Steelcase(SCS) - 2023 Q4 - Annual Report

Part I Business Steelcase Inc. is a global furniture and architectural products company focused on hybrid work, operating through Americas, EMEA, and Other segments - Steelcase's purpose is to create high-performing work environments through its comprehensive portfolio of furniture, architectural products, and services under brands like Steelcase®, AMQ®, Coalesse®, and others[13] - The company's strategic priorities focus on supporting hybrid work models, growing in key markets like learning and health, enhancing capabilities for smaller customers, and improving profitability and efficiency[16] - Steelcase operates globally with manufacturing and distribution in North America, Europe, and Asia, utilizing a make-to-order model based on lean manufacturing principles[43][44] Research, Design and Development Expenses (in millions) | Fiscal Year | Expense | | :--- | :--- | | 2023 | $44.4 | | 2022 | $45.4 | | 2021 | $48.1 | - As of February 24, 2023, the company had approximately 11,900 employees, with about 7,100 in manufacturing and distribution. Approximately 2,600 employees outside the U.S. are represented by unions or workers' councils[60] Reportable Segments Operations are segmented into Americas, EMEA, and Other, each serving distinct geographic markets with varying competitive landscapes - The Americas segment serves customers through approximately 380 dealer locations. The five largest independent dealers accounted for about 19% of the segment's 2023 revenue[28][29][30] - The EMEA segment serves customers through approximately 320 dealer locations. The five largest independent dealers accounted for about 12% of the segment's 2023 revenue[33][34] - The Other category consists of Asia Pacific operations, which sell through approximately 70 dealer locations, and Designtex, which sells applied materials primarily in North America[36][37][38] Manufacturing and Logistics Global make-to-order manufacturing faced FY2023 supply chain disruptions, leading to increased inventory and efficiency focus - The manufacturing model is predominantly make-to-order, using lean principles to minimize inventory. The company purchases direct materials and components from a global network of suppliers as needed[44] - During 2023, manufacturing faced supply chain disruptions, including material and labor shortages and shipping delays, which began in 2022. These issues started to ease in the second half of 2023[45] Human Capital Resources The company fosters a people-centered culture, investing in employee development, well-being, and DEI initiatives - Core values guiding the company include acting with integrity, treating people with dignity and respect, and protecting the environment[56] - The company is committed to advancing diversity, equity, and inclusion by building diverse teams, ensuring equitable access to development, and creating an inclusive culture[57] - As of February 24, 2023, the company had approximately 11,900 employees, with around 7,100 in manufacturing and distribution[60] Risk Factors The company faces risks from macroeconomic shifts, supply chain disruptions, global operations, financial factors, and cybersecurity threats - Macroeconomic risks include failure to respond to changing workplace trends (like increased working from home), cyclical downturns influencing demand for office furniture, and challenges in implementing growth strategies[67][71][72] - Manufacturing and supply chain risks involve significant inflation in raw material and input costs, reliance on a global network of suppliers subject to disruption, and changes in tariffs or trade agreements[73][76][79] - Global footprint risks stem from the complexities of operating in many countries, including political instability, differing business practices, and vulnerability to currency exchange rate fluctuations[84][85] - Financial risks include the potential for goodwill impairment charges, adverse effects from changes in corporate tax laws, and limitations on utilizing net operating loss carryforwards[88][89][91] - General risks involve the integrity and security of IT systems against cyberattacks, potential security breaches of software offerings, and losses related to product defects and warranty claims[92][93][94] Unresolved Staff Comments The company has no unresolved staff comments from the U.S. Securities and Exchange Commission - None[97] Properties Steelcase maintains global owned and leased properties, including manufacturing and distribution centers, deemed sufficient for operations Principal Manufacturing and Distribution Locations (>100,000 sq. ft.) | Segment/Category | Number of Locations | Owned | Leased | | :--- | :--- | :--- | :--- | | Americas | 15 | 6 | 9 | | EMEA | 6 | 5 | 1 | | Other category | 2 | — | 2 | | Total | 23 | 11 | 12 | Legal Proceedings The