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UNITED STATES

FORM 10-Q

STEELCASE INC.

(616) 247-2710

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

      As of September 24, 2004, Steelcase Inc. had 55,887,267 shares of Class A Common Stock and 92,420,788 shares of Class B Common Stock outstanding.

STEELCASE INC.

FOR THE QUARTER ENDED AUGUST 27, 2004

INDEX

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

STEELCASE INC.

See accompanying notes to the condensed consolidated financial statements.

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STEELCASE INC.

See accompanying notes to the condensed consolidated financial statements.

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STEELCASE INC.

See accompanying notes to the condensed consolidated financial statements.

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STEELCASE INC.

(Unaudited)

1.     BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Results for interim periods should not be considered indicative of results to be expected for a full year. Reference should be made to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended February 27, 2004 (“Form 10-K”). As used in this Report, unless otherwise expressly stated or the content otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its majority owned subsidiaries.

      Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the calendar year. Additionally, Q2 2005 references the second quarter of fiscal 2005. All amounts are in millions, except per share data, data presented as a percentage or unless otherwise indicated.

      Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation.

      As discussed in Form 10-K and the Q1 2005 10-Q, we consolidated the financial results of certain North America and International dealers during Q1 2005. During Q2 2005, we consolidated the financial results of an additional International dealer. The consolidation of these dealers had the effect of increasing Q2 2005 revenue by $21.0, cost of sales by $13.7 and operating expenses by $7.5. In addition, the consolidation of these dealers increased year-to-date revenue by $36.9, cost of sales by $22.9 and operating expenses by $14.5. There was no material effect on operating income or net income as either earnings do not accrue to the class of stock we own or these dealers were previously accounted for under the equity method of accounting.

2.     NEW ACCOUNTING STANDARDS

      In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act entitles employers who provide certain prescription drug benefits for retirees to receive a federal subsidy beginning in calendar 2006. Based on current regulations, we expect we will qualify for this subsidy. Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) 106-2 requires companies to record the amount expected to be received under the Act as an actuarial gain, to the extent the related post-retirement medical plan’s (the “plan”) total unrecognized actuarial gains or losses exceed certain thresholds, to be amortized into income over time. FSP 106-2 is effective beginning Q3 2005. We are substantially complete with our analysis of the new rules and estimate a $1.0 pre-tax decrease to net periodic post-retirement benefit costs in the current year and a $2.0 pre-tax decrease per year in subsequent years. The expected reduction in the accumulated post-retirement benefit obligation (“APBO”) is estimated to be approximately $17.0. This reduction in the APBO is expected to occur during Q3 2005. However, any measures of net periodic post-retirement benefit cost or APBO in the financial statements or accompanying notes do not yet reflect the effects of the Act on the plan.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

3.     EARNINGS (LOSS) 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 our stock incentive plans had been issued and the dilutive effect of outstanding restricted shares to the extent those shares have not vested.

      Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. However, diluted earnings per share does not reflect the effects of 6.1 million shares related to outstanding stock incentive plan awards as of Q2 2005 and for the six month period then ended and 8.9 million as of Q2 2004 and for the six month period then ended because those shares or potential shares were anti-dilutive.

4.     STOCK-BASED COMPENSATION

      We account for stock-based compensation issued prior to March 1, 2003 under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.

      For all awards granted, modified or settled on or after March 1, 2003, our policy is to expense stock-based compensation under SFAS No. 123, Accounting for Stock-Based Compensation, using the fair value based method of accounting. Fair value is measured on the grant date based on the market price of the related equity instrument or by using the Black-Scholes option-pricing model for stock options. Compensation expense is recognized over the applicable vesting period. After-tax compensation expense related to restricted stock, restricted stock units and performance shares was $0.5 in Q2 2005 and $0.1 in Q2 2004. Year-to-date, the after-tax compensation expense related to restricted stock, restricted stock units and performance shares was $0.9 in 2005 and $0.2 in 2004.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

      The following table illustrates the effect on net income and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123 to all outstanding awards. Further information regarding our stock incentive plans is presented in Note 10.

5.     COMPREHENSIVE INCOME

      Comprehensive income is comprised of net income and all changes to shareholders’ equity except those due to investments by, and distributions to, shareholders.

      No unusual transactions occurred within the categories of other comprehensive income during 2005.

      In 2004, foreign currency translation of $8.1 for the six months ended August 29, 2003 included the realization of $4.1 of currency translation losses related to our Brazilian operations, which accumulated over many years. The remainder of the 2004 amount in foreign currency translation related to net unrealized foreign currency translation gains.

6.     INVENTORIES

      Inventories are stated at the lower of cost or market. The North America segment primarily uses the last in, first out (“LIFO”) method to value its inventories. Companies in the Steelcase Design

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Partnership (“SDP”) segment primarily use the first in, first out (“FIFO”) or the average cost inventory valuation methods. Companies in the International segment value their inventories using the FIFO method.

      The portion of inventories determined by the LIFO method aggregated $52.1 as of August 27, 2004 and $49.0 as of February 27, 2004.

7.     GOODWILL AND OTHER INTANGIBLE ASSETS

      There were no acquisitions, dispositions, adjustments or impairments of goodwill during 2005. A summary of goodwill, by business segment and category, is as follows:

      As of August 27, 2004 and February 27, 2004, our other intangible assets and related accumulated amortization consisted of the following:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

      In Q2 2005, we recorded amortization expense of $2.2 on intangible assets subject to amortization compared to $2.6 in Q2 2004. For the six months ended August 27, 2004, we recorded amortization expense of $4.5 compared to $5.0 for the six months ended August 29, 2003. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:

      As events, such as acquisitions, dispositions or impairments, occur in the future, these amounts may vary.

8.     EMPLOYEE BENEFIT PLAN OBLIGATIONS

		Three Months Ended																Six Months Ended
		Pension Plans								Post-retirement Plans								Pension Plans
		August 27,				August 29,				August 27,				August 29,				August 27,				August 29,
Components of Expense		2004				2003				2004				2003				2004				2003
Components of expense:
Service cost		$	0.6			$	0.6			$	1.0			$	1.1			$	1.3			$	1.1
Interest cost			1.2				1.1				3.4				3.7				2.3				2.1
Amortization of prior year service cost (gain)			—				0.2				(1.4	)			(0.9	)			0.1				0.4
Expected return on plan assets			(0.8	)			(0.7	)			—				—				(1.5	)			(1.3	)
Adjustment due to plan curtailment			—				—				—				(0.9	)			—				—
Adjustment due to plan settlement			—				(0.1	)			—				—				—				(0.2	)
Amortization of unrecognized net actuarial loss			0.2				0.1				1.2				0.9				0.4				0.2
Net expense		$	1.2			$	1.2			$	4.2			$	3.9			$	2.6			$	2.3

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Six Months Ended
		Post-retirement Plans
		August 27,				August 29,
Components of Expense		2004				2003
Components of expense:
Service cost		$	2.0			$	2.2
Interest cost			6.8				7.3
Amortization of prior year service cost (gain)			(2.8	)			(1.9	)
Expected return on plan assets			—				—
Adjustment due to plan curtailment			—				(1.9	)
Adjustment due to plan settlement			—				—
Amortization of unrecognized net actuarial loss			2.3				1.8
Net expense		$	8.3			$	7.5

      As of February 27, 2004 we expected to contribute approximately $13.0 to our pension and post-retirement medical plans during 2005. As of August 27, 2004, contributions of approximately $10.5 have been made. Based upon updated actuarial information, we anticipate contributing an additional $5.4 in 2005, for a total of $15.9, to fund our pension and post-retirement medical plans.

9.     RESTRUCTURING CHARGES

      During Q2 2005, we continued efforts to reduce our cost structure by restructuring certain areas of our business. Restructuring activities can include, but are not limited to, workforce reductions, facility consolidations, relocation of production lines and the exit of certain businesses. Costs

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

associated with these activities include, but are not limited to, severance, asset impairments and lease impairments. Restructuring costs are summarized in the following table: