Epson 2004 Annual Report Download - page 58

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56 SEIKO EPSON CORPORATION
declined in excess of 30% of cost. Those securities are written down to the fair value and the resulting losses are
included in current income for the period.
6. Intangible assets
A consolidation adjustment account, representing the excess of cost over net equity of investments in subsidiaries
as at March 31, 2003 and 2004, included in intangible assets, were ¥954 million and ¥270 million ($2,555 thousand),
respectively.
7. Derivative financial instruments
Epson enters into forward exchange contracts, currency options and interest rate swaps. Forward exchange
contracts and currency options are utilized to hedge currency risk exposures. Interest rate swaps are utilized to
hedge against possible future changes in interest rates on floating rate borrowings. Epson uses derivative
instruments only for hedging purposes and not for purposes of trading or speculation.
Epson management believes that credit risk relating to derivative instruments that Epson uses is relatively low
since all of its counterparties to the derivative instruments are creditworthy financial institutions.
Forward exchange transactions are approved by the Company’s Forward Exchange Committee (composed
of representatives of Epson management) and executed based on authorization of the general manager of
Epson in charge of the treasury management in accordance with internal rules and policies developed regarding
derivative transaction management.
Interest rate swap transactions are approved and executed based on authorization of the director of Epson in
charge of the finance function based on the above-mentioned internal rules and policies. Execution and
management of transactions are done by the responsible section in Financial Management Department
and reported to the general manager in charge of the fund management.
The table below lists contract amounts, notional amounts and fair values of derivatives as at March 31, 2003
and 2004 by transactions and type of instrument, excluding derivatives eligible for hedge accounting.
Millions of yen
March 31, 2003
Contract Unrealized gains
Instruments amounts Fair values (losses)
Forward exchange contracts:
Sold –
U.S. dollar (purchased Japanese yen) ¥ 8,196 ¥ 8,239 ¥ (43)
Euro (purchased Japanese yen) 20,086 20,740 (654)
Sterling pound (purchased Japanese yen) 679 681 (2)
Australian dollar (purchased Japanese yen) 553 555 (2)
Swiss Francs (purchased Japanese yen) 1,188 1,200 (12)
Swiss Francs (purchased Euro) 353 352 1
Thai baht (purchased U.S. dollar) 150 149 1
Purchased –
U.S. dollar (sold Japanese yen) 1,540 1,561 21
U.S. dollar (sold Euro) 397 388 (9)
U.S. dollar (sold Korean won) 3,246 3,384 138
U.S. dollar (sold Taiwan dollar) 720 721 1
Euro (sold Japanese yen) 17 17 0
Japanese yen (sold Euro) 214 213 (1)
Total unrealized losses from forward exchange contracts ¥(561)
There were no interest rate swap transactions outstanding at March 31, 2003.