SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
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[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Steelcase Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
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[Steelcase Logo]
STEELCASE INC.
901 44th Street SE
Grand Rapids, Michigan 49508
NOTICE OF 2001
ANNUAL MEETING OF
SHAREHOLDERS
PROXY STATEMENT
FINANCIAL STATEMENTS
AND OTHER INFORMATION
[Steelcase Logo]
STEELCASE INC.
901 44th Street SE
Grand Rapids, Michigan 49508
NOTICE OF ANNUAL MEETING
Date: June 25, 2001
Time: 11:00 A.M. Eastern Daylight Time
Location: Corporate Headquarters Theater
901 44th Street SE
Grand Rapids, Michigan 49508
To Steelcase Shareholders:
You are invited to attend our 2001 annual meeting of shareholders. The meeting
is being held for the purpose of allowing you and the other shareholders of
Steelcase to vote on the following proposal and any other business that
properly comes before the meeting:
. Electing four Directors to a three-year term on the Board of Directors.
The Board has nominated for election James P. Hackett, David W. Joos,
Elizabeth Valk Long, and P. Craig Welch, Jr.
You may vote at the meeting if you were a shareholder of record at the close of
business on May 1, 2001. Your Board of Directors recommends that you vote for
each of the nominees.
Please review the attached Proxy Statement and accompanying proxy card. Whether
you plan to attend the annual meeting or not, we urge you to vote your shares
as soon as possible. You may vote by telephone, the Internet, or by signing and
returning the accompanying proxy card in the enclosed postage-paid envelope.
This will allow your shares to be voted if you do not attend the meeting.
Whether you appoint a proxy by returning the enclosed proxy card or by
responding by telephone or the Internet, if you attend the meeting, you may
withdraw your proxy and vote your own shares.
We look forward to seeing you at the meeting.
By Order of the Board of Directors
Jon D. Botsford
Senior Vice President, Secretary and
Chief Legal Officer
Grand Rapids, Michigan
May 17, 2001
[Steelcase Logo]
STEELCASE INC.
901 44th Street SE
Grand Rapids, Michigan 49508
PROXY STATEMENT
TABLE OF CONTENTS
Questions and Answers....................................................... 1
Proposal Requiring Your Vote--Election of Directors......................... 4
Our Board of Directors...................................................... 4
Committees of the Board of Directors........................................ 7
Directors' Compensation..................................................... 8
Stock Ownership of Management and More Than 5% Shareholders................. 9
Report of the Audit Committee............................................... 12
Audit Fees.................................................................. 13
Executive Compensation: Report of the Compensation Committee................ 13
Executive Compensation, Retirement Programs and Other Arrangements.......... 17
Compensation Committee Interlocks and Insider Participation................. 23
Stock Performance Graph..................................................... 24
Other Matters............................................................... 25
Audit Committee Charter..................................................... A-1
QUESTIONS AND ANSWERS
1. Q: What may I vote on?
A: The election of nominees to serve on our Board of Directors and any
other business that properly comes before the meeting.
2. Q: How does the Board recommend I vote on the proposals?
A: The Board recommends a vote for each of the nominees for Director
listed on pages 4 and 5.
3. Q:Who is entitled to vote?
A: Shareholders of record of Class A Common Stock and Class B Common Stock
at the close of business on May 1, 2001 may vote at the meeting.
4. Q:What are my voting rights?
A: On all matters that properly come before the meeting, each shareholder
has one vote per share of Class A Common Stock and ten votes per share
of Class B Common Stock owned of record at the close of business on May
1, 2001.
5. Q: How do I vote?
A: If you are a registered shareholder (that is, if you hold your
Steelcase stock directly in your name), you may vote by telephone, the
Internet or by mail.
To vote by telephone or the Internet: Please follow the instructions
on the proxy card. The deadline for voting by telephone or the
Internet is 11:59 p.m. Eastern Daylight Time on June 24, 2001.
To vote by mail: Please complete, sign, date and return the
accompanying proxy card in the enclosed postage-paid envelope.
If you hold your stock in "street name" (that is, your shares are
registered in the name of a bank, broker or other nominee, which we
will collectively refer to as your "broker"), you must vote your shares
in the manner required by your broker.
Whether you vote by telephone, the Internet or by mail, you may specify
whether your shares should be voted for all, some or none of the
nominees for Director.
If you do not specify a choice, your shares will be voted FOR the
election of all the nominees for Director listed under "Proposal
Requiring Your Vote: Election of Directors" on pages 4 and 5.
6. Q: How will voting on any other business be conducted?
A: For any other matter that may properly come before the meeting, your
shares will be voted in the discretion of the holders of the proxy. As
of May 1, 2001, we do not know of any other matter to be considered at
the meeting.
1
7.Q:Can I revoke my proxy?
A: If you appoint a proxy, you may revoke it at any time before it is
exercised in any of three ways:
(1) by notifying the Secretary of Steelcase in writing;
(2) by delivering to the Secretary of Steelcase a proxy dated with a
later date; or
(3) by attending the meeting and voting in person.
8. Q: Who can attend the annual meeting?
A: Shareholders of record of Steelcase Class A and Class B common stock.
9. Q: Can I listen to the shareholder meeting if I cannot attend?
A: If you have access to the Internet, you can listen to a live audiocast
of the 2001 shareholder's meeting. Instructions for listening to this
audiocast will be available at our website, www.steelcase.com,
approximately one week before the meeting. A replay of the audiocast
will be available within two hours of the meeting and until July 23,
2001.
10. Q: How many shares are entitled to vote at the annual meeting?
A: As of the close of business on May 1, 2001, the record date for
determining shareholders entitled to vote at the annual meeting, there
were outstanding 32,635,033 shares of Class A Common Stock and
114,916,271 shares of Class B Common Stock.
11. Q: Does any shareholder own 5% or more of Steelcase's common stock?
A: Yes, please see the "Stock Ownership of Management and More than 5%
Shareholders" table on pages 9 to 12.
12. Q: When are shareholder proposals for next year's annual meeting due?
A: Shareholder proposals to be presented at our 2002 annual meeting of
shareholders must be received by the Secretary of Steelcase, at our
principal executive offices (901 44th Street SE, Grand Rapids, Michigan
49508) by January 17, 2002, in order to be considered for inclusion in
our proxy statement and proxy related to that meeting. Your proposals
should be sent by certified mail, return receipt requested.
Shareholder proposals to be presented at our 2002 annual meeting of
shareholders, but that are not intended to be considered for inclusion
in our proxy statement and proxy related to that meeting, must be
received by Steelcase no later than April 16, 2002. Any such proposals
should be sent to the Secretary of Steelcase at our principal executive
offices by certified mail, return receipt requested. If we do not
receive shareholder proposals by April 16, 2002, our proxy may allow
the proxy holder to vote on such proposals in accordance with their
best judgement.
2
13. Q: Why are the financial statements and other information attached to this
Proxy Statement?
A: This year it was our goal to provide in our Summary Annual Report more
information and insight about our results for fiscal year 2001 in a
concentrated and cost-effective format. The complete financial
statements, which incorporate an in-depth analysis of fiscal year 2001
results (Management's Discussion and Analysis), are attached to this
Proxy Statement.
3
PROPOSAL REQUIRING YOUR VOTE -- ELECTION OF DIRECTORS
Our Board of Directors currently consists of eleven Directors divided into
three classes (Classes I, II and III), serving staggered three-year terms.
Effective June 25, 2001, Chairman Emeritus Robert C. Pew II will retire from
our Board because Steelcase's bylaws prohibit Directors from standing for
election after age 75.
There are four nominees for election this year. They are nominated to serve as
Class III Directors for a three-year term that will expire at the 2004 annual
meeting. The following pages contain information regarding the Director
nominees and our other Directors.
Your proxy holder will vote your shares as you specify in your proxy. If you do
not specify how you want your shares voted when you provide your proxy, and you
have used Steelcase's proxy form, your shares will be voted for the election of
all of the nominees. However, if any nominee is unable or unwilling to serve as
a Director, the Board may select a substitute nominee, and, in that event, your
proxy holder will vote your shares for that person.
Neither Steelcase nor the members of our Board of Directors intend to bring
before the meeting any matters other than the election of Directors. As of May
1, 2001, we are not aware of any other matter to be brought before the
shareholders by others. If any matter properly comes before the meeting,
however, the persons named in the enclosed form of proxy intend to vote in
accordance with their best judgement.
OUR BOARD OF DIRECTORS
Nominees For Election as Class III Directors For the Term Expiring in 2004:
James P. Hackett Director since 1994
Mr. Hackett has been President and Chief Executive Officer
of Steelcase since 1994. Mr. Hackett also serves as a member
of the Board of Trustees of The Northwestern Mutual Life
Insurance Company. Mr. Hackett served as a Director of Old
Kent Bank Financial Corporation until April 2, 2001, when it
was acquired by Fifth Third Bancorp. Age 46.
[PHOTO OF JAMES P. HACKETT]
David W. Joos Nominee for Director
Mr. Joos has been Executive Vice President, Chief Operating
Officer--Electric of CMS Energy Corporation since 2000. From
1997 to 2000, Mr. Joos served as President and Chief
Executive Officer--Electric, and from 1994 to 1997, as
Executive Vice President, Chief Operating Officer--Electric,
of Consumers Energy, the primary electric utility of CMS
Energy Corporation. Age 48.
[PHOTO OF DAVID W. JOOS]
4
Elizabeth (Lisa) Valk Long Director since 2001
Ms. Long has been Executive Vice President of Time Inc., a
magazine publisher, since 1995. From 1991 to 1995, Ms. Long
was President of Time Magazine. Ms. Long was appointed to
the Steelcase Board of Directors in March 2001. Ms. Long
also serves on the Board of Directors of J.M. Smucker
Company. Age 51.
[PHOTO OF ELIZABETH VALK LONG]
P. Craig Welch, Jr. Director since 1979
Since 1999, Mr. Welch has been Manager of Honzo LLC, an
investment/venture capital firm. From 1987 to 1999, Mr.
Welch was a venture capitalist. From 1967 to 1987, Mr. Welch
held various positions at Steelcase, including Director of
Information Services and Director of Production Inventory
Control. Age 56.
[PHOTO OF P. CRAIG WELCH, JR.]
Class I Directors Continuing in Office For the Term Expiring in 2002:
Earl D. Holton Director since 1998
Mr. Holton has served as Chairman of the Board of Steelcase
since March 1999. He has also held a variety of positions
with Meijer, Inc., a Grand Rapids, Michigan based operator
of food and general merchandise stores, including President
from 1980 until 1999. Mr. Holton currently serves as Vice
Chairman and member of the Meijer, Inc. Board of Directors.
Mr. Holton also serves on the Board of Directors of CMS
Energy Corporation. Age 67.
[PHOTO OF EARL D. HOLTON]
David D. Hunting, Jr.Director since 1960
After joining Steelcase in 1948, Mr. Hunting held various
positions, including Executive Vice President, Subsidiaries,
from 1981 until his retirement in 1989. Age 74.
[PHOTO OF DAVID D. HUNTING, JR.]
Frank M. Merlotti Director since 1973
After joining Steelcase in 1961, Mr. Merlotti held various
positions, including President and Chief Operating Officer
from 1980 and Chief Executive Officer from 1988, in each
case until his retirement in 1991. Mr. Merlotti also served
as President and Chief Executive Officer of Steelcase on an
interim basis for part of 1994. Age 74.
[PHOTO OF FRANK M. MERLOTTI]
5
Peter M. Wege II Director since 1979
Mr. Wege has been President of Greylock, Inc., a venture
capital firm, since 1990. From 1981 to 1989, he held various
positions at Steelcase, including President of Steelcase
Canada Ltd. Age 52.
[PHOTO OF PETER M. WEGE II]
Class II Directors Continuing in Office For the Term Expiring in 2003:
David Bing Director since 1998
Mr. Bing has been Chairman of the Board of The Bing Group, a
Detroit, Michigan based steel service center, since 1980.
Mr. Bing also serves on the Board of Directors of DTE Energy
Company and Lear Corporation. Age 57.
[PHOTO OF DAVID BING]
William P. Crawford Director since 1979
After joining Steelcase in 1965, Mr. Crawford held various
positions including President and Chief Executive Officer,
Steelcase Design Partnership from 1991 until his retirement
in 2000. Mr. Crawford also served as a Director of Old Kent
Bank Financial Corporation until April 2, 2001, when it was
acquired by Fifth Third Bancorp. Age 58.
[PHOTO OF WILLIAM P. CRAWFORD]
Robert C. Pew III Director since 1987
Since 1995, Mr. Pew has been the owner of Cane Creek Farm.
From 1974 to 1984 and from 1988 to 1994, Mr. Pew held
various positions at Steelcase, including President of
Steelcase North America and Executive Vice President,
Operations. Age 50.
[PHOTO OF ROBERT C. PEW III]
Related Directors
Mr. Robert C. Pew II is the father of Robert C. Pew III and the uncle of
William P. Crawford and P. Craig Welch, Jr. Additionally, Messrs. Pew III,
Crawford and Welch are first cousins.
Meetings
Our Board of Directors held four meetings during the fiscal year ended February
23, 2001. All Directors attended 75% or more of the aggregate number of
meetings of the Board and meetings of committees on which they served during
the year, except David Bing, who attended 71% of those meetings.
6
COMMITTEES OF THE BOARD OF DIRECTORS
The following is information regarding the committees of our Board of
Directors.
Audit Committee
Functions: . Serves as an independent and objective party to monitor
Steelcase's financial reporting process and internal
control system
. Reviews and appraises the audit efforts of Steelcase's
internal audit department and independent auditors, who are
ultimately accountable to the Board of Directors and the
Audit Committee
. Monitors compliance with the Audit Committee Charter
Compensation Committee
Functions: . Makes general policy decisions relating to compensation and
benefits for our employees and Directors
. Establishes the compensation of our President and Chief
Executive Officer
This committee has delegated administration of our compensation and benefit
plans to various administrative committees.
Executive Committee
Function: . Exercises all the powers of our Board when required in the
management of our business affairs and property during
intervals between regular meetings of our Board
Board Committee Membership Roster (as of May 1, 2001)
Name Audit Compensation Executive
----------------------------------------------------------------------------------------
David Bing X
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William P. Crawford X X
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James P. Hackett X X
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Earl D. Holton X X X
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David D. Hunting, Jr. X*
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Elizabeth Valk Long X
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Frank H. Merlotti X* X*
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Robert C. Pew II X X
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Robert C. Pew III X X
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Peter M. Wege II X X
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P. Craig Welch, Jr. X
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Number of Meetings
in Fiscal Year 2001: 3 4 0
* Committee chairman
7
DIRECTORS' COMPENSATION
We do not pay additional compensation to Directors who are also our employees
for their services as Directors or committee members. In fiscal year 2001, we
compensated our non-employee Directors as follows:
Type Of Compensation Director Chairman
--------------------------------------------------------------------
Annual Retainer $25,000 $90,000
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Board Meeting Attendance Fee (per meeting) $ 2,000 $ 0
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Committee Attendance Fee (per meeting) $ 1,000 $ 0
--------------------------------------------------------------------
Committee Chairman Attendance Fee (per meeting) $ 1,500 $ 0
Each Director is also reimbursed for out-of-pocket expenses incurred in
connection with attending meetings of our Board or its committees.
Each non-employee Director can participate in our Non-Employee Director
Deferred Compensation Plan. Under this plan, an eligible Director may defer all
or part of the retainer and/or committee fees until the Director no longer
serves on our Board. A Director may elect to have the deferred amount deemed
invested in Steelcase Class A Common Stock, the Kent Money Market Fund, the Old
Kent Balanced Fund and/or the Kent Index Equity Fund. Non-employee Directors
owning less than 1,000 shares of Steelcase common stock are required to defer a
minimum of 25% of their retainer as a deemed investment in Steelcase Class A
Common Stock.
Each Director participates in our Incentive Compensation Plan. Each person who
was a non-employee Director in fiscal year 2001 received a non-qualified stock
option for 7,217 shares. Mr. Holton also received a non-qualified option for
20,265 shares.
Each Director may also receive healthcare coverage under our employee benefit
plan. In addition, William P. Crawford, David D. Hunting, Jr., Frank H.
Merlotti, Robert C. Pew II and Robert C. Pew III currently receive or are
entitled to receive payments under supplemental retirement and/or deferred
compensation arrangements, which were in effect when their active employment
with Steelcase ended.
8
STOCK OWNERSHIP OF MANAGEMENT AND MORE THAN 5% SHAREHOLDERS
The table below shows how much Steelcase common stock was beneficially owned as
of May 1, 2001 (unless another date is indicated) by:
1. Each Director and nominee for Director
2. Each executive officer named in the Summary Compensation Table on
page 17
3. Each other person known by Steelcase to beneficially own more than
5% of Steelcase Common Stock
4. All Directors and executive officers as a group
Generally, a person "beneficially owns" shares if the person has or shares with
others the right to vote those shares or to dispose of them, or if the person
has the right to acquire such voting or disposition rights within 60 days after
May 1, 2001 (for example, by exercising options). In most cases, each
individual has the sole power to vote or dispose of the shares shown as
beneficially owned in the table below. Where this is not the case, voting and
disposition power is clarified in the notes following the table.
Class B Common
Class A Common Stock/1/ Stock
--------------------------------------------------------------
Shares Shares
Beneficially Stock Percent Beneficially Percent Deferred
Name of Beneficial Owner Owned Options/2/ of Class Owned of Class Stock/3/
- --------------------------------------------------------------------------------------------
Robert A. Ballard 8,000 134,513 * 56,000 * 0
- --------------------------------------------------------------------------------------------
David Bing 0 5,739 * 0 * 886
- --------------------------------------------------------------------------------------------
Robert W. Black/4/ 110 53,246 * 21,000 * 0
- --------------------------------------------------------------------------------------------
William P. Crawford/5/ 10 59,196 * 11,456,886 10.0 0
- --------------------------------------------------------------------------------------------
James P. Hackett/6/ 27,810 275,235 * 81,900 * 0
- --------------------------------------------------------------------------------------------
Earl D. Holton/7/ 8,000 18,495 * 0 * 4,782
- --------------------------------------------------------------------------------------------
David D. Hunting, Jr./8/ 306 5,739 * 3,514,154 3.1 0
- --------------------------------------------------------------------------------------------
David W. Joos 0 0 * 0 * 0
- --------------------------------------------------------------------------------------------
Elizabeth Valk Long/9/ 1,000 0 * 0 * 121
- --------------------------------------------------------------------------------------------
Frank H. Merlotti/10/ 100 105,739 * 7,628 * 0
- --------------------------------------------------------------------------------------------
Robert C. Pew II/11/ 0 5,739 * 21,384,805 18.6 0
- --------------------------------------------------------------------------------------------
Robert C. Pew III/12/ 14,000 5,739 * 1,799,241 1.6 0
- --------------------------------------------------------------------------------------------
Alwyn Rougier-
Chapman/13/ 736 77,535 * 80,571 * 0
- --------------------------------------------------------------------------------------------
Peter M. Wege II/14/ 5,700,000 5,739 17.5 1,114,631 * 0
- --------------------------------------------------------------------------------------------
P. Craig Welch, Jr./15/ 5,000 5,739 * 5,440,456 4.7 5,450
- --------------------------------------------------------------------------------------------
Old Kent Financial
Corporation and Old
Kent Bank, as trustee,
agent or custodian/16/
111 Lyon Street, N.W.
Grand Rapids, MI 49503 256,027 0 * 85,614,565 74.5 0
- --------------------------------------------------------------------------------------------
Peter M. Wege/17/
P.O. Box 6388
Grand Rapids, MI 49516 5,925,500 5,739 18.2 23,152,036 20.1 0
- --------------------------------------------------------------------------------------------
Charles C. Lundstrom, as
co-trustee of the Peter
Martin Wege Trust/18/
45 Concho Circle
Sedona, AZ 86351 0 0 * 20,050,323 17.4 0
- --------------------------------------------------------------------------------------------
Thomas Crawford/19/
300 Hot Springs Road #I-
175
Santa Barbara, CA 93108 0 0 * 9,149,165 8.0 0
- --------------------------------------------------------------------------------------------
Allen I. Hunting,
Jr./20/
2820 Pioneer Club Rd.
Grand Rapids, MI 49506 0 0 * 8,441,404 7.3 0
- --------------------------------------------------------------------------------------------
Mary I. Pew/21/
c/o Steelcase Inc.
901 44th Street
Grand Rapids, MI 49508 0 0 * 7,739,651 6.7 0
- --------------------------------------------------------------------------------------------
Directors and Executive
Officers as a group (20
persons)/22/ 5,766,802 906,181 19.9 44,957,272 39.1 11,239
9
Notes:
* Less than 1%
1 Each share of Class B Common Stock can be converted at the option of the
holder into one share of Class A Common Stock and is automatically converted
into a share of Class A Common Stock when transferred to a person who is not
a Permitted Transferee (as defined in Steelcase's Second Restated Articles
of Incorporation). The number of shares of Class A Common Stock and
percentages contained under this heading do not account for this conversion
right. If, however, the number of shares of Class A Common Stock
beneficially owned by each shareholder was calculated to include the number
of shares such shareholder would acquire upon conversion of his or her Class
B Common Stock, the following shareholders, in addition to those reflected
in the table above and in notes 4 through 22 below, would be deemed to
beneficially own the number of shares of Class A Common Stock and the
percentage of the total shares of Class A Common Stock listed after their
names as follows:
ABJ Investments Limited Partnership 4,476,491 shares 12.1%
------------------------------------------------------------
Beldon II Fund 2,135,221 shares 6.1%
------------------------------------------------------------
Mary W. Corl 3,607,735 shares 10.0%
------------------------------------------------------------
Allen I. Hunting, Sr 4,476,491 shares 12.1%
------------------------------------------------------------
Anne Hunting 5,158,883 shares 13.7%
------------------------------------------------------------
Helen J. Hunting 4,476,491 shares 12.1%
------------------------------------------------------------
James F. Hunting 5,538,026 shares 14.7%
------------------------------------------------------------
John R. Hunting 2,988,565 shares 8.4%
------------------------------------------------------------
William W. Idema 3,823,990 shares 10.5%
------------------------------------------------------------
Olive Shores, Inc. 4,476,491 shares 12.1%
------------------------------------------------------------
Catherine H. Osborne 2,035,742 shares 5.9%
------------------------------------------------------------
James C. Welch 4,611,394 shares 12.4%
------------------------------------------------------------
Kate P. Wolters 2,028,385 shares 5.9%
------------------------------------------------------------
This information is based on a Schedule 13G dated December 31, 1998, or an
Amendment to Schedule 13G dated December 31, 2000, as applicable, filed by
each of the listed shareholders with the Securities and Exchange
Commission.
