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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 29, 2021
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
__________________________________________
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HERMAN MILLER, INC.
(Exact name of registrant as specified in its charter)
__________________________________________
Michigan
38-0837640
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
855 East Main Avenue, Zeeland, MI 49464
(Address of principal executive offices and zip code)
(616) 654-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockMLHRNASDAQ
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 27, 2020, was $2.2 billion (based on $37.56 per share which was the closing sale price as reported by Nasdaq). As of July 18, 2021, the registrant had 59,052,202 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.



Herman Miller, Inc.
Annual Report on Form 10-K
Table of Contents
Page No.
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
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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




PART I
Item 1 Business
General Development of Business
Herman Miller's purpose statement is design for the good of humankind. The Company researches, designs, manufactures and distributes interior furnishings for use in various environments including residential, office, healthcare and educational settings and provides related services that support organizations and individuals all over the world. Through research, the Company seeks to understand, define and clarify customer needs and problems existing and to design products, systems and services that serve as innovative solutions to those needs and problems. The Company's products are sold primarily through the following channels: Owned and independent contract furniture dealers, direct customer sales, owned and independent retailers, direct-mail catalogs and the Company's eCommerce platforms.

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Herman Miller, Inc. and Subsidiaries 2


The Company was incorporated in Michigan in 1905. As a global design leader the Company established Herman Miller Group, a purposefully selected, complementary family of brands that collectively offers a variety of products for environments where people live, learn, work, heal and play. The family of brands includes Herman Miller®, Colebrook Bosson Saunders®, Design Within Reach®, Geiger®, HAY®, Maars® Living Walls, Maharam®, naughtone® and Nemschoff®. All of these companies are considered controlled subsidiaries, except for Maars of which the Company owns 48.2% of as of May 29, 2021. Herman Miller's corporate offices are located at 855 East Main Avenue, PO Box 302, Zeeland, Michigan, 49464-0302 and its telephone number is 616 654 3000. Unless otherwise noted or indicated by the context, all references to "Herman Miller," "we," "our," "Company" and similar references are to Herman Miller, Inc. and its controlled subsidiaries. Further information relating to principles of consolidation is provided in Note 1 to the Consolidated Financial Statements included in Item 8 of this report.

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Segments
The Company has three reportable segments: North America Contract, International Contact and Retail. The Company also reports a corporate category consisting primarily of unallocated corporate expenses. For a more detailed description of the Company's segments, refer to Item 7 of this report.

Financial information relating to segments is provided in Note 14 to the Consolidated Financial Statements included in Item 8 of this report.

Description of Business
The Company's principal business consists of the research, design, manufacture, selling and distribution of seating products, office furniture systems, other freestanding furniture elements, textiles, home furnishings and related services.

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The Company's ingenuity and design excellence create award-winning products and services, which have made the Company a leader in the design and development of furniture, furniture systems, textiles and technology solutions. This leadership is exemplified by the innovative concepts introduced by the Company in its broad array of seating products (including Embody®, Aeron®, Mirra2™, Setu®, Sayl®, Verus®, Cosm®, Lino®, Verus®, Celle®, Equa®, Taper™ and Ergon® office chairs) and modular systems (including Canvas Office Landscape®, Locale®, Public Office Landscape®, Layout Studio®, Action Office®, Ethospace®, Arras®, Prospect®, Overlay™, Resolve®, and OE1®). The Company also offers storage (including Meridian® and Tu® products), wood casegoods (including Geiger® products), freestanding furniture products (including Abak™, Intent®, Sense™ and Envelop®), healthcare products (including Palisade™, Compass™, Nala®, Ava® and other Nemschoff® products), the Thrive portfolio of ergonomic solutions, ergonomic and technology support products (including Colebrook Bosson Saunders® products) and the textiles of Maharam Fabric Corporation (Maharam®). The Live Platform™ system of cloud-connected furnishings, applications and dashboards provides data-enabled solutions for the Company's customers.

The Company also offers products for residential settings, including Eames®, Eames (lounge chair configuration)®, Eames (management chair configuration)®, Eames Soft Pad™, HAY®, Nelson™ basic cabinet series, Nelson™ end table, Nelson™ lanterns, Nelson™ marshmallow sofa, Nelson™ miniature chests, Nelson™ platform bench, Nelson™ swag leg group, Nelson™ tray table, Bubble Lamps®, Airia™, Ardea®, Bumper™, Burdick Group™, Everywhere™ tables, Claw™, Caper®, Distil™, Envelope™, Formwork®, Full Round™, H Frame™, I Beam™, Landmark™, Logic Mini™, Logic Power Access Solutions™, Renew™, Rolled Arm™, Scissor™, Sled™, Soft Pad™, Swoop™, Tone™, Twist™, Ward Bennett™ and Wireframe™. The Company also offers residential and ancillary products through its subsidiaries, including: the Line™ Storage Collection, Lina™ Swivel Chair, Matera™ Bedroom Collection, Emmy™ Sofa Collection, Story™ Bookcase and Sømmer™ Outdoor Collection for Design Within Reach®; the Always™ Lounge Chair, Always™ Chair, Polly™ Chair, Viv™ Chair, and Hush™ Chair for naughtone®; and the Mags™ Sofa and About A™ Chair Collections for HAY®.

The Company's products are marketed worldwide by its own sales staff, independent dealers and retailers, owned dealers, via its eCommerce websites, and through its owned Herman Miller, Design Within Reach ("DWR") and HAY retail stores and studios. Salespeople work with dealers, the architecture and design community, and directly with end-users. Independent dealerships concentrate on the sale of Herman Miller Group products and some complementary product lines of other manufacturers. It is estimated that approximately 63 percent of the Company's sales in the fiscal year ended May 29, 2021, were made to or through independent dealers. The remaining sales were made directly to end-users, including federal, state and local governments and several business organizations by the Company's own sales staff, owned dealer network, retail channels, or independent retailers.

The Company is a recognized leader within its industry for the use, development, and integration of customer-centered technologies that enhance the reliability, speed, and efficiency of our customers' operations. This includes proprietary sales tools, interior design and product specification software, order entry and manufacturing scheduling and production systems, and direct connectivity to the Company's suppliers.

The Company's furniture systems, seating, freestanding furniture, storage, casegoods, textile products, and related services are used in (1) institutional environments including offices and related conference, lobby, and lounge areas and general public areas including transportation terminals; (2) health/science environments including hospitals, clinics and other healthcare facilities; (3) industrial and educational settings; and (4) residential and other environments.

Raw Materials
The Company's manufacturing materials are available from a significant number of sources within North America, South America, Europe and Asia. The costs of certain direct materials used in the Company's manufacturing and assembly operations are sensitive to shifts in commodity market prices. In particular, the costs of steel, plastic, aluminum components and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum, crude oil, lumber and resins. Increases in the market prices for these commodities can have an adverse impact on the Company's profitability. Further information regarding the impact of direct material costs on the Company's financial results is provided in Management's Discussion and Analysis in Item 7 of this report, "Management's Discussion and Analysis of Financial Condition and Results of Operations”.
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Patents, Trademarks, Licenses, Etc.
The Company has active utility and design patents in the United States. Many of the inventions covered by these patents also have been patented in a number of foreign countries. Various trademarks, including the name and stylized “Herman Miller” and the “Herman Miller Circled Symbolic M” trademark are registered in the United States and many foreign countries. The Company does not believe that any material part of its business depends on the continued availability of any one or all of its patents or trademarks, or that its business would be materially and adversely affected by the loss of any such marks, except for the following trademarks: Herman Miller®, Herman Miller Circled Symbolic M®, Maharam®, Geiger®, Design Within Reach®, DWR®, HAY®, naughtone®, Nemschoff®, Action Office®, Aeron®, Mirra®, Embody®, Setu®, Sayl®, Cosm®, Caper®, Eames®, Eames Lounge & Ottoman Configurations, Eames Aluminum Group Configuration, and Canvas Office Landscape®.

Working Capital Practices
Information concerning the Company's working capital levels relative to its sales volume can be found under the Executive Overview section in Item 7 of this report, “Management's Discussion and Analysis of Financial Condition and Results of Operations”. Beyond this discussion, the Company does not believe that it or the industry in general has any special practices or special conditions affecting working capital items that are significant for understanding the Company's business.

Customer Base
The Company approximates that no single dealer accounted for more than three percent of the Company's net sales in the fiscal year ended May 29, 2021. The Company estimates that the largest single end-user customer accounted for $113.0 million, $122.9 million and $129.6 million of the Company's net sales in fiscal 2021, 2020, and 2019, respectively. This represents approximately five percent of the Company's net sales in fiscal 2021, 2020 and 2019. The Company's ten largest customers in the aggregate accounted for approximately 17 percent of net sales in fiscal 2021 and 18 percent of net sales in fiscal 2020 and 2019.

Backlog of Unfilled Orders
As of May 29, 2021, the Company's backlog of unfilled orders was $446.9 million. At May 30, 2020, the Company's backlog totaled $470.8 million. The decrease in backlog in the current year was primarily due to delays in processing customer orders in the fourth quarter of fiscal 2020 caused by the outbreak of COVID-19 and related facility shut-downs. It is expected that substantially all the orders forming the backlog at May 29, 2021, will be filled during the next fiscal year. Many orders received by the Company are reflected in the backlog for only a short period while other orders specify delayed shipments and are carried in the backlog for up to one year. Accordingly, the amount of the backlog at any particular time does not necessarily indicate the level of net sales for a particular succeeding period.

Government Contracts
Other than standard provisions contained in contracts with the United States Government, the Company does not believe that any significant portion of its business is subject to material renegotiation of profits or termination of contracts or subcontracts at the election of various government entities. The Company sells to the U.S. Government both through a General Services Administration ("GSA") Multiple Award Schedule Contract and through competitive bids. The GSA Multiple Award Schedule Contract pricing is principally based upon the Company's commercial price list in effect when the contract is initiated, rather than being determined on a cost-plus-basis. The Company is required to receive GSA approval to apply list price increases during the term of the Multiple Award Schedule Contract period.

Competition
All aspects of the Company's business are highly competitive. From an office furniture perspective, the Company competes largely on design, product and service quality, speed of delivery and product pricing. Although the Company is one of the largest office furniture manufacturers in the world, it competes with manufacturers that have significant resources and sales as well as many smaller companies. The Company's most significant competitors are Haworth, HNI Corporation, Kimball International, and Steelcase.

The Company also competes in the home furnishings industry, primarily against national, regional and independent home furnishings retailers who market high-craft furniture to end-user customers and the interior design community.
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These competitors include companies such as Crate & Barrel Holdings, Inc., Hive Modern, Restoration Hardware, Room & Board, Wayfair and Williams-Sonoma, Inc. Similar to its office furniture product offerings, the Company competes primarily on design, product and service quality, speed of delivery and product pricing in this market.

On July 19, 2021, we completed the acquisition of Knoll, Inc. Refer to the "Executive Overview" and "Business Overview" sections within Item 7 for further discussion of the acquisition of Knoll as well as in Note 18 to the Consolidated Financial Statements included in Item 8 of this report.

Research, Design and Development
The Company believes it draws great competitive strength from its research, design and development programs. Through research, the Company seeks to understand, define and clarify customer needs and problems they are trying to solve. The Company designs innovative products and services that address customer needs and solve their problems. The Company uses both internal and independent research resources and independent design resources. Exclusive of royalty payments, the Company spent approximately $50.8 million, $54.3 million and $58.8 million on design and research activities in fiscal 2021, 2020 and 2019, respectively. Generally, royalties are paid to designers of the Company's products as the products are sold and are included in the Design and Research line item within the Consolidated Statements of Comprehensive Income.

Environmental Matters
The Company believes that a business must stand for more than just its products and services and the Company's people around the globe share a commitment to using business as a force for good. The Company’s commitment to the planet is embedded in its corporate strategy and will continue to develop as the Company outlines next steps in its sustainability strategy. As part of this commitment, the Company focuses on operating its global footprint with minimal impact on the environment and designing products with materials and processes that are safe for both people and the planet. Based on current facts known to management, the Company does not believe that existing environmental laws and regulations have had or will have any material effect upon the capital expenditures, earnings or competitive position of the Company. However, there can be no assurance that environmental legislation will not result in or require material capital expenditures or additional costs to our manufacturing process.

Human Resources
The Company considers its employees to be another of its major competitive strengths. The Company stresses individual employee participation and incentives, believing that this emphasis has helped attract and retain a competent and motivated workforce. The Company's human resources group provides employee recruitment, education and development, as well as compensation planning and counseling. Additionally, there have been no work stoppages or labor disputes in the Company's history. As of May 29, 2021, approximately four percent of the Company's employees are covered by collective bargaining agreements, most of whom are employees of its Nemschoff and Herman Miller Holdings Limited subsidiaries.

As of May 29, 2021, the Company had approximately 7,600 employees, which was consistent with May 30, 2020. In addition to its employee workforce, the Company uses temporary labor to meet fluctuating demand in its manufacturing operations.

Information about International Operations
The Company's sales in international markets are made primarily to office/institutional customers. Foreign sales consist mostly of office furniture products such as Aeron®, Mirra®, Sayl®, Embody®, Layout Studio®, Imagine Desking System®, Ratio®, Cosm®, and other seating and storage products and ergonomic accessories such as About A Chair®, Palissade®, and the Flo® monitor arm. The Company conducts business in the following major international markets: Europe, the Middle East, Africa, Latin America and the Asia/Pacific region.

The Company's products currently sold in international markets are manufactured primarily by controlled subsidiaries in the United States, the United Kingdom, China, Brazil and India. A portion of the Company's products sold internationally are also manufactured by third-party suppliers. Sales are made through wholly owned subsidiaries or branches in Canada, the United Kingdom, Denmark, Mexico, Australia, Singapore, Japan, China (including Hong Kong),
Herman Miller, Inc. and Subsidiaries 6


India and Brazil. The Company's products are offered in Canada, Europe, the Middle East, Africa, Latin America and the Asia/Pacific region primarily through dealers.

Additional information with respect to operations by geographic area appears in Note 14 of the Consolidated Financial Statements included in Item 8 of this report. Fluctuating exchange rates and factors beyond the control of the Company, such as tariff and foreign economic policies, may affect future results of international operations. Refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, for further discussion regarding the Company's foreign exchange risk.

Available Information
The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available free of charge through the “Investors” section of the Company's internet website at www.hermanmiller.com, as soon as practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). The Company's filings with the SEC are also available for the public to read via the SEC's internet website at www.sec.gov.

Item 1A Risk Factors
The following risk factors and other information included in this report should be carefully considered. The risks and uncertainties described below are not the only ones we face; others, either unforeseen or currently deemed not material, may also have a negative impact on our Company. If any of the following occurs, our business, operating results, cash flows, and financial condition could be materially adversely affected.

Business and Acquisition Related Risks

We may not be successful in implementing and managing our growth strategy.
We have established a growth strategy for the business based on a changing and evolving world. Through this strategy we are focused on taking advantage of the changing composition of the office floor plate, the greater desire for customization from our customers, new technologies and trends towards urbanization and working from home.
 
To that end, we intend to grow in certain targeted ways. First, we will unlock the power of One Herman Miller by building an agile, collaborative, globally-connected organization fit for continuous evolution. This will also include simplifying and tailoring our go-to-market approach, as well as continuing to lead in product innovation across all businesses. Second, we intend to build a customer-centric, digitally enabled business model by leveraging our deep understanding of customer journeys to deliver inspired products and frictionless customer experiences. Inclusive of this will be to drive step-change in our data, analytics, marketing, and brand capabilities, as well as to strengthen our core technology backbone. Third, we intend to accelerate profitable growth by strengthening and evolving our core contract business, driving outsized growth in our international business and expanding our retail business. Finally, we believe it is a business imperative to reinforce our commitment to our people, planet and communities in a more integrated way than ever before. Beyond simply being the right thing to do, we are confident that elevating our focus on positive social and environmental business practices will beneficially impact our customers and enhance returns for our shareholders over the long term. Refer to the "Executive Overview" section within Item 7 for further discussion of our areas of strategic focus.

While we have confidence that our strategic plan reflects opportunities that are appropriate and achievable and that we have anticipated and will manage the associated risks, there is the possibility that the strategy may not deliver the projected results due to inadequate execution, incorrect assumptions, sub-optimal resource allocation, or changing customer requirements.
 
To meet these goals, we believe we will be required to continually invest in the research, design and development of new products and services, and there is no assurance that such investments will have commercially successful results.
 
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Certain growth opportunities may require us to invest in acquisitions, alliances and the startup of new business ventures. These investments, if available, may not perform according to plan and may involve the assumption of business, operational or other risks that are new to our business.
 
Future efforts to expand our business within developing economies, particularly within China and India, may expose us to the effects of political and economic instability. Such instability may impact our ability to compete for business. It may also put the availability and/or value of our capital investments within these regions at risk. These expansion efforts expose us to operating environments with complex, changing and in some cases, inconsistently-applied legal and regulatory requirements. Developing knowledge and understanding of these requirements poses a significant challenge and failure to remain compliant with them could limit our ability to continue doing business in these locations.
 
Pursuing our strategic plan in new and adjacent markets, as well as within developing economies, will require us to find effective new channels of distribution. There is no assurance that we can develop or otherwise identify these channels of distribution.

We may be unable to successfully integrate our businesses and Knoll and realize the anticipated benefits of the acquisition of Knoll.
The success of the acquisition of Knoll will depend, in part, on our ability to successfully combine and integrate the businesses of Herman Miller and Knoll, which previously operated as independent public companies, and realize the anticipated benefits, including synergies, cost savings, innovation opportunities and operational efficiencies, from the acquisition, in a manner that does not materially disrupt existing customer, payer, dealer, supplier, employee and other stakeholder relations nor result in decreased revenues due to losses of, or decreases in orders by, customers and payers. If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully, or at all, or may take longer to realize than expected, and the value of our common stock may decline.

The integration of the two companies may result in material challenges, including, without limitation:

the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the transaction and related integration work;
managing a larger and more complex combined business;
maintaining employee morale, retaining key management and other employees and the possibility that the integration process and potential organizational changes may adversely impact the ability to maintain employee relationships;
retaining existing business and operational relationships, including customers, dealers, suppliers, employees and other counterparties, as may be impacted by contracts containing consent and/or other provisions that may be triggered by the transaction, and attracting new business and operational relationships;
the integration process not proceeding as expected, including due to a possibility of faulty assumptions or expectations regarding the integration process or Herman Miller’s or Knoll’s operations;
consolidating corporate, administrative and compliance infrastructures and eliminating duplicative operations;
coordinating geographically separate organizations, including in international markets with differing business, legal and regulatory climates;
unanticipated issues in integrating information technology, communications and other systems; and
unforeseen expenses, costs, liabilities or delays associated with the acquisition or the integration.

Many of these factors will be outside of our control, and any one of them could result in delays, increased costs, decreases in the amount of expected revenues or synergies and diversion of management’s time and energy, which could materially affect Herman Miller’s financial position, results of operations and cash flows.

The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized on a timely basis, if at all.
Herman Miller, Inc. and Subsidiaries 8



The indebtedness incurred in connection with the acquisition of Knoll contains various covenants that impose restrictions on us and certain of our subsidiaries that may affect their ability to operate their businesses.
The indebtedness incurred in connection with the merger and preferred stock purchase contains various affirmative and negative covenants that, subject to certain significant exceptions, restrict the ability of us and certain of our subsidiaries to, among other things, incur liens on our property, incur additional indebtedness, enter into sale and lease-back transactions, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, and/or merge or consolidate with any other person or sell or convey certain of its assets to any one person, among other things. In addition, the definitive documentation governing such indebtedness contains a financial maintenance covenant that will require us to maintain a certain leverage ratio at the end of each fiscal quarter. Our and our subsidiaries’ ability to comply with these provisions may be affected by events beyond our control. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations under such indebtedness.

In connection with the acquisition of Knoll, we incurred significant additional indebtedness, which could adversely affect Herman Miller, including by decreasing our business flexibility, and will increase our interest expense.
The consolidated long-term debt of Herman Miller as of May 29, 2021 was $274.9 million. Our long-term debt as of July 27, 2021, after giving effect to the acquisition and the incurrence and extinguishment of indebtedness in connection therewith, is approximately $1.3 billion. We have substantially increased our indebtedness in comparison to that of Herman Miller on a recent historical basis, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We have also incurred various costs and expenses associated with such indebtedness. The amount of cash required to pay interest on our increased indebtedness levels and thus the demands on our cash resources will be greater than the amount of cash flows previously required to service our indebtedness. The increased levels of indebtedness could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for Herman Miller relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

In addition, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Our ability to arrange additional financing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. We cannot assure you that it will be able to obtain additional financing on terms acceptable to us or at all.

Uncertainties associated with the acquisition of Knoll may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company following completion of the acquisition.
Herman Miller is dependent on the experience and industry knowledge of its officers and other key employees to execute its business plans. Our success will depend in part upon our ability to retain certain key management personnel and employees. Current and prospective employees of Herman Miller may experience uncertainty about their roles, which may have an adverse effect on our ability to attract or retain key management and other key personnel. Accordingly, no assurance can be given that we will be able to attract or retain key management personnel and other key employees to the same extent that Herman Miller and Knoll have previously been able to attract or retain their own employees.

We have incurred and expect to continue to incur significant costs in connection with the acquisition of Knoll, which may be in excess of those we anticipate.
We have incurred and expect to continue to incur a number of non-recurring fees and costs associated with negotiating and completing the transactions, combining the operations of Herman Miller and Knoll and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the merger and include, among others, the preferred
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stock purchase, employee retention costs, fees paid to financial, legal, strategic and accounting advisors, severance and benefit costs, proxy solicitation costs and filing fees.

We will also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the merger and the integration of the two companies’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of Herman Miller.


Macroeconomic and Workplace Trends Related Risks

Adverse economic and industry conditions could have a negative impact on our business, results of operations and financial condition.
Customer demand within the contract office furniture and retail furnishings industries is affected by various macro-economic factors; general corporate profitability, service sector employment levels, new office construction rates and existing office vacancy rates are among the most influential factors. History has shown that declines in these measures can have an adverse effect on overall office furniture demand. Additionally, factors and changes specific to our industry, such as developments in technology, governmental standards and regulations, and health and safety issues can influence demand. There are current and future economic and industry conditions that could adversely affect our business, operating results, or financial condition.

Other macroeconomic developments, such as the United Kingdom referendum on European Union membership (commonly known as Brexit) could negatively affect the Company's ability to conduct business in those geographies. The Company is monitoring the resolution of various trade policy negotiations between the U.S. and key trading partners as well as the post-Brexit impact on the U.K. and European Union. These negotiations create uncertainty in key markets, which, if unresolved in the near term, could negatively impact customer demand. Furthermore, concerns exist relating to potential tariffs and customs regulations and the potential for short term logistics disruption as any such changes are implemented. This will impact both the Company's suppliers and customers, including distributors, and could result in product delays and inventory issues. Further uncertainty in the marketplace also brings risk to accounts receivable and could result in delays in collection and greater bad debt expense. There also remains a risk for the value of the British Pound and/or the Euro to further deteriorate, reducing the purchasing power of customers in these regions and potentially undermining the financial health of the Company's suppliers and customers in other parts of the world.

The markets in which we operate are highly competitive and we may not be successful in winning new business.
We are one of several companies competing for new business within the office furniture industry. Many of our competitors offer similar categories of products, including office seating, systems and freestanding office furniture, casegoods, storage as well as residential, education and healthcare furniture solutions. Although we believe that our innovative product design, functionality, quality, depth of knowledge, and strong network of distribution partners differentiate us in the marketplace, increased market pricing pressure could make it difficult for us to win new business with certain customers and within certain market segments at acceptable profit margins.

The retail furnishings market is highly competitive. We compete with national and regional furniture retailers, mail order catalogs and online retailers focused on home furnishings. We compete with these and other retailers for customers, suitable retail locations, vendors, qualified employees and management personnel. Some of our competitors have significantly greater financial, marketing and other resources than we possess. This may result in our competitors being quicker at the following: adapting to changes, devoting greater resources to the marketing and sale of their products, generating greater national brand recognition, or adopting more aggressive pricing and promotional
Herman Miller, Inc. and Subsidiaries 10


policies, including free shipping offers. In addition, increased catalog mailings and/or digital marketing campaigns by our competitors may adversely affect response rates to our own marketing efforts. As a result, increased competition may adversely affect our future financial performance.

Our business presence outside the United States exposes us to certain risks that could negatively affect our results of operations and financial condition.
We have significant manufacturing and sales operations in the United Kingdom, which represents our largest marketplace outside the United States. We also have manufacturing operations in China, India, and Brazil. Additionally, our products are sold internationally through controlled subsidiaries or branches in Canada, Denmark, Korea, Mexico, Australia, China (including Hong Kong), India and Brazil. The Company's products are offered in Canada, Europe, the Middle East, Africa, Latin America and the Asia/Pacific region primarily through dealers.

Doing business internationally exposes us to certain risks, many of which are beyond our control and could potentially impact our ability to design, develop, manufacture, or sell products in certain countries. These factors could include, but would not necessarily be limited to:

Political, social and economic conditions
Global trade conflicts and trade policies
Legal and regulatory requirements
Labor and employment practices
Cultural practices and norms
Natural disasters
Security and health concerns
Protection of intellectual property
Changes in foreign currency exchange rates

In some countries, the currencies in which we import and export products can differ. Fluctuations in the rate of exchange between these currencies could negatively impact our business and our financial performance. Additionally, tariff and import regulations, international tax policies and rates, and changes in U.S. and international monetary policies may have an adverse impact on results of operations and financial condition.

A sustained downturn in the economy could adversely impact our access to capital.
The disruptions in the global economic and financial markets during 2007 to 2009 adversely impacted the broader financial and credit markets, at times reducing the availability of debt and equity capital for the market as a whole. Conditions such as these could re-emerge in the future. Accordingly, our ability to access the capital markets could be restricted at a time when we would like, or need, to access those markets, which could have an adverse impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations, our ability to take advantage of market opportunities and our ability to obtain and manage our liquidity. In addition, the cost of debt financing and the proceeds of equity financing may be materially and adversely impacted by these market conditions. The extent of any impact would depend on several factors, including our operating cash flows, the duration of tight credit conditions and volatile equity markets, our credit capacity, the cost of financing, and other general economic and business conditions. Our credit agreements contain performance covenants, such as a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization, and limits on subsidiary debt and incurrence of liens. Although we believe none of these covenants is currently restrictive to our operations, our ability to meet the financial covenants can be affected by events beyond our control.

Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and financial results.
From time to time, various disease outbreaks may adversely impact our business, consolidated results of operations and financial condition, such as the current COVID-19 pandemic which has had such an adverse impact. The Company has global manufacturing facilities, suppliers, dealers and customers. Therefore, COVID-19, as well as measures taken
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by governmental authorities and other organizations and individuals to limit the spread of this virus, may interfere with the ability of our employees, suppliers and other business providers to carry out their assigned tasks or supply materials at ordinary levels of performance relative to the conduct of our business. In addition, the COVID-19 pandemic has caused a significant percentage of the traditional office workforce to work away from their office location. It is reasonable to assume, at least in the near-term, that this will have an adverse impact on the demand for office furniture and related products. This has in the past caused, and may continue to cause, us to materially curtail certain of our business operations, and has had and could continue to have, a material adverse effect on our results of operations and cash flow.


Manufacturing, Supply Chain and Distribution Related Risks

Tariffs imposed by the U.S. government could have a material adverse effect on our results of operations.
The imposition of tariffs by the U.S. government on various products imported from certain countries, as well as countering tariffs on the export of U.S. goods, has and will likely continue to adversely impact the cost of certain of our raw materials and finished goods as well as products that we export to other countries. Accordingly, these tariffs and the possibility of broader trade conflicts stemming from the tariffs could negatively impact our business in the future. The tariffs on imports, most notably imports from China, also impacted the cost of steel in both fiscal year 2020 and fiscal 2021, a key commodity that we consume in producing products. Given the significance of steel costs to our direct materials costs, we are closely monitoring escalating trade tensions between the U.S. and China. The potential impact to our direct material costs due to tariffs on Chinese imports is somewhat limited, however, as purchases of direct materials (mainly component parts and products manufactured by third parties) from China represented an estimated 5% of our consolidated cost of sales for fiscal 2021. Going forward, continued or increased tariffs could negatively impact our gross margin and operating performance. These factors also have the potential to significantly impact global trade and economic conditions in many of the regions where we do business.

Disruptions in the supply of raw and component materials could adversely affect our manufacturing and assembly operations.
We rely on outside suppliers to provide on-time shipments of the various raw materials and component parts used in our manufacturing and assembly processes. The timeliness of these deliveries is critical to our ability to meet customer demand. Disruptions in this flow of delivery may have a negative impact on our business, results of operations, and financial condition.