company is involved in routine litigation, none of which is expected to materially impact its financial condition - The company is not a party to any lawsuit or proceeding that is likely to have a material adverse effect on its financial condition[99] Mine Safety Disclosures This disclosure item is not applicable to the company's operations - Not applicable[100] Information About Our Executive Officers This section lists the company's executive officers, detailing their age and current positions Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Sara E. Armbruster | 52 | President and Chief Executive Officer, Director | | Donna K. Flynn | 55 | Vice President, Global Talent Management | | Robert G. Krestakos | 61 | Vice President, Global Operations | | Nicole C. McGrath | 46 | Vice President, Corporate Controller & Chief Accounting Officer | | Steven D. Miller | 48 | Vice President, Chief Technology Officer | | Lizbeth S. O'Shaughnessy | 61 | Senior Vice President, Chief Administrative Officer, General Counsel and Secretary | | Allan W. Smith, Jr. | 55 | Senior Vice President, Chief Revenue Officer | | David C. Sylvester | 58 | Senior Vice President, Chief Financial Officer | Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Steelcase Class A Common Stock trades on NYSE; the company has outstanding shares and a remaining share repurchase program - As of April 11, 2023, there were 93,538,673 shares of Class A Common Stock and 20,414,413 shares of Class B Common Stock outstanding[109] Fourth Quarter 2023 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 11/26/2022 - 12/30/2022 | 6,314 | $6.85 | | 12/31/2022 - 01/27/2023 | 2,901 | $7.49 | | 01/28/2023 - 02/24/2023 | — | $— | | Total | 9,215 | | - The share repurchase program approved in January 2016 has approximately $6.4 million remaining for future purchases[112][113] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2023 saw improved revenue and operating income driven by pricing, despite softening demand and restructuring costs, with strong liquidity Consolidated Financial Summary (in millions, except per share data) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenue | $3,232.6 | $2,772.7 | | Gross Profit | $919.4 | $761.5 | | Operating Income | $65.5 | $20.1 | | Net Income | $35.3 | $4.0 | | Diluted EPS | $0.30 | $0.03 | - Organic revenue grew by 17% in FY2023, driven by pricing actions and increased volume. Revenue increased by 22.9% in the Americas, 1.9% in EMEA, and 4.6% in the Other category[123] - The company implemented multiple price increases in 2022 and 2023 to combat significant inflation. By the end of FY2023, cumulative pricing actions approximated cumulative inflation over the past two years[120] - In response to softening demand patterns in Q3 2023, the company took actions to reduce operational spending, including workforce reductions, resulting in $19.2 million of restructuring costs[121][122] Business Segment Disclosure Americas segment revenue and operating income significantly increased, while EMEA and Other segments experienced revenue growth but operating losses Americas Segment Performance (in millions) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenue | $2,340.8 | $1,905.0 | | Operating Income | $103.8 | $44.4 | | Adjusted Operating Income | $141.2 | $54.9 | EMEA Segment Performance (in millions) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenue | $610.1 | $598.5 | | Operating Income (Loss) | $(3.4) | $3.3 | | Adjusted Operating Income | $1.2 | $7.6 | Other Category Performance (in millions) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenue | $281.7 | $269.2 | | Operating Loss | $(6.3) | $(3.2) | Liquidity and Capital Resources Total liquidity decreased to $517.4 million, but operating cash flow improved significantly, with sufficient resources for future needs Liquidity Sources (in millions) | Source | Feb 24, 2023 | Feb 25, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $90.4 | $200.9 | | Company-owned life insurance | $157.3 | $168.0 | | Availability under credit facilities | $269.7 | $262.0 | | Total | $517.4 | $630.9 | Consolidated Cash Flow Summary (in millions) | Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Operating | $89.4 | $(102.6) | | Investing | $(134.8) | $(65.5) | | Financing | $(62.9) | $(120.0) | - Material cash requirements include debt obligations of $35.7 million in 2024, operating lease payments of $52.5 million in 2024, and planned capital expenditures of $70 to $80 million in 2024[167] Critical Accounting Estimates Critical accounting estimates involve significant judgment in goodwill impairment, income taxes, and pension benefit calculations - Goodwill is tested for impairment annually at the reporting unit level. As of February 24, 2023, the company had $276.8 million in goodwill, with no impairment charges recorded for the