Omron 2005 Annual Report Download - page 55

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the decline in fair value.
Other investments are stated at the lower of cost or estimat-
ed net realizable value. The cost of securities sold is determined
on the average cost basis.
Inventories
Inventories are stated at the lower of cost, determined by the
first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation of
property, plant and equipment has been computed principally on
a declining balance method based upon the estimated useful
lives of the assets. The estimated useful lives primarily range
from 3 to 50 years for buildings and from 2 to 15 years for
machinery and equipment.
Goodwill and Other Intangible Assets
The Company accounts for its goodwill and other intangible assets
in accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets,” which requires that goodwill no longer be amortized, but
instead tested for impairment at least annually. SFAS No. 142 also
requires recognized intangible assets be amortized over their
respective estimated useful lives and reviewed for impairment.
Any recognized intangible asset determined to have an indefinite
useful life is not to be amortized, but instead tested for impair-
ment until its life is determined to no longer be indefinite.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying
amount of an asset to undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the
fair value. Assets to be disposed of other than by sale are consid-
ered held and used until disposed of. Assets to be disposed of by
sale are reported at the lower of the carrying amount or fair value
less costs to sell.
Advertising Costs
Advertising costs are charged to earnings as incurred. Advertising
expense was ¥8,718 million ($81,477 thousand), ¥8,391 million
and ¥7,196 million for the years ended March 31, 2005, 2004 and
2003, respectively.
Shipping and Handling Charges
Shipping and handling charges were ¥7,720 million ($72,150
thousand), ¥8,061 million and ¥7,300 million for the years ended
March 31, 2005, 2004 and 2003, respectively, and are included in
selling, general and administrative expenses in the consolidated
statements of operations.
Termination and Retirement Benefits
Termination and retirement benefits are accounted for in accor-
dance with SFAS No. 87, “Employers’ Accounting for Pensions”
and are disclosed in accordance with SFAS No. 132 (revised
2003), “Employers’ Disclosures about Pensions and Other
Postretirement Benefits.” The provision for termination and retire-
ment benefits includes amounts for directors and corporate audi-
tors of the Company.
Income Taxes
Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabili-
ties and their financial reporting amounts. Future tax benefits,
such as net operating loss carryforwards and tax credit carryfor-
wards, are recognized to the extent that such benefits are more
likely than not to be realized. 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.
Product Warranties
A liability for the estimated warranty related cost is established
at the time revenue is recognized and is included in other cur-
rent liabilities. The liability is established using historical infor-
mation including the nature, frequency, and average cost of
warranty claims.
Derivatives
Derivative instruments and hedging activities are accounted for in
accordance with SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” SFAS No. 138, “Accounting
for Certain Derivative Instruments and Certain Hedging Activities,
an amendment of FASB Statement No. 133,” and SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” These standards establish accounting and
reporting standards for derivative instruments and for hedging
activities, and require that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value.
For foreign exchange forward contracts and foreign currency
options, on the date the derivative contract is entered into, the
Companies designate the derivative as a hedge of a forecasted
transaction or the variability of cash flows to be received or paid
related to a recognized asset or liability (“cash flow” hedge or “for-