Canon 2010 Annual Report Download - page 74
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Please find page 74 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 201072
price protection to certain resellers of its products, and records
reductions to sales for the estimated impact of price protection
obligations when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general and
administrative expenses in the consolidated statements of
income. Estimates for accrued product warranty costs are
based on historical experience, and are affected by ongoing
product failure rates, specifi c product class failures outside of
the baseline experience, material usage and service delivery
costs incurred in correcting a product failure.
Taxes collected from customers and remitted to governmen-
tal authorities are excluded from revenues in the consolidated
statements of income.
(r) Research and Development Costs
Research and development costs are expensed as incurred.
(s) Advertising Costs
Advertising costs are expensed as incurred. Advertising
expenses were ¥94,794 million ($1,170,296 thousand), ¥78,009
million and ¥112,810 million for the years ended December 31,
2010, 2009 and 2008, respectively.
(t) Shipping and Handling Costs
Shipping and handling costs totaled ¥56,306 million ($695,136
thousand), ¥45,966 million and ¥62,128 million for the years
ended December 31, 2010, 2009 and 2008, respectively, and are
included in selling, general and administrative expenses in the
consolidated statements of income.
(u) Derivative Financial Instruments
All derivatives are recognized at fair value and are included in
prepaid expenses and other current assets, or other current lia-
bilities in the consolidated balance sheets.
Canon uses and designates certain derivatives as a hedge of
a forecasted transaction or the variability of cash fl ows to be
received or paid related to a recognized asset or liability (“cash
fl ow” hedge). Canon formally documents all relationships
between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking vari-
ous hedge transactions. Canon also formally assesses, both at
the hedge’s inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash fl ows of hedged items.
When it is determined that a derivative is not highly effective as
a hedge or that it has ceased to be a highly effective hedge,
Canon discontinues hedge accounting prospectively. Changes
in the fair value of a derivative that is designated and qualifi es
as a cash fl ow hedge are recorded in other comprehensive
income (loss), until earnings are affected by the variability in
cash fl ows of the hedged item. Gains and losses from hedging
ineffectiveness are included in other income (deductions).
Gains and losses related to the components of hedging instru-
ments excluded from the assessment of hedge effectiveness
are included in other income (deductions).
Canon also uses certain derivative fi nancial instruments
which are not designated as hedges. The changes in fair values
of these derivative fi nancial instruments are immediately
recorded in earnings.
Canon classifi es cash fl ows from derivatives as cash fl ows from
operating activities in the consolidated statements of cash fl ows.
(v) Guarantees
Canon recognizes, at the inception of a guarantee, a liability for the
fair value of the obligation it has undertaken in issuing guarantees.
(w) Recently Issued Accounting Guidance
In October 2009, the FASB issued new accounting guidance for
revenue recognition under multiple-deliverable arrangements.
This guidance modifi es the criteria for separating consideration
under multiple-deliverable arrangements and requires alloca-
tion of the overall consideration to each deliverable using the
estimated selling price in the absence of vendor-specifi c objec-
tive evidence or third-party evidence of selling price for deliver-
ables. As a result, the residual method of allocating arrangement
consideration will no longer be permitted. The guidance also
requires additional disclosures about how a vendor allocates
revenue in its arrangements and about the signifi cant judg-
ments made and their impact on revenue recognition. This
guidance is effective for fi scal years beginning on or after June
15, 2010 and is required to be adopted by Canon no later than
the fi rst quarter beginning January 1, 2011 (with early adoption
permitted). The provisions are effective prospectively for reve-
nue arrangements entered into or materially modifi ed after the
effective date, or retrospectively for all prior periods. Canon
does not expect the adoption of this guidance to have a materi-
al impact on Canon’s consolidated fi nancial statements.
In October 2009, the FASB issued new accounting guidance for
software revenue recognition. This guidance modifi es the scope
of the software revenue recognition guidance to exclude from its
requirements non-software components of tangible products
and software components of tangible products that are sold,
licensed, or leased with tangible products when the software
components and non-software components of the tangible
product function together to deliver the tangible product’s
essential functionality. This guidance is effective for fi scal years
beginning on or after June 15, 2010 and is required to be adopt-
ed by Canon no later than the fi rst quarter beginning January 1,
2011 (with early adoption permitted) using the same effective
date and the same transition method used to adopt the guid-
ance for revenue recognition under multiple-deliverable
arrangements. Canon does not expect the adoption of this
guidance to have a material impact on Canon’s consolidated
fi nancial statements.
(x) Reclassifi cations
Certain reclassifi cations have been made to the prior years’
consolidated statements of cash fl ows to conform to the cur-
rent year presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CANON INC. AND SUBSIDIARIES