OVERVIEW

The Company recorded consolidated net income for 1999 in the amount of $221.4 million, or $1.44 per share (basic and diluted). This performance occurred during a period in which the office furniture industry softened due to global economic turmoil and significant domestic merger and acquisition activity, resulting in relatively flat consolidated and pro forma worldwide net sales levels for the fiscal year. Further, gross profit margins declined in the second half of the year, averaging 36.1% for 1999 compared with 36.4% a year ago due primarily to costs associated with the consolidation of two manufacturing facilities and the launch of new products.

However, management held the line on operating expenses and delivered a second consecutive year in which earnings performance set a new benchmark. The Company utilized a hiring delay, redeployment, discretionary spending controls, a voluntary leave program and other cost containment efforts, which, when coupled with the variable nature of bonus and incentive compensation programs, enabled achievement of the results without sacrificing long-term strategic efforts or jeopardizing its relations with employee-shareholders. In addition, the provision for income taxes benefited from the favorable resolution of income tax litigation dating back to 1989, which contributed to a reduced effective tax rate for 1999 and resulted in interest income of $5.8 million.

In a year in which the office furniture industry as a whole was slowed by macroeconomic factors and the Company's consolidated and pro forma worldwide net sales were relatively flat with 1998, the Company nonetheless made significant progress in 1999 towards fulling its vision to Transform the ways people work...to help them work more effectively than they ever thought they could and its long-term objective to grow the business. Significant highlights include:

• The Company launched Pathways Bundle I, a portfolio of integrated architectural products including panels, floor and lighting systems, furniture, power and communication elements designed to coordinate with existing Steelcase products, as well as competitors' products. First year net sales reached nearly $80 million.

• Further, the Company prepared for its fiscal 2000 introduction and launch of the Leap chair and the next generation of Pathways (Bundle II), both of which will be shown at NeoCon '99. Management believes the Leap chair will improve its offerings in seating, which are currently led by Criterion and Sensor.

• The Company initiated several acquisitions, including complete ownership of (i) Steelcase Strafor, the Company's European joint venture originally formed by Steelcase Inc. and Strafor Facom S.A. in 1974, (ii) Werndl BüroMöbeL AG, the second largest wood office furniture manufacturer in Germany, and (iii) J.M. Lynne, a leading designer and distributor of vinyl wall coverings based in New York, and partial ownership of (i) Microfield Graphics, an Oregon-based developer and manufacturer of computer conferencing and group communication products, (ii) Clestra Hauserman, a leading provider of steel moveable walls and partitions based in Ohio, and (iii) Modernform Group Public Company Limited, the Company's office furniture manufacturing partner located in Bangkok, Thailand.