1
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 December 2, 1995 Commission File No. 0-5813
HERMAN MILLER, INC.
A Michigan Corporation ID No. 38-0837640
855 Main Avenue, PO Box 302, 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 December 29, 1995--25,190,864 shares.
The Exhibit Index appears at page 15.
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HERMAN MILLER, INC. FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 2, 1995
INDEX
Page No.
--------
Part I---Financial Information
Condensed Consolidated Balance Sheets---
December 2, 1995, and June 3,1995 3
Condensed Consolidated Statements of Income---
Three Months and Six Months Ended December 2, 1995,
and December 3, 1994 4
Condensed Consolidated Statements of Cash Flows---
Six Months Ended December 2, 1995,
and December 3, 1994 5
Notes to Condensed Consolidated Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Part II---Other Information
Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 2, June 3,
1995 1995
------------ --------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,363 $ 16,488
Accounts receivable, net 195,104 165,107
Inventories---
Finished goods 30,408 26,260
Work in process 11,599 8,074
Raw materials 37,852 36,742
-------- --------
Total inventories 79,859 71,076
-------- --------
Prepaid expenses and current
deferred income taxes 40,167 44,445
-------- --------
Total current assets 334,493 297,116
-------- --------
PROPERTY AND EQUIPMENT, AT COST 535,469 513,455
Less-accumulated depreciation 261,211 243,271
-------- --------
Net property and equipment 274,258 270,184
-------- --------
OTHER ASSETS:
Notes receivable, net 44,164 43,734
Other noncurrent assets 44,710 47,978
-------- --------
Total assets $697,625 $659,012
======== ========
December 2, June 3,
1995 1995
---------- ---------
(unaudited) (audited)
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Unfunded checks $ 10,306 $ --
Current portion of long-term debt 854 452
Notes payable 31,729 83,591
Accounts payable 61,746 51,819
Litigation accrual 44,000 --
Accruals 112,143 121,679
-------- --------
Total current liabilities 260,778 257,541
-------- --------
LONG-TERM DEBT, less current portion 74,002 60,145
OTHER LIABILITIES 60,173 54,411
SHAREHOLDERS' EQUITY:
Common stock $.20 par value 5,036 4,967
Additional paid-in capital 30,707 21,564
Retained earnings 281,092 270,631
Cumulative translation adjustment (11,095) (6,985)
Key executive stock programs (3,068) (3,262)
-------- --------
Total shareholders' equity 302,672 286,915
-------- --------
Total liabilities and
shareholders' equity $697,625 $659,012
======== ========
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 Six Months Ended
------------------ ----------------
Dec. 2, Dec. 3, Dec. 2, Dec. 3,
1995 1994 1995(1) 1994(2)
-------- -------- ------- --------
NET SALES $ 328,393 $ 279,077 $ 629,481 $ 531,908
COST AND EXPENSES:
Cost of goods sold 215,740 179,719 413,949 341,539
Operating expenses 86,003 81,714 169,339 159,527
Restructuring charges -- 15,500 -- 15,500
Patent litigation settlements 16,515 -- 16,515 --
Interest expense 1,589 1,280 3,690 2,270
Other income, net 36 (679) (1,436) (1,608)
--------- --------- --------- ---------
319,883 277,534 602,057 517,228
--------- --------- --------- ---------
INCOME BEFORE TAXES ON INCOME 8,510 1,543 27,424 14,680
PROVISION FOR TAXES ON INCOME 3,555 100 10,455 5,300
--------- --------- --------- ---------
NET INCOME $ 4,955 $ 1,443 $ 16,969 $ 9,380
========= ========= ========= =========
NET INCOME PER SHARE $ .20 $ .06 $ .68 $ .38
========= ========= ========= =========
DIVIDENDS PER SHARE OF COMMON STOCK $ .13 $ .13 $ .26 $ .26
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
(1) Represents 26 weeks
(2) Represents 27 weeks
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months Ended
----------------
Dec. 2, Dec. 3,
1995(1) 1994(2)
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,969 $ 9,380
Depreciation and amortization 22,836 19,574
Restructuring charges -- 15,500
Litigation accrual 33,000 --
Changes in current assets and liabilities (23,006) (47,146)
Other, net 7,619 572
--------- ---------
Net cash provided (used for) by operating activities 57,418 (2,120)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable repayments 239,300 184,058
Notes receivable issued (230,262) (192,267)
Capital expenditures (26,403) (25,596)
Other, net 434 (10,665)
--------- ---------
Net cash used for investing activities (16,931) (44,470)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net common stock issued 5,690 3,744
Net long-term debt borrowings 13,871 29,883
Net short-term debt borrowings (repayments) (51,008) 12,357
Dividends paid (6,461) (6,397)
Common stock purchased and retired (1,122) (253)
Other, net (103) (146)
--------- ---------
Net cash provided by (used for) financing activities (39,133) 39,188
--------- ---------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 1,521 853
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,875 (6,549)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 16,488 22,701
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 19,363 $ 16,152
========= =========
See accompanying notes to condensed consolidated financial statements.