year[88][172][174] - The company's annual effective tax rate is subject to judgment regarding the ability to realize deferred tax assets and the evaluation of tax positions. As of February 24, 2023, net deferred tax assets were $109.3 million[175][90] - Pension and post-retirement benefit obligations are measured using key actuarial assumptions. For FY2023, the weighted average discount rate for pension obligations was increased to 4.80% from 2.50%, resulting in a significant actuarial gain[183][184] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency, interest rates, commodity prices, and equity prices, managed through various strategies - The company is exposed to foreign currency risk, primarily from the euro, Canadian dollar, and Mexican peso. A hypothetical 10% strengthening of the U.S. dollar would have increased 2023 operating income by approximately $14.3 million[194][195] - Commodity price fluctuations for materials like steel and fuel are a key risk. Changes in these costs increased cost of sales by approximately $150 million in 2023[201][202] - Interest rate risk is mainly from cash equivalents and a floating-rate loan of $32.2 million. A 1% increase in rates would have an immaterial impact on net income[198][199] - Equity price risk exists on $54.3 million of variable life COLI investments. A 10% adverse change in the equity portion would reduce 2023 net income by approximately $4 million[203][204] Financial Statements and Supplementary Data This section presents the consolidated financial statements, management's internal control report, and the independent auditor's unqualified opinion - Management assessed its internal control over financial reporting as effective as of February 24, 2023, based on the COSO framework[210] - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[215][224] Consolidated Balance Sheet Summary (in millions) | | Feb 24, 2023 | Feb 25, 2022 | | :--- | :--- | :--- | | Total Assets | $2,202.8 | $2,261.0 | | Total Current Assets | $884.0 | $959.2 | | Total Liabilities | $1,376.6 | $1,408.8 | | Total Current Liabilities | $603.3 | $567.2 | | Total Shareholders' Equity | $826.2 | $852.2 | Notes to the Consolidated Financial Statements Detailed notes provide disclosures on accounting policies, assets, liabilities, acquisitions, and segment reporting, crucial for financial understanding - In Q3 2022, the company acquired Viccarbe for $34.9 million plus contingent consideration. In Q2 2023, it acquired HALCON for $127.5 million. These acquisitions added significant goodwill and intangible assets[474][478] - Total debt as of February 24, 2023, was $481.2 million, primarily consisting of $445.5 million in senior notes due in 2029[378] - The company has operating lease obligations with a present value of $214.6 million as of February 24, 2023[471] - In FY2023, the company initiated restructuring actions, including workforce reductions and winding down its customer aviation function, resulting in restructuring costs of $18.7 million[492][493][499] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants regarding accounting or financial disclosure matters - None[502] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls in Q4 - The CEO and CFO concluded that as of February 24, 2023, the company's disclosure controls and procedures were effective[503] - No changes in internal control over financial reporting occurred during the fourth fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[504] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters Information on directors, executive compensation, corporate governance, and related matters is incorporated by reference from the 2023 Proxy Statement - Information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees is incorporated by reference from the 2023 Proxy Statement[509][510][514][515] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized for issuance under equity compensation plans, including outstanding rights and available shares Equity Compensation Plan Information as of February 24, 2023 | Plan Category | Number of securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Number of securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 4,353,499 | n/a | 4,173,814 | Part IV Exhibit and Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including Schedule II detailing valuation and qualifying accounts Schedule II: Valuation and Qualifying Accounts (in millions) | Account | Balance at Feb 26, 2021 | Balance at Feb 25, 2022 | Balance at Feb 24, 2023 | | :--- | :--- | :--- | :--- | | Allowance for Losses on Accounts Receivable | $8.7 | $8.0 | $6.5 | | Reserve for Excess and Obsolete Inventory | $33.8 | $35.7 | $41.2 | | Valuation Allowance for Deferred Income Tax Assets | $6.6 | $3.7 | $4.3 | Form 10-K Summary The company has not provided a summary of the Form 10-K report - None[527]