Independent Financial Advisor Confirms Probable Default
of '876 Fund' in 2003
SAINT PAUL, Minn., Jan. 8, 1996 -- After more
than a year
of independent review and analysis, the Saint Paul Port Authority
announced that it is preparing to seek bondholder approval in the
near future for a new proposal to restructure nearly $288 million of
real estate revenue bonds. The plan was developed with the
assistance of Los Angeles-based href="Houlihan" target=_new>http://www.hlhz.com">HoulihanLokey Howard & Zukin, a
specialty investment banking firm.
The latest proposal will culminate a four-year effort by the
Port Authority to stabilize the portfolio of a commercial real
estate loan program known as the Resolution 876 Common Revenue Bond
Fund ("876 Fund"). The Port has vigorously pursued a restructuring
of the 876 Fund to provide certainty for future principal and
interest payments to all bondholders and avoid a default within the
876 Fund, currently projected to occur in 2003.
The specifics of the new plan to restructure bond payments
within the distressed real estate portfolio are currently being
refined. The final version of the plan is expected to be submitted
for approval to the Port Authority Board of Commissioners in the
near future and, if approved, distributed to all 876 Fund
bondholders for a vote shortly thereafter.
The new bond restructuring plan will likely call for an average
interest rate reduction of approximately 50 percent on bonds
maturing after reserves are expected to be depleted (2003). If the
plan is approved at that level by 85% of the affected bonds, and if
the other assumptions as to future project performance and other
matters hold true, repayment of at least 80 percent of the
outstanding principal is probable. In addition to the principal and
interest modifications referred to above, the restructuring plan
would also likely contain certain conceptual changes from two
earlier restructuring proposals that are intended to address
specific bondholder objectives.
The Port Authority first advised bondholders in 1991 of the
potential for a revenue shortfall within the 876 Fund. Based upon
unaudited financial results during 1995, the cash flow shortfall of
$8.9 million between project revenues and scheduled debt service
payments was drawn from the 876 Fund's Common Reserve. As of Dec.
31, 1995, the Common Reserve fund balance was $47.8 million. The
1995 year-end results for the 876 Fund's revenues confirm that,
without a restructuring, the Fund is likely to exhaust all of its
reserves and experience a default in 2003.
The Port Authority currently holds a total of $68.3 million in
the combined 876 Fund reserves, now being used to supplement debt
service payments on 876 Fund bonds. Of the $47.8 million in the
common reserve, approximately $27.4 million represent amounts
received by the Port Authority as pre-payment of various leases and
loan agreements received from 876 Fund borrowers. Absent a full
restructuring, these prepaid amounts may be used either to
supplement cash flow from 876 Fund projects until they are depleted,
or to redeem bonds.
The 876 Fund consists of individual loans on properties
comprising 108 industrial, commercial and residential properties.
These properties were financed by 104 separate revenue bond issues,
with anticipated outstanding principal of $287.6 million as of
February 1, 1996. A number of poorly performing properties have
been repossessed and are currently operated by the Port Authority
for the benefit of 876 Fund bondholders. The debt associated with
these properties represents approximately 36 percent of the 876
Fund's outstanding bonds. Additionally, 30 percent of the remaining
real estate properties within the 876 Fund have been designated by
the Port Authority as impaired and unlikely to generate revenues
sufficient to pay full debt service amounts as originally
structured. Anticipated revenues from these properties are likely
to range from 50-to-75 percent of the actual debt service. Fifty-
two (52) percent of the 876 Fund loans are currently performing
pursuant to financing leases or loan agreements, which require
payments calculated on the basis of initial debt service
requirements. These agreements may not be unilaterally changed to
provide for increased cash flow. The existing shortfall within the
876 Fund is not the result of a single cause. The portfolio of
loans which makes up the 876 Fund experienced defaults and
delinquencies in approximately the same proportion as similar real
estate projects in existence during the real estate market crash of
the late 1980's.
"While the overall real estate economy is improving, it is
highly unlikely that the commercial property values in the Saint
Paul market will grow to the extent necessary to solve the current
cash flow problems within the 876 Fund program," said Port Authority
President Kenneth R. Johnson.
The 876 Fund is a pooled revenue bond fund, which is backed
primarily by the revenues generated by (and reserves set aside for)
the commercial and industrial projects financed with the bond
proceeds. The fund maintains no claim on either the City of Saint
Paul or the Port Authority.
The Saint Paul Port Authority is the industrial development
agency for the City of Saint Paul, Minn., specializing in real
estate, construction and equipment financing and loan guarantees.
The agency also provides business services, such as site selection,
customized job training and technical assistance, tailored to the
needs of established industrial and manufacturing firms within the
Twin Cities' Metro East region.
/CONTACT: Mike Strand of Saint Paul Port Authority, 612-224-5686/
GRAND RAPIDS, Mich., Jan. 8, 1996 -- Herman
Miller, Inc.,
(Nasdaq-NNM: MLHR) today reported net sales for its second quarter
ended December 2, 1995, increased 17.7 percent to a record $328.4
million compared with $279.1 million one year ago. New orders of
$347.6 million were the highest ever recorded in a three-month
period.
Net sales of $629.5 million and new orders of $656.9 million
were recorded for the first six months of fiscal 1996 compared with
net sales of $531.9 million and new orders of $551.0 million in the
first half of last year. Both net sales and new orders were the
highest ever recorded in a six-month period.
Net sales of international operations and export sales from the
United States totaled $112.0 million in the six months ended
December 2, 1995, compared with $88.8 million last year.
However, we incurred a net loss of $3.8 million compared with a
net loss of $1.3 million last year.
The backlog of unfilled orders at December 2, 1995, was $197.1
million, compared with $177.9 million at September 2, 1995, and
$157.7 million last year.
Net income, before reflecting settlement of the patent
litigation, was a record $15.5 million, or $.62 per share, for the
three months ended December 2, 1995. Net income for the six months
ended December 2, 1995, was a record $27.5 million, or $1.10 per
share.
The net impact of the settlement after giving effect to
previously recorded reserves and settlements with third parties was
a one-time charge to pre-tax income of $16.5 million. The $16.5
million pretax charge had an after-tax impact of $10.6 million, or
$.42 per share. After recording the charge, net income for the
quarter and six months ended December 2, 1995, was $4.9 million
($.20 per share) and $16.9 million ($.68 per share), respectively.
This compares with net income of $1.4 million ($.06 per share)
and $9.4 million ($.38 per share) recorded in the same period of
last year.
In 1992, Haworth, Inc., sued Herman Miller claiming that certain
electrical products which the company offered infringed two patents.
Haworth had sued Steelcase, Inc., in 1985 claiming that Steelcase's
products infringed those same two patents. In 1989 Steelcase was
held to infringe the patents, and the matter was referred to private
dispute resolution to resolve the issue of damages. The patents at
issue have now expired.
Under the settlement agreement, Herman Miller will pay Haworth
$44 million in cash in exchange for a complete release. The release
also covers Herman Miller's customers and suppliers. The companies
have exchanged limited covenants not to sue with respect to certain
existing and potential patent rights. Haworth has agreed not to sue
under United States Patent 4,682,984 which refers to a construction
process for making storage cabinets. In addition, Haworth has
granted a limited covenant not to sue with respect to certain
potential future patent rights on panel construction. Haworth will
receive a limited covenant under three United States Patents
Q5,038,539; 4,685,255; and 4,876,835 - all relating to one of the
company's system product lines.
The company simultaneously reached a settlement with one of its
suppliers. The supplier agreed to pay Herman Miller $11 million and
to rebate over the next seven years a percentage of its sales to
Herman Miller which are in excess of current levels. The $11
million, plus interest, will be paid in annual installments over a
seven-year period. The $11 million was considered in computing the
net patent litigation settlement cost of $16.5 million. Herman
Miller is also exploring the possibility of claims against other
third parties.
Brian C. Walker, vice president of Finance, said, "We have
continued to see strong demand for our products in both domestic and
international markets. Increasing sales, coupled with the cost
reduction programs implemented in the second and fourth quarters of
last year, have resulted in improved operating profit and cash flow.
