UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended NovemberAugust 26, 20212022
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or |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-13873
STEELCASE INC.
(Exact name of registrant as specified in its charter)
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Michigan | | 38-0819050 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
901 44th Street SE | | |
Grand Rapids, | Michigan | | 49508 |
(Address of principal executive offices) | | (Zip Code) |
(616) 247-2710
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Class A Common Stock | SCS | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of December 16, 2021,September 20, 2022, Steelcase Inc. had 87,021,73192,308,638 shares of Class A Common Stock and 25,074,49420,475,134 shares of Class B Common Stock outstanding.
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STEELCASE INC. FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED NovemberAugust 26, 20212022
INDEX |
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements:
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STEELCASE INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS (Unaudited) (in millions, except per share data) |
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended |
| | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Revenue | Revenue | $ | 738.2 | | | $ | 617.5 | | | $ | 2,019.6 | | | $ | 1,919.1 | | | Revenue | $ | 863.3 | | | $ | 724.8 | | | $ | 1,604.0 | | | $ | 1,281.4 | | |
Cost of sales | Cost of sales | 534.6 | | | 437.3 | | | 1,454.5 | | | 1,339.7 | | | Cost of sales | 612.5 | | | 518.0 | | | 1,160.7 | | | 919.9 | | |
Restructuring costs | Restructuring costs | — | | | 2.3 | | | — | | | 9.2 | | | Restructuring costs | — | | | — | | | 0.9 | | | — | | |
Gross profit | Gross profit | 203.6 | | | 177.9 | | | 565.1 | | | 570.2 | | | Gross profit | 250.8 | | | 206.8 | | | 442.4 | | | 361.5 | | |
Operating expenses | Operating expenses | 187.7 | | | 168.8 | | | 547.1 | | | 498.5 | | | Operating expenses | 221.4 | | | 172.9 | | | 422.3 | | | 359.4 | | |
Goodwill impairment charge | — | | | — | | | — | | | 17.6 | | | |
Restructuring costs | Restructuring costs | — | | | 9.1 | | | — | | | 17.8 | | | Restructuring costs | 0.5 | | | — | | | 3.8 | | | — | | |
Operating income | Operating income | 15.9 | | | — | | | 18.0 | | | 36.3 | | | Operating income | 28.9 | | | 33.9 | | | 16.3 | | | 2.1 | | |
Interest expense | Interest expense | (6.5) | | | (6.6) | | | (19.3) | | | (20.7) | | | Interest expense | (7.2) | | | (6.4) | | | (13.6) | | | (12.8) | | |
Investment income | Investment income | 0.1 | | | 0.2 | | | 0.4 | | | 1.2 | | | Investment income | 0.3 | | | 0.1 | | | 0.4 | | | 0.3 | | |
Other income, net | Other income, net | 2.5 | | | 2.2 | | | 3.5 | | | 7.0 | | | Other income, net | 4.4 | | | 1.8 | | | 7.5 | | | 1.0 | | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 12.0 | | | (4.2) | | | 2.6 | | | 23.8 | | | Income (loss) before income tax expense (benefit) | 26.4 | | | 29.4 | | | 10.6 | | | (9.4) | | |
Income tax expense (benefit) | Income tax expense (benefit) | 2.4 | | | (6.3) | | | (3.6) | | | 4.3 | | | Income tax expense (benefit) | 6.8 | | | 4.7 | | | 2.4 | | | (6.0) | | |
Net income | $ | 9.6 | | | $ | 2.1 | | | $ | 6.2 | | | $ | 19.5 | | | |
Earnings per share: | | | | | | | | | |
Net income (loss) | | Net income (loss) | $ | 19.6 | | | $ | 24.7 | | | $ | 8.2 | | | $ | (3.4) | | |
Earnings (loss) per share: | | Earnings (loss) per share: | | | | | | | | |
Basic | Basic | $ | 0.08 | | | $ | 0.02 | | | $ | 0.05 | | | $ | 0.17 | | | Basic | $ | 0.17 | | | $ | 0.21 | | | $ | 0.07 | | | $ | (0.03) | | |
Diluted | Diluted | $ | 0.08 | | | $ | 0.02 | | | $ | 0.05 | | | $ | 0.17 | | | Diluted | $ | 0.17 | | | $ | 0.21 | | | $ | 0.07 | | | $ | (0.03) | | |
Dividends declared and paid per common share | Dividends declared and paid per common share | $ | 0.145 | | | $ | 0.100 | | | $ | 0.390 | | | $ | 0.270 | | | Dividends declared and paid per common share | $ | 0.145 | | | $ | 0.145 | | | $ | 0.290 | | | $ | 0.245 | | |
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See accompanying notes to the condensed consolidated financial statements.
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended |
| | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Net income | $ | 9.6 | | | $ | 2.1 | | | $ | 6.2 | | | $ | 19.5 | | | |
Net income (loss) | | Net income (loss) | $ | 19.6 | | | $ | 24.7 | | | $ | 8.2 | | | $ | (3.4) | | |
Other comprehensive income (loss), net: | Other comprehensive income (loss), net: | | Other comprehensive income (loss), net: | |
Unrealized gain (loss) on investments | (0.1) | | | 0.3 | | | 0.1 | | | 0.2 | | | |
Unrealized gain on investment | | Unrealized gain on investment | 0.3 | | | — | | | — | | | 0.2 | | |
Pension and other post-retirement liability adjustments | Pension and other post-retirement liability adjustments | 0.4 | | | (0.3) | | | 0.7 | | | (1.1) | | | Pension and other post-retirement liability adjustments | — | | | 0.4 | | | 0.2 | | | 0.3 | | |
Derivative amortization | Derivative amortization | 0.3 | | | 0.3 | | | 0.7 | | | 0.7 | | | Derivative amortization | 0.2 | | | 0.2 | | | 0.5 | | | 0.4 | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (13.3) | | | 7.2 | | | (25.1) | | | 20.7 | | | Foreign currency translation adjustments | (21.3) | | | (12.7) | | | (39.9) | | | (11.8) | | |
Total other comprehensive income (loss), net | Total other comprehensive income (loss), net | (12.7) | | | 7.5 | | | (23.6) | | | 20.5 | | | Total other comprehensive income (loss), net | (20.8) | | | (12.1) | | | (39.2) | | | (10.9) | | |
Comprehensive income (loss) | Comprehensive income (loss) | $ | (3.1) | | | $ | 9.6 | | | $ | (17.4) | | | $ | 40.0 | | | Comprehensive income (loss) | $ | (1.2) | | | $ | 12.6 | | | $ | (31.0) | | | $ | (14.3) | | |
See accompanying notes to the condensed consolidated financial statements.
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STEELCASE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions) |
| | | (Unaudited) | | | (Unaudited) | |
| | November 26, 2021 | February 26, 2021 | | August 26, 2022 | February 25, 2022 |
ASSETS | ASSETS | | ASSETS | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 275.2 | | | $ | 489.8 | | | Cash and cash equivalents | $ | 52.2 | | | $ | 200.9 | | |
| Accounts receivable | 341.8 | | | 279.0 | | | |
Allowance for doubtful accounts | (8.5) | | | (8.7) | | | |
Accounts receivable, net of allowance of $8.6 and $8.0 | | Accounts receivable, net of allowance of $8.6 and $8.0 | 413.3 | | | 340.4 | | |
Inventories | Inventories | 286.1 | | | 193.5 | | | Inventories | 396.7 | | | 326.2 | | |
| Prepaid expenses | Prepaid expenses | 35.7 | | | 20.9 | | | Prepaid expenses | 31.2 | | | 24.0 | | |
Income taxes receivable | Income taxes receivable | 51.0 | | | 49.5 | | | Income taxes receivable | 19.5 | | | 41.7 | | |
Other current assets | Other current assets | 22.2 | | | 21.4 | | | Other current assets | 40.0 | | | 26.0 | | |
Total current assets | Total current assets | 1,003.5 | | | 1,045.4 | | | Total current assets | 952.9 | | | 959.2 | | |
Property, plant and equipment, net of accumulated depreciation of $1,084.6 and $1,063.2 | 394.8 | | | 410.8 | | | |
Property, plant and equipment, net of accumulated depreciation of $1,085.8 and $1,089.0 | | Property, plant and equipment, net of accumulated depreciation of $1,085.8 and $1,089.0 | 404.5 | | | 392.8 | | |
Company-owned life insurance ("COLI") | Company-owned life insurance ("COLI") | 170.0 | | | 169.5 | | | Company-owned life insurance ("COLI") | 161.7 | | | 168.0 | | |
Deferred income taxes | Deferred income taxes | 119.7 | | | 113.3 | | | Deferred income taxes | 114.6 | | | 121.2 | | |
Goodwill | Goodwill | 242.7 | | | 218.1 | | | Goodwill | 277.0 | | | 242.8 | | |
Other intangible assets, net of accumulated amortization of $82.4 and $73.3 | 89.1 | | | 90.4 | | | |
Other intangible assets, net of accumulated amortization of $93.4 and $86.4 | | Other intangible assets, net of accumulated amortization of $93.4 and $86.4 | 123.0 | | | 85.5 | | |
Investments in unconsolidated affiliates | Investments in unconsolidated affiliates | 50.6 | | | 51.5 | | | Investments in unconsolidated affiliates | 45.8 | | | 53.1 | | |
Right-of-use operating lease assets | Right-of-use operating lease assets | 222.7 | | | 225.4 | | | Right-of-use operating lease assets | 193.6 | | | 209.8 | | |
Other assets | Other assets | 25.7 | | | 29.6 | | | Other assets | 29.5 | | | 28.6 | | |
Total assets | Total assets | $ | 2,318.8 | | | $ | 2,354.0 | | | Total assets | $ | 2,302.6 | | | $ | 2,261.0 | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Accounts payable | Accounts payable | $ | 257.8 | | | $ | 181.3 | | | Accounts payable | $ | 274.2 | | | $ | 243.6 | | |
Short-term borrowings and current portion of long-term debt | Short-term borrowings and current portion of long-term debt | 5.0 | | | 4.7 | | | Short-term borrowings and current portion of long-term debt | 118.1 | | | 5.1 | | |
Current operating lease obligations | Current operating lease obligations | 43.7 | | | 43.8 | | | Current operating lease obligations | 40.7 | | | 44.2 | | |
Accrued expenses: | Accrued expenses: | | | | | Accrued expenses: | | | | |
Employee compensation | Employee compensation | 79.9 | | | 90.1 | | | Employee compensation | 78.9 | | | 75.6 | | |
Employee benefit plan obligations | Employee benefit plan obligations | 20.6 | | | 24.9 | | | Employee benefit plan obligations | 22.0 | | | 25.4 | | |
Accrued promotions | Accrued promotions | 27.2 | | | 27.8 | | | Accrued promotions | 27.4 | | | 32.9 | | |
Customer deposits | Customer deposits | 56.2 | | | 33.7 | | | Customer deposits | 65.3 | | | 53.4 | | |
| Other | Other | 100.6 | | | 108.7 | | | Other | 98.5 | | | 87.0 | | |
Total current liabilities | Total current liabilities | 591.0 | | | 515.0 | | | Total current liabilities | 725.1 | | | 567.2 | | |
Long-term liabilities: | Long-term liabilities: | | | | | Long-term liabilities: | | | | |
Long-term debt less current maturities | Long-term debt less current maturities | 477.9 | | | 479.2 | | | Long-term debt less current maturities | 445.4 | | | 477.4 | | |
Employee benefit plan obligations | Employee benefit plan obligations | 144.1 | | | 152.9 | | | Employee benefit plan obligations | 111.4 | | | 126.7 | | |
Long-term operating lease obligations | Long-term operating lease obligations | 195.8 | | | 199.5 | | | Long-term operating lease obligations | 168.7 | | | 182.2 | | |
Other long-term liabilities | Other long-term liabilities | 53.4 | | | 46.9 | | | Other long-term liabilities | 52.6 | | | 55.3 | | |
Total long-term liabilities | Total long-term liabilities | 871.2 | | | 878.5 | | | Total long-term liabilities | 778.1 | | | 841.6 | | |
Total liabilities | Total liabilities | 1,462.2 | | | 1,393.5 | | | Total liabilities | 1,503.2 | | | 1,408.8 | | |
Shareholders’ equity: | Shareholders’ equity: | | | | | Shareholders’ equity: | | | | |
| Additional paid-in capital | Additional paid-in capital | — | | | 12.5 | | | Additional paid-in capital | 13.7 | | | 1.5 | | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (63.6) | | | (40.0) | | | Accumulated other comprehensive income (loss) | (89.8) | | | (50.6) | | |
Retained earnings | Retained earnings | 920.2 | | | 988.0 | | | Retained earnings | 875.5 | | | 901.3 | | |
Total shareholders’ equity | Total shareholders’ equity | 856.6 | | | 960.5 | | | Total shareholders’ equity | 799.4 | | | 852.2 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 2,318.8 | | | $ | 2,354.0 | | | Total liabilities and shareholders’ equity | $ | 2,302.6 | | | $ | 2,261.0 | | |
See accompanying notes to the condensed consolidated financial statements.
STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
(in millions, except share and per share data)
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended |
| | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Changes in common shares outstanding: | Changes in common shares outstanding: | | Changes in common shares outstanding: | |
Common shares outstanding, beginning of period | Common shares outstanding, beginning of period | 113,821,358 | | | 114,776,546 | | | 114,908,676 | | | 117,202,000 | | | Common shares outstanding, beginning of period | 112,740,491 | | | 115,664,399 | | | 112,109,294 | | | 114,908,676 | | |
Common stock issuances | Common stock issuances | 16,109 | | | 21,351 | | | 43,406 | | | 48,241 | | | Common stock issuances | 21,209 | | | 14,204 | | | 42,381 | | | 27,297 | | |
Common stock repurchases | Common stock repurchases | (1,764,083) | | | (44,201) | | | (3,991,083) | | | (3,288,795) | | | Common stock repurchases | (198) | | | (1,873,804) | | | (279,301) | | | (2,227,000) | | |
Performance and restricted stock units issued as common stock | Performance and restricted stock units issued as common stock | 104,825 | | | 139,114 | | | 1,217,210 | | | 931,364 | | | Performance and restricted stock units issued as common stock | 500 | | | 16,559 | | | 889,628 | | | 1,112,385 | | |
Common shares outstanding, end of period | Common shares outstanding, end of period | 112,178,209 | | | 114,892,810 | | | 112,178,209 | | | 114,892,810 | | | Common shares outstanding, end of period | 112,762,002 | | | 113,821,358 | | | 112,762,002 | | | 113,821,358 | | |
| Changes in additional paid-in capital (1): | Changes in additional paid-in capital (1): | | Changes in additional paid-in capital (1): | |
Additional paid-in capital, beginning of period | Additional paid-in capital, beginning of period | $ | — | | | $ | 1.7 | | | $ | 12.5 | | | $ | 28.4 | | | Additional paid-in capital, beginning of period | $ | 10.3 | | | $ | 21.3 | | | $ | 1.5 | | | $ | 12.5 | | |
Common stock issuances | Common stock issuances | 0.2 | | | 0.2 | | | 0.6 | | | 0.6 | | | Common stock issuances | 0.3 | | | 0.2 | | | 0.5 | | | 0.4 | | |
Common stock repurchases | Common stock repurchases | — | | | (0.4) | | | (27.7) | | | (36.8) | | | Common stock repurchases | �� | | | (23.4) | | | (3.4) | | | (27.7) | | |
Performance and restricted stock units expense (credit) | (0.2) | | | 2.0 | | | 14.6 | | | 11.3 | | | |
Performance and restricted stock units expense | | Performance and restricted stock units expense | 3.1 | | | 1.9 | | | 15.1 | | | 14.8 | | |
Additional paid-in capital, end of period | Additional paid-in capital, end of period | — | | | 3.5 | | | — | | | 3.5 | | | Additional paid-in capital, end of period | 13.7 | | | — | | | 13.7 | | | — | | |
| Changes in accumulated other comprehensive income (loss): | Changes in accumulated other comprehensive income (loss): | | Changes in accumulated other comprehensive income (loss): | |
Accumulated other comprehensive income (loss), beginning of period | Accumulated other comprehensive income (loss), beginning of period | (50.9) | | | (56.3) | | | (40.0) | | | (69.3) | | | Accumulated other comprehensive income (loss), beginning of period | (69.0) | | | (38.8) | | | (50.6) | | | (40.0) | | |
Other comprehensive income (loss) | Other comprehensive income (loss) | (12.7) | | | 7.5 | | | (23.6) | | | 20.5 | | | Other comprehensive income (loss) | (20.8) | | | (12.1) | | | (39.2) | | | (10.9) | | |
| Accumulated other comprehensive income (loss), end of period | Accumulated other comprehensive income (loss), end of period | (63.6) | | | (48.8) | | | (63.6) | | | (48.8) | | | Accumulated other comprehensive income (loss), end of period | (89.8) | | | (50.9) | | | (89.8) | | | (50.9) | | |
| Changes in retained earnings: | Changes in retained earnings: | | Changes in retained earnings: | |
Retained earnings, beginning of period | Retained earnings, beginning of period | 952.2 | | | 1,002.7 | | | 988.0 | | | 1,011.3 | | | Retained earnings, beginning of period | 872.8 | | | 947.8 | | | 901.3 | | | 988.0 | | |
Net income | 9.6 | | | 2.1 | | | 6.2 | | | 19.5 | | | |
Net income (loss) | | Net income (loss) | 19.6 | | | 24.7 | | | 8.2 | | | (3.4) | | |
Dividends paid | Dividends paid | (16.7) | | | (11.7) | | | (45.9) | | | (31.8) | | | Dividends paid | (16.9) | | | (17.1) | | | (34.0) | | | (29.2) | | |
Common stock repurchases | Common stock repurchases | (23.1) | | | — | | | (26.3) | | | (5.9) | | | Common stock repurchases | — | | | (3.2) | | | — | | | (3.2) | | |
Performance and restricted stock units expense (credit) | (1.8) | | | — | | | (1.8) | | | — | | | |
| Retained earnings, end of period | Retained earnings, end of period | 920.2 | | | 993.1 | | | 920.2 | | | 993.1 | | | Retained earnings, end of period | 875.5 | | | 952.2 | | | 875.5 | | | 952.2 | | |
Total shareholders' equity | Total shareholders' equity | $ | 856.6 | | | $ | 947.8 | | | $ | 856.6 | | | $ | 947.8 | | | Total shareholders' equity | $ | 799.4 | | | $ | 901.3 | | | $ | 799.4 | | | $ | 901.3 | | |
(1)Shares of our Class A and Class B common stock have no par value; thus, there are no balances for common stock.
See accompanying notes to the condensed consolidated financial statements.
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STEELCASE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions) |
| | | Nine Months Ended | | Six Months Ended |
| | November 26, 2021 | November 27, 2020 | | August 26, 2022 | August 27, 2021 |
OPERATING ACTIVITIES | OPERATING ACTIVITIES | | | | | OPERATING ACTIVITIES | | | | |
Net income | $ | 6.2 | | | $ | 19.5 | | | |
Net income (loss) | | Net income (loss) | $ | 8.2 | | | $ | (3.4) | | |
Depreciation and amortization | Depreciation and amortization | 62.2 | | | 64.1 | | | Depreciation and amortization | 43.7 | | | 41.2 | | |
Goodwill impairment charge | — | | | 17.6 | | | |
Share-based compensation | | Share-based compensation | 15.6 | | | 15.2 | | |
Restructuring costs | Restructuring costs | — | | | 27.0 | | | Restructuring costs | 4.7 | | | — | | |
Deferred income taxes | (9.6) | | | 17.9 | | | |
| Non-cash stock compensation | 13.4 | | | 11.9 | | | |
Equity in income of unconsolidated affiliates | (4.4) | | | (6.7) | | | |
Dividends received from unconsolidated affiliates | 4.7 | | | 5.2 | | | |
| Other | Other | (19.5) | | | (12.4) | | | Other | (2.4) | | | (20.6) | | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | | | Changes in operating assets and liabilities: | | | | |
Accounts receivable | Accounts receivable | (68.6) | | | 105.2 | | | Accounts receivable | (83.6) | | | (58.0) | | |
Inventories | Inventories | (93.4) | | | (16.4) | | | Inventories | (67.4) | | | (42.0) | | |
Income taxes receivable | | Income taxes receivable | 22.2 | | | (2.2) | | |
Other assets | Other assets | (18.3) | | | (22.9) | | | Other assets | (21.2) | | | (18.1) | | |
Accounts payable | Accounts payable | 77.5 | | | (47.0) | | | Accounts payable | 33.5 | | | 54.7 | | |
Employee compensation liabilities | Employee compensation liabilities | (15.3) | | | (130.5) | | | Employee compensation liabilities | 1.3 | | | (30.7) | | |
Employee benefit obligations | Employee benefit obligations | (13.5) | | | (25.2) | | | Employee benefit obligations | (18.6) | | | (14.9) | | |
Customer deposits | Customer deposits | 21.3 | | | 30.4 | | | Customer deposits | (10.8) | | | 14.0 | | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (1.8) | | | (0.5) | | | Accrued expenses and other liabilities | 0.4 | | | 3.2 | | |
Net cash provided by (used in) operating activities | (59.1) | | | 37.2 | | | |
Net cash used in operating activities | | Net cash used in operating activities | (74.4) | | | (61.6) | | |
INVESTING ACTIVITIES | INVESTING ACTIVITIES | | | | | INVESTING ACTIVITIES | | | | |
Capital expenditures | Capital expenditures | (45.3) | | | (32.1) | | | Capital expenditures | (28.9) | | | (31.8) | | |
Proceeds from disposal of fixed assets | Proceeds from disposal of fixed assets | 17.4 | | | 7.3 | | | Proceeds from disposal of fixed assets | 5.6 | | | 16.8 | | |
Acquisition, net of cash acquired | (32.6) | | | — | | | |
Acquisitions, net of cash acquired | | Acquisitions, net of cash acquired | (105.4) | | | — | | |
Other | Other | 9.2 | | | 7.0 | | | Other | 13.4 | | | 8.5 | | |
Net cash used in investing activities | Net cash used in investing activities | (51.3) | | | (17.8) | | | Net cash used in investing activities | (115.3) | | | (6.5) | | |
FINANCING ACTIVITIES | FINANCING ACTIVITIES | | | | | FINANCING ACTIVITIES | | | | |
Dividends paid | Dividends paid | (45.9) | | | (31.8) | | | Dividends paid | (34.0) | | | (29.2) | | |
Common stock repurchases | Common stock repurchases | (54.0) | | | (42.7) | | | Common stock repurchases | (3.4) | | | (30.9) | | |
Borrowings on global committed bank facility | Borrowings on global committed bank facility | — | | | 250.0 | | | Borrowings on global committed bank facility | 266.8 | | | — | | |
Repayments on global committed bank facility | Repayments on global committed bank facility | — | | | (250.0) | | | Repayments on global committed bank facility | (187.0) | | | — | | |
Other | Other | (1.6) | | | (2.1) | | | Other | 0.9 | | | 0.2 | | |
Net cash used in financing activities | (101.5) | | | (76.6) | | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 43.3 | | | (59.9) | | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (1.6) | | | 1.8 | | | Effect of exchange rate changes on cash and cash equivalents | (2.0) | | | (0.6) | | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (213.5) | | | (55.4) | | | Net decrease in cash, cash equivalents and restricted cash | (148.4) | | | (128.6) | | |
Cash and cash equivalents and restricted cash, beginning of period (1) | Cash and cash equivalents and restricted cash, beginning of period (1) | 495.6 | | | 547.1 | | | Cash and cash equivalents and restricted cash, beginning of period (1) | 207.0 | | | 495.6 | | |
Cash and cash equivalents and restricted cash, end of period (2) | Cash and cash equivalents and restricted cash, end of period (2) | $ | 282.1 | | | $ | 491.7 | | | Cash and cash equivalents and restricted cash, end of period (2) | $ | 58.6 | | | $ | 367.0 | | |
(1)These amounts include restricted cash of $5.8$6.1 and $6.1$5.8 as of February 26, 202125, 2022 and February 28, 2020,26, 2021, respectively.
(2)These amounts include restricted cash of $6.9$6.4 and $7.3$6.3 as of NovemberAugust 26, 20212022 and NovemberAugust 27, 2020,2021, respectively.
Restricted cash primarily represents funds held in escrow for potential future workers’ compensation and product liability claims. Restricted cash is included as part of Other assetsin on the Condensed Consolidated Balance Sheets.
See accompanying notes to the condensed consolidated financial statements.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended February 26, 202125, 2022 (“Form 10-K”). The Condensed Consolidated Balance Sheet as of February 26, 202125, 2022 was derived from the audited Consolidated Balance Sheet included in our Form 10-K.
As used in this Quarterly Report on Form 10-Q (“Report”), unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its subsidiaries in which a controlling interest is maintained. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
2.NEW ACCOUNTING STANDARDS
We evaluate all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability to our consolidated financial statements. We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are either not applicable to us or are not expected to have a material effect on our consolidated financial statements.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3.REVENUE
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product category for each of our reportable segments:
| Product Category Data | Product Category Data | Three Months Ended | Nine Months Ended | Product Category Data | Three Months Ended | Six Months Ended |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Americas | Americas | | Americas | |
Desking, benching, systems and storage | Desking, benching, systems and storage | $ | 240.1 | | | $ | 202.8 | | | $ | 669.5 | | | $ | 681.9 | | | Desking, benching, systems and storage | $ | 303.4 | | | $ | 244.3 | | | $ | 563.7 | | | $ | 429.4 | | |
Seating | Seating | 143.0 | | | 121.3 | | | 426.7 | | | 412.8 | | | Seating | 203.3 | | | 165.5 | | | 359.5 | | | 283.7 | | |
Other (1) | Other (1) | 117.2 | | | 92.3 | | | 303.7 | | | 286.8 | | | Other (1) | 144.9 | | | 113.5 | | | 249.2 | | | 186.5 | | |
EMEA | EMEA | | EMEA | |
Desking, benching, systems and storage | Desking, benching, systems and storage | 62.2 | | | 48.5 | | | 158.7 | | | 140.3 | | | Desking, benching, systems and storage | 49.4 | | | 41.7 | | | 105.1 | | | 96.5 | | |
Seating | Seating | 61.1 | | | 61.7 | | | 150.7 | | | 138.5 | | | Seating | 45.7 | | | 55.7 | | | 99.0 | | | 89.6 | | |
Other (1) | Other (1) | 44.9 | | | 33.1 | | | 121.3 | | | 89.9 | | | Other (1) | 42.7 | | | 41.5 | | | 90.1 | | | 76.4 | | |
Other | Other | | Other | |
Desking, benching, systems and storage | Desking, benching, systems and storage | 13.8 | | | 12.4 | | | 39.1 | | | 33.5 | | | Desking, benching, systems and storage | 14.1 | | | 14.5 | | | 25.8 | | | 25.3 | | |
Seating | Seating | 21.3 | | | 17.2 | | | 52.0 | | | 48.1 | | | Seating | 22.3 | | | 16.2 | | | 39.7 | | | 30.7 | | |
Other (1) | Other (1) | 34.6 | | | 28.2 | | | 97.9 | | | 87.3 | | | Other (1) | 37.5 | | | 31.9 | | | 71.9 | | | 63.3 | | |
| | $ | 738.2 | | | $ | 617.5 | | | $ | 2,019.6 | | | $ | 1,919.1 | | | | $ | 863.3 | | | $ | 724.8 | | | $ | 1,604.0 | | | $ | 1,281.4 | | |
_______________________________________(1)The Otherother product category data by segment consists primarily of products sold by consolidated dealers, textiles and surface materials, worktools, architecture technology and other uncategorized product lines and services.services, less promotions and incentives on all product categories.
Reportable geographic information is as follows:
| Reportable Geographic Revenue | Reportable Geographic Revenue | Three Months Ended | Nine Months Ended | | Reportable Geographic Revenue | Three Months Ended | Six Months Ended | |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Reportable Geographic Revenue | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
United States | United States | $ | 474.6 | | | $ | 392.9 | | | $ | 1,327.4 | | | $ | 1,314.0 | | | | United States | $ | 634.6 | | | $ | 493.5 | | | $ | 1,136.3 | | | $ | 852.8 | | | |
Foreign locations | Foreign locations | 263.6 | | | 224.6 | | | 692.2 | | | 605.1 | | | | Foreign locations | 228.7 | | | 231.3 | | | 467.7 | | | 428.6 | | | |
| | $ | 738.2 | | | $ | 617.5 | | | $ | 2,019.6 | | | $ | 1,919.1 | | | | | $ | 863.3 | | | $ | 724.8 | | | $ | 1,604.0 | | | $ | 1,281.4 | | | |
Contract Balances
At times, we receive payments from customers before revenue is recognized, resulting in the recognition of a contract liability (Customer deposits) presented inon the Condensed Consolidated Balance Sheets.
Changes in the Customer deposits balance during the ninesix months ended NovemberAugust 26, 20212022 are as follows:
| | | | | | | | |
| Customer Deposits |
Balance as of February 26, 202125, 2022 | $ | 33.753.4 | | |
Recognition of revenue related to beginning of year customer deposits | (30.7)(45.8) | | |
Customer deposits received, net of revenue recognized during the period | 53.233.4 | | |
Customer deposits acquired (1) | 24.3 | | |
Balance as of NovemberAugust 26, 20212022 | $ | 56.265.3 | | |
(1)Represents customer deposits acquired from Halcon Furniture LLC ("Halcon") as of the acquisition date. See Note 11 for additional information.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the two-class method. The two-class method determines earnings (loss) per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Participating securities represent restricted stock units in which the participants have non-forfeitable rights to dividend equivalents during the performance period. Diluted earnings (loss) per share includes the effects of certain performance units in which the participants have forfeitable rights to dividend equivalents during the performance period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Computation of Earnings Per Share | Three Months Ended November 26, 2021 | Three Months Ended November 27, 2020 |
Net Income | Basic Shares (in millions) | Diluted Shares (in millions) | Net Income | Basic Shares (in millions) | Diluted Shares (in millions) |
Amounts used in calculating earnings per share | $ | 9.6 | | | 116.0 | | | 116.3 | | | $ | 2.1 | | | 117.7 | | | 118.0 | | |
Impact of participating securities | (0.3) | | | (3.2) | | | (3.2) | | | — | | | (2.9) | | | (2.9) | | |
Amounts used in calculating earnings per share, excluding participating securities | $ | 9.3 | | | 112.8 | | | 113.1 | | | $ | 2.1 | | | 114.8 | | | 115.1 | | |
| | | | | | | | | | | | |
Earnings per share | | | $ | 0.08 | | | $ | 0.08 | | | | | $ | 0.02 | | | $ | 0.02 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Computation of Earnings (Loss) Per Share | Three Months Ended August 26, 2022 | Three Months Ended August 27, 2021 |
Net Income (Loss) | Basic Shares (in millions) | Diluted Shares (in millions) | Net Income (Loss) | Basic Shares (in millions) | Diluted Shares (in millions) |
Amounts used in calculating earnings (loss) per share | $ | 19.6 | | | 117.2 | | | 117.7 | | | $ | 24.7 | | | 118.0 | | | 118.6 | | |
Impact of participating securities | (0.7) | | | (4.4) | | | (4.4) | | | (0.6) | | | (3.1) | | | (3.1) | | |
Amounts used in calculating earnings (loss) per share, excluding participating securities | $ | 18.9 | | | 112.8 | | | 113.3 | | | $ | 24.1 | | | 114.9 | | | 115.5 | | |
| | | | | | | | | | | | |
Earnings (loss) per share | | | $ | 0.17 | | | $ | 0.17 | | | | | $ | 0.21 | | | $ | 0.21 | | |
| | | | | | | | | | | | |
There were no anti-dilutive performance units excluded from the computation of diluted earnings (loss) per share for the three months ended NovemberAugust 26, 20212022 and NovemberAugust 27, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Computation of Earnings Per Share | Nine Months Ended November 26, 2021 | Nine Months Ended November 27, 2020 |
Net Income | Basic Shares (in millions) | Diluted Shares (in millions) | Net Income | Basic Shares (in millions) | Diluted Shares (in millions) |
Amounts used in calculating earnings per share | $ | 6.2 | | | 117.4 | | | 117.8 | | | $ | 19.5 | | | 117.4 | | | 117.7 | | |
Impact of participating securities | (0.2) | | | (3.0) | | | (3.0) | | | (0.4) | | | (2.5) | | | (2.5) | | |
Amounts used in calculating earnings per share, excluding participating securities | $ | 6.0 | | | 114.4 | | | 114.8 | | | $ | 19.1 | | | 114.9 | | | 115.2 | | |
| | | | | | | | | | | | |
Earnings per share | | | $ | 0.05 | | | $ | 0.05 | | | | | $ | 0.17 | | | $ | 0.17 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Computation of Earnings (Loss) Per Share | Six Months Ended August 26, 2022 | Six Months Ended August 27, 2021 |
Net Income (Loss) | Basic Shares (in millions) | Diluted Shares (in millions) | Net Income (Loss) | Basic Shares (in millions) | Diluted Shares (in millions) |
Amounts used in calculating earnings (loss) per share | $ | 8.2 | | | 117.0 | | | 117.5 | | | $ | (3.4) | | | 118.1 | | | 118.1 | | |
Impact of participating securities | (0.3) | | | (4.2) | | | (4.2) | | | 0.1 | | | (2.9) | | | (2.9) | | |
Amounts used in calculating earnings (loss) per share, excluding participating securities | $ | 7.9 | | | 112.8 | | | 113.3 | | | $ | (3.3) | | | 115.2 | | | 115.2 | | |
| | | | | | | | | | | | |
Earnings (loss) per share | | | $ | 0.07 | | | $ | 0.07 | | | | | $ | (0.03) | | | $ | (0.03) | | |
There were no anti-dilutive performance units excluded from the computation of diluted earnings (loss) per share for the ninesix months ended NovemberAugust 26, 2021 and November2022. There were 0.5 million anti-dilutive performance units excluded from the computation of diluted earnings (loss) per share for the six months ended August 27, 2020.2021.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended NovemberAugust 26, 2021:2022:
| | | Unrealized gain (loss) on investments | Pension and other post-retirement liability adjustments | Derivative amortization | Foreign currency translation adjustments | Total | | Unrealized gain on investment | Pension and other post-retirement liability adjustments | Derivative amortization | Foreign currency translation adjustments | Total |
Balance as of August 27, 2021 | $ | 0.5 | | | $ | (6.3) | | | $ | (7.2) | | | $ | (37.9) | | | $ | (50.9) | | | |
Balance as of May 27, 2022 | | Balance as of May 27, 2022 | $ | — | | | $ | 5.4 | | | $ | (6.4) | | | $ | (68.0) | | | $ | (69.0) | | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | (0.1) | | | 0.4 | | | — | | | (13.3) | | | (13.0) | | | Other comprehensive income (loss) before reclassifications | 0.3 | | | 0.3 | | | — | | | (21.3) | | | (20.7) | | |
Amounts reclassified from accumulated other comprehensive income (loss) | Amounts reclassified from accumulated other comprehensive income (loss) | — | | | — | | | 0.3 | | | — | | | 0.3 | | | Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (0.3) | | | 0.2 | | | — | | | (0.1) | | |
Net other comprehensive income (loss) during the period | Net other comprehensive income (loss) during the period | (0.1) | | | 0.4 | | | 0.3 | | | (13.3) | | | (12.7) | | | Net other comprehensive income (loss) during the period | 0.3 | | | — | | | 0.2 | | | (21.3) | | | (20.8) | | |
Balance as of November 26, 2021 | $ | 0.4 | | | $ | (5.9) | | | $ | (6.9) | | | $ | (51.2) | | | $ | (63.6) | | | |
Balance as of August 26, 2022 | | Balance as of August 26, 2022 | $ | 0.3 | | | $ | 5.4 | | | $ | (6.2) | | | $ | (89.3) | | | $ | (89.8) | | |
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the ninesix months ended NovemberAugust 26, 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain (loss) on investments | Pension and other post-retirement liability adjustments | Derivative amortization | Foreign currency translation adjustments | Total |
Balance as of February 26, 2021 | $ | 0.3 | | | $ | (6.6) | | | $ | (7.6) | | | $ | (26.1) | | | $ | (40.0) | | |
Other comprehensive income (loss) before reclassifications | 0.1 | | | 0.8 | | | — | | | (25.1) | | | (24.2) | | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (0.1) | | | 0.7 | | | — | | | 0.6 | | |
Net other comprehensive income (loss) during the period | 0.1 | | | 0.7 | | | 0.7 | | | (25.1) | | | (23.6) | | |
Balance as of November 26, 2021 | $ | 0.4 | | | $ | (5.9) | | | $ | (6.9) | | | $ | (51.2) | | | $ | (63.6) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gain on investment | Pension and other post-retirement liability adjustments | Derivative amortization | Foreign currency translation adjustments | Total |
Balance as of February 25, 2022 | $ | 0.3 | | | $ | 5.2 | | | $ | (6.7) | | | $ | (49.4) | | | $ | (50.6) | | |
Other comprehensive income (loss) before reclassifications | — | | | 0.8 | | | — | | | (39.9) | | | (39.1) | | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (0.6) | | | 0.5 | | | — | | | (0.1) | | |
Net other comprehensive income (loss) during the period | — | | | 0.2 | | | 0.5 | | | (39.9) | | | (39.2) | | |
Balance as of August 26, 2022 | $ | 0.3 | | | $ | 5.4 | | | $ | (6.2) | | | $ | (89.3) | | | $ | (89.8) | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and ninesix months ended NovemberAugust 26, 20212022 and NovemberAugust 27, 2020:2021:
| Detail of Accumulated Other Comprehensive Income (Loss) Components | Detail of Accumulated Other Comprehensive Income (Loss) Components | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line in the Condensed Consolidated Statements of Income | Detail of Accumulated Other Comprehensive Income (Loss) Components | Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line in the Condensed Consolidated Statements of Operations |
Three Months Ended | Nine Months Ended | | Detail of Accumulated Other Comprehensive Income (Loss) Components | Three Months Ended | Six Months Ended | Affected Line in the Condensed Consolidated Statements of Operations | |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Detail of Accumulated Other Comprehensive Income (Loss) Components | August 26, 2022 | August 27, 2021 | August 26, 2022 | Affected Line in the Condensed Consolidated Statements of Operations | |
| Amortization of pension and other post-retirement actuarial losses (gains) | Amortization of pension and other post-retirement actuarial losses (gains) | $ | (0.1) | | | $ | (0.3) | | | $ | (0.2) | | | $ | (0.9) | | | | Other income, net | Amortization of pension and other post-retirement actuarial losses (gains) | $ | (0.4) | | | $ | — | | | $ | (0.8) | | | | Other income, net |
Prior service cost (credit) | — | | | — | | | — | | | (0.1) | | | | Other income, net | |
| Income tax expense | Income tax expense | 0.1 | | | 0.1 | | | 0.1 | | | 0.3 | | | | Income tax expense (benefit) | Income tax expense | 0.1 | | | — | | | 0.2 | | | — | | | | Income tax expense (benefit) |
| | — | | | (0.2) | | | (0.1) | | | (0.7) | | | | | | (0.3) | | | — | | | (0.6) | | | (0.1) | | | | |
| Derivative amortization | Derivative amortization | 0.4 | | | 0.4 | | | 1.0 | | | 1.0 | | | | Interest expense | Derivative amortization | 0.3 | | | 0.3 | | | 0.7 | | | 0.6 | | | | Interest expense |
Income tax benefit | Income tax benefit | (0.1) | | | (0.1) | | | (0.3) | | | (0.3) | | | | Income tax expense (benefit) | Income tax benefit | (0.1) | | | (0.1) | | | (0.2) | | | (0.2) | | | | Income tax expense (benefit) |
| | 0.3 | | | 0.3 | | | 0.7 | | | 0.7 | | | | | | 0.2 | | | 0.2 | | | 0.5 | | | 0.4 | | | | |
| | Total reclassifications | Total reclassifications | $ | 0.3 | | | $ | 0.1 | | | $ | 0.6 | | | $ | — | | | | | Total reclassifications | $ | (0.1) | | | $ | 0.2 | | | $ | (0.1) | | | $ | 0.3 | | | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.FAIR VALUE
The carrying amounts for many of our financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts and notes payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. Our foreign exchange forward contracts and long-term investments are measured at fair value inon the Condensed Consolidated Balance Sheets.
Our total debt is carried at cost and was $482.9$563.5 and $483.9$482.5 as of NovemberAugust 26, 20212022 and February 26, 2021,25, 2022, respectively. The fair value of our total debt is measured using a discounted cash flow analysis based on current market interest rates for similar types of instruments and was $552.4$538.3 and $568.1$516.7 as of NovemberAugust 26, 20212022 and February 26, 2021,25, 2022, respectively. The estimation of the fair value of our total debt is based on Level 2 fair value measurements.
We periodically use derivative financial instruments to manage exposures to movements in foreign exchange rates and interest rates. The use of these financial instruments modifies the exposure of these risks with the intention to reduce our risk of short-term volatility. We do not use derivatives for speculative or trading purposes.
Assets and liabilities measured at fair value as of NovemberAugust 26, 20212022 and February 26, 202125, 2022 are summarized below:
| | | November 26, 2021 | | August 26, 2022 |
Fair Value of Financial Instruments | Fair Value of Financial Instruments | Level 1 | Level 2 | Level 3 | Total | Fair Value of Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 274.1 | | | $ | — | | | $ | — | | | $ | 274.1 | | | Cash and cash equivalents | $ | 52.2 | | | $ | — | | | $ | — | | | $ | 52.2 | | |
Restricted cash | Restricted cash | 6.9 | | | — | | | — | | | 6.9 | | | Restricted cash | 6.4 | | | — | | | — | | | 6.4 | | |
| Foreign exchange forward contracts | Foreign exchange forward contracts | — | | | 0.2 | | | — | | | 0.2 | | | Foreign exchange forward contracts | — | | | 1.8 | | | — | | | 1.8 | | |
Auction rate security | Auction rate security | — | | | — | | | 2.7 | | | 2.7 | | | Auction rate security | — | | | — | | | 2.6 | | | 2.6 | | |
| | | $ | 281.0 | | | $ | 0.2 | | | $ | 2.7 | | | $ | 283.9 | | | | $ | 58.6 | | | $ | 1.8 | | | $ | 2.6 | | | $ | 63.0 | | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
Foreign exchange forward contracts | Foreign exchange forward contracts | $ | — | | | $ | (2.1) | | | $ | — | | | $ | (2.1) | | | Foreign exchange forward contracts | $ | — | | | $ | (0.7) | | | $ | — | | | $ | (0.7) | | |
| | $ | — | | | $ | (2.1) | | | $ | — | | | $ | (2.1) | | | | $ | — | | | $ | (0.7) | | | $ | — | | | $ | (0.7) | | |
| | | February 26, 2021 | | February 25, 2022 |
Fair Value of Financial Instruments | Fair Value of Financial Instruments | Level 1 | Level 2 | Level 3 | Total | Fair Value of Financial Instruments | Level 1 | Level 2 | Level 3 | Total |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 489.8 | | | $ | — | | | $ | — | | | $ | 489.8 | | | Cash and cash equivalents | $ | 200.9 | | | $ | — | | | $ | — | | | $ | 200.9 | | |
Restricted cash | Restricted cash | 5.8 | | | — | | | — | | | 5.8 | | | Restricted cash | 6.1 | | | — | | | — | | | 6.1 | | |
| Foreign exchange forward contracts | Foreign exchange forward contracts | — | | | 1.1 | | | — | | | 1.1 | | | Foreign exchange forward contracts | — | | | 1.0 | | | — | | | 1.0 | | |
Auction rate security | Auction rate security | — | | | — | | | 2.6 | | | 2.6 | | | Auction rate security | — | | | — | | | 2.6 | | | 2.6 | | |
| | | $ | 495.6 | | | $ | 1.1 | | | $ | 2.6 | | | $ | 499.3 | | | | $ | 207.0 | | | $ | 1.0 | | | $ | 2.6 | | | $ | 210.6 | | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
Foreign exchange forward contracts | Foreign exchange forward contracts | $ | — | | | $ | (0.8) | | | $ | — | | | $ | (0.8) | | | Foreign exchange forward contracts | $ | — | | | $ | (0.3) | | | $ | — | | | $ | (0.3) | | |
| | $ | — | | | $ | (0.8) | | | $ | — | | | $ | (0.8) | | | | $ | — | | | $ | (0.3) | | | $ | — | | | $ | (0.3) | | |
Below is a roll-forward of assets and liabilities measured at fair value using Level 3 inputs for the ninesix months ended NovemberAugust 26, 2021:2022:
| | | | | | | | | | |
Roll-Forward of Fair Value Using Level 3 Inputs | Auction Rate Security | | |
Balance as of February 26, 202125, 2022 | $ | 2.6 | | | | |
Unrealized gain on investment | 0.1— | | | | |
| | | | |
Balance as of NovemberAugust 26, 20212022 | $ | 2.72.6 | | | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7.INVENTORIES
| Inventories | Inventories | November 26, 2021 | February 26, 2021 | Inventories | August 26, 2022 | February 25, 2022 | |
Raw materials and work-in-process | Raw materials and work-in-process | $ | 162.8 | | | $ | 126.0 | | | Raw materials and work-in-process | $ | 276.4 | | | $ | 208.2 | | | |
Finished goods | Finished goods | 151.3 | | | 86.4 | | | Finished goods | 153.7 | | | 146.9 | | | |
| | 314.1 | | | 212.4 | | | | 430.1 | | | 355.1 | | | |
Revaluation to LIFO | Revaluation to LIFO | 28.0 | | | 18.9 | | | Revaluation to LIFO | 33.4 | | | 28.9 | | | |
| | $ | 286.1 | | | $ | 193.5 | | | | $ | 396.7 | | | $ | 326.2 | | | |
The portion of inventories determined by the LIFO method was $125.1$162.5 and $89.1$141.4 as of NovemberAugust 26, 20212022 and February 26, 2021,25, 2022, respectively.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8.SHORT-TERM BORROWINGS
We have a $250.0 global committed bank facility, which expires in 2025. At our option, and subject to certain conditions, we may increase the aggregate commitment under the facility by up to $125.0 by obtaining at least one commitment from one or more lenders. As of August 26, 2022, total availability under the facility was limited to $203.2 as a result of covenant constraints. In Q2 2023, we borrowed $68.0 under the facility to fund a portion of our acquisition of Halcon, and we also borrowed under the facility to support our global operating requirements. As of August 26, 2022, our total borrowings outstanding under the facility were $79.8, which had an effective interest rate of 3.75%.
The facility does not include any restrictions on cash dividend payments or share repurchases. As of August 26, 2022, we were in compliance with all covenants under the facility.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. SHARE-BASED COMPENSATION
Performance Units
We have issued performance units (“PSUs”) to certain employees which are earned over a three-year performance period based on performance conditions established annually by the Compensation Committee within the first three months of the applicable fiscal year. The PSUs are then modified based on achievement of certain total shareholder return results relative to a comparison group of companies, which is a market condition. When the performance conditions for a fiscal year are established, or if the performance conditions involve a qualitative assessment and such assessment has been made, one-third of the PSUs issued are considered granted. Therefore, each of the three fiscal years within the performance period is considered an individual tranche of the award (referred to as "Tranche 1," "Tranche 2" and "Tranche 3," respectively).
As of NovemberAugust 26, 2021,2022, the following PSUs have been issued and remained outstanding:
•428,700 PSUs to be earned over the period of 2023 through 2025 (the "2023 PSUs"),
•448,300 PSUs to be earned over a three-year performancethe period of 2022 through 2024 (the "2022 PSUs"), and
•529,500 PSUs to be earned over a three-year performancethe period of 2021 through 2023 (the "2021 PSUs") and
•296,600 PSUs to be earned over a three-year performance period of 2020 through 2022 (the "2020 PSUs").
In Q1 2022, the performance conditions were established for Tranche 1 of the 2022 PSUs, Tranche 2 of the 2021 PSUs and Tranche 3 of the 2020 PSUs. Accordingly, one-third of each of these PSUs were considered granted in Q1 2022.
In Q1 2021, the performance conditions were established for Tranche 1 of the 2021 PSUs and Tranche 2 of the 2020 PSUs. These performance conditions involved a qualitative assessment which was made by the Compensation Committee in Q4 2021. Accordingly, one-third of each of these PSUs were considered granted in Q4 2021.
In Q1 2020, the performance conditions were established for Tranche 1 of the 2020 PSUs. Accordingly, one-third of the 2020 PSUs were considered granted in Q1 2020.
Once granted, the PSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the remaining performance period. For participants who are or become retirement-eligible during the performance period, the PSUs are expensed over the period ending on the date the participant becomes retirement-eligible.
As of August 26, 2022, the 2023 PSUs, 2022 PSUs and 2021 PSUs were considered granted as follows:
•In Q1 2023, the performance conditions were established for Tranche 1 of the 2023 PSUs, Tranche 2 of the 2022 PSUs and Tranche 3 of the 2021 PSUs, and accordingly, such tranches were considered granted in Q1 2023.
•In Q1 2022, the performance conditions were established for Tranche 1 of the 2022 PSUs and Tranche 2 of the 2021 PSUs, and accordingly, such tranches were considered granted in Q1 2022.
•In Q1 2021, the performance conditions were established for Tranche 1 of the 2021 PSUs. These performance conditions involved a qualitative assessment which was made by the Compensation Committee in Q4 2021. Accordingly, such tranche was considered granted in Q4 2021.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We used the Monte Carlo simulation model to calculate the fair value of the market conditions on the respective grant dates, which resulted in a total fair value of $6.1, $3.7$5.2, $4.8 and $1.6$2.3 for the PSUs with market conditions granted in 2023, 2022 and 2021, and 2020, respectively.respectively, that remain outstanding as of August 26, 2022. The Monte Carlo simulation was computed using the following assumptions:
| | | FY22 Award | FY21 Award | FY20 Award | | FY23 Award | FY22 Award | FY21 Award |
Tranche 1 | Tranche 2 | Tranche 1 | Tranche 3 | Tranche 2 | Tranche 1 | Tranche 1 | Tranche 2 | Tranche 1 | Tranche 3 | Tranche 2 | Tranche 1 |
Risk-free interest rate (1) | Risk-free interest rate (1) | 0.3 | % | | 0.2 | % | | 0.2 | % | | 0.1 | % | | 0.1 | % | | 2.3 | % | | Risk-free interest rate (1) | 2.6 | % | | 2.3 | % | | 0.3 | % | | 1.6 | % | | 0.2 | % | | 0.2 | % | |
Expected term | Expected term | 3 years | | 2 years | | 2 years | | 1 year | | 1 year | | 3 years | | Expected term | 3 years | | 2 years | | 3 years | | 1 year | | 2 years | | 2 years | |
Estimated volatility (2) | Estimated volatility (2) | 53.5 | % | | 61.3 | % | | 58.1 | % | | 56.1 | % | | 74.1 | % | | 32.5 | % | | Estimated volatility (2) | 52.2 | % | | 43.8 | % | | 53.5 | % | | 28.7 | % | | 61.3 | % | | 58.1 | % | |
(1)Based on the U.S. Government bond benchmark on the grant date.
(2)Represents the historical price volatility of our Class A Common Stock for the three-year period.period preceding the grant date.
The total PSU expense (credit) and associated tax benefit (expense) for all outstanding awards forrecorded during the three and ninesix months ended NovemberAugust 26, 20212022 and NovemberAugust 27, 20202021 are as follows:
| | | Three Months Ended | Nine Months Ended | | | Three Months Ended | Six Months Ended | |
Performance Units | Performance Units | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Performance Units | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Expense (credit) | Expense (credit) | $ | (4.1) | | | $ | 0.1 | | | $ | 1.5 | | | $ | 0.4 | | | | Expense (credit) | $ | (0.2) | | | $ | 0.4 | | | $ | 3.9 | | | $ | 5.6 | | | |
Tax benefit (expense) | (1.0) | | | — | | | 0.4 | | | 0.1 | | | | |
Tax benefit | | Tax benefit | — | | | 0.1 | | | 1.0 | | | 1.4 | | | |
The PSU activity for the six months ended August 26, 2022 is as follows:
| | | | | | | | |
Maximum Number of Shares of Nonvested Units | Total | Weighted-Average Grant Date Fair Value per Unit |
Nonvested as of February 25, 2022 | 1,205,833 | | $ | 14.21 | |
Granted | 1,125,192 | | 11.13 | |
| | |
Nonvested as of August 26, 2022 | 2,331,025 | | $ | 12.72 | |
As of NovemberAugust 26, 2021,2022, there was $0.3$1.2 of remaining unrecognized compensation expense related to granted nonvested PSUs, which is expected to be recognized over a remaining weighted-average period of 1.42.0 years.
The PSU activity for the nine months ended November 26, 2021 is as follows:
| | | | | | | | |
Maximum Number of Shares That May Be Issued Under Nonvested Units | Total | Weighted-Average Grant Date Fair Value per Unit |
Nonvested as of February 26, 2021 | 898,156 | | $ | 14.06 | |
Granted | 1,019,517 | | 14.38 | |
| | |
Nonvested as of November 26, 2021 | 1,917,673 | | $ | 14.23 | |
Restricted Stock Units
During the ninesix months ended NovemberAugust 26, 2021,2022, we awarded 1,155,8181,068,507 restricted stock units ("RSUs") to certain employees. RSUs have restrictions on transfer which lapse one to three years after the date of grant, at which time the RSUs will be issued as unrestricted shares of Class A Common Stock. RSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the requisite service period based on the value of the shares on the dategrant date. Generally, RSUs awarded are not forfeitable upon a qualifying retirement. For participants of grant. For participantsthose awards who are or become retirement-eligible during the service period, the RSUs are expensed over the period ending on the date that the participant becomes retirement-eligible.
The total RSU expense and associated tax benefit for all outstanding awards for the three and ninesix months ended NovemberAugust 26, 20212022 and NovemberAugust 27, 20202021 are as follows:
| | | Three Months Ended | Nine Months Ended | | | Three Months Ended | Six Months Ended | |
Restricted Stock Units | Restricted Stock Units | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Restricted Stock Units | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Expense | Expense | $ | 2.1 | | | $ | 1.9 | | | $ | 11.3 | | | $ | 10.9 | | | | Expense | $ | 3.3 | | | $ | 1.5 | | | $ | 11.2 | | | $ | 9.2 | | | |
Tax benefit | Tax benefit | 0.5 | | | 0.5 | | | 2.8 | | | 2.8 | | | | Tax benefit | 0.8 | | | 0.4 | | | 2.8 | | | 2.3 | | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The RSU activity for the six months ended August 26, 2022 is as follows:
| | | | | | | | |
Nonvested Units | Total | Weighted-Average Grant Date Fair Value per Unit |
Nonvested as of February 25, 2022 | 3,445,438 | | $ | 11.86 | |
Granted | 1,068,507 | | 11.21 | |
Vested | (11,000) | | 14.44 | |
Forfeited | (26,444) | | 13.13 | |
Nonvested as of August 26, 2022 | 4,476,501 | | $ | 11.69 | |
As of NovemberAugust 26, 2021,2022, there was $10.6$19.2 of remaining unrecognized compensation expense related to nonvested RSUs, which is expected to be recognized over a remaining weighted-average period of 2.11.7 years.
The RSU activity for the nine months ended November 26, 2021 is as follows:
| | | | | | | | |
Nonvested Units | Total | Weighted-Average Grant Date Fair Value per Unit |
Nonvested as of February 26, 2021 | 2,285,965 | | $ | 12.11 | |
Granted | 1,155,818 | | 13.89 | |
Vested | (121,384) | | 12.95 | |
Forfeited | (65,085) | | 12.92 | |
Nonvested as of November 26, 2021 | 3,255,314 | | $ | 12.58 | |
9.10. LEASES
We have operating leases for corporate offices, sales offices, showrooms, manufacturing and distribution facilities, vehicles and equipment that expire at various dates through 2035.2036. Certain lease agreements include contingent rental payments based on per unit usage over contractual levels (e.g., miles driven or machine hours used)operated) and others include rental payments adjusted periodically for inflationary indexes. Additionally, some leases include options to renew or terminate the leases which can be exercised at our discretion.
The components of lease expense for the three and six months ended August 26, 2022 and August 27, 2021 are as follows:
| | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended | | |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Operating lease cost | Operating lease cost | $ | 13.2 | | | $ | 12.8 | | | $ | 39.5 | | | $ | 38.8 | | | | Operating lease cost | $ | 13.5 | | | $ | 13.2 | | | $ | 25.6 | | | $ | 26.3 | | | |
Sublease rental income | Sublease rental income | (0.5) | | | (0.7) | | | (1.4) | | | (1.6) | | | | Sublease rental income | (0.5) | | | (0.5) | | | (1.1) | | | (0.9) | | | |
| | $ | 12.7 | | | $ | 12.1 | | | $ | 38.1 | | | $ | 37.2 | | | | | $ | 13.0 | | | $ | 12.7 | | | $ | 24.5 | | | $ | 25.4 | | | |
Supplemental cash flow and other information related to leases for the three and six months ended August 26, 2022 and August 27, 2021 are as follows:
| | | Three Months Ended | Nine Months Ended | | | Three Months Ended | Six Months Ended | |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Cash flow information: | Cash flow information: | | | Cash flow information: | | |
Operating cash flows used for operating leases | Operating cash flows used for operating leases | $ | 13.6 | | | $ | 12.6 | | | $ | 40.4 | | | $ | 37.3 | | | | Operating cash flows used for operating leases | $ | 13.6 | | | $ | 13.4 | | | $ | 27.1 | | | $ | 26.8 | | | |
Leased assets obtained in exchange for new operating lease obligations | Leased assets obtained in exchange for new operating lease obligations | $ | 17.0 | | | $ | 0.7 | | | $ | 34.3 | | | $ | 2.6 | | | | Leased assets obtained in exchange for new operating lease obligations | $ | 10.3 | | | $ | 15.7 | | | $ | 13.5 | | | $ | 17.3 | | | |
| | | | | | | | | | | | | | |
| November 26, 2021 | November 27, 2020 |
Other information: | | | | |
Weighted-average remaining term | 6.2 years | | 6.7 years | |
Weighted-average discount rate | 3.6 | % | | 4.0 | % | |
As of August 26, 2022 and August 27, 2021, the weighted-average remaining lease terms were 5.6 years and 6.2 years, respectively, and the weighted-average discount rates were 3.7% and 3.7%, respectively.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the future minimum lease payments as of NovemberAugust 26, 2021:2022:
| Fiscal year ending in February | Fiscal year ending in February | Amount (1) | Fiscal year ending in February | Amount (1) |
2022 | $ | 13.1 | | | |
2023 | 2023 | 50.2 | | | 2023 | $ | 23.3 | | |
2024 | 2024 | 45.8 | | | 2024 | 49.0 | | |
2025 | 2025 | 43.2 | | | 2025 | 44.7 | | |
2026 | 2026 | 34.2 | | | 2026 | 34.9 | | |
2027 | | 2027 | 28.1 | | |
Thereafter | Thereafter | 81.3 | | | Thereafter | 53.0 | | |
Total lease payments | Total lease payments | $ | 267.8 | | | Total lease payments | $ | 233.0 | | |
Less: Interest | Less: Interest | 28.3 | | | Less: Interest | 23.6 | | |
Present value of lease liabilities | Present value of lease liabilities | $ | 239.5 | | | Present value of lease liabilities | $ | 209.4 | | |
(1)Lease payments include options to extend lease terms that are reasonably certain of being exercised. The payments exclude legally binding minimum lease payments for leases signed but not yet commenced.
10.11.ACQUISITIONS
Viccarbe Habitat, S.L.
In Q3 2022, we acquired Viccarbe Habitat, S.L. ("Viccarbe"), a Spanish designer of contemporary furniture for high-performance collaborative and social spaces. The transaction included the purchase of all the outstanding capital stock of Viccarbe for $34.9 (or €30.0), less an adjustment for working capital estimated at $1.5 (or €1.3), in an all-cash transaction using cash on-hand. AnUp to an additional amount of $15.1 (or €13.0) is payable to the sellers based upon the achievement of certain salesrevenue and operating income targets over a three yearthree-year period. This amount was considereddetermined to be contingent consideration and was treated for accounting purposes as part of the total purchase price of the acquisition. We used the Monte Carlo simulation model to calculate the fair value of the contingent consideration as of the acquisition date, which represents a Level 3 measurement. As a result, we recorded a related liability of $4.9 (or €4.2). An additional amount of $7.0 (or €6.0) is also payable to the sellers based upon the achievement of certain milestones and continued employment over a five yearfive-year period, which will beis being expensed over the service period on a straight-line basis.
Tangible assets and liabilities of Viccarbe were valued as of the acquisition date using a market analysis, and intangible assets were valued using a discounted cash flow analysis, which represents a Level 3 measurement. On the acquisition date, we recorded $11.7 related to identifiable intangible assets, $25.6$25.8 related to goodwill and $5.3$5.1 related to tangible assets. The tangible assets mainly consisted of working capital (primarily accounts receivable, inventory and accounts payable), and property, plant and equipment andequipment. Additionally, we recorded a deferred tax liabilities.liability in the amount of $2.9 associated with the tax basis difference in acquired book assets. The goodwill was recorded in the EMEA segment and is not deductible for income tax purposes in Spain. The goodwill resulting from the acquisition is primarily related to the growth potential of Viccarbe and our intentionintentions to expand the manufacturing of Viccarbe products in geographic regions outside of EMEA and to offer Viccarbe products through our global distribution network. Intangible assets are principally related to the Viccarbe trade name, dealer relationships and internally developed know-how and designs, which will beare being amortized over periods ranging from 9 to 13 years from the date of acquisition. The purchase price allocation for the acquisition was incomplete as of NovemberAugust 26, 2021.2022, as we are evaluating certain deferred tax balances which will be finalized in Q3 2023.
The following table summarizes the purchased identified intangible assets and the respective fair value and useful life of each asset at the date of acquisition:
| | | | | | | | | | | | | | |
Other Intangible Assets | Useful Life (Years) | Fair Value |
|
Trademark | 9.0 | | $ | 4.6 | | |
Dealer relationships | 13.0 | | 3.8 | | |
Know-how and designs | 9.0 | | 3.3 | | |
| | | $ | 11.7 | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the purchased intangible assets are being amortized on a straight-line basis over their useful lives. The following table summarizes the estimated future amortization expense for the next five years as of August 26, 2022:
| | | | | | | | |
Fiscal Year Ending in February | Amount |
2023 | $ | 0.5 | | |
2024 | 1.0 | | |
2025 | 1.1 | | |
2026 | 1.0 | | |
2027 | 1.0 | | |
| $ | 4.6 | | |
Halcon
In Q2 2023, we acquired Halcon, a Minnesota-based designer and manufacturer of precision-tailored wood furniture for the workplace. The transaction included the purchase of all the outstanding membership interests of Halcon for $127.5 less customer deposits of $24.3, plus an adjustment of $1.9 for working capital. The acquisition was funded using a combination of cash on-hand and borrowings under our global committed bank facility. Up to an additional $7.5 is payable to the sellers based upon the achievement of certain revenue and gross margin targets over a six-month period. This amount was determined to be contingent consideration and was treated for accounting purposes as part of the total purchase price of the acquisition. We used the Monte Carlo simulation model to calculate the fair value of the contingent consideration as of the acquisition date, which represents a Level 3 measurement. Based upon the results of the calculation, we did not record a liability for the contingent consideration. An additional amount of $2.0 is also payable to a seller based upon continued employment over a three-year period, which is being expensed over the service period on a straight-line basis.
Tangible assets and liabilities of Halcon were valued as of the acquisition date using a market analysis, and intangible assets were valued using a discounted cash flow analysis, which represents a Level 3 measurement. On the acquisition date, we recorded $51.8 related to identifiable intangible assets, $36.9 related to goodwill and $16.4 related to tangible assets. The tangible assets mainly consisted of property, plant, and equipment of $30.8, working capital (primarily inventory of $12.3) and customer deposits of $24.3. The goodwill was recorded in the Americas segment and is deductible for U.S. income tax purposes. The goodwill resulting from the acquisition is primarily related to the growth potential of Halcon expected to be driven by new product development, geographic expansion and the integration of Halcon products into our dealer network. Intangible assets are principally related to dealer relationships, the Halcon trade name and internally developed know-how and designs, which are being amortized over periods ranging from 9 to 10 years from the date of acquisition. We also acquired a backlog of orders which are expected to ship throughout the remainder of 2023. The purchase price allocation for the acquisition was incomplete as of August 26, 2022, as we are evaluating certain deferred tax balances and working capital adjustments. The amounts recognized related to the purchase price allocation will be finalized no later than one year after the acquisition date.
The following table summarizes the acquiredpurchased identified intangible assets and the respective fair value and useful life of each asset at the date of acquisition:
| | | | | | | | | | | | | | |
Other Intangible Assets | Useful Life (Years) | Fair Value |
|
Dealer relationships | 10.0 | | $ | 21.5 | | |
Trademark | 9.0 | | 14.0 | | |
Know-how and designs | 9.0 | | 12.0 | | |
Backlog | 0.7 | | 4.3 | | |
| | | $ | 51.8 | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | |
Other Intangible Assets | Useful Life (Years) | Fair Value |
|
Trademark | 9.0 | | $ | 4.6 | | |
Dealer relationships | 13.0 | | 3.8 | | |
Know-how/designs | 9.0 | | 3.3 | | |
| | | $ | 11.7 | | |
The fair valuevalues of the acquiredpurchased intangible assets will beis being amortized on a straight-line basis over their useful lives. The following table summarizes the remaining useful life. The estimated future amortization expense for the next five years is as follows:of August 26, 2022:
| Fiscal Year Ending in February | Fiscal Year Ending in February | Amount | Fiscal Year Ending in February | Amount |
2022 | $ | 0.4 | | | |
2023 | 2023 | 1.1 | | | 2023 | $ | 5.2 | | |
2024 | 2024 | 1.1 | | | 2024 | 5.0 | | |
2025 | 2025 | 1.2 | | | 2025 | 5.1 | | |
2026 | 2026 | 1.1 | | | 2026 | 5.0 | | |
2027 | | 2027 | 5.0 | | |
| | $ | 4.9 | | | | $ | 25.3 | | |
11.12. REPORTABLE SEGMENTS
Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate expenses are reported as Corporate.
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a comprehensive portfolio of furniture architectural and technologyarchitectural products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, AMQ, Smith System, AMQ, Orangebox, Viccarbe and ViccarbeHalcon brands.
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase, Coalesse, Orangebox Coalesse and Viccarbe brands, with a comprehensive portfolio of furniture architectural and technologyarchitectural products.
The Other category includes Asia Pacific and Designtex. Asia Pacific serves customers in Australia, China, India, Japan, Korea and other countries in Southeast Asia primarily under the Steelcase brand with a comprehensive portfolio of furniture architectural and technologyarchitectural products. Designtex primarily sells textiles, wall coverings and surface imaging solutions specified by architects and designers directly to end-use customers through a direct sales force primarily in North America.
We primarily review and evaluate revenue and operating income by segment in both our internal review processes and for our external financial reporting. We also allocate resources primarily based on revenue and operating income. Total assets by segment include manufacturing and other assets associated with each segment.
Corporate costsexpenses include unallocated portions of shared service functions such as information technology, corporate facilities, finance, human resources, research, legal and customer aviation, plus deferred compensation expense and income or losses associated with COLI. Corporate assets consist primarily of unallocated cash and cash equivalents, COLI, fixed assets, investments in unconsolidated affiliates and right-of-use assets related to operating leases.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue and operating income (loss) for the three and ninesix months ended NovemberAugust 26, 20212022 and NovemberAugust 27, 20202021 and total assets as of NovemberAugust 26, 20212022 and February 26, 202125, 2022 by segment are presented in the following table:tables:
| | | Three Months Ended | Nine Months Ended | | | Three Months Ended | Six Months Ended | |
Reportable Segment Statement of Operations Data | Reportable Segment Statement of Operations Data | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Reportable Segment Statement of Operations Data | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Revenue | Revenue | | | | | | Revenue | | | | | |
Americas | Americas | $ | 500.3 | | | $ | 416.4 | | | $ | 1,399.9 | | | $ | 1,381.5 | | | | Americas | $ | 651.6 | | | $ | 523.3 | | | $ | 1,172.4 | | | $ | 899.6 | | | |
EMEA | EMEA | 168.2 | | | 143.3 | | | 430.7 | | | 368.7 | | | | EMEA | 137.8 | | | 138.9 | | | 294.2 | | | 262.5 | | | |
Other | Other | 69.7 | | | 57.8 | | | 189.0 | | | 168.9 | | | | Other | 73.9 | | | 62.6 | | | 137.4 | | | 119.3 | | | |
| | $ | 738.2 | | | $ | 617.5 | | | $ | 2,019.6 | | | $ | 1,919.1 | | | | | $ | 863.3 | | | $ | 724.8 | | | $ | 1,604.0 | | | $ | 1,281.4 | | | |
Operating income (loss) | Operating income (loss) | | | | | | | | | | Operating income (loss) | | | | | | | | | |
Americas | Americas | $ | 11.1 | | | $ | 13.8 | | | $ | 40.8 | | | $ | 84.9 | | | | Americas | $ | 43.5 | | | $ | 44.7 | | | $ | 42.3 | | | $ | 29.7 | | | |
EMEA | EMEA | 8.3 | | | (3.7) | | | 1.0 | | | (31.8) | | | | EMEA | (6.8) | | | (1.6) | | | (5.5) | | | (7.3) | | | |
Other | Other | 2.0 | | | (2.2) | | | (7.5) | | | (2.7) | | | | Other | (1.3) | | | (4.2) | | | (4.2) | | | (9.5) | | | |
Corporate | Corporate | (5.5) | | | (7.9) | | | (16.3) | | | (14.1) | | | | Corporate | (6.5) | | | (5.0) | | | (16.3) | | | (10.8) | | | |
| | $ | 15.9 | | | $ | — | | | $ | 18.0 | | | $ | 36.3 | | | | | $ | 28.9 | | | $ | 33.9 | | | $ | 16.3 | | | $ | 2.1 | | | |
| Reportable Segment Balance Sheet Data | Reportable Segment Balance Sheet Data | November 26, 2021 | February 26, 2021 | | Reportable Segment Balance Sheet Data | August 26, 2022 | February 25, 2022 | |
Total assets | Total assets | | | | | | Total assets | | | | | |
Americas | Americas | $ | 1,103.6 | | | $ | 1,015.3 | | | | Americas | $ | 1,358.1 | | | $ | 1,110.4 | | | |
EMEA | EMEA | 479.2 | | | 414.4 | | | | EMEA | 420.0 | | | 475.2 | | | |
Other | Other | 227.0 | | | 211.3 | | | | Other | 227.0 | | | 227.6 | | | |
Corporate | Corporate | 509.0 | | | 713.0 | | | | Corporate | 297.5 | | | 447.8 | | | |
| | $ | 2,318.8 | | | $ | 2,354.0 | | | | | $ | 2,302.6 | | | $ | 2,261.0 | | | |
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. RESTRUCTURING ACTIVITIES
In Q4 2022, our Board of Directors approved restructuring actions related to the exit of our technology business in connection with our strategy to shift from offering a portfolio of technology products toward partnering with technology companies to create integrated collaborative solutions. The restructuring actions primarily included involuntary terminations of the majority of salaried employees of the business and the termination of supplier and customer contracts related to the business. We incurred $4.7 in restructuring costs in the Americas segment related to these actions, primarily consisting of cash severance payments and payment of other business exit costs. We recorded $1.8 related to employee termination costs and $2.4 related to business exit and other related costs during Q1 2023. In Q2 2023, we recorded a charge of $0.5 related to the impairment of a right-of-use operating lease asset which was utilized by our technology business. These restructuring actions are complete.
The following table details the changes in the restructuring reserve balance as of August 26, 2022:
| | | | | | | | | | | | | | | | | | | | |
| Workforce Reductions | Business Exit and Related Costs | Total |
Balance as of February 25, 2022 | $ | — | | | $ | — | | | $ | — | | |
Restructuring costs | 1.8 | | | 2.4 | | | 4.2 | | |
Payments | (1.8) | | | (2.4) | | | (4.2) | | |
Balance as of August 26, 2022 | $ | — | | | $ | — | | | $ | — | | |
14. SUBSEQUENT EVENTS
On September 21, 2022, our Board of Directors authorized a series of actions to reduce operational spending across certain functions. The actions may include the elimination of up to 180 salaried positions in the Americas segment and Corporate functions. As a result of these actions, we currently expect to incur approximately $8 in restructuring costs, consisting of cash severance payments and other separation-related benefits. We expect these actions to be completed in Q3 2023.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations:
This management’s discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 26, 2021.25, 2022. Reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the calendar year, unless indicated by a specific date. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
Non-GAAP Financial Measures
This item contains certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated statements of income,operations, balance sheets or statements of cash flows of the company. The non-GAAP financial measures used are (1) organic revenue growth, (2) adjusted operating income (loss) and (3) adjusted earnings per share. Pursuant to the requirements of Regulation G, we have provided a reconciliation belowof each of the non-GAAP financial measures to the most directly comparable GAAP financial measure.
Themeasure in the tables below. These measures are supplemental to, and should be used in conjunction with, the most comparable GAAP measures. Management uses these non-GAAP financial measures used are (1) organic revenue growth (decline), which represents the change in revenue excluding the impacts of acquisitions and divestitures and estimated currency translation effects, and (2) adjusted operating income (loss), which represents operating income (loss) excluding goodwill impairment charges and restructuring costs. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore,See Non-GAAP Financial Measures for a description of these measures and why management believes this information isthey are also useful forto investors.
Financial Summary
Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate expenses are reported as Corporate.
Results of Operations
| | | Three Months Ended | Nine Months Ended | | | Three Months Ended | Six Months Ended | |
Statement of Operations Data | Statement of Operations Data | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Statement of Operations Data | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Revenue | Revenue | $ | 738.2 | | | 100.0 | % | | $ | 617.5 | | | 100.0 | % | | $ | 2,019.6 | | | 100.0 | % | | $ | 1,919.1 | | | 100.0 | % | | | Revenue | $ | 863.3 | | | 100.0 | % | | $ | 724.8 | | | 100.0 | % | | $ | 1,604.0 | | | 100.0 | % | | $ | 1,281.4 | | | 100.0 | % | | |
Cost of sales | Cost of sales | 534.6 | | | 72.4 | | | 437.3 | | | 70.9 | | | 1,454.5 | | | 72.0 | | | 1,339.7 | | | 69.8 | | | | Cost of sales | 612.5 | | | 70.9 | | | 518.0 | | | 71.5 | | | 1,160.7 | | | 72.4 | | | 919.9 | | | 71.8 | | | |
Restructuring costs | Restructuring costs | — | | | — | | | 2.3 | | | 0.3 | | | — | | | — | | | 9.2 | | | 0.5 | | | | Restructuring costs | — | | | — | | | — | | | — | | | 0.9 | | | — | | | — | | | — | | | |
Gross profit | Gross profit | 203.6 | | | 27.6 | | | 177.9 | | | 28.8 | | | 565.1 | | | 28.0 | | | 570.2 | | | 29.7 | | | | Gross profit | 250.8 | | | 29.1 | | | 206.8 | | | 28.5 | | | 442.4 | | | 27.6 | | | 361.5 | | | 28.2 | | | |
Operating expenses | Operating expenses | 187.7 | | | 25.4 | | | 168.8 | | | 27.3 | | | 547.1 | | | 27.1 | | | 498.5 | | | 26.0 | | | | Operating expenses | 221.4 | | | 25.7 | | | 172.9 | | | 23.8 | | | 422.3 | | | 26.3 | | | 359.4 | | | 28.0 | | | |
Goodwill impairment charge | — | | | — | | | — | | | — | | | — | | | — | | | 17.6 | | | 0.9 | | | | |
Restructuring costs | Restructuring costs | — | | | — | | | 9.1 | | | 1.5 | | | — | | | — | | | 17.8 | | | 0.9 | | | | Restructuring costs | 0.5 | | | 0.1 | | | — | | | — | | | 3.8 | | | 0.3 | | | — | | | — | | | |
Operating income | Operating income | 15.9 | | | 2.2 | | | — | | | — | | | 18.0 | | | 0.9 | | | 36.3 | | | 1.9 | | | | Operating income | 28.9 | | | 3.3 | | | 33.9 | | | 4.7 | | | 16.3 | | | 1.0 | | | 2.1 | | | 0.2 | | | |
Interest expense | Interest expense | (6.5) | | | (0.9) | | | (6.6) | | | (1.1) | | | (19.3) | | | (1.0) | | | (20.7) | | | (1.2) | | | | Interest expense | (7.2) | | | (0.8) | | | (6.4) | | | (0.9) | | | (13.6) | | | (0.8) | | | (12.8) | | | (1.0) | | | |
Investment income | Investment income | 0.1 | | | — | | | 0.2 | | | — | | | 0.4 | | | — | | | 1.2 | | | 0.1 | | | | Investment income | 0.3 | | | — | | | 0.1 | | | — | | | 0.4 | | | — | | | 0.3 | | | — | | | |
Other income, net | Other income, net | 2.5 | | | 0.3 | | | 2.2 | | | 0.4 | | | 3.5 | | | 0.2 | | | 7.0 | | | 0.4 | | | | Other income, net | 4.4 | | | 0.6 | | | 1.8 | | | 0.2 | | | 7.5 | | | 0.5 | | | 1.0 | | | 0.1 | | | |
Income (loss) before income tax expense (benefit) | Income (loss) before income tax expense (benefit) | 12.0 | | | 1.6 | | | (4.2) | | | (0.7) | | | 2.6 | | | 0.1 | | | 23.8 | | | 1.2 | | | | Income (loss) before income tax expense (benefit) | 26.4 | | | 3.1 | | | 29.4 | | | 4.0 | | | 10.6 | | | 0.7 | | | (9.4) | | | (0.7) | | | |
Income tax expense (benefit) | Income tax expense (benefit) | 2.4 | | | 0.3 | | | (6.3) | | | (1.0) | | | (3.6) | | | (0.2) | | | 4.3 | | | 0.2 | | | | Income tax expense (benefit) | 6.8 | | | 0.8 | | | 4.7 | | | 0.6 | | | 2.4 | | | 0.2 | | | (6.0) | | | (0.4) | | | |
Net income | $ | 9.6 | | | 1.3 | % | | $ | 2.1 | | | 0.3 | % | | $ | 6.2 | | | 0.3 | % | | $ | 19.5 | | | 1.0 | % | | | |
Earnings per share: | | | | | | | | | | | | | | | | | | |
Net income (loss) | | Net income (loss) | $ | 19.6 | | | 2.3 | % | | $ | 24.7 | | | 3.4 | % | | $ | 8.2 | | | 0.5 | % | | $ | (3.4) | | | (0.3) | % | | |
Earnings (loss) per share: | | Earnings (loss) per share: | | | | | | | | | | | | | | | | | |
Basic | Basic | $ | 0.08 | | | | | $ | 0.02 | | | | | $ | 0.05 | | | | $ | 0.17 | | | | | | Basic | $ | 0.17 | | | | | $ | 0.21 | | | | | $ | 0.07 | | | | $ | (0.03) | | | | | |
Diluted | Diluted | $ | 0.08 | | | | | $ | 0.02 | | | | | $ | 0.05 | | | | $ | 0.17 | | | | | | Diluted | $ | 0.17 | | | | | $ | 0.21 | | | | | $ | 0.07 | | | | $ | (0.03) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Q3 2022 Organic Revenue Growth | Americas | EMEA | Other | Consolidated |
Q3 2021 revenue | $ | 416.4 | | | $ | 143.3 | | | $ | 57.8 | | | $ | 617.5 | | |
Acquisitions | 12.2 | | | 0.7 | | | — | | | 12.9 | | |
| | | | | | | | |
Currency translation effects* | 0.7 | | | (0.8) | | | 0.4 | | | 0.3 | | |
Q3 2021 revenue, adjusted | 429.3 | | | 143.2 | | | 58.2 | | | 630.7 | | |
Q3 2022 revenue | 500.3 | | | 168.2 | | | 69.7 | | | 738.2 | | |
| | | | | | | | |
| | | | | | | | |
Organic growth $ | $ | 71.0 | | | $ | 25.0 | | | $ | 11.5 | | | $ | 107.5 | | |
Organic growth % | 17 | % | | 17 | % | | 20 | % | | 17 | % | |
| | | | | | | | |
* Currency translation effects represent the estimated net effect of translating Q3 2021 foreign currency revenues using the average exchange rates during Q3 2022. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Q2 2023 Organic Revenue Growth | Americas | EMEA | Other | Consolidated |
Q2 2022 revenue | $ | 523.3 | | | $ | 138.9 | | | $ | 62.6 | | | $ | 724.8 | | |
Acquisitions | 15.1 | | | 2.5 | | | — | | | 17.6 | | |
| | | | | | | | |
Currency translation effects | (0.7) | | | (18.1) | | | (1.5) | | | (20.3) | | |
Q2 2022 revenue, adjusted | 537.7 | | | 123.3 | | | 61.1 | | | 722.1 | | |
Q2 2023 revenue | 651.6 | | | 137.8 | | | 73.9 | | | 863.3 | | |
| | | | | | | | |
| | | | | | | | |
Organic growth $ | $ | 113.9 | | | $ | 14.5 | | | $ | 12.8 | | | $ | 141.2 | | |
Organic growth % | 21 | % | | 12 | % | | 21 | % | | 20 | % | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year-to-date 2022 Organic Revenue Growth (Decline) | Americas | EMEA | Other | Consolidated |
Year-to-date 2021 revenue | $ | 1,381.5 | | | $ | 368.7 | | | $ | 168.9 | | | $ | 1,919.1 | | |
Acquisitions | 38.1 | | | 0.7 | | | — | | | 38.8 | | |
| | | | | | | | |
Currency translation effects* | 4.9 | | | 15.6 | | | 3.6 | | | 24.1 | | |
Year-to-date 2021 revenue, adjusted | 1,424.5 | | | 385.0 | | | 172.5 | | | 1,982.0 | | |
Year-to-date 2022 revenue | 1,399.9 | | | 430.7 | | | 189.0 | | | 2,019.6 | | |
| | | | | | | | |
| | | | | | | | |
Organic growth (decline) $ | $ | (24.6) | | | $ | 45.7 | | | $ | 16.5 | | | $ | 37.6 | | |
Organic growth (decline) % | (2) | % | | 12 | % | | 10 | % | | 2 | % | |
| | | | | | | | |
* Currency translation effects represent the estimated net effect of translating year-to-date 2021 foreign currency revenues using the average exchange rates during year-to-date 2022. |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Year-to-date 2023 Organic Revenue Growth | Americas | EMEA | Other | Consolidated |
Year-to-date 2022 revenue | $ | 899.6 | | | $ | 262.5 | | | $ | 119.3 | | | $ | 1,281.4 | | |
Acquisitions | 16.1 | | | 5.0 | | | — | | | 21.1 | | |
Currency translation effects | (1.2) | | | (29.6) | | | (2.1) | | | (32.9) | | |
Year-to-date 2022 revenue, adjusted | 914.5 | | | 237.9 | | | 117.2 | | | 1,269.6 | | |
Year-to-date 2023 revenue | 1,172.4 | | | 294.2 | | | 137.4 | | | 1,604.0 | | |
Organic growth $ | $ | 257.9 | | | $ | 56.3 | | | $ | 20.2 | | | $ | 334.4 | | |
Organic growth % | 28 | % | | 24 | % | | 17 | % | | 26 | % | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Operating Income to Adjusted Operating Income | Three Months Ended | Nine Months Ended |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 |
Operating income | $ | 15.9 | | | 2.2 | % | | $ | — | | | — | % | | $ | 18.0 | | | 0.9 | % | | $ | 36.3 | | | 1.9 | % | |
Add: Goodwill impairment charge | — | | | — | | | — | | | — | | | — | | | — | | | 17.6 | | | 0.9 | | |
Add: Restructuring costs | — | | | — | | | 11.4 | | | 1.8 | | | — | | | — | | | 27.0 | | | 1.4 | | |
Adjusted operating income | $ | 15.9 | | | 2.2 | % | | $ | 11.4 | | | 1.8 | % | | $ | 18.0 | | | 0.9 | % | | $ | 80.9 | | | 4.2 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Operating Income | Three Months Ended | Six Months Ended |
August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Operating income | $ | 28.9 | | | 3.3 | % | | $ | 33.9 | | | 4.7 | % | | $ | 16.3 | | | 1.0 | % | | $ | 2.1 | | | 0.2 | % | |
Amortization of purchased intangible assets | 6.4 | | | 0.7 | | | 3.6 | | | 0.5 | | | 10.2 | | | 0.6 | | | 7.2 | | | 0.5 | | |
| | | | | | | | | | | | | | | | |
Restructuring costs | 0.5 | | | 0.1 | | | — | | | — | | | 4.7 | | | 0.3 | | | — | | | — | | |
Adjusted operating income | $ | 35.8 | | | 4.1 | % | | $ | 37.5 | | | 5.2 | % | | $ | 31.2 | | | 1.9 | % | | $ | 9.3 | | | 0.7 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted Earnings Per Share | Three Months Ended | Six Months Ended |
August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Earnings (loss) per share | $ | 0.17 | | | $ | 0.21 | | | $ | 0.07 | | | $ | (0.03) | | |
Amortization of purchased intangible assets, per share | 0.05 | | | 0.03 | | | 0.09 | | | 0.06 | | |
Income tax effect of amortization of purchased intangible assets, per share | (0.01) | | | (0.01) | | | (0.02) | | | (0.02) | | |
Restructuring costs, per share | — | | | — | | | 0.04 | | | — | | |
Income tax effect of restructuring costs, per share | — | | | — | | | (0.01) | | | — | | |
Adjusted earnings per share | $ | 0.21 | | | $ | 0.23 | | | $ | 0.17 | | | $ | 0.01 | | |
Overview
During Q3 2022, we continued to see strengthening demand and a broader recovery ofIn Q2 2023, our industry. Our orders grew by 40%revenue increased 19% compared to the prior year, driven by strong beginning order backlog, significant pricing benefits and revenue increasedour acquisition of Halcon. We continued to experience significant inflation in steel, other commodities, fuel and logistics costs during the quarter, but year-over-year pricing benefits of approximately $80 exceeded year-over-year inflation by 20%approximately $30.While we expect inflationary pressure to remain, we believe that year-over-year benefits from our pricing actions will continue to exceed year-over-year inflation in the second half of 2023.
Our orders grew 5% in Q2 2023 compared to the prior year. Supply chain disruptionsyear, driven by pricing benefits in the Americas and EMEA, partially offset by a decline in order volume in the current year resulted in extended lead-times, shipment delaysAmericas. In response to the volume decline and adjustments to delivery schedules which we estimate caused at least $35 of revenue to shift from Q3 2022 into Q4 2022 compared to at least $40 of revenue which we estimate shifted from Q2 2022 to Q3 2022 for similar reasons. Revenue in Q3 2021 was negatively impacted by a delay of approximately $60 of shipments to Q4 2021 due to a temporary global operations shutdown we implemented to protect our systems during a cyberattack. During the quarter, our pipeline of project opportunities, requests for proposals and product mock-ups remained consistent with the levels we saw in Q2 2022.
The supply chain disruptionslower-than-expected return-to-office trends in the Americas, combined with continued significant inflation in steel and other commodities, netwe have adjusted our planned levels of pricing benefits, had an impact of approximately $40 on cost of sales in Q3 2022 compared to the prior year. Weoperational spending while we expect the supply chain disruptions and inflationary pressures from steel and other commodities to continue to impactprioritize our investments in strategic growth initiatives. As a result, we have announced plans to eliminate up to 180 salaried positions in the Americas segment and Corporate functions in Q3 2023 and expect to maintain other cost reduction efforts during the remainder of sales in Q4 2022 and into2023.
Q2 2023 but we expect our recent price increases to offset the current level of inflation in 2023.
Q3 2022 Compared to Q3 2021Q2 2022
We recorded net income of $9.6$19.6 and diluted earnings per share of $0.08$0.17 in Q3 2022Q2 2023 compared to net income of $2.1$24.7 and diluted earnings per share of $0.02$0.21 in the prior year. The prior year results included restructuring costs in the Americas, which decreased net income by $7.0 and diluted earnings per share by $0.06.
Operating income of $15.9$28.9 in Q3 2022Q2 2023 represented a decrease of $5.0 compared to break-even operating income of $33.9 in the prior year, which included $11.4a $15.4 gain from the sale of restructuring costs.land. Excluding the land gain in the prior year, the increase in operating income was primarily driven by higher volume and higher pricing benefits, which improved gross margin, partially offset by higher operating expenses. We reported adjusted operating income of $35.8 and adjusted earnings per share of $0.21 in Q2 2023, and we had adjusted operating income of $37.5 and adjusted earnings per share of $0.23 in the prior year.
Revenue of $863.3 in Q2 2023 represented an increase of $138.5 or 19% compared to the prior year. Approximately $80 of the increase was related to higher pricing benefits, and approximately $75 was related to higher volume (including acquisitions), partially offset by approximately $20 of unfavorable currency translation effects, primarily in EMEA. Revenue growth was driven by the Americas, in part by Smith System and our acquisition of Halcon. Revenue increased by 25% in the Americas and by 18% in the Other category, while EMEA revenue decreased by 1%. Organic revenue growth was $141.2 or 20% compared to the prior year, with 21% growth in the Americas, 12% growth in EMEA and 21% growth in the Other category.
Cost of sales as a percentage of revenue improved by 60 basis points in Q2 2023 compared to the prior year. The improvement was driven by approximately $30 of higher pricing benefits, net of inflation, and the benefits of higher volume, partially offset by approximately $10 of higher fixed overhead costs and labor inefficiencies. Cost of sales as a percentage of revenue improved by 120 basis points in the Americas and 90 basis points in the Other category but increased by 340 basis points in EMEA.
Operating expenses increased by $48.5 in Q2 2023, or 190 basis points as a percentage of revenue, compared to the prior year, which included a $15.4 gain from the sale of land. Compared to the prior year, operating expenses in Q2 2023 included:
•$13.6 of higher marketing, product development and sales expenses,
•$8.4 of higher variable compensation expense,
•$7.9 from acquisitions and
•$4.6 of higher spending in other functional areas, primarily information technology and strategy,
•partially offset by $4.9 of favorable currency translation effects.
Our Q2 2023 effective tax rate was 25.8% compared to a Q2 2022 effective tax rate of 16.0%, which included $3.8 of discrete tax benefits.
Year-to-date 2023 Compared to Year-to-date 2022
We recorded net income of $8.2 and earnings per share of $0.07 in year-to-date 2023 compared to a net loss of $3.4 and loss per share of $0.03 in the prior year. Operating income of $16.3 in year-to-date 2023 represented an increase of $14.2 compared to operating income of $2.1 in the prior year. The increase was driven by higher revenue and lower operating expenses as a percentage of revenue, partially offset by higher cost of sales as a percentage of revenue. Year-to-date 2023 included $4.7 of restructuring costs in the Americas related to the exit of our technology business. We reported adjusted operating income of $31.2 and adjusted earnings per share of $0.17 in year-to-date 2023, and we had adjusted operating income of $9.3 and adjusted earnings per share of $0.01 in the prior year.
