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 March 2, 1996 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 March 30, 1996--24,985,608 shares.
The Exhibit Index appears at page 15.
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HERMAN MILLER, INC. FORM 10-Q
FOR THE QUARTER ENDED MARCH 2, 1996
INDEX
Page No.
--------
Part I--Financial Information
Condensed Consolidated Balance Sheets--
March 2, 1996, and June 3, 1995 3
Condensed Consolidated Statements of Income--
Three Months and Nine Months Ended March 2, 1996,
and March 4, 1995 4
Condensed Consolidated Statements of Cash Flows--
Nine Months Ended March 2, 1996,
and March 4, 1995 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)
March 2, June 3, March 2, June 3,
1996 1995 1996 1995
-------- ------- -------- -------
(unaudited) (audited) (unaudited) (audited)
ASSETS LIABILITIES & SHAREHOLDERS' EQUITY
- ------ ----------------------------------
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 18,698 $ 16,488 Unfunded checks $ 9,835 $ --
Accounts receivable, net 158,834 165,107 Current portion of long-term debt 453 452
Inventories -- Notes payable 31,553 83,591
Finished goods 29,015 26,260 Accounts payable 54,977 51,819
Work in process 11,477 8,074 Accruals 118,440 121,679
Raw materials 37,200 36,742 ------- -------
------ ------ Total current liabilities 215,258 257,541
Total inventories 77,692 71,076 ------- -------
------ ------ LONG-TERM DEBT, less current portion 75,295 60,145
Prepaid expenses and current
deferred income taxes 41,716 44,445 OTHER LIABILITIES 60,600 54,411
------- -------
Total current assets 296,940 297,116 SHAREHOLDERS' EQUITY:
------- ------- Common stock $.20 par value 5,046 4,967
Additional paid-in capital 31,668 21,564
PROPERTY AND EQUIPMENT, AT COST 541,274 513,455 Retained earnings 289,710 270,631
Less-accumulated depreciation 266,574 243,271 Cumulative translation adjustment (11,605) (6,985)
------- ------- Key executive stock programs (2,658) (3,262)
Net property and equipment 274,700 270,184 ------- -------
------- -------
OTHER ASSETS: Total shareholders' equity 312,161 286,915
------- -------
Notes receivable, net 41,019 43,734
Other noncurrent assets 50,655 47,978 Total liabilities and
-------- -------- shareholders' equity $663,314 $659,012
======== ========
Total assets $663,314 $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 Nine Months Ended
-------------------- --------------------
March 2, March 4, March 2, March 4,
1996 1995 1996(1) 1995(2)
--------- --------- --------- ---------
NET SALES $312,915 $259,950 $942,396 $791,858
COST AND EXPENSES:
Cost of goods sold 209,500 171,069 623,449 512,608
Operating expenses 83,401 78,777 252,740 238,304
Restructuring charges (3) -- -- -- 15,500
Patent litigation settlements (4) -- -- 16,515 --
Interest expense 1,841 2,053 5,531 4,323
Other income (expense), net (472) 1,492 (1,908) (116)
--------- --------- --------- ---------
294,270 253,391 896,327 770,619
--------- --------- --------- ---------
INCOME BEFORE TAXES ON INCOME 18,645 6,559 46,069 21,239
PROVISION FOR TAXES ON INCOME 6,745 2,300 17,200 7,600
--------- --------- --------- ---------
NET INCOME $11,900 $ 4,259 $28,869 $13,639
====== ====== ====== ======
NET INCOME PER SHARE $ .47 $ .17 $ 1.15 $ .55
====== ====== ====== ======
DIVIDENDS PER SHARE OF COMMON STOCK $ .13 $ .13 $ .39 $ .39
====== ====== ====== ======
See accompanying notes to condensed consolidated financial statements.
(1) Represents 39 weeks
(2) Represents 40 weeks
(3) Restructuring charges were taken in the second quarter ended December 3,
1994. These charges had the effect of reducing net income by $9.6 million
and earnings per share by $.39.
(4) Litigation settlement charges were taken in the second quarter ended
December 2, 1995. These charges had the effect of reducing net income by
$10.6 million and earnings per share by $.42.
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
--------------------
March 2, March 4,
1996(1) 1995(2)
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $28,869 $13,639
Depreciation and amortization 34,121 29,554
Restructuring charges -- 15,500
Changes in current assets and liabilities 15,585 (73,771)
Other, net 8,081 14,832
-------- --------
Net cash provided (used for) by operating activities 86,656 (246)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable repayments 350,216 308,363
Notes receivable issued (349,285) (309,003)
Capital expenditures (42,323) (43,660)
Other, net 363 (17,521)
-------- --------
Net cash used for investing activities (41,029) (61,821)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net long-term debt borrowings 13,287 29,823
Net short-term debt borrowings (repayments) (51,000) 40,480
Dividends paid (9,734) (9,617)
Net common stock issued 9,542 4,362
Common stock purchased and retired (4,493) (253)
Other, net (138) (210)
-------- --------
Net cash provided by (used for) financing activities (42,536) 64,585
-------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (881) (2,630)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,210 (112)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 16,488 22,701
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $18,698 $22,589
======= =======
See accompanying notes to condensed consolidated financial statements.
(1) Represents 39 weeks
(2) Represents 40 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.
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 $9.8 million is included in current liabilities as unfunded checks
at March 2, 1996. 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 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.
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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 nine months of
fiscal 1996 were as follows:
June 3, 1995 Costs Paid Ending
In Thousands Balance or Charged Balance
------------ ---------- -------
Facilities and equipment $10,829 $ 4,106 $ 6,723
Termination benefits 12,279 9,380 2,899
Other exit costs 1,310 747 563
------ ------ ------
$24,418 $14,233 $10,185
====== ====== ======
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:
Nine Months Ended
--------------------
March 2, March 4,
1996 1995
--------- ---------
Interest paid $ 5,615 $ 4,156
Income taxes paid $11,589 $12,500
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.
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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 March 2, 1996, and the results of
its operations and cash flows for the nine 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 nine months ended March 2, 1996, contained 39 weeks. All amounts
are increases (decreases) unless otherwise noted. Dollars are shown in
thousands.
Three Months Nine Months
---------------- -------------------
$ % $ %
------- ------- -------- ---------
NET SALES 52,965 20.4 150,538 19.0
COST OF GOODS SOLD 38,431 22.5 110,841 21.6
OPERATING EXPENSES 4,624 5.9 14,436 6.1
RESTRUCTURING CHARGES -- -- (15,500) (100.0)
PATENT LITIGATION SETTLEMENTS -- -- 16,515 100.0
INTEREST EXPENSE (212) (10.3) 1,208 27.9
OTHER INCOME* (1,964) (131.6) (1,792) (1,544.8)
INCOME BEFORE TAXES ON INCOME 12,086 184.3 24,830 116.9
PROVISION FOR TAXES ON INCOME 4,445 193.3 9,600 126.3
NET INCOME 7,641 179.4 15,230 111.7
*Represents an increase in other income.
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B. Results of Operations
Third Quarter FY 1996 versus Third Quarter FY 1995
Net sales increased $53.0 million, or 20.4 percent, to a third quarter
record of $312.9 million for the three months ended March 2, 1996,
compared to $260.0 million a year ago. Net sales of $942.4 million were
recorded for the first nine months of fiscal 1996 compared with net sales
of $791.9 million in the same period 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 19.2 percent for the nine months ended
March 2, 1996, compared with the prior year. The Business and Institute
Furniture Manufacturers Association (BIFMA) estimates the U.S. market
grew approximately 5.9 percent for the period from June 1995 to January
1996.
Net sales of international operations and export sales from the United
States totaled $163.9 for the nine months ended March 2, 1996, compared
with $138.8 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 8.9 percent, to $275.6 million for the third quarter
and were the highest ever recorded in a third quarter. The backlog of
unfilled orders at March 2, 1996, was $159.8 million, compared with
$150.7 million a year earlier, and $169.8 million at June 3, 1995.
Gross margin decreased to 33.1 percent during the third quarter of 1996,
compared to gross margin of 34.2 percent in the third quarter of 1995.
The decline in gross profit is primarily attributable to two factors: a
shift in product mix at one of our metal fabricators and reduced margins
in Mexico.
Operating expenses as a percent of sales decreased to 26.6 percent
compared with 30.3 percent in the third 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 $4.6 million from $78.8
million in the third quarter of last year to $83.4 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.
Interest expense decreased $.2 million over third quarter fiscal 1995.
Total interest-bearing debt was $107.3 million at the end of the third
quarter of fiscal 1996, compared with $144.2 million at June 3, 1995, and
$141.8 million at March 4, 1995.
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The effective tax rate for the nine-month period was 37.3 percent
compared with 35.8 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 nine months ended March 2, 1996, increased
$2.7 million to a $6.5 million loss, compared with net loss of $3.8
million for the same period last year.
The results of our European operations improved in the third quarter.
However, the poor economic conditions in Mexico resulted in increased
operating losses in our Mexican operations. International operations
continue to be an area of great concern and focus for the management
team.
C. Financial Condition, Liquidity, and Capital Resources
Third Quarter FY 1996 versus Third Quarter FY 1995
1. Cash flow from operating activities increased to $86.7
million for the nine months ended March 2, 1995, versus a use of $.2
million in the same period a year ago. The $86.9 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 79.2 days versus 94.4 days on March 4, 1995,
and 91.2 days on June 3, 1995.
3. The company was able to fund the entire litigation settlement
of $44 million during the third quarter from cash generated from
operating activities.
4. Total interest-bearing debt decreased to $107.3 million
compared to $144.2 million at June 3, 1995. Debt-to-total capital
now stands at 25.6 percent versus 33.5 percent on June 3, 1995.
During the third quarter, the company entered into a private
placement of $100 million in long-term debt with seven insurance
companies. The interest rate on the borrowings ranges from 6.08
percent to 6.52 percent. We expect total interest-bearing debt to be
in the range of $120 to $140 for the remainder of the year with a
debt-to-total-capital ratio of between 26 and 35 percent.
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5. Capital expenditures for the first nine months were $42.3
million versus $43.7 million for the first nine 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 $55 to
$60 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 March 2,
1996.
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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.
April 11, 1996 \s\ Michael A. Volkema
-------------------------
Michael A. Volkema
(President and
Chief Executive Officer)
April 11, 1996 \s\ Brian C. Walker
-------------------------
Brian C. Walker
(Chief Financial 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 Nine Months Ended
---------------------- ----------------------
March 2, March 4, March 2, March 4,
1996 1995 1996(1) 1995(2)
---------- ---------- --------- ----------
NET INCOME APPLICABLE
TO COMMON SHARES $11,900 $4,259 $ 28,869(3) $ 13,639(4)
========== ========== ========== ==========
Weighted Average Common
Shares Outstanding 25,220,460 24,774,316 25,053,721 24,693,824
Net Common Shares
Issuable Upon Exercise
of Certain Stock Options 175,003 62,327 119,983 87,674
---------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING AS ADJUSTED 25,395,463 24,836,642 25,173,703 24,781,498
========== ========== ========== ==========
NET INCOME PER SHARE $.47 $.17 $1.15 $.55
========== ========== ========== ==========
(1) Represents 39 weeks
(2) Represents 40 weeks
(3) Litigation settlement charges were taken in the second quarter ended
December 2, 1995. These charges had the effect of reducing net income by
$10.6 million and earnings per share by $.42.
(4) Restructuring charges were taken in the second quarter ended December 3,
1994. These charges had the effect of reducing net income by $9.6 million
and earnings per share by $.39.
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1,000
9-MOS
JUN-01-1996
DEC-03-1995
MAR-02-1996
18,698
0
168,291
9,457
77,692
296,940
541,274
266,574
663,314
215,258
0
0
0
5,046
307,115
663,314
942,396
942,396
623,449
623,449
264,780
2,567
5,531
46,069
17,200
28,869
0
0
0
28,869
1.15
1.15
