Mazda 2016 Annual Report Download - page 57

As a result of the application, income before income tax for the year ended March 31, 2016 has
decreased by ¥398 million ($3,522 thousand), and the capital surplus at the end of the year ended
March 31, 2016 has increased by ¥398 million ($3,522 thousand).
In addition, the method of presentation was changed in the Consolidated Statement of Cash
Flows, and the cash flows from a purchase or a sale of shares of subsidiaries, which do not bring
about a change in the scope of consolidation, are presented in “Cash flows from financing activities”,
and cash flows with regard to the expenses related to a purchase of shares of subsidiaries, which
bring about a change in the scope of consolidation, or the expenses related to a purchase or a
sale of shares of subsidiaries, which do not lead a change in the scope of consolidation, are
presented in “Cash flows from operating activities”.
In the Consolidated Statements of Changes in Net Assets for the year ended March 31, 2016, the capital
surplus at the end of the year ended March 31, 2016 has increased by ¥398 million ($3,522 thousand).
The effect of this change on net assets per share of common stock and net income per share
of common stock were immaterial.
4 FINANCIAL INSTRUMENTS
Qualitative information on financial instruments
Policies for using financial instruments
The Group finances cash mainly through bank loans and the issuance of bonds, in light of planned
capital investment. Temporary surplus funds are managed through investments in low-risk assets.
Short-term operating funds are financed mainly through bank loans and commercial paper. Our
policies on derivative instruments are to use them to hedge risks, as discussed below, and not to
conduct speculative transactions.
Details of financial instruments and the exposures to risk
Trade notes and accounts receivable, while mostly due within one year, are subject to customers’
credit risks. Accounts receivable denominated in foreign currencies are subject to the risk of
fluctuations in foreign currency exchange rates; such risk is hedged, in principle, by netting the
foreign-currency-denominated accounts receivable against accounts payable, and applying foreign
exchange forward contracts on the resulting net position.
Short-term investments consist mainly of certificates of deposit and other highly-liquid short-
term investments. Investment securities consist mainly of stocks of our business partner compa-
nies and are subject to the risk of market price fluctuations and other factors. Long-term loans
receivable are provided mainly to our business partner companies.
Trade notes and accounts payable, as well as other accounts payable, are due within one year.
Of these payables, those denominated in foreign currencies are subject to the risk of fluctuations in
foreign exchange rates. However, the balance of such payables denominated in major currencies
is constantly less than that of the accounts receivable denominated in the same foreign currency.
For minor currencies where this does not apply, such payables are hedged, as necessary, through
foreign exchange forward contracts, considering the transaction amounts and the degree of risk of
foreign exchange rate fluctuation.
Loans payable, bonds payable, and finance lease obligations are mainly intended for financing cash
required for capital investment. The longest time to maturity of these liabilities is 56 years and 4 months
from March 31, 2016. Of these liabilities, those of the variable-interest-rate type are subject to the risk of
interest rate fluctuations; part of them is hedged through derivative transactions (interest rate swaps).
Derivative instruments consist of foreign exchange forward contracts and interest rate swaps. For
details on derivative instruments, refer to “Derivatives and hedge accounting” under Note 2, “Significant
Accounting Policies,” and Note 15, “Derivative Financial Instruments and Hedging Transactions”.
Policies and processes for managing the risk
Management of credit risks (i.e., risks associated to the default of counterparties)
The Group manages credit risks, in compliance with internal control rules and procedures.
The due dates and the balances of trade notes, accounts receivable, and loans receivable from
major counterparties are monitored and managed, in order to detect early and mitigate the risk of
doubtful receivables.
Short-term investments are limited mainly to time deposits and certificates of deposit of banks
approved by our finance officer. As such, the credit risks of these short-term investments are
considered to be minimal.
Derivative transactions are executed only with banks with high credit ratings, in order to mitigate
counterparty risk.
For both short-term investments and derivatives, the credit risks of counterparty financial institutions
are reviewed on a quarterly basis.
The amount of maximum risk as of March 31, 2016 is represented by the balance sheet amount
of financial assets exposed to credit risks.
Management of market risks (i.e., risks associated to fluctuations in foreign exchange rates
and interest rates)
The Company and some of its consolidated subsidiaries hedge the risk of foreign exchange rate fluctua-
tion on foreign-currency-denominated receivables and payables, using foreign exchange forward
contracts, on a monthly and individual currency basis. Foreign exchange forward contracts are executed as
necessary, up to six months ahead at longest, on foreign-currency-denominated receivables and pay-
ables that are expected to arise with certainty as a result of forecasted export and import transactions.
The Company and some of its consolidated subsidiaries use interest rate swaps in order to
reduce the risk of interest rate fluctuation on loans payable.
Notes to Consolidated Financial Statements
MAZDA ANNUAL REPORT 2016
55 Financial Section
Message from
Management
Review of Operations
Drivers of Value Creation
Foundations Underpinning
Sustainable Growth
Contents