-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V+WFjC2ngV8oQeFYz7Q5zO4Hc6PK7NCrj7t13DXpsOkEn4ldHQdDq7FP+9XpLzH/ 8PzX8yGxJ0/5CfV/5e9t+Q== 0001045969-01-501425.txt : 20020411 0001045969-01-501425.hdr.sgml : 20020411 ACCESSION NUMBER: 0001045969-01-501425 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010525 FILED AS OF DATE: 20011116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEELCASE INC CENTRAL INDEX KEY: 0001050825 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE FURNITURE (NO WOOD) [2522] IRS NUMBER: 380819050 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13873 FILM NUMBER: 1794739 BUSINESS ADDRESS: STREET 1: 901 44TH ST CITY: GRAND RAPIDS STATE: MI ZIP: 49508 BUSINESS PHONE: 6162472710 MAIL ADDRESS: STREET 1: 901 44TH ST CITY: GRAND RAPIDS STATE: MI ZIP: 49508 10-Q/A 1 d10qa.txt AMENDMENT #1 TO FORM 10-Q DATED MAY 25, 2001 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Amendment No. 1 to FORM 10-Q (Mark One) [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 25, 2001 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-13873 ---------------- STEELCASE INC. Michigan 38-0819050 (State of incorporation) (I.R.S. Employer Identification No.) 901 44th Street Grand Rapids, Michigan 49508 (Address of principal executive (Zip Code) offices) (616) 247-2710 Registrant's telephone number, including area code ---------------- 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 [_] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common stock, as of the latest practicable date: As of June 29, 2001, the Registrant had outstanding 32,533,640 shares of Class A Common Stock and 114,793,215 shares of Class B Common Stock. Exhibit index located on page number 21. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Company's financial condition and results of operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements of the Company and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in the 10-K Report. Results of Operations Three Months Ended May 25, 2001 Compared to the Three Months Ended May 26, 2000 The following table sets forth condensed consolidated statement of income data as a percentage of revenues for the three months ended May 25, 2001 and May 26, 2000.
Three Months Ended --------------- May 25, May 26, 2001 2000 ------- ------- Revenues..................................................... 100.0% 100.0% Cost of sales................................................ 67.1 65.0 ----- ----- Gross profit................................................. 32.9 35.0 Operating expenses........................................... 27.3 24.8 ----- ----- Operating income............................................. 5.6 10.2 Non-operating items, net..................................... (1.2) 0.6 ----- ----- Income before taxes.......................................... 4.4 10.8 Provision for income taxes................................... 1.6 4.2 ----- ----- Net income................................................... 2.8% 6.6% ===== =====
- -------- Overview--Steelcase Inc. Revenues. Consolidated revenues of $868.3 million for Q1 2002 decreased 9.0% compared to Q1 2001 revenues of $953.7 million. The downturn in the furniture industry that began in North America during the fourth quarter of fiscal 2001 has deepened and during Q1 2002 it spread to significant European and other international markets. The general economic slowdown resulted in a significant slowing of business activity which led to declines in most of the Company's product lines. However, revenues from new products, defined as products introduced in the past five years, increased, making up 28% of the Q1 2002 revenues, compared to 25% in fiscal 2001 ("2001"). The Company believes that revenues for the remainder of fiscal 2002 could fall by as much as 15% versus the prior year. We continue to make efforts at accelerating profit improvement projects across the entire business to help alleviate some of the margin deterioration we have seen in recent months. Gross Profit. The Company's gross profit as a percentage of revenues decreased in Q1 2002 to 32.9%, down from 35.0% in Q1 2001. The gross margin decline in Q1 2002 was primarily due to factors discussed in recent quarters, including the shift in product mix toward new products, which have lower initial margins. Additionally, the significant decline in revenues led to a decline in manufacturing overhead absorption. The overall decrease in gross margin for Q1 2002 was partially offset by lower variable compensation, as well as continued cost-reduction efforts including the elimination of over 1,700 temporary and full-time positions. 11 Operating Expenses. The Company's operating expense dollars for Q1 2002 remained flat with Q1 2001 as the company remained focused on cost reduction initiatives, including recent workforce reductions, as well as lower variable compensation. The Company's operating expenses as a percentage of revenues increased to 27.3% in Q1 2002, from 24.8% in Q1 2001. This increase was primarily due to the Company's inability to leverage operating expenses because of the significant decrease in revenues. The Company is focused on reducing operating expenses for the remainder of 2002; however, with continued uncertainty regarding growth throughout the office furniture industry, significant improvement as a percentage of revenues is not anticipated. Operating Income. For the reasons set forth above, operating income decreased to $48.6 million in Q1 2002, compared to $97.4 million in Q1 2001. The Company's operating income as a percentage of revenues decreased in Q1 2002 to 5.6%, from 10.2% in Q1 2001. The Company expects operating income to be impacted by a sustained decrease in revenues throughout the remainder of the fiscal year. Interest expense; Other income (expense), net; and Income taxes
Three Months Ended --------------- May 25, May 26, 2001 2000 ------- ------- Interest expense............................................. $ 5.6 $ 4.6 ===== ===== Other income (expense), net: Interest income............................................ $ 4.2 $ 2.3 Gain (loss) on dealer transitions.......................... (8.6) -- Gain on disposal of property and equipment................. -- 8.8 Miscellaneous, net......................................... (0.1) (0.4) ----- ----- $(4.5) $10.7 ===== ===== Effective income tax rate.................................... 37.0% 39.0%
Interest expense for Q1 2002 increased to $5.6 million, from $4.6 million in Q1 2001. The increase was a result of increased borrowings related to significant year-end payouts, including contributions to the employee trust fund and year-end bonus payouts. Other income (expense), net, for Q1 2002 decreased to $(4.5) million, from $10.7 million in Q1 2001. Both Q1 2002 and Q1 2001 were impacted by non- recurring items. The non-recurring item in Q1 2002 was a $4.4 million after- tax charge for reserves related to dealer transition financing. The non- recurring item in Q1 2001 related to a $5.6 million after-tax gain on the sale of a non-operating facility. Income tax expense as a percentage of income before taxes ("the effective tax rate") approximated 37.0% in Q1 2002 and 39.0% in Q1 2001. The effective tax rate has decreased due to the implementation of international tax planning strategies in Europe, Japan and the United States. Net Income. For the reasons set forth above, the Company reported an earnings decrease of 61.8% for Q1 2002. Net income in Q1 2002 of $23.9 million, ($0.16 basic and diluted earnings per share) included the aforementioned $4.4 million ($0.03 per share) after-tax charge for reserves related to dealer transition financing. Net income in Q1 2001 of $62.6 million ($0.41 basic and diluted earnings per share) included a $5.6 million ($0.04 per share) after-tax gain on the sale of a non-operating facility. Excluding non-recurring charges in both years, net income decreased 50.4% in Q1 2002 compared to Q1 2001. The Company expects earnings for the full year to be impacted by the decrease in revenues and, as such, anticipates earnings in the range of $0.65 - $0.75 per share for 2002. 12 Segment Disclosure The Company operates on a worldwide basis within three reportable segments: two geographic furniture segments and a Financial Services segment. The North America furniture segment includes the U.S., Canada, the Steelcase Design Partnership and the Company's IDEO and Attwood subsidiaries. The International furniture segment includes the rest of the world, with the majority of operations in Europe. North America The following table sets forth condensed consolidated statement of income data, and data as a percentage of revenues for the Company's North America segment for the three months ended May 25, 2001 and May 26, 2000 (in millions).
