CANON ANNUAL REPORT 1999

Transcription

CANON
ANNUAL
REPORT
1999
Fiscal Year Ended December 31, 1999
C O R P O R AT E P R O F I L E
The Canon Group, a manufacturer of cameras, business machines and
optical products around the world, employs approximately 81,000 people.
In 1999, Canon faced a variety of challenges in its operating
environment. On the other hand, in this fourth year of Phase of the
Excellent Global Corporation Plan–which is due to conclude in 2000–
we made significant strides toward the objectives of achieving
comprehensive management reformation, and globalizing and diversifying
our operations. For example, we strengthened Group-based decisionmaking, improved the speed and quality of our processes, and continued
advancing into high-value-added industries through the establishment of
Canon-style multimedia products and technologies. During the year, we
also made progress in our pursuit of kyosei
kyosei, or living and working together
for the common good, through activities related to environmental
preservation, and social and cultural contribution.
ABOUT THE COVER
Canon is opening up new worlds of visual
excitement with a growing range of high-imagequality digital cameras.
CONTENTS
1 Financial Highlights
2 To Our Shareholders
Management reformation activities
produce excellent results but
cannot fully absorb impact of a
severe operating environment
5 Canon in 1999
Progress made toward creating a
three-region headquarters
organization, establishing new
businesses in high-value-added
industries and contributing to
society
12 Product Group Summary
Reports on market trends and
Canon’s results, and a look ahead
at 2000
14 Business Machines
14 Copying Machines
Canon strengthens lineup of digital
monochrome and color copying
machines
18 Computer Peripherals
Laser beam printers get faster, and
Bubble Jet printers are released
with image quality comparable to
that of conventional photographs
24 Business Systems
Canon takes advantage of shift
from facsimile machines to MFPs
by offering high-potential new
products, including models with
color facsimile functions
24 Cameras
SLR camera market share expands
despite slow market growth, as
demand rises for Canon’s
Advanced Photo System and
digital cameras, and digital video
camcorders
30 Optical Products
Canon predicts increase in
demand for semiconductor
production equipment; a shift is
seen toward digital, networked
medical equipment; impending
digital TV launch fuels demand for
digital broadcasting lenses
33 Financial Section
72 Major Consolidated
Subsidiaries
Board of Directors and Corporate
Auditors
73 Transfer Office and Registrars
Shareholders’ Information
FINANCIAL HIGHLIGHTS
Millions of yen
(except per share amounts)
1999
Net sales
Net income
Net income per share:
Basic
Diluted
Total assets
Stockholders’ equity
Thousands of U.S. dollars
(except per share amounts)
1998
1999
¥2,622,265 2,826,269
70,234 109,569
$25,708,480
688,569
80.66
126.10
79.50
123.93
2,587,532 2,728,329
1,202,003 1,155,520
0.79
0.78
25,367,961
11,784,343
140
111.29
106.96
109.569
55,036
65.96
62.73
80.66
79.50
70,234
94,177
2,622,265
137.73
134.60
120,000
118,813
3,000,000
2,826,269
(Yen)
2,761,025
Net income per share
(Millions of yen)
2,558,227
Consolidated net income
(Millions of yen)
2,165,626
Consolidated net sales
0
0
95
126.10
123.93
Notes:
1. U.S. dollar amounts in this Annual Report, solely for the convenience of the reader, are
translated from yen at the rate of ¥102=US$1, the approximate exchange rate on the
Tokyo Foreign Exchange Market as of December 30, 1999.
2. Canon adopted Statement of Financial Accounting Standards No.115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities, " from the fiscal year
beginnig January 1, 1999, and has applied SFAS 115 retroactively to the consolidated
financial statements for the prior years.
96
97
98
99
0
95
96
97
98
99
95
96
Basic
Diluted
1
97
98
99
TO OUR SHAREHOLDERS
The U.S. economy remained strong in 1999, and the European economy expanded slightly, though the
value of the euro against other major currencies followed a downward path in the second half. The Asian
region showed signs of recovery owing to increased exports, particularly from the Republic of Korea (ROK)
and Thailand. In Japan, indications of an economic turnaround were seen, but sluggish consumer
spending and private sector capital investment prevented a full-scale recovery.
Canon’s main markets expanded during the year, as demand for information and communications
equipment tended toward digital, network and color-capable products. However, competition was fierce in
terms of product functions and prices. Moreover, the average value of the yen was ¥113.46 to the U.S.
dollar and ¥120.42 to the euro. Compared with the previous year, the yen appreciated 15% and 20%
against the U.S. dollar and the euro, respectively.
In this generally difficult situation, Canon’s consolidated net sales decreased 7.2%, to
¥2,622.3 billion (US$25,708 million). Net income fell 35.9%, to ¥70.2 billion (US$689 million).
Results by Product Group In copying machines, new digital models in Europe and the United States
contributed to favorable sales on a local-currency basis, but the value of these sales decreased in yen
terms. Computer peripherals sales decreased for the same reason, though sales of scanners jumped and
revenues from laser beam printers expanded on a local-currency basis. Sales of business systems such as
facsimile machines also declined in line with severe price competition. As a result, overall sales of business
machines fell 8.2%, to ¥2,163.9 billion (US$21,215 million).
Camera sales increased 3.6%, to ¥277.3 billion (US$2,719 million), owing mainly to the
introduction of new digital cameras and digital video camcorders, though the strong yen brought down our
sales of 35mm cameras.
In our optical and other products areas, sales decreased 9.7%, to ¥181.0 billion
(US$1,774 million). The sluggish semiconductor market restricted capital investment by semiconductor
manufacturers, mainly during the first half.
Consolidated Net Income The appreciation of the yen had a negative impact on our profits, which
could not be fully absorbed by successful production reformation efforts aimed at reducing costs and
expenses. As a result, operating profit dropped 32.5%, to ¥176.1 billion (US$1,726 million), and income
before income taxes fell 34.8%, to ¥156.1 billion (US$1,530 million), though net interest expenses
decreased owing to an improved financial structure. Net income for the year was ¥70.2 billion
(US$689 million), and net income per common share was ¥80.66 (US$0.79).
Following on an interim dividend of ¥8.5 (US$0.08) per share of common stock, the Board of
Directors has proposed a year-end dividend in the same amount, bringing total dividends for the year to
¥17.00 (US$0.17), the same as in 1998.
2
Progress in Production Reformation Although 1999 was
a difficult year in many ways, we made significant advances
toward our objective of comprehensive management reform.
In the area of production reformation, Canon plants
around the world introduced new production systems and
carried out thorough rationalization measures. During the year
under review, we continued space-reduction activities, bringing
to 20%, or about 200,000 m2, the total production space
saved worldwide. The additional space can be used to increase
production capacity, significantly reducing future capital
investment requirements.
Our promotion of comprehensive management
reformation covering processes from product development and
Fujio Mitarai
production to sales and distribution helped us meet the 1999
objective of extensively reducing inventories. On a global scale,
we successfully decreased inventories of the Canon Group by some ¥113.0 billion (US$1,108 million).
This achievement created free cash flow that in turn greatly enhanced our financial structure.
Priority Measures for the Year 2000 Phase I of the Canon Group’s Excellent Global Corporation Plan,
which was inaugurated in 1996, will come to a close in the year 2000. To ensure that this plan concludes
successfully, and that we are able to build the foundations for solid growth into the new century, we must
further improve our corporate structure through an emphasis on group-based decision-making and
improving the speed and quality of our processes.
To this end, in 2000 we will focus on shifting our operations to high-value-added industries by
firmly establishing the field of Canon-style multimedia. Aiming to become the world’s leading digital office
and photography products company, we will use our digitization technologies to introduce a strong lineup
around the world.
A related task is to more quickly open new business sectors. We are now working with Toshiba
Corporation under a development collaboration to turn our SED (Surface-conduction Electron-emitter Display)
technology into viable flat-screen displays. In other areas, we must ensure rapid new business start-ups,
strengthen our technologies for next-generation key components and devices for new multimedia products,
put forth and adhere to a concrete strategy for the Internet and related fields, and accelerate product and
business development activities at Canon Group companies, particularly in Europe and the Americas.
3
TO OUR SHAREHOLDERS
To further diffuse production reformation throughout the Canon Group’s manufacturing facilities, we
plan to work toward optimal worldwide allotment measures by continuing to efficiently distribute production
at individual plants. We will expand overseas production activities, with an emphasis on Asia, while
strengthening the R&D function on site and manufacturing of high-value-added devices at our domestic
plants. These efforts will enable us to allocate production in an optimal manner and help us succeed in an
environment of increasingly severe currency exchange rates. To further improve production efficiency, and
realize a production structure with sufficient economies of scale, we will assign production based on
technological areas of expertise at each plant. In addition, we intend to encourage autonomous product
development and manufacturing that takes full advantage of specialized technological capabilities.
In marketing and sales, we will step up efforts to gain large, ongoing accounts with public organizations
and large corporations. The key to this initiative will be continuing to successfully seize the opportunities of the
digital network age with hardware such as digital copying machines, color copying machines and printers, all of
which can be used smoothly with large networks, and with a strong solutions business.
The commitment we made to environmental preservation when we adopted the kyosei philosophy
of living and working together for the common good has taken visible shape in recent years. We are now
stepping up the pace with further ecological information disclosure and the promotion of product and
technology development that makes recycling easier and reduces our impact on the environment.
Canon in the 21st Century The Canon Group is now moving toward the establishment of an
organization of regional headquarters companies for Japan, the Americas and Europe. One specific move
toward this direction is the opening of the Canon Research and Development Group in Canon U.S.A., Inc.
The objectives of this new division are to integrate Canon’s R&D activities in the Americas and develop
new business opportunities in the region, and we are steadily preparing a similar structure in Europe.
Thanks to the steadfast cooperation of our shareholders, we stand on the threshold of a triumphal
entrance into the new century. I sincerely hope we continue to enjoy your support, which I am confident
will lead the Canon Group to a new age of stability and prosperity.
Fujio Mitarai
President and C.E.O.
Canon Inc.
4
CANON IN 1999
Canon’s optical expertise—applied
in the prime focus corrector and
other systems for the Subaru
telescope—is helping open new
windows on our universe.
The National Astronomical
Observatory of Japan operates
the telescope on the summit of
Mauna Kea, Hawaii.
5
Globalization
At Canon, the objective of globalization is to become a truly
international corporation with diverse businesses in regions
around the world. To attain this goal, we are creating an
organization under which subsidiaries will contribute to
diversification by developing, commercializing and
marketing their own distinctive technologies and products.
Currently, we plan to begin such operations under a threeregion headquarters organization comprising the Americas,
Europe and Japan. Following is a summary of specific
globalization activities in 1999.
In November 1999, Canon took a major step toward
establishing a regional headquarters for the Americas by
opening the Canon Research and Development Group in
Canon U.S.A., Inc. The objectives of this new division,
located in San Jose, California, are to integrate Canon’s
R&D activities in the Americas and to study and take
advantage of new business opportunities in the region,
including strategic partnerships, mergers and acquisitions,
to give us access to high-potential new technologies
developed by third parties. Canon U.S.A. also
strengthened the Canon Group’s presence in South
America with the March 1999 establishment of Canon
Argentina S.A., a subsidiary in Buenos Aires, Argentina,
which is concentrating on sales and support services for
Canon imaging systems.
In Europe, offices are rapidly shifting from analog
business machines to digital, networked equipment. To
respond to rising demand for such systems and advance
Cell-based production of digital
copying machines at Canon Giessen
Canon’s copying machine operations in the region,
Canon Giessen GmbH of Germany commenced
production of the GP605 (imageRUNNER 600 in the
United States), a digital monochrome copying machine
with a speed of 60 copies per minute (cpm). With a
monthly output of 1,000 units, which are delivered to
Canon sales bases throughout Europe, the new operation
has considerably reduced lead times and contributed to
production cost savings. Furthermore, Canon Giessen is
working to maximize the local procurement of parts for
these copying machines.
Canon was also active in Asia during the year. Canon
India Pvt. Ltd., a wholly owned subsidiary of Canon
Singapore Pte. Ltd. opened its Software Development
Center and Digital Technology Laboratory in New Delhi in
August. The new center focuses on developing document
management software, while the laboratory is exploring
advanced digital devices and supporting operations such
as network simulation and network applications.
Canon Hi-Tech (Thailand) Ltd. added Bubble Jet
facsimile machine production to its manufacturing of
copying machines and Bubble Jet printers. Canon Hi-Tech
(Thailand) is our first production base for Bubble Jet
printers outside of Japan. The current move was made
after the company rationalized its production processes
and reformed its systems. As a result, the new production
is helping increase the competitiveness of our Bubble Jet
printers, Bubble Jet facsimile machines and personal-use
copying machines.
Canon Hi-Tech (Thailand)
6
New Software R&D Center in India
CANON IN 1999
The new Canon Research and
Development Group in
Canon U.S.A. based in San Jose,
California, is working to
coordinate and strengthen
Canon Group R&D activities
throughout the Americas.
7
Canon’s Surface-conduction
Electron-emitter Display (SED)
technology holds immense
potential in the field of large, wallmounted displays.
8
CANON IN 1999
Technology
Canon is placing particular emphasis on developing
Canon-style multimedia and the next-generation key
components and devices needed to expand this highvalue-added industry.
Significant progress was made on our SED
technology, with excellent potential in large-screen wallmounted displays. Display technologies such as SEDs
are important to Canon because they represent “the
window” that shows users both images input from
digital cameras and other image-input devices and those
sent to output devices such as printers. In June 1999,
Canon Inc. and Toshiba Corporation announced an
agreement to collaborate on developing and establishing
mass-production technologies for SEDs. The companies
are jointly conducting SED-related development and trial
production activities, and will share the final decisions on
product designs and testing.
We also made progress in our operations for siliconon-insulator (SOI) wafers, which make possible
semiconductors with high processing speeds and low
power consumption. In addition to commercializing
6-inch and 8-inch ELTRAN wafers, we developed an original
water-jet technology to split bonded wafers produced in the
manufacturing process. The wafers split using this system
can later be reused for new ELTRAN wafers.
Canon’s Bubble Jet color filters are cost-efficient
and highly precise components for LCDs. Anticipating
Bubble Jet color filter for LCDs
strong demand for these products in line with the
popularity of equipment that uses LCDs, in 1999 we
constructed a new dedicated plant at Canon
Components, Inc., in Japan. Shipments from the new
plant are scheduled to commence in 2001. We plan to
continue investing capital to expand our production for
these high-potential devices.
Innovative Double Exposure by Advanced
Lithography, or IDEAL, is a new multilevel imaging
technology developed by Canon that double-exposes
printed circuit boards to double circuit resolution. The
method is both precise and economical, as the same
light source as conventional production equipment
makes possible circuit patterns of half the size.
Spurred by the rapid diffusion of the Internet,
Canon has developed a groundbreaking digital
watermarking technology that makes it possible to trace
the sources of digital images, such as those transmitted
over the Internet, even after the images are printed out.
This technology is noteworthy because Canon’s digital
watermark is highly resistant to tampering and is
readable even on pirated or altered images.
The year under review also saw the completion of
the Subaru telescope on the U.S. island of Hawaii.
Canon developed several optical systems for this
telescope, including the high-precision prime focus
corrector that makes it possible to view regions of space
as far away from the earth as 15 billion light years.
300-mm ELTRAN wafer
9
Subaru telescope lens system
Environment and Citizenship
The spirit of kyosei–living and working together for the
common good–is present throughout the Canon Group’s
activities.
In 1999, we began disclosing detailed information on
the environmental aspects of our products and operations.
We became the first company to adopt the Type III EcoLabel in Japan, featuring detailed indications of environmental data over the life cycles of our products, from
materials and parts to production, distribution, consumption, and recycling and disposal. In July 1999, we
began including the labels with a digital copying machine
and Bubble Jet printer model marketed in Japan. In the
future, we will gradually increase the number of our
products with the label. We also published a
comprehensive brochure and report detailing
environmental data on our facilities and processes in
English and Japanese.
In April, Oita Canon Materials Inc., a subsidiary for the
integrated production of chemical products such as toners
and cartridges for laser beam printers, was established in
Oita Prefecture, Japan. The new company’s plant has a
100% closed recycling system for wastewater. We plan to
launch similar systems at other Canon facilities in the future.
Canon U.S.A. once again carried out cultural and
environmental activities for future generations. In
environmental efforts, the company continued its Clean
Earth Campaign, which includes the promotion of cartridge
recycling, support of the National Park Foundation’s
s Kyosei
Toward
n People
betwee
Expedition into the Parks conservation programs, and the
Nature Conservancy’s Wings of the Americas program,
which protects birds and their habitats throughout the
Americas. Canon U.S.A. also began supporting efforts of
the National Center for Missing and Exploited Children
(NCMEC). Specifically, we have donated digital cameras,
scanners and printers for use in the production of
information flyers. In addition, we have been instrumental
in NCMEC’s Picture Them Home Campaign, sponsoring
public service advertisements and national poster
campaigns.
