Canon 2002 Annual Report Download - page 67

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The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
Thousands of
Millions of yen U.S. dollars
2002 2001 2002
Deferred tax assets:
Inventories — intercompany profits and write-downs ¥55,806 49,754 $ 465,050
Accrued business tax 6,794 6,146 56,617
Accrued pension and severance cost 42,253 39,941 352,108
Minimum pension liability adjustments 97,454 87,524 812,117
Property, plant and equipment — intercompany profits 3,375 3,715 28,125
Research and development — costs capitalized for tax purposes 21,215 23,067 176,792
Depreciation 14,699 13,828 122,492
Net operating losses carried forward 6,119 8,989 50,992
Other 42,269 52,647 352,241
Total gross deferred tax assets 289,984 285,611 2,416,534
Less valuation allowance 9,683 12,875 80,692
Net deferred tax assets 280,301 272,736 2,335,842
Deferred tax liabilities:
Land including deferred gain on sale (2,540) (3,028) (21,167)
Unamortized debt issuance cost (141) (205) (1,175)
Accounts receivable — allowance for doubtful accounts (1,132) (990) (9,433)
Undistributed earnings of foreign subsidiaries and
affiliated companies (10,563) (5,472) (88,025)
Net unrealized gains on securities (400) (2,247) (3,333)
Other (26,806) (28,773) (223,384)
Total gross deferred tax liabilities (41,582) (40,715) (346,517)
Net deferred tax assets ¥238,719 232,021 $ 1,989,325
The valuation allowance for deferred tax assets as of January
1, 2001 was ¥6,367 million. The net change in the total
valuation allowance for the years ended December 31, 2002
and 2001 was a decrease of ¥3,192 million ($26,600
thousand) and an increase of ¥6,508 million, respectively.
Based upon the level of historical taxable income and
projections for future taxable income over the periods which the
net deductible temporary differences are expected to reverse,
management believes it is more likely than not Canon will
realize the benefits of these deferred tax assets, net of the
existing valuation allowances at December 31, 2002.
At December 31, 2002, Canon had net operating losses
carried forward for income tax purposes of approximately
¥17,291 million ($144,092 thousand) which were available to
reduce future income taxes, if any. Approximately ¥16,929
million ($141,075 thousand) of the operating losses expire
through 2007 while the remainder have an indefinite carry
forward period.
Income taxes have not been accrued on undistributed
income of domestic subsidiaries and affiliated companies as
distributions of such income are not taxable under present
circumstances.
Canon has not recognized deferred tax liabilities of
approximately ¥34,534 million ($287,783 thousand) for the
portion of undistributed earnings of foreign subsidiaries that
arose in the year ended December 31, 2002 and prior years
because Canon currently does not expect those unremitted
earnings to reverse and become taxable to the Company in the
foreseeable future. Deferred tax liabilities will be recognized
when Canon expects that it will recover those undistributed
earnings in a taxable manner, such as through receipt of
dividends or sale of the investments. As of December 31, 2002,
such undistributed earnings of these subsidiaries were
approximately ¥373,724 million ($3,114,367 thousand).
liabilities at December 31, 2002 and 2001 are presented
below: