Canon 2005 Annual Report Download - page 79

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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 dividends from a domestic subsidiary
can be received tax free.
Canon has not recognized deferred tax liabilities of
¥29,728 million ($251,932 thousand) for a portion of
undistributed earnings of foreign subsidiaries that arose for
the year ended December 31, 2005 and prior years because
Canon currently does not expect to have such amounts
distributed or paid as dividends to the Company in the
foreseeable future. Deferred tax liabilities will be recognized
when Canon expects that it will realize those undistributed
earnings in a taxable manner, such as through receipt of
dividends or sale of the investments. At December 31,
2005, such undistributed earnings of these subsidiaries were
¥531,499 million ($4,504,229 thousand).
(15) Common Stock
For the years ended December 31, 2005, 2004 and 2003, the
Company issued 765,528 shares, 6,638,606 shares and
2,202,401 shares of common stock, respectively, in connection
with the conversion of convertible debt. In accordance with the
Japanese Commercial Code, conversion into common stock of
convertible debt is accounted for by crediting one-half or more
of the conversion price to the common stock account and the
remainder to the additional paid-in capital account.
(16) Legal Reserve and Retained Earnings
The Japanese Commercial Code provides that an amount equal
to at least 10% of cash dividends and other distributions from
retained earnings paid by the Company and its Japanese sub-
sidiaries be appropriated as a legal reserve. No further appro-
priations are required when the total amount of the additional
paid-in capital and the legal reserve equals 25% of their
respective stated capital. The Japanese Commercial Code also
provides that to the extent that the sum of the additional paid-
in capital and the legal reserve exceeds 25% of the stated
capital, the amount of the excess (if any) is available for appro-
priations by the resolution of the shareholders. Certain foreign
subsidiaries are also required to appropriate their earnings to
legal reserves under the laws of the respective countries.
Cash dividends and appropriations to the legal reserve
charged to retained earnings for the years ended December
31, 2005, 2004 and 2003 represent dividends paid out during
those years and the related appropriations to the legal reserve.
Retained earnings at December 31, 2005 do not reflect current
year-end dividends in the amount of ¥59,913 million
($507,737 thousand) which will be payable in March 2006
upon approval by the stockholders.
The amount available for dividends under the Japanese
Commercial Code is based on the amount recorded in the
Company’s nonconsolidated books of account in accordance
with financial accounting standards of Japan. Such amount
was ¥1,366,355 million ($11,579,280 thousand) at December
31, 2005.
Retained earnings at December 31, 2005 included Canon’s
equity in undistributed earnings of affiliated companies
accounted for by the equity method in the amount of ¥8,714
million ($73,847 thousand).