In the fourth quarter of 2021, the price of steel was impacted by shortages and disruptions in the steel industry as a result of the COVID-19 pandemic. These disruptions have not had a significant impact on our ability to manufacture and supply products to our customers, but they have negatively impacted the cost of procuring such materials. In the short-term, significant increases in raw material, commodity and other input costs can be difficult to offset with price increases because of existing contractual commitments with our customers. As a result, our gross margins can be adversely affected in the short-term by significant increases in these costs. If we are not successful in passing along higher commodity and other input costs to our customers over the long-term because of competitive pressures, our profitability could be negatively impacted.

Increases in the market prices of manufacturing materials may negatively affect our profitability.
The costs of certain manufacturing materials used in our operations are sensitive to shifts in commodity market prices, including the impact of the U.S. and retaliatory tariffs previously noted. In particular, the costs of steel, plastic, aluminum components, and particleboard are sensitive to the market prices of commodities such as raw steel, aluminum, crude oil, lumber, and resins. Increases in the market prices of these commodities, such as what we experienced in fiscal 2019 for steel, may have an adverse impact on our profitability if we are unable to offset them with strategic sourcing, continuous improvement initiatives or increased prices to our customers.

Disruptions within our dealer network could adversely affect our business.
Our ability to manage existing relationships within our network of independent dealers is crucial to our ongoing success. Although the loss of any single dealer would not have a material adverse effect on the overall business, our
Herman Miller, Inc. and Subsidiaries 12


business within a given market could be negatively impacted by disruptions in our dealer network caused by the termination of commercial working relationships, ownership transitions, or dealer financial difficulties.

If dealers go out of business or restructure, we may suffer losses because they may not be able to pay for products already delivered to them. Also, dealers may experience financial difficulties, creating the need for outside financial support, which may not be easily obtained. In the past, we have, on occasion, agreed to provide direct financial assistance through term loans, lines of credit, and/or loan guarantees to certain dealers. Those activities increase our financial exposure.


Financial Related Risks

We are subject to risks associated with self-insurance related to health benefits.
We are self-insured for our health benefits and maintain per employee stop loss coverage; however, we retain the insurable risk at an aggregate level. Therefore unforeseen or catastrophic losses in excess of our insured limits could have a material adverse effect on the Company’s financial condition and operating results. See Note 1 of the Consolidated Financial Statements for information regarding the Company’s retention level.

Goodwill and indefinite-lived intangible asset impairment charges may adversely affect our operating results.
We have a substantial amount of goodwill and indefinite-lived intangible assets, primarily trademarks, on our balance sheet. We test the goodwill and intangible assets for impairment on an annual basis and when events occur or circumstances change that indicate that the fair value of the reporting unit or intangible asset may be below its carrying amount. Fair value determinations require considerable judgment and are sensitive to inherent uncertainties and changes in estimates and assumptions regarding actual and forecasted revenue growth rates and operating margins and discount rates. Declines in market conditions, a trend of weaker than anticipated financial performance for our reporting units or declines in projected revenue for our trademarks, a decline in our share price for a sustained period of time, an increase in the market-based weighted average cost of capital or a decrease in royalty rates, among other factors, are indicators that the carrying value of our goodwill or indefinite-life intangible assets may not be recoverable. We may be required to record a goodwill or intangible asset impairment charge that, if incurred, could have a material adverse effect on our financial statements.

Impairment of long-lived assets may adversely affect our operating results.
Our long-lived asset groups are subject to an impairment assessment when certain triggering events or circumstances indicate that their carrying value may be impaired. If the carrying value exceeds our estimate of future undiscounted cash flows of the operations related to the asset group, an impairment is recorded for the difference between the carrying amount and the fair value of the asset group. The results of these tests for potential impairment may be adversely affected by unfavorable market conditions, our financial performance trends, or an increase in interest rates, among other factors. If as a result of the impairment test we determine that the fair value of any of our long-lived asset groups is less than its carrying amount, we may incur an impairment charge that could have a material adverse effect on our financial statements.

Costs related to product defects could adversely affect our profitability.
We incur various expenses related to product defects, including product warranty costs, product recall and retrofit costs, and product liability costs. These expenses relative to product sales vary and could increase. We maintain reserves for product defect-related costs based on estimates and our knowledge of circumstances that indicate the need for such reserves. We cannot, however, be certain that these reserves will be adequate to cover actual product defect-related claims in the future. Any significant increase in the rate of our product defect expenses could have a material adverse effect on operations.


General Risks

13 2021 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 eCommerce websites, direct-mail catalog marketing program, and retail studios. For these sales channels to function and develop successfully, we and other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information and other personal information regarding our customers, securely over public and private networks. Third parties may have or develop the technology or knowledge to breach, disable, disrupt or interfere with our systems or processes or those of our vendors. While we believe we take reasonable steps to protect the security and confidentiality of the information we collect, we cannot guarantee that our security measures will effectively prevent others from obtaining unauthorized access to our information and our customers’ information. The techniques used to obtain unauthorized access to systems change frequently and are not often recognized until after they have been launched.

Any person who circumvents our security measures could destroy or steal valuable information or disrupt our operations. Any security breach could cause consumers to lose confidence in the security of our information systems, including our eCommerce websites or retail studios and choose not to purchase from us. Any security breach could also expose us to risks of data loss, litigation, regulatory investigations, and other significant liabilities. Such a breach could also seriously disrupt, slow or hinder our operations and harm our reputation and customer relationships, any of which could damage our business.

A security breach includes a third party wrongfully gaining unauthorized access to our systems for the purpose of misappropriating assets or sensitive information, loading corrupting data, or causing operational disruption. These actions may lead to a significant disruption of the Company’s IT systems and/or cause the loss of business and business information resulting in an adverse business impact, including: (1) an adverse impact on future financial results due to theft, destruction, loss misappropriation, or release of confidential data or intellectual property; (2) operational or business delays resulting from the disruption of IT systems, and subsequent clean-up and mitigation activities; and (3) negative publicity resulting in reputation or brand damage with customers, partners or industry peers.

The United States federal and state governments are increasingly enacting laws and regulations to protect consumers against identity theft. Also, as our business expands globally, we are subject to data privacy and other similar laws in various foreign jurisdictions. If we are the target of a cybersecurity attack resulting in unauthorized disclosure of our customer data, we may be required to undertake costly notification procedures. Compliance with these laws will likely increase the costs of doing business. If we fail to implement appropriate safeguards or to detect and provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential fines, claims for damages and other remedies, which could harm our business.

We are unable to control many of the factors affecting consumer spending. Declines in consumer spending on furnishings could reduce demand for our products.
The operations of our Retail segment are sensitive to a number of factors that influence consumer spending, including general economic conditions, consumer disposable income, unemployment, inclement weather, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, sales tax rates and rate increases, inflation, and consumer confidence in future economic conditions. Adverse changes in these factors may reduce consumer demand for our products, resulting in reduced sales and profitability.

A number of factors that affect our ability to successfully implement our retail studio strategy, including opening new locations and closing existing studios, are beyond our control. These factors may harm our ability to increase the sales and profitability of our retail operations.
Approximately 32 percent of the sales within our Retail segment are transacted within our retail studios. Additionally, we believe our retail studios have a direct influence on the volume of business transacted through other channels, including our consumer eCommerce and direct-mail catalog platforms, as many customers utilize these physical spaces to view and experience products prior to placing an order online or through the catalog call center. Our ability
Herman Miller, Inc. and Subsidiaries 14


to open additional studios or close existing studios successfully will depend upon a number of factors beyond our control, including:

General economic conditions
Identification and availability of suitable studio locations
Success in negotiating new leases and amending or terminating existing leases on acceptable terms
Success of other retailers in and around our retail locations
Ability to secure required governmental permits and approvals
Hiring and training skilled studio operating personnel
Landlord financial stability

Increasing competition for highly skilled and talented workers could adversely affect our business.
The successful implementation of our business strategy depends on our ability to attract and retain a skilled workforce. The increasing competition for highly skilled and talented employees could result in higher compensation costs, difficulties in maintaining a capable workforce, and leadership succession planning challenges.

Government and other regulations could adversely affect our business.
Government and other regulations apply to the manufacture and sale of many of our products. Failure to comply with these regulations or failure to obtain approval of products from certifying agencies could adversely affect the sales of these products and have a material negative impact on operating results.

Item 1B Unresolved Staff Comments
None

15 2021 Annual Report


Item 2 Properties
The Company owns or leases facilities located throughout the United States and several foreign countries. The location, square footage and use of the most significant facilities at May 29, 2021 were as follows:

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Owned Locations
Square Footage
(in Thousands)
Use
Zeeland, Michigan771 Manufacturing, Warehouse, Office
Spring Lake, Michigan583 Manufacturing, Warehouse, Office
Holland, Michigan357 Warehouse
Holland, Michigan293 Manufacturing, Office
Holland, Michigan238 Office, Design
Sheboygan, Wisconsin208 Manufacturing, Warehouse, Office
Melksham, United Kingdom170 Manufacturing, Warehouse, Office
Hildebran, North Carolina93 Manufacturing, Office
Leased Locations
Square Footage
(in Thousands)
Use
Batavia, Ohio618 Warehouse
Dongguan, China429 Manufacturing, Office
Atlanta, Georgia180 Manufacturing, Warehouse, Office
Bangalore, India105 Manufacturing, Warehouse
Yaphank, New York92 Warehouse, Office
Mexico City, Mexico77 Warehouse
New York City, New York67 Office, Retail
Hong Kong, China54 Warehouse
Chicago, Illinois45 Office, Retail
Brooklyn, New York39 Warehouse, Retail
Stamford, Connecticut35 Office, Retail

The properties above are primarily used in the Company's segments as indicated below:
Herman Miller, Inc. and Subsidiaries 16


Segment Primarily SupportedOwnedLeasedTotal
North America Contract28
International Contract45
Retail— 55
Corporate— 1

As of May 29, 2021, the Company operated 45 retail studios (including 35 operating under the DWR brand, 4 under the HAY brand, 5 Herman Miller stores and a multi-brand Chicago store) that totaled approximately 414,000 square feet of selling space. The Company also maintains administrative and sales offices and showrooms in various other locations throughout North America, Europe, Asia/Pacific and Latin America. The Company considers its existing facilities to be in good condition and adequate for its design, production, distribution, and selling requirements.

Item 3 Legal Proceedings
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the Company’s consolidated operations, cash flows and financial condition.

Information About Our Executive Officers
Certain information relating to executive officers of the Company as of May 29, 2021 is as follows:

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Andrea R. Owen
President and
Chief Executive Officer
Age 56, elected as an
executive officer in 2018
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Benjamin P.T. Groom
Chief Digital Officer
Age 37, elected as an
executive officer in 2019
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B. Ben Watson
Chief Creative Officer
Age 56, elected as an
executive officer in 2010
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Debbie Propst
President, Retail
Age 40, elected as an
executive officer in 2020
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Jacqueline H. Rice
General Counsel
Age 49, elected as an
executive officer in 2019
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Jeffrey L. Kurburski
Chief Technology Officer
Age 55, elected as an
executive officer in 2018
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Jeffrey M. Stutz
Chief Financial Officer
Age 50, elected as an
executive officer in 2009
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Jeremy Hocking
President,
International Contract
Age 60, elected as an
executive officer in 2017
17 2021 Annual Report


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John Michael
President,
The Americas
Age 59, elected as an
executive officer in 2020
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Kevin Veltman
Vice President, Investor
Relations & Treasurer
Age 46, elected as an
executive officer in 2015
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Megan Lyon
Chief Strategy Officer
Age 41, elected as an
executive officer in 2019
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Tim Straker
Chief Marketing Officer
Age 55, elected as an
executive officer in 2020
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Richard Scott
Chief Manufacturing and Operations Officer
Age 53, elected as an
executive officer in 2020

Except as discussed below, each of the named officers has served the Company in their current executive position for more than five years.
Ms. Owen joined Herman Miller, Inc. in 2018 and serves as President and Chief Executive Officer. Prior to joining Herman Miller, Ms. Owen spent twenty-five years at The Gap, Inc. where she most recently served as Global President of Banana Republic.
Mr. Groom joined Herman Miller, Inc. in 2019 and serves as Chief Digital Officer. Prior to joining Herman Miller, Mr. Groom spent six years with The Boston Consulting Group where he was a Principal member of the firm’s Technology Advantage, Retail and Consumer practices.
Ms. Propst joined Herman Miller, Inc. in 2020 and serves as President of the Company's Retail segment. Prior to joining Herman Miller, Ms. Propst spent seven years at Bed Bath and Beyond where she most recently served as President and Chief Merchandising Officer of One Kings Lanes, as well as Chief Brand Officer for Bed Bath and Beyond.
Ms. Rice joined Herman Miller, Inc. in 2019 and serves as General Counsel. Prior to joining Herman Miller, Ms. Rice served as Executive Vice President, Chief Risk & Compliance Officer at Target Corporation as well as Senior Counsel and Chief Compliance Officer at General Motors Co.
Mr. Kurburski joined Herman Miller in 1990 and serves as Chief Technology Officer. Prior to joining Herman Miller, Mr. Kurburski spent time in both the government and private IT sectors.
Mr. Hocking joined Herman Miller in 1984 and serves as President of Herman Miller International. Throughout his 37-year career at Herman Miller, Mr. Hocking has held many international leadership positions, including UK Sales Director, Vice President of Sales for Northern Europe, Vice President of International Marketing, Vice President Asia Pacific, Senior Vice President of Strategic Planning, and Executive Vice President of Strategic Planning & Business Development.
Mr. Michael joined Herman Miller, Inc. in 2017 and serves as President, The Americas. Prior to joining Herman Miller, Mr. Michael held leadership positions at Staples, Ivan Allen Workspace, and Steelcase.

Herman Miller, Inc. and Subsidiaries 18


Ms. Lyon joined Herman Miller, Inc. in 2019 and serves as Chief Strategy Officer. Prior to joining Herman Miller, Ms. Lyon spent eleven years with The Boston Consulting Group where she was a Partner and Managing Director leading the firm’s West Coast Consumer and Retail Practice.
Mr. Straker joined Herman Miller in 2012 and serves as Chief Marketing Officer. Prior to joining Herman Miller, Mr. Straker held a variety of design leadership and strategy roles for companies such as Apple, Lowe’s, Goodyear Tire & Rubber, McDonald’s, Nationwide Insurance, SFERRA, Netjets, and the Food Network.
Mr. Scott joined Herman Miller, Inc. in 2006 and serves as Chief Manufacturing and Operations Officer. Prior to joining Herman Miller, Mr. Scott spent his career in engineering and manufacturing with Jacobs Suchard Germany, Eurotunnel, and DS Smith Packaging.
There are no family relationships between or among the above-named executive officers. There are no arrangements or understandings between any of the above-named officers pursuant to which any of them was named an officer.

Item 4 Mine Safety Disclosures
Not applicable

19 2021 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 18, 2021, there were approximately 38,000 shareholders of record, including individual participants in security position listings, of the Company's common stock.

Dividends were declared for the last three quarters of fiscal 2021 as approved by the Board of Directors. On April 13, 2021 the company's Board of Directors approved a quarterly cash dividend of 18.75 cents ($0.1875) per share that was paid on July 15, 2021, to shareholders of record on May 29, 2021. While it is anticipated that the Company will continue to pay quarterly cash dividends, the amount and timing of such dividends is subject to the discretion of the Board depending on the Company's future results of operations, financial condition, capital requirements and other relevant factors.

Issuer Purchases of Equity Securities
The Company has one share repurchase plan authorized by the Board of Directors on January 16, 2019, which provides a share repurchase authorization of $250.0 million with no specified expiration date. The approximate dollar value of shares available for purchase under the plans at May 29, 2021 was $236.7 million.

The following is a summary of share repurchase activity during the Company's fourth fiscal quarter ended May 29, 2021:
PeriodTotal Number of Shares (or Units) PurchasedAverage Price Paid per Share or UnitTotal Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs (1)
2/28/21-3/27/21— $— — $236,731,127 
3/28/21-4/24/21400 $43.56 400 $236,713,705 
4/25/21-5/29/21111 $44.95 111 $236,708,715 
Total511 511  
(1) Amounts are as of the end of the period indicated

The Company may repurchase shares from time to time for cash in open market transactions, privately negotiated transactions, pursuant to accelerated share repurchase programs or otherwise in accordance with applicable federal securities laws. The timing and amount of the repurchases will be determined by the Company's management based on their evaluation of market conditions, share price and other factors. The share repurchase program may be suspended or discontinued at any time.

During the period covered by this report, the Company did not sell any shares of common stock that were not registered under the Securities Act of 1933.
Herman Miller, Inc. and Subsidiaries 20


Stockholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company's common stock with that of the cumulative total return of the Standard & Poor's 500 Stock Index and the Nasdaq Composite Total Return for the five-year period ended May 29, 2021. The graph assumes an investment of $100 on May 28, 2016 in the Company's common stock, the Standard & Poor's 500 Stock Index and the Nasdaq Composite Total Return, with dividends reinvested.

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2016 2017 2018 201920202021
Herman Miller, Inc.$100  $105  $108  $119 $80 $167 
S&P 500 Index$100  $116  $130  $131 $145 $200 
Nasdaq Composite Total Return$100  $129  $157  $156 $201 $293 

Information required by this item is also contained in Item 12 of this report.

21 2021 Annual Report


Item 6 Selected Financial Data
(In millions, except key ratios and per share data)20212020201920182017
Operating Results
Net sales$2,465.1$2,486.6$2,567.2$2,381.2$2,278.2
Gross margin949.2910.7929.9873.0864.2
Selling, general, and administrative (1)
646.5669.7649.5621.0592.9
Impairment charges205.47.1
Design and research72.174.076.973.173.1
Operating earnings (loss)230.6(38.4)203.5178.9191.1
Earnings (loss) before income taxes and equity income226.4(13.4)195.1168.1177.6
Net earnings (loss) 178.8(14.4)160.5128.7124.1
Net cash provided by operating activities332.3221.8216.4166.5202.1
Net cash used in investing activities(59.9)(168.1)(165.0)(62.7)(116.3)
Net cash (used in) provided by financing activities(347.7)244.0(91.9)2.5(74.6)
Depreciation and amortization87.279.572.166.958.9
Capital expenditures59.869.085.870.687.3
Common stock repurchased plus cash dividends paid35.463.093.588.963.1
 
Key Ratios
Sales (decline) growth(0.9)%(3.1)%7.8%4.5%0.6%
Gross margin (2)
38.536.636.236.737.9
Selling, general, and administrative (1) (2)
26.226.925.326.126.0
Design and research (2)
2.93.03.03.13.2
Operating earnings (loss) (2)
9.4(1.5)7.97.58.4
Net earnings growth (decline)1,341.7(109.0)24.73.7(9.7)
After-tax return on net sales (3)
7.3(0.6)6.35.45.4
After-tax return on average assets (4)
8.7(0.8)10.59.29.8
After-tax return on average equity (5)
24.0(2.1)23.220.622.3
 
Share and Per Share Data
Earnings (loss) per share-diluted$2.92$(0.15)$2.70$2.12$2.05
Cash dividends declared per share0.560.630.790.720.68
Book value per share at year end (6)
14.3910.9412.2311.229.84
Market price per share at year end47.8023.0235.4932.8532.70
Weighted average shares outstanding-diluted59.458.959.460.360.6
 
Financial Condition
Total assets$2,061.9$2,053.9$1,569.3$1,479.5$1,306.3
Working capital (7)
390.7403.8215.2231.6106.2
Current ratio (8)
1.81.81.51.61.3
Interest-bearing debt and related swap agreements (9)
285.7558.8282.8265.1197.8
Stockholders' equity849.6643.0719.2664.8587.7
Total capital (10)
1,135.31,201.81,002.0929.9785.5
(1) Selling, general, and administrative expenses include restructuring expenses in years that are applicable.
(2) Shown as a percent of net sales.
(3) Calculated as net earnings (loss) divided by net sales.
(4) Calculated as net earnings (loss) divided by average assets.
(5) Calculated as net earnings (loss) divided by average equity.
(6) Calculated as total stockholders' equity divided by common shares of stock outstanding.
(7) Calculated using current assets less current liabilities.
(8) Calculated using current assets divided by current liabilities.
(9) Amounts shown include the fair market value of the Company’s interest rate swap arrangement(s).
(10) Calculated as interest-bearing debt and related swap agreements plus stockholders' equity.

Herman Miller, Inc. and Subsidiaries 22


Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the issues discussed in Management's Discussion and Analysis in conjunction with the Company's Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Refer also to the information provided under the heading "Forward-Looking Statements" in this Annual Report on Form 10-K.

Executive Overview
Herman Miller’s purpose statement is design for the good of humankind. At present, most customers come to the Company for furnishing interior environments in corporate offices, healthcare settings, higher education institutions and residential spaces. The Company's primary products include furniture systems, seating, storage, freestanding furniture, healthcare environment products, casegoods, textiles and related technologies and services.

More than 100 years of innovative business practices and a commitment to social responsibility have established Herman Miller as a recognized global company. The Company trades on the Nasdaq Global Select Market under the symbol MLHR.

Subsequent to the end of fiscal 2021, the Company finalized the acquisition of Knoll, Inc. (“Knoll”) in a cash and stock transaction valued at approximately $1.8 billion. This combination brings together two pioneering and iconic brands to create MillerKnoll, one of the largest and most influential modern design companies in the world. Together we will transform our industry and redefine modern design. With a broader portfolio, global footprint, and advanced digital capabilities, our combined company will be poised to innovate and design the future for all the places where life happens.

Herman Miller's products are sold internationally through controlled subsidiaries or branches in various countries including the United Kingdom, Denmark, Canada, Japan, Mexico, Australia, Singapore, China, Hong Kong, India and Brazil. The Company's products are offered elsewhere in the world primarily through independent dealerships or joint ventures with customers in over 100 countries.

The Company is globally positioned in terms of manufacturing operations. In the United States, manufacturing operations are located in Michigan, Georgia, Wisconsin and North Carolina. In Europe, the Company's manufacturing presence is located in the United Kingdom. Manufacturing operations globally also include facilities located in China, Brazil and India. The Company manufactures products using a system of lean manufacturing techniques collectively referred to as the Herman Miller Performance System (HMPS). For its contract furniture business, Herman Miller strives to maintain efficiencies and cost savings by minimizing the amount of inventory on hand. Accordingly, production is order-driven with direct materials and components purchased as needed to meet demand. The standard manufacturing lead time for the majority of our products is 10 to 20 days. These factors result in a high rate of inventory turns related to our manufactured inventories.

A key element of the Company's manufacturing strategy is to limit fixed production costs by sourcing component parts from strategic suppliers. This strategy has allowed the Company to increase the variable nature of its cost structure, while retaining proprietary control over those production processes that the Company believes provide a competitive advantage. As a result of this strategy, the Company's manufacturing operations are largely assembly-based.

A key element of the Company's growth strategy is to scale the Retail business through the Company's Design Within Reach (DWR), HAY and Herman Miller retail operations. The Retail business provides a channel to bring Herman Miller's iconic and design-centric products to retail customers, along with other proprietary and third-party products, with a focus on design. The Company continues to transform its Retail business through the DWR retail studio footprint, which will be complemented by a continued focus on improving margins through the development of exclusive product designs and leveraging additional sales in DWR's contract, catalog and digital channels, as well as the HAY brand, which was launched in North America in fiscal 2019.

23 2021 Annual Report


The Company is comprised of various operating segments as defined by generally accepted accounting principles in the United States (U.S. GAAP). The operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The Company has identified the following segments:

North America Contract — Includes the operations associated with the design, manufacture, and sale of furniture and textile products for work-related settings, including office, education and healthcare environments, throughout the United States and Canada. The business associated with the Company's owned contract furniture dealers is also included in the North America Contract segment. In addition to the Herman Miller brand, this segment includes the operations associated with the design, manufacture and sale of high-craft furniture products and textiles, including Geiger wood products, Maharam textiles, Nemschoff, and naughtone.

International Contract — Includes the operations associated with the design, manufacture and sale of furniture products, primarily for work-related settings in EMEA, Latin America, and Asia-Pacific.

Retail — Includes the operations associated with the sale of modern design furnishings and accessories to third-party retail distributors, as well as direct to consumer sales through eCommerce, direct mailing catalogs and Herman Miller, DWR and HAY stores and studios.

The Company also reports a corporate category consisting primarily of unallocated corporate expenses related to general corporate functions, including, but not limited to, certain legal, executive, corporate finance, information technology, administrative and acquisition-related costs.

Core Strengths
The Company relies on the following core strengths in delivering solutions to customers:

Portfolio of Leading Brands and Products - Herman Miller is a globally-recognized, design brand known for working with some of the most well-known and respected designers in the world. Over the years, it has evolved into Herman Miller Group, a family of brands that collectively offers a variety of products for environments where people live, learn, work, heal and play. Within the industries in which the Company operates, Herman Miller, DWR, Geiger, Maharam, POSH, Nemschoff, Colebrook Bosson Saunders ("CBS"), HAY, Maars Living Walls and naughtone are acknowledged as leading brands that inspire architects and designers to create their best design solutions. This portfolio has enabled Herman Miller to connect with new audiences, channels, geographies and product categories. Leveraging the collective brand equity of the Herman Miller Group across the lines of business is an important element of the Company's business strategy.

Problem-Solving Design and Innovation - The Company is committed to developing research-based functionality and aesthetically innovative new products and has a history of doing so, in collaboration with a global network of leading independent designers. The Company believes its skills and experience in matching problem-solving design with the workplace needs of customers provide the Company with a competitive advantage in the marketplace. An important component of the Company's business strategy is to actively pursue a program of new product research, design and development. The Company accomplishes this through the use of an internal research and engineering staff that engages with third party design resources generally compensated on a royalty basis.

Operational Excellence - The Company was among the first in the industry to embrace the concepts of lean manufacturing. HMPS provides the foundation for all the Company's manufacturing operations. The Company is committed to continuously improving both product quality and production and operational efficiency. The Company has extended this lean process work to its non-manufacturing processes as well as externally to its manufacturing supply chain and distribution channel. The Company believes these concepts hold significant promise for further gains in reliability, quality and efficiency.

Herman Miller, Inc. and Subsidiaries 24


Omni-Channel Reach - The Company has built a multi-channel distribution capability that it considers unique. Through contract furniture dealers, direct customer sales, retail stores and studios, eCommerce, catalogs, and independent retailers, the Company serves contract and residential customers across a range of channels and geographies.

Global Scale - In addition to its global omni-channel distribution capability, the Company has a global network of designers, suppliers, manufacturing operations and research and development centers that position the Company to serve contract and residential customers globally. The Company believes that leveraging this global scale will be an important enabler to executing its strategy.

Channels of Distribution
The Company's products and services are offered to most of its customers under standard trade credit terms between 30 and 45 days. For all the items below, revenue is recognized when control transfers to the customer. The Company's products and services are sold through the following distribution channels:

Independent and Owned Contract Furniture Dealers - Most of the Company's product sales are made to a network of independently owned and operated contract furniture dealerships doing business in many countries around the world. These dealers purchase the Company's products and distribute them to end customers. Many of these dealers also offer furniture-related services, including product installation.

Direct Contract Sales - The Company also sells products and services directly to end customers without an intermediary (e.g., sales to the US federal government). In most of these instances, the Company contracts separately with a dealer or third-party installation company to provide sales-related services.

Retail Studios - At the end of fiscal 2021 the Retail business unit included 45 retail studios (including 35 operating under the DWR brand, 4 under the HAY brand, 5 Herman Miller stores and a multi-brand Chicago store). This business also operates 3 outlet studios. The retail and outlet studios are located in metropolitan areas throughout North America.

eCommerce - The Company sells products through its online stores, in which products are available for sale via the Company's website, hermanmiller.com, global eCommerce platforms, as well as through the dwr.com and us.hay.com online stores. These sites complement our existing methods of distribution and extend the Company's brand to new customers.

Direct-Mail Catalogs - The Company’s Retail business unit utilizes a direct-mail catalog program through its DWR subsidiary. A regular schedule of catalog mailings is maintained throughout the fiscal year and these serve as a key driver of sales across each of DWR’s channels, including retail studios and eCommerce websites.

Wholesale - Certain of the Company's products are sold on a wholesale basis to third-party retailers located in various markets around the world.

Challenges Ahead
Like all businesses, the Company is faced with a host of challenges and risks. The Company believes its core strengths and values, which provide the foundation for its strategic direction, have well prepared the Company to respond to the inevitable challenges it will face in the future. While the Company is confident in its direction, it acknowledges the risks specific to our business and industry. Refer to Item 1A for discussion of certain of these risk factors and Item 7A for disclosures of market risk.

