Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 10-Q

HERMAN MILLER, INC.

HERMAN MILLER, INC. FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 29, 2003
INDEX

2

HERMAN MILLER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)

See accompanying notes to condensed consolidated financial statements

3

HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, Except Per Share Data)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

5

HERMAN MILLER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Dollars in Millions)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

5

HERMAN MILLER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by Herman Miller, Inc. (“the company”), without audit, in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Management believes that the disclosures made in this document are adequate so as not to make the information presented misleading. Operating results for the six-month period ended November 29, 2003, are not necessarily indicative of the results that may be expected for the year ending May 29, 2004. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the company’s Form 10-K for the year ended May 31, 2003.

2. FISCAL YEAR
The company’s fiscal year ends on the Saturday closest to May 31. Fiscal 2004, the year ending May 29, 2004, will contain 52 weeks as did fiscal 2003, the year ended May 31, 2003. Both of the three-month periods ended November 29, 2003, and November 30, 2002, contained 13 weeks.

3. FOREIGN CURRENCY TRANSLATION
The functional currency for foreign subsidiaries is the local currency. The cumulative effects of translating the balance sheet accounts from the functional currency into the United States dollar at current exchange rates and revenue and expense accounts using average exchange rates for the period are included as a separate component of shareholders equity. Gains (losses) arising from remeasuring all foreign currency transactions into the appropriate functional currency, which were included in determining net earnings, totaled $0.1 million and $(0.1) million for the three months ended November 29, 2003, and November 30, 2002, respectively. For the six months ended November 29, 2003, and November 30, 2002, the currency gain (loss) totaled $0.4 million and $(0.1) million, respectively.

4. COMPREHENSIVE INCOME/(LOSS)
Comprehensive income/(loss) consists of net earnings, foreign currency translation adjustments, minimum pension liability, and unrealized holding gains or losses on “available-for-sale” securities. Comprehensive income was approximately $13.6 million and $12.1 million for the three months ended November 29, 2003, and November 30, 2002, respectively. For the six months ended November 29, 2003, and November 30, 2002, comprehensive income totaled $16.9 million and $23.8 million, respectively.

6

5. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used in the calculations of basic and diluted earnings per share (EPS).

Certain exercisable stock options were not included in the computation of diluted EPS at November 29, 2003 and November 30, 2002, because the option prices were greater than the average market prices for the period. The number of stock options outstanding, which meet this criterion, and the range of exercise prices for the three months ended November 29, 2003, and November 30, 2002, were 3,807,233 at $24.20 - $32.50 and 7,263,266 at $17.86 - - $32.50, respectively. For the six months ended November 29, 2003, and November 30, 2002, the number of stock options, which meet this criterion, and the range of exercise prices were 6,449,389 at $22.50 - $32.50 and 7,236,280 at $19.64 - $32.50, respectively.

6. ACQUISITION
During the first quarter of fiscal 2004, the company acquired, for $0.2 million, an additional ownership interest in OP Spectrum LLP, a contract furniture dealership based in Philadelphia, Pennsylvania. As a result of this transaction, which increased the company's ownership interest to 90%, the dealership's balance sheet and results of operations were consolidated in the company's fiscal 2004 financial statements since the date of acquisition. Prior to the transaction, the company's investment in this dealership was accounted for under the equity method, with the company's proportionate share of resulting gains or losses reported as a component of other income/expense. Consolidation of this dealership increased second quarter net sales and net earnings by approximately $5.4 million and $0.2 million, respectively. The impact of this consolidation was not material to the company's first quarter consolidated financial statements.

7

7. STOCK-BASED COMPENSATION
The company accounts for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Under this method, which continues to be acceptable under Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123," (SFAS 148), no compensation expense is recognized when stock options are granted to employees and directors at fair market value as of the grant date.

The following table illustrates the effect on net earnings and earnings per share if the company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) to stock-based employee compensation during the periods indicated with the Black-Scholes pricing model used for valuation of stock options.
(In Millions, Except Per Share Data)

8. RESTRUCTURING CHARGES
The following is a summary of the restructuring activities for the three months and six months ended November 29, 2003. It should be read in conjunction with the company’s Form 10-K for the year ended May 31, 2003, which provides a description of the specific actions taken during fiscal 2002 and 2003. For purposes of this discussion, the restructuring actions taken during fiscal 2002 and 2003, as well as those taken in fiscal 2004, are referred to collectively as the “Plan.”

The following table presents the pretax restructuring charges / (credits), by category, recorded pursuant to the Plan.

8

(In Millions)

During the first quarter of fiscal 2004, the company amended the Plan to include the closure and relocation of the Canton, Georgia manufacturing operations. These operations are being consolidated into existing available space located in Spring Lake, Michigan. This process is expected to be complete during the second half of fiscal 2004.

The majority of the restructuring charges recognized in the quarter ended November 29, 2003 related to the Canton consolidation. Expenses from this action included severance and outplacement benefits of $2.3 million and facility exit costs of $1.5 million. In addition, the company recognized charges of approximately $1.5 million in connection with the consolidation of the Holland Michigan Formcoat operation. These costs related primarily to the termination of a facility lease and the relocation of equipment. Partially offsetting these expenses were net credits resulting principally from a gain on the sale of the Holland Michigan Chair Plant assets.

Approximately 2,100 employees, across a wide range of job classifications, have been terminated as a result of the Plan. This includes approximately 300 employees from the company’s international operations.

