Good morning, everyone, and welcome to the Herman Miller Inc. Fourth Quarter and Fiscal Year End 2012 Earnings Results Conference Call. This call is being recorded. This presentation will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include those risk factors discussed in the company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission. Today's presentation will be hosted by Mr. Brian Walker, President and Chief Executive Officer; Mr. Greg Bylsma, Executive Vice President and Chief Financial Officer. Mr. Walker and Mr. Bylsma are joined by Mr. Jeff Stutz, Treasurer and Vice President, Investor Relations. Mr. Walker and Mr. Bylsma will open the call with a brief presentation, which will be followed by your questions. [Operator Instructions] At this time, I would like to begin the presentation by turning the call over to Mr. Walker. Please go ahead.

Good morning and welcome. Last quarter, we described the demand pattern for our business as mixed, with relative softness in the federal government and healthcare sectors, largely offset by continued growth in emerging market economies and solid demand from our core North American contract customers. Our fourth quarter financial results reflect a very similar story. Consolidated net sales in the period adjusted for the impact of dealer de-consolidations decreased 1% from the same quarter last year. On the same basis, new orders in the fourth quarter were up 2.5% from last year. Sequentially, orders in Q4 reflected a healthy seasonal increase of 23% from the third quarter level. Throughout the quarter, our North American business segment continued to face the headwinds of sluggish demand from U.S. federal government and healthcare buyers. This was, however, offset by robust demand in our core non-government office furniture business, which adjusted for the sale of own dealers posted a 15% increase in orders over the prior year. Our International business segment also experienced mixed demand this quarter. Order activity across continental Europe was down year-on-year, reflecting the current recessionary backdrop in the region. By contrast, our business in South America and the Asia Pacific region posted another quarter of double-digit sales and order increases relative to last year. These varying demand patterns were not surprising given the mixed macroeconomic environment we're facing. On one hand, service sector employment levels have continued to improve, albeit at a slow rate. Businesses continue to report strong profits and healthy cash positions. Net U.S. office-based absorption has increased, and growth in private nonresidential construction has been encouraging. Despite these positive signs, the near-term macro outlook remains anything but certain given the slowing rates of growth in the U.S. and China, and of course, the ongoing struggles in the…

Thanks, Brian. Consolidated net sales in the fourth quarter of $421 million were 5% lower than the same quarter last year. Orders in the period totaled $444 million, an amount 1% below the prior year level. Factoring in the effect of dealerships sold earlier in the fiscal year, pro forma sales in the fourth quarter decreased approximately 1% and new orders were up 3% compared to last year. On a sequential quarter basis, consolidated sales in Q4 increased 5% from the third quarter level, while orders in the fourth quarter improved 23% on a sequential period basis. This compares favorably to historic seasonal order increases, which over the past 5 years have averaged 16%. Sales in our North America reportable segment of $286 million were down 11% from the prior year. New orders in the fourth quarter totaled $321 million, reflecting a decrease of just under 4% from the same period last fiscal year. Adjusting for the impact of dealer deconsolidations, segment sales were down 6% and orders increased 1% relative to the fourth quarter of fiscal 2011. On a sequential basis, sales in the North America reportable segment increased 2% from the third quarter level, while segment orders were up almost 30%. Our non-North America reportable segment posted net sales of $97 million for the quarter. This represents a 17% increase from the same quarter last fiscal year. Segment orders were up 6.5% over last year, but reflected a contrasting regional demand pattern. In Continental Europe, which I'll remind, it represents less than 3% of our total business, order activity was down 27% from the fourth quarter of last year. However, this weakness was more than offset by continued order growth in the period across the balance of our international business, including the U.K. On a sequential quarter basis,…

