Canon 2002 Annual Report Download - page 50

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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 copying machines and computer
peripherals, mainly laser beam and bubble jet printers. Canon’s
products also include business systems such as faxes,
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, broadcasting lenses and medical equipment.
Canon’s sales in the year ended December 31, 2002 were
distributed as follows: copying machines-32%, computer
peripherals-35%, business systems-9%, cameras-16%, and
optical and other products-8%.
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% of
consolidated net sales in the year ended December 31, 2002
were generated outside Japan, with 34% in the Americas, 29%
in Europe and 10% in other areas.
Canon’s manufacturing operations are conducted primarily
at 17 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 21%
of consolidated sales for the year ended December 31, 2002.
(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 in
conformity with financial accounting standards of the countries
of their domicile.
The accompanying consolidated financial statements reflect
the adjustments 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.
(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 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).
(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 in which Canon has the ability and
intent to hold the security 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 until
realized.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally by the average method for domestic
inventories and the first-in, first-out method for overseas
inventories.