-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0Nj6VsgLekGfNxRA7pqJ3UPA8ojuFwR7S1922NPgpa/H4XEWLScXehVfIKOS2ab eNnDUzbj+YbpykHO3umCGg== 0000950131-03-000029.txt : 20030106 0000950131-03-000029.hdr.sgml : 20030106 20030106165647 ACCESSION NUMBER: 0000950131-03-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20021122 FILED AS OF DATE: 20030106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEELCASE INC CENTRAL INDEX KEY: 0001050825 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE FURNITURE (NO WOOD) [2522] IRS NUMBER: 380819050 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13873 FILM NUMBER: 03505443 BUSINESS ADDRESS: STREET 1: 901 44TH ST CITY: GRAND RAPIDS STATE: MI ZIP: 49508 BUSINESS PHONE: 6162472710 MAIL ADDRESS: STREET 1: 901 44TH ST CITY: GRAND RAPIDS STATE: MI ZIP: 49508 10-Q 1 d10q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 22, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-13873 ----------------- STEELCASE INC. Michigan 38-0819050 (State of incorporation) (I.R.S. Employer Identification No.) 901 44th Street Grand Rapids, Michigan 49508 (Address of principal executive offices) (Zip Code) (616) 247-2710 Registrant's telephone number, including area code ----------------- 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 [X] No [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [_] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: As of December 27, 2002, Steelcase Inc. had 40,379,025 shares of Class A Common Stock and 107,216,426 shares of Class B Common Stock outstanding. ================================================================================ STEELCASE INC. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 22, 2002 INDEX
Page No. -------- Part I. Financial Information Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended November 22, 2002 and November 23, 2001............................................... 3 Condensed Consolidated Balance Sheets as of November 22, 2002 and February 22, 2002..... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 22, 2002 and November 23, 2001............................................... 5 Notes to Condensed Consolidated Financial Statements.................................... 6-14 Item 2. Management's Discussion and Analysis................................................... 15-26 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 26 Item 4. Controls and Procedures................................................................ 26 Part II. Other Information Item 1. Legal Proceedings...................................................................... 26 Item 2. Changes in Securities and Use of Proceeds.............................................. 26 Item 3. Defaults upon Senior Securities........................................................ 26 Item 4. Submission of Matters to a Vote of Security Holders.................................... 26 Item 5. Other Information...................................................................... 26 Item 6. Exhibits and Reports on Form 8-K....................................................... 27 Signatures..................................................................................... 28 Certification of Chief Executive Officer--Sarbanes-Oxley Act Section 302....................... 29 Certification of Chief Financial Officer--Sarbanes-Oxley Act Section 302....................... 30 Exhibit Index.................................................................................. 31
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements STEELCASE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share data)
Three Months Ended Nine Months Ended ---------------- ------------------ Nov. 22, Nov. 23, Nov. 22, Nov. 23, 2002 2001 2002 2001 -------- -------- -------- -------- Furniture revenue..................................................... $640.2 $712.3 $1,925.4 $2,368.0 Finance revenue....................................................... 6.5 19.1 23.7 61.1 ------ ------ -------- -------- Total revenue.................................................. 646.7 731.4 1,949.1 2,429.1 Cost of sales......................................................... 465.0 503.6 1,384.7 1,663.3 Restructuring costs................................................... 5.7 6.3 10.7 8.9 ------ ------ -------- -------- Gross profit................................................... 176.0 221.5 553.7 756.9 Operating expenses.................................................... 187.8 213.7 574.1 679.7 Restructuring costs................................................... 23.3 1.1 40.0 9.5 ------ ------ -------- -------- Operating income (loss)............................................... (35.1) 6.7 (60.4) 67.7 Interest expense...................................................... (5.3) (3.9) (15.5) (13.9) Other income (expense), net........................................... (6.7) 4.6 (9.9) 2.4 ------ ------ -------- -------- Income (loss) before income tax provision (benefit), equity in net income (loss) of joint ventures and dealer transitions and cumulative effect of accounting change.............................. (47.1) 7.4 (85.8) 56.2 Income tax provision (benefit)........................................ (17.7) 2.7 (32.2) 20.8 ------ ------ -------- -------- Income (loss) before equity in net income (loss) of joint ventures and dealer transitions and cumulative effect of accounting change....... (29.4) 4.7 (53.6) 35.4 Equity in net income (loss) of joint ventures and dealer transitions.. (1.7) 0.2 (0.2) (0.1) ------ ------ -------- -------- Income (loss) before cumulative effect of accounting change........... (31.1) 4.9 (53.8) 35.3 Cumulative effect of accounting change (Notes 2 and 7)................ -- -- (170.6) -- ------ ------ -------- -------- Net income (loss)..................................................... $(31.1) $ 4.9 $ (224.4) $ 35.3 ====== ====== ======== ======== Basic and diluted per share data: Earnings (loss) per share before cumulative effect of accounting change........................................................... $(0.21) $ 0.03 $ (0.36) $ 0.24 Cumulative effect per share of accounting change................... -- -- (1.16) -- ====== ====== ======== ======== Earnings (loss) per share............................................. $(0.21) $ 0.03 $ (1.52) $ 0.24 ====== ====== ======== ======== Dividends declared per common share................................... $ 0.06 $ 0.11 $ 0.18 $ 0.33 ====== ====== ======== ========
See accompanying notes to the condensed consolidated financial statements. 3 STEELCASE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions)
(Unaudited) Nov. 22, Feb. 22, ASSETS 2002 2002 ------ ----------- -------- Current assets: Cash and cash equivalents........................................ $ 52.1 $ 69.4 Accounts receivable, net......................................... 365.6 367.2 Notes receivable and leased assets, net.......................... 135.6 194.5 Inventories...................................................... 133.9 147.1 Other current assets............................................. 69.8 103.8 --------- -------- Total current assets.................................. 757.0 882.0 Property and equipment, net......................................... 822.2 896.8 Notes receivable and leased assets, net............................. 183.9 335.8 Joint ventures and dealer transitions............................... 28.4 42.4 Goodwill, net....................................................... 268.8 431.6 Other intangible assets, net........................................ 98.3 108.6 Other assets........................................................ 318.6 270.3 --------- -------- Total assets.......................................... $2,477.2 $2,967.5 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable................................................. $ 143.8 $ 163.5 Short-term borrowings and current portion of long-term debt...... 57.8 160.1 Accrued expenses: Employee compensation..................................... 95.8 84.6 Employee benefit plan obligations......................... 33.2 51.0 Other..................................................... 211.0 213.9 --------- -------- Total current liabilities............................. 541.6 673.1 --------- -------- Long-term liabilities: Long-term debt................................................... 303.6 433.6 Employee benefit plan obligations................................ 251.0 248.3 Other long-term liabilities...................................... 65.5 57.0 --------- -------- Total long-term liabilities........................... 620.1 738.9 --------- -------- Total liabilities..................................... 1,161.7 1,412.0 --------- -------- Shareholders' equity: Common stock..................................................... 286.0 282.3 Accumulated other comprehensive income (loss).................... (40.1) (47.4) Retained earnings................................................ 1,069.6 1,320.6 --------- -------- Total shareholders' equity............................ 1,315.5 1,555.5 --------- -------- Total liabilities and shareholders' equity............ $2,477.2 $2,967.5 ========= ========
See accompanying notes to the condensed consolidated financial statements. 4 STEELCASE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
Nine Months Ended ---------------- Nov. 22, Nov. 23, 2002 2001 -------- -------- OPERATING ACTIVITIES Net income (loss).................................................... $(224.4) $ 35.3 Depreciation and amortization........................................ 115.9 128.5 Cumulative effect of accounting change............................... 170.6 -- Loss on sales of leased assets....................................... 6.2 -- Restructuring charges, net........................................... 5.9 6.2 Changes in operating assets and liabilities.......................... (12.0) 57.4 Other, net........................................................... (6.6) 23.2 ------- ------- Net cash provided by operating activities........................ 55.6 250.6 ------- ------- INVESTING ACTIVITIES Capital expenditures................................................. (63.8) (91.4) Proceeds from the sales of leased assets............................. 185.7 -- Proceeds from the disposal of fixed assets........................... 23.2 16.4 Net decrease in notes receivable and leased assets................... 20.4 39.1 Acquisitions, net of cash acquired, and business divestitures........ (3.1) (203.9) Other, net........................................................... 17.4 (2.6) ------- ------- Net cash provided by (used in) investing activities.............. 179.8 (242.4) ------- ------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt............................. 0.5 264.1 Repayments of long-term debt......................................... (130.4) (369.9) Short-term borrowings (repayments), net.............................. (101.5) 252.2 Common stock issuance................................................ 3.7 0.3 Common stock repurchase.............................................. -- (4.4) Dividends paid....................................................... (26.6) (48.6) ------- ------- Net cash provided by (used in) financing activities.............. (254.3) 93.7 ------- ------- Effect of exchange rate changes on cash and cash equivalents..... 1.6 (1.9) ------- ------- Net increase (decrease) in cash and cash equivalents.......... (17.3) 100.0 Cash and cash equivalents, beginning of period............ 69.4 25.3 ------- ------- Cash and cash equivalents, end of period.................. $ 52.1 $ 125.3 ======= =======
See accompanying notes to the condensed consolidated financial statements. 5 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 generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to 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 22, 2002 ("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. Effective in the third quarter of fiscal year 2003 ("Q3 2003" or "the quarter"), the Company changed the classification of its reportable segments. Details of this change are highlighted in Note 12. During Q3 2003, the Company completed a transaction to help transition a dealer to new ownership. The Company owns 100% of one class of stock, and controls the Board of Directors of the dealer. As a result, the balance sheet and results of operations of the dealer were consolidated into the Company's financial statements, which added $18.5 million of revenue, $6.8 million of gross margin and $1.8 million of operating income to the Company's third quarter results. However, since earnings do not accrue to the Company's class of stock, 100% of the operating profits were eliminated in the Equity in Net Income of Joint Ventures and Dealer Transitions line. As a result, there was no effect on net income. 2. NEW ACCOUNTING STANDARDS Accounting for Business Combinations Statements of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets, change the accounting for business combinations by, among other things, requiring companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, goodwill and intangible assets with an indefinite useful life are subject to an annual review for impairment. SFAS No. 141 became effective in the second quarter of fiscal year 2002 ("Q2 2002"). Upon adoption of SFAS No. 142 in the first quarter of fiscal year 2003 ("Q1 2003"), we recorded a one-time, non-cash charge of $170.6 million to reduce the carrying value of our goodwill. This charge is non-operational in nature and is reflected as a cumulative effect of an accounting change in the accompanying consolidated statement of operations. For additional discussion on the impact of adopting SFAS No. 142, see Note 7. Accounting for the Impairment or Disposal of Long-Lived Assets SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, became effective for the Company beginning in Q1 2003. SFAS No. 144 establishes accounting and reporting standards for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 did not have a material effect on our financial results. Accounting for Costs Associated with Exit or Disposal Activities SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, requires a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and at its fair value. 6 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) We implemented the provisions of this statement during Q3 2003. The adoption of SFAS No. 146 did not have a material effect on our financial results. Accounting for Stock-Based Compensation-Transition and Disclosure SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for fiscal years ending after December 15, 2002. The Company intends to begin expensing the cost of employee stock options in the first quarter of fiscal year 2004 ("Q1 2004") and is currently evaluating the impact of the statement and the transition method to be utilized. Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others (FASB Interpretation No. 45) This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company is currently evaluating the impact of the Interpretation. 3. EARNINGS (LOSS) PER SHARE
Three Months Ended Nine Months Ended ----------------- ----------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Components of Earnings (Loss) Per Share 2002 2001 2002 2001 --------------------------------------- -------- -------- -------- -------- (in millions) Numerator: Income (loss) before cumulative effect of accounting change. $(31.1) $ 4.9 $ (53.8) $ 35.3 Cumulative effect of accounting change...................... -- -- (170.6) -- ------ ------ ------- ------ Net income (loss) numerator for both basic and diluted EPS.. $(31.1) $ 4.9 $(224.4) $ 35.3 ------ ------ ------- ------ Denominators: Denominator for basic EPS--Weighted average common shares outstanding........................................ 147.6 147.3 147.5 147.3 Potentially dilutive shares resulting from stock options (1) -- 0.2 0.4 0.3 ------ ------ ------- ------ Denominator for diluted EPS (1)............................. 147.6 147.5 147.9 147.6 ====== ====== ======= ======
- -------- (1) The denominator for basic EPS is used for calculating EPS for Q3 2003 and the first nine months of fiscal 2003 because potentially dilutive shares and diluted EPS are not applicable when a loss from continuing operations is reported. 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. Diluted earnings per share includes effects of our Stock Incentive Plans. Due to their anti-dilutive effect, we have not included the effects of 7.8 million and 3.9 million options in our calculation of diluted earnings per share for the quarter and first nine months ended November 22, 2002 and November 23, 2001, respectively. 7 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) 4. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is comprised of net income (loss) and all changes to shareholders' equity, except those due to investments by, and distributions to, shareholders.
Three Months Ended Nine Months Ended ---------------- ---------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Components of Comprehensive Income (Loss) 2002 2001 2002 2001 ----------------------------------------- -------- -------- -------- -------- (in millions) Net income (loss).................................. $(31.1) $ 4.9 $(224.4) $35.3 Other comprehensive income (loss): Foreign currency translation gain (loss)........ (1.1) (8.0) 2.8 (8.6) Derivative adjustments, net of tax (see Note 5). (0.2) (2.2) 4.5 (9.8) ------ ----- ------- ----- Comprehensive income (loss)........................ $(32.4) $(5.3) $(217.1) $16.9 ====== ===== ======= =====
5. DERIVATIVE INSTRUMENTS Information regarding our interest rate swaps is summarized below.
As of November 22, 2002 As of February 22, 2002 ------------------------------------ ------------------------------------ Fair Value Notional Fair Value Notional Interest Rate Swaps of Liability Amount Interest Rates of Liability Amount Interest Rates - ------------------- ------------ -------- -------------- ------------ -------- -------------- (in millions, except data as a percentage) Cash flow hedges.. $5.8 $59.8 6.18%-6.64% $12.8 $248.1 4.8%-7.1% Fair value hedges. -- -- -- 2.1 48.1 4.8%-7.1%
The notional amounts shown above do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure from our use of derivatives. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, exchange rates or other financial indices. The fair value and notional amounts of foreign exchange contracts were immaterial at November 22, 2002 and February 22, 2002. We recognized a loss of $7.7 million related to the settlement of certain swap agreements in connection with the sale of leased assets during Q1 2003 (see Note 8). Other comprehensive income (loss) related to derivatives consisted of the following components:
Three Months Nine Months Ended Ended - - ---------------- ---------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Derivative Adjustments, net of tax 2002 2001 2002 2001 ---------------------------------- -------- -------- -------- -------- (in millions) Cumulative effect of accounting change (SFAS No. 133), as of February 24, 2001......................................... $ -- $ -- $ -- $(5.1) Change in fair value of derivative instruments.............. 0.3 0.4 1.1 1.3 Adjustment due to swap settlement........................... -- -- 7.7 -- Settlement to interest expense.............................. (0.5) (2.6) (4.3) (6.0) ----- ----- ----- ----- Derivative adjustments, net of tax....................... $(0.2) $(2.2) $ 4.5 $(9.8) ===== ===== ===== =====
8 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) 6. INVENTORIES Inventories are stated at the lower of cost or market. Inventories are valued based upon the last-in, first-out ("LIFO") method or the average cost method. The portion of inventories determined by the LIFO method aggregated $82.1 million and $91.0 million at November 22, 2002 and February 22, 2002, respectively.
Nov. 22, Feb. 22, Inventories 2002 2002 ----------- -------- -------- (in millions) Finished goods. $ 71.1 $ 72.3 Work in process 27.7 31.1 Raw materials.. 71.2 82.2 ------ ------ 170.0 185.6 LIFO reserve... (36.1) (38.5) ------ ------ $133.9 $147.1 ====== ======
7. GOODWILL AND OTHER INTANGIBLE ASSETS As discussed in Note 2, in Q1 2003, we adopted SFAS No. 142, which requires companies to stop amortizing goodwill and certain intangible assets with an indefinite useful life. Instead, SFAS No. 142 requires goodwill and intangible assets with an indefinite useful life be reviewed for impairment annually. Upon adoption, we used the expertise of an outside valuation specialist to help us determine the fair values of our reporting units. We will perform the annual impairment review for all of our reporting units during the fourth quarter of each year, commencing in the fourth quarter of fiscal 2003 ("Q4 2003"). Under SFAS No. 142, goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value. Goodwill is assigned to and the fair value is tested at the reporting unit level. We evaluated goodwill using six reporting units--North America, Steelcase Design Partnership, International, Financial Services, PolyVision and IDEO. The information for PolyVision and IDEO is included in the "Other" category for operating segment reporting purposes. Upon adoption of SFAS No. 142 in Q1 2003, we recorded a one-time, non-cash charge of $170.6 million to reduce the carrying value of goodwill in our International reporting unit. The decline in the fair value of our International reporting unit is primarily attributable to the decline in revenue and profitability of the unit, which is the result of the industry-wide decline in office furniture revenue. This decline has led to a significant reduction in our three to five year projection of operating income for the International unit. The fair value of the remaining reporting units exceeded the net book value of the units, therefore, no impairment charge was recorded relative to these units. The $170.6 million charge related to the international reporting unit is non-operational in nature and is reflected as a cumulative effect of an accounting change in the accompanying consolidated statement of operations. In calculating the impairment charge, the fair value of the International reporting unit was determined by using a combined discounted cash flow and market value approach. 9 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) A summary of changes in net goodwill during the nine month period ended November 22, 2002, by business segment is as follows (in millions):
Goodwill, net ------------------------------------------ Feb. 22, Nov. 22, 2002 Acquisitions Impairments 2002 -------- ------------ ----------- -------- North America............... $ 33.5 $7.8 $ -- $ 41.3 Steelcase Design Partnership 63.2 -- -- 63.2 International............... 271.9 -- (170.6) 101.3 Financial Services.......... -- -- -- -- Other....................... 63.0 -- -- 63.0 ------ ---- ------- ------ Total.................... $431.6 $7.8 $(170.6) $268.8 ====== ==== ======= ======
During Q3 2003, the Company consolidated a dealer into its financial statements (see Note 1) that resulted in an increase of goodwill amounting to $5.5 million. The remaining $2.3 million increase in goodwill is related to an additional acquisition of a portion of the minority interest in another consolidated dealer of the Company. Fiscal 2002 results as reported do not reflect the provisions of SFAS No. 142. Had we adopted SFAS No. 142 on February 24, 2001, our reported net income and basic and diluted net income per common share would have been the adjusted amounts indicated below:
Three Months Ended November 23, 2001 Nine Months Ended November 23, 2001 (millions, except per share amounts) (millions, except per share amounts) ------------------------------------ ------------------------------------ Net income Net income Net income Net income per basic per diluted per basic per diluted Net income common share common share Net income common share common share ---------- ------------ ------------ ---------- ------------ ------------ As reported... $4.9 $0.03 $0.03 $35.3 $0.24 $0.24 Add: Goodwill amortization 2.2 0.02 0.02 6.6 0.04 0.04 ---- ----- ----- ----- ----- ----- As adjusted... $7.1 $0.05 $0.05 $41.9 $0.28 $0.28 ==== ===== ===== ===== ===== =====
As of November 22, 2002 and February 22, 2002, our other intangible assets and related accumulated amortization consisted of the following (in millions):
As of November 22, 2002 As of February 22, 2002 ------------------------ ------------------------ Accumulated Accumulated Other Intangible Assets Gross Amortization Net Gross Amortization Net ----------------------- ----- ------------ ----- ----- ------------ ----- Intangible assets subject to amortization: Proprietary technology....... $48.5 $ 3.6 $44.9 $48.5 $ -- $48.5 Trademarks................... 32.5 17.1 15.4 32.5 12.0 20.5 Non-compete agreements....... 1.9 0.9 1.0 1.9 0.4 1.5 Other........................ 7.0 2.2 4.8 7.1 1.2 5.9 ----- ----- ----- ----- ----- ----- Total.................... $89.9 $23.8 $66.1 $90.0 $13.6 $76.4 ----- ----- ----- ----- ----- ----- Intangible assets not subject to amortization: Trademarks................... $32.2 $ -- $32.2 $32.2 $ -- $32.2 ===== ===== ===== ===== ===== =====
10 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) We recorded amortization expense of $2.4 million during Q3 2003 compared to $2.4 million during Q3 2002, on a pro forma basis excluding the impact of goodwill amortization. For the nine months ended November 22, 2002 we recorded amortization expense of $10.2 million compared to $8.5 million on a pro forma basis during the first nine months of fiscal 2002. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows: 2004: $8.5 million; 2005: $7.2 million; 2006: $6.9 million; 2007: $6.9 million; and 2008: $6.9 million. As acquisitions and dispositions occur in the future, these amounts may vary. 8. SALE OF LEASED ASSETS In Q3 2003, Steelcase Financial Services, Inc sold leased assets for $7.7 million. The proceeds from this sale were primarily used to retire debt incurred to fund the leases. We recorded a pre-tax loss of $0.1 million on the sale. For the nine months ended November 22, 2002, total proceeds on the sale of leased assets were $185.7 million. We recorded total pre-tax charges of $6.2 million related to the sales, $5.7 million of which was incurred in Q1 2003 and included the settlement of interest rate swaps associated with the leased assets sold, the recognition of a gain on the portfolio and payment of transaction costs. 9. RESTRUCTURING CHARGES During Q3 2003, we continued to reduce costs by restructuring certain areas of our business. Q3 2003 charges, summarized in the following table, related to workforce reductions and restructuring activities.
Fiscal 2003 ---------------------- Restructuring Charges Q1 Q2 Q3 Total --------------------- ---- ----- ----- ----- (in millions) Cost of sales: North America................ $2.7 $ 0.9 $ 5.6 $ 9.2 Steelcase Design Partnership. -- -- -- -- International................ 0.9 -- 0.1 1.0 Financial Services........... -- -- -- -- Other........................ -- 0.5 -- 0.5 ---- ----- ----- ----- 3.6 1.4 5.7 10.7 ---- ----- ----- ----- Operating expenses: North America................ 2.7 2.5 16.9 22.1 Steelcase Design Partnership. -- 0.4 0.3 0.7 International................ 1.5 -- 5.6 7.1 Financial Services........... -- -- 0.5 0.5 Other........................ -- 9.6 -- 9.6 ---- ----- ----- ----- 4.2 12.5 23.3 40.0 ---- ----- ----- ----- Total.................... $7.8 $13.9 $29.0 $50.7 ==== ===== ===== =====
11 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) Below is a summary of the charges and payments during the first nine months of 2003 that have been applied against the reserve as of November 22, 2002.
Business Workforce Exit and Restructuring Reserve Reductions Other Costs Total --------------------- ---------- ----------- ------ (in millions) Reserve balance as of February 22, 2002 $ 11.5 $ 10.2 $ 21.7 Additions........................... 38.0 12.7 50.7 Payments and write-offs............. (28.2) (16.6) (44.8) ------ ------ ------ Reserve balance as of November 22, 2002 $ 21.3 $ 6.3 $ 27.6 ====== ====== ======
During fiscal 2002, our restructuring charges for workforce reductions related to approximately 1,300 identified salary positions--all of which occurred as of November 22, 2002. During the first nine months of fiscal 2003, we reserved for additional salary workforce reductions of approximately 1,300, of which approximately 1,000 had occurred as of November 22, 2002. The remaining terminations are expected to take place in Q4 2003 and Q1 2004. 10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT During Q3 2003, the Company amended the minimum interest coverage covenant for its global multi-currency committed credit facility and two other structured financing arrangements. The calculation is based on a 4-quarter rolling average, and therefore, still includes interest expense on $161.7 million of debt retired shortly after related lease assets were sold during Q1 2003. The amended covenant allows for a lower ratio in Q3 2003 and gradually steps back up to the original ratio over the following three quarters. 11. COMMON STOCK REPURCHASE PROGRAM On June 17, 1998, our Board of Directors approved a common stock repurchase program authorizing the repurchase of up to three million shares of Class A and Class B common stock. On September 22, 1999 and September 20, 2000, the Board authorized common stock repurchases of up to an additional three million and five million shares, respectively. The total shares authorized for repurchase is now 11 million shares. During the first nine months of fiscal 2003, we made no repurchases of our common shares. As of November 22, 2002, total repurchases of 7,175,407 shares since the inception of our repurchase program amounted to $112.7 million; 3,824,593 shares remain available for repurchase under the program and we have no outstanding share repurchase commitments. 12. OPERATING SEGMENTS We operate on a worldwide basis within four reportable segments: North America, Steelcase Design Partnership, International and Financial Services. The North America segment includes the Company's Steelcase and Turnstone brands and consolidated dealers in the U.S. and Canada. The Steelcase Design Partnership includes Brayton, The Designtex Group, Details, Metro and Vecta. The International segment includes the Company's Steelcase and Werndl brands outside the U.S. and Canada. The Financial Services business segment includes customer leasing and dealer financing services. Within the "Other" category are the Company's 12 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) PolyVision, IDEO and Attwood subsidiaries, ventures and unallocated corporate expenses. More than 85% of corporate expenses for shared services have been charged to the operating segments as part of a general allocation.
Three Months Ended Nine Months Ended ---------------- ------------------ Nov. 22, Nov. 23, Nov. 22, Nov. 23, Operating Segment Income Statement Data 2002 2001 2002 2001 --------------------------------------- -------- -------- -------- -------- (in millions) Revenue North America........................ $372.5 $460.4 $1,141.2 $1,549.1 Steelcase Design Partnership......... 79.3 80.5 223.1 264.6 International........................ 123.9 144.4 348.8 463.3 Financial Services................... 6.5 19.1 23.7 61.1 Other................................ 64.5 27.0 212.3 91.0 ------ ------ -------- -------- Consolidated revenue................. $646.7 $731.4 $1,949.1 $2,429.1 ====== ====== ======== ======== Operating income (loss) North America........................ $(28.1) $ 8.8 $ (37.2) $ 61.8 Steelcase Design Partnership......... 7.2 6.8 15.9 25.7 International........................ (6.7) (0.2) (21.4) (4.4) Financial Services................... (4.0) 2.2 0.9 8.8 Other................................ (3.5) (10.9) (18.6) (24.2) ------ ------ -------- -------- Consolidated operating income (loss). $(35.1) $ 6.7 $ (60.4) $ 67.7 ====== ====== ======== ========
Nov. 22, Feb. 22, Operating Segment Balance Sheet Data 2002 2002 ------------------------------------ -------- -------- (in millions) Total assets North America.................. $1,122.0 $1,194.4 Steelcase Design Partnership.... 165.8 173.1 International.................. 479.7 668.9 Financial Services............. 312.5 514.9 Other.......................... 397.2 416.2 -------- -------- Consolidated total assets...... $2,477.2 $2,967.5 ======== ========
13 STEELCASE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Unaudited) Effective for the quarter ended November 22, 2002, we changed the classification of our reportable segments. Restated quarterly data is provided below for our new or revised segments, which include North America, Steelcase Design Partnership and the Other category. There were no changes for the International or Financial Services segments.
Fiscal 2003 Fiscal 2002 Fiscal 2001 ---------------------- ------------------------------ ------------------------------ North America Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 - ------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue.................... $372.5 $377.7 $391.0 $380.9 $460.4 $503.3 $585.4 $634.4 $686.1 $675.0 $655.9 Cost of Sales.............. 288.3 285.3 293.9 284.8 337.2 364.5 422.1 459.9 482.5 473.0 448.2 Restructuring costs........ 5.6 0.9 2.7 10.1 6.3 2.6 -- 9.5 -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross Margin............ 78.6 91.5 94.4 86.0 116.9 136.2 163.3 165.0 203.6 202.0 207.7 Operating expenses......... 89.8 91.8 98.0 94.2 107.8 113.3 124.8 114.7 142.0 134.8 130.1 Restructuring costs........ 16.9 2.5 2.7 2.0 0.3 8.4 -- 14.4 -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating income (loss).. $(28.1) $ (2.8) $ (6.3) $(10.2) $ 8.8 $ 14.5 $ 38.5 $ 35.9 $ 61.6 $ 67.2 $ 77.6 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Fiscal 2003 Fiscal 2002 Fiscal 2001 ---------------------- ------------------------------ ------------------------------ Steelcase Design Partnership Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 - ---------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue.................... $ 79.3 $ 75.1 $ 68.7 $ 65.9 $ 80.5 $ 87.1 $ 97.0 $111.0 $114.1 $109.1 $108.0 Cost of Sales.............. 49.4 45.5 41.7 41.0 48.3 52.8 57.9 78.4 71.6 66.1 66.1 Restructuring costs........ -- -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross Margin............ 29.9 29.6 27.0 24.9 32.2 34.3 39.1 32.6 42.5 43.0 41.9 Operating expenses......... 22.4 24.1 23.4 25.7 25.4 26.0 28.5 39.7 29.6 29.4 27.2 Restructuring costs........ 0.3 0.4 -- 1.2 -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating income (loss).. $ 7.2 $ 5.1 $ 3.6 $ (2.0) $ 6.8 $ 8.3 $ 10.6 $ (7.1) $ 12.9 $ 13.6 $ 14.7 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Fiscal 2003 Fiscal 2002 Fiscal 2001 ---------------------- ------------------------------ ------------------------------ Other Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 - ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue.................... $ 64.5 $ 79.5 $ 68.3 $ 61.5 $ 27.0 $ 30.3 $ 33.7 $ 35.0 $ 32.4 $ 38.2 $ 39.2 Cost of Sales.............. 40.5 48.4 44.2 39.9 17.5 18.9 21.2 24.0 19.1 24.4 26.2 Restructuring costs........ -- 0.5 -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Gross Margin............ 24.0 30.6 24.1 21.6 9.5 11.4 12.5 11.0 13.3 13.8 13.0 Operating expenses......... 27.5 29.9 30.3 28.3 19.6 18.7 18.5 16.8 16.0 17.4 17.4 Restructuring costs........ -- 9.6 -- 0.1 0.8 -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating income (loss).. $ (3.5) $ (8.9) $ (6.2) $ (6.8) $(10.9) $ (7.3) $ (6.0) $ (5.8) $ (2.7) $ (3.6) $ (4.4) ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
14 Item 2. Management's Discussion and Analysis The following review of our financial condition and results of operations should be read in conjunction with our fiscal year 2002 Form 10-K. Current Business Overview Office furniture demand continues to track well below historical levels across our industry, which has experienced nearly a 35% decline in shipments over the past two years in the U.S. alone and approximately a 13% decline in shipments for the three months ended October 2002 versus the same three months in 2001, as reported by the Business and Institutional Manufacturer's Association International. Reduced business capital spending has been the primary driver behind our industry recession and weak demand. In response to lower demand levels, we have completed or are in process of implementing several operational, organizational and financial restructuring activities aimed at reducing our breakeven point, improving our cash flow, strengthening our balance sheet and stimulating top line growth. Some of these actions include: . reducing our global workforce by 36% since December 2000 . implementing lean manufacturing in our operations . selling leased assets to generate cash and using the proceeds to further reduce debt . cutting capital expenditures by focusing on shorter payback projects . developing a strategic procurement program . outsourcing non-strategic manufacturing operations and other activities . consolidating manufacturing operations to reduce excess capacity . selling non-strategic and redundant assets . closing non-strategic operations not meeting financial return targets These actions will help position Steelcase to better serve our customers and to compete aggressively to win new business while positioning our company to return to profitability. Financial Summary Results of Operations
Three Months Ended Nine Months Ended ---------------------------- --------------------------------- Nov. 22, 2002 Nov. 23, 2001 Nov. 22, 2002 Nov. 23, 2001 ------------- ------------ --------------- --------------- (in millions, except data as a percentage) Revenue................................................. $646.7 100.0% $731.4 100.0% $1,949.1 100.0% $2,429.1 100.0% Cost of sales........................................... 465.0 71.9 503.6 68.9 1,384.7 71.0 1,663.3 68.5 Restructuring costs..................................... 5.7 0.9 6.3 0.8 10.7 0.6 8.9 0.3 ------ ----- ------ ----- -------- ----- -------- ----- Gross profit......................................... 176.0 27.2 221.5 30.3 553.7 28.4 756.9 31.2 Operating expenses...................................... 187.8 29.0 213.7 29.2 574.1 29.5 679.7 28.0 Restructuring costs..................................... 23.3 3.6 1.1 0.2 40.0 2.0 9.5 0.4 ------ ----- ------ ----- -------- ----- -------- ----- Operating income (loss).............................. (35.1) (5.4) 6.7 0.9 (60.4) (3.1) 67.7 2.8 Non-operating items, net................................ (12.0) (1.9) 0.7 0.1 (25.4) (1.3) (11.5) (0.5) ------ ----- ------ ----- -------- ----- -------- ----- Income (loss) before taxes.............................. (47.1) (7.3) 7.4 1.0 (85.8) (4.4) 56.2 2.3 Income tax provision (benefit).......................... (17.7) (2.7) 2.7 0.3 (32.2) (1.7) 20.8 0.8 Equity in net income (loss) of joint ventures and dealer transitions............................................ (1.7) (0.2) 0.2 -- (0.2) -- (0.1) -- Cumulative effect of accounting change.................. -- -- -- -- (170.6) (8.7) -- -- ------ ----- ------ ----- -------- ----- -------- ----- Net income (loss)....................................... $(31.1) (4.8)% $ 4.9 0.7% $ (224.4) (11.4)% $ 35.3 1.5% ====== ===== ====== ===== ======== ===== ======== =====
Third Quarter and Fiscal Year-to-Date Financial Review Revenue in Q3 2003 was down 11.6% compared to the same period last year, and down 1.9% from Q2 2003. For the first nine months of fiscal 2003, revenue was down 19.8% compared with the same period last 15 year. In addition to the decrease in demand affecting revenues, over-capacity in the industry continues to increase pricing pressure and competitive discounting. Acquisitions completed in the last 12 months contributed revenue of $36.3 million in the quarter and $121.5 for the first nine months of fiscal 2003. Revenue also included $18.5 million related to a dealer consolidation that occurred in Q3 2003. We reported a net loss of $31.1 million or $0.21 per share for the quarter compared to net income of $4.9 million or $0.03 per share for the same period last year. Net loss for Q2 2003 was $7.3 million or $0.05 per share. Excluding non-recurring charges, the net loss was $11.5 million compared with net income of $7.2 in Q3 2002. Fiscal year-to-date net loss was $224.4 million or $1.52 per share compared with net income of $35.3 million or $0.24 per share for the same period of fiscal 2002. Excluding non-recurring charges and the cumulative effect of accounting change, fiscal year-to-date net loss was $18.0 million compared to net income of $48.9 million for the same period of the prior year. Non-recurring charges totaled $31.3 million pre-tax or $19.6 million after-tax in Q3 2003 and were substantially higher than our outlook at the end of Q2 2003. Accelerated and additional restructuring activities were the primary drivers behind the higher non-recurring charges. These restructuring charges included $22.5 million related to previously announced North America salaried workforce reductions of 500-800 positions. We were able to implement, in the third quarter alone, the majority of the workforce reductions expected to occur in the third and fourth quarters. We also incurred additional restructuring charges of $5.7 million related to actions we expect will improve the competitiveness of our International segment. In addition, we incurred a net non-operating pre-tax loss of $2.3 million on the sale of real estate and the write-down of property, plant and equipment relating to the relocation of our Tustin, California manufacturing operation to a smaller facility in City of Industry, California. Further discussion of non-recurring charges will take place on a segment by segment basis below. During Q3 2003, we completed a transaction to help transition a dealer to new ownership. Because we own 100% of one class of stock, and control the Board of Directors, we consolidated the dealer into our financial statements, which added $18.5 million of revenue, $6.8 million of gross margin and $1.8 million of operating income to our third quarter results. However, since earnings do not accrue to our class of stock, we eliminated 100% of the operating profits in the Equity in Net Income of Joint Ventures and Dealer Transitions line. As a result, there was no effect on net income. Our net investment in this dealer is $13.5 million, consisting of term debt and equity. Total assets of the dealer included in our financial statements are $20.7 million, with the majority of assets relating to working capital. It is not our intent to own dealers; however, we sometimes become equity partners for dealers working through an ownership change. Beginning in fiscal 2003, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which requires that companies discontinue amortizing goodwill and test goodwill annually to determine whether it is impaired. This accounting change resulted in a charge of $170.6 million, or $1.16 per share, for goodwill impairment in our International reporting unit. There was no cash effect of this charge and there was no impact on income tax expense, so the pretax and after tax effect was the same. Net income benefited by $2.2 million and $6.6 million in Q3 2003 and the first nine months of fiscal 2003, respectively, as a result of this accounting change. Interest Expense; Other Income (Expense), Net; and Income Taxes
Three Months Ended Nine Months Ended ---------------- ---------------- Interest Expense; Other Income Nov. 22, Nov. 23, Nov. 22, Nov. 23, (Expense), Net; and Income Taxes 2002 2001 2002 2001 -------------------------------- -------- -------- -------- -------- (in millions) Interest expense..................................... $ 5.3 $ 3.9 $15.5 $13.9 ----- ----- ----- ----- Other income (expense), net: Interest income................................... $(0.6) $ 3.3 $ 2.8 $ 9.0 Loss on dealer transitions........................ (6.2) -- (7.6) (8.6) Gain on sale of investments....................... 0.2 -- 1.6 -- Loss on sales of leased assets.................... -- -- (5.7) -- Gain (loss) on disposal of property and equipment. (0.7) 4.2 (1.2) 4.1 Miscellaneous, net................................ 0.6 (2.9) 0.2 (2.1) ----- ----- ----- ----- $(6.7) $ 4.6 $(9.9) $ 2.4 ----- ----- ----- ----- Effective income tax rate............................ 37.5% 37.0% 37.5% 37.0%
16 Interest expense relates primarily to borrowings for corporate requirements. Interest expense related to the Financial Services segment is included in operating expense. Interest expense has been higher in fiscal 2003 due to an increase in the average debt balance used for corporate requirements, as well as an increase in the average interest rate on borrowings. The increase in the average interest rates resulted from the conversion of a major portion of the borrowings from commercial paper at lower interest rates to higher interest rates under the senior note borrowings. There has been a significant decline in interest income during the first nine months of fiscal 2003 versus the same period in the prior year. This change is due to approximately a 45% decrease in our average investments outstanding due to our focus on reducing debt balances, as well as nearly a 200 basis point drop in our average rates of interest earned. We maintain loss reserves related to debt and equity investments in dealers in ownership transition. We carefully monitor the financial condition of these dealers. These dealers have taken actions to reduce costs as they manage through the downturn. There are some dealers in ownership transition that are facing difficult financial challenges and the Company has term loans and equity investments with these dealers. We believe our reserves adequately reflect our credit risks. However, if these dealers experience a prolonged or deepening reduction in revenues, the likelihood of losses would increase and we would provide additional reserves, as necessary. In Q3 2003, we incurred $6.2 million in charges for additional reserves related to our debt and equity investments in dealer transitions. These charges related primarily to certain International dealers that have been significantly affected by the office furniture recession in their markets. In the first quarter of fiscal 2002 ("Q1 2002"), we recognized losses of $8.6 million on dealer transitions primarily related to loans to one dealer in North America. This dealer's operating results deteriorated due to a significant decline in business activity in their local market and a variety of performance issues. The $1.6 million year-to-date gain on sale of investments related to a non-recurring gain on the sale of a portion of our minority equity ownership in Modernform (a publicly held company in Thailand) realized in Q3 2003 and Q2 2003. In Q1 2003, we recorded a non-recurring loss of $5.7 million on the sale of leased assets in a transaction that included a number of components. These leased assets sold for $170.2 million, $4.4 million more than book value. We incurred a loss of $7.7 million on interest rate swaps that were matched against the portfolio and were settled during the transaction. Transaction costs totaled $2.4 million. We do not retain any contingent liabilities, credit risk, or risk related to lease residual values. However, we do have the right to participate in a portion of gains on lease residual values, if any, as the leases mature. The loss on disposal of property and equipment in Q3 2003 included a $2.3 million loss on the relocation of our Tustin, California facility. The loss consists of a write-off of assets of $9.5 million that was offset by a gain of $7.2 million on the sale of a portion of the Tustin real estate. Outlook The economy has not seen any meaningful improvement in business capital spending, which is key to our industry's recovery. Within the industry, it is typical to see a seasonal reduction in fourth quarter shipments. For example, although the amount varies from year to year, North America's fourth quarter shipments historically track approximately 5% below third quarter shipments. Recent order and quote activity in North America has been weaker than this seasonality alone would explain. This could be an indication that overall demand is continuing to contract, or it could simply reflect normal volatility in order patterns. In some International markets, we have experienced some strengthening in orders in recent weeks. As the fiscal year ends, we believe our quarterly breakeven point will be less than $625 million. In fiscal 2004, we believe we are well positioned for a return to profitability as the Company more fully realizes the benefits of the operational, organizational and financial restructuring actions taken during these last two years. 17 Business Segment Review North America
Three Months Ended Nine Months Ended ----------------- ------------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Income Statement Data--North America 2002 2001 2002 2001 ------------------------------------ -------- -------- -------- -------- (in millions, except data as a percentage) Revenue............................................... $372.5 $460.4 $1,141.2 $1,549.1 Gross profit percentage............................... 21.1% 25.4% 23.2% 26.9% Gross profit percentage, excluding non-recurring items 22.6% 26.8% 24.0% 27.5% Operating expenses.................................... $106.7 $108.1 $ 301.7 $ 354.6 Operating expenses, excluding non-recurring items..... $ 89.8 $107.8 $ 279.6 $ 345.9 Operating expense percentage.......................... 28.6% 23.5% 26.4% 22.9% Operating expense percentage, excluding non-recurring items............................................... 24.1% 23.4% 24.5% 22.3% Operating income (loss)............................... $(28.1) $ 8.8 $ (37.2) $ 61.8 Operating income (loss), excluding non-recurring items $ (5.6) $ 15.4 $ (5.9) $ 79.4 Operating income (loss) percentage.................... (7.5)% 1.9% (3.3)% 4.0% Operating income (loss) percentage, excluding non- recurring items..................................... (1.5)% 3.3% (0.5)% 5.1%
Sales in Q3 2003 decreased to their lowest level since the industry recession started. Excluding the $18.5 million effect of the newly consolidated dealer (discussed earlier), revenues were $354.0 million for Q3 2003, or a 23.1% decline compared with Q3 2002 and a 6.3% decline compared with Q2 2003. Year-to-date, excluding the effect of consolidating the dealer, revenues were $1,122.7 million, or a 27.5% decline compared with the same period in fiscal 2002. The decline in gross margins is primarily due to four factors: . Underabsorption of fixed overhead related to excess plant capacity. . Inefficiencies resulting from operating individual plants at less than half their capacity. . Restructuring charges (further discussion follows). . An increase in workers' compensation costs. As volume declined, North America took several steps to reduce cost of goods sold. North America reduced their hourly and salaried workforce, continued to implement lean manufacturing, and captured purchasing savings from new strategic sourcing initiatives. However, the benefits from these actions could not fully offset the underabsorption of fixed manufacturing overhead. For example, depreciation, utilities, maintenance and other fixed costs of operating established plants do not vary directly with revenue, and cannot be easily reduced. In addition, when plants operate far below their capacity, direct and indirect labor activities such as material handling, inventory management and general supervision may increase as a percentage of sales. North America is taking steps to further consolidate operations to recapture the lost efficiency. For example, they have announced the consolidation of two Grand Rapids, Michigan plants which is expected to be completed in fiscal 2004. Restructuring charges recorded during the quarter totaled $22.5 million, $5.6 million included in cost of goods sold and $16.9 million included in operating expenses. Year-to-date, North America has recorded pre-tax restructuring charges of $31.3 million. The desire to not put their employees through a long period of uncertainty and the changes in North America senior leadership served as a catalyst for us to implement in Q3 2003 nearly all the reductions that had been forecast in the last half of fiscal 2003. Of the 500-800 salaried workforce reductions expected to occur in the last half of fiscal 2003, more than 600 of these reductions occurred in the third quarter. During the fourth quarter, North America anticipates completing an additional reduction of 18 approximately 200 positions and has announced they are moving ahead with approximately 375 additional hourly layoffs. Since December 2000, North America has reduced its workforce by more than 40% through layoffs, terminations with severance, retirements and voluntary resignations. In Q3 2003, North America gross margins were adversely affected by workers' compensation expense that was approximately $5.0 million higher than normal. Approximately 50% of this charge was a catch-up from earlier estimates based on recent claim activity. North America is taking steps to manage these costs, but anticipates elevated workers' compensation costs to continue into next year due to the current level of hourly positions on layoff. Operating expenses of $89.8 million, excluding non-recurring charges, were down significantly from Q3 2002 and Q2 2003 due to reductions in force, restructuring activities and reductions in external spending. Steelcase Design Partnership
Three Months Ended Nine Months Ended -------------------- ------------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Income Statement Data--Steelcase Design Partnership 2002 2001 2002 2001 --------------------------------------------------- -------- -------- -------- -------- (in millions, except data as a percentage) Revenue.................................................... $79.3 $ 80.5 $223.1 $264.6 Gross profit percentage.................................... 37.7% 40.0% 38.8% 39.9% Gross profit percentage, excluding non-recurring items..... 37.7% 40.0% 38.8% 39.9% Operating expenses......................................... $22.7 $ 25.4 $ 70.6 $ 79.9 Operating expenses, excluding non-recurring items.......... $22.4 $ 25.4 $ 69.9 $ 79.9 Operating expense percentage............................... 28.6% 31.6% 31.6% 30.2% Operating expense percentage, excluding non-recurring items 28.2% 31.6% 31.3% 30.2% Operating income........................................... $ 7.2 $ 6.8 $ 15.9 $ 25.7 Operating income, excluding non recurring items............ $ 7.5 $ 6.8 $ 16.6 $ 25.7 Operating income percentage................................ 9.1% 8.4% 7.1% 9.7% Operating income percentage, excluding non-recurring items. 9.5% 8.4% 7.4% 9.7%
The Steelcase Design Partnership ("SDP") includes five separate companies: Brayton, The Designtex Group, Details, Metro and Vecta. These companies focus on higher-end design furniture products and niche applications for lobby and reception areas, conference rooms, private offices, health care and learning environments, as well as the distribution of surface materials and ergonomic tools for the workplace. SDP delivered its third sequential quarter of sales growth during Q3 2003 (a 5.6% increase over Q2 2003 and a 15.4% increase over Q1 2003). Compared with the prior year, revenue was down 1.5% and 15.7% for the quarter and nine month period, respectively. SDP sales are generally less dependent on large project orders than the North America segment. SDP continues to generate relatively strong gross margins. SDP earns higher margins because it offers a differentiated, design-oriented product portfolio, and can focus on profitable niche applications and customer segments. SDP has seen less deterioration in gross margins during the industry recession for two main reasons. First, there has been a less severe decline in revenues because these customer segments have been less affected by declines in business capital spending. Second, SDP operations generally have higher variable costs and lower fixed costs than our other manufacturing segments, so the cost structure adjusts more quickly to changes in demand. A cumulative freight reclassification totaling approximately $3 million was recorded at one of the SDP companies during Q3 2003. This reclassification was between revenue and cost of sales and had no impact on gross profit dollars; however, it negatively impacted the gross profit percentage in the quarter by 1.5 percentage points. 19 Operating expenses for Q3 2003 were down significantly from the prior year both in total and as a percentage of sales. SDP operating expenses are higher as a percent of sales than our other segments because of the added focus on product development, and the higher cost of selling and servicing these markets. Operating income in the quarter was higher than the prior year, both in total and as a percentage of sales. Operating income was also relatively higher as a percentage of total assets, which were $165.8 million, including goodwill of 63.2 million, at the end of the quarter. International
Three Months Ended Nine Months Ended ----------------- ----------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Income Statement Data--International 2002 2001 2002 2001 ------------------------------------ -------- -------- -------- -------- (in millions, except data as a percentage) Revenue.................................................... $123.9 $144.4 $348.8 $463.3 Gross profit percentage.................................... 29.9% 30.3% 28.8% 30.3% Gross profit percentage, excluding non-recurring items..... 30.0% 30.3% 29.0% 30.3% Operating expenses......................................... $ 43.8 $ 44.0 $121.7 $144.8 Operating expenses, excluding non-recurring items.......... $ 38.2 $ 44.0 $114.6 $144.8 Operating expense percentage............................... 35.4% 30.5% 34.9% 31.3% Operating expense percentage, excluding non-recurring items 30.8% 30.5% 32.9% 31.3% Operating loss............................................. $ (6.7) $ (0.2) $(21.4) $ (4.4) Operating loss, excluding non-recurring items.............. $ (1.0) $ (0.2) $(13.3) $ (4.4) Operating loss percentage.................................. (5.4)% (0.1)% (6.1)% (0.9)% Operating loss percentage, excluding non-recurring items... (0.8)% (0.1)% (3.8)% (0.9)%
Our International segment delivered its second sequential quarter of sales growth during Q3 2003 (a 5.6% increase over Q2 2003 and a 15.1% increase over Q1 2003). A portion of the quarterly increase was due to a gradually strengthening Euro versus the U.S. Dollar. Revenues continued to track well below prior year levels for both the quarter and year-to-date. Gross margins improved from Q2 2003 margins of 29.2% as a result of improved overhead absorption due to the increased revenue and the realized benefits of restructuring activities implemented in prior quarters. Gross margins were slightly lower than the prior year, reflecting the challenge of underabsorption associated with lower volume and a continued competitive pricing environment. Operating expenses included restructuring charges of $5.6 million and an additional $1.2 million in charges related to trade receivable reserves. Restructuring charges included $2.8 million in severance charges for workforce reductions. Additionally, restructuring charges included $2.3 million for the acceleration of future lease costs related to a facility that is no longer fully utilized. Operating expenses in the quarter, excluding non-recurring items, decreased 13% versus one year ago reflecting the impact of restructuring activities completed and a reduction in goodwill amortization due to the adoption of SFAS No. 142. Last quarter, we indicated that economic conditions in certain countries were putting pressure on some of our dealers. This quarter, International saw the situation deteriorate further and took charges to reflect the increased risk associated with receivables for certain dealers. They continue to carefully monitor the financial condition of their dealers for changes in credit quality. They believe their reserves adequately reflect these credit risks. However, if these dealers experience a prolonged or deepening reduction in revenues, the likelihood of losses would increase and additional reserves would be required. As we enter the next fiscal year, we believe International is positioned to be profitable with a slight increase in volume. International has seen some improvement in recent order rates, but they remain concerned regarding 20 economic weakness in Germany and other key markets, as well as the economic uncertainty relating to general instability in the Middle East. Additionally, we continue to evaluate opportunities to improve the competiveness of the International business, including facility consolidation and other market-specific restructuring activities. As we decide to take additional strategic actions, we may incur additional restructuring charges. Financial Services
Three Months Ended Nine Months Ended ----------------- ----------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Income Statement Data--Financial Services 2002 2001 2002 2001 ----------------------------------------- -------- -------- -------- -------- (in millions) Revenue............................... $ 6.5 $19.1 $23.7 $61.1 Net financing margin (loss)........... (1.5) 4.0 7.1 13.9 General and administrative expenses... 2.0 1.8 5.7 5.1 Restructuring costs................... 0.5 -- 0.5 -- Operating income (loss)............... (4.0) 2.2 0.9 8.8
Revenue decreased significantly compared to prior year primarily as a result of these events: . The sale of $185 million of leased assets during fiscal 2003 ($165 million were sold at the end of the first quarter). The leases sold would have generated quarterly revenue of $7 million and approximately $2 million of pre-tax operating profit. . During fiscal 2003, Financial Services converted some operating leases to direct financing leases to facilitate the sale of leases. The conversion of these leases effectively reversed $11 million of operating lease revenue in Q1 2003 and $3 million of operating lease revenue in Q3 2003. . The overall decrease in sales in the North America segment has resulted in lower lease fundings in fiscal 2003 compared to fiscal 2002. Net financing margin for fiscal 2003 is not comparable to fiscal 2002 because of an increase in credit reserves in Q3 2003 as well as the leased asset sales and the conversion of the operating leases (as discussed above). Financial Services monitors and regularly updates loss reserves in accordance with SAB 102 based on the credit quality of the lease portfolio, and their historical experience. In recent quarters, because of the economic downturn, they have seen a decline in overall credit quality of their existing portfolio and have increased reserves to reflect the increased risk. During Q3 2003, credit provisions of $6.5 million were significantly higher than recent quarters. Approximately $5.0 million of the provisions recorded were due to the deterioration of the credit quality of two of Financial Services largest lease customers. One of the customers defaulted on their lease payments during the quarter and Financial Services began procedures to accelerate payments in connection with a guarantee from the customer's parent company. The other significant customer is current on their lease payments, but was downgraded by the credit agencies during the quarter. Accordingly, Financial Services increased loss reserves to reflect the credit decline of this customer. The top five leasing customers have an aggregate net receivable balance of $59 million. The largest of these customers represents approximately 1% of Steelcase Inc. total consolidated assets. As Financial Services has reduced the size of the lease portfolio, each of these individual leases represents a larger percentage of Financial Services remaining lease portfolio. As noted above, certain of these larger customers experienced defaults or declines in credit quality, and Financial Services increased their reserves in response. If Financial Services was to experience further defaults related to these larger leases, it is likely, because of their relative size, significant increases in reserves would be necessary. Financial Services continues to believe by offering lease funding, they broaden their relationship with a segment of their customers and provide them with an attractive alternative to ownership. However, Financial Services is exploring alternative funding structures for their leasing business. They intend to finance their leasing business through outside funding. This new model is expected to be put in place in Q1 2004. They believe this 21 will reduce their overall credit and residual risk related to their leasing business. In Q4 2003, Financial Services anticipates selling additional leased assets, with the proceeds being used to pay down corporate borrowings or build cash balances. Other
Three Months Ended Nine Months Ended ----------------- ----------------- Nov. 22, Nov. 23, Nov. 22, Nov. 23, Income Statement Data--Other 2002 2001 2002 2001 ---------------------------- -------- -------- -------- -------- (in millions, except data as a percentage) Revenue................................................. $64.5 $ 27.0 $212.3 $ 91.0 Gross profit percentage................................. 37.2% 35.2% 37.1% 36.7% Gross profit percentage, excluding non-recurring items.. 37.2% 35.2% 37.3% 36.7% Operating expenses...................................... $27.5 $ 20.4 $ 97.3 $ 57.6 Operating expenses, excluding non-recurring items....... $27.5 $ 19.6 $ 87.7 $ 56.8 Operating expense percentage............................ 42.6% 75.6% 45.8% 63.3% Operating expense percentage, excluding non-recurring... items.................................................. 42.6% 72.6% 41.3% 62.4% Operating loss.......................................... $(3.5) $(10.9) $(18.6) $(24.2) Operating loss, excluding non-recurring items........... $(3.5) $(10.1) $ (8.5) $(23.4) Operating loss percentage............................... (5.4)% (40.4)% (8.8)% (26.6)% Operating loss percentage, excluding non-recurring items (5.4)% (37.4)% (4.0)% (25.7)%
The Other category includes our PolyVision, IDEO and Attwood subsidiaries, ventures and unallocated corporate expenses. This category will typically reflect an operating loss because unallocated corporate expenses and venture losses exceed the income of the subsidiary businesses. Revenue for Q3 2003 includes the acquisition of PolyVision (completed at the end of Q3 2002). Excluding PolyVision, revenues were relatively flat quarter on quarter and year on year. Year-to-date, non-recurring charges included in operating expenses totaled $9.6 million and primarily related to business exit costs. Liquidity and Capital Resources Excluding acquisitions, our cash and operating capital requirements have been primarily satisfied through cash generated from operating activities. As of November 22, 2002, our financial position included cash, cash equivalents and short-term investments of $52.1 million. These funds, in addition to cash generated from future operations and available credit facilities, are expected to be sufficient to finance our known or foreseeable liquidity and capital needs. Total consolidated debt at November 22, 2002 was $361.4 million, a decrease of $68.4 million since the end of Q2 2003. $245.6 million of the total debt is related to our Financial Services segment, which operates using a six-to-one debt-to-equity ratio. The $115.8 million of debt related to the other business segments represents an aggregated debt to total capitalization ratio of 8.7% for those segments. $328.0 million of our total consolidated debt is structured as term debt. We also hold $319.5 million of interest bearing assets, of which $286.5 million is held by our Financial Services segment. The aggregate amounts of maturities of consolidated debt as of November 22, 2002, including that due within one year and classified as current are expected to be:
Year ending (in millions) ----------- ------------- 2004....... $ 57.8 2005....... 25.4 2006....... 17.3 2007....... 258.0 2008....... 2.8 After 2008. 0.1 ------ Total... $361.4 ======
22 Of the $57.8 million due in 2004, $33.9 million relates to revolving short-term borrowings and $23.9 million relates to current maturities of long-term debt due within one year. The $23.9 million of current maturities of long-term debt includes $16.3 million related to our Financial Services segment and is expected to be serviced by the repayment of related lease assets and amounts due from dealers. Our long-term debt rating is BBB+ from Standard & Poor's and Baa3 from Moody's Investor Services. Our total credit facilities as of November 22, 2002 were:
(in millions) Credit Lines ------------- Global................... $400.0 Other lines.............. 122.6 ------ Total credit lines available 522.6 Less: borrowings outstanding (33.4) ------ Available credit............ $489.2 ======
Our facilities include a $400 million global multi-currency committed credit facility, which supports a multi-currency commercial paper program. Our commercial paper program is rated A-2 from Standard & Poor's and Prime-3 from Moody's Investor Services. Our access to commercial paper markets in the United States and Europe may be limited because of our short-term debt ratings. However, our global multi-currency committed credit facility is available for use in the event commercial paper is unavailable. As of November 22, 2002, we had $10 million in borrowings under the global multi-currency committed credit facility and no borrowings under the commercial paper program. The global multi-currency committed credit facility requires us to satisfy certain financial and other covenants including a minimum net worth covenant, a maximum debt ratio covenant and a minimum interest coverage ratio covenant. We are in compliance with all three covenants as of the end of Q3 2003 and expect to remain in compliance going forward. During Q3 2003, the Company amended the minimum interest coverage covenant for the global multi-currency committed credit facility and two other structured financing arrangements. The calculation is based on a 4-quarter rolling average, and therefore, still includes interest expense on $161.7 million of debt retired shortly after related lease assets were sold during Q1 2003. The amended covenant allows for a lower ratio in Q3 2003 and gradually steps back up to the original ratio over the following three quarters. Of the $122.6 million of short-term facilities, $23.4 million was outstanding and $99.2 million was available at the end of Q3 2003. The company has commitments related to operating lease agreements. Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year are expected to be:
Year ending (in millions) ----------- ------------- 2004............. 40.2 2005............. 37.1 2006............. 29.3 2007............. 19.0 2008............. 19.0 After 2008....... 80.1 ----- Total..... 224.7 =====
We believe we will be able to meet all future liquidity needs through generated cash and existing borrowing arrangements. 23 Cash Flow Operating activities
Nine Months Ended ----------------- Nov. 22, Nov. 23, Cash Flow Data--Operating Activities 2002 2001 ------------------------------------ -------- -------- (in millions) Net income (loss)............................ $(224.4) $ 35.3 Depreciation and amortization................ 115.9 128.5 Cumulative effect of accounting change....... 170.6 -- Loss on sales of leased assets............... 6.2 -- Restructuring charges, net................... 5.9 6.2 Changes in operating assets and liabilities.. (12.0) 57.4 Other, net................................... (6.6) 23.2 ------- ------ Net cash provided by operating activities.... $ 55.6 $250.6 ======= ======
During Q3 2003, net cash generated by operations increased approximately $75 million compared to Q2 2003 primarily due to a decrease in accounts receivable. The decrease from Q2 2003 was due to lower shipments in November compared to August. The cash provided by operating activities for the first nine months of fiscal 2003 declined compared to the same period of fiscal 2002 primarily because of the decline in net income. Investing activities
Nine Months Ended ---------------- Nov. 22, Nov. 23, Cash Flow Data--Investing Activities 2002 2001 ------------------------------------ -------- -------- (in millions) Capital expenditures......................................... $(63.8) $ (91.4) Proceeds from the sales of leased assets..................... 185.7 -- Proceeds from the disposal of fixed assets................... 23.2 16.4 Net decrease in notes receivable and leased assets........... 20.4 39.1 Acquisitions, net of cash acquired, and business divestitures (3.1) (203.9) Other, net................................................... 17.4 (2.6) ------ ------- Net cash provided by (used in) investing activities.......... $179.8 $(242.4) ====== =======
Proceeds from the sales of leased assets were used to pay down Financial Services segment borrowings. We view the sale of leased assets as an alternative funding option available to us when we wish to reduce the amount of capital used by the Financial Services segment. We continued to be very disciplined with capital expenditures and expect 2003 capital expenditures to be less than $100 million, our lowest level in over five years and significantly less than depreciation expense. Capital spending reflects an increased emphasis on projects that deliver short-payback cost savings or support critical strategic initiatives such as product development, while meeting key EVA milestones. We generated $23 million in cash during Q3 2003 through the sale of non-strategic real estate and other assets. We expect to generate cash of approximately $31 million in Q4 2003 from the sale of the remaining portions of the Tustin, California facility and related property. During Q3 2003 and Q2 2003, we sold a portion of our minority equity ownership in Modernform, which provided cash of $10 million. This is reflected in the "Other, net" component of the investing activities. 24 Financing activities
Nine Months Ended ---------------- Nov. 22, Nov. 23, Cash Flow Data--Financing Activities 2002 2001 ------------------------------------ -------- -------- (in millions) Short-term and long-term debt, net................. $(231.4) $146.4 Common stock issuance (repurchase), net............ 3.7 (4.1) Dividends paid..................................... (26.6) (48.6) ------- ------ Net cash provided by (used in) financing activities $(254.3) $ 93.7 ======= ======
We used the cash generated by the sales of leased assets to pay down borrowings. We expect to use operating cash flow, and the proceeds from additional leased asset sales and the sale of our Tustin, California facility to continue to reduce short-term debt and increase cash balances. We paid common stock dividends of $0.06 per share, or $8.8 million, and $0.11 per share, or $16.2 million, during each of the first three quarters of fiscal 2003 and 2002, respectively. The exercise of employee stock options during Q1 2003 generated $3.7 million. The Board of Directors authorized a share repurchase program for up to 11 million shares. We did not repurchase any common shares during the first nine months of 2003. As of November 22, 2002, total repurchases since the inception of our repurchase program amounted to $112.7 million; 3,824,593 shares remain available for repurchase under the program and we have no outstanding share repurchase commitments. We do not expect share repurchases to reduce our tradable share float in the long run since we anticipate Class B Common Stock to gradually convert to Class A Common Stock over time. Currently, about 27% of our common shares are Class A (tradable) compared to 9% at the time of our IPO in February 1998. We have no immediate plans to repurchase additional shares. Forward Looking Statements From time to time, in written reports and oral statements, the Company discusses its expectations regarding future performance. Statements that are not historical facts are "forward-looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended. Such statements include those relating to anticipated revenue, earnings/losses, restructuring activities and charges anticipated for the remainder of the current fiscal year, anticipated breakeven points and improvements in our breakeven point, adequacy of reserves, and fulfillment of our future liquidity and capital needs. Such statements involve certain known and unknown risks and uncertainties that could cause actual results to vary. The Company's performance may differ materially from that contemplated by forward-looking statements for a variety of reasons, including, but not limited to: competitive and general economic conditions domestically and internationally; delayed or lost sales and other impacts related to acts of terrorism, acts of war and government action; changes in domestic and international government laws and regulations; major disruptions at our key facilities or in the supply of any key raw materials; competitive pricing pressure; pricing changes by the Company or its competitors; currency fluctuations; changes in customer demand and order patterns; changes in relationships with customers, suppliers, employees and dealers; product (sales) mix; the success (including product performance and customer acceptance) of new products, current product innovations and platform simplification, and their impact on the Company's manufacturing processes; possible acquisitions or divestitures by the Company; the Company's ability to reduce costs, including ramp-up costs associated with new products and to improve margins on new products; the impact of workforce reductions (including elimination of temporary workers, hourly layoffs, early retirement programs and salaried workforce reductions); the Company's success in integrating acquired businesses, initiating and managing alliances and global sourcing, transitioning production of its products to other manufacturing facilities as a result of production rationalization and implementing technology initiatives; changes in business strategies and decisions; the Company's ability to fund liquidity and capital needs; and other 25 risks detailed in the Company's Form 10-K for the year ended February 22, 2002. Recently Issued Accounting Standards See Note 2 of the unaudited Condensed Consolidated Financial Statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risks During Q3 2003, no material change in foreign exchange risks occurred. Interest Rates During Q3 2003, no material change in interest rate risks occurred. Item 4. Controls and Procedures An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) as of a date within 90 days before the filing date of this quarterly report. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information regarding the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act. Subsequent to the date of this evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation. PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None 26 Item 6. Exhibits and Reports on Form 8-K 1. EXHIBITS See Exhibit Index. 2. REPORTS ON FORM 8-K A Current Report on Form 8-K was filed September 9, 2002 reporting under Item 5, Other Events, Steelcase Inc. announced it named Frank Merlotti Jr. as President of Steelcase North America. A Current Report on Form 8-K was filed October 29, 2002 reporting under Item 5, Other Events, Steelcase Inc. currently has long-term debt ratings of BBB+ from Standard & Poor's ("S&P") and Baa3 from Moody's Investors Service ("Moody's"). The Company's US$400,000,000 multicurrency commercial paper program is rated A-2 from S&P and Prime-3 from Moody's. 27 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. /S/ JAMES P. KEANE By: __________________________________ James P. Keane Senior Vice President, Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Date: January 6, 2003 28 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 quarterly 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 quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures 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 quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /S/ JAMES P. HACKETT ______________________________________ Name: James P. Hackett Title: President and Chief Executive Officer Date: January 6, 2003 29 CERTIFICATION OF CHIEF FINANCIAL OFFICER Sarbanes-Oxley Act Section 302 I, James P. Keane, Senior 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 quarterly 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 quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures 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 quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filinNetg date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /S/__James P. Keane ---------------------------------------- Name: James P. Keane Title: Senior Vice President, Chief Financial Officer Date: January 6, 2003 30 EXHIBIT INDEX
Exhibit No. --- Description 4.31 Second Amendment to Credit Agreement dated October 3, 2002, Long Term Multicurrency Revolving Credit Facility 4.32 Second Amendment to Credit Agreement dated October 3, 2002, Short Term Multicurrency Revolving Credit Facility 4.33 Amendment to the Credit Facility Agreement dated October 3, 2002 between Steelcase Financial Services Ltd. and Royal Bank of Canada, dated April 5, 2000, and the Guarantee by Steelcase Inc. in favor of Royal Bank of Canada, pursuant to the Credit Facility Agreement dated April 5, 2000 4.34 Amendment to the Guarantee dated October 3, 2002 between Steelcase Financial Services Ltd. and Royal Bank of Canada, dated April 5, 2000, and the Guarantee by Steelcase Inc. in favor of Royal Bank of Canada, pursuant to the Credit Facility Agreement dated April 5, 2000 4.35 Amendment to the Credit Facility Agreement dated October 3, 2002 between Steelcase Financial Services Ltd. and Royal Bank of Canada, dated May 24, 2001, and the Guarantee by Steelcase Inc. in favor of Royal Bank of Canada, pursuant to the Credit Facility Agreement dated May 24, 2001 4.36 Amendment to the Guarantee dated October 3, 2002 between Steelcase Financial Services Ltd. and Royal Bank of Canada, dated May 24, 2001, and the Guarantee by Steelcase Inc. in favor of Royal Bank of Canada, pursuant to the Credit Facility Agreement dated May 24, 2001 4.37 Third Amendment to Loan Agreement dated November 5, 2002, by and among Steelcase SAS, Steelcase Inc. and Societe Generale 10.32 Resignation Agreement between Steelcase Inc. and James R. Stelter dated September 27, 2002 99.1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31 EX-4.31 3 dex431.txt 2ND AMENDMENT TO CREDIT AGREEMENT DATED 10/3/2002 EXHIBIT 4.31 STEELCASE INC. SECOND AMENDMENT TO LONG TERM CREDIT AGREEMENT This SECOND AMENDMENT TO LONG TERM CREDIT AGREEMENT (this "Amendment") is dated as of October 3, 2002 and entered into by and among STEELCASE INC., a Michigan corporation (the "Company"), as a Borrower and as the Guarantor, THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), and CITICORP USA, INC. ("CUSA"), as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"), and is made with reference to that certain Credit Agreement (Long Term Multicurrency Revolving Credit Facility) dated as of April 5, 2001 (as amended by that certain First Amendment to Credit Agreement dated as of November 9, 2001 and as such agreement may hereafter be amended, restated, supplemented or modified from time to time, the "Credit Agreement"), by and among the Company, the Lenders, the Administrative Agent, SG-Chicago Branch, as syndication agent and BNP Paribas, Bank One, Michigan and Bank of America, N.A., as co-documentation agents. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, the Company and the Lenders have agreed to amend the Credit Agreement to amend (i) the definition of "Level" and (ii) the financial covenant relating to the Minimum Interest Coverage Ratio: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT A. The definition of "Level" in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "Level" means Level 1, Level 2, Level 3, Level 4, Level 5 or Level 6, as the case may be, provided, however that if, as of any date of determination, there is more than a one Level difference between (x) the Level that would be applicable if such Level were determined solely by reference to the rating assigned by S&P (the "Hypothetical S&P Level") and (y) the Level that would be applicable if such Level were determined solely by reference to the rating assigned by Moody's (the "Hypothetical Moody's Level") then the "Level" for such date shall be deemed to be the Level immediately above the lower of the Hypothetical S&P Level and the Hypothetical Moody's Level (for these purposes Level 1 being higher than Level 2, etc.). B. Subsection 5.02(e) of the Credit Agreement is hereby amended in its entirety to read as follows: "(e) Minimum Interest Coverage Ratio. The Company will not permit the ratio of (A) EBITDA to (B) interest expense of the Company and its Subsidiaries on a consolidated basis, in each case for the four fiscal quarters ending on the last day of any fiscal quarter of the Company to be: (i) in respect of the fiscal quarter ending November 22, 2002, less than 3.00:1.00; (ii) in respect of the fiscal quarter ending February 28, 2003, less than 3.50:1.00; (iii) in respect of the fiscal quarter ending May 30, 2003, less than 4.00:1.00; and (iv) in respect of any fiscal quarter ending after May 30, 2003, less than 4.50:1.00." C. Exhibit F to the Credit Agreement is hereby amended by deleting said Exhibit F in its entirety and substituting in place thereof a new Exhibit F in the form of Annex I to this Amendment. Section 2. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date on which the Agent shall notify the Company of satisfaction of such conditions being referred to herein as the "Second Amendment Effective Date"): A. On or before the Second Amendment Effective Date, the Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Second Amendment Effective Date: (i) Signature and incumbency certificates of the officers of the Company executing this Amendment; and (ii) Twelve (12) executed copies of this Amendment executed by the Company. B. On or before the Second Amendment Effective Date, Requisite Lenders shall deliver to Administrative Agent copies of this Amendment executed by Requisite Lenders. C. On or before the Second Amendment Effective Date, the Company shall pay to each Lender that consents to this Amendment on or before the Second Amendment Effective Date, a fee equal to 0.05% of such Lender's Commitment. Section 3. REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Company represents and warrants to each Lender that the following statements are true, correct and complete: 2 A. Corporate Power and Authority. The Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Company. C. No Conflict. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to the Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on the Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligation of the Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any contractual obligation of the Company or any of its Subsidiaries. D. Governmental Consents. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. Binding Obligation. This Amendment has been duly executed and delivered by the Company and this Amendment and the Amended Agreement are the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 4.01 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Second Amendment Effective Date to the same extent as though made on and as of that date, except to the extent previously disclosed in writing to Administrative Agent and Lenders or such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 3 Section 4. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Documents. (i) On and after the Second Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. Fees and Expenses. The Company acknowledges that all costs, fees and expenses as described in subsection 9.04(a) of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Company. C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 hereof, the effectiveness of which is governed by Section 2 hereof) shall become effective upon the execution of a counterpart hereof by Company and Requisite Lenders and receipt by the Company and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. 4 [Remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. STEELCASE INC., a Michigan corporation, as a Borrower and Guarantor By /s/ Gary P. Malburg ------------------- Name: Gary P. Malburg Title: Vice President, Finance and Treasurer S-1 CITICORP USA, INC., as Administrative Agent and a Lender By /s/ Mary O'Connell ------------------ Name: Mary O'Connell Title: Director S-2 SOCIETE GENERALE, as a Lender By /s/ Milissa Goeden ------------------ Name: Milissa Goeden Title: Vice President S-3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. STEELCASE INC., a Michigan corporation, as a Borrower and Guarantor By ________________________ Name: Title: CITICORP USA, INC., as Administrative Agent and a Lender By __________________ Name: Title: SG-CHICAGO BRANCH, as a Lender By __________________ Name: Title: BNP PARIBAS, as a Lender By /s/ Daniel Bresson By /s/ Eric Roller ---------------------- --------------- Name: Daniel BRESSON Name: Eric ROLLER Title: Directeur Adjoint BANK ONE, MICHIGAN, as a Lender By __________________ Name: Title: BANK OF AMERICA, N.A., as a Lender By __________________ Name: Title: THE NORTHERN TRUST COMPANY, as a Lender By __________________ Name: Title: Annex I - 1 BANK ONE, N.A., Successor to BANK ONE MICHIGAN, as a Lender By /s/ Michael B. Kelley --------------------- Name: Mike Kelley Title: Associate S-5 BANK OF AMERICA, N.A., as a Lender By /s/ John E. Williams -------------------- Name: John E. Williams Title: Managing Director S-6 THE NORTHERN TRUST COMPANY, as a Lender By /s/ B Tuszynska --------------- Name: Barbara B. Tuszynska, CFA Title: Second Vice President The Northern Trust Company S-7 CREDIT LYONNAIS, as a Lender By /s/ Alain Drentel ----------------- Name: Alain DRENTEL Title: Animateur CREDIT LYONNAIS U.A.C. DE STRASBOURG UB ENT G.C. LE RESPONSIBLE S-8 CREDIT LYONNAIS, as a Lender By /s/ Bruno Choppin ----------------- Name: Bruno CHOPPIN Title: Senior Banker S-8 CCF HSBC STRASBOURG BRANCH, as a Lender By /s/ Alberto Calaresu -------------------- Name: Alberto CALARESU Title: Branch Manager By /s/ Nicole Dollen ----------------- Name: Nicole DOLLEN Title: Administrative Responsible Manager S-9 NATEXIS BANQUES POPULAIRES, as a Lender By /s/ Pieter J. van Tulder ------------------------ Name: Pieter J. van Tulder Title: Vice President And Manager Multinational Group By /s/ Anne Ulrich --------------- Name: Anne Ulrich Title: Vice President S-10 FIFTH THIRD BANK (Western Michigan) formerly Old Kent Bank, as a Lender By /s/ Seth W. Watson III ---------------------- Name: Seth W. Watson III Title: Vice President S-11 Steelcase Inc. Second amendment to long term credit agreement BECM, as a Lender 1/10/2002 By /s/ Daniel Lartillerie ---------------------- Name: Daniel LARTILLERIE By /s/ Patrick Klein ----------------- Name: Patrick KLEIN ANNEX I EXHIBIT F [FORM OF COMPLIANCE CERTIFICATE] The undersigned certifies that: (i) this Certificate is as of __________ and pertains to the period from _________ to _________, (ii) the undersigned has reviewed the terms of that certain Credit Agreement (Long Term Multicurrency Revolving Credit Facility), dated as of April 5, 2001, among Steelcase Inc., the Banks named therein, Citicorp USA, Inc., as Administrative Agent, SG-Chicago Branch, as Syndication Agent and BNP Paribas, Bank One, Michigan and Bank of America, N.A., as Co-Documentation Agents (as it may be amended, supplemented, restated or otherwise modified from time to time, the "Credit Agreement") and has made, or caused to be made under the undersigned's supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the period set forth above and (iii) such review has not disclosed the existence during or at the end of such period, and the undersigned does not have knowledge of the existences as of the date of this Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default./1/ Capitalized terms used herein shall have the meanings set forth in the Credit Agreement. A. Liens As of the last day of the period covered hereby: 1. Aggregate outstanding amount of Debt of SFSI and its Subsidiaries that is secured by receivables permitted under Section 5.02(a)(vii) of Credit Agreement $___________ 2. Maximum permitted under Section 5.02(a)(vii) of Credit Agreement $500,000,000 3. Debt secured by Liens permitted under Section 5.02(a)(viii) of Credit Agreement does not exceed $75,000,000 B. Net Worth For the Company and its Subsidiaries: - -------------------- /[1]/If any event or condition that constitutes an Event of Default or Potential Event of Default exists, the Certificate should include the nature and period of existence of such event or condition and what action the Company has taken, is taking and proposes to take with respect thereto. Annex I-1 1. Net Worth as of February 25, 2000 $__________ 2. Net Income (if a positive number) from February 25, 2000 to most recent Fiscal Year End or Fiscal Second Quarter End $__________ 3. 25% of Net Income [ 0.25 * (2)] $__________ 4. aggregate net proceeds, including cash and the fair market value of property other than cash, received by the Company from the issue or sale of capital stock of the Company from February 25, 2000 to the most recent Fiscal Year End or Fiscal Second Quarter End $__________ 5. aggregate of 25% of the after tax gains realized from unusual, extraordinary, and major nonrecurring items from February 25, 2000 to the most recent Fiscal Year End or Fiscal Second Quarter End $__________ 6. Additions to Capital [(4) plus (5)] $__________ 7. $150,000,000 adjustment: ($150,000,000) 8. Net Worth $__________ 9. Minimum Net Worth required under Credit Agreement [(1) plus (3) plus (6) less (7)] $__________ C. Maximum Debt Ratio. For the Company and its Subsidiaries on a consolidated basis (for each period consisting of the most recently ended four consecutive fiscal quarters of the Company): 1. indebtedness for borrowed money or for the deferred purchase price of property $__________ or services (other than trade accounts payable arising in the ordinary course of business) 2. obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases $__________ Annex I-2 3. obligations under guarantees in respect of indebtedness or obligations of others of the kinds referred to in clauses (1) and (2) of this Section B $__________ 4. Debt [(1) plus (2) plus (3)] $__________ 5. consolidated net income plus provision for taxes (exclusive of extraordinary or non-recurring gains or losses) $__________ 6. interest expense $__________ 7. depreciation expense and amortization of intangibles $__________ 8. EBITDA [(5) plus (6) plus (7)] $__________ 9. Ratio of Debt to EBITDA [(4):(8)] ____:____ 10. Maximum Debt Ratio required under Credit Agreement 3.25:1.00 D. Minimum Interest Coverage Ratio For the Company and its Subsidiaries on a consolidated basis (for each period consisting of the most recently ended four consecutive fiscal quarters of the Company) 1. EBITDA [C(8), above] $__________ 2. interest expense $__________ 3. Interest Coverage Ratio [(1):(2)] ___________ 4. Minimum Interest Coverage Ratio: A. For the fiscal quarter ending November 22, 2002 .... 3.00:1:00 B. For the fiscal quarter ending February 28, 2003 .... 3.50:1.00 C. For the fiscal quarter ending May 30, 2003 ......... 4.00:1.00 D. For any fiscal quarter ending after May 30, 2003 ... 4.50:1.00 Annex I-3 STEELCASE INC. __________________________ Name: Title: Annex I-4 EX-4.32 4 dex432.txt SHORT TERM MULTICURRENCY REVOLVING CREDIT FACILITY EXHIBIT 4.32 STEELCASE INC. SECOND AMENDMENT TO SHORT TERM CREDIT AGREEMENT This SECOND AMENDMENT TO SHORT TERM CREDIT AGREEMENT (this "Amendment") is dated as of October 3, 2002 and entered into by and among STEELCASE INC., a Michigan corporation (the "Company"), as a Borrower and as the Guarantor, THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), and CITICORP USA, INC. ("CUSA"), as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"), and is made with reference to that certain Credit Agreement (Short Term Multicurrency Revolving Credit Facility) dated as of April 5, 2001 (as amended by that certain First Amendment to Credit Agreement dated as of November 9, 2001 and as such agreement may hereafter be amended, restated, supplemented or modified from time to time, the "Credit Agreement"), by and among the Company, the Lenders, the Administrative Agent, SG-Chicago Branch, as syndication agent and BNP Paribas, Bank One, Michigan and Bank of America, N.A., as co-documentation agents. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, the Company and the Lenders have agreed to amend the Credit Agreement to amend (i) the definition of "Level" and (ii) the financial covenant relating to the Minimum Interest Coverage Ratio : NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT A. The definition of "Level" in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "Level" means Level 1, Level 2, Level 3, Level 4, Level 5 or Level 6, as the case may be, provided, however that if, as of any date of determination, there is more than a one Level difference between (x) the Level that would be applicable if such Level were determined solely by reference to the rating assigned by S&P (the "Hypothetical S&P Level") and (y) the Level that would be applicable if such Level were determined solely by reference to the rating assigned by Moody's (the "Hypothetical Moody's Level") then the "Level" for such date shall be deemed to be the Level immediately above the lower of the Hypothetical S&P Level and the Hypothetical Moody's Level (for these purposes Level 1 being higher than Level 2, etc.). B. Subsection 5.02(e) of the Credit Agreement is hereby amended in its entirety to read as follows: "(e) Minimum Interest Coverage Ratio. The Company will not permit the ratio of (A) EBITDA to (B) interest expense of the Company and its Subsidiaries on a consolidated basis, in each case for the four fiscal quarters ending on the last day of any fiscal quarter of the Company to be: (i) in respect of the fiscal quarter ending November 22, 2002, less than 3.00:1.00; (ii) in respect of the fiscal quarter ending February 28, 2003, less than 3.50:1.00; (iii) in respect of the fiscal quarter ending May 30, 2003, less than 4.00:1.00; and (iv) in respect of any fiscal quarter ending after May 30, 2003, less than 4.50:1.00." C. Exhibit F to the Credit Agreement is hereby amended by deleting said Exhibit F in its entirety and substituting in place thereof a new Exhibit F in the form of Annex I to this Amendment. Section 2. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date on which the Agent shall notify the Company of satisfaction of such conditions being referred to herein as the "Second Amendment Effective Date"): A. On or before the Second Amendment Effective Date, the Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Second Amendment Effective Date: (i) Signature and incumbency certificates of the officers of the Company executing this Amendment; and (ii) Twelve (12) executed copies of this Amendment executed by the Company. B. On or before the Second Amendment Effective Date, Requisite Lenders shall deliver to Administrative Agent copies of this Amendment executed by Requisite Lenders. C. On or before the Second Amendment Effective Date, the Company shall pay to each Lender that consents to this Amendment on or before the Second Amendment Effective Date, a fee equal to 0.05% of such Lender's Commitment. Section 3. REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Company represents and warrants to each Lender that the following statements are true, correct and complete: 2 A. Corporate Power and Authority. The Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). B. Authorization of Agreements. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of the Company. C. No Conflict. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to the Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of the Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on the Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contractual obligation of the Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any contractual obligation of the Company or any of its Subsidiaries. D. Governmental Consents. The execution and delivery by the Company of this Amendment and the performance by the Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. Binding Obligation. This Amendment has been duly executed and delivered by the Company and this Amendment and the Amended Agreement are the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 4.01 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Second Amendment Effective Date to the same extent as though made on and as of that date, except to the extent previously disclosed in writing to Administrative Agent and Lenders or such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 3 Section 4. MISCELLANEOUS A. Reference to and Effect on the Credit Agreement and the Other Loan Documents. (i) On and after the Second Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. Fees and Expenses. The Company acknowledges that all costs, fees and expenses as described in subsection 9.04(a) of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of the Company. C. Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 hereof, the effectiveness of which is governed by Section 2 hereof) shall become effective upon the execution of a counterpart hereof by Company and Requisite Lenders and receipt by the Company and the Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. 4 [Remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. STEELCASE INC., a Michigan corporation, as a Borrower and Guarantor By /s/ Gary P. Malburg ------------------- Name: Gary P. Malburg Title: Vice President & Treasurer S-1 CITICORP USA, INC., as Administrative Agent and a Lender By /s/ Mary O'Connell ------------------ Name: Mary O'Connell Title: Director S-2 SOCIETE GENERALE, as a Lender By /s/ Milissa Goeden ------------------ Name: Milissa Goeden Title: Vice President S-3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. STEELCASE INC., a Michigan corporation, as a Borrower and Guarantor By _________________ Name: Title: CITICORP USA, INC., as Administrative Agent and a Lender By _________________ Name: Title: SG-CHICAGO BRANCH, as a Lender By _________________ Name: Title: BNP PARIBAS, as a Lender By /s/ Eric Roller By /s/ Daniel BRESSON ----------------- ------------------ Name: Eric ROLLER Daniel BRESSON Title: Directeur Adjoint BANK ONE, MICHIGAN, as a Lender By _________________ Name: Title: BANK OF AMERICA, N.A., as a Lender By _________________ Name: Title: THE NORTHERN TRUST COMPANY, as a Lender By _________________ Name: Title: S-1 BANK ONE, N.A., Successor to BANK ONE MICHIGAN, as a Lender By /s/ Michael B. Kelley --------------------- Name: Mike Kelly Title: Associate S-5 BANK OF AMERICA, N.A., as a Lender By /s/ John E. Williams -------------------- Name: John E. Williams Title: Manager Director S-6 THE NORTHERN TRUST COMPANY, as a Lender By /s/ B Tuszynska --------------- Name: Barbara B. Tuszynska, CFA Title: Second Vice President The Northern Trust Company S-7 CREDIT LYONNAIS, as a Lender By /s/ Alain Drentel ----------------- Name: Alain DRENTEL Title: Animateur CREDIT LYONNAIS U.A.C. DE STRASBOURG UB ENT G.C. LE RESPONSIBLE S-8 CREDIT LYONNAIS, as a Lender By /s/ Bruno Choppin ----------------- Name: Bruno CHOPPIN Title: Senior Banker S-8 CCF HSBC STRASBOURG BRANCH, as a Lender By /s/ Alberto Calaresu -------------------- Name: Alberto CALARESU Title: Manager Branch By /s/ Nicole Dollen ----------------- Name: Nicole DOLLEN Title: Administrative Responsible Manager S-9 NATEXIS BANQUES POPULAIRES, as a Lender By /s/ Pieter J. van Tulder ------------------------ Name: Pieter J. van Tulder Title: Vice President And Manager Multinational Group By /s/ Anne Ulrich --------------- Name: Anne Ulrich Title: Vice President S-10 FIFTH THIRD BANK (Western Michigan) formerly Old Kent Bank, as a Lender By /s/ Seth W. Watson III ---------------------- Name: Seth W. Watson III Title: Vice President S-11 Steelcase Inc. Second Amendment to short term credit agreement BECM, as a Lender 1/10/2002 By /s/ Daniel Lartillerie ---------------------- Name: Daniel LARTILLERIE By /s/ Patrick Klein ----------------- Name: Patrick KLEIN S-12 ANNEX I EXHIBIT F [FORM OF COMPLIANCE CERTIFICATE] The undersigned certifies that: (i) this Certificate is as of __________ and pertains to the period from _________ to _________, (ii) the undersigned has reviewed the terms of that certain Credit Agreement (Long Term Multicurrency Revolving Credit Facility), dated as of April 5, 2001, among Steelcase Inc., the Banks named therein, Citicorp USA, Inc., as Administrative Agent, SG-Chicago Branch, as Syndication Agent and BNP Paribas, Bank One, Michigan and Bank of America, N.A., as Co-Documentation Agents (as it may be amended, supplemented, restated or otherwise modified from time to time, the "Credit Agreement") and has made, or caused to be made under the undersigned's supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the period set forth above and (iii) such review has not disclosed the existence during or at the end of such period, and the undersigned does not have knowledge of the existences as of the date of this Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default./1/ Capitalized terms used herein shall have the meanings set forth in the Credit Agreement. A. Liens As of the last day of the period covered hereby: 1. Aggregate outstanding amount of Debt of SFSI and its Subsidiaries that is secured by receivables permitted under Section 5.02(a)(vii) of Credit Agreement $____________ 2. Maximum permitted under Section 5.02(a)(vii) of Credit Agreement $500,000,000 3. Debt secured by Liens permitted under Section 5.02(a)(viii) of Credit Agreement does not exceed $75,000,000 B. Net Worth For the Company and its Subsidiaries: - --------------------- /[1]/If any event or condition that constitutes an Event of Default or Potential Event of Default exists, the Certificate should include the nature and period of existence of such event or condition and what action the Company has taken, is taking and proposes to take with respect thereto. Annex I-1 1. Net Worth as of February 25, 2000 $__________ 2. Net Income (if a positive number) from February 25, 2000 to most recent Fiscal Year End or Fiscal Second Quarter End $__________ 3. 25% of Net Income [ 0.25 * (2)] $__________ 4. aggregate net proceeds, including cash and the fair market value of property other than cash, received by the Company from the issue or sale of capital stock of the Company from February 25, 2000 to the most recent Fiscal Year End or Fiscal Second Quarter End $__________ 5. aggregate of 25% of the after tax gains realized from unusual, extraordinary, and major nonrecurring items from February 25, 2000 to the most recent Fiscal Year End or Fiscal Second Quarter End $__________ 6. Additions to Capital [(4) plus (5)] $__________ 7. $150,000,000 adjustment: ($150,000,000) 8. Net Worth $__________ 9. Minimum Net Worth required under Credit Agreement [(1) plus (3) plus (6) less (7)] $__________ C. Maximum Debt Ratio. For the Company and its Subsidiaries on a consolidated basis (for each period consisting of the most recently ended four consecutive fiscal quarters of the Company): 1. indebtedness for borrowed money or for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business) $__________ 2. obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases $__________
Annex I-2 3. obligations under guarantees in respect of indebtedness or obligations of others of the kinds referred to in clauses (1) and (2) of this Section B $__________ 4. Debt [(1) plus (2) plus (3)] $__________ 5. consolidated net income plus provision for taxes (exclusive of extraordinary or non-recurring gains or losses) $__________ 6. interest expense $__________ 7. depreciation expense and amortization of intangibles $__________ 8. EBITDA [(5) plus (6) plus (7)] $__________ 9. Ratio of Debt to EBITDA [(4):(8)] ____:____ 10. Maximum Debt Ratio required under Credit Agreement 3.25:1.00 D. Minimum Interest Coverage Ratio For the Company and its Subsidiaries on a consolidated basis (for each period consisting of the most recently ended four consecutive fiscal quarters of the Company) 1. EBITDA [C(8), above] $__________ 2. interest expense $__________ 3. Interest Coverage Ratio [(1):(2)] ___________ 4. Minimum Interest Coverage Ratio: A. For the fiscal quarter ending November 22, 2002 ............ 3.00:1:00 B. For the fiscal quarter ending February 28, 2003 ............ 3.50:1.00 C. For the fiscal quarter ending May 30, 2003 ................. 4.00:1.00 D. For any fiscal quarter ending after May 30, 2003 ........... 4.50:1.00
Annex I-3 STEELCASE INC. __________________________ Name: Title: Annex I-4 EX-4.33 5 dex433.txt AMENDMENT TO CREDIT FACILITY AGREEMENT EXHIBIT 4.33 October 3, 2002 Steelcase Financial Services Ltd. 1 Steelcase Road West Markham, Ontario L3R 0T3 Attention: Chief Financial Officer Dear Sirs: We refer to the facility agreement dated as of April 5, 2000 between Royal Bank of Canada (the "Bank") and Steelcase Financial Services Ltd. (the "Borrower"), as borrower, as amended by an amending letter agreement dated May 24, 2001, and as further amended by an amending letter agreement dated November 9, 2001, (collectively, the "Facility Agreement") and to the Guarantee dated as of April 5, 2000, as amended by an amending letter agreement dated May 24, 2001, and as further amended by an amending letter agreement dated November 9, 2001, (collectively, the "Guarantee") made by Steelcase Inc. (the "Guarantor") for the benefit of the Bank relating to the indebtedness of the Borrower to the Bank under the Facility Agreement. We confirm our agreement to amend the Facility Agreement, upon and subject to the following terms and conditions. 1. DEFINITIONS: Capitalized terms used and not defined herein have the meanings ascribed to such terms in the Facility Agreement. 2. FACILITY FEE: Section 7 of the Facility Agreement entitled Payment Adjustment is deleted and replaced with a new section 7 entitled Facility Fee providing as follows: "Effective for the period from and after October 3, 2002 until the Maturity Date, the Borrower shall pay to the Bank quarterly in arrears a non-refundable facility fee, calculated on a daily basis on the Net Present Value Amount as set forth in Schedule "G", on the basis of the actual number of days elapsed and a year of 365 days, the first payment to be calculated for the period from and including October 3, 2002 to, but excluding, the December 1, 2002 payment date, the second payment to be calculated for the period from and including the December 1, 2002 payment date to, but excluding, the March 1, 2003 -2- payment date, and, thereafter, in the same manner on a quarterly basis, from and including the payment date immediately following the last day of the immediately preceding calculation period to, but excluding, the third payment date next following the payment date upon which the applicable calculation period commenced, until the Maturity Date. Each payment of the facility fee shall be payable within 3 Business Days of receipt by the Company after the expiry of the applicable calculation period of a written notice from the Bank setting out the amount owing and the method of calculation. The payment dates referred to above are the dates that payments are due under the Credit Facility as set forth in Schedule "B". The facility fee shall be calculated as the rate (the "Applicable Rate"), expressed in basis points, set out, from time to time, in the following matrix for the level of credit ratings assigned by Moody's Investor Service, Inc., or any successor thereto, (herein "Moody's") and Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, or any successor thereto, (herein "S & P") to the Guarantor's senior unsecured long term debt obligations, provided that in the event of a disparity between the levels of the credit ratings of Moody's and S & P, the Applicable Rate will be determined based on the rate set out for the level immediately higher than the level for the lesser of the credit ratings of Moody's or S & P. Each increase or decrease in the Applicable Rate shall be effective concurrent with the announcement by Moody's or S & P, as the case may be, of the change to the Moody's and/or S & P's credit rating giving rise to such increase or decrease in the Applicable Rate as determined under the matrix..
- ----------------------------------------------------------------------------------------------- S & P/ S & P/ S & P/ Moody's S & P/ S & P/ S & P/ Moody's Moody's Moody's Moody's Moody's Moody's A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 BB+/Ba1 BB/Ba2 - ----------------------------------------------------------------------------------------------- Applicable 25 basis 50 basis 75 basis 130 basis 220 basis 325 basis Rate points points points points points points - -----------------------------------------------------------------------------------------------
The Borrower agrees to provide to the Bank, promptly after the Borrower obtains knowledge of any change in the rating established for the Guarantor by S & P or Moody's, as applicable, a written notice of such change, which notice shall specify the new rating, the date on which such change was publicly announced and such other information with respect to such change as the Bank may reasonably request." 3. RESTRUCTURE FEE: A restructure fee of $10,488.00 is payable by the Borrower upon acceptance of this amending agreement. This fee is non-refundable and is deemed to be earned by the Bank upon acceptance of this amending agreement, to compensate for time, effort and expense -3- incurred by the Bank in approving the amendments to the Credit Facility provided for herein. 4. EVENTS OF DEFAULT: Section 18 of the Facility Agreement entitled Events of Default is amended by adding to Event of Default (l) after the date "May 24, 2001" the following: "as amended by amending letter agreements dated November 9, 2001 and October 3, 2002". 5. SCHEDULE "D" The reference to the "Minimum Interest Coverage Ratio 5.00:1.00" in Schedule "D" to the Facility Agreement is hereby deleted in its entirety. 6. SCHEDULE "G" The attached schedule sets forth Net Present Value Amounts for the Credit Facility after application of each payment on each payment date for the period from October 1, 2002 until the Maturity Date and is hereby incorporated into the Facility Agreement by reference as Schedule "G" thereto and shall hereafter form a part thereof. The Net Present Value Amount set forth for any payment date remains effective until the payment on the next following payment date. 7. CONSENT: The Borrower confirms its agreement with and consents to all the terms and conditions of this amending agreement and to the amendments to the Guarantee made by an amending agreement between the Bank and the Guarantor dated the same date hereof (the "Guarantee Amendment"). 8. CONDITIONS: This agreement is conditional upon the receipt by the Bank, in form and substance satisfactory to the Bank: (a) prior to the effectiveness hereof, of duly executed copies of this amending agreement and the Guarantee Amendment; and (b) subsequent to the effectiveness hereof, of such certificates and resolutions in respect of the Borrower as the Bank may reasonably require and legal opinions of counsel to the Guarantor in respect of the Guarantee Amendment substantially in the form of Exhibits E-1 and E-2 of the Facility Agreement, within 22 days of the date of this amending agreement. 9. GENERAL: -4- (a) The Borrower agrees to take such action and execute and deliver such further documents as shall be reasonably required by the Bank in order to give effect to and carry out the intentions of this amending agreement. (b) The Facility Agreement, as amended hereby, is hereby ratified and confirmed and remains in full force and effect, binding upon the parties in accordance with its terms. (c) This amending agreement shall be construed in accordance with and be governed by the laws of the Province of Ontario and of Canada applicable therein. (d) This amending agreement may be executed and delivered in counterparts, each of which when executed and delivered is an original, but both of which together constitute one and the same agreement. This amending agreement may be delivered, and be binding on the party so delivering, upon the provision of telefaxed execution pages. The party delivering such telefaxed execution pages shall as soon as possible thereafter (and in any event within 5 days) deliver to other party an originally executed copy. (e) The date on which this amending agreement becomes effective is the date of acceptance hereof. Please acknowledge your acceptance of the above terms and conditions by signing the attached copy of this letter in the space provided below and returning it to the undersigned by no later than October 17, 2002, failing which this agreement shall be null and void and without effect. Yours truly, ROYAL BANK OF CANADA By: /s/ B R Baker --------------------- Name/Title: Barry Baker Senior Manager -5- We acknowledge and accept the terms and conditions of this amending agreement as of the day of October, 2002. STEELCASE FINANCIAL SERVICES LTD. By: /s/ Gary P. Malburg ------------------------- Name/Title: Gary P. Malburg / President --------------------------------- Schedule "G" to the Agreement dated as of the 5/th/ day of April, 2000, between Steelcase Financial Ltd., as Borrower, and Royal Bank of Canada, as the Bank, as amended to date. Payment Date Payment Amount Net Present Value Amount * 1-Oct-02 $844,195.46 $20,976,356.86 1-Nov-02 $826,002.30 $20,265,374.92 1-Dec-02 $816,778.87 $19,559,717.85 1-Jan-03 $804,924.83 $18,862,045.47 1-Feb-03 $790,670.77 $18,174,801.59 1-Mar-03 $789,925.74 $17,484,534.34 1-Apr-03 $769,838.60 $16,810,569.27 1-May-03 $766,799.00 $16,135,948.23 1-Jun-03 $757,274.53 $15,467,152.48 1-Jul-03 $741,020.00 $14,810,944.03 1-Aug-03 $721,808.35 $14,170,349.03 1-Sep-03 $720,314.98 $13,527,734.79 1-Oct-03 $712,195.17 $12,889,716.70 1-Nov-03 $705,046.84 $12,255,348.48 1-Dec-03 $704,607.66 $11,617,940.98 1-Jan-04 $690,476.68 $10,991,169.34 1-Feb-04 $649,748.10 $10,401,689.48 1-Mar-04 $645,568.43 $9,813,156.99 1-Apr-04 $632,368.15 $9,234,597.65 1-May-04 $623,282.18 $8,661,951.84 1-Jun-04 $615,631.20 $8,093,817.01 1-Jul-04 $601,604.71 $7,536,593.40 1-Aug-04 $592,280.84 $6,985,638.21 1-Sep-04 $564,907.88 $6,459,034.92 1-Oct-04 $552,274.74 $5,942,177.22 1-Nov-04 $544,368.17 $5,430,391.99 1-Dec-04 $526,778.87 $4,933,389.77 1-Jan-05 $496,622.70 $4,463,818.49 1-Feb-05 $459,499.15 $4,028,795.94 1-Mar-05 $454,992.08 $3,595,895.09 1-Apr-05 $443,817.32 $3,171,795.26 1-May-05 $431,473.66 $2,757,713.61 1-Jun-05 $410,194.90 $2,362,640.18 1-Jul-05 $389,012.40 $1,986,582.92 1-Aug-05 $378,330.11 $1,619,145.91 1-Sep-05 $366,491.98 $1,261,532.24 1-Oct-05 $191,433.08 $1,077,016.57 1-Nov-05 $122,032.60 $960,889.61 1-Dec-05 $113,241.74 $852,916.74 1-Jan-06 $112,825.51 $744,768.06 1-Feb-06 $104,141.53 $644,710.34 1-Mar-06 $101,502.83 $546,742.67 1-Apr-06 $99,306.03 $450,434.62 1-May-06 $87,855.96 $365,048.54 1-Jun-06 $64,326.67 $302,723.55 1-Jul-06 $63,139.45 $241,244.04 1-Aug-06 $62,309.32 $180,257.54 1-Sep-06 $181,245.95 $ - *"Net Present Value Amount" is a reference amount only and means the net present value, based on the Interest Rate of 6.58% divided by 12, of the cash flows set forth in the above Payment Amount Column. EX-4.34 6 dex434.txt AMENDMENT TO THE GUARANTEE DATED 10/3/2002 EXHIBIT 4.34 October 3, 2002 Steelcase Inc. 901 44/th/ Street SE CH-2E-06 Grand Rapids, MI 4508 Attention: Chief Financial Officer Dear Sirs: We refer to the facility agreement dated as of April 5, 2000 between Royal Bank of Canada (the "Bank") and Steelcase Financial Services Ltd. (the "Borrower"), as borrower, as amended by an amending letter agreement dated May 24, 2001, and as further amended by an amending letter agreement dated November 9, 2001, (collectively, the "Facility Agreement") and to the Guarantee dated as of April 5, 2000, as amended by an amending letter agreement dated May 24, 2001, and as further amended by an amending letter agreement dated November 9, 2001, (collectively, the "Guarantee") made by Steelcase Inc. (the "Guarantor") for the benefit of the Bank relating to the indebtedness of the Borrower to the Bank under the Facility Agreement. We confirm our agreement to amend the Guarantee, upon and subject to the following terms and conditions. 1. DEFINITIONS: Capitalized terms used and not defined herein have the meanings ascribed to such terms in the Facility Agreement and the Guarantee. 2. COVENANTS: Subparagraph (c)(iii) of Section 6 Covenants of the Guarantee is deleted and the following inserted therefor: "its ratio of EBITDA to Interest Expense for the four fiscal quarters ending on the 22/nd/ day of November, 2002, at not less than 3.0:1, for the four fiscal quarters ending on the 28/th/ day of February, 2003, at not less than 3.5:1, for the four fiscal quarters ending on the 30/th/ day of May, 2003 at not less than 4.0:1 and for the four fiscal quarters ending on the last day of each subsequent fiscal quarter at not less than 4.5:1;" -2- 3. CONSENT: The Guarantor confirms its agreement with and consents to all the terms and conditions of this amending agreement and to the amendments to the Facility Agreement made by an amending agreement between the Bank and the Borrower dated the same date hereof (the "Facility Amending Agreement"). 4. CONDITIONS: This agreement is conditional upon the receipt by the Bank, in form and substance satisfactory to the Bank: (a) prior to the effectiveness hereof, of duly executed copies of this amending agreement and the Facility Amending Agreement; and (b) subsequent to the effectiveness hereof, of such certificates and resolutions of the Borrower as the Bank may reasonably require and legal opinions of counsel to the Guarantor in respect of this amending agreement substantially in the form of Exhibits E-1 and E-2 of the Facility Agreement, within 22 days of the date of this amending agreement. 5. GENERAL: (a) The Guarantor agrees to take such action and execute and deliver such further documents as shall be reasonably required by the Bank in order to give effect to and carry out the intentions of this amending agreement. (b) The Guarantee, as amended hereby, is hereby ratified and confirmed and remains in full force and effect, binding upon the parties in accordance with their respective terms. (c) This amending agreement shall be construed in accordance with and be governed by the laws of the State of New York. (d) This amending agreement may be executed and delivered in counterparts, each of which when executed and delivered is an original, but both of which together constitute one and the same agreement. This amending agreement may be delivered, and be binding on the party so delivering, upon the provision of telefaxed execution pages. The party delivering such telefaxed execution pages shall as soon as possible thereafter (and in any event within 5 days) deliver to other party an originally executed copy. (e) The date on which this amending agreement becomes effective is the date of acceptance hereof. -3- Please acknowledge your acceptance of the above terms and conditions by signing the attached copy of this letter in the space provided below and returning it to the undersigned by no later than October 17, 2002, failing which this agreement shall be null and void and without effect. Yours truly, ROYAL BANK OF CANADA By: /s/ B R Baker ------------------- Name/Title: Barry Baker Senior Manager -4- We acknowledge and accept the terms and conditions of this amending agreement as of the day of October, 2002. STEELCASE INC. By: /s/ Gary P. Malburg ----------------------- Name/Title: Gary P. Malburg / V.P. Treasurer ---------------------------------- EX-4.35 7 dex435.txt AMENDMENT TO CREDIT FACILITY AGREEMENT 10/03/2002 EXHIBIT 4.35 October 3, 2002 Steelcase Financial Services Ltd. 1 Steelcase Road West Markham, Ontario L3R 0T3 Attention: Chief Financial Officer Dear Sirs: We refer to the facility agreement dated as of May 24, 2001 between Royal Bank of Canada (the "Bank") and Steelcase Financial Services Ltd. (the "Borrower"), as borrower, as amended by an amending letter agreement dated November 9, 2001, (collectively, the "Facility Agreement") and to the Guarantee dated as of May 24, 2001, as amended by an amending letter agreement dated November 9, 2001, (collectively, the "Guarantee") made by Steelcase Inc. (the "Guarantor") for the benefit of the Bank relating to the indebtedness of the Borrower to the Bank under the Facility Agreement. We confirm our agreement to amend the Facility Agreement, upon and subject to the following terms and conditions. 1. DEFINITIONS: Capitalized terms used and not defined herein have the meanings ascribed to such terms in the Facility Agreement. 2. MARGIN: Section 7 of the Facility Agreement entitled Margin is deleted and replaced with the following: "The margin applicable to the Borrowing (the "Applicable Margin"), expressed in basis points, is 65 basis points." 3. FACILITY FEE: A new Section 7.1 entitled Facility Fee is added to the Facility Agreement providing as follows: -2- "Effective for the period from and after October 3, 2002 until the Maturity Date, the Borrower shall pay to the Bank quarterly in arrears a non-refundable facility fee, calculated on a daily basis on the outstanding principal balance of the Borrowing from time to time as set out in Schedule "B", on the basis of the actual number of days elapsed and a year of 365 days, the first payment to be calculated from and including October 3, 2002 to, but excluding, the December 2, 2002 Payment Date, the second payment to be calculated for the period from and including the December 2, 2002 Payment Date to, but excluding, the March 3, 2003 Payment Date, and, thereafter, in the same manner on a quarterly basis, from and including the Payment Date immediately following the last day of the immediately preceding calculation period to, but excluding, the third Payment Date next following the Payment Date upon which the applicable calculation period commenced, until the Maturity Date. Each payment of the facility fee shall be payable within 3 Business Days of receipt by the Company after the expiry of the applicable calculation period of a written notice from the Bank setting out the amount owing and the method of calculation. The facility fee shall be calculated as the rate (the "Applicable Rate"), expressed in basis points, set out, from time to time, in the following matrix for the level of credit ratings assigned by Moody's Investor Service, Inc., or any successor thereto, (herein "Moody's") and Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, or any successor thereto, (herein "S & P") to the Guarantor's senior unsecured long term debt obligations, provided that in the event of a disparity between the levels of the credit ratings of Moody's and S & P, the Applicable Rate will be determined based on the rate set out for the level immediately higher than the level for the lesser of the credit ratings of Moody's or S & P. Each increase or decrease in the Applicable Rate shall be effective concurrent with the announcement by Moody's or S & P, as the case may be, of such change to the Moody's and/or S & P's credit rating giving rise to such increase or decrease in the Applicable Rate as determined under the matrix.
- ------------------------------------------------------------------------------------------ S & P/ S & P/ S & P/ S & P/ S & P/ S & P/ Moody's Moody's Moody's Moody's Moody's Moody's A-/A3 BBB+/Baa1 BBB/Baa2 BBB-/Baa3 BB+/Ba1 BB/Ba2 - ------------------------------------------------------------------------------------------ Applicable 25 basis 50 basis 75 basis 130 basis 220 basis 325 basis Rate points points points points points points - ------------------------------------------------------------------------------------------
The Borrower agrees to provide to the Bank, promptly after the Borrower obtains knowledge of any change in the rating established for the Guarantor by S & P or Moody's, as applicable, a written notice of such change, which notice shall specify the new rating, the date on which such change was publicly announced and such other information with respect to such change as the Bank may reasonably request." 4. RESTRUCTURE FEE: -3- A restructure fee of $8,522.00 is payable by the Borrower upon acceptance of this amending agreement. This fee is non-refundable and is deemed to be earned by the Bank upon acceptance of this amending agreement, to compensate for time, effort and expense incurred by the Bank in approving the amendments to the Credit Facility provided for herein. 5. EVENT OF DEFAULT: Section 18 of the Facility Agreement entitled Events of Default is amended by adding to Event of Default (d) after the words "April 2000 Facility Agreement" the following: "as amended by amending letter agreements dated May 24, 2001, November 9, 2001 and October 3, 2002". 6. SCHEDULE "D" The reference to the "Minimum Interest Expense to EBIDTA Ratio 4.5:1" in Schedule "D" to the Facility Agreement is hereby deleted in its entirety. 7. CONSENT: The Borrower confirms its agreement with and consents to all the terms and conditions of this amending agreement and to the amendments to the Guarantee made by an amending agreement between the Bank and the Guarantor dated the same date hereof (the "Guarantee Amendment"). 8. CONDITIONS: This agreement is conditional upon the receipt by the Bank, in form and substance satisfactory to the Bank: (a) prior to the effectiveness hereof, of duly executed copies of this amending agreement and the Guarantee Amendment; and (b) subsequent to the effectiveness hereof, of such certificates and resolutions of the Borrower as the Bank may reasonably require and legal opinions of counsel to the Guarantor in respect of the Guarantee Amendment substantially in the form of Exhibits E-1 and E-2 of the Facility Agreement, within 22 days of the date of this amending agreement. 9. GENERAL: (a) The Borrower agrees to take such action and execute and deliver such further documents as shall be reasonably required by the Bank in order to give effect to and carry out the intentions of this amending agreement. -4- (b) The Facility Agreement, as amended hereby, is hereby ratified and confirmed and remains in full force and effect, binding upon the parties in accordance with its terms. (c) This amending agreement shall be construed in accordance with and be governed by the laws of the Province of Ontario and of Canada applicable therein. (d) This amending agreement may be executed and delivered in counterparts, each of which when executed and delivered is an original, but both of which together constitute one and the same agreement. This amending agreement may be delivered, and be binding on the party so delivering, upon the provision of telefaxed execution pages. The party delivering such telefaxed execution pages shall as soon as possible thereafter (and in any event within 5 days) deliver to other party an originally executed copy. (e) The date on which this amending agreement becomes effective is the date of acceptance hereof. Please acknowledge your acceptance of the above terms and conditions by signing the attached copy of this letter in the space provided below and returning it to the undersigned by no later than October 17, 2002, failing which this agreement shall be null and void and without effect. Yours truly, ROYAL BANK OF CANADA By: /s/ B R Baker ------------------- Name/Title: Barry Baker Senior Manager -5- We acknowledge and accept the terms and conditions of this amending agreement as of the day of October, 2002. STEELCASE FINANCIAL SERVICES LTD. By: /s/ Gary P. Malburg ------------------------- Name/Title: Gary P. Malburg / President --------------------------------- EX-4.36 8 dex436.txt AMENDMENT TO THE GUARANTEE DATED 10/03/2002 EXHIBIT 4.36 October 3, 2002 Steelcase Inc. 901 44/th/ Street SE CH-2E-06 Grand Rapids, MI 4508 Attention: Chief Financial Officer Dear Sirs: We refer to the facility agreement dated as of May 24, 2001 between Royal Bank of Canada (the "Bank") and Steelcase Financial Services Ltd. (the "Borrower"), as borrower, as amended by an amending letter agreement dated November 9, 2001, (collectively, the "Facility Agreement") and to the Guarantee dated as of May 24, 2001, as amended by an amending letter agreement dated November 9, 2001, (collectively, the "Guarantee") made by Steelcase Inc. (the "Guarantor") for the benefit of the Bank relating to the indebtedness of the Borrower to the Bank under the Facility Agreement. We confirm our agreement to amend the Guarantee, upon and subject to the following terms and conditions. 1. DEFINITIONS: Capitalized terms used and not defined herein have the meanings ascribed to such terms in the Facility Agreement and the Guarantee. 2. COVENANTS: Subparagraph (c)(iii) of Section 6 Covenants of the Guarantee is deleted and the following inserted therefor: "its ratio of EBITDA to Interest Expense for the four fiscal quarters ending on the 22/nd/ day of November, 2002, at not less than 3.0:1, for the four fiscal quarters ending on the 28/th/ day of February, 2003, at not less than 3.5:1, for the four fiscal quarters ending on the 30/th/ day of May, 2003 at not less than 4.0:1 and for the four fiscal quarters ending on the last day of each subsequent fiscal quarter at not less than 4.5:1;" 3. CONSENT: -2- The Guarantor confirms its agreement with and consents to all the terms and conditions of this amending agreement and to the amendments to the Facility Agreement made by an amending agreement between the Bank and the Borrower dated the same date hereof (the "Facility Amending Agreement"). 4. CONDITIONS: This agreement is conditional upon the receipt by the Bank, in form and substance satisfactory to the Bank: (a) prior to the effectiveness hereof, of duly executed copies of this amending agreement and the Facility Amending Agreement; and (b) subsequent to the effectiveness hereof, of such certificates and resolutions of the Borrower as the Bank may reasonably require and legal opinions of counsel to the Guarantor in respect of this amending agreement substantially in the form of Exhibits E-1 and E-2 of the Facility Agreement, within 22 days of the date of this amending agreement. 5. GENERAL: (a) The Guarantor agrees to take such action and execute and deliver such further documents as shall be reasonably required by the Bank in order to give effect to and carry out the intentions of this amending agreement. (b) The Guarantee, as amended hereby, is hereby ratified and confirmed and remains in full force and effect, binding upon the parties in accordance with their respective terms. (c) This amending agreement shall be construed in accordance with and be governed by the laws of the State of New York. (d) This amending agreement may be executed and delivered in counterparts, each of which when executed and delivered is an original, but both of which together constitute one and the same agreement. This amending agreement may be delivered, and be binding on the party so delivering, upon the provision of telefaxed execution pages. The party delivering such telefaxed execution pages shall as soon as possible thereafter (and in any event within 5 days) deliver to other party an originally executed copy. (e) The date on which this amending agreement becomes effective is the date of acceptance hereof. -3- Please acknowledge your acceptance of the above terms and conditions by signing the attached copy of this letter in the space provided below and returning it to the undersigned by no later than October 17, 2002, failing which this agreement shall be null and void and without effect. Yours truly, ROYAL BANK OF CANADA By: /s/ B R Baker ------------------------- Name/Title: Barry Baker Senior Manager -4- We acknowledge and accept the terms and conditions of this amending agreement as of the day of October, 2002. STEELCASE INC. By: /s/ Gary P. Malburg ------------------------- Name/Title: Gary P. Malburg / V. P. Treasurer --------------------------------------- EX-4.37 9 dex437.txt 3RD AMENDMENT TO LOAN AGREEMENT DATED 11/05/2002 EXECUTIVE VERSION EXHIBIT 4.37 THIRD AMENDMENT TO LOAN AGREEMENT THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment"), dated as of November 5, 2002, is by and among Steelcase SAS, a Societe par Actions Simplifiee organized and existing under the laws of the Republic of France (the "Borrower"), Steelcase Inc., a Michigan corporation (the "Guarantor"), and Societe Generale, a bank organized and existing under the laws of the Republic of France, acting through its Chicago Branch (the "Lender"). WHEREAS, the Borrower, the Guarantor and the Lender are parties to that certain Loan Agreement dated as of April 9, 1999, as amended by that certain First Amendment to Loan Agreement dated as of June 15, 2001, and as further amended by that certain Second Amendment to Loan Agreement dated as of November 9, 2001 (as further amended hereby and from time to time hereafter amended, restated, supplemented or otherwise modified and in effect, the "Loan Agreement"), pursuant to which the Lender has made certain loans to the Borrower; and WHEREAS, the Borrower and the Guarantor have requested that the Lender amend certain provisions of the Loan Agreement, and the Lender is willing to so amend the Loan Agreement pursuant to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Loan Agreement. 2. Amendment of Loan Agreement. The Loan Agreement is hereby amended as follows: (a) Section 1 of the Loan Agreement is amended by inserting the following new definition therein in alphabetical order: "SFSI" shall mean Steelcase Financial Services Inc., a Michigan corporation, and a wholly-owned Subsidiary of the Guarantor. (b) The definition of "Debt" in Section 1.15 is hereby amended to add the parenthetical phrase "(other than trade accounts payable arising in the ordinary course of business no more than 60 days past due)" after the phrase "property or services" in clause (i) thereof. (c) Section 10.1.1 is hereby amended in its entirety to read as follows: "10.1.1 Liens, Etc. The Guarantor will not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien upon or with respect to any of the properties, income or assets of the Guarantor or such Subsidiary, whether now owned or hereafter acquired, in each case to secure or provide for the payment of any Debt of any Person, unless the obligations of the Guarantor hereunder shall be secured equally and ratably with, or prior to, any such Debt; provided however that the foregoing restriction shall not apply to the following Liens which are permitted: (i) Liens on any property, income or asset of any Subsidiary of the Guarantor existing at the time such Person becomes a Subsidiary (other than any such Lien created in contemplation of becoming a Subsidiary); (ii) purchase money Liens upon or in any property or asset acquired or held by the Guarantor or any Subsidiary in the ordinary course of business to secure the purchase price of such property or asset or to secure Debt incurred solely for the purpose of financing the acquisition of such property or asset (provided that the amount of Debt secured by such Lien does not exceed 100% of the purchase price of such property and transaction costs relating to such acquisition) and Liens existing on such property or asset at the time of its acquisition (other than any such Lien created in contemplation of such acquisition); and the interest of the lessor thereof in any property that is subject to a capital lease; (iii) any Lien securing Debt that was incurred prior to or during construction or improvement of property or within 365 days after the completion of such construction or improvement for the purpose of financing all or part of the cost of such construction or improvement, provided that (A) any such Lien shall extend solely to such property constructed or improved and (B) the amount of Debt secured by such Lien does not exceed 100% of the fair market value of such property after giving effect to such construction or improvement; (iv) any Lien securing Debt that was incurred for the purpose of financing all or part of the manufacturing facility currently under construction in Kent County, Michigan, provided that (A) any such Lien shall extend solely to such facility and the property related thereto and (B) the amount of Debt secured by such Lien does not exceed an amount equal to the lesser of $70,000,000 and 100% of the fair market value of such facility and property after giving effect to completion of such construction; (v) any Lien securing Debt of a Subsidiary owing to the Guarantor; (vi) Liens resulting from any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Debt secured by any Lien referred to in clauses (i), (ii), (iii) and (iv) above so long as (x) the aggregate principal amount of such Debt shall not exceed the amount otherwise permitted in clauses (i), (ii), (iii) or (iv), as relevant, as a result of such extension, renewal or replacement and (y) Liens resulting from any such extension, renewal or replacement shall -2- cover only such property which secured the Debt that is being extended, renewed or replaced; (vii) Liens on receivables securing Debt of SFSI or any Subsidiary of SFSI, so long as the obligations of SFSI or such Subsidiary secured by such Liens are nonrecourse to the Guarantor or any of its Subsidiaries other than SFSI or such Subsidiary, provided that the Guarantor may enter into, and be liable in respect to, a limited performance guaranty regarding the accuracy of any customary representations and warranties made by SFSI or such Subsidiary in respect of such receivables and the billing, monitoring and collection functions of SFSI or such Subsidiary, as servicer, in respect of such receivables, and provided further that at any time, the aggregate outstanding amount of Debt of SFSI and its Subsidiaries that is secured by such receivables does not exceed $500,000,000; and (viii) Liens other than Liens permitted in clauses (i) through (vii) hereof, whether now existing or hereafter arising, securing Debt in an aggregate amount not exceeding $75,000,000." (d) Section 10.2.3. Section 10.2.3 is hereby amended in its entirety to read as follows: "10.2.3 Minimum Interest Coverage Ratio. The Guarantor will not permit the ratio of (A) EBITDA to (B) interest expense of the Guarantor and its Subsidiaries on a consolidated basis, in each case for the four fiscal quarters ending on the last day of any fiscal quarter of the Guarantor to be: (i) in respect of the fiscal quarter ending November 22, 2002, less than 3.00:1.00; (ii) in respect of the fiscal quarter ending February 28, 2003, less than 3.50:1.00; (iii) in respect of the fiscal quarter ending May 30, 2003, less than 4.00:1.00; and (iv) in respect of any fiscal quarter ending after May 30, 2003, less than 4.50:1.00." 