Omron 2007 Annual Report Download - page 61

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Income Taxes
Deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabil-
ities 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.
The Company and certain domestic subsidiaries compute
current income taxes based on the consolidated taxable income
as permitted by Japanese tax regulations for the year beginning
after April 1, 2006.
Product Warranties
A liability for the estimated warranty related cost is established
at the time revenue is recognized and is included in other
current liabilities. The liability is established using historical
information 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
“foreign currency” hedge). The Companies formally document all
relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for under-
taking various hedge transactions. This process includes linking
all derivatives that are designated as cash flow or foreign cur-
rency hedges to specific assets and liabilities on the consolidat-
ed balance sheet or to specific firm commitments or forecasted
transactions. Based on the Companies’ policy, all foreign
exchange forward contracts and foreign currency options entered
into must be highly effective in offsetting changes in cash flows
of hedged items.
Changes in fair value of a derivative that is highly effective and
that is designated and qualifies as a cash flow or foreign curren-
cy hedge are recorded in other comprehensive income (loss),
until earnings are affected by the variability in cash flows of the
designated hedged item.
Cash Dividends
Cash dividends are reflected in the consolidated financial state-
ments at proposed amounts in the year to which they are appli-
cable, even though payment is not approved by shareholders
until the annual general meeting of shareholders held early in
the following fiscal year. Resulting dividends payable are includ-
ed in Other current liabilities in the consolidated balance sheets.
Revenue Recognition
The Companies recognize revenue when persuasive evidence
of an arrangement exists, delivery has occurred and title and risk
of loss has transferred, the sales price is fixed or determinable,
and collectibility is probable. These criteria are met when products
are received by customers or services are performed.
Stock-Based Compensation
The Companies applied revised SFAS No. 123, “Share Based
Payment,” and recognized a stock-based compensation cost
measured by the fair value method. For the years ended March
31, 2006 and 2005, the Companies applied APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and recognized a
stock-based compensation cost measured by the intrinsic value
method. The following table illustrates the effect on net income
and net income per share if the Companies had applied the fair
value method to stock-based compensation cost.
2006 2005
Net income as reported
Deduct:
Total stock-based employee compensation expense determined under fair value
based method for all awards
Pro forma net income
Net income per share (yen)
Basic - as reported
Basic - pro forma
Diluted - as reported
Diluted - pro forma
¥35,763
73
¥35,690
¥151.1
150.8
151.1
150.7
¥30,176
101
¥30,075
¥126.5
126.1
124.8
124.3
Millions of yen
(except per share data)