================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 24, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-13873
-----------------
STEELCASE INC.
Michigan 38-0819050
(State of incorporation) (I.R.S. Employer Identification No.)
901 44th Street Grand Rapids, Michigan 49508
(Address of principal executive offices) (Zip Code)
(616) 247-2710
Registrant's telephone number, including area code
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the latest practicable date: As of June 28, 2002, the
Registrant had outstanding 38,160,005 shares of Class A Common Stock and
109,428,904 shares of Class B Common Stock.
Exhibit index located on page number 24.
================================================================================
STEELCASE INC.
FORM 10-Q
FOR THE QUARTER ENDED MAY 24, 2002
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
for the Three Months Ended May 24, 2002 and May 25, 2001.............................. 3
Condensed Consolidated Balance Sheets
as of May 24, 2002 and February 22, 2002.............................................. 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended May 24, 2002 and May 25, 2001.............................. 5
Notes to Condensed Consolidated Financial Statements.................................... 6-13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 22
Part II. Other Information
Item 1. Legal Proceedings.................................................................... 23
Item 2. Changes in Securities................................................................ 23
Item 3. Defaults upon Senior Securities...................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders.................................. 23
Item 5. Other Information.................................................................... 23
Item 6. Exhibits and Reports on Form 8-K..................................................... 23
Signatures................................................................................... 24
Exhibit Index................................................................................ 25
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Furniture revenue.............................................................................. $ 635.6 $884.1
Finance revenue................................................................................ 7.5 21.1
------- ------
Total revenue........................................................................... 643.1 905.2
Cost of sales.................................................................................. 457.5 619.1
Restructuring costs............................................................................ 3.6 --
------- ------
Gross profit............................................................................ 182.0 286.1
Operating expenses............................................................................. 192.4 237.5
Restructuring costs............................................................................ 4.2 --
------- ------
Operating income (loss)................................................................. (14.6) 48.6
Interest expense............................................................................... (5.1) (5.6)
Other income (expense), net.................................................................... (4.9) (4.5)
------- ------
Income (loss) before income tax provision (benefit), equity in net income (loss) of
joint ventures and dealer transitions and cumulative effect of accounting change...... (24.6) 38.5
Income tax provision (benefit)................................................................. (9.2) 14.2
------- ------
Income (loss) before equity in net income (loss) of joint ventures and dealer
transitions and cumulative effect of accounting change................................ (15.4) 24.3
Equity in net income (loss) of joint ventures and dealer transitions........................... -- (0.4)
------- ------
Income (loss) before cumulative effect of accounting change............................. (15.4) 23.9
Cumulative effect of accounting change (Note 2)................................................ (170.6) --
------- ------
Net income (loss)....................................................................... $(186.0) $ 23.9
======= ======
Basic and diluted per share data:
Earnings (loss) per share before cumulative effect of accounting change........................ $ (0.10) $ 0.16
Cumulative effect of accounting change per share............................................... (1.16) --
------- ------
Earnings (loss) per share...................................................................... $ (1.26) $ 0.16
======= ======
See accompanying notes to the condensed consolidated financial statements.
3
STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
May 24, Feb. 22,
ASSETS 2002 2002
------ ----------- --------
Current assets:
Cash and cash equivalents................................... $ 26.4 $ 69.4
Accounts receivable, net.................................... 382.8 367.2
Notes receivable and leased assets.......................... 143.8 194.5
Inventories................................................. 144.5 147.1
Other current assets........................................ 77.1 103.8
-------- --------
Total current assets................................. 774.6 882.0
Property and equipment, net.................................... 885.7 896.8
Notes receivable and leased assets............................. 204.3 335.8
Joint ventures and dealer transitions.......................... 39.0 42.4
Goodwill and other intangible assets, net...................... 364.7 540.2
Other assets................................................... 314.0 270.3
-------- --------
Total assets......................................... $2,582.3 $2,967.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................ $ 148.2 $ 163.5
Short-term borrowings and current portion of long-term debt. 68.6 160.1
Accrued expenses:
Employee compensation................................... 89.0 84.6
Employee benefit plan obligations....................... 24.9 51.0
Other................................................... 239.2 213.9
-------- --------
Total current liabilities............................ 569.9 673.1
-------- --------
Long-term liabilities:
Long-term debt.............................................. 330.6 433.6
Employee benefit plan obligations........................... 246.4 248.3
Other long-term liabilities................................. 55.9 57.0
-------- --------
Total long-term liabilities.......................... 632.9 738.9
-------- --------
Total liabilities.................................... 1,202.8 1,412.0
-------- --------
Shareholders' equity:
Common stock................................................ 285.9 282.3
Accumulated other comprehensive income (loss)............... (32.2) (47.4)
Retained earnings........................................... 1,125.8 1,320.6
-------- --------
Total shareholders' equity........................... 1,379.5 1,555.5
-------- --------
Total liabilities and shareholders' equity........... $2,582.3 $2,967.5
======== ========
See accompanying notes to the condensed consolidated financial statements.
4
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
Three Months
Ended
----------------
May 24, May 25,
2002 2001
------- -------
OPERATING ACTIVITIES
Net income (loss).................................................... $(186.0) $ 23.9
Depreciation and amortization........................................ 39.0 41.9
Cumulative effect of accounting change............................... 170.6 --
Loss on sale of leased assets........................................ 5.7 --
Restructuring charges (payments)..................................... (0.6) --
Changes in current assets and liabilities............................ (29.1) (51.6)
Other, net........................................................... (9.8) 5.2
------- -------
Net cash provided by (used in) operating activities.............. (10.2) 19.4
------- -------
INVESTING ACTIVITIES
Capital expenditures................................................. (20.5) (30.2)
Proceeds from the sale of leased assets.............................. 170.2 --
Net decrease in notes receivable and leased assets................... 8.8 22.0
Other, net........................................................... 8.9 (26.2)
------- -------
Net cash provided by (used in) investing activities.............. 167.4 (34.4)
------- -------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt............................. 0.5 256.1
Repayments of long-term debt......................................... (106.6) (132.4)
Short-term borrowings (repayments), net.............................. (89.7) (13.5)
Common stock issuance................................................ 3.6 0.1
Common stock repurchase.............................................. -- (4.0)
Dividends paid....................................................... (8.8) (16.2)
------- -------
Net cash provided by (used in) financing activities.............. (201.0) 90.1
------- -------
Effect of exchange rate changes on cash and cash equivalents..... 0.8 3.9
------- -------
Net increase (decrease) in cash and cash equivalents.......... (43.0) 79.0
Cash and cash equivalents, beginning of period............ 69.4 25.3
------- -------
Cash and cash equivalents, end of period.................. $ 26.4 $ 104.3
======= =======
See accompanying notes to the condensed consolidated financial statements.
5
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals and adjustments)
considered necessary for a fair presentation of the condensed consolidated
financial statements have been included. Results for interim periods should not
be considered indicative of results to be expected for a full year. Reference
should be made to the consolidated financial statements contained in our Annual
Report on Form 10-K for the fiscal year ended February 22, 2002 (the ''10-K
Report''). As used in this Report, unless otherwise expressly stated or the
content otherwise requires, all references to "Steelcase," "we," "our,"
''company'' and similar references are to Steelcase Inc. and its majority owned
subsidiaries.
2. New Accounting Standards
Accounting for Business Combinations
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible Assets. These standards
change the accounting for business combinations by, among other things,
prohibiting the prospective use of pooling-of-interests accounting and
requiring companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life. Instead, goodwill and intangible assets deemed
to have an indefinite useful life will be subject to an annual review for
impairment. The new standards generally were effective for Steelcase in the
first fiscal quarter of 2003 ("Q1 2003" or "the quarter") and for business
combinations consummated after June 30, 2001. Upon adoption of SFAS No. 142 in
Q1 2003, we recorded a one-time, non-cash charge of $170.6 million to reduce
the carrying value of our goodwill. This charge is non-operational in nature
and is reflected as a cumulative effect of an accounting change in the
accompanying consolidated statement of operations. For additional discussion on
the impact of adopting SFAS No. 142, see Note 7.
Accounting for the Impairment or Disposal of Long-Lived Assets
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
became effective for the company beginning in Q1 2003. SFAS No. 144 establishes
accounting and reporting standards for the impairment or disposal of long-lived
assets. The adoption of SFAS No. 144 did not have a material effect on our
financial results.
Accounting for Consideration Given by a Vendor to a Customer
Emerging Issues Task Force ("EITF") Issue No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products) became effective for the company beginning in Q1 2003. The
adoption of EITF Issue No. 01-9 had no impact on our financial results.
6
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Earnings (Loss) Per Share
Three Months
Ended
----------------
May 24, May 25,
Components of Earnings (Loss) Per Share (in millions) 2002 2001
----------------------------------------------------- ------- -------
Numerator:
Net income (loss) before cumulative effect of accounting change...... $ (15.4) $ 23.9
Cumulative effect of accounting change............................... (170.6) --
------- ------
Net income (loss) numerator for both basic and diluted EPS........... $(186.0) $ 23.9
======= ======
Denominators:
Denominator for basic EPS--Weighted average common shares outstanding 147.4 147.5
Potentially dilutive shares resulting from stock options (1)......... -- 0.2
------- ------
Denominator for diluted EPS (1)...................................... 147.4 147.7
======= ======
- --------
(1) Only the denominator for basic EPS is used for calculating EPS for Q1 2003.
In accordance with GAAP, potentially dilutive shares and diluted EPS are
not applicable when a net loss is reported.
Basic earnings per share is based on the weighted average number of shares
of common stock outstanding during each period. It excludes the dilutive
effects of additional common shares that would have been outstanding if the
shares under our Stock Incentive Plans had been issued. Diluted earnings per
share includes effects of our Stock Incentive Plans. Due to their anti-dilutive
effect, we have not included the effects of 6.0 million and 3.9 million options
in our calculation of diluted earnings per share for Q1 2003 and Q1 2002,
respectively.
4. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and all changes to
shareholders' equity, except those due to investments by, and distributions to,
shareholders.
Three Months
Ended
---------------
May 24, May 25,
Components of Comprehensive Income (Loss) (in millions) 2002 2001
------------------------------------------------------- ------- -------
Net income (loss)............................. $(186.0) $23.9
Other comprehensive income (loss):
Foreign currency translation gain........... 9.6 3.7
Derivative adjustments, net of tax........... 5.6 (6.5)
------- -----
Comprehensive income (loss)................... $(170.8) $21.1
======= =====
Three Months
Ended
--------------
May 24, May 25,
Derivative Adjustments, Net of Tax (in millions) 2002 2001
- ------------------------------------------------ ------- -------
Cumulative effect of accounting change (SFAS No. 133), as of February 24, 2001 $ -- $(5.1)
Change in fair value of interest rate swaps................................... 1.0 (0.2)
Adjustment due to swap termination............................................ 7.7 --
Settlement to interest expense................................................ (3.1) (1.2)
----- -----
Derivative adjustments, net of tax............................................ $ 5.6 $(6.5)
===== =====
7
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. Derivative Instruments
We use derivative financial instruments, principally forward contracts and
interest rate swaps and caps, to reduce our exposure to adverse fluctuations in
foreign currency exchange rates and interest rates. We do not use derivative
financial instruments for speculative or trading purposes.
Interest rate swap contracts are used to adjust the portion of total debt
that is subject to variable interest rates to the amount of underlying assets
also subject to variable interest rates. Certain contracts are designated as
hedges against possible changes in the amount of future cash flows associated
with interest payments of the existing variable-rate obligations. Under these
contracts, we agree to receive an amount equal to a specific variable interest
rate, times the same principal amount. In return, we will pay an amount equal
to a specified fixed interest rate times the same principal amount. Fair value
hedges reduce our exposure to changes in interest rates that could affect the
fair value of an asset that derives its value from a fixed rate. The principal
amounts are not exchanged. No other cash payments are made unless the contract
is terminated prior to maturity, in which case the amount paid or received in
settlement is established by agreement at the time of termination. The net
effect on our operating results is that interest expense on the variable-rate
debt being hedged is recorded based on fixed interest rates.
