MillerKnoll Inc (MLKN) 2007 Q1 法說會逐字稿

Good morning everyone, and welcome to this Herman Miller Incorporated First Quarter Fiscal 2007 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 Ms. Beth Nickels, Executive Vice President and Chief Financial Officer; and Mr. Brian Walker, President and Chief Executive Officer. Ms. Nickels and Mr. Walker are joined by Joe Nowicki, Treasurer and Vice President of Investor Relations. Ms. Nickels and Mr. Walker will open the call with a brief presentation will which will followed by your questions. We will limit today's call to 60 minutes and ask that callers limit your -- their questions to allow time for all to participate.

At this time I'd like to begin the presentation by turning the call over to Mr. Walker. Please go ahead, sir.

Thank you. Good morning, everyone. As always I'll open our presentation with a few introductory remarks and then turn the call over to Beth and Joe for a more detailed revue of our results. We plan to keep our prepared comments short so that we have time for any questions you may have.

We are off to a good start to our fiscal year. Coming off the excitement created by our successful showing at NeoCon, demand -- the demand for our products has increased to its highest level in almost six years. Orders in the quarter paced at an analyzed rate of $2 billion. Both sales and orders experienced year-over-year and sequential growth. Keep in mind year-over-year comparisons of sales and orders for this quarter don't tell the full story. Remember that we had an extra week in last year's first quarter, and those result -- results also included the sales and orders of three dealerships which are no longer owned or consolidated under FIN 46. We had good growth in both of our primary segments, North American Office Furniture and International. And our other market initiative also performed well.

We are particularly pleased with the performance of our international business. After a very strong fiscal '06, we again achieved tremendous growth this quarter with year-over- sale -- year-over-year sales and orders up 27% and 44% respectively. This is after adjusting for the extra week. The challenge this quarter remained the rising costs of raw material. We saw practically $4 million in year-over-year increases in the cost of steel, aluminum, plastics, wood, and fuel. Fortunately we were successful in more than offsetting higher commodity prices through increased leverage of our fixed cost, combined with the benefits of the price increases we implemented last year. Our gross margin increased a full percentage point over the prior year despite the higher raw material cost. This is an item we'll continue to watch closely as we go through the year although currently the commodity markets appear to have stabilized.

We spent a lot of time last quarter talking about our higher operating expense spending. I'm happy to report this quarter that our operating expenses are down significantly from the Q4 run rate. We still had a couple unexpected items and our increased spending on the new product launches continued into the quarter as we anticipated. But overall our spending levels were down 6% or over $7 million from Q4. As a result we were able to achieve much greater leverage from our top line growth. This will continue to be an area of focus and challenge as we push for leverage at the same time ramp up our new market -- market initiatives. Specifically, next quarter will mark the launch of the second new venture in the Herman Miller creative office. Many of you are familiar with this initiative that we had code named Project Purple. Purple's a new infrastructure product that enables building owners to create pro -- to create programmable interiors. In addition we will continue to ramp up the implementation of our China entry strategy. We continue to closely monitor the economic news with great interest. We're pleased at the macroeconomic drivers of our industry have remained favorable, namely corporate profits, nonresidential construction, and office vacancy rates. We're also happy to see the folks in Washington are thinking about our industry and we're encouraged that the House members approved the Federal Prison Industry's Competition and Contracting Act -- Act last week.

Based on our great performance again this quarter, we are well on track towards our strategic goals of doubling the business and improving our operating income. Our new product should provide the fuel to keep our domestic growth going. In addition, you saw more visible evidence of our strategy implementation in emerging markets this quarter as we opened our new show -- showroom in Shanghai. We also made significant progress in our Chinese manufacturing operation in Ningpo. It's right on schedule and we should be up and running by next calendar year. In short, we are looking forward to a strong second quarter. And more importantly, continued long-term growth in sales and earnings, consistent with our state of objective to reach $2.6 billion in revenue by 2010. With that, I'll turn the call over to Beth and Joe for additional discussion of our first quarter results.

