Steelcase Inc. (NYSE:SCS)
2013 Annual Shareholder Meeting
July 17, 2013 11:00 am ET
Robert C. Pew - Non-Executive Chairman and Chairman of Executive Committee
James Patrick Hackett - Chief Executive Officer, Director and Member of Executive Committee
David C. Sylvester - Chief Financial Officer and Senior Vice President
Wasn't that great? Welcome, everyone. My name is Raj Mehan. I'm the Director of Investor Relations for Steelcase. Welcome to our 2013 Annual Shareholders' Meeting. We're glad you could join us today. And just before we begin, just a couple of brief announcements.
On the screen, you'll note the Safe Harbor statement on the screen. It should be up here in a second. It pertains to today's presentation, which will include Steelcase's business outlook and other forward-looking statements. As you know, there's always risks associated with the use of these information for investment decision-making purposes. And for more detail on these risks, you can refer to our 2013 Form 10-K and our other filings with the Securities and Exchange Commission.
Please remember that audio and video recording devices and photography are not permitted during the meeting. And if you wouldn't mind, please, silencing your phones for the duration of today's meeting, that'd be great. And now we can start the meeting.
Robert C. Pew
Thanks, Raj. Good morning. I'm Rob Pew, Board Chair. It is my honor to preside at the Steelcase 2013 Annual Meeting of Shareholders. I like to extend a warm welcome to all our shareholders and guests who are in the audience this morning, as well as those listening on the live webcast of the meeting. Thank you for joining us.
I would like to now introduce the people on the stage. Seated at the table from your left to right is Jim Hackett, Chief Executive Officer; Dave Sylvester, Senior Vice President and Chief Financial Officer; Lisa Maloney, Assistant General Counsel and Assistant Secretary, who will act as Inspector of Elections; and Lizbeth O'Shaughnessy, Senior Vice President, Chief Legal Officer and Secretary, who will act as secretary of the meeting. You might recognize a few of those faces from the film you just saw.
Representatives from Deloitte & Touche LLP, our independent auditors, are also in attendance and will be available to answer appropriate questions.
So this year, we continued to improve our performance, and I'm starting to see us put some significant distance between ourselves and our competition as we continue to use insights and design thinking in the development of our products, services and experiences.
I'm going to let Jim Hackett, whose leadership has been at the forefront of this transition, delve more deeply into our company's performance a little later.
Bob Pew used to remind us that profits is not a dirty word. Without profits, we would not be able to invest in the growth of the company, share with the employees in the form of bonuses or with shareholders in the form of dividends. Last year, we were able to do all of the above. We were able to reinvest $74 million in the business in the form of capital expenditures. We're able to pay out at our target level of bonuses to all employees, and we raised our quarterly dividend from $0.09 to $0.10 a share.
Jim, you and your team have had a fine year.
I want to speak briefly about our board committees and their leadership. We have 3 board committees that meet on a regular basis. There is a fourth, our executive committee, which only meets on those rare occasions when we can't submit -- can't convene the entire board. These 3 committees do much of the work of the board. Our Audit Committee has the role of assisting the board in its obligations to review any critical accounting areas, our overall financial reporting and the audit process conducted by our internal and external auditors.
The committee also oversees our internal control environment and all areas of legal compliance. That might sound simple, but it requires in addition to regular quarterly meetings, frequent teleconferences with management and our independent auditors, Deloitte & Touche.
By the way, our Audit Committee hires our auditor and reviews their performance as well.
Chairing our Audit Committee is Cathy Ross. I'd like her to stand. Cathy, thank you for your leadership.
Our Nominating and Corporate Governance Committee, or Nom-Gov for short, ensures our board operates with strong governance practices without losing sight that we are different from other companies and that we have strong family ownership. The Nom-Gov Committee also works with our board to ensure our board composition meets the needs of the company.
Finally, our Nom-Gov Committee oversees our CEO evaluation process. Chairing the Nominating and Corporate Governance Committee is Lisa Long. And I'd like her to stand. Thank you, Lisa.
