<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 25, 2000
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 September 29, 2000, the
Registrant had outstanding 30,783,827 shares of Class A Common Stock and
118,863,465 shares of Class B Common Stock.
Exhibit index located on page number 16.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
STEELCASE INC. FORM 10-Q
FOR THE QUARTER ENDED AUGUST 25, 2000
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 25, 2000 and August 27, 1999......... 3
Condensed Consolidated Balance Sheets
as of August 25, 2000 and February 25, 2000............................ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended August 25, 2000 and August 27, 1999................... 5
Notes to Condensed Consolidated Financial Statements.................... 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 13
Part II. Other Information
Item 1. Legal Proceedings................................................. 14
Item 2. Changes in Securities............................................. 14
Item 3. Defaults upon Senior Securities................................... 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 5. Other Information................................................. 14
Item 6. Exhibits and Reports on Form 8-K.................................. 14
Signatures................................................................ 15
Exhibit Index............................................................. 16
</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. 25, Aug. 27, Aug. 25, Aug. 27,
2000 1999 2000 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales......................... $ 985.5 $ 831.9 $1,930.2 $1,523.7
Cost of sales..................... 652.4 550.3 1,272.2 988.7
--------- --------- -------- --------
Gross profit...................... 333.1 281.6 658.0 535.0
Selling, general and
administrative expenses.......... 240.0 214.9 466.9 385.6
--------- --------- -------- --------
Operating income.................. 93.1 66.7 191.1 149.4
Interest expense.................. (11.2) (5.2) (19.9) (6.2)
Other income, net................. 5.6 2.5 19.8 7.9
--------- --------- -------- --------
Income before provision for income
taxes and equity in net income
(loss) of joint ventures and
dealer transitions............... 87.5 64.0 191.0 151.1
Provision for income taxes........ 33.2 26.2 73.6 58.9
--------- --------- -------- --------
Income before equity in net income
(loss) of joint ventures and
dealer transitions............... 54.3 37.8 117.4 92.2
Equity in net income (loss) of
joint ventures and dealer
transitions...................... (0.6) 0.4 (1.1) 2.7
--------- --------- -------- --------
Net income........................ $ 53.7 $ 38.2 $ 116.3 $ 94.9
========= ========= ======== ========
Earnings per share (basic and
diluted)......................... $ 0.36 $ 0.25 $ 0.77 $ 0.62
========= ========= ======== ========
Dividends per share of common
stock............................ $ 0.11 $ 0.11 $ 0.22 $ 0.22
========= ========= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
(Unaudited)
Aug. 25, Feb. 25,
ASSETS 2000 2000
------ ----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 46.1 $ 73.7
Accounts receivable, net.................................... 640.8 592.6
Notes receivable and leased assets.......................... 248.1 189.0
Inventories................................................. 187.2 166.5
Other current assets........................................ 125.8 105.5
-------- --------
Total current assets.................................. 1,248.0 1,127.3
Property and equipment, net................................... 931.3 939.1
Notes receivable and leased assets............................ 334.3 294.1
Joint ventures and dealer transitions......................... 39.0 37.0
Goodwill and other intangible assets, net..................... 403.2 422.6
Other assets.................................................. 223.7 217.5
-------- --------
Total assets.......................................... $3,179.5 $3,037.6
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts and notes payable.................................. $ 224.7 $ 219.8
Short-term borrowings and current portion of long-term
debt....................................................... 257.2 209.0
Accrued expenses:
Employee compensation..................................... 131.7 121.1
Employee benefit plan obligations......................... 81.7 90.0
Other..................................................... 288.2 287.3
-------- --------
Total current liabilities............................. 983.5 927.2
-------- --------
Long-term liabilities:
Long-term debt.............................................. 302.5 257.8
Employee benefit plan obligations........................... 240.2 243.7
Other long-term liabilities................................. 44.8 46.7
-------- --------
Total long-term liabilities........................... 587.5 548.2
-------- --------
Total liabilities..................................... 1,571.0 1,475.4
-------- --------
Shareholders' equity:
Common stock................................................ 320.8 342.7
Accumulated other comprehensive income (loss)............... (48.0) (33.0)
Retained earnings........................................... 1,335.7 1,252.5
-------- --------
Total shareholders' equity............................ 1,608.5 1,562.2
-------- --------
Total liabilities and shareholders' equity............ $3,179.5 $3,037.6
======== ========
</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. 25, Aug. 27,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 116.3 $ 94.9
Depreciation and amortization............................... 78.1 62.9
Changes in current assets and liabilities, net of corporate
acquisitions............................................... (107.3) (38.9)
Other, net.................................................. 6.3 15.7
------- -------
Net cash provided by operating activities................. 93.4 134.6
------- -------
INVESTING ACTIVITIES
Capital expenditures........................................ (130.6) (62.3)
Proceeds from the disposal of assets........................ 80.2 --
Corporate acquisitions, net of cash acquired................ -- (177.8)
Net increase in notes receivable and leased assets.......... (104.3) (53.1)
Other, net.................................................. (12.6) (14.9)
------- -------
Net cash used in investing activities..................... (167.3) (308.1)
------- -------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................... 94.2 41.0
Repayments of debt.......................................... (42.6) (7.5)
Short-term borrowings, net.................................. 51.4 150.5
Common stock repurchase..................................... (21.9) (20.8)
Dividends paid.............................................. (33.1) (33.8)
------- -------
Net cash provided by (used in) financing activities....... 48.0 129.4
------- -------
Effect of exchange rate changes on cash and cash
equivalents.............................................. (1.7) --
------- -------
Net increase (decrease) in cash and cash equivalents.... (27.6) (44.1)
Cash and cash equivalents, beginning of period........ 73.7 67.5
------- -------
Cash and cash equivalents, end of period.............. $ 46.1 $ 23.4
======= =======
</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
25, 2000 (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.
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
Ended Six Months Ended
----------------- -----------------
Aug. 25, Aug. 27, Aug. 25, Aug. 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income numerator for both basic and
diluted EPS........................... $ 53.7 $ 38.2 $116.3 $ 94.9
====== ====== ====== ======
Denominators:
Denominator for basic EPS-Weighted
average common shares outstanding..... 150.1 153.1 150.5 153.3
Potentially dilutive shares resulting
from stock options.................... 0.5 0.1 0.3 0.1
------ ------ ------ ------
Denominator for diluted EPS............ 150.6 153.2 150.8 153.4
====== ====== ====== ======
</TABLE>
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
Ended Six Months Ended
----------------- -----------------
Aug. 25, Aug. 27, Aug. 25, Aug. 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income............................. $53.7 $38.2 $116.3 $ 94.9
Other comprehensive income:
Foreign currency translation
adjustments......................... (3.4) (7.5) (14.3) (16.3)
Unrealized gain (loss) on
investments......................... -- -- (0.4) 2.0
Minimum pension liabilities.......... (0.3) (0.3) (0.3) (0.3)
----- ----- ------ ------
Comprehensive income................... $50.0 $30.4 $101.3 $ 80.3
===== ===== ====== ======
</TABLE>
6
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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. Inventories determined by the LIFO method aggregated $129.6 million
and $121.3 million at August 25, 2000 and February 25, 2000, respectively.
Inventories consist of (in millions):
<TABLE>
<CAPTION>
Aug. 25, Feb. 25,
2000 2000
-------- --------
<S> <C> <C>
Finished goods............................................. $ 89.7 $ 71.6
Work in process............................................ 44.7 45.6
Raw materials.............................................. 96.9 93.4
------ ------
231.3 210.6
LIFO reserve............................................... (44.1) (44.1)
------ ------
$187.2 $166.5
====== ======
</TABLE>
Short-Term Borrowings and Long-Term Debt
During the second quarter of fiscal 2001, the Company entered into an
additional short-term borrowing arrangement of $8.7 million, at a 4.55%
interest rate. The Company also entered into an additional long-term borrowing
arrangement of $10.1 million, which matures October 2007 and has an interest
rate of 8.2%. The additional long-term borrowings are fully collateralized by
lease receivables and certain leased assets.
During the first quarter of fiscal 2001, the Company entered into
additional long-term borrowing arrangements of $38.7 million, which mature
from 2004 to 2006 and have a weighted average interest rate of 6.92%. The
additional long-term borrowings are fully collateralized by lease receivables
and certain leased assets.
