Steelcase Inc (SCS) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to Steelcase's fourth-quarter earnings conference call.

As a reminder, today's conference call is being recorded.

For opening remarks and introductions, I would like to turn the conference call over to Mr. Terry Lendhardt, Vice President of Corporate Strategy and Investor Relations.

Thank you.

Good morning, everyone.

Thank you for joining us for the recap of our fourth-quarter and fiscal year 2004 year-to-date results.

Here with me today are Jim Hackett, our President and Chief Executive Officer, Jim Keane, our Chief Financial Officer, and Mark Mosing, Vice President and Corporate Controller.

You should have received and hopefully have read our fourth-quarter earnings release dated Monday, March 29, 2004, which crosses the wires yesterday evening.

That same release was posted to and is now accessible on our Web site, along with a number of supplemental webcast charts.

A few non-GAAP numbers will me mentioned during this call and a reconciliation between those numbers and reported GAAP results are included in the supplemental charts.

This conference call is being live webcast.

A replay will be available on our Investor Relations site at Steelcase.com shortly after this event concludes.

In addition to our prepared remarks today, we will respond to questions from investors an analysts.

At this time, we are incorporating by reference into this conference call any subsequent transcript, except our safe Harbor statement as incorporated in last night's release.

Certain statements made within the release and during this call constitute forward-looking statements.

There are risks associated with the use of this information for investment decision-making purposes.

For more details on these risks, please refer to last night's release on Form 8-K, the Company's Form 10-K for the year ended February 28, 2003 and our other filings with the Securities and Exchange Commission.

Finally, the Web cast of this call is a copyrighted production of Steelcase Inc.

Any reproduction, publication, or rebroadcast without the expressed written permission of Steelcase is prohibited, copyright February, 2004, Steelcase, Inc.

With those formalities out of the way, I will turn the call over to our President and CEO, Jim Hackett.

Good morning.

Thanks, Terry.

You know, I told the management group here at Steelcase that if we could have had this fiscal '04 annual meeting tomorrow, I would like to get it teed up and move on with this coming year, while needless to say the process of creating all of the proper documentation on the 10-K requires that the annual meeting be held on our June date that is scheduled.

You may wonder, based on the coming forecast for the next year, why would I say that?

I think next year is better.

First, the reason I believe that is that we can see the cumulative impact of 36 months of hard work in the rationalization of our industrial system.

The nature of our industrial system is a view that covers from when a product is ordered, built, ship and installed, kind of end of end.

It is interesting, with all of the change that we've been about, in the same period, there are measures that show our quality and the experience of Steelcase has improved.

We have more to do in that area but I was encouraged by comments by our North American dealers where they confirm that we have improved.

A second reason for optimism is the fact that our people (indiscernible) a year that if we hit our targets, they can earn a bonus.

I think it is important to reward them for patience, hard work and persistence.

This coming year is hard to call.

In fact, I feel a great challenge in trying to determine what will happen to the top line beyond letting you know that we see it improving.

The challenges lie in the fact that much of the economic recovery in North America is a well-known jobless recovery; that is our business.

Some of the facts show us that if the economy were to be hitting 200,000 new jobs a month, post a recession, the economy may be limping along at 1/10 of that rate.

It is no wonder that, while the productivity gains and corporate profits have improved, a good indicator for our future business (inaudible) sense is uneasy about where this is going.

So, our forecast suggests a weaker start to this year due to volume levels being suppressed.

Three of the four quarters for the year are going to be profitable.

This would be better than last year.

I want to emphasize that we need to think in terms of a broad range of outcomes due to the volatility of the order patterns.

Like you, the signs are in favor of better expectations.

The market has begun to tick up.

Whether it is normal seasonality is a guess us to how the back half of the year plays out but I can confirm that, versus previous seasons during this recession, we've got some growth to report.

Because our installed base links us to a larger client group than anyone in our industry, we expect that, as clients begin the effort of renewals, Steelcase gains some advantage in the growth out of a recession.

I would like to cite the Company's gain in market share post the early '90s recession as a proof statement of that dynamic.

If I add to the momentum of our large installed base, the strong concepts we have to help those clients modernize their offices around the kinds of shifts that drive change, then I think Steelcase is well positioned for growth out of this recession.

There is also another fact coming into this year as well.

Our product portfolio is in better shape than when we went into the recession.

Not only did Steelcase win the lion's share of awards at NeoCon last year but we've begun to preview, under disclosure, a very exciting new product to be introduced at NeoCon this year.

It shows, quite clearly, the capability of the designing an engineering groups who produced all of those products that won last year.

I am also bullish on the performance of our SDP companies and our International group.

Both have been distinguishing themselves in a tough time.

SDP has done an excellent job of holding relative profitability and International is growing in a market that is highly depressed.

So, when you hear Jim Keane's financial review, you will see, in our planning, the layering-in of the steady increase in volume.

We're working on faster and more aggressive ways to improve earnings and you know, I do face the delicate question of whether we cut too much or have us weighed properly for a robust recovery.

So, we have picked a point that we think will produce the best results.

I'm sure you will have lots of questions about this volatility, so let's get right to Jim Keane, our Chief Financial Officer, and his comments about the fourth quarter, the completion of the year and the outlook for fiscal year '05.

Jim?

Thank you, Jim.

Yesterday, we reported a fourth-quarter loss of $14.2 million, or 10 cents per share, before the cumulative effect of accounting change.

These results were within the 6 cent to 11 cent range we estimated in our December 18th press release.

Revenue was $563 million in the quarter.

In the prior year, the fourth quarter included 14 weeks.

If you adjust for the extra week, sales were down 2.7 percent versus the prior year.

The current quarter includes $12 million in favorable currency translation benefits versus the prior-year quarter, so the decline was greater in constant currency.

From this point on, all year-on-year comparisons will be after adjusting the prior-year quarter to a 13-week quarter and adjusting the prior year to 52 weeks.

We said last time that despite positive signs in the economy, we were not seeing a recovery in order rates and had seen some seasonal weakening in early December orders.

In fact, orders weakened further and remained soft in January and February.

As a result, our shipments were below our expectations.

Revenues for our North America segment were down 9 percent from the prior-year quarter.

However, our other two business segments saw year-on-year sales growth.

The SDP segment increased squarely revenues by 3 percent versus the prior year; that is the first year-on-year increase in the last three years.

International grew sales by 11 percent.

Even without the $12 million currency translation benefit, International had a slight 1 percent year-to-year growth in sales.

Now, I will talk about profitability.

Again, our policy is to give you plenty of information about the factors affecting our profitability.

You can use that information as you wish but we're not providing Pro Forma earnings per share.

We expected to incur after-tax charges of 3 to $8 million related to restructuring activities net of favorable income tax adjustments.

The actual net after-tax impact of these items was a gain of $2.9 million, which helped to offset the impact of the revenue decline.

The after-tax gain was made up of $13 million of after-tax restructuring and other charges offset by $15.9 million of favorable tax adjustments.

The restructuring and other charges were less than we expected and the tax adjustments were more than we expected.

Both were favorable versus our expectations.

First, I will describe the restructuring and other charges.

The $13 million of after-tax charges converts to $20.8 million of pre-tax charges. $18.5 million of these charges were in cost of goods sold and $2.3 million were in operating expenses.

The $20.8 million of charges consists of $24.5 million in severance and asset impairment charges that show up as restructuring charges on the income statement.

This is partially offset by $3.7 million of FAS 106 credits (inaudible) reduced postretirement healthcare benefits related to the same actions.

There is a charge on the Web cast that shows restructuring and other charges broken out into cost of goods sold versus operating expenses within each segment, so I will not go through all of that here.

North America pretax restructuring charges were $16.3 million related to severance and asset impairment.

These charges were partially offset by $2.9 million in curtailment gains on related retiring medical liabilities, so the net of these two items was $13.4 million for the North American segment.

We had originally anticipated accruing about $6 million of additional pre-tax severance charges in the quarter related to the announced closure of our plants in Fletcher, North Carolina and New Paris, Indiana.

But because of the timing of those moves, we announced that those charges will occur in fiscal year '05.

That is the main reason restructuring charges were less than we expected.

International incurred pretax restructuring charges of $7.1 million related to ongoing consolidation of manufacturing operations.

next, I will talk about the $15.9 million of favorable tax adjustments during the quarter.

We completed an IRS audit in the fourth quarter and reversed $5.3 million of reserve related to that audit.

We also booked an additional tax credit of $10.6 million relating to the current-year tax liability.

In a typical year, we book our tax expense in each quarter as 37.5 percent of pre-tax income and at the end of the year, we adjust the provision and the liability for permanent tax differences and other factors; we true it up.

We did the same thing this year.

Throughout the first three quarters of the year, we booked credits representing 37.5 percent of pre-tax losses.

