e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
February 23, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number
1-13873
STEELCASE INC.
(Exact name of Registrant as
specified in its Charter)
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Michigan
(State of incorporation)
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38-0819050
(IRS employer identification
number)
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901 44th Street SE
Grand Rapids, Michigan
(Address of principal
executive offices)
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49508
(Zip Code)
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Registrants telephone
number, including area
code: (616) 247-2710
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each
class
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Name of each
exchange on which registered
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Class A Common Stock
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New York Stock Exchange
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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
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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, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer x Accelerated
filer o Non-accelerated
filer o
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 25, 2006 (the
last day of the registrants most recently completed second
fiscal quarter) was approximately $910 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 13, 2007, 82,262,189 shares of the registrants
Class A Common Stock and 64,388,581 shares of the
registrants Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrants definitive proxy statement for
its 2007 Annual Meeting of Shareholders, to be held on
June 21, 2007, are incorporated by reference in
Part III of this
Form 10-K.
STEELCASE INC.
FORM 10-K
YEAR ENDED FEBRUARY 23, 2007
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 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 complimentary products and
services, with 2007 revenue of approximately $3.1 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 provide 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 13,000 permanent employees. We
sell our products through various channels including independent
dealers, company-owned dealers and directly to end users and
governmental units. Other appropriate channels are employed to
reach new customers and to serve existing customer segments more
efficiently. We operate using a global network of manufacturing
and assembly facilities to supply product to our various
business units.
Our
Products
We study how people work 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.
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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, raised
floors 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
IDEO provides product design and innovation services to
companies in a variety of industries. IDEOs consultants
and engineers design products, services, environments and
digital experiences.
In addition, in North America 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.
Financial Services provides leasing services primarily to North
America customers and selected financing services to our dealers.
Reportable
Segments
During the third and fourth quarters of 2007, we made a number
of changes in our organizational structure and certain key
leadership positions, which resulted in changes to our segment
reporting. As a result of this change, management currently
evaluates the Company as eight business units: Steelcase Group,
Turnstone, Nurture by Steelcase, International, Design Group,
PolyVision, IDEO and Financial Services. For external purposes,
these business units are aggregated into two reportable
segments: North America and International, plus an
Other category. These changes eliminated our
Steelcase Design Partnership reportable segment, re-aligning the
component businesses within other business units. 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 14 to the
consolidated financial statements.
North America
Segment
Our North America segment consists of the Steelcase Group,
Turnstone and Nurture by Steelcase, and serves customers mainly
through approximately 220 independent and company-owned dealers
in the United States and Canada. The North America segment
includes furniture, interior architecture, technology and
healthcare environment solutions as described above, under the
Steelcase, Details, Vecta, Turnstone and Nurture by Steelcase
brands. The Steelcase brand delivers insight-led products,
services and experiences that elevate performance of the
worlds leading organizations. The Turnstone brand targets
emerging companies and offers furniture that features smart
design and provides good value for people at work in all types
of organizations. Nurture by Steelcase uses research-based
insights
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to create healthcare products and environments that provide
patients, caregivers and patients families a more
comfortable, efficient and conducive healing process.
Each of our dealers maintains their own sales force which is
complemented by our sales representatives who work closely with
the dealers throughout the sales process. No single independent
dealer in North America accounted for more than 5% of our
segment revenue in 2007. The five largest independent dealers
collectively accounted for approximately 13% of our segment
revenue. We do not believe our business is dependent on any
single dealer, the loss of which would have a material 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 2007, the North America segment accounted for $1,863.8 or
60.2% of our total revenue, and at the end of the year had
approximately 7,700 permanent employees and 500 temporary
workers, of which 4,600 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 product. In these markets, companies compete on
price, product performance, design, delivery and relationships
with customers, architects and designers. Our most significant
competitors in the United States are Haworth, Inc., Herman
Miller, Inc., HNI Corporation, Kimball International Inc., and
Knoll, Inc. Together with Steelcase, these companies represent
approximately 60% of the United States office furniture market.
International
Segment
Our International segment serves customers outside of the United
States and Canada primarily under the Steelcase brand. The
International office furniture market is highly competitive and
fragmented. We compete with many different local and regional
manufacturers in many different markets. In many cases, these
competitors focus on specific product categories. The
International segment has its greatest presence in Europe where
we have the leading market share. The International segment
serves customers through approximately 350 independent and
company-owned dealers. No single independent dealer in
International accounted for more than 5% of our segment revenue
in 2007. The five largest independent dealers collectively
accounted for approximately 7% of our segment revenue. In
certain geographic markets the segment sells directly to
customers.
In 2007, our International segment accounted for $735.8 or 23.8%
of our total revenue, and at the end of the year had
approximately 3,000 permanent employees and 500 temporary
workers. Approximately 2,300 of the total workers related to
manufacturing.
Other
Category
The Other category includes our Design Group, PolyVision, IDEO
and Financial Services subsidiaries.
The Design Group is comprised of the following three brands
focused on providing architects and designers with unique
products and premium experiences.
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Designtex focuses on surface materials including textiles, wall
coverings, shades, screens and surface imagings.
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Brayton focuses on lounge, executive and healthcare seating and
tables.
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Metro creates refined, modern furniture for meeting spaces,
private offices and the open plan.
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Designtex primarily sells products specified by architects and
designers directly to end customers through a direct sales
force. Brayton and Metro sales are primarily generated through
our North America dealer network.
PolyVision designs and manufactures visual communications
products, such as static and electronic whiteboards. The
majority of PolyVisions revenue relates to static
whiteboards sold in the primary and secondary education markets.
PolyVisions revenues generated from whiteboards and group
communication tools are sold through our North America dealer
network, and to a greater extent, other audio-visual resellers.
PolyVision also sells to general contractors through a direct
bid process.
IDEO provides product design and innovation services to
companies in a variety of industries including communications,
consumer products, healthcare, information technology and
manufacturing among others.
Financial Services provides leasing services primarily to North
America customers and selected financing services to our dealers.
In 2007, the Other category accounted for $497.8, or 16.0% of
our total revenue.
Corporate
Expenses
Approximately 84% 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 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 or support our distribution network. As of
February 23, 2007, our investment in these unconsolidated
joint ventures was $15.9. Our portion of the income or loss from
the joint ventures is recorded in Other income, net, in
the Consolidated Statements of Income. Our primary joint
ventures include:
KSMWe own 25% of this Japanese office furniture
manufacturer that supports our distribution in the Japanese
market.
One WorkplaceWe own 25% of this U.S. based
dealer that serves customers primarily in the northern
California market.
Steelcase JeraisyWe own 49% of this office
furniture manufacturer in Saudi Arabia that serves customers
primarily in the local market.
WSAWe own 40% of this dealer located in Switzerland
that serves customers primarily in the German-speaking regions
of the country.
WorkstageWe own 44% of this U.S.-based company
which designs and constructs buildings that focus on the
integration of the three core elements of the work environment:
furniture, interior architecture and technology.
Customer and
Dealer Concentrations
Our largest direct sale customer accounted for 0.4% of our
consolidated revenue in 2007 and our five largest direct sale
customers accounted for 1.3% of consolidated revenue. However,
these percentages do not include revenue from various government
agencies and other entities purchasing under our General
Services Administration contract, which in the aggregate
accounted for 1.9% 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 upon our business.
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No single independent dealer accounted for more than 3% of our
consolidated revenue for 2007. The five largest independent
dealers collectively accounted for 9.0% 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 evolved our manufacturing and overall supply chain
significantly over the past several years. During the rapid
growth period of the 1970s and 1980s in the United
States, we were uniquely positioned to command a high market
share due to our capacity and ability to accept and deliver
large orders of furniture. During this time period, most third
party suppliers did not have the capacity and, in many cases,
the expertise to make parts and components for our products. Our
strategy of vertical integration provided the right formula at
the time.
Over time, a much more capable supply base emerged, in many
cases, in support of the automotive industry. These third party
suppliers (located both locally and in lower-cost countries)
have since taken the capabilities they built for their
automotive customers and diversified their customer base into
other industries like office furniture. These new, capable
suppliers afforded us the opportunity to restructure our
industrial model which is increasingly being built on the basis
of lean principles emphasizing continuous one-piece flow and
agility. Portions of the process not conducive to one-piece flow
continue to be evaluated for potential outsourcing.
This approach has reduced the capital needs of our business,
reduced inventories, reduced the footprint of our manufacturing
space and, at the same time, allowed us to improve quality,
delivery performance and the customer experience. During 2001 to
2005, as a result of our new industrial model and a precipitous
drop in industry demand from 2002 to 2004, we started to
significantly reduce our manufacturing square footage in North
America and Europe. This process has continued so that by the
end of Q1 2008, we expect to have reduced our global
manufacturing and distribution center square footage by 50%
from 2000 to approximately 8.9 million square feet. At the
same time, in order to serve the growth needs of our Asian
market, we opened a new plant in Shenzhen, China in 2007 and
restructured our production capacity in Kuala Lumpur, Malaysia.
Worldwide, we are optimizing across the entire value chain,
incorporating both the needs and capabilities of our dealer
service partners, supply chain partners and logistics providers.
In the past 18 months, we have opened several regional
distribution centers around the United States that allow us to
improve service to our customers and dealers and reduce freight
cost throughout the value stream.
Raw Materials
and Suppliers
We source raw materials and components from a significant number
of suppliers around the world. Those raw materials include steel
and other metals, wood, paper, paint, plastics, acoustical
materials,
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foam, laminates, particleboard, veneers, glass, fabrics and
leather. 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 alternate supply bases to minimize
disruptions and unexpected increases in costs.
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 innovatorsleading universities, think tanks
and knowledge leadersto 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 integrated architecture, furniture and
technology solutions to single products or enhancements to
existing products. Design work is organizationally distributed
globally across our major businesses and can 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 $132.2 in research,
design and development activities over the past three years.
Royalties are sometimes paid to external designers of our
products as the products are sold and are not included in the
research, design and development costs since they are variable,
based on product sales. We continue to invest approximately one
to two percent of our revenue in research and development each
year. See Note 2 to the consolidated financial statements
for more information regarding research, design and development
costs.
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 affiliates.
We also selectively license our intellectual property to third
parties as a revenue source. For example, our
Leap®
seating technology has been licensed for use in automotive and
aircraft seating, and we are pursuing other licensing
opportunities for this technology.
Employees
As of February 23, 2007, we had approximately 13,000
permanent employees including 7,600 hourly employees and
5,400 salaried employees. Additionally, we had 1,200 temporary
workers who primarily work in manufacturing. Approximately 330
employees in the United States are covered by collective
bargaining 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 strong relations with our employees.
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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 that 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
that 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 towards 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
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 following risks actually occur, our business, operating
results, cash flows and financial condition could be materially
adversely affected.
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We may not be
able to successfully implement and manage our growth
strategy.
Our growth strategy calls for expansion in:
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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
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new adjacent markets such as the mid-market segment of the
office furniture market, vertical markets such as healthcare and
education and emerging international markets.
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We believe that our future success depends upon our ability to
deliver to our customers a great experience, 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 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.
Our efforts to grow our business in emerging markets include the
risk factors listed below relating to our global operations, but
can 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 most startups, 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.
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,
Kimball International Inc. and Knoll, Inc. Some of our
competitors 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, 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 tend to compete against a
larger number of smaller size competitors. 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.
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In the Other category, we are experiencing intense competition
related to static and interactive whiteboard products, which has
negatively impacted our operating margins during 2007.
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 efforts to
restructure our industrial model may not be
successful.
Over the last several years, we have been migrating to a more
flexible industrial model based on lean manufacturing principles
and a simpler more platform-based product portfolio. We also
began to adopt a global supply chain. These strategies, along
with a precipitous drop in industry demand from 2002 to 2004,
have led to the restructuring of our manufacturing operations in
the North America and International segments. The restructuring
of our manufacturing operations has involved actions such as
workforce reductions, facility rationalizations and the
disposition of excess assets, including real estate. The cost of
these actions has had the effect of reducing earnings until
expected cost savings are achieved. While we expect to complete
the final phase of our publicly announced restructuring plans
during Q1 2008, it is possible that additional restructuring
actions will continue to be necessary, though at a less
significant level, as we continue to implement our strategies.
Therefore, it is also possible that the cost of our
restructuring efforts will be higher than we anticipate.
The success of our restructuring initiatives is dependent on
several factors, including our ability to manage facility
consolidation without disrupting existing customer commitments,
efficient implementation of lean manufacturing techniques,
simplifying our product portfolio, establishing cost effective
regional distribution centers and implementing global sourcing
and supply chain initiatives. Such actions may not be
accomplished as quickly and effectively as anticipated, and we
may not realize the expected benefits of our restructuring
activities, either of which would have a negative impact on our
results of operations.
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 may be
subject to risks that may limit our ability to manufacture,
design, develop or sell products in particular countries, which
could in turn 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 normal
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 United States and most countries in Europe, our revenues
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
9
changes to U.S. and international monetary policies may also
negatively impact our revenue. Varying tax rates or increasing
limitations on net operating loss carry-forwards in different
jurisdictions could negatively impact our consolidated effective
tax rate.
A downturn in
the cyclical office furniture industry could adversely impact
our revenues 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. The global office
furniture industry experienced a significant downturn several
years ago which dramatically impacted our profitability because
of our historical strategy of vertical integration and the high
level of fixed costs associated with our business. While we
continue to restructure our industrial model, if another
economic or industry downturn occurred in a similar magnitude as
experienced during recent years, we may not be able to react
fast enough to counteract the decline, which could negatively
impact our operating results, financial condition and access to
capital. Other demand influences on our industry include
technology changes, organizational change, 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.
