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Hitachi, Ltd. Annual Report 2006
78
Cash flow hedge
Foreign currency exposure
Changes in fair value of forward exchange contracts designated and qualifying as cash flow hedges of forecasted
transactions are reported in accumulated other comprehensive income (AOCI). These amounts are reclassified into earnings
in the same period as the hedged items affect earnings.
Exchange gain for the years ended March 31, 2006 and 2005 includes a net gain of ¥165 million ($1,410 thousand) and a
net loss of ¥351 million, respectively, which represent the component excluded from the assessment of hedge effectiveness.
Exchange gain for the year ended March 31, 2006 includes a net loss of ¥119 million ($1,017 thousand) which represents
the component of the hedge ineffectiveness. The sum of the amount of the hedge ineffectiveness is not material for the
years ended March 31, 2005 and 2004.
It is expected that a net loss of approximately ¥10 million ($85 thousand) recorded in AOCI relating to existing forward
exchange contracts will be reclassified into other income or other deductions during the year ending March 31, 2007.
As of March 31, 2006, the maximum length of time over which the Company and its subsidiaries are hedging their exposure
to the variability in future cash flows associated with foreign currency forecasted transactions is approximately 33 months.
Interest rate exposure
Changes in fair values of interest rate swaps designated as hedging instruments for the variability of cash flows associated
with long-term debt obligations are reported in AOCI. These amounts subsequently are reclassified into interest charges
as a yield adjustment in the same period in which the hedged debt obligations affect earnings.
Interest charges for the years ended March 31, 2006 and 2004 include a net gain of ¥143 million ($1,222 thousand) and
a net loss of ¥356 million, respectively, which represent the component excluded from the assessment of hedge
effectiveness. Net gain or loss excluded from the assessment of hedge effectiveness is not material for the year ended
March 31, 2005. Interest charges for the years ended March 31, 2005 and 2004 include net losses of ¥202 million and
¥257 million, respectively, which represent the component of the hedge ineffectiveness. The sum of the amount of hedge
ineffectiveness is not material for the year ended March 31, 2006.
It is expected that a net gain of approximately ¥81 million ($692 thousand) recorded in AOCI related to the interest rate
swaps will be reclassified into interest charges as a yield adjustment of the hedged debt obligations during the year
ending March 31, 2007.
The contract or notional amounts of derivative financial instruments held as of March 31, 2006 and 2005 are summarized
as follows:
Thousands of
Millions of yen U.S. dollars
2006 2005 2006
Forward exchange contracts:
To sell foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥310,941 ¥282,333 $2,657,615
To buy foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,091 62,104 556,333
Cross currency swap agreements:
To sell foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,456 91,732 867,145
To buy foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,237 148,007 1,258,436
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446,823 571,395 3,819,000
Option contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,852 19,152 118,393