Omron 2003 Annual Report Download - page 51

Financial Instruments
The following table presents the carrying amounts and estimated fair values as of March 31, 2003 and 2002, of
the Companies’ financial instruments.
Thousands of
Millions of yen U.S. dollars
2003 2002 2003
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
Nonderivatives:
Long-term debt, including current portion .... ¥(52,312) ¥(53,669) ¥(43,988) ¥(46,307) $(435,933) $(447,242)
Derivatives:
Included in Other current liabilities:
Forward exchange contracts ................. (198) (198) (540) (540) (1,650) (1,650)
Foreign currency options ....................... ——(65) (65) ——
Interest rate swaps................................. ——(15) (15) ——
The following methods and assumptions were used to estimate the fair values of each class of financial instru-
ments for which it is practicable to estimate that value:
Nonderivatives
(1) Cash and cash equivalents, notes and accounts receivable, bank loans and notes and accounts payable:
The carrying amounts approximate fair values.
(2) Short-term investments and investment securities (see Note 4):
The fair values are estimated based on quoted market prices or dealer quotes for marketable securities or similar
instruments. Certain equity securities included in investments have no readily determinable public market value,
and it is not practicable to estimate their fair values.
(3) Long-term debt:
For convertible bonds, the fair values are estimated based on quoted market prices. For other debt, the fair val-
ues are estimated using present value of discounted future cash flow analysis, based on the Companies’ current
incremental issuing rates for similar types of arrangements.
Derivatives
The fair value of derivatives generally reflects the estimated amounts that the Companies would receive or pay to
terminate the contracts at the reporting date, thereby taking into account the current unrealized gains or losses of
open contracts. Dealer quotes are available for most of the Companies’ derivatives; otherwise, pricing or valuation
models are applied to current market information to estimate fair value. The Companies do not use derivatives for
trading purposes.
Changes in the fair value of foreign exchange forward contracts and foreign currency options designated and
qualifying as cash flow hedges are reported in accumulated other comprehensive income (loss). These amounts are
subsequently reclassified into earnings through Foreign exchange loss, net in the same period as the hedged items
affect earnings. Substantially all of the accumulated other comprehensive income (loss) in relation to foreign
exchange forward contracts at March 31, 2003 is expected to be reclassified into earnings within twelve months.
The effective portions of changes in the fair value of foreign exchange forward contracts and foreign currency
options designated as cash flow hedges and reported in accumulated other comprehensive income (loss), net of
the related tax effect, are losses of ¥788 million ($6,563 thousand ) and ¥1,673 million for the years ended March
31, 2003 and 2002, respectively. The amounts, which were reclassified out of accumulated other comprehensive
income (loss) into Foreign exchange loss, net or Interest expense, net, depending on their nature, net of the related
tax effect, are net losses of ¥778 million ($6,467 thousand ) and ¥1,605 million for the years ended March 31, 2003
and 2002, respectively. The amount of the hedging ineffectiveness is not material for the years ended March 31,
2003 and 2002.
The Companies enter into interest rate swap agreements, which do not meet the hedging criteria of SFAS
No. 133. These interest rate swap agreements are recorded at fair value in the consolidated balance sheets. The
changes in fair values are recorded in current period earnings.
(1) Interest rate swap contracts:
The Companies enter into interest rate swap agreements to manage exposure to fluctuations in interest rates.
These agreements involve the exchange of interest obligations on fixed and floating interest rate debt without
exchange of the underlying principal amounts. The agreements generally mature at the time the related debt
matures. The differential paid or received on interest rate swap agreements is recognized as an adjustment to
interest expense. Notional amounts are used to express the volume of interest rate swap agreements. The
notional amounts do not represent cash flows and are not subject to risk of loss. In the unlikely event the coun-
16. Financial
Instruments
and Risk
Management
Annual Report 2003 • 49