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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

For the fiscal year ended February 28, 2003

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to 12(g) of the Act: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not Contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or Information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

     As of May 1, 2003, the registrant had outstanding 43,181,532 shares of Class A Common Stock and 104,431,465 shares of Class B Common Stock. The aggregate market value of the Class A Common Stock held by non-affiliates of the registrant was $553,217,071 computed by reference to the closing price of the Class A Common Stock on August 23, 2002 as reported by the New York Stock Exchange. Although there is no quoted market for registrant’s Class B Common Stock, shares of Class B Common Stock may be converted at any time into an equal number of shares of Class A Common Stock. Using the closing price of the Class A Common Stock on August 23, 2002, as reported by the New York Stock Exchange as the basis of computation, the aggregate market value of the Class B Common Stock held by non-affiliates was $1,066,021,052.

     Portions of the registrant’s definitive proxy statement for its 2003 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

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Item 1.     Business:

      The following business overview is qualified in its entirety by the more detailed information included elsewhere or incorporated by reference in this Annual Report on Form 10-K (“Report”). As used in this Report, unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “the Company” and similar references are to Steelcase Inc. and its consolidated subsidiaries. Unless the context otherwise indicates, reference to a year relates to a fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, references to quarters are as follows: Q1 2003 references the first quarter of fiscal 2003.

OVERVIEW

      Steelcase is a Fortune 500 company and the world’s leading designer and manufacturer of office furniture, with 2003 revenue of approximately $2.6 billion. Founded in 1912, we are a global company headquartered in Grand Rapids, Michigan. We employ approximately 16,000 employees, have manufacturing facilities in over 50 locations and distribute products through a network of independent dealers in more than 900 locations around the world.

      Our mission is about transforming the ways people work by:

	•	helping people work more effectively
	•	helping customers use their facilities more flexibly
	•	helping companies use space to attract, retain and inspire workers

      We fulfill our mission by implementing our strategy, which is built around two central ideas:

	•	become a work effectiveness company
	•	achieve enterprise perfection

      Becoming a work effectiveness company starts with understanding current and emerging patterns of user behavior. We identify these patterns by observing individuals, groups and teams working in their offices through our own research and development efforts, third party human factor research and by collaborating with research partners doing similar work. We use the insights from our research to identify unmet needs, new market opportunities and to develop new user-centered products, solutions and services. For example, several years ago we observed group and team spaces becoming more important. This led to a product offering beyond furniture to include interior architecture and technology products, which can be used to create effective group and teamwork environments. The insights from our research are also used to help customers, architects and designers conceive new and better kinds of office environments, which reflect emerging patterns of work. Because we are helping define these new work environments, we believe we are well positioned to provide the products our customers need to help their employees work more effectively.

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      Operational excellence has long been an important part of our heritage. Our products are known for their innovation, quality and value. We take pride in our on-time delivery record and our global network of independent dealers who provide reliable service to our customers. We have set our sights even higher than simply operational excellence and now use the term “enterprise perfection”, which means achieving the right level of cost, quality and speed throughout manufacturing and distribution and across our supply chain and office operations. In the 2003 Contract Magazine subscriber survey, interior designers, architects, and furniture dealers were asked to name the top manufacturers they considered when purchasing or recommending products in a variety of categories. The manufacturers were judged on the aesthetics, dependability, value, and customer service associated with their product lines for each category. Steelcase was rated the top brand in the categories of casegoods (desks and office suites), computer support furniture, conference tables, desks and credenzas, furniture systems, filing and storage and guest/ occasional seating. We also ranked among the top three manufacturers in the ergonomic seating, accessories, moveable walls and training tables categories.

      In addition to the two central ideas described above, our strategy includes:

	•	our core values
	•	our financial goals

      Our core values reflect the principles of our founders and are at the heart of what guides our business today. At Steelcase, we:

	•	Act with integrity
	•	Tell the truth
	•	Keep commitments
	•	Treat people with dignity and respect
	•	Promote positive relationships
	•	Protect the environment
	•	Excel

      We believe we will achieve our financial goals by implementing our central ideas and living our core values. To reinforce our financial goals, our management team and most of the employees of Steelcase receive a bonus based on economic value added (“EVA”) performance.

NARRATIVE DESCRIPTION OF BUSINESS

Our Products

      We are a global work effectiveness company. We focus on providing knowledge, products and services that enable our customers to create work environments that help people in offices work more effectively. Because of this focus, we have an evolving portfolio of architecture, furniture and technology products and solutions.

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      We have a broad offering of products with a variety of aesthetic options and performance features, and at various price points that address the three core elements of an office environment: architecture, furniture and technology. Our North America, Steelcase Design Partnership and International segments, as well as PolyVision (included in our Other category), generally offer similar products under some or all of the categories listed below:

      Panel-based and freestanding furniture systems. Moveable and reconfigurable furniture components used to create individual workstations and complete work environments. Systems furniture provides visual and acoustical privacy; accommodates power and data cabling; and supports technology and other worktools.

      Storage. Lateral and vertical files, cabinets, bins and shelves, carts, file pedestals, and towers.

      Seating. High-performance, ergonomic, executive, guest, lounge, team, health care, stackable and general use chairs.

      Tables. Meeting, personal, learning and café tables.

      Textiles and surface materials. Seating upholstery, panel fabric and wall coverings.

      Desks and Suites. Wood and non-wood desks, credenzas and casegoods.

      Worktools. Computer support, technology management, organizers, information management products and portable whiteboards.

      Interior architecture. Full and partial height walls with fabric; whiteboard surface materials; raised floors; doors and modular post and beam products.

      Lighting. Task, ambient and accent lighting with energy efficient and user control features.

      Infrastructure. Infrastructure products, such as modular communications, data and power cabling.

      Appliances. Group communication tools, such as interactive whiteboards, image capturing devices and web based interactive signs and space scheduling systems.

Business Segments

      During Q3 2003, we changed our external segment reporting to provide a more detailed view of our business, and restated our quarterly segment data at that time. We went from three segments, North America, International and Financial Services, with a separate column for corporate eliminations, to four segments plus an “Other” category. See a description of these segments below. Additional information about our reportable

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      Our North America segment consists of manufacturing and sales operations in the United States and Canada. This segment includes 16 manufacturing locations, represents approximately 8,500 employees and serves customers through a network of over 350 independent dealer locations. Our offerings in North America include architecture, furniture and technology products, as described above, under the Steelcase and Turnstone brands. For example, Pathways is an evolving portfolio of integrated architecture, furniture and technology products that enable customers to create flexible, user-centered work environments. In 2003, the North America segment accounted for $1,497.9 million, or 57.9% of our total revenue. We have led the North America market in revenue since 1974.

      The Steelcase Design Partnership (“SDP”) includes: Brayton International, The Designtex Group, Office Details Inc., Metropolitan Furniture Corporation and Vecta and their brands. These companies operate autonomously, and report to the president of the SDP. They focus on higher-end design furniture products and niche applications for lobby and reception areas, conference rooms, private offices, health care and learning environments, as well as the design and distribution of surface materials and ergonomic tools for the workplace. The SDP segment has approximately 1,300 employees and an independent dealer network made up of many of the same dealers as the North America segment. In 2003, SDP accounted for $291.2 million, or 11.3% of our total revenue.

      Our International segment includes all sales and manufacturing operations of the Steelcase and Werndl brands outside the United States and Canada. It develops and manufactures most of the products it sells. The International segment includes 17 manufacturing facilities located in 11 countries, approximately 4,000 employees and a network of approximately 550 independent dealer locations. In 2003, our International segment accounted for $485.9 million, or 18.8% of our total revenue. We hold the market leadership position in Europe and leading positions in several individual countries.

      Our Financial Services segment provides leasing services to customers primarily in North America and, more recently, in Europe to facilitate the purchase of our products. This segment also provides selected financing services to our dealers. In 2003, the Financial Services segment accounted for $32.3 million, or 1.2% of our total revenue.

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      Starting in 2004, we will continue to originate leases for customers and will earn an origination fee for that service, but a third party will provide lease funding. As a result, we will no longer have credit or residual risk related to those leases.

      In the future, Financial Services will no longer be reported as a separate segment since its results and asset base are below the threshold requirements. Instead, Financial Services will be included with the “Other” category.

      The Other category includes PolyVision, IDEO and Attwood subsidiaries, ventures and unallocated corporate expenses. PolyVision designs and manufactures visual communications products, such as static and electronic whiteboards. IDEO is a design and innovation services subsidiary. Attwood manufactures hardware and accessories for the marine industry. In 2003, the Other category accounted for $279.6 million or 10.8% of our total revenue.

New Product and Industry Segment Information

      During the past 12 months, we have not announced any new industry segments or products that would require the investment of a material amount of the Company’s assets, or which would otherwise result in a material cost.

Raw Materials and Suppliers

      The Company’s manufacturing materials are available from a significant number of sources within the United States, Canada, Europe and Asia. Through collaboration, our goal is for both our suppliers and Steelcase to prosper by continuously improving our products and manufacturing processes. To date, we have not experienced difficulties obtaining raw materials, which include steel, lumber, paper, paint, plastics, laminates, particleboard, veneers, glass, fabrics, leathers and upholstery filling material. These raw materials are not unique to the industry nor are they rare.

Product Research, Design and Development

      Our product development process begins with research aimed at identifying emerging patterns of user behavior in the workplace and changes in the ways people work. Our research methods include on-site observation of people working in their offices, human factor studies, and often include collaboration with universities and other companies. Our research activity is a corporate function and occurs primarily in North America and Europe.

      Understanding patterns of work enables us to identify and anticipate user needs. Our design teams develop prototypical solutions to address these needs. These solutions are sometimes single products and/or enhancements to existing products, and are sometimes integrated architecture, furniture and technology solutions. Design work is organizationally distributed across our major businesses and can involve outside design

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      Our marketing team evaluates product concepts using several criteria, including financial return metrics, and chooses which products will be developed and launched. Next, designers work closely with our engineers and outside suppliers to co-develop products and processes that lead to more efficient manufacturing without compromising key user benefits. Products are tested for performance, quality and compliance with regulations.

      Exclusive of royalty payments, we have invested approximately $179 million in research, design and development activities over the past three years. Royalties are sometimes paid to outside designers of our products as the products are sold and are not included in the research, design and development costs since they are variable based on product sales.

Manufacturing

      We manufacture our products in more than 50 locations throughout the world, with facilities predominantly in North America and Europe. Substantially all of our manufacturing facilities “assemble to order” rather than to “forecast,” which minimizes finished goods inventory levels and emphasizes continuous improvement and delivery time to customers. We have an extensive physical distribution system in North America and Europe and utilize both our company-owned trucking fleet and commercial transport and delivery services.

