Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations:
The following review of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere within this Report.
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 consolidated statements of income, balance sheets or statements of cash flows of the company. The non-GAAP financial measures used are (1) organic revenue growth (decline), (2) adjusted operating income (loss) and (3) adjusted earnings per share. We have provided a reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP financial measures in the tables below. These measures are supplemental to, and should be used in conjunction with, the most comparable GAAP measures. Management uses these non-GAAP financial measures to monitor and evaluate financial results and trends. See Non-GAAP Financial Measures for a description of these measures and why management believes they are also useful to investors.
Financial Summary
Our reportable segments consist of the Americas segment and the International segment.
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Results of Operations
Statement of Operations Data—
Consolidated
Year Ended
February 28,
February 23,
February 24,
Revenue
Cost of sales
Restructuring costs
Gross profit
Operating expenses
Restructuring costs
Operating income
Interest expense
Investment income
Other income (expense), net
Income before income tax expense
Income tax expense
Net income
Earnings per share:
Basic
Diluted
Organic Revenue Growth (Decline) — Consolidated
Year Ended
February 28,
February 23,
Prior year revenue
Acquisitions
Divestitures
Currency translation effects
Prior year revenue, adjusted
Current year revenue
Impact of additional week*
Current year revenue, adjusted
Organic growth (decline) $
Organic growth (decline) %
* 2025 included 53 weeks of revenue.
Reconciliation of Operating Income to Adjusted Operating Income
Year Ended
February 28,
February 23,
February 24,
Operating income
Amortization of purchased intangible assets
Restructuring costs
Gains on the sale of land, net of variable compensation impacts
Adjusted operating income
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Adjusted Earnings Per Share
Year ended
February 28,
February 23,
February 24,
Earnings per share - diluted
Amortization of purchased intangible assets, per share
Income tax effect of amortization of purchased intangible assets, per share
Restructuring costs, per share
Income tax effect of restructuring costs, per share
Gains on the sale of land, net of variable compensation impacts, per share
Income tax effect of gains on the sale of land, net of variable compensation impacts, per share
Loss on pension plan settlement, per share
Income tax effect of loss on pension plan settlement, per share
Adjusted earnings per share - diluted
The current year results of operations are presented in comparison to the prior year within the sections below. For a discussion of the 2024 results of operations in comparison to 2023, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2024 Annual Report on Form 10-K.
Overview
In 2025, our earnings improved compared to 2024, despite flat revenue, driven by a gain from the sale of land and favorable tax items. Our gross margin improved by 110 basis points, driven by benefits from cost reduction initiatives. Revenue growth in the Americas, driven by large corporate, government and education customers, was mostly offset by soft demand across many of the major markets in our International segment. In response to the soft demand and uncertain macroeconomic conditions, we implemented restructuring actions in EMEA and Asia Pacific.
In 2025 compared to 2024, orders grew 4% (adjusted for the impact of a divestiture, currency translation effects and the impact of an additional week in the current year), which included 6% growth in the Americas partially offset by a decline of 4% in International. Order backlog of approximately $694 at the end of 2025 was approximately 11% higher than at the end of 2024. In response to increasing inflationary costs in the Americas, we recently announced a list price increase that will take effect starting in Q2 2026, and in response to changes to the U.S trade policy and related inflationary effects, we announced a tariff recovery charge in the Americas that took effect in Q1 2026.
During 2025, we continued to invest in our business transformation initiative and planned implementation of our new enterprise resource planning ("ERP") system, and we expect to continue to incur development and other project costs throughout 2026. We will begin amortizing capitalized development costs when the ERP system is ready for its intended use, expected in calendar year 2026.
Our liquidity, which is comprised of cash and cash equivalents, short-term investments and the net cash surrender value of COLI, increased $72.8 during 2025. As of February 28, 2025, total liquidity was $558.3 and total debt was $447.1.
We recorded net income of $120.7 and diluted earnings per share of $1.02 in 2025 compared to net income of $81.1 and diluted earnings per share of $0.68 in 2024.