Three Months Ended --------------------- May 25, May 26, 2001 2000 --------- --------- Revenues............................................. $ 687.4 $ 769.4 Gross profit percentage.............................. 31.2% 34.1% Operating expense percentage......................... 25.3% 23.1% Operating income..................................... $ 40.6 $ 85.0 Operating income percentage.......................... 5.9% 11.0%
Revenues. North America revenues in Q1 2002 decreased by 10.7% compared to Q1 2001 revenues. This decrease is primarily the result of the reduced volume of large facilities projects, which has been driven by industry-wide reductions in facilities spending due to the general economic downturn in North America over the past several months. This decline has been felt across most product lines, as well as within the Steelcase Design Partnership ("SDP"), whose revenues decreased by 10.3% compared to the same period in the prior year. New products, however, continued to gain traction in Q1 2002, within the segment, and now comprise nearly 26% of total North America revenues compared to 18% for Q1 2001. Despite new product growth during Q1 2002, the Company estimates segment revenues could decrease up to 15% for fiscal 2002 as compared to the prior year. Gross Profit. North America gross profit as a percentage of revenues decreased in Q1 2002 to 31.2%, from 34.1% in Q1 2001, a decline of 2.9 percentage points. The gross margin decline in Q1 2002 was primarily due to factors discussed in recent quarters, including the shift in product mix toward newer products, which have lower initial margins. Additionally, the significant decline in revenues led to a decline in manufacturing overhead absorption. The overall decrease in gross margin for Q1 2002 was partially offset by lower variable compensation, as well as continued cost-reduction efforts including the elimination of over 1,700 temporary and full-time positions within the business unit. Operating Expenses. North America operating expenses as a percentage of revenues increased in Q1 2002 to 25.3%, from 23.1% in Q1 2001, an increase of 2.2 percentage points. Operating expenses in dollars actually decreased slightly; however, this was not proportionate to the decrease in revenues. The overall decrease in operating expenses was the result of lower variable compensation and the elimination of over 400 temporary and full-time positions during Q1 2002. The Company is focused on reducing operating expenses for the remainder of 2002; however, with continued uncertainty regarding growth throughout the office furniture industry, significant improvement as a percentage of revenues is not anticipated. Operating Income. For the reasons set forth above, North America operating income decreased to $40.6 million in Q1 2002, down from $85.0 million in Q1 2001, a decrease of 52.2%. The segment's operating income as a percentage of revenues decreased in Q1 2002 to 5.9%, from 11.0% in Q1 2001, a decrease of 5.1 percentage points. 13 International The following table sets forth condensed consolidated statement of income data, and data as a percentage of revenues for the Company's International segment for the three months ended May 25, 2001 and May 26, 2000 (in millions).
Three Months Ended --------------------- May 25, May 26, 2001 2000 --------- --------- Revenues............................................. $ 159.8 $ 167.8 Gross profit percentage.............................. 31.4% 32.7% Operating expense percentage......................... 30.5% 27.5% Operating income..................................... $ 1.4 $ 8.8 Operating income percentage.......................... 0.9% 5.2%
Revenues. International revenues in Q1 2002 decreased by 4.8% compared to Q1 2001 revenues; however, in local currency Q1 2002 revenues increased 1.7% compared to Q1 2001. The revenue growth is a result of the delay in major European markets experiencing some degree of economic slowdown. However, the economic slowdown seems to have moved to major European markets during the quarter and we anticipate revenues to soften as we progress through the fiscal year. Although new products continued to perform well, making up more than half of International revenues for Q1 2002, the Company estimates International revenues could decrease up to 15% for fiscal 2002 as compared to the prior year, assuming constant currency levels. Gross Profit. International gross profit as a percentage of revenues decreased in Q1 2002 to 31.4%, from 32.7% in Q1 2001, a decline of 1.3 percentage points. The decrease was attributable to lower volume in Germany and the UK which impacted the ability to absorb fixed overhead costs in these units. Additionally, unfavorable product mix also dampened gross margins in France. Operating Expenses. International operating expenses as a percentage of revenues increased in Q1 2002 to 30.5%, from 27.5% in Q1 2001, an increase of 3.0 percentage points. This increase is primarily due to higher infrastructure and operational spending which was based on higher anticipated levels of revenue. In light of the extension of the economic downturn into major European markets, the International business segment has begun to focus on reducing operating expenses for the remainder of 2002. Operating Income. For the reasons set forth above, International operating income decreased to $1.4 million in Q1 2002, down from $8.8 million in Q1 2001, a decrease of 84.1%. The segment's operating income as a percentage of revenues decreased in Q1 2002 to 0.9%, from 5.2% in Q1 2001, a decrease of 4.3 percentage points. Financial Services The following table sets forth condensed consolidated statement of income data, and data as a percentage of revenues for the Company's Financial Services segment for the three months ended May 25, 2001 and May 26, 2000 (in millions).
Three Months Ended --------------------- May 25, May 26, 2001 2000 --------- --------- Revenues............................................. $ 21.1 $ 16.5 Net financing margin percentage...................... 27.5% 16.4% General and administrative expense percentage........ 8.1% 12.2% Operating income..................................... $ 4.1 $ 0.7 Operating income percentage.......................... 19.4% 4.2% Return on equity percentage.......................... 12.3% 2.4%
14 Revenues. Financial Services revenues in Q1 2002 increased by 27.9% compared to Q1 2001 revenues, primarily as a result of increased lease finance revenues. The long-term contractual nature of the Financial Services segment makes it less volatile and less subject to short-term fluctuations in the economy. Net Financing Margin. Financial Services operating expenses are split into two separate components--financing expenses and general and administrative expenses. Finance revenues less financing expenses equals net financing margin; net financing margin less general and administrative expenses equals operating income. Net financing margin increased in Q1 2002 to 27.5%, from 16.4% in Q1 2001, an increase of 11.1 percentage points. Margin improvement was primarily due to increased lease finance revenues, and lower interest costs, which increased the margin spreads associated with the lease portfolio. General and Administrative Expenses. General and administrative expenses as a percentage of revenues decreased in Q1 2002 to 8.1%, from 12.2% in Q1 2001, a decrease of 4.1 percentage points. General and administrative expense dollars decreased slightly, while financing revenue increased, resulting in improved operating leverage of the segment. Operating Income. For the reasons set forth above, Financial Services operating income increased more than five-fold, to $4.1 million in Q1 2002, from $0.7 million in Q1 2001. The segment's operating income as a percentage of revenues increased in Q1 2002 to 19.4%, from 4.2% in Q1 2001, an increase of 15.2 percentage points. Liquidity and Capital Resources Historically, the Company's cash and capital requirements have been satisfied through cash generated from operating activities. The Company's financial position at May 25, 2001 included cash, cash equivalents and short- term investments of $135.8 million. These funds, in addition to cash generated from future operations and available credit facilities, are expected to be sufficient to finance the known or foreseeable liquidity and capital needs of the Company. During 2001, the Company received ratings of its long-term debt from both Moody's (A3) and Standard & Poor's (A-). In April 2001, the Company established a $400.0 million global credit facility that replaces the North American and European credit facilities that were previously utilized. The Company intends to use the global credit facility as a backstop for the commercial paper program that was implemented June 20, 2001. Total debt at May 25, 2001 aggregated $654.0 million, which was approximately 29% of total capitalization of the Company. Approximately 72% of total debt relates to the Financial Services business segment. The Company also holds $585.3 million of interest bearing assets, of which $551.0 is held through its Financial Services business segment. Cash provided by operating activities The following table sets forth condensed consolidated statement of cash flow data for the three months ended May 25, 2001 and May 26, 2000 (in millions).
Three Months Ended ---------------- May 25, May 26, 2001 2000 ------- ------- Net income................................................. $ 23.9 $ 62.6 Depreciation and amortization.............................. 41.9 37.5 Changes in operating assets and liabilities................ (51.6) (70.2) Other, net................................................. 5.2 0.1 ------ ------ Net cash provided by operating activities.................. $ 19.4 $ 30.0 ====== ======
15 Cash provided by operating activities totaled $19.4 million in Q1 2002, compared to $30.0 million in Q1 2001. The cash provided by operations resulted primarily from net income excluding non-cash charges such as depreciation and amortization, net of changes in operating working capital. The decrease in Q1 2002 is attributable primarily to the Company's lower net income. Cash used in investing activities The following table sets forth condensed consolidated statement of cash flow data for the three months ended May 25, 2001 and May 26, 2000 (in millions).
Three Months Ended ---------------- May 25, May 26, 2001 2000 ------- ------- Capital expenditures...................................... $(30.2) $(60.2) Proceeds from the disposal of assets...................... -- 47.9 Net decrease (increase) in notes receivable and leased assets................................................... 22.0 (53.4) Other, net................................................ (26.2) (19.1) ------ ------ Net cash used in investing activities..................... $(34.4) $(84.8) ====== ======
Cash used in investing activities totaled $34.4 million in Q1 2002 and $84.8 million in Q1 2001. The decrease is primarily due to lower capital expenditures and the net decrease in notes receivable and leased assets. This effect was partially offset by the fact that Q1 2001 contained $47.9 million in proceeds from the disposal of assets. The Company's capital expenditures were $30.2 million in Q1 2002 compared to $60.2 million in Q1 2001, reflecting the Company's effort to focus on tightly controlling capital spending, and shifting dollars to investments that can drive short-term paybacks. The Company will continue to control capital expenditures throughout 2002, expecting the total for the year to be under $150 million. The Company expects to fund these capital expenditures primarily through cash generated from operations. The Company continues to invest in its leasing portfolio, which includes both direct financing and operating leases of office furniture products. The Company's net investment in leased assets increased to $450.1 as of May 25, 2001, compared to $440.6 million as of February 23, 2001. The Company expects to fund future investments in leased assets primarily through its lease receivables transfer facility. Cash provided by financing activities The following table sets forth condensed consolidated statement of cash flow data for the three months ended May 25, 2001 and May 26, 2000 (in millions).