2 This column shows the number of shares of Steelcase Class A Common Stock
which may be acquired as a result of the exercise of stock options within 60
days of May 1, 2001.
3 The number of shares shown in this column represent shares of Class A Common
Stock deemed to be credited to the respective Directors' accounts under our
Non-Employee Director Deferred Compensation Plan. See page 8 for a
description of the plan. Under the plan, Directors have no right to receive
any shares and have no voting or dispositive power over any shares.
4 Includes 6,300 shares of Class B Common Stock held by trusts of which Mr.
Black's wife serves as trustee.
5 Includes (a) 9,444,208 shares of Class B Common Stock held by trusts of
which Mr. Crawford serves as co-trustee, (b) 60,058 shares of Class B Common
Stock held by Mr. Crawford's wife, (c) 482,425 shares of Class B Common
Stock held by a trust of which Mr. Crawford's wife serves as trustee, and
(d) 51,957 shares of Class B Common Stock held by a trust of which Mr.
Crawford's wife serves as co-trustee.
6 Includes 10,585 shares of Class B Common Stock held by Mr. Hackett's wife.
7 Includes 3,000 shares of Class A Common Stock held jointly by Mr. Holton and
his wife.
8 Includes (a) 306 shares of Class A Common Stock and 1,555,302 shares of
Class B Common Stock held by a trust of which Mr. Hunting serves as co-
trustee and of which Mr. Hunting has the right to revoke within 60 days, and
(b) 1,566,544 shares of Class B Common Stock held by a trust of which Mr.
Hunting's wife serves as trustee.
9 Includes 1,000 shares of Class A Common Stock held jointly by Ms. Long and
her husband.
10 Includes 7,628 shares of Class B Common Stock held by a trust of which Mr.
Merlotti's wife serves as trustee.
10
11 Includes (a) 15,928,987 shares of Class B Common Stock held by trusts of
which Mr. Pew serves as co-trustee, (b) 1,898,933 shares of Class B Common
Stock held by a trust of which Mr. Pew's wife serves as co-trustee and of
which Mr. Pew has the right to revoke within 60 days, and (c) 3,556,885
shares of Class B Common Stock held by a trust of which shares Mr. Pew has
the sole power to vote and Mr. Pew's wife shares the power to dispose.
Excludes 400,000 shares of Class B Common Stock held by the Mary and Robert
Pew Education Fund of which Mr. Pew serves as one of seven trustees, of
which shares Mr. Pew disclaims beneficial ownership.
12 Includes (a) 2,000 shares of Class A Common Stock and 193,685 shares of
Class B Common Stock held by a trust of which Mr. Pew serves as co-trustee
and (b) 834,400 shares of Class B Common Stock held by a charitable
foundation of which shares Mr. Pew has the sole power to vote and dispose.
13 Includes 152 shares of Class A Common Stock and 21,014 shares of Class B
Common Stock held by Mr. Rougier-Chapman's wife.
14 Includes (a) 369,148 shares of Class B Common Stock held by trusts of which
Mr. Wege's wife serves as trustee, (b) 96,600 shares of Class B Common Stock
held by a trust of which Mr. Wege's wife serves as co-trustee, (c) 281,169
shares of Class B Common Stock held by a limited partnership of which Mr.
Wege and his wife are general partners, and (d) 5,700,000 shares of Class A
Common Stock held by the Peter M. Wege Charitable Remainder Trust, dated
October 10, 1997, of which trust Mr. Wege serves as trustee. Peter M. Wege
is not a trustee of the Trust but he has the power to change the charitable
beneficiary of the Trust. Excludes 221,200 shares of Class A Common Stock
and 338,928 shares of Class B Common Stock held by The Wege Foundation, of
which Mr. Wege serves as one of six trustees, of which shares Mr. Wege
disclaims beneficial ownership.
15 Includes (a) 3,760,976 shares of Class B Common Stock held by trusts of
which Mr. Welch serves as co-trustee, (b) 5,000 shares of Class A Common
Stock held jointly by Mr. Welch and his wife, (c) 274,350 shares of Class B
Common Stock held by trusts of which Mr. Welch's wife serves as trustee, (d)
101,540 shares of Class B Common Stock held by trusts of which Mr. Welch's
wife serves as co-trustee, and (e) 834,400 shares of Class B Common Stock
held by JCT Foundation of which Mr. Welch is President and Principal
Manager.
16 Based on an Amendment to Schedule 13G dated December 31, 2000, filed by Old
Kent Financial Corporation and Old Kent Bank with the Securities and
Exchange Commission. Includes (a) 18,837,456 shares that Old Kent Financial
Corporation and Old Kent Bank have the sole power to vote, (b) 36,559,315
shares that Old Kent Financial Corporation and Old Kent Bank share with
others the power to vote, (c) 18,828,106 shares that Old Kent Financial
Corporation and Old Kent Bank have the sole power to dispose, and (d)
54,769,576 shares that Old Kent Financial Corporation and Old Kent Bank
share with others the power to dispose.
17 Based on an Amendment to Schedule 13G dated December 31, 2000, filed by
Peter M. Wege with the Securities Exchange Commission. Includes (a)
20,050,323 shares of Class B Common Stock held by The Peter Martin Wege
Trust (see note 18 below), of which shares Mr. Wege disclaims beneficial
ownership; Mr. Wege has the power to block sales of the shares held by the
trust, (b) 221,200 shares of Class A Common Stock and 338,928 shares of
Class B Common Stock held by The Wege Foundation of which Mr. Wege serves as
one of six trustees and has the power to appoint the other trustees, and (c)
5,700,000 shares of Class A Common Stock held by Peter M. Wege Charitable
Remainder Trust (see note 14 above), of which Mr. Wege is not a trustee but
as to which Mr. Wege has the power to change the charitable beneficiary.
18 Based on a Schedule 13G dated December 31, 1998, filed by Charles C.
Lundstrom with the Securities and Exchange Commission. Peter M. Wege has the
power to block sales of the shares held by the Peter Martin Wege Trust.
19 Based on a Schedule 13G dated December 31, 1999, filed by Thomas Crawford
with the Securities and Exchange Commission. Includes 9,122,248 shares that
Mr. Crawford shares with others the power to vote and dispose.
20 Based on a Schedule 13G dated December 31, 1998, filed by Allen I. Hunting,
Jr. with the Securities and Exchange Commission. Includes 7,813,033 shares
that Allen I. Hunting, Jr. shares with others the power to vote and the
power to dispose.
21 Based upon a Form 4 for March 2001 filed by Mary I. Pew with the Securities
and Exchange Commission. Includes 7,739,651 shares that Mrs. Pew shares
with others the power to vote and dispose.
11
22 Includes (a) the shares described in notes (4) through (15) above (to the
extent included in the shares deemed to be beneficially owned by the
relevant Directors and executive officers), (b) 400 additional shares of
Class A Common Stock held jointly by one of the executive officers and his
wife, and (c) 220 additional shares of Class A Common Stock held jointly by
one of the executive officers and her husband.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is composed of four independent Directors as defined by the
rules of the New York Stock Exchange and acts under a written charter that is
reviewed and assessed annually. The charter was adopted by the Board of
Directors and is attached as Appendix A.
Management is responsible for Steelcase's financial reporting process and its
internal controls regarding finance, accounting, legal compliance and ethics.
BDO Seidman, LLP, Steelcase's independent auditors, is responsible for
performing an independent audit of Steelcase's consolidated financial
statements in accordance with the generally accepted auditing standards and for
issuing a report thereon. The Committee serves as an independent and objective
party to monitor and oversee these processes on behalf of the Board of
Directors and to review the performance of Steelcase's internal and independent
auditors.
In this context, the Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communications with Audit Committees, as amended. In addition, the Committee
has received the written disclosures from the independent auditors required by
Independence Standards Board Standard No. 1 and has reviewed, evaluated and
discussed the written report with that firm and its independence from
Steelcase.
The Committee discussed with Steelcase's internal and independent auditors the
overall scope and plans for their respective audits. The Committee also
reviewed and discussed with management Steelcase's audited financial
statements. The Committee meets with the internal and independent auditors,
with and without management present, to discuss the results of their
examinations, the evaluations of Steelcase's internal controls, and the overall
quality of Steelcase's financial reporting.
Based on the review and discussions referred to above, and relying on the
representations of Steelcase's management and the independent auditor's report,
the Committee recommended to the Board of Directors that the audited financial
statements be included in Steelcase's Annual Report on Form 10-K for the fiscal
year ended February 23, 2001.
The Audit Committee
David D. Hunting, Jr. (Chairman)
David Bing
Earl D. Holton
Elizabeth Valk Long
12
AUDIT FEES
The following table shows fees for the audit of the consolidated financial
statements for fiscal year 2001 and all other fees paid to our independent
auditors during the last fiscal year:
Independent Auditors Fees
Fiscal Year 2001
-----------------------------
Audit Fees $375,303
-----------------------------
All Other Fees $473,706
The services included within "All Other Fees" relate primarily to audits of
employee benefit plans, statutory audits of subsidiaries, and tax consulting
services. Our independent auditors did not render any services on information
systems design or implementation during the last fiscal year. The Audit
Committee has determined that the provision of services other than those
reflected in "Audit Fees" referenced above is compatible with the maintenance
of BDO Seidman's independence.
EXECUTIVE COMPENSATION: REPORT OF THE COMPENSATION COMMITTEE
This section provides summary information about the compensation of James P.
Hackett, our President and Chief Executive Officer, and our four next most
highly compensated executive officers. This section also includes a report of
the Compensation Committee of our Board of Directors concerning the general
compensation philosophy used by the Committee to determine the compensation for
senior executives and the specific factors the Committee used to determine Mr.
Hackett's compensation.
Executive Compensation Philosophy
The Compensation Committee has developed an executive compensation philosophy
that is intended to:
. Attract and retain highly qualified, experienced and motivated
executives needed for Steelcase's success
. Provide for a total pay package which is competitive with compensation
by a group of global industrial companies similar in size to Steelcase
. Reward executives based on Steelcase's profitability
. Align executives' interests with the interests of shareholders for the
long-term success of Steelcase
We value the contributions of all of our employees and share rewards through
broad-based incentive arrangements to motivate teamwork for our success.
Incentive opportunity for all employees is based on profitability and,
consistent with market practice, represents a larger percentage of total pay at
higher levels in our organization.
We also believe in limiting differences in benefit arrangements among our
various levels of employees. A financially secure retirement for all career
employees is one of our key benefit objectives and is possible only through
Steelcase's success.
13
On an annual basis, we review our executives' base salaries, annual and long-
term incentives and benefits. We also review and approve any proposed changes
to Steelcase's compensation philosophy.
As a result of our Initial Public Offering, Steelcase qualifies for a three-
year exemption from the Internal Revenue Code Section 162(m) requirement for
full deductibility of pay over $1 million. Accordingly, all pay opportunities
we currently provide should qualify for full deductibility. We will continue to
monitor the requirements for compliance with Internal Revenue Code Section
162(m) as the end of the exemption period approaches.
Types of Compensation
We use three main types of compensation in our executive compensation program:
. Base salary
. Annual and long-term incentives
. Stock options
We also allow our executives the option to defer a portion of their base salary
and incentive compensation payments.
Base Salary
We set base salaries as one part of total direct pay (base salary plus annual
incentive) of our executives. We target total direct pay at the midpoint level
of our comparison group of companies. We make annual salary comparisons to
similar positions of responsibility within the comparable group and obtain
supplemental information from other survey sources as necessary. Whenever
possible, we adjust the comparison group data to Steelcase's size.
In determining the base salary of Mr. Hackett, we consider the following:
. Market data from comparable companies
. Steelcase's financial performance and growth
. Mr. Hackett's leadership
. His establishment and implementation of Steelcase's strategic direction
Mr. Hackett establishes base salaries of the other executive officers based on
his assessment of individual performance and market data from comparable
companies. No particular weight is given to any individual factor in
determining the base salary of Mr. Hackett or any other executive officer.
Annual and Long-Term Incentives
Our Management Incentive Plan provides annual and long-term incentive
compensation to our key employees. The amount of annual and long-term bonus
payments under this plan is determined on the basis of Steelcase's actual
performance compared to our targeted performance and is measured by Economic
Value Added, or "EVA". EVA is a profit measurement that reflects all of our
operating costs, including the cost of capital.
At the beginning of each fiscal year, we approve target incentives for each key
employee representing percentages of base salary for annual and long-term bonus
payments. We
14
exercise discretion in setting these target percentages, and we consider
factors such as the midpoint of market data for similar incentives, Steelcase's
historical and projected performance, and each executive's tenure and
individual performance. Actual incentive percentage and the related incentive
pay vary from these targets depending on Steelcase's actual performance as
measured by EVA. At the end of a fiscal year, we calculate actual EVA
performance and compare it to the EVA targets. We then determine a "bonus
multiple," based two-thirds on the growth in EVA and one-third on absolute EVA
results. We multiply the bonus multiple by each employee's target annual and
long-term incentive percentages to come up with the employee's actual incentive
percentages, which are then multiplied by the employee's base pay to determine
his or her annual and long-term incentive payments for the fiscal year. For
fiscal year 2001, Steelcase's actual EVA performance was below targeted levels
and, therefore, the annual and long-term incentive amounts paid to our
employees were below the targeted amounts.
Annual incentives are paid in cash after the end of the fiscal year. The long-
term incentive earned under our Management Incentive Plan is divided between
cash (75%) and stock options (25%) to further align the interests of plan
participants with you as shareholders. We pay the cash portion of long-term
incentives over three years in substantially equal payments beginning one year
after the year in which it is earned. The unpaid portion is adjusted at the end
of each year based on Steelcase's return on equity for that year, which we
calculate by dividing net income (plus or minus other comprehensive income) by
shareholders' equity at the beginning of the year. We determine the number of
shares granted under the 25% stock option portion of long-term incentives by
using the value of the stock option on the date of grant calculated using the
Black-Scholes valuation method. The Black-Scholes value is an estimate of the
fair market value of a stock option which takes into consideration the
volatility of the stock price, dividend return, risk-free rate of return and
the terms of the option relating to price and when the options may be
exercised. The options are granted at the time of determination and vest over a
three year period.
There is no maximum payment under our Management Incentive Plan. Currently, Mr.
Hackett has a target annual incentive percentage of 65% and a target long-term
incentive percentage of 110%, which are the maximum percentages currently
permitted under the plan.
Stock Options
We granted stock options to our top executives in fiscal year 2001. We based
these option grants on long-term incentive market data and our desire to align
management's interests with the interests of shareholders. The value of the
stock options granted in fiscal year 2001 and long-term cash incentives under
the Management Incentive Plan approximate the median long-term incentive values
for other comparable companies.
Deferred Compensation
To compete with other comparable companies, we have adopted a Deferred
Compensation Plan. This plan permits eligible participants, including the
executive officers named in the Summary Compensation Table on the following
page, to defer up to 25% of their current base salary and/or up to 50% of their
annual incentive payments under the Management Incentive Plan before income
taxes. Participants elect how their deferral amounts will be
15
deemed invested among various investment funds we have selected. The total
amount of deferral plus investment earnings is paid to the participant or the
designated beneficiary after the participant leaves employment with Steelcase.
The Compensation Committee
Frank H. Merlotti (Chairman)
William P. Crawford
James P. Hackett
Earl D. Holton
Robert C. Pew II
Robert C. Pew III
Peter M. Wege II
P. Craig Welch, Jr.
16
EXECUTIVE COMPENSATION, RETIREMENT PROGRAMS AND OTHER ARRANGEMENTS
Summary Compensation Table
The table below shows compensation information for James P. Hackett, who served
as our Chief Executive Officer in fiscal year 2001, and our four next highly
paid executive officers as of the end of fiscal year 2001.
Long-Term
Annual Compensation Compensation
----------------------
Awards Payouts
--------------------------------------------------------------------
Long-
Term
Other Annual Securities Incentive All Other
Name and Principal Fiscal Salary/1/ Bonus/2/ Compensation/3/ Underlying Payouts/5/ Compensation/6/
Position Year ($) ($) ($) Options/4/ ($) ($)
- ------------------------------------------------------------------------------------------------------------
James P. Hackett 2001 798,308 275,392 203,214 185,703 1,638,825 28,900
President and Chief 2000 736,615 421,989 198,068 140,000 1,776,394 35,200
Executive Officer 1999 700,000 864,500 222,514 0 1,332,420 40,000
- ------------------------------------------------------------------------------------------------------------
Robert A. Ballard 2001 519,231 179,046 102,180 63,539 824,036 28,900
President, Steelcase 2000 489,846 267,898 90,925 80,000 815,475 35,200
North America 1999 465,231 530,316 89,506 0 535,963 38,530
- ------------------------------------------------------------------------------------------------------------
Alwyn Rougier-Chapman 2001 317,769 84,289 46,620 38,605 375,966 28,900
Senior Vice President-- 2000 305,846 134,640 45,308 40,000 406,346 35,200
Finance, Chief Financial 1999 296,769 253,722 51,820 0 310,297 40,000
Officer /7/
- ------------------------------------------------------------------------------------------------------------
Robert W. Black 2001 305,231 80,914 73,263 39,737 290,901 150,662
President, International 2000 264,462 99,449 35,703 30,000 320,206 35,200
1999 243,698 185,294 42,079 0 251,968 40,000
- ------------------------------------------------------------------------------------------------------------
Mark T. Greiner 2001 259,615 61,887 26,771 18,163 215,892 28,900
Senior Vice President-- 2000 227,673 80,466 24,499 20,000 219,720 35,200
Research, Concepts 1999 204,769 155,621 26,166 0 156,683 39,450
and Ventures
Notes:
1 Includes amounts withheld under our 401(k) Retirement Plan, our Deferred
Compensation Plan and any deferred compensation agreement between the
applicable officer and Steelcase.
2 Represents amounts paid from the annual component of the Management
Incentive Plan.
3 Represents earnings on the long-term amounts paid from the Management
Incentive Plan, based on our annual return on equity. For Mr. Black, the
fiscal year 2001 amount also includes amounts payable in connection with his
assignment in France, including $27,333 for housing in Europe.
4 Shows options granted under our Incentive Compensation Plan.
5 Represents amounts actually paid from the long-term component of the
Management Incentive Plan.
6 Includes amounts contributed under our Restoration Retirement Plan,
Employees' Profit-Sharing Retirement Plan and Money Purchase Plan. The
Compensation Committee declares contributions to the plans at the end of
each fiscal year. The rate of contribution to our Employees' Profit-Sharing
Retirement Plan for plan years 2001, 2000 and 1999 was 3.5%, 6% and 7.5%,
respectively, of eligible compensation. Steelcase must make a 5%
contribution to the Money Purchase Plan each fiscal year. Under the 401(k)
Plan, employees may make non-matched contributions. Contributions to the
officers listed in the table above were limited as required under the
Internal Revenue Code of 1986, as amended, and its regulations.
17
Account balances are invested in a trust managed by a trustee until finally
distributed. Amounts vest under our Employees' Profit-Sharing Retirement
Plan and Money Purchase Plan according to a scaled vesting schedule
beginning with 20% after three years of service, plus 20% for each
subsequent year of service and full vesting after seven years. All of the
officers listed in the table above are 100% vested. Full vesting also
occurs upon normal retirement or termination of employment due to death or
total disability. For Mr. Black, the fiscal year 2001 amount also includes
$28,900 under the above described plans and amounts payable in connection
with his assignment in France, including $8,430 for cost of living, $13,332
for moving expenses and $100,000 as compensation for loss of family income.
7 Mr. Rougier-Chapman retired effective as of the close of business, April
20, 2001. Mr. James P. Keane currently serves as Senior Vice President,
Chief Financial Officer.
Option Grants in Last Fiscal Year/1/
The table below shows options to acquire Class A Common Stock granted during
fiscal year 2001 under our Incentive Compensation Plan to the executive
officers shown in the Summary Compensation Table.
Percent
Number of of Total Exercise
Securities Options or Grant
Underlying Granted Base Date
Name and Principal Options to Price Expiration Present
Position Granted Employees ($/Share) Date Value/2/
- -------------------------------------------------------------------------------
James P. Hackett 185,703 9.8% $10.50 3/21/10 $672,096
President and Chief
Executive Officer
- -------------------------------------------------------------------------------
Robert A. Ballard 63,539 3.3% $10.50 3/21/10 $229,960
President, Steelcase
North America
- -------------------------------------------------------------------------------
Robert W. Black 39,737 2.1% $10.50 3/21/10 $143,816
President, International
- -------------------------------------------------------------------------------
Alwyn Rougier-Chapman 38,605 2.0% $10.50 3/21/10 $139,719
Senior Vice President--
Finance,
Chief Financial Officer
- -------------------------------------------------------------------------------
Mark T. Greiner 18,163 1.0% $10.50 3/21/10 $ 65,736
Senior Vice President--
Research,
Concepts and Ventures
Notes:
1 These options were granted on March 21, 2000 and vest in three equal
installments at the end of each subsequent year. Upon retirement, each
officer's options will continue to vest as if employment continued, but
vested options may only be exercised within the following five years. The
options fully vest upon death or total disability and may only be exercised
within one year after death or disability. If the officer is terminated for
gross misconduct or engages in certain competitive activity, vested and
unvested options will be forfeited. Upon termination of employment for any
other reason, vested options may only be exercised within 90 days and any
unvested options are forfeited. In no event may options be exercised after
March 21, 2010.
