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In addition, directors of the Company and certain consolidated subsidiaries are customarily entitled to lump-sum payments under the unfunded retirement benefits plans. The provision for retirement benefits for these officers has been made at estimated amounts. On April 1, 2004, the Company changed its rules for tax-qualified pension plans and lump-sum payment plans. As a result, unrecognized prior year service cost to reduce the retirement benefit obligation was incurred. The unrecognized prior year service cost is being amortized by the straight-line method over a period (14 years) which is shorter than the average remaining years of service of the eligible employees. On April 1, 2005, one consolidated subsidiary changed its rules for tax-qualified pension plans and lump-sum payment plans. As a result, unrecognized prior year service cost to reduce the retirement benefit obligation was incurred. The unrecognized prior year service cost is being amortized by the straight-line method over a period (5 years) which is shorter than the average remaining years of service of the eligible employees. On July 1, 2010, the Company transferred its tax-qualified pension plans to a defined benefit plan and a defined contribution plan. As a result, a gain of \240 million (U.S.$2,946 thousand) was recognized in other income for the year ended December 31, 2010. On October 1, 2010, one consolidated subsidiary changed its rules for tax-qualified pension plans and lump-sum payment plans. As a result, an unrecognized prior year service cost to reduce the retirement benefit obligation was incurred. The unrecognized prior year service cost is being amortized by the straight-line method over a period (15 years) which is shorter than the average remaining years of service of the eligible employees. Effective from the year commencing January 1, 2010, the Company and its domestic consolidated subsidiaries adopted the “Partial Amendments to Accounting Standard for Retirement Benefits (Part3)” (Accounting Standards Board of Japan (ASBJ) Statement No.19, July 31, 2008). The effect of this change on operating income and income before income taxes and minority interests was immaterial for the year ended December 31, 2010. (l) Derivative financial instruments The Company has entered into various contracts of derivative financial instruments in order to manage certain risks arising from adverse fluctuations in interest rates. Derivative financial instruments are carried at fair value with any changes in unrealized gain or loss charged or credited to income, unless when those which meet certain hedging criteria for special accounting treatment under which any differences paid or received on the interest rate swaps are recognized as adjustments to interest expense over the life of such swaps, thereby adjusting the effective interest rate on the hedged items, which are the underlying borrowings. (m) Appropriation of retained earnings Under Corporation Law of Japan, the appropriation of retained earnings with respect to a given financial year is made by resolution of the shareholders at a general meeting to be held subsequent to the close of such financial year. The accounts for that year do not, therefore, reflect such appropriations. (n) Accounting standard for construction contracts The Company and its domestic subsidiaries previously applied the completed contract method to construction works. Effective from the year commencing January 1, 2010, the Company and its domestic subsidiaries adopted the “Accounting Standard for Construction Contracts” (ASBJ Statement No.15, December 27, 2007) and “Guidance on Accounting Standard for Construction Contracts” (ASBJ Guidance No.18, December 27, 2007). Accordingly, starting with orders received during the current fiscal year, the Company began applying the percentage of completion method to contracts for which completion can be reliably estimated based on the progress made up to the end of the current fiscal year (degree of progress is estimated using the cost output method). The completed contract method continues to be applied to all other construction works. This change had no impact on net income for the year ended December 31, 2010. 3. U.S. Dollar Amounts The translation of yen amounts into U.S. dollar amounts is made at \81.49 = U.S.$1.00, the approximate exchange rate at December 31, 2010, and included solely for convenience. The translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate. 4. Inventories Inventories at December 31, 2010 and 2009 were as follows: Millions of yen Thousands of U.S. dollars 2010 2009 2010 Merchandise and finished products.... \10,380 \10,537 $127,378 Work in process............................................. 461 591 5,658 Raw materials and supplies.................... 4,869 4,734 59,753 \15,710 \15,862 $192,789 5. Property, Plant and Equipment Property, plant and equipment at December 31, 2010 and 2009 were summarized as follows: Millions of yen Thousands of U.S. dollars 2010 2009 2010 Land...................................................................... \16,859 \18,050 $206,885 Buildings and structures.......................... 19,230 18,891 235,986 Machinery, equipment and other...... 19,933 21,756 244,615 Construction in progress......................... 4,259 1,358 52,268 Leased assets................................................... 248 216 3,045 \60,530 \60,273 $742,801 6. Impairment Loss on Property, Plant and Equipment The Company and its consolidated subsidiaries have recognized impairment losses on the following classes of assets for the years ended December 31, 2010 and 2009: 2010 Location Major use Category Millions of yen Thousands of U.S. dollars Ryugasaki city, Ibaraki Company housing Land and Buildings \ 776 $ 9,526 Tsukuba city, Ibaraki Facilities for manufacturing adhesion bond Land and Buildings 731 8,976 Tokushima city, Tokushima Facilities for manufacturing caustic soda and inorganic chloride Buildings, machinery and equipment 622 7,644 Minato-ku, Nagoya city Laboratory Buildings, machinery and equipment 155 1,909 Takatsuki city, Osaka Idle Buildings, machinery and equipment 132 1,631 Total................................................................................................................ \2,419 $29,688 2009 Location Major use Category Millions of yen Tokushima city, Tokushima Facilities for manufacturing chlorinated organic solvents Buildings, machinery and equipment \1,846 Nagoya city Laboratory Buildings, machinery and equipment 443 Nagoya city and other Company housing Buildings and structures 143 Nagoya city Synthetic resin molded products Tools and long-term prepaid expenses 52 Total................................................................................................................ \2,486 Toagosei Co., Ltd. 33