Exhibit 99.1
TO BUSINESS EDITOR:
STEELCASE DELIVERS SALES AND EARNINGS GROWTH IN SECOND QUARTER
- NET INCOME INCREASES MORE THAN 80 PERCENT OVER PRIOR YEAR -
GRAND RAPIDS, Mich., Sept. 19 /PRNewswire-FirstCall/ -- Steelcase Inc.
(NYSE: SCS) today reported revenue totaling $702.9 million for its second
quarter of fiscal 2006. Revenue increased 8.0 percent compared to $651.0 million
in the prior year quarter. Second quarter revenue was lower than expected
because a higher than expected percentage of incoming orders for North America
are scheduled for shipment in the third quarter.
As compared to the prior year, second quarter revenue includes $11.0 million
of service revenue and $3.8 million of revenue from acquisitions, partially
offset by a $(6.0) million reserve for contract-related contingencies. These
items had the net effect of increasing revenue by 1.4 percent compared to the
prior year.
Steelcase reported net income of $13.8 million, or $0.09 per share for the
second quarter of fiscal 2006, consistent with company estimates of $0.08 to
$0.13 per share. This compares to net income of $7.3 million, or $0.05 per share
in the same quarter of the prior year.
Included in second quarter results were net restructuring charges totaling
$(6.1) million after-tax primarily related to facility rationalization in the
company's North America and International segments. Net restructuring charges
were $(1.4) million after-tax in the prior year quarter.
"Steelcase's second quarter results capped a solid start to 2006 with
significantly improved first half revenue and profits," said James P. Hackett,
president and CEO. "Steelcase employees everywhere have contributed to these
improvements by focusing on our mission to provide customers with a better work
experience and by their continued commitment to world-class process excellence."
Cost of sales improved 1.3 percentage points to 68.5 percent in the second
quarter. The results include favorable inventory and property tax adjustments,
partially offset by higher workers compensation costs and accelerated
depreciation on certain assets, which had the net effect of improving cost of
sales by 0.5 percentage points. Compared to the prior year quarter, North
America had better yield from earlier list price adjustments. The improvement in
pricing was partially offset by the reserve for contract-related contingencies.
Some of the benefits from prior restructuring actions were offset by disruption
costs associated with ongoing facility consolidations.
Despite higher restructuring costs in the current quarter, gross profit of
30.4 percent in the second quarter improved from 30.0 percent in the same
quarter last year. Excluding these charges, gross profit improved by 1.3
percentage points.
Reported operating income was $25.3 million, or 3.6 percent of revenue, and
includes restructuring charges of $9.7 million pre-tax. Operating income without
restructuring charges was $35.0 million, or 5.0 percent of revenue in the
current quarter compared to 2.9 percent of revenue in the prior year.
Total cash and cash equivalents increased by $49.1 million to $287.1 million
at the end of the second quarter. The company's debt balance of $273.8 million
remains largely unchanged as compared to the first quarter.
"Solid sales growth and continued operational improvements helped us
increase both net income and earnings per share by more than 80 percent," said
James P. Keane, chief financial officer. "Operating income excluding
restructuring charges was 5 percent of sales. We are pleased with the progress
we are making toward our longer-term operating income target of 10 percent."
Outlook
Steelcase expects third quarter sales to be 8 to 12 percent higher than the
prior year driven by a strong backlog going into the third quarter. Order rates
strengthened in August and remained strong in early September.
The company expects to report earnings between $0.10 and $0.15 per share in
the third quarter, including restructuring charges of $2 to $5 million
after-tax. These estimates reflect increased discounts because of a higher mix
of large project business in current backlog, and increased costs of disruption
as the company begins to relocate certain production lines as part of the
previously announced North America restructuring project. These estimates also
consider higher fuel prices, which are expected to reduce operating income by
more than $2 million in the third quarter. The company does not anticipate any
material direct financial impact from Hurricane Katrina in the third quarter.
The company has reduced its estimate of full year restructuring charges to
$16 to $21 million after-tax, including the amounts incurred in the first half
of fiscal 2006 and those estimated above for the third quarter.
Last week, the company announced an annual product list price adjustment in
the U.S. and Canada. This adjustment considered inflationary pressures and
sustained higher commodity costs for steel and other raw materials. Because the
adjustment took into account steel inflation, the company also announced it will
discontinue the temporary steel surcharge instituted in April 2004. Both of
these actions will be effective January 16, 2006.
Mr. Hackett concluded, "Our international business is building momentum as
we enter the second half of the year and will help drive improved profits in the
third quarter."
Business Segment Results
(in millions)
Second Quarter Second Quarter
Three Months Ended Six Months Ended
--------------------------- --------------------------
Aug. 26, Aug. 27, % Inc Aug. 26, Aug. 27, % Inc
2005 2004 (Dec) 2005 2004 (Dec)
-------- -------- ------ --------- --------- -----
Revenue
North America (1) $401.3 $365.6 9.8% $781.3 $693.7 12.6%
Steelcase Design
Partnership (2) 85.9 80.7 6.4% 168.7 151.1 11.6%
International (3) 145.1 131.9 10.0% 297.8 266.1 11.9%
Other (4) 70.6 72.8 (3.0)% 131.1 137.8 (4.9)%
-------- -------- --------- ---------
Consolidated
Revenue $702.9 $651.0 8.0% $1,378.9 $1,248.7 10.4%
======== ======== ========= =========
Operating Income
North America $20.5 $10.1 $34.6 $3.7
Steelcase Design
Partnership 8.2 7.7 16.2 11.1
International (4.1) (2.5) (6.7) (4.3)
Other 0.7 1.5 (3.6) 1.2
-------- -------- --------- ---------
Consolidated
Operating
Income $25.3 $16.8 $40.5 $11.7
======== ======== ========= =========
Operating Margin
Percent 3.6% 2.6% 1.0 pts. 2.9% 0.9% 2.0 pts.
Pre-Tax Restructuring Charges Included in Business Segment Results
(in millions)
Second Quarter Second Quarter
Three Months Ended Six Months Ended
------------------ ------------------
Aug. 26, Aug. 27, Aug. 26, Aug. 27,
2005 2004 2005 2004
-------- -------- -------- --------
North America $5.0 $2.8 10.9 7.4
Steelcase Design
Partnership - - - -
International 4.8 (0.8) 9.7 (1.1)
Other (0.1) - (0.1) 0.8
-------- -------- -------- --------
Consolidated Charges $9.7 $2.0 $20.5 $7.1
======== ======== ======== ========
Business Segment Footnotes
(1) North America business segment includes the company's Steelcase and
Turnstone brands, consolidated dealers in the U.S. and Canada, and
services.
(2) Steelcase Design Partnership (SDP) business segment includes Brayton,
The Designtex Group, Details, Metro and Vecta.
(3) International business segment includes all manufacturing and sales
operations outside the U.S. and Canada.
(4) Other includes Steelcase Financial Services, PolyVision and IDEO
subsidiaries, other ventures and unallocated corporate expenses.
Non-GAAP Financial Measures
Gross Profit, excluding Restructuring Charges
(in millions, % of revenue)
Second Quarter Second Quarter
Three Months Ended Six Months Ended
Aug. 26, 2005 Aug. 27, 2004 Aug. 26, 2005 Aug. 27, 2004
------------- ------------- ------------- -------------
Gross Profit,
as reported $214.0 30.4% $195.2 30.0% $413.9 30.0% $362.5 29.0%
Restructuring
Charges 7.8 1.1% 1.5 0.2% 16.3 1.2% 5.1 0.4%
------ ----- ------ ----- ------ ----- ------ -----
Gross Profit,
excluding
Restructuring
Charges $221.8 31.5% $196.7 30.2% $430.2 31.2% $367.6 29.4%
====== ===== ====== ===== ====== ===== ====== =====
Operating Income, excluding Restructuring Charges
(in millions; % of revenue)
Second Quarter Second Quarter
Three Months Ended Six Months Ended
Aug. 26, 2005 Aug. 27, 2004 Aug. 26, 2005 Aug. 27, 2004
------------- ------------- ------------- -------------
Operating Income,
as reported $25.3 3.6% $16.8 2.6% $40.5 2.9% $11.7 0.9%
Restructuring
Charges 9.7 1.4% 2.0 0.3% 20.5 1.5% 7.1 0.6%
------ ----- ------ ----- ------ ----- ------ -----
Operating Income,
excluding
Restructuring
Charges $35.0 5.0% $18.8 2.9% $61.0 4.4% $18.8 1.5%
====== ===== ====== ===== ====== ===== ====== =====
Webcast
Steelcase will discuss second quarter fiscal 2006 results and business
outlook on a conference call and webcast at 11:00 a.m. EDT today. Links to the
webcast are available at http://www.steelcase.com/ir. Related presentation
slides will be available on the company's website shortly before the start of
the webcast.
Non-GAAP Financial Measures
This earnings release contains certain non-GAAP financial measures. A
"non-GAAP financial measure" is defined as a numerical measure of a company's
financial performance that excludes or includes amounts so as to be different
than the most directly comparable measure calculated and presented in accordance
with GAAP in the statement of income, balance sheet or statement of cash flows
of the company. Pursuant to the requirements of Regulation G, the company has
provided a reconciliation above of non-GAAP financial measures to the most
directly comparable GAAP financial measure.
The non-GAAP financial measures used within the company's earnings release
are: second quarter and six months year-to-date gross profit, excluding
restructuring costs for the current and prior year in dollars and as a
percentage of net sales; and, second quarter and six months year-to-date
operating income, excluding restructuring costs for the current and prior year
in dollars and as a percentage of sales. These measures are presented because
management uses this information to monitor and evaluate financial results and
trends. Therefore, management believes this information is also useful for
investors.
Forward-looking Statements
From time to time, in written reports and oral statements, the company
discusses its expectations regarding future events. These forward-looking
statements generally will be accompanied by words such as "anticipate,"
"believe," "could," "estimate," "expect," "forecast," "intend," "may,"
"possible," "potential," "predict," "project," or other similar words, phrases
or expressions. Forward-looking statements involve a number of risks and
uncertainties that could cause actual results to vary. Important factors that
could cause actual results to differ materially from the forward-looking
statements include, without limitation: (1) competitive and general economic
conditions and uncertainty domestically and internationally; (2) delayed or lost
sales and other impacts related to acts of terrorism, acts of war or
governmental action, acts of God and other Force Majeure events; (3) changes in
domestic or international laws, rules and regulations, including the impact of
changed environmental laws, rules or regulations; (4) major disruptions at our
key facilities or in the supply of any key raw materials, components or finished
goods; (5) competitive pricing pressure; (6) pricing changes by the company, its
competitors or suppliers, including fluctuations in raw material and component
costs; (7) currency fluctuations; (8) changes in: (a) customer demand and order
patterns; (b) financial stability of customers, dealers (including changes in
their ability to pay for product and services, dealer financing and other
amounts owed to the company) or suppliers; (c) relationships with customers,
suppliers, employees and dealers; and (d) the mix of products sold and of
customers purchasing (including large project business); (9) the success
(including product performance and customer acceptance) of new products, current
product innovations, services and platform simplification, and their impact on
the company's manufacturing processes; (10) the success of the company's
investment in certain ventures (11) the company's ability to successfully: (a)
implement list price increases; (b) reduce its costs, including actions such as
global supply chain management, strategic outsourcing, workforce reduction,
facility rationalization, disposition of excess assets (including real estate)
at more than book value, production consolidation, reduction of business
complexity and culling products; (c) implement technology initiatives; (d)
integrate acquired businesses; (e) migrate to a less vertically integrated
manufacturing model; (f) implement lean manufacturing principles; (g) initiate
and manage alliances; (h) resolve certain contract-related contingent
liabilities; and (i) manage consolidated dealers; (12) possible acquisitions or
divestitures by the company; (13) changes in business strategies and decisions;
and (14) other risks detailed in the company's Form 10-K for the year ended
February 25, 2005 and other filings with the Securities and Exchange Commission.
The factors identified above are believed to be important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement.
Unpredictable or unknown factors could also have material adverse effects on the
company. All forward-looking statements included in this release are expressly
qualified in their entirety by the foregoing cautionary statements. Steelcase
undertakes no obligation to update, amend, or clarify forward-looking
statements, whether as a result of new information, future events, or otherwise.
About Steelcase Inc.
Steelcase, the global leader in the office furniture industry, helps people
have a better work experience by providing products, services and insights into
the ways people work. The company designs and manufactures architecture,
furniture and technology products. Founded in 1912 and headquartered in Grand
Rapids, Michigan, Steelcase (NYSE: SCS) serves customers through a network of
more than 800 independent dealers and approximately 14,000 employees worldwide.
Fiscal 2005 revenue was $2.6 billion. Learn more at http://www.steelcase.com.
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
Three Months Ended Six Months Ended
----------------------------------------------
Aug. 26, Aug. 27, Aug. 26, Aug. 27,
2005 2004 2005 2004
----------------------------------------------
Revenue $702.9 $651.0 $1,378.9 $1,248.7
Cost of sales 481.1 454.3 948.7 881.1
Restructuring costs 7.8 1.5 16.3 5.1
--------- -------- --------- ---------
Gross profit 214.0 195.2 413.9 362.5
Operating expenses 186.8 177.9 369.2 348.8
Restructuring costs 1.9 0.5 4.2 2.0
--------- -------- --------- ---------
Operating income 25.3 16.8 40.5 11.7
Interest expense (4.4) (5.6) (9.6) (10.8)
Other income, net 1.1 (0.8) 1.9 (0.1)
--------- -------- --------- ---------
Income from continuing
operations before
income tax expense 22.0 10.4 32.8 0.8
Income tax expense 8.2 3.1 12.3 0.2
--------- -------- --------- ---------
Income from continuing
operations 13.8 7.3 20.5 0.6
Income from discontinued
operations,
net of applicable
income taxes - - - 1.0
--------- -------- --------- ---------
Net income $13.8 $7.3 $20.5 $1.6
========= ======== ========= =========
Basic and diluted
per share data:
Income from continuing
operations $0.09 $0.05 $0.14 -
Income from discontinued
operations - - - 0.01
--------- -------- --------- ---------
Earnings $0.09 $0.05 $0.14 $0.01
Dividends declared per
common share $0.09 $0.06 $0.15 $0.12
========= ======== ========= =========
Weighted average shares
outstanding 148.3 147.8 148.2 147.8
========= ======== ========= =========
STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
Aug. 26, Feb. 25,
2005 2005
-----------------------
ASSETS
Current assets:
Cash and cash equivalents $287.1 $216.6
Short-term investments - 131.6
Accounts receivable, net 407.0 378.1
Inventories 143.6 132.9
Other current assets 203.9 198.1
-------- --------
Total current assets 1,041.6 1,057.3
Property and equipment, net 559.8 606.0
Goodwill and other intangible assets, net 291.8 290.0
Other assets 398.2 411.3
-------- --------
Total assets $2,291.4 $2,364.6
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $171.5 $175.9
Short-term borrowings and current portion of
long-term debt 20.6 67.6
Accrued expenses:
Employee compensation 99.6 123.3
Employee benefit plan obligations 26.2 31.7
Other 226.5 211.0
-------- --------
Total current liabilities 544.4 609.5
-------- --------
Long-term liabilities:
Long-term debt 253.2 258.1
Employee benefit plan obligations 245.6 249.7
Other long-term liabilities 51.1 50.7
-------- --------
Total long-term liabilities 549.9 558.5
-------- --------
Total liabilities 1,094.3 1,168.0
-------- --------
Shareholders' equity:
Common stock 303.1 297.4
Additional paid in capital 2.3 1.3
Accumulated other comprehensive loss (36.1) (33.1)
Deferred compensation - restricted stock (4.5) (3.1)
Retained earnings 932.3 934.1
-------- --------
Total shareholders' equity 1,197.1 1,196.6
-------- --------
Total liabilities and shareholders' equity $2,291.4 $2,364.6
-------- --------
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
------------------------
Six Months Ended
Aug. 26, Aug. 27,
2005 2004
------------------------
OPERATING ACTIVITIES
Net income $20.5 $1.6
Depreciation and amortization 61.1 63.9
Changes in operating assets and liabilities,
net of corporate acquisitions (63.2) (50.1)
Other, net (2.8) (1.6)
-------- --------
Net cash provided by operating activities 15.6 13.8
-------- --------
INVESTING ACTIVITIES
Capital expenditures (39.2) (25.0)
Short-term investments, net 131.6 70.0
Proceeds from the disposal of fixed assets 21.0 11.3
Proceeds from repayments of lease fundings 7.6 22.3
Acquisitions, net of cash acquired (6.3) -
Other, net 8.5 (2.9)
-------- --------
Net cash provided by investing activities 123.2 75.7
-------- --------
FINANCING ACTIVITIES
Repayments of long-term debt, net (50.6) (22.4)
Repayments of lines of credit, net (0.7) (2.6)
Dividends paid (22.3) (17.8)
Common stock issuance 3.0 0.7
-------- --------
Net cash used in financing activities (70.6) (42.1)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 2.3 0.6
-------- --------
Net increase in cash and cash equivalents 70.5 48.0
Cash and cash equivalents, beginning of period 216.6 182.2
-------- --------
Cash and cash equivalents, end of period $287.1 $230.2
-------- --------
SOURCE Steelcase Inc.
-0- 09/19/2005
/CONTACT: Investor Contact, Raj Mehan, Investor Relations,
+1-616-698-4734, or Media Contact, Lisa Kerr, Communications, +1-616-698-4487,
both for Steelcase Inc./
/FCMN Contact: rmehan@steelcase.com/
/Web site: http://www.steelcase.com /
(SCS)