Hitachi 2006 Annual Report Download - page 43

Hitachi, Ltd. Annual Report 2007 41
(e) Foreign Currency Translation
Foreign currency financial statements have been translated in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, “Foreign Currency Translation.” Under this standard, the assets and liabilities of the Company’s
subsidiaries located outside Japan are translated into Japanese yen at the rates of exchange in effect at the balance
sheet date. Income and expense items are translated at the average exchange rates prevailing during the year. Gains
and losses resulting from foreign currency transactions are included in other income (deductions), and those resulting
from translation of financial statements are excluded from the consolidated statements of operations and are accumulated
and included in accumulated other comprehensive loss as part of stockholders’ equity.
(f) Investments in Securities and Affiliated Companies
Equity securities that do not have readily determinable fair values, except for equity-method investments, are accounted
for under the cost method. The Company classifies investments in equity securities that have readily determinable fair
values and all investments in debt securities in three categories: held-to-maturity securities, trading securities and available-
for-sale securities.
Held-to-maturity securities are debt securities that the Company has the positive intent and ability to hold to maturity.
Trading securities are debt and equity securities that are bought and held principally for the purpose of selling them in the
near term. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities
or trading securities.
Held-to-maturity securities are reported at amortized cost. Trading securities are reported at fair value, with unrealized
gains and losses included in earnings. Available-for-sale securities are reported at fair value, with unrealized gains and
losses reported in other comprehensive income.
A decline in fair value of any available-for-sale, held-to-maturity security or cost-method investment below the cost basis
or the amortized cost basis that is deemed to be other-than-temporary results in a write-down of the cost basis or the
amortized cost basis to fair value as a new cost basis and the amount of the write-down is included in earnings. On a
continuous basis, but no less frequently than at the end of each semi-annual period, the Company evaluates an available-
for-sale security, a held-to-maturity security and a cost-method investment for possible impairment. Fair value is determined
based on quoted market prices, projected discounted cash flows or other valuation techniques as appropriate. For certain
cost-method investments for which it is not practicable to estimate the fair value, if an event or change in circumstances
has occurred that may have significant adverse effect on the fair value of the investment, the Company estimates the fair
value of the investments. Factors considered in determining whether an impairment of available-for-sale security or cost-
method investment is other-than-temporary include: the length of time and extent to which the fair value of the investment
has been less than cost, the financial condition and near-term prospect of the issuer, and the intent and ability to retain
the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Factors
considered in assessing whether an impairment of a held-to-maturity security is other-than-temporary include the financial
condition, business prospects and credit worthiness of the issuer.
On a continuous basis, but no less frequently than at the end of each semi-annual period, the Company evaluates the
carrying amount of its ownership interests in equity-method investees for possible impairment. Factors considered in
assessing whether an indication of other-than-temporary impairment exists include the achievement of business plan
objectives and milestones including cash flow projections and the results of planned financing activities, the financial
condition and prospects of each investee company, the fair value of the ownership interest relative to the carrying amount
of the investment, the period of time during which the fair value of the ownership interest has been below the carrying
amount of the investment and other relevant factors. Impairment to be recognized is measured based on the amount by
which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined based on
quoted market prices, projected discounted cash flows or other valuation techniques as appropriate.
The cost of a security sold or the amount reclassified out of accumulated other comprehensive income into earnings is
determined by the average cost method.