Pentax 2006 Annual Report Download - page 56

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n. Derivatives and Hedging Activities—The Group uses deriva-
tive financial instruments to manage its exposures to fluctuations
in foreign currency exchange rates. Foreign exchange forward
contracts are utilized by the Group to reduce foreign currency
exchange risks. The Group does not enter into derivatives for
trading or speculative purposes.
Derivative financial instruments and foreign currency transac-
tions are classified and accounted for as follows: (a) all derivatives
are recognized 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 hedg-
ing purposes, if derivatives qualify for hedge accounting because of
high correlation and effectiveness between the hedging instru-
ments and the hedged items, gains or losses on derivatives are
deferred until maturity of the hedged transactions.
The foreign exchange forward contracts employed to hedge
foreign currency exchange rate exposures for export sales are
measured at the fair value and the unrealized gains/losses are
recognized in income. Forward contracts applied for forecasted
(or committed) transactions are also measured at the fair value
but the unrealized gains/losses are deferred until the underlying
transactions are completed.
o. Per Share Information—Basic net income per share is
computed by dividing net income available to common share-
holders 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 the outstanding stock options were exercised into
common stock. Diluted net income per share of common stock
assumes full exercise of the outstanding stock options at the
beginning of the year (or at the time of grant).
Cash dividends per share presented in the accompanying con-
solidated statements of income are dividends applicable to the
respective years including dividends to be paid after the end of
the year.
p. Reclassifications—Certain reclassifications have been made for
the 2005 and 2004 consolidated financial statements to conform
to the classifications used in 2006. These changes had no impact
on previously reported results of operations or cash flows or
shareholders’ equity.