In Europe, Canon Europa is a Conservation Partner of
the World Wide Fund for Nature (WWF). Central to our
support is transforming a WWF Photo Library–with
thousands of nature photos taken by some 500
photographers–into a digital resource accessible by WWF
members through a global intranet system. Canon also
sponsors the annual World Press Photo Contest for the
international photojournalistic community.
The 3rd United Nations Environment Program (UNEP)
International Photographic Competition, of which Canon is a
major sponsor, was launched in Tokyo with the theme
Focus on Your World.
ARTLAB, the digital-media art laboratory sponsored by
Canon Inc., held Connecting Re-Body, its 9th original
exhibition, in October in Tokyo. The language-independent
UcanTalk engine developed by Canon Research Centre
Europe Ltd. was used in the exhibition, the theme of which
was exploring new means of expression.
ure
and Nat
Ecology Brochure and
Environmental Report
Canon
Environmenta
l Report
1999
WWF Photo Library
ARTLAB’s Connecting Re-Body
exhibition
10
CANON IN 1999
Canon U.S.A. and Canon Computer
Systems, Inc., support the NCMEC
in finding missing children by raising funds and donating equipment
to NCMEC offices and 30 law
enforcement agencies around the
United States.
11
748,875
818,909
BUSINESS MACHINES
Copying Machines
Full-color copying machines
Office copying machines
Personal copying machines
Consumables, etc.
Share of
consolidated
sales
842,082
899,205
Sales results
(Millions of yen)
896,641
PRODUCT GROUP SUMMARY
878,170
965,499
1,064,304
36.8%
964,808
BUSINESS MACHINES
Computer Peripherals
Laser beam printers
Bubble Jet printers
Image scanners
Consumables, etc.
BUSINESS MACHINES
Business Systems
Facsimile machines
Handy Terminals
Micrographics
Personal information equipment, etc.
32.1%
702,452
13.6%
CAMERAS
Single-lens reflex (SLR) cameras
Compact cameras
Digital cameras
Video camcorders
LCD projectors
Lenses, etc.
12
356,350
109,784
267,636
130,964
277,349
397,272
436,053
247,766
152,737
43,011
52,550
60,456
69,452
71,201
95
96
97
98
99
124,910
OTHER PRODUCTS
4.2%
154,306
177,537
OPTICAL PRODUCTS
Semiconductor production
equipment
Medical equipment
Broadcasting equipment
213,760
368,841
440,532
10.6%
Operating Environment
Activities and Results
Outlook for 2000
● Advancement of digital and
network technologies fuels
strong demand for full-color
copying machines in offices
● Monochrome copying machine
market continues digital shift
● Lowering prices expand market
for low-end personal-use
copying machines
● The imageCLASS C2100
(CP660 in other regions) gives
business users high-quality fullcolor images without glossiness
● Canon enhances digital
monochrome copying
machine lineup worldwide
● Efforts made to lower costs of
personal-use models to
increase low-end market share
● Launch powerful full-color MFPs
with output speeds and running
costs comparable to
monochrome models
● Develop Canon-style solutions
business with next-generation
digital copying machines
● Promote wide range of
monochrome copying
machines for personal use
● New technologies increase
output speed of Canon laser
beam printers
● Soaring demand increases
competition in market for color
laser beam printers for
networks
● Advances in digital technology
greatly increase pixel volume
of Bubble Jet printers
● LBP-910 laser beam printer
(Japan version) outputs
22 pages per minute (ppm)
● New products contribute to
significant increase in shipments
of color laser beam printers
● The new BJ F850 (BJC-8200
in other regions) offers the
ultimate in full-color, photoquality output
● Introduce laser beam printers
with higher output speeds and
enhanced network functions
● Expand lineup of color MFPs
with high-speed, cost-effective
models
● Continue enhancing image
quality and output speed for
the era of "mega-contents"
See page 18
● Facsimile machine markets
shift further toward MFPs and
plain-paper models
● Unit- and value-based shipments
of Handy Terminals remain firm
● Color document scanners
enter marketplace
● Facsimile machines with color
functions introduced in Japan
and the United States
● Canon launches Handy
Terminals with multimedia
functions
● Document scanners with new
functions enhance sales
● Develop MFP businesses in
regions around the world
● Strengthen Handy Terminal
lineup for network
environments and new
communications technologies
● Provide products that stimulate
document scanner market
growth
See page 22
See page 14
imageCLASS C2100
BJC-8200
LASER CLASS 9000L
● Canon increases SLR share
despite slow market growth
● Demand for Advanced Photo
System compact cameras
remains robust
● Share of global digital camera
market rises
● Video camcorder market
continues steady shift to digital
products
● New affordably priced SLR camera
offers 7-point autofocus (AF)
● High-performance Advanced Photo
System compact cameras propel
sales expansion
● New imaging engine advances image
quality of Canon digital cameras
● Canon launches three digital video
camcorders, including high-end
model with 20 zoom quartz lens
● Maintain top SLR share
● Further increase market share for
both 35mm and Advanced Photo
System compact cameras
● Strengthen digital camera lineup
with higher-pixel models
● Reinforce digital video camcorder
lineup with high-end, multimedia
and affordably priced products
● Strong growth foreseen in
semiconductor production
equipment market through 2002
● Medical equipment market
steps up emphasis on digital
and network technologies
● Digitization of TV broadcasting
industry advances
● Canon markets world’s first
Argon Fluoride (ArF) stepper
compatible with 300-mm
silicon wafers
● Expand lineup of digital
radiography systems
● New broadcasting lens concept
concentrates on portable digital
lenses
● Build synergy between marketing
and technology functions to
expand scope of semiconductor
production business
● Reinforce Canon medical
equipment technologies and
open new business channels
● Expand lineup of new portable
digital TV broadcasting lenses
See page 24
EOS Rebel 2000
See page 30
FPA-3000EX5
13
Business
Machines
Copying Machines
The imageCLASS C2100 (CP660 in
other regions), a new full-color
copying machine for office use,
features non-glossy output for a
variety of business uses.
imageCLASS C2100
14
Full-Color Copying Machines
Sales results:
Business machines
2,163,931
2,300,066
0
95
96
97
98
99
Sales results:
Copying machines
(Millions of yen)
896,641
97
98
842,082
899,205
818,909
900,000
748,875
Canon strove to reflect the above-mentioned market conditions in its product and
marketing strategies. During the year, we released the imageCLASS C2100 (CP660 in
other regions), a full-color copying machine offering excellent image quality, an
affordable price, a comparatively low running cost and none of the glossiness associated
with output from conventional machines. This model proved popular in the corporate
market, and approximately 7,000 units were also shipped to a major convenience store
chain in Japan. We maintained our top share of the global graphic design market by
introducing the CLC1100 series of high-image-quality, high-precision and highproductivity machines with automatic dual-sided copying functions. In operating
activities, we worked to reduce product development lead times, enhance quality
control, reduce costs and further systemize marketing functions.
1,820,168
In 1999, the continuing diffusion of digital and network technologies in corporate
environments rapidly raised demand for full-color output solutions. Thus, although
competition rose during the year, the number of business opportunities also expanded
significantly. In Japan, where convenience stores have long installed coin-operated
monochrome copying machines, the market for full-color models also grew
considerably.
2,137,611
2,000,000
2,358,217
(Millions of yen)
0
95
96
99
Outlook for 2000
The shift from monochrome to color copying is certain to continue in the office-use market, and we will respond by
further emphasizing products with high-level network and other features, as well as marketing programs that
maximize new business opportunities. Furthermore, a jump is expected in demand for products that combine the
functions of full-color copying and printing. Foreseeing this trend, Canon launched its MFP, or multifunctional
peripheral marketing concept in 1998. In 2000, our plan for this product category is to introduce full-color MFPs with
output speeds and running costs comparable to monochrome products.
CLC1000
CLC1150
CLC2400
15
Business Machines
Copying Machines
The global market for monochrome copying machines remained at approximately the same size in 1999 as a year
earlier. Although demand was supported by strong economies in the United States and southern Europe, as well as
a trend toward recovery in Asia, these factors were insufficient to compensate for weakness in the Japanese and
western European markets. However, the accelerating shift to digital monochrome copying machines led many
manufacturers to strengthen their product lineups. The personal-use monochrome copying machine market is
estimated to have grown slightly, and the lineup of digital models grew in this category.
To stay ahead of the competition in the digital monochrome copying market, we developed three new digital engines
and released upgraded versions of our products. As a result, we now offer digital monochrome copying machines
from the low-end 16-cpm imageCLASS 2220 (GP160F in Europe) featuring easy maintenance to the high-end
60-cpm imageRUNNER 600 (GP605 in other regions) with excellent image quality, productivity and expandability.
On a local-currency basis, we achieved a sales increase outside of Japan in line with high demand for units with
printer options. In the future, we will develop business solutions operations, for which we expect strong growth. In our
personal-use copying machine operations, we concentrated on reinforcing our lineup of low-end analog models while
introducing midrange to high-end digital machines to take advantage of emerging demand.
Outlook for 2000
Product development in 2000 will concentrate on digital copying machines, particularly mid- to high-speed models,
which are coming to the forefront of the corporate market. The shift to digital copying machines is creating many
new business opportunities. To raise customer awareness of the network and solution features of our digital MFPs,
we will release next-generation models and publicize the document management functions of these machines. We
anticipate increased demand for personal-use monochrome copying machines in Russia and Eastern Europe, as well
as in China and Southeast Asia.
imageCLASS 2220
imageRUNNER 400S
16
PC420
Office and Personal Copying Machines
Canon’s imageRUNNER 600 is an
MFP for high-end office users,
copying at up to 60 cpm and
offering an astounding
resolution of 1,200600 dpi.
imageRUNNER 600
17
Business
Machines
The C LBP 460PS high-power,
full-color laser beam printer
provides users with 4-ppm
color and 16-ppm
monochrome output.
C LBP 460PS
18
Laser Beam Printers
Sales results:
Computer peripherals
702,452
965,499
964,808
The global market for monochrome laser beam printers expanded slightly in 1999,
owing primarily to a significant rise in demand in Asian countries undergoing economic
recovery. In Japan, a double-digit increase was seen in shipments, but intense
competition lowered prices. The corporate market for color laser beam printers
continued to develop in line with demand for computer peripherals connectable to
networks. Although color models are relatively new in the market, their popularity has
already created a highly competitive environment, particularly in Japan.
878,170
1,000,000
1,064,304
(Millions of yen)
0
95
96
97
98
99
Canon has long been a leader in the market for monochrome laser beam printers for office use, and in 1999 we
initiated a major push to expand our share of the personal-use market. Among our popular products for personal
users were the LBP-660 and LBP-800, with 6-ppm and 8-ppm output, respectively, and zero warm-up time. To
maintain our competitiveness in the Japanese office-use market, we released the LBP-910, with an output of 22
ppm, resolution of 1,200 dpi 1,200 dpi and excellent network functions. Sales of our color laser beam printers
expanded, including the C LBP 460PS, with 4-ppm color and 16-ppm monochrome output. In Japan, we released
the LBP-2160 and LBP-2260, offering 6-ppm color and 24-ppm output, as ideal monochrome printers for office
environments. These models are affordably priced and easy to maintain, and provide non-glossy, high-resolution
output at low running costs.
Outlook for 2000
In the coming year, Canon foresees a slight increase in the size of the worldwide market for monochrome laser beam
printers, which will lead to further price competition. We intend to focus on opening new business channels and
maintaining flexible pricing to ensure profitability. In our color laser beam printer operations, we will pursue the strategy
of developing full-color MFPs with output speeds and running costs comparable to monochrome laser beam printers.
LBP-2460
LBP-800
LBP-910 (Japan version)
19
Business Machines
Worldwide demand for ink-jet printers grew during the year under review. By region, the U.S. market was strong,
sustaining an overall increase in market size in the Americas. Demand also advanced in Asia and Oceania. In Japan,
demand expanded despite the overall weakness of the Japanese economy. However, market growth in Europe fell
below industry expectations. Decreased prices of image scanners led to growth of the market, but competition
among several makers intensified.
In the highly competitive markets of the United States, Canon captured and held the number-two market position
because of its timely introduction of the midrange BJC-5100 and BJC-6000 full-color Bubble Jet printers. In Europe,
the new BJC-6000 helped expand customer awareness of the Canon brand. Unit-based sales increased in Asia and
Oceania with the introduction of the low-end BJC-265SP and BJC-2000SP, a model designed specifically for this
region. In Japan, we moved toward achieving the top share of the color ink-jet printing market with five strategic
models. Of note among these products are the BJ F850, which features new technologies and Photo Inks for output
truly indistinguishable from conventional photographs, and the cost-effective BJ F300. Our shipments of image
scanners increased favorably, as we introduced slim personal-use models in the 300-dpi to 600-dpi range, as well
as the stylishly designed FB 636U and the FB 1200S for the 1,200-dpi market.
Outlook for 2000
Favorable PC sales should sustain growth in global demand for ink-jet printers in 2000. Canon will pursue its
objective of expanding market share by strengthening its strong lineup of low-end models and introducing powerful
midrange models. Competition in the image scanner market will continue to expand the marketplace, which is why
Canon intends to release new products meeting market needs and develop its business in the midrange to high-end
segments.
BJC-2000
BJC-6000
FB 636U
20
Bubble Jet Printers and Image Scanners
The BJC-8200 (BJ F850 in Japan)
features new technologies and
Photo Inks for output that is
indistinguishable from
conventional photographs.
BJC-8200
21
Business
Machines
Business Systems
The LASER CLASS 9000L Series
Super G3 Dual Line Option
doubles fax line power and
improves business productivity
by allowing faxes to be sent and
received simultaneously.
LASER CLASS 9000L
22
Facsimile Machines and Other Business Machines
Sales results:
Business systems
(Millions of yen)
97
356,350
436,053
96
397,272
440,532
Demand in the U.S. facsimile machines market continued to favor MFPs with functions
such as copying, printing and scanning. Sales of plain-paper personal-use facsimile
machines were prominent in Japan. The market for handheld terminals, marketed by
Canon in Japan under the Handy Terminal brand name, grew steadily, sustained by
demand for durable computer terminals that can be used for various on-site operations.
Price competition intensified in the calculators market, but the appearance of products
using downsized PC operating systems and falling prices of data organizers constricted
the market. Expansion in the market for document scanners reflected the growing
interest in document management and image-based data entry.
368,841
450,000
0
95
98
99
Canon increased its share of the U.S. facsimile machines market by introducing color-copying Bubble Jet-based
MFPs in the MultiPASS series. Our strategy in Japan was to launch distinctive products such as a personal-use model
with color facsimile functions. Our long-selling laser beam printer-based facsimile machines also contributed to
facsimile machine sales for the year. As in 1998, the HT-180 handheld terminal, with industry-leading specifications
and low-cost communications over cellular phone lines, contributed significantly to sales in this category. To boost
calculator sales, we launched models with printers and large, bright GLOview displays that sold well in North America
and Europe. We finished building a full lineup and increased sales of document scanners during the year. Popular
products included the DR-5000 series, capable of scanning documents up to 11 inches by 17 inches in size (A3) in
grayscale and color, and the DR-4080U, with a versatile flatbed scanning option.
Outlook for 2000
The MFP boom that has overtaken the U.S. facsimile machines market is expected to shift into other markets in the
future. Canon therefore plans to develop MFP operations on a global scale. In our calculator operations, we will focus
on cost reductions to maintain competitiveness, particularly in Asian markets, and release high-value-added
electronic dictionaries.
CFX-L3500 IF Laser Multifunction
System
HT-180
23
DR-5020
Cameras
Canon launched the new EOS
Rebel 2000 (EOS 300 in Europe)
as an SLR for beginners with
enhanced features such
as a 7-point AF function.
EOS Rebel 2000
24
SLR Cameras, Compact Cameras and Lenses
Sales results:
Cameras
277,349
247,766
213,760
The global SLR camera and lens market increased slightly, despite a sluggish worldwide
economic situation. The global compact camera market also remained stable, as the
market for products for the Advanced Photo System climbed rapidly. Favorable sales of
lenses for still cameras in the Americas and Asia were insufficient to counter sluggish
demand in Japan and Europe.
177,537
250,000
267,636
(Millions of yen)
0
Canon solidified its status as the global leader of the SLR camera market with the new
95 96 97 98 99
EOS Rebel 2000 (EOS 300 in Europe), an entry model with enhanced features from its
predecessor, including a 7-point AF function. In Europe, we released the EOS 3000, an affordable SLR camera
combining ease of use with sophisticated functions. The ELPH2 (IXUS II in Europe), our next-generation
ultracompact camera for the Advanced Photo System, strengthened our presence in the region’s compact camera
market. In the 35mm compact camera category, the new Sure Shot Classic 120 (Prima Super 120 in Europe), with
a 3 zoom, helped increase our market share. We also advanced our sales of EF lenses for still cameras with the
introduction of several strategic models.
