Steelcase Reports First Quarter Results

Results Include Modest Organic Revenue Growth and Improved Operating Results

GRAND RAPIDS, Mich., June 21, 2010 -- Steelcase Inc. (NYSE:SCS) today reported a first quarter net loss of $(11.1) million, or $(0.08) per share, including an $(11.4) million charge resulting from the recently enacted healthcare reform legislation specifically related to the Medicare Part D Subsidy. Steelcase reported break-even net income in the first quarter of the prior year.

First quarter revenue of $541.8 million, in comparison to prior year, was negatively impacted by $(14) million from the deconsolidation of dealers completed in the last twelve months and positively impacted by approximately $6 million of favorable currency translation effects.   Adjusted for these impacts, the company experienced organic revenue growth of one percent over the prior year.

"After six straight quarters of year-over-year revenue declines during this current industry downturn, we are pleased with the organic revenue growth in the first quarter," said James P. Hackett, president and CEO. "Even though the growth was modest, our operating results improved significantly as a result of our cost reduction efforts over the past two years."

The current quarter operating loss of $(1.4) million represents an improvement of $3.8 million over the prior year operating loss of $(5.2) million which included $16.8 million of income associated with an increase in cash surrender value of variable life company-owned life insurance policies (variable life COLI income).  Current quarter results include $(2.5) million of restructuring costs compared to  $(2.8) million of restructuring costs in the prior year.   Adjusted for these items, first quarter adjusted operating income of $1.1 million improved $20.3 million compared to the prior year adjusted operating loss of $(19.2) million.

"The $20 million year-over-year improvement in adjusted operating income is a reflection of our commitment to reduce our cost structure in response to current volume levels," said David C. Sylvester, vice president and CFO. "As the recovery begins to take shape, we remain committed to cost containment efforts in order to allow for maximum leverage from volume growth."

Cost of sales improved to 69.9 percent of sales in the quarter from 70.9 percent in the prior year, primarily due to benefits from restructuring activities and other cost reduction efforts and lower commodity costs, and despite lower variable life COLI income in the current quarter.

Operating expenses in the first quarter, which included the reinstatement of salaries to fiscal 2009 levels, were $161.9 million compared with $161.0 million in the prior year.  Benefits from prior restructuring activities and other cost reduction efforts and the effect of dealer deconsolidations offset lower variable life COLI income and the reinstatement of salaries.    

The income tax expense recorded in the quarter included an $11.4 million charge resulting from the recently enacted healthcare reform legislation specifically related to the Medicare Part D Subsidy.

Other income, net increased $4.5 million over the prior year to $1.8 million, driven largely by $4.0 million of variable life COLI income, which is now recorded as a non-operating item given the designation of these assets as an additional source of corporate liquidity.

Cash, short-term investments and the cash surrender value of variable life company-owned life insurance totaled $243.8 million and total debt was $298.7 million at end of the first quarter.

Outlook

All reporting segments experienced year-over-year order growth during the first quarter.  The company expects second quarter fiscal 2011 revenue to be in the range of $560 to $585 million. This estimate includes an assumption of approximately $(14) million from unfavorable currency translation effects. The company reported revenue of $578.1 million in the second quarter of fiscal 2010, which included $13 million of revenue from dealers which have since been deconsolidated. Adjusting for these impacts, the company projects organic revenue growth in the range of 2 to 6 percent over the prior year.

Steelcase expects to report net income of $0.01 to $0.05 per share for the second quarter of fiscal 2011, including approximately $(4) million of pre-tax restructuring costs. This compares to break-even earnings per share in the second quarter of fiscal 2010, which included $(17.4) million of pre-tax restructuring costs and significant variable life COLI income. 

"We stayed focused on our long-term strategy during the industry downturn," said James P. Hackett, president and CEO. "Now, with positive momentum from the first quarter and the expected organic growth in the second quarter, we continue to believe we could achieve modest organic revenue growth in fiscal 2011 over last year."

Business Segment Footnotes

1. The North America segment serves customers in the U.S. and Canada mainly through independent dealers. The North America segment includes a portfolio of integrated architecture, furniture and technology solutions marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Turnstone, Details and Nurture by Steelcase brands.
2. The International segment serves customers outside of the U.S. and Canada primarily under the Steelcase brand, with an emphasis on freestanding furniture systems, storage and seating solutions.
3. The Other category includes the Coalesse Group, PolyVision and IDEO. The Coalesse Group consists of the Coalesse and Designtex brands. Coalesse is a premium furnishings brand that serves the markets of executive office, conference, lounge, teaming environments and residential live/work solutions.
4. Corporate expenses include unallocated portions of executive and shared services functions such as information technology, human resources, finance, legal, research and development and corporate facilities.
    

Webcast

Steelcase will discuss first quarter fiscal year 2011 results and business outlook on a conference call and webcast at 10:00 a.m. EDT tomorrow. Links to the webcast are available at ir.steelcase.com. Related presentation slides will be available on the company's website shortly after the press release is issued.

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flow of the company. Pursuant to the requirements of Regulation G, the company has provided a reconciliation above of non-GAAP financial measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures used within the company's earnings release are: (1) organic revenue growth (decline), which represents the change in revenue over the prior year excluding currency translation effects and the impact of dealer deconsolidations; and (2) adjusted operating income (loss), which represents operating income (loss), excluding restructuring items and income associated with changes in the cash surrender value of variable life company-owned life insurance policies (variable life COLI income). These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors. 

Forward-looking Statements

From time to time, in written and oral statements, the company discusses its expectations regarding future events and its plans and objectives for future operations. These forward-looking statements generally are accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project," or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from the company's expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; restructuring activities; currency fluctuations; changes in customer demands; and the other risks and contingencies detailed in the company's most recent Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission. Steelcase undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

About Steelcase Inc.

Steelcase Inc. helps create great experiences - wherever work happens.  Our brands offer a comprehensive portfolio of workplace furnishings, products and services, inspired by nearly 100 years of insight gained serving the world's leading organizations. We are globally accessible through a network of channels, including over 650 dealers. We design for social, economic and environmental sustainability.  Steelcase is a global, publicly traded company leading our industry with fiscal 2010 revenue of $2.3 billion.

The Steelcase Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7606

CONTACT:  Steelcase Inc. 
          Investor Contact:
          Raj Mehan, Investor Relations 
            (616) 698-4734
          Media Contact:
          Jeanine Holquist, Public Relations
            (616) 698-3765

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