2 These values were determined using the Black-Scholes option pricing model
based upon the following assumptions:
. Market price volatility of 44.40%
. Exercise of the option in 4 years
. A risk-free rate of return of 6.43%
. An annual dividend yield of 3.00%
18
Our use of the Black-Scholes option pricing model does not necessarily mean
that we believe that this model accurately determines the value of the
options. The actual value of the options, if any, realized by an officer
will depend on the extent to which the market price of the Class A Common
Stock exceeds the exercise price of the option on the date the option is
exercised. Consequently, there is no assurance that the value realized by
the officer will be at or near the above estimated value. These amounts
should not be used to predict stock performance.
Aggregated Option Exercises In Last Fiscal Year
and Option Values at Fiscal Year End
The table below shows information concerning the options exercised in fiscal
year 2001 by each of the executive officers named in the Summary Compensation
Table and the value of the options held by such officers at the end of fiscal
year 2001. No stock appreciation rights are held by any of such officers.
Number of Securities Value of Unexercised
Underlying Unexercised in the
Shares Options at Money Options at
Acquired February 23, 2001 February 23, 2001
Name and on Value ---------------------------------------------------
Principal Position Exercise Received Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------
James P. Hackett 0 $ 0 166,667 273,333 $30,917 $61,833
President and Chief
Executive Officer
- -------------------------------------------------------------------------------------------------
Robert A. Ballard 0 $ 0 86,667 143,333 $17,667 $35,333
President, Steelcase
North America
- -------------------------------------------------------------------------------------------------
Robert W. Black 0 $ 0 30,000 50,000 $ 6,625 $13,250
President,
International
- -------------------------------------------------------------------------------------------------
Alwyn Rougier-Chapman 0 $ 0 51,333 83,667 $ 8,883 $17,667
Senior Vice President--
Finance, Chief
Financial Officer
- -------------------------------------------------------------------------------------------------
Mark T. Greiner 0 $ 0 18,667 31,333 $ 4,417 $ 8,883
Senior Vice President--
Research, Concepts and
Ventures
Long-Term Incentive Plan--Awards in the Last Fiscal Year
The table below shows the amounts of long-term compensation earned in fiscal
year 2001 by the executive officers named in the Summary Compensation Table.
Performance
Estimated Future Period
Number of Stock Targeted Payouts for Until
Name Options Awarded Non-Stock Awards Maturation
- -------------------------------------------------------------------------
James P. Hackett 26,784 $349,536 3 years
- -------------------------------------------------------------------------
Robert A. Ballard 15,039 $196,262 3 years
- -------------------------------------------------------------------------
Alwyn Rougier-Chapman 5,813 $ 75,860 3 years
- -------------------------------------------------------------------------
Robert W. Black 5,587 $ 72,916 3 years
- -------------------------------------------------------------------------
Mark T. Greiner 4,353 $ 56,813 3 years
19
The amount shown above represents the long-term component of compensation
earned under the Management Incentive Plan. Of this amount, 25% will be paid in
the form of stock options. See pages 14 and 15 for a description of the
Management Incentive Plan and a description of the method of calculation used
to determine the number of options and cash awarded.
Supplemental Retirement Plan
The executive officers named in the Summary Compensation Table participate in
our 1994 Executive Supplemental Retirement Plan. Under this unfunded plan,
benefits are paid directly to officers of Steelcase who are selected as
participants in the plan by our Compensation Committee. Benefits under the plan
are paid following retirement at age 65, at early retirement age when the
officer's age plus years of service to Steelcase equal 80, or upon the
officer's death. Benefits are paid to the officer or the surviving spouse. Each
participating officer receives the following benefits:
(1) Five annual payments equal to 70% of average base salary for the three
consecutive calendar years prior to retirement or death, multiplied by
the vested percentage, and
(2) 15 annual payments equal to $50,000, multiplied by the vested
percentage.
An officer's vested percentage is 20% after three years of service while a
participant in the plan plus 20% for each subsequent year, with full vesting
after seven years of service while a participant. Benefits normally begin the
March 1 following the earlier of the participant attaining age 65 and retiring,
or death. In the event of early retirement and with the approval of the
Administrative Committee for the plan, a participant can choose to receive
earlier benefits in lower annual amounts and ending on the date that the final
payment would have been made had no earlier benefits been elected.
An officer forfeits rights to receive benefits under the plan in the following
circumstances:
. Employment is terminated before reaching normal or early retirement
. Employment is terminated for cause
. Death without a surviving spouse or the surviving spouse dies after the
officer's death, or
. Competition with Steelcase without the prior consent of the
Administrative Committee.
20
Executive Supplemental Retirement Plan Table
The following table shows an estimate of the annual amount payable to an
executive officer or surviving spouse for each of the first five years after
the officer satisfies the requirements for payment under the plan. The amounts
shown include the two benefits described on page 20, and assumes no early
payment election is made.
Average Years of Participation
Base Salary ----------------------------------------------------------------
(Final 3 years) 3 4 5 6 7 or more
- ------------------------------------------------------------------------------------
$800,000 $122,000 $244,000 $366,000 $488,000 $610,000
750,000 115,000 230,000 345,000 460,000 575,000
700,000 108,000 216,000 324,000 432,000 540,000
650,000 101,000 202,000 303,000 404,000 505,000
600,000 94,000 188,000 282,000 376,000 470,000
550,000 87,000 174,000 261,000 348,000 435,000
500,000 80,000 160,000 240,000 320,000 400,000
450,000 73,000 146,000 219,000 292,000 365,000
400,000 66,000 132,000 198,000 264,000 330,000
350,000 59,000 118,000 177,000 236,000 295,000
300,000 52,000 104,000 156,000 208,000 260,000
250,000 45,000 90,000 135,000 180,000 225,000
200,000 38,000 76,000 114,000 152,000 190,000
After the first five annual payments, the total benefit reduces to the amounts
shown in the following table (this benefit is paid for years 6 through 15):
Years of Participation
-----------------------------------------------------------------------------------------------
3 4 5 6 7 or more
-----------------------------------------------------------------------------------------------
$10,000 $20,000 $30,000 $40,000 $50,000
Social Security and other offsetting amounts are not deducted from the payments
shown above.
As of the date of this Proxy Statement, the executive officers named in the
Summary Compensation Table have completed the following years of service while
a participant under the plan:
--------------------------
James P. Hackett 10
--------------------------
Robert A. Ballard 15
--------------------------
Alwyn Rougier-Chapman 18
--------------------------
Robert W. Black 4
--------------------------
Mark T. Greiner 4
--------------------------
21
Restoration Retirement Plan
Each executive officer named in the Summary Compensation Table participates in
our Restoration Retirement Plan. This plan is an unfunded defined contribution
plan that is intended to restore retirement benefits which would otherwise be
paid under our Employees' Profit-Sharing Retirement Plan or Money Purchase
Plan, but are lost as a result of the limitations on eligible compensation
under Internal Revenue Code Section 401(a)(17).
Each participant in the Management Incentive Plan for the full year, including
each executive officer named in the Summary Compensation Table, is eligible to
participate in our Restoration Retirement Plan. Each year, we make
contributions to an officer's account at the same combined rate of contribution
for the plan year used in determining benefits under our Profit-Sharing Plan
and Money Purchase Plan. For purposes of determining the contribution amount to
the plan, eligible compensation is the amount of the officer's base salary and
annual bonus under the Management Incentive Plan that exceeds the limit under
the Internal Revenue Code Section 401(a)(17), but not more than twice the
limit. Each officer's account balance is credited each plan year with earnings
at the rate of return on investments for the officer under our Employees'
Profit-Sharing Retirement Plan and Money Purchase Plan for that same plan year.
Benefits are payable from the Restoration Retirement Plan after an officer
terminates employment according to a vesting schedule of 20% after three years
of service plus 20% for each year thereafter, with full vesting after seven
years of service. Each executive officer named in the Summary Compensation
Table is 100% vested. Benefits are payable in lump sum or in annual
installments over four years. Benefits are forfeited if the officer is
terminated for cause as determined by the Compensation Committee, or if the
officer engages in certain competitive activity, without the prior consent of
the Administrative Committee for the plan.
Deferred Compensation
Steelcase has one or more individual deferred compensation agreements with each
executive officer named in the Summary Compensation Table, with the exception
of Mr. Black and Mr. Greiner. If the applicable officer completes the deferrals
and lives until age 70, we will make annual payments for 15 years commencing in
the March following the officer's 70th birthday. If the officer dies before
attaining age 70, we will make payments in the same manner and over the same
time period to the designated beneficiary. If the officer is discharged for
cause, we will pay the compensation actually deferred, without interest, in
five equal annual payments. The officers become vested in their right to
receive payments under the agreements over the five years following the end of
the deferral period.
Each executive officer named in the Summary Compensation Table participates in
the Deferred Compensation Plan. This is a non-qualified plan under which the
applicable officer may defer up to 25% of base salary and/or up to 50% of
annual incentive payment under our Management Incentive Plan. The officer may
choose to have the deferral amount deemed invested in eight different
investment funds. The officer receives the total amount of deferral and
investment earnings after leaving Steelcase in accordance with a benefit
election. Payment will be in a lump sum or annual installments over 5 or 10
years.
22
Retirement Agreement
Effective April 20, 2001, Steelcase and Alwyn Rougier-Chapman entered into an
agreement related to Mr. Rougier-Chapman's retirement after a career of more
than 19 years with Steelcase. Under the agreement, Mr. Rougier-Chapman will
receive an annual payment of $400,000 for each of the years 2002, 2003 and 2004
and will receive a single payment of $25,000, which is intended to defray the
cost of a portion of his retiree health care premiums. In addition, Mr.
Rougier-Chapman is entitled to receive benefits to which he became entitled
during his employment under various plans described above, in accordance with
the plans' provisions. Mr. Rougier-Chapman has agreed to continue to serve as a
member of the Board of Directors of certain Steelcase subsidiaries, for which
he will be paid the fees and reimbursements available to non-employee Directors
of those entities.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William P. Crawford, James P. Hackett, Earl D. Holton, Frank H. Merlotti,
Robert C. Pew II, Robert C. Pew III, Peter M. Wege II and P. Craig Welch, Jr.
served as members of our compensation committee during fiscal year 2001. Mr.
Hackett is our President and Chief Executive Officer. Until May 1, 2000, Mr.
Crawford served as President and Chief Executive Officer, Steelcase Design
Partnership. Frank H. Merlotti, Robert C. Pew II, Robert C. Pew III and Peter
M. Wege II formerly served as officers of Steelcase. Peter M. Wege II, is the
trustee of a charitable remainder trust that sold an aggregate of 300,000
shares of Class A Common Stock to Steelcase during fiscal year 2001. The trust
received an aggregate of $5,178,125 as consideration for the shares, which was
calculated using the average of the high and low market price on the New York
Stock Exchange on the applicable purchase dates. This trust has also agreed to
sell to Steelcase an aggregate of 200,000 shares of Class A Common Stock thus
far during fiscal year 2002. The trust will receive $2,544,980 as consideration
for the shares. The purchase price was calculated using the volume weighted
average market price on the New York Stock Exchange on the purchase date. Peter
M. Wege II's father, Peter M. Wege, who served as Vice Chairman of Steelcase
until June 2000, is a beneficiary of the trust. Robert C. Pew III has the power
to vote and dispose of shares held by the Cross Creek Foundation, which has
agreed to sell 100,000 shares of Class B Common Stock to the Company during
fiscal year 2002. The Foundation will receive $1,272,490 as consideration for
the shares. The purchase price was calculated using the volume weighted average
market price on the New York Stock Exchange on the purchase date.
23
STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return on
$100 invested in (1) Steelcase Class A Common Stock, with (2) the Standard &
Poor's 500 Stock Index and with (3) a peer group of three companies in similar
businesses. The cumulative shareholder return is the change in share price plus
the cumulative amount of dividends, if any, assuming dividend reinvestment,
divided by the initial share price, expressed as a percentage. The graph covers
the period from February 17, 1998, the effective date of our Initial Public
Offering, to February 23, 2001. The peer group consists of:
. Herman Miller, Inc.
. Hon Industries Inc.
. Kimball International Inc.
These companies manufacture office furniture and we believe have industry
characteristics similar to Steelcase.
[GRAPH]
2/17/98 2/27/98 2/26/99 2/25/00 2/23/01
Steelcase Inc. 100.00 129.46 55.58 38.94 56.04
Standard & Poor's 500
Stock Index 100.00 103.49 121.78 132.47 125.20
Peer Group Index 100.00 103.10 71.76 69.69 84.56
24
OTHER MATTERS
Voting
Michigan law and our by-laws require a quorum for the meeting, which means that
holders of a majority of the voting power entitled to vote need to be present
in person or represented by proxy. Withheld votes and abstentions are counted
in determining whether a quorum has been reached.
Assuming a quorum has been reached, we must determine the results of the vote
on each matter submitted for shareholders' approval. The Director nominees need
to receive a plurality of the votes cast at the meeting for the election of
Directors. Abstentions and withheld votes do not count as votes cast at the
meeting for this purpose.
Under the rules of the New York Stock Exchange, brokers who hold shares on
behalf of their customers (shares held in street name), can vote on certain
items when they do not receive instructions from their customers. However,
brokers are not authorized to vote on "non-routine" matters if they do not
receive instructions from their customers. The election of Directors is a
"routine" matter under the NYSE rules. Therefore, brokers holding shares in
street name for their customers can vote as they wish on behalf of any customer
who does not give his or her broker instructions on how to vote in the election
of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors,
certain Officers, and persons who beneficially own more than 10% of either of
our Class A Common Stock or Class B Common Stock to file initial reports of
ownership and changes in their ownership of shares of Steelcase common stock
with the Securities and Exchange Commission. Directors, officers and greater
than 10% beneficial owners are required by Securities and Exchange Commission
regulations to furnish us with copies of all Section 16(a) reports they file.
Based on our review of the copies we received of such reports, or written
representations from certain reporting persons that no reports were required
for those persons, we believe that, from February 26, 2000 through February 23,
2001, our Directors, Officers and 10% beneficial owners complied with all
applicable filing requirements except that Mr. Love filed a late amendment to a
timely filed Form 3 to correct the number of shares reported as subject to a
stock option. Additionally, the Peter M. Wege Charitable Remainder Trust had a
late filing of three reports involving two transactions, and Thomas Crawford
and the Anne I. Crawford Generation Skipping Trust Non-Exempt Marital Trust
have not filed a Form 3 or any Forms 5. An amendment was filed to each of eight
timely reports of Robert C. Pew II covering nine transactions to add his wife,
Mary I. Pew, and to each of four timely reports of Robert C. Pew II covering
five transactions to add his wife and the Mary I. Pew Revocable Trust as joint
filers. Filings on behalf of Mrs. Pew and the trust were inadvertently omitted
upon the belief that Mr. Pew's filings, which reflected all holdings and
transactions for the trust and in which Mrs. Pew had a beneficial interest,
were sufficient.
Solicitation of Proxies
Steelcase will bear the cost of soliciting proxies, which will be made by mail,
personally or by telephone by our Officers, Directors and regular employees who
will not be additionally compensated for such activities. We will also
reimburse banks, brokers, nominees and other
25
fiduciaries who we request to forward these proxy materials for the reasonable
expenses they incur in forwarding these materials to the beneficial owners of
our Class A Common Stock.
Independent Auditors
We have been advised that representatives of BDO Seidman, LLP, our independent
auditors in fiscal year 2001, will attend the annual meeting and will have an
opportunity to make a statement if they desire to do so. The auditors will be
available to respond to appropriate questions.
By Order of the Board of Directors
Jon D. Botsford
Senior Vice President, Secretary and
Chief Legal Officer
Grand Rapids, Michigan
May 17, 2001
26
Appendix A
STEELCASE INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee ("Committee") is to assist the
Board of Directors ("Board") in fulfilling its oversight responsibilities. The
Committee's primary responsibilities are to:
. Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system.
. Review and appraise the audit efforts of the Company's internal auditing
department and independent auditors, who are ultimately accountable to
the Board and the Committee.
II. COMPOSITION
The Committee shall be composed of three or more directors as determined and
appointed by the Board. The Board shall also designate a Committee Chair, who
will preside at meetings of the Committee. In the absence of the Committee
Chair, the members of the Committee shall, by majority vote of the full
Committee membership, designate a member of the Committee to preside at
Committee meetings. Minutes of the Committee meetings shall be prepared and
provided to the members of the Committee and appropriate members of management.
The Committee Chair shall report regarding Committee activities to the Board
following meetings of the Committee.
The members of the Committee shall meet the independence and financial literacy
requirements of the New York Stock Exchange. At least one member of the
Committee shall have accounting or related financial management expertise.
III. MEETINGS
The Committee shall meet as frequently as circumstances dictate. The Committee
will meet periodically with the independent auditors, the Director of Internal
Audit, members of financial management staff, and other members of management,
as it deems necessary, including periodically meeting in separate executive
sessions to discuss any matters that the Committee or each of these groups
believe should be discussed privately.
IV. RESPONSIBILITIES
In carrying out its responsibilities, the Committee believes its policies and
procedures should remain flexible to best react to changing conditions and to
fulfill its obligations under this Charter. Subject to the foregoing, the
Committee shall:
Internal Auditors
. Review the effectiveness of the internal audit function, including its
budget and staffing level as appropriate to its responsibilities.
A-1
. Review the report prepared by the Director of Internal Audit on possible
conflicts of interest and the resolution of such conflicts.
. Review and concur in the appointment, replacement, reassignment, or
dismissal of the Director of Internal Audit.
Independent Auditors
. Recommend to the Board the selection of the independent auditors for
domestic and foreign operations, considering independence and
effectiveness.
. Approve all audit fees and review all fees for other services to be paid
by the Company to the independent auditors.
. Review the performance of the independent auditors and where
appropriate, recommend to the Board replacement of the independent
auditors.
. Review and discuss with the independent auditors, their formal written
statement delineating all relationships between the independent auditors
and the Company that may impact the auditors' objectivity and
independence and recommend that the Board take appropriate action in
response to the disclosures in order to satisfy itself of the
independence of the Company's independent auditors. Review independent
auditors' confirmation of independence.
. Review and discuss the independent auditors' required communications
under generally accepted auditing standards.
Financial Reporting Process
. Review with management and the independent auditors, significant
accounting and reporting principles, practices and procedures applied by
the Company in preparing its financial statements, as well as any
significant changes suggested by management, internal or independent
auditors.
. Review the accounting implications of new, significant or unusual
transactions.
. Discuss with the independent auditors their judgements about the quality
and appropriateness of the Company's accounting principles as applied in
its financial reporting.
. Review the results of the independent auditors' review of the financial
information included in the Form 10-Q.
. Review with management, the internal and independent auditors, the
Company's annual financial statements and related footnotes and
financial information to be included in the Company's annual report on
Form 10-K. Based on this review and the appropriate reliance on
discussions with management, the internal and independent auditors,
recommend to the Board, if appropriate, that the financial statements be
included in the Company's annual report on Form 10-K.
Audit Process
. Review the scope and focus of the internal audit plan, the report of
actual audits completed, any deviations from the plan and the summary of
internal reports of audit results to management and management's
response.
. Review the scope and focus of the external audit, including a review of
the factors considered by the independent auditors in determining audit
scope.
A-2
. Consult with the internal and independent auditors about the adequacy of
the Company's accounting and financial reporting controls, including the
independent auditors' recommendations to management.
. Review the results of the audit of financial statements and review with
each of management, the internal and independent auditors any
significant difficulties encountered during the course of the audit,
including any changes in audit scope or restrictions on the scope of
work or access to required information and any other matters of concern
and any significant disagreement among management and the internal and
independent auditors in connection with the preparation of the financial
statements.
Ethical and Legal Compliance
. Review with the Company's compliance officer, the methods used to
establish and monitor the Company's policies with respect to unethical
or illegal activities by the Company employees that may have a material
impact on the financial statements and management's response to any
significant unethical or illegal activity detected.
. Review with the Company's legal counsel any legal matter that could have
a material impact on the Company's financial statements.
Other Matters
. Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities, as the Committee deems
appropriate. The Committee shall be empowered to retain independent
counsel, accountants or others to assist in any investigation.
. Review any potential conflicts of interest referred to the Committee by
the Company's Chief Executive Officer or the Chairman of the Board.
. Obtain the full Board consent and approval of this Charter. Review this
Charter annually and recommend any proposed changes to the Board for
approval.
. Prepare and execute the report required to be included in the Company's
annual proxy statement under the rules of the Securities and Exchange
Commission and include this Charter as an appendix to the proxy
statement once every three years.
NOTE:
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine whether the Company's financial statements are complete, accurate or
are in accordance with generally accepted accounting principals. Those
activities are the responsibility of management and the independent auditors.
Nor is it the duty of the Committee, notwithstanding any responsibility set
forth in this Charter, to conduct investigations, to resolve disagreements, if
any, between management and the independent auditors or to ensure compliance
with laws and regulations or the Company's code of ethics--the Global Business
Standards.
A-3
[Steelcase Logo]
STEELCASE INC.
901 44th Street SE
Grand Rapids, Michigan 49508
FINANCIAL STATEMENTS
AND OTHER INFORMATION
TABLE OF CONTENTS
Selected Financial Data.................................................. F-1
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... F-2
Consolidated Statements of Income........................................ F-13
Consolidated Balance Sheets.............................................. F-14
Consolidated Statements of Changes in Shareholders' Equity............... F-15
Consolidated Statements of Cash Flows.................................... F-16
Notes to Consolidated Financial Statements............................... F-17
Report of Independent Public Accountants................................. F-42
Management's Responsibility for Financial Reporting...................... F-42
Market for Registrant's Common Equity and Related Stockholder Matters.... F-43
In accordance with Rule 14a-3(c) under the Securities Exchange Act of 1934 (the
"Exchange Act"), as adapted to the "Summary Annual Report" procedure, the
information contained in the following commentary and consolidated financial
statements and notes is provided solely for the information of stockholders and
the Securities and Exchange Commission ("SEC"). Such information shall not be
deemed to be "soliciting material" or to be "filed" with the Commission or
subject to Regulation 14A under the Exchange Act (except as provided in Rule
14a-3) or to the liabilities of Section 18 of the Exchange Act, unless, and
only to the extent that, it is expressly incoporated by reference into the
Form 10-K of Steelcase Inc. for its fiscal year ending February 23, 2001.
Our Annual Report on Form 10-K, as filed with the SEC, will be provided to any
shareholder upon written request to Steelcase Inc., Attention Investor
Relations, CH.3E.16, P.O. Box 1967, Grand Rapids, Michigan 49501-1967. You may
also visit the investor relations section of www.steelcase.com to submit your
request.
STEELCASE INC.
Selected Financial Data
FINANCIAL HIGHLIGHTS
(in millions, except per share data)
February 23, February 25, February 26, February 27, February 28,
2001 2000(3) 1999 1998 1997(1)
------------ ------------ ------------ ------------ ------------
Statement of Income Data
Revenues................ $3,885.8 $3,344.3 $2,761.5 $2,775.6 $2,420.6
Revenues increase
(decrease)............. 16.2% 21.1% (0.5)% 14.7% 11.8%
Gross profit............ $1,308.7 $1,130.9 $1,008.4 $1,019.0 $ 869.0
Gross profit--% of
revenues............... 33.7% 33.8% 36.5% 36.7% 35.9%
Operating income........ $ 306.4 $ 274.5 $ 325.9 $ 327.7 $ 150.8
Operating income--% of
revenues............... 7.9% 8.2% 11.8% 11.8% 6.2%
Net income.............. $ 193.7 $ 184.2 $ 221.4 $ 217.0 $ 27.7
Net income--% of
revenues............... 5.0% 5.5% 8.0% 7.8% 1.1%
Earnings Per Share
Earnings per share--
basic.................. $ 1.30 $ 1.21 $ 1.44 $ 1.40 $ 0.18
Earnings per share--
diluted................ $ 1.29 $ 1.21 $ 1.44 $ 1.40 $ 0.18
Weighted average shares
outstanding-basic...... 149.4 152.8 153.8 154.8 154.7
Weighted average shares
outstanding-diluted.... 149.8 152.8 153.8 154.8 154.7
Dividends per share of
common stock(2)........ $ 0.44 $ 0.44 $ 0.41 $ 1.36 $ 0.27
Balance Sheet Data
Working Capital......... $ 319.8 $ 200.1 $ 290.6 $ 355.1 $ 474.6
Assets.................. $3,157.0 $3,037.6 $2,182.5 $2,007.2 $1,922.1
Long-term debt.......... $ 327.5 $ 257.8 -- -- --
Liabilities............. $1,520.5 $1,475.4 $ 682.5 $ 674.8 $ 542.1
Shareholder's Equity.... $1,636.5 $1,562.2 $1,500.0 $1,332.4 $1,380.0
Statement of Cash Flow
Data
Net cash provided by
operating activities... $ 209.8 $ 305.7 $ 359.9 $ 402.7 $ 126.7
Depreciation and
amortization expense... $ 162.5 $ 141.8 $ 107.0 $ 95.3 $ 93.4
Capital expenditures.... $ 260.5 $ 188.8 $ 170.4 $ 126.4 $ 122.0
Dividends paid(2)....... $ 65.9 $ 67.3 $ 63.1 $ 210.9 $ 41.8
- --------
(1) During 1997, the Company concluded a 17-year patent litigation which, net
of reserves, reduced net income by $123.5 million.
(2) During 1998, the Company paid a special dividend in the aggregate amount
of $150.9 million, or approximately $0.97 per share of common stock.
(3) Includes Steelcase S.A. (formerly known as Steelcase Strafor).
F-1
STEELCASE INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations:
Overview
The Company recorded revenues of $3,885.8 million for fiscal 2001 ("2001")
an increase of 16.2% over fiscal 2000 ("2000") revenues of $3,344.3 million.
The increased global revenues reflect acquisition growth as well as the
continued growth of new and established products across most business and
customer segments. Revenue growth excluding acquisitions was 9.5% for 2001.
New product revenues, defined as products introduced in the past five years,
made up 25% of 2001 revenues, compared to 17% in 2000. Revenue growth of the
Company's established product lines was linked to the growth in the large
account business, which strengthened significantly during the first nine
months of 2001. The fourth quarter showed a substantial slowing of business
activity associated with the general economic slowdown of the U.S. economy.
The Company posted earnings growth of 5.2% in 2001, with net income of
$193.7 million, ($1.30 basic earnings per share and $1.29 diluted earnings per
share), compared to net income of $184.2 million ($1.21 basic and diluted
earnings per share). Reported net income for 2001 included non-recurring
fourth quarter after-tax charges totaling $15.2 million related to facility
closings, production relocation and workforce reductions. Reported net income
also reflects an $11.6 million after-tax gain on the sale of real estate,
which was largely offset by an $11.9 million after-tax charge for reserves
related to dealer transition financing, both of which occurred in the fourth
quarter. The Company also recorded in the first quarter of 2001, a $5.6
million after-tax gain on the sale of real estate. During 2001, the Company's
profitability was again impacted by the following factors:
. The impact of the increase in the percentage of new products--which
typically have lower initial margins--in the sales mix.
. Competitive pricing pressures.
Results of Operations
The following table sets forth consolidated statement of income data as a
percentage of revenues for 2001, 2000, and fiscal 1999 ("1999").
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues............................ 100.0% 100.0% 100.0%
Cost of sales....................... 66.3 66.2 63.5
----- ----- -----
Gross profit........................ 33.7 33.8 36.5
Operating expenses.................. 25.8 25.6 24.7
----- ----- -----
Operating income.................... 7.9 8.2 11.8
Non-operating items, net............ 0.1 (0.7) (0.4)
----- ----- -----
Income before taxes................. 7.8 8.9 12.2
Provision for income taxes.......... 2.8 3.5 4.5
Equity in net income of joint
ventures and dealer transitions.... -- 0.1 0.3
----- ----- -----
Net income.......................... 5.0% 5.5% 8.0%
===== ===== =====
F-2
Steelcase Inc.
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's North America segment for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues.............................. $3,885.8 $3,344.3 $2,761.5
Gross profit percentage............... 33.7% 33.8% 36.5%
Operating expense percentage.......... 25.8% 25.6% 24.7%
Operating income...................... $ 306.4 $ 274.5 $ 325.9
Operating income percentage........... 7.9% 8.2% 11.8%
Net income............................ $ 193.7 $ 184.2 $ 221.4
Revenues. The Company's consolidated revenues in 2001 increased by 16.2%
over 2000 revenues. This increase reflects acquisition growth and was
bolstered by demand for new products, as well as solid results across
substantially all product categories, distribution channels and business
segments. Excluding the impact of acquisitions, 2001 revenues increase by 9.5%
over 2000 revenues. The Company's consolidated revenues in 2000 posted a 21.1%
increase over 1999 revenues, primarily from the acquisition of Steelcase S.A.
and domestic acquisitions. Excluding the impact of all acquisitions, the
Company posted flat revenues in 2000 compared to 1999 revenues. During 1999,
the Company's consolidated revenues did not include those of Steelcase S.A.
During that year, the Company lagged industry growth and posted flat revenues.
Gross Profit. The Company's gross profit as a percentage of revenues
decreased slightly in 2001 to 33.7%, down from 33.8% in 2000, and 36.5% in
1999. The gross margin performance for 2001 and 2000 was impacted by non-
recurring charges. Excluding non-recurring items the Company's gross margin
was 33.9% for 2001, compared to 34.5% for 2000. In 2001, non-recurring charges
totaling $9.5 million related to facility closings, production relocation and
workforce reductions; in 2000, non-recurring charges totaling $24.5 million
related to the field retrofit of beltways and insulation materials within
installed Pathways products. The gross margin results in 2001 are primarily
due to a continuation of the impact of the increase in the percentage of new
products--which typically have lower initial margins--in the sales mix and the
competitive pricing pressures. The overall decrease in gross margin for 2001
was partially offset by lower variable compensation, as well as continued
cost-reduction efforts.
The margin decline during 2000 was primarily the result of the competitive
pricing pressures, the impact of the increase in the percentage of new
products--which typically have lower initial margins--in the sales mix and
major new product introduction and associated ramp up costs. Additionally, the
Company experienced the expected margin decrease of approximately 0.5
percentage points with the consolidation of Steelcase S.A. The overall
decrease in gross margin for 2000 was also partially offset by lower variable
compensation, as well as various cost-reduction efforts.
In 1999, margins remained relatively flat as the Company's continued
efforts to reduce costs and to improve efficiencies were tempered by upfront
investments required to fund cost-reduction efforts, as well as the
disruptions and inefficiencies associated with the Company launching the
largest product portfolio in its history.
Operating Expenses. The Company's operating expenses as a percentage of
revenues increased to 25.8% in 2001, from 25.6% in 2000 and 24.7% in 1999.
Operating expenses now include the financing expenses related to the Company's
Financial Services segment. Operating expenses for 2001 included non-recurring
charges of $14.4 million related to facility closings, production relocation
and workforce reductions. Excluding these non-recurring items, the Company's
operating expense ratio decreased to 25.4% in 2001, slightly lower than in
2000. This reduction of operating expenses was primarily due to lower variable
compensation and the positive effect of currency fluctuations--predominantly
the euro.
In 2000, overall operating expense ratios were impacted by the
consolidation of Steelcase S.A., including increased intangible amortization,
write-off of bad debts in the United Kingdom and costs associated with the
F-3
consolidation of German operations. Excluding Steelcase S.A., 2000 operating
expenses were 24.5%, which is flat compared to 1999, reflecting management's
cost containment and resource redeployment efforts.
During the three-year period, investments in information systems and new
product research, development and launch costs have been significant and
include the redeployment of resources in support of these strategic
initiatives.
Operating Income. For the reasons set forth above, operating income
increased to $306.4 million in 2001, up from $274.5 million in 2000, which was
a decrease from $325.9 million in 1999. The Company's operating income as a
percentage of revenues decreased in 2001 to 7.9%, from 8.2% in 2000 and 11.8%
in 1999. Excluding non-recurring items the Company's operating margin was 8.5%
for 2001 and 8.9% for 2000.
Interest expense; Other income, net; and Income taxes
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
(in millions)
Interest expense.................... $ 18.0 $10.9 $ --
====== ===== =====
Other income, net:
Interest income................... $ 8.3 $ 6.4 $13.8
Interest income from tax
litigation....................... -- -- 5.8
Gain (loss) on dealer
transitions...................... (24.7) 8.3 (2.2)
Gain on disposal of property and
equipment........................ 27.1 10.0 --
Gain on sale of investments....... 2.8 7.0 --
Miscellaneous, net................ 1.8 1.1 (5.9)
------ ----- -----
$ 15.3 $32.8 $11.5
====== ===== =====
Effective income tax rate........... 36.5% 39.0% 37.0%
Interest expense for 2001 increased to $18.0 million, from $10.9 million in
2000 and zero in 1999. The increase in 2001 was primarily to fund the
Company's capital expenditures during the year. The 2000 increase was
primarily due to the acquisition of Steelcase S.A., which was partially
financed through short and long-term borrowings.
Other income, net, for 2001 decreased to $15.3 million, from $32.8 million
in 2000. Both 2001 and 2000 were impacted by non-recurring items. The non-
recurring items in 2001 related primarily to the $27.1 million gain recognized
on the sale of certain non-income producing facilities, which was partially
offset by $24.7 million in charges for reserves related to dealer transition
financing, $18.8 million of which is non-recurring.
Other income, net, increased significantly in 2000 due to several non-
recurring gains. First, the Company recognized a gain of $7.5 million in
connection with the sale of customer lists to new dealers in the United
Kingdom. Second, the Company recorded a gain of $10.0 million from the sale of
certain non-income producing facilities. Finally, the Company recorded
investment income of $7.0 million from the sale of investments in common
stock. The above mentioned gains were offset by decreased interest income of
$6.6 million due to lower cash balances in 2000. Also, 1999 included $5.8
million of interest income recorded in connection with the favorable
resolution of income tax litigation discussed below.
Income tax expense as a percentage of income before taxes ("the effective
tax rate") approximated 36.5% in 2001, 39.0% in 2000 and 37.0% in 1999. During
2001, the effective tax rate decreased due to the implementation of
international tax planning strategies in both Europe and Japan. During 2000,
the effective tax rate increased because of the consolidation of Steelcase
S.A., with operations in European countries, which typically have higher
effective tax rates compared to the rates in U.S. The effective tax rate also
increased due to the recording of non-deductible goodwill in 2000. During
1999, the provision for income taxes benefited from the favorable resolution
of income tax litigation dating back to 1989, primarily related to investment
tax credits and accelerated depreciation on the Company's Corporate
Development Center. The resolution of these matters
F-4
contributed to a reduced effective tax rate for 1999 and resulted in the
recognition of interest income of $5.8 million in 1999. These tax matters
increased 1999 consolidated net income by $6.2 million, or $0.04 per share
(basic and diluted).
Net income
For the reasons set forth above, net income increased 5.2% in 2001 to
$193.7 million, from $184.2 million in 2000, which decreased 16.8% from the
1999 level of $221.4 million. Excluding non-recurring charges in both years,
net income increased 7.2% in 2001 and decreased 14.2% in 2000.
Segment Disclosure
The Company operates on a worldwide basis within three reportable segments:
two geographic furniture segments and a Financial Services segment. In prior
years, the Company reported the third segment as Services and other
businesses, which included financial services, as well as, the Company's IDEO
and Attwood subsidiaries. In 2001, the Financial Services segment has grown to
comprise a significant portion of the Company's balance sheet and, as such is
now reported as a separate segment. The North America furniture segment
continues to include the U.S., Canada and the Steelcase Design Partnership but
now also includes IDEO and Attwood. The International furniture segment
continues to include the rest of the world, with the major portion of the
operations in Europe. Accordingly, prior year segment information presented
below has been restated to reflect the new reporting structure (see Note 16).
The following tables set forth consolidated and pro forma worldwide
revenues and operating income, resepectively, by segment for 2001, 2000 and
1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
North America......................... $3,098.2 $2,718.7 $2,611.7
International(1)(2)................... 709.4 721.5 622.2
Financial Services.................... 78.2 52.4 34.5
-------- -------- --------
Worldwide revenues(1)................. $3,885.8 $3,492.6 $3,268.4
Steelcase Strafor(1).................. n/a (148.3) (506.9)
-------- -------- --------
Consolidated revenues................. $3,885.8 $3,344.3 $2,761.5
======== ======== ========
- --------
(1) International and worldwide revenues and operating income include, on a
pro forma basis, the revenues and operating income of the Company's
unconsolidated operations in Steelcase S.A. (formerly known as Steelcase
Strafor), which are then removed in order to reconcile with the Company's
consolidated totals. See Notes 7 and 18 to the Consolidated Financial
Statements.
(2) In local currency, Steelcase S.A. revenues increased 7.6% in 2001, 6.1% in
2000 and 9.8% in 1999.
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
North America......................... $246.6 $234.5 $303.0
International(1)...................... 38.5 31.4 39.1
Financial Services.................... 8.0 2.6 2.5
Eliminations(3)....................... 13.3 16.4 14.6
------ ------ ------
Worldwide operating income(1)......... $306.4 $284.9 $359.2
Steelcase Strafor(1).................. n/a (10.4) (33.3)
------ ------ ------
Consolidated operating income......... $306.4 $274.5 $325.9
====== ====== ======
- --------
(3) Eliminations represent intercompany interest expense between the Financial
Services segment and the North America segment.
F-5
North America
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's North America segment for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues................................. $3,098.2 $2,718.7 $2,611.7
Gross profit percentage.................. 32.0% 32.7% 35.8%
Operating expense percentage............. 24.0% 24.1% 24.2%
Operating income......................... $ 246.6 $ 234.5 $ 303.0
Operating income percentage.............. 8.0% 8.6% 11.6%
Revenues. North America revenues grew at 14.0% and 4.1% for 2001 and 2000,
respectively, and were flat for 1999. While new products led the revenue
increase in 2001, established Steelcase core products, particularly within
large account business, also had solid performance for the year. The Steelcase
Design Partnership ("SDP") also continued their strong growth rate, posting
12.7% growth in 2001.
Likewise, in 2000, SDP and new product revenues provided the bulk of the
revenue increase for the segment, with new products doubling their run rates
over 1999 levels. Additionally, domestic acquisitions contributed to this
increase. These increases were offset by the decline in the revenues of the
Company's core Steelcase branded products, which followed the industry trends
in 2000.
In 1999, the industry softened due to a high level of merger and
acquisition activity within the U.S. Fortune 500 companies, which contributed
to a lack of revenue growth. As the industry softened in 1999, the Company's
core Steelcase branded products in North America were impacted by the deferred
spending actions within the Company's large corporate account business,
resulting in declines.
Gross Profit. North America gross profit as a percentage of revenues
decreased in 2001 to 32.0%, from 32.7% in 2000; and 35.8% in 1999. North
America was the only business segment impacted by the aforementioned non-
recurring items in 2001 and 2000; excluding these items the segment's gross
margin was 32.3% for 2001 and 33.6% for 2000. Gross margin decline was
primarily due to a continuation of the impact of the increase in the
percentage of new products--which typically have lower initial margins--in the
sales mix and competitive pricing pressures. The overall decrease in gross
margin for 2001 was partially offset by lower variable compensation.
Operating Expenses. North America operating expenses as a percentage of
revenues remained flat at 24.0% for 2001 and 2000, after decreasing from 24.2%
in 1999. North America was the only business segment impacted by the
aforementioned non-recurring items in 2001. Excluding these non-recurring
items, the segment's operating expense ratio was 23.6% for 2001. The reduction
in the operating expense ratio has been primarily due to lower variable
compensation.
Operating Income. For the reasons set forth above, North America operating
income increased to $246.6 million in 2001, up from $234.5 million in 2000,
which was a decrease from $303.0 million in 1999. The segment's operating
income as a percentage of revenues decreased in 2001 to 8.0%, from 8.6% in
2000; and 11.6% in 1999. North America was the only business segment impacted
by non-recurring items in 2001 and 2000. Excluding non-recurring items, the
segment's operating margin was 8.7% for 2001 and 9.5% for 2000.
F-6
International
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's International segment for
2001, 2000 and 1999 (in millions). The table reflects the accounts of
Steelcase Strafor, as if the joint venture had been consolidated for the first
quarter of 2000 and for full year 1999.
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Pro forma international revenues(1)..... $709.4 $721.5 $622.2
Consolidated international revenues..... $709.4 $573.2 $115.3
Gross profit percentage................. 34.0% 32.8% 34.3%
Operating expense percentage............ 28.6% 29.1% 29.3%
Operating income........................ $ 38.5 $ 21.0 $ 5.8
Operating income percentage............. 5.4% 3.7% 5.0%
- --------
(1) International revenues for 2000 and 1999 include, on a pro forma basis,
the revenues of the Company's unconsolidated operations in Steelcase
S.A. (formerly known as Steelcase Strafor). See Notes 7 and 18 to the
Consolidated Financial Statements.
Revenues. International revenues grew at 23.8% in 2001 and increased nearly
five-fold in 2000, after a 16.7% decrease for 1999. Excluding the impact of
acquisitions, International revenues in 2001 increased 14.3% in local
currency, but due to the negative effect of currency fluctuations--primarily
the euro--revenues in U.S. dollars decreased 1.7%. During 2001, International
revenues outside of Europe increased 22.8%, in U.S. dollars, primarily due to
increased revenues in Singapore, Australia and the Company's export business.
In 2000, due to the effective date of Company's acquisition of the
remaining 50% interest in Steelcase S.A., the International segment includes
nine months of Steelcase S.A. revenues. Excluding the acquisition,
international revenue had local currency growth of 6.1% in 2000 primarily
driven by our German manufacturing operations. However, the devaluation of the
Euro throughout 2000 offset most of the local currency growth, resulting in 1%
growth in U.S. dollars. Revenues outside of Europe declined by 4.0% during
2000, primarily due to a decline in the Company's export business coupled with
the adverse impact of currency devaluation in Brazil, which was partially
offset by growth in Mexican operations.
In 1999, the International revenues decreased by 16.7% due to several
factors including a reduction in export projects to Latin America and flat
revenues in Asia, as well as the reorganization of the Company's Japanese
subsidiary.
Gross Profit. International gross profit as a percentage of revenues
increased in 2001 to 34.0%, from 32.8% in 2000, which was a decrease from the
1999 level of 34.3%. The increase in gross profit was primarily due to a more
favorable industry environment for the Company's European operations.
Operating Expenses. International operating expenses as a percentage of
revenues decreased to 28.6% in 2001 from 29.1% in 2000 and 29.3% in 1999. The
International operating expense ratios have been positively impacted by the
effect of currency fluctuations--primarily the euro, as well as the ability of
the Company's operations in Singapore and Australia to leverage their revenue
growth.
