Back to GetFilings.com
1
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 1, 1996 Commission File No. 0-5813
Herman Miller, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-0837640
- ---------------------------------- -------------------
(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
- --------------------------------- --------------------
(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
----------------------------
(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 5, 1996, was approximately $821,824,370 (based on
$34.00 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
5, 1996:
Common stock, $.20 par value--24,171,805 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 2, 1996, are incorporated into Part III of
this report.
2
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(TM) 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 81.1
percent of the company's sales (in the fiscal year ended June 1, 1996) were
made to or through
-2-
3
independent dealers. The remaining sales (18.9 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):
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 157 active United States utility patents on
various components used in its products and systems and approximately 279 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)"
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," "Arrio,"
"Co/Struc," "Ergon," "Equa," "Ethospace," (and "(Trademark)" trademarks.
-3-
4
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 2.2 percent of the company's net sales
in the fiscal year ended June 1, 1996. For fiscal 1996, the largest single
end-user customer accounted for approximately 7.9 percent of the company's net
sales with the 10 largest of such customers accounting for approximately 14.5
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 1, 1996, the company's backlog of unfilled orders was $156.6
million. At June 3, 1995, the company's backlog totaled $169.8 million. It is
expected that substantially all the orders forming the backlog at June 1, 1996,
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 remained
relatively stable in 1994 through 1996.
-4-
5
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 $24.5
million, $31.3 million, and $26.7 million was spent by the company on design
and research activities in 1996, 1995, and 1994, 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 628 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 1, 1996, the company employed 6,964 full-time and 491 part-time
employees, representing a 4.7 percent increase in full-time employees and an
20.0 percent decrease in part-time employees compared with June 3, 1995. 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 decreased by 17.5 percent.
(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 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, and Italy. Sales are made through wholly owned subsidiaries in
Australia, Canada, France, Germany, Italy,
-5-
6
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 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 37. 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 Australia, Canada, France,
Germany, Italy, Japan, Mexico, the Netherlands, and the United Kingdom. The
location, square footage, and use of the most significant facilities at June 1,
1996, were as follows:
Location
Square
Owned Locations Footage Use
--------------- ------- -------------
Zeeland, Michigan 749,000 Manufacturing, Warehouse, and Office
Spring Lake, Michigan 586,700 Manufacturing, Warehouse, and Office
Holland, Michigan 355,000 Manufacturing, 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
Holland, Michigan 233,500 Manufacturing, Warehouse, and Office
Leased Locations
-------------------------
Zeeland, Michigan 393,300 Manufacturing, Warehouse, and Office
Chippenham, England, U.K. 102,100 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.
Item 3 PENDING LEGAL PROCEEDINGS
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 the terms of a
settlement.
-6-
7
The lawsuit, filed in January 1992, alleged that certain electrical products,
which the company offered, infringed two patents held by Haworth. Haworth sued
Steelcase, Inc., in 1985, claiming that Steelcase's products infringed those
same two patents. In 1989, Steelcase was held to infringe the patents, and the
matter was referred to private dispute resolution to resolve the issue of
damages. The patents at issue expired prior to December 1, 1994.
Since the date of initial claim, the company has always been advised by our
patent litigation counsel that it was more likely than not to prevail on the
merits; however, the mounting legal costs, distraction of management focus, and
the uncertainty present in any litigation made this settlement something which
the company determined is in the best interest of its shareholders.
Under the settlement agreement, Herman Miller paid Haworth $44.0 million in
cash, in exchange for a complete release. The release also covers Herman
Miller's customers and suppliers. The companies have exchanged limited
covenants not to sue, with respect to certain existing and potential patent
rights. Haworth has agreed not to sue under United States Patent 4,682,984
which refers to a construction process for making storage cabinets. In
addition, Haworth has granted a limited covenant not to sue with respect to
certain potential future patent rights on a panel construction. Haworth
received a limited covenant under three United States Patents--5,038,539;
4,685,255; and 4,876,835--all relating to one of the company's system product
lines.
The company simultaneously reached a settlement with one of its suppliers. The
supplier agreed to pay Herman Miller $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 $11.0 million, plus interest, will be paid in annual
installments over a seven-year period. Herman Miller is also exploring the
possibility of claims against other third parties.
The company recorded a net litigation settlement expense of $16.5 million,
after applying previously recorded reserves and the settlement with the
supplier, in the second quarter of fiscal 1996.
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 case under the 1988 contract.
The company is also involved in legal proceedings and litigation in the
ordinary course of business. In the opinion of management, the outcome of such
proceedings and litigation currently pending will not materially affect the
company's consolidated financial statements.
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 1, 1996.
-7-
8
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
- --------------------- --- ----------------- -------------------------------------------------------
James E. Christenson 49 1989 Executive Vice President, Legal Services, and Secretary
Mark L. Groulx 40 1995 Vice President of Operations
Andrew C. McGregor 46 1988 Executive Vice President, Commercial Services
Gary S. Miller 46 1984 Senior Vice President for Design and Development
Christopher A. Norman 48 1996 President, Miller SQA, Inc.
Michael A. Volkema 40 1995 President and Chief Executive Officer
Brian C. Walker 34 1996 Executive Vice President, Chief Financial Officer, and Treasurer
Except as discussed in this paragraph, each of the named officers has served
the company in an executive capacity for more than five years. 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.). Mr. Norman has served as the
president of Miller SQA for the past five years. Mr. Walker was the vice
president of finance for Herman Miller, Inc., from May 1995 to March 1996, vice
president of finance and management information systems of Milcare, Inc., from
July 1994 to May 1995, and vice president of finance for Herman Miller Europe
from December 1991 to July 1994.
-8-
9
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 5, 1996, there were
approximately 14,000 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 1, 1996
First quarter 26.500 21.500 26.250 .48 .13
Second quarter 32.000 25.500 31.750 .20 (1) .13
Third quarter 34.125 27.625 32.188 .47 .13
Fourth quarter 32.250 27.531 30.875 .68 .13
Year 34.125 22.000 30.875 1.83 (1) .52
Year Ended June 3, 1995
First quarter 29.375 23.500 24.000 .32 .13
Second quarter 26.750 23.375 25.188 .06 (2) .13
Third quarter 26.500 19.750 22.500 .17 .13
Fourth quarter 25.000 19.250 21.688 (.37)(3) .13
Year 29.375 19.250 21.688 .18 (2),(3) .52
(1) Includes a $16.5 million pretax charge for the patent litigation in 1996.
This charge decreased net income by $10.6 million, or $.42 per share.
(2) Includes $15.5 million of pretax charges which decreased net income by $9.6
million, or $.39 per share.
(3) 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.
-9-
10
Item 6 SELECTED FINANCIAL DATA
REVIEW OF OPERATIONS
In Thousands Except Per Share Data 1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
OPERATING RESULTS
Net Sales $1,283,931 $1,083,050 $953,200 $855,673 $804,675
Gross Margin 434,946 378,269 337,138 298,501 277,076
Gross Margin Percent 33.9 34.9 35.4 34.9 34.4
Operating Income (1,2,3,5) 74,935 9,066 61,798 43,769 1,989
Design and Research Expense 27,472 33,682 30,151 24,513 20,725
Income (Loss) Before Income 70,096 4,039 63,473 42,354 (988)
Taxes (1,2,3,5)
Net Income (Loss) (1,2,3,4,5) 45,946 4,339 40,373 22,054 (14,145)
After-Tax Return on Net Sales 3.6 .4 4.2 2.6 (1.8)
(Percent; 1,2,3,4,5)
After-Tax Return on Average
Assets (Percent, 1,2,3,4,5) 6.8 .7 7.9 4.6 (2.9)
After-Tax Return on Average
Equity (Percent, 1,2,3,4,5) 15.4 1.5 13.9 7.8 (4.8)
Cash Flow from Operating Activities 124,458 29,861 69,764 82,588 77,000
Capital Expenditures 54,429 63,359 40,347 43,387 32,024
Depreciation and Amortization 45,009 39,732 33,207 31,600 30,473
COMMON SHARE DATA
Earnings per Share (1,2,3,4,5) 1.83 .18 1.60 .88 (.56)
Cash Dividends Declared per Share .52 .52 .52 .52 .52
Common Stock Repurchased 24,162 732 25,363 8,155 10,445
Cash Dividends Paid 13,015 12,868 13,098 13,002 13,113
Common Stock Repurchased plus
Cash Dividends Paid 37,177 13,600 38,461 21,157 23,558
Average Shares and Equivalents Outstanding 25,129 24,792 25,255 24,993 25,163
Book Value per Share at Year-End 12.26 11.57 11.73 11.36 11.14
Market Price per Share at Year-End 30.875 21.688 24.875 25.625 19.000
FINANCIAL CONDITION
Total Assets 694,911 659,012 533,746 484,342 471,268
Working Capital 115,878 39,575 50,943 62,711 66,545
Current Ratio 1.53 1.15 1.29 1.43 1.48
Interest-Bearing Debt 131,710 144,188 70,017 39,877 53,975
Long-Term Debt, less current portion 110,245 60,145 20,600 21,128 29,445
Shareholders' Equity 308,145 286,915 296,325 283,942 280,082
Total Capital 418,390 347,060 316,925 305,070 309,527
Interest-Bearing Debt
to Total Capital 29.9 33.4 19.1 12.3 16.2
Interest Expense 7,910 6,299 1,828 2,089 6,879
Interest Coverage Times (1,2,3,4,5) 9.9 1.6 35.7 21.3 .9
(1) Includes a $16.5 million pretax charge for the patent litigation
settlement in 1996. This charge decreased net income by $10.6 million, or
$.42 per share.
(2) 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.
(3) 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.
(4) Includes cumulative effect of change in accounting principle of $8.0
million after-tax expense, or $.31 per share in 1992.
(5) Includes loss on extinguishment of long-term debt of $2.7 million, or
$.11 per share in 1992.
-10-
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
The issues discussed in management's discussion and analysis should be read in
conjunction with the company's consolidated financial statements and the
related footnotes.
OVERVIEW
The company established new records for financial performance in fiscal 1996.
Net sales, new orders, earnings per share, and cash flows from operations were
all the highest ever recorded for a fiscal year. While the results were a
significant improvement over our recent history, they were in line with the
following financial performance targets established by the management team
during 1996:
Goal 1996 Actual
------- -----------
- Annual sales growth 15.0% 18.5%
-------------------------------------------------------------
- Annual net income growth (1) 15.0% 74.2%
-------------------------------------------------------------
- Operating expenses as a percent of
net sales (1, 2) 25.0% 26.8%
-------------------------------------------------------------
- Interest bearing debt to total capital 30.0% 29.9%
-------------------------------------------------------------
(1) Excludes a $16.5 million pre-tax charge for patent
litigation settlement in 1996 and $43.9 million of pre-tax
charges for restructuring and patent litigation costs in
1995.
(2) Management established a goal of 27.9 percent for fiscal
1996 and a long-term goal of 25.0 percent by the end of
fiscal 1998.
-------------------------------------------------------------
In the future, actual performance may fall short of these goals in some years,
but over the long term, management is committed to achieving or exceeding these
goals on average.
The 1996 financial results reflect the following key factors:
- - Increased domestic and international market share
- - Acquisitions in the U.S., Canada, and Italy
- - Cost reduction and operational improvement initiatives
- - Improved management of working capital
-11-
12
REVIEW OF OPERATIONS
DOMESTIC OPERATIONS
FISCAL GROWTH FISCAL GROWTH FISCAL GROWTH
In Thousands 1996 % 1995 % 1994 %
- ---------------------------------------------------------------------------------------
Net sales to
unaffiliated
customers $1,043,850 +16.7% $894,455 +10.1% $812,158 +10.6%
- ---------------------------------------------------------------------------------------
Net income $ 53,977 +643.0% $ 7,265 -82.9% $ 42,374 +38.1%
- ---------------------------------------------------------------------------------------
The company has gained market share in each of the past three fiscal years. As
shown above, the company's domestic sales have grown 16.7 percent in fiscal
1996, 10.1 percent in fiscal 1995, and 10.6 percent in fiscal 1994.
Comparatively, the Business and Institutional Furniture Manufacturers
Association ("BIFMA"), the office furniture trade association, reported that
United States industry sales increased approximately 4.8 percent, 9.2 percent,
and 6.9 percent in the past three fiscal years.
A key business strategy and capability has been, and continues to be, new
product design and development. The fiscal 1996 sales reflect a complete
renewal of our seating product lines. This renewal included updating our
Equa(R) and Ergon(R) product lines and adding two new award-winning products,
Aeron(R) and Ambi(R) seating. We believe that we now have the strongest work
chair product offering in the industry. The new seating products coupled
with unit volume growth in our core systems and filing product lines enabled us
to significantly increase sales in 1996 with very little change in net prices.
During 1996, we implemented a new management and business structure to enable
us to focus on two broad customer categories: those with complex needs and
those who seek value and convenience. Management believes that developing
unique capabilities to serve these two customer segments will enable the
company to grow at a faster rate than the industry.
A key component of the strategy is the development of a service business. Our
service capabilities will be primarily focused on furniture and transition
management. Our newest venture, Coro, Inc., will lead much of this initiative.
During 1996, Coro completed the acquisition of several of our privately owned
U.S. dealers. These dealers, along with privately owned dealers certified by
Coro, will be the foundation of a network of local service organizations. Each
of the transactions was immaterial on an individual basis; however, excluding
acquisitions, our domestic sales increase would have been 13.7 percent.
-12-
13
INTERNATIONAL OPERATIONS AND EXPORTS FROM THE UNITED STATES
FISCAL GROWTH FISCAL GROWTH FISCAL GROWTH
In Thousands 1996 % 1995 % 1994 %
- ---------------------------------------------------------------------------
Net sales to
affiliated
customers $240,081 +27.3% $188,595 +33.7% $141,042 +16.1%
- ---------------------------------------------------------------------------
Net income (loss) ($8,031) -174.5% ($2,926) -46.2% ($2,001) +76.8%
- ---------------------------------------------------------------------------
The year-over-year growth in sales from the company's international operations
and exports from the United States was primarily due to strong growth in the
United Kingdom and the impact of acquisitions in Italy and Canada at the end of
1995. Excluding the acquisitions, net sales increased 9.2 percent. The
increase in fiscal 1995 included $26.0 million attributable to acquisitions in
Germany and Mexico. Excluding the impact of acquisitions, net sales increased
15.3 percent in 1995. The remaining increases in 1995 and 1994 were primarily
due to higher unit volume.
Industry measures for international market growth are either not as
comprehensive as BIFMA's measures for the United States market or are not
available so as to permit meaningful comparisons. However, based on anecdotal
evidence, management believes the company increased its market share in the
international market in each of the three years.
Despite the significant increases in sales in each of the past three
years, the company's international operations have continued to lose money. In
1996, the net loss increased to $8.0 million from $2.9 million in 1995 and $2.0
million in 1994. The current year loss includes pre-tax charges for the
discontinuation of two product lines in Europe ($1.6 million) and provisions
for unrealizable barter receivables in Mexico ($2.5 million). In addition, the
company recorded a charge of approximately $1.0 million to reserve deferred
tax assets associated with its Mexican operations.
While overall results of international operations and exports from the United
States were disappointing, we have continued to make progress in selected
markets. Our operating results improved in the United Kingdom, Canada, and Asia
Pacific. This is the second consecutive year in which we have been profitable
in the United Kingdom after three years of losses. The progress made in these
markets was offset by increased losses in Mexico and Italy. The poor economic
conditions in Mexico resulted in a year-over-year net sales decline of 44.0
percent. Management has taken steps to reduce operating expenses in Mexico;
however, the company has not been able to realign it resource levels at the
same rate as sales have declined. The company has not been able to leverage the
product capabilities of Herman Miller Italia in other European markets as it
had planned. Therefore, we have fallen short of management's sales volume
goals, resulting in a net loss for this operation.
Management believes the capability to serve customers around the world is an
essential component of the company's strategy. During 1996, the management team
focused its efforts on improving the results of its domestic business, which
included cost reduction and containment measures, operational improvements, and
development of a new strategic direction. Establishing a strategy and action
plan for our international operations that will improve profitability and
provide for an adequate return on our investments is management's top priority
for fiscal 1997.
-13-
14
COST REDUCTION AND OPERATIONAL IMPROVEMENT INITIATIVES
1996 1996 (1) 1995 1995 (2) 1994
- ---------------------------------------------------------------------------------------------------
Gross margin 33.9% 33.9% 34.9% 34.9% 35.4%
- ---------------------------------------------------------------------------------------------------
Operating expenses 28.0% 26.8% 34.1% 30.0% 28.9%
- ---------------------------------------------------------------------------------------------------
Operating income 5.8% 7.1% .8% 4.9% 6.5%
- ---------------------------------------------------------------------------------------------------
(1) Excludes $16.5 million pre-tax charge for settlement of alleged patent
infringement.
(2) Excludes $31.9 million pre-tax charge for restructuring and $12.0 million
pre-tax charge for patent litigation costs.
In fiscal 1995, the company implemented two restructuring initiatives and
recorded $31.9 million in pre-tax restructuring charges. The first initiative
reconfigured the company's manufacturing and logistical operations. The
reconfiguration enabled 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. The
manufacturing changes also included transferring production of the company's
wood casegoods product line to Geiger International and closing our
manufacturing facility in North Carolina.
Management estimates that, in the fourth quarter of 1996, 44.0 percent of the
company's domestic sales were shipped directly to the customer compared with
24.0 percent in fiscal 1995. The manufacturing and logistical changes and
improved performance in meeting required delivery dates were the key reasons
the company was able to reduce the days sales outstanding in the sum of
accounts receivable and inventory to 75.6 days compared with 91.2 days and 80.9
days at the end of 1995 and 1994, respectively. In addition, the manufacturing
improvements have enabled the company to reduce the time required between the
receipt of a customer's order and the shipment of the product. This has enabled
us to respond more quickly to changes in demand.
Management also believes the reconfiguration significantly reduced the
company's fixed manufacturing overhead. However, the benefits of the
improvements were offset by unfavorable changes in discounts given to
customers. Gross margins declined to 33.9 percent in 1996, from 34.9 percent in
1995 and 35.4 percent in 1994. Gross margins have been relatively stable for
the past five quarters (refer to table below). The year-over-year decline was
primarily attributable to a decline in the third quarter of 1995, as a result
of a 3.5 percent increase in raw material prices. Raw material prices were
stable or declined slightly in fiscal 1996. Management expects gross margins to
be at or near 34 percent for fiscal 1997.
HISTORIC GROSS MARGIN TRENDLINE
1st Quarter 1995 36.0%
- ---------------------------
2nd Quarter 1995 35.6%
- ---------------------------
3rd Quarter 1995 34.2%
- ---------------------------
4th Quarter 1995 34.0%
- ---------------------------
1st Quarter 1996 34.2%
- ---------------------------
2nd Quarter 1996 34.0%
- ---------------------------
3rd Quarter 1996 33.1%
- ---------------------------
4th Quarter 1996 34.0%
- ---------------------------
-14-
15
The second restructuring initiative was the first step toward management's plan
to reduce the company's operating expenses to 25.0 percent of sales by the end
of fiscal 1998. The restructuring included reductions in administrative and
staff employment, elimination of nonessential consulting contracts and other
programs, and the discontinuation of a product development program at the
company's health-care subsidiary, Milcare. Selling, general, and administrative
expenses increased $18.2 million from $325.3 million in 1995, to $343.5 million
in 1996. The increase is primarily attributable to acquisitions and new ventures
($16.3 million), a 3.5 percent year-over-year increase in compensation and
benefits, increases in compensation costs that vary with profitability and sales
and the pre-tax charges recorded in Mexico for barter receivables. Management
will strive to obtain future reductions in operating expenses through stringent
cost containment, changes to systemic business process, and improvements in
international operations.
DESIGN AND RESEARCH EXPENDITURES
Design and research expenses $27.5 million in 1996, compared with $33.7 million
in 1995 and $30.2 million in 1994. As a percentage of net sales, design and
research expenses were 2.1 percent in 1996, 3.1 percent in 1995, and 3.2
percent in 1994. This percentage compares with an industry-wide rate of
approximately 1.5 percent of net sales. As previously stated, the company
considers its research and design capabilities to be a key component of the
company's strategy. In June of 1996, the company introduced three new product
lines at the industry's premier trade show, NeoCon. Herman Miller North America
introduced Arrio(TM) freestanding systems furniture, which integrates with the
company's Action Office(R) and Ethospace(R) system product lines. Miller SQA
introduced a new system product, the Q (TM) System, and a new stackable seating
product, the Limerick(TM) chair. Arrio furniture and Q System were judged best
new products in their respective product categories, and the Limerick was
runner-up in its category. The 1995 and 1994 expenditures reflect the company's
significant investments in its seating product lines, product development
programs for the European market, and the discontinued product development
program at Milcare.
PATENT LITIGATION SETTLEMENT AND OTHER CONTINGENCIES
On January 7, 1992, Haworth, Inc. ("Haworth") filed a lawsuit against the
company, alleging that the electrical systems used in 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.
-15-
16
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 case 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 position.
INCOME TAXES
The company's effective tax rate was 34.5 percent in 1996, compared to a
benefit of 7.4 percent in 1995 and 36.4 percent in 1994. The net tax benefit in
1995 was due to relatively small pre-tax earnings in domestic operations as a
result of the restructuring initiatives and poor operating results. In
addition, the company generated a net tax benefit from its corporate-owned life
insurance program and, to a lesser extent, improved operating results in the
United Kingdom and Japan allowed net operating loss carryforwards to be used.
The 1996 effective tax rate reflects the improved operating performance in the
company's domestic operations. The 1996 effective tax rate was benefited by the
completion of a sale and leaseback of the company's Roswell, Georgia, facility
and the sale of excess land to its captive insurance company. The completion of
these transactions resulted in the recognition of certain deferred tax assets
that were reserved for in previous periods. The 1994 effective tax rate is more
indicative of the company's historical effective tax rate. Management expects
its effective tax rate for 1997 to be in the range of 36 to 38 percent.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND DEBT FINANCING
Dollars In Thousands 1996 1995 1994
- ------------------------------------------------------------------
Cash and cash equivalents $ 57,053 $16,488 $22,701
- ------------------------------------------------------------------
Cash from operating activities $124,458 $29,861 $69,764
- ------------------------------------------------------------------
Days sales in accounts receivable and
inventory 75.6 91.2 80.9
- ------------------------------------------------------------------
Capital expenditures $54,429 $63,359 $40,347
- ------------------------------------------------------------------
Interest-bearing debt to total capital 29.9% 33.4% 19.1%
-16-
17
The improved cash flow from operations reflects the company's increased
profitability and a reduction in the cash used for working capital items,
offset by the settlement of patent litigation. As previously mentioned, the
working capital improvements are a result of the manufacturing and logistical
reconfiguration implemented over the last 18 months and other operational
improvements.
The 1996 capital expenditures were primarily spent for new facilities at two of
the company's fastest growing subsidiaries, Meridian and Miller SQA, new
product development, and machinery and equipment to improve operational
performance and expand capacity. The expenditures for capacity were primarily
for the new seating product lines.
Management expects capital expenditures to increase to $65 to $75 million in
1997. The largest capital expenditures planned for fiscal 1997 are the
completion of the Meridian facility, new product development, and investments
in information systems. Management believes the investments in information
technology will enable us to reach our long-term cost structure and operational
performance goals and network our service organizations and independent
dealers.
