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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 29, 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
__________________________________________
mlhr-20200829_g1.jpg
HERMAN MILLER, INC.
(Exact name of registrant as specified in its charter)
__________________________________________
Michigan38-0837640
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
855 East Main Avenue
Zeeland, MI 49464
(Address of principal executive offices and zip code)
(616) 654-3000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockMLHRNASDAQ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated fileroNon-accelerated filer  oSmaller reporting companyEmerging growth company
                
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes    No  x

As of October 1, 2020, Herman Miller, Inc. had 58,900,841 shares of common stock outstanding.



Herman Miller, Inc.
Form 10-Q
Table of Contents
 Page No.
Part I — Financial Information 
Item 1 Financial Statements (Unaudited) 
Condensed Consolidated Statements of Comprehensive Income — Three Months ended August 29, 2020 and August 31, 2019
Condensed Consolidated Balance Sheets — August 29, 2020 and May 30, 2020
Condensed Consolidated Statements of Cash Flows — Three Months Ended August 29, 2020 and August 31, 2019
Condensed Consolidated Statements of Stockholders' Equity — Three Months Ended August 29, 2020 and August 31, 2019
Notes to Condensed Consolidated Financial Statements
Note 4 - Leases
Note 5 - Acquisitions
Note 11 - Income Taxes
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Item 4 Controls and Procedures
Part II — Other Information
Item 1   Legal Proceedings
Item 1A Risk Factors
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
Item 3   Defaults upon Senior Securities
Item 4   Mine Safety Disclosures
Item 5   Other Information
Item 6   Exhibits
Signatures
 



PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Herman Miller, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Dollars in millions, except share data) Three Months Ended
(Unaudited) August 29, 2020August 31, 2019
Net sales$626.8 $670.9 
Cost of sales376.8 424.8 
Gross margin250.0 246.1 
Operating expenses:
Selling, general and administrative139.7 165.0 
Restructuring expense, net(1.2)1.8 
Design and research16.1 19.2 
Total operating expenses154.6 186.0 
Operating earnings95.4 60.1 
Interest expense3.7 3.0 
Interest and other investment income0.4 0.7 
Other income, net(1.7)(0.2)
Earnings before income taxes and equity income93.8 58.0 
Income tax expense20.6 12.2 
Equity income from nonconsolidated affiliates, net of tax0.2 2.2 
Net earnings73.4 48.0 
Net earnings (loss) attributable to redeemable noncontrolling interests0.4 (0.2)
Net earnings attributable to Herman Miller, Inc.$73.0 $48.2 
Earnings per share — basic$1.24 $0.82 
Earnings per share — diluted$1.24 $0.81 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments$30.1 $(9.3)
Pension and post-retirement liability adjustments1.2 0.7 
Unrealized gains (losses) on interest rate swap agreement0.3 (8.8)
Unrealized holding loss on available for sale securities(0.1) 
Other comprehensive (loss) income, net of tax31.5 (17.4)
Comprehensive income104.9 30.6 
Comprehensive income (loss) attributable to redeemable noncontrolling interests3.0 (0.2)
Comprehensive income attributable to Herman Miller, Inc.$101.9 $30.8 
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller, Inc. and Subsidiaries 3


Herman Miller, Inc.
Condensed Consolidated Balance Sheets
(Dollars in millions, except per share data)
(Unaudited) August 29, 2020May 30, 2020
ASSETS
Current Assets:
Cash and cash equivalents$296.6 $454.0 
Short-term investments7.0 7.0 
Accounts receivable, net of allowances of $5.3 and $4.7
195.3 180.0 
Unbilled accounts receivable28.4 19.5 
Inventories, net186.5 197.3 
Prepaid expenses29.1 43.3 
Other current assets14.6 16.0 
Total current assets757.5 917.1 
Property and equipment, at cost1,111.2 1,111.3 
Less — accumulated depreciation(783.5)(780.5)
Net property and equipment327.7 330.8 
Right of use assets197.8 193.9 
Goodwill358.6 346.0 
Indefinite-lived intangibles96.2 92.8 
Other amortizable intangibles, net of accumulated amortization of $67.0 and $62.7
115.8 112.4 
Other noncurrent assets63.5 60.9 
Total Assets$1,917.1 $2,053.9 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable$159.5 $128.8 
Short-term borrowings and current portion of long-term debt52.4 51.4 
Accrued compensation and benefits56.6 71.1 
Accrued warranty16.2 16.1 
Customer deposits36.2 39.8 
Other accrued liabilities156.6 163.0 
Total current liabilities477.5 470.2 
Long-term debt274.9 539.9 
Pension and post-retirement benefits43.4 42.4 
Lease liabilities178.7 178.8 
Other liabilities139.0 129.2 
Total Liabilities1,113.5 1,360.5 
Redeemable noncontrolling interests57.2 50.4 
Stockholders' Equity:
Preferred stock, no par value (10,000,000 shares authorized, none issued)
  
Common stock, $0.20 par value (240,000,000 shares authorized, 58,899,500 and 58,793,275 shares issued and outstanding in fiscal 2021 and 2020, respectively)
11.8 11.8 
Additional paid-in capital83.1 81.6 
Retained earnings756.9 683.9 
Accumulated other comprehensive loss(105.1)(134.0)
Deferred compensation plan(0.3)(0.3)
Total Stockholders' Equity 746.4 643.0 
Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity$1,917.1 $2,053.9 
See accompanying notes to Condensed Consolidated Financial Statements.
4 Form 10-Q


Herman Miller, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in millions) Three Months Ended
(Unaudited) August 29, 2020August 31, 2019
Cash Flows from Operating Activities:
Net earnings$73.4 $48.0 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization21.2 19.3 
Stock-based compensation1.5 2.6 
Restructuring expense(1.2)1.8 
(Increase) decrease in current assets3.9 1.4 
Increase (decrease) in current liabilities13.3 (18.9)
Increase in non-current liabilities5.2  
Other, net(1.4)0.5 
Net Cash Provided by Operating Activities115.9 54.7 
Cash Flows from Investing Activities:
Proceeds from sale of property and dealers6.4  
Capital expenditures(11.3)(20.6)
Equity investment in non-controlled entities (3.1)
Other, net(0.2)(0.3)
Net Cash Used in Investing Activities(5.1)(24.0)
Cash Flows from Financing Activities:
Repayments of credit facility(265.0) 
Dividends paid(12.3)(11.6)
Common stock issued0.8 12.7 
Common stock repurchased and retired(0.9)(7.6)
Purchase of redeemable noncontrolling interests (19.8)
Other, net0.9 (1.6)
Net Cash Used in Financing Activities(276.5)(27.9)
Effect of Exchange Rate Changes on Cash and Cash Equivalents8.3 (2.5)
Net (Decrease) Increase in Cash and Cash Equivalents(157.4)0.3 
Cash and Cash Equivalents, Beginning of Period454.0 159.2 
Cash and Cash Equivalents, End of Period$296.6 $159.5 
See accompanying notes to Condensed Consolidated Financial Statements.
Herman Miller, Inc. and Subsidiaries 5


Herman Miller, Inc.
Condensed Consolidated Statements of Stockholders' Equity
Three Months Ended August 29, 2020
(Dollars in millions, except share data) Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossDeferred Compensation PlanHerman Miller, Inc. Stockholders' EquityNoncontrolling InterestsTotal
Stockholders' Equity
(Unaudited) SharesAmount
May 30, 202058,793,275 $11.8 $81.6 $683.9 $(134.0)$(0.3)$643.0 $ $643.0 
Net earnings   73.0   73.0  73.0 
Other comprehensive income, net of tax    28.9  28.9  28.9 
Stock-based compensation expense  1.5    1.5  1.5 
Exercise of stock options8,133  0.2    0.2  0.2 
Restricted and performance stock units released106,607         
Employee stock purchase plan issuances25,116  0.6    0.6  0.6 
Repurchase and retirement of common stock(36,644) (0.9)   (0.9) (0.9)
Directors' fees3,013  0.1    0.1  0.1 
August 29, 202058,899,500 $11.8 $83.1 $756.9 $(105.1)$(0.3)$746.4 $ $746.4 

Three Months Ended August 31, 2019
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossDeferred Compensation PlanHerman Miller, Inc. Stockholders' EquityNoncontrolling InterestsTotal Stockholders' Equity
SharesAmount
June 1, 201958,794,148 $11.7 $89.8 $712.7 $(94.2)$(0.8)$719.2 $ $719.2 
Net earnings   48.2   48.2 (0.2)48.0 
Other comprehensive loss, net of tax    (17.4) (17.4) (17.4)
Stock-based compensation expense  2.6    2.6  2.6 
Exercise of stock options382,898 0.1 12.1    12.2  12.2 
Restricted and performance stock units released45,105         
Employee stock purchase plan issuances14,750  0.5    0.5  0.5 
Repurchase and retirement of common stock(173,001) (7.6)   (7.6) (7.6)
Deferred compensation plan     0.2 0.2  0.2 
Dividends declared ($0.21 per share)
   (12.5)  (12.5) (12.5)
Redemption value adjustment   (0.2)  (0.2)0.2  
August 31, 201959,063,900 11.8 97.4 748.2 (111.6)(0.6)745.2  745.2 
See accompanying notes to Condensed Consolidated Financial Statements.

6 Form 10-Q


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

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

The accompanying unaudited Condensed Consolidated Financial Statements, taken as a whole, contain all adjustments that are of a normal recurring nature necessary to present fairly the financial position of the Company as of August 29, 2020. Operating results for the three months ended August 29, 2020 are not necessarily indicative of the results that may be expected for the year ending May 29, 2021. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 30, 2020. All intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The financial statements of equity method investments are not consolidated. Certain prior year amounts in the Condensed Consolidated Financial Statements have been reclassified to conform with current year presentation.

2. Recently Issued Accounting Standards
Recently Adopted Accounting Standards
On May 31, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" using the modified retrospective method. This update 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 including customer credit quality, historical write-off trends and general information regarding industry trends and the macroeconomic environment. The adoption did not have a material impact on the Company's financial statements, accounting policies or methods utilized to determine the allowance for doubtful accounts.

On May 31, 2020, the Company adopted ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" using the prospective method. This update modifies certain disclosure requirements for fair value measurements. The adoption did not have a material impact on the Company's financial statements.

Recently Issued Accounting Standards Not Yet Adopted
The Company is currently evaluating the impact of adopting the following relevant standards issued by the FASB:
StandardDescriptionEffective Date
2018-14Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit PlansThis update eliminates, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.May 30, 2021
All other issued and not yet effective accounting standards are not relevant to the Company.

Herman Miller, Inc. and Subsidiaries 7


3. Revenue from Contracts with Customers
Disaggregated Revenue
Revenue disaggregated by contract type has been provided in the table below:
Three Months Ended
(In millions)August 29, 2020August 31, 2019
Net Sales:
Single performance obligation
Product revenue$543.3 $566.2 
Multiple performance obligations
Product revenue78.4 99.9 
Service revenue3.1 2.3 
Other2.0 2.5 
Total$626.8 $670.9 

Effective in the first quarter of fiscal 2021, the Company has revised its product categories in the table below to consist of workplace, performance seating, lifestyle and other. The change in these product categories reflects how the Company internally reports and evaluates products when making operational decisions. Prior year results disclosed in the table below have been revised to reflect these changes.

Revenue disaggregated by product type and reportable segment has been provided in the table below:
Three Months Ended
(In millions)August 29, 2020August 31, 2019
North America Contract:
Workplace$207.1 $283.2 
Performance Seating77.5 111.9 
Lifestyle22.4 23.5 
Other31.8 39.8 
Total North America Contract$338.8 $458.4 
International Contract:
Workplace$41.9 $47.6 
Performance Seating62.7 57.0 
Lifestyle46.7 6.3 
Other2.4 3.0 
Total International Contract$153.7 $113.9 
Retail:
Workplace$1.9 $1.0 
Performance Seating47.5 9.1 
Lifestyle84.7 88.5 
Other0.2  
Total Retail$134.3 $98.6 
Total$626.8 $670.9 

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

Contract Balances
Customers may make payments before the satisfaction of the Company's performance obligation and recognition of revenue. These payments represent contract liabilities and are included within the caption “Customer deposits” in the Condensed Consolidated Balance Sheets. During the three months ended August 29, 2020, the Company recognized Net sales of $18.1 million related to customer deposits that were included in the balance sheet as of May 30, 2020.
8 Form 10-Q


4. Leases
The components of lease expense are provided in the table below:
(In millions)August 29, 2020August 31, 2019
Operating lease costs$11.0 $12.7 
Short-term lease costs0.8 0.6 
Variable lease costs*1.6 2.2 
Total$13.4 $15.5 
*Not included in the table above for the three months ended August 29, 2020 and August 31, 2019 are variable lease costs of $16.9 million and $21.9 million, respectively, for raw material purchases under certain supply arrangements that the Company has determined to meet the definition of a lease.

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 in the fourth quarter of fiscal 2020 which is the primary driver of lower operating lease cost in the three months ended August 29, 2020 compared to the prior year.

At August 29, 2020, the Company had no financing leases. The undiscounted annual future minimum lease payments related to the Company's right-of-use assets are summarized by fiscal year in the following table:
(In millions)
2021$37.3 
202247.2 
202342.6 
202436.8 
202532.7 
Thereafter74.7 
Total lease payments*$271.3 
Less interest25.9 
Present value of lease liabilities$245.4 
*Lease payments exclude $31.2 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.

The long-term portion of the lease liabilities included in the amounts above is $178.7 million and the remainder of the lease liabilities are included in "Other accrued liabilities" in the Condensed Consolidated Balance Sheets.

At August 29, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases were 7 years and 3.0%, respectively.
During the three months ended August 29, 2020, the cash paid for leases included in the measurement of the liabilities and the operating cash flows was $11.1 million and the right of use assets obtained in exchange for new liabilities were $11.4 million. During the three months ended August 31, 2019, the cash paid for leases included in the measurement of the liabilities and the operating cash flows was $12.5 million and the right of use assets obtained in exchange for new liabilities were $4.6 million.

5. Acquisitions
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 entity was accounted for using the equity method of accounting until the purchase of the additional 34% equity on December 2, 2019. 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.

Herman Miller, Inc. and Subsidiaries 9


On December 2, 2019, the Company obtained a controlling financial interest in HAY through the purchase of an additional 34% equity voting interest. This 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 Condensed Consolidated Statements of Comprehensive Income during the three months ended May 30, 2020. The goodwill was recorded within the Company’s Retail segment.

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 allocation of the purchase price was finalized during the first quarter of fiscal 2021. The following table presents the allocation of purchase price related to acquired tangible assets:
(In millions)
Cash$12.1 
Working capital, net of cash and inventory step-up12.3 
Net property and equipment0.9 
Other assets3.9 
Other liabilities(3.1)
Net assets acquired$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 Condensed Consolidated Statements of Comprehensive Income during the three months ended May 30, 2020.