Outlook for 2000
The improving image quality of digital cameras will influence demand for SLR cameras for professional use in 2000.
However, Canon will apply its leading technologies and the strength of the EOS brand name to introduce products
that stimulate demand and reinforce our top market position in both the 35mm SLR and digital camera markets.
Although we cannot expect drastic growth in compact camera demand, we will introduce strategic products for both
the Advanced Photo System and 35mm markets to increase our market share. In our EF lens operations, we will
reduce costs while continuing to introduce products with attractive features.
ELPH2
Sure Shot Classic 120
25
EF 28-135mm f/3.5-5.6 IS USM
Cameras
Digital Cameras,
LCD Projectors
and Others
In 1999, the digital camera market grew an estimated 60% from a year earlier. Expansion was particularly strong in
the second half in North America, which became the world’s largest digital camera market. Demand also grew for
image-capturing devices and LCD projectors used primarily for corporate presentations. The communications
equipment market, which includes monitoring and videoconferencing systems, expanded with the emergence of
new applications using the Internet.
Digital cameras with charge-coupled devices (CCDs) of more than one million pixels make up about half of the
global market, and Canon was able to double its sales with two powerful products in this class. The PowerShot A50,
with a zoom function and a 1.3-megapixel CCD, offers high image quality, superb functions and a stylish design. We
also released the PowerShot S10 for the two-megapixel class. This model incorporates a new signal-processing
integrated circuit (IC) and refined PC-input functions, including a built-in, high-speed USB interface. Canon
successfully entered the market for LCD projectors midway through the year and increased its sales of Video
Visualizer image-capturing devices. In November 1999, we introduced the affordably priced VB100 Internet-based
monitoring system, which adopts our VC-C3 Communication Camera. This product sold extremely well in its first two
months.
Outlook for 2000
The digital camera market will expand steadily in 2000, as models in the three-megapixel class are released. Canon
intends to reinforce its lineup with new models in this class as well as in the two-megapixel and lower ranges. We also
foresee a rise in sales of our unique Video Visualizer products. In our LCD projector business, we will introduce three
products with distinctive Canon’s Turbo Bright System technology, including a model with the highest brightness in its
class. Continuing strong growth is also anticipated in our Internet-based monitoring systems business.
PowerShot A50
LV-7510
VC-C3 Communication Camera
26
Digital Cameras, LCD Projectors and Others
The PowerShot S10 is a twomegapixel-class digital camera
with a new signal-processing IC
and refined PC-input functions.
PowerShot S10
27
Cameras
Video Camcorders and
Binoculars
The ELURA digital video camcorder
(MV20 in Europe) offers a
12optical and 48digital zoom
lens with image stabilization, an
RGB primary color filter and a
progressive-scan CCD.
ELURA
28
Video Camcorders and Binoculars
The demand trend in the global video camcorder market continued to shift toward digital products in 1999 in
Europe and North America. Especially in the United States, the video camcorder market expanded with the
popularity of digital products. In Japan, a major market for video camcorders, digital models now comprise more than
90% of total shipments. The global market for binoculars also remained stable.
In the digital video camcorder market, Canon introduced products adopting its renowned optical technologies and
lowered costs to respond effectively to demand trends. In the first half of 1999, we introduced the high-imagequality ELURA (MV20 in Europe), with a progressive scan CCD, RGB primary color filter, optical image stabilization
system, and 12 optical and 48 digital zoom. The second half saw our release of the powerful GL1 (XM1 in
Europe), featuring a professional-quality fluorite lens, 20 optical and 100 digital zoom, optical image stabilization
system and easy-to-see 2.5-inch LCD screen. The XL1, a high-end digital video camcorder with a 3-CCD system and
interchangeable lenses, also contributed to sales. Although the binocular market showed little growth during the year,
Canon’s image-stabilization models made significant inroads, particularly in the United States.
Outlook for 2000
Canon expects the Japanese market for video camcorders to grow slightly in 2000, particularly because of the
continuing popularity of digital models. The digital shift seen in Europe and North America in 1999 is also anticipated
to accelerate. In addition to promoting our mid- to high-end digital video camcorders, we will commercialize lowerend models with high image quality and excellent functions. We forecast continuing progress in our sales of imagestabilization binoculars in line with new product introductions, but the sluggish Japanese economy and other factors
will be a cause for concern.
Top-of-the-line XL1 MiniDV
camcorder
GL1
1030 IS binoculars
29
Optical
Products
This new 18,240-square foot
clean room at Canon U.S.A.’s
San Jose office allows highly
realistic training with steppers,
scanners and chip lithography
process simulation.
30
Semiconductor Production Equipment
Sales results:
Optical products
(Millions of yen)
109,784
130,964
152,737
124,910
Canon’s primary semiconductor production equipment includes steppers used to
manufacture dynamic random access memories (DRAMs), systems-on-chip (SOCs)
and mask aligners for the exposure of LCD panels. In 1999, the market for steppers
declined on a unit basis, but shipments of high-end products rose, and the value of the
market decreased. On the other hand, demand for mask aligners expanded significantly
both in units shipped and value.
154,306
1500,000
0
95 96 97 98 99
Canon’s sales of steppers generally followed the market trend. Popular products
included the FPA-3000EX5 krypton fluoride (KrF) excimer-laser stepper for the mass production of 64 Mb and
256 Mb DRAMs and next-generation multiprocessors. Sales were also strong for the FPA-5000ES2 KrF excimer-laser
scanning stepper, which supports 0.15-micron linewidth patterning and high-volume semiconductor production on
300-mm silicon wafers. In October 1999, we introduced the FPA-5000AS1, the world’s first argon fluoride (ArF)
excimer-laser scanning stepper compatible with production on 300-mm wafers, and the FPA-3000EX6, a KrF
excimer-laser stepper offering 0.15-micron linewidth patterning and high throughput for 256 Mb DRAMs. In our
mask aligner operations, sales advanced for the MPA-5000, the industry’s largest full-field exposure device for flat
panel display production.
Outlook for 2000
Steady expansion in the semiconductor market will propel sales of semiconductor production equipment over the
next three years. In our stepper operations, the key to extending sales will be reducing the lead times from new
product development to commercialization. For the high-potential Giant Magneto-Resistance (GMR) head market, in
March 2000 we will market a new KrF excimer-laser stepper compatible with a variety of material layer thicknesses.
Sales of Canon mask aligners are anticipated to remain strong, as these products are highly evaluated by the industry
and LCD demand will continue to grow rapidly.
FPA-3000EX5
FPA-5000ES2
31
MPA-5000
Optical Products
Medical and Broadcasting Equipment
Demand for ophthalmic instruments remained level in 1999, though a growing interest was seen in configuring
local-area networks (LANs) for optometry offices. In the radiology equipment market, the shift to digital systems
has begun in earnest. The U.S. market was strong throughout the year, while healthy demand was seen in Europe
in the second half.
New ophthalmic instruments released in 1999 included the R-50+ Auto Refractor and RK-5+ Auto
Refractor/Keratometer. These upgraded products, with added features such as an auto-start function, contributed to
raising awareness of the Canon brand name. In 1998, Canon became the first company in the industry to
commercialize digital radiography equipment. Following our successful launch of the CXDI-11 standing digital
radiography system, in 1999 we introduced the CXDI-12 table model. Both of these products use Canon’s unique
large-area flat-panel sensor and provide the same advanced features. As in other product categories, the
broadcasting lens market is increasingly shifting to digital products. In this situation, we released the
DIGI SUPER 25xs lens, a studio-use lens with a 25 zoom, high-definition TV (HDTV) compatibility and a
price in the same range as existing models.
Outlook for 2000
Because the ophthalmic instrument market is stable, Canon’s business expansion plan centers on meeting the
growing network needs of optometrists. Our first step will be the introduction of an electronic filing system for fundus
diagnostic data. The increasing popularity of X-ray digital radiography systems is likely to fuel competition in 2000. To
keep ahead, we will reinforce our product lineup and software development for comprehensive system solutions.
Full-scale digital broadcasting lens demand is anticipated to commence in two to three years. Until then, we plan to
introduce products to further strengthen our market-leading position while preparing for the future with a full lineup
of broadcasting lenses, especially portable digital and HDTV lenses.
CR6-45NM
CXDI-11 X-Ray Digital Camera
32
DIGI SUPER 25xs
FINANCIAL SECTION
TABLE OF CONTENTS
34 FINANCIAL OVERVIEW
44 TEN-YEAR FINANCIAL SUMMARY
46 CONSOLIDATED BALANCE SHEETS
47 CONSOLIDATED STATEMENTS OF INCOME
48 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
49 CONSOLIDATED STATEMENTS OF CASH FLOWS
50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Significant Accounting Policies
52 (2) Financial Statement Translation
52 (3) Foreign Operations
53 (4) Marketable Securities and Marketable Investments
55 (5) Trade Receivables
(6) Inventories
(7) Property, Plant and Equipment
56 (8) Short-term Loans and Long-term Debt
59 (9) Trade Payables
(10) Employee Retirement and Severance Benefits
61 (11) Income Taxes
64 (12) Common Stock
(13) Legal Reserve and Cash Dividends
(14) Noncash Financing Activities
65 (15) Other Comprehensive Income (Loss)
67 (16) Net Income per Share
68 (17) Foreign Exchange Risk Management and Interest Rate Risk Management
(18) Commitments and Contingent Liabilities
69 (19) Disclosures about the Fair Value of Financial Instruments
70 (20) Supplementary Expense Information
71 INDEPENDENT AUDITORS’ REPORT
33
FINANCIAL OVERVIEW
RESULTS OF OPERATIONS
million) while net income decreased 35.9% to
¥70,234 million (U.S.$689 million).
The appreciation of the yen adversely affected the
financial performance of Canon in 1999. Net sales
decreased 7.2% to ¥2,622,265 million (U.S.$25,708
SUMMARY OF OPERATIONS
(Millions of yen
except per
share amounts)
1999
Net sales
Operating profit
Income before income taxes
Net income
Per share:
Basic
Diluted
change
1998
¥2,622,265 –7.2% 2,826,269
176,056 –32.5
260,778
156,072 –34.8
239,513
70,234 –35.9
109,569
80.66 –36.0
79.50 –35.9
1996
(Thousands of U.S. dollars
except per
share amounts)
1999
+2.4% 2,761,025 +7.9% 2,558,227
–4.8
274,034 +24.0
221,036
+2.0
234,805 +28.5
182,765
–7.8
118,813 +26.2
94,177
$25,708,480
1,726,039
1,530,118
688,569
change
126.10
123.93
–8.4
–7.9
1997
change
137.73 +23.8
134.60 +25.8
111.29
106.96
0.79
0.78
Sales
During 1999, the U.S. economy remained strong against a
backdrop of healthy domestic demand, and the European
economy expanded slightly though the value of the euro against
other major currencies declined in the second half. The Asian
region showed signs of recovery owing to increased exports,
particularly from the Republic of Korea and Thailand. In Japan,
indications of an economic turnaround reflected increased public
works expenditures, but sluggish consumer spending and private
sector capital investment prevented a full-scale recovery.
During this period, the average yen-dollar exchange rate was
approximately ¥113/U.S.$1, reflecting a 15% increase in the
average value of the yen from that of 1998. The average yeneuro exchange rate also appreciated by 20% to approximately
¥120/euro 1. Using the average 1998 exchange rates, 1999
net sales would have increased 3.4% from 1998.
In 1998, the Southeast Asian economies remained weak and
the Japanese markets suffered from weak consumer spending
and concerns over the stability of the Japanese banking systems.
The average yen-dollar exchange rate was approximately
¥131/U.S.$1, reflecting a ¥10 increase in the average value of the
U.S. dollar from that of 1997, while the average yen-deutsch
mark exchange rate fell from approximately ¥70/DM1 during the
previous year to ¥74/DM1.
In 1997, the Southeast Asian economies experienced severe
financial problems and the markets were weak as economy
stagnated. The average yen-dollar exchange rate was
approximately ¥121/U.S.$1, reflecting a ¥12 increase in the
average value of the U.S. dollar from that of 1996. The yen
strengthened against Deutschmark. The average yen-deutsch
mark exchange rate was approximately ¥70/DM1, reflecting a ¥2
decrease in the average value of the deutsch mark versus 1996.
34
Earnings
Operating profit in 1999 decreased 32.5% to ¥176,056
million (U.S.$1,726 million) or 6.7% of net sales. This compares
with 9.2% in 1998 and 9.9% in 1997. In 1999, the
appreciation of the yen adversely affected net sales by
approximately ¥300,000 million (U.S.$2,941 million). The
appreciation of the yen lowered gross profit ratio (gross profit to
net sales) by approximately 4.5% including positive effects on
the overseas production and the use of local parts suppliers. On
the other hand successful Canon’s efforts aimed at reducing
production costs and increasing sales of high-value-added
products favorably affected the gross profit ratio. As a result, the
gross profit ratio to net sales was 42.9% in 1999 as compared
to 44.5% in 1998.
Selling, general and administrative expenses decreased 4.8%
to ¥948,269 million (U.S.$9,297 million), or 36.2% of net sales,
an increase of 0.9% from the previous year. The decrease was
mainly attributable to Canon’s efforts to reduce selling expenses,
such as advertising and sales promotions. While R&D expenditure
during 1999 slightly increased by 0.5% to ¥177,922 million
(U.S.$1,744 million), representing 6.8% of net sales.
In 1998, Canon’s operating profit decreased 4.8% to
¥260,778 million or 9.2% of net sales. The depreciation of the
yen positively influenced net sales by approximately ¥124,000
million. However, most of this influence was eliminated at the
gross profit level due to price reductions made to increase
Canon’s competitive position in the world markets.
In 1997, Canon’s operating profit increased 24.0% to
¥274,034 million. The depreciation of the yen positively affected
net sales by approximately ¥102,800 million. Approximately
80% of this influence was eliminated at the gross profit level
due to price reductions.
Income before income taxes in 1999 was ¥156,072 million
(U.S.$1,530 million), a 34.8% decrease from the previous year,
or 6.0% of net sales. Interest expenses decreased ¥8,525 million (U.S.$84 million) to ¥20,356 million (U.S.$200 million),
mainly owing to the reduction of short-term loans. The loss
attributable to equity in earnings of affiliated companies
decreased ¥2,390 million (U.S.$23 million) to net loss of ¥2,848
million (U.S.$28 million), primary due to the recovery of a semiconductor-related affiliated company. In 1999, foreign exchange
losses of ¥3,387 million (U.S.$33 million) were recorded, compared to an exchange gains of ¥1,189 million in 1998.
Income before income taxes in 1998 was ¥239,513 million,
accounting for 8.5% of net sales. Other net deductions
significantly improved from ¥23,362 million to ¥4,960 million
due to the decrease in foreign exchange losses.
Income before income taxes in 1997 was ¥234,805 million,
accounting for 8.5% of net sales. Interest expenses decreased by
¥4,055 million, while foreign exchange losses increased ¥7,140
million due mainly to the devaluation of Asian currencies.
Net income in 1999 was ¥70,234 million (U.S.$689 million),
a 35.9% decrease compared to the previous year, representing
a 2.7% return on sales. While Japanese normal income tax rates
declined by 4% to 47%, the ratio of income taxes to income
before income taxes rose by 2.1% to 53.8%. Of this increase,
3.2% was due to the effect of changing Japanese income tax
rates on net deferred tax assets.
Net income in 1998 and 1997 was ¥109,569 million and
¥118,813 million, respectively. Return on sales in 1998 and
1997 was 3.9% and 4.3%, respectively.
125,253
2.7%
2.5%
0
150,085
150,000
3.7%
177,922
3.9%
4
176,967
(Millions of yen)
4.3%
170,793
R&D expenditure
Return on sales
98
99
0
95
96
97
98
99
95
96
35
97
SALES BY PRODUCT
(Millions of yen)
1999 change
Business machines:
Copying machines
Business systems
Cameras
Optical and other products
Total
1998
change
1997
¥ 842,082 –6.1% 896,641 –0.3% 899,205
965,499 –9.3 1,064,304 +10.3
964,808
356,350 –10.3
397,272 –8.9
436,053
2,163,931 –8.2 2,358,217 +2.5 2,300,066
277,349 +3.6
267,636 +8.0
247,766
180,985 –9.7
200,416 –6.0
213,193
¥ 2,622,265 –7.2 2,826,269 +2.4 2,761,025
1996
(Thousands of
U.S. dollars)
1999
+9.8% 818,909
+9.9
878,170
–1.0
440,532
+7.6 2,137,611
+15.9
213,760
+3.1
206,856
+7.9 2,558,227
$ 8,255,706
9,465,677
3,493,627
21,215,010
2,719,107
1,774,363
$25,708,480
change
SALES BY REGION
(Millions of yen)
1999 change
Japan
Americas
Europe
Other areas
Total
1998 change
¥ 755,704 –0.8% 761,776
913,377 –9.2 1,005,648
741,657 –12.8
850,226
211,527 +1.4
208,619
¥ 2,622,265 –7.2 2,826,269
1996
(Thousands of
U.S. dollars)
1999
+3.5% 828,829
+8.8
819,737
+10.4
702,516
+13.7
207,145
+7.9 2,558,227
$ 7,408,863
8,954,676
7,271,147
2,073,794
$25,708,480
1997 change
–11.2% 857,993
+12.7
891,979
+9.6
775,592
–11.4
235,461
+2.4 2,761,025
SALES BY PRODUCT
Sales of business machines (copying machines, computer
peripherals and business systems) accounted for 82.5% of net
sales and decreased 8.2% to ¥2,163,931 million (U.S.$21,215
million) in 1999. In 1998, business machine sales grew 2.5% in
comparison to an increase of 7.6% in 1997.
Sales of copying machines (including digital, color, office and
personal models) decreased 6.1% to ¥842,082 (U.S.$8,256
million) in 1999. Sales of the digital machines showed significant
growth in all regions, particularly in the Americas and Europe.
Color machines also performed well in most markets. In
comparison, sales of analogue machines decreased as buyers
shifted toward digital products. Although total sales of copying
machines grew in terms of local currencies the value of these
sales decreased in terms of yen.
Sales of copying machines decreased in 1998 owing to the
weak domestic market but showed healthy growth in 1997.
Sales of computer peripherals in 1999 (mainly laser beam,
bubble jet printers and scanners) slipped 9.3% to ¥965,499
million (U.S.$9,466 million). Laser beam printer sales showed a
decrease mainly because the release of several new products in
late 1998 temporarily lessened overall demand in the period
under review while the consumables continued to grow steadily.
New bubble jet printers released in the Japanese market were
well received but overseas sales decreased due to severe price
competition. The new compact scanner released during the
period sold well.
Sales of computer peripherals increased substantially in both
1998 and 1997.
Sales of business systems (including faxes, computers,
micrographics, Japanese-language word processors and
calculators) decreased 10.3% to ¥356,350 million (U.S.$3,494
million) in 1999. Sales of faxes declined due to severe price
competition, especially in multifunction faxes.
Sales of business systems decreased in 1998 and in 1997.
The decrease in 1998 mainly reflected a decline in sales of
computers in Japan and withdrawal from the electronic typewriter
business during the term.
Sales of cameras increased by 3.6% to ¥277,349 million
(U.S$2,719 million) in 1999, owing mainly to the introduction of
new digital cameras and digital video camcorders. Sales of 35mm
and Advanced Photo System cameras decreased due to the appreciation of the yen. Cameras accounted for 10.6% of net sales.
Sales of cameras increased in both 1998 and 1997, led by
growth in sales of the Advanced Photo System cameras.
Sales of optical and other products (including steppers and
aligners for semiconductor chip production, broadcasting lenses,
and medical equipment) decreased 9.7% to ¥180,985 million
(U.S.$1,774 million) in 1999. Stepper-related sales were
negatively impacted by restricted capital investment by
semiconductor manufacturers which was caused by the sluggish
semiconductor market through the first half of 1999. Optical and
other products contributed 6.9% to net sales.
Sales of optical and other products decreased in 1998
because of restrained capital investments by semiconductor
manufacturers but increased in 1997.
36
SALES BY REGION
A geographical analysis indicates that net sales in 1999
decreased in Japan, the Americas and Europe, but increased
elsewhere.
In Japan, overall sales declined slightly by 0.8% in 1999, primarily due to the decrease in sales of computers and optical products. Sales of computer peripherals and cameras showed substantial growth. Sales in the Americas decreased 9.2% in 1999. The
decrease was mainly attributable to the appreciation of the yen
against the U.S. dollar. Product groups other than business systems and optical and other products increased sales in terms of
the U.S. dollar. Sales in Europe decreased 12.8% in 1999.
Product groups other than optical and other products increased
sales in terms of the euro but the stronger yen against the euro
adversely affected regional sales. Sales in other areas increased by
1.4%, reflecting the economic recovery in the regions.
In 1998, net sales increased in Europe and the Americas
mainly due to favorable changes in exchange rates but decreased
in Japan and other areas. In 1997, all areas experienced some
growth, with Europe showing double-digit growth.
Operating profit for business machines decreased by ¥54,807
million (U.S.$537 million) in 1999. This decrease mainly reflected
the decline of the gross profit ratio reflecting the appreciation of
the yen. The operating profit ratio also decreased by 1.3% to
12.1%. In 1998, operating profit for business machines
decreased by ¥2,268 million to ¥316,685 million, mainly due to
reduced sales of copying machines. In 1997, operating profit for
business machines increased by ¥50,177 million to ¥318,953
million. This increase was due to significant growth in sales of
copying machines, laser beam and bubble jet printers.
Operating profit for cameras decreased by ¥8,240 million
(U.S.$81 million) to ¥18,967 million (U.S.$186 million) in 1999.
The strong yen reduced the gross profit ratio from cameras and
the operating profit ratio also declined 3.4% to 6.8%. Operating
profit for cameras increased both in 1998 and 1997, reflecting
inreased sales of Advanced Photo System and 35mm cameras.
Operating profit for optical and other products in 1999
decreased by ¥17,882 million (U.S.$175 million) to an operating
loss of ¥13,233 million (U.S.$130 million), mainly attributable to
the semiconductor market decline. Operating profit for optical and
other products decreased both in 1998 and 1997 due to the
slowdown of the semiconductor market.
SEGMENT INFORMATION BY PRODUCT AND
GEOGRAPHIC AREA
The disclosures of segment information by product as required in
Japan for the years ended December 31, 1999, 1998 and 1997
are provided on page 38, and the disclosures of segment information by geographic area as required in Japan for the years ended
December 31, 1999, 1998 and 1997 are shown on page 39.
Sales by product
Sales by region
(Millions of yen)
(Millions of yen)
Business machines
Japan
Copying machines
Business systems
Americas
Cameras
Europe
Optical and other products
Other areas
2,761,025 2,826,269
2,622,265
2,558,227
2,500,000
2,761,025
2,826,269
2,622,265
2,558,227
2,500,000
2,165,626
2,165,626
0
0
95
96
97
98
99
95
96
37
97
98
99
SEGMENT INFORMATION BY PRODUCT
Business
machines
Cameras
1999: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
Depreciation and amortization
Capital expenditure
¥ 2,163,931
—
2,163,931
1,902,053
¥ 261,878
¥ 1,256,667
114,451
143,269
277,349
—
277,349
258,382
18,967
155,204
12,285
12,880
180,985
79,413
260,398
273,631
(13,233)
252,071
12,860
17,856
—
(79,413)
(79,413)
12,143
(91,556)
923,590
18,515
26,381
2,622,265
—
2,622,265
2,446,209
176,056
2,587,532
158,111
200,386
1998: Net sales:
Intersegment
Total
Operating profit
Assets
Capital expenditure
¥ 2,358,217
—
2,358,217
2,041,532
¥ 316,685
¥ 1,438,218
117,179
149,072
267,636
—
267,636
240,429
27,207
159,896
11,695
14,019
200,416
80,179
280,595
275,946
4,649
239,884
9,925
17,296
—
(80,179)
(80,179)
7,584
(87,763)
890,331
22,988
41,014
2,826,269
—
2,826,269
2,565,491
260,778
2,728,329
161,787
221,401
1997: Net sales:
Intersegment
Total
Operating profit
Assets
Capital expenditure
¥ 2,300,066
—
2,300,066
1,981,113
¥ 318,953
¥ 1,433,626
102,789
148,834
247,766
—
247,766
225,652
22,114
163,095
9,963
13,953
213,193
—
71,844
(71,844)
285,037
(71,844)
259,573
20,653
25,464
(92,497)
232,436 1,043,622
8,793
18,270
17,097
39,895
2,761,025
—
2,761,025
2,486,991
274,034
2,872,779
139,815
219,779
Business
machines
Cameras
$21,215,010
—
21,215,010
18,647,579
$ 2,567,431
$12,320,265
1,122,069
1,404,598
2,719,107
—
2,719,107
2,533,156
185,951
1,521,608
120,441
126,275
(Millions of yen)
(Thousands of U.S. dollars)
1999: Net sales:
Intersegment
Total
Operating profit
Assets
Capital expenditure
Optical and
other products
Optical and
other products
1,774,363
778,559
2,552,922
2,682,657
(129,735)
2,471,284
126,078
175,059
Corporate and
Eliminations
Corporate and
Eliminations
Consolidated
Consolidated
— 25,708,480
(778,559)
—
(778,559) 25,708,480
119,049 23,982,441
(897,608)
1,726,039
9,054,804 25,367,961
181,520
1,550,108
258,637
1,964,569
Notes:
1 General corporate expenses of ¥91,540 million (U.S.$897,451 thousand), ¥88,064 million and ¥92,677 million in 1999, 1998 and 1997, respectively, are included
in “Corporate and Eliminations.”
2 Corporate assets of ¥923,863 million (U.S.$9,057,480 thousand), ¥892,863 million and ¥1,045,127 million in 1999, 1998 and 1997, respectively, which mainly
consist of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
38
SEGMENT INFORMATION BY GEOGRAPHIC AREA
(Millions of yen)
Americas
Europe
1999: Net sales:
Intersegment
Total
Operating profit
Assets
¥ 791,399
1,205,021
1,996,420
1,791,871
204,549
¥ 1,328,376
912,676
14,468
927,144
898,900
28,244
298,624
736,570
3,645
740,215
727,215
13,000
338,630
181,620
— 2,622,265
179,527 (1,402,661)
—
361,147 (1,402,661) 2,622,265
350,482 (1,322,259) 2,446,209
10,665
(80,402) 176,056
138,251
483,651 2,587,532
1998: Net sales:
Intersegment
Total
Operating profit
Assets
¥ 796,406
1,312,405
2,108,811
1,831,816
276,995
¥ 1,384,473
1,003,683
21,523
1,025,206
1,002,166
23,040
328,634
841,400
3,126
844,526
820,257
24,269
391,354
184,780
— 2,826,269
198,702 (1,535,756)
—
383,482 (1,535,756) 2,826,269
370,036 (1,458,784) 2,565,491
13,446
(76,972) 260,778
136,843
487,025 2,728,329
1997: Net sales:
Intersegment
Total
Operating profit
Assets
¥ 904,545
1,226,130
2,130,675
1,832,174
298,501
¥ 1,477,052
887,302
17,793
905,095
883,698
21,397
353,027
765,580
3,842
769,422
733,016
36,406
397,824
203,598
— 2,761,025
190,602 (1,438,367)
—
394,200 (1,438,367) 2,761,025
371,221 (1,333,118) 2,486,991
22,979 (105,249) 274,034
165,691
479,185 2,872,779
Japan
Americas
Europe
$ 7,758,814
11,813,931
19,572,745
17,567,363
2,005,382
$13,023,294
8,947,804
141,843
9,089,647
8,812,745
276,902
2,927,686
7,221,274
35,736
7,257,010
7,129,559
127,451
3,319,902
1999: Net sales:
Intersegment
Total
Operating profit
Assets
Others
Corporate and
Eliminations
Japan
Others
Corporate and
Eliminations
Consolidated
Consolidated
1,780,588
— 25,708,480
1,760,069 (13,751,579)
—
3,540,657 (13,751,579) 25,708,480
3,436,098 (12,963,324) 23,982,441
104,559 (788,255) 1,726,039
1,355,402 4,741,677 25,367,961
Notes:
1 General corporate expenses of ¥91,540 million (U.S.$897,451 thousand), ¥88,064 million and ¥92,677 million in 1999, 1998 and 1997, respectively, are included
in “Corporate and Eliminations.”
2 Corporate assets of ¥923,863 million (U.S.$9,057,480 thousand), ¥892,863 million and ¥1,045,127 million in 1999, 1998 and 1997, respectively, which mainly
consist of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
39
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
each region in local currencies, while the cost of goods sold is
generally in yen. Given Canon’s current structure, appreciation
of the yen has a negative impact on Canon’s net sales and
gross profit ratio. To reduce the financial risks from changes in
foreign exchange rates, Canon utilizes derivative financial
instruments which are comprised principally of forward currency
exchange contracts.
The return on foreign operation sales is usually lower than
domestic operations because foreign operations consist mainly
of marketing activities. The return on foreign operation sales in
1999, 1998 and 1997 was 1.8%, 2.1% and 2.5%,
respectively. This compares with 2.7%, 3.9% and 4.3% on total
operations for such years, respectively.
LIQUIDITY
Cash and cash equivalents in 1999 decreased by ¥18,729
million (U.S.$184 million) to ¥480,453 million (U.S.$4,710
million) compared with ¥499,182 million in 1998 and
¥647,097 million in 1997.
Net cash provided by operating activities in 1999 was
¥308,917 million (U.S.$3,029 million), compared with
¥279,220 million in 1998 and ¥184,200 million in 1997. This
increase is attributable mainly to the significant reduction of
inventory levels.
Capital expenditure
Net cash used in investing activities in 1999 decreased to
¥200,982 million (U.S.$1,970 million), compared with
¥247,947 million in 1998 and ¥206,711 million in 1997. Capital
expenditure decreased by ¥21,015 million(U.S.$206 million) to
¥200,386 million (U.S.$1,965 million) compared to 1998. The
introduction of a new production system helped to reduce certain
part of capital expenditure required for production.
A decrease of net cash used in financing activities in 1999
and 1998 was mainly owing to the reduction of short-term
loans, reflecting Canon’s policy to improve its financial structure.
Net cash provided by (used in) financing activities in 1999 was
¥(122,823) million (U.S.$(1,204) million), compared to
¥(177,862) in 1998 and ¥21,440 in 1997.
CAPITAL RESOURCES
Capital expenditure in 1999 amounted to ¥200,386 million
(U.S.$1,965 million) compared with ¥221,401 million in 1998
and ¥219,779 million in 1997. In 1999, major capital
expenditure included the expansion and maintenance of
production capabilities, construction of a new plant for
consumables and new corporate headquarters and sales offices.
Funds required for investments have been generated internally
from operations.
At December 31, 1999, Canon had outstanding
commitments of approximately ¥25,830 million (U.S.$253
million) to purchase property, plant and equipment for use in
the ordinary course of its business. Canon anticipates that funds
needed to fulfill these commitments will be generated internally
from operations.
Working capital ratio
(Millions of yen)
Return on stockholders’ equity
2
200,386
176,357
200,000
221,401
219,779
11.2%
1.51
1.46
1.53
1.60
9.7%
10.0%
10
1.70
6.5%
123,560
6.0%
0
0
95
96
97
98
99
0
95
96
97
40
98
99
95
96
97
98
99
Working capital in 1999 decreased by ¥14,593 million
(U.S.$143 million) to ¥609,730 (U.S.$5,978 million) compared
with ¥624,323 million in 1998 and ¥647,762 million in 1997.
The decrease was primarily attributable to the reduction of
inventory levels.
The working capital ratio (current assets to current liabilities)
for 1999 was 1.70 compared with 1.60 for 1998 and 1.53 for
1997.
Return on assets fell to 2.6% in 1999, compared with 3.9%
in 1998 and 4.3% in 1997. This decline was due mainly to a
decrease in net income. Return on stockholders’ equity also
fell to 6.0% in 1999, compared with 9.7% in 1998 and
11.2% in 1997.
Market Risk Management
Market Risk Exposures
Canon is exposed to markets risk, including changes in foreign
exchange rates, interest rates and prices of marketable securities
and marketable investments. In order to hedge the risks of
changes in foreign exchange rates and interest rates, Canon
uses derivative financial instruments. Canon does not hold or
issue derivative financial instruments for trading purposes.
Although the use of derivative financial instruments exposes
Canon to the risk of credit-related losses in the event of nonperformance by counterparties, Canon believes that its
counterparties are creditworthy and does not expect such
losses, if any, to be significant.
Foreign Exchange Risk
Canon’s international operations and foreign currency indebtedness expose Canon to the risk of changes in foreign currency
exchange rates. To manage this exposure, Canon enters into foreign exchange contracts. With respect to risks related to its sales
revenue, Canon currently has a policy of entering into foreign
exchange contracts that cover approximately 30-50% of the
amount of foreign currency cash flows that Canon, at a given
time, anticipates it will receive within the immediately succeeding two to three month period. Canon also enters into foreign
exchange contracts from time to time to hedge a portion of the
risk of fluctuation in foreign currency exchange rates associated
with long-term debt that is denominated in foreign currencies.
Foreign exchange contracts related to such long-term debt have
the same maturity as the underlying debt.