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. On September 22, 1999, the Board authorized
additional common stock repurchases of up to three million shares.
During the second quarter of fiscal 2001, the Company repurchased 351,000
shares of Class A common shares at a cost of $5.2 million and 559,400 Class B
common shares at a cost of $9.6 million. As of August 25, 2000, total
repurchases amounted to $73.7 million and 1,231,430 shares remained authorized
for repurchase under the program. The Company has outstanding commitments to
repurchase 358,000 of those remaining authorized shares. This commitment is to
be fulfilled through ten monthly repurchases of 35,800 shares; the applicable
repurchase price is determined by the five-day average market price at the
time of each monthly purchase.
On September 20, 2000, subsequent to the end of the second quarter of
fiscal 2001, the Board authorized common stock repurchases of up to an
additional five million shares.
7
<PAGE>
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Operating Segments
The Company's principal business is the manufacture of an extensive range of
steel and wood office furniture products. Primary product lines include office
furniture systems, seating, storage solutions, desk and casegoods and interior
architectural products. In addition, the Company also provides services and is
engaged in non-furniture businesses, which include marine accessories and
design, financial services and consulting services. The Company operates on a
worldwide basis within three reportable segments, two of which are geographic
furniture segments; the third segment is Services and Other Businesses. The
Company evaluates performance and allocates resources based on operating
income.
The following sets forth reportable segment data reconciled to the
consolidated financial statements (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
----------------- -----------------
Aug. 25, Aug. 27, Aug. 25, Aug. 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales
North America.......................... $752.4 $634.7 $1,484.6 $1,268.7
International.......................... 188.5 160.1 356.3 335.4
Services and other businesses.......... 44.6 37.1 89.3 67.9
Eliminations........................... -- -- -- (148.3)
------ ------ -------- --------
Consolidated net sales................. $985.5 $831.9 $1,930.2 $1,523.7
====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
----------------- -----------------
Aug. 25, Aug. 27, Aug. 25, Aug. 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating income
North America........................... $72.0 $65.1 $155.6 $143.3
International........................... 13.6 (1.5) 22.4 9.9
Services and other businesses........... 7.5 3.1 13.1 6.6
Eliminations............................ -- -- -- (10.4)
----- ----- ------ ------
Consolidated operating income........... $93.1 $66.7 $191.1 $149.4
===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Aug. 25, Feb. 25,
2000 2000
-------- --------
<S> <C> <C>
Total assets
North America............................................ $1,687.1 $1,678.2
International............................................ 703.1 679.2
Services and other businesses............................ 789.3 680.2
-------- --------
Consolidated total assets................................ $3,179.5 $3,037.6
======== ========
</TABLE>
The first three months of the six months ended August 27, 1999 include the
results of Steelcase S.A. (formerly known as Steelcase Strafor S.A.) on a
consolidated basis, which are eliminated in order to reconcile with the
Company's consolidated totals.
8
<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, as a percentage of net sales, for the three and six months ended August
25, 2000 and August 27, 1999.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
----------------- -----------------
Aug. 25, Aug. 27, Aug. 25, Aug. 27,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 66.2 66.2 65.9 64.9
----- ----- ----- -----
Gross profit.............................. 33.8 33.8 34.1 35.1
Selling, general and administrative
expenses................................. 24.4 25.8 24.2 25.3
----- ----- ----- -----
Operating income.......................... 9.4 8.0 9.9 9.8
Interest expense.......................... (1.1) (0.6) (1.0) (0.4)
Other income, net......................... 0.6 0.3 1.0 0.5
----- ----- ----- -----
Income before provision for income taxes
and equity in net income (loss) of joint
ventures and dealer transitions.......... 8.9 7.7 9.9 9.9
Provision for income taxes................ 3.4 3.1 3.8 3.9
----- ----- ----- -----
Income before equity in net income (loss)
of joint ventures and dealer
transitions.............................. 5.5 4.6 6.1 6.0
Equity in net income (loss) of joint
ventures and dealer transitions.......... (0.1) 0.0 (0.1) 0.2
----- ----- ----- -----
Net income................................ 5.4% 4.6% 6.0% 6.2%
===== ===== ===== =====
</TABLE>
--------
Overview
Consolidated net sales of $985.5 million for the second quarter of fiscal
2001 ("Q2 2001") and $1,930.2 million for the first six months of fiscal 2001
("2001") increased 18.5% and 26.7%, respectively, compared to the second
quarter of fiscal 2000 ("Q2 2000") and the first half of fiscal 2000 ("2000").
The sales growth in Q2 2001 and the first six months of 2001 reflects the
continued growth from new and established products across most business and
customer segments. The six-month sales increase was also attributable to the
impact of the acquisition of Steelcase S.A. and subsidiaries. Sales growth,
excluding acquisitions, was 14.4% in Q2 2001 and 13.0% for the first six
months of 2001 and was bolstered by new product sales and broad-based strength
across most product lines. The Company posted earnings growth of 40.6% in Q2
2001 with net income of $53.7 million ($0.36 per share) and growth of 22.6%
for the first half of 2001 with net income of $116.3 million ($0.77 per
share), including a $5.4 million ($0.04 per share) after-tax gain on the sale
of a non-operating facility, compared to net income of $38.2 million ($0.25
per share) in Q2 2000 and $94.9 million ($0.62 per share) in the first six
months of 2000.
9
<PAGE>
Three and Six Months Ended August 25, 2000 Compared to the Three and Six
Months Ended August 27, 1999
The following table sets forth comparative sales information by segment (in
millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Percentage Ended Percentage
--------------------- Change --------------------- Change
August 25, August 27, Increase/ August 25, August 27, Increase/
2000 1999 (Decrease) 2000 1999 (Decrease)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales
North America........... $752.4 $634.7 18.5% $1,484.6 $1,268.7 17.0%
International (1)....... 188.5 160.1 17.7% 356.3 187.1 n/m
Services & other
businesses............. 44.6 37.1 20.2% 89.3 67.9 31.5%
------ ------ -------- --------
Consolidated net sales.. $985.5 $831.9 18.5% $1,930.2 $1,523.7 26.7%
====== ====== ==== ======== ======== ====
</TABLE>
n/m = not meaningful
(1) Because of the effective date of the acquisition, Steelcase S.A. net sales
of $148.3 million for Q1 2000 are not included in the chart above.
Q2 2001 consolidated net sales increased 18.5% primarily as a result of the
growth in new products and the broad-based strength of the Company's
established product lines. Net sales for the first half of 2001 were also
impacted by the acquisition of Steelcase S.A. and other domestic acquisitions.
The Company's North American business segment saw an 18.5% sales increase in
Q2 2001 and 17.0% in the first half of the year as the Company's established
products drove the momentum, along with new product sales, accompanied by
Steelcase Design Partnership ("SDP") growth of 12.8% in Q2 2001 and 10.8%
growth in the first six months of 2001. New product sales, defined as products
introduced in the past five years, made up 25% of the first half of the year's
sales. The Company's established product line sales growth was linked to the
momentum in the Company's large account business which has strengthened
significantly during the first half of the year.
The Company continues to sustain double-digit order growth across most
product lines within North America, outpacing the industry during the
comparable time period. Therefore, the Company expects its strong sales
performance to continue at least through the first nine months of the fiscal
year. The Business and Institutional Furniture Manufacturers' Association
("BIFMA") has increased its growth forecast for the U.S. office furniture
industry to 9%, up from the previous range of 5% to 7% for calendar year 2000.
Within International operations, orders and sales strengthened within the
quarter as European sales were up 14% in local currency compared to the first
six months of 2001 and 21% compared to Q2 2000. European sales, which
comprised the majority of International sales for the first six months of
2001, were strong across all major European markets. New product sales made up
approximately half of International sales for the first six months of 2001.
The devaluation of the euro negatively impacted sales by approximately $16
million in Q2 2001 and $34 million in the first six months of 2001. The net
result was a sales increase, in US dollars, of 10% for the quarter and 2% for
the first six months of 2001.
Services and other businesses primarily increased as a result of increased
sales at Attwood and consulting and design revenues from IDEO, as well as
increased net leasing revenues from Steelcase Financial Services Inc.
("SFSI").
The gross profit margin of 33.8% for Q2 2001 held constant with the margin
for Q2 2000; however, gross profit margin declined 1.0 percentage point for
the first six months of 2001 as compared to the first six months of the
previous year. The decline was attributable to a continuation of the same
factors affecting the Company's recent performance -- the negative impact of
continued industry-wide competitive pricing pressures, along with a shift in
the Company's sales mix from established products with higher margins to new
products with lower initial margins. In addition, the Company saw material
cost increases during Q2 2001. Although the Company saw volume leverage from
the increase in sales, the aforementioned factors offset the positive impact
of the leverage. Due to the above mentioned factors, the Company expects gross
margins to remain consistent with Q2 2001 levels for the balance of the year.
10
<PAGE>
The selling, general and administrative expense ratio of net sales showed
improvement to 24.4% for Q2 2001 and 24.2% for the first six months of 2001
from 25.8% in Q2 2000 and 25.3% in the first six months of 2000. The
improvement was primarily attributable to the Company's ability to leverage
sales growth. Cost control measures continue to be successful across the
Company, but the Company continues to make focused investments in its
technology capabilities and investments designed to improve productivity on a
global basis.
Interest expense increased to $11.2 million in Q2 2001 and $19.9 million
for the first six months of 2001, from $5.2 million and $6.2 million in Q2
2000 and the first half of 2000, respectively. Q1 2000 was the first quarter
the Company reported debt; the debt specifically related to the European
acquisition. The increases were primarily due to the borrowings against the
Company's lease receivable portfolio to fund further lease activity, as well
as significant cash outlays during the first half of 2001, specifically in the
area of capital expenditures. Other income, net, increased $11.9 million in
the first six months of 2001 as compared to the previous year, primarily as a
result of the pre-tax gain of $8.8 million on the sale of a non-operating
facility.
The effective income tax rate in Q2 2001 was 38.0% as compared to 40.9% for
Q2 2000. The rate for the first half of 2001 was 38.5% as compared to 39.0%
for the first half of 2000. The decreases in the effective rate were due to
certain tax planning strategies being implemented within our European
operations.
Equity in net income from joint ventures and dealer transitions decreased
to $(0.6) million in Q2 2001 and $(1.1) million in the first six months of
2001 from $0.4 million in Q2 2000 and $2.7 million in the first six months of
2000, primarily as a result of the Company's European operations now being
consolidated with the Company's results.
For the reasons set forth above, net income increased 40.6% to $53.7
million in Q2 2001 from $38.2 million in Q2 2000 and increased 22.6% to $116.3
million for the first six months of 2001 from $94.9 million for the first half
of 2000.
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 August 25, 2000, includes cash and cash equivalents of
$46.1 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 cash generated from operating activities for the
first six months of 2001 compared to the first six months of 2000 is
attributable to the Company's European operations, along with sales volume
increases around the world, which have increased both accounts receivable and
inventories. The Company, however, is developing strategies to aggressively
pursue opportunities to reduce both accounts receivable and inventories on a
worldwide basis. In addition, the Company had significant cash outlays for
previously accrued expenses including those related to the Company's payment
of the year-end bonus and contributions to the Company's trust fund, as well
as tax payments.
Cash used in investing activities was primarily composed of capital
expenditures and the change in leased assets of the Company's wholly owned
finance subsidiary, SFSI. SFSI's asset base continues to grow as SFSI
increases its portfolio of leased assets, asset based lending and project
financing. Capital expenditures were $130.6 million in the first half of 2001,
compared to $62.3 million in the first half of 2000. The Company is investing
in the construction of a new wood manufacturing facility, improvements in its
production processes and in its "made to order" SAP business system. 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 expects capital expenditures,
net of asset dispositions, to approximate $200 million for the full fiscal
year 2001. During the first half of 2001, the Company received proceeds of
$80.2 million related to the completion of three sale/leaseback transactions
and the sale of a non-operating facility.
11
<PAGE>
The Company paid common stock dividends of $0.22 per share, or $33.1
million, and $0.22 per share, or $33.8 million, during the first half of 2001
and 2000, respectively. During the first half of 2001, the Company repurchased
747,200 Class A common shares for $9.9 million and 766,800 Class B common
shares for $12.1 million, under a three million share repurchase program
authorized by the Board of Directors on June 17, 1998; this program was
expanded on September 22, 1999 by an additional three million shares and
further expanded on September 20, 2000 by an additional five million shares.
