SCS-02.28.2014-10K
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________ 
FORM 10-K
        þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2014
OR
        ¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13873
____________________________ 
STEELCASE INC.
(Exact name of registrant as specified in its charter)
Michigan
 
38-0819050
(State or other jurisdiction of
incorporation or organization)
 
(IRS employer identification number)
 
 
 
901 44th Street SE
Grand Rapids, Michigan
 
49508
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (616) 247-2710
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
Title of each class
Name of each exchange on which registered
Class A Common Stock
New York Stock Exchange
 
 
 
 
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ         No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨        No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ        No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ              Accelerated filer  ¨              Non-accelerated filer  ¨               Smaller reporting company  ¨
   (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨         No  þ
The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates, computed by reference to the closing price of the Class A Common Stock on the New York Stock Exchange, as of August 23, 2013 (the last day of the registrant’s most recently completed second fiscal quarter) was approximately $1,288 million. There is no quoted market for registrant’s Class B Common Stock, but shares of Class B Common Stock may be converted at any time into an equal number of shares of Class A Common Stock.
As of April 11, 2014, 90,617,740 shares of the registrant’s Class A Common Stock and 32,660,726 shares of the registrant’s Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive proxy statement for its 2014 Annual Meeting of Shareholders, to be held on July 16, 2014, are incorporated by reference in Part III of this Form 10-K.
 

Table of Contents

STEELCASE INC.
FORM 10-K
YEAR ENDED FEBRUARY 28, 2014
TABLE OF CONTENTS
 
  
  
Page No.   
Part I
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
Part II
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
 
 
Item 15.

Table of Contents

PART I
Item 1.
Business:
The following business overview is qualified in its entirety by the more detailed information included elsewhere or incorporated by reference in this Annual Report on Form 10-K (“Report”). As used in this Report, unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its subsidiaries in which a controlling interest is maintained. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
Overview

At Steelcase, our purpose is to unlock human promise by creating great experiences at work, wherever work happens, and in environments that include education and healthcare. Through our family of brands that include Steelcase®, Nurture®, Coalesse®, Details®, Designtex®, PolyVision® and Turnstone®, we offer a comprehensive portfolio of solutions inspired by the insights gained from our human-centered research process and support the social, economic and sustainable needs of people. We are a globally integrated enterprise, headquartered in Grand Rapids, Michigan, U.S.A., with approximately 10,700 employees. Steelcase was founded in 1912, became publicly-traded in 1998 and our stock is listed on the New York Stock Exchange under the symbol “SCS”.
Our growth strategy is to continue to translate our insights into products, applications and experiences that will help the world’s leading organizations amplify the performance of their people, teams and enterprise and to leverage our global scale. While continuing to build our own globally integrated enterprise, we also intend to grow our presence in emerging markets.
Over the past several years, we have continued to invest in research and product development and have launched new products, applications and experiences designed to address the significant trends that are impacting the workplace, such as global integration, disruptive technologies, worker mobility, distributed teams and the need for enhanced collaboration and innovation. We help our customers create workplace destinations that augment human interaction by supporting the physical, cognitive and emotional needs of their people, while also optimizing the value of their real estate investments.
Our global scale allows us to provide local differentiation, as we serve customers around the globe through significant sales, manufacturing and administrative operations in the Americas, Europe and Asia. We market our products and services primarily through a network of independent and company-owned dealers and also sell directly to end-use customers. We extend our reach with a limited presence in retail and web-based sales channels.
Our Offerings

Our brands provide an integrated portfolio of furniture settings, user-centered technologies and interior architectural products across a range of price points. Our furniture portfolio includes panel-based and freestanding furniture systems and complementary products such as storage, tables and ergonomic worktools. Our seating products include chairs which are highly ergonomic, seating that can be used in collaborative or casual settings and specialty seating for specific vertical markets such as healthcare and education. Our technology solutions support group collaboration by integrating furniture and technology. Our interior architectural products include full and partial height walls and doors. We also offer services designed to reduce costs and enhance the performance of people, wherever they work. Among these services are workplace strategy consulting, lease origination services, furniture and asset management and hosted spaces.
Steelcase—Insight-led performance in an interconnected world

The Steelcase brand takes our insights and delivers high performance, sustainable work environments while striving to be a trusted partner. Being a trusted partner means understanding and helping our customers and partners who truly seek to elevate their performance. The Steelcase brand's core customers are leading organizations (such as corporations, healthcare organizations, colleges/universities and government entities) that are often large with complex needs and have an increasingly global reach. We strive to meet their diverse needs

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while minimizing complexity by using a platform approach - from product components to common processes - wherever possible.
Steelcase sub-brands include:
•
Details, which researches, designs and markets worktools, personal lighting and furniture that provide healthy and productive connections between people, their technology, their workplaces and their work.
•
Nurture, which is focused on healthcare environments that can help make patients more comfortable, caregivers more efficient and partners in care more receptive to healthcare delivery. Nurture brings a holistic viewpoint to healthcare environments and works with patients and healthcare professionals to develop valuable insights into environments that promote healing.
Coalesse—Insight-led inspiration

Coalesse is an award-winning brand of furnishings that expresses the new freedom of work. It is part of the rapidly growing crossover market — homes and offices, meeting rooms and social spaces, private retreats and public places — and is addressing the fluid intersections of work and life where boundaries are collapsing and creativity is roaming.
Turnstone—Insight-led simplicity

Turnstone was created based on the belief that the world needs more successful entrepreneurs and small businesses, and that great spaces to work can help that happen.  Turnstone makes it easier for these companies to create insight-led places to work using web-based tools or through our dealer channel.
Designtex
Designtex offers applied surface solutions that enhance environments and is a leading resource for applied surface knowledge, innovation and sustainability. Designtex products are premium surface materials designed to enhance seating, walls, work stations, floors and ceilings and can provide privacy, way-finding, motivation, communications and artistic expression.
PolyVision
PolyVision is the world's leading supplier of ceramic steel surfaces to educational institutions and architectural panels or special applications for commercial or infrastructure applications.
Reportable Segments
We operate on a worldwide basis within our Americas and EMEA reportable segments plus an “Other” category. Additional information about our reportable segments, including financial information about geographic areas, is contained in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 18 to the consolidated financial statements.
Americas Segment
Our Americas segment serves customers in the United States (“U.S.”), Canada and Latin America. Our portfolio of integrated architecture, furniture and technology products is marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Nurture, Coalesse, Details and Turnstone brands.
We serve Americas customers mainly through approximately 400 independent and company-owned dealer locations and we also sell directly to end-use customers. Our end-use customers are distributed across a broad range of industries and vertical markets, including healthcare, higher education, insurance, financial services and technology, but no industry or vertical market individually represented more than 13% of the Americas segment revenue in 2014.
Each of our dealers maintains its own sales force which is complemented by our sales representatives who work closely with our dealers throughout the selling process. The largest independent dealer in the Americas accounted for approximately 6% of the segment’s revenue in 2014, and the five largest independent dealers collectively accounted for approximately 18% of the segment’s revenue in 2014.

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In 2014, the Americas segment recorded revenue of $2,154.4, or 72.1% of our consolidated revenue, and as of the end of the year had approximately 6,800 employees, of which approximately 4,600 related to manufacturing.
The Americas office furniture industry is highly competitive, with a number of competitors offering similar categories of products. The industry competes on a combination of insight, product performance, design, price and relationships with customers, architects and designers. Our most significant competitors in the U.S. are Haworth, Inc., Herman Miller, Inc., HNI Corporation and Knoll, Inc. Together with Steelcase, domestic revenue from these companies represents approximately one-half of the U.S. office furniture industry.
EMEA Segment
Our EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions. Our largest presence is in Western Europe, where we believe we have the leading market share in Germany, France and Spain. In 2014, approximately 83% of EMEA revenue was from Western Europe. The remaining revenue was from other parts of Europe, the Middle East and Africa. No individual country in the EMEA segment represented more than 6% of our consolidated revenue in 2014.
We serve EMEA customers through approximately 400 independent and company-owned dealer locations. In certain geographic markets, we sell directly to end-use customers. Our end-use customers are larger multinational, regional or local companies spread across a broad range of industries and vertical markets, including financial services, higher education, healthcare, government and technology. No single independent dealer in the EMEA segment accounted for more than 3% of the segment’s revenue in 2014. The five largest independent dealers collectively accounted for approximately 8% of the segment’s revenue in 2014.
In 2014, our EMEA segment recorded revenue of $566.9, or 19.0% of our consolidated revenue, and as of the end of the year had approximately 2,200 employees, of which approximately 1,100 related to manufacturing.
The EMEA office furniture market is highly competitive and fragmented. We compete with many local and regional manufacturers in many different markets. In several cases, these competitors focus on specific product categories.
Other Category
The Other category includes Asia Pacific, Designtex and PolyVision.
Asia Pacific serves customers in the People’s Republic of China (including Hong Kong), India, Japan, Australia, and other countries in southeast Asia, primarily under the Steelcase brand with an emphasis on furniture systems and seating solutions. We sell directly and through approximately 50 independent and company-owned dealer locations to end-use customers. Our end-use customers are larger multinational or regional companies spread across a broad range of industries and are located in both established and emerging markets. Our competition is fragmented and includes large global competitors as well as many regional and local manufacturers.
Designtex primarily sells textiles and wall covering products specified by architects and designers directly to end-use customers through a direct sales force primarily in North America.
PolyVision manufactures ceramic steel surfaces for use in multiple applications, but primarily for sale to third-party fabricators and distributors to create static whiteboards and chalkboards sold in the primary and secondary education markets globally.
In 2014, the Other category accounted for $267.6, or 8.9% of our consolidated revenue, and as of the end of the year had approximately 1,700 employees, of which approximately 900 related to manufacturing.
Corporate
Corporate expenses include unallocated portions of shared service functions such as information technology, human resources, finance, executive, corporate facilities, legal and research.

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Joint Ventures and Other Equity Investments
We enter into joint ventures and other equity investments from time to time to expand or maintain our geographic presence, support our distribution network or invest in new business ventures, complementary products and services. As of February 28, 2014, our investment in these unconsolidated joint ventures and other equity investments totaled $53.0. Our share of the earnings from joint ventures and other equity investments is recorded in Other income (expense), net on the Consolidated Statements of Income.
Customer and Dealer Concentrations
Our largest customer accounted for 1.0% of our consolidated revenue in 2014, and our five largest customers collectively accounted for 3.1% of our consolidated revenue. However, these percentages do not include revenue from various U.S. federal government agencies. In 2014, our sales to U.S. federal government agencies represented approximately 3% of our consolidated revenue. We do not believe our business is dependent on any single or small number of end-use customers, the loss of which would have a material adverse effect on our business.
No single independent dealer accounted for more than 4% of our consolidated revenue in 2014. The five largest independent dealers collectively accounted for approximately 13% of our consolidated revenue in 2014. We do not believe our business is dependent on any single dealer, the loss of which would have a sustained material adverse effect upon our business.
Working Capital
Our accounts receivable are from our dealers and direct-sale customers. Payment terms vary by country and region. The terms of our Americas segment, and certain markets within the EMEA segment, encourage prompt payment from dealers by offering an early settlement discount. Other international markets have, by market convention, longer payment terms. We are not aware of any special or unusual practices or conditions related to working capital items, including accounts receivable, inventories and accounts payable, which are significant to understanding our business or the industry at large.
Backlog
Our products are generally manufactured and shipped within two to six weeks following receipt of order; therefore, we do not view the amount of backlog at any particular time as a meaningful indicator of longer-term shipments.
Global Manufacturing and Supply Chain
Manufacturing and Logistics
We have manufacturing operations throughout North America (in the United States and Mexico), Europe (in France, Germany and Spain) and Asia (in China, Malaysia and India). Our global manufacturing operations are centralized under a single organization to serve our customers’ needs across multiple brands and geographies.
Our manufacturing model is predominately make-to-order with lead times typically ranging from two to six weeks. We manufacture our products using lean manufacturing principles, which allow us to maintain efficiencies and cost savings by minimizing the amount of inventory on hand. As a result, we largely purchase direct materials and components as needed to meet demand. We have evolved our manufacturing and supply chain systems significantly over the last decade by implementing continuous one-piece flow, platforming our processes and product offerings and developing a global network of integrated suppliers.

