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54 Victor Company of Japan, Limited
DERIVATIVE FINANCIAL INSTRUMENTS
The Companies use derivative financial instruments in the normal course of their business to manage the exposure
to fluctuations in foreign exchange rates and interest rates. The primary classes of derivatives used by the
Company and its consolidated subsidiaries are forward exchange contracts, currency option contracts and interest
rate swap contracts.
The Company and certain of its overseas subsidiaries have established regulations for financial transactions that
specify the persons with approval authority for derivative transactions. These derivative transactions are executed
and managed by the Company’s accounting department and the member of the Board of Directors in charge of
finance. The results of all such transactions are reported to the Director in charge of finance.
The following summarizes hedging derivative financial instruments used by the Companies and items hedged:
Hedging instruments: Hedged items:
Forward exchange contracts and currency Foreign currency trade receivables and trade
option contracts payables, future transaction denominated
Interest rate swap contracts in a foreign currency
Interest on bonds
The Companies evaluate hedge effectiveness by comparing the cumulative changes in cash flows from or the
changes in fair value of hedged items and the corresponding changes in the hedging derivative instruments.
The following tables summarize fair value information as of March 31, 2005 of derivative transactions for which
hedge accounting has not been applied:
Millions of yen
Contract Fair Recognized
March 31, 2005 amount value gain (loss)
Swap contracts:
Receive floating/pay fixed ¥7,159 ¥98 ¥98
The fair value of interest swap contracts is estimated based on the quotes obtained from financial institutions.
As the Companies applied hedge accounting to all derivatives in 2006, market value information for 2006 is not
disclosed.
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