25 2021 Annual Report


Areas of Strategic Focus
Despite a number of risks and challenges, the Company believes it is well positioned to successfully pursue its purpose of design for the good of humankind. As our business and industry continue to evolve, we are constantly focused on staying ahead of the curve. With the composition of the office floor plate moving toward a broader variety of furnishings, a greater desire for customization from our customers, new technologies, and trends towards urbanization and more seamless transactions in the retail world, we have centered our overall value creation strategy on four key priorities.

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Unlock the Power of One Herman Miller
Coming together as a family of complementary brands will help achieve our goals of more actively moving into the consumer marketplace, growing globally and making it easier to do business with us. We strive to become more agile, invest in responsive innovation, simplify our go-to-market strategy and continue to lead in product innovation across all our businesses globally.
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Build a Customer-centric, Digitally Enabled Business Model
Building a customer centric and digitally enabled business model is at the forefront of our goal to become easier to do business with us. We will leverage our deep understanding of customer journeys to deliver inspired products and a frictionless customer experience. Along with strengthening the core technology backbone, we will also drive step-change in data, analytics, marketing and brand capabilities.

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Accelerate Profitable Growth
There are identified opportunities for growth ahead in each of our business segments. We believe we are the only company in our industry with access to meaningful contract and residential growth opportunities on a global scale. At the same time, with our ongoing focus on operational excellence and specific profit improvement initiatives, we are focused on continuous improvement of our cost structure.
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Reinforce Our Commitment to Our People, Planet, Communities
With a legacy of corporate social responsibility that is deeply ingrained in our culture, we will reinforce our commitment to our people, planet and communities in a more integrated and deliberate way than ever before. We will focus on building, developing and retaining world-class talent, shaping an inclusive and diverse workforce and elevating our Better World commitment. Doing so will enable us to create value for our shareholders, customers and employees, as well as for the broader communities and environment in which we operate.

The Company believes its strategy continues to respond well to current and future realities in its markets. The Company's strategic priorities are aimed at creating a sustainable and diverse revenue model that puts the customer at the center of everything we do and leverages enabling digital capabilities to fully realize that vision.

Herman Miller, Inc. and Subsidiaries 26


Business Overview
The following is a summary of the significant events and items impacting the Company's operations for the year ended May 29, 2021:

The Company entered into strategic agreements during the fiscal year, including agreements for (i) the acquisition of Knoll’s common stock for $11.00 per share in cash, without interest, and 0.32 shares of Herman Miller common stock for each outstanding share of Knoll common stock and (ii) the acquisition of all of the outstanding shares of Knoll's preferred stock for approximately $253 million in cash in the aggregate. This transaction was finalized subsequent to the end of the fiscal year.

Net sales were $2,465.1 million, representing a decrease of 0.9% when compared to the prior year. The decrease in net sales was driven primarily by decreased sales volumes in the North America Contract segment, partially offset by increased demand with the Retail segment, the impact the acquisition of HAY and naughtone; and incremental list price increases, net of contract price discounting. On an organic basis, net sales were $2,345.3 million(*), representing a decrease of 5.7% when compared to the prior year.

Gross margin was 38.5% as compared to 36.6% in the prior year. The increase in gross margin was driven primarily by favorable channel and product mix combined with incremental list price increases, partially offset by lower overhead leverage due to decreased volumes as well as an increase in commodity market prices.

Operating expenses decreased by $230.5 million or 24.3% as compared to the prior year. Operating expenses in the prior year included non-cash impairment charges of $205 million. In the current year, operating expenses included acquisition and integration charges of $11.0 million, and restructuring costs of $2.7 million. Restructuring costs related mainly to severance and outplacement benefits associated with workforce reductions and profit improvement initiatives implemented during the previous year.

The effective tax rate was 21.2% for fiscal 2021 compared to negative 44.9% for the prior year. Excluding the impact of adjustments related to restructuring and other special charges recorded, a portion of which were not deductible for tax purposes, the effective tax rate for the prior year was 19.9%(*). This rate reflected both provision to return adjustments and the accrual of withholding taxes related to planned repatriation of cash from certain foreign jurisdictions.

Diluted earnings per share for the full year totaled $2.92 compared to a loss per share of $0.15 last year. On an adjusted basis, diluted earnings per share totaled $3.05(*) in fiscal 2021 compared to $2.61(*) in fiscal 2020, behind the strength of improved gross margins and well-managed operating expenses.

The Company declared cash dividends of $0.56 per share compared to $0.63 per share in the prior year.

The following summary includes the Company's view on the economic environment in which it operates:

The Company's Retail segment supports a range of furniture categories aimed at the home environment. Several of these categories, including Home Office, Upholstery, Outdoor, Storage, and Accessories, saw a ramp-up in demand during the first three quarters of fiscal 2021 and this continued into the fourth quarter of fiscal 2021.

The disruption from the COVID-19 pandemic has adversely impacted our fiscal 2021 results as contract furniture industry order trends, as reported by the Business and Institutional Furniture Manufacturers Herman Miller, Inc. and Subsidiaries 25 Association ("BIFMA"), have highlighted near-term demand pressures from the slowdown in economic activity from the pandemic in our North America Contract segment. Our International Contract segment has also been impacted, although many of the markets internationally have shown signs of faster economic recovery.

27 2021 Annual Report


The Company is monitoring the resolution of various trade policy negotiations between the U.S. and key trading partners as well as the post-Brexit impact on the U.K. and European Union. These negotiations create uncertainty in key markets, which, if unresolved in the near term, could negatively impact customer demand.

The Company continues to navigate the impact of global tariffs. The Company believes, based upon existing circumstances, that pricing, strategic sourcing actions and profit optimization initiatives have fully offset the current level of tariffs imposed on imports from China.

The Company's financial performance is sensitive to changes in certain input costs, including steel and steel component parts. The market price of steel in the fourth quarter of fiscal 2021 was higher than the same period of the prior year and negatively impacted consolidated results on a year-over-year basis. The price of steel unfavorably impacted consolidated gross margin in the fourth quarter of fiscal 2021. However, ongoing cost reduction initiatives and a planned price increase in the first quarter of fiscal 2022 will help offset these pressures over time.

The remaining sections of Item 7 include additional analysis of the fiscal year ended May 29, 2021, including discussion of significant variances compared to the prior year period. A detailed review of our fiscal 2020 performance compared to our fiscal 2019 performance is set forth in Part II, Item 7 of our Form 10-K for the fiscal year ended May 30, 2020.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.

COVID-19 Update
The Company continues to respond to the challenges brought about by the COVID-19 pandemic. Workplace restrictions are regionally applied based on the recommendations of local government and health authorities. While demand for the Company's products and services, particularly in the Contract channel of the business, has been adversely impacted, our multi-channel go-to-market approach has enabled us to serve customers where, and how, they need to be served. In addition, the investments we’ve made in people, technology, and products have positioned us well to capitalize on emerging opportunities as our customers' needs have changed throughout the COVID-19 crisis. This has allowed for our Retail business to take advantage of the unanticipated emerging work-from-home trend as well as "home is my castle" trends as consumers are focusing on and upgrading their broader home environments.

Employee Safety and Health
The health and well-being of employees remains top of mind. We are taking a regional approach to restrictions based on active COVID-19 case levels and local health authority recommendations. Contact tracing is active in all regions to help track and control the spread of the virus. We also continue to employ a variety of other safety measures including domestic and international travel restrictions, extensive cleaning protocols, temperature and health screenings, personal protective equipment, and visitor safety guidelines. We will be working with our employees around the globe to understand vaccine distribution and create time for every employee to be vaccinated if they wish to do so.

Herman Miller, Inc. and Subsidiaries 28


Customer Focus
The digital investments we’ve made allowed us to pivot quickly and capitalize on a new set of opportunities when our customers’ purchasing behaviors changed. These investments include reimagined Design Within Reach and Herman Miller websites, a Work from Home landing page on Herman Miller’s website, a Work from Home online assessment tool, and new digital platforms that are creating greater efficiencies for contract and dealer audiences. The latest in a series of innovative solutions designed to accelerate growth in the Contract business is Herman Miller Professional – a digital ecosystem designed to meet customer demand for a simple and efficient design and product specification solution. Herman Miller Professional will deliver seamless online experiences to small- and medium sized businesses, a segment that has historically been underserved by the traditional contract furniture model, while also helping our dealers capture new clients and revenue. Businesses will be able to design their spaces with product from the Herman Miller family of brands, leverage an online quoting and purchasing process to complete their order, and select from several delivery options, including white glove service where appropriate. Our first Herman Miller retail seating concept stores are open in Los Angeles, New York Hudson Yards, Tokyo, Austin, Chicago Fulton Market, Century City Los Angeles and Greenwich, CT. In the early days, these stores have exceeded our initial revenue and operating profit expectations as we seek to educate customers about the health benefits of ergonomic seating. We remain uniquely positioned to serve our customers through multiple channels with the most comprehensive portfolio of products in the industry.

As our customers develop their post-pandemic work plans, there is a notable shift to work being done from a number of places, with the office as a destination – a place where employees want to be rather than are required to be. Herman Miller Group is ready to capture the many opportunities caused by this shift as our commercial customers rethink their real estate portfolios, redesign their workplaces, and seek to provide healthy and productive home work environments.

Manufacturing and Retail Operations
Manufacturing facilities continue to operate at near-normal capacity with enhanced safety precautions. All retail studios and stores are open in some capacity; with some open to the public and some open in limited capacity. All facilities operate within the context of and are subject to local guidance from government and health authorities and we will continue to adjust to ensure we are acting in accordance with these guidelines.

Cost Reductions
In fiscal 2020, the Company implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. In fiscal 2021, the Company, together with its Board of Directors, made the decision to move forward with several restorative actions. This included eliminating the 10% reduction in compensation, the introduction of a modified bonus program and re-establishing a quarterly cash dividend program. In addition, the Company has reinstated the previously suspended employer-paid retirement plan contributions in the fourth quarter of fiscal 2021, and has also elected to make a catch-up contribution for the employer-paid retirement plan contributions that were suspended for a majority of fiscal 2021. Despite these various reinstatements, the Company continues to tightly control operating expenses in the face of lingering economic uncertainty.


Reconciliation of Non-GAAP Financial Measures
This report contains references to Organic net sales, Adjusted earnings per share - diluted, and adjusted effective tax rate which are non-GAAP financial measures. Organic Growth (Decline) represents the change in reported Net sales, excluding currency translation effects and the impact of acquisitions. Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from adjustments related to purchase accounting adjustments related to the HAY and naughtone investments, impairment charges, restructuring expenses and other special charges or gains, including related taxes. Restructuring expenses include actions involving facilities consolidation and optimization, targeted workforce reductions, and costs associated with an early retirement program. Special charges include certain costs arising as a direct result of COVID-19, and retroactive payments related to reinstated employee benefits. Retroactive payments related to reinstated employee benefits were an adjustment to Earnings per Share in fourth quarter, but not for the full year. Adjusted effective tax rate reflects both provision to return adjustments and the accrual of withholding taxes related to planned repatriation of cash from certain foreign jurisdictions.
Herman Miller, Inc. and Subsidiaries 29




The Company believes presenting Organic net sales and Adjusted earnings per share - diluted is useful for investors as it provides financial information on a more comparative basis for the periods presented by excluding items that are not representative of the ongoing operations of the Company.

Organic net sales and Adjusted earnings per share - diluted are not measurements of our financial performance under GAAP and should not be considered as alternatives to the related GAAP measurement. These non-GAAP measurements have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of non-GAAP measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing prominence of our GAAP results and using the non-GAAP financial measures only as a supplement.

The following table reconciles Net sales to Organic net sales for the years ended as indicated below (in millions):
May 29, 2021May 30, 2020
North AmericaInternationalRetailTotalNorth AmericaInternationalRetailTotal
Net Sales, as reported$1,194.0$669.0$602.1$2,465.1$1,598.2$502.8$385.6$2,486.6
% change from PY(25.3)%33.1%56.1%(0.9)%
Proforma Adjustments
Acquisitions(10.6)(87.3)(97.9)
Currency Translation Effects (1)
(1.8)(19.6)(0.5)(21.9)
Organic net sales$1,181.6$562.1$601.6$2,345.3$1,598.2$502.8$385.6$2,486.6
% change from PY(26.1)%11.8%56.0%(5.7)%
(1) Currency translation effects represent the estimated net impact of translating current period sales using the average exchange rates applicable to the comparable prior year period


The following table reconciles EPS to Adjusted EPS for the years ended as of indicated below:
May 29, 2021May 30, 2020
Earning (Loss) per Share - Diluted$2.92 $(0.15)
Less: Gain on consolidation of equity method investments— (0.63)
Less: Gain on legal settlement, after tax(0.06)— 
Add: Special charges, after tax0.02 0.15 
Add: Impairment charges, after tax— 2.90 
Add: Acquisition and integration charges, after tax0.15 — 
Add: Restructuring expenses, after tax0.02 0.34 
Adjusted Earnings per Share - Diluted$3.05 $2.61 
Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) – Diluted59,389,598 58,920,653 
Note: The adjustments above are net of tax. For the twelve months ended May 29, 2021 and May 30, 2020, the tax impact of the adjustments were $0.01 and $0.62, respectively.


Herman Miller, Inc. and Subsidiaries 30


Financial Results
The following is a comparison of our annual results of operations and year-over-year percentage changes for the periods indicated:
(Dollars in millions)Fiscal 2021Fiscal 2020% Change
Net sales$2,465.1 $2,486.6 (0.9)%
Cost of sales1,515.9 1,575.9 (3.8)%
Gross margin949.2 910.7 4.2 %
Operating expenses718.6 949.1 (24.3)%
Operating earnings (loss)230.6 (38.4)n/a
Gain on consolidation of equity method investments— 36.2 n/a
Other expenses, net4.2 11.2 (62.5)%
Earnings (loss) before income taxes and equity income226.4 (13.4)n/a
Income tax expense47.9 6.0 n/a
Equity income from nonconsolidated affiliates, net of tax0.3 5.0 (94.0)%
Net earnings (loss) 178.8 (14.4)n/a
Net earnings (loss) attributable to redeemable noncontrolling interests5.7 (5.3)n/a
Net earnings (loss) attributable to Herman Miller, Inc. $173.1 $(9.1)n/a

The following table presents, for the periods indicated, the components of the Company's Consolidated Statements of Comprehensive Income as a percentage of net sales:
Fiscal 2021Fiscal 2020
Net sales100.0 %100.0 %
Cost of sales61.5 63.4 
Gross margin38.5 36.6 
Operating expenses29.2 38.2 
Operating (loss) earnings9.4 (1.5)
Gain on consolidation of equity method investments— 1.5 
Other expenses, net0.2 0.5 
Earnings (loss) before income taxes and equity income9.2 (0.5)
Income tax expense1.9 0.2 
Equity income from nonconsolidated affiliates, net of tax— 0.2 
Net earnings (loss)7.3 (0.6)
Net earnings (loss) attributable to redeemable noncontrolling interests0.2 (0.2)
Net earnings (loss) attributable to Herman Miller, Inc. 7.0 (0.4)

31 2021 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.
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Net sales decreased $21.5 million or 0.9% compared to the prior year fiscal period. The following items primarily contributed to the change:

Increased sales volumes within the Retail segment of approximately $201 million and the International segment of approximately $65 million.
Increase of approximately $98 million due to the acquisitions of HAY and naughtone.
Incremental list price increases, net of contract price discounting, of approximately $17 million.
Foreign currency translation had a favorable impact on net sales of approximately $22 million.
Decreased sales volumes within the North America segment of approximately $425 million, primarily due to the impact of the COVID-19 pandemic.

