STEELCASE INC (Form: 10-Q, Received: 12/21/2012 08:18:56)
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended November 23, 2012
or
o
 
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)
Michigan
 
38-0819050
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. employer identification no.)
901 44th Street SE
Grand Rapids, Michigan
(Address of principal executive offices)
 
49508
(Zip Code)  

(Registrant’s telephone number, including area code) (616) 247-2710
None
(Former name, former address and former fiscal year, if changed since last report)
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  þ      No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes  þ      No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
Large accelerated filer  o
Accelerated filer  þ
Non-accelerated filer  o
Smaller reporting company  o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ
As of December 14, 2012 , Steelcase Inc. had 84,930,429  shares of Class A Common Stock and 40,234,158  shares of Class B Common Stock outstanding.
 


Table of Contents

STEELCASE INC.
FORM 10-Q


FOR THE QUARTERLY PERIOD ENDED NOVEMBER 23, 2012

INDEX

 
 
Page No. 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements:

STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in millions, except per share data)

 
Three Months Ended
Nine Months Ended
 
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Revenue
$
727.2

 
$
719.4

 
$
2,147.3

 
$
2,059.3

Cost of sales
498.0

 
496.3

 
1,485.5

 
1,430.5

Restructuring costs
3.3

 
3.3

 
11.8

 
24.7

Gross profit
225.9

 
219.8

 
650.0

 
604.1

Operating expenses
184.8

 
181.1

 
542.5

 
524.2

Restructuring costs
2.7

 
0.5

 
3.0

 
1.3

Operating income
38.4

 
38.2

 
104.5

 
78.6

Interest expense
(4.2
)
 
(4.1
)
 
(13.3
)
 
(20.1
)
Investment income (loss)
1.1

 
(0.6
)
 
3.5

 
(0.3
)
Other income, net
1.8

 
1.1

 
7.3

 
3.1

Income before income tax expense
37.1

 
34.6

 
102.0

 
61.3

Income tax expense
13.5

 
12.2

 
35.7

 
19.5

Net income
$
23.6

 
$
22.4

 
$
66.3

 
$
41.8

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.19

 
$
0.17

 
$
0.52

 
$
0.31

Diluted
$
0.18

 
$
0.17

 
$
0.52

 
$
0.31

Dividends declared and paid per common share
$
0.09

 
$
0.06

 
$
0.27

 
$
0.18


See accompanying notes to the condensed consolidated financial statements.

1

Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)
 
Three Months Ended
Nine Months Ended
 
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Net income
$
23.6

 
$
22.4

 
$
66.3

 
$
41.8

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on investments, net of taxes
0.3

 
(0.4
)
 
1.0

 
(0.5
)
Minimum pension liability, net of taxes
(1.2
)
 
(1.3
)
 
(4.2
)
 
(4.6
)
Derivative adjustments, net of taxes

 

 

 
(0.1
)
Foreign currency translation adjustments
7.9

 
(12.2
)
 
(4.5
)
 
(8.5
)
Total other comprehensive income (loss)
7.0

 
(13.9
)
 
(7.7
)
 
(13.7
)
Comprehensive income
$
30.6

 
$
8.5

 
58.6

 
28.1


See accompanying notes to the condensed consolidated financial statements.


2

Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)

 
 
 
 
 
November 23,
2012
February 24,
2012
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
136.0

 
$
112.1

Short-term investments
77.4

 
79.1

Accounts receivable, net of allowances of $18.0 and $19.6
313.8

 
271.4

Inventories
155.9

 
139.5

Deferred income taxes
45.8

 
42.4

Other current assets
50.2

 
57.6

Total current assets
779.1

 
702.1

Plant, property and equipment, net of accumulated depreciation of $1,215.3 and $1,215.3
354.1

 
346.9

Company-owned life insurance
231.3

 
227.6

Deferred income taxes
100.9

 
120.0

Goodwill
180.1

 
176.6

Other intangible assets, net
19.8

 
18.8

Other assets
101.4

 
96.5

Total assets
$
1,766.7

 
$
1,688.5

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 

 
 

Accounts payable
$
222.9

 
$
191.3

Short-term borrowings and current maturities of long-term debt
2.6

 
2.6

Accrued expenses:
 

 
 

Employee compensation
126.4

 
123.0

Employee benefit plan obligations
22.8

 
22.6

Other
147.7

 
122.4

Total current liabilities
522.4

 
461.9

Long-term liabilities:
 

 
 

Long-term debt less current maturities
287.2

 
288.9

Employee benefit plan obligations
161.8

 
161.1

Other long-term liabilities
86.4

 
80.5

Total long-term liabilities
535.4

 
530.5

Total liabilities
1,057.8

 
992.4

Shareholders’ equity:
 

 
 

Common stock

 
1.1

Additional paid-in capital
22.3

 
32.6

Accumulated other comprehensive income (loss)
(6.9
)
 
0.8

Retained earnings
693.5

 
661.6

Total shareholders’ equity
708.9

 
696.1

Total liabilities and shareholders’ equity
$
1,766.7

 
$
1,688.5


See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)

 
Nine Months Ended
 
November 23,
2012
November 25,
2011
OPERATING ACTIVITIES
 

 
 

Net income
$
66.3

 
$
41.8

Depreciation and amortization
42.5

 
41.7

Changes in cash surrender value of company-owned life insurance
(3.7
)
 
0.9

Changes in deferred income taxes
15.3

 
3.8

Restructuring charges
14.8

 
26.0

Non-cash stock compensation
7.8

 
10.1

Changes in operating assets and liabilities, net of acquisitions and divestiture:
 

 
 

Accounts receivable, inventories and accounts payable
(29.7
)
 
(47.4
)
Employee compensation liabilities
5.4

 
(24.2
)
Other assets and liabilities
11.5

 
(7.1
)
Other
(0.4
)
 
2.3

Net cash provided by operating activities
129.8

 
47.9

INVESTING ACTIVITIES
 

 
 