In 2025, the results included:
• a $42.1 gain from the sale of land, which had the effect of increasing net income by $21.2 and diluted earnings per share by $0.17 after taking into account the related variable compensation expense and tax effects,
• $19.9 of favorable tax items related to the U.S. foreign-derived intangible income ("FDII") deduction and enacted regulations under U.S. Internal Revenue Code Section 987 ("IRC Section 987"), which had the effect of increasing net income by $12.2 and diluted earnings per share of $0.10 after taking into account the related variable compensation impacts, and
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• a non-cash pension settlement charge of $15.2, which had the effect of decreasing net income by $11.7 and diluted earnings per share by $0.10 after taking into account the related tax effects.
Operating income of $158.1 in 2025 represented an improvement of $40.3 compared to operating income of $117.8 in the prior year. The improvement was driven by $30.1 of higher gains on the sale of fixed assets (primarily land), $45.4 of higher revenue in the Americas and $11.7 of lower restructuring costs, partially offset by $22.5 of higher variable compensation expense (driven by the gain on the sale of land and the favorable tax items). We reported adjusted operating income of $158.4 and adjusted earnings per share of $1.12 in 2025 and had adjusted operating income of $156.7 and adjusted earnings per share of $0.92 in the prior year.
Revenue of $3,166.0 in 2025 represented an increase of $6.4 compared to the prior year. The increase in revenue was driven by $58.5 from an additional week in 2025, mostly offset by lower volume in International and the impact of a prior year divestiture in the Americas. Revenue increased by 2% in the Americas, driven by growth from large corporate, government and education customers. International revenue decreased by 5%, driven by declines in Western Europe and declines in most markets in Asia Pacific, except India. On an organic basis, revenue in 2025 was flat, with 2% growth in the Americas offset by a 7% decline in International.
Cost of sales as a percentage of revenue improved by 130 basis points in 2025 compared to the prior year. The improvement was driven by higher revenue in the Americas and benefits from cost reduction initiatives, including savings from restructuring actions, partially offset by the impacts of lower revenue in International and $6.7 of higher variable compensation expense. Cost of sales as a percentage of revenue improved by 170 basis points in the Americas but increased by 60 basis points in International.
Operating expenses increased by $11.5 in 2025, or 40 basis points as a percentage of revenue, compared to the prior year. Operating expenses in 2025 compared to 2024 included:
• approximately $17 of higher expenses related to the additional week in the current year,
• $15.8 of higher variable compensation expense,
• $10.9 of higher employee costs, and
• $6.2 of higher information technology costs primarily related to our business transformation initiative,
• partially offset by $41.0 of gains on the sale of fixed assets (primarily land) in the current year and a $13.0 decrease from a divestiture.
Operating expenses in 2024 reflected $10.9 of gains related to the sale of fixed assets, including land, and a $9.5 benefit from a decrease in the valuation of a contingent earnout liability.
The investment in our business transformation initiative includes internal resources deployed on the development and configuration of our new ERP system. In 2025, approximately $10 of employee costs were capitalized to Other assets as part of the application-development phase of the project, and we expect to begin amortizing the capitalized development costs when the ERP system is ready for its intended use.
We recorded restructuring costs of $10.8 in 2025 compared to $22.5 in 2024. See Note 21 to the consolidated financial statements for additional information.
Our 2025 effective tax rate was 10.1% compared to a 2024 effective tax rate of 24.3%. In 2025, we qualified for the U.S. FDII deduction and final regulations under IRC Section 987 were enacted, which reduced income tax expense by $9.1 and $10.8, respectively. See Note 16 to the consolidated financial statements for additional information.
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Interest Expense, Investment Income and Other Income (Expense), Net
Interest Expense, Investment Income and Other Income (Expense), Net
Year Ended
February 28,
February 23,
February 24,
Interest expense
Investment income
Other income (expense), net:
Equity in income of unconsolidated affiliates
Foreign exchange gains (losses)
Net periodic pension and post-retirement expense, excluding service cost
Miscellaneous income (expense), net
Total other income (expense), net
Total interest expense, investment income and other income (expense), net
In 2025, net periodic pension and post-retirement expense, excluding service cost included a $15.2 settlement charge related to the annuitization of our defined benefit plan in the U.K. Investment income increased by $7.3 in 2025 compared to 2024 due to the higher level of liquidity and improved investment returns.
Business Segment Disclosure
See Note 20 to the 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 comprehensive portfolio of furniture, interior architectural, textile and surface imaging products that are marketed to corporate, government, education, healthcare and retail customers primarily through the Steelcase, AMQ, Coalesse, Designtex, HALCON, Orangebox, Smith System and Viccarbe brands.
Statement of Operations Data—
Americas
Year Ended
February 28,
February 23,
February 24,
Revenue
Cost of sales
Restructuring costs
Gross profit
Operating expenses
Restructuring costs
Operating income
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Organic Revenue Growth (Decline) — Americas
Year Ended
February 28,
February 23,
Prior year revenue
Acquisitions
Divestitures
Currency translation effects
Prior year revenue, adjusted
Current year revenue
Impact of additional week*
Current year revenue, adjusted
Organic growth (decline) $
Organic growth (decline) %
* 2025 included 53 weeks of revenue.
Reconciliation of Operating Income to Adjusted Operating Income - Americas
Year Ended
February 28,
February 23,
February 24,
Operating income
Amortization of purchased intangible assets
Restructuring costs
Gains on the sale of land, net of variable compensation impacts
Adjusted operating income
Operating income in the Americas increased by $39.0 in 2025 compared to the prior year, driven by $30.7 from the gain on the sale of land (net of related variable compensation expense), gross margin improvement and benefits of higher revenue, partially offset by higher operating expenses. Adjusted operating income of $170.9 in 2025 represented an improvement of $12.2 compared to the prior year.
The Americas revenue represented 77.9% of consolidated revenue in 2025. In 2025, revenue increased by $45.4 or 2% compared to the prior year. In 2025, the Americas revenue grew approximately 3% from higher volume (including the impact from the additional week in the current year) and 1% from pricing benefits, which were partially offset by the impact of a divestiture. The Americas growth included higher revenue from large corporate, government and education customers compared to the prior year. On an organic basis, revenue increased by $36.8 or 2% in 2025 compared to the prior year.
Cost of sales as a percentage of revenue improved by 170 basis points in 2025 compared to the prior year. The improvement was driven by higher revenue and benefits from cost reduction initiatives, including savings from restructuring actions, partially offset by $5.9 of higher variable compensation expense.
Operating expenses increased by $13.8 in 2025, or 10 basis points as a percentage of revenue, compared to the prior year. Operating expenses in 2025 compared to 2024 included:
• $14.3 of higher variable compensation expense,
• approximately $13 of higher expenses related to the additional week in the current year,
• $13.6 of higher employee costs and
• $6.7 of higher information technology costs primarily related to our business transformation initiative,
• partially offset by $41.5 of gains related to the sale of fixed assets (primarily land) in the current year and a $13.0 decrease from a divestiture.
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Operating expenses in 2024 reflected $10.3 of gains related to the sale of fixed assets, including land, and a $4.7 benefit from a decrease in the valuation of a contingent earnout liability.
The investment in our business transformation initiative includes internal resources deployed on the development and configuration of our new ERP system. In 2025, approximately $8 of employee costs were capitalized to Other assets as part of the application-development phase of the project, and we expect to begin amortizing the capitalized development costs when the ERP system is ready for its intended use.
We recorded restructuring costs of $6.2 in 2025 compared to $3.3 in 2024. See Note 21 to the consolidated financial statements for additional information.
International
The International segment serves customers in EMEA and Asia Pacific with a comprehensive portfolio of furniture and interior architectural products that are marketed to corporate, government, education, healthcare and retail customers primarily through the Steelcase, Coalesse, Orangebox, Smith System and Viccarbe brands.
Statement of Operations Data — International
Year Ended
February 28,
February 23,
February 24,
Revenue
Cost of sales
Restructuring costs
Gross profit
Operating expenses
Restructuring costs
Operating loss
Organic Revenue Decline — International
Year Ended
February 28,
February 23,
Prior year revenue
Divestitures
Currency translation effects
Prior year revenue, adjusted
Current year revenue
Impact of additional week*
Current year revenue, adjusted
Organic decline $
Organic decline %
* 2025 included 53 weeks of revenue.
Reconciliation of Operating Loss to Adjusted Operating Loss - International
Year Ended
February 28,
February 23,
February 24,
Operating loss
Amortization of purchased intangible assets
Restructuring costs
Gains on the sale of land, net of variable compensation impacts
Adjusted operating loss
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The operating loss in International improved by $1.3 in 2025 compared to the prior year. The improvement was driven by $14.6 of lower restructuring costs, largely offset by the impacts of lower revenue. The adjusted operating loss of $12.5 in 2025 represented an increase of $10.5 compared to the adjusted operating loss of $2.0 in the prior year.
International revenue represented 22.1% of consolidated revenue in 2025. In 2025, revenue decreased by $39 or 5% compared to the prior year. In 2025, International revenue declined by approximately 5% due to lower volume and approximately 2% due to the impacts of lower pricing, partially offset by 2% growth from the additional week in the current year. The decline was driven by lower revenue in most major markets, partially offset by growth in India and Spain. On an organic basis, revenue declined $48.5 or 7% in 2025 compared to the prior year.
Cost of sales as a percentage of revenue increased by 60 basis points in 2025 compared to the prior year. The increase was driven by the impacts of lower revenue, partially offset by benefits from cost reduction initiatives, including savings from restructuring actions.
Operating expenses decreased by $2.3 in 2025, but increased by 140 basis points as a percentage of revenue, compared to the prior year. Operating expenses in 2025 compared to 2024 included:
• approximately $13 of lower spending,
• partially offset by approximately $4 of higher expenses related to the additional week in the current year.
Operating expenses in 2024 reflected a $4.8 benefit from a decrease in the valuation of a contingent earnout liability.
Restructuring costs decreased $14.6 in 2025 compared to the prior year. See Note 21 to the consolidated financial statements for additional information.
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Non-GAAP Financial Measures
The non-GAAP financial measures used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are: (1) organic revenue growth (decline), (2) adjusted operating income (loss) and (3) adjusted earnings per share.
Organic Revenue Growth (Decline)
We define organic revenue growth (decline) as revenue growth (decline) excluding the impact of acquisitions and divestitures, foreign currency translation effects and the impact of the additional week in 2025. Organic revenue growth (decline) is calculated by (1) adjusting prior year revenue to include revenues of acquired companies prior to the date of the company's acquisition, to exclude revenues of divested companies and to use current year average exchange rates in the calculation of foreign-denominated revenue and (2) adjusting current year revenue to exclude the estimated revenues associated with the additional week in 2025. We believe organic revenue growth (decline) is a meaningful metric to investors as it provides a more consistent comparison of our revenue to prior periods as well as to industry peers.
Adjusted Operating Income (Loss) and Adjusted Earnings Per Share
We define adjusted operating income (loss) as operating income (loss) excluding amortization of purchased intangible assets, restructuring costs (benefits) and gains (losses) on the sale of land, net of variable compensation impacts. We define adjusted earnings per share as earnings per share, on a diluted basis, excluding amortization of purchased intangible assets, restructuring costs (benefits), gains (losses) on the sale of land, net of variable compensation impacts, and gains (losses) on pension plan settlements, and the related income tax effects of these items.
◦ Amortization of purchased intangible assets: We may record intangible assets (such as backlog, dealer relationships, trademarks, know-how and designs and proprietary technology) when we acquire companies. We allocate the fair value of purchase consideration to net tangible and intangible assets acquired based on their estimated fair values. The fair value estimates for these intangible assets require management to make significant estimates and assumptions, which include the useful lives of intangible assets. We believe that adjusting for amortization of purchased intangible assets provides a more consistent comparison of our operating performance to prior periods as well as to industry peers.
◦ Restructuring costs (benefits): Restructuring costs (benefits) may be recorded as our business strategies change or in response to changing market trends and economic conditions. We believe that adjusting for restructuring costs (benefits), which are primarily associated with business exit and workforce reduction costs, provides a more consistent comparison of our operating performance to prior periods as well as to industry peers.
◦ Gains (losses) on the sale of land, net of variable compensation impacts: We may sell land when conditions are favorable. Gains and losses on the sale of land may increase or decrease, respectively, our variable compensation expense. We believe adjusting for these items provides a more consistent comparison of our operating performance to prior periods as well as to industry peers. In 2025, we began adjusting for these items, as we realized a significant gain on the sale of land during the year, which had a significant impact on our variable compensation expense, and we have adjusted the prior periods presented for consistency and comparability.
◦ Gains (losses) on pension plan settlements : We realize gains or losses previously reported as unrealized in Accumulated other comprehensive income (loss) in Other income (expense), net , in connection with pension plan settlements when all risks related to the benefit obligations to plan participants and plan assets are transferred. We believe adjusting for the gains or losses on pension plan settlements provides a more consistent comparison of our operating performance to prior periods as well as to industry peers.
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Liquidity and Capital Resources
Liquidity
Cash and cash equivalents and short-term investments are available 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. During normal business conditions, we target a range of $75 to $175 for cash and cash equivalents and short-term investments to fund operating requirements. In addition, we may carry additional liquidity for potential investments in strategic initiatives and as a cushion against economic volatility, and from time to time, we may allow our cash and cash equivalents and short-term investments to temporarily fall below our targeted range to fund acquisitions and other growth initiatives.
Liquidity Sources
February 28,
February 23,
Cash and cash equivalents
Short-term investments
Company-owned life insurance ("COLI")
Availability under credit facilities
Total liquidity sources available
As of February 28, 2025, we held a total of $387.9 in cash and cash equivalents and short-term investments. Of that total, 90% was located in the U.S. and the remaining 10%, or $38.5, was located outside of the U.S., primarily in China (including Hong Kong), India, Mexico and Malaysia. Our short-term investments are maintained in a managed investment portfolio in the U.S. and primarily consist of corporate debt securities, asset-backed securities and U.S. government debt securities.
COLI investments are recorded at their net cash surrender value. Our investments in COLI policies are intended to be utilized as a funding source for long-term benefit obligations. However, COLI can also be used as a source of liquidity. We believe the financial strength of the issuing insurance companies associated with our COLI policies is sufficient to meet their obligations. See Note 10 to the consolidated financial statements for additional information.
Availability under credit facilities may be reduced related to compliance with applicable covenants. See Liquidity Facilities for more information.
The following table summarizes our consolidated statements of cash flows:
Cash Flow Data
Year Ended
February 28,
February 23,
February 24,
Net cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
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Cash provided by operating activities
Cash Flow Data — Operating Activities
Year Ended
February 28,
February 23,
February 24,
Net income
Depreciation and amortization
Restructuring costs
Gains on sales of fixed assets, net
Share-based compensation
Changes in accounts receivable, inventories and accounts payable
Cloud computing arrangements expenditures
Employee compensation liabilities
Other
Net cash provided by operating activities
In 2025, we recorded $41.0 of gains on sales of fixed assets, net, which primarily related to the sale of land in the Americas, and we used $46.3 of cash for cloud computing arrangement expenditures related to the capitalized development costs of our new ERP system. Annual payments related to accrued variable compensation and retirement plan contributions totaled $122.4 in 2025 compared to $77.3 in the prior year. Working capital in the prior year reflected decreased levels of inventory related to supply chain improvements and a reduction in the number of days sales outstanding in accounts receivable.
Cash provided by (used in) investing activities
Cash Flow Data — Investing Activities
Year Ended
February 28,
February 23,
February 24,
Capital expenditures
Proceeds from disposal of fixed assets
Purchases of short-term investments
Liquidations of short-term investments
Acquisition, net of cash acquired
Other
Net cash provided by (used in) investing activities
Capital expenditures in 2025 primarily related to investments in manufacturing operations, information technology, customer-facing facilities and showrooms, and product development. In 2025, proceeds from the disposal of fixed assets primarily related to the sale of land in the Americas, and we also invested $41.0 in a managed investment portfolio, which consists of corporate debt securities, asset-backed securities and U.S. government debt securities. See Note 7 to the consolidated financial statements for additional information. In 2024, proceeds from the disposal of fixed assets primarily included $36.0 of proceeds from the sale of aircraft and other aviation assets and $12.5 from the sale of fixed assets and land.
Cash used in financing activities
Cash Flow Data — Financing Activities
Year Ended
February 28,
February 23,
February 24,
Dividends paid
Common stock repurchases
Repayments on note payable
Other
Net cash used in financing activities
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The following table details dividends paid per common share during each quarter of 2025 and 2024:
Dividend Data
First
Quarter
Second
Quarter
Third
Quarter
Fourth Quarter
Total
Dividends declared and paid per common share
Dividends declared and paid per common share
During 2025 and 2024, we made common stock repurchases of $36.4 and $4.2, respectively, all of which related to our Class A Common Stock. Those repurchases included $9.9 and $4.2 in 2025 and 2024, respectively, which were made to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards, pursuant to the terms of our Incentive Compensation Plan.
