Epson 2007 Annual Report Download - page 77

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75
Annual Report 2007
The differences between Epson’s statutory income tax rate and the income tax rate reflected in the consoli-
dated statements of income were reconciled as follows:
Year ended March 31
2005 2006 2007
Statutory income tax rate 40.4% 40.4% 40.4%
Reconciliation:
Changes in valuation allowance (0.6) (95.8) 365.0
Unrecognized tax benefit for inter-company profit elimination — (20.1) 225.4
Impairment of goodwill — — (43.1)
Tax for the prior period — 4.4 (16.2)
Gain on change in interest due to business combination — 24.8 —
Tax credits (6.9) — —
Recognized tax benefit for inter-company profit elimination (3.6) — —
Entertainment expenses, etc. permanently non-tax deductible (0.1) — —
Other (2.2) 0.5 (64.5)
Income tax rate per statements of income 27.0% (45.8%) 507.0%
15. Research and development costs
Research and development costs, which are included in cost of sales and selling, general and administrative
expenses, totaled ¥89,042 million, ¥92,939 million and ¥84,690 million ($717,408 thousand) for the years ended
March 31, 2005, 2006 and 2007, respectively.
16. Reorganization costs
The reorganization costs for the year ended March 31, 2005 mainly comprised costs associated with revamping the
product mix accompanying a restructuring of the domestic display business.
The reorganization costs for the year ended March 31, 2006 mainly comprised a consolidation and integration
of production sites and a reorganization of production lines accompanying structural reforms.
The reorganization costs for the year ended March 31, 2007 mainly comprised impairment losses, which were
associated with certain business assets whose utility value declined as a result of structural reforms accompanying
strategic changes in the display business, and a reorganization of production sites.
17. Impairment losses
Epson’s business assets generally are grouped by business segment under the Company’s management account-
ing system, and their cash flows are continuously monitored. Idle assets are separately assessed for impairment on
the individual asset level. Impairment tests were performed for both types of assets. The net book value of a busi-
ness asset was reduced to its recoverable amount when there was substantial deterioration in the asset’s future
earning potential due to adverse changes in the marketplace resulting in lower product prices or due to change in
the utilization plan. The carrying value of idle assets is reduced to its recoverable amount when their net selling
prices are substantially lower than their carrying values.