Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended August 28, 2015
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to
Commission File Number 1-13873
___________________________________________________________
STEELCASE INC.
(Exact name of registrant as specified in its charter)
Michigan
 
38-0819050
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. employer identification no.)
901 44th Street SE
Grand Rapids, Michigan
(Address of principal executive offices)
 
49508
(Zip Code)  

(Registrant’s telephone number, including area code) (616) 247-2710
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ      No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
 
 
Large accelerated filer  þ
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ
As of September 22, 2015 , Steelcase Inc. had 90,214,250  shares of Class A Common Stock and 31,935,413  shares of Class B Common Stock outstanding.
 

Table of Contents

STEELCASE INC.
FORM 10-Q


FOR THE QUARTERLY PERIOD ENDED August 28, 2015

INDEX

 
 
Page No. 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements:

STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in millions, except per share data)

 
Three Months Ended
Six Months Ended
 
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Revenue
$
819.0

 
$
786.7

 
$
1,524.5

 
$
1,509.8

Cost of sales
547.9

 
536.1

 
1,032.9

 
1,040.6

Restructuring costs (benefits)
4.3

 
6.2

 
8.2

 
(4.3
)
Gross profit
266.8

 
244.4

 
483.4

 
473.5

Operating expenses
199.7

 
191.4

 
384.8

 
383.3

Restructuring costs
7.0

 
0.2

 
5.0

 
1.0

Operating income
60.1

 
52.8

 
93.6

 
89.2

Interest expense
(4.3
)
 
(4.4
)
 
(8.8
)
 
(8.8
)
Investment income
0.5

 
0.5

 
0.9

 
0.9

Other income, net
2.2

 
3.2

 
4.3

 
6.7

Income before income tax expense
58.5

 
52.1

 
90.0

 
88.0

Income tax expense
21.3

 
21.6

 
32.8

 
36.5

Net income
$
37.2

 
$
30.5

 
$
57.2

 
$
51.5

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.30

 
$
0.24

 
$
0.46

 
$
0.41

Diluted
$
0.30

 
$
0.24

 
$
0.45

 
$
0.41

Dividends declared and paid per common share
$
0.1125

 
$
0.1050

 
$
0.2250

 
$
0.2100

    

See accompanying notes to the condensed consolidated financial statements.

1
Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in millions)

 
Three Months Ended
Six Months Ended
 
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Net income
$
37.2

 
$
30.5

 
$
57.2

 
$
51.5

Other comprehensive income (loss), net:
 
 
 
 
 
 
 
Unrealized gain (loss) on investments
(0.2
)
 
(0.1
)
 
(0.2
)
 
—

Pension and other post-retirement liability adjustments
(1.2
)
 
(1.3
)
 
(2.3
)
 
(2.6
)
Foreign currency translation adjustments
(3.2
)
 
(2.3
)
 
(6.8
)
 
(1.6
)
Total other comprehensive loss, net
(4.6
)
 
(3.7
)
 
(9.3
)
 
(4.2
)
Comprehensive income
$
32.6

 
$
26.8

 
47.9

 
47.3


See accompanying notes to the condensed consolidated financial statements.


2
Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
 
(Unaudited)
 
 
August 28,
2015
February 27,
2015
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
161.4

 
$
176.5

Short-term investments
45.9

 
68.3

Accounts receivable, net of allowances of $14.3 and $14.6
368.9

 
325.6

Inventories
176.8

 
166.2

Deferred income taxes
40.0

 
46.4

Prepaid expenses
22.8

 
16.5

Other current assets
44.5

 
55.5

Total current assets
860.3

 
855.0

Property, plant and equipment, net of accumulated depreciation of $953.5 and $1,055.9
403.6

 
389.5

Company-owned life insurance ("COLI")
160.8

 
159.5

Deferred income taxes
94.5

 
100.1

Goodwill
106.7

 
107.2

Other intangible assets, net of accumulated amortization of $42.1 and $41.1
14.7

 
14.7

Investments in unconsolidated affiliates
59.2

 
59.1

Other assets
34.6

 
34.5

Total assets
$
1,734.4

 
$
1,719.6

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 

 
 

Accounts payable
$
227.5

 
$
215.0

Short-term borrowings and current maturities of long-term debt
2.5

 
2.5

Accrued expenses:
 

 
 

Employee compensation
128.2

 
151.9

Employee benefit plan obligations
23.2

 
29.4

Customer deposits
33.2

 
25.1

Product warranties
25.3

 
22.4

Other
108.7

 
99.0

Total current liabilities
548.6

 
545.3

Long-term liabilities:
 

 
 

Long-term debt less current maturities
278.8

 
279.6

Employee benefit plan obligations
155.2

 
158.2

Other long-term liabilities
62.8

 
72.7

Total long-term liabilities
496.8

 
510.5

Total liabilities
1,045.4

 
1,055.8

Shareholders’ equity:
 

 
 

Common stock
—

 
—

Additional paid-in capital
11.4

 
5.0

Accumulated other comprehensive loss
(38.7
)
 
(29.4
)
Retained earnings
716.3

 
688.2

Total shareholders’ equity
689.0

 
663.8

Total liabilities and shareholders’ equity
$
1,734.4

 
$
1,719.6

See accompanying notes to the condensed consolidated financial statements.

3
Table of Contents

STEELCASE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in millions)

 
Six Months Ended
 
August 28,
2015
August 29,
2014
OPERATING ACTIVITIES
 

 
 

Net income
$
57.2

 
$
51.5

Depreciation and amortization
32.6

 
29.3

Deferred income taxes
13.3

 
18.1

Non-cash restructuring costs (benefits)
13.2

 
(3.3
)
Non-cash stock compensation
14.2

 
12.6

Equity in income of unconsolidated affiliates
(6.6
)
 
(7.4
)
Dividends received from unconsolidated affiliates
6.6

 
5.4

Other
(1.0
)
 
(3.5
)
Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable
(40.2
)
 
(43.2
)
Inventories
(9.4
)
 
(32.5
)
Assets related to derivative instruments
22.9

 
(4.7
)
Other assets
(20.3
)
 
(10.4
)
Accounts payable
12.4

 
32.2

Employee compensation liabilities
(41.1
)
 
(54.5
)
Employee benefit obligations
(12.4
)
 
(9.4
)
Accrued expenses and other liabilities
12.3

 
3.6

Net cash provided by (used in) operating activities
53.7

 
(16.2
)
INVESTING ACTIVITIES
 

 
 

Capital expenditures
(47.4
)
 
(44.3
)
Proceeds from disposal of fixed assets
4.2

 
19.1

Purchases of short-term investments
(14.8
)
 
(58.6
)
Liquidations of short-term investments
37.1

 
105.1

Acquisitions, net of cash acquired
(6.9
)
 
—

Other
0.3

 
11.0

Net cash provided by (used in) investing activities
(27.5
)
 
32.3

FINANCING ACTIVITIES
 

 
 

Dividends paid
(29.1
)
 
(26.6
)
Common stock repurchases
(11.9
)
 
(34.3
)
Excess tax benefit from vesting of stock awards
3.0

 
0.2

Repayments of long-term debt
(1.2
)
 
(1.2
)
Net cash used in financing activities
(39.2
)

(61.9
)
Effect of exchange rate changes on cash and cash equivalents
(2.1
)
 
(0.3
)
Net decrease in cash and cash equivalents
(15.1
)
 
(46.1
)
Cash and cash equivalents, beginning of period
176.5

 
201.8

Cash and cash equivalents, end of period
$
161.4

 
$
155.7


See accompanying notes to the condensed consolidated financial statements.


4
Table of Contents

STEELCASE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions in Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended February 27, 2015 (“Form 10-K”). The Condensed Consolidated Balance Sheet as of February 27, 2015 was derived from the audited Consolidated Balance Sheet included in our Form 10-K.
As used in this Quarterly Report on Form 10-Q (“Report”), unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its subsidiaries in which a controlling interest is maintained. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
2.
NEW ACCOUNTING STANDARDS
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03,  Simplifying the Presentation of Debt Issuance Costs .  The update changes the presentation of debt issuance costs to a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. Early adoption is permitted, and the new guidance is to be applied on a retrospective basis to all prior periods. We chose to adopt these provisions in Q1 2016, which impacted our Consolidated Balance Sheet as of February 27, 2015, by reducing Other current assets and Other assets by $0.5 and $1.7 , respectively, and decreasing Long-term debt by $2.2 and impacted our Consolidated Statement of Cash Flows as of August 29, 2014 by increasing Operating Activities - Other by $0.2 and decreasing Changes in operating assets and liabilities - Other assets by $0.2 .
In May 2014, the FASB issued a new standard on revenue recognition. The new standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. The guidance was initially effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. In July 2015, the FASB deferred the effective date of the new standard by one year, resulting in the new standard being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption as of the original effective date permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
3.
EARNINGS PER SHARE
Earnings per share is computed using the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Participating securities represent restricted stock units in which the participants have non-forfeitable rights to dividend equivalents during the performance period. Diluted earnings per share includes the effects of certain performance units in which the participants have forfeitable rights to dividend equivalents during the performance period.

5
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Three Months Ended
Six Months Ended
Computation of Earnings per Share
August 28,
2015
 
August 29,
2014
August 28,
2015
 
August 29,
2014
Net income
$
37.2

 
$
30.5

 
$
57.2

 
$
51.5

Adjustment for earnings attributable to participating securities
(0.8
)
 
(0.6
)
 
(1.2
)
 
(0.9
)
Net income used in calculating earnings per share
$
36.4

 
$
29.9

 
$
56.0

 
$
50.6

Weighted-average common shares outstanding including participating securities (in millions)
124.8

 
124.8

 
124.6

 
125.0

Adjustment for participating securities (in millions)
(2.7
)
 
(2.5
)
 
(2.5
)
 
(2.3
)
Shares used in calculating basic earnings per share (in millions)
122.1

 
122.3

 
122.1

 
122.7

Effect of dilutive stock-based compensation (in millions)
1.1

 
1.2

 
1.1

 
1.3

Shares used in calculating diluted earnings per share (in millions)
123.2

 
123.5

 
123.2

 
124.0

Earnings per share:
 

 
 

 
 

 
 

Basic
$
0.30

 
$
0.24

 
$
0.46

 
$
0.41

Diluted
$
0.30

 
$
0.24

 
$
0.45

 
$
0.41

Total common shares outstanding at period end (in millions)
122.1

 
121.3

 
122.1

 
121.3

 
 
 
 
 
 
 
 
Anti-dilutive performance units excluded from computation of diluted earnings per share (in millions)
0.1

 
0.1

 
0.1

 
0.1

4.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended August 28, 2015 :
 
Unrealized gain on investments
Pension and other post-retirement liability adjustments
Foreign currency translation adjustments
Total
Balance as of May 29, 2015
$
0.8

 
$
7.4

 
$
(42.3
)
 
$
(34.1
)
 
Other comprehensive income (loss) before reclassifications
(0.2
)
 
—

 
(3.2
)
 
(3.4
)
 
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
(1.2
)
 
—

 
(1.2
)
 
Net current period other comprehensive income (loss)
(0.2
)
 
(1.2
)
 
(3.2
)
 
(4.6
)
 
Balance as of August 28, 2015
$
0.6

 
$
6.2

 
$
(45.5
)
 
$
(38.7
)
 
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended August 28, 2015 :
 
Unrealized gain on investments
Pension and other post-retirement liability adjustments
Foreign currency translation adjustments
Total
Balance as of February 27, 2015
$
0.8

 
$
8.5

 
$
(38.7
)
 
$
(29.4
)
 
Other comprehensive income (loss) before reclassifications
(0.2
)
 
—

 
(6.8
)
 
(7.0
)
 
Amounts reclassified from accumulated other comprehensive income (loss)
—

 
(2.3
)
 
—

 
(2.3
)
 
Net current period other comprehensive income (loss)
(0.2
)
 
(2.3
)
 
(6.8
)
 
(9.3
)
 
Balance as of August 28, 2015
$
0.6

 
$
6.2

 
$
(45.5
)
 
$
(38.7
)
 

6
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The following table provides details about reclassifications out of accumulated other comprehensive income for the three and six months ended August 28, 2015 and August 29, 2014 :
Detail of Accumulated Other
Comprehensive Income (Loss) Components
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line in the Condensed Consolidated Statements of Income
Three Months Ended
Six Months Ended
August 28,
2015
August 29,
2014
August 28, 2015
August 29, 2014
Amortization of pension and other post-retirement liability adjustments
 
 
 
 
 
 
 
 
 
Actuarial losses (gains)
0.1

 
—

 
0.2

 
—

 
Cost of sales
Actuarial losses (gains)
0.2

 
0.1

 
0.4

 
0.2

 
Operating expenses
Prior service cost (credit)
(1.1
)
 
(1.0
)
 
(2.1
)
 
(2.1
)
 
Cost of sales
Prior service cost (credit)
(1.2
)
 
(1.2
)
 
(2.4
)
 
(2.4
)
 
Operating expenses
 
0.8

 
0.8

 
1.6

 
1.7

 
Income tax expense
Total reclassifications
(1.2
)
 
(1.3
)
 
(2.3
)
 
(2.6
)
 
Net income
5.
FAIR VALUE
The carrying amounts for many of our financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts and notes payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. Our short-term investments, foreign exchange forward contracts and long-term investments are measured at fair value on the Condensed Consolidated Balance Sheets.
Our total debt is carried at cost and was $281.3 and $282.1 as of August 28, 2015 and February 27, 2015 , respectively. The fair value of our total debt is measured using a discounted cash flow analysis based on current market interest rates for similar types of instruments and was approximately $312 and $323 as of August 28, 2015 and February 27, 2015 , respectively. The estimation of the fair value of our total debt is based on Level 2 fair value measurements.
We periodically use derivative financial instruments to manage exposures to movements in foreign exchange rates and interest rates. The use of these financial instruments modifies the exposure of these risks with the intention to reduce our risk of short-term volatility. We do not use derivatives for speculative or trading purposes.

