Canon 2003 Annual Report Download - page 52

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CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and
Significant Accounting Policies
(a) Description of Business
The Company and subsidiaries (collectively “Canon”) is a high-
technology oriented company which operates globally and has
numerous core businesses. Originally a 35mm camera maker,
Canon is now one of the world’s leading manufacturers in other
fields, such as office imaging products (mainly copying machines
and digital multifunction devices), and computer peripherals
(mainly laser beam and inkjet printers). Canon’s products also
include business information products such as computers,
micrographics and calculators. Canon’s camera business consists
mainly of SLR cameras, compact cameras, digital cameras and
video camcorders. Optical related products include steppers and
aligners used in semiconductor chip production, projection
aligners used in the production of liquid crystal displays (LCDs),
broadcasting lenses and medical equipment. Canon’s sales in the
years ended December 31, 2003, 2002 and 2001 were distributed
as follows: office imaging products 33%, 35% and 34%, computer
peripherals 34%, 36% and 36%, business information products
4%, 5% and 7%, cameras 20%, 16% and 13%, and optical and
other products 9%, 8% and 10%, respectively.
Sales are made principally under the Canon brand name,
almost entirely through sales subsidiaries. These subsidiaries are
responsible for marketing and distribution and primarily sell to
retail dealers in their geographical area. Approximately 73%, 73%
and 70% of consolidated net sales for the years ended December
31, 2003, 2002 and 2001 were generated outside Japan, with
33%, 34% and 34% in the Americas, 30%, 29% and 27% in
Europe, and 10%, 10% and 9% in other areas, respectively.
Canon’s manufacturing operations are conducted primarily at
18 plants in Japan and 14 overseas plants which are located in the
United States, Germany, France, Taiwan, China, Malaysia,
Thailand and Vietnam.
Canon sells laser beam printers on an OEM basis to Hewlett-
Packard Co.; such sales constituted approximately 20%, 21% and
21% of consolidated net sales for the years ended December 31,
2003, 2002 and 2001, respectively.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their books of
account in conformity with financial accounting standards of
Japan. Foreign subsidiaries maintain their books of account in
conformity with financial accounting standards of the countries of
their domicile.
The accompanying consolidated financial statements reflect
the adjustments but not recorded in the books of account, which
management believes are necessary to conform them with
accounting principles generally accepted in the United States of
America.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries after elimination of all
significant intercompany balances and transactions.
In December 2003, the Financial Accounting Standards Board
issued FASB Interpretation No. 46 (revised December 2003) (“FIN
46R”), “Consolidation of Variable Interest Entities”, which
addresses how a business enterprise should evaluate whether it
has a controlling financial interest in an entity through means other
than voting rights and accordingly should consolidate the entity.
FIN 46R replaces FASB Interpretation No. 46, “Consolidation of
Variable Interest Entities”, which was issued in January 2003. For
any variable interest entities (“VIEs”) that must be consolidated
under FIN 46R that were created before January 1, 2004, the
assets, liabilities and noncontrolling interests of the VIE initially
would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any
previously recognized interest being recognized as the cumulative
effect of an accounting change. If determining the carrying
amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE. Canon was required to apply FIN
46R to special-purpose entities in consolidated financial
statements as of December 31, 2003, and to other VIEs in
consolidated financial statements as of March 31, 2004. The
adoption of FIN 46R did not have and is not expected to have a
material effect on Canon’s consolidated financial position and
results of operations.
(d) Cash Equivalents
For purposes of the statements of cash flows, Canon considers all
highly-liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
(e) Translation of Foreign Currencies
Foreign currency financial statements have been translated in
accordance with Statement of Financial Accounting Standards No.
52 (“SFAS 52”), “Foreign Currency Translation”. Under SFAS 52,
assets and liabilities of the Company’s subsidiaries located outside
Japan with functional currencies other than Japanese yen are
translated into Japanese yen at the rates of exchange in effect at
the balance sheet date. Gains and losses resulting from translation
of financial statements are excluded from the consolidated
statement of income and are reported in other comprehensive
income (loss). Income and expense items are translated at the
average exchange rates prevailing during the year. Gains and
losses resulting from other foreign currency transactions are
included in other income (deductions).