Foreign exchange contracts are primarily used to hedge the risk that
unremitted or future revenue owed to us for the sale or anticipated sale, and
the risk that future payments by us for the purchase or anticipated purchase of
products abroad, may be adversely affected by changes in foreign currency
exchange rates. As part of our overall strategy to manage the level of exposure
to the risk of foreign exchange rate fluctuations, we hedge a portion of our
foreign currency exposures anticipated over the ensuing twelve-month period. We
hedge net estimated foreign currency exposures that principally relate to cash
flows to be remitted to or paid by International operations (euro) over the
ensuing twelve-month period. To hedge this exposure, we use foreign exchange
contracts that have maturities ranging from one to twelve months, which are
renewed or adjusted within the year to provide continuing coverage throughout
the year.
The fair value of cash flow hedges was a liability of $3.8 million at May
24, 2002. There were no fair value hedges outstanding at May 24, 2002. During
the quarter ended May 24, 2002, we recognized a loss of $7.7 million related to
the termination of certain swap agreements in connection with the sale of
leased assets. See Note 8 for further details. The fair value and notional
amounts of foreign exchange contracts was immaterial at May 24, 2002. The
notional amount of interest rate swap agreements as of May 24, 2002 was $62.1
million with fixed rates from 6.18% to 6.64%. These notional amounts do not
necessarily represent amounts exchanged by the parties and, therefore, are not
a direct measure of our exposure from our use of derivatives. The amounts
exchanged are calculated by reference to the notional amounts and by other
terms of the derivatives, such as interest rates, exchange rates or other
financial indices.
The impact on other comprehensive income (loss) resulting from derivative
adjustments was an after tax increase of $5.6 million for the quarter ended May
24, 2002. See Note 4 for further details.
8
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Inventories
Inventories are stated at the lower of cost or market. Inventories are
valued based upon the last-in, first-out (''LIFO'') method and the average cost
method. Inventories for those subsidiaries determined by the LIFO method
aggregated $85.9 million and $91.0 million at May 24, 2002 and February 22,
2002, respectively.
Inventories (in millions)
May 24, Feb 22,
2002 2002
------- -------
Finished goods. $ 74.5 $ 72.3
Work in process 33.0 31.1
Raw materials.. 75.2 82.2
------ ------
182.7 185.6
LIFO reserve... (38.2) (38.5)
------ ------
$144.5 $147.1
====== ======
7. Goodwill and Other Intangible Assets
As discussed in Note 2, in Q1 2003, Steelcase adopted SFAS No. 142, which
requires companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life. Instead, SFAS No. 142 requires that goodwill
and intangible assets deemed to have an indefinite useful life be reviewed for
impairment upon adoption of SFAS No. 142 (February 23, 2002) and annually
thereafter. Initially, we used the expertise of an outside valuation specialist
to help us determine the fair values of our reporting units. We will perform
the annual impairment review for all of our reporting units during the fourth
quarter of each year, commencing in the fourth quarter of fiscal 2003.
Under SFAS No. 142, goodwill impairment exists if the net book value of a
reporting unit exceeds its estimated fair value. Goodwill is assigned to and
the fair value is tested at the reporting unit level. We evaluated goodwill
using four reporting units--Steelcase North America ("SCNA"), Steelcase Design
Partnership ("SDP"), International, and Financial Services. SCNA and SDP are
aggregated for segment reporting while International and Financial Services are
separate segments.
Upon adoption of SFAS No. 142, we recorded a one-time, non-cash charge of
$170.6 million to reduce the carrying value of goodwill in our International
reporting unit. The difference in the fair value of our International reporting
unit is primarily attributable to the lower revenue and profitability of the
unit. This is due to the industry wide decline in office furniture revenue.
This decline has led to a significant reduction in our three to five year
projection of operating income for the unit. The fair value of the remaining
reporting units exceeded the net book value of the units, therefore, no
impairment charge was recorded relative to these units. Such charge is
non-operational in nature and is reflected as a cumulative effect of an
accounting change in the accompanying consolidated statement of operations. In
calculating the impairment charge, the fair value of the impaired reporting
unit was determined by using a combined discounted cash flow methodology and
market approach.
A summary of changes in our goodwill during the quarter, by business segment
is as follows (in millions):
Goodwill
--------------------------------
May 24, February 22,
2002 Impairments 2002
------- ----------- ------------
North America $159.7 $ -- $159.7
International 101.3 (170.6) 271.9
------ ------- ------
Total........ $261.0 $(170.6) $431.6
====== ======= ======
9
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
As of May 24, 2002 and February 22, 2002, our intangible assets and related
accumulated amortization consisted of the following (in millions):
As of May 24, 2002 As of February 22, 2002
------------------------ ------------------------
Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
----- ------------ ----- ----- ------------ -----
Intangible assets subject to
amortization:
Proprietary technology.......... $48.5 $ 1.9 $46.6 $48.5 $ -- $48.5
Trademarks...................... 32.5 14.2 18.3 32.5 12.0 20.5
Non-compete agreements.......... 1.5 -- 1.5 1.5 -- 1.5
Other........................... 8.0 1.9 6.1 7.5 1.6 5.9
----- ----- ----- ----- ----- -----
Total........................ $90.5 $18.0 $72.5 $90.0 $13.6 $76.4
===== ===== ===== ===== ===== =====
Intangible assets not subject to
amortization:
Trademarks...................... $32.2 $ -- $32.2 $32.2 $ -- $32.2
===== ===== ===== ===== ===== =====
We recorded amortization expense of $4.5 million during Q1 2003 compared to
$2.7 million on a pro forma basis during the first quarter of fiscal 2002.
Based on the current amount of intangible assets subject to amortization, the
estimated amortization expense for each of the succeeding five fiscal years are
as follows: 2003: $9.7 million; 2004: $8.5 million; 2005: $7.2 million; 2006:
$6.9 million; and 2007: $6.9 million. As acquisitions and dispositions occur in
the future and as purchase price allocations are finalized, these amounts may
vary.
