e10vk
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 29, 2008
|
OR
|
o
|
|
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
(State of incorporation)
|
|
38-0819050
(IRS employer identification
number)
|
|
|
|
|
|
|
901 44th Street SE
Grand Rapids, Michigan
(Address of principal executive
offices)
|
|
49508
(Zip Code)
|
Registrants 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 x No o
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 o No x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants 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. o
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. (Check one):
Large accelerated
filer x Accelerated
filer o Non-accelerated
filer o Smaller
reporting
company o
(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 o No x
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 24, 2007 (the
last day of the registrants most recently completed second
fiscal quarter) was approximately $1,176 million. There is
no quoted market for registrants 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 24, 2008, 78,743,499 shares of the
registrants Class A Common Stock and
56,347,530 shares of the registrants Class B
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants definitive proxy statement for
its 2008 Annual Meeting of Shareholders, to be held on
June 26, 2008, are incorporated by reference in
Part III of this
Form 10-K.
STEELCASE INC.
FORM 10-K
YEAR ENDED FEBRUARY 29, 2008
TABLE OF CONTENTS
PART I
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, the Company and similar references
are to Steelcase Inc. and its consolidated subsidiaries. Unless
the context otherwise indicates, reference to a year relates to
a 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 of the fiscal year
indicated, respectively. All amounts are in millions, except
share and per share data, data presented as a percentage or as
otherwise indicated.
Our
Business
Steelcase is the worlds leading designer, marketer and
manufacturer of office furniture and complementary products and
services, with 2008 revenue of approximately $3.4 billion.
We were incorporated in 1912 as The Metal Office Furniture
Company and changed our name to Steelcase Inc. in 1954. We
became a publicly-traded company in 1998, and our stock is
listed on the New York Stock Exchange.
Our mission is to help people work more effectively by providing
knowledge, products and services that result in a better work
experience for our customers. We expect to grow our business by
focusing on new geographic and customer market segments while
continuing to leverage our existing customer base, which we
believe represents the largest installed base in the industry.
Headquartered in Grand Rapids, Michigan, USA, Steelcase is a
global company with approximately 13,500 employees. We sell
our products through various channels including independent
dealers, company-owned dealers and directly to end users and
governmental units. Various other channels are employed to reach
new customers and to serve existing customer segments more
efficiently. We operate using a global network of manufacturing,
assembly and distribution facilities to supply product to our
various business units.
Our
Products
We study work, workers and workplaces to fully understand the
ever-changing needs of individuals, teams and organizations all
around the world. We then take our knowledge, couple it with
products and services inspired by what weve learned about
the workplace, and create solutions that help people work more
effectively. This knowledge is embedded in our product
portfolio, which includes a broad range of products with a
variety of aesthetic options and performance features at various
price points that address three core elements of a work
environment: furniture, interior architecture and technology.
Our reportable segments generally offer similar or complementary
products under some or all of the categories listed below.
Furniture
Panel-based and freestanding furniture
systems. Moveable and reconfigurable furniture
components used to create individual workstations and complete
work environments. Systems furniture provides visual and
acoustical privacy, accommodates power and data cabling and
supports technology and other worktools.
Storage. Lateral and vertical files, cabinets,
bins and shelves, carts, file pedestals and towers.
Seating. High-performance, ergonomic,
executive, guest, lounge, team, healthcare, stackable and
general use chairs.
Tables. Conference, training, personal and
café tables.
1
Textiles and surface materials. Upholstery,
wall covering, drapery, panel fabrics, architectural panels,
shades and screens and surface imaging.
Desks and Suites. Wood and non-wood desks,
credenzas and casegoods.
Worktools. Computer support, technology
management and information management products and portable
whiteboards.
Architecture
Interior architecture. Full and partial height
walls and doors with a variety of surface materials and modular
post and beam products.
Lighting. Task, ambient and accent lighting
with energy efficient and user control features.
Technology
Infrastructure. Infrastructure products, such
as modular communications, data and power cabling.
Appliances. Group communication tools, such as
interactive and static whiteboards, image capturing devices and
web-based interactive space-scheduling devices.
Our
Services
We provide lease origination services to customers and selected
financing services to our dealers. We offer services to help our
customers more fully leverage their physical space to drive down
and control occupancy costs while at the same time enhance the
performance of their employees. Our services include furniture
and asset management and workplace strategies consulting.
IDEO provides product design and innovation services to a
variety of organizations in the business, government, education
and social sectors.
Reportable
Segments
We operate on a worldwide basis within our North America and
International reportable segments, plus an Other
category. During 2008, we made changes in our organizational
structure which resulted in changes to our segment reporting. As
a result of these changes, certain components have been
reclassified between our North America segment and our Other
category, including Vecta, which moved from North America to our
Premium Group unit, and a health-care product line within
Brayton, which moved from our Premium Group unit to Nurture by
Steelcase. Segment information for prior years has been restated
to reflect these changes.
In recent years, we have significantly decreased our investment
in the activities of the Financial Services business. While we
continue to originate leases to customers and earn an
origination fee for that service, a third party provides the
lease funding. In addition, we have significantly reduced the
nature and level of financing services provided to our dealers.
As a result, we intend to wind down the operation of our
Financial Services subsidiary and transition its residual
activities to our North America segment during 2009.
Additional information about our reportable segments, including
financial information about geographic areas, is contained in
Item 7: Managements Discussion and Analysis of
Financial Condition and Results of Operations and
Note 15 to the consolidated financial statements.
North America
Segment
Our North America segment serves customers in the United States
(U.S.) and Canada mainly through approximately 230
independent and company-owned dealers. The North America segment
includes furniture, interior architecture and technology
environment solutions as described above, under the Steelcase,
Turnstone, Details and Nurture by Steelcase brands. The
Steelcase brand delivers insight-led products, services and
experiences that elevate performance of the worlds leading
organizations.
2
Turnstone targets smaller to medium-sized companies and offers
furniture that features smart design and provides good value for
people at work in all types of organizations. Details designs
and markets ergonomic tools and accessories for the workplace.
Nurture by Steelcase creates healthcare products and
environments that seek to provide patients, caregivers and
patients families a more comfortable, efficient and
favorable healing process.
Our end-use customer sales are distributed across a broad range
of industries and vertical markets including financial services,
healthcare, insurance, government, higher education and
technology, none of which individually exceeded 17% of the North
America segment revenue in 2008.
Each of our dealers maintains their own sales force which is
complemented by our sales representatives who work closely with
the dealers throughout the selling process. The largest
independent dealer in North America accounted for approximately
5% of our segment revenue in 2008. The five largest independent
dealers collectively accounted for approximately 16% of our
segment revenue. 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. However, temporary
disruption of dealer coverage within a specific local market due
to financial failure, the inability to smoothly transition
ownership or termination of the dealer relationship could
temporarily have an adverse impact on our business within the
affected market. From time to time, we obtain a controlling
interest in dealers that are undergoing an ownership transition.
It is typically our intent to divest our interest in these
dealerships as soon as it is practical.
In 2008, the North America segment had revenue of $1,936.6, or
56.6% of our consolidated revenue, and at the end of the year
had approximately 7,100 employees and 500 temporary
workers. Approximately 4,300 of the total workers related to
manufacturing.
The North America office furniture markets are highly
competitive, with a number of competitors offering similar
categories of products. In these markets, companies compete on
price, product performance, design, delivery and relationships
with customers, architects and designers. Our most significant
competitors in the U.S. are Haworth, Inc., Herman Miller,
Inc., HNI Corporation, Kimball International Inc. and Knoll,
Inc. Together with Steelcase, these companies represent
approximately 65% of the U.S. office furniture market.
International
Segment
Our International segment serves customers outside of the
U.S. and Canada primarily under the Steelcase brand, with
an emphasis on freestanding furniture systems, storage and
seating solutions. The international office furniture market is
highly competitive and fragmented. We compete with many local
and regional manufacturers in many different markets. In many
cases, these competitors focus on specific product categories.
Our largest presence is in Europe, where we have the leading
market share in Germany, France and Spain. We serve customers
through approximately 430 independent and company-owned dealers.
In certain geographic markets we sell directly to end customers.
No single independent dealer in the International segment
accounted for more than 5% of our segment revenue in 2008. The
five largest independent dealers collectively accounted for
approximately 7% of our segment revenue.
During 2008, we acquired 100% of the outstanding stock of Ultra
Group Company Limited (Ultra). Ultra is an office
furniture manufacturer with headquarters in Hong Kong,
manufacturing in China and sales and distribution throughout
Asia.
In 2008, our International segment had revenue of $893.8, or
26.1% of our consolidated revenue, and at the end of the year
had approximately 4,100 employees and 700 temporary
workers. Approximately 3,100 of the total workers related to
manufacturing.
Other
Category
The Other category includes our Premium Group (formerly Design
Group), PolyVision, IDEO, and, through 2008, Financial Services
business.
3
The Premium Group is comprised of the following four brands
focused on providing architects and designers with unique
products and premium experiences.
|
|
|
|
|
Designtex focuses on surface materials including textiles, wall
coverings, shades, screens and surface imagings.
|
|
|
|
Vecta designs and creates learning, meeting and teaming
environments.
|
|
|
|
Brayton focuses on lounge and executive seating and tables.
|
|
|
|
Metro creates refined, modern furniture for meeting spaces,
private offices and the open floor plan.
|
Designtex primarily sells products specified by architects and
designers directly to end-use customers through a direct sales
force. Vecta, Brayton and Metro sales are primarily generated
through our North America dealer network.
PolyVision designs and manufactures visual communication
products, such as static and electronic whiteboards. The
majority of PolyVisions revenue relates to the
manufacturing of steel and ceramic surfaces and the fabrication
of related static whiteboards sold in the primary and secondary
education markets. PolyVisions revenue generated from
whiteboards and group communication tools are sold through
audio-visual resellers and our North America dealer network.
PolyVision also sells fabricated static whiteboards to general
contractors through a direct bid process; however, we intend to
exit this portion of the business during 2009.
IDEO is an innovation and design firm that uses a
human-centered, design-based approach to generate new offerings
and build new capabilities for its customers. IDEO serves
Steelcase and a variety of organizations within consumer
products, financial services, healthcare, information
technology, government, transportation and other industries. In
2008, we entered into an agreement which will allow certain
members of the management of IDEO to potentially purchase a
controlling equity interest in IDEO in two phases before 2013.
As of February 29, 2008, IDEO management effectively
purchased approximately 12% of IDEO under the first phase of the
agreement.
In 2008, the Other category accounted for $590.4, or 17.3% of
our total revenue, and at the end of the year had approximately
2,300 employees and 100 temporary workers. Approximately
1,100 of the total workers related to manufacturing.
Corporate
Expenses
Approximately 85% of corporate expenses are charged to the
operating segments as part of a corporate allocation.
Unallocated corporate expenses are reported as Corporate.
Corporate costs include executive and portions of shared service
functions such as information technology, human resources,
finance, legal, research and development and corporate
facilities.
Joint
Ventures
We enter into joint ventures from time to time to expand our
geographic presence, support our distribution network or invest
in complementary products and services. As of February 29,
2008, our investment in these unconsolidated joint ventures was
$16.7. Our portion of the income or loss from the joint ventures
is recorded in Other income, net on the Consolidated
Statements of Income.
Customer and
Dealer Concentrations
Our largest direct-sale customer accounted for approximately
1.0% of our consolidated revenue in 2008 and our five largest
direct-sale customers accounted for approximately 2.4% of
consolidated revenue. However, these percentages do not include
revenue from various government agencies and other entities
purchasing under our U.S. General Services Administration
contract, which in the aggregate accounted for approximately
2.2% 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.
4
No single independent dealer accounted for more than 3% of our
consolidated revenue for 2008. The five largest independent
dealers collectively accounted for approximately 10% of our
consolidated revenue.
Working
Capital
Our accounts receivable are primarily from our dealers, and to a
lesser degree, direct-sale customers. Payment terms vary by
country and region. The terms of our North America segment, and
certain markets within the International segment, encourage
prompt payment by offering a 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,
inventory and accounts payable, which are significant to
understanding our business or the industry at large.
Backlog
Our products are generally manufactured and shipped within four
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,
Europe (principally in France, Germany and Spain) and in Asia.
In order to serve the growth needs of our Asian market, we
continue to expand production in our plants in Kuala Lumpur,
Malaysia and in Shenzhen, China, and we acquired additional
capacity in Zhaoqing, China in 2008 as a result of the Ultra
acquisition.
We have evolved our manufacturing and supply chain systems
significantly over the past several years by implementing lean
manufacturing principles. In particular, we have focused on
implementing continuous one-piece flow, streamlining our product
offerings and developing a global network of integrated
suppliers. Anything which cannot be part of one-piece flow may
be evaluated to see whether outside partners would offer better
levels of service, quality and cost. Our global manufacturing
operations are centralized under a single organization to serve
our customers needs across multiple brands and geographies.
This approach has reduced the capital needs of our business,
reduced inventories and reduced the footprint of our
manufacturing space while at the same time, allowing us to
improve quality, delivery performance and the customer
experience. We continue to identify opportunities to eliminate
excess capacity and redundancy while continuing to focus on our
growth strategies. We recently announced that we will be closing
three U.S. manufacturing facilities in 2009 and relocating
the majority of their operations to other manufacturing
facilities.
In addition to our continued 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 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 from all levels throughout the supply chain.
Our physical distribution system utilizes dedicated fleet,
commercial transport and company-owned delivery services. Over
the past several years, 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 contracted with third party logistics
providers to operate some of these regional distribution centers.
5
Raw Materials
and Energy Prices
We source raw materials and components from a significant number
of suppliers around the world. Those raw materials include steel
and other metals, plastics, wood, fabrics, paint, packaging,
acoustical materials, foam, veneers, laminates, glass and
leather. To date, we have not experienced any significant
difficulties in obtaining these raw materials.
The prices for certain commodities such as steel, aluminum,
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 market conditions
and supply options on the basis of cost, quality and reliability
of supply.
Research, Design
and Development
Our extensive global researcha combination of user
observations, feedback sessions and sophisticated network
analysishas helped us develop unique expertise in helping
people work more effectively. We team up 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 different vertical market applications such as
healthcare, higher education and professional services.
Organizationally, design responsibility is distributed globally
across our major businesses and may involve 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 our engineers and external suppliers to co-develop
products and processes that lead to more efficient manufacturing
while incorporating innovative user features. Products are
tested for performance, quality and compliance with applicable
standards and regulations.
Exclusive of royalty payments, we invested $152.5 in research,
design and development activities over the past three years. 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 the research,
design and development costs since they are variable, based on
product sales.
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, Turnstone,
PolyVision, Designtex and
IDEO 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.
We also selectively license our intellectual property to third
parties as a revenue source.
Employees
As of February 29, 2008, we had approximately
13,500 employees including 7,600 hourly employees and
5,900 salaried employees. Additionally, we had 1,300 temporary
workers who primarily work in manufacturing. Approximately
340 employees in the U.S. are covered by collective
bargaining
6
agreements. Internationally, a significant number of employees
are covered by workers councils that operate to promote
the interests of workers. Management believes we continue to
maintain positive relations with our employees.
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, other financially viable potentially responsible
parties and the total estimated cleanup costs, 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 SECs 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 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 Investor
Relations, 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.
The following risk factors and other information included in
this annual report on
Form 10-K
should be carefully considered. The risks and uncertainties
described below are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we presently
deem less significant may also adversely affect our business,
operating results, cash flows and financial condition. If any of
the
7
following risks actually occur, our business, operating results,
cash flows and financial condition could be materially adversely
affected.
Business
cycles and other changes in demand could adversely impact our
revenue and profits.
Office furniture industry revenues are impacted by a variety of
cyclical macroeconomic factors such as corporate profits,
non-residential fixed investment, white-collar employment growth
and commercial office construction. Our product sales are
directly tied to corporate capital spending, which is outside of
our control. Geopolitical uncertainties, terrorist attacks, acts
of war, natural disasters, other world events or combinations of
such and other factors that are outside of our control could
also have a significant effect on business confidence and the
global economy and therefore, our business.
Other demand influences on our industry include technology
changes, organizational changes, employee health and safety
concerns and the globalization of companies. The trend towards
outsourcing white collar jobs could cause our major customers in
our core markets to shift employment growth to countries where
our market share is not as strong. If we are unsuccessful in
adapting our business to these changes and trends, our revenues
and profits may be adversely impacted.
We may not be
able to successfully implement and manage our growth
strategies.
Our growth strategies call for expansion in:
|
|
|
|
|
existing markets by leveraging our current distribution to win
new customers and more fully serve existing customers and their
installed base of our products, and
|
|
|
|
new adjacent markets such as the mid-market segment of the
office furniture market (firms with 50 to 250 employees),
vertical markets such as healthcare and higher education and
emerging international markets with multiple or alternate
channels.
|
We believe our future success depends upon our ability to
deliver a great experience to our customers, which includes
innovative, well-made products and world-class processes. Our
success relies in part on our research and development and
engineering efforts, our ability to manufacture or source the
products and customer acceptance of our products. As it relates
to new markets, our success also depends on our ability to
create and implement local supply chain and distribution
strategies to reach these markets. The potential inability to
successfully implement and manage our growth strategy could
adversely affect our business and our results of operations.
The successful implementation of our growth strategy will
depend, in part, on our ability to attract and retain a skilled
workforce. The increasing competition for highly skilled and
talented employees could result in higher compensation costs,
difficulties in maintaining a capable workforce and leadership
succession planning challenges.
Our efforts to grow our business in emerging markets are subject
to the risk factors listed below relating to our global
operations but also include other risks. In certain markets in
Asia and eastern Europe where we are expanding our business, the
legal and political environment can be unstable and uncertain
which could make it difficult for us to compete successfully and
to protect our investments or sell our investments in the
future. As we hire new people and establish new processes in
these locations, we are implementing our global business
standards, but there is some risk our activities could expose us
to liabilities.
We also make investments in new business development initiatives
which, like many startups, could have a relatively high failure
rate. We limit our investments in these initiatives and
establish governance procedures to contain the associated risks,
but losses could result and may be material.
Our growth strategy also may involve acquisitions, joint venture
alliances and additional channels of distribution. We may not be
able to enter into acquisitions or joint venture arrangements on
acceptable terms, and we may not successfully integrate these
activities into our operations. We also may not be
8
successful in implementing new distribution channels, and
changes could create discord in our existing channels of
distribution.
We could be
adversely affected by increasing raw material and commodity
costs.
We procure raw materials from a significant number of sources
within the U.S., Canada, Mexico, Europe and Asia. These raw
materials are not rare or unique to our industry. The absolute
level and volatility in steel, aluminum, wood, particleboard,
petroleum-based products, and other commodity costs, such as
fuel and energy, have significantly increased in recent years
due to changes in global supply and demand. These changes could
also lead to supply interruptions. Our gross margins could be
affected if these types of costs remain high or escalate
further. In the short term, rapid changes in raw material costs
can be very difficult to offset because of price hold agreements
we have entered into with our customers. It is difficult to find
effective financial instruments to hedge against these risks. We
may not be successful in passing along a portion of the higher
raw materials costs to our customers because of competitive
pressures.
Disruptions to
the supply of raw materials, component parts and labor in our
manufacturing operations could adversely affect our supply chain
management.
We are reliant on the timely flow of raw materials and
components from third party suppliers and our own manufacturing
operations. The flow of such materials and components may be
affected by:
|
|
|
|
|
fluctuations in the availability and quality of the raw
materials,
|
|
|
|
damage and loss or disruption of production from accidents,
natural disasters and other causes, and
|
|
|
|
disruptions caused by labor activities.
|
We continue to migrate to a less vertically integrated
manufacturing model, which will increase our reliance on an
international network of suppliers. Any disruptions in the
supply and delivery of component parts and products or
deficiencies in our ability to develop and manage our network of
suppliers could have an adverse impact on our business,
operating results or financial condition.
We operate in
a highly competitive environment and may not be able to compete
successfully.
The office furniture industry is highly competitive, with a
number of competitors offering similar categories of product. We
compete on a variety of factors, including: brand recognition
and reputation, price, lead time, delivery and service, product
design and features, product quality, strength of dealers and
other distributors and relationships with customers and key
influencers, such as architects, designers and facility managers.
In the North America segment, our top competitors in our primary
markets are Haworth Inc., Herman Miller, Inc., HNI Corporation,
Inc., Kimball International Inc. and Knoll, Inc. Some of our
competitors may have lower cost structures and a broader
offering of moderately priced products, potentially making it
more difficult for us to compete in certain customer segments.
In addition, such competition may prevent us from maintaining or
raising the prices of our products in response to rising raw
material prices and other inflationary pressures.
Although we do not have major offshore competitors in our North
America segment, there are other segments of the North America
furniture industry, notably the residential furniture and
made-to-stock office furniture segments sold through retailers,
where lower-cost imports have become dominant. While customer
lead time and customization requirements are currently
inhibiting factors, it is possible we could see increased
competition from imports in our core markets.
In the International segment, we compete against a larger number
of smaller size competitors. Our North American-based
competitors also compete in some of our International markets,
but their market
9
share varies significantly by market. Most of our top
competitors have strong relationships with their existing
customers that can be a source of significant future sales
through repeat and expansion orders. These competitors
manufacture products with strong acceptance in the marketplace
and can develop products that could have a competitive advantage
over Steelcase products. In certain markets, we compete using an
import model which requires longer lead times than local
competitors with domestic supply chains.
In the Other category, we are experiencing intense price
competition in the U.S. contractor whiteboard business sold
through a direct bid process, which negatively impacted our
operating margins during 2007 and 2008. As a result, in March
2008, we announced our decision to exit this portion of
PolyVisions business and that we expect to close one of
PolyVisions manufacturing facilities before the end of Q3
2009.
Our continued success depends upon many things, including our
ability to continue to manufacture and market high quality, high
performance products at competitive prices and our ability to
evolve our business model and implement world-class processes to
enable us to effectively compete in the office furniture
industrys increasingly competitive environment. Our
success is also dependent on our ability to sustain our positive
brand reputation and recognition among existing and potential
customers and use our brand and our trademarks effectively as we
enter new markets.
Our global
operations subject us to risks that may negatively affect our
results of operations and financial condition.
We have sales offices and manufacturing facilities in many
countries, and as a result, we are subject to risks associated
with doing business globally. Our global operations are subject
to risks that may limit our ability to manufacture, design,
develop or sell products in particular countries, which in turn
could have an adverse effect on our results of operations and
financial condition, including:
|
|
|
|
|
differing employment practices and labor issues,
|
|
|
|
local business and cultural factors that differ from our global
business standards and practices,
|
|
|
|
regulatory requirements and prohibitions that differ between
jurisdictions,
|
|
|
|
restrictions on our operations by governments seeking to support
local industries, nationalization of our operations and
restrictions on our ability to repatriate earnings, and
|
|
|
|
natural disasters, security concerns, including crime, political
instability, terrorist activity, armed conflict and civil or
military unrest, and global health issues.
|
In the U.S. and most countries in Europe, our revenue and
costs are typically in the same currency. However, there are
some situations where we export and import products in different
currencies. We also may hold assets, such as equity investments,
real estate investments and cash balances, or incur debt in
currencies other than the U.S. dollar. Fluctuations in the
rate of exchange between the U.S. dollar and the currencies
of other countries in which we conduct business, and changes in
currency controls with respect to such countries, could
negatively impact our business, operating results and financial
condition. In addition, changes in tariff and import regulations
and changes to U.S. and international monetary policies may
also negatively impact our revenue.
Disruptions
within our dealer network could adversely affect our
business.
We rely largely on a network of independent and company-owned
dealers to market, deliver and install our products to
customers. Our business is influenced by our ability to initiate
and manage new and existing relationships with dealers.
From time to time, an individual dealer or Steelcase may choose
to terminate the relationship, or the dealership could face
financial difficulty leading to failure or difficulty in
transitioning to new ownership. In addition, our competitors
could engage in a strategy to attempt to acquire or convert a
number of our dealers to carry their products. We do not believe
our business is dependent on any single dealer, the
10
loss of which would have a sustained material adverse effect
upon our business. However, temporary disruption of dealer
coverage within a specific local market could temporarily have
an adverse impact on our business within the affected market.
The loss or termination of a significant number of 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, reducing the risk of
disruption, but increasing our financial exposure.
A portion of our international distribution network is
company-owned because of the need for us to make financial
investments in dealerships in order to preserve our market share
and profitability in the affected regions. In certain cases, we
have adopted a direct model of distribution through which we
establish company-owned sales and service capabilities. If we
are not able to effectively manage these businesses, they could
have a negative effect on our operating results. Our direct-sale
and owned-dealer models sell non-Steelcase products where
product gaps exist. These models involve increased operational
risk, the risk of conflict with other distribution channels and
the risk that we will not be able to compete effectively to win
business in those markets because of a more limited breadth of
product offering than a dealer who carries multiple lines of
products.
We could be
adversely affected by product defects.
Product defects can occur within our own product development and
manufacturing processes or through our increasing reliance on
third parties for product development and manufacturing
activities. We incur various expenses related to product
defects, including product warranty costs, product recall and
retrofit costs and product liability costs. The amount of our
product defect expenses relative to product sales varies from
time to time and could increase in the future. We maintain a
reserve for our product warranty costs based on certain
estimates and our knowledge of current events and actions, but
our actual warranty costs may exceed our reserve and we could
need to increase our accruals for warranty charges. In addition,
the reputation of our brands may be diminished by product
defects and recalls. Any significant increase in the rate of our
product defect expenses could have a material adverse effect on
our results of operations.
There may be
significant limitations to our utilization of net operating
losses to offset future taxable income.
We have significant deferred tax asset values related to net
operating loss carryforwards (NOLs) primarily in
various
non-U.S. jurisdictions.
We may be unable to generate sufficient taxable income from
future operations in the applicable jurisdiction or implement
tax, business or other planning strategies to fully utilize our
NOLs. We have NOLs in various currencies that are also subject
to foreign exchange risk, which could reduce the amount we will
ultimately realize. Additionally, future changes in tax laws or
interpretations of such tax laws may limit our ability to fully
utilize our NOLs.
|
|
Item 1B.
|
Unresolved
Staff Comments:
|
None.
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,
11
U.S.A. Our owned and leased principal manufacturing and
distribution center locations with greater than
50,000 square feet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Principal
|
|
|
|
|
|
|
|
|
|
Segment/Category Primarily Supported
|
|
|
Locations
|
|
|
|
Owned
|
|
|
|
Leased
|
|
North America
|
|
|
|
13
|
|
|
|
|
8
|
|
|
|
|
5
|
|
International
|
|
|
|
9
|
|
|
|
|
8
|
|
|
|
|
1
|
|
Other
|
|
|
|
9
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
31
|
|
|
|
|
20
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recently announced we will be closing three facilities in the
U.S. These facilities are leased and included in the table
above and are expected to be vacated in 2009.
|
|
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.
|
Submission
of Matters to a Vote of Security Holders:
|
None.
Supplementary
Item. Executive Officers of the Registrant:
Our executive officers are:
|
|
|
|
|
|
|
|
|
Name
|
|
|
Age
|
|
|
|
Position
|
Mark A. Baker
|
|
|
|
47
|
|
|
|
Senior Vice President, Global Operations Officer
|
Mark T. Greiner
|
|
|
|
56
|
|
|
|
Senior Vice President, Workspace Futures
|
James P. Hackett
|
|
|
|
53
|
|
|
|
President and Chief Executive Officer, Director
|
Nancy W. Hickey
|
|
|
|
56
|
|
|
|
Senior Vice President, Chief Administrative Officer
|
James P. Keane
|
|
|
|
48
|
|
|
|
President, Steelcase Group
|
Michael I. Love
|
|
|
|
59
|
|
|
|
President, Nurture by Steelcase
|
John S. Malnor
|
|
|
|
46
|
|
|
|
President, Turnstone
|
Frank H. Merlotti, Jr.
|
|
|
|
57
|
|
|
|
President, Premium Group
|
James G. Mitchell
|
|
|
|
58
|
|
|
|
President, Steelcase International
|
Mark T. Mossing
|
|
|
|
50
|
|
|
|
Corporate Controller and Chief Accounting Officer
|
Lizbeth S. OShaughnessy
|
|
|
|
46
|
|
|
|
Vice President, Chief Legal Officer and Secretary
|
David C. Sylvester
|
|
|
|
43
|
|
|
|
Vice President, Chief Financial Officer
|
Mark A. Baker has been Senior Vice President, Global
Operations Officer since September 2004. Mr. Baker held the
position of Senior Vice President, Operations from 2001 to
September 2004.
Mark T. Greiner has been Senior Vice President, Workspace
Futures since November 2002.
James P. Hackett has been President, Chief Executive
Officer and Director of the Company since December 1994.
Mr. Hackett also serves as a member of the Board of
Trustees of the Northwestern Mutual Life Insurance Company and
the Board of Directors of Fifth Third Bancorp.
Nancy W. Hickey has been Senior Vice President, Chief
Administrative Officer since November 2001. Ms. Hickey also
served as Secretary on an interim basis from March to July 2007.
James P. Keane has been President, Steelcase Group since
October 2006. Mr. Keane was Senior Vice President, Chief
Financial Officer from 2001 to October 2006.
12
Michael I. Love has been President, Nurture by Steelcase
since May 2006. Mr. Love was President and Chief Executive
Officer, Steelcase Design Partnership from 2000 to May 2006.
John S. Malnor has been President, Turnstone since
October 2007 and was General Manager, Turnstone from 2004 to
October 2007. From 2001 to 2004, Mr. Malnor held the
position of Director, Market Development for Turnstone.
Frank H. Merlotti, Jr. has been President, Premium
Group since October 2006 (the Premium Group was known as the
Design Group from October 2006 to October 2007). From 2002 to
October 2006, Mr. Merlotti held the position of President,
Steelcase North America.
James G. Mitchell has been President, Steelcase
International since June 2004 and was Managing Director, United
Kingdom from 2003 to June 2004. From 1999 to 2003,
Mr. Mitchell held the position of President, Steelcase
Canada.
Mark T. Mossing has been Corporate Controller and Chief
Accounting Officer since April 2008. Mr. Mossing served as
Vice President, Corporate Controller from 1999 to April 2008.
Lizbeth S. OShaughnessy has been Vice President,
Chief Legal Officer and Secretary since July 2007 and was
Assistant General Counsel from 2000 to July 2007. From 2005 to
July 2007, Ms. OShaughnessy also held the position of
Assistant Secretary.
David C. Sylvester has been Vice President, Chief
Financial Officer since October 2006 and was Vice President,
Global Operations Finance from 2005 to October 2006. From 2001
to 2005, Mr. Sylvester held the position of Vice President,
International Finance.
PART II
|
|
Item 5.
|
Market
for Registrants 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 Securities Exchange Act
of 1934 or publicly traded. See Note 11 to the consolidated
financial statements for additional information. As of the close
of business on April 24, 2008, we had outstanding
135,091,029 shares of common stock with
8,809 shareholders of record. Of these amounts,
78,743,499 shares are Class A Common Stock with
8,699 shareholders of record and 56,347,530 shares are
Class B Common Stock with 110 shareholders of record.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
End of Day Per Share Price Range
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
20.72
|
|
|
|
$
|
20.42
|
|
|
|
$
|
19.31
|
|
|
|
$
|
18.49
|
|
Low
|
|
|
$
|
18.55
|
|
|
|
$
|
14.03
|
|
|
|
$
|
14.63
|
|
|
|
$
|
12.86
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
19.29
|
|
|
|
$
|
19.00
|
|
|
|
$
|
18.11
|
|
|
|
$
|
20.22
|
|
Low
|
|
|
$
|
16.84
|
|
|
|
$
|
13.22
|
|
|
|
$
|
13.70
|
|
|
|
$
|
17.25
|
|
Dividends
The declaration of dividends is subject to the discretion of our
Board of Directors and to compliance with applicable laws.
Dividends in 2008 and 2007 were declared and paid quarterly. In
Q4 2008, our Board of Directors declared and paid a special cash
dividend of $1.75 per share on our Class A Common Stock and
Class B Common Stock. The payment of this dividend
aggregated $247.5. The amount and timing of future dividends
depends upon our results of operations, financial condition,
cash
13
requirements, future business prospects, general business
conditions and other factors that our Board of Directors may
deem relevant at the time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dividends Paid
|
|
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Total
|
|
Fiscal 2008
|
|
|
$
|
22.1
|
|
|
|
$
|
21.6
|
|
|
|
$
|
21.2
|
|
|
|
$
|
268.8
|
|
|
|
$
|
333.7
|
|
Fiscal 2007
|
|
|
$
|
15.0
|
|
|
|
$
|
15.0
|
|
|
|
$
|
17.9
|
|
|
|
$
|
19.3
|
|
|
|
$
|
67.2
|
|
Fourth Quarter
Share Repurchases
The following table is a summary of share repurchase activity
during Q4 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
|
Shares that May
|
|
|
|
|
(a)
|
|
|
|
(b)
|
|
|
|
Part of Publicly
|
|
|
|
Yet be Purchased
|
|
|
|
|
Total Number of
|
|
|
|
Average Price
|
|
|
|
Announced Plans
|
|
|
|
Under the Plans
|
|
Period
|
|
|
Shares Purchased
|
|
|
|
Paid per Share
|
|
|
|
or Programs (1)
|
|
|
|
or Programs
|
|
11/24/07 12/28/07
|
|
|
|
354
|
|
|
|
$
|
15.87
|
|
|
|
|
|
|
|
|
$
|
312.8
|
|
12/29/07 1/25/08
|
|
|
|
1,457,800
|
|
|
|
$
|
14.52
|
|
|
|
|
1,457,800
|
|
|
|
|
291.7
|
|
1/26/08 2/29/08
|
|
|
|
1,373,266
|
|
|
|
$
|
14.23
|
|
|
|
|
1,343,900
|
|
|
|
|
272.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
2,831,420
|
(2)
|
|
|
|
|
|
|
|
|
2,801,700
|
|
|
|
$
|
272.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In June 2007, our Board of Directors approved a share repurchase
program permitting the repurchase of up to $100 of shares of our
common stock and in December 2007 approved an additional $250 of
share repurchases. These programs have no specific expiration
dates. |
|
(2) |
|
29,720 of these shares were repurchased to satisfy
participants tax withholding obligations upon the vesting
of restricted stock and restricted stock unit grants, pursuant
to the terms of our Incentive Compensation Plan. |
14
|
|
Item 6.
|
Selected
Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
|
|
February 27,
|
|
Financial Highlights
|
|
|
2008 (1)
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2004
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
3,420.8
|
|
|
|
$
|
3,097.4
|
|
|
|
$
|
2,868.9
|
|
|
|
$
|
2,613.8
|
|
|
|
$
|
2,345.6
|
|
Revenue increase (decrease)
|
|
|
|
10.4
|
%
|
|
|
|
8.0
|
%
|
|
|
|
9.8
|
%
|
|
|
|
11.4
|
%
|
|
|
|
(7.3
|
)%
|
Gross profit
|
|
|
$
|
1,125.9
|
|
|
|
$
|
947.9
|
|
|
|
$
|
846.3
|
|
|
|
$
|
745.7
|
|
|
|
$
|
615.3
|
|
Gross profit% of revenue
|
|
|
|
32.9
|
%
|
|
|
|
30.6
|
%
|
|
|
|
29.5
|
%
|
|
|
|
28.5
|
%
|
|
|
|
26.2
|
%
|
Income (loss) from continuing operations before income tax
expense (benefit)
|
|
|
$
|
211.4
|
|
|
|
$
|
124.6
|
|
|
|
$
|
76.4
|
|
|
|
$
|
5.0
|
|
|
|
$
|
(92.9
|
)
|
Income (loss) from continuing operations before income tax
expense (benefit)% of revenue
|
|
|
|
6.2
|
%
|
|
|
|
4.1
|
%
|
|
|
|
2.7
|
%
|
|
|
|
0.2
|
%
|
|
|
|
(4.0
|
)%
|
Income (loss) from continuing operations after income tax
expense (benefit)
|
|
|
$
|
133.2
|
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
11.7
|
|
|
|
$
|
(42.0
|
)
|
Income (loss) from continuing operations after income tax
expense (benefit)% of revenue
|
|
|
|
3.9
|
%
|
|
|
|
3.5
|
%
|
|
|
|
1.7
|
%
|
|
|
|
0.5
|
%
|
|
|
|
(1.8
|
)%
|
Income from discontinued operations (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.0
|
|
|
|
$
|
22.4
|
|
Cumulative effect of accounting change, net of income
taxes (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4.2
|
)
|
Net income (loss)
|
|
|
$
|
133.2
|
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
|
|
$
|
(23.8
|
)
|
Net income (loss)% of revenue
|
|
|
|
3.9
|
%
|
|
|
|
3.5
|
%
|
|
|
|
1.7
|
%
|
|
|
|
0.5
|
%
|
|
|
|
(1.0
|
)%
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.93
|
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.08
|
|
|
|
$
|
(0.28
|
)
|
Diluted
|
|
|
$
|
0.93
|
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.08
|
|
|
|
$
|
(0.28
|
)
|
Income from discontinued operationsbasic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.15
|
|
Cumulative effect of accounting changebasic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.93
|
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
$
|
(0.16
|
)
|
Diluted
|
|
|
$
|
0.93
|
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
$
|
(0.16
|
)
|
Dividendscommon stock (4)
|
|
|
$
|
2.35
|
|
|
|
$
|
0.45
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.24
|
|
|
|
$
|
0.24
|
|
Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
$
|
251.7
|
|
|
|
$
|
585.5
|
|
|
|
$
|
291.9
|
|
|
|
$
|
447.8
|
|
|
|
$
|
401.0
|
|
Total assets
|
|
|
$
|
2,124.4
|
|
|
|
$
|
2,399.4
|
|
|
|
$
|
2,344.5
|
|
|
|
$
|
2,364.7
|
|
|
|
$
|
2,359.4
|
|
Long-term debt
|
|
|
$
|
250.5
|
|
|
|
$
|
250.0
|
|
|
|
$
|
2.2
|
|
|
|
$
|
258.1
|
|
|
|
$
|
319.6
|
|
|
|
|
(1) |
|
The fiscal year ended February 29, 2008 contained
53 weeks. All other years shown contained 52 weeks. |
|
(2) |
|
Income from discontinued operations relate to the disposition of
AW Corporation in 2005. |
|
(3) |
|
Cumulative effect of accounting change for the fiscal year ended
February 27, 2004 related to our adoption of Financial
Accounting Standards Board (FASB) Interpretation
Number (FIN) 46(R), Consolidation of Variable
Interest Entities. |
|
(4) |
|
Includes special cash dividend of $1.75 per share paid in
January 2008. |
15
|
|
Item 7.
|
Managements
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.
Financial
Summary
Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Income Statement Data
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Consolidated
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Revenue
|
|
|
$
|
3,420.8
|
|
|
|
|
100.0
|
%
|
|
|
$
|
3,097.4
|
|
|
|
|
100.0
|
%
|
|
|
$
|
2,868.9
|
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
|
2,295.3
|
|
|
|
|
67.1
|
|
|
|
|
2,128.2
|
|
|
|
|
68.7
|
|
|
|
|
1,989.4
|
|
|
|
|
69.3
|
|
Restructuring costs
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
21.3
|
|
|
|
|
0.7
|
|
|
|
|
33.2
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
1,125.9
|
|
|
|
|
32.9
|
|
|
|
|
947.9
|
|
|
|
|
30.6
|
|
|
|
|
846.3
|
|
|
|
|
29.5
|
|
Operating expenses
|
|
|
|
923.1
|
|
|
|
|
27.0
|
|
|
|
|
831.8
|
|
|
|
|
26.8
|
|
|
|
|
758.1
|
|
|
|
|
26.4
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
0.1
|
|
|
|
|
5.7
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
202.8
|
|
|
|
|
5.9
|
|
|
|
|
113.7
|
|
|
|
|
3.7
|
|
|
|
|
82.5
|
|
|
|
|
2.9
|
|
Other income (expense), net
|
|
|
|
8.6
|
|
|
|
|
0.3
|
|
|
|
|
10.9
|
|
|
|
|
0.4
|
|
|
|
|
(6.1
|
)
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
|
211.4
|
|
|
|
|
6.2
|
|
|
|
|
124.6
|
|
|
|
|
4.1
|
|
|
|
|
76.4
|
|
|
|
|
2.7
|
|
Income tax expense
|
|
|
|
78.2
|
|
|
|
|
2.3
|
|
|
|
|
17.7
|
|
|
|
|
0.6
|
|
|
|
|
27.5
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
133.2
|
|
|
|
|
3.9
|
%
|
|
|
$
|
106.9
|
|
|
|
|
3.5
|
%
|
|
|
$
|
48.9
|
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
Net income improved significantly in 2008 and 2007. The $26.3
improvement in 2008 net income was due to increased volume
and price yield, reduced cost of sales, lower restructuring
costs and significant improvements in the performance of our
wood business, partially offset by lower favorable tax
adjustments, higher intangible asset and goodwill
impairment-related charges at PolyVision and increased spending
related to longer-term growth initiatives. The $58.0 improvement
in 2007 net income was due to increased volume and price
yield, favorable tax adjustments, reduced cost of sales, lower
restructuring costs and higher interest income on increased cash
balances, partially offset by higher variable compensation
costs, intangible asset and goodwill impairment-related charges
at PolyVision, lower cash surrender value appreciation on
company-owned life insurance policies and increased spending
related to longer-term growth initiatives.
Our revenue increased 10.4% in 2008 compared to 2007 following
an increase of 8.0% from 2006 to 2007. Revenue in 2008 increased
for all of our reportable segments, but growth in our
International segment of 21.5% was the strongest. As compared to
2007, revenue excluded $79.6 of sales related to dealer
deconsolidations and other divestitures, net of acquisitions.
Current year revenue was positively impacted by $73.2 from
currency translation effects and approximately $64.0 from an
extra week of shipments as compared to the prior year.
Cost of sales, which is reported separately from restructuring
costs, decreased to 67.1% of revenue in 2008, a 160 basis
point improvement compared to the prior year. Improvements in
the North America segment and the Other category of 220 and
240 basis points, respectively, were the key drivers of
this improvement. The improvements were due to volume leverage,
improved pricing yields, benefits of restructuring efforts and
product simplicity initiatives and continued implementation of
lean manufacturing principles, partially offset by lower cash
surrender value appreciation on our company-owned life insurance
in the North America segment.
16
Gross margin increased to 32.9% because of the improvements in
cost of sales and lower restructuring costs.
Operating expenses increased $91.3 in 2008 compared to 2007.
Currency translation effects, higher intangible asset and
goodwill impairment-related charges at PolyVision, higher
spending related to longer-term growth initiatives, lower cash
surrender value appreciation on company-owned life insurance and
costs associated with an additional week of operations in 2008
were the primary reasons for the increase.
Operating income improved by $89.1 in 2008 compared to 2007, due
to better performance in our North America and International
segments and lower restructuring costs, offset by lower
operating income in the Other category, primarily due to
intangible asset and goodwill impairment-related charges at
PolyVision.
We recorded net restructuring credits of $0.4 in 2008, compared
to net restructuring costs of $23.7 in 2007 and $38.9 in 2006.
The net credit in 2008 primarily consisted of a gain on the sale
of real estate related to our former headquarters campus for our
International segment in Strasbourg, France offset by charges
related to the completion of a two-year facility rationalization
initiative at our Grand Rapids, Michigan campus.
Other Income,
Net, and Effective Income Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Other Income, Net
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Interest expense
|
|
|
$
|
16.9
|
|
|
|
$
|
18.5
|
|
|
|
$
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
23.0
|
|
|
|
|
25.9
|
|
|
|
|
11.1
|
|
Equity in income of unconsolidated ventures
|
|
|
|
4.9
|
|
|
|
|
3.5
|
|
|
|
|
2.0
|
|
Elimination of minority interest in consolidated dealers
|
|
|
|
(7.2
|
)
|
|
|
|
(2.8
|
)
|
|
|
|
(2.9
|
)
|
Other income, net
|
|
|
|
4.8
|
|
|
|
|
2.8
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
|
|
25.5
|
|
|
|
|
29.4
|
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense and other income, net
|
|
|
$
|
8.6
|
|
|
|
$
|
10.9
|
|
|
|
$
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
|
37.0
|
%
|
|
|
|
14.2
|
%
|
|
|
|
36.0
|
%
|
Interest income decreased in 2008 compared to 2007 due to lower
average cash and investment balances, lower interest rates and a
$0.9 impairment charge recorded against a Canadian commercial
paper investment that remains in default. Interest income
increased in 2007 compared to 2006 due to higher average cash
and investment balances and higher interest rates.
Our consolidated results include the results of several dealers
in which we either own a majority interest or we maintain
participative control, but our investments are structured such
that we do not share in the profits or losses. Elimination of
minority interest in consolidated dealers represents the
elimination of earnings where either our class of equity does
not share in the earnings or the earnings are allocated to the
minority interest holder.
Other income, net consists of foreign exchange gains and losses,
unrealized gains and losses on derivative instruments and
miscellaneous income and expenses in 2008, 2007 and 2006.
Included in this amount for 2008 and 2007 is $3.9 and $3.6,
respectively related to gains on dealer transitions.
During 2007, we recorded favorable tax adjustments of $25.1.
These adjustments included a $13.6 reduction of deferred tax
asset valuation allowances related to International and
U.S. net operating losses and U.S. foreign tax credit
carryforwards. These reductions were the result of improved
profitability and the implementation of tax planning strategies,
which increased the likelihood of utilizing foreign net
17
operating losses, U.S. state net operating losses and
U.S. foreign tax credit carryforwards. We reduced specific
tax reserves by $7.5 due to the completion of a long-outstanding
audit of a foreign subsidiary and other adjustments related to
open tax periods in the U.S. In addition, we recorded a
$4.0 adjustment to recognize the future benefit of
U.S. foreign tax credits resulting from a change in an
election for the treatment of foreign taxes on our 2004 to 2006
U.S. tax returns. See further discussion of these items in
Note 12 to the consolidated financial statements. The
favorable tax adjustments had the effect of reducing the 2007
effective tax rate from approximately 34% to 14.2%.
Segment
Disclosure
We operate on a worldwide basis within North America and
International reportable segments, plus an Other
category. During 2008, we made changes in our organizational
structure which resulted in changes to our segment reporting. As
a result of these changes, certain components have been
reclassified between our North America segment and our Other
category, including Vecta, which moved from North America to our
Premium Group unit, and a health-care product line within
Brayton, which moved from our Premium Group unit to Nurture by
Steelcase. Segment information for prior years has been restated
to reflect these changes. Additional information about our
reportable segments is contained in Item 1: Business
and Note 15 to the consolidated financial statements
included with this report.
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Income Statement DataNorth America
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Revenue
|
|
|
$
|
1,936.6
|
|
|
|
|
100.0
|
%
|
|
|
$
|
1,796.2
|
|
|
|
|
100.0
|
%
|
|
|
$
|
1,696.9
|
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
|
1,324.6
|
|
|
|
|
68.4
|
|
|
|
|
1,266.9
|
|
|
|
|
70.6
|
|
|
|
|
1,216.3
|
|
|
|
|
71.7
|
|
Restructuring costs
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
18.5
|
|
|
|
|
1.0
|
|
|
|
|
22.6
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
611.2
|
|
|
|
|
31.6
|
|
|
|
|
510.8
|
|
|
|
|
28.4
|
|
|
|
|
458.0
|
|
|
|
|
27.0
|
|
Operating expenses
|
|
|
|
444.5
|
|
|
|
|
23.0
|
|
|
|
|
412.8
|
|
|
|
|
22.9
|
|
|
|
|
380.0
|
|
|
|
|
22.4
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
166.7
|
|
|
|
|
8.6
|
%
|
|
|
$
|
96.3
|
|
|
|
|
5.4
|
%
|
|
|
$
|
78.0
|
|
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The North America segment increased operating income by $70.4 in
2008 compared to 2007 after an increase of $18.3 between 2006
and 2007. The 2008 improvement was driven by volume growth,
improved pricing yield, significant improvements in the
performance of our wood business, benefits of prior
restructuring activities and lower restructuring costs,
partially offset by lower cash surrender value appreciation on
company-owned life insurance policies and higher spending
related to longer-term growth initiatives.
Revenue increased 7.8% in 2008 compared to 2007 and represented
56.6% of consolidated revenue. Revenue growth in 2008 was driven
by relatively strong sales across the Steelcase Group, Nurture
by Steelcase and Details brands and benefited from an extra week
of shipments as compared to the prior year. While positive,
growth at Turnstone moderated in 2008 compared to strong double
digit percentages in recent years. As compared to the prior
year, current year revenue excluded $80.6 of sales related to
dealer deconsolidations, net of acquisitions, and included
additional sales from an extra week of shipments and $9.2 from
favorable currency translation effects related to sales by our
subsidiary in Canada.
Cost of sales, which is reported separately from restructuring
costs, decreased 220 basis points from the prior year as a
percent of revenue. The improvement was the result of volume
leverage, improved pricing yields, benefits from prior
restructuring activities and product simplicity initiatives and
continued implementation of lean manufacturing principles,
including significant improvement in the performance of our wood
product category. These improvements were partially offset by
lower cash surrender value appreciation on company-owned life
insurance.
18
As disclosed in Note 7 to the consolidated financial
statements, we have made investments in company-owned life
insurance policies with the intention of using them as a
long-term funding source for post-retirement medical benefits,
deferred compensation and other supplemental retirement
benefits. Income from these investments was $11.8 lower in 2008
compared to 2007, with $6.3 of the decrease negatively impacting
cost of sales.
Gross margin as a percent of revenue improved from 28.4% in the
prior year to 31.6% in the current year, due to improved
operating performance and lower restructuring costs.
Restructuring costs of $0.8 in 2008 and $18.5 in 2007 included
in gross profit consisted of moving and severance costs
associated with our plant consolidation initiative at our Grand
Rapids, Michigan manufacturing campus, which we completed during
2008, offset in part by realization of conditional proceeds
related to the sale of related properties.
Operating expenses were 23.0% of revenue in 2008 compared to
22.9% of revenue in 2007. Operating expenses increased in
absolute dollars compared to 2007 primarily due to costs
associated with an additional week of operations in 2008, higher
spending related to longer-term growth initiatives, marketing
and product development and lower cash surrender value
appreciation on company-owned life insurance, partially offset
by lower costs resulting from dealer deconsolidations, net of
acquisitions.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
Income Statement DataInternational
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
Revenue
|
|
|
$
|
893.8
|
|
|
|
|
100.0
|
%
|
|
|
$
|
735.8
|
|
|
|
|
100.0
|
%
|
|
|
$
|
644.5
|
|
|
|
|
100.0
|
%
|
|
|
Cost of sales
|
|
|
|
597.1
|
|
|
|
|
66.8
|
|
|
|
|
490.0
|
|
|
|
|
66.6
|
|
|
|
|
442.8
|
|
|
|
|
68.7
|
|
|
|
Restructuring costs
|
|
|
|
(2.0
|
)
|
|
|
|
(0.2
|
)
|
|
|
|
2.8
|
|
|
|
|
0.4
|
|
|
|
|
8.6
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
298.7
|
|
|
|
|
33.4
|
|
|
|
|
243.0
|
|
|
|
|
33.0
|
|
|
|
|
193.1
|
|
|
|
|
30.0
|
|
|
|
Operating expenses
|
|
|
|
241.7
|
|
|
|
|
27.0
|
|
|
|
|
208.7
|
|
|
|
|
28.4
|
|
|
|
|
188.7
|
|
|
|
|
29.3
|
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
5.7
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
$
|
57.0
|
|
|
|
|
6.4
|
%
|
|
|
$
|
34.2
|
|
|
|
|
4.6
|
%
|
|
|
$
|
(1.3
|
)
|
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International reported operating income of $57.0, an improvement
of $22.8 compared to 2007. The 2008 improvement was driven by
increased profitability in certain markets, most notably
Germany, France and Latin America, lower restructuring costs and
benefits of currency translation.
Revenue increased 21.5% in 2008 compared to 2007 and represented
26.1% of consolidated revenue. The growth was relatively
broad-based across most of our International regions, but was
particularly strong in Germany, France, eastern Europe, Spain
and Portugal, Latin America and Asia. Currency translation had
the effect of increasing revenue by $64.0 in 2008 as compared to
the prior year. Revenue also included $13.6 of incremental sales
related to net acquisitions.
