<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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 August 27, 1999
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, 49508
MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
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 September 30, 1999, the
Registrant had outstanding 25,001,917 shares of Class A Common Stock and
127,481,808 shares of Class B Common Stock.
Exhibit index located on page 20.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STEELCASE INC. FORM 10-Q
FOR THE QUARTER ENDED AUGUST 27, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three and Six Months Ended August 27, 1999 and August 28, 1998..... 3
Condensed Consolidated Balance Sheets
As of August 27, 1999 and February 26, 1999........................ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended August 27, 1999 and August 28, 1998............... 5
Notes to Condensed Consolidated Financial Statements................ 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 11-17
Part II. Other Information
Item 5. Other Information............................................. 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
Signatures............................................................ 19
Exhibit Index......................................................... 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ------------------
AUG. 27, AUG. 28, AUG. 27, AUG. 28,
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................ $ 831.9 $ 704.0 $1,523.7 $1,376.3
Cost of sales........................ 550.3 438.8 988.7 857.9
--------- --------- -------- --------
Gross profit......................... 281.6 265.2 535.0 518.4
Selling, general and administrative
expenses............................ 214.9 173.4 385.6 348.3
--------- --------- -------- --------
Operating income..................... 66.7 91.8 149.4 170.1
Interest expense..................... (5.2) -- (6.2) --
Other income, net.................... 2.5 5.0 7.9 8.7
--------- --------- -------- --------
Income before provision for income
taxes and equity in net income of
joint ventures and dealers.......... 64.0 96.8 151.1 178.8
Provision for income taxes........... 26.2 36.6 58.9 67.9
--------- --------- -------- --------
Income before equity in net income of
joint ventures and dealer
transitions......................... 37.8 60.2 92.2 110.9
Equity in net income of joint
ventures and dealer transitions..... 0.4 2.5 2.7 5.8
--------- --------- -------- --------
Net income........................... $ 38.2 $ 62.7 $ 94.9 $ 116.7
========= ========= ======== ========
Earnings per share (basic and
diluted)............................ $ 0.25 $ 0.41 $ 0.62 $ 0.76
========= ========= ======== ========
Dividends per share of common stock.. $ 0.11 $ 0.10 $ 0.22 $ 0.20
========= ========= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
(UNAUDITED)
AUG. 27, FEB. 26,
ASSETS 1999 1999
------ ----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 23.4 $ 67.5
Accounts receivable, net.................................... 542.8 348.9
Notes receivable and leased assets.......................... 165.4 140.4
Inventories................................................. 150.4 96.5
Other current assets........................................ 120.6 84.1
-------- --------
Total current assets.................................... 1,002.6 737.4
Property and equipment, net................................... 874.7 739.0
Notes receivable and leased assets............................ 240.0 209.1
Joint ventures and dealer transitions......................... 45.6 210.4
Goodwill and other intangible assets, net..................... 392.3 99.6
Other assets.................................................. 213.4 187.0
-------- --------
Total assets............................................ $2,768.6 $2,182.5
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts and notes payable.................................. $ 254.1 $ 102.1
Short-term borrowings and current portion of long-term debt. 220.1 --
Accrued expenses:
Employee compensation..................................... 141.7 92.8
Employee benefit plan obligations......................... 45.5 51.8
Other..................................................... 255.7 200.1
-------- --------
Total current liabilities............................... 917.1 446.8
-------- --------
Long-term liabilities:
Long-term debt.............................................. 54.9 --
Employee benefit plan obligations........................... 227.3 222.8
Other long-term liabilities................................. 43.6 12.9
-------- --------
Total long-term liabilities............................. 325.8 235.7
-------- --------
Total liabilities....................................... 1,242.9 682.5
-------- --------
Shareholders' equity:
Common stock................................................ 358.6 379.4
Accumulated other comprehensive income...................... (29.6) (15.0)
Retained earnings........................................... 1,196.7 1,135.6
-------- --------
Total shareholders' equity.............................. 1,525.7 1,500.0
-------- --------
Total liabilities and shareholders' equity.............. $2,768.6 $2,182.5
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------
AUG. 27, AUG. 28,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 94.9 $116.7
Depreciation and amortization.............................. 62.9 51.3
Changes in current assets and liabilities, net of corporate
acquisitions.............................................. (92.0) 2.9
Other, net................................................. 15.7 8.2
------- ------
Net cash provided by operating activities.............. 81.5 179.1
------- ------
INVESTING ACTIVITIES
Capital expenditures....................................... (62.3) (75.0)
Corporate acquisitions, net of cash acquired............... (177.8) --
Other, net................................................. (14.9) (0.5)
------- ------
Net cash used in investing activities.................. (255.0) (75.5)
------- ------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt................... 41.0 --
Repayments of debt......................................... (7.5) --
Short-term borrowings, net................................. 150.5 --
Common stock issuance...................................... -- 24.8
Common stock repurchase.................................... (20.8) (8.0)
Dividends paid............................................. (33.8) (30.8)
------- ------
Net cash provided by (used in) financing activities...... 129.4 (14.0)
------- ------
Net increase (decrease) in cash and cash equivalents..... (44.1) 89.6
Cash and cash equivalents, beginning of period......... 67.5 103.1
------- ------
Cash and cash equivalents, end of period............... $ 23.4 $192.7
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals and adjustments)
considered necessary for a fair presentation of the condensed consolidated
financial statements have been included. Results for interim periods should
not be considered indicative of results to be expected for a full year.
Reference should be made to the consolidated financial statements contained in
the registrant's Annual Report on Form 10-K for the fiscal year ended February
26, 1999 (the "10-K Report"). For purposes hereof, "Steelcase Inc." or the
"Company" means Steelcase Inc. and its majority owned subsidiaries unless the
context requires otherwise.
The August 27, 1999 condensed consolidated balance sheet includes the
accounts and balances of Steelcase Strafor S.A. and subsidiaries ("Steelcase
Strafor"), which became a wholly-owned subsidiary of the Company effective
March 31, 1999. Additionally, the results of operations of Steelcase Strafor
for the three months ended June 30, 1999 have been consolidated with the
Company's results of operations for the three months ended August 27, 1999.
However, due to the effective date of the acquisition, and the fact that the
Company accounts for Steelcase Strafor on a two-month lag, the results of
operations of Steelcase Strafor for the three months ended March 31, 1999 have
not been consolidated with the Company's results of operations. The Company's
50% equity in net income of Steelcase Strafor for the three months ended March
31, 1999 and for the six months ended June 30, 1998 is included in equity in
net income of joint ventures and dealer transitions in the accompanying
condensed consolidated statements of income.
EARNINGS PER SHARE
The following table reconciles the numerator and denominators used in the
calculations of basic and diluted earnings per share ("EPS") (in millions):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
----------------- -----------------
AUG. 27, AUG. 28, AUG. 27, AUG. 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income numerator for both basic
and diluted EPS..................... $ 38.2 $ 62.7 $ 94.9 $116.7
====== ====== ====== ======
DENOMINATORS:
Denominator for basic EPS-Weighted
average common shares outstanding... 153.1 154.3 153.3 153.8
Potentially dilutive shares resulting
from stock options.................. 0.1 -- 0.1 --
------ ------ ------ ------
Denominator for diluted EPS.......... 153.2 154.3 153.4 153.8
====== ====== ====== ======
</TABLE>
6
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and all changes to
shareholders' equity, except those due to investments by owners and
distributions to owners. Comprehensive income and its components consist of
the following (in millions):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
----------------- -----------------
AUG. 27, AUG. 28, AUG. 27, AUG. 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income........................... $38.2 $62.7 $ 94.9 $116.7
Other comprehensive income:
Foreign currency translation
adjustments....................... (7.5) (3.6) (16.3) (8.6)
Unrealized gain (loss) on
investments....................... -- (0.6) 2.0 (0.6)
Minimum pension liabilities........ (0.3) -- (0.3) --
----- ----- ------ ------
Comprehensive income................. $30.4 $58.5 $ 80.3 $107.5
===== ===== ====== ======
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories are
valued based upon the last-in, first-out ("LIFO") method and the average cost
method, which approximates the first-in, first-out method.
Inventories consist of (in millions):
<TABLE>
<CAPTION>
AUG. 27, FEB. 26,
1999 1999
-------- --------
<S> <C> <C>
Finished goods.......................................... $ 73.9 $ 40.9
Work in process......................................... 36.5 32.3
Raw materials........................................... 87.5 70.8
------ ------
197.9 144.0
LIFO reserve............................................ (47.5) (47.5)
------ ------
$150.4 $ 96.5
====== ======
</TABLE>
At Aug. 27, 1999, inventories determined by the LIFO inventory method
amounted to $147.0 million, or approximately 74% of the Company's inventories.
ACQUISITION OF STEELCASE STRAFOR
On April 22, 1999, Steelcase Inc., through its wholly-owned French
subsidiary, Steelcase SAS, acquired the 50% equity interest in Steelcase
Strafor held by its joint venture partner, Strafor Facom S.A. The purchase was
effective as of March 31, 1999. As a part of this transaction, the Company
also acquired Strafor Facom S.A.'s 5% equity interest in Werndl BuroMobeL AG
("Werndl"), 3% equity interest in Pohlschroder GmbH, and 50% equity interest
in Details S.A. The purchase price paid to Strafor Facom S.A. for these equity
interests approximated $227 million including transaction costs of
approximately $2 million, and was funded by
7
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $75 million of existing cash balances, $111 million of short-
term borrowings and $41 million of long-term debt. For more information
regarding the acquisition of Steelcase Strafor, please refer to the Company's
Current Report on Form 8-K dated May 7, 1999 and amended June 16, 1999.
As a result of this acquisition, which was accounted for under the purchase
method of accounting, Steelcase Strafor is now wholly-owned by the Company.
Accordingly, the August 27, 1999 condensed consolidated balance sheet includes
the accounts and balances of Steelcase Strafor. Additionally, the results of
operations of Steelcase Strafor for the three months ended June 30, 1999 have
been consolidated with the Company's results of operations for the three
months ended August 27, 1999.
Management currently estimates that the excess of the aggregate cost of the
Steelcase Strafor acquisition over the historical book value of the net assets
acquired will be allocated and amortized as follows (in millions):
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
PERIOD AMOUNT AMORTIZATION
------------ ------ ------------
<S> <C> <C> <C>
Estimated fair value adjustment of
property, plant and equipment.......... 10 years $25.0 $2.5
Estimated intangible assets, including
patents, trademarks and other
identifiable intangible assets and 15 years to
goodwill............................... 40 years $95.1 $3.7
</TABLE>
The following unaudited pro forma data summarizes the combined results of
operations of the Company and Steelcase Strafor as if the acquisition had
occurred at the beginning of the six month period ended August 28, 1998, and
includes the effect of purchase accounting adjustments that are based upon
preliminary information and certain management estimates which are subject to
revision in future periods based on additional information, such as final
appraisals. In addition, the Steelcase Strafor results of operations include
the pro forma effects of the acquisition of Werndl, a business acquired by
Steelcase Strafor on December 16, 1998. No adjustment has been included in the
pro forma amounts for any anticipated cost savings or other synergies.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
----------------- -----------------
AUG. 27, AUG. 28, AUG. 27, AUG. 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Results of Operations (in
millions):
Revenues......................... $831.9 $852.4 $1,672.0 $1,668.7
Gross profit..................... 281.6 313.5 582.8 611.0
Operating income................. 66.7 102.6 158.3 196.0
Net income....................... 38.2 61.7 92.9 114.7
</TABLE>
8
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings and long-term debt consist of the following (in
millions):
<TABLE>
<CAPTION>
AUG. 27, FEB. 26,
1999 1999
-------- --------
<S> <C> <C>
Revolving credit facilities, interest rates ranging
from 4.97% to 6.70% (1).............................. $150.5 $ --
Notes payable to Strafor Facom S.A., 3.52% fixed rate
(2).................................................. 59.5 --
Note payable to bank, 7.00% fixed rate (3)............ 41.0 --
Other................................................. 24.0 --
------ -----
Total short-term borrowings and long-term debt...... 275.0 --
Short-term borrowings and current portion of long-term
debt................................................. (220.1) --
------ -----
Long-term debt...................................... $ 54.9 $ --
====== =====
</TABLE>
- --------
(1) In April 1999, the Company established a 364-day unsecured committed
revolving credit facility with various financial institutions under which
it may borrow up to $200.0 million. Borrowings under the facility expire
at various dates throughout the year depending on the borrowing terms,
which range from one to six months. Interest, which is due at maturity, is
based on LIBOR plus a margin for the applicable borrowing term. The
agreement, which is renewable annually for additional 364-day periods,
contains certain covenants, which include, among others, net worth,
interest coverage and debt ratio provisions.
In August 1999, the Company established an unsecured committed multicurrency
revolving credit facility with various financial institutions under which it
may borrow up to Euro ("EUR") 200.0 million or its equivalent in optional
currencies. The agreement is comprised of two tranches; tranche A is a EUR
75.0 million, 364 day term facility and tranche B is a EUR 125.0 million
five year term facility. Borrowings under these facilities expire at various
dates throughout the year depending on the borrowing terms. Interest, which
is due at maturity, is based on EURIBOR or LIBOR plus a margin for the
applicable borrowing term. The agreement contains certain covenants, which
include, among others, net worth, interest coverage and debt ratio
provisions.
Additionally, the Company has entered into agreements with certain financial
institutions, which provide for borrowings on unsecured non-committed short-
term credit facilities of up to $70 million and French francs 405.0 million
at variable interest rates determined by agreement at the time of borrowing.
These agreements expire within one year and are renewable annually.
(2) The note payable to Strafor Facom S.A. represents unsecured borrowings
denominated in French francs maturing in July 1999, with interest due at
maturity. This note was refinanced in July, 1999 with short-term
borrowings.
(3) The note payable to bank is a seven-year unsecured loan maturing in April
2006, with semi-annual interest and principal payments. The agreement
contains certain covenants, which include, among others, net worth,
interest coverage and debt ratio provisions.
9
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Annual maturities on short-term borrowings and long-term debt for the next
five years subsequent to Aug. 27, 1999 are as follows (in millions):
<TABLE>
<S> <C>
2000............................................................... $220.1
2001............................................................... 7.3
2002............................................................... 7.8
2003............................................................... 8.2
2004............................................................... 8.7
Thereafter......................................................... 22.9
------
$275.0
======
</TABLE>
COMMON STOCK REPURCHASE PROGRAM
On June 17, 1998, the Company's Board of Directors ("Board") approved a
common stock repurchase program authorizing the repurchase of up to three
million shares of common stock. During the second quarter of fiscal 2000 ("Q2
2000"), the Company repurchased 327,570 shares of Class A common shares at a
cost of $6.2 million and 571,600 Class B common shares at a cost of $10.9
million. As of August 27, 1999, total repurchases amounted to $35.8 million,
and 1,106,530 shares remain available for repurchase under the program. The
Board authorized additional common stock repurchases of up to three million
shares on September 22, 1999.
OPERATING SEGMENTS
In accordance with Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information, the
Company operates on a worldwide basis within a single reportable segment, the
office furniture industry. The office furniture segment includes several
operating segments that manufacture an extensive range of steel and wood
office furniture products. The nature of the products, production processes,
types of customers and methods of distribution are consistent across segments
and therefore have been aggregated into one reported segment. The Company's
primary product lines include office furniture systems, seating, storage
solutions, desks and casegoods, and interior architectural products.
The Company evaluates performance and allocates resources based on net
income or loss. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies in
the 10-K Report. Management views interest income, interest expense, and
certain other non-operating costs as being associated with the office
furniture segment since this segment is the Company's primary activity and
accounts for the majority of the Company's net sales, assets and net income.
10
<PAGE>
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
The following table sets forth condensed consolidated statement of income
data for the three and six-month periods ended August 27, 1999 and August 28,
1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENTAGE SIX MONTHS ENDED PERCENTAGE
---------------------- CHANGE ----------------- CHANGE
AUG. 27, AUG. 28, INCREASE/ AUG. 27, AUG. 28, INCREASE/
1999 1998 (DECREASE) 1999 1998 (DECREASE)
--------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 18.2% 100.0% 100.0% 10.7%
Cost of sales........... 66.2 62.3 25.4% 64.9 62.3 15.2%
--------- --------- ----- -----
Gross profit............ 33.8 37.7 6.2% 35.1 37.7 3.2%
Selling, general and
administrative
expenses............... 25.8 24.7 23.9% 25.3 25.3 10.7%
--------- --------- ----- -----
Operating income........ 8.0 13.0 (27.3)% 9.8 12.4 (12.2)%
Interest expense........ (0.6) -- n/m (0.4) -- n/m
Other income, net....... 0.3 0.8 (50.0)% 0.5 0.6 (9.2)%
--------- --------- ----- -----
Income before provision
for income taxes and
equity in net income of
joint ventures and
dealer transitions..... 7.7 13.8 (33.9)% 9.9 13.0 (15.5)%
Provision for income
taxes.................. 3.1 5.2 (28.4)% 3.9 4.9 (13.3)%
--------- --------- ----- -----
Income before equity in
net income of joint
ventures and dealer
transitions............ 4.6 8.6 (37.2)% 6.0 8.1 (16.9)%
Equity in net income of
joint ventures and
dealer transitions..... 0.0 0.3 (84.0)% 0.2 0.4 (53.4)%
--------- --------- ----- -----
Net income.............. 4.6% 8.9% (39.1)% 6.2% 8.5% (18.7)%
========= ========= ===== =====
</TABLE>
- --------
n/m = not meaningful
OVERVIEW
Consolidated net sales of $831.9 million for the second quarter of fiscal
2000 ("Q2 2000") increased 18.2% as compared to the same year ago period,
attributable primarily to the impact of the acquisition of Steelcase Strafor
S.A. and subsidiaries ("Steelcase Strafor"). This is the first quarter that
the Company is presenting consolidated results of operations including
Steelcase Strafor's results of operations since the date of acquisition. The
Company posted an earnings decrease of 39.1% for Q2 2000, with net income of
$38.2 million and basic and diluted earnings per share of $0.25, compared to
net income of $62.7 million and basic and diluted earnings per share of $0.41
in the prior year's second quarter. The decrease in profitability is primarily
attributable to the impact of the following factors:
. Increased competitive pricing pressures
. Disruptions to the manufacturing process from new product ramp up costs,
increased order levels and process changes
11
<PAGE>
. Charges for writedowns of certain assets aggregating $5.4 million, net of
tax effects, or $0.04 per share
. Amortization of Steelcase Strafor acquisition financing costs and related
intangibles
The Company completed and announced the acquisition of the remaining 50%
equity interest in Steelcase Strafor on April 22, 1999. The acquisition was
effective as of March 31, 1999 and has been accounted for pursuant to the
purchase method of accounting in the accompanying condensed consolidated
financial statements as of August 27, 1999. The Company accounts for the
results of operations of Steelcase Strafor on a two month lag.
THREE AND SIX MONTHS ENDED AUGUST 27, 1999 COMPARED TO THREE AND SIX MONTHS
ENDED AUGUST 28, 1998
The following table sets forth comparative sales information by segment (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PERCENTAGE SIX MONTHS ENDED PERCENTAGE
----------------- CHANGE ----------------- CHANGE
AUG. 27, AUG. 28, INCREASE/ AUG. 27, AUG. 28, INCREASE/
1999 1998 (DECREASE) 1999 1998 (DECREASE)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Office furniture--U.S.
only................... $614.5 $620.7 (1.0)% $1,217.5 $1,204.0 1.1%
Office furniture--Europe
(1).................... 136.2 -- n/m 136.2 -- n/m
Office furniture--
International
(excluding Europe) &
Canada................. 45.5 51.7 (12.0)% 98.4 105.5 (6.7)%
Services & other
businesses............. 35.7 31.6 13.0% 71.6 66.8 7.2%
------ ------ ----- -------- -------- ----
Consolidated net sales.. $831.9 $704.0 18.2% $1,523.7 $1,376.3 10.7%
====== ====== ===== ======== ======== ====
</TABLE>
- --------
(1) Steelcase Strafor recorded net sales of $136.2 million in Q2 2000, an
increase of 8.1% over second quarter fiscal 1999 net sales of $126.0
million. Steelcase Strafor fiscal 1999 net sales have been adjusted from
amounts previously reported in order to conform the classification of
certain sales deductions and other charges with those reflected in the
Company's condensed consolidated financial statements.
Steelcase Inc. posted record net sales, increasing 18.2% and 10.7% over the
comparable prior year three and six-month periods, primarily attributable to
the Steelcase Strafor acquisition. Excluding the effects of the Steelcase
Strafor acquisition, Q2 2000 consolidated net sales decreased 1.2% as a result
of decreases in the Company's U.S. and international office furniture
businesses.
The Company's U.S. office furniture net sales decreased 1.0% for Q2 2000,
principally as a result of competitive pricing pressures in the Company's
Steel furniture operations, which decreased 5.6% for Q2 2000. The decreases
were partially offset by the positive effects of the J.M. Lynne acquisition
and double-digit net sales growth for the quarter in the Company's Design
Partnership (R) , Wood, and Revest (R) operations, as a group. The Steel
operations are the Company's largest business unit and represent approximately
70% of annualized U.S. revenues. The Company has experienced favorable order
trends and increased backlog in its Steel operations as a result of a high
influx of competitively priced orders which are expected to ship in the third
quarter of fiscal 2000.
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The Business and Institutional Furniture Manufacturers' Association
reported a sales growth forecast of 1% to 3% for calendar year 1999.
Management estimates the Company's sales growth for fiscal 2000 will keep pace
with industry growth rates, excluding the affects of Steelcase Strafor.
Steelcase Strafor net sales for the three month period ended June 30, 1999
increased 8.1%, primarily attributable to the acquisition of Werndl BuroMobeL
("Werndl") in December 1998. Steelcase Strafor net sales excluding the Werndl
acquisition decreased 11.8% versus the prior year second quarter due to
softening in sales in France and the United Kingdom and the negative impact of
French franc and German mark exchange rates versus the United States dollar.
France's decreased sales are attributable to a slow-down in large corporate
account activity and the effects of a seven-day strike in May at the
Strasbourg facility related to wage negotiations. These decreases are
partially offset by increased volume in most other countries, particularly
Spain, Italy and the Netherlands.
The Company's international net sales, excluding Europe, decreased 12.0%
for Q2 2000 primarily as a result of continued softness in demand,
particularly in South America, Canada, and Australia. Services and other
businesses net sales increased 13.0% primarily from increasing demand for
design services and product financing.
The positive impacts of cost containment efforts and decreased incentive
compensation, which is linked to performance goals, were offset by several
factors this quarter. The current gross margin of 33.8% reflected a
significant decrease from the 37.7% gross margin in Q2 1999. The decreases of
3.9% and 2.6% in gross profit percentage points for Q2 2000 and the six months
ended August 27, 1999, respectively, were driven primarily by the impact of
competitive pricing pressures on gross margins in the Steel furniture
operations, disruptions to the manufacturing process from new products and
process changes, and the impact of historically lower gross margins from
Steelcase Strafor.
The Company has experienced a recent strengthening in demand for its Steel
furniture products. However, in the short-term, the immediate effects of
competitive discounting practices are eroding the Company's margins.
Management believes the competitive pricing situation is a result of excess
capacity in the industry and low industry growth rates projected for the
current calendar year.
Ramp up costs associated with new products such as the Answer (R) system,
the expanded portfolio of Pathways (R) architectural interior products, and
Leap(TM) chair have placed additional demands on the manufacturing process.
Sales of these new products has increased during the first half of fiscal
2000, resulting in increased pressure on margins for the quarter.
Disruptions from new process changes and increased order levels are also
negatively affecting the short-term gross margins. The Company is currently
changing production processes to better leverage its investment in technology,
including enterprise management and plant scheduling software. These
investments are intended to reduce inventory levels, reduce material handling
costs and increase visibility to the Company's cost structure.
Management expects gross margins will improve from the current quarter's
level over the balance of fiscal 2000 as the necessary shifts in manufacturing
capabilities are implemented. However, the margins for the full year are not
expected to reach prior year levels.
Selling, general and administrative expenses increased from 24.7% in Q2
1999 to 25.8% in Q2 2000 as a result of the Steelcase Strafor consolidation,
the related impact of amortization of intangible assets, and increased
reserves for doubtful receivables in Europe. The Company recorded a charge in
the amount of $6.0 million ($3.7 million net of tax) related to the valuation
of accounts receivable in Europe. Selling, general and administrative expenses
remained flat at approximately 25.3% for the first half of fiscal 2000.
Excluding the affects of the Steelcase Strafor acquisition and the reserve
increase for doubtful receivables SG&A as a percentage of sales has actually
decreased slightly compared to the prior year, primarily attributable to cost
controlling measures and decreased incentive compensation to management which
is linked to growth. Beginning in fiscal 1999, management implemented several
spending reduction targets to better align costs with sales growth. Management
continues to emphasize these spending controls as the Company strives to meet
its fiscal 2003 target of a 14% operating income margin.
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Other income, net of interest expense, decreased $7.7 million and $7.0
million compared to Q2 1999 and the first half of fiscal 1999, respectively,
as a result of an increase in investment valuation reserves and interest
expense related to the Steelcase Strafor acquisition. The Company recorded a
valuation reserve in the amount of $2.8 million ($1.7 million net of tax) to
record a permanent impairment on an investment in a "high tech" company.
Income tax expense for Q2 2000 was 40.9% of income before taxes, as
compared to 37.8% for Q2 1999. Income tax expense has increased to 39.0% of
income before taxes for the first half of fiscal 2000 versus 38.0% for the
first half of fiscal 1999. The increase is a result of higher income tax rates
in Europe. Management expects the full year tax rate for fiscal 2000 to be 39%
compared to a tax rate of 37% for fiscal 1999..
Equity in net income from joint ventures and dealer transitions decreased
to $0.4 million and $2.7 million for Q2 2000 and the first half of fiscal
2000, respectively, from $2.5 million and $5.8 million for Q2 1999 and the
first half of fiscal 1999, respectively, primarily as a result of the
acquisition of Steelcase Strafor, which had previously been accounted for
under the equity method of accounting.
For the reasons set forth above, net income decreased 39.1% to $38.2
million in Q2 2000, from $62.7 million in Q2 1999, and decreased 18.7% to
$94.9 million for the six months ended August 27, 1999, from $116.7 million
for the six months ended August 28, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Management intends to leverage the significant financial resources
available to the Company to fulfill its growth objectives. Cash and capital
requirements are primarily met with cash generated from operating activities,
which aggregated $81.5 million for the six months ended August 27, 1999. The
Company's financial position at August 27, 1999 includes cash and cash
equivalents of $23.4 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 future liquidity and capital
needs of the Company.
The principal change in working capital for the six months ended August 27,
1999 is attributable to the Company's finance subsidiary, Steelcase Financial
Services Inc. ("SFSI"). SFSI's asset base continues to grow as SFSI increases
its portfolio of leased assets, asset based lending and project financing.
SFSI's asset base increased a total of $55 million for the six month period
ended August 27, 1999. Additionally, accounts receivable, inventories and
prepaid expenses have all slightly increased during the first half of fiscal
2000.
On April 22, 1999, the Company completed the acquisition of the remaining
50% equity interest in Steelcase Strafor resulting in cash outlays, net of
cash acquired, of $178 million. The purchase price and associated transaction
costs of $227 million were paid principally from bank financing aggregating
$152 million at April 22, 1999, and cash reserves of $75 million. The
financing was comprised of a long-term component of $41 million and short-term
financing of $111 million. The Company continued to draw down on lines of
credit during the quarter resulting in $150.5 million, net of repayments, in
short-term financing as of August 27, 1999. Management intends to refinance
these short-term borrowings with more cost-effective credit facilities later
in the year, and continues to evaluate an optimal capital structure for the
Company in light of its long-term growth strategies.
The Company has secured a credit facility of EUR 200 million to provide
liquidity and finance capital expenditures in Europe. The euro facility will
serve as a natural hedge against currency translation exposures. As of August
27, 1999, the Company has not drawn any funds against this credit facility.
However, on September 3, 1999, the Company secured an advance in the amount of
EUR 57.5 million to refinance short-term borrowings.
Capital expenditures were $62.3 million for the six months ended August 27,
1999, compared to $75.0 million for the six months ended August 28, 1998. The
Company continues to invest in corporate and showroom facilities, new product
development, SAP implementations, new manufacturing equipment, and a new
Corporate Learning and Development Center in Grand Rapids. The Company's
investments are intended to improve productivity and safety, increase
capacity, decrease the impact on the environment, and facilitate the launch of
new services and products. Management anticipates investing $34.0 million on a
new wood furniture facility beginning in the second half of fiscal 2000.
Management expects capital expenditures to increase in the second half of
fiscal 2000 and to total approximately $200 million for the year.
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The Company paid a common stock dividend of $0.22 per share, or $33.8
million, and $0.20 per share, or $30.8 million, during the first half of
fiscal 2000 and 1999, respectively. During Q1 1999, eligible employees
purchased Class A common shares pursuant to the terms of the Employee Discount
Option Grant, resulting in proceeds to the Company of $24.8 million. During
the first half of fiscal 2000, the Company repurchased 327,570 Class A common
shares for $6.2 million and 771,600 Class B shares for $14.6 million, under a
three million share repurchase program authorized by the Board on June 17,
1998. Effective September 22, 1999, the Board authorized additional common
stock repurchases of up to three million shares. 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 shares will continue
to convert into Class A common shares over time.
YEAR 2000
The Company is actively engaged in replacing or modifying all business
software applications as well as manufacturing and other equipment with
embedded technology that could fail or generate erroneous results by or at the
Year 2000 ("Year 2000 issues"), an issue affecting Steelcase Inc. and most
other companies. The Company has substantially completed the repair or
replacement of critical business applications, technical infrastructure
components and manufacturing equipment. However, management views the process
of assessing and remediating Year 2000 issues as an on-going process which
will require continued focus, testing and verification throughout calendar
year 1999.
The Company's Year 2000 readiness effort is comprised of five phases
defined below:
Awareness: Activities to ensure management and all affected employees
are aware that Year 2000 issues exist.
Assessment: Includes the inventory of all potentially affected hardware,
software and embedded technology equipment, along with a determination as
to whether or not they may be impacted by the Year 2000 issues.
Remediation: Repairs, replacement and/or modifications to eliminate the
Year 2000 issues in hardware, software or equipment.
Testing: Testing of the hardware, software or equipment to determine if
the remediation was successful.
Implementation: Moving the hardware, software or equipment from a test
status or test location to production usage.
Although the Company's individual business units, majority-owned
subsidiaries and unconsolidated joint ventures may be individually at
different stages of readiness, the following comments summarize Steelcase
Inc.'s state of readiness with respect to Year 2000 issues.
Since 1994, the Company has been selectively replacing business software
applications with SAP, a Year 2000 compliant comprehensive information
management system. This project is part of a strategic business plan to
upgrade the overall capabilities of the Company's business application
systems. Costs to date specifically to address Year 2000 issues, separate from
SAP implementations, have approximated $14 million. Future costs anticipated
to remedy Year 2000 issues have been budgeted and are not expected to exceed
an additional $6 million. Further, various individual business units,
majority-owned subsidiaries and unconsolidated joint ventures are engaged in
the implementation of Year 2000 compliant enterprise software systems.
In late 1995, the Company began its efforts to address those business
applications which might not be replaced in time with equivalent SAP systems,
by engaging a third party specializing in the modification of business
software applications. The engagement lasted through December 1997, at which
time the majority of remediation efforts related to those business software
applications were substantially complete. Since that time, the Company has
substantially completed the initial testing of those software applications.
15
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In December 1997, the Company established a Program Management Office
("PMO"), reporting to the Chief Information Officer of the Company. The PMO
has the responsibility to provide oversight for the Company's Year 2000
readiness program that consists of the five phases noted above. These five
phases will be employed for the following areas: business application
software, manufacturing and other equipment with embedded chip technology, and
evaluation and due diligence with respect to the Company's supply chain and
distribution channel. The PMO is also responsible for periodic status
reporting to the Company's executive management and to the Board of Directors.
Additionally, the PMO is providing oversight for the development and execution
of contingency and business continuity planning efforts.
The Company has completed the assessment phase for the majority of its
manufacturing facilities having embedded technology. The assessment resulted
in minimal findings of non-compliance. The Company's manufacturing equipment
is generally Year 2000 ready and is not anticipated to require significant
reprogramming or replacement. Remediation and testing of the equipment
identified as needing some reprogramming or replacement is substantially
complete.
The Company initiated formal communications with production suppliers in
January 1998 and with its dealer network in May 1998, inquiring as to their
state of readiness. Over 4,000 suppliers have been contacted, and from the
responses received to date, the Company believes that its supply chain
partners are actively seeking to become Year 2000 ready. The Company has
initiated further in-depth analyses of the readiness of approximately 150 key
suppliers. In addition, a majority of the dealers, both international and
domestic, had responded, mostly with favorable self-assessment ratings. Many
governmental agencies, however, may not be Year 2000 compliant. It is
difficult for Steelcase Inc. and most other companies to assess the
likelihood, or the impact, if any, on their businesses, of such entities'
failure to be Year 2000 compliant.
Contingency and business continuity planning activities have been completed
for critical business processes within the Company. The Company believes such
planning efforts to be ongoing activities, subject to frequent review
throughout the remainder of calendar year 1999.
The Company presently believes that, upon completion of its current plans
for remediation of its business software applications as well as manufacturing
and other equipment with embedded technology, Year 2000 issues will not
present a materially adverse risk to the Company's future consolidated results
of operations, liquidity or capital resources. However, if such planned
remediation is not completed in a timely manner, the level of timely
compliance by key suppliers, dealers, providers of utilities or governmental
services is not sufficient, or if unforeseen circumstances arise, Year 2000
issues could have a material impact on the Company's operations including, but
not limited to, delays in shipments of products resulting in loss of revenues,
increased operating costs, loss of customers or suppliers, or other
significant disruptions to the Company's business. The Company believes that
its Year 2000 readiness program, including contingency and business continuity
plans, should generally reduce the extent of materially adverse effects that
Year 2000 related disruptions may have upon the Company.
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. 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 Company's primary exposure to the euro conversion is
concentrated in Steelcase Strafor.
Steelcase Strafor has created an internal Euro Committee, a pan-European
multifunctional team whose goal was to determine the impact of this currency
change on products, markets, and information systems. At this time, Steelcase
Strafor is preparing an implementation of unified price lists for dealers. The
aim is to have three commercial zones in Europe within the three year
transition period but no change is expected in calendar 1999. Steelcase
Strafor is adapting and migrating its internal system in order to be euro
compliant by the end of calendar 1999. Steelcase Strafor is also assisting and
educating its dealers to become euro compliant. Training for employees will
begin during the transition period. The transition period is anticipated to
resolve difficulties
16
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in handling local currencies and the euro simultaneously, while remaining
flexible to the market. Steelcase Strafor sees the primary financial impact of
the euro conversion to be potential savings on foreign exchange hedging and
commissions. Based on the Euro Committee's work to date, the Company does not
expect the euro conversion to have a material impact on Steelcase Strafor's
financial position, or on the Company as a whole.
SAFE HARBOR PROVISION
There are certain forward-looking statements under the Results of
Operations for the Three and Six Months Ended August 27, 1999 Compared to
Three and Six Months Ended August 28, 1998, Liquidity and Capital Resources,
Year 2000, and Euro Conversion sections, particularly those with respect to
shipment expectations for the third quarter of fiscal 2000, the Company's
sales growth and gross margin levels for fiscal 2000, the Company's gross
margins for the balance of fiscal 2000, future tax rates, product offerings,
liquidity and capital needs, the Company's intent to refinance short term
debt, capital expenditures for the second half of fiscal 2000 and full fiscal
2000 and investments, conversion of Class B common shares to Class A common
shares, the expected ability of and costs to the Company and its key
customers, dealers and suppliers to successfully manage Year 2000 issues and
costs associated with remediating Year 2000 issues, and the impact of the euro
conversion on the financial position of Steelcase Strafor and the Company.
Such statements involve certain risks and uncertainties that could cause
actual results to vary from stated expectations. 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, changes in customer order patterns, competitive pricing pressures,
the ability to decrease disruptions to the manufacturing process from new
products and process changes, the ability to decrease, over time, ramp up
costs associated with new products, the ability to refinance short term debt
on favorable terms, continued success in technological advances, including
development and implementation of new processes and strategic products for
specific market segments, the ability to grow new businesses and successfully
integrate and operate any acquired businesses, the impact on the Company's
business due to internal systems or systems of suppliers, key customers,
dealers and other third parties adversely affected by Year 2000 issues, costs,
including claims, due to Year 2000 issues and remediation efforts, the future
success of new products and their impact on our manufacturing processes, the
impact of the euro conversion, and other risks detailed in the Company's 10-K
Report for the year ended February 26, 1999, and its other filings with the
Securities and Exchange Commission.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities, establishes accounting and
reporting standards for derivative instruments, requiring recognition of the
fair value of all derivatives as assets or liabilities on the balance sheet.
Gains and losses resulting from changes in fair value would be included in
income, or in comprehensive income, depending on whether the instrument
qualifies for hedge accounting and the type of hedging instrument involved.
This statement is effective for fiscal years beginning after June 15, 2000.
Management intends to adopt the provisions of SFAS No. 133 during the
Company's fiscal year 2002. The impact of this pronouncement on the Company's
financial results is currently being evaluated.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company must receive notice of any proposals of shareholders that are
intended to be presented at the Company's 2000 Annual Meeting of Shareholders,
but that are not intended to be considered for inclusion in the Company's
Proxy Statement and Proxy related to that meeting, no later than April 2, 2000
to be considered timely. Such proposals should be sent to the Company's
Secretary at the Company's principal executive offices, 901 44th Street SE,
Grand Rapids, MI 49508, by certified mail, return receipt requested. If the
Company does not have notice of the matter by that date, the Company's form of
proxy in connection with that meeting may confer discretionary authority to
vote on that matter, and the persons named in the Company's form of proxy will
vote the shares represented by such proxies in accordance with their best
judgment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. EXHIBITS
See Exhibit Index
2. REPORTS ON FORM 8-K
Amended Current Report on Form 8-K dated June 16, 1999, reporting under
Item 7, Financial Statements and Exhibits, the audited financial statements
of businesses acquired and related pro forma financial information.
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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/ Alwyn Rougier-Chapman
_____________________________________
Alwyn Rougier-Chapman
Senior Vice President--Finance,
Chief Financial Officer and
Treasurer (Duly Authorized Officer
and Principal Financial Officer)
Date: October 12, 1999
19
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EXHIBIT INDEX
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- -----------
<C> <S> <C>
10.10 Steelcase Inc. Non-Employee Director Deferred
Compensation Plan
27.1 Financial Data Schedule, for the six months ended August
27, 1999.
</TABLE>
20
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STEELCASE INC.
NON-EMPLOYEE DIRECTOR
DEFERRED COMPENSATION PLAN
June 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PREAMBLE........................................................................1
ARTICLE I DEFINITIONS...........................................................1
1.1 Administrative Committee..............................................1
1.2 Beneficiary...........................................................1
1.3 Deferral Account......................................................1
1.4 Deferral Date.........................................................1
1.5 Director's Fees.......................................................2
1.6 Election Period.......................................................2
1.7 Mandatory Deferral....................................................2
1.8 Non-Employee Director.................................................2
1.9 Participant...........................................................2
1.10 Payment Date..........................................................2
1.11 Plan Year.............................................................2
1.12 Valuation Date........................................................2
ARTICLE II PARTICIPATION........................................................2
ARTICLE III DEFERRAL OF DIRECTOR'S FEES.........................................3
ARTICLE IV DEFERRAL ACCOUNT.....................................................3
4.1 Deferral Accounts.....................................................3
4.2 Debits/Credits to Deferral Accounts...................................3
4.3 Investment Media......................................................3
ARTICLE V PAYMENTS..............................................................4
5.1 Timing................................................................4
5.2 Form for Payment......................................................4
5.3 Payment Medium........................................................5
ARTICLE VI MISCELLANEOUS........................................................5
6.1 No Trust..............................................................5
6.2 Nonforfeitability.....................................................5
6.3 Spendthrift Provision.................................................5
6.4 Successors, Etc.......................................................6
6.5 Severability..........................................................6
6.6 Governing Law.........................................................6
6.7 Number Construction...................................................6
6.8 Amendment and Termination of Plan.....................................6
6.9 Interpretation and Implementation.....................................6
6.10 Administrative Committee..............................................6
6.11 Claims and Appeals....................................................6
</TABLE>
i
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PREAMBLE
Steelcase Inc. (the "Company") is establishing the Steelcase Inc. Non-
Employee Director Deferred Compensation Plan (the "Plan"), effective June 23,
1999, to provide Non-Employee Directors an opportunity to defer a portion of
their Director's Fees.