In 2024, we made a balloon payment of $31.8 for a note payable that matured during Q1 2024.
As of February 28, 2025, we had $79.9 of remaining availability under the share repurchase program approved by our Board of Directors in 2024.
Liquidity Facilities
Our total liquidity facilities as of February 28, 2025 were as follows:
Liquidity Facilities
February 28,
Global committed bank facility
Various uncommitted facilities
Available capacity
We have a $300.0 global committed bank facility in effect through 2029. As of February 28, 2025, there were no borrowings outstanding under the facility, our ability to borrow under the facility was not limited, and we were in compliance with all covenants under the facility.
We have unsecured uncommitted short-term credit facilities available for working capital purposes with various financial institutions with a total U.S. dollar borrowing capacity of up to $4.0 and a total foreign currency borrowing capacity of up to $19.7 as of February 28, 2025. These credit facilities may be changed or canceled by the banks at any time. As of February 28, 2025, there were no borrowings outstanding under these uncommitted facilities.
Total consolidated debt as of February 28, 2025 was $447.1 which consists of term notes due in 2029 with an effective interest rate of 5.6%. The term notes are unsecured and contain no financial covenants.
See Note 13 to the consolidated financial statements for additional information.
Liquidity Outlook
As of February 28, 2025, our total liquidity, which is comprised of cash and cash equivalents, short-term investments and the net cash surrender value of COLI, aggregated to $558.3. Our liquidity position, funds available under our credit facilities and cash generated from future operations are expected to be sufficient to finance our known and foreseeable liquidity needs, including our material cash requirements.
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Material Cash Requirements
Our material committed cash requirements are as follows:
• Debt : We have no principal repayment obligations on our debt during 2026 through 2028 and $450.0 due in 2029. Interest obligations on our debt are estimated to be approximately $23 in each year until maturity. See Note 13 to the consolidated financial statements for additional information.
• Operating leases : We have commitments related to corporate offices, sales offices, showrooms, manufacturing and distribution facilities, vehicles and equipment under non-cancelable operating leases that expire at various dates through 2035. Minimum payments under our operating lease obligations are estimated to be $46.7 during 2025 and $126.3 thereafter. See Note 18 to the consolidated financial statements for additional information.
• Employee benefit and compensation obligations : We have obligations related to contributions and benefit payments expected to be made for post-retirement, pension and defined contribution plans and deferred compensation plans. Our obligations related to post-retirement benefit plans are not contractual, and the plans could be amended at the discretion of our Compensation Committee. Payments related to post-retirement and pension plans are estimated to be $6.9 during 2026 and $43.8 from 2027 through 2035. Our deferred compensation obligations are estimated to be $7.8 during 2026 and $44.2 thereafter. See Note 14 to the consolidated financial statements for additional information.
We also have other planned material usages of cash which we consider discretionary. This includes plans for capital expenditures and capitalizable costs for cloud computing arrangements related to the implementation of our new ERP system, which are expected to total approximately $80 in 2026. See Note 2 to the consolidated financial statements for additional information on our accounting policy related to cloud computing arrangements. In addition, we fund dividend payments as and when approved by our Board of Directors. On March 26, 2025, we announced a quarterly dividend on our common stock of $0.10 per share, or $11.5, to be paid in Q1 2026.
The amounts included above are as of February 28, 2025. Our material cash requirements are subject to fluctuation based on business requirements, economic volatility or investments in strategic initiatives. The amounts of these obligations could change materially over time as new contracts or obligations are initiated and existing contracts or obligations are terminated or modified.
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements and accompanying notes. Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and accompanying notes. Although these estimates are based on historical data and management’s knowledge of current events and actions it may undertake in the future, actual results may differ from the estimates if different conditions occur. The accounting estimates that typically involve a higher degree of judgment and complexity are listed and explained below. These estimates were discussed with the Audit Committee of our Board of Directors and affect both of our segments.