Cost of sales, which is reported separately from restructuring
costs, increased by 20 basis points as a percentage of
revenue compared to 2007. Improvements due to volume leverage
and benefits from prior restructuring activities were more than
offset by operational issues at a small subsidiary, higher
material and transportation costs and unfavorable currency
impacts, most notably in the U.K.
Gross margin as a percent of revenue was 33.4% in 2008 compared
to 33.0% in 2007. The change in gross margin was influenced by
the cost of sales items discussed above and a restructuring
credit in 2008 related to a gain on the sale of real estate
associated with our former headquarters campus in Strasbourg,
France.
Operating expenses increased by $33.0 in 2008 compared to 2007,
primarily due to currency translation impacts of $17.6, higher
spending on growth initiatives in Asia and net acquisitions.
19
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
Income Statement DataOther
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
Revenue
|
|
|
$
|
590.4
|
|
|
|
|
100.0
|
%
|
|
|
$
|
565.4
|
|
|
|
|
100.0
|
%
|
|
|
$
|
527.5
|
|
|
|
|
100.0
|
%
|
|
|
Cost of sales
|
|
|
|
373.6
|
|
|
|
|
63.3
|
|
|
|
|
371.3
|
|
|
|
|
65.7
|
|
|
|
|
330.3
|
|
|
|
|
62.6
|
|
|
|
Restructuring costs
|
|
|
|
0.8
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
216.0
|
|
|
|
|
36.6
|
|
|
|
|
194.1
|
|
|
|
|
34.3
|
|
|
|
|
195.2
|
|
|
|
|
37.0
|
|
|
|
Operating expenses
|
|
|
|
210.6
|
|
|
|
|
35.7
|
|
|
|
|
183.3
|
|
|
|
|
32.4
|
|
|
|
|
161.2
|
|
|
|
|
30.6
|
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
5.4
|
|
|
|
|
0.9
|
%
|
|
|
$
|
10.2
|
|
|
|
|
1.8
|
%
|
|
|
$
|
34.0
|
|
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Other category includes the Premium Group, PolyVision, IDEO
and Financial Services subsidiaries.
The Other category reported operating income of $5.4, a $4.8
decline compared to the prior year. The decline was primarily
the result of higher intangible asset and goodwill
impairment-related charges at PolyVision which offset improved
profitability in the Premium Group and PolyVision, excluding the
impact of the impairment-related charges. IDEOs business
grew significantly in 2008, but operating income growth was
offset by higher variable compensation earned by certain members
of IDEO management in connection with an agreement to enable
them to acquire an ownership interest in IDEO.
Over the past few years, PolyVision faced intense price
competition in the U.S. contractor whiteboard business sold
through a direct bid process, and consequently financial
performance within this portion of their business continued to
lag our expectations. Accordingly, during our annual strategic
planning process in Q3 2008, we evaluated several alternative
strategies to address its financial performance. As a result, we
performed impairment testing and recorded a non-cash charge of
$21.1 in Q3 2008, of which $15.8 related to intangible assets
and $5.3 related to goodwill. We recorded $10.7 of similar
non-cash intangible asset and goodwill impairment-related
charges at PolyVision in 2007.
In 2008, we entered into an agreement which will allow certain
members of the management of IDEO to potentially purchase a
controlling equity interest in IDEO in two phases before 2013.
The agreement includes a variable compensation program which
provides these employees higher variable compensation to acquire
ownership, provided certain performance targets are met. As of
February 29, 2008, IDEO management effectively purchased
approximately 12% of IDEO under the first phase of the agreement.
Revenue increased by $25.0 in 2008 due to growth at IDEO and
across most of the Premium Group companies.
Gross margin as a percent of revenue was 36.6% in 2008 compared
to 34.3% in 2007. The improvement in gross margin was primarily
due to improvements at IDEO, PolyVision and across most of the
Premium Group companies.
Restructuring costs included in 2008 related to initial costs
associated with the announced closure of one of the Premium
Group plants, which we expect to complete by Q3 2009.
During Q1 2009, we announced a restructuring plan at PolyVision,
linked to a decision to exit a portion of the contractor
whiteboard fabrication business which typically carries the
lowest gross margins. Under the current restructuring plan, we
expect to close one facility before the end of Q3 2009.
20
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
February 29,
|
|
|
February 23,
|
|
|
February 24,
|
Income Statement DataCorporate
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
Operating expenses
|
|
|
$
|
26.3
|
|
|
|
$
|
27.0
|
|
|
|
$
|
28.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 85% of corporate expenses are charged to the
operating segments as part of a corporate allocation.
Unallocated portions of these expenses are considered general
corporate costs and are reported as Corporate. Corporate costs
include executive and portions of shared service functions such
as information technology, human resources, finance, legal,
research and development and corporate facilities.
Liquidity and
Capital Resources
Liquidity
We believe we currently need approximately $50 in cash to fund
the day-to-day operating needs of our business. However, we
intend to maintain a minimum of $100 of additional cash and
investments as ready liquidity for funding investments in growth
initiatives and as a cushion against volatility in the economy.
Our cash balances seasonally decline in Q1 due to the timing of
variable compensation, retirement plan funding and annual
insurance payments. We plan to use ongoing cash generation to
reinvest in the business and to return value to shareholders in
the form of dividends and share repurchases. These are general
guidelines and our cash balance may be higher or lower at any
point in time. We also may change this approach as conditions
change or new opportunities emerge.
The following table summarizes our consolidated statements of
cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Cash Flow Summary
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Net cash flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
$
|
249.7
|
|
|
|
$
|
280.5
|
|
|
|
$
|
175.5
|
|
Investing activities
|
|
|
|
(91.3
|
)
|
|
|
|
(51.9
|
)
|
|
|
|
127.7
|
|
Financing activities
|
|
|
|
(484.4
|
)
|
|
|
|
(127.1
|
)
|
|
|
|
(101.6
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
12.7
|
|
|
|
|
1.9
|
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
(313.3
|
)
|
|
|
|
103.4
|
|
|
|
|
207.2
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
527.2
|
|
|
|
|
423.8
|
|
|
|
|
216.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
$
|
213.9
|
|
|
|
$
|
527.2
|
|
|
|
$
|
423.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, cash and cash equivalents decreased by $313.3 to a
balance of $213.9 as of February 29, 2008. Of our total
cash and cash equivalents, approximately 77% was located in the
U.S. and the remaining 23% was located outside of the U.S.,
primarily in Canada and Europe. These funds, in addition to cash
generated from future operations and available credit
facilities, are expected to be sufficient to finance our
foreseeable liquidity and capital needs.
We currently have investments in auction rate securities
(ARS) and one Canadian asset-backed commercial paper
(ABCP) investment with a total par value of $31.5
and an estimated fair value of $28.0. With the tightening of the
U.S. credit markets, there is no liquid market for the ARS
or ABCP at this time. As a result, we have reclassified these
securities to Long-term investments on the Consolidated
Balance Sheets, as we do not reasonably expect to sell the
securities in the near term. We intend to hold these investments
until the market recovers and do not anticipate having to sell
these investments in order to operate our business. See
Note 4 to the consolidated financial statements for
additional information.
21
Cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Cash Flow DataOperating Activities
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Net income
|
|
|
$
|
133.2
|
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
Depreciation and amortization
|
|
|
|
92.4
|
|
|
|
|
101.4
|
|
|
|
|
119.4
|
|
Deferred income taxes
|
|
|
|
11.3
|
|
|
|
|
30.9
|
|
|
|
|
0.2
|
|
Changes in operating assets and liabilities, net of acquisitions
|
|
|
|
(7.6
|
)
|
|
|
|
23.1
|
|
|
|
|
(8.9
|
)
|
Other, net
|
|
|
|
20.4
|
|
|
|
|
18.2
|
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
$
|
249.7
|
|
|
|
$
|
280.5
|
|
|
|
$
|
175.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in cash provided by operating activities in 2008
was primarily due to higher working capital requirements to
support the growth of our business.
Additionally, during 2008 and 2007, we recorded $21.1 and $10.7,
respectively, of non-cash intangible asset and goodwill
impairment-related charges at PolyVision, which are included in
Other, net in the table above.
Cash (used in)
provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Cash Flow DataInvesting Activities
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Capital expenditures
|
|
|
$
|
(79.6
|
)
|
|
|
$
|
(58.2
|
)
|
|
|
$
|
(71.9
|
)
|
Net (purchases) liquidations of investments
|
|
|
|
(42.2
|
)
|
|
|
|
(33.1
|
)
|
|
|
|
131.6
|
|
Proceeds from disposal of fixed assets
|
|
|
|
27.5
|
|
|
|
|
18.9
|
|
|
|
|
39.3
|
|
Proceeds from repayments of lease fundings
|
|
|
|
5.7
|
|
|
|
|
9.7
|
|
|
|
|
17.7
|
|
Proceeds from repayments of notes receivable, net
|
|
|
|
15.4
|
|
|
|
|
17.5
|
|
|
|
|
15.3
|
|
Acquisitions, net of cash acquired and business divestitures
|
|
|
|
(13.8
|
)
|
|
|
|
(9.9
|
)
|
|
|
|
(8.6
|
)
|
Other, net
|
|
|
|
(4.3
|
)
|
|
|
|
3.2
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
$
|
(91.3
|
)
|
|
|
$
|
(51.9
|
)
|
|
|
$
|
127.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We continue to closely scrutinize capital spending to ensure we
are making the right investments to sustain our business and to
preserve our ability to introduce innovative, new products. The
increase in capital expenditures in 2008 was due to higher
investments in new product development, showrooms and corporate
facilities and progress payments toward the planned replacement
of an existing corporate aircraft in 2009. Capital expenditures
during 2006 included a $18.0 payment for a corporate aircraft.
Net cash used in investing activities in 2008 included the
allocation of $50 of cash and cash equivalents into a managed
investment portfolio. During 2006 we converted all of our
short-term investments in ARS to cash and cash equivalents, and
in 2007 and 2008, we purchased additional ARS, certain of which
we continue to hold due to a lack of liquidity in the
marketplace.
Proceeds from the disposal of fixed assets in 2008 primarily
related to the sale of real estate associated with manufacturing
consolidation initiatives completed in Grand Rapids, Michigan
and Strasbourg, France. 2007 disposals included the sale of
domestic and international manufacturing facilities and related
equipment. Proceeds from the disposal of fixed assets in 2006
included the sale of a corporate aircraft that we replaced and
the sale of a domestic manufacturing facility.
Acquisitions, net of cash acquired and business divestitures in
2008 related to the purchase of Ultra, offset by cash proceeds
from a dealer transition. The 2007 amount related to an
acquisition offset by the sale of a small subsidiary of
PolyVision. The 2006 amount related to investments in three
small
22
dealerships acquired by our International segment and a small
technology services company that was acquired by a company-owned
dealer within our North America segment.
Cash used in
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Cash Flow DataFinancing Activities
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Borrowings (repayments) of short-term and long-term debt, net
|
|
|
$
|
1.4
|
|
|
|
$
|
(9.8
|
)
|
|
|
$
|
(61.2
|
)
|
Excess tax benefit from exercise of stock options and vesting of
restricted stock
|
|
|
|
1.7
|
|
|
|
|
3.9
|
|
|
|
|
|
|
Common stock repurchases, net of issuances
|
|
|
|
(153.8
|
)
|
|
|
|
(54.0
|
)
|
|
|
|
8.8
|
|
Dividends paid
|
|
|
|
(333.7
|
)
|
|
|
|
(67.2
|
)
|
|
|
|
(49.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
$
|
(484.4
|
)
|
|
|
$
|
(127.1
|
)
|
|
|
$
|
(101.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used cash related to financing activities in 2008 primarily
to return value to shareholders through dividend payments and
common stock repurchases. We paid common stock dividends of
$2.35 per share in 2008 consisting of quarterly dividends of
$0.15 per share and a special cash dividend of $1.75 during Q4
2008. Dividends in 2007 and 2006 were $0.45 per share and $0.33
per share, respectively. During Q1 2009, we announced a
quarterly dividend of $0.15 per share. We believe this dividend
level can be supported throughout 2009 by our existing cash
balances and projected operating performance.
During 2008 and 2007, we repurchased $165.3 and $77.3 of shares
of our common stock, respectively. Of the 2008 repurchases,
$132.3 related to the repurchase of 7.7 million shares of
our Class A Common Stock, and $33.0 related to the
repurchase of 1.7 million shares of our Class B Common
Stock from entities affiliated with a member of our Board of
Directors. As of February 29, 2008, $272.5 remained
available under our repurchase authorizations.
We issued 0.8 million shares and 1.8 million shares of
Class A Common Stock in 2008 and 2007, respectively, for
proceeds of $11.5 and $23.3, respectively, related to the
exercise of employee stock options. See Note 13 to the
consolidated financial statements for additional information.
Capital
Resources
Off-Balance Sheet
Arrangements
We are contingently liable under loan and lease guarantees for
certain Steelcase dealers and joint ventures 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. See Note 14 to
the consolidated financial statements for additional information.
23
Contractual
Obligations
Our contractual obligations as of February 29, 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
1-3
|
|
|
|
3-5
|
|
|
|
After 5
|
|
Contractual Obligations
|
|
|
Total
|
|
|
|
1 Year
|
|
|
|
Years
|
|
|
|
Years
|
|
|
|
Years
|
|
Long-term debt and short-term borrowings
|
|
|
$
|
258.7
|
|
|
|
$
|
8.2
|
|
|
|
$
|
0.9
|
|
|
|
$
|
249.6
|
|
|
|
$
|
|
|
Estimated interest on debt obligations
|
|
|
|
57.1
|
|
|
|
|
16.6
|
|
|
|
|
32.4
|
|
|
|
|
8.1
|
|
|
|
|
|
|
Operating leases
|
|
|
|
269.2
|
|
|
|
|
58.3
|
|
|
|
|
91.4
|
|
|
|
|
57.7
|
|
|
|
|
61.8
|
|
Committed capital expenditures
|
|
|
|
65.3
|
|
|
|
|
35.0
|
|
|
|
|
19.2
|
|
|
|
|
11.1
|
|
|
|
|
|
|
Purchase obligations
|
|
|
|
21.3
|
|
|
|
|
18.4
|
|
|
|
|
1.6
|
|
|
|
|
1.3
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
327.1
|
|
|
|
|
111.1
|
|
|
|
|
76.6
|
|
|
|
|
44.8
|
|
|
|
|
94.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
998.7
|
|
|
|
$
|
247.6
|
|
|
|
$
|
222.1
|
|
|
|
$
|
372.6
|
|
|
|
$
|
156.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated debt as of February 29, 2008 was $258.7.
Of our total debt, $249.5 is in the form of term notes due in
2012. As of February 29, 2008, our debt to total capital
ratio was 22.1%, an increase from 17.4% in 2007 due to lower
shareholders equity at the end of 2008 as a result of a
$247.5 special cash dividend and higher share repurchases during
2008.
We have commitments related to certain sales offices, showrooms
and equipment under non-cancelable operating leases that expire
at various dates through 2018. Minimum payments under operating
leases having initial or remaining non-cancelable terms in
excess of one year are presented in the contractual obligations
table above.
Committed capital expenditures represent obligations we have
related to property, plant and equipment purchases and include
outstanding commitments of $55.8 to purchase two corporate
aircraft that are intended to replace existing aircraft.
We define purchase obligations as non-cancelable signed
contracts to purchase goods or services beyond the needs of
meeting current backlog or production.
Other long-term liabilities represent contributions and benefit
payments expected to be made for our post-retirement, pension,
deferred compensation, defined contribution and variable
compensation plans. It should be noted that 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 the 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 10 to the consolidated financial statements for
additional information.
The contractual obligations table above is current as of
February 29, 2008. 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.
24
Liquidity
Facilities
Our total liquidity facilities as of February 29, 2008 were:
|
|
|
|
|
|
Liquidity Facilities
|
|
|
Amount
|
|
Global committed bank facility
|
|
|
$
|
200.0
|
|
Various uncommitted lines
|
|
|
|
118.5
|
|
|
|
|
|
|
|
Total credit lines available
|
|
|
|
318.5
|
|
Less:
|
|
|
|
|
|
Borrowings outstanding
|
|
|
|
7.3
|
|
Standby letters of credit
|
|
|
|
23.7
|
|
|
|
|
|
|
|
Available capacity (subject to covenant constraints)
|
|
|
$
|
287.5
|
|
|
|
|
|
|
|
We have the option of increasing the global committed bank
facility from $200 to $300, subject to customary conditions.
Borrowings under this facility are unsecured and unsubordinated.
There are currently no borrowings outstanding under the
facility. The facility requires us to satisfy financial
covenants including a maximum debt ratio covenant and a minimum
interest coverage ratio covenant. We were in compliance with all
covenants under our financing facilities during 2008, and they
are fully available for our use, although the various
uncommitted lines are subject to change or cancellation by the
banks at any time.
Borrowings outstanding on these facilities are primarily related
to short-term borrowings within our International segment and
totaled $7.3 at February 29, 2008. In addition to the
borrowings, we had $23.7 at February 29, 2008 in
outstanding standby letters of credit against these facilities
which primarily relate to our self-insured workers
compensation programs. We had no draws on our standby letters of
credit during 2008.
Total consolidated debt as of February 29, 2008 was $258.7.
Our debt primarily consists of $249.5 in term notes due in 2012
with an effective interest rate of 6.3%. See Note 9 to the
consolidated financial statements for additional information.
