Epson 2010 Annual Report Download - page 50

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Share exchange ratio and calculation method
Exchange ratio: One share of the Company’s common stock for 0.21 share of Epson Toyocom common stock
The above share exchange ratio was calculated after Epson Toyocom selected PwC Advisory Co., Ltd. as
third-party consultants, and the Company engaged Merrill Lynch Japan Securities Co., Ltd. from the tender offer
stage as financial advisors. The ratio was determined after careful deliberations and close consultations among
the various parties.
Details of the number and value of shares exchanged are as follows:
Number of shares exchanged: 3,452,797
Value of shares exchanged: ¥4,820 million ($51,805 thousand)
Goodwill generated
Value of goodwill generated: ¥4,140 million ($44,496 thousand)
The Company recognizes the difference between the acquisition cost of the outstanding Epson Toyocom shares
and the decrease in minority interests as goodwill. Goodwill is amortized over five years using the straight-line
method.
Accounting for this transaction was based on the “Accounting Standard for Business Combinations” issued by
the Business Accounting Council on October 31, 2003 and on the “Guidance on Accounting Standard for
Business Combinations and Accounting Standard for Business Divestitures” issued by the Accounting Standards
Board of Japan (“ASBJ”) on November 15, 2007.
4. Summary of significant accounting policies
(1) Consolidation and investments in affiliates
The accompanying consolidated financial statements include the accounts of the Company and those of its
subsidiaries that are controlled by Epson. Under the effective control approach, all majority-owned companies
are to be consolidated. Additionally, companies in which share ownership equals 50% or less may be required to
be consolidated in cases where such companies are effectively controlled by other companies through the
interests held by a party who has a close relationship with the parent in accordance with Japanese accounting
standards. All significant inter-company transactions and accounts, along with unrealized inter-company profits,
are eliminated upon consolidation.
Investments in affiliates in which Epson has significant influence are accounted for using the equity method.
Consolidated income includes Epson’s current equity in net income or loss of affiliates after elimination of
significant unrealized inter-company profits.
The difference between the cost and the underlying net assets of investments in subsidiaries is recognized as
“goodwill” and is included in the intangible assets account (if the cost is in excess) or in the noncurrent liabilities
account (if the underlying net asset is in excess). Goodwill is amortized on a straight-line basis over a period of
five years.
(2) Foreign currency translation and transactions
Foreign currency transactions are translated using foreign exchange rates prevailing at the respective transaction
dates. Receivables and payables in foreign currencies are translated at the foreign exchange rates prevailing at
the respective balance sheet dates, and the resulting transaction gains or losses are included in income for the
current period.
All the assets and liabilities of foreign subsidiaries and affiliates are translated at the foreign exchange rates
prevailing at the respective balance sheet dates, and all the income and expense accounts are translated at the