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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 23, 2001
Commission File Number 1-13873
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STEELCASE INC.
(Exact name of registrant as specified in its charter)
Michigan 38-0819050
(IRS employer identification number)
(State of incorporation)
901 44th Street, 49508
Grand Rapids, Michigan (Zip Code)
(Address of principal executive
offices)
(616) 247-2710
(Registrant's telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Class A Common Stock............................... New York Stock Exchange
Securities registered pursuant to 12(g) of the Act: None
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of May 1, 2001, the registrant had outstanding 32,635,033 shares of
Class A Common Stock and 114,916,271 shares of Class B Common Stock. The
aggregate market value of the Class A Common Stock held by non-affiliates of
the registrant was $331,016,606 computed by reference to the closing price of
the Class A Common Stock on that date as reported by the New York Stock
Exchange. Although there is no quoted market for registrant's Class B Common
Stock, shares of Class B Common Stock may be converted at any time into an
equal number of shares of Class A Common Stock. Using the closing price of the
Class A Common Stock on May 1, 2001, as reported by the New York Stock
Exchange as the basis of computation, the aggregate market value of the Class
B Common Stock held by non-affiliates on that date was $861,894,868.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for its 2001 Annual
Meeting of Shareholders are incorporated by reference in Part III of this Form
10-K.
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PART I
Item 1. Business:
General
Steelcase Inc. (the "Company" or "Steelcase") is the world's largest
designer and manufacturer of products used to create high-performance work
environments. Founded in Grand Rapids, Michigan in 1912, Steelcase helps
individuals, and the organizations that employ them, around the world to work
more effectively. The Company has led the office furniture industry in sales
every year since 1974. Its product portfolio includes furniture systems,
seating, storage, desks, casegoods, interior architectural products,
technology products and related products and services. Fiscal 2001 worldwide
revenues were $3.89 billion. Steelcase, including its subsidiaries and joint
ventures, has dealers in approximately 800 locations, manufacturing operations
in over 30 locations and more than 21,000 employees around the world.
Previously the Company reported two geographic furniture segments--North
America and International; along with Services and Other Businesses. In 2001,
Steelcase's Financial Services business has grown to comprise a significant
portion of the Company's balance sheet and, as such is now reported as a
separate business segment. The North America furniture segment continues to
include the U.S., Canada and the Steelcase Design Partnership ("SDP"), and now
also includes the Company's IDEO and Attwood subsidiaries, which in the past
were reported in the Services and Other Businesses segment. The International
furniture segment continues to include the rest of the world, with the largest
portion of the operations in Europe. For comparative purposes, prior year
information shown has been restated to reflect the new segmentation of the
Company.
Certain information with regard to the Company's operations in geographic
markets is contained elsewhere herein in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 16 to the
Consolidated Financial Statements. See Note 18 to the Consolidated Financial
Statements regarding the April 22, 1999 acquisition by the Company of the
remaining 50% equity interest in the joint venture for Strafor Facom S.A.
Products and Services
Steelcase provides a broad range of office furniture, related workplace
products and comprehensive support services to its customers on a project
basis and through ongoing contractual relationships. The Company distributes
its products through a worldwide network of independent dealers in
approximately 800 locations, including approximately 380 in North America, 350
in Europe and 70 throughout the rest of the world. Each dealership has its own
sales force which is supported by the Company's sales representatives, who
work closely with dealers throughout the sales process. The dealers, in
conjunction with the Company's sales representatives, maintain close
relationships with architects, contract interior designers and corporate
facility managers, who typically influence purchasing decisions. The Company
has experienced minimal turnover in its dealership network and is not
dependent on any one of its dealers.
North America Office Furniture Segment
The North America office furniture segment consists of operations in the
United States and Canada. The Company offers products under the Steelcase
brand, which includes office furniture systems, seating, storage solutions,
desks and casegoods; the Revest brand, which provides remanufactured solutions
for clients; and the Steelcase Design Partnership ("SDP") brands, which focus
on specialty markets. This segment also includes the Company's IDEO and
Attwood subsidiaries.
Office Furniture Systems
Since the mid-1980's, furniture systems have been the largest product
category in the United States office furniture market, representing
approximately one-third of all office furniture sold in calendar 2000.
Steelcase is the market leader in this category, based on sales, offering a
broad range of aesthetic options, performance features, applications and price
points. Office furniture systems consist of movable and reconfigurable
2
components, which may be used to create work environments of variable sizes
and configurations. Furniture systems generally use movable panels for space
division, acoustic and visual privacy, structural support and as conduits for
power, telecommunications and data cabling. Furniture systems also include
panel-supported and freestanding components such as work surfaces, desks,
pedestals, drawers, binder bins, filing, lighting fixtures and keyboard
support shelves. Furniture systems offer customers more flexibility and
greater space efficiency than traditional dry-wall-based private offices and
undivided desk areas.
Pathways is an evolving portfolio of integrated architectural products
(which includes walls, doors, floors and lighting), furniture and technology
products that enable customers to create flexible, user-centered work
environments. Pathways products are designed to coordinate with existing
Steelcase products as well as competitors' products.
Seating
Seating represented approximately one-quarter of all the office furniture
sold in the United States in calendar year 2000. Steelcase believes it is the
world's largest office seating manufacturer and a proven market leader in
seating innovation. The Company believes its focus and research on materials,
ergonomics, technology and work processes, along with its broad platform of
product styles and price points, will maintain and enhance the Company's share
of the seating market. The Company believes it offers the widest selection of
chair types and chairs in the office furniture industry, providing chairs and
other types of seating for virtually every office need. The Company's primary
seating products are high-performance chairs; other seating products include
guest, executive, lounge, stackable and collaborative or team-based offerings
in both wood and non-wood materials.
Storage Solutions
The Company believes it has been a leader in office storage products and
systems since the 1940's. Current product offerings include a broad variety of
vertical and lateral filing cabinets, bookcases and other types of storage
components. All of the Company's office furniture systems offerings are
complemented by a full range of integrated storage solutions, including binder
bins, storage cabinets, personal storage towers, mobile and fixed pedestals
and numerous choices of lateral and vertical files coordinated in design and
color.
Desks and Casegoods
The Company offers a wide variety of traditional, transitional and
contemporary desk and casegood products. These products offer a range of
solutions for private offices, team rooms and open plan environments. Desks
and casegoods are offered across many brands and in a variety of materials,
providing a broad scope of style and performance options. In addition, the
Turnstone brand desks and casegoods are targeted to more cost-conscious
customers.
Refurbished and Remanufactured Furniture
The Revest brand offers high quality remanufactured and refurbished office
furniture, including systems products. Revest creates "like new" furniture by
rebuilding Steelcase office furniture, which includes the replacement of parts
and electrical components with new products and finishes to meet a full range
of functional, image, and budget needs.
Steelcase Design Partnership
The SDP brands offer complementary product lines that focus on specialty
markets, including product lines for lobby and reception areas, cafeteria and
informal gathering areas, private offices, learning environments, executive
conference areas, group work environments, videoconferencing facilities and
healthcare environments. SDP also provides surfacing materials for
hospitality, healthcare and contract markets and ergonomic tools for the
workplace. The Steelcase Design Partnership includes: Brayton International
Inc.; Metropolitan Furniture Corporation; Office Details Inc.; and Vecta, a
division of the Company. SDP also includes the Steelcase Surfaces
3
Partnership which began in January 1999 with the combined operations of
DesignTex Fabrics, Inc. and J.M. Lynne Co., Inc. DesignTex provides and
designs textiles for seating upholstery, wallcovering and office panel
systems, and serves contract, hospitality and healthcare markets. J.M. Lynne
is a leading designer and distributor of vinyl wallcoverings for commercial
environments.
International Office Furniture Segment
The International office furniture segment consists of Steelcase S.A.
(formerly known as "Steelcase Strafor") and Steelcase International. The
Company's European business is conducted almost entirely through Steelcase
S.A., while Steelcase International includes all of the Company's non-European
international operations. In 2001, international revenues comprised
approximately 18% of the Company's revenues.
Steelcase S.A.
Steelcase S.A. is a leading office furniture company in Europe with
revenues of approximately $574 million for the year ended December 31, 2000.
Steelcase S.A. is a market leader in France, Germany, Spain and the United
Kingdom. In a fragmented European office furniture market, Steelcase S.A. is a
market leader with approximately a 7% market share.
Steelcase S.A. serves the European market with 14 manufacturing facilities
located in seven countries, approximately 4,000 employees and a network of
independent dealers in approximately 350 locations. Steelcase S.A. develops
and manufactures its own office furniture products and complements its product
offerings with Steelcase brand and Steelcase Design Partnership products.
Steelcase S.A.'s products are in large part purchased by European customers.
Workstations
The workstation segment includes operative desking and executive furniture.
Operative desking accounts for nearly half of all office furniture sold in the
European market. Operative desking consists of various types of desks, tables
and work surfaces that can be used in many variable, freestanding
arrangements. Steelcase S.A. is a European market leader in operative desking,
placing a priority on the balance between aesthetics and efficiency. Executive
furniture is a smaller portion of the total European office furniture market.
Steelcase S.A. is a European market leader in this area, providing a range of
top-quality, high-performance executive furniture products.
Seating
As in the United States, the seating segment makes up about one-quarter of
the total European office furniture market. Steelcase S.A. is a European
market leader, offering a wide range of functional, ergonomic and aesthetic
choices. High-performance and general use chairs, as well as guest and lounge
seating are offered under several product names. The Company believes its
focus and research on materials, ergonomics, technology and work processes,
along with its broad platform of product styles and price points, will
maintain and enhance the Company's share of the European seating market.
Filing and Storage
Steelcase S.A. is also a leader in the filing and storage segment of the
European market. The Company's office furniture workstation offerings are
complemented by a full range of storage solutions, including modular and
personal filing and storage products, some of which are fixed and others of
which are portable. The Company also markets other filing and storage products
including specialized records and library storage along with shelving
products.
