Hitachi 2006 Annual Report Download - page 48

Hitachi, Ltd. Annual Report 2007
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(v) Stock-Based Compensation
The Company and certain subsidiaries have stock-based compensation plans. Effective April 1, 2006, the Company
adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), “Share-Based Payment,” which is a revision
of SFAS No. 123, “Accounting for Stock-Based Compensation.” This statement requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the income statement based on their fair
values. In adopting this statement, the Company applied the modified-prospective-transition method, accordingly, results
for prior periods have not been restated. Adoption of this statement had no material effect on the consolidated results of
operations of the Company and subsidiaries, and their cash flows for the year ended March 31, 2007.
Prior to April 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of
Accounting Principle Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.
For the years ended March 31, 2006 and 2005, the Company recognized no material stock-based compensation expense.
SFAS No. 123 prescribed the recognition of compensation expense based on the fair value of options on the grant date and
allowed continuous application of APB No. 25 if certain pro forma disclosures were made assuming hypothetical fair value
method application. The Company elected to continue applying APB No. 25, however, the pro forma effects of applying
SFAS No. 123 on net income and the per share information for the years ended March 31, 2006 and 2005 are as follows:
Millions of yen
2006 2005
Net income — as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥37,320 ¥51,496
Stock-based compensation expense included in reported net income . . . . . . . . . . . . . 214 215
Stock-based compensation expense determined under SFAS No. 123 . . . . . . . . . . . . (440) (459)
Net income — pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥37,094 ¥51,252
Net income per share: Yen
Basic — as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥11.20 ¥15.53
Basic — pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.14 15.45
Diluted — as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.84 15.15
Diluted — pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.78 15.08
(w) Disclosures about Segments of an Enterprise and Related Information
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the
manner in which a public business enterprise is required to report financial and descriptive information about its operating
segments. This standard defines operating segments as components of an enterprise for which separate financial
information is available and evaluated regularly as a means for assessing segment performance and allocating resources
to segments. A measure of profit or loss, total assets and other related information is required to be disclosed for each
operating segment. Further, this standard requires the disclosure of information concerning revenues derived from the
enterprise’s products or services, countries in which it earns revenue or holds assets and major customers. However,
certain foreign issuers are presently exempted from the segment disclosure requirements of SFAS No. 131 in filings with
the United States Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, and the Company
has not presented the segment information required to be disclosed in the footnotes to the consolidated financial statements
under SFAS No. 131.
(x) Guarantees
The Company recognizes, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee for guarantees issued or modified after December 31, 2002, in accordance with the FASB
Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others, an interpretation of SFAS No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.”