During fiscal 1996, the company began to redeploy cash invested in
nonproductive or nonessential assets. This effort includes a review of all our
facilities, land, and operating assets. We outsourced our assembly operation in
Japan and completed the sale of land and a building in Gotemba, Japan. We also
completed the sale of a facility in Irvine, California, which was being held
for investment purposes and had been leased to a third party. Lastly, we
outsourced our corporate flight operations, which enabled us to sell our
corporate jet and the facility it required. In total these transactions,
coupled with less significant transactions, resulted in a positive cash flow of
$13.5 million. We are in the process of evaluating several other changes which
would provide positive cash flow and reduce operating costs.
As previously discussed, in fiscal 1996, the company purchased various
privately owned United States dealers as part of our service strategy. These
local service organizations were acquired for approximately $11.7 million. The
consideration included 212,662 shares of Herman Miller common stock and
approximately $5.3 million in cash. The company expects to invest approximately
$20 million in acquiring additional local and regional service operations in
fiscal 1997.
During the third quarter of fiscal 1996, the company obtained $100.0 million of
long-term, fixed-rate debt financing with seven insurance companies. The
agreements vary in length from five to twelve years, and the first repayments
begin in 2000. The rate of interest ranges from 6.08 percent to 6.52 percent.
Prior to this transaction, all of the company's debt was variable rate,
pursuant to the company's revolving credit facilities. Management was not
comfortable with the heavy reliance on variable-rate debt and its committed
credit facilities. The proceeds from the private placement were used to reduce
outstanding balances on the company's long-term revolving credit agreements and
various uncommitted credit lines, restoring their availability. Total debt was
reduced from $144.2 million at the end of 1995 to $131.7 million at the end of
1996. In fiscal 1996, the company was able to fund its capital expenditures,
dividends, and common stock repurchases from cash flow from operating
activities.
At the end of fiscal 1996, the company's cash and cash equivalents were
significantly higher than previous periods. The increased cash and cash
equivalents reflect completion of the sale and leaseback of the company's
Roswell, Georgia, facility near the end of the fiscal year and outstanding cash
flow from operating activities in the fourth quarter. The company intends to
use
-17-
18
the cash and cash equivalents to repurchae shares of the company's common
stock, fund acquisitions related to the service strategy, and fund future
capital expenditures. Management believes the cash and cash equivalents,
combined with cash flow from operating activities, will be adequate to fund
operations, capital expenditures, acquisitions, and dividends. If necessary,
the company has $106.0 million in available committed credit facilities and
$56.7 million informal credit lines.
Management has established a target capital structure with a
debt-to-total-capital ratio of 30 to 35 percent. Cash in excess of
requirements for capital expenditures, acquisitions, and dividends will be used
to fund the repurchase of the company's common stock subject to market
conditions.
COMMON STOCK TRANSACTIONS
Dollars in Thousands 1996 1995 1994
Shares acquired 860,395 34,200 928,800
- -------------------------------------------------------------------------------
Cost of shares acquired $ 25,101 $ 732 $ 25,363
- -------------------------------------------------------------------------------
Cost per share acquired $ 29.17 $ 21.40 $ 27.31
- -------------------------------------------------------------------------------
Shares issued 731,773 260,613 548,876
- -------------------------------------------------------------------------------
Cost of shares issued $ 25.90 $ 21.49 $ 22.82
- -------------------------------------------------------------------------------
Dividends paid $ 12,999 $ 12,869 $ 13,043
- -------------------------------------------------------------------------------
Dividends per share $ .52 $ .52 $ .52
- -------------------------------------------------------------------------------
The Board of Directors first authorized the company to repurchase its common
stock in 1984 and has periodically renewed it authorization. In addition to the
shares repurchased during fiscal 1996, we repurchased 464,600 shares in the
first month of fiscal 1997. We have now repurchased 1,318,291 shares pursuant
to the 2.0 million share authorization approved by the Board of Directors in
May 1994. All of the share repurchases were made in the open market on an
unsolicited basis. Management and the Board of Directors believe the share
repurchase program is an excellent means of returning value to our shareholders
and preventing dilution from employee ownership programs. As a result, at the
July 1996 Board of Directors' meeting, the Board authorized the company to
repurchase an additional 2.0 million shares.
ECONOMIC VALUE ADDED
A primary objective of the company is to increase the value of a shareholder's
stake in the company. To aid and support the accomplishment of that objective,
the company has created and installed a performance measurement and
compensation system called "Economic Valued Added" (EVA(R)). EVA is an internal
measurement of operating and financial performance that extensive independent
market research has shown more closely correlates with shareholder value than
any other performance measure. Simply put, EVA is what remains of profits after
taxes once a charge for the capital employed in the business is deducted. As an
operating discipline, the main advantage of EVA is that it focuses management's
attention on the balance sheet as well as the income statement.
Herman Miller is effectively in competing for scarce capital resources.
Management's task is to put this scarce resource to work and earn the best
possible return for our shareholders. This means investing in projects that
earn a return greater than the cost of sourcing the funds from our investors.
As long as the company is making investments that earn a return higher than the
cost of capital, then the company's investors should earn a return in excess of
their expectations and the company's stock is likely to command a premium in
the market place.
-18-
19
The conventional accounting model is not always the best reflection of economic
profit and our long-term value, yet the research indicates long-term value is
most important to shareholders and the market. Herman Miller will obviously
continue to report financial results in accordance with generally accepted
accounting principles, but we also expect to report our progress in generating
economic profit. The table that follows summarizes the company's economic
profit or fiscal 1996 and approximates the amounts for the two previous years.
A critical feature of the new EVA measurement system is linking it to incentive
compensation. In fiscal 1997, the incentive compensation plans of corporate
officers, vice presidents, and directors at each of the business units will be
linked to the EVA concept. Under the terms of the EVA plan, focus is shifted
from budget performance to long-term continuous improvements in shareholder
value. The EVA target is raised each year by an improvement factor, so that
increasingly higher EVA targets must be attained in order to earn the same level
of incentive pay. The improvement is set by the Board of Directors for a period
of three years. During fiscal 1997, the company will begin to train all of its
employee owners in the EVA concept and will develop decision tools and incentive
plans which are aligned with our overall EVA goals.
Calculation of Economic Value Added
- ---------------------------------------------------------------------------
In Thousands 1996 1995 1994
- ---------------------------------------------------------------------------
Operating income $74,935 $9,066 $61,798
- ---------------------------------------------------------------------------
Adjust for:
- ---------------------------------------------------------------------------
Patent litigation and restructuring 16,535 43,900 --
- ---------------------------------------------------------------------------
Interest expense on noncapitalized leases(1) 4,316 4,215 4,120
- ---------------------------------------------------------------------------
Goodwill amortization 4,115 1,272 3,503
- ---------------------------------------------------------------------------
Other 3,071 1,121 300
- ---------------------------------------------------------------------------
Increase (decrease) in reserves 6,548 506 2,127
- ---------------------------------------------------------------------------
Capitalized design and research 1,984 3,450 2,370
-------- --------- --------
- ---------------------------------------------------------------------------
Adjusted operating profit 111,504 63,530 74,218
- ---------------------------------------------------------------------------
Cash taxes(2) (34,561) (18,317) (26,221)
-------- --------- --------
- ---------------------------------------------------------------------------
Adjusted operating profit after taxes 76,943 45,213 47,997
- ---------------------------------------------------------------------------
Weighted average capital employed(3) 605,438 532,760 445,593
- ---------------------------------------------------------------------------
Weighted average cost of capital(4) 11% 11% 11%
-------- --------- --------
- ---------------------------------------------------------------------------
Cost of capital 66,598 58,604 49,015
-------- --------- --------
- ---------------------------------------------------------------------------
Economic value added $10,345 ($13,391) ($1,018)
-------- --------- --------
- ---------------------------------------------------------------------------
(1) Imputed interest as if the total non-cancelable leases payments were
capitalized.
(2) The reported current tax provision is adjusted for the statutory tax
impact of interest income and expense.
