(Exact name of registrant as specified in its charter)
Michigan
38-0819050
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
901 44th Street SE
Grand Rapids,
Michigan
49508
(Address of principal executive offices)
(Zip Code)
(616) 247-2710
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Class A Common Stock
SCS
New York Stock Exchange
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☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of September 19, 2023, Steelcase Inc. had 93,647,319 shares of Class A Common Stock and 20,414,413 shares of Class B Common Stock outstanding.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
Six Months Ended
August 25, 2023
August 26, 2022
OPERATING ACTIVITIES
Net income
$
29.0
$
8.2
Depreciation and amortization
41.7
43.7
Share-based compensation
18.5
15.6
Restructuring costs
16.0
4.7
Other
(8.5)
(2.4)
Changes in operating assets and liabilities:
Accounts receivable
2.7
(83.6)
Inventories
48.6
(67.4)
Income taxes receivable
(6.8)
22.2
Other assets
(3.3)
(21.2)
Accounts payable
22.5
33.5
Employee compensation liabilities
(17.9)
1.3
Employee benefit obligations
(10.9)
(18.6)
Customer deposits
1.8
(10.8)
Accrued expenses and other liabilities
(2.2)
0.4
Net cash provided by (used in) operating activities
131.2
(74.4)
INVESTING ACTIVITIES
Capital expenditures
(24.3)
(28.9)
Proceeds from disposal of fixed assets
15.7
5.6
Acquisitions, net of cash acquired
—
(105.4)
Other
(1.3)
13.4
Net cash used in investing activities
(9.9)
(115.3)
FINANCING ACTIVITIES
Dividends paid
(23.9)
(34.0)
Borrowings on global committed bank facility
69.0
266.8
Repayments on global committed bank facility
(69.0)
(187.0)
Repayments on note payable
(32.2)
—
Other
(1.6)
(2.5)
Net cash (used in) provided by financing activities
(57.7)
43.3
Effect of exchange rate changes on cash and cash equivalents
(0.2)
(2.0)
Net increase (decrease) in cash, cash equivalents and restricted cash
63.4
(148.4)
Cash and cash equivalents and restricted cash, beginning of period (1)
97.2
207.0
Cash and cash equivalents and restricted cash, end of period (2)
$
160.6
$
58.6
_______________________________________
(1)These amounts include restricted cash of $6.8 and $6.1 as of February 24, 2023 and February 25, 2022, respectively.
(2)These amounts include restricted cash of $7.0 and $6.4 as of August 25, 2023 and August 26, 2022, respectively.
Restricted cash primarily represents funds held in escrow for potential future workers’ compensation and product liability claims. The restricted cash balance is included as part of Other assets on the Condensed Consolidated Balance Sheets.
See accompanying notes to the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions in 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 and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended February 24, 2023 (“Form 10-K”). The Condensed Consolidated Balance Sheet as of February 24, 2023 was derived from the audited Consolidated Balance Sheet included in our Form 10-K.
As used in this Quarterly Report on Form 10-Q (“Report”), unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its subsidiaries in which a controlling interest is maintained. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
2.NEW ACCOUNTING STANDARDS
We evaluate all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability to our consolidated financial statements. We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are either not applicable to us or are not expected to have a material effect on our consolidated financial statements.
Adoption of New Accounting Standards
Effective Q1 2024, we adopted ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50), which is intended to enhance transparency of supplier finance programs by requiring disclosure of key terms, amounts outstanding (including a rollforward of outstanding amounts) and a description of where such amounts are presented in the consolidated financial statements.
We participate in a supplier finance program in Spain offered by a third-party financial institution. The program allows participating suppliers the ability to finance our payment obligations prior to their scheduled due dates at a discounted price set by the financial institution. We have extended payment terms with suppliers that have voluntarily chosen to participate in the program. As of August 25, 2023, the outstanding amount of program obligations, reported in Accounts payable on the Condensed Consolidated Balance Sheets, was $0.9. The amount settled through the program during the six months ended August 25, 2023 was $4.4.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3.REVENUE
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product category for each of our reportable segments:
Product Category Data
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Americas
Desking, benching, systems and storage
$
286.7
$
303.4
$
536.9
$
563.7
Seating
187.2
203.3
340.0
359.5
Other (1)
205.4
170.3
375.2
297.6
International
Desking, benching, systems and storage
62.6
63.5
124.2
130.9
Seating
61.4
68.0
123.4
138.7
Other (1)
51.3
54.8
106.8
113.6
$
854.6
$
863.3
$
1,606.5
$
1,604.0
_______________________________________
(1)The other product category data by segment consists primarily of products sold by consolidated dealers, textiles and surface materials, worktools, architecture and other uncategorized product lines and services, less promotions and incentives on all product categories.
Reportable geographic information is as follows:
Reportable Geographic Revenue
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
United States
$
641.3
$
634.6
$
1,174.0
$
1,136.3
Foreign locations
213.3
228.7
432.5
467.7
$
854.6
$
863.3
$
1,606.5
$
1,604.0
Contract Balances
At times, we receive payments from customers before revenue is recognized, resulting in the recognition of a contract liability (Customer deposits) presented on the Condensed Consolidated Balance Sheets.
Changes in the Customer deposits balance for the six months ended August 25, 2023 are as follows:
Customer Deposits
Balance as of February 24, 2023
$
50.8
Recognition of revenue related to beginning of year customer deposits
(42.2)
Customer deposits received, net of revenue recognized during the period
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.EARNINGS PER SHARE
Earnings per share is computed using the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Participating securities represent restricted stock units in which the participants have non-forfeitable rights to dividend equivalents during the performance period. Diluted earnings per share includes the effects of certain performance units in which the participants have forfeitable rights to dividend equivalents during the performance period.
Computation of Earnings Per Share
Three Months Ended August 25, 2023
Three Months Ended August 26, 2022
Net Income
Basic Shares (in millions)
Diluted Shares (in millions)
Net Income
Basic Shares (in millions)
Diluted Shares (in millions)
Amounts used in calculating earnings per share
$
27.5
118.8
119.1
$
19.6
117.2
117.7
Impact of participating securities
(1.1)
(4.8)
(4.8)
(0.7)
(4.4)
(4.4)
Amounts used in calculating earnings per share, excluding participating securities
$
26.4
114.0
114.3
$
18.9
112.8
113.3
Earnings per share
$
0.23
$
0.23
$
0.17
$
0.17
Computation of Earnings Per Share
Six Months Ended August 25, 2023
Six Months Ended August 26, 2022
Net Income
Basic Shares (in millions)
Diluted Shares (in millions)
Net Income
Basic Shares (in millions)
Diluted Shares (in millions)
Amounts used in calculating earnings per share
$
29.0
118.4
118.6
$
8.2
117.0
117.5
Impact of participating securities
(1.1)
(4.4)
(4.4)
(0.3)
(4.2)
(4.2)
Amounts used in calculating earnings per share, excluding participating securities
$
27.9
114.0
114.2
$
7.9
112.8
113.3
Earnings per share
$
0.24
$
0.24
$
0.07
$
0.07
There were no anti-dilutive performance units excluded from the computation of diluted earnings per share for the three and six months ended August 25, 2023 and August 26, 2022.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended August 25, 2023:
Unrealized gain (loss) on investment
Pension and other post-retirement liability adjustments
Derivative amortization
Foreign currency translation adjustments
Total
Balance as of May 26, 2023
$
(0.1)
$
8.7
$
(5.5)
$
(72.8)
$
(69.7)
Other comprehensive income (loss) before reclassifications
—
(0.3)
—
4.2
3.9
Amounts reclassified from accumulated other comprehensive income (loss)
—
(0.4)
0.3
—
(0.1)
Net other comprehensive income (loss) during the period
—
(0.7)
0.3
4.2
3.8
Balance as of August 25, 2023
$
(0.1)
$
8.0
$
(5.2)
$
(68.6)
$
(65.9)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended August 25, 2023:
Unrealized gain (loss) on investment
Pension and other post-retirement liability adjustments
Derivative amortization
Foreign currency translation adjustments
Total
Balance as of February 24, 2023
$
(0.1)
$
9.3
$
(5.7)
$
(76.0)
$
(72.5)
Other comprehensive income (loss) before reclassifications
—
(0.4)
—
7.4
7.0
Amounts reclassified from accumulated other comprehensive income (loss)
—
(0.9)
0.5
—
(0.4)
Net other comprehensive income (loss) during the period
—
(1.3)
0.5
7.4
6.6
Balance as of August 25, 2023
$
(0.1)
$
8.0
$
(5.2)
$
(68.6)
$
(65.9)
The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended August 25, 2023 and August 26, 2022:
Detail of Accumulated Other Comprehensive Income (Loss) Components
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
Affected Line in the Condensed Consolidated Statements of Income
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Amortization of pension and other post-retirement actuarial gains
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.FAIR VALUE
The carrying amounts for many of our financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. Our foreign exchange forward contracts, long-term investments and contingent consideration are measured at fair value on the Condensed Consolidated Balance Sheets.
Our total debt is carried at cost and was $451.1 and $481.2 as of August 25, 2023 and February 24, 2023, respectively. The fair value of our total debt is measured using a discounted cash flow analysis based on current market interest rates for similar types of instruments and was $393.0 and $405.9 as of August 25, 2023 and February 24, 2023, respectively. The estimation of the fair value of our total debt is based on Level 2 fair value measurements.
We may use derivative financial instruments to manage exposures to movements in foreign exchange rates and interest rates. The use of these financial instruments modifies the exposure of these risks with the intention to reduce our risk of volatility. We do not use derivatives for speculative or trading purposes.
In connection with the acquisition of Viccarbe Habitat, S.L in Q3 2022, up to an additional $14.1 (or €13.0) is payable to the sellers based upon the achievement of certain revenue and operating income targets over a three-year period ending in 2025. This amount was considered to be contingent consideration and was treated for accounting purposes as part of the total purchase price of the acquisition. We used the Monte Carlo simulation model to calculate the fair value of the contingent consideration as of the acquisition date, which represents a Level 3 measurement. At each subsequent reporting date, changes in the fair value of the liability are recorded to Operating expenses until the liability is settled.
Assets and liabilities measured at fair value within our Condensed Consolidated Balance Sheets as of August 25, 2023 and February 24, 2023 are summarized below:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Below is a roll-forward of assets and liabilities measured at estimated fair value using Level 3 inputs during the six months ended August 25, 2023:
Roll-forward of Fair Value Using Level 3 Inputs
Auction Rate
Security - Other Assets
Contingent Consideration - Other Long-Term Liabilities
Balance as of February 24, 2023
$
2.1
$
9.5
Unrealized gain (loss) on investment
—
—
Foreign currency (gain) loss
—
0.3
Change in estimated fair value
—
—
Balance as of August 25, 2023
$
2.1
$
9.8
7.INVENTORIES
Inventories
August 25, 2023
February 24, 2023
Raw materials and work-in-process
$
189.7
$
232.8
Finished goods
111.6
118.1
301.3
350.9
Revaluation to LIFO
30.3
31.2
$
271.0
$
319.7
The portion of inventories determined by the LIFO method aggregated to $125.9 and $134.1 as of August 25, 2023 and February 24, 2023, respectively.
8.SHORT-TERM BORROWINGS
We have a $250.0 global committed bank facility, which expires in 2025. At our option, and subject to certain conditions, we may increase the aggregate commitment under the facility by up to $125.0 by obtaining at least one commitment from one or more lenders. In Q1 2024, the credit facility was amended. As amended, interest on borrowings under the facility is based on the rate selected by us from the following options (with all capitalized terms having the meanings provided in the credit agreement, as amended):
•the Applicable Floating Rate Margin in effect plus the greatest of (i) the Prime Rate, (ii) the Federal Funds Effective Rate plus 0.5%, (iii) the Term SOFR Reference Rate for a one-month interest period plus 1.10% or (iv) 0.75%;
•the Applicable Term Benchmark/RFR Margin in effect plus (i) for borrowings in U.S. dollars, the Term SOFR Reference Rate plus 0.10%, or (ii) for borrowings in euros, the Adjusted EURIBOR Rate; or
•the Applicable Term Benchmark/RFR Margin in effect plus the Daily Simple SOFR Rate plus 0.10%.
In Q1 2024, we borrowed and repaid $67.2 under the facility to fund our operations and the balloon payment of $31.8 for a note payable that matured during the quarter. In Q2 2024, we borrowed and repaid $1.8 under the facility, and as of August 25, 2023, there were no borrowings outstanding under the facility.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. SHARE-BASED COMPENSATION
Performance Units
We have issued performance units (“PSUs”) to certain employees which are earned over a three-year performance period based on performance conditions established annually by the Compensation Committee within the first three months of the applicable fiscal year. The PSUs are then modified based on achievement of certain total shareholder return results relative to a comparison group of companies, which is a market condition. When the performance conditions for a fiscal year are established, or if the performance conditions involve a qualitative assessment and such assessment has been made, one-third of the PSUs issued are considered granted. Therefore, each of the three fiscal years within the performance period is considered an individual tranche of the award (referred to as "Tranche 1," "Tranche 2" and "Tranche 3," respectively).
As of August 25, 2023, the following PSUs have been issued and remained outstanding:
•767,600 PSUs to be earned over the period of 2024 through 2026 (the "2024 PSUs"),
•428,700 PSUs to be earned over the period of 2023 through 2025 (the "2023 PSUs") and
•448,300 PSUs to be earned over the period of 2022 through 2024 (the "2022 PSUs").
Once granted, the PSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the remaining performance period. For participants who are or become retirement-eligible during the performance period, the PSUs are expensed over the period ending on the date the participant becomes retirement-eligible. The awards will be forfeited if a participant leaves the company for reasons other than retirement, disability or death or if the participant engages in any competition with us, as defined in the Incentive Compensation Plan.
As of August 25, 2023, the 2024 PSUs, 2023 PSUs and 2022 PSUs were considered granted as follows:
•In Q1 2024, the performance conditions were established for Tranche 1 of the 2024 PSUs, Tranche 2 of the 2023 PSUs and Tranche 3 of the 2022 PSUs, and accordingly, such tranches were considered granted in Q1 2024.
•In Q1 2023, the performance conditions were established for Tranche 1 of the 2023 PSUs and Tranche 2 of the 2022 PSUs, and accordingly, such tranches were considered granted in Q1 2023.
•In Q1 2022, the performance conditions were established for Tranche 1 of the 2022 PSUs, and accordingly, such tranche was considered granted in Q1 2022.
We used the Monte Carlo simulation model to calculate the fair value of the market conditions on the respective grant dates, which resulted in a total fair value of $4.5, $3.5 and $2.3 for the PSUs with market conditions granted in 2024, 2023 and 2022, respectively, that remained outstanding as of August 25, 2023. The Monte Carlo simulation was computed using the following assumptions:
2024 PSUs
2023 PSUs
2022 PSUs
Tranche 1
Tranche 2
Tranche 1
Tranche 3
Tranche 2
Tranche 1
Risk-free interest rate (1)
3.7
%
4.0
%
2.6
%
4.7
%
2.3
%
0.3
%
Expected term
3 years
2 years
3 years
1 year
2 years
3 years
Estimated volatility (2)
44.1
%
37.8
%
52.2
%
45.5
%
43.8
%
53.5
%
_______________________________________
(1)Based on the U.S. Government bond benchmark on the grant date.
(2)Represents the historical price volatility of our Class A Common Stock for the period prior to the grant date which is equivalent to the expected term of the tranche.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total PSU expense (credit) and associated tax benefit recorded during the three and six months ended August 25, 2023 and August 26, 2022 are as follows:
Three Months Ended
Six Months Ended
Performance Units
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Expense (credit)
$
0.8
$
(0.2)
$
6.2
$
3.9
Tax benefit
0.1
—
1.5
1.0
The PSU activity for the six months ended August 25, 2023 is as follows:
Maximum Number of Shares of Nonvested Units
Total
Weighted-Average Grant Date Fair Value per Unit
Nonvested as of February 24, 2023
1,060,231
$
13.11
Granted
1,315,664
8.30
Nonvested as of August 25, 2023
2,375,895
$
10.44
As of August 25, 2023, there was $3.3 of remaining unrecognized compensation expense related to nonvested PSUs, which is expected to be recognized over a remaining weighted-average period of 1.9 years.
Restricted Stock Units
During the six months ended August 25, 2023, we awarded 1,564,505 restricted stock units ("RSUs") to certain employees. RSUs have restrictions on transfer which lapse up to three years after the date of grant, at which time the RSUs are issued as unrestricted shares of Class A Common Stock. RSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the requisite service period based on the value of the shares on the grant date. For participants who are or become retirement-eligible during the service period, the RSUs are expensed over the period ending on the date that the participant becomes retirement-eligible. Typically, these awards will be forfeited if a participant leaves the company for reasons other than retirement, disability or death or if the participant engages in any competition with us, as defined in the Incentive Compensation Plan.
The total RSU expense and associated tax benefit for the six months ended August 25, 2023 and August 26, 2022 are as follows:
Three Months Ended
Six Months Ended
Restricted Stock Units
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Expense
$
3.4
$
3.3
$
11.7
$
11.2
Tax benefit
0.8
0.8
2.9
2.8
The RSU activity for the six months ended August 25, 2023 is as follows:
Nonvested Units
Total
Weighted-Average Grant Date Fair Value per Unit
Nonvested as of February 24, 2023
3,293,268
$
12.11
Granted
1,564,505
7.89
Vested
(23,784)
10.61
Forfeited
(39,519)
10.46
Nonvested as of August 25, 2023
4,794,470
$
10.75
As of August 25, 2023, there was $13.5 of remaining unrecognized compensation expense related to nonvested RSUs, which is expected to be recognized over a remaining weighted-average period of 1.6 years.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. LEASES
We have operating leases for corporate offices, sales offices, showrooms, manufacturing and distribution facilities, vehicles and equipment that expire at various dates through 2035. Certain lease agreements include contingent rental payments based on per unit usage over contractual levels (e.g., miles driven or machine hours operated) and others include rental payments adjusted periodically for inflationary indexes. Additionally, some leases include options to renew or terminate the leases which can be exercised at our discretion.
The components of lease expense during the three and six months ended August 25, 2023 and August 26, 2022 are as follows:
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Operating lease cost
$
13.6
$
13.5
$
27.2
$
25.6
Sublease rental income
(0.5)
(0.5)
(1.0)
(1.1)
$
13.1
$
13.0
$
26.2
$
24.5
Supplemental cash flow and other information related to leases during the three and six months ended August 25, 2023 and August 26, 2022 is as follows:
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Cash flow information:
Operating cash flows used for operating leases
$
13.6
$
13.6
$
27.7
$
27.1
Leased assets obtained in exchange for new operating lease obligations
2.6
10.3
7.6
13.5
As of August 25, 2023 and February 24, 2023, the weighted-average remaining lease terms were 5.0 years and 5.3 years, respectively, and the weighted-average discount rates were 4.3% and 4.2%, respectively.
The following table summarizes the future minimum lease payments as of August 25, 2023:
Fiscal year ending in February
Amount (1)
2024
$
27.0
2025
53.9
2026
43.0
2027
34.3
2028
25.4
Thereafter
39.9
Total lease payments
$
223.5
Less: Interest
23.2
Present value of lease liabilities
$
200.3
_______________________________________
(1)Lease payments include options to extend lease terms that are reasonably certain of being exercised. The payments exclude legally binding minimum lease payments for leases signed but not yet commenced.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11.ACQUISITIONS
HALCON
In Q2 2023, we acquired Halcon Furniture LLC ("HALCON"), a Minnesota-based designer and manufacturer of precision-tailored wood furniture for the workplace. The transaction included the purchase of all the outstanding membership interests of HALCON for $127.5 less customer deposits of $24.3, plus an adjustment of $1.9 for working capital. The acquisition was funded using a combination of cash on-hand and borrowings under our global committed bank facility. An additional $2.0 is payable to a seller based upon continued employment over a three-year period, which is being expensed over the service period on a straight-line basis.