4
Steelcase International
The Company conducts its non-European international operations primarily
through its Steelcase International operating group. The Company's products
are generally available throughout the world and are currently sold to
customers in various countries, including Australia, Brazil, China, Japan,
Mexico, Saudi Arabia, Singapore, Thailand, United Arab Emirates, and
Venezuela.
The Company exports its products to non-European markets. The Company
supplements this business with two manufacturing facilities in Brazil and
Saudi Arabia and with licensees in Japan and Colombia. In addition, the
Company owns 26% of its Thailand licensee, Modernform Group Public Company
Limited. Sales of the Company's products to non-European international markets
were approximately $135 million for the year ended February 23, 2001. These
sales are made almost exclusively through the Company's dealer network.
Financial Services Segment
The Financial Services segment has grown to become a significant portion of
the Company's balance sheet and, as such is now reported as a separate
segment. Financial Services provides financing services to Steelcase dealers
and their customers to facilitate the purchase of Steelcase products in the
United States, Canada and Europe. The Financial Services segment provides both
dealer financing and lease financing.
The dealer financing portion of the segment provides a variety of financial
services to Steelcase dealers to support their business goals and foster
stability in the Steelcase distribution network. Dealer financing includes
three distinct programs: project financing, asset-based lending and term
notes. Through these programs, Financial Services helps dealers finance
capital equipment, Steelcase purchases and establish working lines of credit.
Lease financing provides leasing and financing alternatives for the
acquisition of Steelcase products.
Raw Materials and Suppliers
The Company has focused on achieving purchasing economies by forming close
relationships with its major suppliers. The Company utilizes steel, lumber,
paper, paint, plastics, laminates, particleboard, veneers, glass, fabrics,
leathers and upholstery filling material. In an effort to promote close
relationships with its supply base, the Company continues to pursue several
initiatives, including (i) supply base integration through closer
collaboration, (ii) supplier certification in accordance with Company-issued
standards and (iii) the maintenance of open lines of communication with the
total supply base. In addition, the Company strives to include key suppliers
in the product development cycle so as to utilize their expertise and share
research and development costs. It is the Company's strategic plan to
integrate the best practices of all its facilities worldwide, maximize
efficiencies globally and provide unparalleled service. The Company believes
adequate sources are available for all of its raw materials.
Product Design and Development
In response to rapidly changing work environments, the Company has
maintained research and development efforts in recent years. The Company also
leverages the expertise of its research and design staff and its subsidiary,
IDEO Product Development, Inc. ("IDEO"), to enhance existing products and
design new products to address evolving customer needs and industry trends. In
recent years, the Company's design efforts have focused on the Pathways
interior architectural elements as well as more traditional systems furniture,
seating and related products. The Company's research efforts include on-site
user observation, behavioral science studies and anthropologic research, human
factors research and technology trends studies. Over the past three years, the
Company has incurred research and development expense of approximately $217
million.
Manufacturing
The Company manufactures its products at more than 30 locations throughout
the world, including the United States, Canada, Mexico and Europe. In 1987,
the Company adopted world class manufacturing principles
5
which utilize a variety of production techniques, including cell or team
manufacturing, focused factories and rapid continuous improvement. This
initiative has evolved to include advanced planning and scheduling systems and
is referred to as the Steelcase Production System. The Company continually
examines new opportunities to consolidate its manufacturing and distribution
operations to improve efficiency. Substantially all plants "build to order"
rather than to "forecast", which directly reduces finished goods inventory
levels and emphasizes continuous improvement in set-up and delivery time to
customers. As a result of these and other order processing and customer
service improvements, the Company's average lead-time, i.e., the time from
order to delivery, has been reduced in the United States and Canada. The
Company has an extensive distribution system in the United States and Canada
and utilizes both company-owned trucking fleet and commercial transport and
delivery services in both the United States and abroad.
Working Capital
Substantially all plants "build to order" rather than to "forecast", which
directly reduces finished goods inventory levels and emphasizes continuous
improvement in set-up and delivery time to customers. The Company does not
believe that it or the industry in general has any special practices or
conditions related to working capital items that are significant to
understanding the Company's business.
Backlog
A majority of the Company's products are manufactured and shipped a few
weeks following receipt of order. The amount of the order backlog at any
particular time is not indicative of the level of net sales for any particular
fiscal period.
Intellectual Property
The Company and its subsidiaries have approximately 320 active U.S. utility
patents and approximately 198 active U.S. design patents relating to current
and anticipated products. The Company and its subsidiaries also own
approximately 710 designs and patents in a number of foreign countries. The
Company has been active in obtaining patents since its inception and has filed
an increasing number of patent applications in recent years. During fiscal
2000, the Company formed Steelcase Development Corporation, a wholly owned
subsidiary of the Company, for the purpose of acquiring, managing, licensing,
and enforcing intellectual property rights for the Company. The average
remaining life of the utility patents in the Company's U.S. portfolio is
approximately 13 years.
The Company and its subsidiaries have registered various trademarks and
service marks in the United States and certain foreign countries. The Company
has established a global network of intellectual property licenses with its
affiliates. It also occasionally licenses its intellectual property to
selected third parties and occasionally enters into license agreements under
which it pays a royalty to third parties for the use of patented products or
process technology.
Although the Company considers securing and protecting its intellectual
property rights to be important to its business, the loss of any individual
patent, or group of patents related to a particular product, would not result
in a material adverse effect on the Company's financial condition or results
of operations.
Competition
North America Office Furniture Segment
The North America office furniture market is highly competitive, with a
number of competitors offering similar products. In the contract segment of
the market, companies compete primarily on price, delivery and service,
product design and features, quality and the relationships developed between
dealers and customers. The Company's most significant competitors in the North
American market are Herman Miller, Inc., Haworth, Inc., Knoll, Inc., Kimball
International, Inc., Hon Industries Inc. and Teknion Inc. Together, these
companies represent a substantial portion of the market share of the overall
office furniture market.
6
International Office Furniture Segment
The European office furniture market is highly competitive and extremely
fragmented. Steelcase S.A. generally competes with a number of other European-
based enterprises. Few companies have a significant pan-European presence in
all of the office furniture segments; the Samas-Groep N.V. and the Haworth
Europe Group compete with Steelcase S.A. on this level. Similar to the North
American market, companies compete primarily on price, delivery and service,
product design and features, quality and the relationships developed between
dealers and customers.
The non-European international markets are grouped together to form the
remainder of the International market. The Company also manufactures and sells
office furniture in other parts of the world through wholly owned operations,
joint ventures, licensing arrangements and independent dealerships. The
Company does not have a significant market share in any of the countries in
which it offers its products outside the United States, Canada and Europe.
Environmental Matters
The Company is subject to a variety of federal, state, local and foreign
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of,
and exposure to, hazardous and non-hazardous substances, materials and wastes
("Environmental Laws"). The Company believes that its operations are in
substantial compliance with all Environmental Laws.
Under the Clean Air Act Amendments of 1990, the United States Environmental
Protection Agency ("EPA") is required to promulgate various emission
standards, including the National Emission Standards for Hazardous Air
Pollutants ("NESHAPs"), for certain sources of hazardous air pollutants,
including the wood and metal furniture manufacturing industries. NESHAPs for
the wood furniture manufacturing industry required reduction by November 1997
of emissions of certain volatile organic compounds found in the coatings,
stains and adhesives used by the Company. Compliance with the wood furniture
NESHAP has not materially affected the Company. The EPA is currently expected
to promulgate NESHAPs for the metal furniture industry by May 2002. The
Company intends to continue to participate actively in negotiations relating
to these regulations because of their potential significance to the Company's
operations. The Company cannot estimate the effects of compliance with the
metal furniture NESHAPs or other future Clean Air Act Requirements.
Under certain Environmental Laws, the Company could be held liable, without
regard to fault, for the costs of remediation associated with its existing or
historical operations. The Company could also be held responsible for third-
party property and personal injury claims or for violations of Environmental
Laws relating to such contamination. The Company is a party to, or otherwise
involved in, legal proceedings relating to several contaminated properties
being investigated and remediated under Environmental Laws. Based on its
present information regarding the nature and volume of its wastes allegedly
disposed or released at these properties, the number of other financially
viable potentially responsible parties, and the total estimated cleanup costs,
the Company does not believe that the costs associated with these properties
will be material, either individually or in the aggregate.
The above forward-looking statements concerning the materiality of the cost
associated with contaminated properties involve certain risks that could cause
actual results to vary from the stated expectations. Factors affecting such
risks include future governmental regulations and/or cleanup standards or
requirements, undiscovered information regarding the nature and volume of
wastes allegedly disposed of or released at these properties or other factors
increasing the cost of remediation or the loss of other financially viable
potentially responsible parties to contribute towards cleanup costs.
Employees
As of February 23, 2001, the Company had approximately 21,500 employees,
including approximately 14,200 hourly and approximately 7,300 salaried
employees. Approximately 17,200 of the total employees are located in North
America, less than 5% of which are covered by collective bargaining
agreements. Management believes that the Company's relations with its
employees are good.
7
Item 2. Properties:
The Company maintains its corporate headquarters in Grand Rapids, Michigan,
and conducts operations at locations throughout the United States and, through
its wholly owned subsidiaries and joint ventures, has manufacturing facilities
in Brazil, Canada, France, Germany, Mexico, Morocco, Portugal, Saudi Arabia,
Spain, Thailand and the United Kingdom. These office, showroom, manufacturing
and distribution facilities total approximately 24 million square feet, of
which approximately 7 million square feet are leased.
