MillerKnoll, Inc. (MLKN) Q4 2013 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to this Herman Miller Inc. Fiscal Year End and Fourth Quarter Fiscal Year 2013 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; and Mr. Jeff Stutz, Treasurer and Chief Accounting Officer. Mr. Walker will open the call with brief remarks, followed by a more detailed presentation of the financials by Mr. Bylsma and Mr. Stutz. [Operator Instructions] At this time, I would like to begin the presentation by turning the call over to Mr. Walker. Sir, you may begin.

Good morning, everyone. We appreciate you, taking time to join us. As usual, I'm going to open our call with some color commentary, and leave the more detailed financials to Greg and Jeff. For my part, today, I want to focus my comments on the strategic actions we've taken in both the fourth quarter and over the past 12 months, as well as a sense of what we see ahead. To begin, this has been a quarter and a year that has confirmed our strategic vision and our ability to execute against those plans. A year ago at this time, we shared new details of our strategy and a set of very specific goals. We declared that 2013 would be a year of significant investment, with the aim to strengthen and accelerate our diversified growth while continuing to enhance our balance sheet. We also pledged to increase the cash we return to shareholders, even as we funded those additional investments. While we still have work to do, I'm proud to say that we have been making good progress on those promises. Last June, we told you that we were investing in an array of products aimed at creating the office landscape of the future, with multiple global platforms, as well as new seating and a further expansion of our Collection portfolio, time for introduction at NeoCon of 2013. As we closed this fourth quarter, we delivered on all points while strongly reinforcing our reputation for global leadership in workplace design knowledge and insights. This month in Chicago, we unveiled Living Office, a holistic new vision for the modern workplace, resulting from more than 3 years of global research and design investment. All together, this NeoCon represented Herman Miller's largest introduction of new products in decades. These new designs and the presentation our Living Office research and knowledge are the first public step in our launch of an even larger workplace portfolio of products and services. While we are proud of the awards that we were presented at the event, we were even more pleased that we made a powerful impression on specifiers and customers. In our meetings and conversations, it was clear that they connected with our Living Office vision. They attended our knowledge sessions with independent experts and they saw the performance and value and the unique designs and applications throughout Herman Miller space. The centerpieces for those settings were 3 new major product platforms created to address unmet needs in the emerging office landscape. Each is uniquely powerful in solving tomorrow's workplace with performance, comfort, beauty and versatility to suit the needs of individuals and teams, as well as the groups in communities spaces. When we combine these new platforms with our existing portfolio of systems and freestanding furnishings and add the enhanced Mirra 2 chair and our best-in-class work seating portfolio and complement the whole with new Geiger designs and a growing HermanMiller Collection of new iconic pieces, we have all the ingredients to create an inspiring, high-performance office landscape. Altogether, our Living Office portfolio is naturally compelling. True to our mission, Living Office inspires and enables people and their organizations to perform at their best. Customers can see that potential architects and interior designers are clearly intrigued and eager to work with these ingredients, and our dealers and sales teams are energized. And we have much more still to come. In summation, we followed through our commitment to secure and grow our position as a leader in global work environments, and the core business has a great future. A year ago, we also said we've been making targeted investments aimed at strengthening our higher margins, Specialty and Consumer business across both commercial and retail markets. In this past year, we've done it, expanding our total offering and building our brand and channels. The HermanMiller Collection continues to grow in reach and quality with multiple newly reissued iconic designs, including innovative new material options. In the last year, we've also introduced wholly new designs through both our Herman Miller and Geiger brands. Our Italian alliances with Magis and Mattiazzi are another source for new products and enhance our brand with customers and specifiers. We've also been developing our channels to market with new shop and shop merchandising initiatives in the retail channel, as well as continued investments in our online marketing and fulfillment capabilities. Then in late April, we reached another major milestone with our acquisition of Maharam Fabric Corporation. Maharam is a premier design brand in commercial interiors and is recognized internationally for the highest-quality textiles and wall coverings. The addition of Maharam to our Specialty & Consumer segment is a powerful strategic accelerator for the entire business on multiple levels. We instantly became a North American market leader in the core product areas, with the ability to leverage our resources to further Maharam's reach into new markets. Maharam's existing business offers strong margins that will be accretive to earnings in the upcoming fiscal year. And with this deal, we gained great talent in both Maharam's leadership team and the highly qualified experienced people across their organization. We have made it clear that Maharam will continue to be Maharam, maintaining their independence in the design and operational excellence that made them a successful business. But we're also excited by the mutual brand reinforcement we gained in bringing the companies together. Turning to the international markets. At the start of the year, we said we would improve our existing production capabilities and prepare for new growth in emerging markets. Those plans are underway, including the integration of POSH manufacturing in China, and beginning next spring, the construction of a new facility to consolidate our U.K. operations serving EMEA. We also have plans to develop for India and Latin America that hold further promise for growth in those markets. Combined with our recently enhanced R&D capabilities outside of the U.S. and our growing global product offering and brand position worldwide, we are very optimistic about our international strategy and the potential for further faster growth in the years ahead. Finally, in 2013, we committed to further strengthening of our balance sheet while returning greater cash to shareholders. Let me address the latter first. In fiscal 2013, we are pleased to have implemented 2 dividend increases, raising our annualized payout from $5 million in fiscal 2012 to today's run rate of approximately $29 million. With this enhanced dividend, we remain confident in Herman Miller's financial position and our ability to fund further strategic investments going forward. That confidence is due in part to strategically important actions we began more than 1 year ago to terminate our legacy U.S. pension plans in favor of defined contribution retirement program. As we follow through on this initiative and complete the transition to fiscal year, we will significantly reduce balance sheet risk and enhance our retention of future cash flows. We expect the process to be complete by November of this year. While this has been a lengthy and complex undertaking, the finish line is within insight, and getting there will provide a number of important benefits to the business. First, it will eliminate our exposure to the investment risk associated with sponsoring defined benefit retirement plans for our U.S.-based employees. The termination of these plans will also dramatically improve the predictability of future cash flows and expense requirements associated with our ongoing retirement programs. Importantly, this enhanced control and visibility will ultimately free up cash flow that will be used further strategic investments or a redistribution to our shareholders. Looking at the totality of all these actions, I hope you will agree that we have been successfully executing our strategic agenda that has begun to deliver powerful results and promises much more. To be sure, we still have a lot of important work in front of us and the domestic and global economy continues to be a challenging backdrop. As we continue to monitor conditions and data, like you, we see a patchwork of mixed indicators with areas of regional and industry weakness and other economies experiencing significant growth. Our own current business pipeline has good activity, but the project intensive nature of our industry can create a choppy picture, particularly month-to-month. But taken on the whole, we remain optimistic for the continued improvement of the macro U.S. and international markets through 2014, and we have great confidence in our own position and momentum for the new year ahead. With that, let me turn the call over to Jeff and Greg.

