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Fujitsu annual report 1998
40
Financial Section
Notes to Consolidated Financial Statements
12. Derivative financial instruments
Purpose and classes of derivative financial instruments
The Company a nd representing consolidated subsidiaries in Japan
enter into derivative financial instruments related to foreign cur-
rency and interest to reduce exposure arising from fluctuations in
foreign currency exchange rates and interest rates, to reduce the
costs of funds financed, and to improve the return of invested funds.
Policy for derivative financial instruments and risk levels
The Company and representing consolidated subsidiaries in
Japan basically enter into derivative financial instruments only
to cover the actual needs for receivables/ liabilities, and not for
speculative or dealing purposes.
The Company a nd representing consolidated subsidiaries in Japan
in principle, have no intention to use derivative financial instru-
ments that may enlarge market risks. Furthermore, the
counterparties to derivative financial instruments are thoroughly
evaluated in terms of credit risk. Therefore, the Company and rep-
resenting consolidated subsidiaries in Japan regard derivative fi-
nancial instruments they use have minimal market and credit risks.
The Company a nd representing consolidated subsidiaries in Japan
had the following contracts at March 31, 1998.
Yen U.S. dollars
(millions) (thousands)
1998 1998
Principal Estimated Principal Estimated
amount fair value amount fair value
Forward exchange contracts Receivables . . . . . . . . . . . . . . . . . . . . ¥ 4,07 1 ¥ 4,203 $ 30,841 $ 31,841
Liabilities . . . . . . . . . . . . . . . . . . . . . . 1,452 2 ,033 11,000 15,402
Interest rate and currency swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 6,113 (1,96 8) 955,40 2 (14,909)
Option contracts Call . . . . . . . . . . . . . . . . . . . . . . . . . . 16,218 209 122,864 1,5 8 3
Put . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 ,158 3 1 2 122,409 2,36 4
13. Supplementary information to the consolidated balance sheets
Balances with affiliates at March 31, 1997 and 1998 were as follows:
Yen U.S. dollars
(millions) (thousands)
1997 199 8 1 998
Receivables, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 85,600 ¥ 88,817 $672,85 6
Payables, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,735 36,84 2 279,10 6
The Commercial Code further provides that an amount equal to
at least 10% of cash dividends and bonuses to directors and statu-
tory auditors paid by a company and its subsidiaries in Japan from
retained earnings be appropriated to the legal reserve until the
reserve equals 25% of common stock.
Appropriations of retained earnings for the year ended March
31, 199 8, which included year-end cash dividends of ¥ 9 ,3 11 million
($70,538 thousand), were recorded on the Company’s statutory
books of account after approval at the general shareholders’ meet-
ing held on June 26, 1998, and will be included in the consolidated
balance sheet in the following year.
The fair value estimates presented above are made as of March
31, 199 8, based on various assumptions. Accordingly, the Company
and representing consolidated subsidiaries in Japan believe that the
estimated fair value may be of limited usefulness.