Business Combinations and Goodwill
We allocate the fair value of purchase consideration to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates are reviewed with our advisors and can include, but are not limited to, future expected cash flows related to acquired dealer relationships, trademarks and know-how/designs and require estimation of useful lives and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable, and as a result, actual results may differ from these estimates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
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Annually in Q4, or earlier if conditions indicate it is necessary, the carrying value of each reporting unit is compared to an estimate of its fair value. If the estimated fair value of the reporting unit is less than the carrying value, the difference is recorded as an impairment charge. Goodwill is assigned to and the fair value is tested at the reporting unit level. In 2025, we evaluated goodwill using nine reporting units: the Americas, EMEA, Asia Pacific, Designtex, AMQ, Smith System, Orangebox U.K., Viccarbe and HALCON.
During Q4 2025, we performed our annual impairment assessment of goodwill in our reporting units. In the test for potential impairment, we measured the estimated fair values of our reporting units under an income-based approach by using a discounted cash flow (“DCF”) valuation method. The DCF analysis calculated the present value of projected cash flows and a residual value using discount rates that ranged from 11% to 13%. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows in measuring fair value. Assumptions used in our DCF valuations, such as discount rates, forecasted revenue growth rates, expected operating margins and estimated capital investment, are consistent with our internal projections as of the time of the assessment. These assumptions could change over time, which may result in future impairment charges. We corroborated the results of the DCF analysis with a market-based approach that used observable comparable company information to support the appropriateness of the fair value estimates. There were no impairment charges recorded for any reporting units in 2025. If we had concluded that it was appropriate to increase the discount rate in our analysis by 100 basis points to estimate the fair value of each reporting unit, the fair value of each of our reporting units would still have exceeded its carrying value.
As of February 28, 2025, we had remaining goodwill recorded on our Consolidated Balance Sheet as follows:
Reportable Segment
Goodwill
Americas
International
Total
As of the valuation date, the fair value of each reporting unit exceeded its carrying value by at least 30%. See Note 2 and Note 11 to the consolidated financial statements for additional information.
Income Taxes
Our annual effective tax rate is based on income, statutory tax rates and tax planning strategies in various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense, measuring our expected ability to realize deferred tax assets and evaluating our tax positions.
We are audited by the U.S. Internal Revenue Service under the Compliance Assurance Process (“CAP”). Under CAP, the U.S. Internal Revenue Service works with large business taxpayers to identify and resolve issues prior to the filing of a tax return. Accordingly, we expect to record minimal liabilities for U.S. Federal uncertain tax positions. Tax positions are reviewed regularly for state, local and non-U.S. tax liabilities associated with uncertain tax positions.
Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. In evaluating our ability to recover deferred tax assets within the jurisdiction from which they arise, we consider all positive and negative evidence. These expectations require significant judgment and are developed using forecasts of future taxable income that are consistent with the internal plans and estimates we are using to manage the underlying business as of the time of the evaluation. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. A 1% change in statutory tax rates used to compute our deferred tax assets and liabilities would have increased or decreased our income tax expense in 2025 by approximately $6.3.
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Future tax benefits are recognized to the extent that realization of these benefits is considered more likely than not. As of February 28, 2025, we recorded tax benefits from net operating loss carryforwards of $29.1. We also have recorded valuation allowances totaling $3.1 against these assets, which reduced our recorded tax benefit to $26.0. It is considered more likely than not that a $26.0 cash benefit will be realized on these carryforwards in future periods. This determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies will enable us to utilize the carryforwards. To the extent that available evidence raises doubt about the realization of a deferred tax asset, a valuation allowance would be established or adjusted. A change in judgment regarding our expected ability to realize deferred tax assets would be accounted for as a discrete tax expense or benefit in the period in which it occurs.
Additionally, we have deferred tax assets related to tax credit carryforwards of $9.9 comprised primarily of U.S. foreign tax credits and investment tax credits granted by the Czech Republic. The U.S. foreign tax credit carryforward period is 10 years. Utilization of foreign tax credits is restricted to 21% of foreign source taxable income in that year. We have projected our pretax domestic earnings and foreign source income and expect to utilize $7.0 of excess foreign tax credits within the allowable carryforward periods. The carryforward period for the Czech Republic investment tax credits is also 10 years. We have projected our pretax earnings in the Czech Republic and expect to utilize the $2.9 of credits within the allowable carryover period. Valuation allowances are recorded to the extent realization of the tax credit carryforwards is not more likely than not.
See Note 16 to the consolidated financial statements for additional information.
