Canon 2014 Annual Report Download - page 56

54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Canon Inc. and Subsidiaries
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Canon Inc. (the “Company”) and subsidiaries (collective-
ly “Canon”) is one of the world’s leading manufacturers in
such fields as office products, imaging system products and
industry and other products. Office products consist mainly
of office multifunction devices (“MFDs”), laser multifunction
printers (“MFPs”), laser printers, digital production printing
systems, high speed continuous feed printers, wide-format
printers and document solutions. Imaging system products
consist mainly of interchangeable lens digital cameras, digi-
tal compact cameras, digital camcorders, digital cinema cam-
eras, interchangeable lenses, inkjet printers, large-format
inkjet printers, commercial photo printers, image scanners,
multimedia projectors, broadcast equipment and calculators.
Industry and other products consist mainly of semiconductor
lithography equipment, FPD (Flat panel display) lithography
equipment, digital radiography systems, ophthalmic equip-
ment, vacuum thin-film deposition equipment, organic LED
(“OLED”) panel manufacturing equipment, die bonders, micro-
motors, network cameras, handy terminals and document
scanners. Canon’s consolidated net sales for the years ended
December 31, 2014, 2013 and 2012 were distributed as follows:
the Office Business Unit 55.8%, 53.6% and 50.5%, the Imaging
System Business Unit 36.0%, 38.8% and 40.4%, the Industry
and Others Business Unit 10.7%, 10.0% and 11.7%, and elimi-
nation between segments 2.5%, 2.4% and 2.6%, respectively.
These percentages were computed by dividing segment net
sales, including intersegment sales, by consolidated net sales,
based on the segment operating results described in Note 21.
Sales are made principally under the Canon brand name,
almost entirely through sales subsidiaries. These subsidiar-
ies are responsible for marketing and distribution, and pri-
marily sell to retail dealers in their geographic area. 80.6%,
80.8% and 79.3% of consolidated net sales for the years end-
ed December 31, 2014, 2013 and 2012 were generated outside
Japan, with 27.8%, 28.4% and 27.0% in the Americas, 29.3%,
30.1% and 29.1% in Europe, and 23.5%, 22.3% and 23.2% in
Asia and Oceania, respectively.
Canon sells laser printers on an OEM basis to Hewlett-
Packard Company; such sales constituted 17.4%, 17.6% and
17.0% of consolidated net sales for the years ended December
31, 2014, 2013 and 2012, respectively, and are included in the
Office Business Unit.
Canon’s manufacturing operations are conducted pri-
marily at 28 plants in Japan and 18 overseas plants which
are located in countries or regions such as the United States,
Germany, France, the Netherlands, Taiwan, China, Malaysia,
Thailand, Vietnam and Philippines.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with financial account-
ing standards of Japan. Foreign subsidiaries maintain their
books of account in conformity with financial accounting
standards of the countries of their domicile.
Certain adjustments and reclassifications have been incor-
porated in the accompanying consolidated financial state-
ments to conform with U.S. generally accepted accounting
principles (“GAAP”). These adjustments were not recorded in
the statutory books of account.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company, its majority owned subsidiaries and those vari-
able interest entities where the Company or its consolidated
subsidiaries are the primary beneficiaries. All significant inter-
company balances and transactions have been eliminated.
(d) Use of Estimates
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial state-
ments and the reported amounts of revenues and expenses
during the period. Significant estimates and assumptions are
reflected in valuation and disclosure of revenue recognition,
allowance for doubtful receivables, valuation of inventories,
impairment of long-lived assets, environmental liabilities,
valuation of deferred tax assets, uncertain tax positions
and employee retirement and severance benefit obligations.
Actual results could differ materially from those estimates.
(e) Translation of Foreign Currencies
Assets and liabilities of the Company’s subsidiaries located
outside Japan with functional currencies other than Japanese
yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items
are translated at the average exchange rates prevailing during
the year. Gains and losses resulting from translation of finan-
cial statements are excluded from earnings and are reported
in other comprehensive income (loss).
Gains and losses resulting from foreign currency transac-
tions, including foreign exchange contracts, and translation
of assets and liabilities denominated in foreign currencies
are included in other income (deductions) in the consolidat-
ed statements of income. Foreign currency exchange gains
and losses were a net gain of ¥2,628 million for the year end-
ed December 31, 2014, a net loss of ¥1,992 million for the year
ended December 31, 2013 and a net gain of ¥9,130 million for
the year ended December 31, 2012, respectively.
(f) Cash Equivalents
All highly liquid investments acquired with original maturi-
ties of three months or less are considered to be cash equiva-
lents. Certain debt securities with original maturities of less
than three months, classified as available-for-sale securities of
¥139,240 million and ¥183,078 million at December 31, 2014