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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL 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 Fiscal Year Ended June 3, 1995 Commission File No. 0-5813
Herman Miller, Inc.
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(Exact name of registrant as specified in its charter)
Michigan 38-0837640
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
855 East Main Avenue
PO Box 302
Zeeland, Michigan 49464-0302
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (616) 654 3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.20 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. _____
The aggregate market value of the voting stock held by "nonaffiliates" of the
registrant (for this purpose only, the affiliates of the registrant have been
assumed to be the executive officers and directors of the registrant and their
associates) as of August 7, 1995, was approximately $631,891,425 (based on
$25.000 per share which was the closing sale price in the over-the-counter
market as reported by NASDAQ).
The number of shares outstanding of the registrant's common stock, as of August
7, 1995: Common stock, $.20 par value-24,934,135 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on October 5, 1995, are incorporated into Part III of
this report.
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PART 1
Item 1 BUSINESS
(a) General Development of Business
The company primarily is engaged in the design, manufacture, and sale of
furniture systems and furniture, and related products and services, for
offices, and, to a lesser extent, for health-care facilities and other uses.
Through research, the company seeks to define and clarify customer needs and
problems existing in its markets and to design, through innovation where
feasible, products and systems as solutions to such problems.
Herman Miller, Inc., was incorporated in Michigan in 1905. One of the company's
major plants and its corporate offices are located at 855 East Main Avenue, PO
Box 302, Zeeland, Michigan, 49464-0302, and its telephone number is (616)
654 3000. Unless otherwise noted or indicated by the context, the term
"company" includes Herman Miller, Inc., its predecessors and subsidiaries.
(b) Financial Information About Industry Segments
A dominant portion (more than 90 percent) of the company's operations is in a
single industry segment - the design, manufacture, and sale of office furniture
systems and furniture, and related products and services. Accordingly, no
separate industry segment information is presented.
(c) Narrative Description of Business
The company's principal business consists of the research, design, development,
manufacture, and sale of furniture systems and furniture, and related products
and services. Most of these systems and products are coordinated in design so
that they may be used both together and interchangeably. The company's products
and services are purchased primarily for offices, and, to a lesser extent,
health-care facilities and other uses.
The company is a leader in design and development of furniture and furniture
systems. This leadership is exemplified by the innovative concepts introduced
by the company in its modular systems known as Action Office(R), Co/Struc(R),
and Ethospace(R). Action Office, the company's series of three freestanding
office partition and furnishing systems, is believed to be the first such
system to be introduced and nationally marketed and as such popularized the
"open plan" approach to office space utilization. Co/Struc is a unique system
for storing and handling materials and supplies within health-care facilities
and laboratories. Ethospace interiors is a system of movable full- and
partial-height walls, with panels and individual wall segments that
interchangeably attach to wall framework. It includes wall-attached work
surfaces and storage/display units, electrical distribution, lighting,
organizing tools, and freestanding components. The company also offers a broad
array of seating (including Aeron (TM), Equa(R) and Ergon(R) office chairs),
storage (including Meridian filing products), and freestanding furniture
products.
The company's products are marketed worldwide by its own sales staff. These
sales persons work with dealers, the design and architectural community, as
well as directly with end users. Seeking and strengthening the various
distribution channels within the marketplace is a major focus of the company.
Independent dealerships concentrate on the sale of Herman Miller products and a
few complementary product lines of other manufacturers. Approximately 83.2
percent of the company's sales (in the fiscal year ended June 3, 1995) were
made to or through
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independent dealers. The remaining sales (16.8 percent) were made directly to
end-users, including federal, state, and local governments, and several major
corporations.
The company's furniture systems, seating, storage, and freestanding furniture
products, and related services are used in (1) office/institution environments
including offices and related conference, lobby and lounge areas, and general
public areas including transportation terminals; (2) health/science
environments including hospitals and other health care facilities; (3)
clinical, industrial, and educational laboratories; and (4) other environments.
In the following table, sales are classified by end-user (in millions):
Year Ended
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June 3, May 28, May 29,
1995 1994 1993
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Net % of Net % of Net % of
Sales Total Sales Total Sales Total
----- ----- ----- ----- ----- -----
Office/Institution Environments 1,051.9 97.1 $922.1 96.7 $824.2 96.3
Other (1) 31.2 2.9 31.1 3.3 31.5 3.7
------- ------ ------- ------- ------ -----
Total $1,083.1 100.0 $953.2 100.0 $855.7 100.0
======== ===== ====== ====== ====== =====
(1) Includes health/science, industrial light assembly, and other users.
New Product and Industry Segment Information
During the past 12 months, the company has not made any public announcement of,
or otherwise made public information about, a new product or a new industry
segment which would require the investment of a material amount of the
company's assets or which would otherwise result in a material cost.
Raw Materials
The company's manufacturing materials are available from a significant number
of sources within the United States, Canada, Europe, and the Far East. To date,
the company has not experienced any difficulties in obtaining its raw
materials. The raw materials used are not unique to the industry nor are they
rare.
Patents, Trademarks, Licenses, Etc.
The company has approximately 180 active United States utility patents on
various components used in its products and systems and approximately 147
active United States design patents. Many of the inventions covered by the
United States patents also have been patented in a number of foreign countries.
Various trademarks, including the name and style "Herman Miller," and the " "
trademark, are registered in the United States and certain foreign countries.
The company does not believe that any material part of its business is
dependent on the continued availability of any one or all of its patents or
trademarks, or that its business would be materially adversely affected by the
loss of any thereof except the "Herman Miller," "Action Office," "Aeron,"
"Co/Struc," "Ergon," "Equa," "Ethospace," (and " ") trademarks.
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Seasonal Nature of Business
The company does not consider its business to be seasonal in nature.
Working Capital Practices
The company does not believe that it or the industry in general has any special
practices or special conditions affecting working capital items that are
significant for an understanding of the company's business.
Customer Base
No single dealer accounted for more than 3.4 percent of the company's net sales
in the fiscal year ended June 3, 1995. For fiscal 1995, the largest single
end-user customer accounted for approximately 8.6 percent of the company's net
sales with the 10 largest of such customers accounting for approximately 16.3
percent of the company's sales. The company does not believe that its business
is dependent on any single or small number of customers, the loss of which
would have a materially adverse effect upon the company.
Backlog of Orders
As of June 3, 1995, the company's backlog of unfilled orders was $169.8
million. At May 28, 1994, the company's backlog totalled $138.6 million. It is
expected that substantially all the orders forming the backlog at June 3, 1995,
will be filled during the current fiscal year. Many orders received by the
company are filled from existing raw material inventories and are reflected in
the backlog for only a short period while other orders specify delayed
shipments and are carried in the backlog for up to one year. Accordingly, the
amount of the backlog at any particular time is not necessarily indicative of
the level of net sales for a particular succeeding period.
Government Contracts
Other than standard price reduction and other provisions contained in contracts
with the United States government, the company does not believe that any
significant portion of its business is subject to material renegotiation of
profits or termination of contracts or subcontracts at the election of various
government entities.
Competition
All aspects of the company's business are highly competitive. The principal
methods of competition utilized by the company include design, product and
service quality, speed of delivery, and product pricing. The company believes
that it is the second largest office furniture manufacturer in the United
States. However, in several of the markets served by the company, it competes
with over 400 smaller companies and with several manufacturers that have
significantly greater resources and sales. Price competition intensified during
the past several years and especially in the first half of fiscal 1993.
However, price competition has remained stable from 1994 through 1995. Prior
to 1994, the company's gross profit margin declined due to price competition.
Through manufacturing productivity gains, and improved purchasing procedures,
the company has been able to partially offset the effects of price discounting
on its gross margin.
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Research, Design and Development
One of the competitive strengths of the company is its research, design and
development programs. Accordingly, the company believes that its research and
design activities are of significant importance. Through research, the company
seeks to define and clarify customer needs and problems and to design, through
innovation where feasible, products and services as solutions to these customer
needs and problems. The company utilizes both internal and independent research
and design resources. Exclusive of royalty payments, approximately $31.3
million, $26.7 million, and $22.4 million was spent by the company on design
and research activities in 1995, 1994, and 1993, respectively. Royalties are
paid to designers of the company's products as the products are sold and are
not considered research and development expenditures.
Environmental Matters
The company does not believe, based on existing facts known to management, that
existing environmental laws and regulations have had or will have any material
effects upon the capital expenditures, earnings, or competitive position of the
company. Further, the company continues to rigorously reduce, recycle, and
reuse the solid wastes generated by its manufacturing processes. Its
accomplishments and these efforts have been widely recognized.
Human Resources
The company considers another of its major competitive strengths to be its
human resources. The company stresses individual employee participation and
incentives, and believes that this emphasis has helped to attract and retain a
capable work force. The company has a human resources group to provide employee
recruitment, education and development, and compensation planning and
counseling. There have been no work stoppages or labor disputes in the
company's history, and its relations with its employees are considered good.
Approximately 593 of the company's employees are represented by collective
bargaining agents, most of whom are employees of its Integrated Metal
Technology, Inc., and Herman Miller, Limited (U.K.) subsidiaries. As such,
these subsidiaries are parties to collective bargaining agreements with these
employees.
As of June 3, 1995, the company employed 6,650 full-time and 614 part-time
employees, representing a 11.9 percent increase in full-time employees and a
9.8 percent decrease in part-time employees compared with May 28, 1994. In
addition to its employee work force, the company uses purchased labor to meet
uneven demand in its manufacturing operations. Throughout the course of the
year the use of purchased labor increased by 4.1 percent.
During 1995, the company recorded restructuring changes which included
termination benefits for employment reductions. Approximately 224 employees
were terminated or took voluntary early retirement as of June 3, 1995. The
remaining 311 employees affected by the restructuring were terminated after
year end.
Additional information with respect to the restructuring charges appears in the
note "Restructuring Charges" of the Notes to Consolidated Financial Statement
set forth on page 16.
(d) Information About International Operations
The company's sales in international markets primarily are made to
office/institution customers. Foreign sales mostly consist of office furniture
products such as Ethospace and Action Office
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systems, seating, and storage products. The company segments its internal
operations into the following major markets: Canada, Europe, Latin America, and
the Asia/Pacific region. In certain other foreign markets, the company's
products are offered through licensing of foreign manufacturers on a royalty
basis.
At the present time, the company's products sold in international markets are
manufactured by wholly owned subsidiaries in the United States, United Kingdom,
Mexico, Germany, Italy, and Japan. Sales are made through wholly owned
subsidiaries in Australia, Canada, France, Germany, Italy, Japan, Mexico, the
Netherlands, and the United Kingdom. The company's products are offered in the
Middle East through dealers.
In several other countries, the company licenses manufacturing and selling
rights. Historically, these licensing arrangements have not required a
significant investment of funds or personnel by the company, and, in the
aggregate, have not produced a material net income for the company.
Additional information with respect to operations by geographic area appears in
the note "Segment Information" of the Notes to Consolidated Financial
Statements set forth on page 33. Fluctuating exchange rates and factors beyond
the control of the company, such as tariff and foreign economic policies, may
affect future results of international operations.
Item 2 PROPERTIES
The company owns or leases facilities which are located throughout the United
States and several foreign countries, including Canada, France, Germany, Japan,
Mexico, the Netherlands, and the United Kingdom. The location, square footage,
and use of the most significant facilities at June 3, 1995, were as follows:
Location
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Square
Owned Locations Footage Use
--------------- ------- -----------------------
Zeeland, Michigan 749,000 Manufacturing, Warehouse, and Office
Spring Lake, Michigan 624,100 Manufacturing, Warehouse, and Office
Holland, Michigan 355,000 Distribution and Warehouse
Rocklin, California 343,600 Manufacturing and Warehouse
Roswell, Georgia 220,000 Manufacturing and Warehouse
Holland, Michigan 216,700 Design Center
Holland, Michigan 200,000 Manufacturing and Warehouse
Grandville, Michigan 214,800 Manufacturing, Warehouse, and Office
Leased Locations
Zeeland, Michigan 423,200 Manufacturing, Warehouse, and Office
Chippenham, England, U.K. 104,900 Manufacturing and Warehouse
Stone Mountain, Georgia 84,500 Manufacturing and Warehouse
Mexico City, Mexico 59,400 Manufacturing, Warehouse, and Office
The company also maintains showrooms or sales offices near most major
metropolitan areas throughout North America, Europe, the Middle East,
Asia/Pacific, and South America. The company considers its existing facilities
to be in excellent condition, efficiently utilized, well suited, and adequate
for its design, production, distribution, and selling requirements.
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Item 3 PENDING LEGAL PROCEEDINGS
On January 7, 1992, Haworth, Inc. ("Haworth") filed a lawsuit against the
company, alleging that the electrical systems used in certain of the company's
products infringe one or more of Haworth's patents. Discovery in this
proceeding, which is pending in the U.S. District Court for the Western
District of Michigan (Southern Division), is substantially complete. The
company has requested a jury trial, which has been tentatively set by the court
for the August 1995 trial calendar. Based on the prevailing facts and the
nature of the proceedings, the company believes that it is more likely than not
that the litigation will proceed to trial.
All the patents which are the source of controversy expired prior to 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 limitations would bar recovery of any damages arising prior to
January 1986.
In November 1985, Haworth filed a lawsuit against Steelcase, Inc.,
("Steelcase") the industry's leader in market share, alleging violations of the
same patents, and 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 continues to defend its position vigorously and has established a
reserve of $12.0 million as of June 3, 1995, that management believes will be
adequate to defray the costs of litigation. 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.
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.
Item 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended June 3, 1995.
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ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information relating to Executive Officers of the company is as
follows:
Year Elected an Position with
Name Age Executive Officer the Company
---- --- ----------------- -----------
Hansjorg Broser 54 1992 Vice President and President,
Herman Miller Europe
James E. Christenson 48 1989 Vice President, General Counsel, and Secretary, and Vice
President of Latin America
Mark L. Groulx 39 1995 Vice President of Operations
Andrew C. McGregor 45 1988 Vice President and General Manager of North American Sales,
Marketing, and Distribution
Gary S. Miller 46 1984 Senior Vice President for Design and Development
Richard H. Ruch 65 1969 Chairman of the Board of Directors (1)
Michael A. Volkema 39 1995 President and Chief Executive Officer
(1) Director of the company and not an employee
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PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Share Price, Earnings, and Dividends Summary
Herman Miller, Inc., common stock is quoted in the NASDAQ-National Market
System (NASDAQ-NMS Symbol: MLHR). As of August 7, 1995, there were
approximately 11,000 shareholders of the company's common stock.
Market Market Market Per Per
Price Price Price Share Share
Per Share and Unaudited High Low Close Earnings Dividends
----------------------- ---- --- ----- -------- ---------
Year Ended June 3, 1995
First quarter 29.375 23.500 24.000 .32 .13
Second quarter 26.750 23.375 25.188 .06(1) .13
Third quarter 26.500 19.750 22.500 .17 .13
Fourth quarter 25.000 19.250 21.688 (.37)(2) .13
Year 29.375 19.250 21.688 .18 .52
Year Ended May 28, 1994
First quarter 29.875 25.000 28.000 .30 .13
Second quarter 31.000 24.750 29.250 .44 .13
Third quarter 35.000 27.125 34.625 .44 .13
Fourth quarter 34.750 23.750 24.875 .42 .13
Year 35.000 23.750 24.875 1.60 .52
(1) Includes $15.5 million of pretax charges which decreased net income by $9.6
million, or $.39 per share.
(2) Includes $28.4 million of pretax charges, including restructuring charges
of $16.4 million and other charges of $12.0 million. These charges
decreased net income by $18.5 million, or $.74 per share.
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Item 6 SELECTED FINANCIAL DATA
REVIEW OF OPERATIONS
In Thousands Except Per Share Data 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
OPERATING RESULTS
Net Sales $1,083,050 $953,200 $855,673 $804,675 $878,732
Gross Margin 378,269 337,138 298,501 277,076 314,159
Gross Margin Percent 34.9 35.4 34.9 34.4 35.8
Operating Income (1,2,3,5) 9,066 61,798 43,769 1,989 39,206
Design and Research Expense 33,682 30,151 24,513 20,725 23,212
Income (Loss) Before Income Taxes (1,2,3,5) 4,039 63,473 42,354 (988) 33,159
Net Income (Loss) (1,2,3,4,5) 4,339 40,373 22,054 (14,145) 14,059
After-Tax Return on Net Sales (Percent; 1,2,3,4,5) .4 4.2 2.6 (1.8) 1.6
After-Tax Return on Average
Assets (Percent, 1,2,3,4,5) .7 7.9 4.6 (2.9) 2.7
After-Tax Return on Average
Equity (Percent, 1,2,3,4,5) 1.5 13.9 7.8 (4.8) 4.5
Cash Flow from Operating Activities 29,861 69,764 82,588 77,000 86,393
Capital Expenditures 63,359 40,347 43,387 32,024 32,609
Depreciation and Amortization 39,732 33,207 31,600 30,473 32,761
COMMON SHARE DATA
Earnings per Share (1,2,3,4,5) .18 1.60 .88 (.56) .55
Cash Dividends Declared per Share .52 .52 .52 .52 .52
Common Stock Repurchased $732 $25,363 $ 8,155 $10,445 $4,690
Cash Dividends Paid 12,868 13,098 13,002 13,113 13,326
Common Stock Repurchased plus
Cash Dividends Paid 13,600 38,461 21,157 23,558 18,016
Average Shares and Equivalents Outstanding 24,792 25,255 24,993 25,163 25,685
Book Value per Share at Year-End 11.57 11.73 11.36 11.14 12.33
Market Price per Share at Year-End 21.69 24.875 25.625 19.000 20.125
FINANCIAL CONDITION
Total Assets 659,012 533,746 484,342 471,268 492,947
Working Capital 39,575 50,943 62,711 66,545 113,980
Current Ratio 1.15 1.29 1.43 1.48 2.06
Interest-Bearing Debt 144,188 70,017 39,877 53,975 75,693
Long-Term Debt, less current portion 60,145 20,600 21,128 29,445 54,720
Shareholders' Equity 286,915 296,325 283,942 280,082 314,782
Total Capital 347,060 316,925 305,070 309,527 369,502
Percent Long-Term Debt,less current portion 17.3 6.5 6.9 9.5 14.8
to Total Capital
Interest Expense 6,299 1,828 2,089 6,879 10,260
Interest Coverage Times (1,2,3,4,5) 1.6 35.7 21.3 .9 4.2
(1) Includes $43.9 million of pretax charges, including restructuring charges
of $31.9 million, and other charges of $12.0 million in 1995. These
charges decreased net income by $28.1 million, or $1.13 per share.
(2) Includes $30.2 million of pretax charges, including restructuring charges
of $25.0 million, and other charges of $5.2 million in 1992. These charges
decreased net income by $20.6 million, or $.82 per share.
(3) Includes $25.9 million of pretax charges, including wood casegoods
restructuring charge of $18.6 million and other pretax charges of $7.3
million in 1991. These charges decreased net income by $22.9 million, or
$.89 per share.
(4) Includes cumulative effect of change in accounting principle of $8.0
million after-tax expense ($.31 per share) in 1992 and $3.3 million
after-tax income ($.13 per share) in 1989.
(5) Includes loss on extinguishment of long-term debt of $2.7 million, or $.11
per share in 1992.
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Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES For the first time in the company's history, net sales exceeded $1.0
billion in 1995. The new record, $1.08 billion, was an increase of $129.9
million, or 13.6 percent. Net sales increased 11.4 percent ($97.5 million) in
1994 and 6.3 percent ($51.0 million) in 1993. The increases were primarily due
to higher unit volumes. The 1995 results reflect the early success of the
company's new seating line--Aeron chairs--and strong growth in our domestic and
international subsidiaries.
The company's share of the United States market grew over the past three years
as its revenue growth outpaced the industry. The Business and Institutional
Furniture Manufacturers Association ("BIFMA"), the United States office
furniture trade association, reported that United States industry sales
increased approximately 8.0 percent, 7.0 percent, and 7.7 percent in the past
three calendar years. This compares to the company's United States sales which
increased 10.1 percent, 10.6 percent, and 7.9 percent for fiscal years 1995,
1994, and 1993, respectively.
Net sales of international operations and export sales from the United States
increased 33.8 percent in 1995, 16.0 percent in 1994, and decreased 2.0 percent
in 1993. Net sales for each of the three years were $188.6 million, $141.0
million, and $121.5 million, respectively. Industry measures for international
market growth are either not as comprehensive as BIFMA's measures of the United
States market or are not available so as to permit meaningful comparisons.
However, based on anecdotal evidence, the company believes it increased its
share of the international market in 1995. The increase in 1995 includes $26.0
million attributed to acquisitions in Germany and Mexico. Excluding the impact
of acquisitions, net sales increased over 30 percent in Asia/Pacific and 20
percent in Europe. The increase in 1994 was primarily due to unit volume. The
decrease in 1993 ($2.5 million) primarily was due to changes in foreign
exchange rates. Changes in the rate of exchange between the United States
dollar and other currencies decreased net sales $8.6 million, $5.5 million, and
$2.9 million in 1995, 1994, and 1993, respectively.
New orders for 1995 were a record $1.1 billion, which was an increase of 15.8
percent over 1994. This compares with increases in new orders of 10.7 percent
and 7.5 percent in 1994 and 1993. The backlog of unfilled orders on June 3,
1995, was $169.8 million, compared with $138.6 million on May 28, 1994, and
$129.8 million on May 29, 1993.
GROSS MARGIN The company's gross margin percentage was 34.9 percent of net
sales in 1995, compared with 35.4 percent of net sales in 1994, and 34.9
percent of net sales in 1993. The company's gross margin percentage declined
from 36.0 percent in the first quarter to 34.0 percent in the fourth quarter of
1995. This decline is primarily attributable to material cost increases which
have increased by 3.4 percent of sales since the first quarter. The increases
were partially offset by increased unit volume which leveraged fixed overhead.
Price stability continued through 1995. The company does not expect to see
increased material costs of this magnitude in 1996. In addition, the company
will also begin to realize the positive impact of the plant closings announced
in November 1994, which will result in significant improvements in
manufacturing overheads. The .5 percent improvement in 1994 gross margin was
due to reduced overhead spending and increased volume which leveraged fixed
overhead. Price stability during 1994 also contributed to the gross margin
improvement. The .5 percent improvement in 1993 gross margin primarily was due
to the inclusion of additional inventory reserves of $3.6 million in 1992.
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During 1993, the company continued to experience increased price discounting,
which was offset partially by cost savings on materials.
OPERATING EXPENSES Selling, general, and administrative expenses were $303.6
million (28.0 percent of net sales), $245.2 million (25.7 percent of net
sales), and $230.2 million (26.9 percent of net sales), in 1995, 1994, and
1993, respectively. The increase in 1995 was due to a $12.0 million charge
recorded for patent litigation, a 3.5 percent year over year increase in
compensation and benefits, and increased depreciation and amortization expense.
The decrease in 1994, as a percent of net sales, primarily was due to higher
net sales. The increase in total operating expenses in fiscal 1994 primarily
was attributable to increases in both compensation ($5.2 million, primarily
incentive based) and related benefits ($1.4 million, primarily defined benefit
plan and health-care expenses), the adoption of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ($.8 million of the total $1.7 million cumulative effect), and the
addition of Mexican operations effective January 1, 1994 ($4.3 million). The
decrease in operating expenses in 1993 as a percent of net sales primarily was
due to higher net sales, since total operating expenses increased only $.8
million, or .4 percent. The modest increase in total operating expenses in
fiscal 1993 primarily was attributable to a lower fixed cost structure
resulting from the previous year's restructuring charges ($3.6 million) and
lower provisions for uncollectible accounts and notes receivable ($4.1
million), offset by increases in both compensation ($4.9 million, primarily
incentive based) and related benefits ($3.6 million, primarily defined benefit
plan and health-care expenses).
Design and research expenses were $33.7 million in 1995, compared with $30.2
million in 1994, and $24.5 million in 1993. As a percentage of net sales,
design and research expenses were 3.1 in 1995, 3.2 in 1994, and 2.9 in 1993.
This percentage compares with the industry-wide rate of approximately 1.6
percent of net sales reported by BIFMA for calendar 1994. The 11.7 percent
increase in 1995 was primarily due to increased costs to develop new products.
The company introduced the Aeron(TM) chair in 1995 and developed or enhanced
three additional chairs during 1995. The 23.3 percent increase in research and
design expense for fiscal 1994 supported several new products which were
developed.
Total operating expenses (excluding restructuring charges) as a percentage of
net sales were 31.1 percent, 28.9 percent, and 29.8 percent in each of the
three years. The company believes a lower operating expense ratio is key to
future profitability. The management team is focused on this goal and the
actions described under the heading "Restructuring Charges" are a significant
first step. Additional reductions will come through leveraging fixed costs and
improvements in systematic processes.
RESTRUCTURING CHARGES In 1995, the company recorded restructuring charges of
$31.9 million. These charges included $15.5 million of pretax charges in the
United States for manufacturing and logistical restructuring which included
closing facilities in Texas, New Jersey, and North Carolina. The production
facility reconfiguration will enable the company to develop the capability to
process and direct ship customer orders in their entirety, rather than in
stages (which requires additional warehousing and transportation between
stages), as presently is the case. This simplification will save an estimated
$7 million in fiscal 1996, $10 million in fiscal 1997, and $20 million in
fiscal 1998, when the entire process is fully implemented. These savings will
take the following forms: (1) lower transportation and freight costs resulting
from the regional assembly sites being able to optimize both freight loads and
traveled distances, (2) customer direct shipping savings, which will minimize
both the need for and amount of product packaging as well as the possibility of
incorrect or damaged shipments, (3) improved inventory
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turns and smaller higher-cost finished goods inventories, and (4) further
operational leverage of all indirect production and logistic costs. In
addition, the company's unit production capacity will increase by approximately
40 percent upon completion of the project. The capital for machinery and
equipment as well as additional facility space to implement this program is
estimated at $40 million over the next four years. This amount will be spent
as dictated by the company's customer demand-driven implementation rate which
management projects as follows: $10 million in 1996, $14 million in 1997, and
$16 million in 1998.
The North Carolina facility had produced wood casegood product lines. The
manufacture of certain of these products was transferred to Geiger
International of Atlanta, Georgia, a respected contract provider of quality
wood casegoods.
The remaining restructuring charge of $16.4 million pretax occurred in the
United States for reductions in employment and the discontinuation of a product
development program at the company's health-care subsidiary, Milcare. This
major realignment, which was completed in July 1995, was necessary to enable
the company to reduce its operating expenses as a percentage of net sales and
to ensure its competitive position in the marketplace. Management believes the
savings resulting from these changes will result in annual savings of
approximately $24.9 million, consisting of employment reductions, early
retirements, and discontinuing noncritical consulting contracts and programs.
The savings will be partially offset by increases in compensation,
depreciation, and other costs which are variable with sales.
OTHER EXPENSES AND INCOME Interest expense, net of interest income, was $.1
million in 1995, compared with net interest income of $1.5 million in 1994, and
$1.0 million in 1993. The increasing level of interest expense in 1995 was
primarily due to the increasing level of average interest-bearing debt.
Interest income increased $2.9 million in 1995, due to additional interest
earned on the company's notes receivable to independent Office Pavilion(R)
dealers, who had an increased volume of sales. In 1994, the decreasing level of
interest expense primarily was due to the decreasing level of average
interest-bearing debt. Total interest-bearing debt was $144.2 million on June
3, 1995, compared with $70.0 million on May 28, 1994, and $39.9 million on May
29, 1993.
Other net expenses were $4.9 million in 1995, $1.2 million in 1994, and $3.5
million in 1993. A pretax charge of $2.8 million was recorded in the third
quarter of fiscal 1995 to reflect the impact of the Mexican peso devaluation.
This increase accounted for the majority of the increase in other expense. Loss
on disposals of fixed assets and, to a lesser extent, charges for a
reconfiguration of European operations increased other expenses in 1993.
INCOME TAXES The effective tax rate was a benefit of 7.4 percent in 1995. The
effective tax rate was 36.4 percent in 1994 and 47.9 percent in 1993. The 1995
benefit was primarily due to a tax credit generated from the company's
corporate-owned life insurance program and, to a lesser extent, improved
international operating results in the United Kingdom and Japan which allowed
net operating loss carryforwards to be used. The company expects its effective
tax rate for fiscal 1996 to be in the range of 35 to 38 percent. The lower 1994
rate primarily was attributable to improved international operating results,
especially in the United Kingdom, together with the effects of a
corporate-owned life insurance program implemented in the second half of the
year. The high tax rate in 1993 primarily was due to the then-current
nondeductibility of the $3.2 million after-tax charges for reconfiguration of
European operations. Before giving effect to these nondeductible European
charges, the effective tax rate was 37.5 percent in 1993.
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14
NET INCOME The company recorded net income of $4.3 million in 1995, compared
with $40.4 million in 1994, and $22.1 million in 1993. The 1995 amount includes
$31.9 million of pretax restructuring charges and $12.0 million of litigation
costs. These charges decreased net income by $28.1 million. The company
continues to record a net loss for international operations and export sales
from the U.S. The net loss in 1995, $2.9 million included $2.8 million pretax
charge ($1.5 million after tax) related to the devaluation of the Mexican peso.
The 1995 loss compares with a net loss of $2.0 million in 1994, and $8.6
million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES Cash provided by operating activities was
$29.9 million in 1995, compared with $69.8 million in 1994, and $82.6 million
in 1993. The decline in 1995 was attributable to an increase in working capital
due to increased sales, as well as the impact of acquisitions completed during
the year. The number of days sales in the sum of accounts receivable plus
inventory increased to 91.2 days versus 80.9 days at May 28, 1994, and 83.0
days at May 29, 1993. The company expects the number of days sales in the sum
of accounts receivable plus inventory to stabilize during the next fiscal year.
The decline of cash provided by operating activities in 1994 was attributable
to an increase in the use of working capital, primarily accounts receivable and
inventory which accompany higher sales. The increase in 1993 primarily was due
to higher net income and effective asset utilization.
CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property and equipment
additions were $63.4 million in 1995, compared with $40.3 million in 1994 and
$43.4 million in 1993. The increased level of spending in fiscal 1995 was used
to fund capital expenditures for improvements required to achieve higher
product and service quality standards and shorten customer lead times, as well
as for new products. Net cash used for loans to independent Office Pavilion
dealers amounted to $8.1 million in 1995. This compares with net cash used for
similar loans of $7.3 million in 1994, and $6.8 million in 1993. The volume of
cash flows through these revolving credit loans, which support the sale of the
company's products by these independent dealers, has increased significantly
over the past three years.
CASH FLOWS FROM FINANCING ACTIVITIES In 1995 and 1994, the company borrowed
(net of repayments) $72.6 million and $23.8 million of interest-bearing debt.
The increased borrowings in 1995 were due to increases in capital expenditures,
working capital, and funds required for acquisitions. The increased borrowings
in 1994 principally were due to repurchases of common stock primarily in the
fourth quarter of fiscal 1994, as discussed below. The company has available
formal and informal lines of credit totaling $68.3 million should additional
borrowings be required for operating, investing, or financing activities.
In 1995, the company repurchased $.7 million of its common stock, compared with
$25.4 million in 1994, and $8.2 million in 1993. The decline in 1995 reflects
the company's decreased level of cash flow from operations and increased use of
cash for investments. The company continues to be committed to its 2.0 million
share repurchase program announced in May 1994. In 1995, 34,200 shares or .1
percent of total shares outstanding at May 28, 1994, were repurchased at an
average cost of $21.53 per share. As a part of the company's previously
announced repurchase program, in 1994, 929,000 shares, or 3.7 percent of total
shares outstanding at May 29, 1993, were repurchased at an average cost of
$27.31 per share. In 1993, 529,000, or 2.1 percent of total shares outstanding
on May 30, 1992, were repurchased at an average cost of $15.43 per share. All
repurchases were made in the open market on an unsolicited basis.
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15
EXPECTED FUTURE CASH FLOWS Cash provided by operating activities is expected to
increase in 1996 due to anticipated improved profitability as a result of the
cost reduction efforts completed in 1995. The company anticipates that cash
flows from operating activities and short-term borrowings, if necessary, will
be adequate to fund its capital expenditures, dividend payments, common stock
repurchases, contingencies and modest required long-term debt repayments.
Capital expenditures are expected to be approximately $80.0 million in 1996 and
to consist principally of expenditures relating to continued enhancement of the
company's existing facilities and equipment, as well as costs associated with
new products to be introduced in fiscal 1996.
The volume of cash flows and the outstanding balance of the revolving credit
loans to independent Office Pavilion dealers are not expected to change
significantly in 1996. As previously discussed, the company is committed to its
2.0 million share repurchase program announced in May 1994 and anticipates that
all shares repurchased will be permanently funded by cash flows from operating
activities. Dividend payments are expected to be $13.2 million in 1996.
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Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Financial Data
Summary of the quarterly operating results on a consolidated basis.
June 3, 1995; May 28, 1994; May 29, 1993
In Thousands Except Per Share Data First Second Third Fourth
and Unaudited Quarter Quarter Quarter Quarter
------ ------- ------- -------
1995 Net Sales $252,831 $279,077 $259,950 $291,192
Gross margin 91,011 99,358 88,881 99,019
Net income 7,937 1,443(1) 4,259 (9,300)(2)
Net income per share $ .32 $ .06(1) $ .17 $(.37)(2)
1994 Net sales $221,566 $241,822 $241,949 $247,863
Gross margin 76,323 84,330 84,158 92,327
Net income 7,474 11,183 11,181 10,535
Net income per share $.30 $.44 $.44 $.42
1993 Net sales $199,596 $204,974 $217,462 $233,641
Gross margin 68,396 68,860 75,999 85,246
Net income 2,409 3,558 7,237 8,850
Net income per share $.10 $.14 $.29 $.35
(1)Includes $15.5 million of pretax charges which decreased net income by $9.6
million, or $.39 per share.
(2)Included $28.4 million of pretax charges, including restructuring
charges of $16.4 million and other charges of $12.0 million. These charges
decreased net income by $18.5 million, or $.74 per share.
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17
Consolidated Statements of Income
June 3, 1995; May 28, 1994; and May 29, 1993 1995 1994 1993
---- ---- ----
In Thousands Except Per Share Data
NET SALES $1,083,050 $953,200 $855,673
Cost of Sales 704,781 616,062 557,172
------- ------- -------
GROSS MARGIN 378,269 337,138 298,501
------- ------- -------
Operating Expenses:
Selling, general, and administrative 303,621 245,189 230,219
Design and research 33,682 30,151 24,513
Restructuring charges 31,900 -- --
------- ------- -------
TOTAL OPERATING EXPENSES 369,203 275,340 254,732
------- ------- -------
OPERATING INCOME 9,066 61,798 43,769
------- ------- -------
Other Expenses (Income):
Interest expense 6,299 1,828 2,089
Interest income (6,154) (3,278) (3,041)
Loss (gain) on foreign exchange 3,067 (1,464) (1,130)
Other--net 1,815 1,239 3,497
------- ------- -------
NET OTHER EXPENSES (INCOME) 5,027 (1,675) 1,415
------- ------- -------
INCOME BEFORE INCOME TAXES 4,039 63,473 42,354
Income Taxes (300) 23,100 20,300
------- ------- -------
NET INCOME $4,339 $40,373 $22,054
------- ------- -------
NET INCOME PER SHARE $.18 $1.60 $.88
------- ------- -------
The accompanying notes are an integral part of these statements.
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Consolidated Balance Sheets
June 3, 1995 and May 28, 1994
In Thousands Except Per Share Data
ASSETS 1995 1994
---- ----
Current Assets:
Cash and cash equivalents $16,488 $ 22,701
Accounts receivable, less allowances of $7,180 in 1995 and
$6,742 in 1994 165,107 121,564
Inventories 71,076 59,813
Prepaid expenses and other 44,445 24,590
-------- --------
TOTAL CURRENT ASSETS 297,116 228,668
======= ========
Property and Equipment:
Land and improvements 29,508 27,602
Buildings and improvements 150,910 145,131
Machinery and equipment 301,511 258,167
Construction in progress 31,526 23,994
-------- --------
513,455 454,894
Less--accumulated depreciation 243,271 215,932
------- --------
NET PROPERTY AND EQUIPMENT 270,184 238,962
-------
Notes Receivable, less allowances of $2,627 in 1995 and $2,159 in 1994 43,734 36,659
Other Assets 47,978 29,457
-------- --------
TOTAL ASSETS $659,012 $533,746
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 452 $ 506
Notes payable 83,591 48,911
Accounts payable 51,819 42,121
Accrued liabilities 121,679 86,187
------- --------
TOTAL CURRENT LIABILITIES 257,541 177,725
Long-Term Debt, less current portion above 60,145 20,600
Deferred Taxes 2,289 3,819
Other Liabilities 52,122 35,277
------- --------
TOTAL LIABILITIES 372,097 237,421
======= ========
Shareholders' Equity:
Preferred stock, no par value (10,000,000 shares authorized, none issued) -- --
Common stock, $.20 par value (60,000,000 shares authorized, 24,835,784
and 24,589,825 shares issued and outstanding in 1995 and 1994) 4,967 4,918
Additional paid-in capital 21,564 16,649
Retained earnings 270,631 279,161
Cumulative translation adjustment (6,985) (3,460)
Key executive stock programs (3,262) (943)
------- --------
TOTAL SHAREHOLDERS' EQUITY 286,915 296,325
======= ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $659,012 $533,746
======= ========
The accompanying notes are an integral part of these balance sheets.
- 18 -
19
Consolidated Statements of Shareholders' Equity
In Thousands Common Additional Retained Cumulative Unearned Total
Stock Paid-In Earnings Translation Stock Grant Shareholders'
Capital Adjustment Compensation Equity
BALANCE MAY 30, 1992 $5,030 $30,902 $242,748 $1,818 $ (416) $280,082
Net income -- -- 22,054 -- -- 22,054
Cash dividends ($.52 per share) -- -- (12,971) -- -- (12,971)
Exercise of stock options 36 3,642 -- -- -- 3,678
Common stock issued pursuant
to employee stock purchase plan 25 2,014 -- -- -- 2,039
Repurchase and retirement of
528,700 shares of common stock (106) (8,049) -- -- -- (8,155)
Stock grants earned -- -- -- -- 382 382
Stock grants issued 16 1,354 -- -- (1,370) --
Current year translation adjustment -- -- -- (3,167) -- (3,167)
====== ======= ======== ======= ======= ========
BALANCE MAY 29, 1993 $5,001 $29,863 $251,831 $(1,349) $(1,404) $283,942
Net income -- -- 40,373 -- -- 40,373
Cash dividends ($.52 per share) -- -- (13,043) -- -- (13,043)
Exercise of stock options 85 9,770 -- -- -- 9,855
Common stock issued pursuant
to employee stock purchase plan 18 2,193 -- -- -- 2,211
Repurchase and retirement of
928,800 shares of common stock (186) (25,177) -- -- -- (25,363)
Stock grants earned -- -- -- -- 461 461
Current year translation adjustment -- -- -- (2,111) -- (2,111)
====== ======= ======== ======= ======= ========
BALANCE MAY 28, 1994 $4,918 $16,649 $279,161 $(3,460) $ (943) $296,325
Net income -- -- 4,339 -- -- 4,339
Cash dividends ($.52 per share) -- -- (12,869) -- -- (12,869)
Exercise of stock options 23 2,353 -- -- -- 2,376
Common stock issue pursuant
to employee stock purchase plan 26 2,592 -- -- -- 2,618
Common stock issued 4 396 -- -- -- 400
Repurchase and retirement of
34,200 shares of common stock (7) (725) -- -- -- (732)
Stock grants earned -- -- -- -- 207 207
Stock grants issued 3 299 -- -- (361) (59)
Key executive stock purchase
assistance plan -- -- -- -- (2,165) (2,165)
Current year translation adjustment -- -- -- (3,525) -- (3,525)
------ ------- -------- ------- ------- --------
BALANCE JUNE 3, 1995 $4,967 $21,564 $270,631 $(6,985) $(3,262) $286,915
====== ======= ======== ======= ======= ========
The accompanying notes are an integral part of these statements.
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Consolidated Statements of Cash Flows
June 3, 1995; May 28, 1994; and May 29, 1993 1995 1994 1993
---- ---- ----
In Thousands
Cash Flows from Operating Activities:
Net Income $ 4,339 $40,373 $22,054
------- ------- -------
Adjustments to reconcile net income
to net cash provided by operating activities 25,522 29,391 60,534
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,861 69,764 82,588
======= ======= =======
Cash Flows from Investing Activities:
Notes receivable repayments 428,375 360,047 323,983
Notes receivable issued (436,434) (367,366) (330,789)
Property and equipment additions (63,359) (40,347) (43,387)
Proceeds from sales of property and equipment 105 212 114
Net cash paid for acquisition (17,721) (7,744) --
Other, net (8,705) (4,002) (2,501)
------- ------- -------
NET CASH USED FOR INVESTING ACTIVITIES (97,739) (59,200) (52,580)
======= ======= =======
Cash Flows from Financing Activities:
Increase (decrease) in short-term debt 32,834 24,090 (3,826)
Long-term debt borrowings 60,000 -- 28
Long-term debt repayments (20,246) (260) (10,345)
Dividends paid (12,868) (13,098) (13,002)
Common stock issued 5,394 12,066 5,717
Common stock repurchased and retired (732) (25,363) (8,155)
Capital lease obligation repayments (263) (276) (280)
------- ------- -------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 64,119 (2,841) (29,863)
======= ======= =======
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (2,454) (1,553) (563)
Net Increase (Decrease) in Cash and
Cash Equivalents (6,213) 6,170 (418)
------- ------- -------
Cash and Cash Equivalents, Beginning of Year 22,701 16,531 16,949
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $16,488 $22,701 $16,531
======= ======= =======
The accompanying notes are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The following is a summary of significant accounting and reporting policies not
reflected elsewhere in the accompanying financial statements.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Herman Miller, Inc., and its wholly owned domestic and foreign
subsidiaries (the "company"). All significant intercompany accounts and
transactions have been eliminated.
DESCRIPTION OF BUSINESS The company is engaged in the design, manufacture, and
sale of furniture and furniture systems for offices, and, to a lesser extent,
for health-care facilities. The company's products primarily are sold to or
through independent contract office furniture dealers. Accordingly, accounts
and notes receivable in the accompanying balance sheets principally are amounts
due from the company's dealers.
FISCAL YEAR The company's fiscal year ends on the Saturday closest to May 31.
The year ended June 3, 1995, contained 53 weeks. The years ended May 28, 1994,
and May 29, 1993, each contained 52 weeks.
FOREIGN CURRENCY TRANSLATION In accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation," all balance sheet
items are translated at the current rate as of the end of the accounting
period, and income statement items are translated at average currency exchange
rates. The resulting translation adjustment is recorded as a separate component
of shareholders' equity.
CASH EQUIVALENTS The company invests in certain debt and equity securities as
part of its cash management function. Due to the relative short-term maturities
and high liquidity of these securities, they are included in the accompanying
consolidated balance sheets as cash equivalents at market value and total $10.9
million and $7.4 million as of June 3, 1995, and May 28, 1994, respectively.
All cash and cash equivalents are high-credit quality financial instruments,
and the amount of credit exposure to any one financial institution or
instrument is limited.
During fiscal 1994, the company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under the provisions of this statement, the
company's cash equivalents are considered "available for sale." As of June 3,
1995, the market value approximated the securities' cost.
PROPERTY, EQUIPMENT, AND DEPRECIATION Property and equipment are stated at
cost. The cost is depreciated over the estimated useful lives of the assets
using the straight-line method. The average useful lives of the assets are 32
years for buildings and 7 years for all other property and equipment.
NOTES RECEIVABLE The notes receivable are from certain independent contract
office furniture dealers. The notes are collateralized by the assets of the
dealers and bear interest based on the prevailing prime rate. Interest income
relating to these notes was $3.9, $2.7, and $2.3 million in 1995, 1994, and
1993, respectively.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," (SFAS No. 114), as amended by SFAS No. 118. The company is required
to adopt these statements as of the
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22
beginning of fiscal 1996. These statements require that the recorded investment
in certain impaired loans (as defined by the statements) be adjusted by means
of a valuation allowance to reflect a net carrying value. When adopted, the
provisions of SFAS No. 114 and SFAS No. 118 are not expected to have a material
effect on the company's financial condition or results of operations.
INTANGIBLE ASSETS Intangible assets included in other assets consist mainly of
goodwill, patents, and other acquired intangibles, and are carried at cost,
less applicable amortization of $5.6 and $2.2 million in 1995 and 1994,
respectively. These assets are amortized using the straight-line method over
periods of 5 to 15 years. The company continuously evaluates the realizability
of its intangible assets using various methodologies and adjusts their carrying
value if necessary. Such adjustments were not significant in 1995, 1994, or
1993.
SELF INSURANCE The company is partially self insured for general liability,
workers' compensation, and certain employee health benefits. The general and
workers' compensation liabilities are managed through a wholly owned insurance
captive, the results of which are included in the accompanying statements of
income. The company's policy is to accrue amounts equal to the actuarially
determined liabilities.
RESEARCH, DEVELOPMENT, ADVERTISING, AND OTHER RELATED COSTS Research,
development, advertising materials, pre-production and start-up costs are
expensed as incurred. Research and development costs included in design and
research expense in the accompanying statements of income were $31.3, $26.7,
and $22.4 million in 1995, 1994, and 1993, respectively.
INCOME TAXES The company has utilized a liability based method for all periods
presented which requires recognition of deferred tax assets and liabilities for
the expected future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to reverse.
LONG-TERM ASSETS In March 1995, the Financial Accounting Standards Board
issued Statement No. 121 "Accounting for the Impairment of Long-lived Assets
and Long-lived Assets to be Disposed of" (SFAS No. 121). The company is
required to adopt the provisions of SFAS No. 121 no later than its fiscal year
1997. Based on information currently available, the company does not expect the
impact of adopting this statement to have a material effect on its financial
condition or results of operations.
ACQUISITIONS
During 1995 and 1994, the company made several acquisitions, all of which were
recorded using the purchase method of accounting. Accordingly, the purchase
price of these acquisitions has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values at the effective date of
the acquisition. The cost of the acquisitions in excess of net tangible assets
acquired has been recorded as goodwill. The company purchased Geneal GmbH, a
privately owned office furniture company in Essen, Germany, on September 2,
1994. The company also purchased a division of B&B Italia, a privately owned
office furniture company in Milan, Italy, on April 30, 1995. In addition, the
company purchased various privately owned North American dealers. These
companies were acquired for approximately $21.2 million which resulted in
approximately $9.0 million in goodwill. The results of these acquisitions were
not material to the company's consolidated operating results.
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23
The company purchased Herman Miller Righetti S.A. de C.V. of Mexico
("Righetti") on February 9, 1994, for approximately $8.5 million, effective
January 1, 1994. Righetti had been the company's joint-venture partner in
Mexico since 1981, and is the largest international office furniture company
operating in Mexico. Upon acquisition, Righetti was re-incorporated as Herman
Miller Mexico, Inc. The cost of the acquisition in excess of net tangible
assets acquired was $5.5 million and has been recorded as goodwill.
Consolidated operating results would not have differed materially from the
amounts reported if the acquisition was assumed to have occurred at the
beginning of fiscal 1993.
In addition, as part of the acquisition, the company entered into
non-competition agreements with the former shareholders of Righetti.
Approximately $7.3 million of the purchase price was allocated to these
agreements. These agreements expire five years from the effective date of the
acquisition.
INVENTORIES
In Thousands 1995 1994
Finished products $26,260 $20,299
Work in process 8,074 6,183
Raw materials 36,742 33,331
------- -------
$71,076 $59,813
------- -------
Inventories are valued at the lower of cost or market and include material,
labor, and overhead. The inventories of Herman Miller, Inc., are valued using
the last-in, first-out (LIFO) method. The inventories of the company's
subsidiaries are valued using the first-in, first-out method. Inventories
valued using the LIFO method amounted to $41.1 and $39.2 million at June 3,
1995, and May 28, 1994, respectively.
If all inventories had been valued using the first-in, first-out method,
inventories would have been $18.1 and $18.5 million higher than reported at
June 3, 1995, and May 28, 1994, respectively. The LIFO method decreased net
income by $.2 million ($.01 per share) in 1995, $.9 million ($.04 per share) in
1994, and had no effect on net income in 1993.
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PREPAID EXPENSES AND OTHER
In Thousands 1995 1994
Current deferred income taxes $27,305 $10,777
Other 17,140 13,813
------ ------
$44,445 $24,590
------ -------
ACCRUED LIABILITIES
In Thousands 1995 1994
Compensation and employee benefits $33,465 $24,770
Restructuring reserves 20,619 7,272
Litigation costs 12,000 --
Other taxes 9,177 8,532
Other 46,418 45,613
------- -------
$121,679 $86,187
------- -------
OTHER LIABILITIES
In Thousands 1995 1994
Postretirement benefits $18,322 $16,172
Other 33,800 19,105
------- -------
$52,122 $35,277
------- -------
NOTES PAYABLE
Outstanding short-term borrowings are shown below:
In Thousands 1995 1994
United States dollar $58,012 $24,300
Other currencies 25,579 24,611
------- -------
$83,591 $48,911
------- -------
The following information relates to short-term borrowings in 1995:
Domestic Foreign
Weighted average interest rate at June 3, 1995 6.2% 6.5%
Weighted average interest rate during 1995 5.9% 7.6%
Unused short-term credit lines $ 6,000 $ --
In addition to the company's formal short-term credit lines shown
above, the company has available informal lines of credit totalling
$62.3 million.
LONG-TERM DEBT
In Thousands 1995 1994
Unsecured revolving credit loan $60,000 $20,000
Other 597 1,106
------- -------
$60,597 $21,106
Less--current portion 452 506
------- -------
$60,145 $20,600
------- -------
The unsecured revolving credit loan provides for a $60.0 million line of credit
which matures on December 2, 1997. Outstanding borrowings bear interest, at the
option of the company, at rates based on the prime rate, certificates of
deposit, LIBOR, or negotiated rates. The company borrowed at a negotiated rate
of 6.3 percent and 4.7 percent as of June 3, 1995 and May 28, 1994,
respectively. Interest is payable periodically throughout the period a
borrowing is outstanding.
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Provisions of the unsecured revolving credit loan limit, without prior consent,
borrowings, long-term leases, sale of certain assets, and acquisitions of the
company's stock. In addition, the company has agreed to maintain specified
levels of working capital and certain financial performance ratios. At June 3,
1995, the company was in compliance with all these provisions.
Annual maturities of long-term debt for the five years subsequent to June 3,
1995, (in millions) are as follows: 1996--$.5; 1997--$60.1; 1998 and
thereafter--none.
OPERATING LEASES
The company leases real property and equipment under agreements which expire on
various dates. Certain leases contain renewal provisions and generally require
the company to pay utilities, insurance, taxes, and other operating expenses.
Future minimum rental payments (in millions) required under operating leases
that have initial or remaining noncancellable lease terms in excess of one year
as of June 3, 1995, are as follows: 1996--$17.2; 1997--$14.4; 1998--$8.9;
1999--$7.1; 2000--$6.7; thereafter--$25.7.
Total rental expense charged to operations was $18.0, $18.3, and $18.1 million
in 1995, 1994, and 1993, respectively. Substantially all such rental expense
represented the minimum rental payments under operating leases.
RESTRUCTURING CHARGES
Included in the accompanying consolidated statements of income is $31.9 million
in pretax restructuring charges, which reduced net income by $20.3 million, or
$.82 per share for fiscal 1995. A charge of $15.5 million was taken in the
second quarter, and $16.4 million was recorded in the fourth quarter. The
second quarter charge was 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 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 fiscal 1995 were as
follows:
1995 Costs paid Ending
In Thousands Provision or charged Balance
Facilities and equipment $15,444 $4,615 $10,829
Termination benefits 14,140 1,861 12,279
Other exit costs 2,316 1,006 1,310
------ ----- ------
$31,900 $7,482 $24,418
------ ----- ------
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EMPLOYEE BENEFIT PLANS
The company maintains plans which provide retirement benefits for substantially
all employees.
PENSION PLANS The principal domestic plan is a noncontributory defined benefit
pension plan. Benefits under this plan are based upon an employee's years of
service and the average earnings for the five highest consecutive years of
service during the ten years immediately preceding retirement. Domestically,
the company's policy is to fund its plan to the maximum amount currently
deductible for federal income tax purposes which equals or exceeds the minimum
amount required by the Employee Retirement Income Security Act.
One of Herman Miller, Inc.'s wholly owned foreign subsidiaries has a defined
benefit pension plan which is similar to the principal domestic plan. This plan
is included in the information presented below.
Net pension cost included the following components:
In Thousands 1995 1994 1993
Service cost--benefits earned during the year $ 8,276 $ 7,223 $6,065
Interest cost on projected benefit obligation 9,239 8,074 7,061
Return on assets:
Actual (13,391) (4,417) (5,109)
Deferred gain (loss) 5,767 (2,631) (2,392)
Net amortization 106 (170) (519)
Cost of early retirement incentive program 1,700 -- 449
------ ------ ------
Net pension cost $11,697 $ 8,079 $5,555
------ ------ ------
The following table presents a reconciliation of the funded status of the plans
and the amount recorded in the accompanying balance sheets:
In Thousands 1995 1994
Plan assets at fair market value $115,727 $96,421
-------- -------
Actuarial present value of benefit obligations:
Vested benefits (84,726) (76,220)
Nonvested benefits (4,929) (2,028)
Accumulated benefit obligation (89,655) (78,248)
Effect of projected future salary increases (50,718) (41,098)
Projected benefit obligation (140,373) (119,346)
Projected benefit obligation in excess of
plan assets at fair market value (24,646) (22,925)
Unrecognized net asset from date of adoption of SFAS No. 87 (3,836) (4,122)
Unrecognized net loss from past experience different from that
assumed and changes in assumptions 17,010 18,793
Unrecognized prior service cost (661) (1,091)
-------- -------
Accrued pension cost included in accrued and other liabilities $(12,133) $(9,345)
-------- -------
The assumptions used in the determination of net pension cost were as
follows:
1995 1994 1993
Discount rate 7.50% 7.50% 8.00%
Rate of salary progression 5.00% 5.00% 5.00%
Long-term rate of return on assets 7.50% 7.50% 9.00%
Plan assets consist primarily of listed common stocks, mutual funds, and
corporate obligations. Plan assets at June 3, 1995, and May 28, 1994, included
327,672 shares of Herman Miller, Inc., common stock.
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In connection with the 1995 restructuring, the company offered an early
retirement incentive program to eligible participants. The results of this
program are reflected in the net cost and funded status of the pension plan and
postretirement benefits.
PROFIT SHARING PLAN Herman Miller, Inc., and three of its subsidiaries have a
trusteed profit sharing plan that covers substantially all employees who have
completed one year of employment. The plan provides for discretionary
contributions (payable in the company's common stock) of not more than 6.0
percent of pretax income of the participating companies, or such other lesser
amounts as may be established by the board of directors. The cost of the plan
charged against operations was $2.6, $2.9, and $2.2 million in 1995, 1994, and
1993, respectively.
POSTRETIREMENT BENEFITS In addition to providing pension and profit-sharing
benefits, the company provides health-care and life insurance benefits for
certain retired employees.
The components of net postretirement benefit cost were as follows:
In Thousands 1995 1994 1993
Service cost $986 $868 $724
Interest cost on accumulated benefit obligation 1,305 1,192 1,192
Cost of early retirement program 400 -- 800
Net amortization (44) (25) --
------ ------ ------
Net postretirement benefit cost $2,647 $2,035 $2,716
------ ------ ------
The following table presents the plan's funded status reconciled with amounts
recognized in the accompanying balance sheets:
In Thousands 1995 1994
Accumulated postretirement benefit obligation:
Retirees $(7,688) $(7,194)
Fully eligible active plan participants (135) (53)
Other active plan participants (12,090) (9,497)
Unrecognized prior service cost (1,081) (1,326)
Unrecognized net loss 1,872 1,098
-------- --------
Accrued postretirement benefit obligation $(19,122) $(16,972)
-------- --------
The accumulated postretirement benefit obligation was computed using an assumed
discount rate of 7.5 percent for June 3, 1995, and May 28, 1994.
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 9.0 percent for 1996
and is assumed to decrease gradually to 6 percent for 2001 and remain at that
level thereafter. A 1 percent increase in this annual trend rate would have
increased the accumulated postretirement benefit obligation at June 3, 1995, by
$.7 million, with an immaterial effect on 1995 postretirement benefit cost.
STOCK OPTION PLANS
The company has stock option plans under which options are granted to employees
and nonemployee officers and directors at a price not less than the market
price of the company's common stock on the date of grant. All options become
exercisable one year from date of grant and expire ten years from date of
grant. No charges to operations are recorded with respect to authorization,
grant, or exercise of these stock options. At June 3, 1995, there were 223
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employees and 11 nonemployee officers and directors eligible, all of whom were
participants in the plans. At June 3, 1995, there were 1,113,500 shares
available for future options.
A summary of the stock option transactions is as follows:
Exercise Price Weighted Average
Number of Shares Per Share Range Price Per Share
Outstanding at May 30, 1992 1,384,081 $11.04-29.43 $21.82
Granted 255,940 15.88-22.25 18.75
Exercised (191,980) 11.04-22.50 19.19
Terminated (132,700) 18.63-29.43 22.94
--------- ----------- -----
Outstanding at May 29, 1993 1,315,341 $15.88-26.75 $21.50
Granted 269,740 26.88-34.63 27.35
Exercised (458,406) 16.00-26.75 21.24
Terminated (7,000) 18.63-26.88 26.21
--------- ----------- -----
Outstanding at May 28, 1994 1,119,675 $15.88-34.63 $22.98
Granted 417,280 21.00-29.13 25.86
Exercised (121,400) 15.88-26.88 19.63
Terminated (126,205) 18.63-29.13 26.08
--------- ----------- -----
Outstanding at June 3, 1995 1,289,350 $18.63-34.63 $23.93
--------- ----------- -----
Exercisable at June 3, 1995 898,370 $18.63-34.63 $23.18
--------- ----------- -----
EMPLOYEE STOCK PURCHASE PLAN
Under the terms of the company's 1987 Employee Stock Purchase Plan, 1.1 million
shares of authorized common stock were reserved for purchase by plan
participants at 85 percent of the market price. At June 3, 1995, 92,684 shares
remained available for purchase through the plan, and there were 4,984
employees eligible to participate in the plan, of which 1,442 or 28.9 percent,
were participants. Employees purchased 132,013 shares, at prices ranging from
$18.44 to $21.41, during the year. Total receipts to the company were $2.6
million. Since the inception of the employee stock purchase program in 1977,
employees have purchased a total of 1,967,927 shares at prices ranging from
$1.90 to $29.43. Since the plan is noncompensatory, no charges to operations
have been recorded.
KEY EXECUTIVE STOCK PROGRAMS
RESTRICTED STOCK GRANTS The company has granted restricted common shares to
certain key employees. Shares were awarded in the name of the employee, who has
all rights of a shareholder, subject to certain restrictions on transferability
and a risk of forfeiture. The forfeiture provisions on the awards expire
annually, over a period not to exceed six years, as certain Financial goals are
achieved. During Fiscal 1995, 16,724 shares were granted under the company's
long-term incentive plan, and the forfeiture provisions expired on 11,100
shares. As of June 3, 1995, 59,024 shares remained subject to forfeiture
provisions and 102,524 shares remained subject to restrictions on
transferability.
The remaining shares subject to forfeiture provisions have been recorded as
unearned stock grant compensation and are presented as a separate component of
shareholders' equity. The unearned compensation is being charged to selling,
general, and administrative expense over the five-year vesting period and was
$.2, $.5, and $.4 million in 1995, 1994, and 1993, respectively.
KEY EXECUTIVE STOCK PURCHASE ASSISTANCE PLAN In October 1994, the company
adopted a key executive stock purchase assistance plan whereby the company may
extend credit to officers and key executives to purchase the company's stock
through the exercise of options or on the open market. These loans are secured
by the shares acquired and are repayable under full
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recourse promissory notes. The sale or transfer of shares is restricted for
five years after the loan is fully paid. The plan provides for the key
executives to earn repayment of a portion of the notes based on meeting annual
performance objectives as set forth by the Executive Compensation Committee of
the Board of Directors. The notes bear interest at 7 percent per annum.
Interest is payable annually and principal is due on September 1, 1999. As of
June 3, 1995, the notes outstanding relating to the exercise of options were
$2.2 million and are presented as a separate component of shareholders' equity.
Compensation expense related to earned repayment was immaterial.
INCOME TAXES
The domestic and foreign components of income before income taxes were as
follows:
In Thousands 1995 1994 1993
Domestic $13,418 $71,150 $55,195
Foreign (9,379) (7,677) (12,841)
------ ------- -------
$ 4,039 $63,473 $42,354
------- ------- -------
The provision (credit) for income taxes consisted of the following:
In Thousands 1995 1994 1993
Current: Domestic--Federal $18,104 $24,780 $18,647
Domestic--State 935 1,213 474
Foreign (1,580) (1,338) (1,983)
------- ------- -------
$17,459 $24,655 $17,138
------- ------- -------
Deferred: Domestic--Federal (15,137) (1,097) 1,999
Domestic--State (1,951) 187 1,193
Foreign (671) (645) (30)
(17,759) (1,555) 3,162
------- ------- -------
$ (300) $23,100 $20,300
------- ------- -------
A reconciliation of income taxes at the United States statutory rate with the
effective tax rate follows:
In Thousands 1995 1994 1993
Income taxes computed at the United States statutory
rate of 35% in 1995 and 1994, and 34% in 1993 $1,414 $22,216 $14,400
Increase (decrease) in taxes resulting from:
Corporate owned life insurance (1,842) (458) --
State taxes--net (660) 910 1,110
Foreign net operating losses 735 586 4,282
Other 53 (154) 508
------ ------- -------
$ (300) $23,100 $20,300
----- ------- -------
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The tax effects and types of temporary differences that give rise to
significant components of the deferred tax assets and liabilities at June 3,
1995, and May 28, 1994, are presented below:
In Thousands 1995 1994
Deferred tax assets:
Foreign net operating loss carryforwards $ 20,594 $15,991
Compensation related accruals 9,371 6,946
Restructuring charge accruals 9,242 2,401
Accrued postretirement benefit obligation 6,566 5,940
Accrued litigation costs 4,200 0
Long-term capital loss carryforwards 5,497 5,497
Insurance accruals 3,144 3,065
Reserve for uncollectible accounts and notes receivable 2,558 2,712
Other 13,984 9,748
Valuation allowance (25,237) (21,488)
-------- --------
$ 49,919 $ 30,812
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation $(18,230) $(17,022)
Prepaid employee benefits (2,457) (2,584)
Other (4,038) (3,771)
-------- --------
$(24,725) $(23,377)
-------- --------
As a result of restructuring charges incurred in fiscal 1992 and 1991, the
company has long-term capital loss carryforwards, the tax benefit of which is
approximately $5.5 million after tax at June 3, 1995, which expire at various
dates through 1996. In addition, the company has foreign net operating loss
carryforwards, the tax benefit of which is approximately $20.6 million, of
which $5.7 million expires at various dates through 2003, and $14.9 million has
unlimited expiration. For financial statement purposes, the tax benefit of the
foreign net operating loss and long-term capital loss carryforwards have been
recognized as a deferred tax asset, subject to a valuation allowance of $25.2
million.
The company has not provided for United States income taxes on undistributed
earnings of foreign subsidiaries totalling $22.8 million. Recording of
deferred income taxes on these undistributed earnings is not required as these
earnings have been permanently reinvested. These amounts would be subject to
possible U.S. taxation only if remitted as dividends. The determination of the
hypothetical amount of unrecognized deferred U.S. taxes on undistributed
earnings of foreign entities is not practicable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the company's financial instruments included in current
assets and current liabilities approximate their fair value due to their
short-term nature. The fair value of the notes receivable is estimated by
discounting expected future cash flows using current interest rates at which
similar loans would be made to borrowers with similar credit ratings and
remaining maturities. As of June 3, 1995, and May 28, 1994, the fair value of
the notes receivable approximated the carrying value. The company intends to
hold these notes to maturity and has recorded allowances to reflect the terms
negotiated for carrying value purposes. The company's long-term debt reprices
frequently at the then-prevailing market interest rates. As of June 3, 1995,
and May 28, 1994, the carrying value approximated the fair value of the
company's long-term debt.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The company utilizes derivative financial instruments to manage its exposure to
foreign currency volatility at the transactional level. At June 3, 1995 and May
28, 1994, the company had
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outstanding $7.2 million and $8.5 million, respectively, of financial
instruments to purchase and sell foreign currencies, consisting primarily of
forward exchange contracts. The majority of these contracts relate to major
currencies such as the Japanese yen, Australian dollar, and the British pound.
The exposure to credit risk is minimal since the counterparties are major
financial institutions. The market risk exposure is essentially limited to
currency rate movements. The gains or losses arising from these financial
instruments are applied to offset exchange gains or losses on related hedged
exposures. Realized and unrealized gains or losses in 1995 and 1994 were not
material to the company's results of operations.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The components of the adjustments to reconcile net income to net cash provided
by operating activities:
In Thousands 1995 1994 1993
Depreciation and amortization $39,732 $33,207 $31,600
Restructuring charges 31,900 -- --
Provision for losses on accounts and notes receivable 1,405 3,481 7,492
Loss on sales of property and equipment 1,077 1,832 3,350
Deferred taxes (17,759) (1,555) 3,162
Other liabilities 6,587 8,258 3,928
Stock grants earned 207 461 382
Changes in current assets and liabilities:
Decrease (increase) in assets:
Accounts receivable (39,901) (7,151) (4,240)
Inventories (9,239) (3,671) 3,074
Prepaid expenses and other (3,912) (3,352) (845)
Increase (decrease) in liabilities:
Accounts payable 8,674 1,123 2,073
Accrued liabilities 6,751 (3,242) 10,558
------- ------- -------
(37,627) (16,293) 10,620
------- ------- -------
Total adjustments $25,522 $29,391 $60,534
------- ------- -------
Cash payments for interest and income taxes were as follows:
In Thousands 1995 1994 1993
Interest paid $6,296 $1,799 $2,339
Income taxes paid 16,095 25,784 11,944
PER SHARE INFORMATION
Earnings per share of common stock have been computed using the weighted
average number of outstanding common shares and common share equivalents to the
extent they are dilutive during each of the three years in the period ended
June 3, 1995 (24,792,057 in 1995; 25,254,743 in 1994; 24,992,600 in 1993).
CONTINGENCIES
On January 7, 1992, Haworth, Inc. ("Haworth") filed a lawsuit against the
company, alleging that the electrical systems used in certain of the company's
products infringe one or more of Haworth's patents. Discovery in this
proceeding, which is pending in the U.S. District Court for the Western
District of Michigan (Southern Division), is substantially complete. The
company has requested a jury trial, which has been tentatively set by the court
for the August 1995 trial calendar. Based on the prevailing facts and the
nature of the proceedings, the company believes that it is more likely than not
that the litigation will proceed to trial.
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All the patents which are the source of controversy expired prior to 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 limitations would bar recovery of any damages arising prior to
January 1986. In November 1985, Haworth filed a lawsuit against Steelcase,
Inc., ("Steelcase") the industry's leader in market share, alleging violations
of the same patents, and 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 continues to defend its position vigorously and has established a
reserve of $12.0 million as of June 3, 1995, that management believes will be
adequate to defray the costs of litigation. 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.
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.
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SEGMENT INFORMATION
The company operates on a worldwide basis in a single industry consisting of
the design, manufacture, and sale of office furniture systems, products, and
related services. The following information is presented with respect to the
company's operations in different geographic areas for the fiscal years ended
June 3, 1995, May 28, 1994, and May 29, 1993. Transfers between geographic
areas represent the selling price of sales to affiliates, which is generally
based on cost plus a mark-up. Net income of foreign operations and export
includes royalty income from licensee sales and reflects the gain or loss on
foreign currency exchange. The cash and cash equivalents accounts of the
company are considered to be corporate assets. All other assets have been
identified with domestic or foreign operations. No single customer accounted
for more than 10 percent of consolidated net sales.
In Thousands Foreign Adjustments
Operations and
United States and Export Eliminations Consolidated
1995
Sales to unaffiliated customers $894,455 $188,595 -- $1,083,050
Transfers between geographic areas 55,206 5,186 (60,392) --
Net sales $949,661 $193,781 $(60,392) $1,083,050
-------- -------- -------- ----------
Net income (loss) $ 7,265 $ (2,926) $ -- $ 4,339
-------- -------- -------- ----------
Identifiable assets $550,666 $ 91,858 $ -- $ 642,524
-------- -------- -------- ----------
Corporate assets 16,488
----------
Total assets $ 659,012
----------
1994
Sales to unaffiliated customers $812,158 $141,042 $ -- $953,200
Transfers between geographic areas 35,579 5,711 (41,290) --
-------- -------- ------------
Net sales $847,737 $146,753 $(41,290) $953,200
-------- ------------ --------
Net income (loss) $ 42,374 $(2,001) $ -- $ 40,373
-------- ------- ------------ --------
Identifiable assets $454,210 $56,835 $ -- $511,045
-------- ------- ------------ --------
Corporate assets 22,701
--------
Total assets $533,746
--------
1993
Sales to unaffiliated customers $734,159 $121,514 $ -- $855,673
Transfers between geographic areas 29,381 7,165 (36,546) --
-------- -------- ------------ --
Net sales $763,540 $128,679 $(36,546) $855,673
-------- -------- ------------ --------
Net income (loss) $ 30,687 $ (8,633) $ -- $ 22,054
-------- --------- ------------ --------
Identifiable assets $432,650 $ 35,161 $ -- $467,811
-------- --------- ------------ --------
Corporate assets 26,531
--------
Total assets $484,342
--------
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Herman Miller, Inc.:
We have audited the accompanying consolidated balance sheets of Herman Miller,
Inc. (a Michigan corporation) and subsidiaries as of June 3, 1995, and May 28,
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended June 3, 1995.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Herman Miller, Inc., and
subsidiaries as of June 3, 1995, and May 28, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
June 3, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Grand Rapids, Michigan
June 30, 1995
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MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The consolidated financial statements of Herman Miller, Inc., and subsidiaries
were prepared by and are the responsibility of management. The statements have
been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and include amounts that are based on
management's best estimates and judgments.
The company maintains systems of internal accounting controls designed to
provide reasonable assurance that all transactions are properly recorded in the
company's books and records, that policies and procedures are adhered to, and
that assets are protected from unauthorized use. The systems of internal
accounting controls are supported by written policies and guidelines and are
complemented by a staff of internal auditors and by the selection, training,
and development of professional financial managers.
The consolidated financial statements have been audited by the independent
public accounting firm Arthur Andersen LLP, whose appointment is ratified
annually by shareholders at the annual shareholders meeting. The independent
public accountants conduct a review of internal accounting controls to the
extent required by generally accepted auditing standards and perform such tests
and related procedures as they deem necessary to arrive at an opinion on the
fairness of the financial statements.
The Finance and Audit Committee of the Board of Directors, composed solely of
directors from outside the company, regularly meets with the independent public
accountants, management, and the internal auditors to satisfy itself that they
are properly discharging their responsibilities. The independent public
accountants have unrestricted access to the Finance and Audit Committee,
without management present, to discuss the results of their audit and the
quality of financial reporting and internal accounting control.
Michael A. Volkema President and Chief Executive Officer
June 30, 1995
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Item 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in, or disagreements with, accountants referenced in Item 304 of
Regulation S-K occurred during the 24-month period ended June 3, 1995.
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant
Information relating to directors and director nominees of the registrant is
contained under the caption "Director and Executive Officer Information," in
the company's definitive Proxy Statement, dated August 21, 1995, relating to
the company's 1995 Annual Meeting of Shareholders and the information within
that section is incorporated by reference. Information relating to Executive
Officers of the company is included in Part I hereof entitled "Executive
Officers of the Registrant." Information relating to delinquent filers pursuant
to Item 405 of Regulation S-K is contained under the caption "Miscellaneous" in
the company's definitive Proxy Statement dated August 21, 1995.
There are no family relationships between or among the above-named executive
officers. There are no arrangements or understandings between any of the
above-named officers pursuant to which any of them was named an officer.
Except as discussed in this paragraph, each of the named officers has served
the company in an executive capacity for more than five years. Prior to
joining the company, Mr. Broser was a vice president of Dow Corning
Corporation. Mr. Groulx was manager of Economic Evaluation Business Control at
Dow Corning Corporation. From February 1995 to May 1995, Mr. Volkema was
president and chief executive officer of Coro, Inc. (a subsidiary of Herman
Miller, Inc.), and prior to May 1993 to September 1994, was president and
chairman of the board of Meridian, Inc.(a subsidiary of Herman Miller, Inc.).
