Note 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
The consolidated financial statements include the accounts of Steelcase Inc. and its majority-owned subsidiaries, except for dealers which the Company has acquired with the intention of reselling as soon as practicable ("dealer transitions"). All significant intercompany accounts, transactions and profits have been eliminated in consolidation. Foreign currency-denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the balance sheet date. Income and expense items are translated at the average exchange rates during the respective periods. Translation adjustments resulting from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of shareholders' equity. Gains and losses resulting from exchange rate fluctuations on transactions denominated in currencies other than the functional currency are not material.

The Company's investments in joint ventures and dealer transitions are carried at its equity in the net assets of those entities primarily based on audited financial statements for each applicable year.

Year End
The Company's year-end is the last Friday in February with each fiscal quarter including 13 weeks, except for the quarter ended February 28, 1997 which included 14 weeks. Fiscal years presented herein include the 52-week periods ended February 26, 1999 and February 27, 1998, and the 53-week period ended February 28, 1997.

Revenue Recognition
Net sales include product sales, service revenues and leasing revenues. Product sales and service revenues are recognized as products are shipped and services are rendered. Leasing revenue includes interest earned on the net investments in leased assets, which is recognized over the lease term as a constant percentage return. Service and leasing revenues are not material.

Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily interest-earning deposits, treasury notes and commercial paper, with an original maturity of three months or less. Cash equivalents are reported at amortized cost, which approximates market, and approximated $72.9 million and $119.1 million as of February 26, 1999 and February 27, 1998, respectively.

Long-term Investments
The Company accounts for its long-term investments, in accordance with Statement of Financial Accounting Standards ("SFAS") No.115, Accounting for Certain Investments in Debt and Equity Securities. The Company currently classifies its investments as available-for-sale or held-to-maturity. Investments classified as available-for-sale approximated $5.5 million as of February 26, 1999. There were no investment balances classified as available-for-sale at February 27, 1998. Gross unrealized gains and losses, net of taxes, are credited or charged to accumulated other comprehensive income, a separate component of shareholders' equity. Investments classified as held-to-maturity typically include treasury notes, tax-exempt municipal bonds and other debt securities which the Company has the positive intent and ability to hold until maturity. These investments are reported at amortized cost. Investments classified as long-term mature over the next five years.

Inventories
Substantially all inventories are valued based upon last-in, first-out ("LIFO") cost, not in excess of market.

Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which average 26 years for buildings and improvements and eight years for all other property and equipment. In addition, internal-use software applications and related development efforts are capitalized and amortized over the estimated useful lives of the applications, which do not exceed five years except for certain business application systems which approximate ten years. Software maintenance, Year 2000 related matters and training costs are expensed as incurred.

Corporate-Owned Life Insurance
The Company carries investments in corporate-owned life insurance ("COLI") policies, which were purchased to fund employee benefit plan obligations. The assets are recorded at their net cash surrender values as reported by the issuing insurance companies associated with the COLI.

Goodwill and Other Intangible Assets
Goodwill and other intangible assets resulting from business acquisitions are stated at cost and amortized on a straight-line basis over a period of 15 years if acquired subsequent to February 28, 1995, or 40 years if acquired prior thereto. Amortization expense approximated $4.1 million, $4.2 million and $4.0 million for 1999, 1998 and 1997, respectively.

The Company reviews long-lived assets, including goodwill and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If it is determined that an impairment loss has occurred based on expected future cash flows, a current charge to income is recognized.

Product Related Expenses
Research and development expenses, which are expensed as incurred, approximated $75.0 million, $70.0 million and $65.0 million for 1999, 1998 and 1997, respectively.

Self-Insurance
The Company is self-insured for certain losses relating to workers' compensation claims, employee medical benefits and product liability claims. The Company has purchased stop-loss coverage in order to limit its exposure to any significant levels of workers' compensation and product liability claims. Self-insured losses are accrued based upon the Company's estimates of the aggregate liability for uninsured claims incurred using certain actuarial assumptions followed in the insurance industry and the Company's historical experience.

The accrued liabilities for self-insured losses included in other accrued expenses in the accompanying consolidated balance sheets are as follows:

The Company maintains a Voluntary Employees' Beneficiary Association ("VEBA") to fund employee medical claims covered under self-insurance. The estimates for incurred but not reported medical claims, which have been fully funded by the Company in the VEBA, approximated $7.9 million and $8.0 million as of February 26, 1999 and February 27, 1998, respectively.

Product Warranty
The Company offers a lifetime warranty on Steelcase brand products, subject to certain exceptions, which provides for the free repair or replacement of any covered product or component that fails during normal use because of a defect in design, materials or workmanship. Accordingly, the Company provides, by a current charge to operations, an amount it estimates will be needed to cover future warranty obligations for products sold. The accrued liability for warranty costs included in other accrued expenses in the accompanying consolidated balance sheets approximated $20.6 million and $21.3 million as of February 26, 1999 and February 27, 1998, respectively.

Environmental Matters
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition allegedly caused by past operations, that are not associated with current or future revenue generation, are expensed. Liabilities are recorded when material environmental assessments and remedial efforts are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with completion of a feasibility study or the Company's commitment to a formal plan of action. The accrued liability for environmental contingencies included in other accrued expenses in the accompanying consolidated balance sheets approximated $10.7 million and $11.7 million as of February 26, 1999 and February 27, 1998, respectively. Based on the Company's ongoing oversight of these matters, the Company believes that it has accrued sufficient reserves for remediation costs of all known sites.

Advertising
Advertising costs, which are expensed as incurred, approximated $11.3 million, $7.9 million and $6.0 million for 1999, 1998 and 1997, respectively.

Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.

Earnings Per Share
Basic earnings per share is based on the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of additional common shares that would have been outstanding if the shares, under the Company's Stock Incentive Plans, had been issued. Diluted earnings per share includes the effects of the Company's Stock Incentive Plans. The weighted average number of shares outstanding for basic and diluted calculations were 153.8 million, 154.8 million and 154.7 million for 1999, 1998 and 1997, respectively.

Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages entities to record compensation expense for stock-based employee compensation plans at fair value, but provides the option of measuring compensation expense using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. The Company has elected to account for its Stock Incentive Plans in accordance with APB Opinion No. 25. Pro forma results of operations for the Company, as if the fair value method prescribed by SFAS No. 123 had been used to account for its Stock Incentive Plans, are presented in Note 12.

Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, consisting of cash equivalents, investments, accounts and notes receivable, accounts and notes payable and certain other liabilities, approximate their fair value due to their relatively short maturities.

Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes accounting and reporting standards for derivative instruments, requiring recognition of the fair value of all derivatives as assets or liabilities on the balance sheet. This statement is effective for fiscal years beginning after June 15, 1999. Management intends to adopt the provisions of SFAS No. 133 during fiscal 2001. The impact of this pronouncement on the Company's financial results is currently being evaluated.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts and disclosures in the consolidated financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.