Toshiba 2004 Annual Report Download - page 64

62
Thousands of U.S. dollars
Pre-tax Tax benefit Net-of-tax
amount (expense) amount
For the year ended March 31, 2004:
Unrealized gains on securities:
Unrealized holding gains arising during year $ 409,122 $ (165,255) $ 243,86 7
Less: reclassification adjustment for gains included
in net income (258,4 24) 1 20,113 (138,311)
Foreign currency translation adjustments:
Currency translation adjustments arising during year (189,0 56) 6,981 (182,075)
Less: reclassification adjustment for gains included
in net income (3,783 ) — (3,78 3)
Minimum pension liability adjustment 2,84 6,472 (1,235,283) 1,611,189
Unrealized gains on derivative instruments:
Unrealized gains arising during year 24,255 (10,358) 13,897
Less: reclassification adjustment for losses included
in net income 18,008 (7,311) 10,697
Other comprehensive income (loss) $2,8 46,594 $(1,291,113) $1,55 5,481
18. FINANCIAL INSTRUMENTS
> (1) DERIVATIVE FINANCIAL INSTRUMENTS The Company operates internationally, giving rise to exposure to
market risks from fluctuations in foreign currency exchange and interest rates. In the normal course of its risk
management efforts, the Company employs a variety of derivative financial instruments, which are comprised
principally of forward exchange contracts, interest rate swap agreements, currency swap agreements, and currency
options to reduce its exposures. The Company has policies and procedures for risk management and the approval,
reporting and monitoring of derivative financial instruments. The Company’s policies prohibit holding or issuing
derivative financial instruments for trading purposes.
The counterparties to the Company’s derivative transactions are financial institutions of high credit standing. The
Company does not anticipate any credit loss from nonperformance by the counterparties to forward exchange contracts,
interest rate swap agreements, currency swap agreements and currency options.
The Company has entered into forward exchange contracts with financial institutions as hedges against fluctuations
in foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies. The forward
exchange contracts related to accounts receivable and payable, and commitments on future trade transactions
denominated in foreign currencies, mature primarily within a few months of the balance sheet date.
Interest rate swap agreements, currency swap agreements, and currency options are used to limit the Company’s
exposure to losses in relation to underlying debt instruments and a certain foreign currency denominated accounts
receivable resulting from adverse fluctuations in foreign currency exchange and interest rates. These agreements
mature during the period 2004 to 2013.
Forward exchange contracts and certain interest rate swap agreements and currency swap agreements are
designated as either fair value hedges or cash flow hedges depending on the foreign currency denominated accounts
receivable or commitments on future trade transactions and the interest rate characteristics of the underlying debt as
discussed below.
Fair Value Hedge Strategy
The forward exchange contracts utilized by the Company effectively reduce fluctuation in fair value of accounts
receivable denominated in foreign currencies.
The interest rate swap agreements utilized by the Company effectively convert a portion of its fixed-rate debt to a
floating-rate basis.
Cash Flow Hedge Strategy
The forward exchange contracts utilized by the Company effectively reduce fluctuation in cash flow from commitments
on future trade transactions denominated in foreign currencies approximately for the next six months.
The interest rate swap agreements utilized by the Company effectively convert a portion of its floating-rate debt to a
fixed-rate basis for the next 10 years.
The Company expects to reclassify ¥1,465 million ($13,821 thousand) of net gains on derivative financial
instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months due to the