1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended February 26, 1994 HERMAN MILLER, INC. A Michigan Corporation ID No. 38-0837640 855 Main Avenue, PO Box 302, Zeeland, MI 49464-0302 Phone (616) 654 3000 Herman Miller, Inc. (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months Yes X No ____ (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Common Stock Outstanding at March 31, 1994--24,979,217 shares. The Exhibit Index appears at page 15. -1- 2 -2-
HERMAN MILLER, INC. FORM 10-Q ----------------------------- FOR THE QUARTER ENDED FEBRUARY 26, 1994 --------------------------------------- INDEX ----- Page No. -------- Part I -- Financial Information Condensed Consolidated Balance Sheets -- February 26, 1994, and May 29, 1993 3 Condensed Consolidated Statements of Operations -- Three Months and Nine Months Ended February 26, 1994, and February 27, 1993 4 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended February 26, 1994 and February 27, 1993 5 Notes to Condensed Consolidated Financial Statements 6-7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Part II -- Other Information Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit Index 15 3 See accompanying notes to condensed consolidated financial statements. -3-
HERMAN MILLER, INC. ------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (DOLLARS IN THOUSANDS) ---------------------- February 26, May 29, February 26, May 29, 1994 1993 1994 1993 ------------ ----------- --------- ----------- (unaudited) (audited) (unaudited) (audited) ASSETS LIABILITIES & SHAREHOLDERS' EQUITY - ------ ---------------------------------- CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 22,639 $ 16,531 Current maturities of long-term debt $ 513 $ 515 Accounts receivable, net 121,382 111,218 Notes payable 27,654 18,234 Inventories--- Accounts payable 33,629 38,654 Finished goods 19,867 18,923 Accruals 89,641 87,456 ------- ------- Work in process 5,686 6,692 Total current liabilities 151,437 144,859 ------- ------- Raw materials 31,758 30,423 ------ ------- Total inventories 57,311 56,038 LONG-TERM DEBT, less current maturities 20,724 21,128 ------ ------- Prepaid expenses and other 19,698 23,783 ------ ------- DEFERRED TAXES 7,204 7,412 Total current assets 221,030 207,570 ------- ------- OTHER LIABILITIES 28,825 27,001 PROPERTY AND EQUIPMENT, AT COST 448,741 431,407 Less-accumulated depreciation 216,222 202,963 SHAREHOLDERS' EQUITY: ------- ------- Net property and equipment 232,519 228,444 Common stock $.20 par value 5,043 5,001 ------- ------- Additional paid-in capital 33,867 29,863 OTHER ASSETS: Retained earnings 271,822 251,831 Notes receivable, net 34,896 32,174 Cumulative translation adjustment (2,546) (1,349) Other noncurrent assets 26,904 16,154 Unearned stock grant compensation (1,027) (1,404) ------ ------- ------ ------ Total shareholders' equity 307,159 283,942 ------- ------- Total liabilities and Total assets $515,349 $484,342 shareholders' equity $515,349 $484,342 ------- ------- ------- -------- ------- ------- ------- -------- 4 See accompanying notes to condensed consolidated financial statements. -4-
HERMAN MILLER, INC. ------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) -------------------------------------------- (UNAUDITED) ----------- Three Months Ended Nine Months Ended ------------------ -------------------- Feb. 26, Feb. 27, Feb. 26, Feb. 27, 1994 1993 1994 1993 -------- ------- -------- -------- NET SALES $241,949 $217,462 $705,337 $622,032 COST AND EXPENSES: Cost of goods sold 157,791 141,463 460,526 408,777 Operating expenses 67,455 65,025 197,982 190,758 Interest expense 342 415 1,086 1,653 Other income, net (920) (1,178) (2,595) (1,660) -------- -------- -------- -------- 224,668 205,725 656,999 599,528 -------- ------- ------- ------- INCOME BEFORE TAXES ON INCOME 17,281 11,737 48,338 22,504 PROVISION FOR TAXES ON INCOME 6,100 4,500 18,500 9,300 --------- -------- -------- -------- NET INCOME $ 11,181 $ 7,237 $ 29,838 $ 13,204 -------- -------- -------- -------- -------- -------- -------- -------- EARNINGS PER SHARE $ .44 $ .29 $ 1.18 $ .53 --------- --------- --------- --------- --------- --------- --------- --------- DIVIDENDS PER SHARE OF COMMON STOCK $ .13 $ .13 $ .39 $ .39 --------- --------- --------- --------- --------- --------- --------- --------- 5 See accompanying notes to condensed consolidated financial statements. -5-