Finally, our Compensation Committee oversees our compensation practices worldwide and sets the compensation for our CEO and key officers. Our Compensation Committee needs to ensure that we are paying people fairly relative to the market. At the same time, the committee ensures that we share profits right in the ups and downs of corporate performance while balancing the need to stay focused on the long-term success of the company.
Over the last 11 years, this has been a tough task. For all those years, Dave Joos has been a remarkable leader who has always tried to balance the needs of employees and owners. Dave will be turning his chair over after this meeting, and I wanted to give special recognition to Dave for his fine leadership. Dave, would you stand up?
Now it is my pleasure to introduce the rest of the members of your Board of Directors, and I'll ask each to stand and face the audience when named. Larry Blandford, Bill Crawford, Connie Duckworth, Dave Hoover, Pete Wege, Craig Welch, Kate Wolters, Jim Hackett, Jim Keane, who is our newest member of the board, and myself.
And Jim Hackett will brief you on the past year and our plans for the future in a moment, but now I call the meeting to order. I ask that Lizbeth O'Shaughnessy certify that a quorum is present.
Mr. Chair, the company has satisfied all mailing and notice requirements based on the record date of May 20, 2013, established by our Board of Directors. Present today, in person or by proxy, is over 85% of the voting power of shares entitled to vote at this meeting, which constitutes a quorum authorizing the meeting to proceed.
Robert C. Pew
Thank you, Lizbeth. I want to remind everyone that only shareholders are eligible to participate in the business of the meeting and the discussion periods throughout the meeting. If you have submitted your proxy to us by telephone, the Internet or by mail, your vote has already been recorded. If you did not submit a proxy or you wish to change your vote, please raise your hand, and we'll provide you with a substitute ballot card.
There are 2 proposals before us today. The first proposal is the election of directors. The individuals nominated by your board for a 1-year term are Larry Blandford, Bill Crawford, Connie Duckworth, Jim Hackett, Dave Hoover, Dave Joos, Jim Keane, Lisa Long, myself, Robert Pew, Cathy Ross and Craig Welch. These nominees proposed by the Board of Directors are the only candidates before this meeting. Is there a motion?
Mr. Chair, I move this slate of nominees for election.
Robert C. Pew
Is there a second to the motion?
Mr. Chair, I second the motion.
Robert C. Pew
The proposal has been moved and seconded. The second proposal is an advisory vote to approve named executive officer compensation. The Board of Directors recommends approval of this proposal. Is there a motion?
Mr. Chair, I move the proposal be approved.
Robert C. Pew
Is there a second to the motion?
Mr. Chair, I second the motion.
Robert C. Pew
The proposal has been moved and seconded. Both of the proposals have been moved and seconded. Is there any discussion on the proposals? If you've not completed your ballot, please do so at this time. Please sign and print your name exactly as it appears on your shares. Raise your hand, and we'll collect your ballot. The polls for voting on the proposals will close in 5 minutes.
While the ballots received today are being collected, I'd like to invite Jim to present a review of our fiscal year 2003 (sic) [ 2013 ] performance and current strategies.
James Patrick Hackett
Good morning, everyone. The ceremony of the annual meeting was conceived maybe 100 years ago, long before there was any sort of online or virtual communication. The gathering of the company's shareholders was an important rite of passage to enable that important transparency and clarity and to build optimism in the company's prospects.
These were all noble goals and important to our collective interest. Today, however, we're in an era where every financial report and SEC filing and every press release is captured in a digital net at the instance it goes out. So our shareholders can ensure that they never miss anything about their company, even without leaving home. Thus, the nature of this ceremony is evolving. The value of being in person has declined a little, if you look at the size of the room today, giving way to the ascending potential for people to listen or watch online, either live or after the fact.
I'm not here to signal any shift in the design of this day, but as you might suspect, our team watches these kinds of trends. And they've been imagining the next wave, in how Steelcase can be the best of what the in-person experience always promised, to enable transparency and clarity and to build optimism.