      We are implementing lean manufacturing principles in many of our plants. Lean manufacturing involves smaller batch sizes, cellular or team-based manufacturing, flow and pull methods of managing work in process, and other world-class production techniques. We are also implementing enhanced planning and scheduling systems to help coordinate production of a given order across multiple plants and multiple delivery times. We explore opportunities to outsource certain manufacturing processes when suppliers can offer additional efficiencies or other performance benefits. These strategies along with other initiatives are helping us create the new “Steelcase Production System.” As we continue with implementation, we expect to improve our productivity, increase the effective capacity of each plant, improve inventory turns, and create a less capital-intensive industrial model. For example, during 2003 reduced sales volume and implementation of lean manufacturing principles led to excess capacity. We consolidated plants and distribution centers, moved into smaller and more efficient facilities with better product flow (including the closing or relocation of 3 plants in the United States, representing approximately 2.2 million square feet of space). We will continue to examine opportunities to consolidate manufacturing and distribution operations and dispose of assets that represent excess capacity.

Working Capital

      Our receivables are primarily from our dealers. Payment terms vary by country and region. The terms of our North America and SDP segments, and certain markets within the International segment, encourage prompt payment. Other International markets have, by market convention, longer payment terms. We are not aware of any special practices or conditions related to working capital items that are significant to understanding our business or the industry at large.

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Backlog

      Our products are generally manufactured and shipped within a few weeks following receipt of order, and therefore, we do not view the amount of backlog at any particular time as a meaningful indicator of longer-term shipments.

Intellectual Property

      Our wholly owned subsidiary, Steelcase Development Corporation, acquires, manages, licenses, and enforces our intellectual property rights.

      We own approximately 1,400 designs and patents throughout the world. Of these, we have over 650 active utility and design patents for current and anticipated products in the United States. We own the remaining designs and patents in a number of other countries. The average remaining life of the utility patents in our United States portfolio is approximately 13 years. We occasionally enter into license agreements under which we pay a royalty to third parties for the use of patented products, designs or process technology.

      We have also registered various trademarks and service marks in the United States and other countries. Collectively, we hold registrations for approximately 150 United States and 1,330 foreign trademarks. We have established a global network of intellectual property licenses with our affiliates. We also selectively license our intellectual property to third parties as a revenue source. For example, our Leap® seating technology has been licensed for use in automotive seating, and we are pursuing other licensing for this technology.

      We do not believe that any material part of our business is dependent on the continued availability of any one or all of our patents or trademarks, or that our business would be materially adversely affected by the loss of any, except the “Brayton”, “Designtex”, “Details”, “Leap”, “Metro”, “Pathways”, “PolyVision”, “Steelcase”, “Vecta” and “Werndl” trademarks.

Distribution and Customer Base

      We primarily sell our products through a network of independent dealers. Each dealership has its own sales force, supported by our sales representatives, who work closely with dealers throughout the sales process. We have historically experienced minimal turnover in our dealer network. No single dealer accounted for more than 2.7% of our consolidated revenue for 2003. The five largest dealers collectively accounted for approximately 11.4% of our consolidated revenue. We do not believe our business is dependent on any single dealer, the loss of which would have a material effect upon our business. However, temporary disruption of dealer coverage within a specific local market due to financial failure or the inability to smoothly transition ownership could temporarily have an adverse impact on our business within the affected market. See Notes 7 and 16 to the consolidated financial statements for further discussion.

      Our largest customer accounted for approximately 0.9% of our consolidated revenue and our five largest customers accounted for approximately 4.0% of consolidated revenue. However, the percentages referenced in the previous sentence do not include revenue from, various government agencies and other entities purchasing under the General Services Administration (“GSA”) contract, which in the aggregate accounted for

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      Historically, our business experiences slight seasonality with the second and third quarter revenue levels higher than first and fourth quarter revenue levels. This seasonal trend was not as evident during the office furniture industry recession of the past two years.

Competition

      The United States and Canadian office furniture markets are highly competitive, with a number of competitors offering similar product categories. We have held the position as the revenue leader in our industry for over 25 years. In this market, companies compete on price, delivery and service, product design and features, product quality, strength of dealers and other distributors, and relationships with customers. Our most significant competitors are Haworth, Inc., Herman Miller, Inc., Hon Industries Inc., and Knoll, Inc. Together with Steelcase, these companies represent approximately 55% of the market share of the United States office furniture market.

      The international office furniture market is highly competitive and fragmented. We compete with many different local or regional manufacturers in many different markets. In most cases, these competitors focus their strengths on selected product categories. We also compete with certain North American based competitors. No single company competes with us in all markets.

Environmental Matters

      We are subject to a variety of federal, state, local and foreign laws and regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment (“Environmental Laws”). Subject to the matters noted below and under Item 3, Legal Proceedings, we believe our operations are in substantial compliance with all Environmental Laws. Additionally, we do not believe that existing Environmental Laws and regulations have had or will have any material effects upon the capital expenditures, earnings or competitive position of the Company.

      On June 18 and 19, 2002, the United States Environmental Protection Act (“EPA”) and Michigan Department of Environmental Quality (“MDEQ”) conducted an inspection of the energy centers and certain other air emission sources at the Steelcase facilities in Kentwood and Grand Rapids, Michigan. Following the inspection, the EPA requested stack testing of emissions from the two energy centers. Those tests were conducted in January and February 2003. Based on the results of those tests, MDEQ requested additional stack testing at the Grand Rapids energy center, which was completed during the week of April 28, 2003. MDEQ requested the additional testing to confirm compliance with air emission permit requirements because of

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      Steelcase’s Metropolitan Furniture subsidiary located in Oakland, CA recently identified an air permit emission exceedence and reported it to the Bay Area Air Quality Management District (“BAAQMD”). We have not yet received a response from the BAAQMD. It is possible that it will issue a notice of violation and that penalties or other costs could be associated with that notice. Any potential penalties or costs cannot be estimated at this time.

      Under certain Environmental Laws, Steelcase could be held liable, without regard to fault, for the costs of remediation associated with our existing or historical operations. We could also be held responsible for third-party property and personal injury claims or for violations of Environmental Laws relating to contamination. Steelcase is a party to, or otherwise involved in, legal proceedings relating to several contaminated properties being investigated and remediated under Environmental Laws. Based on our information regarding the nature and volume of wastes allegedly disposed or released at these properties, the number of other financially viable potentially responsible parties and the total estimated cleanup costs, we do not believe that the costs to us associated with these properties will be material, either individually or in the aggregate. The Company has established reserves we believe are adequate to cover our anticipated remediation costs at these sites. However, certain events could occur that would cause actual costs or losses to vary from the established reserves. These events include, but are not limited to: a change in governmental regulations and/or cleanup standards or requirements; undiscovered information regarding the nature and volume of wastes allegedly disposed of or released at these properties; and other factors increasing the cost of remediation or the loss of other potentially responsible parties that are financially capable of contributing towards cleanup costs.

Employees

      As of February 28, 2003, Steelcase employed more than 16,000 employees, including approximately 9,300 hourly, 6,000 salaried and 650 temporary employees. About 11,900 employees are located in the United States, Canada and Mexico, approximately 5.0% of which are covered by collective bargaining agreements in the United States.

Available Information

      Information regarding our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, will be made available, free of charge, at our Internet website at www.steelcase.com, as soon as reasonably practicable after we electronically file such reports with or furnish them to the Securities and Exchange Commission. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Report.

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Item 2.     Properties:

      The Company, including joint ventures, has operations at locations throughout the United States and around the world, including manufacturing facilities in Belgium, Brazil, Canada, Denmark, France, Germany, Italy, Japan, Malaysia, Mexico, Morocco, Portugal, Saudi Arabia, Spain and the United Kingdom. Our office, showroom, manufacturing and distribution facilities total approximately 25 million square feet, of which approximately 5.5 million square feet are leased. We believe our facilities are in good operating condition and sufficient to meet current volume needs and future volume increases. Due to restructuring and plant rationalizations over the past several years, we are currently holding for sale several facilities that are no longer in use. These facilities are reported as Real Estate Held for Sale on our Consolidated Balance Sheets. Our principal office, manufacturing and distribution facilities (300,000 square feet or larger) are listed below:

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Item 3.     Legal Proceedings:

      We are involved in litigation from time to time in the ordinary course of our business. Based on known information, we believe we are not a party to any lawsuit or proceeding that is likely to have a material adverse effect on the Company.

      Notwithstanding the above, in addition to the energy center issues noted under Environmental Matters, an additional issue was identified during the February stack tests at the Grand Rapids energy center, when the diameter of the exhaust stack was questioned. The interior diameter of the stack was measured on April 10, 2003 and was found to be wider than the diameter specified in the permit. In 1984, the stack height was increased when another boiler was added to the energy center. At that time, a larger diameter-reducing cone replaced the existing cone. On April 24, 2003, MDEQ issued a letter of violation based on the non-compliant stack diameter. Steelcase is conducting emission modeling work to determine whether the difference in stack diameter has any effect on compliance with permit emission limits. No penalties, costs or assessments have been sought and cannot be estimated at this time. The modeling may show that the larger diameter-reducing cone does not effect emissions, however, penalties and other costs still could result from the notice of violation regardless of the emission modeling results.

      For a description of other matters relating to our compliance with applicable environmental laws, rules and regulations, see Environmental Matters in Item 1 of this Report.

Item 4.     Submission of Matters to a Vote of Security Holders:

      None.

Item 4(a).     Executive Officers of the Registrant:

      Mark A. Baker has been Senior Vice President, Operations since November 2001. Mr. Baker served as Vice President, Manufacturing Operations from March to November 2001. From 1999 to 2001, Mr. Baker served as Vice President, Marketing. From 1998 to 1999 Mr. Baker served as Vice President and General Manager, Turnstone. From 1995 to 1998, Mr. Baker served as Vice President, Product Marketing.

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      Robert W. Black has been President, International since October 2000. Mr. Black was Senior Vice President, Steelcase International from 1999 to 2000. From 1998 to 1999, Mr. Black served as Vice President, European Ventures. From 1996 to 1998, Mr. Black served as Vice President, Marketing.

      Jon D. Botsford has been Senior Vice President, Secretary and Chief Legal Officer since June 2000. Mr. Botsford served as Senior Vice President, General Counsel and Secretary from 1999 to 2000. From 1998 to 1999 Mr. Botsford served as Vice President, General Counsel and Secretary. Mr. Botsford was General Counsel and Secretary from 1997 to 1998.

      Mark T. Greiner has been Senior Vice President, WorkSpace Futures since November 2002. Mr. Greiner was Senior Vice President, Research & Development, Concepts and Ventures from 2001 to 2002. From 1999 to 2001, Mr. Greiner held the position of Senior Vice President, Global E-Business and Chief Information Officer. Mr. Greiner served as Vice President, Chief Information Officer from 1996 to 1999.

