Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MLHR > SEC Filings for MLHR > Form 10-Q on 11-Apr-2013All Recent SEC Filings

Show all filings for MILLER HERMAN INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MILLER HERMAN INC


11-Apr-2013

Quarterly Report


Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is management's discussion and analysis of certain significant factors that affected the company's financial condition, earnings and cash flow during the periods included in the accompanying condensed consolidated financial statements and should be read in conjunction with the company's Annual Report on Form 10-K for the fiscal year ended June 2, 2012. References to "Notes" are to the footnotes included in the condensed consolidated financial statements.

Discussion of Current Business Conditions The third quarter of fiscal 2013 and 2012 included 13 weeks of operations. Fiscal year 2013 year-to-date included 39 weeks of operations as compared to 40 weeks in the prior year period. The extra week in the prior year is required approximately every six years in order to re-align our fiscal reporting dates with the actual calendar months. This is a factor that should be considered when comparing our financial results to the prior year period.

The macro-economic backdrop to our business remained fairly consistent throughout the third quarter - with relative health in some measures being offset by continued weakness in others. While the United States economy has been tepid, it is growing. The U.S. housing market appears poised for a rebound, and employers are beginning to hire as productivity gains are nearly exhausted. Office vacancy rates remain high - a factor offering some companies a positive incentive to move, which typically leads to demand for our products and services. This relatively encouraging picture is offset by uncertainty surrounding the ongoing tax and spending policy debates within the U.S. federal government. While the fiscal policy debate is likely to impact other regions of the world, Asia continues to grow, albeit at a slower rate than the past few years. The European economy remains weak and there appears little prospect of recovery in the near term. While Europe will impact us, we do not have a significant presence on the continent and we leverage our capabilities in the UK to serve the Middle East and other countries in the region. Assuming U.S. policy makers can forge a meaningful, long-term fiscal resolution in the months ahead, we expect U.S. office furniture will continue to grow in calendar 2013. A recovery in housing should help our consumer business, and we believe the long term demographics of U.S. healthcare and emerging economies of Brazil, Russia, India and China are positively aligned with our strategy.

The Business Institutional Furniture Manufacturers Association's ("BIFMA") most recent domestic industry forecast was released in February 2013. This forecast anticipates that orders and shipments for calendar 2013 will increase approximately 3.4 and 2.1 percent, respectively.

Our consolidated net sales in the third quarter totaled $423.5 million, 5.9 percent higher than the same quarter last fiscal year. This sales performance fell short of the $430 million to $450 million revenue range we were expecting at the start of the quarter. While it is not unusual for January to be a soft point in the year, the month of January was particularly soft and ultimately proved to be a bigger hurdle than we expected coming into the period. However, our results for the full quarter reflect encouraging progress in a number of areas, including a return to year-on-year growth after four straight periods of decline. It's also important to note that while January orders were lower than we expected, we saw a marked improvement in orders through February, and this positive momentum has continued into March. The order improvement in the third quarter resulted in orders of $382.2 million, 6.0% higher than the prior year period. Backlog at the end of the quarter was $266.6 million, a 9.4% increase compared to the prior year period.

Gross margin for the quarter of 34.1% significantly exceeded our forecast. A number of factors contributed to this improvement, including improved labor efficiency and strong growth in our higher margin product categories and businesses. We are seeing results from our growth strategy of investing in higher margin products and categories in all segments of our business.

In our North American Furniture Solutions segment, revenue was up approximately 2 percent, while orders were up more than 8 percent from the third quarter of last fiscal year. While demand from the U.S. federal government remains a headwind to year-on-year revenue growth, this was more than offset by broad-based strength across the remaining major industry sectors in North America. Fueling that growth are the investments we're making in higher margin products, including the Thrive Portfolio, and adjacent markets.

We also made progress this quarter strengthening our distribution channel in North America. Late in the quarter we completed the sale of a company-owned dealership. This transaction combines our Florida dealership with a group of existing dealer locations previously aligned with a major competitor; creating the largest commercial interiors distributor in the state of Florida.

The Specialty and Consumer segment posted net sales in the third quarter of $47.3 million, a 13% improvement over the same quarter last fiscal year. Segment orders decreased 2% on a year-over-year basis; however, we posted double-digit growth within the Herman Miller Collection ("Collection"). A key strategic aim for the segment, and particularly for the Collection, is the enhancement of our overall brand. We believe the Collection has successfully begun to increase brand recognition and appreciation among design specifiers, business end-users, and consumers. We're continuing to expand our Collection portfolio by reissuing iconic Herman Miller designs, updated with today's materials and technology, and by introducing wholly new designs.


