Financial Data and Key Metrics Changes - Consolidated net sales were just under $1.03 billion, up 64% on a reported basis and 11% organically compared to last year [24] - Orders for the quarter reached $1.16 billion, an increase of 84% year-over-year, with organic orders at $796 million, reflecting a sequential improvement of 6% and a 26% increase over the prior year [25] - Adjusted gross margin was 34.8%, down from 39% the previous year, primarily due to rising commodity costs and inflationary pressures [27][28] - Adjusted operating margin for the consolidated business was 5.9%, compared to 11.7% in the prior year [31] - The company reported a consolidated net loss per share of $0.05, while adjusted earnings per share were $0.51, excluding special charges related to the integration of Knoll [32] Business Line Data and Key Metrics Changes - Global Retail orders were up almost 21% year-over-year, with sales growth of approximately 18% [25] - The Americas Contract segment saw net sales increase by 4% and new orders improve by 29% year-over-year [26] - The Knoll segment reported year-on-year sales and orders increasing by 5% and 30%, respectively [26] - The International Contract segment experienced orders up 30% and sales up 23% over the same quarter last year, with European orders specifically up 42% [27] Market Data and Key Metrics Changes - Demand in Europe, including the UK, was particularly strong, contributing to the overall growth in the International Contract segment [27] - The company faced challenges such as inflationary pressures, supply chain disruptions, and labor shortages, which impacted its ability to ship orders [11][24] Company Strategy and Development Direction - The integration of Herman Miller and Knoll has created a stronger organization focused on long-term success, with a priority on building the MillerKnoll dealer network [9][16] - The company aims to achieve cost synergies of $100 million within two years of closing the Knoll acquisition, with expectations to increase run rate savings to $120 million by the end of year three [13][14] - The focus is on leveraging the combined portfolio and distribution network to enhance product offerings and customer choice [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic pressures and deliver on cost synergies despite challenges [23] - The company anticipates continued strong demand across all segments, with expectations for order pacing to remain robust [45] - Management highlighted the need to reimagine workplaces to meet the evolving expectations of the post-pandemic workforce [18][19] Other Important Information - The company has launched new e-commerce sites in France and Germany, exceeding early sales expectations [11] - The backlog at the end of the quarter was $967 million, reflecting a $130 million increase from the beginning of the quarter [76] Q&A Session Summary Question: How much of the organic orders increase is pricing-driven versus volume? - Management indicated that order trends were consistent across the quarter, with no significant pull-ahead impact from price increases [35][36] Question: What is the expected impact of price increases on future results? - Management expects that the retail business will benefit from price actions sooner than the contract business, with a gradual improvement in gross margins anticipated [39][42] Question: How is the company managing the backlog situation? - Management noted that while orders continue to outpace shipments, they are focused on improving throughput and managing discounting methodologies to balance demand and production capacity [66][69] Question: Can you elaborate on the international business profitability? - Management highlighted that the international business has been performing well, with less severe inflationary pressures compared to North America, contributing to better profitability [62][63] Question: What are the drivers of retail growth? - The retail segment's growth is primarily driven by assortment expansion and improvements in e-commerce and brick-and-mortar channels [88][90]

[Part I — Financial Information](index=4&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) This section provides unaudited condensed consolidated financial statements, detailed notes, management's discussion and analysis, market risk disclosures, and internal controls information [Item 1 Financial Statements (Unaudited)](index=4&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including statements of comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%94%20Three%20Months%20ended%20August%2028%2C%202021%20and%20August%2029%2C%202020) This statement presents the company's net sales, gross margin, operating results, and earnings per share for the three months ended August 28, 2021, and August 29, 2020 | (Dollars in millions, except share data) | August 28, 2021 | August 29, 2020 | | :-------------------------------------- | :-------------- | :-------------- | | Net sales | $789.7 | $626.8 | | Cost of sales | 512.2 | 376.8 | | Gross margin | 277.5 | 250.0 | | Operating (loss) earnings | (52.8) | 95.4 | | Net (loss) earnings | (59.9) | 73.4 | | Net (loss) earnings attributable to Herman Miller, Inc. | $(61.5) | $73.0 | | (Loss) Earnings per share — diluted | $(0.93) | $1.24 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%94%20August%2028%2C%202021%20and%20May%2029%2C%202021) This balance sheet details the company's assets, liabilities, and stockholders' equity as of August 28, 2021, and May 29, 2021, reflecting significant changes from the Knoll acquisition | (Dollars in millions, except share data) | August 28, 2021 | May 29, 2021 | | :--------------------------------------- | :-------------- | :----------- | | Total Assets | $4,460.5 | $2,061.9 | | Goodwill | 1,283.9 | 364.2 | | Indefinite-lived intangibles | 493.0 | 97.6 | | Total Liabilities | 2,912.3 | 1,135.3 | | Long-term debt | 1,298.4 | 274.9 | | Total Stockholders' Equity | 1,475.6 | 849.6 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%94%20Three%20Months%20Ended%20August%2028%2C%202021%20and%20August%2029%2C%202020) This statement outlines the net cash flows from operating, investing, and financing activities for the three months ended August 28, 2021, and August 29, 2020 | (Dollars in millions) | August 28, 2021 | August 29, 2020 | | :-------------------- | :-------------- | :-------------- | | Net Cash (Used in) Provided by Operating Activities | $(51.7) | $115.9 | | Net Cash Used in Investing Activities | $(1,104.7) | $(5.1) | | Acquisitions, net of cash received | (1,088.5) | — | | Net Cash Provided by (Used in) Financing Activities | 1,001.6 | (276.5) | | Net Decrease in Cash and Cash Equivalents | (161.3) | (157.4) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%E2%80%94%20Three%20Months%20Ended%20August%2028%2C%202021%20and%20August%2029%2C%202020) This statement presents the changes in total stockholders' equity, including net earnings (loss) and shares issued for the Knoll acquisition, for the periods presented | (Dollars in millions, except share data) | May 29, 2021 | August 28, 2021 | | :--------------------------------------- | :----------- | :-------------- | | Total Stockholders' Equity | $849.6 | $1,475.6 |\ | Net earnings (loss) | — | (61.5) |\ | Shares issued for the acquisition of Knoll | — | 688.3 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes on the company's business, accounting policies, revenue, leases, acquisitions, inventories, goodwill, employee benefits, earnings per share, stock compensation, income taxes, fair value measurements, commitments, debt, comprehensive loss, operating segments, restructuring, and variable interest entities [Note 1 - Description of Business and Basis of Presentation](index=8&type=section&id=Note%201%20-%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Herman Miller, Inc. (to be renamed MillerKnoll, Inc.) designs, manufactures, and distributes interior furnishings globally, with the acquisition of Knoll, Inc. completed on July 19, 2021, and a segment reorganization effective May 30, 2021 - Acquisition of Knoll, Inc. completed on **July 19, 2021**[14](index=14&type=chunk) - Proposed name change to **MillerKnoll, Inc.** (subject to shareholder approval)[14](index=14&type=chunk) - New reportable segments: **Americas Contract, International Contract, Global Retail, and Knoll**, effective **May 30, 2021**[18](index=18&type=chunk)[22](index=22&type=chunk) [Note 2 - Recently Issued Accounting Standards](index=9&type=section&id=Note%202%20-%20Recently%20Issued%20Accounting%20Standards) The company adopted ASU No. 2018-14 and ASU 2019-12 on May 30, 2021, with no material effect on the consolidated financial statements - Adopted **ASU No. 2018-14** (Retirement Benefits) and **ASU 2019-12** (Income Taxes) on **May 30, 2021**[19](index=19&type=chunk)[20](index=20&type=chunk) - No **material impact** on financial statements from adopted ASUs[19](index=19&type=chunk)[20](index=20&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 for the three months ended August 28, 2021, increased to $789.7 million, primarily driven by the Knoll acquisition and growth in Global Retail and International Contract segments | (In millions) | August 28, 2021 | August 29, 2020 | | :------------ | :-------------- | :-------------- | | Net Sales | $789.7 | $626.8 | Revenue by Contract Type (Three Months Ended August 28, 2021) | Contract Type | Amount (in millions) | | :------------------------------ | :------------------- | | Product revenue (single performance obligation) | $736.3 | | Product revenue (multiple performance obligations) | $49.6 | | Service revenue | $1.9 | | Other | $1.9 | | Total | $789.7 | Revenue by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $325.3 | | International Contract | $99.0 | | Retail | $212.6 | | Knoll | $156.4 | [Note 4 - Leases](index=11&type=section&id=Note%204%20-%20Leases) Total lease costs increased to $22.0 million for the three months ended August 28, 2021, with total undiscounted future minimum lease payments of $516.2 million for operating leases | (In millions) | August 28, 2021 | August 29, 2020 | | :------------ | :-------------- | :-------------- | | Total Lease Costs | $22.0 | $13.4 | Undiscounted Annual Future Minimum Lease Payments (as of August 28, 2021) | Fiscal Year | Amount (in millions) | | :---------- | :------------------- | | 2022 | $88.5 | | 2023 | $83.5 | | 2024 | $74.3 | | 2025 | $65.8 | | 2026 | $50.3 | | Thereafter | $153.8 | | Total | $516.2 | - Weighted average remaining lease term for operating leases: **7 years** (as of August 28, 2021)[30](index=30&type=chunk) - Weighted average discount rate for operating leases: **2.4%** (as of August 28, 2021)[30](index=30&type=chunk) [Note 5 - Acquisitions](index=11&type=section&id=Note%205%20-%20Acquisitions) Herman Miller acquired Knoll, Inc. on July 19, 2021, for $1,887.3 million, resulting in significant goodwill and intangible assets, with Knoll contributing $156.4 million in revenue and a net loss of $45.9 million - Acquisition of Knoll, Inc. completed on **July 19, 2021**[33](index=33&type=chunk) Preliminary Acquisition Date Fair Value of Consideration Transferred for Knoll | Consideration Type | Amount (in millions) | | :----------------- | :------------------- | | Cash Consideration | $800.7 | | Share Consideration | $688.3 | | Replacement Share-Based Awards | $22.4 | | Consideration for payment to settle Knoll's outstanding debt | $376.9 | | Total | $1,887.3 | Preliminary Fair Value of Assets Acquired and Liabilities Assumed (as of acquisition date) | Item | Fair Value (in millions) | | :-------------------- | :----------------------- | | Total assets acquired | $2,646.4 | | Total liabilities assumed | $759.2 | | Net Assets Acquired | $1,887.2 | | Goodwill | $925.9 | | Intangible assets | $770.4 | - Knoll contributed **$156.4 million** of Revenue and **$45.9 million** of Net Loss to the consolidated statements for the period from acquisition date to August 28, 2021[39](index=39&type=chunk) Pro Forma Results of Operations (Three Months Ended) | (In millions) | August 28, 2021 | August 29, 2020 | | :------------ | :-------------- | :-------------- | | Net sales | $943.9 | $891.8 | | Net earnings attributable to Herman Miller, Inc. | $(30.2) | $30.9 | [Note 6 - Inventories, net](index=14&type=section&id=Note%206%20-%20Inventories%2C%20net) Total inventories significantly increased to $446.2 million as of August 28, 2021, primarily in finished goods, work in process, and raw materials, reflecting the Knoll acquisition | (In millions) | August 28, 2021 | May 29, 2021 | | :------------------------ | :-------------- | :----------- | | Finished goods and work in process | $329.1 | $166.7 | | Raw materials | 117.1 | 46.9 | | Total | $446.2 | $213.6 | [Note 7 - Goodwill and Indefinite-Lived Intangibles](index=14&type=section&id=Note%207%20-%20Goodwill%20and%20Indefinite-Lived%20Intangibles) Goodwill and indefinite-lived intangible assets substantially increased due to the Knoll acquisition, with no impairment identified for reorganized reporting units | (In millions) | Goodwill | Indefinite-lived Intangible Assets | | :-------------------------------- | :------- | :--------------------------------- | | May 29, 2021 | $364.2 | $97.6 | | Acquisition of Knoll | 925.9 | 396.9 | | August 28, 2021 | $1,283.9 | $493.0 | - No identified indicators of impairment for reporting units or indefinitely-lived intangible assets during the three months ended August 28, 2021[49](index=49&type=chunk) [Note 8 - Employee Benefit Plans](index=16&type=section&id=Note%208%20-%20Employee%20Benefit%20Plans) The net periodic benefit cost for defined benefit pension plans varied between domestic and international plans, with a weighted-average expected long-term rate of return on plan assets of 4.98% Net Periodic Benefit Cost (Three Months Ended August 28, 2021) | (In millions) | Domestic Pension Benefits | International Pension Benefits | | :------------ | :------------------------ | :----------------------------- | | Service cost | $0.1 | $— | | Interest cost | $0.5 | $0.8 | | Expected return on plan assets | $(1.0) | $(1.8) | | Net amortization loss | $— | $1.7 | | Net periodic benefit cost | $(0.4) | $0.7 | - Weighted-average expected long-term rate of return on plan assets is **4.98%**[50](index=50&type=chunk) [Note 9 - Earnings Per Share](index=16&type=section&id=Note%209%20-%20Earnings%20Per%20Share) Diluted loss per share for the three months ended August 28, 2021, was $(0.93), a significant decrease from $1.24 in the prior year, based on an increased number of weighted-average common shares outstanding | | August 28, 2021 | August 29, 2020 | | :-------------------------------------------------------------------------------- | :-------------- | :-------------- | | (Loss) Earnings per Share - Diluted | $(0.93) | $1.24 | | Denominator for basic EPS, weighted-average common shares outstanding | 66,302,214 | 58,831,305 | | Denominator for diluted EPS | 66,302,214 | 58,964,268 | [Note 10 - Stock-Based Compensation](index=17&type=section&id=Note%2010%20-%20Stock-Based%20Compensation) Stock-based compensation expense increased significantly to $15.1 million, primarily due to the Knoll acquisition and accelerated expenses from workforce reductions | (In millions) | August 28, 2021 | August 29, 2020 | | :---------------------------- | :-------------- | :-------------- | | Stock-based compensation expense | $15.1 | $1.5 | - Increase in stock-based compensation expense driven by the addition of Knoll's equity-based compensation awards and accelerated expense related to workforce reductions as part of the Knoll integration[53](index=53&type=chunk) [Note 11 - Income Taxes](index=17&type=section&id=Note%2011%20-%20Income%20Taxes) The effective tax rate decreased to 15.3% for the three months ended August 28, 2021, primarily due to a pre-tax book loss and non-deductible acquisition costs related to Knoll | | August 28, 2021 | August 29, 2020 | | :-------------------- | :-------------- | :-------------- | | Effective Tax Rate | 15.3% | 22.0% | - The decrease in the effective tax rate for the three months ended August 28, 2021, resulted from a pre-tax book loss for the quarter coupled with non-deductible discrete compensation and acquisition costs in connection with the Knoll acquisition[55](index=55&type=chunk) [Note 12 - Fair Value Measurements](index=18&type=section&id=Note%2012%20-%20Fair%20Value%20Measurements) The fair value of long-term debt increased to $1,317.2 million due to new debt for the Knoll acquisition, and the company holds various financial instruments measured at fair value Carrying Value and Fair Value of Long-Term Debt (in millions) | | August 28, 2021 | May 29, 2021 | | :------------ | :-------------- | :----------- | | Carrying value | $1,342.9 | $277.1 | | Fair value | $1,317.2 | $284.8 | - Contingent consideration obligation related to Knoll's acquisition of Fully: **$13.5 million** (as of August 28, 2021), classified as a **Level 3 measurement**[65](index=65&type=chunk) - Fair value of interest rate swap agreements (liability): **$15.7 million** (as of August 28, 2021). These are designated as **cash flow hedges**[77](index=77&type=chunk)[75](index=75&type=chunk) - Foreign currency forward contracts are not designated as hedging instruments; changes in fair value are recorded within 'Other (income) expense, net' in the Consolidated Statements of Comprehensive Income[73](index=73&type=chunk) [Note 13 - Commitments and Contingencies](index=22&type=section&id=Note%2013%20-%20Commitments%20and%20Contingencies) The warranty reserve increased to $69.8 million, partly due to the Knoll acquisition, and the company maintains performance bonds and standby letters of credit with no material legal proceedings Changes in Warranty Reserve (in millions) | | August 28, 2021 | August 29, 2020 | | :------------------------------ | :-------------- | :-------------- | | Accrual Balance — beginning | $60.1 | $59.2 | | Accrual for warranty matters | 5.4 | 4.6 | | Settlements and adjustments | (5.8) | (3.5) | | Acquired through business acquisition | 10.1 | — | | Accrual Balance — ending | $69.8 | $60.3 | - Maximum financial exposure related to performance bonds: approximately **$7.3 million** (as of August 28, 2021)[82](index=82&type=chunk) - Maximum financial exposure from standby letters of credit: approximately **$15.4 million** (as of August 28, 2021)[83](index=83&type=chunk) [Note 14 - Short-Term Borrowings and Long-Term Debt](index=24&type=section&id=Note%2014%20-%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) Total debt significantly increased to $1,342.9 million due to new credit agreements for the Knoll acquisition, including a $725 million revolving line of credit, a $400 million Term Loan A, and a $625 million Term Loan B Short-term borrowings and long-term debt (in millions) | | August 28, 2021 | May 29, 2021 | | :-------------------------------------- | :-------------- | :----------- | | Total debt | $1,342.9 | $277.1 | | Long-term debt | $1,298.4 | $274.9 | - In July 2021, the Company entered into a new credit agreement to finance the Knoll acquisition, providing for a **$725 million** syndicated revolving line of credit, a **$400 million** Term Loan A, and a **$625 million** Term Loan B[87](index=87&type=chunk) - A loss on extinguishment of debt of approximately **$13.4 million** was recognized from the repayment of private placement notes[87](index=87&type=chunk) Available borrowings under the syndicated revolving line of credit (in millions) | | August 28, 2021 | May 29, 2021 | | :-------------------------------------- | :-------------- | :----------- | | Syndicated revolving line of credit borrowing capacity | $725.0 | $500.0 | | Available borrowings under the syndicated revolving line of credit | $394.6 | $265.2 | [Note 15 - Accumulated Other Comprehensive Loss](index=26&type=section&id=Note%2015%20-%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased to $(80.3) million, primarily driven by cumulative translation adjustments and unrealized losses on interest rate swap agreements Accumulated Other Comprehensive Loss (in millions) | | May 29, 2021 | August 28, 2021 | | :-------------------------------------- | :----------- | :-------------- | | Balance | $(65.1) | $(80.3) | | Net current period other comprehensive (loss) income | — | (15.2) | [Note 16 - Operating Segments](index=26&type=section&id=Note%2016%20-%20Operating%20Segments) Effective May 30, 2021, the company reorganized its reportable segments into Americas Contract, International Contract, Global Retail, and Knoll, with the Knoll segment contributing $156.4 million in net sales but an operating loss of $53.6 million - New reportable segments: **Americas Contract, International Contract, Global Retail, and Knoll**, effective **May 30, 2021**[92](index=92&type=chunk)[93](index=93&type=chunk) Net Sales by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $325.3 | | International Contract | $99.0 | | Global Retail | $212.6 | | Knoll | $156.4 | | Total | $789.7 | Operating Earnings (Loss) by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $10.5 | | International Contract | $11.3 | | Global Retail | $27.8 | | Knoll | $(53.6) | | Corporate | $(48.8) | | Total | $(52.8) | [Note 17 - Restructuring Expense](index=27&type=section&id=Note%2017%20-%20Restructuring%20Expense) The company incurred $55.6 million in Knoll Integration costs for the three months ended August 28, 2021, with total integration costs expected not to exceed $100 million - Knoll Integration costs incurred for the three months ended August 28, 2021: **$55.6 million**[103](index=103&type=chunk) - Knoll Integration costs breakdown: **$30.5 million** for severance and employee benefit costs, **$13.4 million** for non-cash debt extinguishment, and **$11.7 million** for other integration costs[103](index=103&type=chunk) - Total Knoll Integration costs are expected not to exceed approximately **$100 million**[103](index=103&type=chunk) Summary of Integration Expenses by Segment (Three Months Ended August 28, 2021) | Segment | Amount (in millions) | | :--------------------- | :------------------- | | Americas Contract | $1.0 | | Knoll | $29.4 | | Corporate | $25.2 | | Total | $55.6 | [Note 18 - Variable Interest Entities](index=31&type=section&id=Note%2018%20-%20Variable%20Interest%20Entities) A long-term note receivable with a third-party dealer, previously a variable interest in a VIE, was paid in full during the quarter ended August 28, 2021 - A long-term note receivable of **$1.2 million** with a third-party dealer, previously a variable interest in a VIE, was paid in full during the quarter ended August 28, 2021[114](index=114&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's financial performance for the three months ended August 28, 2021, was significantly impacted by the acquisition of Knoll, leading to a 26.0% increase in net sales to $789.7 million but a 175.0% decrease in diluted EPS to $(0.93) [Business Overview](index=32&type=section&id=Business%20Overview) Herman Miller, Inc. (soon to be MillerKnoll) saw net sales increase by 26.0% to $789.7 million in Q1 fiscal 2022, driven by the Knoll acquisition, but gross margin declined and operating expenses more than doubled due to acquisition-related costs, resulting in a diluted loss per share of $(0.93) Key Financial Highlights (Three Months Ended) | Metric | August 28, 2021 | August 29, 2020 | % Change | | :----- | :-------------- | :-------------- | :------- | | Net sales | $789.7M | $626.8M | 26.0% | | Orders | $916.5M | $556.0M | 64.8% | | Gross margin | 35.1% | 39.9% | -4.8 ppts | | Operating expenses | $330.3M | $154.6M | 113.6% | | Diluted loss per share | $(0.93) | $1.24 | -175.0% | | Adjusted diluted earnings per share | $0.49 | $1.24 | -60.5% | - Organic net sales decreased by **0.4%** to **$629.6 million**, and organic orders decreased by **34.5%** to **$747.9 million**, excluding the impact of acquisitions and foreign currency translation[118](index=118&type=chunk) - Gross margin was negatively impacted by **$6.3 million** in charges related to Knoll acquisition purchase accounting, commodity cost pressures, and rising labor and freight expenses[118](index=118&type=chunk) - Operating expenses included **$69 million** of transaction and integration related costs and **$26.2 million** of charges related to initial purchase accounting effects of the Knoll merger[118](index=118&type=chunk) [COVID-19 Update](index=33&type=section&id=COVID-19%20Update) The company continues to adapt to the COVID-19 pandemic by maintaining employee safety, leveraging digital investments, and capitalizing on emerging work-from-home and office redesign trends - The company's multi-channel go-to-market approach and digital investments (e.g., reimagined websites, Work from Home landing page, Herman Miller Professional) enabled it to pivot quickly and capitalize on new opportunities arising from changing customer purchasing behaviors[120](index=120&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - Capitalizing on emerging work-from-home and 'home is my castle' trends, as well as the shift to offices as destinations requiring redesigns and provision of healthy home work environments[120](index=120&type=chunk)[126](index=126&type=chunk) - Manufacturing facilities operate at near-normal capacity with enhanced safety precautions, and all retail studios and stores are open at full capacity[127](index=127&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=34&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP financial measures, such as Adjusted Earnings per Share and Organic Sales Growth, to provide a clearer view of ongoing operational performance by excluding specific acquisition, integration, and restructuring charges - Non-GAAP financial measures include **Adjusted Earnings per Share** and **Organic Sales Growth (Decline)**[129](index=129&type=chunk) - Adjustments to GAAP measures exclude: acquisition and integration charges, amortization of purchased intangibles, debt restructuring charges, restructuring expenses, special charges, and related tax effects[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) Organic Net Sales (Three Months Ended August 28, 2021) | Segment | Net Sales, as reported | Adjustments (Acquisitions & Currency) | Net Sales, organic | | :--------------------- | :--------------------- | :------------------------------------ | :----------------- | | Americas Contract | $325.3M | $(0.8)M | $324.5M | | International Contract | $99.0M | $(4.7)M | $94.3M | | Retail | $212.6M | $(1.8)M | $210.8M | | Knoll | $156.4M | $(156.4)M | $— | | Intersegment Elimination | $(3.6)M | $3.6M | $— | | Total | $789.7M | $(152.8)M - $7.3M | $629.6M | Adjusted Earnings per Share - Diluted (Three Months Ended) | | August 28, 2021 | August 29, 2020 | | :-------------------------------------------------------------------------------- | :-------------- | :-------------- | | (Loss) Earnings per Share - Diluted | $(0.93) | $1.24 | | Add: Amortization of purchased intangibles, after tax | 0.37 | — | | Add: Acquisition and integration charges, after tax | 0.90 | — | | Add: Debt extinguishment, after tax | 0.15 | — | | Adjusted Earnings per Share - Diluted | $0.49 | $1.24 | [Analysis of Results for Three Months](index=37&type=section&id=Analysis%20of%20Results%20for%20Three%20Months) For the three months ended August 28, 2021, net sales increased by 26.0% to $789.7 million, primarily due to the Knoll acquisition, while gross margin declined by 4.8 percentage points and operating expenses surged by 113.6% due to acquisition-related costs Key Financial Measures (Three Months Ended) | (In millions, except share data) | August 28, 2021 | August 29, 2020 | % Change | | :------------------------------- | :-------------- | :-------------- | :------- | | Net sales | $789.7 | $626.8 | 26.0 % | | Gross margin | 277.5 | 250.0 | 11.0 % | | Operating (loss) earnings | (52.8) | 95.4 | (155.3)% | | Net (loss) earnings attributable to Herman Miller, Inc. | $(61.5) | $73.0 | (184.2)% | | (Loss) Earnings per share — diluted | $(0.93) | $1.24 | (175.0)% | | Orders | $916.5 | $556.0 | 64.8 % | | Backlog | $835.9 | $400.0 | 109.0 % | - Net sales increase drivers: **$153 million** from Knoll acquisition, **$45 million** from Global Retail sales volumes, **$7 million** from foreign currency translation, offset by **$46 million** decrease in Americas Contract sales volumes[140](index=140&type=chunk) - Gross margin percentage decrease drivers: **360 basis points** from commodity, freight, and product distribution costs; **110 basis points** from increased labor costs; **100 basis points** from amortization of purchased intangibles related to Knoll acquisition. Partially offset by **100 basis points** from favorable channel mix[140](index=140&type=chunk) - Operating expenses increase drivers: **$27 million** transaction costs and **$42 million** integration costs from Knoll acquisition, **$49 million** Knoll operating expenses, **$10 million** increased compensation/benefit costs, **$8 million** increased studio costs, **$6 million** increased marketing/selling costs[141](index=141&type=chunk) - Other expenses, net: **$18.0 million** (Aug 28, 2021) compared to **$1.6 million** (Aug 29, 2020), primarily due to a **$13.4 million** loss on extinguishment of debt and increased interest expense related to Knoll acquisition financing[141](index=141&type=chunk) [Operating Segment Results](index=40&type=section&id=Operating%20Segment%20Results) The company's operating segments experienced varied performance, with Americas Contract sales decreasing, International Contract sales increasing but earnings declining, Global Retail sales surging but earnings decreasing, and the Knoll segment contributing sales but reporting a significant operating loss due to integration costs [Americas Contract ("Americas")](index=41&type=section&id=Americas%20Contract%20(%22Americas%22)) Net sales for Americas Contract decreased by 12.1% to $325.3 million, and operating earnings declined by 81.9% to $10.5 million, primarily due to reduced sales volumes and higher costs Americas Contract Segment Results (Three Months Ended) | (Dollars in millions) | August 28, 2021 | August 29, 2020 | Change | | :-------------------- | :-------------- | :-------------- | :----- | | Net sales | $325.3 | $370.1 | $(44.8) | | Gross margin % | 30.8 % | 37.6 % | (6.8)% | | Operating earnings | 10.5 | 57.9 | (47.4) | | Operating earnings % | 3.2 % | 15.6 % | (12.4)%| - Net sales decreased **12.1%** (**12.3% organic**) due to decreased sales volumes of approximately **$45.3 million**, primarily from COVID-19 impacts, partially offset by **$1 million** from foreign currency translation[147](index=147&type=chunk) - Operating earnings decreased **$47.4 million** due to a **$38.9 million** decrease in gross margin (**680 basis points** drop from higher commodity, labor, freight costs) and an **$8.5 million** increase in operating expenses (compensation, marketing, product development)[147](index=147&type=chunk) [International Contract ("International")](index=42&type=section&id=International%20Contract%20(%22International%22)) International Contract net sales increased by 5.3% to $99.0 million, driven by sales volume growth and foreign currency translation, but operating earnings decreased by 30.2% due to higher operating expenses International Contract Segment Results (Three Months Ended) | (Dollars in millions) | August 28, 2021 | August 29, 2020 | Change | | :-------------------- | :-------------- | :-------------- | :----- | | Net sales | $99.0 | $94.0 | $5.0 | | Gross margin % | 34.0 % | 35.4 % | (1.4)% | | Operating earnings | 11.3 | 16.2 | (4.9) | | Operating earnings % | 11.4 % | 17.2 % | (5.8)% | - Net sales increased **5.3%** (**0.3% organic**) due to approximately **$4 million** in increased sales volume (Europe) and **$5 million** from foreign currency translation, partially offset by **$4 million** reduction from price increases net of discounting[149](index=149&type=chunk) - Operating earnings decreased **$4.9 million** due to increased operating expenses of **$5.3 million**, driven by compensation, benefits, product development, and IT projects[149](index=149&type=chunk) [Global Retail](index=43&type=section&id=Global%20Retail) Global Retail net sales significantly increased by 30.7% to $212.6 million, driven by broad-based demand, but operating earnings decreased by 11.7% due to a decline in gross margin and increased operating expenses Global Retail Segment Results (Three Months Ended) | (Dollars in millions) | August 28, 2021 | August 29, 2020 | Change | | :-------------------- | :-------------- | :-------------- | :----- | | Net sales | $212.6 | $162.7 | $49.9 | | Gross margin % | 43.6 % | 47.8 % | (4.2)% | | Operating earnings | 27.8 | 31.5 | (3.7) | | Operating earnings % | 13.1 % | 19.4 % | (6.3)% | - Net sales increased **30.7%** (**29.6% organic**) due to approximately **$45 million** in increased sales volumes across brands, geographies, and channels, and **$3 million** from incremental list price increases[151](index=151&type=chunk) - Operating earnings decreased **$3.7 million** due to a **420 basis point** decrease in gross margin percentage (production/material costs, freight, unfavorable product mix) and an **$18.7 million** increase in operating expenses (new studio costs, compensation, IT investments)[151](index=151&type=chunk) [Knoll](index=44&type=section&id=Knoll) The newly acquired Knoll segment contributed $156.4 million in net sales but reported an operating loss of $53.6 million, primarily due to integration-related costs and amortization expense of intangible assets Knoll Segment Results (Three Months Ended August 28, 2021) | (Dollars in millions) | Amount | | :-------------------- | :----- | | Net sales | $156.4 | | Gross margin | $51.0 | | Gross margin % | 32.6 % | | Operating (loss) | $(53.6)| | Operating earnings % | (34.3)%| - Knoll's operating loss of **$53.6 million** includes **$29.4 million** related to integration costs (severance and employee separations) and **$32.5 million** related to amortization expense of acquisition-related intangible assets[156](index=156&type=chunk) [Corporate](index=44&type=section&id=Corporate) Corporate unallocated expenses totaled $48.8 million for the first quarter of fiscal 2022, a significant increase primarily driven by $38.5 million in transaction and integration costs related to the Knoll acquisition - Corporate unallocated expenses totaled **$48.8 million** for Q1 fiscal 2022, an increase of **$38.6 million** from Q1 fiscal 2021[153](index=153&type=chunk) - The increase was driven by **$38.5 million** of transaction and integration costs recorded in the quarter related to the Knoll acquisition[153](index=153&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Cash used in operating activities was $51.7 million, investing activities used $1,104.7 million primarily for the Knoll acquisition, and financing activities provided $1,001.6 million through new debt issuance, with total liquidity at $637.7 million Net Change in Cash and Cash Equivalents (Three Months Ended) | (In millions) | August 28, 2021 | August 29, 2020 | | :---------------------------- | :-------------- | :-------------- | | Cash (used in) provided by: | | | | Operating activities | $(51.7) | $115.9 | | Investing activities | (1,104.7) | (5.1) | | Financing activities | 1,001.6 | (276.5) | | Effect of exchange rate changes | (6.5) | 8.3 | | Net change in cash and cash equivalents | $(161.3) | $(157.4) | - Cash used in operating activities was primarily due to a **$133.3 million** decrease in net earnings and a **$65.6 million** increase in current assets (accounts receivable, inventory, prepaid expenses)[156](index=156&type=chunk)[157](index=157&type=chunk) - Cash used in investing activities was primarily due to the **$1,088.5 million** cash outflow for the acquisition of Knoll[158](index=158&type=chunk) - Cash provided from financing activities was primarily due to **$1,007.0 million** net borrowings from a new credit agreement and a **$366.6 million** draw on the credit facility[160](index=160&type=chunk) Total Liquidity (in millions) | | August 28, 2021 | May 29, 2021 | | :-------------------------------------- | :-------------- | :----------- | | Cash and cash equivalents | $235.1 | $396.4 | | Marketable securities | 8.0 | 7.7 | | Availability under syndicated revolving line of credit | 394.6 | 265.2 | | Total liquidity | $637.7 | $669.3 | - Expected full-year capital purchases for fiscal 2022 are between **$150 million** and **$160 million**, significantly higher than **$59.8 million** in fiscal 2021, primarily for facilities, equipment, and Knoll's inclusion[159](index=159&type=chunk) Contractual Obligations (as of August 28, 2021, in millions) | Obligation | Total | 2022 | 2023-2024 | 2025-2026 | Thereafter | | :---------------------------------------- | :-------- | :------ | :-------- | :-------- | :--------- | | Short-term borrowings and long-term debt | $1,265.0 | $103.1 | $57.5 | $87.5 | $1,016.9 | | Estimated interest on debt obligations | 169.7 | 29.2 | 55.4 | 52.8 | 32.3 | | Operating leases | 516.2 | 88.5 | 157.8 | 116.1 | 153.8 | | Pension and other post employment benefit plans funding | 27.0 | 1.9 | 5.1 | 5.4 | 14.6 | | Shareholder dividends | 14.9 | 14.9 | — | — | — | | Other liabilities | 30.0 | 5.1 | 16.6 | 3.9 | 4.4 | | Total | $2,022.8 | $242.7 | $292.4 | $265.7 | $1,222.0 | [Critical Accounting Policies](index=47&type=section&id=Critical%20Accounting%20Policies) The company's financial statements are prepared using U.S. GAAP, which necessitates certain estimates and judgments - Financial statements are prepared in accordance with **U.S. GAAP**, requiring certain estimates and judgments[175](index=175&type=chunk) [New Accounting Standards](index=47&type=section&id=New%20Accounting%20Standards) Information regarding recently issued accounting standards is provided in Note 2 to the Condensed Consolidated Financial Statements - Refer to **Note 2** to the Condensed Consolidated Financial Statements for information on recently issued accounting standards[176](index=176&type=chunk) [Safe Harbor Provisions](index=47&type=section&id=Safe%20Harbor%20Provisions) This report contains forward-looking statements that are subject to various risks and uncertainties, including economic conditions, competitive pressures, and the ability to integrate acquisitions, with actual results potentially differing materially from forecasts - The report contains forward-looking statements that are subject to risks, uncertainties, and assumptions[177](index=177&type=chunk) - Risks include: success of growth strategy, economic conditions, raw material availability, global expansion, changes in tax legislation, ability to integrate acquisitions, competitive-pricing pressures, and public health crises[177](index=177&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=48&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes in market risks related to interest rates and commodity prices, but the company faces foreign exchange risk from international operations and uses foreign currency forward contracts to mitigate these risks - No material changes in market risks from interest rates and commodity prices during the first three months of fiscal 2022[179](index=179&type=chunk) - The company is exposed to foreign exchange risk from sales and expenses transacted in foreign currencies (e.g., British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, Danish krone)[180](index=180&type=chunk)[181](index=181&type=chunk) - Foreign currency forward contracts are utilized to reduce foreign currency exposure risks, with changes in fair value reported in earnings[181](index=181&type=chunk) [Item 4 Controls and Procedures](index=48&type=section&id=Item%204%20Controls%20and%20Procedures) As of August 28, 2021, the company's disclosure controls and procedures were deemed effective, with Knoll's internal controls currently being integrated following its acquisition - Disclosure controls and procedures were evaluated and deemed **effective** as of **August 28, 2021**[182](index=182&type=chunk) - The company is integrating Knoll's internal controls over financial reporting following the **July 19, 2021** acquisition[183](index=183&type=chunk) - No other material changes in internal control over financial reporting occurred during the quarter ended **August 28, 2021**[183](index=183&type=chunk) [Part II — Other Information](index=49&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) This section includes disclosures on legal proceedings, updated risk factors, unregistered equity sales, a list of exhibits, and official signatures [Item 1 Legal Proceedings](index=49&type=section&id=Item%201%20Legal%20Proceedings) There have been no material changes in the company's legal proceedings from those reported in the Annual Report on Form 10-K for the year ended May 29, 2021 - No material changes in the company's legal proceedings from those set forth in the Annual Report on Form 10-K for the year ended **May 29, 2021**[185](index=185&type=chunk) [Item 1A Risk Factors](index=49&type=section&id=Item%201A%20Risk%20Factors) A new risk factor highlights that a continued shortage of qualified labor could negatively affect the business, potentially leading to decreased production, inability to meet demand, and higher labor costs - A new risk factor identifies that a continued shortage of qualified labor could negatively affect the business and materially reduce earnings[187](index=187&type=chunk) - This shortage impacts the company's ability to produce and meet customer demand, and could lead to higher wages and reduced operating results[187](index=187&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has one outstanding share repurchase plan authorized for $250.0 million, under which 259,663 shares were repurchased during the quarter ended August 28, 2021 - The company has one outstanding share repurchase plan with a **$250.0 million** authorization and no specified expiration date[188](index=188&type=chunk) Share Repurchase Activity (Three Months Ended August 28, 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------- | :------------------------------- | :--------------------------- | | 6/27/21-7/24/21 | 26,564 | $37.12 | | 7/25/21-8/28/21 | 233,099 | $43.09 | | Total | 259,663 | ~$40.11 | - As of **August 28, 2021**, approximately **$225.68 million** remained available for repurchase under the plan[189](index=189&type=chunk) [Item 6 Exhibits](index=51&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the 10-Q report, including credit agreements, stock incentive plans, CEO/CFO certifications, and XBRL taxonomy documents - Exhibits filed include Credit Agreements, Knoll, Inc. Stock Incentive Plans, Certificates of the Chief Executive Officer and Chief Financial Officer (pursuant to Sarbanes-Oxley Act), and XBRL Taxonomy documents[193](index=193&type=chunk)[194](index=194&type=chunk) [Signatures](index=53&type=section&id=Signatures) The report is duly signed on October 6, 2021, by Andrea R. Owen, President and Chief Executive Officer, and Jeffrey M. Stutz, Chief Financial Officer, on behalf of Herman Miller, Inc - The report was signed on **October 6, 2021**, by Andrea R. Owen (President and Chief Executive Officer) and Jeffrey M. Stutz (Chief Financial Officer) for Herman Miller, Inc[198](index=198&type=chunk)

Herman Miller, Inc. (MLHR) Q1 2022 Earnings Conference Call September 29, 2021 5:30 PM ET Company Participants Antonella Pilo - Vice President of Investor Relations and FP&A Andrea Owen - President and Chief Executive Officer Jeffrey Stutz - Chief Financial Officer John Michael - President of North America Contract Debbie Propst - President of Retail Kevin Veltman - Vice President of Investor Relations and Treasurer Chris Baldwin - Group President MillerKnoll Conference Call Participants Greg Burns - Sidoti ...

Washington, D.C. 20549 __________________________________________ FORM 10-K (Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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 __________________________________________ HERMAN MILLER, INC. (Exact name of registrant ...

| --- | --- | |---------------------|-------| | | | | NASDAQ: MLHR | | | | | | | | | Design for the Good | | | of Humankind | | FORWARD LOOKING STATEMENTS This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the company ...

Financial Data and Key Metrics Changes - Consolidated sales for Q4 2021 increased by 31% compared to the previous year, with orders up 29% year-over-year [9] - Diluted earnings per share (EPS) on a GAAP basis for the quarter were $0.12, while adjusted EPS was $0.56, reflecting an increase of over 400% from the same quarter last year [13] - Adjusted operating margins improved to 7%, a rise of 370 basis points compared to the same quarter last year [14] Business Line Data and Key Metrics Changes - The Retail segment achieved record-breaking performance with sales up 106% year-over-year and orders up 81%, with a segment operating margin of 19.2% [10] - The North American contract segment saw order rates increase sequentially by 21% from Q3, remaining flat compared to the prior year [12] - The International Contract segment experienced a 55% increase in orders compared to the previous year [12] Market Data and Key Metrics Changes - Order trends showed a sequential growth of 23% across all business segments from Q3 to Q4, with North American Contract at 21% and Retail at 26% [50] - In the first three weeks of June, orders maintained at approximately $60 million per week, indicating continued momentum [51] Company Strategy and Development Direction - The company is focused on integrating the planned acquisition of Knoll, with expectations for a seamless integration process [19][20] - A digital-first approach is emphasized, aiming to serve both contract and consumer audiences effectively [17] - The company anticipates re-establishing quarterly sales and earnings guidance as the pandemic subsides, with projected sales for Q1 between $640 million and $670 million [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow and create value, citing a strong position in the industry [16] - The management acknowledged inflationary pressures impacting gross margins, with expectations for continued cost increases in Q1 [24][25] - There is optimism regarding the recovery of the North American market, particularly as larger metropolitan areas begin to open up [32] Other Important Information - The company is actively monitoring commodity trends and is prepared to implement additional price increases if necessary [28] - Supply chain challenges are being managed, with some impacts on product lead times and conversion rates noted [39][40] Q&A Session Summary Question: Can you walk us through your outlook for margins for the first quarter? - Management explained that the lower-than-normal effective tax rate in Q4 impacted EPS, and they expect sequential improvement in Q1 due to higher revenue guidance [23] Question: What are the drivers of gross margin? - Management highlighted inflationary pressures from commodity costs and direct labor, estimating $4 million and $1 million increases respectively [24][25] Question: How have order patterns trended in the North American Contract business? - Management noted significant strengthening in order patterns, with year-over-year comps up nearly 30% in Q1 [31] Question: Can you comment on recent order trends? - Management confirmed that order trends improved throughout the quarter, with a 23% sequential growth across all segments [50] Question: What is the impact of supply chain challenges on sales? - Management acknowledged some impacts from container shortages and labor availability but stated they are managing these challenges effectively [36] Question: How is the retail margin expected to evolve? - Management indicated that investments in infrastructure and digital capabilities are expected to support margin growth in the long term [62] Question: What are the spending patterns in retail? - Management reported an increase in average order value, particularly in studio channels, and noted strong customer acquisition from new stores [75][76]

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 February 27, 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 HERMAN MILLER, INC. (Exact name of registrant as specified in its charter) ...

Herman Miller, Inc. (MLHR) Q3 2021 Earnings Conference Call March 18, 2021 9:30 AM ET Company Participants Kevin Veltman - Vice President of Investor Relations and Treasurer Andrea Owen - President and Chief Executive Officer Jeffrey Stutz - Chief Financial Officer Debbie Propst - President of Retail John Michael - President of North America Contract Benjamin Groom - Chief Digital Officer Conference Call Participants Reuben Garner - The Benchmark Company, LLC Gregory Burns - Sidoti & Company, LLC Steven Ram ...

| --- | --- | |---------------------------------------------------------|-------| | | | | NASDAQ: MLHR | | | | | | | | | Design for the Good | | | | | | of Humankind Investor Presentation Third 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, e ...

PART I — FINANCIAL INFORMATION [Item 1 Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements and related notes covering various accounting and financial details [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Three Months Ended November 28, 2020 vs. November 30, 2019 (in millions) | Metric | Nov 28, 2020 | Nov 30, 2019 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Net sales | $626.3 | $674.2 | (7.1)% | | Gross margin | $244.2 | $255.5 | (4.4)% | | Operating earnings | $71.0 | $62.4 | 13.8% | | Net earnings attributable to Herman Miller, Inc. | $51.3 | $78.6 | (34.7)% | | Diluted EPS | $0.87 | $1.32 | (34.1)% | Six Months Ended November 28, 2020 vs. November 30, 2019 (in millions) | Metric | Nov 28, 2020 | Nov 30, 2019 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Net sales | $1,253.0 | $1,345.2 | (6.9)% | | Gross margin | $494.2 | $501.6 | (1.5)% | | Operating earnings | $166.4 | $122.6 | 35.7% | | Net earnings attributable to Herman Miller, Inc. | $124.2 | $126.8 | (2.1)% | | Diluted EPS | $2.10 | $2.14 | (1.9)% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of November 28, 2020 vs. May 30, 2020 (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :----------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $377.9 | $454.0 | | Total current assets | $837.9 | $917.1 | | Total Assets | $2,028.5 | $2,053.9 | | Total current liabilities | $507.5 | $470.2 | | Long-term debt | $274.9 | $539.9 | | Total Liabilities | $1,173.7 | $1,360.5 | | Total Stockholders' Equity | $798.3 | $643.0 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Six Months Ended November 28, 2020 vs. November 30, 2019 (in millions) | Cash Flow Activity | Nov 28, 2020 | Nov 30, 2019 | | :----------------------------------- | :----------- | :----------- | | Net Cash Provided by Operating Activities | $214.6 | $142.4 | | Net Cash Used in Investing Activities | $(24.4) | $(82.1) | | Net Cash Used in Financing Activities | $(276.9) | $(40.6) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(76.1) | $17.8 | | Cash and Cash Equivalents, End of Period | $377.9 | $177.0 | [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total Stockholders' Equity increased from **$643.0 million** at May 30, 2020, to **$798.3 million** at November 28, 2020, primarily driven by net earnings of **$73.0 million** and **$51.3 million** in the two subsequent quarters, and other comprehensive income[12](index=12&type=chunk) - For the six months ended November 28, 2020, the company declared dividends of **$0.1875 per share**, totaling **$11.1 million**[12](index=12&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1 - Basis of Presentation](index=12&type=section&id=Note%201%20-%20Basis%20of%20Presentation) - The Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, including all normal recurring adjustments necessary for fair presentation[17](index=17&type=chunk)[18](index=18&type=chunk) [Note 2 - Recently Issued Accounting Standards](index=12&type=section&id=Note%202%20-%20Recently%20Issued%20Accounting%20Standards) - The Company adopted ASU No. 2016-13 (Credit Losses) and ASU No. 2018-13 (Fair Value Measurement) on May 31, 2020, with no material impact on its financial statements[19](index=19&type=chunk)[20](index=20&type=chunk) - The Company is evaluating ASU No. 2018-14 (Defined Benefit Plans), effective May 30, 2021, but does not expect a material impact[21](index=21&type=chunk) [Note 3 - Revenue from Contracts with Customers](index=13&type=section&id=Note%203%20-%20Revenue%20from%20Contracts%20with%20Customers) Disaggregated Revenue by Contract Type (in millions) | Contract Type | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Single performance obligation (Product) | $544.3 | $572.7 | $1,087.6 | $1,138.9 | | Multiple performance obligations (Product) | $77.2 | $95.8 | $155.7 | $195.7 | | Multiple performance obligations (Service) | $2.9 | $2.9 | $6.0 | $5.2 | | Other | $1.9 | $2.8 | $3.7 | $5.4 | | **Total Net Sales** | **$626.3** | **$674.2** | **$1,253.0** | **$1,345.2** | Disaggregated Revenue by Product Type and Segment (3 Months Ended Nov 28, 2020 vs Nov 30, 2019, in millions) | Segment / Product Type | Nov 28, 2020 | Nov 30, 2019 | | :--------------------- | :----------- | :----------- | | **North America Contract:** | | | | Workplace | $197.2 | $277.3 | | Performance Seating | $74.7 | $108.6 | | Lifestyle | $20.4 | $24.5 | | Other | $30.8 | $40.2 | | **Total North America Contract** | **$323.1** | **$450.6** | | **International Contract:** | | | | Workplace | $35.1 | $45.3 | | Performance Seating | $73.4 | $61.5 | | Lifestyle | $57.1 | $7.4 | | Other | $2.5 | $4.0 | | **Total International Contract** | **$168.1** | **$118.2** | | **Retail:** | | | | Workplace | $2.0 | $1.1 | | Performance Seating | $49.2 | $12.6 | | Lifestyle | $83.6 | $91.7 | | Other | $0.3 | $0.0 | | **Total Retail** | **$135.1** | **$105.4** | | **Total** | **$626.3** | **$674.2** | - The Company revised its product categories to Workplace, Performance Seating, Lifestyle, and Other, reflecting internal reporting and operational decision-making changes[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) [Note 4 - Leases](index=14&type=section&id=Note%204%20-%20Leases) Lease Costs (in millions) | Cost Type | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease costs | $12.4 | $12.6 | $23.4 | $25.4 | | Short-term lease costs | $0.7 | $0.7 | $1.5 | $1.2 | | Variable lease costs | $2.0 | $2.2 | $3.6 | $4.4 | | **Total** | **$15.1** | **$15.5** | **$28.5** | **$31.0** | - Operating lease costs decreased due to a **$19.3 million** impairment of right-of-use assets recorded in Q4 fiscal 2020[30](index=30&type=chunk) Future Minimum Lease Payments (in millions) | Fiscal Year | Amount | | :---------- | :----- | | 2021 | $25.7 | | 2022 | $49.4 | | 2023 | $46.5 | | 2024 | $41.6 | | 2025 | $37.2 | | Thereafter | $103.2 | | **Total Lease Payments** | **$303.6** | | Less interest | $30.6 | | **Present Value of Lease Liabilities** | **$273.0** | [Note 5 - Acquisitions](index=15&type=section&id=Note%205%20-%20Acquisitions) - On December 2, 2019, the Company obtained a controlling interest in HAY by purchasing an additional **34% ownership** for **$79.0 million**, increasing its stake to **67%**, resulting in a **$67.8 million** non-taxable gain on remeasurement of the previously held equity interest[35](index=35&type=chunk)[39](index=39&type=chunk) - Goodwill of **$101.1 million** was recorded in the International Contract segment and **$10.0 million** in the Retail segment for the HAY acquisition, though the Retail segment goodwill was fully impaired in Q4 fiscal 2020[40](index=40&type=chunk) - On October 25, 2019, the Company acquired the remaining **47.5% equity** in naughtone for **$45.9 million**, gaining **100% ownership**, which led to a non-taxable gain of approximately **$30 million** on the remeasurement of the prior equity investment[41](index=41&type=chunk)[43](index=43&type=chunk) - Goodwill of **$35.0 million** and **$22.5 million** was recorded in the North America Contract and International Contract segments, respectively, for the naughtone acquisition[44](index=44&type=chunk) [Note 6 - Inventories, net](index=18&type=section&id=Note%206%20-%20Inventories%2C%20net) Inventories, net (in millions) | Category | Nov 28, 2020 | May 30, 2020 | | :------------- | :----------- | :----------- | | Finished goods | $147.1 | $151.1 | | Raw materials | $43.9 | $46.2 | | **Total** | **$191.0** | **$197.3** | - Inventories are valued at the lower of cost or market, with certain North America Contract manufacturing operations using LIFO and all other operations using FIFO[47](index=47&type=chunk) [Note 7 - Goodwill and Indefinite-Lived Intangibles](index=18&type=section&id=Note%207%20-%20Goodwill%20and%20Indefinite-Lived%20Intangibles) Goodwill and Indefinite-Lived Intangible Assets (in millions) | Category | Nov 28, 2020 | May 30, 2020 | | :-------------------------- | :----------- | :----------- | | Goodwill | $358.5 | $346.0 | | Indefinite-lived Intangible Assets | $96.4 | $92.8 | - In fiscal 2020, goodwill impairment charges of **$88.8 million** for Retail and **$36.7 million** for Maharam were recorded, resulting in no remaining goodwill for these units[49](index=49&type=chunk) - Indefinite-lived intangible asset impairment charges of **$53.3 million** were recognized in fiscal 2020 for DWR, Maharam, HAY, and naughtone trade names[52](index=52&type=chunk) - No interim quantitative impairment assessment was required for reporting units or indefinite-lived intangible assets during the six months ended November 28, 2020[53](index=53&type=chunk) [Note 8 - Employee Benefit Plans](index=19&type=section&id=Note%208%20-%20Employee%20Benefit%20Plans) Net Periodic Benefit Cost for Defined Benefit Pension Plan (in millions) | Component | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest cost | $0.7 | $0.6 | $1.3 | $1.2 | | Expected return on plan assets | $(1.4) | $(1.1) | $(2.8) | $(2.2) | | Net amortization loss | $1.6 | $0.9 | $3.3 | $1.7 | | **Net periodic benefit cost** | **$0.9** | **$0.4** | **$1.8** | **$0.7** | [Note 9 - Earnings Per Share](index=19&type=section&id=Note%209%20-%20Earnings%20Per%20Share) Earnings Per Share Reconciliation | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings attributable to Herman Miller, Inc. (in millions) | $51.3 | $78.6 | $124.2 | $126.8 | | Weighted average common shares outstanding (basic) | 58,908,094 | 59,061,731 | 58,869,699 | 58,985,366 | | Potentially dilutive shares | 359,304 | 340,270 | 174,229 | 333,616 | | Denominator for diluted EPS | 59,267,398 | 59,402,001 | 59,043,928 | 59,318,982 | | Basic EPS | $0.87 | $1.33 | $2.11 | $2.15 | | Diluted EPS | $0.87 | $1.32 | $2.10 | $2.14 | [Note 10 - Stock-Based Compensation](index=19&type=section&id=Note%2010%20-%20Stock-Based%20Compensation) Stock-Based Compensation Expense (in millions) | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation expense | $2.4 | $2.8 | $3.9 | $5.4 | | Related income tax effect | $0.6 | $0.6 | $0.9 | $1.2 | [Note 11 - Income Taxes](index=20&type=section&id=Note%2011%20-%20Income%20Taxes) Effective Tax Rates | Period | Nov 28, 2020 | Nov 30, 2019 | | :-------------------- | :----------- | :----------- | | Three Months Ended | 23.5% | 14.3% | | Six Months Ended | 22.6% | 16.9% | - The increase in effective tax rates year-over-year is primarily due to a non-taxable gain on consolidation of an equity method investment in the prior year[57](index=57&type=chunk)[58](index=58&type=chunk) - The Company's liability for potential interest and penalties related to uncertain tax benefits increased to **$1.0 million** as of November 28, 2020, from **$0.8 million** as of May 30, 2020[60](index=60&type=chunk) [Note 12 - Fair Value Measurements](index=20&type=section&id=Note%2012%20-%20Fair%20Value%20Measurements) Carrying Value and Fair Value of Long-Term Debt (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :------------- | :----------- | :----------- | | Carrying value | $327.2 | $591.3 | | Fair value | $334.4 | $594.0 | Financial Assets and Liabilities Measured at Fair Value Through Net Income (in millions) | Category | Nov 28, 2020 (NAV) | Nov 28, 2020 (Level 2) | May 30, 2020 (NAV) | May 30, 2020 (Level 2) | | :-------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Money market funds | $90.1 | — | $283.7 | — | | Mutual funds - equity | — | $0.7 | — | $0.7 | | Foreign currency forward contracts (assets) | — | $1.4 | — | $1.1 | | Deferred compensation plan | — | $16.4 | — | $13.2 | | **Total Financial Assets** | **$90.1** | **$18.5** | **$283.7** | **$15.0** | | Foreign currency forward contracts (liabilities) | — | $0.3 | — | $0.8 | | **Total Financial Liabilities** | **—** | **$0.3** | **—** | **$0.8** | - The Company uses foreign currency forward contracts to reduce risks from foreign currency exposures, with changes in fair value recorded in net earnings[72](index=72&type=chunk)[73](index=73&type=chunk) - Interest rate swap agreements, designated as cash flow hedges, convert variable interest payments to fixed rates, with a fair value liability of **$23.5 million** as of November 28, 2020[74](index=74&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk) [Note 13 - Commitments and Contingencies](index=24&type=section&id=Note%2013%20-%20Commitments%20and%20Contingencies) Changes in Warranty Reserve (in millions) | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Accrual Balance — beginning | $60.3 | $53.3 | $59.2 | $53.1 | | Accrual for warranty matters | $2.7 | $6.3 | $7.3 | $11.6 | | Settlements and adjustments | $(3.2) | $(5.0) | $(6.7) | $(10.1) | | **Accrual Balance — ending** | **$59.8** | **$54.6** | **$59.8** | **$54.6** | - The Company provides a 12-year assurance-type warranty for most products and maintains reserves based on historical claims[81](index=81&type=chunk) - As of November 28, 2020, the Company had **$5.5 million** in maximum financial exposure from performance bonds and **$9.8 million** from standby letters of credit, with no history of claims[83](index=83&type=chunk)[84](index=84&type=chunk) [Note 14 - Short-Term Borrowings and Long-Term Debt](index=25&type=section&id=Note%2014%20-%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) Short-Term Borrowings and Long-Term Debt (in millions) | Obligation | Nov 28, 2020 | May 30, 2020 | | :------------------------------------ | :----------- | :----------- | | Debt securities, 6.0%, due March 1, 2021 | $50.0 | $50.0 | | Debt securities, 4.95%, due May 20, 2030 | $49.9 | $49.9 | | Syndicated revolving line of credit, due August 2024 | $225.0 | $490.0 | | Supplier financing program | $2.3 | $1.4 | | **Total debt** | **$327.2** | **$591.3** | | Less: Current debt | $(52.3) | $(51.4) | | **Long-term debt** | **$274.9** | **$539.9** | - In June 2020, the Company repaid **$265 million** on its syndicated revolving line of credit, which was drawn in March 2020 as a precautionary measure due to COVID-19[88](index=88&type=chunk) Available Borrowings Under Syndicated Revolving Line of Credit (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :------------------------------------------------ | :----------- | :----------- | | Syndicated revolving line of credit borrowing capacity | $500.0 | $500.0 | | Less: Borrowings | $225.0 | $490.0 | | Less: Outstanding letters of credit | $9.8 | $9.4 | | **Available borrowings** | **$265.2** | **$0.6** | [Note 15 - Accumulated Other Comprehensive Loss](index=26&type=section&id=Note%2015%20-%20Accumulated%20Other%20Comprehensive%20Loss) Changes in Accumulated Other Comprehensive Loss (Six Months Ended Nov 28, 2020, in millions) | Component | Balance at May 30, 2020 | Net current period other comprehensive income (loss) | Balance at Nov 28, 2020 | | :-------------------------------- | :---------------------- | :------------------------------------------------- | :---------------------- | | Cumulative Translation Adjustments | $(56.0) | $32.3 | $(23.7) | | Pension and Other Post-retirement Benefit Plans | $(59.2) | $2.5 | $(56.7) | | Unrealized Gains on Available-for-sale Securities | $0.1 | $(0.1) | $0.0 | | Interest Rate Swap Agreement | $(18.9) | $1.2 | $(17.7) | | **Total Accumulated Other Comprehensive Loss** | **$(134.0)** | **$35.9** | **$(98.1)** | [Note 16 - Operating Segments](index=26&type=section&id=Note%2016%20-%20Operating%20Segments) - The Company's reportable segments are North America Contract, International Contract, and Retail, with a 'Corporate' category for unallocated expenses[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) Net Sales by Segment (in millions) | Segment | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America Contract | $323.1 | $450.6 | $661.9 | $909.3 | | International Contract | $168.1 | $118.2 | $321.7 | $232.0 | | Retail | $135.1 | $105.4 | $269.4 | $203.9 | | **Total** | **$626.3** | **$674.2** | **$1,253.0** | **$1,345.2** | Operating Earnings (Loss) by Segment (in millions) | Segment | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America Contract | $35.6 | $62.5 | $87.4 | $125.4 | | International Contract | $23.4 | $12.8 | $48.4 | $25.9 | | Retail | $22.6 | $(0.9) | $51.8 | $(4.9) | | Corporate | $(10.6) | $(12.0) | $(21.2) | $(23.8) | | **Total** | **$71.0** | **$62.4** | **$166.4** | **$122.6** | [Note 17 - Restructuring Expense](index=27&type=section&id=Note%2017%20-%20Restructuring%20Expense) - The Company recognized a net credit of **$1.9 million** in fiscal 2021 related to a facilities consolidation plan in its International Contract segment, which is substantially complete and expected to generate **$3 million** in cost savings[98](index=98&type=chunk) - Gains of approximately **$3.4 million** from the sale of an office building in China and a nominal gain from a UK office building were included in restructuring expense[99](index=99&type=chunk) - A May 2020 restructuring plan, in response to COVID-19, eliminated approximately **400 full-time positions**, projecting annualized expense reductions of **$40 million**, with **$3.1 million** in severance recognized in fiscal 2021[103](index=103&type=chunk) Restructuring Expenses by Segment (in millions) | Segment | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America Contract | $0.8 | $3.8 | $2.4 | $5.5 | | International Contract | $1.6 | $0.4 | $(1.2) | $0.6 | | **Total** | **$2.4** | **$4.2** | **$1.2** | **$6.1** | [Note 18 - Variable Interest Entities](index=29&type=section&id=Note%2018%20-%20Variable%20Interest%20Entities) - The Company holds long-term notes receivable with a third-party owned dealer, classified as a variable interest entity, with a carrying value of **$1.3 million** as of November 28, 2020, representing its maximum exposure to loss[105](index=105&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, condition, and cash flows for the three and six months ended November 28, 2020 [Business Overview](index=30&type=section&id=Business%20Overview) - Net sales decreased **7.1%** to **$626.3 million**, and orders decreased **6.7%** to **$629.7 million** for the three months ended November 28, 2020, compared to the prior year[109](index=109&type=chunk) - Organic net sales and orders decreased by **14.9%** and **15.2%** respectively, primarily due to decreased sales volumes in the North America Contract segment, partially offset by increased demand in the Retail segment and acquisitions[109](index=109&type=chunk) - Gross margin increased to **39.0%** from **37.9%** in the prior year, driven by favorable channel and product sales mix, partially offset by lower overhead leverage[109](index=109&type=chunk) - Operating expenses decreased by **$19.9 million (10.3%)** due to lower compensation, marketing, selling, and travel costs[109](index=109&type=chunk) - Diluted EPS decreased **34.1%** to **$0.87**, but adjusted diluted EPS increased **1.1%** to **$0.89**, excluding restructuring and special charges[109](index=109&type=chunk) [COVID-19 Update](index=31&type=section&id=COVID-19%20Update) - The COVID-19 pandemic adversely impacted demand in the Contract channel, but the multi-channel approach and digital investments allowed the Retail business to capitalize on the work-from-home trend[112](index=112&type=chunk) - The Company implemented enhanced safety precautions in manufacturing facilities and retail stores, which are operating at near-normal capacity or with limited access[113](index=113&type=chunk)[115](index=115&type=chunk) - Cost reduction actions from fiscal 2020 were partially reversed in fiscal 2021, with the reinstatement of compensation, a modified bonus program, quarterly cash dividends, and retirement plan contributions[116](index=116&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=32&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) - Organic net sales exclude currency translation effects and the impact of acquisitions, while adjusted EPS excludes restructuring expenses and other special charges or gains[117](index=117&type=chunk) Organic Net Sales (3 Months Ended Nov 28, 2020, in millions) | Segment | Net Sales, as Reported | Acquisitions | Currency Translation Effects | Net Sales, Organic | % Change from PY | | :-------------------- | :--------------------- | :----------- | :------------------------- | :----------------- | :--------------- | | North America Contract | $323.1 | $(3.5) | $(0.1) | $319.5 | (29.1)% | | International Contract | $168.1 | $(47.8) | $(1.4) | $118.9 | 0.6% | | Retail | $135.1 | — | — | $135.1 | 28.2% | | **Total** | **$626.3** | **$(51.3)** | **$(1.5)** | **$573.5** | **(14.9)%** | Adjusted Earnings Per Share - Diluted | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Earnings per share - diluted | $0.87 | $1.32 | $2.10 | $2.14 | | Less: Gain on consolidation of equity method investment | — | $(0.51) | — | $(0.51) | | Add: Special charges, after tax | — | $0.02 | $0.01 | $0.02 | | Add: Restructuring expenses, after tax | $0.02 | $0.05 | $0.02 | $0.07 | | **Adjusted earnings per share - diluted** | **$0.89** | **$0.88** | **$2.13** | **$1.72** | [Analysis of Results for Three and Six Months](index=34&type=section&id=Analysis%20of%20Results%20for%20Three%20and%20Six%20Months) [Net Sales](index=35&type=section&id=Net%20Sales) - Net sales decreased by **$47.9 million (7.1%)** in Q2 fiscal 2021, primarily due to a **$129 million** decrease in North America Contract sales volumes, partially offset by **$51 million** from acquisitions (HAY and naughtone) and **$28 million** from increased Retail segment sales[127](index=127&type=chunk) - For the first six months of fiscal 2021, net sales decreased by **$92.2 million (6.9%)**, driven by a **$264 million** decrease in North America Contract sales, partially offset by **$98 million** from acquisitions and **$62 million** from Retail segment growth[127](index=127&type=chunk) [Gross Margin](index=35&type=section&id=Gross%20Margin) - Gross margin increased to **39.0%** in Q2 fiscal 2021 (from **37.9%**), primarily due to favorable channel and product sales mix (**200 basis points**) and lower commodity costs, partially offset by lower overhead leverage (**90 basis points**)[127](index=127&type=chunk) - For the six months, gross margin increased to **39.4%** (from **37.3%**), driven by strong channel mix (**150 basis points**), product mix, material performance, and profitability efforts (**50 basis points**), and incremental list price increases (**40 basis points**), partially offset by lower overhead leverage (**30 basis points**)[127](index=127&type=chunk)[129](index=129&type=chunk) [Operating Expenses](index=36&type=section&id=Operating%20Expenses) - Operating expenses decreased by **$19.9 million (10.3%)** in Q2 fiscal 2021, mainly due to lower marketing and selling costs (**$10 million**), reduced compensation and benefits (**$7 million**), and decreased travel costs (**$3 million**), while acquisitions of HAY and naughtone increased operating expenses by approximately **$12 million**[130](index=130&type=chunk)[132](index=132&type=chunk) - For the first six months, operating expenses decreased by **$51.2 million (13.5%)**, driven by lower marketing and selling costs (**$23 million**), reduced compensation and benefits (**$23 million**), and decreased travel costs (**$9 million**), while acquisitions increased operating expenses by approximately **$23 million**[130](index=130&type=chunk)[132](index=132&type=chunk) [Other Income/Expense](index=37&type=section&id=Other%20Income%2FExpense) - Net other expense decreased by **$0.4 million** to **$2.2 million** in Q2 fiscal 2021 and by **$1.0 million** to **$3.7 million** for the six months, compared to the prior year[130](index=130&type=chunk) - The prior year's other income/expense included a **$30.5 million** pre-tax gain from the remeasurement of the initial equity-method investment in naughtone[131](index=131&type=chunk) [Income Taxes](index=37&type=section&id=Income%20Taxes) - Refer to Note 11 for detailed information on income taxes[132](index=132&type=chunk) [Operating Segment Results](index=38&type=section&id=Operating%20Segment%20Results) [North America Contract ("North America")](index=39&type=section&id=North%20America%20Contract%20(%22North%20America%22)) - Net sales decreased **28.3% (29.1% organic)** in Q2 fiscal 2021, primarily due to a **$129 million** decrease in sales volumes from COVID-19, partially offset by **$4 million** from the naughtone acquisition[136](index=136&type=chunk) - Operating earnings decreased **$26.9 million (43.0%)** in Q2 fiscal 2021, driven by a **$53.1 million** decrease in gross margin due to lower sales volumes and a **160 basis point** drop in gross margin percentage, partially offset by a **$26.2 million** reduction in operating expenses[136](index=136&type=chunk)[137](index=137&type=chunk) [International Contract ("International")](index=40&type=section&id=International%20Contract%20(%22International%22)) - Net sales increased **42.2% (0.6% organic)** in Q2 fiscal 2021, primarily due to approximately **$48 million** from the HAY and naughtone acquisitions[138](index=138&type=chunk) - Operating earnings increased **$10.6 million (82.8%)** in Q2 fiscal 2021, driven by a **$20.4 million** increase in gross margin due to higher sales and a **200 basis point** increase in gross margin percentage, partially offset by a **$9.8 million** increase in operating expenses from acquisitions[138](index=138&type=chunk)[140](index=140&type=chunk) [Retail](index=40&type=section&id=Retail) - Net sales increased **28.2%** (both as reported and organic) in Q2 fiscal 2021, driven by approximately **$28 million** in increased sales volumes from the e-commerce channel and **$3 million** from incremental list price increases[139](index=139&type=chunk)[141](index=141&type=chunk) - Operating earnings increased **$23.5 million** in Q2 fiscal 2021, due to a **$21.4 million** increase in gross margin (higher sales, **630 basis point** increase in gross margin percentage) and a **$2.1 million** decrease in operating expenses[142](index=142&type=chunk) [Corporate](index=41&type=section&id=Corporate) - Corporate unallocated expenses decreased by **$1.4 million** to **$10.6 million** in Q2 fiscal 2021, primarily due to lower special charges[143](index=143&type=chunk) - For the first six months, corporate expenses decreased by **$2.6 million** to **$21.2 million**, mainly due to lower compensation, benefit costs, and special charges[144](index=144&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) [Cash Flows - Operating Activities](index=42&type=section&id=Cash%20Flows%20-%20Operating%20Activities) - Cash provided by operating activities increased to **$214.6 million** for the six months ended November 28, 2020, from **$142.4 million** in the prior year, primarily due to an increase in current liabilities and the absence of a non-taxable non-cash gain on consolidation of an equity method investment present in the prior year[147](index=147&type=chunk) [Cash Flows - Investing Activities](index=42&type=section&id=Cash%20Flows%20-%20Investing%20Activities) - Cash used in investing activities decreased to **$24.4 million** for the six months ended November 28, 2020, from **$82.1 million** in the prior year, driven by the absence of a **$40.0 million** purchase of naughtone, a **$14.2 million** decrease in capital expenditures, and **$11.4 million** in proceeds from asset sales[147](index=147&type=chunk) - The Company expects full-year capital purchases to be between **$50.0 million** and **$60.0 million**, primarily for facilities and equipment[147](index=147&type=chunk) [Cash Flows - Financing Activities](index=42&type=section&id=Cash%20Flows%20-%20Financing%20Activities) - Cash used in financing activities increased to **$276.9 million** for the six months ended November 28, 2020, from **$40.6 million** in the prior year, primarily due to the repayment of **$265.0 million** on the Company's credit facility[148](index=148&type=chunk) [Sources of Liquidity](index=42&type=section&id=Sources%20of%20Liquidity) Total Liquidity (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $377.9 | $454.0 | | Marketable securities | $7.2 | $7.0 | | Availability under syndicated revolving line of credit | $265.2 | $0.6 | | **Total liquidity** | **$650.3** | **$461.6** | - The Company had **$176.4 million** of cash and cash equivalents held outside the United States as of November 28, 2020[152](index=152&type=chunk) - The Company intends to repatriate **$26.7 million** in cash from certain foreign jurisdictions over the next two years, resulting in a deferred tax liability of **$1.8 million** for foreign withholding taxes[155](index=155&type=chunk) [Safe Harbor Provisions](index=44&type=section&id=Safe%20Harbor%20Provisions) - The report contains forward-looking statements based on management's beliefs and expectations, which involve risks and uncertainties that could cause actual results to differ materially[163](index=163&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=44&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Company's exposure to market risks, particularly foreign exchange risk, and notes no significant changes in interest rate and commodity price risks [Foreign Exchange Risk](index=44&type=section&id=Foreign%20Exchange%20Risk) - The Company is exposed to foreign exchange risk due to manufacturing, sourcing, and sales in various foreign currencies, impacting production costs and profit margins[165](index=165&type=chunk) - To mitigate foreign currency exposures, the Company uses foreign currency forward contracts, primarily in British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, and Danish krone[165](index=165&type=chunk)[166](index=166&type=chunk) [Item 4 Controls and Procedures](index=45&type=section&id=Item%204%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=45&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of November 28, 2020[167](index=167&type=chunk) [Changes in Internal Control Over Financial Reporting](index=45&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There were no material changes in the Company's internal control over financial reporting during the quarter ended November 28, 2020[168](index=168&type=chunk) PART II — OTHER INFORMATION [Item 1 Legal Proceedings](index=46&type=section&id=Item%201%20Legal%20Proceedings) This section refers to Note 13 for information on legal proceedings, indicating that the outcome of pending litigation is not expected to have a material adverse effect - Refer to Note 13 of the Condensed Consolidated Financial Statements for information on legal proceedings[169](index=169&type=chunk) [Item 1A Risk Factors](index=46&type=section&id=Item%201A%20Risk%20Factors) This section states that there have been no material changes to the Company's risk factors since its Annual Report on Form 10-K for the year ended May 30, 2020 - No material changes in the Company's risk factors from those set forth in the Annual Report on Form 10-K for the year ended May 30, 2020[170](index=170&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase activity during the quarter ended November 28, 2020, under previously authorized plans [Issuer Purchases of Equity Securities](index=46&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) Issuer Purchases of Equity Securities (Quarter Ended Nov 28, 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (in millions) | | :---------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------- | | 8/30/20 - 9/26/20 | 632 | $29.16 | 632 | $236,769,598 | | 9/27/20 - 10/24/20 | — | — | — | $236,769,598 | | 10/25/20 - 11/28/20 | 566 | $33.01 | 566 | $236,750,879 | | **Total** | **1,198** | | **1,198** | | - The Company repurchased **1,198 shares** under previously announced plans during the quarter, with no plans expiring or being terminated[172](index=172&type=chunk) [Item 3 Defaults upon Senior Securities](index=46&type=section&id=Item%203%20Defaults%20upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - None[173](index=173&type=chunk) [Item 4 Mine Safety Disclosures](index=46&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the Company - Not applicable[173](index=173&type=chunk) [Item 5 Other Information](index=46&type=section&id=Item%205%20Other%20Information) This section states that there is no other information to report - None[173](index=173&type=chunk) [Item 6 Exhibits](index=46&type=section&id=Item%206%20Exhibits) This section lists all exhibits filed with the Form 10-Q report, including certifications, XBRL taxonomy documents, and the cover page interactive data file - The report includes certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy extension documents (Exhibits 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[173](index=173&type=chunk)[174](index=174&type=chunk) Signatures - The report was signed on January 4, 2021, by Andrea R. Owen, President and Chief Executive Officer, and Jeffrey M. Stutz, Chief Financial Officer[177](index=177&type=chunk)