The fiscal 2002 results on a historical basis do not reflect the provisions
of SFAS No. 142. Had we adopted SFAS No. 142 on February 24, 2001, our
historical net income and basic and diluted net income per common share would
have been changed to the adjusted amounts indicated below:
Three Months Ended May 25, 2001
(millions, except per share amounts)
--------------------------------------------------
Net Net income per basic Net income per diluted
income common share common share
------ -------------------- ----------------------
As reported--historical basis................... $23.9 $0.16 $0.16
Add: Proforma reduction of goodwill amortization 2.2 0.01 0.01
----- ----- -----
Adjusted (1).................................... $26.1 $0.18 $0.18
===== ===== =====
- --------
(1) Per share data does not foot due to rounding.
8. Sale of Leased Assets
On May 24, 2002, our subsidiary, Steelcase Financial Services Inc., sold
leased assets to General Electric Capital Corporation for a purchase price of
$170.2 million. The proceeds from this sale were used to retire debt incurred
to fund the leases.
The assets sold represent approximately 38% of the total net leased assets
for our Financial Services segment at the time of the sale. We recorded a
non-recurring, pre-tax charge of $5.7 million in Q1 2003 on the sale, which
included, the settlement of interest rate swaps associated with the leased
assets sold, the recognition of a gain on the portfolio and payment of
transaction costs.
10
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
9. Restructuring Charges
In Q1 2003, we continued to reduce costs by restructuring certain areas of
our business. The quarter included a $7.8 million charge for restructuring and
workforce reductions related to our North America and International business
segments.
During fiscal 2002, our restructuring charges for workforce reductions
specified a reduction of our headcount by approximately 1,300 positions--850 of
which occurred in fiscal 2002 and 450 which were planned to occur in fiscal
2003. Of the 450 planned for fiscal 2003, approximately 180 occurred in Q1
2003, leaving about 270 positions to be eliminated during the remainder of
fiscal 2003.
During Q1 2003, we reserved for an additional workforce reduction of
approximately 300 positions--about 70 of which occurred during the first
quarter and 230 which will occur during the remainder of fiscal 2003.
Restructuring Charges (in millions)
Fiscal
2003
------
Q1
------
Cost of sales:
Restructuring charges--North America $2.7
Restructuring charges--International 0.9
----
3.6
----
Operating expenses:
Restructuring charges--North America 2.7
Restructuring charges--International 1.5
----
4.2
----
Total............................ $7.8
====
Listed below is a summary of the charges and payments during Q1 2003 that
have been applied against the total reserve as of May 24, 2002.
Reconciliation of Restructuring and Impairment Reserve (in millions)
Fiscal
2003
------
Reserve balance as of February 22, 2002. $21.7
Total reserve charges during Q1 2003.... 7.8
Restructuring payments
North America workforce reduction.... (6.4)
International workforce reduction.... (1.5)
Other restructuring.................. (0.5)
---- -----
Total restructuring payments..... (8.4)
-----
Reserve balance as of May 24, 2002...... $21.1
=====
10. Common Stock Repurchase Program
On June 17, 1998, the Board of Directors (''Board'') approved a common stock
repurchase program authorizing the repurchase of up to three million shares of
Class A and Class B common stock. On September 22, 1999 and September 20, 2000,
the Board authorized common stock repurchases of up to an additional three
million and five million shares, respectively. The total shares authorized for
repurchase is now 11 million shares.
11
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
During Q1 2003, we made no repurchases of our common shares. As of May 24,
2002, total repurchases since the inception of our repurchase program amounted
to $112.7 million; 3,824,593 shares remain available for repurchase under the
program and we have no outstanding share repurchase commitments.
11. Operating Segments
We operate on a worldwide basis within three reportable segments: two
geographic manufacturing and sales segments--North America and
International--and a Financial Services segment. The North America segment
includes the U.S., Canada, the SDP companies, and our IDEO and Attwood
subsidiaries. PolyVision, acquired in November 2001, is consolidated within our
North America segment, as an SDP company. The International segment reflects
all other non-North America manufacturing and sales operations. We evaluate
performance and allocate resources based on operating income.
Operating Segment Income Statement Data (in millions)
Three Months Ended
------------------
May 24, May 25,
2002 2001
-------- --------
Revenue
North America........................ $ 528.0 $ 716.1
International........................ 107.6 168.0
Financial Services................... 7.5 21.1
-------- --------
Consolidated revenue................. $ 643.1 $ 905.2
======== ========
Operating income (loss)
North America........................ $ (10.4) $ 40.6
International........................ (9.8) 1.4
Financial Services................... 4.1 4.1
Eliminations (1)..................... 1.5 2.5
-------- --------
Consolidated operating income (loss). $ (14.6) $ 48.6
======== ========
Operating Segment Balance Sheet Data (in millions)
May 24, Feb 22,
2002 2002
-------- --------
Total assets
North America............. $1,755.8 $1,793.1
International............. 497.3 668.9
Financial Services........ 329.2 505.5
-------- --------
Consolidated total assets. $2,582.3 $2,967.5
======== ========
- --------
(1) Represents the elimination of intercompany interest expense reported as
operating expense in the Financial Services segment and as non-operating
income in the North America segment.
12. Acquisitions
On November 14, 2001, we acquired 100% of PolyVision Inc. for a total
acquisition price of approximately $182.3 million. As a result of this
acquisition, which was accounted for under the purchase method of
12
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
accounting, PolyVision is now a wholly-owned subsidiary. Accordingly, the May
24, 2002 and February 22, 2002 condensed consolidated balance sheets include
the accounts and balances of PolyVision. Additionally, PolyVision's results of
operations from November 14, 2001 through May 24, 2002 have been consolidated
with ours.
The following unaudited pro forma data summarizes the combined results of
operations of Steelcase and PolyVision as if the acquisition had occurred at
the beginning of the year ended February 22, 2002, and includes the effect of
purchase accounting adjustments. No adjustment has been included in the pro
forma amounts for any anticipated cost savings or other synergies.
Pro Forma Data (in millions, except per share amounts)
Three Months
Ended
----------------
May 24, May 25,
2002 2001
------- -------
Results of Operations
Revenue......................................................... $ 643.1 $942.0
Gross profit.................................................... 182.0 297.8
Operating income (loss)......................................... (14.6) 51.1
Net income (loss) before cumulative effect of accounting change. (15.4) 51.1
Cumulative effect of accounting change.......................... (170.6) --
Net income (loss)............................................... (186.0) 22.3
Earnings (loss) per share....................................... $ (1.26) $ 0.15
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the company's financial condition and results of
operations should be read in conjunction with the accompanying Condensed
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations from our 10-K Report.
