Canon takes advantage of strong demand ...... (10) Employee Retirement and Severance Benefits ..... and advances in wire
CANON ANNUAL REPORT 2000 Fiscal Year Ended December 31, 2000
CORPORATE PROFILE
The Canon Group is a global manufacturer of cameras, business machines and optical products, employing 86,673 people* around the world. The economic environment presented a variety of challenges in 2000. However, by remaining true to our ideal of contributing to society through technology, we were able to raise sales and achieve record-high income. The year 2000 marked the conclusion of Phase I of the Excellent Global Corporation Plan, under which we pursued high-value-added operations, and promoted further globalization and reformation activities actively carried out throughout the Group s corporate operations. To continue successfully on the course we have set, in 2001 we are implementing Phase II of the plan, which will lead us toward the goal of becoming an excellent global corporate group. We will also pay close attention to promoting environmentally conscious operations and contributing to the global community. * Data as of December 31, 2000
ABOUT THE COVER Canon s achievements toward becoming an excellent global corporate group were illustrated in the listing of Canon Inc. American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE) in 2000.
CONTENTS 1 Financial Highlights 2 To Our Shareholders Phase I of the Excellent Global Corporation Plan successfully concludes, and Phase II commences in 2001 5 Canon in 2000 News and views on globalization, technological, environmental and corporate citizenship activities throughout the global Canon Group 12 Product Group Summary Reports by product category on market trends, Canon s results and forecasts 14 Business Machines 14 Copying Machines Canon takes advantage of strong demand for digital monochrome and full-color copying machines 18 Computer Peripherals Color laser beam printer market grows rapidly, and new monochrome laser beam and color Bubble Jet printers contribute to sales 22 Business Systems MFPs launched with facsimile and advanced network functions, and electronic dictionaries released with expanded content 24 Cameras Canon maintains leading position in SLR and compact camera markets, and makes great strides in digital arena 30 Optical and Other Products Semiconductor production equipment sells extremely well, and new Digital Radiography System and digital TV broadcasting lens are offered 33 Financial Section 74 Major Consolidated Subsidiaries Board of Directors and Corporate Auditors 75 Transfer Office and Registrars Shareholders Information
FINANCIAL HIGHLIGHTS
Millions of yen (except per share amounts) 2000
Net sales Net income Net income per share: Basic Diluted Total assets Stockholders’ equity
Thousands of U.S. dollars (except per share amounts)
1999
2000
¥2,781,303 2,622,265 134,088 70,234
$24,185,243 1,165,983
153.66 80.66 151.51 79.50 2,832,125 2,587,532 1,298,914 1,202,003
1.34 1.32 24,627,174 11,294,904
Note: U.S. dollar amounts in this Annual Report, solely for the convenience of the reader, are translated from yen at the rate of ¥115 = US$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December 29, 2000.
70,234
80.66 79.50
126.10 123.93
137.73 134.60 111.29 106.96
109,569
118,813 94,177
153.66 151.51
160
134,088
140,000
2,781,303
3,000,000
2,622,265
(Yen)
2,826,269
Net income per share
(Millions of yen)
2,761,025
Consolidated net income
(Millions of yen)
2,558,227
Consolidated net sales
0
0
96
97
98
99
00
0
96
97
98
99
00
96
97
Basic Diluted
1
98
99
00
TO OUR SHAREHOLDERS
Looking back at the global economy in 2000, the pace of economic growth in the United States showed signs of slowing late in the year, but the overall economy remained strong. Although the low value of the euro influenced the European economy, overall conditions were favorable. Conditions in the Asian region were also favorable. In Japan, although solid growth occurred in capital investment in the private sector, consumer spending remained sluggish, and only a slight trend of recovery was seen. In the markets in which the Canon Group is involved, healthy demand sustained the market for business machines such as printers and digital copying machines, which are closely related to information technology (IT). Outstanding results were also seen in the digital camera and semiconductor markets. While we experienced solid Fujio Mitarai growth in these markets, the average value of the yen was ¥107.90 to the U.S. dollar and ¥99.32 to the euro, equal to increases of 5% and 21%, respectively, from a year earlier. In this situation, the Canon Group accomplished a 6.1% growth in sales, resulting in ¥2,781.3 billion (US$24,185 million). Net income also reached a new high of ¥134.1 billion (US$1,166 million), a 90.9% advance from the previous year. Results by Product Group In the business machine segment, copying machines achieved nearly 6% sales growth on a local currency basis, mainly owing to strong demand for digital machines. However, the appreciation of the yen led to a slight decline in these sales on a consolidated basis. Computer peripherals showed good results, mainly because sales of laser beam printers soared. Sales of business systems decreased because of the strong yen and more severe price competition in the facsimile machine market. As a result, overall sales of the business machine segment increased 1.2%, to ¥2,189.2 billion (US$19,037 million). The camera segment marked a notable 16.8% advance. The introduction of new digital cameras and rapid market expansion, as well as favorable sales of video camcorders made this growth possible in spite of the strong yen. Sales in the camera segment reached ¥324.1 billion (US$2,818 million). Optical and other products enjoyed a 48.1% advance in sales, reaching ¥268.1 billion (US$2,331 million). The semiconductor device market was very active throughout the year, and semiconductor manufacturers were encouraged to invest in new equipment.
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Consolidated Net Income In 2000, operating profit leaped 39.7%, to ¥246.0 billion (US$2,139 million), even though the strong yen had a negative impact. Cost reduction initiatives, such as production reformation activities, and effective handling of selling expenses brought about this remarkable result, even as we increased R&D expenditures. Income before income taxes jumped 45.6%, as well, to ¥227.2 billion (US$1,976 million), owing to improved net interest expenses. Consolidated net income was a recordsetting ¥134.1 billion (US$1,166 million), and net income per share (basic) was ¥153.66 (US$1.34). The Board of Directors has proposed a ¥4.00 (US$0.03) increase in the year-end dividend, to ¥12.50 (US$0.109), in response to continued shareholder support. Combined with the interim dividends of ¥8.50 (US$0.07), the increase will bring the total annual dividend to ¥21.00. A New Century, and New Strategies for Growth The Canon Group implemented Phase I of the Excellent Global Corporation Plan during the five years from 1996 to 2000. Under this plan, to build a corporate structure for the new century, the themes of pursuing high-value-added operations and promoting further globalization were established, and reformation activities were actively carried out throughout the Group’s corporate operations. As a result, not only were we able to strengthen our financial structure in these five years, but we also successfully infused new management policies such as management reform, consolidated management and cash flow management throughout the Canon Group. With the completion of Phase I of the plan, beginning in 2001 we are implementing Phase II, which will lead us toward the goal of becoming an excellent global corporate group by 2005. For many years, Canon has developed its operations through technological reformation and the precise grasp of market growth under the keywords diversification and globalization. However, in the 21st century we will see great changes in the management environment. The changes taking place, as illustrated by rapid developments in the network field, represent both opportunities and risks. We believe it is crucial to interpret opportunities and risks correctly and to respond with appropriate measures in order to assure continuing growth in the years to come. Specific objectives include reinforcing key components and basic technologies common throughout our operations, which will make it possible to create new businesses and to reach for the number one position in our principal business fields. Next, we must apply our existing businesses to new network environments under the “Canon Over IP (Internet Protocol)” concept, and then build new business domains from these environments. In addition, we will reform our group structure, reorganizing and strengthening our headquarters in the Americas and Europe with research and development, and manufacturing functions, aiming to successfully implement our global diversification strategy through the establishment of a Three Regional Headquarters System. At the same time, we will further strengthen the robust financial structure and R&D capabilities we have fostered thus far.
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TO OUR SHAREHOLDERS
Extensive Plans for Prosperity and Environmental Conservation By pursuing corporate management from the midterm and long-term points of view, we intend to ensure continued growth and profitability, and raise the efficiency of our groupwide operations. In manufacturing, we will strive to devise new cost-saving methods, following our successful introduction of cell production, and will review the balance of our global production apportionment. Our R&D functions are ready to collaborate with manufacturing functions and to apply IT solutions such as 3D computer-aided design (CAD) to reduce development lead times. In marketing, we will strive to reduce inventories and achieve other objectives through supply chain management (SCM). Through these activities, we will ensure the continuing prosperity of Canon while working to improve our financial indicators, including ROA (return on assets) and ROE (return on equity). In the area of environmental protection, an important issue for company management, we will develop environmental assurance technologies related to production, resource reuse and environmental assessment, thereby maximizing natural resource productivity and working to unify environmental protection and corporate management. Specifically, we will actively promote recycling programs on a global scale, green procurement, zero waste, environment information disclosure and related activities. Canon is proud to be considered an advanced corporation in terms of environmental preservation efforts. We will set our sites on an even higher level of response in the future. Canon Inc. listed its American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE) in September 2000. By listing on the world’s largest stock exchange, we aspire to heighten the value of Canon as a global corporation, and to continue to offer our shareholders long-term value. In line with this achievement, we will further strengthen our global management and continue working to become an excellent global corporate group.
Fujio Mitarai President and C.E.O. Canon Inc.
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CANON IN 2000
Through its donation of digital imaging equipment to the Harbor Branch Oceanographic Institution in 2000, Canon is supporting monitoring activities to preserve Atlantic Bottlenose Dolphins and their habitat in the United States.
5
Canon World News Landmark Event—Canon Lists on the NYSE
On September 14, 2000, Canon Inc. listed American Depositary Receipts (ADRs) on the New York Stock Exchange (NYSE) when trading in its ADRs commenced under the corporate abbreviation CAJ. Fujio Mitarai, president and C.E.O. of Canon Inc., commenced a series of commemorative activities on the first day of this listing by ringing the bell to open trading on the Exchange (bottom). Gaining this position on the world’s largest stock exchange has greatly increased the liquidity of Canon’s shares in the world’s leading markets, and given
us an extremely firm global foundation for future mergers and acquisitions (M&A), and other financial activities. Motivated by this achievement, we intend to further strengthen our global management and step up efforts to become an excellent global corporate group.
Photo: Nel Nudelman
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CANON IN 2000
Canon Expo 2000 Is a Resounding Success
In the autumn, we held Canon Expo 2000 in three strategic locations around the world—New York City, Paris (see photo) and Tokyo. This ambitious exhibition of Canon’s global technologies and products, as well as its vision for the 21st century, focused on the concept of “Canon Over IP (Internet Protocol).” In keeping with this concept, we unveiled new directions in technology and business development with the objective of securing a position of leadership in the network-imaging arena into the new century. Displays and presentations were tailored to the needs and trends of individual regions, as we presented our newest products and technologies.
Production Reformation in Full Swing Canon introduced its production reformation activities to enhance efficiency and flexibility, and eliminate inventories. Adopting the
cell production method to replace traditional production using conveyor belt lines has become a global effort under the production reformation movement, helping us create a flexible system to facilitate the small-lot production of multiple products to meet diverse customer needs. Since we initiated production reformation, the usable production space in our plants has expanded about 30%, or approximately 300,000m2, the space required for five or six large factories. We have also reduced warehouse space by some 70,000m2.
Cell production of personal-use copying machines at Canon Hi-Tech (Thailand) Ltd.
New Steps toward Truly Global Management Working toward the Three Regional Headquarters System, an organization of fully functional regional head offices, Canon is reorganizing its R&D structure based on the strengths of individual regions. For example, we pursue strategic software development in facilities such as Canon Research
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Software development at CRE
Centre Europe Ltd. (CRE). In 2000, U.S.-based Canon Information Systems, Inc. (CIS), Canon Information Systems Research Australia Pty. Ltd. (CISRA) and Canon Research Centre France S.A. (CRF) celebrated their 10th anniversaries. In marketing, Canon Europa N.V., our regional headquarters encompassing Europe, the Middle East and Africa, established Canon South Africa (Pty.) Ltd., a 100% subsidiary expanding into new high-potential areas for business growth in subSaharan Africa.
Canon Technology Trends New Concept in Digital Photography—Micro Bubble Jet Camera
The 21st century will see new advances spurred by technologies allowing people to access images and information anytime and anywhere. The Micro Bubble Jet Camera is one revolutionary product Canon is developing to illustrate the many possibilities ahead. This digital camera– printer, representing the successful merger of our Bubble Jet printing and digital imaging technologies, allows users to printout stunning images moments after a shot is taken. This achievement is made possible by our originally developed Micro Bubble Jet Head, created
8
Demonstration of prototype at Canon Expo 2000
through the application of ultrahighdensity semiconductor packaging technologies. In addition, we have devised the Ink Paper Pack to hold not only the credit card-sized sheets of paper on which photos are output, but also enough ink for every sheet in the pack.
CANON IN 2000
Extra Dimension in Displays
unique, three-layer construction, which makes it possible to produce semiconductors that consume less power than conventional silicon wafers. Among the original, high-level production technologies for these wafers is water-jet splitting (see photo), which allows us to reuse the seed wafer component, thereby significantly lowering costs.
Developing the Paper-Like Display
Another innovative imaging device is the Paper-Like Display, which provides the advantages of both paper media and displays. Developed based on electrophoretic phenomena, this display uses toner sealed between two sheets of plastic film and electrostatic adsorption/ repulsion. The resulting display is as thin and flexible as a sheet of paper, yet provides high-quality images. A variety of potential applications exist for this groundbreaking technology.
Investment to Increase ELTRAN SOI Wafer Production Capacity Canon invested approximately ¥2 billion in 2000 to expand its production for ELTRAN silicon-on-insulator (SOI) wafers. We have achieved a fivefold increase in wafer production— equivalent to 10,000 wafers per month—at our facility in Hiratsuka, Japan. ELTRAN SOI wafers feature a
Large in Area, but also Extremely Sensitive The highly sensitive, large-area CMOS sensor is compact and features extremely low power consumption, making it the ideal device for products such as cameras, scanners and facsimile machines. In 2000, the CMOS sensor was adopted in the EOS D30 digital single-lens reflex (SLR) camera, in which it makes possible ultrahigh image quality and 3.25 million-pixel performance. We are planning to expand the use of this sensor in other imaging products.
Pursuing the Dream of Large Flat-Panel Displays In the multimedia age, demand is strong for large-screen displays that do not require the space of a conventional television set or PC monitor. Canon has been developing an original technology known as the SED (Surface-conduction Electron-emitter Display). In 1999, Canon started into a collaborative agreement with Toshiba Corporation to develop a practical SED. Combining Canon’s prowess in SED technologies with Toshiba’s strong position in the market for displays, the two companies are working to commercialize nextgeneration large-screen displays.
9
3.25-megapixel CMOS sensor used in the EOS D30
Canon, the Environment and Citizenship Giving European Children a Ride on the Panda Bus
Caring for nature and being a good corporate citizen are core elements of Canon’s corporate philosophy of kyosei, or living and working together for the common good. As part of Canon Europa’s ongoing commitment to the cause of the World Wide Fund for Nature (WWF) in Europe, in April 2000 Canon Europa launched the Canon-WWF Panda Bus Tour. The Panda Bus implemented Europe’s first full-scale study of the views of young people on the world’s changing environment. Opinions about the environment were gathered from more than 6,000 participants at
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each stop of the tour through a stateof-the-art multimedia questionnaire. Initial results were distributed along the way, and a final report was presented to Europe’s business community and governments to help them understand the actions needed to secure the commitment of tomorrow’s consumers.
CANON IN 2000
Recognizing the Importance of Environmental Conservation
National Park Service. Canon U.S.A., Inc. also continued supporting the Nature Conservancy’s Wings of the Americas program, which protects imperiled birds and their habitats throughout the Americas. Further, we donated digital imaging equipment to the Harbor Branch Oceanographic Institution (see photo) to support the conservation of Atlantic Bottlenose Dolphins in Florida’s Indian River Lagoon.
