Canon 2010 Annual Report Download - page 73
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Please find page 73 of the 2010 Canon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.CANON ANNUAL REPORT 2010 71
incurred in connection with developing or obtaining internal
use software are capitalized. These costs consist primarily of
payments made to third parties and the salaries of employees
working on such software development. Costs incurred in con-
nection with developing internal use software are capitalized at
the application development stage. In addition, Canon develops
or obtains certain software to be sold where related costs are
capitalized after establishment of technological feasibility.
(m) Environmental Liabilities
Liabilities for environmental remediation and other environ-
mental costs are accrued when environmental assessments or
remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information
develops or circumstances change. Costs of future obligations
are not discounted to their present values.
(n) Income Taxes
Deferred tax assets and liabilities are recognized for the esti-
mated future tax consequences attributable to differences
between the fi nancial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operat-
ing loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. Canon records a valuation allowance to reduce the deferred
tax assets to the amount that is more likely than not realizable.
Canon recognizes the fi nancial statement effects of tax posi-
tions when it is more likely than not, based on the technical
merits, that the tax positions will be sustained upon examina-
tion by the tax authorities. Benefi ts from tax positions that meet
the more-likely-than-not recognition threshold are measured at
the largest amount of benefi t that is greater than 50% likely of
being realized upon settlement. Interest and penalties accrued
related to unrecognized tax benefi ts are included in income
taxes in the consolidated statements of income.
(o) Stock-Based Compensation
Canon measures stock-based compensation cost at the grant
date, based on the fair value of the award, and recognizes the
cost on a straight-line basis over the requisite service period,
which is the vesting period.
(p) Net Income Attributable to Canon Inc. Stockholders
per Share
Basic net income attributable to Canon Inc. stockholders per
share is computed by dividing net income attributable to Canon
Inc. by the weighted-average number of common shares out-
standing during each year. Diluted net income attributable to
Canon Inc. stockholders per share includes the effect from
potential issuances of common stock based on the assump-
tions that all convertible debentures were converted into com-
mon stock and all stock options were exercised.
(q) Revenue Recognition
Canon generates revenue principally through the sale of offi ce
and consumer products, equipment, supplies, and related ser-
vices under separate contractual arrangements. Canon recog-
nizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred and title and risk of loss have
been transferred to the customer or services have been ren-
dered, the sales price is fi xed or determinable, and collectibility
is probable.
Revenue from sales of offi ce products, such as offi ce net-
work digital MFDs and laser printers, and consumer products,
such as digital cameras and inkjet multifunction peripherals, is
recognized upon shipment or delivery, depending upon when
title and risk of loss transfer to the customer.
Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and LCD lithography equipment
that are sold with customer acceptance provisions related to
their functionality, is recognized when the equipment is
installed at the customer site and the specifi c criteria of the
equipment functionality are successfully tested and demon-
strated by Canon. Service revenue is derived primarily from
separately priced product maintenance contracts on equip-
ment sold to customers and is measured at the stated amount
of the contract and recognized as services are provided.
Canon also offers separately priced product maintenance con-
tracts for most offi ce products, for which the customer typically
pays a stated base service fee plus a variable amount based on
usage. Revenue from these service maintenance contracts is
measured at the stated amount of the contract and recognized
as services are provided and variable amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-fi nancing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-fi nancing leases are
accounted for as operating leases and related revenue is rec-
ognized ratably over the lease term. When equipment leases
are bundled with product maintenance contracts, revenue is
fi rst allocated considering the relative fair value of the lease
and non-lease deliverables based upon the estimated relative
fair values of each element. Lease deliverables generally
include equipment, fi nancing and executory costs, while non-
lease deliverables generally consist of product maintenance
contracts and supplies.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative fair
value if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulfi lled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time of
sale for sales incentive programs including product discounts,
customer promotions and volume-based rebates. Estimated
reductions in sales are based upon historical trends and other
known factors at the time of sale. In addition, Canon provides