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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 November 24, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-13873
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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 (Zip Code)
offices)
(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 December 29, 2000, the
Registrant had outstanding 30,215,113 shares of Class A Common Stock and
117,535,274 shares of Class B Common Stock.
Exhibit index located on page 16.
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STEELCASE INC. FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 24, 2000
INDEX
Page
No.
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three and Nine Months Ended November 24, 2000 and November 26, 1999.... 3
Condensed Consolidated Balance Sheets
as of November 24, 2000 and February 25, 2000.......................... 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended November 24, 2000 and November 26, 1999.............. 5
Notes to Condensed Consolidated Financial Statements.................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 13
Part II. Other Information
Item 1. Legal Proceedings................................................. 14
Item 2. Changes in Securities............................................. 14
Item 3. Defaults upon Senior Securities................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 5. Other Information................................................. 14
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signatures................................................................ 15
Exhibit Index............................................................. 16
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in millions, except per share data)
Three Months Ended Nine Months Ended
--------------------- ------------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
2000 1999 2000 1999
--------- --------- -------- --------
Net sales......................... $ 982.3 $ 881.0 $2,912.5 $2,404.7
Cost of sales..................... 655.9 586.7 1,928.1 1,575.4
--------- --------- -------- --------
Gross profit...................... 326.4 294.3 984.4 829.3
Selling, general and
administrative expenses.......... 247.1 216.0 714.0 601.6
--------- --------- -------- --------
Operating income.................. 79.3 78.3 270.4 227.7
Interest expense.................. (9.6) (4.7) (29.5) (10.9)
Other income, net................. 6.8 1.3 26.6 9.2
--------- --------- -------- --------
Income before provision for income
taxes and equity in net income
(loss) of joint ventures and
dealer transitions............... 76.5 74.9 267.5 226.0
Provision for income taxes........ 26.7 29.2 100.3 88.1
--------- --------- -------- --------
Income before equity in net income
(loss) of joint ventures and
dealer transitions............... 49.8 45.7 167.2 137.9
Equity in net income (loss) of
joint ventures and dealer
transitions...................... 1.9 (0.4) 0.8 2.3
--------- --------- -------- --------
Net income........................ $ 51.7 $ 45.3 $ 168.0 $ 140.2
========= ========= ======== ========
Earnings per share (basic and
diluted)......................... $ 0.35 $ 0.30 $ 1.12 $ 0.92
========= ========= ======== ========
Dividends per share of common
stock............................ $ 0.11 $ 0.11 $ 0.33 $ 0.33
========= ========= ======== ========
See accompanying notes to condensed consolidated financial statements.
3
STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
Nov. 24, Feb. 25,
2000 2000
----------- --------
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 30.1 $ 73.7
Accounts receivable, net............................... 606.8 592.6
Notes receivable and leased assets..................... 287.6 189.0
Inventories ........................................... 196.6 166.5
Other current assets................................... 123.2 105.5
-------- --------
Total current assets............................. 1,244.3 1,127.3
Property and equipment, net.............................. 943.5 939.1
Notes receivable and leased assets....................... 327.3 294.1
Joint ventures and dealer transitions.................... 41.9 37.0
Goodwill and other intangible assets, net................ 408.4 422.6
Other assets............................................. 224.8 217.5
-------- --------
Total assets..................................... $3,190.2 $3,037.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts and notes payable............................. $ 236.6 $ 219.8
Short-term borrowings and current portion of long-term
debt.................................................. 250.5 209.0
Accrued expenses:
Employee compensation................................ 148.2 121.1
Employee benefit plan obligations.................... 89.3 90.0
Other................................................ 271.5 287.3
-------- --------
Total current liabilities........................ 996.1 927.2
-------- --------
Long-term liabilities:
Long-term debt......................................... 286.0 257.8
Employee benefit plan obligations...................... 248.3 243.7
Other long-term liabilities............................ 34.7 46.7
-------- --------
Total long-term liabilities...................... 569.0 548.2
-------- --------
Total liabilities................................ 1,565.1 1,475.4
-------- --------
Shareholders' equity:
Common stock........................................... 289.0 342.7
Accumulated other comprehensive income (loss).......... (34.8) (33.0)
Retained earnings...................................... 1,370.9 1,252.5
-------- --------
Total shareholders' equity....................... 1,625.1 1,562.2
-------- --------
Total liabilities and shareholders' equity....... $3,190.2 $3,037.6
======== ========
See accompanying notes to condensed consolidated financial statements.
4
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
Nine Months Ended
------------------
Nov. 24, Nov. 26,
2000 1999
-------- --------
OPERATING ACTIVITIES
Net income.................................................. $ 168.0 $ 140.2
Depreciation and amortization............................... 120.5 100.3
Changes in current assets and liabilities, net of corporate
acquisitions............................................... (77.4) (12.2)
Other, net.................................................. 3.5 18.2
------- -------
Net cash provided by operating activities................. 214.6 246.5
------- -------
INVESTING ACTIVITIES
Capital expenditures........................................ (185.1) (113.1)
Proceeds from the disposal of assets........................ 80.2 --
Corporate acquisitions, net of cash acquired................ -- (206.3)
Net increase in notes receivable and leased assets.......... (134.1) (101.7)
Other, net.................................................. (14.8) (15.0)
------- -------
Net cash used in investing activities..................... (253.8) (436.1)
------- -------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................... 124.2 281.1
Repayments of debt.......................................... (76.5) (75.2)
Short-term borrowings, net.................................. 47.1 49.4
Common stock issuance....................................... 0.1 --
Common stock repurchase..................................... (53.8) (22.2)
Dividends paid.............................................. (49.6) (50.6)
------- -------
Net cash provided by (used in) financing activities....... (8.5) 182.5
------- -------
Effect of exchange rate changes on cash and cash
equivalents.............................................. 4.1 --
------- -------
Net increase (decrease) in cash and cash equivalents.... (43.6) (7.1)
Cash and cash equivalents, beginning of period........ 73.7 67.5
------- -------
Cash and cash equivalents, end of period.............. $ 30.1 $ 60.4
======= =======
See accompanying notes to condensed consolidated financial statements.
5
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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
the registrant's Annual Report on Form 10-K for the fiscal year ended February
25, 2000 (the "10-K Report"). For purposes hereof, "Steelcase Inc." or the
"Company" means Steelcase Inc. and its majority owned subsidiaries unless the
context requires otherwise.
Earnings Per Share
The following table reconciles the numerator and denominator used in the
calculations of basic and diluted earnings per share ("EPS") (in millions):
Three Months Ended Nine Months Ended
-------------------- -----------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
2000 1999 2000 1999
--------- --------- -------- --------
Numerator:
Net income numerator for both basic and diluted EPS....... $ 51.7 $ 45.3 $168.0 $140.2
========= ========= ====== ======
Denominator:
Denominator for basic EPS-Weighted average common shares
outstanding.............................................. 149.0 152.5 150.0 153.0
Potentially dilutive shares resulting from stock options.. 0.6 -- 0.4 0.1
--------- --------- ------ ------
Denominator for diluted EPS............................... 149.6 152.5 150.4 153.1
========= ========= ====== ======
Comprehensive Income
Comprehensive income is comprised of net income and all changes to
shareholders' equity, except those due to investments by owners and
distributions to owners. Comprehensive income and its components consist of
the following (in millions):
Three Months
Ended Nine Months Ended
----------------- -----------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
2000 1999 2000 1999
-------- -------- -------- --------
Net income............................. $51.7 $45.3 $168.0 $140.2
Other comprehensive income:
Foreign currency translation
adjustments......................... 13.2 8.1 (1.1) (8.2)
Unrealized gain (loss) on
investments......................... -- 3.5 (0.4) 5.5
Minimum pension liabilities.......... -- -- (0.3) (0.3)
----- ----- ------ ------
Comprehensive income................... $64.9 $56.9 $166.2 $137.2
===== ===== ====== ======
6
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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 determined by the LIFO method aggregated $134.6 million
and $121.3 million at November 24, 2000 and February 25, 2000, respectively.
Inventories consist of (in millions):
Feb.
Nov. 24, 25,
2000 2000
-------- ------
Finished goods.............................................. $ 97.9 $ 71.6
Work in process............................................. 45.6 45.6
Raw materials............................................... 98.5 93.4
------ ------
242.0 210.6
LIFO reserve................................................ (45.4) (44.1)
------ ------
$196.6 $166.5
====== ======
Short-Term Borrowings and Long-Term Debt
During the third quarter of fiscal 2001, the Company expanded its committed
lease receivables transfer facility from $200.0 million to $350.0 million.
Under this transfer facility the Company has the right, subject to certain
conditions, to receive advances against the transfer of certain lease
receivables.
During the second quarter of fiscal 2001, the Company entered into an
additional short-term borrowing arrangement of $8.7 million at a 4.55%
interest rate. The Company also entered into an additional long-term borrowing
arrangement of $10.1 million, which matures October, 2007 and has an interest
rate of 8.2%. The additional long-term borrowings are fully collateralized by
lease receivables and certain leased assets.
During the first quarter of fiscal 2001, the Company entered into
additional long-term borrowing arrangements of $38.7 million, which mature
from 2004 to 2006 and have a weighted average interest rate of 6.92%. The
additional long-term borrowings are fully collateralized by lease receivables
and certain leased assets.
Common Stock Repurchase Program
On June 17, 1998, the Company's 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, the
Board authorized additional common stock repurchases of up to three million
shares. On September 20, 2000, the Board authorized common stock repurchases
of up to an additional five million shares; the total shares authorized for
repurchase is now 11 million shares.
During the third quarter of fiscal 2001, the Company repurchased 793,000
shares of Class A common shares at a cost of $13.5 million and 1,070,137 Class
B common shares at a cost of $18.3 million. As of November 24, 2000, total
repurchases amounted to $105.4 million and 4,368,293 shares remained
authorized for repurchase under the program. The Company has outstanding
commitments to repurchase 250,600 of those remaining authorized shares. This
commitment is to be fulfilled through seven remaining monthly repurchases of
35,800 shares; the repurchase price is determined by the five-day average
market price at the time of each monthly purchase.
7
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Operating Segments
The Company's principal business is the manufacture of an extensive range
of steel and wood office furniture products. Primary product lines include
office furniture systems, seating, storage solutions, desk and casegoods, and
interior architectural products. In addition, the Company also provides
services and is engaged in non-furniture businesses, which include marine
accessories, design services, financial services and consulting services. The
Company operates on a worldwide basis within three reportable segments, two of
which are geographic furniture segments; the third segment is Services and
Other Businesses. The Company evaluates performance and allocates resources
based on operating income.
The following sets forth reportable segment data reconciled to the
consolidated financial statements (in millions):
Three Months Ended Nine Months Ended
-------------------- -----------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
2000 1999 2000 1999
--------- --------- -------- --------
Net sales
North America.................... $ 765.8 $ 676.9 $2,250.4 $1,945.6
International.................... 176.5 173.9 532.8 509.3
Services and other businesses.... 40.0 30.2 129.3 98.1
Eliminations..................... -- -- -- (148.3)
--------- --------- -------- --------
Consolidated net sales........... $ 982.3 $ 881.0 $2,912.5 $2,404.7
========= ========= ======== ========
Three Months Ended Nine Months Ended
-------------------- -----------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
2000 1999 2000 1999
--------- --------- -------- --------
Operating income
North America.................... $ 66.5 $ 64.2 $ 222.1 $ 207.5
International.................... 5.0 12.5 27.4 22.4
Services and other businesses.... 7.8 1.6 20.9 8.2
Eliminations..................... -- -- -- (10.4)
--------- --------- -------- --------
Consolidated operating income.... $ 79.3 $ 78.3 $ 270.4 $ 227.7
========= ========= ======== ========
Nov. 24, Feb. 25,
2000 2000
-------- --------
Total assets
North America........................................... $1,705.3 $1,678.2
International........................................... 653.7 679.2
Services and other businesses........................... 831.2 680.2
-------- --------
Consolidated total assets............................... $3,190.2 $3,037.6
======== ========
The first three months of the nine months ended November 26, 1999 include
the results of Steelcase S.A. (formerly known as Steelcase Strafor S.A.) on a
consolidated basis, which are eliminated in order to reconcile with the
Company's consolidated totals.