Pension and Other Post-Retirement Benefits
We sponsor a number of domestic and foreign plans to provide pension, medical and life insurance benefits to retired employees. As of February 28, 2025 and February 23, 2024, the fair value of plan assets, benefit plan obligations and funded status of these plans were as follows:
Defined Benefit
Pension Plans
Post-Retirement
Plans
February 28,
February 23,
February 28,
February 23,
Fair value of plan assets
Benefit plan obligations
Funded status
The post-retirement medical and life insurance plans are unfunded. As of February 28, 2025, approximately 69% of our unfunded defined benefit pension obligations is related to our non-qualified supplemental retirement plan that is limited to a select group of management approved by the Compensation Committee of our Board of Directors. The post-retirement medical and life insurance plans were frozen to new participants in 2003. The non-qualified supplemental retirement plan was frozen to new participants in 2016, and the benefits were capped for existing participants. A portion of our investments in whole life and variable life COLI policies with a net cash surrender value of $170.4 as of February 28, 2025 are intended to be utilized as a long-term funding source for post-retirement medical benefits, deferred compensation and defined benefit pension plan obligations. The asset values of the COLI policies are not segregated in a trust specifically for the plans and thus are not considered plan assets. Changes in the values of these policies are recorded in operating expenses, but have no effect on the post-retirement benefits expense, defined benefit pension expense or benefit obligations recorded in the consolidated financial statements.
We recognize the cost of benefits provided during retirement over the employees’ active working lives. Inherent in this approach is the requirement to use various actuarial assumptions to predict and measure costs and obligations many years prior to the settlement date. Key actuarial assumptions that require significant management judgment and have a material impact on the measurement of our consolidated benefits expense and benefit obligations include, among others, the discount rate and health care cost trend rates. These and other assumptions are reviewed with our actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, benefit payments, expenses paid from the plan, rates of termination, medical inflation, regulatory requirements, plan changes and governmental coverage changes.
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To conduct our annual review of discount rates, we perform a matching exercise of projected plan cash flows against spot rates on a yield curve comprised of high-quality corporate bonds as of the measurement date (the Ryan ALM Top Third curve). The measurement dates for our retiree benefit plans are consistent with the last day in February. Accordingly, we select discount rates to measure our benefit obligations that are consistent with market indices at the end of February. In 2025, the weighted average discount rate used to determine the estimated fair value of our defined benefit pension plan obligations was decreased to 4.50% from 4.80%. The weighted average discount rate used to determine the estimated fair value of our post-retirement plan obligations was decreased to 5.23% from 5.46%.
Based on consolidated benefit obligations as of February 28, 2025, a one percentage point decline in the discount rate used for benefit plan measurement purposes would have changed the 2025 consolidated benefit obligations by approximately $4. All obligation-related actuarial gains and losses are amortized using a straight-line method over the average remaining service period of active plan participants.
To conduct our annual review of healthcare cost trend rates, we model our actual claims cost data over a historical period, including an analysis of the pre-65 age group and other important demographic components of our covered retiree population. This data is adjusted to eliminate the impact of plan changes and other factors that would tend to distort the underlying healthcare cost inflation trends. Our initial healthcare cost trend rate is reviewed annually and adjusted as necessary to remain consistent with recent historical experience and our expectations regarding short-term future trends. As of February 28, 2025, our initial medical rate of 6.50% for pre-age 65 retirees was trended downward by each year, until the ultimate trend rate of 4.50% was reached. The ultimate trend rate is adjusted annually, as necessary, to approximate the current economic view on the rate of long-term inflation plus an appropriate healthcare cost premium. Post-age 65 trend rates are not applicable as our plan provides a fixed subsidy for post-age 65 benefits.
Despite the previously described policies for selecting key actuarial assumptions, we periodically experience material differences between assumed and actual experience. Our consolidated net unamortized prior service costs and net actuarial gains of $4.4 and $12.0 related to our defined benefit pension plans and post-retirement plans, respectively, are recorded in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.
See Note 14 to the consolidated financial statements for additional information.
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 discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, us. Forward-looking statements generally are accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” "target" or other similar words, phrases or expressions. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements and 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, pandemics and other Force Majeure events; cyberattacks; changes in the legal and regulatory environment; changes in raw material, commodity and other input costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in this Report 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.
Recently Issued Accounting Standards
See Note 3 to the consolidated financial statements for information regarding recently issued accounting standards.
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