Capital expenditures
(49.9
)
 
(49.0
)
Proceeds from disposal of fixed assets
14.1

 
8.1

Purchases of short-term investments
(45.3
)
 
(161.8
)
Liquidations of short-term investments
47.5

 
460.2

Acquisitions, net of cash acquired
(6.1
)
 
(20.5
)
Other
(10.0
)
 
9.8

Net cash provided by (used in) investing activities
(49.7
)
 
246.8

FINANCING ACTIVITIES
 

 
 

Repayments of long-term debt
(2.0
)
 
(255.5
)
Dividends paid
(34.4
)
 
(23.9
)
Common stock repurchases
(19.9
)
 
(41.0
)
Other
0.7

 
0.3

Net cash used in financing activities
(55.6
)
 
(320.1
)
Effect of exchange rate changes on cash and cash equivalents
(0.6
)
 
(1.9
)
Net increase (decrease) in cash and cash equivalents
23.9

 
(27.3
)
Cash and cash equivalents, beginning of period
112.1

 
142.2

Cash and cash equivalents, end of period
$
136.0

 
$
114.9


See accompanying notes to the condensed consolidated financial statements.


4

Table of Contents

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 24, 2012 (“Form 10-K”). The Condensed Consolidated Balance Sheet as of February 24, 2012 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
In July 2012, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification (“ASC”) 350, Intangibles — Goodwill and Other . This amendment is intended to reduce the cost and complexity of the annual impairment test for indefinite-lived intangible assets other than goodwill by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. The amended provisions are effective for the company beginning in Q1 2014; however, early adoption is permitted. This amendment impacts impairment testing steps only, and therefore adoption will not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
3.
CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS
    
In Q2 2013, the company identified errors in its accounting for deferred income taxes which relate to periods prior to fiscal year 2010. Management believes the errors are not material to any prior period financial statements.  The correction of the errors had the effect of reducing long-term deferred income taxes and retained earnings by $12.5 .  The Condensed Consolidated Balance Sheet as of February 24, 2012 presented in this Form 10-Q has been restated to reflect this correction. These errors were associated with periods prior to fiscal 2010 and therefore did not materially impact the condensed consolidated statements of income or cash flows for the periods presented in our most recently filed Form 10-K.
4.
EARNINGS PER SHARE
Earnings per share is computed using the two-class method. The two-class method determines earnings 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 include performance units and restricted stock units in which the participants have non-forfeitable rights to dividend equivalents during the performance period. Diluted earnings per share includes the effects of certain performance units in which the participants have forfeitable rights to dividend equivalents during the performance period.

5

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Three Months Ended
Nine Months Ended
Computation of Earnings per Share
November 23,
2012
 
November 25,
2011
November 23,
2012
 
November 25,
2011
Net income
$
23.6

 
$
22.4

 
$
66.3

 
$
41.8

Adjustment for earnings attributable to participating securities
(0.3
)
 
(0.4
)
 
(0.9
)
 
(0.7
)
Net income used in calculating earnings per share
$
23.3

 
$
22.0

 
$
65.4

 
$
41.1

Weighted-average common shares outstanding including participating securities (in millions)
126.9

 
131.3

 
127.6

 
132.8

Adjustment for participating securities (in millions)
(1.8
)
 
(2.4
)
 
(1.9
)
 
(2.3
)
Shares used in calculating basic earnings per share (in millions)
125.1

 
128.9

 
125.7

 
130.5

Effect of dilutive stock-based compensation (in millions)
1.2

 

 
1.1

 

Shares used in calculating diluted earnings per share (in millions)
126.3

 
128.9

 
126.8

 
130.5

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.19

 
$
0.17

 
$
0.52

 
$
0.31

Diluted
$
0.18

 
$
0.17

 
$
0.52

 
$
0.31

Total common shares outstanding at period end (in millions)
125.2

 
127.4

 
125.2

 
127.4

 
 
 
 
 
 
 
 
Antidilutive options and performance units excluded from computation of diluted earnings per share (in millions)
0.8

 
4.1

 
0.8

 
4.1

5.
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 short-term investments, foreign exchange forward contracts and long-term investments are measured at fair value on the Condensed Consolidated Balance Sheets.
Our total debt is carried at cost and was $289.8 and $291.5 as of November 23, 2012 and February 24, 2012 , 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 approximately $312 and $305 as of November 23, 2012 and February 24, 2012 , respectively.
We periodically use derivative financial instruments to manage exposures to movements in interest rates and foreign exchange 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.

6

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
November 23, 2012
Fair Value of Financial Instruments
Level 1
Level 2
Level 3
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
136.0

 
$

 
$

 
$
136.0

Managed investment portfolio and other investments
 
 
 
 
 
 
 
Corporate debt securities

 
36.1

 

 
36.1

U.S. agency debt securities

 
36.6

 

 
36.6

U.S. government debt securities
4.4

 

 

 
4.4

Other investments
3.5

 
0.3

 

 
3.8

Foreign exchange forward contracts

 
0.7

 

 
0.7

Auction rate securities

 

 
13.9

 
13.9

Canadian asset-backed commercial paper restructuring notes

 

 
4.1

 
4.1

 
$
143.9

 
$
73.7

 
$
18.0

 
$
235.6

Liabilities
 

 
 

 
 

 
 

Foreign exchange forward contracts
$

 
$
(1.8
)
 
$

 
$
(1.8
)
 
$

 
$
(1.8
)
 
$

 
$
(1.8
)
 
 
 
 
 
 
 
 
 
February 24, 2012
Fair Value of Financial Instruments
Level 1
Level 2
Level 3
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
112.1

 
$

 
$

 
$
112.1

Managed investment portfolio and other investments
 
 
 
 
 
 
 
Corporate debt securities

 
47.8

 

 
47.8

U.S. agency debt securities

 
27.7

 

 
27.7

U.S. government debt securities
1.5

 

 

 
1.5

Asset backed securities

 
0.9

 

 
0.9

Municipal debt securities

 
0.9

 

 
0.9

Other investments
3.5

 
0.3

 

 
3.8

Foreign exchange forward contracts

 
0.9

 

 
0.9

Auction rate securities

 

 
12.9

 
12.9

Canadian asset-backed commercial paper restructuring notes

 

 
4.1

 
4.1

 
$
117.1

 
$
78.5

 
$
17.0

 
$
212.6

Liabilities
 

 
 

 
 

 
 

Foreign exchange forward contracts
$

 
$
(2.1
)
 
$

 
$
(2.1
)
 
$

 
$
(2.1
)
 
$

 
$
(2.1
)


7

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Below is a roll-forward of assets and liabilities measured at fair value using Level 3 inputs for the nine months ended November 23, 2012 :
Roll-Forward of Fair Value Using Level 3 Inputs
Auction Rate Securities
Canadian
Asset-Backed
Commercial
Paper
Restructuring Notes
Balance as of February 24, 2012
$
12.9

 
$
4.1

Unrealized gain on investments
1.0

 

Other-than-temporary impairments

 

Balance as of November 23, 2012
$
13.9

 
$
4.1

6.
INVENTORIES
Inventories
November 23,
2012
February 24,
2012
Raw materials
$
58.3

 
$
59.1

Work-in-process
14.9

 
18.2

Finished goods
104.5

 
84.0

 
177.7

 
161.3

Less LIFO reserve
21.8

 
21.8

 
$
155.9

 
$
139.5


The portion of inventories determined by the LIFO method was $74.4 as of November 23, 2012 and $58.8 as of February 24, 2012 .
7.
STOCK INCENTIVE PLAN
Performance Units
In Q1 2013, we awarded 540,470 performance units to our executive officers. These performance units are earned after a three-year performance period, from 2013 through 2015, based on our total shareholder return relative to a comparison group of companies and, if earned, will be issued in the form of shares of Class A Common Stock. The number of shares that may be earned can range from 0% to 200% of the target amount, therefore the maximum number of shares that can be issued under the awards is 1,080,940 . For these awards, dividend equivalents are calculated based on the actual number of shares earned at the end of the performance period equal to the dividends that would have been payable on the earned shares had they been held during the entire performance period as Class A Common Stock. At the end of the performance period, the dividend equivalents are paid in the form of cash or Class A Common Stock at the discretion of the Board of Directors. These awards will be forfeited if the participant leaves our company for reasons other than retirement, disability or death or if the participant engages in any competition with us, as defined in the plan and determined by the Administrative Committee in its discretion. If a change in control occurs at least six months following the award date, the target awards will be deemed to be earned and a pro rata number of units will be vested and paid based upon the length of time within the performance period which has elapsed prior to the effective date of the change in control.

8

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of the performance units awarded was calculated on the grant date using the Monte Carlo simulation model with the following assumptions:
 
2013 Awards
2012 Awards
2011 Awards
Three-year risk-free interest rate (1)
0.5
%
1.4
%
1.7
%
Expected term
3 years

3 years

3 years

Estimated volatility (2)
49.8
%
50.9
%
49.2
%
_______________________________________
(1)
Based on the U.S. government bond benchmark on the grant date.
(2)
Represents the historical price volatility of the Company’s common stock for the three-year period preceding the grant date.
The total performance units expense and associated tax benefit for all outstanding awards for the three and nine months ended November 23, 2012 and November 25, 2011 are as follows:
 
Three Months Ended
Nine Months Ended
Performance Units
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Expense
$
0.7

 
$
1.2

 
$
4.8

 
$
7.3

 
Tax benefit
0.2

 
0.4

 
1.8

 
2.8

 
The performance units activity for the nine months ended November 23, 2012 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 24, 2012 (1)
2,529,690

$
12.00

Granted
1,080,940

11.92

Forfeited
(320,600
)
11.98

Nonvested as of November 23, 2012 (1)
3,290,030

$
11.97

_______________________________________
(1)
Total nonvested includes 194,750  units as of February 24, 2012 and 169,750  units as of November 23, 2012 which represent the 25.0% portion of the awards granted in 2011 which are not subject to performance conditions. The reduction is due to the forfeiture of units during 2013.
As of November 23, 2012 , there is $3.5 of remaining unrecognized compensation cost related to nonvested performance units. That cost is expected to be recognized over a remaining weighted-average period of 1.8  years.
Restricted Stock Units
For the nine months ended November 23, 2012 , we awarded 550,672 restricted stock units ("RSUs"), of which 330,030 were awarded to our executive officers. These restricted stock units have restrictions on transfer, the majority of which lapse three years after the date of grant, at which time the units will be issued as unrestricted shares of Class A Common Stock. These awards are subject to forfeiture if a participant leaves our company for reasons other than retirement, disability, death or termination by us without cause prior to the vesting date.
The restricted stock units expense and associated tax benefit for all outstanding awards for the three and nine months ended November 23, 2012 and November 25, 2011 are as follows:
 
Three Months Ended
Nine Months Ended
Restricted Stock Units
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Expense
$
0.8

 
$
0.9

 
$
3.0

 
$
2.7

 
Tax benefit
0.4

 
0.3

 
1.2

 
1.0

 


9

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The restricted stock units activity for the nine months ended November 23, 2012 is as follows:
Nonvested Units
Total
Weighted-Average
Grant Date
Fair Value
per Unit
Nonvested as of February 24, 2012
880,837

$
8.70

Granted
550,672

9.63

Vested
(155,582
)
6.04

Forfeited
(41,700
)
10.09

Nonvested as of November 23, 2012
1,234,227

$
9.41


As of November 23, 2012 , there is $5.5 of remaining unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.3  years.
8.
REPORTABLE SEGMENTS
As of November 23, 2012, we realigned portions of our reportable segments for financial reporting purposes as a result of the integration of the PolyVision global technology business into the Steelcase Education Solutions group. Prior to this change, the PolyVision global technology business was combined with the PolyVision surfaces business and was reported collectively as PolyVision in the Other category along with Asia Pacific and Designtex. As a result of these changes, the results of the PolyVision technology business are now reported in the Americas and EMEA segments. The PolyVision surfaces business remains in the Other category. Similarly, amounts in the prior years' financial statements have been reclassified to conform to the new segment presentation.
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 and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, Turnstone, Details and Nurture by Steelcase brands.
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase brand, with an emphasis on freestanding furniture systems, storage and seating solutions.
The Other category includes Asia Pacific, PolyVision and Designtex. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, storage and seating solutions. Designtex designs and sells surface materials including textiles and wall coverings which are specified by architects and designers directly to end-use customers primarily in North America. PolyVision manufactures steel and ceramic surfaces for use in multiple applications, but primarily for sale to third-party fabricators to create static whiteboards sold in the primary and secondary education markets in the U.S. and Europe.

10

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue and operating income (loss) for the three and nine months ended November 23, 2012 and total assets as of November 23, 2012 and February 24, 2012 by segment are presented below:
 
Three Months Ended
 
Nine Months Ended
Reportable Segment Statement of Operations Data
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Revenue
 

 
 

 
 

 
 

Americas
$
503.2

 
$
488.5

 
$
1,522.2

 
$
1,399.9

EMEA
157.1

 
161.8

 
426.3

 
453.2

Other
66.9

 
69.1

 
198.8

 
206.2

 
$
727.2

 
$
719.4

 
$
2,147.3

 
$
2,059.3

Operating income (loss)
 

 
 

 
 

 
 

Americas
$
42.1

 
$
37.1

 
$
134.0

 
$
98.3

EMEA
0.8

 
4.0

 
(12.4
)
 
(10.7
)
Other
2.1

 
6.1

 
4.9

 
13.1

Corporate
(6.6
)
 
(9.0
)
 
(22.0
)
 
(22.1
)
 
$
38.4

 
$
38.2

 
$
104.5

 
$
78.6


Reportable Segment Balance Sheet Data
November 23,
2012
February 24,
2012
Total assets
 

 
 

Americas
$
891.6

 
$
862.0

EMEA
366.0

 
326.3

Other
179.9

 
187.2

Corporate
329.2

 
313.0

 
$
1,766.7

 
$
1,688.5

9.
DIVESTITURES AND ACQUISITIONS
Divestiture of PolyVision Division
In Q2 2012, we completed the sale of PolyVision’s remaining low margin whiteboard fabrication business in Europe to a third party for proceeds totaling $2.3 . The transaction included the sale of PolyVision SAS (France) and PolyVision A/S (Denmark) and resulted in a loss of $0.9 recorded in Restructuring costs on the Condensed Consolidated Statements of Income.
For the year ended February 24, 2012 and the interim periods therein, our Condensed Consolidated Statements of Income included the following related to PolyVision SAS and PolyVision A/S:
 
First
Quarter
Second
Quarter
Total
2012
 

 

 

Revenue
$
4.1

$
4.5

$
8.6

Gross profit
0.7

0.9

1.6

Operating income (loss)
(0.2
)
0.3

0.1


Dealer Acquisitio n
In Q1 2012, Red Thread Spaces LLC ("Red Thread"), formerly known as Office Environments of New England, LLC, a wholly-owned subsidiary of Steelcase Inc., acquired substantially all of the assets of bkm Total Office (“BKM”) for cash consideration of approximately $18.7 . Red Thread and BKM, both authorized Steelcase dealers, have combined to create a regional enterprise supporting workplace needs that will offer a broadened portfolio of products and services and expanded geographical coverage in New England. We completed the final

11

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

purchase price allocation in Q3 2012 which resulted in goodwill and intangible assets valuations of $2.0 and $0.3 , respectively. The combined dealers are included in the Americas segment. The purchase of BKM did not have a material impact on our condensed consolidated financial statements.
10.
RESTRUCTURING ACTIVITIES
In Q2 2013, we announced plans to integrate PolyVision's global technology business into the Steelcase Education Solutions group. We currently estimate the cash restructuring costs associated with this action will be approximately $4 , with approximately $2 related to employee termination costs and $2 of business exit and other related costs. We incurred $1.1 of employee termination costs and $0.5 of business exit and other related costs in the Americas segment during the three months ended November 23, 2012 . We expect these restructuring actions to be substantially complete by the end of Q1 2014.
In Q4 2011, we announced the planned closure of three manufacturing facilities in the Americas segment as part of our ongoing efforts to improve the fitness of our business and strengthen the Company’s long-term competitiveness. We have moved production within these facilities to other Steelcase locations in North America and expect the manufacturing consolidation will be substantially complete by the end of 2013. We currently estimate the cash restructuring costs associated with these actions will be approximately $42 , with approximately $29 related to employee termination costs and approximately $13 related to business exit and other related costs. We incurred $0.9 and $3.7 of employee termination costs during the three and nine months ended November 23, 2012 , respectively. We incurred $2.1 and $7.3 of business exit and other related costs during the three and nine months ended November 23, 2012 , respectively. During 2012 and 2011, we incurred restructuring costs related to these plant closures of $17.9 and $10.1 , respectively.
Restructuring costs are summarized in the following table:
 
Three Months Ended
 
Nine Months Ended
Restructuring Costs
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Cost of sales
 

 
 

 
 

 
 

Americas
$
3.2

 
$
2.9

 
$
11.4

 
$
15.4

EMEA
0.1

 
0.4

 
0.4

 
8.2

Other

 

 

 
1.1

 
3.3

 
3.3

 
11.8

 
24.7

Operating expenses
 

 
 

 
 

 
 

Americas
1.8

 
0.5

 
1.8

 
0.5

EMEA
0.4

 
0.2

 
0.4

 
1.0

Other
0.5

 
(0.2
)
 
0.8

 
(0.2
)
 
2.7

 
0.5

 
3.0

 
1.3

 Total
$
6.0

 
$
3.8

 
$
14.8

 
$
26.0


Below is a summary of the net additions, payments and adjustments to the restructuring reserve balance for the nine months ended November 23, 2012 :
Restructuring Reserve
Employee
Termination Costs
Business Exits
and Related
Costs
Total
Reserve balance as of February 24, 2012
$
12.9

 
$
4.7

 
$
17.6

Additions
6.2

 
8.6

 
14.8

Payments
(11.8
)
 
(10.7
)
 
(22.5
)
Adjustments
(0.2
)
 
0.2

 

Reserve balance as of November 23, 2012
$
7.1

 
$
2.8

 
$
9.9

The employee termination costs reserve balance as of November 23, 2012 primarily relates to costs associated with the Q4 2011 announcement.