8
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 of the Company and Management's Discussion
and Analysis of Financial Condition and Results of Operations set forth in the
10-K Report.
Results of Operations
The following table sets forth condensed consolidated statement of income
data, as a percentage of net sales, for the three and nine months ended
November 24, 2000 and November 26, 1999.
Three Months
Ended Nine Months Ended
----------------- -----------------
Nov. 24, Nov. 26, Nov. 24, Nov. 26,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 66.8 66.6 66.2 65.5
----- ----- ----- -----
Gross profit.............................. 33.2 33.4 33.8 34.5
Selling, general and administrative
expenses................................. 25.1 24.5 24.5 25.0
----- ----- ----- -----
Operating income.......................... 8.1 8.9 9.3 9.5
Interest expense.......................... (1.0) (0.5) (1.0) (0.5)
Other income, net......................... 0.7 0.1 0.9 0.4
----- ----- ----- -----
Income before provision for income taxes
and equity in net income (loss) of joint
ventures and dealer transitions.......... 7.8 8.5 9.2 9.4
Provision for income taxes................ 2.7 3.3 3.4 3.7
----- ----- ----- -----
Income before equity in net income (loss)
of joint ventures and dealer
transitions.............................. 5.1 5.2 5.8 5.7
Equity in net income (loss) of joint
ventures and dealer transitions.......... 0.2 (0.1) -- 0.1
----- ----- ----- -----
Net income................................ 5.3% 5.1% 5.8% 5.8%
===== ===== ===== =====
- --------
Overview
Consolidated net sales of $982.3 million for the third quarter of fiscal
2001 ("Q3 2001") and $2,912.5 million for the first nine months of fiscal 2001
("2001") increased 11.5% and 21.1%, respectively, compared to the third
quarter of fiscal 2000 ("Q3 2000") and the first nine months of fiscal 2000
("2000"). The sales growth in Q3 2001 reflects the continued growth from new
and established products across most business and customer segments. The nine-
month sales increase was also attributable to the impact of the acquisition of
Steelcase S.A. and subsidiaries, as well as several domestic acquisitions.
Sales growth excluding acquisitions was 12.4% for the first nine months of
2001, bolstered by new product sales and broad-based strength across most
product lines. New product sales, defined as products introduced in the past
five years, made up 25% of the first nine months of 2001 sales, compared to
17% in 2000. Sales growth of the Company's established product lines was
linked to the momentum in the large account business, which strengthened
significantly during the first nine months of 2001.
The Company posted earnings growth of 14.1% in Q3 2001, with net income of
$51.7 million ($0.35 per share) and growth of 19.8% for the first nine months
of 2001, with net income of $168.0 million ($1.12 per share), compared to net
income of $45.3 million ($0.30 per share) in Q3 2000 and $140.2 million ($0.92
per share) in the first nine months of 2000. Earnings for 2001 include a $5.4
million ($0.04 per share) after-tax gain on the sale of a non-operating
facility.
9
Three and Nine Months Ended November 24, 2000 Compared to the Three and Nine
Months Ended November 26, 1999
The following table sets forth comparative sales information by segment (in
millions):
Three Months Nine Months
Ended Percentage Ended Percentage
----------------- Change ----------------- Change
Nov. 24, Nov. 26, Increase/ Nov. 24, Nov. 26, Increase/
2000 1999 (Decrease) 2000 1999 (Decrease)
-------- -------- ---------- -------- -------- ----------
Net sales
North America........... $765.8 $676.9 13.1% $2,250.4 $1,945.6 15.7%
International (1)....... 176.5 173.9 1.5% 532.8 361.0 n/m
Services & other
businesses............. 40.0 30.2 32.5% 129.3 98.1 31.8%
------ ------ -------- --------
Consolidated net sales.. $982.3 $881.0 11.5% $2,912.5 $2,404.7 21.1%
====== ====== ======== ========
n/m = not meaningful
(1) Because of the effective date of the acquisition, Steelcase S.A. net sales
of $148.3 million for Q1 2000 are not included in the chart above.
