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Acquisitions | 9 Months Ended
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Feb. 29, 2020
Business Combinations [Abstract] |
Acquisitions | Acquisitions 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 entity was accounted for using the equity method of accounting until the purchase of the additional 34% equity on December 2, 2019. 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. This licensing agreement is recorded as a definite-lived intangible asset and is being amortized over its 15-year useful life. This asset is recorded within "Other amortizable intangibles, net" within the Condensed Consolidated Balance Sheets. On December 2, 2019 (“Acquisition Date”), the Company purchased an additional 34% of equity voting interest in HAY, increasing its ownership interest to 67%, resulting in a controlling financial interest. As of the acquisition date, the Company has consolidated HAY, which was previously accounted for as an equity method investment through the second quarter of fiscal 2020. Total consideration paid for the additional ownership in 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. Additionally, the 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 outside ownership of HAY is classified outside permanent equity in the Consolidated Balance Sheets and is carried at the current estimated redemption amounts. Refer to Note 12 to the Condensed Consolidated Financial Statements for further information. Purchase Price Allocations 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. The related depreciation and amortization expense from the acquired assets is also subject to such revisions on a prospective basis. 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 an immaterial non-taxable gain on the remeasurement of the previously held equity method investment, which prior to the acquisition had a carrying value of $65.5 million. The net gain has been recognized in “Gain on consolidation of equity method investments" within the Condensed 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 |  | $ | 3.4 |
Backlog | Multi-Period Excess Earnings |  | 0.3 |  | 3.4 |
Deferred Revenue | Adjusted Fulfillment Cost Method |  | 0.1 |  | (2.0 | )
Tradename | Relief from Royalty |  | Indefinite |  | 56.0 |
Product Development/Technology | Relief from Royalty |  | 11.0 |  | 21.0 |
Customer Relationships | Multi-Period Excess Earnings |  | 14.0 |  | 33.0 |
Total |  |  |  |  | $ | 114.8 |
Goodwill related to the acquisition was recorded within the International Contract segment for $104.8 million and included deferred tax liabilities of $25.3 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. Purchase Price Allocations 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 naughtone 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. The related depreciation and amortization expense from the acquired assets is also subject to such revisions on a prospective basis. The following table presents the preliminary 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 million on the remeasurement of the previously held equity method investment, which prior to the acquisition had a carrying of $20.5 million. The net gain has been recognized in “Gain on consolidation of equity method investments" within the Condensed 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 |  | 10.0 |  | 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. During the three months ended February 29, 2020, the Company recorded measurement period adjustments of $4.1 million related to an increase in the fair value of the tradename, and $1.6 million related to a decrease in the fair value of customer relationships. In addition, the Company revised the useful life of the customer relationships from 12 to 10 years. These adjustments reduced goodwill by $2.5 million, and all amounts referenced above are inclusive of these measurement period adjustments. 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 nine months ended February 29, 2020 and the year ended 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 or other effects of the planned integration of these acquisitions. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisitions had occurred on the dates indicated or that may result in the future.
| Nine Months Ended |  | Year Ended
(In millions) | February 29, 2020 |  | June 1, 2019
Net sales | $ | 2,104.8 |  |  | $ | 2,757.3 |
Net earnings attributable to Herman Miller, Inc. | $ | 139.9 |  |  | $ | 160.8 |

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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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