HERMAN MILLER, INC. ------------------- CONDENSED CONSOLIDATED STATEMENTS OF ------------------------------------ CASH FLOWS ---------- (DOLLARS IN THOUSANDS) ---------------------- (UNAUDITED) ----------- Nine Months Ended ----------------- Feb. 26, Feb. 27, 1994 1993 ----------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 29,838 $ 13,204 Depreciation and amortization 25,369 24,184 Other, net (5,286) 25,793 -------- ------ Net cash provided by operating activities 49,921 63,181 ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Notes receivable repayments 276,432 233,938 Notes receivable issued (281,194) (238,708) Capital expenditures (27,491) (33,231) Other, net (14,086) (2,940) ------- ------ Net cash used for investing activities (46,339) (40,941) ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net common stock issued 11,046 1,868 Net long-term debt repayments (198) (8,946) Net short-term debt borrowings 9,509 4,985 Dividends paid (9,824) (9,775) Common stock purchased and retired (7,020) (8,155) Other, net (207) (218) -------- ------ Net cash provided by (used for) financing activities 3,306 (20,241) -------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (780) (897) -------- ------ NET INCREASE IN CASH AND CASH EQUIVALENTS 6,108 1,102 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,531 16,949 ------- ------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,639 $18,051 ------- ------ ------- ------ 6 HERMAN MILLER, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOOTNOTE DISCLOSURES The condensed consolidated financial statements have been prepared by the company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The company believes that the disclosures made in this document are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the company's Annual Report on Form 10-K for the year ended May 29, 1993. FISCAL YEAR The company's fiscal year ends on the Saturday closest to May 31. SUPPLEMENTAL CASH FLOW INFORMATION Cash and cash equivalents include all highly liquid debt instruments purchased as part of the company's cash management function. Due to the short maturities of these items, the carrying amount approximates fair value. Cash payments for income taxes and interest (in thousands) were as follows: -6-
Nine Months Ended ----------------- February 26, February 27, 1994 1993 --------------- ------------- Interest paid $1,056 $1,521 Income taxes paid $9,450 $10,613 7 CONTINGENCIES On January 7, 1992, Haworth, Inc., filed a lawsuit in the U.S. District Court for the Northern District of Georgia, Atlanta Division, against Herman Miller, Inc., alleging that the electrical systems used in certain of the company's products infringes one or more of Haworth's patents. On December 9, 1992, the company's motion for change of venue was granted, and the lawsuit was transferred to the U.S. District Court for the Western District of Michigan (Southern Division). The company has received a written opinion from its patent counsel that such patent counsel do not believe the company has been selling an infringing product. The litigation is in a preliminary stage, and the company is defending its position vigorously. Additionally, there are various other claims and legal proceedings pending against the company arising from its operations. At this time, management does not expect these matters to have a material adverse effect on the company's consolidated financial position. However, the outcome of these matters is not subject to prediction with certainty. REPORT OF MANAGEMENT In the opinion of the company, the accompanying unaudited condensed consolidated financial statements taken as a whole contain all adjustments, consisting of only a normal and recurring nature, necessary to present fairly the financial position of the company as of February 26, 1994, and the results of its operations and cash flows for the nine months then ended. Interim results are not necessarily indicative of results for a full year. -7- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the company's financial condition and earnings during the periods included in the accompanying condensed consolidated financial statements. A. Financial Summary A summary of the period-to-period changes is shown below. All amounts are increases (decreases) unless otherwise noted. Dollars are shown in thousands. -8-
Three Months Nine Months ------------------------ ------------------------ $ % $ % ---------- ---------- ---------- --------- NET SALES 24,487 11.3 83,305 13.4 COST OF GOODS SOLD 16,328 11.5 51,749 12.7 OPERATING EXPENSES 2,430 3.7 7,224 3.8 INTEREST EXPENSE (73) (17.6) (567) (34.3) OTHER INCOME NET 258* 21.9* (935)* (56.3)* INCOME BEFORE TAXES ON INCOME 5,544 47.2 25,834 114.8 PROVISION FOR TAXES ON INCOME 1,600 35.6 9,200 98.9 NET INCOME 3,944 54.5 16,634 126.0 * Represents a decrease (increase) in other income 9 B. Results of Operations Net sales increased $24.5 million, or 11.3 percent, over third quarter results a year ago. For the third three months of 1994, the company had net sales of $241.9 million, compared with net sales of $217.5 million in the third three months last year. For the first nine months of 1994, the company had net sales of $705.3 million, compared to net sales of $622.0 million in the first nine months last year. Net sales for the first nine months of fiscal 1994 were the highest recorded in any first nine-month period in the company's history. According to the most recent statistics of the Business and Institutional Furniture Manufacturing Association (BIFMA), United States office furniture net sales for the latest eight-month period increased approximately 7 percent over the same period a year ago. This compares with the company's year-over-year United States net sales growth rate of 13.8 percent for the first nine months. Net sales of international operations and export sales from the United States in the third quarter ended February 26, 1994, totaled $35.5 million compared with $28.3 million last year. For the first nine months of 1994, net sales of international operations and export sales from the United States were $101.3 million compared with $91.4 million last year. The backlog of unfilled orders at February 26, 1994, was $115.2 million compared with $126.2 million a year earlier, and $140.7 million at November 27, 1993. New orders received in the third quarter were $216.4 million, an increase of $13.1 million, or 6.5 percent, when compared to the same period a year ago. New orders for the first nine months were $690.8 million, an increase of $58.8 million, or 9.3 percent, when compared to the first nine months of fiscal 1993. New orders for both the third quarter and first nine months were the highest recorded in any same respective period of the company's history. While new orders were a company record for any third quarter, the rate of order increase was lower than any of the previous four quarters. The third quarter, which contains the year-end holiday period, historically is marked by slower order formation. However, a solid order entry rate achieved in December was lowered by unusually severe weather and other natural disasters in the United States during January and February. Through March, both selling activity and order entry are regaining momentum, albeit at slightly lower rates than achieved earlier in the fiscal year. Gross margin decreased to 34.8 percent during the third quarter of 1994, compared to a gross margin of 34.9 percent for the same period last year. The decrease is attributable to lower labor efficiencies. The gross margin for the first nine months increased to 34.7 percent of net sales compared with 34.3 percent in the prior year. -9- 10 This improvement primarily was attributable to increased volume in fiscal year 1994, which more effectively utilizes fixed overhead. Operating expenses, including design and research, were $67.5 million for the third quarter, an increase of $2.4 million, or 3.7 percent, over third quarter last year. Operating expenses for the first nine months of 1994 were $198.0 million, a $7.2 million increase, or 3.8 percent, over the $190.8 million operating expenses for the first nine months of 1993. As a percent of net sales, operating expenses were 28.1 and 30.7 for the first nine months of the current and prior year, respectively. The decrease as a percent of net sales directly was attributable to the increase in net sales as well as a lower fixed cost structure as a result of the company's ongoing restructuring and cost reduction efforts. Interest expense decreased $.1 million over third quarter 1993 and $.6 million for the first nine months of 1994 compared with the first nine months of 1993. The decrease primarily was a result of reduced long- and short-term borrowings. Total interest bearing debt was $48.9 million at the end of the third quarter of fiscal 1994, compared with $49.6 million at February 27, 1993, and $39.9 million at May 29, 1993. Net other income decreased $.3 million over third quarter 1993. For the first nine months of 1994, net other income increased $.9 million to $2.6 million from $1.7 million in the prior year. The increase is primarily due to interest income. The effective tax rate was 38.3 percent for the first nine months of 1994, compared with 41.3 percent for the same period last year. The effective tax rate decreased for the first nine months due to a reduction in European losses year to date in fiscal 1994 over fiscal 1993. Net income increased to $11.2 million in the third quarter, compared to $7.2 million income for the same period last year. Net income for the first nine months of 1994 was $29.8 million compared to $13.2 million for the same period last year. Net income for the third quarter and the first nine months of fiscal 1994 was the highest recorded in any same period during the last four years. Net loss from the company's international operations and export sales from the United States for the third quarter decreased to net loss of $.4 million compared with a net loss of $1.1 million last year. The first nine months decreased $3.1 million to a $1.2 million loss, compared with net loss of $4.3 million for the same period last year. As was the case in the second quarter of fiscal 1994, international and export sales and results added significantly to the company's comparative results during the third quarter. European net sales were even versus a year ago, with lower sales on the Continent offset by higher sales in the United Kingdom, where the effects of previously incurred net operating loss carryforwards helped reduce the overall tax -10- 11 rate. In addition, as in the second quarter, an