The sales growth in the North America business segment was the driving
force in the Company's Q3 2001 consolidated net sales increase of 11.5%. The
North America business segment saw a 13.1% sales increase in Q3 2001 and a
15.7% increase for the first nine months. The Company's new and established
products continued to outpace the U.S. industry sales growth. Steelcase Design
Partnership ("SDP") product sales growth of 11.9% in Q3 2001 and 11.1% in the
first nine months of 2001 accompanied the growth within the Company's core
North America operations. Net sales for the first nine months of 2001 were
positively impacted by domestic acquisitions that occurred in 2000. Sales
growth excluding the impact of these acquisitions was 12.1% for the first nine
months of 2001 compared to the same period for 2000.
The Company continues to sustain double-digit order growth across most
product lines within North America, outpacing the industry during the
comparable time period. Therefore, the Company expects its strong sales
performance to continue at least through the balance of the fiscal year. The
Business and Institutional Furniture Manufacturers' Association ("BIFMA") has
reported a U.S. industry growth forecast of 5.6% for calendar year 2001; the
Company believes it's U.S. operations will exceed the BIFMA forecast.
The International business segment experienced stronger orders and sales in
Q3 2001, as local currency sales were up 19% compared to Q3 2000. Sales during
the first nine months of 2001 were also up 19% compared to the first nine
months of 2000. New product sales made up nearly half of the International
sales for the first nine months of 2001. However, the devaluation of the euro
and other currencies in relation to the U.S. dollar negatively impacted sales
by approximately $30 million in Q3 2001 and $73 million for the first nine
months of 2001. The net result for International operations was a sales
increase, in U.S. dollars, of 1.5% for the quarter and 8.8% for the first nine
months, excluding the impact of the acquisition of Steelcase S.A.
Services and other businesses increased primarily as a result of increased
net leasing revenues from Steelcase Financial Services Inc. ("SFSI") and
consulting and design revenues from IDEO, as well as increased sales at
Attwood.
The gross profit margin for the Company was 33.2% for Q3 2001, compared to
33.4% for Q3 2000, a decline of 0.2 of a percentage point. Gross profit margin
for the first nine months of 2001 was 33.8%, compared to 34.5% for the first
nine months of 2000, a decline of 0.7 of a percentage point. These declines
were attributable to a continuation of the same factors affecting the
Company's recent performance -- competitive pricing pressures and a shift in
the Company's sales mix from established products with higher margins, to new
products with lower initial margins. In addition, certain material costs
increased during the past two quarters. While some benefits of volume leverage
did result from the increase in sales, unfortunately the aforementioned
factors more than offset the positive impact of those volume leverage
benefits.
10
The operating margin for the Company was 8.1% for Q3 2001 compared to 8.9%
for Q3 2000, a decline of 0.8 of a percentage point. Operating margin for the
first nine months of 2001 was 9.3%, compared to 9.5% for the first nine months
of 2000, a decline of 0.2 of a percentage point. Operating margin is the main
driver of the Company's variable compensation programs; accordingly the
Company has made the appropriate adjustments to these programs in response to
the lower than expected operating margin performance.
The North America operating margin was 8.7% for Q3 2001, compared to 9.5%
for Q3 2000, a decline of 0.8 of a percentage point. The year-to-date 2001
operating margin was 9.9%, compared to 10.7% for the first nine months of
2000, a decline of 0.8 of a percentage point. The declines in North America
margin performance for the quarter and year to date were the result of the
aforementioned factors on gross profit margin, as well as spending on specific
strategic initiatives, including strategic sourcing and continued investments
in the Company's technological capabilities. The Company expects relatively
stable gross profit margins and modestly lower operating expenses in the
fourth quarter of 2001, which should result in a slight improvement in the
North American operating margin for the quarter.
