Canon 2002 Annual Report Download - page 51

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(h) Investments in Affiliated Companies
Of the investments in affiliated companies owned 20% to 50%,
certain investments are accounted for on the equity basis and
the others are carried at cost. Canon’s equity in undistributed
earnings of the latter companies is not significant.
Canon’s share of the net earnings (loss) of companies
carried at equity, included in other income (deductions), and
dividends received from those companies for the years ended
December 31, 2002, 2001 and 2000 are as follows:
Thousands of
Millions of yen U.S. dollars
2002 2001 2000 2002
Net earnings (loss) ¥(3,521) (1,845) 10,817 $ (29,342)
Dividends received 664 401 67 5,533
(i) Impairment of Long-Lived Assets
In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144
(“SFAS 144”), “Accounting for the Impairment or Disposal of
Long-Lived Assets”. SFAS 144 provides a single accounting
model for long-lived assets to be disposed of. SFAS 144 also
changes the criteria for classifying an asset as held for sale; and
broadens the scope of businesses to be disposed of that qualify
for reporting as discontinued operations and changes the timing
of recognizing losses on such operations. Canon adopted SFAS
144 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
balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset
and liability sections of the balance sheet.
Prior to the adoption of SFAS 144, Canon accounted for
long-lived assets in accordance with Statement of Financial
Accounting Standards No. 121 (“SFAS 121”), “Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of”.
(j) Depreciation
Depreciation is calculated principally by the declining-balance
method over the estimated useful lives of the assets. The
depreciation period ranges from 3 years to 60 years for
buildings and 2 years to 20 years for machinery and equipment.
(k) Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141 (“SFAS
141”), “Business Combinations”, and Statement of Financial
Accounting Standards No. 142 (“SFAS 142”), “Goodwill and
Other Intangible Assets”. SFAS 141 requires that the purchase
method of accounting be used for all business combinations
completed after June 30, 2001. SFAS 141 also specifies the
types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those
acquired intangible assets that are required to be included in
goodwill. SFAS 142 requires that goodwill no longer be
amortized, but instead tested for impairment at least annually.
SFAS 142 also requires recognized intangible assets be
amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS 144. Any
recognized intangible asset determined to have an indefinite
useful life is not to be amortized, but instead tested for
impairment until its life is determined to no longer be indefinite.
Canon adopted the provision of SFAS 141 and SFAS 142
on January 1, 2002. In connection with the transitional goodwill
impairment evaluation, SFAS 142 required Canon to perform an
assessment of whether there was an indication that goodwill is
impaired as of the date of adoption. To accomplish this, Canon
was required to identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to
those reporting units as of January 1, 2002. Canon was required
to determine the fair value of each reporting unit and compare it
to the carrying amount of the reporting unit within six months of
January 1, 2002. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit,
Canon would be required to perform the second step of the
transitional impairment test, as this is an indication that the
reporting unit goodwill may be impaired. The second step was
required for three reporting units. In this step, Canon compared
the implied fair values of the reporting units goodwill with the
carrying amounts of the reporting units goodwill, both of which
were measured as of the date of adoption. The implied fair
values of goodwill were determined by allocating the fair values
of the reporting units to all of the assets (recognized and
unrecognized) and liabilities of the reporting units in a manner
similar to a purchase price allocation, in accordance with SFAS
141. The residual fair value after this allocation was the implied
fair values of the reporting units goodwill. Canon recognized