(1) Represents 26 weeks
(2) Represents 27 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 June 3, 1995.
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 ending June 1,
1996, contains 52 weeks.
AMENDMENT
The Form 10Q as originally filed for the quarter ended September 2, 1995, has
been amended. The original Form contained an understatement of net sales and
cost of goods sold. This understatement did not impact the dollars of gross
margin, operating expenses, or net income as previously reported.
UNFUNDED CHECKS
As a result of maintaining a consolidated cash management system, the company
utilizes controlled disbursement bank accounts. These accounts are funded as
checks are presented for payment, not when checks are issued. A book overdraft
position of $10.3 million is included in current liabilities as unfunded checks
at December 2, 1995. The company was not in an overdraft position at June 3,
1995.
RESTRUCTURING CHARGES
In the fiscal year ended June 3, 1995, the company recorded $31.9 million in
pretax restructuring charges, which reduced net income by $20.3 million, or
$.82 per share. A charge of $15.5 million was taken in the second quarter of
fiscal 1995, to account for the closure of certain of the company's
manufacturing and logistics facilities prior to the relocation of their
production activities to other U.S. Herman Miller facilities. In addition, the
charge also included the costs associated with the closure of and
discontinuance of wood casegoods manufacturing in the
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Sanford, North Carolina, facility and the transfer of products produced there
to Geiger International of Atlanta, Georgia, a respected contract provider of
quality wood casegoods.
The $16.4 million charge recorded in the fourth quarter of fiscal 1995 included
charges in the United States for reductions in employment and the
discontinuation of a product development program at the company's healthcare
subsidiary, Milcare.
The $31.9 million total pretax restructuring charge consisted of facilities and
equipment write-offs ($15.5 million), termination benefits ($14.1 million), and
other exit costs associated with the restructuring ($2.3 million).
Approximately 535 employees were terminated or took voluntary early retirement
as a result of the facility closings and job elimination process. The closure
of the manufacturing and logistics facilities was substantially complete at the
end of fiscal 1995. The job elimination process was completed in July 1995.
Amounts paid or charged against these reserves during the first six months of
fiscal 1996 were as follows:
June 3, 1995 Costs Paid Ending
In Thousands Balance or Charged Balance
------- ---------- -------
Facilities and equipment $10,829 $ 2,853 $ 7,976
Termination benefits 12,279 9,031 3,248
Other exit costs 1,310 498 812
------- ------- --------
$24,418 $12,382 $ 12,036
======= ======= ========
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:
Six Months Ended
----------------
December 2, December 3,
1995 1994
----------- -----------
Interest paid $3,614 $2,154
Income taxes paid $12,504 $7,835
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CONTINGENCIES
During the second quarter ended December 2, 1995, the Company's Board of
Directors authorized management to engage in settlement discussions with
Haworth. In January 1996, the Company and Haworth agreed to the terms of a
settlement.
The lawsuit, filed in January 1992, alleged that certain electrical products
which the company offered infringed two patents held by Haworth. Haworth had
sued Steelcase, Inc., in 1985 claiming that Steelcase's products infringed
those same two patents. In 1989, Steelcase was held to infringe the patents,
and the matter was referred to private dispute resolution to resolve the issue
of damages. The patents at issue expired prior to December 1, 1994.
Since the date of initial claim, the Company has always been advised by our
patent litigation counsel that it was more likely than not to prevail on the
merits; however, the mounting legal costs, distraction of management focus, and
the uncertainty present in any litigation made this settlement at this time
something which the Company determined is in the best interest of its
shareholders.
Under the settlement agreement, Herman Miller will pay Haworth $44 million in
cash in exchange for a complete release. The release also covers Herman
Miller's customers and suppliers. The companies have exchanged limited
covenants not to sue with respect to certain existing and potential patent
rights. Haworth has agreed not to sue under United States Patent 4,682,984
which refers to a construction process for making storage cabinets. In
addition, Haworth has granted a limited covenant not to sue with respect to
certain potential future patent rights on panel construction. Haworth will
receive a limited covenant under three United States Patents--5,038,539;
4,685,255; and 4,876,835--all relating to one of the company's system product
lines.
The company simultaneously reached a settlement with one of its suppliers. The
supplier agreed to pay Herman Miller $11 million and to rebate over the next
seven years a percentage of its sales to Herman Miller which are in excess of
current levels. The $11 million, plus interest, will be paid in annual
installments over a seven-year period. Herman Miller is also exploring the
possibility of claims against other third parties.
Accordingly, the company has recorded a litigation settlement expense of
$16,515,000, after giving effect to previously recorded reserves and the
settlement with the supplier, in the second quarter of fiscal 1996.
REPORT OF MANAGEMENT
In the opinion of the company, the accompanying unaudited condensed
consolidated financial statements taken as a whole contain all adjustments,
consisting of only a normal and recurring nature, necessary to present fairly
the financial position of the company as of December 2, 1995, and the results
of its operations and cash flows for the six 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 six months ended December 2, 1995, contained 26
weeks. All amounts are increases (decreases) unless otherwise
noted. Dollars are shown in thousands.
Three Months Six Months
------------------------ -----------------------
$ % $ %
---------- ---------- ---------- ---------
NET SALES 49,316 17.7 97,573 18.3
COST OF GOODS SOLD 36,021 20.0 72,410 21.2
OPERATING EXPENSES 4,289 5.2 9.812 6.2
RESTRUCTURING CHARGES (15,500) (100.0) (15,500) (100.0)
PATENT LITIGATION SETTLEMENTS 16,515 100.0 16,515 100.0
INTEREST EXPENSE 309 24.1 1,420 62.6
OTHER INCOME* (715) (105.3) (172) (10.7)
INCOME BEFORE TAXES ON INCOME 6,967 451.5 12,744 86.8
PROVISION FOR TAXES ON INCOME 3,455 3,455.0 5,155 97.3
NET INCOME 3,512 243.4 7,589 80.9
*Represents an increase in other income.
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B. Results of Operations
Second Quarter FY 1996 versus Second Quarter FY 1995
Net sales increased $49.3 million, or 17.7 percent, to a record $328.4
million for the three months ended December 2, 1995, compared to
$279.1 million a year ago. Net sales of $629.5 million were recorded
for the first six months of fiscal 1996 compared with net sales of
$531.9 million in the first half of last year. The increase primarily
was due to strong demand for our products in both domestic and
international markets and acquisitions during the past year.
United States net sales were up 19.7 percent for the second quarter,
after being up 13.7 percent in the first quarter of fiscal 1996. The
Business and Institute Furniture Manufacturers Association (BIFMA)
estimates the U.S. market grew approximately 6.8 percent during the
June to October time period.
Net sales of international operations and export sales from the United
States totaled $112.0 for the six months ended December 2, 1995,
compared with $88.8 million last year. The increase was primarily due
to strong growth in the United Kingdom and acquisitions in Italy and
Canada in the fourth quarter of last year.
New orders increased 21.6 percent, to $347.6 million for the second
quarter and were the highest ever recorded in a three-month period.
The backlog of unfilled orders at December 2, 1995, was $197.1
million, compared with $157.7 million a year earlier, and $169.8
million at June 3, 1995.
Gross margin decreased to 34.3 percent during the second quarter of
1996, compared to a gross margin of 35.6 percent in the second quarter
of 1995. The decrease from the prior year second quarter is primarily
attributable to increased raw material costs experienced throughout
fiscal 1995 and price erosion in our core U.S. business.
Operating expenses as a percent of sales, decreased to 26.2
percent, excluding the patent litigation settlements, compared with
29.3 percent, excluding the restructuring charge, in the second quarter
of last year. This improvement is the result of the restructuring
implemented in the fourth quarter of last year which included
employment reductions and discontinuing noncritical consulting
contracts, coupled with increased net sales. Total operating expenses
increased $4.3 million from $81.7 million, excluding the restructuring
charge, in the second quarter of last year to $86.0 million, excluding
the patent litigation settlements. The increase in operating expenses
is attributable to acquisitions and new ventures, a 3.5 percent
year-over-year increase in compensation and benefits, increased
depreciation and amortization, and costs which are variable with sales.
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Interest expense increased $.3 million over second quarter fiscal
1995. Total interest-bearing debt was $106.6 million at the end of the
second quarter of fiscal 1996, compared with $144.2 million at June 3,
1995, and $112.6 million at December 3, 1994.
The net impact of the litigation settlements, after giving effect to
previously recorded reserves and settlements with third parties, was a
$16.5 million charge to pretax income. The $16.5 million pretax charge
had an after-tax impact of $10.6 million, or $.42 per share. After
recording the charge, net income for the quarter and six months ended
December 2, 1995, was $4.9 million ($.20 per share) and $16.9 million
($.68 per share), respectively. This compares with net income of $1.4
million ($.06 per share) and $9.4 million ($.38 per share) recorded in
the same period of last year.
The effective tax rate for the six-month period was 38.1 percent
compared with 36.1 percent in the same period of last year. The higher
rate is the result of losses incurred in Mexico, Canada, and Europe
without a corresponding tax benefit.
Net loss from the company's international operations and export sales
from the United States for the six months ended December 2, 1995,
increased $2.5 million to a $3.8 million loss, compared with net loss
of $1.3 million for the same period last year.
While the company has had consistent growth in the net sales of our
international operations, it has not been able to improve the
profitability to an acceptable level. This is due to negative
operating profits in our Mexican operations and the cost of
integrating Herman Miller Italia into the core European business. The
weak peso and poor economic conditions in Mexico have resulted in a
year-over-year decline in sales of nearly 52 percent, and, as a
consequence, operating losses. Management believes, however, that
these markets are essential components of the company's long-term
international strategy.
C. Financial Condition, Liquidity, and Capital Resources
Second Quarter FY 1996 versus Second Quarter FY 1995
1. Cash flow from operating activities increased to $57.4 million
for the six months ended December 2, 1995, versus a use of $2.1
million in the same period a year ago. The $59.5 million
increase in cash provided by operating activities was due to
the improved profitability and a reduction in cash used for
working capital items.
2. Days sales in accounts receivable plus days sales in inventory
decreased to 90.2 days versus 91.9 days on December 3, 1994,
and 91.2 days on June 3, 1995.
3. Total interest-bearing debt decreased to $106.6 million
compared to $144.2 million at June 3, 1995. Debt-to-total
capital now stands at 26.0 percent versus 33.5 percent on June
3, 1995. We have secured $60.0 million of additional long-term
credit facilities to fund the payment of the litigation
settlement. The company's $160.0 million of long-term credit
facilities, short-term borrowings,
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and cash flow from operations will be adequate to fund capital
expenditures, dividend payments, common stock repurchases, and
other strategic investments. We expect total interest-bearing
debt to be in the range of $140 to $170 for the remainder of
the year with a debt-to-total-capital ratio of between 26 and
35 percent.
4. Capital expenditures for the first six months were $26.4
million versus $25.6 million for the first six months of 1995.
The expenditures were primarily for new facilities at our
fastest growing subsidiaries and new or improved internal
processes. Capital expenditures for the year are expected to
be in the range of $65 to $70 million.
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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
December 2, 1995.
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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.
January 12, 1996 \s\ Michael A. Volkema
-------------------------
Michael A. Volkema
(President and
Chief Executive Officer)
January 12, 1996 \s\ Brian C. Walker
-------------------------
Brian C. Walker
(Vice President, Finance)
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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 Six Months Ended
------------------ ----------------
Dec. 2, Dec. 3, Dec. 2, Dec. 3,
1995 1994 1995(1) 1994(2)
--------- ---------- --------- ---------
NET INCOME APPLICABLE
TO COMMON SHARES $4,955 $ 1,443 $16,969 $ 9,380
===== =========== ====== ==========
Weighted Average Common
Shares Outstanding 25,061,652 24,704,544 24,970,351 24,653,579
Net Common Shares
Issuable Upon Exercise
of Certain Stock Options 126,389 77,219 92,473 100,348
------- -------- ------ -------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING AS ADJUSTED 25,188,041 24,781,763 25,062,824 24,753,927
========== ========== ========== ===========
NET INCOME PER SHARE $ .20 $ .06 $ .68 $ .38
======== ======== ======= =======
(1) Represents 26 weeks
(2) Represents 27 weeks
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1,000
6-MOS
JUN-01-1996
SEP-03-1995
DEC-02-1995
19,363
0
203,888
8,784
79,859
334,493
535,469
261,211
697,625
260,778
0
0
0
5,036
297,636
697,625
629,481
629,481
413,949
413,949
182,279
2,139
3,690
8,510
10,455
16,969
0
0
0
16,969
.68
.68