Because we ended up with a pre-tax loss for the year and the permanent differences were substantial, our liability was too high and we booked an additional adjustment of $10.6 million at the end of the fourth quarter.

On the schedule of selected charges and gains included in the earnings release, you will notice that we have shown the full $15.9 million tax adjustment in the fourth-quarter column but only the $5.3 million is shown in the year column.

That is because the $10.6 million credit is properly considered to be part of this year's tax provision, while the $5.3 million item adjusts estimates of liabilities related to prior years.

The effective tax rate for the full year will be 55 percent but we expect our long-term effective tax rate to remain between 37 and 38 percent.

Gross margins continued to be under pressure because we're at the bottom of the industry downturn and intense competition for project business has increased product discounts in all markets.

In the North American segment alone, increased discounting versus the prior year reduced gross margins by $5 million.

We will talk about steel prices when I get to outlooks but we believe the effect on the fourth quarter was insignificant.

Operating expenses in the quarter were $175 million, including all charges.

Operating expenses included $4 million of unfavorable currency translation effects versus the prior year.

Operating expenses were down from $183 million in the prior-year quarter.

Next, I will talk about the balance sheet and cash flow.

I will start with our adoption of FIN 46, which relates to variable interest entities.

As we discussed in last year's 10-K and on last quarter's call, we have a synthetic lease structure that qualifies as a variable interest entity.

This facility was set up in fiscal 2001 to finance two Company airplanes and were part of a sale-leaseback transaction that resulted in a gain on sale that was amortized over fiscal years 2001 through 2003.

The new FIN 46 rule requires that we reverse that sale and record the airplanes and the related debt on our balance sheet.

Since the net book value of the asset is $41.3 million and the book value of the liability is $48 million, we recorded the difference of $6 million pre-tax, or $4.2 million after-tax, on our income statement in a separate line called "Cumulative Effects Accounting Change".

In effect, this reverses the gain on sales in the prior years.

There is n cash effect of this change in accounting and we do not expect any significant impact on our recorded results on an ongoing basis.

There is a slight impact on the components of the P&L for future quarters.

Since we are reducing lease expense and increasing interest expense, operating income will be about $1 million higher each quarter and non-operating income will decrease by about the same amount.

We also consolidated the balance sheets of eight relatively small dealers at the end of the year.

We previously acquired majority equity investments in these dealers related to various ownership transitions and had used the equity method of accounting in the past because we did not exercise participated control.

We have not increased our equity investments in these dealerships in the past year.

However, as of the end of the year, we adopted a more formal approach to overseeing these dealerships.

Four of the dealerships are based in the U.S. and have longer-term transition plans in place, while the other six are located in Europe and we are not actively pursuing ownership transition at this time.

The consolidation of these dealers increases our assets by $14.2 million and our liabilities by $10.9 million.

That is pretty small compared to the total consolidated assets and liabilities.

The net difference is offset by a $3.3 million in a long-term assets called "Equity Investment and Dealer Transition".

There is no affect on shareholders equity and no effect on the income statement in the fourth quarter.

Starting next year, consolidating these dealers will increase our recorded revenue by about 15 million to $25 million per quarter.

Net income in fiscal 2005 will not be affected.

These dealer consolidations are not related to FIN 46.

There are some provisions of FIN 46 which could require consolidation of dealers in certain situations but we do not believe we have any such situations at year end.

Our cash balance was $252 million at the end of the quarter, a $51 million increase from the third quarter and the highest level of cash since we have been a public company.

Included at the end of the webcast slide is a supplemental schedule summarizing our cash flow data by quarter for the current year.

Our debt was $354 million at year end, including $48 million related to the adoption of FIN 46.

Capital Expenditures were $13 million in the quarter, compared to $32 million in depreciation expense.

The difference represents a source of cash.

Now, I will discuss the operating results for each of our segments, starting with North America.

Again, remember that all revenue comparisons with the prior year adjust for the extra week.

In North America, sales were $302 million in the quarter, down about 9 percent from the prior year and down about 10 percent from the third quarter.

North America's operating loss in the quarter was $28.7 million, including the $13.4 million of restructuring and other charges described earlier.

North America order rates in the fourth quarter were slightly below the prior year and below expectations.

Discounts and dealer incentives remained high during the quarter and are indicative of intense competition in the marketplace.

Gross margins and 18.2 percent continued to be negatively affected by the higher discounts and under-absorption of overhead because of lower volume.

North America restructuring and other charges reduced gross margins by about 4 percentage points.

North America operating expenses were $84 million in the quarter, or about 28 percent of sales, including $1.7 million of net restructuring costs.

SDP sales were $55 million in this quarter, a 3 percent increase compared to the prior year.

Again, that represents the first year-on-year increase for SDP in three years.

SDP gross margins of 37 percent were up from 36 percent in the prior year.

SDP operating expenses were $22 million, including restructuring charges of $0.2 million.

Expenses were down versus the prior year, both in total and as a percent of sales.

SDP reported a $2.3 million operating profit in the quarter, versus a loss in the prior year.

SDP was profitable each quarter of the current year and earned a profit of $12.8 million for the year.

International sales were $141 million in the quarter.

This represents an 11 percent increase compared to the prior year.

The current-quarter revenues included $12 million of currency translation benefits relative to the prior-year quarter.

Even without this benefit, International (indiscernible) percent year-on-year sales increase.

International gross margins were 24.3 percent, including $6.6 million in restructuring charges.

These charges reduced margins by 4.7 percentage points.

International operating expenses were $43.7 million, or 31.1 percent of net sales, including $0.5 million in restructuring charges.

International reported an operating loss of $9.5 million in the quarter, including the $7.1 million in restructuring charges.

Now, I will review our outlook.

We have seen order rates strengthen over the last several weeks following the normal seasonal trend.

North America order rates for the first three weeks of March are tracking slightly above last year.

We're pleased to see the increase but so far, we're not seeing a robust recovery.

For the first quarter, we are expecting the Steelcase Inc. revenue to be slightly higher than in the fourth quarter and slightly higher than the first quarter of the prior year.

That would be the first year-on-year sales increase for the Company in three years.

That is before considering the new consolidated dealers.

Again, those dealers will add approximately 15 to $25 million of revenue per quarter but with no impact on net income.

We expect to report a loss of between 9 cents and 14 cents per share.

The loss includes estimated after-tax restructuring charges of 3 to $6 million.

The first-quarter numbers also include an estimated increase in steel costs of approximately 3 to $5 million pretax, or 2 to $3 million after-tax.

Market prices for steel have risen up to 50 percent over the last several weeks because of unprecedented changes in global supply and demand.

We have not felt the immediate effect in the fourth quarter because much of our steel purchases are on contract.

However, we expect our quarterly steel costs will rise 5 to $7 million pretax by the second quarter.

Clearly, we cannot continue to absorb increases of this magnitude.

Therefore, on March 23rd, we announced to our North American dealers that a surcharge will be added to all orders for selected product categories received after April 25th.

The surcharge is expected to have an immaterial effect on first-quarter revenue but is expected to fully offset the steel cost increase in the second quarter.

The surcharge would continue until steel prices fall below certain thresholds.

Last quarter, I talked about financial planning process, which took place in November and December of last year.

The annual plan's assumptions included a 5 percent increase in fiscal year '05 over our forecast for fiscal year '04 while four months have passed and we are updating our revenue assumptions.

Since our fourth-quarter sales were lower than we expected, we are at a lower starting point and run rate.

Even if we still use 5 percent versus last year, it is off a lower base than we originally used.

We still believe we will see revenue growth this year, since orders in North America are tracking above the prior year.

If you U.S. job growth picked up, there is a chance we could see the strong back-half recovery we originally expected.

For now, we believe it is reasonable to expect revenue to increase less than 5 percent for the full fiscal year 2005 versus the prior year.

The second half should still be stronger than the first half.

You can decide how you want to handle the steel surcharge in your model.

The surcharge will add 15 to $20 million in annual revenue to (indiscernible) in effect through the end of the year.

If you do count that, you get closer to the original 5 percent revenue growth target but that is not real revenue growth since it is just temporarily offsetting the higher steel prices we're paying.

As we model our business, we also are not counting the 60 to $100 million of additional revenue from consolidating the eight dealers.

That too will show up in reported revenue business but since there is not (indiscernible) effect, it is not useful for understanding our economic trends.

What does that mean for profitability beyond first quarter?

Continued competitive pressure has caused discounts to remain high, which reduces our variable margins, but we have been able to offset some of that by reducing our fixed costs and we expect to continue to reduce fixed costs throughout the year.

Therefore, we expect that, even with slight year-on-year revenue increases, we can break even before restructuring charges in each quarter after the first.

We said before that our restructuring costs should begin to decline as we get into fiscal 2005, and you can see that is happening.

We expect net after-tax restructuring charges of 10 to $15 million for the year, a significant reduction from $28 million in fiscal year '04 and $21 million in fiscal year '03.

There's still a lot of work ahead of us in terms of reducing complexity and implementing lean manufacturing but the charges are beginning to decline, as we predicted.

We expect to report a loss for the year because of the loss in the first quarter and because of restructuring charges, but we expect the loss from continuing operations to be an improvement over the prior year.

And again, once we get past the first quarter, we expect revenues for the remaining quarters will be at the level needed to break even in those quarters before restructuring charges.

Now, we will turn it over for questions.

(Operator Instructions).

Margaret Whelan with UBS.

Good morning.

It is actually Susan season for Margaret this morning.

Can you just give us a little bit more of an idea of what really has changed since you gave us that guidance on your December conference call?

Is it more on the sales, the order side of the business, or is it more on your cost side?

You're not seeing the effects you expected?

The main thing that has changed is revenues, so revenues in the fourth quarter came in about $30 million lower than we expected.

That happened because order rates fell off and we mentioned, in the last quarter's call, that we had seen some signs of orders beginning to fall off in the week or two right before the call.

In fact, those orders did continue to fall and as a result, the shipments for the quarter were less than we expected.

So now as we get into the first quarter, we're coming in with -- off of a lower base in the fourth quarter and a lower run rate.

We are adjusting our revenue (inaudible) for the first quarter to reflect that lower (inaudible).

That is the primary reason.

Now, there's other things of course as well.

There's continued discount pressure because of the competitive intensity in the marketplace and issues like that but revenues are a big part of the story for why the fourth quarter was below our expectations and how the first-quarter forecast is now lower than what we believed earlier.

Okay.

In terms of the cost cutting, is there anything different or additional that you will be doing in '05 that changed your guidance in terms of the charges or is it the same stuff but it is just moving to something you expected?

It is really the same stuff as what we had planned before.

We have consolidation activity that we previously announced in North America (inaudible) manufacturing.

Those plans are continuing.

We also had activities going on in Europe (inaudible) plants consolidation.

Those activities are pretty much the same as before.

What we are discovering that as we go through these that often the actual costs of some of these moves end up being a little bit less than we've been expecting, so the payback says (inaudible) you've me say before, are typically expected to be twelve months or better from a cash perspective.

We had been beating our expectations on the (indiscernible) that were completed over this past year, so we hope that will continue.

Okay.

So then do you have a sense of where you are now in this kind of plan that you have been working towards for the past several years?

Are you still about halfway through it or do you think you are even further along than you were before?

I think the way to think about that is here, as we started on the initiative, we're substantially through many of the things that we set out to attack.

The last 36 months, we've made great progress but probably true to what you read about in other businesses, we have discovered that the lean mindset, the spirit of it, continues to point to even in ever better ways of improving cost performance.

So, I want to suggest you that, as we start this year in planning, we have come up with a number of additional ideas of where we can continue to lean-out operations.

We are valuing that as we try to hit our profit targets.

Okay.

Finally, can you just (inaudible) on where your backlog is or current order rate?

The order rate that we're watching most closely here is the North American rate because, again, two of the groups have seen revenue increases now year-on-year.

North America is the one that is a third in the group.

So the good news is that North America order rates for the first three weeks of March are tracking slightly above last year and our backlog in the United States is up slightly versus the prior year as well, so those trends are where we would like to see them.

Again, the increases are slight and so they're not going through a robust recovery but certainly, it is heading in the right direction.

Okay, thank you.

Chris Hussey with Goldman, Sachs.

Good morning, gentlemen.

A couple of questions if I can on the market.

Last year, at this time, you saw the market in such a state that you decided to close your operations for a week in April.

It doesn't sound like it, from what you guys are indicating, that the market is all that much better this time around.

You had a fairly dramatic decline in revenue through your February quarter.

You are seeing only a slight increase in order rates.

Why aren't you seeking to close the -- shut down again in April?

It's interesting, Chris, that, a year ago, when we were faced with that question, it was frankly controversial.

I am proud of the fact that we actually took that initiative because the industry at-large effectively implemented a similar kind of program; it just was not announced.

So now, we actually received orders, as you know, and in Europe and SDP companies continue to perform, so you're basically talking about the North American steel operations that were affected.

The difference is that we have gotten a lot of cost out from that period to now and so, just given the same volumes, we actually would do better.

I am also going to suggest that we are seeing a pickup in order rates versus a year ago in our forecast.

What Jim just emphasized and I want to underline from my earlier comments, it is a very difficult task to call when the recession ends -- okay, that is a first test -- when we pick up as a lagging indicator, which is the second test.

