Steelcase(SCS) - 2022 Q4 - Annual Report

PART I Item 1. Business Steelcase Inc. is a global leader in workplace furniture and architectural products, focusing on hybrid work solutions, market expansion, and profitability through innovation and sustainable practices - Steelcase Inc. is a globally integrated enterprise, headquartered in Grand Rapids, Michigan, U.S.A., with approximately 11,800 employees, founded in 1912 and publicly traded since 1998 (NYSE: SCS)[13] - Strategic priorities include leading the transformation toward hybrid work, deepening presence in key adjacent growth opportunities (geographic and vertical markets), enhancing capabilities for smaller/mid-sized customers, creating value through market-leading performance in people, products, and planet, and driving profitability initiatives[16] - The company offers a comprehensive portfolio of furniture (systems, seating, storage, desks, tables, accessories) and architectural products (full/partial height walls, free-standing pods), along with services like workplace strategy consulting and asset management[17][18] - Steelcase operates globally within its Americas and EMEA reportable segments, plus an Other category (Asia Pacific and Designtex)[27] - Research, design, and development expenses were $45.4 million in 2022, $48.1 million in 2021, and $50.6 million in 2020, reflecting ongoing investment in innovation[53] - As of February 25, 2022, Steelcase had approximately 11,800 employees, with 6,900 in manufacturing and distribution, and an additional 1,100 temporary workers[62] Overview Strategic Priorities Our Offerings Brands Marketing Partnerships Reportable Segments Joint Ventures and Other Equity Investments Customer and Dealer Concentrations Manufacturing and Logistics Materials Research, Design and Development Intellectual Property Human Capital Resources Environmental Matters Available Information Item 1A. Risk Factors The company faces diverse risks from macroeconomic shifts, supply chain disruptions, global operations, financial factors, and operational vulnerabilities - The COVID-19 pandemic significantly impacted global demand for office furniture, leading to increased raw material, transportation, and labor costs, and supply chain disruptions[68][69] - The company's industry is cyclical, influenced by macroeconomic factors like corporate profits and employment, making it vulnerable to downturns[69] - Failure to adapt to evolving workplace trends (e.g., hybrid work, demand for residential-style office products) and increased competition from new market entrants could adversely affect revenue and profits[70][71][72] - Reliance on a global network of suppliers exposes the company to risks from raw material availability, labor shortages, shipping delays, and geopolitical events, which significantly increased costs in 2022[78] - Goodwill of $242.8 million as of February 25, 2022, is subject to annual impairment testing, with poor performance or market value declines potentially leading to impairment charges[89] - The company relies on the integrity and security of its IT systems, making it vulnerable to cyberattacks, security breaches, and system disruptions that could impact operations, revenue, and reputation[94] Item 1B. Unresolved Staff Comments No unresolved staff comments from the SEC were reported - No unresolved staff comments were reported[98] Item 2. Properties Steelcase operates 21 global manufacturing and distribution centers, 9 owned and 12 leased, with headquarters in Grand Rapids, Michigan - Steelcase operates 21 principal manufacturing and distribution center locations globally[99] Principal Manufacturing and Distribution Center Locations (Greater than 100,000 sq ft) | Segment/Category Primarily Supported | Number of Principal Locations | Owned | Leased | | :----------------------------------- | :---------------------------- | :---- | :----- | | Americas | 14 | 5 | 9 | | EMEA | 5 | 4 | 1 | | Other category | 2 | — | 2 | | Total | 21 | 9 | 12 | Item 3. Legal Proceedings The company is involved in routine litigation, but no material adverse effects are anticipated from current lawsuits or proceedings - The company is involved in litigation in the ordinary course of business but does not believe any lawsuit or proceeding is likely to have a material adverse effect[100] Item 4. Mine Safety Disclosures This disclosure item is not applicable to Steelcase Inc - Mine Safety Disclosures are not applicable[101] Supplementary Item. Information About Our Executive Officers This section provides a list of Steelcase Inc.'s executive officers, detailing their age, current positions, and tenure Executive Officers of Steelcase Inc. | Name | Age | Position | | :------------------ | :-- | :-------------------------------------------------------------------- | | Sara E. Armbruster | 51 | President and Chief Executive Officer, Director | | Donna K. Flynn | 54 | Vice President, Global Talent Management | | Robert G. Krestakos | 60 | Vice President, Global Operations | | Steven D. Miller | 47 | Vice President, Chief Technology Officer | | Lizbeth S. O'Shaughnessy | 60 | Senior Vice President, Chief Administrative Officer, General Counsel and Secretary | | Allan W. Smith, Jr. | 54 | Senior Vice President, Chief Revenue Officer | | David C. Sylvester | 57 | Senior Vice President, Chief Financial Officer | PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Steelcase Inc.'s Class A Common Stock trades on NYSE, with 112.7 million shares outstanding as of April 2022, and recent share repurchases - Class A Common Stock is listed on the New York Stock Exchange (NYSE) under the symbol 'SCS'. Class B Common Stock is not publicly traded[109] - As of April 12, 2022, there were 88,075,177 shares of Class A Common Stock and 24,658,382 shares of Class B Common Stock outstanding[5][109] Q4 2022 Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) (in millions) | | :----------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------------- | | 11/27/2021 - 12/31/2021 | 102,391 | $11.77 | 99,938 | $6.4 | | 01/01/2022 - 01/28/2022 | — | — | — | $6.4 | | 01/29/2022 - 02/25/2022 | 3,328 | $12.67 | — | $6.4 | | Total | 105,719 (2) | | 99,938 | | Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Steelcase's 2022 financial performance showed revenue growth and strong orders, but net income declined due to inflation and supply chain costs, while liquidity remained robust - Orders grew 25% in 2022 compared to the prior year, reflecting broad recovery and growth across most geographies, leading to a 77% higher backlog of approximately $787 million[118] - Significant inflation in raw materials (steel, other commodities) and higher freight and labor costs decreased gross profit by approximately $106 million in 2022. Three list price increases were announced to offset these impacts[119] Consolidated Statement of Operations Data (in millions, except per share data) | Statement of Operations Data—Consolidated | February 25, 2022 | February 26, 2021 | February 28, 2020 | | :---------------------------------------- | :---------------- | :---------------- | :---------------- | | Revenue | $2,772.7 | $2,596.2 | $3,723.7 | | Cost of sales | 2,011.2 | 1,822.8 | 2,508.5 | | Gross profit | 761.5 | 762.8 | 1,215.2 | | Operating expenses | 741.4 | 684.2 | 958.2 | | Operating income | 20.1 | 43.0 | 257.0 | | Net income (loss) | $4.0 | $26.1 | $199.7 | | Earnings per share: Basic | $0.03 | $0.22 | $1.67 | | Earnings per share: Diluted | $0.03 | $0.22 | $1.66 | Organic Revenue Growth (Decline) — Consolidated | Metric | Year Ended February 25, 2022 | Year Ended February 26, 2021 | | :-------------------------- | :--------------------------- | :--------------------------- | | Prior year revenue | $2,596.2 | $3,723.7 | | Acquisitions | 44.8 | 2.2 | | Divestitures | — | (61.5) | | Impact of additional week** | — | (48.4) | | Currency translation effects* | 16.0 | 23.0 | | Prior year revenue, adjusted | 2,657.0 | 3,639.0 | | Current year revenue | 2,772.7 | 2,596.2 | | Organic growth (decline) | $115.7 | $(1,042.8) | | Organic growth (decline) % | 4% | (29)% | - Net income decreased from $26.1 million in 2021 to $4.0 million in 2022, and diluted EPS decreased from $0.22 to $0.03. The 2021 results included a $17.6 million goodwill impairment charge and $17.4 million in restructuring costs[120] Liquidity Sources (in millions) | Liquidity Sources | February 25, 2022 | February 26, 2021 | | :------------------------ | :---------------- | :---------------- | | Cash and cash equivalents | $200.9 | $489.8 | | Company-owned life insurance | 168.0 | 169.5 | | Availability under credit facilities | 262.0 | 265.9 | | Total liquidity sources available | $630.9 | $925.2 | Non-GAAP Financial Measures Financial Summary Overview Interest Expense, Investment Income and Other Income, Net Business Segment Disclosure Liquidity and Capital Resources Critical Accounting Estimates Forward-Looking Statements Recently Issued Accounting Standards Item 7A. Quantitative and Qualitative Disclosures About Market Risk Steelcase manages market risks including foreign currency, interest rates, and commodity prices, which significantly impacted 2022 costs - Foreign currency exchange risk is managed through operational matching of revenue and costs, and derivative instruments. Foreign revenue accounted for approximately 33% of consolidated revenue in both 2022 and 2021[194] - A 10% strengthening of the U.S. dollar against local currencies would have increased operating income by approximately $8 million in 2022 and $10 million in 2021[195] - Commodity price risk, particularly for steel and petroleum-based products, significantly increased cost of sales by approximately $127 million in 2022. A 1% increase in commodity prices could decrease operating income by about $13 million[201][202] - Interest rate risk primarily stems from a $34.9 million floating-rate term loan (LIBOR + 1.20%). A 1% interest rate increase would have increased net income by less than $1 million in 2022[199][200] Item 8. Financial Statements and Supplementary Data This section provides Steelcase Inc.'s audited consolidated financial statements, including income, balance sheets, cash flows, and auditor reports, with detailed accounting notes - Management assessed the effectiveness of internal control over financial reporting as effective as of February 25, 2022, based on the COSO framework[210] - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting and on the consolidated financial statements for the year ended February 25, 2022[215][216][224][225] - Goodwill for the AMQ Reporting Unit was identified as a critical audit matter due to significant management judgments in estimating fair value, requiring extensive auditor effort and specialist involvement[229][230] MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Internal Control) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Financial Statements) CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3. NEW