Steelcase(SCS) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Steelcase Inc.'s unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, changes in shareholders' equity, cash flows, and detailed notes on accounting policies, revenue, earnings per share, fair value, inventories, share-based compensation, leases, acquisitions, segments, restructuring, and subsequent events Condensed Consolidated Statements of Operations This section provides a comparative overview of the company's unaudited condensed consolidated statements of operations for the three months ended May 27, 2022, and May 28, 2021 Three Months Ended May 27, 2022 vs. May 28, 2021 (in $ million, except per share data): | Metric | May 27, 2022 | May 28, 2021 | Change in $ | Percentage Change | | :-------------------------------- | :----------- | :----------- | :---------- | :---------------- | | Revenue | $740.7 | $556.6 | $184.1 | 33.1% | | Gross Profit | $191.6 | $154.7 | $36.9 | 23.9% | | Operating Loss | $(12.6) | $(31.8) | $19.2 | 60.4% | | Net Loss | $(11.4) | $(28.1) | $16.7 | 59.4% | | Basic Earnings Per Share | $(0.10) | $(0.24) | $0.14 | 58.3% | | Diluted Earnings Per Share | $(0.10) | $(0.24) | $0.14 | 58.3% | | Dividends per Common Share | $0.145 | $0.100 | $0.045 | 45.0% | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the unaudited condensed consolidated statements of comprehensive income (loss) for the three months ended May 27, 2022, and May 28, 2021 Three Months Ended May 27, 2022 vs. May 28, 2021 (in $ million): | Metric | May 27, 2022 | May 28, 2021 | Change in $ | Percentage Change | | :------------------------------------------ | :----------- | :----------- | :---------- | :---------------- | | Net Loss | $(11.4) | $(28.1) | $16.7 | 59.4% | | Foreign Currency Translation Adjustments | $(18.6) | $0.9 | $(19.5) | -2166.7% | | Total Other Comprehensive Income (Loss), Net | $(18.4) | $1.2 | $(19.6) | -1633.3% | | Comprehensive Loss | $(29.8) | $(26.9) | $(2.9) | -10.8% | Condensed Consolidated Balance Sheets This section provides a comparative overview of the company's unaudited condensed consolidated balance sheets as of May 27, 2022, and February 25, 2022 As of May 27, 2022 vs. February 25, 2022 (in $ million): | Metric | May 27, 2022 | February 25, 2022 | Change in $ | Percentage Change | | :-------------------------- | :----------- | :---------------- | :---------- | :---------------- | | Cash and Cash Equivalents | $116.7 | $200.9 | $(84.2) | -41.9% | | Inventories | $372.0 | $326.2 | $45.8 | 14.0% | | Total Current Assets | $917.6 | $959.2 | $(41.6) | -4.3% | | Total Assets | $2,186.8 | $2,261.0 | $(74.2) | -3.3% | | Total Current Liabilities | $587.3 | $567.2 | $20.1 | 3.5% | | Total Liabilities | $1,372.7 | $1,408.8 | $(36.1) | -2.6% | | Total Shareholders' Equity | $814.1 | $852.2 | $(38.1) | -4.5% | Condensed Consolidated Statements of Changes in Shareholders' Equity This section presents the unaudited condensed consolidated statements of changes in shareholders' equity for the three months ended May 27, 2022, and May 28, 2021 Three Months Ended May 27, 2022 vs. May 28, 2021 (in $ million, except share data): | Metric | May 27, 2022 | May 28, 2021 | Change (Shares) | Change in $ | | :------------------------------------------ | :----------- | :----------- | :-------------- | :---------- | | Common Shares Outstanding, End of Period | 112,740,491 | 115,664,399 | (2,923,908) | N/A | | Additional Paid-in Capital, End of Period | $10.3 | $21.3 | N/A | $(11.0) | | Accumulated Other Comprehensive Income (Loss), End of Period | $(69.0) | $(38.8) | N/A | $(30.2) | | Retained Earnings, End of Period | $872.8 | $947.8 | N/A | $(75.0) | | Total Shareholders' Equity | $814.1 | $930.3 | N/A | $(116.2) | Condensed Consolidated Statements of Cash Flows This section provides a comparative overview of the company's unaudited condensed consolidated statements of cash flows for the three months ended May 27, 2022, and May 28, 2021 Three Months Ended May 27, 2022 vs. May 28, 2021 (in $ million): | Cash Flow Activity | May 27, 2022 | May 28, 2021 | Change in $ | Percentage Change | | :------------------------------------------------ | :----------- | :----------- | :---------- | :---------------- | | Net Cash Used in Operating Activities | $(55.1) | $(63.6) | $8.5 | 13.4% | | Net Cash Used in Investing Activities | $(7.3) | $(13.0) | $5.7 | 43.8% | | Net Cash Used in Financing Activities | $(20.7) | $(16.8) | $(3.9) | -23.2% | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(84.4) | $(93.1) | $8.7 | 9.3% | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $122.6 | $402.5 | $(279.9) | -69.5% | Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes supporting the condensed consolidated financial statements 1. Basis of Presentation This section outlines the accounting principles and standards used for preparing the interim financial statements - The condensed consolidated financial statements adhere to Generally Accepted Accounting Principles (GAAP) for interim financial information and Article 10 of Regulation S-X, omitting some disclosures found in complete annual financial statements[26] - Interim results should not be considered indicative of full-year performance[26] 2. New Accounting Standards This section discusses the company's assessment of recently issued accounting standards - The company has evaluated all issued but not yet adopted Accounting Standards Updates (ASUs) and determined that none are expected to materially impact its consolidated financial statements[28] 3. Revenue This section details the disaggregation of revenue by product category and geographic location, along with changes in customer deposits Disaggregated Revenue by Product Category (Three Months Ended May 27, 2022 vs. May 28, 2021, in $ million): | Product Category | May 27, 2022 | May 28, 2021 | Change in $ | Percentage Change | | :-------------------------------- | :----------- | :----------- | :---------- | :---------------- | | Americas | | | | | | Desking, Benching, Systems, and Storage | $260.3 | $185.1 | $75.2 | 40.6% | | Seating | $156.2 | $118.2 | $38.0 | 32.1% | | Other | $104.3 | $73.0 | $31.3 | 42.9% | | EMEA | | | | | | Desking, Benching, Systems, and Storage | $55.7 | $54.8 | $0.9 | 1.6% | | Seating | $53.3 | $33.9 | $19.4 | 57.2% | | Other | $47.4 | $34.9 | $12.5 | 35.8% | | Other | | | | | | Desking, Benching, Systems, and Storage | $11.7 | $10.8 | $0.9 | 8.3% | | Seating | $17.4 | $14.5 | $2.9 | 20.0% | | Other | $34.4 | $31.4 | $3.0 | 9.6% | | Total Revenue | $740.7 | $556.6 | $184.1 | 33.1% | Reportable Geographic Revenue (Three Months Ended May 27, 2022 vs. May 28, 2021, in $ million): | Geographic Location | May 27, 2022 | May 28, 2021 | Change in $ | Percentage Change | | :------------------ | :----------- | :----------- | :---------- | :---------------- | | United States | $501.8 | $359.3 | $142.5 | 39.7% | | Foreign Locations | $238.9 | $197.3 | $41.6 | 21.1% | | Total Revenue | $740.7 | $556.6 | $184.1 | 33.1% | Changes in Customer Deposits (Three Months Ended May 27, 2022, in $ million): | Item | Amount | | :------------------------------------------ | :----- | | Balance as of February 25, 2022 | $53.4 | | Revenue Recognition from Beginning-of-Year Customer Deposits | $(37.0) | | Customer Deposits Received, Net of Revenue Recognized | $33.1 | | Balance as of May 27, 2022 | $49.5 | 4. Earnings (Loss) Per Share This section provides details on the calculation of basic and diluted earnings (loss) per share Earnings (Loss) Per Share (Three Months Ended May 27, 2022 vs. May 28, 2021): | Metric | May 27, 2022 | May 28, 2021 | | :---------------------------------------------------------------- | :----------- | :----------- | | Net Loss ($ million) | $(11.4) | $(28.1) | | Basic Shares (million) | 116.7 | 118.3 | | Diluted Shares (million) | 116.7 | 118.3 | | Impact of Participating Securities (Net Loss, $ million) | $0.4 | $0.6 | | Impact of Participating Securities (Shares, million) | $(4.0) | $(2.7) | | Basic Earnings (Loss) Per Share | $(0.10) | $(0.24) | | Diluted Earnings (Loss) Per Share | $(0.10) | $(0.24) | - The computation utilizes the two-class method, accounting for participating securities such as restricted stock units with non-forfeitable dividend