Then the third test is to what extent do you think there is seasonality in our business and are we passed that?

As we kind of mix that all up, we believe the forecast clearly supports action to keeping all of the operations open and running.

In fact, we just recently notified the workers in the North American operation that their warn letters would not be acted.

The reason for that is that, based on those volume projections and the summer vacations that tend to develop, our labor is going to be just about where we need it.

So, we're in pretty good shape if everything ticks along the way we expect.

Okay, good.

Staying with the market for a second, looking at your numbers and your competitor, Herman Miller, over the February-to-February period, it would appear as though, in the U.S., you guys declined roughly 9 percent if we mine your SDP operations and your North American operations, and Miller declined only 3 percent, adjusting for weeks, etc.

So, it would appear as though you're losing share to at least Herman Miller.

A you concerned at all?

What could cause this loss of share?

Is there a product issue for you guys?

Chris, in this call, I don't think we would get into doing the math with you.

I would have to ask about their currency translations and --.

(indiscernible) U.S.

I'm focusing only on the U.S., so no currency translations?

In their business as well?

That's a question I'm asking you.

So, the issue in all of that is that I don't think the quarter tells me a lot.

This has been such as volatile period that, between the two of us, particularly as the strong competitors that have a lot of respect for each other -- we have been moving back and forth in our volume rates through this whole recession quite closely as a matter of fact.

So I would say it appears that this is the case -- that the industry experienced a big shift in workstation purchasing.

That is a strength of Steelcase, Miller and others.

So, if you compare us with the competitors that let's say make up our core market, we did lose some share versus, say, 2001 -- slight amounts -- and mostly, in my estimation -- to get to your product question -- because of the shift from workstations into other kinds of products.

Going forward, I am optimistic that we have got that range of product covered.

I'm also optimistic that if the workstation business came back in any kind of meaningful way, we have got some new designs and new ideas that are excellent.

So, I am not ready to say that there is a big problem there.

Terrific.

The last question on the steel surcharge -- can you walk us through a little bit how that steel charge will work, the logistics about what is it?

Is it a percentage of the list price of your product?

Is it make your deal, whatever deal you can with a dealer and then we're going to tack on a number?

How do you expect that charge will be received, given the extreme competitive nature that you're seeing in the pricing side?

First, on the logistics of it, it's exactly as you suggested; it's a list price (indiscernible) increase and it's calculated off of list prices but it depends on the product and it depends on what product catalogs, for example, that the product is in (indiscernible) some of our products have no (indiscernible) at all in them and so it is more complicated than simply saying a percent of lists but that is a good way to understand it (inaudible).

In terms of acceptance of it, we have announced this to our dealers back on March 23rd and our dealers are talking with customers.

The increases in steel prices are well understood by people in the business community today.

It is an unprecedented jump in steel prices to see 40 and 50 percent increases.

We certainly hope that those increases are not going to last very long and we certainly hope that we will see steel prices come back at historical levels.

But in the meantime, I think everybody understands, including our customers, that we cannot absorb those increases.

Therefore, we're passing those higher costs onto the marketplace.

So far, we have had a lot of very productive and positive discussions with customers and with our dealers and we are making our way through the process.

We have been successful in getting that surcharge through to our customers in every deal that I am aware of.

You're recognizing that certainly, in certain instances where you are replenishing an existing customers' furniture, they have little place to turn.

But in contract type of situations where a customer might be choosing between you and four or five other office furniture dealers, have you got any sense whether any other office furniture company is going to be doing the surcharge as well?

Because if they don't, I would imagine you would be at a disadvantage on the pricing side?

I believe this deal (inaudible) increase is something that everybody is facing in our industry, anyone who makes anything out of steel is likely to feel the pressure that we're feeling from this.

I'm not going to comment on what other competitors are doing or what they won't do.

I will let you do that analysis, but this isn't something that only affects Steelcase.

I think, Chris, too that the research, if you want to pursue it, would show that the market is moving in response to this, the competitive market.

Terrific.

Thanks, guys.

Okay.

Sir, there appear to be no further questions in queue.

Do you have any closing comments you would like to finish with?

I would just like to support the earlier notions that the year is a difficult year to call but we're quite optimistic about it being a better year and we look forward to reporting the results as we have laid out today.

Thank you for your attention.

Thank you.

That's it.

Thank you, ladies and gentlemen.

This does conclude today's conference call.

You may disconnect your phone lines at this time and have a wonderful day.