ACCOUNTING STANDARDS 4. REVENUE 5. EARNINGS PER SHARE 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 7. FAIR VALUE 8. INVENTORIES 9. PROPERTY, PLANT AND EQUIPMENT 10. COMPANY-OWNED LIFE INSURANCE 11. GOODWILL AND OTHER INTANGIBLE ASSETS 12. INVESTMENTS IN UNCONSOLIDATED AFFILIATES 13. SHORT-TERM BORROWINGS AND LONG-TERM DEBT 14. EMPLOYEE BENEFIT PLAN OBLIGATIONS 15. CAPITAL STRUCTURE 16. INCOME TAXES 17. SHARE-BASED COMPENSATION 18. LEASES 19. ACQUISITIONS 20. DIVESTITURE 21. REPORTABLE SEGMENTS 22. RESTRUCTURING ACTIVITIES 23. UNAUDITED QUARTERLY RESULTS Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - No changes in or disagreements with accountants on accounting and financial disclosure were reported[493] Item 9A. Controls and Procedures Management and auditors confirmed effective disclosure controls and internal control over financial reporting as of February 25, 2022 - Management, under the supervision of the CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective as of February 25, 2022[494] - Deloitte & Touche LLP attested to the effectiveness of the company's internal control over financial reporting[495] - There were no changes in internal control over financial reporting during the fourth fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[495] Item 9B. Other Information No other information is reported in this item - No other information was reported[496] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection This disclosure item is not applicable to Steelcase Inc - Disclosure regarding foreign jurisdictions that prevent inspection is not applicable[497] PART III Item 10. Directors, Executive Officers and Corporate Governance Executive officer information is in Part I, with other director and corporate governance details incorporated from the 2022 Proxy Statement - Information on executive officers is provided in a supplementary item at the end of Part I[500] - Other information on directors and corporate governance will be incorporated by reference from the 2022 Proxy Statement[500] Item 11. Executive Compensation Executive compensation details will be incorporated by reference from the 2022 Proxy Statement - Information on executive compensation will be contained in the 2022 Proxy Statement and incorporated by reference[501] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized under equity compensation plans as of February 25, 2022, with further ownership details from the 2022 Proxy Statement Securities Authorized for Issuance Under Equity Compensation Plans (as of February 25, 2022) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :---------------------------------------------- | :------------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 4,651,271 | n/a | 5,484,088 | | Equity compensation plans not approved by security holders | — | n/a | — | | Total | 4,651,271 | n/a | 5,484,088 | - All equity awards were granted under the company's Incentive Compensation Plan[504] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence will be incorporated by reference from the 2022 Proxy Statement - Information on certain relationships and related transactions, and director independence will be contained in the 2022 Proxy Statement and incorporated by reference[505] Item 14. Principal Accounting Fees and Services Principal accounting fees and services information will be incorporated by reference from the 2022 Proxy Statement - Information on principal accounting fees and services will be contained in the 2022 Proxy Statement and incorporated by reference[506] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and an index of exhibits, including corporate documents and certifications - The report includes consolidated financial statements (Income, Comprehensive Income, Balance Sheets, Changes in Shareholders' Equity, Cash Flows) and accompanying notes[508] - Schedule II—Valuation and Qualifying Accounts is also filed as part of this report[508] - An extensive index of exhibits, including corporate governance documents, credit agreements, compensation plans, and certifications, is provided[509][510][511] Item 16. Form 10-K Summary No Form 10-K Summary is provided in this report - No Form 10-K Summary is provided[519] SCHEDULE II Schedule II details allowances for accounts receivable losses and deferred income tax assets for fiscal years 2020-2022 Allowance for Losses on Accounts Receivable (in millions) | Allowance for Losses on Accounts Receivable | February 25, 2022 | February 26, 2021 | February 28, 2020 | | :---------------------------------------- | :---------------- | :---------------- | :---------------- | | Balance as of beginning of period | $8.7 | $9.4 | $8.7 | | Additions: Charged to costs and expenses | 2.8 | 6.2 | 7.3 | | Deductions (1) | (3.3) | (7.3) | (5.9) | | Other adjustments (2) | (0.2) | 0.4 | (0.7) | | Balance as of end of period | $8.0 | $8.7 | $9.4 | Valuation Allowance for Deferred Income Tax Assets (in millions) | Valuation Allowance for Deferred Income Tax Assets | February 25, 2022 | February 26, 2021 | February 28, 2020 | | :------------------------------------------------- | :---------------- | :---------------- | :---------------- | | Balance as of beginning of period | $6.6 | $5.7 | $7.8 | | Additions: Charged to costs and expenses | (2.7) | 0.4 | (1.9) | | Deductions and expirations | — | — | — | | Other adjustments (1) | (0.2) | 0.5 | (0.2) | | Balance as of end of period | $3.7 | $6.6 | $5.7 |