Operating Income. For the reasons set forth above, International operating
income increased to $38.5 million in 2001, up from $21.0 million in 2000 and
$5.8 million in 1999. International operating income as a percentage of
revenues increased in 2001 to 5.4%, from 3.7% in 2000; which was a decrease
from the 1999 level of 5.0%.
F-7
Financial Services
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's Financial Services segment
for 2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues............................... $78.2 $52.4 $34.5
Net financing margin percentage........ 21.4% 20.0% 27.8%
General and administrative expense
percentage............................ 11.2% 15.0% 20.6%
Operating income....................... $ 8.0 $ 2.6 $ 2.5
Operating income percentage............ 10.2% 5.0% 7.2%
Revenues. Financial Services revenues grew at 49.2%, 51.9% and 31.7% for
2001, 2000 and 1999, respectively, primarily due to increased lease finance
revenues.
Net Financing Margin. Financial Services operating expenses are split into
two separate components--financing expenses and general and administrative
expenses. Finance revenues less financing expenses equals net financing
margin; net financing margin less general and administrative expense equals
operating income. Net financing margin was 21.4%, 20.0% and 27.8% for 2001,
2000 and 1999, respectively. Margin improvement was primarily due to increased
lease finance revenues, which was partially offset by the growth in interest
expense.
General and administrative expenses. General and administrative expenses as
a percentage of revenues decreased to 11.2% in 2001, down from 15.0% in 2000,
after decreasing from 20.6% in 1999. General and administrative expense
dollars have held relatively flat over the past three years, while financing
revenue has increased, resulting in increased operating margin leverage.
Operating Income. For the reasons set forth above, Financial Services
operating income increased to $8.0 million in 2001, up from $2.6 million in
2000 and $2.5 million in 1999. Financial Services operating income as a
percentage of revenues increased in 2001 to 10.2%, up from 5.0% in 2000; which
was a decrease from the 1999 level of 7.2%.
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 February 23, 2001 included cash, cash equivalents and
short-term investments of $39.5 million, a decrease from the $88.6 million
reported on February 25, 2000. 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.
Through February 1999, the Company had no long-term debt. However, with the
acquisition of Steelcase S.A. and management's intent to leverage the
significant financial resources available to the Company to meet its growth
objectives, the Company has obtained long-term debt financing from bank
syndicates in Europe and the United States. During 2001, the Company received
investment grade credit ratings from both Moody's (A3) and Standard & Poor's
(A-). In April 2001, the Company established a $400.0 million global credit
facility that will replace the North American and European credit facilities
that currently exist (see Note 9). The Company intends to use the global
credit facility as a backstop for a commercial paper program currently being
negotiated. Total debt at February 23, 2001 aggregated $537.2 million, which
was approximately 25% of total capitalization of the Company. The Company also
holds $612.3 million of interest bearing assets, of which $585.2 is held
through its Financial Services business segment.
F-8
Cash provided by operating activities
The following table sets forth consolidated statement of cash flow data for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Net income.......................... $193.7 $184.2 $221.4
Depreciation and amortization....... 162.5 141.8 107.0
Changes in operating assets and
liabilities........................ (139.0) (21.8) 20.4
Other............................... (7.4) 1.5 11.1
------ ------ ------
Net cash provided by operating
activities......................... $209.8 $305.7 $359.9
====== ====== ======
Cash provided by operating activities totaled $209.8 million in 2001,
$305.7 million in 2000 and $359.9 million in 1999. The cash provided by
operations resulted primarily from net income excluding non-cash charges such
as depreciation and amortization, net of increases in accounts receivable and
inventories and prepaids. The decrease in 2001 is attributable to the
Company's European operations, as well as volume increases around the world,
both of which have resulted in higher accounts receivable and inventory
balances. This decrease was partially offset by increased depreciation and
amortization. In addition, the Company had significant cash outlays for
previously accrued expenses including those related to its payment of the
year-end bonus, contributions to the Company's trust fund, tax payments and
deferred acquisition payments. The consolidation of Steelcase S.A. increased
working capital for 2000 and 2001. However, the Company is implementing
aggressive strategies to reduce both inventories and accounts receivable on a
worldwide basis.
Cash used in investing activities
The following table sets forth consolidated statement of cash flow data for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Capital expenditures................ $(260.5) $(188.8) $(170.4)
Proceeds from the disposal of as-
sets............................... 179.3 16.4 --
Lease fundings, net of repayments... (100.7) (120.2) (63.1)
Corporate acquisitions, net of cash
acquired........................... (0.1) (209.6) (57.2)
Other............................... (38.0) (12.4) (51.5)
------- ------- -------
Net cash provided by investing ac-
tivities........................... $(220.0) $(514.6) $(342.2)
======= ======= =======
Cash used in investing activities totaled $220.0 million in 2001, $514.6
million in 2000 and $342.2 million in 1999. The decrease in 2001 is primarily
due to the absence of any material acquisitions during the year, as well as an
increase in proceeds from the disposal of assets, which was partially offset
by an increase in capital expenditures. During 2001, the Company evaluated the
use of its asset base and where applicable, it has financed several non-income
producing assets through the use of various sale/leaseback arrangements. In
addition, other non-income producing assets were sold during the year. The
increase in 2000 resulted primarily from corporate acquisitions, as well as
increases in capital expenditures and leased assets.
The Company's capital expenditures were $260.5 million in 2001, $188.8
million in 2000 and $170.4 million in 1999, reflecting investments in excess
of depreciation for each of the last three years. Capital expenditures
continue to include increased investments in manufacturing equipment,
information systems and facilities. Collectively, these investments are
expected to improve productivity and safety, increase capacity,
F-9
decrease the impact on the surrounding environments in which the Company
operates and facilitate the launch of new products. The Company expects
capital expenditures in fiscal 2002 to decrease, returning closer to 2000
levels or slightly higher due to the continued construction of a new wood
manufacturing facility and the continued investment in new product
development, information systems and corporate and showroom facilities. The
Company expects to fund these capital expenditures primarily through cash
generated from operations.
The Company continues to invest in its leasing portfolio, which includes
both direct financing and operating leases of office furniture products. The
Company's net investment in leased assets increased to $449.8 as of February
23, 2001, up from $349.1 million as of February 25, 2000. The Company expects
to fund future investments in leased assets primarily through its lease
receivables transfer facility.
Corporate acquisitions in 2000, aggregating $209.6 million, reflect the
complete ownership of Steelcase S.A., Clestra Hauserman and a significant
dealer. Corporate acquisitions in 1999, aggregating $57.2 million, reflect the
complete ownership of J.M. Lynne and the partial ownership of Microfield
Graphics, Clestra Hauserman and the Modernform Group Public Company Limited.
(See Note 18).
Cash provided by (used in) financing activities
The following table sets forth consolidated statement of cash flow data for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Short-term and long-term debt, net.. $ 81.9 $323.4 $ --
Common stock issuance (repurchase),
net................................ (56.5) (36.7) 9.8
Dividends paid...................... (65.9) (67.3) (63.1)
------ ------ ------
Net cash provided by (used in)
financing activities............... $(40.5) $219.4 $(53.3)
====== ====== ======
Cash provided by (used in) financing activities totaled $(40.5) million in
2001, $219.4 million in 2000 and $(53.3) million in 1999.
Management continues to evaluate the optimal capital structure for the
Company in light of its long-term growth strategies. At the time of the above
mentioned acquisition of Steelcase S.A., the Company established a 364-day
unsecured committed $200 million revolving credit facility. Subject to certain
conditions, the facility is renewable annually for additional 364-day periods.
The Company also established a $200 million lease receivables transfer
facility. Subject to certain conditions, the facility is renewable annually,
with borrowings on the facility scheduled to mature in accordance with the
terms of the underlying leases.
Additionally, the Company has an unsecured, committed credit facility of
EUR 200 million from bank syndicates in Europe to provide liquidity and
finance capital expenditures for its European operations. The agreement is
comprised of two tranches: Tranche A is a EUR 75.0 million, 364-day revolving
facility, and Tranche B is a EUR 125.0 million, five-year term facility.
Annual dividends per share of common stock were $0.44 in 2001, $0.44 in
2000 and $0.41 in 1999.
During 1999, eligible employees purchased shares of Class A Common Stock
pursuant to the terms of the Employee Discount Option Grant, resulting in
proceeds to the Company of $24.8 million. The shares for this grant, along
with the shares for the Employee Stock Grant issued in 1998, were purchased by
the Company from the selling shareholders in the initial public offering for
$43.5 million.
On June 17, 1998 the Board of Directors authorized a share repurchase
program for up to three million shares, which has since been expanded to 11
million shares authorized for repurchase. The Company
F-10
repurchased 1,633,300 shares, 1,373,870 shares and 794,300 shares of Class A
Common Stock for $24.8 million, $18.4 million and $15.0 million in 2001, 2000
and 1999, respectively, and 1,944,337 shares and 1,086,400 shares of Class B
Common Stock for $31.8 million and $18.3 million in 2001 and 2000,
respectively. 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.
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 the 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. has created an internal Euro
Committee, a pan-European multifunctional team whose goal is 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.
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 Financial Statements and Other Information, such as
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contain various "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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;
changes in domestic and international government laws and regulations;
competitive pricing pressure; pricing changes by the Company or its
competitors; currency fluctuations (including the euro); the timing, extent
and impact of work force reductions (including elimination of temporary
workers, hourly layoffs and salaried workforce reduction) and plant closings
on the company's costs; 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, current
product innovations and platform simplification; the company's ability to
improve margins on new products, to successfully integrate acquired
businesses, to successfully initiate and manage alliances and global sourcing,
to successfully transition the production of its products to other
manufacturing facilities as a result of production rationalization, and to
successfully implement technology initiatives; the sufficiency of the reserve
established with regard to material and installations costs associated with
Pathways product line improvements; changes in future business strategies and
decisions; and other risks detailed in the Company's other filings with the
Securities and Exchange Commission.
Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes a comprehensive standard for the recognition and measurement of
derivatives and hedging activities. The new standard requires that all
derivatives be recognized as assets or liabilities in the balance sheet and
measured at fair value. Gains and losses resulting from changes in fair value
are required to be recognized in current earnings unless they meet specific
hedging criteria in which case the gains and losses would be included in
comprehensive income. SFAS No. 133 will become effective for the Company
beginning in the first quarter of fiscal year 2002. The adoption of SFAS No.
133 will not have a material effect on the Company's financial results.
F-11
Quantitative and Qualitative Disclosures About Market Risk:
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed are:
. Foreign exchange risks
. Interest rates on debt
Foreign Exchange Risks
International operations constituted approximately 18% and 10% of the
Company's 2001 and 2000 consolidated operating income, respectively. Operating
in international markets involves exposure to the possibility of volatile
movements in foreign exchange rates. The economic impact of foreign exchange
rate movements on the Company is complex because such changes are often linked
to variability in real growth, inflation, interest rates, governmental actions
and other factors. These changes, if material, could cause the Company to
adjust its financing and operating strategies. Therefore, to solely isolate
the effect of changes in currency does not accurately portray the effect on
these other important economic factors. As foreign exchange rates change,
translation of the income statements of the Company's international
subsidiaries into U.S. dollars affects year-over-year comparability of
operating results. The Company generally does not hedge translation risks
because cash flows from international operations are generally reinvested
locally and the cost/benefit of hedging reported earnings is not justifiable.
Changes in foreign exchange rates that would have the largest impact on
translating the Company's international operating profit for 2001 relate to
the euro and the Canadian dollar. The Company estimates that a 10% adverse
change in foreign exchange rates would have reduced operating profit by
approximately $6 million in 2001 and $3 million in 2000, assuming no changes
other than the exchange rate itself. For both 2001 and 2000, this represents
approximately 11% of the Company's non-U.S. operating profit and 2% and 1% of
consolidated operating profit, respectively. As discussed above, this
quantitative measure has inherent limitations. Further, the sensitivity
analysis disregards the possibility that rates can move in opposite directions
and that gains from one country may or may not be offset by losses from
another country.
Foreign exchange gains and losses reflect transaction gains and losses.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies other than a business unit's functional currency.
Transaction gains and losses are not material for the Company.
Interest Rates
The Company is exposed to interest rate risk primarily on its notes
receivable and leased assets, its short-term borrowings and long-term debt.
The Company manages its interest rate risk through the use of interest rate
swaps and caps and through balancing the notional amount of fixed and variable
rate liabilities with fixed and variable rate assets where appropriate.
Management estimates that a 1% change in interest rates would not have a
material impact on the Company's results of operations for 2001 or 2000, based
upon the year end levels of exposed assets and liabilities.
F-12
STEELCASE INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Furniture revenues...................... $3,807.6 $3,291.9 $2,727.0
Finance revenues........................ 78.2 52.4 34.5
-------- -------- --------
Total revenues........................ 3,885.8 3,344.3 2,761.5
Cost of sales........................... 2,577.1 2,213.4 1,753.1
-------- -------- --------
Gross profit............................ 1,308.7 1,130.9 1,008.4
Operating expenses...................... 1,002.3 856.4 682.5
-------- -------- --------
Operating income........................ 306.4 274.5 325.9
Interest expense........................ (18.0) (10.9) --
Other income, net....................... 15.3 32.8 11.5
-------- -------- --------
Income before provision for income taxes
and equity in net income of joint
ventures and dealer transitions........ 303.7 296.4 337.4
Provision for income taxes.............. 110.9 115.5 124.9
-------- -------- --------
Income before equity in net income of
joint ventures and dealer transitions.. 192.8 180.9 212.5
Equity in net income of joint ventures
and dealer transitions................. 0.9 3.3 8.9
-------- -------- --------
Net income.............................. $ 193.7 $ 184.2 $ 221.4
======== ======== ========
Earnings per share (basic).............. $ 1.30 $ 1.21 $ 1.44
======== ======== ========
Earnings per share (diluted)............ $ 1.29 $ 1.21 $ 1.44
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
STEELCASE INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
February 23, February 25,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 25.3 $ 73.7
Short-term investments............................. 14.2 14.9
Accounts receivable, less allowances of $50.5 and
$45.5............................................. 603.2 592.6
Notes receivable and leased assets................. 270.4 189.0
Inventories........................................ 184.7 166.5
Prepaid expenses................................... 22.2 12.5
Deferred income taxes.............................. 85.7 78.1
-------- --------
Total current assets................................. 1,205.7 1,127.3
-------- --------
Property and equipment, net.......................... 933.8 939.1
Notes receivable and leased assets................... 341.9 294.1
Joint ventures and dealer transitions................ 45.2 37.0
Deferred income taxes................................ 40.3 43.7
Goodwill and other intangible assets, net of
accumulated amortization of $63.1 and $38.6......... 405.1 422.6
Other assets......................................... 185.0 173.8
-------- --------
Total assets......................................... $3,157.0 $3,037.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 254.1 $ 219.8
Short-term borrowings and current portion of long-
term debt......................................... 209.7 209.0
Accrued expenses:
Employee compensation............................ 119.6 121.1
Employee benefit plan obligations................ 84.8 90.0
Other............................................ 217.7 287.3
-------- --------
Total current liabilities............................ 885.9 927.2
-------- --------
Long-term liabilities:
Long-term debt..................................... 327.5 257.8
Employee benefit plan obligations.................. 247.7 243.7
Deferred income taxes.............................. 14.7 29.5
Other long-term liabilities........................ 44.7 17.2
-------- --------
Total long-term liabilities.......................... 634.6 548.2
-------- --------
Total liabilities.................................... 1,520.5 1,475.4
-------- --------
Shareholders' equity:
Preferred Stock-no par value; 50,000,000 shares
authorized, none issued and outstanding........... -- --
Class A Common Stock-no par value; 475,000,000
shares authorized, 32,572,706 and 30,168,585
issued and outstanding............................ 69.5 82.4
Class B Common Stock-no par value; 475,000,000
shares authorized, 115,012,981 and 120,989,840
issued and outstanding............................ 216.7 260.3
Accumulated other comprehensive income (loss)...... (30.0) (33.0)
Retained earnings.................................. 1,380.3 1,252.5
-------- --------
Total shareholders' equity........................... 1,636.5 1,562.2
-------- --------
Total liabilities and shareholders' equity........... $3,157.0 $3,037.6
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
STEELCASE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions)
Common Stock Accumulated
--------------- Other Total Total
Class Comprehensive Retained Shareholders' Comprehensive
Class A B Income (Loss) Earnings Equity Income
------- ------ ------------- -------- ------------- -------------
February 27, 1998....... $ 41.1 $328.5 $(14.5) $ 977.3 $1,332.4
Common stock
conversion............. 27.1 (27.1) --
Common stock
repurchase............. (15.0) (15.0)
Common stock issuance... 24.8 24.8
Other comprehensive
income................. (0.5) (0.5) $ (0.5)
Dividends paid.......... (63.1) (63.1)
Net income.............. 221.4 221.4 221.4
------ ------ ------ -------- -------- ------
February 26, 1999....... 78.0 301.4 (15.0) 1,135.6 1,500.0 $220.9
======
Common stock
conversion............. 22.8 (22.8) --
Common stock
repurchase............. (18.4) (18.3) (36.7)
Other comprehensive
income................. (18.0) (18.0) (18.0)
Dividends paid.......... (67.3) (67.3)
Net income.............. 184.2 184.2 184.2
------ ------ ------ -------- -------- ------
February 25, 2000....... 82.4 260.3 (33.0) 1,252.5 1,562.2 $166.2
======
Common stock
conversion............. 11.7 (11.7) --
Common stock issuance... 0.1 0.1
Common stock
repurchase............. (24.7) (31.9) (56.6)
Other comprehensive
income................. 3.0 3.0 3.0
Dividends paid.......... (65.9) (65.9)
Net income.............. 193.7 193.7 193.7
------ ------ ------ -------- -------- ------
February 23, 2001....... $ 69.5 $216.7 $(30.0) $1,380.3 $1,636.5 $196.7
====== ====== ====== ======== ======== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
STEELCASE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net income............................. $ 193.7 $ 184.2 $ 221.4
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 162.5 141.8 107.0
Pension and postretirement benefit
cost................................ 24.7 26.3 22.7
Gain on disposal of assets........... (12.2) (17.0) --
Deferred income taxes................ (19.0) (4.5) (2.7)
Equity in net income of joint
ventures and dealer transitions..... (0.9) (3.3) (8.9)
Changes in operating assets and
liabilities, net of corporate
acquisitions:
Accounts receivable................ (33.3) (9.4) 15.4
Inventories........................ (19.3) (21.2) 9.3
Prepaids expenses and other
assets............................ (26.5) (14.7) (20.6)
Accounts payable................... 44.3 7.9 (15.7)
Accrued expenses and other
liabilities....................... (104.2) 15.6 32.0
------- ------- -------
Net cash provided by operating
activities............................ 209.8 305.7 359.9
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures................... (260.5) (188.8) (170.4)
Proceeds from the disposal of assets... 179.3 16.4 --
Increase in lease fundings............. (239.0) (193.0) (124.6)
Proceeds from repayments of lease
fundings.............................. 138.3 72.8 61.5
Net increase in notes receivable....... (30.2) (20.0) 10.9
Net change in investments.............. (1.5) 17.3 4.4
Joint ventures and dealer transitions.. (6.3) (9.7) (66.8)
Acquisitions, net of cash acquired, and
business divestitures................. (0.1) (209.6) (57.2)
------- ------- -------
Net cash used in investing activities.. (220.0) (514.6) (342.2)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of debt......... 191.8 326.3 --
Repayments of debt..................... (103.0) (93.4) --
Short-term borrowings, net............. (6.9) 90.5 --
Common stock issuance.................. 0.1 -- 24.8
Common stock repurchase................ (56.6) (36.7) (15.0)
Dividends paid......................... (65.9) (67.3) (63.1)
------- ------- -------
Net cash provided by (used in)
financing activities.................. (40.5) 219.4 (53.3)
------- ------- -------
Effect of exchange rate changes on cash
and cash equivalents.................. 2.3 (4.3) --
------- ------- -------
Net increase (decrease) in cash and
cash equivalents...................... (48.4) 6.2 (35.6)
Cash and cash equivalents, beginning of
year.................................. 73.7 67.5 103.1
------- ------- -------
Cash and cash equivalents, end of
year.................................. $ 25.3 $ 73.7 $ 67.5
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Steelcase Inc. and its majority-owned subsidiaries (the "Company") is the
world's largest manufacturer and provider of office furniture, office
furniture systems and related products and services. The Company manufactures
at more than 30 locations throughout the world, including the United States,
Canada, Mexico and Europe. The Company distributes its products through a
worldwide network of independent dealers in approximately 800 locations
including approximately 380 in North America, 350 in Europe and 70 throughout
the rest of the world. The Company operates under two geographical furniture
segments, North America and International, and a Financial Services business
segment, which provides financing services to Steelcase dealers and their
customers to facilitate the purchase of Steelcase products in the United
States, Canada and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Steelcase
Inc. and its majority-owned subsidiaries, including the accounts of Steelcase
S.A. and subsidiaries, formerly known as Steelcase Strafor S.A., ("Steelcase
Strafor"), which became a wholly-owned subsidiary of the Company effective
March 31, 1999 (See Note 18). The Company currently accounts for Steelcase
Strafor on a two-month lag. However, beginning with the 52-week period ended
February 22, 2002, its European subsidiaries will be accounted for on the same
fiscal year. During the normal course of business, the Company may obtain
equity interests in dealers which the Company intends to resell as soon as
practicable ("dealer transitions"). The financial statements for majority-
owned dealer transitions for which no specific transition plan has been
adopted or is in the process of being adopted at the acquisition date are
consolidated with the Company's financial statements. Majority-owned dealer
transitions with a transition plan that has been adopted or is in the process
of being adopted at the acquisition date are accounted for under the equity
method of accounting and included in joint ventures and dealer transitions in
the accompanying consolidated balance sheet in an amount equal to the
Company's equity in the net assets of those entities, principally based on
audited financial statements for each applicable year. The Company's
investments in joint ventures and dealer transitions are carried at its equity
in the net assets of those entities primarily based on audited financial
statements for each applicable year.