Results of Operations
Three Months Ended May 24, 2002
Compared to the Three Months Ended May 25, 2001
Income Statement Data as a Percentage of Revenue
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Revenue...................................................... 100.0% 100.0%
Cost of sales................................................ 71.7 68.4
----- -----
Gross profit................................................. 28.3 31.6
Operating expenses........................................... 30.6 26.2
----- -----
Operating income (loss)...................................... (2.3) 5.4
Non-operating items, net..................................... (1.5) (1.2)
----- -----
Income (loss) before taxes................................... (3.8) 4.2
Income tax provision (benefit)............................... (1.4) 1.6
Equity in net income of joint ventures and dealer transitions -- --
Cumulative effect of accounting change....................... (26.5) --
----- -----
Net income (loss)............................................ (28.9)% 2.6%
===== =====
Overview--Steelcase Inc.
The demand for new office furniture remains weak across our industry as a
result of the continued reduced levels of business capital spending. While
there appears to be strengthening within some customer segments and product
lines, order rates in North America, while mixed from week to week, have not
shown convincing signs of a sustained recovery in demand. International orders
appear to have stabilized, but are not yet showing signs of a recovery.
Our global revenue of $643.1 million for the quarter was down 29.0% from the
same period a year ago, and down 2.6% from the previous quarter reflecting this
challenging environment. Our PolyVision Corporation and Custom Cable Industries
acquisitions, both completed in the second half of fiscal 2002, contributed
$43.5 million to our total revenue in the quarter.
In Q1 2003, we adopted SFAS No. 142 Goodwill and Other Intangible Assets.
This accounting standard requires that companies discontinue amortizing
goodwill and test goodwill annually to determine whether it is impaired. This
accounting change resulted in a non-cash, charge of $170.6 million, or $1.16
per share for impairment of goodwill in the company's International segment. We
used an outside consultant to help prepare a valuation of our International
reporting unit in accordance with the new standard. The charge reflects the
difference between that valuation and the carrying value. The valuation
considers past, present and future expected performance, and applies several
methods of using those inputs to arrive at a valuation. There is no cash effect
of this charge, and there is no impact on income tax expense, so the pretax and
after tax effect is the same. In addition, SFAS No. 142 eliminated the
amortization of goodwill, reported net income benefited by $2.2 million, or
$0.01 per share in Q1 2003.
14
In addition to the cumulative effect of the accounting change, we incurred
non-recurring charges of $13.5 million before taxes or $8.4 million after tax
or $0.06 per share. These non-recurring items include $7.8 million for
workforce reductions and the announced closure of our plastic injection molding
operation. In addition, we incurred a non-operating loss of $5.7 million on the
sale of a portion of the Financial Service's lease portfolio (see the Other
income (expense), net, for additional discussion).
We remain focused on reducing our breakeven point, improving cash flow, and
further strengthening our balance sheet. We are reducing our breakeven point
through various cost reduction activities, such as voluntary and involuntary
reductions in workforce; reduced spending on items such as capital, travel and
outside services; facility rationalizations and process reengineering.
Since December of 2000 through the end of Q1 2003, we have reduced our
global headcount by 6,600 positions, or 27% of the workforce. Approximately 850
of those reductions took place in the quarter. In Q1 2003 we lowered our costs
by approximately $200 million or 23% from the same period in fiscal 2002.
Even with the significant cost reduction actions undertaken to date, the
impact of lower revenue on fixed cost absorption and the non-recurring and
restructuring charges identified above caused operating margins to decline. We
recorded an operating loss of $14.6 million for Q1 2003 compared to operating
income of $48.6 million for the same period in fiscal 2002. On a pro-forma
basis, excluding non-recurring and restructuring charges, Q1 2003 operating
loss was $6.7 million compared to an operating loss of $16.1 million in our
fourth quarter of fiscal 2002 ("Q4 2002").
Interest Expense; Other Income (Expense), Net; and Income Taxes
Interest Expense; Other Income (Expense), Net; and Income Taxes (in millions)
Three Months
Ended
--------------
May 24, May 25,
2002 2001
------- -------
Interest expense................. $ 5.1 $ 5.6
===== =====
Other income (expense), net:
Interest income............... $ 2.2 $ 4.2
Loss on dealer transitions.... (1.3) (8.6)
Loss on sale of leased assets. (5.7) --
Miscellaneous, net............ (0.1) (0.1)
----- -----
$(4.9) $(4.5)
===== =====
Effective income tax rate........ 37.5% 37.0%
Other income (expense), net, for both Q1 2003 and Q1 2002 were impacted by
non-recurring items. In Q1 2003, we recorded a pretax loss of $5.7 million on
the sale of leased assets in a transaction that included a number of
components. The leased assets were sold for $170.2 million, $4.8 million more
than book value. We incurred a loss on interest rate swaps that were matched
against the portfolio and were terminated during the transaction amounting to a
$7.7 million charge. We also incurred transaction costs of $2.4 million. We do
not retain any contingent liabilities, credit risk, or risk related to lease
residual values. However, we do have the right to participate in a portion of
gains on lease residual values, if any, as the leases mature.
In Q1 2002, we recorded an $8.6 million charge for reserves taken to
facilitate the transition in ownership of Steelcase dealers, of which $7.0
million related to one transition.
Net Income (Loss)
We reported a net loss of $186.0 million or $1.26 per share for the quarter
that includes significant non-recurring items. On a pro-forma basis, excluding
non-recurring items and cumulative effect of the accounting
15
change, we incurred a net loss of $7.0 million or, $0.05 per share in Q1 2003.
These results compared favorably with our previous outlook of a first quarter
loss in the range of $0.07 to $0.12 per share, before non-recurring items.
Excluding non-recurring items on a sequential quarter basis, pro forma Q1 2003
results were better than the $0.10 per share loss in Q4 2002, despite lower
revenue.
Outlook
For the second quarter of fiscal 2003 ("Q2 2003"), we expect to improve
profitability from Q1 2003 levels even if revenue does not increase. We expect
second quarter revenues to be in line with Q1 2003, but pro-forma results
before non-recurring items are expected to range between breakeven and a net
loss of $0.05 per share. Further restructuring activities in Q2 2003 are
expected to result in non-recurring charges totaling approximately $5.0--$8.0
million after tax or $0.03--$0.05 per share.
