Toshiba 1997 Annual Report Download - page 45

43.
13. Shareholders’ equity:
The increases in the common stock and additional paid-in capital accounts resulted from the conversion of debentures.
The increases in the legal reserve in the years ended March 31, 1997 and 1996 were appropriations required under the Japanese
Commercial Code. No further appropriations (presently a minimum of 10 percent of cash dividends and other cash out-flow
from retained earnings) are required by the Commercial Code when the legal reserve equals 25 percent of stated capital.
Cash dividends, which are expected to be formally approved at the shareholders’ meeting in June 1997, and will be payable
subsequently, are shown as retained earnings appropriated for cash dividends.
An analysis of the changes for the years ended March 31, 1997 and 1996 in the cumulative translation adjustment is shown below:
Thousands of
Millions of yen U.S. dollars
March 31 1997 1996 1997
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (¥61,593) (¥86,842) ($496,718)
Translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,605 25,249 222,621
Balance at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (¥33,988) (¥61,593) ($274,097)
14. Financial instruments:
The company operates internationally, giving rise to exposure to market risks from fluctuations in foreign currency exchange and
interest rates. In the normal course of its risk management efforts, the company employs a variety of derivative financial instru-
ments, which are comprised principally of foreign currency forward exchange contracts, interest rate swap agreements and
currency swap agreements, to reduce its exposures. The company does not hold or issue financial instruments for trading purposes.
The company does not anticipate any credit loss from nonperformance by the counterparties to foreign exchange contracts,
interest rate swap agreements and currency swap agreements.
The company and several subsidiaries have entered into forward exchange contracts with banks as hedges against assets and
liabilities denominated in foreign currencies. The forward exchange contracts related to accounts receivable and payable, and
commitments on future trade transactions denominated in foreign currencies mature primarily within a few months subsequent
to the balance sheet date. Forward exchange contracts related to long-term indebtedness denominated in foreign currencies
mature during the period from 1997 to 1998, which correspond with the maturities of such indebtedness. As these foreign ex-
change forward contracts are utilized solely for hedging purposes, the resulting gains or losses are offset against foreign exchange
gains or losses on the underlying hedged assets and liabilities. Gains and losses related to qualifying hedges of firm commitments
denominated in foreign currencies are deferred and are recognized in income when the hedged transaction occurs.
Interest rate swap agreements and currency swap agreements are used to limit the company’s exposure to losses in relation to
underlying debt instruments and a certain foreign currency denominated accounts receivable resulting from adverse fluctuations in
foreign currency exchange and interest rates. These agreements mature during the period 1997 to 2003 and the related differ-
entials to be paid or received are recognized over the terms of the agreements.
The company’s forward exchange contract amounts, the aggregate notional principal amounts of interest rate swap agreements
and the principal amounts of currency swap agreements outstanding at March 31, 1997 and 1996 are summarized below:
Thousands of
Millions of yen U.S. dollars
March 31 1997 1996 1997
Forward exchange contracts:
To sell foreign currencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥311,515 ¥314,931 $2,512,218
To buy foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,750 21,232 110,887
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253,467 253,706 2,044,089
Currency swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,195 82,326 493,508