rights[34] - Anti-dilutive performance units were excluded from diluted EPS computation, totaling 0.4 million in Q1 2023 and 0.5 million in Q1 2022[35] 5. Accumulated Other Comprehensive Income (Loss) This section details the changes in accumulated other comprehensive income (loss) by component and reclassifications out of AOCI Changes in Accumulated Other Comprehensive Income (Loss) (Three Months Ended May 27, 2022, in $ million): | Component | Balance as of Feb 25, 2022 | Other Comprehensive Income (Loss) Before Reclassifications | Amounts Reclassified | Net Other Comprehensive Income (Loss) During the Period | Balance as of May 27, 2022 | | :------------------------------------------ | :------------------------- | :------------------------------------------------------- | :------------------- | :---------------------------------------------------- | :------------------------- | | Unrealized Gain (Loss) on Investments | $0.3 | $(0.3) | $0.0 | $(0.3) | $0.0 | | Pension and Other Post-Retirement Liability Adjustments | $5.2 | $0.5 | $(0.3) | $0.2 | $5.4 | | Derivative Amortization | $(6.7) | $0.0 | $0.3 | $0.3 | $(6.4) | | Foreign Currency Translation Adjustments | $(49.4) | $(18.6) | $0.0 | $(18.6) | $(68.0) | | Total | $(50.6) | $(18.4) | $0.0 | $(18.4) | $(69.0) | Reclassifications out of Accumulated Other Comprehensive Income (Loss) (Three Months Ended, in $ million): | Detail of Components | May 27, 2022 | May 28, 2021 | Affected Line in Condensed Consolidated Statements of Operations | | :---------------------------------------------------- | :----------- | :----------- | :--------------------------------------------------------------- | | Amortization of Pension and Other Post-Retirement Actuarial Losses (Gains) | $(0.4) | $(0.1) | Other income (expense), net | | Income Tax Expense (Benefit) | $0.1 | $0.0 | Income tax benefit | | Derivative Amortization | $0.4 | $0.3 | Interest expense | | Income Tax Benefit | $(0.1) | $(0.1) | Income tax benefit | | Total Reclassifications | $0.0 | $0.1 | | 6. Fair Value This section provides information on the fair value of financial instruments and the company's risk management strategies - The fair value of total debt was $451.0 million as of May 27, 2022, compared to its carrying amount of $482.4 million, measured using Level 2 inputs[41] Fair Value of Financial Instruments (in $ million): | Category | Level 1 (May 27, 2022) | Level 2 (May 27, 2022) | Level 3 (May 27, 2022) | Total (May 27, 2022) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Assets: | | | | | | Cash and Cash Equivalents | $116.7 | — | — | $116.7 | | Restricted Cash | $5.9 | — | — | $5.9 | | Foreign Exchange Forward Contracts | — | $2.3 | — | $2.3 | | Auction Rate Security | — | — | $2.2 | $2.2 | | Total Assets | $122.6 | $2.3 | $2.2 | $127.1 | | Liabilities: | | | | | | Foreign Exchange Forward Contracts | — | $(0.3) | — | $(0.3) | | Total Liabilities | — | $(0.3) | — | $(0.3) | - The company uses derivative financial instruments to manage foreign exchange and interest rate exposures, not for speculative purposes[42] 7. Inventories This section details the composition of inventories, including raw materials, work-in-process, and finished goods, and the impact of LIFO revaluation Inventories (in $ million): | Category | May 27, 2022 | February 25, 2022 | | :-------------------------------- | :----------- | :---------------- | | Raw Materials and Work-in-Process | $234.9 | $208.2 | | Finished Goods | $168.0 | $146.9 | | Total (Before LIFO Revaluation) | $402.9 | $355.1 | | Revaluation to LIFO | $30.9 | $28.9 | | Total Inventories | $372.0 | $326.2 | | Portion Determined by LIFO Method | $165.7 | $141.4 | 8. Share-Based Compensation This section provides information on performance units (PSUs) and restricted stock units (RSUs), including grants, expense, and unrecognized compensation costs - Performance Units (PSUs) are earned over a three-year period based on performance and market conditions, with 1,125,192 units granted in Q1 2023[45][50] Performance Units Expense and Tax Benefit (Three Months Ended, in $ million): | Metric | May 27, 2022 | May 28, 2021 | | :------- | :----------- | :----------- | | Expense | $4.1 | $5.2 | | Tax Benefit | $1.0 | $1.3 | - Restricted Stock Units (RSUs) have transfer restrictions that lapse one to three years after grant, with 1,008,424 units awarded in Q1 2023[51][54] Restricted Stock Units Expense and Tax Benefit (Three Months Ended, in $ million): | Metric | May 27, 2022 | May 28, 2021 | | :------- | :----------- | :----------- | | Expense | $7.9 | $7.7 | | Tax Benefit | $2.0 | $1.9 | - As of May 27, 2022, remaining unrecognized compensation cost for PSUs was $1.5 million (2.2 years weighted-average period) and for RSUs was $22.1 million (1.9 years weighted-average period)[50][54] 9. Leases This section details lease expenses, supplemental lease information, and future minimum lease payments Lease Expense (Three Months Ended, in $ million): | Metric | May 27, 2022 | May 28, 2021 | | :------------------ | :----------- | :----------- | | Operating Lease Cost | $12.1 | $13.1 | | Sublease Rental Income | $(0.6) | $(0.4) | | Total | $11.5 | $12.7 | Supplemental Lease Information (Three Months Ended): | Metric | May 27, 2022 | May 28, 2021 | | :------------------------------------------ | :----------- | :----------- | | Operating Cash Flows Used for Operating Leases | $13.5 | $13.4 | | Leased Assets Obtained for New Operating Lease Obligations | $3.2 | $1.6 | | Weighted-Average Remaining Term | 5.8 years | 6.5 years | | Weighted-Average Discount Rate | 3.6% | 3.8% | Future Minimum Lease Payments as of May 27, 2022 (in $ million): | Fiscal Year Ending in February | Amount | | :----------------------------- | :----- | | 2023 | $38.6 | | 2024 | $46.3 | | 2025 | $44.4 | | 2026 | $33.4 | | 2027 | $26.8 | | Thereafter | $49.4 | | Total Lease Payments | $238.9 | | Less: Interest | $23.5 | | Present Value of Lease Liabilities | $215.4 | 10. Acquisitions This section provides details on the acquisition of Viccarbe, including the purchase price, intangible assets, and goodwill recognized - In Q3 2022, Steelcase acquired Viccarbe, a Spanish contemporary furniture designer, for $34.9 million in cash, with up to an additional $15.1 million contingent on performance targets[60] - The acquisition resulted in $11.7 million in identifiable intangible assets (trademark, dealer relationships, know-how/designs) and $25.8 million in goodwill, recorded in the EMEA segment[61] Estimated Future Amortization Expense for Viccarbe Intangible Assets as of May 27, 2022 (in $ million): | Fiscal Year Ending in February | Amount | | :----------------------------- | :----- | | 2023 | $0.8 | | 2024 | $1.1 | | 2025 | $1.1 | | 2026 | $1.1 | | 2027 | $1.1 | | Total (next 5 years) | $5.2 | 11. Reportable Segments This section presents financial data disaggregated by the company's reportable segments: Americas, EMEA, and Other, along with corporate unallocated expenses - Steelcase operates through three reportable segments: Americas, EMEA, and Other, with unallocated corporate expenses reported as Corporate[65][66][67][69] Reportable Segment Statement of Operations Data (Three Months Ended, in $ million): | Segment | May 27, 2022 Revenue | May 28, 2021 Revenue | May 27, 2022 Operating Income (Loss) | May 28, 2021 Operating Income (Loss) | | :-------- | :------------------- | :------------------- | :----------------------------------- | :----------------------------------- | | Americas | $520.8 | $376.3 | $(1.2) | $(15.0) | | EMEA | $156.4 | $123.6 | $1.3 | $(5.7) | | Other | $63.5 | $56.7 | $(2.9) | $(5.3) | | Corporate | N/A | N/A | $(9.8) | $(5.8) | | Consolidated | $740.7 | $556.6 | $(12.6) | $(31.8) | Reportable Segment Balance Sheet Data (Total Assets, in $ million): | Segment | May 27, 2022 | February 25, 2022 | | :-------- | :----------- | :---------------- | | Americas | $1,143.0 | $1,110.4 | | EMEA | $454.9 | $475.2 | | Other | $219.8 | $227.6 | | Corporate | $369.1 | $447.8 | | Consolidated | $2,186.8 | $2,261.0 | 12. Restructuring Activities This section details restructuring costs incurred in the Americas segment related to exiting a technology business and the associated reserve balance - In Q1 2023, Steelcase recorded $4.2 million