(3) Total assets less non-interest bearing liabilities plus the LIFO,
doubtful accounts and Notes receivable reserves, amortized goodwill,
patent litigation costs and settlement, restructuring costs and
capitalized design and research expense. Design and research is
capitalized and amortized over 5 years.
(4) Management's estimate of the weighted average of the minimum equity and
debt returns required by the providers of capital.
(R)EVA is a registered trademark of Stern, Stewart & Co.
-19-
20
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Financial Data
Summary of the quarterly operating results on a consolidated basis.
June 1, 1996; June 3, 1995; May 28, 1994
In Thousands Except Per Share Data First Second Third Fourth
and Unaudited Quarter Quarter Quarter Quarter
-------- -------- -------- ----------
1996 Net sales $301,088 $328,393 $312,915 $341,535
Gross margin 102,879 112,653 103,415 115,999
Net income 12,014 4,955(1) 11,900 17,077
Net income per share $ .48 $ .20(1) $ .47 $ .68
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(2) 4,259 (9,300)(3)
Net income per share $ .32 $ .06(2) $ .17 $ (.37)(3)
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
(1) Includes a $16.5 million pretax charge for patent litigation settlement in
1996. This decreased net income by $10.6 million, or $.42 per share.
(2) Includes $15.5 million of pretax charges which decreased net income by $9.6
million, or $.39 per share.
(3) 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.
-20-
21
Consolidated Statements of Income
June 1, 1996; June 3, 1995; and May 28, 1994 1996 1995 1994
---- ---- ----
In Thousands Except Per Share Data
NET SALES $1,283,931 $1,083,050 $953,200
Cost of Sales 848,985 704,781 616,062
---------- ---------- ---------
GROSS MARGIN 434,946 378,269 337,138
---------- ---------- ---------
Operating Expenses:
Selling, general, and administrative 316,024 303,621 245,189
Design and research 27,472 33,682 30,151
Patent litigation settlement 16,515 -- --
Restructuring charges -- 31,900 --
---------- ---------- ----------
TOTAL OPERATING EXPENSES 360,011 369,203 275,340
---------- ---------- ----------
OPERATING INCOME 74,935 9,066 61,798
Other Expenses (Income):
Interest expense 7,910 6,299 1,828
Interest income (6,804) (6,154) (3,278)
Loss (gain) on foreign exchange 1,614 3,067 (1,464)
Other, net 2,119 1,815 1,239
---------- ---------- ----------
NET OTHER EXPENSES (INCOME) 4,839 5,027 (1,675)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 70,096 4,039 63,473
Income Taxes 24,150 (300) 23,100
---------- ---------- ----------
NET INCOME $45,946 $4,339 $40,373
---------- ---------- ----------
NET INCOME PER SHARE $1.83 $.18 $1.60
---------- ---------- ----------
The accompanying notes are an integral part of these statements.
-21-
22
Consolidated Balance Sheets
June 1, 1996, and June 3, 1995
In Thousands Except Per Share Data
ASSETS 1996 1995
---- ----
Current Assets:
Cash and cash equivalents $57,053 $16,488
Accounts receivable, less allowances of $10,423 in 1996 and
$7,180 in 1995 170,116 165,107
Inventories 65,730 71,076
Prepaid expenses and other 42,006 44,445
-------- --------
TOTAL CURRENT ASSETS 334,905 297,116
-------- --------
Property and Equipment:
Land and improvements 27,386 29,508
Buildings and improvements 159,353 150,910
Machinery and equipment 328,690 301,511
Construction in progress 20,679 31,526
----------- ------------
536,108 513,455
Less--accumulated depreciation 267,343 243,271
----------- ------------
NET PROPERTY AND EQUIPMENT 268,765 270,184
----------- ------------
Notes Receivable, less allowances of $4,415 in 1996 and $2,627 in 1995 39,212 43,734
Other Assets 52,029 47,978
----------- ------------
TOTAL ASSETS $694,911 $659,012
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Unfunded Checks $2,867 $ --
Current portion of long-term debt 317 452
Notes payable 21,148 83,591
Accounts payable 59,208 51,819
Accrued liabilities 135,487 121,679
------------ -----------
TOTAL CURRENT LIABILITIES 219,027 257,541
Long-Term Debt, less current portion above 110,245 60,145
Deferred Taxes 3,149 2,289
Other Liabilities 54,345 52,122
------------ -----------
TOTAL LIABILITIES 386,766 372,097
------------ ------------
Shareholders' Equity:
Preferred stock, no par value (10,000,000 shares authorized, none issued) -- --
Common stock, $.20 par value (60,000,000 shares authorized, 24,699,230
and 24,835,784 shares issued and outstanding in 1996 and 1995) 4,934 4,967
Additional paid-in capital 14,468 21,564
Retained earnings 303,578 270,631
Cumulative translation adjustment (11,633) (6,985)
Key executive stock programs (3,202) (3,262)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 308,145 286,915
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $694,911 $659,012
------------ ------------
The accompanying notes are an integral part of these balance sheets.
-22-
23
Consolidated Statements of Shareholders' Equity
In Thousands Common Additional Retained Cumulative Unearned Total
Except Per Share Data Stock Paid-In Earnings Translation Stock Grant Shareholders'
Capital Adjustment Compensation Equity
------- -------- -------- ----------- ------------ -------------
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) $286,915
Net income -- -- 45,946 -- -- 45,946
Cash dividends ($.52 per share) -- -- (12,999) -- -- (12,999)
Exercise of stock options 79 9,817 -- -- 31 9,927
Common stock issue pursuant
to employee stock purchase plan 18 2,258 -- -- -- 2,276
Repurchase and retirement of
860,395 shares of common stock (172) (26,006) -- -- 1,077 (25,101)
Common stock issued for acquisitions 43 6,425 -- -- -- 6,468
Stock grants earned -- -- -- -- 284 284
Stock grants forfeited (8) (639) -- -- 647 --
Stock grants issued 7 1,049 -- -- (1,467) (411)
Key executive stock purchase
assistance plan -- -- -- -- (512) (512)
Current year translation adjustment -- -- -- (4,648) -- (4,648)
------ -------- -------- --------- -------- --------
BALANCE JUNE 1, 1996 $4,934 $14,468 $303,578 $(11,633) $(3,202) $308,145
------ -------- -------- --------- -------- --------
The accompanying notes are an integral part of these statements.
-23-
24
Consolidated Statements of Cash Flows
June 1, 1996; June 3, 1995; and May 28, 1994 1996 1995 1994
--------- --------- ---------
In Thousands
Cash Flows from Operating Activities:
Net Income $45,946 $4,339 $40,373
--------- --------- ---------
Adjustments to reconcile net income
to net cash provided by operating activities 78,512 25,522 29,391
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 124,458 29,861 69,764
========= ========= =========
Cash Flows from Investing Activities:
Notes receivable repayments 455,973 428,375 360,047
Notes receivable issued (454,261) (436,434) (367,366)
Property and equipment additions (54,429) (63,359) (40,347)
Proceeds from sales of property and equipment 13,486 105 212
Net cash paid for acquisition (5,101) (17,721) (7,744)
Other, net (212) (8,705) (4,002)
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (44,544) (97,739) (59,200)
========= ========= =========
Cash Flows from Financing Activities:
Increase (decrease) in short-term debt (61,751) 32,834 24,090
Long-term debt borrowings 270,985 60,000 --
Long-term debt repayments (222,772) (20,246) (260)
Dividends paid (13,015) (12,868) (13,098)
Common stock issued 12,203 5,394 12,066
Common stock repurchased and retired (25,101) (732) (25,363)
Capital lease obligation repayments (250) (263) (276)
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (39,701) 64,119 (2,841)
========= ========= =========
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 352 (2,454) (1,553)
---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 40,565 (6,213) 6,170
========= ========= =========
Cash and Cash Equivalents, Beginning of Year 16,488 22,701 16,531
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $57,053 $16,488 $22,701
========= ========= =========
The accompanying notes are an integral part of these statements.
