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 endedJune 1, 2019 . 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 primarily 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, direct-mail catalogs and the Company's e-commerce platforms. The following is a summary of the results from continuing operations for the three months endedNovember 30, 2019 :
• Net sales were
an increase of 3.3% and a decrease of 4.2%, respectively, when compared to
the same quarter of the prior year. The increase in net sales was driven
primarily by volume increases within the Retail segment, as well as
incremental list price increases within the North America Contract
segment. On an organic basis, net sales were
were
4.4%, respectively, when compared to the same quarter of the prior year.
• Gross margin was 37.9% as compared to 36.1% for the same quarter of theprior year. The increase in gross margin was driven primarily by list
price increases, manufacturing leverage on higher production volumes,
lower steel costs, and ongoing profitability improvement efforts,
partially offset by higher freight costs.
• Operating expenses increased by
same quarter of the prior year. Operating expenses included special
charges, totaling
with the HAY and naughtone investments. Operating expenses also included
restructuring expense of
initiated in the quarter to optimize our
operations and targeted workforce reductions, including actions associated
with profit improvement initiatives.
• Other income in the current quarter reflected a pre-tax gain of $30.5
million related to the purchase accounting treatment of the initial
equity-method investment in
remaining shares of naughtone during the second quarter and as a result
was required to adjust the value of the initial investment to fair value,
resulting in a non-taxable gain.
• The effective tax rate was 14.3% compared to 22.6% for the same quarter of
the prior year. Excluding the impact of the non-taxable gain this quarter
related to naughtone, the adjusted effective income tax rate in the period
was 21.6%.
• Diluted earnings per share increased
compared to the prior year. Excluding restructuring expenses, other
special charges and the naughtone investment gain, adjusted diluted
earnings per share were $0.88 (*), a 17.3% increase as compared to the
prior year.
• The Company declared cash dividends of
of
the prior year.
• Strategic investment of approximately
the remaining outstanding shares of naughtone. Subsequent to the end of
the current quarter, a strategic investment of approximately
was made in acquiring an additional 34% of the outstanding equity of HAY.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
24
--------------------------------------------------------------------------------The following summary includes the Company's view on the economic environment in which it operates:
•
unemployment levels and consumer spending reflect positive trends, while
industry order trends as reported by the Business and Institutional
architectural billing activity as measured by the Architecture Billings
Index have varied in recent months.
• The Company is monitoring the resolution of various trade policy
negotiations between the U.S. and key trading partners as well as the
ongoing negotiations concerning the
Union ("Brexit"). These negotiations create a level of uncertainty in key
markets, particularly the U.K. , continental Europe and China , which, if
unresolved in the near term, will likely negatively impact customer
demand.
• The Company is also navigating the impact of global tariffs. The Company
continues to believe, based upon existing circumstances, that pricing,
strategic sourcing actions and profit optimization initiatives will fully
offset the current level of tariffs imposed on imports from China in the
near term.
• The Company's Retail segment is facing continuing gross margin pressure
from increasing customer expectations that the products they buy should
come free of delivery charges. In response, the Company is continuing to
evaluate a variety of strategies, including negotiating lower costs from
third party freight providers, implementing actions aimed at improving the
efficiency of its logistics processes and more closely reflecting the cost
of delivery into the base price of its products.
The remaining sections within Item 2 include additional analysis of the three
and six months ended
Reconciliation of Non-GAAP Financial Measures -------------------------------------------------------------------------------- This report contains references to Organic net sales and Adjusted earnings per share - diluted, which are non-GAAP financial measures. Organic Growth (Decline) represents the change in Net sales, excluding currency translation effects and the impact of acquisitions. Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from adjustments related to the adoption of theU.S. Tax Cuts and Jobs Act, amortization of an inventory step up on the HAY equity method investment, a gain on the consolidation of the naughtone equity method investment, restructuring expenses and other special charges or gains, including related taxes. Restructuring expenses include actions involving facilities consolidation and optimization, targeted workforce reductions, and costs associated with an early retirement program. Special charges include costs related to CEO transition, third party consulting costs related to the Company's profit enhancement initiatives, and acquisition related costs. The Company believes presenting Organic net sales and Adjusted earnings per share - diluted is useful for investors as it provides financial information on a more comparative basis for the periods presented by excluding items that are not representative of the ongoing operations of the Company. Organic net sales and Adjusted earnings per share - diluted are not measurements of our financial performance under GAAP and should not be considered as alternatives to the related GAAP measurement. These non-GAAP measurements 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 prominence of our GAAP results and using the non-GAAP financial measures only as a supplement. 25 --------------------------------------------------------------------------------
The following table reconciles Net sales to Organic net sales for the periods ended as indicated below:
Three Months Ended Three Months Ended
November 30, 2019 December 1, 2018
North America International Retail Total North America International Retail Total
Net Sales , as
reported $ 450.6 $ 118.2 $ 105.4 $ 674.2 $ 434.8 $ 118.5 $ 99.3 $ 652.6
% change from PY 3.6 % (0.3 )% 6.1 % 3.3 %
Proforma
Adjustments
Acquisition (2.5 ) (1.0 ) - (3.5 ) - - - -
Currency
Translation Effects
(1) 0.3 1.6 - 1.9 - - - -
Net Sales, organic $ 448.4 $ 118.8 $ 105.4 $ 672.6 $ 434.8 $ 118.5 $ 99.3 $ 652.6
% change from PY 3.1 % 0.3 % 6.1 % 3.1 %
Six Months Ended Six Months Ended
November 30, 2019 December 1, 2018
North America International Retail Total North America International Retail Total
Net Sales, as
reported $ 909.3 $ 232.0 $ 203.9 $1,345.2 $ 855.8 $ 234.0 $ 187.5 $ 1,277.3
% change from PY 6.3 % (0.9 )% 8.7 % 5.3 %
Proforma
Adjustments
Acquisition (2.5 ) (1.0 ) - (3.5 ) - - - -
Currency
Translation Effects
(1) 0.5 3.4 - 3.9 - - - -
Net Sales, organic $ 907.3 $ 234.4 $ 203.9 $1,345.6 $ 855.8 $ 234.0 $ 187.5 $ 1,277.3
% change from PY 6.0 % 0.2 % 8.7 % 5.3 % (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 and six months ended:
Three Months Ended Six Months Ended
11/30/19 12/1/18 11/30/19 12/1/18
Earnings per Share - Diluted $ 1.32 $
0.66
Add: Adjustments Related to Adoption ofU.S. Tax Cuts and Jobs Act - - - 0.01 Add: Inventory step up on HAY equity method investment, after tax - 0.01 - 0.01 Less: Gain on consolidation of naughtone equity method investment (0.51 ) - (0.51 ) - Add: Special charges, after tax 0.02 0.08 0.02 0.14 Add: Restructuring expense, after tax 0.05 - 0.07 0.02 Adjusted Earnings per Share - Diluted$ 0.88 $
0.75
Weighted Average Shares Outstanding (used for
Calculating Adjusted Earnings per Share) -
Diluted 59,402,001 59,442,219 59,318,982 59,612,113
26--------------------------------------------------------------------------------
Analysis of Results for Three and Six Months -------------------------------------------------------------------------------- The following table presents certain key highlights from the results of operations for the three and six months ended:
Three Months Ended Six Months Ended
(In millions, except per Percent
