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 7-Jan-2014All 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


7-Jan-2014

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 1, 2013. References to "Notes" are to the footnotes included in the condensed consolidated financial statements.

Discussion of Current Business Conditions Net sales in the quarter totaled $470.5 million, an increase of 6.5 percent from the same quarter last fiscal year. New orders in the second quarter were $502.9 million, 5.7 percent higher than the prior year period.

During the second quarter the company completed the process of terminating its primary domestic defined benefit pension plans. This process involved the distribution of benefits to plan participants through the payment of lump-sum cash distributions, roll-over payments to other retirement accounts, or the purchase of annuity contracts from a third-party insurance company. These benefit distributions required Herman Miller to make a tax deductible cash contribution of $48.6 million to the plans, an amount lower than the company's previous estimate. The settlement of these liabilities triggered the recognition of pension settlement expenses in the quarter of $158.2 million. In total, the company recognized $161.3 million and $18.8 million of legacy pension expenses in the second quarter of fiscal 2014 and 2013, respectively. Of these amounts, $111.0 million and $18.0 million respectively in fiscal 2014 and 2013 are recorded within Operating expenses and the remaining portion is included in Cost of sales. For segment reporting purposes, $144.3 million and $17.6 million of the second quarter fiscal 2014 and 2013 legacy pension expenses are reflected in the company's North American Furniture Solutions business segment. The remaining portions are included in the Specialty and Consumer segment.

As a result of these legacy pension expenses, Herman Miller reported a loss of $1.37 per share in the second quarter, compared to earnings of $0.14 per share in the same quarter last fiscal year. Excluding the legacy pension impact and restructuring and impairment expenses in each of the periods, Adjusted diluted earnings per share( 1) in the second quarter totaled $0.42. This compares to Adjusted diluted earnings per share of $0.35 in the second quarter of fiscal 2013.
The company also announced an increase in its quarterly cash dividend to $0.14 per share payable in April 2014. This change represents an increase of 12 percent from the current dividend payout of $0.125 per share.

Sales for the quarter within Herman Miller's North American reportable segment were $297.1 million, a decrease of 2.5 percent from the same quarter last fiscal year. New orders in the second quarter of $333.7 million were 1.5 percent higher than the year ago period. Growth within this segment continued to be challenged this quarter by reduced demand from the U.S. federal government, where sales and orders both declined by more than 25 percent relative to last fiscal year. The decrease in sales were also due to the impact of dealer divestitures and foreign currency translation.

We continue to invest in our global Living Office product and service portfolio, a powerful, research-based point of view grounded in new insights that is already helping our clients realize greater potential in their facilities and people. Major new furniture platforms and work seating are moving forward on schedule and continue to garner positive recognition, including national broadcast coverage, print features, and digital media praise. The new Living Office furniture programs are also receiving positive reviews from select pilot customers. We anticipate the new systems to begin standard order entry in the first half of calendar 2014. Our next generation Mirra 2 chair has begun to ship under limited order entry status and will launch in full for both commercial and consumer markets in January 2014.

This positive response to our latest designs are consistent with a recently released trade magazine survey of commercial architects and interior designers, which has again confirmed Herman Miller's position as the preeminent brand for the largest product categories in our industry. This year we were named a #1 brand in the categories of Furniture Systems, Work Seating, Healthcare furniture, and Textiles, as well as capturing multiple top-five recognition in others. Nemschoff and Maharam were clear brand winners in their respective categories, demonstrating that our most recent acquisitions were well targeted for industry leadership.

The Non-North American reportable segment reported net sales of $103.1 million for the quarter. This represents an 11.1 percent increase from the second quarter of fiscal 2013, with the largest contributors of this growth coming from the EMEA and Latin American regions. New orders in the quarter of $104.4 million were up 3.7 percent on a year-over-year basis. The apparent European economic recovery gives us optimism that we can build and maintain our momentum in this market. In Latin America we continue to develop plans to expand our operational capabilities to better serve the region and anticipate more opportunity as a result. In Asia, POSH marked an important strategic step by completing the acquisition of a manufacturing and distribution operation in Dongguan, China. Going forward, this provides us with expanded operational capabilities and an established workforce to serve China and greater Asia.

(1) Non-GAAP measurements; see accompanying reconciliations and explanations.


Due to the acquisition in Dongguan, we have decided not to pursue the construction of a new manufacturing and distribution facility on property that we previously acquired in Ningbo, China. In connection with this decision, we evaluated the fair value of the property and recognized an asset impairment of $4.0 million during the second quarter. This impairment has been recorded in our Corporate category for segment reporting purposes.
In our Specialty and Consumer segment, we recorded strong growth in quarterly sales and orders, up 59 percent and 40 percent respectively. This growth was driven by the addition of Maharam, where the team continues to prove their strategic value and operational excellence. Adjusting for the impact from this acquisition, segment sales decreased 3 percent. Despite strong growth within our Herman Miller Collection business, total segment orders were down 17 percent from the second quarter of fiscal 2013. These decreases were partly driven by a reduction in large project business at our Geiger subsidiary. We also took fewer orders this quarter from some of our large retail distributors who, unlike last year, accelerated the timing of their holiday stocking orders into the first quarter. This timing shift drove significant order growth last quarter within our consumer business, but resulted in a year-over-year decrease in the second quarter. Year-to-date, including the first two weeks of December, orders at our consumer business are up 3.5 percent compared to the same period of last fiscal year.
Capital expenditures totaled $20 million for the six months ended November 30, 2013, a decrease of $9 million compared to the six month period of fiscal 2013. As we move through the balance of the year, we expect capital spending to ramp-up, particularly in support of planned manufacturing facility and equipment initiatives, new product development, and showroom investments. We anticipate our full year capital spending to range between $50 million and $55 million.

Looking forward, we generally share the view released in the recently revised BIFMA forecast and anticipate that slow growth in calendar 2014 will improve through the next year, with a further strengthening of the economy and accelerating furniture demand for 2015, both domestically and globally. Recent better than expected U.S. GDP and job growth and signs of improving international conditions, particularly in Europe, are encouraging. These are complemented by industry specific indicators, including a positive ABI (Architectural Billings Index), significant commercial vacancy rates that encourage office additions and moves, and strong corporate profits and balance sheets to support facilities spending. In total, we see strategic opportunities in an improving landscape, both domestically and globally, and are working hard to strengthen Herman Miller's position to our greater advantage.

The remaining sections within Item 2 include additional analysis of our three and six months ended November 30, 2013, including discussion of significant variances compared to the prior year period.

Reconciliation of Non-GAAP Financial Measures This report contains references to Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share - diluted, all of which are Non-GAAP financial measures. Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share
- diluted are calculated by excluding from Gross Margin, Operating expenses, Operating earnings and Earnings per share - diluted items that we believe are not indicative of our ongoing operating performance. Such items consist of expenses associated with restructuring actions taken to adjust our cost structure to the current business climate, expenses related to the step-up of inventory stemming from the acquisition of Maharam and expenses associated with the termination of the domestic defined benefit pension plans, "legacy pension expenses". The legacy pension expenses include settlements caused by the transition to a defined contribution program and the net periodic benefit expenses associated with the terminated plans, subsequent to September 1, 2012. They also include incremental pension expenses in the first quarter of fiscal 2013 resulting from modifications made to the investment strategy of our defined benefit plan assets in order to prepare for the termination process. We present Adjusted operating earnings and Adjusted earnings per share - diluted because we consider them to be important supplemental measures of our performance and believe them to be useful in analyzing ongoing results from operations. Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share - diluted are not measurements of our financial performance under GAAP and should not be considered an alternative to Gross margin, Operating expenses, Operating earnings and Earnings per share - diluted under GAAP. Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share - diluted have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share - diluted, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share - diluted should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing prominence of our GAAP results and using Adjusted gross margin, Adjusted operating expenses, Adjusted operating earnings and Adjusted earnings per share - diluted only as a supplement.


The following table reconciles Gross margin to Adjusted gross margin for the periods indicated.

                                            Three Months Ended                        Six Months Ended
(Dollars in millions)              November 30, 2013   December 1, 2012     November 30, 2013   December 1, 2012
Gross margin                      $          118.9    $          148.5     $           288.9   $          298.2
Percentage of net sales                       25.3 %              33.6 %                30.8 %             33.4 %
Add: Inventory step-up expenses                  -                   -                   1.4                  -
Add: Legacy pension expenses                  50.3                 0.8                  51.3                1.6
Adjusted gross margin             $          169.2    $          149.3     $           341.6   $          299.8
Percentage of net sales                       36.0 %              33.8 %                36.4 %             33.6 %

The following table reconciles Operating expenses to Adjusted operating expenses for the periods indicated.

                                            Three Months Ended                        Six Months Ended
(Dollars in millions)              November 30, 2013   December 1, 2012     November 30, 2013   December 1, 2012
Operating expenses                $          244.1    $          131.0     $           375.0   $          246.4
Percentage of net sales                       51.9 %              29.7 %                40.0 %             27.6 %
Less: Restructuring and
impairment expenses                            4.0                 0.7                   4.0                1.2
Less: Legacy pension expenses                111.0                18.0                 113.1               18.9
Adjusted operating expenses       $          129.1    $          112.3     $           257.9   $          226.3
Percentage of net sales                       27.4 %              25.4 %                27.5 %             25.4 %

The following table reconciles Operating earnings (loss) to Adjusted operating earnings for the periods indicated.

                                            Three Months Ended                         Six Months Ended
(Dollars in millions)              November 30, 2013   December 1, 2012      November 30, 2013   December 1, 2012
Operating earnings (loss)         $         (125.2 )  $          17.5       $          (86.1 )  $          51.8
Percentage of net sales                      (26.6 )%             4.0 %                 (9.2 )%             5.8 %
Add: Restructuring and impairment
expenses                                       4.0                0.7                    4.0                1.2
Add: Inventory step-up expenses                  -                  -                    1.4                  -
Add: Legacy pension expenses                 161.3               18.8                  164.4               20.5
Adjusted operating earnings       $           40.1    $          37.0       $           83.7    $          73.5
Percentage of net sales                        8.5  %             8.4 %                  8.9  %             8.2 %

The following table reconciles Earnings (loss) per share - diluted to Adjusted earnings per share - diluted for the periods indicated.

                                            Three Months Ended                          Six Months Ended
                                  November 30, 2013    December 1, 2012      November 30, 2013    December 1, 2012
Earnings (loss) per share -
diluted                          $          (1.37 )  $             0.14     $          (0.99 )  $             0.48
Add: Restructuring and
impairment expenses                          0.05                  0.01                 0.05                  0.02
Add: Inventory step-up expenses                 -                     -                 0.01                     -
Add: Legacy pension expenses                 1.74                  0.20                 1.77                  0.22
Adjusted earnings per share -
diluted                          $           0.42    $             0.35     $           0.84    $             0.72


Analysis of Second 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                                         Six Months Ended
                             November 30, 2013      December 1, 2012       Percent      November 30, 2013      December 1, 2012      Percent
                                                                           Change                                                    Change
Net sales                   $           470.5     $            441.8          6.5  %   $           938.6     $            891.5        5.3  %
Cost of sales                           351.6                  293.3         19.9  %               649.7                  593.3        9.5  %
Gross margin                            118.9                  148.5        (19.9 )%               288.9                  298.2       (3.1 )%
Operating expenses                      240.1                  130.3         84.3  %               371.0                  245.2       51.3  %
Restructuring and
impairment expenses                       4.0                    0.7        471.4  %                 4.0                    1.2      233.3  %
Total operating expenses                244.1                  131.0         86.3  %               375.0                  246.4       52.2  %
Operating earnings (loss)              (125.2 )                 17.5       (815.4 )%               (86.1 )                 51.8     (266.2 )%
Other expenses, net                       4.1                    4.6        (10.9 )%                 8.7                    8.9       (2.2 )%
Earnings (loss) before
income taxes and equity
income                                 (129.3 )                 12.9     (1,102.3 )%               (94.8 )                 42.9     (321.0 )%
Income tax expense
(benefit)                               (48.6 )                  4.5     (1,180.0 )%               (36.6 )                 14.6     (350.7 )%
Equity earnings from
nonconsolidated affiliates,
net of tax                                0.1                      -          n/a                    0.1                      -        n/a
Net earnings (loss)         $           (80.6 )   $              8.4     (1,059.5 )%   $           (58.1 )   $             28.3     (305.3 )%

Earnings (loss) per share -
diluted                     $           (1.37 )   $             0.14     (1,078.6 )%   $           (0.99 )   $             0.48     (306.3 )%
Orders                      $           502.9     $            475.8          5.7  %   $           974.1     $            927.8        5.0  %
Backlog                     $           307.9     $            314.2         (2.0 )%

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

                                       Three Months Ended                                   Six Months Ended
                             November 30, 2013      December 1, 2012             November 30, 2013     December 1, 2012
Net sales                          100.0  %                 100.0 %                    100.0  %                100.0 %
Cost of sales                       74.7                     66.4                       69.2                    66.6
Gross margin                        25.3                     33.6                       30.8                    33.4
Operating expenses                  51.0                     29.5                       39.5                    27.5
Restructuring and
impairment expenses                  0.9                      0.2                        0.4                     0.1
Total operating expenses            51.9                     29.7                       40.0                    27.6
Operating earnings (loss)          (26.6 )                    4.0                       (9.2 )                   5.8
Other expenses, net                  0.9                      1.0                        0.9                     1.0
Earnings (loss) before
income taxes and equity
income                             (27.5 )                    2.9                      (10.1 )                   4.8
Income tax expense
(benefit)                          (10.3 )                    1.0                       (3.9 )                   1.6
Net earnings (loss)                (17.1 )                    1.9                       (6.2 )                   3.2


Consolidated Sales
Sales for the fiscal 2014 second quarter and six month period compared to the same periods in fiscal 2013 increased $28.7 million, or 6.5 percent, and $47.1 million, or 5.3 percent, respectively. The increase in both periods is primarily attributable to the acquisition of Maharam in the fourth quarter of fiscal 2013, as well as increased sales volumes and net changes in pricing. These increases were partially offset by the impact of dealer divestitures, the impact of foreign currency changes, and a decrease in sales volumes to the U.S. federal government.

The following table presents the quantification of the changes in the fiscal 2014 second quarter net sales for the three and six month periods compared to the same periods in fiscal 2013.

(In millions)                         Three Month Period      Six Month Period
Second Quarter Fiscal 2013 Net sales $           441.8       $          891.5
Acquisitions and divestitures
Maharam acquisition                               27.5                   54.8
Dealer divestitures                               (6.9 )                (16.8 )
Impact from foreign currency                      (3.1 )                 (5.0 )
Net changes in pricing                             1.0                    6.0
U.S. federal government volumes                   (7.7 )                 (7.7 )
Change in other sales volumes                     17.9                   15.8
Second Quarter Fiscal 2014 Net sales $           470.5       $          938.6

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 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, 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 North American reportable segment 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 November 30, 2013, the company's domestic U.S. shipments, as defined by BIFMA, increased 0.6 percent year-over-year, while the company's domestic orders increased 8.8 percent. BIFMA reported an estimated year-over-year decrease in shipments of 0.2 percent and a decrease in orders of 1.0 percent for the comparable period.

Consolidated Gross Margin
The second quarter Adjusted gross margin(1) increased 220 basis points to an Adjusted gross margin of 36.0 percent as compared to an Adjusted gross margin in fiscal 2013 of 33.8 percent. The improvement in the Adjusted gross margin is due to benefits captured from price increases - net of incremental discounting, the insourcing of various components and products, and the acquisition of Maharam.

Consolidated gross margin in the second quarter was 25.3 percent of net sales, a decrease of 830 basis points compared to the second quarter of fiscal 2013. The decrease in gross margin as a percent of net sales is due to incremental legacy pension expenses related to the termination of the primary domestic defined benefit pension plans which had the effect of decreasing gross margin by 1,050 basis points. The impact of the pension termination was partially offset by the benefit captured from price increases - net of incremental discounting, the insourcing of various components and products, and the acquisition of Maharam, which had the effects of increasing gross margin by approximately 20 basis points, 90 basis points, and 160 basis points, respectively, compared to the second quarter of fiscal 2013.

(1) Non-GAAP measure; see accompanying reconciliations and explanations.


The following table presents, for the periods indicated, the components of the company's cost of sales as a percentage of net sales.

                                         Three Months Ended                                    Six Months Ended
Period Ended              November 30, 2013     December 1, 2012    Change     November 30, 2013     December 1, 2012    Change
Direct materials                   41.8 %               43.0 %      (1.2 )%             41.3 %               43.6 %      (2.3 )%
Direct labor                        6.3                  6.7        (0.4 )               6.4                  6.5        (0.1 )
Manufacturing overhead             20.7                 10.5        10.2                15.6                 10.3         5.3
Freight and distribution            5.9                  6.2        (0.3 )               5.9                  6.2        (0.3 )
Cost of sales                      74.7 %               66.4 %       8.3  %             69.2 %               66.6 %       2.6  %

Direct material costs as a percent of net sales decreased 120 basis points as compared to the second quarter of fiscal 2013. The decrease in material costs as a percent of net sales was primarily related to the impact of insourcing various components and products which accounted for a 90 basis point decrease. The remaining decrease relates to the impact of net pricing, the acquisition of Maharam, and the dealer divestitures, each representing a 10 basis point decrease.

Direct labor was 6.3 percent of net sales for the second quarter of fiscal 2014, a decrease of 40 basis points from the same period last year. This reduction was primarily due to the acquisition of Maharam.

Manufacturing overhead was 20.7 percent of net sales for the second quarter of fiscal 2014, increasing 1,020 basis points from the second quarter of the prior year. The increase in manufacturing overhead as a percent of net sales is primarily due to incremental legacy pension expenses which had the effect of increasing manufacturing overhead by 1,050 basis points. Overhead costs as a . . .

  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.