Canon 2008 Annual Report Download - page 73

71
p
rice
p
rotection to certain resellers of its
p
roducts, and records
reductions to sales for the estimated impact of price protection
obli
g
ations when announced
.
Estimate
d
pro
d
uct warrant
y
costs are recor
d
e
d
at t
h
e time
revenue is recognize
d
an
d
are inc
l
u
d
e
d
in se
ll
ing, genera
l
an
d
administrative expenses. Estimates for accrued product warranty
costs are based on historical experience, and are a
ff
ected by
on
g
oin
g
product
f
ailure rates, speci
fi
c product class
f
ailures
outside of the baseline experience, material usa
g
e and service
delivery costs incurred in correcting a product failure.
Taxes collected
f
rom customers and remitted to governmental
authorities are excluded
f
rom revenues in the consolidated
statements o
f
income
.
(
s
)
Research and Develo
p
ment Cost
s
Research and development costs are expensed as incurred.
(t) Advertising Cost
s
A
d
vertising costs are expense
d
as incurre
d
. A
d
vertising expenses
were ¥112,810 million
(
$1,239,670 thousand
)
, ¥132,429 million
and ¥116,809 million
f
or the
y
ears ended December 31, 2008,
2007 an
d
2006, respective
ly.
(
u
)
Shippin
g
and Handlin
g
Cost
s
Shipping and handling costs totaled ¥62,128 million (
$
682,725
thousand), ¥63,708 million and ¥62,626 million
f
or the
y
ears
en
d
e
d
Decem
b
er 31, 2008, 2007 an
d
2006, respective
ly
, an
d
are inc
l
u
d
e
d
in se
ll
ing, genera
l
an
d
a
d
ministrative expenses in
the consolidated statements of income
.
(v) Derivative Financial Instrument
s
All derivatives are recognized at fair value and are included in
p
re
p
aid ex
p
enses and other current assets, or other current
liabilities in the consolidated balance sheets. On the date the
d
erivative contract is entere
d
into, Canon
d
esi
g
nates t
h
e
d
eriva
-
tive as either a hed
g
e of the fair value of a reco
g
nized asset or
liability or of an unrecognized fi rm commitment (“fair value”
hedge), or a hedge of a forecasted transaction or the variability
o
f
cash
fl
ows to be received or paid related to a reco
g
nized asset
or liabilit
y
(“cash
fl
ow” hed
g
e). Canon
f
ormall
y
documents all
re
l
ations
h
ips
b
etween
h
e
dg
in
g
instruments an
d
h
e
dg
e
d
items, as
well as its risk-management objective and strategy for undertaking
various hedge transactions. Canon also
f
ormally assesses, both at
the hed
g
e’s inception and on an on
g
oin
g
basis, whether the deriv
-
atives that are used in hed
g
in
g
transactions are hi
g
hl
y
effective in
offsetting changes in fair values or cash fl ows of hedged items.
When it is determined that a derivative is not highly effective as
a hed
g
e or that it has ceased to be a hi
g
hl
y
e
ff
ective hed
g
e,
Canon
d
iscontinues
h
e
dg
e accountin
g
prospective
ly.
Chan
g
es in the fair value of a derivative that is desi
g
nated
and qualifi es as a fair-value hedge, along with the loss or gain on
the hedged asset or liability or unrecognized
fi
rm commitment
o
f
the hed
g
ed item that is attributable to the hed
g
ed risk, are
recorded in earnin
g
s. Chan
g
es in the fair value of a derivative that
is designated and qualifi es as a cash-fl ow hedge are recorded in
other comprehensive income (loss), until earnings are affected
by the variability in cash fl ows of the hedged item. Gains and
losses
f
rom hed
g
in
g
ine
ff
ectiveness are included in other income
(deductions). Gains and losses related to the components o
f
hedging instruments excluded from the assessment of hedge
effectiveness are included in other income
(
deductions
).
Canon also uses certain derivative
fi
nancial instruments
which are not desi
g
nated as hed
g
es. Canon records these
de
riv
at
iv
e
fi n
a
n
c
i
a
l in
st
r
u
m
e
n
ts
in
t
h
e
co
n
so
li
dated
ba
l
a
n
ce
sheets at fair value. The changes in fair values are immediately
recorded in earnings
.
Canon classi
fi
es cash
fl
ows
f
rom derivatives as cash
fl
ows
f
rom
operatin
g
activities in the consolidated statements o
f
cash
fl
ows.
(
w
)
Guarantee
s
Canon recognizes, at the inception o
f
a guarantee, a liability
f
or the
f
air value o
f
the obli
g
ation it has undertaken in issuin
g
g
uarantees
.
(
x
)
New Accountin
g
Standard
s
In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 de
fi
nes
f
air value,
establishes a framework for measuring fair value, and expands
d
i
sc
l
osu
r
es
about
f
a
ir v
a
l
ue
m
easu
r
e
m
e
n
ts
. Thi
s
state
m
e
n
t
c
l
a
rifi
es
how to measure
f
air value as permitted or required under other
accountin
g
pronouncements, but does not require an
y
new
f
air
value measurements. In Februar
y
2008, the FASB issued Staff
Position
(
“FSP”
)
No. FAS 157-2, “Effective Date of FASB Statement
No. 157,” which delays the effective date of SFAS 157 for one
y
ear
f
or certain non
fi
nancial assets and liabilities. Canon adopted
SFAS 157 in the
fi
rst quarter be
g
innin
g
Januar
y
1, 2008
f
or all
fi nancial assets and liabilities that are recognized or disclosed at
fair value in the fi nancial statements. This ado
p
tion did not have
a material impact on Canon’s consolidated results o
f
operations
and
fi
nancial condition. The adoption o
f
SFAS 157
f
or all
nonfi nancial assets and liabilities be
g
innin
g
Januar
y
1, 2009
wi
ll
not
h
ave a materia
l
im
p
act on Canon’s conso
l
i
d
ate
d
resu
l
ts
of o
p
erations and fi nancial condition. See Note 23 for the
disclosures required b
y
SFAS 157
.
In Fe
b
ruar
y
2007, t
h
e FASB issue
d
SFAS No. 159, “T
h
e Fair
Value O
p
tion for Financial Assets and Financial Liabilities,
Including an amendment of FASB Statement No. 115” (“SFAS
159”
)
. SFAS 159 provides companies with an option to report
selected
fi
nancial assets and liabilities at
f
air value. Unrealized
g
ains and losses on items for which the fair value option has
been elected are recognized in earnings. SFAS 159 is effective for
fi scal years beginning after November 15, 2007 and was adopted
b
y
Canon in the
fi
rst quarter be
g
innin
g
Januar
y
1, 2008. The
adoption o
f
SFAS 159 did not have an impact on Canon’s
consolidated results of o
p
erations and fi nancial condition as
Canon did not elect to re
p
ort fi nancial assets and liabilities
under the
f
air value option
.
In June 2007
,
the FASB rati
fi
ed the consensus in EITF Issue
No. 07-3, “Accountin
g
for Nonrefundable Advance Pa
y
ments
f
o
r
Goods
o
r
Se
rvi
ces
R
ece
iv
ed
f
o
r
Use
in F
utu
r
e
R
esea
r
c
h
a
n
d