ARTICLE I
DEFINITIONS
The following words and phrases, wherever capitalized, shall have the
following meanings, unless the context requires otherwise:
1.1 "Administrative Committee" means a committee consisting of the
Company's Chief Executive Officer, Chief Financial Officer, Vice-President
Corporate Human Resources and Director of Compensation and/or any other
individuals designated by the Compensation Committee of the Company's Board of
Directors.
1.2 "Beneficiary" means the individual, trust, or other entity
designated by the Participant to receive any amounts payable with respect to the
Participant under the Plan after the Participant's death. A Participant may
designate or change a Beneficiary by filing a signed designation with the
Administrative Committee on a form approved by the Administrative Committee. A
Participant's Will is not effective for this purpose. If the Participant has
not designated a Beneficiary or none so designated survive, the Beneficiary will
be the Participant's surviving spouse, if any; otherwise the Participant's
children, including those by adoption, dividing the distribution equally among
the Participant's children, with the living issue of any deceased child taking
their parent's share by right of representation; if none, the Participant's
parents, in equal shares; if none, the Participant's living brothers and sisters
in equal shares; if none the Participant's estate, if under active
administration, and if not, the Participant's heirs under the laws of Intestacy
of the State of Michigan. Notwithstanding the above, if the Participant
designates the Participant's spouse as a Beneficiary, and the Participant later
divorces that spouse, the Participant's designation of the spouse as Beneficiary
shall be null and void, and the portion of the Participant's benefits that
would, but for this provision, be payable to the Participant's spouse will be
payable instead as designated in the Participant's designation of Beneficiary as
if the spouse had predeceased the Participant.
1.3 "Deferral Account" means the bookkeeping account established by
the Administrative Committee with respect to the Participant pursuant to Article
IV for the purpose of recording the amount of the Director's Fees being deferred
pursuant to this Plan and the amount of any earnings, profits, gains or losses
credited/debited thereto pursuant to Article IV.
1.4 "Deferral Date" means the date the amount of deferred
Director's Fees otherwise would have been paid to the Participant but for the
Participant's deferral of the payment of such fees under Article III.
1
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1.5 "Director's Fees" means any amount payable to a Participant
for service as a Non-Employee Director, including quarterly retainer fees and
fees for meetings of the Board of Directors or any Committee of the Board of
Directors.
1.6 "Election Period" means the period designated by the
Administrative Committee before each Plan Year during which elections under
Articles III must be made with respect to that Plan Year. For a new
Participant, the Election Period means the first 30 days of participation in the
Plan.
1.7 "Mandatory Deferral" means the amount required to be deferred
by a Participant pursuant to Article III.
1.8 "Non-Employee Director" means any individual who serves as a
member of the Board of Directors of the Company and who is not an employee of
the Company or any of its subsidiaries or affiliates.
1.9 "Participant" means a Non-Employee Director of the Company who
participates in the Plan pursuant to Article II.
1.10 "Payment Date" means the date payment of a Deferral Account is
made pursuant to Section 5.1.
1.11 "Plan Year" means the Company's fiscal year, which is currently
the approximately 12-month period ending on the last Friday of February each
year.
1.12 "Retirement" means leaving the Board of Directors for any
reason other than death.
1.13 "Valuation Date" means the last day of the Plan Year, or such
other dates as may be designated by the Administrative Committee.
ARTICLE II
PARTICIPATION
A Non-Employee Director shall participate in the Plan on the first day
of the individual's term as a Non-Employee Director. A member of the Board of
Directors who becomes a Non-Employee Director after the first day of his or her
first term as a member shall become a Participant on the Valuation Date
coincident with or following the date the Participant becomes a Non-Employee
Director.
2
<PAGE>
ARTICLE III
DEFERRAL OF DIRECTOR'S FEES
A Participant, during the Election Period, may elect a percentage (in
one percent increments, up to 100 percent) of the Participant's Director's Fees
to be earned in the following Plan Year which shall not be paid in cash, but
shall instead be deferred and distributed later to the Participant (or in the
event of the Participant's death, to his or her Beneficiary) in accordance with
the provisions of Article V. If a Participant at the time of the Election
Period does not own beneficially, directly or indirectly, at least 1,000 shares
of Steelcase common stock, the Participant will automatically be deemed to defer
at least 25 percent of the Participant's quarterly retainer fees for the
following Plan Year. All elections shall be made separately with respect to the
Participant's quarterly retainer fees and any meeting fees. An election to
defer Director's Fees made by a new Participant during the Participant's initial
Election Period shall apply only to Director's Fees earned for the remainder of
the Plan Year following the date of the election. Elections are irrevocable
once the Plan Year for which they are in effect has begun. Elections shall
remain in effect for all subsequent Plan Years unless a new election is made
during a subsequent Election Period.
ARTICLE IV
DEFERRAL ACCOUNT
4.1 Deferral Accounts. The Administrative Committee shall establish a
Deferral Account for each Participant. The portion of each Participant's
Director's Fees deferred pursuant to Article III shall be credited to the
Participant's Deferral Account as of the applicable Deferral Date. The
Administrative Committee shall maintain records for each Deferral Account until
the balance of the Deferral Account has been paid in full pursuant to Article V.
The Administrative Committee shall provide each Participant a written statement
reflecting the amounts credited to his or her Deferral Account at least
annually. The Administrative Committee may engage the services of any third
parties it deems appropriate to provide assistance with record keeping.
4.2 Debits/Credits to Deferral Accounts. As of each Valuation Date
subsequent to the establishment of the Participant's Deferral Account, until
such time as the Deferral Account is paid to the Participant, the Administrative
Committee shall credit/debit the Deferral Account with earnings, profits, gains
or losses that would have been credited/debited if assets equal to the balance
of the Deferred Account had been invested since the preceding Valuation Date in
the investment media described in Section 4.3.
4.3 Investment Media. The Administrative Committee, in its sole
discretion may periodically designate certain mutual funds or other investment
media among which the Participant may request that his or her Deferral Account
should, for the purposes of Section 4.2, be deemed invested. Current referent
investment media include Steelcase Phantom Stock and the Kent Money Market Fund.
The Steelcase Phantom Stock valuation will be based on the weighted average
price of the stock traded on the relevant Deferral Date or Valuation Date. The
Mandatory Deferral shall be deemed invested in the Steelcase Phantom Stock. The
remainder of
3
<PAGE>
the Participant's Deferral Account shall be deemed invested as the Participant
elects. The Participant may alter his or her selection among the investment
media either for the Participant's existing Deferral Account balance and/or
future deferrals in one percent increments (or such other increments that the
Administrative Committee may specify) once each Plan Year (or at such other
intervals as the Administrative Committee may specify); provided that Mandatory
Deferrals, as adjusted pursuant to Section 4.2, must remain deemed invested in
the Steelcase Phantom Stock. In the absence of any written direction, the
Participant's entire Deferral Account shall be deemed invested in the Steelcase
Phantom Stock. A Participant's deemed investment selection shall remain in
effect until changed by the Participant.
