----------------------------------------------------------------------------------------------------------------
In millions of yen In thousands of U.S. dollars
------------------------------------------------ ----------------------------
1995 1996 1996
----------------------- ----------------------- ----------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
March 31 amount fair value amount fair value amount fair value
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents...... Y 446,047 Y 446,047 Y 381,005 Y 381,005 $ 3,560,794 $ 3,560,794
Time deposits.................. 1,576 1,576 1,468 1,468 13,720 13,720
Marketable securities.......... 213,491 457,460 226,938 580,701 2,120,915 5,427,112
Notes and accounts
receivable, trade............ 950,515 950,515 1,165,642 1,165,642 10,893,850 10,893,850
Other current assets........... 31,554 31,554 52,421 52,421 489,916 489,916
Long-term receivables, trade... 28,388 27,711 24,294 24,294 227,047 227,047
Long-term loans................ 33,026 33,296 32,276 32,603 301,645 304,701
Short-term borrowings.......... (619,549) (619,549) (663,669) (663,669) (6,202,514) (6,202,514)
Notes and accounts
payable, trade............... (753,239) (753,239) (1,079,309) (1,079,309) (10,087,000) (10,087,000)
Employees' savings deposits.... (91,551) (91,551) (96,884) (96,884) (905,458) (905,458)
Accrued taxes on income........ (40,851) (40,851) (58,221) (58,221) (544,121) (544,121)
Other current liabilities...... (49,041) (49,041) (75,389) (75,389) (704,570) (704,570)
Long-term debt, including
current portion..............(1,143,040) (1,143,292) (1,154,928) (1,193,706) (10,793,720) (11,156,131)
Derivatives:
Forward exchange
contracts................... 6,344 6,279 (4,224) (4,508) (39,477) (42,131)
Interest rate and currency
swap agreements............. 14,231 17,419 3,312 7,723 30,953 72,178
Option contracts--
Purchased.................... 769 1,105 624 376 5,832 3,514
Written...................... (34) (277) (17) (17) (159) (159)
----------------------------------------------------------------------------------------------------------------------
The fair values of financial instruments at March 31, 1995 and 1996 are determined by using a variety of methods and assumptions such as reference to various market and other data as appropriate. For certain financial instruments, including cash and cash equivalents, time deposits, notes and accounts receivable and payable, trade, short-term borrowings, employees' savings deposits, accrued taxes on income and other current assets and liabilities, the carrying amount approximated fair value because of their short-term maturities. For marketable securities, fair value is determined based on quoted market prices. For long-term receivables, trade and long-term loans included in investments and advances--other, fair value is estimated using estimated discount values of future cash flows. For long-term debt, fair value is estimated using market quotes, or where market quotes are not available, using estimated discounted values of future cash flows for the same or similar types of instruments. Investment securities, included in investments and advances--other, with aggregated carrying values of 72,135 million yen and 88,193 million yen ($824,234 thousand) at March 31, 1995 and 1996, respectively, consist of numerous investments in securities which are non-public companies. It is not practicable to estimate reasonably the fair values of these investments. Fair value of the forward exchange contracts is estimated by obtaining quotes for future contracts with similar maturities, and fair value of the interest rate and currency swap agreements is estimated based on the discounted amounts of net future cash flows, and fair value of the option contracts is estimated using pricing models based upon current market interest and foreign exchange rates.
In the normal course of business, the company enters into various derivative financial instruments in order to manage exposures resulting from fluctuations in foreign currency exchange rates and interest rates. The primary classes of derivatives used by the company are forward exchange contracts, interest rate swap agreements, currency swap agreements and foreign currency purchased and written options as a normal part of its risk management efforts, which include those transactions designed as hedges but that do not qualify for hedge accounting under accounting principles generally accepted in the United States of America. Gains and losses on those derivative financial instruments qualified for hedge accounting are deferred and effectively offset gains and losses on the underlying hedged assets and liabilities by recognizing them in the same period. Other derivatives used for hedging purposes but not qualifying for hedge accounting under accounting principles generally accepted in the United States of America are marked to market.
The forward exchange contracts have been entered into as hedges against the adverse impact of foreign currency fluctuations on monetary assets and liabilities arising from the company's operations. The company had outstanding forward exchange contracts which, at March 31, 1995, mature through September 1995 to purchase 63,816 million yen, principally U.S. Dollars, and to sell 114,620 million yen, principally U.S. Dollars, German Marks and U.K. Pounds, of various foreign currencies. At March 31, 1996, the company had outstanding forward exchange contracts which mature through September 1996 to purchase 131,337 million yen ($1,227,449 thousand), principally U.S. Dollars, and to sell 162,572 million yen ($1,519,364 thousand), principally U.S. Dollars and German Marks, of various foreign currencies.
The interest rate swap agreements are fully integrated with underlying debt obligations and designed to convert fixed rate debt into floating rate debt, or vice versa, and interest rate option agreements are also arranged so that exposures to losses resulting from fluctuations in interest rates are managed. The currency swap agreements and options are designed to limit exposures to losses resulting from fluctuations in foreign currency exchange. The aggregate notional principal and principal amounts for interest rate swap agreements and currency swap agreements are 228,241 million yen and 281,261 million yen ($2,628,607 thousand) at March 31, 1995 and 1996, respectively. These agreements mature through 2007. The differentials to be paid or received related to interest swap agreements are recognized as interest rates change and are recognized over the lives of the agreements. The notional principal and principal amounts of option purchased contracts for interest rates and foreign currencies at March 31, 1995 are 29,414 million yen and those amounts for interest rates at March 31, 1996 are 24,903 million yen ($232,738 thousand). These agreements mature through 2005. The notional principal and principal amounts of option written contracts for interest rates and foreign currencies at March 31, 1995 are 8,399 million yen and those amounts for interest rates at March 31, 1996 are 2,127 million yen ($19,879 thousand). These agreements mature through 1998.
The counterparties to the arrangements for derivative financial instruments are major financial institutions. As a normal business risk, the company is exposed to credit loss in the event of nonperformance by the counterparties; however, the company does not anticipate nonperformance by the counterparties to these agreements, and no material losses would be expected.
