STEELCASE INC (Form: 10-Q, Received: 09/26/2014 16:48:38)
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 August 29, 2014
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  þ
Accelerated filer  o
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 September 22, 2014 , Steelcase Inc. had 88,772,841  shares of Class A Common Stock and 32,530,413  shares of Class B Common Stock outstanding.
 


Table of Contents

STEELCASE INC.
FORM 10-Q


FOR THE QUARTERLY PERIOD ENDED AUGUST 29, 2014

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
Six Months Ended
 
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Revenue
$
786.7

 
$
757.6

 
$
1,509.8

 
$
1,424.7

Cost of sales
536.1

 
513.4

 
1,040.6

 
970.6

Restructuring costs (benefits)
6.2

 
(0.1
)
 
(4.3
)
 
0.1

Gross profit
244.4

 
244.3

 
473.5

 
454.0

Operating expenses
191.4

 
188.9

 
383.3

 
374.0

Restructuring costs
0.2

 
3.4

 
1.0

 
7.6

Operating income
52.8

 
52.0

 
89.2

 
72.4

Interest expense
(4.4
)
 
(4.5
)
 
(8.8
)
 
(8.9
)
Investment income (expense)
0.5

 
(1.8
)
 
0.9

 
(1.2
)
Other income, net
3.2

 
0.6

 
6.7

 
1.8

Income before income tax expense
52.1

 
46.3

 
88.0

 
64.1

Income tax expense
21.6

 
18.7

 
36.5

 
23.3

Net income
$
30.5

 
$
27.6

 
$
51.5

 
$
40.8

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.24

 
$
0.22

 
$
0.41

 
$
0.32

Diluted
$
0.24

 
$
0.22

 
$
0.41

 
$
0.32

Dividends declared and paid per common share
$
0.105

 
$
0.10

 
$
0.21

 
$
0.20

    

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
Six Months Ended
 
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Net income
$
30.5

 
$
27.6

 
$
51.5

 
$
40.8

Other comprehensive income (loss), net:
 
 
 
 
 
 
 
Unrealized gain (loss) on investments
(0.1
)
 

 

 
0.2

Pension and other post-retirement liability adjustments
(1.3
)
 
(1.4
)
 
(2.6
)
 
(2.4
)
Foreign currency translation adjustments
(2.3
)
 
0.7

 
(1.6
)
 
(0.8
)
Total other comprehensive loss, net
(3.7
)
 
(0.7
)
 
(4.2
)
 
(3.0
)
Comprehensive income
$
26.8

 
$
26.9

 
47.3

 
37.8


See accompanying notes to the condensed consolidated financial statements.


2

Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
 
(Unaudited)
 
 
August 29,
2014
February 28,
2014
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
155.7

 
$
201.8

Short-term investments
74.1

 
119.5

Accounts receivable, net of allowances of $12.9 and $13.0
346.8

 
306.8

Inventories
182.5

 
151.5

Deferred income taxes
38.0

 
56.0

Prepaid expenses
21.7

 
19.3

Other current assets
34.0

 
35.0

Total current assets
852.8

 
889.9

Property, plant and equipment, net of accumulated depreciation of $1,107.1 and $1,140.8
388.7

 
377.0

Company-owned life insurance
156.8

 
154.3

Deferred income taxes
84.9

 
85.1

Goodwill
108.3

 
108.1

Other intangible assets, net of accumulated amortization of $42.6 and $41.8
15.7

 
16.6

Investments in unconsolidated affiliates
55.0

 
53.0

Other assets
40.6

 
42.7

Total assets
$
1,702.8

 
$
1,726.7

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 

 
 

Accounts payable
$
243.2

 
$
212.5

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

 
2.6

Accrued expenses:
 

 
 

Employee compensation
109.7

 
152.8

Employee benefit plan obligations
22.5

 
26.1

Customer deposits
22.4

 
16.0

Product warranties
20.4

 
17.5

Other
109.1

 
110.7

Total current liabilities
529.9

 
538.2

Long-term liabilities:
 

 
 

Long-term debt less current maturities
283.2

 
284.4

Employee benefit plan obligations
148.4

 
151.1

Other long-term liabilities
65.0

 
75.9

Total long-term liabilities
496.6

 
511.4

Total liabilities
1,026.5

 
1,049.6

Shareholders’ equity:
 

 
 

Common stock

 

Additional paid-in capital

 

Accumulated other comprehensive income (loss)
(3.4
)
 
0.8

Retained earnings
679.7

 
676.3

Total shareholders’ equity
676.3

 
677.1

Total liabilities and shareholders’ equity
$
1,702.8

 
$
1,726.7

See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents

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

 
Six Months Ended
 
August 29,
2014
August 23,
2013
OPERATING ACTIVITIES
 

 
 

Net income
$
51.5

 
$
40.8

Depreciation and amortization
29.3

 
28.9

Deferred income taxes
18.1

 
0.1

Restructuring costs (benefits)
(3.3
)
 
7.7

Non-cash stock compensation
12.6

 
12.5

Equity in income of unconsolidated affiliates
(7.4
)
 
(4.5
)
Dividends received from unconsolidated affiliates
5.4

 
3.2

Other
(3.7
)
 
0.2

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(43.2
)
 
(43.8
)
Inventories
(32.5
)
 
(17.6
)
Other assets
(14.9
)
 
(11.1
)
Accounts payable
32.2

 
28.6

Employee compensation liabilities
(54.5
)
 
(31.3
)
Employee benefit obligations
(9.4
)
 
(12.2
)
Accrued expenses and other liabilities
3.6

 
15.6

Net cash provided by (used in) operating activities
(16.2
)
 
17.1

INVESTING ACTIVITIES
 

 
 

Capital expenditures
(44.3
)
 
(36.4
)
Proceeds from disposal of fixed assets
19.1

 
1.6

Purchases of short-term investments
(58.6
)
 
(17.8
)
Liquidations of short-term investments
105.1

 
74.5

Other
11.0

 
(1.5
)
Net cash provided by investing activities
32.3

 
20.4

FINANCING ACTIVITIES
 

 
 

Dividends paid
(26.6
)
 
(25.1
)
Common stock repurchases
(34.3
)
 
(31.8
)
Excess tax benefit from vesting of stock awards
0.2

 
(1.0
)
Repayments of long-term debt
(1.2
)
 
(1.2
)
Repayments of lines of credit

 
(0.1
)
Net cash used in financing activities
(61.9
)
 
(59.2
)
Effect of exchange rate changes on cash and cash equivalents
(0.3
)
 
(0.9
)
Net decrease in cash and cash equivalents
(46.1
)
 
(22.6
)
Cash and cash equivalents, beginning of period
201.8

 
150.4

Cash and cash equivalents, end of period
$
155.7

 
$
127.8


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 28, 2014 (“Form 10-K”). The Condensed Consolidated Balance Sheet as of February 28, 2014 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 May 2014, the Financial Accounting Standards Board issued a new standard on revenue recognition. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
3.
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 represent 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
Six Months Ended
Computation of Earnings per Share
August 29,
2014
 
August 23,
2013
August 29,
2014
 
August 23,
2013
Net income
$
30.5

 
$
27.6

 
$
51.5

 
$
40.8

Adjustment for earnings attributable to participating securities
(0.6
)
 
(0.5
)
 
(0.9
)
 
(0.6
)
Net income used in calculating earnings per share
$
29.9

 
$
27.1

 
$
50.6

 
$
40.2

Weighted-average common shares outstanding including participating securities (in millions)
124.8

 
125.9

 
125.0

 
126.2

Adjustment for participating securities (in millions)
(2.5
)
 
(2.0
)
 
(2.3
)
 
(1.9
)
Shares used in calculating basic earnings per share (in millions)
122.3

 
123.9

 
122.7

 
124.3

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

 
1.9

 
1.3

 
1.9

Shares used in calculating diluted earnings per share (in millions)
123.5

 
125.8

 
124.0

 
126.2

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.24

 
$
0.22

 
$
0.41

 
$
0.32

Diluted
$
0.24

 
$
0.22

 
$
0.41

 
$
0.32

Total common shares outstanding at period end (in millions)
121.3

 
123.9

 
121.3

 
123.9

 
 
 
 
 
 
 
 
Anti-dilutive performance units excluded from computation of diluted earnings per share (in millions)
0.1

 

 
0.1

 

4.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the changes in accumulated balances of other comprehensive income for the three months ended August 29, 2014 :
 
Unrealized gain on investments
Pension and other post-retirement liability adjustments
Derivative adjustments
Foreign currency translation adjustments
Total
Balance as of May 30, 2014
$
0.9

 
$
18.3

 
$
(0.1
)
 
$
(18.8
)
 
$
0.3

 
Other comprehensive loss before reclassifications
(0.1
)
 

 

 
(2.3
)
 
(2.4
)
 
Amounts reclassified from accumulated other comprehensive loss

 
(1.3
)
 

 

 
(1.3
)
 
Net current period other comprehensive loss
(0.1
)
 
(1.3
)
 

 
(2.3
)
 
(3.7
)
 
Balance as of August 29, 2014
$
0.8

 
$
17.0

 
$
(0.1
)
 
$
(21.1
)
 
$
(3.4
)
 


6

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the changes in accumulated balances of other comprehensive income for the six months ended August 29, 2014 :
 
Unrealized gain on investments
Pension and other post-retirement liability adjustments
Derivative adjustments
Foreign currency translation adjustments
Total
Balance as of February 28, 2014
$
0.8

 
$
19.6

 
$
(0.1
)
 
$
(19.5
)
 
$
0.8

 
Other comprehensive loss before reclassifications

 

 

 
(1.6
)
 
(1.6
)
 
Amounts reclassified from accumulated other comprehensive loss

 
(2.6
)
 

 

 
(2.6
)
 
Net current period other comprehensive income loss

 
(2.6
)
 

 
(1.6
)
 
(4.2
)
 
Balance as of August 29, 2014
$
0.8

 
$
17.0

 
$
(0.1
)
 
$
(21.1
)
 
$
(3.4
)
 

The following table provides details about reclassifications out of accumulated other comprehensive income for the three and six months ended August 29, 2014 and August 23, 2013 :
Detail of Accumulated Other
Comprehensive Income Components
Amounts Reclassified from Accumulated Other Comprehensive Income
Affected Line in the Condensed Consolidated Statements of Income
Three Months Ended
Six Months Ended
August 29,
2014
August 23,
2013
August 29,
2014
August 23, 2013
Unrealized gains on investments
$

 
$
(0.2
)
 
$

 
$
(0.1
)
 
Other income
 

 

 

 

 
Income tax expense
 

 
(0.2
)
 

 
(0.1
)
 
Net income
 
 
 
 
 
 
 
 
 
 
Amortization of pension and other post-retirement liability adjustments
 
 
 
 
 
 
 
 
 
Actuarial losses (gains)

 
0.1

 

 
0.2

 
Cost of sales
Actuarial losses (gains)
0.1

 
0.2

 
0.2

 
0.5

 
Operating expenses
Prior service cost (credit)
(1.0
)
 
(1.2
)
 
(2.1
)
 
(2.2
)
 
Cost of sales
Prior service cost (credit)
(1.2
)
 
(1.3
)
 
(2.4
)
 
(2.4
)
 
Operating expenses
 
0.8

 
0.8

 
1.7

 
1.5

 
Income tax expense
 
(1.3
)
 
(1.4
)
 
(2.6
)
 
(2.4
)
 
Net income
Total reclassifications
$
(1.3
)
 
$
(1.6
)
 
$
(2.6
)
 
$
(2.5
)
 
 
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 $285.8 and $287.0 as of August 29, 2014 and February 28, 2014 , 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 $329 and $327 as of August 29, 2014 and February 28, 2014 , respectively.
We periodically use derivative financial instruments to manage exposures to movements in foreign exchange rates and interest rates. The use of these financial instruments modifies the exposure of these risks with the intention to reduce our risk of short-term volatility. We do not use derivatives for speculative or trading purposes.

7

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and liabilities measured at fair value in our Consolidated Balance Sheets as of August 29, 2014 and February 28, 2014 are summarized below:
 
August 29, 2014
Fair Value of Financial Instruments
Level 1
Level 2
Level 3
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
155.7

 
$

 
$

 
$
155.7

Restricted cash
7.7

 

 

 
7.7

Managed investment portfolio and other investments
 
 
 
 
 
 
 
Corporate debt securities

 
44.5

 

 
44.5

U.S. agency debt securities

 
19.2

 

 
19.2

Asset backed securities

 
4.4

 

 
4.4

U.S. government debt securities
3.3

 

 

 
3.3

Other investments

 
2.7

 

 
2.7

Foreign exchange forward contracts

 
5.0

 

 
5.0

Canadian asset-backed commercial paper restructuring notes

 
3.9

 

 
3.9

Auction rate securities
$

 
$

 
$
9.7

 
$
9.7

 
$
166.7

 
$
79.7

 
$
9.7

 
$
256.1

Liabilities
 

 
 

 
 

 
 

Foreign exchange forward contracts
$

 
$
(0.7
)
 
$

 
$
(0.7
)
 
$

 
$
(0.7
)
 
$

 
$
(0.7
)
 
 
 
 
 
 
 
 
 
February 28, 2014
Fair Value of Financial Instruments
Level 1
Level 2
Level 3
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
201.8

 
$

 
$

 
$
201.8

Restricted cash
9.0

 

 

 
9.0

Managed investment portfolio and other investments
 
 
 
 
 
 
 
Corporate debt securities

 
48.0

 

 
48.0

U.S. agency debt securities

 
48.9

 

 
48.9

Asset backed securities

 
5.6

 

 
5.6

U.S. government debt securities
7.8

 

 

 
7.8

Municipal debt securities

 
3.4

 

 
3.4

Other investments

 
5.8

 

 
5.8

Foreign exchange forward contracts

 
0.3

 

 
0.3

Canadian asset-backed commercial paper restructuring notes

 
3.7

 

 
3.7

Auction rate securities

 

 
9.6

 
9.6

 
$
218.6

 
$
115.7

 
$
9.6

 
$
343.9

Liabilities
 

 
 

 
 

 
 

Foreign exchange forward contracts
$

 
$
(3.2
)
 
$

 
$
(3.2
)
 
$

 
$
(3.2
)
 
$

 
$
(3.2
)


8

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 six months ended August 29, 2014 :
Roll-Forward of Fair Value Using Level 3 Inputs
Auction Rate Securities
Balance as of February 28, 2014
$
9.6

Unrealized gain on investments
0.1

Other-than-temporary impairments

Currency translation adjustment

Balance as of August 29, 2014
$
9.7

6.
    INVENTORIES
Inventories
August 29,
2014
February 28,
2014
Raw materials and work-in-process
$
96.6

 
$
85.3

Finished goods
107.3

 
87.7

 
203.9

 
173.0

Revaluation to LIFO
21.4

 
21.5

 
$
182.5

 
$
151.5

The portion of inventories determined by the LIFO method was $71.5 as of August 29, 2014 and $70.8 as of February 28, 2014 .
7.
SHARE-BASED COMPENSATION
Performance Units
In Q1 2015, we awarded 305,512 performance units ("PSUs") to our executive officers. Of the PSUs awarded, 152,756 units are earned after a three-year performance period, from 2015 through 2017, based on our total shareholder return relative to a comparison group of companies, which is a market condition, 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 this award is 305,512 . These PSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the performance period. We used the Monte Carlo simulation model to calculate the fair value of these PSUs on the date of grant. The model resulted in a weighted average grant date fair value of $23.25 per unit for these PSUs, compared to $15.50 and $11.92 per unit for PSUs granted in 2014 and 2013, respectively.
The weighted average grant date fair values were determined using the following assumptions:
 
2015 Awards
2014 Awards
2013 Awards
Three-year risk-free interest rate (1)
0.7
%
0.3
%
0.5
%
Expected term
3 years

3 years

3 years

Estimated volatility (2)
42.2
%
44.7
%
49.8
%
_______________________________________
(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 remaining 152,756 PSUs awarded during Q1 2015 are earned after a three-year performance period, from 2015 through 2017, based on our three-year average return on invested capital, which is a performance condition, and, if earned, will be issued in the form of shares of Class A Common Stock. The number of shares that

9

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

may be earned can range from 0% to 200% of the target amount; therefore, the maximum number of shares that can be issued under this award is 305,512 . These units are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the performance periods based on the probability that the performance condition will be met. The expense recorded will be adjusted as the estimate of the total number of PSUs that will ultimately be earned changes. The weighted average grant date fair value of these PSUs was $16.69 . The fair value is equal to the closing stock price on the date of grant.
For all PSUs awarded in Q1 2015, 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. In addition, these awards will be forfeited if the participant leaves the 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.
The total PSU expense and associated tax benefit for all outstanding awards for the three and six months ended August 29, 2014 and August 23, 2013 are as follows:
 
Three Months Ended
Six Months Ended
Performance Units
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Expense
$
0.9

 
$
0.2

 
$
3.5

 
$
5.4

 
Tax benefit
0.3

 
0.1

 
1.3

 
2.1

 
As of August 29, 2014 , there was $6.5 of remaining unrecognized compensation cost related to nonvested PSUs, which is expected to be recognized over a remaining weighted-average period of 2.1  years.
The PSU activity for the six months ended August 29, 2014 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 28, 2014
1,833,288

$
14.04

Granted
611,024

19.97

Nonvested as of August 29, 2014
2,444,312

$
14.65

Restricted Stock Units
During the six months ended August 29, 2014 , we awarded 709,518 restricted stock units ("RSUs"), of which 130,181 were awarded to our executive officers. These RSUs have restrictions on transfer 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. Holders of RSUs receive cash dividends equal to the dividends we declare and pay on our Class A Common Stock, which are included in Dividends paid on the Condensed Consolidated Statements of Cash Flows. 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. RSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the requisite service period based on the value of the underlying shares on the date of grant.

10

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The RSU expense and associated tax benefit for all outstanding awards for the three and six months ended August 29, 2014 and August 23, 2013 are as follows:
 
Three Months Ended
Six Months Ended
Restricted Stock Units
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Expense
$
2.0

 
$
1.2

 
$
8.7

 
$
6.8

 
Tax benefit
0.7

 
0.2

 
3.1

 
2.2

 
As of August 29, 2014 , there was $11.5 of remaining unrecognized compensation cost related to nonvested RSUs, which is expected to be recognized over a weighted-average period of 2.0  years.
The RSU activity for the six months ended August 29, 2014 is as follows:
Nonvested Units
Total
Weighted-Average
Grant Date
Fair Value
per Unit
Nonvested as of February 28, 2014
2,001,758

$
11.71

Granted
709,518

16.63

Vested
(223,989
)
14.43

Forfeited
(26,463
)
12.92

Nonvested as of August 29, 2014
2,460,824

$
13.20


8.
REPORTABLE SEGMENTS
Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate expenses are reported as Corporate.
The Americas segment serves customers in the U.S., Canada 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, Details and Turnstone brands.
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions.
The Other category includes Asia Pacific, Designtex and PolyVision. 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 ceramic steel surfaces for use in multiple applications, but primarily for sale to third-party fabricators and distributors to create static whiteboards and chalkboards sold in the primary and secondary education markets globally.
Corporate costs include unallocated portions of shared service functions such as information technology, human resources, finance, executive, corporate facilities, legal and research. Corporate assets consist primarily of unallocated cash and investment balances and the cash surrender value of company-owned life insurance.

11

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue and operating income (loss) for the three and six months ended August 29, 2014 and August 23, 2013 and total assets as of August 29, 2014 and February 28, 2014 by segment are presented below:
 
Three Months Ended
Six Months Ended
Reportable Segment Statement of Operations Data
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Revenue
 

 
 

 
 
 
 
 
Americas
$
580.3

 
$
558.7

 
$
1,086.6

 
$
1,037.5

 
EMEA
131.1

 
132.4

 
278.7

 
259.1

 
Other
75.3

 
66.5

 
144.5

 
128.1

 
 
$
786.7

 
$
757.6

 
$
1,509.8

 
$
1,424.7

 
Operating income (loss)
 

 
 

 
 

 
 

 
Americas
$
80.1

 
$
78.3

 
$
133.3

 
$
117.0

 
EMEA
(21.7
)
 
(15.1
)
 
(29.4
)
 
(25.4
)
 
Other
3.4

 
1.1

 
3.4

 
3.0

 
Corporate
(9.0
)
 
(12.3
)
 
(18.1
)
 
(22.2
)
 
 
$
52.8

 
$
52.0

 
$
89.2

 
$
72.4

 

Reportable Segment Balance Sheet Data
August 29,
2014
February 28,
2014
Total assets
 

 
 

 
Americas
$
928.5

 
$
901.4

 
EMEA
312.1

 
288.6

 
Other
167.9

 
159.9

 
Corporate
294.3

 
376.8

 
 
$
1,702.8

 
$
1,726.7

 
9.
RESTRUCTURING ACTIVITIES
In Q2 2015, we announced additional restructuring actions in EMEA intended to safeguard our global competitiveness through changes in our EMEA manufacturing footprint. These actions relate to the exit of a manufacturing facility in Wisches, France and the transfer of its activities to other existing facilities in the EMEA region. On August 18, 2014, the Company accepted an offer from a third party for a unilateral put option for the transfer of the assets and activities relating to the Wisches facility. The Company has agreed to negotiate exclusively with the offeror through November 30, 2014. If the transfer is completed as contemplated by the offer, we expect to incur approximately $40 to $45 of net cash restructuring costs in connection with this project, with approximately $35 of costs to facilitate the transfer of the facility, workforce, inventory and certain equipment (including a facilitation fee to be paid to the transferee), and approximately $5 to $10 relating to business exit and other costs. We incurred $1.4 of business exit and other costs in the EMEA segment in connection with these actions during the three months ended August 29, 2014 .
In Q1 2015, we announced restructuring actions to close a manufacturing facility in High Point, North Carolina. In connection with this project, we expect to incur approximately $8 of cash restructuring costs, with approximately $4 relating to workforce reductions and approximately $4 relating to manufacturing consolidation and production moves. We incurred $0.7 of employee termination costs and $0.1 of business exit and other costs in the Americas segment in connection with these actions during the three and six months ended August 29, 2014 .
In Q1 2015, we recognized a $12.0 gain related to the sale of an idle manufacturing facility in the Americas segment that was closed as part of previously announced restructuring actions.
In Q3 2014, we announced restructuring actions in EMEA to safeguard our global competitiveness through changes in our EMEA manufacturing footprint. These actions consist of the closure of a manufacturing facility in Durlangen, Germany and the establishment of a new manufacturing location in Stribro, Czech Republic. In Q1 2015, we completed negotiations with the works councils related to these actions. In connection with this

12

STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

project, we expect to incur approximately $26 of cash restructuring costs, with approximately $19 related to employee termination costs and approximately $7 related to business exit and other related costs. We incurred $3.7 and $4.3 of employee termination costs in the EMEA segment in connection with these actions during the three and six months ended August 29, 2014 , respectively. We incurred $0.1 and $0.6 of business exit and other related costs in the EMEA segment in connection with these actions during the three and six months ended August 29, 2014 , respectively. During 2014, we incurred $0.7 of business exit and other related costs in the EMEA segment in connection with these actions.
In Q1 2014, we announced restructuring actions in EMEA to reorganize the sales, marketing and support functions in France. We currently estimate the cash restructuring costs associated with these actions will be approximately $9 , with approximately $8 related to employee termination costs and approximately $1 of business exit and other related costs. We incurred $0.2 and $0.8 of employee termination costs in the EMEA segment in connection with these actions during the three and six months ended August 29, 2014 , respectively. During 2014, we incurred $6.3 related to employee termination costs and $0.9 of business exit and other related costs in the EMEA segment in connection with these actions.
Restructuring costs (benefits) are summarized in the following table:
 
Three Months Ended
Six Months Ended
Restructuring Costs (Benefits)
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Cost of sales
 

 
 

 
 

 
 

Americas
$
0.7

 
$
(0.1
)
 
$
(10.9
)
 
$
0.1

EMEA
5.5

 

 
6.6

 

 
6.2

 
(0.1
)
 
(4.3
)
 
0.1

Operating expenses
 

 
 

 
 

 
 

Americas

 
0.1

 

 
1.1

EMEA
0.2

 
3.3

 
1.0

 
6.5

 
0.2

 
3.4

 
1.0

 
7.6

 Total
$
6.4

 
$
3.3

 
$
(3.3
)
 
$
7.7

Below is a summary of the net additions, payments and adjustments to the restructuring reserve balance for the six months ended August 29, 2014 :
Restructuring Reserve
Employee
Termination Costs
Business Exits
and Related
Costs
Total
Reserve balance as of February 28, 2014
$
7.7

 
$
2.0

 
$
9.7

Additions
5.9

 
2.5

 
8.4

Payments
(4.3
)
 
(2.2
)
 
(6.5
)
Adjustments
(0.2
)
 

 
(0.2
)
Reserve balance as of August 29, 2014
$
9.1

 
$
2.3

 
$
11.4

The employee termination costs reserve balance as of August 29, 2014 primarily relates to restructuring actions in EMEA.

13


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 28, 2014 . 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 (benefits) and goodwill and intangible asset impairment charges. 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
Six Months Ended
Statement of Operations Data
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Revenue
$
786.7

 
100.0
 %
 
$
757.6

 
100.0
 %
 
$
1,509.8

 
100.0
 %
 
$
1,424.7

 
100.0
 %
Cost of sales
536.1

 
68.1

 
513.4

 
67.8

 
1,040.6

 
68.9

 
970.6

 
68.1

Restructuring costs (benefits)
6.2

 
0.8

 
(0.1
)
 

 
(4.3
)
 
(0.3
)
 
0.1

 

Gross profit
244.4

 
31.1

 
244.3

 
32.2

 
473.5

 
31.4

 
454.0

 
31.9

Operating expenses
191.4

 
24.4

 
188.9

 
24.9

 
383.3

 
25.4

 
374.0

 
26.3

Restructuring costs
0.2

 

 
3.4

 
0.4

 
1.0

 
0.1

 
7.6

 
0.5

Operating income
52.8

 
6.7

 
52.0

 
6.9

 
89.2

 
5.9

 
72.4

 
5.1

Interest expense
(4.4
)
 
(0.6
)
 
(4.5
)
 
(0.6
)
 
(8.8
)
 
(0.6
)
 
(8.9
)
 
(0.6
)
Investment income (expense)
0.5

 
0.1

 
(1.8
)
 
(0.2
)
 
0.9

 
0.1

 
(1.2
)
 
(0.1
)
Other income, net
3.2

 
0.4

 
0.6

 

 
6.7

 
0.4

 
1.8

 
0.1

Income before income tax expense
52.1

 
6.6

 
46.3

 
6.1

 
88.0

 
5.8

 
64.1

 
4.5

Income tax expense
21.6

 
2.7

 
18.7

 
2.5

 
36.5

 
2.4

 
23.3

 
1.6

Net income
$
30.5

 
3.9
 %
 
$
27.6

 
3.6
 %
 
$
51.5

 
3.4
 %
 
$
40.8

 
2.9
 %
Earnings per share:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Basic
$
0.24

 
 

 
$
0.22

 
 

 
$
0.41

 
 

 
$
0.32

 
 

Diluted
$
0.24

 
 

 
$
0.22

 
 

 
$
0.41

 
 

 
$
0.32

 
 



14

Table of Contents

Q2 2015 Organic Revenue Growth (Decline)
Americas
EMEA
Other
Consolidated
Q2 2014 revenue
$
558.7

 
$
132.4

 
$
66.5

 
$
757.6

 
Currency translation effects*
(1.6
)
 
4.8

 
0.1

 
3.3

 
   Q2 2014 revenue, adjusted
557.1

 
137.2

 
66.6

 
760.9

 
Q2 2015 revenue, reported
580.3

 
131.1

 
75.3

 
786.7

 
Organic growth (decline) $
$
23.2

 
$
(6.1
)
 
$
8.7

 
$
25.8

 
Organic growth (decline) %
4
%
 
(4
)%
 
13
%
 
3
%
 
 
 
 
 
 
 
 
 
 
* Currency translation effects represent the estimated net effect of translating Q2 2014 foreign currency revenues using the average exchange rates during Q2 2015.
Year-to-Date 2015 Organic Revenue Growth
Americas
EMEA
Other
Consolidated
Year-to-date 2014 revenue
$
1,037.5

 
$
259.1

 
$
128.1

 
$
1,424.7

 
Currency translation effects*
(4.4
)
 
12.3

 
(0.7
)
 
7.2

 
   Year-to-date 2014 revenue, adjusted
1,033.1

 
271.4

 
127.4

 
1,431.9

 
Year-to-date 2015 revenue
1,086.6

 
278.7

 
144.5

 
1,509.8

 
Organic growth $
$
53.5

 
$
7.3

 
$
17.1

 
$
77.9

 
Organic growth %
5
%
 
3
%
 
13
%
 
5
%
 
 
 
 
 
 
 
 
 
 
* Currency translation effects represent the estimated net effect of translating year-to-date 2014 foreign currency revenues using the average exchange rates during year-to-date 2015.

 
Three Months Ended
Six Months Ended
Reconciliation of Operating Income to
Adjusted Operating Income
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Operating income
$
52.8

 
6.7
%
 
$
52.0

 
6.9
%
 
$
89.2

 
5.9
 %
 
$
72.4

 
5.1
%
Add: restructuring costs (benefits)
6.4

 
0.8

 
3.3

 
0.4

 
(3.3
)
 
(0.2
)
 
7.7

 
0.5

Adjusted operating income
$
59.2

 
7.5
%
 
$
55.3

 
7.3
%
 
$
85.9

 
5.7
 %
 
$
80.1

 
5.6
%
Overview
In Q2 2015 , organic revenue growth was 3% compared to the prior year. The Americas posted organic revenue growth of 4% over the prior year, marking its eighteenth consecutive quarter of organic growth. In the Americas, Q2 2015 orders grew 2% compared to the prior year, but one region posted a significant decline due to a strong prior year comparison. Across all other regions in the Americas, Q2 2015 order growth averaged approximately 8% compared to the prior year. EMEA experienced an organic revenue decline of 4% ; however, orders increased by approximately 10% (in constant currency) compared to the prior year. The Other category experienced organic revenue growth of 13% , with PolyVision, Designtex and Asia Pacific all contributing to the growth.
Our adjusted operating income margin for Q2 2015 was 7.5%, which represents the highest level of quarterly performance achieved in more than ten years.
Q2 2015 Compared to Q2 2014
We recorded net income of $30.5 in Q2 2015  and $27.6 in Q2 2014 . A modest increase in adjusted operating income, investment income in Q2 2015 compared to investment losses in Q2 2014 , and higher other income, net were partially offset by higher restructuring costs and higher income tax expense.
Revenue was $786.7 in Q2 2015 compared to $757.6 in Q2 2014 . Organic revenue growth was 3% after adjusting for currency translation effects.
Operating income was $52.8 in Q2 2015 compared to $52.0 in the prior year. Q2 2015 adjusted operating income increased by $3.9 to $59.2 compared to Q2 2014 adjusted operating income of $55.3 . Operating leverage from the revenue growth and benefits of improved pricing in the Americas was largely offset by approximately $9 of disruption and inefficiencies associated with the manufacturing footprint changes in EMEA.

15

Table of Contents

Cost of sales was 68.1% of revenue in Q2 2015 , a 30  basis point increase compared to Q2 2014 . Year-over-year cost of sales in the Americas was flat, while EMEA increased and the Other category decreased. The increase in EMEA was driven primarily by disruption and inefficiencies associated with the manufacturing footprint changes. These costs include labor premiums paid to employees during transition periods and labor inefficiencies caused by work stoppages or slowdowns resulting from restructuring activities. They also include incremental logistics costs caused by split shipments (linked to labor inefficiencies) and interim supply chains during production moves. Lastly, these costs include duplicate labor and overhead at the new Czech Republic facility and other plants impacted by production moves. We believe these costs are temporary and will be eliminated once the manufacturing changes in EMEA are complete and the industrial model returns to normal levels of operating efficiency.
Operating expenses in Q2 2015 of $191.4 increased by $2.5 compared to Q2 2014 but decreased as a percentage of sales to 24.4% from 24.9% . The increase was largely due to higher variable compensation.
We recorded restructuring costs of $6.4 in Q2 2015 driven primarily by costs in EMEA related to the planned closure of a manufacturing facility in Germany. In Q2 2014 , we recorded restructuring costs of $3.3 associated with actions in EMEA to reorganize the sales, marketing and support functions in France initiated in Q1 2014.
Our Q2 2015 effective tax rate was 41.5% compared to the Q2 2014 effective tax rate of 40.4% , both of which are above the U.S. federal statutory tax rate of 35%.  The differences from the U.S. federal statutory rate were primarily driven by losses in EMEA, which result in deferred tax assets in various jurisdictions for which full valuation allowances have been recorded.
Year-to-Date 2015 Compared to Year-to-Date 2014
We recorded year-to-date 2015 net income of $51.5 compared to year-to-date 2014 net income of $40.8 . Increased operating income (which included net restructuring benefits in year-to-date 2015 compared to restructuring costs in year-to-date 2014), investment income compared to investment losses in the prior year and other income, net were partially offset by higher income tax expense.
Year-to-date 2015 revenue increased $85.1 or 6.0% compared to year-to-date 2014 . After adjusting for currency translation effects, the organic revenue growth was $77.9 or 5% . We realized organic revenue growth of 5% in the Americas, 3% in EMEA and 13% in the Other category.
Year-to-date 2015 operating income of $89.2 compares to operating income of $72.4 in the prior year. Year-to-date 2015 adjusted operating income improved to $85.9 from $80.1 in the prior year. Operating leverage from the revenue growth in the Americas was largely offset by higher costs of sales associated with the manufacturing footprint changes in EMEA.
Year-to-date 2015 cost of sales was 68.9% , an 80 basis point increase compared to year-to-date 2014 . All segments experienced increases compared to year-to-date 2014 , driven primarily by disruption and inefficiencies in EMEA of approximately $12 and higher warranty, freight, distribution and overhead costs in the Americas.
Year-to-date 2015 operating expenses of $383.3 increased $9.3 compared to the same period last year but decreased as a percentage of sales. The comparison included $7.9 of higher variable compensation and $3.6 of unfavorable currency translation effects.
We recorded year-to-date 2015 net restructuring benefits of $3.3 compared to restructuring costs of $7.7 in year-to-date 2014 . The year-to-date 2015 amount included a gain related to the sale of an idle manufacturing facility in the Americas segment that was closed as part of previously announced restructuring actions, partially offset by costs in EMEA primarily related to the planned closure of a manufacturing facility in Germany. The year-to-date 2014 amount was primarily due to $6.5 associated with actions in EMEA to reorganize the sales, marketing and support functions in France initiated in Q1 2014.
Our year-to-date 2015 effective tax rate was approximately 41.5% , which is above the U.S. federal statutory tax rate of 35%. The higher rate is being driven by losses in EMEA, which result in deferred tax assets in various jurisdictions for which full valuation allowances have been recorded. The year-to-date 2014 effective tax rate was 36.4%, which was favorably impacted by net discrete tax benefits of $2.6.

16

Table of Contents
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest Expense, Investment Income (Expense) and Other Income, Net
 
Three Months Ended
Six Months Ended
Interest Expense, Investment Income (Expense) and Other Income, Net
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Interest expense
$
(4.4
)
 
$
(4.5
)
 
$
(8.8
)
 
$
(8.9
)
Investment income (expense)
0.5

 
(1.8
)
 
0.9

 
(1.2
)
Other income, net:
 

 
 

 
 

 
 

Equity in income of unconsolidated ventures
3.7

 
2.8

 
7.4

 
4.5

Miscellaneous, net
(0.5
)
 
(2.2
)
 
(0.7
)
 
(2.7
)
Total other income, net
3.2

 
0.6

 
6.7

 
1.8

Total interest expense, investment income (expense) and other income, net
$
(0.7
)
 
$
(5.7
)
 
$
(1.2
)
 
$
(8.3
)
Investment income in Q2 2015 compared to investment losses in Q2 2014, which included losses on variable life company-owned life insurance ("COLI").
Other income, net increased in Q2 2015 and year-to-date 2015 primarily due to lower foreign currency losses and higher equity in income of unconsolidated ventures.
Business Segment Review
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, Details and Turnstone brands.
 
Three Months Ended
Six Months Ended
Statement of Operations Data — Americas
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Revenue
$
580.3

 
100.0
%
 
$
558.7

 
100.0
%
 
$
1,086.6

 
100.0
 %
 
$
1,037.5

 
100.0
%
Cost of sales
380.7

 
65.6

 
366.6

 
65.6

 
726.6

 
66.9

 
690.1

 
66.5

Restructuring costs (benefits)
0.7

 
0.1

 
(0.1
)
 

 
(10.9
)
 
(1.0
)
 
0.1

 

Gross profit
198.9

 
34.3

 
192.2

 
34.4

 
370.9

 
34.1

 
347.3

 
33.5

Operating expenses
118.8

 
20.5

 
113.8

 
20.4

 
237.6

 
21.8

 
229.2

 
22.1

Restructuring costs

 

 
0.1

 

 

 

 
1.1

 
0.1

Operating income
$
80.1

 
13.8
%
 
$
78.3

 
14.0
%
 
$
133.3

 
12.3
 %
 
$
117.0

 
11.3
%

 
Three Months Ended
Six Months Ended
Reconciliation of Operating Income to
Adjusted Operating Income — Americas
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Operating income
$
80.1

 
13.8
%
 
$
78.3

 
14.0
%
 
$
133.3

 
12.3
 %
 
$
117.0

 
11.3
%
Add: restructuring costs (benefits)
0.7

 
0.1

 

 

 
(10.9
)
 
(1.0
)
 
1.2

 
0.1

Adjusted operating income
$
80.8

 
13.9
%
 
$
78.3

 
14.0
%
 
$
122.4

 
11.3
 %
 
$
118.2

 
11.4
%
Operating income in the Americas of $80.1 in Q2 2015 increased by $1.8 compared to Q2 2014 operating income of $78.3 . Adjusted operating income of $80.8 in Q2 2015 improved by $2.5 compared to Q2 2014 . Benefits associated with the organic revenue growth and improved pricing were partially offset by increased operating expenses. The $4.2 improvement in year-to-date 2015 adjusted operating income was primarily due to benefits associated with the organic revenue growth and improved pricing, partially offset by higher cost of sales and operating expenses.

17

Table of Contents

The Americas revenue represented 73.7% of consolidated revenue in Q2 2015 . Revenue for Q2 2015 was $580.3 compared to $558.7 in Q2 2014 . After adjusting for $1.6 of unfavorable currency translation effects, organic revenue growth was $23.2 or 4% compared to the prior year. Revenue growth in Q2 2015 is categorized as follows:
Product categories — Six out of nine categories grew in Q2 2015 , led by Coalesse and Turnstone.
Vertical markets — Technical and Professional, Federal Government and Information Technology experienced strong growth, while Healthcare, Education, State and Local Government and Financial Services declined year-over-year.
Geographic regions — Strength in the West and East Business Groups was more than enough to offset a decline in the South Business Group.
Contract type — Project business had strong growth, while continuing business grew modestly and marketing programs declined year-over-year.
Year-to-date 2015 organic revenue growth was $53.5 or 5% compared to the prior year.
Cost of sales of 65.6% of revenue in Q2 2015 was flat compared to Q2 2014 . Year-over-year benefits of operating leverage from the revenue growth and improved pricing were offset by an unfavorable shift in business mix and higher freight and distribution costs. Year-to-date 2015 cost of sales was driven by the same factors in the quarter, but the increase of 40 basis points was also impacted by higher warranty expense and overhead costs.
Operating expenses increased by $5.0 in Q2 2015 compared to the same period last year primarily due to $2.1 of higher variable compensation and higher employee related costs. Operating expenses as a percentage of sales of 20.5% in Q2 2015 was flat compared to 20.4% in Q2 2014 . Year-to-date 2015 operating expenses increased by $8.4 compared to year-to-date 2014 . The increase was primarily driven by $4.4 of higher variable compensation and higher employee related costs.
Restructuring costs of $0.7 in Q2 2015 were associated with the closure of a manufacturing facility in High Point, North Carolina. Year-to-date 2015 net restructuring benefits of $10.9 included a $12.0 gain related to the sale of an idle manufacturing facility that was closed as part of previously announced restructuring actions. Restructuring costs of $1.2 in year-to-date 2014 primarily related to costs associated with the integration of PolyVision's global technology business into Steelcase Education.
EMEA
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, seating and storage solutions.
 
Three Months Ended
Six Months Ended
Statement of Operations Data — EMEA
August 29,
2014
August 23,
2013
August 29,
2014
August 23,
2013
Revenue
$
131.1

 
100.0