Okay. Thanks, Brian. Consolidated net sales in the fourth quarter of $460 million were 9% higher in the same quarter last year. Orders in the period totaled $462 million, an amount 4% above the prior year level. The acquisition of Maharam, which closed on April 29, contributed $10.6 million of sales and orders to our consolidated results in the quarter. Excluding Maharam and the impact of dealer de-consolidation, sales and orders increased 8% and 3%, respectively, from the fourth quarter of last year. Sequentially, sales in the fourth quarter increased 9% from third quarter level, while orders improved 21%. On an organic basis, orders in the fourth quarter grew sequentially by approximately 19%. This increase aligns with the average seasonality we've experienced in the business over the past 10 years. Sales in our North American reportable segment of $312 million were up 9% from the prior year. New orders in the fourth quarter totaled $316 million, reflecting a decrease of 1.5% in the same period last fiscal year. Adjusting for the impact of dealer de-consolidation, segment sales were up 10% and orders increased 1% relative to the fourth quarter of fiscal 2012. We again experienced relative weakness in the U.S. federal government sector this quarter, which saw sales and orders declines of approximately 12% from last year. Activity levels outside of the federal government remained generally strong this quarter with strength in business services, manufacturing and energy, more than offsetting softer demand within the financial services sector. Relative to the third quarter of this year, sales in the North American reportable segment increased 9% from the third quarter level, while segment orders were up over 18%. Our non-North American reportable segment posted net sales of $99 million for the quarter. This represents a 2% increase from the same quarter last year. This sales growth was driven by the company's acquisition of POSH Office Systems, which contributed only a partial quarter revenue in the fourth quarter of fiscal 2012. Segment orders were up 11.5% over the last year and reflected a contrasting regional demand picture. Within Asia and excluding the impact of POSH, sales and orders decreased relative to Q4 of last year, due in large part to the weakness in Australia and the negative impact of currency translation. In the EMEA region, demand remains mixed with weakness in the U.K. and Continental Europe, being offset by continued growth in the Middle East. The same can be said for our business in Latin America where relative declines in South America were more than offset by a ramp-up in project activity in Mexico. On a sequential quarter basis, non-North American segment sales and orders increased 9% and 16%, respectively from third quarter levels. Beginning this quarter, our Specialty & Consumer segment incorporates the operating results of Maharam. In the fourth quarter, segment sales of $49 million were up nearly 32% from the prior year. New orders in the period totaled $52 million, reflecting an increase of 33% from the same period last fiscal year. Sequentially, sales in the Specialty & Consumer segment increased 4% from the third quarter level, while segment orders were up almost 54%. On a pro forma basis, excluding Maharam, segment sales in the fourth quarter increased 3% in the same quarter last year. Orders were up 6% from the prior year level. Relative to the third quarter of this fiscal year, pro forma segment sales in Q4 decreased 18%, and new orders were up 22%. The sequential sales decrease was predominately driven by the timing of projects within our Geiger subsidiary. We estimate the translation impact from changes in currency exchange rate decreased our consolidated net sales and orders in the quarter by approximately $2 million relative to the fourth quarter of last year. This results in the general strengthening of the U.S. dollar against major currencies compared to 1 year ago. As expected, our results this quarter reflect expenses associated with our strategy to close and terminate our legacy domestic defined benefit pension plans. In total, our fourth quarter includes approximately $3.7 million in pre-tax expenses related to the plans scheduled for termination. Of this amount, approximately $2.2 million is recorded in operating expense. The remaining portion is included in cost of sales. Our consolidated gross margin in the fourth quarter was 35.4% compared to 35.7% in the same quarter last fiscal year. Last year's percentage was favorably impacted by year-end accrual adjustments and a pension-related curtailment gain, which together, increased gross margin by approximately 40 basis points in that period. Excluding the impact of these adjustments, our consolidated gross margin percentage was roughly flat on a year-over-year basis. Sequentially, our gross margin improved this quarter from the level reported in the third quarter, driven by the addition of Maharam and improved fixed cost leverage and significantly higher levels of factory production. I'll now move on to operating expenses and earnings in the period. Our operating expenses in the fourth quarter were $127 million. This represents an increase of approximately $12 million from the same quarter in fiscal 2012. $5 million of the increase relates to the inclusion of a partial quarter of results from Maharam. In addition to this and the legacy pension impact, the year-over-year increase in operating expenses were driven by higher incentive accruals and a ramp-up in spending on marketing and new product initiatives, several of which were unveiled earlier this month at NeoCon. Excluding the impact of Maharam, operating expenses in the fourth quarter increased $5 million from the third quarter of this fiscal year. This was generally in line with our expectations coming into the period. Operating earnings this quarter were $36 million or 7.8% of sales. This represents a 70 basis point improvement over our consolidated operating margin in Q4 of last fiscal year. Excluding legacy pension expenses recognized in the period, adjusted operating earnings were $39 million or 8.6% of net sales. By comparison, we reported adjusted operating earnings of $35 million or 8.4% of sales in the fourth quarter of fiscal 2012. The effective tax rate in the fourth quarter and the full year 2013 fiscal year were 24.4% and 29.8%, respectively. The rate for the quarter was lower than previously forecast due to the release of a valuation allowance triggered by the improved profitability of one of our international subsidiaries. The effective tax rates in the prior year fourth quarter and full year fiscal year were 53.4% and 37.1%, respectively. Finally, net earnings in the fourth quarter totaled $23 million or $0.40 per share on a diluted basis. On an adjusted basis, excluding legacy pension expenses, diluted earnings per share in the quarter were $0.43. For the full year, we posted $1.16 in diluted earnings per share or $1.47 on an adjusted basis. And with that, I'll now turn the call over to Jeff to give us an update on our cash flow and our balance sheet.