Tangible assets and liabilities of HALCON were valued as of the acquisition date using a market analysis, and intangible assets were valued using a discounted cash flow analysis, which represents a Level 3 measurement. On the acquisition date, we recorded $51.8 related to identifiable intangible assets, $36.6 related to goodwill and $16.7 related to tangible assets. The tangible assets mainly consisted of property, plant and equipment of $30.6, working capital (primarily inventory of $12.8) and customer deposits of $24.3. The goodwill was recorded in the Americas segment and is deductible for U.S. income tax purposes. The goodwill resulting from the acquisition is primarily related to the growth potential of HALCON expected to be driven by new product development, geographic expansion and the integration of HALCON products into our dealer network. Intangible assets are principally related to dealer relationships, the HALCON trade name and internally developed know-how and designs, which are being amortized over periods ranging from 9 to 10 years from the date of acquisition. We also acquired a backlog of orders which shipped throughout 2023. The purchase accounting for the HALCON acquisition was completed during the current year.
The following table summarizes the purchased identified intangible assets and the respective fair value and useful life of each asset at the date of acquisition:
Other Intangible Assets
Useful Life (Years)
Fair Value
Dealer relationships
10.0
$
21.5
Trademark
9.0
14.0
Know-how and designs
9.0
12.0
Backlog
0.7
4.3
$
51.8
The fair values of the purchased intangible assets are being amortized on a straight-line basis over their useful lives. The following table summarizes the estimated future amortization expense for the next five years as of August 25, 2023:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. REPORTABLE SEGMENTS
As of the end of Q1 2024, we realigned our reportable segments for financial reporting purposes as a result of changes in how we monitor business performance and allocate resources to support our top strategic priorities. During Q1 2024, we simplified our internal reporting to summarize the results of all brands by geography including utilization of previously unallocated Corporate expenses. This change is parallel to the organizational structure that is used by our Chief Executive Officer in the capacity as chief operating decision maker ("CODM") for making operating and investment decisions and assessing business performance.
The operating segments regularly reviewed by the CODM are (1) the Americas, (2) Europe, the Middle East and Africa ("EMEA") and (3) Asia Pacific. Asia Pacific serves customers in Australia, China, India, Japan, Korea and other countries in Southeast Asia. We primarily review and evaluate revenue, gross profit and operating income (loss) by these segments in our internal review processes and reporting. We also allocate resources among these segments primarily based on revenue, gross profit and operating income (loss). Total assets by segment include manufacturing and other assets associated with each segment.
For purposes of segment reporting externally, we have aggregated the EMEA and Asia Pacific operating segments as an International segment based upon their similarity in certain quantitative and qualitative characteristics as defined in the Accounting Standards Codification ("ASC") 280, Segment Reporting. We evaluated the economic similarity of these operating segments including patterns and trends for revenue, gross profit and operating income (loss) in addition to the similarity in the nature of products and services, types of customers, and production and distribution processes in these regions. We concluded that these operating segments met the criteria for aggregation consistent with the basic principles and objectives of segment reporting described in ASC 280. The change in our reportable segments did not result in a change to our reporting units for purposes of goodwill impairment testing.
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a comprehensive portfolio of furniture, architectural, textile and surface imaging products that are marketed to corporate, government, healthcare, education and retail customers primarily through the Steelcase, AMQ, Coalesse, Designtex, HALCON, Orangebox, Smith System and Viccarbe brands.
The International segment serves customers in EMEA and Asia Pacific with a comprehensive portfolio of furniture and architectural products that are marketed to corporate, government, education and retail customers primarily through the Steelcase, Coalesse, Orangebox, Smith System and Viccarbe brands.
As required by ASC 280, all presented segment data reflects the reclassification of previously reported segment data. Revenue, gross profit and operating income (loss) for the three and six months ended August 25, 2023 and August 26, 2022 and total assets and goodwill as of August 25, 2023 and February 24, 2023 by segment are presented in the following tables which reflect the realigned segments:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reportable Segment Balance Sheet Data
August 25, 2023
February 24, 2023
Total assets
Americas
$
1,647.5
$
1,631.2
International
551.1
571.6
$
2,198.6
$
2,202.8
Goodwill
Americas
$
268.6
$
268.3
International
8.7
8.5
$
277.3
$
276.8
13. RESTRUCTURING ACTIVITIES
In Q4 2023, we implemented a series of restructuring actions, primarily related to the wind down of our customer aviation function in connection with our strategy to reinvent our go-to-market model and create new customer experiences. The restructuring actions included terminations of approximately 25 salaried employees in the Americas segment. We expect to incur approximately $4.4 of restructuring costs in the Americas segment related to these actions, consisting of cash severance payments and other separation-related benefits. We incurred $0.1 and $0.7 of restructuring costs in the Americas segment for these actions in Q2 2024 and Q1 2024, respectively. We also incurred $3.6 of workforce reductions and other separation-related benefits in the Americas segment for these actions in Q4 2023. We expect these actions to be completed by the end of 2024.
In Q1 2024, we announced a series of restructuring actions in response to continued decline in order volume, persisting inflationary pressures, and decreasing plant utilization. These actions involve the involuntary terminations of approximately 40 to 50 salaried roles in EMEA, the elimination of approximately 240 positions in Asia Pacific, and the involuntary terminations of approximately 30 employees in the Americas in connection with the closing of our regional distribution center in Atlanta, Georgia. We expect to incur restructuring costs of approximately $16 to $18 in the International segment and approximately $1 in the Americas segment related to these actions, consisting of cash severance payments and other separation-related benefits. We incurred restructuring costs of $7.8 in the International segment for these actions during Q2 2024. We incurred restructuring costs of $6.8 in the International segment and $0.6 in the Americas segment for these actions during Q1 2024. We expect these actions to be substantially completed by the end of 2024.
The following table details the changes in the restructuring reserve balance for the six months ended August 25, 2023:
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations:
This management’s discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 24, 2023. Reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the calendar year, unless indicated by a specific date. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
This item contains certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated statements of operations, balance sheets or statements of cash flows of the company. The non-GAAP financial measures used are (1) organic revenue growth (decline), (2) adjusted operating income (loss) and (3) adjusted earnings per share. Pursuant to the requirements of Regulation G, we have provided a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP financial measure in the tables below. These measures are supplemental to, and should be used in conjunction with, the most comparable GAAP measures. Management uses these non-GAAP financial measures to monitor and evaluate financial results and trends. See Non-GAAP Financial Measures for a description of these measures and why management believes they are also useful to investors.
Financial Summary
Our reportable segments consist of the Americas segment and the International segment. See Note 12 to the condensed consolidated financial statements for additional information.
Amortization of purchased intangible assets, per share
0.03
0.05
0.07
0.09
Income tax effect of amortization of purchased intangible assets, per share
(0.01)
(0.01)
(0.02)
(0.02)
Restructuring costs, per share
0.07
—
0.14
0.04
Income tax effect of restructuring costs, per share
(0.01)
—
(0.03)
(0.01)
Adjusted earnings per share
$
0.31
$
0.21
$
0.40
$
0.17
Overview
In Q1 2024, we realigned our reportable segments for financial reporting purposes. Effective as of the end of Q1 2024, Designtex and previously unallocated Corporate expenses are included in the Americas segment, and the Europe, the Middle East and Africa ("EMEA") and Asia Pacific operating segments are aggregated and reported as the International segment. All prior year results are reclassified so as to be directly comparable to these realigned segments.
In Q2 2024, our earnings improved significantly year over year primarily driven by higher pricing benefits from actions we implemented over the past two years in response to significant inflationary pressures. Those inflationary pressures continued to moderate during the quarter, and operational improvements, along with higher pricing benefits, resulted in a significantly higher gross margin compared to Q2 2023. Revenue in Q2 2024 decreased modestly compared to the prior year due to lower beginning backlog and lower orders, partially offset by faster order fulfillment patterns in the Americas. The improved operating results, as well as our efforts to reduce working capital,
strengthened our liquidity during the quarter. Orders (adjusted for the impact of an acquisition, divestitures and currency translation effects) declined by 7% in Q2 2024 compared to the prior year and declined 5% sequentially compared to Q1 2024, which is consistent with the seasonal decrease in the prior year. We recorded $7.9 of restructuring costs during Q2 2024 in connection with our previously announced actions.
Q2 2024 Compared to Q2 2023
We recorded net income of $27.5 and earnings per share of $0.23 in Q2 2024 compared to net income of $19.6 and earnings per share of $0.17 in the prior year. Operating income of $41.0 in Q2 2024 represented an improvement of $12.1 compared to operating income of $28.9 in the prior year.The increase was driven by higher pricing benefits, partially offset by the impacts of lower volume, higher operating expenses and higher restructuring costs. We reported adjusted operating income of $53.3 and adjusted earnings per share of $0.31 in Q2 2024 compared to adjusted operating income of $35.8 and adjusted earnings per share of $0.21 in the prior year.
Revenue of $854.6 in Q2 2024 represented a decrease of $8.7 or 1% compared to the prior year driven by a decline in International.Approximately $80 of higher pricing benefits and $5.0 of favorable currency translation effects were more than offset by approximately $95 related to lower volume. Revenue was flat in the Americas, while International revenue decreased by 6%. The organic revenue decline was 1% compared to the prior year, with 1% growth in the Americas but an 8% decline in International.
Cost of sales as a percentage of revenue improved by 420 basis points in Q2 2024 compared to the prior year.The improvement was driven by approximately $80 of higher pricing benefits, partially offset by the impacts of lower volume and $6.6 of higher variable compensation expense. Cost of sales as a percentage of revenue improved by 430 basis points in the Americas and by 380 basis points in International.
Operating expenses increased by $14.5 in Q2 2024, or 190 basis points as a percentage of revenue, compared to the prior year. Operating expenses in Q2 2024 included $14.6 of higher variable compensation expense, partially offset by $5.1 of gains primarily related to the sale of an aircraft and other aviation assets.
We recorded restructuring costs of $7.9 in Q2 2024, primarily related to the restructuring actions in International. See Note 13 to the condensed consolidated financial statements for additional information.
Our Q2 2024 effective tax rate was approximately 25.7% compared to a Q2 2023 effective tax rate of 25.8%.
Year-to-date 2024 Compared to Year-to-date 2023
We recorded net income of $29.0 and earnings per share of $0.24 in year-to-date 2024 compared to net income of $8.2 and earnings per share of $0.07 in the prior year. Operating income of $48.3 in year-to-date 2024 represented an improvement of $32.0 compared to operating income of $16.3 in the prior year.The improvement was driven by higher pricing benefits, partially offset by the impacts of lower volume, higher operating expenses and higher restructuring costs. We reported adjusted operating income of $73.0 and adjusted earnings per share of $0.40 in year-to-date 2024 compared to adjusted operating income of $31.2 and adjusted earnings per share of $0.17 in the prior year.
Revenue of $1,606.5 in year-to-date 2024 represented an increase of $2.5 compared to the prior year, driven by growth in the Americas offset by a decline in International.Approximately $160 of the increase was related to higher pricing benefits, substantially offset by approximately $157 related to lower volume (net of the impact of an acquisition and divestitures). Revenue increased by 3% in the Americas, while revenue in International decreased by 8%. The organic revenue decline was 1% compared to the prior year, with 2% growth in the Americas but a 7% decline in International.
Cost of sales as a percentage of revenue improved by 480 basis points in year-to-date 2024 compared to the prior year.The improvement was driven by approximately $160 of higher pricing benefits, partially offset by the impacts of lower volume and $11.3 of higher variable compensation expense. Cost of sales as a percentage of revenue improved by 510 basis points in the Americas and by 300 basis points in International.
Operating expenses increased by $34.2 in year-to-date 2024, or 210 basis points as a percentage of revenue, compared to the prior year. Operating expenses in year-to-date 2024 included $23.8 of higher variable compensation expense and $6.3 from an acquisition. Operating expenses included $5.1 of gains primarily related to the sale of an aircraft and other aviation assets in year-to-date 2024 compared to a $4.0 gain from the sale of land in year-to-date 2023.
We recorded restructuring costs of $16.0 in year-to-date 2024 and $4.7 in year-to-date 2023. See Note 13 to the condensed consolidated financial statements for additional information.
See Note 12 to the condensed consolidated financial statements for additional information regarding our business segments.
Americas
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a comprehensive portfolio of furniture, architectural, textile and surface imaging products that are marketed to corporate, government, healthcare, education and retail customers primarily through the Steelcase, AMQ, Coalesse, Designtex, HALCON, Orangebox, Smith System and Viccarbe brands.
Three Months Ended
Six Months Ended
Statement of Operations Data — Americas
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Revenue
$
679.3
100.0
%
$
677.0
100.0
%
$
1,252.1
100.0
%
$
1,220.8
100.0
%
Cost of sales
443.4
65.3
471.1
69.6
832.0
66.5
874.9
71.6
Restructuring costs
—
—
—
—
0.6
—
0.9
0.1
Gross profit
235.9
34.7
205.9
30.4
419.5
33.5
345.0
28.3
Operating expenses
175.8
25.9
167.8
24.7
338.9
27.0
314.3
25.8
Restructuring costs
0.1
—
0.5
0.1
0.8
0.1
3.8
0.3
Operating income
$
60.0
8.8
%
$
37.6
5.6
%
$
79.8
6.4
%
$
26.9
2.2
%
Adjusted Operating Income — Americas
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Operating income
$
60.0
8.8
%
$
37.6
5.6
%
$
79.8
6.4
%
$
26.9
2.2
%
Amortization of purchased intangible assets
3.2
0.5
5.3
0.7
6.3
0.5
7.9
0.6
Restructuring costs
0.1
—
0.5
0.1
1.4
0.1
4.7
0.4
Adjusted operating income
$
63.3
9.3
%
$
43.4
6.4
%
$
87.5
7.0
%
$
39.5
3.2
%
Operating income in the Americas increased by $22.4 in Q2 2024 compared to the prior year. The increase was driven by higher pricing benefits, partially offset by the impacts of lower volume and higher operating expenses. Adjusted operating income of $63.3 in Q2 2024 represented an improvement of $19.9 compared to the prior year. Operating income in the Americas increased by $52.9 in year-to-date 2024 compared to the prior year. The increase was driven by the same factors as the quarter. Adjusted operating income of $87.5 in year-to-date 2024 represented an improvement of $48.0 compared to the prior year.
The Americas revenue represented 79.5% of consolidated revenue in Q2 2024. In Q2 2024, revenue increased by $2.3 compared to the prior year. Approximately $70 of the increase was related to higher pricing benefits, substantially offset by approximately $65 related to lower volume. Organic revenue growth in Q2 2024 was $5.1 or 1% compared to the prior year. The Americas revenue represented 77.9% of consolidated revenue in year-to-date 2024. In year-to-date 2024, revenue increased by $31.3 or 3% compared to the prior year. Approximately $135 of the increase was related to higher pricing benefits, partially offset by approximately $100 related to lower volume (net of the impact of an acquisition and divestiture) and approximately $3 of unfavorable currency translation effects. Organic revenue growth in year-to-date 2024 was $18.6 or 2% compared to the prior year.
Cost of sales as a percentage of revenue improved by 430 basis points in Q2 2024 compared to the prior year. The improvement was driven by approximately $70 of higher pricing benefits and approximately $5 from operational improvements, partially offset by the impacts of lower volume and $6.1 of higher variable compensation expense. Cost of sales as a percentage of revenue improved by 510 basis points in year-to-date 2024 compared to the prior year. The improvement was driven by approximately $135 of higher pricing benefits and approximately $10 from operational improvements, partially offset by the impacts of lower volume and $10.7 of higher variable compensation expense.
Operating expenses increased by $8.0 in Q2 2024, or 120 basis points as a percentage of revenue, compared to the prior year. Operating expenses in Q2 2024 included $12.0 of higher variable compensation expense, partially offset by $5.1 of gains primarily related to the sale of an aircraft and other aviation assets. Operating expenses increased by $24.6 in year-to-date 2024, or 120 basis points as a percentage of revenue, compared to the prior
year. Operating expenses in year-to-date 2024 included $20.6 of higher variable compensation expense and $6.3 from an acquisition. Operating expenses included $5.1 of gains primarily related to the sale of an aircraft and other aviation assets in year-to-date 2024 compared to a $4.0 gain from the sale of land in year-to-date 2023.
International
The International segment serves customers in EMEA and Asia Pacific with a comprehensive portfolio of furniture and architectural products that are marketed to corporate, government, education and retail customers primarily through the Steelcase, Coalesse, Orangebox, Smith System and Viccarbe brands.
Three Months Ended
Six Months Ended
Statement of Operations Data — International
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Revenue
$
175.3
100.0
%
$
186.3
100.0
%
$
354.4
100.0
%
$
383.2
100.0
%
Cost of sales
126.4
72.1
141.4
75.9
253.7
71.6
285.8
74.6
Restructuring costs
1.4
0.8
—
—
2.2
0.6
—
—
Gross profit
47.5
27.1
44.9
24.1
98.5
27.8
97.4
25.4
Operating expenses
60.1
34.3
53.6
28.8
117.6
33.2
108.0
28.2
Restructuring costs
6.4
3.6
—
—
12.4
3.5
—
—
Operating loss
$
(19.0)
(10.8)
%
$
(8.7)
(4.7)
%
$
(31.5)
(8.9)
%
$
(10.6)
(2.8)
%
Adjusted Operating Loss — International
Three Months Ended
Six Months Ended
August 25, 2023
August 26, 2022
August 25, 2023
August 26, 2022
Operating loss
$
(19.0)
(10.8)
%
$
(8.7)
(4.7)
%
$
(31.5)
(8.9)
%
$
(10.6)
(2.8)
%
Amortization of purchased intangible assets
1.2
0.7
1.1
0.6
2.4
0.7
2.3
0.6
Restructuring costs
7.8
4.4
—
—
14.6
4.1
—
—
Adjusted operating loss
$
(10.0)
(5.7)
%
$
(7.6)
(4.1)
%
$
(14.5)
(4.1)
%
$
(8.3)
(2.2)
%
The operating loss in International increased by $10.3 in Q2 2024 compared to the prior year. The increase was driven by lower volume, higher operating expenses and higher restructuring costs, partially offset by higher pricing benefits. The adjusted operating loss of $10.0 in Q2 2024 represented a decline of $2.4 compared to the prior year. The operating loss in International increased by $20.9 in year-to-date 2024 compared to the prior year. The increase was driven by the same factors as the quarter. The adjusted operating loss of $14.5 in year-to-date 2024 represented a decline of $6.2 compared to the prior year.
International revenue represented 20.5% of consolidated revenue in Q2 2024. In Q2 2024, revenue decreased by $11.0 or 6% compared to the prior year, driven by declines across most markets.Approximately $10 of higher pricing benefits and approximately $6 of favorable currency translation effects were more than offset by approximately $30 related to lower volume. Organic revenue decline in Q2 2024 was $15.2 or 8% compared to the prior year. International revenue represented 22.1% of consolidated revenue in year-to-date 2024. In year-to-date 2024, revenue decreased by $28.8 or 8% compared to the prior year, driven by declines across most markets.Approximately $25 of higher pricing benefits and approximately $3 of favorable currency translation effects were more than offset by approximately $60 related to lower volume. Organic revenue decline in year-to-date 2024 was $27.9 or 7% compared to the prior year.
