Herman Miller, Inc., Reports First Quarter 2002 Results; Announces Plans to Realign its Business Operations

Furniture World Magazine

A Message from the Herman Miller and its employee-owners: "Like all Americans we are shocked and saddened by the tragic events our nation has suffered over the past two weeks. As we begin a time of healing and rebuilding in an effort to secure our country's future, our thoughts and prayers go out to the individuals and families hurt by these acts of terror." Financial Results: Herman Miller, Inc. (Nasdaq: MLHR), today announced results for the first quarter of fiscal 2002 ended September 1, 2001. Sales and orders for the quarter were $410.3 million, and $416.2 million, respectively. Net earnings were $3.2 million and earnings per share were $.04 before giving consideration to first quarter pretax special charges of $9.6 million. These charges were associated with an early retirement program and workforce reductions. Reported net earnings and earnings per share for the quarter were $(2.9) million and $(.04) per share, respectively. (1) Net earnings in the first quarter of fiscal 2001 includes an after-tax charge of $3.5 million or $.05 per diluted share related to a change in the method of accounting for the company's cash balance defined benefit retirement plan. Consolidated net sales declined 25.1 percent and orders declined 33.3 percent for the quarter, when compared to the same quarter last year. Domestic sales decreased 26.6 percent while new orders decreased 34.3 percent when compared to the first quarter of last year. International results for the quarter also felt the impact of the spreading economic slowdown. Net sales of international operations and exports from the United States decreased to $60.9 million, or 15.3 percent, when compared to the first quarter of last year. The lower demand was felt the hardest in the Asia Pacific markets. Beth Nickels, Executive Vice President and CFO, commented, "Declining business activity in the contract office furniture industry has been well chronicled in recent months. Our first quarter results reflect the impact of this extended slowdown. However, the decline in our sales and orders this quarter is magnified when compared against our performance during the first quarter of fiscal 2001. Last year for the comparative thirteen-week periods, we far outpaced the industry growth as sales and orders grew 20 percent and 28 percent, respectively. Ms. Nickels continued, "Prior to the events of the last two weeks, order pacing appeared to have stabilized, tracking at an average of approximately $32 million per week. This resulted in an ending backlog of $230 million, which is up slightly from the beginning of the quarter." Michael A. Volkema, Chairman and CEO, stated, "It is no secret that our industry is in the midst of an unprecedented downturn. The abrupt contraction has dramatically changed both our business and industry dynamics. We are taking additional necessary actions to enable us to effectively compete in this new business environment." Mr. Volkema cited the following overriding objectives as critical to the company's realignment of its business operations: 1. Ensure that none of the actions will negatively impact the ability to serve customers and implement long-term strategy. 2. Simplify the business and make it more agile in the long term. 3. Ensure that all actions will provide long-term economic benefit. 4. Balance operating cash flows with the need for business reinvestment. 5. Maintain the overall corporate selling capacity. 6. Ensure that all changes are consistent with corporate values. Ms. Nickels described the actions now being taken: "We are consolidating the operations of four facilities into other existing facilities located in Western Michigan. We also will outsource selected manufacturing and logistics processes to proven suppliers. In addition, spending across all functional and geographic areas, related staffing, and capital expenditures, have been reduced to reflect our current market opportunity. These actions, coupled with those taken since the beginning of the calendar year, reduce our overall manufacturing space by 695,000 square feet and work force by 2,600 people." Ms. Nickels continued, "The company expects costs associated with these actions to be in the range of $50 million to $65 million during this fiscal year. Measures implemented since the beginning of the calendar year are expected to result in annualized savings of $125 million. Due to the hard work of our employee-owners and efficiencies driven by the Herman Miller Production System, we are confident the actions taken will not impair our ability to respond to a significant volume increase and that a considerable portion of the cost savings will be sustainable, even as the industry recovers." Mr. Volkema stated, "Making changes during turbulent times requires discipline and thoughtfulness to ensure that decisions are balanced and well measured. Changes such as these are difficult, especially when they impact the lives of our employee-owners and their local communities. We believe these actions were undertaken with integrity and consideration to individuals impacted. These steps were necessary to maintain the company's ability to compete in an industry that has severely contracted. We are confident these decisions will result in a more agile, competitive, and responsive organization." For the second quarter, the company expects net sales to be in the range of $400 million to $420 million, with earnings per share of $.04 to $.08, prior to considering costs related to the actions previously noted.