share data) November 30, 2019 December 1, 2018 Percent Change November 30, 2019 December 1, 2018 Change
Net sales $ 674.2 $ 652.6 3.3 % $ 1,345.2 $ 1,277.3 5.3 %
Cost of sales 418.7 417.0 0.4 % 843.6 816.6 3.3 %
Gross margin 255.5 235.6 8.4 % 501.6 460.7 8.9 %
Operating expenses 193.1 182.5 5.8 % 379.0 361.6 4.8 %
Operating earnings 62.4 53.1 17.5 % 122.6 99.1 23.7 %
Gain on consolidation of
equity method investment 30.5 - n/a 30.5 - n/a
Other expenses, net 2.6 3.8 (31.6 )% 4.7 5.7 (17.5 )%
Earnings before income
taxes and equity income 90.3 49.3 83.2 % 148.4 93.4 58.9 %
Income tax expense 12.9 11.2 15.2 % 25.2 20.0 26.0 %
Equity income from
nonconsolidated
affiliates, net of tax 1.2 1.2 - % 3.4 1.8 88.9 %
Net earnings 78.6 39.3 100.0 % 126.6 75.2 68.4 %
Net (loss) earnings
attributable to
noncontrolling interests - - n/a (0.2 ) 0.1 (300.0 )%
Net earnings attributable
to Herman Miller, Inc. $ 78.6 $ 39.3 100.0 % $ 126.8 $ 75.1 68.8 %
Earnings per share -
diluted $ 1.32 $ 0.66 100.0 % $ 2.14 $ 1.26 69.8 %
Orders $ 674.9 $ 704.8 (4.2 )% $ 1,351.6 $ 1,337.6 1.0 %
Backlog $ 400.6 $ 406.7 (1.5 )%
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 and six months ended:
Three Months Ended Six Months Ended
November 30, 2019 December 1, 2018 November 30, 2019 December 1, 2018
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 62.1 63.9 62.7 63.9
Gross margin 37.9 36.1 37.3 36.1
Operating expenses 28.6 28.0 28.2 28.3
Operating earnings 9.3 8.1 9.1 7.8
Gain on consolidation of equity method
investment 4.5 - 2.3 -
Other expenses, net 0.4 0.6 0.3 0.4
Earnings before income taxes and equity
income 13.4 7.6 11.0 7.3
Income tax expense 1.9 1.7 1.9 1.6
Equity income from nonconsolidated
affiliates, net of tax 0.2 0.2 0.3 0.1
Net earnings 11.7 6.0 9.4 5.9
Net (loss) earnings attributable to
noncontrolling interests - - - -
Net earnings attributable to Herman
Miller, Inc. 11.7 6.0 9.4 5.9
27--------------------------------------------------------------------------------
Consolidated Sales
--------------------------------------------------------------------------------
The following chart presents graphically the primary drivers of the
year-over-year change in Net sales for the three and six months ended
[[Image Removed: chart-e117c35974be5990800.jpg]]
[[Image Removed: chart-5db2f2c997b7e75b6d7.jpg]]
Consolidated Net sales increased $21.6 million or 3.3% in the second quarter of
fiscal 2020 compared to the second quarter of fiscal 2019. The following items
contributed to the change:
• Incremental list price increases, net of contract price discounting, of
approximately $13 million .
• Increased sales volumes within the Retail segment of approximately $8 million driven primarily by growth across the Company's DWR studio, outlet
and contract channels, which were partially offset by lower freight
revenue.
• Approximately
• Foreign currency translation had a negative impact on net sales of
approximately $2 million .
Consolidated Net sales increased $67.9 million or 5.3% in the first six months
of fiscal 2020 compared to the first six months of fiscal 2019. The following
items led to the change:
• Increased sales volumes within the North America Contract segment of
approximately
and Geiger businesses.
• Incremental list price increases, net of contract price discounting, of
approximately $25 million .
• Increased sales volumes within the Retail segment of approximately $19 million which were driven primarily by the introduction of HAY products
and growth across the Company's DWR studio, outlet, and contract channels,
which were partially offset by lower freight revenue.
• Approximately
• Foreign currency translation had a negative impact on net sales of
approximately $4 million .
Consolidated Gross Margin
--------------------------------------------------------------------------------
Consolidated Gross margin was 37.9% in the second quarter of fiscal 2020 as
compared to 36.1% in the second quarter of fiscal 2019. When compared to last
fiscal year, the following factors summarize the major drivers of the change in
gross margin percentage:
• Incremental list price increases, net of contract price discounting,
increased gross margin by approximately 120 basis points.
• Manufacturing leverage on higher production volumes, lower steel costs and
ongoing profitability improvement efforts increased gross margin by
approximately 100 basis points.
• Higher net freight expenses within the Retail segment decreased gross
margin by approximately 30 basis points.
28-------------------------------------------------------------------------------- Consolidated Gross margin was 37.3% for the six month period endedNovember 30, 2019 as compared to 36.1% for the same period of the prior fiscal year. The following factors summarize the major drivers of the year-over-year change in gross margin percentage:
• Incremental list price increases, net of contract price discounting,
increased gross margin by approximately 120 basis points.
• Manufacturing leverage on higher production volumes, lower steel costs,
and ongoing profitability improvement efforts increased gross margin by
approximately 110 basis points.
• Higher net freight expenses and cost inefficiencies driven partly by the
move into a new
decreased gross margin by approximately 60 basis points.
• The gross impact of tariffs on Chinese imports decreased gross margin by
approximately 30 basis points.
Operating Expenses -------------------------------------------------------------------------------- The following chart presents graphically the primary drivers of the year-over-year change in Operating expenses for the three and six months endedNovember 30, 2019 . The amounts presented in the bar graph are expressed in millions and have been rounded. [[Image Removed: chart-7d796b302c9f5207a73.jpg]][[Image Removed: chart-59e6b7a4649380b7a4b.jpg]] Consolidated Operating expenses increased by$10.6 million or 5.8% in the second quarter of fiscal 2020 compared to the prior year period. The following factors contributed to the change:
• Compensation and benefit costs, combined with higher employee incentive
compensation costs, increased approximately
• Incremental spend of approximately
and marketing, e-commerce, and studios associated with the launch of the
HAY brand in North America .
• Incremental sales volume based costs, such as sales commissions and
royalties, increased approximately $2 million .
• Special charges decreased by approximately
expense increased by approximately
• The rest of the increase in operating expenses was driven primarily by
incremental warranty and IT costs.
Consolidated Operating expenses increased by
• Compensation and benefit costs, combined with higher employee incentive
compensation costs, increased approximately
• Incremental spend of approximately
and the marketing, e-commerce, and studios associated with the launch of
the HAY brand in North America .
• Incremental sales volume based costs, such as sales commissions and
royalties, increased approximately $4 million .
• Special charges decreased by approximately
expense increased by approximately
• The rest of the increase in operating expenses was driven primarily by
incremental marketing, warranty and IT costs.
29-------------------------------------------------------------------------------- Other Income/Expense -------------------------------------------------------------------------------- Other income/expense in the three and six months endedNovember 30, 2019 reflected a pre-tax gain of$30.5 million related to the purchase accounting treatment of the initial equity-method investment inU.K. -based naughtone. The Company acquired the remaining shares of naughtone during the second quarter and as a result, was required to adjust the value of the initial investment to fair value, resulting in a non-taxable gain. During the three months endedNovember 30, 2019 , net other expense was$2.6 million , a decrease of$1.2 million compared to the same period in the prior year. This decrease resulted primarily from investment gains associated with the Company's deferred compensation plan in the current quarter relative to investment losses recorded in the prior fiscal year. These investments gains are directly offset by increases in compensation expense within operating expenses related to the deferred compensation plan. During the six months endedNovember 30, 2019 , net other expense was$4.7 million , a decrease of$1.0 million compared to the same period in the prior year. This decrease resulted primarily from investment gains associated with the Company's deferred compensation plan in the current quarter relative to investment losses recorded in the prior fiscal year, higher interest income and foreign currency losses in the current quarter relative to foreign currency gains recorded in the prior fiscal year. Income Taxes -------------------------------------------------------------------------------- See Note 11 of the Condensed Consolidated Financial Statements for additional information. 30
-------------------------------------------------------------------------------- Reportable 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 reportable segments identified by the Company include North America Contract, International Contract, Retail, and Corporate. 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 the Company's reportable segments during the three and six month periods endedNovember 30, 2019 . This is followed by a discussion of the Company's results, by reportable segment. [[Image Removed: chart-fdaef620c68551b09fb.jpg]][[Image Removed: chart-a8d68f59ef82286c4ba.jpg]][[Image Removed: chart-e6ba4b2249065196aa4.jpg]][[Image Removed: chart-3d78db43066b4493584.jpg]] 31 -------------------------------------------------------------------------------- North America Contract ("North America") -------------------------------------------------------------------------------- Three Months Ended Six Months Ended November 30, 2019 December 1, 2018 Change November 30, 2019 December 1, 2018 Change Net sales $ 450.6 $ 434.8$ 15.8 $ 909.3 $ 855.8$ 53.5 Gross margin 169.3 152.0 17.3 337.0 299.7 37.3 Gross margin % 37.6 % 35.0 % 2.6 % 37.1 % 35.0 % 2.1 % Operating earnings 62.5 51.2 11.3 125.4 99.4 26.0 Operating earnings % 13.9 % 11.8 % 2.1 % 13.8 % 11.6 % 2.2 %
For the three month comparative period, Net sales increased 3.6%, or 3.1%(*) on an organic basis, over the prior year period due to:
• Incremental list price increases, net of contract price discounting, of
approximately
• Approximately
For the three month comparative period, Operating earnings increased
• Increased Gross margin of
percentage of 260 basis points due primarily to incremental list price
increases, net of contract price discounting, lower steel costs, ongoing
profitability improvement efforts, and a refund of previously paid
tariffs, partially offset by product mix; offset by
• Increased Operating expenses of
restructuring expense, warranty expense and sales volume based costs.
For the six month comparative period, Net sales increased 6.3%, or 6.0%(*) on an organic basis, over the prior year period due to:
• Increased sales volumes within the
businesses; and
• Incremental list price increases, net of contract price discounting, of
approximately
For the six month comparative period, Operating earnings increased
• Increased Gross margin of$37.3 million and increased gross margin percentage of 210 basis points due primarily to incremental list price increases, net of contract price discounting, lower steel costs, and ongoing profitability improvement efforts; offset by • Increased Operating expenses of$11.3 million driven primarily by increased restructuring expense, warranty expense, and sales volume based costs.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
32
--------------------------------------------------------------------------------
International Contract ("International")
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
November 30, 2019 December 1, 2018 Change November 30, 2019 December 1, 2018 Change
Net sales $ 118.2 $ 118.5 $ (0.3 ) $ 232.0 $ 234.0 $ (2.0 )
Gross margin 40.3 39.7 0.6 80.1 77.8 2.3
Gross margin % 34.1 % 33.5 % 0.6 % 34.5 % 33.2 % 1.3 %
Operating earnings 12.8 13.8 (1.0 ) 25.9 24.3 1.6
Operating earnings % 10.8 % 11.6 % (0.8 )% 11.2 % 10.4 % 0.8 %
For the three month comparative period, Net sales decreased 0.3%, or increased 0.3%(*) on an organic basis, over the prior year period due to:
• The impact of foreign currency translation which decreased sales by
approximately $2 million ; offset by
• Approximately
For the three month comparative period, Operating earnings decreased
• Increased Operating expense of
and compensation costs; offset by
• Increased Gross margin of $0.6 million and increased gross marginpercentage of 60 basis points due primarily to restructuring cost savings,
partially offset by lower volume leverage.
For the six month comparative period, Net sales decreased 0.9%, or increased 0.2%(*) on an organic basis, over the prior year period due to:
• The impact of foreign currency translation which decreased sales by
approximately $3 million ; and
• Decreased sales volumes within the International segment of approximately
• Incremental list price increases, net of contract price discounting, of
approximately
For the six month comparative period, Operating earnings increased
• Increased Gross margin of
percentage of 130 basis points due primarily to incremental list price
increases, net of contract price discounting and restructuring cost
savings; offset by
• Increased Operating expenses of
IT and compensation costs offset by lower restructuring expense.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
33
--------------------------------------------------------------------------------Retail
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
November 30, 2019 December 1, 2018 Change November 30, 2019 December 1, 2018 Change
Net sales $ 105.4 99.3 $ 6.1 $ 203.9 $ 187.5 $ 16.4
Gross margin 45.9 43.9 2.0 84.5 83.2 1.3
Gross margin % 43.5 % 44.2 % (0.7 )% 41.4 % 44.4 % (3.0 )%
Operating earnings (0.9 ) 1.8 (2.7 ) (4.9 ) 3.9 (8.8 )
Operating earnings % (0.9 )% 1.8 % (2.7 )% (2.4 )% 2.1 % (4.5 )%
For the three month comparative period, Net sales increased 6.1%, both on an as reported and organic(*) basis, over the prior year period due to:
• Increased sales volumes of approximately
growth across the Company's DWR studio, outlet, and contract channels,
which were partially offset by lower freight revenue.
For the three month comparative period, Operating earnings decreased
• Increased Gross margin of
percentage of 70 basis points due primarily to higher net freight expenses
partially offset by product mix; and
• An increase in Operating expenses of $4.7 million primarily due to sales
volume based costs, new DWR studios, and the launch of the HAY brand in
North America .
For the six month comparative period, Net sales increased 8.7%, both on an as reported and organic(*) basis, over the prior year period due to:
• Increased sales volumes within the Retail segment of approximately
million which were driven primarily by the introduction of HAY products
and growth across the Company's DWR studio, outlet and contract channels,
which were partially offset by lower freight revenue.
For the six month comparative period, Operating earnings decreased
• Increased Gross margin of$1.3 million and decreased gross margin percentage of 300 basis points due primarily to higher net freight expenses and cost inefficiencies associated with the move into a newOhio -based distribution center, partially offset by product mix; and
• An increase in Operating expenses of
volume based costs, new DWR studios, and the launch of the HAY brand in
North America .
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
Corporate
--------------------------------------------------------------------------------
Corporate unallocated expenses totaled$12.0 million for the second quarter of fiscal 2020, a decrease of$1.7 million from the second quarter of fiscal 2019. The decrease was driven primarily by lower special charges related to third-party consulting costs for the Company's profit optimization initiatives, partially offset by higher employee compensation and incentive costs in the current period. Corporate unallocated expenses totaled$23.8 million for the first six months of fiscal 2020, a decrease of$4.7 million from the same period of fiscal 2019. The decrease was driven primarily by lower special charges related to third-party consulting costs for the Company's profit optimization initiatives, as well as transition costs related to the retirement of the Company's previous CEO, partially offset by higher employee compensation and incentive costs in the current period. 34 -------------------------------------------------------------------------------- Financial Condition, Liquidity and Capital Resources -------------------------------------------------------------------------------- The table below summarizes the net change in cash and cash equivalents for the six months ended as indicated. (In millions) November 30, 2019 December 1, 2018 Cash provided by (used in): Operating activities $ 142.4 $ 91.5 Investing activities (82.1 ) (118.7 ) Financing activities (40.6 ) (59.8 ) Effect of exchange rate changes (1.9 ) (3.3 ) Net change in cash and cash equivalents $ 17.8 $
(90.3 )
Cash Flows - Operating Activities -------------------------------------------------------------------------------- Cash provided by operating activities for the six months endedNovember 30, 2019 was$142.4 million , as compared to$91.5 million in the same period of the prior year. The increase in cash generated from operations in the current year, compared to the prior year, was primarily due to:
• An increase in net earnings, excluding the naughtone non-cash gain, of
• A decrease in current assets in the current period of
by a decrease in accounts receivable as compared to an increase in current
assets of $44.2 million in the prior year period driven primarily by an
increase in inventory and unbilled accounts receivable; offset by
• A decrease in current liabilities in the current period of
driven primarily by a decease in accounts payable and accrued liabilities
as compared to an increase in current liabilities of
prior period driven primarily by an increase in accounts payable and
accrued compensation and benefits.
