PART I. FINANCIAL INFORMATION

STEELCASE INC.

As used in this Quarterly Report on Form 10-Q (“Report”), unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “Company” and similar references are to Steelcase Inc. and its subsidiaries in which a controlling interest is maintained. Unless the context otherwise indicates, reference to a year relates to the fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1, Q2, Q3 and Q4 reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage or as otherwise indicated.

Earnings per share is computed using the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Participating securities represent restricted stock units in which the participants have non-forfeitable rights to dividend equivalents during the performance period. Diluted earnings per share includes the effects of certain performance units in which the participants have forfeitable rights to dividend equivalents during the performance period.

The carrying amounts for many of our financial instruments, including cash and cash equivalents, accounts and notes receivable, accounts and notes payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. Our short-term investments, foreign exchange forward contracts and long-term investments are measured at fair value on the Condensed Consolidated Balance Sheets.

We periodically use derivative financial instruments to manage exposures to movements in foreign exchange rates and interest rates. The use of these financial instruments modifies the exposure of these risks with the intention to reduce our risk of short-term volatility. We do not use derivatives for speculative or trading purposes.

Our reportable segments consist of the Americas segment, the EMEA segment and the Other category. Unallocated corporate costs are reported as Corporate.

The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse and Turnstone brands.

The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions.

The Other category includes Asia Pacific, Designtex and PolyVision. Asia Pacific serves customers in Asia and Australia primarily under the Steelcase brand with an emphasis on freestanding furniture systems, storageseating and seatingstorage solutions. Designtex designs andprimarily sells surface materials including textiles, and wall coverings which areand surface imaging solutions specified by architects and designers directly to end-use customers through a direct sales force primarily in North America. PolyVision manufactures ceramic steel surfaces for use in multiplevarious applications but primarily for sale to third-party fabricators and distributors to createglobally, including static whiteboards and chalkboards sold inthrough third party fabricators and distributors to the primary and secondary education markets globally.and architectural panels and other special applications sold through general contractors for commercial and infrastructure projects.

Corporate costs include unallocated portions of shared service functions, such as information technology, corporate facilities, finance, human resources, research, legal and executive,customer aviation, plus deferred compensation expense and income or losses associated with COLI. Corporate assets consist primarily of unallocated cash, andshort term investment balances and the cash surrender value of COLI.COLI balances.

This item contains certain non-GAAP financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated statements of income, balance sheets or statements of cash flows of the company. Pursuant to the requirements of Regulation G, we have provided a reconciliation below of non-GAAP financial measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures used are: (1) organic revenue growth (decline), which represents the change in revenue excluding estimated currency translation effects and the impacts of acquisitions and divestitures, and (2) adjusted operating income (loss), which represents operating income (loss) excluding restructuring costs (benefits). These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors.

In Q1 2017,2018, we posted modest2% revenue growth over the prior year, or 4% on an organic basis, driven by strong project business in the Americas and significant growth in Asia Pacific, EMEA and Designtex, while revenue in EMEA declined compared to the Americas was flatprior year. Despite the revenue growth and the completion of restructuring activities in the prior year, operating income declined slightly compared to the prior year primarily due to higher operating expenses and included benefits from a recent acquisition.  The organic revenue declinecosts associated with the annuitization of three smaller defined benefit plans. We have continued to invest in the Americas is consistent with or slightly better than recent trends in the U.S. industry.  EMEA experiencedproduct development, sales, marketing and information technology that support our strategies, and we intend to launch a significant reduction in disruption costs and inefficiencies compared to the prior year as the manufacturing footprint changes were substantially completed during the quarter.  Our gross margin continued to improve in the quarter and funded increased spending on sales and marketing and thenumber of new Learning + Innovation Center in Munich, Germany.products throughout 2018.

We recorded net income of $18.1 and diluted earnings per share of $0.15 in Q1 2018 compared to net income of $19.4 and diluted earnings per share of $0.16 in Q1 2017 compared to2017. The Q1 2018 results reflected the net incomeimpact of $20.0 andthe defined benefit plan annuitizations which reduced diluted earnings per share by approximately $0.03. Operating income of $0.16$29.9 in Q1 2016. Operating2018 compared to operating income of $33.3 in Q1 2017 represented a slight decrease compared to the prior year.2017. Revenue growth and lower cost of sales as a percent of revenue in Q1 20172018 were more than offset by higher operating expenses and higher restructuring costs compared to the prior year. Current quarter operating income was unfavorably impacted by $7.3 of charges related to the defined benefit plan annuitizations. After adjusting for the impact of restructuring costs in the prior year, operating income of $29.9 in Q1 2018 compared to adjusted operating income of $37.9 in Q1 20172017.

Revenue of $735.1 in Q1 2018 represented an increase of $2.5 (or 30 basis points as a percent of revenue)$16.3 or 2% compared to Q1 2016.

Operating expenses of $196.1$212.9 in Q1 2017 increased by $11.02018 represented an increase of $16.8 or 100160 basis points as a percent of revenue compared to the prior year. The increase was primarily due to higherincreased spending in the current quarter included investments in product development, sales, marketing and marketing costs and the impact of an acquisitioninformation technology in the Americas and costssegment in support of our strategies. In addition, the higher spending included $3.9 of expense associated with the new Learning + Innovation centerdefined benefit plan annuitizations ($3.0 in Munich.the Other category and $0.9 in Corporate).

Our effective tax rate in Q1 20172018 was 38.8%36.3% compared to 36.5% in Q1 2016. Thea Q1 2017 effective tax rate was higher than the rate in the prior year due toof 38.8%, which included $1.0 of net unfavorable discrete tax items recorded in Q1 2017.items.

See Note 8 to the condensed consolidated financial statements for additional information regarding our business segments.

The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse and Turnstone brands.

Operating income in the Americas decreased by $4.8 in Q1 2017 decreased by $7.52018 compared to the prior year. The decline in the quarter was driven by $6.0higher operating expenses, partially offset by higher sales volume, and the prior year included restructuring costs of higher warranty costs, and$2.6 compared to no restructuring costs in the current year compared to netyear. After adjusting for the impact of restructuring benefitscosts in the prior year. Adjustedyear, operating income decreasedof $41.8 in Q1 2018 compared to adjusted operating income of $49.2 in the prior year.

The Americas revenue represented 72.8% of consolidated revenue in Q1 2018. Revenue for Q1 2018 of $535.0 represented an increase of $14.6 or 2.8% compared to Q1 2017. The increase was driven by $2.9strong project business, including a very large project in the manufacturing sector. After adjusting for $1.0 of unfavorable currency translation effects, the organic revenue increase in Q1 2018 was $15.6 or 3% compared to prior year.

Cost of sales as a percent of revenue increased slightly in Q1 2018 compared to Q1 2017. The increase was driven by unfavorable shifts in business mix compared to the prior year to 9.5% of revenue in Q1 2017 primarily due to higher warranty costs.

Operating expenses in Q1 20172018 increased by $7.2,$11.6, or 120160 basis points as a percent of revenue, compared to the prior year primarily duedriven by approximately $9 of higher investments in product development, sales, marketing and information technology that support our strategies.

There were no restructuring costs recorded in the Americas in Q1 2018 compared to increased sales and marketing costs of $4.5 and $1.8 related to an acquisition within the last twelve months.

The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, seating and storage solutions.