Omron 2004 Annual Report Download - page 65

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63
Nonderivatives:
Long-term debt, including current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives:
Included in Other current assets:
Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
Thousands of U.S. dollars
Fair value
$(402,896)
5,783
Carrying
amount
$(389,084)
5,783
The following methods and assumptions were used to estimate the fair values of each class of financial instruments 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-terminvestments 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 deter-
minable 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 values 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 con-
tracts 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, 2004 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 gains of ¥639 mil-
lion ($6,028 thousand ) and losses of ¥788 million for the years ended March 31, 2004 and 2003, respectively. The amounts, which
were reclassified out of accumulated other comprehensive income (loss) into Foreign exchange loss, net depending on their nature, net
of the related tax effect, are net gains of ¥344 million ($3,245 thousand ) and net losses of ¥778 million for the years ended March 31,
2004 and 2003, respectively. The amount of the hedging ineffectiveness is not material for the years ended March 31, 2004 and 2003.
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.
Foreign exchange forward contracts and foreign currency options:
The Companies enter into foreign exchange forward contracts and combined purchased and written foreign currency option contracts
to hedge foreign currency transactions (primarily the U.S. dollar and the EURO) on a continuing basis for periods consistent with their
committed exposure. The terms of the currency derivatives are rarely more than 10 months. The credit exposure of foreign exchange
contracts are represented by the fair value of the contracts at the reporting date. Management considers the exposure to credit risk to