Thanks, Greg. Good morning, everyone. Last quarter, we outlined for you the details of our plans to fund and ultimately terminate our defined benefit pension plans in favor of a defined contribution retirement structure. We made good progress in this regard during the fourth quarter, having contributed $45 million, net of immediate cash tax benefits to our employee pension plans. These contributions, reduced cash flows from operations in the quarter, which totaled $8 million on a consolidated basis. For the full fiscal year, operating cash flows were $90 million. Capital expenditures in the fourth quarter totaled $9 million, bringing our full year CapEx to just under $29 million. Dividend payments were $1.3 million in the quarter, and approximately $5 million for the full year. The closing of our acquisition of POSH in early April drove a net $47 million use of cash in the fourth quarter. We ended the fiscal year with total cash and equivalents of $172 million, an amount only $46 million below our Q3 ending level, despite the significant outflows in the period for pension and acquisition funding. Going forward, we do expect our rate of capital expenditures to increase given the planned investments Brian discussed in his opening remarks. We are anticipating total capital spending in fiscal 2013 of between $50 million and $60 million. We remain in compliance with all debt covenants, and as of quarter end, our gross debt to EBITDA ratio was approximately 1.4:1. The available capacity on our bank credit facility remains at $140 million, with the only usage being from outstanding letters of credit. Given our current cash balance, ongoing cash flows from operations and our total borrowing capacity, we're confident we can meet the financing needs of the business as we move forward. That's the balance sheet and liquidity overview for the quarter, and I'll now turn the call back to Greg to cover our Q1 sales and earnings guidance.

All right. As we indicated in our press release, we're expecting net sales from the first quarter between $440 million and $460 million. This implies flat to down 4% performance relative to Q1 of last year. However, keep in mind that the first quarter of fiscal 2012 included 14 weeks of operations. Earnings in the first quarter are expected to be between $0.37 and $0.41 per share on a diluted basis. This assumes an effective tax rate of between 33% and 35%, and pretax restructuring expenses of approximately $500,000. Also given where we are on the timeline for transitioning our employee retirement programs, we don't expect any pension settlement expenses in the first quarter. We're expecting our Q1 gross margin to range between 34.5% and 34.7% and our operating expenses to be in the range of $117 million to $119 million. Finally, while it won't have a direct impact on sales and profitability in Q1, I do want to update you on a pending change in our product pricing structure. Earlier this month, we announced to our sales and dealer community the details of a planned price increase scheduled to be effective on September 4, 2012. The changes will differ by individual product line with the majority of increases ranging between 3% and 4% of list price. We believe these price adjustments are necessary to remain competitive in the market while managing rising input costs, including those relating to employee benefits and certain material categories. It is also consistent with the recent pricing actions taken by our major competitors. With that, I'll now turn the call back over to the operator so we can take your questions.

[Operator Instructions] We have a question from David MacGregor of Longbow Research.

This is Josh Borstein, on for David MacGregor. You mentioned that orders, x government and healthcare, were up 15% in the quarter. I was hoping you can break out what you were seeing in those stronger end markets, and what performed particularly well?

Yes, sure, Josh. What performed particularly well, we saw nice increases on the tax side, we saw nice increases on the manufacturing side. And also, we had some nice business in oil and gas, as well.

Financial services actually were pretty good too.

Okay, great. And then could you give us a little more insight on what you're seeing in healthcare right now and just what you're projecting out for the next few months in that vertical?

Yes, healthcare continues to -- Brian, Josh. Healthcare continues to be softer than we would have predicted at this point. I will say, we did see it start to turn like the rest of the business. In the fourth quarter, it came back a bit, it didn't come back all the way. The forecasts right now that are out there for construction are quite strong. So we think as we get to -- into calendar 2013, that we'll start to see the volume levels pick back up now. Keep in mind that in our healthcare business, not only do we have government in the whole business, but government, particularly, for us as a company is really heavy on the government side. Particularly, we've had a lot of business over the last few years from some of the BRAC realignment. So that business has gotten quiet, because some of the BRAC work is done. But we think the more non-governmental health systems have a fair amount of construction to do. Right now, there has been a little bit of a rotation in capital good spending away from facilities and fixtures and those kind of things towards IT and more medical implement kind of things where they believe they can drive cost savings much quicker to get ready for some of the impending changes in healthcare legislation. But as we get to the balance of this year, we think we'll start to see a bump up in the construction side.

And then just lastly, can you talk a little bit about raw material cost inflation expectations for the quarter, if you anticipate materials to be higher or lower both sequentially and from a year-over-year standpoint?

You mean looking out, or you mean in fourth quarter?

In the current -- in 1Q here.