3. Representations and Warranties. In order to induce the Lender to enter into this Amendment, each of the Borrower and the Guarantor hereby represents and warrants to the Lender that: (a) Power; Authority. It is validly existing in the jurisdiction in which it has been organized; it has the power and authority to enter into this Amendment; and this Amendment constitutes its legal, valid and binding obligations and is enforceable against it in accordance with its terms. (b) No Default. After giving effect to this Amendment, no Event of Default shall have occurred and be continuing. 4. Conditions to Effectiveness. The effectiveness of this Amendment is expressly conditioned upon: (i) the Borrower delivering to the Lender this Amendment executed by the Borrower, the Guarantor and the Lender; and (b) the payment by, or on behalf of, the Borrower to the Lender of an amendment fee in the amount of $11,463. -3- 5. Ratification. Each of the Guaranty and, except as specifically amended hereby, the Loan Agreement shall remain unchanged and continue in full force and effect and the Borrower and the Guarantor hereby ratify and confirm the Guaranty and the Loan Agreement, as amended hereby. After the execution of this Amendment by all parties, any references to the "Loan Agreement" or the "Agreement" in the Loan Agreement, the Note, the Guaranty, the Participation Agreement or any other document in connection therewith shall be to the Loan Agreement, as amended hereby. 6. Miscellaneous. (a) Successors and Assigns. This Amendment shall be binding upon and shall be enforceable by the Borrower, the Lender and their respective permitted successors and assigns; provided that the Borrower shall have no right to assign or transfer its rights or obligations hereunder without the prior written consent of the Lender. The terms and provisions of this Amendment are for the purpose of defining the relative rights and obligations of Borrower and Lender with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment. (b) Entire Agreement. This Amendment and all documents referred to herein constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede any prior expressions of intent or understandings with respect to this Amendment. (c) Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (d) Severability. Wherever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. (e) Counterparts. This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. (f) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York (including without limitation Sections 5-1401 and 5-1402 of the New York General Obligations Law) without giving effect to the principles of conflicts of law. [signature page follows] -4- IN WITNESS WHEREOF, this Third Amendment to Loan Agreement has been duly executed as of the date first written above. STEELCASE SAS, as Borrower By: /s/ Yvan Stehly ---------------------------------- Name: Stehly Yvan -------------------------------- Title: President ------------------------------- STEELCASE INC., as Guarantor By: /s/ Gary P. Malburg ---------------------------------- Name: Gary P. Malburg -------------------------------- Title: V P & Treasurer ------------------------------- SOCIETE GENERALE, as Lender By: /s/ Eric E.O. Siebert Jr. ---------------------------------- Name: Eric E.O. Siebert Jr. -------------------------------- Title: Director ------------------------------- [Third Amendment to Loan Agreement] EX-10.32 10 dex1032.txt RESIGNATION AGREEMENT DATED 09/27/2002 EXHIBIT 10.32 September 27, 2002 HAND DELIVERED Mr. James R. Stelter Re: Resignation Agreement Dear Jim: This letter shall serve as the resignation agreement between you and Steelcase Inc. based on your voluntary resignation of employment with the company (the "Agreement"). As used in this Agreement, the term "Steelcase" or "company" shall include Steelcase Inc., its divisions, subsidiaries, affiliates, joint ventures and past, present or future officers, directors, shareholders, employees, agents and representatives. You have been employed by Steelcase for approximately twenty-five years and presently serve as Senior Vice President, Sales, Marketing and Dealer Alliances. We have agreed that it is in the mutual interest of you and the company for Steelcase to accept your voluntary resignation from employment. In consideration of certain compensation and benefits offered by Steelcase, you have agreed to make certain commitments as set forth herein. This Agreement fully and finally concludes the employment relationship between you and the company on the terms and conditions that follow: 1. Resignation. This Agreement includes your voluntary resignation from employment with Steelcase effective November 15, 2002 and the company's acceptance of such resignation. James R. Stelter September 27, 2002 Page 2 2. Severance Payment. Your acceptance of this Agreement entitles you to receive a severance payment in the total amount of Four Hundred Fourteen Thousand One Hundred Ninety Four Dollars ($414,194), less any applicable payroll taxes and deductions, and the deduction of one week's base pay that was advanced to you (and all other employees) when the Company converted payroll systems in 1999. The severance payment is comprised of two components, as follows: (1) the amount of Three Hundred Nineteen Thousand Eight Hundred Dollars ($319,800), which represents thirteen (13) months of your current base salary compensation; and (2) the amount of Ninety Four Thousand Three Hundred Ninety Four Dollars ($94,394) which represents the long-term bonus bank in the Management Incentive Plan otherwise forfeited upon the severance of your employment with the company. 3. Covenant Not to Compete. In consideration of Steelcase's payments under this agreement, you covenant and agree that for a period of three (3) years from the effective date of your resignation, you shall not directly or indirectly, whether as an employee, employer, officer, director, owner, partner, member, investor, shareholder, independent contractor, consultant, agent, representative, volunteer or in any other capacity perform professional or technical services or solicit business on behalf of yourself, or any other person, entity or business in competition with any line of business in which Steelcase is or has been engaged as of the date of this agreement and any line of business in which Steelcase may be engaged in the future which is reasonably related to Steelcase's current operations. "Line of business" shall be defined to include all product and service lines of business, and specifically any and all products and product concepts (whether or not commercialized or reduced to practice) that Steelcase has conceived, considered, researched, developed, marketed or produced before or during the tenure of your employment with the company. Notwithstanding the foregoing obligations, it is expressly understood between you and the Company that good faith negotiations will be conducted to explore future business opportunities between the parties that may supplement or amend the noncompete obligations set forth in this Agreement, as provided under paragraph 18. During the restrictive time period you also agree, in any of the capacities defined above, not to directly or indirectly (a) divert or attempt to divert any James R. Stelter September 27, 2002 Page 3 business from Steelcase or any entity distributing Steelcase products ("Steelcase distributor"), solicit any current or past customer of Steelcase or any Steelcase distributor, or attempt to influence any customer of Steelcase or any Steelcase distributor; or (b) hire, solicit, contact or attempt to hire or solicit any employee or representative of Steelcase for the purpose of inducing that person to end his/her employment or business relationship with Steelcase whether to enter into an employment or other business relationship with any other entity, or for any other purpose. If you breach or attempt to breach this covenant not to compete, Steelcase shall be entitled to an immediate injunction or restraining order, in addition to all other remedies available under law or equity, from a court of competent jurisdiction enforcing the terms of the noncompete provision, and, if Steelcase is successful in enforcing the terms of this noncompete provision, you shall be liable to Steelcase for all reasonable attorney's fees, costs and expenses incurred by Steelcase in enforcing the noncompete provision. If any court of competent jurisdiction shall at any time deem the foregoing time period too lengthy or the scope of the covenants too broad, the restrictive time period shall be deemed to be the longest period permissible by law, and the scope shall be deemed to comprise the largest scope permissible by law under the circumstances. As additional consideration for your obligations under this Agreement, you will receive the following payments contingent upon your faithful compliance with the terms of this covenant not to compete: a) the amount of Four Hundred Ninety Six Thousand Four Hundred Fifty Dollars ($496,450) payable on November 15, 2002; b) the amount of Two Hundred Eighty Six Thousand Five Hundred Fifty Dollars ($286,550) payable on November 15, 2005; In the event that you violate your obligations under this covenant not to compete you shall forfeit the right to receive the additional payments described above. You acknowledge and agree that any such forfeiture shall in no way James R. Stelter September 27, 2002 Page 4 impair the validity and enforceability of the provisions of this covenant not to compete. 4. Health Care Coverage. Under C.O.B.R.A. you may be eligible to purchase medical and dental insurance at the Steelcase group rate plus a nominal charge. As part of the consideration for your obligations under this Agreement, Steelcase agrees to pay the amount of Seven Thousand Three Hundred Twenty Six Dollars ($7,326) representing health care premiums for 12 months of C.O.B.R.A. coverage following the effective date of your resignation. 5. Other Benefits. Regardless of your acceptance of this Agreement, you are entitled to receive any vested portion of your Profit Sharing, Money Purchase, 401(k) and Restoration Retirement plan accounts. You will also receive payment of unused regular vacation, accrued vacation and personal days, less applicable payroll taxes. Any outstanding loan balances against any such accounts, or other company loans, are payable at the time of separation from employment and may be arranged by contacting the Benefits Department. 6. Executive Outplacement. As part of the consideration for your obligations under this Agreement, you are also eligible for executive outplacement assistance through Right Management Consultants, of 2025 East Beltline SE, Grand Rapids, Michigan 49546, as described in Exhibit A attached. 7. Release. In consideration of the various payments and benefits provided to you under the terms of this Agreement, you hereby release and forever discharge Steelcase Inc., its divisions, subsidiaries, affiliates, joint ventures and their past, present or future officers, directors, shareholders, employees, agents and representatives, from any and all claims, causes of action, demands, rights, damages, liability, costs or expenses, of every kind and description, whether known or unknown, which you may now have or hereafter acquire, whether arising out of or in any way connected, directly or indirectly, with your employment and/or separation from employment with Steelcase, or arising from any other circumstances involving the company's interests, including but not limited to protection or enforcement of the company's confidential and proprietary information. This release is intended as a general release, including all claims whatsoever, whether arising under state or Federal laws of the United States of America or any other country and whether founded James R. Stelter September 27, 2002 Page 5 upon contract, tort, statute or regulation, wrongful discharge or discrimination, and specifically includes claims under the Age Discrimination in Employment Act of 1967, as amended, 20 U.S.C. Section 621 et.seq. This waiver of rights and release of claims is knowing and voluntary. The invalidity in whole or in part of any provision of this release shall not effect the validity of any other provision. 8. Review and Consultation. You are advised to consult an attorney before executing this Agreement. Upon execution you acknowledge that you have had sufficient opportunity to review the Agreement and to consult with advisors and attorneys of your choice concerning its terms and conditions. Execution of this Agreement further acknowledges your full and complete understanding of the terms and their significance, and that those terms have been accepted freely and voluntarily, thereby binding you and your heirs, successors, personal representatives and assigns. 9. Period for Consideration or Revocation. It is acknowledged that Steelcase will provide you with a period of forty-five (45) days from the date this Agreement is first presented to you in which to consider it. For a period of seven (7) days following the execution of this Agreement, you may revoke it by notifying me in writing. If not revoked in this matter, this Agreement will become effective on the eighth day following its execution. 10. Confidential Information. You acknowledge that in the course of your employment with Steelcase you have had access to and control of confidential and proprietary information related to Steelcase's business, and that you have been and will continue to be under an obligation not to disclose to any third party, nor use for your benefit or the benefit of any third party, any trade secrets, confidential information or proprietary information concerning the financial and business affairs of Steelcase or any of its divisions, subsidiaries, affiliates, joint ventures or related entities, except as may be required by law. "Confidential and proprietary information" includes, but is not limited to, financial statements, marketing plans, product research and development, sales plans, ideas or other information regarding Steelcase's objectives and strategies and any information about the business and practices of Steelcase that was obtained during your course of employment or as a consultant with the company. You agree that any documents in your possession including such information shall be expeditiously returned to Steelcase. You also acknowledge James R. Stelter September 27, 2002 Page 6 that such confidential and proprietary information will not be disclosed, published, presented in lectures or other forums or otherwise used by you in any manner. The parties agree that any breach or threatened breach of this provision would cause irreparable harm to Steelcase, that no adequate remedy exists at law or in damages for such a breach or threatened breach, and that Steelcase shall be entitled to an immediate injunction or restraining order in addition to any other remedies that may be available by law or equity. 11. Confidentiality of Agreement. It is mutually agreed that the terms of this Agreement are confidential and shall not be disclosed to any third party, except as required by law or in order to enforce the terms of this Agreement. You may, of course, disclose the terms of this Agreement to legal or financial advisors on a confidential basis for the sole purpose of obtaining legal or tax advice concerning the terms of this Agreement. 12. Stock Options. Under the terms of the Steelcase Inc. Incentive Compensation Plan any unvested stock options you have been awarded are terminated and forfeited as a result of your severance from employment with the company. Vested stock option grants will be exercisable within two years following the effective date of this Agreement. 13. Executive Supplemental Retirement Plan. You acknowledge and agree that under the terms of the company's Executive Supplemental Retirement Plan (the "Plan") you forfeit any rights or participation in the benefits under the Plan as a result of your resignation of employment with the Company and that the Company has no present or future liability regarding your participation in the Plan. James R. Stelter September 27, 2002 Page 7 14. Disposition of Company Property. Any company-owned property in your possession, including any office equipment or other items, shall be delivered to a designated company representative. 15. Corporate Credit Cards. You agree to immediately discontinue the use of any credit cards issued to you by or through Steelcase and to return any such credit cards to an authorized Steelcase representative. In addition, you agree to promptly submit any expense reports required to account for outstanding charges and to cooperate in the process of reconciling any such charges with your expense reports. Any personal expenses incurred through use of company credit cards, or otherwise charged to the company, shall either be separately reimbursed by you or deducted from your severance payment. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Michigan, U.S.A. 17. Jurisdiction. You agree that any dispute arising under this Agreement shall be filed, heard and decided in either Kent County Circuit Court (Michigan) or the United States District Court for the Western District of Michigan. You also agree to subject yourself to the personal jurisdiction and venue of the identified courts regardless of where you may be located at the time of the proceeding. 18. Entire Agreement. This Agreement contains the entire understanding of the parties and there are no additional promises, representations, assurances, terms or provisions between the parties other than those specifically set forth herein. This Agreement may not be amended except in writing signed by you and an officer of Steelcase. James R. Stelter September 27, 2002 Page 8 If you agree with the foregoing, please execute both of the enclosed original copies of this letter and return one to me. Very truly yours, /s/ J. Hackett James P. Hackett READ, UNDERSTOOD AND ACCEPTED By: /s/ James R. Stelter 11/15/02 ------------------------------------- James R. Stelter Date: 11-15-02 ----------------------------------- Witness: /s/ Karen Koetsier -------------------------------- EX-99.1 11 dex991.txt CERTIFICATION OF CEO AND CFO EXHIBIT 99.1 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 quarterly period ended November 22, 2002 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 James P. Keane, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that, to the best of 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 Date: January 3, 2003 /s/ James P. Keane ---------------------------------- Name: James P. Keane Title: Senior Vice President, Chief Financial Officer Date: January 3, 2003 This certification accompanies the Report pursuant to (S) 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 (S)18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----