Toshiba 2003 Annual Report Download - page 43

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TOSHIBA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue from development of custom software products is recognized when the software products have been deliv-
ered and accepted by the customer.
Revenue related to equipment that requires installation is recognized upon the completion of the installation of the
equipment.
Revenue under long-term contracts is recorded under the percentage of completion method. To measure the extent
of progress toward completion, the Company generally compares the costs incurred to date to estimated total costs
to complete based upon the most recent available information.
Revenues from the sale of equipment under sales-type leases are recognized at the inception of the lease.
Interest on sales-type leases and direct financing leases is recognized to produce a constant periodic rate of return
on the net investment in the lease. Leases not qualifying as sales-type lease or direct financing lease are accounted
for as operating leases and related revenues are recognized over the lease term.
Shipping and Handling Costs
The Company includes shipping and handling costs which totaled ¥88,760 million ($739,667 thousand) and ¥88,332 mil-
lion for the years ended March 31, 2003 and 2002, respectively in selling, general and administrative expenses.
Derivative Financial Instruments
The Company uses a variety of derivative financial instruments, which include forward exchange contracts,
interest rate swap agreements, currency swap agreements, and currency options for the purpose of currency
exchange rate and interest rate risk management. Refer to Note 18 for descriptions of these financial instruments.
The Company recognizes all derivative financial instruments, such as forward exchange contracts, interest rate swap
agreements, currency swap agreements, and currency options in the consolidated financial statements at fair value
regardless of the purpose or intent for holding the derivative financial instruments. Changes in the fair value of deriv-
ative financial instruments are either recognized periodically in income or in shareholders’ equity as a component
of other comprehensive income (loss) depending on whether the derivative financial instruments qualify for
hedge accounting, and if so, whether they qualify as a fair value hedge or a cash flow hedge. Changes in fair value
of derivative financial instruments accounted for as fair value hedges are recorded in income along with the por-
tion of the change in the fair value of the hedged item that relates to the hedged risk. Changes in fair value of deriv-
ative financial instruments accounted for as cash flow hedges, to the extent they are effective as a hedge, are
recorded in other comprehensive income (loss), net of tax. Changes in the fair value of derivative financial
instruments not qualifying as a hedge are reported in income.
Sales of Receivables
The Company enters into transactions to sell certain trade accounts receivable, trade notes receivable and
finance receivables. The Company may retain certain interests in these transactions. Gain or loss on the sale of
receivables is computed based on the allocated carrying amount of the receivables sold. Retained interests are
recorded at the allocated carrying value of the assets based on their relative fair values at the date of sale. The
Company estimates fair value based on the present value of future expected cash flows less credit losses.
Guarantees
Effective January 1, 2003, the Company adopted the Financial Accounting Statements Board (“FASB”) Interpreta-
tion No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees. FIN 45 requires a com-
pany to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in
issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have
a material impact on the Company’s financial position and results of operations.
Recent Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which is effective for
fiscal years beginning after June 15, 2002. The Statement requires legal obligations associated with the retirement
of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recog-
nition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to
expense over the useful life of the asset. The Company will adopt SFAS No.143 on April 1, 2003. The Company is
currently evaluating the impact of adoption of SFAS No. 143 on the Company’s financial position and the
results of operations.
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, which
addresses consolidation by business enterprises of variable interest entities (“VIEs”) that either: (1) do not have a suf-
ficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial
support, or (2) the equity investors lack an essential characteristic of a controlling financial interest. FIN 46
requires disclosure of VIEs in financial statements initially issued after January 31, 2003, if it is reasonably possible
that as of the transition date: (1) the company will be the primary beneficiary of an existing VIE that will require con-
solidation or, (2) the company will hold a significant variable interest in an existing VIE. Pursuant to the transitional
requirements of FIN 46, such disclosures are provided in Note 20. Any VIEs created after January 31, 2003 are imme-
diately subject to the consolidation guidance in FIN 46. The Company will adopt the consolidation guidance
applicable to existing VIEs in the interim reporting period ending September 30, 2003. In accordance with FIN 46,
the Company is currently reviewing the existing VIEs to determine if consolidation is required.
Reclassifications
Certain reclassifications to the prior year’s consolidated financial statements and related footnote amounts
have been made to conform to the presentation for the current year.
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