The following table provides information about Canon’s
major derivative financial instruments related to foreign currency
exchange transactions existing at December 31,1999, which is
translated into yen at the rate used herein as of such date,
together with the related weighted average contractual exchange
rates at December 31,1999. This table does not include
amounts related to foreign exchange contracts entered into in
connection with long-term debt denominated in foreign currencies which eliminate all foreign currency exposures. All of the foreign exchange contracts described in the following table have a
contractual maturity date in 2000.
Forwards to sell foreign currencies:
Equity Price Risk
Canon holds marketable securities and marketable investments
included in current assets for short-term investment. In general,
highly-liquid and low-risk instruments are preferred in the
portfolio. Marketable securities and marketable investments
included in noncurrent assets are held as longer-term
investments. Canon does not hold marketable securities and
marketable investments for trading purposes.
Maturities and fair values of such marketable securities and
marketable investments were as follows at December 31, 1999.
Millions of yen
Cost
Fair Value
Thousands of
U.S. dollars
Cost
Fair Value
Due within one year
¥ 1,745
1,732 $ 17,108
16,980
Due after one year through
five years
3,004
4,484
29,451
43,961
Due after five years
5,377
5,741
52,715
56,285
Equity securities
24,772 116,720 242,863 1,144,314
¥ 34,898 128,677 $342,137 1,261,540
41
Contract amounts
Estimated fair value
Average contractual rates
Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
Millions of yen
(except average contractual rates)
U.S.$/Yen euro/Yen Others
Total
¥ 123,813 45,037
953
579
102.38 103.84
2,081 170,931
(104)
1,428
Thousands of U.S. dollar
U.S.$/Yen euro/Yen Others
Total
$1,213,853 441,539 20,402 1,675,794
9,343 5,676 (1,019) 14,000
Interest Rate Risk
Canon’s exposure to the market risk of changes in interest rates
relates primarily to its debt obligations. Canon has long-term
debt with both fixed rates and floating rates. Interest rate swaps
may be entered into from time to time by Canon to hedge cash
flows of interest and debt when determined by Canon to be
appropriate based on market conditions.
The following tables provide information about Canon’s
derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates.
For interest rate swaps, the table presents notional principal
amounts and weighted average interest rates by expected
maturity dates. Notional principal amounts are used to calculate
the contractual payments to be exchanged under the contracts.
The table presents information for obligations existing at
December 31, 1999, which is translated into yen at the rate
used herein as of such date, together with the related weighted
average contractual interest rates at December 31, 1999.
LONG-TERM DEBT (including due within one year)
Japanese yen notes
Japanese yen convertible
debentures
Swiss franc note with warrants
Loans, principally from banks
Total
Total
2.27% ¥ 111,920
1.20%
0.74%
3.69%
(Millions of yen)
Expected maturity date
Average interest
rates
2000
2001
2002
2003
2004
Thereafter
— 19,920 37,000 10,000 20,000 25,000 116,233
21,254
—
9 5,248
—
— 15,997
55,734
6,984 6,984
—
—
—
—
—
6,994
50,193 18,090 15,966 9,407 2,152
674 3,904
49,303
¥ 190,351 25,074 35,895 51,655 12,152 20,674 44,901 228,264
INTEREST RATE SWAP
Notional principal
amount (million)
Average receive
rate
¥ 60,000
US$
468
1.66%
6.02%
(Millions of yen)
Average pay
rate
Total
0.88% ¥
6.11%
60,000
47,929
2000
2001
2002
2003
2004
Thereafter
— 40,000 20,000
4,316 15,130 28,483
—
—
—
—
—
—
LONG-TERM DEBT (including due within one year)
Average interest
rates
Japanese yen notes
Japanese yen convertible
debentures
Swiss franc note with warrants
Loans, principally from banks
Total
Total
2.27% $1,097,255
1.20%
0.74%
3.69%
Average receive
rate
¥ 60,000
US$
468
1.66%
6.02%
Estimated
Fair Value
2,113
161
2000
2001
2002
2003
2004
Thereafter
Estimated
Fair Value
— 195,294 362,745 98,039 196,078 245,099 1,139,539
208,372
—
88 51,451
—
— 156,833 546,412
68,471 68,471
—
—
—
—
—
68,569
492,088 177,353 156,530 92,226 21,098 6,608 38,273 483,362
$1,866,186 245,824 351,912 506,422 119,137 202,686 440,205 2,237,882
INTEREST RATE SWAP
Notional principal
amount (million)
Estimated
Fair Value
Average pay
rate
Total
2000
2001
2002
2003
2004
Thereafter
0.88% $ 588,235
0 392,157 196,078
6.11%
469,892 42,314 148,333 279,245
—
—
—
—
—
—
42
Estimated
Fair Value
20,716
1,578
REGARDING THE ENVIRONMENT
LOOKING FORWARD
Canon is not aware of any sites that may have an adverse
material effect on its liquidity, financial position or results of
operations. It is difficult to estimate future environmental
expenditure because of the many uncertainties involved,
including the future status of the law, regulations, technology
and information. Nevertheless, Canon believes that capital
expenditure and expenses incurred in complying with current
laws for environmental protection will not have a material effect
upon its liquidity, financial position or results of operations.
In 2000, Canon expects that the overall U.S. economy will
remain favorable while the European economy will show
economic expansion supported by an increase of exports
reflecting the lower value of the euro against major currencies.
However, full-scale recoveries cannot be predicted for personal
spending and capital investment in Japan, which Canon expects
will likely continue to experience a slight upward trend. The
markets in which Canon operates are anticipated to grow
steadily, as demand for information and communications
equipment shifts further toward products with digital, network
and color functions. Nevertheless, the operating environment
will remain severe in line with increasing customer demands for
improved performance and intense price competition. The
increase in demand for semiconductors is expected to lead
manufacturers of these devices to intensify capital investment,
which Canon expects will lead to growing demand for Canon’s
semiconductor production equipment. As nearly 70% of
Canon’s products are distributed overseas and a large portion of
these products are manufactured at plants in Japan, the
appreciation of the yen has a negative impact on Canon’s
operating results.
Under these circumstances, Canon will devote all of its energies and resources to improving business results by introducing
attractive and competitive products that meet customer needs,
and by continuing management reformation activities aimed at
enhancing the efficiency of development, production, sales and
distribution.
The foregoing discussion in the “Financial Overview” contains forward-looking statements that reflect management’s current views with respect to certain future events and financial
performance. Actual results may differ materially from those projected or implied in the forward-looking statements. Further, certain forward-looking statements are based upon assumptions of
future events that may not prove to be accurate. The following
important factors could cause actual results to differ materially
from those projected or implied in any forward-looking statements: exchange rate fluctuations; the uncertainty of Canon’s
ability to implement its plans to localize production and other
measures to reduce the impact of exchange rate fluctuations;
uncertainty of economic conditions in Canon’s major markets;
uncertainty of continued demand for Canon’s high-value-added
products; uncertainty in the continued growth of computer and
related markets; uncertainty of increased demand for Canon’s
semiconductor production equipment; Canon’s ability to continue to develop products and to market products that incorporate new technologies on a timely basis, at competitive prices
and with the ability to achieve market acceptance; the possibility
of losses resulting from foreign currency transactions designed
to reduce financial risks from changes in foreign exchange rates;
and inventory risk due to shifts in market demand.
YEAR 2000
Canon’s State of Readiness
Canon considers resolving the Year 2000 (Y2K) issue as one of
its most important management tasks, and has formed a Y2K
committee with the involvement of major Canon Group
companies. This committee has been coordinating all aspects of
the Y2K preparations of Canon Group.
Prior to the beginning of the year 2000, Canon established
the countermeasures headquarters to test and confirm
compliance of our utilities, information infrastructure, main
information systems, manufacturing facilities and major
suppliers during the year end/beginning. However, Canon’s
management has so far remained unaffected by Y2K-related
problems. Also, although Canon Group sales companies
established a special team to handle customer communications,
no specific product-related issues have arisen.
Nevertheless, because several days remain on which Y2Krelated problems are conceivable, for the time being Canon will
continue with this committee, gathering information about
external conditions and implementing necessary
countermeasures.
The Costs to Canon to Address This Issue
Canon Inc. and major Canon Group companies consigned
external software companies to ensure Y2K compliance. For the
Canon Group as a whole, these activities involved costs of
approximately ¥1,800 million (U.S.$18 million) for the period
up to and including December 31, 1999.
Y2K-related costs also arose in other areas. However, these
costs are not material to Canon’s business operations, financial
condition or results of operations.
43
TEN-YEAR FINANCIAL SUMMARY
(Millions of yen except per share amounts)
Net sales:
Domestic
Overseas
Total
Percentage of
previous year
¥
1999
1998
1997
1996
755,704
1,866,561
2,622,265
761,776
2,064,493
2,826,269
857,993
1,903,032
2,761,025
828,829
1,729,398
2,558,227
92.8%
102.4
107.9
118.1
70,234
2.7%
109,569
3.9
118,813
4.3
94,177
3.7
67,544
177,922
155,682
200,386
76,911
176,967
159,888
221,401
75,800
170,793
137,777
219,779
68,354
150,085
117,263
176,357
165,277
1,202,003
2,587,532
180,320
1,155,520
2,728,329
226,889
1,109,511
2,872,779
192,254
1,007,434
2,644,452
80.66
79.50
17.00
126.10
123.93
17.00
137.73
134.60
17.00
111.29
106.96
15.00
4,200
2,170
3,400
1,930
3,820
2,280
2,630
1,780
870,699
81,009
868,916
79,799
862,664
78,767
846,224
75,628
Net income
Percentage of sales
Advertising
Research and development
Depreciation
Capital expenditure
Long-term debt, excluding current installments
Stockholders’ equity
Total assets
Per share data:
Net income:
Basic
Diluted
Cash dividends declared
Stock price:
High
Low
Average number of common shares in thousands
Number of employees
Common stock price range
(Yen)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
90
91
92
93
94
95
96
97
98
44
99
1995
1994
1993
1992
1991
1990
(Thousands of U.S. dollars
except per share amounts)
1999
717,844
1,447,782
2,165,626
634,797
1,298,513
1,933,310
573,094
1,263,040
1,836,134
572,734
1,341,684
1,914,418
580,786
1,288,138
1,868,924
508,747
1,219,201
1,727,948
$ 7,408,863
18,299,617
25,708,480
112.0
105.3
95.9
102.4
108.2
127.9
92.8
55,036
2.5
31,024
1.6
21,102
1.1
35,621
1.9
51,419
2.8
61,408
3.6
688,569
2.7
53,033
125,253
104,474
123,560
44,698
121,273
103,304
133,068
42,468
104,191
100,631
151,808
57,723
100,521
96,376
149,014
70,486
95,740
88,361
168,743
72,234
86,008
78,351
137,298
662,196
1,744,333
1,526,294
1,964,569
298,055
880,150
2,506,152
311,002
808,985
2,270,010
430,285
721,411
2,165,370
285,377
708,454
2,163,291
316,258
669,340
2,097,664
262,886
617,566
1,827,945
1,620,363
11,784,343
25,367,961
65.96
62.73
13.00
38.50
35.84
12.50
27.01
26.76
12.50
47.09
46.46
12.50
68.67
64.65
12.50
82.83
78.29
12.50
0.79
0.78
0.17
1,940
1,230
1,820
1,530
1,560
1,270
1,470
1,200
1,660
1,200
1,960
1,200
41.18
21.27
834,329
72,280
805,897
67,672
781,261
64,535
756,497
64,512
748,822
62,700
741,352
54,381
Notes:
1. All net income per share amounts have been restated to conform with
Statement of Financial Accounting Standards No. 128, “Earnings per Share.”
2. Information prior to 1991 is prepared in conformity with Accounting Principles
Board Opinion No. 11, “Accounting for Income Taxes.”
3. Canon adopted Statement of Financial Accounting Standards No. 115 (“SFAS
115”), “Accounting for Certain Investments in Debt and Equity Securities,” from
the fiscal year begining January 1, 1999, and has applied SFAS 115 retroactively
to the consolidated financial statements from 1994 to 1998.
4. U.S. dollar amounts are translated from yen at the rate of ¥102=U.S.$1, the
approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 1999.
45
CANON INC. AND SUBSIDIARIES
December 31, 1999 and 1998
CONSOLIDATED BALANCE SHEETS
Thousands of
U.S. dollars (note 2)
Millions of yen
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities (notes 4 and 8)
Trade receivables (notes 5 and 8)
Inventories (notes 6 and 8)
Prepaid expenses and other current assets (note 11)
Total current assets
Noncurrent receivables and restricted funds (note 18)
Investments (notes 4 and 8)
Net property, plant and equipment (notes 7 and 8)
Other assets (notes 10 and 11)
Total assets
1999
1998
1999
¥ 480,453
9,003
376,472
436,250
184,411
1,486,589
29,771
166,464
746,824
157,884
¥2,587,532
499,182
7,470
412,375
549,257
197,433
1,665,717
50,309
83,212
742,312
186,779
2,728,329
$ 4,710,324
88,265
3,690,902
4,276,961
1,807,950
14,574,402
291,873
1,632,000
7,321,804
1,547,882
$25,367,961
403,332
401,527
61,328
127,905
47,302
1,041,394
180,320
132,818
12,228
1,366,760
206,049
$ 2,925,480
3,575,137
450,147
1,150,882
495,010
8,596,656
1,620,363
1,302,216
111,030
11,630,265
1,953,353
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans (note 8)
¥ 298,399
Trade payables (note 9)
364,664
Income taxes (note 11)
45,915
Accrued expenses
117,390
Other current liabilities (note 11)
50,491
Total current liabilities
876,859
Long-term debt, excluding current installments (note 8)
165,277
Accrued pension and severance cost (note 10)
132,826
Other noncurrent liabilities (note 11)
11,325
Total liabilities
1,186,287
Minority interests
199,242
Stockholders’ equity:
Common stock of ¥50 ($0.49) par value.
Authorized 2,000,000,000 shares;
issued and outstanding 871,555,698 shares in 1999
and 870,305,870 shares in 1998 (notes 8 and 12)
163,969
Additional paid-in capital (notes 8 and 12)
376,848
Legal reserve (note 13)
33,518
Retained earnings (notes 11 and 13)
735,975
Accumulated other comprehensive income (loss) (notes 4, 10, 11 and 15) (108,307)
Total stockholders’ equity
1,202,003
Commitments and contingent liabilities (note 18)
Total liabilities and stockholders’ equity
¥2,587,532
See accompanying notes to consolidated financial statements.
46
163,033
375,913
31,396
682,663
(97,485)
1,155,520
2,728,329
1,607,539
3,694,588
328,608
7,215,441
(1,061,833)
11,784,343
$25,367,961
Years ended December 31, 1999, 1998 and 1997
CONSOLIDATED STATEMENTS OF INCOME
Thousands of
Millions of yen
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Other income (deductions):
Interest and dividend income
Interest expense
Other, net
1999
1998
1997
1999
¥ 2,622,265
1,497,940
1,124,325
948,269
176,056
2,826,269
1,569,197
1,257,072
996,294
260,778
2,761,025
1,528,364
1,232,661
958,627
274,034
$ 25,708,480
14,685,686
11,022,794
9,296,755
1,726,039
10,222
(20,356)
(9,850)
(19,984)
156,072
12,576
(28,881)
(4,960)
(21,265)
239,513
13,922
(29,789)
(23,362)
(39,229)
234,805
100,216
(199,569)
(96,568)
195,921
1,530,118
Income taxes (note 11)
Income before minority interests
83,939
72,133
123,843
115,670
109,364
125,441
822,932
707,186
Minority interests
Net income
1,899
70,234
6,101
109,569
6,628
118,813
18,617
688,569
Income before income taxes and minority interests
¥
Yen
$
Net income per share (notes 1(p) and 16):
Basic
Diluted
¥
80.66
79.50
126.10
123.93
137.73
134.60
$
0.79
0.78
Dividends per common share (note 13)
¥
17.00
17.00
17.00
$
0.17
47
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Thousands of
Millions of yen
1999
1998
1997
1999
160,411
2,622
163,033
150,565
9,846
160,411
$ 1,598,363
9,176
1,607,539
372,398
2,612
359,011
9,779
3,685,421
9,167
903
375,913
3,608
372,398
—
3,694,588
28,467
2,934
26,770
1,728
307,804
20,804
(5)
31,396
(31)
28,467
—
328,608
592,268
109,569
(15,619)
(2,934)
489,617
118,813
(13,727)
(1,728)
6,692,775
688,569
(145,069)
(20,804)
(621)
682,663
(707)
592,268
(30)
7,215,441
(44,033)
(18,529)
(955,735)
(53,452)
(97,485)
1,155,520
(25,504)
(44,033)
1,109,511
(106,098)
(1,061,833)
$11,784,343
70,234
109,569
118,813
(10,822)
59,412
(53,452)
56,117
(25,504)
93,309
Common stock:
Balance at beginning of year
¥ 163,033
Conversion of convertible debt (notes 12 and 14)
936
Balance at end of year
163,969
Additional paid-in capital:
375,913
Conversion of convertible debt (notes 12 and 14)
935
Increase arising from issuance of subsidiaries’
common stock, conversion of convertible debt and
exercise of warrants of subsidiaries and other transfers
—
376,848
Legal reserve:
31,396
Transfers from retained earnings (note 13)
2,122
Transfers to minority interests arising from issuance of subsidiaries’
common stock, conversion of convertible debt and exercise
of warrants of subsidiaries and other transfers
—
33,518
Retained earnings:
682,663
Net income for the year
70,234
Cash dividends (note 13)
(14,797)
Transfers to legal reserve (note 13)
(2,122)
Transfers to minority interests arising from issuance of
subsidiaries’ common stock, conversion of convertible debt
and exercise of warrants of subsidiaries and other transfers
(3)
735,975
Accumulated other comprehensive income (loss):
(notes 4, 10, 11 and 15)
(97,485)
Other comprehensive income (loss) for the year,
net of tax (note 15)
(10,822)
(108,307)
Total stockholders’ equity
¥ 1,202,003
Disclosure of comprehensive income:
Net income for the year
Other comprehensive income (loss) for the year,
net of tax (note 15)
Total comprehensive income for the year
¥
48
688,569
$
(106,098)
582,471
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of
Millions of yen
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of property and equipment
Deferred income taxes
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in income taxes
Increase in accrued expenses
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditure
Proceeds from sale of propaty, plant and equipment
Payment for purchase of marketable securities
Proceeds from sale of marketable securities
Payment for purchase of investments
Other
Net cash used in investing activities
Cash flows from financing activities (note 14):
Proceeds from long-term debt
Repayment of long-term debt
Increase (decrease) in short-term loans
Dividends paid (note 13)
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest
Income taxes
49
1999
1998
1997
¥ 70,234
109,569
118,813
1999
158,111
8,814
(5,972)
(1,231)
107,913
(22,950)
(13,966)
3,206
4,758
308,917
161,787
6,631
1,941
1,640
15,737
(46,636)
607
9,386
18,558
279,220
139,815
8,289
(9,618)
(66,975)
(43,895)
31,527
(12,459)
12,962
5,741
184,200
1,550,108
86,412
(58,549)
(12,069)
1,057,971
(225,000)
(136,922)
31,431
46,647
3,028,598
(200,386)
6,104
(12,349)
6,637
(9,770)
8,782
(200,982)
(221,401)
3,404
(5,386)
9,439
(28,111)
(5,892)
(247,947)
(219,779)
4,330
(8,635)
5,145
(6,797)
(19,025)
(206,711)
(1,964,569)
59,843
(121,069)
65,069
(95,784)
86,098
(1,970,412)
23,811
(75,005)
(51,871)
(14,797)
(4,961)
(122,823)
34,903
(29,458)
(167,295)
(15,619)
(393)
(177,862)
70,768
(98,693)
51,030
(13,727)
12,062
21,440
233,441
(735,343)
(508,539)
(145,069)
(48,637)
(1,204,147)
(3,841)
(18,729)
499,182
¥ 480,453
(1,326)
(147,915)
647,097
499,182
(3,578)
(4,649)
651,746
647,097
(37,657)
(183,618)
4,893,942
$ 4,710,324
¥ 19,321
103,877
21,083
121,295
27,120
131,441
$
$
688,569
189,422
1,018,402
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Significant
Accounting Policies
(a) Description of Business
The Company and subsidiaries (collectively “Canon”) is a hightechnology oriented company which operates globally and has
numerous core businesses. Originally a 35mm camera maker,
Canon is now one of the world’s leading manufacturers in other
fields, such as copying machines and computer peripherals,
mainly laser beam and bubble jet printers. Canon’s products
also include business systems such as faxes, computers,
micrographics, Japanese-language word processors and
calculators. Canon’s camera business consists mainly of SLR
cameras, compact cameras, video camcorders and digital
cameras. Optical related products include steppers and aligners
used in semiconductor chip production, broadcasting lenses and
medical equipment. Canon’s sales in 1999 were distributed as
follows: copying machines-32%, computer peripherals-37%,
business systems-13%, cameras-11%, and optical and other
products-7%.
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 geographical area. Approximately 70% of
consolidated net sales in 1999 were generated outside Japan,
with 35% in Americas, 28% in Europe and 7% in other areas.
Canon’s manufacturing operations are conducted primarily
at 16 plants in Japan and 13 overseas plants which are located
in the United States, Germany, France, United Kingdom, Taiwan,
China, Malaysia, Thailand, and Mexico.
Canon sells laser beam printers on an OEM basis to
Hewlett-Packard Co.; such sales constituted approximately 20%
of consolidated sales for the year ended December 31, 1999.
Canon believes it is highly unlikely that it would lose such OEM
business in the near term.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with financial accounting
standards of Japan. Foreign subsidiaries maintain their books in
conformity with financial accounting standards of the countries
of their domicile.
The accompanying consolidated financial statement reflect
the adjustments which management believes are necessary to
conform them with United States generally accepted accounting
principles.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
Canon after elimination of all significant intercompany balances
and transactions.
(d) Cash Equivalents
For purposes of the statements of cash flows, Canon considers
all highly-liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
(e) Translation of Foreign Currencies
Foreign currency financial statements have been translated in
accordance with Statement of Financial Accounting Standards No.
52 (“SFAS 52”), “Foreign Currency Translation”. Under SFAS 52,
assets and liabilities of the Company’s subsidiaries located outside Japan 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 financial statements, including gains and losses from hedging
and intercompany transactions, net of related taxes, are included
in other comprehensive income (loss) and are accumulated in
stockholders’ equity as foreign currency translation adjustments.
Gains and losses resulting from other foreign currency transactions are included in other income (deductions) (see note 20).
(f) Marketable Securities and Marketable Investments
During 1999, Canon changed its method of accounting for
certain investments in debt and equity securities and restated
the consolidated financial statements as of and for the years
ended December 31, 1998 and 1997 to apply Statement of
Financial Accounting Standards No. 115 (“SFAS 115”),
“Accounting for Certain Investments in Debt and Equity
Securities”. Under SFAS 115, certain investments in debt and
equity securities should be classified as trading, available-forsale, or held-to-maturity securities. Trading securities are bought
and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in which
Canon has the ability and intent to hold the security until
maturity. All securities not included in trading or held-to-maturity
are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities
are included in earnings. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of other comprehensive income until realized.
Prior to the application of SFAS 115, marketable securities
and marketable investments held for temporary and long-term
investment purposes were carried predominantly at the lower of
cost or market. The cost of such securities was based on the
average cost.
50
As a result of the application of SFAS 115, total assets
increased ¥7,732 million, stockholders’ equity increased ¥7,442
million and comprehensive income decreased ¥3,059 million in
the consolidated financial statements as of and for the year
ended December 31, 1998, and comprehensive income
decreased ¥15,065 million in the consolidated financial
statements for the year ended December 31, 1997. There were
no effects on previously reported net income for the years
ended December 31, 1998 or 1997.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is determined principally by the average method for domestic inventories and the first-in, first-out method for overseas inventories.
(h) Investments in Affiliated Companies
Of the investments in affiliated companies owned 20% to 50%,
certain investments are accounted for on the equity basis and
the others are carried at cost. Canon’s equity in undistributed
earnings of the latter companies is not significant.
Canon’s share of the net earnings (loss) of companies
carried at equity, included in other income (deductions), and
dividends received from those companies for the years 1999,
1998 and 1997 are as follows:
Millions of yen
1999
1998
Net loss
Dividends received
¥ (2,848)
40
(5,238)
188
1997
Thousands of
U.S. dollars
1999
(4,282)
30
$ (27,922)
392
(i) Depreciation
Depreciation is calculated principally by the declining-balance
method over the estimated useful lives of the assets.
(j) Goodwill
The excess of cost over underlying equity at acquisition dates of
investments in subsidiaries and affiliated companies is being
amortized principally over 10 years.
(k) Income Taxes
Canon accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (“SFAS 109”),
“Accounting for Income Taxes”. Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts
51
of existing 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.
Under SFAS 109, 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.
(l) Employee Retirement and Severance Benefits
The Company and certain of its subsidiaries have various
employee retirement and severance defined benefit plans covering substantially all employees who meet eligibility requirements (see note 10).
(m) Advertising
The cost of advertising are expensed as incurred.
(n) Derivatives
Canon does not hold derivative financial instruments for trading
purposes. Derivative financial instruments held by Canon are
comprised principally of foreign exchange contracts to manage
currency risk and interest rate swaps to manage interest rate risk.
Derivative financial instruments that are designated and
effective to hedge forecasted transactions for which there is no
firm commitment are marked to market, and gains and losses
on such derivatives are recorded in other income (deductions).
Foreign currency derivative financial instruments generally
qualify for hedge accounting if their maturity dates correspond
to hedged existing assets and liabilities denominated in foreign
currencies, and gains and losses on such derivative financial
instruments are recognized and recorded in other income
(deductions) at end of year and at settlement, as are the
offsetting foreign exchange losses and gains on the hedged
items. Gains and losses on the hedging derivative financial
instruments that are designated and effective as hedges of firm
commitments are deffered and recognized in income when the
sale of the hedged items occurs. Amounts receivable or payable
under derivative financial instruments used to manage interest
rate risks arising from financial assets and liabilities are
recognized as a component of interest income or expense of
such related underlying assets or liabilities (see note 17).
(o) Issuance of Stock by Subsidiaries
The change in the Company’s proportionate share of subsidiary
equity resulting from issuance of stock by the subsidiaries is
accounted for as an equity transaction.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(p) Net Income per Share
Basic net income per share have been computed by dividing
net income available to common stockholders by the weightedaverage number of common shares outstanding during each
year. Diluted net income per share reflect the potential dilution
and have been computed on the basis that all convertible
debentures were converted at beginning of the year or at time
of issuance (if later), and that all dilutive warrants were
exercised (less the number of treasury shares assumed to be
purchased from the proceeds using the average market price of
the Company’s common shares).
(q) Use of Estimates
Management of Canon has made a number of estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(r) Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
Canon’s long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest
charges) expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(s) New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (“SFAS
133”), “Accounting for Derivative Instruments and Hedging
Activities”. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities,
and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those
instruments at fair value. SFAS 133, as amended, is effective for
fiscal years beginning after June 15, 2000. Canon will adopt
SFAS 133 for the year beginning January 1, 2001 and is
currently assessing the impact of adopting SFAS 133. However,
based on its limited use of derivative financial instruments,
management does not anticipate that the adoption of SFAS 133
will have a material effect on Canon’s consolidated financial
position or results of operations.
(t) Reclassifications
Certain reclassifications have been made to the prior years’
consolidated financial statements to conform the presentation
used for the year ended December 31, 1999.
(2) Financial Statement Translation
The consolidated financial statements presented herein are
expressed in yen and, solely for the convenience of the reader,
have been translated into United States dollars at the rate of
¥102=U.S.$1, the approximate exchange rate prevailing on the
Tokyo Exchange Market on December 30, 1999. This translation
should not be construed as a representation that the amounts
shown could be converted into United States dollars at such rate.
(3) Foreign Operations
Amounts included in the consolidated financial statements
relating to subsidiaries operating in foreign countries are
Total assets
Net assets
Net sales
Net income
summarized as follows:
1999
Millions of yen
1998
1997
Thousands of
U.S. dollars
1999
¥ 917,810
326,631
1,830,866
32,876
987,828
364,623
2,029,863
42,505
1,109,388
358,122
1,856,480
47,073
$ 8,998,137
3,202,265
17,949,667
322,314
52
(4) Marketable Securities and
Marketable Investments
unrealized holding gains, gross unrealized holding losses and fair
value for such securities by major security type at December 31,
1999 and 1998 are as follows:
Marketable securities and marketable investments consist of
available-for-sale securities. The carrying amount, gross
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair Value
¥
—
373
—
1,470
432
2,275
—
—
—
—
18
18
45
2,916
157
3,432
2,453
9,003
¥
—
84
—
—
91,534
91,618
—
—
96
—
—
96
156
5,183
68
—
114,267
119,674
553
2,845
443
1,973
1,142
¥6,956
8
167
12
45
282
514
—
—
—
—
—
—
561
3,012
455
2,018
1,424
7,470
206
1,174
188
44
18,354
¥19,966
4
42
—
—
13,974
14,020
—
—
53
—
—
53
210
1,216
135
44
32,328
33,933
(Millions of yen)
Cost
1999: Current:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
Noncurrent:
Available-for-sale:
Fund trusts
Equity securities
1998: Current:
Available-for-sale:
Fund trusts
Equity securities
Noncurrent:
Available-for-sale:
Fund trusts
Equity securities
53
45
2,543
157
1,962
2,039
¥ 6,746
156
5,099
164
—
22,733
¥28,152
¥
¥
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair Value
1999: Current:
Available-for-sale:
Japanese and foreign governmental bond securities $
441
24,932
1,539
Fund trusts
19,235
Equity securities
19,990
$ 66,137
—
3,657
—
14,412
4,235
22,304
—
—
—
—
176
176
441
28,589
1,539
33,647
24,049
88,265
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities $ 1,529
49,990
1,608
Fund trusts
—
Equity securities
222,873
$276,000
—
824
—
—
897,392
898,216
—
—
941
—
—
941
1,529
50,814
667
—
1,120,265
1,173,275
Net unrealized gain on available-for-sale securities, net of
related taxes and minority interests, increased by ¥41,257
million ($404,480 thousand) in 1999, and decreased by
¥3,059 million and ¥15,065 million in 1998 and 1997,
Cost
respectively.
Maturities of marketable securities and marketable
investments classified as available-for-sale were as follows at
December 31, 1999:
Millions of yen
Cost
Fair Value
Due within one year
Due after one year through five years
Due after five years
Equity securities
Proceeds from sale of available-for-sale securities were
¥6,637 million ($65,069 thousand), ¥9,439 million and ¥5,145
million in 1999, 1998 and 1997, respectively. Realized gains
¥ 1,745
3,004
5,377
24,772
¥34,898
1,732
4,484
5,741
116,720
128,677
Thousands of
U.S. dollars
Cost
Fair Value
$ 17,108
29,451
52,715
242,863
$342,137
16,980
43,961
56,285
1,144,314
1,261,540
and losses during the years 1999, 1998 and 1997 were
insignificant.
54
(5) Trade Receivables
Trade receivables are summarized as follows:
1998
Thousands of
U.S. dollars
1999
39,519
389,291
16,435
412,375
$ 313,617
3,525,216
147,931
$ 3,690,902
Millions of yen
1999
¥ 31,989
359,572
15,089
¥ 376,472
Notes
Accounts
Less allowance for doubtful receivables
(6) Inventories
Inventories comprised the following:
1998
Thousands of
U.S. dollars
1999
397,459
135,706
16,092
549,257
$ 3,024,794
1,124,177
127,990
$ 4,276,961
Millions of yen
1999
¥
Finished goods
Work in process
Raw materials
¥
308,529
114,666
13,055
436,250
(7) Property, Plant and Equipment
Property, plant and equipment are stated cost less accumulated
depreciation and are summarized as follows:
1998
Thousands of
U.S. dollars
1999
148,722
117,670
614,136
571,513
871,207
873,345
26,331
48,557
1,660,396 1,611,085
913,572
868,773
¥ 746,824
742,312
$ 1,458,059
6,020,941
8,541,245
258,147
16,278,392
8,956,588
$ 7,321,804
Millions of yen
1999
Land
Buildings
Machinery and equipment
Construction in progress
¥
Less accumulated depreciation
55
(8) Short-term Loans and Long-term Debt
Short-term loans consisted of the following:
Millions of yen
1999
¥
Bank borrowings
Acceptances payable by foreign subsidiaries
Long-term debt due within one year
¥
The weighted average interest rates on short-term loans
outstanding at December 31, 1999 and 1998 were 5.18% and
5.14%, respectively.
At December 31, 1999, unused short-term credit facilities
for issuance of commercial paper amounted to ¥60,540 million
($593,529 thousand).
72,645
200,680
25,074
298,399
Thousands of
U.S. dollars
1999
1998
98,465
238,707
66,160
403,332
$
712,205
1,967,451
245,824
$ 2,925,480
A substantial portion of the acceptances payable by foreign
subsidiaries was secured by the subsidiaries’ inventories and
trade receivables.
