Annual Report 2003 2004

Long-lived asset impairment (including definite-lived
intangible assets)
The carrying values of long-lived assets such as property, plant and
equipment, and purchased intangibles subject to amortization are
reviewed for possible impairment whenever events or changes in
circumstance indicate that the carrying amount of an asset may not
be recoverable. In the event that facts and circumstances indicate
that the carrying amount of any long-lived asset may be impaired,
an evaluation of recoverability would be performed whereby the
estimated future undiscounted cash flows associated with the asset
would be compared to the asset’s carrying amount to determine if a
write-down to fair value is required. The remaining useful life of the
asset is evaluated accordingly. An impairment loss is recognized to
the extent that the carrying amount exceeds the asset’s fair value.
Inventories other than percentage-of-completion
contracts
In the 4th quarter of fiscal year 2003/2004, the Group changed its
method of valuing similar inventories from the last-in, first-out method
(lifo) to the average cost method. This change has the greatest
impact on the Steel segment and less impact on the other segments.
The change to the new valuation method is preferable as it provides
comparability with major competitors in the Steel industry as well as
creates consistency of the valuation method used for similar inventories
within the Group. In accordance with apb 20 “Accounting Changes”,
the change from the lifo method has been applied retrospectively
by adjusting all prior periods presented in the income statement (see
Note 4).
Inventories are stated at the lower of acquisition/manufacturing
cost or market. The elements of costs include direct material, labor
and allocable material and manufacturing overhead.
Receivables
Receivables are stated at net realizable value. If receivables are
uncollectible or deemed uncollectible, bad debt expense and a
corresponding allowance for doubtful accounts is recorded.
Receivables that do not bear interest or bear below market interest
rates and have an expected term of more than one year are
discounted with the discount subsequently amortized to interest
income over the term of the receivable.
The Group sells undivided interests in certain trade accounts
and notes receivable both on an ongoing and one-time basis to
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Financial Report
Consolidated financial statements
qualifying special purpose entities or other lending institutions.
Financial assets sold under these arrangements are excluded from
accounts receivable in the Group’s balance sheet at the time of sale.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, checks, deposits
with national banks, as well as other bank deposits with an original
maturity of three months or less.
Marketable securities
All marketable securities in which the Group invests are classified
as available-for-sale and valued at market prices as of the balance
sheet date. Any unrealized gains and losses, net of deferred income
taxes, are reported as a component of the “Accumulated other
comprehensive income” line item within equity. An other than
temporary loss of value in an available-for-sale security is realized
in the statement of income and a new cost basis for the security is
established.
Deferred income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities reflect both net loss carry forwards
and the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred taxes are
measured using the currently enacted tax rates in effect during the
years in which the temporary differences are expected to reverse.
The effect on deferred tax assets and liabilities of a change in tax
law is recognized in the period that the law is enacted. Deferred tax
assets, net of valuation allowances, are recognized only to the extent
that it is more likely than not that the related tax benefits will be
realized.
Accumulated other comprehensive income
Accumulated other comprehensive income includes changes in the
equity of the Group that were not recognized in the income statement
of the period, except those resulting from investments by owners and
distributions to owners. Accumulated other comprehensive income
includes foreign currency translation adjustments, unrealized holding
gains and losses on available-for-sale securities and on derivative
financial instruments, as well as additional pension liabilities not yet
recognized as net periodic pension cost.