Revenue of $738.2$1,604.0 in Q3 2022year-to-date 2023 represented an increase of $120.7$322.6 or 20%25% compared to the prior year, driven by growth across all segments. Supply chain disruptionsApproximately $215 of the increase was related to higher volume (including acquisitions), and approximately $130 was related to higher pricing benefits, partially offset by approximately $30 of unfavorable currency translation effects, primarily in EMEA. Revenue increased by 30% in the Americas, in the current year resulted in extended lead-times, shipment delays and adjustments to delivery schedules which we estimate caused at least $35 of revenue to shift from Q3 2022 into Q4 2022 compared to at least $40 of revenue which we estimate shifted from Q2 2022 to Q3 2022 for similar reasons. Revenue in the prior year was negatively impacted by a delay of approximately $60 of shipments to Q4 2021 as a result of the temporary operations shutdown in Q3 2021. Revenue grew by 20% in the Americas, 17%12% in EMEA and 21%15% in the Other categorycategory. Organic revenue growth was $334.4 or 26% compared to the prior year. After adjusting for a $12.9 impact from acquisitions and $0.3 of currency translation effects, the organic revenueyear, with 28% growth was $107.5 or 17% compared to the prior year. The organic revenue growth was 17% in the Americas, 17%24% growth in EMEA and 20%17% growth in the Other category compared to the prior year.category.
Cost of sales as a percentage of revenue increased by 15060 basis points in Q3 2022year-to-date 2023 compared to the prior year. The increase was driven by approximately $29$103 of higher inflation costs, net of pricing benefits, and approximately $11$18 of higher freightfixed overhead costs and labor costs and inefficiencies, due to supply chain disruptions, partially offset by the benefits of higher revenue.volume and approximately $130 of higher pricing benefits. Cost of sales as a percentage of revenue increased by 43040 basis points in the Americas whileand 190 basis points in EMEA but improved by 49090 basis points andin the Other category improved by 150 basis points.category.
Operating expenses of $187.7increased by $62.9 in Q3 2022 represented an increase of $18.9,year-to-date 2023, but a decline of 190decreased by 170 basis points as a percentage of revenue, compared to the prior year. The current year, included approximately $13 of higher marketing and sales expenses, approximately $6 of higher discretionary spending and employee costs in other functional areas and $3.5 from acquisitions, partially offset by $2.9 of lower variable compensation expense.
Our Q3 2022 effective tax rate was 20.0%, which included $1.2 of discrete tax benefits. In the prior year, we recorded an income tax benefit of $6.3, which was primarily driven by benefits available under the U.S. Coronavirus Aid, Relief, and Economic Security Act.
Year-to-date 2022 Compared to Year-to-date 2021
We recorded year-to-date 2022 net income of $6.2 and diluted earnings per share of $0.05 compared to year-to-date 2021 net income of $19.5 and diluted earnings per share of $0.17. In year-to-date 2021, the results included: (1) a goodwill impairment charge related to the EMEA segment, which had the effect of decreasing net income by $17.6 and diluted earnings per share by $0.15, and (2) restructuring costs due to workforce reductions in the Americas, which had the effect of decreasing net income by $16.5 and diluted earnings per share by $0.14. Year-to-date 2022 operating income of $18.0 represented a decrease of $18.3 compared to the prior year. The decrease was due to higher cost of sales as a percentage of revenue and higher operating expenses, partially offset by higher revenue and the impact of the goodwill impairment charge and restructuring costs in the prior year. Excluding the impact of the goodwill impairment charge and restructuring costs in the prior year, adjusted operating income decreased by $62.9 in year-to-date 2022 compared to year-to-date 2021.
Year-to-date 2022 revenue of $2,019.6 represented an increase of $100.5 or 5% compared to year-to-date 2021. Revenue increased by 1% in the Americas, 17% in EMEA and 12% in the Other category compared to the prior year. After adjusting for $38.8 of impact from acquisitions and $24.1 of currency translation effects, the organic revenue growth was $37.6 or 2% compared to the prior year. The Americas had an organic revenue decline of 2%, while the organic revenue growth was 12% in EMEA and 10% in the Other category compared to the prior year.
Cost of sales as a percentage of revenue increased by 220 basis points in year-to-date 2022 compared to year-to-date 2021. The increase was driven by approximately $57 of higher inflation costs, net of pricing benefits, and approximately $16 of higher freight and labor costs and inefficiencies due to supply chain disruptions, partially offset by the benefits of higher revenue and $6.6 of lower variable compensation expense. Cost of sales as a percentage of revenue increased by 370 basis points in the Americas and by 220 basis points in the Other category, while EMEA improved by 320 basis points.
Operating expenses of $547.1 in year-to-date 2022 represented an increase of $48.6, or 110 basis points as a percentage of revenue, compared to the prior year. The prior year included approximately $41 of lower employee costs as a result of temporary hour and pay reductions and gains of $6.7 from the sale of land. The current year included approximately $26 of higher marketing and sales expenses, approximately $11 of higher discretionary spending in other functional areas and $9.5 from acquisitions, partially offset by approximately $18 of lower
employee costs (due to the benefits from workforce reductions in the prior year), a $15.4 gain from the sale of land. Compared to the prior year, operating expenses in year-to-date 2023 included:
•$25.3 of higher marketing, product development and sales expenses,
•$11.6 of higher spending in other functional areas, primarily information technology, aviation and strategy,
•$9.7 from acquisitions and
•$8.6 of higher variable compensation expense,
•partially offset by a $4.0 gain from the sale of land and $9.6$8.5 of lower variable compensation expense.favorable currency translation effects.
We recorded restructuring costs of $4.7 in the Americas in year-to-date 2023 related to the exit of our technology business. See Note 13 to the condensed consolidated financial statements for additional information.
Our year-to-date 2023 effective tax rate was 22.6% compared to a year-to-date 2022 effective tax rate was (138.5)% compared to a year-to-date 2021 effective tax rate of 18.1%63.8%. The year-to-date 2022 effective tax rate reflected the impact of lower earnings and included $4.6$3.4 of discrete tax benefits. The year-to-date 2021 effective tax rate reflected the non-deductible nature of the goodwill impairment charge recorded in Q1 2021.
Interest Expense, Investment Income and Other Income (Expense), Net
| | | Three Months Ended | Nine Months Ended | | Three Months Ended | Six Months Ended |
Interest Expense, Investment Income and Other Income, Net | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | |
Interest Expense, Investment Income and Other Income (Expense), Net | | Interest Expense, Investment Income and Other Income (Expense), Net | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Interest expense | Interest expense | $ | (6.5) | | | $ | (6.6) | | | $ | (19.3) | | | $ | (20.7) | | | Interest expense | $ | (7.2) | | | $ | (6.4) | | | $ | (13.6) | | | $ | (12.8) | | |
Investment income | Investment income | 0.1 | | | 0.2 | | | 0.4 | | | 1.2 | | | Investment income | 0.3 | | | 0.1 | | | 0.4 | | | 0.3 | | |
Other income, net: | Other income, net: | | | | | | | | | Other income, net: | | | | | | | | |
Equity in income of unconsolidated affiliates | Equity in income of unconsolidated affiliates | 2.2 | | | 2.6 | | | 4.5 | | | 6.6 | | | Equity in income of unconsolidated affiliates | 3.2 | | | 1.0 | | | 5.5 | | | 2.3 | | |
Foreign exchange gains (losses) | Foreign exchange gains (losses) | 0.9 | | | 0.1 | | | 0.6 | | | (1.0) | | | Foreign exchange gains (losses) | 0.1 | | | (0.1) | | | 1.6 | | | (0.3) | | |
Net periodic pension and post-retirement credit, excluding service cost | Net periodic pension and post-retirement credit, excluding service cost | (0.2) | | | — | | | (0.5) | | | (0.1) | | | Net periodic pension and post-retirement credit, excluding service cost | (0.4) | | | (0.1) | | | (0.4) | | | (0.3) | | |
Miscellaneous income (expense), net | Miscellaneous income (expense), net | (0.4) | | | (0.5) | | | (1.1) | | | 1.5 | | | Miscellaneous income (expense), net | 1.5 | | | 1.0 | | | 0.8 | | | (0.7) | | |
Total other income, net | Total other income, net | 2.5 | | | 2.2 | | | 3.5 | | | 7.0 | | | Total other income, net | 4.4 | | | 1.8 | | | 7.5 | | | 1.0 | | |
Total interest expense, investment income and other income, net | Total interest expense, investment income and other income, net | $ | (3.9) | | | $ | (4.2) | | | $ | (15.4) | | | $ | (12.5) | | | Total interest expense, investment income and other income, net | $ | (2.5) | | | $ | (4.5) | | | $ | (5.7) | | | $ | (11.5) | | |
Interest expense increased in Q2 2023 and year-to-date 2021 included2023 compared to the impactprior year as a result of borrowings under our global creditcommitted bank facility in Q1 2021, which were repaid during Q2 2021. Other2023. Total other income, net increased by $2.6 in year-to-date 2021 included a $2.8 gain relatedQ2 2023 compared to additional proceeds received in the prior year, driven by a $2.2 increase in income recorded from our unconsolidated affiliates. Total other income, net increased by $6.5 in year-to-date 2023 compared to the partial saleprior year, driven by a $3.2 increase in income recorded from our unconsolidated affiliates and a $1.9 increase of an investment in an unconsolidated affiliate in 2018.foreign exchange gains.
Business Segment Review
See Note 1012 to the condensed consolidated financial statements for additional information regarding our business segments.
Americas
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a comprehensive portfolio of furniture architectural and technologyarchitectural products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, AMQ, Smith System, AMQ, Orangebox, Viccarbe and ViccarbeHalcon brands.
| | | Three Months Ended | Nine Months Ended | | | Three Months Ended | Six Months Ended | |
Statement of Operations Data — Americas | Statement of Operations Data — Americas | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | Statement of Operations Data — Americas | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | |
Revenue | Revenue | $ | 500.3 | | | 100.0 | % | | $ | 416.4 | | | 100.0 | % | | $ | 1,399.9 | | | 100.0 | % | | $ | 1,381.5 | | | 100.0 | % | | | Revenue | $ | 651.6 | | | 100.0 | % | | $ | 523.3 | | | 100.0 | % | | $ | 1,172.4 | | | 100.0 | % | | $ | 899.6 | | | 100.0 | % | | |
Cost of sales | Cost of sales | 370.3 | | | 74.0 | | | 290.4 | | | 69.7 | | | 1,015.4 | | | 72.5 | | | 950.8 | | | 68.8 | | | | Cost of sales | 455.9 | | | 70.0 | | | 372.6 | | | 71.2 | | | 845.9 | | | 72.1 | | | 645.1 | | | 71.7 | | | |
Restructuring costs | Restructuring costs | — | | | — | | | 2.3 | | | 0.6 | | | — | | | — | | | 9.2 | | | 0.7 | | | | Restructuring costs | — | | | — | | | — | | | — | | | 0.9 | | | 0.1 | | | — | | | — | | | |
Gross profit | Gross profit | 130.0 | | | 26.0 | | | 123.7 | | | 29.7 | | | 384.5 | | | 27.5 | | | 421.5 | | | 30.5 | | | | Gross profit | 195.7 | | | 30.0 | | | 150.7 | | | 28.8 | | | 325.6 | | | 27.8 | | | 254.5 | | | 28.3 | | | |
Operating expenses | Operating expenses | 118.9 | | | 23.8 | | | 100.8 | | | 24.2 | | | 343.7 | | | 24.6 | | | 318.8 | | | 23.1 | | | | Operating expenses | 151.7 | | | 23.2 | | | 106.0 | | | 20.3 | | | 279.5 | | | 23.9 | | | 224.8 | | | 25.0 | | | |
| Restructuring costs | Restructuring costs | — | | | — | | | 9.1 | | | 2.2 | | | — | | | — | | | 17.8 | | | 1.3 | | | | Restructuring costs | 0.5 | | | 0.1 | | | — | | | — | | | 3.8 | | | 0.3 | | | — | | | — | | | |
Operating income | Operating income | $ | 11.1 | | | 2.2 | % | | $ | 13.8 | | | 3.3 | % | | $ | 40.8 | | | 2.9 | % | | $ | 84.9 | | | 6.1 | % | | | Operating income | $ | 43.5 | | | 6.7 | % | | $ | 44.7 | | | 8.5 | % | | $ | 42.3 | | | 3.6 | % | | $ | 29.7 | | | 3.3 | % | | |
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Reconciliation of Operating Income to Adjusted Operating Income — Americas | Three Months Ended | Nine Months Ended |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 |
Operating income | $ | 11.1 | | | 2.2 | % | | $ | 13.8 | | | 3.3 | % | | $ | 40.8 | | | 2.9 | % | | $ | 84.9 | | | 6.1 | % | |
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Add: Restructuring costs | — | | | — | | | 11.4 | | | 2.8 | | | — | | | — | | | 27.0 | | | 2.0 | | |
Adjusted operating income | $ | 11.1 | | | 2.2 | % | | $ | 25.2 | | | 6.1 | % | | $ | 40.8 | | | 2.9 | % | | $ | 111.9 | | | 8.1 | % | |
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Adjusted Operating Income — Americas | Three Months Ended | Six Months Ended |
August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Operating income | $ | 43.5 | | | 6.7 | % | | $ | 44.7 | | | 8.5 | % | | $ | 42.3 | | | 3.6 | % | | $ | 29.7 | | | 3.3 | % | |
Amortization of purchased intangible assets | 5.3 | | | 0.8 | | | 2.6 | | | 0.5 | | | 7.9 | | | 0.7 | | | 5.2 | | | 0.6 | | |
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Restructuring costs | 0.5 | | | 0.1 | | | — | | | — | | | 4.7 | | | 0.4 | | | — | | | — | | |
Adjusted operating income | $ | 49.3 | | | 7.6 | % | | $ | 47.3 | | | 9.0 | % | | $ | 54.9 | | | 4.7 | % | | $ | 34.9 | | | 3.9 | % | |
Operating income in the Americas declineddecreased by $2.7$1.2 in Q3 2022Q2 2023 compared to the prior year, which included a $15.4 gain from the sale of land. Excluding the land gain in the prior year, the increase in operating income was primarily driven by higher volume and higher pricing benefits, which improved gross margin, partially offset by higher operating expenses. Adjusted operating income of $49.3 in Q2 2023 represented an improvement of $2.0 compared the prior year. Operating income in the Americas increased by $12.6 in year-to-date 2023 compared to the prior year. The year-to-date improvement was driven by higher revenue and lower operating expenses as a percentage of revenue. Year-to-date 2023 also included $4.7 of restructuring costs. Adjusted operating income of $54.9 in year-to-date 2023 represented an improvement of $20.0 compared the prior year.
The Americas revenue represented 75.5% of consolidated revenue in Q2 2023. In Q2 2023, revenue increased by $128.3 or 25% compared to the prior year. The increase included approximately $65 related to higher volume (including acquisitions) and approximately $60 related to higher pricing benefits, and reflected strong growth at Smith System. Organic revenue growth in Q2 2023 was $113.9 or 21% compared to the prior year. The Americas revenue represented 73.1% of consolidated revenue in year-to-date 2023. Year-to-date 2023 revenue of $1,172.4 represented an increase of $272.8 or 30% compared to the prior year. Approximately $175 of the increase related to higher volume, and approximately $100 related to higher pricing benefits. Organic revenue growth in year-to-date 2023 was $257.9 or 28% compared to the prior year.
Cost of sales as a percentage of revenue decreased by 120 basis points in Q2 2023 compared to the prior year. The improvement was driven by the benefits of higher volume, and approximately $23 of higher pricing benefits, net of inflation, partially offset by approximately $11 of higher fixed overhead costs and labor inefficiencies. Cost of sales as a percentage of revenue increased by 40 basis points in year-to-date 2023 compared to the prior year. The increase was driven by approximately $83 of higher inflation and approximately $17 of higher fixed overhead costs and labor inefficiencies, partially offset by the benefits of higher volume and approximately $100 of higher pricing benefits.
Operating expenses increased by $45.7 in Q2 2023, or 290 basis points as a percentage of revenue, compared to the prior year, which included a $15.4 gain from the sale of land. The current year included $10.6 of higher marketing, product development and sales expenses, $6.4 from acquisitions, $6.4 of higher variable compensation expense and $5.3 of higher spending in other functional areas. Operating expenses in year-to-date 2023 increased by $54.7, but decreased by 110 basis points as a percentage of revenue, compared to the prior year, which included a $15.4 gain from the sale of land. The current year included $19.8 of higher marketing, product development and sales expenses, $9.0 of higher spending in other functional areas, $6.7 from acquisitions and $6.0 of higher variable compensation expense, partially offset by a $4.0 gain from the sale of land.
EMEA
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase, Coalesse, Orangebox and Viccarbe brands, with a comprehensive portfolio of furniture and architectural products.
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| Three Months Ended | Six Months Ended | |
Statement of Operations Data — EMEA | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | | |
Revenue | $ | 137.8 | | | 100.0 | % | | $ | 138.9 | | | 100.0 | % | | $ | 294.2 | | | 100.0 | % | | $ | 262.5 | | | 100.0 | % | | | | | | | | |
Cost of sales | 105.3 | | | 76.4 | | | 101.4 | | | 73.0 | | | 219.4 | | | 74.6 | | | 190.9 | | | 72.7 | | | | | | | | | |
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Gross profit | 32.5 | | | 23.6 | | | 37.5 | | | 27.0 | | | 74.8 | | | 25.4 | | | 71.6 | | | 27.3 | | | | | | | | | |
Operating expenses | 39.3 | | | 28.5 | | | 39.1 | | | 28.2 | | | 80.3 | | | 27.3 | | | 78.9 | | | 30.1 | | | | | | | | | |
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Operating loss | $ | (6.8) | | | (4.9) | % | | $ | (1.6) | | | (1.2) | % | | $ | (5.5) | | | (1.9) | % | | $ | (7.3) | | | (2.8) | % | | | | | | | | |
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Adjusted Operating Loss — EMEA | Three Months Ended | Six Months Ended |
August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 |
Operating loss | $ | (6.8) | | | (4.9) | % | | $ | (1.6) | | | (1.2) | % | | $ | (5.5) | | | (1.9) | % | | $ | (7.3) | | | (2.8) | % | |
Amortization of purchased intangible assets | 1.1 | | | 0.8 | | | 1.0 | | | 0.8 | | | 2.3 | | | 0.8 | | | 2.0 | | | 0.8 | | |
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Adjusted operating loss | $ | (5.7) | | | (4.1) | % | | $ | (0.6) | | | (0.4) | % | | $ | (3.2) | | | (1.1) | % | | $ | (5.3) | | | (2.0) | % | |
Operating results in EMEA decreased by $5.2 in Q2 2023 compared to the prior year. The decline was driven by higher cost of sales as a percentage of revenue partially offset byas a result of higher revenue and $11.4 of restructuring costs related to workforce reductions in the prior year. Excluding the impact of the restructuring costs in the prior year, adjusted operating income decreased by $14.1 in Q3 2022inflation compared to the prior year. Operating incomeThe operating results in EMEA improved by $1.8 in year-to-date 2022 represented a decrease of $44.12023 compared to year-to-date 2021.the prior year. The decreaseimprovement was driven by higher revenue and lower operating expenses as a percentage of revenue, partially offset by higher cost of sales as a percentage of revenue.
