Notes to Consolidated Financial Statements
NSK Ltd. and Consolidated Subsidiaries For the year ended March 31, 2007
13. Commitments and Contingencies
(a) At March 31, 2007, the Company and its subsidiaries had the following contingent liabilities:
| Millions of yen | housands of U.S. dollars |
|
| As of March 31, 2007 | ||
|---|---|---|
| As guarantor of indebtedness of: | ||
| Employees | ¥116 | $ 983 |
| Affiliated companies | 744 | 6,305 |
| ¥860 | $7,288 | |
(b) Under the terms of a permit for commencing economic activity within the Walbrzych Special Economic Zone, NSK Steering Systems Europe (Polska) Sp. z o.o. is committed to make investments amounting to PLN128 million by December 31, 2007. NSK Steering Systems Europe (Polska) Sp. z o.o. made investments of PLN76 million through March 31, 2007 in accordance with this agreement.
14. Leases
(a) Finance Leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased property as of March 31, 2007 and 2006, which would have been reflected in the consolidated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases:
| Millions of yen | Thousands of U.S. dollars |
||
| As of March 31, | 2007 | 2006 | 2007 |
|---|---|---|---|
| Acquisition costs: | |||
| Machinery and equipment | ¥4,410 | ¥3,875 | $37,373 |
| Other assets | 1,039 | 1,329 | 8,805 |
| 5,450 | 5,205 | 46,186 | |
| Accumulated depreciation: | |||
| Machinery and equipment | 2,011 | 2,019 | 17,042 |
| Other assets | 743 | 1,028 | 6,297 |
| 2,755 | 3,047 | 23,347 | |
| Net book value: | |||
| Machinery and equipment | 2,399 | 1,855 | 20,331 |
| Other assets | 296 | 301 | 2,508 |
| ¥2,695 | ¥2,157 | $22,839 | |
Lease payments relating to finance leases accounted for as operating leases amounted to ¥1,105 million ($9,364 thousand) and ¥998 million, which were equal to the depreciation expense of the leased assets computed by the straight-line method over the lease terms, for the years ended March 31, 2007 and 2006, respectively.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2007 for finance leases accounted for as operating leases are summarized as follows:
| Millions of yen | Thousands of U.S. dollars |
|
| Year ending March 31, | ||
|---|---|---|
| 2008 | ¥ 882 | $ 7,475 |
| 2009 and thereafter | 1,812 | 15,356 |
| Total | ¥2,695 | $22,839 |
(b) Operating Leases
Future minimum lease payments subsequent to March 31, 2007 for noncancelable operating leases are summarized as follows:
| Millions of yen | Thousands of U.S. dollars |
|
| Year ending March 31, | ||
|---|---|---|
| 2008 | ¥ 821 | $ 6,958 |
| 2009 and thereafter | 2,287 | 19,381 |
| Total | ¥3,108 | $26,339 |
15. Derivative Transactions
The Company and certain subsidiaries have entered into derivative transactions in order to manage certain risks
arising from adverse fluctuations in foreign currency exchange rates and interest rates.
The Company is exposed to credit risk in the event of nonperformance of the counterparties to its derivatives positions, but any such loss would not be material because the Company enters into such transactions only with financial institutions with high credit ratings.
Summarized below are the notional amounts and the estimated fair value of the derivative transactions outstanding at March 31, 2007 and 2006:
Currency-related transactions
| Millions of yen | Thousands of U.S. dollars | |||||
| As of March 31, 2007 | Notional amount |
Fair value | Unrealized gain (loss) |
Notional amount |
Fair value | Unrealized gain (loss) |
|---|---|---|---|---|---|---|
| Forward foreign exchange contracts | ||||||
| Buy: | ||||||
| US$ | ¥ 85 | ¥ 84 | ¥ (0) | $ 720 | $ 712 | $ (0) |
| STG£ | 93 | 92 | (0) | 788 | 780 | (0) |
| A$ | 51 | 51 | 0 | 432 | 432 | 0 |
| YEN | 1,320 | 1,299 | (21) | 11,186 | 11,008 | (178) |
| Total | ¥1,550 | ¥1,528 | ¥(22) | $13,136 | $12,949 | $(186) |
| Millions of yen | |||
| As of March 31, 2006 | Notional amount |
Fair value | Unrealized gain (loss) |
|---|---|---|---|
| Forward foreign exchange contracts | |||
| Buy: | |||
| US$ | ¥ 182 | ¥ 184 | ¥ 1 |
| STG£ | 18 | 18 | (0) |
| YEN | 1,589 | 1,576 | (13) |
| Total | ¥1,791 | ¥1,779 | ¥(11) |
The notional amounts of the forward foreign exchange contracts presented above exclude those entered into hedge receivables and payables denominated in foreign currencies, which have been translated and are reflected at their corresponding contracted rates in the accompanying consolidated balance sheets.
Interest-related transactions
At March 31, 2007 and 2006, the disclosure of fair value information for interest-related derivatives positions has been omitted since all derivatives have been accounted for as hedges.