The International operating margin was 2.8% for Q3 2001, compared to 7.2%
for Q3 2000, a decline of 4.4 percentage points. The year-to-date 2001
International operating margin was 5.1%, compared to 3.3% for the first nine
months of 2000, an increase of 1.8 percentage points. International operating
profit for the quarter was impacted by the record level of unit volume and the
demand for new products, both of which caused a decline in the service levels
provided by certain International locations due to capacity constraints.
Additionally, increased costs in resolving certain distribution issues and
costs to support further realignment within the Company's European operations
also affected International operating margins during Q3 2001. The
International orders outlook is strong and the Company anticipates improved
earnings from its International business segment during the fourth quarter.
Interest expense increased from $4.7 million and $10.9 million in Q3 2000
and the first nine months of 2000, respectively, to $9.6 million in Q3 2001
and $29.5 million for the first nine months of 2001. Q1 2000 was the first
quarter the Company reported debt; this specifically related to the European
acquisition. The increase in interest expense is primarily due to the
borrowings against the Company's lease receivable portfolio to fund further
lease activity, as well as significant capital expenditures during the first
nine months of 2001. Other income, net, increased $17.4 million in the first
nine months of 2001 as compared to the previous year, primarily as a result of
the pre-tax gain of $8.8 million on the sale of a non-operating facility, as
well as increased interest income related to the Company's lease receivable
portfolio.
The effective income tax rate in Q3 2001 was 34.9% as compared to 39.0% for
Q3 2000. The rate for the first nine months of 2001 was lowered to 37.5% as
compared to 39.0% for the first nine months of 2000. The decrease is primarily
due to the favorable resolution of U.S. corporate tax issues, as well as the
favorable impact of certain tax planning strategies being implemented within
the Company's European operations.
Equity in net income from joint ventures and dealer transitions increased
to $1.9 million in Q3 2001, from the $(0.4) million loss in Q3 2000; however,
the $0.8 million in the first nine months of 2001 is a decrease from the $2.3
million in the first nine months of 2000, primarily as a result of the
Company's European operations now being consolidated with the Company's
results.
For the reasons set forth above, net income increased 14.1% to $51.7
million in Q3 2001 from $45.3 million in Q3 2000 and 19.8% to $168.0 million
for the first nine months of 2001, up from $140.2 million for the first nine
months of 2000.
11
Liquidity and Capital Resources
Historically, the Company's cash and capital requirements have been
satisfied through cash generated from operating activities. The Company's
financial position at November 24, 2000, includes cash and cash equivalents of
$30.1 million. These funds, in addition to cash generated from future
operations and available credit facilities, are expected to be sufficient to
finance the known or foreseeable future liquidity and capital needs of the
Company.
The decrease of $31.9 million in cash generated from operating activities
for the first nine months of 2001, compared to the first nine months of 2000
is attributable to the Company's European operations, along with volume
increases around the world, resulting in higher accounts receivable and
inventory balances. However, the Company is implementing aggressive strategies
to reduce both on a worldwide basis. In addition, the Company had significant
cash outlays for previously accrued expenses including those related to its
payment of the year-end bonus and contributions to the Company's trust fund,
as well as tax payments.
Cash used in investing activities was primarily comprised of capital
expenditures and the change in leased assets of the Company's wholly owned
finance subsidiary, SFSI. SFSI's asset base continues to grow as SFSI
increases its portfolio of leased assets, asset based lending and project
financing. Capital expenditures were $185.1 million for the first nine months
of 2001, compared to $113.1 million during the first nine months of 2000. The
Company is investing in a state-of-the-art environmentally friendly facility
to manufacture its wood furniture products. The Company is also investing in
improvements of its processes and in its made-to-order SAP business system.
The Company's investments are intended to improve productivity and safety,
increase capacity, decrease the impact on the environment and facilitate the
launch of new services and products. Management expects capital expenditures,
net of asset dispositions, to approximate $150 million for the full fiscal
year, which includes approximately $100 million of dispositions. During the
first nine months of 2001, the Company received proceeds of $80.2 million from
the completion of three sale/leaseback transactions and the sale of a non-
operating facility.
