Omron 2002 Annual Report Download - page 35

Other investments are stated at the lower of cost or estimated net realizable value. The cost of securities sold is deter-
mined on the average cost basis.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation of property, plant and equipment has been computed
principally on a declining balance method based upon the estimated useful lives of the assets. The estimated useful
lives primarily range from 3 to 50 years for buildings and from 2 to 15 years for machinery and equipment.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undis-
counted and without interest charges) expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Advertising Costs
Advertising costs are charged to earnings as incurred. Advertising expense was ¥7,931 million ($59,632 thou-
sand), ¥8,796 million and ¥8,428 million for the years ended March 31, 2002, 2001 and 2000, respectively.
Termination and Retirement Benefits
Termination and retirement benefits are accounted for in accordance with SFAS No. 87, “Employers’ Accounting
for Pensions” and are disclosed in accordance with SFAS No. 132, “Employers’ Disclosures about Pensions and
Other Postretirement Benefits.” The provision for termination and retirement benefits includes those for directors
and corporate auditors of the Company.
Income Taxes
Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts. Future tax benefits, such as net operating loss carryfor-
wards and tax credit carryforwards, are recognized to the extent that such benefits are more likely than not to be
realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the peri-
od that includes the enactment date.
Derivatives
On April 1, 2001 the Companies adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging
Activities” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an
amendment of FASB Statement No. 133.” Both standards establish accounting and reporting standards for deriva-
tive instruments and for hedging activities, and require that an entity recognize all derivatives as either assets or lia-
bilities in the balance sheet and measure those instruments at fair value.
For foreign exchange forward contracts and foreign currency options, on that date the derivative contract is
entered into, the Companies designate the derivative as a hedge of a forecasted transaction or the variability of
cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge or “foreign currency”
hedge). The Companies formally document all relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedge transactions. This process
includes linking all derivatives that are designated as cash flow or foreign currency hedges to specific assets and
liabilities on the consolidated balance sheet or to specific firm commitments or forecasted transactions. Based on
the Company policy, all foreign exchange forward contracts and foreign currency options entered into must be
highly effective in offsetting changes in cash flows of hedged items.
Changes in fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow or
foreign currency hedge are recorded in other comprehensive income (loss), until earnings are affected by the vari-
ability in cash flows of the designated hedged item.
The cumulative effect adjustment upon the adoption of SFAS No. 133 and No. 138, net of the related income tax
effect resulted in a decrease to net loss of approximately ¥384 million ($2,887 thousand).
Prior to the adoption of SFAS No. 133 and No. 138, derivative financial instruments that were designated and
effective as hedges of forecasted transactions for which there was no firm commitment were marked to market,
and gains and losses on such derivatives were recorded in Foreign exchange loss, as were the offsetting foreign
exchange losses and gains on the hedged items. Gains and losses on the derivative financial instruments that were
Omron Corporation 33