Omron 2004 Annual Report Download - page 66

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be minimal since the counterparties are major financial institutions.
The notional amounts of contracts to exchange foreign currency (forward contracts) outstanding at March 31, 2004 and 2003 were
as follows:
Forward exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥24,326 $335,821
Thousands of
U.S. dollars
Millions of yen
2003 2004
¥35,597
2004
The notional amounts do not represent the amounts exchanged by the parties to derivatives and are not a measure of the
Companies’ exposure through its use of derivatives. The amounts exchanged are determined by reference to the notional amounts and
the other terms of the derivatives.
The Companies hedge certain exposures to fluctuations in foreign currency exchange rates that occur prior to conversion of foreign
currency denominated monetary assets and liabilities into the functional currency. Prior to conversion to the functional currency, these
assets and liabilities are translated at currency exchange rates in effect on the balance sheet date. The effects of changes in currency
exchange rates are reported in earnings and included in Foreign exchange loss, net in the consolidated statements of operations.
Currency forward contracts and options designated as hedges of the monetary assets and liabilities are also marked to market rates
with the resulting gains and losses reported in the consolidated statements of operations.
17. RELATED PARTY TRANSACTION
The Company has an operating lease agreement for its head office, including land and a building, with a company owned by the family
of the Company’s founder, which includes the Company’s chairman and representative director, a director, and certain managing offi-
cers. This lease agreement has an initial non-cancelable lease term to 2020 and requires a monthly rental payment of ¥106 million
($1,000 thousand) and a security deposit of 2,600 million ($24,528 thousand) which is refundable when the agreement expires. During
the years ended March 31, 2004, 2003 and 2002, the Company paid ¥1,272 million ($12,000 thousand), in rental expense and the
security deposit at March 31, 2004 and 2003 was ¥2,600 million ($ 24,528 thousand).
18. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has commitments at March 31, 2004 of approximately ¥18,549 million ($174,991 thousand) related to contracts for out-
sourcing computer services through 2008. The contracts require an annual service fee of ¥4,764 million ($44,943 thousand) for the
year ending March 31, 2005. The annual service fee will gradually decrease each year during the contract term to ¥ 4,518 million
($42,623 thousand) for 2008. The contract is cancelable at any time subject to a penalty of 15% of aggregate service fees payable for
the remaining term of the contract.
The Company and certain of its subsidiaries are defendants in several pending lawsuits. However, based upon the information cur-
rently available to both the Company and its legal counsel, management of the Company believes that damages from such lawsuits, if
any, would not have a material effect on the consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Companies to concentrations of credit risk consist principally of short-term cash
investments and trade receivables. The Companies place their short-term cash investments with high-credit-quality financial institu-
tions. Concentrations of credit risk with respect to trade receivables, as approximately 75% of total sales are concentrated in Japan,
are limited due to the large number of well-established customers and their dispersion across many industries. The Company normally
requires customers to deposit funds to serve as security for ongoing credit sales.