Herman Miller, Inc. · Herman Miller, Inc. Reconciliation of Non-GAAP Measures (values represent %...
Transcript of Herman Miller, Inc. · Herman Miller, Inc. Reconciliation of Non-GAAP Measures (values represent %...
Herman Miller, Inc.Business OverviewQ4 FY2011
NASDAQ: MLHR
Working together to deliver strong returns for shareholders and employees alike.
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Forward Looking StatementsThis information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements.
These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation, employment and general economic conditions, the pace of economic recovery in the U.S, and in our International markets, the increase in white-collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitive-pricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, currency fluctuations, the ability to increase prices to absorb the additional costs of raw materials, the financial strength of our dealers and the financial strength of our customers, the mix of our products purchased by customers, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the success of newly introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, the outcome of pending litigation or governmental audits or investigations, political risk in the markets we serve, and other risks identified in our filings with the Securities and Exchange Commission.
Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., undertakes no obligation to update, amend or clarify forward-looking statements.
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A history of bold innovation
Constantly improving
Recognized leadership
The Past
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A History of Bold Innovation
1923 1930s & 40s 1950s 1960s 1970s & 80s 1990s Today
Founded as a manufacturer of traditional residential furniture
Fostered lasting ties with well-known,
independent designers; a model
that continues to this day
Became a leader in modern
furniture design
Transformed the office furniture industry with
the introduction of Action Office – the
industry’s first open plan office system
Pioneered ergonomic
office seating
Broadened product offering, expanded
distribution, focused on
manufacturing efficiency and sustainability
A recognized industry leader in the areas of
innovative product design, sustainable business
practices, and financial performance
At Herman Miller, we value our rich legacy more for what it shows us we might become than as a picture of what we’ve been.
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Solution Design
Independent Distribution
Social Responsibility
Operational Excellence
People & Culture
Constantly Improving
We operate under the assumption that there is always a path to improvement; a better way of addressing a problem. This attitude is
foundational to everything we do. We call it, “Performance Innovation.”
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Recognized Leadership
Our focus on constant improvement has been widely recognized
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Herman Miller around the world
Variable cost structure
Commitment to innovation
Diversified revenue base
Recent operating performance
Debt & liquidity profile
The Present
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Herman Miller Around the World
Manufacturing Locations
Design Center Showrooms
Global Product Distribution:
North America: ≈ 250 Dealer Locations
Worldwide*: ≈ 740 Dealer Locations
* Including Posh Alliance dealer locations
Dealer Logistics & Support Centers
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Variable Cost Structure
We have designed our cost structure to flex with the economic cycles we face as an industry.
• Manufacturing Costs
Direct labor – use temps and overtime which can be quickly flexed with volume
Direct materials – assembly based model (subassemblies outsourced)
Overhead – assembly based model (only 12-14% of sales)
Freight & Distribution – Utilize third-party outside freight haulers
• SG&A Costs
Incentive compensation – EVA based on continuous improvement
Sales costs – Variable commissions
Distribution costs – Variable cost independent dealers
Designer royalties – Variable cost independent designers
• Capital Base
Assembly based manufacturing model keeps asset costs low
Build to order keeps inventory costs low
Early prepay discounts keeps accounts receivable balances low
EVA incentive systems focuses on balance sheet and income statement
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Commitment to Innovation
Design & Research Expenditures
$0
$10
$20
$30
$40
$50
$60
2007 2008 2009 2010 20110.0%
0.3%
0.6%
0.9%
1.2%
1.5%
1.8%
2.1%
2.4%
2.7%
3.0%
3.3%
$ Millions % Net Sales
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We Have Diversified Our Revenue Base
Int'lU.S. Office
/ Gov't
Health, Home &
Educ.
FY 2001
U.S. Office / Gov't
Int'l
Health, Home &
Educ.
24%
23%
53%
16%
9%
75%
FY 2011
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Recent Operating Performance
$322$365
$381 $394
$412$462
$415
$368
$442 $449
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Millio
ns
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11
Quarterly Net Sales & Orders
Net Sales Orders
$95
$99
$107$107
$114
$85
$90
$95
$100
$105
$110
$115
Millio
ns
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11
Quarterly Adj. Operating Expenses *
* Note: Excludes restructuring charges and P&L impact of adjustments to contingent purchase liabilities.
Gross Margin and Adj. Operating Income % *
33.0%32.1%32.9%
32.5%32.8%
3.1% 6.5%7.1% 6.2% 7.2%
0%
10%
20%
30%
40%
50%
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11
% N
et
Sa
les
Gross Margin % Operating Income %
Q4 sales increased 37% from the prior year; New orders up 23% over the same period.
Sequential-quarter gross margin improvement driven by higher factory production levels and lower relative price discounting. These favorable items were partially offset by higher commodity and incentive bonus expenses.
Operating expense increase in Q4 versus Q3 driven by variability against higher sales, seasonally higher marketing expenses, and higher employee incentive expenses.
Sequential quarter operating contribution margin (Q3 to Q4 FY2011) totaled 22%.