The Company's principal office, manufacturing and distribution facilities
(300,000 square feet or larger) as of February 23, 2001 are as follows:
Approximate Owned
Square or
Location Footage Leased Description of Use
- -------- ----------- ------ ------------------
Grand Rapids, Michigan.... 383,000 Owned Corporate Headquarters
Grand Rapids, Michigan.... 896,000 Owned Chair Manufacturing
Grand Rapids, Michigan.... 1,207,000 Owned Desk Manufacturing
Grand Rapids, Michigan.... 786,000 Owned Distribution Center
Grand Rapids, Michigan.... 867,000 Owned File Manufacturing
Grand Rapids, Michigan.... 950,000 Owned Systems Manufacturing
Grand Rapids, Michigan.... 748,000 Owned Miscellaneous (1)
Gaines Township,
Michigan................. 599,000 Owned Corporate Development Center
Kentwood, Michigan........ 666,000 Owned Computer Furniture Manufacturing
Kentwood, Michigan........ 789,000 Owned Context Manufacturing
Kentwood, Michigan........ 886,000 Owned Panel Manufacturing
Kentwood, Michigan........ 1,118,000 Owned Distribution Center
Kentwood, Michigan........ 441,000 Leased Wood Furniture Manufacturing
Lowell, Michigan.......... 480,000 Owned Attwood Manufacturing
Athens, Alabama........... 777,000 Owned Manufacturing
Tustin, California........ 1,044,000 Owned Manufacturing
New Paris, Indiana........ 314,000 Owned Manufacturing
Fletcher, North Carolina.. 895,000 Owned Wood Furniture Manufacturing
Grand Prairie, Texas...... 320,000 Owned Vecta Manufacturing
High Point, North Carolina
......................... 409,000 Owned Brayton Manufacturing
Markham, Ontario.......... 725,000 Owned Steelcase Canada Manufacturing
Strasbourg, France........ 386,000 Owned Manufacturing
Durlangen, Germany........ 415,000 Leased Manufacturing
Madrid, Spain............. 362,000 Owned Manufacturing
Kolbermoor, Germany....... 335,000 Owned Manufacturing
Rosenheim, Germany........ 368,700 Owned Manufacturing and Offices
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(1) Approximately 175,000 square feet is currently utilized for distribution,
150,000 square feet for showroom, 58,000 square feet for manufacturing,
64,000 square feet for the Company's Corporate Learning and Development
Center and the balance for commercial leasing.
Item 3. Legal Proceedings:
The Company is involved in litigation from time to time in the ordinary
course of its business. The Company is not a party to any lawsuit or
proceeding which, in the opinion of management based on known information, is
likely to have a material adverse effect on the Company. For a description of
matters relating to the Company's compliance with applicable environmental
laws, rules and regulations, see "Environmental Matters" in Item 1 of this
Report.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
8
Item 4(a). Executive Officers of Registrant:
Set forth below is certain information regarding the executive officers of
the Company.
Name Age Position
- ---- --- --------
Robert A. Ballard.......... 65 President, Steelcase North America
Robert W. Black............ 42 President, International
Jon D. Botsford............ 46 Senior Vice President, Secretary and Chief Legal
Officer
John S. Dean............... 49 Vice President, Global E-Business and Chief
Information Officer
Mark T. Greiner............ 49 Senior Vice President, Concepts, Research and
Ventures
James P. Hackett........... 46 President and Chief Executive Officer
Nancy W. Hickey............ 49 Senior Vice President, Global Human Resources
James P. Keane............. 41 Senior Vice President, Finance and Corporate
Strategy, and Chief Financial Officer
Michael I. Love............ 52 President and Chief Executive Officer, Steelcase
Design Partnership
Alwyn Rougier-Chapman...... 62 Chief Financial Officer
Robert A. Ballard has been President, Steelcase North America since 1999.
Mr. Ballard served as Executive Vice President, Business Operations from 1996
to 1999. From 1994 to 1996, Mr. Ballard held the position of Senior Vice
President, Manufacturing Operations.
Robert W. Black has been President, International since 2000. Mr. Black was
Senior Vice President, Steelcase International from 1999 to 2000. From 1998 to
1999, Mr. Black served as Vice President, Europe. From 1996 to 1998, Mr. Black
served as Vice President, Marketing, and from 1995 to 1996, Mr. Black served
as Vice President, Corporate Strategy and Development.
Jon D. Botsford has been Senior Vice President, Secretary and Chief Legal
Officer since 1999. Mr. Botsford served as Vice President, General Counsel and
Secretary from 1998 to 1999, and General Counsel and Secretary from 1997 to
1998. From 1992 to 1997, Mr. Botsford held the position of Assistant General
Counsel.
John S. Dean has been Vice President, Global E-Business and Chief
Information Officer since 2000. From 1997 to 2000, Mr. Dean served as the
General Manager of Hedberg Data Systems, a Steelcase technology subsidiary,
located in Connecticut. From 1996 to 1997, Mr. Dean held the position of Group
Manager, Business Technology Group.
Mark T. Greiner has been Senior Vice President, Concepts, Research and
Ventures since February, 2001. From 1999 to 2001, Mr. Greiner held the
position of Senior Vice President, Global E-Business and Chief Information
Officer. Mr. Greiner served as Vice President and Chief Information Officer
from 1996 to 1999. From 1994 to 1996, Mr. Greiner served as Vice President,
Corporate Marketing, Communications and Media Technology.
James P. Hackett has been President and Chief Executive Officer of the
Company since 1994. Mr. Hackett also serves as a member of the Board of
Trustees of The Northwestern Mutual Life Insurance Company. Mr. Hackett served
as a Director of Old Kent Bank Financial Corporation until April 2, 2001, when
it was acquired by Fifth Third Bancorp.
Nancy W. Hickey has been Senior Vice President, Global Human Resources
since 1999. Ms. Hickey served as Vice President, Corporate Human Resources
from May to November 1999. From 1994 to 1999, Ms. Hickey served as Vice
President, Dealer and Customer Alliances.
James P. Keane has been Senior Vice President, Finance and Corporate
Strategy since February, 2001, and assumed the additional role of Chief
Financial Officer in April, 2001 upon the retirement of Mr. Alywn Rougier-
Chapman. Mr. Keane served as Senior Vice President, Corporate Strategy,
Research and Development for the
9
Company from 1999 to 2001. From 1997 to 1999, Mr. Keane served as Vice
President, Corporate Strategy, Research and Development. From 1992 to 1997,
Mr. Keane was Vice President and Chief Financial Officer of Cloud Corporation,
a packaging company.
Michael I. Love has been President and Chief Executive Officer, Steelcase
Design Partnership since 2000. Mr. Love was president of Vecta, a division of
Steelcase, from 1994 through 2000.
Alwyn Rougier-Chapman served as Chief Financial Officer from February to
April 2001. From 1994 to February, 2001, Mr. Rougier-Chapman served as Senior
Vice President, Finance and Chief Financial Officer. Mr. Rougier-Chapman also
served as Treasurer from 1994 to 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters:
The Class A Common Stock of the Company is listed on the New York Stock
Exchange under the symbol "SCS". The Class B Common Stock of the Company is
neither registered under the Securities Exchange Act of 1934 nor publicly
traded.
As of May 1, 2001, the Company had outstanding 32,635,033 shares of Class
A Common Stock with 13,285 shareholders of record thereof and 114,916,271
shares of Class B Common Stock with 218 shareholders of record thereof, in
each case not including persons or entities holding stock in nominee or street
name through brokers or banks.
The following table shows the price range of the Class A Common Stock, as
reported by the New York Stock Exchange, for the years ended February 23, 2001
and February 25, 2000.
Class A Common
Stock Price
Range
---------------
High Low
------- -------
Fiscal 2001
1st Quarter............................................... $12.625 $10.500
2nd Quarter............................................... $18.125 $12.000
3rd Quarter............................................... $17.625 $15.500
4th Quarter............................................... $15.625 $12.625
Fiscal 2000
1st Quarter............................................... $20.750 $13.625
2nd Quarter............................................... $20.000 $14.500
3rd Quarter............................................... $15.500 $12.250
4th Quarter............................................... $13.750 $10.250
The Company intends to continue to pay regular quarterly dividends.
However, the declaration and payment of dividends by the Company are subject
to the discretion of the Board and to compliance with applicable law. The
determination of the timing and amount of future dividends, if any, will
depend upon, among other things, the Company's results of operations,
financial condition, cash requirements, future business prospects, general
business conditions and other factors that the Board may deem relevant at the
time. See Item 6 of this Report, "Selected Financial Data" and Note 2 thereto.
The aggregate dividends paid in the years ended February 23, 2001 and February
25, 2000 are set forth below (in millions):
Year Ending Total
----------- -----
2001........................................ $65.9
2000........................................ $67.3
10
Item 6. Selected Financial Data
FINANCIAL HIGHLIGHTS
(in millions, except per share data)
February 23, February 25, February 26, February 27, February 28,
2001 2000(3) 1999 1998 1997(1)
------------ ------------ ------------ ------------ ------------
Statement of Income Data
Revenues................ $3,885.8 $3,344.3 $2,761.5 $2,775.6 $2,420.6
Revenues increase
(decrease)............. 16.2% 21.1% (0.5)% 14.7% 11.8%
Gross profit............ $1,308.7 $1,130.9 $1,008.4 $1,019.0 $ 869.0
Gross profit--% of
revenues............... 33.7% 33.8% 36.5% 36.7% 35.9%
Operating income........ $ 306.4 $ 274.5 $ 325.9 $ 327.7 $ 150.8
Operating income--% of
revenues............... 7.9% 8.2% 11.8% 11.8% 6.2%
Net income.............. $ 193.7 $ 184.2 $ 221.4 $ 217.0 $ 27.7
Net income--% of
revenues............... 5.0% 5.5% 8.0% 7.8% 1.1%
Earnings Per Share
Earnings per share--
basic.................. $ 1.30 $ 1.21 $ 1.44 $ 1.40 $ 0.18
Earnings per share--
diluted................ $ 1.29 $ 1.21 $ 1.44 $ 1.40 $ 0.18
Weighted average shares
outstanding-basic...... 149.4 152.8 153.8 154.8 154.7
Weighted average shares
outstanding-diluted.... 149.8 152.8 153.8 154.8 154.7
Dividends per share of
common stock(2)........ $ 0.44 $ 0.44 $ 0.41 $ 1.36 $ 0.27
Balance Sheet Data
Working Capital......... $ 319.8 $ 200.1 $ 290.6 $ 355.1 $ 474.6
Assets.................. $3,157.0 $3,037.6 $2,182.5 $2,007.2 $1,922.1
Long-term debt.......... $ 327.5 $ 257.8 -- -- --
Liabilities............. $1,520.5 $1,475.4 $ 682.5 $ 674.8 $ 542.1
Shareholder's Equity.... $1,636.5 $1,562.2 $1,500.0 $1,332.4 $1,380.0
Statement of Cash Flow
Data
Net cash provided by
operating activities... $ 209.8 $ 305.7 $ 359.9 $ 402.7 $ 126.7
Depreciation and
amortization expense... $ 162.5 $ 141.8 $ 107.0 $ 95.3 $ 93.4
Capital expenditures.... $ 260.5 $ 188.8 $ 170.4 $ 126.4 $ 122.0
Dividends paid(2)....... $ 65.9 $ 67.3 $ 63.1 $ 210.9 $ 41.8
- --------
(1) During 1997, the Company concluded a 17-year patent litigation which, net
of reserves, reduced net income by $123.5 million.
