Canon 2003 Annual Report Download - page 53

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(f) Marketable Securities and Investments
Canon classifies its debt and equity securities into one of three
categories: trading, available-for-sale, or held-to-maturity securities.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities with respect to which Canon has the ability and intent to
hold until maturity. All securities not included in trading or held-to-
maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are
included in earnings. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of other
comprehensive income (loss) until realized.
A decline in fair value of any available-for-sale or held-to-
maturity security below the amortized cost basis that is deemed to
be other than temporary results in a write-down of the amortized
cost basis to fair value as a new cost basis and the amount of the
write-down is included in earnings.
On a continuous basis, but no less frequently than at the end of
each quarter period, Canon evaluates the cost basis of an available-
for-sale security for possible impairment. Factors considered in
assessing whether an indication of other than temporary impairment
exists include: the degree of change in ratio of market prices per
share to book value per share at date of evaluation compared to that
at date of acquisition, the financial condition and prospects of each
investee company, industry conditions in which the investee
company operates, the fair value of an available-for-sale security
relative to the cost basis of the investment, the period of time the fair
value of an available-for-sale security has been below the cost basis
of the investment and other relevant factors.
Canon evaluates the cost basis of a held-to-maturity security for
possible impairment by taking into consideration the financial
condition, business prospects and credit worthiness of the issuer.
Impairment to be recognized is measured based on the amount
by which the carrying amount of the investment exceeds the fair
value of the investment. Fair value is determined based on quoted
market prices, projected discounted cash flows or other valuation
techniques as appropriate.
The cost of a security sold or the amount reclassified out of
accumulated other comprehensive income (loss) into earnings was
determined by the specific identification method.
(g) Allowance for Doubtful Receivables
Canon recognizes allowance for doubtful receivables to ensure trade
and financing receivables are not overstated due to uncollectibility.
Allowance for doubtful receivables is maintained for all customers
based on a variety of factors, including the length of time receivables
are past due, macroeconomic conditions, significant one-time events
and historical experience. An additional reserve for individual
accounts is recorded when Canon becomes aware of a customer
’ s
inability to meet its financial obligations, such as in the case of
bankruptcy filings or deterioration in the customer’s operating results
or financial position. If circumstances related to customers change,
estimates of the recoverability of receivables would be further
adjusted.
(h) Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined principally by the average method for domestic
inventories and the first-in, first-out method for overseas inventories.
(i) Investments in Affiliated Companies
Investments in 20% to 50% owned affiliates in which Canon has the
ability to exercise significant influence over their operating and
financial policies are stated at their underlying equity value.
Canon’s share of the net earnings (loss) of companies carried on
the equity method, included in other income (deductions), and
dividends received from those companies for the years ended
December 31, 2003, 2002 and 2001 are as follows:
Thousands of
Millions of yen U.S. dollars
2003 2002 2001 2003
Net loss ¥(1,124) (3,521) (1,845) $(10,505)
Dividends received 288 664 401 2,692
( j) Impairment of Long-Lived Assets
Canon adopted Statement of Financial Accounting Standards No.
144 (“SFAS 144”), “Accounting for the Impairment or Disposal of
Long-Lived Assets” on January 1, 2002. The adoption of SFAS 144
did not have a material affect on Canon’s consolidated financial
position and results of operations.
In accordance with SFAS 144, long-lived assets, such as
property, plant, and equipment, and purchased intangibles subject
to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized
by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Assets to be disposed of would be
separately presented in the consolidated balance sheet and reported
at the lower of the carrying amount or fair value less costs of selling
such assets, and are no longer depreciated. The assets and liabilities
of a disposed group classified as held for sale would be presented