These changes to our manufacturing model have reduced the capital needs of our business, inventory levels and the footprint of our manufacturing space and have allowed us to improve quality, delivery performance and the customer experience. We continue to identify opportunities to improve the fitness of our business and strengthen our long-term competitiveness. In 2014, we initiated procedures related to the closure of a manufacturing facility in Germany and the establishment of a new manufacturing facility in the Czech Republic. In 2013, we substantially completed a two-year project to close three North American manufacturing facilities and move production within those facilities to other Steelcase locations in North America.
In addition to our ongoing focus on enhancing the efficiency of our manufacturing operations, we also seek to reduce costs through our global sourcing effort. We have capitalized on raw material and component cost savings

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available through lower cost suppliers around the globe. This global view of potential sources of supply has enhanced our leverage with domestic supply sources, and we have been able to reduce cycle times through improvements with our partners throughout the supply chain.
Our physical distribution system utilizes commercial transport, company-owned and dedicated fleet delivery services. We have implemented a network of regional distribution centers to reduce freight costs and improve service to our dealers and customers. Some of these distribution centers are located within our manufacturing facilities, and we have engaged third-party logistics providers to operate some of these regional distribution centers.
Raw Materials
We source raw materials and components from a significant number of suppliers around the world. Those raw materials include petroleum-based products, steel, other metals, wood, particleboard and other materials and components. To date, we have not experienced any significant difficulties in obtaining these raw materials.
The prices for certain commodities such as steel, aluminum and other metals, wood, particleboard and petroleum-based products have fluctuated in recent years due to changes in global supply and demand. Our global supply chain team continually evaluates current market conditions, the financial viability of our suppliers and available supply options on the basis of cost, quality and reliability of supply.
Research, Design and Development
Our extensive global research — a combination of user observations, feedback sessions and sophisticated analysis — has helped us develop social, spatial and informational insights into work effectiveness. We maintain collaborative relationships with external world-class innovators, including leading universities, think tanks and knowledge leaders, to expand and deepen our understanding of how people work.
Understanding patterns of work enables us to identify and anticipate user needs across the globe. Our design teams explore and develop prototypical solutions to address these needs. These solutions vary from furniture, architecture and technology solutions to single products or enhancements to existing products, and across different vertical market applications such as healthcare, higher education and professional services. Organizationally, global design leadership directs strategy and project work, which is distributed to design studios around the world and often involves external design services.
Our marketing team evaluates product concepts using several criteria, including financial return metrics, and chooses which products will be developed and launched. Designers then work closely with engineers and suppliers to co-develop products and processes that incorporate innovative user features with efficient manufacturing practices. Products are tested for performance, quality and compliance with applicable standards and regulations.
Exclusive of royalty payments, we invested $35.9, $36.0 and $35.8 in research, design and development activities in 2014, 2013 and 2012, respectively. We continue to invest approximately one to two percent of our revenue in research, design and development each year. Royalties are sometimes paid to external designers of our products as the products are sold. These costs are not included in research and development expenses.
Intellectual Property
We generate and hold a significant number of patents in a number of countries in connection with the operation of our business. We also hold a number of trademarks that are very important to our identity and recognition in the marketplace. We do not believe that any material part of our business is dependent on the continued availability of any one or all of our patents or trademarks or that our business would be materially adversely affected by the loss of any of such, except the “Steelcase,” “Nurture,” “Coalesse,” “Details,” “Designtex,” “PolyVision” and “Turnstone” trademarks.
We occasionally enter into license agreements under which we pay a royalty to third parties for the use of patented products, designs or process technology. We have established a global network of intellectual property licenses with our subsidiaries.
Employees
As of February 28, 2014, we had approximately 10,700 employees, of which approximately 6,600 work in manufacturing. Additionally, we had approximately 1,600 temporary workers who primarily work in manufacturing. Approximately 100 employees in the U.S. are covered by collective bargaining agreements. Internationally, 2,000

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employees are represented by workers' councils that operate to promote the interests of workers. Management promotes positive relations with employees based on empowerment and teamwork.
Environmental Matters
We are subject to a variety of federal, state, local and foreign laws and regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment (“Environmental Laws”). We believe our operations are in substantial compliance with all Environmental Laws. We do not believe existing Environmental Laws and regulations have had or will have any material effects upon our capital expenditures, earnings or competitive position.
Under certain Environmental Laws, we could be held liable, without regard to fault, for the costs of remediation associated with our existing or historical operations. We could also be held responsible for third-party property and personal injury claims or for violations of Environmental Laws relating to contamination. We are a party to, or otherwise involved in, proceedings relating to several contaminated properties being investigated and remediated under Environmental Laws, including as a potentially responsible party in several Superfund site cleanups. Based on our information regarding the nature and volume of wastes allegedly disposed of or released at these properties, the total estimated cleanup costs and other financially viable potentially responsible parties, we do not believe the costs to us associated with these properties will be material, either individually or in the aggregate. We have established reserves that we believe are adequate to cover our anticipated remediation costs. However, certain events could cause our actual costs to vary from the established reserves. These events include, but are not limited to: a change in governmental regulations or cleanup standards or requirements; undiscovered information regarding the nature and volume of wastes allegedly disposed of or released at these properties; and other factors increasing the cost of remediation or the loss of other potentially responsible parties that are financially capable of contributing toward cleanup costs.
Available Information
We file annual reports, quarterly reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, including Steelcase, that file electronically with the SEC.
We also make available free of charge through our internet website, www.steelcase.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after we electronically file such reports with or furnish them to the SEC. In addition, our Corporate Governance Principles, Code of Ethics, Code of Business Conduct and the charters for the Audit, Compensation and Nominating and Corporate Governance Committees are available free of charge through our website or by writing to Steelcase Inc., Investor Relations, GH-3E-12, PO Box 1967, Grand Rapids, Michigan 49501-1967.
We are not including the information contained on our website as a part of, or incorporating it by reference into, this Report.
Item 1A.
Risk Factors:
The following risk factors and other information included in this Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we do not know about currently, or that we currently believe are less significant, may also adversely affect our business, operating results, cash flows and financial condition. If any of these risks actually occur, our business, operating results, cash flows and financial condition could be materially adversely affected.
Our industry is influenced significantly by cyclical macroeconomic factors and secular changes that are difficult to predict.
Our revenue is generated predominantly from the office furniture industry, and demand for office furniture is influenced heavily by a variety of factors, including macroeconomic factors such as corporate profits, non-residential fixed investment, white-collar employment and commercial office construction and vacancy rates. Increasingly,

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advances in technology, the globalization of business, changing workforce demographics and shifts in work styles and behaviors are changing the world of work and may have a significant impact on the types of workplace products and services purchased by our customers, the level of revenue associated with our offerings and the geographic location of the demand.
According to the U.S.-based Business and Institutional Furniture Manufacturers Association and European-based Centre for Industrial Studies, the U.S. and European office furniture industries have gone through two major downturns in recent history. Consumption declined by more than 30% and 20% from calendar year 2000 to 2003, and again by over 30% and 23% from 2007 to 2009, in the U.S. and Europe, respectively. While the U.S. office furniture industry has been recovering over the past four years, the European industry has remained in recession. During these downturns, our revenue declined in similar proportion and our profitability was significantly reduced. Although we have made a number of changes to adapt our business model to these cycles, our profitability could be impacted in the future by cyclical downturns. In addition, the pace of industry recovery, by geography or vertical market, may vary after a cyclical downturn. These macroeconomic factors are difficult to predict, and if we are unsuccessful in adapting our business as economic cyclical changes occur, our results may be adversely affected.
Our continuing efforts to improve our business model could result in additional restructuring costs and may result in customer disruption.
Over the past decade, we have implemented a number of restructuring actions to transform our business through the reinvention of our industrial system and white collar processes and have significantly reduced our manufacturing footprint. While we believe we have made substantial progress, we continue to evolve and optimize our business model to be more flexible and agile in meeting changing demand, and incremental restructuring actions may be necessary. We are engaged in a multi-year strategy in EMEA to improve revenue and the fitness of our business model, which includes negotiations with regard to the closure of a manufacturing location in Germany and the establishment of a new manufacturing facility in the Czech Republic. The success of our restructuring initiatives is dependent on several factors, including our ability to negotiate with related works councils and manage these actions without disrupting existing customer commitments or impacting operating efficiency. Further, these actions may take longer than anticipated and may distract management from other activities, and we may not fully realize the expected benefits of our restructuring activities, either of which would have a negative impact on our profitability.
Failure to respond to changes in workplace trends and the competitive landscape may adversely affect our revenue and profits.
Advances in technology, the globalization of business, changing workforce demographics and shifts in work styles and behaviors are changing the world of work and may have a significant impact on the types of workplace products and services purchased by our customers, the level of revenue associated with our offerings and the geographic location of the demand. For example, in recent years, these trends have resulted in a reduction in the amount of office floor space allocated per employee, a reduction in the number, size (and price) of typical workstations and an increase in work occurring in more collaborative settings and in a variety of locations beyond the traditional office. The confluence of these factors could attract new competitors from outside the traditional office furniture industry, such as real estate management service firms, technology-based firms or general construction contractors, offering products and services which compete with those offered by us and our dealers. In addition, the traditional office furniture industry is highly competitive, with a number of competitors offering similar categories of products. We compete on a variety of factors, including: brand recognition and reputation, insight from our research, product design and features, price, lead time, delivery and service, product quality, strength of dealers and other distributors and relationships with customers and key influencers, such as architects, designers and facility managers. If we are unsuccessful in developing and offering products and services which respond to changes in workplace trends and generate revenue to offset the impact of reduced numbers, size (and price) of typical workstations, or we or our dealers are unsuccessful in competing with existing competitors and new competitive offerings which could arise from outside our industry, our revenue and profits may be adversely affected.
We may not be able to successfully develop, implement and manage our diversification and growth strategies.
Our longer-term success depends on our ability to successfully develop, implement and manage strategies that will preserve our position as the world’s largest office furniture manufacturer, as well as expand our offerings into adjacent and emerging markets. In particular, our diversification and growth strategies include:
•
translating our research regarding the world of work into innovative solutions which address market needs,

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•
continuing our expansion into adjacent markets such as healthcare clinical spaces and classrooms, libraries and other educational settings and smaller companies,
•
growing our market share in markets such as China, India, Brazil, eastern, central and southern Europe, Africa and the Middle East,
•
investing in acquisitions and new business ventures and
•
developing new alliances and additional channels of distribution.
If these strategies to diversify and increase our revenues are not sufficient, or if we do not execute these strategies successfully, our profitability may be adversely affected.
We have been and expect to continue making investments in strategic growth initiatives and new product development. If our return on these investments is lower, or develops more slowly, than we anticipate, our profitability may be adversely affected.
We may be adversely affected by changes in raw material and commodity costs.
We procure raw materials (including petroleum-based products, steel, aluminum, other metals, wood and particleboard) from a significant number of sources globally. These raw materials are not rare or unique to our industry. The costs of these commodities, as well as fuel and energy costs, have fluctuated significantly in recent years due to changes in global supply and demand, which can also cause supply interruptions. In the short-term, rapid increases in raw material and commodity costs can be very difficult to offset with price increases because of existing contractual commitments with our customers, and it is difficult to find effective financial instruments to hedge against such changes. As a result, our gross margins can be adversely affected by short-term increases in these costs. Also, if we are not successful in passing along higher raw material and commodity costs to our customers over the longer-term because of competitive pressures, our profitability could be negatively impacted.
Our global presence subjects us to risks that may negatively affect our profitability and financial condition.
We have manufacturing facilities and sales, administrative and shared services offices in many countries, and as a result, we are subject to risks associated with doing business globally. Our success depends on our ability to manage the complexity associated with designing, developing, manufacturing and selling our solutions in a variety of countries. Our global presence is also subject to market risks, which in turn could have an adverse effect on our results of operations and financial condition, including:
•
differing business practices, cultural factors and regulatory requirements,
•
fluctuations in currency exchange rates and currency controls,
•
political, social and economic instability, natural disasters, security concerns, including terrorist activity, armed conflict and civil or military unrest, and global health issues and
•
intellectual property protection challenges.
We are increasingly reliant on a global network of suppliers.
Our migration to a less vertically integrated manufacturing model has increased our dependency on a global network of suppliers. We are reliant on the timely flow of raw materials, components and finished goods from third-party suppliers. The flow of such materials, components and goods may be affected by:
•
fluctuations in the availability and quality of raw materials,
•
the financial solvency of our suppliers and their supply chains,
•
disruptions caused by labor activities and
•
damage and loss of production from accidents, natural disasters and other causes.
Any disruptions in the supply and delivery of raw materials, component parts and finished goods or deficiencies in our ability to manage our global network of suppliers could have an adverse impact on our business, operating results or financial condition.

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Disruptions within our dealer network could adversely affect our business.
We rely largely on a network of more than 800 independent dealer locations to market, deliver and install our products to end-use customers. From time to time, we or a dealer may choose to terminate our relationship, or the dealer could face financial insolvency or difficulty in transitioning to new ownership. Our business is influenced by our ability to initiate and manage new and existing relationships with dealers, and establishing new dealers in a market can take considerable time and resources. Disruption of dealer coverage within a specific local market could have an adverse impact on our business within the affected market. The loss or termination of a significant number of dealers or the inability to establish new dealers could cause difficulties in marketing and distributing our products and have an adverse effect on our business, operating results or financial condition. In the event that a dealer in a strategic market experiences financial difficulty, we may choose to make financial investments in the dealership, which would reduce the risk of disruption but increase our financial exposure.
We may be required to record impairment charges related to goodwill and indefinite-lived intangible assets which would adversely affect our results of operations.
We have net goodwill of $108.1 as of February 28, 2014. Goodwill and other acquired intangible assets with indefinite lives are not amortized but are evaluated for impairment annually and whenever an event occurs or circumstances change such that it is more likely than not that an impairment may exist. Poor performance in portions of our business where we have goodwill or intangible assets, or declines in the market value of our equity, may result in impairment charges, which would adversely affect our results of operations.
There may be significant limitations to our utilization of net operating loss carryforwards to offset future taxable income.
We have deferred tax asset values related to net operating loss carryforwards (“NOLs”) residing primarily in various non-U.S. jurisdictions totaling $90.9, against which valuation allowances totaling $76.2 have been recorded. We may be unable to generate sufficient taxable income from future operations in the applicable jurisdictions, or implement tax, business or other planning strategies, to fully utilize the recorded value of our NOLs. We have NOLs in various currencies that are also subject to foreign exchange risk, which could reduce the amount we may ultimately realize. Additionally, future changes in tax laws or interpretations of such tax laws may limit our ability to fully utilize our NOLs.
Costs related to our participation in a multi-employer pension plan could increase.
Our subsidiary SC Transport Inc. contributes to the Central States, Southeast and Southwest Areas Pension Fund, a multi-employer pension plan, based on obligations arising under a collective bargaining agreement with our SC Transport Inc. employees. The plan is not administered by or in any way controlled by us. We have relatively little control over the level of contributions we are required to make to the plan, and it is currently underfunded. As a result, contributions are scheduled to increase, and we expect that contributions to the plan may be subject to further increases. The amount of any increase or decrease in our required contributions to the multi-employer pension plan will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plan, governmental regulations, the actual return on assets held in the plan, the continued viability and contributions of other employers which contribute to the plan, and the potential payment of a withdrawal liability, among other factors.
Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. We could incur a withdrawal liability if we substantially reduce the number of SC Transport Inc. employees. The most recent estimate of our potential withdrawal liability is $24.7 as of February 28, 2014.
Item 1B.
Unresolved Staff Comments:
None.


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Item 2.
Properties:
We have operations at locations throughout the U.S. and around the world. None of our owned properties are mortgaged or are held subject to any significant encumbrance. We believe our facilities are in good operating condition and, at present, are in excess of that needed to meet volume needs currently and for the foreseeable future. Our global headquarters is located in Grand Rapids, Michigan, U.S.A. Our owned and leased principal manufacturing and distribution center locations with greater than 100,000 square feet are as follows:
Segment/Category Primarily Supported
Number of Principal
Locations
Owned
Leased
Americas
12

 
5

 
7

 
EMEA
5

 
4

 
1

 
Other
4

 
2

 
2

 
Total
21

 
11

 
10

 
In 2014, we added one leased distribution facility and exited one owned manufacturing facility in the Americas.
Item 3.
Legal Proceedings:
We are involved in litigation from time to time in the ordinary course of our business. Based on known information, we do not believe we are a party to any lawsuit or proceeding that is likely to have a material adverse effect on the Company.
Item 4.
Mine Safety Disclosures:
Not applicable.

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Supplementary Item.    Executive Officers of the Registrant:
Our executive officers are:
Name
Age
Position
Guillaume M. Alvarez
54
Senior Vice President, EMEA
Sara E. Armbruster
43
Vice President, Strategy, Research and New Business Innovation
Ulrich H. E. Gwinner
50
President, Asia Pacific
Nancy W. Hickey
62
Senior Vice President, Chief Administrative Officer
James P. Keane
54
President and Chief Executive Officer, Director
Hamid Khorramian
65
Senior Vice President, Global Operations
James N. Ludwig
50
Vice President, Global Design and Product Engineering
Mark T. Mossing
56
Corporate Controller and Chief Accounting Officer
Gale Moutrey
55
Vice President, Communications
Lizbeth S. O’Shaughnessy
52
Senior Vice President, Chief Legal Officer and Secretary
Eddy F. Schmitt
42
Senior Vice President, Americas
Allan W. Smith, Jr.
46
Vice President, Global Marketing
David C. Sylvester
49
Senior Vice President, Chief Financial Officer
Guillaume M. Alvarez has been Senior Vice President, EMEA since March 2014. Mr. Alvarez was Senior Vice President, Sales, EMEA from October 2011 to March 2014, Vice President, Global Client Collaboration from May 2010 to October 2011 and Vice President, Global Alliances from May 2008 to May 2010. Mr. Alvarez has been employed by Steelcase since 1984.
Sara E. Armbruster has been Vice President, Strategy, Research and New Business Innovation since January 2014. Ms. Armbruster was Vice President, WorkSpace Futures and Corporate Strategy from May 2009 to January 2014 and Vice President, Corporate Strategy from when she joined Steelcase in 2007 to May 2009.
Ulrich H. E. Gwinner has been President, Asia Pacific since March 2014. Mr. Gwinner was President, Steelcase Asia Pacific from May 2007 to March 2014 and has been employed by Steelcase since 2000.
Nancy W. Hickey has been Senior Vice President, Chief Administrative Officer since November 2001 and has been employed by Steelcase since 1986.
James P. Keane has been President and Chief Executive Officer since March 2014. Mr. Keane was President and Chief Operating Officer from April 2013 to March 2014, Chief Operating Officer from November 2012 to April 2013 and President, Steelcase Group from October 2006 to November 2012. Mr. Keane became a member of the Board of Directors of Steelcase in April 2013 and has been employed by Steelcase since 1997.
Hamid Khorramian has been Senior Vice President, Global Operations since March 2014. Mr. Khorramian was Senior Vice President, Global Operations Officer from April 2012 to March 2014, Vice President, North American Operations from June 2009 to April 2012 and Vice President, Manufacturing-North America from June 2004 to June 2009. Mr. Khorramian has been employed by Steelcase since 1977.
James N. Ludwig has been Vice President, Global Design and Product Engineering since March 2014. Mr. Ludwig was Vice President, Global Design from March 2008 to March 2014 and has been employed by Steelcase since 1999.
Mark T. Mossing has been Corporate Controller and Chief Accounting Officer since April 2008. Mr. Mossing was Vice President, Corporate Controller from 1999 to April 2008 and has been employed by Steelcase since 1993.
Gale Moutrey has been Vice President, Communications since March 2014. Ms. Moutrey was Vice President, Brand Communications from March 2001 to March 2014 and has been employed by Steelcase since 1984.
Lizbeth S. O’Shaughnessy has been Senior Vice President, Chief Legal Officer and Secretary since April 2011. Ms. O’Shaughnessy was Vice President, Chief Legal Officer and Secretary from 2007 to April 2011 and has been employed by Steelcase since 1992.

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Eddy F. Schmitt has been Senior Vice President, Americas since March 2014. Mr. Schmitt was Senior Vice President, Sales and Distribution, Americas from February 2011 to March 2014 and Vice President, Sales, France from June 2006 to February 2011. Mr. Schmitt has been employed by Steelcase since 2003.
Allan W. Smith, Jr. has been Vice President, Global Marketing since September 2013. Mr. Smith was Vice President, Applications & Product Marketing-Steelcase Brand from January 2011 to September 2013, General Manager, Furniture and Technology from June 2009 to January 2011 and Vice President, Marketing, Research & Product Development-Europe from July 2006 to June 2009. Mr. Smith has been employed by Steelcase since 1991.
David C. Sylvester has been Senior Vice President, Chief Financial Officer since April 2011. Mr. Sylvester was Vice President, Chief Financial Officer from 2006 to April 2011 and has been employed by Steelcase since 1995.

12
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:
Common Stock
Our Class A Common Stock is listed on the New York Stock Exchange under the symbol “SCS.” Our Class B Common Stock is not registered under the Exchange Act or publicly traded. See Note 14 to the consolidated financial statements for additional information. As of the close of business on April 11, 2014, we had outstanding 123,278,466 shares of common stock with 7,162 shareholders of record. Of these amounts, 90,617,740 shares are Class A Common Stock with 7,077 shareholders of record and 32,660,726 shares are Class B Common Stock with 85 shareholders of record.
Class A Common Stock
Per Share Price Range
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal 2014
 
 
 
 
 
 
 
 
High
$
15.60

 
$
15.89

 
$
16.95

 
$
16.77

 
Low
$
12.16

 
$
13.23

 
$
13.76

 
$
13.60

 
Fiscal 2013
 
 
 
 
 
 
 
 
High
$
9.81

 
$
9.82

 
$
11.25

 
$
13.95

 
Low
$
7.96

 
$
7.63

 
$
9.17

 
$
10.98

 
Dividends
The declaration of dividends is subject to the discretion of our Board of Directors and to compliance with applicable laws. Dividends in 2014 and 2013 were declared and paid quarterly. The amount and timing of future dividends depends upon our results of operations, financial condition, cash requirements, future business prospects, general business conditions and other factors that our Board of Directors may deem relevant at the time.
Our unsecured revolving syndicated credit facility includes a restriction on the aggregate amount of cash dividend payments and share repurchases we may make in any fiscal year. As long as our leverage ratio is less than 2.50 to 1.00, there is no restriction on cash dividends and share repurchases. If our leverage ratio is between 2.50 to 1.00 and the maximum permitted under the facility, our ability to fund more than $35.0 in cash dividends and share repurchases in aggregate in any fiscal year may be restricted, depending on our liquidity. As of February 28, 2014, our leverage ratio was less than 2.50 to 1.00. See Note 12 to the consolidated financial statements for additional information.
During 2014 and 2013, we were in compliance with the covenants under the facility in place as of the respective dates.
Total Dividends Paid
  
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
2014
 
$
12.5

 
$
12.6

 
$
12.5

 
$
12.6

 
$
50.2

2013
 
$
11.6

 
$
11.4

 
$
11.4

 
$
11.4

 
$
45.8


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Fourth Quarter Share Repurchases
The following is a summary of share repurchase activity during Q4 2014:
Period
(a)
Total Number of
Shares Purchased
(b)
Average Price
Paid per Share
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)
(d)
Approximate Dollar
Value of Shares
that May Yet be
Purchased
Under the Plans
or Programs (1)
11/23/2013 - 12/27/2013
3,398

$
14.80

—

$
109.9

12/28/2013 - 01/24/2014
18,591

$
14.98

16,790

$
109.7

01/25/2014 - 02/28/2014
1,164,744

$
14.32

1,164,744

$
93.0

Total
1,186,733

(2)
1,181,534

 

_______________________________________
(1)
In December 2007, our Board of Directors approved a share repurchase program permitting the repurchase of up to $250 of shares of our common stock. This program has no specific expiration date.
(2)
5,199 shares were repurchased to satisfy participants’ tax withholding obligations upon the vesting of restricted stock unit grants, pursuant to the terms of our Incentive Compensation Plan.



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Item 6.
Selected Financial Data:
  
Year Ended
Financial Highlights
February 28,
2014
February 22,
2013
February 24,
2012
February 25,
2011
February 26,
2010
Operating Results:
 
 
 
 
 
 
 
 
 
 
Revenue
$
2,988.9

 
$
2,868.7

 
$
2,749.5

 
$
2,437.1

 
$
2,291.7

 
Gross profit
945.2

 
866.0

 
809.7

 
717.5

 
649.8

 
Operating income (loss)
165.9

 
59.3

 
97.1

 
51.5

 
(11.5
)
 
Income (loss) before income tax expense (benefit)
147.2

 
54.9

 
82.0

 
51.4

 
(31.1
)
 
Net income (loss)
87.7

 
38.8

 
56.7

 
20.4

 
(13.6
)
 
Supplemental Operating Data:
 
 
 
 
 
 
 
 
 
 
Restructuring costs
$
(6.6
)
 
$
(34.7
)
 
$
(30.5
)
 
$
(30.6
)
 
$
(34.9
)
 
Goodwill and intangible asset impairment charges
(12.9
)
 
(59.9
)
 
—

 
—

 
—

 
Share Data:
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
0.70

 
$
0.30

 
$
0.43

 
$
0.15

 
$
(0.10
)
 
Diluted earnings (loss) per common share
$
0.69

 
$
0.30

 
$
0.43

 
$
0.15

 
$
(0.10
)
 
Weighted average shares outstanding - basic
126.0

 
127.4

 
131.9

 
132.9

 
132.9

 
Weighted average shares outstanding - diluted
127.3

 
129.1

 
131.9

 
132.9

 
132.9

 
Dividends paid per common share
$
0.40

 
$
0.36

 
$
0.24

 
$
0.16

 
$
0.20

 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
201.8

 
$
150.4

 
$
112.1

 
$
142.2

 
$
111.1

 
Short-term investments
119.5

 
100.5

 
79.1

 
350.8

 
68.2

 
Company-owned life insurance ("COLI")
154.3

 
225.8

 
227.6

 
223.1

 
209.6

 
Working capital (1)
351.7

 
293.8

 
240.2

 
275.5

 
222.9

 
Total assets
1,726.7

 
1,689.6

 
1,678.9

 
1,974.4

 
1,655.1

 
Total debt
287.0

 
289.0

 
291.5

 
546.8

 
300.8

 
Total liabilities
1,049.6

 
1,021.6

 
992.4

 
1,278.1

 
979.6

 
Total shareholders’ equity
677.1

 
668.0

 
686.5

 
696.3

 
675.5

 
Statement of Cash Flow Data:
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
$
178.8

 
$
187.3

 
$
101.7

 
$
72.7

 
$
(10.9
)
 
Investing activities
(25.2
)
 
(85.5
)
 
203.2

 
(254.3
)
 
(10.0
)
 
Financing activities
(101.6
)
 
(64.2
)
 
(334.3
)
 
211.1

 
13.0

 
________________________
(1)
Working capital equals current assets minus current liabilities, as presented in the Consolidated Balance Sheets.

