q. Income Taxes —The provision for income taxes is computed based on the pretax income included in the consolidated state- ments of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the tempo- rary differences. 

r. Foreign Currency Transactions —All short-term and long-term monetary receivables and payables denominated in foreign curren- cies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to the extent that they are not hedged by forward exchange contracts. 

s. Foreign Currency Financial Statements —The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. 

Differences arising from such translation are shown as “Foreign currency translation adjustments” as a separate component of equity. Revenue and expense accounts of consolidated foreign subsid- iaries are translated into yen at the average exchange rate. 

t. Derivatives and Hedging Activities —The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange, interest rates and raw material prices. Foreign exchange forward contracts, interest rate swaps, currency options, currency swap transactions and commodity swap transactions are utilized by the Group to reduce foreign currency exchange, interest rate and raw material price 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, except those qualifying for hedge accounting, are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statements of operations and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of the 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 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 expense or income. Certain assets denominated in foreign currencies are translated at the con- tracted rates if the forward contracts qualify for hedge accounting. 

u. Per Share Information —Basic net income (loss) per share is computed by dividing net income (loss) available to common share- holders by the weighted-average number of common shares out- standing for the period, retroactively adjusted for stock splits. 

Diluted net income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. 

Cash dividends per share presented in the accompanying consolidated statements of operations are dividends applicable to the respective years including dividends to be paid after the end of the year. 

## v. New Accounting Pronouncements 

Business Combinations —In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, “Accounting Standard for Business Combina- tions.” Major accounting changes under the revised accounting standard are as follows: 

(1) The current accounting standard for business combinations allows companies to apply the pooling of interests method of accounting when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of- interests. The revised standard requires to account for such business combinations by the purchase method and the pooling of interests method of accounting is no longer allowed. 

(2) The current accounting standard accounts for research and development costs to be charged to income as incurred. Under the revised standard, in-process research and development (IPR&D) acquired by the business combination is capitalized as an intangible asset. 

(3) The current accounting standard accounts for a bargain pur- chase gain (negative goodwill) to be systematically amortized within 20 years. Under the revised standard, the acquirer recog- nizes a bargain purchase gain in profit or loss on the acquisition date after reassessing whether it has correctly identified all of the assets acquired and all of the liabilities assumed with a review of such procedures used. 

This standard is applicable to business combinations under- taken on or after April 1, 2010 with early adoption permitted for fiscal years beginning on or after April 1, 2009. 

Unification of Accounting Policies Applied to Foreign Associ- ated Companies for the Equity Method —The current accounting standard requires unification of accounting policies within the con- solidation group. However, the current guidance allows application of the equity method for the financial statements of its foreign asso- ciated company which have been prepared in accordance with generally accepted accounting principles in their respective jurisdic- tions without unification of accounting policies. 

In March 2008, the ASBJ issued ASBJ Statement No. 16, “Accounting Standard for Equity Method of Accounting for Invest- ments.” The new standard requires adjustments to be made to conform the associate’s accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate’s financial statements are used in applying the equity method unless it is impracticable to determine adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or the generally accepted account- ing principles in the United States, tentatively may be used in apply- ing the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (1) amortization of goodwill; (2) sched- uled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; (3) expensing capitalized develop- ment costs of R&D; (4) cancellation of the fair value model of accounting for property, plant and equipment and investment prop- erties and incorporation of the cost model of accounting; (5) 