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Debt & Liquidity Profile
$36
$10
$22$21
$38
$0
$5
$10
$15
$20
$25
$30
$35
$40
Millio
ns
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11
Quarterly Cash Flow from Operations
2.7 2.62.5 2.3
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11
Rolling 4Qtr Leverage Ratio(Debt to EBITDA* - excluding restructure)
PPN & Bank Covenant < 3.50 (but can go up to 4.0 for 4 Qtrs)
5.35.8 6.1
6.5
7.7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11
Rolling 4Qtr Coverage Ratio(EBITDA* to Interest - excluding restructure)
Bank Covenant > 4.0
Q4 Ending Cash and Equivalents of $149 million.
$140 million unused revolver capacity.
Paid off $100 million in public bonds during Q4 (using $50 million in cash and $50 million in proceeds from a private placement debt issue).
Debt maturity schedule:
PPN ($50M) due 2014
PPN ($150M) due 2017
PPN ($50M) due 2021
Contributed $38 million to employee pension plans during Q4 ($23M of cash / $15M in company stock).
Reduced total unfunded pension liability by $71 million in fiscal year 2011.
* Represents a Non-GAAP Measure, see Appendix for reconciliation.
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Strategic intent
Catalysts for growth
“Share of Wallet”
e-Commerce
Why Herman Miller?
The Future
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Strategic Intent
We will add value to our shareholders through the application of Performance Innovation in all areas of our business.
We will achieve best-in-class financial performance by serving our customers with a comprehensive offering of innovative products, knowledge, and services,
all delivered with bullet-proof reliability.
We will achieve this by investing strategically in the following areas:
•Primary Markets: Increase our share of the contract office furniture market
•Adjacent Markets: Pursue growth opportunities in environments such as healthcare, higher education and retail
•Developing Economies: Expand our geographic reach in areas of the world with significant growth potential
•New Markets: Develop new products and technologies which serve new market opportunities
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Catalysts for Growth
Growth Avenues
Benchmark Performance
Seating
Breadth of New Products
Healthcare Furnishings
Global Distribution
New Channels to Market
New Technologies
* The acquisitions of Brandrud and Nemschoff give us the industry’s most comprehensive healthcare
furniture offering
* Planned acquisition of Posh significantly expands our Asian
distribution presence
* Improved dealer efficiency through the Herman Miller Performance
System (HMPS)
* Robust product development queue
* Dealer “Share of Wallet”
* We are the industry leader in high-performance task seating
* Herman Miller for the Home has a growing retail and wholesale
presence
* e-Commerce
* Solutions addressing customer space utilization and energy
management
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We Intend to Increase our North American Dealer “Share of Wallet”
35% - 40%
Non-HMI Products
60% - 65%
HMI Products
On average, 35% to 40% of the sales through our dealer channel in North America involve non-Herman Miller branded products.
Setu - 2009
Lower Price-Point Seating
SAYL- 2010
Performance Tables
Everywhere Tables - 2010
Ergonomic Solutions
Thrive Portfolio - 2010
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e-Commerce
In 2010, we launched a direct-to-consumer website called The Herman Miller Store.
Our goal: To build brand awareness and communicate the Herman Miller story to a greater number of retail customers.
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Why Herman Miller?
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AppendixThis report contains references to Adjusted Operating Income and Earnings Before Interest, Taxes,
Depreciation, and Amortization (EBITDA) which are both non-GAAP financial measures.
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11Net Sales 321.5$ 380.7$ 412.2$ 414.8$ 441.5$
Operating Earnings 1.28% 7.67% 7.64% 7.50% 7.16%Add: Restructuring Expenses 2.99% 0.24% 0.51% 0.00% 0.00%Less: Adj. to Contingent Purchase Consideration -1.15% -1.39% -1.07% -1.30% 0.00%
Adjusted Operating Income 3.11% 6.51% 7.08% 6.20% 7.16%
Table IHerman Miller, Inc.
Reconciliation of Non-GAAP Measures(values represent % of net sales)
(unaudited)
Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11Earnings Before Income Taxes (EBT) 34.8$ 49.6$ 61.3$ 75.3$ 102.4$ Add: Depreciation 39.7 38.8 37.7 36.6 36.2 Amortization 3.0 3.0 2.9 2.8 2.8 Interest 21.7 20.7 20.6 20.7 20.0 Other Adjustments 1 15.2 8.4 3.5 (1.7) (7.3) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) 114.4$ 120.5$ 126.0$ 133.7$ 154.1$
Total Debt, End of Trailing Period 311.2$ 311.2$ 309.4$ 309.4$ 259.4$
Rolling 4-Quarter Debt-to-EBITDA 2.7 2.6 2.5 2.3 1.7
Rolling 4-Quarter EBITDA-to-Interest 5.3 5.8 6.1 6.5 7.7
1 "Other Adjustments" include, as applicable in the period, non-cash stock based compensation expenses, charges associated with business restructuring initiatives, changes in the value of the contingent consideration components of the Nemschoff purchase price, and pro-forma income statement adjustments associated with Nemschoff, as permitted under our lender covenant arrangements.
Trailing 4-Quarter Period Ended
Reconciliation of Non-GAAP Measures(Calculation of EBITDA Ratios)
($ in millions)(unaudited)
Table IIHerman Miller, Inc.
21© 2011 Herman Miller, Inc., Zeeland, MI 49464