We have not seen evidence of a sustained increase in order rates and the
timing and pace of recovery in business capital spending remains unpredictable.
With limited visibility, we are planning our business assuming there will be
little or no significant recovery in demand for the remainder of this fiscal
year. We must rely instead on continued gross margin and operating expense
improvements to drive profitability during the second half of the fiscal year.
If we can capture those improvements, we believe we can deliver breakeven
results for the full year, even if we do not see a significant improvement in
demand.
Segment Disclosure
We operate on a worldwide basis within three reportable segments: two
geographic manufacturing and sales segments--North America and
International--and a Financial Services segment. The North America segment
includes the U.S., Canada, the Steelcase Design Partnership (SDP) and our IDEO
and Attwood subsidiaries. PolyVision, acquired in November 2001, is part of the
SDP within our North America segment. The International segment reflects all
other non-North America manufacturing and sale operations. The Financial
Services segment provides leasing services to customers and selected financing
services to our dealers, primarily in North America, and more recently in
Europe.
North America
Income Statement Data--North America (in millions, except data as a
percentage of revenue)
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Revenue........................... $528.0 $716.1
Gross profit percentage........... 27.6% 30.0%
Operating expense percentage...... 29.6% 24.3%
Operating income (loss)........... $(10.4) $ 40.6
Operating income (loss) percentage (2.0)% 5.7%
Revenue. North American revenue, which represents slightly more than 80% of
our overall revenue for Q1 2003, declined 26.3% versus Q1 2002. Revenue
increased 3.9% versus Q4 2002. The revenue decline compared to Q1 2002 was
across most of our product categories and businesses in North America. Prior
year acquisitions added $43.5 million to Q1 2003 revenue, without the impact of
acquisitions revenue declined 32.3% compared to Q1 2002.
Non-residential fixed investment has declined 45.1% over the last four
calendar quarters, according to the U.S. Bureau of Economic Analysis. Our large
customers have dramatically curtailed capital budget dollars for expansion of
facilities. Some economists in the U.S. believe an overall recovery is
underway, but remain
16
concerned about the timing and pace of a recovery in business capital spending.
It is possible that until corporate profits increase and the stock markets
stabilize, large companies will continue to constrain their investments in
capital goods, including office furniture. In our largest customer segments,
bid activity and other leading indicators suggest that we will continue to see
relatively flat order patterns for at least the next quarter.
New products (defined as products introduced in the past five years) made up
a smaller portion of our revenue mix, accounting for about 21% of North America
revenue in Q1 2003, compared to 26% in Q1 2002 and 23% in Q4 2002. Throughout
the industry decline, the revenue decreases among our new products have been
lower than the decreases of our other products. However, this fiscal year, some
significant products no longer meet our definition of new products.
Gross Profit/Margin. Gross margin declined to 27.6% for Q1 2003, compared
to 30.0% for the same period in fiscal 2002, primarily due to the impact of
lower revenue on fixed cost absorption. For Q1 2003, we reported a $2.7 million
non-recurring charge associated with restructuring expenses for workforce
reductions related to the announced closure of the Attwood plastic injection
molding operation. Excluding the impact of non-recurring charges, the gross
margin was flat at 28.1% for both Q1 2003 and Q4 2002. We continued to take
actions to lower our cost structure. These actions include reducing our
workforce, consolidating facilities, and reengineering processes. In addition,
cost of goods sold in Q1 2003 showed some improvement from prior quarters.
Material improvements continued to be driven by strong strategic sourcing
initiatives through the renegotiation of certain contracts. Labor costs were
stable as we continue to accelerate the implementation of our lean
manufacturing principles in our manufacturing facilities and as we closely
manage hours. Because of lower profitability, we incurred lower variable
compensation expenses in Q1 2003, including bonus and retirement profit sharing
expenses.
Operating Expenses. We aggressively lowered our North America operating
expenses by $18.4 million in Q1 2003, compared to the same period in fiscal
2002. However, because of lower revenue, the segment's operating expense ratio
increased to 29.6%, from 24.3% for the same period in fiscal 2002.
In addition to previously discussed workforce reductions, we reduced
spending on outside services, travel and other discretionary spending. The
reductions in variable compensation, discussed above, also reduced operating
expenses. During the quarter, we incurred a $2.7 million charge for
restructuring expenses associated with salaried workforce reductions in Q1 2003.
Operating Income (Loss). North America recorded an operating loss of $10.4
million in Q1 2003 compared to operating income of $40.6 million in the same
period in fiscal 2002. We continue to lower our breakeven point because of our
aggressive cost reduction actions. Although this is a significant decline over
the prior year, the quarter showed some signs of improvement compared to Q4
2002.
On a pro-forma basis, excluding non-recurring and restructuring charges, Q1
2003 operating loss was $5.0, an improvement compared to $7.1 million for Q4
2002. The improvement is due to the slight increase in volume and our ability
to capture more of the savings from the cost reduction efforts we implemented
over the last several months.
International
Income Statement Data--International (in millions, except data as a
percentage of revenue)
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Revenue........................... $107.6 $168.0
Gross profit percentage........... 27.0% 29.8%
Operating expense percentage...... 36.1% 29.0%
Operating income (loss)........... $ (9.8) $ 1.4
Operating income (loss) percentage (9.1)% 0.8%
17
Revenue. Revenue for our International segment, which represented more than
15% of total revenue in Q1 2003, declined 36% compared to the first quarter of
the prior year and 19.5% compared to Q4 2002. Most International markets
experienced a downturn in furniture demand later than in North America. Order
rates in substantially all markets appear to have stabilized in Q1 2003 at the
lowest order rate since the downturn spread to global markets last year.
Revenue for Q1 2003 reflects four fewer shipping days compared to Q1 2002 due
to the change in reporting for International's year-end.
International has still not seen any strengthening in order or quote
activity, though there are signs that volume appears to have stabilized. With
elections being held in some key markets this summer, and with the U.S. economy
not yet in a strong recovery, we expect an International recovery could be at
least several months away.
