ctivities and Results

Transcription

CANON ANNUAL REPORT 1998
Fiscal Year Ended December 31, 1998
CORPORATE PROFILE
The Canon Group is a leading manufacturer of cameras, business
machines and optical products, employing approximately 80,000 people
around the world. The year 1998 marked the third year in Phase One of
the Excellent Global Corporation Plan, a management strategy designed to
propel Canon into the 21st century as a truly global company with strong
management foundations and high technological competitiveness. In R&D,
we are fostering know-how in the multimedia and devices/materials fields
to create comprehensive systems and business solutions, or “Canon-style
multimedia.”
Throughout our activities, we are guided by the corporate
philosophy of kyosei—living and working together for the common good.
We take the environment into consideration from the design phase
through the end of product life, and is active in a variety of environmental
protection programs. Furthermore, we actively support events and
organizations related to culture, the arts and sports.
ABOUT THE COVER
Digital is the direction in which offices are evolving,
as users demand devices with multiple functions
and ease of operation. As a leader in the
development of business solutions around the
world, Canon provides the best in hardware,
software and network-related equipment.
CONTENTS
1 Financial Highlights
2 To Our Shareholders
Record sales for fifth
consecutive year, but harsh
environment ahead
5 Canon in 1998
Diversification and globalization
efforts continue under the
Excellent Global Corporation
Plan
12 Product Group Summary
News on market trends,
Canon’s activities and what is
ahead in 1999
14 Business Machines
14 Copying Machines
Canon promotes digital and
color copying machines to meet
expanding demand among
office users
18 Computer Peripherals
New and affordable color laser
printers launched for the officeuse market; Canon strengthens
digital camera lineup
24 Business Systems
Advances made in multifunction
peripherals; active release of
new document scanners spurs
market growth
26 Cameras
Canon strengthens share of SLR
market; demand for compact
cameras expands; new highperformance digital video
camcorders reinforce lineup
30 Optical Products
World semiconductor market
contracts; Canon makes strong
entry into digital X-ray imaging
field; record sales of
broadcasting lenses
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)
1998
Net sales
Net income
Net income per share:
Basic
Diluted
Total assets
Stockholders’ equity
Thousands of U.S. dollars
(except per share amounts)
1997
1998
¥2,826,269 2,761,025
109,569 118,813
$24,364,388
944,560
126.10
137.73
123.93
134.60
2,720,597 2,861,927
1,148,078 1,099,010
1.09
1.07
23,453,422
9,897,224
140
111.29
106.96
109,569
31,024
38.50
35.84
55,036
65.96
62.73
94,177
2,826,269
137.73
134.60
120,000
118,813
3,000,000
2,761,025
(Yen)
2,558,227
Net income per share
(Millions of yen)
2,165,626
Consolidated net income
(Millions of yen)
1,933,310
Consolidated net sales
0
0
94 95 96 97 98
126.10
123.93
Notes:
1. U.S. dollar amounts in this Annual Report, solely for the convenience of the reader, are
translated from yen at the rate of ¥116=U.S.$1, the approximate exchange rate on the
Tokyo Foreign Exchange Market as of December 30, 1998.
2. Canon has not applied Statement of Financial Accounting Standards No. 115 in
accounting for certain investments in debt and equity securities.
0
94 95 96 97 98
94
95
Basic
Diluted
1
96
97
98
TO OUR SHAREHOLDERS
During 1998, the world’s major economic markets continued to display widely varying prospects. In the
United States and Europe, markets continued to grow, though toward the end of the year there were
some signs that expansion may be slowing, being affected somewhat by difficulties in Russia and South
America. In Asia, markets remained severe, owing to continuing financial crises. In Japan, the market also
continued to stagnate, with weak consumer spending, falling corporate profitability and concerns over
banking system stability leading to harsh conditions.
Despite this generally difficult situation, Canon managed to achieve record consolidated sales for the
fifth consecutive year. Net sales amounted to ¥2,826.3 billion (US$24,364 million), up 2.4%. Income
before income taxes increased to ¥239.5 billion (US$2,065 million), an increase of 2.0%, while net
income fell to ¥109.6 billion (US$945 million), a decrease of 7.8%, primarily because of the effect of a
change in the Japanese tax rate.
Results by Product Group In business machines, new technologies, such as digital and color
technologies, continued to be our main areas of success. In copying machines, digital and color machines
achieved favorable growth with increased demand, while for conventional technologies, such as analog
and black-and-white copying machines, demand is beginning to slow down. In computer peripherals, laser
beam printers improved significantly from the previous year, with facsimile machines also performing well.
As with most business areas, the U.S. and European markets performed well, while in Asia and Japan sales
continued to lag. Overall, business machines posted sales of ¥2,358.2 billion (US$20,329 million), up
2.5% over the previous year.
Continuing the upward trend of previous years, the Camera Group again increased sales, thanks
mostly to demand for Advanced Photo System (APS) cameras and digital video camcorders. Cameras in
total posted an increase in revenue of 8.0%, to ¥267.6 billion (US$2,307 million). Again, the introduction
of new technologies was largely responsible for our improved results.
Sales of optical and other products were ¥200.4 billion (US$1,728 million), down 6.0%, almost
entirely because of the depressed semiconductor market. The market situation led to decreased capital
expenditure by semiconductor manufacturers.
Consolidated Net Income While our continued efforts to increase sales of high-value-added products
are producing favorable results, profitability has been mixed. Operating profit decreased 4.8% mainly
because of the trend toward falling prices, lower profitability in our stepper operations following a slump in
demand, and difficulties in Asia and Japan, which led to a decrease in sales. Though cost reduction and other
programs were successful, they were insufficient to compensate for the sales downturn. Income before
income taxes increased 2.0%, mostly owing to reduced losses on foreign exchange, but net income
decreased 7.8%, primarily because of a reduction in deferred tax assets from the change in the tax rate in
Japan. In total, consolidated net income for the year was ¥109.6 billion (US$945 million). As a result, net
income per common share was ¥126.1 (US$1.09). Annual dividends per share remained the same as in
the previous year at ¥17.00 (US$0.15) per share.
2
Toward Management Reformation The year 1998
marked the midpoint in Phase One of Canon’s Excellent
Global Corporation Plan, which is scheduled to conclude
in the year 2000. To conclude this plan successfully, and
embark upon the new century a stronger and more
flexible group of companies, we took several significant
steps toward comprehensive management reformation
throughout our operations.
A Management Reformation Committee was
established in April 1998 with the slogan “Speed &
Quality.” The objective of this committee is to reevaluate
all of our business processes, from research,
development and production to logistics and sales, and
thereby double our results and efficiency while cutting
time and losses in half. To achieve these goals by the
close of the year 2000, six specialized subcommittees
Fujio Mitarai
also started full-scale activities in 1998.
We have already seen some promising early
results of efforts in this area. In 1998, for example, approximately 110,000m2 of space were made
available in production facilities. As a result, in the future this space can be used to increase capacity, which
means we can look forward to a significant reduction in capital investment.
The scope of management reformation extends to activities throughout the worldwide Canon
Group. In each company of the Group, we have actively worked to evaluate our consolidated results and
permeate the concept of Group management. Developments in 1998 included the elevation of Canon
Electronics Inc. to the First Section of the Tokyo Stock Exchange, and the listing of Canon Aptex Inc. on the
Exchange’s Second Section.
1999 Outlook and Policy Issues The global economy will continue to be turbulent in 1999, and the
year will be one of radical change. Possibilities exist such as a new government in Russia and devaluation
of the yuan by the People’s Republic of China (PRC). Economic restructuring in Brazil, and economic
incentive measures and the results of financial reform in Japan, will also affect the economic situation.
Our mission in this environment—and in the fourth year of Phase One of the Excellent Global
Corporation Plan—is to make the core of our corporate reformation activities strong and effective. Thus,
the Canon Group will address the following policy issues.
3
TO OUR SHAREHOLDERS
The primary issue is how we can not only maintain but also actually increase the profitability of our
current businesses. First, as the major precondition of stable management, I would like to see us pay the
utmost attention to product quality, realizing the smooth development of all new products. We will also
strategically reinforce our marketing capabilities.
An issue of great importance is establishing what we call “Canon-style multimedia.” In our
R&D activities, we will focus on specific themes, such as network-compatible products and the digital
photography field. We will improve development speed, selecting R&D projects that offer the prospect of
considerable returns and increased competitiveness, then apply sufficient resources to quickly and
successfully complete them. To effectively utilize our R&D resources and improve product development
speed, we will pursue alliances with appropriate companies in the appropriate areas. In efforts to maintain
the distinctiveness of our multimedia products and ensure that our technologies are always ahead of the
competition, we will continue to develop our device and materials businesses.
In environmental activities, our goal is to create a comprehensive product recycling system, in which
our product development, manufacturing and sales companies work as a single unit from product retrieval
through parts and materials recycling and product remanufacturing.
Looking Toward a New Century In globalization activities in the Canon Group, the 21st century
will see fully functioning headquarters in the Americas and Europe, as well as in Japan. Each of these
companies will maintain R&D, production and marketing capabilities and each will add new value to the
Canon Group through innovative approaches to our businesses. Further, our plan is to launch a worldwide
headquarters that will coordinate our global activities, ensuring the healthy growth of the Canon Group.
When we have established this kind of organization, then I believe we will have built the foundations for
Canon to compete with other global companies in the future.
We have made significant steps toward achieving the goals of the Excellent Global Corporation Plan.
As we push ahead in the year to come, I would like to ask for the continuing support of our shareholders.
Fujio Mitarai
President and C.E.O.
Canon Inc.
4
CANON IN 1998
Canon is placing increasing
emphasis on its device and
materials businesses. For
example, our ELTRAN technology
made possible the development
of silicon-on-insulator (SOI)
wafers, which have high
potential in the production of
semiconductors.
5
GLOBALIZATION Canon is active in programs and
strategies to further globalize its operations and advance
its integrated solutions business.
In Asian software activities, we acquired a majority
stake of Tokyo Denshi Sekei Inc., a Japanese venture
company, in January. This company provides printerrelated technologies in the fields of networks, controllers,
drivers and page definition languages. The acquisition
gave us control of Topmax Philippines, Inc., a subsidiary
that develops electronic components and software.
We established a new joint venture for software
development in the PRC in April. Beijing PeCan
Information System Co., Ltd., is a collaboration between
Canon and Beijing Founder Electronics Co., Ltd. It has
succeeded a joint venture started in 1988 with a 10year contract to market Canon laser beam printers and
develop Canon software.
In October, we announced plans to launch a
software development subsidiary in India by the summer
of 1999. This company will focus on developing
documentation-management software, for example, for
the transfer and filing of scanned image data.
Canon Australia Pty. Ltd. entered the professional
services business by creating the Canon IS (integrated
solutions) Division early in the year. Canon IS concentrates on developing business solutions for the office
and multimedia markets, in particular, the emerging
Australian market for videoconferencing systems.
Canon Business Machines, Inc. (CBM), of the
United States became the first Canon Group company
Beijing PeCan Information
System Co., Ltd.
outside of Japan to develop a Bubble Jet printer and
handle all production for worldwide shipments. The new
printer—the BJC-5000—is being manufactured at CBM’s
subsidiary in Mexico.
Affiliated Business Solutions, Inc., a subsidiary of
Canon U.S.A., Inc., acquired Sintaks Unlimited B.I.S., Inc.,
a systems integration vendor. As a result, Canon gained
access to vital expertise in the area of systems and
network integration. Canon Inc. and Canon U.S.A. also
forged a business and technological partnership with
Pitney Bowes Inc., a provider of mailing systems and
message-management solutions. The alliance involves
technology exchanges and allows Pitney Bowes to
incorporate Bubble Jet technologies in its high-speed
mailing systems. Canon U.S.A.’s South American
operations were boosted by the purchase of Konex S.A.,
a major distributor of office imaging systems in Argentina.
The company was renamed Canon Argentina, S.A.
Activities in Europe included the October opening
by Canon Europa N.V., located in the Netherlands, of
Canon’s first directly managed representative office in
the Middle East. Established in Dubai, the United Arab
Emirates, Canon Middle East B.V. will provide sales and
service support to Canon distributors in the region.
Bruhn A/S, a distributor in Denmark for the past 30
years, joined the Canon Group as a wholly owned
subsidiary of Canon Europa. This addition to the Group
is expected to provide mutual benefits to Bruhn and
Canon Europa.
Canon Business Machines de
Mexico S.A. de C.V.
6
Canon Latin America, Inc. Office
in Miami
CANON IN 1998
Canon Middle East B.V.,
located in Dubai, the United
Arab Emirates, was established
in 1998 to offer sales and
service support to Canon
distributors in the region.
7
The Canon CXDI-11 X-Ray Digital
Camera offers excellent
potential as a digital imaging
solution for medical institutions.
The CXDI-11 can also be used to
send X-ray images over
computer networks.
8
CANON IN 1998
TECHNOLOGY Establishing Canon-style multimedia
in the marketplace is one of our primary technological
objectives. In this area, we are developing distinctive
network-related software technologies based on imaging
and other fields in which we hold a leading edge in the
industry. These activities include forming strategic
alliances with leading companies in a variety of fields
worldwide.
Canon is also committed to establishing itself
in the materials and electronic devices businesses.
Strength in these fields is key to our maintaining
technological leadership in our core businesses.
We achieved a variety of successes in our device
development in 1998.
The CMOS sensor for high-sensitivity scanning and
image processing represents Canon’s newest generation
of highly precise sensors. The device is more compact
than conventional devices and makes possible an
extremely wide autofocus angle. Further, its low power
consumption allows the development of ultracompact
cameras that can be used for as long as a year on
a single battery.
In September, we introduced the EOS-3 SLR
camera, the first commercial application of the CMOS
sensor. In this camera, the sensor allows line-of-sight
input from 45 range points, the largest autofocus
coverage in the industry. The CMOS sensor is also being
used in the compact and lightweight high-precision color
contact image sensor.
CMOS sensor
SOI wafer
Another important device breakthrough is the
LANMIT wide-area sensor, which uses phosphor to
convert X-rays into light. The LANMIT sensor measures
430 mm 2 430 mm (17 in 2 17 in) and produces
precise, high-resolution X-ray images in 4,096 gray-scale.
The LANMIT sensor was applied in Canon’s most
recent medical imaging product —the CXDI-11 X-Ray
Digital Camera. The CXDI-11 recently received marketing
approval from the governments of the United States,
Japan and Europe. Because the camera uses digital
technology, images taken with it can be viewed onscreen. Images can also be transmitted via computer
networks. We are currently developing specialized
image-transmission software at Canon Research Center
America, Inc.
Canon is nearing commercialization of its siliconon-insulator (SOI) wafers, which have the potential to
speed up processing on large-scale integrated circuits
(LSIs) while reducing energy consumption. Development
of the flat-panel Surface-conduction Electron-emitter
Display, or SED, continued during the year. When this
technology is perfected, it will make possible wallhanging television screens in the 60-inch class.
SED
9
ENVIRONMENT AND CITIZENSHIP In the spirit of
Canon’s philosophy of kyosei
kyosei —living and working
together for the common good—the Canon Group
stresses environmental protection both in its daily
operations and through support activities.
In September 1998, we announced plans to
expand our copying machine remanufacturing activities
to the Japanese market. Canon has long been known
for its efforts to remanufacture copying machines. We
commenced these operations at Canon Virginia, Inc., in
the United States in 1992 and, the following year, at
Canon Manufacturing U.K. Ltd., a dedicated plant in
Scotland. With the full-scale commencement of these
activities in Japan, we are confident that we will be able
to offer remanufactured copying machines to customers
around the world in the future.
The Canon Group’s corporate citizenship activities
include our continuing sponsorship of the ARTLAB digital
media arts laboratory in Tokyo. Canon supplies hardware,
software and technical support to the laboratory, which
held several innovative exhibitions in 1998.
Our activities in the United States centered on the
Clean Earth Campaign of Canon U.S.A., under which
more than 25 million toner cartridges have been
recycled since 1990. In addition, our U.S. subsidiary
supports the Expedition into the Parks program by
providing funds and equipment for critical conservation
needs in U.S. national parks. During 1998, Canon
Copying machine remanufacturing
in Japan
camera equipment was used to measure the effects
of both humans and nature on precious historical
resources in the Nez Perce National Historic Park, an
area spanning four northwestern states. The company
also supports The Nature Conservancy’s Wings of the
Americas program. With Canon’s assistance, this
program protects birds that migrate throughout the
Americas by identifying and preserving the habitats they
need to survive.
In Europe, the Worldwide Fund for Nature (WWF),
also known in the United States as the World Wildlife
Fund, acknowledged our environmental efforts by
accepting Canon Europa as its first Conservation Partner
in June 1998. The WWF is the world’s foremost
environmental organization, with nearly five million
supporters globally. Status as a Conservation Partner is
reserved for sponsors who contribute to the WWF’s
mission of protecting wildlife. During the initial three-year
term of Canon Europa’s sponsorship as a Conservation
Partner, the company will extend both technological and
financial support for the activities of the WWF. Specific
projects include a program to digitize the WWF Photo
Library to create a digital image record of its activities.
The archive has been renamed the WWF—Canon
Photolibrary in light of this support.
From environmental protection to cultural support,
Canon is devoted to the spirit of kyosei
kyosei.
ARTLAB special exhibition: “LOVERS”
by Teiji Furuhashi
10
The Wings of the Americas Program
protects bird habitats.
CANON IN 1998
In June 1998, Canon Europa
became the first Conservation
Partner of the Worldwide Fund
for Nature (WWF), which is
known in the United States as
the World Wildlife Fund. We are
now assisting the WWF in digitizing its Photo Library, an outstanding record of conservation
photographs that can be used
for public relations activities.
11
899,205
Sales results
(Millions of yen)
BUSINESS MACHINES
Copying Machines
Full-color copying machines
Office copying machines
Personal copying machines
Consumables, etc.
896,641
PRODUCT GROUP SUMMARY
Share of
consolidated
sales
748,875
818,909
31.7%
878,170
1,064,304
964,808
37.7%
709,037
BUSINESS MACHINES
Computer Peripherals
Laser beam printers
Bubble Jet printers
Digital cameras
Image scanners
Consumables, etc.
BUSINESS MACHINES
Business Systems
Facsimile machines
Word processors
Micrographics
Personal information equipment, etc.
582,838
702,452
14.0%
CAMERAS
Single-lens reflex (SLR) cameras
Compact cameras
Camcorders
Lenses, etc.
12
397,272
436,053
247,766
267,636
152,737
130,964
213,760
368,841
154,306
91,227
OTHER PRODUCTS
177,537
164,603
OPTICAL PRODUCTS
Semiconductor production
equipment
Medical equipment
Broadcasting equipment
124,910
347,196
440,532
9.5%
38,409
43,011
52,550
60,456
94
95
96
97
4.6%
69,452
98
O
verview
● Expanded color document
usage in offices expands
market for color laser copying
machines
● Print-on-demand market grows
● Rapid monochrome copying
market transition to digital
machines
P
L
roducts and Technology
● PIXEL L sells well following
launch in Japan
● High-speed CLC2400
(CLC1000S in Europe and
other regions) for printing-ondemand released
● Digital monochrome copying
machine lineup enhanced
ooking Ahead
● Introduce color laser copying
machines based on PIXEL L
technologies overseas
● Commercialize new printingon-demand solutions to
expand market awareness
of Canon brand
● Emphasize marketing of new
digital monochrome copying
machines
See page 14
CLC900
● Laser beam printer and color
laser copying markets begin to
merge
● Ink jet printing market expands
further
● Compact, low-cost, high-quality
digital cameras spur market
growth
● Color laser beam printer
developed based on color
laser copying technology
● New products herald the final
stage of Canon’s
PhotoRealismTM concept
● Compact and high-end models
strengthen digital camera
lineup
● Further mix printing and
copying, and reduce laser
beam printer running costs
● Continue enhancing Bubble Jet
printer output quality and
speed
● Offer digital cameras with
distinctive image quality and
high data transfer speeds
See page 18
● Stand-alone and multifunction
peripherals (MFPs) businesses
expanded
● Demand for Handy Terminals
up slightly despite weak
Japanese economy
● Active release of new
document scanner products
● New MFPs introduced
worldwide
● First Handy Terminal with
browser and PIM functions
launched
● Document scanner with
built-in CD-Recordable (CD-R)
drive introduced
● Raise market share and move
part of facsimile machine
production to Canon Hi-Tech
(Thailand) Ltd.
