemed other-than-temporary
and requires the recognition of an impairment loss in earnings. If the cost of an investment exceeds its fair value, the
Company evaluates, among other factors, general market conditions, the duration and extent to which the fair value is
less than its cost, the Company's intent to hold the investment, and whether it is more likely than not that the Company
will be required to sell the investment before recovery of the cost basis. The Company also considers the type of
security, related industry and sector performance, and published investment ratings. Once a decline in fair value is
determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is
established. If conditions within individual markets, industry segments, or macro-economic environments deteriorate,
the Company could incur future impairments.
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 Consolidated Balance Sheets.
Derivative Instruments and Hedging Activities
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 offset 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. These foreign currency exposures typically arise from net liability or asset
exposures in non-functional currencies on the balance sheets of our foreign subsidiaries. These 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
Herman Miller, Inc. and Subsidiaries 78
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 expense
(income), net", for both realized and unrealized gains and losses.
The notional amounts of the forward contracts held to purchase and sell U.S. dollars in exchange for other major
international currencies were $52.6 million and $38.1 million as of May 30, 2020 and June 1, 2019, respectively. The
notional amounts of the foreign currency forward contracts held to purchase and sell British pound sterling in exchange
for other major international currencies were £27.5 million and £19.2 million as of May 30, 2020 and June 1, 2019,
respectively. The Company also has other forward contracts related to other currency pairs at varying notional amounts.
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 cash flow hedges at inception and the facts and circumstances of the hedged
relationship remains consistent with the initial quantitative effectiveness assessment in that the hedged instruments
remain an effective accounting hedge as of May 30, 2020. 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.
In September 2016, the Company entered into an interest rate swap agreement. The interest rate swap is for an
aggregate notional amount of $150.0 million with a forward start date of January 3, 2018 and a termination date of
January 3, 2028. As a result of the transaction, the Company effectively converted indebtedness anticipated to be
borrowed on the Company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate
plus applicable margin to a 1.949 percent fixed interest rate plus applicable margin under the agreement as of the
forward start date.
In June 2017, the Company entered into an interest rate swap agreement. The interest rate swap is for an aggregate
notional amount of $75.0 million with a forward start date of January 3, 2018 and a termination date of January 3, 2028.
As a result of the transaction, the Company effectively converted the Company’s revolving line of credit up to the
notional amount from a LIBOR-based floating interest rate plus applicable margin to a 2.387 percent fixed interest rate
plus applicable margin under the agreement as of the forward start date.
The fair value of the Company’s two outstanding interest rate swap agreements was a net liability of $25.0 million and
$1.2 million as of May 30, 2020 and June 1, 2019, respectively. The liability and asset fair value were recorded within
"Other liabilities" and "Other noncurrent assets" within the Consolidated Balance Sheets. Recorded within Other
comprehensive loss, net of tax, for the effective portion of the Company's designated cash flow hedges was a net
unrealized loss of $17.2 million and $12.8 million for the fiscal years ended May 30, 2020 and June 1, 2019,
respectively.
For fiscal 2020, 2019 and 2018, there were no gains or losses recognized against earnings for hedge ineffectiveness.
79 2020 Annual Report
Effects of Derivatives on the Financial Statements
The effects of derivatives on the consolidated financial statements were as follows for the fiscal years ended 2020 and
2019 (amounts presented exclude any income tax effects):
Balance Sheet Location
May 30, 2020
June 1, 2019
(In millions)
Designated derivatives:
Interest rate swap
Interest rate swap
Non-designated derivatives:
Long-term assets: Other noncurrent assets
Long-term liabilities: Other liabilities
Foreign currency forward contracts
Foreign currency forward contracts
Current assets: Other current assets
Current liabilities: Other accrued liabilities
$
$
$
$
— $
25.0 $
1.1 $
0.8 $
1.0
2.2
—
1.4
Fiscal Year
(In millions)
(Loss) gain recognized on foreign
currency forward contracts
Statement of Comprehensive
Income Location
May 30, 2020
June 1, 2019
June 2, 2018
Other expense (income), net
$
(1.1)
$
0.3 $
0.4
The gain/(loss) recorded, net of income taxes, in Other comprehensive loss for the effective portion of designated
derivatives was as follows for the periods presented below:
(In millions)
Interest rate swap
Fiscal Year
June 1, 2019
May 30, 2020
$
(17.2) $
June 2, 2018
7.5
(12.8) $
Reclassified from Accumulated other comprehensive loss into earnings within "Interest expense" for the fiscal years
ended 2020, 2019, and 2018 were gains of $0.8 million and losses of $0.5 million, and $0.3 million, respectively. Pre-
tax gains expected to be reclassified from Accumulated other comprehensive loss into earnings during the next twelve
months are $4.3 million. The amount of gain, net of tax, expected to be reclassified out of Accumulated other
comprehensive loss into earnings during the next twelve months is $3.2 million.
Investments in Equity Securities Without a Readily Determinable Fair Value
In the fourth quarter of fiscal 2019, the Company recorded a gain from a $2.1 million fair value adjustment in an
investment in a technology partner, which increased the total carrying value of the investment to $3.6 million as of June
1, 2020. The gain was the result of an observable price change for a similar investment in the same entity. There were
no similar gains in fiscal 2020.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests are reported on the Condensed Consolidated Balance Sheets in mezzanine equity
in “Redeemable noncontrolling interests.” These financial instruments represent a level 3 fair value measurement.
As of June 1, 2019, the outstanding redeemable noncontrolling interests in the Company's subsidiary, Herman Miller
Consumer Holdings, Inc. ("HMCH") were $20.6 million, and represented an approximate 5% minority ownership. During
August 2019, the Company acquired all of the remaining redeemable noncontrolling equity interests. HMCH redeemed
certain HMCH stock for cash and then, in August 2019, HMCH merged with and into the Company, with the remaining
minority HMCH shareholders receiving a cash payment. Total cash paid of $20.4 million for the redemptions and for
merger consideration was at fair market value based on an independent appraisal. This compares to purchases of $10.1
million during the twelve month period ended June 1, 2019.
Herman Miller, Inc. and Subsidiaries 80
Changes in the Company's redeemable noncontrolling interest in HMCH for the years ended May 30, 2020 and June 1,
2019 are as follows:
(In millions)
Beginning Balance
Purchase of HMCH redeemable noncontrolling interests
Redemption value adjustment
Exercised options
Ending Balance
May 30, 2020
June 1, 2019
$
$
20.6 $
(20.4)
(0.2)
—
— $
30.5
(10.1)
—
0.2
20.6
On December 2, 2019, the Company purchased an additional 34% equity voting interest in HAY. Upon increasing its
ownership to 67%, the Company obtained a controlling financial interest and consolidated the financial results of HAY.
Additionally, the Company is a party to options, that if exercised, would require it to purchase the remaining 33% of the
equity in HAY, at fair market value. This remaining redeemable noncontrolling interest in HAY is classified outside
permanent equity in the Consolidated Balance Sheets and is carried at the current estimated redemption amount. The
Company recognizes changes to the redemption value of redeemable noncontrolling interests as they occur and
adjusts the carrying value to equal the redemption value at the end of each reporting period. The redemption amounts
have been estimated based on the fair value of the subsidiary, determined using discounted cash flow methods. This
represents a level 3 fair value measurement.
Changes in the Company's redeemable noncontrolling interest in HAY for the year ended May 30, 2020 are as follows:
(In millions)
Beginning Balance
Increase due to HAY acquisition
Redemption value adjustment
Net income attributable to redeemable noncontrolling interests
Foreign currency translation adjustments
Ending Balance
May 30, 2020
—
72.4
(17.6)
(5.1)
0.7
50.4
$
$
$
Other
The following table summarizes the valuation of our assets measured at fair value on a non-recurring basis as of
May 30, 2020:
(In millions)
Assets:
Indefinite-lived intangible assets
DWR right of use assets
May 30, 2020
Level 3
$
92.8
110.9
Not included in the above is goodwill related to the Retail and Maharam reporting units, as these were fully written
down with a resulting impairment charge of $125.5 million in the fourth quarter of fiscal 2020.
The relief-from-royalty method for the quantitative impairment assessment for indefinite-lived intangible assets
utilized discount rates ranging from 12.75% to 17.25% and royalty rates ranging from 1.00% to 3.00%. Based on the
quantitative impairment assessment performed, the carrying value these assets exceeded their fair value, resulting in
an impairment charge of $53.3 million in fiscal 2020.
See Note 1 and Note 7 to the Consolidated Financial Statements for additional information.
81 2020 Annual Report
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 standard length of warranty is 12 years; however, this varies depending on the
product classification. 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. Changes in the warranty reserve for the stated periods were as follows:
(In millions)
Accrual Balance — beginning
Accrual for warranty matters
Settlements and adjustments
Accrual Balance — ending
Guarantees
Year Ended
June 1, 2019
May 30, 2020
$
53.1 $
23.7
(17.6)
59.2 $
$
June 2, 2018
47.7
22.1
(18.3)
51.5
51.5 $
20.7
(19.1)
53.1 $
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 May 30, 2020, the
Company had a maximum financial exposure related to performance bonds of approximately $4.4 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, no liability has been recorded in respect to these bonds as of either May 30, 2020 or June 1, 2019.
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 May 30, 2020, the Company
had a maximum financial exposure from these standby letters of credit totaling approximately $9.4 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, no liability has been recorded as of May 30,
2020 and June 1, 2019.
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.
As of the end of fiscal 2020, outstanding commitments for future purchase obligations approximated $79.8 million.
Herman Miller, Inc. and Subsidiaries 82
14. Operating Segments
The Company's segments consist of North America Contract, International Contract and Retail.
In fiscal 2018, the Company's segments consisted of North American Furniture Solutions, ELA ("EMEA, Latin America,
and Asia Pacific") Furniture Solutions, Specialty and Consumer. Effective in the fourth quarter of fiscal 2019, the
Company has revised its reportable segments to combine the Specialty reportable segment with the North American
Furniture Solutions reportable segment. The newly combined segment is called "North America Contract". There were
no changes to the Company's ELA Furniture Solutions ("ELA") and Consumer segments, but each has been renamed.
Effective in the fourth quarter of fiscal 2019, ELA is now named "International Contract" and Consumer is named
"Retail". The Specialty segment (Maharam, Geiger, Nemschoff and the Herman Miller Collection) has been combined
with the North America Contract segment under a common segment manager as of the fourth quarter fiscal 2019. The
change in operating segments reflect the basis of how the Company internally reports and evaluates financial
information used to make operating decisions. Prior year results disclosed in the table below have been revised to
reflect these changes.