(2) During 1998, the Company paid a special dividend in the aggregate amount
of $150.9 million, or approximately $0.97 per share of common stock.
(3) Includes Steelcase S.A. (formerly known as Steelcase Strafor).
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Overview
The Company recorded revenues of $3,885.8 million for fiscal 2001 ("2001")
an increase of 16.2% over fiscal 2000 ("2000") revenues of $3,344.3 million.
The increased global revenues reflect acquisition growth as well as the
continued growth of new and established products across most business and
customer segments. Revenue growth excluding acquisitions was 9.5% for 2001.
New product revenues, defined as products introduced in the past five years,
made up 25% of 2001 revenues, compared to 17% in 2000. Revenue growth of the
Company's established product lines was linked to the growth in the large
account business, which strengthened significantly during the first nine
months of 2001. The fourth quarter showed a substantial slowing of business
activity associated with the general economic slowdown of the U.S. economy.
The Company posted earnings growth of 5.2% in 2001, with net income of
$193.7 million, ($1.30 basic earnings per share and $1.29 diluted earnings per
share), compared to net income of $184.2 million ($1.21 basic and diluted
earnings per share). Reported net income for 2001 included non-recurring
fourth quarter after-tax charges totaling $15.2 million related to facility
closings, production relocation and workforce reductions. Reported net income
also reflects an $11.6 million after-tax gain on the sale of real estate,
which was largely offset by an $11.9 million after-tax charge for reserves
related to dealer transition financing, both of which occurred in the fourth
quarter. The Company also recorded in the first quarter of 2001, a $5.6
million after-tax gain on the sale of real estate. During 2001, the Company's
profitability was again impacted by the following factors:
. The impact of the increase in the percentage of new products--which
typically have lower initial margins--in the sales mix.
. Competitive pricing pressures.
Results of Operations
The following table sets forth consolidated statement of income data as a
percentage of revenues for 2001, 2000, and fiscal 1999 ("1999").
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues............................ 100.0% 100.0% 100.0%
Cost of sales....................... 66.3 66.2 63.5
----- ----- -----
Gross profit........................ 33.7 33.8 36.5
Operating expenses.................. 25.8 25.6 24.7
----- ----- -----
Operating income.................... 7.9 8.2 11.8
Non-operating items, net............ 0.1 (0.7) (0.4)
----- ----- -----
Income before taxes................. 7.8 8.9 12.2
Provision for income taxes.......... 2.8 3.5 4.5
Equity in net income of joint
ventures and dealer transitions.... -- 0.1 0.3
----- ----- -----
Net income.......................... 5.0% 5.5% 8.0%
===== ===== =====
12
Steelcase Inc.
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's North America segment for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues.............................. $3,885.8 $3,344.3 $2,761.5
Gross profit percentage............... 33.7% 33.8% 36.5%
Operating expense percentage.......... 25.8% 25.6% 24.7%
Operating income...................... $ 306.4 $ 274.5 $ 325.9
Operating income percentage........... 7.9% 8.2% 11.8%
Net income............................ $ 193.7 $ 184.2 $ 221.4
Revenues. The Company's consolidated revenues in 2001 increased by 16.2%
over 2000 revenues. This increase reflects acquisition growth and was
bolstered by demand for new products, as well as solid results across
substantially all product categories, distribution channels and business
segments. Excluding the impact of acquisitions, 2001 revenues increase by 9.5%
over 2000 revenues. The Company's consolidated revenues in 2000 posted a 21.1%
increase over 1999 revenues, primarily from the acquisition of Steelcase S.A.
and domestic acquisitions. Excluding the impact of all acquisitions, the
Company posted flat revenues in 2000 compared to 1999 revenues. During 1999,
the Company's consolidated revenues did not include those of Steelcase S.A.
During that year, the Company lagged industry growth and posted flat revenues.
Gross Profit. The Company's gross profit as a percentage of revenues
decreased slightly in 2001 to 33.7%, down from 33.8% in 2000, and 36.5% in
1999. The gross margin performance for 2001 and 2000 was impacted by non-
recurring charges. Excluding non-recurring items the Company's gross margin
was 33.9% for 2001, compared to 34.5% for 2000. In 2001, non-recurring charges
totaling $9.5 million related to facility closings, production relocation and
workforce reductions; in 2000, non-recurring charges totaling $24.5 million
related to the field retrofit of beltways and insulation materials within
installed Pathways products. The gross margin results in 2001 are primarily
due to a continuation of the impact of the increase in the percentage of new
products--which typically have lower initial margins--in the sales mix and the
competitive pricing pressures. The overall decrease in gross margin for 2001
was partially offset by lower variable compensation, as well as continued
cost-reduction efforts.
The margin decline during 2000 was primarily the result of the competitive
pricing pressures, the impact of the increase in the percentage of new
products--which typically have lower initial margins--in the sales mix and
major new product introduction and associated ramp up costs. Additionally, the
Company experienced the expected margin decrease of approximately 0.5
percentage points with the consolidation of Steelcase S.A. The overall
decrease in gross margin for 2000 was also partially offset by lower variable
compensation, as well as various cost-reduction efforts.
In 1999, margins remained relatively flat as the Company's continued
efforts to reduce costs and to improve efficiencies were tempered by upfront
investments required to fund cost-reduction efforts, as well as the
disruptions and inefficiencies associated with the Company launching the
largest product portfolio in its history.
Operating Expenses. The Company's operating expenses as a percentage of
revenues increased to 25.8% in 2001, from 25.6% in 2000 and 24.7% in 1999.
Operating expenses now include the financing expenses related to the Company's
Financial Services segment. Operating expenses for 2001 included non-recurring
charges of $14.4 million related to facility closings, production relocation
and workforce reductions. Excluding these non-recurring items, the Company's
operating expense ratio decreased to 25.4% in 2001, slightly lower than in
2000. This reduction of operating expenses was primarily due to lower variable
compensation and the positive effect of currency fluctuations--predominantly
the euro.
In 2000, overall operating expense ratios were impacted by the
consolidation of Steelcase S.A., including increased intangible amortization,
write-off of bad debts in the United Kingdom and costs associated with the
13
consolidation of German operations. Excluding Steelcase S.A., 2000 operating
expenses were 24.5%, which is flat compared to 1999, reflecting management's
cost containment and resource redeployment efforts.
During the three-year period, investments in information systems and new
product research, development and launch costs have been significant and
include the redeployment of resources in support of these strategic
initiatives.
Operating Income. For the reasons set forth above, operating income
increased to $306.4 million in 2001, up from $274.5 million in 2000, which was
a decrease from $325.9 million in 1999. The Company's operating income as a
percentage of revenues decreased in 2001 to 7.9%, from 8.2% in 2000 and 11.8%
in 1999. Excluding non-recurring items the Company's operating margin was 8.5%
for 2001 and 8.9% for 2000.
Interest expense; Other income, net; and Income taxes
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
(in millions)
Interest expense.................... $ 18.0 $10.9 $ --
====== ===== =====
Other income, net:
Interest income................... $ 8.3 $ 6.4 $13.8
Interest income from tax
litigation....................... -- -- 5.8
Gain (loss) on dealer
transitions...................... (24.7) 8.3 (2.2)
Gain on disposal of property and
equipment........................ 27.1 10.0 --
Gain on sale of investments....... 2.8 7.0 --
Miscellaneous, net................ 1.8 1.1 (5.9)
------ ----- -----
$ 15.3 $32.8 $11.5
====== ===== =====
Effective income tax rate........... 36.5% 39.0% 37.0%
Interest expense for 2001 increased to $18.0 million, from $10.9 million in
2000 and zero in 1999. The increase in 2001 was primarily to fund the
Company's capital expenditures during the year. The 2000 increase was
primarily due to the acquisition of Steelcase S.A., which was partially
financed through short and long-term borrowings.
Other income, net, for 2001 decreased to $15.3 million, from $32.8 million
in 2000. Both 2001 and 2000 were impacted by non-recurring items. The non-
recurring items in 2001 related primarily to the $27.1 million gain recognized
on the sale of certain non-income producing facilities, which was partially
offset by $24.7 million in charges for reserves related to dealer transition
financing, $18.8 million of which is non-recurring.
Other income, net, increased significantly in 2000 due to several non-
recurring gains. First, the Company recognized a gain of $7.5 million in
connection with the sale of customer lists to new dealers in the United
Kingdom. Second, the Company recorded a gain of $10.0 million from the sale of
certain non-income producing facilities. Finally, the Company recorded
investment income of $7.0 million from the sale of investments in common
stock. The above mentioned gains were offset by decreased interest income of
$6.6 million due to lower cash balances in 2000. Also, 1999 included $5.8
million of interest income recorded in connection with the favorable
resolution of income tax litigation discussed below.
Income tax expense as a percentage of income before taxes ("the effective
tax rate") approximated 36.5% in 2001, 39.0% in 2000 and 37.0% in 1999. During
2001, the effective tax rate decreased due to the implementation of
international tax planning strategies in both Europe and Japan. During 2000,
the effective tax rate increased because of the consolidation of Steelcase
S.A., with operations in European countries, which typically have higher
effective tax rates compared to the rates in U.S. The effective tax rate also
increased due to the recording of non-deductible goodwill in 2000. During
1999, the provision for income taxes benefited from the favorable resolution
of income tax litigation dating back to 1989, primarily related to investment
tax credits and accelerated depreciation on the Company's Corporate
Development Center. The resolution of these matters
14
contributed to a reduced effective tax rate for 1999 and resulted in the
recognition of interest income of $5.8 million in 1999. These tax matters
increased 1999 consolidated net income by $6.2 million, or $0.04 per share
(basic and diluted).
Net income
For the reasons set forth above, net income increased 5.2% in 2001 to
$193.7 million, from $184.2 million in 2000, which decreased 16.8% from the
1999 level of $221.4 million. Excluding non-recurring charges in both years,
net income increased 7.2% in 2001 and decreased 14.2% in 2000.
Segment Disclosure
The Company operates on a worldwide basis within three reportable segments:
two geographic furniture segments and a Financial Services segment. In prior
years, the Company reported the third segment as Services and other
businesses, which included financial services, as well as, the Company's IDEO
and Attwood subsidiaries. In 2001, the Financial Services segment has grown to
comprise a significant portion of the Company's balance sheet and, as such is
now reported as a separate segment. The North America furniture segment
continues to include the U.S., Canada and the Steelcase Design Partnership but
now also includes IDEO and Attwood. The International furniture segment
continues to include the rest of the world, with the major portion of the
operations in Europe. Accordingly, prior year segment information presented
below has been restated to reflect the new reporting structure (see Note 16).
The following tables set forth consolidated and pro forma worldwide
revenues and operating income, resepectively, by segment for 2001, 2000 and
1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
North America......................... $3,098.2 $2,718.7 $2,611.7
International(1)(2)................... 709.4 721.5 622.2
Financial Services.................... 78.2 52.4 34.5
-------- -------- --------
Worldwide revenues(1)................. $3,885.8 $3,492.6 $3,268.4
Steelcase Strafor(1).................. n/a (148.3) (506.9)
-------- -------- --------
Consolidated revenues................. $3,885.8 $3,344.3 $2,761.5
======== ======== ========
- --------
(1) International and worldwide revenues and operating income include, on a
pro forma basis, the revenues and operating income of the Company's
unconsolidated operations in Steelcase S.A. (formerly known as Steelcase
Strafor), which are then removed in order to reconcile with the Company's
consolidated totals. See Notes 7 and 18 to the Consolidated Financial
Statements.
(2) In local currency, Steelcase S.A. revenues increased 7.6% in 2001, 6.1% in
2000 and 9.8% in 1999.
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
North America......................... $246.6 $234.5 $303.0
International(1)...................... 38.5 31.4 39.1
Financial Services.................... 8.0 2.6 2.5
Eliminations(3)....................... 13.3 16.4 14.6
------ ------ ------
Worldwide operating income(1)......... $306.4 $284.9 $359.2
Steelcase Strafor(1).................. n/a (10.4) (33.3)
------ ------ ------
Consolidated operating income......... $306.4 $274.5 $325.9
====== ====== ======
- --------
(3) Eliminations represent intercompany interest expense between the Financial
Services segment and the North America segment.
15
North America
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's North America segment for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues................................. $3,098.2 $2,718.7 $2,611.7
Gross profit percentage.................. 32.0% 32.7% 35.8%
Operating expense percentage............. 24.0% 24.1% 24.2%
Operating income......................... $ 246.6 $ 234.5 $ 303.0
Operating income percentage.............. 8.0% 8.6% 11.6%
Revenues. North America revenues grew at 14.0% and 4.1% for 2001 and 2000,
respectively, and were flat for 1999. While new products led the revenue
increase in 2001, established Steelcase core products, particularly within
large account business, also had solid performance for the year. The Steelcase
Design Partnership ("SDP") also continued their strong growth rate, posting
12.7% growth in 2001.
Likewise, in 2000, SDP and new product revenues provided the bulk of the
revenue increase for the segment, with new products doubling their run rates
over 1999 levels. Additionally, domestic acquisitions contributed to this
increase. These increases were offset by the decline in the revenues of the
Company's core Steelcase branded products, which followed the industry trends
in 2000.
In 1999, the industry softened due to a high level of merger and
acquisition activity within the U.S. Fortune 500 companies, which contributed
to a lack of revenue growth. As the industry softened in 1999, the Company's
core Steelcase branded products in North America were impacted by the deferred
spending actions within the Company's large corporate account business,
resulting in declines.
Gross Profit. North America gross profit as a percentage of revenues
decreased in 2001 to 32.0%, from 32.7% in 2000; and 35.8% in 1999. North
America was the only business segment impacted by the aforementioned non-
recurring items in 2001 and 2000; excluding these items the segment's gross
margin was 32.3% for 2001 and 33.6% for 2000. Gross margin decline was
primarily due to a continuation of the impact of the increase in the
percentage of new products--which typically have lower initial margins--in the
sales mix and competitive pricing pressures. The overall decrease in gross
margin for 2001 was partially offset by lower variable compensation.
Operating Expenses. North America operating expenses as a percentage of
revenues remained flat at 24.0% for 2001 and 2000, after decreasing from 24.2%
in 1999. North America was the only business segment impacted by the
aforementioned non-recurring items in 2001. Excluding these non-recurring
items, the segment's operating expense ratio was 23.6% for 2001. The reduction
in the operating expense ratio has been primarily due to lower variable
compensation.
Operating Income. For the reasons set forth above, North America operating
income increased to $246.6 million in 2001, up from $234.5 million in 2000,
which was a decrease from $303.0 million in 1999. The segment's operating
income as a percentage of revenues decreased in 2001 to 8.0%, from 8.6% in
2000; and 11.6% in 1999. North America was the only business segment impacted
by non-recurring items in 2001 and 2000. Excluding non-recurring items, the
segment's operating margin was 8.7% for 2001 and 9.5% for 2000.
16
International
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's International segment for
2001, 2000 and 1999 (in millions). The table reflects the accounts of
Steelcase Strafor, as if the joint venture had been consolidated for the first
quarter of 2000 and for full year 1999.
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Pro forma international revenues(1)..... $709.4 $721.5 $622.2
Consolidated international revenues..... $709.4 $573.2 $115.3
Gross profit percentage................. 34.0% 32.8% 34.3%
Operating expense percentage............ 28.6% 29.1% 29.3%
Operating income........................ $ 38.5 $ 21.0 $ 5.8
Operating income percentage............. 5.4% 3.7% 5.0%
- --------
(1) International revenues for 2000 and 1999 include, on a pro forma basis,
the revenues of the Company's unconsolidated operations in Steelcase
S.A. (formerly known as Steelcase Strafor). See Notes 7 and 18 to the
Consolidated Financial Statements.
Revenues. International revenues grew at 23.8% in 2001 and increased nearly
five-fold in 2000, after a 16.7% decrease for 1999. Excluding the impact of
acquisitions, International revenues in 2001 increased 14.3% in local
currency, but due to the negative effect of currency fluctuations--primarily
the euro--revenues in U.S. dollars decreased 1.7%. During 2001, International
revenues outside of Europe increased 22.8%, in U.S. dollars, primarily due to
increased revenues in Singapore, Australia and the Company's export business.
In 2000, due to the effective date of Company's acquisition of the
remaining 50% interest in Steelcase S.A., the International segment includes
nine months of Steelcase S.A. revenues. Excluding the acquisition,
international revenue had local currency growth of 6.1% in 2000 primarily
driven by our German manufacturing operations. However, the devaluation of the
Euro throughout 2000 offset most of the local currency growth, resulting in 1%
growth in U.S. dollars. Revenues outside of Europe declined by 4.0% during
2000, primarily due to a decline in the Company's export business coupled with
the adverse impact of currency devaluation in Brazil, which was partially
offset by growth in Mexican operations.
In 1999, the International revenues decreased by 16.7% due to several
factors including a reduction in export projects to Latin America and flat
revenues in Asia, as well as the reorganization of the Company's Japanese
subsidiary.
Gross Profit. International gross profit as a percentage of revenues
increased in 2001 to 34.0%, from 32.8% in 2000, which was a decrease from the
1999 level of 34.3%. The increase in gross profit was primarily due to a more
favorable industry environment for the Company's European operations.
Operating Expenses. International operating expenses as a percentage of
revenues decreased to 28.6% in 2001 from 29.1% in 2000 and 29.3% in 1999. The
International operating expense ratios have been positively impacted by the
effect of currency fluctuations--primarily the euro, as well as the ability of
the Company's operations in Singapore and Australia to leverage their revenue
growth.
Operating Income. For the reasons set forth above, International operating
income increased to $38.5 million in 2001, up from $21.0 million in 2000 and
$5.8 million in 1999. International operating income as a percentage of
revenues increased in 2001 to 5.4%, from 3.7% in 2000; which was a decrease
from the 1999 level of 5.0%.
17
Financial Services
The following table sets forth consolidated statement of income data, and
data as a percentage of revenues for the Company's Financial Services segment
for 2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Revenues............................... $78.2 $52.4 $34.5
Net financing margin percentage........ 21.4% 20.0% 27.8%
General and administrative expense
percentage............................ 11.2% 15.0% 20.6%
Operating income....................... $ 8.0 $ 2.6 $ 2.5
Operating income percentage............ 10.2% 5.0% 7.2%
Revenues. Financial Services revenues grew at 49.2%, 51.9% and 31.7% for
2001, 2000 and 1999, respectively, primarily due to increased lease finance
revenues.
Net Financing Margin. Financial Services operating expenses are split into
two separate components--financing expenses and general and administrative
expenses. Finance revenues less financing expenses equals net financing
margin; net financing margin less general and administrative expense equals
operating income. Net financing margin was 21.4%, 20.0% and 27.8% for 2001,
2000 and 1999, respectively. Margin improvement was primarily due to increased
lease finance revenues, which was partially offset by the growth in interest
expense.
General and administrative expenses. General and administrative expenses as
a percentage of revenues decreased to 11.2% in 2001, down from 15.0% in 2000,
after decreasing from 20.6% in 1999. General and administrative expense
dollars have held relatively flat over the past three years, while financing
revenue has increased, resulting in increased operating margin leverage.
Operating Income. For the reasons set forth above, Financial Services
operating income increased to $8.0 million in 2001, up from $2.6 million in
2000 and $2.5 million in 1999. Financial Services operating income as a
percentage of revenues increased in 2001 to 10.2%, up from 5.0% in 2000; which
was a decrease from the 1999 level of 7.2%.
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 February 23, 2001 included cash, cash equivalents and
short-term investments of $39.5 million, a decrease from the $88.6 million
reported on February 25, 2000. 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.
Through February 1999, the Company had no long-term debt. However, with the
acquisition of Steelcase S.A. and management's intent to leverage the
significant financial resources available to the Company to meet its growth
objectives, the Company has obtained long-term debt financing from bank
syndicates in Europe and the United States. During 2001, the Company received
investment grade credit ratings from both Moody's (A3) and Standard & Poor's
(A-). In April 2001, the Company established a $400.0 million global credit
facility that will replace the North American and European credit facilities
that currently exist (see Note 9). The Company intends to use the global
credit facility as a backstop for a commercial paper program currently being
negotiated. Total debt at February 23, 2001 aggregated $537.2 million, which
was approximately 25% of total capitalization of the Company. The Company also
holds $612.3 million of interest bearing assets, of which $585.2 is held
through its Financial Services business segment.
18
Cash provided by operating activities
The following table sets forth consolidated statement of cash flow data for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Net income.......................... $193.7 $184.2 $221.4
Depreciation and amortization....... 162.5 141.8 107.0
Changes in operating assets and
liabilities........................ (139.0) (21.8) 20.4
Other............................... (7.4) 1.5 11.1
------ ------ ------
Net cash provided by operating
activities......................... $209.8 $305.7 $359.9
====== ====== ======
Cash provided by operating activities totaled $209.8 million in 2001,
$305.7 million in 2000 and $359.9 million in 1999. The cash provided by
operations resulted primarily from net income excluding non-cash charges such
as depreciation and amortization, net of increases in accounts receivable and
inventories and prepaids. The decrease in 2001 is attributable to the
Company's European operations, as well as volume increases around the world,
both of which have resulted in higher accounts receivable and inventory
balances. This decrease was partially offset by increased depreciation and
amortization. In addition, the Company had significant cash outlays for
previously accrued expenses including those related to its payment of the
year-end bonus, contributions to the Company's trust fund, tax payments and
deferred acquisition payments. The consolidation of Steelcase S.A. increased
working capital for 2000 and 2001. However, the Company is implementing
aggressive strategies to reduce both inventories and accounts receivable on a
worldwide basis.
Cash used in investing activities
The following table sets forth consolidated statement of cash flow data for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Capital expenditures................ $(260.5) $(188.8) $(170.4)
Proceeds from the disposal of as-
sets............................... 179.3 16.4 --
Lease fundings, net of repayments... (100.7) (120.2) (63.1)
Corporate acquisitions, net of cash
acquired........................... (0.1) (209.6) (57.2)
Other............................... (38.0) (12.4) (51.5)
------- ------- -------
Net cash provided by investing ac-
tivities........................... $(220.0) $(514.6) $(342.2)
======= ======= =======
Cash used in investing activities totaled $220.0 million in 2001, $514.6
million in 2000 and $342.2 million in 1999. The decrease in 2001 is primarily
due to the absence of any material acquisitions during the year, as well as an
increase in proceeds from the disposal of assets, which was partially offset
by an increase in capital expenditures. During 2001, the Company evaluated the
use of its asset base and where applicable, it has financed several non-income
producing assets through the use of various sale/leaseback arrangements. In
addition, other non-income producing assets were sold during the year. The
increase in 2000 resulted primarily from corporate acquisitions, as well as
increases in capital expenditures and leased assets.
The Company's capital expenditures were $260.5 million in 2001, $188.8
million in 2000 and $170.4 million in 1999, reflecting investments in excess
of depreciation for each of the last three years. Capital expenditures
continue to include increased investments in manufacturing equipment,
information systems and facilities. Collectively, these investments are
expected to improve productivity and safety, increase capacity,
19
decrease the impact on the surrounding environments in which the Company
operates and facilitate the launch of new products. The Company expects
capital expenditures in fiscal 2002 to decrease, returning closer to 2000
levels or slightly higher due to the continued construction of a new wood
manufacturing facility and the continued investment in new product
development, information systems and corporate and showroom facilities. The
Company expects to fund these capital expenditures primarily through cash
generated from operations.
The Company continues to invest in its leasing portfolio, which includes
both direct financing and operating leases of office furniture products. The
Company's net investment in leased assets increased to $449.8 as of February
23, 2001, up from $349.1 million as of February 25, 2000. The Company expects
to fund future investments in leased assets primarily through its lease
receivables transfer facility.
Corporate acquisitions in 2000, aggregating $209.6 million, reflect the
complete ownership of Steelcase S.A., Clestra Hauserman and a significant
dealer. Corporate acquisitions in 1999, aggregating $57.2 million, reflect the
complete ownership of J.M. Lynne and the partial ownership of Microfield
Graphics, Clestra Hauserman and the Modernform Group Public Company Limited.
(See Note 18).
Cash provided by (used in) financing activities
The following table sets forth consolidated statement of cash flow data for
2001, 2000 and 1999 (in millions).
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Short-term and long-term debt, net.. $ 81.9 $323.4 $ --
Common stock issuance (repurchase),
net................................ (56.5) (36.7) 9.8
Dividends paid...................... (65.9) (67.3) (63.1)
------ ------ ------
Net cash provided by (used in)
financing activities............... $(40.5) $219.4 $(53.3)
====== ====== ======
Cash provided by (used in) financing activities totaled $(40.5) million in
2001, $219.4 million in 2000 and $(53.3) million in 1999.
Management continues to evaluate the optimal capital structure for the
Company in light of its long-term growth strategies. At the time of the above
mentioned acquisition of Steelcase S.A., the Company established a 364-day
unsecured committed $200 million revolving credit facility. Subject to certain
conditions, the facility is renewable annually for additional 364-day periods.
The Company also established a $200 million lease receivables transfer
facility. Subject to certain conditions, the facility is renewable annually,
with borrowings on the facility scheduled to mature in accordance with the
terms of the underlying leases.
Additionally, the Company has an unsecured, committed credit facility of
EUR 200 million from bank syndicates in Europe to provide liquidity and
finance capital expenditures for its European operations. The agreement is
comprised of two tranches: Tranche A is a EUR 75.0 million, 364-day revolving
facility, and Tranche B is a EUR 125.0 million, five-year term facility.
Annual dividends per share of common stock were $0.44 in 2001, $0.44 in
2000 and $0.41 in 1999.
During 1999, eligible employees purchased shares of Class A Common Stock
pursuant to the terms of the Employee Discount Option Grant, resulting in
proceeds to the Company of $24.8 million. The shares for this grant, along
with the shares for the Employee Stock Grant issued in 1998, were purchased by
the Company from the selling shareholders in the initial public offering for
$43.5 million.
On June 17, 1998 the Board of Directors authorized a share repurchase
program for up to three million shares, which has since been expanded to 11
million shares authorized for repurchase. The Company
20
repurchased 1,633,300 shares, 1,373,870 shares and 794,300 shares of Class A
Common Stock for $24.8 million, $18.4 million and $15.0 million in 2001, 2000
and 1999, respectively, and 1,944,337 shares and 1,086,400 shares of Class B
Common Stock for $31.8 million and $18.3 million in 2001 and 2000,
respectively. Management anticipates that the stock repurchase program will
not reduce the Company's tradable share float in the long run as it expects
that Class B Common Stock will continue to convert to Class A Common Stock
over time.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro. There will be a transition period from January 1,
1999 through January 1, 2002, at which time all legal tender will convert to
the Euro. The transition period is anticipated to resolve difficulties in
handling local currencies and the Euro simultaneously, while remaining
flexible to the market. The Company's primary exposure to the Euro conversion
is concentrated in Steelcase S.A. Steelcase S.A. has created an internal Euro
Committee, a pan-European multifunctional team whose goal is to determine the
impact of this currency change on products, markets and information systems.
Based on the Euro Committee's work to date, the Company does not expect the
Euro conversion to have a material impact on Steelcase S.A.'s financial
position, or on the Company as a whole.