Cost of sales as a percentage of revenue improved by 380 basis points in Q2 2024 compared to the prior year. The improvement was driven by approximately $10 of higher pricing benefits, partially offset by the impacts of lower volume. Cost of sales as a percentage of revenue improved by 300 basis points in year-to-date 2024 compared to the prior year. The improvement was driven by approximately $25 of higher pricing benefits, partially offset by the impacts of lower volume.
Operating expenses increased by $6.5 in Q2 2024, or 550 basis points as a percentage of revenue, compared to the prior year. Operating expenses in Q2 2024 included $2.6 of higher variable compensation expense and approximately $1 of unfavorable currency translation effects. Operating expenses increased by $9.6 in year-to-date 2024, or 500 basis points as a percentage of revenue, compared to the prior year. Operating expenses in year-to-date 2024 included:
•$3.5 of higher marketing, product development and sales expenses,
•approximately $2 of unfavorable currency translation effects.
Non-GAAP Financial Measures
The non-GAAP financial measures used in this MD&A are: (1) organic revenue growth (decline), (2) adjusted operating income (loss) and (3) adjusted earnings per share.
Organic Revenue Growth (Decline)
We define organic revenue growth (decline) as revenue growth (decline) excluding the impact of acquisitions and divestitures and foreign currency translation effects. Organic revenue growth (decline) is calculated by adjusting prior year revenue to include revenues of acquired companies prior to the date of the company's acquisition, to exclude revenues of divested companies and to use current year average exchange rates in the calculation of foreign-denominated revenue. We believe organic revenue growth (decline) is a meaningful metric to investors as it provides a more consistent comparison of our revenue to prior periods as well as to industry peers.
Adjusted Operating Income (Loss) and Adjusted Earnings Per Share
We define adjusted operating income (loss) as operating income (loss) excluding amortization of purchased intangible assets and restructuring costs. We define adjusted earnings per share as earnings per share, on a diluted basis, excluding amortization of purchased intangible assets and restructuring costs, net of related income tax effects.
•Amortization of purchased intangible assets: We may record intangible assets (such as backlog, dealer relationships, trademarks, know-how and designs and proprietary technology) when we acquire companies. We allocate the fair value of purchase consideration to net tangible and intangible assets acquired based on their estimated fair values. The fair value estimates for these intangible assets require management to make significant estimates and assumptions, which include the useful lives of intangible assets. We believe that adjusting for amortization of purchased intangible assets provides a more consistent comparison of our operating performance to prior periods as well as to industry peers. As our business strategy in recent years has included an increased number of acquisitions, intangible asset amortization has become more significant.
•Restructuring costs: Restructuring costs may be recorded as our business strategies change or in response to changing market trends and economic conditions. We believe that adjusting for restructuring costs, which are primarily associated with business exit and workforce reduction costs, provides a more consistent comparison of our operating performance to prior periods as well as to industry peers.
Cash and cash equivalents are used to fund day-to-day operations, including seasonal disbursements, particularly the annual payment of accrued variable compensation and retirement plan contributions in Q1 of each fiscal year. During normal business conditions, we target a range of $75 to $175 in cash and cash equivalents to fund operating requirements. In addition, we may carry additional liquidity for potential investments in strategic initiatives and as a cushion against economic volatility, and from time to time, we may allow our cash and cash equivalents to temporarily fall below our targeted range to fund acquisitions, other growth initiatives and material committed cash requirements.
Liquidity Sources
August 25, 2023
February 24, 2023
Cash and cash equivalents
$
153.6
$
90.4
Company-owned life insurance
160.9
157.3
Availability under credit facilities
275.9
269.7
Total liquidity sources available
$
590.4
$
517.4
As of August 25, 2023, we held a total of $153.6 in cash and cash equivalents. Of that total, 71% was located in the U.S., and 29% was located outside of the U.S., primarily in China (including Hong Kong), Mexico, India, the United Kingdom and Malaysia.
COLI investments are recorded at their net cash surrender value. Our investments in COLI policies are intended to be utilized as a funding source for long-term benefit obligations. However, COLI can also be used as a source of liquidity. We believe the financial strength of the issuing insurance companies associated with our COLI policies is sufficient to meet their obligations.
Availability under credit facilities may be reduced related to compliance with applicable covenants. See Liquidity Facilities for more information.
The following table summarizes our Condensed Consolidated Statements of Cash Flows for the six months ended August 25, 2023 and August 26, 2022:
Six Months Ended
Cash Flow Data
August 25, 2023
August 26, 2022
Net cash provided by (used in):
Operating activities
$
131.2
$
(74.4)
Investing activities
(9.9)
(115.3)
Financing activities
(57.7)
43.3
Effect of exchange rate changes on cash and cash equivalents
(0.2)
(2.0)
Net increase (decrease) in cash, cash equivalents and restricted cash
63.4
(148.4)
Cash, cash equivalents and restricted cash, beginning of period
97.2
207.0
Cash, cash equivalents and restricted cash, end of period
Changes in accounts receivable, inventories and accounts payable
73.8
(117.5)
Income taxes receivable
(6.8)
22.2
Employee compensation liabilities
(17.9)
1.3
Employee benefit obligations
(10.9)
(18.6)
Changes in other operating assets and liabilities
(12.2)
(34.0)
Net cash provided by (used in) operating activities
$
131.2
$
(74.4)
Annual payments related to accrued variable compensation and retirement plan contributions totaled $77.3 in year-to-date 2024 compared to $32.4 in the prior year. In year-to-date 2024, we generated cash from working capital primarily due to decreased levels of inventory related to supply chain improvements and improvements in the number of days sales outstanding in accounts receivable. In year-to-date 2023, cash was used to meet working capital requirements primarily due to increased levels of inventory which were purchased to mitigate the impacts of supply chain disruptions. In year-to-date 2023, we received $29.7 related to the carryback of our fiscal year 2021 tax loss in the U.S.
Cash used in investing activities
Six Months Ended
Cash Flow Data — Investing Activities
August 25, 2023
August 26, 2022
Capital expenditures
$
(24.3)
$
(28.9)
Proceeds from disposal of fixed assets
15.7
5.6
Acquisitions, net of cash acquired
—
(105.4)
Other
(1.3)
13.4
Net cash used in investing activities
$
(9.9)
$
(115.3)
Capital expenditures in year-to-date 2024 were primarily related to investments in manufacturing operations, product development, information technology, customer-facing showrooms and facilities. In year-to-date 2024, proceeds from the disposal of fixed assets included $14.9 of proceeds from the sale of an aircraft and other aviation assets. In year-to-date 2023, proceeds from the disposal of fixed assets included $5.6 of proceeds from the sale of land. Other investing activities in year-to-date 2023 included $7.5 of proceeds from the sale of an investment in an unconsolidated affiliate and $5.1 of proceeds from COLI policy maturities.