Three Months Ended --------------- May 25 May 26, 2001 2000 ------ ------- Short-term and long-term debt, net.......................... $110.2 $ 64.4 Common stock issuance (repurchase), net..................... (3.9) (7.2) Dividends paid.............................................. (16.2) (16.6) ------ ------ Net cash provided by financing activities................... $ 90.1 $ 40.6 ====== ======
Cash provided by financing activities totaled $90.1 million in Q1 2002 and $40.6 million in Q1 2001. The Company made significant cash payments related to the funding of the employee trust fund and the payment of 16 year-end bonuses. These payments, along with the decrease in cash generated from operating activities, were responsible for the increase in borrowings during Q1 2002. The Company paid common stock dividends of $0.11 per share, or $16.2 million, and $0.11 per share, or $16.6 million, during the first three months of 2002 and 2001, respectively. On June 17, 1998 the Board of Directors authorized a share repurchase program for up to three million shares, which has since been expanded to 11 million shares authorized for repurchase. During the first three months of 2002, the Company repurchased 200,000 shares of Class A Common Stock for $2.6 million and 107,400 shares of Class B Common Stock for $1.4 million. Management anticipates that the stock repurchase program will not reduce the Company's tradable share float in the long run as it expects that Class B Common Stock will continue to convert to Class A Common Stock over time. Euro Conversion On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the euro. On January 1, 2001, Greece became the twelfth member country to establish a fixed conversion rate between their existing sovereign currency and the euro. There will be a transition period from January 1, 1999 through January 1, 2002, at which time all legal tender will convert to the euro. The transition period is anticipated to resolve difficulties in handling local currencies and the euro simultaneously, while remaining flexible to the market. The Company's primary exposure to the euro conversion is concentrated in Steelcase S.A. Steelcase S.A. has created an internal Euro Committee, a pan-European multifunctional team whose goal is to determine the impact of this currency change on products, markets and information systems. Based on the Euro Committee's work to date, the Company does not expect the euro conversion to have a material impact on Steelcase S.A.'s financial position, or on the Company as a whole. Forward Looking Statements From time to time, in written reports and oral statements, the company discusses its expectations regarding future performance. For example, certain portions of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations section contain various "forward-looking statements", including those relating to anticipated revenues, earnings, liquidity and capital resource needs and expenditures for the current fiscal year, as well as anticipated impacts of various recently issued accounting standards. Such statements involve certain risks and uncertainties that could cause actual results to vary. The company's performance may differ materially from that contemplated by such statements for a variety of reasons, including, but not limited to: competitive and general economic conditions domestically and internationally; changes in domestic and international government laws and regulations; competitive pricing pressure; pricing changes by the Company or its competitors; currency fluctuations (including the euro); changes in customer demand and order patterns; changes in relationships with customers, suppliers, employees and dealers; product (sales) mix; the success (including product performance and customer acceptance) of new products, current product innovations and platform simplification, and their impact on the company's manufacturing processes; possible acquisitions or divestitures by the company; the company's ability to reduce costs, including ramp-up costs associated with new products and to improve margins on new products; the impact of work force reductions (including elimination of temporary workers, hourly layoffs and salaried workforce reduction; the company's success in integrating acquired businesses, initiating and managing alliances and global sourcing, transitioning production of its products to other manufacturing facilities as a result of production rationalization and implementing technology initiatives; the sufficiency of the reserve established with regard to material and installations costs associated with Pathways product line improvements; changes in future business strategies and decisions; and other risks detailed in the company's Form 10-K for the year ended February 23, 2001and other filings with the Securities and Exchange Commission. 17 Recently Issued Accounting Standards SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities became effective for the Company beginning in the first quarter of fiscal year 2002. The adoption of SFAS No. 133 did not have a material effect on the Company's financial results; the related disclosure is included in the Notes to the Condensed Consolidated Financial Statements elsewhere in this document. On June 29, 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 establishes accounting and reporting standards for business combinations. SFAS No. 141 is not anticipated to have a material effect on the Company's financial results. SFAS No. 142 establishes accounting and reporting standards for goodwill and intangible assets, requiring impairment testing for goodwill and intangible assets, and the elimination of periodic amortization of goodwill and certain intangibles. Management intends to adopt the provisions of SFAS No. 142 during the Company's fiscal year 2003. The impact of this pronouncement on the Company's financial results is currently being evaluated. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Steelcase Inc. /s/ James P. Keane By: _________________________________ James P. Keane Senior Vice President--Finance and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Date: November 16, 2001 20 -----END PRIVACY-ENHANCED MESSAGE-----