Nikon 2006 Annual Report Download - page 37

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Differences arising from such translation are shown as, “Foreign currency translation adjustments,” in a separate component of
Shareholders’ equity.
(p) Derivatives and Hedging Activities
The Group enters into derivative financial instruments (“derivatives”), including contracts of foreign exchange forward, currency option, foreign
currency swap and interest rate swap to hedge foreign exchange risk and interest rate exposures. The Group does not hold or issue derivatives
for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives are
recognized principally as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized
in the statements of income and (b) for derivatives used for hedging purpose, 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 foreign exchange forward contracts and currency option contracts employed to hedge foreign exchange exposures for export sales
and purchases are measured at fair value and the related unrealized gains or losses are recognized in income. Forward contracts entered into
for forecasted transactions are also measured at fair value, but the unrealized gains or losses on qualifying hedges are deferred until the under-
lying transactions are completed. The foreign currency swaps used to hedge the foreign currency fluctuations of long-term debt denominated
in foreign currencies are measured at fair value and the unrealized gains or losses are included in the carrying amounts of the debt. The
interest rate swaps which qualify for hedge accounting are measured at market value at the balance sheet date, and the unrealized gains or
losses are deferred until maturity as other liability or asset. 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 are recognized and
included in interest expenses or income.
(q) Per Share Information
Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of
common shares 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 accompanying consolidated statements of income are dividends applicable to the respective
years including dividends to be paid after the end of the year.
(r) New Accounting Pronouncements
Business Combination and Business Separation
In October 2003, the Business Accounting Council (BAC) issued a Statement of Opinion, “Accounting for Business Combinations,” and on
December 27, 2005, the Accounting Standards Board of Japan (ASBJ) issued, “Accounting Standard for Business Separations,” and ASBJ
Guidance No.10, “Guidance for Accounting Standard for Business Combinations and Business Separation.” These new accounting pronounce-
ments are effective for fiscal years beginning on or after April 1, 2006.
The accounting standard for business combinations allows companies to apply the pooling of interests method of accounting only when
certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests.
These specific criteria are as follows:
(a) the consideration for the business combination consists solely of common shares with voting rights,
(b) the ratio of voting rights of each predecessor shareholder group after the business combination is nearly equal, and
(c) there are no other factors that would indicate any control exerted by any shareholder group other than voting rights.
For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acquisition
and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of entities under common
control and for joint ventures. Goodwill, including negative goodwill, is to be systematically amortized over 20 years or less, but is also subject
to an impairment test.
Under the accounting standard for business separations, in a business separation where the interests of the investor no longer continue
and the investment is settled, the difference between the fair value of the consideration received for the transferred business and the book
value of net assets transferred to the separated business is recognized as a gain or loss on business separation in the statement of income.
In a business separation where the interests of the investor continue and the investment is not settled, no such gain or loss on business
separation is recognized.
Stock options
On December 27, 2005, the ASBJ issued, “Accounting Standard for Stock Options” and related guidance. The new standard and guidance are
applicable to stock options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensation expense for employee stock options based on the fair value at the date of
grant and over the vesting period as consideration for receiving goods or services. The standard also requires companies to account for stock