Management's Discussion and Analysis of Financial Condition and Results of Operations

YEAR 2000 READINESS

The Company is actively engaged in replacing or modifying all business software applications as well as manufacturing and other equipment with embedded technology that could fail or generate erroneous results by or at the Year 2000 ("Year 2000 issues"), an issue affecting Steelcase Inc. and most other companies. The Company intends that its business application systems, technical infrastructure components, and manufacturing equipment be Year 2000 ready by the end of June of 1999. However, management views the process of assessing and remediating Year 2000 issues as an ongoing process which will require continued focus, testing and verification throughout calendar 1999.

The Company's Year 2000 readiness effort is comprised of five phases defined below:

Awareness: Activities to ensure management and all affected employees are aware that Year 2000 issues exist.

Assessment: Includes the inventory of all potentially affected hardware, software, and embedded technology equipment, along with a determination as to whether or not they may be impacted by the Year 2000 issues.

Remediation: Repairs, replacement, and/or modifications to eliminate the Year 2000 issues in hardware, software or equipment.

Testing: Testing of the hardware, software or equipment to determine if the remediation was successful.

Implementation: Moving the hardware, software or equipment from a test status or test location to production usage. Although the Company's individual business units, majority-owned subsidiaries and unconsolidated joint ventures may be individually at different stages of readiness, the following comments summarize Steelcase Inc.'s state of readiness with respect to Year 2000 issues.

Since 1994, the Company has been selectively replacing business software applications with SAP, a Year 2000 compliant comprehensive information management system. This project is part of a strategic business plan to upgrade the overall capabilities of the Company's business application systems. Costs to date specifically to address Year 2000 issues, separate from SAP implementations, have approximated $10 million. Future costs anticipated to remedy Year 2000 issues have been budgeted and are not expected to exceed an additional $10 million. Further, various individual business units, majority-owned subsidiaries and unconsolidated joint ventures are engaged in the implementation of Year 2000 compliant enterprise software systems.

In late 1995, the Company began its efforts to address those business applications which might not be replaced in time with equivalent SAP systems by engaging a third party specializing in the modification of business software applications. The engagement lasted through December 1997, at which time the majority of remediation efforts related to those business software applications were substantially complete. Since that time, the Company has been testing those business software applications and as of February 26, 1999 had substantially completed the initial testing of those software applications.

In December 1997, the Company established a Program Management Office ("PMO"), reporting to the Chief Information Officer of the Company. The PMO has the responsibility to provide oversight for the Company's Year 2000 readiness program that consists of the five phases noted above. These five phases will be employed for the following areas: business application software, manufacturing and other equipment with embedded chip technology, and evaluation and due diligence with respect to the Company's supply chain and distribution channel. The PMO is also responsible for periodic status reporting to the Company's executive management and to the Board of Directors. In addition, the Year 2000 PMO is providing oversight for the development and execution of contingency and business continuity planning efforts, which have begun in a number of the Company's business units.

As of February 26, 1999, the Company had completed the assessment phase for the majority of its manufacturing facilities having embedded technology. The assessment resulted in minimal findings of non-compliance. The Company's manufacturing equipment is generally Year 2000 ready and is not anticipated to require significant reprogramming or replacement. Remediation and testing of the equipment identified as needing some reprogramming or replacement is expected to be substantially complete by mid-calendar year 1999.

The Company initiated formal communications with production suppliers in January 1998 and with its dealer network in May 1998, inquiring as to their state of readiness. As of February 26, 1999, over 4,000 suppliers have been contacted, and from the responses received to date, the Company believes that its supply chain partners are actively seeking to become Year 2000 ready. The Company has initiated further in-depth analyses of the readiness of approximately 150 key suppliers. In addition, as of February 26, 1999, a majority of the dealers, both international and domestic, had responded, mostly with favorable self-assessment ratings. Many governmental agencies, however, may not be Year 2000 compliant. It is difficult for Steelcase Inc. and most other companies to assess the likelihood, or the impact, if any, on their businesses, of such entities' failure to be Year 2000 compliant.

The Company presently believes that, upon completion of its current plans for remediation of its business software applications as well as manufacturing and other equipment with embedded technology, Year 2000 issues will not present a materially adverse risk to the Company's future consolidated results of operations, liquidity or capital resources. However, if such planned remediation is not completed in a timely manner, the level of timely compliance by key suppliers or dealers is not sufficient, or if unforeseen circumstances arise, Year 2000 issues could have a material impact on the Company's operations including, but not limited to, delays in shipments of products resulting in loss of revenues, increased operating costs, loss of customers or suppliers, or other significant disruptions to the Company's business. The Company believes that its Year 2000 readiness program, including contingency and business continuity plans under development, should generally reduce the extent of materially adverse effects that Year 2000 related disruptions may have upon the Company.

Contingency and business continuity planning activities have been initiated in various business areas within the Company. Additional planning will occur as the Company identifies those circumstances that would require development of a contingency and business continuity plan. The Company believes contingency and business continuity planning efforts to be ongoing activities, subject to frequent review throughout calendar year 1999.