1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
__X__ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 1996 Commission File No. 0-5813
HERMAN MILLER, INC.
A Michigan Corporation ID No. 38-0837640
855 East Main Avenue, Zeeland, MI 49464-0302 Phone (616) 654 3000
Herman Miller, Inc.
(1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months
Yes __X__ No ____
(2) has been subject to such filing requirements for the past 90
days.
Yes __X__ No ____
Common Stock Outstanding at September 30, 1996--23,799,285 shares.
The Exhibit Index appears at page 15.
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HERMAN MILLER, INC. FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 1996
INDEX
Page No.
--------
Part I--Financial Information
Condensed Consolidated Balance Sheets-- 3
August 31, 1996, and June 1, 1996
Condensed Consolidated Statements of Income-- 4
Three Months Ended August 31, 1996,
and September 2, 1995
Condensed Consolidated Statements of Cash Flows-- 5
Three Months Ended August 31, 1996,
and September 2, 1995
Notes to Condensed Consolidated Financial Statements 6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
Part II--Other Information
Submission of Matters to Vote of Security Holders 13
Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
Aug. 31, June 1,
1996 1996
----------- -----------
(unaudited) (audited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 37,112 $ 57,053
Accounts receivable, net 181,443 170,116
Inventories--
Finished goods 25,688 24,787
Work in process 18,811 10,896
Raw materials 22,736 30,047
------- ------
Total inventories 67,235 65,730
------ ------
Prepaid expenses and other 40,814 42,006
------- -------
Total current assets 326,604 334,905
------- -------
PROPERTY AND EQUIPMENT, AT COST: 544,940 536,108
Less-accumulated depreciation 277,653 267,343
------- -------
Net property and equipment 267,287 268,765
------- -------
OTHER ASSETS:
Notes receivable, net 39,961 39,212
Other noncurrent assets 52,318 52,029
------ -------
Total assets $686,170 $694,911
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Unfunded checks $ 1,302 $ 2,867
Current portion of long-term debt 155 317
Notes payable 26,616 21,148
Accounts payable 60,546 59,208
Accruals 135,927 135,487
------- -------
Total current liabilities 224,546 219,027
------- -------
LONG-TERM DEBT, less current portion 110,218 110,245
OTHER LIABILITIES 56,657 57,494
SHAREHOLDERS' EQUITY:
Common stock $.20 par value 4,778 4,934
Additional paid-in capital -- 14,468
Retained earnings 304,488 303,578
Cumulative translation adjustment (11,615) (11,633)
Key executive stock programs (2,902) (3,202)
------- -------
Total shareholders' equity 294,749 308,145
------- -------
Total liabilities and
shareholders' equity $686,170 $694,911
======= =======
See accompanying notes to condensed consolidated financial statements.
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
---------------------
Aug. 31, Sept. 2,
1996 1995
---- ----
NET SALES $342,484 $301,088
COST AND EXPENSES:
Cost of goods sold 224,212 198,209
Operating expenses 91,182 83,336
Interest expense 2,181 2,101
Other income, net (677) (1,472)
---- ------
316,898 282,174
------- -------
INCOME BEFORE TAXES ON INCOME 25,586 18,914
PROVISION FOR TAXES ON INCOME 10,000 6,900
------ -------
NET INCOME $15,586 $12,014
====== ======
NET INCOME PER SHARE $ .64 $ .48
====== ======
DIVIDENDS PER SHARE OF COMMON STOCK $ .13 $ .13
====== ======
See accompanying notes to condensed consolidated financial statements.
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HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
----------------------------
Aug. 31, Sept. 2,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,586 $ 12,014
Depreciation and amortization 12,093 11,867
Other, net (5,848) (760)
--------- ---------
Net cash provided by operating activities 21,831 23,121
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable repayments 102,317 119,569
Notes receivable issued (103,442) (117,509)
Capital expenditures (12,836) (11,371)
Other, net (3,049) 2,798
--------- ---------
Net cash used for investing activities (17,010) (6,513)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net common stock issued 1,524 3,038
Net long-term debt borrowings (repayments) (189) 37,436
Net short-term debt borrowings (repayments) 5,100 (53,955)
Dividends paid (3,207) (3,231)
Common stock purchased and retired (27,991) --
Other, net -- (51)
--------- ---------
Net cash used for financing activities (24,763) (16,763)
--------- ---------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 1 860
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (19,941) 705
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 57,053 16,488
--------- ---------
CASH AND CASH EQUIVALENTS,
AT END OF PERIOD $ 37,112 $ 17,193
========= =========
See accompanying notes to condensed consolidated financial statements.
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HERMAN MILLER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOOTNOTE DISCLOSURES
The condensed consolidated financial statements have been prepared by the
company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The company believes that the disclosures made in this document
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the company's Annual Report
on Form 10-K for the year ended June 1, 1996.
FISCAL YEAR
The company's fiscal year ends on the Saturday closest to May 31. Accordingly,
the years ended June 1, 1996, and May 31, 1997, contain 52 weeks.
RESTRUCTURING CHARGES
In the fiscal year ended June 3, 1995, the company recorded $31.9 million in
pretax restructuring charges, which reduced net income by $20.3 million, or
$.82 per share. A charge of $15.5 million was taken in the second quarter of
fiscal 1995, to account for the closure of certain of the company's
manufacturing and logistics facilities prior to the relocation of their
production activities to other U.S. Herman Miller facilities. In addition, the
charge also included the costs associated with the closure of and
discontinuance of wood casegoods manufacturing in the Sanford, North Carolina,
facility and the transfer of products produced there to Geiger International of
Atlanta, Georgia, a respected contract provider of quality wood casegoods.
The $16.4 million charge recorded in the fourth quarter of fiscal 1995 included
charges in the United States for reductions in employment and the
discontinuation of a product development program at the company's healthcare
subsidiary, Milcare.
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.
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Amounts paid or charged against these reserves during the first quarter of
fiscal 1997 were as follows:
June 1, 1996 Costs paid Ending
In Thousands Balance or charged Balance
------------ ---------- -------
Facilities and equipment $5,330 $1,775 $3,555
Termination benefits 1,885 487 1,398
Other exit costs 278 102 176
------ ------ ------
$7,493 $2,364 $5,129
====== ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include all highly liquid debt instruments purchased
as part of the company's cash management function. Due to the short maturities
of these items, the carrying amount approximates fair value.
Cash payments for income taxes and interest (in thousands) were as follows:
Three Months Ended
-----------------------------
Aug. 31, Sept. 2,
1996 1995
--------- --------
Interest paid $2,673 $2,510
Income taxes paid $8,048 $2,531
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CONTINGENCIES
On January 7, 1992, Haworth, Inc. ("Haworth") filed a lawsuit against the
company, alleging that the electrical systems used in the creation of the
company's products infringed one or more of Haworth's patents. The lawsuit
against the company followed a lawsuit filed by Haworth in 1985 against
Steelcase, Inc., the industry's leader in market share, alleging violation of
the same two patents. In 1989, Steelcase was held to infringe the patents and
the matter was returned to private dispute resolution. The patents at issue
expired prior to December 1, 1994.
During the second quarter ended December 2, 1995, the company's Board of
Directors authorized management to engage in settlement discussions with
Haworth. In January 1996, the company and Haworth agreed to terms of a
settlement. The company continues to believe, based upon written opinion of
counsel, that its products do not infringe Haworth's patents and the company
would, more likely than not, have prevailed on the merits. However, based on
the mounting legal costs, distraction of management focus, and the uncertainty
present in any litigation, we concluded settlement was in the best interest of
our shareholders. The settlement included a one-time cash payment of $44.0
million in exchange for a complete release. The companies also exchanged
limited covenants not to sue with respect to certain existing and potential
patent designs.
The company simultaneously reached a settlement with one of its suppliers. The
supplier agreed to pay the company $11.0 million and, over the next seven
years, to rebate a percentage of its sales to Herman Miller which are in excess
of current levels.
The company recorded a net litigation settlement expense of $16.5 million after
applying previously recorded reserves and the settlement with the supplier.
The company, for a number of years, has sold various products to the United
States Government under General Services Administration (GSA) multiple award
schedule contracts. The GSA is permitted to audit the company's compliance with
the GSA contracts. As a result of its audits, the GSA has asserted a refund
claim under the 1982 contract for approximately $2.7 million and has other
contracts under audit review. Management has been notified that the GSA has
referred the 1988 contract to the Justice Department for consideration of a
potential civil False Claims Act case. Management disputes the audit result for
the 1982 contract and does not expect resolution of that matter to have a
material adverse effect on the company's consolidated financial statements.
Management does not have information which would indicate a substantive basis
for a civil False Claims Act under the 1988 contract.
The company is not aware of any other litigation or threatened litigation which
would have a material impact on the company's financial statements.
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REPORT OF MANAGEMENT
In the opinion of the company, the accompanying unaudited condensed
consolidated financial statements taken as a whole contain all adjustments,
which are of a normal recurring nature, necessary to present fairly the
financial position of the company as of August 31, 1996, and the results of its
operations and cash flows for the three months then ended. Interim results are
not necessarily indicative of results for a full year.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the company's financial condition and earnings
during the periods included in the accompanying condensed consolidated
financial statements.
A. Financial Summary
A summary of the period-to-period changes is shown below. All amounts
are increases (decreases) unless otherwise noted. Dollars are shown in
thousands.
$ %
-------- -------
NET SALES 41,396 13.7
COST OF GOODS SOLD 26,003 13.1
OPERATING EXPENSES 7,846 9.4
INTEREST EXPENSE 80 3.8
OTHER INCOME NET* 795 54.0
INCOME BEFORE TAXES ON INCOME 6,672 35.3
PROVISION FOR TAXES ON INCOME 3,100 44.9
NET INCOME 3,572 29.7
* Represents a decrease in other income
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B. Results of Operations
First Quarter FY 1997 versus First Quarter FY 1996
Net sales increased $41.4 million, or 13.7 percent, for the three
months ended August 31, 1996, over the first quarter results a year
ago. For the first three months of fiscal 1997, the company had net
sales of $342.5 million, compared with net sales of $301.1 million in
the first three months last year. Net sales of $342.5 million were the
highest ever recorded in a quarter. Acquisitions accounted for $9.8
million or 3.2 percent of the increase. The remaining increase was
primarily due to unit volume increases in our domestic operations.
New orders increased 20.2 percent, to $371.7 million. Acquisitions
accounted for $10.7 million or 3.4 percent of this increase. The
backlog of unfilled orders at August 31, 1996, was $185.8 million,
compared with $177.9 million a year earlier, and $156.6 million at
June 1, 1996.
Gross margin increased to 34.5 percent during the first quarter of
1997, compared to a gross margin of 34.2 percent in the first quarter
of 1996. The improvement reflects lower expenditures for overhead in
the U.S. operations along with better leveraging of fixed overhead. In
addition, one of our domestic subsidiaries realized a price increase
in the first quarter of 1997.
Operating expenses, as a percent of sales, decreased to 26.6 percent
compared with 27.7 percent in the first quarter of last year. This
improvement is the result of the restructuring implemented in the
fourth quarter of fiscal 1995. Total operating expenses increased $7.9
million from $83.3 million in the first quarter of last year to $91.2
million. Operating expenses attributable to acquisitions and new
ventures were $3.5 million. Additional factors contributing to the
increase were a 4.0 percent year-over-year increase in compensation
and benefits, increased depreciation and amortization, and costs which
are variable with sales.
Interest expense of $2.2 million was comparable to the first quarter
of fiscal 1996. Total interest-bearing debt was $137.0 million at the
end of the first quarter of fiscal 1997, compared with $131.7 million
at June 1, 1996, and $126.9 million at September 2, 1995.
The effective tax rate for the first quarter was 39.1 percent compared
with 36.5 percent in the same period of last year. The higher rate is
the result of a change in the law which reduces the favorable tax
treatment of Corporate Owned Life Insurance programs. In addition, two
of our foreign subsidiaries fully utilized their net operating loss
carryforwards in fiscal 1996.
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Net income increased 29.7 percent to $15.6 million in the first
quarter, compared to $12.0 million for the same period last year.
United States net sales were up 15.4 percent for the first quarter,
after being up 9.9 percent in the fourth quarter of fiscal 1996.
These increases reflect the impact of the acquisitions and strong
growth in our domestic subsidiaries.
Net sales of international operations and export sales from the United
States in the first quarter ended August 31, 1996, totaled $58.4
million compared with $55.0 million last year. Net loss from the
company's international operations and export sales from the United
States for the first quarter decreased $.5 million to a $.6 million
loss, compared with net loss of $1.1 million for the same period last
year.
Net sales from international operations and exports from the United
States increased 6.2 percent over the first quarter of last year. The
first quarter increase primarily was due to a stronger performance in
our United Kingdom and Canadian operations.
C. Financial Condition, Liquidity, and Capital Resources
First Quarter FY 1997 versus First Quarter FY 1996
1. Cash flow from operating activities was $21.8 million versus
$23.1 million in the first quarter of 1996.
2. Days sales in accounts receivable plus days sales in inventory
decreased to 74.7 days versus 75.6 days on June 1, 1996.
3. Total interest-bearing debt increased to $137.0 million
compared to $131.7 million at June 1, 1996. Debt-to-total
capital now stands at 31.7 percent versus 29.9 percent on June
1, 1996. We expect interest bearing debt to remain in the range
of $125 to $145 million for the remainder of the year.
4. Capital expenditures for the quarter were $12.8 million versus
$11.4 million in the first quarter of 1996. The expenditures
were primarily for a new facility at one of our fastest growing
subsidiaries and new or improved internal processes. Capital
expenditures for the year are expected to be in the range of
$75 to $80 million.
5. The company repurchased 854,700 shares of common stock for
$28.0 million during the first quarter of fiscal 1997.
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Part II
Item 4: Submission of Matters to Vote of Security Holders
At the Annual Shareholders Meeting held October 2, 1996, the shareholders voted
on various proposals presented in the company's 1996 definitive proxy
statement. The results of the votes follow:
1. Proposal to elect three directors to serve a term of three years:
Broker
For Against Withheld Non-vote
--- ------- -------- --------
a. Terms expiring in 1999
William K. Brehm 21,427,722 0 71,154 0
J. Harold Chandler 21,281,625 0 217,251 0
Brian Griffiths 21,426,436 0 72,440 0
2. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent public accountants for the company for the fiscal year
ending May 31, 1997.
Broker
For Against Withheld Non-vote
--- ------- -------- --------
21,449,724 14,647 34,505 0
Item 6: Exhibits and Reports on Form 8-K
1. Exhibits
See Exhibit Index
2. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended August 31,
1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
HERMAN MILLER, INC.
October 11, 1996 /s/ Michael A. Volkema
---------------------------------------------
Michael A. Volkema
(President and
Chief Executive Officer)
October 11, 1996 /s/ Brian C. Walker
---------------------------------------------
Brian C. Walker
(Chief Financial Officer)
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Exhibit Index
(11) Computations of earnings per common share.
(27) Financial Data Schedule (Exhibit available upon request)
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EXHIBIT 11
HERMAN MILLER, INC.
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
---------------------------
Aug. 31, Sept. 2,
1996 1995
------ --------
NET INCOME APPLICABLE
TO COMMON SHARES $15,586 $12,014
====== ======
Weighted Average Common
Shares Outstanding 24,064,844 24,879,050
Net Common Shares
Issuable Upon Exercise
of Certain Stock Options 190,433 58,556
------- ------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING AS ADJUSTED 24,255,277 24,937,606
========== ==========
NET INCOME PER SHARE $ .64 $ .48
======== =========
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1,000
3-MOS
MAY-31-1997
JUN-02-1996
AUG-31-1996
37,112
0
192,310
10,867
67,235
40,814
544,940
277,653
686,170
224,546
0
0
0
4,778
289,971
686,170
342,484
342,484
224,212
224,212
89,205
1,300
2,181
25,586
10,000
15,586
0
0
0
15,586
.64
.64