The Company paid common stock dividends of $0.33 per share, or $49.6
million, and $0.33 per share, or $50.6 million, during the first nine months
of 2001 and 2000, respectively. During the first nine months of 2001, the
Company repurchased 1,540,200 Class A common shares for $23.4 million and
1,836,937 Class B common shares for $30.4 million, under a three million share
repurchase program authorized by the Board of Directors on June 17, 1998. This
program was expanded on September 22, 1999 by an additional three million
shares and further expanded on September 20, 2000 by an additional five
million shares. 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 shares will continue to convert into Class A common shares
over time.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. There will be a transition period from January 1,
1999 through January 1, 2002, at which time all legal tender will convert to
the euro. The transition period is anticipated to resolve difficulties in
handling local currencies and euro simultaneously, while remaining flexible to
the market. The Company's primary exposure to the euro conversion is
concentrated in Steelcase S.A. Steelcase S.A. created an internal Euro
Committee, a pan-European multifunctional team whose goal was to determine the
impact of this currency change on products, markets, and information systems.
Based on the Euro Committee's work to date, the Company does not expect the
euro conversion to have a material impact on Steelcase S.A.'s financial
position, or on the Company as a whole.
12
Safe Harbor Provision
There are certain forward-looking statements under the Results of
Operations for the Three and Nine Months Ended November 24, 2000 Compared to
Three and Nine Months Ended November 26, 1999, Liquidity and Capital
Resources, Euro Conversion and Recently Issued Accounting Standards sections,
particularly those with respect to the sales performance of the Company
through the balance of this fiscal year and the calendar year 2001, expected
gross profit margins, operating expenses and operating margins for the fourth
quarter of 2001, future earnings and orders outlook for the International
business segment, the Company's future liquidity and capital needs, the
sufficiency of the Company's current and future cash, cash equivalents and
credit facilities to finance future liquidity and capital needs, future
capital expenditures, conversion of Class B common shares to Class A common
shares and the offset conversion on the Company's tradable float, the impact
of the euro conversion on the financial position of Steelcase S.A. and the
Company and the impact of any recently issued accounting pronouncements on the
Company's financial statements. Such statements involve certain risks and
uncertainties that could cause actual results to vary from stated
expectations. The Company's performance may differ materially from that
contemplated by such statements for a variety of reasons, including, but not
limited to, competitive and general economic conditions domestically and
internationally; competitive pricing pressure; currency fluctuations; changes
in customer order patterns; sales mix; the success of new products and their
impact on the Company's manufacturing processes; possible acquisitions and
divestitures by the Company; the Company's ability to improve margins on new
products, to successfully integrate acquired businesses, to reduce costs,
including ramp up costs associated with new products, to reduce accounts
receivable and inventories on a world-wide basis, and to successfully
implement technology initiatives; the impact of the euro conversion, the
sufficiency of the reserve established with regard to material and
installation costs associated with Pathways product line improvements and
other risks detailed in the Company's 10-K Report for the year ended February
25, 2000, and its other filings with the Securities and Exchange Commission.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, establishes accounting and
reporting standards for derivative instruments, requiring recognition of the
fair value of all derivatives as assets or liabilities on the balance sheet.
Gains and losses resulting from changes in fair value would be included in
income, or in comprehensive income, depending on whether the instrument
qualifies for hedge accounting and the type of hedging instrument involved.
This statement is effective for fiscal years beginning after June 15, 2000.
Management intends to adopt the provisions of SFAS No. 133 during the first
quarter of the Company's fiscal year 2002. The impact of this pronouncement on
the Company's financial results is currently being evaluated. No other
recently issued accounting pronouncements are expected to have a material
impact on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risks
During the third quarter of fiscal 2001, no material change in foreign
exchange risks occurred.
Interest Rates
During the third quarter of fiscal 2001, no material change in interest
rates occurred.
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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
No reports on Form 8-K were filed during the three months ended November 24,
2000.
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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/ Alwyn Rougier-Chapman
_____________________________________
Alwyn Rougier-Chapman
Senior Vice President--Finance
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: January 8, 2001
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EXHIBIT INDEX
There are no exhibits to report in the third quarter of fiscal 2000, ended
November 24, 2000.
16