Our operating income, as a percent of sales, was the highest
recorded since the fourth quarter of 1993. Operating income was 8.1
percent of sales (excluding the $16.5 million patent litigation
settlement) for the second quarter of 1995 compared with 6.3 percent
(excluding the $15.5 million restructuring charge) in the same
period of last year.
"Domestic United States sales increased 19.7 percent in the
second quarter compared with the prior year, after increasing 13.7
percent in the first quarter. The Business and Institute Furniture
Manufacturers Association (BIFMA) estimates the U.S. market grew
approximately 6.8 percent during the June to October time period.
"Net sales of international operations and exports from the United
States increased 26.1 percent over the first six months of last
year. The increase was primarily due to strong growth in the United
Kingdom and acquisitions in Italy and Canada in the fourth quarter
of last year.
"While we have had consistent growth in the net sales of our
international operations, we have not been able to improve the
profitability. The loss is due to negative operating profits in our
Mexican operations and the cost of integrating Herman Miller Italia
into our core European business. The weak peso and poor economic
conditions in Mexico have resulted in a year-over-year decline in
sales of nearly 52 percent and, as a consequence, operating losses.
While we are unhappy with these results, we continue to believe
these markets are essential components of our long-term
international strategy.
"Gross profit, as a percent of sales, for the quarter ended
December 2, 1995, was 34.3 percent, compared to 34.2 percent in the
first quarter and 34.0 percent in the fourth quarter of last year.
The first quarter result has been restated due to the correction of
an error detected during the second quarter. The restatement
resulted in an increase of approximately $7.9 million in sales with
no impact on gross margin dollars or net income. An amended 10Q
reflecting this change has been filed with the Securities and
Exchange Commission. The improvement over the fourth quarter is due
to reductions in manufacturing overheads announced in the second
quarter of last year and small decreases in raw material prices
offset by price erosion in our core U.S. business.
"Operating expenses, as a percent of sales, for the quarter and
six months ended December 2, 1995, were 26.2 percent and 26.9
percent, respectively, compared to 29.3 percent and 30.0 percent in
the same period of last year. This improvement is the result of the
restructuring implemented in the fourth quarter of last year. Total
operating expenses increased $9.8 million from $159.5 million in the
first six months of last year to $169.3 million. The increase is
attributable to acquisitions and new ventures, a 3.5 percent year-
over-year increase on compensation and benefits, increased
depreciation, and amortization and costs which are variable with
sales.
"Cash flow from operations increased to $57.4 million for the
six months ended December 2, 1995, from a use of $2.1 million in the
same period a year ago. The increase was due to improved
profitability and a reduction in cash used for working capital
items. The number of days sales in the sum of accounts receivable
plus inventory decreased to 90.2 days versus 91.9 days at December
3, 1994.
"Capital expenditures were $26.4 million compared with $25.6
million in the first six months of last year. Capital expenditures
for the year are expected to be in the range of $65 to $70 million.
"The increased cash flow from operations and the modest level of
capital expenditures resulted in a $37.6 million reduction in total
interest-bearing debt compared with the previous year end. The ratio
of debt to total capital decreased to 26.0 percent from 33.5 percent
at the end of last year. We have secured $60.0 million of additional
long-term credit facilities to fund the payment of the litigation
settlement. The company's $160.0 million of long-term credit
facilities, short-term borrowings, and cash flow from operations
will be adequate to fund capital expenditures, dividend payments,
common stock repurchases, and other strategic investments. We expect
total interest-bearing debt to be in the range of $140 to $170
million for the remainder of the year with a debt-to-total-capital
ratio of between 26 and 35 percent.
Mike Volkema, CEO, summarized, "Operationally we had an
outstanding second quarter and first half of fiscal 1996. Our
employee-owners have done an excellent job of improving our cost
structure and leveraging our asset base. We are pleased to have the
matter with Haworth resolved. While we have always been advised by
our patent litigation counsel that we were more likely than not to
prevail on the merits, the mounting legal costs, distraction of
management focus, and the uncertainty present in any litigation made
this settlement at this time something which is in the best interest
of our shareholders and employee-owners."
Volkema continued, "The covenants not to sue will help each
company avoid future expensive development and litigation costs in
this highly competitive environment."