12


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 should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 24, 2012 . 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, balance sheets or statements of cash flows of the company. Pursuant to the requirements of Regulation G, we have provided a reconciliation below of non-GAAP financial measures to the most directly comparable GAAP financial measure.
The non-GAAP financial measures used are:  (1) organic revenue growth (decline), which represents the change in revenue excluding estimated currency translation effects and the impacts of acquisitions and divestitures, and (2) adjusted operating income (loss), which represents operating income (loss) excluding restructuring costs. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors.
Financial Summary
Results of Operations
 
Three Months Ended
Nine Months Ended
Statement of Operations Data
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Revenue
$
727.2

 
100.0
 %
 
$
719.4

 
100.0
 %
 
$
2,147.3

 
100.0
 %
 
$
2,059.3

 
100.0
 %
Cost of sales
498.0

 
68.5

 
496.3

 
69.0

 
1,485.5

 
69.2

 
1,430.5

 
69.5

Restructuring costs
3.3

 
0.4

 
3.3

 
0.4

 
11.8

 
0.5

 
24.7

 
1.2

Gross profit
225.9

 
31.1

 
219.8

 
30.6

 
650.0

 
30.3

 
604.1

 
29.3

Operating expenses
184.8

 
25.4

 
181.1

 
25.2

 
542.5

 
25.3

 
524.2

 
25.4

Restructuring costs
2.7

 
0.4

 
0.5

 
0.1

 
3.0

 
0.1

 
1.3

 
0.1

Operating income
38.4

 
5.3

 
38.2

 
5.3

 
104.5

 
4.9

 
78.6

 
3.8

Interest expense, investment income and other income, net
(1.3
)
 
(0.2
)
 
(3.6
)
 
(0.5
)
 
(2.5
)
 
(0.1
)
 
(17.3
)
 
(0.8
)
Income before income tax expense
37.1

 
5.1

 
34.6

 
4.8

 
102.0

 
4.8

 
61.3

 
3.0

Income tax expense
13.5

 
1.9

 
12.2

 
1.7

 
35.7

 
1.7

 
19.5

 
1.0

Net income
$
23.6

 
3.2
 %
 
$
22.4

 
3.1
 %
 
$
66.3

 
3.1
 %
 
$
41.8

 
2.0
 %
Earnings per share:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Basic
$
0.19

 
 

 
$
0.17

 
 

 
$
0.52

 
 

 
$
0.31

 
 

Diluted
$
0.18

 
 

 
$
0.17

 
 

 
$
0.52

 
 

 
$
0.31

 
 



13

Table of Contents

Q3 2013 Organic Revenue Growth
Americas
EMEA
Other
Consolidated
Q3 2012 revenue
$
488.5

 
$
161.8

 
$
69.1

 
$
719.4

 
Currency translation effects*
0.7

 
(9.1
)
 
0.2

 
(8.2
)
 
   Q3 2012 revenue, adjusted
489.2

 
152.7

 
69.3

 
711.2

 
Q3 2013 revenue
503.2

 
157.1

 
66.9

 
727.2

 
Dealer acquisitions

 
(6.0
)
 

 
(6.0
)
 
   Q3 2013 revenue, adjusted
503.2

 
151.1

 
66.9

 
721.2

 
Organic growth (decline) $
$
14.0

 
$
(1.6
)
 
$
(2.4
)
 
$
10.0

 
Organic growth (decline) %
3
%
 
(1
)%
 
(3
)%
 
1
%
 
 
 
 
 
 
 
 
 
 
* Currency translation effects represent the estimated net effect of translating Q3 2012 foreign currency revenues using the average exchange rates during Q3 2013.

Year-to-Date 2013 Organic Revenue Growth
Americas
EMEA
Other
Consolidated
Year-to-date 2012 revenue
$
1,399.9

 
$
453.2

 
$
206.2

 
$
2,059.3

 
Divestiture

 

 
(8.6
)
 
(8.6
)
 
Currency translation effects*
(1.1
)
 
(35.1
)
 
0.4

 
(35.8
)
 
   Year-to-date 2012 revenue, adjusted
1,398.8

 
418.1

 
198.0

 
2,014.9

 
Year-to-date 2013 revenue
1,522.2

 
426.3

 
198.8

 
2,147.3

 
Dealer acquisitions
(10.5
)
 
(6.7
)
 

 
(17.2
)
 
   Year-to-date 2013 revenue, adjusted
1,511.7

 
419.6

 
198.8

 
2,130.1

 
Organic growth $
$
112.9

 
$
1.5

 
$
0.8

 
$
115.2

 
Organic growth %
8
%
 
%
 
%
 
6
%
 
 
 
 
 
 
 
 
 
 
* Currency translation effects represent the estimated net effect of translating Q3 2012, Q2 2012 and Q1 2012 foreign currency revenues using the average exchange rates during Q3 2013, Q2 2013 and Q1 2013, respectively.