With these goals in mind, let me confirm that we truly appreciate and value your interest in Steelcase.
Last year at this time, we were in the middle of our marvelous 12-month celebration of the company's 100th birthday. And today, we get to declare that we live longer than 100 years, and I'm certain that there are many more to come.
Last year, we reflected on the historic position that the company had, looking at companies that were dominant in their day, only to be donned by our time. Thus, one of my first messages is to confirm that your company is in fantastic shape and that -- and this is the most important, we continue to work at getting better. We operate our business by this simple maxim, that you either get better or worse, you never stay the same.
Last year, Steelcase improved once again. Now specifically, the reported net income of nearly $39 million or $0.30 a share was understated because it included non-cash goodwill impairment charges and restructuring costs that were all designated to improve our business model. So this reduced earnings by well over half, and it obscured what I would call the underlying significant improvement in our core operating performance.
Now this is important to note because I stood up here before and promised that many of our most difficult actions were in pursuit of a new level of fitness and performance. And we're now seeing evidence of this.
Global sales rose to $2.9 billion. This is the third consecutive year of organic growth. Parenthetically, organic means we take out acquisitions or currency fluctuations just to see pure top line improvement.
Now today, I won't go through all the divisions in detail, but I want to call out a couple of important data points. In the Americas, revenue was up 7% on an organic basis. Now this is what I would call extraordinary achievement because it means the company continue to gain market share in the U.S. And I offer special congratulations to Jim Keane for leading us during this past 3 years of growth, and I note, really, that since he's expanded his duties as Chief Operating Officer, we're already seeing improvements in the businesses now under his care.
Also, to Eddy Schmitt, who is not here today. Eddy moved his family from Europe to take over the leadership of our sales and distribution organization. And he helped lead a massive sales reorganization, combined with the change in the business model and contributed to the operating income of 9.8% in this segment in fiscal 2013.
Our European, Middle East and Africa segment posted an adjusted operating loss for the year. But our European-based team did well to achieve modest organic growth in an extremely challenging economic environment. You're all reading about Europe. You've read that we took a goodwill impairment and tax adjustments in February. Accounting rules require that we do this. However, your board and I believe in a long-term European value. It's just too important as an economy, and we believe it's critical to our strategy.
In a region like Europe where the sands are shifting, our role is to make sure the business model is designed for fitness and to balance what we would say our short-term pressures with what our longer-term important strategies.
Returning to profitability in this segment will likely be a multiyear effort, but it is crucial to our ability to serve leading multinational companies. This is something we know how to do over a long-term, restructure the business. In fact, keeping a long-term on our business is one of the reasons Steelcase has maintained its #1 stature in our industry for so long.
Our third major region is Asia Pacific. Now it's had some sluggishness in the last fiscal year, but we're pleased with our progress in serving these targeted global organizations, as well as making inroads into local markets.
In fact, in the past year, we've added more than a dozen new dealers in China. And at the same time, we opened a brand-new manufacturing facility in India.
We expect that both of these markets, China and India, to be very, very large in their future, in what we call our far horizon. Thus, this work right now is so important to laying the foundation correctly.
Let me talk a moment about some other foundational work from the past years that is now paying off. At our recent Annual Trade Show in Chicago, I had a moment when I was walking through the company's showroom where I could see the decades of hard work all coming together.
It was a bright moment for me because I'm proud of being able to serve in this role for 19 years when on average a CEO maybe stays for shade under 5 years. And that's not boasting about the term, it's rather offering this observation. Substantive change takes time, and the nature of the decisions a company makes and figuring out the correct strategic direction, then aligning around that point of view, planning that execution, implementing with excellence, wow, it's just not a trivial exercise. There are so many points on the globe, so many people to coordinate, so many important customers to react to. It came to me in that showroom that we've got the position we need right now to be very successful.
I won't go on about the recipe because it's just like a famous soda company, we want to keep our formula a secret. But you should know there is one, and it has to do with this translation of insights, of behavior in their products and applications that our customers just love.
And then you add the skills of business modelers, like Jim Keane, and we have the stuff to be very successful.
In addition to this NeoCon impact, you can walk around our facilities here in Grand Rapids, as our customers do daily, and you see we've been working really hard, we've done a little construction that brings these insights into play right here.
In fact, I say it's a nice refreshing breeze on this hot day, given there were so many years, of course, of shuttering facilities. In fact, this spring, we opened our new innovation center right next door, in the learning center. It's the home of the North America product development and design teams. And I wish I could show it to you but we do limit access to the nature of the work that's done there.
What I can tell you, and what you may be able to spot in these photos is that it's a very inspiring space. It leverages many of the insights that I've just referenced. We consider the center, though, of the world not to be in Grand Rapids. We see this innovation center on a node -- as a node on a network of innovation that goes on all over the world.
So we packed it with a lot of technology, as you saw on the video, so the people can connect seamlessly as possible.
Well, helping people connect is such a big part of what Steelcase is all about, or as you saw on the video that opened the meeting today, who we are and what we do. We started this conversation more than a year ago in preparation for the 100th anniversary, and it began with the talk of the idea of unlocking human promise. Something that the company has been doing for a long time. But unlocking the promise of humans requires that space inspire the human spirit, and then we do that by using the force and power of technology.
Steelcase has long been known as a furniture maker. Today, we say we're a place maker, places full of furniture. And for those of you who are thinking largely about the revenue stream, we're also full of insights.
We want to be known for our expertise on places where people work, where they learn and where they heal. And don't overlook the word people because it's crucial in that sense. Places exist to augment human performance. There's a big debate, frankly, now going on about the pros and cons of why do you need space? Why not just work at home? The fact is people can work from anywhere with mobility. But when they're together, that's when the creative collaboration really source.
Today's office requires a variety of settings, from quiet focused places for heads-down work to group spaces where technology makes it seem, if your colleagues -- as if your colleagues are on the other side of the ocean, right in the room with you.
Tech has become an equal partner with architecture and furniture. It might sound like a similar or familiar theme that I've talked about, because we've been talking about it for almost 15 years. But there's a difference now. There's a harmony. It's seamless, not merely in the way the pieces go together, but I call the design language. It's more than just seeing someone's space on a screen in a cubicle.
A way to think about this is when Motorola invented the transistor radio, people loved it. And they wanted music when they're in the car so they hung that radio from the rearview mirror. Eventually, the radio moved to the dashboard, but it still was a radio inside a car. You still had to push buttons. Not a unified system. Well, today, you don't even have to push buttons. You just plug in your phone or your iPod, and the car becomes a whole sound system. In a way, the office has to be just as responsive. We're bringing this approach to market at the same time that the wave of -- excuse me, office modernization is beginning to crest. It's really -- we're at an inflection point where all of this is happening because it has to.
Companies that delayed investment in their spaces over the last decade or more, they really can't wait to change the work environment. And they're turning to us more and more frequently to ask us what we know about these things, mobility, collaboration and so forth.
Out in the lobby, I hope you saw this, is another example of the insights. It's our new chair called Gesture. And those of you here today are certainly welcome to test it, of course. We'll be happy to sell you one, if you want to take one. It's a product of research in the different postures driven by tech. The way we set a typewriter or a keyboard cause you to be fixed at a work surface. Now, when you're working on a tablet, well, it just changes that posture again.
So many chairs on the market today were designed for the old way, so Gesture has a really important statement about typing versus tablet-ing. It was 1 of the 5 NeoCon Gold Award winners. We won with insights. We won with innovation and what we have said as intelligent and beautiful design. In fact, we won across not only the Steelcase brand, but Coalesse, Nurture and Turnstone.
Each one of these brands have their own identity in their own market, but they all support that underlying concept of unlocking human promise. So as I said at the start, I think your company is in fantastic shape.
I also mentioned a moment ago that this is my 19th year at -- on this stage. Thinking of Bob Pew, my first meeting 19 years ago in that edge as I walked in, and how important I think it was for our long-term bias to be able to avoid lots of change at the top of the company.
So you can imagine it's a bit difficult for me today to share one more piece of news, and that is I've made a decision to retire. I will step down as CEO at the end of February 2014. I want to say that twice so that everybody won't think I'm not in charge between now and February. So it's February 2014.
It's 7 months from now. And I said to the board, "I'm going to race to the tape." Our board has certainly been incredibly agile with all the things we've had to do together to keep our company to be the best it can be. And I sure appreciate their trust, and more importantly, the length of time they afforded me to do what we had to do. I couldn't be happier with where we are and where we're headed.
But it's just time, time for opportunity for others in our executive leadership roles and time for me to pursue some other interests with my wife, Kathy, who's in the back today, and 2 other special women in my life, whose ages are 2.5 and 1.5, respectively. I don't want to go on about the decision because our focus from this perch, starting with Bob, is always about the company and its mission. The right time will come to reflect and comment on history, and I don't want this news to be a distraction, rather, it's an enabler for what I'm sure will be a very smooth executive succession.
For now, I want you to know that I have a strong desire as our company does to compete and continue to lead at what we're doing, and we're determined to be improved in areas where we know we can be better.
Therefore, let me end my comments with a simple thank you.
Robert C. Pew
Thanks, Jim. As Jim mentioned, your board has been actively involved in the succession process for some time, and I think you can see by some of the changes that have already occurred that we have a smooth process in place.
I also want you to know that the board has approved Jim into moving into the position of Vice Chair for the year following his retirement as CEO. In this position, he will ensure a smooth transition and secure what we call design thinking, and with that, innovation as basic processes of the company.
Jim will also assist me in engagement with our shareholders. I want to thank Jim for leading our company through some difficult times, several recessions, a financial meltdown, several crises throughout the world. His calm hand at the tiller has been appreciated.
Jim helped change the conversation from selling office environments to providing insights about how spaces can impact performance. Jim adopted design and design thinking as core beliefs and spread those beliefs throughout the company. Thank you.
At this time, the polls have closed, and I would like the Inspector of Elections to announce the results.
Thank you, Mr. Chair. I'm pleased to announce the following voting results. A majority of the votes have been cast in favor of each of the nominees for director and the advisory vote to approve named executive officer compensation.
Robert C. Pew
Thank you, Lizbeth. I declare the slate of candidates elected to serve as directors for 1-year term. Congratulations. I also declare the advisory vote to approve named officer compensation approved.
Now is the time of the meeting reserved for shareholders who have questions and wish to be heard. For the sake of everyone in the audience today, our shareholders are asked to pose 1 question and limit your question to 2 minutes.
After everyone who would like to do so has had a chance to ask a question, if time allows, you may ask an additional question. Please raise your hand, and we will bring the microphone to you where you are seated. After being recognized, please state your full name so our record of the meeting will be complete.
Alternately, you may always contact Steelcase Investor Relations Department with investment-oriented questions via e-mail, mail or phone. Contact information is on the screen behind me. So are there any questions or comments at this time?
Mike Leiflock [ph]. And I just wanted to know what your -- the #1 goal between you and the board is for this year, possibly 2 goals that you have your eyes set on, anything. It's a softball question.