● Strengthen Handy Terminals as
networking tools
● Establish document scanner
series by offering new products
See page 24
BJC-50
MultiPASS C5500
● SLR market size unchanged
● Demand for compact cameras
grows
● New digital camcorders bring
Canon lineup to four models
● Autofocus (AF) power
enhanced with new EOS-3
● Powerful new Advanced Photo
System camera introduced
● New digital camcorders highly
evaluated in marketplace
● Maintain top share of SLR
market
● Further expand Advanced
Photo System camera lineup
● Increase camcorder market
share by strengthening digital
product lineup
See page 26
● Introduce devices to support
development of high-precision
semiconductor production
equipment
● Expand lineup of medical
imaging equipment
● Expand broadcasting lens
market share with products
featuring new technologies
See page 30
EOS-3
● Semiconductor production
equipment developed with
high-precision patterning of
less than 0.18 micron
● Diffusion of digital imaging
equipment continues
● Record sales from broadcasting
lens operations
● Krypton fluoride excimer-laser
stepper commercialized
● Canon CXDI-11 X-Ray Digital
Camera released
● Strong sales of new
J21a27.8B high-performance
compact broadcasting lens
FPA-5000ES2
13
(Millions of yen)
2,358,217
0
94 95 96 97 98
896,641
899,205
818,909
900,000
709,037
ctivities and Results Despite the harsh environment, Canon
advanced both unit- and revenue-based sales by concentrating
marketing on new products that take advantage of our imaging expertise.
Products contributing to sales included three full-color copying machines in
the new CLC900 series. In addition to improving color reproduction from its
predecessors, the CLC900 features an optional built-in controller. In the
second half, we introduced the CLC2400 (CLC1000S in Europe and other
regions), which has a 24-copies-per-minute (cpm) speed and many
features of the popular CLC1000, and is ideal for printing-on-demand
applications. In Japan, we successfully released the PIXEL L, a new,
affordably priced full-color copying machine that uses advanced Canon
technologies to provide the high-quality images required by business users.
2,300,066
Sales results:
Business machines
748,875
AA
1,639,071
OO
perating Environment Global demand for full-color copying
machines grew in 1998, as the usage of color documents in offices
expanded. On the other hand, regional economic conditions created a large
variance in unit-based shipments from country to country. In particular,
recessions and a squeeze in bank lending led to reduced shipments in
the Japanese and Asian markets. Furthermore, this situation intensified
competition during the year.
1,820,168
2,000,000
2,137,611
BUSINESS MACHINES
Copying Machines
Sales results:
Copying machines
(Millions of yen)
0
94 95 96 97 98
OO
utlook for 1999 Our marketing plans anticipate year-on-year growth of more than 20% in the worldwide
market for full-color copying machines. However, several concerns remain, such as economic sluggishness in
Japan and Asia, as well as a possible slowdown in expansion in North America and Europe. In this environment, we
will strengthen our current lineup and actively introduce products to boost market share. For example, backed by the
success of the PIXEL L in Japan, we have developed the CP660 for Europe and other regions, and the imageCLASS
C2100 for North America. In addition, we will continue R&D for key components, effectively utilize technological
advances and promote our products as business and network solutions.
CLC2400
CLC1000
imageCLASS C2100
14
Full-color Copying Machines
Canon’s CLC900 offers superb
color reproduction and a high
output speed of seven cpm in
color and 28 cpm in monochrome.
CLC900
15
Office and Personal Copying Machines
The GP215 multifunctional
copying machine, with facsimile
and printing functions, became
Canon’s top-selling digital
monochrome copying machine
in 1998.