Herman Miller, Inc., is an international firm engaged primarily
in the manufacturing and sale of office systems products and
services principally for offices and, to a lesser extent, for health-
care facilities and other uses. The company's common stock is traded
on the National Market for the over-the-counter stock issues.
Financial highlights for the quarter ended December 2, 1995,
follow:
Herman Miller, Inc.
Condensed Consolidated Statements
(Unaudited) (Dollars in 000s, except per share data)
Three Months Ended
Dec. 2, Dec. 3,
1995 1994
Net Sales $328,393 $279,077
Cost of Goods Sold 215,740 179,719
Gross Margin 112,653 99,358
Operating Expenses 86,003 81,714
Restructuring Charges --- 15,500
Patent Litigation
Settlements 16,515 ---
Operating Income 10,135 2,144
Other Expenses 1,625 601
Income Before Taxes 8,510 1,543
Taxes on Income 3,555 100
Net Income $4,955 (b) $ 1,443 (a)
Net Income Per Share $ .20 (b) $ .06 (a)
Common Share
Equivalents 25,188,041 24,781,763
(a) Includes $15.5 million of pretax restructuring charges which
decreased net income by $9.6 million, or $.39 per share.
(b) Includes $16.5 million of pretax litigation settlements which
decreased net income by $10.6 million, or $.42 per share.
Six Months Ended
Dec. 2, Dec. 3,
1995(c) 1994(d)
Net Sales $629,481 $531,908
Cost of Goods Sold 413,949 341,539
Gross Margin 215,532 190,369
Operating Expenses 169,339 159,527
Restructuring Charges --- 15,500
Patent Litigation
Settlement 16,515 ---
Operating Income 29,678 15,342
Other Expenses 2,254 662
Income Before Taxes 27,424 14,680
Taxes on Income 10,455 5,300
Net Income $16,969 (b) $ 9,380 (a)
Net Income Per Share $ .68 (b) $ .38 (a)
Common Share
Equivalents 25,062,824 24,753,927
(a) Includes $15.5 million of pretax restructuring charges which
decreased net income by $9.6 million, or $.39 per share.
(b) Includes $16.5 million of pretax litigation settlements which
decreased net income by $10.6 million, or $.42 per share.
(c) Represents a 26-week period.
(d) Represents a 27-week period.
Herman Miller, Inc.
Condensed Consolidated Balance Sheets
(Dollars in 000s)
Dec. 2,
1995 June 3,
(unaudited) 1995
Assets
Current assets
Cash and short-term investments $ 19,363 $ 16,488
Accounts receivable (net) 195,104 165,107
Inventories 79,859 71,076
Prepaid expenses and other 40,167 44,445
Totals $334,493 $297,116
Net property and equipment 274,258 270,184
Other assets 88,874 91,712
Totals $ 697,625 $659,012
Liabilities and Shareholders' Equity
Current liabilities
Unfunded checks $10,306 $ --
Current long-term debt 854 452
Notes payable 31,729 83,591
Accounts payable 61,746 51,819
Litigation accrual 44,000 --
Accrued liabilities 112,143 121,679
Totals $260,778 $257,541
Long-term debt $ 74,002 $ 60,145
Other noncurrent liabilities 60,173 54,411
Shareholders' equity 302,672 286,915
Totals $697,625 $659,012
Herman Miller, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (Dollars in 000s)
Six Months Ended
Dec. 2, Dec. 3,
1995(c) 1994(d)
Net Income $16,969 (b) $ 9,380(a)
Cash Flows provided by
(used for) Operating
Activities 57,418 (2,120)
Cash Flows used for
Investing Activities (16,931) (44,470)
Cash Flows provided by
(used for) Financing
Activities (39,133) 39,188
Effect of Exchange Rates 1,521 853
Net Increase (Decrease)
in Cash 2,875 (6,549)
Cash, Beginning of Year $16,488 $22,701
Cash, End of Period $19,363 $16,152
(a) Includes $15.5 million of pretax restructuring charges which
decreased net income by $9.6 million, or $.39 per share.
(b) Includes $16.5 million of pretax litigation settlements which
decreased net income by $10.6 million, or $.42 per share.
(c) Represents a 26-week period.
(d) Represents a 27-week period.