Gross Margin
Gross margin was 38.5% for fiscal 2021 as compared to 36.6% for fiscal 2020. The following factors summarize the major drivers of the year-over-year change in gross margin percentage:

A favorable shift in channel mix increased gross margin by approximately 80 basis points.
Product mix, material performance and ongoing profitability improvement efforts increased gross margin by approximately 140 basis points.
Incremental list price increases, net of contract price discounting, increased gross margin by approximately 40 basis points.
Lower overhead leverage decreased gross margin by approximately 70 basis points.



Herman Miller, Inc. and Subsidiaries 32


Operating Expenses
The following chart presents graphically the primary drivers of the year-over-year change in Operating expenses. The amounts presented in the bar graph are expressed in millions and have been rounded.

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Operating expenses decreased by $230.5 million or 24.3% compared to the prior year fiscal period. The following factors contributed to the change:

The acquisition of HAY and naughtone increased Operating expenses by approximately $23 million and charges related to the Knoll acquisition increased current year Operating expenses by approximately $11 million.
IT costs increased approximately $4 million driven primarily by increased investments within the Company's digital and eCommerce platforms.
Non-cash charges of $205 million in the prior year for the impairment of goodwill, intangible assets and right of use assets related to Design Within Reach, Maharam, HAY and naughtone.
Restructuring expenses decreased by approximately $24 million, primarily related to voluntary and involuntary reductions in the Company's North American and International workforces that were substantially completed in the prior year.
Lower marketing and selling expenses of approximately $16 million primarily within the North America Contract segment due to lower sales volume.
Travel costs were approximately $14 million lower due to decreased travel as a result of COVID-19.
Lower warranty expense of approximately $9 million. Decreased warranty costs were due to lower sales volumes and claims experience within the North America Contract segment.

Other Income/Expense
Net other expenses for fiscal 2021 was $4.2 million compared to $11.2 million in fiscal 2020. The change was primarily the result of favorable legal settlements of approximately $4.3 million in fiscal 2021.

Income Taxes
See Note 11 of the Consolidated Financial Statements for additional information.

33 2021 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.
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Herman Miller, Inc. and Subsidiaries 34


North America Contract ("North America")
(Dollars in millions)Fiscal 2021Fiscal 2020Change
Net sales$1,194.0 $1,598.2 $(404.2)
Gross margin413.4 580.6 (167.2)
Gross margin %34.6 %36.3 %(1.7)%
Operating earnings74.1 130.9 (56.8)
Operating earnings %6.2 %8.2 %(2.0)%

Net sales decreased 25.3%, or 26.1%(*) on an organic basis, over the prior year due to:

Decreased sales volumes within the North America segment of approximately $424.5 million, primarily due to the outbreak of COVID-19; offset by
Incremental list price increases, net of discounting, of approximately $7.9 million
Approximately $10.6 million due to the acquisition of naughtone; and
The impact of foreign currency translation which increased sales by approximately $1.8 million.

Operating earnings decreased $56.8 million, or 43.4%, over the prior year due to:

Decreased gross margin of $167.2 million due to decreased sales volumes as well as a decrease in gross margin percentage of 170 basis points. The decrease in gross margin percentage was due primarily to lower overhead and labor leverage offset in part by lower overhead spend; offset by
Decrease in operating expenses of $110.4 million. This reduction was driven by lower marketing and selling expenses of approximately $15 million, lower travel costs of approximately $8 million, lower warranty costs of approximately $9 million and lower restructuring expenses of $14.9 million.

International Contract ("International")
(Dollars in millions)Fiscal 2021Fiscal 2020Change
Net sales$669.0 $502.8 $166.2 
Gross margin238.9 168.5 70.4 
Gross margin %35.7 %33.5 %2.2 %
Operating earnings93.0 18.2 74.8 
Operating earnings %13.9 %3.6 %10.3 %

Net sales increased 33.1%, or 11.8%(*) on an organic basis, over the prior year due to:

Approximately $87 million due to the acquisition of HAY and naughtone
Increased sales volumes within the International segment of approximately $64.9 million, primarily driven by growth within the Asia-Pacific and EMEA regions. These regions benefited from a relatively early recovery to the COVID pandemic and associated return to the office.
The impact of foreign currency translation which increased sales by approximately $19.6 million; offset by
Incremental discounting, net of list price increases, of approximately $5.6 million.

Operating earnings increased $74.8 million, or 411.0%, compared to the prior year due to:

Increased gross margin of $70.4 million due to the increase in sales explained above, and increased gross margin percentage of 220 basis points due primarily to favorable changes in channel and product mix.; and
Decreased operating expenses of $4.4 million driven primarily by the prior year non-cash charge of $23.2 million for the impairment of intangible assets related to HAY and naughtone. This was offset in part by increased operating expenses related to the acquisition of Hay and naughtone.

35 2021 Annual Report


Retail
(Dollars in millions)Fiscal 2021Fiscal 2020Change
Net sales$602.1 $385.6 $216.5 
Gross margin296.9 161.6 135.3 
Gross margin %49.3 %41.9 %7.4 %
Operating earnings117.2 (148.3)265.5 
Operating earnings %19.5 %(38.5)%58.0 %

Net sales increased 56.1% as reported and 56.0% on an organic(*) basis, over the prior year due to:

Increased sales volumes of approximately $201.0 million which were driven by increased demand across multiple product categories, with the largest increase relating to workplace furnishings; and
Incremental price increases, net of discounting, of approximately $15.0 million.

Operating earnings increased $265.5 million over the prior year due to:

Increased gross margin of $135.3 million due to the increase in sales explained above, as well as an increased gross margin percentage of 740 basis points due primarily to changes in channel and product mix and the impact of incremental price increases; and
Decreased operating expenses of $130.2 million were driven primarily by non-cash charges recorded in the prior year of 139.0 million related to the impairment of goodwill, intangible assets and right of use assets held by DWR. This was offset in part by increased investment in digital and eCommerce capabilities, the initial rollout of Herman Miller-branded seating stores, and increased variable selling expenses and incentives.

Corporate
Corporate unallocated expenses totaled $53.7 million for fiscal 2021, an increase of $14.5 million from fiscal 2020. The increase was driven primarily by $11.0 million of acquisition and integration costs associated with the Knoll acquisition that was finalized subsequent to the close of fiscal 2021.

(*) Non-GAAP measurements; see accompanying reconciliations and explanations.

Liquidity and Capital Resources
The table below summarizes the net change in cash and cash equivalents for the fiscal years indicated.
Fiscal Year Ended
(In millions)20212020
Cash provided by (used in):
Operating activities$332.3 $221.8 
Investing activities$(59.9)$(168.1)
Financing activities$(347.7)$244.0 
Effect of exchange rate changes$17.7 $(2.9)
Net change in cash and cash equivalents$(57.6)$294.8 

Cash Flow — Operating Activities
Cash provided by operating activities in fiscal 2021 was $332.3 million compared to $221.8 million in the prior year. The increase in cash generated from operations in the current year, compared to the prior year, was primarily due to:

Prior year net earnings included a non-taxable non-cash gain on consolidation of an equity method investment of $36.2 million as well as a non-cash impact of $205.4 of impairment charges; and
Restructuring expenses of $2.7 million compared to $26.4 million in the prior year; and
An increase in current assets primarily driven by an increase in accounts receivable of $14.8 million in the current year compared to a decrease of $68.6 million in the prior year. The increase in accounts receivable is primarily due to timing and increase in sales at the end of fiscal 2021 compared to fiscal 2020; and
Herman Miller, Inc. and Subsidiaries 36


An increase in current liabilities driven by the following:
Increase in accounts payable of $43.2 million in the current year compared to a decrease of $59.5 million in the prior year which was a result of timing and greater production in fiscal 2021 compared to fiscal 2020 due to manufacturing shut downs in the prior year; and
Increase in accrued liabilities of $15.1 million in the current year compared to a decrease of $32.0 million in the prior year driven by increases in compensation in the current year offset by a decrease in accrued vacation.

Cash Flow — Investing Activities
Cash used in investing activities in fiscal 2021 totaled $59.9 million compared to $168.1 million in the prior year. The decrease in cash outflow in the current year, compared to the prior year, was primarily a result of the following:

Prior year cash outflows of $111.2 million for the additional investments in naughtone and HAY; and
A decrease in capital expenditures of $9.2 million due to reduced spending as a result of COVID-19; and
Proceeds from the sale of the Company's manufacturing facility in China and the office facility in the United Kingdom in the current year of $14.0 million.

At the end of the fiscal 2021, there were outstanding commitments for capital purchases of $46.5 million. The Company plans to fund these commitments with cash on hand and/or cash generated from operations. The Company expects capital spending in fiscal 2022 to be between $140 million and $150 million, which will be primarily related to investments in the Company's facilities and equipment along with the inclusion of Knoll in fiscal year 2022.

Cash Flow — Financing Activities
Cash used in financing activities was $347.7 million in fiscal 2021 as compared to cash provided by financing activities of $244.0 million in fiscal 2020. The items below represent the major factors driving the year-over-year increase in cash flow used in financing activities:

During the first quarter of fiscal 2021 the Company paid down the $265.0 million draw on its syndicated revolving line of credit that was taken in the fourth quarter of fiscal 2020. Additionally, in the fourth quarter of fiscal 2021, the Company repaid $50.0 million of private placement notes that were due March 1, 2021; and
Lower employer-benefit related stock issuances in the current year. The Company issued $5.0 million in common stock related to these programs during the current fiscal year compared to $15.6 million in fiscal 2020; offset in part by
Common stock repurchased of $0.9 million in the current year compared to $26.6 million in the prior year; and
The prior year purchase of the remaining Herman Miller Consumer Holdings, Inc. redeemable noncontrolling interests for $20.3 million.

Sources of Liquidity
In addition to steps taken to protect its workforce and manage business operations, the Company has taken actions to safeguard its capital position in the current environment. The Company is closely managing spending levels, capital investments, and working capital, and has temporarily suspended open market share repurchase activity as part of managing cash flows.

At the end of fiscal 2021, the Company had a well-positioned balance sheet and liquidity profile. In addition to cash flows from operating activities, the Company has access to liquidity through credit facilities, cash and cash equivalents and short-term investments. These sources have been summarized below. For additional information, refer to Note 6 to the Consolidated Financial Statements.
(In millions)May 29, 2021May 30, 2020
Cash and cash equivalents$396.4 $454.0 
Marketable securities$7.7 $7.0 
Availability under revolving lines of credit$265.2 $0.6 
37 2021 Annual Report


Of the cash and cash equivalents noted above at the end of fiscal 2021, the Company had $213.7 million of cash and cash equivalents held outside the United States. In addition, the Company had marketable securities of $7.7 million held by one of its international wholly-owned subsidiaries.

The Company’s syndicated revolving line of credit, which expires on August 28, 2024, provides the Company with up to $500 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing the Company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the facility by up to $250 million. Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the period if borrowings are outstanding.

As of May 29, 2021, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $225.0 million with available borrowings against this facility of $265.2 million.

The subsidiary holding the Company's marketable securities is taxed as a United States taxpayer at the Company's election. Consequently, for tax purposes, all United States tax impacts for this subsidiary have been recorded. The Company intends to repatriate $107.0 million in cash held in certain foreign jurisdictions and as such has recorded a deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S. from foreign subsidiaries of $0.7 million. The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S.

The Company believes that its financial resources are adequate to provide for its operations for at least the next 12 months and will allow it to manage the impact of COVID-19 on the Company's business operations for the foreseeable future. The Company will continue to evaluate its financial position in light of future developments, particularly those relating to COVID-19 and the Knoll acquisition.

Contingencies
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the Company's Consolidated Financial Statements. Refer to Note 13 of the Consolidated Financial Statements for more information relating to contingencies.

Basis of Presentation
The Company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 29, 2021, May 30, 2020 and June 1, 2019 contained 52 weeks.

Contractual Obligations
Contractual obligations associated with our ongoing business and financing activities will result in cash payments in future periods. The following table summarizes the amounts and estimated timing of these future cash payments. Further information regarding debt obligations can be found in Note 6 of the Consolidated Financial Statements. Additional information related to operating leases can be found in Note 7 of the Consolidated Financial Statements.
Payments due by fiscal year
(In millions)Total20222023-20242025-2026Thereafter
Short-term borrowings and long-term debt (1)
$277.1 $2.2 $— $225.0 $49.9 
Estimated interest on debt obligations (1)
66.0 9.1 18.2 18.2 20.5 
Operating leases 260.8 42.3 81.5 64.9 72.1 
Purchase obligations (2)
70.8 62.9 7.9 — — 
Pension and other post employment benefit plans funding (3)
27.6 2.5 5.1 5.4 14.6 
Stockholder dividends (4)
11.1 11.1 — — — 
Other (5)
15.1 5.2 4.1 1.4 4.4 
Total$728.5  $135.3  $116.8  $314.9  $161.5 
Herman Miller, Inc. and Subsidiaries 38


(1) Includes the current portion of long-term debt. Contractual cash payments on long-term debt obligations are disclosed herein based on the amounts borrowed as of May 29, 2021 and the maturity date of the underlying debt. Estimated future interest payments on our outstanding interest-bearing debt obligations are based on interest rates as of May 29, 2021. Actual cash outflows may differ significantly due to changes in borrowings or interest rates.
(2) Purchase obligations consist of non-cancelable purchase orders and commitments for goods, services, and capital assets.
(3) Pension plan funding commitments are known for a 12-month period for those plans that are funded; unfunded pension and post-retirement plan funding amounts are equal to the estimated benefit payments. As of May 29, 2021, the total projected benefit obligation for our domestic and international employee pension benefit plans was $141.9 million.
(4) Represents the dividend payable as of May 29, 2021. Future dividend payments are not considered contractual obligations until declared.
(5) Other contractual obligations primarily represent long-term commitments related to deferred and supplemental employee compensation benefits, and other post-employment benefits.