Cash Flows - Investing Activities
--------------------------------------------------------------------------------
Cash used in investing activities for the six months ended November 30, 2019 was
$82.1 million , as compared to $118.7 million in the same period of the prior
year. The decrease in cash outflow in the current year, compared to the prior
year, was primarily due to:
• Prior year cash outflows of
and Maars, and
agreement compared to current year cash outflows of
purchase of naughtone.
At the end of the second quarter of fiscal 2020, there were outstanding
commitments for capital purchases of $15.8 million compared to $26.6 million at
the corresponding date in the prior year. The Company plans to fund these
commitments with cash on hand and/or cash generated from operations. The Company
expects full-year capital purchases to be between $90.0 million and $100.0
million , which will be primarily related to investments in the Company's
facilities and equipment. This compares to full-year capital spending of $85.8
million in fiscal 2019.
Subsequent to the end of the current quarter, on
Cash Flows - Financing Activities -------------------------------------------------------------------------------- Cash used in financing activities for the six months endedNovember 30, 2019 was$40.6 million , as compared to$59.8 million in the same period of the prior year. The decrease in cash outflow in the current year, compared to the prior year, was primarily due to: • Lower common stock repurchased of$8.1 million in the current year compared to$37.4 million in the prior year; offset by
• The purchase of the remaining redeemable noncontrolling interests in the
current year for
Consolidated Financial Statements, compared to purchases of
in the prior year.
35-------------------------------------------------------------------------------- Sources of Liquidity -------------------------------------------------------------------------------- In addition to cash flows from operating activities, 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) November 30, 2019 June 1, 2019 Cash and cash equivalents $ 177.0$ 159.2 Marketable securities $ 9.0 $ 8.8 Availability under syndicated revolving line of credit $ 265.5
At the end of the second quarter of fiscal 2020, the Company had cash and cash
equivalents 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 Company intends to repatriate$23 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$0.5 million . A significant portion of this cash was previously taxed under theU.S. Tax Cut and Jobs Act (TCJA) one-timeU.S. tax liability on undistributed foreign earnings. The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside theU.S.
The Company believes cash on hand, cash generated from operations, and borrowing capacity will provide adequate liquidity to fund near term and foreseeable future business operations, capital needs, future dividends and share repurchases, subject to financing availability in the marketplace.
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 ofJune 1, 2019 was provided in the Company's annual report on Form 10-K for the year endedJune 1, 2019 . There have been no material changes in such obligations since that date.
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.
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 endedJune 1, 2019 . During fiscal 2020, the Company changed certain accounting policies in connection with the adoption of ASC 842 - Leases. Refer to Note 4 to the Condensed Consolidated Financial Statements for further information.
New Accounting Standards -------------------------------------------------------------------------------- See Note 2 to the Condensed Consolidated Financial Statements.
36
--------------------------------------------------------------------------------
Safe Harbor Provisions
--------------------------------------------------------------------------------
Certain statements in this filing 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, 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 itself. Words like "anticipates," "believes," "confident,"
"estimates," "expects," "forecasts," likely," "plans," "projects," 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, employment and
general economic conditions, the pace of economic growth in the U.S. , and in our
International markets, the potential impact of changes in U.S. tax law, 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, the ability to increase prices to absorb the
additional costs of raw materials, the financial strength of our dealers and the
financial strength of our customers, our ability to locate new DWR and HAY
studios, negotiate favorable lease terms for new and existing locations and the
implementation of 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, the pace and level of government procurement, the outcome of pending
litigation or governmental audits or investigations, political risk in the
markets we serve, and other risks identified in our filings with the Securities
and Exchange Commission . Therefore, actual results and outcomes may materially
differ from what we express or forecast. Furthermore, Herman Miller, Inc. ,
undertakes no obligation to update, amend or clarify forward-looking statements.
© Edgar Online, source
