NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2020 (“Form 10-K”). The Condensed Consolidated Balance Sheet as of February 28, 2020 was derived from the audited Consolidated Balance Sheet included in our Form 10-K.
As used in this Quarterly Report on Form 10-Q (“Report”), unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its subsidiaries in which a controlling interest is maintained. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
2.NEW ACCOUNTING STANDARDS
Adoption of New Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740), which is intended to enhance various aspects of the accounting for income taxes. The new guidance updates the calculation of income taxes in an interim period when year-to-date losses exceed the anticipated loss for the year. We adopted this guidance in Q1 2021 on a prospective basis. The adoption of this guidance did not have a material effect on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. We adopted this guidance in Q1 2021 using a modified retrospective transition approach. The adoption of this guidance did not have a material effect on our consolidated financial statements. We estimate our allowance for doubtful accounts based upon several factors, including customer credit quality and historical write-off trends. We also use general information regarding industry trends, the economic environment and information gathered through our network of field-based employees. The adoption of this guidance did not significantly impact our accounting policies or methods utilized to determine the allowance for doubtful accounts.
Accounting Standards Issued But Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends ASC 715-20, Compensation - Retirement Benefits - Defined Benefit Plans - General. The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The amended guidance is effective for fiscal years ending after December 15, 2020. The adoption of this guidance will modify our disclosures but is not expected to have a material effect on our consolidated financial statements.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3.REVENUE
Disaggregation of Revenue
The following table provides information about disaggregated revenue by product category for each of our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Category Data
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
Americas
|
|
|
|
|
|
|
|
|
Desking, benching, systems and storage
|
$
|
310.7
|
|
|
$
|
396.0
|
|
|
$
|
479.1
|
|
|
$
|
706.8
|
|
|
Seating
|
195.0
|
|
|
219.6
|
|
|
291.5
|
|
|
391.3
|
|
|
Other (1)
|
125.5
|
|
|
123.9
|
|
|
194.5
|
|
|
217.7
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
Desking, benching, systems and storage
|
47.9
|
|
|
58.9
|
|
|
91.8
|
|
|
120.9
|
|
|
Seating
|
45.8
|
|
|
53.3
|
|
|
76.8
|
|
|
113.3
|
|
|
Other (1)
|
32.2
|
|
|
42.0
|
|
|
56.8
|
|
|
81.3
|
|
|
Other
|
|
|
|
|
|
|
|
|
Desking, benching, systems and storage
|
10.4
|
|
|
15.7
|
|
|
21.1
|
|
|
30.2
|
|
|
Seating
|
18.7
|
|
|
24.4
|
|
|
30.9
|
|
|
43.9
|
|
|
Other (1)
|
32.6
|
|
|
64.2
|
|
|
59.1
|
|
|
116.9
|
|
|
|
$
|
818.8
|
|
|
$
|
998.0
|
|
|
$
|
1,301.6
|
|
|
$
|
1,822.3
|
|
|
_______________________________________
(1)The Other product category data by segment consists primarily of products sold by consolidated dealers, textiles and surface materials, worktools, architecture, technology, other uncategorized product lines and services.
Reportable geographic information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Geographic Revenue
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
United States
|
$
|
597.6
|
|
|
$
|
680.8
|
|
|
$
|
921.1
|
|
|
$
|
1,216.7
|
|
|
|
|
|
|
Foreign locations
|
221.2
|
|
|
317.2
|
|
|
380.5
|
|
|
605.6
|
|
|
|
|
|
|
|
$
|
818.8
|
|
|
$
|
998.0
|
|
|
$
|
1,301.6
|
|
|
$
|
1,822.3
|
|
|
|
|
|
|
Contract Balances
At times, we receive payments from customers before revenue is recognized, resulting in the recognition of a contract liability (Customer deposits) presented in the Condensed Consolidated Balance Sheets.
