Steelcase Inc.
Notes to Consolidated Financial Statements

Note 14

Financial Instruments, Concentrations of Credit Risk and Off-Balance-Sheet Risk

Financial instruments, which potentially subject the Company to concentrations of investment and credit risk, primarily consist of cash equivalents, investments, accounts receivable and notes receivable and leased assets. The Company places its cash with high-quality financial institutions and invests in high-quality securities and commercial paper. The Company limits its exposure, by policy, to any one financial institution or debtor.

The Company’s customers consist primarily of independent dealers in the office environment industry. They are dispersed globally, but primarily across all North American geographic areas. All probable uncollectible accounts and notes receivable and leased assets have been appropriately considered in establishing the allowances for losses. In general, the Company obtains security interests in the assets of the customer. These security interests are generally secondary to the interest of the customer’s primary lenders.

Guarantees of debt obligations are conditional commitments issued by the Company to guarantee the performance of certain unconsolidated dealers and joint ventures to a third party. These guarantees are primarily issued to support private borrowing arrangements. The Company has guaranteed approximately $39.3 million and $34.0 million of debt obligations of unconsolidated dealers and joint ventures as of February 27, 1998 and February 28, 1997, respectively. Although this amount represents the maximum exposure to loss, management believes the actual risk of loss to be insignificant.

The Company uses financial instruments, principally forward contracts and swaps, to manage foreign currency exposures related to purchases and sales. These contracts hedge transactions and balances for periods and amounts consistent with its committed exposures and do not constitute investments independent of these exposures. The Company does not use these financial instruments for speculative or trading purposes. Gains and losses on currency forward contracts and swaps that are designated and effective as hedges of anticipated transactions, for which a firm commitment has been attained, are deferred and recognized in income in the same period that the underlying transactions are settled, and generally offset. Forward contracts and swaps outstanding as of February 27, 1998 and February 28, 1997 were not material.