Item 11 EXECUTIVE COMPENSATION
Information relating to management remuneration is contained under the tables
and discussions on pages 10-12 in the company's definitive Proxy Statement,
dated August 21, 1995, relating to the company's 1995 Annual Meeting of
Shareholders, and the information within those sections is incorporated by
reference.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The sections entitled "Voting Securities and Principal Shareholders" and
"Director and Executive Officer Information" in the definitive Proxy Statement,
dated August 21, 1995, relating to the company's 1995 Annual Meeting of
Shareholders and the information within those sections is incorporated by
reference.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions contained
under the captions "Director and Executive Officer Information" and
"Compensation of Board Members and Non-Employee Officers" in the definitive
Proxy Statement, dated August 21, 1995, relating to the company's 1995 Annual
Meeting of Shareholders is incorporated by reference.
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PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the company are
included in this Form 10-K on the pages noted:
Page Number in
the Form 10-K
-------------
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Shareholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21-33
Report of Independent Public Accountants 34
Management's Report on Financial Statements 35
(a) 2. Financial Statement Schedule
The following financial statement schedule and related Report of
Independent Public Accountants on the Financial Statement Schedule are
included in this Form 10-K on the pages noted:
Page Number in
this Form 10-K
--------------
Report of Independent Public Accountants 39
on Financial Statement Schedule
Consent of Independent Public Accountants 40
-37-
38
Page Number in
this Form 10-K
--------------
Schedule VIII- Valuation and Qualifying
Accounts and Reserves for
the Years Ended June 3,
1995; May 28, 1994; and
May 29, 1993 42
All other schedules required by Form 10-K Annual Report have been
omitted because they were inapplicable, included in the notes to
consolidated financial statements, or otherwise not required under
instructions contained in Regulation S-X.
(a) 3. Exhibits
Reference is made to the Exhibit Index which is found on pages 43
through 44 of this Form 10-K Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
the year ended June 3, 1995.
-38-
39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of Herman Miller, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Herman Miller, Inc., and subsidiaries
included in this Form 10-K, and have issued our report thereon dated June 30,
1995. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed at Item 14(a)2 above is the
responsibility of the company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
June 30, 1995
-39-
40
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Herman Miller, Inc.:
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statement File Numbers 33-5810, 33-43234, 33-43235,
33-45812, and 2-84202.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
August 23, 1995
-40-
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HERMAN MILLER, INC.
/s/ Michael A. Volkema and /s/ Brian C. Walker
----------------------- -------------------------------
By Michael A. Volkema Brian C. Walker
(President and Chief Executive Officer) (Vice President of Finance)
Date: August 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on August 23, 1995, by the following persons on
behalf of the Registrant in the capacities indicated. Each Director of the
Registrant, whose signature appears below, hereby appoints Michael A. Volkema
as his attorney-in-fact, to sign in his name and on his behalf, as a Director
of the Registrant, and to file with the Commission any and all amendments to
this Report on Form 10-K.
/s/ Richard H. Ruch /s/ Michael A. Volkema
----------------------- ---------------------------
Richard H. Ruch Michael A. Volkema
(Chairman of the Board) (President, Chief Executive
Officer and Director)
/s/ William K. Brehm /s/ E. David Crockett
-------------------- ---------------------
William K. Brehm E. David Crockett
(Director) (Director)
/s/ Alan M. Fern /s/ Lord Griffiths of Fforestfach
---------------- ---------------------------------
Alan M. Fern Lord Griffiths of Fforestfach
(Director) (Director)
/s/ David L. Nelson /s/ C. William Pollard
------------------- ----------------------
David L. Nelson C. William Pollard
(Director) (Director)
/s/ Charles D. Ray /s/ Ruth A. Reister
------------------ -------------------
Charles D. Ray Ruth A. Reister
(Director) (Director)
-41-
42
HERMAN MILLER, INC., AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Uncollectible
Balance at charged to accounts Balance
beginning costs and written off at end
Description of period expenses (net) (1) of period
----------- --------- -------- ----------- ---------
Year ended June 3, 1995:
Allowance for possible losses
on accounts receivable $6,742 $ 405 $ (33) $7,180
Allowance for possible losses
on notes receivable $2,159 $1,000 $ 532 $2,627
Year ended May 28, 1994:
Allowance for possible losses $6,168 $ 731 $ 157 $6,742
on accounts receivable
Allowance for possible losses $2,106 $2,750 $2,697 $2,159
on notes receivable
Year ended May 29, 1993:
Allowance for possible losses
on accounts receivable $7,604 $1,492 $2,928 $6,168
Allowance for possible losses
on notes receivable $1,531 $6,000 $5,425 $2,106
(1) Includes effects of foreign currency translation.
-42-
43
HERMAN MILLER, INC., AND SUBSIDIARIES
Exhibit Index
Page
----
(3) Articles of Incorporation and Bylaws
(a) Articles of Incorporation are incorporated by reference to
Exhibit 3(a) and 3(b) of the Registrant's 1986 Form 10-K Annual
Report.
(b) Certificate of Amendment to the Articles of Incorporation,
dated October 15, 1987, are incorporated by reference to Exhibit
3(b) of the Registrant's 1988 Form 10-K Annual Report.
(c) Certificate of Amendment to the Articles of Incorporation,
dated May 10, 1988, are incorporated by reference to Exhibit 3(c)
of the Registrant's 1988 Form 10-K Annual Report.
(d) Amended and Restated Bylaws are incorporated by reference
to Exhibit 3(d) of the Registrant's Form 10Q filed for the quarter
ended December 1, 1990.
(4) Instruments Defining the Rights of Security Holders
(a) Specimen copy of Herman Miller, Inc., common stock is
incorporated by reference to Exhibit 4(a) of Registrant's 1981
Form 10-K Annual Report.
(b) Other instruments which define the rights of holders of long-term
debt individually represent debt of less than 10 percent of
total assets. In accordance with item 601(b)(4)(iii)(A) of regulation
S-K, the Registrant agrees to furnish to the Commission
copies of such agreements upon request.
(10) Material Contracts
(a) Description of Officers Executive Incentive Plan is incorporated
by reference to Exhibit 10(e) of the Registrant's 1981 Form
10-K Annual Report. *
(b) Officers' Supplemental Retirement Income Plan is incorporated by
reference to Exhibit 10(f) of the Registrant's 1986 Form 10-K
Annual Report. *
-43-
44
Page
----
Exhibit Index (continued)
(c) Officers' Salary Continuation Plan is incorporated by reference to
Exhibit 10(g) of the Registrant's 1982 Form 10-K Annual
Report. *
(d) Herman Miller, Inc., Plan for Severance Compensation after Hostile
Takeover is incorporated by reference to Exhibit 10(f) of
the Registrant's 1986 Form 10-K Annual Report. *
(e) Amended Herman Miller, Inc., Plan for Severance Compensation after
Hostile Takeover, dated January 17, 1990, is incorporated
by reference to Exhibit 10(n) of the Registrant's 1990 Form 10-K
Annual Report. *
(f) Incentive Share Grant Agreement, dated July 15, 1992, between the company
and J. Kermit Campbell is incorporated by reference to Exhibit
10(r) of the Registrant's 1993 Form 10-K Annual Report. *
(g) Herman Miller, Inc., Long-Term Incentive Plan, dated October 6, 1994,
is incorporated by reference to Appendix A of the Registrant's 1994
Proxy Statement. *
(h) Herman Miller, Inc., 1994 Nonemployee Officer and Director
Stock Option Plan, dated October 6, 1994, is incorporated by reference as
Appendix B of the Registrant's 1994 Proxy Statement. *
(i) Herman Miller, Inc., 1994 Key Executive Stock Purchase Assistant Plan,
dated October 6, 1994, is incorporated by reference to Appendix C
of the Registrant's 1994 Proxy Statement. *
* denotes compensatory plan or arrangement.
(11) Computation of Per Share Earnings. 45
(22) Subsidiaries. 46
(27) Financial Data Schedule (exhibit available upon request)
-44-
1
HERMAN MILLER, INC., AND SUBSIDIARIES
Exhibit 11
Statement Regarding Computation of Per Share Earnings
(Dollars in Thousands Except Per Share Data)
June 3, May 28, May 29,
1995(b) 1994(c) 1993(c)
--------- --------- --------
NET INCOME APPLICABLE
TO COMMON SHARES $ 4,339 (a) $ 40,373 $ 22,054
========= ======= =======
Weighted Average Common
Shares Outstanding 24,720,638 25,080,895 24,962,007
Net Common Shares
Issuable Upon Exercise
of Certain Stock Options 71,419 173,849 30,593
---------- ----------- ----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING AS
ADJUSTED 24,792,057 25,254,743 24,992,600
========== ========== ==========
NET INCOME PER SHARE $ .18 $ 1.60 $ .88
======== ======== =========
Earnings per share on a fully diluted basis are not significantly different
from reported primary amounts.
(a) Includes $28.1 million of restructuring and other charges.
(b) Represents a 53-week period.
(c) Represents a 52-week period.
-45-
1
EXHIBIT 22
HERMAN MILLER, INC., AND SUBSIDIARIES
Subsidiaries
The Company's principal subsidiaries are as follows:
Jurisdiction
Name Ownership Of Incorporation
---- --------- ----------------
Coro, Inc. 100% Company Michigan
Herman Miller (Australia) Pty., Ltd. 100% Company Australia
Herman Miller B.V. (Netherlands) 100% Company Netherlands
Herman Miller Canada, Inc. 100% Company Canada
Herman Miller Deutschland, Inc. und Co.--OHG 100% Company Germany
Herman Miller Et Cie 100% Company France
Herman Miller Italia 100% Company Italy
Herman Miller, Japan, Ltd. 100% Company Japan
Herman Miller, Limited 100% Company England, U.K.
Herman Miller Mexico 100% Company Mexico
Herman Miller Transportation Company 100% Company Michigan
Integrated Metal Technology, Inc. 100% Company Michigan
Meridian Incorporated 100% Company Michigan
Milcare, Inc. 100% Company Michigan
Milsure Insurance Limited 100% Company Barbados
Phoenix Designs, Inc. 100% Company Michigan
Powder Coat Technology, Inc. 100% Company Michigan
The Resource Alliance, Inc. 100% Company Canada
-46-
5
1,000
12-MOS
JUN-03-1995
MAY-29-1994
JUN-03-1995
16,488
0
172,287
7,180
71,076
297,116
513,455
243,271
659,012
257,541
60,145
4,967
0
0
281,948
659,012
1,083,050
1,083,050
704,781
704,781
366,526
1,405
6,299
4,039
(300)
4,339
0
0
0
4,339
.18
.18
