Sharp 2013 Annual Report Download - page 50

48 SHARP CORPORATION
Financial Section
(a) Qualitative information on financial instruments
(1) Policies for financial instruments
The Company and its consolidated subsidiaries obtain neces-
sary funds mainly through bank loans and issuing bonds ac-
cording to its capital investment plan for its main business of
manufacturing and distributing electronics equipment and
electronic components.
Short-term operating funds are obtained through bank
loans.
Transactions involving such financial instruments are con-
ducted with creditworthy financial institutions. The Company
utilizes derivative transactions for minimizing risk and not for
speculative or dealing purposes.
(2) Description and risks of financial instruments
Notes and accounts receivable are exposed to customer credit
risk. Some notes and accounts receivable are denominated in
foreign currencies because the Company has business rela-
tions globally and therefore are exposed to foreign currency
risk. Notes and accounts payable (excluding other accounts
payable) are payable within one year. Some notes and ac-
counts payable arising from the import of raw materials are
denominated in foreign currencies and therefore are exposed
to foreign currency risk. The Company offsets foreign currency
denominated notes and accounts receivable with notes and
accounts payable, and uses forward exchange contracts to
hedge foreign currency risk exposure.
Other securities are held for the long term to construct bet-
ter business alliances and relations with Company customers
and suppliers. Other securities are exposed to market price
fluctuation risk. Long-term borrowings (included in long-term
debt) and bonds (included in short-term borrowings and long-
term debt) are mainly in preparation for capital investments.
The longest redemption date for bonds is six and a half years
after March 31, 2013.
Derivative transactions consist primarily of forward ex-
change contracts, and currency swap contracts are used to
hedge foreign currency risk exposure. Interest swap contracts
are used to hedge interest rate risk exposure. For hedging
instruments, hedged items, hedging policies and assessment
methods of effectiveness of hedging instruments, please see
Note 1.
(3) Risk management of financial instruments
[1] Management of credit risk
For notes and accounts receivable, the Company periodi-
cally reviews the status of its key customers, monitoring
their respective payment deadlines and remaining out-
standing balances.
The Company strives to recognize and reduce irrecover-
able risks, due to deteriorating financial conditions or other
factors at an early stage. The Company’s consolidated sub-
sidiaries also follow the same monitoring and administra-
tion process.
[2] Management of market risk
The Company decides basic policy for derivative transac-
tions at the Foreign Exchange Administration Committee
meeting which is held monthly and the Finance Adminis-
tration Committee meeting which is required by the Com-
pany’s internal procedure.
The Treasury Department of Corporate Accounting and
Control Group executes transactions and reports the result
of such transactions to the Accounting Department of Cor-
porate Accounting and Control Group on a daily basis. The
Accounting Department has set up a specialized section
for transaction results and position management and re-
ports the result of transactions to the General manager of
Corporate Accounting and Control Group on a daily basis.
In addition, the Treasury Department reports the result
of transactions to the Foreign Exchange Administration
Committee and the Finance Administration Committee on
a periodic basis. Its consolidated subsidiaries also manage
forward foreign exchange transactions in accordance with
the rules established by the Company and report the con-
tent of such transactions to the Company on a monthly
basis. For interest swap contracts and currency swap con-
tracts, its consolidated subsidiaries execute transactions
after the Company approves.
7. Financial Instruments