Canon 2014 Annual Report Download - page 58

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a reporting unit’s goodwill exceeds its implied fair value.
Intangible assets with finite useful lives consist primarily
of software, license fees, patented technologies and customer
relationships. Software and license fees are amortized using
the straight-line method over the estimated useful lives,
which range primarily from 3 years to 5 years for software
and 5 years to 10 years for license fees. Patented technolo-
gies are amortized using the straight-line method principal-
ly over the estimated useful lives, which range from 8 years
to 16 years. Customer relationships are amortized principally
using the declining-balance method over the estimated use-
ful life of 5 years. Certain costs incurred in connection with
developing or obtaining internal-use software are capitalized.
These costs consist primarily of payments made to third par-
ties and the salaries of employees working on such software
development. Costs incurred in connection with developing
internal-use software are capitalized at the application devel-
opment 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 informa-
tion develops or circumstances change. Costs of future obliga-
tions 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 financial statement carrying amounts of exist-
ing assets and liabilities and their respective tax bases and
operating 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 financial statement effects of tax
positions when it is more likely than not, based on the techni-
cal merits, that the tax positions will be sustained upon exam-
ination by the tax authorities. Benefits from tax positions that
meet the more-likely-than-not recognition threshold are mea-
sured at the largest amount of benefit that is greater than
50% likely of being realized upon settlement. Interest and pen-
alties accrued related to unrecognized tax benefits are includ-
ed 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 outstanding 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
assumptions that all stock options were exercised.
(q) Revenue Recognition
Canon generates revenue principally through the sale of
office and imaging system products, equipment, supplies,
and related services under separate contractual arrange-
ments. Canon recognizes 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 rendered, the sales price is fixed or determinable,
and collectibility is probable.
Revenue from sales of office products, such as office MFDs
and laser printers, and imaging system products, such as digi-
tal cameras and inkjet printers, is recognized upon shipment
or delivery, depending upon when title and risk of loss trans-
fer to the customer.
Canon also offers separately priced product maintenance
contracts for most office products, for which the custom-
er typically pays a stated base service fee plus a variable
amount based on usage. Revenue from these service main-
tenance contracts is measured at the stated amount of the
contract and recognized as services are provided and vari-
able amounts are earned.
Revenue from the sale of equipment under sales-type leas-
es is recognized at the inception of the lease. Income on sales-
type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-financing leases
are accounted for as operating leases and related revenue is
recognized ratably over the lease term. When equipment leas-
es are bundled with product maintenance contracts, revenue
is allocated based upon the estimated relative fair value of
the lease and non-lease deliverables. Lease deliverables gener-
ally include equipment, financing and executory costs, while
non-lease deliverables generally consist of product mainte-
nance contracts and supplies.
Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and FPD lithography equip-
ment that are sold with customer acceptance provisions
related to their functionality, is recognized when the equip-
ment is installed at the customer site and the specific criteria
of the equipment functionality are successfully tested and dem-
onstrated 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS