Omron 2005 Annual Report Download - page 74

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72
comprehensive income (loss) into Foreign exchange loss, net
depending on their nature, net of the related tax effect, are net
gains of ¥546 million ($5,103 thousand) and net gains of ¥344 mil-
lion for the years ended March 31, 2005 and 2004, respectively.
The amount of the hedging ineffectiveness is not material for the
years ended March 31, 2005 and 2004.
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 con-
tracts 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 cur-
rency derivatives are typically less 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 be minimal since the
counterparties are major financial institutions.
Forward exchange contracts ..................................................................................
Foreign currency options ........................................................................................
¥35,597
—
$352,150
18,692
Thousands of
U.S. dollars
Millions of yen
2004 2005
¥37,680
2,000
2005
The notional amounts of contracts to exchange foreign currency outstanding at March 31, 2005 and 2004 were as follows:
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 cur-
rency, 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 state-
ments of income. Currency forward contracts and options desig-
nated as hedges of the monetary assets and liabilities are also
marked to market rates with the resulting gains and losses report-
ed in the consolidated statements of income.
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 officers. This lease agreement has an initial
non-cancelable lease term to 2020 and requires a monthly rental
payment of ¥106 million ($991 thousand) and a security deposit
of ¥2,600 million ($24,299 thousand) which is refundable when
the agreement expires. During the years ended March 31, 2005,
2004 and 2003, the Company paid ¥1,272 million ($11,888 thou-
sand), in rental expense and the security deposit at March 31,
2005 and 2004 was ¥2,600 million ($24,299 thousand).
The Company has commitments at March 31, 2005 of approxi-
mately ¥1,365 million ($12,757 thousand) related to contracts for
construction of a new building in Komaki city.
The Company has commitments at March 31, 2005 of
approximately ¥13,784 million ($128,822 thousand) related to
contracts for outsourcing computer services through 2008. The
contracts require an annual service fee of ¥4,676 million ($43,701
18. Commitments and Contingent Liabilities
thousand) for the year ending March 31, 2006. The annual service
fee will gradually decrease each year during the contract term to
¥4,518 million ($42,224 thousand) for 2008. The contract is cance-
lable 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 informa-