Canon 2015 Annual Report Download - page 56

CANON ANNUAL REPORT 2015
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 (collectively
“Canon”) is one of the world’s leading manufacturers in such
fields as office products, imaging system products and indus-
try 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, digital compact cameras,
digital camcorders, digital cinema cameras, interchangeable
lenses, compact photo printers, inkjet printers, large-format ink-
jet printers, commercial photo printers, image scanners, multi-
media projectors, broadcast equipment and calculators. Industry
and other products consist mainly of semiconductor lithogra-
phy equipment, FPD (Flat panel display) lithography equipment,
digital radiography systems, ophthalmic equipment, vacuum
thin-film deposition equipment, organic LED (“OLED”) panel
manufacturing equipment, die bonders, micromotors, network
cameras, handy terminals and document scanners. Canon’s
consolidated net sales for the years ended December 31, 2015,
2014 and 2013 were distributed as follows: the Office Business
Unit 55.5%, 55.8% and 53.6%, the Imaging System Business
Unit 33.3%, 36.0% and 38.8%, the Industry and Others
Business Unit 13.8%, 10.7% and 10.0%, and elimination
between segments 2.6%, 2.5% and 2.4%, 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 subsidiaries are
responsible for marketing and distribution, and primarily sell
to retail dealers in their geographic area. 81.2%, 80.6% and
80.8% of consolidated net sales for the years ended December
31, 2015, 2014 and 2013 were generated outside Japan, with
30.1%, 27.8% and 28.4% in the Americas, 28.3%, 29.3%
and 30.1% in Europe, and 22.8%, 23.5% and 22.3% in Asia
and Oceania, respectively.
Canon sells laser printers on an OEM basis to HP Inc.; such
sales constituted 17.8%, 17.4% and 17.6% of consolidated
net sales for the years ended December 31, 2015, 2014 and
2013, respectively, and are included in the Office Business Unit.
Canon’s manufacturing operations are conducted primarily
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 accounting stan-
dards 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 incorporated
in the accompanying consolidated financial statements 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 variable
interest entities where the Company or its consolidated subsidiar-
ies are the primary beneficiaries. All significant intercompany bal-
ances and transactions have been eliminated.
(d) Use of Estimates
The preparation of the consolidated financial statements in con-
formity 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 liabili-
ties at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the period.
Significant estimates and assumptions are reflected in valua-
tion and disclosure of revenue recognition, allowance for doubt-
ful receivables, inventories, long-lived assets, goodwill and other
intangible assets with indefinite useful lives, environmental liabil-
ities, 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 trans-
actions, including foreign exchange contracts, and transla-
tion of assets and liabilities denominated in foreign currencies
are included in other income (deductions) in the consolidated
statements of income. Foreign currency exchange gains and
losses were a net loss of ¥22,149 million for the year ended
December 31, 2015, a net gain of ¥2,628 million for the year
ended December 31, 2014 and a net loss of ¥1,992 million for
the year ended December 31, 2013, respectively.
(f) Cash Equivalents
All highly liquid investments acquired with original maturi-
ties of three months or less are considered to be cash equiv-
alents. Certain debt securities with original maturities of less
than three months, classified as available-for-sale securities of
¥80,870 million and ¥139,240 million at December 31, 2015
and 2014, respectively, are included in cash and cash equiva-
lents in the consolidated balance sheets.