JVC 2005 Annual Report Download - page 48

46 Victor Company of Japan, Limited
● Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is
computed primarily by the declining-balance method based on the
estimated useful lives of the assets. Certain consolidated overseas
subsidiaries use the straight-line method.
The ranges of useful lives for computing depreciation are gener-
ally as follows:
Buildings 20 to 50 years
Machinery and equipment 3 to 7 years
● Finance leases
Finance leases, except those leases for which the ownership of the
leased assets is considered to be transferred to the lessee, are
accounted for in the same manner as operating leases.
● Research and development
Research and development expenditures for new products or sig-
nificant improvement of existing products are charged to income
as incurred.
● Income taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and net operat-
ing loss carried forward and foreign tax credit carryforwards.
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 set-
tled. 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.
● Employees’ severance and retirement benefits
The Company and some domestic subsidiaries has funded pen-
sion plans and unfunded benefit plans to provide retirement bene-
fits for substantially all employees.
Upon retirement or termination of employment for reasons other
than dismissal for cause, eligible employees are entitled to lump-
sum and/or annuity payments based on the current rates of their
salary and length of service.
The liabilities and expenses for severance and retirement bene-
fits are determined based on the amounts actuarially calculated
using certain assumptions.
The Company provided allowance for employees’ severance
and retirement benefits as of the balance sheet dates based on the
estimated amounts of projected benefit obligation and the fair value
of plan assets at those dates.
The excess of the projected benefit obligation over the total of the
fair value of plan assets as of April 1, 2000 and the liabilities for sev-
erance and retirement benefits recorded as of April 1, 2000 (the “net
transition obligation”) is recognized in expenses in equal amounts
primarily over 15 years commencing with the year ended March 31,
2001.
Prior service costs are recognized in income or expenses using
the straight-line method over 10 years, and actuarial gains and
losses are recognized in expenses using the straight-line method
over 10 years commencing with the succeeding period.
● Amounts per share of common stock
The computation of net income per share is based on the weighted
average number of shares of common stock outstanding during
each year.
Diluted net income per share assumes dilution that could occur
if convertible bonds or similar securities were converted into com-
mon stock resulting in the issuance of common stock. As the
Companies reported net losses for the year ended March 31,
2005, inclusion of potential common shares would have an antidi-
lutive effect on per share amounts.
Cash dividends per share represent the actual amount declared
as applicable to the respective years.
● Reclassifications
Certain prior year amounts have been reclassified to conform to
the 2005 presentation. These changes had no impact on previous-
ly reported results of operations or stockholders’ equity.
3CHANGE IN ACCOUNTING METHOD
The Company changed the method of accounting for royalty
income and related expenses. Under the former method, the net
amount of the two items was included in the statements of opera-
tions as royalty income-net, under other income (expenses).
Effective April 1, 2002, royalty income is included in net sales, and
the related expenses are included in selling, general and adminis-
trative expenses.
This change reflects the recognition that royalty income is direct-
ly attributable to the Company’s principal operating activities, in
light of the increasing number of technological alliances with part-
ners both in Japan and overseas, and their growing strategic sig-
nificance. Therefore, royalty income and the related expenses will
be disclosed more appropriately under the new presentation
method. As a result of the change, for the year ended March 31,
2003, net sales, selling, general and administrative expenses and
operating income increased by ¥7,356 million, ¥4,066 million, and
¥3,290 million, respectively, and other income decreased by
¥3,290 million compared with what would have been reported
under the former accounting policies. Income before income taxes
and minority interests was unaffected by this change.
Details of the impact on segment information are described in
Note 14.
4RELATIONSHIP WITH MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
The Company is a subsidiary of Matsushita Electric Industrial Co.,
Ltd. (“Matsushita”). At March 31, 2005, Matsushita held 133,227
thousand shares of common stock of the Company, 52.40% of the
total outstanding shares.
Transactions between the Company and Matsushita for the
years ended March 31, 2005, 2004 and 2003, and the account
balances between the two companies at March 31, 2005 and
2004 are not material.