The Non-North American reportable segment reported net sales of $90.8 million for the quarter. This represents a 16.7% increase from the year ago period. Orders in the quarter of $80.8 million were up 2.9% on a year-over-year basis. The growth in revenue and orders was driven by the acquisition of POSH Office Systems, Ltd. ("POSH"), which the company acquired in April 2012. Beyond this contribution from POSH, we experienced varying rates of growth and decline by region, which in total combined for flat sales and a decrease in orders on a year-over-year basis. Regional volatility is not uncommon within our international business given that it is generally more project dependent than North America. Despite this regional volatility, we have a strong international position, with a growing offer of products appropriate to both mature and developing markets, an expanding brand and dealer presence, and the regional teams to capitalize on our momentum.

As previously announced, in order to improve the predictability of cash flows and expenses associated with our employee benefit programs, we intend to terminate our U.S. defined benefit pension plans in favor of a new defined contribution retirement program. During the second quarter of fiscal 2013, we converted active employees to this new defined contribution program. Concurrent with this change, effective September 1, 2012, we ceased ongoing benefit accruals under the defined benefit pension plans that we plan to terminate in the future. We expect the termination process for the defined benefit pension plans to be completed during the second quarter of fiscal 2014. At the time of termination, we will be required to make additional cash contributions to the plans, which we currently estimate will total between $50 million to $55 million.

Our results for the three and nine months ended March 2, 2013 include expenses associated with the transition from (and planned termination of) the domestic defined benefit pension plans. These expenses, referred to as, "legacy pension costs" throughout this document, include settlements caused by the transition and net periodic benefit expenses, subsequent to September 1, 2012, related to the defined benefit plans in question. They also include incremental pension expenses in the first quarter of fiscal 2013 resulting from modifications we made to the investment strategy of our defined benefit plan assets in order to prepare for the termination process. We recognized legacy pension costs totaling $4.0 million and $24.5 million in the three and nine months ended March 2, 2013, respectively. Of this amount, approximately $3 million and $22 million are recorded within Operating Expenses in the three and nine months ended March 2, 2013, respectively. The remaining portion is included in Cost of Sales, thus reducing gross margin by 20 basis points for both periods.

We announced two increases in our quarterly cash dividend - moving it from $0.022 to $0.125 per share. The increases were driven by improvements we've made to our balance sheet in recent years, including reductions in outstanding debt levels and progress toward the termination of our domestic defined benefit pension plans. In total, cash dividends paid were $5.3 million in the third quarter of fiscal 2013 compared to $1.3 million in the third quarter of last fiscal year. Through the first nine months of fiscal 2013, dividend payments totaled $11.8 million compared to $3.8 million in the same period last fiscal year.

The remaining sections within Item 2 include additional analysis of our three and nine months ended March 2, 2013, including discussion of significant variances compared to prior year periods.

Analysis of Third Quarter Results
The following table presents certain key highlights from the results of
operations for the periods indicated.
(In millions, except
per share data)                       Three Months Ended                                 Nine Months Ended
                         March 2, 2013       March 3, 2012     Percent      March 2, 2013       March 3, 2012     Percent
                                                                Change       (39 weeks)          (40 weeks)        Change
Net Sales              $         423.5     $         399.8        5.9 %   $       1,315.0     $       1,303.5       0.9  %
Gross Margin                     144.4               134.2        7.6               442.6               440.6       0.5
Operating Expenses               117.0               108.9        7.4               362.2               332.8       8.8
Restructuring and
other related expenses               -                   -          -                 1.2                   -         -
Operating Earnings                27.4                25.3        8.3                79.2               107.8     (26.5 )
Net Earnings                      16.5                14.9       10.7                44.8                63.2     (29.1 )
Earnings per share -
diluted                           0.28                0.26        7.7                0.76                1.08     (29.6 )
Orders                           382.2               360.5        6.0     $       1,310.0     $       1,281.9       2.2  %
Backlog                $         266.6     $         243.8        9.4 %


The following table presents, for the periods indicated, the components of the company's Condensed Consolidated Statements of Operations and Comprehensive Income as a percentage of net sales.

                                Three Months Ended                  Nine Months Ended
                         March 2, 2013     March 3, 2012    March 2, 2013      March 3, 2012
Net Sales                      100.0 %            100.0 %         100.0 %           100.0 %
Cost of Sales                   65.9               66.4            66.3              66.2
Gross Margin                    34.1               33.6            33.7              33.8
Operating Expenses              27.6               27.2            27.5              25.5
Restructuring and other
related costs                      -                  -             0.1                 -
Operating Earnings               6.5                6.3             6.0               8.3
Other Expense, net               1.0                1.0             1.0               1.1
Earnings Before Income
Taxes                            5.5                5.4             5.0               7.2
Income Tax Expense               1.6                1.6             1.6               2.3
Net Earnings                     3.9 %              3.7 %           3.4 %             4.8 %

Consolidated Sales
Net sales in the third quarter of fiscal 2013 were $423.5 million, an increase of $23.7 million from the same period last year. The fourth quarter fiscal 2012 acquisition of POSH contributed an additional $13 million in net sales in the current quarter, which was partially offset by a $7 million decrease in sales to the U.S. federal government. The remaining change in sales was due to increased volumes in the current period.

For the first nine months of fiscal 2013, net sales were $1,315.0 million; an increase of $11.5 million from the same period last year. The prior year included an extra week of operations and revenue from a dealer that was sold during the second quarter of fiscal 2012. These items contributed to a comparative reduction in net sales versus last year by approximately $32 million and $7 million, respectively. Foreign exchange rate changes also decreased net sales by approximately $6 million in the first nine months of fiscal year 2013. These factors were offset by the fourth quarter fiscal 2012 acquisition of POSH, which accounted for approximately $40 million in net sales in the first nine months of fiscal 2013. Also, the capture of price increases (net of deeper discounting) increased net sales in the first nine months of fiscal 2013 by approximately $3 million. The first nine months of fiscal 2013 also experienced a $47 million decrease in sales to the U.S. federal government. The remaining change in sales was due to increased volumes in the first nine months of fiscal 2013.

Performance versus the Domestic Contract Furniture Industry We monitor the trade statistics reported by BIFMA, the trade association for the U.S. domestic office furniture industry, and consider them an indicator of industry-wide sales and order performance. BIFMA publishes statistical data for the contract segment and the office supply segment within the U.S. furniture market. The U.S. contract segment is primarily composed of large to mid-size corporations serviced by a network of dealers. The office supply segment is primarily made up of smaller customers serviced by wholesalers and retailers. We primarily participate in, and believe we are a leader in, the contract segment. While comparisons to BIFMA are important, we continue to pursue a strategy of revenue diversification that makes us less reliant on the drivers that impact BIFMA and lessens our dependence on the U.S. office furniture market.

We also use BIFMA statistical information as a benchmark for the performance of our domestic U.S. business (as defined by BIFMA) and also to that of our competitors. The timing of large project-based business may affect comparisons to this data. We remain cautious about reaching conclusions regarding changes in market share based on analysis of data on a short term basis. Instead, we believe such conclusions should only be reached by analyzing comparative data over several quarters.

While the sales and order data for our U.S. operations provide a relative comparison to BIFMA, it is not intended to be an exact comparison. The data we report to BIFMA is consistent with the BIFMA definition of office furniture "consumption." This definition differs slightly from the categorization we have presented in this report. Notwithstanding this difference, we believe our presentation provides the reader with a more relevant comparison.

For the three-month period ended March 2, 2013, the company's domestic U.S. shipments, as defined by BIFMA, increased 2.5 percent year-over-year, while the company's domestic orders increased 10.4 percent. BIFMA reported an estimated year-over-year decrease in shipments of 0.2 percent and an increase in orders of 2.4 percent for the comparable period.


Consolidated Gross Margin
Consolidated gross margin in the third quarter was 34.1 percent of net sales; an increase of 50 basis points compared to the third quarter last year.

Direct material costs were 41.8 percent of net sales, a decrease of 20 basis points from the third quarter last year. The material costs as a percent of net sales was impacted by approximately a 10 basis point increase related to the acquisition of POSH. Offsetting this increase were favorable impacts from lower commodity costs (primarily steel and steel components) of 10 basis points. The remaining improvement is related to favorable impact of changes in the product and channel mix compared to the prior year period.

Direct labor was 6.6 percent of net sales for the third quarter, a decrease of 40 basis points from the third quarter of last year. The decrease is primarily related to improved labor efficiency compared to the prior year period.

Manufacturing overhead was 11.6 percent of net sales for the third quarter; increasing 30 basis points from the prior year period. Overhead costs in the third quarter of fiscal 2013 included approximately $0.9 million of incremental employee benefit costs related to the transition from (and planned termination of) the domestic defined benefit pension plans, accounting for a 20 basis point increase in overhead as a percent of net sales. Overhead costs as a percent of net sales were also increased by approximately 30 basis points due to higher employee incentive costs. These increases were partially offset by an approximate 20 basis point decrease in manufacturing overhead percent due to increased absorption of overhead costs.

Freight costs were 4.1 percent of net sales for the third quarter; decreasing 20 basis points compared to the same period last year. This was driven primarily by improved shipping efficiencies and a 2% reduction in average diesel price.

Net sales, cost of sales and resulting gross margin are affected by changes in foreign currency exchange rates. During the third quarter the estimated impact was a decrease to gross margin of $0.3 million relative to the prior year period.

For the first nine months of fiscal 2013, consolidated gross margin was 33.7 percent of net sales; a decrease of 10 basis points from the gross margin reported in the same period last year. The impact of incremental employee benefit costs related to legacy pension costs accounted for a 20 basis point decrease in the gross margin percent for the first nine months of fiscal 2013. The third quarter fiscal 2013 year-to-date gross margin was favorably impacted by 20 basis points related to net pricing increases. Lower commodity costs contributed an additional 30 basis points of improvement. The remaining decrease in the year-to-date gross margin was due to a shift in product mix.

Operating Expenses and Operating Earnings Third quarter operating expenses were $117.0 million, or 27.6 percent of net sales, which is an increase of $8.1 million over the third quarter of fiscal 2012. The increase in operating expenses primarily relates to legacy pension costs of $3.1 million, and the acquisition of POSH, which contributed an additional $2.5 million of operating expenses in the quarter. In addition, research and development, marketing expenses, and employee incentive costs increased $2.3 million, $1.9 million, and $1.7 million, respectively. Warranty expenses for the period were lower by approximately $3 million due to lower customer specific claims in the period compared to the prior year and changes in estimate in the prior year related to higher warranty claims loss experience. The remaining change was related to decreases in various other operating expenses compared to the prior year period.

Operating expenses are also impacted by changes in foreign currency exchange rates. During the third quarter of fiscal 2013, the estimated impact to operating expenses was an increase of approximately $0.1 million relative to the prior year period.

For the first nine months of fiscal 2013, operating expenses (including restructuring related expenses) were $363.4 million compared to $332.8 million in the prior year period; an increase of $30.6 million. The increase in operating expenses primarily relates to the legacy pension costs of $22 million. The acquisition of POSH contributed an additional $8.3 million of operating expenses. In addition, research and development expenses increased $5 million. The 2012 Plan to consolidate the Nemschoff manufacturing operations resulted in a $1.2 million increase in expenses for the first nine months of fiscal 2013. The extra week of operations in the prior year included approximately $3.0 million in additional compensation expense. Warranty expenses for the period were lower by approximately $6 million due to lower customer specific claims and changes in estimate in the prior year related to higher warranty claims loss experience. The remaining change was due to increases in various other operating expenses compared to the prior year period.

Operating earnings in the third quarter were $27.4 million, an increase of $2.1 million compared to the same period last year. This increase relates to improvements in gross margin of $10.2 million net of the increases in operating expenses of $8.1 million. The year-to-date operating earnings were $79.2 million compared to the year-to-date operating earnings of $107.8 million for fiscal 2012. The largest contributor of this decrease was the legacy pension costs of $24.5 million.


Other Income/Expense and Income Taxes
Net other expense of $4.1 million in the third quarter of fiscal 2013 was $0.2 million higher compared to the prior year period. The increase in the current period was due to an increase in the currency loss of $0.1 million in the third quarter of fiscal 2013 compared to the prior year period.

Net other expense for fiscal 2013 year-to-date was $13.0 million, a $1.0 million decrease compared to the prior year period. The decrease was primarily due to lower currency loss of $0.1 million and higher investment income compared to the prior year period.