Cash (used in) provided by financing activities
Six Months Ended
Cash Flow Data — Financing Activities
August 25, 2023
August 26, 2022
Dividends paid
$
(23.9)
$
(34.0)
Borrowings on global committed bank facility
69.0
266.8
Repayments on global committed bank facility
(69.0)
(187.0)
Repayments on note payable
(32.2)
—
Other
(1.6)
(2.5)
Net cash (used in) provided by financing activities
The following table details dividends paid per common share during each quarter of year-to-date 2024 and year-to-date 2023:
Dividend Data
First Quarter
Second Quarter
Total
2024
Dividends declared and paid per common share
$
0.100
$
0.100
$
0.200
2023
Dividends declared and paid per common share
$
0.145
$
0.145
$
0.290
In year-to-date 2024, we borrowed and repaid $69.0 under our global committed bank facility to fund our operations and a balloon payment of $31.8 for a note payable that matured during Q1 2024. See Note 8 to the condensed consolidated financial statements for additional information.
Other financing activities include share repurchases. In year-to-date 2024, we repurchased 429,990 shares of Class A common stock for $3.3, and in year-to-date 2023, we repurchased 279,301 shares of Class A common stock for $3.4. All shares were repurchased to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan.
As of August 25, 2023, we had $6.4 of remaining availability under the $150 share repurchase program approved by our Board of Directors in 2016.
Liquidity Facilities
The following table summarizes available capacity under our liquidity facilities as of August 25, 2023:
Liquidity Facilities
August 25, 2023
Global committed bank facility
$
250.0
Other committed bank facility
8.0
Various uncommitted facilities
23.1
Total credit lines available
281.1
Less: Borrowings outstanding
(5.2)
Available capacity
$
275.9
We have a $250.0 global committed bank facility in effect through 2025. As of August 25, 2023, there were no borrowings outstanding, our ability to borrow was not limited and we were in compliance with all covenants under the facility.
We have an $8.0 committed bank facility related to a subsidiary. As of August 25, 2023, there were $4.8 in borrowings outstanding under the facility and our availability to borrow under the facility was not limited.
We have unsecured uncommitted short-term credit facilities available for working capital purposes with various financial institutions with a total U.S. dollar borrowing capacity of up to $4.0 and a total foreign currency borrowing capacity of up to $19.1 as of August 25, 2023. These credit facilities have no stated expiration date but may be changed or canceled by the banks at any time. As of August 25, 2023, there were $0.4 borrowings outstanding under these facilities.
Total consolidated debt as of August 25, 2023 was $451.1. In addition to borrowings under one of our committed bank facilities, we have $445.9 in term notes due in 2029 with an effective interest rate of 5.6%. The term notes are unsecured, contain no financial covenants and are not cross-defaulted to our other debt facilities.
Liquidity Outlook
Our material cash requirements are subject to fluctuation based on business requirements, economic volatility or investments in strategic initiatives. Our liquidity position, funds available from COLI and under our credit facilities and cash generated from future operations are expected to be sufficient to finance our known or foreseeable liquidity needs, including our material cash requirements. As of August 25, 2023, our total liquidity, which is comprised of cash and cash equivalents and the cash surrender value of COLI, aggregated to $314.5.
During Q2 2024, there were no significant changes in the items that we identified as our material committed cash requirements in our Annual Report on Form 10-K for the fiscal year ended February 24, 2023.
We also have other planned material usages of cash which we consider discretionary. This includes plans for capital expenditures which are expected to total approximately $70 to $80 in 2024 compared to $59.1 in 2023. In addition, we fund dividend payments declared by our Board of Directors. On September 19, 2023, we announced a quarterly dividend on our common stock of $0.10 per share, or approximately $11, to be paid in Q3 2024.
Critical Accounting Estimates
During Q2 2024, there have been no changes in the items that we have identified as critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended February 24, 2023.
Recently Issued Accounting Standards
See Note 2 to the condensed consolidated financial statements.
Forward-looking Statements
From time to time, in written and oral statements, we discuss our expectations regarding future events and our plans and objectives for future operations. These forward-looking statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, us. Forward-looking statements generally are accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project," "target” or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements and vary from our expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters, pandemics and other Force Majeure events; cyberattacks; changes in the legal and regulatory environment; changes in raw material, commodity and other input costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in this Report, our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Item 3.Quantitative and Qualitative Disclosures About Market Risk:
The nature of the market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) we faced as of August 25, 2023 had not materially changed from what we disclosed in our Annual Report on Form 10-K for the fiscal year ended February 24, 2023. We are exposed to market risks from foreign currency exchange, interest rates, commodity prices and fixed income and equity prices, which could affect our operating results, financial position and cash flows.
Foreign Exchange Risk
During Q2 2024, no material change in foreign exchange risk occurred.
Interest Rate Risk
During Q2 2024, no material change in interest rate risk occurred.
Commodity Price Risk
During Q2 2024, no material change in commodity price risk occurred.
Fixed Income and Equity Price Risk
During Q2 2024, no material change in fixed income and equity price risk occurred.
(a) Disclosure Controls and Procedures. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of August 25, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of August 25, 2023, our disclosure controls and procedures were effective in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and (2) ensuring that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors:
For a more detailed explanation of the risks affecting our business, please refer to the Risk Factors section in our Annual Report on Form 10-K for the fiscal year ended February 24, 2023. There have not been any material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended February 24, 2023.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds:
Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during Q2 2024:
Period
(a) Total Number of Shares Purchased
(b) Average Price Paid per Share
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
(d) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) (in millions)
05/27/2023 - 06/30/2023
366
$
7.31
—
$
6.4
07/01/2023 - 07/28/2023
—
$
—
—
$
6.4
07/29/2023 - 08/25/2023
—
$
—
—
$
6.4
Total
366
(2)
—
_______________________________________
(1)In January 2016, the Board of Directors approved a share repurchase program, announced on January 19, 2016, permitting the repurchase of up to $150 of shares of our common stock.
(2)All shares were repurchased to satisfy participants’ tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan.
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________________
* Management contract or compensatory plan or arrangement.
(1) Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on July 14, 2023 (commission file number 001-13873), and incorporated herein by reference.
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.
By:
/s/ NICOLE C. MCGRATH
Nicole C. McGrath Vice President, Corporate Controller & Chief Accounting Officer (Duly Authorized Officer and Principal Accounting Officer)
