MILLERKNOLL, INC. The following is management's discussion and analysis of certain significant factors that affected the Company's financial condition, earnings and cash flows during the periods included in the accompanying Condensed Consolidated Financial Statements and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year endedMay 29, 2021 . References to "Notes" are to the footnotes included in the accompanying Condensed Consolidated Financial Statements. Business Overview The Company researches, designs, manufactures, sells, and distributes furnishings and accessories, for use in various environments including office, healthcare, educational, and residential settings, and provides related services that support companies all over the world. The Company's products are sold through independent contract office furniture dealers as well as the following channels: owned contract office furniture dealers, direct customer sales, independent retailers, owned retail studios and stores, direct-mail catalogs, architects and designers, and the Company's eCommerce platforms. The following is a summary of results for the three months endedAugust 28, 2021 : •Net sales were$789.7 million and orders were$916.5 million , representing an increase of 26.0% and 64.8%, respectively, when compared to the same quarter of the prior year. The increase in net sales was driven by the consolidation of Knoll results from the date of acquisition ofJuly 19, 2021 , as well as growth in both the Global Retail and International Contract segments, as compared to the same quarter of the prior year. This sales volume growth was offset in part by decreased volume in the Americas Contract segment. On an organic basis, which excludes the impact of acquisitions and foreign currency translation, net sales were$629.6 million (*) and orders were$747.9 million (*) , representing a decrease of 0.4%(*) and 34.5%(*) , respectively, when compared to the same quarter of the prior year. •Gross margin was 35.1% as compared to 39.9% for the same quarter of the prior year. In the current year, this included the negative impact of charges totaling$6.3 million related to the initial purchase accounting effects of the Company's acquisition of Knoll. The decrease in gross margin was also driven by commodity cost pressures as well as rising labor and freight expenses. •Operating expenses increased by$175.7 million or 113.6% as compared to the same quarter of the prior year. Operating expenses in the current quarter included$69 million of transaction and integration related costs associated with the Knoll acquisition and$26.2 million (*) of charges related to the initial purchase accounting effects of the merger. After excluding the impact of purchase accounting amortization and the transaction and integration related costs, the addition of Knoll increased operating expenses by$49.1 million .
•The effective tax rate was 15.3% compared to 22.0% for the same quarter of the prior year.
•Diluted loss per share was$(0.93) , a 175.0% decrease as compared to the prior year. Excluding transaction and integration related costs, the amortization of purchased intangible assets, and a loss on the extinguishment of debt, adjusted diluted earnings per share was$0.49 (*), a 60.5%(*) decrease as compared to prior year adjusted diluted earnings per share.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
Herman Miller, Inc. and Subsidiaries 27
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The following summary includes the Company's view on the economic environment in which it operates:
•The Company's financial performance is sensitive to changes in certain input costs, including steel and steel component parts. The market price of steel in the first quarter of fiscal 2022 was higher than the same period of the prior year and negatively impacted consolidated results on a year-over-year basis. The price of steel continues to increase and is expected to unfavorably impact consolidated gross margin in fiscal 2022. Ongoing cost reduction initiatives and price increases in the first and second quarters of fiscal 2022 are expected to help offset these pressures over time. •The Company has experienced operational challenges within its production facilities and supply networks. Broad-based shortages of production labor and rising material and freight expenses negatively impacted net sales and gross margins during the quarter. •The Company's Global Retail segment supports a range of furniture categories aimed at the home environment. Several of these categories, including Upholstery, Workplace Furnishings, Storage, and Accessories, saw a ramp-up in demand during fiscal 2021 that has continued in the first quarter of fiscal 2022. •Following several quarters of industry-wide declines in order volume within theNorth America contract furniture industry, we saw a rebound in activity this quarter driven by the implementation of initial return-to-office plans for many businesses. In addition, demand levels in the contract business outsideNorth America continued to improve in the quarter relative to prior year levels.
The remaining sections within Item 2 include additional analysis of the three
months ended
COVID-19 Update The Company continues to respond to the challenges brought about by the COVID-19 pandemic. Workplace restrictions are regionally applied based on the recommendations of local government and health authorities. While demand for the Company's products and services, particularly in the Contract channel of the business, has been adversely impacted, our multi-channel go-to-market approach has enabled us to serve customers where, and how, they need to be served. In addition, the investments we've made in people, technology, and products have positioned us well to capitalize on emerging opportunities as our customers' needs have changed throughout the COVID-19 crisis. This has allowed our Retail business to take advantage of the unanticipated emerging work-from-home trend as well as "home is my castle" trends as consumers are focusing on and upgrading their broader home environments. Despite this, the duration of this virus, the impact on our supply chain, future demand for our products, and related impacts remain difficult to estimate with any degree of certainty. Employee Safety and Health The health and well-being of employees remains top of mind. We continue to take a regional approach to restrictions based on active COVID-19 case levels and recommendations from local health authorities. Contact tracing is active in all regions to help track and control the spread of the virus. We also continue to employ a variety of other safety measures including domestic and international travel restrictions, extensive cleaning protocols, temperature and health screenings, personal protective equipment, and visitor safety guidelines. We continue to encourage vaccinations with our employees and are awaiting direction from theU.S. agencies on the recently announced proposed requirements for mandatory vaccines or weekly proof of negative COVID tests. Customer Focus The digital investments we've made allowed us to pivot quickly and capitalize on a new set of opportunities when our customers' purchasing behaviors changed. These investments include reimaginedDesign Within Reach and Herman Miller websites, a Work from Home landing page on Herman Miller's website, a Work from Home online assessment tool, and new digital platforms that are creating greater efficiencies for contract and dealer audiences. The latest in a series of innovative solutions designed to accelerate growth in the Contract business is Herman Miller Professional - a digital ecosystem designed to meet customer demand for a simple and efficient design and product specification 28 Form 10-Q -------------------------------------------------------------------------------- solution. Herman Miller Professional will deliver seamless online experiences to small- and medium sized businesses, a segment that has historically been underserved by the traditional contract furniture model, while also helping our dealers capture new clients and revenue. Businesses will be able to design their spaces with product from the Herman Miller family of brands, leverage an online quoting and purchasing process to complete their order, and select from several delivery options, including white glove service where appropriate. Knoll saw strong order growth bolstered by the one-year anniversary of Knoll's eCommerce platform and the recent consolidation of Muuto into the Knoll distribution systems to simplify the order process for dealers and customers. In July,Holly Hunt introduced enhanced website functionality with an in-stock, to-the-trade, online eCommerce site. Further expansion of the site later this year will add textiles, leather, and wall coverings to the offer. Fully also introduced a new European eCommerce storefront in the quarter and saw its commercial business begin to rebound in the second half of the quarter. Our first Herman Miller retail seating concept stores are open inLos Angeles , New York Hudson Yards,Tokyo ,Austin , ChicagoFulton Market , Century City Los Angeles andGreenwich, CT . In the early days, these stores have exceeded our initial revenue and operating profit expectations as we seek to educate customers about the health benefits of ergonomic seating. We remain uniquely positioned to serve our customers through multiple channels with the most comprehensive portfolio of products in the industry. As our customers develop their post-pandemic work plans, there is a notable shift to work being done from a number of places, with the office as a destination - a place where employees want to be rather than are required to be. We are ready to capture the many opportunities caused by this shift as our commercial customers rethink their real estate portfolios, redesign their workplaces, and seek to provide healthy and productive home work environments. Manufacturing and Retail Operations Manufacturing facilities continue to operate at near-normal capacity with enhanced safety precautions. All retail studios and stores are now open with full capacity. All facilities operate within the context of local guidance from government and health authorities and we will continue to adjust to ensure we are acting in accordance with these guidelines. Reconciliation of Non-GAAP Financial Measures This report contains non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles (GAAP) and may be different from non-GAAP measures presented by other companies. These non-GAAP financial measures are not measurements of our financial performance under GAAP and should not be considered an alternative to the related GAAP measurement. These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of non-GAAP measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included within this report. The Company believes these non-GAAP measures are useful for investors as they provide financial information on a more comparative basis for the periods presented.
The non-GAAP financial measures referenced within this presentation include: Adjusted Earnings per Share and Organic Sales Growth (Decline).
Adjusted Earnings per Share represents reported diluted earnings per share
excluding the impact from adjustments related to transaction and integration
related charges, amortization of purchased intangibles, debt restructuring
charges, restructuring expenses and other special charges or gains, including
related taxes. These adjustments are described further below.
Herman Miller, Inc. and Subsidiaries 29
--------------------------------------------------------------------------------Organic Sales Growth represents the change in sales and orders, excluding currency translation effects and the impact of acquisitions.
Acquisition and Integration Charges: Costs related directly to the Knoll acquisition including legal, accounting and other professional fees as well as integration-related costs. Integration-related costs include severance, accelerated stock-based compensation expenses and other cost reduction efforts or reorganization initiatives. Amortization of Purchased Intangibles: Includes expenses associated with the fair value adjustment to inventory and amortization of acquisition related intangibles acquired as part of the Knoll acquisition. The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. We exclude the impact of the amortization of purchased intangibles, including the fair value adjustment to inventory, as such non-cash amounts were significantly impacted by the size of the Knoll acquisition. Furthermore, we believe that this adjustment enables better comparison of our results as Amortization of Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. Although we exclude the Amortization of Purchased Intangibles in these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Debt Restructuring Charges: Includes expenses associated with the restructuring of debt as part of financing the Knoll acquisition. We excluded these items from our non-GAAP measures because they relate to a specific transaction and are not reflective of our ongoing financial performance. Restructuring expenses: Include actions involving facilities consolidation and optimization, targeted workforce reductions, and costs associated with an early retirement program.
Special charges: Include certain costs arising as a direct result of COVID-19.
Tax Related Items: We excluded the income tax benefit/provision effect of the
tax related items from our non-GAAP measures because they are not associated
with the tax expense on our ongoing operating results.
30 Form 10-Q
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The following tables reconcile net sales to organic net sales for the periods
ended as indicated below:
Three Months Ended
August 28, 2021
Americas International Retail Knoll Intersegment Total
Elimination
Net Sales, as reported $ 325.3 $ 99.0 $ 212.6 $ 156.4 $ (3.6) $ 789.7
% change from PY (12.1) % 5.3 % 30.7 % N/A N/A 26.0 %
Adjustments
Acquisitions - - - $ (156.4) 3.6 (152.8)
Currency Translation Effects (1) (0.8) (4.7) (1.8) - (7.3)
Net Sales, organic $ 324.5 $ 94.3 $ 210.8 $ - $ - $ 629.6
% change from PY (12.3) % 0.3 % 29.6 % N/A N/A 0.4 %
Three Months Ended
August 29, 2020
Americas International Retail Knoll Intersegment Total
Elimination
Net Sales, as reported $ 370.1 $ 94.0 $ 162.7 $ - $ - $ 626.8 (1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period
The following table reconciles earnings per share - diluted to adjusted earnings per share - diluted for the three months ended:
Three Months Ended
August 28, 2021 August 29, 2020
(Loss) Earnings per Share - Diluted $ (0.93) $ 1.24
Non-comparable items:
Add: Special charges, after tax - 0.01
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 -
Add: Restructuring expenses, after tax - (0.01)
Adjusted Earnings per Share - Diluted $ 0.49 $ 1.24
Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) - Diluted
66,302,214 58,964,268
Note: The adjustments above are net of tax. For the three months ended August 28, 2021 , the tax impact of
the adjustments was $0.30 . For the three months ended August 29, 2020 , the tax impact of the adjustments
was immaterial.
Herman Miller, Inc. and Subsidiaries 31--------------------------------------------------------------------------------
Analysis of Results for Three Months The following table presents certain key highlights from the results of operations for the three months ended:
Three Months Ended
(In millions, except share data) August 28, 2021 August 29, 2020 % Change
Net sales $ 789.7 $ 626.8 26.0 %
Cost of sales 512.2 376.8 35.9 %
Gross margin 277.5 250.0 11.0 %
Operating expenses 330.3 154.6 113.6 %
Operating (loss) earnings (52.8) 95.4 (155.3) %
Other expenses, net 18.0 1.6 1,025.0 %
(Loss) Earnings before income taxes and equity income (70.8) 93.8 (175.5) %
Income tax expense (10.8) 20.6 (152.4) %
Equity income from nonconsolidated affiliates, net of tax 0.1 0.2 (50.0) %
Net (loss) earnings (59.9) 73.4 (181.6) %
Net earnings attributable to redeemable noncontrolling interests
1.6 0.4 n/a
Net (loss) earnings attributable to
$ 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 %
The following table presents select components of the Company's Condensed
Consolidated Statements of Comprehensive Income as a percentage of net sales,
for the three months ended:
Three Months Ended
August 28, 2021 August 29, 2020
Net sales 100.0 % 100.0 %
Cost of sales 64.9 60.1
Gross margin 35.1 39.9
Operating expenses 41.8 24.7
Operating (loss) earnings (6.7) 15.2
Other expenses, net 2.3 0.3
(Loss) Earnings before income taxes and equity income (9.0) 15.0
Income tax (benefit) expense (1.4) 3.3
Net (loss) earnings (7.6) 11.7
Net earnings attributable to redeemable noncontrolling interests 0.2 0.1
Net (loss) earnings attributable to Herman Miller, Inc. (7.8) 11.6
Net Sales
The following charts present graphically the primary drivers of the
year-over-year change in net sales for the three months ended August 28, 2021 .
The amounts presented in the graphs are expressed in millions and have been
rounded.
32 Form 10-Q
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[[Image Removed: mlhr-20210828_g2.jpg]]
Net sales increased $162.9 million or 26.0% in the first quarter of fiscal 2022
compared to the first quarter of fiscal 2021. The following items contributed to
the change:
•Increase of approximately $153 million due to the acquisition of Knoll.
•Increased sales volumes within the Global Retail segment of approximately $45
million which were broad based across each Global Retail brand and geography.
•Foreign currency translation had a positive impact on net sales of
approximately $7 million .
•Decreased sales volumes within the Americas Contract ("Americas") segment of
approximately $46 million , primarily due to continued impacts of the outbreak of
COVID-19.
Gross Margin
Gross margin was 35.1% in the first quarter of fiscal 2022 as compared to 39.9%
in the first quarter of fiscal 2021. The following factors summarize the major
drivers of the year-over-year change in gross margin percentage:
•Cost pressures from commodities, freight and product distribution costs had a
negative impact on gross margin of approximately 360 basis points.
•Increased labor costs, including the impact of benefits reinstated at the end
of the last fiscal year, had a negative impact on margin of approximately 110
basis points.
•Amortization of purchased intangibles related to the Knoll acquisition had a
negative impact on gross margin of approximately 100 basis points.
•These factors were offset in part by favorable channel mix, which increased
gross margin by approximately 100 basis points.
Operating Expenses
The following charts present graphically the primary drivers of the
year-over-year change in operating expenses for the three months ended
August 28, 2021 . The amounts presented in the graphs are expressed in millions
and have been rounded.
Herman Miller, Inc. and Subsidiaries 33
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[[Image Removed: mlhr-20210828_g3.jpg]]
Operating expenses increased by $175.7 million or 113.6% in the first quarter of
fiscal 2022 compared to the prior year period. The following factors contributed
to the change:
•The acquisition of Knoll during the quarter had the following impact on
Operating Expenses as compared to the prior year.
•$27 million of transaction related costs recorded in the quarter
•$42 million of integration related costs, which include severance and related
charges for employee separations
•Knoll operating expenses in the quarter, excluding integration related costs
incurred by Knoll, contributed $49 million to the increase as compared to the
same quarter in the prior year
•Compensation and benefit costs increased approximately $10 million as compared
to the same period in the prior year due to the return of certain employee
benefits that were temporarily suspended during the first quarter of the prior
year to mitigate the financial impacts of the COVID-19 pandemic.
•Studio costs increased approximately $8 million driven by increased lease
expense within the Global Retail segment.
•Increased marketing and selling costs of approximately $6 million , driven by
both the Global Retail and Americas segments.
Other Income/Expense
During the three months ended August 28, 2021 , net other expense was $18.0
million . This compares to net other income of $1.6 million in the same period of
the prior year, representing an unfavorable change of $19.6 million . A loss on
extinguishment of debt of approximately $13.4 million , which represented the
premium on early redemption as well as increased interest expense of $5.6
million , related to higher levels of debt taken to finance the acquisition of
Knoll, contributed to the increased expense as compared to the same quarter in
the prior year.
Income Taxes
See Note 11 of the Condensed Consolidated Financial Statements for additional
information.
34 Form 10-Q-------------------------------------------------------------------------------- Operating Segment Results The business is comprised of various operating segments as defined by generally accepted accounting principles inthe United States . These operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The segments identified by the Company are Americas Contract, International Contract, Global Retail, and Knoll. Unallocated expenses are reported within the Corporate category. For descriptions of each segment, refer to Note 16 of the Condensed Consolidated Financial Statements. The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments during the three month period endedAugust 28, 2021 . This is followed by a discussion of the Company's results, by reportable segment. The amounts presented in the charts are in millions and have been rounded.
[[Image Removed: mlhr-20210828_g4.jpg]][[Image Removed: mlhr-20210828_g5.jpg]]
Herman Miller, Inc. and Subsidiaries 35 --------------------------------------------------------------------------------
Americas Contract ("Americas")
Three Months Ended
(Dollars in millions) August 28, 2021 August 29, 2020 Change
Net sales $ 325.3 $ 370.1 $ (44.8)
Gross margin 100.1 139.0 (38.9)
Gross margin % 30.8 % 37.6 % (6.8) %
Operating earnings 10.5 57.9 (47.4)
Operating earnings % 3.2 % 15.6 % (12.4) %
For the three month comparative period, net sales decreased 12.1%, or 12.3%(*) on an organic basis, over the prior year period due to:
•Decreased sales volumes within the segment of approximately$45.3 million , primarily due to the continued impact of the COVID-19 pandemic; partially offset by •The impact of foreign currency translation which increased sales by approximately$1 million .
For the three month comparative period, operating earnings decreased
•Decreased gross margin of$38.9 million due to decreased sales volumes and a decrease in gross margin percentage of 680 basis points. The decrease in gross margin percentage was due primarily to the impact of higher commodity, labor, freight and product distribution costs; and •Increased operating expenses of$8.5 million driven primarily by increased compensation and benefit costs of approximately$4 million , increased marketing and selling expenses of approximately$2 million and increased expense related to new product development of$2 million .
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
36 Form 10-Q --------------------------------------------------------------------------------
International Contract ("International")
Three Months Ended
(Dollars in millions) August 28, 2021 August 29, 2020 Change
Net sales $ 99.0 $ 94.0 $ 5.0
Gross margin 33.7 33.3 0.4
Gross margin % 34.0 % 35.4 % (1.4) %
Operating earnings 11.3 16.2 (4.9)
Operating earnings % 11.4 % 17.2 % (5.8) %
For the three month comparative period, net sales increased 5.3%, or 0.3%(*) on an organic basis, over the prior year period due to:
•Increased sales volume of approximately$4 million , driven primarily by growth within theEurope region. •The impact of foreign currency translation which increased sales by approximately$5 million ; partially offset by •Price increases, net of incremental discounting, which reduced sales by$4 million . The impact of discounting was driven by increased sales volume, as a percentage of total mix, from geographies with higher discounting.
For the three month comparative period, operating earnings decreased
•Increased gross margin of$0.4 million due to the increase in sales explained above, offset in part by decreased gross margin percentage of 140 basis points due primarily to unfavorable changes in channel and product mix; offset by •Increased operating expenses of$5.3 million driven primarily by increased compensation and benefit costs as well as increased costs associated with product development and IT related projects.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
Herman Miller, Inc. and Subsidiaries 37 --------------------------------------------------------------------------------
Global Retail
Three Months Ended
(Dollars in millions) August 28, 2021 August 29, 2020 Change
Net sales $ 212.6 $ 162.7 $ 49.9
Gross margin 92.7 77.7 15.0
Gross margin % 43.6 % 47.8 % (4.2) %
Operating earnings 27.8 31.5 (3.7)
Operating earnings % 13.1 % 19.4 % (6.3) %
For the three month comparative period, net sales increased 30.7%, or 29.6%(*) on an organic basis, over the prior year period due to:
•Increased sales volumes of approximately$45 million which were driven by increased demand within each of the brands, geographies and channels of the segment; and •Incremental list price increases, net of discounting, of approximately$3 million .
For the three month comparative period, operating earnings decreased
•Increased gross margin of$15.0 million due to the increase in sales explained above, offset in part by a decrease in gross margin percentage of 420 basis points due primarily to the unfavorable impact of production and material costs, increased freight and product distribution costs and unfavorable changes in product mix; partially offset by •Increased operating expenses of$18.7 million driven primarily by increased studio costs associated with the opening of new locations, increased compensation and benefit costs as certain benefits suspended in the prior year were returned and higher IT costs driven by increased investments within the Company's digital and eCommerce platforms.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."
38 Form 10-Q --------------------------------------------------------------------------------
Knoll
Three Months Ended
(Dollars in millions) August 28, 2021 August 29, 2020 Change
Net sales $ 156.4 $ - $ 156.4
Gross margin 51.0 - 51.0
Gross margin % 32.6 % n/a n/a
Operating (loss) (53.6) - (53.6)
Operating earnings % (34.3) % - % (34.3) %
The Company acquired Knoll on July 19, 2021 and has consolidated the financial
results of Knoll for the period from the acquisition date through the period
ending August 28, 2021 . Knoll contributed $156.4 million in sales for the
quarter and $51.0 million of gross margin.
Knoll operating loss of
•$29.4 million related to integration related costs, which includes severance and related charges for employee separations •$32.5 million related to the impact of amortization expense of acquisition-related intangible assets.
Corporate
Corporate unallocated expenses totaled$48.8 million for the first quarter of fiscal 2022, an increase of$38.6 million from the first quarter of fiscal 2021. The increase was driven by$38.5 million of transaction and integration costs recorded in the quarter related to the Knoll acquisition. Liquidity and Capital Resources The table below summarizes the net change in cash and cash equivalents for the three months ended as indicated. (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 Flows - Operating Activities Cash used in operating activities for the three months endedAugust 28, 2021 was$51.7 million , as compared to cash provided of$115.9 million in the same period of the prior year. The change in cash from operating activities as compared to the prior year, was primarily due to: •a decrease in net earnings of$133.3 million ; •an increase in current assets of$65.6 million compared to a decrease in current assets of$3.9 million in the prior year period. The increase in current assets in the current year was driven by an increase in accounts receivable as sales volumes increased from the end of fiscal 2021 as well as increases in inventory and prepaid expenses. The increases above were offset by an increase of depreciation and amortization in the current period of$59.7 million related to the amortization of purchased intangible assets as part of the Knoll acquisition as well as an increase in stock based compensation of$15.1 million . The increase in stock based compensation included the impact of accelerated vesting for employee separations associated with the Knoll acquisition. Herman Miller, Inc. and Subsidiaries 39 -------------------------------------------------------------------------------- Cash Flows - Investing Activities Cash used in investing activities for the three months endedAugust 28, 2021 was$1,104.7 million , as compared to$5.1 million in the same period of the prior year. The increase in cash outflow in the current year, compared to the prior year, was primarily due to the acquisition of Knoll, which drove a cash outflow, net of cash acquired, of$1,088.5 million . At the end of the first quarter of fiscal 2022, there were outstanding commitments for capital purchases of$18.9 million . The Company plans to fund these commitments through a combination of cash on hand and cash flows from operations. The Company expects full-year capital purchases to be between$150 million and$160 million , which will be primarily related to investments in the Company's facilities and equipment along with the inclusion of Knoll in fiscal year 2022. This compares to full-year capital spending of$59.8 million in fiscal 2021. Cash Flows - Financing Activities Cash provided from financing activities for the three months endedAugust 28, 2021 was$1,001.6 million , as compared to cash used in financing activities of$276.5 million in the same period of the prior year. The increase in cash provided in the current year, compared to the prior year, was primarily due to net borrowings of$1,007.0 million from the credit agreement the Company entered into during the quarter as well as a draw of$366.6 million on the Company's credit facility. These increases were offset by payments of$63.4 million related to the extinguishment of the Company's former debt agreement and payments of$276.6 million on the Company's credit facility. Sources of Liquidity In addition to steps taken to protect its workforce and manage business operations, the Company has taken actions to safeguard its capital position in the current environment. The Company is closely managing spending levels, capital investments, and working capital, and has temporarily suspended open market share repurchase activity as part of managing cash flows. At the end of the first quarter of fiscal 2022, the Company had a well-positioned balance sheet and liquidity profile. The Company has access to liquidity through credit facilities, cash and cash equivalents, and short-term investments. These sources have been summarized below. For additional information, refer to Note 14 to the Condensed Consolidated Financial Statements. (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 Of the cash and cash equivalents noted above at the end of the first quarter of fiscal 2022, the Company had$209.3 million of cash and cash equivalents held outsidethe United States . In addition, the Company had marketable securities of$8.0 million held by one of its international wholly-owned subsidiaries. The Company's syndicated revolving line of credit, which matures in July, 2026, provides the Company with up to$725 million in revolving variable interest borrowing capacity and allows the Company to borrow incremental amounts, at its option, subject to negotiated terms as outlined in the agreement. Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR or negotiated terms as outlined in the agreement.
As of
The subsidiary holding the Company's marketable securities is taxed as aUnited States taxpayer at the Company's election. Consequently, for tax purposes, allUnited States tax impacts for this subsidiary have been recorded. The 40 Form 10-Q -------------------------------------------------------------------------------- Company intends to repatriate$64.1 million in cash held in certain foreign jurisdictions and as such has recorded a deferred tax liability related to foreign withholding taxes on these future dividends received in theU.S. from foreign subsidiaries of$9.5 million . The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside theU.S. The Company believes that its financial resources will allow it to manage the impact of COVID-19 on business operations for the foreseeable future which could include materially reduced revenue and profits. The Company will continue to evaluate its financial position in light of future developments, particularly those relating to COVID-19. Contractual Obligations Contractual obligations associated with ongoing business and financing activities will require cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments as ofMay 29, 2021 was provided in the Company's annual report on Form 10-K for the year endedMay 29, 2021 . There have been material changes in certain obligations since that date as a result of the acquisition of Knoll. See the following Notes for additional discussion: Short-Term Borrowings and Long-Term Debt, Leases, Acquisitions and Fair Value Measurements. The following table summarizes the amounts and estimated timing of these future cash payments for obligations of the Company as ofAugust 28, 2021 for which there were material changes sinceMay 29, 2021 . Payments due by fiscal year (in millions) Total 2022 2023-2024 2025-2026 Thereafter Short-term borrowings and long-term debt(1)$ 1,265.0 $ 103.1
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(2) 27.0 1.9 5.1 5.4 14.6
Shareholder dividends (3) 14.9 14.9 - - -
Other liabilities(4) 30.0 5.1 16.6 3.9 4.4
Total $ 2,022.8 $ 242.7 $ 292.4 $ 265.7 $ 1,222.0
(1)Includes the current portion of long-term debt. Contractual cash payments on
long-term debt obligations are disclosed herein based on the amounts borrowed as
of August 28, 2021 and the maturity date of the underlying debt. Estimated
future interest payments on our outstanding interest bearing debt obligations
are based on interest rates as of August 28, 2021 . Actual cash outflows may
differ significantly due to changes in borrowings or interest rates.
(2)Pension funding commitments are known for a 12-month period for those plans
that are funded; unfunded pension and post-retirement plan funding amounts are
equal to the estimated benefit payments.
(3)Represents the dividend payable as of August 28, 2021 . Future dividend
payments are not considered contractual obligations until declared.
(4)Other contractual obligations include an earn-out consideration related to
the Knoll acquisition of Fully. The maximum earn-out consideration is $13.8
million and is based on certain revenue and earnings before interest, taxes,
depreciation and amortization targets over the next four years. Additionally,
other contractual obligations include long-term commitments related to deferred
and supplemental employee compensation benefits, and other post-employment
benefits.
Guarantees
See Note 13 to the Condensed Consolidated Financial Statements.
Variable Interest Entities See Note 18 to the Condensed Consolidated Financial Statements.
Contingencies
See Note 13 to the Condensed Consolidated Financial Statements.
Herman Miller, Inc. and Subsidiaries 41 --------------------------------------------------------------------------------
Critical Accounting Policies
The Company strives to report financial results clearly and understandably. The Company follows accounting principles generally accepted inthe United States in preparing its consolidated financial statements, which require certain estimates and judgments that affect the financial position and results of operations for the Company. The Company continually reviews the accounting policies and financial information disclosures. A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Company's Annual Report on Form 10-K for the year endedMay 29, 2021 . New Accounting Standards See Note 2 to the Condensed Consolidated Financial Statements. Safe Harbor Provisions Certain statements in this report are not historical facts but are "forward-looking statements" as defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management's beliefs, assumptions, current expectations, estimates, and projections about the industries in which the Company operates, the economy, and the Company itself. Words like "anticipates," "believes," "confident," "estimates," "expects," "forecasts," likely," "plans," "projects," "could," and "should," variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation, the success of our growth strategy, our success in initiatives aimed at achieving long-term profit optimization goals, employment and general economic conditions, the pace of economic recovery in theU.S. and in our International markets, the increase in white-collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitive-pricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand globally given the risks associated with regulatory and legal compliance challenges and accompanying currency fluctuations, changes in future tax legislation or interpretation of current tax legislation, the ability to increase prices to absorb the additional costs of raw materials, changes in global tariff regulations, the financial strength of our dealers and the financial strength of our customers, our ability to locate new retail studios and negotiate favorable lease terms for new and existing locations and implement our studio portfolio transformation, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the success of newly-introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, our ability to integrate and benefit from acquisitions and investments, the pace and level of government procurement, the outcome of pending litigation or governmental audits or investigations, political risk in the markets we serve, natural disasters, public health crises, disease outbreaks, and other risks identified in our filings with theSecurities and Exchange Commission . Therefore, actual results and outcomes may materially differ from what we express or forecast. We undertake no obligation to update, amend or clarify forward-looking statements. 42 Form 10-Q --------------------------------------------------------------------------------
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