Other Future Obligations
The Company entered into strategic agreements during the fiscal year, including agreements for (i) the acquisition of Knoll’s common stock for $11.00 per share in cash, without interest, and 0.32 shares of Herman Miller common stock for each outstanding share of Knoll common stock and (ii) the acquisition of all of the outstanding shares of Knoll's preferred stock for approximately $253 million in cash in the aggregate. This transaction was finalized subsequent to the end of the fiscal year. The transaction was funded with a combination of new debt, as discussed in Note 19 of the Consolidated Financial Statements, and cash on our balance sheet.

Off-Balance Sheet Arrangements — Guarantees
We provide certain guarantees to third parties under various arrangements in the form of product warranties, loan guarantees, standby letters of credit, lease guarantees, performance bonds and indemnification provisions. These arrangements are accounted for and disclosed in accordance with Accounting Standards Codification (ASC) Topic 460, "Guarantees" as described in Note 13 of the Consolidated Financial Statements.

Critical Accounting Policies and Estimates
Our goal is to report financial results clearly and understandably. We follow accounting principles generally accepted in the United States in preparing our Consolidated Financial Statements, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. These policies and disclosures are reviewed at least annually with the Audit Committee of the Board of Directors. The following is a summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements.

Business Combinations
We allocate the fair value of purchase consideration to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates are reviewed with our advisors and can include, but are not limited to, future expected cash flows related to acquired customer relationships, trademarks and know-how/designs and require estimation of discount rates and royalty rates. As such, our estimates of fair value are based upon reasonable assumptions but which are inherently uncertain and unpredictable, and as a result, actual results may differ from these estimates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. During 2020, management considered the acquisition of HAY a material acquisition. There were no other material acquisitions during fiscal 2020 or 2021; however, the acquisition of Knoll, which closed subsequent to year end is a material acquisition. See Note 3 to the Consolidated Financial Statements for more information.

Goodwill and Indefinite-lived Intangibles
We perform our annual impairment assessment for goodwill and other indefinite-lived intangible assets each year as of March 31 or more frequently if events or changes in circumstances indicate an impairment maybe possible. We may
39 2021 Annual Report


consider qualitative factors to assess if it is more likely than not that the fair value for goodwill or indefinite-lived intangible assets is below the carrying amount. We may also elect to bypass the qualitative assessment and perform a quantitative assessment.

To complete the impairment assessment the Company makes estimates about fair value by using a weighting of the income and the market approach. The income approach is based on projected discounted cash flows using a market participant discount rate. The market approach is based on financial multiples of companies comparable to each reporting unit and applies a control premium. We corroborate the fair value through a market capitalization reconciliation to determine if the implied control premium is reasonable based on the qualitative considerations, such as recent market transactions.

The Company believes its assumptions for assessing the impairment of its long-lived assets, goodwill and indefinite-lived trade names are reasonable, but future changes in the underlying assumptions could occur due to the inherent uncertainty in making such estimates.

Further declines in the Company’s operating results due to challenging economic conditions, an unfavorable industry or macroeconomic development or other adverse changes in market conditions could change one of the key assumptions the Company uses to calculate the fair value of its long-lived assets, goodwill and indefinite-lived trade names, which could result in a further decline in fair value and require the Company to record an impairment charge in future periods.

Goodwill
Certain business acquisitions have resulted in the recording of goodwill. At May 29, 2021 and May 30, 2020, we had goodwill of $364.2 million and $346.0 million, respectively.     

We perform our annual impairment assessment for goodwill and other indefinite-lived intangible assets as of March 31 or more frequently if events or changes in circumstances indicate that the asset might be impaired. We may consider qualitative factors to assess if it is more likely than not that the fair value for goodwill is below the carrying amount, however, we may also elect to bypass the qualitative assessment and perform a quantitative assessment. Each of the reporting units were reviewed for impairment using a quantitative assessment. In performing the quantitative impairment test for fiscal year 2021, the Company determined that the fair value of its reporting units exceeded the carrying amount and, as such, these reporting units were not impaired. In fiscal 2020, the Company recorded $125.5 million in goodwill impairment charges related to both the Retail and Maharam reportable segments.

The Company adopted and applied ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" using the prospective method in fiscal 2020. Refer to Note 1 of the Consolidated Financial Statements for further information regarding the adoption of ASU No. 2017-04.

To estimate the fair value of each reporting unit when performing quantitative testing, the Company utilizes a weighting of the income approach and the market method. These approaches are based on a discounted cash flow analysis and observable comparable company information that use several inputs, including:

actual and forecasted revenue growth rates and operating margins,
discount rates based on the reporting unit's weighted average cost of capital, and
revenue and EBITDA of comparable companies

The Company corroborates the reasonableness of the inputs and outcomes of our discounted cash flow analysis through a market capitalization reconciliation to determine whether the implied control premium is reasonable.

Generally, changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of the reporting unit. For example, a 1.0% decrease in estimated annual future cash flows would decrease the estimated fair value of the reporting unit by approximately 1.0%. The estimated long-term growth rate can have a significant impact on the estimated future cash flows, and therefore, the fair value of each reporting unit. Of the other key assumptions that impact the estimated fair values, most reporting units have the greatest sensitivity to changes in the estimated discount rate. In completing the annual goodwill impairment test, the respective fair values were estimated using discount rates ranging from 12.0% to 14.0% and long-term growth rates ranging from 2.5% to 3.0%.

Herman Miller, Inc. and Subsidiaries 40


Indefinite-lived Intangible Assets
Certain business acquisitions have resulted in the recording of trade names as indefinite-lived intangible assets, which are not amortized. At May 29, 2021 and May 30, 2020, we had trade name assets with a carrying value of $97.6 million and $92.8 million, respectively.

The Company evaluates indefinite-lived trade name intangible assets for impairment annually. The Company also tests for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. During fiscal 2020, the Company adjusted the carrying value of all its tradenames to fair value, and as a result recognized $53.3 million in non-cash impairment charges on its indefinite-lived trade names.

In fiscal 2021, the Company performed quantitative assessments in testing indefinite-lived intangible assets for impairment. In performing this assessment, we estimate the fair value of these intangible assets using the relief-from-royalty method which requires assumptions related to:
actual and forecasted revenue growth rates,
assumed royalty rates that could be payable if we did not own the trademark, and
a market participant discount rate based on a weighted-average cost of capital.

The assumptions above reflect management’s best estimate; however, actual results could differ from our estimates. If the estimated fair value of the indefinite-lived intangible asset is less than its carrying value, we would recognize an impairment charge.

In the table below, the Company has summarized the carrying values and fair values of each of the Company’s indefinite-lived trade names:
(In millions)
Trade nameSegmentCarrying ValueFair Value
MaharamNorth America Contract$16.5 $20.2 
DWRRetail31.5 92.8 
HAYInternational Contract43.1 43.8 
naughtoneInternational Contract6.5 10.9 
Total$97.6 $167.7 

In completing our annual indefinite-lived trade name impairment test, the respective fair values were estimated using discount rates ranging from 12.0% to 14.0%, royalty rates ranging from 2.00% to 3.00% and long-term growth rates ranging from 2.5% to 3.0%. The Company’s estimates of the fair value of its HAY indefinite-lived intangible asset is sensitive to changes in the key assumptions above as well as projected financial performance. Therefore, a sensitivity analysis was performed on certain key assumptions.

Keeping all other assumptions constant, a 10% decrease in forecasted revenue growth rates at May 29, 2021 would have the following effects on the fair value of the HAY trade name:
(In millions)
Trade nameSegment10% Decrease
HAYInternational Contract$(4.3)

Keeping all other assumptions constant, a 100 basis point change in the discount rate at May 29,2021 would have the following effects on the fair value of the HAY trade name:
(In millions)
Trade nameSegment100 bps Increase100 bps Decrease
HAYInternational Contract$(3.9)$4.8 

Keeping all other assumptions constant, a 50 basis point change in the royalty rate at May 29, 2021 would have the following effects on the fair value of the HAY trade name:
41 2021 Annual Report


(In millions)
Trade nameSegment50 bps Increase50 bps Decrease
HAYInternational Contract$8.8 $(8.7)

Keeping all other assumptions constant, a 50 basis point change in the long-term growth rate at May 29, 2021 would have the following effects on the fair value of the HAY trade name:
(In millions)
Trade nameSegment50 bps Increase50 bps Decrease
HAYInternational Contract$1.7 $(1.5)

If the estimated cash flows related to the Company's indefinite-lived intangibles were to decline in future periods, the Company may need to record an impairment charge.

Long-lived Assets
The Company evaluates other long-lived assets and acquired business units for indicators of impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. If such indicators are present, the future undiscounted cash flows attributable to the asset group are compared to the carrying value of the asset or asset group. The judgments regarding the existence of impairment are based on market conditions, operational performance, and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded to adjust the asset to its estimated fair value.

The Company believes its assumptions for assessing the impairment of its long-lived assets, goodwill and indefinite-lived trade names are reasonable, but if actual results are not consistent with management's estimates and assumptions, a material impairment charge could occur, which could have a material adverse effect on our consolidated financial statements.

New Accounting Standards
Refer to Note 1 of the Consolidated Financial Statements for information related to new accounting standards.

Forward Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” "likely,” “plans,” “projects,” "could," and “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation:

the success of our growth strategy, our success in initiatives aimed at achieving long-term profit optimization goals;
statements regarding the acquisition of Knoll, including the anticipated benefits of the acquisition, the anticipated impact of the acquisition on the combined company’s business and future financial and operating results, and the expected amount and timing of synergies that might be realized from the acquisition;
the effect of the acquisition of Knoll on our ability of Herman Miller to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom we do business, or on our operating results and business generally;
risks that the acquisition of Knoll disrupts current plans and operations and the potential difficulties in employee retention as a result of the transaction;
the outcome of any legal proceedings related to the acquisition of Knoll;
our ability to successfully integrate Knoll’s operations;
Herman Miller, Inc. and Subsidiaries 42


our ability to implement our plans, forecasts and other expectations with respect to our business after the acquisition of Knoll and realize expected synergies;
business disruptions following the acquisition of Knoll;
the ability to realize the anticipated benefits of the acquisition of Knoll, including the possibility that the expected benefits from the transaction will not be realized within the expected time period;
the amount of the costs, fees, expenses and charges related to the merger agreement, the preferred stock purchase agreement, and the transactions contemplated by each agreement;
unknown liabilities;
the impact of foreign currency exchange rate and interest rate fluctuations on Herman Miller’s or Knoll’s results;
employment and general economic conditions;
the pace of economic recovery in the U.S. and in our International markets;
the increase in white-collar employment, the willingness of customers to undertake capital expenditures;
the types of products purchased by customers, competitive-pricing pressures, the availability and pricing of raw materials;
our reliance on a limited number of suppliers;
our ability to expand globally given the risks associated with regulatory and legal compliance challenges and accompanying currency fluctuations, changes in future tax legislation or interpretation of current tax legislation;
the ability to increase prices to absorb the additional costs of raw materials;
changes in global tariff regulations;
the financial strength of our and Knoll’s dealers and the financial strength of our and Knoll’s customers;
our ability to locate new retail studios, negotiate favorable lease terms for new and existing locations and implement our studio portfolio transformation;
our ability to attract and retain key executives and other qualified employees;
our ability to continue to make product innovations;
the success of newly-introduced products, our ability to serve all of our markets;
possible acquisitions, divestitures or alliances;
our ability to integrate and benefit from acquisitions and investments;
the pace and level of government procurement;
the outcome of pending litigation or governmental audits or investigations;
political risk in the markets we serve;
natural disasters, public health crises, disease outbreaks; and
other risks identified in our filings with the SEC.

Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc. undertakes no obligation to update, amend or clarify forward-looking statements.

43 2021 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 increased the Company's costs by approximately $0.9 million during fiscal 2021 compared to the prior year. The impact from changes in commodity prices lowered the Company's costs by approximately $4 million during fiscal 2020 as compared to fiscal 2019. Note that these changes include the impact of Chinese tariffs on the Company's direct material costs.

The market prices for commodities will fluctuate over time and the Company acknowledges that such changes are likely to impact its costs for key direct materials and assembly components. Consequently, it views the prospect of such changes as an outlook risk to the business.

Shortages and disruption in the steel industry as a result of the COVID-19 pandemic negatively impacted the availability of steel. While this reduction in availability has not had a significant impact on our ability to produce and deliver products to our customers, it has negatively impacted the cost of procuring steel. Significant increases in raw materials can be difficult to offset with price increases due to existing contractual agreements with customers as well as difficulty finding effective financial instruments to hedge these changes. In the short term, our gross margin could be negatively impacted by significant increases in these costs. Our profitability could be negatively impacted in the long term if we are not able to pass along these higher raw material costs to our customers.

Foreign Exchange Risk
The Company primarily manufactures its products in the United States, United Kingdom, China, India, and Brazil. It also sources completed products and product components from outside the United States. The Company's completed products are sold in numerous countries around the world. Sales in foreign countries as well as certain expenses related to those sales are transacted in currencies other than the Company's reporting currency, the U.S. dollar. Accordingly, production costs and profit margins related to these sales are effected by the currency exchange relationship between the countries where the sales take place and the countries where the products are sourced or manufactured. These currency exchange relationships can also impact the Company's competitive positions within these markets.

In the normal course of business, the Company enters into contracts denominated in foreign currencies. The principal foreign currencies in which the Company conducts its business are the British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar and Chinese renminbi. As of May 29, 2021, the Company had outstanding sixteen forward currency instruments designed to offset either net asset or net liability exposure that is denominated in non-functional currencies.
Herman Miller, Inc. and Subsidiaries 44


(In millions, except number of forward contracts)
Net Asset Exposure
CurrencyNumber of Forward ContractsNet Exposure
USD758.8 
EUR344.3 
NOK110.0 
SEK117.5 
GBP12.0 
Net Liability Exposure
CurrencyNumber of Forward ContractsNet Exposure
USD23.1 
CAD11.9 

As of May 30, 2020, the Company had outstanding, twenty forward currency instruments designed to offset either net asset or net liability exposure that is denominated in non-functional currencies.
(In millions, except number of forward contracts)
Net Asset Exposure
CurrencyNumber of Forward ContractsNet Exposure
USD741.6 
EUR218.2 
ZAR13.7 
NOK17.7 
SEK110.5 
GBP11.4 
Net Liability Exposure
CurrencyNumber of Forward ContractsNet Exposure
USD47.4 
EUR11.3 
CAD13.1 
AED13.9 

The cost of the foreign currency hedges and remeasuring all foreign currency transactions into the appropriate functional currency resulted in a net gain of $0.8 million in fiscal 2021 in contrast to net loss of $1.1 million in fiscal 2020 included in net earnings. These amounts are included in “Other (income) expense, net” in the Consolidated Statements of Comprehensive Income. Additionally, the cumulative effect of translating the balance sheet and income statement accounts from the functional currency into the United States dollar increased the accumulated comprehensive loss component of total stockholders' equity by $52.1 million compared to a decrease of $7.7 million as of the end of fiscal 2021 and 2020, respectively.

