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 30, 2020 . 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 and stores, direct-mail catalogs and the Company's e-commerce platforms. The following is a summary of results for the three months endedNovember 28, 2020 : •Net sales were$626.3 million and orders were$629.7 million , representing a decrease of 7.1% and 6.7%, respectively, when compared to the same quarter of the prior year. The decrease in net sales was driven primarily by decreased sales volumes in the North America Contract segment, partially offset by increased demand within the Retail segment and the acquisitions of HAY and naughtone. On an organic basis, net sales were$573.5 million (*) and orders were$572.2 million , representing a decrease of 14.9%(*) and 15.2%, respectively, when compared to the same quarter of the prior year. •Gross margin was 39.0% as compared to 37.9% for the same quarter of the prior year. The increase in gross margin was driven primarily by favorable channel and product sales mix partially offset by lower overhead leverage due to decreased volumes. •Operating expenses decreased by$19.9 million or 10.3% as compared to the same quarter of the prior year. The decrease in operating expenses was driven primarily by lower compensation and benefit costs, lower marketing and selling costs, and lower travel costs. •The effective tax rate was 23.5% compared to 14.3% for the same quarter of the prior year. The same period in the prior year included a non-taxable gain on consolidation of an equity method investment which is the primary driver of the year over year increase in the effective tax rate. •Diluted earnings per share were$0.87 , a 34.1% decrease as compared to the prior year. Excluding restructuring expenses and other special charges, adjusted diluted earnings per share were$0.89 (*), a 1.1% increase as compared to prior year adjusted diluted earnings per share.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
The following summary includes the Company's view on the economic environment in which it operates:
•The Company's Retail segment supports a range of furniture categories aimed at the home environment. Several of these categories, including Upholstery, Outdoor, Storage, and Accessories, saw a ramp-up in demand during the first quarter of fiscal 2021 and this continued into the second quarter of fiscal 2021.
•The disruption from the COVID-19 pandemic adversely impacted the results of our second quarter as industry order trends, as reported by theBusiness and Institutional Furniture Manufacturers Association ("BIFMA"), have highlighted near-term demand pressures from the slowdown in economic activity from the pandemic inHerman Miller, Inc. and Subsidiaries 25 -------------------------------------------------------------------------------- our North America Contract segment. Our International Contract segment has also been impacted, though many of the markets internationally have shown signs of faster economic recovery. •The Company is monitoring the resolution of various trade policy negotiations between theU.S. and key trading partners as well as the ongoing negotiations concerning theU.K. referendum to exit theEuropean Union ("Brexit"). These negotiations create uncertainty in key markets, particularly theU.K. , continentalEurope andChina , which, if unresolved in the near term, could negatively impact customer demand. •The Company continues to navigate the impact of global tariffs. The Company believes, based upon existing circumstances, that pricing, strategic sourcing actions and profit optimization initiatives have fully offset the current level of tariffs imposed on imports fromChina . •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 second quarter of fiscal 2021 was lower than the same period of the prior year and favorably impacted consolidated results on a year-over-year basis. However, the price of steel increased towards the end of the quarter and has the potential to unfavorably impact consolidated gross margin in the second half of fiscal 2021.
