1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT UNDER 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
For Quarter Ended September 3, 1994 Commission File No. 0-5813
HERMAN MILLER, INC.
A Michigan Corporation ID No. 38-0837640
855 East Main Avenue, Zeeland, MI 49464-0302 Phone (616) 654 3000
Herman Miller, Inc.
(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months
Yes X No
____ ____
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
____ ____
Common Stock Outstanding at September 30, 1994--24,620,207 shares.
The Exhibit Index appears at page 17.
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HERMAN MILLER, INC. FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 3, 1994
INDEX
Page
--------
Part I--Financial Information
Condensed Consolidated Balance Sheets-- 3
September 3, 1994, and May 28, 1994
Condensed Consolidated Statements of Income-- 4
Three Months Ended September 3,1994,
and August 28, 1993
Condensed Consolidated Statements of Cash Flows-- 5
Three Months Ended September 3, 1994,
and August 28, 1993
Notes to Condensed Consolidated Financial Statements 6-7
Management s Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II--Other Information
Submission of Matters to Vote of Security Holders 13-14
Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
Sept. 3, May 28,
1994 1994
--------- -----------
(unaudited) (audited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 16,537 $ 22,701
Accounts receivable, net 132,371 121,564
Inventories--
Finished goods 23,155 20,299
Work in process 7,202 6,183
Raw materials 32,696 33,331
-------- --------
Total inventories 63,053 59,813
-------- --------
Prepaid expenses and other 25,628 24,590
-------- --------
Total current assets 237,589 228,668
-------- --------
PROPERTY AND EQUIPMENT, AT COST: 466,771 454,894
Less-accumulated depreciation 224,492 215,932
-------- --------
Net property and equipment 242,279 238,962
-------- --------
OTHER ASSETS:
Notes receivable, net 36,495 36,659
Other noncurrent assets 38,823 29,457
-------- --------
Total assets $555,186 $533,746
======== ========
Sept. 3, May 28,
1994 1994
------------ -----------
(unaudited) (audited)
LIABILITIES' & SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 492 $ 506
Notes payable 65,125 48,911
Accounts payable 37,817 42,121
Accruals 86,250 86,187
-------- --------
Total current liabilities 189,684 177,725
-------- --------
LONG-TERM DEBT, less current portion 20,484 20,600
OTHER LIABILITIES 42,984 39,096
SHAREHOLDERS EQUITY:
Common stock $.20 par value 4,924 4,918
Additional paid-in capital 17,232 16,649
Retained earnings 283,897 279,161
Cumulative translation adjustment (3,160) (3,460)
Unearned stock grant compensation (859) (943)
-------- --------
Total shareholders' equity 302,034 296,325
Total liabilities and
shareholders' equity $555,186 $533,746
======== ========
See accompanying notes to condensed consolidated financial statements.
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
------------------
Sept. 3, August 28,
1994(1) 1993(2)
---------- ----------
NET SALES $252,831 $221,566
COST AND EXPENSES:
Cost of goods sold 161,820 145,243
Operating expenses 77,813 63,187
Interest expense 990 427
Other income, net (929) (865)
-------- --------
239,694 207,992
-------- --------
INCOME BEFORE TAXES ON INCOME 13,137 13,574
PROVISION FOR TAXES ON INCOME 5,200 6,100
-------- --------
NET INCOME $ 7,937 $ 7,474
======== ========
NET INCOME PER SHARE $ .32 $ .30
======== ========
DIVIDENDS PER SHARE OF COMMON STOCK $ .13 $ .13
======== ========
See accompanying notes to condensed consolidated financial statements.
(1) Represents 14 weeks
(2) Represents 13 weeks
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED
Three Months Ended
------------------
Sept. 3, August 28,
1994(1) 1993(2)
---------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,937 $ 7,474
Depreciation and amortization 9,325 8,348
Other, net (14,514) 653
------- -------
Net cash provided by operating activities 2,748 16,475
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable repayments 93,548 92,974
Notes receivable issued (93,863) (97,758)
Capital expenditures (11,744) (8,744)
Other, net (9,976) 151
------- -------
Net cash used for investing activities (22,035) (13,377)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net common stock issued 842 5,440
Net long-term debt repayments (58) (58)
Net short-term debt borrowings 15,663 343
Dividends paid (3,197) (3,253)
Common stock purchased and retired (253) --
Other, net (72) (69)
------- -------
Net cash provided by financing activities 12,925 2,403
------- -------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 198 (328)
-------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,164) 5,173
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 22,701 16,531
------- -------
CASH AND CASH EQUIVALENTS,
AT END OF PERIOD $16,537 $21,704
======= =======
See accompanying notes to condensed consolidated financial statements.
(1) Represents 14 weeks
(2) Represents 13 weeks
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HERMAN MILLER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOOTNOTE DISCLOSURES
The condensed consolidated financial statements have been prepared by the
company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The company believes that the disclosures made in this document
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the company's Annual Report
on Form 10-K for the year ended May 28, 1994.
FISCAL YEAR
The company's fiscal year ends on the Saturday closest to May 31. Accordingly,
the year ended June 3, 1995, contains 53 weeks, and the year ended May 28,
1994, contains 52 weeks.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include all highly liquid debt instruments purchased
as part of the company's cash management function. Due to the short maturities
of these items, the carrying amount approximates fair value.
Cash payments for income taxes and interest (in thousands) were as follows:
Three Months Ended
------------------
Sept. 3, August 28,
1994 1993
--------- ----------
Interest paid $ 964 $ 433
Income taxes paid $3,808 $4,794
CONTINGENCIES
On January 7, 1992, Haworth, Inc., filed a lawsuit in the U.S. District Court
for the Northern District of Georgia (Atlanta Division), against Herman Miller,
Inc., alleging that the electrical systems used in certain of the company's
products infringe one or more of Haworth's patents. On December 9, 1992, the
company's motion for change of venue was granted, and the lawsuit was
transferred to the U.S. District Court for the Western District of Michigan
(Southern Division).
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The litigation is considered to be in an intermediate stage, and the company is
defending its position vigorously. The company has requested a jury trial,
which has been tentatively set for August 1995 by the court. The patents that
are the source of controversy expire on or before December 1, 1994. Since 1991,
the company has sold a system of enhanced electrical components on the majority
of its product lines, both by number and dollar volume. Haworth has admitted
the enhanced electrical components do not infringe the patents in suit. If
Haworth were to be successful on its claims, the statute of limitation would
bar recovery of any damages arising prior to January 1986.
In November 1985, Haworth filed a lawsuit against Steelcase, Inc., the
industry's leader in market share, alleging violations of the same patents, and
thus far has prevailed on the issue of liability. The litigation between
Haworth and Steelcase currently is continuing on the issue of damages. The
company's defenses are substantially different from those relied upon by
Steelcase.
The company believes, based upon written opinion of counsel, that its products
do not infringe Haworth's patents and that the company is more likely than not
to prevail on the merits, although, as with all litigation, there can be no
absolute assurance of success. At this time, management does not expect the
ultimate resolution of this matter to have a material adverse effect on the
company's consolidated financial position. However, the outcome of this matter
is not subject to prediction with certainty.
REPORT OF MANAGEMENT
In the opinion of the company, the accompanying unaudited condensed
consolidated financial statements taken as a whole contain all adjustments,
which are of a normal recurring nature, necessary to present fairly the
financial position of the company as of September 3, 1994, and the results of
its operations and cash flows for the three months then ended. Interim results
are not necessarily indicative of results for a full year.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the company's financial condition and earnings
during the periods included in the accompanying condensed consolidated
financial statements.
A. Financial Summary
A summary of the period-to-period changes is shown below. It should be
noted that the three months ended September 3, 1994, contained 14 weeks. All
amounts are increases (decreases) unless otherwise noted. Dollars are shown in
thousands.
$ %
-------- -------
NET SALES 31,265 14.1
COST OF GOODS SOLD 16,577 11.4
OPERATING EXPENSES 14,626 23.1
INTEREST EXPENSE 563 131.9
OTHER INCOME NET (64)* (7.4)*
INCOME BEFORE TAXES ON INCOME (437) (3.2)
PROVISION FOR TAXES ON INCOME (900) (14.8)
NET INCOME 463 6.2
* Represents an increase in other income
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B. Results of Operations
First Quarter FY 1995 versus First Quarter FY 1994
Net sales increased $31.3 million, or 14.1 percent, for the three
months (14 weeks) ended September 3, 1994, over the first quarter (13
weeks) results a year ago. For the first three months of fiscal 1995,
the company had net sales of $252.8 million, compared with net sales
of $221.6 million in the first three months last year. The increase
primarily was due to unit volume increases, as well as an additional
week in fiscal year 1995 compared with fiscal year 1994.
Net sales of $252.8 million were the highest ever recorded in the
first quarter. United States net sales were up 10.4 percent on a
year-over-year basis for the first quarter, after being up 2.2 percent
and 9.1 percent over year-ago levels in the fourth and third quarters
of 1994, respectively. These United States sales gains compare with
the 8.0 percent calendar year-to-date increase in industry shipments
reported by the Business and Institutional Furniture Manufacturers
Association (BIFMA). In addition, new orders of $265.2 million were
the highest ever recorded in any first quarter, and the order rate
momentum has continued to date in the second quarter.
Gross margin increased to 36.0 percent during the first quarter of
1995, compared to a gross margin of 34.4 percent for the same period
last year. The improvement in the first quarter 1995 gross margin was
due to increased volume which leveraged fixed overhead, as well as
price stability.
On the strength of increased net sales, improved profitability, and
continued price stability, the company has significantly increased its
investment spending on new products and processes. This spending
retarded the growth of net income for the quarter.
Operating expenses, including design and research, were $77.8 million
for the first quarter, an increase of $14.6 million, or 23.1 percent,
over first quarter last year. As a percent of net sales, operating
expenses were 30.8 and 28.6 for the first three months of the current
and prior year, respectively. The major components of this change were
(1) the 14th week of payroll and a 3.5 percent year-over-year
increase in compensation and benefits, (2) the assimilation of our
recently acquired Mexican operations into the Herman Miller family of
companies, (3) increased depreciation and amortization expense,
principally associated with new processes and products, and (4) most
significantly and importantly, the increased cost to develop and bring
to market new products.
The new products, all of which are expected to be introduced in the
next 12 months, are in the seating, European freestanding furniture,
and health-care product areas.
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While augmenting rather than obsoleting current product offerings,
these new products, as those which preceded them in Herman Miller s
tradition of product innovations, can be expected to help establish
product value and performance reference points in each of these three
areas. Management expects these products to be long lived and help the
company gain additional market share over product life cycles of ten
or more years. In the more immediate time frame, management believes
these new products will add 2 to 3 percent to our net sales total for
the fiscal year ending June 3, 1995, with the primary amounts coming
in the third and fourth quarters. Margin rates on these products are
expected to be comparable to those of the company's existing product
lines.
The investment spending incurred in the first quarter can be expected
to continue at the same rate through the remainder of the year.
Interest expense increased $.6 million over first quarter 1994. Total
interest-bearing debt was $86.1 million at the end of the first
quarter of fiscal 1995, compared with $70.0 million at May 28, 1994,
and $40.0 million at August 28, 1993.
Lower net operating losses in the United Kingdom reduced the first
quarter tax rate to 39.6 percent for the first three months of 1995,
compared with 44.9 percent for the same period last year. The tax rate
for all of fiscal 1995 is expected to be between 35 and 38 percent, as
European, especially the United Kingdom, operations continue to
improve.
Net income increased to $7.9 million in the first quarter, compared to
$7.5 million for the same period last year.
Net sales of international operations and export sales from the United
States in the first quarter ended September 3, 1994, totaled $36.5
million compared with $25.5 million last year.
International results in the first quarter were helped significantly
by solid performances in both the Asia/Pacific and Latin American
regions. Combined sales in these two regions increased 68 percent and
net income more than doubled. European net sales increased 23 percent
and results improved 29 percent over the first quarter of last year.
However, results from operations in the United Kingdom turned negative
after three consecutive quarters of profitability. On a year-over-year
basis, both sales and results in the United Kingdom improved
significantly over year-ago levels. All of Europe had excellent order
entry for the quarter, and the total European backlog was at a
four-year high on September 3, 1994.
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Net loss from the company's international operations and export sales
from the United States for the first quarter decreased $1.5 million to
a $.9 million loss, compared with net loss of $2.4 million for the
same period last year.
The backlog of unfilled orders at September 3, 1994, was $151.0
million, compared with $132.1 million a year earlier, and $138.6
million at May 28, 1994. New orders increased 18.5 percent to $265.2
million when compared to the same period a year ago.
C. Financial Condition, Liquidity, and Capital Resources
First Quarter FY 1995 versus First Quarter FY 1994
1. Cash flow from operating activities decreased to $2.7 million
versus $16.5 million in the first quarter of 1994. The $13.8
million decrease in cash provided by operating activities and
the $8.6 million increase in cash used for investing activities
primarily were financed from a reduction in cash balances and
an increase in $15.7 million in short-term debt. The increase
in short-term debt in turn increased interest expense for the
first quarter to $1.0 million compared with $.4 million a year
ago. The company expects interest-bearing debt to remain in
the range of $80-$90 million for the remainder of the year,
which bounds its $86.1 million level on September 3, 1994.
2. Days sales in accounts receivable plus days sales in inventory
increased to 82.2 days versus 79.1 days a year ago and 80.9
days on May 28, 1994. This increase primarily was due to an
increased level of shipments during the month of August, which
also resulted in a $17.3 million increase in cash used for
working capital items during the quarter. This increased cash
use was the primary factor causing net cash provided by
operating activities to decline. Overall, asset utilization as
measured by the net sales per $1.00 of average assets remained
at $1.86 during the first quarter, maintaining the improvement
recorded for all of fiscal 1994.
3. Net (of cash) interest-bearing debt increased to $69.6 million
compared to $18.3 million a year ago and $47.3 million at May
28, 1994. Debt-to-total capital now stands at 6.4 percent
versus 6.7 percent a year ago and 6.5 percent on May 28, 1994.
4. Capital expenditures for the quarter were $11.7 million versus
$8.7 million in the first quarter of 1994. These items
principally include expenditures for new internal processes and
the new products described above. Accelerated work on new
processes and new products has caused the company to increase
estimated capital expenditures for the year to $60 million. The
other major use of cash from investing activities was the
previously announced acquisition of Geneal GmbH of Germany
described below.
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On September 2, 1994, the company acquired Geneal GmbH, a privately owned
office furniture company of Essen, Germany. Net trade sales of Geneal for the
past three years ended June 30 were $8.6 million for fiscal 1994, $12.1 million
for fiscal 1993, and $13.3 million for fiscal 1992. Geneal experienced
larger-than-usual sales growth in fiscal 1992 and 1993, which was fueled by the
final economic effects of German reunification which began in fiscal 1991. The
revenue decline experienced in fiscal 1994 primarily was attributable to the
weakened condition of the German economy, which has shown recent signs of
improvement. During fiscal 1993 and 1994, German office furniture industry
sales fell an estimated 38 percent. Geneal was profitable in each of the last
three fiscal years, demonstrating the ability to quickly adjust its cost
structure to significant changes in volume.
The all-cash transaction will neither materially enhance or dilute the
consolidated results of Herman Miller, Inc., for the year ended June 3, 1995,
as the two market-distinct organizations make further progress on manufacturing
and logistical integration. Assimilation of Geneal into the worldwide family of
Herman Miller companies enhances our ability to serve customers with high
quality and value products and services on a worldwide basis within the context
of a single group of enterprises. Building on this key competitive strength is
advantageous for both our customers and our shareholders.
The office furniture industry has exhibited significant cyclicality and change
during the past five years, after exhibiting generally increasing sales and
profits for each of the 20 years prior to that time. During the turbulence of
the past five years, Herman Miller improved on a strong balance sheet and
substantially increased its cash flow from operating activities while industry
sales and profitability declined substantially. In short, financially the
company has prepared for the return of investment opportunities in the current
environment which is marked by both increased (albeit at slower rates) industry
sales and by increased customer need for improved ergonomic and productivity
solutions.
The first quarter marked the beginning of an accelerated period when the
company will combine the financial strength which it has built over the past
five years with the desire to continue to set a distinctive reference point for
products and services in our markets. The company believes this investment is
necessary to continue to implement the coordinated strategies and effective
work processes of its employee-owners as well as its supplier and dealer
partners, all of whom have helped the company reach this point and are
essential to its future success. The effectiveness of this joint effort is what
ultimately will continue to build value for the company's shareholders.
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Part II
Item 4: Submission of Matters to Vote of Security Holders
At the Annual Shareholders Meeting held October 6, 1994, the shareholders voted
on various proposals presented in the company's 1994 definitive proxy
statement. The results of the votes follow:
1. Proposal to elect four directors to serve a term of three years:
Broker
For Against Withheld Non-vote
--- ------- -------- --------
a. Terms expiring in 1997
William K. Brehm 21,683,728 0 114,056 0
C. William Pollard 21,681,147 0 116,637 0
Ruth Alkema Reister 21,681,197 0 116,587 0
Richard H. Ruch 21,673,760 0 124,024 0
2. Proposal to approve the Herman Miller, Inc., 1994 Long-Term Incentive
Plan
Broker
For Against Withheld Non-vote
--- ------- -------- --------
18,916,382 1,697,254 310,246 873,902
3. Proposal to approve the Herman Miller, Inc., 1994 Non-Employee Officer
and Director Stock Option Plan
Broker
For Against Withheld Non-vote
--- ------- -------- --------
19,864,887 669,066 359,929 873,902
4. Proposal to approve the Herman Miller, Inc., 1994 Key Executive Stock
Purchase Assistance Plan
Broker
For Against Withheld Non-vote
--- ------- -------- --------
18,987,865 1,593,504 342,513 873,902
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5. Proposal to ratify the appointment of Arthur Andersen & Co. as the
independent public accountants for the company for the fiscal year
ending June 3, 1995.
Broker
For Against Withheld Non-vote
--- ------- -------- --------
21,753,710 25,192 18,882 0
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Part II
Item 6: Exhibits and Reports on Form 8-K
1. Exhibits
See Exhibit Index
2. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
September 3, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
HERMAN MILLER, INC.
October 12, 1994 /s/ J. Kermit Campbell
J. Kermit Campbell
(President and
Chief Executive Officer)
October 12, 1994 /s/ James H. Bloem
James H. Bloem
(Vice President,
Chief Financial Officer,
and Principal Accounting Officer)
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*Exhibit Index
(11) Computations of earnings per common share.
(27) Financial Data Schedule (Exhibit available upon request)
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EXHIBIT 11
HERMAN MILLER, INC.
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
---------------------
Sept. 3, August 28,
1994(1) 1993(2)
---------- ----------
NET INCOME APPLICABLE
TO COMMON SHARES $ 7,937 $ 7,474
=========== ===========
Weighted Average Common
Shares Outstanding 24,602,613 25,135,458
Net Common Shares
Issuable Upon Exercise
of Certain Stock Options 123,478 172,513
----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING AS ADJUSTED 24,726,091 25,307,971
=========== ===========
NET INCOME PER SHARE $ .32 $ .30
=========== ===========
(1) Represents 14 weeks
(2) Represents 13 weeks
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1,000
3-MOS
JUN-03-1995
MAY-29-1994
SEP-03-1994
16,537
0
138,744
6,373
63,053
237,589
466,771
224,492
555,186
189,684
20,484
4,924
0
0
297,110
555,186
252,831
252,831
161,820
161,820
77,698
115
990
13,137
5,200
7,937
0
0
0
$7,937
$.32
$.32