Right now, the trend on our major input still is downward. You got to be a little careful with that in how that impacts the results because at the beginning of the quarter, we saw the pressure being up relative to Q3, so we sold this up. We pay a higher price for about 3-month period of time. So we would think that by the time we get to the end of the first quarter, we would start to see commodity starts to come down somewhat based on current pricing.

Our next question is from Budd Bugatch of Raymond James.

Brian, Greg, Jeff, a couple of questions. Brian, you gave us a little bit of your crystal ball, I mean, going to the longer-term, at $2.2 billion by 2015, fiscal year 2015. Can you maybe parse that a little bit for us by segment, maybe by acquisition versus internal growth to get to that 8% compounded annual growth?

I don't know if I can give it to you by segment. I'm sitting here right now, Budd. We absolutely do have it by that, but I don't have it in front of me. I will tell you that acquisition -- the only acquisition we got built into there really is what we've already completed with POSH and things we've done in the past. So that's much more, I would say, organic growth after you get through next year. Next year, of course, we got a fair amount in there related to POSH, because we only had it for one quarter, actually a part of the quarter this year. So there is some next year. After that, we didn't really plan in acquisitions specifically in that number, because it's just so hard to predict. So we think acquisitions are what can push us sort of over the top.

And so as you look at the growth rates of North American Furniture Solutions, non-North American Solutions and the other, the consumer and specialty, how are the various growth rates break out between those 3?

Certainly, it's going to be higher in emerging markets. Asia, Latin America. We think those will be -- that will be the fastest-growing part of the business.

[indiscernible]?

[indiscernible], but I don't have those right in front me. I'll be willing to give them to you, but I don't have them right in front of me. Sorry.

Okay. And the consumer and specialty, that didn't grow very much in this quarter with some of the new stuff, new initiatives you've got going on. How do you see that growing over the long term?

We actually think that can be a good growth. The thing you got to remember in this fourth quarter, Greg hinted this in his comments, actually the consumer side of it, both the retail end as well as the contract piece of the collection actually grew quite well this past quarter. It was really offset by a lighter period in case goods, particularly Geiger. It was really a big project that just didn't repeat year-over-year. So the base of the stuff that we've invested in this year, that's grown quite well. And we think that's been a real opportunity for us to both expand in terms of products, but expand in terms of channel reach. I think the other place that, Budd, is going to be a key for the growth in sort of the core North American business is, you heard me talk in my comments about some of the investments we're making to reach the small to midsize businesses. Next year, we think we can grow that business, that segment. My guess is we won't see a big move in terms of the revenue line until we get probably out to fiscal 2014, as we get some of those capabilities fully in place. So we'll start next year. We are having a front end load, some of the investment really getting ready for 2014.

Okay. I got a few more questions on the longer-term issue. So let me kind of go there, because I think that's more strategic. You said an operating margin in excess of 10% by 2015, can you give us an idea of the composition of that gross margin versus OpEx or operating ratios?

Budd, this is Greg. We don't have it now, but we would expect, outside of POSH, we would intend to see our gross margin move the way it typically moves with volume increases. That being said, a lot of what we have in that Q is new products. So new products, obviously, are going to lever the way, existing products lever. So as always, we shoot for gross margins on new projects that are at or above our current margins. So new products margins, obviously, won't lever the same way as existing products. But you can count on a gross margin that's improving from the current levels to get to that 10%.

The net of it is though you're going to have to get a lot of the growth that's going to come probably not by ramping up gross margin percentages, but it's going to come from leveraging operating expenses. That's why this year, this next year ends up being a little bit less leveraged at the operating line, and as we move out through that 3-year cycle, it's going to be probably some push in gross margins, but a lot of it is going to come through getting growth and leveraging on the operating expense line.

So why -- as Greg said, gross margin was a highlight of this quarter. I think it was the highest gross margin since just before the turn of the decade, if I'm not mistaken. Am I correct?

Yes, and -- but a lot of that is going to have to do with what does the mix look like. We had a really good mix this past quarter. And if we can -- obviously, some of the investments we've made particularly around the ergonomic portfolio stuff we did with Thrive, where we've had new seating products, as well as the collection products. Those kinds of things tend to run a little bit higher in gross margin, so the mix tends towards that. And as you know, a lot of our mix in international, particularly in Asia and Latin America, tends towards higher profit mix because of the product lines that are in there. So as we skew towards that, that could help.

Okay. I'm sorry?