 
Three Months Ended
Nine Months Ended
Reconciliation of Operating Income to
Adjusted Operating Income
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Operating income
$
38.4

 
5.3
%
 
$
38.2

 
5.3
%
 
$
104.5

 
4.9
%
 
$
78.6

 
3.8
%
Add: Restructuring costs
6.0

 
0.8

 
3.8

 
0.5

 
14.8

 
0.6

 
26.0

 
1.3

Adjusted operating income
$
44.4

 
6.1
%
 
$
42.0

 
5.8
%
 
$
119.3

 
5.5
%
 
$
104.6

 
5.1
%
Overview
In Q3 2013 , we experienced organic revenue growth of 1% compared to the prior year, which represents the eleventh consecutive quarter of year-over-year organic revenue growth. This growth is generally consistent with or better than global trends in our industry, driven in significant part by increased large project business. Companies have been increasing corporate spending thus far in the economic recovery, leveraging the strength of their cash positions. In recent months, white collar employment and new construction (traditional industry drivers) have started to modestly improve in the Americas, but the broader economic recovery remains challenged by a variety of headwinds, particularly in Europe and more recently in Asia.
Additionally, we believe many of our customers have deferred spending during a decade in which various forces have dramatically impacted their work environments, and many are at the point where they are now investing to modernize their spaces. We have been conducting research and launching new products, applications and experiences over the past several years to address these forces, some of which include globalization trends, miniaturization of technology, mobility of workers, increased collaboration and multi-generations at work. We believe staying invested in these growth initiatives during the worst of the recession helped drive our revenue growth as our customers increased spending. During the second half of 2012 and through 2013, we increased investments in product development and other initiatives. We believe these investments will strengthen our market leadership and help to sustain the momentum we have in our business.

14

Table of Contents

Q3 2013 Compared to Q3 2012
We recorded Q3 2013  net income of $23.6 compared to Q3 2012  net income of $22.4 . The increase in net income was driven by improved operating results and higher gains in the cash surrender value of variable life company owned life insurance (“COLI”) income. These increases were partially offset by higher restructuring costs.
Revenue for Q3 2013 was $727.2 compared to $719.4 in Q3 2012 . Organic revenue growth was 1% after adjusting for currency translation effects and the impact of dealer acquisitions. We realized organic revenue growth of 3% in the Americas while EMEA and the Other category experienced modest organic declines. Current quarter revenue continued to include a higher mix of project business from some of the company's largest corporate customers.
Operating income was $38.4 in Q3 2013 compared to $38.2 in the prior year. Q3 2013 adjusted operating income of $44.4 increased by $2.4 compared to Q3 2012 adjusted operating income of $42.0 . Strength in the Americas was largely offset by lower profitability in EMEA and the Other category.
Cost of sales was 68.5% of revenue in Q3 2013 , a 50  basis point improvement compared to Q3 2012 . Year-over-year benefits from recent pricing adjustments (net of commodity cost changes) and restructuring actions (net of related disruption costs) and other cost reductions in the Americas were partially offset by the increase in lower-margin project business.
Operating expenses in Q3 2013 of $184.8 increased by $3.7 compared to Q3 2012 operating expenses of $181.1 . The comparison included $5.9 of higher variable compensation (including expenses associated with our EVA-based bonus programs and the Steelcase Inc. Retirement Plan) and $2.0 of additional operating expenses related to dealer acquisitions, partially offset by $2.4 of favorable currency translation effects.
We recorded restructuring costs of $6.0 in Q3 2013 , which included $3.0 associated with the North America plant closures announced in Q4 2011 and $1.6 associated with the integration of PolyVision's global technology business into the Steelcase Education Solutions group. In Q3 2012 , we recorded restructuring costs of $3.8 , $3.0 of which was associated with the North America plant closures.
Our Q3 2013 effective tax rate was 36.5% which compared to 35.3% in Q3 2012 .
Year-to-Date 2013 Compared to Year-to-Date 2012
We recorded year-to-date 2013 net income of $66.3 compared to year-to-date 2012 net income of $41.8 . The increase in net income was driven by improved operating results, lower interest expense and higher gains in the cash surrender value of variable life COLI. These increases were partially impacted by favorable tax items recorded in year-to-date 2012.
Year-to-date 2013 revenue increased $88.0 or 4.3% compared to year-to-date 2012 , representing organic revenue growth of 6% after adjusting for unfavorable currency translation effects and the net impacts of acquisitions and divestitures. We realized organic revenue growth of 8% in the Americas, while EMEA and the Other category were flat.
Year-to-date 2013 operating income grew to $104.5 compared to $78.6 in the prior year. Year-to-date 2013 adjusted operating income improved to $119.3 from $104.6 in the prior year. Strength in the Americas was largely offset by lower profitability in EMEA and the Other category.
Year-to-date 2013 cost of sales was 69.2% , a 30 basis point improvement compared to year-to-date 2012 . The improvement in cost of sales was driven by higher absorption of fixed costs associated with the organic revenue growth as well as the same factors impacting our Q3 2013 results.
Year-to-date 2013 operating expenses of $542.5 increased $18.3 compared to the same period last year but decreased slightly as a percentage of sales to 25.3% from 25.4% . The comparison included $9.9 of favorable currency translation effects and $3.3 related to net acquisitions and divestitures. Additionally, operating expenses included a net increase of $9.8 related to variable compensation (including expenses associated with our EVA-based bonus programs and the Steelcase Inc. Retirement Plan). The remaining increase of $15.1 over the prior year primarily related to increased spending on sales, product development and other initiatives in the Americas and Asia Pacific.
We recorded year-to-date 2013 restructuring costs of $14.8 compared to $26.0 for year-to-date 2012 . The year-to-date 2013 amount included $11.0 associated with the North America plant closures announced in Q4 2011 and $1.6 associated with the integration of PolyVision's global technology business into the Steelcase

15

Table of Contents

Education Solutions group. The year-to-date 2012 amount included $15.1 associated with the North America plant closures, and $9.2 of EMEA costs of which $6.4 related to the Morocco plant closure.
Our year-to-date 2013 effective tax rate reflects an estimated annual tax rate of 35% . Our year-to-date 2012 effective tax rate was 32% and included a net benefit of $2.0 for miscellaneous discrete tax items, the majority of which related to the divestiture of a small division at PolyVision.
Interest Expense, Investment Income and Other Income, Net
 