Thanks, Brian. Again this quarter we either hit or exceeded the targets we established. We were above the middle of our projected sales range at 450 million, thanks to solid performance in North America and an outstanding effort in the International markets. As Brian mentioned our gross margin performance was exceptional at 33.9% and our operating income as a percentage of sales was above 10%. As promised, our operating expense levels dropped significantly from the prior quarter. We also took advantage of the lower stock price during the quarter and brought back a significant amount of stock further reducing our share count. As a result we ended up exceeding the top of the range for our EPS guidance, delivering $0.43 of earnings per share.

Now let's get into the specifics of sales and orders. Sales of 449.7 million resulted in both year-over-year and sequential growth in our top line. While a 4.4% increase in our reported sales may not sound very exciting, the prior year sales of 431 million had a couple items worth drawing to your attention. First, as we mentioned in the press release, the prior year's first quarter included 14 weeks of operations compared to our standard 13-week quarter. This amounted to approximately $31 million in extra sales last year. That would take our 4.4% sales increase to approximately 12.4%. The prior year also included approximately 11 million of sales from dealerships that are no longer consolidated. After factoring out these noncomparative sales, our comparable growth in sales would be over 15%. Orders were up about 2% from the prior year first quarter reported numbers. Once again, for comparison purposes, if you exclude the extra week of sales, which was about 35 million, you get a 9.5% growth rate. Then if you adjust for the three dealers that we no longer consolidate, which was approximately 14 million, our comparable orders actually grew about 13%. One other item to note on orders is that in the prior year we implemented a price increase which was effective September of '05. As a result we experienced a ramp up in orders a last year right before the end of first quarter. That makes our 13% growth rate even more impressive. In fact, the orders of 501.2 million are the highest quarterly orders since November of 2000.

On a sequential basis, fourth quarter to first quarter, sales were up about 1.3%. Keep in mind that traditional seasonality patterns normally drive the first quarter to be lower than the fourth quarter. Orders on a sequential basis were up 13.5%, which bodes well for double digit top line growth to continue into Q2. Our domestic business posted a year-over-year gain in sales of approximately 1.3%. The three dealers that are no longer owned or consolidated were all located in North America. So the reported growth percentages don't represent comparable performance. If you remove the extra week and the three dealers from last year's results, domestic comparable sales increased 12.8% year-over-year. Comparable domestic orders grew 6.7% year-over-year after adjusting for the extra week and dealers. But again, keep in mind that the prior year first quarter was impacted by the acceleration in orders from the price increase, which we had estimated last year to be about 20 to 25 million.

Just to give you a quick update on some of the new products we launched. They're doing great. My Studio Environments product is right on track with our initial business plan estimates. We have several fortunate 500 companies that have chosen the product for significant projects. Overall, the customers are embracing it as a revolutionary product, that's a great tool for creating brand image and retaining employees. Vivo has been a terrific success so far. We already have verbal commitments for about half our our first year projected volume after only 3.5 months. The Foray chair is getting great preliminary feedback from several corporate headquarter executive office projects and the Leaf light will begin ship -- shipping next month. By the way, our existing products continue to have big wins, as well. The Mirra chair just won a 16,000 chair order, one of the largest seating orders we have ever had.

Our International business had phenomenal performance again this quarter with sales of 94 million, up almost 18% year-over-year. Once again, the prior year comparables need to be adjusted for approximately 5.7 million of sales due to the extra week of operations. After adjusting for this, international sales grew almost 27%. Even better news is that our international orders after adjusting for the extra week are up almost 44% from the prior year first quarter. We continue to see broad over performance across most regions this quarter. The macroeconomic environment in Italy helped our continental European sales. Improvements to our Abak product line drove enhanced sales and margins in the UK, and our focus on seating significantly improved our revenue in Brazil. As Brian mentioned the International sales don't even include any impact as of yet from our Ningpo China operations. Another positive sign for future top line growth.

Regarding our backlog, ending consolidated backlog was just under 290 million, up 6.5% from last year's first quarter level. This was even more impressive when considering the price increase last year pulled orders into the first quarter pushing the backlog upward. Sequentially backlog is up a very strong 22%. Now let's talk about growth margin. Gross margins at 33.9% of sales was up one full percentage point from the prior year first quarter level of 32.9%, but down slightly a tenth of a point from the Q4 level of 34%. As Brian mentioned, we continue to see the favorable impact of the pricing changes put in place last year. In addition, we gained significant benefit from the leverage of overhead due to the additional volume generated both year-over-year and sequentially. It's also important to note that our international gross margins held constant year-over-year. We've been able to completely offset the cost of starting up a new plant in China, which is not yet producing product, a great success story.

Raw material commodity prices overall had an unfavorable impact on gross margin this quarter both compared to the prior year and even the prior quarter. Once again we experienced increases in aluminum, wood, plastics, and steel. While steel prices increased this quarter, we recently have seen the market stabilize. Aluminum prices also settled down after the big run-up in last years forth quarter which continues to be impacted by an overall reduction in supply. Our transportation costs have actually declined as a percentage of sales from the prior year first quarter. While diesel costs are up almost 20% from last year, we have been able to more than offset the increases through operational efficiencies. Our logistics team has done a great job of increasing cube utilization, increasing shipment consolidation, and adding lower cost capacity at our core carriers. Creative thinking and hard work has really made an impact here.

Moving on now to operating expenses. For the quarter, operating expenses were 106.6 million or 23.7% of sales compared to 102.5 million or 23.8% of sales last year. The prior year did include approximately four million of compensation costs for the additional week of operations. Most of the increased spending in the current quarter was the result of research and development costs associated with the new product introductions, variable selling costs driven by the higher sales levels and increased allowances against the higher accounts receivable balances. This was also our first quarter of operations under FAS 123R, the new stock based compensation accounting standard. As a result we recorded 1.4 million in stock based compensation costs compared to approximately 800,000 in the prior year under APB 25. When you roll this all up, operating income rose to 10.2% of sales, up from the 9.1% recorded in the first quarter of last year, and significantly improved from the 8.4% recorded in the fourth quarter. By the way, it's worth noting that our International operating income percentage was approximately the same as the total Herman Miller consolidated percentage. Our International operations are now contributing in a significant way to the overall profitability of Herman Miller. Consolidated net earnings for the quarter were 28.5 million, or $0.43 a share. This represents a 26.5% increase over last year's EPS, which demonstrates our ability to drive great path line leverage.

Now I'll turn the call over to Joe Nowicki, Treasurer and VP of Investor Relations, to talk about our cash flow and the quality of the balance sheet.

Thanks, Beth. Cash flow from operations drove a use of funds of 6.4 million this quarter as compared to a source of funds of 20.9 million in the prior year. This is primarily due to the payment of the prior year's incentive compensation. It always gets paid in the first quarter, but as you recall our performance last year drove incentives that were larger than the prior year. We paid $41 million in incentive-based compensation this July as compared to 26 million in the prior year. We also saw $6 million increase in our accounts receivable balance. The increase was primarily in our international operations. Higher international sales, combined with traditionally longer collection cycles in some of our international markets, drove the increase in the AR balance based on our revue of the detailed accounts and it doesn't appear there is any significant deterioration in the quality of the AR.

Inventory increased by approximately $11 million for the quarter. Most of the increase was timing related and will reverse next quarter. We normally build up Federal Government work in process inventory this time of the year in anticipation of Q2 shipments. In addition, we had several large orders that didn't ship at the end of the quarter due to the Labor Day holiday. We did have some inefficiency in our inventory management processes which we've since identified and we have a plan to get at them as we move though the balance of the year. Capital expenditures for the quarter were 8.6 million, down from 11.2 million in the prior year.

Now moving on to our liquidity and cash position. We took advantage of the softness in the stock markets during the quarter to ramp up our share of purchases. We bought back 1.7 million shares at a total cost of $46.5 million for the quarter. We still have approximately 57 million remaining on our board authorization. As we discussed in prior quarters, our capital structure plan was to continue to work down our excess cash balance through our share repurchase program. After our purchases this quarter, our ending cash balance was 41.9 million. Going forward we anticipate strong positive cash flow from operations to return and are moderating our share repurchase activity, maintaining our cash balance in the 50 to $70 million range. It's also important to note that we still have a lot of financial flexibility in our balance sheet. Our debt levels are now down to only 179 million or less than 9% of our total enterprise value. In addition, we have approximately 137 million of available capacity on our bank revolver.

Thanks, Joe. Let's turn to the outlook for the second quarter of fiscal '07. As Brian mentioned we got a quick start on fiscal '07. More over our backlog at the end of the first quarter is very strong and our order entry rates continue to be solid. With that we anticipate sales for the second quarter to be in the range of 490 to 510 million which represents an increase of 12 to 16% over the prior year. If we hit the middle of the range and do 500 million in sales, it will be the first quarter since May of 2001 we've broken the $500 million level. We're looking forward to that accomplishment.

In terms of our earnings -- earnings guidance, we expect earnings per share between $0.53 and $0.57, which represents an increase of 33 to 43% over the reported EPS of the prior year, once again, demonstrating our ability to drive great leverage from our top line growth. I'd like to now turn the call back to the operator to open it up for your questions.

[OPERATOR INSTRUCTIONS] Susan Maklari, UBS.

Good morning.

Good morning Sue.

I was looking at the margin side, as we started this year it seemed like SG&A was going to be a bigger contributor to overall EBIT margin improvement. And now as we're kind of going through the year it seems like, the first half especially, it's going to be more on the --the cog -- or the gross margin line. Can you kind of just walk us through how we should be thinking about that and maybe what the incremental benefits are?

Sure, I think if you look at the year-over-year operating expenses the main increases came from sales and marketing. Because of the new products rollouts we still have costs that we're incurring on those. We had an increase in bad debt and warranty. A lot of it is related to the higher volumes and higher balances, continued increased spending on R&D over last year. It is down from the fourth quarter, however. And then an increase due to the option expenses. So those are the main year-over-year increases. Going forward, you'll probably see some moderation on the operating expense line. But then the gross margin will be a little bit more of a challenge because as the newer products begin to see a higher percentage of our sales and those sales start to kick in, we always have more challenges on margins in new products. They tend to be lower until you get the volume to cover the overhead. So you'll probably see a little bit of a -- of a flip in the contribution in each of those areas towards the latter half of the year.

Okay, and what is the kind of overall plan for the new product ramp-up? When will that actually start to ship and how will it build up though the year?

We -- Susan, this is Brian. We've actually already started to ship a little bit of product, especially on the My Studio side. Vivo starts to really ramp up a bit in the second quarter. The majority of the volume will probably be in Q3 and Q4 on that product line. The Foray product, actually we start to do some shipments this quarter, probably not much until fourth quarter would be my guess, even though it's open for order entry now. So we'll start to ramp throughout this year. The biggest volume will -- will probably be driven on those two new systems products. And it'll be really second half loaded. Although we are running very hard right now in capacity in both product lines as the early demand is greater than -- than what we had in -- in some of our early planning process. So we're working hard to catch up right now with -- with demand requests as we're trying to debug the processes if you will.

Okay. Thank you.

We'll take our next question from Budd Bugatch with Raymond James.

Hi there. Congratulations on the quarter. And on the guidance too. Good morning, can you hear me?

Yes, you're fine.

First question, can you talk a little bit about the backlog, the $290 something million and what's outside of that backlog? I know that you have a practice of not including projects that are -- that are long-term shippers in that. How much -- what's the -- can you quantify what's outside of the backlog?

Everything that's in backlog has a scheduled shipment date. So it doesn't go into backlog until it is scheduled to ship and normally it's about seven -- it's shipped out in about -- 85% of it ships out in about seven weeks, there's about seven weeks of backlog -- there are orders in the backlog. In the current backlog, there's about $7 million worth of large orders we've identified that aren't scheduled to ship in the second quarter that are sometime after the second quarter. So it brings the backlog available for shipment in the quarter to probably about 283 million.

I understand that, Beth. But then there's also orders that you've won that are not in either of those numbers, right?

There are -- there are commitments, verbal projects we have won that we have -- don't have an official order for or a --

Those aren't really quantifiable, Bud, because they're really -- you know what we used to jokingly refer to in the old days as [lot] orders, where people might say hey, I know I've won this customer and it's a lot, but we don't really have a systematic way for tracking that stuff day in and day out.

And the specifications change. It's -- it's based on what the expectation is for the project.

I think probably more importantly, Bud, that gets after your question, we saw, as you could tell from the numbers, good order entry per week in the first quarter, probably a little stronger than we came into the quarter expecting, which was good news. Which is really why the estimates are up. Not only did we finish with good backlog, we ended up with a stronger pacing than we originally -- than we originally went into it with and we've seen nothing so far to tell if there's a change in direction on that.

And what was the end of the quarter pacing? What was the last week of the quarter? How much was the --?

You know, picking one week doesn't really help you. I think it's better to look at a -- at an average then it is looking at a week, because it bounces around. You know often that last week in the quarter gets a little flaky and the first week gets off a little light. And I don't remember when the holiday hit but that also moves it around, because in some cases it's a four day week rather than a five day week. So you're better off looking at the averages.

So was the average of the last four weeks higher than the average of the first four weeks of the quarter? Can you kind of get -- help us at all on that?

I think they were -- it was actually relatively stable this quarter. It was one of the more stable quarters we had. And the weekly average was I think around 38 million. And we had a few weeks above, a few weeks below. We had the Labor Day holiday week come in afterward. So that one of course was a four day week but overall it was pretty consistent throughout the quarter.

Let me move to another area. Just margin goal. You have an 11% margin target, which you're closing in on. When will you re-address that target, if you will. And can you give us any guidance as to what you think the upper bound might be?

When we consistently achieve it. Seriously. I think that's one that when we get consistent at a level that's -- that's either there or really near there, then I think it'll be time to start to talk about where we go from there. As you know, Bud, with our EVA plan, which we focus on greatly in terms of our internal metric. It is all about continuous improvement. So, you know, I guess what I would tell you is you guys can rest assured that for us, as a management team and all the way down to the folks on the shop floor, it really doesn't matter in some ways about goals as much as it does improvement off of where we are. So if we hit 11%, if we want to continue to earn the kind of incentives that our folks want, they'll have to drive it higher to be able to do that. Or else do it through top line growth. And so, I'm not overly worried about resetting that real soon. That was a target, as you know, we set a number of years ago as a -- as a goal in our five year plan. We are getting towards it, but the team I will tell you, they're not going to be satisfied with just stopping there if we think we can go past it.

Bud we're trying to be cautious because if you look at our strategy, the main growth areas are in new and emerging markets. And as we enter those markets, the first few years of our strategy, it's going to take longer. We'll be making investments, we'll be ramping up our selling capacity, and our operational capacity. So we want to be cautious that we don't get over excited about a number that may not be achievable.

Okay. My last question, just, you gave us some of the metrics on international and domestic sales. Can we have them in a -- you want to give us them in a -- amount of the dollar numbers? Or do we get that anymore? I'vew forgotten.

I think the sales were 94 million for international. Let me look and check that number.

Yes, that's correct, Beth. The international sales in total for the quarter were $94 million.

And Joe, do you still give us orders, I can't remember anymore?

Let's see. I think we do talk about them in the [inaudible] -- the orders for the quarter internationally were about 110 million. So, again, great strength in the quarter. I think that ties with -- we told you about the growth in orders being, as Brian described them, up, I think, 44% when you adjust for the extra week.

Thank you very much, congratulations.

Thanks, Bud.

We'll take our next question from Matt McCall with BB&T Capital Markets.

Thank you, good morning.

Morning, Matt.

Matt.

I guess the first question, the guidance obviously very good and looks like the market and some of us were surprised by it's strength. Are you surprised by the strength? I know you've got some -- and I think Bud was talking about some of the visibility or the pipeline activity you have. Are you surprised by the strength in orders right now? And then I guess the second part of that question, talk a little bit about the outlook for the rest of the year, especially, I don't think we -- you've had a call since the [globe win tight] numbers came down. Any concerns there? I guess it's a two-parted question.

Matt, first of all, were we surprised? I would say certainly we outperformed from an order perspective what we expected in the first quarter. Not by huge amounts, but enough that when you see the backlog get to where it is and where the pacing is fairly consistent, higher than what we expect, if that gave you enough confidence to move those numbers up on the second quarter so. But it doesn't have to be a lot different to drive, you know. You get $1 million more a week and you put that in your backlog coming out of the quarter and if you think that's going to continue, that's really, I mean it's pretty simple in that regard. So it is -- it is stronger than -- than what we would have thought. In terms of the balance of the year, you know of course, we don't do any forecasting beyond the next quarter. Difficult to see out that far.

Right.

I think, if you ask are we -- were we surprised by the global insight numbers, you know, we continue to look at their -- their forecast. They -- they've gotten better at being accurate in the short run. Certainly, I think that difficulty that both global insight and you, and all of us have is it's still difficult to predict turns, right? When is it going to turn in a different direction? So their number looks reasonable if you believe all of the underlining data is also going to be consistent, if you follow what I mean. You know, personally, we kind of came into the year saying if -- if you saw somewhere between 5% and 7% growth in the domestic market for our fiscal year, that would be a pretty good place to start from. It -- so if it runs higher, like they're predicting, we'll probably do better than what we came into the year hoping. But, you know, it's a little hard to pick that up right now and count it as done. Given, especially some of the -- you know the economic picture, while I think better than what we had coming into this quarter with the prospect of a soft landing looking more likely than not. There's still enough stuff out there, as you know in terms of uncertainty that, I'm not sure I'm ready to hang my hat on their -- on their forecast yet.

And I think if anything when we looked at the quarter, where we would have been surprised or gotten more orders than we had expected was how broad based the international orders have been. And that it's in so many countries. And normally when one country has a very strong economy there's another one that's sort of plummeting that offsets it. And we're very pleased with how mant different countries right now are adding to our basin.

I would tell you, I'd add one last thing, Matt. This is Brian. Is that I think as we come out of the third quarter, you know and of course, we'll be a lot close to the end of the year by then. I think we'll have a much better view about where the industry is headed given what's going on in the overall changes in the economy. Generally, whenever we've seen changes in the industry, it seems to have always been in that kind of January/February time zone when it really starts to come home to Ruth because people have reviewed their budgets for the next calendar year, those folks that are 12/31 year-end folks. And then you begin to see that, you know, that more clear picture, what the customer demand looks like. Right now activity levels are -- are strong in terms of customer visits. And we're hearing positive things from dealers. So we have no sign to tell us there's any change in direction right now. But as always, we try to do our plan, our internal plans, at least relatively conservatively so that we don't get ahead of ourselves in terms of both investments or expenses in case we do see a turn.

Hey Matt, this is Joe, the one other piece I'll add on, too, in reference to the [bitma] and the forecast pieces, is you and I have talked about strategically, we're trying to distance ourselves a bit, as well in our strategic intent by also trying to grow our business in some other areas outside of just the domestic area. But we've put work in, as you know, into growing in some of the emerging markets internationally as well as some of the vertical markets in our Herman Miller Creative Office. So I think longer term, those will be the other elements of our success, as well.

Okay. Okay. And jumping over to the inflationary environment, I think last quarter you -- you said maybe 15 to 20 million expected in '07. You talked about four million this quarter, maybe a stabilization for a couple of the factors, recently. Is 15 to 20 million still a good -- good idea for what the pressures are going to be? And then I know the price increase benefits are probably going to anniversary sometime in Q2. Any talk of -- of -- of another price increase?

Yes, Matt, I think the 15 to 20 million is probably still a reasonable range. I think there's certainly some signs that we might be able to manage our way to the bottom end of that range, or at least we're more confident that that's more likely given some of the more stabilized results in raw materials recently. I do think we'll probably see a bit of a tick-up again in raw materials in Q2 over Q1. I think we're expecting that. Some of that's grandfathering in some of the changes, you know, that happened earlier in the year. And hopefully as we get to the second half we can work some of those back down if we continue to see, in particular, oil at $60 a barrel, it's going to help on the plastic side. And hopefully at some point we'll see steel follow. The one difficult one still is chip board production is actually fairly tight in supply. Now that's not one that you'd really think of in a broad commodity sense. That one has us a little concerned about what the direction of that is. And that was built into our forecast. So that's in that number, but it's one we're watching closely.

In terms of price increase, you know, certainly if we continue to see commodities higher, it would give us much more confidence that an additional price increase would stick. In addition, watching some of our friends and neighbors who have announced additional price increases and implements -- implemented some of them recently, makes it more likely that we will try to -- to capture some of those cost increases back. But we'll talk more about that as we move to the rest of the year. We really try to keep our team focussed so far on the new product launches. And we didn't want marketing or sales time tied up with price increases when we thought we had a great story to go out and tell folks about the new product. So we made a pur -- we made a purposeful decision to not try to do a price increase at the same time as we've done in the past so that those folks can stay focussed on winning business from customers.