Forward Looking Statements
From time to time, in written reports and oral statements, the Company
discusses its expectations regarding future performance. For example, certain
portions of Management's Discussion and Analysis of Financial Condition and
Results of Operations, contain various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. 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; changes in domestic and international government laws and
regulations; competitive pricing pressure; pricing changes by the Company or
its competitors; currency fluctuations (including the euro); the timing,
extent and impact of work force reductions (including elimination of temporary
workers, hourly layoffs and salaried workforce reduction) and plant closings
on the company's costs; changes in customer demand and order patterns; changes
in relationships with customers, suppliers, employees and dealers; product
(sales) mix; the success (including product performance and customer
acceptance) of new products, current product innovations and platform
simplification, and their impact on the company's manufacturing processes;
possible acquisitions or divestitures by the company; the company's ability to
reduce costs, including ramp-up costs associated with new products, current
product innovations and platform simplification; the company's ability to
improve margins on new products, to successfully integrate acquired
businesses, to successfully initiate and manage alliances and global sourcing,
to successfully transition the production of its products to other
manufacturing facilities as a result of production rationalization, and to
successfully implement technology initiatives; the sufficiency of the reserve
established with regard to material and installations costs associated with
Pathways product line improvements; changes in future business strategies and
decisions; and other risks detailed in the Company's other filings with the
Securities and Exchange Commission.
Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes a comprehensive standard for the recognition and measurement of
derivatives and hedging activities. The new standard requires that all
derivatives be recognized as assets or liabilities in the balance sheet and
measured at fair value. Gains and losses resulting from changes in fair value
are required to be recognized in current earnings unless they meet specific
hedging criteria in which case the gains and losses would be included in
comprehensive income. SFAS No. 133 will become effective for the Company
beginning in the first quarter of fiscal year 2002. The adoption of SFAS No.
133 will not have a material effect on the Company's financial results.
21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk:
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed are:
. Foreign exchange risks
. Interest rates on debt
Foreign Exchange Risks
International operations constituted approximately 18% and 10% of the
Company's 2001 and 2000 consolidated operating income, respectively. Operating
in international markets involves exposure to the possibility of volatile
movements in foreign exchange rates. The economic impact of foreign exchange
rate movements on the Company is complex because such changes are often linked
to variability in real growth, inflation, interest rates, governmental actions
and other factors. These changes, if material, could cause the Company to
adjust its financing and operating strategies. Therefore, to solely isolate
the effect of changes in currency does not accurately portray the effect on
these other important economic factors. As foreign exchange rates change,
translation of the income statements of the Company's international
subsidiaries into U.S. dollars affects year-over-year comparability of
operating results. The Company generally does not hedge translation risks
because cash flows from international operations are generally reinvested
locally and the cost/benefit of hedging reported earnings is not justifiable.
Changes in foreign exchange rates that would have the largest impact on
translating the Company's international operating profit for 2001 relate to
the euro and the Canadian dollar. The Company estimates that a 10% adverse
change in foreign exchange rates would have reduced operating profit by
approximately $6 million in 2001 and $3 million in 2000, assuming no changes
other than the exchange rate itself. For both 2001 and 2000, this represents
approximately 11% of the Company's non-U.S. operating profit and 2% and 1% of
consolidated operating profit, respectively. As discussed above, this
quantitative measure has inherent limitations. Further, the sensitivity
analysis disregards the possibility that rates can move in opposite directions
and that gains from one country may or may not be offset by losses from
another country.
Foreign exchange gains and losses reflect transaction gains and losses.
Transaction gains and losses arise from monetary assets and liabilities
denominated in currencies other than a business unit's functional currency.
Transaction gains and losses are not material for the Company.
Interest Rates
The Company is exposed to interest rate risk primarily on its notes
receivable and leased assets, its short-term borrowings and long-term debt.
The Company manages its interest rate risk through the use of interest rate
swaps and caps and through balancing the notional amount of fixed and variable
rate liabilities with fixed and variable rate assets where appropriate.
Management estimates that a 1% change in interest rates would not have a
material impact on the Company's results of operations for 2001 or 2000, based
upon the year end levels of exposed assets and liabilities.
Item 8. Financial Statements and Supplementary Data:
The financial statements and supplementary data required by the Item are
included in the Consolidated Financial Statements set forth on pages F-1
through F-30, attached hereto and found immediately following the signature
page of this Report.
22
PART III
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure:
None.
Item 10. Directors and Officers of the Registrant:
The information required by Item 10 which is not included in Part I hereof
is contained in the Proxy Statement, under the captions "Proposal Requiring
Your Vote--Election of Directors", "Our Board of Directors" and "Other
Matters--Section 16(a) Beneficial Ownership Reporting Compliance", and is
incorporated herein by reference.
Item 11. Executive Compensation:
The information required by Item 11 is contained in the Proxy Statement,
under the captions "Directors' Compensation", "Executive Compensation: Report
of the Compensation Committee", "Executive Compensation, Retirement Programs
and Other Arrangements", "Compensation Committee Interlocks and Insider
Participation", and "Stock Performance Graph", and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The information required by Item 12 is contained in the Proxy Statement,
under the caption "Stock Ownership of Management and More Than 5%
shareholders", and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions:
The information required by Item 13 is contained in the Proxy Statement,
under the caption "Compensation Committee Interlocks and Insider
Participation", and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K:
(a) Financial Statements and Schedules (F-1 to F-30)
1. Financial Statements
The following consolidated financial statements of the Company are filed as
part of this Report:
--Consolidated Statements of Income for the Years Ended February 23, 2001,
February 25, 2000 and February 26, 1999
--Consolidated Balance Sheets as of February 23, 2001 and February 25, 2000
23
--Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended February 23, 2001, February 25, 2000 and February 26, 1999
--Consolidated Statements of Cash Flows for the Years Ended February 23,
2001, February 25, 2000 and February 26, 1999
--Notes to Consolidated Financial Statements
--Report of Independent Certified Public Accountants
2. Financial Statement Schedules (S-1)
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or
the required information is shown in the Consolidated Financial Statements or
notes thereto.
(b) Reports on Form 8-K filed during the quarter ending February 23, 2001
None
(c) Exhibits Required by Securities and Exchange Commission Regulation S-K
See Index of Exhibits (page E-1)
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Steelcase Inc.
/s/ James P. Keane
By: _________________________________
James P. Keane
Senior Vice President--Finance
and Chief Financial Officer
Date: May 17, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on this 17th day of May, 2001:
Signature Title Date
--------- ----- ----
/s/ James P. Hackett President, Chief Executive May 17, 2001
______________________________________ Officer and Director
James P. Hackett (Principal Executive
Officer)
/s/ James P. Keane Senior Vice President-- May 17, 2001
______________________________________ Finance, Chief Financial
James P. Keane Officer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ David Bing Director May 17, 2001
______________________________________
David Bing
/s/ William P. Crawford Director May 17, 2001
______________________________________
William P. Crawford
/s/ Earl D. Holton Chairman of the Board of May 17, 2001
______________________________________ Directors and Director
Earl D. Holton
/s/ David D. Hunting, Jr. Director May 17, 2001
______________________________________
David D. Hunting, Jr.
