Millerknoll, Inc 10-Q for FY2020 Q2

Millerknoll, Inc. (MLKN)

10-Q 2020-01-06 For: 2019-11-30

Added on April 09, 2026

About this 10-Q

Millerknoll, Inc filed this 10-Q on January 6, 2020, covering the quarter ended November 30, 2019 (FY2020 Q2).

Headline figures

Quarter ended November 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $674.2M; up 3.3% from $652.6M a year earlier
Net income: $78.6M; up 100.0% from net income of $39.3M a year earlier
Diluted EPS: $1.32; up 100.0% from $0.66 a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →



Michigan		38-0837640
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	MLHR	NASDAQ



Large accelerated filer	x	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	☐	Emerging growth company	☐



		Page No.
Part I — Financial Information
	Item 1 Financial Statements (Unaudited)
	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended November 30, 2019 and December 1, 2018	3
	Condensed Consolidated Balance Sheets — November 30, 2019 and June 1, 2019	4
	Condensed Consolidated Statements of Cash Flows — Six Months Ended November 30, 2019 and December 1, 2018	5
	Condensed Consolidated Statements of Stockholders' Equity — Six Months Ended November 30, 2019 and December 1, 2018	6
	Notes to Condensed Consolidated Financial Statements
	Note 1 - Basis of Presentation	8
	Note 2 - Recently Issued Accounting Standards	8
	Note 3 - Revenue from Contracts with Customers	9
	Note 4 - Leases	10
	Note 5 - Acquisitions	12
	Note 6 - Inventories, net	13
	Note 7 - Goodwill and Indefinite-Lived Intangibles	13
	Note 8 - Employee Benefit Plans	14
	Note 9 - Earnings Per Share	14
	Note 10 - Stock-Based Compensation	15
	Note 11 - Income Taxes	15
	Note 12 - Fair Value Measurements	16
	Note 13 - Commitments and Contingencies	19
	Note 14 - Debt	20
	Note 15 - Accumulated Other Comprehensive Loss	21
	Note 16 - Operating Segments	21
	Note 17 - Restructuring Expense	22
	Note 18 - Variable Interest Entities	23
	Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3 Quantitative and Qualitative Disclosures about Market Risk	37
	Item 4 Controls and Procedures	37
Part II — Other Information
	Item 1 Legal Proceedings	38
	Item 1A Risk Factors	38
	Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 3 Defaults upon Senior Securities	38
	Item 4 Mine Safety Disclosures	38
	Item 5 Other Information	38
	Item 6 Exhibits	39
	Signatures	40



	Three Months Ended						Six Months Ended
	November 30, 2019			December 1, 2018			November 30, 2019			December 1, 2018
Net sales	$	674.2		$	652.6		$	1,345.2		$	1,277.3
Cost of sales	418.7			417.0			843.6			816.6
Gross margin	255.5			235.6			501.6			460.7
Operating expenses:
Selling, general and administrative	169.5			163.2			334.3			322.7
Restructuring expense	4.2			0.3			6.1			1.4
Design and research	19.4			19.0			38.6			37.5
Total operating expenses	193.1			182.5			379.0			361.6
Operating earnings	62.4			53.1			122.6			99.1
Gain on consolidation of equity method investment	30.5			—			30.5			—
Interest expense	3.0			3.1			6.0			6.0
Other (income) expense, net	(0.4		)	0.7			(1.3		)	(0.3		)
Earnings before income taxes and equity income	90.3			49.3			148.4			93.4
Income tax expense	12.9			11.2			25.2			20.0
Equity income from nonconsolidated affiliates, net of tax	1.2			1.2			3.4			1.8
Net earnings	78.6			39.3			126.6			75.2
Net (loss) earnings attributable to noncontrolling interests	—			—			(0.2		)	0.1
Net earnings attributable to Herman Miller, Inc.	$	78.6		$	39.3		$	126.8		$	75.1

Earnings per share — basic	$	1.33		$	0.66		$	2.15		$	1.27
Earnings per share — diluted	$	1.32		$	0.66		$	2.14		$	1.26

Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	$	13.7		$	(4.5	)	$	4.4		$	(12.4	)
Pension and other post-retirement plans	0.7			0.4			1.4			1.1
Interest rate swaps	3.4			1.0			(5.3		)	0.5
Unrealized holding loss	—			—			—			(0.1		)
Other comprehensive income (loss), net of tax	17.8			(3.1		)	0.5			(10.9		)
Comprehensive income	96.4			36.2			127.1			64.3
Comprehensive (loss) income attributable to noncontrolling interests	—			—			(0.2		)	0.1
Comprehensive income attributable to Herman Miller, Inc.	$	96.4		$	36.2		$	127.3		$	64.2



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	November 30, 2019			June 1, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	177.0		$	159.2
Short-term investments	9.0			8.8
Accounts receivable, net of allowances of $3.8 and $3.8	208.9			218.0
Unbilled accounts receivable	35.7			34.3
Inventories, net	184.4			184.2
Prepaid expenses	37.7			45.8
Other current assets	14.1			11.0
Total current assets	666.8			661.3
Property and equipment, at cost	1,106.3			1,084.7
Less — accumulated depreciation	(766.5		)	(736.1		)
Net property and equipment	339.8			348.6
Right of use assets	232.5			—
Goodwill	363.9			303.8
Indefinite-lived intangibles	82.5			78.1
Other amortizable intangibles, net of accumulated amortization of $49.8 and $46.2	69.9			41.1
Other noncurrent assets	122.6			136.4
Total Assets	$	1,878.0		$	1,569.3

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	166.7		$	177.7
Accrued compensation and benefits	82.4			85.5
Accrued warranty	54.6			53.1
Customer deposits	33.7			30.7
Other accrued liabilities	144.0			99.1
Total current liabilities	481.4			446.1
Long-term debt	275.0			281.9
Pension and post-retirement benefits	24.0			24.5
Lease liabilities	198.1			—
Other liabilities	54.9			77.0
Total Liabilities	1,033.4			829.5
Redeemable noncontrolling interests	—			20.6
Stockholders' Equity:
Preferred stock, no par value (10,000,000 shares authorized, none issued)	—			—
Common stock, $0.20 par value (240,000,000 shares authorized, 59,075,241 and 58,794,148 shares issued and outstanding in 2020 and 2019, respectively)	11.8			11.7
Additional paid-in capital	100.4			89.8
Retained earnings	826.7			712.7
Accumulated other comprehensive loss	(93.7		)	(94.2		)
Deferred compensation plan	(0.6		)	(0.8		)
Total Stockholders' Equity	844.6			719.2
Total Liabilities, Redeemable Noncontrolling Interests, and Stockholders' Equity	$	1,878.0		$	1,569.3



	Six Months Ended November 30, 2019
	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Deferred Compensation Plan			Herman Miller, Inc. Stockholders' Equity			Noncontrolling Interests			Total Stockholders' Equity
	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Deferred Compensation Plan			Herman Miller, Inc. Stockholders' Equity			Noncontrolling Interests			Total Stockholders' Equity
June 1, 2019	58,794,148		$	11.7	$	89.8		$	712.7		$	(94.2	)	$	(0.8	)	$	719.2		$	—		$	719.2
Net earnings	—		—		—			48.2			—			—			48.2			(0.2		)	48.0
Other comprehensive loss, net of tax	—		—		—			—			(17.3		)	—			(17.3		)	—			(17.3		)
Stock-based compensation expense	—		—		2.6			—			—			—			2.6			—			2.6
Exercise of stock options	382,898		0.1		12.1			—			—			—			12.2			—			12.2
Restricted and performance stock units released	45,105		—		—			—			—			—			—			—			—
Employee stock purchase plan issuances	14,750		—		0.5			—			—			—			0.5			—			0.5
Repurchase and retirement of common stock	(173,001	)	—		(7.6		)	—			—			—			(7.6		)	—			(7.6		)
Deferred compensation plan	—		—		—			—			—			0.2			0.2			—			0.2
Dividends declared ($0.21 per share)	—		—		—			(12.5		)	—			—			(12.5		)	—			(12.5		)
Redemption value adjustment	—		—		—			(0.2		)	—			—			(0.2		)	0.2			—
August 31, 2019	59,063,900		$	11.8	$	97.4		$	748.2		$	(111.5	)	$	(0.6	)	$	745.3		$	—		$	745.3
Net earnings	—		—		—			78.6			—			—			78.6			—			78.6
Other comprehensive income, net of tax	—		—		—			—			17.8			—			17.8			—			17.8
Stock-based compensation expense	—		—		2.8			—			—			—			2.8			—			2.8
Exercise of stock options	5,227		—		0.1			—			—			—			0.1			—			0.1
Restricted and performance stock units released	3,653		—		—			—			—			—			—			—			—
Employee stock purchase plan issuances	12,467		—		0.5			—			—			—			0.5			—			0.5
Repurchase and retirement of common stock	(10,006	)	—		(0.4		)	—			—			—			(0.4		)	—			(0.4		)
Dividends declared ($0.21 per share)	—		—		—			(0.1		)	—			—			(0.1		)	—			(0.1		)
November 30, 2019	59,075,241		$	11.8	$	100.4		$	826.7		$	(93.7	)	$	(0.6	)	$	844.6		$	—		$	844.6



	Six Months Ended December 1, 2018
	Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Deferred Compensation Plan			Herman Miller, Inc. Stockholders' Equity			Noncontrolling Interests		Total Stockholders' Equity
	Shares		Amount			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Deferred Compensation Plan			Herman Miller, Inc. Stockholders' Equity			Noncontrolling Interests		Total Stockholders' Equity
June 2, 2018	59,230,974		$	11.7		$	116.6		$	598.3		$	(61.3	)	$	(0.7	)	$	664.6		$	0.2	$	664.8
Net earnings	—		—			—			35.8			—			—			35.8			—		35.8
Other comprehensive loss, net of tax	—		—			—			—			(7.8		)	—			(7.8		)	—		(7.8		)
Stock-based compensation expense	—		—			2.2			—			—			—			2.2			—		2.2
Exercise of stock options	265,739		0.2			7.9			—			—			—			8.1			—		8.1
Restricted and performance stock units released	335,266		0.1			—			—			—			—			0.1			—		0.1
Employee stock purchase plan issuances	16,805		—			0.5			—			—			—			0.5			—		0.5
Repurchase and retirement of common stock	(545,866	)	(0.1		)	(20.7		)	—			—			—			(20.8		)	—		(20.8		)
Dividends declared ($0.1975 per share)	—		—			—			(11.6		)	—			—			(11.6		)	—		(11.6		)
Cumulative effect of accounting changes	—		—			—			2.0			(0.1		)	—			1.9			—		1.9
September 1, 2018	59,302,918		$	11.9		$	106.5		$	624.5		$	(69.2	)	$	(0.7	)	$	673.0		$	0.2	$	673.2
Net earnings	—		—			—			39.3			—			—			39.3			—		39.3
Other comprehensive loss, net of tax	—		—			—			—			(3.1		)	—			(3.1		)	—		(3.1		)
Stock-based compensation expense	—		—			2.5			—			—			—			2.5			—		2.5
Exercise of stock options	53,614		—			1.3			—			—			—			1.3			—		1.3
Restricted and performance stock units released	7,511		—			—			—			—			—			—			—		—
Employee stock purchase plan issuances	14,813		—			0.5			—			—			—			0.5			—		0.5
Repurchase and retirement of common stock	(476,854	)	(0.1		)	(16.5		)	—			—			—			(16.6		)	—		(16.6		)
Dividends declared ($0.1975 per share)	—		—			—			(11.7		)	—			—			(11.7		)	—		(11.7		)
Cumulative effect of accounting changes	—		—			—			(1.5		)	1.5			—			—			—		—
December 1, 2018	58,902,002		$	11.8		$	94.3		$	650.6		$	(70.8	)	$	(0.7	)	$	685.2		$	0.2	$	685.4



Standard		Description	Effective Date

2016-13	Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This guidance replaces the existing incurred loss impairment model with an expected loss model and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	May 31, 2020
2018-13	Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	This update eliminates, adds and modifies certain disclosure requirements for fair value measurements. Early adoption is permitted.	May 31, 2020
2018-14	Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans	This update eliminates, adds and clarifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. Early adoption is permitted.	May 30, 2021



	Three Months Ended				Six Months Ended
(In millions)	November 30, 2019		December 1, 2018		November 30, 2019		December 1, 2018
Net Sales:
Single performance obligation
Product revenue	$	572.7	$	539.4	$	1,138.9	$	1,074.6
Multiple performance obligations
Product revenue	95.8		107.9		195.7		192.7
Service revenue	2.9		3.2		5.2		5.9
Other	2.8		2.1		5.4		4.1
Total	$	674.2	$	652.6	$	1,345.2	$	1,277.3


•	The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.


•	The Company elected to make the accounting policy election for short-term leases resulting in lease costs being recorded as an expense on a straight-line basis over the lease term.


•	The Company elected to not separate lease and non-lease components, for all leases.



	Three Months Ended				Six Months Ended
(In millions)	November 30, 2019		December 1, 2018		November 30, 2019		December 1, 2018
North America Contract:
Systems	$	145.3	$	145.3	$	292.6	$	291.4
Seating	129.7		126.9		259.9		252.5
Freestanding and storage	108.5		98.0		220.8		185.5
Textiles	29.8		29.5		76.3		58.3
Other	37.3		35.1		59.7		68.1
Total North America Contract	$	450.6	$	434.8	$	909.3	$	855.8

International Contract:
Systems	$	20.6	$	28.4	$	44.6	$	51.1
Seating	67.0		62.1		128.3		130.8
Freestanding and storage	13.8		13.9		28.5		24.3
Other	16.8		14.1		30.6		27.8
Total International Contract	$	118.2	$	118.5	$	232.0	$	234.0

Retail:
Seating	$	68.4	$	58.1	$	129.1	$	111.8
Freestanding and storage	16.6		16.8		33.7		34.0
Other	20.4		24.4		41.1		41.7
Total Retail	$	105.4	$	99.3	$	203.9	$	187.5

Total	$	674.2	$	652.6	$	1,345.2	$	1,277.3


•	The Company did not elect the land easement practical expedient in determining whether land easements that were not previously accounted for as leases are or contain a lease.



(In millions)
2020	$	24.8
2021	47.6
2022	44.0
2023	39.6
2024	33.9
Thereafter	102.0
Total lease payments*	291.9
Less interest	30.0
Present value of lease liabilities	$	261.9



(In millions)
2020	$	51.7
2021	46.8
2022	42.9
2023	39.0
2024	33.5
Thereafter	101.9
Total	$	315.8


•	The Company did not elect the hindsight practical expedient in determining the lease term and in assessing the likelihood that a lessee purchase option will be exercised, for all leases.



(In millions)
Cash	$	5.1
Working capital, net of cash and inventory step-up	1.3
Net property and equipment	0.8
Net assets acquired	$	7.2



(In millions)	Valuation Method	Useful Life (years)	Fair Value
Inventory Step-up	Comparative Sales Approach	0.3	$	0.2
Backlog	Multi-Period Excess Earnings	0.3	0.8
Tradename	Relief from Royalty	Indefinite	4.4
Customer Relationships	Multi-Period Excess Earnings	10.0	31.0
Total			$	36.4



(In millions)	Goodwill		Indefinite-lived Intangible Assets		Total Goodwill and Indefinite-lived Intangible Assets
June 1, 2019	$	303.8	$	78.1	$	381.9
Foreign currency translation adjustments	0.1		—		0.1
Acquisition of naughtone	60.0		4.4		64.4
November 30, 2019	$	363.9	$	82.5	$	446.4



(In millions)	Cumulative Translation Adjustments			Pension and Other Post-retirement Benefit Plans			Unrealized Gains on Available-for-sale Securities			Interest Rate Swap Agreement			Accumulated Other Comprehensive Loss
Balance at June 1, 2019	$	(48.3	)	$	(45.0	)	$	—		$	(0.9	)	$	(94.2	)
Other comprehensive income (loss) before reclassifications	4.4			—			—			(5.4		)	(1.0		)
Reclassification from accumulated other comprehensive loss - Other, net	—			1.7			—			0.1			1.8
Tax benefit	—			(0.3		)	—			—			(0.3		)
Net reclassifications	—			1.4			—			0.1			1.5
Net current period other comprehensive income (loss)	4.4			1.4			—			(5.3		)	0.5
Balance at November 30, 2019	$	(43.9	)	$	(43.6	)	$	—		$	(6.2	)	$	(93.7	)

Balance at June 2, 2018	$	(34.1	)	$	(37.2	)	$	0.1		$	9.9		$	(61.3	)
Cumulative effect of accounting change	—			—			(0.1		)	1.5			1.4
Other comprehensive (loss) income before reclassifications	(12.4		)	—			(0.1		)	0.5			(12.0		)
Reclassification from accumulated other comprehensive loss - Other, net	—			1.3			—			—			1.3
Tax benefit	—			(0.2		)	—			—			(0.2		)
Net reclassifications	—			1.1			—			—			1.1
Net current period other comprehensive (loss) income	(12.4		)	1.1			(0.1		)	0.5			(10.9		)
Balance at December 1, 2018	$	(46.5	)	(36.1		)	$	(0.1	)	$	11.9		$	(70.8	)



(In millions)	Severance and Employee-Related			Exit or Disposal Activities			Total
Beginning Balance	$	6.7		$	1.0		$	7.7
Restructuring Costs	1.7			—			1.7
Amounts Paid	(7.0		)	(0.2		)	$	(7.2	)
Ending Balance	$	1.4		$	0.8		$	2.2


•	Gross margin was 37.9% as compared to 36.1% for the same quarter of the prior 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.


•	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 U.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.


•	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 $0.66 to $1.32, a 100.0% increase as 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 $0.21 per share, with a record date of December 1, 2019, compared to $0.1975 per share in the same quarter of the prior year.


•	Strategic investment of approximately $46 million was made in acquiring the remaining outstanding shares of naughtone. Subsequent to the end of the current quarter, a strategic investment of approximately $79 million was made in acquiring an additional 34% of the outstanding equity of HAY.


•	North America reflects a mixed macro-economic picture. Job growth, unemployment levels and consumer spending reflect positive trends, while industry order trends as reported by the Business and Institutional Furniture Manufacturers Association ("BIFMA"), and the level of architectural billing activity as measured by the Architecture Billings Index have varied in recent months.


•	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.



	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	$	2.14		$	1.26

Add: Adjustments Related to Adoption of U.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	$	1.72		$	1.44

Weighted Average Shares Outstanding (used for Calculating Adjusted Earnings per Share) – Diluted	59,402,001			59,442,219		59,318,982			59,612,113



	Three Months Ended						Six Months Ended
(In millions, except per share data)	November 30, 2019		December 1, 2018		Percent Change		November 30, 2019			December 1, 2018		Percent 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	)%


•	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 $4 million as a result of the acquisition of naughtone.


•	Foreign currency translation had a negative impact on net sales of approximately $2 million.