CanonSales 2004 Annual report

Transcription

CANON SALES CO., INC.
ANNUAL REPORT
2004
Year Ended December 31, 2004
Canon Sales Co., Inc., is the independent marketing arm of Canon Inc.—wholesaling
and retailing a broad range of products developed and manufactured by Canon. In addition
to the parent company, the Canon Sales Group currently includes 16 consolidated subsidiaries.
Its operations are concentrated in the following business segments: Business Solutions,
Consumer Equipment and Industrial Equipment.
The Group’s vision outlines its goal to evolve as a first-rate solutions provider that maximizes
the creativity of the individual. As it strives toward this goal, the Group also seeks to boost
revenue and income through more efficient operations. It therefore makes concerted efforts to
expand high-revenue businesses and reduce costs through superior inventory and logistical
systems. Equally important, the Group is firmly committed to strict compliance and effective,
customer-oriented management.
CONTENTS
Consolidated Financial Highlights ......................................
1
To Our Stockholders .......................................................... 2
Review of Operations ........................................................
5
Financial Section .............................................................. 15
Board of Directors and Corporate Auditors ........................ 35
Corporate Information ...................................................... 35
Disclaimer Regarding Forward-Looking Statements
This annual report contains forward-looking statements about the performance and management plans of Canon Sales Co., Inc.,
based on management’s assumptions in light of current information. The following factors may therefore influence actual results.
These factors include consumer trends in Japan as well as other major global markets, private capital expenditures, currency
fluctuations, notably against the U.S. dollar, materials prices and political turmoil in certain countries and regions.
Photo Credit
Cover photograph of broadcasting equipment courtesy of J.League Photos Inc.
2
CANON SALES CO., INC.
Consolidated Financial Highlights
Canon Sales Co., Inc. and Consolidated Subsidiaries
Years ended December 31, 2004 and 2003
Thousands of
U.S. dollars
Millions of yen
2004
2003
2004
Net sales by merchandise group
Business Solutions..................................................
Business Equipment ............................................
Service and Support ............................................
Consumer Equipment .............................................
Industrial Equipment ...............................................
Other ......................................................................
¥473,428
236,564
236,864
239,085
102,998
—
¥462,882
248,476
214,406
218,559
71,656
3,936
$4,552,192
2,274,654
2,277,538
2,298,894
990,366
—
Total .....................................................................
815,511
757,033
7,841,452
Net income ..............................................................
12,364
7,043
118,885
Total stockholders’ equity .....................................
234,158
225,317
2,251,519
Total assets .............................................................
¥482,337
¥495,396
$4,637,856
Yen
Net income per share .............................................
¥81.78.
U.S. dollars
¥46.24.
$0.79
Note: The accompanying financial figures have been presented in U.S. dollars by translating all Japanese yen amounts at ¥104 to US$1, the prevailing
exchange rate as of December 31, 2004.
840
Net Sales
Net Income (Loss)
(Billions of yen)
(Billions of yen)
815.5
794.9 786.8
720.3
14
Net Income (Loss) per Share
(Yen)
12.4
90
81.8
757.0
695.6
630
7
6.3
7.0
6.5
45
46.2
42.0 42.8
23.0
3.4
420
0
0
210
-28
-125
0
-35
-217.4
99 00 01 02 03 04
-32.8
99 00 01 02 03 04
-250
99 00 01 02 03 04
Canon Sales Co., Inc. Annual Report 2004
1
To Our Stockholders
Haruo Murase
President and CEO
Business reorganization yields record
photography whereby users enjoy every aspect
consolidated operating income
of the creative process—from taking a photograph
In fiscal 2004, ended December 31, 2004, Canon
to printing the final image at home. As a result,
Sales Co., Inc. and its consolidated subsidiaries
we secured the largest share of the compact digital
transformed sales and services structures and
camera market for the second consecutive year
revamped operations to facilitate its development
and the leading share of the ink-jet printer market
as an organization that creates added value.
for the first time in eight years.
In the Business Solutions segment, our strategy
In the Industrial Equipment segment, endeavors
for business-use multifunctional products (MFPs)
to raise customer satisfaction allowed us to maintain
centered more on providing integrated hardware
top share of the semiconductor production
and software solutions than promoting stand-alone
equipment market. This factor plus strong sales
sales of MFPs. Segment sales improved as the
of new imports other than semiconductor production
continuing shift from monochrome to color equipment
equipment contributed to higher segment revenue.
boosted revenue from maintenance services and
Canon Sales also promoted a thorough reas-
supplies. At the same time, cooperation among
sessment of business processes in each segment
Group companies in the area of information technology
to ensure better streamlining, which entailed
(IT) services began to generate results.
collaborating with Canon to reorganize inventory
Efforts in the Consumer Equipment segment
focused on promoting an approach to digital
2
and logistical systems.
Owing to the above, consolidated net sales
rose 7.7%, to ¥815.5 billion, and consolidated
operating income leapt 72.3%, to a record high
businesses and improving cost efficiency.
In the Business Solutions segment, our objectives
of ¥29.3 billion. Both results should be attributed
are to facilitate the shift to color equipment,
to several years of business reorganization.
enhance IT services and scale back less profitable
Consolidated net income also improved significantly,
businesses, including stand-alone sales of computers
surging 75.6%, to ¥12.4 billion.
and sales of paper for plain-paper copiers (PPCs).
Year-end cash dividends remained at ¥11.00
Our challenge in the Consumer Equipment
per share, bringing cash dividends for the full term
segment will be to further strengthen sales of digital
to ¥22.00, up ¥4.00 compared with the previous
cameras, digital video cameras, compact photo
fiscal year-end.
printers, and personal-use printers and MFPs.
This will bolster sales of cartridges and photo
Further developing as an integrated provider
paper, as users print more photographs at home.
of imaging and information-related solutions
Along with these efforts, we will channel our energies
The three-year management plan, running from
into boosting sales of such professional equipment
fiscal 2005 through fiscal 2007, outlines the further
as digital single-lens reflex (SLR) cameras and
development of Canon Sales into an integrated
interchangeable lenses, in addition to value-added
provider of imaging and information-related solutions.
large format printers. As part of a drive to revamp
Such a change is in line with our Group vision of
business processes, our focus will be on reducing
evolving as a first-rate solutions provider that
parts inventory, improving supply chain management
maximizes the creativity of the individual. The plan’s
(SCM) and ensuring more efficient logistics through
fiscal targets are shown in the table below.
cooperation with Canon.
From fiscal 2005, the Industrial Equipment
The second strategy of the three-year manage-
segment will be impacted by the downward phase
ment plan is to record top sales in mainstay product
of the semiconductor industry’s business cycle.
categories by providing the highest value to
Nevertheless, we expect the performances of the
customers, thereby bolstering our brand. This
Business Solutions and Consumer Equipment
entails more than merely winning the largest
segments to compensate for any loss in this segment.
market share. It also requires that we become
The first strategy of the three-year management
No. 1 in terms of product quality, services, tech-
plan is to promote profitable growth. Our goal is to
nology, customer relations or any other standard
achieve an ordinary income margin of 5.0% by
by which we are judged. In doing so, we aim to
fiscal 2010 by expanding highly profitable
maintain top market position for PPCs—a category
Three-Year Management Plan Targets
(Billions of yen)
FY2005
FY2006
FY2007
¥825.0
¥870.0
¥920.0
Consolidated operating income
25.0
29.5
33.0
Consolidated net income
12.5
16.1
18.2
Consolidated net sales
3
which includes business-use MFPs—laser-beam
The fourth strategy of the three-year management
printers (LBPs), digital cameras, ink-jet printers,
plan is to improve the quality of our workforce by
scanners, steppers and television camera lenses.
introducing a new personnel system and enhancing
Our sights are also set on seizing the greatest
employee education and corporate training.
shares of the business-use color MFP, color LBP
and digital video camera markets in the near future.
Developing IT services businesses into a steady
Finally, the fifth strategy requires us to fulfill our
duty as a responsible corporate citizen. Accordingly,
we will make concerted efforts to reinforce our
source of profit is the third strategy of the plan.
compliance system, maintain strict information
With a vision of establishing the Canon brand in
security and privacy standards, promote internal
the IT services market, we are focusing on the
control evaluations and ensure more effective
following five areas:
environmental management.
In these and all our endeavors, we look forward
1. Information Services such as document
to the continued loyal support and understanding
solutions, knowledge management and
of our stockholders, investors and other stakeholders.
content management;
March 2005
2. Backbone Systems, including enterprise
resource planning (ERP), customer relations
management (CRM), production management,
portable data terminals and electronic medical
charts;
Haruo Murase
3. Network Integration, encompassing network
construction, our Internet data center (iDC)
and other Internet-related services;
4. Professional Services, which offers a full
range of services, from consulting to system
construction and management; and
5. Service and Support, centered on equipment
maintenance services.
