Annual Report Profile JAL Group Overview Consolidated Financial Highlights Consolidated Operating Highlights Message from the Group CEO Interview with the Group CEO Spreading New Wings of Trust Review of Operations Fundamental Policies and Actions Regarding Corporate Governance Management's Review and Analysis of Financial Position Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholder' Equity (Note8) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors Consolidated Subsidiaries JAL and Its Subsidiaries and Affiliates Directory JAL Group Route Network Board of Directors Investor Information

Notes to Consolidated Financial Statements

14. Derivatives and Hedging Activities

Certain consolidated subsidiaries utilize forward foreign exchange contracts, currency options, and currency swaps on a consistent basis to hedge certain foreign currency transactions related to foreign purchase commitments, principally for flight equipment and foreign accounts receivable and payable. The Company and its consolidated subsidiaries also utilize currency swaps, interest-rate swaps and interest-rate options to minimize the impact of foreign exchange and interest-rate movements related to their outstanding debt on their operating results. Certain consolidated subsidiaries also enter into a variety of swaps and options in their management of risk exposure related to the commodity prices of fuel.
  The Company and certain significant consolidated subsidiaries enter into these hedging transactions in accordance with the internal guidelines and strategies established by management. The routine operations of the department which is responsible for hedging transactions are examined by other departments. Gain and loss on hedging instruments and the assessment of hedge effectiveness, which is performed both at inception and on an ongoing basis, are reported at meetings of the related department managers on a timely basis. Certain other consolidated subsidiaries have adopted procedures for hedging transactions which are more simplified than those adopted by the Company.

---