STEELCASE INC (Form: 10-Q, Received: 10/02/2007 12:42:59)
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 24, 2007
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
  49508
(Address of principal executive offices)
  (Zip Code)
 
(616) 247-2710
(Registrant’s telephone number, including area code)
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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  þ      Accelerated filer  o      Non-accelerated filer  o
 
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 28, 2007, Steelcase Inc. had 82,404,743 shares of Class A Common Stock and 59,792,353 shares of Class B Common Stock outstanding.
 


 

STEELCASE INC.
FORM 10-Q

FOR THE QUARTER ENDED AUGUST 24, 2007

INDEX
 
               
          Page No.     
  Financial Information          
  Financial Statements (Unaudited)          
    Condensed Consolidated Statements of Income for the Three and Six Months Ended August 24, 2007 and August 25, 2006     1    
    Condensed Consolidated Balance Sheets as of August 24, 2007 and February 23, 2007     2    
    Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 24, 2007 and August 25, 2006     3    
    Notes to Condensed Consolidated Financial Statements     4    
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     12    
  Quantitative and Qualitative Disclosures About Market Risk     19    
  Controls and Procedures     19    
               
  Other Information     20    
  Unregistered Sales of Equity Securities and Use of Proceeds     20    
  Submission of Matters to a Vote of Security Holders     20    
  Exhibits     20    
    21    
    22    
  Incentive Compensation Plan Form of Performance Shares Award Agreement
  Incentive Compensation Plan Form of Performance Units Award Agreement
  302 Certification of CEO
  302 Certification of CFO
  906 Certification of CEO and CFO


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 24,
      August 25,
      August 24,
      August 25,
 
      2007       2006       2007       2006  
Revenue
    $ 825.2       $ 789.7       $ 1,633.6       $ 1,517.0  
Cost of sales
      549.1         540.9         1,091.7         1,044.0  
Restructuring (benefit) cost
      (1.7 )       4.5         —          8.6  
                                         
Gross profit
      277.8         244.3         541.9         464.4  
Operating expenses
      222.8         202.0         438.6         393.9  
Restructuring (benefit) cost
      —          (0.1 )       —          0.1  
                                         
Operating income
      55.0         42.4         103.3         70.4  
Interest expense
      (4.0 )       (5.1 )       (8.3 )       (9.2 )
Other income, net
      10.8         6.7         18.2         11.6  
                                         
Income before income tax expense
      61.8         44.0         113.2         72.8  
Income tax expense
      24.1         17.4         41.9         28.0  
                                         
Net income
    $ 37.7       $ 26.6       $ 71.3       $ 44.8  
                                         
Earnings per share:
                                       
Basic
    $ 0.26       $ 0.18       $ 0.50       $ 0.30  
                                         
Diluted
    $ 0.26       $ 0.18       $ 0.49       $ 0.30  
                                         
Dividends per common share
    $ 0.15       $ 0.10       $ 0.30       $ 0.20  
                                         
 
See accompanying notes to the condensed consolidated financial statements.


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STEELCASE INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
 
                     
      (Unaudited)
         
      August 24,
      February 23,
 
      2007       2007  
ASSETS
Current assets:
                   
Cash and cash equivalents
    $ 409.9       $ 527.2  
Short-term investments
      68.8         33.1  
Accounts receivable, net
      391.8         352.6  
Inventories
      158.5         144.0  
Other current assets
      144.6         172.7  
                     
Total current assets
      1,173.6         1,229.6  
                     
Property and equipment, net
      471.7         477.1  
Company-owned life insurance
      209.2         209.2  
Goodwill and other intangible assets, net
      275.5         278.0  
Other assets
      200.2         205.5  
                     
Total assets
    $ 2,330.2       $ 2,399.4  
                     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
                   
Accounts payable
    $ 232.2       $ 222.0  
Short-term borrowings and current maturities of long-term debt
      6.6         5.1  
Accrued expenses:
                   
Employee compensation
      144.8         162.7  
Employee benefit plan obligations
      27.4         34.2  
Other
      203.7         220.1  
                     
Total current liabilities
      614.7         644.1  
                     
Long-term liabilities:
                   
Long-term debt less current maturities
      249.9         250.0  
Employee benefit plan obligations
      191.8         191.1  
Other long-term liabilities
      88.9         76.3  
                     
Total long-term liabilities
      530.6         517.4  
                     
Total liabilities
      1,145.3         1,161.5  
                     
Shareholders’ equity:
                   
Common stock
      173.4         259.4  
Additional paid-in capital
      4.0         6.3  
Accumulated other comprehensive income (loss)
      9.1         (1.3 )
Retained earnings
      998.4         973.5  
                     
Total shareholders’ equity
      1,184.9         1,237.9  
                     
Total liabilities and shareholders’ equity
    $ 2,330.2       $ 2,399.4  
                     
 
See accompanying notes to the condensed consolidated financial statements.


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STEELCASE INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)
 
                     
      Six Months Ended  
      August 24,
      August 25,
 
      2007       2006  
OPERATING ACTIVITIES
                   
Net income
    $ 71.3       $ 44.8  
Depreciation and amortization
      44.7         52.0  
Changes in operating assets and liabilities
      (59.4 )       (30.9 )
Other, net
      5.8         16.7  
                     
Net cash provided by operating activities
      62.4         82.6  
                     
INVESTING ACTIVITIES
                   
Capital expenditures
      (31.2 )       (22.0 )
Purchases of short-term investments, net
      (35.7 )       —   
Proceeds from disposal of fixed assets
      14.8         4.6  
Other, net
      6.3         9.6  
                     
Net cash used in investing activities
      (45.8 )       (7.8 )
                     
FINANCING ACTIVITIES
                   
Borrowings of long-term debt, net
      —          249.3  
Borrowings (repayments) of lines of credit, net
      2.1         (2.0 )
Dividends paid
      (43.7 )       (30.0 )
Common stock repurchases
      (109.8 )       (22.4 )
Common stock issuances
      10.5         11.0  
Other, net
      1.8         (3.9 )
                     
Net cash (used in) provided by financing activities
      (139.1 )       202.0  
                     
Effect of exchange rate changes on cash and cash equivalents
      5.2         6.4  
                     
Net (decrease) increase in cash and cash equivalents
      (117.3 )       283.2  
Cash and cash equivalents, beginning of period
      527.2         423.8  
                     
Cash and cash equivalents, end of period
    $ 409.9       $ 707.0  
                     
 
See accompanying notes to the condensed consolidated financial statements.


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.   BASIS OF PRESENTATION
 
The accompanying unaudited 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 contained in our Annual Report on Form 10-K for the fiscal year ended February 23, 2007 (“Form 10-K”). As used in this Report, unless otherwise expressly stated or the content otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its majority-owned subsidiaries.
 
Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the 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 per share data, data presented as a percentage or unless otherwise indicated.
 
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation.
 
2.   NEW ACCOUNTING STANDARDS
 
   FIN 48
 
We adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) on February 24, 2007. FIN 48 requires that we recognize in our financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based solely on the technical merits of the position. As a result of our adoption of FIN 48, we recognized a $3.6 decrease to the liability for uncertain tax positions (which was reclassified to Other long-term liabilities in the condensed consolidated balance sheet), with a corresponding increase to retained earnings. As of February 24, 2007, we had $11.4 of gross unrecognized tax benefits, which, if recognized, would favorably affect the effective income tax rate in future periods. During 2008, our liability for unrecognized tax benefits increased by $0.6.
 
We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. Total interest and penalties are immaterial.
 
Our federal income tax returns for fiscal years 2004 through 2007 are currently under examination by the Internal Revenue Service (“IRS”). We file in numerous state and foreign jurisdictions with varying statutes of limitation. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our liability for uncertain tax positions reflects the most probable outcome. We adjust these reserves, as well as potential interest and penalties, in light of changing facts and circumstances. We do not expect a significant tax payment related to these obligations within the next year.
 
   SFAS No. 157
 
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements.


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our results of operations or financial position.
 
   SFAS No. 159
 
In February 2007, the FASB issued SFAS No. 159, Establishing the Fair Value Option for Financial Assets and Liabilities , to permit all entities the option to measure eligible financial instruments at fair value. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. We have not determined the effect, if any, the adoption of this statement will have on our results of operations or financial position.
 
3.  ACQUISITION, DECONSOLIDATION AND STRATEGIC REALIGNMENT
 
During Q2 2008, we entered into a definitive agreement with Ultra Group Holdings Limited (“UGHL”) to acquire 100% of the outstanding stock of Ultra Group Company Limited (“UGCL”), a wholly-owned subsidiary of UGHL, for $13.3, subject to certain post-closing purchase price adjustments. UGCL is an office furniture manufacturer with headquarters in Hong Kong. UGCL had net sales of approximately $38.4 for its fiscal year ended March 31, 2007. The transaction is expected to be completed during Q3 2008, subject to prior approval by the shareholders of UGHL and other customary closing conditions. We will finalize the allocation of purchase price to the fair value of the assets acquired and liabilities assumed when we obtain information sufficient to complete the allocation, but in any case, within one year after acquisition.
 
During Q2 2008, a consolidated dealer repaid its transition financing and equity balances, resulting in a non-operating gain of $3.4. The repayment caused us to reconsider the consolidation of the dealer under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”). As a result, we determined that we were no longer the primary beneficiary (as defined in FIN 46(R)), and we deconsolidated the dealer. Additionally, during Q2 2008 we transitioned ownership of another dealer to an independent third party. Our condensed consolidated statement of income for the six months ended August 24, 2007 includes $30.2 of revenue, $8.2 of gross profit, $7.7 of operating expenses, $0.6 of operating income, and $0.9 of other expense, net, related to these dealers.
 
During Q2 2008, we entered into an agreement which will allow certain members of the management of IDEO Inc. (“IDEO”), one of our subsidiaries, to potentially purchase a controlling equity interest in IDEO in two phases over approximately the next five years. The first phase includes a variable compensation program which will allow the employees to acquire up to 20% of the outstanding shares of IDEO over the next two years in lieu of cash variable compensation, provided certain performance targets are met. In the case where IDEO management has purchased a minimum of 15% under the first phase, a second phase will allow the buyers a limited option to purchase an additional 60% equity interest in IDEO. The agreement provides that, under any circumstance, we will retain a minimum 20% equity interest in IDEO. At the end of Q2 2008, IDEO management effectively purchased approximately 5% of IDEO under the first phase of the agreement.
 
4.   EARNINGS PER SHARE
 
Basic earnings per share is based on the weighted-average number of shares of common stock outstanding during each period. It excludes the dilutive effects of additional common shares that would have been outstanding if the shares under our stock incentive plans had been issued and the dilutive effect of restricted shares to the extent those shares have not vested.


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
Diluted earnings per share includes the effects of shares and potential shares issued under our stock incentive plans. However, diluted earnings per share does not reflect the effects of 1.1 million shares for 2008 and 4.3 million shares for 2007 because those potential incentive shares were not dilutive.
 
                                         
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Components of Earnings per Share     2007       2006       2007       2006  
Net income
    $ 37.7       $ 26.6       $ 71.3       $ 44.8  
                                         
Weighted-average shares outstanding for basic net earnings per share
      142.7         149.0         144.1         149.2  
Effect of dilutive stock-based compensation
      1.1         1.0         1.2         1.4  
                                         
Adjusted weighted-average shares outstanding for diluted net earnings per share
      143.8         150.0         145.3         150.6  
                                         
Net earnings per share of common stock:
                                       
Basic
    $ 0.26       $ 0.18       $ 0.50       $ 0.30  
                                         
Diluted
    $ 0.26       $ 0.18       $ 0.49       $ 0.30  
                                         
Total shares outstanding at period end
      142.2         149.0         142.2         149.0  
                                         
 
5.   COMPREHENSIVE INCOME
 
Comprehensive income is comprised of net income and all changes to shareholders’ equity except those due to investments by, distributions to and repurchases from shareholders.
 
                     
      Three Months Ended  
      August 24,
      August 25,
 
Components of Comprehensive Income     2007       2006  
Net income
    $ 37.7       $ 26.6  
Other comprehensive income (loss):
                   
Foreign currency translation
      3.2         1.9  
Derivative adjustments, net of tax of $(0.1) and $(0.4)
      (0.1 )       (0.7 )
Minimum pension liability, net of tax of $(1.0) and $(0.0)
      (1.5 )       —   
                     
Total
      1.6         1.2  
                     
Comprehensive income
    $ 39.3       $ 27.8  
                     
 
                     
      Six Months Ended  
      August 24,
      August 25,
 
Components of Comprehensive Income     2007       2006  
Net income
    $ 71.3       $ 44.8  
Other comprehensive income (loss):
                   
Foreign currency translation
      13.2         13.0  
Derivative adjustments, net of tax of $(0.1) and $0.8
      (0.2 )       1.3  
Minimum pension liability, net of tax of $(1.6) and $0.6
      (2.6 )       0.9  
                     
Total
      10.4         15.2  
                     
Comprehensive income
    $ 81.7       $ 60.0  
                     


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
Total comprehensive income disclosed in our 2007 Form 10-K incorrectly included the effects of adopting SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106 and 132(R) as Comprehensive income. Total comprehensive income for the year ended February 23, 2007 was $118.9 instead of $144.7. This amount will be reflected correctly in our 2008 Form 10-K.
 
6.   INVENTORIES
 
Following is a summary of inventories as of August 24, 2007 and February 23, 2007:
 
                     
      August 24,
      February 23,
 
Inventories     2007       2007  
Finished goods
    $ 95.6       $ 86.4  
Work in process
      27.3         26.1  
Raw materials
      65.9         61.9  
                     
        188.8         174.4  
LIFO reserve
      (30.3 )       (30.4 )
                     
Total
    $ 158.5       $ 144.0  
                     
 
The portion of inventories determined by the LIFO method aggregated $64.4 as of August 24, 2007 and $64.6 as of February 23, 2007.
 
7.   EMPLOYEE BENEFIT PLAN OBLIGATIONS
 
                                         
      Three Months Ended  
      Pension Plans       Post-retirement Plans  
      August 24,
      August 25,
      August 24,
      August 25,
 
Components of Expense     2007       2006       2007       2006  
Service cost
    $ 0.6       $ 0.7       $ 0.3       $ 0.4  
Interest cost
      1.1         1.1         1.9         2.3  
Amortization of prior year service cost (gain)
      —          —          (1.8 )       (1.4 )
Expected return on plan assets
      (0.9 )       (0.9 )       —          —   
Adjustment due to plan curtailment
      —          —          (0.1 )       (0.1 )
Adjustment due to plan settlement
                0.1         —          —   
Amortization of unrecognized net actuarial loss
      0.1         0.4                   —   
                                         
Net expense
    $ 0.9       $ 1.4       $ 0.3       $ 1.2  
                                         
 


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
                                         
      Six Months Ended  
      Pension Plans       Post-retirement Plans  
      August 24,
      August 25,
      August 24,
      August 25,
 
Components of Expense     2007       2006       2007       2006  
Service cost
    $ 1.1       $ 1.3       $ 0.6       $ 0.8  
Interest cost
      2.3         2.2         3.8         4.5  
Amortization of prior year service cost (gain)
      —          0.1         (3.5 )       (2.8 )
Expected return on plan assets
      (1.8 )       (1.7 )       —          —   
Adjustment due to plan curtailment
      —          —          (0.5 )       (0.2 )
Adjustment due to plan settlement
      —          0.1         —          —   
Amortization of unrecognized net actuarial loss
      0.2         0.8         —          0.1  
                                         
Net expense
    $ 1.8       $ 2.8       $ 0.4       $ 2.4  
                                         
 
We expect to contribute approximately $7.7 to our pension plans during 2008. This is a $4.0 increase over our prior estimate because we intend to make additional contributions to an underfunded International pension plan. We also expect to contribute $12.0 to our post-retirement benefit plans during 2008. As of August 24, 2007, contributions of approximately $2.7 and $6.2 have been made to our pension and post-retirement plans, respectively.
 
We expect to receive approximately $1.7 in Medicare Part D subsidy reimbursements during 2008. During the six months ended August 24, 2007, we received $0.5 in Medicare Part D subsidy reimbursements.
 
8.   RESTRUCTURING COST
 
During Q2 2008, we recorded a restructuring benefit of $1.7 primarily in our International segment related to the resolution of environmental contingencies associated with a pending real estate sale. We recorded no additional net restructuring charges in our North America segment as the initiative to consolidate our manufacturing operations is substantially complete. At the end of Q2 2008, we have incurred a cumulative total of $43.5 in charges related to employee termination costs, impairment of certain fixed assets, relocation charges, and gains and losses on the sale of fixed assets, in connection with our previously announced restructuring plan.
 
Restructuring cost (benefit) is summarized in the following table:
 
                               
      Three Months Ended       Six Months Ended  
      May 25,
      August 24,
      August 24,
 
Restructuring Cost (Benefit)     2007       2007       2007  
Cost of sales:
                             
North America
    $ 1.7         —        $ 1.7  
International
      —        $ (1.6 )       (1.6 )
Other category
      —          (0.1 )       (0.1 )
                               
Total
    $ 1.7       $ (1.7 )     $ —   
                               

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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
Below is a reconciliation of additions, payments and adjustments to the restructuring reserve balance during 2008:
 
                               
              Business Exit
         
      Workforce
      and Related
         
Restructuring Reserve     Reductions       Costs       Total  
Reserve balance as of February 23, 2007
    $ 4.0       $ 3.4       $ 7.4  
Additions
      0.5         (0.5 )       —   
Payments
      (3.2 )       (3.4 )       (6.6 )
Adjustments
      0.5         3.4         3.9  
                               
Reserve balance as of August 24, 2007
    $ 1.8       $ 2.9       $ 4.7  
                               
 
The reserve balance as of August 24, 2007 for business exits and related costs primarily relates to an environmental reserve for expected remediation costs for the Grand Rapids campus and lease impairment costs in our International segment.
 
9.   PRODUCT WARRANTY
 
The accrued liability for warranty costs, included within other accrued expenses on the Condensed Consolidated Balance Sheets, is based on an estimated amount needed to cover future warranty obligations for products sold as of the balance sheet date and is determined by historical product data and management’s knowledge of current events and actions.
 
           
Product Warranty     Amount  
Balance as of February 23, 2007
    $ 22.9  
Accruals for warranty charges
      8.7  
Settlements and adjustments
      (9.9 )
           
Balance as of August 24, 2007
    $ 21.7  
           
 
During Q2 2008, we adjusted the accrued liability for warranty costs by ($3.4) as a result of a comprehensive review of historical product data and experience patterns. This adjustment had the effect of reversing prior period accruals for warranty costs that were taken in Q1 2008 and fiscal 2007.


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
10.   REPORTABLE SEGMENTS
 
We operate with two reportable segments (North America and International), plus an “Other” category. Unallocated corporate expenses are reported as Corporate. Revenue and operating income (loss) for the three and six months ended August 24, 2007 and August 25, 2006 and total assets as of August 24, 2007 and February 23, 2007 by segment are presented below:
 
                                         
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Reportable Segment Income Statement Data     2007       2006       2007 (restated)       2006 (restated)  
Revenue
                                       
North America
    $ 504.2       $ 500.0       $ 991.1       $ 937.8  
International
      188.9         159.0         384.8         326.4  
Other
      132.1         130.7         257.7         252.8  
                                         
Consolidated revenue
    $ 825.2       $ 789.7       $ 1,633.6       $ 1,517.0  
                                         
Operating income (loss)
                                       
North America
    $ 51.0       $ 42.0       $ 86.5       $ 69.2  
International
      5.9         (0.4 )       19.0         4.2  
Other
      4.8         7.1         11.4         9.7  
Corporate
      (6.7 )       (6.3 )       (13.6 )       (12.7 )
                                         
Consolidated operating income
    $ 55.0       $ 42.4       $ 103.3       $ 70.4  
                                         
 
Balance sheet data by reporting segment is presented below:
 
                     
      August 24,
      February 23,
 
Reportable Segment Balance Sheet Data     2007       2007  
Total assets
                   
North America
    $ 1,075.7       $ 1,020.0  
International
      484.5         482.0  
Other
      419.5         428.2  
Corporate
      350.5         469.2  
                     
Consolidated total assets
    $ 2,330.2       $ 2,399.4  
                     


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STEELCASE INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—(Continued)
 
11.   STOCK INCENTIVE PLANS
 
During 2008, we made awards of performance shares and performance units (“PSUs”) under our Incentive Compensation Plan. The performance measure for the 2008 awards is total shareholder return (on an absolute basis and relative to a peer group basis) measured over a three-year performance period. After completion of the performance period for these performance shares and PSUs, the number of shares earned will be determined and issued as Class A Common Stock.
 
During Q1 2008, 93,060 shares were issued as Class A Common Stock. These shares related to the vesting of performance shares and PSUs that were granted in 2005.
 
Total share-based expense for the three and six months ended August 24, 2007 and August 25, 2006 and the associated tax benefit were as follows:
 
                                         
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Components of Share based Expense     2007       2006       2007       2006  
Restricted stock and restricted stock unit expense
    $ 0.3       $ 0.9       $ 0.6       $ 1.6  
Performance shares and PSU expense
      0.8         0.6         1.4         2.1  
Tax benefit
      (0.4 )       (0.5 )       (0.8 )       (1.4 )
                                         


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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 the February 23, 2007 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on April 20, 2007. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the calendar year. Additionally, Q1, Q2, Q3, and Q4 reference the first, second, third and fourth quarters, respectively, of the fiscal year indicated. All amounts are in millions, except per share data, data presented as a percentage or unless otherwise indicated.
 
Financial Summary
 
Results of Operations (Unaudited)
 
                                                                                 
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Income Statement Data     2007       2006       2007       2006  
Revenue
    $ 825.2         100.0 %     $ 789.7         100.0 %     $ 1,633.6         100.0 %     $ 1,517.0         100.0 %
Cost of sales
      549.1         66.5         540.9         68.5         1,091.7         66.8         1,044.0         68.8  
Restructuring (benefit) cost
      (1.7 )       (0.2 )       4.5         0.6         —          —          8.6         0.6  
                                                                                 
Gross profit
      277.8         33.7         244.3         30.9         541.9         33.2         464.4         30.6  
Operating expenses
      222.8         27.0         202.0         25.5         438.6         26.9         393.9         26.0  
Restructuring (benefit) cost
      —          —          (0.1 )       —          —          —          0.1         —   
                                                                                 
Operating income
      55.0         6.7         42.4         5.4         103.3         6.3         70.4         4.6  
Non-operating items, net
      6.8         0.8         1.6         0.2         9.9         0.6         2.4         0.2  
                                                                                 
Income before income tax expense
      61.8         7.5         44.0         5.6         113.2         6.9         72.8         4.8  
Income tax expense
      24.1         2.9         17.4         2.2         41.9         2.5         28.0         1.8  
                                                                                 
Net income
    $ 37.7         4.6 %     $ 26.6         3.4 %     $ 71.3         4.4 %     $ 44.8         3.0 %
                                                                                 
 
Overview
 
Revenue was $825.2 in Q2 2008, a 4.5% increase compared to the same period last year. Revenue increased for both the North America and International segments, but was driven primarily by 18.8% growth in our International segment. Q2 2008 revenue included $11.5 of favorable currency effects versus the same quarter last year, offset by a $10.9 decrease due to dealer deconsolidations, net of acquisitions that were completed during the last four quarters.
 
Year-to-date revenue increased $116.6 or 7.7% compared to the same period last year. Revenue increased for both of our reportable segments, primarily driven by growth of 17.9% in our International segment and 5.7% in our North America segment compared to the same period last year. Year-to-date revenue included $25.0 of favorable currency effects and an unfavorable impact of $4.9 related to deconsolidations, net of acquisitions completed during the last four quarters.
 
Cost of sales, which is reported separately from restructuring (benefit) cost, improved as a percentage of revenue by 200 basis points from the prior year for both Q2 and year to date, primarily due to improvements in our North America segment. The improvements were primarily the result of improved sales mix and pricing yield, higher volume, and benefits from prior restructuring actions.
 
Operating expenses, which are reported separately from restructuring (benefit) cost, increased by $20.8 in Q2 and by $44.7 year to date, respectively, compared to the same periods last year. The increases in operating expenses for the quarter and year to date were the result of an increase in


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variable compensation expense, higher spending on investments in longer-term growth initiatives and currency translation effects, partially offset by lower expenses associated with dealer deconsolidations net of acquisitions completed during the last four quarters.
 
The restructuring benefit of $1.7 in Q2 2008 primarily related to the favorable resolution of certain environmental contingencies associated with a pending real estate sale in our International segment. We recorded no additional net restructuring charges in the North America segment during Q2 2008 as the initiative to consolidate our manufacturing operations is substantially complete.
 
Q2 2008 operating income of $55.0 compares to $42.4 in the prior year. Year-to-date operating income of $103.3 increased by $32.9 versus the prior year. The improvement was primarily due to better performance in our North America and International segments and lower restructuring costs.
 
Our effective tax rate for Q2 2008 was 39.0%. The increase from Q1 2008 was due primarily to a change in strategy regarding repatriation of earnings from our Canadian subsidiary and the revaluation of deferred tax assets in Germany and the United Kingdom due to the enactment of lower tax rates during the quarter. As a result of these factors, we now expect our effective tax rate to approximate 36% to 37% for 2008.
 
Interest Expense and Other Income, Net
 
                                         
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Interest Expense and Other Income, Net     2007       2006       2007       2006  
Interest expense
    $ (4.0 )     $ (5.1 )     $ (8.3 )     $ (9.2 )
                                         
Other income, net:
                                       
Interest income
      6.4         6.7         12.8         11.4  
Equity in income (loss) of unconsolidated ventures
      1.1         (2.0 )       2.2         (2.3 )
Elimination of minority interest in consolidated dealers
      (2.8 )       (0.9 )       (4.0 )       (2.3 )
Foreign exchange gain
      0.8         1.5         1.4         3.5  
Other, net
      5.3         1.4         5.8         1.3  
                                         
Total other income, net
      10.8         6.7         18.2         11.6  
                                         
Total non-operating items, net
    $ 6.8       $ 1.6       $ 9.9       $ 2.4  
                                         
 
The three and six-month increases in equity in income (loss) of unconsolidated ventures was primarily due to prior year charges to adjust our investment in one of our unconsolidated ventures. The charges resulted from adjustments to previous years’ financial statements of the venture.
 
During Q2 2008, we recorded a ($2.1) adjustment to correct the elimination of a minority interest in a consolidated dealer.
 
Other, net, in Q2 2008 and year to date included $4.0 related to gains resulting from dealer transitions and $2.6 related to a disposition of a long-term investment.
 
Business Segment Review
 
See additional information regarding our business segments in Note 10 to the condensed consolidated financial statements.


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North America
 
                                                                                 
      Three Months Ended       Six Months Ended  
Income Statement
    August 24,
      August 25,
      August 24,
      August 25,
 
Data–North America     2007       2006       2007       2006  
Revenue
    $ 504.2         100.0 %     $ 500.0         100.0 %     $ 991.1         100.0 %     $ 937.8         100.0 %
Cost of sales
      338.0         67.0         349.0         69.8         672.7         67.8         660.3         70.4  
Restructuring cost
      —          —          3.6         0.7         1.7         0.2         5.6         0.6  
                                                                                 
Gross profit
      166.2         33.0         147.4         29.5         316.7         32.0         271.9         29.0  
Operating expenses
      115.2         22.9         105.4         21.1         230.2         23.3         202.7         21.6  
                                                                                 
Operating income
    $ 51.0         10.1 %     $ 42.0         8.4 %     $ 86.5         8.7 %     $ 69.2         7.4 %
                                                                                 
 
Operating income improved to 10.1% of sales in Q2 2008 compared to 8.4% of sales in the prior year. Year-to-date operating income increased to 8.7% of sales through the first half of 2008 from 7.4% of sales in the prior year. The improvements have been driven by higher sales and gross margin offset in part by higher operating expenses.
 
North America revenue, which accounted for approximately 61% of consolidated revenue, increased slightly over Q2 2007, despite a $7.5 negative impact from dealer deconsolidations, net of acquisitions completed during the last four quarters. The increase in Q2 2008 revenue over the prior year quarter was due to increased pricing yields and growth in our seating, work tools, architecture and technology and wood product categories within the Steelcase Group and across various product lines sold under the Turnstone and Nurture brands. Revenue growth of $53.3 year to date was driven by similar factors.
 
Cost of sales, which is reported separately from restructuring costs, improved as a percent of revenue by 280 basis points in the current year quarter and 260 basis points year to date versus the prior year. The Q2 and year-to-date improvements were driven by improved sales mix and pricing yields, benefits from prior restructuring actions and continued plant efficiencies. In addition, Q2 2008 also benefited from favorable reserve adjustments of $4.9 related to product warranty accruals and resolution of certain contract contingencies. See Note 9 to the condensed consolidated financial statements for additional information related to our product warranty reserve.
 
North America operating expenses increased 9.3% over the prior year quarter and 13.6% year to date. The Q2 and year-to-date increases were primarily due to higher variable compensation expense, higher spending on growth initiatives and a $1.8 unfavorable adjustment to our self-insurance reserves in Q2 2008, partially offset by lower spending due to deconsolidations of dealers, net of acquisitions completed during the past four quarters.
 
International
 
                                                                                 
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Income Statement Data–International     2007       2006       2007       2006  
Revenue
    $ 188.9         100.0 %     $ 159.0         100.0 %     $ 384.8         100.0 %     $ 326.4         100.0 %
Cost of sales
      127.7         67.6         108.3         68.1         256.2         66.6         220.8         67.7  
Restructuring (benefit) cost
      (1.6 )       (0.8 )       0.9         0.6         (1.6 )       (0.4 )       3.0         0.9  
                                                                                 
Gross profit
      62.8         33.2         49.8         31.3         130.2         33.8         102.6         31.4  
Operating expenses
      56.9         30.1         50.2         31.6         111.2         28.9         98.4         30.1  
                                                                                 
Operating income (loss)
    $ 5.9         3.1 %     $ (0.4 )       (0.3 )%     $ 19.0         4.9 %     $ 4.2         1.3 %
                                                                                 
 
International reported operating income of $5.9 in Q2 2008 compared to an operating loss of $0.4 in Q2 2007. The current quarter improvement includes a $1.6 million restructuring benefit related to the


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favorable resolution of certain environmental contingencies associated with a pending real estate sale. Year-to-date operating income was $19.0, up $14.8 from the prior year, driven by increased profitability in most markets, most notably France, Germany, Latin America and Spain.
 
International revenue represented approximately 23% of year-to-date consolidated revenue. During Q2 2008 and year to date, revenue increased significantly across most of our international regions, most notably in France, Germany and Spain. Currency translation had the effect of increasing revenue by $10.0 in Q2 2008 and $23.5 year-to-date as compared to the prior year.
 
Q2 2008 cost of sales, which is reported separately from restructuring cost, as a percentage of revenue improved by 50 basis points compared to 2007 and 110 basis points year to date. The improvements included volume leverage, benefits of prior restructuring activities in certain markets and better operational performance.
 
Operating expenses increased by $6.7 during Q2 2008 and $12.8 year to date compared to the prior year. The increases are due to currency translation effects of $3.2 during Q2 2008 and $6.9 year to date compared to 2007, higher spending on growth initiatives in Asia and a $1.6 lease impairment in the United Kingdom in Q2 2008.
 
Other
 
                                                                                 
      Three Months Ended       Six Months Ended  
      August 24,
      August 25,
      August 24,
      August 25,
 
Income Statement Data–Other Category     2007       2006       2007       2006  
Revenue
    $ 132.1         100.0 %     $ 130.7         100.0 %     $ 257.7         100.0 %     $ 252.8         100.0 %
Cost of sales
      83.4         63.2         83.6         64.0         162.8         63.1         162.9         64.4  
Restructuring benefit
      (0.1 )       (0.1 )       —          —          (0.1 )       —          —          —   
                                                                                 
Gross profit
      48.8         36.9         47.1         36.0         95.0         36.9         89.9         35.6  
Operating expenses
      44.0         33.3         40.1         30.7         83.6         32.5         80.1         31.8  
Restructuring (benefit) cost
      —          —          (0.1 )       (0.1 )       —          —          0.1         —   
                                                                                 
Operating income
    $ 4.8         3.6 %     $ 7.1         5.4 %     $ 11.4         4.4 %     $ 9.7         3.8 %
                                                                                 
 
Revenue increased 1.1% and 1.9% over the prior year quarter and year to date, respectively, and represented approximately 16% of consolidated revenue in both periods. The increase was due to growth at IDEO and across the Design Group companies, offset in part by decreases in revenue at PolyVision and Financial Services. The decrease at PolyVision was primarily a result of eliminating certain low-margin business. The decline at Financial Services is directly linked to our strategy to reduce asset-based lending and other dealer financing, as well as transfer risk related to customer leasing.
 
The Other category reported operating income of $4.8 during Q2 2008 which was $2.3 lower than the prior year. Financial Services represented $1.6 of the decrease, while the balance was related to lower income at PolyVision and IDEO, offset in part by improvements in the Design Group.
 
PolyVision is currently lagging our turnaround expectations due to the continuation of intense price competition in the U.S. static whiteboard business and other operational issues. Their overall results reached break-even in Q2 2008, despite a decrease in revenue. This break-even result compares to modest profitability in the prior year quarter.
 
During Q2 2008, we entered into an agreement which provides for the potential transfer of a controlling equity interest in IDEO to certain members of its management over a period of approximately five years. During the first phase of the transfer, which will happen over the next two years, management will earn higher levels of variable compensation relative to income, and use such amounts to purchase a minority equity interest in IDEO. If a certain percentage ownership is achieved in the first phase, the management group will have a limited option to purchase a controlling interest in IDEO. The current quarter results include the increased variable compensation for the first half of the year, as the agreement


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was retroactive to the beginning of 2008. See Note 3 to the condensed consolidated financial statements for additional information.
 
Corporate
 
                                         
      Three Months Ended     Six Months Ended
      August 24,
    August 25,
    August 24,
    August 25,
Income Statement Data–Corporate     2007     2006     2007     2006
Operating expenses
    $ 6.7       $ 6.3       $ 13.6       $ 12.7  
                                         
 
Approximately 84% of corporate expenses are charged to the operating segments as part of a corporate allocation. Unallocated portions of these expenses are considered general corporate costs and are reported as Corporate. Corporate costs include the executive function and portions of shared service functions such as human resources, finance, legal, research and development and corporate facilities.
 
Liquidity and Capital Resources
 
The following table summarizes our statement of cash flows for the six months ended August 24, 2007 and August 25, 2006:
 
                               
      Six Months Ended  
      August 24,
      August 25,
      Increase
 
Cash Flow Data     2007       2006       (Decrease)  
Net cash flow provided by (used in):
                             
Operating activities
    $ 62.4       $ 82.6       $ (20.2 )
Investing activities
      (45.8 )       (7.8 )       (38.0 )
Financing activities
      (139.1 )       202.0         (341.1 )
Effect of exchange rate changes on cash and cash equivalents
      5.2         6.4         (1.2 )
                               
Net (decrease) increase in cash and cash equivalents
      (117.3 )       283.2         (400.5 )
Cash and cash equivalents, beginning of period
      527.2         423.8         103.4  
                               
Cash and cash equivalents, end of period
    $ 409.9       $ 707.0       $ (297.1 )
                               
 
Cash provided by operating activities
 
                     
      Six Months Ended  
      August 24,
      August 25,
 
Cash Flow Data–Operating Activities     2007       2006  
Net income
    $ 71.3       $ 44.8  
Depreciation and amortization
      44.7         52.0  
Changes in operating assets and liabilities
      (59.4 )       (30.9 )
Other, net
      5.8         16.7  
                     
Net cash provided by operating activities
    $ 62.4       $ 82.6  
                     
 
Net cash provided by operating activities during the first two quarters of 2008 primarily related to strong profitability offset by higher working capital requirements to support the company’s growth.


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Cash used in investing activities
 
                     
      Six Months Ended  
      August 24,
      August 25,
 
Cash Flow Data–Investing Activities     2007       2006  
Capital expenditures
    $ (31.2 )     $ (22.0 )
Purchases of short-term investments, net
      (35.7 )       —   
Proceeds from disposal of fixed assets
      14.8         4.6  
Other, net
      6.3         9.6  
                     
Net cash used in investing activities
    $ (45.8 )     $ (7.8 )
                     
 
Cash used in investing activities during the first half of 2008 was primarily related to acquisitions of short-term investments and capital expenditures, offset in part by proceeds from the sale of assets associated with our exit of the Grand Rapids manufacturing campus.
 
The increase in capital expenditures compared to the prior year is related to increased new product development efforts, investments in our showrooms and corporate facilities and payments toward the replacement of existing corporate aircraft.
 
We continue to closely scrutinize capital spending in order to make investments we believe will sustain the business and to preserve our ability to introduce innovative, new products. For the first two quarters of 2008 and 2007, capital expenditures were less than depreciation, which represented a source of cash.
 
Cash (used in) provided by financing activities
 
                     
      Six Months Ended  
      August 24,
      August 25,
 
Cash Flow Data–Financing Activities     2007       2006  
Borrowings of long-term debt, net
    $ —        $ 249.3  
Borrowings (repayments) of lines of credit, net
      2.1         (2.0 )
Dividends paid
      (43.7 )       (30.0 )
Common stock repurchases
      (109.8 )       (22.4 )
Common stock issuances
      10.5         11.0  
Other, net
      1.8         (3.9 )
                     
Net cash (used in) provided by financing activities
    $ (139.1 )     $ 202.0  
                     
 
The primary uses of cash in financing activities continue to relate to share repurchases and dividends. The source of cash from financing activities in the prior year related to the issuance of $250.0 of senior unsecured unsubordinated notes during Q2 2007. The proceeds of this issuance were used to retire existing notes in Q3 2007 after a 30-day notice period.
 
We paid common stock dividends of $0.15 per share during Q1 and Q2 2008 and $0.10 per share during Q1 and Q2 2007.
 
During the first two quarters of 2008, we have repurchased 5.8 shares of common stock for $109.8. Of the shares repurchased, 1.7 shares of Class B common stock were repurchased for $33.0 from entities affiliated with a member of our Board of Directors. At the end of Q2 2008, we have $77.5 available under the share repurchase program approved by our Board of Directors in June 2007. We have no outstanding share repurchase commitments.
 
Share repurchases in 2008 and 2007 included $2.7 and $1.2, respectively, of repurchases of shares of Class A common stock to enable participants to satisfy tax withholding obligations upon vesting of restricted stock and restricted stock units, pursuant to the terms of our Incentive Compensation Plan.
 
The exercise of employee stock options generated $10.5 and $11.0 of cash during the first two quarters of 2008 and 2007, respectively.


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Off-Balance Sheet Arrangements
 
During Q2 2008, no material change in our off-balance sheet arrangements occurred.
 
Contractual Obligations
 
We adopted FIN 48, Accounting for Uncertainty in Income Taxes as of February 24, 2007. As of adoption, the total amount of unrecognized tax benefits for uncertain tax positions was $11.4. The timing of payments will depend on the progress of examinations by tax authorities. We are currently under IRS examination for the tax years ended in 2004 through 2007. We do not expect a significant tax payment related to these obligations within the next year. The liability at August 24, 2007 was $12.0.
 
During Q2 2008, we signed a purchase agreement for a new corporate aircraft, which is intended to replace an existing aircraft. The terms of the agreement required a $0.5 deposit during Q2 2008 and will require future payments of $9.4 due within 1 to 3 years and $18.4 due within 3 to 5 years. In addition, we made a $3.5 progress payment during Q2 2008 under a previous contract to replace our other corporate aircraft.
 
There were no other material changes to our contractual obligations during Q2 2008.
 
Liquidity Facilities
 
Our total liquidity facilities as of August 24, 2007 were:
 
           
Liquidity Facilities     Amount  
Global committed bank facility
    $ 200.0  
Various uncommitted lines
      83.3  
           
Total credit lines available
      283.3  
Less: borrowings outstanding
      5.8  
           
Available capacity (subject to covenant constraints)
    $ 277.5  
           
 
We have the option of increasing the global committed bank facility from $200 to $300, subject to customary conditions. Borrowings under this facility are unsecured and unsubordinated. There are currently no borrowings outstanding under this facility. The facility requires us to satisfy financial covenants including a maximum debt ratio covenant and a minimum interest coverage ratio covenant. We were in compliance with all covenants under our financing facilities during Q2 2008, and they are fully available for our use, although the various uncommitted lines are subject to change or cancellation by the banks at any time.
 
Total consolidated debt as of August 24, 2007 was $256.5. Our debt primarily consists of $250.0 in term notes due in 2012 with an effective interest rate of 6.3%.
 
We are currently invested in a portfolio of auction rate securities totaling $26.5. Our typical practice has been to only invest in highly-rated securities and put them at the next auction, which generally range from 7 to 28 days. However, recent auctions related to these securities have not cleared due to a lack of liquidity in the market place. Accordingly, we still hold the longer-dated securities and are due interest at a higher penalty rate. We expect to put these securities at their next scheduled auction date, and thus they are classified as short-term investments in the accompanying condensed consolidated balance sheet.
 
We also hold one Canadian $5.0 asset-backed commercial paper investment, in which the issuer was unable to refinance the maturing paper and has not paid accrued interest. We believe that a stabilizing restructuring will result from several major Canadian financial institutions that are currently collaborating to develop a solution for the broader asset-backed commercial paper market in Canada. We have not established any reserves against these investments to date, as we do not currently expect that any principal loss will occur.


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The current cash, cash equivalents and short-term investments balances, cash generated from future operations and cash available under existing credit facilities are expected to be sufficient to finance our known or foreseeable liquidity and capital needs.
 
Our long-term debt rating is BBB- with a positive outlook from Standard & Poor’s and Baa3 with a stable outlook from Moody’s Investor Services.
 
Recently Issued Accounting Standards
 
See Note 2 to the condensed consolidated financial statements.
 
Forward-looking Statements
 
From time to time, in written and oral statements, we discuss our expectations regarding future events and our plans and objectives for future operations. These forward-looking statements generally are accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from our expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; our restructuring activities; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in this Report, our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
 
Foreign Exchange Risk
 
During Q2 2008, no material change in foreign exchange risk occurred.
 
Interest Rate Risk
 
During Q2 2008, no material change in interest rate risk occurred.
 
Fixed Income and Equity Price Risk
 
During Q2 2008, no material change in fixed income and equity price risk occurred.
 
Item 4.   Controls and Procedures
 
(a)   Disclosure Controls and Procedures.   Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of August 24, 2007. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of August 24, 2007, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
 
(b)   Internal Control Over Financial Reporting.   There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 


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PART II.  OTHER INFORMATION
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuer Purchases of Equity Securities
 
The following is a summary of share repurchase activity during Q2 2008.
 
                                         
                              (d)
 
                      (c)
      Approximate Dollar
 
                      Total Number of
      Value of Shares
 
                      Shares Purchased as
      that May Yet be
 
      (a)
      (b)
      Part of Publicly
      Purchased
 
      Total Number of
      Average Price
      Announced Plans
      Under the Plans
 
Period     Shares Purchased       Paid per Share       or Programs (1)       or Programs (1)  
5/26/07—6/29/07
      —          —          —        $ 117,532,000  
6/30/07—7/27/07
      1,383,883 (2)     $ 18.54         1,379,300         91,957,000  
7/28/07—8/24/07
      810,500         17.79         810,500         77,535,000  
                                         
Total
      2,194,383                   2,189,800         77,535,000  
                                         
 
 
(1) In October 2006, our Board of Directors approved a share repurchase program permitting the repurchase of up to $100 million of shares of our common stock. During Q2 2008, we completed the remaining repurchases approved under this program.
 
In June 2007, our Board of Directors approved a share repurchase program permitting the repurchase of up to an additional $100 million of shares of our common stock. This program has no specific expiration date.
 
(2) 4,683 of these shares were repurchased to satisfy participants’ tax withholding obligations upon the vesting of restricted stock and restricted stock unit grants, pursuant to the terms of our Incentive Compensation Plan.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
The Company held its annual meeting of shareholders on June 21, 2007. At that meeting, shareholders voted on three proposals presented in the Company’s definitive proxy statement. The results of the votes follow:
 
1. Proposal to elect three directors to serve three-year terms expiring at the 2010 annual meeting.
 
                     
      For       Withheld  
James P. Hackett
      634,405,976         6,974,845  
David W. Joos
      636,186,271         5,194,550  
P. Craig Welch, Jr. 
      632,071,209         9,309,611  
 
There were no votes cast against, abstentions or broker non-votes with respect to any nominee named above. Directors continuing in office: William P. Crawford, Earl D. Holton, Michael J. Jandernoa, Elizabeth Valk Long, Robert C. Pew III, Cathy D. Ross, Peter M. Wege II, and Kate Pew Wolters.
 
2. Proposal to approve the Steelcase Inc. Management Incentive Plan.
 
                         
For       Against       Abstentions  
  636,078,230         2,746,443         2,556,147  
                         
 
3. Proposal to approve the Steelcase Inc. Incentive Compensation Plan.
 
                                   
For       Against       Abstentions       Broker Non-Votes  
  624,964,378         6,948,834         2,564,530         6,903,078  
                                   
 
Item 6.   Exhibits
 
See Exhibit Index.


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
STEELCASE INC.
 
By: 
/s/   David C. Sylvester
David C. Sylvester
Vice President,
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
 
Date: October 2, 2007


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Exhibit Index
 
           
 
Exhibit
     
No.     Description
  10 .1     Steelcase Inc. Management Incentive Plan, as amended and restated as of February 24, 2007(1)
  10 .2     Steelcase Inc. Incentive Compensation Plan, as amended and restated as of February 24, 2007(1)
  10 .3     Steelcase Inc. Incentive Compensation Plan Form of Performance Shares Award Agreement as amended and restated(2)
  10 .4     Steelcase Inc. Incentive Compensation Plan Form of Performance Units Award Agreement as amended and restated(3)
  31 .1     Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31 .2     Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32 .1     Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
(1) Filed as the like numbered exhibit to the Company’s Form 8-K, as filed with the Commission on June 21, 2007 and amended on June 22, 2007, and incorporated herein by reference.
 
(2) This document amends and restates the form of agreement filed as Exhibit 10.1 to the Company’s Form 8-K, as filed with the Commission on May 4, 2007.
 
(3) This document amends and restates the form of agreement filed as Exhibit 10.2 to the Company’s Form 8-K, as filed with the Commission on May 4, 2007.


22

 

Exhibit 10.3
Steelcase Inc. Incentive Compensation Plan Form of Performance Shares Award Agreement as
amended and restated
          THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Amended and Restated «Letter_Date»
CONFIDENTIAL TO: «First_Name» «Last_Name»
          In the meeting on «Award_Date», the Compensation Committee of the Board of Directors of Steelcase Inc. granted you Performance Shares under the Steelcase Inc. Incentive Compensation Plan (the “Plan”), subject to the terms and execution of this Amended and Restated Award Agreement.
This Amended and Restated Award Agreement supersedes the Award Agreement you signed on «Signed_On» and provides additional information regarding your Award and your rights under the Plan. As used herein, the term Award Agreement means this Amended and Restated document. A copy of the Plan has already been provided to you. If there is any inconsistency between this Award Agreement and the Plan, the Plan controls. Capitalized terms used in this Award Agreement are defined in the Plan, unless defined herein.
Overview of Your Award
  1.   Type of Award : Performance Shares as authorized under Article 9 of the Plan.
 
  2.   Target Number of Performance Shares under this Award : «Performance_Shares»
 
  3.   Award Date : «Award_Date»
 
  4.   Performance Measures : Total Shareholder Return (“TSR”) during the three-year Performance Period, as outlined in Article 12 of the Plan. For purposes of this Award, TSR shall be expressed as a compound annual growth rate.
 
  5.   Performance Period : The Performance Period for this Award begins on the first day of the Company’s 2008 fiscal year and ends on the last day of the Company’s 2010 fiscal year.
 
  6.   Number of Performance Shares Earned : After completion of the Performance Period, the number of Performance Shares earned under this Agreement will be based 50% on Absolute TSR and 50% on Relative TSR. For purposes of this Award, TSR shall be expressed as a compound annual growth rate and calculated as follows:
(FORMULA)
TSR = ( Ending Stock Price + ) (1/3) Dividends Paid — 1
— Beginning Stock Price

 


 

      “Beginning Stock Price” shall mean the average closing price as reported on the New York Stock Exchange (or such other principal exchange as the Company’s Class A Common Stock may be traded from time to time) of one (1) Share for the twenty (20) trading days immediately prior to the first day of the Performance Period. “Ending Stock Price” shall mean the average closing price as reported on the New York Stock Exchange (or such other principal exchange as the Company’s Class A Common Stock may be traded from time to time) of one (1) Share for the last twenty (20) trading days of the Performance Period. “Dividends Paid” shall include all dividends paid as described in Section 7 of this Award Agreement.
  A.   Absolute TSR
 
      To determine the number of Performance Shares earned based upon Absolute TSR, the Target Number of Performance Shares under this Award shall first be multiplied by 50%. Following the determination of TSR, Absolute TSR shall be determined based on the following chart. Interpolation shall be used in the event the percent does not fall directly on one of the percentages listed in the table below and in no event will the payout as a percent of target exceed 200%.
                     
  Absolute TSR       Payout as a Percent of Target  
  24 % and above  
 
    200 %  
    21 %  
 
    175 %  
    18 %  
 
    150 %  
    15 %  
 
    125 %  
    12 %  
 
    100 %  
    9 %  
 
    75 %  
    6 %  
 
    50 %  
    <6 %  
 
    0 %  
  B.   Relative TSR
 
      To determine the number of Performance Shares earned based upon Relative TSR, the Target Number of Performance Shares under this Award shall first be multiplied by 50%.
 
      To determine Relative TSR, a Peer Group of companies approved by the Committee will be used. The Peer Group will be ranked from highest Total Shareholder Return expressed as a compound annual growth rate to lowest Total Shareholder Return expressed as a compound annual growth rate. The number of Performance Shares earned based upon Relative TSR shall then be determined by comparing the Company’s TSR expressed as a compound annual growth rate to the Peer Group and based upon the following chart. Interpolation shall be used in the event the Company’s percentile rank does not fall directly on one of the ranks listed in the table below and in no event will the payout as a percent of target exceed 200%.
                     
  Relative TSR       Payout as a Percent of Target  
  90 th Percentile and above  
 
    200 %  
  80 th Percentile  
 
    175 %  
  70 th Percentile  
 
    150 %  
  60 th Percentile  
 
    125 %  
  50 th Percentile  
 
    100 %  
  40 th Percentile  
 
    75 %  
  30 th Percentile  
 
    50 %  
  <30 th Percentile  
 
    0 %  

 


 

  C.   Total Performance Shares Earned and Vesting
 
      The total number of Performance Shares earned is determined by adding the Performance Shares earned based upon Absolute TSR and the Performance Shares earned based upon Relative TSR. Earned Performance Shares will vest on the last day of the Company’s 2010 fiscal year and be paid in Shares as soon as administratively practicable following the close of the applicable Performance Period.
  7.   Dividend Equivalents on Earned Performance Shares : Any dividends declared during the Performance Period with respect to the Shares underlying your earned Performance Shares will be paid as soon as practicable following the end of the Performance Period, either in cash or in stock, as determined by the Board of Directors. Cash equivalents will be valued as of the date(s) on which the dividend(s) were declared during the Performance Period. Stock dividends will be valued at the Fair Market Value measured at the end of the Performance Period and will be governed by Article 17.1 of the Plan. Any payments made are not actual dividends (see Section 12). You do not become a shareholder during the Performance Period, but rather at the date of vesting upon transfer of the Shares into your name.
 
  8.   Death, Disability or Retirement during the Performance Period :
 
  a)   If you die or become totally and permanently disabled while an Employee during the Performance Period, the target number of Performance Shares will be deemed earned and the corresponding shares vested according to the following schedule. Any remaining unearned Performance Shares will be forfeited.
    If death or qualifying disability occurs from the beginning of the Performance Period through the last day of the Company’s 2008 fiscal year, «Vesting_1» Performance Shares will immediately be earned and the corresponding shares vested.
 
    If death or qualifying disability occurs from the first day of the Company’s 2009 fiscal year through the last day of the Company’s 2009 fiscal year, «Vesting_2» Performance Shares will immediately be earned and the corresponding shares vested.
 
    If death or qualifying disability occurs from the first day of the Company’s 2010 fiscal year through the last day of the Company’s 2010 fiscal year, «Vesting_3» Performance Shares will immediately be earned and the corresponding shares vested.
  b)   In the event of your retirement during the Performance Period, you will be treated as continuing in employment for purposes of earning and vesting in your Award. You will be considered to have retired if your termination of employment occurs after your age plus years of continuous service total 80 or more.
 
  9.   Forfeiture of Awards :
 
  a)   All unearned Performance Shares will be forfeited upon a termination of your employment during the Performance Period for any reason other than death, total and permanent disability or retirement.
 
  b)   Pursuant to Article 15.4 of the Plan, if you engage in any Competition with the Company (as defined in the Plan and determined by the Administrative Committee in its discretion) you will immediately and permanently forfeit the right to receive payment from this Award, whether or not vested. You must return to the Company any gain resulting from this Award at any time within the twelve-month period preceding the date you engaged in Competition with the Company.

 


 

  10.   Change in Control : Pursuant to Article 16.1 of the Plan, upon a Change in Control after «CIC_Trigger», the target payout opportunity under this Award shall be deemed to have been fully earned for the entire Performance Period as of the effective date of the Change in Control. Vesting shall be accelerated as of the effective date of the Change in Control, and there shall be paid to you within thirty (30) days following the effective date of the Change in Control a pro rata number of Shares based upon an assumed achievement of all relevant targeted performance goals and upon the length of time within the Performance Period which has elapsed prior to the Change in Control.
 
  11.   Transfer : Performance Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
 
  12.   Voting Rights and Dividends : During the Performance Period, you will not have voting rights with respect to your Performance Shares and, other than as set forth in Section 7 of this Award Agreement, you will not be entitled to receive any dividends declared with respect to your Performance Shares. After the Performance Period, your Shares will vest and you will obtain voting rights and be entitled to receive any dividends.
 
  13.   Taxes : The Company will make the required tax reporting to you and the IRS and any other authority to whom social security and income tax is due. The Company has the right to withhold Shares or cash that would otherwise be received by you for the statutory minimum Federal, state, social security, medicare, local, or foreign authority withholding tax due. The Company may also collect withholding tax directly from you. You may also elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.
 
  14.   Administration : This Award Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee or its designee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which will be binding upon the Participant.
 
  15.   Required Approvals : This Award Agreement will be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
 
  16.   Governing Law : To the extent not preempted by federal law, this Award Agreement will be governed by, and construed in accordance with, the laws of the State of Michigan, USA.
 
  17.   Amendment : This Award Agreement may be amended or modified by the Committee as long as the amendment or modification does not materially adversely affect your Award, provided, however, that the Company may amend this Award Agreement in any manner reasonably intended to avoid the acceleration of tax and the possible imposition of penalties under Section 409A of the Code.
By signing this Award Agreement, you hereby acknowledge:
(a)   that the Plan is discretionary in nature and may be suspended or terminated at any time;
 
(b)   that each grant of a Performance Share is a one-time benefit which does not create any contractual or other right to receive future grants of Performance Shares, or benefits in lieu of Performance Shares;
 
(c)   that all determinations with respect to future grants, if any, including, but not limited to, the times when the Performance Shares will be granted, the number of Shares subject to each grant, and the time or times when each Share will vest, will be at the sole discretion of the Board of Directors;
 
(d)   that your participation in the Plan does not create a right to further employment with your employer and will not interfere with the ability of your employer to terminate your employment relationship at any time with or without cause;
 
(e)   that your participation in the Plan is voluntary;

 


 

(f)   that the value of the Performance Shares is an extraordinary item of compensation which is outside the scope of your employment contract, if any;
 
(g)   that the Performance Shares are not part of normal and expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
 
(h)   that the right to the grant ceases upon termination of employment for any reason except as may otherwise be explicitly provided in the Plan or this Award Agreement; and
 
(i)   that the future value of the Performance Shares is unknown and cannot be predicted with certainty.
By signing this Award Agreement, and as a condition of the grant of the Performance Shares, you hereby consent to the collection, use and transfer of personal data as described below. You understand that the Company and its subsidiaries hold certain personal information about you, including, but not limited to, your name, home address and telephone number, email address, date of birth, social security number, salary, nationality, job title, any Shares of stock or directorships held in the Company, details of all Performance Shares or other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of managing and administering the Plan (“Data”).
You further understand that the Company and/or its subsidiaries will transfer Data amongst themselves as necessary for the purposes of implementation, administration and management of your participation in the Plan, and that the Company and/or its subsidiaries may each further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan (“Data Recipients”). You understand that these Data Recipients may be located in your country of residence or elsewhere.
You hereby authorize the Data Recipients to receive, possess, use, retain and transfer Data in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf.
You understand that you may, at any time, review the Data, require any necessary amendments to it or withdraw the consent herein in writing by contacting the Company. You further understand that withdrawing consent may affect your ability to participate in the Plan and/or may affect your Award.
If you have any questions regarding your Award or this Award Agreement, or would like a copy of the Plan, please contact John Hagenbush, Director, Compensation, at (616) 246-9532.
Sincerely,
James P. Hackett
President and CEO
Please acknowledge your agreement to participate in the Plan and this Award Agreement, and to abide by all of the governing terms and provisions, by signing the following representation. Your signed representation must be returned by «Return_Date» to:
Compensation Department (CH-2E-04)
Attn: Steven Dobias
Steelcase Inc.
PO Box 1967
Grand Rapids, MI 49501-1967
Agreement to Participate
By signing a copy of this Award Agreement and returning it I acknowledge that I have read the Plan, and that I fully understand all of my rights under the Plan, as well as all of the terms and conditions that may limit my rights under this Award Agreement. Without limiting the generality of the preceding sentence, I understand that, subject to the terms of the Plan and this Award Agreement, my right to the Performance Shares granted under this Award is conditioned upon my continued employment with the Company.
             
Date:
           
         
 
           
Participant:        
 
           
 
      «First_Name» «Last_Name»    
 
      «SSN»    

 

 

Exhibit 10.4
Steelcase Inc. Incentive Compensation Plan Form of Performance Units Award Agreement as
amended and restated
          THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Amended and Restated «Letter_Date»
CONFIDENTIAL TO: «First_Name» «Last_Name»
          In the meeting on «Award_Date», the Compensation Committee of the Board of Directors of Steelcase Inc. granted you Performance Units under the Steelcase Inc. Incentive Compensation Plan (the “Plan”), subject to the terms and execution of this Amended and Restated Award Agreement.
This Amended and Restated Award Agreement supersedes the Award Agreement you signed on «Signed_On» and provides additional information regarding your Award and your rights under the Plan. As used herein, the term Award Agreement means this Amended and Restated document. A copy of the Plan has already been provided to you. If there is any inconsistency between this Award Agreement and the Plan, the Plan controls. Capitalized terms used in this Award Agreement are defined in the Plan, unless defined herein.
Overview of Your Award
  1.   Type of Award : Performance Units as authorized under Article 9 of the Plan.
 
  2.   Target Number of Performance Units under this Award : «Performance_Units»
 
  3.   Award Date : «Award_Date»
 
  4.   Performance Measures : Total Shareholder Return (“TSR”) during the three-year Performance Period, as outlined in Article 12 of the Plan. For purposes of this Award, TSR shall be expressed as a compound annual growth rate.
 
  5.   Performance Period : The Performance Period for this Award begins on the first day of the Company’s 2008 fiscal year and ends on the last day of the Company’s 2010 fiscal year.
 
  6.   Number of Performance Units Earned : After completion of the Performance Period, the number of Performance Units earned under this Agreement will be based 50% on Absolute TSR and 50% on Relative TSR. For purposes of this Award, TSR shall be expressed as a compound annual growth rate and calculated as follows:
(FORMULA)
TSR = ( Ending Stock Price + ) (1/3) Dividends Paid — 1
— Beginning Stock Price

 


 

      “Beginning Stock Price” shall mean the average closing price as reported on the New York Stock Exchange (or such other principal exchange as the Company’s Class A Common Stock may be traded from time to time) of one (1) Share for the twenty (20) trading days immediately prior to the first day of the Performance Period. “Ending Stock Price” shall mean the average closing price as reported on the New York Stock Exchange (or such other principal exchange as the Company’s Class A Common Stock may be traded from time to time) of one (1) Share for the last twenty (20) trading days of the Performance Period. “Dividends Paid” shall include all dividends paid as described in Section 7 of this Award Agreement.
  A.   Absolute TSR
 
      To determine the number of Performance Units earned based upon Absolute TSR, the Target Number of Performance Units under this Award shall first be multiplied by 50%. Following the determination of TSR, Absolute TSR shall be determined based on the following chart. Interpolation shall be used in the event the percent does not fall directly on one of the percentages listed in the table below and in no event will the payout as a percent of target exceed 200%.
                     
  Absolute TSR              Payout as a Percent of Target  
  24 % and above  
 
    200 %  
    21 %  
 
    175 %  
    18 %  
 
    150 %  
    15 %  
 
    125 %  
    12 %  
 
    100 %  
    9 %  
 
    75 %  
    6 %  
 
    50 %  
    <6 %  
 
    0 %  
  B.   Relative TSR
 
      To determine the number of Performance Units earned based upon Relative TSR, the Target Number of Performance Units under this Award shall first be multiplied by 50%.
 
      To determine Relative TSR, a Peer Group of companies approved by the Committee will be used. The Peer Group will be ranked from highest Total Shareholder Return expressed as a compound annual growth rate to lowest Total Shareholder Return expressed as a compound annual growth rate. The number of Performance Units earned based upon Relative TSR shall then be determined by comparing the Company’s TSR expressed as a compound annual growth rate to the Peer Group and based upon the following chart. Interpolation shall be used in the event the Company’s percentile rank does not fall directly on one of the ranks listed in the table below and in no event will the payout as a percent of target exceed 200%.
                     
  Relative TSR       Payout as a Percent of Target  
  90 th Percentile and above  
 
    200 %  
  80 th Percentile  
 
    175 %  
  70 th Percentile  
 
    150 %  
  60 th Percentile  
 
    125 %  
  50 th Percentile  
 
    100 %  
  40 th Percentile  
 
    75 %  
  30 th Percentile  
 
    50 %  
  <30 th Percentile  
 
    0 %  

 


 

  C.   Total Performance Units Earned and Vesting
 
      The total number of Performance Units earned is determined by adding the Performance Units earned based upon Absolute TSR and the Performance Units earned based upon Relative TSR. Earned Performance Units will vest on the last day of the Company’s 2010 fiscal year and be paid in Shares as soon as administratively practicable following the close of the applicable Performance Period.
  7.   Dividend Equivalents on Earned Performance Units : Any dividends declared during the Performance Period with respect to the Shares underlying your earned Performance Units will be paid as soon as practicable following the end of the Performance Period, either in cash or in stock, as determined by the Board of Directors. Cash equivalents will be valued as of the date(s) on which the dividend(s) were declared during the Performance Period. Stock dividends will be valued at the Fair Market Value measured at the end of the Performance Period and will be governed by Article 17.1 of the Plan. Any payments made are not actual dividends (see Section 12). You do not become a shareholder during the Performance Period, but rather at the date of vesting upon transfer of the Shares into your name.
 
  8.   Death, Disability or Retirement during the Performance Period :
  a)   If you die or become totally and permanently disabled while an Employee during the Performance Period, the target number of Performance Units will be deemed earned and the corresponding shares vested according to the following schedule. Any remaining unearned Performance Units will be forfeited.
    If death or qualifying disability occurs from the beginning of the Performance Period through the last day of the Company’s 2008 fiscal year, «Vesting_1» Performance Units will immediately be earned and the corresponding shares vested.
 
    If death or qualifying disability occurs from the first day of the Company’s 2009 fiscal year through the last day of the Company’s 2009 fiscal year, «Vesting_2» Performance Units will immediately be earned and the corresponding shares vested.
 
    If death or qualifying disability occurs from the first day of the Company’s 2010 fiscal year through the last day of the Company’s 2010 fiscal year, «Vesting_3» Performance Units will immediately be earned and the corresponding shares vested.
  b)   In the event of your retirement during the Performance Period, you will be treated as continuing in employment for purposes of earning and vesting in your Award. You will be considered to have retired if your termination of employment occurs after your age plus years of continuous service total 80 or more.
  9.   Forfeiture of Awards :
  a)   All unearned Performance Units will be forfeited upon a termination of your employment during the Performance Period for any reason other than death, total and permanent disability or retirement.
  b)   Pursuant to Article 15.4 of the Plan, if you engage in any Competition with the Company (as defined in the Plan and determined by the Administrative Committee in its discretion) you will immediately and permanently forfeit the right to receive payment from this Award, whether or not vested. You must return to the Company any gain resulting from this Award at any time within the twelve-month period preceding the date you engaged in Competition with the Company.

 


 

  10.   Change in Control : Pursuant to Article 16.1 of the Plan, upon a Change in Control after «CIC_Trigger», the target payout opportunity under this Award shall be deemed to have been fully earned for the entire Performance Period as of the effective date of the Change in Control. Vesting shall be accelerated as of the effective date of the Change in Control, and there shall be paid to you within thirty (30) days following the effective date of the Change in Control a pro rata number of Shares based upon an assumed achievement of all relevant targeted performance goals and upon the length of time within the Performance Period which has elapsed prior to the Change in Control.
 
  11.   Transfer : Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
 
  12.   Voting Rights and Dividends : During the Performance Period, you will not have voting rights with respect to your Performance Units and, other than as set forth in Section 7 of this Award Agreement, you will not be entitled to receive any dividends declared with respect to your Performance Units. After the Performance Period, your Shares will vest and you will obtain voting rights and be entitled to receive any dividends.
 
  13.   Taxes : The Company will make the required tax reporting to you and the IRS and any other authority to whom social security and income tax is due. The Company has the right to withhold Shares or cash that would otherwise be received by you for the statutory minimum Federal, state, social security, medicare, local, or foreign authority withholding tax due. The Company may also collect withholding tax directly from you. You may also elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction.
 
  14.   Administration : This Award Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee or its designee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Award Agreement, all of which will be binding upon the Participant.
 
  15.   Required Approvals : This Award Agreement will be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
 
  16.   Governing Law : To the extent not preempted by federal law, this Award Agreement will be governed by, and construed in accordance with, the laws of the State of Michigan, USA.
 
  17.   Amendment : This Award Agreement may be amended or modified by the Committee as long as the amendment or modification does not materially adversely affect your Award, provided, however, that the Company may amend this Award Agreement in any manner reasonably intended to avoid the acceleration of tax and the possible imposition of penalties under Section 409A of the Code.
By signing this Award Agreement, you hereby acknowledge:
(a)   that the Plan is discretionary in nature and may be suspended or terminated at any time;
 
(b)   that each grant of a Performance Unit is a one-time benefit which does not create any contractual or other right to receive future grants of Performance Units, or benefits in lieu of Performance Units;
 
(c)   that all determinations with respect to future grants, if any, including, but not limited to, the times when the Performance Units will be granted, the number of Units subject to each grant, and the time or times when each Share will vest, will be at the sole discretion of the Board of Directors;
 
(d)   that your participation in the Plan does not create a right to further employment with your employer and will not interfere with the ability of your employer to terminate your employment relationship at any time with or without cause;
 
(e)   that your participation in the Plan is voluntary;

 


 

(f)   that the value of the Performance Units is an extraordinary item of compensation which is outside the scope of your employment contract, if any;
 
(g)   that the Performance Units are not part of normal and expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
 
(h)   that the right to the grant ceases upon termination of employment for any reason except as may otherwise be explicitly provided in the Plan or this Award Agreement; and
 
(i)   that the future value of the Performance Units is unknown and cannot be predicted with certainty.
By signing this Award Agreement, and as a condition of the grant of the Performance Units, you hereby consent to the collection, use and transfer of personal data as described below. You understand that the Company and its subsidiaries hold certain personal information about you, including, but not limited to, your name, home address and telephone number, email address, date of birth, social security number, salary, nationality, job title, any Shares of stock or directorships held in the Company, details of all Performance Units or other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of managing and administering the Plan (“Data”).
You further understand that the Company and/or its subsidiaries will transfer Data amongst themselves as necessary for the purposes of implementation, administration and management of your participation in the Plan, and that the Company and/or its subsidiaries may each further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan (“Data Recipients”). You understand that these Data Recipients may be located in your country of residence or elsewhere.
You hereby authorize the Data Recipients to receive, possess, use, retain and transfer Data in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf.
You understand that you may, at any time, review the Data, require any necessary amendments to it or withdraw the consent herein in writing by contacting the Company. You further understand that withdrawing consent may affect your ability to participate in the Plan and/or may affect your Award.
If you have any questions regarding your Award or this Award Agreement, or would like a copy of the Plan, please contact John Hagenbush, Director, Compensation, at (616) 246-9532.
Sincerely,
James P. Hackett
President and CEO
Please acknowledge your agreement to participate in the Plan and this Award Agreement, and to abide by all of the governing terms and provisions, by signing the following representation. Your signed representation must be returned by «Return_Date» to:
Compensation Department (CH-2E-04)
Attn: Steven Dobias
Steelcase Inc.
PO Box 1967
Grand Rapids, MI 49501-1967
Agreement to Participate
By signing a copy of this Award Agreement and returning it I acknowledge that I have read the Plan, and that I fully understand all of my rights under the Plan, as well as all of the terms and conditions that may limit my rights under this Award Agreement. Without limiting the generality of the preceding sentence, I understand that, subject to the terms of the Plan and this Award Agreement, my right to the Performance Units granted under this Award is conditioned upon my continued employment with the Company.
             
Date:
           
         
 
           
Participant:        
 
           
 
      «First_Name» «Last_Name»    
 
      «SSN»    

 

 

EXHIBIT 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
SARBANES-OXLEY ACT SECTION 302
 
I, James P. Hackett, President and Chief Executive Officer of Steelcase Inc., certify that:
 
1) I have reviewed this quarterly report on Form 10-Q of Steelcase Inc.;
 
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
   
/s/   James P. Hackett
Name:     James P. Hackett
Title: President and Chief Executive Officer
Date: October 2, 2007

 

EXHIBIT 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
SARBANES-OXLEY ACT SECTION 302
 
I, David C. Sylvester, Vice President, Chief Financial Officer of Steelcase Inc., certify that:
 
1) I have reviewed this quarterly report on Form 10-Q of Steelcase Inc.;
 
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
   
/s/   David C. Sylvester
Name:     David C. Sylvester
Title: Vice President, Chief Financial Officer
Date: October 2, 2007

 

EXHIBIT 32.1
 
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report on Form 10-Q of Steelcase Inc. (the “Company”) for the period ended August 24, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James P. Hackett, as Chief Executive Officer of the Company, and David C. Sylvester, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, based on his knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/   James P. Hackett
Name:     James P. Hackett
Title: President and Chief Executive Officer
October 2, 2007
 
   
/s/   David C. Sylvester
Name:     David C. Sylvester
Title: Vice President, Chief Financial Officer
October 2, 2007
 
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.