Our goal is to raise IT services sales from ¥236.9
billion in fiscal 2004 to ¥305 billion in fiscal 2007.
To accomplish this, we will reinforce our businesses
with a view to future mergers and acquisitions.
4
President and CEO
REVIEW OF
O P E R AT I O N S
Business Solutions ........................................ 6
Consumer Equipment ................................... 9
Industrial Equipment .................................. 13
5
CanonCanon
Sales Co.,
Sales
Inc.
Co.,
Annual
Inc. Annual
ReportReport
2004 2004
5
R E V I E W
O F
O P E R A T I O N S
BUSINESS
SOLUTIONS
series—a solid source of revenue in fiscal 2003—
also sold well, amounting to approximately 20% of
color MFP shipments in Japan in fiscal 2004. As a
result, total business-use MFP sales improved as
increases in color MFP sales offset a drop in sales
of monochrome MFPs.
Percentage of
Net Sales: 58.1%
In fiscal 2005, we will take further steps to
secure the top market share and persist with the
above strategy to promote the shift to color
■ Business Equipment
MFPs. In addition, we will continue to develop
Business-use Multifunctional Products
such promotional campaigns as Ask Canon! and
Having recovered in terms of sales volume and
provide business solutions that meet users’ needs.
value in fiscal 2003, the business-use multifunctional product (MFP) market continued to grow
Laser-Beam Printers
substantially in fiscal 2004, spurred on by
In fiscal 2004, color laser-beam printer (LBP) sales
launches of new color MFPs from most makers.
were firm, owing to the steady market shift toward
Increased color MFP sales—accounting for over
color equipment. Monochrome LBP sales dipped
30% of business-use MFP sales—led to higher
slightly as customers realized that the newer, faster
revenue from maintenance services and boosted
models, when strategically positioned within the work-
sales in this subcategory.
place, could manage the combined workload of several
Our basic policy for fiscal 2004 was to become
older units. This factor outweighed solid replacement
No. 1 in market share and sales growth. We therefore
demand for monochrome units as part of mission-
reinforced MFP sales through a carefully planned
critical systems. As a consequence, total LBP
strategy to promote the shift from monochrome to
shipments remained almost level and total sales in
color MFPs. In August 2004, we launched the
terms of value declined, compared with fiscal 2003.
iR C3220 series of color MFPs with enhanced
During the period under review, we strove hard
features, including our proprietary Java-based
to expand an ongoing sales campaign centering
Multifunctional Embedded Application Platform
on LBP5700, a color LBP with A3-size capabilities
(MEAP). The series, which replaced the iR C3200
launched in fiscal 2004. Despite such efforts, color
iR C3220
6
Satera LBP5700
POWER PROJECTOR SX50
Scan To Office
R E V I E W
LBP sales fell 10%, owing to a drop in sales of
O F
O P E R A T I O N S
During the period under review, our MFP-related
LBPs using A4-size print media only, which countered
business, which previously focused exclusively on
higher sales of A3 units.
installation and maintenance, expanded to include
In February 2004, we commenced sales of the
a broad spectrum of new services such as paid-for
LBP3800 and LBP3700 models, the mainstays in
demonstrations on equipment operation. This
our lineup of A3 monochrome LBPs. To substantially
expansion led to an approximately 8% increase
boost replacement demand, we capitalized on the
in Professional Services sales.
high-speed printing capabilities of monochrome
In addition, subsidiary Canon System &
LBPs, as well as their low running costs—made
Support Inc., which operates a network of 181
possible by our cartridge value packs.
branches across Japan, registered steady
As a result, total LBP sales declined only 5%,
increases in sales of equipment as well as
despite harsh market conditions. In addition, sales
Maintenance/Support Services.
revenue from toner cartridges and other supplies
Note: “Service and Support” is the official name of the category
grew. This mainly reflected highly profitable color
cartridge sales that surpassed monochrome cartridge
within the Business Solutions segment that encompasses
Canon Sales’ Maintenance/Support Services and Software
businesses.
sales, owing to firm sales of A3 color LBPs.
In fiscal 2005, we will implement a series of color
Software
LBP launches and expand sales of business-use A3
The overall software market showed signs of a
color LBPs.
steady recovery in fiscal 2004 after emerging from
a period of stagnancy the year before. The market
■ Service and Support
also demonstrated a particular interest in network
Maintenance/Support Services
security, personal information protection and
Although the number of leased units in operation
compliance-related products. Given this environment,
remained level in fiscal 2004, sales of maintenance
we revamped the imageWARE series of products
services for such equipment rose. This was attributable
that allow users to enhance business-use MFP
to stronger sales of Maintenance Guarantee (MG)
functions. Products in the series sold well, especially
maintenance services for color MFPs due to
Publishing Manager, a publishing tool for printing
increased use of color equipment. Sales of
and binding documents. In the area of network
maintenance services for hardware other than
security, firm sales of anti-virus and data protection
business-use MFPs more than doubled, compared
software from Group company Canon System
with the previous fiscal year, as a result of measures
Solutions Inc. were accompanied by improved
taken to expand Canon Service Pack (CSP) sales.
consulting sales.
In our Professional Services business, we capitalized
In October 2004, we launched Scan To Office
on customers’ growing concern about information
and NetSpot Accountant—applications compatible
security. To this end, we launched several hard
with MEAP installed in the iR series of business-use
disk-related services, including the removal of
MFPs. Both products will play a significant role
MFP hard disks, which are given to customers for
in differentiating our MFPs from those of our
disposal or safekeeping.
competitors.
7
R E V I E W
O F
O P E R A T I O N S
The market responded extremely well to the
subsidiary took this step to capitalize on expertise
addition of integrated circuit (IC) card personal
in this area. Canon System Solutions substantially
identification functions that provide security for
increased sales in its system integration and support
MEAP-enabled equipment. Our plan is to propose
services business by cultivating new customers.
various IC card-centered solutions, as information
In addition, sales of its tailored software packages,
security—even the security of copiers handling
including the proprietary security software
paper documents—becomes an important concern,
GUARDIANWALL, and server solutions grew
especially for large corporations. We also aim to
steadily. As a reflection of the efforts above, the
build a sales system with the ability to respond
subsidiary posted record net sales and income.
swiftly to customer needs and offer the most suitable
Also, Canotec Co., Inc., which became Canon
proposals. This will entail enhancing employee
Network Communications Inc. on January 1,
training on the utilization of sales channels.
2005, strove to reinforce its business centered
Within the Canon Sales Group, Canon Software
on network integration.
Inc. launched new businesses including information
security management system (ISMS) consulting
Projectors
services. Having acquired ISMS certification, the
In fiscal 2004, sales remained flat in the projector
market, where demand polarized between smaller,
less-expensive models for business meetings and
Advertisement in Fiscal 2004
educational purposes and the increasingly popular
high-end models with 3000–4000 lm (lumens)
specifications. In this environment, we expanded
sales promotion activities focused on the Realis
SX50, the first Canon projector.
Large Format Printers
The market for large format printers, which
accommodate print media larger than A1-size,
remained unchanged during the fiscal year under
review. From fiscal 2005, however, the market is
expected to expand. Primary reasons are
enhanced printing capabilities on various media
and the use of solution-based sales suited to
each segment of the poster printing market,
including point of purchase (POP) displays. We
sought to boost brand recognition in this area,
mainly by boosting sales of the W6200, which
was introduced to the market in November 2004.
8
R E V I E W
CONSUMER
EQUIPMENT
O F
O P E R A T I O N S
We anticipate greater demand for equipment
that enables consumers to print photographs at
home, as digital cameras become more common.
Accordingly, we channeled more energies and
resources into our new photo printer business.
To establish our name in this market, we introduced
Percentage of
Net Sales: 29.3%
the SELPHY series of compact photo printers.
The small, attractive and user-friendly design of
the SELPHY series appealed to consumers,
■ Cameras and Video Cameras
resulting in monthly sales rising to over 10,000
Digital Cameras
units during the period under review.
In fiscal 2005, we plan to focus on demand for
In fiscal 2004, the digital camera market grew
1.3% in terms of shipments. Sales in terms of
replacement and additional equipment as ownership
value, however, edged down 0.7% reflecting a
of digital cameras increases. At the same time,
9% drop in average unit prices due to intensified
however, we will ensure marketing that carefully
competition between retailers in a mature market.
targets every category of consumer. Our goal is to
Slim, lightweight digital cameras with large liquid
launch more desirable products, by reinforcing
crystal displays (LCDs) became best sellers,
cooperation between planning and research
accounting for 75% of the digital camera sales
departments and constantly monitoring purchasing
market.
trends, consumer preferences and technological
In this environment, we took steps to bolster
brand recognition, particularly for the IXY DIGITAL
developments.
The digital single-lens reflex (SLR) camera market
series, by launching a series of commercials. As a
in fiscal 2004 featured products from all key makers
result, in every month of fiscal 2004, at least two
and experienced dynamic growth with the arrival
models from this popular series ranked among
of new entry-level items. The rise in shipments
Japan’s top ten cameras in terms of shipments.
was mainly attributable to an increase in consumer
This success played a major part in securing our
electronics sales channels through which consumers
leading share of the compact digital camera market.
purchase digital SLR cameras.
IXY DIGITAL 50
EOS 20D
SELPHY CP400
9
R E V I E W
O F
O P E R A T I O N S
In the professional-use market, we established
During the period under review, we persisted in
our EOS DIGITAL brand, developing a solid reputation
our efforts to enhance the reputation of our mainstay
among news organizations. This was demonstrated
digital video cameras. To this end, we appealed to
during the Athens 2004 Olympic Games, where
customers by further promoting digital video cameras
90% of the digital SLR cameras used by news
that realize image quality sufficient for both still
organizations were EOS-1Ds Mark IIs.
shots and video—a concept we introduced in
We anticipate further growth in the digital SLR
fiscal 2003. At the top end of the market, we
camera market in fiscal 2005, despite intensifying
launched the XL2 in August 2004. The product
competition among producers. To capitalize on
met with strong market approval, owing to thorough
this opportunity, we will utilize well-planned sales
market research followed by advertising and sales
promotion activities that target each category of user.
campaigns targeting professionals in the creative field.
In fiscal 2004, digital video camera sales
Video Cameras
improved as we built on the previous year’s
The video camera market, which was initially
considerable achievements and strengthened the
expected to remain firm throughout the period
foundations of our business. Sales in terms of
under review, shrank, owing to the industry’s
shipments rose to record levels, ranking us third in
inability to cultivate new demand. Sales in terms
the industry by market share. In fiscal 2005, we
of value fell, as increased competition reduced
will reinforce our position in the video camera market
average unit prices by approximately 10%.
by enhancing our lineup and winning a sizable
Recently, video cameras using digital versatile
share of sales in each price category.
discs (DVDs), Secure Digital (SD) memory cards
and hard disk drives (HDDs) to record images
■ Ink-Jet Printers and Personal-use MFPs
have appeared on the market. Developers of
The market for ink-jet printers showed few signs
new media, particularly next-generation DVDs,
of growth in fiscal 2004, as the consumer shift to
will fight hard to ensure their format of recordable
MFPs accelerated. In October 2004, we launched
media prevails. We will therefore assess new
three MFPs with substantially enhanced functions
trends and adjust our marketing strategies
to bolster the perception of MFPs as value-added
appropriately.
devices distinct from regular ink-jet printers.
IXY DV M3
10
PIXUS iP4100
wordtank V80
R E V I E W
O F
O P E R A T I O N S
In addition to revamping MFPs, we introduced a
■ Other Products
completely new set of ink-jet printers. Through
Personal-use Facsimiles
these changes, we created a full lineup of ink-jet
The personal-use facsimile market remained firm
printers and MFPs catering to every market
in terms of shipments throughout fiscal 2004.
segment, ranging from the lower to upper price
Plunging unit prices, however, caused a sharp
ranges. The new products, which featured
drop in the total value of annual sales. This situation
improved designs and functions such as auto-
impacted our business, despite efforts to ensure
matic double-sided printing, stimulated demand,
profitability and a market share over 10% by
particularly from users replacing older models. As
expanding and reinforcing sales channels. In contrast,
a result, ink-jet printer and MFP shipments
ink film sales were steady, owing to the increased
increased, giving us top share of the market in
number of personal-use facsimiles owned by
terms of units shipped per annum.
consumers.
In fiscal 2005, consumers will increasingly
We expect solid sales from this subcategory, as
switch to MFPs, although the overall market will
personal-use facsimiles become an integral part of
remain flat. In light of this, we aim to maintain our
every Japanese home. Our estimates reveal that
leading market share by placing the appropriate
45% of households possessed a facsimile as of
emphasis on sales of each product in our compre-
March 2004. In fiscal 2005, we will persist with the
hensive lineup. In addition, we will pursue sales
aforementioned drive to return our personal-use
and advertising strategies focusing on the key
facsimile business to profitability and seize a
theme of promoting photograph printing at home.
double-digit share of the market.
11
R E V I E W
O F
O P E R A T I O N S
Scanners
Calculators and Electronic Dictionaries
The scanner market continued to contract, shrinking
In fiscal 2004, sales revenue and income from
approximately 35%, compared with the previous
calculators and electronic dictionaries improved.
fiscal year. In response, we promoted a product
We recorded sales over ¥3.0 billion for the first
strategy to maximize profits. This strategy won us
time in 10 years and achieved an unbroken run of
the largest market share in terms of shipments for
13 profitable years. Electronic dictionaries made a
the fifth consecutive year and the No. 1 share as
particularly strong contribution to the increase in
measured by value of sales for the first time.
sales. This success was attributable to our focus
Moreover, Canon products occupied the top three
on electronic dictionaries for high school exam
places in the yearly domestic rankings of best-selling
preparation as well as other models containing
scanners.
Chinese dictionaries. In fiscal 2005, we plan to
During the period under review, we successfully
cultivated demand by promoting new PDF (portable
document format) document management and
filing system capabilities in addition to existing
functions such as film scanning.
12
launch several new products to keep our monthly
share of the market above 10%.
R E V I E W
INDUSTRIAL
EQUIPMENT
O F
O P E R A T I O N S
Mirror Projection Aligners
From the second half of fiscal 2003 until the middle
of fiscal 2004, worldwide demand for wafer imaging
equipment strengthened, reflecting continued
investment by Japanese, Korean and Taiwanese
companies in large LCD factories. During the period
Percentage of
Net Sales: 12.6%
under review, however, shipments fell as a consequence of dwindling capital investment in the latter
half of fiscal 2004.
■ Semiconductor Production Equipment
To counter this, we launched two mirror projection
Fine Pattern Aligners
aligners in July 2004: the MPA-8000 and the
Capital investment by semiconductor manufacturers,
MPA-8500 for sixth and seventh generation glass
which had remained high for several years, slowed
substrates, respectively. The launches were
slightly in the second half of fiscal 2004. Capacity
accompanied by global sales activities focusing
utilization of production lines also declined.
on large LCD production lines for flat panel
In April 2004, we launched the FPA-6000 ES6
televisions.
with a krypton-fluoride (KrF) lens that reduces
costs by functioning in a wider array of numerical
Others
aperture (NA) and illumination conditions. As part
In July 2004, we commenced sales of MS-100,
of our drive to boost orders, we established sales
a manually controlled etcher produced by Alcatel
teams with full-time members specially chosen for
Vacuum Technology France SA, targeting the
a particular project. This step was taken as we
research and development market. In addition,
targeted demand for new 300mm-wafer production
we began sales of Zygo Corporation’s PTI 250
lines, which most companies have announced
series of small aperture interferometer systems,
their intention to install, and imaging devices—an
resulting in many orders for the highly rated
area promising continuous growth. Sales in terms
series—particularly from existing customers.
of value improved considerably compared with the
previous fiscal year and our market share expanded
from less than 55% to over 60%.
FPA-6000 ES6
Fine pattern aligner
MPA-8500
Mirror projection aligner
HJ22ex7.6B
HDTV camera lens
13
R E V I E W
O F
O P E R A T I O N S
■ Optical Equipment
Network Cameras and Video Recorders
This category encompasses a range of products
The developing market for network cameras is
including broadcasting equipment, network cameras
expected to benefit from a steady rise in demand.
and video recorders, and medical equipment. We
Although most network cameras are currently
have singled out for review the performances of
used for general monitoring, we anticipate increasing
our broadcasting equipment and network
demand for products that can function as security
camera and video recorder businesses.
cameras to guarantee safety and prevent crime.
Responding to the needs of the market, we
Broadcasting Equipment
commenced sales of VK-64, a network video
The spread of terrestrial digital television broad-
recorder that simultaneously records video from
casting has encouraged television companies to
various places in remote locations. Other new
invest in high-definition television (HDTV) cameras.
products included the VB-C50i and VB-C50Fi
We look forward to growing demand in this area—
network cameras featuring extremely powerful
especially from broadcasters seeking to replace
optical zooms, high sensitivity to light and night
existing equipment. Owing to the appeal of such
mode functions for infrared image capture.
products as the HJ22ex7.6B lens launched in fiscal
2004, we received a considerable volume of orders
for studio and portable broadcasting lenses.
14
Financial Section
CONTENTS
Six-Year Consolidated Financial Summary ..........................................
Financial Review ...................................................................................
Consolidated Balance Sheets ..............................................................
Consolidated Statements of Operations ..............................................
Consolidated Statements of Stockholders’ Equity ..............................
Consolidated Statements of Cash Flows .............................................
Notes to Consolidated Financial Statements .......................................
Report of Independent Auditors ...........................................................
16
17
18
20
21
22
23
34
15
Six-Year Consolidated Financial Summary
Years ended December 31
Thousands of
U.S. dollars (Note 1)
Millions of yen
2004
2003
2002
2001
2000
1999
For the year:
Net sales .............................. ¥ 815,511 ¥757,033 ¥695,585 ¥786,828 ¥ 794,917 ¥720,259
Cost of sales......................... 547,011 507,491 467,044 542,732
541,199 504,370
Gross profit ........................... 268,500 249,542 228,541 244,096
253,718 215,889
Selling, general and
administrative expenses ..... 239,226 232,555 217,656 224,699
233,206 197,711
Operating income .................
29,274
16,987
10,885
19,397
20,512
18,178
Income (loss) before
income taxes and
minority interests ................
20,186
20,438
6,873
(63,280)
15,313
13,770
Income taxes (credit) ............
7,666
13,219
3,361
(28,407)
7,966
7,257
Net income (loss) ..................
12,364
7,043
3,436
(32,831)
6,460
6,345
At year-end:
Total assets ..........................
Total stockholders’ equity .....
482,337
234,158
495,396
225,317
495,298
220,797
514,698
220,418
518,958
256,959
486,176
257,740
Yen
Per share of common stock:
Net income (loss) (Note 2) .... ¥)(281.78 ¥0,046.24 ¥)(222.96 ¥,(217.39) ¥0,042.77 ¥0,042.01
Cash dividends (Note 3) .......
22.00
18.00
18.00
18.00
18.00
18.00
Stockholders’ equity ............. 1,562.23 1,496.74 1,464.43 1,459.60 1,701.44 1,706.64
2004
$7,841,452
5,259,721
2,581,731
2,300,250
281,481
194,096
73,711
118,885
4,637,856
2,251,519
$,(0.79.
0.21)
15.02)
Notes: 1. The accompanying financial figures have been presented in U.S. dollars by translating all Japanese yen amounts at ¥104 to US$1,
the prevailing exchange rate as of December 31, 2004.
2. Net income (loss) per share is based on the weighted average number of shares of common stock outstanding during the
respective fiscal years.
3. Cash dividends per share are the amounts applicable to the respective fiscal years, including dividends to be paid after the end of
the year.
16
Financial Review
Results of Operations
Sales
Consolidated net sales rose 7.7% in fiscal 2004, ended
December 31, 2004, to ¥815.5 billion, mainly owing to
brisk sales of color multifunctional products (MFPs),
digital cameras, ink-jet printers and semiconductor
production equipment.
Business Solutions sales totaled ¥473.4 billion, up 2.3%,
reflecting considerably stronger sales of color MFPs and
expanding sales of toner cartridges for laser-beam printers
(LBPs). Sales of Consumer Equipment climbed 9.4%, to
¥239.1 billion, as Canon Sales secured the top share of
the compact digital camera market for the second consecutive year and the largest share of the ink-jet printer
market for the first time in eight years. Industrial Equipment sales surged 43.7%, to ¥103.0 billion, partly as a
result of product launches that stimulated substantial
increases in orders from new and existing customers.
Earnings
Operating income reached a record high of ¥29.3 billion,
an increase of 72.3% compared with the previous fiscal
year, attributable to a decrease in selling, general and
administrative expenses as a percentage of gross profit.
This improvement occurred as higher gross profit countered greater advertising and sales promotion expenses—
incurred during a drive to expand sales—and hikes in
performance-based remuneration due to better business
results.
Net income leapt 75.6%, to ¥12.4 billion, despite a
higher loss on disposal and devaluation of inventories,
expenses related to redemption of bonds and loss on
impairment of fixed assets.
Net income per share was ¥81.78, compared with
¥46.24 in fiscal 2003. Cash dividends per share applicable
to the year were ¥22.00, up ¥4.00.
Financial Position
Total assets of Canon Sales as of December 31, 2004,
shrank 2.6%, to ¥482.3 billion. Significant items in this
Return on Sales (ROS)
result included an increase in notes and accounts receivable due to improved net sales, a decrease in cash and
cash equivalents accompanying the redemption of longterm debt and a reduction of inventories.
The sum of total current liabilities and total long-term
liabilities fell 8.2%, to ¥245.5 billion, mainly reflecting
redemption of long-term debt, which offset rises in notes
and accounts payable and liability for employees’
retirement benefits.
As a result of the above factors, total stockholders’
equity amounted to ¥234.2 billion, a gain of 3.9%. Return
on equity (ROE) was 5.4%, compared with 3.2% in the
previous fiscal year. Stockholders’ equity ratio was 48.5%,
up from 45.5% a year earlier. Stockholders’ equity per
share reached ¥1,562.23, compared with ¥1,496.74 in
fiscal 2003.
Cash Flows
Cash and cash equivalents at end of year were ¥98.8 billion, ¥25.0 billion lower than at the beginning of the period,
owing primarily to payments for redemption of bonds of
¥35.0 billion.
Net cash provided by operating activities amounted to
¥22.1 billion, compared with ¥23.7 billion in the previous
period. Contributing factors included income before
income taxes and minority interests of ¥20.2 billion, depreciation and amortization of ¥8.7 billion, provision for
employees’ retirement benefits of ¥5.4 billion, increase
in notes and accounts receivable of ¥22.6 billion and
decrease in inventories of ¥8.5 billion.
Net cash used in investing activities totaled ¥8.0 billion,
compared with ¥16.3 billion in fiscal 2003, primarily comprising payments for purchase of property and equipment
of ¥7.7 billion.
Net cash used in financing activities amounted to ¥39.0
billion, compared with ¥20.3 billion in the previous period,
mostly owing to payments for redemption of bonds of
¥35.0 billion.
Total Stockholders’ Equity
and Return on Equity (ROE)
Working Capital
(%)
6
(Billions of yen)
900
(%)
1.5
(Billions of yen)
400
600
1.0
300
1.8
200
4
300
0.5
200
1.2
100
2
0
0.0
100
0.6
0
0
-5.0
0
99 00 01 02 03 04
Net Sales
ROS
(Times)
2.4
(Billions of yen)
300
0.0
99 00 01 02 03 04
Total Current Assets
Total Current Liabilities
Current Ratio
-15
99 00 01 02 03 04
Total Stockholders’ Equity
ROE
17
Consolidated Balance Sheets
December 31, 2004 and 2003
Thousands of
Millions of yen
ASSETS
2004
2003
2004
Current assets:
Cash and cash equivalents ....................................
Notes and accounts receivable ..............................
Inventories (Note 4) ................................................
Deferred tax assets (Note 8) ..................................
Other current assets ..............................................
Allowance for doubtful receivables .........................
¥198,844
166,360
56,887
5,731
7,700
(298)
¥123,815
143,678
65,272
4,597
8,064
(342)
$1,950,423
1,599,615
546,990
55,106
74,039
(2,865)
Total current assets..........................................
335,224
345,084
3,223,308
Property and equipment (Note 9):
Land ......................................................................
Buildings and structures ........................................
Machinery ..............................................................
Vehicles .................................................................
Furniture and fixtures .............................................
Rental assets .........................................................
Construction in progress ........................................
40,884
70,817
4
27
19,156
15,311
542
41,438
70,520
4
34
20,535
14,707
—
393,115
680,933
38
260
184,192
147,221
5,212
Total .................................................................
Accumulated depreciation .....................................
146,741
(43,815)
147,238
(42,621)
1,410,971
(421,298)
Net property and equipment ............................
102,926
104,617
989,673
Intangible assets:
Software ................................................................
Utilization rights......................................................
Other intangible assets ..........................................
5,009
360
30
5,344
451
47
48,163
3,462
288
Total intangible assets ......................................
5,399
5,842
51,913
Investments and other assets:
Investments in securities (Notes 3 and 10) .............
Long-term loans receivable ....................................
Lease deposits ......................................................
Deferred tax assets (Note 8) ..................................
Other investments ..................................................
Allowance for doubtful receivables .........................
4,348
15
9,286
23,073
3,402
(1,336)
3,598
64
9,958
24,204
3,599
(1,570)
41,808
144
89,288
221,856
32,712
(12,846)
Total investments and other assets ..................
38,788
39,853
372,962
Total assets......................................................