Okay, thanks, Greg. Good morning, everyone. We ended the quarter with total cash and cash equivalents of $83 million, an amount down approximately $115 million from where we ended last quarter. The decrease was driven by the acquisition of Maharam, though this was partially offset by strong cash generation in the fourth quarter. Cash flows from operations in the period were $59 million. Net changes in working capital drove a $22 million source of cash in the period, with the largest contributor being increases in trade payables and accrued liabilities. For the full fiscal year, cash flows from operations were $137 million. Capital expenditures in the quarter were $11 million, bringing the year-to-date total to just over $50 million. Cash dividends paid in the quarter and full year were $7 million and $19 million, respectively. These amounts are significantly higher than our dividend payouts last fiscal year, which totaled just over $1 million in the fourth quarter and $5 million on the full year. We remain in compliance with our debt covenants and as of quarter end, our gross debt-to-EBITDA ratio is approximately 1.3:1. The available capacity on our bank credit facility remains at $142 million, with the only usage being from outstanding letters of credit. Given our current cash balance, ongoing cash flows from operations in total borrowing capacity, we're confident we can meet the financing needs of the business as we move forward. Now before I turn the call back over to Greg, I do want to provide an update on the status of our plans to terminate our domestic defined benefit pension plans. As Brian mentioned, we've made good progress on this project during fiscal 2013 and are now nearing its completion. Earlier this fiscal year, in the second quarter, we completed an important step in the process by moving current employees to a new retirement program based on a defined contribution format. Concurrent with that move, we ceased ongoing benefit accruals under the legacy defined benefit plans. Following that transition, we began the process of systematically settling portions of the legacy pension obligations by distributing benefits to certain plan participants. While none of the benefit distributions made this fiscal year have required us to contribute additional cash to the plans, they have triggered the recognition of settlement accounting expenses. These charges are the largest component of what we refer to as legacy pension expenses. We're now in the final legal and administrative phases of our planned termination calendar and are on schedule to complete the process later this fall during our second quarter. The final step in the process will be to distribute benefits to the remaining plan participants. Doing so will settle the remaining pension obligations associated with the plans and the process will be complete. Before the final distributions can be made, we will be required to contribute cash to the plans in order to cover any remaining unfunded balances. We estimate this remaining cash contribution will total approximately $55 million, though the final amount will depend on the factors such as the form of benefit selected by participants and the market price of annuity contracts. As a reminder, these final benefit settlements will trigger the recognition of additional settlement accounting expenses, and these expenses will be significant. We currently estimate these charges will range between $165 million and $175 million before tax in the second quarter of fiscal 2014. While these are large numbers, I think it's important to note that the recognition of these settlement expenses will have little impact on shareholders' equity since the large majority of the losses are already reflected at the component of other comprehensive income on the balance sheet. As always, we'll continue to provide you with updates on our progress as we move through these final phases in the coming months. With that, I'll now turn the call back over to Greg to cover our sales and earnings guidance for the first quarter of fiscal 2014.

Okay, thanks, Jeff. We expect sales to range between $455 million and $475 million in the first quarter. This guidance implies total revenue growth between 1% and 6% over Q1 of last fiscal year. On an organic basis, this range will be approximately minus 2% to a positive 2% growth. There's a number of moving parts that we considered to arrive at this range, so let me try to unpack this. Our guidance assumes Maharam sales of between $24 million and $26 million in the quarter. The impact of dealer de-consolidation will, by itself, reduce revenue by approximately 2 percentage points relative to Q1 of last year. While we were pleased with the level of order entry throughout the majority of the quarter, we did have a stretch of about 4 weeks where order pacing dipped. Given this order pacing, we took a deep look at the project funnel and noted unusual levels of delays within the funnel. To be clear, this does not mean we had actual orders canceled or delayed, but rather this represent delays in potential project opportunities. Together, these factors caused us to arrive at the first quarter organic revenue estimate. More broadly, we expect order pacing to increase as we move forward based on a number of encouraging factors, including the level of customer business and inquiries and the timing of known project wins that have not yet entered into our backlog. While we expect Maharam's revenue to be between $24 million and $26 million in the first quarter, the earnings on these sales will be limited due to the recognition of certain expenses related to the valuation of inventories in our initial purchase accounting as required under GAAP. These expenses will not recur beyond the first quarter, however, they will reduce our first quarter pre-tax earnings by approximately $1.5 million. As Jeff outlined, the majority of the remaining legacy pension expenses will likely be recognized later this fall in the second quarter. With that said, we estimate the first quarter will include approximately $2 million of these costs. At the midpoint of the revenue range provided, we anticipate the first quarter adjusted gross margin to be at or near 36%, excluding legacy pension and the special Maharam inventory charge that I just mentioned. In total, adjusted operating expenses in the first quarter are expected to range between $127 million and $130 million, excluding legacy pension expenses. Adjusted earnings per share in the quarter are expected to be between $0.36 and $0.41. This estimate excludes the impact of legacy pension costs and the expected special charges relating to the sale of Maharam inventories in the period. On a GAAP basis, diluted earnings per share in the first quarter are estimated to range from $0.32 to $0.37. This guidance assumes an effective tax rate of approximately 34%. And with that, I'll turn the call back over to the operator so we can take your questions.

[Operator Instructions] Our first question comes from David MacGregor from Longbow Research.

This is Josh Borstein, in for David MacGregor. Just looking at the SG&A for the year, you have commented on higher expenses related to the several initiatives that you're currently making. What do we anticipate in the way of additional SG&A expenses in fiscal '14 versus fiscal '13?

I think, David -- or Josh, sorry, you can look at the run rate that you see in the first quarter. We would expect, given things that aren't variable to pace fairly consistently across the quarters, with maybe a slight uptick by the time they get to Q4. But as a general rule, I think you see, historically, the first quarter tends to pace a little lighter than the second quarter, and the third quarter is a little lighter than the second quarter. But as a general rule, you can take a number in that fairly flat. We don't see a significant change right now from quarter-to-quarter. But as always, we'll keep you apprized as we move from quarter-to-quarter.

Okay, great. And then the contribution margin on that incremental revenue, should we expect it to be -- I think you mentioned, in the 15% range versus the more normalized 25% range, is that the right way to think about it?

Yes, those are the numbers we've been talking about, yes.

Okay, great. And then just last, what do you have baked in the guidance for the Specialty and Consumer segment in the quarter coming up here?

As far as revenue or...

Well, if you can do either top line and then maybe on the EBIT line as well.

I think, when you look at the revenue side, I mean obviously, this is -- now that Maharam is in the Specialty & Consumer, you're going to see, like we said, we're going to see roughly about a $16 million lift in the revenue line sequentially, right, give or take. And you're going to see probably EBIT margins that are probably fairly similar. I mean, you're adding a bunch of revenue at a number that we've talked about as being kind of between 9%, 9.5% on the operating income line. So that growth isn't coming with an 18% leverage, as you would see in the other part of the business.

Okay. And then just one final one if I could, with Maharam, does that affect your 2015 goals at all?

No. This is Brian. No, because we already assumed we're going to have to add some acquisitions to get to that number.

Our next question comes from Budd Bugatch from Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Question -- a couple of questions. To make sure I understand it, and maybe you'll forgive me if I'm being my normal stupid self. Maharam -- the accretion of Maharam for the -- going forward is, we have about $100 million worth of revenue, right? And that will be the net revenue for Maharam on a basis today?

Yes. Budd Bugatch - Raymond James & Associates, Inc., Research Division: And what's the accretion on that to operating income?

We've been talking about a 9.5% -- 9% to 9.5% operating incoming number, Budd. Budd Bugatch - Raymond James & Associates, Inc., Research Division: So that is on Maharam?

Yes. Budd Bugatch - Raymond James & Associates, Inc., Research Division: [indiscernible] Is that before or after the purchase accounting amortization?

That excludes -- Budd, that excludes the $1.5 million we referred to in the -- as we talked earlier. Budd Bugatch - Raymond James & Associates, Inc., Research Division: And is that only the purchase accounting adjustment that you have to amortize?

No. But that's the one that's going to roll through the fastest. That 8 -- that number Greg gave you is kind of the long run number as we roll off because we're going to have typical intangible amortization. That one just happens to turn very fast. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Yes, I understand that, Brian. And so as you said, $1.5 million of the inventory was written up, and that will come off in the first quarter. It looks to me that you added $55 million as sort of goodwill or something in that range in the quarter sequentially, is that right?

Yes, Budd I think that's in the hunt. Let me -- I'll get back to you.

Total intangibles are bigger than that.

Yes, total intangibles are bigger than that Budd. The way that they do purchase accounting, that gets spread around, right? Budd Bugatch - Raymond James & Associates, Inc., Research Division: Well, I understand. That's why the only one I really get to see is the goodwill one, so I know that there are other intangibles sitting in other parts of the balance sheet, I'm just wondering which they are.

Budd, this is Jeff. So actually, the goodwill number is closer to $80 million, and we had some other intangible adds as well, that total probably in the order of $30 million. Budd Bugatch - Raymond James & Associates, Inc., Research Division: So $30 million. So they had about $40 million of hard assets?

I think that's -- yes, that's [indiscernible].

Pretty close, yes. With the majority being inventory and receivables, right?

Yes. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. Now in the first quarter, your guidance is at $25 million -- at the midpoint, $25 million from Maharam. And I guess a deal or dealer sale would reduce it by $10 million. So the net of the dealer de-consolidation in Maharam is like $15 million for the revenue in the quarter?