Management anticipates that the stock repurchase program will not reduce the
Company's public 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.
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 transition period is anticipated to resolve difficulties in
handling local currencies and 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. 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.
Based on the Euro Committee's work to date, the Company does not expect the
euro conversion to have a material impact on the financial position of
Steelcase S.A., 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 25, 2000 Compared to
Three and Six Months Ended August 27, 1999, Liquidity and Capital Resources
and Euro Conversion sections, particularly those with respect to the sales
performance of the Company continuing through the first nine months of the
fiscal year, the Company's gross margin remaining consistent with Q2 2001
levels for the balance of the year, the Company's future liquidity and capital
needs, the sufficiency of the Company's current and future cash and cash
equivalents to finance future liquidity and capital needs, future capital
expenditures, conversion of Class B common shares to Class A common shares,
and the impact of the euro conversion on the financial position of Steelcase
S.A. 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 domestically and internationally;
competitive pricing pressure; currency fluctuations; changes in customer order
patterns; sales mix; the success of new products and their impact on the
Company's manufacturing processes; the Company's ability to improve margins on
new products, to successfully integrate acquired businesses, to successfully
initiate and manage strategic alliances, to reduce costs, including ramp up
costs associated with new products, to control material costs, to reduce
accounts receivable and inventories associated with the Company's European
operations, and to successfully implement technology initiatives; the impact
of the euro conversion; the sufficiency of the reserve established with regard
to material and installation costs associated with Pathways product line
improvements; and other risks detailed in the Company's 10-K Report for the
year ended February 25, 2000, 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
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<PAGE>
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.
No other recent accounting pronouncements are expected to have a material
impact on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risks
During the second quarter of fiscal 2001, no material change in foreign
exchange risks occurred.
Interest Rates
During the second quarter of fiscal 2001, no material change in interest
rates occurred.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 15, 2000, the Company entered into a Consent Judgement with the
State of Michigan regarding operational and record keeping requirements for
one piece of pollution control equipment and associated coating lines at the
Company's Kentwood, Michigan Context Plant, alleged deficiencies in reporting
VOC emission from its Grand Rapids and Kentwood facilities, and alleged
deficiencies in its compliance with record keeping and maintenance
requirements of the NESHAPs for Wood furniture. The settlement amount paid
under the Consent Judgement was $346,000.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on June 15, 2000. At
this meeting, shareholders voted on two proposals presented in the Company's
definitive proxy statement. The results of the votes follow:
1. Proposal to elect three (3) directors to serve three-year terms expiring at
the 2003 annual meeting.
<TABLE>
<S> <C> <C>
For Withheld
------------- ---------
David Bing........................................... 1,058,866,556 3,703,261
William P. Crawford.................................. 1,060,340,883 2,228,934
Robert C. Pew III.................................... 1,060,335,235 2,234,582
</TABLE>
There were no votes cast against, abstentions or broker non-votes with
respect to any nominee named above. Directors continuing in office: James
P. Hackett, Earl D. Holton, David D. Hunting, Jr., Frank H. Merlotti,
Robert C. Pew II, Robert C. Pew III, Peter M. Wege II and P. Craig Welch
Jr.
2. Proposal to amend the Steelcase Inc. Incentive Compensation Plan to
increase the number of shares available for grant or award by 8,000,000.
<TABLE>
<S> <C> <C> <C>
For Against Abstentions Broker Non-Votes
----------- ---------- ----------- ----------------
993,173,386 59,832,442 310,734 9,253,255
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
1. EXHIBITS
See Exhibit Index
2. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended August 25,
2000.
14
<PAGE>
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
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: October 6, 2000
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Designation Description
----------- -----------
<C> <S>
10.17 Aircraft Time Sharing Agreement between Steelcase Inc. and James
P. Hackett, dated July 1, 2000
10.18 Aircraft Time Sharing Agreement between Steelcase Inc. and Robert
C. Pew, dated July 1, 2000
10.19 Third Amendment to the Steelcase Inc. Incentive Compensation Plan
27.1 Financial Data Schedule, for the six months ended August 25, 2000
</TABLE>
16