Okay. Okay. Well, congratulations on a great quarter. Thank you.

Thanks.

Thanks Matt.

[OPERATOR INSTRUCTIONS] We'll take our next question from Chris Agnew with Goldman Sachs

Good morning.

Morning, Chris.

Maybe just go back onto the last subject Matt was talking about. Can you just remind me of when the last price increase was? Was it last September? And roughly what it was? And how much are you realizing rolling forward a year?

Last price increase was September of '05. So about a year ago. And it averaged about 4%. We think probably between a third and a half of it is sticking.

Okay. And moving onto your North American business, are there any particular product highlights that you bring out? For example, is your [seating] business growing faster than your overall North American growth?

Chris, we had -- we had a bit of a mix shift, a stronger mix this quarter in -- in the seating business. Overall there's no particular industry segment or in -- or geographical segment of the U.S. market that we see particularly growing fast and that's pretty broad based. And I will say that while we saw a little higher mix in -- in -- in seating, the fact is we saw all product areas grow. So it wasn't as if we had one area growing and another declining. In fact we had really good growth in our filing and storage business as well as in seating. So it was good there. And certainly we see positive signs that the investments we made in the system side are going to take hold in the second half of the year with the new products that we've launched. So we feel pretty good that our strength areas of seat -- seating and storage are doing well. And, you know, we've had a historical strength on the system side and made a lot of investment there that so far early returns from customers is -- is quite positive. So we feel pretty good about where our investments were lined up with -- with -- with our growth rate.

I'd also say, by the way, International is a similar story, that it's not one particular geographical region. It's pretty broad based, both in Europe and in Asia, and it's -- it's several markets where we've seen good growth. And, in fact, one of the -- one of the great things about our International business is we're actually doing better today on the workstation side as well as in seating with our Abak product line, which has really gotten pretty good results throughout International.

And the other thing I would mention on the seating business that although our seating did increase as a percentage of sales, it wasn't just the on Aeron chair. We had a great increase in our other chair lines, the Celle chair, the Mirra chair, I mentioned the large project win we just had with Mirra, and then also our Caper chair. So it's much more broad based then it's been in the past in showing that our investments in broadening that portfolio are starting to pay off.

And maybe just -- thanks for that . Just a follow-up. I know in previous quarters you've had strength in UK, several large particular orders or projects. Is -- is that -- is it [inaudible] projects that strive -- continuing to drive the business UK but also Italy?

It's a combination, and it isn't just the UK and Italy. It's places like Australia, Holland, Singapore, France. We do think in the UK that our market share has gone up probably about 60% in the last three years. And a lot of, the market share we're taking is actually coming from British companies. So we're please that we're really able to make progress with some of the local -- against some of the local competition.

And in fact, I tell you, Chris, one of the most important things we've done in the UK, that our team has done, is we've done a great job of being able to reach out to more day-to-day business. You know the UK as you know, as a lot -- lot of people often say, the UK is a -- is a country made up of shopkeepers so there's a lot of small businesses, which in the past we didn't reach, but we've done a great job of broadening the base of our distribution throughout the UK in developing some products specifically targeted at those customers and the British Government that enabled us to really have a broader base than we had historically.

Excellent. Thanks very much.

[OPERATOR INSTRUCTIONS] And it appears that we have no further questions at this time. I'd like to turn the conference back over to management for any additional or closing comments.

Thank you. In closing, we're off to a great start to the new fiscal year. We're encouraged by the excitement for the new products just launched, and we are confident our implementation as we enter new and emerging markets. We are on track to achieve -- to achieve our strategic vision of doubling the business by 2010. But in the midst of great progress I feel it is also important to take a moment to recognize that passing of Bill Stumpf, an extraordinary designer and a personal mentor of mine who had an enormous impact on our Company over many years. We will miss Bill, but we are grateful for his lasting legacy as both a design partner and a friend. His work and his wisdom will continue to inspire us as we pursue new and innovative problem solving designs.

Thanks again to all of you for your time this morning. We look forward to sharing our second quarter results when we speak with you again in December. Have a great day.

Thank you. Once again, ladies and gentlemen, that concludes today's call, thank you for your participation, you may disconnect at this time.