Raj Mehan - Director of IR and Assistant Treasurer Jim Keane – President and Chief Executive Officer Dave Sylvester – SVP, Chief Financial Officer Mark Mossing - Corporate Controller and Chief Accounting Officer

Budd Bugatch - Raymond James Matt McCall - BB&T Capital Markets Kathryn Thompson - Thompson Research Group Barry Haimes - Sage Asset Management

Good day, everyone, and welcome to Steelcase's Second Quarter Fiscal 2016 Conference Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the conference call over to Mr. Raj Mehan, Director of Investor Relations Financial Planning Analysis and Assistant Treasurer.

Thank you, Sharon. Good morning everyone. Thank you for joining us for the recap of our second quarter financial results. Here with me today are Jim Keane, our President and Chief Executive Officer, Dave Sylvester, Senior Vice President and Chief Financial Officer, and Mark Mossing, Corporate Controller and Chief Accounting Officer. Our second quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast and this webcast is a copyrighted production of Steelcase, Inc. Presentation slides that accompany this webcast are also available on ir.steelcase.com and a replay of this call will also be posted to the site later today. Our discussion today may include references to non-GAAP financial measures and forward-looking statements. Reconciliations to the most comparable GAAP measures and the risks associated with the use of forward-looking statements are included in our earnings release and webcast slides. We are incorporating by reference into this conference call, the text of our Safe Harbor statement, included in yesterday's release. Following our prepared remarks, we will respond to questions from investors and analysts. I will now turn the call over to our President and Chief Executive Officer. Jim Keane.

Thanks, Raj, and good morning, everyone. This was another strong quarter for Steelcase and we are pleased to see organic revenue growth in every segment and to record an adjusted operating income margin of 15% in the Americas. I want to make a few comments about our results in the Americas and then I will talk in more detail about EMEA, then Dave will take you deeper into the results. This was a remarkable quarter for the Americas in terms of profitability. These results represent all of the work our people have done over the past few years to improve our business model, modernize our industrial footprint and stay ahead. These benefits of the long-term investments coincide with the reversal of a pattern we have seen previously. We have mentioned on the past two calls that we were seeing an increase in number of customers asking for extended delivery days. We felt somewhat short of our revenue expectations for the Americas in those quarters, but built are strong backlog of orders. In Q2, fewer customers asked for extended delivery dates and we were able to work through a big part of the longer dated backlogs. Revenue in the Americas was up 6%, while orders increased by 4% with project growth relatively flat. We believe our order patterns in the Americas is keeping pace with the industry, but we believe we continue to win at a higher rate with leading organizations that place a higher value on their spaces. This is true in all of our regions and these kinds of customers helped us achieve strong top-line growth in the Asia-Pacific market this quarter. We are closely watching business sentiment indicators around the world in light of the recent market volatility in China and elsewhere. So far, we have seen no signs of weakness in our Chinese order patterns in our pipeline. The US market is on track to meet our initial growth expectations for the year because of both traditional drivers of demand and the continuing need for companies to update their spaces. Now let’s turn to the EMEA results for Q2. We reported organic revenue growth of 17% in this segment, but that was offset by continued disruption costs and inefficiencies associated with our footprint changes plus some additional manufacturing and distribution issues that arose this quarter. We set a very aggressive timetable a year ago for this wave of operational and restructuring in EMEA. You all realize how important it is that we get our EMEA business back to profitability and we certainly share that same view. Every quarter matters so we want to move quickly. However, we also know there are risks with going fast in terms of disruption costs and we don’t want to interrupt our ability to meet customer commitments. I will go into more specifics than normal to give you a sense of how we are managing this to balance speed and risk. As you know, we opened a new factory in Stribro in the Czech Republic last fall, and we’ve been ramping up production quickly. We had some early problems with equipment reliability and other normal issues and we shifted resources to address those problems. Just as things are starting to improve, we suffered a failure of one sprinkler head in our new system that damaged some inventory and a series of small power outages that caused production delays. Those are unfortunate but they can happen anywhere and we would normally recover with a small disruption. But for a new plant, already it is fragile because of the pressure of a fast ramp up, it’s very hard to recover. So we had disruptions, but I think those are understandable and I think our teams did well in responding. But there is more to the story. Stribro recovered so quickly that we generated a surge of finished goods that overwhelmed our downstream distribution center in Rosenheim. Our focus had been in areas directly affected by the restructuring work but we didn’t anticipate a downstream impact and really these kinds of situations only happen when you are doing these kinds of changes. So now we had a new problem and we fell more than ten days behind. In these situations, we swarm the problem and frankly we spend whatever it takes to get the product to our customers. We make it our number one priority. We have people on site from around EMEA and around the world. I’ve been on video conferences every morning with our operations team based in Germany to review their progress and agree on our priorities. I follow those meetings with phone conferences with our sales and customer service people, so they have the best information we have. As of this week, the distribution center is back to normal levels of efficiencies and we are cleaning up some open items left over from the last few weeks. Our Stribro plant continues to operate efficiently and with quality levels typical of our other EMEA plants. We are taking other steps to help our dealers where the disruptions have created other issues for them. There is no question we could have executed better, but we captured the learnings from every situation like this and we make improvements that make us stronger and more resilient. The lessons we learned during the US restructuring work has helped us move faster in EMEA, but we are always balancing speed against risk. When we have a problem, we put the customers’ needs ahead of our own short-term profitability, and as you can see, there are many of us personally involved in this on a daily basis and at a fairly detailed level, because that’s what it takes to realize these improvements. The good news is we are getting close to the end of our operational footprint restructuring and the targeted benefits from the overall modernization effort are still valid. We have more than 80% of the product transferred to Stribro as we prepare to close our Durlangen plant. We may be done a little later than we hoped, but we have always considered these moves to be long-term investments in our future competitiveness in EMEA. We had a number of other changes we also implemented these last few weeks in EMEA including the final transfer of production from Wisches to Madrid and the start-up of a new distribution center near Paris. Those changes were equally aggressive and those were executed very well. And soon we can turn our full attention towards continuous improvements across the entire system as we have done successfully in the Americas. I’m proud of our teams around the world and their commitment to our customers and shareholders. I want to extend my thanks and congratulations again to everyone in the Americas for record performance as we continue to improve our results in other regions. And with that, I’ll turn it over to Dave.

Thank you, Jim. I will start with a few high level comments about our second quarter results and balance sheet, provide some additional color around our order patterns and outlook for the third quarter, and then we will move to your questions. Overall as Jim said, we feel good about our second quarter results, which reflected 7% organic revenue growth and $0.35 of adjusted earnings per share, both of which exceeded the estimated ranges we’ve provided last quarter. Organic revenue growth of 6% in the Americas was stronger than expected and outpaced organic order growth of 4%, as order growth was strongest early in the quarter and customer requested delivery dates began to normalize during the quarter trending closer to historical averages. Recall we have had several quarters where a significant amount of project business had requested delivery dates more than 90 days from the order date. Our revenue estimate contemplated this trend to continue, however, when it normalized, we shipped a higher percentage of current quarter orders than estimated, which drove the stronger than expected revenue growth in the quarter. Organic revenue growth of approximately 17% across EMEA was also better than expected and was driven by strength in Germany and the UK. Within the other category, Asia-Pacific exceeded our internal growth estimates, with softness in the K-12 education markets and delayed project deliveries of PolyVision and a shortfall at Designtex largely offset these gains Adjusted earnings of $0.35 per share exceeded our estimated range due to the stronger than expected revenue growth, higher than expected price realization and lower material cost in the Americas, and favorable spending globally. These items were partially offset by the impact of the manufacturing and distribution issues in EMEA that Jim just covered. Our second quarter adjusted operating income of $71 million improved by approximately $12 million over last year driving approximately $0.06 of the $0.08 improvement in year-over-year adjusted earnings per share with the balance of the earnings improvement being driven by a lower effective tax rate. The $12 million improvement in adjusted operating income was driven by the Americas segment, which benefited from revenue growth and a record adjusted operating margin of 15.0% or a 110 basis point improvement over the prior year. The improvement in adjusted operating margin reflected a 190 basis point improvement in cost of sales, offset in part by an 80 basis point increase in operating expenses. Lower cost of sales as a percentage of revenue in the Americas was driven by our sales and operations teams, and included improvements to negotiate pricing, lower material freights and distribution cost, and benefits of other cost reduction efforts. Beyond these items, favorable adjustments to customer rebate and dealer incentive accruals were offset by an increase to our reserves for warranty costs. The increase in Americas’ operating expenses as a percentage of revenue was largely driven by variable compensation expense resulting from the improvement in operating results and a lower effective tax rate. For EMEA, our 17% organic revenue growth compared to an organic decline in the prior year and resulted in a slightly lower adjusted operating loss as benefits associated with the growth were largely offset by the impact of the manufacturing and distribution issues that arose during the quarter. These costs are incremental to the disruption and inefficiencies related to our manufacturing footprint changes that we have been calling out over the last several quarters. Lower absorption of fixed cost due to a large project that was manufactured in the first half of the prior year, and shipped thereafter, also contributed to the year-over-year increase in cost of sales. Operating expenses were relatively flat compared to the prior year in constant currency. As a result, operating expenses as a percentage of revenue decreased by 390 basis points, which more than offset the 290 basis point increase in cost of sales. As we said in the earnings release, we believe we are nearing completion of our manufacturing footprint changes, but we expect disruption cost to extend somewhat longer than previously projected and the savings to be delayed by a quarter or two. In addition, we expect to report an organic revenue decline in EMEA for the third quarter compared to a strong prior year. As a result, we may incur adjusted operating losses in the second half of fiscal 2016, compared to our previous targets of achieving break-even or better results for the same period. We reported flat operating results in the other category, as Asia-Pacific nearly broke even in the quarter on a strong top-line improved gross margin and lower spending. This was a significant improvement compared to the prior year and served to offset lower profitability at PolyVision and Designtex. Finally, corporate costs were slightly higher due to reductions in poly income, partially offset by a lower deferred compensation expense. Beyond the operating results, our effective tax rate of 36.4% in the current quarter was approximately 500 basis points lower than the prior year reflecting the impact of implementing a new transfer pricing model in EMEA during the fourth quarter of last year. Sequentially, second quarter adjusted operating income doubled compared to the first quarter. The impacts is seasonally higher volume across our segments and a favorable shift in business mix and lower material cost in the Americas were reduced impart by some of the factors impacting EMEA that we mentioned earlier. Switching to restructuring costs, they were higher than expected due to the acceleration of charges related to the Munich learning and innovation center. During the quarter, we were able to complete negotiations with the French Works Council related to move to Munich and affected employees declared their intentions to move or separate from the company. As a result, we recorded the related employee severance cost in the second quarter and expect to record the remaining restructuring cost of up to $10 million over the next several quarters prior to move-in date. The timing and amounts of all other restructuring provisions recorded in the second quarter were largely consistent with our expectations. With the recent commencement of the lease related to the Munich learning and innovation center, we expect to incur operating expenses associated with overlapping facilities and staffing during the implementation of the project. The amount and duration of these costs are dependent on the pace of recruiting employee departure dates, completion of the new space in Munich and disposal of the facilities we plan to exit. We estimate that we incurred less than $1 million of these overlapping costs in the second quarter. Moving to the balance sheet and cash flow, cash provided by operating activities of $90 million in the current quarter represented a significant improvement compared to $56 million in the prior year and was driven by the improved operating results and timing of payment associated with employee payroll around the world. Capital expenditures totaled $23 million in the second quarter including $8 million of additional payments related to a replacement of corporate aircraft. We continue to estimate capital expenditures for the full year will approximate $100 million, which is higher than our normal targeted level of approximately 2.5% of sales primarily due to payments related to the replacement aircraft. We returned approximately $14 million to shareholders in the second quarter through the payment of a cash dividend of 11.25 cents per share. Turning to order patterns, I will start with the Americas, where our orders in the second quarter grew approximately 4% organically compared to the prior year. Order growth rates during the quarter reflected 7% growth in June, 3% growth in July, and 1% growth in August. As I said earlier, customer requested delivery dates began to normalize during the quarter. As a result, backlog at the end of the quarter declined 11% compared to the end of the first quarter, but still remains 7% higher than the prior year, largely because of business we booked in the first quarter for delivery in the third quarter. Project orders grew modestly during the second quarter compared to a strong prior year, which benefited from a number of large projects. Project orders have grown over the prior year in 15 of the past 16 orders with at least 8% year-over-year growth in 13 of those quarters. Now that projects are comprising a more substantial mix of our business, quarterly growth rates have become more dependent on the timing of project orders. Project orders comprised approximately 46% of our incoming orders during the quarter, sequentially a little lower than recent quarters, but still much higher than our long-term historical average of approximately 40%. Regarding project business in general, our mark-up activity remains strong, customer visits remain high, and the outlook for the US economy suggest that GDP should continue to expand and support business capital spending. It is also worth mentioning that project business less than $1 million in size has been growing more recently, which tends to be representative of a cyclical recovery. Orders from continuing agreements grew by a low to mid single-digit percentage and were also led by small to medium-sized orders. While orders related to our marketing programs aimed at smaller day-to-day business declined by a similar percentage. Across vertical markets in the Americas, order growth rates were highest in the manufacturing, financial services, and healthcare sectors, while order declines were most significant in the state and local government and energy sectors. Information technology, federal government and insurance also declined, but by modest percentages. Switching to EMEA, orders declined by approximately 7% organically compared to a strong prior year, which grew by approximately 10%. We experienced solid order growth in Germany, and Iberia grew modestly while all other markets declined. Customer order backlog for EMEA ended the quarter down more than 20% compared to the prior year, which included a large government project in France that we shipped over the last several quarters. Prior year backlog also included a significant amount of deliveries, which were delayed from the second quarter to the third quarter due to the disruption we experienced following our announcement to exit our Wisches facility in France. Within the other category, orders grew in Asia-Pacific in PolyVision, while orders at Designtex declined resulting in modest overall order growth for the Group. The order growth in Asia-Pacific was led by strength in China. To summarize, our order patterns in the Americas continued to reflect an elevated mix of project business and small to mid-size orders grew at a higher rate than larger business again this quarter. EMEA order patterns remained mixed, but Germany continues to grow despite the recent manufacturing and distribution issues that are now being – beginning to dissipate. Asia-Pacific orders grew again this quarter, so we have now seen growth in year-over-year orders in this business for four of the last give quarters. Designtex orders have hit another soft patch after rebounding nicely in the spring bringing our year-to-date order growth rate to a low to mid-single-digit percentage. Finally PolyVision orders remained solid, but I should mention that our business model could be impacted beginning in calendar 2016 by a recent anti-dumping action filed by five major US steel producers targeting imports by foreign producers of certain cold-rolled steel flat products. The preliminary scope of this action unfortunately includes premium enameling grade sheet that PolyVision uses in its business. Although this imported material represents a very small and specialized segment of the broader market for cold-rolled flat steel, if trade relief is ultimately granted in the form of higher import duties across the entire segment, it would increase our material cost accordingly. Of course, we are evaluating our options including alternative supply and pricing, but I wanted to give you a heads up of the potential risk this situation creates. Turning to the third quarter of fiscal 2016, factoring out an estimated $25 million of unfavorable currency translation effects and the impact of a small dealer acquisition, we expect to report organic revenue growth between 3% and 5% compared to the prior year. Our second quarter revenue estimate contemplates organic revenue growth in the Americas and across the other category and an organic revenue decline in EMEA which compares to 14% organic growth in the prior year. We expect approximately $5 million of disruption and inefficiencies in the third quarter associated with the changes in our manufacturing footprint in EMEA. This compares to approximately $9 million in the third quarter of fiscal 2015 and $6 million in the second quarter of the current year. In addition, we expect operating expenses to increase sequentially in the third quarter compared to the second quarter and we anticipate stabilization of our manufacturing and distribution performance in EMEA. As a result of these factors, we expect to report third quarter earnings within a range of $0.29 to $0.33 per share, including restructuring cost of approximately $0.02 per share, which translates to an adjusted earnings range of $0.31 to $0.35 per share. From there, we will turn it over for questions.

[Operator Instructions] Our first question is from Budd Bugatch with Raymond James. You may begin.

Good morning, Jim, Dave, Raj, Mark, to everyone else in the room. My question I guess on EMEA, and I know you were surprised and disappointed I guess, just making sure we have quantified the impact of EMEA in the second quarter or revenues and earnings, on a disruption or on the – I guess, what you would call the unexpected items?

Well, I – unfortunately, I am not able to quantify the impact it may have had on revenue on quarters. We suspect that our order patterns were dampened in part because of the disruption and possibly some orders were moved to other solutions. But I think the bigger issue in the quarter were the cost related to the manufacturing and distribution issues that Jim summarized, our rough estimate of that, Budd, is that it’s in the neighborhood of $3 million or $4 million. So it had a pretty significant impact on the quarter. I’d also tell you too that the absorption benefit that we had in the prior year related to that large French government project that we built ahead of shipping it in the back half of the year, that had a few million dollar effect as well.

So the sum total of that is $5 million, $6 million, $7 million which…

Yeah, in that neighborhood, you’re probably right, $5 million to $7 million.

Okay. And Wisches, done that’s all completed?

Yes, we have completed the transfer from Wisches to Madrid and the other things related to that. We also started up a distribution center in Paris. So, those actions proceeded very well and we are continuing to make progress across other fronts, but Wisches went very well.

Okay, and we are not – you don’t expect the same kind of issue that you might have had in your Czech plant and the Madrid plant now that you’ve shipped more products there?

Yes, we have – overall, there were nine lines of product that moved from the factory in Durlangen to Stribro, we have seven of those nine lines fully transferred. Now the two that are left are less complex and some of the issues we had at the beginning related to equipment that really is going to support all of our production there. So, we have by far most of the challenging part of the transition behind us. I am always careful not to promise that everything is going to go perfectly, but I do feel that we have the most difficult parts behind us and we have a good team in place managing in these last couple line transfers.

And in Madrid, Budd, we’re actually, the stuff we moved from Wisches to Madrid was quite similar in manufacturing process. So it’s not like they are building new product with new employees, they are doing, following similar processes with new employees because we expanded our workforce in Madrid, but it’s not as complex as the move to a new plant in the Czech Republic.

Okay, and I guess the other question I am going to ask is on capital expenditures. You talked about $8 million for a new plane. I think you had two of them, is there one more to be done and what’s the timing on that and as you look out a year or two in CapEx how do we frame that?

So, what I think, what we are shooting for is delivery of the replacement aircraft either late in the fourth quarter of this year or early in the first quarter of next year and we’ll sell one of our existing aircrafts hopefully around the same time. And I would expect to sell that replacement aircraft for somewhere in the high double digit, maybe as high as $20 million.

And the one you are buying cost how much?

In the 30s, by the time you add up all the deposits that we’ve been communicating.

Okay, and you think 2.5% of sales is a right number for the out years? Is that the way to think about it?

Next year we will feel a little bit of pressure as we are - on that 2.5% as we are completing the Munich learning and innovation center and spending our capital there. But that’s really the most significant project that we’ll have going in the company and we’ll have the benefit of selling the replacement aircraft. The aircraft that’s being replaced and all that will show up on a different line in the cash flow statement, but we really look at those as net. So 2.5% is a pretty good long-term assumption I think.

And just finally from me, EMEA has been an issue for –we’ve talked about for a long time. Is there any less enthusiasm, expectation as you get it back to profitability that we have a viable return on capital business, any change in the ultimate numbers and does currency effect much of that at all, as well [is there any] [ph] change in that impact?

So first of all, without currency I’d say that there is no change in the ultimate impact. We set our goals well back we have total savings goals from all of these initiatives combined, we have margin goals we set for all the initiatives combined and we still believe we are on track to achieve all of that. It’s a long-term trajectory as you know, and what does happen as you go through a project like this is you do find that you save more on some things and less on other things but the total is still in line with what we expected when we began. As it relates to currency, maybe I’ll ask Dave to just offer any thoughts on that. But currency affects both our top-line and our bottom-line because our costs are often in local currency.

Yes, it’s largely a translation issue, so not a big deal for our European business.

Okay, thank you very much.

Thank you. Our next question is from Matt McCall with BB&T Capital Markets. You may begin.

Good morning everybody.

Hi Matt.

Hi Matt.

So, maybe talk about the – a little bit about the Americas margins, 15% pretty good. The incremental on a year-over-year basis is like 32% and I think that’s a little bit above the norm, maybe tell me what drove the above normal incremental if I missed them? Sorry. And then, how do we think about the ongoing profitability of the Americas taking into account that 15% where I think is a record – new record number?

Well, we think it is a record for the Americas segment as it’s currently reflects our business in Canada and Latin America along with US. And we are very happy with the level of performance. And what we try to make as clear as possible in the earnings release and then our remarks earlier on the call is that the stars were a bit aligned we had a lot of things that’s moving in our favor with not only getting improved negotiation – improvements in negotiated pricing but also lower material freight and distribution costs on top of normal cost reductions that we’re pushing. And you know the summer is also – tends to benefit from a nice seasonal mix. Our business is more heavily weighted toward education business in the summer and in the fall, you know it’s more heavily weighted toward the government business and you know government business tends to be a lower gross margin in the industry and in our business as well. So, I’d be hesitant to suggest you should model 15% in every quarter go forward. But certainly some of those factors should sustain themselves.