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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
The following review of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere within this Report.
Non-GAAP Financial Measures
This item 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 consolidated statements of income, balance sheets or statements of cash flows of the company. Pursuant to the requirements of Regulation G, we have provided a reconciliation below of non-GAAP financial measures to the most directly comparable GAAP financial measure.
The non-GAAP financial measures used are: (1) organic revenue growth (decline), which represents the change in revenue over the prior year excluding estimated currency translation effects, the impacts of acquisitions and divestitures and an additional week of revenue in 2014; and (2) adjusted operating income (loss), which represents operating income (loss) excluding restructuring costs (benefits) and goodwill and intangible asset impairment charges. 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.
Financial Summary
Results of Operations
Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate expenses are reported as Corporate.
Statement of Operations Data—
Consolidated
Year Ended
February 28,
2014
 
February 22,
2013
 
February 24,
2012
 
Revenue
$
2,988.9

 
100.0
 %
 
$
2,868.7

 
100.0
 %
 
$
2,749.5

 
100.0
 %
 
Cost of sales
2,046.5

 
68.5

 
1,987.8

 
69.3

 
1,913.6

 
69.6

 
Restructuring costs (benefits)
(2.8
)
 
(0.1
)
 
14.9

 
0.5

 
26.2

 
1.0

 
Gross profit
945.2

 
31.6

 
866.0

 
30.2

 
809.7

 
29.4

 
Operating expenses
757.0

 
25.3

 
727.0

 
25.3

 
708.3

 
25.8

 
Goodwill and intangible asset impairment charges
12.9

 
0.4

 
59.9

 
2.1

 
—

 
—

 
Restructuring costs
9.4

 
0.3

 
19.8

 
0.7

 
4.3

 
0.1

 
Operating income
165.9

 
5.6

 
59.3

 
2.1

 
97.1

 
3.5

 
Interest expense, investment income (loss) and other income (expense), net
(18.7
)
 
(0.6
)
 
(4.4
)
 
(0.2
)
 
(15.1
)
 
(0.5
)
 
Income before income tax expense
147.2

 
5.0

 
54.9

 
1.9

 
82.0

 
3.0

 
Income tax expense
59.5

 
2.0

 
16.1

 
0.5

 
25.3

 
0.9

 
Net income
$
87.7

 
3.0
 %
 
$
38.8

 
1.4
 %
 
$
56.7

 
2.1
 %
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.70

 
 
 
$
0.30

 
 
 
$
0.43

 
 
 
Diluted
$
0.69

 
 
 
$
0.30

 
 
 
$
0.43

 
 
 


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Organic Revenue Growth—Consolidated
Year Ended
February 28,
2014
February 22,
2013
Prior year revenue
$
2,868.7

 
$
2,749.5

 
Divestitures
(6.3
)
 
(9.6
)
 
Currency translation effects*
7.4

 
(33.9
)
 
   Prior year revenue, adjusted
2,869.8

 
2,706.0

 
Current year revenue
2,988.9

 
2,868.7

 
Dealer acquisitions
(11.4
)
 
(22.2
)
 
Impact of additional week **
(42.0
)
 
—

 
   Current year revenue, adjusted
2,935.5

 
2,846.5

 
Organic growth $
$
65.7

 
$
140.5

 
Organic growth %
2
%
 
5
%
 
________________________
* Currency translation effects represent the net effect of translating prior year foreign currency revenues using the average exchange rate on a quarterly basis during the current year.
** 2014 included 53 weeks of revenue in the Americas and Other category. EMEA always ends its fiscal year on the last day of February, so the comparison to the prior year is generally consistent.
Adjusted Operating Income —
Consolidated
Year Ended
February 28,
2014
 
February 22,
2013
 
February 24,
2012
 
Operating income
$
165.9

 
5.6
%
 
$
59.3

 
2.1
%
 
$
97.1

 
3.5
%
 
Add: goodwill and intangible asset impairment charges
12.9

 
0.4

 
59.9

 
2.1

 
—

 
—

 
Add: restructuring costs
6.6

 
0.2

 
34.7

 
1.2

 
30.5

 
1.1

 
Adjusted operating income
$
185.4

 
6.2
%
 
$
153.9

 
5.4
%
 
$
127.6

 
4.6
%
 
Overview
During 2014, organic revenue growth was 2% compared to the prior year, which represented the fourth consecutive year of organic growth. This growth is generally consistent with or better than global trends in our industry and was driven in part by increased project business. We believe that our investments in research, product development and other growth initiatives have helped drive our revenue growth faster than the rest of our industry over the past three years. The Americas and the Other category posted organic revenue growth of 5%, and 2%, respectively, while EMEA experienced an 8% organic revenue decline. The organic revenue growth in the Americas represented the fourth consecutive year of organic revenue growth, while EMEA remains challenged by the macroeconomic environment in Western Europe. The organic revenue growth in the Other category was primarily driven by PolyVision.
Our consolidated adjusted operating income margin improved to 6.2% in 2014, compared to 5.4% in 2013 and 4.6% in 2012. The improvement was driven by strength in our Americas segment, which increased its adjusted operating income margin over each of the past three years to a high of 11.5% in 2014, while our EMEA segment reported an increase in adjusted operating losses in 2014. The Other category had a slight decline in its adjusted operating income margin, as improvements at PolyVision were more than offset by declines in Asia Pacific and Designtex.
In 2014, we continued taking steps to improve our operating fitness and our global competitiveness. This included implementation of a number of restructuring actions in EMEA, the most significant of which was the initiation of actions to close a manufacturing facility in Germany and the establishment of a new manufacturing location in the Czech Republic.
2014 compared to 2013
We recorded net income of $87.7 in 2014 compared to net income of $38.8 in 2013. The increase in 2014 was driven in large part by improved operating results. The increase was also a result of year-over-year declines in

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goodwill and other intangible asset impairment charges and restructuring costs, partially offset by higher non-operating charges and a higher effective tax rate in 2014.
Operating income grew to $165.9 in 2014 compared to $59.3 in 2013. The 2014 adjusted operating income of $185.4 represented an increase of $31.5 compared to the prior year. The improvement was driven by strength in the Americas, partially offset by higher adjusted operating losses in EMEA and lower adjusted operating income in the Other category.
Revenue for 2014 was $2,988.9 compared to $2,868.7 for 2013, representing organic revenue growth of 2%. We realized organic growth of 5% in the Americas segment and 2% in the Other category while the EMEA segment experienced an organic decline of 8%. Revenue continued to include a higher mix of project business from some of our largest corporate customers.
Cost of sales decreased to 68.5% of revenue in 2014, an 80 basis point improvement compared to 2013. The improvement was primarily driven by benefits associated with organic revenue growth, net pricing adjustments and various other cost reductions in the Americas, partially offset by costs associated with the changes to the EMEA manufacturing footprint and higher competitive discounting in EMEA and Asia Pacific.
Operating expenses of $757.0 increased by $30.0 in 2014 compared to 2013 but remained flat as a percentage of sales. The year-over-year comparison included the following:
•
unfavorable foreign currency translation effects of $3.0,
•
costs of $3.7 related to dealer acquisitions, net of a divestiture,
•
approximately $10.3 of costs related to the additional week,
•
higher variable compensation expense of $2.9,
•
a reduction of $1.6 in environmental charges, and
•
other costs of $11.7 related to increased spending on marketing, product development and other initiatives in the Americas, net of benefits from restructuring activities and other cost reduction efforts in EMEA.
Goodwill and intangible asset impairment charges in 2014 totaled $12.9 and related to Asia Pacific within the Other category. Goodwill impairment charges in 2013 totaled $59.9 and related to the EMEA segment and Designtex within the Other category. See further details on these items in Note 10 to the consolidated financial statements.
We recorded net restructuring costs of $6.6 in 2014 compared to $34.7 in 2013. The 2014 net charges included the following:
•
severance and business exit costs of $7.9 associated with actions in the EMEA segment,
•
a gain of $4.5 related to the sale of a facility in the EMEA segment in connection with previously announced restructuring actions and
•
business exit costs of $0.9 associated with the completion of the integration of PolyVision's global technology business into the Steelcase Education Solutions group.
See further discussion and detail of these items in the Business Segment Disclosure analysis below and in Note 20 to the consolidated financial statements.
Our 2014 effective tax rate was 40.4%, which is higher than the U.S. federal statutory tax rate of 35%. The higher tax rate is being driven by the losses in EMEA, for which no tax benefit is recognized due to full valuation allowances. Income taxes also reflect unfavorable adjustments to valuation allowances associated with deferred tax assets, including tax loss carryforwards (primarily in EMEA) and the non-deductible nature of the goodwill impairment charges in Asia Pacific, largely offset by an $8.5 benefit associated with a tax strategy in Asia Pacific. See Note 15 to the consolidated financial statements for additional information.
2013 compared to 2012
We recorded net income of $38.8 in 2013 compared to net income of $56.7 in 2012. The results in 2013 reflected 5% organic revenue growth compared to 2012 and lower interest expense but included significant goodwill impairment charges, tax valuation allowance adjustments and foreign tax credit benefits.

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Table of Contents

Operating income of $59.3 in 2013 compared to operating income of $97.1 in 2012. The 2013 adjusted operating income of $153.9 represented an increase of $26.3 compared to the prior year, due to strength in the Americas. partially offset by lower profitability in EMEA and the Other category.
Revenue for 2013 was $2,868.7 compared to $2,749.5 for 2012, representing organic revenue growth of 5%. We realized organic growth of 7% in the Americas segment and 1% in the EMEA segment while the Other category experienced a modest decline of 1%. Revenue continued to include a higher mix of project business from some of our largest corporate customers.
Cost of sales decreased to 69.3% of revenue in 2013, a 30 basis point improvement compared to 2012. Benefits from organic revenue growth, recent pricing adjustments (net of commodity cost changes) and restructuring actions (net of related disruption costs) and other cost reductions in the Americas were partially offset by an increase in lower-margin project business and higher competitive discounting in EMEA.
Operating expenses of $727.0 increased by $18.7 in 2013 compared to 2012 but decreased as a percentage of sales to 25.3% in 2013 from 25.8% in 2012. The year-over-year comparison included the following:
•
higher variable compensation expense of $11.7,
•
favorable foreign currency translation effects of $9.3,
•
costs of $7.1 related to dealers acquired in 2013,
•
increased spending of approximately $7 on product development and other initiatives,
•
increased reserves of $3.6 for environmental remediation costs associated with a previously-owned manufacturing site, and
•
$1.5 related to dealer divestitures.
Goodwill impairment charges in 2013 totaled $59.9 and related to the EMEA segment and Designtex within the Other category. See further detail of these items in Note 10 to the consolidated financial statements.
We recorded restructuring costs of $34.7 in 2013 compared to $30.5 in 2012. The 2013 charges included the following:
•
severance and business exit costs of $13.0 from the previously-announced closure of three manufacturing facilities in North America (which are now substantially complete),
•
real estate impairment charges of $12.4 associated with the previously announced closure of our Corporate Development Center,
•
severance and business exit costs of $3.8 associated with the EMEA headcount reductions and owned dealer consolidations in Q4 2013 and
•
severance and business exit costs of $2.0 associated with the integration of PolyVision's global technology business into the Steelcase Education Solutions group.
See further discussion and detail of these items in the Business Segment Disclosure analysis below and in Note 20 to the consolidated financial statements.
Our 2013 effective tax rate was 29.3%, which is below the U.S. federal statutory tax rate of 35%. The difference was primarily driven by a foreign tax benefit totaling $56.7, partially offset by unfavorable adjustments to our valuation allowances associated with tax loss carry-forwards and other deferred tax assets and the non-deductible nature of the goodwill impairment charges in EMEA. See Note 15 to the consolidated financial statements for additional information.

19
Table of Contents

Interest Expense, Investment Income (Loss) and Other Income (Expense), Net
Interest Expense, Investment Income (Loss) and Other Income (Expense), Net
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Interest expense
$
(17.8
)
 
$
(17.8
)
 
$
(25.6
)
 
Investment income (loss)
(0.3
)
 
3.7

 
5.2

 
Other income (expense), net:
 
 
 
 
 
 
Equity in income of unconsolidated ventures
10.2

 
9.4

 
8.3

 
Miscellaneous, net
(10.8
)
 
0.3

 
(3.0
)
 
Total other income (expense), net
(0.6
)
 
9.7

 
5.3

 
Total interest expense, investment income (loss) and other income (expense), net
$
(18.7
)
 
$
(4.4
)
 
$
(15.1
)
 
Miscellaneous other expense of $10.8 in 2014 included $6.0 of charges related to a minority equity investment and $5.1 of foreign exchange losses compared to small foreign exchange gains in 2013. An investment loss in 2014 compared to an investment gain in 2013. The decline was driven by reductions in the cash surrender value of variable life COLI in 2014 compared to gains in 2013. Interest expense in 2012 includes $7.7 associated with $250 of senior notes which matured and were repaid in Q2 2012.
Business Segment Disclosure
See Note 18 to the consolidated financial statements for additional information regarding our business segments.
Americas
The Americas segment serves customers in the U.S., Canada and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Nurture, Coalesse, Details and Turnstone brands.
Statement of Operations Data—
Americas
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Revenue
$
2,154.4

 
100.0
%
 
$
2,015.1

 
100.0
%
 
$
1,868.4

 
100.0
%
 
Cost of sales
1,438.2

 
66.8

 
1,384.4

 
68.7

 
1,302.3

 
69.7

 
Restructuring costs
0.7

 
—

 
13.9

 
0.7

 
20.0

 
1.1

 
Gross profit
715.5

 
33.2

 
616.8

 
30.6

 
546.1

 
29.2

 
Operating expenses
467.1

 
21.7

 
433.8

 
21.5

 
421.8

 
22.6

 
Goodwill and intangible asset impairment charges
—

 
—

 
—

 
—

 
—

 
—

 
Restructuring costs
1.0

 
0.1

 
14.7

 
0.7

 
1.5

 
—

 
Operating income
$
247.4

 
11.4
%
 
$
168.3

 
8.4
%
 
$
122.8

 
6.6
%
 


20
Table of Contents

Organic Revenue Growth—Americas
Year Ended
February 28,
2014
February 22,
2013
Prior year revenue
$
2,015.1

 
$
1,868.4

 
Divestitures
—

 
—

 
Currency translation effects*
(6.3
)
 
(0.6
)
 
   Prior year revenue, adjusted
2,008.8

 
1,867.8

 
Current year revenue
2,154.4

 
2,015.1

 
Dealer acquisitions
—

 
(10.5
)
 
Impact of additional week **
(36.2
)
 
—

 
   Current year revenue, adjusted
2,118.2

 
2,004.6

 
Organic growth $
$
109.4

 
$
136.8

 
Organic growth %
5
%
 
7
%
 
________________________
* Currency translation effects represent the net effect of translating prior year foreign currency revenues using the average exchange rate on a quarterly basis during the current year.
** 2014 included 53 weeks of revenue.
Adjusted Operating Income—Americas
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Operating income
$
247.4

 
11.4
%
 
$
168.3

 
8.4
%
 
$
122.8

 
6.6
%
 
Add: goodwill and intangible asset impairment charges
—

 
—

 
—

 
—

 
—

 
—

 
Add: restructuring costs
1.7

 
0.1

 
28.6

 
1.4

 
21.5

 
1.1

 
Adjusted operating income
$
249.1

 
11.5
%
 
$
196.9

 
9.8
%
 
$
144.3

 
7.7
%
 
2014 compared to 2013
Operating income in the Americas grew to $247.4 in 2014, compared to $168.3 in 2013. Adjusted operating income in 2014 grew to $249.1 from $196.9 in 2013, an increase of $52.2 or 26.5%. The improvement was driven by organic revenue growth, improved customer mix, various cost reduction efforts in manufacturing and logistics and net benefits from pricing adjustments and previous restructuring actions, offset in part by increased spending on marketing, product development and other initiatives and the impact of a higher mix of lower margin project business.
The Americas revenue represented 72.1% of consolidated revenue in 2014. Revenue for 2014 was $2,154.4 compared to $2,015.1 in 2013, an increase of $139.3 or 6.9%. After adjusting for currency translation effects and the approximate impact of an additional week, organic revenue growth was $109.4 or 5%. Revenue growth in 2014 is categorized as follows:
•
Product categories — Seven out of nine product categories grew in 2014, led by Architectural Solutions, Details and Turnstone. The Wood and Nurture categories declined compared to the prior year.
•
Vertical markets — Information Technology, Insurance, Technical and Professional and Education experienced strong growth rates, while Energy, Federal Government and Financial Services declined.
•
Geographic regions — All regions showed growth over 2013, led by the East Business Group.
•
Contract type — The strongest growth came from project sales, while continuing business grew modestly and marketing programs declined year-over-year.
Cost of sales improved to 66.8% of revenue in 2014 compared to 68.7% of revenue in 2013. The improvement was largely driven by the benefits of organic revenue growth, improved customer mix, various cost reduction efforts in manufacturing and logistics and net benefits from pricing adjustments and previous restructuring actions.

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Table of Contents

Operating expenses increased by $33.3 in 2014 compared to 2013 primarily due to higher spending on marketing, product development and other initiatives and the impact of the additional week. Operating expenses increased slightly as a percentage of sales to 21.7% in 2014 from 21.5% in 2013.
Restructuring costs of $1.7 incurred in 2014 were primarily related to the completion of the integration of PolyVision's global technology business into the Steelcase Education Solutions group.
2013 compared to 2012
Operating income in the Americas grew to $168.3 in 2013, compared to $122.8 in 2012. Adjusted operating income in 2013 grew to $196.9 from $144.3 in 2012, an increase of $52.6 or 36.5%. This increase was primarily driven by organic revenue growth, year-over-year benefits from improved pricing (net of commodity cost changes) and benefits from restructuring actions (net of related disruption costs) but impacted by a higher mix of lower-margin project business from some of our largest corporate customers.
The Americas revenue represented 70.2% of consolidated revenue in 2013. Revenue for 2013 was $2,015.1 compared to $1,868.4 in 2012, an increase of $146.7 or 7.9%. After adjusting for currency translation effects and a dealer acquisition, organic revenue growth was $136.8 or 7%. Revenue growth in 2013 is categorized as follows:
•
Product categories—Substantially all product categories grew in 2013. Revenue growth rates were strongest in the Technology and Details categories, while Seating and Coalesse also exceeded the overall average for the year.
•
Vertical markets—Strength in the Energy, Insurance Services, Manufacturing and Information Technology sectors more than offset continued weakness in the U.S. Federal Government sector.
•
Geographic regions—All regions showed growth over 2012, with notable strength in the West Business Group.
•
Contract type—The strongest growth came from our project sales, but revenue from continuing agreements and marketing programs also grew over the prior year.
Cost of sales decreased to 68.7% of revenue in 2013 compared to 69.7% of revenue in 2012. Benefits from organic revenue growth, improved pricing (net of commodity cost increases) and restructuring actions (net of related disruption costs) were partially offset by a higher mix of lower-margin project business (which was somewhat offset by a lower mix of federal government business in the U.S.).
Operating expenses increased by $12.0 in 2013 compared to 2012 primarily due to higher variable compensation expense of $12.8. Operating expenses decreased as a percentage of sales to 21.5% in 2013 from 22.6% in 2012.
Restructuring costs of $28.6 incurred in 2013 included $13.0 associated with the North America plant closures announced in Q4 2011 and a $12.4 impairment charge in conjunction with the previously announced closure of our Corporate Development Center.
EMEA
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, seating and storage solutions.
Statement of Operations Data—EMEA
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Revenue
$
566.9

 
100.0
 %
 
$
594.8

 
100.0
 %
 
$
610.5

 
100.0
 %
 
Cost of sales
429.5

 
75.8

 
434.0

 
73.0

 
432.9

 
70.9

 
Restructuring costs (benefits)
(3.6
)
 
(0.6
)
 
1.0

 
0.2

 
5.0

 
0.8

 
Gross profit
141.0

 
24.8

 
159.8

 
26.8

 
172.6

 
28.3

 
Operating expenses
164.2

 
29.0

 
171.6

 
28.8

 
179.5

 
29.4

 
Goodwill and intangible asset impairment charges
—

 
—

 
35.1

 
5.9

 
—

 
—

 
Restructuring costs
8.2

 
1.4

 
4.0

 
0.7

 
3.0

 
0.5

 
Operating loss
$
(31.4
)
 
(5.6
)%
 
$
(50.9
)
 
(8.6
)%
 
$
(9.9
)
 
(1.6
)%
 

22
Table of Contents


Organic Revenue Growth (Decline)—EMEA
Year Ended
February 28,
2014
February 22,
2013
Prior year revenue
$
594.8

 
$
610.5

 
Dealer divestiture
(6.3
)
 
(1.0
)
 
Currency translation effects*
15.9

 
(33.4
)
 
   Prior year revenue, adjusted
604.4

 
576.1

 
Current year revenue
566.9

 
594.8

 
Dealer acquisitions
(11.4
)
 
(11.7
)
 
Impact of additional week**
—

 
—

 
   Current year revenue, adjusted
555.5

 
583.1

 
Organic growth (decline) $
$
(48.9
)
 
$
7.0

 
Organic growth (decline) %
(8
)%
 
1
%
 
________________________
* Currency translation effects represent the net effect of translating prior year foreign currency revenues using the average exchange rate on a quarterly basis during the current year.
** EMEA always ends its fiscal year on the last day of February, so the comparison to the prior year is generally consistent.
Adjusted Operating Income (Loss)—EMEA
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Operating loss
$
(31.4
)
 
(5.6
)%
 
$
(50.9
)
 
(8.6
)%
 
$
(9.9
)
 
(1.6
)%
 
Add: goodwill and intangible asset impairment charges
—

 
—

 
35.1

 
5.9

 
—

 
—

 
Add: restructuring costs
4.6

 
0.8

 
5.0

 
0.9

 
8.0

 
1.3

 
Adjusted operating loss
$
(26.8
)
 
(4.8
)%
 
$
(10.8
)
 
(1.8
)%
 
$
(1.9
)
 
(0.3
)%
 
2014 compared to 2013
EMEA reported an operating loss of $31.4 in 2014 compared to an operating loss of $50.9 in 2013. The 2013 operating loss included goodwill impairment charges of $35.1. The adjusted operating loss of $26.8 in 2014 represented an increase of $16.0 compared to 2013. Overall, the increased loss was primarily driven by the organic revenue decline (including higher levels of competitive discounting) and costs associated with the changes in the EMEA manufacturing footprint, offset in part by benefits from restructuring activities and other cost reduction efforts.
EMEA revenue represented 19.0% of consolidated revenue in 2014. Revenue for 2014 was $566.9 compared to $594.8 in 2013. Organic revenue declined 8% after adjusting for currency translation effects and dealer acquisitions, net of a divestiture. During 2014, growth in the export markets of the central, eastern and southern parts of Europe (as a group) was more than offset by declines across Western Europe, most notably France and Germany.
Cost of sales increased to 75.8% of revenue in 2014, a 280 basis point deterioration compared to 2013. The deterioration was driven by lower absorption of fixed costs associated with the organic revenue decline (including higher levels of competitive discounting), costs associated with the changes in the EMEA manufacturing footprint and various inefficiencies in manufacturing and logistics.
Operating expenses decreased by $7.4 in 2014 as $4.1 of additional operating expenses related to dealer acquisitions, net of a divestiture, and unfavorable currency translation effects were more than offset by the benefits from recent restructuring activities and other cost reduction efforts. Operating expenses as a percentage of sales rose slightly to 29.0% in 2014 from 28.8% in 2013.
Net restructuring costs of $4.6 incurred in 2014 were primarily associated with the reorganization of the sales, marketing and support functions in France, partially offset by a gain on the sale of a facility in connection with previously announced restructuring actions.

23
Table of Contents

2013 compared to 2012
EMEA reported an operating loss of $50.9 in 2013 compared to an operating loss of $9.9 in 2012. The 2013 results included $35.1 of goodwill impairment charges. The adjusted operating loss of $10.8 represented an increase of $8.9 compared to 2012. Overall, the increased loss was primarily driven by a higher mix of lower-margin project business and higher competitive discounting.
EMEA revenue represented 20.8% of consolidated revenue in 2013. Revenue for 2013 was $594.8 compared to $610.5 in 2012. Organic revenue growth was 1% after adjusting for currency translation effects and dealer acquisitions, net of a divestiture. During 2013, all regions achieved mid-single digit organic growth except for Iberia and Northern Europe which declined 12% and 1%, respectively.
Cost of sales increased to 73.0% of revenue in 2013, a 210 basis point deterioration compared to 2012. The deterioration was mainly due to a higher mix of lower-margin project business and higher competitive discounting.
Operating expenses decreased by $7.9 in 2013, primarily driven by $9.6 of favorable foreign currency translation effects and benefits from restructuring activities and other cost reduction efforts, partially offset by the impact of net acquisitions and higher employee expenses, including variable compensation expense.
Restructuring costs of $5.0 incurred in 2013 primarily related to local headcount reductions and owned dealer consolidations.
Other
The Other category includes Asia Pacific, Designtex and PolyVision. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, storage and seating solutions. Designtex designs and sells surface materials including textiles and wall coverings which are specified by architects and designers directly to end-use customers primarily in North America. PolyVision manufactures ceramic steel surfaces for use in multiple applications, but primarily for sale to third-party fabricators and distributors to create static whiteboards and chalkboards sold in the primary and secondary education markets globally.
Statement of Operations Data—Other
Year Ended
February 28,
2014
February 22,
2013
February 25,
2011
Revenue
$
267.6

 
100.0
 %
 
$
258.8

 
100.0
 %
 
$
270.6

 
100.0
%
 
Cost of sales
178.8

 
66.8

 
169.4

 
65.5

 
178.4

 
65.9

 
Restructuring costs
0.1

 
—

 
—

 
—

 
1.2

 
0.4

 
Gross profit
88.7

 
33.2

 
89.4

 
34.5

 
91.0

 
33.7

 
Operating expenses
84.3

 
31.5

 
83.6

 
32.3

 
76.6

 
28.3

 
Goodwill and intangible asset impairment charges
12.9

 
4.8

 
24.8

 
9.6

 
—

 
—

 
Restructuring costs (benefits)
0.2

 
0.1

 
1.1

 
0.4

 
(0.2
)
 
—

 
Operating income (loss)
$
(8.7
)
 
(3.2
)%
 
$
(20.1
)
 
(7.8
)%
 
$
14.6

 
5.4
%
 
 

24
Table of Contents

Organic Revenue Growth (Decline)—Other
Year Ended
February 28,
2014
February 22,
2013
Prior year revenue
$
258.8

 
$
270.6

 
Divestiture
—

 
(8.6
)
 
Currency translation effects*
(2.2
)
 
0.1

 
   Prior year revenue, adjusted
256.6

 
262.1

 
Current year revenue
267.6

 
258.8

 
Dealer acquisitions
—

 
—

 
Impact of additional week **
(5.8
)
 
—

 
   Current year revenue, adjusted
261.8

 
258.8

 
Organic growth (decline) $
$
5.2

 
$
(3.3
)
 
Organic growth (decline) %
2
%
 
(1
)%
 
________________________
* Currency translation effects represent the net effect of translating prior year foreign currency revenues using the average exchange rate on a quarterly basis during the current year.
** 2014 included 53 weeks of revenue.
Adjusted Operating Income—Other
Year Ended
February 28,
2014
February 22,
2013
February 25,
2011
Operating income (loss)
$
(8.7
)
 
(3.2
)%
 
$
(20.1
)
 
(7.8
)%
 
$
14.6

 
5.4
%
 
Add: goodwill and intangible asset impairment charges
12.9

 
4.8

 
24.8

 
9.6

 
—

 
—

 
Add: restructuring costs
0.3

 
0.1

 
1.1

 
0.4

 
1.0

 
0.4

 
Adjusted operating income
$
4.5

 
1.7
 %
 
$
5.8

 
2.2
 %
 
$
15.6

 
5.8
%
 
2014 compared to 2013
The Other category reported an operating loss of $8.7 in 2014 compared to an operating loss of $20.1 in 2013. The 2014 results included goodwill and intangible asset impairment charges of $12.9, compared to a goodwill impairment charge of $24.8 in 2013. Adjusted operating income decreased by $1.3 primarily driven by a higher operating loss in Asia Pacific and lower operating income at Designtex, partially offset by higher operating income at PolyVision.
Revenue of $267.6 in 2014 increased by $8.8 compared to revenue of $258.8 in 2013. Excluding currency translation effects and the approximate impact of the additional week, organic revenue grew $5.2 or 2%, driven by PolyVision.
Cost of sales increased to 66.8% of revenue in 2014, a 130 basis point deterioration compared to 2013. The erosion in 2014 was primarily driven by higher competitive discounting in Asia Pacific.
Operating expenses increased by $0.7 to $84.3 in 2014 compared to $83.6 in 2013. The increase was primarily driven by sales and marketing investments at Designtex, partially offset by cost reduction efforts in Asia Pacific.
2013 compared to 2012
The Other category reported an operating loss of $20.1 in 2013 compared to operating income of $14.6 in 2012. The 2013 results included a goodwill impairment charge of $24.8. Adjusted operating income decreased by $9.8 primarily due to lower revenue in Asia Pacific, as well as higher operating expenses across the category.
Revenue of $258.8 in 2013 decreased by $11.8 compared to revenue of $270.6 in 2012. Excluding the decrease in revenue due to the divestiture of a small division at PolyVision and currency translation effects, organic revenue declined $3.3, or 1%, driven by a slowdown in demand in the Asia Pacific region.

25
Table of Contents

Cost of sales as a percent of revenue decreased by 40 basis points in 2013 compared to 2012. The improvement was primarily due to growth in higher-margin continuing business at Designtex, partially offset by a higher mix of lower-margin project business in Asia Pacific.
Operating expenses increased by $7.0 to $83.6 in 2013 compared to $76.6 in 2012. The increase was driven by higher variable compensation and employee-related costs across the category.
Corporate
Corporate expenses include unallocated portions of shared service functions such as information technology, human resources, finance, executive, corporate facilities, legal and research.
Statement of Operations Data—Corporate
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Operating expenses
$
41.4

 
$
38.0

 
$
30.4

 
The increase of $3.4 in 2014 was primarily due to higher earnings associated with deferred compensation and higher variable compensation expense. Operating expenses in 2013 included a $3.6 increase in reserves for environmental remediation costs associated with a previously-owned manufacturing site. The remaining increase in 2013 primarily related to higher variable compensation expense.
Liquidity and Capital Resources

Liquidity
Based on current business conditions, we target a range of $75 to $150 in cash and cash equivalents and short-term investments to fund day-to-day operations, including seasonal disbursements, particularly the annual payment of accrued variable compensation and retirement plan contributions in Q1 of each fiscal year, when applicable. In addition, we may carry additional liquidity for potential investments in strategic initiatives and as a cushion against economic volatility.
Liquidity Sources
February 28,
2014
February 22,
2013
Cash and cash equivalents
$
201.8

 
$
150.4

 
Short-term investments
119.5

 
100.5

 
Company-owned life insurance
154.3

 
225.8

 
Availability under credit facilities
163.6

 
174.2

 
Total liquidity
$
639.2

 
$
650.9

 
As of February 28, 2014, we held a total of $321.3 in cash and cash equivalents and short-term investments. The majority of our short-term investments are located in the U.S. Of our total $201.8 cash and cash equivalents, 69% was located in the U.S. and the remaining 31%, or $63.5, was located outside of the U.S., primarily in France, China, Hong Kong and Malaysia. The amounts located outside the U.S. would be taxable if repatriated to the U.S., but we do not anticipate repatriating such amounts or needing them for operations in the U.S. Such amounts are considered available to repay intercompany debt, available to meet local working capital requirements or permanently reinvested in foreign subsidiaries.
The majority of our short-term investments are maintained in a managed investment portfolio, which primarily consists of U.S. agency debt securities and corporate debt securities.
Our investments in COLI policies are intended to be utilized as a long-term funding source for long-term benefit obligations. However, COLI can be used as a source of liquidity if needed. We believe the financial strength of the issuing insurance companies associated with our COLI policies is sufficient to meet their obligations. COLI investments are recorded at their net cash surrender value. See Note 9 to the consolidated financial statements for more information.
Availability under credit facilities may be reduced by the use of cash and cash equivalents and short-term investments for purposes other than the repayment of debt as a result of constraints related to our maximum leverage ratio covenant. See Liquidity Facilities for more information.

26
Table of Contents

The following table summarizes our consolidated statements of cash flows:
Cash Flow Data
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Net cash flow provided by (used in):
 
 
 
 
 
 
Operating activities
$
178.8

 
$
187.3

 
$
101.7

 
Investing activities
(25.2
)
 
(85.5
)
 
203.2

 
Financing activities
(101.6
)
 
(64.2
)
 
(334.3
)
 
Effect of exchange rate changes on cash and cash equivalents
(0.6
)
 
0.7

 
(0.7
)
 
Net increase (decrease) in cash and cash equivalents
51.4

 
38.3

 
(30.1
)
 
Cash and cash equivalents, beginning of period
150.4

 
112.1

 
142.2

 
Cash and cash equivalents, end of period
$
201.8

 
$
150.4

 
$
112.1

 
Cash provided by operating activities
Cash Flow Data—Operating Activities
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Net income
$
87.7

 
$
38.8

 
$
56.7

 
Depreciation and amortization
60.0

 
58.3

 
56.4

 
Goodwill and intangible asset impairment charges
12.9

 
59.9

 
—

 
Deferred income taxes
14.1

 
(3.0
)
 
13.6

 
Restructuring costs
6.6

 
34.7

 
30.5

 
Non-cash stock compensation
16.8

 
9.6

 
11.6

 
Changes in accounts receivable, inventories and accounts payable
(16.1
)
 
(7.3
)
 
(11.1
)
 
Changes in employee compensation liabilities
5.5

 
5.8

 
(32.5
)
 
Changes in other operating assets and liabilities
(6.8
)
 
(9.1
)
 
(23.1
)
 
Other
(1.9
)
 
(0.4
)
 
(0.4
)
 
Net cash provided by operating activities
$
178.8

 
$
187.3

 
$
101.7

 

Cash provided by operating activities decreased slightly in 2014 when compared to 2013. The change in cash provided by operating activities in 2013 compared to 2012 was primarily due to an increase in cash generated from operating results after consideration of the non-cash goodwill impairment charges.
Cash provided by (used in) investing activities
Cash Flow Data—Investing Activities
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Capital expenditures
$
(86.8
)
 
$
(74.0
)
 
$
(64.9
)
 
Proceeds from disposal of fixed assets
9.5

 
15.5

 
11.7

 
Purchases of investments
(146.7
)
 
(78.6
)
 
(195.8
)
 
Liquidations of investments
122.3

 
62.6

 
466.1

 
Liquidations of COLI
74.5

 
—

 
—

 
Acquisitions, net of cash acquired
—

 
(6.2
)
 
(20.9
)
 
Other
2.0

 
(4.8
)
 
7.0

 
Net cash provided by (used in) investing activities
$
(25.2
)
 
$
(85.5
)
 
$
203.2

 
Capital expenditures in 2014 were primarily related to investments in manufacturing operations, product development, corporate facilities and showrooms. During 2014, we reduced our COLI investments by withdrawing basis of $74.5 (tax-free), and we reinvested the proceeds in short term investments.

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In 2012, purchases and liquidations of investments activity increased due to our use of the proceeds from the issuance of $250 in senior notes in Q4 2011 and the subsequent repayment of $250 in senior notes in Q2 2012.
Cash used in financing activities
Cash Flow Data—Financing Activities
Year Ended
February 28,
2014
February 22,
2013
February 24,
2012
Repayments of short-term and long-term debt
$
(2.0
)
 
$
(2.3
)
 
$
(256.0
)
 
Dividends paid
(50.2
)
 
(45.8
)
 
(31.7
)
 
Common stock repurchases
(49.9
)
 
(19.9
)
 
(47.7
)
 
Excess tax benefit from vesting of stock awards
0.5

 
3.8

 
1.1

 
Net cash used in financing activities
$
(101.6
)
 
$
(64.2
)
 
$
(334.3
)
 
We paid dividends of $0.10, $0.09 and $0.06 per common share during each quarter in 2014, 2013 and 2012, respectively. On March 25, 2014, our Board of Directors declared a dividend of $0.105 per common share to be paid in Q1 2015.
During 2014, 2013 and 2012, we made common stock repurchases of $49.9, $19.9, and $47.7, respectively, all of which related to our Class A Common Stock. As of February 28, 2014, we had $93.0 of remaining availability under the $250 share repurchase program approved by our Board of Directors in Q4 2008.
Share repurchases of Class A Common Stock to enable participants to satisfy tax withholding obligations upon vesting of restricted stock and restricted stock units, pursuant to the terms of our Incentive Compensation Plan, were $6.6, $3.0 and $0.1 in 2014, 2013 and 2012, respectively.
In Q2 2012, we repaid $250.0 of senior notes at face value.
Capital Resources
Off-Balance Sheet Arrangements
We are contingently liable under loan and lease guarantees for certain Steelcase dealers in the event of default or non-performance of the financial repayment of a liability. In certain cases, we also guarantee completion of contracts by our dealers. Due to the contingent nature of guarantees, the full value of the guarantees is not recorded on our Consolidated Balance Sheets; however, when necessary, we record reserves to cover potential losses. As of February 28, 2014 and February 22, 2013, there were no reserves for guarantees recorded on our Consolidated Balance Sheets.
Contractual Obligations
Our contractual obligations as of February 28, 2014 were as follows:
Contractual Obligations
Payments Due by Period
Total
Less than
1 Year
1-3
Years
3-5
Years
After 5
Years
Long-term debt and short-term borrowings
$
287.0

 
$
2.6

 
$
33.9

 
$
0.2

 
$
250.3

 
Estimated interest on debt obligations
115.4

 
17.2

 
34.2

 
31.9

 
32.1

 
Operating leases
170.9

 
37.5

 
54.4

 
37.6

 
41.4

 
Committed capital expenditures
34.4

 
34.4

 
—

 
—

 
—

 
Purchase obligations
55.6

 
41.0

 
7.6

 
6.6

 
0.4

 
Other liabilities
3.2

 
3.2

 
—

 
—

 
—

 
Employee benefit and compensation obligations
266.9

 
109.3

 
43.3

 
27.2

 
87.1

 
Total
$
933.4

 
$
245.2

 
$
173.4

 
$
103.5

 
$
411.3

 
Total consolidated debt as of February 28, 2014 was $287.0. Of our total debt, $249.9 is in the form of term notes due in 2021 and $35.8 is related to financing secured by our two corporate aircraft.

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We have commitments related to certain sales offices, showrooms, warehouses and equipment under non-cancelable operating leases that expire at various dates through 2025. Minimum payments under operating leases, net of sublease rental income, are presented in the contractual obligations table above.
Committed capital expenditures represent obligations we have related to property, plant and equipment purchases.
We define purchase obligations as non-cancelable signed contracts to purchase goods or services beyond the needs of meeting current backlog or production.
Other liabilities represent obligations for foreign exchange forward contracts.
Employee benefit obligations represent contributions and benefit payments expected to be made for our post-retirement, pension, deferred compensation, defined contribution, severance arrangements and variable compensation plans. Our obligations related to post-retirement benefit plans are not contractual, and the plans could be amended at the discretion of the Compensation Committee of our Board of Directors. We limited our disclosure of contributions and benefit payments to 10 years as information beyond this time period was not available. See Note 13 to the consolidated financial statements for additional information.
The contractual obligations table above is current as of February 28, 2014. The amounts of these obligations could change materially over time as new contracts or obligations are initiated and existing contracts or obligations are terminated or modified. We anticipate the cash expected to be generated from future operations, current cash and cash equivalents and short-term investment balances, funds available under our credit facilities and funds available from COLI to be sufficient to fulfill our existing contractual obligations.
Liquidity Facilities
Our total liquidity facilities as of February 28, 2014 were:
Liquidity Facilities
February 28,
2014
Global committed bank facility
$
125.0

Various uncommitted lines
38.6

Total credit lines available
163.6

Less: borrowings outstanding
—

Available capacity
$
163.6

We have a $125 global committed five-year unsecured revolving syndicated credit facility which was entered into in 2013. The facility requires us to satisfy financial covenants including a maximum leverage ratio covenant and a minimum interest coverage ratio covenant. Additionally, the facility requires us to comply with certain other terms and conditions, including a restricted payment covenant which establishes a maximum level of dividends and/or other equity-related distributions or payments (such as share repurchases) we may make in a fiscal year. As of February 28, 2014, we were in compliance with all covenants under the facility.
The various uncommitted lines may be changed or canceled by the applicable lenders at any time. There were no outstanding borrowings on uncommitted facilities as of February 28, 2014. In addition, we have a revolving letter of credit agreement for $13.5 of which $11.3 was utilized primarily related to our self-insured workers’ compensation programs as of February 28, 2014. There were no draws on our standby letters of credit during 2014.
Total consolidated debt as of February 28, 2014 was $287.0. Our debt primarily consists of $249.9 in term notes due in Q4 2021 with an effective interest rate of 6.6%. In addition, we have a term loan with a balance as of February 28, 2014 of $35.8. This term loan has a floating interest rate based on 30-day LIBOR plus 3.35% and is due in Q2 2017. The term notes are unsecured, the term loan is secured by two corporate aircraft, and neither the term notes nor the term loan contain financial covenants or are cross-defaulted to other debt facilities.
See Note 12 to the consolidated financial statements for additional information.
Liquidity Outlook
Our current cash and cash equivalents and short-term investment balances, funds available under our credit facilities, funds available from COLI and cash generated from future operations are expected to be sufficient to

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finance our known or foreseeable liquidity needs. We believe the timing, strength and continuity of the economic recovery across the geographies we serve remain uncertain which may challenge our level of cash generation from operations. We continue to maintain a conservative approach to liquidity and have flexibility over significant uses of cash including our capital expenditures and discretionary operating expenses.
Our significant funding requirements include operating expenses, non-cancelable operating lease obligations, capital expenditures, variable compensation and retirement plan contributions, dividend payments and debt service obligations.
We expect capital expenditures to total between $90 to $100 in 2015 compared to $87 in 2014. This amount includes the establishment of a new manufacturing location in the Czech Republic, global upgrades to various manufacturing technologies and investments in showrooms. We closely manage capital spending to ensure we are making investments that we believe will sustain our business and preserve our ability to introduce innovative new products.
On March 25, 2014, we announced a quarterly dividend on our common stock of $0.105 per share, or $12.9, to be paid in Q1 2015. Future dividends will be subject to approval by our Board of Directors and compliance with the restricted payment covenant of our credit facilities.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements and accompanying notes. Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Although these estimates are based on historical data and management’s knowledge of current events and actions it may undertake in the future, actual results may differ from the estimates if different conditions occur. The accounting estimates that typically involve a higher degree of judgment and complexity are listed and explained below. These estimates were discussed with the Audit Committee of our Board of Directors and affect all of our segments.
Goodwill and Other Intangible Assets
Goodwill represents the difference between the purchase price and the related underlying tangible and identifiable intangible net asset values resulting from business acquisitions. Annually in Q4, or earlier if conditions indicate it is necessary, the carrying value of the reporting unit is compared to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value. Goodwill is assigned to and the fair value is tested at the reporting unit level. In 2014, we evaluated goodwill and intangible assets using five reporting units where goodwill is recorded: Americas, EMEA and Asia Pacific, Designtex and PolyVision within the Other category.
Annually in Q4, or earlier if conditions indicate it is necessary, we also perform an impairment analysis of our intangible assets not subject to amortization using an income approach based on the cash flows attributable to the related products. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds its estimated fair value. In testing for impairment, we first determine if the asset is recoverable and then compare the discounted cash flows over the asset’s remaining life to the carrying value.
During Q4 2014, we performed our annual impairment assessment of goodwill in our reporting units, and in Q3 2014, we completed an interim evaluation of our Asia Pacific reporting unit (within the Other category). In the first step to test for potential impairment, we measured the estimated fair value of our reporting units using a discounted cash flow (“DCF”) valuation method and reconciled the sum of the fair values of our reporting units to our total market capitalization plus a control premium (our “adjusted market capitalization”). The control premium represents an estimate associated with obtaining control of the company in an acquisition of the outstanding shares of Class A Common Stock and Class B Common Stock. The DCF analysis used the present value of projected cash flows and a residual value. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows in measuring fair value. Assumptions used in our impairment valuations, such as forecasted growth rates and cost of capital, are consistent with our current internal projections.
As part of the annual reconciliation to our adjusted market capitalization, we made adjustments to the discount rates used in calculating the estimated fair value of the reporting units. The discount rates ranged from

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12.6% to 16.0%. Due to the subjective nature of this reconciliation process, these assumptions could change over time, which may result in future impairment charges.
In Q3 2014, as a result of our interim testing of our Asia Pacific reporting unit, we recorded a $12.3 impairment charge for goodwill, and there is no remaining net goodwill in the Asia Pacific reporting unit as of February 28, 2014. Additionally, a charge of $0.6 was recorded in Asia Pacific for impairment of other intangible assets. See further details in Note 10 to the consolidated financial statements. There were no other impairments for our remaining reporting units in 2014.
In Q4 2013, our annual goodwill impairment analysis resulted in impairment charges of $59.9 for goodwill related to EMEA and Designtex within the Other category as discussed in Note 10 to the consolidated financial statements. There were no other impairments for our remaining reporting units.
As of February 28, 2014, we had remaining goodwill and net intangible assets recorded on our Consolidated Balance Sheets as follows:
Reportable Segment
Goodwill
Other Intangible
Assets, Net
Americas
$
89.6

 
$
9.7

 
EMEA
—

 
1.9

 
Other category
18.5

 
5.0

 
Total
$
108.1

 
$
16.6

 
As of the valuation date, the enterprise value available for goodwill determined as described above is in excess of the underlying reported value of goodwill as follows:
Reportable Segment
Enterprise Value
Available in Excess
of Goodwill
Americas
$
1,234.0

Other category
55.0

For each reporting unit, the excess enterprise value available for goodwill is primarily driven by the residual value of future years. Thus, increasing the discount rate by 1%, leaving all other assumptions unchanged, would reduce the enterprise value in excess of goodwill to the following amounts:
Reportable Segment
Enterprise Value
Available in Excess
of Goodwill
Americas
$
1,056.0

Other category
43.0

After recording impairment charges discussed above, no reporting units would have had goodwill balances in excess of enterprise value available for goodwill based on the sensitivity analysis above.
See Note 2 and Note 10 to the consolidated financial statements for additional information.
Income Taxes
Our annual effective tax rate is based on income, statutory tax rates and tax planning strategies in various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating tax positions. Tax positions are reviewed quarterly and balances are adjusted as new information becomes available.
We are audited by the U.S. Internal Revenue Service under the Compliance Assurance Process (“CAP”). Under CAP, the U.S. Internal Revenue Service works with large business taxpayers to identify and resolve issues prior to the filing of a tax return. Accordingly, we expect to record minimal liabilities for U.S. Federal uncertain tax positions. Tax positions are reviewed regularly for state, local and non-U.S. tax liabilities associated with uncertain tax positions. Our liability for uncertain tax positions in these jurisdictions is $2.2.

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Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. In evaluating our ability to recover deferred tax assets within the jurisdiction from which they arise, we consider all positive and negative evidence. These assumptions require significant judgment and are developed using forecasts of future taxable income that are consistent with the internal plans and estimates we are using to manage the underlying business. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.
In 2014, we implemented tax planning strategies resulting in a $20.2 worthless stock deduction and a $1.7 bad debt deduction that will reduce our 2014 U.S. tax liabilities by $8.5. The deductions relate to the liquidation of certain subsidiaries in the Asia Pacific region. The ability to take the tax deductions hinges on a number of factors, including the solvency of the subsidiaries and the characterization of the transaction. We have analyzed all of the issues and assert that it is more likely than not that we are entitled to both the worthless stock deduction and the bad debt deduction. Therefore, it is appropriate to include the benefit in our 2014 consolidated financial statements.
In 2013, we implemented tax planning strategies resulting in excess foreign tax credits of $57.6.  More specifically, we converted a wholly owned French holding company from a disregarded entity to a controlled foreign corporation for U.S. tax purposes, and the conversion caused outstanding intercompany debt to be treated as a deemed dividend taxable in the U.S.  Foreign taxes paid on the income that generated the deemed dividend exceeded the U.S. tax cost creating excess foreign tax credits of $56.7. Other cash dividends received from our Canadian subsidiary resulted in excess foreign tax credits of $0.9.
Future tax benefits of tax losses are recognized to the extent that realization of these benefits is considered more likely than not. As of February 28, 2014, we recorded tax benefits from operating loss carryforwards of $90.9, but we have also recorded valuation allowances totaling $76.2, which reduced our recorded tax benefit to $14.7. It is considered more likely than not that a $14.7 cash benefit will be realized on these carryforwards in future periods. This determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies will enable us to utilize the carryforwards. To the extent that available evidence raises doubt about the realization of a deferred tax asset, a valuation allowance is established or adjusted.
Additionally, we have deferred tax assets related to tax credit carryforwards of $23.6. The majority of these credit carryforwards are the result of a tax planning strategy entered into during 2013. We expect to utilize $17.7 with the filing of our 2014 tax return. The U.S. foreign tax credit carryforward period is 10 years and utilization of foreign tax credits is restricted to 35% of foreign source taxable income in that year. We have projected our pretax domestic earnings and foreign source income based on historical results and expect to fully utilize the remaining excess foreign tax credits (as well as the remaining other credits) within the allowable carryforward period. As noted above regarding operating loss carryforwards, a valuation allowance will be established on the credit carryforwards if their expected realization changes.
As of February 28, 2014, we have recorded valuation allowances totaling $81.8 against deferred tax assets, including net operating losses of $76.0 and other deductible temporary tax differences of $5.8. The $14.7 of deferred tax assets related to net operating losses for which there is no valuation allowance recorded as of February 28, 2014 is anticipated to be realized through future operating profits. Our judgment related to the realization of deferred tax assets is based on current and expected market conditions and could change in the event market conditions and our profitability in these jurisdictions differ significantly from our current estimates.
A 10% decrease in the expected amount of cash benefit to be realized on the carryforwards would have resulted in a decrease in net income for 2014 of approximately $4.
See Note 15 to the consolidated financial statements for additional information.

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Pension and Other Post-Retirement Benefits
We sponsor a number of domestic and foreign plans to provide pension, medical and life insurance benefits to retired employees. As of February 28, 2014 and February 22, 2013, the benefit obligations, fair value of plan assets and funded status of these plans were as follows:
 
Defined Benefit
Pension Plans
Post-Retirement
Plans
February 28,
2014
February 22,
2013
February 28,
2014
February 22,
2013
Fair value of plan assets
$
55.0

 
$
50.2

 
$
—

 
$
—

 
Benefit plan obligations
103.5

 
101.7

 
69.1

 
77.3

 
Funded status
$
(48.5
)
 
$
(51.5
)
 
$
(69.1
)
 
$
(77.3
)
 
The post-retirement medical and life insurance plans are unfunded. As of February 28, 2014, approximately 68% of our unfunded defined benefit pension obligations related to our non-qualified supplemental retirement plan that is limited to a select group of management approved by the Compensation Committee. Our investments in whole life and variable life COLI policies with a net cash surrender value of $154.3 as of February 28, 2014 are intended to be utilized as a long-term funding source for post-retirement medical benefits, deferred compensation and supplemental retirement plan obligations. The asset values of the COLI policies are not segregated in a trust specifically for the plans, thus are not considered plan assets. Changes in the values of these policies have no effect on the post-retirement benefits expense, defined benefit pension expense or benefit obligations recorded in the consolidated financial statements.
We recognize the cost of benefits provided during retirement over the employees’ active working lives. Inherent in this approach is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Key actuarial assumptions that require significant management judgment and have a material impact on the measurement of our consolidated benefits expense and benefit obligations include, among others, the discount rate and health cost trend rates. These and other assumptions are reviewed with our actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, benefit payments, expenses paid from the fund, rates of termination, medical inflation, technology and quality care changes, regulatory requirements, plan changes and governmental coverage changes.
To conduct our annual review of discount rates, we perform a matching exercise of projected plan cash flows against spot rates on a yield curve comprised of high quality corporate bonds as of the measurement date (the Ryan ALM Top Third curve as of February 28, 2014 and the Ryan ALM 45/95 curve as of February 22, 2013). The measurement dates for our retiree benefit plans are consistent with our fiscal year-end. Accordingly, we select discount rates to measure our benefit obligations that are consistent with market indices at the end of each fiscal year.
Based on consolidated benefit obligations as of February 28, 2014, a one percentage point decline in the weighted-average discount rate used for benefit plan measurement purposes would have changed the 2014 consolidated benefits expense by less than $1 and the consolidated benefit obligations by less than $13. All obligation-related experience gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants.
To conduct our annual review of healthcare cost trend rates, we model our actual claims cost data over a historical period, including an analysis of pre-65 versus post-65 age groups and other important demographic components of our covered retiree population. This data is adjusted to eliminate the impact of plan changes and other factors that would tend to distort the underlying cost inflation trends. Our initial healthcare cost trend rate is reviewed annually and adjusted as necessary to remain consistent with recent historical experience and our expectations regarding short-term future trends. As of February 28, 2014, our initial rate of 7.04% for pre-age 65 retirees was trended downward by each year, until the ultimate trend rate of 4.50% was reached. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate healthcare cost premium. Post-age 65 trend rates are not applicable after 2012 due to our change to a fixed subsidy for post-age 65 benefits.
Based on consolidated benefit obligations as of February 28, 2014, a one percentage point increase or decrease in the assumed healthcare cost trend rates would have changed the 2013 consolidated benefits expense by less than $1 and changed the consolidated benefit obligations by less than $1. All experience gains and losses

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are amortized using a straight-line method, over at least the minimum amortization period prescribed by accounting guidance.
Despite the previously described policies for selecting key actuarial assumptions, we periodically experience material differences between assumed and actual experience. Our consolidated unamortized prior service credits and net experience gains recorded in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets were $24.5 as of February 28, 2014 and $23.4 as of February 22, 2013.
See Note 13 to the consolidated financial statements for additional information.
Forward-Looking Statements
From time to time, in written and oral statements, we discuss our expectations regarding future events and our plans and objectives for future operations. These forward-looking statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, us. Forward-looking statements generally are accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from our expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; our restructuring activities; changes in raw materials and commodity costs; currency fluctuations; changes in customer demands; and the other risks and contingencies detailed in this Report and our other filings with the SEC. We undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Recently Issued Accounting Standards
See Note 3 to the consolidated financial statements for information regarding recently issued accounting standards.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk:
We are exposed to market risks from foreign currency exchange, interest rates, commodity prices and fixed income and equity prices, which could affect our operating results, financial position and cash flows.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange rate risk primarily on sales commitments, anticipated sales and purchases and assets and liabilities denominated in currencies other than the U.S. dollar. In 2014, 2013 and 2012, we transacted business in 16 primary currencies worldwide, of which the most significant were the U.S. dollar, the euro, the Canadian dollar and the pound sterling. Revenue from foreign locations represented approximately 32% of our consolidated revenue in 2014, 34% in 2013 and 36% in 2012. We actively manage the foreign currency exposures that are associated with committed foreign currency purchases and sales created in the normal course of business at the local entity level. Exposures that cannot be naturally offset within a local entity to an immaterial amount are often hedged with foreign currency derivatives or netted with offsetting exposures at other entities. We do not use derivatives for trading or speculative purposes. Our results are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold.
We estimate that an additional 10% strengthening of the U.S. dollar against local currencies would have increased operating income by approximately $1 in 2014 and $2 in 2013 and decreased operating income by approximately $2 in 2012. These estimates assume no changes other than the exchange rate itself. However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency.
The translation of the assets and liabilities of our international subsidiaries is made using the foreign currency exchange rates as of the end of the fiscal year. Translation adjustments are not included in determining net income but are included in Accumulated other comprehensive income (loss) within shareholders’ equity on the

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Consolidated Balance Sheets until a sale or substantially complete liquidation of the net investment in the international subsidiary takes place. In certain markets, we could recognize a significant gain or loss related to unrealized cumulative translation adjustments if we were to exit the market and liquidate our net investment. As of February 28, 2014 and February 22, 2013, the cumulative net currency translation adjustments reduced shareholders’ equity by $19.5 and $23.6, respectively.
Foreign currency exchange gains and losses reflect transaction gains and losses, which arise from monetary assets and liabilities denominated in currencies other than a business unit’s functional currency. For 2014, net transactions losses were $5.1. For 2013, net transaction gains were $1.2 and for 2012, net transaction losses were $0.3.
See Note 2 to the consolidated financial statements for additional information.
Interest Rate Risk
We are exposed to interest rate risk primarily on our short-term and long-term investments and short-term and long-term borrowings. Our short-term investments are primarily invested in U.S. agency debt securities, U.S. government debt securities and corporate debt securities. Additionally, we held auction rate securities with a par value of $11.7 as of February 28, 2014. These investments are classified as long-term since no liquid markets currently exist for these securities. The risk on our short-term and long-term borrowings is primarily related to a loan with a balance of $35.8 and $38.4 as of February 28, 2014 and February 22, 2013, respectively. This loan bears a floating interest rate based on 30-day LIBOR plus 3.35%.
We estimate a 1% increase in interest rates would have increased our net income by approximately $1 in 2014, 2013 and 2012, mainly as a result of higher interest income on our investments. Significant changes in interest rates could have an impact on the market value of our managed fixed-income investment portfolio. However, this quantitative measure has inherent limitations since not all of our investments are in similar asset classes. In addition, our investment manager actively manages certain investments, thus our results could be better or worse than market returns. As of February 28, 2014, approximately 42% of our fixed-income investments mature within one year, approximately 25% in two years, approximately 27% in three years and approximately 6% in four or more years.
See Note 6 and Note 12 to the consolidated financial statements for additional information.
Commodity Price Risk
We are exposed to commodity price risk primarily on our raw material purchases. These raw materials are not rare or unique to our industry. The cost of steel, aluminum, other metals, wood, particleboard, petroleum-based products and other commodities, such as fuel and energy, has fluctuated significantly in recent years due to changes in global supply and demand. Our gross margins could be affected if these types of costs continue to fluctuate. We actively manage these raw material costs through global sourcing initiatives and price increases on our products. However, in the short-term, rapid increases in raw material costs can be very difficult to offset with price increases because of contractual agreements with our customers, and it is difficult to find effective financial instruments to hedge against such changes.
As a result of changes in commodity costs, cost of sales decreased approximately $3 during 2014, and cost of sales increased approximately $2 and $38 during 2013 and 2012, respectively. The decrease in commodity costs during 2014 was driven primarily by lower steel and fuel costs. We estimate that a 1% increase in commodity prices, assuming no offsetting benefit of price increases, would have decreased our operating income by approximately $12, $12 and $11 in 2014, 2013 and 2012, respectively. This quantitative measure has inherent limitations given the likelihood of implementing pricing actions to offset significant increases in commodity prices.
Fixed Income and Equity Price Risk
We are exposed to fixed income and equity price risk primarily on the cash surrender value associated with our investments in variable life COLI policies. During Q4 2014, our investments in variable life COLI policies were allocated at approximately 50% fixed income and 50% equity. During Q4 2012 through Q3 2014, the majority of our investments in variable life COLI policies were in fixed income securities. Prior to Q4 2012, this allocation had been set at 80% fixed income and 20% equity.

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We estimate a 10% adverse change in the value of the equity portion of our variable life COLI investments would reduce our net income by approximately $2 in 2014, would not have been material in 2013 and would have reduced our net income by approximately $2 in 2012. However, given that a portion of the investments in COLI policies are intended to be utilized as a long-term funding source for deferred compensation obligations, any adverse change in the equity portion of our variable life COLI investments may be partially offset by favorable changes in deferred compensation liabilities. We estimate that the risk of changes in the value of the variable life COLI investments due to other factors, including changes in interest rates, yield curve and portfolio duration, would not have a material impact on our results of operations or financial condition. This quantitative measure has inherent limitations since not all of our investments are in similar asset classes.
See Note 6 and Note 9 to the consolidated financial statements for additional information.

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Item 8.
Financial Statements and Supplementary Data:
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining effective internal control over financial reporting. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.
Management assessed the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that our system of internal control over financial reporting was effective as of February 28, 2014.
Deloitte & Touche LLP, the independent registered certified public accounting firm that audited our financial statements included in this annual report on Form 10-K, also audited the effectiveness of our internal control over financial reporting, as stated in their report which is included herein.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
STEELCASE INC.
GRAND RAPIDS, MICHIGAN
We have audited the internal control over financial reporting of Steelcase Inc. and subsidiaries (the “Company”) as of February 28, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2014, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended February 28, 2014 of the Company and our report dated April 17, 2014 expressed an unqualified opinion on those financial statements and financial statement schedule.
 
/s/    Deloitte & Touche LLP
 
DELOITTE & TOUCHE LLP
 
 
 
Grand Rapids, Michigan
 
April 17, 2014
 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
STEELCASE INC.
GRAND RAPIDS, MICHIGAN
We have audited the accompanying consolidated balance sheets of Steelcase Inc. and subsidiaries (the “Company”) as of February 28, 2014 and February 22, 2013, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended February 28, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Steelcase Inc. and subsidiaries at February 28, 2014 and February 22, 2013 and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of February 28, 2014, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 17, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.
 
/s/    Deloitte & Touche LLP
 
DELOITTE & TOUCHE LLP
 
 
 
Grand Rapids, Michigan
 
April 17, 2014
 

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STEELCASE INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
 
Year Ended