EMEA revenue and higher operating expenses, partially offsetrepresented 16.0% of consolidated revenue in Q2 2023. In Q2 2023, revenue decreased by higher revenue and $27.0 of restructuring costs in the prior year. Excluding the impact of restructuring costs in the prior year, year-to-date 2022 adjusted operating income represented a decrease of $71.1$1.1 or 1% compared to the prior year.
The Americas Approximately $13 of higher pricing benefits were more than offset by approximately $18 of unfavorable currency translation effects, while volume remained flat. Organic revenue represented 67.8% of consolidated revenue in Q3 2022. Q3 2022 revenue of $500.3 represented an increase of $83.9growth was $14.5 or 20%12% compared to the prior year. Supply chain disruptionsEMEA revenue represented 18.3% of consolidated revenue in the Americas in the current year resulted in extended lead-times, shipment delays and adjustments to delivery schedules which we estimate caused at least $35year-to-date 2023. In year-to-date 2023, revenue of revenue to shift from Q3 2022 into Q4 2022 compared to at least $40$294.2 represented an increase of revenue which we estimate shifted from Q2 2022 to Q3 2022 for similar reasons. Revenue in the prior year was negatively impacted by a delay of approximately $50 of shipments to Q4 2021 as a result of the temporary operations shutdown in Q3 2021. After adjusting for a $12.2 impact from acquisitions and $0.7 of currency translation effects, the organic revenue growth was $71.0$31.7 or 17%12% compared to the prior year. Year-to-date 2022 revenueyear, driven by growth across most markets. Approximately $30 of $1,399.9 represented anthe increase was related to higher volume, and approximately $25 was related to higher pricing benefits, partially offset by approximately $30 of $18.4 or 1% compared to year-to-date 2021. After adjusting for a $38.1 impact from acquisitions and $4.9 ofunfavorable currency translation effects, the organiceffects. Organic revenue declinegrowth year-to-date 2023 was $24.6$56.3 or 2%24% compared to the prior year.
Cost of sales as a percentage of revenue increased by 430340 basis points in Q3 2022Q2 2023 compared to the prior year. The increase was driven by approximately $27$10 of higher inflation costs, net of pricing benefits, and approximately $10 of$1 in higher freight and labor costs and inefficiencies, due to supply chain disruptions, partially offset by the benefits of higher revenue.pricing benefits. Cost of sales as a percentage of revenue increased by 370190 basis points in year-to-date 20222023 compared to year-to-date 2021.the prior year. The increase was driven by approximately $51$16 of higher inflation, costs, netapproximately $2 of pricing benefits,unfavorable currency impacts and approximately $15 of$2 in higher freightoverhead costs and labor costs and inefficiencies, due to supply chain disruptions, partially offset by $5.6the benefits of lower variable compensation expense.higher volume and approximately $25 of higher pricing benefits.
Operating expenses in Q3 2022 increased by $18.1, but decreased by 40$0.2 in Q2 2023, or 30 basis points as a percentage of revenue, compared to the prior year. The current year included approximately $13$1.9 of higher marketing, product development and sales expenses, approximately $5$1.4 from an acquisition and $1.1 of higher discretionary spending and employee costs in other functional areas and $2.8 from acquisitions,variable compensation expense, partially offset by $1.6$4.9 of lower variable compensation expense.favorable currency translation effects. Operating expenses increased by $1.4 in year-to-date 2022 increased by $24.9, or 150 basis points as a percentage of revenue, compared to year-to-date 2021. The prior year included approximately $30 of lower employee costs as a result of temporary hour and pay reductions and gains of $6.7 from the sale of land. The current year included approximately $22 of higher marketing and sales expenses, approximately $7 of higher discretionary spending in other functional areas and $8.8 from acquisitions, partially offset by approximately $18 of lower employee costs (due to the benefits from workforce reductions in the prior year), a $15.4 gain from the sale of land and $6.9 of lower variable compensation expense.
EMEA
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase, Orangebox, Coalesse and Viccarbe brands, with a comprehensive portfolio of furniture, architectural and technology products.
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| Three Months Ended | Nine Months Ended | |
Statement of Operations Data — EMEA | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | |
Revenue | $ | 168.2 | | | 100.0 | % | | $ | 143.3 | | | 100.0 | % | | $ | 430.7 | | | 100.0 | % | | $ | 368.7 | | | 100.0 | % | | | | | | | | |
Cost of sales | 118.1 | | | 70.2 | | | 107.7 | | | 75.2 | | | 309.0 | | | 71.7 | | | 276.4 | | | 75.0 | | | | | | | | | |
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Gross profit | 50.1 | | | 29.8 | | | 35.6 | | | 24.8 | | | 121.7 | | | 28.3 | | | 92.3 | | | 25.0 | | | | | | | | | |
Operating expenses | 41.8 | | | 24.9 | | | 39.3 | | | 27.4 | | | 120.7 | | | 28.1 | | | 106.5 | | | 28.8 | | | | | | | | | |
Goodwill impairment charge | — | | | — | | | — | | | — | | | — | | | — | | | 17.6 | | | 4.8 | | | | | | | | | |
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Operating income (loss) | $ | 8.3 | | | 4.9 | % | | $ | (3.7) | | | (2.6) | % | | $ | 1.0 | | | 0.2 | % | | $ | (31.8) | | | (8.6) | % | | | | | | | | |
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Reconciliation of Operating Income (Loss) to Adjusted Operating Income (Loss) — EMEA | Three Months Ended | Nine Months Ended |
November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 |
Operating income (loss) | $ | 8.3 | | | 4.9 | % | | $ | (3.7) | | | (2.6) | % | | $ | 1.0 | | | 0.2 | % | | $ | (31.8) | | | (8.6) | % | |
Add: Goodwill impairment charge | — | | | — | | | — | | | — | | | — | | | — | | | 17.6 | | | 4.8 | | |
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Adjusted operating income (loss) | $ | 8.3 | | | 4.9 | % | | $ | (3.7) | | | (2.6) | % | | $ | 1.0 | | | 0.2 | % | | $ | (14.2) | | | (3.8) | % | |
EMEA operating income improved by $12.0 in Q3 2022 compared to the prior year. The increase was driven by higher revenue, lower cost of sales as a percentage of revenue and lower operating expenses as a percentage of revenue. Operating income in EMEA in year-to-date 2022 improved by $32.8 compared to year-to-date 2021, which included a $17.6 goodwill impairment charge related to our Orangebox U.K. reporting unit. Adjusted for the goodwill impairment charge, operating income improved by $15.2, driven by the same factors as the quarter.
EMEA revenue represented 22.8% of consolidated revenue in Q3 2022. Q3 2022 revenue of $168.2 represented an increase of $24.9 or 17% compared to the prior year. Revenue in the prior year was negatively impacted by a delay of approximately $10 of shipments to Q4 2021 as a result of the temporary operations shutdown in Q3 2021. The increase in Q3 2022 was broad-based across most markets, driven by growth in the United Kingdom, including Orangebox, and in Iberia. After adjusting for $0.8 of currency translation effects and a $0.7 impact from an acquisition, the organic revenue growth was $25.0 or 17% compared to the prior year. Year-to-date 2022 revenue increased by $62.0 or 17% compared to year-to-date 2021. The increase was broad-based across most markets, driven by the same factors as the quarter. The increase was also impacted by a delay of approximately $10 of shipments in the prior year to Q4 2021. After adjusting for $15.6 of currency translation effects and a $0.7 impact from an acquisition, the organic revenue growth was $45.7 or 12% compared to the prior year.
Cost of sales as a percentage of revenue decreased by 490 basis points in Q3 2022 compared to the prior year. The improvement was driven by higher revenue, partially offset by approximately $1 of higher inflation costs, net of pricing benefits. Cost of sales as a percentage of revenue decreased by 320 basis points in year-to-date 2022 compared to year-to-date 2021. The improvement was driven by higher revenue and approximately $3 of benefits from shifts in business mix, partially offset by approximately $4 of higher inflation costs, net of pricing benefits.
Operating expenses in Q3 2022 increased by $2.5,2023, but decreased by 260280 basis points as a percentage of revenue, compared to the prior year. The current year which included approximately $2 of lower employee costs as a result of temporary hour and pay reductions. The remaining increase was driven by approximately $1$4.5 of higher discretionary spendingmarketing, product development and $0.7sales expenses, $2.8 from an acquisition and $1.5 of higher variable compensation expense, partially offset by $0.8$8.5 of lower variable compensation expense. Year-to-date 2022 operating expenses increased by $14.2, but decreased by 70 basis points as a percentage of revenue, compared to year-to-date 2021, which included approximately $8 of lower employee costs as a result of temporary hour and pay reductions. The remaining increase was driven by approximately $4 of higher marketing and sales expenses, approximately $3 of higher discretionary spending and $0.7 from an acquisition, partially offset by $1.7 of lower variable compensation expense.favorable currency translation effects.
Other
The Other category includes Asia Pacific and Designtex. Asia Pacific serves customers in Australia, China, India, Japan, Korea and other countries in Southeast Asia primarily under the Steelcase brand with a comprehensive portfolio of furniture architectural and technologyarchitectural products. Designtex primarily sells textiles, wall coverings and surface imaging solutions specified by architects and designers directly to end-use customers through a direct sales force primarily in North America.
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| Three Months Ended | Nine Months Ended | | | | | | | |
Statement of Operations Data — Other | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | | | | | | |
Revenue | $ | 69.7 | | | 100.0 | % | | $ | 57.8 | | | 100.0 | % | | $ | 189.0 | | | 100.0 | % | | $ | 168.9 | | | 100.0 | % | | | | | | | | |
Cost of sales | 46.2 | | | 66.3 | | | 39.2 | | | 67.8 | | | 130.1 | | | 68.8 | | | 112.5 | | | 66.6 | | | | | | | | | |
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Gross profit | 23.5 | | | 33.7 | | | 18.6 | | | 32.2 | | | 58.9 | | | 31.2 | | | 56.4 | | | 33.4 | | | | | | | | | |
Operating expenses | 21.5 | | | 30.8 | | | 20.8 | | | 36.0 | | | 66.4 | | | 35.2 | | | 59.1 | | | 35.0 | | | | | | | | | |
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Operating income (loss) | $ | 2.0 | | | 2.9 | % | | $ | (2.2) | | | (3.8) | % | | $ | (7.5) | | | (4.0) | % | | $ | (2.7) | | | (1.6) | % | | | | | | | | |
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| Three Months Ended | Six Months Ended | | | | | | | |
Statement of Operations Data — Other | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | | | | | | | |
Revenue | $ | 73.9 | | | 100.0 | % | | $ | 62.6 | | | 100.0 | % | | $ | 137.4 | | | 100.0 | % | | $ | 119.3 | | | 100.0 | % | | | | | | | | |
Cost of sales | 51.3 | | | 69.4 | | | 44.0 | | | 70.3 | | | 95.4 | | | 69.4 | | | 83.9 | | | 70.3 | | | | | | | | | |
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Gross profit | 22.6 | | | 30.6 | | | 18.6 | | | 29.7 | | | 42.0 | | | 30.6 | | | 35.4 | | | 29.7 | | | | | | | | | |
Operating expenses | 23.9 | | | 32.4 | | | 22.8 | | | 36.4 | | | 46.2 | | | 33.7 | | | 44.9 | | | 37.7 | | | | | | | | | |
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Operating loss | $ | (1.3) | | | (1.8) | % | | $ | (4.2) | | | (6.7) | % | | $ | (4.2) | | | (3.1) | % | | $ | (9.5) | | | (8.0) | % | | | | | | | | |
Operating incomeresults in the Other category improved by $4.2$2.9 in Q3 2022Q2 2023 compared to the prior year. The improvement was driven by higher revenue, lower cost of sales as a percentage of revenue and lower operating expenses as a percentage of revenue. Year-to-date 20222023 operating results decreasedimproved by $4.8$5.3 compared to year-to-date 2021,the prior year, driven by higher cost of salesthe same factors as a percentage of revenue, partially offset by higher revenue.the quarter.
Revenue in the Other category represented 9.4%8.5% of consolidated revenue in Q3 2022. Q3 2022Q2 2023. In Q2 2023, revenue increased by $11.3 or 18% compared to the prior year, driven by India, Southeast Asia, Designtex and Japan, partially offset by China and Australia. Approximately $7 of $69.7 represented anthe increase of $11.9was related to higher volume, and approximately $4 was related to higher pricing benefits. Organic revenue growth was $12.8 or 21% compared to the prior year. The increase was primarilyyear, driven by China, Designtex and Japan, partially offset by India, Southeast Asia and Australia. After adjusting for $0.4the same factors as the quarter. Year-to-date 2023 revenue of currency translation effects, the organic revenue growth was $11.5$137.4 represented an increase of $18.1 or 20%15% compared to the prior year. Year-to-date 2022 revenueApproximately $12 of $189.0 represented an increase of $20.1 or 12% compared to year-to-date 2021. Thethe increase was primarily driven by China, Designtex, Japanrelated to higher volume, and Australia, partially offset by India and Southeast Asia. After adjusting for $3.6 of currency translation effects, the organicapproximately $6 was related to higher pricing benefits. Organic revenue growth was $16.5$20.2 or 10%17% compared to the prior year.
Cost of sales as a percentage of revenue decreased by 15090 basis points in Q3 2022Q2 2023 compared to the prior year. The improvement was driven by the benefits of higher revenuevolume and approximately $1$2 of higher pricing benefits, from shifts in business mix,net of inflation, partially offset by $0.7 of higher inflation costs, net of pricing benefits, and $0.5 of higher freight costs and inefficiencies duea $1.7 charge related to supply chain disruptions.aged inventory. Cost of sales as a percentage of revenue increaseddecreased by 22090 basis points in year-to-date 20222023 compared to the prior year. The increase wasyear, driven by approximately $2 of higher inflation costs, net of pricing benefits, and $1.5 of higher freight costs and inefficiencies due to supply chain disruptions, partially offset by approximately $1 of benefits from shifts in business mix.the same factors as the quarter.
Operating expenses in Q3 2022 increased by $0.7,$1.1 in Q2 2023, but decreased by 520400 basis points as a percentage of revenue, compared to the prior year,year. The increase was driven by $1.0 of higher discretionary spending.marketing, product development and sales expenses. Operating expenses increased by $1.3 in year-to-date 2022 increased2023, but decreased by $7.3, or 20400 basis points as a percentage of revenue, compared to year-to-date 2021, which included approximately $6 of lower employee costs as a result of temporary pay reductions.the prior year. The remaining increase was driven by the same factorfactors as the quarter.
Corporate
Corporate expenses include unallocated portions of shared service functions such as information technology, corporate facilities, finance, human resources, research, legal and customer aviation, plus deferred compensation expense and income or losses associated with COLI.
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| Three Months Ended | Six Months Ended | |
Statement of Operations Data — Corporate | November 26, 2021 | November 27, 2020 | November 26, 2021 | November 27, 2020 | | |
Operating expenses | $ | 5.5 | | | $ | 7.9 | | | $ | 16.3 | | | $ | 14.1 | | | | | | |
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| Three Months Ended | Six Months Ended | |
Statement of Operations Data — Corporate | August 26, 2022 | August 27, 2021 | August 26, 2022 | August 27, 2021 | | |
Operating expenses | $ | 6.5 | | | $ | 5.0 | | | $ | 16.3 | | | $ | 10.8 | | | | | | |
Operating expenses increased by $1.5 in Q2 2023 compared to the prior year. The decreaseincrease was driven by $3.0 of lower COLI income, partially offset by $1.9 of lower deferred compensation expense. Operating expenses increased by $5.5 in operating expenses in Q3 2022year-to-date 2023 compared to the prior year, was driven by $3.5 of lower deferred compensation expense, partially offset by $1.2 of lower COLI income. The increase in operating expenses in year-to-date 2022 was primarily driven by $3.5$7.8 of lower COLI income and $3.4 of higher employee costs as a result of temporary hour and pay reductions in the prior year,spending, partially offset by $2.3$5.9 of lower deferred compensation expense.
Non-GAAP Financial Measures
The non-GAAP financial measures used in this MD&A are: (1) organic revenue growth, (2) adjusted operating income (loss) and (3) adjusted earnings per share.
Organic Revenue Growth
We define organic revenue growth as revenue growth excluding the impact of acquisitions and divestitures and foreign currency translation effects.Organic revenue growth is calculated by adjusting prior year revenue to include revenues of acquired companies prior to the date of the company's acquisition, to exclude revenues of divested companies and to use current year average exchange rates in the calculation of foreign-denominated revenue. We believe organic revenue growth is a meaningful metric to investors as it provides a more consistent comparison of our revenue to prior periods as well as to industry peers.
Adjusted Operating Income (Loss) and Adjusted Earnings Per Share
We define adjusted operating income (loss) as operating income (loss) excluding amortization of purchased intangible assets and restructuring costs. We define adjusted earnings per share as earnings (loss) per share excluding amortization of purchased intangible assets and restructuring costs, net of related income tax effects.
•Amortization of purchased intangible assets: We may record intangible assets (such as backlog, dealer relationships, trademarks, know-how and designs and proprietary technology) when we acquire companies. We allocate the fair value of purchase consideration to net tangible and intangible assets acquired based on their estimated fair values. The fair value estimates for these intangible assets require management to make significant estimates and assumptions, which include the useful lives of intangible assets. We believe that adjusting for amortization of purchased intangible assets provides a more consistent comparison of our operating performance to prior periods as well as to industry peers. As our business strategy in recent years has included an increased number of acquisitions, intangible asset amortization has become more significant.
•Restructuring costs: Restructuring costs may be recorded as our business strategies change or in response to changing market trends and economic conditions. We believe that adjusting for restructuring costs, which are primarily associated with business exit and workforce reduction costs, provides a more consistent comparison of our operating performance to prior periods as well as to industry peers.
Liquidity and Capital Resources
Cash and cash equivalents are used to fund day-to-day operations, including seasonal disbursements, particularly the annual payment of accrued variable compensation and retirement plan contributions in Q1 of each fiscal year. During normal business conditions, we target a range of $75 to $175 in cash and cash equivalents to fund operating requirements. In addition, we may carry additional liquidity for potential investments in strategic initiatives and as a cushion against economic volatility, and from time to time, we may allow our cash and cash equivalents to temporarily fall below our targeted range to fund acquisitions and other growth initiatives.
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Liquidity Sources | November 26, 2021 | February 26, 2021 |
Cash and cash equivalents | $ | 275.2 | | | $ | 489.8 | | |
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Company-owned life insurance | 170.0 | | | 169.5 | | |
Availability under credit facilities | 270.6 | | | 265.9 | | |
Total liquidity sources available | $ | 715.8 | | | $ | 925.2 | | |
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Liquidity Sources | August 26, 2022 | February 25, 2022 |
Cash and cash equivalents | $ | 52.2 | | | $ | 200.9 | | |
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Company-owned life insurance | 161.7 | | | 168.0 | | |
Availability under credit facilities | 136.4 | | | 262.0 | | |
Total liquidity sources available | $ | 350.3 | | | $ | 630.9 | | |
As of NovemberAugust 26, 2021,2022, we held a total of $275.2$52.2 in cash and cash equivalents. Of that total, 79%32% was located in the U.S., and the remaining 21%68% was located outside of the U.S., primarily in China (including Hong Kong), Mexico, Singapore, Malaysia, IndiaCanada and Spain.the United Kingdom.
COLI investments are recorded at their net cash surrender value. Our investments in COLI policies are intended to be utilized as a long-term funding source for long-term benefit obligations. However, COLI can also be used as a source of liquidity. We believe the financial strength of the issuing insurance companies associated with our COLI policies is sufficient to meet their obligations.
Availability under credit facilities may be reduced related to compliance with applicable covenants. See Liquidity Facilities for more information.
The following table summarizes our Condensed Consolidated Statements of Cash Flows for the ninesix months ended NovemberAugust 26, 20212022 and NovemberAugust 27, 2020:2021:
| | | Nine Months Ended | | Six Months Ended |
Cash Flow Data | Cash Flow Data | November 26, 2021 | November 27, 2020 | Cash Flow Data | August 26, 2022 | August 27, 2021 |
Net cash provided by (used in): | Net cash provided by (used in): | | | | | Net cash provided by (used in): | | | | |
Operating activities | Operating activities | $ | (59.1) | | | $ | 37.2 | | | Operating activities | $ | (74.4) | | | $ | (61.6) | | |
Investing activities | Investing activities | (51.3) | | | (17.8) | | | Investing activities | (115.3) | | | (6.5) | | |
Financing activities | Financing activities | (101.5) | | | (76.6) | | | Financing activities | 43.3 | | | (59.9) | | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (1.6) | | | 1.8 | | | Effect of exchange rate changes on cash and cash equivalents | (2.0) | | | (0.6) | | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | (213.5) | | | (55.4) | | | Net decrease in cash, cash equivalents and restricted cash | (148.4) | | | (128.6) | | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 495.6 | | | 547.1 | | | Cash, cash equivalents and restricted cash, beginning of period | 207.0 | | | 495.6 | | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 282.1 | | | $ | 491.7 | | | Cash, cash equivalents and restricted cash, end of period | $ | 58.6 | | | $ | 367.0 | | |
Cash provided by (used in)used in operating activities
| | | Nine Months Ended | | Six Months Ended |
Cash Flow Data — Operating Activities | Cash Flow Data — Operating Activities | November 26, 2021 | November 27, 2020 | Cash Flow Data — Operating Activities | August 26, 2022 | August 27, 2021 |
Net income | $ | 6.2 | | | $ | 19.5 | | | |
Net income (loss) | | Net income (loss) | $ | 8.2 | | | $ | (3.4) | | |
Depreciation and amortization | Depreciation and amortization | 62.2 | | | 64.1 | | | Depreciation and amortization | 43.7 | | | 41.2 | | |
Goodwill impairment charge | — | | | 17.6 | | | |
Share-based compensation | | Share-based compensation | 15.6 | | | 15.2 | | |
Restructuring costs | Restructuring costs | — | | | 27.0 | | | Restructuring costs | 4.7 | | | — | | |
Changes in accounts receivable, inventories and accounts payable | Changes in accounts receivable, inventories and accounts payable | (84.5) | | | 41.8 | | | Changes in accounts receivable, inventories and accounts payable | (117.5) | | | (45.3) | | |
Income taxes receivable | | Income taxes receivable | 22.2 | | | (2.2) | | |
Employee compensation liabilities | Employee compensation liabilities | (15.3) | | | (130.5) | | | Employee compensation liabilities | 1.3 | | | (30.7) | | |
Employee benefit obligations | Employee benefit obligations | (13.5) | | | (25.2) | | | Employee benefit obligations | (18.6) | | | (14.9) | | |
Changes in other operating assets and liabilities | Changes in other operating assets and liabilities | (14.2) | | | 22.9 | | | Changes in other operating assets and liabilities | (34.0) | | | (21.5) | | |
Net cash provided by (used in) operating activities | $ | (59.1) | | | $ | 37.2 | | | |
Net cash used in operating activities | | Net cash used in operating activities | $ | (74.4) | | | $ | (61.6) | | |
Annual payments related to accrued variable compensation and retirement plan contributions totaled $32.4 in year-to-date 2023 compared to $50.4 in the prior year. The remaining change in employee compensation liabilities was driven by higher variable compensation expense in year-to-date 20222023 compared to $148.0 in year-to-date 2021.the prior year. In year-to-date 2022,2023, we used cash in working capital, primarily driven by increased inventory levels in connection withto mitigate the impact of supply chain disruptions and increased accounts receivable due to revenue growth. In year-to-date 2023, we received $29.7 related to the carryback of our fiscal year 2021 tax loss in the U.S.
Cash used in investing activities
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| Nine Months Ended |
Cash Flow Data — Investing Activities | November 26, 2021 | November 27, 2020 |
Capital expenditures | $ | (45.3) | | | $ | (32.1) | | |
Proceeds from disposal of fixed assets | 17.4 | | | 7.3 | | |
Acquisition, net of cash acquired | (32.6) | | | — | | |
Other | 9.2 | | | 7.0 | | |
Net cash used in investing activities | $ | (51.3) | | | $ | (17.8) | | |
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| Six Months Ended |
Cash Flow Data — Investing Activities | August 26, 2022 | August 27, 2021 |
Capital expenditures | $ | (28.9) | | | $ | (31.8) | | |
Proceeds from disposal of fixed assets | 5.6 | | | 16.8 | | |
Acquisitions, net of cash acquired | (105.4) | | | — | | |
Other | 13.4 | | | 8.5 | | |
Net cash used in investing activities | $ | (115.3) | | | $ | (6.5) | | |
Capital expenditures in year-to-date 20222023 were primarily related to investments in manufacturing operations, information technology, product development, customer-facing facilities and customer-facing facilities. Capital expenditures were higher compared toinformation technology. In year-to-date 2021 due to reduced spending in the prior year as a result of the COVID-19 pandemic. We sold land for proceeds of $17.2 in2023 and year-to-date 2022, proceeds from the disposal of fixed assets included $5.6 and $7.1 in year-to-date 2021.$16.6, respectively, related to the sale of land. Other investing activities in year-to-date 20222023 included $7.0$7.5 of proceeds from the sale of an investment in an unconsolidated affiliate and $5.1 of proceeds from COLI policy maturities. Other investing activities in year-to-date 2021the prior year included $3.3$6.4 of additional proceeds from the partial sale of an investment in an unconsolidated affiliate in 2018.COLI policy maturities.
Cash used inprovided by (used in) financing activities
| | | Nine Months Ended | | Six Months Ended |
Cash Flow Data — Financing Activities | Cash Flow Data — Financing Activities | November 26, 2021 | November 27, 2020 | Cash Flow Data — Financing Activities | August 26, 2022 | August 27, 2021 |
Dividends paid | Dividends paid | $ | (45.9) | | | $ | (31.8) | | | Dividends paid | $ | (34.0) | | | $ | (29.2) | | |
Common stock repurchases | Common stock repurchases | (54.0) | | | (42.7) | | | Common stock repurchases | (3.4) | | | (30.9) | | |
Borrowings on lines of credit | — | | | 250.0 | | | |
Repayments on lines of credit | — | | | (250.0) | | | |
Borrowings on global committed bank facility | | Borrowings on global committed bank facility | 266.8 | | | — | | |
Repayments on global committed bank facility | | Repayments on global committed bank facility | (187.0) | | | — | | |
Other | Other | (1.6) | | | (2.1) | | | Other | 0.9 | | | 0.2 | | |
Net cash used in financing activities | $ | (101.5) | | | $ | (76.6) | | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | $ | 43.3 | | | $ | (59.9) | | |
We paid dividends of $0.145 per common share in Q1 2023 and Q2 2023, and $0.10 $0.145 and $0.145 per common share in Q1 2022 and Q2 2022, and Q3 2022, respectively, and $0.07, $0.10 and $0.10 per common share in respectively.
In year-to-date 2022,2023, we repurchased 3,991,083279,301 shares of Class A common stock, 392,812all of which were maderepurchased to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan. In year-to-date 2021,2022, we repurchased 3,288,7952,227,000 shares of Class A common stock, 288,795359,527 of which were maderepurchased to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan.
As of NovemberAugust 26, 2021,2022, we had $7.6$6.4 of remaining availability under the $150 share repurchase program approved by our Board of Directors in 2016.
Off-Balance Sheet Arrangements
During Q3 2022, no material change in our off-balance sheet arrangements occurred.
Contractual Obligations
During Q3 2022, no material change in our contractual obligations occurred.
Liquidity Facilities
OurThe following table summarizes available capacity under our total liquidity facilities as of NovemberAugust 26, 2021 were:2022:
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Liquidity Facilities | NovemberAugust 26,
20212022 |
Global committed bank facility | $ | 250.0203.2 | | |
Other committed bank facility | 4.75.9 | | |
Various uncommitted linesfacilities | 19.211.0 | | |
Total credit lines available | 273.9220.1 | | |
Less: Borrowings outstanding | (1.7)(83.7) | | |
Less: Other guarantees | (1.6) | | |
Available capacity | $ | 270.6136.4 | | |
We have a $250.0 global committed bank facility in effect through 2025. As of NovemberAugust 26, 2021,2022, total availability under the facility was limited to $203.2 as a result of covenant constraints, there were no$79.8 borrowings outstanding under the facility, and we were in compliance with all covenants under the facility.
We have a $12.5an $8.0 committed bank facility related to a subsidiary, which has currentsubsidiary. As of August 26, 2022, total availability of $4.7under the facility was limited to $5.9 based on eligible accounts receivable of the subsidiary. As of November 26, 2021, $1.7subsidiary, and $3.3 was outstanding under the facility.
The various uncommitted linesup to $3.7 and a total foreign currency borrowing capacity of up to $7.3 as of August 26, 2022. These credit facilities have no stated expiration date but may be changed or canceled by the applicable lendersbanks at any time. There were no borrowings outstanding, and there were $1.6 of guarantees which reduced our availability, under the various uncommitted lines as of November 26, 2021.
In addition to the available capacity reflected in the table above, we have credit agreements totaling $33.9 which can be utilized to support bank guarantees, letters of credit or foreign exchange contracts. As of NovemberAugust 26, 2021, we had $12.7 in2022, $0.6 was outstanding letters of credit and bank guarantees againstunder these agreements. There were no draws against our letters of credit during year-to-date 2022 or year-to-date 2021.facilities.
Total consolidated debt as of NovemberAugust 26, 20212022 was $482.9. Our debt primarily consists of $444.6$563.5. In addition to borrowings under our credit facilities, we have $445.1 in term notes due in 2029 with an effective interest rate of 5.6%. In addition, we have, and a term loan with a balance of $35.5$33.5 as of NovemberAugust 26, 2021. The term loan2022, which has a floating interest rate based on 30-day LIBOR plus 1.20% and is due in Q1 2024. The term notes are unsecured, and the term loan is secured by our two corporate aircraft. The term notes and the term loan do not contain no financial covenants and are not cross-defaulted to our other debt facilities.
Liquidity Outlook
As of NovemberAugust 26, 2021,2022, our total liquidity, which is comprised of cash and cash equivalents and the cash surrender value of COLI, aggregated to $445.2.$213.9. Our liquidity position, funds available under our credit facilities and cash generated from future operations are expected to be sufficient to finance our known or foreseeable liquidity needs.needs, including our material cash requirements.
OurDuring Q2 2023, there have been no significant fundingchanges in the items that we have identified as our material committed cash requirements include operating expenses, non-cancelable operating lease obligations,in our Annual Report on Form 10-K for the fiscal year ended February 25, 2022.
We also have other planned material usages of cash which we consider discretionary. This includes plans for capital expenditures variable compensation and retirement plan contributions, dividend payments and debt service obligations. We have flexibility over some of these uses of cash, including capital expenditures and discretionary operating expenses, to preserve our liquidity position. We expect capital expenditureswhich are expected to total approximately $50 to $60 to $70 in 20222023 compared to $41.3$60.5 in 2021.
2022. In addition, we fund dividend payments declared by our Board of Directors. On December 16, 2021,September 21, 2022, we announced a quarterly dividend on our common stock of $0.145$0.10 per share, or approximately $16,$11, to be paid in Q4 2022. Future dividendsQ3 2023.
On September 21, 2022, we announced plans to eliminate up to 180 salaried positions in the Americas segment and Corporate functions, which we estimate will result in approximately $8 of cash severance and other separation-related benefit payments in Q3 2023.
Our material cash requirements are subject to fluctuation based on business requirements, economic volatility or investments in strategic initiatives. We anticipate the cash expected to be generated from future operations and current cash and cash equivalents, funds available under our credit facilities and funds available from COLI will be subjectsufficient to approval byfulfill our Board existing material cash requirements.
Critical Accounting Estimates
During Q3 2022,Q2 2023, there have been no changes in the items that we have identified as critical accounting estimates.estimates in our Annual Report on Form 10-K for the fiscal year ended February 25, 2022.
Recently Issued Accounting Standards
See Note 2 to the condensed consolidated financial statements.
Forward-looking Statements
From time to time, in written and oral statements, we discuss our expectations regarding future events and our plans and objectives for future operations. These forward-looking statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, us. Forward-looking statements generally are accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project," "target” or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements and vary from our expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters, pandemics and other Force Majeure events; cyberattacks; the COVID-19 pandemic and the actions taken by various governments and third parties to combat the pandemic; changes in the legal and regulatory environment; changes in raw material, commodity and other input costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in this Report, our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Item 3.Quantitative and Qualitative Disclosures About Market Risk:
The nature of market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) faced by us as of NovemberAugust 26, 20212022 is the same as disclosed in our Annual Report on Form 10-K for the fiscal
year ended February 26, 2021.25, 2022. We are exposed to market risks from foreign currency exchange, interest rates, commodity prices and fixed income and equity prices, which could affect our operating results, financial position and cash flows.
Foreign Exchange Risk
During Q3 2022,Q2 2023, no material change in foreign exchange risk occurred.
Interest Rate Risk
During Q3 2022,Q2 2023, no material change in interest rate risk occurred.
Commodity Price Risk
During Q3 2022,Q2 2023, no material change in commodity price risk occurred.
Fixed Income and Equity Price Risk
During Q3 2022,Q2 2023, no material change in fixed income and equity price risk occurred.
Item 4.Controls and Procedures:
(a) Disclosure Controls and Procedures. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of NovemberAugust 26, 2021.2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of NovemberAugust 26, 2021,2022, our disclosure controls and procedures were effective in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and (2) ensuring that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our thirdsecond fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors:
For a more detailed explanation of the risks affecting our business, please refer to the Risk Factors section in our Annual Report on Form 10-K for the fiscal year ended February 26, 2021.25, 2022. There have not been any material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended February 26, 2021.
25, 2022.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds:
Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during Q3 2022:Q2 2023:
| | | | | | | | | | | | | | |
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) (in millions) |
8/28/2021 - 10/1/2021 | 1,193,884 | | $ | 13.13 | | 1,193,884 | | $ | 14.2 | |
10/2/2021 - 10/29/2021 | 511,769 | | $ | 12.41 | | 478,484 | | $ | 8.3 | |
10/30/201 - 11/26/2021 | 58,430 | | $ | 11.93 | | 58,430 | | $ | 7.6 | |
Total | 1,764,083 | | (2) | 1,730,798 | | |
| | | | | | | | | | | | | | |
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | (d) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) (in millions) |
5/28/2022 - 7/1/2022 | 198 | | $ | 11.92 | | — | | $ | 6.4 | |
7/2/2022 - 7/29/2022 | — | | $ | — | | — | | $ | 6.4 | |
7/30/22 - 8/26/2022 | — | | $ | — | | — | | $ | 6.4 | |
Total | 198 | | (2) | — | | |
(1)In January 2016, the Board of Directors approved a share repurchase program, announced on January 19, 2016, permitting the repurchase of up to $150 of shares of our common stock. On June 28, 2021, we entered into a stock repurchase agreement with an independent third party broker under which the broker is authorized to repurchase up to $50 of shares of our common stock on our behalf during the period June 28, 2021 through December 20, 2021, subject to certain price, market and volume constraints specified in the agreement. The agreement was established in accordance with Rule 10b5-1 under the Exchange Act. Shares purchased under the agreement are part of our share repurchase program approved in January 2016.
(2)33,285All shares were repurchased to satisfy participants’ tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan.
Item 6.Exhibits:
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Exhibit No. | Description | |
| | |
10.1* | | |
10.2* | | |
31.1 | | |
31.2 | | |
32.1 | | |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.document | |
101.SCH | Inline XBRL Schema Document | |
101.CAL | Inline XBRL Calculation Linkbase Document | |
101.LAB | Inline XBRL Labels Linkbase Document | |
101.PRE | Inline XBRL Presentation Linkbase Document | |
101.DEF | Inline XBRL Definition Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
________________
* Management contract or compensatory plan or arrangement.
(1) Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on September 24, 2021 (commission file number 001-13873), and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
By: | /s/ Robin L. ZondervanDavid C. Sylvester |
| Robin L. ZondervanDavid C. Sylvester Senior Vice President, Corporate Controller &
Chief AccountingFinancial Officer (Duly Authorized Officer, Principal Financial Officer and
Principal Accounting Officer) |
Date: December 20, 2021September 23, 2022