Omron 2002 Annual Report Download - page 46

17. Commitments
and Contingent
Liabilities
16. Related Party
Transaction
44 Omron Corporation
interest rate differential. Management considers the exposure to credit risk to be minimal since the counterpar-
ties are major financial institutions.
At March 31, 2002 and 2001, the notional amounts on which the Companies had interest rate swap agreements
outstanding aggregated ¥2,500 million ($18,797 thousand) and ¥4,500 million, respectively. The estimated fair
values of interest rate swap contracts are based on present value of discounted future cash flow analysis.
(2) Foreign exchange forward contracts and foreign currency options:
The Companies enter into foreign exchange forward contracts and combined purchased and written foreign
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. 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,
2002 and 2001 were as follows:
Thousands of
Millions of yen U.S. dollars
2002 2001 2002
Forward exchange contracts................................................................... ¥16,328 ¥17,130 $122,767
Foreign currency options......................................................................... 8,049 10,445 60,519
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 operations. 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 reported in the consolidated statements of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Companies to concentrations of credit risk consist principally 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 approxi-
mately 75% of total sales are concentrated in Japan, are limited due to the large number of well-established cus-
tomers and their dispersion across many industries. The Company normally requires customers to deposit with
them funds to serve as security for ongoing credit sales.
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 chairman
and representative director, representative director and chief executive officer, and certain managing officers at that
time. This lease agreement has an initial non-cancelable lease term of 20 years and requires a monthly rental pay-
ment of ¥106 million ($797 thousand) and a security deposit of ¥2,600 million ($19,549 thousand) which is refund-
able when the agreement expires. During the years ended March 31, 2002 and 2001, the Company paid ¥1,272 mil-
lion ($9,564 thousand) and ¥954 million, respectively, for monthly rentals and the balance of the security deposit at
March 31, 2002 and 2001 was ¥2,600 million ($19,549 thousand).
The Company has commitments at March 31, 2002 of approximately ¥6,170 million ($46,391 thousand) related to
contracts for the construction of a new research and development laboratory building in Kyoto.
The Company and certain of its subsidiaries are defendants in several pending lawsuits. However, based upon
the information currently available to both the Company and its legal counsel, the Company management believes
that damages from such lawsuits, if any, would not have a material effect on the consolidated financial statements.
Guarantees
Contingent liabilities at March 31, 2002 with respect to loans guaranteed were ¥1,912 million ($14,376 thousand),
of which ¥1,099 million ($8,263 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.