Interest Rate Risk
The Company enters into interest rate swap agreements to manage its exposure to interest rate changes and its overall cost of borrowing. The Company's interest rate swap agreement was entered into to exchange variable rate interest payments for fixed rate payments over the life of the agreement without the exchange of the underlying notional amounts. The notional amount of the interest rate swap agreements is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.
45 2021 Annual Report


These interest rate swap derivative instruments are held and used by the Company as a tool for managing interest rate risk. They are not used for trading or speculative purposes. The counterparties to the swap instruments are large financial institutions that the Company believes are of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by these counterparties, such losses are not anticipated.

In September 2016, the Company entered into an interest rate swap agreement. The interest rate swap is for an aggregate notional amount of $150.0 million with a forward start date of January 3, 2018 and a termination date of January 3, 2028. As a result of the transaction, the Company effectively converted indebtedness anticipated to be borrowed on the Company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable margin to a 1.949 percent fixed interest rate plus applicable margin under the agreement as of the forward start date.

In June 2017, the Company entered into an additional interest rate swap agreement. The interest rate swap is for an aggregate notional amount of $75.0 million with a forward start date of January 3, 2018 and a termination date of January 3, 2028. As a result of the transaction, the Company effectively converted the Company’s revolving line of credit up to the notional amount from a LIBOR-based floating interest rate plus applicable margin to a 2.387 percent fixed interest rate plus applicable margin under the agreement as of the forward start date.
The fair market value of the effective interest rate swap instruments was a net liability of $14.4 million at May 29, 2021 compared to $25.0 million at May 30, 2020. All cash flows related to the Company's interest rate swap instruments are denominated in U.S. dollars. For further information, refer to Note 6 and Note 12 of the Consolidated Financial Statements.
Expected cash outflows (notional amounts) over the next five years and thereafter related to debt instruments are as follows.
(In millions)20222023202420252026Thereafter
Total(1)
Long-Term Debt - Fixed rate:      
Interest rate 4.95%$— $— $— $— $— $49.9 $49.9 
Interest rate 1.949%(2)
$—  $—  $—  $150.0  $—  $—  $150.0 
Interest rate 2.387%(2)
$—  $—  $—  $75.0  $—  $—  $75.0 
(1) Amount does not include the recorded fair value of the swap instruments.
(2) The Company's revolving credit facility has a variable interest rate, but due to the interest rate swaps, the rate on $150.0 million and $75.0 million will be fixed at 1.949% and 2.387%, respectively.
Herman Miller, Inc. and Subsidiaries 46


Item 8 Financial Statements and Supplementary Data
Herman Miller, Inc.
Consolidated Statements of Comprehensive Income
Year Ended
(In millions, except per share data)May 29, 2021May 30, 2020June 1, 2019
Net sales$2,465.1  $2,486.6  $2,567.2 
Cost of sales1,515.9  1,575.9  1,637.3 
Gross margin949.2  910.7  929.9 
Operating expenses:
Selling, general and administrative643.8  643.3  639.3 
Impairment charges— 205.4 — 
Restructuring expenses2.7  26.4  10.2 
Design and research
72.1  74.0  76.9 
Total operating expenses718.6  949.1  726.4 
Operating earnings (loss) 230.6 (38.4)203.5 
Gain on consolidation of equity method investments— 36.2 — 
Interest expense
13.9 12.5 12.1 
Interest and other investment income(2.1)(2.3)(2.1)
Other (income) expense, net(7.6)1.0 (1.6)
Earnings (loss) before income taxes and equity income226.4 (13.4)195.1 
Income tax expense47.9  6.0  39.6 
Equity earnings from nonconsolidated affiliates, net of tax
0.3 5.0 5.0 
Net earnings (loss) 178.8  (14.4) 160.5 
Net earnings (loss) attributable to redeemable noncontrolling interests5.7 (5.3)— 
Net earnings (loss) attributable to Herman Miller, Inc.$173.1 $(9.1)$160.5 
 
Earnings (loss) per share — basic$2.94  $(0.15) $2.72 
Earnings (loss) per share — diluted$2.92  $(0.15) $2.70 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments$52.1 $(7.7)$(14.2)
Pension and post-retirement liability adjustments8.8 (14.2)(7.8)
Unrealized gains (losses) on interest rate swap agreement8.1 (18.0)(12.3)
Unrealized holding (losses) gains on securities(0.1)0.1 — 
Total other comprehensive income (loss), net of tax68.9 (39.8)(34.3)
Comprehensive income (loss) 247.7 (54.2)126.2 
Comprehensive income (loss) attributable to redeemable noncontrolling interests5.7 (5.3)— 
Comprehensive income (loss) attributable to Herman Miller, Inc. $242.0 $(48.9)$126.2 

47 2021 Annual Report


Herman Miller, Inc.
Consolidated Balance Sheets
(In millions, except share and per share data)May 29, 2021May 30, 2020
ASSETS 
Current Assets:
Cash and cash equivalents$396.4 $454.0 
Short-term investments7.7 7.0 
Accounts receivable, net of allowances of $5.5 and $4.7204.7 180.0 
Unbilled accounts receivable16.4 19.5 
Inventories, net213.6 197.3 
Prepaid expenses45.1 43.3 
Other current assets
7.6 16.0 
Total current assets891.5 917.1 
Property and equipment, net of accumulated depreciation of $832.5 and $780.5327.2 330.8 
Right of use assets214.7 193.9 
Goodwill364.2 346.0 
Indefinite-lived intangibles97.6 92.8 
Other amortizable intangibles, net of accumulated amortization of $68.6 and $62.7105.2 112.4 
Other noncurrent assets
61.5 60.9 
Total Assets$2,061.9 $2,053.9 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable$178.4 $128.8 
Short-term borrowings and current portion of long-term debt2.2 51.4 
Accrued compensation and benefits90.2 71.1 
Accrued warranty14.5 16.1 
Customer deposits43.1 39.8 
Other accrued liabilities
172.4 163.0 
Total current liabilities500.8 470.2 
Long-term debt274.9 539.9 
Pension and post-retirement benefits34.5 42.4 
Lease liabilities196.9 178.8 
Other liabilities
128.2 129.2 
Total Liabilities1,135.3 1,360.5 
Redeemable noncontrolling interests77.0 50.4 
Stockholders' Equity:
Preferred stock, no par value (10,000,000 shares authorized, none issued)
— — 
Common stock, $0.20 par value (240,000,000 shares authorized, 59,029,165 and 58,793,275 shares issued and outstanding in 2021 and 2020, respectively)
11.8 11.8 
Additional paid-in capital94.7 81.6 
Retained earnings808.4 683.9 
Accumulated other comprehensive loss
(65.1)(134.0)
Deferred compensation plan
(0.2)(0.3)
Herman Miller, Inc. Stockholders' Equity849.6 643.0 
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity$2,061.9  $2,053.9 
Herman Miller, Inc. and Subsidiaries 48


Herman Miller, Inc.
Consolidated Statements of Stockholders' Equity
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Deferred Compensation PlanHerman Miller, Inc. Stockholders' EquityNoncontrolling InterestsTotal Stockholders' Equity
(In millions, except share and per share data)SharesAmount
June 2, 201859,230,974$11.7$116.6$598.3$(61.3)$(0.7)$664.6$0.2$664.8
Net earnings160.5160.5160.5
Other comprehensive loss, net of tax(34.3)(34.3)(34.3)
Stock-based compensation expense8.48.4(0.2)8.2
Exercise of stock options347,2480.110.010.110.1
Restricted and performance stock units released468,8070.10.20.30.3
Employee stock purchase plan issuances62,9571.91.91.9
Repurchase and retirement of common stock(1,326,023)(0.2)(47.6)(47.8)(47.8)
Directors' fees10,1850.30.30.3
Deferred compensation plan(0.1)(0.1)(0.1)
Dividends declared ($0.79 per share)
(46.6)(46.6)(46.6)
Cumulative effect of accounting changes0.51.41.91.9
June 1, 201958,794,148$11.7$89.8$712.7$(94.2)$(0.8)$719.2$—$719.2
Net loss(9.1)(9.1)(9.1)
Other comprehensive loss(39.8)(39.8)(39.8)
Stock-based compensation expense2.72.72.7
Exercise of stock options423,8150.213.313.513.5
Restricted and performance stock units released138,5900.20.20.2
Employee stock purchase plan issuances70,1452.12.12.1
Repurchase and retirement of common stock(641,192)(0.1)(26.5)(26.6)(26.6)
Directors' fees7,7690.30.30.3
Deferred compensation plan(0.3)0.50.20.2
Dividends declared ($0.63 per share)
(37.5)(37.5)(37.5)
Redemption value adjustment17.817.817.8
May 30, 202058,793,275$11.8$81.6$683.9$(134.0)$(0.3)$643.0$—$643.0
Net earnings173.1173.1173.1
Other comprehensive income68.968.968.9
Stock-based compensation expense9.09.09.0
Exercise of stock options86,2382.62.62.6
Restricted and performance stock units released114,1030.20.20.2
Employee stock purchase plan issuances71,4682.12.12.1
Repurchase and retirement of common stock(38,932)(0.9)(0.9)(0.9)
Directors' fees3,0130.10.10.1
Deferred compensation plan0.10.10.1
Dividends declared ($0.56 per share)
(33.4)(33.4)(33.4)
Redemption value adjustment(15.0)(15.0)(15.0)
Other(0.2)(0.2)(0.2)
May 29, 202159,029,165$11.8$94.7808.4$(65.1)$(0.2)$849.6$849.6
49 2021 Annual Report


Herman Miller, Inc.
Consolidated Statements of Cash Flows
Year Ended
(In millions)May 29, 2021May 30, 2020June 1, 2019
Cash Flows from Operating Activities: 
Net earnings (loss)$178.8$(14.4)$160.5
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation expense72.068.1 65.9
Amortization expense15.211.46.2
Earnings from nonconsolidated affiliates net of dividends received(0.4)(4.8)(2.1)
Investment fair value adjustment(2.1)
Gain on consolidation of equity method investments(36.2)
Deferred taxes6.7(25.2)0.8
Pension contributions(5.4)(0.9)(0.9)
Pension and post-retirement expenses3.01.61.2
Impairment charges205.4
Restructuring expenses2.726.410.2
Stock-based compensation9.02.77.3
Decrease (increase) in long-term assets1.2(4.7)(0.4)
Increase in long-term liabilities16.05.81.6
Changes in current assets and liabilities:
Increase (decrease) in accounts receivable & unbilled accounts receivable(14.8)68.6(24.8)
Increase (decrease) in inventories(8.5)6.0(31.9)
Increase in prepaid expenses and other(3.9)(2.2)(0.6)
Increase (decrease) in accounts payable43.2(59.5)0.5
Increase (decrease) in accrued liabilities15.1(32.0)22.7
Other, net2.45.72.3
Net Cash Provided by Operating Activities332.3221.8216.4
 
Cash Flows from Investing Activities:
Marketable securities purchases(5.9)(3.1)(1.9)
Marketable securities sales5.35.01.7
Capital expenditures(59.8)(69.0)(85.8)
Proceeds from sales of property and dealers14.00.20.5
Purchase of HAY licensing agreement(4.8)
Acquisitions, net of cash received(111.2)
Equity investment in non-controlled entities(3.3)(73.6)
Other, net(13.5)13.3(1.1)
Net Cash Used in Investing Activities(59.9)(168.1)(165.0)
 
Cash Flows from Financing Activities:
Borrowings of long-term debt50.0
Repayments of long-term debt(50.0)
Proceeds from credit facility265.0
Repayments of credit facility(265.0)
Dividends paid(34.5)(36.4)(45.6)
Common stock issued5.015.612.3
Common stock repurchased and retired(0.9)(26.6)(47.9)
Purchase of redeemable noncontrolling interests(20.3)(10.1)
Other, net(2.3)(3.3)(0.6)
Net Cash (Used in) Provided by Financing Activities(347.7)244.0(91.9)
Effect of exchange rate changes on cash and cash equivalents17.7(2.9)(4.2)
Net (Decrease) Increase In Cash and Cash Equivalents(57.6)294.8(44.7)
Cash and cash equivalents, Beginning of Year454.0159.2203.9
Cash and Cash Equivalents, End of Year$396.4$454.0$159.2
Other Cash Flow Information
Interest paid$12.5$11.4$11.5
Income taxes paid, net of cash received$15.8$39.6$41.0
Herman Miller, Inc. and Subsidiaries 50


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

51 2021 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 dealership, direct customer sales, independent retailers, owned retail studios, direct-mail catalogs and the Company's eCommerce platforms.

Fiscal Year
The Company's fiscal year ends on the Saturday closest to May 31. The fiscal years ended May 29, 2021, May 30, 2020, and June 1, 2019 contained 52 weeks.

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 gain of $0.8 million, net loss of $1.1 million, and a net gain of $0.3 million for the fiscal years ended May 29, 2021, May 30, 2020, and June 1, 2019, respectively. These amounts are included in “Other (income) expense, 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 $229.8 million and $364.0 million as of May 29, 2021 and May 30, 2020, 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.

Allowances for Credit Losses
Allowances for credit losses related to accounts are managed at a level considered by management to be adequate to absorb an estimate of probable future losses existing at the balance sheet date.
Herman Miller, Inc. and Subsidiaries 52



In estimating probable losses, we review accounts based on known customer exposures, historical credit experience, and specific identification of other potentially uncollectible accounts. An accounts receivable balance is considered past due when payment is not received within the stated terms. Accounts that are considered to have higher credit risk are reviewed using information available about the debtor, such as financial statements, news reports and published credit ratings. General information regarding industry trends, the economic environment is used as well.

We arrive at an estimated loss for specific concerns and estimate an additional amount for the remainder of trade balances based on historical trends and other factors previously referenced. Balances are written off against 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. Subsequent recoveries, if any, are credited to bad debt expense when received.

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: