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Acquisitions and Divestitures | 12 Months Ended
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May 30, 2020
Business Combinations [Abstract] |
Acquisitions and Divestitures | Acquisitions and Divestitures Contract Furniture Dealerships On July 31, 2017, the Company completed the sale of a wholly-owned contract furniture dealership in Vancouver, Canada for initial cash consideration of $2.0 million. A pre-tax gain of $1.1 million was recognized as a result of the sale within the caption Selling, general and administrative within the Consolidated Statements of Comprehensive Income. Maars Holding B.V. On August 31, 2018, the Company acquired 48.2% of the outstanding equity of Global Holdings Netherlands B.V., which owns 100% of Maars Holding B.V. ("Maars”), a Harderwijk, Netherlands-based worldwide leader in the design and manufacturing of interior wall solutions. The Company acquired its 48.2% ownership interest in Maars for approximately $6.1 million in cash. The entity is accounted for using the equity method of accounting as the Company has significant influence, but not control, over the entity. For the Maars equity method investment, the fair values assigned to the assets acquired were based on best estimates and assumptions as of August 31, 2018, and the valuation analysis was completed in the fourth quarter of fiscal 2019. Nine United Denmark A/S On June 7, 2018, the Company acquired 33% of the outstanding equity of Nine United Denmark A/S, d/b/a HAY and subsequently renamed to HAY ApS ("HAY”), a Copenhagen, Denmark-based, design leader in furniture and ancillary furnishings for residential and contract markets in Europe and Asia. The Company acquired its 33% ownership interest in HAY for approximately $65.5 million in cash. The Company also acquired the rights to the HAY brand in North America under a long-term license agreement for approximately $4.8 million in cash. In the fiscal periods leading up to December 2, 2019 (“Acquisition Date”), the date when the Company purchased an additional 34% equity voting interest in HAY, this licensing agreement was recorded as a definite life intangible asset and was being amortized over its 15-year useful life. This asset was also recorded within Other amortizable intangibles, net within the Condensed Consolidated Balance Sheets as of June 1, 2019. On December 2, 2019, the Company obtained a controlling financial interest in HAY through the purchase of an additional 34% equity voting interest. The completion of the acquisition will allow the Company to further promote growth and development of HAY's ancillary product lines and continue to support product innovation and sales growth. The Company previously accounted for its ownership interest in HAY as an equity method investment, but upon increasing its ownership to 67% on the Acquisition Date, the Company consolidated the operations of HAY. Total consideration paid for HAY on the Acquisition Date was $79.0 million, exclusive of HAY cash on hand. The Company funded the acquisition with cash and cash equivalents. The previously mentioned HAY long-term licensing agreement was deemed to be a contractual preexisting relationship. As a result of the business combination, the Company recorded this arrangement at its Acquisition Date fair value, which resulted in an increase in goodwill of $10.0 million and a net gain of $5.9 million, which was recorded within “Gain on consolidation of equity method investments" within the Consolidated Statements of Comprehensive Income. The goodwill was recorded within the Company’s Retail segment. T he Company is a party to options, that if exercised, would require it to purchase the remaining 33% of the equity in HAY, at fair market value. This remaining redeemable noncontrolling interest in HAY is classified outside permanent equity in the Consolidated Balance Sheets and is carried at the current estimated redemption amount. The Company is in the process of finalizing assessments for the purpose of allocating the purchase price to the individual assets acquired and liabilities assumed in the HAY acquisition. This has the potential to result in adjustments to the carrying values of certain assets and liabilities as accounting policies are harmonized and purchase price allocation assumptions are updated. The refinement of these estimates may impact residual amounts allocated to goodwill. The preliminary allocation of the purchase prices included in the current period balance sheet is based on the best estimates of management and is subject to revision based on final determination of asset fair values and useful lives. As of May 30, 2020, the Company is in the process of finalizing the value associated with certain tax-related matters. The following table presents the preliminary allocation of purchase price related to acquired tangible assets:
(In millions) |
Cash | $ | 12.1 |
Working capital, net of cash and inventory step-up | 12.3 |
Net property and equipment | 0.9 |
Other assets | 3.9 |
Other liabilities | (3.1 | )
Net assets acquired | $ | 26.1 |
The purchase of the additional equity interest in HAY was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured as of the acquisition date. The Company considered multiple factors in determining the fair value of the previously held equity method investment, including the price negotiated with the selling shareholder for the 34% equity interest in HAY, an income valuation model (discounted cash flow) and current trading multiples for comparable companies. Based on this analysis, the Company recognized a non-taxable gain of approximately $0.3 million on the remeasurement of the previously held equity method investment of $67.8 million. The net gain has been recognized in “Gain on consolidation of equity method investments" within the Consolidated Statements of Comprehensive Income. The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company at the acquisition date. A djustments were made to the fair value of the identified intangible assets during the measurement period ended May 30, 2020 as shown in the table below. Goodwill related to the acquisition was recorded in the amount of $111.1 million and included deferred tax liabilities of $26.2 million, an increase of $6.3 million and $0.9 million, respectively, during the measurement period ended May 30, 2020. The changes in fair value of goodwill and the identified intangible assets were due to refinements in the projected cash flow estimates of the individual intangible assets acquired.
|  |  |  |  | Acquisition Date Fair Value |  |
(In millions) | Valuation Method |  | Useful Life (years) |  | Initial Valuation at February 29, 2020 |  | Adjusted Valuation at May 30, 2020 |  | Measurement Period Adjustments
Inventory Step-up | Comparative Sales Approach |  | 0.8 |  | $ | 3.4 |  |  | $ | 3.4 |  |  | $ | — |
Backlog | Multi-Period Excess Earnings |  | 0.3 |  | 3.4 |  |  | 1.7 |  |  | (1.7 | )
Deferred Revenue | Adjusted Fulfillment Cost Method |  | 0.1 |  | (2.0 | ) |  | (2.2 | ) |  | (0.2 | )
Tradename | Relief from Royalty |  | Indefinite |  | 56.0 |  |  | 60.0 |  |  | 4.0 |
Product Development | Relief from Royalty |  | 8.0 |  | 21.0 |  |  | 22.0 |  |  | 1.0 |
Customer Relationships | Multi-Period Excess Earnings |  | 9.0 |  | 33.0 |  |  | 34.0 |  |  | 1.0 |
Total |  |  |  |  | $ | 114.8 |  |  | $ | 118.9 |  |  | $ | 4.1 |
Goodwill related to the acquisition was recorded within the International Contract segment for $101.1 million and the Retail segment for $10.0 million. naughtone On October 25, 2019 (“Acquisition Date”), the Company purchased the remaining 47.5% equity voting interest in naughtone (Holdings) Limited and naughtone Manufacturing Ltd. (together “naughtone”). naughtone is an upscale, contemporary furniture manufacturer based in Harrogate, North Yorkshire, UK. The completion of the acquisition will allow the Company to further promote growth and development of naughtone's ancillary product lines, and continue to support product innovation and sales growth. The Company previously accounted for its ownership interest in naughtone as an equity method investment. Upon increasing its ownership to 100% on the acquisition date, the Company obtained a controlling financial interest and consolidated the operations of naughtone. Total consideration paid for naughtone on the Acquisition Date was $45.9 million, exclusive of naughtone cash on hand. The Company funded the acquisition with cash and cash equivalents. The allocation of the purchase price was finalized during the fourth quarter of fiscal 2020. The following table presents the allocation of purchase price related to acquired tangible assets:
(In millions) |
Cash | $ | 5.1 |
Working capital, net of cash and inventory step-up | 1.3 |
Net property and equipment | 0.8 |
Net assets acquired | $ | 7.2 |
The purchase of the remaining equity interest in naughtone was considered to be an acquisition achieved in stages, whereby the previously held equity interest was remeasured as of the acquisition date. The Company considered multiple factors in determining the fair value of the previously held equity method investment, including the price negotiated with the selling shareholder for the 47.5% equity interest in naughtone, an income valuation model (discounted cash flow) and current trading multiples for comparable companies. Based on this analysis, the Company recognized a non-taxable gain of approximately $30.0 million on the remeasurement of the previously held equity method investment of $20.5 million. The net gain has been recognized in “Gain on consolidation of equity method investments" within the Consolidated Statements of Comprehensive Income. The following table summarizes the acquired identified intangible assets, valuation method employed, useful lives and fair value, as determined by the Company at the acquisition date:
(In millions) | Valuation Method |  | Useful Life (years) |  | Fair Value
Inventory Step-up | Comparative Sales Approach |  | 0.3 |  | $ | 0.2 |
Backlog | Multi-Period Excess Earnings |  | 0.3 |  | 0.8 |
Tradename | Relief from Royalty |  | Indefinite |  | 8.5 |
Customer Relationships | Multi-Period Excess Earnings |  | 9.0 |  | 29.4 |
Total |  |  |  |  | $ | 38.9 |
Goodwill related to the acquisition was recorded within the North America Contract and International Contract segments for $35.0 million and $22.5 million, respectively. The Company has finalized allocating the purchase price to the individual assets acquired and liabilities assumed in the naughtone acquisition as of May 30, 2020. Pro Forma Results of Operations The results of naughtone and HAY’s operations have been included in the Consolidated Financial Statements beginning on October 25, 2019 and December 2, 2019 respectively. The following table provides pro forma results of operations for the years ended May 30, 2020 and June 1, 2019, as if naughtone and HAY had been acquired as of June 3, 2018. The pro forma results include certain purchase accounting adjustments such as the estimated change in depreciation and amortization expense on the acquired tangible and intangible assets acquired. Pro forma results do not include any anticipated cost savings from the planned integration of these acquisitions, or the gain on the consolidation of the HAY and naughtone equity method investments of approximately $36.2 million. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or that may result in the future and are inclusive of pre-tax impairment charges of $205.4 million in the year-end May 30, 2020.
| Year Ended
(In millions) | May 30, 2020 |  | June 1, 2019
Net sales | $ | 2,580.6 |  |  | $ | 2,757.3 |
Net (loss) earnings attributable to Herman Miller, Inc. | $ | (46.3 | ) |  | $ | 163.7 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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