Mazda 2008 Annual Report Download - page 82

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Also, prior year income taxes recorded in the year ended March 31, 2006 are primarily for the taxes expected to
be reassessed on transactions between the Company and an overseas subsidiary. The Company was audited by
the Hiroshima Regional Taxation Bureau, and the Company expects that the tax audit is likely to conclude in the near
future. As a result of the tax audit, it is highly likely that additional income taxes will be reassessed on transactions
between the Company and an overseas subsidiary, and the Company recognized the expected increase in tax with
respect to the transactions as prior year income taxes in the consolidated statement of income for the year ended
March 31, 2006. The Company plans to formally request for bilateral consultations between the two countries under
the applicable tax treaties for transfer pricing in order to obtain relief from double taxation.
15. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS
The Company and its consolidated subsidiaries use foreign exchange forward contracts as derivative financial
instruments only for the purpose of mitigating future risks of fluctuations in foreign currency exchange rates. Also, only
for the purpose of mitigating future risks of fluctuations in interest rates with respect to borrowings, the Company and
its consolidated subsidiaries use interest rate swap contracts.
Foreign exchange forward contracts are subject to risks of foreign exchange rate changes.
Interest rate swap contracts are subject to risks of interest rate changes.
The policies for derivative transactions of the Company and its consolidated subsidiaries are determined by
the Company’s president or chief financial officer. Derivative contracts are concluded under the directions of
the Company’s Financial Services Division in accordance with the established rules of the Company. Derivative
transactions are executed and the balances are managed by each individual company; the president of each
company is responsible for the inspection. Also, the Company’s Financial Services Division is responsible for overall
management on a Groupwide basis.
The following summarizes hedging derivative financial instruments used by the Company and its consolidated
subsidiaries and items hedged:
Hedging instruments: Hedged items:
Forward foreign exchange contracts Foreign currency loans receivable and future transactions
Interest rate swap contracts Interest on borrowings
The following tables summarize market value information as of March 31, 2008 and 2007 of derivative transactions
for which hedge accounting has not been applied:
Millions of yen Thousands of U.S. dollars
Contract Estimated Unrealized Contract Estimated Unrealized
As of March 31, 2008 amount fair value gain (loss) amount fair value gain (loss)
Foreign exchange forward contracts:
Sell:
U.S. dollars ¥ 57,972 ¥ 53,148 ¥4,824 $ 579,720 $ 531,480 $48,240
Australian dollars 2,289 2,133 156 22,890 21,330 1,560
Euros 21,431 21,169 262 214,310 211,690 2,620
Sterling pounds 5,529 5,028 501 55,290 50,280 5,010
Buy:
Thai baht 8,486 7,610 (876) 84,860 76,100 (8,760)
Australian dollars 6,489 6,524 35 64,890 65,240 350
Sterling pounds 6,366 6,372 6 63,660 63,720 60
Swiss Francs 788 787 (1) 7,880 7,870 (10)
¥109,350 ¥102,771 ¥4,907 $1,093,500 $1,027,710 $49,070
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