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 November 27, 1993 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 30, 1993--25,103,990 shares. The Exhibit Index appears at page 14. 2 HERMAN MILLER, INC. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 27, 1993 INDEX -2-
Page No. -------- Part I--Financial Information Condensed Consolidated Balance Sheets-- November 27, 1993, and May 29, 1993 3 Condensed Consolidated Statements of Operations-- Three Months and Six Months Ended November 27, 1993, and November 28, 1992 4 Condensed Consolidated Statements of Cash Flows-- Six Months Ended November 27, 1993 and November 28, 1992 5 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 Signatures 13 Exhibit Index 14 3 HERMAN MILLER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) See accompanying notes to condensed consolidated financial statements. -3-
November 27, May 29, November 27, May 29, 1993 1993 1993 1993 ------------ -------- ---------- -------- (unaudited) (audited) (unaudited) (audited) ASSETS LIABILITIES & SHAREHOLDERS' EQUITY - ------ ---------------------------------- CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 24,155 $ 16,531 Current maturities of long-term debt $ 529 $ 515 Accounts receivable, net 126,959 111,218 Notes payable 27,352 18,234 Inventories -- Accounts payable 41,985 38,654 Finished goods 19,307 18,923 Accruals 90,236 87,456 -------- ------- Work in process 7,032 6,692 Total current liabilities 160,102 144,859 -------- ------- Raw materials 33,248 30,423 ---------- -------- Total inventories 59,587 56,038 LONG-TERM DEBT, less current ---------- -------- maturities 20,870 21,128 Prepaid expenses and current deferred income taxes 23,333 23,783 DEFERRED TAXES 7,185 7,412 ---------- ------- Total current assets 234,034 207,570 OTHER LIABILITIES 28,560 27,001 ---------- ------- PROPERTY AND EQUIPMENT, AT COST 447,480 431,407 SHAREHOLDERS' EQUITY: Less-accumulated depreciation 215,519 202,963 Common stock $.20 par value 5,059 5,001 ---------- ------- Net property and equipment 231,961 228,444 Additional paid-in capital 36,451 29,863 ---------- ------- Retained earnings 263,918 251,831 OTHER ASSETS: Cumulative translation adjustment (2,344) (1,349) Notes receivable, net 38,578 32,174 Unearned stock grant compensation (1,110) (1,404) -------- ------- Other noncurrent assets 14,118 16,154 ---------- ------- Total shareholders' equity 301,974 283,942 -------- ------- Total liabilities and Total assets $ 518,691 $484,342 shareholders' equity $518,691 $484,342 ---------- -------- -------- -------- ---------- -------- -------- -------- 4 HERMAN MILLER, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) See accompanying notes to condensed consolidated financial statements. -4-
Three Months Ended Six Months Ended --------------------- --------------------- Nov. 27, Nov. 28, Nov. 27, Nov. 28, 1993 1992 1993 1992 -------- -------- -------- -------- NET SALES $241,822 $ 204,974 $ 463,388 $404,570 COST AND EXPENSES: Cost of goods sold 157,492 136,114 302,735 267,314 Operating expenses 67,340 62,142 130,527 125,733 Interest expense 317 699 744 1,238 Other income, net (810) (39) (1,675) (482) -------- -------- ------- ------- 224,339 198,916 432,331 393,803 -------- ------- ------- ------- INCOME BEFORE TAXES ON INCOME 17,483 6,058 31,057 10,767 PROVISION FOR TAXES ON INCOME 6,300 2,500 12,400 4,800 ------- ------ ------- ------ NET INCOME $ 11,183 $ 3,558 $ 18,657 $ 5,967 ------- -------- --------- ------- ------- -------- --------- ------- NET INCOME PER SHARE $ .44 $ .14 $ .74 $ .24 --------- --------- --------- --------- --------- --------- --------- --------- DIVIDENDS PER SHARE OF COMMON STOCK $ .13 $ .13 $ .26 $ .26 --------- --------- --------- --------- --------- --------- --------- --------- 5 HERMAN MILLER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) See accompanying notes to condensed consolidated financial statements. -5-
Six Months Ended ---------------- Nov. 27, Nov. 28, 1993 1992 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 18,657 $ 5,967 Depreciation and amortization 16,891 16,066 Other, net (9,841) 16,891 -------- -------- Net cash provided by operating activities 25,707 38,924 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Notes receivable repayments 189,556 154,037 Notes receivable issued (197,210) (155,790) Capital expenditures ( 18,236) (17,081) Other, net 1,139 (3,101) -------- -------- Net cash used for investing activities (27,029) (21,935) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net common stock issued 8,281 1,047 Net long-term debt repayments (57) (8,892) Net short-term debt borrowings 9,404 5,797 Dividends paid (6,534) (6,553) Common stock purchased and retired (1,634) (8,155) Other, net (138) (140) -------- -------- Net cash provided by (used for) financing activities 9,322 (16,896) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (376) (911) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,624 (818) CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 16,531 16,949 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,155 $ 16,131 -------- -------- -------- -------- 6 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 29, 1993. FISCAL YEAR The company's fiscal year ends on the Saturday closest to May 31. 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: -6-
Six Months Ended ----------------- November 27, November 28, 1993 1992 ----------------- --------------- Interest paid $ 729 $1,061 Income taxes paid $13,506 $8,247 7 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 infringes 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). The company has received a written opinion from its patent counsel that such patent counsel do not believe the company has been selling an infringing product. The litigation is in a preliminary stage, and the company is defending its position vigorously. Additionally, there are various other claims and legal proceedings pending against the company arising from its operations. At this time, management does not expect these matters to have a material adverse effect on the company's consolidated financial position. However, the outcome of these matters 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, consisting of only a normal and recurring nature, necessary to present fairly the financial position of the company as of November 27, 1993, 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. -7- 8 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 (decreases) unless otherwise noted. Dollars are shown in thousands. * Represents an increase in other income -8-
Three Months Six Months ------------------------ ----------------------- $ % $ % ---------- ---------- ---------- --------- NET SALES 36,848 18.0 58,818 14.5 COST OF GOODS SOLD 21,378 15.7 35,421 13.3 OPERATING EXPENSES 5,198 8.4 4,794 3.8 INTEREST EXPENSE (382) (54.6) (494) (39.9) OTHER (INCOME) EXPENSE, NET (771)* (1,976.9) (1,193)* (247.7) INCOME BEFORE TAXES ON INCOME 11,425 188.6 20,290 188.4 PROVISION FOR TAXES ON INCOME 3,800 152.0 7,600 158.3 NET INCOME 7,625 214.3 12,690 212.7 9 B. Results of Operations Net sales increased $36.8 million, or 18.0 percent, over second quarter results a year ago. For the second three months of 1994, the company had net sales of $241.8 million, compared with net sales of $205.0 million in the second three months last year. For the first six months of 1994, the company had net sales of $463.4 million, compared to net sales of $404.6 million in the first six months last year. Net sales of $241.8 million for the second quarter were the highest recorded in any quarter of the company's history. According to the most recent statistics of the Business and Institutional Furniture Manufacturers Association (BIFMA), United States office furniture sales for both the last five- and ten- month periods increased between 5 and 6 percent over the same periods a year ago. This compares with the company's year-over-year United States net growth rates of 16.5 percent and 14.4 percent for the last 6 and 12 months, respectively. Consolidated order entry through the fourth week of December remains strong on a comparative basis with year-ago levels. Net sales of international operations and export sales from the United States in the second quarter ended November 27, 1993, totaled $40.2 million compared with $30.8 million last year. For the first six months of 1994, net sales of international operations and export sales from the United States were $65.8 million compared with $63.1 million last year. The backlog of unfilled orders at November 27, 1993, was $140.7 million compared with $140.4 million a year earlier, and $132.1 million at August 28, 1993. New orders received in the second quarter increased $23.8 million to $250.5 million, or 10.5 percent, when compared to the same period a year ago. New orders for the first six months increased $45.6 million, or 10.6 percent, when compared to the first six months of fiscal 1993. New orders for the first six months of fiscal 1994 also were a company record for a six-month period. Gross margin increased to 34.9 percent during the second quarter of 1994, compared to a gross margin of 33.6 percent for the same period last year. The gross margin for the first six months increased to 34.7 percent of net sales compared with 33.9 percent in the prior year. This primarily was attributable to increased volume in fiscal year 1994, which more effectively utilizes fixed overhead. Operating expenses, including design and research, were $67.3 million for the second quarter, an increase of $5.2 million, or 8.4 percent, over second quarter last year. Operating expenses for the first six months of 1993 were $130.5 million, a $4.8 million increase over the $125.7 million operating expenses for the first six -9- 10 months of 1993. As a percent of net sales, operating expenses were 28.2 and 31.1 for the first six months of the current and prior year, respectively. The decrease as a percent of net sales directly was attributable to the increase in net sales as well as a lower fixed cost structure as a result of the company's ongoing restructuring and cost reduction efforts. Interest expense decreased $.4 million over second quarter 1993. The decrease primarily was a result of reduced long- and short-term borrowings. Total interest bearing debt was $48.8 million at the end of the second quarter of fiscal 1994, compared with $49.9 million at November 28, 1992. Net other income increased $.8 million over second quarter 1993. For the first six months of 1994, net other income increased to $1.7 million from $.5 million in the prior year. The effective tax rate was 39.9 percent for the first six months of 1994, compared with 44.6 percent for the same period last year. The effective tax rate decreased for the first six months due to a reduction in European losses year to date in fiscal 1994 over fiscal 1993. Net income increased to $11.2 million in the second quarter, compared to $3.6 million income for the same period last year. Net income for the first six months of 1994 was $18.7 million compared to $6.0 million for the same period last year. Net income for the second quarter was the best recorded in 3.5 years. Net income from the company's international operations and export sales from the United States for the second quarter increased to net income of $1.5 million compared with a net loss of $1.3 million last year. The first six months increased $2.3 million to a $.9 million loss, compared with net loss of $3.2 million for the same period last year. The company's international results were affected by significant project business in both Asia/Pacific and Latin America regions, which more than doubled total second quarter sales in these regions over last year and also contributed to the highest net income from international and United States exports in three years. While European net sales fell 4 percent versus a year ago, European results improved for the second quarter $.5 million due to cost reduction and restructuring measures initiated last year. During the second quarter, order entry in Europe was weak on a year-to-year comparative basis, but was stronger on a sequential basis over the first quarter. Asia/Pacific and Latin America second quarter orders were strong on both a comparative and sequential basis. Prolonged sluggish growth in Continental Europe and Japan will continue to contribute to the uncertainty and volatility of the company's international results. The second quarter of fiscal 1994 marked the fourth consecutive quarter of favorable year-to-year comparisons in both net sales and net income. -10- 11 C. Financial Condition, Liquidity, and Capital Resources First Six Months FY 1994 versus First Six Months FY 1993 The first six months' cash flow from operating activities totaled $25.7 million when compared to net income of $18.7 million. Higher volume for the last six months increased demand for working capital and lessened cash flow from operations. However, accounts receivable and inventory as well as all other assets (except cash) increased less on a percentage basis than the 14.5 percent increase in net sales for the last six months. Asset utilization, as measured by the ratio of net sales-to-average assets, improved to 1.85 in fiscal 1994 from 1.73 in the first six months in fiscal 1993. Net return-on-average total assets (ROA) and net return-on-average total equity (ROE) both improved to 7.4 percent and 12.7 percent, respectively, versus 2.6 percent and 4.4 percent a year ago, respectively. The company is committed to the 2.0 million share repurchase program announced in January 1991 and resumed purchases in the second quarter of fiscal 1994. During the three months ended November 27, 1993, 65,000 shares were repurchased at an average cost of $25.14 per share. This brought the total shares repurchased since January of 1991 to 1.41 million shares at an average cost of $17.44 per share. All share repurchases have been made on the open market on an unsolicited basis. Other than described above, there were no significant changes to the company's overall financial condition during the first six months of fiscal year 1994. The company's planned capital requirements for the remainder of the fiscal year include approximately $24 million of capital expenditures and long-term debt repayments. Management believes that the company's cash and cash equivalents, combined with cash generated from operations and, if necessary, additional available external financing capability, will be adequate to meet anticipated liquidity needs for operations. -11- 12 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 November 27, 1993. -12- 13 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 4, 1994 /s/ J. KERMIT CAMPBELL ------------------------- J. Kermit Campbell (President and Chief Executive Officer) January 4, 1994 /s/ JAMES H. BLOEM ------------------------- James H. Bloem (Vice President, Chief Financial Officer, and Principal Accounting Officer) -13- 14 *Exhibit Index (11) Computations of earnings per common share. -14-
1 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 ----------------------- ------------------------- Nov. 27, Nov. 28, Nov. 27, Nov. 28, 1993 1992 1993 1992 -------- -------- --------- ------- NET INCOME APPLICABLE TO COMMON SHARES $ 11,183 $ 3,558 $ 18,657 $ 5,967 ---------- ------- --------- --------- ---------- ------- --------- --------- Weighted Average Common Shares Outstanding 25,244,718 24,928,583 25,190,088 25,056,392 Net Common Shares Issuable Upon Exercise of Certain Stock Options 160,333 2,618 166,423 4,745 ---------- ------- -------- --------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING AS ADJUSTED 25,405,051 24,931,201 25,356,511 25,061,137 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- NET INCOME PER SHARE $ .44 $ .14 $ .74 $ .24 ----------- ---------- ----------- ----------- ----------- ---------- ----------- -----------