Yes, go ahead.

It was a strong quarter.

Yes, I understand the seasonal impact, I am just saying that – is there anything that – it seems there are some of the items that are going to be sustainable, but as you are thinking around profitability there, I recall in the past, it was kind of a low teens number, don’t assume much more as we move forward, given the strong incremental, should we now change that maybe we get to 13%, 14% for a year now or is the low teen still a right number?

No, I think the low teens is still the right number and we don’t know definitively but we are peaking in the Americas. If you go back a few quarters, Matt, when we gave color about the investments that we anticipated making in our business this year. They were largely weighted in the Americas in order to continue to support our aspirations to gain market share and deliver new products for the new way of working. We know that we need significant ongoing investment. So, I don’t see us moving the operating in term or the operating income long-term objective to 15% or anything like that. I think that 12%, 13%, 14% that’s peaking.

Okay, so it’s a margin peaking, not demand peaking, I just want to clarify that?

Yes, yes.

Okay. Maybe, the outlook a little bit, the comment about Designtex, I know it’s a small part of the business, but I want to explore it a little bit more. What does it tell you about anything else that’s moving on from a demand perspective and then your other pipeline indicators what are they telling you about the remainder of this year as we look out into calendar 2016?

Well, I’ll start, maybe Jim will want to pile on. But, we are real careful not to let any one individual month or even a quarter sway our thinking too significantly. We don’t ignore what’s in front of us. But we have found ourselves continuously going back to the start of the year and the kind of the guidance for the full year that we gave at that point what we believe the US economy might do, what we thought the furniture industry might look like, what we might do as a result. And really as we step back from a soft patch at Designtex or even a modest growth rate in the Americas in August, which orders only grew 1%, we stepped back from that. We still believe that we are on the same track that we talked about at the beginning of the year that the US economy is going to continue to expand. Our industry is going to continue to grow at this kind of mid single-digit rate and we should do continue to grow at or above that as well.

Okay. All right, I want to speak one more to Dave that, I think you said SG&A is expected to be up sequentially, Q3 versus Q2, roughly a flat top-line. Can you explain why that’s going to be the case?

This has to do with a little bit of seasonality. I mean, I’d tell you we spend a little bit less in the summer simply because we have a lot of summer holidays and therefore project teams are – maybe not working at the same pace that they otherwise work after the other three quarters of the year. But we also have some projects and initiatives that are nearing completion and therefore the spend related to them will ramp up toward the back half of the year.

Got it, okay, thank you.

Thank you. Our next question comes from Kathryn Thompson with Thompson Research Group. You may begin.

Thanks for taking my questions today. I just want a kind of a clarification, good morning, one point of clarification and the other that is in your prepared comments you talk about orders have been more reflective of revenue growth. Just want to get a confirmation of that and then also, pulling the screen moving on to the margin side, as we look at the margin growth in Q2 and as we go forward particularly on the gross margin side, I know we talked a little – and better negotiated pricing, but how much that just an improved utilization rate and that was falling going through impact margins in the quarter? Thank you.

Let’s go back to your first question, Kathryn, can you say that one more time, because you broke up a little as your come in through, so I didn’t catch the back-end of that?

Yes, sure. As you have smaller orders as a percent of total, so you’ve gotten behind you those 9 plus 8 orders – it significantly improved. Is that 4% order rate, now a bit more reflective of the next quarter revenue growth and perhaps as it did in the past, because you have a more imbalanced small medium-sized orders in your total mix?

Now, okay, I understand. I am going to stop short of giving a specific projection for the third quarter, but I’ll also tell you that what will influence, the third quarter is year end activity, which really starts to come in now, early in the September

Calendar year end.

Calendar year end activity, so, the company is trying to spend their – the budgets before their calendar year and what level of that we see in each year varies relative to previous years. So, that could impact our overall growth rates in the quarter. We also, I’ve mentioned on previous calls, we have a fairly significant inventory of project orders that have been won that haven’t been entered yet and so as they come through, that could also influence the overall growth rate in the quarter.

And then the second part of the question is on margins. How much that volume, that utilization contribute to the Americas margin growth?

I would say a very little, the biggest drivers were improvements in negotiated pricing followed by lower material, freight distribution costs, followed by other cost reduction efforts. There was some absorption benefit, but it would have been the smallest item.

I’d also add that if you compare our results this year to a year ago, comparing the same part of the annual cycle, that we had better performance across the board in our Americas system from operating efficiencies to the distribution of physical product. We had some issues last year, not serious issues, but issues that depressed our margins a bit and we had better performance across the board this year. So it may not be related to volume, but it is related to some things that continue to improve every year.

Okay, do you give – do you give capacity utilization, can you give that for the Americas on a on a blended basis?

Yes, the way we’ve talked about utilization in the past is we’ve referenced average shift that we’re operating that’s in our facilities and it varies by region, but in the Americas, we are at somewhere in the neighborhood of an average of two shifts across our facilities. So we still have a significant opportunity to ramp up volume.

And so then that would be - okay, what’s the – essentially the full number of shifts you have been really pressing up against, kind of, feeling close to that full capacity? Is it a three shift or four shifts?

Yes, I mean, the way we think about the business is that we like to have a little bit of room for demand levels that follows seasonal patterns as well as occasionally we have large projects that if they all show up in the same quarter can cause some spike in demand. So we don’t like to be operating at three full shifts for very long. What typically happens in our manufacturing facilities is, certain parts of production moved to a third shift before the whole facility moves to a third shift and as that happens, we look at ways to expand the capacity could be by adding a tool at a supplier or adding some additional cells on the line to increase capacity. So don’t think of it as the whole plant moves in units and up in shift but rather it comes in pockets across the facility.

Yes, absolutely understand. In each industry is very different how they even define utilization. Moving over to Europe, you – now we are expecting operating loss in the second half, but just clarify will you able to at least generate positive gross margins in the second half? And just a little bit more color on the drivers for why that you – we’ll have a loss as you exit the second half of the year? Thank you.

So, you said, we’ll have positive gross margins. I think you meant that we have expanded gross margins compared to last year.

Correct.

Yes, I think we’ll see that. And really there is not much more color to give and what we’ve already given. If you go back last year when we had a relatively high level of volume in the back half of the year impart because we had significant orders in the first half of the year, that we had extended delivery date request from customers. So when we shipped to that volume and we looked at our operating performance that included the disruption that we’ve been calling out and we anticipated how that disruption would come down and how savings would start to come in, what we were commenting on is at similar levels of volume without – with lower levels of disruption in the beginning of savings coming in, it was possible that we could see break-even or positive results. With the level of demand not getting back to that same level of demand in Europe or the timing of business being different this year than it was last year, therefore not having the same level of revenue in the back half of the year. And having some modest delay in the completion of our initiatives, it’s possible that we could post-adjusted operating losses. I didn’t say definitively, I very carefully chose the word, may, see adjusted operating loss, because the team is doing a lot of work to move this quickly as possible on the modernization of the industrial model. But we are also making a lot of progress in our sales and marketing strategies in the region too. So I don’t know that it’s entirely out of the realm of possibilities that we could breakeven in the back half of the year.

I’ll also add just – that theme that, we’ve launched several new products in the last year and we were seeing demand developing in EMEA for those products that it seems our initial estimate, completely unrelated issue we are dealing with this longer lead time to some of these new products that we expected simply because demand has been stronger than we expected. So, there is a lot of good story going on as it relates to the reinvention of our sales organization, reinvention of our product portfolio. We see a lot of positive signs as we work diligently to finish this operational rationalization.

Okay, great. Thank you for taking the questions today.

Okay, Kathryn. Thanks.

Thank you. [Operator Instructions] Our next question comes from Barry Haimes with Sage Asset Management. You may begin.

Hi, thanks for taking my question. You mentioned the 1% order rate in August and the ABI which was just out recently was kind of weaker in August too. And I am just wondering if there is anything in the Labor Day shifts this year that might have affected your order rate, this year compared to the last year? Thanks.

It’s a good question and it did impacted a little bit, but not significant enough to warrant the call out. We did take note the ABI, like you did as well, but we also noted that enquiries remained pretty strong in the ABI report.

Great, thank you.

Thank you. Our next question is a follow-up from Budd Bugatch with Raymond James. You may begin.

Yes, while we are talking about some other current metrics, we also noticed that - did publish a somewhat interesting forecast going forward which rely heavily on imports and wondered if you had any comments and could see any elevated level of imports that might make that more accurate prediction of – like 2015 and 2016?