The remaining sections within Item 2 include additional analysis of the three
and six 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 has positioned us well to capitalize on emerging opportunities as our customers' needs changed quickly at the onset of the COVID-19 crisis. This has allowed for our Retail business to take advantage of the unanticipated emerging work-from-home trend as consumers are focusing on their broader home environments. Despite this, the extent of the geographic spread and duration of this virus, the impact on our supply chain, future demand for our products, and related financial impact cannot be estimated at this time with any degree of certainty. Employee Safety and Health The health and well-being of employees remains top of mind. We are taking a regional approach to restrictions based on active COVID-19 case levels and local health authority recommendations. 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. 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 a reimaginedDesign Within Reach website, 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. Perhaps most notable for the quarter, our first Herman Miller retail seating concept stores opened inLos Angeles andNew York City . In the early days, these stores have exceeded our expectations as we seek to educate customers about the health benefits of ergonomic seating. We are uniquely positioned to serve our customers through multiple channels with the most comprehensive portfolio of products in the industry. We are confident in our ability to partner with them to solve for the next generation workplace by providing authentic modern designs for their workplaces and their homes. 26 Form 10-Q -------------------------------------------------------------------------------- Manufacturing and Retail Operations Manufacturing facilities continue to operate at near-normal capacity with enhanced safety precautions. Nearly all retail studios and stores are open in some capacity; with some open to the public, some in limited capacity, and others by appointment only. All facilities operate within the context and subject to local guidance from government and health authorities and we will continue to adjust to ensure we are acting in accordance with these guidelines. Cost Reductions In fiscal 2020, the Company implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. In fiscal 2021, the Company, together with its Board of Directors, made the decision to move forward with several restorative actions. This included eliminating the 10% reduction in compensation, the introduction of a modified bonus program and re-establishing a quarterly cash dividend program. In addition, the Company has elected to reinstate the previously suspended retirement plan contributions starting in the fourth quarter of fiscal 2021. The Company continues to tightly control operating expenses in the face of lingering economic uncertainty. 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 restructuring expenses and other special charges or gains, including related taxes. Restructuring expenses in the current period included actions involving facilities consolidation and optimization and targeted workforce reductions, while in the comparative period included actions involving facilities consolidation and optimization and costs associated with an early retirement program. 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. The following tables reconcile net sales to organic net sales for the periods ended as indicated below: Three Months Ended Three Months Ended November 28, 2020 November 30, 2019 North America International Retail Total North America International Retail Total Net sales, as reported$ 323.1 $ 168.1 $ 135.1 $ 626.3 $ 450.6 $ 118.2 $ 105.4 $ 674.2 % change from PY (28.3) % 42.2 % 28.2 % (7.1) % Proforma Adjustments Acquisitions (3.5) (47.8) - (51.3) - - - - Currency translation effects (1) (0.1) (1.4) - (1.5) - - - - Net sales, organic$ 319.5 $ 118.9 $ 135.1 $ 573.5 $ 450.6 $ 118.2 $ 105.4 $ 674.2 % change from PY (29.1) % 0.6 % 28.2 % (14.9) % Herman Miller, Inc. and Subsidiaries 27
--------------------------------------------------------------------------------
Six Months Ended Six Months Ended
November 28, 2020 November 30, 2019
North America International Retail Total North America International Retail Total
Net sales, as reported $ 661.9 $ 321.7 $ 269.4 $ 1,253.0 $ 909.3 $ 232.0 $ 203.9 $ 1,345.2
% change from PY (27.2) % 38.7 % 32.1 % (6.9) %
Proforma Adjustments
Acquisitions (10.6) (87.3) - (97.9) - - - -
Currency translation effects
(1) 0.2 (0.3) - (0.1) - - - -
Net sales, organic $ 651.5 $ 234.1 $ 269.4 $ 1,155.0 $ 909.3 $ 232.0 $ 203.9 $ 1,345.2
% change from PY (28.4) % 0.9 % 32.1 % (14.1) %(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
November 30, November 30,
November 28, 2020 2019 November 28, 2020 2019
Earnings per share - diluted $ 0.87 $
1.32
Less: Gain on consolidation of equity method investment - (0.51) - (0.51) Add: Special charges, after tax - 0.02 0.01 0.02 Add: Restructuring expenses, after tax 0.02 0.05 0.02 0.07
Adjusted earnings per share - diluted
Weighted average shares outstanding (used for calculating adjusted earnings per share) - diluted 59,267,398 59,402,001 59,043,928 59,318,982 Note: The adjustments above are net of tax. For the three and six months endedNovember 28, 2020 andNovember 30, 2019 , the tax impact of the adjustments were immaterial. 28 Form 10-Q --------------------------------------------------------------------------------
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 November 28, November 30, November 28, November 30,
share data) 2020 2019 % Change 2020 2019 % Change
Net sales $ 626.3 $ 674.2 (7.1) % $ 1,253.0 $ 1,345.2 (6.9) %
Cost of sales 382.1 418.7 (8.7) % 758.8 843.6 (10.1) %
Gross margin 244.2 255.5 (4.4) % 494.2 501.6 (1.5) %
Operating expenses 173.2 193.1 (10.3) % 327.8 379.0 (13.5) %
Operating earnings 71.0 62.4 13.8 % 166.4 122.6 35.7 %
Gain on consolidation of
equity method investment - 30.5 n/a - 30.5 n/a
Other expenses, net 2.2 2.6 (15.4) % 3.7 4.7 (21.3) %
Earnings before income taxes
and equity income 68.8 90.3 (23.8) % 162.7 148.4 9.6 %
Income tax expense 16.2 12.9 25.6 % 36.9 25.2 46.4 %
Equity income from
nonconsolidated affiliates,
net of tax 0.2 1.2 (83.3) % 0.4 3.4 (88.2) %
Net earnings 52.8 78.6 (32.8) % 126.2 126.6 (0.3) %
Net earnings (loss)
attributable to redeemable
noncontrolling interests 1.5 - n/a 2.0 (0.2) n/a
Net earnings attributable to
Herman Miller, Inc. $ 51.3 $ 78.6 (34.7) % $ 124.2 $ 126.8 (2.1) %
Earnings per share - diluted $ 0.87 $ 1.32 (34.1) % $ 2.10 $ 2.14 (1.9) %
Orders $ 629.7 $ 674.9 (6.7) % $ 1,185.7 $ 1,351.6 (12.3) %
Backlog $ 403.4 $ 400.6 0.7 %
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 28, 2020 November 30, 2019 November 28, 2020 November 30, 2019
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 61.0 62.1 60.6 62.7
Gross margin 39.0 37.9 39.4 37.3
Operating expenses 27.7 28.6 26.2 28.2
Operating earnings 11.3 9.3 13.3 9.1
Gain on consolidation of equity method
investment - 4.5 - 2.3
Other expenses, net 0.4 0.4 0.3 0.3
Earnings before income taxes and equity
income 11.0 13.4 13.0 11.0
Income tax expense 2.6 1.9 2.9 1.9
Equity income from nonconsolidated
affiliates, net of tax - 0.2 - 0.3
Net earnings 8.4 11.7 10.1 9.4
Net earnings (loss) attributable to
redeemable noncontrolling interests 0.2 - 0.2 -
Net earnings attributable to Herman
Miller, Inc. 8.2 11.7 9.9 9.4
Herman Miller, Inc. and Subsidiaries 29--------------------------------------------------------------------------------Net Sales The following charts present graphically the primary drivers of the year-over-year change in net sales for the three and six months endedNovember 28, 2020 . The amounts presented in the graphs are expressed in millions and have been rounded. [[Image Removed: mlhr-20201128_g2.jpg]] [[Image Removed: mlhr-20201128_g3.jpg]] Net sales decreased$47.9 million or 7.1% in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020. The following items contributed to the change: •Increase of approximately$51 million due to the acquisitions of HAY and naughtone. •Increased sales volumes within the Retail segment of approximately$28 million which were driven primarily by increased demand within the segment's e-commerce channel. •Foreign currency translation had a positive impact on net sales of approximately$2 million . •Decreased sales volumes within the North America Contract ("NAC") segment of approximately$129 million , primarily due to the impact of the outbreak of COVID-19. Net sales decreased$92.2 million or 6.9% in the first six months of fiscal 2021 compared to the first six months of fiscal 2020. The following items led to the change: •Increase of approximately$98 million due to the acquisitions of HAY and naughtone. •Increased sales volumes within the Retail segment of approximately$62 million which were driven primarily by increased demand within the segment's e-commerce channel. •Incremental list price increases, net of price discounting, of approximately$9 million . •Decreased sales volumes within the NAC segment of approximately$264 million , primarily due to the impact of the outbreak of COVID-19. Gross Margin Gross margin was 39.0% in the second quarter of fiscal 2021 as compared to 37.9% in the second quarter of fiscal 2020. The following factors summarize the major drivers of the year-over-year change in gross margin percentage:
•Favorable channel and product sales mix combined with lower commodity costs increased gross margin by approximately 200 basis points. •Lower overhead leverage decreased gross margin by approximately 90 basis points.
Gross margin was 39.4% for the six month period endedNovember 28, 2020 as compared to 37.3% 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: •Strong channel mix increased gross margin by approximately 150 basis points. 30 Form 10-Q -------------------------------------------------------------------------------- •Product mix, material performance and ongoing profitability improvement efforts increased gross margin by approximately 50 basis points. •Incremental list price increases, net of price discounting, increased gross margin by approximately 40 basis points. •Lower overhead leverage decreased gross margin by approximately 30 basis points. Operating Expenses The following charts present graphically the primary drivers of the year-over-year change in operating expenses for the three and six months endedNovember 28, 2020 . The amounts presented in the graphs are expressed in millions and have been rounded. [[Image Removed: mlhr-20201128_g4.jpg]] [[Image Removed: mlhr-20201128_g5.jpg]]Herman Miller, Inc. and Subsidiaries 31
-------------------------------------------------------------------------------- Operating expenses decreased by$19.9 million or 10.3% in the second quarter of fiscal 2021 compared to the prior year period. The following factors contributed to the change: •Lower marketing and selling costs of approximately$10 million primarily within the North America Contract and Retail segments. •Compensation and benefit costs decreased approximately$7 million due to lower headcount associated with the reduction in workforce actions initiated in the fourth quarter of fiscal 2020 and the temporary suspension of certain employee benefits. •Travel costs were approximately$3 million lower due to decreased travel as a result of COVID-19. •Restructuring expenses and special charges decreased approximately$3 million . •Lower studio costs of approximately$3 million driven by lower lease expense and staffing costs. •Warranty costs decreased approximately$3 million . •The acquisition of HAY and naughtone increased operating expenses by approximately$12 million .
Operating expenses decreased by
•Lower marketing and selling costs of approximately$23 million primarily within the North America Contract and Retail segments. •Compensation and benefit costs decreased approximately$23 million due primarily to lower headcount associated with the reduction in workforce actions initiated in the fourth quarter of fiscal 2020, as well as temporary wage reductions that were in effect during the first quarter of the year. •Travel costs were approximately$9 million lower due to decreased travel as a result of COVID-19. •Restructuring expenses and special charges decreased approximately$5 million . •Lower studio costs of approximately$5 million driven by lower lease expense. •Warranty costs decreased approximately$4 million . •The acquisition of HAY and naughtone increased operating expenses by approximately$23 million . Other Income/Expense During the three months endedNovember 28, 2020 , net other expense was$2.2 million , a decrease of$0.4 million compared to the same period in the prior year. During the six months endedNovember 28, 2020 , net other expense was$3.7 million , a decrease of$1.0 million compared to the same period in the prior year. 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 of fiscal 2020 and as a result, was required to adjust the value of the initial investment to fair value, resulting in a non-taxable gain. Income Taxes See Note 11 of the Condensed Consolidated Financial Statements for additional information. 32 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 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 each of the Company's segments during the three and six month periods endedNovember 28, 2020 . This is followed by a discussion of the Company's results, by reportable segment.
[[Image Removed: mlhr-20201128_g6.jpg]][[Image Removed: mlhr-20201128_g7.jpg]]
[[Image Removed: mlhr-20201128_g8.jpg]][[Image Removed: mlhr-20201128_g9.jpg]]
Herman Miller, Inc. and Subsidiaries 33 --------------------------------------------------------------------------------
North America Contract ("North America")
Three Months Ended Six Months Ended
November 28, November 30, November 28, November 30,
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Net sales $ 323.1 $ 450.6 $ (127.5) $ 661.9 $ 909.3 $ (247.4)
Gross margin 116.2 169.3 (53.1) 245.2 337.0 (91.8)
Gross margin % 36.0 % 37.6 % (1.6) % 37.0 % 37.1 % (0.1) %
Operating earnings 35.6 62.5 (26.9) 87.4 125.4 (38.0)
Operating earnings % 11.0 % 13.9 % (2.9) % 13.2 % 13.8 % (0.6) %
For the three month comparative period, net sales decreased 28.3%, or 29.1%(*) on an organic basis, over the prior year period due to:
•Decreased sales volumes within the
For the six month comparative period, net sales decreased 27.2%, or 28.4%(*) on an organic basis, over the prior year period due to:
•Decreased sales volumes within theNorth America segment of approximately$264 million , primarily due to the outbreak of COVID-19; partially offset by •Incremental list price increases, net of price discounting, of approximately$5 million ; and •Approximately$11 million due to the acquisition of naughtone.
For the three month comparative period, operating earnings decreased
•Decreased gross margin of$53.1 million due to decreased sales volumes and a decrease in gross margin percentage of 160 basis points. The decrease in gross margin percentage was due primarily to lower volume leverage due to the outbreak of COVID-19 described above, partially mitigated by improvements in material and labor performance; partially offset by •Decreased operating expenses of$26.2 million driven primarily by lower marketing and selling expenses of approximately$8 million , lower compensation and benefit costs of approximately$6 million , lower warranty costs of approximately$3 million , lower restructuring costs of approximately$3 million , and lower travel costs of approximately$2 million .
For the six month comparative period, operating earnings decreased
•Decreased gross margin of$91.8 million due to decreased sales volumes; partially offset by •Decreased operating expenses of$53.8 million driven primarily by lower marketing and selling expenses of approximately$20 million , lower compensation and benefit costs of approximately$13 million , lower travel costs of approximately$6 million , lower warranty costs of approximately$4 million , and lower restructuring costs of approximately$3 million .
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
34 Form 10-Q --------------------------------------------------------------------------------
International Contract ("International")
Three Months Ended Six Months Ended
November 28, November 30, November 28, November 30,
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Net sales $ 168.1 $ 118.2 $ 49.9 $ 321.7 $ 232.0 $ 89.7
Gross margin 60.7 40.3 20.4 115.7 80.1 35.6
Gross margin % 36.1 % 34.1 % 2.0 % 36.0 % 34.5 % 1.4 %
Operating earnings 23.4 12.8 10.6 48.4 25.9 22.5
Operating earnings % 13.9 % 10.8 % 3.1 % 15.0 % 11.2 % 3.8 %
For the three month comparative period, net sales increased 42.2%, or 0.6%(*) on
an organic basis, over the prior year period due primarily to the acquisition of
HAY and naughtone which increased sales by approximately $48 million .
For the six month comparative period, net sales increased 38.7%, or 0.9%(*) on
an organic basis, over the prior year period due primarily to the acquisition of
HAY and naughtone which increased sales by approximately $87 million .
For the three month comparative period, operating earnings increased
•Increased gross margin of
For the six month comparative period, operating earnings increased
•Increased gross margin of$35.6 million due to the increase in sales explained above, and increased gross margin percentage of 140 basis points due primarily to changes in channel and product mix; partially offset by •Increased operating expenses of$13.1 million , driven primarily by the acquisition of HAY and naughtone and partially offset by cost reduction actions. (*) Non-GAAP measurements; see accompanying reconciliations and explanations. Retail Three Months Ended Six Months EndedNovember 28 ,November 30 ,
(Dollars in millions) November 28, 2020 November 30, 2019 Change 2020 2019 Change Net sales $ 135.1 105.4$ 29.7 $ 269.4 $ 203.9 $ 65.5 Gross margin 67.3 45.9 21.4 133.3 84.5 48.8 Gross margin % 49.8 % 43.5 % 6.3 % 49.5 % 41.4 % 8.1 % Operating earnings 22.6 (0.9) 23.5 51.8 (4.9) 56.7 Operating earnings % 16.7 % (0.9) % 17.6 % 19.2 % (2.4) % 21.6 %
For the three month comparative period, net sales increased 28.2%, both on an as reported and organic(*) basis, over the prior year period due to:
•Increased sales volumes of approximately
Herman Miller, Inc. and Subsidiaries 35 --------------------------------------------------------------------------------
For the six month comparative period, net sales increased 32.1%, both on an as reported and organic(*) basis, over the prior year period due to:
•Increased sales volumes of approximately$62 million which were driven primarily by increased demand within the segment's e-commerce channel; and •Incremental list price increases, net of price discounting, of approximately$6 million ; offset by •Lower freight revenue of approximately$2 million .
For the three month comparative period, operating earnings increased
•Increased gross margin of$21.4 million due to the increase in sales explained above, as well as increased gross margin percentage of 630 basis points due primarily to changes in channel and product mix and incremental list price increases, net of price discounting, partially offset by higher freight expenses; and •Decreased operating expenses of$2.1 million driven primarily by lower studio costs.
For the six month comparative period, operating earnings increased
•Increased gross margin of$48.8 million due to the increase in sales explained above, as well as increased gross margin of 810 basis points due primarily to changes in channel and product mix and incremental list price increases, net of price discounting; and •Decreased operating expenses of$7.9 million driven primarily by lower studio costs and lower marketing expenses.
(*) Non-GAAP measurements; see accompanying reconciliations and explanations.
