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Steelcase Reports First Quarter Results

Monday 21 June 2010

Steelcase Inc today reported a first quarter net loss of $(11.1) million, or $(0.08) per share, including an $(11.4) million charge resulting from the recently enacted healthcare reform legislation specifically related to the Medicare Part D Subsidy. Steelcase reported break-even net income in the first quarter of the prior year.
First quarter revenue of $541.8 million, in comparison to prior year, was negatively impacted by $(14) million from the deconsolidation of dealers completed in the last twelve months and positively impacted by approximately $6 million of favourable currency translation effects. Adjusted for these impacts, the company experienced organic revenue growth of one percent over the prior year.
\"After six straight quarters of year-over-year revenue declines during this current industry downturn, we are pleased with the organic revenue growth in the first quarter,\" said James P. Hackett, president and CEO. \"Even though the growth was modest, our operating results improved significantly as a result of our cost reduction efforts over the past two years.\"
The current quarter operating loss of $(1.4) million represents an improvement of $3.8 million over the prior year operating loss of $(5.2) million which included $16.8 million of income associated with an increase in cash surrender value of variable life company-owned life insurance policies (variable life COLI income). Current quarter results include $(2.5) million of restructuring costs compared to $(2.8) million of restructuring costs in the prior year. Adjusted for these items, first quarter adjusted operating income of $1.1 million improved $20.3 million compared to the prior year adjusted operating loss of $(19.2) million.
\"The $20 million year-over-year improvement in adjusted operating income is a reflection of our commitment to reduce our cost structure in response to current volume levels,\" said David C. Sylvester, vice president and CFO. \"As the recovery begins to take shape, we remain committed to cost containment efforts in order to allow for maximum leverage from volume growth.\"
Cost of sales improved to 69.9 percent of sales in the quarter from 70.9 percent in the prior year, primarily due to benefits from restructuring activities and other cost reduction efforts and lower commodity costs, and despite lower variable life COLI income in the current quarter.
Operating expenses in the first quarter, which included the reinstatement of salaries to fiscal 2009 levels, were $161.9 million compared with $161.0 million in the prior year. Benefits from prior restructuring activities and other cost reduction efforts and the effect of dealer deconsolidations offset lower variable life COLI income and the reinstatement of salaries.
The income tax expense recorded in the quarter included an $11.4 million charge resulting from the recently enacted healthcare reform legislation specifically related to the Medicare Part D Subsidy.
Other income, net increased $4.5 million over the prior year to $1.8 million, driven largely by $4.0 million of variable life COLI income, which is now recorded as a non-operating item given the designation of these assets as an additional source of corporate liquidity.
Cash, short-term investments and the cash surrender value of variable life company-owned life insurance totaled $243.8 million and total debt was $298.7 million at end of the first quarter.
Outlook
All reporting segments experienced year-over-year order growth during the first quarter. The company expects second quarter fiscal 2011 revenue to be in the range of $560 to $585 million. This estimate includes an assumption of approximately $(14) million from unfavorable currency translation effects. The company reported revenue of $578.1 million in the second quarter of fiscal 2010, which included $13 million of revenue from dealers which have since been deconsolidated. Adjusting for these impacts, the company projects organic revenue growth in the range of 2 to 6 percent over the prior year.
Steelcase expects to report net income of $0.01 to $0.05 per share for the second quarter of fiscal 2011, including approximately $(4) million of pre-tax restructuring costs. This compares to break-even earnings per share in the second quarter of fiscal 2010, which included $(17.4) million of pre-tax restructuring costs and significant variable life COLI income.
\"We stayed focused on our long-term strategy during the industry downturn,\" said James P. Hackett, president and CEO. \"Now, with positive momentum from the first quarter and the expected organic growth in the second quarter, we continue to believe we could achieve modest organic revenue growth in fiscal 2011 over last year.\"

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