Herman Miller Inc. Reports Operating Results (10-Q)
Herman Miller & Co. is engaged primarily 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. has a market cap of $885.7 million; its shares were traded at around $15.85 with a P/E ratio of 13.2 and P/S ratio of 0.5. The dividend yield of Herman Miller Inc. stocks is 0.6%. Herman Miller Inc. had an annual average earning growth of 5.3% over the past 10 years. Highlight of Business Operations: Operating Expenses and Operating Earnings First quarter operating expenses were $93.4 million or 28.8 percent of net sales, a decrease of $12.4 million from the first quarter in fiscal 2009. Our operating expense included $2.6 million of restructuring costs, and $4.5 million of costs associated with the previously mentioned debt retirement actions. Excluding these items, our operating expense would have been $86.3 million, or 18.4 percent lower year-over-year. The current quarter also included $3.9 million in operating expense contributed by Nemschoff. We remain committed to adjusting our operating expenses with business levels as we navigate through a difficult economic environment. A significant driver of the year-over-year improvement is the cost-reduction actions we implemented in the third quarter of fiscal 2009. These were in part offset by continued increases in cost related to our defined benefit plans and our health insurance coverage, which were $2.8 million higher than the prior year same quarter.
Other Income/Expense and Income Taxes Net other expenses of $5.8 million in the three-month period ended August 29, 2009 were $0.6 million higher compared to the prior year quarter of $5.2 million. The decline in interest expense is due to lower interest costs, a result of the retirement of $75 million of our 7.125 percent bonds. For the quarter, interest expense of $5.9 million is $0.3 million lower than the same period last year.
Net sales within the Other category were $12.5 million, down only 5.1 percent from the prior year level of $13.1 million. These sales are primarily related to our Herman Miller for the Home business. Orders within this category were $10.7 million, down 46.1 percent over prior year levels. The pull ahead effect of the prior year general price increase contributed significantly to the year over year decline. Operating loss in the quarter for this category was $5.7 million, a decrease of $7.5 million from the operating income of $1.8 million in the prior year first quarter. Operating income for this category includes expenses associated with the operations of Convia.
Quarter Ended August 29, 2009 We generated $27.2 million in cash from operating activities in the first quarter of fiscal 2010. Working capital changes from the year-end balances drove a source of cash totaling $10.4 million. The main drivers of this improvement in working capital were a reduction in accounts receivable of $20.4 million and a reduction in prepaid assets of $22.4 million. This improvement was partially offset by an increase in the net inventory balance of $4.0 million. Approximately half of the inventory balance increase in the quarter was due to an increase in the amount of direct business, where revenues cannot be recognized until installation is complete.
Cash Flow Investing Activities Our most significant cash outflow related to investing activities in the quarter was the acquisition of Nemschoff. The acquisition net of cash totaled $30.4 million. In addition as part of the acquisition we received a note in the amount of $6.7 million with full offset rights against potential contingent payments. We purchased $5.8 million in capital assets during the first quarter of fiscal 2010. This compares to capital spending of $8.2 million in the prior year first quarter. At the end of the first quarter, we had outstanding commitments for capital purchases of $4.0 million. We expect full-year capital purchases to be between $25 million and $30 million. This compares to a full-year capital spending of $25 million in fiscal 2009.
Cash Flow Financing Activities Cash outflows for financing activities were $76.7 million in the quarter. In the prior year first quarter, cash used for financing activities was $3.8 million. In the current quarter we retired $75 million of our 7.125 percent coupon bonds as part of a tender offer at 6.0 percent above par value. We returned $1.2 million to shareholders in the form of a dividend payment compared to $4.9 million in the prior year.
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