Asset impairment charges recorded in connection with the Plan have been accounted for in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” or SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, as applicable. These impairments consisted of long-lived assets, including real estate, fixed assets and manufacturing equipment from the operations the company intends to transfer or discontinue. The assets were written-down to the lower of their carrying amounts or estimated fair values, less the disposition costs. Fair value estimates were determined by the company’s management, with the assistance of independent appraisers, and were based on estimated proceeds from sale.

During the second quarter of fiscal 2004, the company successfully completed the sale of its Holland Michigan Chair Plant. The carrying value of this facility had been previously written down to its estimated fair value of $5.2 million. The company received net proceeds of approximately $6.0 million and, as a result, recorded a $0.8 million gain on the sale. This gain was recognized as a net reduction of second quarter restructuring expenses.

The company’s Canton Georgia facility remains listed for sale. As a consequence of the Plan, this facility was previously written down to its expected fair value of $8.2 million. This carrying value remained classified under the caption “Net property and equipment” on the company’s condensed consolidated balance sheet as of the end of the second quarter.

Restructuring charges recognized pursuant to the Plan include certain estimated qualifying exit costs. Those costs, related to actions announced during and subsequent to fiscal 2003, were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146).

9

The following is a summary of the restructuring accrual activity since the beginning of the Plan. This summary does not include restructuring activity related to the impairment of fixed assets or the effect on the company’s employee retirement plans as these items are not accounted for through the restructuring accrual.
(In Millions)

Costs associated with the movement of inventory and equipment, as well as employee relocation and training related to the consolidation of production processes, are recognized as incurred and are not included in the ending restructuring accrual at November 29, 2003.

The net impact of the Plan on the company’s employee retirement plans is included as a component of Restructuring Expenses on the condensed consolidated statements of operations with an offset to long-term pension liabilities on the condensed consolidated balance sheet. As a result, such charges are not reflected in the ending restructuring accrual balance.

9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash equivalents are purchased as part of the company’s cash management function and consist primarily of money market and time deposit investments, which are of high credit quality. All cash equivalents are considered “available-for-sale.” As of November 29, 2003 and May 31, 2003, the costs of these securities approximated their respective market values.

Cash payments/(refunds) for income taxes and interest were as follows.
(In Millions)

10. SHORT-TERM INVESTMENTS
The company maintains a portfolio of short-term investments comprised of investment grade fixed-income securities. These investments are held by the company’s wholly-owned insurance captive and are considered “available-for-sale” as defined in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Accordingly, they have been recorded at fair market value based on quoted market prices, with the resulting net unrealized holding gains reflected as a component of comprehensive income/(loss). Net investment income recognized in the condensed consolidated statements of operations resulting from these investments totaled $0.1 million and $0.2 million for the quarters ended November 29, 2003 and November 30, 2002, respectively. For the six months ended November 29, 2003 and November 30, 2002, these amount totaled $0.2 million and $0.3 million, respectively.

10

The following is a summary of the carrying and market values of the company’s short-term investments as of November 29, 2003 and May 31, 2003.
(In Millions)

¹Include securities issued by both U.S. and foreign governments and government agencies. Some of these securities are development bonds issued by groups of member countries. All are U.S. dollar-denominated and are rated AA or above by Moody’s.

11. OPERATING SEGMENTS
In accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” management evaluates the company as one operating segment in the office furniture industry. The company is engaged worldwide in the design, manufacture, and sale of office furniture systems, products, and related services through its wholly owned subsidiaries. Throughout the world the product offerings, the production processes, the methods of distribution, and the customers serviced are consistent. The company’s product offerings consist primarily of office furniture systems, seating, storage solutions, freestanding furniture, and casegoods. These product offerings are marketed, distributed, and managed primarily as a group of similar products on an overall portfolio basis. The accounting policies of the operating segment are the same as those described in the summary of significant accounting and reporting policies in the company’s 10-K report for the year ended May 31, 2003.

12. NEW ACCOUNTING STANDARDS
In December 2003, the FASB issued SFAS No. 132 revised 2003, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (SFAS 132(R)). This standard increases the existing disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies will be required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. SFAS 132(R) also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after December 15, 2003. The company is required to adopt the additional disclosure provisions of SFAS 132(R) in the fourth quarter of fiscal 2004.

In May 2003, the Emerging Issues Task Force issued its consensus on Issue No. 03-04, “Determining the Classification and Benefit Attribution Method for a ‘Cash Balance’ Pension Plan” (EITF 03-04). In this consensus, the Task Force concluded that the actuarially determined pension expense for cash balance plans that have fixed-interest credit rates and are not pay-related, be determined using the traditional unit credit method of accounting. The company adopted the provisions of EITF 03-04 effective at the beginning of the first quarter of fiscal 2004 as its plan is not pay-related. The adoption of EITF 03-04 did not have a material impact on the company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 modified the traditional definition of “liabilities” to encompass certain obligations that must be settled through the issuance of equity shares. These obligations are considered liabilities as opposed to equity or mezzanine financing under the provisions of SFAS 150. In addition, SFAS 150 increased the required disclosures of alternate settlement methods related to these obligations. This new standard was effective immediately for financial instruments entered into or modified after May 31, 2003, and for all other financial instruments beginning in the second quarter of fiscal 2004. The adoption of SFAS 150 did not have a material impact on the company’s consolidated financial statements.

11

In May 2003, the Emerging Issues Task Force issued its consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). In this consensus, the Task Force addressed certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The company adopted the provisions of EITF 00-21 effective at the beginning of the second quarter of fiscal 2004. The adoption of EITF 00-21 did not have a material impact on the company’s consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” revised December 2003 (FIN 46(R)). This new rule requires that companies consolidate a variable intere