MillerKnoll(MLKN) - 2021 Q1 - Quarterly Report

Part I — Financial Information Financial Statements (Unaudited) The company reported decreased net sales but significantly increased net earnings, supported by a strengthened balance sheet and robust operating cash flow Condensed Consolidated Statements of Comprehensive Income Quarterly net sales declined 6.6% year-over-year, yet operating earnings grew 58.7% and diluted EPS rose to $1.24 due to improved cost management Condensed Consolidated Statements of Comprehensive Income (Three Months Ended) | (Dollars in millions, except share data) | August 29, 2020 | August 31, 2019 | | :--- | :--- | :--- | | Net sales | $626.8 | $670.9 | | Gross margin | $250.0 | $246.1 | | Operating earnings | $95.4 | $60.1 | | Net earnings attributable to Herman Miller, Inc. | $73.0 | $48.2 | | Earnings per share — diluted | $1.24 | $0.81 | Condensed Consolidated Balance Sheets Total assets decreased while total stockholders' equity increased, driven by a significant reduction in long-term debt Condensed Consolidated Balance Sheet Highlights | (Dollars in millions) | August 29, 2020 | May 30, 2020 | | :--- | :--- | :--- | | Total current assets | $757.5 | $917.1 | | Cash and cash equivalents | $296.6 | $454.0 | | Total Assets | $1,917.1 | $2,053.9 | | Total current liabilities | $477.5 | $470.2 | | Long-term debt | $274.9 | $539.9 | | Total Liabilities | $1,113.5 | $1,360.5 | | Total Stockholders' Equity | $746.4 | $643.0 | Condensed Consolidated Statements of Cash Flows Net cash from operations more than doubled year-over-year, though a large credit facility repayment led to a net decrease in cash Condensed Consolidated Statements of Cash Flows (Three Months Ended) | (Dollars in millions) | August 29, 2020 | August 31, 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $115.9 | $54.7 | | Net Cash Used in Investing Activities | ($5.1) | ($24.0) | | Net Cash Used in Financing Activities | ($276.5) | ($27.9) | | Net (Decrease) Increase in Cash and Cash Equivalents | ($157.4) | $0.3 | Notes to Condensed Consolidated Financial Statements Key disclosures cover accounting standards, acquisitions, goodwill impairments, restructuring, debt management, and a 22.0% effective tax rate - The company adopted ASU No 2016-13 (Credit Losses) and ASU No 2018-13 (Fair Value Measurement) on May 31, 2020, with no material impact on its financial statements[18][19] - The purchase price allocation for the acquisition of HAY was finalized in Q1 FY2021, and the acquisition of naughtone was finalized in Q4 FY2020, with both accounted for as acquisitions achieved in stages[35][37] - In fiscal 2020, the company recorded goodwill impairment charges of $88.8 million for the Retail reporting unit and $36.7 million for the Maharam reporting unit, resulting in no remaining goodwill in either unit[44] - The company announced a restructuring plan in May 2020 in response to COVID-19, eliminating approximately 400 positions and projecting annualized expense reductions of about $40 million[104] Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales decreased 6.6% due to COVID-19's impact on Contract segments, but improved gross margin and lower expenses drove a 58.7% rise in operating earnings - Net sales decreased 6.6% YoY, but on an organic basis (excluding acquisitions and currency effects), the decrease was 13.3%[109] - Gross margin increased by 320 basis points to 39.9%, driven by strong channel/product mix, price increases, and lower freight/warehousing costs[109][125] - The company repaid a $265 million draw on its credit facility, taken as a precautionary measure in March 2020 due to COVID-19 uncertainty[86][109] - Subsequent to the quarter end, the Board of Directors re-established a quarterly dividend of $0.1875 per share[109] COVID-19 Update The company's multi-channel approach and digital investments helped mitigate pandemic impacts, with the Retail business capitalizing on work-from-home trends - The company's multi-channel go-to-market approach has enabled it to serve customers effectively despite the pandemic, with the Retail business benefiting from the work-from-home trend[111] - Digital investments, such as a reimagined Design Within Reach website and a Work from Home online assessment tool, have helped capitalize on new opportunities[113] Operating Segment Results The Retail segment's 36.2% sales growth and a swing to profitability offset a 26.1% decline in the North America Contract segment Net Sales by Segment (Three Months Ended) | (In millions) | August 29, 2020 | August 31, 2019 | | :--- | :--- | :--- | | North America Contract | $338.8 | $458.4 | | International Contract | $153.7 | $113.9 | | Retail | $134.3 | $98.6 | | Total | $626.8 | $670.9 | Operating Earnings (Loss) by Segment (Three Months Ended) | (In millions) | August 29, 2020 | August 31, 2019 | | :--- | :--- | :--- | | North America Contract | $51.8 | $62.9 | | International Contract | $25.1 | $13.1 | | Retail | $29.2 | ($3.9) | | Corporate | ($10.7) | ($12.0) | | Total | $95.4 | $60.1 | Liquidity and Capital Resources The company maintained a strong liquidity position of $569.3 million after repaying $265.0 million on its credit facility Total Liquidity | (In millions) | August 29, 2020 | May 30, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $296.6 | $454.0 | | Marketable securities | $7.0 | $7.0 | | Availability under syndicated revolving line of credit | $265.7 | $0.6 | | Total liquidity | $569.3 | $461.6 | - Cash provided by operating activities increased to $115.9 million from $54.7 million in the prior year, mainly due to higher net earnings and improved working capital management[142][143] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure remains foreign currency exchange risk, which is managed using forward contracts - The company's primary market risk is foreign currency exchange risk due to its global operations, with principal exposures including the British pound sterling, euro, and Canadian dollar[161][162] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of August 29, 2020[163] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[164] Part II — Other Information Legal Proceedings Pending legal proceedings from the ordinary course of business are not expected to have a material adverse effect on financial statements - In management's opinion, the outcome of currently pending legal proceedings and litigation will not have a material adverse effect on the Company's Consolidated Financial Statements[83][166] Risk Factors No material changes to the company's risk factors were reported since the fiscal year-end 2020 Form 10-K filing - No material changes in the Company's risk factors were reported from those set forth in the Annual Report on Form 10-K for the year ended May 30, 2020[167] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 36,644 shares of its common stock during the quarter and did not sell any unregistered equity securities Share Repurchase Activity (Quarter Ended August 29, 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 5/31/20 - 6/27/20 | 305 | $28.20 | | 6/28/20 - 7/25/20 | 34,398 | $23.05 | | 7/26/20 - 8/29/20 | 1,941 | $27.18 | | Total | 36,644 | N/A | Exhibits Filed exhibits include CEO/CFO certifications under the Sarbanes-Oxley Act and interactive data files in XBRL format - Exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and Inline XBRL documents[172]