Three Months Ended
Nine Months Ended
Interest Expense, Investment Income and Other Income, Net
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Interest expense
$
(4.2
)
 
$
(4.1
)
 
$
(13.3
)
 
$
(20.1
)
Investment income (loss)
1.1

 
(0.6
)
 
3.5

 
(0.3
)
Other income (expense), net:
 

 
 

 
 

 
 

Equity in income of unconsolidated ventures
2.6

 
1.7

 
6.6

 
5.4

Miscellaneous, net
(0.8
)
 
(0.6
)
 
0.7

 
(2.3
)
Total other income, net
1.8

 
1.1

 
7.3

 
3.1

Total interest expense, investment income (loss) and other income, net
$
(1.3
)
 
$
(3.6
)
 
$
(2.5
)
 
$
(17.3
)
The year-to-date decrease in interest expense resulted from the additional $7.7 incurred in 2012 associated with $250 of senior notes which matured and were repaid in Q2 2012. The Q3 2013 and year-to-date 2013 change in investment income (loss) was primarily driven by higher gains in the cash surrender value of variable life COLI during the current periods. The year-to-date increase in other income, net was primarily due to a $2.1 gain recognized on the sale of a small equity investment in Q1 2013.
Business Segment Review
As of November 23, 2012, we realigned portions of our reportable segments for financial reporting purposes as a result of the integration of the PolyVision global technology business into the Steelcase Education Solutions group. Prior to this change, the PolyVision global technology business was combined with the PolyVision surfaces business and was reported collectively as PolyVision in the Other category along with Asia Pacific and Designtex. As a result of these changes, the results of the PolyVision technology business are now reported in the Americas and EMEA segments. The PolyVision surfaces business remains in the Other category. Similarly, amounts in the prior years' financial statements have been reclassified to conform to the new segment presentation.
See Note 8 to the condensed consolidated financial statements for additional information regarding our business segments.
Americas
The Americas segment serves customers in the U.S., Canada and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, Turnstone, Details and Nurture by Steelcase brands.
 
Three Months Ended
Nine Months Ended
Statement of Operations Data — Americas
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Revenue
$
503.2

 
100.0
%
 
$
488.5

 
100.0
%
 
$
1,522.2

 
100.0
%
 
$
1,399.9

 
100.0
%
Cost of sales
342.8

 
68.1

 
340.5

 
69.7

 
1,045.7

 
68.7

 
975.8

 
69.7

Restructuring costs
3.2

 
0.7

 
2.9

 
0.6

 
11.4

 
0.7

 
15.4

 
1.1

Gross profit
157.2

 
31.2

 
145.1

 
29.7

 
465.1

 
30.6

 
408.7

 
29.2

Operating expenses
113.3

 
22.5

 
107.5

 
22.0

 
329.3

 
21.7

 
309.9

 
22.1

Restructuring costs
1.8

 
0.3

 
0.5

 
0.1

 
1.8

 
0.1

 
0.5

 
0.1

Operating income
$
42.1

 
8.4
%
 
$
37.1

 
7.6
%
 
$
134.0

 
8.8
%
 
$
98.3

 
7.0
%


16

Table of Contents

 
Three Months Ended
Nine Months Ended
Reconciliation of Operating Income to
Adjusted Operating Income — Americas
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Operating income
$
42.1

 
8.4
%
 
$
37.1

 
7.6
%
 
$
134.0

 
8.8
%
 
$
98.3

 
7.0
%
Add: restructuring costs
5.0

 
1.0

 
3.4

 
0.7

 
13.2

 
0.8

 
15.9

 
1.2

Adjusted operating income
$
47.1

 
9.4
%
 
$
40.5

 
8.3
%
 
$
147.2

 
9.6
%
 
$
114.2

 
8.2
%

Operating income in the Americas of $42.1 in Q3 2013 increased by $5.0 compared to Q3 2012 operating income of $37.1 . Adjusted operating income increased by $6.6 in Q3 2013 compared to Q3 2012 . The improvement was driven largely by year-over-year benefits from improved pricing (net of commodity cost changes) and restructuring actions (net of disruption related costs), offset in part by higher variable compensation and a higher mix of lower-margin project business from some of the company's largest corporate customers. The $33.0 improvement in year-to-date 2013 adjusted operating income was due to similar factors impacting our Q3 2013 results, but the improvements were also driven by benefits associated with the organic revenue growth, partially offset by increased spending on sales, product development and other initiatives.
The Americas revenue represented 69.2% of consolidated revenue in Q3 2013 . Revenue for Q3 2013 was $503.2 compared to $488.5 in Q3 2012 , an increase of $14.7 or 3.0% . After adjusting for currency translation effects, organic revenue growth was $14.0 or 3% . Based on the most recent information available from the Business and Institutional Furniture Manufacturers Association, we believe we are continuing to gain market share in the U.S. Current quarter orders grew 7% compared to the prior year. Revenue growth in Q3 2013 is categorized as follows:
Product categories — Most product categories experienced growth in Q3, with notable growth rates in Technology and Details.
Vertical markets — Strength was broad-based, including the Manufacturing, Insurance Services and Information Technology sectors, but was partially offset by continued weakness in the Federal Government and Financial Services sectors.
Geographic regions — Growth rates were the strongest in Latin America and in the Eastern Business Group of North America. 
Contract type — Growth in project business continued to outpace growth in continuing business.
After adjusting for revenue from a dealer acquired in Q1 2012 and currency translation effects, year-to-date 2013 organic revenue growth was $112.9 or 8% .
Cost of sales improved to 68.1% of revenue in Q3 2013 compared to 69.7% of revenue in Q3 2012 . Benefits from improved pricing (net of commodity cost increases) and restructuring actions (net of related disruption costs) were partially offset by a higher mix of lower-margin project business weighted more heavily towards some of our largest corporate customers (which was somewhat offset by a lower mix of federal government business in the U.S.). Year-to-date 2013 cost of sales improved by 100 basis points and was affected by the same factors as Q3 2013 results as well as higher absorption of fixed costs associated with the organic revenue growth.
Operating expenses increased by $5.8 in Q3 2013 compared to the same period last year. The increase primarily related to $5.0 of higher variable compensation expense. Year-to-date 2013 operating expenses increased by $19.4 . The increase included $1.7 of expenses related to a dealer acquired in Q1 2012 and $8.6 of increased variable compensation. The remaining increase related to higher spending on sales, product development and other initiatives.
Restructuring costs of $5.0 in Q3 2013 included $3.0 associated with the North America plant closures announced in Q4 2011 and $1.6 associated with the integration of PolyVision's global technology business into the Steelcase Education Solutions group. Restructuring costs of $13.2 in year-to-date 2013 primarily related to the North America plant closures.
EMEA
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase brand, with an emphasis on freestanding furniture systems, seating and storage solutions.

