Alpine 2007 Annual Report Download - page 28

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12. Derivative Financial Instruments
The Companies have entered into forward exchange contracts and currency option contracts with banks as hedges against receivables denominated
in foreign currencies.
These derivative financial transactions are executed by the Company’s accounting department solely for hedging purposes under the internal control
rules and the supervision by the Board of Directors. The Companies do not anticipate any credit loss from nonperformance by the counterparties to
forward exchange contracts because the counterparties are creditworthy securities companies of Japan.
Hedging derivative financial instruments used by the Companies and items hedged are as follows:
Hedging instruments: Forward foreign exchange contracts
Currency option contracts
Hedged items: Foreign currency trade receivables and payables,
Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2007, and 2006 were as follows:
2007 2006 2007
Deferred tax assets:
Provision for warranty reserve ¥1,450 ¥1,105 $12,283
Depreciation 2,344 2,808 19,856
Provision for employees' severance and retirement benefits 184 180 1,559
Accrued expenses 219 289 1,855
Elimination of unrealized profit 769 550 6,514
Other 2,692 2,173 22,804
Valuation reserve (293) (251) (2,482)
Offset allowed against deferred tax liabilities (3,014) (3,614) (25,532)
Total deferred tax assets ¥4,351 ¥3,240 $36,857
Deferred tax liabilities:
Unrealized holding gains and losses on securities ¥5,289 ¥4,838 $44,803
Loss on limited partnership in a consolidated subsidiary 18 18 152
Other 1,979 1,632 16,764
Offset allowed against deferred tax assets (3,014) (3,614) (25,531)
Total deferred tax liabilities ¥4,272 ¥2,874 $36,188
Net deferred tax assets ¥79 ¥366 $669
Thousands of U.S. Dollars
Millions of Yen
11. Income Taxes
The Companies are subject to a number of taxes based on income, which, in the aggregate, indicate statutory rates in Japan of approximately 40%
for the years ended March 31, 2007, 2006 and 2005.
The following table summarizes the significant differences between the statutory tax rate and the Companies’ effective tax rate for financial statement
purposes for the years ended March 31, 2006 and 2005. Reconciliation of the statutory tax rate and the Company’s effective tax rate for the year
ended March 31, 2007 was not required due to the small difference:
2006 2005
Statutory tax rate 40.4% 40.4%
Research and development cost tax credit (2.5) (4.9)
Non-taxable dividend income (0.2) (0.2)
Foreign tax credit (2.3) (0.5)
Differences in overseas subsidiaries (2.8) (0.1)
Non-deductible expenses 0.6 0.5
Equity in earnings of affiliated company 1.6 1.6
Provision for transfer price tax — —
Tax refund (0.9) (2.8)
Valuation reserve 1.0 1.6
Other 1.6 (0.9)
Effective tax rate 36.5% 34.7%