The North America Contract segment includes the operations associated with the design, manufacture and sale of
furniture and textile products for work-related settings, including office, education, and healthcare environments,
throughout the United States and Canada. The business associated with the Company's owned contract furniture
dealers is also included in the North America Contract segment. In addition to the Herman Miller brand, this segment
includes the operations associated with the design, manufacture and sale of high-craft furniture products and textiles
including Geiger wood products, Maharam textiles, Nemschoff, 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 EMEA, Latin America and Asia-Pacific.
The 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, direct mailing catalogs and DWR and HAY
studios.
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.
83 2020 Annual Report
The performance of the operating segments is evaluated by the Company's management using various financial
measures. The following is a summary of certain key financial measures for the years indicated:
(In millions)
Net Sales:
North America Contract
International Contract
Retail
Total
Depreciation and Amortization:
North America Contract
International Contract
Retail
Corporate
Total
Operating Earnings (Loss):
North America Contract
International Contract
Retail
Corporate
Total
Capital Expenditures:
North America Contract
International Contract
Retail
Corporate
Total
Total Assets:
North America Contract
International Contract
Retail
Corporate
Total
Goodwill:
North America Contract
International Contract
Retail
Corporate
Total
May 30, 2020
Year Ended
June 1, 2019 June 2, 2018
$
$
$
$
$
$
$
$
$
$
$
$
1,598.2 $
502.8
385.6
2,486.6 $
1,686.5 $
492.2
388.5
2,567.2 $
1,589.8
434.5
356.9
2,381.2
46.7 $
17.4
14.7
0.7
79.5 $
130.9 $
18.2
(148.3)
(39.2)
(38.4) $
53.7 $
10.4
4.9
—
69.0 $
46.8 $
10.5
14.1
0.7
72.1 $
189.7 $
57.8
5.3
(49.3)
203.5 $
52.7 $
16.6
16.5
—
85.8 $
43.9
10.2
12.1
0.7
66.9
175.2
36.9
13.9
(47.1)
178.9
46.0
11.4
13.2
—
70.6
769.5 $
512.5
310.9
461.0
2,053.9 $
733.6 $
356.8
310.0
168.9
1,569.3 $
182.3 $
163.7
—
—
346.0 $
185.3 $
39.7
78.8
—
303.8 $
677.4
283.4
291.2
227.5
1,479.5
185.3
40.0
78.8
—
304.1
The accounting policies of the operating segments are the same as those of the Company. Additionally, the Company
employs a methodology for allocating corporate costs and assets with the underlying objective of this methodology
being to allocate corporate costs according to the relative usage of the underlying resources and to allocate corporate
assets according to the relative expected benefit. The majority of the allocations for corporate expenses are based on
relative net sales. However, certain corporate costs, generally considered the result of isolated business decisions, are
not subject to allocation and are evaluated separately from the rest of the regular ongoing business operations.
Herman Miller, Inc. and Subsidiaries 84
The Company's product offerings consist primarily of office furniture systems, seating, freestanding furniture, storage
and casegoods. These product offerings are marketed, distributed and managed primarily as a group of similar
products on an overall portfolio basis. The following is a summary of net sales estimated by product category for the
years indicated:
(In millions)
Net Sales:
Systems
Seating
Freestanding and storage
Textiles
Other (1)
Total
(1) “Other” primarily consists of uncategorized product sales and service sales.
May 30, 2020
Year Ended
June 1, 2019 June 2, 2018
$
$
589.3 $
1,041.6
496.9
138.8
220.0
2,486.6 $
668.0 $
1,013.5
505.4
113.8
266.5
2,567.2 $
601.5
965.9
465.1
94.3
254.4
2,381.2
Sales by geographic area are based on the location of the customer. Long-lived assets consist of long-term assets of
the Company, excluding financial instruments, deferred tax assets and long-term intangibles. The following is a
summary of geographic information for the years indicated. Individual foreign country information is not provided as
none of the individual foreign countries in which the Company operates are considered material for separate disclosure
based on quantitative and qualitative considerations.
(In millions)
Net Sales:
United States
International
Total
Long-lived assets:
United States
International
Total
Year Ended
May 30, 2020 June 1, 2019 June 2, 2018
$
$
$
$
1,795.8 $
690.8
2,486.6 $
1,865.8 $
701.4
2,567.2 $
1,737.9
643.3
2,381.2
306.7 $
59.6
366.3 $
422.1 $
52.2
474.3 $
349.3
50.5
399.8
The Company estimates that no single dealer accounted for more than 4 percent of the Company's net sales in the
fiscal year ended May 30, 2020. The Company estimates that its largest single end-user customer accounted for $122.9
million, $129.6 million and $109.8 million of the Company's net sales in fiscal 2020, 2019 and 2018, respectively. This
represents approximately 5 percent, 5 percent and 5 percent of the Company's net sales in fiscal 2020, 2019 and 2018,
respectively.
Approximately 3 percent of the Company's employees are covered by collective bargaining agreements, most of whom
are employees of its Nemschoff and Herman Miller Holdings Limited subsidiaries.
85 2020 Annual Report
15. Accumulated Other Comprehensive Loss
The following table provides an analysis of the changes in accumulated other comprehensive loss for the years
indicated:
(In millions)
Cumulative translation adjustments at beginning of period
Other comprehensive (loss) income
Balance at end of period
Pension and other post-retirement benefit plans at beginning of period
Other comprehensive (loss) income before reclassifications (net of
tax of $3.5, $2.0, and($2.9))
Reclassification from accumulated other comprehensive income -
Other, net
Tax (expense) benefit
Net reclassifications
Net current period other comprehensive (loss) income
Balance at end of period
Interest rate swap agreement at beginning of period
Cumulative effect of accounting change
Other comprehensive (loss) income before reclassifications (net of
tax of $5.8, $5.3, and ($4.0))
Reclassification from accumulated other comprehensive income -
Other, net
Net reclassifications
Net current period other comprehensive (loss) income
Balance at end of period
Unrealized holding gains on securities at beginning of period
Cumulative effect of accounting change
Other comprehensive income before reclassifications
Balance at end of period
May 30, 2020
$
(48.3) $
(7.7)
Year Ended
June 1, 2019 June 2, 2018
(36.8)
2.7
(34.1) $
(14.2)
(56.0)
(48.3)
(34.1)
(45.0)
(16.9)
3.3
(0.6)
2.7
(14.2)
(59.2)
(0.9)
—
(17.2)
(0.8)
(0.8)
(18.0)
(18.9)
—
—
0.1
0.1
(37.2)
(10.0)
2.6
(0.4)
2.2
(7.8)
(45.0)
9.9
1.5
(12.8)
0.5
0.5
(12.3)
(0.9)
0.1
(0.1)
—
—
(47.6)
5.3
4.2
0.9
5.1
10.4
(37.2)
2.1
—
7.5
0.3
0.3
7.8
9.9
0.1
—
—
0.1
Total Accumulated other comprehensive loss
$
(134.0) $
(94.2) $
(61.3)
16. Restructuring Expenses
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 $7.8 million, with $1.4 million recognized in fiscal 2020 and the remainder in
fiscal 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 material future restructuring costs related to the plan are expected as
the plan is substantially complete.
The office buildings and related assets of United Kingdom and China have a carrying value of approximately $7.8
million and meet the criteria to be designated as assets held for sale. Therefore these assets have been classified as
current assets and included within "Other current assets" in the Consolidated Balance Sheets at May 30, 2020.
During the fourth quarter of fiscal 2019, the Company announced restructuring activities associated with profit
improvement initiatives, including costs associated with an early retirement plan. The plan is expected to generate
annual cost savings of approximately $10 million. To date, the Company has recognized $11.1 million of restructuring
Herman Miller, Inc. and Subsidiaries 86
expense related to the plan. During the year ended May 30, 2020, the Company recognized $1.7 million related to the
plan. The early retirement plan is complete and no future costs related to this plan are expected.
In the second quarter of fiscal 2020, the North America Contract segment initiated restructuring discussions with labor
unions related to its Nemschoff 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. In conjunction with these discussions, during the year ended May 30, 2020,
the Company has recorded $3.2 million in pre-tax restructuring expense related to this plan which is expected 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. In the year ended May 30, 2020, 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.
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 material future restructuring costs related to the plan are expected as the plan is substantially complete.
The following table provides an analysis of the changes in the restructuring costs reserve for the above plans for the
fiscal years ended June 1, 2019 and May 30, 2020:
(In millions)
June 2, 2018
Restructuring Costs
Amounts Paid
June 1, 2019
Restructuring Costs
Amounts Paid
May 30, 2020
Severance and Employee-Related Exit or Disposal Activities
Total
$
$
$
— $
7.0
(0.2)
6.8 $
9.9
(10.8)
5.9 $
— $
3.2 $
(2.1) $
1.1 $
1.2 $
(1.5) $
0.8 $
—
10.2
(2.3)
7.9
11.1
(12.3)
6.7
In the fourth quarter of fiscal 2020, the Company announced a restructuring plan (“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. The Company incurred severance and related charges of $15.3 million in fiscal 2020,
consisting solely of cash expenditures for employee termination and severance costs to be paid in fiscal 2021.
The following table provides an analysis of the changes in the restructuring cost reserve for the May 2020 restructuring
plan for the fiscal year ended May 30, 2020:
(In millions)
Beginning Balance
Restructuring Costs
Ending Balance
87 2020 Annual Report
Severance and
Employee-Related
$
$
—
15.3
15.3
The following is a summary of restructuring expenses by segment for the fiscal years indicated:
(In millions)
North America Contract
International Contract
Retail
Total
17. Variable Interest Entities
May 30, 2020
$
Year Ended
June 1, 2019 June 2, 2018
1.8
7.7 $
3.9
2.5
18.7 $
4.8
$
2.9
26.4 $
—
10.2 $
—
5.7
The Company has long-term notes receivable with a third-party owned dealer that are deemed to be variable interests
in variable interest entity. The carrying value of these long-term notes receivable was $1.5 million and $1.6 million as of
May 30, 2020 and June 1, 2019, respectively, and represents the Company’s maximum exposure to loss. The Company
is not deemed to be the primary beneficiary of the variable interest entity as the entity controls the activities that most
significantly impact the entity’s economic performance, including sales, marketing, and operations.
18. Quarterly Financial Data (Unaudited)
Set forth below is a summary of the quarterly operating results on a consolidated basis for the years ended May 30,
2020, June 1, 2019, and June 2, 2018.
(In millions, except per share data)
2020 Net sales
Gross margin
Net earnings attributable to Herman Miller, Inc.
Earnings per share-basic
Earnings per share-diluted
2019 Net Sales
Gross margin
Net earnings attributable to Herman Miller, Inc.
Earnings per share-basic
Earnings per share-diluted
2018 Net sales
Gross margin
Net earnings attributable to Herman Miller, Inc.
Earnings per share-basic
Earnings per share-diluted
$
$
$
First
Quarter (1)
Second
Quarter (1)
Third
Quarter (1)
Fourth
Quarter (1)
670.9 $
246.1
48.2
0.82
0.81
624.6 $
225.1
35.8
0.60
0.60
580.3 $
216.9
33.1
0.55
0.55
674.2 $
255.5
78.6
1.33
1.32
652.6 $
235.6
39.3
0.66
0.66
604.6 $
222.1
33.5
0.56
0.55
665.7 $
243.3
37.7
0.64
0.64
619.0 $
221.0
39.2
0.67
0.66
578.4 $
205.8
29.8
0.50
0.49
475.7
165.8
(173.7)
(2.95)
(2.95)
671.0
248.2
46.2
0.78
0.78
618.0
228.3
31.8
0.53
0.53
(1) For some line items, the sum of the quarters does not equal the annual balance reflected in the Consolidated Statements of
Comprehensive Income due to rounding associated with the calculations on an individual quarter basis.
Herman Miller, Inc. and Subsidiaries 88
Management's Report on Internal Control over Financial Reporting
To the Board of Directors and Stockholders of Herman Miller, Inc.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rules 13a-15(f). The internal control over financial reporting at Herman Miller, Inc. is designed
to provide reasonable assurance to our stakeholders that the financial statements of the Company fairly represent its
financial condition and results of operations.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable
assurance and may not prevent or detect all misstatements. Further, because of changes in conditions, effectiveness of
internal control over financial reporting may vary over time.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting as of
May 30, 2020, based on the original framework in Internal Control — Integrated Framework (2013 Framework) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management
believes the Company's internal control over financial reporting was effective as of May 30, 2020.
Management's assessment of internal control over financial reporting as of May 30, 2020 excludes naughtone’s and
Hay’s internal control over financial reporting associated with total assets of approximately $95 million and $228
million, respectively, and net sales of approximately $16 million and $76 million, respectively, included in the
consolidated financial statements of the Company as of and for the year ended May 30, 2020. Both of these companies
were acquired in fiscal 2020.
KPMG LLP has issued an attestation report on the effectiveness of our internal control over financial reporting, which is
included herein.
/s/ Andrea R. Owen
Andrea R. Owen
Chief Executive Officer
/s/ Jeffrey M. Stutz
Jeffrey M. Stutz
Chief Financial Officer
89 2020 Annual Report
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Herman Miller, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheet of Herman Miller, Inc. and subsidiaries (the Company)
as of May 30, 2020, the related consolidated statements of comprehensive income, stockholders’ equity, and cash
flows for the year ended May 30, 2020, and the related notes and financial statement schedule II - Valuation and
Qualifying Accounts and Reserves (collectively, the consolidated financial statements). We also have audited the
Company’s internal control over financial reporting as of May 30, 2020, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of May 30, 2020, and the results of its operations and its cash flows for the year
ended May 30, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of May 30, 2020
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
The Company acquired the remaining 47.5% interest in naughtone (Holdings) Limited and naughtone Manufacturing
Ltd. (together, naughtone), and an additional 34% interest in HAY ApS (HAY) during the year ended May 30, 2020.
Management excluded from its assessment of the effectiveness of the Company’s internal control over financial
reporting as of May 30, 2020, naughtone’s and HAY’s internal control over financial reporting associated with total
assets of $95 million and $228, respectively, and net sales of $16 million and $76 million, respectively, included in the
consolidated financial statements of the Company as of and for the year ended May 30, 2020. Our audit of internal
control over financial reporting of the Company also excluded an evaluation of the internal controls over financial
reporting of naughtone and HAY.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting
for leases as of June 2, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
Herman Miller, Inc. and Subsidiaries 90
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures
to which they relate.
Valuation of acquired intangible assets - HAY acquisition
As discussed in Note 3 to the consolidated financial statements, the Company purchased an additional 34% equity
voting interest of HAY on December 2, 2019, for net consideration of $79.0 million. The transaction increased the
Company’s ownership to 67%, resulting in a controlling financial interest and was accounted for as a business
combination. Accordingly, the purchase price, inclusive of the remeasurement of the previously held equity interest
and non-controlling interest, was allocated to the assets acquired and liabilities assumed based on their
respective fair values, including identified intangible assets of $118.9 million. To value the identified intangible
assets, which included a tradename, product development and technology, and customer relationships, the
Company used the income approach. The process required management to make significant judgments around the
estimates and assumptions that would be used by a market participant, which included forecasted revenue growth
rates, operating margins, royalty rates, and discount rates.
We identified the evaluation of the fair value of acquired intangible assets in the HAY acquisition as a critical audit
matter because of the significant judgments made by management to estimate the fair values of the tradename,
product development and technology, and customer relationship intangibles. Specifically, subjective and
challenging auditor judgment was required to evaluate the selection of forecasted revenue growth rates, operating
margins, royalty rates, and discount rates used to estimate the fair values of the intangibles. Additionally, the audit
effort associated with the evaluation of the fair value of acquired intangible assets in the HAY acquisition required
specialized skills and knowledge.
91 2020 Annual Report
The following are the primary procedures we performed to address this critical audit matter. We tested the design
and evaluated the effectiveness of certain internal controls over the Company’s acquisition-date valuation process,
including controls over the selection of forecasted revenue growth rates, operating margins, royalty rates and
discount rates used to estimate the fair value of the HAY tradename, product development and technology, and
customer relationship intangibles. We evaluated the reasonableness of management’s forecasted revenue growth
rates and operating margins by comparing the forecasts to historical revenue growth rates and operating margins.
We performed sensitivity analyses to assess the impact of reasonably possible changes to the key estimates and
assumptions on the fair value of the acquired intangibles. In addition, we involved valuation professionals with
specialized skills and knowledge, who assisted in:
•
•
•
evaluating the Company’s discount rates by comparing the Company’s inputs to the discount rates to publicly
available data for comparable entities and assessing the resulting discount rates,
evaluating the Company’s royalty rates by comparing the selected royalty rates to the forecasted operating
margins of HAY and publicly available data for comparable licensing agreements and assessing the resulting
royalty rates, and
testing the estimate of the fair values of the HAY tradename, product development and technology, and
customer relationship intangibles using the Company’s cash flow estimates and discount rates, and
comparing the results to the Company’s fair value estimates.
Goodwill impairment assessment
As discussed in Note 1 to the consolidated financial statements, the Company’s consolidated goodwill balance
was $346.0 million as of May 30, 2020, of which $163.7 million, $0.0 million, and $0.0 million was related to the
International, Maharam, and Retail reporting units, respectively. During the fourth quarter of the year ended May
30, 2020, the Company recorded a goodwill impairment loss of $36.7 million, and $88.8 million related to the
Maharam and Retail reporting units, respectively. Goodwill is tested for impairment annually in the fourth quarter
of each fiscal year, or more frequently, when events or changes in circumstances indicate that the fair value of a
reporting unit has declined below its carrying value. To estimate the fair value of its reporting units, the Company
utilized an income approach and a market approach that used observable comparable company information.
We identified the evaluation of goodwill for impairment for the International, Maharam, and Retail reporting units
as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate the selection of
forecasted revenue growth rates, operating margins, and discount rates used in the income approach. Additionally,
the audit effort associated with the evaluation of goodwill for impairment for the International, Maharam, and
Retail reporting units required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment
evaluation, including controls over the selection of forecasted revenue growth rates, operating margins, and
discount rates to estimate the fair value of the International, Maharam, and Retail reporting units. We evaluated
the reasonableness of management’s forecasted revenue growth rates and operating margins by comparing the
forecasts to historical revenue growth rates and operating margins, considering industry conditions and growth
plans. We performed sensitivity analyses to assess the impact of reasonably possible changes to the forecasted
revenue growth rates, operating margins, and discount rate assumptions on the reporting unit fair values. In
addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•
•
evaluating the Company’s discount rates by comparing the Company’s inputs to the discount rates to publicly
available data for comparable entities and assessing the resulting discount rates, and
testing the estimate of fair value for the International, Maharam, and Retail reporting units using the
Company’s cash flow assumptions and discount rates and comparing the results to the Company’s fair value
estimates.
Herman Miller, Inc. and Subsidiaries 92
Tradename impairment assessment
As discussed in Note 1 to the consolidated financial statements, the indefinite-lived intangible asset balance as of
May 30, 2020 was $31.5 million, $39.3 million and $16.5 million related to the DWR (Design Within Reach), HAY,
and Maharam tradenames, respectively. During the fourth quarter of the year ended May 30, 2020, the Company
recorded an impairment loss of $23.6 million, $20.7 million and $6.5 million related to the DWR, HAY, and
Maharam tradenames, respectively. Indefinite-lived intangible assets are tested for impairment annually in the
fourth quarter of each fiscal year, or more frequently, when events or changes in circumstances indicate that the
fair value of an indefinite-lived intangible asset has declined below its carrying value. To estimate the fair value of
the indefinite-lived intangible assets, the Company utilizes the relief from royalty method.
We identified the evaluation of the DWR, HAY, and Maharam tradenames for impairment as a critical audit matter.
Subjective and challenging auditor judgment was required to evaluate the selection of forecasted revenue growth
rates, discount rates, and royalty rates used to estimate the fair values of the DWR, HAY and Maharam tradenames.
Additionally, the audit effort associated with the evaluation of the DWR, HAY, and Maharam tradenames for
impairment required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls over the Company’s impairment
evaluation for tradenames, including controls over the selection of forecasted revenue growth rates, discount
rates, and royalty rates used to estimate the fair value of the DWR, HAY, and Maharam tradenames. We evaluated
the reasonableness of management’s forecasted revenue growth rates by comparing the forecasts to historical
revenue growth rates, considering industry conditions and growth plans. We performed sensitivity analyses to
assess the impact of reasonably possible changes to the forecasted revenue growth rates, discount rate, and
royalty rate assumptions on the fair values of the tradenames. In addition, we involved valuation professionals
with specialized skills and knowledge, who assisted in:
•
•
•
evaluating the Company’s discount rates by comparing the Company’s inputs to the discount rates to publicly
available data for comparable entities and assessing the resulting discount rates;
evaluating the Company’s royalty rates by comparing the selected royalty rates to the forecasted operating
margins of the sales associated with the tradenames and publicly available data for comparable licensing
agreements and assessing the resulting royalty rates, and
testing the estimate of fair value of the DWR, HAY, and Maharam indefinite-lived tradenames using the
Company’s estimated future revenue growth assumptions, royalty rates, and discount rates, and comparing
the results to the Company’s fair value estimates.
Long-lived asset impairment assessment
As discussed in Note 1 to the consolidated financial statements, the DWR asset group, including right-of-use
assets, was $122.7 million as of May 30, 2020. During the fourth quarter of the year ended May 30, 2020, the
Company recorded long-lived asset impairment charges of $26.6 million related to right-of-use assets, customer
relationships, and other long-lived assets within the DWR asset group. The Company performs an impairment
assessment when circumstances indicate that the carrying amount of the long-lived assets may not be recoverable.
If a triggering event is identified, the Company compares the carrying amount of the asset group to the estimated
undiscounted future cash flows expected to result from the use of the asset group. If the carrying amount of the
asset group exceeds the estimated undiscounted future cash flows, the Company measures the amount of the
impairment by comparing the carrying amount of the asset group to its estimated fair value. To estimate the fair
value of the asset group, the Company utilized an income approach for customer relationships, a market approach
for right-of-use assets and a cost approach for other long-lived assets.
We identified the evaluation of the fair value of the right-of-use assets within the DWR asset group as a critical
audit matter because of the significant judgments made by management to estimate fair value. Specifically,
subjective and challenging auditor judgment was required to assess 1) relevant market-based rental comparatives
adjusted for industry data trends, and 2) consideration of the remaining lease term, which were used to estimate
the fair values of the right-of-use assets. Additionally, the audit effort associated with the evaluation of the fair
value of the right-of-use assets within the DWR asset group required specialized skills and knowledge.
93 2020 Annual Report
The following are the primary procedures we performed to address this critical audit matter. We tested the design
and evaluated the effectiveness of certain internal controls over the Company’s long-lived asset impairment
assessment process, including controls over the determination of market-based rental comparatives, industry data
trends, and consideration of the remaining lease term used to estimate the fair value of the right-of-use assets. In
addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating
the significant assumptions used to estimate the fair value of the right-of-use assets by comparing the
assumptions to 1) available market-based rental comparatives adjusted for industry data trends, and 2)
considerations of the remaining lease term.
/s/ KPMG LLP
We have served as the Company’s auditor since 2019.
Chicago, Illinois
July 28, 2020
Herman Miller, Inc. and Subsidiaries 94
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Herman Miller, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Herman Miller, Inc. and subsidiaries (the Company)
as of June 1, 2019, and the related consolidated statements of comprehensive income, stockholders’ equity and cash
flows for each of the two years in the period ended June 1, 2019, and the related notes and financial statement
schedule for each of the two years in the period ended June 1, 2019 listed in the Index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at June 1, 2019, and the results of its operations
and its cash flows for each of the two years in the period ended June 1, 2019, in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 2002 to 2019.
Grand Rapids, Michigan
July 30, 2019
95 2020 Annual Report
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None
Item 9A Controls and Procedures
(a)
(b)
(c)
Disclosure Controls and Procedures. Under the supervision and with the participation of management, the
Company's Chief Executive Officer and Chief Financial Officer have 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 May 30,
2020 and have concluded that as of that date, the Company's disclosure controls and procedures were effective.
Management's Annual Report on Internal Control Over Financial Reporting and Attestation Report of the
Independent Registered Public Accounting Firm. Refer to Item 8 for “Management's Report on Internal Control
Over Financial Reporting.” The effectiveness of the Company's internal control over financial reporting has been
audited by KPMG LLP, an independent registered accounting firm, as stated in its report included in Item 8.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company's internal control
over financial reporting during the fourth quarter ended May 30, 2020 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B Other Information
None
Herman Miller, Inc. and Subsidiaries 96
PART III
Item 10 Directors, Executive Officers and Corporate Governance
Directors, Executive Officers, Promoters and Control Persons
Information relating to directors and director nominees of the Company is contained under the caption “Director and
Executive Officer Information” in the Company's definitive Proxy Statement, relating to the Company's 2020 Annual
Meeting of Stockholders, and the information within that section is incorporated by reference. Information relating to
Executive Officers of the Company is included in Part I hereof entitled “Executive Officers of the Registrant.”
Compliance with Section 16(a) of the Exchange Act
Information relating to compliance with Section 16(a) of the Exchange Act is contained under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” in the Company's definitive Proxy Statement, relating to the Company's
2020 Annual Meeting of Stockholders, and the information within that section is incorporated by reference.
Code of Ethics
The Company has adopted a Code of Conduct that serves as the code of ethics for the executive officers and senior
financial officers and as the code of business conduct for all Company directors and employees. This code is made
available free of charge through the “Legal” section of the Company's website at www.hermanmiller.com. Any
amendments to, or waivers from, a provision of this code also will be posted to the Company's website.
Corporate Governance
Information relating to the identification of the audit committee, audit committee financial experts, and director
nomination procedures of the Company is contained under the captions “Board Committees” and “Corporate
Governance and Board Matters — Director Nominations” in the Company's definitive Proxy Statement, relating to the
Company's 2020 Annual Meeting of Stockholders, and the information within these sections is incorporated by
reference.
Item 11 Executive Compensation
Information relating to executive compensation is contained under the captions “Compensation Discussion and
Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-
End,” “Option Exercises and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential
Payments Upon Termination, Death, Disability, Retirement or Change in Control,” “Director Compensation,” “Director
Compensation Table,” and “Compensation Committee Interlocks and Insider Participation” in the Company's definitive
Proxy Statement, relating to the Company's 2020 Annual Meeting of Stockholders, and the information within these
sections is incorporated by reference. The information under the caption “Compensation Committee Report” is
incorporated by reference, however, such information is not deemed filed with the Commission.
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The sections entitled “Voting Securities and Principal Stockholders,” “Director and Executive Officer Information,” and
“Equity Compensation Plan Information” in the Company's definitive Proxy Statement, relating to the Company's 2020
Annual Meeting of Stockholders, and the information within these sections is incorporated by reference.
97 2020 Annual Report
Item 13 Certain Relationships and Related Transactions, and Director
Independence
Information concerning certain relationships and related transactions contained under the captions “Related Party
Transactions,” and “Corporate Governance and Board Matters — Determination of Independence of Board Members” in
the Company's definitive Proxy Statement, relating to the Company's 2020 Annual Meeting of Stockholders and the
information within these sections is incorporated by reference.
Item 14 Principal Accountant Fees and Services
Information relating to the ratification of the selection of the Company's independent public accountants and
concerning the payments to our principal accountants and the services provided by our principal accounting firm set
forth under the captions "Ratification of the Audit Committee's selection of Independent Registered Accounting Firm"
and “Disclosure of Fees Paid to Independent Auditors” in the Company's definitive Proxy Statement, relating to the
Company's 2020 Annual Meeting of Stockholders, and the information within that section is incorporated by reference.
Herman Miller, Inc. and Subsidiaries 98
PART IV
Item 15 Exhibits and Financial Statement Schedule
(a)
The following documents are filed as a part of this report:
1.
Financial Statements
The following Consolidated Financial Statements of the Company are included in this Annual Report on Form 10-
K on the pages noted:
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Management's Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firms
2.
Financial Statement Schedule
Page Number in
this Form 10-K
43
44
45
46
47
89
90
The following financial statement schedule is included in this Annual Report on Form 10-K on the pages noted:
Schedule II-
Valuation and Qualifying Accounts and Reserves for the Years Ended May
30, 2020, June 1, 2019, and June 2, 2018.
Page Number in
this Form 10-K
102
All other schedules required by Form 10-K Annual Report have been omitted because they were not applicable,
included in the Notes to the Consolidated Financial Statements, or otherwise not required under instructions
contained in Regulation S-X.
3.
Exhibits
Refer to the Exhibit Index which is included below.
99 2020 Annual Report
Exhibit Index
(3)
Articles of Incorporation and Bylaws
(a)
(b)
Restated Articles of Incorporation, dated October 8, 2018, are incorporated by reference to Exhibit 3.1
of Registrant's Form 8-K Report dated October 8, 2018 (Commission File No. 001-15141).
Amended and Restated Bylaws, dated April 9, 2019, are incorporated by reference to Exhibit 3 of the
Registrant's Form 8-K Report dated April 9, 2019 (Commission File No. 001-15141).
(4)
Instruments Defining the Rights of Security Holders
(a) Other instruments which define the rights of holders of long-term debt individually represent debt of
less than 10% of total assets. In accordance with item 601(b)(4)(iii)(A) of regulation S-K, the Registrant
agrees to furnish to the Commission copies of such agreements upon request.
(b)
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange
Act of 1934.
(10)
Material Contracts
(a)
Herman Miller, Inc. 2011 Long-Term Incentive Plan, as amended by Sixth Amendment (2019) is
incorporated by reference to Exhibit 10(a) of the Registrant's Form 10-K Report dated July 30, 2019
(Commission File No. 001-15141).(1)
(b) Herman Miller, Inc. Nonemployee Officer and Director Deferred Compensation Plan is incorporated
by reference to Exhibit 10(b) of the Registrant's Form 10-K Report dated July 26, 2016 (Commission
File No. 001-15141).(1)
(c)
Form of Management Continuity Agreement of the Registrant(1)
(d) Herman Miller, Inc. Executive Equalization Retirement Plan is incorporated by reference to Exhibit 10
(d) of the Registrant's Form 10-K Report dated July 28, 2015 (Commission File No. 001-15141).(1)
(e)
(f)
(g)
(h)
Form of Herman Miller, Inc., Long-Term Incentive Plan Stock Option Agreement is incorporated by
reference to Exhibit 10.1 of the Registrant's Form 10-Q Report dated January 9, 2019 (Commission File
No. 001-15141).(1)
Form of Herman Miller, Inc., Long-Term Incentive Restricted Stock Unit Award is incorporated by
reference to Exhibit 10.1 of the Registrant's Form 10-Q Report dated April 7, 2020 (Commission File No.
001-15141).(1)
Form of Herman Miller, Inc. 2011 Long-Term Incentive Plan HMVA Plan Performance Share Unit Award
is incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q Report dated January 9, 2019
(Commission File No. 001-15141).(1)
Form of Herman Miller, Inc. 2011 Long-Term Incentive Plan TSR Performance Share Unit Award
Agreement is incorporated by reference to Exhibit 10.4 of the Registrant's Form 10-Q Report dated
January 9, 2019 (Commission File No. 001-15141).(1)
Herman Miller, Inc. and Subsidiaries 100
(i)
(j)
(k)
(l)
Form of Herman Miller, Inc. 2011 Long-Term Incentive Plan Conditional Stock Option Award is
incorporated by reference to Exhibit 10(p) of the Registrant's 10-K Report dated July 28, 2015
(Commission File No. 001-15141).(1)
Trust Under the Herman Miller, Inc. Nonemployee Officer and Director Compensation Plan is
incorporated by reference to Exhibit 10(q) of the Registrant's Form 10-K Report dated July 26, 2016
(Commission File No. 001-15141).(1)
Share Purchase Agreement dated October 8, 2019 between Herman Miller Holdings Limited and Nine
United A/S is incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q Report dated
October 8, 2019 (Commission File No. 001-15141).(1)
Employment Agreement between Herman Miller, Inc. and Andrea R. Owen, Chief Executive Officer,
dated August 3, 2018, is incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Report
dated October 10, 2018 (Commission File No. 001-15141).(1)
(m) Stock Option Agreement between Herman Miller, Inc. and Andrea Owen is incorporated by reference
to Exhibit 10.5 of the Registrant's Form 10-Q Report dated January 9, 2019 (Commission File No.
001-15141). (1)
(n)
(o)
(p)
Restricted Stock Unit Award Agreement between Herman Miller, Inc. and Andrea Owen is incorporated
by reference to Exhibit 10.6 of the Registrant's Form 10-Q Report dated January 9, 2019 (Commission
File No. 001-15141).(1)
HMVA Performance Share Award Agreement between Herman Miller, Inc. and Andrea Owen is
incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-Q Report dated January 9, 2019
(Commission File No. 001-15141).(1)
TSR Performance Share Unit Award Agreement between Herman Miller, Inc. and Andrea Owen is
incorporated by reference to Exhibit 10.8 of the Registrant's Form 10-Q Report dated January 9, 2019
(Commission File No. 001-15141).(1)
(q) Herman Miller, Inc. 2019 Executive Incentive Cash Bonus Plan dated July 15, 2019 is incorporated by
reference to Exhibit 10 of the Registrant's Form 8-K filed July 19, 2019 (Commission File No. 001-15141).
(1)
(r)
(s)
(t)
(u)
Form of Indemnification Agreement between Herman Miller, Inc. and certain employees serving as a
director or officer of a foreign subsidiary, including executive officers of Herman Miller, Inc. is
incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q dated October 8, 2019
(Commission File No. 001-15141).(1)
Fifth Amended and Restated Credit Agreement dated as of August 28, 2019 among Herman Miller,
Inc., certain subsidiary borrowers, Wells Fargo Bank, National Agent, as Administrative Agent, and
JPMorgan Chase Bank N.A., as Syndication Agent, is incorporated by reference to Exhibit 10.1 of the
Registrant's Report on Form 8-K dated August 28, 2019 (Commission File No. 001-15141).
Form of Herman Miller, Inc., Long-Term Incentive Plan Operating Income Growth Performance Share
Unit with TSR Modifier Award Agreement is incorporated by reference to Exhibit 10.2 of the Registrant's
Form 10-Q Report dated April 7, 2020 (Commission File No. 001-15141).(1)
Form of Herman Miller, Inc., Long-Term Incentive Plan Revenue Growth Performance Share Unit with
TSR Modifier Award Agreement is incorporated by reference to Exhibit 10.3 of the Registrant's Form
10-Q Report dated April 7, 2020 (Commission File No. 001-15141).(1)
(21)
Subsidiaries
(23)(a) Consent of Independent Registered Public Accounting Firm
(23)(b) Consent of Independent Registered Public Accounting Firm
(24)
Power of Attorney (included on the signature page to this Registration Statement)
101 2020 Annual Report
(31)(a)
Certificate of the Chief Executive Officer of Herman Miller, Inc., pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
(31)(b)
Certificate of the Chief Financial Officer of Herman Miller, Inc., pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
(32)(a) Certificate of the Chief Executive Officer of Herman Miller, Inc., pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(32)(b) Certificate of the Chief Financial Officer of Herman Miller, Inc., pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
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104
Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).
(1) Denotes compensatory plan or arrangement.
Schedule II - Valuation and Qualifying Accounts
(In millions)
Column A
Description
Year ended May 31, 2020:
Column B
Balance at
beginning
of period
Column D
Column C
Charges to
expenses
or net sales Deductions (3)
Column E
Balance
at end of
period
Accounts receivable allowances — uncollectible accounts(1) $
Accounts receivable allowances — credit memo(2)
Allowance for possible losses on notes receivable
Valuation allowance for deferred tax asset
$
$
$
Year ended June 1, 2019:
Accounts receivable allowances — uncollectible accounts(1) $
$
Accounts receivable allowances — credit memo(2)
$
Allowance for possible losses on notes receivable
$
Valuation allowance for deferred tax asset
Year ended June 2, 2018:
Accounts receivable allowances — uncollectible accounts(1) $
$
Accounts receivable allowances — credit memo (2)
$
Allowance for possible losses on notes receivable
$
Valuation allowance for deferred tax asset
2.9 $
0.6 $
0.3 $
10.4 $
2.4 $
0.5 $
0.4 $
10.3 $
2.3 $
0.4 $
0.9 $
10.0 $
2.3 $
— $
— $
0.4 $
0.6 $
— $
(0.1) $
0.4 $
0.6 $
0.1 $
(0.5) $
0.5 $
(0.9) $
(0.5) $
— $
(0.2) $
(0.1) $
0.1 $
— $
(0.3) $
(0.5) $
— $
— $
(0.2) $
4.3
0.1
0.3
10.6
2.9
0.6
0.3
10.4
2.4
0.5
0.4
10.3
(1) Activity under the “Charges to expense or net sales” column are recorded within Selling, general and administrative expenses.
(2) Activity under the “Charges to expenses or net sales” column are recorded within Net sales.
(3) Represents amounts written off, net of recoveries and other adjustments. Includes effects of foreign translation.
Item 16 Form 10-K Summary
None
Herman Miller, Inc. and Subsidiaries 102
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HERMAN MILLER, INC.
/s/ Jeffrey M. Stutz
By Jeffrey M. Stutz
Chief Financial Officer (Principal
Accounting Officer and Duly
Authorized Signatory for Registrant)
Date:
July 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on July 28, 2020 by
the following persons on behalf of the Registrant in the capacities indicated.
/s/ Lisa Kro
Lisa Kro
(Director)
/s/ Mary Vermeer Andringa
Mary Vermeer Andringa
(Director)
/s/ John R. Hoke III
John R. Hoke III
(Director)
/s/ Andrea R. Owen
Andrea R. Owen
(President, Chief Executive Officer,
and Director)
/s/ Jeffrey M. Stutz
Jeffrey M. Stutz
(Chief Financial Officer and Principal
Accounting Officer)
/s/ Michael A. Volkema
Michael A. Volkema
(Chairman of the Board)
/s/ David A. Brandon
David A. Brandon
(Director)
/s/ Douglas D. French
Douglas D. French
(Director)
/s/ Heidi Manheimer
Heidi Manheimer
(Director)
/s/ Mike Smith
Mike Smith
(Director)
103 2020 Annual Report
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF
THE SECURITIES EXCHANGE ACT OF 1934
The following is a brief description of the common stock of Herman Miller, Inc. (the “Company”). This summary
does not purport to be complete in all respects and is subject to and qualified in its entirety by reference to the Company’s
Restated Articles of Incorporation and Amended and Restated Bylaws, each of which are filed as exhibits to the Annual
Report on Form 10-K of which this exhibit is a part.
Authorized Capital Stock
The Company’s authorized capital stock consists of 240,000,000 shares of common stock and 10,000,000 shares
of preferred stock. As of May 29, 2020, there were [•] shares of common stock outstanding and no shares of preferred
stock outstanding.
Dividend and Liquidation Rights
Subject to the prior rights of the holders of shares of preferred stock that may be issued and outstanding, if any,
the holders of common stock are entitled to receive:
•
•
dividends when, as, and if declared by the Company’s Board of Directors out of funds legally available for
the payment of dividends; and
in the event of dissolution of the Company, to share ratably in all assets remaining after payment of liabilities
and satisfaction of the liquidation preferences, if any, of then outstanding shares of preferred stock, as
provided in the Restated Articles of Incorporation.
Voting Rights
Each holder of common stock is entitled to one vote for each share held of record on all matters presented to a
vote at a shareholders meeting, including the election of directors. Holders of common stock have no cumulative voting
rights.
The Company’s Restated Articles of Incorporation provide that the Company’s Board of Directors be divided into
three classes of nearly equal size, with the classes to hold office for staggered terms of three years each.
The Company’s Amended and Restated Bylaws provide that each director will be elected by the majority of the
votes cast with respect to that director’s election at any meeting of shareholders for the election of directors, other than
a contested election. A majority of the votes cast means that the number of votes cast “for” a director’s election exceeds
the number of votes “withheld” with respect to that director’s election. In a contested election, each director will be elected
by a plurality of the votes cast with respect to that director’s election at the meeting. An election is considered contested
if the number of nominees exceeds the number of directors to be elected at that meeting.
In an uncontested election of directors, any nominee for director who is already serving as a director and receives
a greater number of votes “withheld” from his or her election than votes “for” his or her election (a “Majority Against
Vote”) is required to promptly tender his or her resignation. Abstentions and broker non-votes are not counted as votes
cast either “for” or “withheld” with respect to that director’s election. The Nominating and Governance Committee of the
Company’s Board of Directors will then promptly consider the resignation submitted by a director receiving a Majority
Against Vote, and that Committee will recommend to the Board whether to accept the tendered resignation or reject it.
The Board will act on the Committee’s recommendation no later than 90 days following the date of the
shareholders’ meeting at which the election occurred. In considering the Committee’s recommendation, the Board will
consider the factors considered by the Committee and such additional information and factors the Board believes to be
relevant. The Company will promptly publicly disclose the Board’s decision whether to accept the resignation as tendered,
including a full explanation of the process by which the decision was reached and, if applicable, the reasons for rejecting
the tendered resignation. Any director who tenders a resignation pursuant to those procedures may not participate in the
Committee recommendation or the Board consideration regarding whether to accept the tendered resignation.
Listing
The Company’s common stock is currently traded on the Nasdaq Global Select Market under the symbol “MLHR.”
Applicable Anti-Takeover Provisions
The Company’s Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that
could have an anti-takeover effect. Some of the provisions also may make it difficult for shareholders to replace incumbent
directors with new directors who may be willing to entertain changes that shareholders may believe will lead to
improvements in the combined company’s business.
Other
All of the outstanding shares of the Company’s common stock are fully paid and non-assessable. Holders of
common stock have no preemptive rights to purchase or subscribe for any additional shares of common stock or other
securities, and there are no conversion rights or redemption or sinking fund provisions with respect to the Company’s
common stock.
The transfer agent for the Company’s common stock is Computershare, P.O. Box 43021, Providence, Rhode Island
02940.
MANAGEMENT CONTINUITY AGREEMENT
THIS AGREEMENT is by and between HERMAN MILLER, INC., a Michigan corporation ( "HMI"), and
__________________________________ (the "Executive"), effective as of ________________________ (the "Effective
Date").
RECITALS
The Executive is a key employee of HMI or an HMI Subsidiary whose continued dedication, availability, advice
and counsel to HMI and its Subsidiaries is deemed important to the Board of Directors of HMI (the "Board"), HMI and
its shareholders. The services of the Executive, Executive's experience and knowledge of the affairs of HMI and
Executive's reputation and contacts in the industry are extremely valuable to HMI. HMI wishes to attract and retain such
well-qualified executives, and it is in the best interests of HMI to secure the continued services of the Executive
notwithstanding any change of control of HMI.
HMI considers the establishment and maintenance of a sound and vital management team to be part of its
overall corporate strategy and to be essential to protecting and enhancing the best interests of HMI and its
shareholders. Accordingly, the Board has approved this Agreement with the Executive and authorized its execution and
delivery on behalf of HMI.
AGREEMENT
1.
Term of Agreement. This Agreement will begin on the Effective Date and will continue in effect through
the third anniversary of the Effective Date (the “Initial Term”). Thereafter, this Agreement shall be extended
automatically for additional three (3) consecutive year periods (“Renewal Terms”) at the end of the Initial Term and
each Renewal Term (collectively referred to as the "Term"), unless not later than twelve (12) months prior to the end of
the Initial Term or a Renewal Term, HMI gives written notice to Executive that it has elected not to renew this Agreement.
Notwithstanding the foregoing, if a Change of Control occurs during the Term of this Agreement, this Agreement will
continue in effect for thirty-six (36) months beyond the end of the month in which any Change of Control occurs.
2.
Definitions. The following defined terms shall have the meanings set forth below, for purposes of this
Agreement:
(a)
Annual Base Salary. "Annual Salary" shall mean Executive’s highest annual base salary during
the twelve (12) month period immediately prior to the month in which the Change of Control occurs.
(b)
Average Bonus. "Average Bonus" shall mean the average of the last three (3) annual bonus
payments, if any, to Executive under HMI’s Annual Incentive Cash Bonus Plan immediately preceding the
Change of Control.
(c)
Cause. “Cause” means (1) a material breach by the Executive of those duties and
responsibilities of the Executive which do not differ in any material respect from the duties and responsibilities
of the Executive during the ninety (90) day period immediately prior to a Change of Control (other than as a
result of incapacity due to physical or mental illness) which is (A) demonstrably willful and deliberate on the
Executive’s part, (B) committed in bad faith or without reasonable belief that such breach is in the best
interests of HMI and (C) not remedied in a reasonable period of time after receipt of written notice from HMI
specifying such breach or (2) the commission by the Executive of a felony involving moral turpitude.
(d)
Change of Control. A “Change of Control” shall mean a change of control of HMI that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 (“Exchange Act”), or such item thereof which may hereafter pertain to the
same subject; provided that, and notwithstanding the foregoing, a Change of Control shall be deemed to have
occurred if:
(i)
Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, a
"Person") is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of HMI representing thirty-five percent (35%) or more of the
combined voting power of HMI's then out-standing securities; or
(ii)
At any time a majority of the Board of Directors of HMI is comprised of other than
Continuing Directors (for purposes of this Section, the term "Continuing Director" means a director
who was either (A) first elected or appointed as a Director prior to the date of this Agreement; or (B)
subsequently elected or appointed as a director if such director was nominated or appointed by at
least a majority of the then Continuing Directors); or
(iii)
Any of the following occur:
(A)
Any merger or consolidation of HMI, other than a merger or consolidation in
which the voting securities of HMI immedi-ately prior to the merger or consolidation continue
to represent (either by remaining outstanding or being converted into securities of the
surviving entity) sixty percent (60%) or more of the combined voting power of HMI or surviving
entity immediately after the merger or consolidation with another entity;
(B)
Any sale, exchange, lease, mortgage, pledge, transfer, or other disposition
(in a single trans-action or a series of related transactions) of all or substantially all of the
assets of HMI which shall include, without limitation, the sale of assets or earning power
aggregating more than fifty percent (50%) of the assets or earning power of HMI on a
consolidated basis;
(C)
(D)
Any liquidation or dissolution of HMI;
Any reorganization, reverse stock split, or recapitalization of HMI which
would result in a Change of Control; or
(E)
Any transaction or series of related transactions having, directly or indirectly,
the same effect as any of the foregoing; or any agreement, contract, or other arrangement
providing for any of the foregoing.
(d)
Disability. "Disability" means that, as a result of Executive's incapacity due to physical or
mental illness, the Executive shall have been found to be eligible for the receipt of benefits under HMI's long-
term disability plan or similar plan or program providing for the payment of disability benefits.
(e)
Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any
one or more of the following without the Executive's express written consent:
(i)
The assignment to Executive of duties which are materially different from or
inconsistent with the duties, responsibilities and status of Executive's position at any time during the
six (6) month period prior to the Change of Control of HMI, or which result in a significant reduction in
Executive's authority and responsibility as an executive of HMI or a Subsidiary;
(ii)
A reduction by HMI in (1) Executive's Annual Base Salary or salary grade as of the date
immediately prior to the Change of Control, or the failure to grant salary increases and bonus
payments on a basis comparable to those granted to other executives of HMI, (2) Executive's Target
Bonus amount under HMI's Incentive Cash Bonus Plan, as of the date immediately prior to the Change
of Control, or (3) the target value of Executive's equity-based compensation awards under HMI's Long
Term Incentive Plan, as of the date immediately prior to the Change of Control;
(iii)
any requirement of HMI that the Executive be based at a location in excess of 50
miles from the facility which is the Executive’s principal business office at the time of the Change of
Control;
(iv)
The failure of HMI to obtain a sat-isfactory agreement from any successor to HMI to
assume and agree to perform this Agreement, as contem-plated in Section 8 of this Agreement;
(v)
(vi)
Any termination by HMI of Executive's employment that is other than for Cause; or
A reduction of 5% or more in the aggregate benefits provided to Executive and
Executive’s dependents under HMI’s employee benefit plans (including, without limitation,
retirement, medical, prescription, dental, disability, salary continuance, employee life, group life, and
accidental death insurance plans and programs) in which the Executive is participating immediately
prior to such Change of Control.
The existence of Good Reason shall not be affected by Executive's Disability. Except as provided in
Section 2(h) of this Agreement, Executive's continued employ-ment shall not constitute a waiver of Executive's
rights with respect to any circumstance constituting Good Reason under this Agreement.
(f)
Annual Incentive Cash Bonus Plan. "Annual Incentive Cash Bonus Plan" shall mean HMI's
Annual Incentive Cash Bonus Plan, as in effect as of the Effective Date, or any successor plan.
(g)
Long Term Incentive Plan. "Long Term Incentive Plan" shall mean HMI's 2011 Long Term
Incentive Plan, as in effect as of the Effective Date, or any successor plan.
(h)
Notice of Termination. "Notice of Termination" means a written notice indicating the specific
termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the employment under the provision so indicated.
The Executive shall not be entitled to give a Notice of Termination that the Executive is terminating employment
for Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good
Reason, except with respect to an event which occurred before the Change of Control, in which case the Notice
of Termination must be given within six (6) months following the Change of Control. Any termination by HMI for
Cause or due to Executive's Disability, or by Executive for Good Reason shall be communicated by Notice of
Termination to the other party.
(i)
Controlled Subsidiary. "Controlled Subsidiary" means a corporation with at least fifty percent
(50%) of its outstanding capital stock owned directly or indirectly by HMI.
(j)
Termination Date. "Termination Date" shall mean the date of Executive's termination of
employment with HMI or a Subsidiary, or if the date of a Change of Control if termination of employment occurs
under the terms of Section 3(b) of this Agreement.
3.
Eligibility for Severance Benefits. Subject to Section 5, Executive shall receive the Severance Benefits
described in Section 4 if Executive's employment is terminated during the Term of this Agreement, and
(a)
The termination occurs within the twenty-four (24) consecutive month period after a Change
of Control, unless the termination is (i) because of Executive's death or Disability, (ii) by HMI for Cause, or (iii)
by the Executive other than for Good Reason; or
(b)
HMI (i) terminates the employment of Executive, (ii) takes any of the actions set forth in
Subsections 2(e)(ii) or (iii), or (iii) assigns Executive duties which are materially different from or inconsistent
with the duties, responsibilities and status of Executive's current position or which would result in a significant
reduction in Executive's authority and responsibility as an executive of HMI or a Subsidiary within six (6)
months before a Change of Control, and (A) in contemplation of such Change of Control, and (B) to avoid the
effect of this Agreement after such Change of Control, provided that no Severance Benefits shall be due or
payable under this Subsection 3(b) unless and until a Change of Control occurs.
4.
Severance Benefits. Subject to Section 5, the Executive shall receive the following Severance Benefits
(in addition to accrued compensation and vested benefits) if eligible under Section 3:
(a)
A lump sum cash amount (which shall be paid not later than thirty (30) days after the
Termination Date) equal to Executive-'s Annual Base Salary, multiplied by 2;
(b)
A lump sum cash amount (which shall be paid not later than thirty (30) days after the
Termination Date) equal to two (2) times the greater of (1) Executive's Average Bonus and (2) Executive's Target
Bonus for the fiscal year in which the Change of Control occurs, plus an amount equal to Executive's Target
Bonus for the fiscal year in which the Termination Date occurs multiplied by a fraction, the numerator of which
is the number of days in that fiscal year through the Termination Date, and the denominator of which is 365;
(c)
For the twenty-four (24) consecutive month period beginning immediately after the
Termination Date, HMI will provide to Executive at HMI's expense with the following benefits, provided that if
one or more of the following benefits is not provided to HMI employees, or cannot be provided to Executive
under terms of HMI's plans during such twenty-four (24) month period, HMI shall pay Executive a lump sum
cash benefit equal to the cost to HMI of providing such benefit:
(i)
Health care coverage equal to that in effect for Executive (including his or her
permitted family members) prior to the Termination Date (or, if more favorable to Executive, that
furnished generally to peer employees of HMI), including, but not limited to, hospital, surgical,
medical, dental, prescription and dependent coverages. Upon the expiration of the health care
benefits required to be provided pursuant to this Subsection 4(c), the Executive shall be entitled to
the continuation of such benefits under the provisions of the Consolidated Omnibus Budget
Reconciliation Act (“COBRA”) to the extent of any remaining eligibility period under such Act. Health
care benefits other-wise receivable by Executive pursuant to this
Subsection 4(c) shall be reduced to the extent compar-able benefits are actually received by Executive
from a subse-quent employer during the twenty-four (24) consecutive month period immediately
following the Termination Date and any such benefits actually received by Executive shall be reported
to HMI;
(ii)
Life insurance equal (including policy terms) to that in effect at the time Notice of
Termination is given (or on the Termination Date if no Notice of Termination is required) or, if more
favor-able to Executive, equal to that in effect at the date the Change of Control occurs; and
(iii)
Disability insurance coverage (including policy terms) equal to that in effect at the
time Notice of Termination is given (or on the Termination Date if no Notice of Termination is required)
or, if more favorable to Executive, equal to that in effect immediately prior to the Change of Control;
provided, however, that no income replacement benefits will be payable under such disability policy
with regard to the twenty-four (24) month period immediately following a termination of employment
provided that the payments payable under Subsections 4(a) and (b) above have been made.
(d) HMI shall pay all fees for outplacement services for job searches up
to a maximum of Twenty-five Thousand Dollars ($25,000);
(e)
In computing and determining Severance Benefits under Subsections 4(a) through (d) above,
a decrease in Executive's salary, bonus compensation, or insurance benefits shall be disregarded if such
decrease occurs within six (6) months before a Change of Control, is in contemplation of such Change of
Control, and is taken to avoid the effect of this Agreement should such action be taken after such Change of
Control; in such event, the salary, incentive bonus, and/or insurance benefits used to determine Annual
Salary, Average Bonus, and therefore Severance Benefits shall be that in effect immediately before the
decrease that is disregarded pursuant to this Subsection 4(e);
(f)
Executive shall not be required to mitigate the amount of any payment provided for in this
Section 4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this
Section 4 be reduced by any compensation earned by Executive as the result of employment by another
employer after the Termination Date, with the exception of a reduction in health insurance coverage as
provided in Subsection 4(c)(i); and
(g)
All outstanding awards held by Executive under HMI's Long-Term Incentive Plan shall vest in
full as of the Termination Date.
5.
Maximum Payments. If any of the payments or benefits received or to be received by Executive
(including, without limitation, any payment or benefits received in connection with a Change of Control or Executive's
termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or
agreement, or otherwise) (all such payments collectively referred to herein as the "280G Payments") constitute
"parachute payments" within the meaning of Section 280G of the Code and would, but for this Section 5, be subject to
the excise tax imposed under Section 4999 of the Code (the "Excise Tax"), then prior to making the 280G Payments, a
calculation shall be made comparing (a) the Net Benefit (as defined below) to Executive of the 280G Payments after
payment of the Excise Tax to (b) the Net Benefit to Executive if the 280G Payments are limited to the extent necessary to
avoid being subject to the Excise Tax. Only if the amount calculated under (a) above is less than the amount under (b)
above will the 280G Payments be reduced to the minimum extent necessary to ensure that no portion of the 280G
Payments is subject to the Excise Tax. "Net Benefit" shall mean the present value of the 280G Payments, net of all
federal, state, local, foreign income, employment, and excise taxes. The calculation to be made pursuant to this
Section 5 shall be made in a manner determined by HMI's independent accounts or HMI's tax counsel, as selected by
Executive, and that is consistent with the requirements of Section 409A.
6.
following:
Covenants of Executive. In consideration of HMI’s execution of this Agreement, Executive agrees to the
(a)
Restrictive Covenants. Executive understands and agrees that HMI has legitimate interests in
protecting its goodwill, its relationships with customers and business partners, and in maintaining its
confidential information, trade secrets and Protected Information, and hereby agrees that the following
restrictions are appropriate to meet such goals.
(i)
Non-Solicitation. Executive acknowledges that the relationships and goodwill that
Executive develops with HMI Customers as a result of Executive's employment belong to HMI.
Executive therefore agrees that while employed by HMI and for a period of twelve (12) consecutive
months after Executive's employment with HMI ends, for any reason, Executive will not, and will not
assist anyone else to, (1) solicit or encourage any HMI Customer to terminate or diminish its
relationship with HMI relating to Competitive Services or Products; or (2) seek to persuade HMI
Customer to conduct with anyone other than HMI any business or activity relating to Competitive
Services or Products that such HMI Customer conducts or could conduct with HMI.
(ii)
Non-Competition. Executive agrees that while employed by HMI and for a period of
twelve (12) consecutive months after Executive's employment with HMI ends, for any reason, Executive
will not, for himself or herself, or on behalf of any other person or entity, directly or indirectly, provide
services to a Direct Competitor in a role where Executive's knowledge of Protected Information is likely
to affect Executive's decisions or actions for the Direct Competitor to the detriment of HMI.
(b)
Definitions. For purposes of this Section 6, the following terms shall be defined as follows:
(i)
Protected Information. "Protected Information" means HMI information not generally
known to, and not readily ascertainable through proper means by, HMI's competitors on matters such
as customer information, partner information, and the relative skills and experience of HMI's other
Executives or agents; nonpublic information; strategic plans; business methods; investment
strategies and plans; intellectual property; sales and marketing plans; HMI (not individual) know-how;
trade secrets; and other information of a technical or economic nature relating to HMI's business.
Protected Information does not include information that (i) was in the public domain, (ii) was
independently developed or acquired by Executive, (iii) was approved by HMI for use and disclosure
by Executive without restriction, or (iv) is the type of information which might form the basis for
protected concerted activity under the National Labor Relations Act (for example, Executive pay or
Executive terms and conditions of employment).
(ii)
HMI Customer. "HMI Customer" is limited to those customers or partners who did
business with HMI within the most recent 18 months of Executive's employment (or during the period
of Executive's employment, if Executive was employed for less than 18 months) and with whom
Executive personally dealt on behalf of HMI in the 12 months immediately preceding the last day of
Executive's employment and Executive had business contact or responsibility with such HMI Customer
as a result of his or her employment with HMI. "HMI Customer" shall not, however, include any
individual who purchased a Competitive Product from HMI by direct purchase from one of its retail
establishments or via on-line over the Internet, unless such purchase was of such quantity that the
purchase price exceeded Fifteen Thousand Dollars ($15,000).
(iii)
Competitive Services. "Competitive Services" means services of the type that HMI
provided or offered to its customers or partners at any time during the 12 months immediately
preceding the last day of Executive's employment with HMI (or at any time during Executive's
employment if Executive was employed for less than 12 months), and for which Executive was involved
in providing or managing the provision of such services.
(iv)
Competitive Products. "Competitive Products" means products that serve the same
function as, or that could be used to replace, products HMI provided to, offered to, or was in the
process of developing for a present, former, or future possible customer/partner at any time during
the twelve (12) months immediately preceding the last day of Executive's employment (or at any time
during Executive's employment if Executive was employed for less than 12 months), with which
Executive had direct responsibility for the sale or development of such products or managing those
persons responsible for the sale or development of such products.
(v)
Direct Competitor. "Direct Competitor" means a person, business or company
providing Competitive Products or Competitive Services in any country where HMI or its Subsidiaries
does business. "Direct Competitor" does not include any business which the parties have agreed in
writing to exclude from the definition, and HMI will not unreasonably or arbitrarily withhold such
agreement.
7.
Amendment or Termination of Agreement.
(a)
This Agreement shall be effective on the Effective Date and shall continue until terminated by
HMI as provided in Section 7(b); provided, however, that this Agreement shall terminate in any event upon the
earlier to occur of (i) termination of the Executive’s employment with HMI or a Subsidiary prior to a Change of
Control, other than pursuant to Section 3(b), and (ii) the Executive’s death.
(b)
HMI shall have the right prior to a Change of Control, in its sole discretion, pursuant to action
by the Board, to approve the amendment or termination of this Agreement, which amendment or termination
shall not become effective until the date fixed by the Board therefor, which date shall be at least 180 days after
notice thereof is given by HMI to the Executive in accordance with Section 10; provided, however, that no such
action shall be taken by the Board, without the written consent of the Executive, (i) during any period of time
when the Board has knowledge that any Person has taken steps reasonably calculated to effect a Change of
Control until, in the opinion of the Board, such Person has abandoned or terminated its efforts to effect a
Change of Control or (ii) following a Change of Control.
8.
Successors; Binding Agreements. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees
and legatees. Executive's rights and benefits under this Agreement may not be assigned, except that if Executive dies
while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement, to the beneficiaries
designated by the Executive to receive benefits under this Agreement in a writing on file with HMI at the time of the
Executive's death or, if there is no such beneficiary, to Executive's estate. HMI will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or
assets of HMI (or of any division or Subsidiary thereof employing Executive) to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that HMI would be required to perform it if no such
succession had taken place. Failure of HMI to obtain such assumption and agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall entitle Executive to compensation from HMI in the same
amount and on the same terms to which Executive would be entitled hereunder if Executive terminated the
employment for Good Reason following a Change of Control.
9.
Withholding of Taxes. HMI may withhold from any amounts payable under this Agreement all federal,
state, city, or other taxes as required by law.
10.
Notice. For the purpose of this Agreement, notices and all other communica-tions provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or mailed by
United States registered mail, return receipt requested, postage prepaid, addressed to the respective addressees set
forth on the first page of this Agreement, or at such other addresses as the parties may designate in writing.
11.
Compliance with Section 409A. It is intended that any amounts payable under this Agreement will
comply with Section 409A of the Internal Revenue Code (the "Code") and treasury regulations relating thereto so as not
to subject the Executive to the payment of any interest and tax penalty which may be imposed under Section 409A of
the Code, and this Agreement shall be interpreted and construed in accordance with such intention. Any provision of
the Agreement that would cause the Executive to be subject to the payment of any such interest or tax penalty shall be
disregarded, and the timing of the payments or benefits provided herein shall be modified accordingly.
12.
Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing and signed by Executive and such officer as may be specifically
designated by the Board.
13.
Employment Rights. Except as specifically provided in this Agreement, this Agreement shall not confer
upon Executive any right to continue in the employ of HMI or its Subsidiaries and shall not in any way affect the right of
HMI or its Subsidiaries to dismiss or otherwise terminate Executive’s employment at any time with or without Cause.
14.
No Vested Interest. Neither Executive nor Executive's beneficiary shall have any right, title, or interest
in any benefit under this Agreement prior to the occurrence of the right to the payment thereof, or in any property of
HMI or its Subsidiaries.
15.
Prior Agreements. This Agreement contains the understanding between the parties hereto with respect
to Severance Benefits in connection with a Change of Control of HMI and supersedes any such prior agreement
between HMI (or any predecessor of HMI) and Executive, including the Change in Control Agreement, dated ________,
between the Executive and HMI. If there is any discrepancy or conflict between this Agreement and any plan, policy, or
program of HMI regarding any term or condition of Severance Benefits in connection with a Change of Control of HMI,
the language of this Agreement shall govern.
16.
Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be
governed by and construed and enforced in accordance with the internal laws of the State of Michigan without regard
to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect
the validity or enforceability of any other provisions of this Agreement, which other provisions shall remain in full force
and effect.
17.
Counterparts. This Agreement may be executed in several counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the same instrument.
18.
Arbitration. The sole and exclusive method for resolving any dispute arising out of this Agreement
shall be arbitration in accordance with this section. Except as provided otherwise in this Section 18, arbitration
pursuant to this section shall be governed by the Commercial Arbitration Rules of the American Arbitration Association.
A party wishing to obtain arbitration of an issue shall deliver written notice to the other party, including a description of
the issue to be arbitrated. Within fifteen (15) days after either party demands arbitration, HMI and the Executive shall
each appoint an arbitrator. Within fifteen (15) additional days, these two arbitrators shall appoint the third arbitrator by
mutual agreement; if they fail to agree within said fifteen (15) day period, then the third arbitrator shall be selected
promptly pursuant to the rules of the American Arbitration Association for Commercial Arbitration. The arbitration panel
shall hold a hearing in Kent County, Michigan, within ninety (90) days after the appointment of the third arbitrator. The
fees and expenses of the arbitrator, and any American Arbitration Association fees, shall be paid by HMI. Both HMI and
the Executive may be represented by counsel and may present testimony and other evidence at the hearing. Within
ninety (90) days after commencement of the hearing, the arbitration panel will issue a written decision; the majority
vote of two of the three arbitrators shall control. The majority decision of the arbitrators shall be final and binding on
the parties, and shall be enforceable in accordance with law. Judgment may be entered on the arbitrators' award in any
court having jurisdiction. The Executive shall be entitled to seek specific performances of Executive's rights under this
Agreement during the pendency of any dispute or controversy arising under or in connection with this Agreement. HMI
will reimburse Executive for all reasonable attorney fees incurred by Executive as the result of any arbitration with
regard to any issue under this Agreement (or any judicial proceeding to compel or to enforce such arbitration); (i) which
is initiated by Executive if HMI is found in such proceeding to have violated this Agreement substantially as alleged by
Executive; or (ii) which is initiated by HMI, unless Executive is found in such proceeding to have violated this
Agreement substantially as alleged by HMI.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the Effective Date.
HERMAN MILLER, INC.
By: ______________________________________
Its: ______________________________________
EXECUTIVE: _______________________________
_________________________________________
(Signature)
EXHIBIT 21
HERMAN MILLER, INC., SUBSIDIARIES
The Company's principal subsidiaries are as follows:
Name
Anpartsselskabet af 5.12 2018
Anpartsselskabet af 6.9 2019
Colebrook Bosson & Saunders Products Limited
Colebrook Bosson Saunders, Pty. Ltd.
Design Within Reach, Inc.
Geiger International, Inc.
HAY ApS
HAY International BE B.V.
HAY International CH GmbH
HAY International DE GmbH B.V.
HAY International NL B.V.
HAY International UK Ltd.
HAR AS
Hemiri, S.A. de C.V.
Herman Miller Asia (Pte.) Ltd.
Herman Miller (Aust.) Proprietary Limited
Herman Miller B.V.
Herman Miller Canada, Inc.
Herman Miller Consumer Co.
Herman Miller Consumer Corporation Canada
Herman Miller do Brasil, Ltda.
Herman Miller (Dongguan) Furniture Co., Ltd.
Ownership
67% Company
Jurisdiction of
Incorporation
Denmark
67% Company
Denmark
100% Company
England, U.K.
100% Company
100% Company
100% Company
67% Company
67% Company
Australia
Delaware
Delaware
Denmark
Belgium
67% Company
Switzerland
67% Company
Germany
67% Company
Netherlands
67% Company
England, U.K.
67% Company
100% Company
Norway
Mexico
100% Company
Singapore
100% Company
Australia
100% Company
Netherlands
100% Company
Canada
100% Company
Michigan
100% Company
Canada
100% Company
100% Company
Brazil
China
Herman Miller Finance Company (Hong Kong) LImited
100% Company
Hong Kong
Herman Miller Furniture (India) Pvt. Ltd.
100% Company
India
Herman Miller Global Customer Solutions (Hong Kong) Limited
100% Company
Hong Kong
Herman Miller Global Customer Solutions, Inc.
Herman Miller Global Holdings Luxembourg S.à r.l.
Herman Miller Holdings Limited
100% Company
Michigan
100% Company
Luxembourg
100% Company
England, U.K.
Herman Miller International Finance Luxembourg S.à r.l.
100% Company
Luxembourg
Herman Miller Japan, Ltd.
Herman Miller Korea LLC
Herman Miller Limited
Herman Miller Mexico S.A. de C.V.
Herman Miller (Ningbo) Furniture Co. Ltd.
Herman Miller Servicios S. de R.L. de C.V.
HM Delaware LLC
HMI Liquidating Company
Maharam Fabric Corporation
Maharam B.V.
Meridian Incorporated
100% Company
100% Company
Japan
Korea
100% Company
England, U.K.
100% Company
100% Company
100% Company
100% Company
100% Company
100% Company
100% Company
100% Company
Mexico
China
Mexico
Delaware
Michigan
New York
Netherlands
Michigan
Milsure Insurance, Ltd.
Naughtone (Holdings) Limited
Naughtone Manufacturing Ltd.
Naught One Ltd.
Nemschoff, Inc.
POSH Office Systems (Hong Kong) Limited
Sun Hing POSH Holdings Limited
100% Company
Barbados
100% Company
England, U.K.
100% Company
England, U.K.
100% Company
England, U.K.
100% Company
Wisconsin
100% Company
100% Company
Hong Kong
Hong Kong
Exhibit 23(a)
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-04367, 333-42506,
333-04365, 333-122282, 333-04369, 333-122283, 333-179138, 333-201706 and 333-220893) and on Form S-3 (No.
333-220892) of Herman Miller, Inc. of our reports dated July 28, 2020 with respect to the consolidated balance sheet of
Herman Miller, Inc. and subsidiaries as of May 30, 2020, and the related consolidated statements of comprehensive
income, stockholders’ equity, and cash flows for the year ended May 30, 2020, and the related notes and financial
statement schedule II - Valuation and Qualifying Accounts and Reserves (collectively, the consolidated financial
statements), and the effectiveness of internal control over financial reporting as of May 30, 2020, which reports appear
in the May 30, 2020 annual report on Form 10-K of Herman Miller, Inc.
Our report dated July 28, 2020, on the consolidated financial statements, refers to a change in the method of
accounting for leases as of June 2, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases
(Topic 842).
Our report dated July 28, 2020, on the effectiveness of internal control over financial reporting as of May 30, 2020,
contains an explanatory paragraph that states that Herman Miller, Inc. acquired the remaining 47.5% interest in
naughtone (Holdings) Limited and naughtone Manufacturing Ltd. (together, naughtone), and an additional 34%
interest in HAY ApS (HAY) during the year ended May 30, 2020, and management excluded from its assessment of the
effectiveness of Herman Miller, Inc.’s internal control over financial reporting as of May 30, 2020, naughtone’s and
HAY’s internal control over financial reporting associated with total assets of $95 million and $228 million,
respectively, and net sales of $16 million and $76 million, respectively, included in the consolidated financial
statements of Herman Miller, Inc. as of and for the year ended May 30, 2020. Our audit of internal control over financial
reporting of Herman Miller, Inc. also excluded an evaluation of the internal control over financial reporting of
naughtone and HAY.
/s/ KPMG LLP
Chicago, Illinois
July 28, 2020
Exhibit 23(b) - Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements Nos. 333-04367, 333-42506,
333-04365, 333-122282, 333-04369, 333-122283, 333-179138, 333-201706 and 333-220893 on Form S-8 and No.
333-220892 on Form S-3 of Herman Miller, Inc. of our report dated July 30, 2019, with respect to the consolidated
financial statements and schedule of Herman Miller, Inc. included in this Annual Report (Form 10-K) for the fiscal year
ended May 30, 2020.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
July 28, 2020
Exhibit 31(a)
CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER
OF HERMAN MILLER, INC. (THE "REGISTRANT")
I, Andrea R. Owen, certify that:
1.
2.
3.
4.
a)
b)
c)
d)
5.
a)
b)
I have reviewed this annual report on Form 10-K for the period ended May 30, 2020, of Herman Miller, Inc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: July 28, 2020
/s/ Andrea R. Owen
Andrea R. Owen
Chief Executive Officer
Exhibit 31(b)
CERTIFICATE OF THE CHIEF FINANCIAL OFFICER
OF HERMAN MILLER, INC. (THE "REGISTRANT")
I, Jeffrey M. Stutz, certify that:
1.
2.
3.
4.
a)
b)
c)
d)
5.
a)
b)
I have reviewed this annual report on Form 10-K for the period ended May 30, 2020, of Herman Miller, Inc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: July 28, 2020
/s/ Jeffrey M. Stutz
Jeffrey M. Stutz
Chief Financial Officer
Exhibit 32(a)
CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER
OF HERMAN MILLER, INC. (THE "COMPANY")
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
I, Andrea R. Owen, Chief Executive Officer of the Company, certify to the best of my knowledge and belief pursuant to
Section 906 of Sarbanes-Oxley Act of 2002 that:
(1) The Annual Report on Form 10-K for the period ended May 30, 2020, which this statement accompanies, fully complies
with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report on Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: July 28, 2020
/s/ Andrea R. Owen
Chief Executive Officer
The signed original of this written statement required by Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to Herman Miller, Inc. and will be retained by Herman
Miller, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32(b)
CERTIFICATE OF THE CHIEF FINANCIAL OFFICER
OF HERMAN MILLER, INC. (THE "COMPANY")
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
I, Jeffrey M. Stutz, Chief Financial Officer of the Company, certify to the best of my knowledge and belief pursuant to
Section 906 of Sarbanes-Oxley Act of 2002 that:
(1)
(2)
The Annual Report on Form 10-K for the period ended May 30, 2020, which this statement accompanies, fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Annual Report on Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: July 28, 2020
/s/ Jeffrey M. Stutz
Chief Financial Officer
The signed original of this written statement required by Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to Herman Miller, Inc. and will be retained by Herman
Miller, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.