Toshiba 2006 Annual Report Download - page 81

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foreign currency exchange rates on monetary 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 of the balance sheet date.
Interest rate swap agreements, currency swap agreements and currency options are used to limit the Company’s exposure to loss-
es in relation to underlying debt instruments and accounts receivable and payable denominated in foreign currencies resulting from
adverse fluctuations in foreign currency exchange and interest rates. These agreements mature during the period 2006 to 2015.
Forward exchange contracts, interest rate swap agreements, currency swap agreements and currency options are designated
as either fair value hedges or cash flow hedges depending on accounts receivable and payable denominated in foreign currencies
or commitments on future trade transactions and the interest rate characteristics of the underlying debt as discussed below.
Fair Value Hedge Strategy
The forward exchange contracts and currency swap agreements utilized by the Company effectively reduce fluctuation in fair
value of accounts receivable and payable denominated in foreign currencies.
The interest rate swap agreements utilized by the Company effectively convert a portion of its fixed-rate debt to a floating-rate basis.
Cash Flow Hedge Strategy
The forward exchange contracts and currency options utilized by the Company effectively reduce fluctuation in cash flow
from commitments on future trade transactions denominated in foreign currencies for the next 18 months.
The interest rate swap agreements utilized by the Company effectively convert a portion of its floating-rate debt to a fixed-
rate basis for the next 10 years.
The Company expects to reclassify ¥708 million ($6,051 thousand) of net losses on derivative financial instruments from
accumulated other comprehensive income (loss) to earnings during the next 12 months due to the collection of accounts
receivable denominated in foreign currencies and the payments of accounts payable denominated in foreign currencies and
variable interest associated with the floating-rate debts.
At March 31, 2006, there were no significant gains or losses on derivative financial instruments or portions thereof that
were either ineffective as hedges, excluded from assessment of hedge effectiveness, or where the underlying risk did not occur.
The Company’s forward exchange contract amounts, the aggregate notional principal amounts of interest rate swap agree-
ments, currency swap agreements, and currency options outstanding at March 31, 2006 and 2005 are summarized below:
Thousands of
Millions of yen U.S. dollars
March 31 2006 2005 2006
Forward exchange contracts:
To sell foreign currencies ¥125,684 ¥132,673 $1,074,222
To buy foreign currencies 41,332 36,702 353,265
Interest rate swap agreements 164,050 119,250 1,402,137
Currency swap agreements 146,652 139,208 1,253,436
Currency options 218,679 34,816 1,869,051
(2)FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company’s financial instruments at March 31, 2006 and 2005 are summarized as follows:
Millions of yen
2006 2005
Carrying Estimated Carrying Estimated
March 31 amount fair value amount fair value
Nonderivatives:
Liabilities:
Long-term debt, including current portion ¥(741,102) ¥ (793,470) ¥(867,579) ¥ (875,132)
Derivative financial instruments:
Forward exchange contracts (989) (989) 944 944
Interest rate swap agreements (1,161) (1,161) (285) (285)
Currency swap agreements 153 153 1,182 1,182
Currency options (810) (810) 164 164