Yes, you're on track. That's on track, Budd. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. Just checking to make sure I'm on that.

And Budd, just for a second, on that intangible thing, I don't have all the details sitting right in front of me, but essentially, what you're going to have is you're going to have this first -- I'll call it the first wave of stuff that turns fast this inventory amortization. There are some other stuff that will amortize like over the first 3 years. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay, I understand, Brian, the order list and all that kind of stuff.

Well, and we've got some additional comp and things like that, that happened in this first couple of years that were part of the purchase that will then roll off after years 2 and 3. So you'll kind of see a step up in this thing over the next 2 to 3 years. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Is that Mr. Maharam's contract for 3 years? Is that what that is?

It's not just him. It's several members of the management team. Budd Bugatch - Raymond James & Associates, Inc., Research Division: I see. And okay, is there a buy-out with it or an earn out at all in Maharam?

No, there is not. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay no earn-out okay. And is there to be an 8-K filed or an 8-K -- a pro forma 8-K adjusted on the accounting?

No, Budd we'll have all the required disclosures in our 10-K in July. Budd Bugatch - Raymond James & Associates, Inc., Research Division: But that will include a pro forma statement as it would be in an 8-K/A?

We will -- well, yes, assuming we conclude with -- it's material enough and required to do so, yes. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay, all right. Just a couple of other questions. You talked about the non-North American business, again pointed to Australia. And I thought we had a situation last year where we had won a dealer issue in Australia and a fire at a supplier, not your supplier, but a major supplier to the Australian market last year, that affected the Australian business. So I thought we would be recovering from that, and I was confused by that comment.

I think that's just timing, but I believe that, that fire and timing was Q2, end of Q1 maybe, start of Q2 shipment issue. The dealer issue was a few years back, the dealer, Living Edge, who we owned -- the dealer that we owned there, that was a few years back. But...

I think Greg's comment, generally, about -- on this whole thing about what's going on in Asia. What you've seen, if you've been reading the news, the Australian economy has got an interesting issue. They're coming out of the recession. There wasn't a very big improvement on the consumer side, but they had a pretty good take-up by the business. And if you look, consumer spending in Australia was pretty flat from bottom of cycle to now. What's happening though is as you're beginning to watch the mining sector cool off in Australia, as the other parts of the emerging markets are not using as much raw material, you're just seeing the general activity levels in Australia drop on the business side. Budd Bugatch - Raymond James & Associates, Inc., Research Division: So the inflation has a really -- not a great impact in Australia. I mean, it has a pretty severe impact to Australia?

Yes. I mean, because you got a look at it, that's how the economy is driven. And we've talked last quarter, we were seeing some of this, and I'll call it the major money centers were starting to feel that, places like Singapore were a little lighter, where we are seeing good activities in kind of the more -- the new emerging markets were pretty good. That kind of trend has sort of continued. Australia is one that, I would say, last quarter we didn't see yet, but we start to see a little more softness there. And I know, talking to folks from other industries, that's just not us that you're seeing that kind of more broad-based. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And the POSH supply is done in Australia, correct?

A little bit.

Is that where you're going to supply them out of Ningbo, or...

Well, we actually supply Australia in really 3 ways. The fair amount of what we supply in Australia comes out of the U.S. because the shipping lanes are actually easier. So if it's Herman Miller branded product that generally comes out of the U.S., we do ship POSH products from China down there as well, so it's a two-pronged approach. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. Just a couple of other quickies. On the defined benefit termination, have you received all the letters you need to receive from the IRS and the PBGC, or are you all -- is that all the; approvals regulatory or is that part of the process in the second quarter?

Budd, we have all of the greenlights that we need to move forward. Budd Bugatch - Raymond James & Associates, Inc., Research Division: So you don't need any more of those?

Yes, the way that it works, Budd, is actually, you file it, and unless you get a letter, it's presumed that you got approval. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay, Terrific. And finally, can you quantify for us project business versus day-to-day business?

In terms of the mix, Budd, it's actually not while -- project business was up a bit this quarter as we defined it. It was just under 50% of the business. And I think last quarter, we said we had it pegged at about 45%. So up a bit sequentially.