¥482,337
¥495,396
$4,637,856
See accompanying notes to consolidated financial statements.
18
Thousands of
Millions of yen
LIABILITIES AND STOCKHOLDERS’ EQUITY
2004
2003
2004
Current liabilities:
Notes and accounts payable .................................
Current portion of long-term debt (Note 5) .............
Accrued income taxes ...........................................
Accrued consumption tax payable .........................
Accrued expenses .................................................
Reserves ................................................................
Other current liabilities ............................................
¥142,186
—
5,343
3,872
29,721
4,676
10,014
¥139,984
10,000
4,287
2,205
28,112
4,379
9,091
$1,367,173
—
51,375
37,231
285,779
44,962
96,288
Total current liabilities .......................................
195,812
198,058
1,882,808
—
184
44,741
25,000
176
39,294
—
1,769
430,202
546
1,928
2,242
473
2,639
1,701
5,250
18,538
21,558
Total long-term liabilities ...................................
49,641
69,283
477,317
Minority interests ...................................................
2,726
2,738
26,212
73,303
82,522
78,599
73,303
82,484
69,289
704,837
793,480
755,760
678
(24)
(920)
290
(18)
(31)
6,519
(231)
(8,846)
Total stockholders’ equity ................................
234,158
225,317
2,251,519
Total liabilities and stockholders’ equity ...........
¥482,337
¥495,396
$4,637,856
Long-term liabilities:
Long-term debt (Note 5) ........................................
Deferred tax liabilities (Note 8) ................................
Liability for employees’ retirement benefits (Note 6) ..
Liability for directors’ and corporate auditors’
retirement benefits (Note 2) ..................................
Consolidation differences .......................................
Other long-term liabilities .......................................
Contingent liabilities (Note 11)
Stockholders’ equity (Notes 7 and 12):
Common stock:
Authorized—299,500,000 shares;
Issued—150,523,896 shares in 2004 and 2003 ...
Capital surplus .......................................................
Retained earnings ..................................................
Net unrealized gain on available-for-sale
securities .............................................................
Foreign currency translation adjustments ...............
Treasury stock .......................................................
19
Consolidated Statements of Operations
Thousands of
Millions of yen
2004
2003
2004
Net sales .................................................................
Cost of sales ..........................................................
¥815,511
547,011
¥757,033
507,491
$7,841,452
5,259,721
Gross profit ............................................................
Selling, general and administrative expenses ....
268,500
239,226
249,542
232,555
2,581,731
2,300,250
Operating income ..................................................
Other income (expenses):
Interest and dividend income .................................
Interest expense ....................................................
Loss on disposal and devaluation of inventories ....
Loss on impairment of fixed assets ........................
Expenses related to redemption of bonds .............
Gain on sales of investments in securities ..............
Loss on sales and disposal of property and
equipment ...........................................................
One time amortization of consolidation differences ...
Gain on return of substitutional portion of
governmental welfare pension program ...............
Expenses related to restructuring of consolidated
subsidiaries ..........................................................
Expenses related to relocation of headquarters .....
Provision for directors’ and corporate auditors’
retirement benefits for prior year ..........................
Other—net .............................................................
29,274
16,987
281,481
96
(468)
(6,262)
(866)
(1,660)
23
89
(1,007)
(3,986)
—
—
14
923
(4,500)
(60,211)
(8,327)
(15,962)
221
(1,267)
—
(3,489)
(9,784)
(12,183)
—
—
22,192
—
(100)
—
(1,087)
(728)
(961)
—
—
1,416
(788)
2,025
—
13,615
(9,088)
3,451
(87,385)
20,186
20,438
194,096
7,919
(253)
5,439
7,780
76,144
(2,433)
Income before minority interests ............................
Minority interests .......................................................
7,666
12,520
156
13,219
7,219
176
73,711
120,385
1,500
Net income ...............................................................
¥)(12,364
¥007,043
$0(118,885
Income before income taxes and
minority interests ..................................................
Income taxes (Note 8):
Current ..................................................................
Deferred .................................................................
Yen
Per share of common stock (Note 2):
Net income ............................................................
Cash dividends applicable to the year....................
20
¥81.78.
22.00)
¥46.24
18.00
$0.79.
0.21.
Consolidated Statements of Stockholders’ Equity
Millions of yen
Number of
shares of
common stock
Common
stock
Capital
surplus
Retained
earnings
Balance at December 31, 2002 ........... 151,023,896
Net income ...........................................
Cash dividends .....................................
Bonuses to directors .............................
Adjustment due to increase in
consolidated subsidiaries ....................
Gain on disposal of treasury stock ........
Net unrealized gain on
available-for-sale securities .................
Foreign currency translation adjustments ...
Retirement of treasury stock .................
(500,000)
Increase in treasury stock—net .............
¥ 73,303
¥ 82,482
Net income ...........................................
Cash dividends .....................................
Bonuses to directors .............................
consolidated subsidiaries ....................
Gain on disposal of treasury stock ........
Net unrealized gain on
available-for-sale securities .................
Foreign currency translation adjustments ...
Employee welfare fund ............................
Increase in treasury stock—net .............
¥ 73,303
¥ 73,303
¥65,405
7,043
(2,714)
(81)
Net unrealized
gain (loss) on
available-for-sale
securities
¥(175)
Foreign
currency
translation
adjustments
¥(0—.
Treasury
stock
¥(218)
68
2
465
(18)
(432)
¥ 82,484
¥69,289
12,364
(3,005)
(75)
432
(245)
¥(290
¥0(18).
¥0(31)
26
38
388
(6)
(0)
(889)
¥ 82,522
¥78,599
¥(678
¥0(24)
¥(920)
Thousands of U.S. dollars (Note 1)
Common
stock
Capital
surplus
Balance at December 31, 2003 ..................................
Net income .................................................................
Cash dividends ...........................................................
Bonuses to directors ...................................................
consolidated subsidiaries ..........................................
Gain on disposal of treasury stock ..............................
Net unrealized gain on available-for-sale securities ......
Foreign currency translation adjustments ....................
Employee welfare fund ................................................
Increase in treasury stock—net ...................................
$704,837 $793,115
Balance at December 31, 2004 ..................................
$704,837 $793,480
Retained
earnings
$666,240
118,885
(28,894)
(721)
Net unrealized
gain on availablefor-sale securities
$2,789
Foreign
currency
translation
adjustments
Treasury
stock
$(173) $0,(298)
250
365
3,730
(58)
(0)
(8,548)
$755,760
$6,519
$(231) $(8,846)
21
Consolidated Statements of Cash Flows
Thousands of
Millions of yen
2004
Cash flows from operating activities
Income before income taxes and minority interests .........................
Adjustments for:
Depreciation and amortization .....................................................
Loss on impairment of fixed assets ..............................................
Amortization of consolidation differences .....................................
One time amortization of consolidation differences .......................
Decrease in allowance for doubtful receivables ............................
Provision for employees’ retirement benefits ................................
Provision for directors’ and corporate auditors’ retirement
benefits ......................................................................................
Interest and dividend income .......................................................
Interest expense ..........................................................................
Equity in earnings of nonconsolidated subsidiaries and affiliates ...
Loss on sales and disposal of property, plant and equipment ......
Gain on return of substitutional portion of governmental welfare
pension program .......................................................................
Gain on sales of subsidiaries ........................................................
Gain on sales of investments in securities ....................................
Increase in notes and accounts receivable ...................................
Decrease (increase) in inventories ................................................
Increase in notes and accounts payable ......................................
Other ...........................................................................................
Cash generated from operations .....................................................
Interest paid .................................................................................
Interest and dividends received ....................................................
Income taxes paid .......................................................................
Net cash provided by operating activities .....................................
Cash flows from investing activities
Proceeds from sale of marketable securities ...................................
Payments for purchase of property and equipment .........................
Payments for purchase of intangible assets ....................................
Payments for purchase of investments in securities .........................
Proceeds from sales of investments in securities .............................
Payments for purchase of investments in subsidiaries .......................
Payments for purchase of investments in subsidiaries
accompanying changes of scope of consolidation ........................
Proceeds from sales of investments in subsidiaries
accompanying changes of scope of consolidation ........................
Decrease in time deposits ...............................................................
Other ..............................................................................................
Net cash used in investing activities .............................................
Cash flows from financing activities
Decrease in short-term bank loans ..................................................
Payments for redemption of bonds .................................................
Payments for purchase of treasury stock ........................................
Dividends paid ................................................................................
Other ..............................................................................................
Net cash used in financing activities .............................................
Effect of exchange rate changes on cash and cash equivalents .........
Net decrease in cash and cash equivalents ........................................
Cash and cash equivalents at beginning of year .................................
