Annual Report 2009 - Daiichi Sankyo

Held-to-maturity debt securities are stated at amortized cost. Equity securities issued by subsidiaries and affiliated companies
which are not consolidated or accounted for by the equity method are stated at the moving-average cost. Available-for-sale
securities with available fair market value are stated at fair market value. Unrealized gains and unrealized losses on these securities
are reported, net of applicable income taxes, as a separate component of net assets. Realized gains or losses on the sale of
such securities are computed using the moving-average cost method. The Companies have no trading securities.
Derivative Transactions
Derivatives are, in principle, stated at market value. The Company and certain consolidated subsidiaries enter into derivative
agreements, such as forward foreign exchange contracts, currency options, interest-rate swaps, currency swaps, and call
options on specific stocks, in order to manage the risk arising from fluctuation in foreign currency exchange rates, stock prices,
and interest rates. Forward foreign exchange contracts and currency options are utilized to hedge risks arising from changes
in foreign currency exchange rates in relation to imports and exports. Interest-rate swaps and currency swaps are utilized to
manage interest-rate risk and risks arising from fluctuation in foreign currency exchange rates on debts. Call options on specific
stocks are utilized to avoid the risk of fluctuation in stock prices relating to stock appreciation rights. The Company and its
consolidated subsidiaries do not enter into derivative transactions for speculative trading purposes.
Deferred hedge accounting is basically adopted.
Forward foreign exchange contracts and currency options which meet hedging criteria are accounted for by the allocation
method. The allocation method requires that recognized foreign currency receivables or payables be translated at the underlying
exchange rates in the corresponding forward foreign exchange contracts and currency options. Interest-rate swaps and currency
swaps which meet the criteria to qualify as hedges and satisfy certain criteria are accounted for by a special method stipulated
in the accounting standard, as if the interest rates on the swaps were originally applied to the underlying borrowings. The
Company and its consolidated subsidiaries which have derivatives positions have also developed hedging policies to control
various aspects of these transactions, including establishing authorization levels and limits of transaction volumes.
The effectiveness of hedges is generally measured by comparing the cumulative change in the fair value of the hedge item
with the cumulative change in the fair value of the hedged subject. However, the effectiveness of the forward foreign exchange
contracts of the Company as hedges has not been assessed as the conditions of these transactions are principally the same,
and the effectiveness of the interest-rate swaps of the Company accounted for by the special method as highly qualified hedges
has also not been assessed, as permitted under the accounting standard.
Inventories
Inventories were accounted for at the lower of cost (principally by the weighted-average method) or market until March 31,
2007. Effective from the year ended March 31, 2008, inventories held for sales in the ordinary course of business have been
accounted for at the lower of weighted-average cost or net realizable value. Replacement cost may be used in lieu of the net
realizable value, if appropriate.
This change in accounting method in the year ended March 31, 2008 was an early adoption of the Accounting Standard for
Measurement of Inventories (Accounting Standards Board of Japan Statement No. 9, July 5, 2006) which has been mandatory
from the year ended March 31, 2009, by the Company and its domestic consolidated subsidiaries.
As a result, operating income and income before income taxes and minority interests decreased by ¥2,993 million and
¥2,311 million, respectively.
Property, Plant and Equipment
Depreciation of property, plant and equipment (except for certain buildings) is computed by the declining-balance method
based on the estimated useful lives of the respective assets as to the Company and its domestic consolidated subsidiaries.
Depreciation of buildings (other than structures attached to the buildings) acquired on and after April 1, 1998 by the Company
and its domestic consolidated subsidiaries is computed by the straight-line method.
As to the overseas consolidated subsidiaries, depreciation of property, plant and equipment is computed principally by the
straight-line method.
The range of useful lives was from 15 to 50 years for buildings and structures, and from 4 to 7 years for machinery, equipment
and vehicles until March 31, 2008. Effective from the year ended March 31, 2009, the range of useful lives for machinery,
equipment and vehicles has been changed to 4 to 8 years, which is based on the reassessment of the useful lives in light of the
change in the Japanese Corporation Tax Law, although the range of useful lives for buildings and structures remains
unchanged. The effects of this change were immaterial.
The Company and its domestic consolidated subsidiaries changed the method of depreciation for all tangible fixed assets
acquired on or after April 1, 2007 to the straight-line method or the declining-balance method prescribed in the amendments of
the Japanese Corporation Tax Law, the Law to Amend Part of the Income Tax Law (Cabinet Order No. 83, March 30, 2007).
As a result, operating income and income before income taxes and minority interests decreased by ¥1,351 million and
¥1,359 million, respectively.
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Daiichi Sankyo Co., Ltd. Annual Report 2009