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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, everyone, and welcome to Steelcase's fourth-quarter conference call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Raj Mehan, in charge of Investor Relations.
RAJ MEHAN, INVESTOR RELATIONS, STEELCASE, INC.: Thank you. Good morning, everyone. Thank you for joining us for the recap of our fourth-quarter and fiscal year 2008 financial results. Here with me today are Jim Hackett, our President and Chief Executive Officer; Dave Sylvester, our Chief Financial Officer; Mark Mossing, Vice President and Corporate Controller; Terry Lenhardt, Vice President, North American Finance; and Mark Baker, Senior Vice President and Global Operations Officer.
Our fourth-quarter earnings release dated March 27, 2008 crossed the wires yesterday afternoon and is accessible on our Web site. This conference call is being Webcast and is a copyrighted production of Steelcase, Inc. Presentation slides that accompany this Webcast are also available on Steelcase.com, and a replay of this call will also be posted to the site later today. In addition to our prepared remarks, we will respond to questions from investors and analysts.
Our discussion today will include references to non-GAAP financial measures. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors. Reconciliations to the most comparable GAAP measures are included in the earnings release and Webcast slides.
At this time we are incorporating by reference into this conference call and subsequent transcript the text of our Safe Harbor statement included in this morning's release. Certain statements made within the release and during this conference 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 yesterday's earnings release and Form 8-K, the Company's 10-K for the year ended February 23, 2007, and our other filings with the Securities and Exchange Commission.
Before I pass the call along to Jim Hackett, our President and CEO, I did want to mention a couple of minor segment changes we will be making to the business segments in which we report our financial information. Vecta, a brand currently being aggregated within the North America segment, will now be consolidated within the other category as part of the Premium Group. Brayton, a brand within the Premium Group, has a small portfolio of healthcare products. These products will now be consolidated within the Nurture brand, which is part of the North America segment. While these segment reporting changes are being announced today, our call today will still reference the old segment reporting structure. The new segment reporting structure will be used for the presentation of financial results in our 2008 10-K filing. However, in an effort to help the investment community and others get a historical perspective of our performance under these revised segments, we will be making available five years of historical selected financial information using the revised segments, as well as the two most recent years of quarterly financial information. This information will be made available when we file our 10-K in late April, and will be accessible via our Web site.
With those formalities out of the way, I will turn the call over to our President and CEO, Jim Hackett.
JIM HACKETT, PRESIDENT AND CEO, STEELCASE, INC.: Thanks, Raj, and good morning to all. At this Q4 call, we will discuss a number of important topics, and I'd like to begin to put some perspective initially on the fiscal year we're completing.
We're very proud of the fact that we grew earnings almost 30% year-over-year, and we did that by growing our top-line by 10% and improving our operating income margin by 220 basis points. As you will see with our Q4 results, we actually had solid performance in our organic sales in North America and international.
I'm not happy, though, that we missed the Q4 estimates, and Dave will detail what happened in Q4 so you can get your heads around why that happened, which then permits us to have an important discussion about the current state of our business.
A few years ago on calls like this, we detailed the initial thinking of key growth strategies. And our growth strategies included expansion in Europe with a key acquisition in Germany. Our work there has propelled us to number one in the German market, and we are the largest player now in Europe, and our share continues to grow, with this past year in Europe as one of the best ever.
We hit hard the need to diversify into healthcare, and this will be our third full fiscal year behind that commitment. It's safe to say that the healthcare business is not fledgling, and is adding key momentum to our growth in North America. And as we reported in September 2007, we've initiated a major effort in China with the acquisition of Ultra. And we've also announced new marketing efforts in India.
In North America this past quarter, we estimate we had organic growth of 4%. And with the uncertainty of the environment here, I'm proud of that effort. We will launch a significant number of new ideas this year at our June trade show in Chicago, and I have a great deal of enthusiasm for their potential impact. Recent previews are getting the kind of endorsements that we want to go forward now with confidence. And while these sales won't be material at the start, they have the potential to show up in future highlights, like some of the other successes I just detailed.
We will also be launching our newest brand in June. It takes advantage of a transition that is starting to happen in work styles. Permit me to be vague about the details at this point to increase the drama of its unveiling. It's the next step in the evolution of our SDP Premium Group category, and I believe it will redefine this category in our industry.
So you're likely wondering how we see our business going forward in this turbulent environment, and there's no need to establish with you the uncertainty of the times we're in. The nature of the liquidity squeeze and the credit crisis is playing out continually in the news, and we know that cycles do come and they do go. This is the fifth banking crisis we've faced in this country, and each time the system gets vilified for how it got there, and yet it always comes out stronger afterward.
In spite of this turbulence, Steelcase is proud to have maintained its sterling balance sheet. It's true we have more cash than one might carry in theoretical terms, but that is a good position to be in right now. I like or financial policy today, and realize that there are times to take more risk with one's balance sheet and times to keep dry powder. I think this part of our business is in great shape. We were able to add a special dividend this year and increase our buybacks, all the while maintaining the sterling balance sheet. As often is said, our dry powder is for the unexpected and the opportunities that may present themselves due to the turbulence in the markets today.
These successes -- international, healthcare, new product development, and a very strong balance sheet -- can't get lost in the news about this quarter four or dismiss the hand-wringing over the economy. We have a good idea about what needs to be done and are intensely focused on executing. If I get anything across today, it's the fact that we believe we have done what we said we would do.
Our people have worked hard over the last few years to effectively run our business with less capital deployed and return more to shareholders. This came from an intense effort to make our model more fit. Now, fitness is defined in terms here as the ability to shrink and grow, and grow and shrink; in other words, to compete today all over the globe, one has to realize that it's never at rest or static. I make this point because we're telling our organization today about three key pieces of news.
First, we're continuing the modernization of our industrial system. Our continued passion for lean manufacturing principles, complexity reductions, and leveraging the global supply chain have enabled these steps. If this was your first call or the first time you've heard this from us, you know that Steelcase has a proud history of being the strongest manufacturer in this domestic industry. Our on-time performance with products with very high quality was often referred to as the best in class. Embracing and delivering on principles like lean and leveraging the global supply chain are allowing us to establish a new benchmark for global operational excellence in our industry.
Second, we are in the midst of our turnaround efforts at PolyVision, and some of our actions announced today are targeted to address the issues we've been discussing for the past several quarters.
Third, we are initiating an action we call reinvention. In its simplest terms it means this. As a company like ours that operates 24/7 all around the globe, we can now couple the capabilities we have in our various geographies with the customer requirements we are addressing. Said another way, we don't have to maintain all of our capability in one particular location or geography because technology allows time and distance to be a nonevent.
Consequently, we have begun key process re-engineering that will result in a net reduction of 200 to 250 white-collar jobs in North America. The details of this are taking shape, and today we're communicating our intent to our employees.
But I want to be clear here. Apart from the acquisitions and other targeted growth strategies, you may not know this, but we've had little headcount growth from 2004 to today, even as we …