The Administrative Committee may elect either to invest funds equal to
the amounts credited to the Participant's Deferral Account as elected by the
Participant, invest funds targeted to pay Plan obligations in any other manner
or not make investments in connection with Plan obligations. The actual
investment shall not affect the obligation of the Company to provide a benefit
as if the Deferral Account were actually invested as suggested by the
Participant. The Administrative Committee shall establish such procedures and
forms as are appropriate to implement the fund selection process of this Section
4.3.
ARTICLE V
PAYMENTS
5.1 Timing. The Participant's Deferral Account shall be paid or
begin to be paid to the Participant, or to his or her Beneficiary in the event
of the Participant's death, as soon as administratively feasible after the end
of the Plan Year during which the Participant ceases to be a member of the
Company's Board of Directors for any reason. The amount to be paid shall be
determined by the value of the Participant's Deferral Account as of the last day
of that Plan Year.
5.2 Form for Payment of Benefits Other than Death Benefits. The
Participant may elect the period over which the balance in his or her Deferral
Account shall be paid by the Company to the Participant (or to his or her
Beneficiary, in the event of the Participant's death) from among the following:
(a) one lump sum, or
(b) annual installment payments over five years, or
(c) annual installment payments over ten years.
The Participant must make a separate election for the form of Retirement
payments and the form of death benefits. A Participant may elect, however, to
have Retirement installment payments which have already begun under Section
5.2(b) or (c) to be continued to the Participant's Beneficiary in the event the
Participant dies before all of the installments have been paid in lieu of the
offered optional forms.
4
<PAGE>
The Participant's election with respect to Retirement must be made prior to
the Plan Year during which the Participant ceases to be a Board member. Any
Retirement payment election made during or after that Plan Year shall not be
effective. The Participant's election with respect to the form of death
payments may be made at any time before the Participant's death. If the
Participant fails to timely elect the form of either Retirement payments or
death payments, the payments for which no election has been made shall be paid
in one lump sum.
5.3 Payment Medium. The payments made by the Company with respect
to the Participant's Deferral Account pursuant to Sections 5.1 and 5.2 above
shall be made in cash (reduced by applicable tax withholdings). Annual payments
made in accordance with Sections 5.2(b) and 5.2(c) shall be in an amount equal
to a percentage of the Participant's Deferral Account balance as of the
Valuation Date on or immediately preceding the Payment Date, determined by
dividing that balance by the remaining years of the payment term.
ARTICLE VI
MISCELLANEOUS
6.1 No Trust. Nothing contained in this Plan and no action taken
pursuant to the provisions hereof shall create or deem to create a trust of any
kind, or a fiduciary relationship between the Company and the Participant, the
Participant's Beneficiary or any other person. To the extent that any person
acquires the right to receive benefits from the Company under this Plan, such
right shall be no greater than the right of any other unsecured general creditor
of the Company, and such person shall have no claim on, or any beneficial
interest in, any assets of the Company. The Company may establish bookkeeping
reserves or any funding media, including grantor trusts, to cover its obligation
to make the payments contemplated under Article V, but amounts designated in
such bookkeeping reserves or contained in such funding media as are established
shall remain solely those of the Company and shall be subject to the claims of
the creditors of the Company until actually paid to the Participant or to the
Participant's Beneficiary. The provisions of this Plan do not operate as a
guarantee that sufficient assets will exist for the Company to pay any Plan
benefits.
6.2 Nonforfeitability. The Participant's rights to any payments
under this Plan shall at all times be nonforfeitable.
6.3 Spendthrift Provision. Benefits, payments, proceeds, claims,
rights or interest of the Participant or the Participant's Beneficiary to or
under this Plan shall not be subject in any manner to any claims, attachments or
encumbrances due to the death, contracts, liabilities, engagements or torts of
the Participant or the Participant's Beneficiary, directly or indirectly, or be
subject to any claim of any creditor of the Participant or the Participant's
Beneficiary, through legal process or otherwise; nor shall the Participant or
the Participant's Beneficiary be able or permitted in any manner to transfer,
encumber, pledge, anticipate, alienate, sell, or assign any such benefits,
payments, proceeds, claims, rights or interest, contingent or otherwise.
5
<PAGE>
6.4 Successors, Etc. This Plan shall be binding upon and benefit
the Company and its successors, and the Participant and the Participant's
Beneficiary, their heirs and personal representatives, all in accordance and
subject to the terms of this Plan.
6.5 Severability. Each provision of this Plan shall be independent
of and separable from every other provision of this Plan and should any
provision of this Plan be deemed or be declared to be contrary to or
unenforceable under any law, whether constitutional, statutory or otherwise, all
of the remaining provisions of this Plan shall remain in full force and effect.
6.6 Governing Law. This Plan shall be governed in all respects,
whether as to validity, construction, capacity, performance or otherwise, under
the laws of the State of Michigan, except to the extent superseded by federal
law.
6.7 Number Construction. In all cases where they would so apply,
words used in the singular shall be construed to include the plural.
6.8 Amendment and Termination of Plan. The Compensation Committee
of the Board of Directors may amend or terminate this Plan at any time. A
termination of the Plan shall not reduce amounts already credited to the
Participant's Deferral Account. In the event the Plan is terminated, the
Administrative Committee may, in its sole discretion, immediately distribute the
balance of the Participants' Deferral Accounts.
6.9 Interpretation and Implementation. The Administrative
Committee shall have exclusive and final authority and sole and absolute
discretion with respect to (a) the interpretation and implementation of the
terms and provisions of this Plan, (b) exercising any of its powers or duties
under this Plan and (c) the adoption or amendment of such procedures or
practices as it deems necessary, helpful or appropriate, for purposes of
administering this Plan.
6.10 Administrative Committee. The Administrative Committee may
delegate any of its powers, authorities or responsibilities under the Plan to
any other person or committee so designated by it in writing. The
Administrative Committee may employ the agents or advisors it deems appropriate
to fulfill its duties under the Plan. No member of the Administrative Committee
shall be personally liable to any person for any action taken or omitted in
connection with performing its duties under the Plan, unless due to that
member's own willful misconduct, gross negligence, or lack of good faith.
6.11 Claims and Appeals. In the event Participants or
Beneficiaries believe they are entitled to a payment from the Company that has
not been made, they may submit a claim for benefits to the Administrative
Committee. Any denial of a claim shall be made by the Administrative Committee
in writing and shall specify the Plan provisions upon which the denial is based
and any additional information or documentation which the Participant or
Beneficiary would need to submit to perfect his or her claim. The Participant
or Beneficiary may appeal in writing to the Administrative Committee any denial
of his or her claim within 90 days following the denial, and shall include any
additional information or documentation helpful to support the claim. The
Administrative Committee's decision shall be made in writing within a reasonable
6
<PAGE>
time period following receipt of the appeal and shall be final and binding on
the Participant, any Beneficiary and the Company.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officer, this_____ day of _______________, 1999, to be
effective June 23, 1999.
STEELCASE INC.
Attest: By: By:
--------------------------- ---------------------------------
Its: Its:
----------------------- -----------------------------
7
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