ZEELAND, MI - Herman Miller Inc., a manufacturer of office and contract furniture, said it plans to phase out its employee pension program, a cost-saving move that is expected to take up to two years to complete.
Herman Miller made the announcement concurrent with posting a net sales decline of 3.6% to $399.8 millionand about a 25% drop in profit for its third quarter ended March 3.
The company said it is laying the framework to switch its retirement programs for its nearly 6,000 employees from a defined benefit-based model to a defined contribution structure. Herman Miller said it will contribute between $40 million and $45 million, net of tax benefits, to fund three separate plans at or near the close of fiscal 2012.
Future benefit accruals to the primary U.S. defined benefit plan will be eliminated in September 2012. That's when employees will make the transition to a new defined contribution program. The company "emphasized these actions will not result in a reduction to its employee benefit package."
In making the transition, Herman Miller said it expects to accelerate the recognition of non-cash, pre-tax actuarial losses associated with its defined benefit plans of approximately $25 million in fiscal 2013 and approximately $125 million in fiscal 2014.
Brian Walker, chief executive officer, said, "Our solid cash reserves enable us to make a move that offers multiple benefits for our business, shareholders and employees. The cash requirements of our existing plans have been well in excess of the benefit provided to our employees. Ultimately, our plans have proven to be especially costly during downturns in the economy. Over the long term, these actions will result in less volatility, reduced balance sheet risk, and create a more competitive cost structure. The actions will also free up future cash flow for strategic growth investments, improve borrowing capacity, and make cash available for return to shareholders."
Speaking about Herman Miller's Q3 performance, Walker said, "Our financial results this quarter reflect the continued strength of our international business, particularly within Asia and Latin America. These emerging markets remain an important point of emphasis in our growth strategy, and we are thrilled to announce the planned closing of the POSH acquisition."
Herman Miller's acquisition of Hong Kong-based POSH Office Systems is expected to be finalized on April 2 and will include a net cash purchase price of approximately $50 million.
"Within North America, business levels in the quarter were constrained by a slowdown in sales and orders to the U.S. federal government and within the healthcare sector," Walker added. "We were, however, very encouraged to see solid year-over-year increases across most other North American customer groups as well as in our Specialty and Consumer segment. Given the momentum of our international operations, the acquisition of POSH, and the improving state of the broader U.S. economy, we are increasingly confident in the future growth prospects of our business."
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