Our long-term debt ratings are investment grade BBB- with a
positive outlook from Standard & Poors and Baa3
with a stable outlook from Moodys Investor Service.
Critical
Accounting Estimates
Managements Discussion and Analysis of Results of
Operations and Financial Condition is based upon our
consolidated financial statements and accompanying notes. Our
consolidated financial statements have been 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 on the consolidated financial statements and
accompanying notes. Although these estimates are based on
historical data and managements 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 the Board of Directors and affect all segments of the Company.
Impairment of
Goodwill, Other Intangible Assets and Long-Lived
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,
or if conditions indicate an earlier review is necessary, the
carrying value of the reporting unit is compared to an estimate
of its fair value. If the estimated fair value 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. We evaluated goodwill and
intangible assets using ten reportable units where
25
goodwill is recordedspecifically North America excluding
consolidated dealers, North America consolidated dealers and
Softcare within the North America reportable segment;
International; and Brayton, Designtex, Financial Services, IDEO,
Metro, and PolyVision within the Other category.
Annually, we perform an impairment analysis on our goodwill and
intangible assets not subject to amortization using an income
approach based on the cash flows attributable to the related
products. We also perform an annual impairment analysis for our
intangible assets subject to amortization and our other
long-lived assets including property, plant and equipment. An
impairment loss is recognized if the carrying amount of a
long-lived asset is not recoverable and its carrying amount
exceeds its fair value. In testing for impairment, we first
determine if the asset is recoverable and then compare the
discounted cash flows over the assets remaining life to
the carrying value.
At February 29, 2008, we had $216.7 of goodwill and $48.9
of net intangible assets recorded on our Consolidated Balance
Sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible
|
|
Reportable Segment
|
|
|
Goodwill
|
|
|
|
Assets, Net
|
|
North America
|
|
|
$
|
50.0
|
|
|
|
$
|
6.0
|
|
International
|
|
|
|
50.9
|
|
|
|
|
8.4
|
|
Other category
|
|
|
|
115.8
|
|
|
|
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
216.7
|
|
|
|
$
|
48.9
|
|
|
|
|
|
|
|
|
|
|
|
|
During Q4 2008 (Q3 2008 for PolyVision), we performed our annual
impairment assessment of goodwill in our reporting units. In the
first step to test for potential impairment, we measured the
estimated fair value of our reporting units using a combination
of two methods based upon a discounted cash flow valuation
(DCF) and a market value approach (MVA).
The first method used a 100% weighting factor based on DCF while
the second valuation was based upon 50% of DCF and 50% of MVA.
The MVA was only calculated for International and North America
excluding consolidated dealers reportable units because these
are the only two reportable units where we could obtain
comparable market data.
The DCF analysis used the present value of projected cash flows
and a residual value and was based on the following assumptions:
|
|
|
|
|
a business is worth today what it can generate in future cash to
its owners,
|
|
|
|
cash received today is worth more than an equal amount of cash
received in the future and
|
|
|
|
future cash flows can be reasonably estimated.
|
The MVA used a set of four comparable companies to derive a
range of market multiples for the last twelve months
revenue and earnings before interest, taxes, depreciation and
amortization.
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 and
operating plans, and discount rates we used ranged from 10.0% to
13.0%. However, these assumptions could change over time, which
may result in future impairment charges.
As of the valuation date, the enterprise value available for
goodwill determined by each method described above is in excess
of the underlying reported value of the goodwill as follows:
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
|
|
Available in Excess
|
|
Reportable Segment
|
|
|
of Goodwill
|
|
North America
|
|
|
$
|
1,318.8
|
|
International
|
|
|
|
482.0
|
|
Other category
|
|
|
|
119.8
|
|
26
Within the Other category, PolyVisions DCF analysis
indicated a $(8.4) shortfall in enterprise value available for
goodwill. As the available enterprise value for PolyVision was
less than reported goodwill and intangible assets, respectively,
in the first step of our impairment testing, we were required to
perform the second step of the goodwill impairment test. As a
result of our step two analysis, we recorded a total impairment
charge of $21.1, of which $5.3 related to goodwill and $15.8
related to intangible assets. At February 29, 2008
PolyVision had remaining goodwill and intangible assets of $44.4
and $34.5, respectively.
For each reporting unit other than PolyVision, 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:
|
|
|
|
|
|
|
|
|
Enterprise Value
|
|
|
|
|
Available in Excess
|
|
Reportable Segment
|
|
|
of Goodwill
|
|
North America
|
|
|
$
|
1,133.8
|
|
International
|
|
|
|
396.0
|
|
Other category
|
|
|
|
107.7
|
|
Based on the sensitivity analysis above, the North America
consolidated dealers and Financial Services reportable units
would have had goodwill balances in excess of enterprise value
available for goodwill, and would have triggered the second step
of our impairment testing. These two reporting units had
recorded goodwill aggregating $35.3 as of February 29, 2008.
See Notes 2 and 6 to the consolidated financial statements
for more information regarding goodwill and other intangible
assets.
Income
Taxes
Our annual effective tax rate is based on income, statutory tax
rates and tax planning strategies available 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.
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.
Future tax benefits of tax losses and credit carryforwards are
recognized to the extent that realization of these benefits is
considered more likely than not. We estimated a tax benefit from
the operating loss carryforwards before valuation allowance of
$94.9, but we recorded a valuation allowance of $29.1 which
reduces our estimated tax benefit to $65.8. Additionally, we
estimated a tax benefit from tax credit carryforwards of $16.3.
It is considered more likely than not that a combined benefit of
$82.1 will be realized on these carryforwards. 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 income tax asset, a
valuation allowance is established. A 10% decrease in the
expected amount of
27
benefit to be realized on the carryforwards would result in a
decrease in net income of approximately $8.2. The net benefit
from operating loss and tax credit carryforwards is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
|
|
|
|
|
|
Carryforwards
|
|
|
|
Tax Credit
|
|
February 29, 2008
|
|
|
(tax effected)
|
|
|
|
Carryforwards
|
|
Total carryforwards
|
|
|
$
|
94.9
|
|
|
|
$
|
16.3
|
|
Valuation allowance
|
|
|
|
(29.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit
|
|
|
$
|
65.8
|
|
|
|
$
|
16.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
Other Post-Retirement Benefits
The determination of the obligation and expense for pension and
other post-retirement benefits is dependent on the selection of
certain actuarial assumptions used in calculating such amounts.
These assumptions include, among others, the discount rate,
expected long-term rate of return on plan assets and rates of
increase in compensation and healthcare costs. These assumptions
are reviewed with our actuaries and updated annually based on
relevant external and internal factors and information,
including but not limited to, long-term expected fund returns,
expenses paid from the fund, rates of termination, medical
inflation, technology and quality care changes, regulatory
requirements, plan changes and governmental coverage changes.
See Note 10 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 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. 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; currency
fluctuations; changes in customer demand; and the other risks
and contingencies detailed in this Report and our other filings
with the Securities and Exchange Commission. 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:
|
The principal market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices) to which we are
exposed include foreign exchange risk, interest rate risk and
fixed income and equity price risk.
Foreign Exchange
Risk
Operating in international markets involves exposure to the
possibility of volatile movements in foreign exchange rates.
These exposures may impact future earnings or cash flows.
Revenue from foreign locations (primarily Europe and Canada)
represented approximately 33% of our consolidated revenue in
2008 and 30% in 2007. We actively manage the foreign currency
exposures that are associated with committed foreign currency
purchases and sales created in the normal course of
28
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.
Changes in foreign exchange rates that had the largest impact on
translating our international operating profit for 2008 related
to the Euro and the Canadian dollar versus the U.S. dollar.
We estimate that an additional 10% devaluation of the
U.S. dollar against the local currencies would have
increased our operating income by approximately $8.6 in 2008,
assuming 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 exchange
rates as of the end of the year. Translation adjustments are not
included in determining net income but are disclosed in
Accumulated other comprehensive income (loss) within
shareholders equity on the 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 29, 2008, the cumulative net currency translation
adjustments reduced shareholders equity by $2.2.
Foreign exchange gains and losses reflect transaction gains and
losses. Transaction gains and losses arise from monetary assets
and liabilities denominated in currencies other than a business
units functional currency. For 2008, net transaction gains
were $4.0.
See Note 2 to the consolidated financial statements for
additional information.
Interest Rate
Risk
We are exposed to interest rate risk primarily on our cash and
cash equivalents, investments, notes receivable and short-term
borrowings. Substantially all of our interest rates on our
long-term borrowings were fixed during 2008; thus our interest
rate risk was minimized on our debt.
Our cash and cash equivalents and investments are primarily
invested in short-dated instruments. Investments in longer-dated
securities are entered into to take advantage of temporary
market interest differentials, and our intent is to sell all
securities in the short term. However, as of February 29,
2008, we held $26.5 and $5.0 par value investments in ARS
and Canadian ABCP, respectively, for which no markets currently
exist. The ABCP was considered to be in default at
February 29, 2008, and no interest was being paid. See
Note 4 to the consolidated financial statements for
additional information.
We estimate a 1.0 percentage point change in interest rates
would have less than a $5.0 impact to our results of operations
for 2008.
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
company-owned life insurance. We estimate a 10% adverse change
in the value of the underlying funds, which could be caused by
changes in interest rates, yield curve, portfolio duration or
equity prices, would have reduced our operating income by
approximately $10.5 and $10.4 in 2008 and 2007, respectively.
This quantitative measure has inherent limitations since not all
of our investments are in similar asset classes. In addition,
the investment managers actively manage certain fixed income and
equity investments and their results could be better or worse
than the market returns.
See Note 7 to the consolidated financial statements for
additional information.
29
|
|
Item 8.
|
Financial
Statements and Supplementary Data:
|
MANAGEMENTS
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 ControlIntegrated Framework 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 29, 2008.
BDO Seidman, 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.
30
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
STEELCASE INC.
GRAND RAPIDS, MICHIGAN
We have audited Steelcase Inc.s internal control over
financial reporting as of February 29, 2008, based on
criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Steelcase Inc.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 Item 8,
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys 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, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed 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 companys
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
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that 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, Steelcase Inc. maintained, in all material
respects, effective internal control over financial reporting as
of February 29, 2008, based on the COSO criteria.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
accompanying consolidated balance sheets of Steelcase Inc. as of
February 29, 2008 and February 23, 2007, and the
related consolidated statements of income, changes in
shareholders equity and cash flows for each of the three
years in the period ended February 29, 2008 and our report
dated April 25, 2008 expressed an unqualified opinion.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
April 25, 2008
31
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
STEELCASE INC.
GRAND RAPIDS, MICHIGAN
We have audited the accompanying consolidated balance sheets of
Steelcase Inc. as of February 29, 2008 and
February 23, 2007 and the related consolidated statements
of income, changes in shareholders equity, and cash flows
for each of the three years in the period ended
February 29, 2008. In connection with our audits of the
financial statements, we have also audited the financial
statement schedule listed in Item 15(a). These financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and 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 and
schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of
the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Steelcase Inc. at February 29, 2008 and
February 23, 2007 and the results of its operations and its
cash flows for each of the three years in the period ended
February 29, 2008, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the 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.
As discussed in the consolidated financial statements, Steelcase
Inc. changed its method of accounting for defined benefit
pension and other postretirement plans as of February 23,
2007, in accordance with Financial Accounting Standards Board
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans; share-based
compensation as of February 25, 2006, in accordance with
Financial Accounting Standards Board No. 123R,
Share-Based Payment; and uncertain tax positions as of
February 24, 2007, in accordance with FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Steelcase Inc.s internal control over
financial reporting as of February 29, 2008, based on
criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated April 25, 2008 expressed an unqualified opinion
thereon.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
April 25, 2008
32
STEELCASE INC.
CONSOLIDATED
STATEMENTS OF INCOME
(in millions,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Revenue
|
|
|
$
|
3,420.8
|
|
|
|
$
|
3,097.4
|
|
|
|
$
|
2,868.9
|
|
Cost of sales
|
|
|
|
2,295.3
|
|
|
|
|
2,128.2
|
|
|
|
|
1,989.4
|
|
Restructuring costs
|
|
|
|
(0.4
|
)
|
|
|
|
21.3
|
|
|
|
|
33.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
1,125.9
|
|
|
|
|
947.9
|
|
|
|
|
846.3
|
|
Operating expenses
|
|
|
|
923.1
|
|
|
|
|
831.8
|
|
|
|
|
758.1
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
202.8
|
|
|
|
|
113.7
|
|
|
|
|
82.5
|
|
Interest expense
|
|
|
|
(16.9
|
)
|
|
|
|
(18.5
|
)
|
|
|
|
(18.1
|
)
|
Interest income
|
|
|
|
23.0
|
|
|
|
|
25.9
|
|
|
|
|
11.1
|
|
Other income, net
|
|
|
|
2.5
|
|
|
|
|
3.5
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
|
211.4
|
|
|
|
|
124.6
|
|
|
|
|
76.4
|
|
Income tax expense
|
|
|
|
78.2
|
|
|
|
|
17.7
|
|
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
133.2
|
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.93
|
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$
|
0.93
|
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
33
STEELCASE INC.
CONSOLIDATED
BALANCE SHEETS
(in millions,
except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
213.9
|
|
|
|
$
|
527.2
|
|
Short-term investments
|
|
|
|
50.1
|
|
|
|
|
33.1
|
|
Accounts receivable, net of allowances of $21.8 and $23.7
|
|
|
|
397.0
|
|
|
|
|
352.6
|
|
Inventories
|
|
|
|
146.7
|
|
|
|
|
144.0
|
|
Deferred income taxes
|
|
|
|
52.1
|
|
|
|
|
60.8
|
|
Other current assets
|
|
|
|
74.9
|
|
|
|
|
111.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
934.7
|
|
|
|
|
1,229.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation
of $1,290.1 and $1,356.0
|
|
|
|
478.4
|
|
|
|
|
477.1
|
|
Company-owned life insurance
|
|
|
|
210.6
|
|
|
|
|
209.2
|
|
Deferred income taxes
|
|
|
|
161.3
|
|
|
|
|
151.7
|
|
Goodwill
|
|
|
|
216.7
|
|
|
|
|
213.4
|
|
Other intangible assets, net of accumulated amortization of
$64.8 and $53.4
|
|
|
|
48.9
|
|
|
|
|
64.6
|
|
Long-term investments
|
|
|
|
30.2
|
|
|
|
|
4.3
|
|
Other assets
|
|
|
|
43.6
|
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
2,124.4
|
|
|
|
$
|
2,399.4
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
34
STEELCASE INC.
CONSOLIDATED
BALANCE SHEETS(Continued)
(in millions,
except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
246.9
|
|
|
|
$
|
222.0
|
|
Short-term borrowings and current portion of long-term debt
|
|
|
|
8.2
|
|
|
|
|
5.1
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
|
|
Employee compensation
|
|
|
|
181.3
|
|
|
|
|
162.7
|
|
Employee benefit plan obligations
|
|
|
|
39.0
|
|
|
|
|
34.2
|
|
Workers compensation claims
|
|
|
|
23.8
|
|
|
|
|
25.1
|
|
Income taxes payable
|
|
|
|
19.5
|
|
|
|
|
24.7
|
|
Product warranties
|
|
|
|
21.6
|
|
|
|
|
22.9
|
|
Other
|
|
|
|
142.7
|
|
|
|
|
147.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
683.0
|
|
|
|
|
644.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt less current maturities
|
|
|
|
250.5
|
|
|
|
|
250.0
|
|
Employee benefit plan obligations
|
|
|
|
183.4
|
|
|
|
|
191.1
|
|
Other long-term liabilities
|
|
|
|
96.6
|
|
|
|
|
76.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
|
530.5
|
|
|
|
|
517.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
1,213.5
|
|
|
|
|
1,161.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock-no par value; 50,000,000 shares authorized,
none issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock-no par value; 475,000,000 shares
authorized, 81,708,920 and 82,077,630 issued and outstanding
|
|
|
|
114.7
|
|
|
|
|
225.4
|
|
Class B Common Stock-no par value; 475,000,000 shares
authorized, 56,940,858 and 64,768,219 issued and outstanding
|
|
|
|
|
|
|
|
|
34.0
|
|
Additional paid-in capital
|
|
|
|
5.0
|
|
|
|
|
6.3
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
17.4
|
|
|
|
|
(1.3
|
)
|
Retained earnings
|
|
|
|
773.8
|
|
|
|
|
973.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
910.9
|
|
|
|
|
1,237.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
$
|
2,124.4
|
|
|
|
$
|
2,399.4
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
35
STEELCASE
INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
(in millions, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
Class A
|
|
|
|
Class B
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
|
Common
|
|
|
|
Common
|
|
|
|
Paid-in
|
|
|
|
Comprehensive
|
|
|
|
Restricted
|
|
|
|
Retained
|
|
|
|
Shareholders
|
|
|
|
Comprehensive
|
|
|
|
|
Outstanding
|
|
|
|
Stock
|
|
|
|
Stock
|
|
|
|
Capital
|
|
|
|
Income (Loss)
|
|
|
|
Stock
|
|
|
|
Earnings
|
|
|
|
Equity
|
|
|
|
Income
|
|
February 25, 2005
|
|
|
|
148,575,155
|
|
|
|
$
|
162.5
|
|
|
|
$
|
134.9
|
|
|
|
$
|
1.3
|
|
|
|
$
|
(33.1
|
)
|
|
|
$
|
(3.1
|
)
|
|
|
$
|
934.1
|
|
|
|
$
|
1,196.6
|
|
|
|
|
|
|
Common stock conversion
|
|
|
|
|
|
|
|
|
30.5
|
|
|
|
|
(30.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
982,563
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
|
(250,000
|
)
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
Tax effect of exercise of stock options
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
Issuance of restricted stock, net
|
|
|
|
182,100
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
Performance share and performance units expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.1
|
)
|
|
|
|
(8.1
|
)
|
Minimum pension liability, net of $0.7 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
1.0
|
|
Derivative adjustments, net of $0.7 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
1.1
|
|
Dividends paid ($0.33 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49.2
|
)
|
|
|
|
(49.2
|
)
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.9
|
|
|
|
|
48.9
|
|
|
|
|
48.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2006
|
|
|
|
149,489,818
|
|
|
|
|
205.5
|
|
|
|
|
104.4
|
|
|
|
|
3.4
|
|
|
|
|
(39.1
|
)
|
|
|
|
(3.1
|
)
|
|
|
|
933.8
|
|
|
|
|
1,204.9
|
|
|
|
$
|
42.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock conversion
|
|
|
|
|
|
|
|
|
28.8
|
|
|
|
|
(28.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
1,788,076
|
|
|
|
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.3
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
|
(4,499,895
|
)
|
|
|
|
(35.7
|
)
|
|
|
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77.3
|
)
|
|
|
|
|
|
Tax effect of exercise of stock options
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
Adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock expense
|
|
|
|
36,850
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
Restricted stock units converted to common stock
|
|
|
|
31,000
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share and performance units expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.9
|
|
|
|
|
9.9
|
|
Minimum pension liability, net of $0.5 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
0.8
|
|
Derivative adjustments, net of $0.8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
1.3
|
|
Recognition of prior service cost & net loss under
SFAS No. 158, net of $15.8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
Dividends paid ($0.45 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67.2
|
)
|
|
|
|
(67.2
|
)
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106.9
|
|
|
|
|
106.9
|
|
|
|
|
106.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23, 2007
|
|
|
|
146,845,849
|
|
|
|
|
225.4
|
|
|
|
|
34.0
|
|
|
|
|
6.3
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
973.5
|
|
|
|
|
1,237.9
|
|
|
|
$
|
118.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
3.6
|
|
|
|
|
|
|
SFAS No. 158 adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
Common stock conversion
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
852,239
|
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
|
(9,393,055
|
)
|
|
|
|
(129.7
|
)
|
|
|
|
(33.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
|
|
|
(165.3
|
)
|
|
|
|
|
|
Tax effect of exercise of stock options
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
Restricted stock expense
|
|
|
|
200,185
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
Restricted stock units converted to common stock
|
|
|
|
51,500
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance shares converted to common stock, restricted stock
and restricted stock units
|
|
|
|
93,060
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share, performance units and restricted stock units
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.4
|
|
|
|
|
22.4
|
|
Minimum pension liability, net of $1.2 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
(2.0
|
)
|
Derivative adjustments, net of $0.2 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
(0.3
|
)
|
Unrealized loss on investments, net of $0.8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
(1.4
|
)
|
Dividends paid ($2.35 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333.7
|
)
|
|
|
|
(333.7
|
)
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133.2
|
|
|
|
|
133.2
|
|
|
|
|
133.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2008
|
|
|
|
138,649,778
|
|
|
|
$
|
114.7
|
|
|
|
$
|
|
|
|
|
$
|
5.0
|
|
|
|
$
|
17.4
|
|
|
|
$
|
|
|
|
|
$
|
773.8
|
|
|
|
$
|
910.9
|
|
|
|
$
|
151.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
36
STEELCASE
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
133.2
|
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
92.4
|
|
|
|
|
101.4
|
|
|
|
|
119.4
|
|
Goodwill and intangible asset impairment charges
|
|
|
|
21.1
|
|
|
|
|
10.7
|
|
|
|
|
|
|
Loss on disposal and write-down of fixed assets, net
|
|
|
|
0.6
|
|
|
|
|
3.9
|
|
|
|
|
4.5
|
|
Deferred income taxes
|
|
|
|
11.3
|
|
|
|
|
30.9
|
|
|
|
|
0.2
|
|
Pension and post-retirement benefit cost
|
|
|
|
4.1
|
|
|
|
|
7.1
|
|
|
|
|
11.9
|
|
Restructuring payments, net of accrued charges
|
|
|
|
(2.6
|
)
|
|
|
|
(3.9
|
)
|
|
|
|
(2.8
|
)
|
Excess tax benefit from exercise of stock options and vesting of
restricted stock
|
|
|
|
(1.7
|
)
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
Other, net
|
|
|
|
(1.1
|
)
|
|
|
|
4.3
|
|
|
|
|
2.3
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
(20.2
|
)
|
|
|
|
24.3
|
|
|
|
|
(1.4
|
)
|
Inventories
|
|
|
|
7.8
|
|
|
|
|
5.4
|
|
|
|
|
(17.0
|
)
|
Other assets
|
|
|
|
1.9
|
|
|
|
|
(47.2
|
)
|
|
|
|
(24.7
|
)
|
Accounts payable
|
|
|
|
(0.6
|
)
|
|
|
|
23.4
|
|
|
|
|
16.9
|
|
Accrued expenses and other liabilities
|
|
|
|
3.5
|
|
|
|
|
17.2
|
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
249.7
|
|
|
|
|
280.5
|
|
|
|
|
175.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(79.6
|
)
|
|
|
|
(58.2
|
)
|
|
|
|
(71.9
|
)
|
Net (purchases) liquidations of investments
|
|
|
|
(42.2
|
)
|
|
|
|
(33.1
|
)
|
|
|
|
131.6
|
|
Proceeds from disposal of fixed assets
|
|
|
|
27.5
|
|
|
|
|
18.9
|
|
|
|
|
39.3
|
|
Proceeds from repayments of lease fundings
|
|
|
|
5.7
|
|
|
|
|
9.7
|
|
|
|
|
17.7
|
|
Proceeds from repayments of notes receivable, net
|
|
|
|
15.4
|
|
|
|
|
17.5
|
|
|
|
|
15.3
|
|
Acquisitions, net of cash acquired and business divestitures
|
|
|
|
(13.8
|
)
|
|
|
|
(9.9
|
)
|
|
|
|
(8.6
|
)
|
Other, net
|
|
|
|
(4.3
|
)
|
|
|
|
3.2
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
(91.3
|
)
|
|
|
|
(51.9
|
)
|
|
|
|
127.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
|
0.5
|
|
|
|
|
257.4
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
|
(1.9
|
)
|
|
|
|
(260.3
|
)
|
|
|
|
(58.9
|
)
|
Borrowings (repayments) of lines of credit, net
|
|
|
|
2.8
|
|
|
|
|
(6.9
|
)
|
|
|
|
(2.3
|
)
|
Excess tax benefit from exercise of stock options and vesting of
restricted stock
|
|
|
|
1.7
|
|
|
|
|
3.9
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
11.5
|
|
|
|
|
23.3
|
|
|
|
|
12.2
|
|
Common stock repurchases
|
|
|
|
(165.3
|
)
|
|
|
|
(77.3
|
)
|
|
|
|
(3.4
|
)
|
Dividends paid
|
|
|
|
(333.7
|
)
|
|
|
|
(67.2
|
)
|
|
|
|
(49.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
(484.4
|
)
|
|
|
|
(127.1
|
)
|
|
|
|
(101.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
12.7
|
|
|
|
|
1.9
|
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
(313.3
|
)
|
|
|
|
103.4
|
|
|
|
|
207.2
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
527.2
|
|
|
|
|
423.8
|
|
|
|
|
216.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
$
|
213.9
|
|
|
|
$
|
527.2
|
|
|
|
$
|
423.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
$
|
40.3
|
|
|
|
$
|
36.2
|
|
|
|
$
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
$
|
16.5
|
|
|
|
$
|
21.4
|
|
|
|
$
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
37
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
Steelcase Inc. is the worlds leading designer, marketer
and manufacturer of office furniture. Founded in 1912, we are
headquartered in Grand Rapids, Michigan U.S.A and employ
approximately 13,500 employees. We operate manufacturing
and distribution center facilities in 31 principal locations. We
distribute products through various channels, including
independent and company-owned dealers in more than 800 locations
throughout the world, and have led the global office furniture
industry in revenue every year since 1974. We operate under
North America and International reportable segments, plus an
Other category. Additional information about our
reportable segments is contained in Note 15.
|
|
2.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
|
|
|
Principles of
Consolidation
|
The consolidated financial statements include the accounts of
Steelcase Inc. and its majority-owned subsidiaries. Our
consolidation policy requires the consolidation of entities
where a controlling financial interest is acquired as well as
consolidation of variable interest entities in which we are
designated as the primary beneficiary. All material intercompany
transactions and balances have been eliminated in consolidation.
Our fiscal year ends on the last Friday in February with each
fiscal quarter typically including 13 weeks. The fiscal
year ended February 29, 2008 included 53 weeks. The
fiscal years ended February 23, 2007 and February 24,
2006 included 52 weeks.
Unless the context otherwise indicates, reference to a year
relates to a fiscal year 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.
Certain amounts in the prior years financial statements
have been reclassified to conform to the current years
presentation.
|
|
|
Foreign
Currency Translation
|
For most international operations, local currencies are
considered the functional currencies. We translate assets and
liabilities to U.S. dollar equivalents at exchange rates in
effect as of the balance sheet date. Translation adjustments are
not included in determining net income, but are disclosed in
Accumulated other comprehensive income (loss) within the
Consolidated Balance Sheets until a sale or substantially
complete liquidation of the net investment in the international
subsidiary takes place. We translate Consolidated Statements of
Income accounts at average rates for the period. Foreign
currency transaction gains and losses are recorded in Other
income, net and included net gains of $4.0, $4.1 and $1.9 in
2008, 2007 and 2006, respectively.
Revenue consists substantially of product sales and related
service revenue. Product sales are reported net of discounts and
applicable returns and allowances and are recognized when title
and risks associated with ownership have passed to the dealer or
customer. Typically, this is when product is shipped to a
dealer. When product is shipped directly to an end customer,
revenue is recognized upon
38
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
delivery or upon acceptance by the end customer. Revenue from
services is recognized when the services have been rendered.
Total revenue does not include sales tax as we consider
ourselves a pass-through entity for collecting and remitting
sales taxes.
Cash equivalents include demand bank deposits and highly liquid
investment securities with an original maturity of three months
or less. Cash equivalents are reported at cost, which
approximates fair value, and were $178.1 as of February 29,
2008 and $478.3 as of February 23, 2007.
|
|
|
Allowances for
Credit Losses
|
Allowances for credit losses related to accounts receivable,
notes receivable and our investments in leases are maintained at
a level considered by management to be adequate to absorb an
estimate of probable future losses existing at the balance sheet
date. In estimating probable losses, we review accounts that are
past due or in bankruptcy. We review accounts that may have
higher credit risk using information available about the
customer or dealer, such as financial statements, news reports
and published credit ratings. We also use general information
regarding industry trends, the general economic environment and
information gathered through our network of field-based
employees. Using an estimate of current fair market value of any
applicable collateral and other credit enhancements, such as
third party guarantees, we arrive at an estimated loss for
specific accounts and estimate an additional amount for the
remainder of the trade balance based on historical trends.
Receivable balances are written off when we determine the
balance is uncollectible. Subsequent recoveries, if any, are
credited to the allowance when received. We consider an accounts
receivable balance past due when payment is not received within
the stated terms. We consider a note receivable past due when
any installment of the note is unpaid for more than 30 days.
Notes receivable includes project financing, asset-based lending
and term financing with dealers. Notes receivable of $24.4 and
$27.1 as of February 29, 2008 and February 23, 2007,
respectively, are included within Other current assets
and Other assets on the Consolidated Balance Sheets.
The allowance for uncollectible notes receivable was $2.0 and
$3.1 at February 29, 2008 and February 23, 2007,
respectively. Notes receivable from affiliates were $2.2 and
$6.0 at February 29, 2008 and February 23, 2007,
respectively. Affiliates include unconsolidated dealers and
minority interests in unconsolidated joint ventures.
Inventories are stated at the lower of cost or market. The North
America segment primarily uses the last in, first out
(LIFO) method to value its inventories. The
International segment values inventories primarily using the
first in, first out method. Companies within the Other category
primarily use the first in, first out or the average cost
inventory valuation methods.
|
|
|
Property,
Plant and Equipment
|
Property, plant and equipment, including some
internally-developed internal use software, are stated at cost.
Major improvements that materially extend the useful lives of
the assets are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation is
provided using the straight-line method over the estimated
useful lives of the assets.
39
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
We review the carrying value of our long-lived assets held and
used, and assets to be disposed of using estimates of future
undiscounted cash flows. If the carrying value of a long-lived
asset is considered impaired, an impairment charge is recorded
for the amount by which the carrying value of the long-lived
asset exceeds its fair value. See Note 6 for additional
information.
Rent expense under operating leases is recorded on a
straight-line basis over the lease term unless the lease
contains an escalation clause which is not fixed and
determinable. The lease term begins when we have the right to
control the use of the leased property, which is typically
before rent payments are due under the terms of the lease. If a
lease has a fixed and determinable escalation clause, the
difference between rent expense and rent paid is recorded as
deferred rent. Rent expense under operating leases that do not
have an escalation clause or where escalation is based on an
inflation index is expensed over the lease term as it is
payable. See Note 14 for additional information.
|
|
|
Goodwill and
Other Intangible Assets
|
Goodwill represents the difference between the purchase price
for, and the related underlying tangible and identifiable
intangible net asset values resulting from, business
acquisitions. Annually, or more frequently if conditions
indicate an earlier review is necessary, the carrying value of
the goodwill of a reporting unit is compared to an estimate of
its fair value. If the estimated fair value is less than the
carrying value, goodwill is impaired and is written down to its
estimated fair value. We evaluated goodwill and intangible
assets using ten reportable units where goodwill is
recordedspecifically North America excluding consolidated
dealers, North America consolidated dealers and Softcare within
the North America reportable segment; International; and
Brayton, Designtex, Financial Services, IDEO, Metro, and
PolyVision within the Other category. In Q3 2008 and Q4 2007, we
recognized a goodwill impairment charge of $5.3 and $3.3,
respectively, related to PolyVision. See Note 8 for
additional information.
Other intangible assets subject to amortization consist
primarily of proprietary technology, trademarks and non-compete
agreements and are amortized over their estimated useful
economic lives using the straight-line method. Other intangible
assets not subject to amortization, consisting of certain
trademarks, are accounted for and evaluated for potential
impairment in a manner consistent with goodwill. In Q3 2008 and
Q4 2007, we recognized an intangible asset impairment charge of
$15.8 and $7.4, respectively, related to PolyVision. See
Note 8 for additional information.
We are self-insured for certain losses relating to workers
compensation and product liability claims. We purchased
insurance coverage to reduce our exposure to significant levels
of these claims. Self-insured losses are accrued based upon
estimates of the aggregate liability for uninsured claims
incurred but not reported at the balance sheet date using our
knowledge of current claims, certain actuarial assumptions
followed in the insurance industry and our historical claims
experience.
A reserve for estimated future product liability costs of $9.8
and $8.3 incurred at February 29, 2008 and
February 23, 2007, respectively, are included in Accrued
expenses: Other on the Consolidated Balance Sheets.
We are also self-insured for a portion of domestic employee and
retiree medical benefits. We pay self-insured claims directly
from our general assets. The estimate for incurred but not
reported employee medical, dental, and short-term disability
claims was $2.7 and $2.6 at February 29, 2008 and
February 23, 2007, respectively, and is recorded within
Accrued expenses: Other on the Consolidated Balance
Sheets.
40
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
We offer a lifetime warranty on most Steelcase and Turnstone
brand products delivered in the U.S. and Canada, subject to
certain exceptions. For products delivered to all other
countries, we offer a
15-year
warranty for most Steelcase brand products and a
10-year
warranty for most Turnstone brand products, subject to certain
exceptions. These warranties provide for the free repair or
replacement of any covered product, part or component that fails
during normal use because of a defect in materials or
workmanship. For all other brands, warranties range from one
year to lifetime. The accrued liability for warranty costs is
based on an estimated amount needed to cover future warranty
obligations incurred as of the balance sheet date determined by
historical product data and managements knowledge of
current events and actions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Product Warranties
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Balance at beginning of period
|
|
|
$
|
22.9
|
|
|
|
$
|
21.4
|
|
|
|
$
|
20.9
|
|
Accruals for warranty charges
|
|
|
|
12.2
|
|
|
|
|
14.1
|
|
|
|
|
11.8
|
|
Settlements and adjustments
|
|
|
|
(13.5
|
)
|
|
|
|
(12.6
|
)
|
|
|
|
(11.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
$
|
21.6
|
|
|
|
$
|
22.9
|
|
|
|
$
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping and
Handling Expenses
|
We record shipping and handling related expenses in Cost of
sales on the Consolidated Statements of Income.
|
|
|
Research and
Development Expenses
|
Research and development expenses, which are expensed as
incurred, were $60.9 for 2008, $44.2 for 2007 and $47.4 for
2006. 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 the research, design and development costs since they are
variable, based on product sales.
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.
We have net operating loss carryforwards available in certain
jurisdictions to reduce future taxable income. Future tax
benefits associated with net operating loss carryforwards are
recognized to the extent that realization of these benefits is
considered more likely than not. 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 operating loss
carryforwards. To the extent that available evidence raises
doubt about the realization of a deferred income tax asset, a
valuation allowance is established.
Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48) prescribes a
recognition threshold and measurement attribute for the
financial
41
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Tax benefits related to
uncertain tax positions are recorded only if the position is
more likely than not (a likelihood of more than 50 percent)
to be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical
merits of the position. The tax position is measured and
recognized at the largest amount of benefit that is greater than
50 percent likely of being realized upon ultimate
settlement. See Note 12 for additional information.
Basic earnings per share is based on the weighted average number
of shares of common stock outstanding during each period. It
excludes the dilutive effects of additional common shares that
would have been outstanding if the shares under our stock
incentive plans had been issued and the dilutive effect of
restricted shares to the extent those shares have not vested.
See Note 13 for additional information.
Diluted earnings per share includes the effects of dilutive
shares and potential shares issued under our stock incentive
plans. However, diluted earnings per share does not reflect the
effects of 0.1 million options for 2008, 1.1 million
options for 2007, and 1.3 million options for 2006 because
those potential shares were not dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Earnings Per Share
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
Net income
|
|
|
$
|
133.2
|
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for basic net earnings per
share (in millions)
|
|
|
|
142.5
|
|
|
|
|
148.5
|
|
|
|
|
148.3
|
|
Effect of dilutive stock-based compensation (in millions)
|
|
|
|
1.1
|
|
|
|
|
1.3
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares outstanding for diluted net
earnings per share (in millions)
|
|
|
|
143.6
|
|
|
|
|
149.8
|
|
|
|
|
148.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.93
|
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$
|
0.93
|
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
The components of accumulated other comprehensive income (loss)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
Accumulated
|
|
|
|
|
Currency
|
|
|
|
Pension
|
|
|
|
Derivative
|
|
|
|
Loss on
|
|
|
|
Other
|
|
|
|
|
Translation
|
|
|
|
Liability
|
|
|
|
Adjustments
|
|
|
|
Investments
|
|
|
|
Comprehensive
|
|
Comprehensive Income (Loss)
|
|
|
Adjustments
|
|
|
|
(net of tax)
|
|
|
|
(net of tax)
|
|
|
|
(net of tax)
|
|
|
|
Income (Loss)
|
|
February 25, 2005
|
|
|
$
|
(26.4
|
)
|
|
|
$
|
(5.6
|
)
|
|
|
$
|
(1.1
|
)
|
|
|
$
|
|
|
|
|
$
|
(33.1
|
)
|
Other comprehensive (loss) income
|
|
|
|
(8.1
|
)
|
|
|
|
1.0
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2006
|
|
|
|
(34.5
|
)
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39.1
|
)
|
Other comprehensive income
|
|
|
|
9.9
|
|
|
|
|
0.8
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
37.8
|
|
Adjustment for adoption of SFAS 158
|
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23, 2007
|
|
|
|
(24.6
|
)
|
|
|
|
22.0
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
Other comprehensive income (loss)
|
|
|
|
22.4
|
|
|
|
|
(2.0
|
)
|
|
|
|
(0.3
|
)
|
|
|
|
(1.4
|
)
|
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2008
|
|
|
$
|
(2.2
|
)
|
|
|
$
|
20.0
|
|
|
|
$
|
1.0
|
|
|
|
$
|
(1.4
|
)
|
|
|
$
|
17.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit and post-retirement pension plans as a component
of Accumulated other comprehensive income (loss) for 2008
are presented in the table below. Information for prior years is
not readily available as the components of comprehensive income
within the minimum pension liability were not required prior to
the adoption of Statement of Financial Accounting Standards
(SFAS) No. 158 in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Tax
|
|
|
|
Tax (Expense)
|
|
|
|
Net of
|
|
Minimum Pension Liability
|
|
|
Amount
|
|
|
|
Benefit
|
|
|
|
Tax Amount
|
|
Defined benefit and post-retirement pension plans at
February 23, 2007
|
|
|
$
|
35.4
|
|
|
|
$
|
(13.4
|
)
|
|
|
$
|
22.0
|
|
Prior service cost from plan amendment during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization of prior service cost included in net
periodic pension cost
|
|
|
|
(8.0
|
)
|
|
|
|
3.1
|
|
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost arising during period
|
|
|
|
(8.0
|
)
|
|
|
|
3.1
|
|
|
|
|
(4.9
|
)
|
Net change in actuarial (gain) loss during period
|
|
|
|
4.8
|
|
|
|
|
(1.9
|
)
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period change
|
|
|
|
(3.2
|
)
|
|
|
|
1.2
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit and post-retirement pension plans at
February 29, 2008
|
|
|
$
|
32.2
|
|
|
|
$
|
(12.2
|
)
|
|
|
$
|
20.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our stock-based compensation consists of performance shares,
performance units, restricted stock, restricted stock units and
non-qualified stock options. Our policy is to expense
stock-based compensation using the fair-value based method of
accounting for all awards granted, modified or settled.
Restricted stock, restricted stock units, performance shares and
performance units are credited to equity as they are expensed
over their vesting periods based on the current market value of
the shares expected to be issued or the lattice model for shares
with market conditions. For stock options, fair
43
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
value is measured on the grant date of the related equity
instrument using the Black-Scholes option-pricing model and is
recognized as compensation expense over the applicable vesting
period. No stock options were granted in 2008, 2007 or 2006. See
Note 13 for additional information.
The carrying amounts of our financial instruments, consisting of
cash equivalents, short-term investments, accounts and notes
receivable, accounts and notes payable, short-term borrowings
and certain other liabilities, approximate their fair value due
to their relatively short maturities. The carrying amount of our
long-term investments and long-term debt approximate fair value.
The stated rate of interest approximates a market rate of
interest on our long-term debt.
We periodically use derivative financial instruments to manage
exposures to movements in interest rates and foreign exchange
rates. The use of these financial instruments modifies the
exposure of these risks with the intention to reduce our risk of
short-term volatility. We do not use derivatives for speculative
or trading purposes.
|
|
|
Foreign
Exchange Forward Contracts
|
A portion of our revenue and earnings are exposed to changes in
foreign exchange rates. We seek to manage our foreign exchange
risk in part through operational means, including matching same
currency revenue with same currency cost and same currency
assets with same currency liabilities. Foreign exchange risk is
also managed through the use of short-term foreign exchange
forward contracts. These financial instruments serve to mitigate
the risk of translation into U.S. dollars of certain
foreign denominated net income, assets and liabilities. We
primarily hedge intercompany working capital loans and certain
forecasted transactions. The principal currency we hedge through
foreign exchange forward contracts is the European euro. We
recorded net losses of $19.6 in 2008 and $13.0 in 2007 in
Other income, net on the Consolidated Statements of
Income related to these contracts. The 2008 and 2007 losses were
offset by transaction gains of $21.2 and $11.0, respectively.
The notional amounts of all of the outstanding foreign exchange
forward contracts were $128.0 at February 29, 2008 and
$121.6 at February 23, 2007. The net fair value of these
contracts was $(2.4) and $(0.3) at February 29, 2008 and
February 23, 2007, respectively, and is recorded in
Other current assets and Accrued expenses: Other
on the Consolidated Balance Sheets.
|
|
|
Concentrations
of Credit Risk
|
Our trade receivables are primarily due from independent
dealers, who in turn carry receivables from their customers. We
monitor and manage the credit risk associated with individual
dealers. Dealers are responsible for assessing and assuming
credit risk of their customers and may require their customers
to provide deposits, letters of credit or other credit
enhancement measures. Some sales contracts are structured such
that the customer payment or obligation is direct to us. In
those cases, we assume the credit risk. Whether from dealers or
customers, our trade credit exposures are not concentrated with
any particular entity.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the amounts and disclosures on the consolidated
financial statements and accompanying notes. Although these
estimates are based on historical data and managements
knowledge of current events and actions it may undertake in the
future, actual results may differ from these estimates under
different assumptions or conditions.
44
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
3.
|
NEW ACCOUNTING
STANDARDS
|
We adopted the provisions of FIN 48 at the beginning of
2008. FIN 48 requires us to recognize in our financial
statements the impact of a tax position, if that position is
more likely than not of being sustained on audit, based solely
on the technical merits of the position. As a result of our
adoption of FIN 48, we recognized a $3.6 decrease to the
liability for uncertain tax positions, with a corresponding
increase to Retained earnings. See Notes 2 and 12
for additional information.
We also adopted FASB Staff Position (FSP)
FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48
which provides that a tax position will be considered
settled if the taxing authority has completed its examination,
the company does not plan to appeal and the likelihood is remote
that the taxing authority would reexamine the tax position in
the future. The adoption of FSP
FIN 48-1
did not have a material impact on our consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). This statement clarifies
the definition of fair value, establishes a framework for
measuring fair value and expands the disclosures on fair value
measurements. In February 2008, the FASB issued FSP
SFAS No. 157-2,
Effective Date of FASB Statement No. 157, which
delayed the effective date of SFAS No. 157 for certain
non-financial assets and liabilities until fiscal years
beginning after November 15, 2008. For financial assets and
liabilities, SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. We completed our
evaluation and determined the adoption of SFAS No. 157
at the beginning of 2009 will not have a material impact on our
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
Establishing the Fair Value Option for Financial Assets and
Liabilities (SFAS No. 159), to permit
all entities the option to measure eligible financial
instruments at fair value. SFAS No. 159 applies to
fiscal years beginning after November 15, 2007, with early
adoption permitted for an entity that has also elected to apply
the provisions of SFAS No. 157. An entity is
prohibited from retrospectively applying SFAS No. 159,
unless it chooses early adoption. We completed our evaluation
and determined the adoption of SFAS No. 159 at the
beginning of 2009 will not have a material impact on our
consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)), to create greater
consistency in the accounting and financial reporting of
business combinations. SFAS No. 141(R) establishes
principles and requirements for how the acquirer in a business
combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed and any controlling interest, (ii) recognizes and
measures the goodwill acquired in the business combination or a
gain from a bargain purchase and (iii) determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) applies to
fiscal years beginning after December 15, 2008. Earlier
adoption is prohibited.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51
(SFAS No. 160), to establish
accounting and
45
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary.
SFAS No. 160 establishes accounting and reporting
standards that require (i) the ownership interest in
subsidiaries held by parties other than the parent to be clearly
identified and presented on the Consolidated Balance Sheets
within equity, but separate from the parents equity,
(ii) the amount of consolidated net income attributable to
the parent and the noncontrolling interest to be clearly
identified and presented on the face of the consolidated
statement of income and (iii) changes in a parents
ownership interest while the parent retains its controlling
financial interest in its subsidiary to be accounted for
consistently. SFAS No. 160 applies to fiscal years
beginning after December 15, 2008. Earlier adoption is
prohibited.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133
(SFAS No. 161), to improve financial
reporting of derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position,
financial performance and cash flows. SFAS No. 161
applies to fiscal years and interim periods beginning after
November 15, 2008. We have not determined the effect, if
any, the adoption of this statement will have on our future
disclosures.
Investments include various types of bonds, notes, auction rate
securities, asset-backed commercial paper and privately-held
equity investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
Investment Holdings
|
|
|
Cost
|
|
|
|
Market Value
|
|
|
|
Cost
|
|
|
|
Market Value
|
|
Managed investment portfolio
|
|
|
$
|
48.9
|
|
|
|
$
|
50.1
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Auction rate securities
|
|
|
|
26.5
|
|
|
|
|
23.9
|
|
|
|
|
33.1
|
|
|
|
|
33.1
|
|
Asset-backed commercial paper
|
|
|
|
5.0
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
Privately-held equity securities
|
|
|
|
2.2
|
|
|
|
|
2.2
|
|
|
|
|
4.3
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82.6
|
|
|
|
$
|
80.3
|
|
|
|
$
|
37.4
|
|
|
|
$
|
37.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
|
48.9
|
|
|
|
|
50.1
|
|
|
|
|
33.1
|
|
|
|
|
33.1
|
|
Total long-term investments
|
|
|
|
33.7
|
|
|
|
|
30.2
|
|
|
|
|
4.3
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82.6
|
|
|
|
$
|
80.3
|
|
|
|
$
|
37.4
|
|
|
|
$
|
37.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
Investment Portfolio
|
During 2008, we entered into an agreement with one of our banks,
whereby the bank will actively manage a $50.0 investment
portfolio, consisting of short-term investments and certain
government agency and corporate bonds, with maturities ranging
from 2009 to 2012. Although the maturity dates of some of these
investments are more than one year after the balance sheet date,
the intent of the portfolio is to actively trade the securities
to take advantage of short-term interest rate differentials.
Therefore, the portfolio is primarily accounted for as available
for sales investments, and the entire portfolio is classified as
Short-term investments on the Consolidated Balance Sheets.
46
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Auction rate securities (ARS) are variable rate
longer-term debt instruments whose interest rates are reset at
each auction, which typically occurs every 7-35 days. We
previously recorded these investments as short-term available
for sale investments as our investment policy was to put the
investments at each auction. Typically, the carrying value of
auction rate securities approximates fair value due to the
frequent resetting of their interest rates through the auction
process. During 2008, the broader market for these securities
was essentially shut down, causing auction attempts to fail
given the liquidity constraints in the U.S. market. As of
February 29, 2008, we held auction rate securities totaling
$26.5 of par value that failed to clear at auctions. While we
continue to earn interest on these investments at the maximum
contractual rate, we believe the estimated market value of these
ARS no longer approximates par value. Accordingly, we reduced
these investments to their estimated fair value of $23.9 and
recorded an unrealized loss of $2.6 in Accumulated other
comprehensive income (loss) on the Consolidated Balance
Sheets, as we believe the impairment is temporary. We also
reclassified these ARS to available-for-sale Long-term
investments on the Consolidated Balance Sheets as we do not
reasonably expect to sell the securities in the near term.
We concluded no permanent impairment losses occurred in the year
ended February 29, 2008 as the decline in market value is
due to general market conditions. These investments are of high
credit, and we have the intent and ability to hold these ARS
until the anticipated recovery in market value occurs. We will
continue to monitor these securities and may be required to
record an impairment charge if the decline in fair value is
determined to be other than temporary. We estimated the fair
value of these ARS based on prices provided by the firm managing
our investments, supported by our own analysis. Our estimates
were based on assumptions we believe market participants would
use in pricing the assets in a current transaction, which could
change significantly based on market conditions.
Proceeds from sales of ARS totaled $82.0 in 2008, $0.0 in 2007
and $131.6 in 2006. All proceeds during 2008 were at par value,
before the ARS auctions started to fail.
|
|
|
Asset-Backed
Commercial Paper
|
At February 29, 2008 we held one investment in Canadian
asset-backed commercial paper (ABCP) with an
original cost of $5.0. When acquired, this investment was rated
R1 (High) by Dominion Bond Rating Service (DBRS),
the highest credit rating issued for Canadian commercial paper,
and backed by R1 (High) rated assets and liquidity agreements.
This investment matured during Q3 2008, but as a result of a
lack of liquidity in the Canadian ABCP market, did not settle on
maturity and is considered to be in default.
Since Q3 2008, a pan-Canadian restructuring committee consisting
of major investors has been working to develop a solution to the
liquidity problem affecting the ABCP market. The pan-Canadian
restructuring committee anticipates, following approval by the
investors, a restructuring will be affected in May 2008
which would result in the exchange of the ABCP currently held by
investors for a variety of new long-term floating rate notes.
The majority of our ABCP investment will receive a AA credit
rating by DBRS.
Based on the defaulted status of our investment at
February 29, 2008, we adjusted the carrying amount to
reflect the estimated fair value of the investment, recognized a
related impairment charge of $0.9 in Q4 2008 and reclassified
the investment to available-for-sale within Long-term
investments on the Consolidated Balance Sheets.
47
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
Privately Held
Equity Investments
|
Privately held equity investments are carried at the lower of
cost or estimated fair value. For these non-quoted investments,
we review the underlying performance of the privately-held
companies to determine if potential declines in estimated fair
value exist and are other than temporary. Most recent historic
and projected operating results by investees are considered in
the review.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
Inventories
|
|
|
2008
|
|
|
|
2007
|
|
Finished goods
|
|
|
$
|
87.9
|
|
|
|
$
|
86.4
|
|
Work in process
|
|
|
|
20.9
|
|
|
|
|
26.1
|
|
Raw materials
|
|
|
|
67.5
|
|
|
|
|
61.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176.3
|
|
|
|
|
174.4
|
|
LIFO reserve
|
|
|
|
(29.6
|
)
|
|
|
|
(30.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
146.7
|
|
|
|
$
|
144.0
|
|
|
|
|
|
|
|
|
|
|
|
|
The portion of inventories determined by the LIFO method
aggregated $54.4 and $64.6 at February 29, 2008 and
February 23, 2007, respectively. The effect of LIFO
liquidations on net income was not material in 2008, 2007 or
2006.
|
|
6.
|
PROPERTY, PLANT
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
Property, Plant and Equipment
|
|
|
(Years)
|
|
|
|
2008
|
|
|
|
2007
|
|
Land
|
|
|
|
|
|
|
|
$
|
44.0
|
|
|
|
$
|
44.0
|
|
Buildings and improvements
|
|
|
|
10 40
|
|
|
|
|
558.3
|
|
|
|
|
560.7
|
|
Machinery and equipment
|
|
|
|
3 15
|
|
|
|
|
836.5
|
|
|
|
|
920.9
|
|
Furniture and fixtures
|
|
|
|
5 8
|
|
|
|
|
83.0
|
|
|
|
|
88.0
|
|
Leasehold improvements
|
|
|
|
3 10
|
|
|
|
|
77.8
|
|
|
|
|
73.9
|
|
Capitalized software
|
|
|
|
3 10
|
|
|
|
|
139.5
|
|
|
|
|
135.0
|
|
Construction in progress
|
|
|
|
|
|
|
|
|
29.4
|
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,768.5
|
|
|
|
|
1,833.1
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
(1,290.1
|
)
|
|
|
|
(1,356.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
478.4
|
|
|
|
$
|
477.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on property, plant and equipment
approximated $84.0 for 2008, $92.0 for 2007 and $110.7 for 2006.
The estimated cost to complete construction in progress at
February 29, 2008 was $60.8, which primarily relates to the
replacement of a corporate aircraft, renovation of our learning
center and surrounding campus in Grand Rapids, Michigan and
relocation of our showrooms in the Chicago Merchandise Mart.
The net book value of capitalized software was $15.2 and $17.0
at February 29, 2008 and February 23, 2007,
respectively. The majority of capitalized software has an
estimated useful life of 3 to 5 years. Approximately 20% of
the gross value of capitalized software relates to our core
enterprise resource planning system, which has an estimated
useful life of 10 years and is approximately 94%
depreciated as of February 29, 2008.
48
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Included in Other current assets on the Consolidated
Balance Sheets is property, plant and equipment that has been
reclassified as assets held for sale, which totaled $10.1 at
February 29, 2008 and $10.5 at February 23, 2007. Real
estate that is held for sale is stated at the lower of
depreciated cost or fair market value.
|
|
7.
|
COMPANY-OWNED
LIFE INSURANCE
|
Investments in company-owned life insurance policies were made
with the intention of utilizing them as a long-term funding
source for post-retirement medical benefits, deferred
compensation and supplemental retirement plan obligations
aggregating $192.2 at February 29, 2008 with a related
deferred tax asset of $73.6. However, they do not represent a
committed funding source for these obligations. They are subject
to claims from creditors, and we can designate them to another
purpose at any time. The policies are recorded at their net cash
surrender values, as reported by the four issuing insurance
companies, whose Standard & Poors financial
strength ratings range from AA to AAA, and totaled $210.6 at
February 29, 2008 and $209.2 at February 23, 2007.
Investments in company-owned life insurance consisted of $100.8
in traditional whole life policies and $109.8 in variable life
insurance policies at February 29, 2008. In the traditional
whole life policies, the investments return a set dividend rate
that is periodically adjusted by the insurance companies based
on the performance of their long-term investment portfolio.
While the amount of the dividend can vary subject to a minimum
dividend rate, the cash surrender value of these policies is not
exposed to negative returns in that the insurance companies
guarantee a minimum dividend rate on these investments. In the
variable life policies, we are able to allocate the investments
across a set of choices provided by the insurance companies. At
February 29, 2008, the investments in the variable life
policies were allocated 57% in fixed income securities and 43%
in equity securities. The valuation of these investments can
fluctuate depending on changes in market interest rates and
equity values. The net changes in market valuation, normal
insurance expenses and any death benefit gains are reflected in
Cost of sales and Operating expenses on the
Consolidated Statements of Income. The net effect of these items
in 2008, 2007 and 2006 resulted in non-taxable income of
approximately $4.1, $15.9 and $10.7, respectively.
|
|
8.
|
GOODWILL &
OTHER INTANGIBLE ASSETS
|
A summary of the changes in goodwill during the years ended
February 29, 2008 and February 23, 2007, by reportable
segment, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
America
|
|
|
|
International
|
|
|
|
Other
|
|
|
|
Total
|
|
February 24, 2006
|
|
|
$
|
43.7
|
|
|
|
$
|
42.1
|
|
|
|
$
|
125.3
|
|
|
|
$
|
211.1
|
|
Acquisitions
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
Dispositions and adjustments
|
|
|
|
(1.6
|
)
|
|
|
|
(3.1
|
)
|
|
|
|
(4.2
|
)
|
|
|
|
(8.9
|
)
|
Currency translation adjustment
|
|
|
|
(0.4
|
)
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23, 2007
|
|
|
|
49.6
|
|
|
|
|
42.7
|
|
|
|
|
121.1
|
|
|
|
|
213.4
|
|
Acquisitions
|
|
|
|
1.4
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
4.6
|
|
Dispositions and adjustments
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
|
(7.6
|
)
|
Currency translation adjustment
|
|
|
|
1.3
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2008
|
|
|
$
|
50.0
|
|
|
|
$
|
50.9
|
|
|
|
$
|
115.8
|
|
|
|
$
|
216.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
At February 29, 2008 and February 23, 2007, our other
intangible assets and related accumulated amortization consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
|
Weighted
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Other Intangible Assets
|
|
|
(Years)
|
|
|
|
Gross
|
|
|
|
Amortization
|
|
|
|
Net
|
|
|
|
Gross
|
|
|
|
Amortization
|
|
|
|
Net
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
|
|
11.9
|
|
|
|
$
|
46.2
|
|
|
|
$
|
28.3
|
|
|
|
$
|
17.9
|
|
|
|
$
|
52.2
|
|
|
|
$
|
25.0
|
|
|
|
$
|
27.2
|
|
Trademarks
|
|
|
|
9.5
|
|
|
|
|
35.1
|
|
|
|
|
23.3
|
|
|
|
|
11.8
|
|
|
|
|
29.7
|
|
|
|
|
24.8
|
|
|
|
|
4.9
|
|
Non-compete agreements
|
|
|
|
3.0
|
|
|
|
|
1.1
|
|
|
|
|
0.5
|
|
|
|
|
0.6
|
|
|
|
|
1.1
|
|
|
|
|
0.3
|
|
|
|
|
0.8
|
|
Other
|
|
|
|
6.2
|
|
|
|
|
14.4
|
|
|
|
|
12.6
|
|
|
|
|
1.8
|
|
|
|
|
8.6
|
|
|
|
|
3.3
|
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
96.8
|
|
|
|
|
64.7
|
|
|
|
|
32.1
|
|
|
|
|
91.6
|
|
|
|
|
53.4
|
|
|
|
|
38.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
n/a
|
|
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
16.8
|
|
|
|
|
26.4
|
|
|
|
|
|
|
|
|
|
26.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
|
|
$
|
113.6
|
|
|
|
$
|
64.7
|
|
|
|
$
|
48.9
|
|
|
|
$
|
118.0
|
|
|
|
$
|
53.4
|
|
|
|
$
|
64.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of our impairment testing in 2008 and 2007, we
recorded non-cash impairment charges related to
PolyVisions contractor whiteboard business sold through a
direct bid process of $21.1 and $10.7, respectively, which are
included in Operating expenses on the Consolidated
Statements of Income. Of these amounts, $5.3 and $3.3 related to
goodwill, respectively, and $15.8 and $7.4 related to intangible
assets, respectively. Of the $15.8 impairment on
PolyVisions intangible assets during 2008, $6.0 related to
intangible assets subject to amortization and $9.8 related to
assets not subject to amortization. In performing our impairment
testing, we measured the estimated fair value of PolyVision
based on a discounted cash flow valuation. The discounted cash
flow analysis was based on the present value of projected cash
flows over five years and a residual value. See the Critical
Accounting Estimates in Part II, Item 7 of our annual
report on
Form 10-K
for the fiscal year ended February 29, 2008 for additional
information regarding the specific nature of testing procedures
performed.
During 2008, we acquired 100% of the outstanding stock of Ultra
Group Company Limited. As a result of the purchase price
allocations, goodwill of $3.2 was recorded. Additionally,
intangible assets of $7.5 were recorded including $2.0 of
trademarks, $1.2 of non-compete agreements and $4.3 of
intangible assets classified as Other in the table
above. The intangible assets have a combined weighted-average
useful life of 5.8 years. We also recorded $1.4 of goodwill
during 2008 related to the consolidation of a variable interest
dealer.
50
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For 2008, we recorded amortization expense of $8.4 on intangible
assets subject to amortization compared to $9.4 for 2007 and
$8.7 for 2006. Based on the current amount of intangible assets
subject to amortization, the estimated amortization expense for
each of the following five years is as follows:
|
|
|
|
|
|
Year Ending February
|
|
|
Amount
|
2009
|
|
|
$
|
8.8
|
|
2010
|
|
|
|
6.2
|
|
2011
|
|
|
|
4.8
|
|
2012
|
|
|
|
4.1
|
|
2013
|
|
|
|
3.4
|
|
Thereafter
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
$
|
32.1
|
|
|
|
|
|
|
|
As events, such as acquisitions, dispositions or impairments
occur in the future, these amounts may vary.
|
|
9.
|
SHORT-TERM
BORROWINGS AND LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Range
|
|
|
|
Fiscal Year
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
Debt Obligations
|
|
|
at February 29, 2008
|
|
|
|
Maturity Range
|
|
|
|
2008
|
|
|
|
2007
|
|
U.S. dollar obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes (1)
|
|
|
|
6.5
|
%
|
|
|
|
2012
|
|
|
|
$
|
249.5
|
|
|
|
$
|
249.4
|
|
Revolving credit facilities (2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
6.5
|
%
|
|
|
|
2009-2011
|
|
|
|
|
0.3
|
|
|
|
|
1.9
|
|
Capitalized lease obligations
|
|
|
|
5.9
|
%-7.0%
|
|
|
|
2009-2013
|
|
|
|
|
1.6
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251.4
|
|
|
|
|
251.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facilities (3)
|
|
|
|
3.5
|
%-8.3%
|
|
|
|
2009
|
|
|
|
|
7.3
|
|
|
|
|
3.5
|
|
Capitalized lease obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term borrowings and long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258.7
|
|
|
|
|
255.1
|
|
Short-term borrowings and current portion of long-term debt (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250.5
|
|
|
|
$
|
250.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During Q2 2007, we issued $250.0 of unsecured unsubordinated
senior notes, due in August 2011 (2012 Notes). The
2012 Notes were priced at 99.715% of par value. The bond
discount of $0.7 and direct debt issue costs of $1.9 were
deferred and will be amortized over the life of the notes.
Although the coupon rate of the 2012 Notes is 6.5%, the
effective interest rate is 6.3% after taking into account the
impact of the discount, offset by the deferred gain on interest
rate locks related to the debt issuance. The 2012 Notes rank
equally with all of our other unsecured unsubordinated
indebtedness. The proceeds from the 2012 Notes were used to
redeem $250.0 of senior subordinated notes that were due in
November 2006 (2006 Notes). We may redeem some or
all of the 2012 Notes at any time at the greater of the full
principal amount of the notes being redeemed, or the present
value of the remaining scheduled payments of principal and
interest discounted to the |
51
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
|
|
redemption date on a semi-annual basis at the corresponding
treasury rate plus 25 basis points, plus, in both cases,
accrued and unpaid interest. |
|
(2) |
|
We have a $200.0 global committed bank facility. At
February 29, 2008 and February 23, 2007, we had no
borrowings against the facility. Our obligations under the
facility are unsecured and unsubordinated. We may, at our
option, and subject to certain conditions, request to increase
the aggregate commitment by up to $100.0 by obtaining at least
one commitment from one or more lenders. We can use borrowings
under this facility for general corporate purposes, including
friendly acquisitions. Maturities range from overnight to six
months as determined by us, subject to certain limitations.
Interest on borrowings of a term of one month or greater is
based on LIBOR plus a margin or a base rate, as selected by us.
Interest on borrowings of a term of less than one month is based
on prime rate plus a margin or a base rate. The facility
requires us to satisfy financial covenants including a maximum
debt ratio covenant and a minimum interest coverage ratio
covenant. At February 29, 2008 and February 23, 2007,
we were in compliance with all covenants under this facility. |
|
(3) |
|
We entered into agreements with certain financial institutions,
which provide for borrowings on unsecured non-committed
short-term credit facilities of up to $47.3 of U.S. dollar
obligations and $68.3 of foreign currency obligations at
February 29, 2008. Interest rates are variable and
determined by agreement at the time of borrowing. These
agreements expire within one year, but may be renewed annually,
subject to certain conditions. Short-term borrowings on these
facilities totaled $7.3 and $3.5 at February 29, 2008 and
February 23, 2007, respectively. In addition to the
borrowings, we had $23.7 and $28.0 at February 29, 2008 and
February 23, 2007, respectively, in outstanding standby
letters of credit against these facilities which primarily
relate to our self-insured workers compensation programs.
We had no draws against our standby letters of credit during
2008 or 2007. |
|
(4) |
|
The weighted-average interest rates for short-term borrowings
and the current portion of long-term debt were 6.1% and 6.0% at
February 29, 2008 and February 23, 2007, respectively. |
The annual maturities of short-term borrowings and long-term
debt for each of the following four years is as follows is as
follows:
|
|
|
|
|
|
Year Ending February
|
|
|
Amount
|
2009
|
|
|
$
|
8.2
|
|
2010
|
|
|
|
0.6
|
|
2011
|
|
|
|
0.3
|
|
2012
|
|
|
|
249.6
|
|
|
|
|
|
|
|
|
|
|
$
|
258.7
|
|
|
|
|
|
|
|
|
|
10.
|
EMPLOYEE BENEFIT
PLAN OBLIGATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
Employee Benefit Plan Obligations
|
|
|
2008
|
|
|
|
2007
|
|
Defined contribution retirement plans
|
|
|
$
|
21.5
|
|
|
|
$
|
15.9
|
|
Post-retirement medical benefits
|
|
|
|
132.8
|
|
|
|
|
135.9
|
|
Defined benefit pension plans
|
|
|
|
32.6
|
|
|
|
|
38.9
|
|
Deferred compensation plans and agreements
|
|
|
|
35.5
|
|
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222.4
|
|
|
|
|
225.3
|
|
Current portion
|
|
|
|
39.0
|
|
|
|
|
34.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
|
$
|
183.4
|
|
|
|
$
|
191.1
|
|
|
|
|
|
|
|
|
|
|
|
|
52
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|
|
|
Defined
Contribution Retirement Plans
|
Substantially all of our U.S. employees are eligible to
participate in defined contribution retirement plans, primarily
the Steelcase Inc. Retirement Plan (the Retirement
Plan). Company contributions, including 401(k) matching
contributions, and 401(k) pre-tax employee contributions fund
the Retirement Plan. All contributions are made to a trust,
which is held for the sole benefit of participants. For certain
participating locations, the Retirement Plan requires minimum
annual Company contributions of 5% of eligible annual
compensation. Additional Company contributions for this plan are
discretionary and declared by our Compensation Committee at the
end of each fiscal year. At February 29, 2008, the
Company-funded portion of the trust had net assets of
approximately $1.2 billion. Our other defined contribution
retirement plans provide for matching contributions
and/or
discretionary contributions declared by management.
Total expense under all defined contribution retirement plans
was $30.2 for 2008, $19.7 for 2007 and $20.4 for 2006. The
increase in expense in 2008 is primarily due to an increase in
Company 401(k) matching contributions. We expect to expense
approximately $32 related to our defined contribution plans in
2009.
|
|
|
Post-Retirement
Medical Benefits
|
We maintain post-retirement benefit plans that provide medical
and life insurance benefits to certain North American based
retirees and eligible dependents. We accrue the cost of
post-retirement insurance benefits during the service periods of
employees based on actuarial calculations for each plan. These
plans are unfunded, but we purchased company-owned life
insurance policies with the intention of utilizing them as a
long-term funding source for post-retirement medical benefits
and other employee obligations. See Note 7 for additional
information. These policies generate income that offsets the
expense of benefit obligations, however we do not expect the
cash flows to match. Because we intend to hold the policies
until maturity, the policies will likely generate insufficient
cash to cover the obligation payments over the next several
years, and will generate excess cash in the later years.
Total expense under post-retirement medical benefit plans was
$0.7 for 2008, $3.0 for 2007 and $6.7 for 2006. Medicare
changes, workforce reductions and plan amendments contributed to
the reduction in total expense over the past three years.
The Medicare Prescription Drug Improvement and Modernization Act
of 2003 (the Medicare Act) entitles employers who
provide certain prescription drug benefits for retirees to
receive a federal subsidy, thereby creating the potential for
benefit cost savings. We provide retiree drug benefits through
our U.S. post-retirement benefit plans that exceed the
value of the benefits that will be provided by Medicare
Part D. In 2008, 2007 and 2006, the Medicare Act reduced
pre-tax post-retirement expense by $4.3, $5.5 and $5.0,
respectively.
Due to workforce reductions in the past three years, curtailment
accounting rules were triggered, and we recognized plan
curtailment gains of $1.1 in 2008, $1.4 in 2007 and $2.5 in 2006.
In Q3 2007, we remeasured our accumulated post-retirement
benefit obligation (APBO) as of November 24,
2006 due to an amendment for changes in our survivor benefits.
As a result of the remeasurement, the APBO decreased by $20.4
and reduced expense by $0.8 in Q4 2007.
|
|
|
Defined
Benefit Pension Plans
|
Our defined benefit pension plans include various qualified
domestic and foreign retirement plans as well as non-qualified
supplemental retirement plans that are limited to a select group
of management approved by the Compensation Committee. The
accrued benefit plan obligation for the non-qualified
53
STEELCASE INC.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
supplemental retirement plans is primarily related to the
Steelcase Inc. Executive Supplemental Retirement Plan. This plan
is unfunded, but we have purchased company-owned life insurance
policies with the intention of utilizing them as a long-term
funding source for the plan and other post-retirement benefit
plan obligations. See Note 7 for additional information.
Our foreign plans are subject to currency translation impacts.
The funded status of our defined benefit pension plans is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
|
February 23,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
Qualified Plans
|
|
|
|
Non-qualified
|
|
|
|
Qualified Plans
|
|
|
|
Non-qualified
|
|
Defined Benefit Pension
|
|
|
|
|
|
|
Supplemental
|
|
|
|
|
|
|
|
Supplemental
|
|
Plan Obligations
|
|
|
Domestic
|
|
|