Omron 2001 Annual Report Download - page 46

16. Related Party
Transaction
44 Omron Corporation
(2) Foreign exchange forward contracts and foreign currency options:
The Companies enter into foreign exchange forward contracts and combined purchased and written for-
eign currency option contracts to hedge foreign currency transactions (primarily the U.S. dollar and the
EURO) on a continuing basis for periods consistent with their committed exposure. Some of the contracts
involve the exchange of two foreign currencies, according to local needs in foreign subsidiaries. The terms of
the currency derivatives are rarely more than 10 months. The credit exposure of foreign exchange contracts
are represented by the fair value of the contracts at the reporting date. Management considers the exposure
to credit risk to be minimal since the counterparties are major financial institutions.
The notional amounts of contracts to exchange foreign currency (forward contracts) outstanding at March
31, 2001 and 2000 were as follows:
Thousands of
Millions of yen U.S. dollars
2001 2000 2001
Related to future sales:
Forward exchange contracts................................................................... ¥17,130 ¥15,374 $138,145
Foreign currency options......................................................................... 10,445 —84,234
The notional amounts do not represent the amounts exchanged by the parties to derivatives and are not a
measure of the Companies’ exposure through its use of derivatives. The amounts exchanged are determined
by reference to the notional amounts and the other terms of the derivatives.
The Companies hedge certain exposures to fluctuations in foreign currency exchange rates that occur prior
to conversion of foreign currency denominated monetary assets and liabilities into the functional currency.
Prior to conversion to the functional currency, these assets and liabilities are translated at spot rates in
effect on the balance sheet date. The effects of changes in spot rates are reported in earnings and included in
Foreign exchange loss, net in the consolidated statements of income. Because monetary assets and liabili-
ties are marked to spot rates with the resulting gains and losses recorded in earnings, currency forward
contracts and options designated as hedges of the monetary assets and liabilities are also marked to spot
rates with the resulting gains and losses similarly recognized in earnings. Gains and losses on forward
contracts and options are included in Foreign exchange loss, net in the consolidated statements of income,
and offset losses and gains on the net monetary assets and liabilities hedged.
Gains or losses on forward exchange contracts and currency options purchased and written that do not
qualify for deferral for accounting purposes are recognized in income on a current basis and recorded in
Foreign exchange loss, net in the consolidated statements of income.
Concentration of Credit Risk
Financial instruments that potentially subject the Companies to concentrations of credit risk consist principal-
ly of short-term cash investments and trade receivables. The Companies place their short-term cash investments
with high-credit-quality financial institutions. Concentrations of credit risk with respect to trade receivables, as
approximately 75% of total sales are concentrated in Japan, are limited due to the large number of well-estab-
lished customers and their dispersion across many industries. The Company normally requires customers to
deposit with them funds to serve as security for ongoing credit sales.
Guarantees
Contingent liabilities at March 31, 2001 with respect to loans guaranteed were ¥2,144 million ($17,290 thou-
sand), of which ¥1,204 million ($9,710 thousand) were jointly and severally guaranteed with six other unrelated
companies. According to an agreement between the seven companies, any losses on these guarantees are to be
equally borne among the companies.
In August 2000, the Company entered into an operating lease agreement for a new head office, including land
and a building, with a company owned by the family of the Company's founder, including the Company's chair-
man and representative director, representative director and chief executive officer, and certain managing offi-
cers. This lease agreement has an initial non-cancelable lease term of 20 years and requires a monthly rental
payment of ¥106 million ($854 thousand) and a security deposit of ¥2,600 million ($20,968 thousand) which is
refundable when the agreement expires. During 2001, the Company paid ¥954 million ($7,694 thousand) for
monthly rentals and ¥2,600 million ($20,968 thousand) for the security deposit.