Gross Profit/Margin. Gross margin declined to 27.0% for Q1 2003, compared
to 29.8% for the same period in fiscal 2002, primarily due to the impact of
lower revenue on fixed cost absorption in our France, Germany and United
Kingdom operations. We incurred $0.9 million of restructuring expenses
associated with facility closures in Q1 2003. Cost reduction activities
initiated in Q4 2003 are beginning to favorably impact results. Excluding
non-recurring items, we increased gross margin slightly from 27.2% for Q4 2002
to 27.8% for Q1 2003, in spite of the significant volume decline and strike
disruption at one of the significant French manufacturing locations.
Operating Expenses. We lowered our International operating expenses by $9.9
million in Q1 2003, compared to the same period in fiscal 2002. However,
because of lower revenue, the segment's operating expense ratio increased to
36.1%, from 29.0% for the same period in fiscal 2002.
Workforce reductions implemented in Q4 2002, along with acceleration of
reductions in spending on outside services, travel and other discretionary
activities are the primary reason for lower spending. International continues
to make progress towards the closure of our Airborne business in France. We
recorded an additional $1.0 million non-recurring charge related to this
closure. Additionally, we incurred $0.5 million non-recurring severance
expenses associated with further workforce reductions in Q1 2003.
Operating Income. International had an operating loss of $9.8 million in Q1
2003 compared to operating income of $1.4 million in Q1 2002. Although this is
a significant decline compared to the prior year, the quarter showed signs of
improvement compared to Q4 2002. On a pro-forma basis, excluding non-recurring
and restructuring charges in both periods, Q1 2003 operating loss was reduced
to $7.4 million from $12.2 million in Q4 2002 despite the 19.5% decline in
revenues.
Financial Services
Income Statement Data--Financial Services (in millions)
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Revenue........................... $7.5 $21.1
Net financing margin.............. $5.9 $ 5.8
General and administrative expense $1.7 $ 1.5
Operating income.................. $4.1 $ 4.1
Revenue. Financial Services' reported revenue in Q1 2003 decreased
significantly compared to Q1 2002. The decline primarily resulted from the
conversion of certain operating leases to direct financing leases, which
facilitates the potential sale of these leases sometime in the future, if we
choose to do so. This conversion resulted in the reversal of approximately $11
million of finance revenue and related operating expenses.
18
We continued to see a slowdown in the rate of new lease fundings, consistent
with the decline in furniture demand. Excluding the impact of the lease
conversion, revenue would have been $18.6 million, lower than Q1 2002, but flat
with Q4 2002.
As previously noted, we sold leased assets with a book value of $165.4
million at the end of the quarter. The leases that were sold had been
generating quarterly revenue of approximately $6 million and approximately $1
million of operating income. The effect on revenue of the lease sale on Q1 2003
was negligible because the leases were sold at the end of the quarter. We will
see the full effect of the sale beginning in Q2 2003.
Less than 10% of the furniture we sell in North America is leased, but it
remains an important part of our business. We continue to believe that by
offering leases, we broaden our relationship with a segment of our customers
and provide them with an attractive alternative to ownership.
Net Financing Margin. Financial Services operating expenses are split into
two separate components--financing expenses and general and administrative
expenses. Finance revenue less financing expenses equals net financing margin;
net financing margin less general and administrative expense equals operating
income. Because of the conversion of operating leases to direct finance leases
in the quarter, the net financing margin percentage for Q1 2003 is not
meaningful. If the conversion had not occurred, net financing margin percentage
would have increased in Q1 2003 to 28.9%, from 27.5% in Q1 2002. Margin
improvement was primarily due to lower interest costs.
General and Administrative Expenses. General and administrative costs were
relatively flat from Q1 2002 to Q1 2003.
Operating Income. For the reasons detailed above, Financial Services
operating income was flat compared to Q1 2002 at $4.1 million.
Liquidity and Capital Resources
Excluding acquisitions, our cash and operating capital requirements have
been primarily satisfied through cash generated from operating activities. As
of May 24, 2002, our financial position included cash, cash equivalents and
short-term investments of $26.8 million. These funds, in addition to cash
generated from future operations and available credit facilities, are expected
to be sufficient to finance our known or foreseeable liquidity and capital
needs.
We have a $400.0 million global multi-currency revolving credit facility,
which supports a multi-currency commercial paper program. Our commercial paper
program is rated A-2 from Standard and Poor's and Prime-3 from Moody's. Our
access to commercial paper markets in the United States and Europe may be
limited because of our short-term debt ratings. However, our global credit
facility is available for use in the event that commercial paper is
unavailable. The facility requires us to satisfy certain financial and other
covenants including a minimum net worth covenant, a maximum debt ratio covenant
and a minimum interest coverage ratio covenant. Based on our current financial
forecasts, we expect to remain in compliance with all of the covenants. If that
changes, we will seek appropriate remedies with our bank group. At the end of
Q1 2003, we had no borrowings under the commercial paper program and $25.0
million outstanding under the global credit facility. In addition, we have
available unsecured, non-committed short-term facilities totaling $123.3
million, of which $20.3 million was outstanding at the end of Q1 2003. These
facilities could also be used to fund short-term liquidity needs. We believe we
will be able to meet our future liquidity needs through a variety of existing
borrowing arrangements. We also believe that our combined facilities are more
than adequate to fulfill our anticipated cash requirements.
Total consolidated debt at May 24, 2002 aggregated $399.2 million.
Approximately $271 million of the total debt is related to our Financial
Services segment, which operates using a six-to-one debt-to-equity ratio. The
$128 million of debt that is related to the North America and International
segments represents a debt to total capitalization ratio of 9% for those
segments in the aggregate. Our long-term debt rating is A- from Standard and
Poor's and Baa3 from Moody's.
19
We also hold $348.1 million of interest bearing assets, of which $318.6
million is held through its Financial Services business segment.