Cash and cash equivalents of newly consolidated subsidiaries
at beginning of year ..........................................................................
Decrease in cash and cash equivalents resulting from exclusion of
consolidated subsidiaries .................................................................
Cash and cash equivalents at end of year ..........................................
22
¥020,186
2003
2004
¥020,438
$0,194,096
8,699
866
(674)
—
(278)
5,447
8,519
—
(939)
9,784
(141)
5,482
83,644
8,327
(6,481)
—
(2,673)
52,375
73
(96)
2,106
—
1,260
403
(89)
1,007
(18)
3,477
702
(923)
20,250
—
12,115
—
—
(23)
(22,647)
8,519
2,204
5,440
31,082
(2,259)
94
(6,864)
22,053
(22,192)
(512)
(14)
(14,251)
(6,709)
8,623
13,681
26,549
(848)
91
(2,121)
23,671
—
—
(221)
(217,760)
81,914
21,192
52,308
298,865
(21,721)
904
(66,000)
212,048
3
(7,685)
(1,190)
(232)
96
—
—
(18,684)
(1,222)
(127)
73
(8)
29
(73,894)
(11,442)
(2,231)
923
—
(9,346)
—
—
5
1,040
(7,963)
9,555
94
3,407
(16,258)
—
48
10,000
(76,567)
—
(35,000)
(1,109)
(3,064)
128
(39,045)
(2)
(24,957)
123,815
(6,830)
(10,000)
(543)
(2,733)
(199)
(20,305)
(6)
(12,898)
136,448
—
(336,538)
(10,664)
(29,462)
1,231
(375,433)
(19)
(239,971)
1,190,529
—
46
277
442
(60)
¥098,844
(12)
¥123,815
(577)
$1,950,423
Notes to Consolidated Financial Statements
1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Canon Sales Co., Inc. (the “Company”) and its consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards,
and are compiled from the consolidated financial statements prepared by the Company as required by the
Securities and Exchange Law of Japan.
The U.S. dollar amounts are included solely for convenience of the reader and are stated, as a matter of
arithmetical computation only, at the exchange rate of ¥104=US$1, being the rate prevailing at December 31, 2004.
These translations should not be construed as representations that the Japanese yen amounts actually represent,
or have been or could be converted into, U.S. dollars at that or any other rate.
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements as of December 31, 2004, include the accounts of the
Company and its 17 (20 in 2003) significant subsidiaries. Investments in nonconsolidated subsidiaries and affiliated
companies are accounted for by the equity method.
All intercompany accounts and transactions are eliminated in consolidation.
The excess of acquisition costs over net assets acquired is amortized generally over five years. Consolidation
differences in debit for which the Company is unable to readily determine when gains will be realized are written
down as incurred.
(b) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company and its consolidated subsidiaries
consider deposits with banks less than three months due to be cash equivalents.
(c) Investments in Securities
The held-to-maturity debt securities are stated at amortized cost. Available-for-sale marketable securities are stated
at fair market value, with unrealized gain or loss, net of the applicable taxes, reported as a separate component of
stockholders’ equity. Available-for-sale marketable securities whose fair value is not readily determinable are stated
at cost determined by the moving-average method.
(d) Inventories
Inventories are valued at cost. Cost is determined mainly by the moving-average method.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed by the declining-balance method for
property, plant and equipment, except for buildings purchased after April 1, 1998 (exclusive of furniture and
fixtures), all buildings and structures of the Company’s Makuhari office and all property and equipment of certain
subsidiaries, which are depreciated by the straight-line method, at rates based on the estimated useful lives of the
assets. The useful lives are as follows: buildings, mainly 50 years; furniture and fixtures, mainly five years. Normal
repairs and maintenance, including minor renewals and improvements, are charged to income as incurred.
(f) Accounting for Impairment of Fixed Assets
On August 9, 2002, the Business Accounting Council issued “Statement of Opinion: Accounting for Impairment of
Fixed Assets” and on October 31, 2003, the Accounting Standards Board (ASB) of Japan issued ASB Guidance
No. 6, “Guidance for Accounting Standard for Impairment of Fixed Assets.” Since early adoption of the new
accounting standards and guidelines is permitted for fiscal years ending on or after March 31, 2004, the Company
has applied them to its consolidated financial statements for fiscal 2004, ended December 31, 2004. As a consequence, income before income taxes and minority interests was impacted by an impairment loss of ¥866 million
23
($8,327 thousand). The accumulated losses on impairment of fixed assets are deducted directly from each asset’s
acquisition cost in accordance with the new accounting standards and guidelines.
(g) Employee Retirement and Severance Benefits
The Company and its consolidated subsidiaries have defined benefit retirement plans. These include corporate
pension plans, tax-qualified retirement pension plans and lump-sum severance payments.
Effective January 1, 2001, the Company and its consolidated subsidiaries adopted a new accounting standard
for employee retirement benefits and accounted for the liability for retirement benefits based on projected benefit
obligations and retirement plan assets at the balance sheet date.
The Company and certain domestic consolidated subsidiaries have also established retirement benefit trusts. In
addition, a certain overseas consolidated subsidiary has a defined contribution pension plan.
(h) Leases
Noncancelable lease transactions are accounted for as operating leases regardless of whether such leases are
classified as operating leases or capital leases, except that lease agreements which stipulate the transfer of
ownership of the leased property to the lessee are accounted for as capital leases.
(i) Allowance for Doubtful Receivables
An allowance for doubtful receivables is provided in the amount required to cover possible losses on collection. It is
determined by adding individually estimated uncollectible amounts for specific items to an amount based on the
actual rate of uncollected receivables of the Company in prior years.
(j) Appropriation of Retained Earnings
Under the Japanese Commercial Code (the “Code”) and the Articles of Incorporation of the Company, the plan for
appropriation of retained earnings (primarily for cash dividend payments) proposed by the Board of Directors must
be approved at the stockholders’ meeting, which is held within three months after the end of each fiscal year. The
appropriation of retained earnings reflected in the accompanying consolidated financial statements represents the
results of such appropriation applicable to the immediately preceding financial year, which were approved at the
stockholders’ meeting and disposed of during that year. Dividends are paid to stockholders of record at the end of
the fiscal year.
As is customary practice in Japan, payments of bonuses to directors and corporate auditors, which constitute a
part of the appropriations cited above, are made out of retained earnings instead of being charged to income for
the fiscal year.
(k) Income Taxes
Deferred tax assets and liabilities are recorded to reflect the impact of temporary differences between assets and
liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. These
deferred taxes are measured by applying the normal statutory rate of income taxes to the temporary differences.
(l) Translation of Foreign Currency Accounts
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated
into Japanese yen at the current exchange rates at the balance sheet date. The foreign exchange gains and losses
from translation are recognized in the consolidated statements of operations.
(m) Foreign Currency Financial Statements
The balance sheet accounts and revenue and expense accounts of the foreign subsidiaries are translated into
Japanese yen at the current exchange rates except for stockholders’ equity, which is translated at the historical
exchange rate.
(n) Per Share Amount of Common Stock
Net income per share is based on the weighted average number of shares of common stock outstanding during
the respective fiscal years.
Effective January 1, 2003, the Company has adopted the new accounting standard for net income per share
issued by the ASB of Japan. Under the new standards, net income per share is calculated using net income available to holders of common shares—which is computed more precisely than under previous standards—and
24
weighted average number of shares outstanding for the period.
Cash dividends per share presented in the accompanying consolidated statements of operations are dividends
applicable to the respective fiscal years, including dividends to be paid after the end of the respective fiscal years.
(o) Provision for Directors’ and Corporate Auditors’ Retirement Benefits
The Company pays lump-sum retirement benefits to directors, the amount of which is determined based upon the
Company’s internal regulations. Prior to the year ended December 31, 2003, retirement benefits for directors and
corporate auditors were charged to income when paid. Effective January 1, 2003, the Company has changed its
accounting method, and in accordance with the Company’s internal regulations a reserve is provided for such benefits at the amount that would be required if all directors and corporate auditors retired at the end of the fiscal year.
3. Investments in Securities
The carrying amounts and aggregate fair values of investments in securities at December 31, 2004 and 2003, were
as follows:
Millions of yen
2004
Book value
Securities classified as:
Held-to-maturity;
Government bonds ..................................
¥231
Unrealized gains
Unrealized losses
¥0
¥—.
Fair value
¥231
Millions of yen
2004
Cost
Unrealized gains
Unrealized losses
Fair value
Available-for-sale;
Equity securities .......................................
Other .......................................................
¥1,886
500
¥1,277
1
¥(147)
—
¥3,016
501
Total .........................................................
¥2,386
¥1,278
¥(147)
¥3,517
Millions of yen
2003
Cost
Unrealized gains
Unrealized losses
Fair value
Available-for-sale;
Other .......................................................
¥1,950
503
¥659
0
¥(173)
—
¥2,436
503
Total .........................................................
¥2,453
¥659
¥(173)
¥2,939
2004
Book value
Held-to-maturity;
Government bonds ..................................
$2,221
Unrealized gains
$0
Unrealized losses
$—.
Fair value
$2,221
25
2004
Cost
Unrealized gains
Unrealized losses
Fair value
Available-for-sale;
Other .......................................................
$18,135
4,807
$12,278
10
$(1,413)
—
$29,000
4,817
Total .........................................................
$22,942
$12,288
$(1,413)
$33,817
Available-for-sale securities whose fair value is not readily determinable as of December 31, 2004 and 2003, were
as follows:
Carrying amount
Thousands of
Millions of yen
Available-for-sale:
Equity securities ..............................................................
2004
2003
2004
¥451
¥470
$4,337
4. Inventories
Inventories at December 31, 2004 and 2003, were composed of the following:
Thousands of
Millions of yen
Merchandise ........................................................................
Service parts ........................................................................
Work in progress ..................................................................
Supplies ...............................................................................
Other ...................................................................................
2004
2003
2004
¥50,143
3,912
2,080
579
173
¥56,137
6,469
1,869
544
253
$482,144
37,615
20,000
5,567
1,664
¥56,887
¥65,272
$546,990
5. Short-Term Bank Loans and Long-Term Debt
Long-term debt at December 31, 2004 and 2003, consisted of the following:
Thousands of
Millions of yen
Bonds ..................................................................................
Less current portion .............................................................
26
2004
2003
2004
¥00,0—.
—
¥35,000
10,000
$000,0—.
—
¥00,0—.
¥25,000
$000,0—.
In fiscal 2004, Canon Sales entered into debt assumption agreements for the redemption of its first, fifth and sixth
issues of domestic unsecured bonds. Having effectively transferred the debt obligation to other parties, the
Company treated the debt as repaid. Description of the bonds repaid is as follows:
Bond type
First Domestic Unsecured Bond ..............................
Fifth Domestic Unsecured Bond ..............................
Sixth Domestic Unsecured Bond.............................
Issue price
(Millions of yen)
Interest rate
Date of maturity
¥10,000
¥10,000
¥05,000
2.950%
2.270%
1.880%
June 29, 2007
July 8, 2008
July 8, 2005
6. Employee Retirement and Severance Benefits
The Company and its domestic consolidated subsidiaries have defined benefit retirement plans. These include
corporate pension plans, tax-qualified retirement pension plans and lump-sum severance payments.
Effective January 1, 2001, the Group adopted a new accounting standard for employee retirement benefits.
The liability for employee retirement benefits as of December 31, 2004 and 2003, consisted of the following:
Thousands of
Millions of yen
2004
Projected benefit obligation ..................................................
Fair value of plan assets .......................................................
Unrecognized transitional obligation .....................................
Unrecognized actuarial loss ..................................................
Unrecognized prior service cost ...........................................
Prepaid pension cost ...........................................................
Net liability ........................................................................
2003
2004
¥136,756
(93,255)
(43)
(18,692)
19,872
103
¥131,483
(91,246)
(85)
(18,904)
17,981
65
$1,314,962
(896,683)
(413)
(179,731)
191,077
990
¥044,741
¥039,294
$0,430,202
The components of net period benefit costs for the years ended December 31, 2004 and 2003, were as follows:
Thousands of
Millions of yen
2004
2003
2004
Service cost .........................................................................
Interest cost .........................................................................
Expected return on plan assets ............................................
Amortization of transitional obligation ...................................
Amortization of prior service cost .........................................
Amortization of actuarial loss ................................................
Benefit cost for defined contribution pension plan ................
Gain on return of substitutional portion of governmental
welfare pension program ....................................................
¥(7,157
3,260
(3,010)
43
(1,535)
1,436
2
¥(07,832
3,457
(2,836)
124
(269)
746
2
—
(22,192)
—
Net periodic benefit costs ................................................
¥(7,353
¥(13,136)
$(70,702
$(68,818
31,346
(28,942)
413
(14,760)
13,808
19
27
Assumptions used for the years ended December 31, 2004 and 2003, were principally as follows:
2004
Discount rate.......................................................
Expected rate of return on plan assets ................
Amortization period of prior service cost ..............
Recognition period of actuarial gain or loss .........
Amortization period of transitional obligation ........
2.5%
1.5%~4.0%
10~18 years
10~18 years
5 years for certain
consolidated subsidiaries
2003
2.5%
1.5%~4.0%
10~18 years
10~18 years
5 years for certain
consolidated subsidiaries
7. Stockholders’ Equity
Japanese companies are subject to the Code to which certain amendments became effective as of October 1,
2001.
The Code was revised whereby common stock par value was eliminated, resulting in all shares being recorded
with no par value and at least 50% of the issue price of new shares being recorded as common stock and the
remaining net proceeds as additional paid-in capital, which is included in capital surplus. The Code permits
Japanese companies, upon approval by their Board of Directors, to issue shares to existing stockholders without
consideration as a stock split. Such issuance of shares generally does not give rise to changes within the
stockholders’ accounts.
The revised Code also provides that an amount equal to at least 10% of the aggregate amount of cash dividends
and certain other appropriations of retained earnings associated with cash outlays applicable to each fiscal period
shall be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in
capital equals 25% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds
25% of common stock may be available for dividends by resolution of the stockholders. In addition, the Code
permits the transfer of a portion of additional paid-in capital and legal reserve to common stock by resolution of
the Board of Directors.
The revised Code eliminated restrictions on the repurchase and use of treasury stock, allowing Japanese companies to repurchase treasury stock by a resolution of the stockholders at the general stockholders’ meeting and
dispose of such treasury stock by resolution of the Board of Directors, commencing April 1, 2002. The repurchased
amount of treasury stock cannot exceed the amount available for future dividends plus the amount of common
stock, additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at
the general stockholders’ meeting.
Dividends are approved by the stockholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors,
subject to certain limitations imposed by the Code.
8. Income Taxes
The normal statutory rate of income taxes was approximately 42.0% for the years ended December 31, 2004 and
2003.
For the year ending December 31, 2005, pro forma standard taxation will be introduced, which will reduce the
income-based tax rate. As a result, the statutory tax rate for the year ending December 31, 2005, will be
approximately 40.0%.
28
The effective tax rates for the years ended December 31, 2004 and 2003, differed from the normal tax rate
following the adoption of tax-effect accounting for the following reasons:
2004
2003
Normal tax rate .............................................................................................................
Entertainment and other expenses permanently not deductible for tax purposes ......
Per-capita levy for inhabitants tax ..............................................................................
Tax effect of loss carryforwards .................................................................................
Gain on amortization of consolidation differences ......................................................
Loss on amortization of consolidation differences ......................................................
Valuation allowance ...................................................................................................
Effect of pro forma standard taxation ........................................................................
Reduction due to IT-related tax incentives .................................................................
Other ........................................................................................................................
42.0%
1.8
1.6
(0.1)
(1.4)
—
(4.8)
1.3
(0.5)
(1.9)
42.0%
1.3
1.6
(0.2)
(1.9)
20.1
—
5.9
(2.9)
(1.2)
Effective tax rates following the adoption of tax-effect accounting .................................
38.0%
64.7%
The effects of significant temporary differences, which resulted in deferred tax assets and liabilities as of
December 31, 2004 and 2003, were as follows:
Thousands of
Millions of yen
2004
2003
2004
Deferred tax assets:
Loss on disposal and devaluation of inventories ...............
Accrued business tax and business office tax ..................
Accrued bonuses to employees .......................................
Software depreciation ......................................................
Loss on impairment of fixed assets ..................................
Allowance for doubtful receivables ...................................
Liability for employee retirement benefits ..........................
Other ...............................................................................
¥01,034
601
1,274
1,877
364
353
20,262
4,151
¥00,583
580
1,160
1,628
—
505
21,678
4,690
$009,942
5,779
12,250
18,048
3,500
3,394
194,827
39,914
Gross deferred tax assets ............................................
Less: valuation allowance .............................................
29,916
(366)
30,824
(1,452)
287,654
(3,519)
Total deferred tax assets ..................................................
¥29,550
¥29,372
$284,135
Deferred tax liabilities:
Deferred capital gain ........................................................
Special depreciation reserve .............................................
Other ...............................................................................
¥02,265
123
542
¥00,274
172
301
$022,548
1,183
5,211
Total deferred tax liabilities ................................................
930
747
8,942
Net deferred tax assets ........................................................
¥28,620
¥28,625
$275,193
29
9. Leases
(a) Finance Leases
Lease payments for finance leases excluding subleases, except for lease agreements which stipulate the transfer
of ownership of the lease property to the Company and its subsidiaries, were ¥2,966 million ($28,519 thousand)
and ¥2,875 million for the years ended December 31, 2004 and 2003, respectively.
(For Lessee)
Future minimum lease payments subsequent to December 31, 2004 and 2003, were summarized as follows:
Thousands of
Millions of yen
Future minimum lease payments:
Within one year ................................................................
Thereafter ........................................................................
2004
2003
2004
¥2,977
2,037
¥3,079
4,075
$28,625
19,586
¥5,014
¥7,154
$48,211
Future minimum lease payments included the following subleases:
Thousands of
Millions of yen
Within one year ................................................................
Thereafter ........................................................................
2004
2003
2004
¥173
188
¥125
188
$1,663
1,808
¥361
¥313
$3,471
Acquisition cost, accumulated depreciation and net book value of leased property as of December 31, 2004 and
2003, excluding subleases were summarized as follows:
Thousands of
Millions of yen
2004
Acquisition cost:
Machinery and vehicles ....................................................
Furniture and fixtures........................................................
Software ..........................................................................
Accumulated depreciation:
Software ..........................................................................
Net book value:
Software ..........................................................................
30
2003
2004
¥00,323
9,585
1,383
¥00,187
9,883
1,273
$003,106
92,163
13,298
¥11,291
¥11,343
$108,567
¥00,103
5,652
883
¥00,076
3,790
636
$000,991
54,346
8,490
¥06,638
¥04,502
$163,827
¥00,220
3,933
500
¥0,0111
6,093
637
$002,115
37,817
4,808
¥44,653
¥06,841
$344,740
(For Lessor)
Future minimum lease payments which consist of subleases subsequent to December 31, 2004 and 2003, were
summarized as follows:
Thousands of
Millions of yen
Within one year ................................................................
Thereafter ........................................................................
2004
2003
2004
¥173
188
¥125
188
$1,663
1,808
¥361
¥313
$3,471
(b) Operating Leases (Noncancelable)
(For Lessee)
Future minimum lease payments subsequent to December 31, 2002 and 2001, were summarized as follows:
Thousands of
Millions of yen
Within one year ................................................................
Thereafter ........................................................................
2004
2003
2004
¥209
114
¥07
13
$2,010
1,096
¥323
¥20
$3,106
10. Assets Pledged as Collateral
Assets pledged as collateral for deferred payment of customs duties as of December 31, 2004 and 2003, were as
follows:
Thousands of
Millions of yen
2004
Investments in securities ......................................................
2003
¥231
2004
¥—
$2,221
11. Contingent Liabilities
Contingent liabilities at December 31, 2004 and 2003, were as follows:
Thousands of
Millions of yen
2004
Guarantees for employees’ housing loans ............................
Contingent liabilities related to the reduction of corporate
bonds by debt assumption .................................................
2003
2004
¥00,288
¥337
$032,769
25,000
—
240,385
¥25,288
¥337
$243,154
31
12. Subsequent Event
On March 29, 2005, the following appropriations of retained earnings were approved at the stockholders’ meeting
of the Company:
Thousands of
Millions of yen
Cash dividends ............................................................................................
Bonuses to directors ....................................................................................
¥1,648
71
$15,846
683
¥1,719
$16,529
13. Segment Information
(a) Business Segment Information
Millions of yen
2004
Year ended or as of December 31
Net sales:
Unaffiliated customers ...........
Intersegment .........................
Total ..................................
Operating expenses ..................
Operating income......................
Assets .......................................
Depreciation and amortization ...
Loss on impairment of
fixed assets .............................
Capital expenditures ..................
Business
Solutions
Consumer
Equipment
Industrial
Equipment
Total
Corporate and
eliminations
Consolidated
¥473,428
—
473,428
463,848
9,580
200,683
6,965
¥239,085
—
239,085
227,266
11,819
77,495
751
¥102,998
—
102,998
95,123
7,875
93,195
983
¥815,511
—
815,511
786,237
29,274
371,373
8,699
¥000,0—.
—
—
—
—
110,964
—
¥815,511
—
815,511
786,237
29,274
482,337
8,699
866
17,256
—
512
—
1,282
866
9,050
—
—
866
9,050
Millions of yen
2003
Net sales:
Intersegment .........................
32
Business
Solutions
Consumer
Equipment
¥462,882 ¥218,559
—
—
Industrial
Equipment
Other
Total
Corporate and
eliminations
Consolidated
¥71,656
—
¥3,936
—
¥757,033
—
¥000,0—.
—
¥757,033
—
Total ..................................
462,882
218,559
71,656
3,936
757,033
—
757,033
460,761
207,450
67,816
4,019
740,046
—
740,046
Operating income (loss) .............
2,121
11,109
3,840
(83)
16,987
—
16,987
Assets .......................................
213,802
6,806
15,947
76,908
576
1,617
74,254
867
1,654
—
270
129
364,964
8,519
19,347
130,432
—
—
495,396
8,519
19,347
Thousands of U.S. dollars
2004
Net sales:
Intersegment .........................
Total ..................................
Operating income ......................
Assets .......................................
Loss on impairment of
fixed assets .............................
Business
Solutions
Consumer
Equipment
Industrial
Equipment
$4,552,192
—
4,552,192
4,460,076
92,116
1,929,644
66,971
$2,298,894
—
2,298,894
2,185,250
113,644
745,144
7,221
$990,366
—
990,366
914,645
75,721
896,106
9,452
8,327
69,769
—
4,923
—
12,327
Corporate and
eliminations
Consolidated
$7,841,452
—
7,841,452
7,559,971
281,481
3,570,894
83,644
$0,000,0—.
—
—
—
—
1,066,962
—
$7,841,452
—
7,841,452
7,559,971
281,481
4,637,856
83,644
8,327
87,019
—
—
8,327
87,019
Total
(b) Geographic Segment Information
As international sales of the Company and its consolidated subsidiaries for the years ended December 31, 2004
and 2003, constituted less than 10% of consolidated net sales, geographic segment information is not disclosed.
33
Report of Independent Auditors
34
Board of Directors and Corporate Auditors
President and CEO
Haruo Murase
Managing Directors
Keiji Nagata
Keiji Domon
Koji Ashizawa
Hiroshi Shibuya
Fumitaka Yamada
Masami Kawasaki
Directors
Kazunori Asada
Masayasu Saito
Toshiyuki Sanematsu
Motoo Fukui
Yasuhiko Kudo
Hajime Iwaki
Kenichiro Goto
Osamu Sasaki
Tetsuo Yoshida
Corporate Auditors
Yoshifumi Suzuki
Nobuo Ishido
Tetsuo Yoshizawa
Kunihiro Nagata
(As of April 1, 2005)
Corporate Information
Group Vision
Evolving as a first-rate solutions provider that maximizes the creativity of the individual
Capitalization
¥73,303,082,757
Date of Establishment
February 1, 1968
Headquarters
Canon S Tower, 16-6, Konan 2-chome,
Minato-ku, Tokyo 108-8011, Japan
Number of Employees
Consolidated: 15,489
Nonconsolidated: 6,760
(As of December 31, 2004)
Activities
Domestic marketer of Canon Inc. products;
also handles related operations
Main Locations of Operations
Head office, Makuhari office and branches
(Sapporo, Sendai, Nagoya, Osaka, Hiroshima
and Fukuoka)
Annual General Meeting
Canon Sales Co., Inc., holds its annual general meeting
for stockholders in March of each year.
Principal Companies of the Canon Sales Group
Canon System & Support Inc.
Canon B.M. Tokyo Inc.
Canon B.M. Kanagawa Inc.
Canon B.M. Osaka Inc.
Canon Software Inc.
Canon Software Technology & Research Inc.
Canon Software America Inc.
Canon System Solutions Inc.
Canon Control System (SHANGHAI) Inc.
Canon Network Communications Inc.
Canon Supercomputing S.I. Inc.
Solution Service Inc.
Canon Trading Inc.
Canon Response Service Inc.
Canon Human-net Inc.
Canon Facility Management Inc.
Canon Sales Web Site (Investor Relations)
http://cweb.canon.jp/co-profile/ir-e
Stock Listing
Canon Sales Co., Inc., common stock is traded on
the First Section of the Tokyo Stock Exchange.
Canon S Tower
35
Canon Sales Co., Inc.
Headquarters
Canon S Tower, 16-6, Konan 2-chome,
Minato-ku, Tokyo 108-8011, Japan
Canon Sales Web Site (Investor Relations)
http://cweb.canon.jp/co-profile/ir-e

CanonSales 2004 Annual report

Transcription

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