56
Long-term debt consisted of the following:
Millions of yen
1999
Loans, principally from banks, maturing in installments through 2029;
bearing weighted average interest of 3.69% and 4.53% at December 31,
1999 and 1998, respectively, partially secured by mortgage of property,
plant and equipment and marketable securities
9-3/4% U.S. dollar bonds, due 1999
2-7/20% Japanese yen notes, due 2001
5/8%–3/4% Swiss franc notes with warrants
issued by subsidiaries, due 1999–2000:
Principal amount
Less unamortized discount
1% Japanese yen convertible debentures, due 2002
1-2/10% Japanese yen convertible debentures, due 2005
1-3/10% Japanese yen convertible debentures, due 2008
Other
Less amount due within one year
57
1998
¥ 50,193
—
19,920
5,000
20,000
2,000
10,000
5,000
5,000
10,000
10,000
5,000
10,000
10,000
59,418
8,099
19,920
5,000
20,000
—
10,000
5,000
5,000
10,000
10,000
5,000
10,000
10,000
7,055
71
6,984
5,248
5,763
10,234
9
190,351
25,074
¥ 165,277
47,427
1,509
45,918
5,574
6,178
11,364
9
246,480
66,160
180,320
Thousands of
U.S. dollars
1999
$
492,088
—
195,294
49,020
196,078
19,608
98,039
49,020
49,020
98,039
98,039
49,020
98,039
98,039
69,167
696
68,471
51,451
56,500
100,334
88
1,866,187
245,824
$ 1,620,363
The aggregate annual maturities of long-term debt
outstanding at December 31, 1999 were as follows:
2000
2001
2002
2003
2004
Later years
Millions
of yen
Thousands of
U.S. dollars
¥ 25,074
35,895
51,655
12,152
20,674
44,901
¥ 190,351
$ 245,824
351,912
506,422
119,137
202,686
440,205
$ 1,866,186
Property, plant and equipment with a book value at
December 31, 1999 of ¥10,822 million ($106,098 thousand)
were mortgaged to secure long-term debt.
As is customary in Japan, both short-term and long-term bank
loans are made under general agreements which provide that
security and guarantees for present and future indebtedness will
be given upon request of the bank, and that the bank shall have
the right to offset cash deposits against obligations that have
become due or, in the event of default, against all obligations due
the bank. Long-term agreements with lenders other than banks
also generally provide that Canon must give additional security
upon request of the lender.
The 1% Japanese yen convertible debentures due 2002 are
currently convertible into approximately 3,506,000 shares of
common stock at a conversion price of ¥1,497.00 ($14.68) per
share. The debentures are redeemable at the option of the
Company between January 1, 2000 and December 31, 2001 at
premiums ranging from 2% to 1%, and at par thereafter, or,
dependent on a particular circumstance, at par.
The 1-2/10% Japanese yen convertible debentures due
2005 are currently convertible into approximately 3,850,000
shares of common stock at a conversion price of ¥1,497.00
($14.68) per share. The debentures are redeemable at the
option of the Company between January 1, 2000 and December
31, 2004 at premiums ranging from 5% to 1%, and at par
thereafter, or, dependent on a particular circumstance, at par.
The 1-3/10% Japanese yen convertible debentures due
2008 are currently convertible into approximately 6,836,000
shares of common stock at a conversion price of ¥1,497.00
($14.68) per share. The debentures are redeemable at the
option of the Company between January 1, 2002 and December
31, 2007 at premiums ranging from 6% to 1%, and at par
thereafter, or, dependent on a particular circumstance, at par.
58
(9) Trade Payable
Trade payables are summarized as follows:
1998
Thousands of
U.S. dollars
1999
159,104
242,423
401,527
$1,112,863
2,462,274
$3,575,137
Millions of yen
1999
¥113,512
251,152
¥364,664
Notes
Accounts
(10)Employee Retirement and Severance Benefits
The Company and certain of its subsidiaries have contributory
and noncontributory defined benefit plans covering substantially
all employees after one year of service. Other subsidiaries
sponsor unfunded retirement and severance plans. Benefits
payable under the plans are based on employee earnings and
years of service. The contributory plan includes a portion of the
governmental welfare pension benefits which would otherwise
be provided by the Japanese government in accordance with
the Welfare Pension Insurance Law in Japan. Management
considers that a portion of the contributory plans, which are
administered by a board of trustees composed of management
and labor representatives, represents a welfare pension plan
carried on behalf of the Japanese government. These
contributory and noncontributory plans are funded in conformity
with the funding requirements of applicable Japanese
governmental regulations.
Net periodic benefit cost for Canon’s employee retirement
and severance defined benefit plans for 1999, 1998 and 1997
consisted of the following components:
1999
¥ 31,295
15,599
(10,393)
6,566
¥43,067
Service cost — benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Net amortization
59
Millions of yen
1998
25,307
14,360
(11,510)
4,244
32,401
1997
21,228
13,123
(8,539)
2,655
28,467
Thousands of
U.S. dollars
1999
$ 306,814
152,931
(101,892)
64,372
$ 422,225
Reconciliations of beginning and ending balances of the benefit
obligations and the fair value of the plan assets are as follows:
Millions of yen
1999
Change in benefit obligations:
Benefit obligations at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial loss (gain)
Benefits paid
Other
Benefit obligations at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized actuarial loss
Unrecognized net transition obligation being recognized over 22 years
Net amount recognized
Adjustments to recognize minimum liability:
Intangible assets
Amount included in accumulated other comprehensive income (loss),
gross of tax
Accrued pension and severance cost recognized in
the consolidated balance sheets
Actuarial present value of accumulated benefit obligations at end of year
Actuarial assumptions:
Discount rate
Assumed rate of increase in future compensation levels
Expected long-term rate on plan assets
Directors and certain employees are not covered by the
programs described above. Benefits paid to such persons and
meritorious service payments are charged to income as paid,
1998
Thousands of
U.S. dollars
1999
¥491,102
31,295
15,599
3,403
(16,983)
(6,067)
(271)
518,078
396,838
25,307
14,360
3,333
56,392
(5,070)
(58)
491,102
$4,814,725
306,814
152,931
33,363
(166,500)
(59,480)
(2,657)
5,079,196
270,713
17,336
26,022
3,403
(6,067)
311,407
206,671
(136,119)
(6,025)
64,527
239,338
11,394
21,718
3,333
(5,070)
270,713
220,389
(166,254)
(6,369)
47,766
2,654,049
169,960
255,117
33,363
(59,480)
3,053,009
2,026,187
(1,334,500)
(59,069)
632,618
6,025
6,369
59,069
62,274
68,299
78,683
85,052
610,529
669,598
¥132,826
¥444,233
132,818
403,531
$1,302,216
$4,355,225
3.00%
3.60%
4.00%
3.00%
4.00%
5.00%
since amounts vary with circumstances, and it is therefore not
practicable to compute the liability for future payments.
60
(11) Income Taxes
Total income taxes were allocated as follows:
Income before income taxes and minority interests
Stockholders’ equity — accumulated other comprehensive
income (loss):
Foreign currency translation adjustments
Net unrealized gains on securities
Minimum pension liability adjustments
Domestic and foreign components of income before
income taxes and minority interests (“income before income
taxes”), and the current and deferred income tax expense
1999: Income before income taxes
Income taxes:
Current
Deferred
Income taxes:
Current
Deferred
Income taxes:
Current
Deferred
1999
Millions of yen
1998
1997
Thousands of
U.S. dollars
1999
¥ 83,939
123,843
109,364
$ 822,932
(239)
37,286
7,712
¥ 128,698
(674)
(4,399)
(17,345)
101,425
(3)
(15,480)
(15,126)
78,755
(2,343)
365,549
75,608
$ 1,261,746
(benefit) attributable to such income before income taxes are
summarized as follows:
Millions of yen
Japanese
Foreign
Total
¥100,044
56,028
156,072
¥ 64,197
(2,097)
¥ 62,100
25,714
(3,875)
21,839
¥ 172,303
67,210
239,513
¥ 97,437
3,453
¥ 100,890
24,465
(1,512)
22,953
121,902
1,941
123,843
¥ 160,543
74,262
234,805
¥ 90,293
(6,999)
¥ 83,294
28,689
(2,619)
26,070
118,982
(9,618)
109,364
89,911
(5,972)
83,939
Income taxes:
Current
Deferred
61
Japanese
Foreign
Total
$ 980,824
549,294
1,530,118
$ 629,382
(20,558)
$ 608,824
252,098
(37,990)
214,108
881,480
(58,548)
822,932
The Company and its domestic subsidiaries are subject to a
number of taxes based on income, which in the aggregate
resulted in a normal tax rate of approximately 47.0% in the year
ended December 31, 1999 and 51.0% in the years ended
December 31, 1998 and 1997.
Amendments to Japanese tax regulations were enacted into
law on March 24, 1999 and on March 31, 1998. As a result of
these amendments, the normal income tax rate is to be
reduced from approximately 51.0% to 47.0% effective from
Canon’s fiscal year beginning January 1, 1999 and from
approximately 47.0% to 42.0% effective from Canon’s fiscal
year beginning January 1, 2000. Current income taxes were
calculated at the rate of 47.0% and 51.0% in effect for the
years ended December 31, 1999 and 1998, respectively.
Deferred income tax assets and liabilities as of December 31,
1999 and 1998 were measured at a rate of principally 42.0%
and 47%, respectively. The effects of the income tax rate
reduction on deferred income tax balances as of December 31,
1999 and 1998 are presented below.
The significant components of deferred income tax expense
(benefit) attributable to income before income taxes are as
follows:
1999
Deferred tax expense (exclusive of the effects of
other components listed below)
Adjustments to deferred tax assets and liabilities
for enacted changes in tax laws and rates
Decrease in the beginning-of-the-year balance of
the valuation allowance for deferred tax assets
A reconciliation of the Japanese normal income tax rate and
the effective income tax rate as a percentage of income before
¥ (16,181)
10,209
—
¥ (5,972)
Millions of yen
1998
Thousands of
U.S. dollars
1999
1997
(5,638)
$ (158,637)
(9,674)
8,014
100,088
491
(435)
1,941
—
$ (58,549)
(435)
(9,618)
income taxes is as follows:
1999
Japanese normal income tax rate
Increase (reduction) in income taxes resulting from:
Expenses not deductible for tax purposes
Tax benefits not recognized on operating losses of subsidiaries
Income of foreign subsidiaries taxed at lower than Japanese normal tax rate
Tax credit for increased research and development expenses
Effect of enacted changes in tax laws and rates
Other
Effective income tax rate
1998
1997
47.0%
51.0%
51.0%
1.0
1.2
(6.1)
(0.5)
6.5
4.7
53.8%
0.9
0.3
(5.7)
(0.8)
3.3
2.7
51.7%
1.2
0.5
(5.7)
(1.6)
0.1
1.1
46.6%
Net deferred income tax assets and liabilities are reflected
on the accompanying consolidated balance sheets under the
following captions:
Thousands of
U.S. dollars
Millions of yen
1999
¥ 75,431
47,211
(1,033)
(5,320)
¥ 116,289
Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities
62
1998
86,740
79,121
(1,121)
(6,402)
158,338
1999
$ 739,520
462,853
(10,128)
(52,157)
$1,140,088
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 are presented
below:
1998
Thousands of
U.S. dollars
1999
60,994
5,652
20,574
36,981
6,810
21,223
8,703
30,891
191,828
4,722
187,106
$ 504,667
33,000
250,431
256,422
68,774
209,520
111,627
320,716
1,755,157
41,088
1,714,069
Millions of yen
1999
Deferred tax assets:
Inventories — intercompany profits and write-downs
Accrued business tax
Accrued pension and severance cost
Property, plant and equipment — intercompany profits
Research and development — costs capitalized for tax purposes
Depreciation
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Land including deferred gain on sale
Unamortized debt issuance cost
Accounts receivable — allowance for doubtful accounts
Undistributed earnings of foreign subsidiaries and
affiliated companies
Other
Total gross deferred tax liabilities
Net deferred tax assets
The valuation allowance for deferred tax assets as of January
1, 1998 was ¥4,990 million. The net change in the total
valuation allowance for the years ended December 31, 1999
and 1998 was a decrease of ¥531 million ($5,206 thousand)
and ¥268 million, respectively.
Based upon the level of historical taxable income and
projections for future taxable income over the periods which
the net deductible temporary differences are expected to
reverse, management believes it is more likely than not Canon
will realize the benefits of these deferred tax assets, net of the
existing valuation allowances at December 31, 1999.
At December 31, 1999, Canon had net operating losses
carried forward for income tax purposes of approximately
¥7,668 million ($75,176 thousand) which were available to
reduce future income taxes, if any. Approximately ¥6,833
million ($66,990 thousand) of the operating losses expire
through 2007 while the remainder have an indefinite
carryforward period.
63
¥ 51,476
3,366
25,544
26,155
7,015
21,371
11,386
32,713
179,026
4,191
174,835
(3,629)
(359)
(3,810)
(4,446)
(587)
(4,449)
(35,579)
(3,520)
(37,353)
(4,471)
(39,396)
(6,881)
(58,546)
¥ 116,289
(4,880)
(6,815)
(7,591)
(28,768)
158,338
(43,833)
(386,235)
(67,461)
(573,981)
$ 1,140,088
Income taxes have not been accrued on undistributed
income of domestic subsidiaries and affiliated companies as
distributions of such income are not taxable under present
circumstances.
Canon has not recognized deferred tax liabilities of
approximately ¥22,089 million ($216,559 thousand) for the
portion of undistributed earnings of foreign subsidiaries that
arose in 1999 and prior years because Canon currently does
not expect those unremitted earnings to reverse and become
taxable to the Company in the foreseeable future. Deferred tax
liabilities will be recognized when Canon expects that it will
recover those undistributed earnings in a taxable manner, such
as through receipt of dividends or sale of the investments. As of
December 31, 1999, such undistributed earnings of these
subsidiaries were approximately ¥289,006 million ($2,833,392
thousand).
(12)Common Stock
During 1999, 1998 and 1997, the Company issued 1,249,828
shares, 3,506,936 shares and 13,184,712 shares, respectively,
of common stock in connection with conversion of convertible
debt. Conversion into common stock of convertible debt issued
subsequent to October 1, 1982 and exercise of warrants were
(13)Legal Reserve and Cash Dividends
The Japanese Commercial Code provides that an amount equal
to at least 10% of appropriations paid in cash be appropriated as
a legal reserve until such reserve equals 25% of stated capital.
This reserve is not available for dividends but may be used to
reduce a deficit or may be transferred to stated capital. Certain
foreign subsidiaries are also required to appropriate their earnings to legal reserve under the laws of the respective countries.
Canon’s equity in retained earnings or deficit of affiliated companies owned 20% to 50% accounted for on the equity basis
aggregating negative ¥4,668 million ($45,765 thousand) at
December 31, 1999 is included in retained earnings.
Cash dividends and appropriations to the legal reserve
charged to retained earnings during the years 1999, 1998 and
1997 represent dividends paid out during those years and the
related appropriation to the legal reserve. Provision has not
been made in the accompanying consolidated financial
statements for the semiannual dividend of ¥8.50 ($0.08) per
share, aggregating ¥7,408 million ($72,627 thousand),
(14)Noncash Financing Activities
In 1999, 1998 and 1997, common stock issued and additional
paid-in capital arising from conversion of convertible debt
accounted for in accordance with the provisions of the Japanese
Commercial Code by crediting one-half of the conversion price
and exercise price to each of the common stock account and
the additional paid-in capital account.
subsequently proposed by the Board of Directors in respect of
the year ended December 31, 1999, or for the related
appropriation to the legal reserve.
Cash dividends per common share are computed based on
dividends declared with respect to earnings for the periods.
The amount of retained earnings available for dividends
under the Japanese Commercial Code is based on the amount
recorded in the Company’s nonconsolidated books of account
in accordance with financial accounting standards of Japan. The
adjustments included in the accompanying consolidated
financial statements to have them conform with United States
generally accepted accounting principles, but not recorded in
the books of account, have no effect on the determination of
retained earnings available for dividends under the Japanese
Commercial Code. Retained earnings in the Company’s
nonconsolidated books of account under the Japanese
Commercial Code amounted to ¥521,552 million ($5,113,255
thousand) at December 31, 1999.
amounted to ¥1,871 million ($18,343 thousand), ¥5,234
million and ¥19,625 million, respectively.