Operating Activities
Cash Flow Data--Operating Activities (in millions)
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Net income (loss).................................. $(186.0) $ 23.9
Depreciation and amortization...................... 39.0 41.9
Cumulative effect of accounting change............. 170.6 --
Loss on sale of leased assets...................... 5.7 --
Restructuring charges (payments)................... (0.6) --
Changes in operating assets and liabilities........ (29.1) (51.6)
Other, net......................................... (9.8) 5.2
------- ------
Net cash provided by (used in) operating activities $ (10.2) $ 19.4
======= ======
The cash used in operations resulted primarily from the decline in net
income, net of the cumulative effect of accounting change. The net use of cash
for working capital needs was primarily due to the normal seasonal use of cash
for the annual contribution to the retirement trust fund during the quarter.
Additionally, while days outstanding in accounts receivables declined slightly
during the quarter from Q4 2002 levels, the accounts receivable balance
increased because May shipments were higher than February shipments.
Investing Activities
Cash Flow Data--Investing Activities (in millions)
Three Months
Ended
--------------
May 24, May 25,
2002 2001
------- -------
Capital expenditures............................... $(20.5) $(30.2)
Proceeds from the sale of leased assets............ 170.2 --
Net decrease in notes receivable and leased assets. 8.8 22.0
Other, net......................................... 8.9 (26.2)
------ ------
Net cash provided by (used in) investing activities $167.4 $(34.4)
====== ======
The sales of leased assets generated $170.2 million in cash that was used to
pay down Financial Services conduit borrowings. We view the sale of leased
assets as an alternative funding option available to us when we wish to reduce
the amount of capital used by the Financial Services segment.
We continue to tightly control capital expenditures with Q1 2003 spending at
the lowest quarterly levels in over five years and about half of depreciation
expense. Capital spending reflects an increased emphasis on projects that
deliver short payback cost savings or support critical strategic initiatives
such as product development, while meeting key EVA milestones.
20
Financing Activities
Cash Flow Data--Financing Activities (in millions)
Three Months
Ended
---------------
May 24, May 25,
2002 2001
------- -------
Short-term and long-term debt, net................. $(195.8) $110.2
Common stock issuance (repurchase), net............ 3.6 (3.9)
Dividends paid..................................... (8.8) (16.2)
------- ------
Net cash provided by (used in) financing activities $(201.0) $ 90.1
======= ======
We used the cash generated by the sale of leased assets to pay down short
and long-term borrowings within the Financial Services segment. We paid common
stock dividends of $0.06 per share, or $8.8 million, and $0.11 per share, or
$16.2 million, during Q1 2003 and Q1 2002, respectively. The exercise of
employee stock options during Q1 2003 generated $3.6 million in cash.
The Board of Directors has authorized a share repurchase program for up to
11 million shares. During Q1 2003, we made no repurchases of our common shares.
As of May 24, 2002, total repurchases since the inception of our repurchase
program amounted to $112.7 million; 3,824,593 shares remain available for
repurchase under the program and we have no outstanding share repurchase
commitments. Management anticipates that the stock repurchase program will not
reduce the Company's tradable share float in the long run as it expects that
Class B Common Stock will continue to convert to Class A Common Stock over time.
Forward Looking Statements
From time to time, in written reports and oral statements, the company
discusses its expectations regarding future performance. For example, certain
portions of this report contain various "forward-looking statements," including
those relating to anticipated revenue, order rates and patterns,
earnings/losses, restructuring and headcount reduction activities and charges
gross margin and operating expense improvements and funding our liquidity and
capital needs. Such statements involve certain risks and uncertainties that
could cause actual results to vary. The company's performance may differ
materially from that contemplated by forward-looking statements for a variety
of reasons, including, but not limited to: competitive and general economic
conditions domestically and internationally; delayed or lost sales and other
impacts related to the commercial and economic disruption caused by acts of
terrorism; changes in domestic and international government laws and
regulations; major disruptions at our key facilities or in the supply of any
key raw materials; competitive pricing pressure; pricing changes by the company
or its competitors; currency fluctuations; changes in customer demand and order
patterns; changes in relationships with customers, suppliers, employees and
dealers; product (sales) mix; the success (including product performance and
customer acceptance) of new products, current product innovations and platform
simplification, and their impact on the company's manufacturing processes;
possible acquisitions or divestitures by the company; the company's ability to
reduce costs, including ramp-up costs associated with new products and to
improve margins on new products; the impact of workforce reductions (including
elimination of temporary workers, hourly layoffs, early retirement programs and
salaried workforce reductions); the company's success in integrating acquired
businesses, initiating and managing alliances and global sourcing,
transitioning production of its products to other manufacturing facilities as a
result of production rationalization and implementing technology initiatives;
changes in business strategies and decisions; the company's ability to fund
liquidity and capital needs; and other risks detailed in the company's Form
10-K for the year ended February 22, 2002 and other filings with the Securities
and Exchange Commission.
Recently Issued Accounting Standards
In June, 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 establishes
accounting and reporting standards for the retirement of long- lived assets and
the associated asset retirement costs. We intend to adopt the provisions of
SFAS No. 143 during our fiscal year 2004. The impact of this pronouncement is
not anticipated to have a material effect on our financial results.
21
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risks
During Q1 2003, no material change in foreign exchange risks occurred.
Interest Rates
During Q1 2003, no material change in interest rate risks occurred.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
1. EXHIBITS
See Exhibit Index
2. REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed April 30, 2002 reporting under Item
5, Other Events, the company's investment grade ratings from Standard & Poor's
and Moody's Investors Service.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STEELCASE INC.
/S/ JAMES P. KEANE
By: _______________________________
James P. Keane
Senior Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: July 8, 2002
24
EXHIBIT INDEX
Designation Description
- ----------- -----------
10.27 Steelcase Inc. Incentive Compensation Plan, amended and restated as of March 1, 2002
10.28 Steelcase Inc. Management Incentive Plan, amended and restated as of March 1, 2002
10.29 Aircraft Time Sharing Agreement between Steelcase Inc. and James P. Hackett, dated March 31,
2002
10.30 Aircraft Time Sharing Agreement between Steelcase Inc. and James P. Hackett, dated March 31,
2002
10.31 Aircraft Time Sharing Agreement between Steelcase Inc. and Robert W. Black, dated March 31,
2002
99.1 Asset Purchase Agreement between Steelcase Financial Services Inc. and General Electric Capital
Corporation, dated May 24, 2002
99.2 Guaranty by Steelcase Inc., in favor of General Electric Capital Corporation, dated May 24, 2002
25