Evaluation of the copying machine prototype
In 2000, a copying machine prototype earned Canon the prestigious Copier of the Future IEA-DSM Award of Excellence under the International Energy Agency’s Demand-Side Management Program. This award recognizes Canon’s leadership in developing energy-saving technologies for copying machines. Candidates for the award must meet stringent performance and energyconsumption criteria. Canon’s winning prototype adopts its power-saving SURF (Surface Rapid Fusing) technology.
Canon Continues Efforts to Preserve Nature in the United States Under a five-year, US$2.5-million commitment, seven new Canon Scholars were awarded grants under the Canon National Parks Science Scholars Program to focus their doctoral research on solving critical conservation issues of the U.S.
Canon Develops Technologies that Sustain the Environment In eco-technological development, we have developed a series of ecopolymers that produce polyester more efficiently than conventional chemical processes. These eco-polymers can be used in diverse production processes. We also advanced the generation of recyclable polymers from paper. In an originally developed process, we copolymerize decomposed cellulose from used paper with fatty acids. The result is a thermoplastic polymer that can be used in plastics for injection molding, and has potential applications
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from packaging materials to many plastic components.
Programs to Foster Visual Communications for Today and Tomorrow During 2000, we launched the Canon Digital Creators Contest, a competition aimed at encouraging creators of new visual expression modes through digital technologies. This contest drew entries in digiral print, web graphics and digital movie categories, and prizes were bestowed on the artists with the most original and thought-provoking content. We are considering plans to expand this contest globally in the future. We also continued our sponsorship activities for renowned photo contests, such as the World Press Photo Contest, the world’s most prestigious international competition for professional press photographers, and The Third International Photographic Competition on the Environment 19992000, managed by the United Nations Environment Programme (UNEP). Winning photos in the latter contest toured New York, Yokohama and Paris.
Exhibition displaying winning entries in the Canon Digital Creators Contest
818,909
BUSINESS MACHINES Copying Machines Full-color copying machines Office copying machines Personal copying machines Consumables, etc.
BUSINESS MACHINES Computer Peripherals Laser beam printers Bubble Jet printers Image scanners Consumables, etc.
823,247 842,082
899,205
Sales results (Millions of yen)
896,641
PRODUCT GROUP SUMMARY
Share of consolidated sales 29.6%
1,045,833 965,499
1,064,304
878,170
964,808
37.6%
12
320,071 324,058
52,550
60,456
69,452
71,201
96
97
98
99
171,360
277,349 109,784
267,636 130,964
247,766 152,737
OTHER PRODUCTS
154,306
213,760
OPTICAL PRODUCTS Semiconductor production equipment Medical equipment Digital radiography systems Broadcasting equipment
356,350
11.7%
397,272
CAMERAS Single-lens reflex (SLR) cameras Compact cameras Digital cameras Video camcorders LCD projectors Lenses, etc.
436,053
11.5%
440,532
BUSINESS MACHINES Business Systems Facsimile machines Handy Terminals Document scanners Personal information equipment, etc.
96,734
00
6.2%
Overview
Products and Technologies
Looking Ahead
● Demand from general offices propels full-color copying machine growth ● Digital copying machines with multiple functions become popular ● Global personal-use copying machine market expands slightly
● CP680 and CP2100 series for general office use launched initially in Japan ● Digital monochrome copying machine lineup enhanced with new technology ● Full-scale development of digital personal-use copying machine begins
● Launch full-color copying machine for high-speed printing on demand ● Expand multifunction peripherals (MFPs) and printing-on-demand solutions ● Strengthen personal-use copying machine lineup with digital and analog models
See page 14
Color imageRUNNER C2050
● Color laser beam printer market grows 20%, spurred by office demand ● Demand for monochrome laser beam printers centers on low-cost network models ● Demand grows for highimage-quality and high-speed ink-jet printers
● Color laser beam printers released with high cost performance and output quality ● Monochrome laser beam printers feature new functions and higher performance ● New BJ F870 Bubble Jet printer, with top-image-quality, is released in Japan
● Concentrate on color laser beam printers for both general offices and professionals ● Introduce new monochrome laser beam printers to meet high-end and office demand ● Continue enhancing image quality and output speed for the broadband era
See page 18
● Expand lineup of MFPs ● Expand calculator market share with sales targeting specific user groups ● Introduce new full-color document scanner to meet demand
See page 22
LBP-1000
● Ink-jet and laser beam MFP and color home-use facsimile machine demand grow rapidly ● Calculator market expands slightly, but electronic dictionary demand increases rapidly ● Market for document scanners is extremely active
● MFPs introduced with more advanced network functions ● Added new functions to calculators, and differentiated Canon in area of dictionary software ● CD-4050 launched with network functions
LASERCLASS 2060
● Economic difficulties and digital camera demand influence analog camera market ● Slowdown in “pixel wars,” as low-cost 2-megapixel digital cameras lead market ● Price competition hits digital video camcorder market, especially in Japan and the Americas ● KrF excimer laser scanning steppers remain at forefront of current semiconductor production equipment ● Eye examination system demand grows, and digital radiography market takes shape ● TV broadcasting lens market grows favorably
● New offerings sustain Canon’s firm lead in SLR market, and affordable compact zoom camera for the Advanced Photo System released ● PowerShot S100 DIGITAL ELPH takes digital camera market by storm ● New ultracompact ELURA2 MC made possible by Canon’s downsizing technologies ● New KrF excimer laser scanning stepper designed to strengthen market share ● Originally developed eye examination image filing and digital radiography systems offered ● New digital TV broadcasting lens released with built-in optical image stabilizer
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● Release new SLR and compact cameras to strengthen market share ● Reinforce digital camera lineup for all user categories ● Introduce digital video camcorders that take into account changing market needs and can compete in terms of price
See page 24
● Strengthen market position with new KrF and ArF excimer laser scanning steppers ● Market medical equipment that can be easily incorporated into hospital networks and teleradiography ● Maintain top share of TV broadcasting lens market with leading technologies
See page 30
EOS-1V
FPA-5000ES3
Business Machines Copying Machines
perating Environment The continuing digitization of offices fueled demand for color output solutions in 2000, and sales of fullcolor copying machines expanded approximately 10% on a unit basis. 0 0 In recent years, lowering prices and 96 97 98 99 00 96 97 98 99 running costs have increased demand for these products from general offices. By region, the Japanese and North American markets expanded about 10% and 30%, respectively, but the European market contracted some 5%.
823,247
896,641
899,205
818,909
2,189,151
2,358,217
2,163,931
(Millions of yen) 900,000
2,300,066
(Millions of yen) 2,200,000
2,137,611
O
Sales results: Copying machines
842,082
Sales results: Business machines
00
A
CP680
ColorPASS Z40e
ctivities and Results Canon has retained the top share of the color copying machine market since it launched its first products, and sales rose slightly in the year under review. The role of color printers is growing in today’s offices, which is why we are currently working to lower the prices of our products while increasing their functions and performance. New products we launched in Japan during the year included the CP680, which debuted in March to succeed the CP660. November also saw our release of the CP2100 series of full-color copying machines/printers capable of outputting 21 pages per minute (ppm). We also developed the ColorPASS Z40e, low-cost PostScript controller that is helping reduce the cost of our full-color copying machines/printers. The CLC1150 and CLC1120 (CLC1130 in other regions), which boast industry-leading image quality and are popular among professional users, contributed significantly to sales during the year.
O
utlook for 2000 Demand for color output solutions for general office use will continue to expand in 2001, and we therefore anticipate a rise in demand for full-color copying machines. We will work to sustain this demand by launching our CP2100 series overseas under the name Color imageRUNNER C2050 (iRC2100 in Europe). To meet needs for high-speed printing on demand, we intend to introduce a full-color copying machine with an output speed of 50 ppm, the fastest level available in the industry.
CLC1150
14
Full-Color Copying Machines
The Color imageRUNNER C2050 makes brilliant full-color output at a speed of 21 ppm.
Color imageRUNNER C2050
15
Office and Personal Copying Machines
Canon developed a highperformance controller to give the imageRUNNER 5000 (iR5000 in other regions) flexibility to meet changing needs in today’s offices.
imageRUNNER 5000
16
Business Machines Copying Machines
O
perating Environment The global market for monochrome copying machines continued to shift toward digital products in 2000, and demand increased for products with multiple functions. The market for analog products for office use declined, but demand for personal-use copying machines increased in most regions. The overall market expanded with the accelerating shift to digital products, as well as recovery in the Middle East, Russia, and the People’s Republic of China and Southeast Asia.
A
ctivities and Results With its strong position in the image-output field, Canon is well situated to make the most of the trend toward copying machines with multiple functions. In the second half of the year, we released the imageRUNNER 5000, a multifunction peripheral (MFP) with an originally developed built-in controller that easily handles the high-level needs of today’s offices. The iR3250 is a model featuring color scanning and I-Fax functions. Strong sellers during the year included midand high-speed digital copying machines with high image quality and expandability, and analog copying machines with competitive prices. Sales of our personal-use copying machines expanded globally.
O
utlook for 2000 In the office-use market, the trend toward digital monochrome copying machines with multiple functions will accelerate. Canon intends to respond by expanding its lineup of MFPs in the iR series. We will also release high-speed digital models to expand our presence in the new market of high-volume printing on demand. In 2001, we anticipate the first steps toward merging MFPs with personal-use copying machines, though demand for analog models is expected to remain firm in emerging markets.
iR3250
iR400S (GP405 in other regions)
PC420
17
Business Machines Computer Peripherals
Sales results: Computer peripherals
1,045,833
965,499
perating Environment The market for color laser beam printers underwent rapid change in 2000, as growing demand led to intense competition and falling prices. The size of the global market expanded. In the monochrome laser beam printer market, demand grew around the world, particularly in Asia, and the scope of the market expanded both in unit and fiscal terms.
878,170
O
964,808
1,000,000
1,064,304
(Millions of yen)
0
96
97
98
99
00
A
LBP-2260 PSII (Japan version)
ctivities and Results To take advantage of solid growth in the Japanese market for color laser beam printers, Canon introduced the LBP-2200, offering excellent cost performance and printing on large paper sizes. We launched the high-performance LBP-2260 PSII for professional users in Japan. Also during the year, we lowered the price of our LBP-2040 letter-size, full-color laser beam printer in response to intense price competition. However, this competition resulted in a slight decrease in the value of sales from 1999. Activities in the monochrome laser beam printer market focused on expanding our top share of the Japanese market and reinforcing our lineup of products for office use in the overseas market. To establish Canon as the office standard in Japan, we offered the innovative LBP-740e, featuring large-size paper printing and resolution equivalent to 2400 dpi 2600 dpi. Overseas, we released the LBP-1000, which outputs 10 lettersize ppm at 1200 dpi 21200 dpi. In this environment, we were able to increase our monochrome laser beam printer sales.
O LBP-800
utlook for 2000 Demand for color laser beam printers from general offices will continue in 2001. For this reason, we will launch products with new functions and easy use with document management software solutions. Factors such as the slowing U.S. economy and continuing sluggishness in Japan will prevent significant growth in the market for monochrome laser beam printers, but Canon will work to increase sales by developing products for specific market needs.
LBP-740e (Japan version)
18
Laser Beam Printers
The LBP-1000 provides office users with 1200 dpi@1200 dpi quality and an impressive output speed of 10 ppm (letter-size).
LBP-1000
19
Bubble Jet Printers and Image Scanners
The BJC-3000 delivers highquality color output with highspeed bi-directional printing, and is equipped with an originally developed independent ink tank system.
BJC-3000
20
Business Machines Computer Peripherals
O
perating Environment Demand for ink-jet printers in Japan was sustained by the increasing use of e-mail, the Internet and digital cameras in homes. The U.S. market also saw growth, though a trend toward lower prices continued throughout the year. Shipments of personal computers (PCs) slowed down in Europe, but ink-jet printer demand remained strong. Asia became the fastest growing regional market. The flatbed scanner market also expanded globally.
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ctivities and Results In Japan, Canon stressed the technological leadership of the Bubble Jet printer by marketing 10 new products meeting various user needs, including the groundbreaking BJ F870 (S800 in other regions). This new flagship model provides an outstanding 2400-dpi resolution, ultrahigh-speed photograph printing, and higher resistance to the effects of light thanks to newly developed inks. In the Americas and Europe, we set our sights on the market for mid-range to high-end models, offering the top-image-quality BJC-8200 for the digital photograph output market and the affordably priced BJC-3000. In Asia and Oceania, we focused on products with low prices and running costs, and actively marketed mid-range models. In the scanner field, we emphasized brand distinctiveness by releasing a full lineup of products with our originally developed Contact Image Sensor (CIS). We also launched an affordable model with a charge-coupled device (CCD) sensor, silent operation and a slim design.
BJC-2100
O
utlook for 2000 The ink-jet printer market will continue to grow in 2001. Canon will actively market its low-end models, and further expand its lineup of mid-range to highend products to expand its market share. To continue setting Canon scanners apart from the competition, we will concentrate product development on both CIS and CCD models.
BJC-8200
CanoScan N1220U
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Business Machines Business Systems
Sales results: Business systems (Millions of yen)
397,272
440,532
O
436,053
450,000
320,071
356,350
perating Environment Facsimile demand in North America centered on MFPs, especially ink-jet and laser beam models, and Europe also began shifting toward this equipment. Home-use facsimile machines sold well in Japan, owing to technological advancements and lower 0 prices for plain-paper models. Global demand for 96 97 98 99 00 calculators grew, but competition intensified. Demand for document scanners grew, centered on color models, as did the market for handheld information terminals, particularly those with built-in barcode functions.
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MultiPASS C530 (MultiPASS C70 in other regions)
CD-4050 CD-R Document Recorder
HT-280 Handy Terminal
ctivities and Results Canon’s MFPs sold well in North America. Our introduction of four new Bubble Jet MFPs sustained an increase in sales in Europe, and we raised our market share in the home-use facsimile machine market in Japan. In our calculator operations, we adopted outsourced software to boost competitiveness, and increased sales substantially by introducing an electronic dictionary with greatly expanded content. In the document scanner field, three models introduced in1999 contributed to increased sales despite fierce competition. We introduced the CD-4050 CD-R Document Recorder as the successor to the CD-4046, offering new functions such as network scanning. In particular, U.S. sales of this popular model contributed to sales for the category. Demand for our handheld information terminals, marketed mainly in Japan under the Handy Terminal name, fell slightly. In this market, we launched the top-of-the-line HT-280 Handy Terminal in 2000.
O
utlook for 2000 Demand for ink-jet and laser beam MFPs will continue to expand in 2001, and Canon will respond with new models. We will also promote Bubble Jet and low-end laser beam facsimile machines for Europe, and introduce home-use facsimile machines in Japan that take advantage of new telephone specifications. The global calculator market is stable, but demand for electronic dictionaries is growing rapidly, particularly in Japan. The document scanner market will expand, and we will actively promote our comprehensive lineup. We also look forward to both new and replacement demand for Handy Terminals.
22
Facsimile Machines and Other Business Machines
The LASERCLASS 2060 (FAX L350 in other regions) laser beam facsimile machine provides all of the functions an office requires at an affordable price.
LASERCLASS 2060
23
Cameras Sales results: Cameras
277,349
267,636
perating Environment The size of the global single-lens-reflex (SLR) camera market declined slightly in 2000, primarily owing to economic sluggishness in Japan, and the advance of digital cameras worldwide. Reflecting the conditions in these main markets, demand for lenses for SLR cameras also fell below the previous year’s result. The compact camera market also contracted in every region.
247,766
O
213,760
300,000
324,058
(Millions of yen)
0
96
97
98
99
00
A
ELPH LT260
SURE SHOT CLASSIC 120 (PRIMA SUPER 120 in other regions)
ctivities and Results To stimulate SLR camera demand, particularly among professional and high-end amateur photographers, Canon introduced the EOS-1V and EOS-7, with improved autofocus (AF) features. These cameras contributed to overall sales, as did the EOS Rebel 2000 (EOS 300 in other regions), which offers a sevenpoint AF function and high cost performance. In our lens operations, we introduced distinctive products taking advantage of our leading technologies and enhanced competitiveness with the EF28-90mm f/4-5.6, our new standard zoom lens. In our compact camera operations, we launched the ELPH LT260 (IXUS Z50 in other regions), an affordably priced 22-zoom camera in our topselling series for the Advanced Photo System. We also released the SURE SHOT Z90W (PRIMA SUPER 90 WIDE in other regions), a 35mm compact camera with a 3.22 zoom. By promoting these and other distinctive products meeting a variety of user needs, we worked to maintain the leadership status of the Canon brand in camera markets around the world.
O
utlook for 2000 In the future, the markets for SLR, 35mm compact and Advanced Photo System cameras, as well as EF lenses for SLR cameras, will progress alongside that for digital cameras. In this environment, Canon will continue activities to retain its number one market position, for example, by reinforcing its quality control structure and actively developing products that satisfy customer demands in terms of both design and functions.
EF100mm f/2.8 MACRO USM
24
SLR Cameras, Compact Cameras and Lenses
The Canon EOS-1V features excellent dust and moisture resistance, and an AF speed of 10 frames per second (fps).
EOS-1V
25
Digital Cameras, LCD Projectors and Others
The compact size, stylish design and performance of the PowerShot S100 DIGITAL ELPH (DIGITAL IXUS in other regions) has made this digital camera a huge hit.
PowerShot S100 DIGITAL ELPH
26
Cameras Digital Cameras, LCD Projectors and Others
O
perating Environment The value of the global digital camera market is estimated to have reached that of conventional cameras in 2000. Models with 3- and 4-megapixel CCDs entered the marketplace, but 2-megapixel products with distinctive designs and features brought this class to the forefront of the market. LCD projector demand grew, and increasing usage of the Internet and high-speed, high-volume computer networks stimulated expansion of the market for visual communication equipment such as network camera servers and communication cameras.
A
ctivities and Results Canon’s marketing activities for digital cameras centered on new high-end and midrange products. The highlight of 2000 was our global release of the PowerShot S100 DIGITAL ELPH, featuring the ultracompact size and familiar design of our ELPH (IXUS in other regions) ultracompact cameras for the Advanced Photo System. Offering 2-megapixel quality, a stylish metallic exterior and a 22-zoom lens, this camera became an immediate hit when sales began in the spring. Also in the compact digital camera marketplace, we offered 3-megapixel PowerShot S20 and PowerShot G1. Worthy of note in our marketing of digital SLR cameras was the launch of the high-performance EOS D30, which uses EF-series interchangeable lenses for EOS cameras. In LCD projector operations, we expanded our product lineup with the introduction of the highquality LV-7525, LV-7325 and LV-7320, featuring our originally developed Turbo Bright System, and the LV-5100, developed to meet expanding demand for compact models. To promote sales of visual communications system solutions, we launched the compact, high-performance VC-C4 Communication Camera and VB101 Network Camera Server.
EOS D30
LV-7525 LCD projector
O
utlook for 2000 The release of new digital cameras by several manufacturers will sustain a continuing rise in market growth. Canon intends to offer new products in the growing market for affordable digital cameras and reinforce its lineup of models designed to meet various user needs. We anticipate further LCD projector market growth, and demand for visual communication equipment should also expand.
27
VC-C4 Communication Camera with the VB101 Network Camera Server
Cameras Video Camcorders and Binoculars
O
perating Environment The market for video camcorders expanded around the world in 2000. Demand for digital video camcorders doubled in the Americas and Europe. Digital products accounted for about 25% of total sales in the Americas, and 45% of total sales in the European video camcorder market. In Japan, market growth was supported by demand for affordably priced megapixel models and models marketed with accessory kits and software. Global demand for binoculars rose, particularly in Europe, though the market in Japan contracted.
A
ZR10
ctivities and Results Responding to lowering prices for digital video camcorders, Canon introduced the affordable ZR10 (MV300 in Europe), which set a new record within Canon for unit sales. At the midrange level, we applied our precision technologies to create the ELURA2 MC (MV3/MV3i MC in Europe), a lightweight, ultracompact digital video camcorder that contributed significantly to sales. The XL1, our flagship digital video camcorder for the high end of the market, also sold well, especially in the United States. Demand for analog video camcorders remains strong in North America and Europe, which is why we reinforced our lineup. Contributing to binoculars sales during the year were our BINOCULARS 18250 IS ALL WEATHER and BINOCULARS 15250 IS ALL WEATHER, both featuring Canon’s own image stabilizer (IS) system. We also introduced the BINOCULARS 10230 IS, featuring a compact size and affordable price.
O XL1
utlook for 2000 In 2001, video camcorder demand is expected to continue shifting toward digital models. As these products are increasingly being used to input motion pictures into PCs, the need is growing for high-quality hardware and software. In this situation, Canon will further reinforce its cost competitiveness while applying its product development expertise to release products that easily connect with PCs. Forecasting flat demand for binoculars, we will work to raise consumer consciousness of our products through active marketing activities.
BINOCULARS 18@50 IS ALL WEATHER
28
Video Camcorders and Binoculars
The ELURA2 MC was designed to open a new age in digital video camcorder usage, featuring easy connectivity to PCs and an ultracompact size.
ELURA2 MC
29
Optical Products Sales results: Optical products (Millions of yen)
A
FPA-3000i5+
171,360 109,784
97
0
98
99
00
ctivities and Results Thanks to the healthy capital investment environment, strong customer relationships and a lineup of semiconductor production equipment at the extreme high end of the marketplace, Canon was able to achieve significant advances in both revenues and income in 2000. Products that made significant contributions to these results included the FPA-3000i5+, an i-line stepper offering excellent cost performance, and the FPA-3000EX6 krypton fluoride (KrF) excimer-laser stepper, with an ultralow-aberration lens providing ultraprecise 0.15-micron linewidth patterning and high throughput for 64 Mb dynamic random access memories (DRAMs), 256 Mb DRAMs and nextgeneration multiprocessors. The MPA-5500b mask aligner, a mirror projectiontype, full-field exposure device used for the high-speed processing of LCD panels up to 20 inches in diameter also contributed to sales.
O MPA-5500b
96
130,964
perating Environment Following a weak performance in 1999, the semiconductor devices market became active in 2000. Demand for a variety of devices grew rapidly, encouraging semiconductor manufacturers to invest in new equipment for both existing semiconductor categories and next-generation products.
152,737
O
154,306
170,000
utlook for 2000 Canon anticipates continued growth in sales of semiconductor production equipment in 2001. In addition to actively marketing existing products, we are preparing to launch three new strategic products: the ultraprecise FPA-5000ES3 KrF excimer-laser stepper, FPA-5000AS2 argon fluoride (ArF) excimer-laser scanning stepper, which is compatible with production on 300-mm wafers, and the FPA-5000iZ i-line stepper.
FPA-5000ES3
30
Semiconductor Production Equipment
The FPA-3000EX6 KrF excimerlaser stepper provides strong cost performance and features an ultralow-aberration lens that makes possible ultraprecise 0.15micron linewidth patterns.
FPA-3000EX6
31
Optical Products Medical and Broadcasting Equipment
O
perating Environment The ophthalmic instruments market was influenced by intense price competition and demand for digital eye examination solutions. In addition, a firm market for digital radiography equipment grew in 2000. Global demand for TV broadcasting lenses was robust. The IT revolution and increasing usage of information networks improved the market for new data communications systems such as our CANOBEAM optical beam transceivers.
A
CR6-45NMf Non-Mydriatic Retinal Camera
CXDI-22 Digital Radiography System
ctivities and Results In its ophthalmic instruments operations, Canon met user needs for digital systems with a Non-Mydriatic Retinal Camera and the EOS D2000/D30 digital SLR cameras, which can connect with an image data filing system. In the digital radiography field, we marketed the CXDI-22 Digital Radiography System, which is useful for exposure operations from a variety of angles. We also entered an OEM supply agreement for our Digital Radiography Systems with Agfa-Gevaert N.V. We maintained our dominant share of the TV broadcasting lens market by releasing a variety of strong products, including an ultrahigh-zoom broadcast field lens with built-in optical IS, and an ultrawide-angle ENG/EFP zoom lens. Sales of our CANOBEAM systems were also favorable, owing primarily to our launch of the CANOBEAM DT-50, with automatic laser tracking system.
O
utlook for 2000 The digitization and systemization of the ophthalmic instruments market will proceed in 2001, which is why Canon will continue reinforcing its lineup of related products, including image data filing systems and software. Competition will intensify in the digital radiography field, as new contenders enter the marketplace, but Canon will work from its lead in the field and launch new products to maintain and expand its market share. Although a weakening U.S. market might impact global sales of TV broadcasting lenses, we will continue our strategy of offering strategic new products to meet a variety of shooting needs. CANOBEAM sales will be sustained by growth in the marketplace.
DIGI SUPER 86xs
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 53 (2) Financial Statement Translation (3) Foreign Operations 54 (4) Marketable Securities and Marketable Investments 56 (5) Trade Receivables (6) Inventories (7) Property, Plant and Equipment 57 (8) Short-term Loans and Long-term Debt 60 (9) Trade Payables (10) Employee Retirement and Severance Benefits 62 (11) Income Taxes 65 (12) Common Stock (13) Legal Reserve and Cash Dividends (14) Noncash Financing Activities 66 (15) Other Comprehensive Income (Loss) 69 (16) Net Income per Share 70 (17) Foreign Exchange Risk Management and Interest Rate Risk Management (18) Commitments and Contingent Liabilities 71 (19) Disclosures about the Fair Value of Financial Instruments 72 (20) Supplementary Expense Information 73 INDEPENDENT AUDITORS’ REPORT
33
FINANCIAL OVERVIEW
RESULTS OF OPERATIONS million (U.S.$24,185 million), and a 90.9% advance in net income, to a record-setting ¥134,088 million (U.S.$1,166 million).
Although appreciation of the yen had a negative impact in the year 2000, the Canon Group accomplished a 6.1% growth in sales, to ¥2,781,303
SUMMARY OF OPERATIONS (Millions of yen except per share amounts) 2000
Net sales Operating profit Income before income taxes Net income Per share: Basic Diluted
change
1999
2,826,269 +2.4% 2,761,025 260,778 –4.8 274,034 239,513 +2.0 234,805 109,569 –7.8 118,813
$24,185,243 2,139,122 1,975,617 1,165,983
change
¥2,781,303 +6.1% 2,622,265 –7.2 245,999 +39.7 176,056 –32.5 227,196 +45.6 156,072 –34.8 134,088 +90.9 70,234 –35.9 153.66 +90.5 151.51 +90.6
1997
(Thousands of U.S. dollars except per share amounts) 2000
1998
80.66 –36.0 79.50 –35.9
Sales In 2000, the pace of economic growth in the United States remained strong, even though signs of a slowdown were recognized late in the year. The European economy was also in a favorable condition, despite the low value of the euro. The economy in Asian countries showed healthy expansion as well, recovering from economic sluggishness that was seen a few years ago, especially in Southeast Asia. In Japan, however, though solid growth occurred in capital investment in the private sector, consumer spending remained slow, and only a slight sign toward recovery was seen. While the favorable global economy helped the Canon Group expand sales, we experienced yen appreciation at the same time, which had a negative impact on our operations. In 2000, the average exchange rate of the yen to the U.S. dollar was ¥107.90, and to the euro was ¥99.32. These exchange rates are respectively equivalent to 5% and 21% increases from a year earlier. Using the average 1999 exchange rates, 2000 net sales would have increased 13.3% from 1999. This advance is mainly the result of strong demand for digital copying machines in the business machine segment, a rapid expansion of the digital camera market, and a semiconductor device demand that was remained strong throughout the year. In 1999, the Asian economy displayed signs of recovery from the previous year, while the economies in the United States and Europe remained solid. The average exchange rate of the yen to the U.S. dollar was ¥113 and to the euro was ¥120, or, respectively, 15% and 20% above 1998.
126.10 123.93
change
–8.4 –7.9
137.73 134.60
1.34 1.32
In 1998, the Southeast Asian economies were poor, and in Japan the market suffered from weak consumer spending and concerns over the stability of the Japanese banking system. The average exchange rate of the yen was approximately ¥131 to the U.S. dollar, reflecting a ¥10 increase from 1997, while the average German mark exchange rate fell from ¥70/DM1 during 1997, to ¥74/DM1.
Earnings Operating profit in 2000 increased a substantial 39.7% from the previous year, to ¥245,999 million (U.S.$2,139 million), or 8.8% of net sales. This compares with 6.7% in 1999 and 9.2% in 1998, respectively. Although the appreciation of the yen had an adverse effect on Canon’s net sales by approximately ¥190,000 million (U.S.$1,652 million), the gross profit ratio rose 0.4 point, from 42.9% in 1999, to 43.3%. This improvement is mainly the result of the successful introduction of production reformation activities such as the cell production method, and also because of increased sales of high-value-added products. Selling, general and administrative expenses increased slightly, resulting in ¥957,843 million (U.S.$8,329 million). This is equivalent to 34.4% of net sales, an increase of 1.0% from the previous year. Additional supplementary expenses were incurred in line with Canon’s year 2000 commemorative activities, but active efforts to reduce other expenses helped Canon hold selling, general and administrative expenses to a slight increase. While keeping selling, general and administrative expenses at the same level as in 1999, we increased R&D expenditure by 9.3% to achieve a higher technology level and continued future growth. 34
In 1999, operating profit decreased 32.5% to ¥176,056 million, or 6.7% of net sales. The gross profit ratio to net sales declined by 1.6% to 42.9%. The decline was mainly attributable to the appreciation of the yen, even though production reformation efforts to reduce costs supported a decline in the gross profit ratio. In 1998, Canon’s operating profit decreased 4.8% to ¥260,778 million, or 9.2% of net sales. Although the low value of the yen positively influenced net sales, the majority of this influence was eliminated at the gross profit level, owing to price reductions made to increase Canon’s competitive position in world markets.
In 1999, income before income taxes was ¥156,072 million, a 34.8% decrease from the previous year, or 6.0% of net sales. As a result of efforts to reduce short-term borrowings, interest expenses decreased ¥8,525 million to ¥20,356 million . Income before income taxes in 1998 was ¥239,513 million, or 8.5% of net sales. Other net deductions greatly improved from ¥23,362 million, to ¥4,960 million, owing to the decrease of foreign exchange losses.
Income before income taxes in 2000 was ¥227,196 million (U.S.$1,976 million), a 45.6% increase from 1999, or 8.2% of net sales. Net interest expenses improved by ¥6,544 million (U.S.$57 million) to ¥3,590 million (U.S.$31 million), primarily attributable to the decrease of short-term loans. The equity earnings of affiliated companies also increased to ¥10,817 million (U.S.$94 million), compared to an equity loss of ¥2,848 million (U.S.$25 million) in 1999. In comparison, foreign exchange losses of ¥20,195 million (U.S.$176 million) were recorded. Under these conditions, non-operating income/expenses improved ¥1,181 million (U.S.$10 million), pushing up the result of income before income taxes.
Return on sales
Net income in 2000 was a record-setting ¥134,088 million (U.S.$1,166 million), an outstanding increase of 90.9% from the previous year. This amount represents a 4.8% return on net sales. The income taxes to income before income taxes declined by 15.4% to 38.4%. The decrease was largely attributable to the reduction of Japanese normal income tax rates of 5% and the effect of changing income tax rates on net deferred tax assets. Net income in 1999 and 1998 was ¥70,234 million and ¥109,569 million, respectively. Return on sales was 2.7% and 3.9%.
R&D expenditure (Millions of yen) 4.8%
200,000
0
177,922
150,085
2.7%
176,967
3.9% 3.7%
170,793
4.3%
98
99
194,552
5
0
96
97
98
99
00
96
97
35
00
SALES BY PRODUCT (Millions of yen) 2000 change
Business machines: Copying machines Computer peripherals Business systems Cameras Optical and other products Total
1999
change
1998
¥ 823,247 –2.2% 842,082 –6.1 896,641 1,045,833 +8.3 965,499 –9.3 1,064,304 320,071 –10.2 356,350 –10.3 397,272 2,189,151 +1.2 2,163,931 –8.2 2,358,217 324,058 +16.8 277,349 +3.6 267,636 268,094 +48.1 180,985 –9.7 200,416 ¥ 2,781,303 +6.1 2,622,265 –7.2 2,826,269
1997
(Thousands of U.S. dollars) 2000
–0.3% 899,205 +10.3 964,808 –8.9 436,053 +2.5 2,300,066 +8.0 247,766 –6.0 213,193 +2.4 2,761,025
$ 7,158,670 9,094,200 2,783,226 19,036,096 2,817,896 2,331,251 $24,185,243
change
SALES BY REGION (Millions of yen) 2000 change
Japan Americas Europe Other areas Total
1997
(Thousands of U.S. dollars) 2000
–0.8 761,776 –11.2% 857,993 –9.2 1,005,648 +12.7 891,979 –12.8 850,226 +9.6 775,592 +1.4 208,619 –11.4 235,461 –7.2 2,826,269 +2.4 2,761,025
$ 7,024,096 8,123,174 6,679,730 2,358,243 $24,185,243
1999 change
¥ 807,771 +6.9% 755,704 934,165 +2.3 913,377 768,169 +3.6 741,657 271,198 +28.2 211,527 ¥ 2,781,303 +6.1 2,622,265
1998 change
SALES BY PRODUCT Sales of business machines (copying machines, computer peripherals and business systems), constituted 78.7% of consolidated net sales, increased 1.2%, to ¥2,189,151 million (U.S.$19,036 million) in 2000. In 1999, business machine sales decreased 8.2% from 1998, while 1998 sales increased 2.5% from 1997. Sales of copying machines (including digital, color, office and personal models) decreased 2.2%, to ¥823,247 million (U.S.$7,159 million) in 2000. Copying machines achieved nearly 6% sales growth on a local-currency basis reflecting strong worldwide demand for digital copying machines. The strong yen, however, led to a slight decline in these sales on a consolidated basis. Sales of copying machines decreased in 1999 and 1998. The decrease in 1999 was mainly owing to the appreciation of the yen. Sales of computer peripherals (mainly laser beam printers, Bubble Jet printers and scanners) increased 8.3%, to ¥1,045,833 million (U.S.$9,094 million). Sales of laser beam printers showed a healthy growth in the overseas market. Sales of computer peripherals decreased in 1999 but increased in 1998. Sales of business systems (including facsimile machines, computers, micrographics, Japanese-language word processors and calculators) decreased 10.2%, to ¥320,071 million (U.S.$2,783 million) in 2000. The strong yen and intense price competition led to a decrease in sales of facsimile machines. Sales of business systems decreased in 1999 and 1998.
Sales of cameras increased 16.8%, to ¥324,058 million (U.S$2,818 million). The introduction of new digital cameras and rapid market expansion supported a significant increase in sales, while video camcorder sales were also favorable. Cameras contributed 11.7% to consolidated net sales. Sales of cameras increased in both 1999 and 1998. Sales of optical and other products (including steppers and aligners for semiconductor chip production, TV broadcasting lenses, medical equipment and digital radiography systems) increased 48.1%, to ¥268,094 million (U.S.$2,331 million). This increase was mainly attributable to significant growth in stepper sales, stimulated by active capital investment by semiconductor manufacturers in the healthy semiconductor market. Optical and other products contributed 9.6% to consolidated net sales. Sales of optical and other products decreased in both 1999 and 1998 because of restrained capital investments by semiconductor manufacturers.
SALES BY REGION A geographical analysis indicates that net sales in 2000 increased in every area. In Japan, overall sales increased 6.9%. In particular, Bubble Jet printers and digital cameras grew significantly as a result of the introduction of attractive new products. Semiconductor production equipment also registered substantial growth. In the U.S.
36
market, digital copying machines, digital video camcorders and semiconductor production equipment sold especially well. However, although sales in the Americas recorded 7.8% growth in U.S. dollar terms, the appreciation of the yen reduced the growth rate to 2.3%. Sales in Europe showed a significant growth of 20.4% in euro terms. However, the stronger yen reduced this growth rate to 3.6%. Laser beam printers, digital cameras and semiconductor production equipment mainly led the increase. Sales in other areas increased 28.2%, reflecting the significant sales increases of semiconductor production equipment in Korea and Taiwan, and the economic recovery in the respective regions. In 1999, net sales decreased in Japan, the Americas and Europe, but increased in other areas. The sales decreases in the Americas and Europe were mainly attributable to the appreciation of the yen. In 1998, net sales increased in Europe and the Americas, mainly owing to favorable exchange rates, but decreased in Japan and other areas.
Operating profit for business machines increased ¥56,296 million (U.S.$490 million) in 2000. This increase is mainly attributable to increased sales of computer peripherals and improvement of the operating profit ratio, led by successful efforts to reduce production costs and selling expenses. Operating profit for business machines in 1999 decreased ¥54,807 million, largely owing to the decline in the gross profit ratio, reflecting appreciation of the yen. In 1998, operating profit for business machines decreased ¥2,268 million, mainly because of reduced sales of copying machines. Operating profit for cameras increased ¥14,199 million (U.S.$123 million) in 2000, reflecting the improved profitability of digital cameras and digital video camcorders, led by significant sales increases. Operating profit for cameras in 1999 decreased ¥8,240 million. The appreciation of the yen brought the decline of the gross profit ratio for cameras. Operating profit for cameras in 1998 increased ¥5,093 million from 1997. In 2000, optical and other products recorded operating profit of ¥12,013 million (U.S.$104 million). This was compared with an operating loss of ¥13,233 in 1999. The improvement was mainly attributable to increased sales of semiconductor production equipment. The operating loss for optical and other products in 1999 reflected weak demand in the semiconductor market. Operating profit for optical and other products decreased in 1998, owing to the slowdown of the semiconductor market.
SEGMENT INFORMATION BY PRODUCT AND GEOGRAPHIC AREA The disclosures of segment information by product as required in Japan for the years ended December 31, 2000,1999 and 1998 are provided on page 38, and the disclosures of segment information by geographic area as required in Japan for the years ended December 31, 2000, 1999 and 1998 are shown on page 39.
Sales by product
Sales by region
(Millions of yen)
(Millions of yen)
Business machines
Japan
Copying machines Computer peripherals Business systems
2,500,000
Americas
Cameras
Europe
Optical and other products
Other areas
2,781,303 2,761,025 2,826,269 2,622,265 2,558,227
0
2,761,025 2,500,000
2,826,269
2,781,303 2,622,265
2,558,227
0
96
97
98
99
00
96
97
37
98
99
00
SEGMENT INFORMATION BY PRODUCT Business machines
Cameras
Optical and other products
2000: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets Depreciation and amortization Capital expenditure
¥ 2,189,151 — 2,189,151 1,870,977 ¥ 318,174 ¥ 1,324,369 101,557 105,171
324,058 — 324,058 290,892 33,166 207,069 14,480 15,559
268,094 126,947 395,041 383,028 12,013 332,229 13,019 20,509
— (126,947) (126,947) (9,593) (117,354) 968,458 17,421 29,747
2,781,303 — 2,781,303 2,535,304 245,999 2,832,125 146,477 170,986
1999: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets Depreciation and amortization Capital expenditure
¥ 2,163,931 — 2,163,931 1,902,053 ¥ 261,878 ¥ 1,256,667 114,451 143,269
277,349 — 277,349 258,382 18,967 155,204 12,285 12,880
180,985 79,413 260,398 273,631 (13,233) 252,071 12,860 17,856
— (79,413) (79,413) 12,143 (91,556) 923,590 18,515 26,381
2,622,265 — 2,622,265 2,446,209 176,056 2,587,532 158,111 200,386
1998: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets Depreciation and amortization Capital expenditure
¥ 2,358,217 — 2,358,217 2,041,532 ¥ 316,685 ¥ 1,438,218 117,179 149,072
267,636 — 267,636 240,429 27,207 159,896 11,695 14,019
200,416 80,179 280,595 275,946 4,649 239,884 9,925 17,296
— (80,179) (80,179) 7,584 (87,763) 890,331 22,988 41,014
2,826,269 — 2,826,269 2,565,491 260,778 2,728,329 161,787 221,401
Business machines
Cameras
Optical and other products
$19,036,096 — 19,036,096 16,269,366 $ 2,766,730 $11,516,252 883,104 914,530
2,817,896 — 2,817,896 2,529,496 288,400 1,800,600 125,913 135,296
2,331,251 1,103,888 3,435,139 3,330,678 104,461 2,888,948 113,209 178,339
(Millions of yen)
(Thousands of U.S. dollars)
2000: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets Depreciation and amortization Capital expenditure
Corporate and Eliminations
Corporate and Eliminations
Consolidated
Consolidated
— 24,185,243 (1,103,888) — (1,103,888) 24,185,243 (83,419) 22,046,121 (1,020,469) 2,139,122 8,421,374 24,627,174 151,487 1,273,713 258,670 1,486,835
Notes: 1 General corporate expenses of ¥117,440 million (U.S.$1,021,217 thousand), ¥91,540 million and ¥88,064 million in 2000, 1999 and 1998, respectively, are included in “Corporate and Eliminations.” 2 Corporate assets of ¥968,590 million (U.S.$8,422,522 thousand), ¥923,863 million and ¥892,863 million in 2000, 1999 and 1998, respectively, which mainly consist of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
38
SEGMENT INFORMATION BY GEOGRAPHIC AREA (Millions of yen)
Americas
Europe
2000: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets
¥ 860,702 1,345,983 2,206,685 1,886,606 320,079 ¥1,482,335
933,778 11,748 945,526 915,723 29,803 353,919
764,206 3,782 767,988 752,271 15,717 407,258
222,617 — 2,781,303 246,024 (1,607,537) — 468,641 (1,607,537) 2,781,303 457,779 (1,477,075) 2,535,304 10,862 (130,462) 245,999 158,729 429,884 2,832,125
1999: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets
¥ 791,399 1,205,021 1,996,420 1,791,871 204,549 ¥ 1,328,376
912,676 14,468 927,144 898,900 28,244 298,624
736,570 3,645 740,215 727,215 13,000 338,630
181,620 — 2,622,265 179,527 (1,402,661) — 361,147 (1,402,661) 2,622,265 350,482 (1,322,259) 2,446,209 10,665 (80,402) 176,056 138,251 483,651 2,587,532
1998: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets
¥ 796,406 1,312,405 2,108,811 1,831,816 276,995 ¥ 1,384,473
1,003,683 21,523 1,025,206 1,002,166 23,040 328,634
841,400 3,126 844,526 820,257 24,269 391,354
184,780 — 2,826,269 198,702 (1,535,756) — 383,482 (1,535,756) 2,826,269 370,036 (1,458,784) 2,565,491 13,446 (76,972) 260,778 136,843 487,025 2,728,329
Japan
Americas
Europe
$ 7,484,365 11,704,200 19,188,565 16,405,269 2,783,296 $12,889,870
8,119,809 102,156 8,221,965 7,962,809 259,156 3,077,557
6,645,270 32,887 6,678,157 6,541,487 136,670 3,541,374
(Thousands of U.S. dollars)
2000: Net sales: Unaffiliated customers Intersegment Total Operating cost and expenses Operating profit Assets
Others
Corporate and Eliminations
Japan
Others
Corporate and Eliminations
Consolidated
Consolidated
1,935,799 — 24,185,243 2,139,339 (13,978,582) — 4,075,138 (13,978,582) 24,185,243 3,980,687 (12,844,131) 22,046,121 94,451 (1,134,451) 2,139,122 1,380,252 3,738,121 24,627,174
Notes: 1 General corporate expenses of ¥117,440 million (U.S.$1,021,217 thousand), ¥91,540 million and ¥88,064 million in 2000, 1999 and 1998, respectively, are included in “Corporate and Eliminations.” 2 Corporate assets of ¥968,590 million (U.S.$8,422,522 thousand), ¥923,863 million and ¥892,863 million in 2000, 1999 and 1998, respectively, which mainly consist of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
39
FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSACTIONS Canon’s marketing activities are performed by subsidiaries in each region in local currencies, while the cost of goods sold is generally in yen. Given Canon’s current operating structure, appreciation of the yen has a negative impact on net sales and the gross profit ratio. To reduce the financial risks from changes in foreign exchange rates, Canon utilizes derivative financial instruments, which are comprised principally of forward currency exchange contracts. The return on foreign operation sales is usually lower than domestic operations because foreign operations consist mainly of marketing activities. The returns on foreign operation sales in 2000, 1999 and 1998 were 2.0%, 1.8% and 2.1%, respectively. This compares with 4.8%, 2.7% and 3.9% on total operations for the respective years.
LIQUIDITY Cash and cash equivalents in 2000 increased ¥13,509 million (U.S.$117 million) to ¥493,962 million (U.S.$4,295 million), compared with ¥480,453 million in 1999 and ¥499,182 million in 1998. Net cash provided by operating activities was ¥346,616 million (U.S.$3,014 million), compared with ¥308,917 million in 1999 and ¥279,220 million in 1998. This increase is attributable mainly to the notable increase in net income. Production reformation and the completion of projects to enhance facilities also allowed us to hold capital expenditure to less than the previous year, resulting in ¥212,804 billion (U.S.$1,850 million) in cash flows from investing activities, compared with ¥200,982 million in 1999 and ¥247,947 million in 1998.
Capital expenditure
CAPITAL RESOURCES Capital expenditure in 2000 amounted to ¥170,986 million (U.S.$1,487 million) compared with ¥200,386 million in 1999 and ¥221,401 million in 1998. Owing mainly to the favorable effects of production reformation activities and the completion of investment projects for base equipment and facilities, capital expenditure in 2000 was less than the previous year. In 2000, major capital expenditure included the expansion and maintenance of production capabilities, construction of a new plant for consumables and construction of new corporate headquarters and sales offices. Funds required for investments have been generated internally from operations. At December 31, 2000, Canon had outstanding commitments of approximately ¥51,656 million (U.S.$449 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 ratio
(Millions of yen)
Return on stockholders’ equity
170,986
2
200,386
221,401
219,779
11.2%
176,357
200,000
Net cash used in financing activities in 2000 came to ¥100,597 million (U.S.$875 million), mostly because of active efforts to repay debt reflecting Canon’s policy to improve its financial structure, compared to ¥122,823 million in 1999 and ¥177,862 million in 1998.
0
10
1.46
1.53
1.60
1.70
97
98
99
00
9.7%
1.71 6.0%
0
96
10.7%
10.0%
0
96
97
98
40
99
00
96
97
98
99
00
Working capital in 2000 increased ¥86,879 million (U.S.$755 million), to ¥696,609 million (U.S.$6,057 million), compared with ¥609,730 million in 1999 and ¥624,323 million in 1998. The increase was primarily attributable to the increase of inventories and trade receivables caused by growing sales. The working capital ratio (current assets to current liabilities) for 2000 was 1.71, compared with 1.70 for 1999 and 1.60 for 1998. Return on assets rose to 4.9% in 2000, compared with 2.6% in 1999 and 3.9% in 1998. This rise was due mainly to increased net income. Return on stockholders’ equity also rose to 10.7% in 2000, compared with 6.0% in 1999 and 9.7% in 1998.
Market Risk Management Market Risk Exposures Canon is exposed to markets risk, including changes in foreign exchange rates, interest rates and prices of marketable securities and marketable investments. In order to hedge the risks of changes in foreign exchange rates and interest rates, Canon uses derivative financial instruments. Canon does not hold or issue derivative financial instruments for trading purposes. Although the use of derivative financial instruments exposes Canon to the risk of credit-related losses in the event of nonperformance by counterparties, Canon believes that its counterparties are creditworthy and does not expect such losses, if any, to be significant.
Foreign Exchange Risk Canon’s international operations and foreign currency indebtedness expose Canon to the risk of changes in foreign currency exchange rates. To manage this exposure, Canon enters into foreign exchange contracts. With respect to risks related to its sales revenue, Canon currently has a policy of entering into foreign exchange contracts that cover approximately 30-50% of the amount of foreign currency cash flows that Canon, at a given time, anticipates it will receive within the immediately succeeding two to three month period. Canon also enters into foreign exchange contracts from time to time to hedge a portion of the risk of fluctuation in foreign currency exchange rates associated with long-term debt that is denominated in foreign currencies. Foreign exchange contracts related to such long-term debt have the same maturity as the underlying debt. The following table provides information about Canon’s major derivative financial instruments related to foreign currency exchange transactions existing at December 31,2000, 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 31,2000. This table does not include amounts related to foreign exchange contracts entered into in connection with long-term debt denominated in foreign currencies which eliminate all foreign currency exposures. All of the foreign exchange contracts described in the following table have a contractual maturity date in 2001. Forwards to sell foreign currencies:
Equity Price Risk Canon holds marketable securities and marketable investments included in current assets for short-term investment. In general, highly-liquid and low-risk instruments are preferred in the portfolio. Marketable securities and marketable investments included in noncurrent assets are held as longer-term investments. Canon does not hold marketable securities and marketable investments for trading purposes. Maturities and fair values of such marketable securities and marketable investments were as follows at December 31, 2000. Millions of yen Cost Fair Value
Thousands of U.S. dollars Cost Fair Value
Due within one year ¥ 2,191 Due after one year through five years 2,780 Due after five years 6,376 Equity securities 29,956
2,250 $ 19,052
19,565
3,573 24,174 6,463 55,444 62,398 260,487
31,069 56,200 542,592
¥ 41,303
74,684 $359,157
649,426
41
Contract amounts Estimated fair value Average contractual rates Forwards to sell foreign currencies:
Contract amounts Estimated fair value
Millions of yen (except average contractual rates) U.S.$/Yen euro/Yen Others Total
¥ 271,398 88,483 (11,257) (8,920) 108.86 95.01
1,398 250
361,279 (19,927)
Thousands of U.S. dollar U.S.$/Yen euro/Yen Others Total
$2,359,983 769,417 12,157 3,141,557 (97,887) (77,565) 2,174 (173,278)
Interest Rate Risk Canon’s exposure to the market risk of changes in interest rates relates primarily to its debt obligations. Canon has long-term debt with both fixed rates and floating rates. Interest rate swaps may be entered into from time to time by Canon to hedge cash flows of interest and debt when determined by Canon to be appropriate based on market conditions. The following tables provide information about Canon’s derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional principal amounts and weighted average interest rates by expected maturity dates. Notional principal amounts are used to calculate the contractual payments to be exchanged under the contracts. The table presents information for obligations existing at December 31, 2000, which is translated into yen at the rate used herein as of such date, together with the related weighted average contractual interest rates at December 31, 2000.
LONG-TERM DEBT (including due within one year) Japanese yen notes Japanese yen convertible debentures Loans, principally from banks Total
(Millions of yen) Expected maturity date
Average interest rates
Total
2001
2002
2003
2004
2.27% ¥ 111,920 19,920 37,000 10,000 20,000 1.20% 3.40%
2005
Thereafter
5,000 20,000 115,741
19,926 — 4,746 — — 5,221 9,959 56,912 49,574 18,575 14,921 8,455 1,147 1,346 5,130 52,535 ¥ 181,420 38,495 56,667 18,455 21,147 11,567 35,089 225,188
INTEREST RATE SWAP Notional principal amount (million)
Average receive rate
¥ 60,000 US$ 467
1.63% 6.62%
(Millions of yen) Expected maturity date
Average pay rate
Total
0.84% ¥ 6.20%
2001
2002
2003
2004
2005
Thereafter
60,000 40,000 20,000 — 53,538 6,202 19,934 27,402
— —
— —
— —
LONG-TERM DEBT (including due within one year) Average interest rates
Japanese yen notes Japanese yen convertible debentures Loans, principally from banks Total
Total
Average receive rate
¥ 60,000 US$ 467
1.63% 6.62%
Estimated Fair Value
1,315 (515)
(Thousands of U.S. dollars) Expected maturity date 2001
2002
2003
2004
2005
Thereafter
Estimated Fair Value
2.27% $ 973,217 173,217 321,739 86,957 173,913 43,478 173,913 1,006,443 1.20% 3.40%
173,270 — 41,270 — — 45,400 86,600 494,887 431,078 161,522 129,747 73,521 9,974 11,705 44,609 456,827 $1,577,565 334,739 492,756 160,478 183,887 100,583 305,122 1,958,157
INTEREST RATE SWAP Notional principal amount (million)
Estimated Fair Value
(Thousands of U.S. dollars) Average pay rate
Expected maturity date Total
2001
2002
2003
2004
2005
Thereafter
0.84% $ 521,739 347,826 173,913 — 6.20% 465,548 53,930 173,339 238,279
— —
— —
— —
42
Estimated Fair Value
11,435 (4,478)
REGARDING THE ENVIRONMENT Canon is not aware of any sites that may have an adverse material effect on its liquidity, financial position or results of operations. It is difficult to estimate future environmental expenditure because of the many uncertainties involved, including the future status of the law, regulations, technology and information. Nevertheless, Canon believes that capital expenditure and expenses incurred in complying with current laws for environmental protection will not have a material effect upon its liquidity, financial position or results of operations.
LOOKING FORWARD In 2001, Canon expects the U.S. economy will show a further slowdown, but the effects of IT-related network activity should stimulate the global economy, in which case Canon should expect continuous growth. The expanding usage of the Internet and advances in wireless communication technologies will propel the progress of the multimedia society, creating diverse new businesses and products, and widening opportunities for growth. On the other hand, the IT revolution and globalization will continue to eliminate market borders, thereby intensifying competition. Canon expect continued firm demand for semiconductor production equipment, even though semiconductor manufacturers are starting to take a more cautious approach to additional capital investment. As nearly 70% of Canon’s products are marketed overseas, and a large portion of these products are manufactured at plants in Japan, the appreciation of the yen has a negative impact on Canon’s operating results. In this situation, Canon will commence Phase II of its Excellent Global Corporation Plan. First of all, Canon is focusing management resources in the digital photo, digital office and semiconductor production equipment businesses, in which Canon intends to strategically reinforce its position. To this end, Canon will work to develop key components and devices, such as optical devices, photosensitive devices, semiconductor devices and software, which form the core competency of the Group’s digital imaging technologies, while shifting production within the Canon Group. At the same time, Canon will continuously work to expand its solution businesses in marketing activities.
43
The foregoing discussion in Financial Overview contains forward-looking statements that reflect management’s current views with respect to certain future events and financial performance. Actual results may differ materially from those projected or implied in the forward-looking statements. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate. The following important factors could cause actual results to differ materially from those projected or implied in any forward-looking statements: exchange rate fluctuations; the uncertainty of Canon’s ability to implement its plans to localize production and other measures to reduce the impact of exchange rate fluctuations; uncertainty as to economic condition in Canon’s major markets; uncertainty of continued demand for Canon’s high-value-added products; uncertainty in the continued growth of computer and related markets; uncertainty of increased demand for Canon’s semiconductor production equipment; Canon’s ability to continue to develop products and to market products that incorporate new 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.
TEN-YEAR FINANCIAL SUMMARY
(Millions of yen except per share amounts) 2000
1999
1998
1997
807,771 1,973,532 2,781,303
755,704 1,866,561 2,622,265
761,776 2,064,493 2,826,269
857,993 1,903,032 2,761,025
106.1%
92.8
102.4
107.9
Net income Percentage of sales
134,088 4.8%
70,234 2.7
109,569 3.9
118,813 4.3
Advertising Research and development Depreciation Capital expenditure
67,840 194,552 144,043 170,986
67,544 177,922 155,682 200,386
76,911 176,967 159,888 221,401
75,800 170,793 137,777 219,779
142,925 1,298,914 2,832,125
165,277 1,202,003 2,587,532
180,320 1,155,520 2,728,329
226,889 1,109,511 2,872,779
153.66 151.51 21.00
80.66 79.50 17.00
126.10 123.93 17.00
137.73 134.60 17.00
5,620 3,400
4,200 2,170
3,400 1,930
3,820 2,280
872,606 86,673
870,699 81,009
868,916 79,799
862,664 78,767
Net sales: Domestic Overseas Total Percentage of previous year
¥
Long-term debt, excluding current installments Stockholders’ equity Total assets Per share data: Net income: Basic Diluted Cash dividends declared Stock price: High Low Average number of common shares in thousands Number of employees
Common stock price range (Yen) 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
91
92
93
94
95
96
97
98
99
44
00
1996
1995
1994
1993
1992
1991
(Thousands of U.S. dollars except per share amounts) 2000
828,829 1,729,398 2,558,227
717,844 1,447,782 2,165,626
634,797 1,298,513 1,933,310
573,094 1,263,040 1,836,134
572,734 1,341,684 1,914,418
580,786 1,288,138 1,868,924
$ 7,024,095 17,161,148 24,185,243
118.1
112.0
105.3
95.9
102.4
108.2
106.1
94,177 3.7
55,036 2.5
31,024 1.6
21,102 1.1
35,621 1.9
51,419 2.8
1,165,983 4.8
68,354 150,085 117,263 176,357
53,033 125,253 104,474 123,560
44,698 121,273 103,304 133,068
42,468 104,191 100,631 151,808
57,723 100,521 96,376 149,014
70,486 95,740 88,361 168,743
589,913 1,691,757 1,252,548 1,486,835
192,254 1,007,434 2,644,452
298,055 880,150 2,506,152
311,002 808,985 2,270,010
430,285 721,411 2,165,370
285,377 708,454 2,163,291
316,258 669,340 2,097,664
1,242,826 11,294,904 24,627,174
111.29 106.96 15.00
65.96 62.73 13.00
38.50 35.84 12.50
27.01 26.76 12.50
47.09 46.46 12.50
68.67 64.65 12.50
1.34 1.32 0.18
2,630 1,780
1,940 1,230
1,820 1,530
1,560 1,270
1,470 1,200
1,660 1,200
48.87 29.57
846,224 75,628
834,329 72,280
805,897 67,672
781,261 64,535
756,497 64,512
748,822 62,700
Note: U.S. dollar amounts are translated from yen at the rate of ¥115=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December 29, 2000.
45
CANON INC. AND SUBSIDIARIES
December 31, 2000 and 1999
CONSOLIDATED BALANCE SHEETS
Thousands of U.S. dollars (note 2)
Millions of yen
ASSETS Current assets: Cash and cash equivalents Marketable securities (notes 4 and 8) Trade receivables (notes 5 and 8) Inventories (notes 6 and 8) Prepaid expenses and other current assets (note 11) Total current assets Noncurrent receivables and restricted funds (note 18) Investments (notes 4 and 8) Net property, plant and equipment (notes 7 and 8) Other assets (notes 10 and 11) Total assets
2000
1999
2000
¥ 493,962 10,943 479,790 490,693 196,011 1,671,399 27,626 119,195 771,594 242,311 ¥ 2,832,125
480,453 9,003 376,472 436,250 184,411 1,486,589 29,771 166,464 746,824 157,884 2,587,532
$ 4,295,322 95,157 4,172,087 4,266,896 1,704,442 14,533,904 240,226 1,036,478 6,709,513 2,107,053 $24,627,174
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Short-term loans (note 8) ¥ 248,688 298,399 Trade payables (note 9) 444,633 364,664 Income taxes (note 11) 53,865 45,915 Accrued expenses 164,484 117,390 Other current liabilities (note 11) 63,120 50,491 Total current liabilities 974,790 876,859 Long-term debt, excluding current installments (note 8) 142,925 165,277 Accrued pension and severance cost (note 10) 194,445 132,826 Other noncurrent liabilities (note 11) 22,838 11,325 Total liabilities 1,334,998 1,186,287 Minority interests 198,213 199,242 Stockholders’ equity: Common stock of ¥50 ($0.43) par value. Authorized 2,000,000,000 shares; issued and outstanding 875,627,023 shares in 2000 and 871,555,698 shares in 1999 (notes 8 and 12) 164,796 163,969 Additional paid-in capital (notes 8 and 12) 391,939 376,848 Legal reserve (notes 13) 35,584 33,518 Retained earnings (notes 11 and 13) 853,177 735,975 Accumulated other comprehensive income (loss) (notes 4, 10, 11 and 15) (146,582) (108,307) Total stockholders’ equity 1,298,914 1,202,003 Commitments and contingent liabilities (note 18) Total liabilities and stockholders’ equity ¥ 2,832,125 2,587,532 See accompanying notes to consolidated financial statements.
46
$ 2,162,504 3,866,374 468,391 1,430,296 548,870 8,476,435 1,242,826 1,690,826 198,591 11,608,678 1,723,592
1,433,009 3,408,165 309,426 7,418,931 (1,274,627) 11,294,904 $24,627,174
CANON INC. AND SUBSIDIARIES
Years ended December 31, 2000, 1999 and 1998
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
2000
1999
1998
2000
¥ 2,781,303 1,577,461 1,203,842 957,843 245,999
2,622,265 1,497,940 1,124,325 948,269 176,056
2,826,269 1,569,197 1,257,072 996,294 260,778
$ 24,185,243 13,717,052 10,468,191 8,329,069 2,139,122
11,428 (15,018) (15,213) (18,803) 227,196
10,222 (20,356) (9,850) (19,984) 156,072
12,576 (28,881) (4,960) (21,265) 239,513
99,374 (130,591) (132,288) (163,505) 1,975,617
87,197 139,999
83,939 72,133
123,843 115,670
758,234 1,217,383
5,911 ¥ 134,088
1,899 70,234
6,101 109,569
51,400 $ 1,165,983
Income before income taxes and minority interests Income taxes (note 11) Income before minority interests Minority interests Net income
Yen
U.S. dollars (note 2)
Net income per share (notes 1(p) and 16): Basic Diluted
¥
153.66 151.51
80.66 79.50
126.10 123.93
$
1.34 1.32
Dividends per common share (note 13)
¥
21.00
17.00
17.00
$
0.18
See accompanying notes to consolidated financial statements.
47
CANON INC. AND SUBSIDIARIES
Years ended December 31, 2000, 1999 and 1998
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Thousands of U.S. dollars (note 2)
Millions of yen 2000
Common stock: Balance at beginning of year ¥ 163,969 Conversion of convertible debt (notes 12 and 14) 668 Share issued for acquisition of minority interests (notes 12 and 14) 159 Balance at end of year 164,796 Additional paid-in capital: Balance at beginning of year 376,848 Conversion of convertible debt (notes 12 and 14) 661 Share issued for acquisition of minority interests (notes 12 and 14) 14,430 Increase arising from issuance of subsidiaries’ common stock, conversion of convertible debt and exercise of warrants of subsidiaries and other transfers — Balance at end of year 391,939 Legal reserve: Balance at beginning of year 33,518 Transfers from retained earnings (note 13) 2,066 Transfers to minority interests arising from issuance of subsidiaries’ common stock, conversion of convertible debt and exercise of warrants of subsidiaries and other transfers — Balance at end of year 35,584 Retained earnings: Balance at beginning of year 735,975 Net income for the year 134,088 Cash dividends (note 13) (14,820) Transfers to legal reserve (note 13) (2,066) Transfers to minority interests arising from issuance of subsidiaries’ common stock, conversion of convertible debt and exercise of warrants of subsidiaries and other transfers — Balance at end of year 853,177 Accumulated other comprehensive income (loss): (notes 4, 10, 11 and 15) Balance at beginning of year (108,307) Other comprehensive income (loss) for the year, net of tax (note 15) (38,275) Balance at end of year (146,582) Total stockholders’ equity ¥ 1,298,914 Disclosure of comprehensive income: Net income for the year Other comprehensive income (loss) for the year, net of tax (note 15) Total comprehensive income for the year
¥
1999
1998
2000
163,033 936
160,411 2,622
$ 1,425,817 5,809
— 163,969
— 163,033
1,383 1,433,009
375,913 935
372,398 2,612
3,276,939 5,748
—
—
125,478
— 376,848
903 375,913
— 3,408,165
31,396 2,122
28,467 2,934
291,461 17,965
— 33,518
(5) 31,396
— 309,426
682,663 70,234 (14,797) (2,122)
592,268 109,569 (15,619) (2,934)
6,399,783 1,165,983 (128,870) (17,965)
(3) 735,975
(621) 682,663
— 7,418,931
(97,485)
(44,033)
(941,800)
(10,822) (108,307) 1,202,003
(53,452) (97,485) 1,155,520
(332,827) (1,274,627) $11,294,904
134,088
70,234
109,569
(38,275) 95,813
(10,822) 59,412
(53,452) 56,117
See accompanying notes to consolidated financial statements.
48
1,165,983 $
(332,827) 833,156
CANON INC. AND SUBSIDIARIES
Years ended December 31, 2000, 1999 and 1998
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, plant and equipment Deferred income taxes Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Increase (decrease) in income taxes Increase in accrued expenses Other, net Net cash provided by operating activities Cash flows from investing activities: Capital expenditure Proceeds from sale of property, plant and equipment Payment for purchase of marketable securities Proceeds from sale of marketable securities Payment for purchase of investments Other Net cash used in investing activities Cash flows from financing activities (note 14): Proceeds from long-term debt Repayment of long-term debt Decrease in short-term loans Dividends paid (note 13) Other Net cash 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
2000
1999
1998
2000
¥ 134,088
70,234
109,569
$ 1,165,983
146,477 14,080 (10,280) (52,751) (27,884) 100,588 6,917 21,343 14,038 346,616
158,111 8,814 (5,972) (1,231) 107,913 (22,950) (13,966) 3,206 4,758 308,917
161,787 6,631 1,941 1,640 15,737 (46,636) 607 9,386 18,558 279,220
1,273,713 122,435 (89,391) (458,704) (242,470) 874,678 60,148 185,591 122,070 3,014,053
(170,986) 5,752 (3,082) 2,428 (14,702) (32,214) (212,804)
(200,386) 6,104 (12,349) 6,637 (9,770) 8,782 (200,982)
(221,401) 3,404 (5,386) 9,439 (28,111) (5,892) (247,947)
(1,486,835) 50,017 (26,800) 21,113 (127,843) (280,121) (1,850,469)
17,358 (32,529) (67,923) (14,820) (2,683) (100,597)
23,811 (75,005) (51,871) (14,797) (4,961) (122,823)
34,903 (29,458) (167,295) (15,619) (393) (177,862)
150,939 (282,861) (590,635) (128,870) (23,330) (874,757)
(19,706) 13,509 480,453 ¥ 493,962
(3,841) (18,729) 499,182 480,453
(1,326) (147,915) 647,097 499,182
(171,357) 117,470 4,177,852 $ 4,295,322
¥ 14,860 90,560
19,321 103,877
21,083 121,295
$
129,217 787,478
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, micrographics, Japanese-language word processors and calculators. Canon’s camera business consists mainly of SLR cameras, compact cameras, video camcorders and digital cameras. Optical related products include steppers and aligners used in semiconductor chip production, broadcasting lenses and medical equipment. Canon’s sales in the year ended December 31, 2000 were distributed as follows: copying machines-30%, computer peripherals-38%, business systems-11%, cameras12%, and optical and other products-9%. 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 69% of consolidated net sales in the year ended December 31, 2000 were generated outside Japan, with 34% in Americas, 27% in Europe and 8% in other areas. Canon’s manufacturing operations are conducted primarily at 17 plants in Japan and 12 overseas plants which are located in the United States, Germany, France, Taiwan, China, Malaysia, Thailand, and Mexico. Canon sells laser beam printers on an OEM basis to Hewlett-Packard Co.; such sales constituted approximately 20% of consolidated sales for the year ended December 31, 2000. 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 accounting principles generally accepted in the United States of America.
(d) Cash Equivalents For purposes of the statements of cash flows, Canon considers all highly-liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. (e) Translation of Foreign Currencies Foreign currency financial statements have been translated in accordance with Statement of Financial Accounting Standards No. 52 (“SFAS 52”), “Foreign Currency Translation”. Under SFAS 52, assets and liabilities of the Company's subsidiaries located outside Japan are translated into Japanese yen at the rates of exchange in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the year. Gains and losses resulting from translation of financial statements, including gains and losses from hedging and intercompany transactions, net of related taxes, are included in other comprehensive income (loss) and are accumulated in stockholders’ equity as foreign currency translation adjustments. Gains and losses resulting from other foreign currency transactions are included in other income (deductions) (see note 20). (f) Marketable Securities and Marketable Investments Canon classifies its debt and equity securities into one of three categories: trading, available-for-sale, or held-to-maturity securities. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which Canon has the ability and intent to hold the security until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of other comprehensive income until realized. (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.
(c) Principles of Consolidation The consolidated financial statements include the accounts of Canon after elimination of all significant intercompany balances and transactions.
50
(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 ended December 31, 2000, 1999 and 1998 are as follows: Millions of yen 2000 1999
Net earnings (loss) Dividends received
¥ 10,817 67
(2,848) 40
1998
Thousands of U.S. dollars 2000
(5,238) 188
$ 94,061 583
(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 the net tangible and identifiable intangible assets acquired 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).
(n) Derivatives Canon does not hold derivative financial instruments for trading purposes. Derivative financial instruments held by Canon are comprised principally of foreign exchange contracts to manage currency risk and interest rate swaps to manage interest rate risk. Derivative financial instruments that are designated and effective to hedge forecasted transactions for which there is no firm commitment are marked to market, and gains and losses on such derivatives are recorded in other income (deductions). Foreign currency derivative financial instruments generally qualify for hedge accounting if their maturity dates correspond to hedged existing assets and liabilities denominated in foreign currencies, and gains and losses on such derivative financial instruments are recognized and recorded in other income (deductions) at end of year and at settlement, as are the offsetting foreign exchange losses and gains on the hedged items. Gains and losses on the hedging derivative financial instruments that are designated and effective as hedges of firm commitments are 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 17). In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities”. In June 2000, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 138 (“SFAS 138”), “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133”. Both standards establish accounting and reporting standards for derivative instruments and for hedging activities, and require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS 133, as amended, and 138 are effective for fiscal years beginning after June 15, 2000. Canon adopted SFAS 133 and 138 as of January 1, 2001. The cumulative effect adjustment upon the adoption of SFAS 133 and 138, net of the related income tax effect, resulted in an increase to net income of approximately ¥3,692 million ($32,104 thousand) and a decrease to other comprehensive income of approximately ¥2,401 million ($20,878 thousand). The adoption of SFAS 133 and 138 will not alter Canon’s hedging strategies. (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.
(m) Advertising The costs of advertising are expensed as incurred.
51
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(p) Net Income per Share Basic net income per share have been computed by dividing net income available to common stockholders by the weightedaverage number of common shares outstanding during each year. Diluted net income per share reflect the potential dilution and have been computed on the basis that all convertible debentures were converted at beginning of the year or at time of issuance (if later), and that all dilutive warrants were exercised (less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common shares). (q) Use of Estimates Management of Canon has made a number of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (r) Long-Lived Assets and Long-Lived Assets to Be Disposed Of Canon’s long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(s) Revenue Recognition Canon recognizes revenue when persuasive evidence of an arrangement including title transfer exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is probable. These criteria are met for mass-merchandising products such as printers and cameras at the time when the product is received by the customer, and for products with acceptance provisions such as steppers at the time when the product is received by the customer and the specific criteria of the product is demonstrated by Canon with only certain inconsequential or perfunctory work left to be performed by the customer. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements”. SAB 101, as amended, summarizes certain of the SEC’s views in applying generally accepted accounting principles to revenue recognition in financial statements and provides guidance on revenue recognition issues in the absence of authoritative literature addressing a specific arrangement or a specific industry. Canon adopted SAB 101 in the year ended December 31, 2000. Adoption of this guidance did not have a material effect on Canon’s consolidated financial position or results of operations.
52
(t) New Accounting Standards In May 2000, the Emerging Issues Task Force reached a final consensus on Issue 00-14 (“EITF 00-14”), “Accounting for Certain Sales Incentives”. EITF 00-14 addresses accounting and reporting standards for sales incentives such as coupons or rebates that are provided by vendors or manufacturers and are exercisable by customers at the point of sale. EITF 00-14 should be applied no later than in (a) financial statements for the fiscal year beginning after December 15, 2000, or (b) financial statements for the fiscal quarter beginning after March 15, 2001, whichever is later. Canon will adopt EITF 00-14 in the year ending December 31, 2001. The adoption of the recognition standards for liabilities is not expected to have a material effect on Canon’s consolidated financial position or results of operations. The adoption in 2001 of the income statement display requirements of EITF 00-14 will result in a reduction in reported sales for the year ended December 31, 2000 of approximately ¥29,536 million ($256,835 thousand) and a corresponding decrease in selling, general and administrative expenses, with no effect on net income, as a result of reclassifications of prior year’s consolidated financial statements for comparative purposes. The effects on sales for the years ended December 31, 1999 and 1998 have not yet been determined. In January 2001, the Emerging Issues Task Force also reached a final consensus on a portion of Issue 00-22 (“EITF 0022”), “Accounting for ‘Points’ and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future”. EITF 00-22 addresses accounting and reporting standards for sales incentives such as loyalty programs or rebates that are offered to customers by vendors only if the customer completes a specified cumulative level of revenue transactions with the vendor or remains a customers of the vender for a specified time period. The income statement display requirements related to the portion of EITF 00-22 for which a final consensus has been reached should be applied no later than the fiscal quarter ending after February 15, 2001. Canon will adopt such income statement display requirements of EITF 00-22 in the year ending December 31, 2001. The adoption will result in a reduction in reported sales for the prior years and a corresponding decrease in selling, general and administrative expenses, with no effect on net income, as a result of reclassifications of prior years’ consolidated financial statements for comparative purposes, however, the effects on sales for the prior years have not yet been determined. (u) Reclassifications Certain reclassifications have been made to the prior years’ consolidated financial statements to conform the presentation used for the year ended December 31, 2000.
(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 ¥115 = U.S. $1, the approximate exchange rate prevailing on
the Tokyo Foreign Exchange Market on December 29, 2000. This translation should not be construed as a representation that the amounts shown could be converted into United States dollars at such rate.
(3) Foreign Operations Amounts included in the consolidated financial statements relating to subsidiaries operating in foreign countries are
summarized as follows:
Total assets Net assets Net sales Net income
53
2000
Millions of yen 1999
1998
Thousands of U.S. dollars 2000
¥ 1,016,908 381,553 1,920,601 37,519
917,810 326,631 1,830,866 32,876
987,828 364,623 2,029,863 42,505
$ 8,842,678 3,317,852 16,700,878 326,252
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) Marketable Securities and Marketable Investments 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, 2000 and 1999 are as follows: Gross Unrealized Holding Gains
Gross Unrealized Holding Losses
Fair Value
¥
— 273 — 540 1,116 1,929
— — — — 97 97
49 3,007 91 3,517 4,279 10,943
¥
— 126 1 — 31,430 31,557
— — — 1 7 8
174 5,259 150 39 58,119 63,741
Gross Unrealized Holding Gains
Gross Unrealized Holding Losses
Fair Value
¥
— 373 — 1,470 432 2,275
— — — — 18 18
45 2,916 157 3,432 2,453 9,003
¥
— 84 — 91,534 91,618
— — 96 — 96
156 5,183 68 114,267 119,674
(Millions of yen)
Cost
2000: 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
49 2,734 91 2,977 3,260 ¥ 9,111
174 5,133 149 40 26,696 ¥32,192
(Millions of yen)
Cost
1999: Current: Available-for-sale: Japanese and foreign governmental bond securities Corporate debt securities Bank debt securities Fund trusts Equity securities
45 2,543 157 1,962 2,039 ¥ 6,746
Noncurrent: Available-for-sale: Japanese and foreign governmental bond securities Corporate debt securities Bank debt securities Equity securities
156 5,099 164 22,733 ¥ 28,152
54
Gross Unrealized Holding Gains
Gross Unrealized Holding Losses
Fair Value
2000: Current: Available-for-sale: Japanese and foreign governmental bond securities $ 426 Corporate debt securities 23,774 Bank debt securities 791 Fund trusts 25,887 Equity securities 28,348 $ 79,226
— 2,374 — 4,696 9,704 16,774
— — — — 843 843
426 26,148 791 30,583 37,209 95,157
Noncurrent: Available-for-sale: Japanese and foreign governmental bond securities $ 1,513 Corporate debt securities 44,635 Bank debt securities 1,296 Fund trusts 348 Equity securities 232,139 $279,931
— 1,095 8 — 273,304 274,407
— — — 9 60 69
1,513 45,730 1,304 339 505,383 554,269
(Thousands of U.S. dollars)
Cost
Net unrealized gains on available-for-sale securities, net of related taxes and minority interests, decreased by ¥34,532 million ($300,278 thousand) in the year ended December 31, 2000, increased by ¥41,257 million in the year ended December 31, 1999, and decreased by ¥3,059 million in the
year ended December 31, 1998. Maturities of marketable securities and marketable investments classified as available-for-sale were as follows at December 31, 2000:
Millions of yen Cost Fair Value
Due within one year Due after one year through five years Due after five years Equity securities
¥ 2,191 2,780 6,376 29,956 ¥41,303
Proceeds from sale of available-for-sale securities were ¥2,428 million ($21,113 thousand), ¥6,637 million and ¥9,439 million in the years ended December 31, 2000, 1999 and
55
2,250 3,573 6,463 62,398 74,684
Thousands of U.S. dollars Cost Fair Value
$ 19,052 24,174 55,444 260,487 $359,157
19,565 31,069 56,200 542,592 649,426
1998, respectively. Realized gains and losses during the years ended December 31, 2000, 1999 and 1998 were insignificant.
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) Trade Receivables Trade receivables are summarized as follows: Millions of yen 2000
¥
44,189 453,463 17,862 ¥ 479,790
Notes Accounts Less allowance for doubtful receivables
Thousands of U.S. dollars 2000
1999
31,989 359,572 15,089 376,472
$
384,252 3,943,157 155,322 $ 4,172,087
(6) Inventories Inventories comprised the following:
1999
Thousands of U.S. dollars 2000
308,529 114,666 13,055 436,250
$ 3,085,183 1,054,591 127,122 $ 4,266,896
Millions of yen 2000
¥
Finished goods Work in process Raw materials
¥
354,796 121,278 14,619 490,693
(7) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and are summarized as follows:
1999
Thousands of U.S. dollars 2000
155,358 148,722 652,779 614,136 918,490 871,207 34,819 26,331 1,761,446 1,660,396 989,852 913,572 ¥ 771,594 746,824
$ 1,350,939 5,676,339 7,986,870 302,774 15,316,922 8,607,409 $ 6,709,513
Millions of yen 2000
Land Buildings Machinery and equipment Construction in progress
¥
Less accumulated depreciation
56
(8) Short-term Loans and Long-term Debt Short-term loans consisted of the following: Millions of yen 2000
¥
Bank borrowings Acceptances payable by foreign subsidiaries Long-term debt due within one year
¥ The weighted average interest rates on short-term loans outstanding at December 31, 2000 and 1999 were 6.05% and 5.18%, respectively. At December 31, 2000, unused short-term credit facilities for issuance of commercial paper amounted to ¥67,045 million ($583,000 thousand).
57
65,911 144,282 38,495 248,688
Thousands of U.S. dollars 2000
1999
72,645 200,680 25,074 298,399
$
573,139 1,254,626 334,739 $ 2,162,504
A substantial portion of the acceptances payable by foreign subsidiaries was secured by the subsidiaries’ inventories and trade receivables.
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Long-term debt consisted of the following: Millions of yen 2000
Loans, principally from banks, maturing in installments through 2030; bearing weighted average interest of 3.40% and 3.69% at December 31, 2000 and 1999, respectively, partially secured by mortgage of property, plant and equipment and marketable securities 2-7/20% Japanese yen notes, due 2001 2-1/20% Japanese yen notes, due 2002 2-3/5% Japanese yen notes, due 2002 1-7/50% Japanese yen notes, due 2002 1-3/5% Japanese yen notes, due 2002 2-3/10% Japanese yen notes, due 2003 1-53/100% Japanese yen notes, due 2003 2-23/40% Japanese yen notes, due 2004 2-1/40% Japanese yen notes, due 2004 1-22/25% Japanese yen notes, due 2005 2-19/20% Japanese yen notes, due 2007 2-27/100% Japanese yen notes, due 2008 3/4% Swiss franc notes with warrants issued by a subsidiary, due 2000: Principal amount Less unamortized discount 1% Japanese yen convertible debentures, due 2002 1-2/10% Japanese yen convertible debentures, due 2005 1-3/10% Japanese yen convertible debentures, due 2008 Other Less amount due within one year
58
1999
¥ 49,574 19,920 5,000 20,000 2,000 10,000 5,000 5,000 10,000 10,000 5,000 10,000 10,000
50,193 19,920 5,000 20,000 2,000 10,000 5,000 5,000 10,000 10,000 5,000 10,000 10,000
— — — 4,746 5,221 9,959 — 181,420 38,495 ¥ 142,925
7,055 71 6,984 5,248 5,763 10,234 9 190,351 25,074 165,277
Thousands of U.S. dollars 2000
$
431,078 173,217 43,478 173,913 17,391 86,957 43,478 43,478 86,957 86,957 43,478 86,957 86,957
— — — 41,269 45,400 86,600 — 1,577,565 334,739 $ 1,242,826
The aggregate annual maturities of long-term debt outstanding at December 31, 2000 were as follows:
2001 2002 2003 2004 2005 Later years
Millions of yen
Thousands of U.S. dollars
¥ 38,495 56,667 18,455 21,147 11,567 35,089 ¥ 181,420
$ 334,739 492,756 160,478 183,887 100,583 305,122 $ 1,577,565
Property, plant and equipment with a book value at December 31, 2000 of ¥9,726 million ($84,574 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.
59
The 1% Japanese yen convertible debentures due 2002 are currently convertible into approximately 3,170,000 shares of common stock at a conversion price of ¥1,497.00 ($13.02) per share. The debentures are redeemable at the option of the Company between January 1, 2001 and December 31, 2001 at 1% premium, and at par thereafter, or, dependent on a paticular circumstance, at par. The 1-2/10% Japanese yen convertible debentures due 2005 are currently convertible into approximately 3,488,000 shares of common stock at a conversion price of ¥1,497.00 ($13.02) per share. The debentures are redeemable at the option of the Company between January 1, 2001 and December 31, 2004 at premiums ranging from 4% to 1%, and at par thereafter, or, dependent on a particular circumstance, at par. The 1-3/10% Japanese yen convertible debentures due 2008 are currently convertible into approximately 6,653,000 shares of common stock at a conversion price of ¥1,497.00 ($13.02) 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.
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) Trade Payables Trade payables are summarized as follows:
1999
Thousands of U.S. dollars 2000
113,512 251,152 364,664
$1,215,687 2,650,687 $3,866,374
Millions of yen 2000
¥139,804 304,829 ¥444,633
Notes Accounts
(10)Employee Retirement and Severance Benefits The Company and certain of its subsidiaries have contributory and noncontributory defined benefit plans covering substantially all employees after one year of service. Other subsidiaries sponsor unfunded retirement and severance plans. Benefits payable under the plans are based on employee earnings and years of service. The contributory plan includes a portion of the governmental welfare pension benefits which would otherwise be provided by the Japanese government in accordance with the Welfare Pension Insurance Law in Japan. Management considers that a portion of the contributory plans, which are administered by a board of
trustees composed of management and labor representatives, represents a welfare pension plan carried on behalf of the Japanese government. These contributory and noncontributory plans are funded in conformity with the funding requirements of applicable Japanese governmental regulations. Net periodic benefit cost for Canon’s employee retirement and severance defined benefit plans for the years ended December 31, 2000, 1999 and 1998 consisted of the following components:
2000
Service cost — benefits earned during the year Interest cost on projected benefit obligation Expected return on plan assets Net amortization
¥ 31,712 16,512 (9,834) 5,016 ¥43,406
60
Thousands of Millions of yen 1999
31,295 15,599 (10,393) 6,566 43,067
1998
25,307 14,360 (11,510) 4,244 32,401
U.S. dollars 2000
$ 275,757 143,583 (85,514) 43,617 $ 377,443
Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows: Millions of yen 2000
Change in benefit obligations: Benefit obligations at beginning of year Service cost Interest cost Plan participants’ contributions Actuarial loss (gain) Benefits paid Other Benefit obligations at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Plan participants’ contributions Benefits paid Fair value of plan assets at end of year Funded status Unrecognized actuarial loss Unrecognized net transition obligation being recognized over 22 years Net amount recognized Adjustments to recognize minimum liability: Intangible assets Amount included in accumulated other comprehensive income (loss), gross of tax Accrued pension and severance cost recognized in the consolidated balance sheets Actuarial present value of accumulated benefit obligations at end of year Actuarial assumptions: Discount rate Assumed rate of increase in future compensation levels Expected long-term rate of return on plan assets
1999
Thousands of U.S. dollars 2000
¥518,078 31,712 16,512 3,512 51,059 (6,727) 41 614,187
491,102 31,295 15,599 3,403 (16,983) (6,067) (271) 518,078
$4,505,026 275,757 143,583 30,539 443,991 (58,496) 357 5,340,757
311,407 2,437 27,594 3,512 (6,727) 338,223 275,964 (189,906) (5,680) 80,378
270,713 17,336 26,022 3,403 (6,067) 311,407 206,671 (136,119) (6,025) 64,527
2,707,887 21,192 239,948 30,539 (58,496) 2,941,070 2,399,687 (1,651,357) (49,391) 698,939
5,680
6,025
49,391
108,387 114,067
62,274 68,299
942,496 991,887
¥194,445 ¥532,668
132,826 444,233
$1,690,826 $4,631,896
3.00% 2.10% 4.00%
3.00% 2.10% 4.00%
since amounts vary with circumstances, and it is therefore not practicable to compute the liability for future payments.
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,
61
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) Income Taxes Total income taxes were allocated as follows:
Income before income taxes and minority interests Stockholders’ equity — accumulated other comprehensive income (loss): Foreign currency translation adjustments Net unrealized gains on securities Minimum pension liability adjustments
Domestic and foreign components of income before income taxes and minority interests (“income before income taxes”), and the current and deferred income tax expense
2000
Millions of yen 1999
1998
Thousands of U.S. dollars 2000
¥ 87,197
83,939
123,843
$ 758,234
1,387 (25,457) (19,365) ¥ 43,762
(239) 37,286 7,712 128,698
(674) (4,399) (17,345) 101,425
12,061 (221,365) (168,391) $ 380,539
(benefit) attributable to such income before income taxes are summarized as follows: Millions of yen Japanese
Foreign
Total
2000: Income before income taxes Income taxes: Current Deferred
¥166,074
61,122
227,196
¥ 78,832 (14,584) ¥ 64,248
18,645 4,304 22,949
97,477 (10,280) 87,197
1999: Income before income taxes Income taxes: Current Deferred
¥ 100,044
56,028
156,072
¥ 64,197 (2,097) ¥ 62,100
25,714 (3,875) 21,839
1998: Income before income taxes Income taxes: Current Deferred
¥ 172,303
67,210
239,513
¥ 97,437 3,453 ¥ 100,890
24,465 (1,512) 22,953
121,902 1,941 123,843
89,911 (5,972) 83,939
Thousands of U.S. dollars
2000: Income before income taxes Income taxes: Current Deferred
62
Japanese
Foreign
Total
$1,444,122
531,495
1,975,617
$ 685,496 (126,818) $ 558,678
162,130 37,426 199,556
847,626 (89,392) 758,234
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 42.0% in the year ended December 31, 2000, 47.0% in the year ended December 31, 1999 and 51.0% in the year ended December 31, 1998. Amendments to Japanese tax regulations were enacted into law on March 24, 1999 and on March 31, 1998. As a result of these amendments, the normal income tax rate was reduced from approximately 47.0% to 42.0% effective from Canon’s fiscal year beginning January 1, 2000 and from approximately 51.0% to 47.0% effective from Canon’s fiscal year beginning
January 1, 1999. Current income taxes were calculated at the rate of 42.0%, 47.0% and 51.0% in effect for the years ended December 31, 2000, 1999 and 1998, respectively. Deferred income tax assets and liabilities as of December 31, 2000 and 1999 were measured at a rate of principally 42.0%. The effects of the income tax rate reduction on deferred income tax balances as of December 31, 1999 and 1998 are presented below. The significant components of deferred income tax expense (benefit) attributable to income before income taxes are as follows:
2000
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
¥ (10,280) — — ¥ (10,280)
A reconciliation of the Japanese normal income tax rate and the effective income tax rate as a percentage of income before
Millions of yen 1999
Thousands of U.S. dollars 2000
1998
(16,181)
(5,638)
10,209
8,014
— (5,972)
(435) 1,941
$ (89,391) — — $ (89,391)
income taxes is as follows: 2000
Japanese normal income tax rate Increase (reduction) in income taxes resulting from: Expenses not deductible for tax purposes Tax benefits not recognized on operating losses of subsidiaries Income of foreign subsidiaries taxed at lower than Japanese normal tax rate Tax credit for increased research and development expenses Effect of enacted changes in tax laws and rates Other Effective income tax rate
1999
1998
42.0%
47.0%
51.0%
0.9 0.9 (1.9) (1.3) — (2.2) 38.4%
1.0 1.2 (6.1) (0.5) 6.5 4.7 53.8%
0.9 0.3 (5.7) (0.8) 3.3 2.7 51.7%
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 2000
¥ 81,789 110,095 (961) (16,704) ¥ 174,219
Prepaid expenses and other current assets Other assets Other current liabilities Other noncurrent liabilities
63
1999
75,431 47,211 (1,033) (5,320) 116,289
2000
$ 711,209 957,348 (8,357) (145,252) $1,514,948
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2000 and 1999 are presented below:
1999
Thousands of U.S. dollars 2000
51,476 3,366 25,544 26,155 7,015 21,371 11,386 32,713 179,026 4,191 174,835
$ 454,600 39,887 281,922 395,826 33,391 213,278 111,765 360,053 1,890,722 55,365 1,835,357
Millions of yen 2000
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 Net unrealized gains on securities Other Total gross deferred tax liabilities Net deferred tax assets The valuation allowance for deferred tax assets as of January 1, 1999 was ¥4,722 million. The net change in the total valuation allowance for the years ended December 31, 2000 and 1999 was an increase of ¥2,176 million ($18,922 thousand) and a decrease of ¥531 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, 2000. At December 31, 2000, Canon had net operating losses carried forward for income tax purposes of approximately ¥10,909 million ($94,861 thousand) which were available to reduce future income taxes, if any. Approximately ¥9,951 million ($86,530 thousand) of the operating losses expire through 2009 while the remainder have an indefinite carryforward period.
¥ 52,279 4,587 32,421 45,520 3,840 24,527 12,853 41,406 217,433 6,367 211,066 (3,305) (276) (5,324)
(3,629) (359) (3,810)
(28,739) (2,400) (46,296)
(5,899) (13,939) (8,104) (36,847) ¥ 174,219
(4,471) (39,396) (6,881) (58,546) 116,289
(51,296) (121,209) (70,469) (320,409) $ 1,514,948
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 ¥28,549 million ($248,252 thousand) for the portion of undistributed earnings of foreign subsidiaries that arose in 2000 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, 2000, such undistributed earnings of these subsidiaries were approximately ¥328,072 million ($2,852,800 thousand).
64
(12)Common Stock During the years ended December 31, 2000, 1999 and 1998, the Company issued 4,071,325 shares, 1,249,828 shares and 3,506,936 shares of common stock, respectively. The issuance of 3,176,373 shares during the year ended December 31, 2000 was in connection with the acquisition of the outstanding minority ownership interest of Canon Chemicals Inc. (“Canon Chemicals”). The acquisition of the minority interest was consummated on November 7, 2000, whereby Canon Chemicals became a wholly-owned subsidiary of the Company.
(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 or deficit of affiliated companies owned 20% to 50% accounted for on the equity basis aggregating positive ¥13,130 million ($114,174 thousand) at December 31, 2000 is included in retained earnings. Cash dividends and appropriations to the legal reserve charged to retained earnings during the years ended December 31, 2000, 1999 and 1998 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 ¥12.50 ($0.109) per share, aggregating ¥10,945 million ($95,174
(14)Noncash Financing Activities In the years ended December 31, 2000, 1999 and 1998, common stock issued and additional paid-in capital arising from conversion of convertible debt amounted to ¥1,335 million ($11,609 thousand), ¥1,871 million and ¥5,234 million, respectively. As a result of the acquisition of the outstanding minority ownership interest of Canon Chemicals Inc. during the year
65
The remaining issuance of the shares of the Company was in connection with conversion of convertible debt. Conversion into common stock of convertible debt issued subsequent to October 1, 1982 and exercise of warrants were accounted for in accordance with the provisions of the Japanese Commercial Code by crediting one-half of the conversion price and exercise price to each of the common stock account and the additional paid-in capital account.
thousand), subsequently proposed by the Board of Directors in respect of the year ended December 31, 2000, 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 ¥614,918 million ($5,347,113 thousand) at December 31, 2000.
ended December 31, 2000, goodwill classified as other assets, common stock and additional paid-in capital increased by ¥4,116 million ($35,791 thousand), ¥159 million ($1,383 thousand) and ¥14,430 million ($125,478 thousand), respectively, and also minority interests decreased by ¥10,473 million ($91,070 thousand).
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) Other Comprehensive Income (Loss) Change in accumulated other comprehensive income (loss) is as follows:
2000
Foreign currency translation adjustments: Balance at beginning of year ¥ (127,148) Adjustments for the year 22,999 Balance at end of year (104,149) Net unrealized gains on securities: Balance at beginning of year 48,699 Adjustments for the year (34,532) Balance at end of year 14,167 Minimum pension liability adjustments: Balance at beginning of year (29,858) Adjustments for the year (26,742) Balance at end of year (56,600) Total accumulated other comprehensive income (loss): Balance at beginning of year (108,307) Adjustments for the year (38,275) Balance at end of year ¥ (146,582)
66
Millions of yen 1999
1998
Thousands of U.S. dollars 2000
(66,372) (60,776) (127,148)
(32,644) (33,728) (66,372)
$ (1,105,634) 199,991 (905,643)
7,442 41,257 48,699
10,501 (3,059) 7,442
423,469 (300,278) 123,191
(38,555) 8,697 (29,858)
(21,890) (16,665) (38,555)
(259,635) (232,540) (492,175)
(97,485) (10,822) (108,307)
(44,033) (53,452) (97,485)
(941,800) (332,827) $ (1,274,627)
Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments are as follows: Millions of yen Before-tax amount
2000: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Reclassification adjustments for the portion of gains and losses realized upon sale or liquidation of investments in foreign entities Net change in foreign currency translation adjustments during the year Net unrealized gains on securities: Amount arising during the year on securities held at end of year Reclassification adjustments for gains and losses realized in net income Net change in net unrealized gains on securities during the year Minimum pension liability adjustments Other comprehensive income (loss) 1999: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Reclassification adjustments for the portion of gains and losses realized upon sale or liquidation of investments in foreign entities Net change in foreign currency translation adjustments during the year Net unrealized gains on securities: Amount arising during the year on securities held at end of year Reclassification adjustments for gains and losses realized in net income Net change in net unrealized gains on securities during the year Minimum pension liability adjustments Other comprehensive income (loss) 1998: Foreign currency translation adjustments: Net unrealized gains on securities: Amount arising during the year on securities held at end of year Reclassification adjustments for gains and losses realezed in net income Net change in net unrealized gains on securities during the year Minimum pension liability adjustments Other comprehensive income (loss)
67
¥ 25,581
Tax (expense) or benefit
Net-of-tax amount
(1,392)
24,189
5 (1,387)
(1,190) 22,999
(57,484) (2,505) (59,989) (46,107) ¥ (81,710)
24,409 1,048 25,457 19,365 43,435
(33,075) (1,457) (34,532) (26,742) (38,275)
¥ (61,023)
239
(60,784)
8 (61,015)
— 239
8 (60,776)
(1,195) 24,386
79,789 (1,246) 78,543 16,409 ¥ 33,937 ¥ (34,402) (9,897) 2,439 (7,458) (34,010) ¥ (75,870)
(37,914) 628 (37,286) (7,712) (44,759) 674 5,642 (1,243) 4,399 17,345 22,418
41,875 (618) 41,257 8,697 (10,822) (33,728) (4,255) 1,196 (3,059) (16,665) (53,452)
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Thousands of U.S. dollars Before-tax amount
2000: Foreign currency translation adjustments: Amount arising during the year on investments in foreign entities held at end of year Reclassification adjustments for the portion of gains and losses realized upon sale or liquidation of investments in foreign entities Net change in foreign currency translation adjustments during the year Net unrealized gains on securities: Amount arising during the year on securities held at end of year Reclassification adjustments for gains and losses realized in net income Net change in net unrealized gains on securities during the year Minimum pension liability adjustments Other comprehensive income (loss)
68
$ 222,443 (10,391) 212,052 (499,861) (21,782) (521,643) (400,931) $ (710,522)
Tax (expense) or benefit
Net-of-tax amount
(12,104)
210,339
43 (12,061)
(10,348) 199,991
212,252 9,113 221,365 168,391 377,695
(287,609) (12,669) (300,278) (232,540) (332,827)
(16)Net Income per Share A reconciliation of the numerators and denominators of the basic and diluted net income per share computations is as follows:
Net income available to common stockholders Effect of dilutive securities: 1% Japanese yen convertible debentures, due 2002 1-2/10% Japanese yen convertible debentures, due 2005 1-3/10% Japanese yen convertible debentures, due 2008 Other Diluted net income
¥
¥
2000
Millions of yen 1999
1998
Thousands of U.S. dollars 2000
134,088
70,234
109,569
$ 1,165,983
45
45
43
391
50
50
59
435
91 — 134,274
89 — 70,418
108 (2) 109,777
791 — $ 1,167,600
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
872,606,481
870,699,219
868,915,888
3,322,850
3,649,401
3,991,367
3,629,772
4,029,084
4,609,783
6,687,888 3,937 886,250,928
7,369,714 15,994 885,763,412
8,220,954 25,427 885,763,419
Yen
Net income per share: Basic Diluted
¥
153.66 151.51
69
U.S. dollars
80.66 79.50
126.10 123.93
$
1.34 1.32
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17)Foreign Exchange Risk Management and Interest Rate Risk Management Canon operates internationally which exposes Canon to the risk of changes in foreign exchange rates and interest rates. Derivative financial instruments are comprised principally of foreign exchange contracts and interest rate swaps utilized by the Company and certain of its subsidiaries to reduce these risks. Canon does not hold or issue financial instruments for trading purposes. The contract amounts of derivative financial instruments
summarized in the following paragraphs do not represent amounts exchanged by the parties and thus are not a measure of the exposure of Canon through its use of derivative financial instruments. Canon is exposed to the risk of credit-related losses in the event of nonperformance by counterparties to foreign exchange contracts and interest rate swaps, but it does not expect any counterparties to fail given their high credit ratings. Contract amounts of foreign exchange contracts and interest rate swaps at December 31, 2000 and 1999 are set forth below:
1999
Thousands of U.S. dollars 2000
170,931 12,110 41,024 66,905
$3,141,557 83,478 347,826 639,461
Millions of yen 2000
Forwards and swaps: To sell foreign currencies To buy foreign currencies Receive-fixed interest rate swaps Pay-fixed interest rate swaps The Company and certain of its subsidiaries enter into foreign exchange forward contracts and currency swaps to hedge the risk of fluctuation in foreign currency exchange rates associated with certain trade receivables, long-term debt and anticipated sales transactions (including firm commitments) denominated in foreign currencies. The terms of these foreign exchange contracts rarely extend beyond three months except
(18)Commitments and Contingent Liabilities At December 31, 2000, commitments outstanding for the purchase of property, plant and equipment approximated ¥51,656 million ($449,183 thousand). Contingent liabilities for guarantees of bank loans to employees and to affiliated and other companies amounted to approximately ¥55,202 million ($480,017 thousand). Canon occupies sales offices and other facilities under lease arrangements accounted for as operating leases. Deposits made under such arrangements aggregated ¥19,195 million ($166,913 thousand) and ¥20,188 million at December 31, 2000 and 1999, respectively, and are reflected in noncurrent receivables and restricted funds on the accompanying consolidated balance sheets. Future minimum lease payments required under
¥361,279 9,600 40,000 73,538
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, 2000 mature between 2001 and 2002.
noncancellable operating leases that have initial or remaining lease terms in excess of one year as of December 31, 2000 are as follows: Year ending December 31:
2001 2002 2003 2004 2005 Later years Total future minimum lease payments
70
Millions of yen
Thousands of U.S. dollars
¥ 12,854 9,824 7,366 5,327 4,074 7,364
$111,774 85,426 64,052 46,322 35,426 64,035
¥ 46,809
$407,035
(19)Disclosures about the Fair Value of Financial Instruments Cash and cash equivalents, Trade receivables, Short-term loans, Trade payables, Accrued expenses The carrying amount approximates fair value because of the short maturity of these instruments. Marketable securities and Investments The fair values of Canon’s marketable securities and investments are based on quoted market prices. Noncurrent receivables and restricted funds The fair values of Canon’s noncurrent receivables and restricted funds are based on the present value of future cash flows through estimated maturity, discounted using estimated market discount rates. Their carrying amounts at December 31, 2000 and 1999 totaled ¥27,626 million ($240,226 thousand) and ¥29,771 million, respectively, which approximate fair values.
71
Long-term debt The fair values of Canon’s long-term debt instruments are based on the quoted price in the most active market or the present value of future cash flows associated with each instrument discounted using Canon’s current borrowing rate for similar debt instruments of comparable maturity. Derivative financial instruments (see note 17) The fair values of derivative financial instruments, consisting principally of foreign exchange contracts and interest rate swaps, all of which are used for purposes other than trading, are estimated by obtaining quotes from brokers.
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The estimated fair values of Canon’s financial instruments at December 31, 2000 and 1999 are summarized as follows: Thousands of U.S. dollars 2000 Carrying Estimated Amount Fair Value
Millions of yen 2000 Carrying Estimated Amount Fair Value
1999 Carrying Estimated Amount Fair Value
Nonderivatives: Assets: Marketable securities and Investments ¥ 88,197 88,197 141,546 141,546 Liabilities: Long-term debt, including current installments (181,420) (225,188) (190,351) (228,264) Derivatives relating to: Trade receivables and anticipated sales transactions: Assets 293 293 1,385 1,635 Liabilities (22,486) (20,220) (947) (207) Long-term debt, including current installments: Foreign exchange contracts: Liabilities — — (2,155) (2,155) Interest rate swaps: Assets 349 1,384 369 2,377 Liabilities (49) (584) (71) (103) Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature
$
766,930
766,930
(1,577,565) (1,958,157)
2,548 (195,530)
— 3,034 (426)
2,548 (175,826)
— 12,035 (5,078)
and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
(20)Supplementary Expense Information
Research and development Depreciation of property, plant and equipment Rent Advertising Exchange loss (gain)
2000
Millions of yen 1999
1998
Thousands of U.S. dollars 2000
¥194,552 144,043 42,963 67,840 20,195
177,922 155,682 48,236 67,544 3,387
176,967 159,888 53,923 76,911 (1,189)
$1,691,757 1,252,548 373,591 589,913 175,609
72
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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The segment information required to be disclosed in financial statements under accounting principles generally accepted in the United States of America 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 omission of the segment information as discussed in the third paragraph of this report, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Canon Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 2, 2001
73
MAJOR CONSOLIDATED SUBSIDIARIES
BOARD OF DIRECTORS AND CORPORATE AUDITORS
(As of December 31, 2000)
(As of December 31, 2000)
MANUFACTURING Canon Electronics Inc. Canon Aptex Inc. Copyer Co., Ltd. Nippon Typewriter Co., Ltd. Canon Components, Inc. Nisca Corporation Canon Chemicals Inc. Canon Precision Inc. Oita Canon Inc. Nagahama Canon Inc. Oita Canon Materials Inc. Optron, Inc. Canon Virginia, Inc. South Tech, Inc. Custom Integrated Technology, Inc. Industrial Resource Technologies, Inc. Canon Business Machines, Inc. Canon Giessen GmbH Canon Bretagne S.A. Canon 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 R&D Center Americas, Inc. Canon Information Systems, Inc. Canon Research Centre Europe Ltd. Canon Research Centre France S.A. Canon Information Systems Research Australia Pty. Ltd. Beijing Pecan Information System Co., Ltd.
MARKETING Canon Sales Co., Inc. Canon System and Support Inc. Canon Software Inc. Canon U.S.A., Inc. Canon Canada, Inc. Canon Mexicana, S. de R.L. de C.V. Canon Latin America, Inc. Canon do Brasil Indústria e Comércio Limitada Canon Chile, S.A. Canon Panama, S.A. Canon Argentina, S.A. Canon Business Solution — Central, Inc. Canon Business Solution — West, Inc. Canon Business Solution — Southeast, Inc. Canon Business Solution — Northeast, Inc. Canon Financial Services, Inc. Canon Europa N.V. Canon U.K. Ltd. Canon Deutschland GmbH Canon Euro-Photo Handelsgesellschaft m.b.H. Canon France S.A. Canon Photo Vidéo France S.A. Canon Italia S.p.A. Canon España S.A. Canon S.A. Canon Nederland N.V. Canon Belgium 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. Canon East Europe Vertriebsgesellschaft m.b.H. Canon Systems Management Europe Ltd. Canon Australia Pty. Ltd. Canon New Zealand Ltd. Canon Finance Australia Ltd. Canon Finance New Zealand Ltd. Canon Singapore Pte. Ltd. Canon Hongkong Co., Ltd. Canon Marketing Services Pte. Ltd. Canon Marketing (Malaysia) Sdn. Bhd. Canon Marketing (Thailand) Co., Ltd. Canon Marketing (Hong Kong) Co., Ltd. Canon Semiconductor Engineering Korea Inc. Canon Semiconductor Equipment Taiwan Inc.
74
President & C.E.O.
Fujio Mitarai Senior Managing Directors
Takashi Kitamura Ichiro Endo Yukio Yamashita Managing Directors
Takashi Saito Toshizo Tanaka Yusuke Emura Kinya Uchida Akira Tajima Directors
Haruo Murase Toru Takahashi Nobuyoshi Tanaka Kohtaro Miyagi Tsuneji Uchida Junji Ichikawa Muneo Adachi Hajime Tsuruoka Teruomi Takahashi Hironori Yamamoto Akiyoshi Moroe Kunio Watanabe Ikuo Soma Corporate Auditors
Shuichi Ishizuki Takenori Matsuoka Tadashi Ohe Tetsuo Yoshizawa
TRANSFER OFFICE AND REGISTRARS
SHAREHOLDERS INFORMATION
Canon Inc. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan Transfer Office for Common Stock in Japan The Yasuda Trust and Banking Company, Limited 2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670, Japan Depositary and Agent with Respect to American Depositary Receipts for Common Shares Morgan Guaranty Trust Company of New York 60 Wall Street, New York, N.Y. 10260-0060, U.S.A. Depositaries and Agents with Respect to Global Bearer Certificates for Common Shares Deutsche B rse Clearing AG B rsenplatz 7-11 60313 Frankfurt am Main, Germany Deutsche Bank AG, U+I/Emissionsfolgegesch fte, Taunusanlage12, 60325 Frankfurt am Main, Germany
Stock exchange listings: Tokyo, Osaka, Nagoya, Kyoto, Fukuoka, Sapporo, New York and Frankfurt stock exchanges
This publication was printed on more than 50% recycled paper.
American Depositary Receipts (ADRs) are traded on the New York Stock Exchange. Shareholders annual general meeting: March 29, 2001, 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/
75
PUB. BEP010 0301P22.267
Printed in Japan
CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