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 expect to 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 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 could be
adversely affected by increasing raw material
costs.
We procure raw materials from a significant number of sources
within the United States, Canada, Europe and Asia. These raw
materials are not rare or unique to our industry. The absolute
level and volatility in steel and other commodity costs, such as
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 run, 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 hedge markets to manage these risks. In the longer
run, we may not be successful in passing along a portion of the
higher raw materials costs to our customers because of
competitive pressures.
10
Disruptions
within our dealer network could adversely affect our
business.
We rely largely on a network of independent and company-owned
dealers to market 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 or
other third parties 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 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 owned
because of the need for us to make financial investments in
dealerships in order to preserve our market share in the
affected regions. If we are not able to effectively manage these
dealerships, they could have a negative effect on our operating
results. In certain cases, we have adopted a direct model of
distribution through which we establish company-owned sales and
service capabilities. 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) in various
jurisdictions. We may be unable to generate sufficient taxable
income from future operations in the applicable jurisdiction to
fully utilize our NOLs. We have NOLs in various currencies that
are also subject to foreign exchange risk, which could reduce
the amount that 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.
11
Our
acquisition, joint venture or alliance activities may not be
successful.
Our growth strategy may involve acquisitions, joint ventures
alliances and additional channels of distribution. Some of the
risks associated with these activities are:
|
|
|
|
|
we may not identify attractive opportunities or be able to enter
into transactions on acceptable terms and at the right price,
|
|
|
|
we may not successfully integrate acquired entities into our
operations and be able to retain key employees of the acquired
companies,
|
|
|
|
our business philosophy may change which could affect the
business rationale for our joint ventures or alliances, and
|
|
|
|
we may not successfully implement new distribution channels, and
changes could create discord in our existing channels of
distribution.
|
|
|
Item 1B.
|
Unresolved Staff
Comments:
|
None.
We have operations at locations throughout the United States 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 that, 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, USA. Our owned and leased principal
manufacturing and distribution center locations with greater
than 60,000 square feet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Principal
|
|
|
|
|
|
|
Segment/Category
Primarily Supported
|
|
|
Locations
|
|
|
Owned
|
|
|
Leased
|
North America
|
|
|
|
13
|
|
|
|
|
8
|
|
|
|
|
5
|
|
International
|
|
|
|
8
|
|
|
|
|
7
|
|
|
|
|
1
|
|
Other
|
|
|
|
8
|
|
|
|
|
3
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
29
|
|
|
|
|
18
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, we sold the manufacturing and distribution center
facilities on our Grand Rapids campus. We are leasing one of the
facilities through May 2008 and that facility is not included in
the table above. In addition to the facilities included in the
table above, two of our other former manufacturing sites are
being actively marketed. The net book values associated with
both of these sites are included in Other Current Assets
on our Consolidated Balance Sheet.
|
|
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.
12
|
|
Supplementary
Item.
|
Executive
Officers of the Registrant:
|
Our executive officers are:
|
|
|
|
|
|
|
Name
|
|
|
Age
|
|
|
Position
|
Mark A. Baker
|
|
|
46
|
|
|
Senior Vice President, Global
Operations Officer
|
Mark T. Greiner
|
|
|
55
|
|
|
Senior Vice President, WorkSpace
Futures
|
James P. Hackett
|
|
|
51
|
|
|
President and Chief Executive
Officer, Director
|
Nancy W. Hickey
|
|
|
55
|
|
|
Senior Vice President, Chief
Administrative Officer and Secretary
|
James P. Keane
|
|
|
47
|
|
|
President, Steelcase Group
|
Michael I. Love
|
|
|
58
|
|
|
President, Nurture by Steelcase
|
John S. Malnor
|
|
|
45
|
|
|
General Manager, Turnstone
|
Frank H. Merlotti, Jr
|
|
|
56
|
|
|
President, Design Group
|
James G. Mitchell
|
|
|
57
|
|
|
President, Steelcase International
|
David C. Sylvester
|
|
|
42
|
|
|
Vice President, Chief Financial
Officer
|
Mark A. Baker has been Senior Vice President, Global
Operations Officer since September 2004. Mr. Baker served
as Senior Vice President, Operations from November 2001 to
September 2004.
Mark T. Greiner has been Senior Vice President, WorkSpace
Futures since October 2002. From 2001 to 2002, Mr. Greiner
held the position of Senior Vice President, Research &
Development, Concepts and Ventures.
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 and Secretary since March 2007.
Ms. Hickey was Senior Vice President, Chief Administrative
Officer from 2001 to 2007.
James P. Keane has been President, Steelcase Group
including PolyVision since October 2006. Mr. Keane was
Senior Vice President, Chief Financial Officer from 2001 to 2006.
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 2006.
John S. Malnor has been General Manager, Turnstone since
January 2004. From 2001 to 2004, Mr. Malnor was Director,
Market Development for Turnstone.
Frank H. Merlotti, Jr. has been President, Design
Group since October 2006. Mr. Merlotti was President,
Steelcase North America from 2002 to 2006.
James G. Mitchell has been President, Steelcase
International since June 2004. Mr. Mitchell served as
Managing Director, United Kingdom from 2003 to June 2004. From
1999 to 2003, Mr. Mitchell was President, Steelcase Canada.
David C. Sylvester has been Vice President, Chief
Financial Officer since October 2006. Mr. Sylvester was
Vice President, Global Operations Finance from 2005 to 2006.
From 2001 to 2005, Mr. Sylvester held the position of Vice
President, International Finance.
13
PART II
|
|
Item 5.
|
Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities:
|
The Class A Common Stock of Steelcase Inc. is listed on the
New York Stock Exchange under the symbol SCS. Our
Class B Common Stock is neither registered under the
Securities Exchange Act of 1934 nor publicly traded. See
Note 10 to the consolidated financial statements for
further discussion of our common stock. As of April 13,
2007, we had outstanding 146,650,770 shares of common stock
with 9,363 shareholders of record. Of these amounts,
82,262,189 shares are Class A Common Stock with
9,250 shareholders of record and 64,388,581 shares are
Class B Common Stock with 119 shareholders of record.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock End of
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
Day Per Share
Price Range
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
19.29
|
|
|
|
$
|
19.00
|
|
|
|
$
|
18.11
|
|
|
|
$
|
20.22
|
|
Low
|
|
|
$
|
16.84
|
|
|
|
$
|
13.22
|
|
|
|
$
|
13.70
|
|
|
|
$
|
17.25
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
14.45
|
|
|
|
$
|
14.82
|
|
|
|
$
|
14.91
|
|
|
|
$
|
17.34
|
|
Low
|
|
|
$
|
12.40
|
|
|
|
$
|
12.70
|
|
|
|
$
|
13.57
|
|
|
|
$
|
14.69
|
|
The declaration of dividends is subject to the discretion of our
Board of Directors and to compliance with applicable law.
Dividends in 2007 and 2006 were declared and paid quarterly.
Following the close of 2007, we announced an increase in the
dividend to $0.15 per share payable in Q1 2008 which is
expected to result in additional quarterly dividend payments of
$2.9 compared to Q4 2007. The amount and timing of future
dividends depends upon our results of operations, financial
condition, cash requirements, future business prospects, general
business conditions and other factors that our Board of
Directors may deem relevant at the time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Dividends
Paid
|
|
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Quarter
|
|
|
|
Total
|
|
Fiscal 2007
|
|
|
$
|
15.0
|
|
|
|
$
|
15.0
|
|
|
|
$
|
17.9
|
|
|
|
$
|
19.3
|
|
|
|
$
|
67.2
|
|
Fiscal 2006
|
|
|
$
|
8.9
|
|
|
|
$
|
13.4
|
|
|
|
$
|
13.4
|
|
|
|
$
|
13.5
|
|
|
|
$
|
49.2
|
|
In June 1998, September 1999 and September 2000, we announced
the approvals by our Board of Directors of a share repurchase
program which permitted us to purchase up to 11 million
shares of our common stock. During Q4 2007, we completed the
remaining repurchases approved under this program. The following
table is a summary of share repurchase activity under these
approvals during Q4 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases
of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
of
|
|
|
|
Maximum Number
of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
as
|
|
|
|
Shares that
May
|
|
|
|
|
(a)
|
|
|
|
(b)
|
|
|
|
Part of
Publicly
|
|
|
|
Yet be
Purchased
|
|
|
|
|
Total Number
of
|
|
|
|
Average Price
|
|
|
|
Announced Plan
|
|
|
|
Under the Plan
|
|
Period
|
|
|
Shares
Purchased
|
|
|
|
Paid per
Share
|
|
|
|
or
Program
|
|
|
|
or
Program
|
|
11/25/0612/29/06
|
|
|
|
52,400
|
|
|
|
$
|
18.22
|
|
|
|
|
52,400
|
|
|
|
|
1,580,193
|
|
12/30/061/26/07
|
|
|
|
1,580,193
|
|
|
|
|
18.12
|
|
|
|
|
1,580,193
|
|
|
|
|
|
|
1/27/072/23/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
1,632,593
|
|
|
|
|
|
|
|
|
|
1,632,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
In Q3 2007, our Board of Directors approved a share repurchase
program permitting the repurchase of up to $100 million of
shares of our common stock. This program has no specific
expiration date. The following table is a summary of share
repurchase activity under this approval during Q4 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer Purchases
of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
or
Programs
|
|
11/25/0612/29/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/30/061/26/07
|
|
|
|
853,307
|
|
|
|
$
|
18.10
|
|
|
|
|
853,307
|
|
|
|
$
|
84,555,000
|
|
1/27/072/23/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
853,307
|
|
|
|
|
|
|
|
|
|
853,307
|
|
|
|
$
|
84,555,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 10 to the consolidated financial statements for
additional information regarding share repurchases. See
Item 12: Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters for
information on our equity compensation plans.
15
|
|
Item 6.
|
Selected
Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
|
|
February 27,
|
|
|
|
February 28,
|
|
Financial
Highlights
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
2003(1)
|
|
Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
3,097.4
|
|
|
|
$
|
2,868.9
|
|
|
|
$
|
2,613.8
|
|
|
|
$
|
2,345.6
|
|
|
|
$
|
2,529.9
|
|
Revenue increase (decrease)
|
|
|
|
8.0
|
%
|
|
|
|
9.8
|
%
|
|
|
|
11.4
|
%
|
|
|
|
(7.3
|
)%
|
|
|
|
(16.7
|
)%
|
Gross profit
|
|
|
$
|
947.9
|
|
|
|
$
|
846.3
|
|
|
|
$
|
745.7
|
|
|
|
$
|
615.3
|
|
|
|
$
|
728.1
|
|
Gross profit% of revenue
|
|
|
|
30.6
|
%
|
|
|
|
29.5
|
%
|
|
|
|
28.5
|
%
|
|
|
|
26.2
|
%
|
|
|
|
28.8
|
%
|
Income (loss) from continuing
operations before income tax expense (benefit)
|
|
|
$
|
124.6
|
|
|
|
$
|
76.4
|
|
|
|
$
|
5.0
|
|
|
|
$
|
(92.9
|
)
|
|
|
$
|
(66.7
|
)
|
Income (loss) from continuing
operations before income tax expense (benefit)% of revenue
|
|
|
|
4.1
|
%
|
|
|
|
2.7
|
%
|
|
|
|
0.2
|
%
|
|
|
|
(4.0
|
)%
|
|
|
|
(2.6
|
)%
|
Income (loss) from continuing
operations after income tax expense (benefit)
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
11.7
|
|
|
|
$
|
(42.0
|
)
|
|
|
$
|
(41.6
|
)
|
Income (loss) from continuing
operations after income tax expense (benefit)% of revenue
|
|
|
|
3.5
|
%
|
|
|
|
1.7
|
%
|
|
|
|
0.5
|
%
|
|
|
|
(1.8
|
)%
|
|
|
|
(1.6
|
)%
|
Income from discontinued
operations(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.0
|
|
|
|
$
|
22.4
|
|
|
|
$
|
4.7
|
|
Cumulative effect of accounting
change, net of income taxes(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4.2
|
)
|
|
|
$
|
(229.9
|
)
|
Net income (loss)
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
|
|
$
|
(23.8
|
)
|
|
|
$
|
(266.8
|
)
|
Net income (loss)% of revenue
|
|
|
|
3.5
|
%
|
|
|
|
1.7
|
%
|
|
|
|
0.5
|
%
|
|
|
|
(1.0
|
)%
|
|
|
|
(10.5
|
)%
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.08
|
|
|
|
$
|
(0.28
|
)
|
|
|
$
|
(0.28
|
)
|
Diluted
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.08
|
|
|
|
$
|
(0.28
|
)
|
|
|
$
|
(0.28
|
)
|
Income from discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.15
|
|
|
|
$
|
0.03
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.15
|
|
|
|
$
|
0.03
|
|
Cumulative effect of accounting
changebasic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
|
$
|
(1.56
|
)
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
$
|
(0.16
|
)
|
|
|
$
|
(1.81
|
)
|
Diluted
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
$
|
(0.16
|
)
|
|
|
$
|
(1.81
|
)
|
Dividendscommon stock
|
|
|
$
|
0.45
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.24
|
|
|
|
$
|
0.24
|
|
|
|
$
|
0.24
|
|
Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
$
|
585.5
|
|
|
|
$
|
291.9
|
|
|
|
$
|
447.8
|
|
|
|
$
|
401.0
|
|
|
|
$
|
334.3
|
|
Total assets
|
|
|
$
|
2,399.4
|
|
|
|
$
|
2,344.5
|
|
|
|
$
|
2,364.7
|
|
|
|
$
|
2,359.4
|
|
|
|
$
|
2,354.9
|
|
Long-term debt
|
|
|
$
|
250.0
|
|
|
|
$
|
2.2
|
|
|
|
$
|
258.1
|
|
|
|
$
|
319.6
|
|
|
|
$
|
294.2
|
|
|
|
|
(1) |
|
The fiscal year ended February 28, 2003 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. Cumulative effect of accounting change
for the fiscal year ended February 28, 2003 related to our
adoption of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets. |
16
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
February 23,
2007
|
|
|
|
February 24,
2006
|
|
|
|
February 25,
2005
|
|
Revenue
|
|
|
$
|
3,097.4
|
|
|
|
|
100.0
|
%
|
|
|
$
|
2,868.9
|
|
|
|
|
100.0
|
%
|
|
|
$
|
2,613.8
|
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
|
2,128.2
|
|
|
|
|
68.7
|
|
|
|
|
1,989.4
|
|
|
|
|
69.3
|
|
|
|
|
1,859.9
|
|
|
|
|
71.2
|
|
Restructuring costs
|
|
|
|
21.3
|
|
|
|
|
0.7
|
|
|
|
|
33.2
|
|
|
|
|
1.2
|
|
|
|
|
8.2
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
947.9
|
|
|
|
|
30.6
|
|
|
|
|
846.3
|
|
|
|
|
29.5
|
|
|
|
|
745.7
|
|
|
|
|
28.5
|
|
Operating expenses
|
|
|
|
831.8
|
|
|
|
|
26.8
|
|
|
|
|
758.1
|
|
|
|
|
26.4
|
|
|
|
|
722.3
|
|
|
|
|
27.6
|
|
Restructuring costs
|
|
|
|
2.4
|
|
|
|
|
0.1
|
|
|
|
|
5.7
|
|
|
|
|
0.2
|
|
|
|
|
5.2
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
113.7
|
|
|
|
|
3.7
|
|
|
|
|
82.5
|
|
|
|
|
2.9
|
|
|
|
|
18.2
|
|
|
|
|
0.7
|
|
Other income (expense), net
|
|
|
|
10.9
|
|
|
|
|
0.4
|
|
|
|
|
(6.1
|
)
|
|
|
|
(0.2
|
)
|
|
|
|
(13.2
|
)
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income tax expense (benefit)
|
|
|
|
124.6
|
|
|
|
|
4.1
|
|
|
|
|
76.4
|
|
|
|
|
2.7
|
|
|
|
|
5.0
|
|
|
|
|
0.2
|
|
Income tax expense (benefit)
|
|
|
|
17.7
|
|
|
|
|
0.6
|
|
|
|
|
27.5
|
|
|
|
|
1.0
|
|
|
|
|
(6.7
|
)
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
106.9
|
|
|
|
|
3.5
|
|
|
|
|
48.9
|
|
|
|
|
1.7
|
|
|
|
|
11.7
|
|
|
|
|
0.5
|
|
Discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
106.9
|
|
|
|
|
3.5
|
%
|
|
|
$
|
48.9
|
|
|
|
|
1.7
|
%
|
|
|
$
|
12.7
|
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
Net income improved significantly in 2007 and 2006. The $58.0
improvement in 2007 net income was due to higher revenues
and price yield, favorable tax adjustments, improved gross
margins, lower restructuring costs, and higher interest income
on increased cash balances, partially offset by higher variable
compensation costs, PolyVision intangible asset and goodwill
impairment-related charges, and increased spending related to
longer-term growth initiatives. The 2006 net income
improvement of $36.2 over 2005 was primarily driven by increased
operating profits in the North America segment.
Our revenue increased 8.0% in 2007 compared to 2006 following an
increase of 9.8% from 2005 to 2006. Revenue in 2007 increased
for all of our reportable segments, but growth in our
International segment of 14.2% was the strongest. As compared to
2006, revenue included $36.9 of incremental sales related to net
acquisitions. Current year revenue was also positively impacted
by $25.8 from currency translation effects as compared to the
prior year.
Cost of sales, which is reported separately from restructuring
costs, decreased to 68.7% of revenue in 2007, a
0.6 percentage point improvement compared to the prior
year. Improvements in the North America and International
segments of 1.0 and 2.1 percentage points, respectively,
were the key drivers of this improvement. These improvements
were partially offset by cost of sales increases at PolyVision,
which is included in the Other category. Gross margin increased
to 30.6% because of the improvements in cost of sales and lower
restructuring costs.
17
Operating expenses increased $73.7 in 2007 compared to the prior
year. Higher variable compensation costs, intangible asset and
goodwill impairment-related charges at PolyVision, spending
related to longer-term growth initiatives, currency effects and
net acquisitions were the primary reasons for the increase.
Operating income improved by $31.2 in 2007 compared to 2006, due
to better performance in our International and North America
segments and lower restructuring costs.
We recorded net pre-tax operating charges for restructuring
costs totaling $23.7 in 2007, compared to $38.9 in 2006 and
$13.4 in 2005. The net charges in 2007 primarily consisted of
facility rationalizations in the North America segment. The
charges were part of a two year restructuring effort announced
on March 28, 2005, to consolidate our North America
operations by closing certain manufacturing and distribution
facilities in Grand Rapids, Michigan and relocating their
activities to other facilities. See further discussion and
detail of all these items in the Segment Disclosure
analysis below and in Notes 14 and 16 to the
consolidated financial statements.
Interest Expense;
Other Income, Net; and Effective Income Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Interest Expense
and Other Income (Expense), net
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Interest expense
|
|
|
$
|
18.5
|
|
|
|
$
|
18.1
|
|
|
|
$
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
25.9
|
|
|
|
|
11.1
|
|
|
|
|
6.7
|
|
Equity in income of unconsolidated
ventures
|
|
|
|
3.5
|
|
|
|
|
2.0
|
|
|
|
|
3.0
|
|
Elimination of minority interest
in consolidated dealers
|
|
|
|
(2.8
|
)
|
|
|
|
(2.9
|
)
|
|
|
|
0.3
|
|
Other income (expense), net
|
|
|
|
2.8
|
|
|
|
|
1.8
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
|
|
29.4
|
|
|
|
|
12.0
|
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense and other
income (expense), net
|
|
|
$
|
10.9
|
|
|
|
$
|
(6.1
|
)
|
|
|
$
|
(13.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
|
14.2
|
%
|
|
|
|
36.0
|
%
|
|
|
|
(133.9
|
)%
|
Interest income increased in 2007 and 2006 due to higher cash
and investment balances and higher interest rates.
Equity in income of unconsolidated ventures represents our
portion of the income from our joint ventures.
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 (expense), net consists of foreign exchange gains
and losses, unrealized gains and losses on derivative
instruments and miscellaneous income (expense) in 2007, 2006 and
2005. Included in this amount for 2007 is a $4.9 foreign
withholding tax expense from a cash dividend which was
repatriated from a wholly-owned foreign subsidiary and a $3.6
gain on a dealer transition.
During 2007, we recorded favorable tax adjustments of $25.1.
These adjustments include 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 are the result of improved
profitability and the implementation of tax planning strategies
which increased the likelihood of utilizing foreign net
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
18
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 losses on our 2004
to 2006 U.S. tax returns. See further discussion and detail
on these items in Note 11 to the consolidated financial
statements.
The favorable tax adjustments had the effect of reducing the
2007 effective tax rate to 14.2%. Excluding the impact of the
total adjustments, the 2007 effective tax rate would have been
34.3%.
In 2005, we recorded an $8.2 reduction in a specific tax
reserve. The tax reserve was originally recorded in response to
a fiscal 1997 tax calculation that was later rejected by the
IRS. At the time of the rejection, we recorded a reserve for the
total amount of the deduction while we challenged the IRSs
decision. The matter was settled in our favor during 2005
resulting in the reversal of the reserve. We calculated our tax
expense for 2005 using a 30% rate and then adjusted it for the
$8.2 reserve reduction.
Although our tax rate can vary from year to year, we expect that
our long-term effective tax rate will be within a range of 34%
to 35% for 2008 with the U.S. research tax credit remaining
in effect through the end of the calendar year 2007.
Segment
Disclosure
During the third and fourth quarters of 2007, we made a number
of changes in our organizational structure and certain key
leadership positions, which resulted in changes to our segment
reporting. As a result of this change, management currently
evaluates the Company as eight business units: Steelcase Group,
Turnstone, Nurture by Steelcase, International, Design Group,
PolyVision, IDEO and Financial Services. For external purposes,
these business units are aggregated into two reportable
segments: North America and International, plus an
Other category. Prior year information has been
restated to reflect the new segment information. See more
information regarding segments in Item 1: Business
and Note 14 to the consolidated financial statements
included with this Report.
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Income Statement
DataNorth America
|
|
|
February 23,
2007
|
|
|
|
February 24,
2006
|
|
|
|
February 25,
2005
|
|
Revenue
|
|
|
$
|
1,863.8
|
|
|
|
|
100.0
|
%
|
|
|
$
|
1,757.3
|
|
|
|
|
100.0
|
%
|
|
|
$
|
1,569.0
|
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
|
1,313.9
|
|
|
|
|
70.5
|
|
|
|
|
1,257.4
|
|
|
|
|
71.5
|
|
|
|
|
1,166.6
|
|
|
|
|
74.4
|
|
Restructuring costs
|
|
|
|
18.5
|
|
|
|
|
1.0
|
|
|
|
|
22.6
|
|
|
|
|
1.3
|
|
|
|
|
7.8
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
531.4
|
|
|
|
|
28.5
|
|
|
|
|
477.3
|
|
|
|
|
27.2
|
|
|
|
|
394.6
|
|
|
|
|
25.1
|
|
Operating expenses
|
|
|
|
425.8
|
|
|
|
|
22.8
|
|
|
|
|
392.2
|
|
|
|
|
22.4
|
|
|
|
|
370.1
|
|
|
|
|
23.5
|
|
Restructuring costs
|
|
|
|
1.7
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
103.9
|
|
|
|
|
5.6
|
%
|
|
|
$
|
85.1
|
|
|
|
|
4.8
|
%
|
|
|
$
|
23.5
|
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The North America segment increased operating income by $18.8 in
2007 compared to 2006 after an increase of $61.6 between 2005
and 2006. The 2007 improvement was driven by volume growth,
improved pricing yield and cost of sales improvements, partially
offset by increased variable compensation costs and spending
related to longer-term growth initiatives.
Revenue increased 6.1% in 2007 compared to 2006 and represented
60.2% of consolidated revenues. Revenue growth in 2007 was
driven by increased sales across the Steelcase Group, Turnstone
and Nurture by Steelcase brands. Additionally, as compared to
the prior year, current year revenue included $27.8 of
incremental sales related to net acquisitions and $5.4 from
favorable currency effects related to sales by our subsidiary in
Canada.
Cost of sales, which is reported separately from restructuring
costs, as a percent of revenue decreased 1.0 percentage
point from the prior year because of improved pricing yields,
benefits from
19
restructuring efforts and product simplicity initiatives and
continued implementation of lean manufacturing principles. The
combined results from these initiatives will have allowed us to
reduce our total manufacturing and distribution center footprint
from approximately 14.0 million square feet in 2000 to
6.7 million square feet by the end of Q1 2008.
Our wood product category within the North America segment has
reported significant operating losses over the past several
years. In 2007, we estimate that this product category incurred
an operating loss of $27.5 after an allocation of operating
expenses related to corporate and other shared service
functions. The current year results were negatively impacted by
one large, complex project that was awarded in 2006, and various
long-term contracts with existing customers, most of which have
since been amended. In addition, we incurred significant
expenses associated with current year cost reduction
initiatives, new product introductions and environmental
sustainability initiatives. As a result of our efforts, the
quarterly losses in 2007 were reduced from $9.5 in Q1 to $5.7 in
Q4. We expect to implement additional strategies and initiatives
to further improve the profitability of our wood product
category. However, the achievement of improved operating results
will depend upon the success of the strategies and initiatives
discussed above, as well as various other risks and
contingencies discussed in the Risk Factors section of this
report.
Gross margin as a percent of revenue improved from 27.2% in the
prior year to 28.5% in the current year, due to improved
operating performance and lower restructuring costs.
Restructuring costs of $18.5 in 2007 and $22.6 in 2006 included
in gross profit related to move and severance costs associated
with our current plant consolidation initiative, which we expect
to complete by the end of Q1 2008, and a loss on the sale of our
Grand Rapids manufacturing campus, which was completed during Q4
2007.
Operating expenses were 22.8% of revenue in 2007 compared to
22.4% in 2006. Operating expenses increased compared to 2006
primarily due to increases in variable compensation costs linked
to Steelcase Inc. consolidated performance and spending related
to longer-term growth initiatives.
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Income Statement
DataInternational
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Revenue
|
|
|
$
|
735.8
|
|
|
|
|
100.0
|
%
|
|
|
$
|
644.5
|
|
|
|
|
100.0
|
%
|
|
|
$
|
590.5
|
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
|
490.0
|
|
|
|
|
66.6
|
|
|
|
|
442.8
|
|
|
|
|
68.7
|
|
|
|
|
411.7
|
|
|
|
|
69.7
|
|
Restructuring costs (benefit)
|
|
|
|
2.8
|
|
|
|
|
0.4
|
|
|
|
|
8.6
|
|
|
|
|
1.3
|
|
|
|
|
(0.6
|
)
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
243.0
|
|
|
|
|
33.0
|
|
|
|
|
193.1
|
|
|
|
|
30.0
|
|
|
|
|
179.4
|
|
|
|
|
30.4
|
|
Operating expenses
|
|
|
|
208.7
|
|
|
|
|
28.4
|
|
|
|
|
188.7
|
|
|
|
|
29.3
|
|
|
|
|
181.0
|
|
|
|
|
30.7
|
|
Restructuring costs
|
|
|
|
0.1
|
|
|
|
|
0.0
|
|
|
|
|
5.7
|
|
|
|
|
0.9
|
|
|
|
|
3.8
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
$
|
34.2
|
|
|
|
|
4.6
|
%
|
|
|
$
|
(1.3
|
)
|
|
|
|
(0.2
|
)%
|
|
|
$
|
(5.4
|
)
|
|
|
|
(0.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International reported operating income of $34.2, an improvement
of $35.5 compared to 2006. The 2007 improvement was driven by
lower restructuring costs and increased profitability in certain
markets, most notably the United Kingdom (U.K.),
Spain, eastern Europe, and Germany.