in restructuring costs in the Americas segment related to exiting its technology business, including $1.8 million for employee termination and $2.4 million for business exit costs[73] - The restructuring actions are expected to be completed by the end of Q3 2023[73] Changes in Restructuring Reserve Balance as of May 27, 2022 (in $ million): | Item | Workforce Reductions | Business Exit and Related Costs | Total | | :-------------------------- | :------------------- | :------------------------------ | :---- | | Balance as of February 25, 2022 | $0.0 | $0.0 | $0.0 | | Restructuring Costs | $1.8 | $2.4 | $4.2 | | Payments | $(1.5) | $(1.5) | $(3.0) | | Balance as of May 27, 2022 | $0.3 | $0.9 | $1.2 | 13. Subsequent Events This section describes significant events that occurred after the balance sheet date, including the acquisition of Halcon Furniture LLC - On June 10, 2022, Steelcase acquired Halcon Furniture LLC for $127.5 million in cash, plus a $3.1 million working capital adjustment and up to $9.5 million in contingent payments[75] - The Halcon acquisition was funded using cash on-hand and $68.0 million in borrowings under the global committed bank facility, with $18.2 million repaid by June 24, 2022[75][76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the quarter, including a financial summary, detailed analysis of consolidated and segment-specific performance, non-GAAP financial measures, liquidity and capital resources, critical accounting estimates, recently issued accounting standards, and forward-looking statements Financial Summary This section provides an overview of the company's reportable segments and the non-GAAP financial measures used in the analysis - The company's reportable segments are Americas, EMEA, and Other, with unallocated corporate expenses reported as Corporate[80] - Non-GAAP financial measures, including organic revenue growth, adjusted operating income (loss), and adjusted earnings (loss) per share, are used and reconciled to GAAP measures for consistent comparison[79] Results of Operations This section analyzes the consolidated statement of operations data, organic revenue growth, and adjusted operating income and earnings per share Consolidated Statement of Operations Data (Three Months Ended, in $ million, except per share data): | Metric | May 27, 2022 | % of Revenue | May 28, 2021 | % of Revenue | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $740.7 | 100.0% | $556.6 | 100.0% | | Cost of Sales | $548.2 | 74.0% | $401.9 | 72.2% | | Gross Profit | $191.6 | 25.9% | $154.7 | 27.8% | | Operating Loss | $(12.6) | (1.7)% | $(31.8) | (5.7)% | | Net Loss | $(11.4) | (1.5)% | $(28.1) | (5.0)% | | Basic Earnings Per Share | $(0.10) | N/A | $(0.24) | N/A | | Diluted Earnings Per Share | $(0.10) | N/A | $(0.24) | N/A | Q1 2023 Organic Revenue Growth (in $ million): | Segment | Q1 2022 Revenue | Acquisition | Currency Translation Effects | Q1 2022 Revenue, Adjusted | Q1 2023 Revenue | Organic Growth ($ million) | Organic Growth (%) | | :---------- | :-------------- | :---------- | :--------------------------- | :------------------------ | :-------------- | :------------------------- | :----------------- | | Americas | $376.3 | $1.0 | $(0.5) | $376.8 | $520.8 | $144.0 | 38% | | EMEA | $123.6 | $2.5 | $(11.5) | $114.6 | $156.4 | $41.8 | 36% | | Other | $56.7 | — | $(0.6) | $56.1 | $63.5 | $7.4 | 13% | | Consolidated | $556.6 | $3.5 | $(12.6) | $547.5 | $740.7 | $193.2 | 35% | Adjusted Operating Income (Loss) and Adjusted Earnings (Loss) Per Share (Three Months Ended): | Metric | May 27, 2022 | % of Revenue | May 28, 2021 | % of Revenue | | :------------------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Operating Loss | $(12.6) | (1.7)% | $(31.8) | (5.7)% | | Amortization of Purchased Intangible Assets | $3.8 | 0.5% | $3.6 | 0.6% | | Restructuring Costs | $4.2 | 0.6% | — | — | | Adjusted Operating Loss | $(4.6) | (0.6)% | $(28.2) | (5.1)% | | Earnings (Loss) Per Share | $(0.10) | N/A | $(0.24) | N/A | | Amortization of Purchased Intangible Assets, Per Share | $0.03 | N/A | $0.03 | N/A | | Income Tax Effect of Amortization of Purchased