Bridgestone 2004 Annual Report Download - page 42

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Bridgestone Annual Report 2004
(r) Derivatives and hedging activities
The Companies use derivative financial instruments to manage their exposures to fluctuations in foreign currency exchange, interest
rates and commodity prices. Foreign currency forward contracts, currency swap contracts and currency option contracts are utilized by
the Companies to reduce foreign currency exchange risks. Interest rate swaps are utilized by the Companies to reduce interest rate
risks. Also, commodity future contracts are utilized by the Companies to reduce commodity price risks. The Companies do not enter
into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (i) all derivatives are recog-
nized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in income and (ii)
for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between
the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.
The Companies’ foreign currency forward contracts which are designated as hedging exposure to variable cash flows of forecasted
transactions are measured at the fair value and the unrealized gains/losses are deferred until the underlying transactions are completed.
Other foreign currency forward contracts, currency swap contracts and currency option contracts employed to hedge foreign currency
exchange exposures to changes in fair value and in cash flow are also measured at the fair value but the unrealized gains/losses are rec-
ognized in income. Short-term and long-term debt denominated in foreign currencies for which foreign currency forward contracts
and currency swap contracts are used to hedge the foreign currency fluctuations is translated at the contracted rate if the foreign cur-
rency forward contracts and currency swap contracts qualify for hedge accounting. The interest rate swaps which qualify for hedge
accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap
agreements is recognized and included in interest expenses or income. The gains or losses on commodity future contracts in a hedge to
fluctuations of commodity prices are recognized currently in income.
(s) Per share of common stock
Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of
common stock outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common
stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the
beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise
of outstanding warrants.
Cash dividends per share presented in the consolidated statements of income are dividends applicable to the respective years,
including dividends to be paid after the end of the year.
NOTE 4—INVENTORIES
Inventories at December 31, 2004 and 2003 consist of the following:
Thousands of
Millions of yen U.S. dollars
2004 2003 2004
Finished products ¥244,312 ¥236,179 $2,344,420
Work in process 25,626 22,928 245,907
Raw materials and supplies 103,482 90,448 993,014
Total ¥373,420 ¥349,555 $3,583,341
NOTE 5—INVESTMENTS IN SECURITIES
Information regarding each category of available-for-sale securities at December 31, 2004 and 2003 is as follows:
Millions of yen
2004
Cost Unrealized gains Unrealized losses Fair value
Securities classified as:
Available-for-sale:
Equity securities ¥46,662 ¥158,576 ¥(47) ¥205,191
Debt securities 3,000 36 —3,036