Our next question comes from Todd Schwartzman from Sidoti. Todd A. Schwartzman - Sidoti & Company, LLC: First, on the revenue guidance. At the low end, it kind of suggests that you would see a sequential decline from Q4, I think. If you could discuss that, it will be helpful, I think, particularly in light of, if I heard you correctly, Greg, you talked about unusual project delays. I wonder if you could just give or maybe add a little bit more color to that and let us know when that 4-week period we saw that little slip. It just kind of look at that factor in the context of the guidance and how it fits in there.

Todd, this is Brian. First of all, what we talked about, the 4 weeks or a couple of weeks prior to the end of the year and the first couple of weeks of the new year. We just saw a little bit more softness, which got us to go back and look, not at our projects we've won that are in backlog or anything. We start to look at the funnel activity. You see whether we are seeing it happening in the funnel. And while the funnel, itself, actually stayed fairly consistent, as we look underneath it, we do track things that the sales team is working on, a view of prospects and what's happening with their prospects. And what we saw was the number of prospects that were -- that the decisions were being delayed on. That was higher than what we have seen recent months. So we think that's a little bit of what led to some of that softness in the 4-week period. Now we've seen little bit of that turn back around. And as we go out and talk to the sales team, nobody seems to think this is a pattern that they expect to continue, but it is one that as we looked out, especially in the first quarter, we make sure that we thought through in terms of our range of our forecast. Todd A. Schwartzman - Sidoti & Company, LLC: And Brian, was that -- those, the delayed decisions, was that kind of across-the-board with respect to verticals, or was it concentrated in any 1 or 2 areas?

Well, there's a kind of continuing pattern, the place we saw the most of them was in the government. But I would say, there were others as well. And with the government, you've got to believe some of this is probably the hangover from sequestration and all that stuff, right, with their prioritizing things. But, when I say it's government, particularly federal government. We did see some in some other industries. Again, nothing seems to be -- like projects are for sure coming off the boards completely. It just seems like the decision time lines are longer and people are delaying actually making the final call.- Todd A. Schwartzman - Sidoti & Company, LLC: And delays of this magnitude, I would imagine, occur from time-to-time, not totally uncommon.

Yes, it's not uncommon. It was just as we start to try to get our own minds around were we seeing a pattern that we thought was going to be protracted or was it something that was more transient we're going to work its way through. Now again, it will affect -- we think it could affect the first quarter. But as has been true with this business over the last couple of years, more and more returns on very fast cycle. So I think we'll have a better idea as we get through the balance of the next 6, 7 weeks what's going to happen. Longer term, as we look out for the whole year, we still think if GDP predictions come true and that will drive this much of the numbers, and we feel pretty good about that. So we don't see this as anything that's going change dramatically our plans for the year, but we'll manage our way through the first quarter. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. Because -- just looking back a decade or so, ex the recession, you; really have not shown sequential top line decline, plus you factor in Maharam, contribution for a full quarter, I just wanted to kind of rule out you just being conservative with the low end of that guidance.

Yes. Not trying to be overly conservative, just trying to be realistic about what we can see. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. Okay, fair enough. With regards to Maharam, are you still expecting accretion of $0.09 to $0.11 for the full year?

Yes, right in that range, Todd. I mean ex the number we talked about, the $1.5 million on the inventory side. Todd A. Schwartzman - Sidoti & Company, LLC: In terms of the earnings contribution?

Yes, correct. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. On the HermanMiller Collection, is there any portfolio turnover, if you will, that you guys target as far as refreshing those items, maybe on an annual basis or some other frequency?

Yes, Todd, we've always said this long standing [ph]-- we try to have 20% of our sales of any of our business, be it from products introduced in the last 5 years. I think over time, we'll want to have a higher turn on the Collection business, particularly on the consumer side. But I would say, that business is still sort of chugging along in terms of getting its development queue out there. So because it's kind of a mix of products we've had for a while that we start to market differently, as well as new products, we're still kind of coming up the curve on that. So we have a lot of work to do in getting new products out. So today, I would say, we have less concern about things stopping as much as getting new things into the market. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. And lastly, 2 items. What do you see as far as raw material costs and what's the outlook for CapEx for fiscal '14?

Sure. On the raw materials side, Todd. You're continuing to see, especially on the steel side, prices be flat to down. I know mills are trying to get increases, but I think they're struggling to get those increases. We should see a slight improvement in commodities for us as we look into the first quarter relative to the first quarter. It's not a big giant number, but it does help a little bit. And again, what's your second question, Todd? Todd A. Schwartzman - Sidoti & Company, LLC: CapEx.

Oh, CapEx. We've got 3 or 4 good-sized projects that we're working on, and timing of that is difficult to say when we start -- when the money flows. We spent $50 million this year. It will be up. We think that is in the neighborhood of somewhere between $65 million and the low 70s.

[Operator Instructions] Your next question comes from Matt McCall from BB&T Capital Markets. Matthew Schon McCall - BB&T Capital Markets, Research Division: So first for you, Greg, a couple of clarifications. You gave some color on non-North America. What was the overall organic order and revenue number? I don't know if you gave it or I missed it.

The overall organic on the international segment, Matt? Matthew Schon McCall - BB&T Capital Markets, Research Division: Yes, orders and revenue.

Let me get back to my notes.

Matt, just to clarify. Are you asking for the North American segment or the international bit? Matthew Schon McCall - BB&T Capital Markets, Research Division: Non-North American.

Okay. We'll figure that out for a second, Matt. Matthew Schon McCall - BB&T Capital Markets, Research Division: That's fine, that's fine. And so another clarification, I don't -- did I hear your gross margin range and SG&A range for next quarter -- or did I miss that? Because you give it in the past, maybe I missed it.

We gave a gross margin of 36%, and we gave an operating expense number of $127 million to $130 million. And those are numbers are ex the Maharam inventory thing we discussed, as well as ex the pension legacy. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay ex $1.5 million. And then for anybody that wants to take it, following up on Budd's question about the project versus day-to-day. It did tick up a little bit. I'm curious, you had some positive things to say about visits, mock-ups. As you look at those customers that are coming in, can you talk about the makeup of those customers? What type of projects are they working on? And specifically, I'm curious about any tick up in activity related to new buildings, new space. Are you seeing any activity pickup there? And maybe talk about your construction outlook a little bit.

Todd, it's always a mix of folks that are refurbishing. I would say, over the last couple of years, you have seen a fairly good size of activity in folks that are building new corporate headquarters, and you guys, I'm sure, are all reading about all of those that are out there from Facebook's got a new headquarters going up to Apple to ExxonMobil. So you're seeing a lot of folks come through on that end, we're seeing a fair amount of healthcare customers coming through who are beginning to ask how are they going to house all the folks coming through with health care reform. Of course, they've got a double-edged sword. They got to a, figure out how to house them all, and they've got to also figure out how to do it all for less. So you've kind of both sides of that thing happening. But I'd say it's a fairly normal mix between folks that are refurb-ing and folks that are building new. I don't see anything that is significantly different than a normal pattern. Matthew Schon McCall - BB&T Capital Markets, Research Division: So nothing really has changed. What about your outlook? There's the debate I talked about -- maybe just a debate I have with myself, but it's a debate about the outlook for the construction and completion of new space. Are you expecting that mix to shift towards more new space over the next few quarters?

I don't have any data that would tell me it's going to shift in the next couple of quarters. Matt, I don't know that we even see the data in that way, in fact. I mean, construction, typically, is a longer cycle issue rather than a short cycle issue. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay, got it. And then just one more clarification about the slowdown. Is it still ongoing or was it something you saw and it's picked back up? I mean, you seem pretty confident that it was short lived, but have you seen kind of recovery from that?

Well, I wouldn't say we've seen enough yet that we can say we've got a definite trend, Matt. We've only had a couple of -- we only have 3, 4 weeks since the end of the year, so it's a little early to call anything a trend. I just think as we look out on what's happened in the broader GDP -- in the broader economy. And to me, while it's always difficult to say an economic forecast is accurate, as you know, I think the predictions of where GDP is going in the country and therefore, where business forecasts are going to kind of mid to long term. But they feel like they're in the right zip code to me. And I think if that happens, we'll see good activity in the industry, and we think we'll get our fair share of that. So I think that's only tempered by, it's a little hard to figure what's happening globally in the other markets. I mean, Europe is still hard to figure out and what is the drag on the U.S. from those other places, is one that's just a little bit difficult to predict.

Matt, on your question on sales and order, organic and international, the sales number in Q4 was flat. The order number was up about 7%.

Thank you. And I'm showing no one else in queue at this time. I'd like to hand the conference back over to for any closing remarks.

This is Brian. Thanks again for sharing your time with us this morning and for your ownership and continued confidence in Herman Miller. I hope you can sense our excitement in the progress we are making. We're building a powerful portfolio of top brands backed up by best-in-class product design, operational capabilities and channels, with momentum and financial strength to take us even further. We're optimistic about the year ahead and look forward to giving you another update on our progress in September. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.