Intangible Assets, Per Share | $(0.01) | N/A | $(0.01) | N/A | | Restructuring Costs, Per Share | $0.04 | N/A | — | N/A | | Income Tax Effect of Restructuring Costs, Per Share | $(0.01) | N/A | — | N/A | | Adjusted Earnings (Loss) Per Share | $(0.05) | N/A | $(0.22) | N/A | - Revenue grew 33% in Q1 2023, driven by a strong order backlog and pricing benefits, with orders increasing by 22% year-over-year[83] - Inflation in steel, commodities, fuel, and logistics costs negatively impacted gross profit by approximately $12 million in Q1 2023, leading to additional global price increases and surcharges[84] - Operating loss improved by $19.2 million, primarily due to higher volume, despite an increased cost of sales as a percentage of revenue and $4.2 million in restructuring costs[85] Interest Expense, Investment Income and Other Income (Expense), Net This section analyzes the components of interest expense, investment income, and other income (expense), net Interest Expense, Investment Income and Other Income (Expense), Net (Three Months Ended, in $ million): | Metric | May 27, 2022 | May 28, 2021 | | :---------------------------------------------------- | :----------- | :----------- | | Interest Expense | $(6.4) | $(6.4) | | Investment Income | $0.1 | $0.2 | | Equity in Income of Unconsolidated Affiliates | $2.3 | $1.3 | | Foreign Exchange Gains (Losses) | $1.5 | $(0.2) | | Net Periodic Pension and Post-Retirement Credit, Excluding Service Cost | — | $(0.2) | | Miscellaneous Income (Expense), Net | $(0.7) | $(1.7) | | Total Interest Expense, Investment Income, and Other Income (Expense), Net | $(3.2) | $(7.0) | - Total other income (expense), net increased by $3.9 million, driven by a $1.7 million increase in foreign exchange gains and a $1.0 million increase in income from unconsolidated affiliates[90] Business Segment Review This section provides a detailed review of the financial performance for each of the company's reportable business segments Americas This section reviews the Americas segment's revenue, cost of sales, gross profit, and operating income (loss) performance Americas Segment Statement of Operations Data (Three Months Ended, in $ million): | Metric | May 27, 2022 | % of Revenue | May 28, 2021 | % of Revenue | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $520.8 | 100.0% | $376.3 | 100.0% | | Cost of Sales | $390.0 | 74.9% | $272.5 | 72.4% | | Gross Profit | $129.9 | 24.9% | $103.8 | 27.6% | | Operating Loss | $(1.2) | (0.2)% | $(15.0) | (4.0)% | | Adjusted Operating Income (Loss) | $5.6 | 1.1% | $(12.4) | (3.3)% | - Americas revenue increased by 38% to $520.8 million, with organic growth of 38%, driven by higher volume ($110 million) and pricing benefits ($35 million)[95] - Operating loss improved by $13.8 million, and adjusted operating income improved by $18.0 million, despite a 250 basis point increase in cost of sales as a percentage of revenue due to inflation[94][96] EMEA This section reviews the EMEA segment's revenue, cost of sales, gross profit, and operating income (loss) performance EMEA Segment Statement of Operations Data (Three Months Ended, in $ million): | Metric | May 27, 2022 | % of Revenue | May 28, 2021 | % of Revenue | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $156.4 | 100.0% | $123.6 | 100.0% | | Cost of Sales | $114.1 | 73.0% | $89.5 | 72.4% | | Gross Profit | $42.3 | 27.0% | $34.1 | 27.6% | | Operating Income (Loss) | $1.3 | 0.8% | $(5.7) | (4.6)% | | Adjusted Operating Income (Loss) | $2.5 | 1.6% | $(4.7) | (3.8)% | - EMEA revenue increased by 27% to $156.4 million, with organic growth of 36%, driven by higher volume ($30 million) and pricing benefits ($10 million), partially offset by unfavorable currency translation effects ($11 million)[100] - Operating income improved by $7.0 million, and adjusted operating income improved by $7.2 million, despite a 60 basis point increase in cost of sales as a percentage of revenue[99][101] Other This section reviews the "Other" category's revenue, cost of sales, gross profit, and operating income (loss) performance Other Category Statement of Operations Data (Three Months Ended, in $ million): | Metric | May 27, 2022 | % of Revenue | May 28, 2021 | % of Revenue | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $63.5 | 100.0% | $56.7 | 100.0% | | Cost of Sales | $44.1 | 69.4% | $39.9 | 70.4% | | Gross Profit | $19.4 | 30.6% | $16.8 | 29.6% | | Operating Loss | $(2.9) | (4.6)% | $(5.3) | (9.3)% | - Revenue in the Other category increased by 12% to $63.5 million, with organic growth of 13%, driven by India, Southeast Asia, Designtex, and Japan, partially offset by COVID-19 impacts in China[106] - Operating loss improved by $2.4 million, and cost of sales as a percentage of revenue decreased by 100 basis points due to higher volume and lower overhead costs[105][107] Corporate This section reviews the corporate operating expenses and the factors contributing to their changes Corporate Operating Expenses (Three Months Ended, in $ million): | Metric | May 27, 2022 | May 28, 2021 | | :------------------ | :----------- | :----------- | | Operating Expenses | $9.8 | $5.8 | - Corporate operating expenses increased by $4.0 million, primarily due to $4.8 million lower Company-Owned Life Insurance (COLI) income and approximately $3 million higher spending, partially offset by $4.1 million lower deferred compensation expense[110] Non-GAAP Financial Measures This section defines the non-GAAP financial measures used by the company and explains their relevance for financial analysis - Organic revenue growth is defined as revenue growth excluding the impact of acquisitions, divestitures, and foreign currency translation effects, providing a consistent comparison of revenue[112] - Adjusted operating income (loss) and adjusted earnings (loss) per share exclude amortization of purchased intangible assets and restructuring costs, net of related income tax effects, to offer a more consistent comparison of operating performance[113][117] Liquidity and Capital Resources This section discusses the company's liquidity position, cash flow activities, debt, and future capital expenditure plans Liquidity Sources (in $ million): | Metric | May 27, 2022 | February 25, 2022 | | :-------------------------------- | :----------- | :---------------- | | Cash and Cash Equivalents | $116.7 | $200.9 | | Company-Owned Life Insurance | $162.8 | $168.0 | | Availability Under Credit Facilities | $261.9 | $262.0 | | Total Liquidity Sources Available | $541.4 | $630.9 | Cash Flow Data (Three Months Ended, in $ million): | Cash Flow Activity | May 27, 2022 | May 28, 2021 | | :------------------------------------------------ | :----------- | :----------- | | Net Cash Used in Operating Activities | $(55.1) | $(63.6) | | Net Cash Used in Investing Activities | $(7.3) | $(13.0) | | Net Cash Used in Financing Activities | $(20.7) | $(16.8) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(84.4) | $(93.1) | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $122.6 | $402.5 | - Cash used in operating activities decreased by $8.5 million, driven by lower annual payments for variable compensation and retirement plans, partially offset by increased working capital due to higher inventory and accounts receivable[119] - Dividends paid were $0.145 per common share in Q1 2023 ($17.1 million) compared to $0.10 per common share in Q1 2022 ($12.1 million)[122] - The company repurchased 279,103 shares of Class A common stock in Q1 2023, primarily to satisfy tax withholding obligations for equity awards, with $6.4 million remaining under the $150 million repurchase program[123] Liquidity Facilities as of May 27, 2022 (in $ million): | Facility | Amount | | :-------------------------------- | :----- | | Global Committed Bank Facility | $250.0 | | Other Committed Bank Facility | $3.9 | | Various Uncommitted Facilities | $11.0 | | Total Credit Lines Available | $264.9 | | Less: Borrowings Outstanding | $(3.0) | | Available Capacity | $261.9 | - Total consolidated debt was $482.4 million, primarily consisting of $444.5 million in term notes due in 2029 (5.6% interest rate) and a $34.1 million term loan due in Q1 2024 (floating interest rate)[127] - The company expects its liquidity position, credit facilities, and future operations to be sufficient to finance foreseeable liquidity needs, including planned capital expenditures of $60-70 million in 2023 and quarterly dividends[128][130] Critical Accounting Estimates This section confirms that there have been no changes to the critical accounting estimates previously disclosed - There have been no changes in the critical accounting estimates identified in the Annual Report on Form 10-K for the fiscal year ended February 25, 2022[133] Recently Issued Accounting Standards This section refers to the notes to the financial statements for information on recently issued accounting standards - Information regarding recently issued accounting standards is provided in Note 2 to the condensed consolidated financial statements[134] Forward-looking Statements This section highlights that the report contains forward-looking statements and outlines the associated risks and uncertainties - The report contains forward-looking statements based on management's beliefs and assumptions, which involve risks and uncertainties that could cause actual results to differ materially[135] - Key risks include competitive and economic conditions, acts of terrorism, cyberattacks, the COVID-19 pandemic, regulatory changes, raw material costs, currency fluctuations, and changes in customer demand[135] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, including foreign currency exchange, interest rates, commodity prices, and fixed income and equity prices - The nature of market risks faced by the company as of May 27, 2022, remains consistent with those disclosed in the Annual Report on Form 10-K for the fiscal year ended February 25, 2022[136] - No material changes occurred in foreign exchange risk, interest rate risk, commodity price risk, or fixed income and equity price risk during Q1 2023[137][138][139][140] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting - Management, under the supervision of the CEO and CFO, concluded that disclosure controls and procedures were effective as of May 27, 2022[141] - There were no material changes in internal control over financial reporting during the first fiscal quarter[142] PART II. OTHER INFORMATION Item 1A. Risk Factors This section refers to the company's Annual Report on Form 10-K for a comprehensive discussion of risk factors - For a detailed explanation of risks, refer to the Risk Factors section in the Annual Report on Form 10-K for the fiscal year ended February 25, 2022[144] - No material changes to the risk factors have occurred since the filing of the Annual Report on Form 10-K[144] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides a summary of the company's equity security repurchase activities during the first quarter Issuer Purchases of Equity Securities (Q1 2023): | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased Under Publicly Announced Plans or Programs | Approximate Dollar Value Remaining for Repurchase ($ million) | | :------------------- | :----------------------- | :--------------------------- | :---------------------------------------------------------- | :------------------------------------------------------------ | | 2/26/2022 - 4/1/2022 | 276,035 | $12.25 | — | $6.4 | | 4/2/2022 - 4/29/2022 | 2,891 | $11.46 | — | $6.4 | | 4/30/2022 - 5/27/2022 | 177 | $11.73 | — | $6.4 | | Total | 279,103 | N/A | — | N/A | - All shares repurchased were to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards, as per the Incentive Compensation Plan[148] - As of May 27, 2022, $6.4 million remained available under the $150 million share repurchase program approved in January 2016[147] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q report - The exhibits include a Voluntary Mutual Separation Agreement, CEO and CFO certifications (Sarbanes-Oxley Act), and Inline XBRL documents[149] Signatures This section contains the signature of the duly authorized officer, confirming the submission of the report - The report is signed by David C. Sylvester, Senior Vice President, Chief Financial Officer, as the duly authorized officer, principal financial officer, and principal accounting officer[154]