The carrying amounts of 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 approximated fair value because of their short-term maturities. The carrying amounts and estimated fair values of the other financial instruments are summarized as follows:
---------------------------------------------------------------------------------------------------------------------------------------
In millions of yen In thousands of U.S. dollars
-------------------------------------------------------------- --------------------------------------
1996 1997 1997
----------------------------- ----------------------------- --------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
March 31 amount fair value amount fair value amount fair value
---------------------------------------------------------------------------------------------------------------------------------------
Marketable and
investment securities.........Y 226,938 Y 580,701 Y 339,335 Y 538,134 $ 2,736,573 $ 4,339,790
Long-term receivables, trade.... 24,294 24,294 43,162 44,107 348,081 355,702
Long-term loans................. 32,276 32,603 30,443 30,464 245,508 245,677
Long-term debt, including
current portion............... (1,154,928) (1,193,706) (1,227,003) (1,286,758) (9,895,186) (10,377,081)
Derivatives:
Forward exchange
contracts.................... (4,224) (4,508) (730) (743) (5,887) (5,992)
Interest rate and currency
swap agreements.............. 3,312 7,723 (2,557) 2,048 (20,621) 16,516
Option contracts-
Purchased..................... 624 376 567 296 4,573 2,387
Written....................... (17) (17) (7) (7) (56) (56)
---------------------------------------------------------------------------------------------------------------------------------------
The fair values of financial instruments at March 31, 1996 and 1997 are determined by using a variety of methods and assumptions such as reference to various market and other data as appropriate. For marketable securities, fair value is determined based on quoted market prices. For investment debt securities, fair value is determined based on information obtained from independent third parties. For long-term receivables, trade and long-term loans included in investments and advances"other, fair value is estimated using estimated discounted 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 equity securities, included in investments and advances"other, with an aggregated carrying value of Y88,193 million and Y77,383 million ($624,056 thousand) at March 31, 1996 and 1997, respectively, consist of numerous investments in securities of non-public companies. It is not practicable to reasonably estimate the fair values of these investments. Fair value of the forward exchange contracts is estimated by obtaining quotes for futures contracts with similar maturities, and fair value of the interest rate and currency swap agreements is estimated based on the discounted values 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 and volatilities.
(2) Derivative Financial Instruments
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 fluctuations in foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies arising from the company's operations. The company had outstanding forward exchange contracts which, at March 31, 1996, mature through September 1996 to purchase the equivalent of Y131,337 million, principally U.S. Dollars, and to sell the equivalent of Y162,572 million, principally U.S. Dollars and German Marks, of various foreign currencies. At March 31, 1997, the company had outstanding forward exchange contracts which mature through September 1997 to purchase the equivalent of Y120,475 million ($971,573 thousand), principally U.S. Dollars, and to sell the equivalent of Y110,671 million ($892,508 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 rates. The aggregate notional principal amounts for interest rate swap agreements and currency swap agreements were Y281,261 million and Y305,286 million ($2,461,984 thousand) at March 31, 1996 and 1997, respectively. These agreements mature through 2007. The differentials to be paid or received related to interest rate swap agreements are recognized in interest expense over the lives of the agreements. The notional principal amounts of purchased interest rate option contracts were Y24,903 million and Y29,587 million ($238,605 thousand) at March 31, 1996 and 1997, respectively. These agreements mature through 2007. The notional principal amounts of written interest rate option contracts at March 31, 1996 and 1997 were Y2,127 million and Y2,482 million ($20,016 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.
