Hitachi 2006 Annual Report Download - page 44

Hitachi, Ltd. Annual Report 2007
42
(g) Securitizations
The Company and certain subsidiaries have a number of securitization programs. Under those programs, certain financial
assets such as lease receivables, trade receivables and others are sold to Special Purpose Entities (SPEs) which are
mainly funded through the issuance of asset-backed securities to investors. When a transfer of financial assets is eligible
to be accounted for as a sale under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” the carrying amount of the financial assets is allocated based on relative fair values to the
portions to be retained and sold. The Company and its subsidiaries recognize a gain or loss for the difference between
the net proceeds received and the allocated carrying amount of the assets sold when the transaction is consummated.
Initially recorded at allocated carrying amount in the period of securitizations, the amount of retained interests is
subsequently recorded at fair value as of the balance sheet date in the same manner for the available-for-sale securities.
Fair values are based on the present value of estimated future cash flows which take into consideration various factors
such as expected credit loss and others.
(h) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the specific identification method for job
order inventories and generally by the average cost method for raw materials and other inventories.
(i) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property, plant and equipment are principally depreciated by the declining-
balance method, except for some assets which are depreciated by the straight-line method, mainly over the following
estimated useful lives:
Buildings
Buildings and building equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 50 years
Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 to 60 years
Machinery and equipment
Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 13 years
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 7 years
Tools, furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 20 years
(j) Goodwill and Other Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually. The Company performs
its annual impairment test during the fourth quarter after the annual forecasting process is completed. Furthermore,
goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The Company has certain operating segments and, in identifying the reporting unit for the purpose of
testing goodwill for impairment, considers disaggregating that operating segment into economically dissimilar components
based on specific facts and circumstances, especially the level at which performance of the operating segment is reviewed,
how many businesses are included in the operating segment, and the economic similarity of those businesses. In assigning
goodwill to reporting units, the Company considers which reporting units are expected to benefit from the synergies of
the combination in a manner similar to how the amount of goodwill recognized in a business combination. Fair value is
estimated using the expected present value of future cash flows. Intangible assets with finite useful lives are amortized
over their respective estimated useful lives on either a straight-line basis or the method that reflects the pattern in which
the economic benefits of the intangible assets are consumed or otherwise used up. The principal estimated useful lives
are as follows:
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 to 8 years
Software for internal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 10 years
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 8 years
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 20 years