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 August 30, 1997 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, 1997--45,934,225 shares.
The Exhibit Index appears at page 15.
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HERMAN MILLER, INC. FORM 10-Q
FOR THE QUARTER ENDED AUGUST 30, 1997
INDEX
Page No.
Part I - Financial Information
Condensed Consolidated Balance Sheets-- 3
August 30, 1997, and May 31, 1997
Condensed Consolidated Statements of Income-- 4
Three Months Ended August 30, 1997,
and August 31, 1996
Condensed Consolidated Statements of Cash Flows-- 5
Three Months Ended August 30, 1997,
and August 31, 1996
Notes to Condensed Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II - Other Information
Exhibits and Reports on Form 8-K 12-13
Signatures 14
Exhibit Index 15
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
Aug. 30, May 31,
1997 1997
---------- ---------
(unaudited) (audited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $132,542 $106,161
Accounts receivable, net 171,743 179,242
Inventories--
Finished goods 23,147 23,552
Work in process 9,507 8,074
Raw materials 22,133 22,251
---------- ---------
Total inventories 54,787 53,877
---------- ---------
Prepaid expenses and other 44,614 46,584
---------- ---------
Total current assets 403,686 385,864
---------- ---------
PROPERTY AND EQUIPMENT, AT COST: 564,097 555,582
Less-accumulated depreciation 301,515 290,355
---------- ---------
Net property and equipment 262,582 265,227
---------- ---------
OTHER ASSETS:
Notes receivable, net 32,112 47,431
Other noncurrent assets 54,556 57,065
---------- ---------
Total assets $752,936 $755,587
========== =========
Aug. 30, May 31,
1997 1997
---------- ---------
(unaudited) (audited)
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Unfunded checks $ 23,494 $ 25,730
Current portion of long-term debt 215 173
Notes payable 14,813 17,109
Accounts payable 68,674 76,975
Accruals 173,173 165,624
---------- ---------
Total current liabilities 280,369 285,611
---------- ---------
LONG-TERM DEBT, less current portion 110,631 110,087
OTHER LIABILITIES 72,142 72,827
SHAREHOLDERS' EQUITY:
Common stock $.20 par value 9,185 9,207
Additional paid-in capital -- --
Retained earnings 296,477 292,237
Cumulative translation adjustment (10,607) (10,863)
Key executive stock programs (5,261) (3,519)
---------- ---------
Total shareholders' equity 289,794 287,062
---------- ---------
Total liabilities and
shareholders' equity $752,936 $755,587
========== =========
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
------------------
August 30, August 31,
1997 1996
---- ----
NET SALES $401,545 $342,484
COST AND EXPENSES:
Cost of goods sold 254,544 224,212
Operating expenses 102,633 91,182
Interest expense 2,189 2,181
Other income, net (2,345) (677)
---------- ---------
357,021 316,898
---------- ---------
INCOME BEFORE TAXES ON INCOME 44,524 25,586
PROVISION FOR TAXES ON INCOME 17,250 10,000
---------- ---------
NET INCOME $ 27,274 $ 15,586
---------- ---------
NET INCOME PER SHARE $ .58 $ .32
---------- ---------
DIVIDENDS PER SHARE OF COMMON STOCK $ .073 $ .065
---------- ---------
See accompanying notes to condensed consolidated financial statements.
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
------------------
August 30, August 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,274 $ 15,586
Depreciation and amortization 13,807 12,093
Other, net 4,845 (5,848)
----------- ---------
Net cash provided by operating activities 45,926 21,831
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable repayments 165,713 102,317
Notes receivable issued (150,775) (103,442)
Capital expenditures (9,985) (12,836)
Other, net 1,515 (3,049)
----------- ---------
Net cash provided by/(used for) investing activities 6,468 (17,010)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term debt borrowings (repayments) (1,535) 5,100
Net long-term debt repayments (49) (189)
Dividends paid (3,336) (3,207)
Net common stock issued 14,298 1,524
Common stock purchased and retired (35,993) (27,991)
Net cash used for financing activities (26,615) (24,763)
----------- ---------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 602 1
----------- ---------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 26,381 (19,941)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 106,161 57,053
----------- ---------
CASH AND CASH EQUIVALENTS,
AT END OF PERIOD $ 132,542 $ 37,112
=========== =========
See accompanying notes to condensed consolidated financial statements.
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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 31, 1997.
During February 1997 the Financial Accounting Standards Board issued statements
of Financial Accounting Standards (FAS) Nos. 128 and 129, "Earnings Per Share"
and "Disclosure of Information about Capital Structure." Both standards are
effective for periods ending after December 15, 1997. The company will adopt
these standards in its third quarter of fiscal 1998. Following the guidance in
FAS No. 128, basic earnings per share for the three months ended August 30,
1997, and August 31, 1996, would be $.59 and $.32, respectively.
FISCAL YEAR
The company's fiscal year ends on the Saturday closest to May 31. Accordingly,
the year ended May 31, 1997, and the year ending May 30, 1998, contain 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
------------------
Aug. 30, Aug. 31,
1997 1996
--------- --------
Interest paid $1,316 $2,673
Income taxes paid $7,102 $8,048
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CONTINGENCIES
The company, for a number of years, has sold various products to the United
States Government under General Services Administration (GSA) multiple award
schedule contracts. The GSA is permitted to audit the company's compliance with
the GSA contracts. As a result of its audits, the GSA has asserted a refund
claim under the 1982 contract for approximately $2.7 million and has other
contracts under audit review. Management has been notified that the GSA has
referred the 1988 contract to the Justice Department for consideration of a
potential civil False Claims Act case. Management disputes the audit result for
the 1982 contract and does not expect resolution of that matter to have a
material adverse effect on the company's consolidated financial statements.
Management does not have information which would indicate a substantive basis
for a civil False Claims Act under the 1988 contract.
The company is not aware of any other litigation or threatened litigation which
would have a material impact on the company's financial statements.
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 August 30, 1997, 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. All amounts are
increases unless otherwise noted. Dollars are shown in thousands.
$ %
------ -----
NET SALES 59,061 17.2
COST OF GOODS SOLD 30,332 13.5
OPERATING EXPENSES 11,451 12.6
INTEREST EXPENSE 8 .4
OTHER INCOME NET* 1,668 246.4
INCOME BEFORE TAXES ON INCOME 18,938 74.0
PROVISION FOR TAXES ON INCOME 7,250 72.5
NET INCOME 11,688 75.0
*Represents an increase in other income.
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B. Results of Operations
First Quarter FY 1998 versus First Quarter FY 1997
Net sales increased $59.1 million, or 17.2 percent, for the three months
ended August 30, 1997. For the first three months of fiscal 1998, the
company had net sales of $401.5 million, compared with net sales of
$342.5 million in the first three months of last year. Net sales were the
highest ever recorded in a first quarter. Acquisitions accounted for $7.2
million, or 2.1 percent of the increase. The remaining increase was
primarily due to unit volume increases in our domestic operations.
United States net sales were up 20.5 percent for the first quarter. We
are benefiting from the accelerated demand for office furniture in the
United States and at the same time, we have continued to gain market
share as our growth has out-paced the industry. In the three months ended
August 1997, the Business and Institutional Furniture Manufacturer's
Association (BIFMA) estimates the market grew 13.9 percent compared to
approximately 7.5 percent in the same period last year. BIFMA is
currently estimating the industry will grow 12.0 percent in calendar 1997
and 6.0 percent in calendar 1998.
We believe the very strong industry growth is to due the positive macro
factors of a strong economy, strong corporate profits and rapidly
changing work styles. The overall economy is being driven by rapid growth
in high tech, information technology and service based business. These
companies have a very high concentration of knowledge workers who have a
greater need for quality office furniture.
From a product segment standpoint, the system segment continues to grow
faster than the other product segments. This has also been our fastest
growing product segment. Sales of our Ethospace product line increased
49.5% over the first quarter of last year. In addition, we are building
momentum with the Q systems product line which was introduced last fall.
New orders increased 9.7 percent to $407.7 million. Acquisitions
accounted for $9.5 million, or 2.6 percent of this increase. The backlog
of unfilled orders at August 30, 1997, was $209.3 million, compared with
$185.8 million a year earlier, and $203.1 million at May 31, 1997.
Gross margin increased to 36.6 percent during the first quarter of 1998,
compared to a gross margin of 34.5 percent in the first quarter of 1997.
The improvement reflects lower expenditures for overhead in the U.S.
operations, better leveraging of fixed overhead, value enhancement
engineering projects, and a favorable product mix. Going forward, we
expect gross margins will be in the range of 35.5 percent to 36.5
percent.
Operating expenses, as a percent of sales, decreased to 25.6 percent
compared with 26.6 percent in the first quarter of last year. Total
operating expenses increased $11.5 million from $91.2 million in the
first quarter of last year to $102.6 million. Operating expenses
attributable to acquisitions and new ventures were $.8 million.
Additional factors
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contributing to the increase were investments in and maintenance of
information systems, a 4.0 percent year-over-year increase in
compensation and benefits and costs which are variable with sales.
Interest expense of $2.2 million was comparable to the first quarter of
fiscal 1997. Total interest-bearing debt was $125.7 million at the end of
the first quarter of fiscal 1998, compared with $127.4 million at May 31,
1997, and $137.0 million at August 31, 1996.
The effective tax rate for the first quarter was 38.7 percent compared
with 39.1 percent in the same period of last year.
Net income increased 75.0 percent to $27.3 million in the first quarter,
compared to $15.6 million for the same period last year.
Net sales of international operations and export sales from the United
States in the first quarter ended August 30, 1997, totaled $59.1 million
compared with $58.4 million last year.
While our international sales growth of 1.2 percent over the first
quarter of last year has been modest, we continued to improve our
operating performance. The first quarter comparison was impacted by the
sale of our German manufacturing operations in the fourth quarter of last
year. Excluding the impact of that change, our international sales grew
approximately 6.3 percent. For the first quarter our international
operations and exports from the United States had recorded net income of
$2.3 million. This is our second straight quarter of profitability in our
international business. The improvement reflects the changes we have made
in Mexico and Germany coupled with very strong demand for product in
Canada and the UK. The strength of the United States dollar has resulted
in some softness in export sales to markets in Asia. However, this was
offset by very good growth in Europe and Canada.
We continue to experience operating losses in Italy. We are currently
focusing our resources on realigning the operations of this business. We
believe this will result in the elimination of some non-value adding
operations and increased leveraging of our supply base in Italy. The
final plans should be completed during the second quarter and implemented
through the balance of fiscal 1998. We do not expect to record any
significant charges related to these changes.
C. Financial Condition, Liquidity, and Capital Resources
First Quarter FY 1998 versus First Quarter FY 1997
1. Cash flow from operating activities was $45.9 million versus
$21.8 million in the first quarter of 1997.
2. Days sales in accounts receivable plus days sales in
inventory decreased to 57.9 days versus 63.3 days on May 31, 1997.
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3. Total interest-bearing debt decreased to $125.7 million
compared to $127.4 million at May 31, 1997. Debt-to-total capital
now stands at 30.2 percent versus 30.7 percent on May 31, 1997. We
expect total interest-bearing debt to be in the range of $125 to
$145 for the remainder of the year.
4. Capital expenditures for the quarter were $10.0 million
versus $12.8 million for the first quarter of 1997. Capital
expenditures for the year are expected to be in the range of $65 to
$70 million. This includes a significant amount of cash flow that
should be generated from the sale of two facilities and vacant land.
The expenditures in 1998 will primarily be for the implementation of
an enterprise-wide information system, continued implementation of
our electronic sales platform, and new products in the systems
segment.
5. During the first three months of fiscal 1998, the company
repurchased 588,700 shares of common stock, under the 2.0 million
share repurchase authorization, for $29.0 million. The company also
repurchased 133,884 shares of common stock from employees as part of
the stock option program for $7.0 million.
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Part II
Item 4: Submission of Matters to Vote of Security Holders
At the Annual Shareholders Meeting held October 1, 1997, the shareholders voted
on various proposals presented in the company's 1997 definitive proxy
statement. The results of the votes follow:
1. Proposal to elect four directors to serve a term of three years and one
director to serve a term of one year:
a. Terms expiring in 2000
Broker
For Against Withheld Non-Vote
--- ------- -------- --------
James R. Carreker 39,501,229 0 306,337 0
C. William Pollard 39,507,378 0 300,188 0
Ruth Alkema Reister 39,501,835 0 305,731 0
Richard H. Ruch 39,500,430 0 307,136 0
b. Term--expiring in 1998
Dorothy A. Terrell 39,234,137 0 564,429 0
2. Proposal to amend the Company's Articles of Incorporation to increase the
authorized common stock from 60,000,000 shares to 120,000,000 shares of
common stock, $.20 par value.
Broker
For Against Withheld Non-Vote
--- --------- -------- --------
38,133,167 1,442,327 232,072 0
3. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent public accountants for the company for the fiscal year ending
May 30, 1998.
Broker
For Against Withheld Non-Vote
--- ------- -------- --------
39,727,955 30,724 48,887 0
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Item 5: 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 August
30, 1997.
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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 8, 1997
--------------------------
Michael A. Volkema
(President and
Chief Executive Officer)
October 8, 1997
--------------------------
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
----------------------------
August 30, August 31,
1997 1996
---------- ----------
NET INCOME APPLICABLE
TO COMMON SHARES $ 27,274 $ 15,586
========== ==========
Weighted Average Common
Shares Outstanding 46,024,514 48,129,688
Net Common Shares
Issuable Upon Exercise
of Certain Stock Options 933,657 380,866
---------- ----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING AS ADJUSTED 46,958,171 48,510,554
========== ==========
NET INCOME PER SHARE $ .58 $ .32
========== ==========
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1,000
3-MOS
MAY-30-1998
JUN-01-1997
AUG-30-1997
132,542
0
185,264
13,521
54,787
403,686
564,097
301,515
752,936
280,369
0
0
0
9,185
280,609
752,936
401,545
401,545
254,544
254,544
99,064
1,224
2,189
44,524
17,250
27,274
0
0
0
27,274
.58
.58