Revenue increased 14.2% in 2007 compared to 2006 and represented
23.8% of consolidated revenue. The growth was relatively
broad-based across most of our international regions, but was
particularly strong in Germany, Spain, eastern Europe, the U.K.
and Asia. Currency translation had the effect of increasing
revenue by $20.4 in 2007 as compared to the prior year.
Cost of sales, which is reported separately from restructuring
costs, decreased by 2.1 percentage points as a percentage
of revenue compared to 2006. The improvement was due to volume
leverage, benefits from prior restructuring activities and
better operational performance, especially in our business in
the U.K. In addition, we experienced a more favorable mix of
business in our more profitable markets.
20
Gross margin as a percent of revenue was 33.0% in 2007 compared
to 30.0% in 2006. The improvements in gross margin are due to
the improvements in cost of sales and lower restructuring costs.
Operating expenses increased by $20.0 in 2007, primarily due to
higher spending on growth initiatives in Asia, costs related to
acquired dealers, and higher variable compensation costs.
Currency translation had the effect of increasing operating
expenses in 2007 by $5.6 compared to 2006.
Restructuring charges in 2007 related primarily to the
impairment of our closed facilities in Strasbourg, France, and
our exit from the white goods business in Morocco.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Income Statement
DataOther
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Revenue
|
|
|
$
|
497.8
|
|
|
|
|
100.0
|
%
|
|
|
$
|
467.1
|
|
|
|
|
100.0
|
%
|
|
|
$
|
454.3
|
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
|
324.3
|
|
|
|
|
65.1
|
|
|
|
|
289.2
|
|
|
|
|
61.9
|
|
|
|
|
281.6
|
|
|
|
|
62.0
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
0.4
|
|
|
|
|
1.0
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
173.5
|
|
|
|
|
34.9
|
|
|
|
|
175.9
|
|
|
|
|
37.7
|
|
|
|
|
171.7
|
|
|
|
|
37.8
|
|
Operating expenses
|
|
|
|
170.3
|
|
|
|
|
34.3
|
|
|
|
|
149.0
|
|
|
|
|
31.9
|
|
|
|
|
147.0
|
|
|
|
|
32.3
|
|
Restructuring costs
|
|
|
|
0.6
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
$
|
2.6
|
|
|
|
|
0.5
|
%
|
|
|
$
|
26.9
|
|
|
|
|
5.8
|
%
|
|
|
$
|
24.3
|
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Other category includes the Design Group, PolyVision, IDEO
and Financial Services subsidiaries.
The Other category reported operating income of $2.6, a $24.3
decline compared to the prior year. The decline was primarily
the result of $10.7 of intangible asset and goodwill
impairment-related charges at PolyVision, operational issues and
intense price competition in PolyVisions U.S. static
whiteboard business, a decline in operating margins at IDEO, and
prior year gains from credit recoveries at Financial Services.
Revenue increased by $30.7 in 2007 due to growth in
PolyVisions technology and international infrastructure
businesses, as well as modest growth at IDEO and across the
Design Group.
Gross margin as a percent of revenue was 34.9% in 2007 compared
to 37.7% in 2006. The decline in gross margin was primarily due
to operational issues and intense competition in
PolyVisions U.S. static whiteboard business and a
decline in IDEO margins due to lower growth in key service
offerings.
Restructuring costs included in 2007 relate to PolyVision
workforce reductions. Restructuring costs included in 2006
related to the consolidation of two PolyVision facilities.
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
February 23,
|
|
|
February 24,
|
|
|
February 25,
|
Income Statement
DataOther
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
Operating expenses
|
|
|
$
|
27.0
|
|
|
|
$
|
28.2
|
|
|
|
$
|
24.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 84% 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 human resources, finance, legal, research and development and
corporate facilities.
21
Liquidity and
Capital Resources
Liquidity
The following table summarizes our statement of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Net cash flow provided by (used
in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
$
|
280.5
|
|
|
|
$
|
175.5
|
|
|
|
$
|
114.7
|
|
Investing activities
|
|
|
|
(51.9
|
)
|
|
|
|
127.7
|
|
|
|
|
(25.7
|
)
|
Financing activities
|
|
|
|
(127.1
|
)
|
|
|
|
(101.6
|
)
|
|
|
|
(60.3
|
)
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
|
1.9
|
|
|
|
|
5.6
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
|
103.4
|
|
|
|
|
207.2
|
|
|
|
|
34.4
|
|
Cash and cash equivalents,
beginning of period
|
|
|
|
423.8
|
|
|
|
|
216.6
|
|
|
|
|
182.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
|
|
$
|
527.2
|
|
|
|
$
|
423.8
|
|
|
|
$
|
216.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, we increased cash and cash equivalents by $103.4 to
a balance of $527.2 as of February 23, 2007. Of our total
cash and cash equivalents, 85.3% was located in the United
States and the remaining 14.7% was located outside of the United
States, 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.
The increase in cash and cash equivalents was due to a number of
factors. Operating activities generated cash primarily from net
income as adjusted for depreciation and amortization, which are
non-cash expenses. Depreciation and amortization have remained
higher than the level of capital expenditures, which represents
a source of cash. The largest investing activities were made up
of capital expenditures, purchases of short-term investment
instruments and the acquisition of Softcare Innovations, Inc.
and DJRT Manufacturing, Inc. (Softcare). These
investments were offset in part by net proceeds from asset
disposals and run-off collections of lease and notes receivable
within Financial Services. Financing activities consisted
primarily of quarterly dividend payments and net share
repurchases.
We believe that we currently need approximately $50 in cash to
fund the
day-to-day
operating needs of our business. Our cash balances fluctuate
from quarter to quarter because our business has some
seasonality, and certain cash flows related to variable
compensation, retirement plan funding and insurance payments
occur only annually. At this time, we expect to maintain an
additional cushion of approximately $200 for funding investments
in our growth initiatives, which may include opportunistic or
strategic acquisitions, and to protect us in the event of a
downturn while we are still restructuring our operations. We
will also use cash to return value to shareholders, primarily
through 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.
Significant uses of cash in Q1 2008 are expected to include
approximately $80 related to 2007 variable compensation payments
and retirement plan contributions.
22
Cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Cash Flow
DataOperating Activities
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Net income
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
Depreciation and amortization
|
|
|
|
101.4
|
|
|
|
|
119.4
|
|
|
|
|
127.6
|
|
Deferred income taxes
|
|
|
|
30.9
|
|
|
|
|
0.2
|
|
|
|
|
(13.7
|
)
|
Changes in operating assets and
liabilities, net of acquisitions
|
|
|
|
23.1
|
|
|
|
|
(8.9
|
)
|
|
|
|
(25.3
|
)
|
Other, net
|
|
|
|
18.2
|
|
|
|
|
15.9
|
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
$
|
280.5
|
|
|
|
$
|
175.5
|
|
|
|
$
|
114.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities was sufficient to fund
our capital expenditure needs for 2007 and we expect this trend
to continue.
The increase in cash generated from operating activities in 2007
was primarily due to higher net income, increased utilization of
deferred income tax assets related to net operating loss
carryforwards and improved working capital performance.
Most of the change in cash generated from operating activities
from 2005 to 2006 was due to the improvements in
year-over-year
income from continuing operations and an improvement in
management of working capital, primarily through an improvement
in accounts receivable days sales outstanding, which was
influenced by a change in terms offered to our North America
dealers.
Cash (used in)
provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Cash Flow
DataInvesting Activities
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Capital expenditures
|
|
|
$
|
(58.2
|
)
|
|
|
$
|
(71.9
|
)
|
|
|
$
|
(49.2
|
)
|
Short-term investments, net
|
|
|
|
(33.1
|
)
|
|
|
|
131.6
|
|
|
|
|
(51.4
|
)
|
Proceeds from disposal of fixed
assets
|
|
|
|
18.9
|
|
|
|
|
39.3
|
|
|
|
|
19.8
|
|
Proceeds from repayments of lease
fundings
|
|
|
|
9.7
|
|
|
|
|
17.7
|
|
|
|
|
32.3
|
|
Proceeds from repayments of notes
receivable, net
|
|
|
|
17.5
|
|
|
|
|
15.3
|
|
|
|
|
15.1
|
|
Acquisitions, net of cash acquired
and business divestitures
|
|
|
|
(9.9
|
)
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
Other, net
|
|
|
|
3.2
|
|
|
|
|
4.3
|
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
$
|
(51.9
|
)
|
|
|
$
|
127.7
|
|
|
|
$
|
(25.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities in 2007 includes the
purchase of short-term investments in auction rate securities
during Q4. During 2006 we converted all of our short-term
investments in auction rate securities back to investments in
commercial paper.
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.
Capital expenditures continued to be less than depreciation,
which represented a source of cash.
Capital expenditures decreased in 2007 compared to 2006
primarily due to $18.0 and $6.0 in payments for the replacement
of a corporate aircraft that were made in 2006 and 2005,
respectively. Capital expenditures during 2007 included upgrades
to our information technology systems, modernization of our
manufacturing facilities and capital improvements to certain
office and showroom facilities.
Proceeds from the disposal of fixed assets in 2007 included
$11.4 related to the sale of domestic and international
manufacturing facilities and $7.5 related to fixture and
equipment sales. Proceeds from
23
the disposal of fixed assets in 2006 included $14.8 in proceeds
from the sale of the aircraft that we replaced and $9.8 from the
sale of a manufacturing facility in Kentwood, Michigan. Proceeds
from the disposal of fixed assets in 2005 primarily related to
the sale of domestic and international manufacturing facilities
and related equipment.
Acquisitions, net of cash acquired and business divestitures
related to the purchase of Softcare offset by the sale of a
small subsidiary of PolyVision in 2007. The 2006 amount relates
to investments in three small 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.
We have an outstanding commitment to purchase a corporate
aircraft that is intended to replace an existing aircraft. We
currently have $1.7 on deposit toward this purchase. We expect
to take delivery of the new aircraft in 2009 with a total
remaining commitment of $33.0. We expect to sell an existing
aircraft at near the same time.
Cash used in
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Cash Flow
DataFinancing Activities
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Repayments of short-term and
long-term debt, net
|
|
|
$
|
(9.8
|
)
|
|
|
$
|
(61.2
|
)
|
|
|
$
|
(28.8
|
)
|
Excess tax benefit from exercise
of stock options and vesting of restricted stock
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance, net of
repurchases
|
|
|
|
(54.0
|
)
|
|
|
|
8.8
|
|
|
|
|
4.1
|
|
Dividends paid
|
|
|
|
(67.2
|
)
|
|
|
|
(49.2
|
)
|
|
|
|
(35.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
$
|
(127.1
|
)
|
|
|
$
|
(101.6
|
)
|
|
|
$
|
(60.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We used cash in financing activities in 2007 primarily to return
value to shareholders through common stock repurchases and
dividend payments. We declared and paid common stock dividends
of $0.45 per share in 2007, $0.33 per share in 2006
and $0.24 per share in 2005. The dividend declared by the
Board of Directors was $0.13, $0.12, $0.10 and $0.10 in Q4, Q3,
Q2 and Q1 2007, respectively. During Q1 2008, we announced an
increase in the dividend to $0.15 per share, payable in Q1 2008.
This increase is expected to use additional cash of
approximately $2.9 in Q1 2008 compared to Q4 2007. We believe
this dividend level can be supported throughout 2008 by our
existing cash balances and projected operating performance.
The Board of Directors previously authorized share repurchases
of up to 11 million shares. During 2007, the Board of
Directors authorized additional share repurchases aggregating
$100.0. During 2007, we repurchased 2.2 million shares of
our Class A and 2.3 million shares of our Class B
common stock for a total of $77.3, fulfilling the remainder of
the 11 million share authorization and using $15.4 of the
$100.0 authorization. See Item 5: Market for
Registrants Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities and Note 10 to
the consolidated financial statements for additional information.
We issued 1.8 million shares of Class A common stock
in 2007 for proceeds of $23.3 related to the exercise of
employee stock options. See Note 12 to the consolidated
financial statements for further discussion regarding our
stock-based incentive plans.
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 the
liability. In certain cases, we also guarantee completion of
contracts for our dealers. Due to the contingent nature of
guarantees, the full value of the guarantees are not recorded on
our consolidated balance sheets;
24
however, we have reserves recorded to cover potential losses.
See Note 13 to the consolidated financial statements for
more information regarding financial instruments, concentrations
of credit risk, commitments, guarantees and contingencies.
Contractual
Obligations
Our contractual obligations as of February 23, 2007 are 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
|
|
|
$
|
255.1
|
|
|
|
$
|
5.1
|
|
|
|
$
|
0.4
|
|
|
|
$
|
249.6
|
|
|
|
$
|
|
|
Estimated interest on debt
obligations
|
|
|
|
73.2
|
|
|
|
|
16.4
|
|
|
|
|
32.5
|
|
|
|
|
24.3
|
|
|
|
|
|
|
Operating leases
|
|
|
|
246.6
|
|
|
|
|
50.2
|
|
|
|
|
81.3
|
|
|
|
|
58.0
|
|
|
|
|
57.1
|
|
Committed capital expenditures
|
|
|
|
36.3
|
|
|
|
|
13.7
|
|
|
|
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
|
4.4
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
243.2
|
|
|
|
|
54.2
|
|
|
|
|
60.7
|
|
|
|
|
35.9
|
|
|
|
|
92.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
858.8
|
|
|
|
$
|
144.0
|
|
|
|
$
|
197.5
|
|
|
|
$
|
367.8
|
|
|
|
$
|
149.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated debt as of February 23, 2007 was $255.1.
Our debt to total capital ratio was 17.4% at year-end. Of our
total debt, $249.4 is in the form of term notes due in 2012.
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
an outstanding commitment to purchase a new corporate aircraft
that is intended to replace an 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 9 to the consolidated financial statements for further
discussion regarding these plans.
The contractual obligations table above is current as of
February 23, 2007. 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.
25
Liquidity
facilities
Our total liquidity facilities as of February 23, 2007 were:
|
|
|
|
|
|
|
|
|
Amount
|
|
Global committed bank facility
|
|
|
$
|
200.0
|
|
Various uncommitted lines
|
|
|
|
87.5
|
|
|
|
|
|
|
|
Total credit lines available
|
|
|
|
287.5
|
|
Less: borrowings outstanding
|
|
|
|
3.5
|
|
|
|
|
|
|
|
Available capacity (subject to
covenant constraints)
|
|
|
$
|
284.0
|
|
|
|
|
|
|
|
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 as of February 23,
2007, 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.
Total consolidated debt as of February 23, 2007 was $255.1.
Our debt primarily consists of $249.4 in term notes due in 2012
with an effective interest rate of 6.3% See Note 8 to the
consolidated financial statements for additional information.
Our long-term debt rating is BBB- with a positive outlook from
Standard & Poors and Ba1 with a positive outlook
from Moodys Investor Service.
Critical
accounting policies
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 in 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 policies that typically involve a higher
degree of judgment, estimates and complexity are listed and
explained below. These policies 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 will be written down to
its estimated fair value. Goodwill is assigned to and the fair
value is tested at the reporting unit level. During the third
and fourth quarters of 2007, we made a number of changes in our
organizational structure and certain key leadership positions,
which resulted in changes to our segment reporting. Based on
these changes, we changed our reporting units used to test
goodwill for impairment. We evaluated goodwill using the
following ten reporting units where the goodwill is
recordedBrayton, Designtex, Financial Services, IDEO,
International, Metro, North America excluding consolidated
dealers, North America dealers, PolyVision and Softcare.
During Q4 2007, 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
26
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 because these are the two reporting units
where we could obtain comparable market data.
The DCF analysis was based on the present value of projected
cash flows and a residual value and used 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. 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 (below) the underlying reported value of the goodwill as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
Enterprise Value in Excess of (Below) Reported Goodwill
|
|
|
|
|
Discount
|
|
|
|
Discounted
|
|
|
|
Market
|
|
|
|
|
Rate
|
|
|
|
Cash Flow
|
|
|
|
Value
|
|
Reporting
Unit
|
|
|
Used
|
|
|
|
Valuation
|
|
|
|
Approach
|
|
Brayton
|
|
|
|
12.5
|
%
|
|
|
$
|
52.8
|
|
|
|
|
n/a
|
(1)
|
Designtex
|
|
|
|
12.5
|
%
|
|
|
|
41.2
|
|
|
|
|
n/a
|
(1)
|
Financial Services
|
|
|
|
9.5
|
%
|
|
|
|
3.0
|
|
|
|
|
n/a
|
(1)
|
IDEO
|
|
|
|
12.5
|
%
|
|
|
|
32.6
|
|
|
|
|
n/a
|
(1)
|
International
|
|
|
|
10.0
|
%
|
|
|
|
495.0
|
|
|
|
|
442.0
|
|
Metro
|
|
|
|
12.5
|
%
|
|
|
|
18.8
|
|
|
|
|
n/a
|
(1)
|
North America, excluding
consolidated dealers
|
|
|
|
10.0
|
%
|
|
|
|
1,629.2
|
|
|
|
|
1,507.2
|
|
North America dealers
|
|
|
|
9.5
|
%
|
|
|
|
29.2
|
|
|
|
|
n/a
|
(1)
|
PolyVision
|
|
|
|
12.0
|
%
|
|
|
|
(8.3
|
)
|
|
|
|
n/a
|
(1)
|
Softcare
|
|
|
|
12.5
|
%
|
|
|
|
40.2
|
|
|
|
|
n/a
|
(1)
|
|
|
|
(1) |
|
The MVA was not calculated for these reporting units as there is
no comparable market data available to make these calculations
meaningful. |
The available enterprise value for PolyVision was less than
reported goodwill in the first step of our impairment testing
which indicated an impairment and required us to perform the
second step of the goodwill impairment test. The second step
required us to determine the implied fair value of PolyVision to
compare it to the reported value. Based on this analysis, we
recorded a total impairment charge of $10.7, of which $3.3
related to goodwill and $7.4 related to intangible assets.
27
For each reporting unit other than PolyVision, the available
enterprise value in excess of 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 excess amounts above to the following amounts:
|
|
|
|
|
|
|
|
|
|
|
Available
Enterprise Value in Excess of Reported Goodwill
|
|
Using a 1.0%
Increase in the Discount Rate
|
|
|
|
|
Discounted
|
|
|
|
Market
|
|
|
|
|
Cash Flow
|
|
|
|
Value
|
|
Reporting
Unit
|
|
|
Valuation
|
|
|
|
Approach
|
|
Brayton
|
|
|
$
|
44.8
|
|
|
|
|
n/a
|
(1)
|
Designtex
|
|
|
|
32.2
|
|
|
|
|
n/a
|
(1)
|
Financial Services
|
|
|
|
1.5
|
|
|
|
|
n/a
|
(1)
|
IDEO
|
|
|
|
28.6
|
|
|
|
|
n/a
|
(1)
|
International
|
|
|
|
406.0
|
|
|
|
|
397.0
|
|
Metro
|
|
|
|
15.8
|
|
|
|
|
n/a
|
(1)
|
North America, excluding
consolidated dealers
|
|
|
|
1,382.2
|
|
|
|
|
1,383.2
|
|
North America dealers
|
|
|
|
14.2
|
|
|
|
|
n/a
|
(1)
|
Softcare
|
|
|
|
35.2
|
|
|
|
|
n/a
|
(1)
|
|
|
|
(1) |
|
The MVA was not calculated for these reporting units as there is
no comparable market data available to make these calculations
meaningful. |
As of February 23, 2007, we had $213.4 of goodwill recorded
on our consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
Recorded
|
|
Reporting
Unit
|
|
|
Goodwill
|
|
Brayton
|
|
|
$
|
22.2
|
|
Designtex
|
|
|
|
38.3
|
|
Financial Services
|
|
|
|
2.3
|
|
IDEO
|
|
|
|
6.0
|
|
International
|
|
|
|
42.7
|
|
Metro
|
|
|
|
2.6
|
|
North America, excluding
consolidated dealers
|
|
|
|
8.2
|
|
North America dealers
|
|
|
|
33.9
|
|
PolyVision
|
|
|
|
49.7
|
|
Softcare
|
|
|
|
7.5
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
213.4
|
|
|
|
|
|
|
|
We also performed an impairment analysis on our other intangible
assets not subject to amortization using an income approach
based on the cash flows attributable to the related products.
Our intangible assets not subject to amortization consist of
trademarks within the PolyVision reporting unit. As of the
valuation date, the fair value of these intangible assets was
$5.8 less than the recorded value. The $5.8 impairment charge
was part of the $10.7 total impairment charge described above.
For our intangible assets subject to amortization and our other
long-lived assets including property, plant and equipment, an
impairment analysis is performed at least annually. In
accordance with SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, 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 determined if the
asset was recoverable. We then compared the undiscounted cash
flows over the assets remaining life to the carrying
value. As of the valuation date, the fair value of
PolyVisions intangible assets subject to amortization was
$1.6 less than the recorded value. The $1.6 impairment charge
was part of the $10.7 total impairment charge described above.
28
See Notes 2, 5 and 7 to the consolidated financial
statements for more information regarding goodwill, other
intangible assets and property, plant and equipment.
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 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 9 to the
consolidated financial statements for more information regarding
employee benefit plan obligations including a sensitivity
analysis.
Allowances for
Credit Losses
The allowances for credit losses related to accounts receivable,
notes receivable and our investments in leases is 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. This
process is based on estimates, and ultimate losses may differ
from those estimates. Receivable balances are written off when
we determine that 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
has not been 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. See further discussion
regarding concentrations of credit risk in Note 13 to the
consolidated financial statements.
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 for these carryforwards are recognized to
the extent that realization of these benefits is considered more
likely than not. We estimate a tax benefit from the operating
loss carryforwards before valuation allowance of $101.5, but we
have recorded a valuation allowance of $27.1 which reduces our
estimated tax benefit to $74.4. Additionally, we have recorded a
valuation allowance of $1.7 against our tax credit carryforwards
which reduces our estimated tax benefit to $22.5. It is
considered more likely than not that a combined benefit of $96.9
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
29
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. We cannot be assured that we
will be able to realize these future tax benefits or that future
valuation allowances will not be required. A 10% decrease in the
expected amount of benefit to be realized on the carryforwards
would result in a decrease in net income of approximately $9.7.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
|
|
|
|
Carryforwards
|
|
|
Tax Credit
|
February 23,
2007
|
|
|
(tax
effected)
|
|
|
Carryforwards
|
Total carryforwards
|
|
|
$
|
101.5
|
|
|
|
$
|
24.2
|
|
Valuation allowance
|
|
|
|
(27.1
|
)
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit
|
|
|
$
|
74.4
|
|
|
|
$
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
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 27% of our consolidated revenue in
2007 and 25% in 2006. We actively manage the foreign currency
exposures that are associated with committed foreign currency
purchases and sales created in the normal course of business at
the local entity level. Exposures that cannot be naturally
offset within a local entity to an immaterial amount are often
hedged with foreign currency derivatives or netted with
offsetting exposures at other entities.
Changes in foreign exchange rates that had the largest impact on
translating our international operating profit for 2007 related
to the Euro and the Canadian dollar versus the U.S. dollar.
We estimate that a 10% devaluation of the U.S. dollar
against the local currencies would have increased our operating
income by approximately $8.7 in 2007 and $1.6 in 2006, assuming
no changes other than the exchange rate itself. However, this
quantitative measure has inherent limitations. The sensitivity
analysis disregards
30
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 and
accumulated in Other Comprehensive Income within
shareholders equity 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 23, 2007, the
cumulative net foreign currency translation adjustments reduced
shareholders equity by $24.6.
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 2007, net transaction gains
were $4.1.
See Notes 2 and 13 to the consolidated financial statements
for further discussion of derivative instruments.
Interest Rate
Risk
We are exposed to interest rate risk primarily on our cash and
cash equivalents, short-term investments, notes receivable, and
short-term borrowings. Substantially all of our interest rates
on our borrowings were fixed during 2007; thus our interest rate
risk was minimized on our debt.
Our cash and cash equivalents and short-term investments are
primarily invested in short-dated instruments. We estimate that
a 1.0 percentage point change in interest rates would have
been immaterial to our results of operations for 2007 or 2006.
See Note 2 to the consolidated financial statements for
further discussion of our cash and cash equivalents and
short-term investments.
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 that 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 $10.4 and $9.3 in 2007 and 2006,
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 6 to the consolidated financial statements for
further discussion of our investments in company-owned life
insurance.
31
|
|
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 of the
Company. 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.
The 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
accounting principles generally accepted in the United States of
America, 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, a system of internal
control over financial reporting can provide only reasonable
assurance and may not prevent or detect 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
the Companys system of internal control over financial
reporting was effective as of February 23, 2007.
BDO Seidman, LLP, the independent registered certified public
accounting firm that audited our financial statements included
in this
Form 10-K,
has also audited managements assessment of the
effectiveness of the Companys internal control over
financial reporting, as stated in their report which is included
herein.
32
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
STEELCASE INC.
GRAND RAPIDS, MICHIGAN
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Steelcase Inc. maintained effective
internal control over financial reporting as of
February 23, 2007, 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. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of 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, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A 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, managements assessment that Steelcase Inc.
maintained effective internal control over financial reporting
as of February 23, 2007, is fairly stated, in all material
respects, based on the COSO criteria. Also in our opinion,
Steelcase Inc. maintained, in all material respects, effective
internal control over financial reporting as of
February 23, 2007, 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 23, 2007 and February 24, 2006, and the
related consolidated statements of income, changes in
shareholders equity and cash flows for each of the three
years in the period ended February 23, 2007 and our report
dated April 19, 2007 expressed an unqualified opinion.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
April 19, 2007
33
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 23, 2007 and
February 24, 2006 and the related consolidated statements
of income, changes in shareholders equity, and cash flows
for each of the three years in the period ended
February 23, 2007. Our audits also included the financial
statement schedule for the three years in the period ended
February 23, 2007 as 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 and schedule, 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 23, 2007 and
February 24, 2006 and the results of their operations and
their cash flows for each of the three years in the period ended
February 23, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the financial statement schedule presents fairly, in
all material respects, the information set forth therein.
As discussed in Note 3 to the Consolidated Financial
Statements, the Company changed its method of accounting
for share-based compensation and its method of accounting
for defined benefit pension and other postretirement plans.
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 23, 2007, 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 19, 2007 expressed an unqualified opinion
thereon.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
April 19, 2007
34
STEELCASE INC.