Corporate
Corporate unallocated expenses totaled$10.6 million for the second quarter of fiscal 2021, a decrease of$1.4 million from the second quarter of fiscal 2020. The decrease was driven primarily by lower special charges in the current period. Corporate unallocated expenses totaled$21.2 million for the first six months of fiscal 2021, a decrease of$2.6 million from the same period of fiscal 2020. The decrease was driven primarily by lower compensation and benefit costs and lower special charges in the current period. 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 28, 2020 November 30, 2019 Cash provided by (used in): Operating activities $ 214.6 $ 142.4 Investing activities (24.4) (82.1) Financing activities (276.9) (40.6) Effect of exchange rate changes 10.6
(1.9)
Net change in cash and cash equivalents $ (76.1) $ 17.8 36 Form 10-Q
-------------------------------------------------------------------------------- Cash Flows - Operating Activities Cash provided by operating activities for the six months endedNovember 28, 2020 was$214.6 million , as compared to$142.4 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: •Prior year net earnings which included a non-taxable non-cash gain on consolidation of an equity method investment of$30.5 million ; and •An increase in current liabilities in the current period of$22.9 million , driven primarily by an increase in accounts payable. This compares to a decrease in current liabilities of$21.1 million in the prior year period. The decrease in the prior year period was driven primarily by a decrease in accrued liabilities; offset by •A decrease in current assets in the current period of$2.3 million , driven by a decrease in inventory and prepaid expenses, offset by an increase in accounts receivable. This compares to a decrease in current assets of$16.5 million in the prior year period. Cash Flows - Investing Activities Cash used in investing activities for the six months endedNovember 28, 2020 was$24.4 million , as compared to$82.1 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 outflow of$40.0 million for the purchase of naughtone; •A decrease in capital expenditures of$14.2 million due to reduced spending as a result of COVID-19; and •Proceeds from the sale of the Company's manufacturing facility inChina and office facility in theUnited Kingdom in the current year of$11.4 million . At the end of the second quarter of fiscal 2021, there were outstanding commitments for capital purchases of$16.3 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$50.0 million and$60.0 million , which will be primarily related to investments in the Company's facilities and equipment. This compares to full-year capital spending of$69.0 million in fiscal 2020. Cash Flows - Financing Activities Cash used in financing activities for the six months endedNovember 28, 2020 was$276.9 million , as compared to$40.6 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 repayments of$265.0 million on the Company's credit facility inJune 2020 . 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. For more information on current cost reductions, refer to the COVID-19 Update section above. At the end of the second quarter of fiscal 2021, the Company had a well-positioned balance sheet and liquidity profile. 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 28, 2020 May 30, 2020 Cash and cash equivalents $ 377.9 $ 454.0 Marketable securities 7.2 7.0 Availability under syndicated revolving line of credit 265.2 0.6 Total liquidity $ 650.3 $ 461.6 Herman Miller, Inc. and Subsidiaries 37
-------------------------------------------------------------------------------- Of the cash and cash equivalents noted above at the end of the second quarter of fiscal 2021, the Company had$176.4 million of cash and cash equivalents held outsidethe United States . In addition, the Company had marketable securities of$7.2 million held by one of its international wholly-owned subsidiaries. The Company's syndicated revolving line of credit, which expires onAugust 28, 2024 , provides the Company with up to$500 million in revolving variable interest borrowing capacity and includes an "accordion feature" allowing the Company to increase, at its option and subject to the approval of the participating banks, the aggregate borrowing capacity of the facility by up to$250 million . Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, LIBOR or negotiated rates as outlined in the agreement. Interest is payable periodically throughout the period if borrowings are outstanding.
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 Company intends to repatriate$26.7 million in cash held in certain foreign jurisdictions over the next two years 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$1.8 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 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 30, 2020 was provided in the Company's annual report on Form 10-K for the year endedMay 30, 2020 . 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 endedMay 30, 2020 . New Accounting Standards See Note 2 to the Condensed Consolidated Financial Statements. 38 Form 10-Q -------------------------------------------------------------------------------- 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 theU.S. , and in our International markets, the potential impact of changes inU.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, HAY, and Herman Miller retail stores and 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, 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. Furthermore,Herman Miller, Inc. , undertakes no obligation to update, amend or clarify forward-looking statements.
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