      James P. Hackett has been President, Chief Executive Officer and Director of the Company since December 1994. Mr. Hackett also serves as a Board Member to Northwestern Mutual Life Insurance Company and Fifth Third Bancorp.

      Nancy W. Hickey has been Senior Vice President, Global Strategic Resources and Chief Administrative Officer since November 2001. Ms. Hickey served as Senior Vice President, Global Human Resources from March to November 2001. From 1999 to 2001, Ms. Hickey served as Vice President, Human Resources. Ms. Hickey served as Vice President, Corporate Human Resources from May to November 1999. From 1994 to 1999, Ms. Hickey served as Vice President, Dealer and Customer Alliances.

      James P. Keane has been Senior Vice President, Chief Financial Officer since April 2001. Mr. Keane served as Senior Vice President, Finance and Corporate Strategy from February to April 2001. From 1999 to 2001, Mr. Keane served as Senior Vice President, Corporate Strategy, Research and Development. Mr. Keane served as Vice President, Corporate Strategy, Research and Development from 1997 to 1999.

      Michael Love has been President and Chief Executive Officer, Steelcase Design Partnership since May 2000. Mr. Love was president of Vecta, a division of Steelcase, from 1994 to 2000.

      Frank H. Merlotti, Jr. has been President, Steelcase North America since September 2002. From 1999 to 2002, Mr. Merlotti was President and Chief Executive Officer of G&T Industries, a manufacturer and distributor of fabricated foam and soft-surface materials. Mr. Merlotti was President and Chief Executive Officer of Metropolitan Furniture Corporation, a subsidiary of Steelcase, from 1991 to 1999.

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      The Class A Common Stock of Steelcase Inc. is listed on the New York Stock Exchange under the symbol “SCS”. Our Class B Common Stock is neither registered under the Securities Act of 1933 nor publicly traded. See Note 12 to the consolidated financial statements for further discussion of our common stock. As of May 1, 2003, we had outstanding 43,181,532 shares of Class A Common Stock with 11,926 shareholders of record and 104,431,465 shares of Class B Common Stock with 188 shareholders of record.

      The declaration and payment of dividends are subject to the discretion of the Board and to compliance with applicable law. The amount and timing of future dividends depends upon our results of operations, financial condition, cash requirements, future business prospects, general business conditions and other factors that the Board may deem relevant at the time.

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Item 6.     Selected Financial Data:

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      The following review of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included within this Form 10-K.

Current Business Overview

      The office furniture industry has experienced about a 35% decline in shipments over the past two years in the United States, as reported by the Business and Institutional Furniture Manufacturer’s Association International (“BIFMA”), primarily caused by reduced business capital spending. We implemented specific financial strategies to manage through the industry downturn aimed at reducing our breakeven point, improving our cash flow and strengthening our balance sheet. We implemented several operational, organizational and financial restructuring activities in 2003 including:

	•	Lowered fixed and variable costs through actions which included reducing our global workforce approximately 22% for the year (and approximately 40% since 2001).
	•	Sold $289.4 million of leased assets for proceeds of $302.0 million.
	•	Reduced capital expenditures by focusing on shorter payback projects.
	•	Consolidated manufacturing operations to reduce excess capacity.
	•	Outsourced certain non-core manufacturing operations and other activities.
	•	Closed or divested certain non-strategic operations not meeting financial return targets.
	•	Sold certain non-strategic and redundant fixed assets.
	•	Continued implementation of lean principles in our manufacturing operations.
	•	Leveraged investments in enterprise resource planning (ERP) software systems to integrate order fulfillment processes.
	•	Launched new user-centered products.

      Because sales volume fell faster than we could capture the benefits from the actions listed above, we reported a loss for 2003. However, because of these actions our quarterly breakeven revenue is approximately 25% lower than it was almost two years ago at a level of approximately $590 million, and we earned a profit in Q4 2003.

      Cash flow from operating and investing activities improved as we sold leased assets and controlled capital expenditures. We used our improved cash flow to strengthen our balance sheet. We increased our cash balance while reducing debt to its lowest level in nearly four years.

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Financial Summary

Results of Operations

Overview

      Despite an additional shipping week during the fourth quarter, revenue declined 16.3% in 2003 compared to 2002 following a decline of 23.7% from 2001 to 2002. Our PolyVision Corporation and Custom Cable Industries acquisitions, both completed in the second half of fiscal 2002, contributed $132.8 million to our total revenue in 2003. The dealer acquisition completed during 2003 contributed $24.3 million to our total revenue. Fiscal 2001 revenue was a record $4,049.0 million and reflected the impact of acquisitions and growth across most business segments, product categories and geographies.

      We took aggressive steps to reduce costs, which helped to limit our losses in 2003. Including non-recurring items, we lowered total costs 14.0% from 2002 levels and 18% from 2001 to 2002. The actions we took to reduce costs in 2003 included a 22% reduction in workforce (or approximately 4,100 temporary, part-time and full-time hourly and salaried positions); reduced spending on items such as capital, travel and outside services; and facility rationalizations and process reengineering. Lower profits led to lower variable compensation, including reduced bonuses and retirement contributions.

      We recorded a net operating charge for non-recurring items, including charges for workforce reductions and restructuring, totaling $50.6 million pre-tax in 2003 compared to $50.3 million in 2002 and $23.9 million in 2001.

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      Despite significant cost reduction actions undertaken in 2003, the impact of lower revenue on fixed cost absorption and non-recurring items caused operating margins to decline and resulted in us reporting a net loss of $36.2 million before the cumulative effect of accounting change.

      Beginning in 2003, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, which requires companies to discontinue amortizing goodwill and test goodwill annually to determine whether it is impaired. At the beginning of the first quarter, we recorded a non-cash charge of $170.6 million related to impairment of goodwill in the International segment. At year-end, we recorded a correction of the original calculation resulting in a revised first quarter charge of $229.9 million. See further discussion in Notes 8 and 20 to the consolidated financial statements. The SFAS No. 142 adoption charge had no effect on revenue, operating income, cash flow or income tax expense, thus the pre-tax and after-tax effect of the cumulative effect of the accounting change was the same.

Interest Expense; Other Income (Expense), Net; and Income Taxes

      A portion of our debt is attributed to our Financial Services segment and the balance relates to the manufacturing portion of our business. Interest expense related to the Financial Services debt is recorded as an operating expense. Interest expense related to the debt attributed to the manufacturing portion of our business is recorded as a non-operating expense and is shown above. Accordingly, non-operating interest expense was not affected by the significant decrease in Financial Services debt in 2003. Debt related to the manufacturing portion of our business remained fairly stable during 2003; thus, non-operating interest expense was comparable

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      Interest income declined in 2003 due to lower average investments outstanding and lower average interest rates.

      Losses on dealer transitions relate to uncollectible funds loaned to dealers to finance ownership changes. During 2003, we recognized losses on dealer transitions primarily related to two International dealers that have been significantly affected by the office furniture recession in their markets. We are working with these dealers to restructure their business and improve their performance. These losses do not include write-offs of receivables that have arisen as a result of product sales. Charges for write-offs associated with trade receivables from these affiliates are recorded as operating expenses.

      During 2002 and 2001, we recognized losses on dealer transitions primarily related to two North America dealers whose operating results deteriorated due to a significant decline in business activity in their local market and several other performance issues. As a result, these dealers were restructured and ownership was transitioned to new dealer principals.

      We carefully monitor the financial condition of dealers in ownership transition. Most of the dealers that have transition financing from Steelcase have successfully reduced costs and taken other steps to manage through the downturn. Some individual dealers are facing difficult financial challenges. We believe our reserves adequately reflect these credit risks. However, if these dealers experience prolonged or deepening reduction in revenues, the likelihood of losses would increase and we would record additional charges or reserves, as necessary.

      The non-recurring gain on the disposal of property and equipment primarily related to the sale of our Tustin, California manufacturing facility following the relocation of the operations to a smaller, more efficient facility. We received net proceeds of $35.7 million and recorded a gain of $15.1 million. In 2001, we generated a gain of $26.9 million on disposal of property and equipment, which was primarily related to the sale of two non-income producing real estate assets.

      Our income tax expense is a function of actual taxable income earned by the Company in different countries, the tax rates in various countries and tax planning strategies we implement. We expect these strategies to result in a long-term effective tax rate of between 36.0% and 38.0%. Because of our reduced tax liability, resulting from our lower pre-tax income and consistent level of permanent tax items, our effective tax rate in 2002 was not meaningful.

Segment Disclosure

      See more information regarding segments in Part I Item 1 and Note 17 of the consolidated financial statements included with this Report.

      Certain tables included in this section contain various non-GAAP (Generally Accepted Accounting Principles) financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a

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      Despite an additional shipping week during the fourth quarter, revenue in 2003 declined more than 22% in the North America segment following about a 27% decline from 2001 to 2002, and reflecting a sharper decline than in any of our other manufacturing segments. North America’s largest customers dramatically reduced business capital spending during the past two years, resulting in a decline in revenue in seven of the last eight quarters, reaching its lowest level in Q4 2003.

      The decline in gross margins was primarily due to the following factors:

	•	Underabsorption of fixed overhead related to excess plant capacity.
	•	Inefficiencies resulting from operating individual plants at less than 50% capacity.

      As volume declined during the year, North America took additional steps to reduce cost of goods sold. North America reduced hourly and salaried manufacturing workforce, rationalized and consolidated facilities, continued to implement lean manufacturing and captured savings from strategic sourcing initiatives. However, the benefits

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      Operating expenses decreased almost 30% since 2001. This decrease is a result of salaried workforce reductions, restructuring activities and reductions in discretionary and external spending, including elimination of all bonuses and reduction of retirement contributions. Non-recurring items included within 2003 operating expenses totaled a net charge of $20.7 million. This amount primarily consisted of severance and workforce reduction costs of $24.9 million offset by a gain of $4.2 million for post-retirement medical and pension benefits curtailment.

      We maintain loss reserves related to dealer trade receivables, and we carefully monitor the financial condition of these dealers. Generally, Steelcase dealers in North America have successfully reduced costs and taken other steps to manage through the downturn. We have processes that allow us to monitor and react quickly to changes in credit quality of our dealers. We believe our reserves adequately reflect these credit risks. However, if these dealers experience a prolonged or deepening reduction in revenues, the likelihood of losses would increase and additional charges or reserves would be necessary.

Steelcase Design Partnership

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      Despite an additional shipping week during the fourth quarter, revenue for our SDP segment declined almost 12% in 2003 following a nearly 25% decline in 2002. The shutdown of an under-performing business in this segment accounted for $26.6 million of the revenue decline from 2001 to 2002. For the two-year period, excluding the revenue of the shutdown business, the decline for SDP was approximately 30% and was less than our consolidated decline of nearly 36%. SDP revenue is generally less dependent on large project orders and is less affected by declines in business capital spending due to its differentiated, design-oriented product portfolio and focus on niche applications.

      SDP margins are higher than our other manufacturing segments’ margins. Margins were relatively stable over the past two years because the cost structure of the SDP companies adjusts more quickly to changes in demand given their higher variable costs and lower fixed costs. Accordingly, the significant decline in revenue had less impact on SDP’s fixed cost absorption. Margins in 2001 were approximately 40%, excluding the shutdown business’s negative gross margin of $7.8 million.

      Despite salaried workforce reductions of approximately 30% in the past two years, as well as other cost reduction efforts, operating expenses increased as a percentage of revenue. Essentially, revenue declined faster than the reduction in fixed costs. Operating expenses included non-recurring charges of $1.4 million in 2003 and $1.2 million in 2002 related to workforce reductions.

      SDP initiatives completed during 2003 to reduce costs included:

	•	The merging of DesignTex and J.M. Lynne into one company now referred to as The Designtex Group. Duplicated selling, administrative and distribution processes, as well as excess facilities, were consolidated, streamlined and/or eliminated.
	•	The consolidation of Brayton’s manufacturing operations from four facilities into one.
	•	The relocation of Metropolitan Furniture’s operations to a new, lower cost leased facility.

International

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      International revenue declined over 18% in each of the past two years due to the global nature of the economic recession. While the timing of the recession varied from market to market, all of our major markets were affected. Revenue for our International segment hit its lowest point in Q1 2003 with sequential quarter improvements throughout subsequent quarters, partially attributable to the translation effect of the strengthening of the euro versus the U.S. dollar in the latter half of 2003.

      Following the initial volume-driven decline in gross margins in 2002, International gross margins remained relatively flat in 2003 for the following reasons:

	•	International implemented social plans and workforce reduction efforts launched in 2002, which resulted in a 27% reduction of manufacturing related workers over the last two years.
	•	International completed the divestiture of two under-performing businesses in Q1 2003, both of which generated negative margins in 2002.
	•	International implemented additional cost reduction efforts and continued to pursue lean manufacturing initiatives.

      The decline in gross margins from 2001 to 2002 was primarily related to underabsorption of overhead due to the decrease in revenue.

      Included in cost of sales were non-recurring restructuring charges for workforce reductions and asset impairments of $10.7 million in 2003 and $10.8 million in 2002.

      Compared to 2002, operating expenses decreased both in absolute terms and as a percent of revenue during 2003. The decrease can be attributed to a $13.0 million reduction in charges related to dealer credit issues, a $7.7 million reduction in amortization expense due to the change in accounting for goodwill, and cost reductions related to restructuring activities completed during 2002 and 2003, including workforce reductions. Operating expenses included non-recurring restructuring charges of $7.1 million in 2003 and $7.7 million in 2002 for workforce reductions and the impairment of assets to be sold.

      Economic conditions in certain countries continue to put pressure on some of our dealers. We continue to carefully monitor the financial condition of dealers for changes in credit quality. We believe our reserves adequately reflect these credit risks. However, if dealers experience a prolonged or deepening reduction in revenues, the likelihood of losses would increase and additional charges or reserves would be necessary.

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Financial Services

      Beginning in Q1 2004, we will adopt a new strategy for Financial Services in which we continue to originate leases for customers and will earn an origination fee for that service, but use a third party to provide lease funding. As a result, we will no longer have credit or residual risk related to those leases.

      As we were developing this new funding strategy during 2003, we sold a substantial portion of our lease portfolio with a book value of $289.4 million for proceeds of $302.0 million. After settling interest rate hedges related to these leases and transaction costs, we recorded a net gain of $0.8 million. As a result of the sale of these leased assets and a decline in leasing activity due to the overall industry recession, revenue declined 59% in 2003. The decline in revenue and increases in lease credit reserves resulted in a $10.6 million decline in Financial Services operating income in 2003, including non-recurring severance charges of $0.5 million.

      The remaining leases, with a gross receivable value of $151.7 million, fall into four different categories. The leases in each category are collateralized by the related furniture. The first category includes leases that may be sold in the coming year. The second category includes leases with credit qualities that have fallen since they were first originated. We do not believe we can sell the leases in this category economically. These lease customers are current on payments and we expect to work these balances down over time. The third category includes leases that are less marketable because they include service contracts and will likely be held to the end of the lease term. Finally, the fourth category includes leases with a net investment value of $16.1 million which are not current because these customers are experiencing financial difficulty. Reserves against the lease portfolio totaled $12.0 million at February 28, 2003, $7.1 million at February 22, 2002 and $9.1 million at February 23, 2001. We continue to monitor all four categories of leases and we believe our reserves adequately reflect the current credit risk.

      Our ten largest lease customers make up $72.4 million of gross lease receivables. If Financial Services was to experience further defaults related to larger leases, it is likely significant increases in reserves would be necessary. See Notes 5 and 6 of the consolidated financial statements for further discussion regarding Financial Services activity. See Note 16 for discussion of concentration of credit risk related to the Financial Services segment.

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      In the future, Financial Services will no longer be reported as a separate segment since its results and asset base are below the threshold requirements. In future filings, Financial Services will be included with the “Other” category.

Other

      As mentioned in Part I Item 1, our Other category includes the operating companies of PolyVision, IDEO and Attwood and miscellaneous revenue and expenses from unallocated corporate expenses and ventures. The operating companies contributed revenue of $275.9 million in 2003, $147.4 million in 2002 and $139.2 million in 2001. The significant increase from 2002 to 2003 was largely due to the acquisition of PolyVision in late 2002.

      The operating companies generated operating income totaling $14.3 in 2003, $1.0 in 2002 and $8.4 million in 2001. The significant increase from 2002 to 2003 primarily related to improved results reported by IDEO. The decrease in operating income of the companies from 2001 to 2002 was primarily related to decreased volume.

      More than 85% of corporate expenses which represent shared services are charged to the operating segments as part of a corporate allocation. The unallocated portion of these expenses is considered general corporate costs and is reported within the Other category. Revenue and costs of exploring new business opportunities within new market niches or areas related to, but not part of, our core business activities are considered ventures, and are reported in the Other category.

      Net non-recurring items totaling $10.5 million were included in 2003 results and primarily consist of $8.0 million of business exit costs related to a venture. In 2002, non-recurring charges were $0.9 million for workforce reductions.

Liquidity and Capital Resources

      We generated positive cash flow from both operating and investing activities in 2003. As of February 28, 2003, our financial position included cash, cash equivalents and short-term investments of $131.1 million. These funds, in addition to cash generated from future operations, lease sales and available and future credit facilities, are expected to be sufficient to finance our known or foreseeable liquidity and capital needs.

      Total consolidated debt as of February 28, 2003 was $324.2 million, consisting of $150.0 million that related to our Financial Services segment and $174.2 million that related to our other business segments. Our consolidated debt to capital ratio was 20.5% at year-end. Total debt as of February 28, 2003 was $269.5 million

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      Of the $30.0 million of debt payments due in 2004 (as presented in the contractual obligations table within this section), $18.7 million relates to foreign currency notes payable and revolving credit facility obligations with interest rates ranging from 3.66% to 7.30%. The remaining $11.3 million balance relates to United States dollar notes payable obligations with interest rates ranging from 5.96% to 8.21%. Our long-term debt rating is BBB from Standard & Poor’s and Baa3 from Moody’s Investor Service.

      Our total liquidity facilities as of February 28, 2003 were:

      The global bank facility originally served as a backstop to a multi-currency commercial paper program. We have not accessed the commercial market since May 2002 and no longer maintain a short-term rating. We allowed the 364-day $200 million tranche of the bank facility to expire in April 2003 and expect to replace the remaining 3-year tranche with a new facility by June 2003. We expect the new facility to be sized between $200-$300 million.

      Certain of our financing and lease facilities require us to satisfy financial covenants including a minimum net worth covenant, a maximum debt ratio covenant, and a minimum interest coverage ratio covenant. As a result of the correction of the goodwill impairment charge, as discussed earlier, we were not in compliance with the minimum net worth covenant as of February 28, 2003. This affected our global bank facility, our two term facilities and, through a cross-default provision, our aircraft operating lease. There was $94.1 million in obligations under the affected facilities, including $45.4 under the two term facilities and $48.7 million under the aircraft operating lease. There were no obligations outstanding under the global bank facility. The global bank facility lenders approved a waiver of that covenant through June 2003, at which time we expect to have our new facility in place. This waiver automatically remedied the non-compliance with the aircraft lease. We secured a waiver and an amendment of the affected covenant related to the two term facilities.

      The Company has commitments related to certain sales offices, showrooms, and equipment under non-cancelable operating leases that expire at various dates through 2018. Minimum payments for operating

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      The aircraft lease is a synthetic lease structure that was put in place in May 2000. The synthetic lease structure provides us with access to funding through a commercial paper facility. For accounting purposes, we have classified the lease as an operating lease and minimum future payments of $9.6 million with respect to this lease are included in the contractual obligations table below. The remaining lease balance including residuals is $48.7 million. Under FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, it is reasonably likely that the lessor will be consolidated in our consolidated balance sheet at the end of Q3 2004. The aircraft will be capitalized as part of our assets and related lease balance will be recorded as our debt. See Note 16 to the consolidated financial statements for further information.

Cash Flow

      Our cash and cash equivalents increased by $59.5 million in 2003 to a balance of $128.9 million at February 28, 2003.

Cash provided by operating activities

      We generated net cash from operating activities of $41.8 million in 2003, compared to $294.6 million in 2002.

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      Although there was a year-to-year decline in net income before the cumulative effect of the accounting change, most of the year-to-year change in cash generated from operating activities is reflected in changes in operating assets and liabilities.

      In 2002, operating assets less operating liabilities decreased by $123.5 million. The dramatic reduction in revenue from Q4 2001 to Q4 2002 drove a similar decline in receivables, inventories and payables, which is reflected in this line.

      In 2003, the reduction in revenue was not as dramatic, and we saw a relatively small decline in receivables and inventories, net of payables, before translation adjustments. However, there was a substantial net increase in other operating assets, net of other operating liabilities. This increase was caused by a curtailment of the post-retirement medical and pension benefit plans and reductions in other employee benefit liabilities related to reduction in force. We also used cash during 2003 for restructuring costs that had been accrued during 2002.

      The 2003 reduction in cash reflected in “Other, net” relates to an increase in deferred taxes because of deferred taxable losses on leased asset sales and an increase in foreign tax loss carryforwards. The 2002 “Other, net” reduction in cash was net of addbacks related to non-cash losses and write-offs related to asset dispositions included in net income in that year.

Cash provided by (used in) investing activities