CONSOLIDATED
STATEMENTS OF INCOME
(in millions,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Revenue
|
|
|
$
|
3,097.4
|
|
|
|
$
|
2,868.9
|
|
|
|
$
|
2,613.8
|
|
Cost of sales
|
|
|
|
2,128.2
|
|
|
|
|
1,989.4
|
|
|
|
|
1,859.9
|
|
Restructuring costs
|
|
|
|
21.3
|
|
|
|
|
33.2
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
947.9
|
|
|
|
|
846.3
|
|
|
|
|
745.7
|
|
Operating expenses
|
|
|
|
831.8
|
|
|
|
|
758.1
|
|
|
|
|
722.3
|
|
Restructuring costs
|
|
|
|
2.4
|
|
|
|
|
5.7
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
113.7
|
|
|
|
|
82.5
|
|
|
|
|
18.2
|
|
Interest expense
|
|
|
|
(18.5
|
)
|
|
|
|
(18.1
|
)
|
|
|
|
(20.9
|
)
|
Interest income
|
|
|
|
25.9
|
|
|
|
|
11.1
|
|
|
|
|
6.7
|
|
Other income, net
|
|
|
|
3.5
|
|
|
|
|
0.9
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income tax expense (benefit)
|
|
|
|
124.6
|
|
|
|
|
76.4
|
|
|
|
|
5.0
|
|
Income tax expense (benefit)
|
|
|
|
17.7
|
|
|
|
|
27.5
|
|
|
|
|
(6.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
106.9
|
|
|
|
|
48.9
|
|
|
|
|
11.7
|
|
Gain on sale of net assets of
discontinued operations, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.08
|
|
Gain on sale of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.08
|
|
Gain on sale of discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
35
STEELCASE INC.
CONSOLIDATED
BALANCE SHEETS
(in millions,
except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
527.2
|
|
|
|
$
|
423.8
|
|
Short-term investments
|
|
|
|
33.1
|
|
|
|
|
|
|
Accounts receivable, net of
allowances of $23.7 and $32.1
|
|
|
|
352.6
|
|
|
|
|
366.3
|
|
Inventories
|
|
|
|
144.0
|
|
|
|
|
147.9
|
|
Deferred income taxes
|
|
|
|
60.8
|
|
|
|
|
80.3
|
|
Other current assets
|
|
|
|
111.9
|
|
|
|
|
109.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
1,229.6
|
|
|
|
|
1,128.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of
accumulated depreciation of $1,356.0 and $1,506.6
|
|
|
|
477.1
|
|
|
|
|
524.8
|
|
Company-owned life insurance
|
|
|
|
209.2
|
|
|
|
|
196.6
|
|
Deferred income taxes
|
|
|
|
151.7
|
|
|
|
|
154.6
|
|
Goodwill
|
|
|
|
213.4
|
|
|
|
|
211.1
|
|
Other intangible assets, net of
accumulated amortization of $53.4 and $47.9
|
|
|
|
64.6
|
|
|
|
|
73.7
|
|
Other assets
|
|
|
|
53.8
|
|
|
|
|
55.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
2,399.4
|
|
|
|
$
|
2,344.5
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
36
STEELCASE INC.
CONSOLIDATED
BALANCE SHEETS(Continued)
(in millions,
except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
$
|
222.0
|
|
|
|
$
|
189.6
|
|
Short-term borrowings and current
portion of long-term debt
|
|
|
|
5.1
|
|
|
|
|
261.8
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
|
|
Employee compensation
|
|
|
|
162.7
|
|
|
|
|
127.9
|
|
Employee benefit plan obligations
|
|
|
|
34.2
|
|
|
|
|
34.1
|
|
Workers compensation claims
|
|
|
|
25.1
|
|
|
|
|
28.5
|
|
Income taxes payable
|
|
|
|
24.7
|
|
|
|
|
28.9
|
|
Product warranties
|
|
|
|
22.9
|
|
|
|
|
21.4
|
|
Other
|
|
|
|
147.4
|
|
|
|
|
144.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
644.1
|
|
|
|
|
836.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
Long-term debt less current
maturities
|
|
|
|
250.0
|
|
|
|
|
2.2
|
|
Employee benefit plan obligations
|
|
|
|
191.1
|
|
|
|
|
239.7
|
|
Other long-term liabilities
|
|
|
|
76.3
|
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
|
517.4
|
|
|
|
|
303.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
1,161.5
|
|
|
|
|
1,139.6
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 82,077,630 and
72,482,658 issued and outstanding
|
|
|
|
225.4
|
|
|
|
|
205.5
|
|
Class B Convertible Common
Stock-no par value; 475,000,000 shares authorized,
64,768,219 and 77,007,160 issued and outstanding
|
|
|
|
34.0
|
|
|
|
|
104.4
|
|
Additional paid-in capital
|
|
|
|
6.3
|
|
|
|
|
3.4
|
|
Accumulated other comprehensive
loss
|
|
|
|
(1.3
|
)
|
|
|
|
(39.1
|
)
|
Deferred
compensationrestricted stock
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
Retained earnings
|
|
|
|
973.5
|
|
|
|
|
933.8
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
1,237.9
|
|
|
|
|
1,204.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
|
$
|
2,399.4
|
|
|
|
$
|
2,344.5
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
37
STEELCASE INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in millions,
except 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 27, 2004
|
|
|
|
147,979,587
|
|
|
|
$
|
123.2
|
|
|
|
$
|
166.6
|
|
|
|
$
|
0.2
|
|
|
|
$
|
(40.8
|
)
|
|
|
$
|
(1.4
|
)
|
|
|
$
|
957.0
|
|
|
|
$
|
1,204.8
|
|
|
|
|
|
|
Common stock conversion
|
|
|
|
|
|
|
|
|
31.7
|
|
|
|
|
(31.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
336,668
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
Issuance of restricted stock, net
|
|
|
|
258,900
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
Performance share and restricted
units expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3
|
|
|
|
|
7.3
|
|
Minimum pension liability, net of
$0.8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
(1.2
|
)
|
Derivative adjustments, net of $1.0
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
|
1.6
|
|
Dividends paid ($0.24 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.6
|
)
|
|
|
|
(35.6
|
)
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.7
|
|
|
|
|
12.7
|
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 25, 2005
|
|
|
|
148,575,155
|
|
|
|
|
162.5
|
|
|
|
|
134.9
|
|
|
|
|
1.3
|
|
|
|
|
(33.1
|
)
|
|
|
|
(3.1
|
)
|
|
|
|
934.1
|
|
|
|
|
1,196.6
|
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock conversion
|
|
|
|
|
|
|
|
|
30.5
|
|
|
|
|
(30.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
982,563
|
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.2
|
|
|
|
|
|
|
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 restricted
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
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
RSUs converted to common stock
|
|
|
|
31,000
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share and restricted
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
|
|
Reversal of minimum pension
liability under SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0
|
|
Recognition of prior service
cost & net loss under SFAS No. 158, net of
$15.8 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
$
|
144.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
38
STEELCASE INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
101.4
|
|
|
|
|
119.4
|
|
|
|
|
127.6
|
|
Goodwill and intangible asset
impairment charges
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal and write-down of
fixed assets, net
|
|
|
|
3.9
|
|
|
|
|
4.5
|
|
|
|
|
5.8
|
|
Deferred income taxes
|
|
|
|
30.9
|
|
|
|
|
0.2
|
|
|
|
|
(13.7
|
)
|
Pension and post-retirement benefit
cost
|
|
|
|
7.1
|
|
|
|
|
11.9
|
|
|
|
|
17.1
|
|
Restructuring payments, net of
accrued charges
|
|
|
|
(3.9
|
)
|
|
|
|
(2.8
|
)
|
|
|
|
(7.6
|
)
|
Excess tax benefit from exercise of
stock options and vesting of restricted stock
|
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
|
4.3
|
|
|
|
|
2.3
|
|
|
|
|
(1.9
|
)
|
Changes in operating assets and
liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
24.3
|
|
|
|
|
(1.4
|
)
|
|
|
|
(5.7
|
)
|
Inventories
|
|
|
|
5.4
|
|
|
|
|
(17.0
|
)
|
|
|
|
(15.8
|
)
|
Other assets
|
|
|
|
(47.2
|
)
|
|
|
|
(24.7
|
)
|
|
|
|
(21.1
|
)
|
Accounts payable
|
|
|
|
23.4
|
|
|
|
|
16.9
|
|
|
|
|
7.9
|
|
Accrued expenses and other
liabilities
|
|
|
|
17.2
|
|
|
|
|
17.3
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
|
280.5
|
|
|
|
|
175.5
|
|
|
|
|
114.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(58.2
|
)
|
|
|
|
(71.9
|
)
|
|
|
|
(49.2
|
)
|
Purchases of short-term investments
|
|
|
|
(33.1
|
)
|
|
|
|
|
|
|
|
|
(459.2
|
)
|
Sales of short-term investments
|
|
|
|
|
|
|
|
|
131.6
|
|
|
|
|
407.8
|
|
Proceeds from disposal of fixed
assets
|
|
|
|
18.9
|
|
|
|
|
39.3
|
|
|
|
|
19.8
|
|
Proceeds from repayments of lease
fundings
|
|
|
|
9.7
|
|
|
|
|
17.7
|
|
|
|
|
32.3
|
|
Proceeds from repayments of notes
receivable, net
|
|
|
|
17.5
|
|
|
|
|
15.3
|
|
|
|
|
15.1
|
|
Proceeds from sales of leased assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
Acquisitions, net of cash acquired
and business divestitures
|
|
|
|
(9.9
|
)
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
Other, net
|
|
|
|
3.2
|
|
|
|
|
4.3
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
|
(51.9
|
)
|
|
|
|
127.7
|
|
|
|
|
(25.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
|
257.4
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
|
(260.3
|
)
|
|
|
|
(58.9
|
)
|
|
|
|
(28.0
|
)
|
Repayments of lines of credit, net
|
|
|
|
(6.9
|
)
|
|
|
|
(2.3
|
)
|
|
|
|
(0.8
|
)
|
Excess tax benefit from exercise of
stock options and vesting of restricted stock
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance
|
|
|
|
23.3
|
|
|
|
|
12.2
|
|
|
|
|
4.1
|
|
Common stock repurchases
|
|
|
|
(77.3
|
)
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
Dividends paid
|
|
|
|
(67.2
|
)
|
|
|
|
(49.2
|
)
|
|
|
|
(35.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
|
(127.1
|
)
|
|
|
|
(101.6
|
)
|
|
|
|
(60.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
|
1.9
|
|
|
|
|
5.6
|
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
|
103.4
|
|
|
|
|
207.2
|
|
|
|
|
34.4
|
|
Cash and cash equivalents,
beginning of year
|
|
|
|
423.8
|
|
|
|
|
216.6
|
|
|
|
|
182.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
year
|
|
|
$
|
527.2
|
|
|
|
$
|
423.8
|
|
|
|
$
|
216.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
|
$
|
36.2
|
|
|
|
$
|
14.7
|
|
|
|
$
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
$
|
21.4
|
|
|
|
$
|
18.5
|
|
|
|
$
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
39
STEELCASE
INC.
NOTES TO
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, with approximately
13,000 permanent employees. We operate manufacturing and
distribution center facilities in 29 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 two
reportable segments: North America and International, plus an
Other category. Additional information about our
reportable segments is contained in Note 14.
|
|
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 obtained as well as
consolidation of variable interest entities in which we are
designated as the primary beneficiary in accordance with
Financial Accounting Standards Board (FASB)
Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46(R)), as amended.
All intercompany transactions and balances have been eliminated
in consolidation.
In 2007 and 2006, we reported the operating results from our
North America segment service activity on a gross basis in our
income statement. In 2005, this activity was reported on a net
cost recovery basis in operating expenses since activities such
as asset management and related consulting were viewed as an
extension of product sales support. The impact of this reporting
change was an increase in revenue of $56.9 and $49.2, an
increase in cost of sales of $50.1 and $44.0 and an increase in
operating expenses of $6.8 and $5.2 in 2007 and 2006,
respectively. The change had no impact on operating income, but
it slightly reduced operating income as a percent of sales.
Our fiscal year ends on the last Friday in February with each
fiscal quarter including 13 weeks. Each of the last three
fiscal years being presented, February 23, 2007,
February 24, 2006, and February 25, 2005, consisted of
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 per share data,
data presented as a percentage or as otherwise indicated.
Certain immaterial 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 their functional currencies. We translate assets and
liabilities to U.S. dollar equivalents at exchange rates in
effect as of the balance sheet date. We translate Consolidated
Statements of Income accounts at average rates for the period.
Translation adjustments are not included in determining net
income, but are disclosed in Accumulated other comprehensive
income (loss) within the Consolidated Statements of Changes
in Shareholders
40
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Equity until a sale or substantially complete liquidation of the
net investment in the International subsidiary takes place.
Foreign currency transaction gains and losses are recorded in
Other income, net and included net gains of $4.1 and $1.9
in 2007 and 2006, respectively.
Revenue consists substantially of product sales and related
service revenues. 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 delivery or upon acceptance
by the end customer. Revenue from services are recognized when
the services have been rendered.
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 $478.3 as of February 23,
2007 and $379.6 as of February 24, 2006.
Short-term investments represent auction rate securities which
are highly liquid, variable-rate debt securities. While the
underlying securities have maturities in excess of one year, the
interest rate is reset through auctions that are typically held
every 7 to 28 days, creating short-term investments. The
securities trade at par on the auction dates. Interest is paid
at the end of each auction period. Because of the short interest
rate reset period, the book value of the securities approximates
fair value.
|
|
|
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. This
process is based on estimates, and ultimate losses may differ
from those estimates. Receivable balances are written off when
we determine that 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
has not been 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. There were $1.5 of notes
receivable on which we are receiving payments over 90 days
past due and still accruing interest as of February 23,
2007.
Notes receivable includes project financing, asset-based lending
and term financing with dealers. Notes receivable of $27.1 and
$37.6 as of February 23, 2007 and February 24, 2006,
respectively, are included within Other current assets
and Other assets on the Consolidated Balance Sheets.
The allowance for uncollectible notes receivable was $3.1 and
$8.0 at February 23, 2007 and February 24,
41
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2006, respectively. Notes receivable from affiliates were $8.9
and $3.4 at February 23, 2007 and February 24, 2006,
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,
Equipment and Other Long-lived Assets
|
Property and equipment, including some internally-developed
internal use software, is stated at cost. Major improvements
that materially extend the useful life of the asset 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 life of the
assets.
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.
Due to the restructuring and plant consolidation activities over
the past several years, we are currently holding for sale
certain facilities that are no longer in use. These assets are
stated at the lower of cost or net realizable value and are
included within Other current assets on the Consolidated
Balance Sheets since we expect them to be sold within one year.
See Note 5 for further 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 and is included in the Consolidated Balance
Sheets. 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.
Long-term investments primarily include privately-held equity
securities. These investments are carried at the lower of cost
or estimated fair value. For these non-quoted investments, we
review the assumptions underlying the performance of the
privately-held companies to determine if declines in fair value
below our cost basis are
other-than-temporary.
Most recent historic and projected operating losses by investees
are considered in the review. If a determination is made that a
decline in fair value below the cost basis is
other-than-temporary,
the investment is written down to its estimated fair value.
Gains on these investments are recorded when they are realized.
At February 23, 2007 and February 24, 2006, the
carrying value of these investments was $4.3 and $6.1,
respectively, and was included within Other assets on the
Consolidated Balance Sheets.
42
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Financial Services provides furniture leasing services to
end-use customers and to dealers for showroom financing. Since
2004, we originate leases for customers and earn an origination
fee for that service, but we use third parties to provide lease
funding. Our net investment in leases was $7.3 and $17.0 at
February 23, 2007 and February 24, 2006, respectively,
and was included within Other current assets and Other
assets on the Consolidated Balance Sheets. The balance in
the investment in leases represents leases we funded before
2004, which continue to run-off.
|
|
|
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. In Q4 2007, we recognized a goodwill
impairment charge of $3.3 related to one of our subsidiaries in
the Other category. See Note 7 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 or double declining
balance 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 Q4 2007, we recognized an
intangible asset impairment charge of $7.4 related to one of our
subsidiaries in the Other category. See Note 7 for
additional information.
We are self-insured for certain losses relating to workers
compensation claims and product liability claims. We have
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 certain actuarial assumptions followed in the
insurance industry and our historical experience. Our accrual
for workers compensation claims included in the
accompanying Consolidated Balance Sheets was $25.1 and $28.5 at
February 23, 2007 and February 24, 2006, respectively.
Other accrued expenses in the accompanying Consolidated Balance
Sheets include a reserve for estimated future product liability
costs of $8.3 and $8.5 incurred at February 23, 2007 and
February 24, 2006, respectively.
We are also self-insured for a portion of domestic employee and
retiree medical benefits. We pay self-insured claims directly
from the general assets of the Company. At February 23,
2007 and February 24, 2006, the estimate for incurred but
not reported employee medical, dental, and short-term disability
claims was $1.8 and $2.1, respectively, and is recorded within
Accrued expenses: Other in our Consolidated Balance
Sheets.
We offer a lifetime warranty on most Steelcase and Turnstone
brand products delivered in the United States and Canada,
subject to certain exceptions. For products delivered in the
rest of the world, 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
43
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
Product
Warranty
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Balance at beginning of period
|
|
|
$
|
21.4
|
|
|
|
$
|
20.9
|
|
|
|
$
|
20.9
|
|
Accruals for warranty charges
|
|
|
|
14.1
|
|
|
|
|
11.8
|
|
|
|
|
5.9
|
|
Settlements and adjustments
|
|
|
|
(12.6
|
)
|
|
|
|
(11.3
|
)
|
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
$
|
22.9
|
|
|
|
$
|
21.4
|
|
|
|
$
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental expenditures related to current operations are
expensed or capitalized as appropriate. Expenditures related to
an existing condition allegedly caused by past operations, that
are not associated with current or future revenue generation,
are expensed. Liabilities are recorded on an undiscounted basis
unless site-specific plans indicate the amount and timing of
cash payments are fixed or reliably determinable. Generally, the
timing of these accruals coincides with completion of a
feasibility study or our commitment to a formal plan of action.
We have ongoing monitoring and identification processes to
assess how the activities, with respect to the known exposures,
are progressing against the accrued cost estimates, as well as
to identify other potential remediation sites that are presently
unknown. See Note 13 for additional information.
|
|
|
Asset
Retirement Obligations
|
In 2006, we adopted FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligationsan Interpretation of FASB Statement
No. 143 (FIN 47). FIN 47
clarifies the term conditional asset retirement
obligation as used in SFAS No. 143 and requires
a liability to be recorded if the fair value of the obligation
can be reasonably estimated. Asset retirement obligations
covered by FIN 47 include those for which an entity has a
legal obligation to perform an asset retirement activity,
however the timing or method of settling the obligation are
conditional on a future event that may or may not be within the
control of the entity. FIN 47 also clarifies when an entity
would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation.
In accordance with FIN 47, we record all known asset
retirement obligations for which the liabilitys fair value
can be reasonably estimated, including certain asbestos removal,
asset decommissioning and contractual lease restoration
obligations. See Note 13 for additional information.
We also have known conditional asset retirement obligations,
such as certain asbestos remediation and asset decommissioning
activities to be performed in the future, that are not
reasonably estimable due to insufficient information about the
timing and method of settlement of the obligation. Accordingly,
these obligations have not been recorded in the consolidated
financial statements. A liability for these obligations will be
recorded in the period when sufficient information regarding
timing and method of settlement becomes available to make a
reasonable estimate of the liabilitys fair value. In
addition, there may be conditional asset retirement obligations
that we have not yet discovered, and therefore, these
obligations also have not been included in the consolidated
financial statements.
|
|
|
Shipping and
Handling Expenses
|
We record shipping and handling related expenses in Cost of
sales in our Consolidated Statements of Income.
44
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Research and development expenses, which are expensed as
incurred, were $44.2 for 2007, $47.4 for 2006 and $41.1 for 2005.
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. We cannot be assured that we will be able to
realize these future tax benefits or that future valuation
allowances will not be required. To the extent that available
evidence raises doubt about the realization of a deferred income
tax asset, a valuation allowance is established.
Tax liabilities are recognized when, despite our belief that our
tax return positions are supportable, we believe that certain
positions are likely to be challenged and may not be fully
sustained upon review by the tax authorities. These liabilities
are included within Income taxes payable in the
Consolidated Balance Sheets. To the extent that the final tax
outcome is different than the amounts recorded, such differences
impact income tax expense in the period in which such
determination is made. Interest and penalties, if any, related
to potential tax assessments are included in income tax expense.
See Note 11 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 12 for additional information.
Diluted earnings per share includes the effects of shares and
potential shares issued under our stock incentive plans.
However, diluted earnings per share does not reflect the effects
of 1.1 million options for 2007, 1.3 million options
for 2006, and 4.5 million options for 2005 because those
potential shares were not dilutive.
45
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2005
|
|
Net earnings
|
|
|
$
|
106.9
|
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
Weighted-average shares
outstanding for basic net earnings per share
|
|
|
|
148.5
|
|
|
|
|
148.3
|
|
|
|
|
147.9
|
|
Effect of dilutive stock-based
compensation
|
|
|
|
1.3
|
|
|
|
|
0.4
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares
outstanding for diluted net earnings per share
|
|
|
$
|
149.8
|
|
|
|
$
|
148.7
|
|
|
|
$
|
148.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share of common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
0.72
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
$
|
0.71
|
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
The components of accumulated other comprehensive income (loss)
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Currency
|
|
|
|
Pension
|
|
|
|
Derivative
|
|
|
|
Other
|
|
|
|
|
Translation
|
|
|
|
Liability
|
|
|
|
Adjustments
|
|
|
|
Comprehensive
|
|
|
|
|
Adjustments
|
|
|
|
(net of
tax)
|
|
|
|
(net of
tax)
|
|
|
|
Income
(Loss)
|
|
February 27, 2004
|
|
|
$
|
(33.7
|
)
|
|
|
$
|
(4.4
|
)
|
|
|
$
|
(2.7
|
)
|
|
|
$
|
(40.8
|
)
|
Other comprehensive income (loss)
|
|
|
|
7.3
|
|
|
|
|
(1.2
|
)
|
|
|
|
1.6
|
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 25, 2005
|
|
|
|
(26.4
|
)
|
|
|
|
(5.6
|
)
|
|
|
|
(1.1
|
)
|
|
|
|
(33.1
|
)
|
Other comprehensive income (loss)
|
|
|
|
(8.1
|
)
|
|
|
|
1.0
|
|
|
|
|
1.1
|
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2006
|
|
|
|
(34.5
|
)
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
(39.1
|
)
|
Other comprehensive income
|
|
|
|
9.9
|
|
|
|
|
26.6
|
|
|
|
|
1.3
|
|
|
|
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23, 2007
|
|
|
$
|
(24.6
|
)
|
|
|
$
|
22.0
|
|
|
|
$
|
1.3
|
|
|
|
$
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our stock-based compensation consists of performance shares,
performance units, restricted stock, restricted stock units and
non-qualified stock options. In December 2004, the FASB issued
SFAS No. 123(R) to expand and clarify
SFAS No. 123, Accounting for Stock-Based
Compensation, in several areas. The Statement requires
companies to measure the cost of employee services received in
exchange for an award of an equity instrument based on the
grant-date fair value of the award and was effective for awards
issued beginning in Q1 2007. 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 to be granted. For stock options, fair 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 2007, 2006 or 2005.
See Note 12 for additional information.
46
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The carrying amount 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 debt approximates fair value since the stated rate of
interest approximates a market rate of interest.
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 the risk or
cost to the Company. We do not use derivatives for speculative
or trading purposes.
We recognize the fair value of all derivative instruments as
either assets or liabilities on our Consolidated Balance Sheets.
Fair value is based on market quotes because the instruments
that we enter into are actively traded instruments. The
accounting for changes in the fair value of a derivative depends
on the use of the derivative. We formally document our hedging
relationships, including identification of the hedging
instruments and the hedged items, as well as our risk management
objectives and strategies for undertaking hedge transactions. On
the date that a derivative is entered into, we designate it as
one of the following types of hedging instruments, and we
account for the derivative as follows:
A hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset
or liability is declared as a cash flow hedge. A cash flow hedge
requires that the effective portion of the change in the fair
value of a derivative instrument be recognized in Other
Comprehensive Income (Loss), net of tax, and reclassified
into earnings in the same line as the hedged item in the period
or periods during which the hedged transaction affects earnings.
Any ineffective portion of a derivative instruments change
in fair value is immediately recognized in earnings.
A hedge of a fixed rate asset, liability or an unrecognized firm
commitment is declared as a fair value hedge. A fair value hedge
requires that the gain or loss on the value of the hedge is
recognized in earnings in the period of change, together with
the offsetting gain or loss on the hedged item attributable to
the risk being hedged. The impact of this is that the
ineffective portion of the hedge will not offset and the net
effect of that is immediately recognized in earnings.
A hedge of a net investment in a foreign operation is declared
as a net investment hedge. A net investment hedge requires that
the effective portion of the change in fair value of a
derivative instrument be recognized in Other Comprehensive
Income (Loss), net of tax, and reclassified into earnings in
the period in which the net investment is liquidated. We
determine if the hedge is effective if the net investment
balance exceeds the notional amount of the forward contracts.
A derivative used as a natural hedging instrument whose change
in fair value is recognized to act as an economic hedge against
changes in the values of the hedged item is declared as a
natural hedge.
47
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For derivatives designated as natural hedges, changes in fair
value are reported in earnings in the Consolidated Statements of
Income.
See Note 13 for additional information.
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 in 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.
|
|
3.
|
NEW ACCOUNTING
STANDARDS
|
In July 2006, the FASB adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 prescribes a
recognition threshold and measurement attribute for financial
statement recognition of positions taken or expected to be taken
in income tax returns. Only tax positions meeting a
more-likely-than-not threshold of being sustained
are recognized under FIN 48. FIN 48 also provides
guidance on derecognition, classification of interest and
penalties and accounting and disclosures for annual and interim
financial statements. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The cumulative effect of
the changes arising from the initial application of FIN 48
is required to be reported as an adjustment to the opening
balance of retained earnings in the period of adoption. We do
not believe the adoption of FIN 48 will have a material
impact on the consolidated financial statements.
In June 2005, the Emerging Issues Task Force (EITF)
reached a consensus on EITF Issue
No. 04-5,
Investors Accounting for an Investment in a Limited
Partnership When the Investor is the Sole General Partner and
the Limited Partners Have Certain Rights (EITF
04-5),
which states that the general partner in a limited partnership
should presume that it controls and thus should consolidate the
limited partnership, unless the limited partners have either
(a) substantive ability to dissolve the limited partnership
or otherwise remove the general partner without cause or
(b) substantive participating rights. EITF
04-5 was
effective for the first reporting period in fiscal years
beginning after December 15, 2005. As a result of adopting
EITF 04-5,
during Q2 2007 we began consolidating certain non-furniture
partnerships related to one of our consolidated dealers that
were not previously consolidated. The impact of the
consolidation increased our 2007 revenue by $15.4 and operating
income by $1.4. The equity interest we hold does not share in
the net income of the subsidiary, under the terms of the
subsidiarys operating agreement. Accordingly, operating
income was eliminated within Other income, net in our
Consolidated Statement of Income. The impact of consolidating
these businesses did not have a material impact on our financial
statements.
