STEELCASE INC. The following review of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere within this Report.
This item contains certain non-GAAP financial measures. A "non-GAAP financial
measure" is defined as a numerical measure of a company's financial performance
that excludes or includes amounts so as to be different than the most directly
comparable measure calculated and presented in accordance with GAAP in the
consolidated statements of income, balance sheets or statements of cash flows of
the company. The non-GAAP financial measures used are (1) organic revenue
growth, (2) adjusted operating income (loss) and (3) adjusted earnings per
share. Pursuant to the requirements of Regulation G, we have provided a
reconciliation of each of the non-GAAP financial measures to the most directly
comparable GAAP financial measures in the tables below. These measures are
supplemental to, and should be used in conjunction with, the most comparable
GAAP financial measures. Management uses these non-GAAP financial measures to
monitor and evaluate financial results and trends. See Non-GAAP Financial
Measures for a description of these measures and why management believes they
are also useful to investors.
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Financial Summary
Our reportable segments consist of the
Results of Operations
Year Ended
Statement of Operations Data- February 24, February 25, February 26,
Consolidated 2023 2022 2021
Revenue $ 3,232.6 100.0 % $ 2,772.7 100.0 % $ 2,596.2 100.0 %
Cost of sales 2,310.7 71.5 2,011.2 72.5 1,822.8 70.2
Restructuring costs 2.5 0.1 - - 10.6 0.4
Gross profit 919.4 28.4 761.5 27.5 762.8 29.4
Operating expenses 837.2 25.9 741.4 26.8 684.2 26.4
Goodwill impairment charge - - - - 17.6 0.6
Restructuring costs 16.7 0.5 - - 18.0 0.7
Operating income 65.5 2.0 20.1 0.7 43.0 1.7
Interest expense (28.4) (0.9) (25.7) (0.9) (27.1) (1.1)
Investment income 1.0 0.1 0.6 - 1.4 0.1
Other income, net 13.5 0.4 6.6 0.2 8.6 0.3
Income before income tax expense
(benefit) 51.6 1.6 1.6 - 25.9 1.0
Income tax expense (benefit) 16.3 0.5 (2.4) (0.1) (0.2) -
Net income $ 35.3 1.1 % $ 4.0 0.1 % $ 26.1 1.0 %
Earnings per share:
Basic $ 0.30 $ 0.03 $ 0.22
Diluted $ 0.30 $ 0.03 $ 0.22
Year Ended
February 24, February 25,
Organic Revenue Growth - Consolidated 2023 2022
Prior year revenue $ 2,772.7 $ 2,596.2
Acquisitions 58.9 44.8
Divestitures (1.4) -
Currency translation effects (77.9) 16.0
Prior year revenue, adjusted 2,752.3 2,657.0
Current year revenue 3,232.6 2,772.7
Organic growth $ $ 480.3 $ 115.7
Organic growth % 17 % 4 %
Reconciliation of Operating Year Ended
Income to Adjusted Operating February 24, February 25, February 26,
Income 2023 2022 2021
Operating income $ 65.5 2.0 % $ 20.1 0.7 % $ 43.0 1.7 %
Amortization of purchased
intangible assets 22.8 0.7 14.8 0.6 16.3 0.6
Goodwill impairment charge - - - - 17.6 0.7
Restructuring costs 19.2 0.6 - - 28.6 1.1
Adjusted operating income $ 107.5 3.3 % $ 34.9 1.3 % $ 105.5 4.1 %
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Year ended
February 24, February 25, February 26,
Adjusted Earnings Per Share 2023 2022 2021
Earnings per share $ 0.30 $ 0.03 $ 0.22
Amortization of purchased intangible assets, per share 0.19 0.13 0.14
Income tax effect of amortization of purchased
intangible assets, per share (0.05) (0.03) (0.04)
Goodwill impairment charge, per share - - 0.15
Restructuring costs, per share 0.16 - 0.24
Income tax effect of restructuring costs, per share (0.04) - (0.09)
Adjusted earnings per share $ 0.56 $ 0.13 $ 0.62
The current year results of operations are presented in comparison to the prior
year within the sections below. For a discussion of the 2022 results of
operations in comparison to 2021, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our 2022 Annual Report on Form
10-K.
Overview
In 2023, our revenue, gross margin and earnings per share improved compared to
the prior year as year-over-year pricing benefits exceeded year-over-year
inflation impacts. During 2022 and the first half of 2023, broad-based supply
chain disruptions, such as labor shortages and delays in long distance supply
chains, impacted our ability to manufacture and complete deliveries to our
customers, and we experienced significant inflation in steel, fuel and other
commodities. In response to the inflationary pressures, we implemented multiple
list price increases globally in 2022 and 2023 and a temporary surcharge in the
Americas in 2023. As of the end of 2023, the benefits of our cumulative pricing
actions approximated the cumulative inflation we incurred over the past two
years, and we expect to have continued gross margin improvement from our pricing
actions in 2024. In addition, supply chain disruptions began to ease in the
second half of 2023 which led to reduced lead times and faster order
fulfillment.
Our 17% revenue growth in 2023 was driven by the benefits of our pricing actions
and increased volume, including revenue from our acquisition of HALCON in Q2
2023. We had a strong order backlog at the start of the year and broad-based
order growth in the Americas and EMEA in the first half of the year. In Q3 2023,
orders declined compared to the prior year in connection with softening industry
demand patterns, and in Q4 2023, the year-over-year order declines improved
compared to Q3 2023, primarily due to increased project orders from large
corporate customers. At the end of the year, our backlog of customer orders was
approximately $690 , which was 14% lower than the prior year. In response to the
softening demand patterns in Q3 2023, we took actions to reduce our operational
spending which included workforce reductions in the Americas and actions to wind
down our customer aviation function.
We recorded net income of $35.3 and diluted earnings per share of $0.30 in 2023
compared to net income of $4.0 and diluted earnings per share of $0.03 in 2022.
Operating income of $65.5 in 2023 represented an increase of $45.4 compared to
the prior year. The increase was driven by higher pricing benefits, net of
inflation, higher volume, partially offset by higher operating expenses and
$19.2 of restructuring costs related to workforce reductions in the Americas and
wind down of our customer aviation function. We reported adjusted operating
income of $107.5 and adjusted earnings per share of $0.56 in 2023, and we had
adjusted operating income of $34.9 and adjusted earnings per share of $0.13 in
the prior year.
Revenue of $3,232.6 in 2023 represented an increase of $459.9 or 16.6% compared
to the prior year, driven by growth across all segments. Approximately $325 of
the increase was related to higher pricing benefits, and approximately $210 was
related to higher volume (which included approximately $65 from acquisitions),
partially offset by approximately $78 of unfavorable currency translation
effects, primarily in EMEA. Revenue increased by 22.9% in the Americas , 1.9% in
EMEA and 4.6% in the Other category. Organic revenue growth was $480.3 or 17%
compared to the prior year, with 20% in the Americas , 13% in EMEA and 8% in the
Other category.
Cost of sales as a percentage of revenue improved by 100 basis points in 2023
compared to the prior year. The improvement was driven by approximately $170 of
higher pricing benefits, net of inflation, and the benefits of higher volume,
partially offset by approximately $33 of higher fixed overhead costs and labor
inefficiencies and
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$18.2 of higher variable compensation expense. Cost of sales as a percentage of revenue improved by 210 basis points in theAmericas but increased by 160 basis points in EMEA and by 50 basis points in the Other category. Operating expenses increased by$95.8 in 2023, but decreased by 90 basis points as a percentage of revenue, compared to the prior year. Operating expenses in 2023 included:
•$38.8 of higher variable compensation expense,
•$28.4 of higher marketing, product development and sales expenses,
•$24.4 from acquisitions,
•approximately
•a
•partially offset by
Operating expenses included
We recorded restructuring costs of
Our 2023 effective tax rate was 31.6% compared to a 2022 effective tax rate of
(150.0)%, which included
Interest Expense, Investment Income and Other Income, Net
Year Ended
February 24, February 25, February 26,
Interest Expense, Investment Income and Other Income, Net 2023 2022 2021
Interest expense $ (28.4) $ (25.7) $ (27.1)
Investment income 1.0 0.6 1.4
Other income, net:
Equity in income of unconsolidated affiliates 12.5 8.0 9.3
Foreign exchange gains (losses) 1.8 1.1 (2.3)
Net periodic pension and post-retirement expense, excluding service cost
(1.1) (0.7) (0.3)
Miscellaneous income (expense), net 0.3 (1.8) 1.9
Total other income, net 13.5 6.6 8.6
Total interest expense, investment income and other income, net
$ (13.9)
Interest expense in 2023 increased compared to 2022 due to borrowings under our global committed credit facility in 2023. Total other income, net in 2023 increased compared to 2022 driven by a$4.5 increase in income recorded from our unconsolidated affiliates related to our dealer investments and manufacturing joint venture. 19
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Table of Contents Business Segment Disclosure
See Note 20 to the consolidated financial statements for additional information regarding our business segments.
TheAmericas segment serves customers in theU.S. ,Canada , theCaribbean Islands andLatin America with a comprehensive portfolio of furniture and architectural products marketed to corporate, government, healthcare, education and retail customers through theSteelcase , AMQ, Coalesse, HALCON, Orangebox, Smith System and Viccarbe brands. Year Ended Statement of Operations Data- February 24, February 25, February 26, Americas 2023 2022 2021 Revenue$ 2,340.8 100.0 %$ 1,905.0 100.0 %$ 1,848.5 100.0 % Cost of sales 1,665.2 71.1 1,394.0 73.2 1,285.1 69.5 Restructuring costs 2.5 0.1 - - 10.6 0.6 Gross profit 673.1 28.8 511.0 26.8 552.8 29.9 Operating expenses 552.6 23.7 466.6 24.5 437.8 23.7 Restructuring costs 16.7 0.7 - - 18.0 1.0 Operating income$ 103.8 4.4 %$ 44.4 2.3 %$ 97.0 5.2 % Year Ended February 24, February 25, Organic Revenue Growth - Americas 2023 2022 Prior year revenue$ 1,905.0 $ 1,848.5 Acquisitions 52.7 41.8 Divestitures (0.2) - Currency translation effects (4.2) 5.2 Prior year revenue, adjusted 1,953.3 1,895.5 Current year revenue 2,340.8 1,905.0 Organic growth $ $ 387.5 $ 9.5 Organic growth % 20 % 1 % Year Ended Reconciliation of Operating Income to February 24, February 25, February 26, Adjusted Operating Income - Americas 2023 2022 2021 Operating income$ 103.8 4.4 %$ 44.4 2.3 %$ 97.0 5.2 % Amortization of purchased intangible assets 18.2 0.8 10.5 0.6 12.6 0.7 Restructuring costs 19.2 0.8 - - 28.6 1.6 Adjusted operating income$ 141.2 6.0 %$ 54.9 2.9 %$ 138.2 7.5 % Operating income in theAmericas increased by$59.4 in 2023 compared to the prior year. The increase was driven by higher pricing benefits, net of inflation, and higher volume, partially offset by higher operating expenses. The 2023 results included$19.2 of restructuring costs. Adjusted operating income of$141.2 in 2023 represented an improvement of$86.3 compared to the prior year. TheAmericas revenue represented 72.4% of consolidated revenue in 2023. In 2023, revenue of$2,340.8 represented an increase of$435.8 or 22.9% compared to the prior year. The increase included approximately$250 related to higher pricing benefits and approximately$190 related to higher volume (including approximately$55 from acquisitions). Organic revenue growth in 2023 was$387.5 or 20% compared to the prior year. Cost of sales as a percentage of revenue improved by 210 basis points in 2023 compared to the prior year. The improvement was driven by approximately$150 of higher pricing benefits, net of inflation, and the benefits of 20
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higher volume, partially offset by approximately
Operating expenses increased by$86.0 in 2023, but decreased by 80 basis points as a percentage of revenue, compared to the prior year. Operating expenses in 2023 included:
•$29.3 of higher variable compensation expense,
•$20.5 from acquisitions,
•$15.6 of higher marketing, product development and sales expenses,
•$10.9 of higher spending in other functional areas, primarily information technology, facilities and strategy, and
•a
Operating expenses included
EMEA
The EMEA segment serves customers in
Year Ended
Statement of Operations Data - February 24, February 25, February 26,
EMEA 2023 2022 2021
Revenue $ 610.1 100.0 % $ 598.5 100.0 % $ 511.3 100.0 %
Cost of sales 450.9 73.9 432.6 72.3 380.4 74.4
Gross profit 159.2 26.1 165.9 27.7 130.9 25.6
Operating expenses 162.6 26.7 162.6 27.1 145.6 28.5
Goodwill impairment charge - - - - 17.6 3.4
Operating income (loss) $ (3.4) (0.6) % $ 3.3 0.6 % $ (32.3) (6.3) %
Year Ended
February 24, February 25,
Organic Revenue Growth - EMEA 2023 2022
Prior year revenue $ 598.5 $ 511.3
Acquisitions 6.2 3.0
Divestitures (1.2) -
Currency translation effects (65.9) 7.5
Prior year revenue, adjusted 537.6 521.8
Current year revenue 610.1 598.5
Organic growth $ $ 72.5 $ 76.7
Organic growth % 13 % 15 %
Reconciliation of Operating Income Year Ended
(Loss) to Adjusted Operating Income February 24, February 25, February 26,
(Loss) - EMEA 2023 2022 2021
Operating income (loss) $ (3.4) (0.6) % $ 3.3 0.6 % $ (32.3) (6.3) %
Amortization of purchased intangible
assets 4.6 0.8 4.3 0.7 3.7 0.7
Goodwill impairment charge - - - - 17.6 3.4
Adjusted operating income (loss) $ 1.2 0.2 % $ 7.6 1.3 % $ (11.0) (2.2) %
Operating results in EMEA decreased by$6.7 in 2023 compared to the prior year. The decline was driven by higher cost of sales, primarily due to higher inflation. Adjusted operating income of$1.2 in 2023 represented a decline of$6.4 compared to the prior year. 21
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EMEA revenue represented 18.9% of consolidated revenue in 2023. In 2023, revenue of$610.1 represented an increase of$11.6 or 1.9% compared to the prior year. The increase was broad-based across all markets. Revenue increased by approximately$60 related to higher pricing benefits and by approximately$15 related to higher volume (including approximately$11 from an acquisition), mostly offset by approximately$66 of unfavorable currency translation effects. Organic revenue growth in 2023 was$72.5 or 13% compared to the prior year.
Cost of sales as a percentage of revenue increased by 160 basis points in 2023
compared to the prior year. The increase was driven by approximately
Operating expenses were flat in 2023, but decreased by 40 basis points as a percentage of revenue, compared to the prior year. Operating expenses in 2023 included:
•$5.6 of higher variable compensation expense,
•approximately
•$3.6 from an acquisition, and
•a
•offset by
Other
The Other category includesAsia Pacific and Designtex.Asia Pacific serves customers inAustralia ,China ,India ,Japan ,Korea and other countries inSoutheast Asia primarily under the Steelcase brand with a comprehensive portfolio of furniture and architectural products. Designtex sells textiles, wall coverings and surface imaging solutions specified by architects and designers directly to end-use customers through a direct sales force primarily inNorth America . Year Ended Statement of Operations Data - February 24, February 25, February 26, Other 2023 2022 2021 Revenue$ 281.7 100.0 %$ 269.2 100.0 %$ 236.4 100.0 % Cost of sales 194.6 69.1 184.6 68.6 157.3 66.5 Gross profit 87.1 30.9 84.6 31.4 79.1 33.5 Operating expenses 93.4 33.1 87.8 32.6 78.9 33.4 Operating income (loss)$ (6.3) (2.2) %$ (3.2) (1.2) %$ 0.2 0.1 % Year Ended February 24, February 25, Organic Revenue Growth - Other 2023 2022 Prior year revenue $ 269.2 $ 236.4 Currency translation effects (7.8) 3.3 Prior year revenue, adjusted 261.4 239.7 Current year revenue 281.7 269.2 Organic growth $ $ 20.3 $ 29.5 Organic growth % 8 % 12 %
The operating loss in the Other category increased by
Revenue in the Other category represented 8.7% of consolidated revenue in 2023. In 2023, revenue of$281.7 represented an increase of$12.5 or 4.6% compared to the prior year. The increase was primarily driven byIndia and Designtex. Approximately$13 of the increase was related to higher pricing benefits and approximately$5 was related to higher volume, partially offset by approximately$8 of unfavorable currency translation effects. Organic revenue growth was$20.3 or 8% compared to the prior year. 22
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Cost of sales as a percentage of revenue increased by 50 basis points in 2023 compared to the prior year. The increase was driven by higher inflation and unfavorable currency impacts, partially offset by the benefits of higher volume and approximately$13 of higher pricing benefits. Operating expenses increased by$5.6 in 2023, or 50 basis points as a percentage of revenue, compared to the prior year. The increase was driven by$10.3 of higher marketing, product development and sales expenses and$2.5 of higher variable compensation expense, partially offset by$7.1 of lower spending in other functional areas. Corporate Corporate expenses include unallocated portions of shared service functions such as information technology, corporate facilities, finance, human resources, research, legal and customer aviation, plus deferred compensation expense and income or losses associated with COLI. Year
Ended
February 24 , February
25,
Statement of Operations Data - Corporate 2023 2022 2021 Operating expenses$ 28.6 $ 24.4 $ 21.9 Operating expenses increased by$4.2 in 2023 compared to the prior year. The increase was driven by$5.4 of lower COLI income,$2.3 of higher spending and employee costs and$1.4 of higher variable compensation expense, partially offset by$4.8 of lower deferred compensation expense.
Non-GAAP Financial Measures
The non-GAAP financial measures used in this Management's Discussion and Analysis of Financial Condition and Results of Operations are: (1) organic revenue growth, (2) adjusted operating income (loss) and (3) adjusted earnings per share.
Organic Revenue Growth We define organic revenue growth as revenue growth excluding the impact of acquisitions and divestitures and foreign currency translation effects. Organic revenue growth is calculated by adjusting prior year revenue to include revenues of acquired companies prior to the date of the company's acquisition, to exclude revenues of divested companies and to use current year average exchange rates in the calculation of foreign-denominated revenue. We believe organic revenue growth is a meaningful metric to investors as it provides a more consistent comparison of our revenue to prior periods as well as to industry peers.
Adjusted Operating Income (Loss) and Adjusted Earnings Per Share
We define adjusted operating income (loss) as operating income (loss) excluding amortization of purchased intangible assets, goodwill impairment charges and restructuring costs. We define adjusted earnings per share as earnings per share excluding amortization of purchased intangible assets, goodwill impairment charges and restructuring costs, net of related income tax effects. •Amortization of purchased intangible assets: We may record intangible assets (such as backlog, dealer relationships, trademarks, know-how and designs and proprietary technology) when we acquire companies. We allocate the fair value of purchase consideration to net tangible and intangible assets acquired based on their estimated fair values. The fair value estimates for these intangible assets require management to make significant estimates and assumptions, which include the useful lives of intangible assets. We believe that adjusting for amortization of purchased intangible assets provides a more consistent comparison of our operating performance to prior periods as well as to industry peers. As our business strategy in recent years has included an increased number of acquisitions, intangible asset amortization has become more significant. •Goodwill impairment charges:Goodwill represents the difference between the purchase price and the related underlying tangible and identifiable intangible net asset fair values resulting from business acquisitions. We evaluate goodwill for impairment annually in Q4, or earlier if conditions indicate that there may be a potential for impairment, and goodwill impairment charges may be recorded as a result of these assessments. We believe that adjusting for goodwill impairment charges provides a more consistent comparison of our operating performance to prior periods as well as to industry peers. 23
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•Restructuring costs: Restructuring costs may be recorded as our business strategies change or in response to changing market trends and economic conditions. We believe that adjusting for restructuring costs, which are primarily associated with business exit and workforce reduction costs, provides a more consistent comparison of our operating performance to prior periods as well as to industry peers.
Liquidity and Capital Resources
Liquidity
Cash and cash equivalents are used to fund day-to-day operations, including seasonal disbursements, particularly the annual payment of accrued variable compensation and retirement plan contributions in Q1 of each fiscal year. During normal business conditions, we target a range of$75 to$175 for cash and cash equivalents to fund operating requirements. In addition, we may carry additional liquidity for potential investments in strategic initiatives and as a cushion against economic volatility, and from time to time, we may allow our cash and cash equivalents to temporarily fall below our targeted range to fund acquisitions and other growth initiatives. February 24, February 25, Liquidity Sources 2023 2022 Cash and cash equivalents$ 90.4 $ 200.9 Company-owned life insurance 157.3 168.0 Availability under credit facilities 269.7 262.0
Total liquidity sources available
As ofFebruary 24, 2023 , we held a total of$90.4 in cash and cash equivalents. Of that total, 52% was located in theU.S. and the remaining 48%, or$43.0 , was located outside of theU.S. , primarily inChina (includingHong Kong ),Mexico ,India ,Malaysia and the U.K. COLI investments are recorded at their net cash surrender value. Our investments in COLI policies are intended to be utilized as a long-term funding source for long-term benefit obligations. However, COLI can also be used as a source of liquidity. We believe the financial strength of the issuing insurance companies associated with our COLI policies is sufficient to meet their obligations. See Note 10 to the consolidated financial statements for additional information.
Availability under credit facilities may be reduced related to compliance with applicable covenants. See Liquidity Facilities for more information.
The following table summarizes our consolidated statements of cash flows:
Year Ended
February 24, February 25, February 26,
Cash Flow Data 2023 2022 2021
Net cash flow provided by (used in):
Operating activities $ 89.4 $ (102.6) $ 64.8
Investing activities (134.8) (65.5) (30.6)
Financing activities (62.9) (120.0) (87.8)
Effect of exchange rate changes on cash and cash
equivalents (1.5) (0.5) 2.1
Net decrease in cash, cash equivalents and restricted cash
(109.8) (288.6) (51.5)
Cash, cash equivalents and restricted cash, beginning of period
207.0 495.6 547.1
Cash, cash equivalents and restricted cash, end of
period $ 97.2 $ 207.0 $ 495.6
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Cash provided by (used in) operating activities
Year Ended
February 24, February 25, February 26,
Cash Flow Data - Operating Activities 2023 2022 2021
Net income $ 35.3 $ 4.0 $ 26.1
Depreciation and amortization 90.0 83.2 85.2
Goodwill impairment charge - - 17.6
Restructuring costs 19.2 - 28.6
Changes in accounts receivable, inventories and
accounts payable (71.0) (145.4) 79.0
Income taxes receivable 36.4 7.8 7.8
Employee compensation liabilities 34.2 (19.3) (138.7)
Employee benefit obligations (12.4) (15.4) (22.6)
Customer deposits (24.9) 18.4 2.2
Other (17.4) (35.9) (20.4)
Net cash provided by (used in) operating activities
In 2023, cash provided by operating activities improved compared to the prior year, driven by the benefits of higher net income and continued focus on controlling working capital despite the impacts of supply chain disruptions. Annual payments related to accrued variable compensation and retirement plan contributions totaled$32.4 in 2023 compared to$50.4 in the prior year. In 2023, we received$33.5 related to the carryback of our 2021 tax loss in theU.S. , and we paid$14.7 of severance and other separation-related benefits and business exit costs related to restructuring activities in ourAmericas segment. See Note 21 to the consolidated financial statements for additional information.
Cash used in investing activities
Year Ended
February 24 , February
25,
Cash Flow Data - Investing Activities 2023 2022 2021 Capital expenditures$ (59.1) $ (60.5) $ (41.3) Proceeds from disposal of fixed assets 9.9 17.4 7.4 Proceeds from COLI policies 12.2 7.8 2.2 Acquisitions, net of cash acquired (105.3) (32.6) (3.8) Other 7.5 2.4 4.9
Net cash used in investing activities
Capital expenditures in 2023 primarily related to investments in manufacturing operations, product development, customer-facing facilities and information technology. Proceeds from the disposal of fixed assets included$7.0 and$17.2 related to the sale of land in 2023 and 2022, respectively.
In 2023, we acquired HALCON using cash and borrowings under our global committed credit facility. See Note 19 to the consolidated financial statements for additional information.
Cash used in financing activities
Year Ended
February 24 , February
25,
Cash Flow Data - Financing Activities 2023 2022 2021 Dividends paid$ (57.3) $ (62.6) $ (43.5) Common stock repurchases (3.9) (55.2) (42.7) Other (1.7) (2.2) (1.6)
Net cash used in financing activities
$ (87.8) 25
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The following table details dividends paid per common share during each quarter
of 2023 and 2022:
First Second Third Fourth
Dividend Data Quarter Quarter Quarter Quarter Total
2023
Dividends declared and paid per common
share $ 0.145 $ 0.145 $ 0.100 $ 0.100 $ 0.490
2022
Dividends declared and paid per common
share $ 0.100 $ 0.145 During 2023 and 2022, we made common stock repurchases of$3.9 and$55.2 , respectively, all of which related to our Class A Common Stock. These common stock repurchases included repurchases of$3.9 and$6.0 in 2023 and 2022, respectively, which were made to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan.
As of
Liquidity Facilities
Our total liquidity facilities as of
February 24,
Liquidity Facilities 2023
Global committed bank facility $ 250.0
Other committed bank facility 8.0
Various uncommitted facilities 15.2
Total credit lines available 273.2
Less: Borrowings outstanding (3.5)
Available capacity $ 269.7
We have a $250.0 global committed bank facility in effect through 2025. As of
February 24, 2023 , there were no borrowings outstanding under the facility, our
availability to borrow under the facility was not limited, and we were in
compliance with all covenants under the facility.
We have an
We have unsecured uncommitted short-term credit facilities available for working capital purposes with various financial institutions with a totalU.S. dollar borrowing capacity of up to$3.8 and a total foreign currency borrowing capacity of up to$11.4 as ofFebruary 24, 2023 . These credit facilities have no stated expiration date but may be changed or canceled by the banks at any time. As ofFebruary 24, 2023 , there were no borrowings outstanding under these uncommitted facilities. Total consolidated debt as ofFebruary 24, 2023 was$481.2 . Our debt primarily consists of$445.5 in term notes due in 2029 with an effective interest rate of 5.6%. In addition, we have a term loan with a balance as ofFebruary 24, 2023 of$32.2 . This term loan has a floating interest rate based on 30-day LIBOR plus 1.20% and is due in Q1 2024. The term notes are unsecured, and the term loan is secured by our two corporate aircraft. The term notes and the term loan contain no financial covenants and are not cross-defaulted to our other debt facilities.
See Note 13 to the consolidated financial statements for additional information.
Liquidity Outlook
AtFebruary 24, 2023 , our total liquidity, which is comprised of cash and cash equivalents and the cash surrender value of COLI, aggregated to$247.7 . Our liquidity position, funds available under our credit facilities, cash generated from future operations and proceeds from assets held for sale are expected to be sufficient to finance our known and foreseeable liquidity needs, including our material cash requirements. 26
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Material Cash Requirements
Our material committed cash requirements are as follows:
•Debt: Principal obligations on our debt are$35.7 during 2024 and$445.5 thereafter. Interest obligations on our debt are estimated to be$23.4 during 2024 and approximately$23 in each year thereafter until maturity. See Note 13 to the consolidated financial statements for additional information. •Operating leases: We have commitments related to corporate offices, sales offices, showrooms, manufacturing and distribution facilities, vehicles and equipment under non-cancelable operating leases that expire at various dates through 2036. Minimum payments under our operating lease obligations are estimated to be$52.5 during 2024 and$188.0 thereafter. See Note 18 to the consolidated financial statements for additional information. •Employee benefit and compensation obligations: We have obligations related to contributions and benefit payments expected to be made for post-retirement, pension and defined contribution plans and deferred compensation plans. Our obligations related to post-retirement benefit plans are not contractual, and the plans could be amended at the discretion of our Compensation Committee. Payments related to post-retirement and pension plans are estimated to be$8.1 during 2024 and$57.5 from 2025 through 2033. See Note 14 to the consolidated financial statements for additional information. Our deferred compensation obligations are estimated to be$6.2 during 2024 and$39.6 thereafter. See Note 17 to the consolidated financial statements for additional information. We also have other planned material usages of cash which we consider discretionary. This includes plans for capital expenditures, which are expected to be approximately$70 to$80 in 2024. In addition, we fund dividend payments as and when approved by our Board of Directors. OnMarch 22, 2023 , we announced a quarterly dividend on our common stock of$0.10 per share, or approximately$11 , to be paid in Q1 2024. The amounts included above are as ofFebruary 24, 2023 . Our material cash requirements are subject to fluctuation based on business requirements, economic volatility or investments in strategic initiatives. The amounts of these obligations could change materially over time as new contracts or obligations are initiated and existing contracts or obligations are terminated or modified.
Critical Accounting Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements and accompanying notes. Our consolidated financial statements were prepared in accordance with accounting principles generally accepted inthe United States of America . These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Although these estimates are based on historical data and management's knowledge of current events and actions it may undertake in the future, actual results may differ from the estimates if different conditions occur. The accounting estimates that typically involve a higher degree of judgment and complexity are listed and explained below. These estimates were discussed with the Audit Committee of our Board of Directors and affect all of our segments.
Business Combinations and
We allocate the fair value of purchase consideration to tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values.
The excess of the fair value of purchase consideration over the fair values of
these identifiable assets and liabilities is allocated to goodwill. The
allocation of the purchase consideration requires management to make significant
estimates and assumptions, especially with respect to intangible assets. These
estimates are reviewed with our advisors and can include, but are not limited
to, future expected cash flows related to acquired dealer relationships,
trademarks and know-how/designs and require estimation of useful lives and
discount rates. Our estimates of fair value are based upon assumptions believed
to be reasonable but which are inherently uncertain and unpredictable, and as a
result, actual results may differ from these estimates. During the measurement
period, which is up to one year from the acquisition date, we may record
adjustments to the assets acquired and liabilities assumed with the
corresponding offset to goodwill. Upon the conclusion of the measurement period,
any subsequent adjustments are recorded to earnings. During 2023, we acquired
HALCON. See Note 19 to the consolidated financial statements for additional
information.
Annually in Q4, or earlier if conditions indicate it is necessary, the carrying
value of each reporting unit is compared to an estimate of its fair value. If
the estimated fair value of the reporting unit is less than the carrying
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value, the difference is recorded as an impairment charge.Goodwill is assigned to and the fair value is tested at the reporting unit level. In 2023, we evaluated goodwill using nine reporting units: theAmericas , EMEA,Asia Pacific , Designtex, AMQ, Smith System, OrangeboxU.K. , Viccarbe and HALCON. During Q4 2023, we performed our annual impairment assessment of goodwill in our reporting units. In the test for potential impairment, we measured the estimated fair values of our reporting units using a discounted cash flow ("DCF") valuation method. The DCF analysis calculated the present value of projected cash flows and a residual value using discount rates that ranged from 12% to 14%. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows in measuring fair value. Assumptions used in our DCF valuations, such as discount rates, forecasted revenue growth rates, expected operating margins and estimated capital investment, are consistent with our internal projections as of the time of the assessment. If we had concluded that it was appropriate to increase the discount rate in our analysis by 100 basis points to estimate the fair value of each reporting unit, the fair value of each of our reporting units would still have exceeded its carrying value. These assumptions could change over time, which may result in future impairment charges. We corroborated the results of the DCF analysis with a market-based approach that used observable comparable company information to support the appropriateness of the fair value estimates. There were no impairment charges recorded for any reporting units in 2023.
As of
Reportable SegmentGoodwill Americas $ 257.6 EMEA 8.5 Other category 10.7 Total$ 276.8
As of the valuation date, the fair value of each reporting unit exceeded its carrying value by at least 20%. See Note 2 and Note 11 to the consolidated financial statements for additional information.
Income Taxes
Our annual effective tax rate is based on income, statutory tax rates and tax planning strategies in various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense, measuring our expected ability to realize deferred tax assets and evaluating our tax positions. We are audited by theU.S. Internal Revenue Service under the Compliance Assurance Process ("CAP"). Under CAP, theU.S. Internal Revenue Service works with large business taxpayers to identify and resolve issues prior to the filing of a tax return. Accordingly, we expect to record minimal liabilities forU.S. Federal uncertain tax positions. Tax positions are reviewed regularly for state, local and non-U.S. tax liabilities associated with uncertain tax positions. Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. In evaluating our ability to recover deferred tax assets within the jurisdiction from which they arise, we consider all positive and negative evidence. These expectations require significant judgment and are developed using forecasts of future taxable income that are consistent with the internal plans and estimates we are using to manage the underlying business as of the time of the evaluation. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. A 1% change in statutory tax rates used to compute our deferred tax assets and liabilities would have increased or decreased our income tax expense in 2023 by approximately$3.6 . Future tax benefits are recognized to the extent that realization of these benefits is considered more likely than not. As ofFebruary 24, 2023 , we recorded tax benefits from net operating loss carryforwards of$36.5 . We also have recorded valuation allowances totaling$3.1 against these assets, which reduced our recorded tax benefit to$33.4 . It is considered more likely than not that a$33.4 cash benefit will be realized on these carryforwards in future periods. This determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies will enable us to utilize the carryforwards. To the extent that 28
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available evidence raises doubt about the realization of a deferred tax asset, a valuation allowance would be established or adjusted. A change in judgment regarding our expected ability to realize deferred tax assets would be accounted for as a discrete tax expense or benefit in the period in which it occurs. Additionally, we have deferred tax assets related to tax credit carryforwards of$17.9 comprised primarily ofU.S. foreign tax credits,U.S. general business credits and investment tax credits granted by theCzech Republic . TheU.S. foreign tax credit and general business credit carryforward periods are 10 and 20 years, respectively. Utilization of foreign tax credits is restricted to 21% of foreign source taxable income in that year. We have projected our pretax domestic earnings and foreign source income and expect to utilize$9.5 of excess foreign tax credits and$4.1 of general business credits within the allowable carryforward periods. The carryforward period for theCzech Republic investment tax credits is also 10 years. We have projected our pretax earnings in theCzech Republic and expect to utilize the entire$4.3 of credits within the allowable carryover period. Valuation allowances are recorded to the extent realization of the tax credit carryforwards is not more likely than not.
See Note 16 to the consolidated financial statements for additional information.
Pension and Other Post-Retirement Benefits
We sponsor a number of domestic and foreign plans to provide pension, medical and life insurance benefits to retired employees. As ofFebruary 24, 2023 andFebruary 25, 2022 , the fair value of plan assets, benefit plan obligations and funded status of these plans were as follows: Defined Benefit Post-Retirement Pension Plans Plans February 24, February 25, February 24, February 25, 2023 2022 2023 2022 Fair value of plan assets$ 22.4 $ 35.2 $ - $ - Benefit plan obligations 53.9 73.7 27.5 34.1 Funded status$ (31.5) $ (38.5) $ (27.5) $ (34.1) The post-retirement medical and life insurance plans are unfunded. As ofFebruary 24, 2023 , approximately 75% of our unfunded defined benefit pension obligations is related to our non-qualified supplemental retirement plan that is limited to a select group of management approved by the Compensation Committee of our Board of Directors. The post-retirement medical and life insurance plans were frozen to new participants in 2003. The non-qualified supplemental retirement plan was frozen to new participants in 2016, and the benefits were capped for existing participants. A portion of our investments in whole life and variable life COLI policies with a net cash surrender value of$157.3 as ofFebruary 24, 2023 are intended to be utilized as a long-term funding source for post-retirement medical benefits, deferred compensation and defined benefit pension plan obligations. The asset values of the COLI policies are not segregated in a trust specifically for the plans and thus are not considered plan assets. Changes in the values of these policies have no effect on the post-retirement benefits expense, defined benefit pension expense or benefit obligations recorded in the consolidated financial statements. We recognize the cost of benefits provided during retirement over the employees' active working lives. Inherent in this approach is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Key actuarial assumptions that require significant management judgment and have a material impact on the measurement of our consolidated benefits expense and benefit obligations include, among others, the discount rate and health care cost trend rates. These and other assumptions are reviewed with our actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, benefit payments, expenses paid from the plan, rates of termination, medical inflation, regulatory requirements, plan changes and governmental coverage changes. To conduct our annual review of discount rates, we perform a matching exercise of projected plan cash flows against spot rates on a yield curve comprised of high-quality corporate bonds as of the measurement date (the Ryan ALM Top Third curve). The measurement dates for our retiree benefit plans are consistent with the last day in February. Accordingly, we select discount rates to measure our benefit obligations that are consistent with market indices at the end of February. In 2023, the weighted average discount rate used to determine the estimated fair value of our defined benefit pension plan obligations was increased to 4.80% from 2.50%. The weighted-average discount rate used to determine the estimated fair value of our post-retirement plan obligations was increased to 5.47% from 3.38%. Selecting these discount rates in 2023 resulted in a$13.1 actuarial gain recorded related to our 29
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defined benefit pension plan obligations and a
Based on consolidated benefit obligations as ofFebruary 24, 2023 , a one percentage point decline in the discount rate used for benefit plan measurement purposes would have changed the 2023 consolidated benefit obligations by approximately$7 . All obligation-related actuarial gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants. To conduct our annual review of healthcare cost trend rates, we model our actual claims cost data over a historical period, including an analysis of the pre-65 age group and other important demographic components of our covered retiree population. This data is adjusted to eliminate the impact of plan changes and other factors that would tend to distort the underlying healthcare cost inflation trends. Our initial healthcare cost trend rate is reviewed annually and adjusted as necessary to remain consistent with recent historical experience and our expectations regarding short-term future trends. As ofFebruary 24, 2023 , our initial rate of 7.50% for pre-age 65 retirees was trended downward by each year, until the ultimate trend rate of 4.50% was reached. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate healthcare cost premium. Post-age 65 trend rates are not applicable as our plan provides a fixed subsidy for post-age 65 benefits. Despite the previously described policies for selecting key actuarial assumptions, we periodically experience material differences between assumed and actual experience. Our consolidated net unamortized prior service costs of$0.5 and net actuarial losses of$8.7 related to our defined benefit pension plans and net actuarial gains of$18.3 related to our post-retirement plans, are recorded in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.
See Note 14 to the consolidated financial statements for additional information.
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 discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, us. Forward-looking statements generally are accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project," "target" or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements and 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, pandemics and other Force Majeure events; cyberattacks; changes in the legal and regulatory environment; changes in raw material, commodity and other input costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in this Report and our other filings with theSecurities 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.
Recently Issued Accounting Standards
See Note 3 to the consolidated financial statements for information regarding recently issued accounting standards.
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