MillerKnoll(MLKN) - 2021 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and related notes covering various accounting and financial details Condensed Consolidated Statements of Comprehensive Income Three Months Ended November 28, 2020 vs. November 30, 2019 (in millions) | Metric | Nov 28, 2020 | Nov 30, 2019 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Net sales | $626.3 | $674.2 | (7.1)% | | Gross margin | $244.2 | $255.5 | (4.4)% | | Operating earnings | $71.0 | $62.4 | 13.8% | | Net earnings attributable to Herman Miller, Inc. | $51.3 | $78.6 | (34.7)% | | Diluted EPS | $0.87 | $1.32 | (34.1)% | Six Months Ended November 28, 2020 vs. November 30, 2019 (in millions) | Metric | Nov 28, 2020 | Nov 30, 2019 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Net sales | $1,253.0 | $1,345.2 | (6.9)% | | Gross margin | $494.2 | $501.6 | (1.5)% | | Operating earnings | $166.4 | $122.6 | 35.7% | | Net earnings attributable to Herman Miller, Inc. | $124.2 | $126.8 | (2.1)% | | Diluted EPS | $2.10 | $2.14 | (1.9)% | Condensed Consolidated Balance Sheets As of November 28, 2020 vs. May 30, 2020 (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :----------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $377.9 | $454.0 | | Total current assets | $837.9 | $917.1 | | Total Assets | $2,028.5 | $2,053.9 | | Total current liabilities | $507.5 | $470.2 | | Long-term debt | $274.9 | $539.9 | | Total Liabilities | $1,173.7 | $1,360.5 | | Total Stockholders' Equity | $798.3 | $643.0 | Condensed Consolidated Statements of Cash Flows Six Months Ended November 28, 2020 vs. November 30, 2019 (in millions) | Cash Flow Activity | Nov 28, 2020 | Nov 30, 2019 | | :----------------------------------- | :----------- | :----------- | | Net Cash Provided by Operating Activities | $214.6 | $142.4 | | Net Cash Used in Investing Activities | $(24.4) | $(82.1) | | Net Cash Used in Financing Activities | $(276.9) | $(40.6) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(76.1) | $17.8 | | Cash and Cash Equivalents, End of Period | $377.9 | $177.0 | Condensed Consolidated Statements of Stockholders' Equity - Total Stockholders' Equity increased from $643.0 million at May 30, 2020, to $798.3 million at November 28, 2020, primarily driven by net earnings of $73.0 million and $51.3 million in the two subsequent quarters, and other comprehensive income[12] - For the six months ended November 28, 2020, the company declared dividends of $0.1875 per share, totaling $11.1 million[12] Notes to Condensed Consolidated Financial Statements Note 1 - Basis of Presentation - The Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, including all normal recurring adjustments necessary for fair presentation[17][18] Note 2 - Recently Issued Accounting Standards - 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[19][20] - The Company is evaluating ASU No. 2018-14 (Defined Benefit Plans), effective May 30, 2021, but does not expect a material impact[21] Note 3 - Revenue from Contracts with Customers Disaggregated Revenue by Contract Type (in millions) | Contract Type | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Single performance obligation (Product) | $544.3 | $572.7 | $1,087.6 | $1,138.9 | | Multiple performance obligations (Product) | $77.2 | $95.8 | $155.7 | $195.7 | | Multiple performance obligations (Service) | $2.9 | $2.9 | $6.0 | $5.2 | | Other | $1.9 | $2.8 | $3.7 | $5.4 | | Total Net Sales | $626.3 | $674.2 | $1,253.0 | $1,345.2 | Disaggregated Revenue by Product Type and Segment (3 Months Ended Nov 28, 2020 vs Nov 30, 2019, in millions) | Segment / Product Type | Nov 28, 2020 | Nov 30, 2019 | | :--------------------- | :----------- | :----------- | | North America Contract: | | | | Workplace | $197.2 | $277.3 | | Performance Seating | $74.7 | $108.6 | | Lifestyle | $20.4 | $24.5 | | Other | $30.8 | $40.2 | | Total North America Contract | $323.1 | $450.6 | | International Contract: | | | | Workplace | $35.1 | $45.3 | | Performance Seating | $73.4 | $61.5 | | Lifestyle | $57.1 | $7.4 | | Other | $2.5 | $4.0 | | Total International Contract | $168.1 | $118.2 | | Retail: | | | | Workplace | $2.0 | $1.1 | | Performance Seating | $49.2 | $12.6 | | Lifestyle | $83.6 | $91.7 | | Other | $0.3 | $0.0 | | Total Retail | $135.1 | $105.4 | | Total | $626.3 | $674.2 | - The Company revised its product categories to Workplace, Performance Seating, Lifestyle, and Other, reflecting internal reporting and operational decision-making changes[22][23][24][25] Note 4 - Leases Lease Costs (in millions) | Cost Type | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease costs | $12.4 | $12.6 | $23.4 | $25.4 | | Short-term lease costs | $0.7 | $0.7 | $1.5 | $1.2 | | Variable lease costs | $2.0 | $2.2 | $3.6 | $4.4 | | Total | $15.1 | $15.5 | $28.5 | $31.0 | - Operating lease costs decreased due to a $19.3 million impairment of right-of-use assets recorded in Q4 fiscal 2020[30] Future Minimum Lease Payments (in millions) | Fiscal Year | Amount | | :---------- | :----- | | 2021 | $25.7 | | 2022 | $49.4 | | 2023 | $46.5 | | 2024 | $41.6 | | 2025 | $37.2 | | Thereafter | $103.2 | | Total Lease Payments | $303.6 | | Less interest | $30.6 | | Present Value of Lease Liabilities | $273.0 | Note 5 - Acquisitions - On December 2, 2019, the Company obtained a controlling interest in HAY by purchasing an additional 34% ownership for $79.0 million, increasing its stake to 67%, resulting in a $67.8 million non-taxable gain on remeasurement of the previously held equity interest[35][39] - Goodwill of $101.1 million was recorded in the International Contract segment and $10.0 million in the Retail segment for the HAY acquisition, though the Retail segment goodwill was fully impaired in Q4 fiscal 2020[40] - On October 25, 2019, the Company acquired the remaining 47.5% equity in naughtone for $45.9 million, gaining 100% ownership, which led to a non-taxable gain of approximately $30 million on the remeasurement of the prior equity investment[41][43] - Goodwill of $35.0 million and $22.5 million was recorded in the North America Contract and International Contract segments, respectively, for the naughtone acquisition[44] Note 6 - Inventories, net Inventories, net (in millions) | Category | Nov 28, 2020 | May 30, 2020 | | :------------- | :----------- | :----------- | | Finished goods | $147.1 | $151.1 | | Raw materials | $43.9 | $46.2 | | Total | $191.0 | $197.3 | - Inventories are valued at the lower of cost or market, with certain North America Contract manufacturing operations using LIFO and all other operations using FIFO[47] Note 7 - Goodwill and Indefinite-Lived Intangibles Goodwill and Indefinite-Lived Intangible Assets (in millions) | Category | Nov 28, 2020 | May 30, 2020 | | :-------------------------- | :----------- | :----------- | | Goodwill | $358.5 | $346.0 | | Indefinite-lived Intangible Assets | $96.4 | $92.8 | - In fiscal 2020, goodwill impairment charges of $88.8 million for Retail and $36.7 million for Maharam were recorded, resulting in no remaining goodwill for these units[49] - Indefinite-lived intangible asset impairment charges of $53.3 million were recognized in fiscal 2020 for DWR, Maharam, HAY, and naughtone trade names[52] - No interim quantitative impairment assessment was required for reporting units or indefinite-lived intangible assets during the six months ended November 28, 2020[53] Note 8 - Employee Benefit Plans Net Periodic Benefit Cost for Defined Benefit Pension Plan (in millions) | Component | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest cost | $0.7 | $0.6 | $1.3 | $1.2 | | Expected return on plan assets | $(1.4) | $(1.1) | $(2.8) | $(2.2) | | Net amortization loss | $1.6 | $0.9 | $3.3 | $1.7 | | Net periodic benefit cost | $0.9 | $0.4 | $1.8 | $0.7 | Note 9 - Earnings Per Share Earnings Per Share Reconciliation | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :---------------------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings attributable to Herman Miller, Inc. (in millions) | $51.3 | $78.6 | $124.2 | $126.8 | | Weighted average common shares outstanding (basic) | 58,908,094 | 59,061,731 | 58,869,699 | 58,985,366 | | Potentially dilutive shares | 359,304 | 340,270 | 174,229 | 333,616 | | Denominator for diluted EPS | 59,267,398 | 59,402,001 | 59,043,928 | 59,318,982 | | Basic EPS | $0.87 | $1.33 | $2.11 | $2.15 | | Diluted EPS | $0.87 | $1.32 | $2.10 | $2.14 | Note 10 - Stock-Based Compensation Stock-Based Compensation Expense (in millions) | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation expense | $2.4 | $2.8 | $3.9 | $5.4 | | Related income tax effect | $0.6 | $0.6 | $0.9 | $1.2 | Note 11 - Income Taxes Effective Tax Rates | Period | Nov 28, 2020 | Nov 30, 2019 | | :-------------------- | :----------- | :----------- | | Three Months Ended | 23.5% | 14.3% | | Six Months Ended | 22.6% | 16.9% | - The increase in effective tax rates year-over-year is primarily due to a non-taxable gain on consolidation of an equity method investment in the prior year[57][58] - The Company's liability for potential interest and penalties related to uncertain tax benefits increased to $1.0 million as of November 28, 2020, from $0.8 million as of May 30, 2020[60] Note 12 - Fair Value Measurements Carrying Value and Fair Value of Long-Term Debt (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :------------- | :----------- | :----------- | | Carrying value | $327.2 | $591.3 | | Fair value | $334.4 | $594.0 | Financial Assets and Liabilities Measured at Fair Value Through Net Income (in millions) | Category | Nov 28, 2020 (NAV) | Nov 28, 2020 (Level 2) | May 30, 2020 (NAV) | May 30, 2020 (Level 2) | | :-------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Money market funds | $90.1 | — | $283.7 | — | | Mutual funds - equity | — | $0.7 | — | $0.7 | | Foreign currency forward contracts (assets) | — | $1.4 | — | $1.1 | | Deferred compensation plan | — | $16.4 | — | $13.2 | | Total Financial Assets | $90.1 | $18.5 | $283.7 | $15.0 | | Foreign currency forward contracts (liabilities) | — | $0.3 | — | $0.8 | | Total Financial Liabilities | — | $0.3 | — | $0.8 | - The Company uses foreign currency forward contracts to reduce risks from foreign currency exposures, with changes in fair value recorded in net earnings[72][73] - Interest rate swap agreements, designated as cash flow hedges, convert variable interest payments to fixed rates, with a fair value liability of $23.5 million as of November 28, 2020[74][75][77] Note 13 - Commitments and Contingencies Changes in Warranty Reserve (in millions) | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Accrual Balance — beginning | $60.3 | $53.3 | $59.2 | $53.1 | | Accrual for warranty matters | $2.7 | $6.3 | $7.3 | $11.6 | | Settlements and adjustments | $(3.2) | $(5.0) | $(6.7) | $(10.1) | | Accrual Balance — ending | $59.8 | $54.6 | $59.8 | $54.6 | - The Company provides a 12-year assurance-type warranty for most products and maintains reserves based on historical claims[81] - As of November 28, 2020, the Company had $5.5 million in maximum financial exposure from performance bonds and $9.8 million from standby letters of credit, with no history of claims[83][84] Note 14 - Short-Term Borrowings and Long-Term Debt Short-Term Borrowings and Long-Term Debt (in millions) | Obligation | Nov 28, 2020 | May 30, 2020 | | :------------------------------------ | :----------- | :----------- | | Debt securities, 6.0%, due March 1, 2021 | $50.0 | $50.0 | | Debt securities, 4.95%, due May 20, 2030 | $49.9 | $49.9 | | Syndicated revolving line of credit, due August 2024 | $225.0 | $490.0 | | Supplier financing program | $2.3 | $1.4 | | Total debt | $327.2 | $591.3 | | Less: Current debt | $(52.3) | $(51.4) | | Long-term debt | $274.9 | $539.9 | - In June 2020, the Company repaid $265 million on its syndicated revolving line of credit, which was drawn in March 2020 as a precautionary measure due to COVID-19[88] Available Borrowings Under Syndicated Revolving Line of Credit (in millions) | Metric | Nov 28, 2020 | May 30, 2020 | | :------------------------------------------------ | :----------- | :----------- | | Syndicated revolving line of credit borrowing capacity | $500.0 | $500.0 | | Less: Borrowings | $225.0 | $490.0 | | Less: Outstanding letters of credit | $9.8 | $9.4 | | Available borrowings | $265.2 | $0.6 | Note 15 - Accumulated Other Comprehensive Loss Changes in Accumulated Other Comprehensive Loss (Six Months Ended Nov 28, 2020, in millions) | Component | Balance at May 30, 2020 | Net current period other comprehensive income (loss) | Balance at Nov 28, 2020 | | :-------------------------------- | :---------------------- | :------------------------------------------------- | :---------------------- | | Cumulative Translation Adjustments | $(56.0) | $32.3 | $(23.7) | | Pension and Other Post-retirement Benefit Plans | $(59.2) | $2.5 | $(56.7) | | Unrealized Gains on Available-for-sale Securities | $0.1 | $(0.1) | $0.0 | | Interest Rate Swap Agreement | $(18.9) | $1.2 | $(17.7) | | Total Accumulated Other Comprehensive Loss | $(134.0) | $35.9 | $(98.1) | Note 16 - Operating Segments - The Company's reportable segments are North America Contract, International Contract, and Retail, with a 'Corporate' category for unallocated expenses[93][94][95][96] Net Sales by Segment (in millions) | Segment | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America Contract | $323.1 | $450.6 | $661.9 | $909.3 | | International Contract | $168.1 | $118.2 | $321.7 | $232.0 | | Retail | $135.1 | $105.4 | $269.4 | $203.9 | | Total | $626.3 | $674.2 | $1,253.0 | $1,345.2 | Operating Earnings (Loss) by Segment (in millions) | Segment | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America Contract | $35.6 | $62.5 | $87.4 | $125.4 | | International Contract | $23.4 | $12.8 | $48.4 | $25.9 | | Retail | $22.6 | $(0.9) | $51.8 | $(4.9) | | Corporate | $(10.6) | $(12.0) | $(21.2) | $(23.8) | | Total | $71.0 | $62.4 | $166.4 | $122.6 | Note 17 - Restructuring Expense - The Company recognized a net credit of $1.9 million in fiscal 2021 related to a facilities consolidation plan in its International Contract segment, which is substantially complete and expected to generate $3 million in cost savings[98] - Gains of approximately $3.4 million from the sale of an office building in China and a nominal gain from a UK office building were included in restructuring expense[99] - A May 2020 restructuring plan, in response to COVID-19, eliminated approximately 400 full-time positions, projecting annualized expense reductions of $40 million, with $3.1 million in severance recognized in fiscal 2021[103] Restructuring Expenses by Segment (in millions) | Segment | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America Contract | $0.8 | $3.8 | $2.4 | $5.5 | | International Contract | $1.6 | $0.4 | $(1.2) | $0.6 | | Total | $2.4 | $4.2 | $1.2 | $6.1 | Note 18 - Variable Interest Entities - The Company holds long-term notes receivable with a third-party owned dealer, classified as a variable interest entity, with a carrying value of $1.3 million as of November 28, 2020, representing its maximum exposure to loss[105] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and cash flows for the three and six months ended November 28, 2020 Business Overview - Net sales decreased 7.1% to $626.3 million, and orders decreased 6.7% to $629.7 million for the three months ended November 28, 2020, compared to the prior year[109] - Organic net sales and orders decreased by 14.9% and 15.2% respectively, primarily due to decreased sales volumes in the North America Contract segment, partially offset by increased demand in the Retail segment and acquisitions[109] - Gross margin increased to 39.0% from 37.9% in the prior year, driven by favorable channel and product sales mix, partially offset by lower overhead leverage[109] - Operating expenses decreased by $19.9 million (10.3%) due to lower compensation, marketing, selling, and travel costs[109] - Diluted EPS decreased 34.1% to $0.87, but adjusted diluted EPS increased 1.1% to $0.89, excluding restructuring and special charges[109] COVID-19 Update - The COVID-19 pandemic adversely impacted demand in the Contract channel, but the multi-channel approach and digital investments allowed the Retail business to capitalize on the work-from-home trend[112] - The Company implemented enhanced safety precautions in manufacturing facilities and retail stores, which are operating at near-normal capacity or with limited access[113][115] - Cost reduction actions from fiscal 2020 were partially reversed in fiscal 2021, with the reinstatement of compensation, a modified bonus program, quarterly cash dividends, and retirement plan contributions[116] Reconciliation of Non-GAAP Financial Measures - Organic net sales exclude currency translation effects and the impact of acquisitions, while adjusted EPS excludes restructuring expenses and other special charges or gains[117] Organic Net Sales (3 Months Ended Nov 28, 2020, in millions) | Segment | Net Sales, as Reported | Acquisitions | Currency Translation Effects | Net Sales, Organic | % Change from PY | | :-------------------- | :--------------------- | :----------- | :------------------------- | :----------------- | :--------------- | | North America Contract | $323.1 | $(3.5) | $(0.1) | $319.5 | (29.1)% | | International Contract | $168.1 | $(47.8) | $(1.4) | $118.9 | 0.6% | | Retail | $135.1 | — | — | $135.1 | 28.2% | | Total | $626.3 | $(51.3) | $(1.5) | $573.5 | (14.9)% | Adjusted Earnings Per Share - Diluted | Metric | 3 Months Ended Nov 28, 2020 | 3 Months Ended Nov 30, 2019 | 6 Months Ended Nov 28, 2020 | 6 Months Ended Nov 30, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Earnings per share - diluted | $0.87 | $1.32 | $2.10 | $2.14 | | 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 | $0.89 | $0.88 | $2.13 | $1.72 | Analysis of Results for Three and Six Months Net Sales - Net sales decreased by $47.9 million (7.1%) in Q2 fiscal 2021, primarily due to a $129 million decrease in North America Contract sales volumes, partially offset by $51 million from acquisitions (HAY and naughtone) and $28 million from increased Retail segment sales[127] - For the first six months of fiscal 2021, net sales decreased by $92.2 million (6.9%), driven by a $264 million decrease in North America Contract sales, partially offset by $98 million from acquisitions and $62 million from Retail segment growth[127] Gross Margin - Gross margin increased to 39.0% in Q2 fiscal 2021 (from 37.9%), primarily due to favorable channel and product sales mix (200 basis points) and lower commodity costs, partially offset by lower overhead leverage (90 basis points)[127] - For the six months, gross margin increased to 39.4% (from 37.3%), driven by strong channel mix (150 basis points), product mix, material performance, and profitability efforts (50 basis points), and incremental list price increases (40 basis points), partially offset by lower overhead leverage (30 basis points)[127][129] Operating Expenses - Operating expenses decreased by $19.9 million (10.3%) in Q2 fiscal 2021, mainly due to lower marketing and selling costs ($10 million), reduced compensation and benefits ($7 million), and decreased travel costs ($3 million), while acquisitions of HAY and naughtone increased operating expenses by approximately $12 million[130][132] - For the first six months, operating expenses decreased by $51.2 million (13.5%), driven by lower marketing and selling costs ($23 million), reduced compensation and benefits ($23 million), and decreased travel costs ($9 million), while acquisitions increased operating expenses by approximately $23 million[130][132] Other Income/Expense - Net other expense decreased by $0.4 million to $2.2 million in Q2 fiscal 2021 and by $1.0 million to $3.7 million for the six months, compared to the prior year[130] - The prior year's other income/expense included a $30.5 million pre-tax gain from the remeasurement of the initial equity-method investment in naughtone[131] Income Taxes - Refer to Note 11 for detailed information on income taxes[132] Operating Segment Results North America Contract ("North America") - Net sales decreased 28.3% (29.1% organic) in Q2 fiscal 2021, primarily due to a $129 million decrease in sales volumes from COVID-19, partially offset by $4 million from the naughtone acquisition[136] - Operating earnings decreased $26.9 million (43.0%) in Q2 fiscal 2021, driven by a $53.1 million decrease in gross margin due to lower sales volumes and a 160 basis point drop in gross margin percentage, partially offset by a $26.2 million reduction in operating expenses[136][137] International Contract ("International") - Net sales increased 42.2% (0.6% organic) in Q2 fiscal 2021, primarily due to approximately $48 million from the HAY and naughtone acquisitions[138] - Operating earnings increased $10.6 million (82.8%) in Q2 fiscal 2021, driven by a $20.4 million increase in gross margin due to higher sales and a 200 basis point increase in gross margin percentage, partially offset by a $9.8 million increase in operating expenses from acquisitions[138][140] Retail - Net sales increased 28.2% (both as reported and organic) in Q2 fiscal 2021, driven by approximately $28 million in increased sales volumes from the e-commerce channel and $3 million from incremental list price increases[139][141] - Operating earnings increased $23.5 million in Q2 fiscal 2021, due to a $21.4 million increase in gross margin (higher sales, 630 basis point increase in gross margin percentage) and a $2.1 million decrease in operating expenses[142] Corporate - Corporate unallocated expenses decreased by $1.4 million to $10.6 million in Q2 fiscal 2021, primarily due to lower special charges[143] - For the first six months, corporate expenses decreased by $2.6 million to $21.2 million, mainly due to lower compensation, benefit costs, and special charges[144] Liquidity and Capital Resources Cash Flows - Operating Activities - Cash provided by operating activities increased to $214.6 million for the six months ended November 28, 2020, from $142.4 million in the prior year, primarily due to an increase in current liabilities and the absence of a non-taxable non-cash gain on consolidation of an equity method investment present in the prior year[147] Cash Flows - Investing Activities - Cash used in investing activities decreased to $24.4 million for the six months ended November 28, 2020, from $82.1 million in the prior year, driven by the absence of a $40.0 million purchase of naughtone, a $14.2 million decrease in capital expenditures, and $11.4 million in proceeds from asset sales[147] - The Company expects full-year capital purchases to be between $50.0 million and $60.0 million, primarily for facilities and equipment[147] Cash Flows - Financing Activities - Cash used in financing activities increased to $276.9 million for the six months ended November 28, 2020, from $40.6 million in the prior year, primarily due to the repayment of $265.0 million on the Company's credit facility[148] Sources of Liquidity Total Liquidity (in millions) | Metric | Nov 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 | - The Company had $176.4 million of cash and cash equivalents held outside the United States as of November 28, 2020[152] - The Company intends to repatriate $26.7 million in cash from certain foreign jurisdictions over the next two years, resulting in a deferred tax liability of $1.8 million for foreign withholding taxes[155] Safe Harbor Provisions - The report contains forward-looking statements based on management's beliefs and expectations, which involve risks and uncertainties that could cause actual results to differ materially[163] Item 3 Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, particularly foreign exchange risk, and notes no significant changes in interest rate and commodity price risks Foreign Exchange Risk - The Company is exposed to foreign exchange risk due to manufacturing, sourcing, and sales in various foreign currencies, impacting production costs and profit margins[165] - To mitigate foreign currency exposures, the Company uses foreign currency forward contracts, primarily in British pound sterling, euro, Canadian dollar, Japanese yen, Mexican peso, Hong Kong dollar, Chinese renminbi, and Danish krone[165][166] Item 4 Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of November 28, 2020[167] Changes in Internal Control Over Financial Reporting - There were no material changes in the Company's internal control over financial reporting during the quarter ended November 28, 2020[168] PART II — OTHER INFORMATION Item 1 Legal Proceedings This section refers to Note 13 for information on legal proceedings, indicating that the outcome of pending litigation is not expected to have a material adverse effect - Refer to Note 13 of the Condensed Consolidated Financial Statements for information on legal proceedings[169] Item 1A Risk Factors This section states that there have been no material changes to the Company's risk factors since its Annual Report on Form 10-K for the year ended May 30, 2020 - No material changes in the Company's risk factors from those set forth in the Annual Report on Form 10-K for the year ended May 30, 2020[170] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's share repurchase activity during the quarter ended November 28, 2020, under previously authorized plans Issuer Purchases of Equity Securities Issuer Purchases of Equity Securities (Quarter Ended Nov 28, 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs (in millions) | | :---------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------- | | 8/30/20 - 9/26/20 | 632 | $29.16 | 632 | $236,769,598 | | 9/27/20 - 10/24/20 | — | — | — | $236,769,598 | | 10/25/20 - 11/28/20 | 566 | $33.01 | 566 | $236,750,879 | | Total | 1,198 | | 1,198 | | - The Company repurchased 1,198 shares under previously announced plans during the quarter, with no plans expiring or being terminated[172] Item 3 Defaults upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - None[173] Item 4 Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Not applicable[173] Item 5 Other Information This section states that there is no other information to report - None[173] Item 6 Exhibits This section lists all exhibits filed with the Form 10-Q report, including certifications, XBRL taxonomy documents, and the cover page interactive data file - The report includes certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy extension documents (Exhibits 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[173][174] Signatures - The report was signed on January 4, 2021, by Andrea R. Owen, President and Chief Executive Officer, and Jeffrey M. Stutz, Chief Financial Officer[177]