Hitachi 2004 Annual Report Download - page 42

38 Hitachi, Ltd. Annual Report 2005
The Company’s standard software license agreement provides for a limited warranty that the license will operate
substantially in accordance with the functionality described in the documentation provided with the products. The standard
software license does not provide for right of return. The Company provides for warranty at the time of revenue recognition
using historical experience of warranty claims. To date such warranty provisions have been insignificant.
Service Revenues:
Service revenues from maintenance and distribution services are recognized upon completion of service delivery. Revenue
from time service contracts is recognized as services are rendered. Revenue from long-term fixed price service contracts
such as support or maintenance contracts is recognized ratably over the contractual period. Finance lease income is
recognized at level rates of return over the term of the leases. Operating lease income is recognized on a straight-line
basis over the term of the lease.
(p) Advertising
Advertising costs are expensed as incurred.
(q) Research and Development Costs
Research and development costs are expensed as incurred. Costs incurred in connection with the development of
software products for sale are accounted for in accordance with SFAS No. 86, “Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed.” Development costs incurred in the research and development
of new software products and enhancements to existing products are expensed as incurred until technological feasibility
has been established.
(r) Income Taxes
Deferred income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109,
“Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating losses and tax credit carryforwards. Under this method, deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are
established to reduce deferred tax assets to their net realizable value if it is more likely than not that some portion or all of
the deferred tax asset will not be realized.
(s) Sales of Stock by Subsidiaries
The change in the Company’s proportionate share of a subsidiary’s equity resulting from issuance of stock by the subsidiary
is accounted for as an income statement recognition.
(t) Net Income per Share
Net income per share is computed in accordance with SFAS No. 128, “Earnings per Share.” This standard requires a
dual presentation of basic and diluted net income per share amounts on the face of the statements of operations. Under
this standard, basic net income per share is computed based upon the weighted average number of shares of common
stock outstanding during each year. Diluted net income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company.