As we skew towards those being the growth engines, that will help.

Okay. Just a couple of other things. One, the cash to shareholders, that was the third point, I think, you made. How are you thinking about that, dividend versus share repurchase? I know dividend is obviously more important, but recently you've -- I think I know Greg's feelings about some of the share repurchases that have been done over the long past. How do you think about that now?

Well, I think we're still in sort of the same mode. I think what you're getting right now is a good signal from the board and from management that we believe that we had ample cash left and flexibility to do what we need to do strategically, and we can restart to ramp up the cash return to shareholders. And the board will continue to look at it. We look at it at a couple of 2, 3 times a year, and ask where we're at in that curve. We certainly want to know that we got the money that we need to be able to do the strategic things we want to do first. We got to the point that we saw that the stock didn't look like it was responding that way. We may come back and look at that, but right now, we believe a better plan for us is to make sure that we got a good solid return for shareholders through the dividend and continue to grow the business on the other side.

If the tax rate on dividends increases, does that change your thought process?

I think you know us well enough to say we'll look at all factors, and we'll decide what's the best thing to do in the environment we're in at that time.

Okay. And my final question was on that 15% contribution margin for this year. You talked about the additional investments. Can you quantify for us those investments, and how that would play out over the year? And finally, does that 15% contribution margin just pertain to fiscal 2013 or does that split into fiscal 2014?

Well first, let me say, primarily we were talking about 2013. Obviously, what we're talking about is a little bit of a step up in both marketing, R&D and some of the other, including, by the way, I'll mention, whenever we go into some of these construction, particularly showrooms and that, you end up with a fairly heavy expense load around doing some of those things. So I don't know if I can break it up by piece, but I would tell you I don't think that leverage will be the same in '14 to '15, because we couldn't get to the 10% goal if we did that. So we'll be down a little bit next year. We think that after that, we'll get the growth from some of those initiatives, and those initiatives won't need another step up after 2015, particular things like the small business, we were front end loading it. My gut is we're going to see that the expenses will be higher as we get to the kind of second quarter and beyond. I think you can see that in the pattern that Greg gave for the operating expense forecast for the first quarter. It doesn't take a big step up. It will be more, probably, as we get into the second and third quarters.

[Operator Instructions] Your next question is from Todd Schwartzman of Sidoti & Company.

Can you talk a little bit about fourth quarter mix in North America by project versus day to day, kind of give a sense of the relative health of each on a year-over-year basis in Q4?

Todd, this is Jeff. I'll take that one. So as we look at the -- as we define the project mix, we were at 47% project business in Q4. And as you recall, that's up a few points from last quarter, I think we were around 44% on that measure. And I'd say in general, the project business that we saw in North America actually this quarter weighted a little heavier toward larger projects than what we've seen it here over the last few quarters, which was a positive. But beyond that, I mean I think it was kind of a rising tide, both on the project and the day-to-day side. So the project upticks just slightly.

And what was that 47% number a year ago, Jeff?

The same.

Okay. Could you also quantify hopefully and just maybe talk a bit about the specific direct material cost where you saw a reduction year-over-year?

Yes, sure, hang on one second, Todd, we'll pull that up. One thing affecting direct material in total is, obviously, the LIFO adjustment that we talked about, which ran through the material line.

So Todd, year-on-year, we saw increases across a number of categories on the commodity side of the business. So we did see on some of the -- on certain types of metals and some of the finishes, we saw cost down versus a year ago. And then -- and I think beyond that, in the material category, we had what we called VADE [ph] savings on the engineering side, where we just had kind of ongoing cost-reduction efforts. We had some sourcing decisions that resulted in -- sourcing changes that resulted in cost savings relative to last year, as well as just some improved pricing on certain purchase complete products on the manufacturing side.

Okay. And in total, for the quarter for Q4, what was the dollar impact benefit of pricing?

Year-over-year, Todd?

Yes, year-over-year on reported sales.

It was about $3 million better.

Did that bleed into Q1?

A little bit of it does, Todd. If you think about our price increases last year, we did one in May, we did one in September. So as you know, they kind of roll in over a 12-month period. The one in September wasn't as big as the one in May, so there will be a little trickle effect into Q1 of continued benefit.

Yes. But I just want to tag on to that, Todd, keep in mind, if the trend that we saw towards some of the larger project sizes were to continue moving forward, of course, that's going to affect the discounting pressure that you feel as well. That's just the natural kind of part of how the pricing dynamic works. So that will certainly be a factor.

And with regards to large project activity, I know that you folks were contemplating or had some visibility into some activity regarding large campus headquarters type work for some Fortune 100 ,200 type companies. Is there anything there in the pipeline or is there anything that you could comment on or kind of give a little color to?

Yes. I mean there's a lot of activity around major corporate headquarters across the country, and you guys have seen some of these in the headlines. Apple is working on some stuff, Facebook has been talking about it. I don't know if we can talk specifically about any particular customer here, because to be frank, they probably would rather we didn't. Obviously, that's pretty deep competitive information. A lot of that work -- everybody's going to be a dogfight between all the major competitors, and everybody's going to try to grab a piece of it. We feel confident we'll get some of it. It's hard to tell when those decisions all get made, though.

And what about M&A activity? Is that something -- I know a lot of people think that M&A typically actually helps drive demand for new furniture. What's your take on that? What does the pipeline look like? What's been, over the last 6 months, or so the trend in that type of activity for you guys?

You mean in terms of us seeing customers do M&A activity therefore driving demand that redo their facilities?

Correct.

I don't know that there has been -- I mean, to be honest, I don't know what the most recent statistics that are out there on M&A activity. I don't think it's been maybe as robust as some people may have thought, considering the amount of cash that's around. So my guess is that's still one of those drivers that if we start to see the confidence level go up, then in fact, the economy is going to remain strong, with interest rates where they are, my guess is that's what you'll see as another derivative if we get through some of the headline risk that's out there with Europe and others.

Okay. And on POSH, what's your best take right now as to which quarter POSH turns accretive to EPS?

Todd, this is Greg. It most likely is going to be in the second quarter.

Your next question is from Jack Stimac of BB&T Capital Markets.

Let me start by saying I've had some phone issues, so I apologize if I'm repeating anything. But I just want to get your take on -- so if you look at the business forecast for the second half of calendar year '12, it looks like it's calling for about 7% growth, and I know you didn't really parse out the details of the CAGR of 8%. But maybe you can just talk a little bit about how that compares. I mean, obviously, your North American orders numbers are very strong. Do you think that, that forecast will come to fruition, and maybe how do you guys see yourself playing out over the next 6 months?

Well, I think one of the questions, Jack, is you always look at that forecast and you got to take your own spin at it. I think right now our gut is it maybe a little bit heavy. If that happens, I think we'll actually see some upside in our numbers. Right now, we -- actually when we did our planning for the year, we had dipped more in the kind of 3% range, rather than the 6% to 7% range that they recently published. I think we still believe there's enough going on around nervousness in the economy, we just don't see it being that strong. Now we had, as you know, good strength in sort of the non-government side. If that continues like we saw in the fourth quarter, we would actually probably have some upside than what we got out here in the forecast right now. Remember we came into this quarter not really expecting that level. I know we had the mix between the government piece. That's the other wildcard, as the dip does include the government side. And I think there's a real question about what happens after the election is over. So we try to make sure that we build our plans with a level that we thought we could manage our way through in sort of this murky economy that's out there right now.

And then I think you kind of talk about this a little bit with an earlier question, but just with the gross margin that's in your guidance and maybe as we kind of look at a normalized rate, so this quarter sounds like you had a few addbacks including the bonus accruals. So maybe as we look into the next quarter and into the next year, what's a good run rate? I mean, how much of an impact do the bonuses have, and is that kind of 34.5, is that a good run rate going forward or there are more things that will kind of play into that a little bit?

Yes, this is Greg. I think that 34.5 right now, at those kind of volumes, is a good run rate. Obviously, there's a bunch of moving parts. But right now, that's kind of how we try to parse every bit of good and bad news back that happened in the fourth quarter, with how it compares from the third quarter, and then gave the best shot of what we think that kind of run rate is going forward.

I'm showing no further questions at this time. I would like to turn the call over to management for any closing remarks.

First of all, thank you, all, for joining us for this quarter's conference call. We appreciate your questions and your interest in Herman Miller. And we look forward to talking to you in the fall. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.