At the beginning of 2007, we adopted the provisions of
SFAS No. 123(R), Share-Based Payment (revised 2004)
(SFAS 123(R)), using the modified
prospective transition method. The adoption of
SFAS No. 123(R) had the following impact in 2007:
Income from continuing operations before income
48
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
tax expense (benefit) was reduced by $1.1, and Net
income was reduced by $0.7. There was no impact on basic or
diluted earnings per share.
In November 2005, the FASB issued Staff Position
No. FAS 123(R)-3, Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards
(FSP). This FSP requires an entity to follow
either the transition guidance for the
additional-paid-in-capital
pool as prescribed in SFAS No. 123(R), or the
alternative method as described in the FSP. An entity that
adopts SFAS No. 123(R) using the modified prospective
application may make a one-time election to adopt the transition
method described in this FSP. An entity may take up to one year
from the later of its initial adoption of FAS 123(R) or the
effective date of this FSP to evaluate its available transition
alternatives and make its one-time election. We elected to adopt
the transition method as described in the FSP as of
February 23, 2007. The adoption of the FSP had no impact on
the consolidated financial statements.
Prior to the adoption of SFAS No. 123(R), our policy
was to expense share-based compensation using the fair-value
based method of accounting for all awards granted, modified or
settled in accordance with SFAS No. 123, Accounting
for Stock-Based Compensation.
The following table illustrates the effect on net income and
earnings per share if we had applied the fair value recognition
provisions of SFAS No. 123 Accounting for
Stock-Based Compensation to all outstanding awards. Further
disclosure of our stock incentive plans is presented in
Note 12.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
|
February 24,
|
|
|
|
February 25,
|
|
SFAS No. 123
Pro Forma Data
|
|
|
2006
|
|
|
|
2005
|
|
Net income, as reported
|
|
|
$
|
48.9
|
|
|
|
$
|
12.7
|
|
Add: Stock-based employee
compensation expense included in reported net income, net of
related tax effects
|
|
|
|
3.0
|
|
|
|
|
2.0
|
|
Deduct: Total stock-based employee
compensation expense determined under fair value based methods
for all awards, net of related tax effects
|
|
|
|
(3.2
|
)
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
|
$
|
48.7
|
|
|
|
$
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutedas reported
|
|
|
$
|
0.33
|
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutedpro forma
|
|
|
$
|
0.33
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
The reported and pro forma net income and earnings per share for
the year ended February 23, 2007 are the same because
stock-based compensation expense was calculated and recorded in
the financial statements in accordance with the provisions of
SFAS No. 123(R).
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. This statement clarifies the
definition of fair value, establishes a framework for measuring
fair value and expands the disclosures on fair value
measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. We have not
determined the effect, if any, the adoption of this statement
will have on our results of operations or financial position.
In September 2006, the FASB adopted SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements
No. 87, 106, and
132(R). SFAS No. 158 requires companies
to recognize a net liability or asset and an offsetting
adjustment to
49
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
accumulated other comprehensive income (loss) to report the
funded status of defined benefit pension and other
postretirement benefit plans. Additionally,
SFAS No. 158 requires companies to measure plan assets
and obligations at their year-end balance sheet date. We adopted
this statement at the end of 2007 and recorded an increase to
Accumulated Other Comprehensive Income (Loss) within
shareholders equity of $25.8, a decrease to total assets
of $17.4 and a decrease to total liabilities of $43.2. See
Note 9 for additional information.
In September 2006, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
(SAB 108). SAB 108 provides guidance
on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year
financial statements for purposes of determining whether the
current years financial statements are materially
misstated. SAB 108 was effective for our fiscal year ended
February 23, 2007, and the adoption of SAB 108 had no
impact on our financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Inventories
|
|
|
2007
|
|
|
|
2006
|
|
Finished goods
|
|
|
$
|
86.4
|
|
|
|
$
|
87.2
|
|
Work in process
|
|
|
|
26.1
|
|
|
|
|
27.8
|
|
Raw materials
|
|
|
|
61.9
|
|
|
|
|
60.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174.4
|
|
|
|
|
175.3
|
|
LIFO reserve
|
|
|
|
(30.4
|
)
|
|
|
|
(27.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144.0
|
|
|
|
$
|
147.9
|
|
|
|
|
|
|
|
|
|
|
|
|
The portion of inventories determined by the LIFO method
aggregated $64.6 and $61.9 as of February 23, 2007 and
February 24, 2006, respectively. The effect of LIFO
liquidations on net income was not material in 2007, 2006 or
2005.
|
|
5.
|
PROPERTY AND
EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Property and
Equipment
|
|
|
(Years)
|
|
|
|
2007
|
|
|
|
2006
|
|
Land
|
|
|
|
|
|
|
|
$
|
44.0
|
|
|
|
$
|
51.1
|
|
Buildings and improvements
|
|
|
|
10 50
|
|
|
|
|
560.7
|
|
|
|
|
673.6
|
|
Machinery and equipment
|
|
|
|
3 15
|
|
|
|
|
920.9
|
|
|
|
|
1,007.4
|
|
Furniture and fixtures
|
|
|
|
5 8
|
|
|
|
|
88.0
|
|
|
|
|
88.4
|
|
Leasehold improvements
|
|
|
|
3 10
|
|
|
|
|
73.9
|
|
|
|
|
71.7
|
|
Capitalized software
|
|
|
|
3 10
|
|
|
|
|
135.0
|
|
|
|
|
128.2
|
|
Construction in progress
|
|
|
|
|
|
|
|
|
10.6
|
|
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,833.1
|
|
|
|
|
2,031.4
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
(1,356.0
|
)
|
|
|
|
(1,506.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
477.1
|
|
|
|
$
|
524.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on property and equipment approximated
$92.0 for 2007, $110.7 for 2006, and $119.1 for 2005. The
estimated cost to complete construction in progress at
February 23, 2007 was $13.7.
The net book value of capitalized software was $17.0 and $19.1
at February 23, 2007 and February 24, 2006,
respectively. The majority of capitalized software has an
estimated useful life of 3 to
50
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5 years. Approximately 28.0% of the gross value of
capitalized software relates to our core enterprise resource
planning system, which has an estimated useful life of
10 years.
Included in Other current assets on our Consolidated
Balance Sheets is property, plant and equipment that has been
reclassified as assets held for sale, which totaled $10.5 at
February 23, 2007 and $15.8 at February 24, 2006. The
majority of the February 23, 2007 balance is related to our
Strasbourg, France campus which is expected to be sold during
2008. Real estate that is held for sale is stated at the lower
of depreciated cost or fair market value. After actively
marketing the property, we determined that the fair value of the
Strasbourg campus was below the depreciated cost, and we
recognized impairments of $1.4 and $2.4 in 2007 and 2006,
respectively. These charges were recorded in the International
segment in Restructuring costs within our Consolidated
Statements of Income.
During Q4 2007, we finalized the sale of our Grand Rapids
manufacturing campus for net proceeds of $10.0 with the
potential of receiving additional proceeds of $4.0 contingent
upon the completion of certain future events. Any future
proceeds will be recognized when received. As a result of this
sale, we recognized a loss of $3.7. During 2006, we recognized
an impairment on the value of the Grand Rapids campus of $11.0,
based upon actively marketing the property. These charges were
recorded in the North America segment in Restructuring costs
within our Consolidated Statements of Income.
|
|
6.
|
COMPANY-OWNED
LIFE INSURANCE
|
Investments in company-owned life insurance policies, 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 $191.1 at
February 23, 2007 with a related deferred tax asset of
approximately $72.5, do not represent a committed funding
source. See Note 9 for additional information. 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
credit ratings range from A- to AAA, and totaled $209.2 at
February 23, 2007 and $196.6 at February 24, 2006.
Investments in company-owned life insurance consisted of $98.3
in traditional whole life policies and $110.9 in variable life
insurance policies as of February 23, 2007. 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 23, 2007, the investments
in the variable life policies were allocated 53% in fixed income
securities and 47% in equity securities. The valuation of these
investments can fluctuate depending on changes in market
interest rates and equity values. The annual net changes in
market valuation, normal insurance expenses and any death
benefit gains are reflected in the accompanying Consolidated
Statements of Income. The net effect of these changes in 2007,
2006 and 2005 resulted in pre-tax income of approximately $15.9,
$10.7 and $9.2, respectively. In 2007 and 2006, approximately
40% and 60% of these credits were recorded to Cost of sales
and Operating expenses, respectively. In 2005,
approximately 60% and 40% of these credits were recorded to
Cost of sales and Operating expenses, respectively.
|
|
7.
|
GOODWILL &
OTHER INTANGIBLE ASSETS
|
Goodwill is assigned and the fair value is tested at the
reporting unit level. Goodwill impairment exists if the net book
value of a reporting unit exceeds its estimated fair value.
Reportable units in our
51
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
North America segment include North America, North America
dealers and Softcare. Reportable units in our Other category
include Brayton, Metro, Designtex, PolyVision and IDEO.
A summary of the changes in goodwill during the years ended
February 23, 2007 and February 24, 2006, by reportable
segment, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
America
|
|
|
|
International
|
|
|
|
Other
|
|
|
|
Total
|
|
February 25, 2005
|
|
|
$
|
42.2
|
|
|
|
$
|
42.7
|
|
|
|
$
|
125.3
|
|
|
|
$
|
210.2
|
|
Acquisitions
|
|
|
|
1.5
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Dispositions and adjustments
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At February 23, 2007 and February 24, 2006, our other
intangible assets and related accumulated amortization consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
February 23,
2007
|
|
|
|
February 24,
2006
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Other Intangible
Assets
|
|
|
(Years)
|
|
|
|
Gross
|
|
|
|
Amortization
|
|
|
|
Net
|
|
|
|
Gross
|
|
|
|
Amortization
|
|
|
|
Net
|
|
Intangible assets subject to
amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
|
|
12.1
|
|
|
|
$
|
52.2
|
|
|
|
$
|
25.0
|
|
|
|
$
|
27.2
|
|
|
|
$
|
53.8
|
|
|
|
$
|
20.2
|
|
|
|
$
|
33.6
|
|
Trademarks
|
|
|
|
9.7
|
|
|
|
|
29.7
|
|
|
|
|
24.8
|
|
|
|
|
4.9
|
|
|
|
|
29.4
|
|
|
|
|
25.7
|
|
|
|
|
3.7
|
|
Non-compete agreements
|
|
|
|
6.2
|
|
|
|
|
1.1
|
|
|
|
|
0.3
|
|
|
|
|
0.8
|
|
|
|
|
1.0
|
|
|
|
|
0.1
|
|
|
|
|
0.9
|
|
Other
|
|
|
|
6.2
|
|
|
|
|
8.6
|
|
|
|
|
3.3
|
|
|
|
|
5.3
|
|
|
|
|
5.2
|
|
|
|
|
1.9
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
91.6
|
|
|
|
|
53.4
|
|
|
|
|
38.2
|
|
|
|
|
89.4
|
|
|
|
|
47.9
|
|
|
|
|
41.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets not subject
to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
n/a
|
|
|
|
|
26.4
|
|
|
|
|
|
|
|
|
|
26.4
|
|
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
|
|
|
|
|
|
$
|
118.0
|
|
|
|
$
|
53.4
|
|
|
|
$
|
64.6
|
|
|
|
$
|
121.6
|
|
|
|
$
|
47.9
|
|
|
|
$
|
73.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of our annual assessment in Q4 2007, we recognized
an impairment charge on goodwill and other intangible assets of
$3.3 and $7.4, respectively, related to our PolyVision reporting
unit, within our Other category. These charges were recorded
within Operating expenses in our Consolidated Statement
of Income.
During 2007, we acquired Softcare Innovations, Inc and its
sister company, DJRT Manufacturing, Inc. As a result of the
purchase price allocations, goodwill of $7.9 was recorded.
Additionally, intangible assets of $4.0 were recorded including
$0.5 of trademarks, $0.2 of non-compete agreements, and $3.3
52
STEELCASE
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of intangible assets classified as other in the
table above. The intangible assets had a combined
weighted-average useful life of 5.5 years.
For 2007, we recorded amortization expense of $9.4 on intangible
assets subject to amortization compared to $8.7 for 2006 and
$8.5 for 2005. 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:
|
|
|
|
|
|
Estimated
Amortization Expense
|
Year Ending
February
|
|
|
Amount
|
2008
|
|
|
$
|
8.2
|
|
2009
|
|
|
|
7.4
|
|
2010
|
|
|
|
5.0
|
|
2011
|
|
|
|
3.8
|
|
2012
|
|
|
|
3.4
|
|
As events, such as acquisitions, dispositions or impairments,
occur in the future, these amounts may vary.
|
|
8.
|
SHORT-TERM
BORROWINGS AND LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
Range
|
|
|
|
Fiscal Year
|
|
|
|
February 23,
|
|
|
|
February 24,
|
|
Debt
Obligations
|
|
|
at
February 23, 2007
|
|
|
|
Maturity
Range
|
|
|
|
2007
|
|
|
|
2006
|
|
U.S. dollar obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes (1)
|
|
|
|
6.5
|
%
|
|
|
|
2012
|
|
|
|
$
|
249.4
|
|
|
|
$
|
249.8
|
|
Revolving credit facilities (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|