7
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and liabilities measured at fair value in our Consolidated Balance Sheets as of August 28, 2015 and February 27, 2015 are summarized below:
 
August 28, 2015
Fair Value of Financial Instruments
Level 1
Level 2
Level 3
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
161.4

 
$
—

 
$
—

 
$
161.4

Restricted cash
2.5

 
—

 
—

 
2.5

Managed investment portfolio and other investments
 
 
 
 
 
 
 
Corporate debt securities
—

 
17.0

 
—

 
17.0

U.S. agency debt securities
—

 
17.0

 
—

 
17.0

Asset backed securities
—

 
6.0

 
—

 
6.0

U.S. government debt securities
5.5

 
—

 
—

 
5.5

Municipal debt securities
—

 
0.3

 
—

 
0.3

Other investments
—

 
0.1

 
—

 
0.1

Foreign exchange forward contracts
—

 
1.2

 
—

 
1.2

Canadian asset-backed commercial paper restructuring notes
—

 
3.1

 
—

 
3.1

Auction rate securities
—

 
—

 
9.6

 
9.6

 
$
169.4

 
$
44.7

 
$
9.6

 
$
223.7

Liabilities
 
 
 
 
 
 
 
Foreign exchange forward contracts
—

 
(6.0
)
 
—

 
(6.0
)
 
$
—

 
$
(6.0
)
 
$
—

 
$
(6.0
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
February 27, 2015
Fair Value of Financial Instruments
Level 1
Level 2
Level 3
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
176.5

 
$
—

 
$
—

 
$
176.5

Restricted cash
2.5

 
—

 
—

 
2.5

Managed investment portfolio and other investments
 
 
 
 
 
 
 
Corporate debt securities
—

 
30.7

 
—

 
30.7

U.S. agency debt securities
—

 
24.1

 
—

 
24.1

Asset backed securities
—

 
7.7

 
—

 
7.7

U.S. government debt securities
4.3

 
—

 
—

 
4.3

Municipal debt securities
—

 
0.8

 
—

 
0.8

Other investments
—

 
0.7

 
—

 
0.7

Foreign exchange forward contracts
—

 
24.1

 
—

 
24.1

Canadian asset-backed commercial paper restructuring notes
—

 
3.4

 
—

 
3.4

Auction rate securities
—

 
—

 
9.7

 
9.7

 
$
183.3

 
$
91.5

 
$
9.7

 
$
284.5

Liabilities
 

 
 

 
 

 
 

Foreign exchange forward contracts
$
—

 
$
(3.1
)
 
$
—

 
$
(3.1
)
 
$
—

 
$
(3.1
)
 
$
—

 
$
(3.1
)


8
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Below is a roll-forward of assets and liabilities measured at fair value using Level 3 inputs for the six months ended August 28, 2015 :
Roll-Forward of Fair Value Using Level 3 Inputs
Auction Rate Securities
Balance as of February 27, 2015
$
9.7

Unrealized loss on investments
(0.1
)
Other-than-temporary impairments
—

Currency translation adjustment
—

Balance as of August 28, 2015
$
9.6

6.
INVENTORIES
Inventories
August 28,
2015
February 27,
2015
Raw materials and work-in-process
$
93.3

 
$
96.9

Finished goods
102.9

 
90.4

 
196.2

 
187.3

Revaluation to LIFO
19.4

 
21.1

 
$
176.8

 
$
166.2

The portion of inventories determined by the LIFO method was $76.3 as of August 28, 2015 and $78.1 as of February 27, 2015 .
7.
INCOME TAXES
In Q4 2015, we implemented changes in EMEA to align our tax structure with the management of our globally integrated business. Our U.S. parent company became the principal in a contract manufacturing model with our Steelcase European subsidiaries.
As of February 27, 2015, we maintained a full valuation allowance against our French net deferred tax assets due to the long history of large net operating losses in France, including losses generated in 2015 due to the fact that the contract manufacturing model was not fully implemented in 2015. Through the first half of 2016, this new model generated taxable income for our French subsidiaries and allowed for partial utilization of the net operating loss carryforwards in France. It is possible that sufficient positive evidence including, but not limited to, sustained profitability may become available in 2016 to reach a conclusion that the remaining French valuation allowance which totaled $57.5 as of August 28, 2015, could be reversed by the end of 2016. A change in judgment regarding our expected ability to realize net deferred tax assets would be accounted for as a discrete tax benefit in the period in which it occurs.
8.
SHARE-BASED COMPENSATION
Performance Units
In 2016, we awarded 268,410 performance units ("PSUs") to our executive officers. Of the PSUs awarded, 134,205 units are earned after a three-year performance period, from 2016 through 2018, based on our total shareholder return relative to a comparison group of companies, which is a market condition, and, if earned, will be issued in the form of shares of Class A Common Stock. The number of shares that may be earned can range from 0% to 200% of the target amount; therefore, the maximum number of shares that can be issued under this award is 268,410 . These PSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the performance period. We used the Monte Carlo simulation model to calculate the fair value of these PSUs on the date of grant. The model resulted in a weighted average grant date fair value of $24.15 per unit for these PSUs, compared to $23.25 and $15.50 per unit for PSUs granted in 2015 and 2014, respectively.

9
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted average grant date fair values were determined using the following assumptions:
 
2016 Awards
2015 Awards
2014 Awards
Three-year risk-free interest rate (1)
0.8
%
0.7
%
0.3
%
Expected term
3 years

3 years

3 years

Estimated volatility (2)
29.4
%
42.2
%
44.7
%
_______________________________________
(1)
Based on the U.S. government bond benchmark on the grant date.
(2)
Represents the historical price volatility of the Company’s common stock for the three-year period preceding the grant date.
The remaining 134,205 PSUs awarded during 2016 are earned after a three-year performance period, from 2016 through 2018, based on our three-year average return on invested capital, which is a performance condition, and, if earned, will be issued in the form of shares of Class A Common Stock. The number of shares that may be earned can range from 0% to 200% of the target amount; therefore, the maximum number of shares that can be issued under this award is 268,410 . These units are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the performance periods based on the probability that the performance condition will be met. The expense recorded will be adjusted as the estimate of the total number of PSUs that will ultimately be earned changes. The weighted average grant date fair value of these PSUs was $18.68 . The fair value is equal to the closing stock price on the date of grant.
For all PSUs awarded in 2016, dividend equivalents are calculated based on the actual number of shares earned at the end of the performance period equal to the dividends that would have been payable on the earned shares had they been held during the entire performance period as Class A Common Stock. At the end of the performance period, the dividend equivalents are paid in the form of cash or Class A Common Stock at the discretion of the Board of Directors. In addition, these awards will be forfeited if the participant leaves the Company for reasons other than retirement, disability or death or if the participant engages in any competition with us, as set forth in the Steelcase Inc. Incentive Compensation Plan ("Incentive Compensation Plan") and the applicable award agreements and as determined by the Administrative Committee in its discretion.
The total PSU expense and associated tax benefit for all outstanding awards for the three and six months ended August 28, 2015 and August 29, 2014 are as follows:
 
Three Months Ended
Six Months Ended
Performance Units
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Expense
$
2.9

 
$
0.9

 
$
5.4

 
$
3.5

 
Tax benefit
1.0

 
0.3

 
1.9

 
1.3

 
As of August 28, 2015 , there was $10.1 of remaining unrecognized compensation cost related to nonvested PSUs, which is expected to be recognized over a remaining weighted-average period of 2.1  years.
The PSU activity for the six months ended August 28, 2015 is as follows:
Maximum Number of Shares That May Be Issued Under Nonvested Units
Total
Weighted-Average
Grant Date
Fair Value per Unit
Nonvested as of February 27, 2015
1,418,312

$
16.63

Granted
536,820

21.42

Nonvested as of August 28, 2015
1,955,132

$
17.95

Restricted Stock Units
During the six months ended August 28, 2015 , we awarded 562,962 restricted stock units ("RSUs"), of which 111,916 were awarded to our executive officers. These RSUs have restrictions on transfer which lapse three years after the date of grant, at which time the units will be issued as unrestricted shares of Class A Common Stock. Holders of RSUs receive cash dividends equal to the dividends we declare and pay on our Class A Common Stock, which are included in Divid e nds paid on the Condensed Consolidated Statements of Cash Flows. These awards will

10
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be forfeited if a participant leaves the Company for reasons other than retirement, disability or death or if the participant engages in any competition with us, as set forth in the Incentive Compensation Plan and the applicable award agreements and as determined by the Administrative Committee in its discretion. RSUs are expensed and recorded in Additional paid-in capital on the Condensed Consolidated Balance Sheets over the requisite service period based on the value of the underlying shares on the date of grant.
The RSU expense and associated tax benefit for all outstanding awards for the three and six months ended August 28, 2015 and August 29, 2014 are as follows:
 
Three Months Ended
Six Months Ended
Restricted Stock Units
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Expense
$
2.3

 
$
2.0

 
$
8.4

 
$
8.7

 
Tax benefit
0.8

 
0.7

 
3.0

 
3.1

 
As of August 28, 2015 , there was $11.4 of remaining unrecognized compensation cost related to nonvested RSUs, which is expected to be recognized over a weighted-average period of 1.9  years.
The RSU activity for the six months ended August 28, 2015 is as follows:
Nonvested Units
Total
Weighted-Average
Grant Date
Fair Value
per Unit
Nonvested as of February 27, 2015
2,110,822

$
14.61

Granted
562,962

18.65

Vested
(18,469
)
10.97

Forfeited
(4,250
)
16.27

Nonvested as of August 28, 2015
2,651,065

$
15.51

9.
REPORTABLE SEGMENTS
Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate expenses are reported as Corporate.
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse and Turnstone brands.
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions.
The Other category includes Asia Pacific, Designtex and PolyVision. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, storage and seating solutions. Designtex designs and sells surface materials including textiles and wall coverings which are specified by architects and designers directly to end-use customers primarily in North America. PolyVision manufactures ceramic steel surfaces for use in multiple applications, but primarily for sale to third-party fabricators and distributors to create static whiteboards and chalkboards sold in the primary and secondary education markets globally.
Corporate costs include unallocated portions of shared service functions, such as information technology, human resources, finance, executive, corporate facilities, legal and research, plus deferred compensation expense and income or losses associated with COLI. Corporate assets consist primarily of unallocated cash and investment balances and the cash surrender value of COLI.

11
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue and operating income (loss) for the three and six months ended August 28, 2015 and August 29, 2014 and total assets as of August 28, 2015 and February 27, 2015 by segment are presented below:
 
Three Months Ended
Six Months Ended
Reportable Segment Statement of Operations Data
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Revenue
 

 
 

 
 
 
 
 
Americas
$
615.5

 
$
580.3

 
$
1,135.2

 
$
1,086.6

 
EMEA
128.1

 
131.1

 
248.0

 
278.7

 
Other
75.4

 
75.3

 
141.3

 
144.5

 
 
$
819.0

 
$
786.7

 
$
1,524.5

 
$
1,509.8

 
Operating income (loss)
 

 
 

 
 

 
 

 
Americas
$
91.7

 
$
80.1

 
$
145.8

 
$
133.3

 
EMEA
(24.9
)
 
(21.7
)
 
(38.4
)
 
(29.4
)
 
Other
3.4

 
3.4

 
4.3

 
3.4

 
Corporate
(10.1
)
 
(9.0
)
 
(18.1
)
 
(18.1
)
 
 
$
60.1

 
$
52.8

 
$
93.6

 
$
89.2

 

Reportable Segment Balance Sheet Data
August 28,
2015
February 27,
2015
Total assets
 

 
 

 
Americas
$
1,013.6

 
$
956.1

 
EMEA
286.7

 
290.2

 
Other
166.0

 
163.1

 
Corporate
268.1

 
310.2

 
 
$
1,734.4

 
$
1,719.6

 
10.
RESTRUCTURING ACTIVITIES
In Q1 2016, we recognized a $2.8 gain in the Americas segment related to the sale of our Corporate Development Center that was closed as part of previously announced restructuring actions.
In Q1 2016, we announced restructuring actions in EMEA related to the establishment of a Learning + Innovation Center in Munich, Germany. In Q2 2016, we completed negotiations with the works councils related to these actions. We expect to incur between $15 and $17 in restructuring costs in connection with this project, including approximately $8 to $10 in costs associated with employee and equipment moves, retention compensation and consulting costs and approximately $7 in potential employee separation costs. We incurred $5.9 of employee separation costs   in the EMEA segment in connection with these actions during the three and six months ended August 28, 2015 . We incurred $0.8 and $1.5 of other costs in the EMEA segment in connection with these actions during the three and six months ended August 28, 2015 , respectively.
In Q2 2015, we announced restructuring actions in EMEA related to the exit of a manufacturing facility in Wisches, France, and the transfer of its activities to other existing facilities in the EMEA region. We incurred $0.6 and $1.6 of business exit and other costs in the EMEA segment in connection with these actions during the three and six months ended August 28, 2015 , respectively. During 2015, we incurred $32.8 of business exit and other costs in the EMEA segment in connection with these actions including $27.3 for a facilitation payment related to the transfer of the facility to a third party. These restructuring actions are substantially complete.
In Q1 2015, we announced restructuring actions in the Americas to close a manufacturing facility in High Point, North Carolina. In connection with this project, we expect to incur approximately $8 of cash restructuring costs, with approximately $4 relating to workforce reductions and approximately $4 relating to manufacturing consolidation and production moves. We incurred $0.4 and $1.1 of employee termination costs in the Americas segment in connection with these actions during the three and six months ended August 28, 2015 , respectively. We incurred $0.3 and $0.4 of business exit and other related costs in the Americas segment in connection with these

