LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company’s cash and capital requirements have been satisfied through cash generated from operating activities. The Company’s financial position at February 25, 2000 included cash, cash equivalents and short-term investments of $88.6 million, which is slightly higher than the $76.1 million which existed on February 26, 1999. These funds, in addition to cash generated from future operations and available credit facilities, are expected to be sufficient to finance the known or forseeable future liquidity and capital needs of the Company.

Through February 1999, the Company had no long-term debt. However, with the acquisition of Steelcase Strafor and management’s intent to leverage the significant financial resources available to the Company to meet its growth objectives, the Company has obtained long-term debt financing from bank syndicates in Europe and the United States. The Company is currently in the process of obtaining a debt rating to further utilize its available financial resources. Total debt at February 25, 2000 aggregated $466.8 million, which was approximately 23% of total capitalization of the Company. The Company also holds $483.1 million of interest bearing assets predominantly through its finance subsidiary, Steelcase Financial Services Inc.

Cash provided by operating activities

Cash provided by operating activities totaled $305.7 million in 2000, $359.9 million in 1999, and $402.7 million in 1998. The operating cash flows have been impacted by a reclassification within the cash flow statement. The Company has reclassified the change in leased assets to the investing portion of the cash flow statement, which is consistent with the Company’s allocation of resources to its captive finance operation and industry practice for finance subsidiaries. The cash provided by operations resulted primarily from net income excluding non-cash charges such as depreciation and amortization, net of increases in accounts receivable and inventories and prepaids. The consolidation of Steelcase Strafor increased working capital in 2000. However, management continues to closely monitor the Company’s inventories and accounts receivable, attempting to maximize the number of inventory turns per year and minimize the impact of increasing international receivables, which typically have longer payment terms than domestic dealers.

Cash used in investing activities

Cash used in investing activities totaled $514.6 million in 2000, $342.2 million in 1999 and $219.2 million in 1998. The increases have resulted from increases in capital expenditures and leased assets, joint venture transactions and corporate acquisitions.

The Company’s capital expenditures were $188.8 million in 2000, $170.4 million in 1999 and $126.4 million in 1998, reflecting investments in excess of depreciation for each of the last three years. Capital expenditures continue to include increased investments in manufacturing equipment, information systems and facilities. Collectively, these investments are expected to improve productivity and safety, increase capacity, decrease the impact on the surrounding environments in which the Company operates and facilitate the launch of new products. The Company expects capital expenditures in fiscal 2001 to equal or exceed 2000 levels due to the planned construction of a new wood manufacturing facility and the continued investment in new product development, information systems and corporate and showroom facilities. The Company expects to fund these capital expenditures primarily through cash generated from operations.

The Company continues to invest in its leasing portfolio, which includes both direct financing and operating leases of office furniture products. The Company’s net investment in leased assets increased from $228.9 million as of February 26, 1999 to $349.1 million as of February 25, 2000. The Company expects to fund future investments in leased assets primarily through its lease receivables transfer facility and through cash generated from operations.

Joint venture transactions in the three-year period include the issuance of a note receivable to Steelcase Strafor in 1999 in the amount of $66.4 million to equalize lending levels between the Company and its partner, Strafor Facom S.A., and to fund in part the acquisition of Werndl by Steelcase Strafor.

Corporate acquisitions in 2000, aggregating $209.6 million, reflect the complete ownership of Steelcase Strafor, Clestra Hauserman and a significant dealer. Corporate acquisitions in 1999, aggregating $57.2 million, reflect the complete ownership of J.M. Lynne and the partial ownership of Microfield Graphics, Clestra Hauserman and the Modernform Group Public Company Limited. See Note 19 to the Consolidated Financial Statements.

Cash provided by (used in) financing activities

Cash provided by (used in) financing activities totaled $219.4 million in 2000, ($53.3) million in 1999 and ($254.4) million in 1998, reflecting dividends paid, certain common stock transactions and proceeds from the issuance of debt, net of repayments.

Management continues to evaluate the optimal capital structure for the Company in light of its long-term growth strategies. At the time of the above mentioned acquisition of Steelcase Strafor, the Company established a 364-day unsecured committed $200 million revolving credit facility. Subject to certain conditions, the facility is renewable annually for additional 364-day periods. The Company also established a $200 million lease receivables transfer facility. Subject to certain conditions, the facility is renewable annually, with borrowings on the facility scheduled to mature in accordance with the terms of the underlying leases.

Additionally, the Company has an unsecured, committed credit facility of EUR 200 million from bank syndicates in Europe to provide liquidity and finance capital expenditures for its European operations. The agreement is comprised of two tranches: Tranche A is a EUR 75.0 million, 364-day revolving facility, and Tranche B is a EUR 125.0 million, five-year term facility.

Annual dividends per share of common stock were $0.44 in 2000, $0.41 in 1999 and $0.39 in 1998. In addition, the Company paid a special dividend in 1998 in the aggregate amount of $150.9 million, or approximately $0.97 per share of common stock.

During 1999, eligible employees purchased shares of Class A Common Stock pursuant to the terms of the Employee Discount Option Grant, resulting in proceeds to the Company of $24.8 million. The shares for this grant, along with the shares for the Employee Stock Grant issued in 1998, were purchased by the Company from the selling shareholders in the initial public offering for $43.5 million. Under a three million share repurchase program authorized by the Board of Directors on June 17, 1998 and amended on September 22, 1999 for an additional three million shares, the Company repurchased 1,373,870 and 794,300 shares of Class A Common Stock for $18.4 million and $15.0 million in 2000 and 1999, respectively, and 1,086,400 Class B shares for $18.3 million in 2000. Management anticipates that the stock repurchase program will not reduce the Company’s tradable share float in the long run as it expects that Class B Common Stock will continue to convert to Class A Common Stock over time.