17


 
Three Months Ended
Nine Months Ended
Statement of Operations Data — EMEA
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Revenue
$
157.1

 
100.0
%
 
$
161.8

 
100.0
%
 
$
426.3

 
100.0
 %
 
$
453.2

 
100.0
 %
Cost of sales
111.6

 
71.0

 
111.6

 
69.0

 
310.2

 
72.8

 
320.1

 
70.6

Restructuring costs
0.1

 
0.1

 
0.4

 
0.2

 
0.4

 
0.1

 
8.2

 
1.8

Gross profit
45.4

 
28.9

 
49.8

 
30.8

 
115.7

 
27.1

 
124.9

 
27.6

Operating expenses
44.2

 
28.2

 
45.6

 
28.2

 
127.7

 
29.9

 
134.6

 
29.7

Restructuring costs
0.4

 
0.2

 
0.2

 
0.1

 
0.4

 
0.1

 
1.0

 
0.2

Operating income (loss)
$
0.8

 
0.5
%
 
$
4.0

 
2.5
%
 
$
(12.4
)
 
(2.9
)%
 
$
(10.7
)
 
(2.3
)%

Reconciliation of Operating Income (Loss) to Adjusted Operating Income (Loss) — EMEA
Three Months Ended
 
Nine Months Ended
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Operating income (loss)
$
0.8

 
0.5
%
 
$
4.0

 
2.5
%
 
$
(12.4
)
 
(2.9
)%
 
$
(10.7
)
 
(2.3
)%
Add: restructuring costs
0.5

 
0.3

 
0.6

 
0.3

 
0.8

 
0.2

 
9.2

 
2.0

Adjusted operating income (loss)
$
1.3

 
0.8
%
 
$
4.6

 
2.8
%
 
$
(11.6
)
 
(2.7
)%
 
$
(1.5
)
 
(0.3
)%

Operating income in EMEA of $0.8 in Q3 2013 represents a decline of $3.2 compared to the Q3 2012 operating income of $4.0 . The adjusted operating income recorded in Q3 2013 was $1.3 compared to $4.6 in the same period of the prior year. The decline was driven by a higher mix of lower-margin project business, offset in part by lower operating costs. The year-to-date 2013 operating loss of $12.4 compares to a year-to-date 2012 operating loss of $10.7 . The year-to-date 2013 adjusted operating loss of $11.6 represented a decline of $10.1 compared to the year-to-date 2012 operating loss of $1.5 . The decline was driven by the same factors impacting our Q3 2013 results.
EMEA revenue represented 21.6% of consolidated revenue in Q3 2013 . Revenue for Q3 2013 was $157.1 compared to $161.8 in Q3 2012 . After adjusting for currency translation effects of $9.1 and the impact of revenue from dealer acquisitions of $6.0 , the organic revenue decline was $1.6 or 1% . Year-to-date 2013 organic revenue growth was $1.5 or 0% . For both Q3 2013 and year-to-date 2013 , revenue growth in France, Northern Europe and the export markets of the eastern, central and southern parts of Europe, the Middle East and Africa (as a group) was offset by declines in Germany and Iberia. In addition, increases in lower-margin large project business were offset by declines in higher-margin day-to-day business.
Cost of sales climbed to 71.0% of revenue in Q3 2013 from 69.0% of revenue in Q3 2012 , a 200 basis point erosion. Year-to-date 2013 cost of sales eroded 220 basis points to 72.8% . The erosion was primarily driven by a higher mix of lower-margin project business.
Q3 2013 operating expenses decreased by $1.4 and year-to-date 2013 decreased by $6.9 compared to the prior year. These decreases were primarily due to favorable currency translation effects and cost containment efforts.
Year-to-date 2012 restructuring costs of $9.2 consist of $6.4 related to the closure of the Morocco manufacturing facility and $2.8 related to the completion of actions launched in prior periods.
Other
The Other category includes Asia Pacific, PolyVision and Designtex. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, storage and seating solutions. Designtex designs and sells surface materials including textiles and wall coverings which are specified by architects and designers directly to end-use customers through a direct sales force. PolyVision manufactures steel and ceramic surfaces for use in multiple applications but primarily for sale to third-party fabricators to create static whiteboards sold in the primary and secondary education markets in the U.S. and Europe.

18


 
Three Months Ended
Nine Months Ended
Statement of Operations Data — Other
November 23,
2012
November 25,
2011
November 23,
2012
November 25,
2011
Revenue
$
66.9

 
100.0
%
 
$
69.1

 
100.0
 %
 
$
198.8

 
100.0
%
 
$
206.2

 
100.0
 %
Cost of sales
43.6

 
65.2

 
44.2

 
64.0

 
129.6

 
65.2

 
134.6

 
65.3

Restructuring costs

 

 

 

 

 

 
1.1