Canon 2002 Annual Report Download - page 54

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CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)”. The principal difference between SFAS 146
and EITF 94-3 relates to the recognition of a liability for a cost
associated with an exit or disposal activity. SFAS 146 requires
that a liability be recognized for those costs only when the
liability is incurred, that is, when it meets the definition of a
liability in the conceptual framework of the Financial Accounting
Standards Board. SFAS 146 also establishes fair value as the
objective for initial measurement of liabilities related to exit or
disposal activities. Canon adopted the provision of SFAS 146 for
exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS 146 did not have a material effect
on Canon’s consolidated financial position and results of
operations.
In November 2002, the Financial Accounting Standard
Board also issued FASB Interpretation No. 45 (“FIN 45”),
“Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, as interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34”. FIN 45 requires
that a liability be recorded in the guarantor’s balance sheet upon
issuance of a guarantee. In addition, FIN 45 requires disclosures
about the guarantees that an entity has issued, including a
rollforward of the entity’s product warranty liabilities. Canon
adopted the recognition provisions of FIN 45 prospectively to
guarantees issued after December 31, 2002. The disclosure
provisions of FIN 45 are effective for consolidated financial
statements as of December 31, 2002. The adoption of FIN 45
did not have a material effect on Canon’s consolidated financial
position and results of operations.
In January 2003, the Emerging Issues Task Force also
reached a final consensus on Issue 03-2 (“EITF 03-2”),
“Accounting for the Transfer to the Japanese Government of the
Substitutional Portion of Employee Pension Fund Liabilities”.
EITF 03-2 addresses accounting for a transfer to the Japanese
government of a substitutional portion of an Employees’
Pension Fund plan (“EPF”) which is a defined benefit pension
plan established under the Welfare Pension Insurance Law. EITF
03-2 requires employers to account for the entire separation
process of a substitutional portion from an entire plan (including
a corporate portion) upon completion of the transfer to the
government of the substitutional portion of the benefit
obligation and related plan assets as the culmination of a series
of steps in a single settlement transaction. Under this approach,
the difference between the fair value of the obligation and the
assets required to be transferred to the government should be
accounted for and separately disclosed as a subsidy. On March
1, 2003, subsequent to the date of the independent auditors’
report, the applications, which were submitted by the Company
and Canon Sales, Inc., the domestic consolidated subsidiary, for
(t) Earnings per Share
Basic earnings per share have been computed by dividing net
income available to common stockholders by the
weighted-average number of common shares outstanding
during each year. Diluted earnings per share reflect the potential
dilution and have been computed on the basis that all
convertible debentures were converted at beginning of the year
or at time of issuance (if later), and that all dilutive warrants
were exercised (less the number of treasury shares assumed to
be purchased from the proceeds using the average market price
of the Company’s common shares).
(u) Use of Estimates
The preparation of the consolidated financial statements
requires management of Canon to make a number of estimates
and assumptions relating to the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions
include valuation allowances for receivables, inventories and
deferred tax assets; impairment of long-lived assets;
environmental liabilities; valuation of derivative instruments; and
assets and obligations related to employee benefits. Actual
results could differ from those estimates.
(v) New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 143 (“SFAS 143”),
“Accounting for Asset Retirement Obligations”. SFAS 143 applies
to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived
asset, except for certain obligations of lessees. SFAS 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset and subsequently allocated to
expense over the asset’s useful life. Canon adopted the
provisions of SFAS 143 on January 1, 2003. The adoption of
SFAS 143 did not have a material effect on Canon’s
consolidated financial position and results of operations.
In June 2002, the Financial Accounting Standards Board
issued Financial Accounting Standards No. 146 (“SFAS 146”),
“Accounting for Costs Associated with Exit or Disposal Activities”.
SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities. It nullifies Emerging
Issues Task Force Issue No. 94-3 (“EITF 94-3”), “Liability
Recognition for Certain Employee Termination Benefits and