increase in project business in both the Asia/Pacific and Latin American regions allowed the company to achieve a significant improvement in net income over year-ago levels. International net sales for the first nine months exceeded the $100 million mark for the first time. However, prolonged sluggish growth in Continental Europe and Japan will continue to contribute to the uncertainty and volatility of the company's international results. On February 8, 1994, the company acquired Herman Miller Righetti S.A. de C.V. of Mexico. Herman Miller Righetti had been the company's joint-venture partner in Mexico since 1981. Herman Miller Righetti's net sales for the last three calendar years (beginning with 1993) were $31.0 million, $27.1 million, and $19.2 million, respectively. The acquisition was an all-cash transaction that will neither materially enhance nor dilute the consolidated results of Herman Miller, Inc., for the year ended May 28, 1994. C. Financial Condition, Liquidity, and Capital Resources First Nine Months FY 1994 versus First Nine Months FY 1993 Despite the usually expected increased working capital requirements which normally would accompany record quarterly net sales, cash flow from operating activities during the third quarter remained a strong $24.2 million versus $24.3 million in the third quarter of last year. Days sales in accounts receivable plus days sales in inventory declined to 80.1 days at February 26, 1994. This compares with 83.0 days at May 29, 1993, and 85.1 days a year ago. Asset utilization, as measured by the ratio of net sales-to-average total assets, improved to 1.88 in the first nine months of fiscal 1994 compared with 1.75 in the first nine months of fiscal 1993. Moreover, nine-month net return-on-sales (ROS), net return-on-average total assets (ROA), and net return-on-average total equity (ROE) improved to 4.2 percent, 8.0 percent, 13.5 percent, respectively, versus 2.1 percent, 3.7 percent, and 6.4 percent a year ago, respectively. With strong cash flow and high asset utilization, the company remains committed to its 2.0 million share repurchase program announced in January of 1991. During the three months ended February 26, 1994, 193,500 shares were repurchased at an average cost of $27.84 per share. This brings the total shares repurchased year-to-date through February 26, 1994, to 258,500 shares at an average cost of $27.16 per share. Since January 1991, 1.602 million shares have been repurchased at an average cost of $18.69 per share. The trading range between January 1, 1991, and February 26, 1994, was $14.75 to $35.00 per share. All purchases were made in the open market on an unsolicited basis. Other than described above, there were no significant changes to the company's overall financial condition during the first nine months of fiscal year 1994. The company's planned capital requirements for the remainder of the fiscal year include -11- 12 approximately $10 million of capital expenditures and long-term debt repayments. Management believes that the company's cash and cash equivalents, combined with cash generated from operations and, if necessary, additional available external financing capability, will be adequate to meet anticipated liquidity needs for operations. -12- 13 Part II Item 6: Exhibits and Reports on Form 8-K 1. Exhibits See Exhibit Index 2. Reports on Form 8-K No reports on Form 8-K were filed during the three months ended February 26, 1994. -13- 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. HERMAN MILLER, INC. April 5, 1994 /s/ J. Kermit Campbell ---------------------------------- J. Kermit Campbell (President and Chief Executive Officer) April 5, 1994 /s/ James H. Bloem ---------------------------------- James H. Bloem (Vice President, Chief Financial Officer, and Principal Accounting Officer) -14- 15 *Exhibit Index (11) Computations of earnings per common share. -15-
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EXHIBIT 11 ---------- HERMAN MILLER, INC. ------------------- COMPUTATIONS OF EARNINGS PER COMMON SHARE ----------------------------------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) -------------------------------------------- (UNAUDITED) Three Months Ended Nine Months Ended ------------------ ------------------ Feb. 26, Feb. 27, Feb. 26, Feb. 27, 1994 1993 1994 1993 -------- -------- -------- -------- NET INCOME APPLICABLE TO COMMON SHARES $ 11,181 $ 7,237 $ 29,838 $ 13,204 -------- --------- --------- --------- -------- --------- --------- --------- Weighted Average Common Shares Outstanding 25,158,820 24,791,099 25,179,665 24,967,961 Net Common Shares Issuable Upon Exercise of Certain Stock Options 216,990 19,675 183,279 9,722 --------- --------- --------- ---------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING AS ADJUSTED 25,375,810 24,810,744 25,362,944 24,977,683 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- EARNINGS PER SHARE $ .44 $ .29 $ 1.18 $ .53 --------- ---------- ---------- ----------- --------- ---------- ---------- -----------