64
(15) Other Comprehensive Income (Loss)
Change in accumulated other comprehensive income (loss) is
as follows:
1999
Foreign currency translation adjustments:
¥ (66,372)
Adjustments for the year
(60,776)
(127,148)
Net unrealized gains on securities:
7,442
41,257
48,699
Minimum pension liability adjustments:
(38,555)
8,697
(29,858)
Total accumulated other comprehensive income (loss):
(97,485)
(10,822)
¥ (108,307)
65
Millions of yen
1998
1997
Thousands of
U.S. dollars
1999
$ (650,706)
(595,843)
(1,246,549)
(32,644)
(33,728)
(66,372)
(36,739)
4,095
(32,644)
10,501
(3,059)
7,442
25,566
(15,065)
10,501
72,961
404,480
477,441
(21,890)
(16,665)
(38,555)
(7,356)
(14,534)
(21,890)
(377,990)
85,265
(292,725)
(44,033)
(53,452)
(97,485)
(18,529)
(25,504)
(44,033)
(955,735)
(106,098)
$ (1,061,833)
Tax effects allocated to each component of other
comprehensive income (loss) and reclassification
adjustments are as follows:
Millions of yen
Before-tax
amount
1999:
Amount arising during the year on investments
in foreign entities held at end of year
Reclassification adjustments for the portion of
gains and losses realized upon sale or liquidation of
investments in foreign entities
Net change in foreign currency translation adjustments during the year
Amount arising during the year on securities held at end of year
Reclassification adjustments for gains and losses realized in net income
Net change in net unrealized gains on securities during the year
Other comprehensive income (loss)
1998:
Reclassification adjustments for gains and losses realezed in net income
1997:
Tax (expense)
or benefit
Net-of-tax
amount
¥ (61,023)
239
(60,784)
8
(61,015)
—
239
8
(60,776)
79,789
(1,246)
78,543
16,409
¥ 33,937
¥ (34,402)
(37,914)
628
(37,286)
(7,712)
(44,759)
674
41,875
(618)
41,257
8,697
(10,822)
(33,728)
(9,897)
2,439
(7,458)
(34,010)
¥ (75,870)
5,642
(1,243)
4,399
17,345
22,418
(4,255)
1,196
(3,059)
(16,665)
(53,452)
¥
3
15,480
15,126
30,609
4,095
(15,065)
(14,534)
(25,504)
4,092
(30,545)
(29,660)
¥ (56,113)
Before-tax
amount
1999:
Amount arising during the year on investments
in foreign entities held at end of year
Reclassification adjustments for the portion of
gains and losses realized upon sale or liquidation of
investments in foreign entities
Net change in foreign currency translation adjustments during the year
Reclassification adjustments for gains and losses realized in net income
66
Tax (expense)
or benefit
Net-of-tax
amount
$ (598,264)
2,343
(595,921)
78
(598,186)
—
2,343
78
(595,843)
782,245
(12,216)
770,029
160,873
$ 332,716
(371,706)
6,157
(365,549)
(75,608)
(438,814)
410,539
(6,059)
404,480
85,265
(106,098)
(16)Net Income per Share
A reconciliation of the numerators and denominators of the
basic and diluted net income per share computations is as
follows:
Net income available to common stockholders
Effect of dilutive securities:
1% Japanese yen convertible debentures,
due 2002
1-2/10% Japanese yen convertible
debentures, due 2005
Other
Diluted net income
¥
¥
Thousands of
U.S. dollars
1999
1999
Millions of yen
1998
1997
70,234
109,569
118,813
45
43
96
441
50
59
112
490
89
—
70,418
108
(2)
109,777
205
(3)
119,223
$
$
688,569
873
—
690,373
Number of shares
Average common shares outstanding
Dilutive effect of:
1% Japanese yen convertible debentures,
due 2002
Other
Diluted common shares outstanding
870,699,219
868,915,888
862,664,129
3,649,401
3,991,367
5,687,040
4,029,084
4,609,783
6,722,111
7,369,714
15,994
885,763,412
8,220,954
25,427
885,763,419
10,599,248
90,902
885,763,430
Yen
Net income per share:
Basic
Diluted
¥
80.66
79.50
67
126.10
123.93
U.S. dollars
137.73
134.60
$
0.79
0.78
(17)Foreign Exchange Risk Management and
Interest Rate Risk Management
Canon operates internationally which exposes Canon to the risk
of changes in foreign exchange rates and interest rates. Derivative
financial instruments are comprised principally of foreign
exchange contracts and interest rate swaps utilized by the
Company and certain of its subsidiaries to reduce these risks.
Canon does not hold or issue financial instruments for trading
purposes.
The contract amounts of derivative financial instruments
summarized in the following paragraphs do not represent
amounts exchanged by the parties and thus are not a measure of
the exposure of Canon through its use of derivative financial
instruments. Canon is exposed to the risk of credit-related losses
in the event of nonperformance by counterparties to foreign
exchange contracts and interest rate swaps, but it does not expect
any counterparties to fail given their high credit ratings.
Contract amounts of foreign exchange contracts and interest
rate swaps at December 31, 1999 and 1998 are set forth below:
1998
Thousands of
U.S. dollars
1999
105,289
54,222
91,379
29,099
$1,675,794
118,725
402,196
655,931
Millions of yen
1999
Forwards and swaps:
To sell foreign currencies
To buy foreign currencies
Receive-fixed interest rate swaps
Pay-fixed interest rate swaps
The Company and certain of its subsidiaries enter into
foreign exchange forward contracts and currency swaps to
hedge the risk of fluctuation in foreign currency exchange rates
associated with certain trade receivables, long-term debt and
anticipated sales transactions (including firm commitments)
denominated in foreign currencies. The terms of these foreign
exchange contracts rarely extend beyond three months except
(18)Commitments and Contingent Liabilities
At December 31, 1999, commitments outstanding for the
purchase of property, plant and equipment approximated
¥25,830 million ($253,235 thousand). Contingent liabilities for
guarantees of bank loans to employees and to affiliated and
other companies amounted to approximately ¥66,943 million
($656,304 thousand).
Canon occupies sales offices and other facilities under lease
arrangements accounted for as operating leases. Deposits made
under such arrangements aggregated ¥20,188 million
($197,922 thousand) and ¥23,754 million at December 31,
1999 and 1998, respectively, and are reflected in noncurrent
receivables and restricted funds on the accompanying
consolidated balance sheets.
¥170,931
12,110
41,024
66,905
for those related to long-term debt denominated in foreign
currencies which have the same terms as underlying debts.
Interest rate swap contracts are generally used by the Company
and certain of its subsidiaries to offset changes in the rates paid
on long-term debt. Interest rate swap contracts outstanding at
December 31, 1999 mature between 2000 and 2002.
Future minimum lease payments required under
noncancellable operating leases that have initial or remaining
lease terms in excess of one year as of December 31, 1999 are:
Year ending December 31:
2000
2001
2002
2003
2004
Later years
Total future minimum
lease payments
68
Millions
of yen
Thousands of
U.S. dollars
¥ 10,820
8,036
5,899
4,399
3,268
7,092
$106,079
78,784
57,833
43,128
32,039
69,529
¥ 39,514
$387,392
(19)Disclosures about the Fair Value of Financial
Instruments
Cash and cash equivalents, Trade receivables, Short-term
loans, Trade payables, Accrued expenses
The carrying amount approximates fair value because of the
short maturity of these instruments.
Marketable securities and Investments
The fair values of Canon’s marketable securities and
investments are based on quoted market prices.
Noncurrent receivables and restricted funds
The fair values of Canon’s noncurrent receivables and restricted
funds are based on the present value of future cash flows
through estimated maturity, discounted using estimated market
discount rates. Their carrying amounts at December 31, 1999
and 1998 totaled ¥29,771 million ($291,873 thousand) and
¥50,309 million, respectively, which approximate fair values.
69
Long-term debt
The fair values of Canon’s long-term debt instruments are based
on the quoted price in the most active market or the present
value of future cash flows associated with each instrument
discounted using Canon’s current borrowing rate for similar debt
instruments of comparable maturity.
Derivative financial instruments (see note 17)
The fair values of derivative financial instruments, consisting
principally of foreign exchange contracts and interest rate swaps,
all of which are used for purposes other than trading, are
estimated by obtaining quotes from brokers.
The estimated fair values of Canon’s financial instruments at
December 31, 1999 and 1998 are summarized as follows:
Thousands of
U.S. dollars
1999
Carrying
Estimated
Amount
Fair Value
Millions of yen
1999
Carrying
Estimated
Amount
Fair Value
1998
Carrying
Estimated
Amount
Fair Value
Nonderivatives:
Assets:
Marketable securities and
Investments
¥ 141,546 141,546
51,402
51,402
Liabilities:
Long-term debt, including current installments
(190,351) (228,264) (246,480) (271,476)
Derivatives relating to:
Trade receivables and anticipated
sales transactions:
Assets
1,385
1,635
4,786
5,076
Liabilities
(947)
(207)
(342)
(123)
Long-term debt,
including current installments:
Foreign exchange contracts:
Assets
—
—
446
666
Liabilities
(2,155) (2,155)
(1,904) (1,768)
Interest rate swaps:
Assets
369
2,377
811
2,957
Liabilities
(71)
(103)
(119)
(634)
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instruments. These estimates are subjective in nature
$ 1,387,706
1,387,706
(1,866,186) (2,237,882)
13,578
(9,284)
16,029
(2,029)
—
(21,127)
—
(21,127)
3,618
696
23,304
(1,010)
and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(20)Supplementary Expense Information
Research and development
Depreciation of property, plant and equipment
Rent
Advertising
Exchange loss (gain)
1999
Millions of yen
1998
1997
Thousands of
U.S. dollars
1999
¥177,922
155,682
48,236
67,544
3,387
176,967
159,888
53,923
76,911
(1,189)
170,793
137,777
55,227
75,800
11,200
$1,744,333
1,526,294
472,902
662,196
33,206
70
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Canon Inc.:
We have audited the accompanying consolidated balance sheets (expressed in yen) of Canon Inc. and subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The segment information required to be disclosed in financial statements under United States generally accepted
accounting principles is not presented in the accompanying consolidated financial statements. Foreign issuers are
currently exempted from such disclosure requirement in Securities Exchange Act filings with the United States
Securities and Exchange Commission.
In our report dated February 8, 1999, we expressed an opinion that the 1998 and 1997 consolidated financial
statements of Canon Inc. and subsidiaries did not fairly present financial position, results of operations and cash flows
in conformity with United States generally accepted accounting principles because of the effects of the departure from
Statement of Financial Accounting Standards No. 115 in accounting for certain investments in debt and equity
securities. As described in note 1(f) of the notes to the consolidated financial statements, Canon Inc. and subsidiaries
have changed their method of accounting for such investments in debt and equity securities and restated their 1998
and 1997 consolidated financial statements to conform with United States generally accepted accounting principles.
Accordingly, our present opinion on the accompanying 1998 and 1997 consolidated financial statements, as
presented herein, is different from that expressed in our previous report.
In our opinion, except for the omission of the segment information as discussed in the third paragraph of this
report, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Canon Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with United States
generally accepted accounting principles.
The accompanying consolidated financial statements have been translated into United States dollars solely for the
convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial
statements expressed in yen have been translated into United States dollars on the basis set forth in note 2 of the
notes to consolidated financial statements.
Tokyo, Japan
February 8, 2000
71
MAJOR CONSOLIDATED SUBSIDIARIES
BOARD OF DIRECTORS
AND CORPORATE AUDITORS
(As of December 31, 1999)
(As of December 31, 1999)
MANUFACTURING
Canon Electronics Inc.
Copyer Co., Ltd.
Nippon Typewriter Co., Ltd.
Canon Aptex Inc.
Canon Components, Inc.
Canon Chemicals Inc.
Canon Precision Inc.
Oita Canon Inc.
Nagahama Canon Inc.
Oita Canon Materials Inc.
Optron, Inc.
Canon Virginia, Inc.
South Tech, Inc.
Custom Integrated Technology, Inc.
Industrial Resource Technologies, Inc.
Canon Business Machines, Inc.
Canon Giessen GmbH
Canon Bretagne S.A.
Canon Manufacturing U.K. Ltd.
Canon Inc., Taiwan
Canon Opto (Malaysia) Sdn. Bhd.
Canon Dalian Business Machines, Inc.
Canon Zhuhai, Inc.
Tianjin Canon Co., Ltd.
Guang-Dong United Optical Instrument
Co., Ltd.
Canon Hi-Tech (Thailand) Ltd.
Canon Engineering (Thailand) Ltd.
Canon Electronic Business Machines
(H.K.) Co., Ltd.
Canon Engineering Singapore Pte. Ltd.
Canon Engineering Hong Kong Co., Ltd.
RESEARCH & DEVELOPMENT
Canon Research Center America, Inc.
Canon Information Systems, Inc.
Canon Research Centre Europe Ltd.
Canon Research Centre France S.A.
Canon Information Systems
Research Australia Pty. Ltd.
Beijing PeCan Information System Co., Ltd.
MARKETING
Canon Sales Co., Inc.
Canon Copyer Sales Co., Ltd.
Canon Software Inc.
Canon U.S.A., Inc.
Canon Computer Systems, Inc.
Canon Canada, Inc.
Canon Mexicana, S. de R.L. de C.V.
Canon Latin America, Inc.
Canon do Brasil Indústria e Comércio Limitada
Canon Chile, S.A.
Canon Panama, S.A.
Canon Argentina, S.A.
Ambassador Business Solutions, Inc.
Astro Business Solutions, Inc.
Affiliated Business Solutions, Inc.
MCS Business Solutions, Inc.
Canon Financial Services, Inc.
Canon Europa N.V.
Canon U.K. Ltd.
Canon Deutschland GmbH
Canon Euro-Photo Handelsgesellschaft m.b.H.
Canon France S.A.
Canon Photo Vidéo France S.A.
Canon Italia S.p.A.
Canon España S.A.
Canon S.A.
Canon Benelux N.V.
Canon Benelux N.V./S.A.
Canon (Schweiz) AG
Canon Gesellschaft m.b.H.
Canon Svenska AB
Canon Oy
Canon North-East Oy
Canon Norge A.S.
CEE Canon East Europe Vertriebsgesellschaft
m.b.H.
Canon Systems Management Europe Ltd.
Canon Australia Pty. Ltd.
Canon New Zealand Ltd.
Canon Finance Australia Ltd.
Canon Finance New Zealand Ltd.
Canon Singapore Pte. Ltd.
Canon Hongkong Co., Ltd.
Canon Marketing Services Pte. Ltd.
Canon Marketing (Malaysia) Sdn. Bhd.
Canon Marketing (Thailand) Co., Ltd.
Canon Marketing (Hong Kong) Co., Ltd.
Canon Semiconductor Engineering
Korea Inc.
Canon Semiconductor Equipment
Taiwan Inc.
72
President & C.E.O.
Fujio Mitarai
Senior Managing Directors
Takashi Kitamura
Ichiro Endo
Yukio Yamashita
Managing Directors
Takashi Saito
Toshizo Tanaka
Yusuke Emura
Kinya Uchida
Akira Tajima
Directors
Haruo Murase
Toru Takahashi
Nobuyoshi Tanaka
Kohtaro Miyagi
Tsuneji Uchida
Junji Ichikawa
Muneo Adachi
Hajime Tsuruoka
Teruomi Takahashi
Hironori Yamamoto
Akiyoshi Moroe
Kunio Watanabe
Ikuo Soma
Corporate Auditors
Shuichi Ishizuki
Takenori Matsuoka
Tadashi Ohe
Tetsuo Yoshizawa
TRANSFER OFFICE AND REGISTRARS
SHAREHOLDERS’ INFORMATION
Canon Inc.
30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo
146-8501, Japan
Transfer Office for Common Stock in Japan
The Yasuda Trust and Banking Company, Limited
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670,
Japan
Depositary and Agent with Respect to
American Depositary Receipts for Common
Shares
Morgan Guaranty Trust Company of New York
60 Wall Street, New York, N.Y. 10260-0060,
U.S.A.
Depositaries and Agents with Respect to
Global Bearer Certificates for Common
Shares
Deutsche Börse Clearing AG Börsenplatz 7-11
60313 Frankfurt am Main, Germany
Deutsche Bank AG, U+I/Emissionsfolgegeschäfte,
Taunusanlage12, 60325 Frankfurt am Main,
Germany
Stock exchange listings:
Tokyo, Osaka, Nagoya, Kyoto, Fukuoka,
Niigata, Sapporo and Frankfurt stock
exchanges
All pages in the front half of this publication, except for the cover,
are printed on 50% recycled paper that can be recycled for reuse.
American Depositary Receipts (ADRs) are
traded on the Nasdaq Stock Market.
Shareholders’ annual general meeting:
March 30, 2000, in Tokyo
Other information:
Other publications of general interest are
available, including a company profile called
the Canon Story. For publications or
information, please contact the Corporate
Communications Headquarters, Canon Inc.,
Tokyo, or access Canon’s Home Page on the
Internet’s World Wide Web at
http://www.canon.com/
73
PUB. BEP009 0300P17.314
Printed in Japan
CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan

CANON ANNUAL REPORT 1999

Transcription

Similar documents

cover story 398 top products

Petting Zoo

History is on your side Easy connections mean timely

CNY.6526 SELPHY CP770 LSS.qxd

Colosseum, Italy: Pattern

canon xf105/xf100 high definition camcorders

James G. Murphy Inc.

Great Pyramid of Khufu, Egypt: Assembly Instructions Canon ® is a

Neuschwanstein Castle, Germany: Assembly