So, I’ll offer my thoughts and then Raj who is here on is more of an expert on these things. He can correct anything I say that’s incorrect. But I believe that, if you go back on that report for many years, Budd, and you’ve been following every quarter for a long time as we have as well, there was a time when you looked at that import data and you would conclude that that must be from companies that are based somewhere else that are importing product and competing with domestic manufacturers and since you had the domestic production and domestic consumption, that would kind of line up as long as there were no companies coming from some puts out that were gaining share. These days I think it’s a more complicated situation because you have a lot of companies including most of the major companies in the industry who have supply chains of their own that are already global in scope. And so some of the import data I believe is going to be related to some of the activity that’s going on just within domestically headquartered manufacturers. So it’s hard to kind see it’s impart well how much of it is at versus something else that’s going on, but I think a fair amount of that shift is related to that and then there maybe also some other activities going on, but that’s what I would start, it probably doesn’t mean today what it would meant 10 to 15 years ago if you saw that kind of shift and Raj, maybe you want to add anything to that or?

No, I think that’s definitely a part of it and we’ve been teasing out trying to look at a lot of the import export information too and – but the magnitude of what industry association has put in their estimates for growth from imports, this doesn’t intuitively seem right, and so, I think they are definitively taking a look at it. They are working with econometric modeling people to look at it as well. And I expect to hear something back from them soon.

Okay, yes, structurally it seems to be a too big a jump for or even just the currency related issues and given the structure of the industry. So…

That’s really.

But secondly, talking about other macro, China and you mentioned your orders in China, you haven’t seen an impact there. We are hearing and starting to see more stories about people requesting Chinese suppliers for pricing relief. So there are two issues that I think affect China one is what’s going on internally there and how much you could rely on, what you see or hear from the Chinese authorities and secondly, now you see you've had the yuan devalued, what are you seeing in any costs that may affect or help you at least in other parts of the world?

Well, in terms of competing – I’ll start by competing in Asia, so, lot of the production we make today in China and India, in Malaysia, other parts of Asia are to serve those markets. And so it helps us to have our cost in local currencies and our revenues in local currencies and so from that perspective, you could say, well there is no effect, but it wouldn’t had a more significant effect if we were trying to give more of an import model into China. So, I am happy that our supply chain is actually configured to make us a little bit more resilient those changes. There are other currencies in the region, the Japanese currency, the Australian currency that create other problems for us because, in that case, we don’t have our cost in the local currency and we are seeing significant shift in those currencies and we take steps to try to remain competitive, but it’s not an easy challenge when we are facing that fundamental structural gap between revenues and cost. In terms of other markets, we have not yet seen that I know of any shifts in the arrival of new competition or anything driven by currency, or in this country, I don’t know that – I am not seeing that wouldn’t happen or couldn’t happen, but I haven’t heard any reports of that, I guess specifically related to currency.

Okay, and lastly again from me, you called out two things, Dave. You called out the whiteboard effect, I guess on rolled steel and also Designtex which had been at least an improvement story since the end of the quarter or since you’ve seen it, have you seen any change in A, Designtex or a pattern which I guess is much more short cycle, two, where do you think you will know something on the factory steel on anti-dumping duties that might cost you some headaches?

I think we’ll have much better information on that for the December call related to the anti-dumping issue. We are certainly trying to – if nothing else be an exclusion from the action if the action we are successfully put through, but we are not taking that assumption that that will happen either. So, we are of course looking at alternative supply and evaluating what kind of price increase we might have to pay to cover that exposure. But because it poses a risk, I wanted to call it out, but there is still lot of questions to be answered at this time. On Designtex, I probably should have commented that part of the reason that they declined year-over-year in new orders was that they had very strong order growth in June and July of last year. But I would tell you too that we believed that we were going to outpace that level of growth that we had last year and see order growth this year and just didn’t see it, we had a bit of another soft patch. There is no real, there is no common threat there as business has been firing pretty well. I mean, it’s growing nicely, but we – because of the level of investment that we’ve made over the last couple of years and all of the growth strategies we have higher growth expectations and just the low single-digit growth we’ve been seeing year-to-date so far this year.

Okay, thank you and again good luck on the balance of this quarter and for the balance of the year.

Thanks Budd.

Thank you. I am showing no further questions. At this time, I’d like to turn the call back over to Jim Keane for closing remarks.

Well, thanks everybody for joining on our call and for your interest in Steelcase. Once again we are pleased with what we would consider to be another strong quarter and with the pace of our progress in EMEA. Thanks again and we’ll talk to you next time.

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.