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 28, 2004 | Commission File No. 001-15141 |
HERMAN MILLER, INC.
| A Michigan Corporation 855 East Main Avenue, Zeeland, MI 49464-0302 |
ID No. 38-0837640 Phone (616) 654 3000 |
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, and |
Yes [X] No [__]
| (2) | has been subject to such filing requirements for the past 90 days. |
Yes [X] No [__]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [__]
Common Stock Outstanding at September 29, 2004 – 70,660,017 shares.
HERMAN MILLER, INC.
FORM 10-Q
FOR THE QUARTER ENDED
AUGUST 28, 2004
INDEX
| Part I - Financial Information | Page No. | ||
| Item 1 Condensed Consolidated Balance Sheets - | |||
| August 28, 2004, and May 29, 2004 | 3 | ||
| Condensed Consolidated Statements of Operations - | |||
| Three Months Ended August 28, 2004, | |||
| and August 30, 2003 | 4 | ||
| Condensed Consolidated Statements of Cash Flows - | |||
| Three Months ended August 28, 2004, | |||
| and August 30, 2003 | 5 | ||
| Notes to Condensed Consolidated Financial Statements | 6-15 | ||
| Item 2 Management's Discussion and Analysis of | |||
| Financial Condition and Results of Operations | 16-23 | ||
| Item 3 Quantitative and Qualitative Disclosures | |||
| About Market Risk | 24 | ||
| Item 4 Controls and Procedures | 24 | ||
| Part II - Other Information | |||
| Item 1 Legal Proceedings | 25 | ||
| Item 2 Unregistered Sales of Equity Securities and Use of Proceeds | 25 | ||
| Item 3 Defaults Upon Senior Securities - None | |||
| Item 4 Submission of Matters to a Vote of Security Holders - None | |||
| Item 5 Other Items | 25 | ||
| Item 6 Exhibits | 26 | ||
| Signatures | 27 | ||
| Exhibits | 28-49 | ||
2
HERMAN MILLER, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
| August 28, 2004 | May 29, 2004 | August 28, 2004 | May 29, 2004 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | (Audited) | (Unaudited) | (Audited) | ||||||||||||||
| ASSETS | LIABILITIES & SHAREHOLDERS' EQUITY | ||||||||||||||||
| Current Assets: | Current Liabilities: | ||||||||||||||||
| Cash and cash equivalents | $ | 155.8 | $ | 189.2 | Unfunded checks | $ | 5.5 | $ | 8.6 | ||||||||
| Short-term investments (Note 10) | 10.7 | 10.7 | Current portion of long-term debt | 13.0 | 13.0 | ||||||||||||
| Accounts receivable, net | 141.9 | 142.4 | Notes payable (Note 18) | -- | 1.5 | ||||||||||||
| Inventories - | Accounts payable | 85.1 | 90.4 | ||||||||||||||
| Finished goods | 19.2 | 16.4 | Accrued liabilities (Note 15) | 132.0 | 123.8 | ||||||||||||
| Work in process | 12.5 | 10.5 | |||||||||||||||
| Raw materials | 11.0 | 11.2 | Total current liabilities | 235.6 | 237.3 | ||||||||||||
| Total inventories | 42.7 | 38.1 | Long-term Liabilities: | ||||||||||||||
| Prepaid expenses and other | 48.8 | 50.2 | Long-term Debt, less current | ||||||||||||||
| portion (Note 14) | 194.6 | 192.7 | |||||||||||||||
| Total current assets | 399.9 | 430.6 | Pension Benefits (Note 17) | 19.9 | 43.2 | ||||||||||||
| Other Liabilities (Note 15) | 45.1 | 46.9 | |||||||||||||||
| Property and Equipment, at cost | 698.3 | 700.1 | |||||||||||||||
| Less - accumulated depreciation | 498.1 | 491.6 | |||||||||||||||
| Shareholders' Equity: | |||||||||||||||||
| Net property and equipment | 200.2 | 208.5 | Common stock $.20 par value | 14.2 | 14.4 | ||||||||||||
| Retained earnings | 230.9 | 246.1 | |||||||||||||||
| Other Assets: | Accumulated other comprehensive | ||||||||||||||||
| Notes receivable, net | 1.7 | 1.9 | loss (Note 4) | (56.4 | ) | (57.6 | ) | ||||||||||
| Goodwill | 39.1 | 39.1 | Key executive stock programs | (8.5 | ) | (8.3 | ) | ||||||||||
| Intangible assets, net (Note 13) | 5.9 | 5.9 | |||||||||||||||
| Other noncurrent assets | 28.6 | 28.7 | Total Shareholders' Equity | 180.2 | 194.6 | ||||||||||||
| Total Liabilities and | |||||||||||||||||
| Total Assets | $ | 675.4 | $ | 714.7 | Shareholders' Equity | $ | 675.4 | $ | 714.7 | ||||||||
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)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| August 28, 2004 | August 30, 2003 | |||||||
| Net Sales | $ | 357.3 | $ | 324.5 | ||||
| Cost of Sales | 245.2 | 222.9 | ||||||
| Gross Margin | 112.1 | 101.6 | ||||||
| Operating Expenses | 88.6 | 85.6 | ||||||
| Restructuring Expenses (Note 8) | 0.5 | 3.8 | ||||||
| Operating Earnings | 23.0 | 12.2 | ||||||
| Other Expenses (Income): | ||||||||
| Interest Expense | 3.3 | 3.8 | ||||||
| Other, Net (Notes 3, 6, and 18) | (1.6 | ) | (1.3 | ) | ||||
| Earnings Before Income Taxes | 21.3 | 9.7 | ||||||
| Income Tax Expense (Note 16) | 7.0 | 3.5 | ||||||
| Net Earnings | $ | 14.3 | $ | 6.2 | ||||
| Earnings Per Share - Basic (Note 7) | $ | .20 | $ | .08 | ||||
| Earnings Per Share - Diluted (Note 7) | $ | .20 | $ | .08 | ||||
| Dividends Per Share | $ | .0725 | $ | .03625 | ||||
See accompanying notes to condensed consolidated financial statements.
4
HERMAN MILLER, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF
CASH
FLOWS
(Dollars
in Millions)
(Unaudited)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| August 28, 2004 | August 30, 2003 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net earnings | $ | 14.3 | $ | 6.2 | ||||
| Depreciation and amortization | 11.8 | 15.4 | ||||||
| Restructuring charges / (credits) | (0.5 | ) | 1.5 | |||||
| Changes in current assets and liabilities | (0.4 | ) | 10.5 | |||||
| Pension benefits | (23.8 | ) | -- | |||||
| Other, net | 1.4 | 2.1 | ||||||
| Net Cash Provided by Operating Activities | 2.8 | 35.7 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Notes receivable issued, net | (0.4 | ) | (1.8 | ) | ||||
| Short-term investment purchases | -- | (3.4 | ) | |||||
| Short-term investment sales | -- | 3.5 | ||||||
| Capital expenditures | (3.8 | ) | (5.5 | ) | ||||
| Proceeds from sale of fixed assets | 0.2 | 0.1 | ||||||
| Net cash paid for acquisitions (Note 6) | (0.7 | ) | (0.2 | ) | ||||
| Other, net | 0.3 | 0.2 | ||||||
| Net Cash Used for Investing Activities | (4.4 | ) | (7.1 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Net short-term debt repayments (Note 18) | (1.5 | ) | -- | |||||
| Net long-term debt repayments | -- | (1.8 | ) | |||||
| Dividends paid | (5.2 | ) | (2.6 | ) | ||||
| Common stock issued (Note 5) | 11.8 | 2.0 | ||||||
| Common stock repurchased and retired (Note 5) | (37.6 | ) | (2.3 | ) | ||||
| Net Cash Used for Financing Activities | (32.5 | ) | (4.7 | ) | ||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 0.7 | (2.3 | ) | |||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (33.4 | ) | 21.6 | |||||
| Cash and Cash Equivalents, Beginning of Period | $ | 189.2 | $ | 185.5 | ||||
| Cash and Cash Equivalents, End of Period | $ | 155.8 | $ | 207.1 | ||||
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
three-month period ended August 28, 2004, are not necessarily indicative of the results
that may be expected for the year ending May 28, 2005. 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 29, 2004.
2. FISCAL YEAR
The company’s fiscal year ends
on the Saturday closest to May 31. Fiscal 2005, the year ending May 28, 2005, will contain
52 weeks as did fiscal 2004, the year ended May 29, 2004. Both of the three-month periods
ended August 28, 2004, and August 30, 2003, 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, were negligible and $0.3
million for the three months ended August 28, 2004, and August 30, 2003, respectively.
4. COMPREHENSIVE
INCOME/(LOSS)
Comprehensive income/(loss) consists
of net earnings, foreign currency translation adjustments, minimum pension liability, and
unrealized holding gains/(losses) on “available-for-sale” securities.
Comprehensive income was approximately $15.5 million and $3.3 million for the three months
ended August 28, 2004, and August 30, 2003, respectively. The following presents the
components of “Accumulated Other Comprehensive Loss” for the periods indicated.
(In Millions)
| Foreign Currency Translation Adjustments | Minimum Pension Liability (net of tax) | Unrealized Holding Period Gains/(Losses) | Total Accumulated Other Comprehensive Income/(Loss) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, May 29, 2004 | $ | (7.9 | ) | $ | (50.1 | ) | $ | 0.4 | $ | (57.6 | ) | |||
| Other comprehensive income/ | ||||||||||||||
| (loss) for the three months | ||||||||||||||
| ended August 28, 2004 | 1.1 | 0.1 | -- | 1.2 | ||||||||||
| Balance, August 28, 2004 | $ | (6.8 | ) | $ | (50.0 | ) | $ | 0.4 | $ | (56.4 | ) | |||
6
5. COMMON STOCK AND
EARNINGS PER SHARE
The following table reconciles the
numerators and denominators used in the calculations of basic and diluted earnings per
share (EPS).
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| August 28, 2004 | August 30, 2003 | |||||||
| Numerators: | ||||||||
| Numerator for both basic and diluted EPS, | ||||||||
| net earnings (In Millions) | $ | 14.3 | $ | 6.2 | ||||
| Denominators: | ||||||||
| Denominator for basic EPS, weighted-average | ||||||||
| common shares outstanding | 71,182,794 | 72,869,965 | ||||||
| Potentially dilutive shares resulting from stock plans | 679,053 | 301,608 | ||||||
| Denominator for diluted EPS | 71,861,847 | 73,171,573 | ||||||
Certain exercisable stock options were not included in the computation of diluted EPS at August 28, 2004, and August 30, 2003, 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 August 28, 2004, and August 30, 2003, were 1,822,216 at $26.29 — $32.50 and 6,463,738 at $21.02 — $32.50, respectively.
Common stock activity for the three months ended August 28, 2004, and August 30, 2003, included the repurchase of approximately 1,379,179 shares for $37.6 million and 108,646 shares for $2.3 million in the respective periods. In addition, the issuance of 654,003 shares for $11.8 million (net of $0.8 million tax effect) and 176,859 shares for $2.0 million (net of $0.4 million tax effect) occurred as the result of stock-based benefit program activity during the respective three months ended August 28, 2004, and August 30, 2003.
6. ACQUISITIONS
During the first quarter of fiscal
2005, the company acquired certain assets and liabilities of Office Interiors, Inc., a
contract furniture dealership primarily based in Oklahoma City, Oklahoma, for $0.7 million
of which $0.5 million was allocated to the fair value of net assets acquired and $0.2
million to an amortizable intangible asset. This resulted in the recognition of a pre-tax
gain of $0.4 million due to the reversal of a financial guarantee liability because the
company was released from the guarantee by the third-party as result of this transaction.
The gain is reflected in “Other Expenses (Income)” in the condensed consolidated
statements of operations. If this purchase had been effective May 30, 2003, there would
have been no material effect on the company’s consolidated financial statements for
the first quarter of fiscal year 2005 or 2004.
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.
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)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| August 28, 2004 | August 30, 2003 | |||||||
| Net earnings, as reported | $ | 14.3 | $ | 6.2 | ||||
| Less: Incremental stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (1.7 | ) | (2.6 | ) | ||||
| Pro forma net earnings | $ | 12.6 | $ | 3.6 | ||||
| Total stock-based employee compensation expense included in net earnings, as reported, net of related tax effects | $ | 0.2 | $ | 0.2 | ||||