Canon 2004 Annual Report Download - page 81

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(19) Commitments and Contingent Liabilities
Commitments
At December 31, 2004, commitments outstanding for the
purchase of property, plant and equipment approximated
¥39,286 million ($377,750 thousand), and commitments
outstanding for the purchase of parts and raw materials
approximated ¥55,666 million ($535,250 thousand).
On September 14, 2004, the Company and Toshiba
Corporation (“Toshiba”) entered into an agreement to jointly
establish SED Inc. for the development, production and
marketing of next-generation flat-screen SED (Surface-
conduction Electron-emitter Display) panels. The Company
and Toshiba initially contributed approximately ¥500 million
($4,808 thousand) in cash, each. Under the agreement, the
Company is further committed to contribute 50% of the
financing requirements for SED Inc. through the establishment
of a prototype production line.
Canon occupies sales offices and other facilities under
lease arrangements accounted for as operating leases.
Deposits made under such arrangements aggregated ¥14,307
million ($137,567 thousand) and ¥15,092 million at December
31, 2004 and 2003, respectively, and are reflected under
noncurrent receivables on the accompanying consolidated
balance sheets. Rental expenses under the operating lease
arrangements amounted to ¥41,381 million ($397,894
thousand), ¥42,131 million and ¥44,195 million for the years
ended December 31, 2004, 2003 and 2002, respectively.
Future minimum lease payments required under
noncancellable operating leases that have initial or remaining
lease terms in excess of one year at December 31, 2004 are as
follows:
Guarantees
Canon provides guarantees for bank loans of its employees,
affiliates and other companies. The guarantees for the
employees are principally made for their housing loans. The
guarantees of loans of its affiliates and other companies are
made to ensure that those companies operate with less risk of
finance.
For each guarantee provided, Canon would have to
perform under a guarantee, if the borrower defaults on a
payment within the contract periods of 1 year to 30 years, in
the case of employees with housing loans, and of 1 year to 10
years, in the case of affiliates and other companies. The
maximum amount of undiscounted payments Canon would
have had to make in the event of default is ¥43,634 million
($419,558 thousand) at December 31, 2004. The carrying
amounts of the liabilities recognized for Canon’s obligations as
a guarantor under those guarantees at December 31, 2004
were not significant.
Canon also issues contractual product warranties under
which it generally guarantees the performance of products
delivered and services rendered for a certain period or term.
Changes in accrued product warranty cost for the year ended
December 31, 2004 and 2003 are summarized as follows:
Year ending December 31 Thousands of
Millions of yen U.S. dollars
2005 ¥12,714 $ 122,250
2006 9,205 88,510
2007 6,653 63,971
2008 5,555 53,413
2009 5,116 49,192
Thereafter 10,289 98,933
Total future minimum lease payments ¥ 49,532 $ 476,269
Year ended December 31 Thousands of
Millions of yen U.S. dollars
2004 2003 2004
Balance at beginning of year ¥10,512 7,516 $101,077
Addition 13,319 10,919 128,067
Utilization (9,400) (7,834) (90,385)
Other (167) (89) (1,605)
Balance at end of year ¥14,264 10,512 $137,154