| --- | --- | |---------------------------------------------|-------| | | | | | | | NASDAQ: MLHR | | | | | | | | | Design for the Good | | | | | | of Humankind | | | Investor Presentation Second Quarter FY2021 | | | | | FORWARD LOOKING STATEMENTS This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, assumptions, current expectations, ...

Financial Data and Key Metrics Changes - The company reported an improvement in order trends, with a decline of mid-teen percentages in September and October, improving to around 9% in November [10] - Retail segment order growth was 41% ahead of last year, with a significant spike in November orders [14][15] - The international business showed encouraging trends, with organic orders up about 5% in November, leading to a total decline of 2% for the quarter [19] Business Line Data and Key Metrics Changes - Retail orders saw substantial growth, with consumer orders increasing by 84% and trade business orders growing by 14% [15] - The North American contract business remained consistent, with orders down 30% to 35% throughout the quarter [18] Market Data and Key Metrics Changes - E-commerce performance was strong, with a 220% increase compared to last year, while physical retail locations saw a 14% increase in orders despite a 35% decline in traffic [20][21] Company Strategy and Development Direction - The company is focusing on enhancing its e-commerce platforms, with significant improvements noted in conversion rates following the update of the DWR website [22] - Plans are in place to relaunch the Herman Miller store in Q4 and hay.com in the next financial year [22] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the order trends, particularly in the retail segment, and noted strong backlogs heading into Q3 [12][14] - There is hope for recovery in the North American contract business, with increased inquiries and customer conversations [18] Other Important Information - The company has shifted its quarterly press release format to a shareholder letter format to provide more timely information [4] Q&A Session Summary Question: Order trends throughout the quarter on both contract and retail sides - Management noted an improvement in consolidated order trends, with a decline of around 9% in the first weeks of Q3 [10] Question: Notable trends at the segment level - Retail segment saw order growth of 41%, with strong performance in consumer orders [14][15] Question: Supply constraints affecting revenue - Management indicated that while there were challenges, the backlog and order growth suggest potential revenue growth in Q3 [13] Question: Growth sources in the Retail segment - E-commerce was a significant driver, with a 220% increase, while physical retail locations also showed improvement [20] Question: Updates on e-commerce platforms - The DWR website update led to a 26% increase in conversion rates, with plans to update other platforms in the near future [22]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 29, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-15141 __________________________________________ HERMAN MILLER, INC. (Exact name of ...

| --- | --- | |--------------------------------------------|-------| | | | | | | | NASDAQ: MLHR | | | | | | | | | | | | Design for the Good | | | | | | of Humankind | | | Investor Presentation First Quarter FY2021 | | | | | FORWARD LOOKING STATEMENTS This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, assumptions, current expectatio ...

Financial Data and Key Metrics Changes - The company implemented aggressive cost reduction measures, resulting in annual savings of approximately $85 million to $90 million, including workforce reductions and temporary benefit program cuts [11][12][20] - The company reported strong margin performance in the retail segment, which benefited from favorable mix factors, although some moderation is expected moving forward [15][17][59] Business Line Data and Key Metrics Changes - The retail segment saw a significant increase in orders, with June orders up 17% year-over-year and July and August showing increases close to 50% [28][29] - The North American contract business experienced order pressure, with a notable decline in order entry levels, but trends improved towards the end of Q1 and into Q2 [27][52] Market Data and Key Metrics Changes - International markets, particularly in the APAC region and parts of Europe, showed recovery, with strong performance noted in China and Japan [22][24] - The backlog for the North American contract business was down about 20%, while international backlog increased by approximately 13% [47][48] Company Strategy and Development Direction - The company is focusing on digital investments and enhancing its e-commerce capabilities, which have shown significant improvement in conversion rates [14][71] - There is an emphasis on adapting to a more distributed workforce model, with the company positioned to support both residential and office needs [41][44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery trajectory as COVID-19 conditions improve, particularly in international markets [23][48] - The company anticipates that the changes in work models will create opportunities for growth, especially in the residential segment [43][44] Other Important Information - The company has shifted to a shareholder letter format for quarterly press releases to provide more timely information [4] - Management highlighted the importance of maintaining cost reductions while also investing in digital initiatives to drive future growth [59][71] Q&A Session Summary Question: Sustainability of Margins - Management acknowledged that while margins were strong, they expect some pressure moving forward due to the return of certain costs and investments in digital initiatives [10][15][59] Question: Order Trends - Management reported that order trends improved throughout the quarter, with a notable recovery in the retail segment and a gradual improvement in the North American contract business [25][52] Question: Future of the Office - Discussions with clients indicated a shift towards more distributed work models, with companies exploring new office layouts and designs to support collaboration and community [41][42] Question: Backlog and Confidence in Recovery - Management noted that while the North American contract backlog is down, the international backlog is up, providing some confidence in a quicker recovery compared to previous recessions [47][48] Question: E-commerce Impact on Margins - The company highlighted that the shift to e-commerce has positively impacted margins due to lower commission structures and a favorable category mix [63][66]

Part I [Business](index=3&type=section&id=Item%201%20Business) Herman Miller, Inc. designs and distributes interior furnishings globally through diverse channels, facing competitive and COVID-19 challenges in fiscal 2020 - The company operates as Herman Miller Group, encompassing brands like Herman Miller®, Design Within Reach®, and HAY®[11](index=11&type=chunk) - Approximately **70% of fiscal 2020 sales** were through independent dealers, with the rest from direct sales, owned dealers, retail studios, and e-commerce[18](index=18&type=chunk) - The largest single customer accounted for approximately **5% of net sales** in fiscal 2020, with the top 10 customers representing about **18% of net sales**[24](index=24&type=chunk) - Order backlog increased to **$470.8 million** as of May 30, 2020, from **$394.2 million** due to COVID-19 related processing delays[25](index=25&type=chunk) Research and Development Expenses (Fiscal Years 2018-2020) | Fiscal Year | R&D Spending (in millions) | | :--- | :--- | | 2020 | $54.3 | | 2019 | $58.8 | | 2018 | $57.1 | [Risk Factors](index=8&type=section&id=Item%201A%20Risk%20Factors) The company faces significant risks including growth strategy failure, pandemic impacts, tariffs, economic downturns, intense competition, international operational complexities, cybersecurity threats, and potential asset impairment - The COVID-19 pandemic adversely impacted operations and financial results through supply chain disruptions, facility curtailments, and reduced office furniture demand[48](index=48&type=chunk) - U.S government tariffs, especially on Chinese imports, increased raw material and finished goods costs, with Chinese purchases representing an estimated **6% of consolidated cost of sales** in fiscal 2020[49](index=49&type=chunk) - Significant competition exists in the office furniture market from players like Haworth and Steelcase, and in retail from companies like Crate & Barrel and Wayfair[53](index=53&type=chunk)[54](index=54&type=chunk) - Substantial goodwill and indefinite-lived intangible assets are subject to annual impairment testing, with potential for material charges from market declines or poor financial performance[76](index=76&type=chunk) [Unresolved Staff Comments](index=13&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[78](index=78&type=chunk) [Properties](index=14&type=section&id=Item%202%20Properties) As of May 30, 2020, the company owns and leases significant manufacturing, warehouse, and office facilities globally, including 39 retail studios, all deemed adequate for current needs Most Significant Owned and Leased Facilities (as of May 30, 2020) | Location | Use | Square Footage (Thousands) | Ownership | | :--- | :--- | :--- | :--- | | Zeeland, MI | Manufacturing, Warehouse, Office | 771 | Owned | | Spring Lake, MI | Manufacturing, Warehouse, Office | 583 | Owned | | Batavia, OH | Warehouse | 618 | Leased | | Dongguan, China | Manufacturing, Office | 429 | Leased | - As of May 30, 2020, the company operated **39 retail studios**, including DWR and HAY brands, totaling approximately **400,000 square feet** of selling space[82](index=82&type=chunk) [Legal Proceedings](index=16&type=section&id=Item%203%20Legal%20Proceedings) The company is involved in routine legal proceedings, with management expecting no material impact on consolidated operations, cash flows, or financial condition - Management believes pending legal proceedings will not materially affect the company's consolidated operations, cash flows, or financial condition[84](index=84&type=chunk) [Executive Officers of the Registrant](index=16&type=section&id=Additional%20Item%3A%20Executive%20Officers%20of%20the%20Registrant) The report lists executive officers as of May 30, 2020, including Andrea R. Owen (CEO) and Jeffrey M. Stutz (CFO), with their positions and election years - Andrea R. Owen, age 55, has served as President and Chief Executive Officer since **2018**[85](index=85&type=chunk)[90](index=90&type=chunk) - Jeffrey M. Stutz, age 49, has served as Chief Financial Officer since **2009**[89](index=89&type=chunk) [Mine Safety Disclosures](index=17&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[95](index=95&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Herman Miller's common stock trades on NASDAQ (MLHR), with future dividends suspended due to COVID-19 uncertainty, and **$237.6 million** remaining for share repurchases as of May 30, 2020 - The company's common stock trades on the NASDAQ-Global Select Market System under the symbol **MLHR**[96](index=96&type=chunk) - Future dividend payments are suspended due to COVID-19 uncertainty, though the deferred Q3 fiscal 2020 dividend was paid on July 15, 2020[97](index=97&type=chunk) - As of May 30, 2020, **$237.6 million** remained available for share repurchases under the **$250.0 million** January 2019 authorization[98](index=98&type=chunk) [Selected Financial Data](index=20&type=section&id=Item%206%20Selected%20Financial%20Data) Fiscal 2020 saw net sales decrease to **$2.49 billion**, with an operating loss of **$38.4 million** and a net loss of **$14.4 million** due to a **$205.4 million** impairment charge, resulting in diluted EPS of **$(0.15)** Selected Financial Data (FY2020 vs. FY2019) | Metric (In millions, except per share data) | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | | Net sales | $2,486.6 | $2,567.2 | | Gross margin | $910.7 | $929.9 | | Operating (loss) earnings | $(38.4) | $203.5 | | Net (loss) earnings | $(14.4) | $160.5 | | (Loss) earnings per share-diluted | $(0.15) | $2.70 | | Cash dividends declared per share | $0.63 | $0.79 | | Total assets | $2,053.9 | $1,569.3 | | Total interest-bearing debt | $558.8 | $282.8 | | Stockholders' equity | $643.0 | $719.2 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2020 net sales decreased to **$2.49 billion** due to COVID-19, resulting in a **$14.4 million** net loss driven by a **$205.4 million** impairment charge, while the company focused on liquidity preservation and strategic growth initiatives [Executive Overview and Strategy](index=22&type=section&id=Executive%20Overview%20and%20Strategy) The company operates through North America Contract, International Contract, and Retail segments, leveraging brand strength and global reach, with a strategy focused on integration, digital transformation, profitable growth, and social responsibility - The company is organized into three reportable segments: North America Contract, International Contract, and Retail[115](index=115&type=chunk)[117](index=117&type=chunk)[119](index=119&type=chunk) - Strategic priorities include unlocking 'One Herman Miller', building a customer-centric digital model, accelerating profitable growth, and reinforcing social and environmental commitment[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) [COVID-19 Update](index=27&type=section&id=COVID-19%20Update) The COVID-19 pandemic adversely impacted fiscal 2020, prompting safety measures, temporary manufacturing disruptions, and cost reductions including a **400-employee** workforce reduction and dividend suspension - The company implemented safety measures such as travel restrictions, work-from-home policies, and temporary closure of showrooms and retail studios to the public[136](index=136&type=chunk) - Cost reduction actions included a salaried workforce reduction of approximately **400 employees**, a **10%** cash compensation reduction, and temporary suspension of quarterly dividends and retirement contributions[143](index=143&type=chunk) [Results of Operations (FY2020 vs FY2019)](index=26&type=section&id=Results%20of%20Operations%20%28FY2020%20vs%20FY2019%29) Fiscal 2020 net sales fell **3.1%** to **$2.487 billion** due to COVID-19, leading to a **$14.4 million** net loss, primarily driven by a **$205 million** impairment charge and increased operating expenses, despite gross margin improvement FY 2020 Financial Highlights vs. FY 2019 | Metric (in millions) | FY 2020 | FY 2019 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,486.6 | $2,567.2 | (3.1)% | | Gross Margin | $910.7 | $929.9 | (2.1)% | | Operating (Loss) Earnings | $(38.4) | $203.5 | (118.9)% | | Net (Loss) Earnings | $(14.4) | $160.5 | (109.0)% | - Net sales decreased due to lower volumes from COVID-19 (**$213 million**), partially offset by acquisitions (**$96 million**) and net price increases (**$45 million**)[153](index=153&type=chunk) - Operating expenses increased by **$222.7 million**, primarily due to a **$205 million** non-cash impairment charge and a **$16 million** increase in restructuring expenses[155](index=155&type=chunk)[159](index=159&type=chunk) - A pre-tax gain of **$36.2 million** was recorded from the purchase accounting treatment of initial equity-method investments in naughtone and HAY upon gaining majority ownership[155](index=155&type=chunk) [Segment Performance](index=33&type=section&id=Segment%20Performance) Fiscal 2020 saw North America Contract sales decrease **5.2%** to **$1.60 billion**, International Contract sales grow **2.2%** to **$502.8 million**, and Retail sales dip **0.7%** to **$385.6 million**, with all segments impacted by impairment charges and lower operating earnings Segment Net Sales (FY2020 vs. FY2019) | Segment (in millions) | FY 2020 | FY 2019 | % Change | | :--- | :--- | :--- | :--- | | North America Contract | $1,598.2 | $1,686.5 | (5.2)% | | International Contract | $502.8 | $492.2 | 2.2% | | Retail | $385.6 | $388.5 | (0.7)% | Segment Operating Earnings (Loss) (FY2020 vs. FY2019) | Segment (in millions) | FY 2020 | FY 2019 | Change | | :--- | :--- | :--- | :--- | | North America Contract | $130.9 | $189.7 | $(58.8) | | International Contract | $18.2 | $57.8 | $(39.6) | | Retail | $(148.3) | $5.3 | $(153.6) | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Cash from operations was **$221.8 million**, investing used **$168.1 million** for acquisitions, and financing provided **$244.0 million** from credit facility draws and debt, ending with **$454.0 million** cash, with share repurchases and dividends suspended for liquidity Summary of Cash Flows (in millions) | Activity | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Cash from Operating Activities | $221.8 | $216.4 | | Cash used in Investing Activities | $(168.1) | $(165.0) | | Cash from (used in) Financing Activities | $244.0 | $(91.9) | - In March 2020, the company drew **$265 million** from its revolving credit facility as a COVID-19 precautionary measure, which was repaid in June 2020[131](index=131&type=chunk)[181](index=181&type=chunk) Contractual Obligations Summary (in millions) | Obligation | Total | Due in 2021 | Due in 2022-2023 | Due in 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt | $591.4 | $51.4 | $— | $490.0 | $50.0 | | Operating Leases | $270.4 | $48.5 | $85.0 | $65.0 | $71.9 | | Purchase Obligations | $79.8 | $77.2 | $2.6 | $— | $— | | **Total** | **$1,046.4** | **$206.5** | **$106.4** | **$573.4** | **$160.1** | [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant estimates for business combinations, goodwill, and intangible assets, leading to **$205.4 million** in non-cash impairment charges in fiscal 2020 due to COVID-19 impacts on goodwill, tradenames, and other long-lived assets FY2020 Impairment Charges (in millions) | Asset Type | Impairment Charge | | :--- | :--- | | Goodwill | $125.5 | | Indefinite-lived intangible assets | $53.3 | | Customer relationship intangible assets | $7.0 | | Right of use assets and other long-lived assets | $19.6 | | **Total** | **$205.4** | - Goodwill impairment charges of **$125.5 million** were recognized for the Retail (**$88.8 million**) and Maharam (**$36.7 million**) reporting units, primarily due to reduced projections from the COVID-19 pandemic[207](index=207&type=chunk)[208](index=208&type=chunk) - The International Contract reporting unit, with **$163.7 million** of goodwill, had a fair value exceeding its carrying value by **17%**, indicating future impairment risk if cash flows decline[208](index=208&type=chunk)[211](index=211&type=chunk)[212](index=212&type=chunk) - A Q4 2020 triggering event led to a **$26.6 million** long-lived asset impairment charge, primarily for DWR right-of-use assets and customer relationship intangibles[222](index=222&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from material costs, foreign currency, and interest rates, using forward contracts for currency and interest rate swaps to convert **$225 million** of floating-rate debt to fixed rates, with commodity price changes lowering costs by **$4 million** in fiscal 2020 - The company is exposed to direct material price changes, with commodity price changes, including Chinese tariffs, resulting in an approximate **$4 million** cost decrease in fiscal 2020[228](index=228&type=chunk) - Foreign currency forward contracts are used to offset risks from non-functional currency transactions, with **twenty instruments** outstanding as of May 30, 2020[230](index=230&type=chunk)[231](index=231&type=chunk) - Two interest rate swap agreements with a total notional amount of **$225 million** convert LIBOR-based floating-rate debt to fixed rates (**1.949%** and **2.387%**), mitigating interest rate risk[238](index=238&type=chunk)[239](index=239&type=chunk) [Financial Statements and Supplementary Data](index=46&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for fiscal 2020, including comprehensive income, balance sheets, equity, and cash flows, along with notes detailing impairment charges, acquisitions, lease accounting adoption, and restructuring activities [Consolidated Financial Statements Overview](index=46&type=section&id=Consolidated%20Financial%20Statements%20Overview) Fiscal 2020 consolidated financial statements show a **$9.1 million** net loss, a significant shift from **$160.5 million** net earnings in 2019, driven by impairment and restructuring charges, with total assets growing to **$2.05 billion** and liabilities to **$1.36 billion** Consolidated Statement of Comprehensive Income Highlights (in millions) | Line Item | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net sales | $2,486.6 | $2,567.2 | $2,381.2 | | Gross margin | $910.7 | $929.9 | $873.0 | | Operating (loss) earnings | $(38.4) | $203.5 | $178.9 | | Impairment charges | $205.4 | $— | $— | | Net (loss) earnings attributable to Herman Miller, Inc. | $(9.1) | $160.5 | $128.1 | Consolidated Balance Sheet Highlights (in millions) | Line Item | May 30, 2020 | June 1, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $454.0 | $159.2 | | Total current assets | $917.1 | $661.3 | | Goodwill | $346.0 | $303.8 | | Total Assets | $2,053.9 | $1,569.3 | | Total current liabilities | $513.3 | $446.1 | | Long-term debt | $539.9 | $281.9 | | Total Liabilities | $1,360.5 | $829.5 | | Total Stockholders' Equity | $643.0 | $719.2 | [Note 1. Significant Accounting and Reporting Policies](index=53&type=section&id=Note%201.%20Significant%20Accounting%20and%20Reporting%20Policies) This note details key accounting policies, including annual impairment tests for goodwill and indefinite-lived intangibles, resulting in **$125.5 million** and **$53.3 million** charges respectively in fiscal 2020, and the adoption of ASC 842 for lease accounting - The company adopted ASU 2016-02 (Leases) in fiscal 2020, recognizing approximately **$245 million** in right-of-use assets and **$275 million** in lease liabilities upon adoption[295](index=295&type=chunk)[311](index=311&type=chunk)[364](index=364&type=chunk) - Goodwill impairment charges of **$125.5 million** were recorded in fiscal 2020 for the Retail (**$88.8 million**) and Maharam (**$36.7 million**) reporting units[270](index=270&type=chunk) - Impairment charges of **$53.3 million** were recognized for the DWR, Maharam, HAY, and naughtone tradenames[274](index=274&type=chunk) [Note 2. Revenue from Contracts with Customers](index=62&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) Fiscal 2020 revenue disaggregation shows **$2.12 billion** from single performance obligation contracts and **$347.8 million** from multiple, with Seating (**$1.04 billion**) and Systems (**$589.3 million**) as largest product categories Revenue by Product Type (in millions) | Product Type | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Systems | $589.3 | $668.0 | | Seating | $1,041.6 | $1,013.5 | | Freestanding and storage | $496.9 | $505.4 | | Textiles | $138.8 | $113.8 | | Other | $220.0 | $266.5 | | **Total** | **$2,486.6** | **$2,567.2** | [Note 3. Acquisitions and Divestitures](index=65&type=section&id=Note%203.%20Acquisitions%20and%20Divestitures) In fiscal 2020, the company acquired controlling interests in naughtone (**$45.9 million**) and HAY (**$79.0 million**), resulting in a combined **$30.3 million** non-taxable gain from remeasuring previously held equity interests and adding significant goodwill and intangibles - Acquired the remaining **47.5%** of naughtone for **$45.9 million**, achieving **100%** ownership and consolidation[336](index=336&type=chunk) - Acquired an additional **34%** of HAY for **$79.0 million**, increasing ownership to a controlling **67%** and leading to consolidation[328](index=328&type=chunk) - The acquisitions resulted in a non-taxable gain of approximately **$30.0 million** for naughtone and **$0.3 million** for HAY from remeasuring previously held equity interests[332](index=332&type=chunk)[337](index=337&type=chunk) [Note 6. Short-Term Borrowings and Long-Term Debt](index=70&type=section&id=Note%206.%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) As of May 30, 2020, total debt increased to **$591.3 million**, including **$490.0 million** from the syndicated revolving line of credit and **$50.0 million** in new senior notes, with the company in compliance with all debt covenants Total Debt Composition (in millions) | Debt Instrument | May 30, 2020 | June 1, 2019 | | :--- | :--- | :--- | | Debt securities, 6.0%, due 2021 | $50.0 | $50.0 | | Debt securities, 4.95%, due 2030 | $49.9 | $— | | Syndicated Revolving Line of Credit | $490.0 | $225.0 | | Other | $1.4 | $10.0 | | **Total debt** | **$591.3** | **$285.0** | [Note 7. Leases](index=72&type=section&id=Note%207.%20Leases) The company adopted ASC 842 in fiscal 2020, recognizing **$193.9 million** in right-of-use assets and **$243.9 million** in lease liabilities, with total lease expense of **$62.1 million** and a **$19.3 million** impairment charge on right-of-use assets - Upon adoption of ASC 842, the company recognized approximately **$245 million** of ROU assets and **$275 million** of lease liabilities[364](index=364&type=chunk) - Total lease expense for fiscal 2020 was **$62.1 million**, including **$51.3 million** in operating lease costs[371](index=371&type=chunk) - An impairment of **$19.3 million** was recorded on right-of-use assets during the fourth quarter of fiscal 2020[372](index=372&type=chunk) [Note 10. Stock-Based Compensation](index=79&type=section&id=Note%2010.%20Stock-Based%20Compensation) The company uses stock options, RSUs, and PSUs for compensation, with total pre-tax stock-based compensation expense at **$2.7 million** in fiscal 2020, down from **$7.3 million** in 2019, and **$3.2 million** in unrecognized compensation cost remaining Pre-tax Stock-Based Compensation Expense (in millions) | Award Type | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Employee stock purchase program | $0.3 | $0.3 | $0.3 | | Stock option plans | $0.6 | $(0.4) | $2.6 | | Restricted stock units | $3.9 | $4.6 | $3.9 | | Performance share units | $(2.1) | $2.8 | $0.9 | | **Total** | **$2.7** | **$7.3** | **$7.7** | [Note 11. Income Taxes](index=82&type=section&id=Note%2011.%20Income%20Taxes) Fiscal 2020's effective tax rate was **-44.9%** due to a pre-tax loss and a **$17.1 million** non-deductible goodwill impairment charge, partially offset by tax benefits, with a **$10.6 million** valuation allowance against deferred tax assets - The effective tax rate was **-44.9%** for fiscal 2020, significantly deviating from the **21%** U.S statutory rate[417](index=417&type=chunk) - Key tax rate reconciliation factors include a **$17.1 million** tax expense from non-deductible goodwill impairment and a **$5.5 million** tax benefit from the non-taxable gain on equity method investment consolidation[417](index=417&type=chunk) - A valuation allowance of **$10.6 million** is recorded against deferred tax assets as of May 30, 2020, primarily for foreign NOLs and other foreign deferred assets[418](index=418&type=chunk)[423](index=423&type=chunk)[424](index=424&type=chunk) [Note 12. Fair Value and Derivative Instruments](index=87&type=section&id=Note%2012.%20Fair%20Value%20and%20Derivative%20Instruments) The company uses foreign currency forward contracts and interest rate swaps to manage market risks, with interest rate swaps having a net liability fair value of **$25.0 million** as of May 30, 2020, and redeemable noncontrolling interests related to HAY classified as mezzanine equity - The fair value of the two outstanding interest rate swap agreements was a net liability of **$25.0 million** as of May 30, 2020, compared to a **$1.2 million** net liability at June 1, 2019[447](index=447&type=chunk) - Redeemable noncontrolling interests for the remaining **33%** of HAY are carried at an estimated redemption amount of **$50.4 million** and classified outside of permanent equity[452](index=452&type=chunk)[455](index=455&type=chunk) [Note 13. Commitments and Contingencies](index=93&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) The company provides **12-year** product warranties, with a **$59.2 million** reserve at fiscal 2020 end, and has commitments under performance bonds (**$4.4 million**) and standby letters of credit (**$9.4 million**) with no recorded liability Warranty Reserve Activity (in millions) | Period | Beginning Balance | Accruals | Settlements | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | FY 2020 | $53.1 | $23.7 | $(17.6) | $59.2 | | FY 2019 | $51.5 | $20.7 | $(19.1) | $53.1 | [Note 16. Restructuring Expenses](index=97&type=section&id=Note%2016.%20Restructuring%20Expenses) Total restructuring expenses reached **$26.4 million** in fiscal 2020, up from **$10.2 million** in 2019, primarily due to a **$15.3 million** charge in Q4 for a COVID-19 response plan involving the elimination of approximately **400 positions** - In Q4 2020, a COVID-19 restructuring plan resulted in a **$15.3 million** charge for severance costs related to eliminating approximately **400 positions**[486](index=486&type=chunk) Restructuring Expenses by Segment (in millions) | Segment | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | North America Contract | $18.7 | $7.7 | $1.8 | | International Contract | $4.8 | $2.5 | $3.9 | | Retail | $2.9 | $— | $— | | **Total** | **$26.4** | **$10.2** | **$5.7** | [Note 18. Quarterly Financial Data (Unaudited)](index=100&type=section&id=Note%2018.%20Quarterly%20Financial%20Data%20%28Unaudited%29) This note summarizes unaudited quarterly financial data for fiscal 2020, 2019, and 2018, highlighting a sharp Q4 2020 decline with net sales of **$475.7 million** and a **$173.7 million** net loss due to COVID-19 and impairment charges Fiscal 2020 Unaudited Quarterly Results (in millions, except per share data) | Quarter | Net Sales | Gross Margin | Net Earnings (Loss) Attributable to HMI | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | Q1 | $670.9 | $246.1 | $48.2 | $0.81 | | Q2 | $674.2 | $255.5 | $78.6 | $1.32 | | Q3 | $665.7 | $243.3 | $37.7 | $0.64 | | Q4 | $475.7 | $165.8 | $(173.7) | $(2.95) | [Management's Report on Internal Control & Independent Auditor's Report](index=101&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20%26%20Independent%20Auditor%27s%20Report) Management concluded internal control over financial reporting was effective as of May 30, 2020, excluding recent acquisitions, while KPMG LLP issued an unqualified opinion, highlighting critical audit matters including intangible asset valuation and impairment assessments for goodwill, tradenames, and long-lived assets - Management assessed internal control over financial reporting as effective as of May 30, 2020, excluding the recently acquired naughtone and HAY entities[496](index=496&type=chunk)[497](index=497&type=chunk) - KPMG LLP issued an unqualified opinion on financial statements and internal controls, identifying critical audit matters including HAY's intangible asset valuation and impairment assessments for goodwill, tradenames, and long-lived assets[500](index=500&type=chunk)[510](index=510&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=108&type=section&id=Item%209%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no disagreements with its accountants on accounting principles, financial disclosure, or auditing scope - None[535](index=535&type=chunk) [Controls and Procedures](index=108&type=section&id=Item%209A%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded disclosure controls and procedures were effective as of May 30, 2020, with no material changes in internal control over financial reporting during Q4 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 30, 2020[536](index=536&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter[536](index=536&type=chunk) [Other Information](index=108&type=section&id=Item%209B%20Other%20Information) The company reports no other information for this item - None[536](index=536&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=109&type=section&id=Item%2010%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance, including the code of ethics, is incorporated by reference from the company's 2020 Proxy Statement - Information on directors, executive officers, Section 16(a) compliance, code of ethics, and corporate governance is incorporated by reference from the company's 2020 Proxy Statement[537](index=537&type=chunk)[538](index=538&type=chunk)[539](index=539&type=chunk)[540](index=540&type=chunk) [Executive Compensation](index=109&type=section&id=Item%2011%20Executive%20Compensation) Detailed executive compensation information, including Compensation Discussion and Analysis and compensation tables, is incorporated by reference from the company's 2020 Proxy Statement - All executive compensation information is incorporated by reference from the company's 2020 Proxy Statement[541](index=541&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=109&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management, and equity compensation plans, is incorporated by reference from the company's 2020 Proxy Statement - Information on security ownership and equity compensation plans is incorporated by reference from the company's 2020 Proxy Statement[542](index=542&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=110&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement[544](index=544&type=chunk) [Principal Accountant Fees and Services](index=110&type=section&id=Item%2014%20Principal%20Accountant%20Fees%20and%20Services) Information on fees paid to and services provided by the principal accounting firm is incorporated by reference from the company's 2020 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the company's 2020 Proxy Statement[545](index=545&type=chunk) Part IV [Exhibits and Financial Statement Schedule](index=111&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedule) This section lists documents filed as part of the Form 10-K, including consolidated financial statements, schedule II, and a comprehensive index of exhibits like articles of incorporation and material contracts - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[547](index=547&type=chunk)[549](index=549&type=chunk)[551](index=551&type=chunk) [Form 10-K Summary](index=116&type=section&id=Item%2016%20Form%2010-K%20Summary) The company reports no summary for this item - None[558](index=558&type=chunk)

| --- | --- | |-----------------------------------------------------------------------------------------------|-------| | | | | NASDAQ: MLHR | | | | | | Inspiring Designs to Help People Do Great Things Investor Presentation Fourth Quarter FY2020 | | FORWARD LOOKING STATEMENTS This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, assum ...

Herman Miller Inc. (MLHR) Q4 2020 Earnings Conference Call June 30, 2020 9:30 AM ET Company Participants Andi Owen - President, Chief Executive Officer Jeff Stutz - Chief Financial Officer Debbie Propst - President, Retail Kevin Veltman - Vice President, Investor Relations, Treasurer Conference Call Participants Steven Ramsey - Thompson Research Group Reuben Garner - The Benchmark Company Greg Burns - Sidoti & Company Operator Good morning and welcome to the Herman Miller fourth quarter earnings conference ...

[Part I — Financial Information](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Item 1: Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) The unaudited statements show increased nine-month net sales and earnings, with balance sheet changes from new lease standards and acquisitions Condensed Consolidated Statements of Comprehensive Income Highlights | Indicator (in millions) | Three Months Ended Feb 29, 2020 | Three Months Ended Mar 2, 2019 | Nine Months Ended Feb 29, 2020 | Nine Months Ended Mar 2, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $665.7 | $619.0 | $2,010.8 | $1,896.2 | | **Gross margin** | $243.3 | $221.0 | $744.9 | $681.7 | | **Operating earnings** | $50.4 | $47.8 | $173.0 | $146.9 | | **Net earnings attributable to Herman Miller, Inc.** | $37.7 | $39.2 | $164.5 | $114.5 | | **Diluted EPS** | $0.64 | $0.66 | $2.78 | $1.92 | Condensed Consolidated Balance Sheet Highlights | Indicator (in millions) | Feb 29, 2020 | June 1, 2019 | | :--- | :--- | :--- | | **Total current assets** | $636.3 | $661.3 | | **Total Assets** | $1,985.8 | $1,569.3 | | **Total current liabilities** | $506.1 | $446.1 | | **Total Liabilities** | $1,077.3 | $829.5 | | **Total Stockholders' Equity** | $836.8 | $719.2 | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended) | Indicator (in millions) | Feb 29, 2020 | Mar 2, 2019 | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | $191.8 | $130.6 | | **Net Cash Used in Investing Activities** | ($171.3) | ($142.4) | | **Net Cash Used in Financing Activities** | ($69.8) | ($76.6) | | **Net Decrease in Cash and Cash Equivalents** | ($48.6) | ($90.4) | [Note 2: Recently Issued Accounting Standards](index=8&type=section&id=Note%202%20-%20Recently%20Issued%20Accounting%20Standards) The company adopted the new lease standard ASU 2016-02, recognizing lease assets and liabilities on the balance sheet - Adopted the new lease standard (ASU 2016-02), which requires recognizing most lease rights and obligations as **assets and liabilities on the balance sheet**[21](index=21&type=chunk) [Note 3: Revenue from Contracts with Customers](index=9&type=section&id=Note%203%20-%20Revenue%20from%20Contracts%20with%20Customers) Total net sales grew to $2,010.8 million for the nine-month period, with growth across all three reportable segments Net Sales by Reportable Segment (Nine Months Ended) | Segment (in millions) | Feb 29, 2020 | Mar 2, 2019 | | :--- | :--- | :--- | | **North America Contract** | $1,322.5 | $1,252.8 | | **International Contract** | $388.1 | $359.9 | | **Retail** | $300.2 | $283.5 | | **Total** | $2,010.8 | $1,896.2 | [Note 4: Leases](index=10&type=section&id=Note%204%20-%20Leases) Adoption of ASC 842 resulted in recognizing approximately $245 million in ROU assets and $275 million in lease liabilities - The adoption of the new lease standard resulted in the addition of approximately **$245 million of ROU assets** and **$275 million of lease liabilities** to the balance sheet[30](index=30&type=chunk) Lease Metrics (as of Feb 29, 2020) | Metric | Value | | :--- | :--- | | **Total Lease Expense (9 months)** | $46.9 million | | **Weighted Avg. Remaining Lease Term** | 7 years | | **Weighted Avg. Discount Rate** | 3.1% | [Note 5: Acquisitions](index=12&type=section&id=Note%205%20-%20Acquisitions) The company completed acquisitions of HAY and naughtone, resulting in consolidation and a non-taxable gain of approximately $30 million - Increased ownership in HAY to **67% for $79.0 million**, resulting in consolidation[44](index=44&type=chunk) - Acquired the remaining 47.5% of naughtone for **$45.9 million**, resulting in 100% ownership and consolidation[50](index=50&type=chunk) - Recognized a **non-taxable gain of approximately $30 million** on the remeasurement of the previously held equity method investment in naughtone[52](index=52&type=chunk) [Note 7: Goodwill and Indefinite-Lived Intangibles](index=15&type=section&id=Note%207%20-%20Goodwill%20and%20Indefinite-Lived%20Intangibles) Goodwill increased to $466.1 million due to acquisitions, with the Retail reporting unit's fair value exceeding carrying value by 13.0% - The fair value of the Retail reporting unit exceeded its carrying value by **$32.7 million (13.0%)** at the last annual impairment test, indicating some risk of future impairment if performance declines[59](index=59&type=chunk) Change in Goodwill (in millions) | Date | Goodwill Amount | | :--- | :--- | | **June 1, 2019** | $303.8 | | Acquisition of HAY | +$104.8 | | Acquisition of naughtone | +$57.5 | | **February 29, 2020** | $466.1 | [Note 16: Operating Segments](index=23&type=section&id=Note%2016%20-%20Operating%20Segments) North America Contract was the largest sales and earnings contributor, while the Retail segment reported an operating loss Segment Performance (Nine Months Ended Feb 29, 2020) | Segment (in millions) | Net Sales | Operating Earnings (Loss) | | :--- | :--- | :--- | | **North America Contract** | $1,322.5 | $176.4 | | **International Contract** | $388.1 | $37.3 | | **Retail** | $300.2 | ($6.4) | [Note 17: Restructuring Expense](index=24&type=section&id=Note%2017%20-%20Restructuring%20Expense) The company incurred restructuring expenses across all segments related to retirement plans, facilities consolidation, and leadership changes - Incurred **$3.0 million in restructuring costs** related to the Nemschoff operation in Wisconsin[110](index=110&type=chunk) - Recognized **$1.7 million in severance and employee-related restructuring expense** due to a reorganization of the Retail segment's leadership team[117](index=117&type=chunk) [Note 19: Subsequent Event](index=25&type=section&id=Note%2019%20-%20Subsequent%20Event) The COVID-19 pandemic led to facility closures, expected material adverse impacts, and proactive liquidity measures post-quarter - The COVID-19 pandemic, declared a subsequent event, has led to **temporary closures of manufacturing facilities and retail stores globally**[119](index=119&type=chunk)[120](index=120&type=chunk) - The company expects a **material adverse impact** on its financial results and has implemented cost reduction actions, including compensation reductions and suspension of 401(k) contributions[121](index=121&type=chunk)[122](index=122&type=chunk) - To safeguard its capital position, the company **borrowed $265 million** from its revolving credit line in March 2020 and postponed its quarterly cash dividend[123](index=123&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 7.5% Q3 sales increase driven by acquisitions, improved gross margin, and the significant impact of COVID-19 [COVID-19 Update](index=27&type=section&id=COVID-19%20Update) The pandemic reduced Q3 International sales by $6 million and prompted global cost-cutting and employee safety measures - The temporary closure of the manufacturing plant in Dongguan, China due to COVID-19 **reduced International sales by approximately $6 million** in the third quarter[129](index=129&type=chunk) - In response to the pandemic, the company implemented cost reductions including a **10% reduction in cash compensation** for the majority of its salaried workforce and suspended certain employer-paid retirement contributions[137](index=137&type=chunk) [Analysis of Results for Three and Nine Months](index=30&type=section&id=Analysis%20of%20Results%20for%20Three%20and%20Nine%20Months) Q3 net sales rose 7.5% due to acquisitions, with gross margin expanding 80 basis points from pricing and lower input costs - Q3 net sales **increased 7.5% year-over-year**, primarily driven by approximately **$50 million from the acquisitions** of HAY and naughtone[144](index=144&type=chunk)[145](index=145&type=chunk) - Q3 gross margin **improved by 80 basis points**, with a 90 basis point increase from price hikes and a 110 basis point increase from lower steel costs and efficiency efforts, partially offset by a 70 basis point decrease from acquisition impacts[144](index=144&type=chunk)[145](index=145&type=chunk) - A **pre-tax gain of $30.5 million** was recognized in the nine-month period related to the remeasurement to fair value of the initial equity-method investment in naughtone upon its full acquisition[151](index=151&type=chunk) [Reportable Operating Segment Results](index=34&type=section&id=Reportable%20Operating%20Segment%20Results) North America Contract sales grew organically, while International Contract sales declined organically and Retail margins compressed Q3 Segment Performance vs. Prior Year | Segment | Net Sales Change | Organic Sales Change | Operating Margin | | :--- | :--- | :--- | :--- | | **North America Contract** | +4.1% | +2.5% | 12.4% (+230 bps) | | **International Contract** | +23.9% | -10.4% | 7.2% (-570 bps) | | **Retail** | +0.2% | +0.2% | -1.7% (-410 bps) | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Cash from operations increased significantly, and the company enhanced liquidity by drawing on its credit facility post-quarter - Cash from operations **increased by $61.2 million** for the nine-month period, driven by higher net earnings and favorable changes in working capital[170](index=170&type=chunk) - Total liquidity stood at **$385.0 million** at quarter-end, and subsequently, the company drew down an additional **$265 million** from its credit facility as a precautionary measure[175](index=175&type=chunk)[178](index=178&type=chunk) - The Board of Directors approved **postponing the payment of the current quarter's dividend** and temporarily suspending future dividends to safeguard the company's capital position[173](index=173&type=chunk) [Item 3: Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure remains foreign currency exchange risk from its global manufacturing and sales operations - The company's primary market risk is **foreign currency exchange risk** due to its global operations, with principal exposures including the British pound sterling, euro, Canadian dollar, and Chinese renminbi[189](index=189&type=chunk)[190](index=190&type=chunk) [Item 4: Controls and Procedures](index=41&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of the end of the reporting period[191](index=191&type=chunk) [Part II — Other Information](index=42&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Item 1A: Risk Factors](index=42&type=section&id=Item%201A%20Risk%20Factors) A new risk factor was added to address the potential adverse impacts of disease outbreaks like the COVID-19 pandemic - A new risk factor was added to address the **adverse impact of disease outbreaks**, specifically citing the COVID-19 pandemic, on global manufacturing, supply chains, and business operations[196](index=196&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 440,954 shares of its common stock during the third quarter under its share repurchase program Issuer Purchases of Equity Securities (Q3 FY2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 12/1/19 - 12/28/19 | 13,572 | $42.69 | | 12/29/19 - 1/25/20 | 148,671 | $41.20 | | 1/26/20 - 2/29/20 | 278,711 | $40.44 | | **Total** | **440,954** | **N/A** |

| --- | --- | |----------------------------------------------------------------------------------------------|-------| | | | | | | | NASDAQ: MLHR | | | | | | Inspiring Designs to Help People Do Great Things Investor Presentation Third Quarter FY2020 | | FORWARD LOOKING STATEMENTS 2 This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, ...