The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company at the acquisition date:
(In millions)Valuation MethodUseful Life (years)Fair Value
Inventory Step-upComparative Sales Approach0.8$3.4 
BacklogMulti-Period Excess Earnings0.31.7 
Deferred RevenueAdjusted Fulfillment Cost Method0.1(2.2)
TradenameRelief from RoyaltyIndefinite60.0 
Product DevelopmentRelief from Royalty8.022.0 
Customer RelationshipsMulti-Period Excess Earnings9.034.0 
Total$118.9 

Goodwill related to the acquisition was recorded within the International Contract segment for $101.1 million and the Retail segment for $10.0 million. Subsequent to the acquisition, the goodwill recorded to the Retail segment was fully impaired in fiscal 2020 based on the results of the Company's annual goodwill impairment assessment.
10 Form 10-Q


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$5.1 
Working capital, net of cash and inventory step-up1.3 
Net property and equipment0.8 
Net assets acquired$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 Condensed Consolidated Statements of Comprehensive Income during the three months ended November 30, 2019.

The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company at the acquisition date:
(In millions)Valuation MethodUseful Life (years)Fair Value
Inventory Step-upComparative Sales Approach0.3$0.2 
BacklogMulti-Period Excess Earnings0.30.8 
TradenameRelief from RoyaltyIndefinite8.5 
Customer RelationshipsMulti-Period Excess Earnings9.029.4 
Total$38.9 
Goodwill related to the acquisition was recorded within the North America Contract and International Contract segments for $35.0 million and $22.5 million, respectively.

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 three months ended August 31, 2019, as if naughtone and HAY had been acquired as of June 2, 2019. 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. Pro forma results do not include any anticipated cost savings from the planned integration of these acquisitions. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or that may result in the future.
Herman Miller, Inc. and Subsidiaries 11


Three Months Ended
(In millions)August 31, 2019
Net sales$720.8 
Net earnings attributable to Herman Miller, Inc.$49.0 

6. Inventories, net
(In millions)August 29, 2020May 30, 2020
Finished goods$144.5 $151.1 
Raw materials42.0 46.2 
Total$186.5 $197.3 
Inventories are valued at the lower of cost or market and include material, labor, and overhead. Certain inventories within our North America Contract manufacturing operations are valued using the last-in, first-out (LIFO) method. Inventories of all other operations are valued using the first-in, first-out (FIFO) method.

7. Goodwill and Indefinite-Lived Intangibles
Goodwill and other indefinite-lived intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following as of August 29, 2020 and May 30, 2020:
(In millions)GoodwillIndefinite-lived Intangible Assets
May 30, 2020$346.0 $92.8 
Foreign currency translation adjustments12.6 3.4 
August 29, 2020$358.6 $96.2 

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, our annual testing date. 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. The 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. Accumulated goodwill impairment losses were $125.3 million as of August 29, 2020 and May 30, 2020.

The fair value of the Company's International reporting unit, which includes $163.7 million of goodwill as of May 30, 2020, exceeded its carrying value by 17%. Due to the level that the reporting unit fair value exceeded the carrying amount and the results of the sensitivity analysis, the Company may need to record an impairment charge if the operating results of its International reporting unit were to decline in future periods.

Intangible assets with indefinite useful lives are not subject to amortization and are evaluated annually for impairment, or more frequently, when events or changes in circumstances indicate that the fair value of an intangible asset may not be recoverable.

In fiscal 2020, 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
12 Form 10-Q


related to these trade names were to decline in future periods, the Company may need to record an additional impairment charge.

During the three months ended August 29, 2020, there were no identified indicators of impairment that required the Company to complete an interim quantitative impairment assessment related to any of the Company's reporting units or indefinitely-lived intangible assets.

8. Employee Benefit Plans
The following table summarizes the components of net periodic benefit cost for the Company's defined benefit pension plan for the three months ended:
(In millions)August 29, 2020August 31, 2019
Interest cost$0.7 $0.5 
Expected return on plan assets(1.4)(1.0)
Net amortization loss1.6 0.8 
Net periodic benefit cost$0.9 $0.3 

9. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculations of basic and diluted earnings per share (EPS) for the three months ended:
August 29, 2020August 31, 2019
Numerators: