1997 - Canon

CANON AN N UAL REPORT 1997
Fiscal Year Ended December 31, 1997
C O R P O R AT E P R O F I L E
Philosophy As it conducts its worldwide business operations, Canon
keeps in mind its guiding philosophy of living and working together for the
common good — kyosei. The kyosei philosophy has captured the
imagination of the 79,000 employees of Canon in the countries around
the world where we do business. It has also won their respect as we
continually introduce innovations in the three principal areas of cameras,
business machines, and optical products. In another manifestation of the
kyosei philosophy, we dedicate ourselves to raising the level of customer
satisfaction, thereby contributing to improvement of the working
atmosphere in offices. As a result, individuals enjoy a better quality of life
and industry enjoys improved productivity.
Approach With the increasing accessibility of the information/
communications highway, millions of persons around the world are
experiencing rapid changes in every aspect of their daily lives. The greatly
improved flow and sharing of information and communications promise
immense benefits to everyone. The term “multimedia” can be aptly
applied to Canon’s approach to contemporary developments, as it
expresses the fundamental act of combining diverse technologies in an
effort to meet the burgeoning demands of today’s information society.
The combining of multiple forms of media allows us to modify, merge, and
exchange still and moving images as well as text to create totally new and
attractive formats for our own enjoyment and for dissemination.
Responsibility As Canon moves steadily toward its goal of being a global
excellent corporation, it continues to nurture a strong sense of corporate
social responsibility that embraces the communities in which we regularly
do business as well as the natural environment. Indeed, our corporate
attitude and behavior vis-à-vis local communities, ecology, and the
environment are the best measures of how seriously we view our
responsibility. Rising above the traditional business pillars of product
quality, cost, and delivery, our concern for ecology and the environment
brings us closer to our customers and the local communities.
ABOUT THE COVER
The 31cpm CLC1000 full-color copying machine
firmly established Canon’s leading position in the
field of short-run, on-demand printing.
CONTENTS
1 Financial Highlights
2 To Our Shareholders
Fourth consecutive year of
increased sales and income
6 Canon in 1997
Year marked by continued
energetic efforts to diversify and
globalize
12 Product Group Summary
Market overview, Canon’s
response, and looking ahead
14 Business Machines
14 Copying Machines
Motive force for significant
growth derived from highspeed, full-color copying
machine and digital
monochrome copying machines
18 Computer Peripherals
Apt response to low, stable
growth with bolstered lineup of
laser beam printers; Bubble Jet
printers enter second stage of
PhotoRealismTM
24 Business Systems
Brisk growth for multifunction
peripherals and plain paper
facsimiles
26 Cameras
Rising demand for popularly
priced 35mm SLR models;
Advanced Photo System lineup
strengthened
30 Optical Products
Excimer laser scanning steppers
meet demand to produce
64Mb DRAMs with higher
productivity
33 Financial Section
FINANCIAL HIGHLIGHTS
Millions of yen
(except per share amounts)
1997
Net sales
Net income
Net income per share:
Basic
Diluted
Total assets
Stockholders’ equity
Thousands of U.S. dollars
(except per share amounts)
1996
1997
¥2,761,025 2,558,227
118,813
94,177
$21,238,654
913,946
137.73
111.29
134.60
106.96
2,861,927 2,618,298
1,099,010 981,868
1.06
1.04
22,014,823
8,453,923
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 ¥130=U.S.$1, the approximate exchange rate on the
Tokyo Foreign Exchange Market as of December 30, 1997.
2. Net income per share amounts are computed based on Statement of Financial
Accounting Standards No.128 (SFAS 128), “Earnings per share,” which is effective for
annual periods ended after December 15, 1997.
Net income per share amounts for 1996 have been restated to conform with
SFAS 128.
3. Canon has not applied Statement of Financial Accounting Standards No. 115 in
accounting for certain investments in debt and equity securities.
120,000
140
137.73
134.60
111.29
106.96
27.01
26.76
38.50
35.84
31,024
21,102
55,036
65.96
62.73
94,177
2,761,025
118,813
3,000,000
2,558,227
(Yen)
2,165,626
Net income per share
(Millions of yen)
1,933,310
Consolidated net income
(Millions of yen)
1,836,134
Consolidated net sales
0
0
93 94 95 96 97
0
93 94 95 96 97
93
94
Basic
Diluted
1
95
96
97
TO OUR SHAREHOLDERS
The global economy in 1997 presented us with a disparate range of economic conditions in the world’s
major markets. While the U.S. economy continued to expand against a backdrop of brisk domestic demand,
the European economy continued to move gradually toward recovery. In Asia, the economy began slowing
after difficulties emerged in the second half of the year surrounding currency valuations and the health of
the financial system, triggered by a sharp drop in the exchange rate for the Thai baht. In Japan, the economy
showed signs of stagnation as a result of languishing personal consumption, generated by an increase in
the consumption tax and suspension of special income tax rebates. Finally, there emerged in the second
half of the year a fair amount of concern regarding the Japanese financial system.
Despite these generally difficult economic circumstances, Canon realized increases in both sales and
profits for the fourth consecutive term. Consolidated sales for 1997 increased by 7.9% to 2,761.0 billion
yen (U.S.$21,239 million), and net income increased by 26.2% to reach 118.8 billion yen (U.S.$914
million). Canon also recorded its second consecutive year of double-digit ROE. In 1997, ROE was 11.4%.
Results by Product Group The most notable feature concerning sales in 1997 was the continued
growth seen in two of our traditional product groups — cameras and copying machines. The camera group
did well as a result of the widespread popularity of the Advanced Photo System, while the copying
machine group had good growth due to significant demand for digital copying machines and full-color
copying machines. The growth levels seen in these two business groups make it clear that substantial
growth can be realized in traditional business areas through an infusion of new technology.
Although the performance of business machines was negatively influenced by our strategic
withdrawal from the personal computer business in the U.S., that was offset by favorable sales levels for
copying machines, particularly digital machines, as well as facsimile machines, laser beam printers, and
Bubble Jet printers. Overall, the business machines group achieved total sales of 2,300.1 billion yen
(U.S.$17,693 million), an increase of 7.6% over the previous year. For cameras, sales of 35mm cameras
remained solid, while sales of Advanced Photo System cameras recorded a substantial increase, yielding a
total sales figure of 247.8 billion yen (U.S.$1,906 million), up 15.9% over the previous year.
Sales of optical and other products were 213.2 billion yen (U.S.$1,640 million), up 3.1% from
the previous year. Although semiconductor production equipment sales showed a slight decrease due to
a reduction in new capital investment on the part of semiconductor manufacturers, sales of other
products were generally firm.
2
Consolidated Net Income Our efforts to increase sales of high value-added
products and the retrenchment program that we pursued in unprofitable
business areas have yielded good results, as we improved our operating profit
ratio by 1.3% to 9.9%. Although business performance was affected
somewhat as a result of exchange losses sustained following the depreciation
of several Asian currencies, the increase in sales and the improved operating
profit ratio enabled us to realize an increase in net income of 26.2%, with the
total figure at 118.8 billion yen (U.S.$914 million). As a result, net income per
common share was 137.73 yen (U.S.$1.06) and annual dividends per share
increased by 2.00 yen (U.S.$0.02) to reach 17.00 yen (U.S.$0.13) per share.
Past Reflection and Present Action Last year was an exciting year for all
of us at Canon. It was our 60th anniversary, and while we did celebrate it with
Fujio Mitarai
several commemorative events, it was our impressive business results that
proved the best way to mark the occasion.
With the strengthened trend toward digitalization of the office environment, we secured firm market
positions for our multifunction digital copying machines and our high-speed, full-color copying machine.
We also continued to place special emphasis on the development of new input and output peripherals.
Digital camcorders and PhotoRealismTM Bubble Jet printers are just two good examples of products that
will play important roles in realizing our goal of creating total imaging solutions.
An especially important area of investment for us in 1997 was the device and components
business. Not only does the creation of new businesses continue to be critical to our long-term growth,
but differentiation also continues to be key to the competitiveness of the products we develop. From
this perspective, areas in our device business worthy of special mention include the application of
Bubble Jet technology to lower the cost of producing color filters for LCDs which allow for vivid and
bright high-resolution images. Also important is the continued development of the core technology
behind the production of silicon-on-insulator (SOI) wafers, devices that speed up LSIs and reduce their
level of energy consumption. Furthermore, we made remarkable progress in the development of next
generation CMOS image sensors. The device and components business holds enormous potential, and
we have great expectations for growth in this area in the future.
We realize that, as we move toward the twenty-first century, we must establish an advanced
physical infrastructure to support our efforts at further globalization and diversification. With these efforts in
mind, we have relocated a significant portion of our software and systems development operations in
Japan to our newly established Kosugi Office, thus making it the central facility for software and systems
development. In addition, the personnel in Kosugi will collaborate more closely with their counterparts in
R&D centers located in the U.S., the U.K., France, and Australia.
3
TO OUR SHAREHOLDERS
1998 Outlook and Future Priorities 1998 marks the third year of our “Excellent Global
Corporation Plan.” To guide our efforts in the right direction as we continue to evolve and expand our
business scope, we have formulated several priorities in the form of “corporate challenges,” with
“reengineering” as the operative word.
Our first challenge will involve business reengineering. We intend to accomplish this by focusing
on three core areas in the multimedia field, i.e., digitalization of the office environment, digital
photography, and displays. We will also launch new businesses, including new devices, and develop
and introduce new core technologies.
Our second challenge is termed speed reengineering. It involves the doubling of our
performance across the entire spectrum of our business activities, including product development,
production, distribution, procurement, and inventory control. We will also prepare our infrastructure for
the further integration of related operations and improve our consolidated accounting system for each
individual product group headquarters.
Our third challenge is focused on group reengineering. This will include furthering our efforts toward
globalization by siting our R&D, production, and sales activities throughout the world, at the same time
strengthening our domestic manufacturing structure.
In order to continue making great strides well into the twenty-first century as a truly global
corporation, we must move decisively in our engagement of these challenges.
As we move toward achieving the targets that we have set for ourselves, I would ask for the
continued support and understanding of our shareholders.
Fujio Mitarai
President and C.E.O.
Canon Inc.
4
REVIEW OF OPERATIONS
Canon has developed a filter that
converts an LCD into a color
display. This color filter uses
Canon’s original Bubble Jet
technology as well as technology
Canon uses in semiconductor
production equipment.
5
CANON IN 1997
GLOBALIZATION In 1997, as part of its drive towards further globalization, Canon focused on strengthening the
organizational structure of its worldwide sales, production, and R&D entities, especially with regard to sales and
production units located in Asia.
Canon India, for example, our Delhi-based marketing and manufacturing company, announced plans to
establish a copying machine production facility in India in response to increased domestic demand.
In Taiwan, Canon Semiconductor Equipment Taiwan commenced operations in February that are geared towards
the sales and service of semiconductor manufacturing equipment. Canon Marketing (Philippines), meanwhile, a direct
sales subsidiary of Canon Singapore, our Asian regional headquarters, officially opened its doors in April.
In the Americas, meanwhile, besides having Canon Latin America report directly to Canon U.S.A., new offices
were opened by Canon do Brasil in Sao Paulo, Brazil, in August, and by Canon Chile in Santiago. The 35 countries of
the Americas, from Canada in the north to Chile and Argentina in the south, are considered as one large market
under Canon U.S.A., but careful attention is also paid to the differences among the countries.
In Europe, Canon North-East Oy was established in September 1997 in Finland, with its focus being sales and
service in the markets of the Baltic countries and the Commonwealth of Independent States.
In global manufacturing, Canon continued to remain very active in 1997. In May, for example, Canon
Manufacturing U.K., a facility originally established for the remanufacturing of copying machines, was expanded to
include Bubble Jet printer production.
In April, two additional manufacturing and marketing facilities were opened in China. Tianjin Canon was
established to produce and sell monochrome copying machines, and Canon became the majority shareholder in
Guangdong United Optical Instrument, a company that manufactures and markets compact cameras.
As a prime example of the globalization of our R&D activities, Canon Information Systems Research Australia
(CISRA) developed OpenPage, a sophisticated graphics and image processing software library which is incorporated
into Design Essentials and WebRecord. WebRecord is an application that delivers fast, high-quality color printouts
from the World Wide Web. These two software packages now come bundled with BJ printers. They are also sold by
Canon Computer Systems in the U.S. via their web site.
Canon North-East Oy’s
Moscow Office
Canon Manufacturing U.K.
6
Canon Information Systems
Research Australia
Canon India, our Delhi-based
marketing and manufacturing
subsidiary, will build a copying
machine plant in India, with its
output aimed at satisfying the
increasing demand for copying
machines in the domestic
market.
7
Canon is developing and
marketing various types of
displays, each offering unique
advantages. Shown here is one
of the processes in the
development of our large, rearprojection LCD.
8
CANON IN 1997
TECHNOLOGY In 1997, Canon continued its program in the field of multimedia and the device business. In the
area of displays, we are marketing and developing a number of different types of technology, each presenting
unique advantages. The FLCDs we already have on the market, for example, require far less space in comparison to
cathode-ray tubes, consume less electricity, and reduce low-frequency magnetic field emissions. SED technology,
meanwhile, is being developed to utilize surface-conduction electron emitters for producing a flat panel display with
a level of brightness and image quality comparable to that of a cathode-ray tube. We aim to use the technology in a
60-inch, large-size wall TV. Technology is also being developed for providing a large, rear projection LCD with
exceptionally high resolution and genuine wide-angle viewing. We expect this LCD to be used in a wide range of
applications, such as presentations, TV conferences, and information boards. Finally, a new technology is also being
developed for the display of 3D images without special eyeglasses. Besides applications with CAD and in the
medical and educational fields, this display will also be used in games and in the home.
Canon has also developed an LCD color filter employing its original Bubble Jet technology and technology used
in semiconductor production equipment, achieving lower production cost and high throughput. An LCD color filter
converts an LCD into a color display. The use of newly developed dye inks contributes to realizing vivid, bright images.
It is important as well to continue our efforts in developing the novel method named ELTRAN as the core
technology in the production of silicon-on-insulator (SOI) wafers for speeding up LSIs and reducing the level of
energy they consume. The SOI wafers have been supplied to world-wide bench-marking organizations and obtained
the best evaluations. Another area of remarkable progress for us is the development of next generation CMOS image
sensors. Canon sees great potential for the device and components business, and looks forward to substantial
growth in this area.
Another new development utilizing BJ technology is the HYPERPHOTO SYSTEM, designed for use at photo
processing and copy shops. Integrating a scanner, server, and printer, this system can upload analog and digital data
from various sources to output photo-quality images at unmatched processing speeds. The system features a wide
variety of visuals, layout choices, and image-manipulation options.
Surface-conduction electron emitter
display (SED)
Silicon-on-insulator (SOI) wafers
9
HYPERPHOTO SYSTEM printout samples
ENVIRONMENT AND CITIZENSHIP In June, in support of Canon’s greater environmental objectives, a new
toner-cartridge recycling plant was opened in Virginia. This effort is one facet of Canon U.S.A.’s Clean Earth
Campaign, and is operated by Industrial Resource Technologies (IRT), a company jointly owned by Canon Virginia
and Canon U.S.A. IRT fully reclaims used cartridges. They are turned into raw materials for various industrial uses, and
are also made available for new toner cartridge production.
In a move to encourage its suppliers in Japan to preserve and protect the environment, Canon distributed a list
of about 60 green procurement standards that established a priority procurement standard for environmentally
friendly materials and parts.
In another effort, Canon halted the use of three types of organic chlorine solvents in cleaning processes at all of
its production facilities. Because these solvents were designated as toxic substances harmful to humans, Canon is
switching to production processes that do not require cleaning. In situations where cleaning is absolutely essential to a
specific production process, non-harmful substances such as hydrogen carbide and ultrapure water are put into use.
Meanwhile, reflecting a new priority on the clean generation of electrical power, Canon is continuously researching its amorphous-silicon, roof-integrated solar panels by installing them at the Canon Giessen plant in Germany.
Corporate citizenship is another major Canon priority. In Japan, Canon continued its sponsorship of the digitalmedia arts laboratory, ARTLAB, providing the facility with hardware, software, and technical support to let it
accomplish its mission of creating a new form of art.
Canon U.S.A.’s Clean Earth Campaign is an ongoing project focused on recycling, conservation, science, and
education. Recycling efforts were first targeted at toner cartridges, but have now grown to encompass increasing the
energy efficiency of office equipment and cost-effective waste prevention measures. Conservation includes the
Expedition into the Parks program, which emphasizes cooperation in the protection of one of the earth’s treasures,
the U.S. national parks. Finally, recent participation in environmental education initiatives reflects the company’s
philosophy that understanding and appreciating the outdoors are essential to environmental preservation.
Ecology and the environment will continue in the future to be two of the principal concerns of Canon and the
companies in the Canon Group.
Cartridge recycling at IRT in Virginia
Green procurement standards
10
Solar panels installed in Canon Giessen
CANON IN 1997
Canon U.S.A.’s Clean Earth
Campaign is a comprehensive
effort to make a measurable
difference on the environment.
Science-based conservation
programs, such as the one
shown here, are being
conducted to protect birds
throughout the Americas.
11
899,205
PRODUCT GROUP SUMMARY
Share of
consolidated
sales
818,909
Sales results
(Millions of yen)
32.6%
748,875
BUSINESS MACHINES
Copying Machines
Full-color copying machines
Office copying machines
Personal copying machines
Consumables, etc.
BUSINESS MACHINES
Computer Peripherals
Laser beam printers (LBPs)
Bubble Jet printers
Digital cameras
Image scanners
Consumables, etc.
BUSINESS MACHINES
Business Systems
Computers
Faxes
Word processors
Micrographics
Personal information equipment
Electronic typewriters, etc.
878,170
964,808
709,037
685,362
34.9%
582,838
547,953
702,452
15.8%
CAMERAS
Single-lens reflex cameras
Compact cameras
Camcorders
Lenses, etc.
OTHER PRODUCTS
12
91,227
41,201
38,409
43,011
52,550
93
94
95
96
436,053
247,766
5.5%
152,737
154,306
213,760
368,841
177,537
347,196
69,073
124,910
181,711
OPTICAL PRODUCTS
Semiconductor production
equipment
Medical equipment
Broadcasting equipment
164,603
310,834
440,532
9.0%
60,456
97
O
verview
Trend continued toward color
and networking
Matured market for analog
monochrome copying
machines
Rapid growth in global market
for digital monochrome
copying machines
L
P
roducts and Technology
Market demands faster
engines, higher resolution,
lower cost
Popularity of Canon’s highspeed NP 6085 contributed to
overall sales
Systematized GP series with
fax and printer functions sold
well
ooking Ahead
Sophisticated demand in
printing industry, and offices
moving toward full-color
copying machines
Promote sales of high-speed,
value-added copying
machines worldwide
Strengthen response to
systemization and networks
See page 14
NP6085
LBP market much more price
sensitive
Photo-quality print out gains
popularity in ink jet printer
market
Digital camera market quickly
expands with increase in
number of PC users; at same
time, prices rapidly fall
LBP750/740 provides superior
cost performance as A3
machine
BJC-7000 and BJC-4300
comprise second stage of
PhotoRealismTM
Canon jointly establishes CIFF
Forum for standardization of
recording memory format
Respond to various printer
market needs with full line up,
including GP and CLCs
Increased trend toward higher
resolution
Introduction of differentiated,
unique digital cameras
Steady market growth for PC
market worldwide, except for
U.S.
U.S. market for multifunction
products expanded but
competition heated
Market expands for PC-based
filing systems
CN600, laptop model with
detachable BJ printer, proves
Canon’s uniqueness in market
MultiPASS series of
multifunction faxes introduced
Canon’s DR3020 responds to
drop out color
Promote solution business,
combining Canon’s peripherals
Expand line of multifunction
products that can be
networked
Development of document
scanner with built-in CDR drive
See page 18
BJC-7000
See page 24
MultiPASS C5000
35mm products popular in
every market
Digitization of camcorders and
greater use of LCDs
Demand for lenses grows with
sales of cameras, but domestic
market slowed
EOS Rebel G (EOS 500N)
wins top market share
Development of one-chip
system LSI for digital
camcorder recording and
playback signal processing
Shake-free lens line up gains
popularity
Development of new product
line up to boost Advanced
Photo System SLR sales
Strengthen line-up of digital
camcorders
Reinforcement of lens line up
in more affordable price range
See page 26
Optura
Demand trend toward drawing
ever-finer lines on silicon
wafers
Trend toward digitization and
networking in medical products
TV lens market grows steadily
worldwide
Mass production of KrF excimer
laser scanning stepper and
development of stepper with
argon-fluoride as light source
Development of MO control
system for fundus camera
Studio and field lenses with
digital servo capability sold well
13
Commercialization of nextgeneration excimer laser
scanning stepper with argonfluoride as light source
Development of X-ray digital
camera
Promotion of our TV lenses for
high-definition broadcast of
major events such as Nagano
Olympics
See page 30
FPA-3000EX4
(Millions of yen)
G
2,300,066
0
93 94 95 96 97
899,205
818,909
748,875
900,000
685,362
gainst this background, Canon’s entry into the field of short-run, ondemand printing — the high-end, 31 full-color copies-per-minute
(cpm) CLC1000 — proved very successful. This move was made
concurrently with the introduction of programs geared towards the
promotion of the highly productive, extremely durable CLC700 and
CLC800 models. Although sales of full-color copying machines were up
only slightly in Japan, they rose significantly in both the North American
and European markets, thus enabling us to maintain market share. Sales
increased substantially both in the number of units and revenue in 1997,
and we can thus look upon the year as marking our all-out entry into the
office color copying machine market.
1,820,168
Sales results:
Business machines
709,037
A
1,544,149
I
n Japan, the full-color copying machine market remained relatively flat in
1997, due to sluggishness in the economy and general unease surrounding the financial sector. In North America and Europe, however, favorable
economic conditions and Canon’s response to the rising market demand for
color output that arose simultaneously with moves towards digitalization
became key to our success. These developments were in turn accompanied
by a general intensification of the level of competition in the market.
1,639,071
2,000,000
2,137,611
BUSINESS MACHINES
Copying Machines
Sales results:
Copying machines
(Millions of yen)
0
93 94 95 96 97
oing into next year, two principal trends are expected to emerge in the color copying machine market. In one
trend, we will see greater demand in the professional market for durable, high-speed and high-resolution
value-added products. We intend to meet this demand by pairing up the CLC1000 with the ColorPASS8000 (PSXJ8000 in Europe) controller and introducing other new machines derived from the CLC1000. In the second, we
perceive a general broadening of the penetration of color copying machines into the office environment. Increased
networking and the wider availability of e-mail will lead to an increase in the volume of documents, and the demand
for both monochrome and color output will likewise increase. Canon intends to meet these market requirements
with a full lineup of multifunction full-color copying machines.
CLC700
CLC800
14
ColorPASS8000
Full-Color Copying Machines
The CLC1000, a highly durable,
31cpm full-color copying machine
with high-quality printout, has
firmly established Canon’s
position in the field of short-run,
on-demand printing.
CLC1000
15
Office and Personal Copying Machines
NP6085
Strong demand for the NP6085,
our high-end analog monochrome
copying machine, helped boost
overall copying machine sales.
The amorphous silicon drum and
reinforced internal components
provide it with increased productivity and remarkable durability.
16
BUSINESS MACHINES
Copying Machines
T
I
he worldwide market for digital monochrome copying machines continued to expand considerably. Previously,
the Japanese market provided the driving force behind these machines, but overseas markets experienced rapid
expansion in 1997 in the context of the moves toward digitalization and networking. Meanwhile, in a flat world market
for personal copying machines, Canon once again proved able to maintain its 50%-plus global market share.
n response to the strong demand for digital monochrome copying machines, Canon introduced the GP200 series,
machines with expanded facsimile and printer functions. The popularity of this series contributed to the excellent
sales growth figures realized by Canon, far exceeding the figure for rate of growth in the overall market. With regard to
analog monochrome copying machines, we focused on high-speed machines utilizing A-Si drum technology, and
again found that sales increased considerably. Demand for the high-speed NP6085 was particularly strong in all
markets, especially in North America and Europe, contributing to overall sales for this product area being more than
double the 1996 level. The NP6050, our 50cpm machine, with its dependable quality, helped us to maintain the
number one share in its class. Finally, sales of personal copying machines increased with the introduction of several
popularly priced models, with our full line of products allowing customers to choose from a wide range of features.
L
ooking to the near future, we can say that the burgeoning trend towards digitalization will accelerate in 1998, and
the overall market for digital machines is expected to expand considerably. Canon will respond to increased
demand levels with further strengthening of its product line. The demand for analog machines is also expected to
continue, although much depends on developments in the economies of Japan and the rest of Asia. Canon will
bolster its lineup of analog machines to function as a viable supplement to the digital series, with special attention to
be paid to new high-speed machines in order to maintain the sales momentum of 1997. Finally, Canon will continue
to introduce new popularly priced personal copying machines, with expectations of a further increase in sales levels.
The GP200 series
NP6050
PC300
17
900,000
C
702,452
547,953
582,838
878,170
T
he worldwide market for monochrome laser beam printers (LBPs)
entered a period of low, stable growth. Canon has a particularly large
share of the highly competitive Japanese market for these printers.
Meanwhile, the demand for LBPs compatible with computer networks
and for color LBPs continued to increase, while the level of competition
in the market for these devices intensified.
964,808
BUSINESS MACHINES
Computer Peripherals
Sales results:
Computer peripherals
0
anon responded to these market developments by maintaining high
(Millions of yen)
93 94 95 96 97
product quality, and bolstering its cost competitiveness. We introduced
the 12 pages-per-minute (ppm) LBP-1260PLUS worldwide, as well as
the high-end, 24ppm LBP-2460 to Asia, Oceania, and Europe. In the Japanese market, we introduced the LBP750/740, an A3 machine with excellent cost performance, as well as the 24ppm LBP-930. However, this new
lineup of machines did not perform as expected, and an increase in market share in the U.S. or Europe remained
elusive. In Japan, however, there was a moderate increase in sales. Meanwhile, in an attempt to meet demand in
the Japanese color LBP market, Canon introduced the LBP-2035PS.
T
he market for monochrome LBPs is expected to become increasingly price sensitive over the next year, and the
interest in networking will grow stronger. Canon will respond by introducing new, upgraded products, with competitive prices made possible by steady cost reductions. The trend toward color LBPs is also expected to continue in
1998, and Canon will introduce new products in an effort to strengthen its lineup and thus increase market share.
LBP-1260PLUS
LBP-750
C LBP-360PS full-color LBP
18
Laser Beam Printers (LBPs)
Canon’s LBPs have become standard peripherals for computers in
homes and offices around the
world. As the fastest of our LBPs
that support large paper sizes, the
LBP-2460 outputs up to 24ppm
with a resolution of 600dpi.
LBP-2460
19
Bubble Jet Printers, Consumables, etc.
Bubble Jet printers offer users
high speed, high resolution, quiet
operation, and a versatile range
of full-color printing options. The
BJC-7000 shown here offers the
world’s first water-resistant color
printing on plain paper.
BJC-7000
20
BUSINESS MACHINES
Computer Peripherals
Bubble Jet Printers
Consumables, etc.
T
he demand for printers in 1997 varied from market to market. Sluggish sales of personal computers (PCs) in
Japan, for example, led to decelerated growth in the printer market, especially in the home-use market, the central
market for ink jet printers. The PC market remained sluggish in North America as well, but the overall favorable
economic situation was able to support continued growth in the ink jet printer market. In Europe, economic growth
remained solid in the northern region and the ink jet market continued to enjoy smooth growth. In the Asia and
Oceania region, the ink jet market continued to expand against a background of double-digit economic growth in the
first half of the year, but confusion in financial markets in the second half had the effect of shrinking the market.
C
anon saw expanded sales in the Japanese, North American, and European markets with the introduction of the
second generation of PhotoRealismTM Bubble Jet printers — the BJC-7000 and BJC-4300 series — machines
offering high-quality image production. The BJC-7000 is the world’s first printer offering water-resistant color printing
on plain paper, and the BJC-4300/4650 offers a scanner cartridge option for converting the printer into a scanner.
The basic BJC-250 has contributed the most to overall sales. In Asia and Oceania, Canon firmed up its top market
position with the introduction of the BJC-210SP, an exclusively Asian model, as well as other value-added models
producing high levels of image quality. We also installed our first TPU-0020A Bubble Jet textile printing system in early
1997, for a textile printing company processing women’s apparel in Kyoto. The installation marked a giant step
forward in our response to the trend toward digitalization in the domestic textile printing industry.
D
emand levels in the Japanese printer market are expected to remain sluggish in the first half of 1998, but should
improve in the second half as PC sales pick up. Canon’s response will be to further promote the BJC4300/4650
models — products that are differentiated among other similar products by way of their scanner cartridge option — to
the home-use market, and introducing new products to the business sector later in the year. This range of products,
which will cover both the home market and the business sector, will continue to support Canon’s position as a leading
global supplier of printers. Finally, photo quality printing, faster printing speeds, networking, energy conservation, and
other factors will become increasingly important in the highly competitive markets in North America and Europe,
especially in the low-end market where Canon maintains a large market share.
BJC-4650
BJC-210SP
Bubble Jet textile printing samples
21
BUSINESS MACHINES
Computer Peripherals
Digital Cameras
Scanners
I
n 1997, the digital camera market grew rapidly in all markets around the world, with overall growth more than
doubling. The market for scanners also expanded, up more than 30% as compared to 1996, despite the fact that
competition intensified. At the end of 1997, for example, the price for 300dpi scanners was down 40 to 50% as
compared to the beginning of the year. The level of competition also increased in the market for video conferencing
systems, and prices dropped sharply.
E
arly in 1997, Canon introduced the PowerShot 350, first in Japan and then later to world markets, targeting the
market segment for popularly priced digital cameras. With the PowerShot 600, its ability to produce high-quality
images for business applications won it wide praise, particularly in the European market. Despite the sharp drop in
market prices, the PowerShot 350 and PowerShot 600 together allowed Canon to win an overall market share of
several percent. In response to the competitive scanner market, Canon introduced several new popularly priced
models. In Japan and Europe, Canon was able to further bolster its position as a leading supplier of scanners with
the introduction of the CanoScan 2700F film scanner and the CanoScan 300S sheet feed scanner, achieving unit
sales at a rate higher than that of market performance. Meanwhile, strategic pricing succeeded in opening new mass
sales channels for the CanoScan 300. With regard to video conferencing systems, Canon introduced the CanoMedia
system, first in the Japanese market and then later in Asia, Oceania, and Europe. The market’s initial response to the
product was highly positive. Our Communication Camera VC-C3 was also popular for use in TV conferencing
systems and remote control monitoring systems.
I
n 1998, the market is expected to see a rush of new digital products. For its part, Canon will introduce a highquality model in the standard range, as well as a model with over 1 mega-pixel, thus establishing its firm position
in the market. For scanners, competition will continue to be intense and Canon will respond by introducing new
products that differentiate it from others, such as products with unique design and the most-advanced, built-in
contact sensor. We will also enter the high-end market and prepare a lineup of models that offers a balance
between price and performance. For TV conference cameras, based on CanoMedia, Canon will provide the
maximum solutions for the respective product classes, and will introduce advanced application software and an
expanded line of peripherals.
CanoScan 300
CanoMedia TV conference system
22
VC-C3
Digital Cameras, Scanners
Digital cameras, which let users
quickly input images into
computers for processing, are
becoming more popular. Because
of the high-quality images it
provides, the PowerShot 600 was
especially acclaimed in the
business field.
23
PowerShot 600
BUSINESS MACHINES
Business Systems
440,532
436,053
368,841
310,834
T
he global market for facsimile machines showed brisk growth in
1997. In the U.S., the market for multifunction peripherals (MFPs) as
well as facsimiles expanded significantly, while in Japan the market for
cordless home facsimiles with a telephone answering machine function
displayed rapid growth. In Europe and Asia, the market for plain paper
facsimiles (PPFs) continued to expand. The replacement market for handheld terminals was also brisk in Japan in 1997, assisted as it was by a
boom in mobile computing. The market for personal electronic organizers
showed growth last year, until the financial crisis rocked the countries of
Asia later in the year. Overall, unit sales were up, but profits were down.
347,196
450,000
Sales results:
Business systems
(Millions of yen)
0
93 94 95 96 97
A
iming to win the lead in the U.S. facsimile machine market, Canon introduced two new MFPs, the MultiPASS
C3000/C5000 (MultiPASS C20/C50 in Europe), and one PPF, the FAXPHONE B640 (B150 in Europe). In
Japan, we introduced two cordless home fax models to stimulate demand. Sales levels were also very good in
Europe and Asia with introduction of the CFX-L4000 (L300 in Europe) and other new models. Growth in the U.S.
facsimile machine market was up, but not quite as much as the levels seen in Japan, Europe, and Asia, where it
doubled in some markets. In Europe, Canon focused on corporate users with a line of Notebook PCs that included a
built-in Bubble Jet printer. In the area of document scanners, our product lineup was bolstered with the introduction
of the optional LED-sensor unit for the DR3020, capable of working with the drop out color function, and the
DR3020N which is able to work with NCR paper. To meet the growing demand for hand-held terminals, the new
HT-180 model was introduced. The outstanding features it incorporates contributed to substantial increases in sales
levels, both in terms of the number of units and in revenue.
I
n 1998, the major markets of the U.S., Europe, Japan, and Asia are all expected to show continuing growth. The
trend toward the widespread use of PPFs is expected to continue to grow, while moves will be taken to create an
MFP market with communications technology at its core. We also expect substantial growth in our scanner business,
and in the market for hand-held terminals, Canon plans to respond to intensified competition by introducing a
powerful new business-use PDA in 1998.
MultiPASS C5000
DR3020N Document Scanner
HT-180
24
Faxes and Other Business Machines
The multifunction LASER CLASS
8500 laser fax is networkable and
can be turned into a printer/
scanner. Also networkable, our
top-class LASER CLASS9000/9500,
a Super G3 fax, has a 33.6Kbps
modem speed and transmits one
page in about 3 seconds.
25
LASER CLASS 8500
CAMERAS
T
247,766
213,760
177,537
181,711
1
997 marked the first full year in the market for the Advanced
Photo System, and it made remarkable advances especially in the
compact camera segment. The market for 35mm SLR cameras in the
popularly priced range was especially brisk, and the use of compact
Advanced Photo System cameras continued to be widespread in the
Japanese market. Overseas, on the other hand, low-end 35mm
compact cameras maintained their popularity, while demand expanded
for models with a zoom feature.
164,603
250,000
Sales results:
Cameras
(Millions of yen)
0
93
94
95
96
97
he demand for popularly priced SLR models, centered on the
second-generation EOS Rebel G (EOS 500N in Europe), was especially strong in 1997, and worldwide sales on
a unit basis were up approximately 15% over 1996. In the compact camera segment, we introduced a 35mm
camera series with a zoom lens and a large viewfinder. The ELPH Jr. (IXUS L-1 in Europe) was
another product introduced to strengthen the Advanced Photo System lineup. As a result, Canon
was able to increase its market share in both the 35mm and Advanced Photo System camera
categories. In the field of professional-use digital cameras, the EOS•DCS 3c contributed to overall
sales with its good operability inherited from the EOS-1N and resolution of 1.3 million pixels.
ELPH
T
he favorable demand for SLR and compact cameras is expected to continue in 1998, although there may be a
slight decrease in demand for mid- and high-range cameras, owing to the negative influence of reduced levels of
personal consumption, particularly in Japan. Canon will move to increase its share volume of high-quality SLR
cameras in the lower-priced range, and the introduction of new products is expected to further broaden the use of
Advanced Photo System SLR. In the compact camera market we expect some shift from 35mm to Advanced Photo
System cameras to accompany the introduction of second-generation Advanced Photo System products. Thus,
central to our efforts to expand next year will be an increase in the sales levels of popularly priced 35mm cameras
simultaneous with the introduction of new Advanced Photo System products and expansion in their sales levels.
Top-of-the-line EOS-1N
ELPH Jr.
EOS•DCS 3c digital SLR
26
Still Cameras
The EOS Rebel G is a fully
automatic, ultra-compact, quiet
35mm auto-focus SLR with a
retractable built-in flash. The
strong demand for popularly
priced SLR models is expected to
continue in 1998.
27
EOS Rebel G
Camcorders and Lenses
The Optura digital video
camcorder features a Progressive
Scan CCD and produces clear
stills as well as superior movie
images, thus offering users a wide
range of multimedia applications.
Optura
28
CAMERAS
Camcorders and Lenses
T
C
he introduction of a range of new digital products stimulated demand in the Japanese market for camcorders.
Although camcorder markets in both the U.S. and Europe were, overall, generally sluggish, a trend toward
digitalization began to emerge in Europe. In the lens market, competition stiffened for low-end products.
anon responded to these market factors in the camcorder segment by introducing two new digital camcorder
models, the Optura (called MV1 in Europe) and XL1, both with unique features. The Optura produces highquality movie and still images, and comes with a lens unit equipped with a 14X optical zoom and a 35X digital
zoom, as well as an optical image stabilizer. The XL1 features an exclusive XL lens-mount system which, when used
with the optional EF to XL mount adapter, allows it to utilize a range of Canon’s extensive lineup of EF lenses.
Although they appeared late in the year, the new models contributed to Canon maintaining its market position. With
regard to lenses, Canon avoided price competition through its utilization of technology in two new lenses, thus
differentiating our products from those of our competitors. The EF300mmF4L IS USM offered an
image-stabilization feature, while the EF24mmF1.4L USM provided high image quality and was
targeted at the professional and advanced amateur markets. In the binocular field, Canon introduced
the new 10X30IS model, a product with an image stabilizer priced in an affordable range and aimed
not only at the enthusiast segment but at general users as well.
EF24mmF1.4L USM
T
he polarization of the market for low-priced analog and high-priced digital camcorders is expected to become
yet more exaggerated next year. Canon will move to improve its lineup, most notably with the introduction of
new digital products. In the lens market, Canon will strengthen its competitiveness and introduce new, more
competitively priced products. It will also continue to introduce new products aimed at professionals and advanced
amateurs that utilize unique technology to differentiate them from the products of our competitors.
XL1 interchangeable-lens digital
video camcorder
EF300mmF4L IS USM
29
Top-of-the-line image stabilizing binoculars are
popular outdoors.
OPTICAL PRODUCTS
C
69,073
91,227
124,910
154,306
T
he U.S. market saw large-scale investment in facilities designed for
the production of MPUs and other logic chips. Foundries in Taiwan
also increased their investment in expanded facilities. Meanwhile,
semiconductor manufacturers in Japan were forced to revise their
investment plans downward because of sharply lower DRAM prices,
while their counterparts in Korea decelerated investments because of the
chaotic financial situation toward year’s end.
152,737
150,000
Sales results:
Optical products
(Millions of yen)
0
93 94 95 96 97
anon responded to the demand in markets where a shift is taking
place toward equipment which produces 64Mb DRAMs with higher
productivity by marketing the FPA-3000EX3, EX4 and FPA4000 ES1 excimer laser scanning steppers. In the i-line
market, the FPA-3000i5 contributed significantly to overall sales. In addition, due to the increase in demand for
notebook PCs, the MPA-5000 mirror projection mask aligner for the mass production of 20-inch flat panel display
substrates contributed to overall sales.
T
he general outlook for 1998 is for continued reduced overall capital investment by semiconductor
manufacturers, which will make it difficult to achieve improved sales figures. But manufacturers will continue to
move forward with their plans for equipment that enables the drawing of ever finer lines on silicon wafers. To strive
for the leadership position with next-generation equipment, therefore, Canon plans to introduce a number of new
products. Areas of particular interest to Canon are efforts to commercialize argon-fluoride excimer laser steppers and
to continue the further development of X-ray and E-beam steppers.
FPA-3000EX3
FPA-3000i5
MPA-5000
30
Semiconductor Production Equipment
The FPA-3000EX4 excimer laser
scanning stepper sold well in
markets shifting toward
equipment producing 64Mb
DRAMs with higher productivity,
thus contributing to overall sales
of semiconductor production
equipment.
31
FPA-3000EX4
OPTICAL PRODUCTS
Medical and Broadcasting Equipment
I
C
n the ophthalmic instruments market, price competition continued to be keen, especially for products such as auto
refractometers. While customers in Asia continued to emphasize price over function, they still demanded high-quality
products. The market for analog X-ray equipment saw a general decline worldwide, and in the imaging equipment
market the demand for dry printers increased. Finally, the market for TV lenses remained firm around the world.
anon responded to the general conditions in the ophthalmic instrument market by introducing new products in
the segments of tonometers and auto refractometers. Our non-mydriatic retinal camera, CR5-45NM, continued
to sell well. We also engineered a quick response to demand for X-ray equipment in lesser developed countries and
continued to develop the market for film scanners with our Film Scanner 300. Despite the difficult circumstances in
the field of imaging equipment, brisk sales of the MLP190, a price competitive laser printer for medical images, offset
sluggish sales of the KELP1120, and sales thus slightly increased. In the broadcasting equipment market, Canon
introduced the J18X lens for industrial use, the world’s first TV lens with built-in inner focus. Our high magnification
DIGI SUPER 70 field-zoom lens, with its 70X magnification as well as its digital servo capability, also contributed to the
record sales level.
T
he market in 1998 for ophthalmic instruments is expected to become increasingly price competitive and to
remain focused on replacement demand. Canon will also introduce several new products, including a retinal
blood flow meter, in a bid to develop new markets. We will also respond to the move toward digitalization in X-ray
equipment and enter the X-ray digital camera market. Although the market for broadcasting equipment in Asia and
Japan is expected to stagnate in 1998, Canon will continue its efforts to raise market share with the introduction of
new, superior TV lenses incorporating emerging technology.
Non-mydriatic retinal
camera CR5-45NM
DIGI SUPER 70
Film Scanner 300
32
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
53 (3) Foreign Operations
(4) Marketable Securities and Marketable Investments
55 (5) Trade Receivables
56 (6) Inventories
(7) Property, Plant and Equipment
(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) Net Income per Share
66 (16) Foreign Exchange Risk Management and Interest Rate Risk Management
(17) Commitments and Contingent Liabilities
67 (18) Disclosures about the Fair Value of Financial Instruments
68 (19) Supplementary Expense Information
69 INDEPENDENT AUDITORS’ REPORT
33
FINANCIAL OVERVIEW
RESULTS OF OPERATIONS
(U.S.$21,239 million) and net income increased
26.2% to ¥118,813 million (U.S.$914 million)
compared with 1996.
In 1997, Canon recorded its fourth consecutive year
of increases in both consolidated net sales and net
income. Net sales rose 7.9% to ¥2,761,025 million
SUMMARY OF OPERATIONS
(Millions of yen
except per
share amounts)
1997
Net sales
Operating profit
Income before income taxes
Net income
Per share:
Basic
Diluted
Sales
1994
(Thousands of U.S. dollars
except per
share amounts)
1997
¥2,761,025 +7.9% 2,558,227 `18.1% 2,165,626 `12.0% 1,933,310
274,034 +24.0
221,036 `43.7
153,838 `38.9
110,722
234,805 +28.5
182,765 `55.9
117,234 `51.3
77,501
118,813 +26.2
94,177 `71.1
55,036 `77.4
31,024
$21,238,654
2,107,954
1,806,192
913,946
change
137.73 +23.8
134.60 +25.8
1996
change
111.29 `68.7
106.96 `70.5
During 1997, the U.S. economy continued to expand against a
backdrop of brisk domestic demand, and the European
economy continued to gradually recover. In Asia, the economy
began to slow down after serious turmoil in the economies of
the various Asian countries relating to currency devaluations and
the health of the region’s financial systems. In Japan, the
economy showed signs of stagnation, a result of languishing
personal consumption.
During this period, the average yen-dollar exchange rate was
approximately ¥121/U.S.$1, reflecting a ¥12 increase in the
value of the U.S. dollar from that of 1996, while the average
yen-deutsche mark exchange rate rose from approximately ¥72/
DM1 during the previous year to ¥70/DM1. Using the average
1996 exchange rates to compute 1997 net sales, such growth
would be approximately 4%, half of what was actually recorded.
1995
change
65.96 `71.3
62.73 `75.0
38.50
35.84
1.06
1.04
In 1996, even if the favorable effect of the weaker yen was
disregarded, Canon still experienced double-digit growth in many
key businesses. The average yen-dollar exchange rate was
approximately ¥109/U.S.$1 in 1996, reflecting a ¥15 increase in
the value of the U.S. dollar from that of 1995. The yen also
weakened against the deutsche mark. The average yen-deutsche
mark exchange rate was approximately ¥72/DM1, reflecting a ¥6
increase in the value of deutsche mark versus 1995.
In 1995, despite the appreciation of the yen against the U.S.
dollar and increased price competition, Canon recorded a sales
increase by promoting the sales of higher value-added products
such as Bubble Jet printers and steppers. The average yen-dollar
exchange rate in 1995 was approximately ¥94/U.S.$1, reflecting
an ¥8 decrease in the value of the U.S. dollar from that of the
previous year. The average yen-deutsche mark exchange rate
declined from approximately ¥63/DM1 in 1994 to ¥66/DM1.
34
Earnings
Operating profit increased 24.0% to ¥274,034 million
(U.S.$2,108 million) or 9.9% of net sales during 1997. This
compares with 8.6% in 1996 and 7.1% in 1995.
In 1997, the depreciation of the yen positively influenced
net sales by approximately ¥102,800 million (U.S.$791 million).
Approximately 80% of this influence was eliminated at the gross
profit level due to price reductions to increase Canon’s competitive position in world markets. The effect of the yen depreciation
plus Canon’s efforts to increase sales of higher value-added
products and reduce costs resulted in an improved ratio of gross
profit to net sales from 42.7% in 1996 to 44.6% in 1997.
Selling, general and administrative expenses increased 10.0% to
¥958,627 million (U.S.$7,374 million) or 34.7% of net sales,
an increase of 0.6% from the previous year. An increase in R&D
related expenses and other operating expenses incurred to promote the sales of its products largely accounted for this
increase. R&D expenditures during 1997 increased by 13.8% to
¥170,793 million (U.S.$1,314 million), or 6.2% of net sales.
In 1996, Canon’s operating profit increased 43.7% to
¥221,036 million. The depreciation of the yen positively
influenced net sales by approximately ¥206,000 million.
Approximately half of this influence was eliminated at the gross
profit level due to price reductions. The effect of the yen’s
depreciation plus Canon’s efforts to increase sales of higher
value-added products and reduce costs resulted in an improved
ratio of gross profit to net sales in 1996 compared to 1995.
In 1995, the appreciation of the yen had a negative effect of
approximately ¥54,000 million on net sales. Despite this,
operating profit increased 38.9% to ¥153,838 million. Canon’s
efforts to increase sales of higher value-added products, reduce
costs and increase overseas production fully absorbed the
negative effects of the yen’s appreciation.
Net income in 1997 was ¥118,813 million (U.S.$914 million),
a 26.2% increase over the previous year, representing a 4.3%
return on sales. The ratio of income taxes to income before
income taxes rose by 2.5% to 46.6%.
Net income in 1996 and 1995 was ¥94,177 million and
¥55,036 million, respectively. Return on sales in 1996 and
1995 was 3.7% and 2.5%, respectively.
R&D expenditure
4.3%
4
(Millions of yen)
125,253
121,273
104,191
2.5%
150,085
150,000
3.7%
170,793
Return on sales
Income before income taxes in 1997 was ¥234,805 million
(U.S.$1,806 million), a 28.5% increase over the previous year,
accounting for 8.5% of net sales. Interest expense decreased by
¥4,055 million (U.S.$31 million) to ¥29,789 million (U.S.$229
million), mainly due to the repayment of long-term debt. Other
net deductions increased ¥5,963 million (U.S.$46 million) to
¥23,362 million (U.S.$180 million). The two major factors for
the increase in other net deductions were an increase in foreign
exchange losses and a decrease in equity in earnings of
affiliated companies. These factors were partially offset by the
absence of losses related to liquidation and sale of affiliated
companies included in other net deductions. In 1997, foreign
exchange losses increased ¥7,140 million (U.S.$55 million) to
¥11,200 million (U.S.$86 million) due mainly to the devaluation
of Asia currencies, particularly the Thai baht and the Malaysia
ringgit. During the same period, equity in earnings of affiliated
companies decreased ¥5,479 million (U.S.$42 million).
Income before income taxes in 1996 was ¥182,765 million,
representing a 7.1% return on sales. Canon booked a loss of
¥6,031 million related to the liquidation and sale of affiliated
companies. In 1995, income before income taxes was
¥117,234 million, or 5.4% of net sales.
1.6%
1.1%
0
0
93
94
95
96
97
93
94
35
95
96
97
SALES BY PRODUCT
1994
(Thousands of
U.S. dollars)
1997
¥ 899,205 +9.8% 818,909 `9.4% 748,875 `5.6% 709,037
964,808 +9.9
878,170`25.0
702,452`20.5
582,838
436,053 –1.0
440,532`19.4
368,841 `6.2
347,196
2,300,066 +7.6 2,137,611`17.4 1,820,168`11.0 1,639,071
247,766 +15.9
213,760`20.4
177,537 `7.9
164,603
213,193 +3.1
206,856`23.2
167,921`29.5
129,636
¥ 2,761,025 +7.9 2,558,227`18.1 2,165,626`12.0 1,933,310
$ 6,916,962
7,421,600
3,354,253
17,692,815
1,905,892
1,639,947
$21,238,654
(Millions of yen)
1997 change
Business machines:
Copying machines
Computer peripherals
Business systems
Cameras
Optical and other products
Total
1996
change
1995
change
SALES BY REGION
1994
(Thousands of
U.S. dollars)
1997
¥ 857,993 +3.5% 828,829 `15.5% 717,844`13.1% 634,797
891,979 +8.8
819,737 `20.3
681,384 `4.6
651,667
775,592 +10.4
702,516 `15.5
608,489`17.3
518,766
235,461 +13.7
207,145 `31.2
157,909`23.3
128,080
¥ 2,761,025 +7.9 2,558,227 `18.1 2,165,626`12.0 1,933,310
$ 6,599,946
6,861,377
5,966,092
1,811,239
$21,238,654
(Millions of yen)
1997 change
Japan
Americas
Europe
Other areas
Total
1996 change
1995 change
Sales by product
Sales by region
(Millions of yen)
(Millions of yen)
Business machines
Japan
Copying machines
Computer peripherals
Business systems
Americas
Cameras
Europe
Optical and other products
Other areas
2,761,025
2,761,025
2,558,227
2,500,000
2,558,227
2,500,000
2,165,626
2,165,626
1,933,310
1,836,134
1,933,310
1,836,134
0
0
93
94
95
36
96
97
93
94
95
96
97
SALES BY PRODUCT
Sales of business machines (copying machines, computer
peripherals and business systems) accounted for 83.3% of net
sales and increased 7.6% to ¥2,300,066 million (U.S.$17,693
million) in 1997. In 1996, business machine sales grew 17.4%
in comparison to an increase of 11.0% in 1995.
Sales of copying machines (including color, office and personal
models) increased by 9.8% to ¥899,205 million (U.S.$6,917
million) in 1997. The expansion of sales of the GP200 series
(digital monochrome copying machine) and color copying
machines contributed to the growth of copying machines sales.
Sales of copying machines increased in both 1996 and 1995.
Sales of computer peripherals (mainly laser beam and
Bubble Jet printers) continued to grow and increased by 9.9% to
¥964,808 million (U.S.$7,422 million) in 1997. During this
period, the BJC-250 sold particularly well.
Sales of computer peripherals increased substantially in both
1996 and 1995.
Sales of business systems (including faxes, computers, electronic typewriters, micrographics, Japanese-language word processors, and calculators) decreased by 1.0% to ¥436,053 million
(U.S.$3,354 million) in 1997. This decrease was mainly caused by
Canon’s withdrawal from the computer business in the Americas.
Facsimile machine sales improved when compared with those of
the previous year. Sales of the MultiPASS series, multifunction
faxes that support both color printing and networking, contributed
to this increase.
In 1996 and 1995, sales of business systems increased, led
by substantial growth in sales of computers in Japan.
Sales of cameras increased by 15.9% to ¥247,766 million
(U.S.$1,906 million) in 1997. The Advanced Photo System camera, ELPH, released in 1996, continued to sell well worldwide. The
growth of sales in 35mm cameras also contributed to the increase.
Cameras contributed 9.0% to net sales.
Sales of cameras increased in both 1996 and 1995.
Sales of optical and other products (including steppers and
aligners for semiconductor chip production, broadcasting lenses
and medical equipment) increased by 3.1% to ¥213,193 million
(U.S.$1,640 million). Within this group, stepper-related sales were
negatively impacted by restrained capital investments by
semiconductor manufacturers. Optical and other products
contributed 7.7% to net sales.
Sales of optical and other products grew both in 1996 and
in 1995.
SALES BY REGION
A geographical analysis indicates that net sales increased in
every area.
In Japan, overall sales increased 3.5%, led by computer
37
peripherals and copying machines, despite a decrease in sales of
computer products. Sales in the Americas increased 8.8%. The
effect of the exchange rate of the yen against the U.S. dollar was
favorable in 1997. Sales of business systems decreased due to
Canon’s withdrawal from computer business in the Americas,
while sales of copying machines and cameras increased
substantially. In Europe, sales increased 10.4%, to which laser
beam printers, Bubble Jet printers and cameras contributed
significantly. The effects of the exchange rate of the yen against
major European currencies were negligible. Increased sales in
other areas were mainly led by laser beam printers.
In 1996, sales in Japan, the Americas, Europe and other areas
showed double-digit growth. In 1995, sales increased in Japan,
the Americas, Europe and other areas despite the stronger yen.
SEGMENT INFORMATION BY PRODUCT AND
GEOGRAPHIC AREA
The disclosures of segment information by product as required in
Japan for the years ended December 31,1997,1996 and 1995
are provided on page 38, and the disclosures of segment information by geographic area as required in Japan for the years ended
December 31,1997,1996 and 1995 are shown on page 39.
Operating profit for business machines increased by ¥50,177
million (U.S.$386 million) to ¥318,953 million (U.S.$2,453 million) in 1997. This increase was mainly due to significant sales
growth in copying machines and laser beam and Bubble Jet printers. The operating profit ratio also improved by 1.3% to 13.9% due
to increased sales of higher value-added products. In 1996, operating profit for business machines increased by ¥67,374 million to
¥268,776 million. This increase was due to a significant sales
growth in laser beam and Bubble Jet printers. In 1995, operating
profit for business machines increased by ¥21,894 million to
¥201,402 million, largely led by laser beam and Bubble Jet printers.
Operating profit for cameras increased by ¥7,483 million
(U.S.$58 million) to ¥22,114 million (U.S.$170 million) in 1997.
The increased sales of Advanced Photo System and 35mm cameras contributed to this increase. The operating profit ratio
improved by 2.1% to 8.9%. In 1996, sales of 35mm and
Advanced Photo System cameras contributed to an increase in
operating profit for cameras, which grew by ¥3,682 million to
¥14,631 million. In 1995, operating profit for cameras also
increased by ¥7,129 million to ¥10,949 million. This increase was
attributable to the increased sales of higher-margin SLR models and
high-end video camcorders.
Operating profit for optical and other products in 1997
decreased by ¥1,423 million (U.S.$11 million) to ¥25,464 million
(U.S.$196 million), primarily attributable to a slight decline in this
group’s operating profit ratio. Operating profit for optical and other
products grew by ¥8,710 million to ¥26,887 million in 1996 and
by ¥12,061 million to ¥18,177 million in 1995, reflecting
increased sales of these products.
SEGMENT INFORMATION BY PRODUCT
Business
machines
Cameras
Optical and
other products
¥ 2,300,066
—
2,300,066
247,766
—
247,766
213,193
71,844
285,037
—
(71,844)
(71,844)
2,761,025
—
2,761,025
1,981,113
225,652
259,573
20,653
2,486,991
25,464
(92,497)
(Millions of yen)
1997: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Corporate and
Eliminations
Consolidated
Operating profit
¥
318,953
22,114
Assets
Depreciation and amortization
Capital expenditure
¥ 1,433,626
102,789
148,834
163,095
9,963
13,953
232,436 1,032,770
8,793
18,270
17,097
39,895
2,861,927
139,815
219,779
¥ 2,137,611
—
2,137,611
213,760
—
213,760
206,856
67,190
274,046
—
(67,190)
(67,190)
2,558,227
—
2,558,227
1,868,835
199,129
247,159
22,068
2,337,191
26,887
(89,258)
1996: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
274,034
Operating profit
¥
268,776
14,631
Assets
Depreciation and amortization
Capital expenditure
¥ 1,284,682
84,767
106,172
138,717
9,352
12,621
185,347 1,009,552
8,457
16,675
21,838
35,726
2,618,298
119,251
176,357
¥ 1,820,168
—
1,820,168
177,537
—
177,537
167,921
43,763
211,684
—
(43,763)
(43,763)
2,165,626
—
2,165,626
1,618,766
166,588
193,507
32,927
2,011,788
201,402
10,949
18,177
(76,690)
Business
machines
Cameras
Optical and
other products
1995: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
(Thousands of U.S. dollars)
1997: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
¥
$17,692,815 1,905,892 1,639,947
—
—
552,645
17,692,815 1,905,892 2,192,592
15,239,330 1,735,784 1,996,715
170,108
195,877
Corporate and
Eliminations
221,036
153,838
Consolidated
— 21,238,654
(552,645)
—
(552,645) 21,238,654
158,871
19,130,700
(711,516)
2,107,954
Operating profit
$ 2,453,485
Assets
Depreciation and amortization
Capital expenditure
$11,027,892 1,254,577 1,787,969 7,944,385
790,685
76,638
67,638 140,539
1,144,877 107,331
131,515 306,885
22,014,823
1,075,500
1,690,608
Notes:
1 General corporate expenses of ¥92,677 million ($712,900 thousand), ¥88,860 million and ¥76,513 million in 1997, 1996 and 1995, respectively, are included in
“Corporate and Eliminations.”
2 Corporate assets of ¥1,034,275 million ($7,955,962 thousand) and ¥1,010,912 million in 1997 and 1996, respectively, which mainly consist of cash and cash
equivalent, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
38
SEGMENT INFORMATION BY GEOGRAPHIC AREA
(Millions of yen)
1997: Net sales:
Unaffiliated customers
Intersegment
Total
Domestic
Overseas
Corporate and
Eliminations
Consolidated
¥ 904,545
1,226,130
2,130,675
1,856,480
188,688
2,045,168
—
(1,414,818)
(1,414,818)
2,761,025
—
2,761,025
1,832,174
1,965,539
(1,310,722)
2,486,991
Operating profit
¥ 298,501
79,629
(104,096)
274,034
Assets
¥ 1,477,052
916,542
468,333
Operating cost and expenses
1996: Net sales:
Unaffiliated customers
Intersegment
Total
¥
Operating cost and expenses
882,959
1,072,290
1,955,249
1,675,268
158,613
1,833,881
—
(1,230,903)
(1,230,903)
2,558,227
—
2,558,227
1,687,865
1,781,429
(1,132,103)
2,337,191
221,036
Operating profit
¥
267,384
52,452
(98,800)
Assets
¥ 1,295,884
783,591
538,823
1995: Net sales:
Unaffiliated customers
Intersegment
Total
¥
Operating cost and expenses
Operating profit
2,618,298
778,236
936,113
1,714,349
1,387,390
101,691
1,489,081
—
(1,037,804)
(1,037,804)
2,165,626
—
2,165,626
1,509,836
1,450,371
(948,419)
2,011,788
204,513
38,710
(89,385)
153,838
¥
(Thousands of U.S. dollars)
1997: Net sales:
Unaffiliated customers
Intersegment
Total
2,861,927
Domestic
Overseas
Corporate and
Eliminations
Consolidated
$ 6,958,038
9,431,770
16,389,808
14,280,616
1,451,446
15,732,062
—
(10,883,216)
(10,883,216)
21,238,654
—
21,238,654
Operating cost and expenses
14,093,646
15,119,531
(10,082,477)
19,130,700
Operating profit
$ 2,296,162
612,531
(800,739)
2,107,954
Assets
$11,361,938
7,050,323
3,602,562
22,014,823
Notes:
1 General corporate expenses of ¥92,677 million ($712,900 thousand), ¥88,860 million and ¥76,513 million in 1997, 1996 and 1995, respectively, are included in
“Corporate and Eliminations.”
2 Corporate assets of ¥1,034,275 million ($7,955,962 thousand) and ¥1,010,912 million in 1997 and 1996, respectively, which mainly consist of cash and cash
equivalent, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
39
At December 31, 1997, Canon had outstanding commitments
of approximately ¥34,259 million (U.S.$264 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 through operations.
Working capital in 1997 increased by ¥94,699 million
(U.S.$728 million) to ¥647,407 million (U.S.$4,980 million)
compared with ¥552,708 million in 1996 and ¥564,505
million in 1995.
The working capital ratio (current assets to current
liabilities) for 1997 was 1.53 compared with 1.46 for 1996
and 1.51 for 1995.
Return on assets rose to 4.3% in 1997 compared with
3.7% in 1996 and 2.3% in 1995. Return on stockholders’
equity rose to 11.4% in 1997 compared with 10.3% in 1996
and 6.7% in 1995.
Capital expenditure
219,779
(Millions of yen)
200,000
176,357
Cash and cash equivalents in 1997 decreased by ¥4,649
million (U.S.$36 million) to ¥647,097 million (U.S.$4,978
million) compared with ¥651,746 million in 1996 and
¥622,164 million in 1995.
Net cash provided by operating activities was ¥152,634
million (U.S.$1,174 million) in 1997 compared with ¥240,278
million in 1996 and ¥107,627 million in 1995. This decrease is
attributable mainly to increases in inventories and trade
receivables.
Net cash used in investing activities in 1997 increased to
¥175,145 million (U.S.$1,347 million) compared with
¥144,804 million in 1996 and ¥96,235 million in 1995.
Payment for purchase of property, plant and equipment
increased by ¥5,685 million (U.S.$44 million) to ¥161,703
million (U.S.$1,244 million) compared to in 1996.
Net cash provided by (used in) financing activities increased
by ¥92,790 million (U.S.$714 million) to ¥21,440 million
(U.S.$165 million) in 1997 compared with ¥(71,350) million in
1996 and ¥35,757 million in 1995. This was mainly caused by
an increase in proceeds from long-term debt and an increase in
short-term loans payable in comparison with the previous year.
Repayment of long-term debt in 1997 included 5-17/20%
Japanese yen notes amounting to ¥20,000 million (U.S.$154
million), 4-13/20% Japanese yen notes amounting to ¥20,000
million (U.S.$154 million) and 1/2% Swiss franc notes with
warrants amounting to ¥32,575 million (U.S.$251 million) in
accordance with scheduled maturities.
CAPITAL RESOURCES
123,560
LIQUIDITY
Capital expenditure in 1997 amounted to ¥219,779 million
(U.S.$1,691 million) compared with ¥176,357 million in 1996
and ¥123,560 million in 1995. In 1997 major capital
expenditures included the expansion of domestic and overseas
manufacturing capacities.
133,068
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, the yen’s
appreciation 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
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
1997, 1996 and 1995 were 2.5%, 1.8% and 1.7%,
respectively. This compares with 4.3%, 3.7% and 2.5% on total
operations for such years, respectively.
151,808
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
0
93
40
94
95
96
97
Market Risk Management
Market Risk Exposures
Canon is exposed to market risk, including changes in foreign
exchange rates and interest rates. In order to hedge these risks,
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
underlying debt.
The following table provides information about Canon’s
major derivative financial instruments related to foreign currency
exchange transactions existing at December 31, 1997, 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, 1997. This 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.
Forwards to sell foreign currencies:
Contract amounts
Average contractual rates
¥ 16,464
126.55
Forwards to sell foreign currencies:
Thousands of U.S. dollar
U.S.$/Yen
DM/Yen
Contract amounts
Return on stockholders’ equity
2
10
1.55
1.51
1.46
11.4%
10.3%
1.53
6.7%
4.1%
3.0%
0
0
93
94
95
96
97
93
94
41
$126,646
13,735
72.14
105,654
Interest Rate Risk
Canon’s exposure to market risk for changes in interest rates
relates primarily to its debt obligations. Canon has long-term
debt with both fixed rates and floating rates. Interest rate swaps
may be entered into from time to time by Canon to hedge cash
flows of interests and fair values of debt when determined by
Canon to be appropriate based on market conditions.
The tables on page 42 provide information about Canon’s
derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For
interest rate swaps, the table presents notional principal
amounts and weighted average interest rates by expected
maturity dates. Notional principal amounts are used to calculate
the contractual payments to be exchanged under the contracts.
The table presents information for obligations existing at
December 31, 1997, which is translated into Yen at the rate
used herein as of such date, together with the related weighted
average contractual interest rates at December 31, 1997.
Working capital ratio
1.66
Millions of yen
(except average contractual rates)
U.S.$/Yen
DM/Yen
95
96
97
LONG-TERM DEBT (including due within one year)
Average interest
rates
U.S. dollar bonds
Japanese yen notes
Japanese yen convertible debentures
Swiss franc note with warrants
Loans, principally from banks
Total
9.75%
2.41%
1.24%
0.66%
4.87%
(Millions of Yen)
Expected maturity date
Total
1998
1999
2000
2001
2002
Thereafter
9,107
89,920
28,350
47,078
78,072
¥ 252,527
—
—
—
—
25,638
25,638
9,107
—
—
37,882
29,473
76,462
—
—
24
9,196
11,967
21,187
—
19,920
—
—
1,803
21,723
—
35,000
6,291
—
1,756
43,047
—
35,000
22,035
—
7,435
64,470
¥
INTEREST RATE SWAP
(Millions of Yen)
Expected maturity date
Notional principal
amount (million)
Average receive
rate
Average pay
rate
Total
1998
1999
2000
2001
2002
Thereafter
¥ 44,994
Sfr
50
A$
12
US$
140
2.30%
4.56%
5.01%
7.73%
0.51%
3.86%
8.66%
6.84%
¥ 44,994
4,485
1,025
18,214
4,994
3,588
1,025
—
—
—
—
18,214
—
897
—
—
20,000
—
—
—
20,000
—
—
—
—
—
—
—
LONG-TERM DEBT (including due within one year)
Average interest
rates
U.S. dollar bonds
Japanese yen notes
Japanese yen convertible debentures
Swiss franc note with warrants
Loans, principally from banks
Total
(Thousands of U.S. dollars)
Expected maturity date
Total
1998
1999
2000
2001
2002
Thereafter
9.75% $ 70,054
— 70,054
—
—
—
—
2.41%
691,692
—
—
— 153,230 269,231 269,231
1.24%
218,077
—
—
185
— 48,392 169,500
0.66%
362,138
— 291,400 70,738
—
—
—
4.87%
600,554 197,215 226,715 92,054 13,870 13,508 57,192
$1,942,515 197,215 588,169 162,977 167,100 331,131 495,923
INTEREST RATE SWAP
(Thousands of U.S. dollars)
Notional principal
amount (million)
Average receive
rate
¥ 44,994
Sfr
50
A$
12
US$
140
2.30%
4.56%
5.01%
7.73%
Average pay
rate
Expected maturity date
Total
0.51% $ 346,108
3.86%
34,500
8.66%
7,885
6.84%
140,108
1998
1999
38,416
—
27,600
—
7,885
—
— 140,108
42
2000
2002
Thereafter
— 153,846 153,846
6,900
—
—
—
—
—
—
—
—
2001
—
—
—
—
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. Despite this, 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 1998, the Japanese economy is forecasted to remain weak.
As for expected economic activities overseas, Canon believes
that the U.S. economy is likely to remain stable and the
European economy is likely to gradually improve. In Southeast
Asia, economic instability will contribute to decreased demand
for Canon’s products. Capital spending by semiconductor
manufacturers worldwide is expected to be stagnant and
competition in the SOHO and consumer market is expected to
be more intense.
Due to the fact that nearly 70% of all Canon’s products are
distributed overseas and a large percentage of these products
are manufactured at domestic plants, fluctuation of foreign
exchange rates have a significant impact on Canon’s operating
results. Under such circumstances, Canon will upgrade and
make more effective use of its management resources through
globalization of the Canon group. This will be achieved by as
further improving the quality and efficiency of R&D, production
and sales bases and relocating such bases to their optimum
sites in Japan or overseas. Through such activities, Canon
intends to work toward solidifying its business foundation.
The foregoing discussion in “Financial Overview” contains
forward-looking statements which 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 which may not prove to be accurate. The
following important factors could cause actual results to differ
materially from those projected or implied in any forwardlooking 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; the weakness of the economies of Canon’s major
markets; uncertainty for continued demand for Canon’s highervalue products; uncertainty in the continued growth of the
personal computer and related markets; Canon’s ability to
continue to develop products and to market products that
incorporate new technology on a timely basis, are competitively
priced and 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.
SOUTHEAST ASIAN ECONOMY
During the latter half of 1997, many Southeast Asian countries
experienced problems related to currency devaluations and the
health of their financial systems. Although this did not have a
significant impact on Canon’s sales, subsidiaries in this area
incurred exchange losses due to net liabilities denominated in
U.S. dollars. Canon also benefited from the currency
devaluations through lower manufacturing costs. As a result, the
net effect on consolidated results was not material in 1997. In
1998, Canon foresees the possibility of a negative impact on
sales in the region. However, given the small amount of sales
generated in these countries, Canon does not expect the
currency devaluation problems in these countries to have a
significant effect on Canon’s consolidated results.
YEAR 2000
Through a preliminary assessment, Canon has identified
operating and application software challenges related to the year
2000. As a result, Canon expects to implement successfully the
systems and programming changes necessary to address the
year 2000 issue substantially through normal replacement and
upgrades of software by the end of 1998, and does not believe
that the cost of such actions will have a material effect on
Canon’s results of operations or financial conditions. However,
there can be no assurance that there will not be delays in, or
increased costs associated with, the implementation of such
changes, and Canon’s inability to implement such changes
could have an adverse effect on future results of operations.
43
TEN-YEAR FINANCIAL SUMMARY
(Millions of yen except per share amounts)
1997
1996
1995
1994
857,993
1,903,032
2,761,025
828,829
1,729,398
2,558,227
717,844
1,447,782
2,165,626
634,797
1,298,513
1,933,310
107.9%
118.1
112.0
105.3
Net income
Percentage of sales
118,813
4.3%
94,177
3.7
55,036
2.5
31,024
1.6
Advertising
Research and development
Depreciation
Capital expenditure
75,800
170,793
137,777
219,779
68,354
150,085
117,263
176,357
53,033
125,253
104,474
123,560
44,698
121,273
103,304
133,068
226,889
1,099,010
2,861,927
192,254
981,868
2,618,298
298,055
849,674
2,461,225
311,002
781,156
2,226,855
137.73
134.60
17.00
111.29
106.96
15.00
65.96
62.73
13.00
38.50
35.84
12.50
3,820
2,280
2,630
1,780
1,940
1,230
1,820
1,530
862,664
78,767
846,224
75,628
834,329
72,280
805,897
67,672
Net sales:
Domestic
Overseas
Total
Percentage of
previous year
¥
Long-term debt
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)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
88
89
90
91
92
93
94
95
96
44
97
1993
1992
1991
1990
1989
1988
(Thousands of U.S. dollars
except per share amounts)
1997
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
413,854
937,063
1,350,917
348,462
757,548
1,106,010
$ 6,599,946
14,638,708
21,238,654
95.9
102.4
108.2
127.9
122.1
113.2
107.9
21,102
1.1
35,621
1.9
51,419
2.8
61,408
3.6
38,293
2.8
37,100
3.4
913,946
4.3
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
54,394
75,566
64,861
107,290
41,509
65,522
57,627
83,069
583,077
1,313,792
1,059,823
1,690,608
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
277,556
550,841
1,636,380
206,083
416,465
1,299,843
1,745,300
8,453,923
22,014,823
27.01
26.76
12.50
47.09
46.46
12.50
68.67
64.65
12.50
82.83
78.29
12.50
54.93
50.16
11.93
55.76
51.27
11.36
1.06
1.04
0.13
1,560
1,270
1,470
1,200
1,660
1,200
1,960
1,200
2,040
1,236
1,536
823
29.4
17.5
781,261
64,535
756,497
64,512
748,822
62,700
741,352
54,381
697,182
44,401
665,303
40,740
Notes:
1. All net Income per share amounts have been restated to conform with
Statement of Financial Accounting Standards No. 128.
2. Information prior to 1991 is prepared in conformity with Accounting Principles
Board Opinion No. 11.
3. Canon has not applied Statement of Financial Accounting Standards No. 115 in
accounting for certain investments in debt and equity securities.
4. U.S. dollar amounts are translated from yen at the rate of ¥130=U.S.$1, the
approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 1997.
45
CANON INC. AND SUBSIDIARIES
December 31, 1997 and 1996
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 (notes 4 and 11)
Total current assets
Noncurrent receivables and restricted funds (note 17)
Investments (notes 4 and 8)
Net property, plant and equipment (notes 7 and 8)
Other assets (notes 4, 10 and 11)
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans (note 8)
Trade payables (note 9)
Income taxes (note 11)
Accrued expenses
Other current liabilities (notes 4 and 11)
Total current liabilities
Long-term debt, excluding current installments (note 8)
Accrued pension and severance cost (note 10)
Other noncurrent liabilities (notes 4 and 11)
Total liabilities
Minority interests (note 4)
Stockholders’ equity (note 4):
Common stock of ¥50 ($0.38) par value.
Authorized 2,000,000,000 shares;
issued and outstanding 866,798,934 shares in 1997
and 853,614,222 shares in 1996 (notes 8 and 12)
Additional paid-in capital (notes 8 and 12)
Legal reserve (note 13)
Retained earnings (notes 11 and 13)
Foreign currency translation adjustments (note 11)
Minimum pension liability adjustments (notes 10 and 11)
Total stockholders’ equity
Commitments and contingent liabilities (note 17)
Total liabilities and stockholders’ equity
1997
1996
1997
¥ 647,097
12,022
445,208
564,775
208,638
1,877,740
56,840
66,989
697,244
163,114
¥2,861,927
651,746
10,526
365,575
524,832
193,865
1,746,544
38,867
80,052
626,127
126,708
2,618,298
$ 4,977,669
92,477
3,424,677
4,344,423
1,604,908
14,444,154
437,231
515,300
5,363,415
1,254,723
$22,014,823
¥ 535,703
457,497
61,497
126,148
49,488
1,230,333
226,889
88,529
15,504
1,561,255
201,662
568,388
396,613
73,404
111,121
44,310
1,193,836
192,254
48,573
16,756
1,451,419
185,011
$ 4,120,792
3,519,208
473,054
970,369
380,677
9,464,100
1,745,300
680,992
119,262
12,009,654
1,551,246
160,411
372,398
28,467
592,268
(32,644)
(21,890)
1,099,010
¥2,861,927
See accompanying notes to consolidated financial statements.
46
150,565
359,011
26,770
489,617
(36,739)
(7,356)
981,868
2,618,298
1,233,931
2,864,600
218,977
4,555,908
(251,108)
(168,385)
8,453,923
$22,014,823
CANON INC. AND SUBSIDIARIES
Years ended December 31, 1997, 1996 and 1995
CONSOLIDATED STATEMENTS OF INCOME
Thousands of
U.S. dollars (note 2)
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
Income before income taxes and minority interests
Income taxes (note 11)
Income before minority interests
Minority interests
Net income
1997
1996
1995
1997
¥2,761,025
1,528,364
1,232,661
958,627
274,034
2,558,227
1,465,437
1,092,790
871,754
221,036
2,165,626
1,278,355
887,271
733,433
153,838
$21,238,654
11,756,646
9,482,008
7,374,054
2,107,954
13,922
(29,789)
(23,362)
(39,229)
234,805
12,972
(33,844)
(17,399)
(38,271)
182,765
16,306
(37,160)
(15,750)
(36,604)
117,234
107,092
(229,146)
(179,708)
(301,762)
1,806,192
109,364
125,441
80,636
102,129
58,670
58,564
841,261
964,931
6,628
¥ 118,813
7,952
94,177
3,528
55,036
Yen
$
50,985
913,946
U.S. dollars (note 2)
Net income per share (note 1(p) and 15):
Basic
Diluted
¥137.73
134.60
111.29
106.96
65.96
62.73
$1.06
1.04
Dividends per common share (note 13)
¥ 17.00
15.00
13.00
$0.13
See accompanying notes to consolidated financial statements.
47
CANON INC. AND SUBSIDIARIES
Years ended December 31, 1997, 1996 and 1995
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Thousands of
U.S. dollars (note 2)
Millions of yen
1997
Common stock:
Balance at beginning of year
¥ 150,565
Conversion of convertible debt (notes 12 and 14)
9,846
Exercise of warrants (note 12)
—
Balance at end of year
160,411
Additional paid-in capital:
Balance at beginning of year
359,011
Conversion of convertible debt (notes 12 and 14)
9,779
Exercise of warrants (note 12)
—
Increase arising from issuance of subsidiaries’
common stock, conversion of convertible debt and
exercise of warrants of subsidiaries and other transfers
3,608
Balance at end of year
372,398
Legal reserve:
Balance at beginning of year
26,770
Transfers from retained earnings (note 13)
1,728
Transfers to minority interests arising from issuance of subsidiaries’
common stock, conversion of convertible debt and exercise
of warrants of subsidiaries and other transfers
(31)
Balance at end of year
28,467
Retained earnings:
Balance at beginning of year
489,617
Net income for the year
118,813
Cash dividends (note 13)
(13,727)
Transfers to legal reserve (note 13)
(1,728)
Transfers from (to) minority interests arising from issuance of
subsidiaries’ common stock, conversion of convertible debt
and exercise of warrants of subsidiaries and other transfers
(707)
Balance at end of year
592,268
Foreign currency translation adjustments:
Balance at beginning of year
(36,739)
Adjustments for the year (note 11)
4,095
Balance at end of year
(32,644)
Minimum pension liability adjustments (note 10):
Balance at beginning of year
(7,356)
Adjustments for the year (note 11)
(14,534)
Balance at end of year
(21,890)
Total stockholders’ equity (note 4)
¥1,099,010
See accompanying notes to consolidated financial statements.
48
1996
1995
1997
137,645
12,920
—
150,565
133,747
3,588
310
137,645
$1,158,192
75,739
—
1,233,931
344,631
12,964
—
339,568
3,660
310
2,761,623
75,223
—
1,416
359,011
1,093
344,631
27,754
2,864,600
26,703
1,423
26,106
1,306
205,923
13,292
(1,356)
26,770
(709)
26,703
(238)
218,977
406,820
94,177
(11,136)
(1,423)
363,557
55,036
(10,406)
(1,306)
3,766,284
913,946
(105,592)
(13,292)
1,179
489,617
(61)
406,820
(5,438)
4,555,908
(66,125)
29,386
(36,739)
(81,822)
15,697
(66,125)
(282,608)
31,500
(251,108)
—
(7,356)
(7,356)
981,868
—
—
—
849,674
(56,585)
(111,800)
(168,385)
$8,453,923
CANON INC. AND SUBSIDIARIES
Years ended December 31, 1997, 1996 and 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of
U.S. dollars (note 2)
Millions of yen
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
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:
Payment for purchase of property,
plant and equipment
Proceeds from sale of property,
plant and equipment
Payment for purchase of marketable securities
Proceeds from sale of marketable securities
Payment for purchase of investments
Proceeds from sale of subsidiaries’ common stock
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 in short-term loans
Exercise of warrants (note 12)
Dividends paid (note 13)
Proceeds from issuance of common stock by subsidiaries
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
See accompanying notes to consolidated financial statements.
49
1997
1996
1995
1997
¥118,813
94,177
55,036
$ 913,946
139,815
8,289
(9,618)
(66,975)
(43,895)
31,527
(12,459)
12,962
(25,825)
152,634
119,251
9,235
(32,333)
2,578
10,183
(17,637)
23,618
14,824
16,382
240,278
114,647
3,923
(16,139)
(51,877)
(52,265)
57,136
12,748
5,781
(21,363)
107,627
1,075,500
63,762
(73,985)
(515,192)
(337,654)
242,515
(95,839)
99,708
(198,654)
1,174,107
(161,703)
(156,018)
(110,518)
(1,243,869)
4,330
(8,635)
5,145
(6,797)
—
(7,485)
(175,145)
6,789
(3,556)
11,251
(2,730)
—
(540)
(144,804)
5,474
(10,081)
20,772
(5,989)
1,806
2,301
(96,235)
33,308
(66,423)
39,577
(52,285)
—
(57,577)
(1,347,269)
70,768
(98,693)
51,030
—
(13,727)
12,062
21,440
28,987
(109,095)
10,806
—
(11,136)
9,088
(71,350)
89,958
(111,113)
64,375
578
(10,406)
2,365
35,757
544,369
(759,177)
392,538
—
(105,592)
92,785
164,923
(3,578)
(4,649)
651,746
¥647,097
5,458
29,582
622,164
651,746
2,067
49,216
572,948
622,164
(27,523)
(35,762)
5,013,431
$4,977,669
¥ 27,120
131,441
33,334
89,351
40,273
62,061
$ 208,615
1,011,085
CANON INC. AND SUBSIDIARIES
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, electronic
typewriters, micrographics, Japanese-language word processors
and calculators. Canon’s camera business consists mainly of SLR
cameras, compact cameras and video camcorders. Optical
related products include steppers and aligners used in semiconductor chip production, broadcasting lenses and medical equipment. Canon’s sales in 1997 were distributed as follows: copying machines-32%, computer peripherals-35%, business systems-16%, cameras-9%, and optical and other products-8%.
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 67% of
consolidated net sales in 1997 were generated outside Japan,
with 32% in Americas, 28% in Europe and 7% in other areas.
Canon’s manufacturing operations are conducted primarily
at 15 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 17%
of consolidated sales for the year ended December 31, 1997.
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 statements reflect
the adjustments which management believes are necessary to
conform them with United States generally accepted accounting
principles except for Statement of Financial Accounting
Standards No. 115, “Accounting for Certain Investments in Debt
and Equity Securities” (see note 4).
(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 excluded from the statements of income 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 19).
(f) Marketable Securities and Marketable Investments
Marketable securities and marketable investments held for
temporary and long-term investment purposes are classified as
current assets and included in investments, respectively, and are
carried predominantly at the lower of cost or market. The cost of
such securities sold is based on the average cost (see note 4).
(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 1997,
1996 and 1995 are as follows:
Millions of yen
1997
1996
Net earnings (loss)
Dividends received
50
¥ (4,282)
30
1,197
25
1995
Thousands of
U.S. dollars
1997
5,787
122
$ (32,938)
231
(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 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 costs 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 and
currency swaps to manage currency risk and interest rate swaps
to manage interest rate risk.
51
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 deferred 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 16).
(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.
(p) Net income Per Share
Canon adopted Statement of Financial Accounting Standards
No. 128 (“SFAS 128”), “Earnings per Share” in the year ended
December 31, 1997. SFAS 128 establishes standards for
computing and presenting net income per share, and simplifies
the standards for computing net income per share previously
found in APB Opinion No. 15, “Earnings per Share”. SFAS 128
replaces the presentation of primary net income per share with
a presentation of basic net income per share. SFAS 128 also
requires dual presentation of basic and diluted net income per
share on the face of the statement of income for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator of the basic and diluted net
income per share computation (see note 15).
All prior-years net income per share data presented were
restated to conform with the provisions of SFAS 128.
Basic net income per share have been computed by
dividing net income available to common stockholders by the
weighted-average number of common shares outstanding
during each year. Diluted net income per share reflects 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).
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (“SFAS
130”), “Reporting Comprehensive Income” and No. 131 (“SFAS
131”), “Disclosures about Segments of an Enterprise and
Related Information”.
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose
financial statements and requires that all items that are required
to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial
statements. Canon will adopt SFAS 130 for the year beginning
January 1, 1998 as permitted, except for the effects on
stockholders’ equity of Canon’s departure from the provisions of
Statement of Financial Accounting Standards No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities” (see note 4). SFAS 130 does not require a specific
format for that financial statement but requires that an
enterprise display an amount representing total comprehensive
income for the period in that financial statement and will not
have an effect on Canon’s consolidated financial position and
results of operations.
SFAS 131 establishes standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating
segments in interim financial reports issued to stockholders and
also establishes standards for related disclosures about products
and services, geographic areas, and major customers. SFAS 131
is effective for fiscal years beginning after January 1, 1998.
Canon is evaluating the adoption of SFAS 131. Foreign issuers
are currently exempted from the existing segment information
disclosure requirement regulated by Statement of Financial
Accounting Standards No.14, “Financial Reporting for Segments
of a Business Enterprise” in Securities Exchange Act filings with
the United States Securities and Exchange Commission and 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.
(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
¥130 = U.S.$1, the approximate exchange rate prevailing on the
Tokyo Foreign Exchange Market on December 30, 1997. This
translation should not be construed as a representation that the
amounts shown could be converted into United States dollars at
such rate.
52
(3) Foreign Operations
summarized as follows:
Amounts included in the consolidated financial statements
relating to subsidiaries operating in foreign countries are
Total assets
Net assets
Net sales
Net income
(4) Marketable Securities and
Marketable Investments
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 (“SFAS
115”), “Accounting for Certain Investments in Debt and Equity
Securities” requiring that certain investments in debt and equity
securities be classified as held-to-maturity, trading, or availablefor-sale securities. Those classified as available-for-sale would be
reported at fair value with unrealized gains and losses, net of
related taxes, excluded from earnings and reported in a separate
component of shareholders’ equity. SFAS 115 would have been
effective for Canon in the year ended December 31, 1994.
Canon and approximately thirty other Japanese registrants
that file their consolidated financial statements with both the
United States Securities and Exchange Commission (“SEC”) and
Japan’s Ministry of Finance (“MOF”) are permitted to file with
1997
Millions of yen
1996
1995
Thousands of
U.S. dollars
1997
¥1,109,388
358,122
1,856,480
47,073
962,375
311,420
1,675,268
30,803
823,539
245,294
1,387,390
23,772
$ 8,533,754
2,754,785
14,280,615
362,100
the MOF consolidated financial statements prepared in
accordance with United States generally accepted accounting
principles (“U.S. GAAP”). Canon and certain other such
Japanese registrants were concerned as to comparability to
financial statements prepared in accordance with financial
accounting standards of Japan where such debt and equity
securities are reported at historical cost.
In August 1993, the SEC ruled that it would accept U.S.
GAAP filings by Canon and other Japanese registrants that do
not follow the provisions of SFAS 115 but that provide
information required by SFAS 115 in a note to the consolidated
financial statements.
The effects on balance sheet items of Canon’s departure
from the provisions of SFAS 115 as of December 31, 1997 and
1996 are summarized as follows:
Millions of yen
1997
1996
Thousands of
U.S. dollars
1997
Stockholders’ equity as reported
Net increase in the carrying amount of:
Marketable securities
Noncurrent investments
Net decrease in deferred tax assets and increase in deferred tax liabilities:
Current deferred tax assets
Noncurrent deferred tax assets
Current deferred tax liabilities
Noncurrent deferred tax liabilities
Net increase in minority interests
¥1,099,010
981,868
$8,453,923
714
21,238
2,447
50,159
5,492
163,369
(346)
(10,754)
(13)
(86)
(252)
10,501
(1,003)
(25,449)
(94)
(133)
(361)
25,566
(2,661)
(82,723)
(100)
(662)
(1,938)
80,777
Stockholders’ equity in accordance with U.S. GAAP
¥1,109,511
53
1,007,434
$8,534,700
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Marketable securities and marketable investments consist of
available-for-sale securities. The carrying amount, gross
unrealized holding gains, gross unrealized holding losses and fair
value for such securities by major security type at December 31,
1997 and 1996 are as follows:
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair Value
¥
—
198
—
84
432
714
—
—
—
—
—
—
472
6,436
418
3,478
1,932
12,736
¥
—
2
—
4
21,267
21,273
—
—
35
—
—
35
168
216
185
132
42,114
42,815
¥
—
144
—
135
2,168
2,447
—
—
—
—
—
—
608
4,052
1,765
2,724
3,824
12,973
¥
—
63
—
—
50,116
50,179
—
—
9
—
11
20
221
1,704
201
143
70,590
72,859
Carrying
Amount
(Millions of yen)
1997: Current:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
1996: Current:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
472
6,238
418
3,394
1,500
¥12,022
168
214
220
128
20,847
¥21,577
608
3,908
1,765
2,589
1,656
¥ 10,526
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
221
1,641
210
143
20,485
¥ 22,700
54
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair Value
1997: Current:
Available-for-sale:
Japanese and foreign governmental bond securities $ 3,631
Corporate debt securities
47,985
Bank debt securities
3,215
Fund trusts
26,108
Equity securities
11,538
$ 92,477
—
1,523
—
646
3,323
5,492
—
—
—
—
—
—
3,631
49,508
3,215
26,754
14,861
97,969
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities $ 1,292
Corporate debt securities
1,646
Bank debt securities
1,692
Fund trusts
985
Equity securities
160,362
$165,977
—
15
—
31
163,592
163,638
—
—
269
—
—
269
1,292
1,661
1,423
1,016
323,954
329,346
Carrying
Amount
(Thousands of U.S. dollars)
Net unrealized gain on available-for-sale securities, net of
related taxes and minority interests, decreased by ¥15,065
million ($115,885 thousand) and ¥4,910 million in 1997 and
1996, respectively, and increased by ¥2,647 million in 1995.
Maturities of marketable securities and marketable
investments classified as available-for-sale were as follows at
December 31, 1997:
Thousands of
U.S. dollars
Carrying
Amount
Fair Value
Millions of yen
Carrying
Amount
Fair Value
Due within one year
Due after one year through five years
Due after five years
Equity securities
¥ 5,243
3,950
2,059
22,347
¥33,599
Proceeds from sale of available-for-sale securities were
¥5,145 million ($39,577 thousand), ¥11,251 million and
¥20,772 million in 1997, 1996 and 1995, respectively.
5,255
3,996
2,254
44,046
55,551
$ 40,331
30,385
15,838
171,900
$258,454
40,423
30,739
17,338
338,815
427,315
Realized gains and losses during the years 1997, 1996 and
1995 were insignificant.
(5) Trade Receivables
Trade receivables are summarized as follows:
1996
Thousands of
U.S. dollars
1997
48,937
331,410
14,772
365,575
$ 352,708
3,195,023
123,054
$ 3,424,677
Millions of yen
1997
¥ 45,852
415,353
15,997
¥ 445,208
Notes
Accounts
Less allowance for doubtful receivables
55
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) Inventories
Inventories comprised the following:
1996
Thousands of
U.S. dollars
1997
382,031
122,731
20,070
524,832
$ 3,092,285
1,102,984
149,154
$ 4,344,423
Millions of yen
1997
¥
Finished goods
Work in process
Raw materials
¥
401,997
143,388
19,390
564,775
(7) Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and are summarized as follows:
Millions of yen
1997
Land
Buildings
Machinery and equipment
Construction in progress
1996
¥
109,386
107,378
550,588
502,133
803,379
704,606
30,974
31,462
1,494,327 1,345,579
797,083
719,452
¥ 697,244
626,127
Less accumulated depreciation
Thousands of
U.S. dollars
1997
$
841,431
4,235,292
6,179,838
238,262
11,494,823
6,131,408
$ 5,363,415
(8) Short-term Loans and Long-term Debt
Short-term loans consisted of the following:
Millions of yen
1997
¥
Bank borrowings
Commercial paper
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, 1997 and 1996 were 5.80% and
5.05%, respectively.
At December 31, 1997, unused short-term credit facilities
for issuance of commercial paper amounted to ¥47,058 million
($361,985 thousand).
85,921
4,870
419,274
25,638
535,703
Thousands of
U.S. dollars
1997
1996
87,920
6,888
365,111
108,469
568,388
$
660,931
37,461
3,225,185
197,215
$ 4,120,792
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
1997
Loans, principally from banks, maturing in installments through 2027;
bearing weighted average interest of 4.87% and 5.40% at December 31,
1997 and 1996, respectively, partially secured by mortgage of property,
plant and equipment and marketable securities
9-3/4% U.S. dollar bonds, due 1999
16-61/100% Australian dollar notes, due 1997
2% Swiss franc notes, due 1997
5-17/20% Japanese yen notes, due 1997
4-13/20% Japanese yen notes, due 1997
2-7/20% Japanese yen notes, due 2001
2-1/20% Japanese yen notes, due 2002
2-3/5% Japanese yen notes, due 2002
1-3/5% Japanese yen notes, due 2002
2-3/10% Japanese yen notes, due 2003
2-23/40% Japanese yen notes, due 2004
2-1/40% Japanese yen notes, due 2004
2-19/20% Japanese yen notes, due 2007
1/2%–3/4% Swiss franc notes with warrants
issued by subsidiaries, due 1997–2000:
Principal amount
Less unamortized discount
0%–1-3/8% Swiss franc convertible notes
issued by subsidiaries, due 1997
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
1996
Thousands of
U.S. dollars
1997
¥ 78,072
9,107
—
—
—
—
19,920
5,000
20,000
10,000
5,000
10,000
10,000
10,000
74,921
8,127
696
3,436
20,000
20,000
19,920
—
20,000
—
—
—
—
—
$
600,554
70,054
—
—
—
—
153,231
38,462
153,846
76,923
38,462
76,923
76,923
76,923
50,227
3,149
47,078
86,961
5,758
81,203
386,361
24,223
362,138
—
6,291
7,963
14,072
24
252,527
25,638
¥ 226,889
4,503
11,661
13,077
23,059
120
300,723
108,469
192,254
—
48,392
61,254
108,246
184
1,942,515
197,215
$ 1,745,300
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The aggregate annual maturities of long-term debt
outstanding at December 31, 1997 were as follows:
1998
1999
2000
2001
2002
Later years
Millions
of yen
Thousands of
U.S. dollars
¥ 25,638
76,462
21,187
21,723
43,047
64,470
¥ 252,527
$ 197,215
588,169
162,977
167,100
331,131
495,923
$ 1,942,515
Property, plant and equipment with a book value at
December 31, 1997 of ¥21,278 million ($163,677 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 4,202,000 shares of
common stock at a conversion price of ¥1,497.00 ($11.52) per
share. The debentures are redeemable at the option of the
Company between January 1, 1999 and December 31, 2001
at premiums ranging from 3% 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 5,319,000
shares of common stock at a conversion price of ¥1,497.00
($11.52) 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 9,400,000
shares of common stock at a conversion price of ¥1,497.00
($11.52) 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 Payables
Trade payables are summarized as follows:
1996
Thousands of
U.S. dollars
1997
193,844
202,769
396,613
$1,528,439
1,990,769
$3,519,208
Millions of yen
1997
¥198,697
258,800
¥457,497
Notes
Accounts
(10)Employee Retirement and Severance Benefits
The Company and certain of its domestic 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 pension costs for Canon’s employee retirement
and severance defined benefit plans for 1997, 1996 and 1995
consisted of the following components:
1997
¥ 23,823
13,123
(5,916)
50
¥ 31,080
Service cost — benefits earned during the year
Interest cost on projected benefit obligation
Actual return on plan assets
Net amortization and deferral
59
Millions of yen
1996
20,230
11,899
(11,173)
5,438
26,394
1995
17,009
11,360
(4,427)
(2,175)
21,767
Thousands of
U.S. dollars
1996
$ 183,254
100,946
(45,508)
385
$ 239,077
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The funded status of these plans as of December 31, 1997
and 1996 was as follows:
1996
Thousands of
U.S. dollars
1997
¥325,402
2,465
327,867
68,971
396,838
264,510
2,069
266,579
56,554
323,133
$2,503,092
18,962
2,522,054
530,546
3,052,600
239,338
157,500
(113,644)
218,006
105,127
(71,567)
1,841,062
1,211,538
(874,185)
(6,714)
51,387
(7,226)
22,239
(51,646)
395,285
Millions of yen
1997
Actuarial present value of benefit obligations:
Vested benefits
Nonvested benefits
Accumulated benefit obligation
Effect of projected future salary increase
Projected benefit obligation
Plan assets at fair value comprising primarily bonds,
stocks and loans
Projected benefit obligation in excess of plan assets
Unrecognized net loss
Unrecognized net transition obligation being
recognized over 22 years
Adjustments to recognize minimum liability
Accrued pension and severance cost recognized in
the consolidated balance sheets
Actuarial assumptions:
Discount rate
Assumed rate of increase in future compensation levels
Expected long-term rate on plan assets
At December 31, 1997 and 1996, Canon recognized
additional minimum pension liability of ¥51,387 million
($395,285 thousand) and ¥22,239 million, and intangible
assets of ¥6,714 million ($51,646 thousand) and ¥7,226
million, respectively, in accordance with Statement of Financial
Accounting Standards No. 87, “Employers’ Accounting for
Pensions”. The net effect of such recognition resulted in a
¥21,890 million ($168,385 thousand) and ¥7,356 million
¥ 88,529
48,573
3.50%
4.00%
4.00%
4.00%
4.00%
3.84%
$ 680,992
reduction to stockholders’ equity, net of applicable deferred
income taxes, during the years ended December 31, 1997 and
1996, respectively (see note 11).
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,
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:
Foreign currency translation adjustments
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
1997
Millions of yen
1996
1995
Thousands of
U.S. dollars
1997
¥ 109,364
80,636
58,670
$ 841,261
(3)
(15,126)
¥ 94,235
(154)
(7,657)
72,825
319
—
58,989
(23)
(116,354)
$ 724,884
(benefit) attributable to such income before income taxes are
summarized as follows:
Millions of yen
Japanese
Foreign
Total
1997: Income before income taxes
Income taxes:
Current
Deferred
¥160,543
74,262
234,805
¥ 90,293
(6,999)
¥ 83,294
28,689
(2,619)
26,070
118,982
(9,618)
109,364
1996: Income before income taxes
Income taxes:
Current
Deferred
¥ 130,350
52,415
182,765
¥ 87,616
(27,352)
¥ 60,264
25,353
(4,981)
20,372
112,969
(32,333)
80,636
1995: Income before income taxes
Income taxes:
Current
Deferred
¥ 81,653
35,581
117,234
¥ 62,027
(14,576)
¥ 47,451
12,782
(1,563)
11,219
74,809
(16,139)
58,670
Thousands of U.S. dollars
1997: Income before income taxes
Income taxes:
Current
Deferred
61
Japanese
Foreign
Total
$1,234,946
571,246
1,806,192
$ 694,561
(53,838)
$ 640,723
220,685
(20,147)
200,538
915,246
(73,985)
841,261
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 51.0 % in 1997,
1996 and 1995.
The significant components of deferred income tax expense
attributable to income before income taxes are as follows:
1997
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
¥ (9,674)
491
(435)
¥ (9,618)
Millions of yen
1996
Thousands of
U.S. dollars
1997
1995
(31,051)
(15,960)
(854)
(84)
(428)
(32,333)
(95)
(16,139)
$ (74,416)
3,777
(3,346)
$ (73,985)
income taxes is as follows:
1997
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 rate
Tax credit for increased research and development expenses
Other
Effective income tax rate
1996
1995
51.0%
51.0%
51.0%
1.2
0.5
(5.7)
(1.6)
1.2
46.6%
2.4
1.2
(5.4)
(2.4)
(2.7)
44.1%
3.5
2.0
(5.7)
(1.0)
0.2
50.0%
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
1997
¥ 94,572
65,819
(1,158)
(6,940)
¥152,293
Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities
62
1996
85,211
48,104
(1,113)
(7,357)
124,845
1997
$ 727,477
506,300
(8,908)
(53,384)
$1,171,485
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996 are presented
below:
1996
Thousands of
U.S. dollars
1997
62,516
6,816
11,397
7,657
5,996
14,577
5,164
40,384
154,507
5,061
149,446
$ 569,508
39,423
129,646
175,254
47,100
146,238
58,969
226,162
1,392,300
38,384
1,353,916
Millions of yen
1997
Deferred tax assets:
Inventories — intercompany profits and write-downs
Accrued business tax
Accrued pension and severance cost
Minimum pension liability adjustments
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, 1996 was ¥3,689 million. The net change in the total
valuation allowance for the years ended December 31, 1997
and 1996 was a decrease of ¥71 million ($546 thousand) and
an increase of ¥1,372 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, 1997.
At December 31, 1997, Canon had net operating losses
carried forward for income tax purposes of approximately
¥14,137 million ($108,746 thousand) which were available to
reduce future income taxes, if any. Approximately ¥7,812 million
($60,092 thousand) of the operating losses expire through 2007
while the remainder have an indefinite carryforward period.
63
¥ 74,036
5,125
16,854
22,783
6,123
19,011
7,666
29,401
180,999
4,990
176,009
(5,239)
(812)
(4,167)
(5,716)
(1,132)
(4,214)
(40,300)
(6,246)
(32,054)
(6,156)
(7,342)
(23,716)
¥152,293
(5,848)
(7,691)
(24,601)
124,845
(47,354)
(56,477)
(182,431)
$1,171,485
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 ¥30,025 million ($230,962 thousand) for the
portion of undistributed earnings of foreign subsidiaries and
affiliated companies that arose in 1997 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, 1997, such undistributed
earnings of these subsidiaries and affiliated companies were
approximately ¥236,542 million ($1,819,554 thousand).
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) Common Stock
During 1997, 1996 and 1995, the Company issued
13,184,712 shares, 17,371,630 shares and 5,722,582 shares,
respectively, of common stock in connection with conversion of
convertible debt. Also, during 1995 the Company issued
417,123 shares of common stock in connection with the
exercise of warrants. Conversion into common stock of
(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 reserves under the laws of the respective
countries. Canon’s equity in retained earnings of affiliated
companies owned 20% to 50% accounted for on the equity
basis aggregating ¥4,430 million ($34,077 thousand) at
December 31, 1997 is included in retained earnings.
Cash dividends and appropriations to the legal reserve
charged to retained earnings during the years 1997, 1996 and
1995 represent dividends paid out during those years and the
related appropriations to the legal reserve. Provision has not
been made in the accompanying consolidated financial
statements for the semiannual dividend of ¥9.50 ($0.073) per
share, aggregating ¥8,235 million ($63,346 thousand),
(14) Noncash Financing Activities
In 1997, 1996 and 1995, common stock issued and additional
paid-in capital arising from conversion of convertible debt
convertible debt issued subsequent to October 1, 1982 and
exercise of warrants were accounted for in accordance with the
provisions of the Japanese Commercial Code by crediting onehalf 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, 1997, 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 ¥414,241 million ($3,186,469
thousand) at December 31, 1997.
amounted to ¥19,625 million ($150,962 thousand), ¥25,884
million and ¥7,248 million, respectively.
64
(15)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
1-3/10% Japanese yen convertible
debentures, due 2008
Other
Diluted net income
¥
¥
Thousands of
U.S. dollars
1997
1997
Millions of yen
1996
1995
118,813
94,177
55,036
96
112
120
738
112
162
145
862
289
3
94,743
260
2
55,563
205
(3)
119,223
$
$
913,946
1,577
(23)
917,100
Number of shares
Average common shares outstanding
Dilutive effect of:
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
Diluted common shares outstanding
862,664,129
846,223,709
834,328,595
5,687,040
9,689,045
12,289,579
6,722,111
11,112,225
13,829,826
10,599,248
90,902
885,763,430
18,475,794
262,697
885,763,470
23,933,272
1,397,985
885,779,257
Yen
Net income per share:
Basic
Diluted
¥
137.73
134.60
65
111.29
106.96
U.S. dollars
65.96
62.73
$
1.06
1.04
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) 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 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, 1997 and 1996 are set forth below:
1996
Thousands of
U.S. dollars
1997
81,122
93,731
90,961
31,219
$ 405,377
403,954
670,108
116,354
Millions of yen
1997
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
(17) Commitments and Contingent Liabilities
At December 31, 1997, commitments outstanding for the
purchase of property, plant and equipment approximated
¥34,259 million ($263,531 thousand). Contingent liabilities for
guarantees of bank loans to employees and to affiliated and
other companies amounted to approximately ¥72,648 million
($558,831 thousand).
Canon occupies sales offices and other facilities under lease
arrangements accounted for as operating leases. Deposits made
under such arrangements aggregated ¥28,317 million
($217,823 thousand) and ¥27,491 million at December 31,
1997 and 1996, respectively, and are reflected in noncurrent
receivables and restricted funds on the accompanying
consolidated balance sheets.
¥ 52,699
52,514
87,114
15,126
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, 1997 mature between 1998 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, 1997 are:
Year ending December 31:
1998
1999
2000
2001
2002
Later years
Total future minimum
lease payments
66
Millions
of yen
Thousands of
U.S. dollars
¥15,053
10,959
7,575
6,059
4,692
15,303
$115,793
84,300
58,269
46,608
36,092
117,715
¥59,641
$458,777
(18) 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,
1997 and 1996 totaled ¥56,840 million ($437,231 thousand)
and ¥38,867 million, respectively, which approximate fair values.
67
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 16)
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.
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The estimated fair values of Canon’s financial instruments at
December 31, 1997 and 1996 are summarized as follows:
Thousands of
U.S. dollars
1997
Carrying
Estimated
Amount
Fair Value
Millions of yen
1997
Carrying
Estimated
Amount
Fair Value
1996
Carrying
Estimated
Amount
Fair Value
Nonderivatives:
Assets:
Marketable securities and
Investments
¥ 42,724
64,676
43,129
95,735
Liabilities:
Long-term debt, including current installments
(252,527) (283,513) (300,723) (338,200)
Derivatives relating to:
Trade receivables and anticipated
sales transactions:
Assets
66
68
23
19
Liabilities
(1,148)
(952)
(1,860) (1,893)
Long-term debt,
including current installments:
Foreign exchange contracts:
Assets
710
1,169
5,935
6,029
Liabilities
—
—
(1,260)
(990)
Interest rate swaps:
Assets
885
3,717
1,117
3,163
Liabilities
(111)
(628)
(376) (1,318)
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
$
328,646
497,508
(1,942,515) (2,180,869)
508
(8,831)
523
(7,323)
5,462
—
8,992
—
6,808
(854)
28,592
(4,831)
nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(19) Supplementary Expense Information
Research and development
Depreciation of property, plant and equipment
Rent
Advertising
Exchange loss
1997
Millions of yen
1996
1995
Thousands of
U.S. dollars
1997
¥170,793
137,777
55,227
75,800
11,200
150,085
117,263
51,767
68,354
4,060
125,253
104,474
46,858
53,033
17,526
$1,313,792
1,059,823
424,823
583,077
86,154
68
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, 1997 and 1996, 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, 1997. 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 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.
Canon Inc. and subsidiaries have not applied Statement of Financial Accounting Standards No. 115 (“SFAS 115”)
in accounting for certain investments in debt and equity securities but have provided the disclosures required by SFAS
115. The effects on the consolidated financial statements of not adopting SFAS 115 are summarized in note 4 of the
notes to consolidated financial statements.
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 opinion, except for the effects of the departure from SFAS 115 in accounting for certain investments in debt
and equity securities, as discussed in the third paragraph of this report, and except for the omission of the segment
information, as discussed in the preceding paragraph, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Canon Inc. and subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the years in the three-year period ended December
31, 1997, 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 9, 1998
69
MAJOR CONSOLIDATED SUBSIDIARIES
BOARD OF DIRECTORS
AND CORPORATE AUDITORS
(As of December 31, 1997)
(As of December 31, 1997)
MANUFACTURING
Canon Electronics Inc.
Copyer Co., Ltd.
Nippon Typewriter Co., Ltd.
Canon Precision Inc.
Canon Chemicals Inc.
Oita Canon Inc.
Canon Aptex Inc.
Canon Components, Inc.
Nagahama Canon 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.
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.
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
C.P.F. 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 Semiconductor Engineering
Korea Inc.
Canon Semiconductor Equipment
Taiwan Inc.
70
Honorary Chairman of the Board
Ryuzaburo Kaku
President & C.E.O.
Fujio Mitarai
Senior Managing Director
Giichi Marushima
Managing Directors
Ryozo Hirako
Takashi Kitamura
Hajime Katayama
Ichiro Endo
Hisashi Sakamaki
Haruo Murase
Takashi Saito
Yukio Yamashita
Masashi Kiuchi
Toshizo Tanaka
Director Advisor
Hiroshi Tanaka
Directors
Hideharu Takemoto
Toru Takahashi
Shuichi Ishizuki
Yusuke Emura
Nobuyoshi Tanaka
Kinya Uchida
Akira Tajima
Kohtaro Miyagi
Tsuneji Uchida
Junji Ichikawa
Muneo Adachi
Hajime Tsuruoka
Corporate Auditors
Tomonobu Kawada
Takenori Matsuoka
Shoji Fujigaki
Tadashi Ohe
REGISTRARS AND TRANSFER OFFICE
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
Emissionsfolgegeschäfte Rossmarkt 18
60311 Frankfurt am Main Germany
Stock exchange listings:
Tokyo, Osaka, Nagoya, Kyoto, Fukuoka,
Niigata, Sapporo and Frankfurt stock
exchanges.
PRINTED ON RECYCLED PAPER
American Depositary Receipts (ADRs) are
traded on The Nasdaq Stock Market
Shareholders’ annual general meeting:
March 27, 1998, 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
PUB. BEP007 0398AB14
Printed in Japan