/s/ Elizabeth Valk Long Director May 17, 2001
______________________________________
Elizabeth Valk Long
/s/ Frank H. Merlotti Director May 17, 2001
______________________________________
Frank H. Merlotti
/s/ Robert C. Pew II Director, Chairman May 17, 2001
______________________________________ Emeritus
Robert C. Pew II
/s/ Robert C. Pew III Director May 17, 2001
______________________________________
Robert C. Pew III
/s/ Peter M. Wege II Director May 17, 2001
______________________________________
Peter M. Wege II
/s/ P. Craig Welch, Jr. Director May 17, 2001
______________________________________
P. Craig Welch, Jr.
25
STEELCASE INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
Furniture revenues...................... $3,807.6 $3,291.9 $2,727.0
Finance revenues........................ 78.2 52.4 34.5
-------- -------- --------
Total revenues........................ 3,885.8 3,344.3 2,761.5
Cost of sales........................... 2,577.1 2,213.4 1,753.1
-------- -------- --------
Gross profit............................ 1,308.7 1,130.9 1,008.4
Operating expenses...................... 1,002.3 856.4 682.5
-------- -------- --------
Operating income........................ 306.4 274.5 325.9
Interest expense........................ (18.0) (10.9) --
Other income, net....................... 15.3 32.8 11.5
-------- -------- --------
Income before provision for income taxes
and equity in net income of joint
ventures and dealer transitions........ 303.7 296.4 337.4
Provision for income taxes.............. 110.9 115.5 124.9
-------- -------- --------
Income before equity in net income of
joint ventures and dealer transitions.. 192.8 180.9 212.5
Equity in net income of joint ventures
and dealer transitions................. 0.9 3.3 8.9
-------- -------- --------
Net income.............................. $ 193.7 $ 184.2 $ 221.4
======== ======== ========
Earnings per share (basic).............. $ 1.30 $ 1.21 $ 1.44
======== ======== ========
Earnings per share (diluted)............ $ 1.29 $ 1.21 $ 1.44
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
STEELCASE INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
February 23, February 25,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 25.3 $ 73.7
Short-term investments............................. 14.2 14.9
Accounts receivable, less allowances of $50.5 and
$45.5............................................. 603.2 592.6
Notes receivable and leased assets................. 270.4 189.0
Inventories........................................ 184.7 166.5
Prepaid expenses................................... 22.2 12.5
Deferred income taxes.............................. 85.7 78.1
-------- --------
Total current assets................................. 1,205.7 1,127.3
-------- --------
Property and equipment, net.......................... 933.8 939.1
Notes receivable and leased assets................... 341.9 294.1
Joint ventures and dealer transitions................ 45.2 37.0
Deferred income taxes................................ 40.3 43.7
Goodwill and other intangible assets, net of
accumulated amortization of $63.1 and $38.6......... 405.1 422.6
Other assets......................................... 185.0 173.8
-------- --------
Total assets......................................... $3,157.0 $3,037.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 254.1 $ 219.8
Short-term borrowings and current portion of long-
term debt......................................... 209.7 209.0
Accrued expenses:
Employee compensation............................ 119.6 121.1
Employee benefit plan obligations................ 84.8 90.0
Other............................................ 217.7 287.3
-------- --------
Total current liabilities............................ 885.9 927.2
-------- --------
Long-term liabilities:
Long-term debt..................................... 327.5 257.8
Employee benefit plan obligations.................. 247.7 243.7
Deferred income taxes.............................. 14.7 29.5
Other long-term liabilities........................ 44.7 17.2
-------- --------
Total long-term liabilities.......................... 634.6 548.2
-------- --------
Total liabilities.................................... 1,520.5 1,475.4
-------- --------
Shareholders' equity:
Preferred Stock-no par value; 50,000,000 shares
authorized, none issued and outstanding........... -- --
Class A Common Stock-no par value; 475,000,000
shares authorized, 32,572,706 and 30,168,585
issued and outstanding............................ 69.5 82.4
Class B Common Stock-no par value; 475,000,000
shares authorized, 115,012,981 and 120,989,840
issued and outstanding............................ 216.7 260.3
Accumulated other comprehensive income (loss)...... (30.0) (33.0)
Retained earnings.................................. 1,380.3 1,252.5
-------- --------
Total shareholders' equity........................... 1,636.5 1,562.2
-------- --------
Total liabilities and shareholders' equity........... $3,157.0 $3,037.6
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
STEELCASE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions)
Common Stock Accumulated
--------------- Other Total Total
Class Comprehensive Retained Shareholders' Comprehensive
Class A B Income (Loss) Earnings Equity Income
------- ------ ------------- -------- ------------- -------------
February 27, 1998....... $ 41.1 $328.5 $(14.5) $ 977.3 $1,332.4
Common stock
conversion............. 27.1 (27.1) --
Common stock
repurchase............. (15.0) (15.0)
Common stock issuance... 24.8 24.8
Other comprehensive
income................. (0.5) (0.5) $ (0.5)
Dividends paid.......... (63.1) (63.1)
Net income.............. 221.4 221.4 221.4
------ ------ ------ -------- -------- ------
February 26, 1999....... 78.0 301.4 (15.0) 1,135.6 1,500.0 $220.9
======
Common stock
conversion............. 22.8 (22.8) --
Common stock
repurchase............. (18.4) (18.3) (36.7)
Other comprehensive
income................. (18.0) (18.0) (18.0)
Dividends paid.......... (67.3) (67.3)
Net income.............. 184.2 184.2 184.2
------ ------ ------ -------- -------- ------
February 25, 2000....... 82.4 260.3 (33.0) 1,252.5 1,562.2 $166.2
======
Common stock
conversion............. 11.7 (11.7) --
Common stock issuance... 0.1 0.1
Common stock
repurchase............. (24.7) (31.9) (56.6)
Other comprehensive
income................. 3.0 3.0 3.0
Dividends paid.......... (65.9) (65.9)
Net income.............. 193.7 193.7 193.7
------ ------ ------ -------- -------- ------
February 23, 2001....... $ 69.5 $216.7 $(30.0) $1,380.3 $1,636.5 $196.7
====== ====== ====== ======== ======== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
STEELCASE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended
--------------------------------------
February 23, February 25, February 26,
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net income............................. $ 193.7 $ 184.2 $ 221.4
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 162.5 141.8 107.0
Pension and postretirement benefit
cost................................ 24.7 26.3 22.7
Gain on disposal of assets........... (12.2) (17.0) --
Deferred income taxes................ (19.0) (4.5) (2.7)
Equity in net income of joint
ventures and dealer transitions..... (0.9) (3.3) (8.9)
Changes in operating assets and
liabilities, net of corporate
acquisitions:
Accounts receivable................ (33.3) (9.4) 15.4
Inventories........................ (19.3) (21.2) 9.3
Prepaids expenses and other
assets............................ (26.5) (14.7) (20.6)
Accounts payable................... 44.3 7.9 (15.7)
Accrued expenses and other
liabilities....................... (104.2) 15.6 32.0
------- ------- -------
Net cash provided by operating
activities............................ 209.8 305.7 359.9
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures................... (260.5) (188.8) (170.4)
Proceeds from the disposal of assets... 179.3 16.4 --
Increase in lease fundings............. (239.0) (193.0) (124.6)
Proceeds from repayments of lease
fundings.............................. 138.3 72.8 61.5
Net increase in notes receivable....... (30.2) (20.0) 10.9
Net change in investments.............. (1.5) 17.3 4.4
Joint ventures and dealer transitions.. (6.3) (9.7) (66.8)
Acquisitions, net of cash acquired, and
business divestitures................. (0.1) (209.6) (57.2)
------- ------- -------
Net cash used in investing activities.. (220.0) (514.6) (342.2)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of debt......... 191.8 326.3 --
Repayments of debt..................... (103.0) (93.4) --
Short-term borrowings, net............. (6.9) 90.5 --
Common stock issuance.................. 0.1 -- 24.8
Common stock repurchase................ (56.6) (36.7) (15.0)
Dividends paid......................... (65.9) (67.3) (63.1)
------- ------- -------
Net cash provided by (used in)
financing activities.................. (40.5) 219.4 (53.3)
------- ------- -------
Effect of exchange rate changes on cash
and cash equivalents.................. 2.3 (4.3) --
------- ------- -------
Net increase (decrease) in cash and
cash equivalents...................... (48.4) 6.2 (35.6)
Cash and cash equivalents, beginning of
year.................................. 73.7 67.5 103.1
------- ------- -------
Cash and cash equivalents, end of
year.................................. $ 25.3 $ 73.7 $ 67.5
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Steelcase Inc. and its majority-owned subsidiaries (the "Company") is the
world's largest manufacturer and provider of office furniture, office
furniture systems and related products and services. The Company manufactures
at more than 30 locations throughout the world, including the United States,
Canada, Mexico and Europe. The Company distributes its products through a
worldwide network of independent dealers in approximately 800 locations
including approximately 380 in North America, 350 in Europe and 70 throughout
the rest of the world. The Company operates under two geographical furniture
segments, North America and International, and a Financial Services business
segment, which provides financing services to Steelcase dealers and their
customers to facilitate the purchase of Steelcase products in the United
States, Canada and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Steelcase
Inc. and its majority-owned subsidiaries, including the accounts of Steelcase
S.A. and subsidiaries, formerly known as Steelcase Strafor S.A., ("Steelcase
Strafor"), which became a wholly-owned subsidiary of the Company effective
March 31, 1999 (See Note 18). The Company currently accounts for Steelcase
Strafor on a two-month lag. However, beginning with the 52-week period ended
February 22, 2002, its European subsidiaries will be accounted for on the same
fiscal year. During the normal course of business, the Company may obtain
equity interests in dealers which the Company intends to resell as soon as
practicable ("dealer transitions"). The financial statements for majority-
owned dealer transitions for which no specific transition plan has been
adopted or is in the process of being adopted at the acquisition date are
consolidated with the Company's financial statements. Majority-owned dealer
transitions with a transition plan that has been adopted or is in the process
of being adopted at the acquisition date are accounted for under the equity
method of accounting and included in joint ventures and dealer transitions in
the accompanying consolidated balance sheet in an amount equal to the
Company's equity in the net assets of those entities, principally based on
audited financial statements for each applicable year. The Company's
investments in joint ventures and dealer transitions are carried at its equity
in the net assets of those entities primarily based on audited financial
statements for each applicable year.
All significant intercompany accounts, transactions and profits have been
eliminated in consolidation. Foreign currency-denominated assets and
liabilities are translated into U.S. dollars at the exchange rates existing at
the balance sheet date. Income and expense items are translated at the average
exchange rates during the respective periods. Translation adjustments
resulting from fluctuations in the exchange rates are recorded in accumulated
other comprehensive income, a separate component of shareholders' equity.
Gains and losses resulting from the exchange rate fluctuations on transactions
denominated in currencies other than the functional currency are not material.
Reclassifications
The Company has reclassified certain amounts from 1999 and 2000 to conform
to the 2001 presentation.
Year End
The Company's year end is the last Friday in February with each fiscal
quarter including 13 weeks. Fiscal years presented herein include the 52-week
periods ended February 23, 2001, February 25, 2000 and February 26, 1999.
F-5
STEELCASE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Furniture revenues include product sales and service revenues. Product
sales and service revenues are recognized as products are shipped and services
are rendered. Freight costs are invoiced to customers and the associated
expenses are netted with furniture revenues. Freight costs approximated $163.2
million, $130.5 million and $111.8 million for 2001, 2000 and 1999,
respectively. Service revenues are not material.
Finance revenues consist of interest income from dealer financing and from
leasing revenues. Interest income is recognized at prescribed financing rates
as earned. Leasing revenues include interest earned on the net investment in
leased assets, which is recognized over the lease term as a constant
percentage return, as well as, operating lease revenues which consist of the
contractual lease payments over the lease term.
Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily interest-
earning deposits, treasury notes and commercial paper, with an original
maturity of three months or less. Cash equivalents are reported at amortized
cost, which approximates market, and approximated $24.2 million and $17.0
million as of February 23, 2001 and February 25, 2000, respectively.
Long-Term Investments
The Company currently classifies its investments as available-for-sale or
held-to-maturity. There were no investments classified as available-for-sale
as of February 23, 2001. Investments classified as available-for-sale
approximated $1.5 million as of February 25, 2000. Gross unrealized gains and
losses, net of taxes, are charged or credited to comprehensive income, a
separate component of shareholders' equity. Investments classified as held-to-
maturity typically include treasury notes, tax-exempt municipal bonds and
other debt securities which the Company has the intent and ability to hold
until maturity. These investments are reported at amortized cost. Investments
classified as long-term mature over the next five years.
Investments in corporate-owned life insurance ("COLI") policies, which were
purchased to fund employee benefit plan obligations, are recorded at their net
cash surrender values as reported by the issuing insurance companies
associated with the COLI.
Inventories
Inventories are stated at the lower of cost or market and are valued based
upon the last-in, first-out ("LIFO") method and the average cost method.
Property and Equipment
Property and equipment are stated at the lower of cost or net realizable
value and depreciated using the straight line-method over the estimated useful
life of the assets. Internal-use software applications and related developmen