All significant intercompany accounts, transactions and profits have been
eliminated in consolidation. Foreign currency-denominated assets and
liabilities are translated into U.S. dollars at the exchange rates existing at
the balance sheet date. Income and expense items are translated at the average
exchange rates during the respective periods. Translation adjustments
resulting from fluctuations in the exchange rates are recorded in accumulated
other comprehensive income, a separate component of shareholders' equity.
Gains and losses resulting from the exchange rate fluctuations on transactions
denominated in currencies other than the functional currency are not material.
Reclassifications
The Company has reclassified certain amounts from 1999 and 2000 to conform
to the 2001 presentation.
Year End
The Company's year end is the last Friday in February with each fiscal
quarter including 13 weeks. Fiscal years presented herein include the 52-week
periods ended February 23, 2001, February 25, 2000 and February 26, 1999.
F-17
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Furniture revenues include product sales and service revenues. Product
sales and service revenues are recognized as products are shipped and services
are rendered. Freight costs are invoiced to customers and the associated
expenses are netted with furniture revenues. Freight costs approximated $163.2
million, $130.5 million and $111.8 million for 2001, 2000 and 1999,
respectively. Service revenues are not material.
Finance revenues consist of interest income from dealer financing and from
leasing revenues. Interest income is recognized at prescribed financing rates
as earned. Leasing revenues include interest earned on the net investment in
leased assets, which is recognized over the lease term as a constant
percentage return, as well as, operating lease revenues which consist of the
contractual lease payments over the lease term.
Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily interest-
earning deposits, treasury notes and commercial paper, with an original
maturity of three months or less. Cash equivalents are reported at amortized
cost, which approximates market, and approximated $24.2 million and $17.0
million as of February 23, 2001 and February 25, 2000, respectively.
Long-Term Investments
The Company currently classifies its investments as available-for-sale or
held-to-maturity. There were no investments classified as available-for-sale
as of February 23, 2001. Investments classified as available-for-sale
approximated $1.5 million as of February 25, 2000. Gross unrealized gains and
losses, net of taxes, are charged or credited to comprehensive income, a
separate component of shareholders' equity. Investments classified as held-to-
maturity typically include treasury notes, tax-exempt municipal bonds and
other debt securities which the Company has the intent and ability to hold
until maturity. These investments are reported at amortized cost. Investments
classified as long-term mature over the next five years.
Investments in corporate-owned life insurance ("COLI") policies, which were
purchased to fund employee benefit plan obligations, are recorded at their net
cash surrender values as reported by the issuing insurance companies
associated with the COLI.
Inventories
Inventories are stated at the lower of cost or market and are valued based
upon the last-in, first-out ("LIFO") method and the average cost method.
Property and Equipment
Property and equipment are stated at the lower of cost or net realizable
value and depreciated using the straight line-method over the estimated useful
life of the assets. Internal-use software applications and related development
efforts are capitalized and amortized over the estimated useful lives of the
applications, which do not exceed five years except for certain business
application systems which approximate ten years. Software maintenance and
training costs are expensed as incurred. Expenditures for major renewals,
additions and betterments are capitalized; expenditures for repairs and
maintenance are expensed as incurred. Estimated useful lives of property and
equipment are as follows:
Buildings and improvements..................................... 10-50 years
Machinery and equipment........................................ 3-15 years
Furniture and fixtures......................................... 5-8 years
Leasehold improvements......................................... 3-10 years
Capitalized software........................................... 3-10 years
F-18
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leased Assets
The Company's net investment in leased assets includes both direct
financing and operating leases. Direct financing leases consist of the present
value of the future minimum lease payments receivable (typically over three to
five years) plus the present value of the estimated residual value
(collectively referred to as the net investment). Residual value is an
estimate of the fair value of the leased equipment at the end of the lease
term, which the Company records based on market studies conducted by
independent third parties.
Operating leased assets consist of the equipment cost, less accumulated
depreciation. Depreciation is included as part of financing expenses in Note
17, Financial Services Segment, and is recognized on a straight-line basis
over the lease term to the estimated residual value, which is determined on
the same basis as direct financing leases as set forth above.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets resulting from business acquisitions
are stated at cost and amortized on a straight-line basis over a period of 15
to 40 years. The carrying value for goodwill totaled $368.3 million and $352.4
million at February 23, 2001 and February 25, 2000, respectively. Goodwill and
other intangible asset amortization expense approximated $25.6 million, $16.9
million and $4.1 million for 2001, 2000 and 1999, respectively.
The Company reviews long-lived assets, including goodwill and other
intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. If
it is determined that an impairment loss has occurred based on expected
undiscounted future cash flows, a current charge to income is recognized.
Product Related Expenses
Research and development expenses, which are expensed as incurred,
approximated $72.0 million, $70.0 million and $75.0 million for 2001, 2000 and
1999, respectively.
Self-Insurance
The Company is self-insured for certain losses relating to workers'
compensation claims, employee medical benefits and product liability claims.
The Company has purchased stop-loss coverage in order to limit its exposure to
any significant levels of workers' compensation and product liability claims.
Self-insured losses are accrued based upon the Company's estimates of the
aggregate liability for uninsured claims incurred using certain actuarial
assumptions followed in the insurance industry and the Company's historical
experience.
The accrued liabilities for self-insured losses included in other accrued
expenses in the accompanying consolidated balance sheets are as follows (in
millions):
February 23, February 25,
2001 2000
------------ ------------
Workers' compensation claims....................... $16.5 $18.2
Product liability claims........................... 8.8 10.4
----- -----
$25.3 $28.6
===== =====
The Company maintains a Voluntary Employees' Beneficiary Association
("VEBA") to fund employee medical claims covered under self-insurance. The
estimates for incurred but not reported medical claims, which have been fully
funded by the Company in the VEBA, approximated $7.2 million and $6.8 million
as of February 23, 2001 and February 25, 2000, respectively.
F-19
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Product Warranty
The Company offers a lifetime warranty on Steelcase brand products, subject
to certain exceptions, which provides for the free repair or replacement of
any covered product or component that fails during normal use because of a
defect in design, materials or workmanship. Accordingly, the Company provides,
by a current charge to operations, an amount it estimates will be needed to
cover future warranty obligations for products sold. In accordance with its
warranty policy, the Company reserved for known warranty issues regarding its
Pathways based products in the fourth quarter of 2000 (see Note 19). The
accrued liability for warranty costs included in other accrued expenses in the
accompanying consolidated balance sheets approximated $46.0 million and $54.5
million as of February 23, 2001 and February 25, 2000, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing
condition allegedly caused by past operations, that are not associated with
current or future revenue generation, are expensed. Liabilities are recorded
when material environmental assessments and remedial efforts are probable, and
the costs can be reasonably estimated. Generally, the timing of these accruals
coincides with completion of a feasibility study or the Company's commitment
to a formal plan of action. The accrued liability for environmental
contingencies included in other accrued expenses in the accompanying
consolidated balance sheets approximated $6.9 million and $10.0 million as of
February 23, 2001 and February 25, 2000, respectively. Based on the Company's
ongoing oversight of these matters, the Company believes that it has accrued
sufficient reserves to absorb the costs of all known environmental assessments
and the remediation costs of all known sites.
Advertising
Advertising costs, which are expensed as incurred, approximated $23.1
million, $18.8 million and $11.3 million for 2001, 2000 and 1999,
respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and are measured using enacted tax rates expected to
apply to taxable income in the years in which the temporary differences are
expected to reverse.
Earnings Per Share
Basic earnings per share is based on the weighted average number of shares
of common stock outstanding ("WASO") during each period. It excludes the
dilutive effects of additional common shares that would have been outstanding
if the shares, under the Company's Stock Incentive Plans, had been issued.
Diluted earnings per share includes effects of the Company's Stock Incentive
Plans. Due to their anti-dilutive effect, the Company has not included the
effects of 2.6 million, 4.1 million and 2.7 million options in its calculation
of diluted earnings per share for 2001, 2000 and 1999, respectively. The WASO
for the basic calculation was 149.4 million, 152.8 million and 153.8 million
for 2001, 2000 and 1999, respectively. The WASO for the diluted calculation
was 149.8 million, 152.8 million and 153.8 million for 2001, 2000 and 1999,
respectively.
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, encourages entities to record compensation
expense for stock-based employee compensation plans at fair value, but
provides the option of measuring compensation expense using the intrinsic
value method prescribed in Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has elected to account
for its Stock Incentive Plans in accordance with APB Opinion
F-20
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No. 25. Pro forma results of operations, as if the fair value method
prescribed by SFAS No. 123 had been used to account for its Stock Incentive
Plans, are presented in Note 11.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, consisting of
cash equivalents, investments, accounts and notes receivable, accounts and
notes payable, short-term borrowings and certain other liabilities,
approximate their fair value due to their relatively short maturities.
The carrying amount of the Company's long-term debt approximates fair value
due to the variable interest rates applied to the debt.
See additional discussion regarding foreign currency contracts and interest
rate swaps and caps in Note 14.
Accounting for Derivative Instruments and Hedging Activities
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes a comprehensive standard for the recognition and measurement of
derivatives and hedging activities. The new standard requires that all
derivatives be recognized as assets or liabilities in the balance sheet and
measured at fair value. Gains and losses resulting from changes in fair value
are required to be recognized in current earnings unless they meet specific
hedging criteria in which case the gains and losses would be included in
comprehensive income. SFAS No. 133 will become effective for the Company
beginning in the first quarter of 2002. The adoption of SFAS No. 133 will not
have a material effect on the Company's consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts and disclosures in the consolidated
financial statements and accompanying notes. Although these estimates are
based on management's knowledge of current events and actions it may undertake
in the future, they may ultimately differ from actual results.
3. COMPREHENSIVE INCOME
Total comprehensive income is comprised of net income and all changes to
shareholders' equity, except those due to investments by owners and
distributions to owners. For the Company, accumulated other comprehensive
income consists primarily of foreign currency translation adjustments, which
aggregated $30.2 million and $33.4 million at February 23, 2001 and February
25, 2000. A breakdown of total other comprehensive income is as follows (in
millions):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments..................... $ 3.2 $(19.6) $ 0.7
Unrealized gain (loss) on
investments..................... -- 1.1 (0.7)
Minimum pension liabilities...... (0.2) 0.5 (0.5)
----- ------ -----
Other comprehensive income (loss).. $ 3.0 $(18.0) $(0.5)
===== ====== =====
F-21
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INVENTORIES
Inventories consist of (in millions):
February 23, February 25,
2001 2000
------------ ------------
Finished goods..................................... $ 84.0 $ 71.6
Work in process.................................... 42.1 45.6
Raw materials...................................... 102.3 93.4
------ ------
228.4 210.6
LIFO reserve....................................... (43.7) (44.1)
------ ------
$184.7 $166.5
====== ======
Inventories determined by the LIFO method aggregated $127.2 million and
$121.3 million at February 23, 2001 and February 25, 2000, respectively. The
effect of LIFO liquidations on net income is not material.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of (in millions):
February 23, February 25,
2001 2000
------------ ------------
Land............................................... $ 68.6 $ 85.0
Buildings and improvements......................... 728.9 760.8
Machinery and equipment............................ 1,269.1 1,191.9
Furniture and fixtures............................. 88.5 102.5
Leasehold improvements............................. 47.7 48.3
Capitalized software............................... 109.3 92.3
Construction in progress........................... 116.8 115.3
--------- ---------
2,428.9 2,396.1
Accumulated depreciation and amortization.......... (1,495.1) (1,457.0)
--------- ---------
$ 933.8 $ 939.1
========= =========
Depreciation and amortization expense approximated $136.9 million, $124.9
million and $102.9 million for 2001, 2000 and 1999, respectively. Construction
in progress consists of numerous equipment, facility and software projects,
including $42.1 million related to the construction in progress of our new
wood manufacturing facility.
F-22
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. NOTES RECEIVABLE AND LEASED ASSETS
Notes receivable and leased assets are primarily associated with the
Company's Financial Services segment (see Note 17), and consist of (in
millions):
February 23, February 25,
2001 2000
------------ ------------
Notes receivable:
Project financing................................ $ 34.0 $ 14.8
Asset-based lending.............................. 117.9 85.2
Term financing................................... 49.6 43.7
Other............................................ 2.5 3.5
Net investment in leased assets:
Direct financing leases.......................... 347.7 259.6
Net operating leases............................. 102.1 89.5
Allowance for losses............................. (41.5) (13.2)
------ ------
612.3 483.1
Current portion.................................... 270.4 189.0
------ ------
Long-term portion.................................. $341.9 $294.1
====== ======
Notes receivable include three distinct programs of dealer financing:
project financing; asset-based lending; and term financing. Through these
programs, the Company helps dealers secure interim financing, establish
working capital lines of credit, finance ownership changes and restructure
debt.
The terms of notes receivable range from a few months for project financing
to 14 years for certain term financing. Interest rates are both floating and
fixed, reaching up to 11.5% as of February 23, 2001. The loans are generally
secured by certain dealer assets and, in some cases, the common stock of the
dealership. Unused asset-based lending credit lines approximated $32.3 million
as of February 23, 2001, subject to available collateral. These commitments
generally expire in one year and are reviewed periodically for renewal.
The following summarizes future minimum lease payments receivable as of
February 23, 2001 (in millions):
Direct
financing Operating
Year ending leases leases
----------- --------- ---------
2002..................................................... $112.3 $31.8
2003..................................................... 96.9 29.6
2004..................................................... 71.9 22.2
2005..................................................... 49.2 11.0
2006 and thereafter...................................... 51.2 1.4
------ -----
$381.5 $96.0
====== =====
Approximately 36% of direct financing leases call for transfer of ownership
to customers at lease-end. The original equipment cost at lease inception for
leases in effect as of February 23, 2001 is $508.9 million for direct
financing leases and $144.6 million for operating leases.
Approved but unfunded lease financing amounted to approximately $143
million at February 23, 2001, subject to final customer delivery and
acceptance.
F-23
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Activity relating to the allowance for credit losses of notes receivable
and net leased assets is shown below (in millions):
February 23, February 25,
Year ended 2001 2000
---------- ------------ ------------
Balance at beginning of year...................... $13.2 $ 7.5
Provision for credit losses....................... 30.9 6.6
Excess of accounts written off over recoveries.... (2.6) (0.9)
----- -----
Balance at end of year............................ $41.5 $13.2
===== =====
7. JOINT VENTURES AND DEALER TRANSITIONS
The Company's investments in its unconsolidated joint ventures and dealer
transitions consist of (in millions):
February 23, February 25,
2001 2000
------------ ------------
Investments in dealer transitions.................. $32.7 $25.3
Joint ventures..................................... 12.5 11.7
----- -----
$45.2 $37.0
===== =====
Investments in dealer transitions represent dealers which the Company has
acquired with the intention of reselling as soon as practicable. Accordingly,
the Company recognizes its share of earnings and losses from dealer
transitions pursuant to the equity method of accounting. Accounts and notes
receivable from unconsolidated dealers in transition approximated $100.8
million and $75.2 million as of February 23, 2001 and February 25, 2000,
respectively.
Joint ventures are comprised of joint ventures in the United States, Saudi
Arabia, Japan and Thailand.
The Company's equity in net income of joint ventures and dealer transitions
consists of (in millions):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
50% share of Steelcase Strafor net
income(1)......................... $ -- $ 2.6 $ 8.9
Net income of dealer transitions... 0.3 1.0 0.1
Other joint ventures, net.......... 0.6 (0.3) (0.1)
----- ----- -----
$ 0.9 $ 3.3 $ 8.9
===== ===== =====
- --------
(1) Due to the effective date of the Company's acquisition of Steelcase
Strafor (see Note 18), net income for the year ended February 25, 2000
represents Steelcase's share of Steelcase Strafor's net income for the
first quarter of fiscal 2000.
8. OTHER ASSETS
Other assets consist of (in millions):
February 23, February 25,
2001 2000
------------ ------------
Corporate-owned life insurance..................... $151.3 $136.8
Long-term investments.............................. 9.7 10.5
Other.............................................. 24.0 26.5
------ ------
$185.0 $173.8
====== ======
F-24
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Weighted Average February 23, February 25,
Interest Rates Maturity 2001 2000
---------------- --------- ------------ ------------
(in millions)
U.S. dollar obligations:
Revolving credit
facilities(1)......... 5.86% 2002 $ 30.7 $ 45.4
Notes payable(2)....... 6.58%-8.21% 2002-2008 96.3 60.0
Lease receivables
transfer facility(3).. 6.74% 2002-2007 201.2 170.3
Other.................. 3.0 2.7
------ ------
331.2 278.4
------ ------
Foreign currency
obligations:
Revolving credit
facilities(4)......... 4.47% 2002-2005 193.1 165.8
Notes payable(5)....... 4.50%-6.75% 2002-2012 12.9 19.9
Other.................. -- 2.7
------ ------
206.0 188.4
------ ------
Total short-term
borrowings and long-term
debt.................... 537.2 466.8
Short-term borrowings and
current portion of long-
term debt............... 209.7 209.0
------ ------
Long-term debt........... $327.5 $257.8
====== ======
- --------
(1) In April 1999, the Company established a 364-day unsecured committed
revolving credit facility with various financial institutions under
which it may borrow up to $200.0 million. This facility was renewed for
an additional 364-day period in April 2000. Borrowings under the
facility mature at various dates throughout the year depending on the
borrowing terms, which range from one to six months as selected by the
Company, subject to certain limitations. Interest on committed
borrowings, which is due no later than the maturity of such borrowings,
is based on LIBOR plus a margin or a base rate, as selected by the
Company. The weighted average interest rate was 6.78% and 5.73% for 2001
and 2000, respectively. The agreement which, subject to certain
conditions, may be renewed annually for additional 364-day periods,
contains certain covenants which include, among others, minimum levels
of tangible net worth, interest coverage and debt ratio.
Additionally, the Company has entered into agreements with certain
financial institutions which provide for borrowings on unsecured non-
committed short-term credit facilities of up to $60.0 million at variable
interest rates determined by agreement at the time of borrowing. These
agreements expire within one year, and subject to certain conditions, may
be renewed annually.
(2) Notes payable represents various amounts payable to banks and others.
Certain agreements contain covenants which include, among others,
minimum levels of tangible net worth, interest coverage and debt ratio.
Approximately $31.4 million and $12.1 million of notes payable for 2001
and 2000, respectively, are collateralized by lease receivables,
including certain leased assets.
(3) In October 1999, the Company established a $200.0 million committed
lease receivables transfer facility under which it has the right,
subject to certain conditions, to receive advances against the transfer
of certain lease receivables. The facility was increased to $350.0
million in October 2000. The advances are funded either by a bank
sponsored conduit facility vehicle via the issuance of commercial paper
or by committed financial institutions. Borrowings under the facility
are secured by the lease receivables and leased equipment and are repaid
from the cash flows of the lease receivables. The facility may be
renewed annually, and advances on the facility are due over the next six
years with principal payments determined based upon the related
underlying leases. Interest on the facility is based on the floating
commercial paper
F-25
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rate or LIBOR plus a margin (an effective rate of 5.60% and 6.13% at
February 23, 2001 and February 25, 2000, respectively). Lease payments on
the underlying lease receivables are based upon fixed interest rates.
Therefore, to hedge the exposure to changes in interest rates, the Company
entered into interest rate swaps in conjunction with each borrowing that
effectively provides a 6.74% and 7.09% fixed rate for borrowings on the
facility at February 23, 2001 and February 25, 2000, respectively. For more
information regarding interest rate swaps, see Note 14.
(4) In August 1999, the Company established an unsecured committed multi-
currency revolving credit facility with various financial institutions
under which it may borrow up to euro ("EUR") 200.0 million or its
equivalent in optional currencies. The agreement is comprised of two
tranches; Tranche A is a EUR 75.0 million, 364-day revolving facility
and Tranche B is a EUR 125.0 million five-year term facility. Tranche A
facility borrowings, which amounted to $67.9 million and $75.5 million
(EUR 72.0 million and EUR 75.0 million) at February 23, 2001 and
February 25, 2000, respectively, mature at various dates throughout the
year depending upon the borrowing terms. In August 2000, Tranche A was
renewed for an additional 364-day term. Tranche B facility borrowings,
which amounted to $99.0 million and $76.5 million (EUR 105.0 million and
EUR 76.0 million) at February 23, 2001 and February 25, 2000,
respectively, effectively mature at the end of the facility term.
Interest on each borrowing, which is due no later than the maturity of
such borrowing, is based on EURIBOR, plus a margin for the applicable
borrowing term (an effective rate of 5.12% and 3.59% at February 23,
2001 and February 25, 2000, respectively, for Tranche A borrowings; and
5.02% and 3.63% at February 23, 2001 and February 25, 2000,
respectively, for Tranche B borrowings.) The agreement contains certain
covenants, which include, among others, minimum levels of tangible net
worth, interest coverage and debt ratio.
To reduce its exposure to adverse changes in interest rates on long-term
borrowings, the Company has entered into interest rate swap and cap
agreements in the amount of Tranche B borrowings which effectively produce
a 3.06% fixed interest rate as long as the 12-month EURIBOR rate remains
between 3.06% and 5.00%. When the 12-month EURIBOR is less than 3.06% or
greater than 5.00%, the Company pays a floating rate based on the 12-month
EURIBOR. The Company's effective interest rate on Tranche B borrowings
including the effect of swaps and caps approximated 3.06% at February 23,
2001.
Additionally, the Company has entered into agreements with certain foreign
financial institutions which provide for borrowings on unsecured non-
committed short-term credit facilities approximating $47.2 million, with
interest rates determined by agreement at the time of borrowing. Borrowings
on these agreements amounted to $26.2 million and $13.8 million at February
23, 2001 and February 25, 2000, respectively.
(5) Notes payable represents foreign borrowings payable to banks and others,
including capitalized lease obligations, collateralized by the
underlying leased assets. Certain agreements contain covenants, which
include, among others, minimum levels of tangible net worth, interest
coverage and debt ratio.
Subsequent to the 2001 year end, the Company established two unsecured
committed multi-currency revolving credit facilities with various financial
institutions under which it may borrow up to $200.0 million under each
facility for a total of $400.0 million. One facility has a 364-day term and
the other facility has a three-year term. These facilities replaced both
the $200.0 million 364-day unsecured committed revolving credit facility
entered into in April 1999 and the EUR 200.0 million unsecured committed
multi-currency revolving credit facility entered into in August 1999.
Borrowings under these facilities mature at various dates throughout the
year depending upon the borrowing terms, which range from one to six months
as selected by the Company, subject to certain limitations. Interest on
committed borrowings, which is due no later than the maturity of such
borrowings, is based on LIBOR plus a margin or a base rate, as selected by
the Company. The agreements which, subject to certain conditions, may be
renewed, contain certain covenants which include, among others, minimum
levels of tangible net worth, interest coverage and debt ratio.
F-26
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Annual maturities on short-term borrowings and long-term debt are as
follows (in millions):
Year Ending Amount
----------- ------
2002.................................................................. $209.7
2003.................................................................. 89.6
2004.................................................................. 62.8
2005.................................................................. 141.2
2006.................................................................. 21.5
Thereafter............................................................ 12.4
------
$537.2
======
Total cash paid for interest on short-term borrowings and long-term debt
amounted to $32.5 million, $10.6 million and zero for 2001, 2000 and 1999,
respectively.
10. EMPLOYEE BENEFIT PLAN OBLIGATIONS
Employee benefit plan obligations consist of (in millions):
February 23, February 25,
2001 2000
------------ ------------
Profit-sharing plans............................. $ 57.3 $ 67.8
Management incentive and deferred compensation
plans........................................... 54.3 58.4
Pension and postretirement plans:
Pension benefits............................... 32.1 31.6
Postretirement benefits........................ 188.8 175.9
------ ------
332.5 333.7
Current portion.................................. 84.8 90.0
------ ------
Long-term portion................................ $247.7 $243.7
====== ======
Profit-Sharing Plans
Substantially all North American employees are covered under the Steelcase
Inc. Employees' Profit-Sharing Retirement Plan and the Steelcase Inc.
Employees' Money Purchase Plan or under similar subsidiary plans. Annual
Company contributions under the Steelcase Inc. Employees' Profit-Sharing
Retirement Plan and similar subsidiary plans are discretionary and declared by
the Compensation Committee at the end of each fiscal year. Under the Steelcase
Inc. Employees' Money Purchase Plan, annual Company contributions are required
in the amount of 5% of eligible annual compensation. Total expense under these
plans approximated $51.8 million, $65.9 million and $70.1 million for 2001,
2000 and 1999, respectively.
Management Incentive and Deferred Compensation Plans
The Management Incentive Plan is an annual and long-term incentive
compensation program that provides eligible key employees with cash payments
and Company stock options based on the achievement by the Company of specified
financial performance goals measured by Economic Value Added ("EVA"), as
defined in the plan. Annual bonuses are payable after the end of the fiscal
year and therefore, are included in accrued compensation in the accompanying
consolidated balance sheets. 75% of the long-term bonus amounts are paid out
over a subsequent three-year period and 25% are paid in Company stock options,
which vest over 3 years.
The Company also has future retirement obligations to certain employees in
return for agreeing not to receive part of their compensation for a period of
three to five years. Compensation withheld has primarily been invested in
corporate-owned life insurance, which is expected to be sufficient to cover
such future obligations.
Management incentive and deferred compensation expense approximated $23.9
million, $23.9 million and $28.9 million for 2001, 2000 and 1999,
respectively.
F-27
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pension and Postretirement Benefits
The Company's pension plans include a non-qualified supplemental retirement
plan that is limited to a select group of management or highly compensated
employees. The obligations under this plan and other defined benefit plans at
its subsidiaries are included in the pension disclosure.
The Company and certain of its subsidiaries have postretirement benefit
plans that provide medical and life insurance benefits to retirees and
eligible dependents. The Company accrues the cost of postretirement insurance
benefits during the service lives of employees based on actuarial calculations
for each plan.
The following sets forth the changes in the plans' benefit obligations,
fair value of assets and funded status (in millions):
Pension Plans Postretirement Plans
------------------------- -------------------------
February 23, February 25, February 23, February 25,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Change in benefit
obligations:
Benefit obligations,
beginning of year........ $ 71.8 $ 38.0 $ 205.3 $ 192.2
Service cost.............. 2.8 3.6 4.9 5.7
Interest cost............. 4.7 4.6 16.0 13.2
Amendments................ (0.7) (1.3) (2.7) (6.0)
Net actuarial (gain) loss
for prior year........... 0.8 (2.7) 25.6 7.9
Plan participant's
contributions............ 0.2 0.2 2.3 2.5
Acquisitions (see Note
18)...................... -- 33.5 -- --
Currency changes.......... (2.8) 0.4 -- --
Benefits paid............. (4.3) (4.5) (11.0) (10.2)
------ ------ ------- -------
Benefit obligations, end
of year.................. 72.5 71.8 240.4 205.3
------ ------ ------- -------
Change in plan assets:
Fair value of plan assets,
beginning of year........ 37.8 14.8 -- --
Actual return on plan
assets................... 0.4 1.2 -- --
Employer contributions.... 6.0 2.5 8.7 7.6
Plan participant's
contributions............ 0.2 1.0 2.3 2.4
Acquisitions (see Note
18)...................... -- 21.1 -- --
Currency changes.......... (2.0) 1.3 -- --
Benefits paid............. (3.9) (4.1) (11.0) (10.0)
------ ------ ------- -------
Fair value of plan assets,
end of year.............. 38.5 37.8 -- --
------ ------ ------- -------
Funded status............. (34.0) (34.0) (240.4) (205.3)
Unrecognized prior service
cost..................... 2.9 2.6 (2.6) --
Unrecognized transition
obligation............... (1.4) 0.2 1.2 1.6
Unrecognized net actuarial
loss..................... 2.0 0.7 53.0 27.8
------ ------ ------- -------
Net amount recognized..... $(30.5) $(30.5) $(188.8) $(175.9)
====== ====== ======= =======
Amounts recognized in the
Consolidated balance
sheets:
Accrued benefit plan
obligations.............. $(32.1) $(31.6) $(188.8) $(175.9)
Prepaid pension costs..... 1.2 0.9 -- --
Intangible assets......... 0.6 0.2 -- --
Accumulated other
comprehensive income..... (0.2) -- -- --
------ ------ ------- -------
Net amount recognized..... $(30.5) $(30.5) $(188.8) $(175.9)
====== ====== ======= =======
F-28
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following sets forth the plans' weighted-average assumptions and
components of expense (in millions):
Year Ended
-----------------------------------------------------------------------------
Pension Plans Postretirement Plans
-------------------------------------- --------------------------------------
February 23, February 25, February 26, February 23, February 25, February 26,
2001 2000 1999 2001 2000 1999
------------ ------------ ------------ ------------ ------------ ------------
Components of expense:
Service cost............ $ 2.2 $ 3.6 $ 2.0 $ 4.9 $ 5.7 $ 5.5
Interest cost........... 4.2 4.6 2.5 16.0 13.2 12.5
Amortization of prior
year service cost...... 0.1 -- -- -- 0.6 0.8
Expected return on plan
assets................. (2.7) (2.5) (0.9) -- -- --
Amortization of
transition obligation.. -- 0.3 0.3 0.2 0.5 --
Recognized net actuarial
(gain) loss............ (0.8) 0.1 (0.2) 0.6 0.2 0.2
----- ----- ----- ------ ------ ------
Net expense............. $ 3.0 $ 6.1 $ 3.7 $ 21.7 $ 20.2 $ 19.0
===== ===== ===== ====== ====== ======
Weighted-average
assumptions:
Discount rate........... 6.50% 7.00% 7.00% 7.50% 8.00% 7.00%
Expected return on plan
assets................. 7.00% 5.00% 7.50% -- -- --
Rate of salary
progression............ 4.50% 5.25% 4.50% 4.50% 4.50% 4.50%
The assumed health care cost trend was 7.5% for 2001 gradually declining to
5.0% in 2006 and thereafter. A one percentage point change in assumed health
care cost trend rates would have the following effects (in millions):
One percentage One percentage
point increase point decrease
-------------- --------------
Effect on total of service and interest cost
components................................. $ 1.9 $ (1.8)
Effect on postretirement benefit
obligation................................. $22.6 $(20.5)
F-29
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. STOCK INCENTIVE PLANS
The Stock Incentive Plans for employees and affiliates of the Company
include the Steelcase Inc. Employee Stock Purchase Plan (the "Purchase Plan")
and the Steelcase Inc. Incentive Compensation Plan (the "Incentive
Compensation Plan").
Employee Stock Purchase Plan
The Company reserved a maximum of 1,500,000 shares of Class A Common Stock
for use under the Purchase Plan, which is intended to qualify under Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to
the Purchase Plan, each eligible employee, as of the start of any purchase
period, will be granted an option to purchase a designated number of shares of
Class A Common Stock. The purchase price of shares of Class A Common Stock to
participating employees is designated by the Compensation Committee but in no
event shall be less than 85% of the lower of the fair market values of such
shares on the first and last trading days of the relevant purchase period.
However, no employee may purchase shares under the Purchase Plan in any
calendar year with an aggregate fair market value (as determined on the first
day of the relevant purchase period) in excess of $25,000. As of February 23,
2001, 454,721 shares remain available for purchase under the Purchase Plan.
The Board may at any time amend or terminate the Purchase Plan.
Incentive Compensation Plan
In 1998, the Company reserved for issuance under the Incentive Compensation
Plan 6,135,187 shares of Class A Common Stock. In June 2000, the shareholders
approved an amendment to the Plan which allowed for an additional 8,000,000
shares of Class A Common Stock to be issued. The Compensation Committee or its
designee has full authority, subject to the provisions of the Incentive
Compensation Plan, to determine, among other things, the persons to whom
awards under the Incentive Compensation Plan ("Awards") will be made, the
exercise price, vesting, size and type of such Awards, and the specific
performance goals, restrictions on transfer and circumstances for forfeiture
applicable to Awards. Awards under the Plan vest over a period of three to
five years.
Awards may be made to employees and non-employee directors of the Company
or others as designated by the Compensation Committee. A variety of Awards may
be granted under the Incentive Compensation Plan including stock options,
stock appreciation rights ("SARs"), restricted stock, performance shares,
performance units, cash-based awards, phantom shares and other share-based
awards as the Compensation Committee may determine. Stock options granted
under the Incentive Compensation Plan may be either incentive stock options
intended to qualify under Section 422 of the Code or non-qualified stock
options not so intended. The Board may amend or terminate the Incentive
Compensation Plan.
In the event of a "change of control," as defined in the Incentive
Compensation Plan, (i) all outstanding options and SARs granted under the
Incentive Compensation Plan will become immediately exercisable and remain
exercisable throughout their entire term, (ii) any performance-based
conditions imposed with respect to outstanding Awards shall be deemed to be
fully earned and a pro rata portion of each such outstanding Award granted for
all outstanding performance periods shall become payable in shares of Class A
Common Stock, in the case of Awards denominated in shares of Class A Common
Stock, and in cash, in the case of Awards denominated in cash, with the
remainder of such Award being canceled for no value and (iii) all restrictions
imposed on restricted stock that are not performance-based shall lapse.
F-30
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information relating to the Company's stock options, which pursuant to APB
Opinion No. 25 did not result in any material compensation expense recognized
by the Company, is as follows:
Number of Weighted Average Option
Shares Price Per Share
--------- -----------------------
Unexercised options outstanding:
February 27, 1998......................... 2,661,000 $28.00
Options granted......................... 9,350 $36.50
Options exercised....................... -- --
Options forfeited....................... -- --
---------
Unexercised options outstanding:
February 26, 1999......................... 2,670,350 $28.03
Options granted......................... 1,609,500 $14.35
Options exercised....................... -- --
Options forfeited....................... (202,250) $24.68
---------
Unexercised options outstanding:
February 25, 2000......................... 4,077,600 $22.80
Options granted......................... 2,106,026 $10.61
Options exercised....................... (4,899) $13.94
Options forfeited....................... (210,410) $18.37
---------
Unexercised options outstanding:
February 23, 2001......................... 5,968,317 $18.66
=========
Exercisable options:
February 26, 1999......................... 289,100 $28.00
February 25, 2000......................... 579,135 $28.01
February 23, 2001......................... 1,529,009 $23.59
The following table summarizes information regarding stock options as of
February 23, 2001:
Outstanding Options Exercisable Options
------------------------------------------------ --------------------------
Weighted-Average
Range of Remaining Contractual Weighted-Average Weighted-Average
Exercise Prices Shares Term (Years) Exercise Price Shares Exercise Price
--------------- --------- --------------------- ---------------- --------- ----------------
$10.50
to
$20.00 3,520,467 8.7 $12.14 491,739 $14.27
$20.01
to
$36.50 2,447,850 7.0 $28.03 1,037,270 $28.02
--------- ---------
$10.00
to
$36.50 5,968,317 8.0 $18.66 1,529,009 $23.59
========= =========
The price per share of options outstanding ranged from $10.50 to $36.50 at
February 23, 2001, $13.94 to $36.50 at February 25, 2000 and $28.00 to $36.50
at February 26, 1999. As of February 23, 2001, there were 8,161,971 options
available for future issuances.
F-31
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 123 Pro Forma Data
As discussed in Note 2, the Company accounts for its Stock Incentive Plans
in accordance with APB Opinion No. 25. Accordingly, no compensation expense
has been recognized for the employee stock option grants. If the Company had
recognized compensation expense based upon the fair value of the employee
stock option grants at the date of grant and their respective vesting periods,
as prescribed by SFAS No. 123, the Company's net income and earnings per share
would have been as follows (in millions, except per share amounts):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Pro forma net income................ $187.6 $181.5 $219.6
Pro forma earnings per share (basic
and diluted)....................... $ 1.26 $ 1.19 $ 1.43
The fair value of each option grant was estimated using the Black-Scholes
option pricing model. Following are the weighted average assumptions for the
option grants:
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Risk-free interest rate............... 6.4% 5.2% 5.6%
Dividend yield........................ 3.0% 3.1% 1.4%
Volatility............................ 44.4% 31.6% 32.4%
Average expected term (years)......... 4.0 4.0 6.8
Fair value of options granted......... $3.66 $3.59 $14.16
12. OTHER INCOME, NET
Other income, net consists of (in millions):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Interest income..................... $ 8.3 $ 6.4 $13.8
Interest income from tax
litigation......................... -- -- 5.8
Gain (loss) on dealer transitions... (24.7) 8.3 (2.2)
Gain on disposal of property and
equipment.......................... 26.9 10.0 --
Gain on sale of investments......... 2.8 7.0 --
Miscellaneous-net................... 2.0 1.1 (5.9)
------ ----- -----
$ 15.3 $32.8 $11.5
====== ===== =====
F-32
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. INCOME TAXES
The provision for income taxes on income before equity in net income of
joint ventures and dealer transitions consists of (in millions):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Current income taxes:
Federal............................. $ 93.1 $ 98.9 $115.7
State and local..................... 6.3 4.5 9.0
Foreign............................. 30.7 19.2 2.9
------ ------ ------
130.1 122.6 127.6
------ ------ ------
Deferred income taxes:
Federal............................. -- (4.6) (3.1)
State and local..................... 0.6 (0.1) (0.3)
Foreign............................. (19.8) (2.4) 0.7
------ ------ ------
(19.2) (7.1) (2.7)
------ ------ ------
$110.9 $115.5 $124.9
====== ====== ======
The Company has not provided for U.S. income taxes on undistributed
earnings of foreign subsidiaries totaling $133.2 million at February 23, 2001,
as foreign subsidiary undistributed earnings are considered permanently
invested in those businesses. These amounts would be subject to possible U.S.
taxation only if remitted as dividends. Foreign withholding taxes could be
payable upon remittance of these earnings. Subject to certain limitations, the
withholding taxes would then be available for use as credit against the U.S.
tax liability. However, the determination of the hypothetical amount of
unrecognized deferred U.S. taxes on undistributed earnings of foreign entities
is not practicable.
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
deferred income taxes relate to the following (in millions):
February 23, February 25,
2001 2000
------------ ------------
Deferred income tax assets:
Employee benefit plan obligations................ $112.4 $112.2
Reserves and allowances.......................... 56.4 50.9
Foreign losses................................... 8.5 3.6
Other............................................ -- 7.1
------ ------
Total deferred income tax assets................... 177.3 173.8
Deferred income tax liabilities:
Property and equipment........................... (42.9) (45.4)
Intangible assets................................ (12.3) (24.0)
Net leased assets................................ (10.8) (12.1)
------ ------
Net deferred income tax assets..................... 111.3 92.3
Current portion.................................... 85.7 78.1
------ ------
Non-current portion................................ $ 25.6 $ 14.2
====== ======
The Company has recorded a deferred tax asset as of February 23, 2001 of
$8.5 million reflecting the benefit of foreign operating loss carry-forwards
that expire at various dates through 2007. Realization is dependent on
F-33
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
future taxable income of the related foreign operations and tax planning
strategies available to the Company. Although realization is not assured,
management believes it is more likely than not that the deferred tax assets
will be realized.
The effective income tax rate on income before equity in net income of
joint ventures and dealer transitions varied from the statutory federal income
tax rate as set forth in the following table:
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Statutory federal income tax rate... 35.0% 35.0% 35.0%
State and local income taxes........ 1.8 1.6 2.5
Goodwill and intangible asset
amortization and write-offs........ 1.6 1.0 0.3
Research and development credit..... (0.3) (0.3) (0.4)
Foreign taxes....................... (3.2) 2.0 (0.1)
Other............................... 1.6 (0.3) (0.3)
---- ---- ----
Effective income tax rate........... 36.5% 39.0% 37.0%
==== ==== ====
The Company made income tax payments of $125.8 million, $123.2 million and
$59.3 million during 2001, 2000 and 1999, respectively.
14. FINANCIAL INSTRUMENTS, CONCENTRATIONS OF CREDIT RISK AND OFF-BALANCE-
SHEET RISK
Financial instruments, which potentially subject the Company to
concentrations of investment and credit risk, primarily consist of cash
equivalents, investments, accounts receivable and notes receivable and leased
assets, corporate-owned life insurance policies, accounts payable and short-
term borrowings and long-term debt. The Company places its cash with high-
quality financial institutions and invests in high-quality securities and
commercial paper. The Company limits its exposure, by policy, to any one
financial institution or debtor.
The Company's customers consist primarily of independent dealers in the
office environment industry. They are dispersed globally, but primarily across
all North American and several European geographic areas. All probable
uncollectable accounts and notes receivable and leased assets have been
appropriately considered in establishing the allowances for losses. In
general, the Company obtains security interests in the assets of the customer.
These security interests are generally secondary to the interest of the
customer's primary lenders.
Guarantees of debt obligations are conditional commitments issued by the
Company to guarantee the performance of certain unconsolidated dealers and
joint ventures to a third party. These guarantees are primarily issued to
support private borrowing arrangements. The Company has guaranteed
approximately $45.9 million and $49.7 million of debt obligations of
unconsolidated dealers and joint ventures as of February 23, 2001 and February
25, 2000, respectively. Although this amount represents the maximum exposure
to loss, management believes the actual risk of loss to be insignificant.
The Company uses derivative financial instruments, principally forward
contracts and swaps and interest rate swaps and caps, primarily to reduce its
exposure to adverse fluctuations in foreign currency exchange rates and
interest rates. The Company does not use derivative financial instruments for
speculative or trading purposes.
Interest rate swap contracts and caps are used to adjust the proportion of
total debt that is subject to variable interest rates. The contract is
considered a hedge against possible changes in the amount of future cash flows
associated with interest payments of existing variable-rate obligations. Under
an interest rate swap contract, the Company agrees to receive an amount equal
to a specific variable interest rate times the same principal amount. In
return the Company will pay an amount equal to a specified fixed interest rate
times the same principal amount. The principal amounts are not exchanged. No
other cash payments are made unless the
F-34
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
See Note 9 for more information regarding interest rate swaps and caps. The
net effect on the Company's 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 by the Company to hedge the
risk that unremitted or future revenue owed to the Company for the sale or
anticipated sale, and the risk that future payments by the Company for the
purchase or anticipated purchase of products abroad, may be adversely affected
by changes in foreign currency exchange rates. As part of its overall strategy
to manage the level of exposure to the risk of foreign exchange rate
fluctuations, the company hedges a portion of its foreign currency exposures
anticipated over the ensuing twelve-month period. The Company hedges 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, the Company used 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. Gains and losses on foreign exchange contracts are generally
included as a component of interest and other, net, in the Company's
consolidated statement of operations. The fair market value of forward
contracts and swaps and interest rate swaps and caps was not material at
February 23, 2001 or February 25, 2000.
15. COMMITMENTS AND CONTINGENCIES
The Company leases certain sales offices, showrooms and equipment under
non-cancelable operating leases that expire at various dates through 2018. In
December 2000, the Company entered into a sale-leaseback arrangement in
regards to their New York showroom facility. Under the arrangement, the
Company sold the facility and entered into a lease arrangement for an initial
period of 17 years. The leaseback has been accounted for as an operating
lease. The gain of $32.3 million realized in this transaction has been
deferred and will be amortized against rent expense over the term of the
initial lease. Minimum annual rental commitments under non-cancelable
operating leases that have initial or remaining lease terms in excess of one
year as of February 23, 2001, are as follows (in millions):
Year Ending Amount
----------- ------
2002................................................................ $ 36.6
2003................................................................ 33.2
2004................................................................ 30.1
2005................................................................ 26.5
2006................................................................ 20.7
Thereafter.......................................................... 113.5
------
$260.6
======
Rent expense under all operating leases approximated $46.1 million, $39.8
million and $42.5 million for 2001, 2000 and 1999, respectively.
The Company is involved in litigation from time to time in the ordinary
course of its business. Based on known information, management believes that
the Company is not currently party to any material litigation.
16. 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. The Company operates on a worldwide basis
within three reportable segments: two geographic furniture segments and a
Financial Services segment. In prior years, the Company reported the third
segment as Services and other businesses, which included financial services,
as
F-35
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
well as, the Company's IDEO and Attwood subsidiaries. In 2001, the Financial
Services segment has grown to comprise a significant portion of the Company's
balance sheet and, as such is now reported as a separate segment. The North
America furniture segment continues to include the U.S., Canada and the
Steelcase Design Partnership but now also includes IDEO and Attwood. The
International furniture segment continues to include the rest of the world,
with the major portion of the operations in Europe. Accordingly, prior year
segment information presented below has been restated to reflect the new
reporting structure.
The Company evaluates performance and allocates resources based on
operating income. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies
included in Note 2.
The following sets forth reportable segment data reconciled to the
consolidated financial statements for the three years ended February 23, 2001,
February 25, 2000 and February 26, 1999 (in millions):
Office Furniture
--------------------------- Financial
2001 North America International Services Eliminations Consolidated
---- ------------- ------------- --------- ------------ ------------
Revenues................ $3,098.2 $709.4 $ 78.2 $ -- $3,885.8
Operating income........ 246.6 38.5 8.0 13.3 306.4
Total assets............ 1,832.1 695.7 629.2 -- 3,157.0
Capital expenditures.... 226.7 33.8 -- -- 260.5
Depreciation &
amortization........... 125.6 36.5 0.4 -- 162.5
2000
----
Revenues................ $2,718.7 $721.5 $ 52.4 $(148.3) $3,344.3
Operating income........ 234.5 31.4 2.6 6.0 274.5
Total assets............ 1,916.5 679.2 441.9 -- 3,037.6
Capital expenditures.... 178.3 14.5 -- (4.0) 188.8
Depreciation &
amortization........... 111.6 35.1 0.1 (5.0) 141.8
1999
----
Revenues................ $2,611.7 $622.2 $ 34.5 $(506.9) $2,761.5
Operating income........ 303.0 39.1 2.5 (18.7) 325.9
Total assets............ 1,822.6 694.4 325.2 (659.7) 2,182.5
Capital expenditures.... 167.8 31.1 -- (28.5) 170.4
Depreciation &
amortization........... 105.6 23.8 0.1 (22.5) 107.0
For the first quarter of 2000 and for full year 1999, International office
furniture reflects the accounts of Steelcase Strafor, the Company's 50% owned
joint venture in Europe, as if the joint venture had been consolidated. As
described in Note 18, the remaining 50% equity interest of Steelcase Strafor
was purchased effective March 31, 1999. Accordingly, Steelcase Strafor's
results of operations have been consolidated with the Company's results of
operations from the acquisition date. Eliminations include the removal of
Steelcase Strafor unconsolidated financial results in order to reconcile with
the Company's consolidated totals. In addition, eliminations also include
intercompany interest expense between the Financial Services segment and the
North America segment, which amount to $13.3 million, $16.4 million and $14.6
million in 2001, 2000 and 1999, respectively.
F-36
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reportable geographic information is as follows (in millions):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues:
United States....................... $3,046.4 $2,669.7 $2,535.5
Foreign locations(1)................ 839.4 674.6 226.0
-------- -------- --------
Total............................. $3,885.8 $3,344.3 $2,761.5
======== ======== ========
Long-lived Assets:
United States....................... $1,041.1 $1,070.7 $ 953.2
Foreign locations(1)................ 467.1 464.8 31.9
-------- -------- --------
Total............................. $1,508.2 $1,535.5 $ 985.1
======== ======== ========
- --------
(1) Information for Steelcase Strafor prior to the Company's March 31, 1999
acquisition of the remaining 50% equity interest in Steelcase Strafor
has been excluded (see Note 18).
Revenues are attributable to countries based on the location of the
customer.
17. FINANCIAL SERVICES SEGMENT
The Financial Services segment has grown to become a significant portion of
the Company's balance sheet and, as such is now reported as a separate
segment. Financial Services provides financing services to Steelcase dealers
and their customers to facilitate the purchase of Steelcase products in the
United States, Canada and Europe. Financial Services provides both dealer
financing and lease financing.
The dealer financing portion of the segment provides a variety of financial
services to Steelcase dealers to support their business goals and foster
stability in the Steelcase distribution network. Dealer financing includes
three distinct programs: project financing, asset-based lending and term
notes. Through these programs, Financial Services helps dealers finance
capital equipment, Steelcase purchases and establish working lines of credit.
Lease financing provides leasing and financing alternatives for the
acquisition of Steelcase products.
F-37
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth condensed financial information of the
Financial Services segment as of February 23, 2001 and February 25, 2000 (in
millions):
Year Ended
-------------------------
February 23, February 25,
2001 2000
------------ ------------
Assets(1):
Project financing.................................. $ 34.0 $ 14.8
Asset-based lending................................ 95.7 75.4
Term financing..................................... 16.3 11.9
Leased assets...................................... 449.8 349.1
Allowance for losses............................... (10.6) (8.2)
------ ------
Notes receivable and leased assets, net............ 585.2 443.0
Other assets....................................... 1.8 2.6
------ ------
Total assets....................................... $587.0 $445.6
====== ======
Liabilities and Shareholders' Equity:
Bank debt(2)....................................... $259.6 $184.9
Intercompany debt.................................. 233.1 187.9
Other liabilities.................................. 12.3 11.0
Shareholders' equity............................... 82.0 61.8
------ ------
Total liabilities and shareholders' equity......... $587.0 $445.6
====== ======
- --------
(1) See Note 6, Notes receivable and leased assets. Note 6 disclosures are
for the Company in total which also include but are not limited to
financing ownership changes and the restructuring of debt. The amounts
presented in the above schedule relate to the Financial Services segment
only.
(2) See Note 9, Short-term borrowings and long-term debt. Note 9 disclosures
are for the Company in total. The amounts presented in the above
schedule relate to the Financial Services segment only.
Financial Services revenues and operating income for the past three years
are shown in Note 16, Operating Segments. The following table sets forth an
expanded summary of operations (in millions):
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Financing revenue................... $78.2 $52.4 $34.5
Financing expenses(3)............... 61.5 41.9 24.9
----- ----- -----
Net financing margin................ 16.7 10.5 9.6
General and administrative
expenses........................... 8.7 7.9 7.1
----- ----- -----
Income before provision for income
taxes.............................. 8.0 2.6 2.5
Provision for income taxes.......... 2.9 1.1 1.0
----- ----- -----
Net income.......................... $ 5.1 $ 1.5 $ 1.5
===== ===== =====
- --------
(3) Financing expenses include interest expense, depreciation expense and
provision for credit losses, and are reflected in operating expenses in
the consolidated statements of income.
F-38
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. ACQUISITIONS
On April 22, 1999, Steelcase Inc., through its wholly-owned French
subsidiary, Steelcase SAS, acquired the 50% equity interest in Steelcase
Strafor held by its joint venture partner, Strafor Facom S.A. The purchase was
effective as of March 31, 1999. As a part of this transaction, the Company
also acquired Strafor Facom S.A.'s 5% equity interest in Werndl, 3% equity
interest in Pohlschroder GmbH and 50% equity interest in Details S.A. The
purchase price paid to Strafor Facom S.A. for these equity interests
approximated $230 million, including transaction costs of approximately $5
million, and was funded by approximately $78 million of existing cash
balances, $111 million of short-term borrowings and $41 million of long-term
debt.
As a result of this acquisition, which was accounted for under the purchase
method of accounting, Steelcase Strafor is now wholly-owned by the Company.
Accordingly, the February 25, 2000 consolidated balance sheet includes the
accounts and balances of Steelcase Strafor, including a $25.7 million
contingent liability recorded in accrued other expenses and subsequently paid
as of the second quarter 2001, for additional purchase price resulting from
Steelcase Strafor's acquisition of Werndl in calendar year 1998. Additionally,
the results of operations of Steelcase Strafor, which is accounted for on a
two month lag, from April 1, 1999 through December 31, 1999 have been
consolidated with the Company's results of operations.
The Company recorded intangible assets as follows resulting from the
consolidation of Steelcase Strafor (in millions):
Amortization Annual
Period Amount Amortization
------------- ------ ------------
Goodwill................................... 40 years $275.4 $ 6.9
Trademarks................................. 2 to 10 years 25.5 3.8
Non-compete agreement...................... 3.5 years 10.8 3.1
The following unaudited pro forma data summarizes the combined results of
operations of the Company and Steelcase Strafor as if the acquisition had
occurred at the beginning of the twelve month period ended February 26, 1999,
and includes the effect of purchase accounting adjustments. In addition, the
Steelcase Strafor results of operations include the pro forma effects of the
acquisition of Werndl, a business acquired by Steelcase Strafor on December
16, 1998. No adjustment has been included in the pro forma amounts for any
anticipated cost savings or other synergies (in millions, except per share
amounts):
February 25, February 26,
2000 1999
------------ ------------
Results of Operations:
Revenues......................................... $3,492.6 $3,363.4
Gross profit..................................... 1,178.7 1,195.6
Operating income................................. 283.4 363.7
Net income....................................... 182.2 215.6
Earnings per share (basic and diluted)........... 1.19 1.40
Effective August 31, 1999, the Company acquired an 89% equity interest in a
significant dealer located in the Northeast United States, for $33.7 million.
Because no transition plan had been adopted or was in the process of being
adopted on the acquisition date, the transaction was accounted for under the
purchase method of accounting. Accordingly, this dealer's results of
operations subsequent to August 31, 1999 have been consolidated with the
Company's results of operations. The transaction was completed for $24.0
million in cash and $9.7 million in a note payable, and resulted in the
Company recording an intangible asset of $28.0 million for the excess of the
purchase price over the estimated fair value of the net assets acquired, which
is being amortized over 15 years.
F-39
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective September 4, 1999, the Company purchased the remaining 50% equity
interest of Clestra Hauserman, Inc. ("Clestra") for $6.4 million. Clestra,
based in Solon, Ohio, designs, manufactures, installs and services moveable
and demountable steel walls for office interiors. The transaction, which was
completed for $5.2 million in cash and $1.2 million in settlement of a note
receivable, was accounted for under the purchase method of accounting. As a
result, the Company reduced long term assets by $8.1 million for the excess of
the estimated fair value of the net assets acquired over the purchase price,
and the results of operations of Clestra subsequent to September 4, 1999 have
been consolidated with the Company's results of operations. The Company's 50%
equity interest in the net loss of Clestra through September 4, 1999 is
included in equity in net income of joint ventures and dealer transitions in
the accompanying condensed consolidated statements of income.
Effective January 4, 1999, the Company acquired certain assets and
liabilities of J.M. Lynne Company, a New York Corporation, which designs and
distributes vinyl wall coverings for commercial environments. The acquisition
of J.M. Lynne Company was completed for $36.0 million in cash and was
accounted for under the purchase method of accounting. As a result of this
acquisition, the Company recorded an intangible asset of $29.4 million for the
excess purchase price over the estimated fair value of net assets acquired,
which is being amortized over 15 years.
19. UNAUDITED QUARTERLY RESULTS
The following sets forth summary unaudited information on a quarterly basis
for the Company (in millions, except per share amounts):
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter Total
---- ------- ------- ------- ------- --------
Revenues........................... $953.7 $995.9 $993.8 $942.4 $3,885.8
Gross profit....................... 333.9 343.5 337.9 293.4 1,308.7
Operating income................... 97.4 92.7 79.2 37.1 306.4
Net income......................... 62.6 53.7 51.7 25.7 193.7
Earnings per share (basic)......... 0.41 0.36 0.35 0.17 1.30
Earnings per share (diluted)....... 0.41 0.36 0.35 0.17 1.29
2000
----
Revenues........................... $697.6 $838.8 $888.3 $919.6 $3,344.3
Gross profit....................... 259.2 288.5 301.6 281.6 1,130.9
Operating income................... 84.4 68.9 78.4 42.8 274.5
Net income......................... 56.7 38.2 45.3 44.0 184.2
Earnings per share (basic)......... 0.37 0.25 0.30 0.29 1.21
Earnings per share (diluted)....... 0.37 0.25 0.30 0.29 1.21
Effective March 31, 1999, Steelcase Inc. acquired the remaining 50% equity
interest in Steelcase Strafor. Accordingly, the results of operations of
Steelcase Strafor, which was accounted for on a two month lag, from April 1,
1999 through December 31, 1999 have been consolidated with the Company's
results of operations. See Note 18.
During the fourth quarter of 2001, the Company recorded a non-recurring
charge of $23.9 million ($15.2 million net of tax) related to facility
closings, production relocation and workforce reductions. Additionally, the
Company recognized a non-recurring non-operating gain of $18.3 million ($11.6
million net of tax) related to the sale of real estate. This was largely
offset by a non-recurring non-operating charge of $18.8 million ($11.9 million
net of tax) related to reserves for dealer transition financing. The fourth
quarter results were also positively impacted by the reduction of the
Company's annual effective tax rate to 36.5 percent.
F-40
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the first quarter of 2001, the Company recognized a non-recurring
non-operating gain of $8.8 million ($5.6 million net of tax) related to the
sale of real estate.
During the fourth quarter of 2000, the Company recorded a non-recurring
charge of $24.5 million ($15.0 million net of tax) to cost of sales for
expenses related to the field retrofit of beltways and insulation materials
within installed Pathways products. Additionally, the Company sold certain
non-operating assets and had investment gains resulting in non-recurring non-
operating gains of $15.2 million ($9.3 million net of tax).
F-41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
STEELCASE INC.
GRAND RAPIDS, MICHIGAN
We have audited the accompanying consolidated balance sheets of Steelcase
Inc. and subsidiaries as of February 23, 2001 and February 25, 2000, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended February 23, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Steelcase
Inc. and subsidiaries as of February 23, 2001 and February 25, 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended February 23, 2001, in conformity with accounting
principles generally accepted in the United States of America.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
March 16, 2001
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements and other financial information
contained in this annual report were prepared by management in conformity with
generally accepted accounting principles. In preparing these financial
statements, reasonable estimates and judgments have been made when necessary.
Management is responsible for establishing and maintaining a system of
internal control designed to provide reasonable assurance as to the integrity
and reliability of the financial records. The concept of reasonable assurance
recognizes that there are inherent limitations in any control system and that
the cost of maintaining a control system should not exceed the expected
benefits to be derived therefrom. Management believes its system of internal
control effectively meets its objective of reliable financial reporting.
The Audit Committee of the Board of Directors meets periodically with
management and the independent accountants to review and discuss audit
findings and other financial and accounting matters. The independent
accountants have free access to the Audit Committee, with and without
management present, to discuss the results of their audit work.
The Company's independent accountants are engaged to audit the Company's
consolidated financial statements, in accordance with generally accepted
auditing standards for the purpose of expressing an opinion on the financial
statements.
James P. Hackett Alwyn Rougier-Chapman
President and Chief Executive Chief Financial Officer
Officer
James P. Keane
Senior Vice President, Finance
F-42
STEELCASE INC.
Market for Registrant's Common Equity and Related Stockholder Matters
The Class A Common Stock of the Company is listed on the New York Stock
Exchange under the symbol "SCS". The Class B Common Stock of the Company is
neither registered under the Securities Exchange Act of 1934 nor publicly
traded.
As of May 1, 2001, the Company had outstanding 32,635,033 shares of Class
A Common Stock with 13,285 shareholders of record thereof and 114,916,271
shares of Class B Common Stock with 218 shareholders of record thereof, in
each case not including persons or entities holding stock in nominee or street
name through brokers or banks.
The following table shows the price range of the Class A Common Stock, as
reported by the New York Stock Exchange, for the years ended February 23, 2001
and February 25, 2000.
Class A Common
Stock Price
Range
---------------
High Low
------- -------
Fiscal 2001
1st Quarter............................................... $12.625 $10.500
2nd Quarter............................................... $18.125 $12.000
3rd Quarter............................................... $17.625 $15.500
4th Quarter............................................... $15.625 $12.625
Fiscal 2000
1st Quarter............................................... $20.750 $13.625
2nd Quarter............................................... $20.000 $14.500
3rd Quarter............................................... $15.500 $12.250
4th Quarter............................................... $13.750 $10.250
The Company intends to continue to pay regular quarterly dividends.
However, the declaration and payment of dividends by the Company are subject
to the discretion of the Board and to compliance with applicable law. The
determination of the timing and amount of future dividends, if any, will
depend upon, among other things, the Company's results of operations,
financial condition, cash requirements, future business prospects, general
business conditions and other factors that the Board may deem relevant at the
time. See "Selected Financial Data" and Note 2 thereto. The aggregate
dividends paid in the years ended February 23, 2001 and February 25, 2000 are
set forth below (in millions):
Year Ending Total
----------- -----
2001........................................ $65.9
2000........................................ $67.3
F-43
[LOGO OF STEELCASE(R)]
C/O Proxy Services
P.O. Box 9112
Farmingdale, NY 11735
[PHONE ICON] VOTE BY TELEPHONE - 1-800-690-6903 Use a
touch-tone telephone to send your voting
instructions anytime before 11:59 p.m.
Eastern Daylight Time on June 24, 2001.
Have your proxy card available when you
call. You will be prompted to enter your
12-digit Control Number which is located
below and then follow the prerecorded
instructions to record your vote.
[COMPUTER ICON] VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting
instructions anytime before 11:59 p.m.
Eastern Daylight Time on June 24, 2001.
Have your proxy card available when you
access the web site. You will be
prompted to enter your 12-digit Control
Number which is located below and then
follow the voting instructions provided
on the web site to record your vote.
[ENVELOPE ICON] VOTE BY MAIL -
Mark, sing and date your proxy card and
return it in the postage-paid envelope
provided or return to Steelcase Inc.,
c/o ADP, 51 Mercedes Way, Edgewood, NY
11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
STEEL 1 KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
- --------------------------------------------------------------------------------
STEELCASE INC.
The Steelcase Inc. Board of Directors recommends a
vote FOR the following action or proposal. If you
sign and return this card without marking, this
proxy card will be treated as being FOR the
following proposal:
1. Election of four directors to serve for the applicable term of their
class and until their successors have been duly elected and qualified:
01) James P. Hackett
02) David W. Joos
03) Elizabeth Valk Long
04) P. Craig Welch, Jr.
To withhold authority to vote for
any individual nominee(s), mark
For Withhold For All the "For All Except" box and
All All Except write the nominee's number on the
line below.
[ ] [ ] [ ]
---------------------------------
For address changes, please check the box to the right and
mark any changes to the address on this card or you can make
address changes and access other account information at [ ]
http://gateway.equiserve.com
Please sign exactly as your name appears on this proxy form.
If shares are held jointly, all owners should sign. When
signing as a trustee, guardian, executor, administrator or
attorney, etc., please give your full title.
- ----------------------------------- -------
- ----------------------------------- -------
Signature (PLEASE SIGN WITHIN BOX) Date
- ----------------------------------- -------
- ----------------------------------- -------
Signature (Joint Owners) Date
- --------------------------------------------------------------------------------
Thank you for being a Steelcase Shareholder
- --------------------------------------------------------------------------------
|
Annual Meeting of Shareholders | Your Vote is Important
|
June 25, 2001 | Please exercise your right to vote
| your shares either by telephone,
Steelcase Inc. | the Internet or by completing and
Corporate Theater | returning this proxy card.
901 44th Street SE |
Grand Rapids, Michigan 49508 |
|
11 a.m. Eastern Daylight Time |
DETACH HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY
STEELCASE INC.
901 44th Street SE
Grand Rapids, Michigan 49508
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
JUNE 25, 2001
The undersigned appoints Robert C. Pew II, Earl D. Holton, and James P. Hackett,
individually and with full power of substitution and resubstitution, as such
shareholder's proxy to vote all the outstanding shares of Class A Common Stock
and/or Class B Common Stock of STEELCASE INC. held by the undersigned at the
Annual Meeting of Shareholders to be held on June 25, 2001 or any adjournment
thereof.
If shares of Steelcase Inc. Common Stock are issued to or held for the account
of the undersigned under the Steelcase Inc. 401(k) Retirement Plan (the "Plan"),
then the undersigned hereby directs Old Kent Bank, as Trustee of the Plan, to
vote all shares of Steelcase Inc. Common Stock in the undersigned's name and/or
account under the Plan in accordance with the instructions given herein, at the
Annual Meeting and at any adjournment thereof, on all matters properly coming
before the Annual Meeting, including but not limited to the elections of
directors set forth on the reverse side.
This proxy when properly executed will be voted in the manner directed by the
undersigned shareholder(s). If no contrary direction is made, the shares will be
voted "FOR" election of all nominees named on this proxy as directors and in the
discretion of the proxies upon such other matters that may properly come before
the meeting or any adjournment thereof.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE SIDE
- ----------- -----------
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