Notes to Consolidated Financial Statements
31. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company, in the normal course of business, is exposed to market risks from changes in interest rates, foreign exchange rates and commodity prices. To manage the exposures to these risks, the Company generally identifies its net exposures and takes advantage of natural offsets. Additionally, the Company enters into various derivative transactions pursuant to the Company's risk management policies in response to counterparty exposure and to hedge specific risks.
The types of derivatives used by the Company are primarily interest rate swaps, forward exchange contracts, currency swaps and commodity futures contracts. The changes in the fair value or cash flows of these derivatives are offset in part or in whole by corresponding changes in the fair value or cash flows of the underlying exposures being hedged. Whenever practical, designation is performed on a specific exposure basis to qualify for hedge accounting. In these circumstances, the Company assesses, both at the inception of the hedge and on an on-going basis, whether the hedging derivatives are highly effective in offsetting changes in fair values or cash flows of hedged items. Should it be determined that a derivative is not highly effective as a hedge, the Company will discontinue hedge accounting.
Fair value hedge
Derivative instruments designated as fair value hedges primarily consist of interest rate swaps used to convert fixed-rate assets or debt obligations to floating-rate assets or debts, and currency swaps used to hedge foreign currency risks of loans or debts.
Cash flow hedge
Derivative instruments designated as cash flow hedges include interest rate swaps to convert floating-rate liabilities to fixed-rate liabilities to diminish volatility of cash flows, forward exchange contracts to eliminate variability in functional-currency-equivalent cash flows on forecasted transactions, and commodity swaps or futures to eliminate variability in commodity prices.
Current open contracts hedge the Company's exposure to the variability in future cash flows for forecasted transactions through 2020.
Hedge of the net investment in foreign operations
The Parent uses foreign exchange contracts and non-derivative financial instruments such as foreign-currency-denominated debt in order to reduce the foreign currency exposure in the net investment in a foreign operation.
Impact of hedging activities on the consolidated statement of financial position
The following are the fair values (on a gross basis) of derivative instruments and non-derivative financial instruments designated as hedge at the Date of Transition, March 31, 2013 and 2014.
(Date of Transition)
Derivatives designated as fair value hedges, cash flow hedges and net investment hedges
Account in the consolidated
Interest rate contracts Other financial assets (current)
Other financial assets (non-current) ¥356
68,917
¥32 ¥356
68,949 Foreign exchange contracts Other financial assets (current)
Other financial assets (non-current) 580
1,912 7,246
63 ¥30 7,856
1,975 Commodity contracts Other financial assets (current)
Other financial assets (non-current) 1,819
1,094 1,819
1,094
Total ¥71,765 ¥10,254 ¥30 ¥82,049
121
Account in the consolidated
Interest rate contracts Other financial liabilities (current)
Other financial liabilities (non-current) ¥14
5,539 ¥5
1,368 ¥19
6,907 Foreign exchange
contracts Other financial liabilities (current)
Other financial liabilities (non-current) 1,174
1,096 4,262
2,182 ¥17,302 22,738 3,278 Commodity contracts Other financial liabilities (current)
Other financial liabilities (non-current) 830
1,668 830
1,668
Total ¥7,823 ¥10,315 ¥17,302 ¥35,440
Non-derivative financial instruments designated as net investment hedges
Hedging instrument
Account in the consolidated statement of financial position
Carrying amount (Millions of Yen) Foreign-currency-denominated
debt Borrowings (current)
Borrowings (non-current) ¥3,945
35,506
(March 31, 2013)
Derivatives designated as fair value hedges, cash flow hedges or net investment hedges
Account in the consolidated
Interest rate contracts Other financial assets (current)
Other financial assets (non-current) ¥992
82,383
¥25 ¥992
82,408 Foreign exchange contracts Other financial assets (current)
Other financial assets (non-current) 1,115
992 13,323
1,921 ¥1,495 15,933 2,913 Commodity contracts Other financial assets (current)
Other financial assets (non-current) 1,812
928 1,812
Interest rate contracts Other financial liabilities (current)
Other financial liabilities (non-current) ¥29
2,533 ¥11
1,934 ¥40
4,467 Foreign exchange
contracts Other financial liabilities (current)
Other financial liabilities (non-current) 31 3,623
11 ¥9,546 13,200 11 Commodity contracts Other financial liabilities (current)
Other financial liabilities (non-current) 145
3,052 145
3,052
Total ¥2,593 ¥8,776 ¥9,546 ¥20,915
Non-derivative financial instruments designated as net investment hedges
Hedging instrument
Account in the consolidated statement of Financial Position
Carrying amount (Millions of Yen) Foreign-currency-denominated
debt Borrowings (current)
Borrowings (non-current) ¥4,514
8,769
(March 31, 2014)
Derivatives designated as fair value hedges, cash flow hedges or net investment hedges
Account in the consolidated
Interest rate contracts Other financial assets (current)
Other financial assets (non-current) ¥935
69,677 ¥36
424 ¥971
70,101 Foreign exchange
contracts Other financial assets (current)
Other financial assets (non-current) 679
267 7,212
6 ¥4,955 12,846
273 Commodity contracts Other financial assets (current)
Other financial assets (non-current) 476
620 476
Interest rate contracts Other financial liabilities (current)
Other financial liabilities (non-current) ¥82
3,947 ¥292
1,194 ¥374
5,141 Foreign exchange
contracts Other financial liabilities (current)
Other financial liabilities (non-current) 230 5,870
747 ¥2,718 8,818
747 Commodity contracts Other financial liabilities (current)
Other financial liabilities (non-current) 443
3,009 443
Interest rate contracts Other financial assets (current)
Other financial assets (non-current) $9
676 $4 $9
Foreign exchange 680
contracts Other financial assets (current)
Other financial assets (non-current) 7
3 70 $48 125
3 Commodity contracts Other financial assets (current)
Other financial assets (non-current) 5
6 5
Interest rate contracts Other financial liabilities (current)
Other financial liabilities (non-current) $1
38 $3
12 $4
Foreign exchange 50
contracts Other financial liabilities (current)
Other financial liabilities (non-current) 2 57
7 $26 85
7 Commodity contracts Other financial liabilities (current)
Other financial liabilities (non-current) 4
29 4
29
Total $41 $112 $26 $179
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Non-derivative financial instruments designated as net investment hedges
Hedging instrument
Account in the consolidated statement of financial position
Impact of hedging activities on the consolidated statement of income and on other comprehensive income The following are the gains or losses related to hedging activities for the years ended March 31, 2013 and 2014.
(Year ended March 31, 2013)
Derivatives designated as fair value hedges
Millions of Yen
Derivative type
Account in the consolidated statement of income
Amount of gain or loss recognized in net income on
derivative
Amount of gain or loss recognized in net income on
hedged item Interest rate contracts
Foreign exchange contracts Other income (expense) -net
Other income (expense) -net ¥17,093
1,047 ¥(17,087)
(1,086)
Derivatives designated as cash flow hedges
Derivative type
Amount of gains (losses) recognized in OCI (effective portion) (Millions of Yen)
Account of gain or loss reclassified from other
components of equity
Amount of gain or loss reclassified from other components of equity into net
income (effective portion) (Millions of Yen)
Interest rate contracts ¥(8,686) Finance costs ¥(352)
Foreign exchange contracts 16,522 Other income (expense) - net 8,284
Commodity contracts 1,235 Revenues/(Cost of revenues) (2,288)
*1. Amounts related to hedge ineffectiveness or excluded from the assessment of hedge effectiveness was immaterial for the year ended March 31, 2013.
*2. During the year ended March 31, 2013, there were no gains or losses reclassified from other components of equity into net income as a result of the discontinuance of cash flow hedges because it was probable that the original forecasted transactions would not occur by the end of the originally specified time period.
Derivatives designated as net Investment hedges
The amounts related to hedge ineffectiveness or excluded from the assessment of hedge effectiveness was not material for the year ended March 31, 2013.
(Year ended March 31, 2014)
Derivatives designated as fair value hedges
Millions of Yen
Derivative type
Account in the consolidated statement of income
Amount of gain or loss recognized in net income on
derivative
Amount of gain or loss recognized in net income on
hedged item Interest rate contracts
Foreign exchange contracts Other income (expense) -net
Other income (expense) -net ¥(14,230)
(1,360) ¥14,222
Amount of gain or loss recognized in net income on
derivative
Amount of gain or loss recognized in net income on
hedged item Interest rate contracts
Foreign exchange contracts Other income (expense) -net
Other income (expense) -net $(138)
(13) $138
13
Derivatives designated as cash flow hedges
Derivative type
Amount of gains (losses) recognized in OCI (effective portion) (Millions of Yen)
Account of gain or loss reclassified from other
components of equity
Amount of gain or loss reclassified from other components of equity into net
income (effective portion) (Millions of Yen)
Interest rate contracts ¥7,567 Finance costs ¥(247)
Foreign exchange contracts
(23,456) Other income (expense) - net (13,668)
Commodity contracts (245) Revenues/(Cost of revenues) (28)
Account of gain or loss reclassified from other
components of equity
Amount of gain or loss reclassified from other components of equity into net
income (effective portion) (Millions of U.S. Dollars)
Interest rate contracts $73 Finance costs $(2)
Foreign exchange contracts (228) Other income (expense) - net (133) Commodity contracts (2) Revenues/(Cost of revenues)
*1. Amounts related to hedge ineffectiveness or excluded from the assessment of hedge effectiveness was immaterial for the year ended March 31, 2014.
*2. During the year ended March 31, 2014, there were no gains or losses reclassified from other components of equity into net income as a result of the discontinuance of cash flow hedges because it was probable that the original forecasted transactions would not occur by the end of the originally specified time period.
Derivatives designated as net investment hedges
The amounts related to hedge ineffectiveness or excluded from the assessment of hedge effectiveness was not material for the year ended March 31, 2014.
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32. RISK MANAGEMENT RELATED TO FINANCIAL INSTRUMENTS