12
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

actions during the three and six months ended August 28, 2015 , respectively. During 2015, we incurred $1.6 of employee termination costs and $0.7 of business exit and other related costs in the Americas segment in connection with these actions.
In Q1 2015, we recognized a $12.0 gain related to the sale of an idle manufacturing facility in the Americas segment that was closed as part of previously completed restructuring actions.
In Q3 2014, we announced restructuring actions in EMEA to close a manufacturing facility in Durlangen, Germany, and to establish a new manufacturing location in Stribro, Czech Republic. In connection with this project, we expect to incur approximately $23 of cash restructuring costs, with approximately $17 related to employee termination costs and approximately $6 related to business exit and other related costs. We incurred $1.7 and $3.4 of employee termination costs in the EMEA segment in connection with these actions during the three and six months ended August 28, 2015 , respectively. We incurred $1.3 and $1.7 of business exit and other related costs in the EMEA segment in connection with these actions during the three and six months ended August 28, 2015 , respectively. During 2015, we incurred $12.7 of employee termination costs and $1.6 of business exit and other related costs in the EMEA segment in connection with these actions. During 2014, we incurred $0.7 of business exit and other related costs in the EMEA segment in connection with these actions.
Restructuring costs (benefits) are summarized in the following table:
 
Three Months Ended
Six Months Ended
Restructuring Costs (Benefits)
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Cost of sales
 

 
 

 
 

 
 

Americas
$
0.7

 
$
0.7

 
$
1.5

 
$
(10.9
)
EMEA
3.6

 
5.5

 
6.7

 
6.6

Other
—

 
—

 
—

 
—

 
4.3

 
6.2

 
8.2

 
(4.3
)
Operating expenses
 

 
 

 
 

 
 

Americas
—

 
—

 
(2.8
)
 
—

EMEA
7.0

 
0.2

 
7.8

 
1.0

Other
—

 
—

 
—

 
—

 
7.0

 
0.2

 
5.0

 
1.0

 Total
$
11.3

 
$
6.4

 
$
13.2

 
$
(3.3
)
Below is a summary of the net additions, payments and adjustments to the restructuring reserve balance for the six months ended August 28, 2015 :
Restructuring Reserve
Employee
Termination Costs
Business Exits
and Related
Costs
Total
Reserve balance as of February 27, 2015
$
13.7

 
$
1.6

 
$
15.3

Additions
11.6

 
4.3

 
15.9

Payments
(2.4
)
 
(4.5
)
 
(6.9
)
Adjustments
0.1

 
—

 
0.1

Reserve balance as of August 28, 2015
$
23.0

 
$
1.4

 
$
24.4

The employee termination costs reserve balance as of August 28, 2015 primarily relates to restructuring actions in EMEA.

13

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 27, 2015 . Reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the calendar year, unless indicated by a specific date. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.
Non-GAAP Financial Measures
This item contains certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated statements of income, balance sheets or statements of cash flows of the company. Pursuant to the requirements of Regulation G, we have provided a reconciliation below of non-GAAP financial measures to the most directly comparable GAAP financial measure.
The non-GAAP financial measures used are:  (1) organic revenue growth (decline), which represents the change in revenue excluding estimated currency translation effects and the impacts of acquisitions and divestitures, and (2) adjusted operating income (loss), which represents operating income (loss) excluding restructuring costs (benefits). 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.
Financial Summary

Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate expenses are reported as Corporate.
Results of Operations
 
Three Months Ended
Six Months Ended
Statement of Operations Data
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Revenue
$
819.0

 
100.0
 %
 
$
786.7

 
100.0
 %
 
$
1,524.5

 
100.0
 %
 
$
1,509.8

 
100.0
 %
Cost of sales
547.9

 
66.9

 
536.1

 
68.1

 
1,032.9

 
67.8

 
1,040.6

 
68.9

Restructuring costs (benefits)
4.3

 
0.5

 
6.2

 
0.8

 
8.2

 
0.5

 
(4.3
)
 
(0.3
)
Gross profit
266.8

 
32.6

 
244.4

 
31.1

 
483.4

 
31.7

 
473.5

 
31.4

Operating expenses
199.7

 
24.4

 
191.4

 
24.4

 
384.8

 
25.2

 
383.3

 
25.4

Restructuring costs
7.0

 
0.9

 
0.2

 
—

 
5.0

 
0.4

 
1.0

 
0.1

Operating income
60.1

 
7.3

 
52.8

 
6.7

 
93.6

 
6.1

 
89.2

 
5.9

Interest expense
(4.3
)
 
(0.5
)
 
(4.4
)
 
(0.6
)
 
(8.8
)
 
(0.6
)
 
(8.8
)
 
(0.6
)
Investment income
0.5

 
0.1

 
0.5

 
0.1

 
0.9

 
0.1

 
0.9

 
0.1

Other income, net
2.2

 
0.2

 
3.2

 
0.4

 
4.3

 
0.3

 
6.7

 
0.4

Income before income tax expense
58.5

 
7.1

 
52.1

 
6.6

 
90.0

 
5.9

 
88.0

 
5.8

Income tax expense
21.3

 
2.6

 
21.6

 
2.7

 
32.8

 
2.1

 
36.5

 
2.4

Net income
$
37.2

 
4.5
 %
 
$
30.5

 
3.9
 %
 
$
57.2

 
3.8
 %
 
$
51.5

 
3.4
 %
Earnings per share:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Basic
$
0.30

 
 

 
$
0.24

 
 

 
$
0.46

 
 

 
$
0.41

 
 

Diluted
$
0.30

 
 

 
$
0.24

 
 

 
$
0.45

 
 

 
$
0.41

 
 



14
Table of Contents

Q2 2016 Organic Revenue Growth
Americas
EMEA
Other
Consolidated
Q2 2015 revenue
$
580.3

 
$
131.1

 
$
75.3

 
$
786.7

 
Divestitures
—

 
(0.7
)
 
—

 
(0.7
)
 
Currency translation effects*
(5.1
)
 
(20.9
)
 
(3.6
)
 
(29.6
)
 
   Q2 2015 revenue, adjusted
575.2

 
109.5

 
71.7

 
756.4

 
Q2 2016 revenue
615.5

 
128.1

 
75.4

 
819.0

 
Acquisition
$
(7.0
)
 
$
—

 
$
—

 
$
(7.0
)
 
   Q2 2016 revenue, adjusted
$
608.5

 
$
128.1

 
$
75.4

 
$
812.0

 
Organic growth $
$
33.3

 
$
18.6

 
$
3.7

 
$
55.6

 
Organic growth %
6
%
 
17
%
 
5
%
 
7
%
 
 
 
 
 
 
 
 
 
 
* Currency translation effects represent the estimated net effect of translating Q2 2015 foreign currency revenues using the average exchange rates during Q2 2016.

Year-to-Date 2016 Organic Revenue Growth
Americas
EMEA
Other
Consolidated
Year-to-date 2015 revenue
$
1,086.6

 
$
278.7

 
$
144.5

 
$
1,509.8

 
Divestitures
—

 
(2.1
)
 
—

 
(2.1
)
 
Currency translation effects*
(9.0
)
 
(48.0
)
 
(6.6
)
 
(63.6
)
 
   Year-to-date 2015 revenue, adjusted
1,077.6

 
228.6

 
137.9

 
1,444.1

 
Year-to-date 2016 revenue
1,135.2

 
248.0

 
141.3

 
1,524.5

 
Acquisition
$
(7.0
)
 
$
—

 
$
—

 
$
(7.0
)
 
Year-to-date 2016 revenue, adjusted
$
1,128.2

 
$
248.0

 
$
141.3

 
$
1,517.5

 
Organic growth $
$
50.6

 
$
19.4

 
$
3.4

 
$
73.4

 
Organic growth %
5
%
 
8
%
 
2
%
 
5
%
 
 
 
 
 
 
 
 
 
 
* Currency translation effects represent the estimated net effect of translating year-to-date 2015 foreign currency revenues using the average exchange rates during year-to-date 2016.

 
Three Months Ended
Six Months Ended
Reconciliation of Operating Income to
Adjusted Operating Income
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Operating income
$
60.1

 
7.3
%
 
$
52.8

 
6.7
%
 
$
93.6

 
6.1
%
 
$
89.2

 
5.9
 %
Add: restructuring costs (benefits)
11.3

 
1.4

 
6.4

 
0.8

 
13.2

 
0.9

 
(3.3
)
 
(0.2
)
Adjusted operating income
$
71.4

 
8.7
%
 
$
59.2

 
7.5
%
 
$
106.8

 
7.0
%
 
$
85.9

 
5.7
 %
Overview
In Q2 2016, we experienced organic revenue growth across all our segments, with the largest growth rate in EMEA. The Americas posted strong operating performance, which drove our highest quarterly consolidated adjusted operating income margin in 15 years, despite continued disruption and inefficiencies associated with our manufacturing footprint changes in EMEA and other manufacturing and distribution issues in EMEA which arose during the quarter. We recorded significant restructuring costs during the quarter associated with our EMEA manufacturing footprint changes, which are nearing completion, and the relocation of activities to our new Learning + Innovation Center in Munich, Germany.
Q2 2016 Compared to Q2 2015
We recorded net income of $37.2 in Q2 2016  and $30.5 in Q2 2015 . The increase was driven by operating improvements in the Americas and benefits associated with a lower effective income tax rate, partially offset by higher restructuring costs in EMEA in the current year.
Revenue was $819.0 in Q2 2016 compared to $786.7 in Q2 2015 . The revenue growth was led by 6% growth in the Americas which was driven by increased unit volume, with approximately 1% of the growth rate attributable to improved pricing. The revenue comparison in EMEA reflected $20.9 of unfavorable currency

15
Table of Contents

translation effects, partially offset by increased unit volume and minimal benefits from improved pricing. Organic revenue growth was $55.6 or 7% compared to the prior year, with growth of 6% in the Americas, 17% in EMEA and 5% in the Other category.
Operating income was $60.1 or 7.3% of sales in Q2 2016 compared to $52.8 or 6.7% of sales in the prior year. The increase was driven by strong operating performance in the Americas. In EMEA, benefits associated with the organic revenue growth were largely offset by an increase in cost of sales as a percentage of revenue and a $4.9 increase in restructuring costs. Adjusted operating income increased by $12.2 or 20.6% to $71.4 in Q2 2016 compared to the prior year, and the Q2 2016 adjusted operating income margin of 8.7% represented a 120 basis point improvement compared to Q2 2015 .
Cost of sales was 66.9% of revenue in Q2 2016 , which represented a 120  basis point decrease compared to Q2 2015 . The improvement was primarily driven by a 190 basis point improvement in the Americas due to improvements in negotiated pricing, lower material, freight and distribution costs and benefits of other cost reduction efforts, partially offset by a 290 basis point decline in EMEA driven by manufacturing and distribution issues which arose during the current quarter and lower absorption of fixed costs due to a large project that was manufactured in the first half of the prior year and shipped thereafter.
Operating expenses in Q2 2016 of $199.7 represented an increase of $8.3 compared to Q2 2015 . Higher variable compensation expense of $7, increased sales and marketing costs of approximately $3 and other increases in operating expenses were partially offset by approximately $7 of favorable currency translation effects. As a percent of revenue, operating expenses were consistent with the prior year at 24.4% .
We recorded net restructuring costs of $11.3 in Q2 2016 primarily related to actions in EMEA, including severance provisions related to the relocation of activities to the Learning + Innovation Center in Munich, Germany, and the closure of a manufacturing facility in Durlangen, Germany. In Q2 2015 , we recorded restructuring costs of $6.4 primarily related to the closure of the Durlangen facility. See Note 10 to the condensed consolidated financial statements for additional information.
Our Q2 2016 effective tax rate was 36.4% compared to the Q2 2015 effective tax rate of 41.5% , which equated to a $3.0 improvement in net income in Q2 2016 . The decrease was primarily driven by implementing a new transfer pricing model in EMEA in Q4 2015. Our U.S. parent company became the principal in a contract manufacturing model with our Steelcase European subsidiaries. This new model generated taxable income for our Steelcase European subsidiaries in Q2 2016 and allowed for partial utilization of net operating loss carryforwards in Europe which reflected valuation allowances. See Note 7 to the condensed consolidated financial statements for additional information.
Year-to-Date 2016 Compared to Year-to-Date 2015
We recorded year-to-date 2016 net income of $57.2 compared to year-to-date 2015 net income of $51.5 . The increase was driven by operating improvements in the Americas and benefits associated with a lower effective income tax rate, partially offset by higher restructuring costs in the current year.
Year-to-date 2016 revenue increased $14.7 or 1.0% compared to year-to-date 2015 . The revenue growth was led by 5% growth in the Americas which was driven by increased unit volume, with approximately 1% of the growth rate attributable to improved pricing. The revenue comparison in EMEA reflected $48.0 of unfavorable currency translation effects, offset in part by increased unit volume and minimal benefits from improved pricing. Organic revenue growth for year-to-date 2016 was $73.4 or 5%, with growth of 5% in the Americas, 8% in EMEA and 2% in the Other category. Approximately 60% of the organic revenue growth was due to increased unit volume.
Year-to-date 2016 operating income of $93.6 or 6.1% of revenue compared to $89.2 million or 5.9% of revenue in the prior year. The increase was driven by strong operating performance in the Americas, despite a $9.6 reduction in restructuring benefits compared to the prior year. In EMEA, benefits associated with the organic revenue growth were largely offset by an increase in cost of sales as a percentage of revenue and a $6.9 increase in restructuring costs. Year-to-date 2016 adjusted operating income increased by $20.9 or 24.3% to $106.8 compared to the prior year. The year-to-date 2016 adjusted operating income margin of 7.0% represented a 130 basis point improvement compared to year-to-date 2015 .
Year-to-date 2016 cost of sales was 67.8% , a 110 basis point decrease compared to year-to-date 2015 . The improvement was primarily driven by a 190 basis point improvement in the Americas driven by the same factors as the quarter, partially offset by a 340 basis point decline in EMEA driven by the same factors as the quarter.

16
Table of Contents

Year-to-date 2016 operating expenses of $384.8 increased $1.5 compared to the prior year but decreased slightly as a percentage of sales. Higher variable compensation expense of $6, increased sales and marketing costs of approximately $3 and other increases in operating expenses were partially offset by approximately $15 of favorable currency translation effects.
We recorded year-to-date 2016 net restructuring costs of $13.2 compared to net restructuring benefits of $3.3 in year-to-date 2015 . The year-to-date 2016 amount included costs primarily associated with the closure of a manufacturing facility in Durlangen, Germany, and severance provisions related to the relocation of activities to the Learning + Innovation Center in Munich, Germany. The year-to-date 2015 amount included a gain related to the sale of an idle manufacturing facility in the Americas segment that was closed as part of previously announced restructuring actions, partially offset by costs in EMEA primarily related to the Durlangen facility. See Note 10 to the condensed consolidated financial statements for additional information.
Our year-to-date 2016 effective tax rate was 36.4% compared to a year-to-date 2015 effective tax rate of 41.5% , which equated to a $4.6 improvement in net income in year-to-date 2016 . The decrease was primarily driven by the implementation of a new transfer pricing model in EMEA in Q4 2015. See Note 7 to the condensed consolidated financial statements for additional information.
Interest Expense, Investment Income and Other Income, Net
 
Three Months Ended
Six Months Ended
Interest Expense, Investment Income and Other Income, Net
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Interest expense
$
(4.3
)
 
$
(4.4
)
 
$
(8.8
)
 
$
(8.8
)
Investment income
0.5

 
0.5

 
0.9

 
0.9

Other income (expense), net:
 

 
 

 
 

 
 

Equity in income of unconsolidated ventures
3.3

 
3.7

 
6.5

 
7.4

Foreign exchange loss
(1.0
)
 
(0.2
)
 
(1.6
)
 
(0.5
)
Miscellaneous, net
(0.1
)
 
(0.3
)
 
(0.6
)
 
(0.2
)
Total other income, net
2.2

 
3.2

 
4.3

 
6.7

Total interest expense, investment income and other income, net
$
(1.6
)
 
$
(0.7
)
 
$
(3.6
)
 
$
(1.2
)
Other income, net decreased in Q2 2016 and year-to-date 2016 primarily due to higher foreign exchange losses and lower equity in income of unconsolidated ventures.
Business Segment Review
See Note  9 to the condensed consolidated financial statements for additional information regarding our business segments.
Americas
The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse and Turnstone brands.
 
Three Months Ended
Six Months Ended
Statement of Operations Data — Americas
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Revenue
$
615.5

 
100.0
%
 
$
580.3

 
100.0
%
 
$
1,135.2

 
100.0
 %
 
$
1,086.6

 
100.0
 %
Cost of sales
391.7

 
63.7

 
380.7

 
65.6

 
738.0

 
65.0

 
726.6

 
66.9

Restructuring costs (benefits)
0.7

 
0.1

 
0.7

 
0.1

 
1.5

 
0.1

 
(10.9
)
 
(1.0
)
Gross profit
223.1

 
36.2

 
198.9

 
34.3

 
395.7

 
34.9

 
370.9

 
34.1

Operating expenses
131.4

 
21.3

 
118.8

 
20.5

 
252.7

 
22.3

 
237.6

 
21.8

Restructuring benefits
—

 
—

 
—

 
—

 
(2.8
)
 
(0.2
)
 
—

 
—

Operating income
$
91.7

 
14.9
%
 
$
80.1

 
13.8
%
 
$
145.8

 
12.8
 %
 
$
133.3

 
12.3
 %


17
Table of Contents

 
Three Months Ended
Six Months Ended
Reconciliation of Operating Income to
Adjusted Operating Income — Americas
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Operating income
$
91.7

 
14.9
%
 
$
80.1

 
13.8
%
 
$
145.8

 
12.8
 %
 
$
133.3

 
12.3
 %
Add: restructuring costs (benefits)
0.7

 
0.1

 
0.7

 
0.1

 
(1.3
)
 
(0.1
)
 
(10.9
)
 
(1.0
)
Adjusted operating income
$
92.4

 
15.0
%
 
$
80.8

 
13.9
%
 
$
144.5

 
12.7
 %
 
$
122.4

 
11.3
 %
Operating results in the Americas for both Q2 2016 and year-to-date 2016 improved significantly compared to the prior year, and the segment posted its highest level of operating margin in more than a decade. The improvement was driven by revenue growth and lower cost of sales as a percentage of revenue, partially offset by higher operating expenses. The year-to-date results were also impacted by a reduction in restructuring benefits compared to the prior year.
The Americas revenue represented 75.2% of consolidated revenue in Q2 2016 . Revenue for Q2 2016 was $615.5 compared to $580.3 in Q2 2015 and reflected $5.1 of unfavorable currency translation effects and a $7.0 favorable impact of an acquisition. The revenue growth of 6% was driven by higher unit volume, with approximately 1% of the growth rate attributable to improvements in negotiated pricing. The increase in revenue in Q2 2016 is categorized as follows:
•
Product categories — Five out of seven categories grew in Q2 2016 , led by Furniture, Turnstone and Seating. Technology and Health declined compared to the prior year.

•
Vertical markets — Financial Services, Manufacturing, Insurance Services, Technical and Professional and Federal Government experienced strong growth rates, while Energy and Healthcare declined year-over-year.

•
Geographic regions — The East Business Group posted strong growth, while the West and South Business Groups declined.

•
Contract type — Project business and continuing business had strong growth, while marketing programs declined year-over-year.
Organic revenue growth was $33.3 or 6% compared to the prior year.
Year-to-date 2016 revenue of $1,135.2 increased $48.6 compared to year-to-date 2015 and reflected $9.0 of unfavorable currency translation effects and a $7.0 favorable impact of an acquisition. The year-to-date growth was driven by the same factors as the quarter. Year-to-date 2016 organic revenue growth was $50.6 or 5% compared to the prior year.
Cost of sales decreased 190 basis points to 63.7% of revenue in Q2 2016 compared to 65.6% of revenue in Q2 2015 . The primary drivers of the decrease were improvements in negotiated customer pricing and lower material, freight and distribution costs, each of which had an impact of approximately 100 basis points, as well as benefits of other cost reduction efforts, partially offset by higher variable compensation costs. In addition, $2 of lower customer rebate and dealer incentive costs were offset by $3 of higher warranty costs. Year-to-date 2016 cost of sales also decreased 190 basis points driven by the same factors as the quarter.
Operating expenses in Q2 2016 increased by $12.6 compared to the prior year to $131.4 and increased by 80 basis points as a percentage of revenue. The increase was primarily due to $6 of higher variable compensation costs, $3 of higher sales and marketing costs and $2 related to a small dealer acquisition. Year-to-date 2016 operating expenses increased by $15.1 , or 50 basis points as a percentage of revenue, compared to the prior year driven by the same factors in the quarter.
Restructuring costs of $0.7 in Q2 2016 and Q2 2015 were associated with the planned closure of a manufacturing facility in High Point, North Carolina. Year-to-date 2016 net restructuring benefits of $1.3 included a $2.8 gain related to the sale of our Corporate Development Center that was closed as part of previously announced restructuring actions, partially offset by costs associated with the planned closure of a manufacturing facility in High Point, North Carolina. Year-to-date 2015 net restructuring benefits of $10.9 were primarily driven by a gain related to the sale of an idle manufacturing facility that was closed as part of previously announced restructuring actions, partially offset by costs associated with the planned closure of a manufacturing facility in High Point, North Carolina.

18
Table of Contents

EMEA
The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, seating and storage solutions.
 
Three Months Ended
Six Months Ended
Statement of Operations Data — EMEA
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Revenue
$
128.1

 
100.0
 %
 
$
131.1

 
100.0
 %
 
$
248.0

 
100.0
 %
 
$
278.7

 
100.0
 %
Cost of sales
106.6

 
83.2

 
105.3

 
80.3

 
201.7

 
81.3

 
217.0

 
77.9

Restructuring costs
3.6

 
2.8

 
5.5

 
4.2

 
6.7

 
2.7

 
6.6

 
2.3

Gross profit
17.9

 
14.0

 
20.3

 
15.5

 
39.6

 
16.0

 
55.1

 
19.8

Operating expenses
35.8

 
28.0

 
41.8

 
31.9

 
70.2

 
28.3

 
83.5

 
29.9

Restructuring costs
7.0

 
5.5

 
0.2

 
0.2

 
7.8

 
3.1

 
1.0

 
0.4

Operating loss
$
(24.9
)
 
(19.5
)%
 
$
(21.7
)
 
(16.6
)%
 
$
(38.4
)
 
(15.4
)%
 
$
(29.4
)
 
(10.5
)%

Reconciliation of Operating Loss to Adjusted Operating Loss — EMEA
Three Months Ended
Six Months Ended
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Operating loss
$
(24.9
)
 
(19.5
)%
 
$
(21.7
)
 
(16.6
)%
 
$
(38.4
)
 
(15.4
)%
 
$
(29.4
)
 
(10.5
)%
Add: restructuring costs
10.6

 
8.3

 
5.7

 
4.4

 
14.5

 
5.8

 
7.6

 
2.7

Adjusted operating loss
$
(14.3
)
 
(11.2
)%
 
$
(16.0
)
 
(12.2
)%
 
$
(23.9
)
 
(9.6
)%
 
$
(21.8
)
 
(7.8
)%
Operating results in EMEA for Q2 2016 and year-to-date 2016 were impacted by an increase in restructuring costs compared to the prior year. Benefits associated with the organic revenue growth and improved operating expenses as a percentage of revenue in the current periods were more than offset by significant increases in cost of sales as a percentage of revenue compared to the prior year.
EMEA revenue represented 15.6% of consolidated revenue in Q2 2016 . Revenue for Q2 2016 was $128.1 compared to $131.1 in Q2 2015 and reflected higher unit volume and minimal benefits from improved pricing, offset by $20.9 of unfavorable currency translation effects and a $0.7 unfavorable impact from divestitures. Organic revenue growth was $18.6 or 17% . Germany and the United Kingdom posted organic revenue growth, while Africa and France declined. The strong growth in EMEA in the current quarter compares to an organic revenue decline in the prior year, which included a number of projects with extended shipment dates and extended lead times associated with manufacturing disruptions. For year-to-date 2016 , revenue reflected higher unit volume and minimal benefits from improved pricing, offset by $48.0 of unfavorable currency translation effects and a $2.1 unfavorable impact from divestitures, and organic revenue growth was $19.4 or 8% . The year-to-date 2016 organic growth was broad based and led by Germany, Iberia and Africa.
Cost of sales as a percentage of revenue increased significantly in Q2 2016 and year-to-date 2016 compared to the prior year, which included approximately $2 to $3 and approximately $4, respectively, of favorable absorption of fixed costs due to projects that were manufactured in the first half of the prior year and shipped thereafter. During Q2 2016, we experienced manufacturing and distribution issues including power outages, a failed sprinkler system at our new facility in the Czech Republic and other startup related issues which resulted in incremental costs and labor inefficiencies during the quarter of approximately $3 to $4.
Cost of sales in Q2 2016 and Q2 2015 included $6 and $9, respectively, of disruption costs and inefficiencies associated with the manufacturing footprint changes initiated in prior years, and cost of sales in each of year-to-date 2016 and year-to-date 2015 included $12 of such disruption costs and inefficiencies. Disruption costs and inefficiencies include labor premiums paid to employees during transition periods and labor inefficiencies caused by work stoppages or slowdowns resulting from restructuring activities. They also include incremental logistics costs caused by split shipments (linked to labor inefficiencies) and interim supply chains during production moves. Lastly, these costs include duplicate labor and overhead at the new Czech Republic facility and other plants impacted by production moves. We believe these costs are temporary and will be eliminated once the manufacturing changes in EMEA are complete and the industrial model returns to normal levels of operating efficiency.
Operating expenses decreased in Q2 2016 and year-to-date 2016 compared to the prior year primarily due to favorable currency translation effects. Operating expenses in local currency were otherwise relatively flat with the

19

prior year due to cost containment efforts. As a result, operating expenses as a percentage of revenue decreased significantly compared to the prior year.
Restructuring costs of $10.6 and $14.5 in Q2 2016 and year-to-date 2016 , respectively, were primarily related to costs associated with the closure of a manufacturing facility in Durlangen, Germany, severance provisions related to the relocation of activities to the Learning + Innovation Center in Munich, Germany, and the exit of a manufacturing facility in in Wisches, France, which was completed during Q2 2016 . Restructuring costs of $5.7 and $7.6 in Q2 2015 and year-to-date 2015 were primarily associated with the closure of a manufacturing facility in Durlangen, Germany, and the exit of a manufacturing facility in Wisches, France.
Other
The Other category includes Asia Pacific, Designtex and PolyVision. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, storage and seating solutions. Designtex designs and sells surface materials including textiles and wall coverings which are specified by architects and designers directly to end-use customers primarily in North America. PolyVision manufactures ceramic steel surfaces for use in multiple applications, but primarily for sale to third-party fabricators and distributors to create static whiteboards and chalkboards sold in the primary and secondary education markets globally.
 
Three Months Ended
Six Months Ended
Statement of Operations Data — Other
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Revenue
$
75.4

 
100.0
%
 
$
75.3

 
100.0
%
 
$
141.3

 
100.0
%
 
$
144.5

 
100.0
%
Cost of sales
49.6

 
65.8

 
50.1

 
66.5

 
93.2

 
66.0

 
97.0

 
67.1

Restructuring costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Gross profit
25.8

 
34.2

 
25.2

 
33.5

 
48.1

 
34.0

 
47.5

 
32.9

Operating expenses
22.4

 
29.7

 
21.8

 
29.0

 
43.8

 
31.0

 
44.1

 
30.5

Restructuring costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Operating income
$
3.4

 
4.5
%
 
$
3.4

 
4.5
%
 
$
4.3

 
3.0
%
 
$
3.4

 
2.4
%

 
Three Months Ended
Six Months Ended
Reconciliation of Operating Income to Adjusted Operating Income — Other
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Operating income
$
3.4

 
4.5
%
 
$
3.4

 
4.5
%
 
$
4.3

 
3.0
%
 
$
3.4

 
2.4
%
Add: restructuring costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Adjusted operating income
$
3.4

 
4.5
%
 
$
3.4

 
4.5
%
 
$
4.3

 
3.0
%
 
$
3.4

 
2.4
%
Revenue in the Other category represented 9.2% of consolidated revenue in Q2 2016. Revenue and operating income in the Other category in Q2 2016 and year-to-date 2016 were generally comparable to Q2 2015 and year-to-date 2015 . Improved operating performance in Asia Pacific offset lower operating performance at PolyVision, while operating performance at Designtex was comparable to the prior year.
The improved operating performance in Asia Pacific was driven by higher revenue in China and India, partially offset by declines in Japan and Australia. The lower operating performance at PolyVision was due to reduced demand in the K-12 education market in the U.S. and higher revenue in the prior year from a large project order in Europe.
Corporate
Corporate costs include unallocated portions of shared service functions, such as information technology, human resources, finance, executive, corporate facilities, legal and research, plus deferred compensation expense and income or losses associated with COLI.
 
Three Months Ended
Six Months Ended
Statement of Operations Data — Corporate
August 28,
2015
August 29,
2014
August 28,
2015
August 29,
2014
Operating expenses
$
10.1

 
$
9.0

 
$
18.1

 
$
18.1


20
STEELCASE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The increase in operating expenses in Q2 2016 was primarily due to lower income associated with COLI, partially offset by lower deferred compensation expense.
Liquidity and Capital Resources
Based on current business conditions, we target a minimum of $75 to $150 in cash and cash equivalents and short-term investments to fund day-to-day operations, including seasonal disbursements, particularly the annual payment of accrued variable compensation and retirement plan contributions in Q1 of each fiscal year. In addition, we may carry additional liquidity for potential investments in strategic initiatives and as a cushion against economic volatility.
Liquidity Sources
August 28,
2015
February 27,
2015
Cash and cash equivalents
$
161.4

 
$
176.5

Short-term investments
45.9

 
68.3

Company-owned life insurance
160.8

 
159.5

Availability under credit facilities
151.1

 
154.7

Total liquidity
$
519.2

 
$
559.0

As of August 28, 2015 , we held a total of $207.3 in cash and cash equivalents and short-term investments. The majority of our short-term investments are located in the U.S. Of our total $161.4 in cash and cash equivalents, approximately 67% was located in the U.S. and the remaining 33% was located outside of the U.S., primarily in France, China, Mexico, Hong Kong, and the United Kingdom. The amounts located outside the U.S. would be taxable if repatriated to the U.S., but we do not anticipate repatriating such amounts or needing them for operations in the U.S. Such amounts are considered available to repay intercompany debt, available to meet local working capital requirements or permanently reinvested in foreign subsidiaries.
The majority of our short-term investments are maintained in a managed investment portfolio, which primarily consists of U.S. agency debt securities and corporate debt securities.
Our investments in COLI policies are intended to be utilized as a long-term funding source for long-term employee benefit obligations. However, COLI can be used as a source of liquidity if needed. We believe the financial strength of the issuing insurance companies associated with our COLI policies is sufficient to meet their obligations. COLI investments are recorded at their net cash surrender value.
Availability under credit facilities may be reduced by the use of cash and cash equivalents and short-term investments for purposes other than the repayment of debt as a result of constraints related to our maximum leverage ratio covenant. See Liquidity Facilities for more information.
The following table summarizes our condensed consolidated statements of cash flows for the six months ended August 28, 2015 and August 29, 2014 :
 
Six Months Ended
Cash Flow Data
August 28,
2015
August 29,
2014
Net cash provided by (used in):
 

 
 

Operating activities
$
53.7

 
$
(16.2
)
Investing activities
(27.5
)
 
32.3

Financing activities
(39.2
)
 
(61.9
)
Effect of exchange rate changes on cash and cash equivalents
(2.1
)
 
(0.3
)
Net decrease in cash and cash equivalents
(15.1
)
 
(46.1
)
Cash and cash equivalents, beginning of period
176.5

 
201.8

Cash and cash equivalents, end of period
$
161.4

 
$
155.7


21

Cash provided by (used in) operating activities
 
Six Months Ended
Cash Flow Data — Operating Activities
August 28,
2015
August 29,
2014
Net income
$
57.2

 
$
51.5

Depreciation and amortization
32.6

 
29.3

Deferred income taxes
13.3

 
18.1

Non-cash restructuring costs (benefits)
13.2

 
(3.3
)
Non-cash stock compensation
14.2

 
12.6

Equity in income of unconsolidated affiliates
(6.6
)
 
(7.4
)
Dividends received from unconsolidated affiliates
6.6

 
5.4

Other
(1.0
)
 
(3.5
)
Changes in accounts receivable, inventories and accounts payable
(37.2
)
 
(43.5
)
Changes in employee compensation liabilities
(41.1
)
 
(54.5
)
Assets related to derivative instruments
22.9

 
(4.7
)
Changes in other operating assets and liabilities
(20.4
)
 
(16.2
)
Net cash provided by (used in) operating activities
$
53.7

 
$
(16.2
)
The increase in cash provided by operating activities in year-to-date 2016 compared to year-to-date 2015 is the result of improved operating results after restructuring costs (benefits). In addition, year-to-date 2016 included proceeds from the settlement of foreign exchange forward contracts.
Cash provided by (used in) investing activities
 
Six Months Ended
Cash Flow Data — Investing Activities
August 28,
2015
August 29,
2014
Capital expenditures
$
(47.4
)
 
$
(44.3
)
Proceeds from disposal of fixed assets
4.2

 
19.1

Purchases of short-term investments
(14.8
)
 
(58.6
)
Liquidations of short-term investments
37.1

 
105.1

Acquisitions, net of cash acquired
(6.9
)
 
—

Other
0.3

 
11.0

Net cash provided by (used in) investing activities
$
(27.5
)
 
$
32.3

Capital expenditures in year-to-date 2016 included $18.0 in progress payments toward a replacement corporate aircraft. A small dealer in the Americas segment was acquired in Q1 2016. Capital expenditures in year-to-date 2015 were primarily related to investments in manufacturing operations, including a new manufacturing location in the Czech Republic, and product development.
The higher purchases of short-term investments in year-to-date 2015 primarily related to the receipt of proceeds related to the sale of a former manufacturing facility and the repayment of a note receivable from a dealer in the Americas segment. Liquidations of short term investments are primarily related to the funding of our operations.
Cash used in financing activities
 
Six Months Ended
Cash Flow Data — Financing Activities
August 28,
2015
August 29,
2014
Dividends paid
$
(29.1
)
 
$
(26.6
)
Common stock repurchases
(11.9
)
 
(34.3
)
Other
1.8

 
(1.0
)
Net cash used in financing activities
$
(39.2
)
 
$
(61.9
)

22

We paid dividends of $0.1125 per common share during Q2 2016 and Q1 2016 and $0.105 per share during Q2 2015 and Q1 2015.
In year-to-date 2016, most of our common stock repurchases were made to satisfy participants' tax withholding obligations upon the vesting of restricted stock unit grants, pursuant to the terms of our Incentive Compensation Plan. In Q2 2016 we made common stock repurchases of 32,150 shares, all of which related to our Class A Common Stock. As of the end of Q2 2016 , we had $60.1 of remaining availability under the $250 share repurchase program approved by our Board of Directors in Q4 2008.
Off-Balance Sheet Arrangements
During Q2 2016 , no material change in our off-balance sheet arrangements occurred.
Contractual Obligations
During Q2 2016 , no material change in our contractual obligations occurred.
Liquidity Facilities
Our total liquidity facilities as of August 28, 2015 were:
Liquidity Facilities
August 28,
2015
Global committed bank facility
$
125.0

Other committed bank facilities
8.1

Various uncommitted lines
18.0

Total credit lines available
151.1

Less: Borrowings outstanding
—

Available capacity
$
151.1

We have a $125 global committed five-year unsecured revolving syndicated credit facility which was entered into in 2013. The facility requires us to satisfy financial covenants including a maximum leverage ratio covenant and a minimum interest coverage ratio covenant. Additionally, the facility requires us to comply with certain other terms and conditions, including a restricted payment covenant which establishes a maximum level of dividends and/or other equity-related distributions or payments (such as share repurchases) we may make in any fiscal year. As of August 28, 2015 , we were in compliance with all covenants under the facility. We have $8.1 in other revolving credit facilities.
The various uncommitted lines may be changed or canceled by the banks at any time. There were no outstanding borrowings under the uncommitted facilities as of August 28, 2015 . In addition, we have revolving credit agreements of $40.3 which can be utilized to support letters of credit, bank guarantees or foreign exchange contracts; letters of credit and bank guarantees of $21.7 were outstanding under such facilities as of August 28, 2015 . There were no draws on our standby letters of credit during Q2 2016 .
Total consolidated debt as of August 28, 2015 was $281.3 . Our debt primarily consists of $247.9 in term notes due in 2021 with an effective interest rate of 6.6%. In addition, we have a term loan with a balance as of August 28, 2015 of $32.3. This term loan has a floating interest rate based on 30-day LIBOR plus 3.35% and is due in 2017. The term notes are unsecured, the term loan is secured by two corporate aircraft, and neither the term notes nor the term loan contain financial covenants or are cross-defaulted to other debt facilities.
Liquidity Outlook
Our current cash and cash equivalents and short-term investment balances, funds available under our credit facilities, funds available from COLI and cash generated from future operations are expected to be sufficient to finance our known or foreseeable liquidity needs. We believe the timing, strength and continuity of the economic recovery across certain geographies we serve remain uncertain which may continue to dampen our level of cash generation from operations. We continue to maintain a conservative approach to liquidity and maintain flexibility over significant uses of cash including our capital expenditures and discretionary operating expenses.

23

Our significant funding requirements include operating expenses, non-cancelable operating lease obligations, capital expenditures, variable compensation and retirement plan contributions, dividend payments and debt service obligations.
We currently expect capital expenditures to approximate $100 in 2016 compared to $98 in 2015. This estimate includes progress payments toward a replacement corporate aircraft, global upgrades to various manufacturing technologies and initial expenditures associated with the Learning + Innovation Center in Munich, Germany.
On September 23, 2015, we announced a quarterly dividend on our common stock of $0.1125 per share, or $14.0, to be paid in Q3 2016 . Future dividends will be subject to approval by our Board of Directors and compliance with the restricted payment covenant of our credit facilities.
Critical Accounting Estimates
During Q2 2016 , there have been no changes in the items that we have identified as critical accounting estimates.
Recently Issued Accounting Standards
See Note 2 to the condensed consolidated financial statements.
Forward-looking Statements
From time to time, in written and oral statements, we discuss our expectations regarding future events and our plans and objectives for future operations. These forward-looking statements generally are accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from our expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; our restructuring activities; changes in raw materials and commodity costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in this Report, our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk:
The nature of market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) faced by us as of August 28, 2015 is the same as disclosed in our Annual Report on Form 10-K for the year ended February 27, 2015 . We are exposed to market risks from foreign currency exchange, interest rates, commodity prices and fixed income and equity prices, which could affect our operating results, financial position and cash flows.
Foreign Exchange Risk
During Q2 2016 , no material change in foreign exchange risk occurred.
Interest Rate Risk
During Q2 2016 , no material change in interest rate risk occurred.

24

Fixed Income and Equity Price Risk
During Q2 2016 , no material change in fixed income and equity price risk occurred.
Item 4.
Controls and Procedures:
(a)  Disclosure Controls and Procedures.   Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of August 28, 2015 . Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of August 28, 2015 , our disclosure controls and procedures were effective in (1) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and (2) ensuring that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)  Internal Control Over Financial Reporting.   There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

PART II. OTHER INFORMATION
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds:
Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during Q2 2016 :
Period
(a)
Total Number of
Shares Purchased
(b)
Average Price
Paid per Share
(c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)
(d)
Approximate Dollar
Value of Shares
that May Yet be
Purchased
Under the Plans
or Programs (1)
(in millions)
05/30/2015 - 07/03/2015
31,673

$
17.19

31,673

$
60.1

07/04/2015 - 07/31/2015
477

$
18.38

—

$
60.1

08/01/2015 - 08/28/2015
—

$
—

—

$
60.1

Total
32,150

(2)
31,673

 

_______________________________________
(1)
In December 2007, our Board of Directors approved a share repurchase program permitting the repurchase of up to $250 of shares of our common stock. This program has no specific expiration date.
(2)
477 shares were repurchased to satisfy participants’ tax withholding obligations upon the vesting of restricted stock unit grants, pursuant to the terms of our Incentive Compensation Plan.
Item 6.
Exhibits:
See Exhibit Index.

26
Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STEELCASE INC.
 


By: 
/s/  Mark T. Mossing
 
Mark T. Mossing
Corporate Controller and
Chief Accounting Officer
(Duly Authorized Officer and
Principal Accounting Officer)
Date: September 29, 2015

27
Table of Contents

Exhibit Index
Exhibit
No.
Description
 
 
10.1
Steelcase Inc. Incentive Compensation Plan, as amended and restated as of July 15, 2015
10.2
2016-1 Amendment to the Steelcase Inc. Deferred Compensation Plan
31.1
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Schema Document
101.CAL
XBRL Calculation Linkbase Document
101.LAB
XBRL Labels Linkbase Document
101.PRE
XBRL Presentation Linkbase Document
101.DEF
XBRL Definition Linkbase Document




28


STEELCASE INC. INCENTIVE COMPENSATION PLAN
ARTICLE 1.
Establishment, Objectives, and Duration

1.1      Establishment of the Plan. Steelcase Inc., a Michigan corporation (hereinafter referred to as the “Company”), hereby establishes an incentive compensation plan to be known as the “Steelcase Inc. Incentive Compensation Plan” (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units, Cash-Based Awards, Phantom Shares and Share-Based Awards. Notwithstanding any provision in the Plan, to the extent that any Award would be subject to Section 409A of the Code, no such Award may be granted if it would fail to comply with the requirements set forth in Section 409A of the Code and any regulations or guidance promulgated thereunder.

The Plan as hereby amended and restated is effective as of July 15, 2015 (the “Effective Date”); provided , however , that the Plan as amended and restated shall be subject to the approval by the shareholders of the Company of the Plan at the annual meeting for such shareholders on July 15, 2015 (the “2015 Meeting”).

1.2      Objectives of the Plan. The objectives of the Plan are to optimize the profitability and growth of the Company through annual and long-term incentives which are consistent with the Company’s goals and which link the personal interests of Participants to those of the Company’s shareholders; to provide Participants with an incentive for excellence in individual performance; and to promote teamwork among Participants. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company’s success and to allow Participants to share in the success of the Company.

1.3      Duration of the Plan. The Plan shall commence on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 18 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions under Awards denominated in Shares, and with respect to all Awards, in no event may an Award be granted under the Plan on or after the tenth anniversary of the Effective Date.

ARTICLE 2.
Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

2.1      “Affiliate” shall have the meaning ascribed to such term in Rule 12b‑2 of the General Rules and Regulations of the Exchange Act.

2.2      “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units, Cash-Based Awards, Phantom Shares or Share-Based Awards.


1


2.3      “Award Agreement” means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan.

2.4      “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

2.5      “Board” or “Board of Directors” means the Board of Directors of the Company.

2.6      “Cause” means (i) the Participant’s willful and continued failure to perform substantially his or her duties with the Company or the Affiliate then employing him or her (other than any such failure resulting from incapacity due to physical or mental illness), or (ii) the Participant’s willful engaging in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company; provided, that for purposes of this definition, no act or failure to act, on the Participant’s part, will be considered “willful” unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that his or her action or omission was in the best interests of the Company or the Affiliate then employing the Participant.

2.7      “Cash-Based Award” means an Award granted to a Participant, as described in Article 9 herein.

2.8      ”Change in Control” of the Company shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(a)
any Person (other than any Initial Holder or Permitted Transferee) (i) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below, and (ii) the combined voting power of the securities of the Company that are Beneficially Owned by such Person exceeds the combined voting power of the securities of the Company that are Beneficially Owned by all Initial Holders and Permitted Transferees at the time of such acquisition by such Person or at any time thereafter; or

(b)
the following individuals cease for any reason to constitute a majority of the number of Directors then serving: individuals who, on the date hereof, constitute the Board and any new Director (other than a Director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of Directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the Directors then still in office who either were Directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

(c)
there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with or involving any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent

2


(either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereto), at least fifty-five percent (55%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than an Initial Holder or Permitted Transferee) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding securities; or

(d)
the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least fifty-five percent (55%) of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if the Participant is part of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed “part of a purchasing group” for purposes of the preceding sentence if the Participant is an equity participant in the purchasing company or group (except for: (i) passive ownership of less than three percent (3%) of the stock of the purchasing company; or (ii) ownership of equity participant in the purchasing company or group which is otherwise not significant, as determined prior to the Change in Control by a majority of the non-employee continuing Directors).

Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership, directly or indirectly, in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

2.9      “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.10      “Committee” means the Compensation Committee of the Board and shall be comprised entirely of Directors who are considered “outside directors” under Section 162(m) of the Code.

2.11      “Company” means Steelcase Inc., a Michigan corporation, including any and all Subsidiaries and Affiliates, and any successor thereto as provided in Article 22 herein.

2.12      “Competition” means directly or indirectly engaging in competition with the Company or any subdivision, subsidiary, or affiliate of the Company (collectively, the “Company Group”) at any time during employment with the Company Group or during the three (3) year period following termination of employment with the Company Group, without prior

3


approval of the administrative Committee. A Plan Participant engages in competition if that person participates directly or indirectly in the manufacture, design or distribution of any products of the same type as those of the Company Group, including, but not limited to, office furniture, office systems or architectural products, or the providing of any related services, for or on behalf of any person or entity other than the Company and its authorized dealers, at any location within or without the United States of America. It is intended that this definition shall be enforced to the fullest extent permitted by law. If any part of this definition shall be construed to be invalid or unenforceable, in whole or in part, then such definition shall be construed in a manner so as to permit its enforceability to the fullest extent permitted by law.

2.13      “Covered Employee” shall have the meaning set forth in Section 162(m)(3) of the Code.

2.14      “Director” means any individual who is a member of the Board; provided , however , that any Director who is employed by the Company or any Subsidiary or Affiliate shall be considered an Employee under this Plan and, except for purposes of the definition of “Change in Control” under this Plan, shall not be considered a Director.

2.15      “Effective Date” shall have the meaning ascribed to such term in Section 1.1 hereof.

2.16      “Employee” means any employee of the Company or its Subsidiaries or Affiliates. Except for purposes of the definition of “Change in Control” under this Plan, Directors who are employed by the Company shall be considered Employees under this Plan.
2.17      “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.

2.18      “Fair Market Value” shall be the closing sales price per Share for the date of grant on the principal securities exchange on which the Shares are traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported; if the security is not listed for trading on a national securities exchange, the fair market value of a security as determined in good faith by the Board.

2.19      “Freestanding SAR” means an SAR that is granted independently of any Options, as described in Article 7 herein.

2.20      “Good Reason” means, if the Participant is a participant under the Company’s Executive Severance Plan, the definition as set forth therein and for all other Participants the occurrence, on or after the date of a Change in Control and without the affected Participant’s written consent, of (i) a material reduction in the Participant’s base salary and annual bonus opportunity, (ii) a material adverse alteration in the nature or status of the Participant’s responsibilities, duties or title from those in effect immediately prior to the Change in Control, including without limitation, if the Participant was, immediately prior to the Change in Control, an executive officer of a public company, the Participant ceasing to be an executive officer of a public company or (iii) a relocation of the Participant’s principal place of employment to a location more than fifty (50) miles from the Participant’s principal place of employment immediately prior to the Change in Control; provided , that the Participant must provide written notice to the Company stating the circumstances believed to constitute Good Reason within 60 days of the initial existence of such circumstances and the Company shall have 30 days to remedy such circumstance and if not remedied,

4


the Participant may then deliver his or her notice resignation with Good Reason with a termination of employment effective date no later than 45 days following the 30-day remedy period.

2.21      “Incentive Stock Option” or “ISO” means an option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422.

2.22      “Initial Holder” shall have the meaning set forth in the Second Restated Articles of Incorporation of the Company.

2.23      “Insider” shall mean an individual who is, on the relevant date, an officer, director or more than ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.

2.24      “Nonqualified Stock Option” or “NQSO” means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.

2.25      “Option” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.

2.26      “Option Price” means the price at which a Share may be purchased by a Participant pursuant to an Option.

2.27      “Participant” means an Employee, Director, or other individual designated by the Board who has been selected to receive an Award or who has an outstanding Award granted under the Plan.

2.28      “Performance-Based Exception” means the performance-based exception from the tax deductibility limitations of Code Section 162(m).

2.29      “Performance Period” shall have the meaning set forth in Article 8 herein.

2.30      “Performance Share” means an Award granted to a Participant, as described in Article 9 herein.

2.31      “Performance Unit” means an Award granted to a Participant, as described in Article 9 herein.

2.32      “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Board, at its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 8 herein.

2.33      “Permitted Transferee” shall have the meaning set forth in the Second Restated Articles of Incorporation of the Company and include a Permitted Trustee solely in its capacity as a trustee of a Permitted Trust.


5


2.34      “Permitted Trust” shall have the meaning set forth in the Second Restated Articles of Incorporation of the Company.

2.35      “Permitted Trustee” shall have the meaning set forth in the Second Restated Articles of Incorporation of the Company.

2.36      “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.

2.37      “Phantom Shares” means an Award granted to a Participant pursuant to Article 10 herein.

2.38      “Restricted Stock” means an Award granted to a Participant pursuant to Article 8 herein.

2.39      “Share-Based Award” means an Award granted to a Participant pursuant to Article 11 herein.

2.40      “Shares” means the shares of Class A Common Stock of the Company.

2.41      “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with a related Option, designated as a SAR, pursuant to the terms of Article 7 herein.

2.42      “Subsidiary” means any corporation, partnership, joint venture, or other entity in which the Company has a fifty percent (50%) or greater voting interest.

2.43      “Tandem SAR” means a SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be canceled).

ARTICLE 3.
Administration

3.1      General. The Plan shall be administered by the Board and the Board may delegate its responsibility to the Committee. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. The Board may delegate to the Committee any or all of the administration of the Plan; provided , however , that the administration of the Plan with respect to Awards granted to Directors may not be so delegated. To the extent that the Board has delegated to the Committee any authority and responsibility under the Plan, all applicable references to the Board in the Plan shall be to the Committee. The Committee shall have the authority to delegate administrative duties to Employees, officers or Directors of the Company or any other committee approved by the Committee.


6


3.2      Authority of the Board. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Board shall have full power to select Employees and Directors and other individuals who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 18 herein) amend the terms and conditions of any outstanding Award as provided in the Plan. Further, the Board shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law (and subject to Section 3.1 herein), the Board may delegate its authority as identified herein.

3.3      Decisions Binding. All determinations and decisions made by the Board or the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board or the Committee shall be final, conclusive and binding on all persons, including the Company, its shareholders, Directors, Employees, Participants, and their estates and beneficiaries.

ARTICLE 4.
Shares Subject to the Plan and Maximum Awards

4.1      Number of Shares Available for Grants. Subject to adjustment as provided in Article 17 herein, the number of Shares hereby reserved for issuance to Participants under the Plan shall be 25,000,000 Shares that were originally authorized pursuant to the Plan as amended and restated as of February 27, 2010 of which approximately 8,777,944 Shares remain available as of May 25, 2015 in addition to any Shares that may be added back pursuant to the terms herein. No more than 6,000,000 of which may be granted in the form of Shares of Restricted Stock. Shares available under the Plan shall be now or hereafter issued or authorized but unissued. For purposes of this Article 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. Shares that are subject to or underlie Awards which expire or for any reason are cancelled, terminated, forfeited, fail to vest, or for any other reason are not paid or delivered under the Plan shall again be available for issuance in connection with future Awards granted under the Plan. Shares purchased on the open market with cash proceeds generated by the exercise of an Option will not increase or replenish the number of Shares available for grant. In the event that Shares are delivered in respect of an Award, all of the Shares subject to the Award (including any Shares used to satisfy applicable tax withholding obligations) shall be considered in calculating the maximum number of Shares available for delivery under the Plan. Shares surrendered or withheld as payment of either the exercise price of an Award and/or withholding taxes in respect of such an Award shall be counted against the share limits of this Plan and shall not again be available for issuance in connection with future Awards. The foregoing adjustments to the Share limits are subject to any applicable limitations under Code Section 162(m) with respect to Awards intended as performance-based compensation thereunder.

4.2      Maximum Awards. Unless and until the Board determines that an Award shall not qualify for the Performance-Based Exception, the following rules shall apply to grants of such Awards under the Plan:

(a)
Stock Options: The maximum aggregate number of Shares that may be granted in the form of Stock Options, pursuant to any Award granted in any one fiscal year to any one single Participant shall be five hundred thousand (500,000).

7



(b)
SARs: The maximum aggregate number of Shares that may be granted in the form of Stock Appreciation Rights, pursuant to any Award granted in any one fiscal year to any one single Participant shall be five hundred thousand (500,000).

(c)
Restricted Stock: The maximum aggregate grant with respect to Awards of Restricted Stock granted in any one fiscal year to any one Participant shall be two hundred and fifty thousand (250,000).

(d)
Performance Shares/Performance Units and Cash-Based Awards: The maximum aggregate payout (determined as of the end of the applicable Performance Period) with respect to Cash-Based Awards or Awards of Performance Shares or Performance Units granted in any one fiscal year to any one Participant shall be equal to the value of seven hundred and fifty thousand (750,000) Shares.

(e)
Phantom Shares : The maximum aggregate payout (determine at the end of the applicable Performance Period) with respect to Phantom Shares granted in any one fiscal year to any one Participant shall be equal to the value of seven hundred and fifty thousand (750,000) Shares.

(f)
Other Share-Based Awards : The maximum aggregate number of Shares that may be granted in the form of other Share-Based Awards, pursuant to any Award granted in any one fiscal year to one single Participant shall be two hundred and fifty thousand (250,000).

ARTICLE 5.
Eligibility and Participation

5.1      Eligibility. Persons eligible to participate in this Plan include all Employees, Directors, and other individuals designated by the Board.

5.2      Actual Participation. Subject to the provisions of the Plan, the Board may, from time to time, select from all eligible Employees, Directors, and other individuals designated by the Board, those to whom Awards shall be granted and shall determine the nature and amount of each Award.

ARTICLE 6.
Stock Options

6.1      Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Board; provided , however , (a) that no Director shall be granted any ISO and (b) that any Option designed to qualify for the Performance-Based Exception shall be granted only by the Committee.

6.2      Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, termination and transferability rights, and such other provisions as the Board shall determine. The Award Agreement also shall specify whether the Option is

8


intended to be an ISO within the meaning of Code Section 422, or an NQSO whose grant is intended not to fall under the provisions of Code Section 422.

6.3      Option Price. The Option Price for each grant of an Option under this Plan shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.

6.4      Duration of Options. Each Option granted to a Participant shall expire at such time as the Board shall determine at the time of grant; provided , however , that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.

6.5      Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Board shall in each instance approve, which need not be the same for each grant or for each Participant.

6.6      Payment. Unless otherwise determined by the Board, Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.

The Option Price upon exercise of any Option shall be payable to the Company in full in one of the following manners: (a) in cash or its equivalent, or (b) to the extent so provided by the Board, by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price or by withholding from issuance upon exercise the Shares with an aggregate Fair Market Value equal to the total Option Price, or (c) by a combination of (a) and (b).

The Board also may allow cashless exercise as permitted under Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means which the Board determines to be consistent with the Plan’s purpose and applicable law.

Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s) or other appropriate documentation of acquisition of such Shares.

6.7      Restrictions on Share Transferability . The Board may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

ARTICLE 7.
Stock Appreciation Rights


9


7.1      Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Board. The Board may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.

The Board shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.

The grant price of a Freestanding SAR shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option.
7.2      Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.

Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.

7.3      Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Board, in its sole discretion, imposes upon them.

7.4      SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Board shall determine.

7.5      Term of SARs. The term of a SAR granted under the Plan shall be determined by the Board, in its sole discretion; provided , however , that such term shall not exceed ten (10) years.

7.6      Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a)
the difference between the Fair Market Value of a Share on the date of exercise over the grant price; by

(b)
the number of Shares with respect to which the SAR is exercised.

At the discretion of the Board, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The Board’s determination regarding the form of SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR.


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ARTICLE 8.
Restricted Stock

8.1      Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Board, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Board shall determine; provided , however , that Shares of Restricted Stock designed to qualify for the Performance-Based Exception shall be granted only by the Committee.

8.2      Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Board shall determine.

8.3      Other Restrictions. The Board shall impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, divisional, and/or individual), time-based restrictions on vesting following the attainment of the performance goals, and/or restrictions under applicable federal or state securities laws. The time period during which the performance goals must be met shall be called a “Performance Period.” The performance goals with respect to Awards designed to qualify for the Performance-Based Exception shall be established in writing by the Committee prior to the earlier of (a) ninety (90) days after the commencement of the Performance Period or (b) the date on which 25% of the Performance Period will elapse; provided , that in either case, achievement of the performance goals is substantially uncertain on such date.

The Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied; provided , however , that Shares shall not be delivered with respect to Awards designed to qualify for the Performance-Based Exception prior to the Committee’s certification, in writing, that the performance goals relating to such Awards have been satisfied.

Except as otherwise provided in this Article 8 or otherwise determined by the Board, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.

8.4      Voting Rights. Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction.

8.5      Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular cash dividends paid with respect to the Shares while they are so held. The Board may apply any restrictions to the dividends that the Board deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Shares of Restricted Stock is intended to comply with the requirements of the Performance-Based Exception, the Board may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Shares of Restricted Stock, including, without limitation, that the dividends and/or the Shares of Restricted Stock maintain eligibility for the Performance-Based Exception.

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ARTICLE 9.
Performance Units, Performance Shares, and Cash-Based Awards

9.1      Grant of Performance Units/Shares and Cash-Based Awards. Subject to the terms of the Plan, Performance Units, Performance Shares and/or Cash-Based Awards may be granted at any time or from time to time, as shall be determined by the Board; provided , however , that Performance Units, Performance Shares and/or Cash-Based Awards designed to qualify for the Performance-Based Exception shall be granted only by the Committee.

9.2      Award Agreement. Each Performance Unit, Performance Share and/or Cash-Based Awards grant shall be evidenced by an Award Agreement that shall specify the Performance Period(s) and such other provisions as the Board shall determine.

9.3      Value of Performance Units/Shares and Cash-Based Awards. Each Performance Unit shall have an initial value that is established by the Board at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. Each Cash-Based Award shall have a value as may be determined by the Board. The Board shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares and Cash-Based Award that will be paid out to the Participant. The performance goals with respect to Awards designed to qualify for the Performance-Based Exception shall be established in writing by the Committee prior to the earlier of (a) ninety (90) days after the commencement of the Performance Period or (b) the date on which 25% of the Performance Period will elapse; provided , that in either case, achievement of the performance goals is substantially uncertain on such date.

9.4      Earning of Performance Units/Shares and Cash-Based Awards. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares and Cash-Based Awards shall be entitled to receive payment with respect to the number and value of Performance Units/Shares and of Cash-Based Awards earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved.

9.5      Form and Timing of Payment of Performance Units/Shares and Cash-Based Awards. Payment of earned Performance Units/Shares and Cash-Based Awards shall be made in lump-sum payments at such time or times designated by the Board following the close of the applicable Performance Period, but in no event later than 2 ½ months following the end of the calendar year in which the Performance Period closes. Subject to the terms of this Plan, the Board, in its sole discretion, may pay earned Performance Units/Shares and Cash-Based Awards in the form of cash or in Shares (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares and Cash-Based Awards at the close of the applicable Performance Period plus or minus any investment return from the close of the Performance Period to the date of payment as determined by the Board in its discretion; provided , however , that payment shall not be made with respect to Awards designed to qualify for the Performance-Based Exception prior to the Committee’s certification, in writing, that the performance goals relating to such Awards have been satisfied. Such Shares may be granted subject to any restrictions deemed appropriate by the Board. The determination of the Board with respect to the form and timing of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.


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At the discretion of the Board and subject to the requirements of Section 409A of the Code, Participants may be entitled to receive any dividends declared with respect to Shares which have been earned in connection with grants of Performance Units and/or Performance Shares which have been earned, but not yet distributed to Participants (such dividends shall be subject to the same accrual, forfeiture, and payout restrictions as those that apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section 8.5 herein). In addition, Participants may, at the discretion of the Board, be entitled to exercise their voting rights with respect to such Shares.

ARTICLE 10.
Phantom Shares

10.1      Grant of Phantom Shares. Subject to the terms of the Plan, Phantom Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Board; provided , however , that Phantom Shares designed to qualify for the Performance-Based Exception shall be granted only by the Committee.

10.2      Award Agreement. Each Phantom Share grant shall be evidenced by an Award Agreement that shall specify the terms and conditions of such Award and such other provisions as the Board shall determine.

10.3      Value of Phantom Shares. Each Phantom Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Board shall establish the terms and conditions of such Award, including any vesting provisions and performance goals. The performance goals with respect to Awards designed to qualify for the Performance-Based Exception shall be established in writing by the Committee prior to the earlier of (a) ninety (90) days after the commencement of the Performance Period or (b) the date on which 25% of the Performance Period will elapse, provided , that in either case, achievement of the performance goals is substantially uncertain on such date.

10.4      Earning of Phantom Shares. Subject to the terms of this Plan, the holder of any vested Phantom Shares shall be entitled to receive payout on the number and value of Phantom Shares earned by the Participant over the Performance Period, to be determined by the extent to which the corresponding performance goals have been achieved.

10.5      Form and Timing of Payment of Phantom Shares. Payment of earned Phantom Shares shall be made in a single lump sum at such time as designated by the Board, but in no event later than 2 ½ months following the end of the calendar year in which the Phantom Shares vest. Subject to the terms of this Plan, the Board, in its sole discretion, may pay earned Phantom Shares in the form of cash or in Shares (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Phantom Shares at such time as designated by the Board; provided , however , that payment shall not be made with respect to Awards designed to qualify for the Performance-Based Exception prior to the Committee’s certification, in writing, that the performance goals relating to such Awards have been satisfied. Such Shares may be granted subject to any restrictions deemed appropriate by the Board. The determination of the Board with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.

At the discretion of the Board and subject to the requirements of Section 409A of the Code, Participants may be entitled to receive any dividends declared with respect to Shares which have been earned in connection with grants of Phantom Shares which have been earned, but not yet distributed to Participants (such dividends shall be subject to the same accrual,

13


forfeiture, and payout restrictions as those that apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section 8.5 herein).

ARTICLE 11.
Other Share-Based Awards

Subject to the terms of the Plan, the Board may grant other Share-Based Awards under this Plan, including without limitation, those Awards pursuant to which Shares are acquired or may in the future be acquired and including Awards of dividend equivalents. The Board, in its sole discretion, shall determine the terms and conditions of such other Share-Based Awards.

ARTICLE 12.
Performance Measures

Unless and until the Board proposes for shareholder vote and shareholders approve a change in the general performance measures set forth in this Article 12, the attainment of which may determine the degree of payout and/or vesting with respect to Awards which are designed to qualify for the Performance-Based Exception, the performance measure(s) to be used for purposes of such grants shall be based on one or more of the following criteria:

(a)
earnings per share;
(b)
net income (before or after taxes);
(c)
return measures (including, but not limited to, assets, equity, sales, investment, return on invested capital (“ROIC”) or internal rate of return);
(d)
cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on investment (discounted or otherwise), or cumulative cash flow per share);
(e)
earnings before or after taxes (including, but not limited to, earnings before all or any interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, “EBITDA”);
(f)
gross revenues or sales;
(g)
operating profit (including, but not limited to, net operating profit after taxes (“NOPAT”);
(h)
margins (including, but not limited to, gross margin, operating margin or pre-tax profit margin);
(i)
operating expenses;
(j)
working capital;
(k)
share price (including, but not limited to, growth measures, total shareholder return (“TSR”) and relative total shareholder return);
(l)
dividend payments;
(m)
implementation or completion of critical projects or processes;
(n)
strategic business criteria, consisting of one or more objectives based on meeting specified market share, market penetration, product launch, inventory goals, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, productivity ratios, expense targets or cost reduction goals, and budget comparisons;
(o)
personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long-term business goals, management

14


succession plans, formation of joint ventures, research or development collaborations, and the completion of other corporate transactions; and
(p)
any combination of, or a specified increase or decrease in, any of the foregoing.

Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee.

The Board (or the Committee with respect to Awards designed to qualify for the Performance-Based Exception) shall have the discretion to adjust the determinations of the degree of attainment of the preestablished performance goals; provided , however , that Awards which are designed to qualify for the Performance-Based Exception, may not be adjusted upward (the Committee shall retain the discretion to adjust such Awards downward). Nevertheless, the Board (or the Committee with respect to Awards designed to qualify for the Performance-Based Exception) shall make appropriate adjustments in the performance goals under an Award to reflect the impact of the following extraordinary items not reflected in such goals: (1) any profit or loss attributable to acquisitions or dispositions of stock or assets, (2) any changes in accounting standards that may be required or permitted by the Financial Accounting Standards Board or adopted by the Company after the goal is established, (3) all items of gain, loss or expense for the year related to restructuring charges for the Company, (4) all items of gain, loss or expense for the year determined to be extraordinary or unusual in nature of infrequent in occurrence or related to the disposal of a segment of a business, (5) all items of gain, loss or expense for the year related to discontinued operations that do not qualify as a segment of a business as defined in APB Opinion No. 30, and (6) such other items as may be prescribed by Section 162(m) of the Code and the Treasury regulations thereunder as may be in effect from time to time, and any amendments, revisions or successor provisions and any changes thereto. The Board (or the Committee with respect to Awards designed to qualify for the Performance-Based Exception) shall have full authority and discretion to, from time to time, as the Board deems necessary or appropriate, modify the accounting principles and components applied in the determination of the degree of attainment of the preestablished performance goals with respect to all Awards.

In the event that applicable tax and/or securities laws change to permit Board discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Board shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Board determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, the Board may make such grants without satisfying the requirements of Code Section 162(m).

ARTICLE 13.
Beneficiary Designation

Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Company

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during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

ARTICLE 14.
Deferrals

The Board may permit or require a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Board shall, in its sole discretion, establish rules and procedures for such payment deferrals and such deferrals shall comply with Section 409A of the Code and any regulations or guidance promulgated thereunder.

ARTICLE 15.
Rights of Employees/Directors

15.1      Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

15.2      Participation. No Employee or Director shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.

15.3      Termination of Employment/Directorship/Relationship. Each Participant’s Award Agreement shall set forth the extent to which the Participant shall have the right to exercise and/or receive payment for any Award following termination of the Participant’s employment or directorship with the Company, or termination of relationship with the Company. Such provisions shall be determined in the sole discretion of the Board, shall be included in the Award Agreement entered into with each Participant, need not be uniform among Awards and may reflect distinctions based on the reasons for termination.

15.4      Competition. In the event the Participant engages in any Competition with the Company, the Participant immediately and permanently forfeits the right to exercise and/or receive payment for any Award, whether or not vested. The Participant must return to the Company the Participant’s gain resulting from Options exercised at any time within the twelve-month period preceding the date the Participant became engaged in competition with the Company.

15.5      Nontransferability. Except as otherwise provided in a Participant’s Award Agreement or determined by the Board, Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of decent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement or determined by the Board, a Participant’s rights under the Plan shall be exercisable during the Participant’s lifetime only by the Participant or the Participant’s legal representative.

ARTICLE 16.
Change in Control


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16.1      Change in Control Treatment of Outstanding Awards. Unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:

(a)
Performance Awards . In the event that a Change in Control occurs during a Performance Period,

(i)
all outstanding Awards, other than the Cash-Based Awards, subject to performance-based vesting shall, immediately prior to the Change in Control, (I) be converted to an Award with a number of Shares underlying such Award equal to the greater of (x) the number of Shares earned as determined using the applicable performance achieved through the date of the Change in Control, as determined by the Committee in its sole discretion or (y) the target number of Shares, (II) cease to be subject to the achievement of performance criteria and (III) vest in full at the end of the Performance Period provided the Participant is employed by or is providing services to the Company or any Affiliate on such date; and
(ii)
all outstanding Cash-Based Awards subject to performance-based vesting shall, immediately prior to the Change in Control, (I) be converted to a Cash-Based Award equal to the greater of (x) an amount of cash earned as determined using the applicable performance achieved through the date of the Change in Control, as determined by the Committee in its sole discretion or (y) the target level of cash, (II) cease to be subject to the achievement of performance criteria, (III) during the remainder of the Performance Period, be credited with such reasonable interest rate as the Committee shall determine (and until the Committee determines otherwise, such interest rate shall equal the three-year U.S. Treasury rate, as adjusted for the Company’s credit rating as of the end of the Company’s fiscal year prior to the Change in Control) and (IV) vest in full at the end of the Performance Period provided the Participant is employed by or is providing services to the Company or any Affiliate on such date.

(b)
Assumption/Substitution of Awards . Unless otherwise determined by the Board and/or evidenced in an Award Agreement, with respect to each outstanding Award that is assumed or substituted in connection with a Change in Control, in the event that (1) a Change in Control occurs and (2) the Participant’s employment or service is terminated by the Company, its successor or affiliate thereof without Cause or the Participant resigns with Good Reason, in either case, on or after the effective date of the Change in Control but prior to twenty-four (24) months following such Change in Control, then:
(i)
Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;
(ii)
Any restriction periods and restrictions imposed on all outstanding Awards of Restricted Stock, Performance Units, Performance Shares, and Cash-Based Awards and Share-Based Awards shall lapse and be settled as soon as reasonable practicable, but in no event later than ten (10) days following such termination of employment; and
(iii)
Notwithstanding anything to the contrary, if the Change in Control event does not constitute a change in ownership or effective control of the Company or a change in ownership of a substantial portion of the assets of the Company under Section 409A of the Code, and if the

17


Company determines any Award constitutes deferred compensation subject to Section 409A of the Code, then the vesting of such Award shall be accelerated as of the date of termination of employment, but the Company shall pay such Award on its scheduled payment date (which may be a “separation from service” within the meaning of Section 409A of the Code), but in no event more than 90 days following the scheduled payment date.
(c)
No Assumption/Substitution of Awards . Unless otherwise determined by the Board and/or evidenced in an Award Agreement, with respect to each outstanding Award that is not assumed or substituted in connection with a Change in Control, immediately upon the occurrence of the Change in Control,
(i)
Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;
(ii)
Any restriction periods and restrictions imposed on all outstanding Awards of Restricted Stock, Performance Units, Performance Shares, and Cash-Based Awards and Share-Based Awards shall lapse and be settled as soon as reasonable practicable, but in no event later than ten (10) days following the Change in Control; and
(iii)
Notwithstanding anything to the contrary, if the Company determines any Award constitutes deferred compensation subject to Section 409A of the Code, then to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the vesting of such Award shall be accelerated as of the effective date of the Change in Control in accordance with clauses (i) and (ii) above, but the Company shall pay such Award on its scheduled payment date, but in no event more than 90 days following the scheduled payment date.
(d)
Assumed/Substituted . For purposes of this Section 16.1, the Awards shall be considered assumed or substituted for if, following the Change in Control, (i) any adjustments necessary to preserve the intrinsic value of the Participant’s outstanding Awards have been made, and the Company’s acquirer or successor, as applicable, irrevocably assumes the Company’s obligations under this Plan or (ii) such acquirer or successor replaces the Participant’s outstanding Awards with Awards having substantially the same intrinsic value and having terms and conditions no less favorable to the Participant than those applicable to the Participant’s Awards immediately prior to the Change in Control. In addition, the Awards shall be considered assumed or substituted for only if any equity based Awards, after the Change in Control, relate to common stock of the Company’s acquirer or successor which is publicly held and widely traded on an established stock exchange. In respect of any Awards that are assumed or substituted and are converted into deferred cash awards, during the remainder of the applicable period prior to payment of such Award, the deferred cash award shall be credited with such reasonable interest rate as the Committee shall determine immediately prior to the Change in Control (and until the Committee determines otherwise, such interest rate shall equal the three-year U.S. Treasury rate, as adjusted for the Company’s credit rating as of the end of the Company’s fiscal year prior to the Change in Control).
(e)
Cashout of Awards . Notwithstanding any other provision of the Plan, in the event of a Change in Control in which the consideration paid to the holders of Shares is solely cash, the Board may, in its discretion to the extent such treatment does not result in tax penalties under Section 409A of the Code, provide that each Award shall, upon the occurrence of a Change in Control, be cancelled in exchange for a payment in an amount equal to (i) the excess of the consideration paid per Share in the Change in Control over the exercise

18


or purchase price (if any) per Share subject to the Award multiplied by (ii) the number of Shares granted under the Award.
16.2      Termination, Amendment, and Modifications of Change in Control Provisions. Notwithstanding any other provision of this Plan (but subject to the limitations of Section 18.3 hereof) or any Award Agreement provision, the provisions of this Article 16 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards; provided , however , the Board may terminate, amend, or modify this Article 16 at any time and from time to time prior to the date of a Change in Control.

ARTICLE 17.
Change in Capitalization

In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or any partial or complete liquidation of the Company, the Board shall make such adjustment in the number and class of Shares which may be delivered under Article 4, in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, and in the Award limits set forth in Article 4 as it determines to be appropriate and equitable, in its sole discretion, to prevent dilution or enlargement of rights; provided , however , that the number of Shares subject to any Award shall always be a whole number; provided , further, that no such adjustment shall cause any Award hereunder which is or becomes subject to Section 409A of the Code to fail to comply with the requirements of such section.

ARTICLE 18.
Amendment, Modification, and Termination

18.1      Amendment, Modification, and Termination. Subject to Sections 18.3 and 18.4, the Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided , that no amendment shall be made without shareholder approval if such approval is necessary to comply with any applicable tax or regulatory requirements. Prior to such approval, Awards may be made under the Plan expressly subject to such approval.

18.2      Adjustment of Awards. The Board (or its delegate) may make adjustments in the terms and conditions of, and the criteria included in, any Award in any situation it deems appropriate, as long as the adjustment of such Award does not adversely affect the holder; provided , that no such adjustment shall be authorized to the extent that such authority would be inconsistent with the Plan’s meeting the requirements of Section 162(m) or 409A of the Code.

18.3      Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary (but subject to Article 16, 17, 19 and 23 hereof), no termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.

18.4      Compliance with Code Section 162(m). At all times when Code Section 162(m) is applicable, all Awards granted under this Plan shall comply with the requirements of Code Section 162(m); provided , however , that in the event the Board determines that such compliance is not desired with respect to any Award or Awards available for grant under the Plan, then compliance with Code Section 162(m) will not be required. In addition, in the event that changes are made to Code

19


Section 162(m) to permit greater flexibility with respect to any Award or Awards available under the Plan, the Board may, subject to this Article 18, make any adjustments it deems appropriate.

18.5      Prohibition on Repricing. Subject to limitations imposed by Section 409A of the Code or other applicable law, in no event shall the exercise price with respect to an Award be reduced following the grant of an Award, nor shall an Award be cancelled in exchange for a replacement Award with a lower exercise price or in exchange for another type of Award or cash payment without shareholder approval.

ARTICLE 19.
Clawback

If the Company’s financial results are materially restated, the Committee may review the circumstances surrounding the restatement and determine whether and which Participants will be required to forfeit the right to receive any future Awards or other equity based incentive compensation under the Plan and/or repay any Awards or cash payments determined by the Committee to have been inappropriately received by the Participant. If the Company’s financial results are restated due to fraud, any Participant who the Committee determines participated in or is responsible for the fraud causing the need for the restatement, forfeits the right to receive any future Awards or other equity based incentive compensation under the Plan and must repay any Awards or cash payments in excess of the amounts that would have been received based on the restated financial results. Any repayments required under this Article 19 must be made by the Participant within ten (10) days following written demand from the Company. This Article 19 applies only to Participants in the Plan who also participate in the Steelcase Inc. Executive Severance Plan.

ARTICLE 20.
Withholding

20.1      Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.

20.2      Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Board, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Board, in its sole discretion, deems appropriate.

ARTICLE 21.
Indemnification

Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in

20


satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation of Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
ARTICLE 22.
Successors

All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

ARTICLE 23.
Legal Construction

23.1      Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

23.2      Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

23.3      Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

23.4      Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions or Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the plan or action by the Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board.

23.5      Section 409A. The intent of the parties is that payments and benefits under this Plan comply with Section 409A of the Code, to the extent subject thereto, and accordingly, to the maximum extent permitted, this Plan shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, a Participant shall not be considered to have terminated employment with the Company for purposes of this Plan unless the Participant would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code. Each amount to be paid or benefit to be provided under this Plan shall be construed as a separate identified payment for purposes of Section 409A of the Code, and any payments described in this Plan that are due within the “short term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Without limiting the foregoing and notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Plan (or any other plan or agreement of the Company)

21


during the six-month period immediately following a Participant’s separation from service shall instead be paid on the first business day after the date that is six months following the Participant’s separation from service (or death, if earlier). The Plan and any Award Agreements issued thereunder may be amended in any respect deemed by the Board or the Committee to be necessary in order to preserve compliance with Section 409A of the Code. The Company makes no representation that any or all of the payments described in this Plan will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment. Each Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A of the Code.

23.6      Governing Law. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Michigan.

ARTICLE 24.
Execution

IN WITNESS WHEREOF, Steelcase Inc. has caused this Plan, captioned “Steelcase Inc. Incentive Compensation Plan,” as amended and restated effective as of July 15, 2015, to be executed by its duly authorized officer this 15th day of July, 2015.

STEELCASE INC.
 

By: 
/s/ Lizbeth O'Shaughnessy
 
Lizbeth O'Shaughnessy
Its:
Senior Vice President, Chief Administrative Officer, General Counsel and Secretary




22


2016-1 AMENDMENT
TO THE
STEELCASE INC.
RESTORATION RETIREMENT PLAN
(Restated effective January 15, 2011)
This 2016-1 Amendment to the STEELCASE INC. RESTORATION RETIREMENT PLAN (the “Plan”) is adopted by Steelcase Inc. (the “Company”). The amendment is effective as of March 1, 2015 .
Pursuant to Section 8.1 of the Plan, the Company amends the Plan as follows:
A.

Section 2.12 is amended as follows:
2.12      Eligible Compensation
“Eligible Compensation” means the Compensation of a participant in the Steelcase Inc. Retirement Plan that exceeds the limit specified in Internal Revenue Code Section 401(a)(17) for the Plan Year.
B.

Section 2.19 is amended as follows:
2.19      Participant
“Participant” means an Employee who either:
(a) is a participant in the MIP and the Steelcase Inc. Retirement Plan during the Plan Year and who receives Eligible Compensation during the Plan Year; or
(b) has been selected by the Administrative Committee or Compensation Committee of the Board to participate in the Plan.
C.

Section 4.1 is amended as follows:
4.1      Participation
Participation in the Plan is limited to Employees who either:
(a) are Participants in the MIP and the Steelcase Inc. Retirement Plan who receive Eligible Compensation during the Plan Year; or
(b) are designated by the Administrative Committee or Compensation Committee of the Board for participation in the Plan.

1


D.

Section 6.1(b) is amended as follows:
(b)      Amount of Principal Credit As of the last day of each Plan Year, the Company shall credit the Account of each eligible Participant with an amount equal to the sum of (1) and (2) below where:
(1) Equals the product of (A) multiplied by (B) below where:
(A) Equals the percentage of compensation (as defined in the Steelcase Inc. Retirement Plan) allocated to the Participant’s discretionary contribution account, nondiscretionary contribution account or qualified non-elective contribution account in the Steelcase Inc. Retirement Plan for that Plan Year; and
(B) Equals the Participant’s Eligible Compensation; and
(2) Equals the product of (A) multiplied by (B) below where:
(A) Equals the largest percentage of compensation (as defined in the Steelcase Inc. Retirement Plan) allocated to any participant’s matching contribution account in the Steelcase Inc. Retirement Plan for that Plan Year; and
(B) Equals the Participant’s Eligible Compensation.
The Company may also credit additional amounts, to be determined by the Compensation Committee of the Board, to the Account of any Participant who is also a participant in the Steelcase Inc. Executive Supplemental Retirement Plan (the “SERP”). These additional credits will occur as of March 2, 2015. Notwithstanding the provisions of Section 5.2, the Participant’s vested percentage in the additional credits made as of March 2, 2015 shall be determined by the Compensation Committee of the Board in writing no later than March 2, 2015 or the date the Compensation Committee approves the additional credit, if later.
E.

In all other respects, the Plan is unchanged.

2


Signature
The Company signs this 2016-1 Amendment to the Steelcase Inc. Restoration Retirement Plan on the date stated below
 
STEELCASE INC.
 
 
Dated: September 21, 2015
 /s/ Lizbeth S. O’Shaughnessy
 
Signature
 
 
 
Lizbeth S. O’Shaughnessy
 
 
 
Senior Vice President, Chief Administrative
 
Officer, General Counsel and Secretary


3


EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
SARBANES-OXLEY ACT SECTION 302

I, James P. Keane, certify that:
1)
I have reviewed this quarterly report for the period ended August 28, 2015 on Form 10-Q of Steelcase Inc.;
2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
 
/s/ James P. Keane
Name:
 
James P. Keane
Title:
 
President and Chief Executive Officer
Date: September 29, 2015





EXHIBIT 31.2
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
SARBANES-OXLEY ACT SECTION 302

I, David C. Sylvester, certify that:
1)
I have reviewed this quarterly report for the period ended August 28, 2015 on Form 10-Q of Steelcase Inc.;
2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5)
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
 
/s/ David C. Sylvester
Name:
 
David C. Sylvester
Title:
 
Senior Vice President, Chief Financial Officer
Date: September 29, 2015





EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Steelcase Inc. (the “Company”) for the period ended August 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), James P. Keane, as Chief Executive Officer of the Company, and David C. Sylvester, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



 
/s/ James P. Keane
 
Name:
James P. Keane
 
Title:
President and Chief Executive Officer
 
September 29, 2015
 
/s/ David C. Sylvester
 
Name:
David C. Sylvester
 
Title:
Senior Vice President, Chief Financial Officer
 
September 29, 2015

This certification accompanies the Report pursuant to Section 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 Section 18 of the Securities Exchange Act of 1934, as amended.