James Patrick Hackett
Fire away. And I want to answer it in a simple way and tell you that what we provide the board with is a dashboard in every quarter's board pre-read that probably has 10 goals in there and a green, red or yellow light whether we're on target. And they have to deal with around the fitness of the company, so this notion of we'd never want to lose sight of our competitiveness, the innovation that you heard me hint about, that Rob hinted about, which is the secret recipe in using design, the notion about expanding into what we call where we play and how we win, what markets we've targeted, what kind of accounts, what kind of customers. There's discussion about how we develop the right kind of talent and diverse workforce. There's substructures around operations and distribution, and -- but if you were staring at that dashboard and you ask me, "What was, in this past year, what we were really trying to do?" We said to ourselves that all of this hard work in building this great slate of new products now needed to get to market. And so NeoCon was such a treasured experience because Jim Keane's team, Allan Smith, James Ludwig, Gale Moutrey, Eddy Schmitt pulled off an enormous statement about what we've been investing in for a long time. And so launching a brand-new chair and a new product called V.I.A. amongst a bunch of other things that were just as important in that list, what became the rite of passage and focus. And incidentally, we are not all the way through it yet. Meat is learning how to make that stuff and ship it on time, and so we'll be reporting to you on that progress as well.
James Patrick Hackett
Yes. We -- there's actually a couple of ways to answer that question. Let me just share with you. This is a chair that's been launched globally. In my 19 years, we've had 1 global chair, and we didn't launch it at the same time. This chair has been launched globally. So for example, I was in New York when Gale was in Paris at the same night -- different, asynchronous times, but the same day, that chair was being presented to the markets. The second thing we've done as part of that launch in NeoCon, we actually asked people to sit on it, to your comment, and survey with them, what we're asking them to do is consider the way they think they work and the way they're going to need to sit. And we give them actually a little label that references them in that test. And it's a memorable transaction because they start to think about what's changed in the way they've seated. So we've been keeping account of that. We know by category the type of users that have been posted in this survey around the world. So that data is really helping us as well. And we've now begun the process of putting samples inside our dealers, and there's where the leverage really starts because as you know, we multiply ourselves in a huge factor when our dealers begin to sell the chair. So it's going really well. We haven't released any information yet about it, sales, but I would say that's a green light on that chart that I just mentioned.
Robert C. Pew
Thanks. Are there other questions?
Carol Thompson [ph]. The much talked about QE3 easing that's going to happen at some point. I was just curious if that would have any effect on Steelcase?
James Patrick Hackett
Well, I'll share this answer with Dave. Let me start because I get to sit in a banking boardroom, too, and I can see the effects of the Fed's policy kind of on the economy. And eventually, the government is buying back all the securities that weren't trading. That's the way that the engine is being oiled right now. So eventually, it has to stop doing that, and that's what the quantitative easing is about. And the system, the financial system itself, has to begin to adjust for markets. That's why interest rates have been going through some fluctuation right now as real markets are doing it versus the government. I have great faith that, that system will find its right equilibrium, and I think that the position of this program has been needed at that time. With that said, independently of that, the comments that we're making in my talk about what is it about this time in our customers' spaces that are so attractive to our opportunity? And you can't imagine a more kind of perfect intersection for them. I don't want to call it a storm because I don't want to disparage our customers, but they've got demographic differences, older and younger workers. The fixity is the term we use of computing in the phone totally blown up. So now mobility, while older spaces were designed around people being fixed, the globalization, the fact that they have project teams that unify, like I just told you we did, to launch a product, their spaces really didn't consider that. Sometimes they have really lousy microphones in rooms or they don't have tele-presence. So there's an opportunity. I just was down in Texas with some big accounts, and they -- these forces that I just described you, very successful company hasn't addressed it for 20 years. How do I know that? Because I was the guy that helped sell them the last one. And I remarked about that. And this senior executive said, "You know, we've got to be on a faster cycle than every 20 years to attract and retain talent." But beyond that, Dave, is there anything economically that you'd add about?
David C. Sylvester
No, I think you said it well. I think it has risk of stressing the macroeconomic environment, but we have confidence that the economy will find its way through that. But what gives us stronger confidence is the fact that the world is still largely installed on an outdated model of private office cubicles. And most of our companies have either too many of them, they're too big or they're underutilized because people are in meetings. And so we see this almost an era in front of us of modernization of their places.
Robert C. Pew
Great, thanks. Other questions? As there are no additional shareholders wishing to be recognized at this time, I now declare the meeting adjourned. Thank you very much.
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