Changes in the Customer deposits balance during the six months ended August 28, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
Customer Deposits
|
|
Balance as of February 28, 2020
|
$
|
28.6
|
|
|
Recognition of revenue included in beginning of year customer deposits
|
(21.6)
|
|
|
Customer deposits, net of revenue recognized during the period
|
97.0
|
|
|
Balance as of August 28, 2020
|
$
|
104.0
|
|
|
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.EARNINGS PER SHARE
Earnings per share is computed using the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Participating securities represent restricted stock units in which the participants have non-forfeitable rights to dividend equivalents during the performance period. Diluted earnings per share includes the effects of certain performance units in which the participants have forfeitable rights to dividend equivalents during the performance period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
Computation of Earnings per Share
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
Net income
|
$
|
55.5
|
|
|
$
|
60.5
|
|
|
$
|
17.4
|
|
|
$
|
78.3
|
|
|
|
|
|
|
Adjustment for earnings attributable to participating securities
|
(1.3)
|
|
|
(1.3)
|
|
|
(0.4)
|
|
|
(1.5)
|
|
|
|
|
|
|
Net income used in calculating earnings per share
|
$
|
54.2
|
|
|
$
|
59.2
|
|
|
$
|
17.0
|
|
|
$
|
76.8
|
|
|
|
|
|
|
Weighted-average common shares outstanding including participating securities (in millions)
|
117.6
|
|
|
119.7
|
|
|
117.4
|
|
|
119.6
|
|
|
|
|
|
|
Adjustment for participating securities (in millions)
|
(2.8)
|
|
|
(2.4)
|
|
|
(2.4)
|
|
|
(2.3)
|
|
|
|
|
|
|
Shares used in calculating basic earnings per share (in millions)
|
114.8
|
|
|
117.3
|
|
|
115.0
|
|
|
117.3
|
|
|
|
|
|
|
Effect of dilutive stock-based compensation (in millions)
|
0.2
|
|
|
0.5
|
|
|
0.2
|
|
|
0.5
|
|
|
|
|
|
|
Shares used in calculating diluted earnings per share (in millions)
|
115.0
|
|
|
117.8
|
|
|
115.2
|
|
|
117.8
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.47
|
|
|
$
|
0.50
|
|
|
$
|
0.15
|
|
|
$
|
0.65
|
|
|
|
|
|
|
Diluted
|
$
|
0.47
|
|
|
$
|
0.50
|
|
|
$
|
0.15
|
|
|
$
|
0.65
|
|
|
|
|
|
|
Total common shares outstanding at period end (in millions)
|
114.8
|
|
|
117.2
|
|
|
114.8
|
|
|
117.2
|
|
|
|
|
|
|
Anti-dilutive performance units excluded from the computation of diluted earnings per share (in millions)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
5.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended August 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments
|
|
Pension and other post-retirement liability adjustments
|
|
Derivative amortization
|
|
Foreign currency translation adjustments
|
|
Total
|
|
Balance as of May 29, 2020
|
$
|
(0.3)
|
|
|
$
|
(2.8)
|
|
|
$
|
(8.4)
|
|
|
$
|
(66.4)
|
|
|
$
|
(77.9)
|
|
|
Other comprehensive income (loss) before reclassifications
|
0.1
|
|
|
(0.8)
|
|
|
—
|
|
|
22.4
|
|
|
21.7
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(0.3)
|
|
|
0.2
|
|
|
—
|
|
|
(0.1)
|
|
|
Net current period other comprehensive income (loss)
|
0.1
|
|
|
(1.1)
|
|
|
0.2
|
|
|
22.4
|
|
|
21.6
|
|
|
Balance as of August 28, 2020
|
$
|
(0.2)
|
|
|
$
|
(3.9)
|
|
|
$
|
(8.2)
|
|
|
$
|
(44.0)
|
|
|
$
|
(56.3)
|
|
|
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended August 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments
|
|
Pension and other post-retirement liability adjustments
|
|
Derivative amortization
|
|
Foreign currency translation adjustments
|
|
Total
|
|
Balance as of February 28, 2020
|
$
|
(0.1)
|
|
|
$
|
(3.1)
|
|
|
$
|
(8.6)
|
|
|
$
|
(57.5)
|
|
|
$
|
(69.3)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(0.1)
|
|
|
(0.3)
|
|
|
—
|
|
|
13.5
|
|
|
13.1
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(0.5)
|
|
|
0.4
|
|
|
—
|
|
|
(0.1)
|
|
|
Net current period other comprehensive income (loss)
|
(0.1)
|
|
|
(0.8)
|
|
|
0.4
|
|
|
13.5
|
|
|
13.0
|
|
|
Balance as of August 28, 2020
|
$
|
(0.2)
|
|
|
$
|
(3.9)
|
|
|
$
|
(8.2)
|
|
|
$
|
(44.0)
|
|
|
$
|
(56.3)
|
|
|
The following table provides details about reclassifications out of accumulated other comprehensive income (loss) for the three and six months ended August 28, 2020 and August 23, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Detail of Accumulated Other
Comprehensive Income (Loss) Components
|
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Affected Line in the Condensed Consolidated Statements of Income
|
|
Three Months Ended
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other post-retirement liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (gains)
|
$
|
(0.3)
|
|
|
$
|
(0.8)
|
|
|
|
|
|
|
$
|
(0.6)
|
|
|
$
|
(1.5)
|
|
|
Other income, net
|
Prior service cost (credit)
|
(0.1)
|
|
|
(0.1)
|
|
|
|
|
|
|
(0.1)
|
|
|
(0.1)
|
|
|
Other income, net
|
|
0.1
|
|
|
0.1
|
|
|
|
|
|
|
0.2
|
|
|
0.3
|
|
|
Income tax expense
|
|
(0.3)
|
|
|
(0.8)
|
|
|
|
|
|
|
(0.5)
|
|
|
(1.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative amortization
|
0.3
|
|
|
0.3
|
|
|
|
|
|
|
0.6
|
|
|
0.6
|
|
|
Interest expense
|
|
(0.1)
|
|
|
(0.1)
|
|
|
|
|
|
|
(0.2)
|
|
|
(0.2)
|
|
|
Income tax benefit
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
0.4
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on sale of investment
|
—
|
|
|
(0.7)
|
|
|
|
|
|
|
—
|
|
|
(0.7)
|
|
|
Investment income
|
|
—
|
|
|
0.2
|
|
|
|
|
|
|
—
|
|
|
0.2
|
|
|
Income tax expense
|
|
—
|
|
|
(0.5)
|
|
|
|
|
|
|
—
|
|
|
(0.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications
|
$
|
(0.1)
|
|
|
$
|
(1.1)
|
|
|
|
|
|
|
$
|
(0.1)
|
|
|
$
|
(1.4)
|
|
|
|
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.FAIR VALUE
The carrying amounts for many of our financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts and notes payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. Our foreign exchange forward contracts and long-term investments are measured at fair value in the Condensed Consolidated Balance Sheets.
Our total debt is carried at cost and was $483.3 and $484.3 as of August 28, 2020 and February 28, 2020, respectively. The fair value of our total debt is measured using a discounted cash flow analysis based on current market interest rates for similar types of instruments and was $522.6 and $560.0 as of August 28, 2020 and February 28, 2020, respectively. The estimation of the fair value of our total debt is based on Level 2 fair value measurements.
We periodically use derivative financial instruments to manage exposures to movements in foreign exchange rates and interest rates. The use of these financial instruments modifies the exposure of these risks with the intention to reduce our risk of short-term volatility. We do not use derivatives for speculative or trading purposes.
Assets and liabilities measured at fair value as of August 28, 2020 and February 28, 2020 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28, 2020
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
515.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
515.9
|
|
|
Restricted cash
|
6.5
|
|
|
—
|
|
|
—
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
—
|
|
|
2.4
|
|
|
—
|
|
|
2.4
|
|
|
Auction rate securities
|
—
|
|
|
—
|
|
|
2.0
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
522.4
|
|
|
$
|
2.4
|
|
|
$
|
2.0
|
|
|
$
|
526.8
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
—
|
|
|
$
|
(1.5)
|
|
|
$
|
—
|
|
|
$
|
(1.5)
|
|
|
|
$
|
—
|
|
|
$
|
(1.5)
|
|
|
$
|
—
|
|
|
$
|
(1.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2020
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
541.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
541.0
|
|
|
Restricted cash
|
6.1
|
|
|
—
|
|
|
—
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
—
|
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
|
Auction rate securities
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
547.1
|
|
|
$
|
1.2
|
|
|
$
|
2.1
|
|
|
$
|
550.4
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
—
|
|
|
$
|
(0.5)
|
|
|
$
|
—
|
|
|
$
|
(0.5)
|
|
|
|
$
|
—
|
|
|
$
|
(0.5)
|
|
|
$
|
—
|
|
|
$
|
(0.5)
|
|
|
Below is a roll-forward of assets and liabilities measured at fair value using Level 3 inputs for the six months ended August 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Roll-Forward of Fair Value Using Level 3 Inputs
|
Auction Rate Securities
|
|
|
|
Balance as of February 28, 2020
|
$
|
2.1
|
|
|
|
|
Unrealized loss on investments
|
(0.1)
|
|
|
|
|
|
|
|
|
|
Balance as of August 28, 2020
|
$
|
2.0
|
|
|
|
|
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7.INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
August 28,
2020
|
|
February 28,
2020
|
|
Raw materials and work-in-process
|
$
|
128.6
|
|
|
$
|
122.0
|
|
|
Finished goods
|
108.3
|
|
|
112.8
|
|
|
|
236.9
|
|
|
234.8
|
|
|
Revaluation to LIFO
|
19.4
|
|
|
19.8
|
|
|
|
$
|
217.5
|
|
|
$
|
215.0
|
|
|
The portion of inventories determined by the LIFO method was $92.7 and $93.8 as of August 28, 2020 and February 28, 2020, respectively.
8.GOODWILL
A summary of the changes in goodwill balances during the six months ended August 28, 2020, by reportable segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
Americas
|
|
EMEA
|
|
Other
|
|
Total
|
|
Goodwill
|
$
|
206.1
|
|
|
$
|
283.5
|
|
|
$
|
47.9
|
|
|
$
|
537.5
|
|
|
Accumulated impairment losses
|
(1.7)
|
|
|
(265.0)
|
|
|
(37.2)
|
|
|
(303.9)
|
|
|
Balance as of February 28, 2020
|
204.4
|
|
|
18.5
|
|
|
10.7
|
|
|
233.6
|
|
|
Impairment charge (1)
|
—
|
|
|
(17.6)
|
|
|
—
|
|
|
(17.6)
|
|
|
Currency translation adjustments
|
—
|
|
|
(0.9)
|
|
|
—
|
|
|
(0.9)
|
|
|
Goodwill
|
206.1
|
|
|
282.6
|
|
|
47.9
|
|
|
536.6
|
|
|
Accumulated impairment losses
|
(1.7)
|
|
|
(282.6)
|
|
|
(37.2)
|
|
|
(321.5)
|
|
|
Balance as of August 28, 2020
|
$
|
204.4
|
|
|
$
|
—
|
|
|
$
|
10.7
|
|
|
$
|
215.1
|
|
|
_______________________________________
(1)In Q1 2021, we recorded a goodwill impairment charge in the EMEA segment related to the Orangebox U.K. reporting unit.
We evaluate goodwill for impairment annually in Q4, or earlier if conditions indicate it is necessary. In Q1 2021, we determined that a triggering event occurred which resulted in an interim impairment evaluation of goodwill for each of our reporting units. During Q1 2021, the market price of our Class A Common Stock declined significantly in connection with overall stock market trends related to the global economic impact of the COVID-19 pandemic. The reduction in revenue in Q1 2021 and changes to our forecasted revenue growth rates and expected operating margins related to the economic disruption of the COVID-19 pandemic were also factors that led to the completion of our interim impairment analysis.
For goodwill, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the difference is recorded as an impairment loss. We estimate the fair value of our reporting units using the income approach, which calculates the fair value of each reporting unit based on the present value of its estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. For the evaluation that we conducted in Q1 2021, such conditions included the deterioration of industry and market conditions driven by the COVID-19 pandemic. The discount rates used are based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting units' ability to execute on the projected cash flows. In certain circumstances, we corroborate the results determined using the income approach with a market-based approach that uses observable comparable company information to support the appropriateness of the fair value estimates.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a result of our goodwill impairment testing, we determined that the carrying value of the Orangebox U.K. reporting unit (included in the EMEA segment) exceeded its fair value, resulting in a $17.6 goodwill impairment charge in Q1 2021. Following the charge, the reporting unit had no remaining goodwill. During Q1 2021, we also tested the recoverability of the Orangebox U.K. long-lived assets (other than goodwill) and concluded that those assets were not impaired.
For each of our other reporting units, we determined that the fair value of the reporting unit substantially exceeded its carrying value, and no goodwill impairment existed. We also determined that no impairment existed related to the long-lived asset groups for any of our other reporting units.
9.SHORT-TERM BORROWINGS
Our $250.0 committed unsecured revolving syndicated credit facility expires in 2025. At our option, and subject to certain conditions, we may increase the aggregate commitment under the facility by up to $125.0 by obtaining at least one commitment from one or more lenders. During Q1 2021, we borrowed $250.0 under the facility and repaid $5.0. During Q2 2021, we repaid the remaining balance of $245.0 under the facility, and there were no borrowings outstanding under the facility as of August 28, 2020.
The facility does not include any restrictions on cash dividend payments or share repurchases. As of August 28, 2020, we were in compliance with all covenants under the facility.
10.INCOME TAXES
In Q1 2021, the U.S. government enacted tax legislation to provide economic stimulus and support to businesses during the COVID-19 pandemic, referred to as the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). In connection with our analysis of the impact of the CARES Act, we recorded a net tax benefit of $3.9 during the six months ended August 28, 2020, driven primarily by provisions within the CARES Act which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act when the federal statutory income tax rate was 35%.
We have historically calculated the provision for income tax expense (benefit) during interim periods by applying an estimate of the annualized effective tax rate for the full fiscal year to the pre-tax income (loss) for the year-to-date period. In Q1 2021, we utilized the year-to-date actual effective tax rate to calculate our income tax expense (benefit), as we determined that it was the most reliable estimate of the annual effective tax rate. In Q2 2021, as a result of improved pre-tax income, we applied the estimated annualized effective tax rate for the fiscal year to pre-tax income for the year-to-date period to calculate our income tax expense. The effective tax rate for Q2 2021 was 33.0% compared to an effective tax rate of 26.3% in Q2 2020.
11.SHARE-BASED COMPENSATION
Performance Units
During the six months ended August 28, 2020, we issued two sets of performance units (“PSUs”) to certain employees. The first set, consisting of 303,973 PSUs, will be earned at the end of 2021 (the “2021 Short-Term PSUs”), and the second set, consisting of 529,500 PSUs, will be earned over a three-year performance period of 2021 through 2023 (the “2021 Long-Term PSUs”). The 2021 Short-Term PSUs will be earned based on our Compensation Committee’s qualitative assessment of management’s performance in 2021 in a number of specified areas (collectively, the “2021 Performance Measures”). The 2021 Long-Term PSUs will be earned based on achievement of certain performance conditions and then modified based on achievement of certain total shareholder return results relative to a comparison group of companies. The performance conditions for the 2021 Long-Term PSUs consist of the 2021 Performance Measures and performance conditions for 2022 and 2023 which will be established by the Compensation Committee in future periods. Due to the qualitative assessment, these awards are not considered granted under GAAP. When the Compensation Committee determines whether or not, and to what extent, the 2021 Performance Measures have been met, the 2021 Short-Term PSUs and one-third of the 2021 Long-Term PSUs will be considered granted. Once granted, the expense for these awards will be determined based on the target achieved and the fair value of the market condition on the grant date. The expense will be recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the remaining performance period, if any.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the six months ended August 23, 2019, we issued 296,600 PSUs to certain employees which will be earned over a three-year performance period of 2020 through 2022 (the “2020 Long-Term PSUs”). The 2020 Long-Term PSUs will be earned based on achievement of certain performance conditions and then modified based on achievement of certain total shareholder return results relative to a comparison group of companies. The performance conditions for the first year of the performance period were established in Q1 2020, and accordingly, 98,867 of the 2020 Long-Term PSUs were considered granted in Q1 2020. The 2021 Performance Measures have been established as the performance conditions for the second year of the performance period of the 2020 Long-Term PSUs, and accordingly, no additional portion of such awards have been considered granted. When the Compensation Committee determines whether or not, and to what extent, the 2021 Performance Measures have been met, an additional one-third of these awards will be considered granted. Once granted, the expense for these awards will be determined based on the target achieved and the fair value of the market condition on the grant date. The expense will be recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the remaining performance period. The performance conditions for 2022 for these awards will be established by the Compensation Committee in future periods.
The total PSU expense and associated tax benefit for all outstanding awards for the three and six months ended August 28, 2020 and August 23, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
Performance Units
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
Expense
|
$
|
0.1
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
1.7
|
|
|
|
|
|
|
Tax benefit
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.5
|
|
|
|
|
|
|
As of August 28, 2020, there was $0.3 of remaining unrecognized compensation cost related to nonvested PSUs, which is expected to be recognized over a remaining weighted-average period of 1.2 years.
There were no PSU grants, vestings or forfeitures for the six months ended August 28, 2020.
Restricted Stock Units
During the six months ended August 28, 2020, we awarded 1,131,700 restricted stock units ("RSUs") to certain employees. RSUs have restrictions on transfer which lapse three years after the date of grant, at which time the RSUs will be issued as unrestricted shares of Class A Common Stock. RSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the requisite service period based on the value of the shares on the date of grant.
The total RSU expense and associated tax benefit for all outstanding awards for the three and six months ended August 28, 2020 and August 23, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
Restricted Stock Units
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
Expense
|
$
|
1.4
|
|
|
$
|
2.0
|
|
|
$
|
9.0
|
|
|
$
|
9.9
|
|
|
|
|
|
|
Tax benefit
|
0.4
|
|
|
0.5
|
|
|
2.3
|
|
|
2.7
|
|
|
|
|
|
|
As of August 28, 2020, there was $7.3 of remaining unrecognized compensation cost related to nonvested RSUs, which is expected to be recognized over a weighted-average period of 1.8 years.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The RSU activity for the six months ended August 28, 2020 is as follows:
|
|
|
|
|
|
|
|
|
Nonvested Units
|
Total
|
Weighted-Average
Grant Date
Fair Value
per Unit
|
Nonvested as of February 28, 2020
|
1,761,124
|
|
$
|
15.28
|
|
Granted
|
1,131,700
|
|
9.03
|
|
Vested
|
(10,511)
|
|
16.05
|
|
Forfeited
|
(35,874)
|
|
14.70
|
|
Nonvested as of August 28, 2020
|
2,846,439
|
|
$
|
12.80
|
|
12.LEASES
We have operating leases for corporate offices, sales offices, showrooms, manufacturing facilities, vehicles and equipment that expire at various dates through 2031. Certain lease agreements include contingent rental payments based on per unit usage over contractual levels (e.g., miles driven or machine hours used) and others include rental payments adjusted periodically for inflationary indexes. Additionally, some leases include options to renew or terminate the leases which can be exercised at our discretion. The lease terms utilized in determining right-of-use assets and lease liabilities include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods. Our leases do not contain any residual value guarantees or material restrictive covenants. As most of our leases do not provide an implicit discount rate, we use an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The estimated incremental borrowing rate represents the estimated rate of interest we would have had to pay to borrow on a collateralized basis an amount equal to the lease payments for a similar period of time.
As a result of the COVID-19 pandemic, the FASB staff issued a question and answer document (the "Staff Q&A") on the application of lease accounting guidance related to lease concessions provided as a result of the pandemic. The Staff Q&A provides interpretive guidance allowing companies the option to account for lease concessions related to the pandemic consistent with how those concessions would be accounted for under ASU 2016-02, Leases (Topic 842), as though enforceable rights and obligations for those concessions existed at the beginning of the contract (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). This interpretive guidance was issued in order to reduce the costs and complexities of applying lease modification accounting under Topic 842 to leases impacted by the effects of the pandemic. We have elected to apply the interpretive guidance provided in the Staff Q&A to rent deferrals or abatements received related to the pandemic. Accordingly, we have not remeasured the related right-of-use asset or lease liability for the affected leases. The lease concessions were not material for the six months ended August 28, 2020.
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
$
|
12.9
|
|
|
$
|
12.5
|
|
|
$
|
26.0
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
|
|
|
Sublease rental income
|
(0.6)
|
|
|
(0.3)
|
|
|
(0.9)
|
|
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12.3
|
|
|
$
|
12.2
|
|
|
$
|
25.1
|
|
|
$
|
24.2
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow and other information related to leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
Cash flow information:
|
|
|
|
|
|
|
|
|
Operating cash flows used for operating leases
|
$
|
12.1
|
|
|
$
|
11.5
|
|
|
$
|
24.7
|
|
|
$
|
23.4
|
|
|
Leased assets obtained in exchange for new operating lease obligations
|
$
|
1.4
|
|
|
$
|
18.6
|
|
|
$
|
1.9
|
|
|
$
|
58.2
|
|
|
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 28,
2020
|
|
August 23,
2019
|
|
Other information:
|
|
|
|
|
Weighted-average remaining term
|
6.8 years
|
|
7.3 years
|
|
Weighted-average discount rate
|
4.0
|
%
|
|
4.2
|
%
|
|
The following table summarizes the future minimum lease payments as of August 28, 2020:
|
|
|
|
|
|
|
|
|
Fiscal year ending in February
|
Amount (1)
|
|
2021
|
$
|
26.1
|
|
|
2022
|
48.5
|
|
|
2023
|
41.6
|
|
|
2024
|
35.8
|
|
|
2025
|
33.3
|
|
|
Thereafter
|
91.5
|
|
|
Total lease payments
|
276.8
|
|
|
Less interest
|
35.3
|
|
|
Present value of lease liabilities
|
$
|
241.5
|
|
|
_______________________________________
(1)Lease payments include options to extend lease terms that are reasonably certain of being exercised. The payments exclude legally binding minimum lease payments for leases signed but not yet commenced.
13.REPORTABLE SEGMENTS
Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate costs are reported as Corporate.
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, Smith System, AMQ, Turnstone and Orangebox brands.
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase, Orangebox and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions.
The Other category includes Asia Pacific and Designtex. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, seating and storage solutions. Designtex primarily sells textiles, wall coverings and surface imaging solutions specified by architects and designers directly to end-use customers through a direct sales force primarily in North America. In 2020, the Other category also included PolyVision which was sold during Q4 2020.
