Canon 2003 Annual Report Download - page 70

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Income taxes have not been accrued on undistributed
earnings of domestic subsidiaries as the tax law provides a means
by which the investment in a domestic subsidiary can be
recovered tax free.
Canon has not recognized deferred tax liabilities of
approximately ¥36,661 million ($342,626 thousand) for the
portion of undistributed earnings of foreign subsidiaries that arose
in the year ended December 31, 2003 and prior years because
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
Thousands of
Millions of yen U.S. dollars
2003 2002 2003
Deferred tax assets:
Inventories ¥13,540 12,813 $126,542
Accrued business tax 8,684 6,794 81,159
Accrued pension and severance cost 45,149 42,253 421,953
Minimum pension liability adjustments 56,526 97,454 528,280
Research and development — costs capitalized for tax purposes 20,766 21,215 194,075
Property, plant and equipment 17,074 14,699 159,570
Net operating losses carried forward 6,279 6,119 58,682
Other 35,624 41,137 332,935
Total gross deferred tax assets 203,642 242,484 1,903,196
Less valuation allowance 8,401 9,683 78,514
Net deferred tax assets 195,241 232,801 1,824,682
Deferred tax liabilities:
Land including deferred gain on sale (2,059) (2,540) (19,243)
Undistributed earnings of foreign subsidiaries (6,424) (10,002) (60,037)
Net unrealized gains on securities (4,521) (400) (42,252)
Other (35,210) (27,508) (329,066)
Total gross deferred tax liabilities (48,214) (40,450) (450,598)
Net deferred tax assets ¥147,027 192,351 $1,374,084
The valuation allowance for deferred tax assets as of January
1, 2002 was ¥12,875 million. The net changes in the total
valuation allowance for the years ended December 31, 2003 and
2002 were decreases of ¥1,282 million ($11,981 thousand) and
¥3,192 million, respectively.
Based upon the level of historical taxable income and
projections for future taxable income over the periods which the
net deductible temporary differences are expected to reverse,
management believes it is more likely than not that Canon will
realize the benefits of these deferred tax assets, net of the existing
valuation allowances at December 31, 2003.
At December 31, 2003, Canon had net operating losses
carried forward for income tax purposes of approximately ¥18,679
million ($174,570 thousand) which were available to reduce
future taxable income, if any. Periods available to reduce future
taxable income vary in each tax jurisdiction and range from one
year to an indefinite period as follows:
liabilities at December 31, 2003 and 2002 are presented below:
Thousands of
Millions of yen U.S. dollars
Within one year ¥ 816 $ 7,626
After one year through five years 10,566 98,748
After five years through ten years 2,771 25,897
Indefinite period 4,526 42,299
Total ¥18,679 $ 174,570
Canon currently does not expect those unremitted earnings to
reverse and become taxable to the Company in the foreseeable
future. Deferred tax liabilities will be recognized when Canon
expects that it will recover those undistributed earnings in a
taxable manner, such as through receipt of dividends or sale of
the investments. As of December 31, 2003, such undistributed
earnings of these subsidiaries were approximately ¥420,828
million ($3,932,972 thousand).