-24-
25
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 years ended June 1, 1996, and May 28, 1994, each contained 52 weeks. The
year ended June 3, 1995, contained 53 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 $58.1
million and $10.9 million as of June 1, 1996, and June 3, 1995, respectively.
The company's cash equivalents are considered "available for sale." As of June
1, 1996, the market value approximated the securities' cost. 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.
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 primarily 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, $3.9, and $2.7 million in 1996, 1995,
and 1994, respectively.
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 $9.5 and $5.6 million in 1996 and 1995,
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 1996, 1995, or
1994.
-25-
26
UNFUNDED CHECKS As a result of maintaining a consolidated cash management
system, the company utilizes controlled disbursement bank accounts. These
accounts are funded as checks are presented for payment, not when checks are
issued. A book overdraft position of $2.9 million is included in current
liabilities as unfunded checks at June 1, 1996. The company was not in an
overdraft position at June 3, 1995.
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 related liabilities are included in the accompanying financial
statements. The company's policy is to accrue amounts equal to the actuarially
determined liabilities. The actuarial valuations are based on historical
information along with certain assumptions about future events. Changes in
assumptions for such matters as legal actions, medical costs, and changes in
actual experience could cause these estimates to change in the near term.
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 $24.5, $31.3,
and $26.7 million in 1996, 1995, and 1994, respectively.
INCOME TAXES Deferred tax assets and liabilities are recognized 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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
ACQUISITIONS
During 1996 and 1995, 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 date of the
acquisition. The cost of the acquisitions in excess of net tangible assets
acquired has been recorded as goodwill. During 1996, the company purchased
various privately owned United States dealers. These companies were acquired
for approximately $11.7 million. The consideration included 212,662 shares of
Herman Miller common stock and approximately $5.3 million in cash.
-26-
27
During 1995, the company purchased Geneal GmbH, a privately owned office
furniture company in Essen, Germany. The company also purchased a division of
B&B Italia, a privately owned office furniture company in Milan, Italy. In
addition, the company purchased various privately owned United States and
Canadian dealers. These companies were acquired for approximately $21.2
million, which resulted in approximately $9.0 million in goodwill.
The results of the acquisitions in both fiscal 1996 and 1995 were not material
to the company's consolidated operating results.
INVENTORIES
In Thousands 1996 1995
Finished products $24,787 $26,260
Work in process 10,896 8,074
Raw materials 30,047 36,742
------- -------
$65,730 $71,076
------- -------
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 $30.7 and $41.1 million at June 1,
1996, and June 3, 1995, respectively.
If all inventories had been valued using the first-in, first-out method,
inventories would have been $16.4 and $18.1 million higher than reported at
June 1, 1996, and June 3, 1995, respectively.
-27-
28
PREPAID EXPENSES AND OTHER
In Thousands 1996 1995
$21,006 $27,305
21,000 17,140
---------- --------
$42,006 $44,445
---------- --------
1996 1995
$54,124 $33,465
Current deferred income taxes 7,493 20,619
Other -- 12,000
ACCRUED LIABILITIES 11,931 9,177
In Thousands 61,939 46,418
Compensation and employee benefits ---------- --------
Restructuring reserves $135,487 $121,679
Litigation costs ---------- --------
Other taxes 1996 1995
Other $20,522 $18,322
OTHER LIABILITIES 33,823 33,800
In Thousands ---------- --------
Postretirement benefits 54,345 $52,122
Other ---------- --------
NOTES PAYABLE 1996 1995
Outstanding short-term borrowings are shown below: $-- $58,012
In Thousands 21,148 25,579
United States dollar ---------- --------
Other currencies $21,148 $83,591
---------- --------
The following information relates to short-term borrowings in 1996:
Domestic Foreign
Weighted average interest rate at June 1, 1996 -- 6.9%
Weighted average interest rate during 1996 6.3% 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 totaling $56.7 million and
unsecured revolving credit loans totaling $100.0 million.
LONG-TERM DEBT
In Thousands 1996 1995
$70,000 $--
15,000 --
15,000 --
10,000 --
Series A senior notes, 6.37%, due March 5, 2006 -- 60,000
Series B senior notes, 6.08% due March 5, 2001 562 597
Series C senior notes, 6.52%, due March 5, 2008 -------- --------
Finance lease obligation $110,562 $60,597
Unsecured revolving credit loan 317 452
Other -------- --------
Less current portion $110,245 $60,145
-------- --------
During the third quarter of 1996, the company entered into a private placement
of $100.0 million of senior notes with seven insurance companies. The Series A,
B, and C notes have interest-only payments until March 5, 2000, March 5, 2001,
and March 5, 2004, respectively.
-28-
29
The unsecured revolving credit loan provides for a $100.0 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. Interest is payable periodically
throughout the period a borrowing is outstanding. During 1996 and 1995, the
company borrowed at a negotiated rate of 6.0 and 5.1 percent, respectively.
Provisions of the senior notes and the unsecured revolving senior revolving
credit loan limit, without prior consent, the company's 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 1, 1996, the company
was in compliance with all these provisions.
During May 1996, the company entered into an agreement for the sale and
leaseback of its Roswell, Georgia, facility. The company has an early buyout
option at the end of three and one-half years at an amount equal to
approximately 103.03 percent of the lessor's cost. The company also has a
purchase option at the end of six years at an amount equal to the facility's
then fair market value. If the purchase option is not exercised, the lease
automatically renews for an additional 30 months. The company has guaranteed a
residual value of 59.0 percent of the lessor's cost. The lease has been
accounted for as a financing in accordance with Statement of Financial Account
Standards No. 98.
The book value and associated depreciation of the facility are approximately
$13.9 million and $6.3 million, respectively.
Annual maturities of long-term debt for the five years subsequent to June 1,
1996, (in millions) are as follows: 1997--$.3; 1998--$.2; 1999--$.1;
2000--$10.0; 2001--$25.0; and thereafter--$75.0.
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 1, 1996, are as follows: 1997--$20.2; 1998--$13.6; 1999--$9.2;
2000--$7.7; 2001--$6.4; thereafter--$14.7.
Total rental expense charged to operations was $23.9, $18.0, and $18.3 million
in 1996, 1995, and 1994, respectively. Substantially all such rental expense
represented the minimum rental payments under operating leases.
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 wood casegoods
manufacturing in the Sanford, North Carolina, facility and discontinuance of
manufacturing there, and the transfer of products produced there to Geiger
International of Atlanta, Georgia, a respected contract provider of quality
wood casegoods.
-29-
30
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 health-care
subsidiary, Milcare.
The $31.9 million total pretax restructuring charge consisted of facilities and
equipment writeoffs ($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 closing 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 1996 were as
follows:
June 3, 1995 Costs paid Ending
In Thousands Balance or charged Balance
Facilities and equipment $10,829 $5,499 $5,330
Termination benefits 12,279 10,394 1,885
Other exit costs 1,310 1,032 278
------- ---------- -------
$24,418 $16,925 $7,493
------- ---------- -------
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 1996 1995 1994
Service cost benefits earned during the year $8,688 $8,276 $7,223
Interest cost on projected benefit obligation 10,588 9,239 8,074
Return on assets:
Actual (27,468) (13,391) (4,417)
Deferred gain (loss) 18,582 5,767 (2,631)
Net amortization (224) 106 (170)
Cost of early retirement incentive program 479 1,700 --
-------- -------- -------
Net pension cost $10,645 $11,697 $8,079
-------- -------- -------
-30-
31
The following table presents a reconciliation of the funded status of the plans
and the amount recorded in the accompanying balance sheets:
In Thousands 1996 1995
Plan assets at fair market value $145,678 $115,727
----------- ---------
Actuarial present value of benefit obligations:
Vested benefits (102,236) (84,726)
Nonvested benefits (2,271) (4,929)
----------- ---------
Accumulated benefit obligation (104,507) (89,655)
Effect of projected future salary increases (53,618) (50,718)
----------- ---------
Projected benefit obligation (158,125) (140,373)
----------- ---------
Projected benefit obligation in excess of
plan assets at fair market value (12,447) (24,646)
Unrecognized net asset from date of adoption of SFAS No. 87(3,051) (3,836)
Unrecognized net gain from past experience different from that
assumed, and changes in assumptions (1,013) 17,010
Unrecognized prior service cost (218) (661)
----------- ---------
Accrued pension cost included in accrued and other liabilities $(16,729) $(12,133)
----------- ---------
The assumptions used in the determination of net pension cost were as follows:
1996 1995 1994
Discount rate 7.5% 7.5% 7.5%
Rate of salary progression 5.0% 5.0% 5.0%
Long-term rate of return on assets 7.5% 7.5% 7.5%
Plan assets consist primarily of listed common stocks, mutual funds, and
corporate obligations. Plan assets at June 1, 1996, and June 3, 1995, included
327,672 shares of Herman Miller, Inc., common stock.
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 $4.5, $2.6, and $2.9 million in 1996, 1995, and
1994, 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 1996 1995 1994
Service cost $1,140 $986 $868
Interest cost on accumulated benefit obligation 1,496 1,305 1,192
Cost of early retirement program -- 400 --
Net amortization (39) (44) (25)
------ ------ ------
Net postretirement benefit cost $2,597 $2,647 $2,035
------ ------ ------
-31-
32
The following table presents a reconciliation of the plan's funded status with
amounts recognized in the accompanying balance sheets:
In Thousands 1996 1995
Accumulated postretirement benefit obligation:
Retirees $ (8,823) $(7,688)
Fully eligible active plan participants (202) (135)
Other active plan participants (13,212) (12,090)
Unrecognized prior service cost (1,031) (1,081)
Unrecognized net loss 2,250 1,872
--------- ---------
Accrued postretirement benefit obligation $ (21,018) $(19,122)
--------- ---------
The accumulated postretirement benefit obligation was computed using an assumed
discount rate of 7.5 percent for June 1, 1996, and June 3, 1995.
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 8.0 percent for 1997,
and is assumed to decrease gradually to 6.0 percent for 2001 and remain at that
level thereafter. A 1.0 percent increase in this annual trend rate would have
increased the accumulated postretirement benefit obligation at June 1, 1996, by
$.8 million, with an immaterial effect on 1996 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 1, 1996, there were 140
employees and 11 nonemployee officers and directors eligible, all of whom were
participants in the plans. At June 1, 1996, there were 804,900 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 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
Granted 403,900 24.75-32.19 30.28
Exercised (393,170) 18.63-29.43 23.56
Terminated (84,120) 21.00-29.13 25.56
---------------- --------------- ----------------
Outstanding at June 1, 1996 1,215,960 $18.63-34.63 $25.89
---------------- --------------- ----------------
Exercisable at June 1, 1996 840,360 $18.63-34.63 $23.91
---------------- --------------- ----------------
EMPLOYEE STOCK PURCHASE PLAN
Under the terms of the company's 1987 Employee Stock Purchase Plan, 3.1 million
shares of authorized common stock were reserved for purchase by plan
participants at 85.0 percent of the market price. At June 1, 1996, 1,003,462
shares remained available for purchase through the plan, and there were 4,562
employees eligible to participate in the plan, of which 1,359 or 29.8
-32-
33
percent, were participants. Employees purchased 89,222 shares, at prices
ranging from $22.32 to $27.36, during the year. Total receipts to the
company were $2.3 million. Since the inception of the employee stock purchase
program in 1977, employees have purchased a total of 2,057,149 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 1996, 36,720 shares were granted under the company's
long-term incentive plan, 37,932 shares were forfeited, and the forfeiture
provisions expired on 8,091 shares. As of June 1, 1996, 48,086 shares remained
subject to forfeiture provisions and 45,977 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
$.3, $.2, and $.5 million in 1996, 1995, and 1994, 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 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 7.0 percent per annum. Interest is payable annually and
principal is due on September 1, 2000. As of June 1, 1996, the notes
outstanding relating to the exercise of options were $1.6 million and are
presented as a separate component of shareholders' equity. Notes outstanding
related to open market purchases were $2.2 million and are recorded in other
assets. Compensation expense related to earned repayment was $1.7 million in
1996 and immaterial in 1995.
INCOME TAXES
Pre-tax income consisted of the following:
In Thousands 1996 1995 1994
Domestic $77,169 $13,418 $71,150
Foreign (7,073) (9,379) (7,677)
------- -------- -------
$70,096 $4,039 $63,473
------- -------- -------
-33-
34
The provision (credit) for income taxes consisted of the following:
In Thousands 1996 1995 1994
Current: Domestic--Federal $15,725 $18,104 $24,780
Domestic--State 1,615 935 1,213
Foreign (527) (1,580) (1,338)
------- -------- -------
$16,813 $17,459 $24,655
------- -------- -------
Deferred: Domestic--Federal 6,115 (15,137) (1,097)
Domestic--State 50 (1,951) 187
Foreign 1,172 (671) (645)
------- -------- -------
7,337 (17,759) (1,555)
------- -------- -------
$24,150 $(300) $23,100
------- -------- -------
The following table represents a reconciliation of income taxes at the United
States statutory rate with the effective tax rate follows:
In Thousands 1996 1995 1994
Income taxes computed at the United States statutory
rate of 35% $24,534 $ 1,414 $22,216
Increase (decrease) in taxes resulting from:
Corporate-owned life insurance (3,302) (1,842) (458)
Changes in valuation allowance (2,762) -- --
Additional reserves provided 2,834 -- --
State taxes, net 1,082 (660) 910
Foreign net operating losses -- 735 586
Other 1,764 53 (154)
------- ------- -------
$24,150 $(300) $23,100
------- ------- -------
The tax effects and types of temporary differences that give rise to
significant components of the deferred tax assets and liabilities at June 1,
1996, and June 3, 1995, are presented below:
In Thousands 1996 1995
Deferred tax assets:
Foreign net operating loss carryforwards $22,475 $20,594
Compensation related accruals 11,164 9,371
Restructuring charge accruals 2,774 9,242
Accrued postretirement benefit obligation 7,410 6,566
Accrued litigation costs -- 4,200
Long-term capital loss carryforwards -- 5,497
Insurance accruals 1,843 3,144
Reserve for uncollectible accounts and notes receivable 2,551 2,558
Other 20,224 13,984
Valuation allowance (22,475) (25,237)
--------- ---------
$45,966 $49,919
--------- ---------
Deferred tax liabilities:
Book basis in property in excess of tax basis $(17,058) $(18,230)
Prepaid employee benefits (3,037) (2,457)
Other (8,014) (4,038)
--------- ---------
$(28,109) $(24,725)
--------- ---------
-34-
35
The company has foreign net operating loss carryforwards, the tax benefit of
which is $22.5 million, of which $9.9 million expires at various dates through
2006, and of which $12.6 million has unlimited expiration. For financial
statement purposes, the tax benefit of the foreign net operating loss
carryforward has been recognized as a deferred tax asset, subject to a
valuation allowance.
Changes in the valuation allowance reflects the utilization of the company's
capital loss carryforwards which served to offset capital gains recognized on
the sale and leaseback of the Roswell, Georgia, facility (see the long-term
debt note for a description of the lease) and on certain excess land sold to
the company's captive insurance company. In addition, an allowance was recorded
against the net operating loss carryforward at the company's foreign
subsidiaries.
The company has not provided for United States income taxes on undistributed
earnings of foreign subsidiaries totaling $32.7 million. Recording of deferred
income taxes on these undistributed earnings is not required, since 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 approximates 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 1, 1996, and June 3, 1995, 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 was either
negotiated in the near term or reprices frequently at the then-prevailing
market interest rates. As of June 1, 1996, and June 3, 1995, 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 1, 1996, the
company had no outstanding derivative financial instruments. At June 3, 1995,
the company had outstanding $7.2 million, 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, the 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 1996 and 1995 were not material to
the company's results of operations.
-35-
36
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following table presents a reconciliation of net income to net cash
provided by operating activities:
In Thousands 1996 1995 1994
Depreciation and amortization $45,009 $39,732 $33,207
Restructuring charges -- 31,900 --
Provision for losses on accounts and notes receivable 4,635 1,405 3,481
Loss on sales of property and equipment 120 1,077 1,832
Deferred taxes 7,337 (17,759) (1,555)
Other liabilities 1,468 6,587 8,258
Stock grants earned 284 207 461
Changes in current assets and liabilities:
Decrease (increase) in assets:
Accounts receivable 4,295 (39,901) (7,151)
Inventories 11,042 (9,239) (3,671)
Prepaid expenses and other (5,009) (3,912) (3,352)
Increase (decrease) in liabilities:
Accounts payable 627 8,674 1,123
Accrued liabilities 8,704 6,751 (3,242)
---------- -------- --------
19,659 (37,627) (16,293)
---------- -------- --------
Total adjustments $78,512 $25,522 $29,391
---------- -------- --------
Cash payments for interest and income taxes were as follows:
In Thousands 1996 1995 1994
Interest paid $9,526 $6,296 $1,799
Income taxes paid 13,883 16,095 25,784
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 1, 1996 (25,128,735 in 1996; 24,792,057 in 1995; 25,254,743 in 1994).
CONTINGENCIES
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 the terms of a
settlement.
The lawsuit, filed in January 1992, alleged that certain electrical products,
which the company offered, infringed two patents held by Haworth. Haworth has
sued Steelcase, Inc., in 1985, claiming that Steelcase's products infringed
those same two patents. In 1989, Steelcase was held to infringe the patents,
and the matter was referred to private dispute resolution to resolve the issue
of damages. The patents at issue expired prior to December 1, 1994.
Since the date of initial claim, the company has always been advised by our
patent litigation counsel that it was more likely than not to prevail on the
merits; however, the mounting legal costs, distraction of management focus, and
the uncertainty present in any litigation made this settlement something which
the company determined is the best interest of its shareholders.
-36-
37
Under the settlement agreement, Herman Miller paid Haworth $44.0 million in
cash in exchange for a complete release. The release also covers Herman
Miller's customers and suppliers. The companies have exchanged limited
covenants not to sue with respect to certain existing and potential patent
rights. Haworth has agreed not to sue under United States Patent 4,682,984
which refers to a construction process for making storage cabinets. In
addition, Haworth has granted a limited covenant not to sue with respect to
certain potential future patent rights on panel construction. Haworth received
a limited covenant under three United States Patents--5,038,539; 4,685,255; and
4,876,835--all relating to one of the company's system product lines.
The company simultaneously reached a settlement with one of its suppliers. The
supplier agreed to pay Herman Miller $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 $11.0 million, plus interest, will be paid in annual
installments over a seven-year period. Herman Miller is also exploring the
possibility of claims against other third parties.
The company recorded net litigation settlement expense of $16.5 million, after
applying previously recorded reserves and the settlement with the supplier, in
the second quarter of fiscal 1996.
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 the 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 also involved in legal proceedings and litigation arising in the
ordinary course of business. In the opinion of management, the outcome of such
proceedings and litigation currently pending will not materially affect the
company's consolidated financial statements.
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 1, 1996; June 3, 1995; and May 28, 1994. 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 10.0 percent of consolidated net sales.
-37-
38
In Thousands Foreign Adjustments
Operations and
United States and Export Eliminations Consolidated
1996
Sales to unaffiliated customers $1,043,850 $240,081 $ -- $1,283,931
Transfers between geographic areas 34,667 13,176 (47,843) --
---------- ---------- ------------ ------------
Net Sales $1,078,517 $253,257 $ (47,843) $1,283,931
---------- ---------- ------------ ------------
Net income (loss) $ 53,977 $ (8,031) $ -- $ 45,946
---------- ---------- ------------ ------------
Identifiable assets $ 532,371 $105,487 $ -- $ 637,858
---------- ---------- ------------ ------------
Corporate assets 57,053
------------
Total assets $ 694,911
------------
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
------------
-38-
39
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 1, 1996, and June 3,
1995, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended June 1, 1996.
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 1, 1996, and June 3, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 1, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Grand Rapids, Michigan
June 28, 1996
-39-
40
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
Brian C. Walker, Chief Financial Officer
June 28, 1996
-40-
41
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 1, 1996.
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 26, 1996, relating to
the company's 1996 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."
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.
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 26, 1996, relating to the company's 1996 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 26, 1996, relating to the company's 1996 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 26, 1996, relating to the company's 1996 Annual
Meeting of Shareholders is incorporated by reference.
-41-
42
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 21
Consolidated Balance Sheets 22
Consolidated Statements of Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Report of Independent Public Accountants 39
Management's Report on Financial Statements 40
(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
on Financial Statement Schedule 44
Consent of Independent Public Accountants 45
-42-
43
Page Number in
this Form 10-K
Schedule VIII- Valuation and Qualifying
Accounts and Reserves for the
Years Ended June 1, 1996; 47
une 3, 1995; and May 28, 1994
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 49 through
51 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 1, 1996.
-43-
44
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 28,
1996. 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 28, 1996
-44-
45
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, 2-84202, 33-04369, 33-04367, and 33-04365.
/s/ Arthur Andersen LLP
-------------------------
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
August 22, 1996
-45-
46
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) (Chief Financial Officer)
Date: August 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on August 22, 1996, 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/ David L. Nelson /s/ Michael A. Volkema
----------------------- ------------------------------------
David L. Nelson 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/ Richard H. Ruch /s/ C. William Pollard
----------------------- ------------------------------------
Richard H. Ruch C. William Pollard
(Director) (Director)
/s/ Charles D. Ray /s/ Ruth A. Reister
----------------------- ------------------------------------
Charles D. Ray Ruth A. Reister
(Director) (Director)
/s/ H. Harold Chandler
-----------------------
J. Harold Chandler
(Director)
-46-
47
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 1, 1996:
Allowance for possible losses
on accounts receivable $7,180 $3,816 $573 $10,423
Allowance for possible losses
on notes receivable $2,627 $2,573 $785 $4,415
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
(1) Includes effects of foreign currency translation.
-47-
48
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) Note Purchase Agreement dated March 1, 1996,
is incorporated by reference to Exhibit 4(b) of the
Registrant's 1996 Form 10-K Annual Report. 49-133
(c) 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. *
(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) Herman Miller, Inc., 1994 Key Executive Stock
Purchase Assistant Plan, dated October 6, 1994, is
incorporated byreference to Appendix C of the Registrant's
1994 Proxy Statement. *
(g) Incentive Share Grant Agreement, dated October 4, 1995, 134-141
between the company and Michael A. Volkema is incorporated
by reference to Exhibit 10(g) of the Registrant's 1996 Form
10-K Annual Report. *
(h) Incentive Share Grant Agreement, dated May 15, 1996, 142-149
between the company and Michael A. Volkema is incorporated
by reference to Exhibit 10(h) of the Registrant's 1996 Form
10-K Annual Report. *
(i) Termination and Mutual Release Agreement, dated March 27, 150-157
1996, between the company and Hansjorg Broser is
incorporated by reference to Exhibit 10(i) of the
Registrant's 1996 Form 10K Annual Report. *
(j) Herman Miller, Inc., Long-Term Incentive
Plan, dated October 6, 1994, is incorporated by
reference to Exhibit 4 of the Registrant's May
22, 1996, Form S-8 Registration No. 33-04369*
(k) Herman Miller, Inc., 1994 Nonemployee
Officer and Director Stock Option Plan, dated
October 6, 1994, is incorporated by reference
to Exhibit 4 of the Registrant's May 22, 1996,
Form S-8 Registration No. 33-04367 *
* denotes compensatory plan or arrangement.
(11) Computation of Per Share Earnings. 158
(22) Subsidiaries. 159
(27) Financial Data Schedule (exhibit available upon request)
-48-