The effective tax rates for the three months ended March 2, 2013 and March 3, 2012 were 29.4 percent and 30.3 percent, respectively. The effective tax rates for the nine months ended March 2, 2013 and March 3, 2012 were 32.3 percent and 32.6 percent, respectively. The effective rate in the current year and the prior year are below the statutory rate primarily due to the manufacturing deduction under the American Jobs Creation Act of 2004. The rate decrease in the current quarter in relationship to the prior year's quarter relates primarily to the U.S. Congress extending the research & development tax credit for a two year period. The extension applies retroactively from December 31, 2011 and will be effective through December 31, 2013.

Reportable Operating Segments
The business is comprised of various operating segments as defined by generally accepted accounting principles in the United States. These operating segments are determined on the basis of how the company internally reports and evaluates financial information used to make operating decisions. For external reporting purposes, the company has identified the following reportable segments:

? North American Furniture Solutions - Includes the operations associated with the design, manufacture, and sale of furniture products for work-related settings, including office, education, and healthcare environments, throughout the United States and Canada. The business associated with the company's owned contract furniture dealers is also included in the North American Furniture Solutions segment. In addition, the Healing operating segment has been aggregated with the North American Furniture Solutions segment.

? Non-North American Furniture Solutions - Includes the operations associated with the design, manufacture, and sale of furniture products, primarily for work-related settings, for Mexico and outside of North America as well as the company's Non-North America consumer retail business.

? Specialty and Consumer - Includes the operations associated with the design, manufacture, and sale of high-end furniture products including Geiger wood products, Herman Miller Collection products and the company's North American consumer retail business.

The company also reports a corporate category consisting primarily of startup business and unallocated corporate expenses including restructuring and other related expenses (including impairment expenses). The current quarter and prior year period segment results are as follows:

(In millions)                Three Months Ended                                Nine Months Ended
                       March 2, 2013      March 3, 2012     Change     March 2, 2013      March 3, 2012      Change
                                                                         (39 weeks)         (40 weeks)
Net Sales:
North American
Furniture Solutions  $        285.4      $       280.2     $  5.2     $        910.4     $        932.4     $ (22.0 )
Non-North American
Furniture Solutions            90.8               77.8       13.0              278.2              250.2        28.0
Specialty and
Consumer                       47.3               41.8        5.5              126.4              120.9         5.5
Corporate                         -                  -          -                  -                  -           -
Total                $        423.5      $       399.8                $      1,315.0     $      1,303.5

Operating Earnings
(Loss):
North American
Furniture Solutions  $         16.2      $        16.4     $ (0.2 )   $         52.7     $         73.2     $ (20.5 )
Non-North American
Furniture Solutions             5.6                5.3        0.3               15.7               23.7        (8.0 )
Specialty and
Consumer                        5.7                3.9        1.8               12.0               11.7         0.3
Corporate                      (0.1 )             (0.3 )      0.2               (1.2 )             (0.8 )      (0.4 )
Total                $         27.4      $        25.3                $         79.2     $        107.8

Further information regarding the reportable operating segments can be found in Note 13.


North America
Net sales within the North American Furniture Solutions reportable segment ("North America") increased $5.2 million to $285.4 million in the third quarter, representing a 1.8 percent increase from the third quarter last year. The impact of foreign currency changes was to increase the third quarter fiscal 2013 net sales by approximately $0.5 million compared to the same period last year. The current quarter also experienced a $7 million decrease in sales to the U.S. federal government. The remaining change in net sales was primarily driven by increased volumes.

Year-to-date net sales within North America decreased 2.4 percent to $910.4 million. The divestiture of a California dealer during the second quarter of fiscal 2012 led to a decrease of approximately a $7 million in both net sales and orders during the first nine months of fiscal 2013. The impact of net changes in pricing is estimated to have had a $4 million increase on year-to-date net sales as compared to fiscal 2012. The extra week of operations in the first nine months of fiscal 2012 contributed approximately $23 million in net sales. The first nine months of fiscal 2013 also experienced a $47 million decrease in sales to the U.S. federal government. The remaining change in net sales was primarily driven by increased volumes.

Operating earnings for North America in the third quarter were $16.2 million, or 5.6 percent of net sales. This compares to operating earnings of $16.4 million . . .

  Add MLHR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MLHR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.