We primarily review and evaluate revenue and operating income by segment in both our internal review processes and for our external financial reporting. We also allocate resources primarily based on revenue and operating income. Total assets by segment include manufacturing and other assets associated with each segment.
Corporate costs include unallocated portions of shared service functions such as information technology, corporate facilities, finance, human resources, research, legal and customer aviation, plus deferred compensation expense and income or losses associated with COLI. Corporate assets consist primarily of unallocated cash and cash equivalents, COLI balances, fixed assets and right-of-use assets related to operating leases.
STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue and operating income (loss) for the three and six months ended August 28, 2020 and August 23, 2019 and total assets as of August 28, 2020 and February 28, 2020 by segment are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
Reportable Segment Statement of Operations Data
|
August 28,
2020
|
|
August 23,
2019
|
|
August 28,
2020
|
|
August 23,
2019
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
631.2
|
|
|
$
|
739.5
|
|
|
$
|
965.1
|
|
|
$
|
1,315.8
|
|
|
|
|
|
|
EMEA
|
125.9
|
|
|
154.2
|
|
|
225.4
|
|
|
315.5
|
|
|
|
|
|
|
Other
|
61.7
|
|
|
104.3
|
|
|
111.1
|
|
|
191.0
|
|
|
|
|
|
|
|
$
|
818.8
|
|
|
$
|
998.0
|
|
|
$
|
1,301.6
|
|
|
$
|
1,822.3
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
94.6
|
|
|
$
|
90.3
|
|
|
$
|
71.1
|
|
|
$
|
122.7
|
|
|
|
|
|
|
EMEA
|
(3.5)
|
|
|
(5.5)
|
|
|
(28.1)
|
|
|
(4.7)
|
|
|
|
|
|
|
Other
|
1.1
|
|
|
8.9
|
|
|
(0.5)
|
|
|
11.2
|
|
|
|
|
|
|
Corporate
|
(3.6)
|
|
|
(8.4)
|
|
|
(6.2)
|
|
|
(16.3)
|
|
|
|
|
|
|
|
$
|
88.6
|
|
|
$
|
85.3
|
|
|
$
|
36.3
|
|
|
$
|
112.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment Balance Sheet Data
|
August 28,
2020
|
|
February 28,
2020
|
|
|
Total assets
|
|
|
|
|
|
Americas
|
$
|
1,067.9
|
|
|
$
|
1,067.3
|
|
|
|
EMEA
|
401.6
|
|
|
454.5
|
|
|
|
Other
|
215.6
|
|
|
225.6
|
|
|
|
Corporate
|
754.6
|
|
|
818.0
|
|
|
|
|
$
|
2,439.7
|
|
|
$
|
2,565.4
|
|
|
|
14. RESTRUCTURING ACTIVITIES
In Q2 2021, our Board of Directors approved a series of restructuring actions in response to continued order declines in the Americas compared to the prior year and continued economic uncertainty related to the COVID-19 pandemic. The restructuring actions include early retirements and voluntary and involuntary terminations of approximately 300 salaried employees and early retirements of approximately 160 hourly employees. We expect to incur approximately $26 in restructuring costs in the Americas segment in connection with these actions, consisting of cash severance payments and payment of other separation-related benefits. We recorded $15.6 of restructuring costs in Q2 2021 related to the actions which were initiated during the quarter. We expect all of the actions to be completed by the end of 2021.
The following table details the changes in the restructuring reserve balance as of August 28, 2020:
|
|
|
|
|
|
|
|
|
|
Workforce reductions
|
|
Balance as of February 28, 2020
|
$
|
—
|
|
|
Restructuring costs
|
15.6
|
|
|
Payments
|
(0.4)
|
|
|
Balance as of August 28, 2020
|
$
|
15.2
|
|
|