GP200 series
16
BUSINESS MACHINES
Copying Machines
OO
perating Environment As was the case for full-color copying machines, economic difficulties in the
Japanese and Asian markets restricted sales of monochrome copying machines for office and personal use.
On the other hand, demand was strong in North America and Europe. The key word for the year was “digital,” as
companies throughout the industry reinforced their offerings of digital monochrome copying machines to meet
growing demand for digital office equipment.
AA
ctivities and Results Canon’s strategy in 1998 was to establish a full lineup of low- to high-speed digital
monochrome copying machines for the Japanese market, which helped us increase our domestic market
share. In Europe and the United States, we were able to break sales records for the first half of the year by
promoting our popular digital copying machines and stepping up marketing of our mainstay, high-speed analog
copying machines. Products that contributed significantly to sales for the year included the GP200 series, which
was marketed in 1997 and became our principal digital monochrome copying machine line in 1998. These
multifunctional products feature expanded printer and facsimile functions from previous models, as well as a copying
speed of 20 cpm. Among our analog monochrome copying machines, products in the NP6551 series with highspeed copying of 50 cpm were strong sellers, as was the NP6085, our high-end analog monochrome copying
machine. In the market for personal-use copying machines, we maintained our market share in Japan and achieved
significant increases in other regions, primarily because of the strength of our brand name and the successful
introduction of new models, including the affordably priced PC400/420 (FC200/220 in Europe).
O
O
utlook for 1999 The coming year will see continuing difficulty in Japan and Asia. What’s more, the
introduction of digital monochrome copying machines by competitors will intensify competition worldwide. In
this situation, and in accordance with the trend toward digital equipment, Canon will work to further reinforce its
digital product family, including personal-use copying machines. We will also accelerate our comprehensive
hardware, software and network-related development to provide customers with high-quality system solutions.
NP6551
NP6085
PC400
17
A
A
582,838
964,808
878,170
OO
perating Environment Demand for monochrome laser beam
printers for office and personal use grew in all regions except Japan in
1998. Supporting this expansion were technological advances that raised
printing speed and increased demand for network printing in offices. Strong
demand has made the monochrome laser beam printer market increasingly
competitive. A firm market for color laser beam printers also emerged during
the year, as user awareness expanded.
702,452
1,000,000
1,064,304
BUSINESS MACHINES
Sales results:
Computer peripherals
(Millions of yen)
0
94 95 96 97 98
ctivities and Results To maintain its competitiveness in this
situation, Canon introduced products to fill a variety of printing
requirements. As a result, unit-based sales soared overseas but were down in Japan. During the year, we launched
the LBP-840 and LBP-850 in Japan. These new printers offer office users 1,200-dots-per-inch (dpi) printing at 16
pages per minute (ppm). The LBP-1760, featuring network connectivity and high output quality at up to 17 ppm
(letter-size), was released outside of Japan in June. For the personal-use market, we released the cost-effective LBP660, designed specifically for use in the Microsoft® Windows® environment. In our color laser beam printer
operations, we offered the C LBP 460PS, an affordably priced, full-color A4/letter-size printer for overseas markets. In
Japan, we also released the LBP-2160, an innovative full-color printer that features a high throughput and
accommodates A3-size paper.
OO
utlook for 1999 We forecast a difficult year ahead for the laser beam printer market, in part because of
intensifying competition. To win under these conditions, we intend to strengthen the networking capabilities of
our products, for example, by promoting our proprietary NetSpot network printer management software solution and
improving the compatibility of our printers with utility software from other companies. The release of the imageCLASS
C2100 in North America and the CP660 in Europe and other regions is also expected to boost sales. These products
use the same engine technology as the LBP-2160 available in Japan. Other strategies include reducing the lead-time
from production to shipment and sales, and reinforcing our sales capabilities outside of Japan.
LBP-850
LBP-1760
LBP-2460
(top-of-the-line laser beam printer)
18
Laser Beam Printers
The C LBP 460PS is Canon’s newest
mid-range, full-color laser beam
printer. With output of 600-dpi
quality, a speed of four ppm in color
and 16 ppm in monochrome, and
excellent networking capabilities,
this model is a powerful tool for
today’s office users.
C LBP 460PS
19
Bubble Jet Printers, Consumables, etc.
Compact and lightweight, the
BJC-50 was designed for mobility
and high image quality in any
situation. A new lithium-ion
battery technology keeps the
BJC-50 going for up to 100 pages
on a single charge.
20
BJC-50
BUSINESS MACHINES
Bubble Jet Printers
Consumables, etc.
O
O
perating Environment The Japanese market for ink jet printers, the product classification in which Canon’s
Bubble Jet printers are included, was slow in 1998, primarily because of the weak economy. Similar conditions
existed in the Asian market outside of Japan. Thus, market growth in North America and near-20% expansion in
Europe were not sufficient to raise global demand.
AA
ctivities and Results Worldwide sales of Bubble Jet printers were above the previous year’s result on a unit
basis, leading to a slight increase in the value of sales. The BJ F600, which boasts the highest printing speed in
its class, was highly praised in the Japanese marketplace, where we launched it in advance of overseas markets. We
were also able to solidify our number two share of the North American market by launching three new models
during the year: the BJC-50, BJC-4400 and BJC-5000. In the United States, we focused promotional activities on
corporate customers and non-PC applications such as Internet appliances. In Europe, we kept our leading position by
expanding marketing activities in the region; we also increased profitability by widening the scope of our
consumables sales. Despite economic conditions in Asia, we were able to maintain our market share by introducing
popular low-end Bubble Jet printers, including the BJC-255SP.
O
O
utlook for 1999 Our activities in Japan, North America and Europe will center on reinforcing our line of
mid-range Bubble Jet printers to supplement sales of our strong-selling low-end models. In Asia and Oceania,
we will take advantage of an anticipated recovery in the PC market to expand our number one share of the printer
market in the region.
BJ F600 (Japan version)
BJC-5000
BJC-255SP
21
BUSINESS MACHINES
Digital Cameras
Scanners, etc.
O
O
perating Environment Two important developments propelled growth of the market for digital cameras in
1998: significant improvements in image quality and the introduction of affordably priced cameras. Demand
for image scanners also expanded during the year, but surplus inventories intensified price competition. The release
of small-scale, affordably priced systems supported growth and intensified competition in the videoconferencing
market. Demand also increased for visual communication systems, such as large-scale projectors for presentations,
particularly in the United States.
AA
ctivities and Results Canon achieved widespread advances in its sales of PowerShot digital cameras.
We released the PowerShot A5 and A5 Zoom—with the ease of use and high image quality expected of
conventional cameras in a lightweight and compact body—for users ranging from amateurs to experts. The
PowerShot Pro70 is a new, attractively priced model offering an outstanding image resolution of 1.68 million pixels.
In our scanner activities, we marketed distinctive products designed to set us apart from the competition, such as the
CanoScan FB310 and FB610, which can be connected to the parallel ports of PCs and are thus easy to use even for
beginners. The CanoScan FB320 and FB620 are new products with our highly advanced CIS (contact image sensor).
Our videoconferencing system sales advanced, owing mainly to our reinforcing sales capabilities and developing an
upgraded model of our CanoMedia desktop system. In our visual communication systems activities, we released the
powerful DZ-3600U Digital Document Camera and the Video Visualizer RE-350, an image-capturing system usable
in presentations, desktop publishing, videoconferencing and a variety of other applications.
O
O
utlook for 1999 The market for digital cameras should continue growing at a fast pace. Demand for highquality printing of digital photographs will bring mega-pixel digital cameras with zoom functions to the fore of
the market. Other value-added functions, such as the ability to capture moving images and take panorama-size
shots, will also increase. In this environment, Canon will advance its technologies both in terms of image resolution
and color reproduction. To meet printing needs, we will fully consider print solutions in our product development.
In the scanner industry, although value-added products will enter the market in 1999 competition will intensify,
and we anticipate increased demand for low-priced products. Anticipating steady growth in the market for
videoconferencing systems, we will further strengthen our sales organization and promote our new CanoMedia
system. Activity in the videoconferencing market is also expected to contribute to expanded sales of our visual
communication systems.
PowerShot Pro70
CanoScan FB620P
CanoMedia videoconferencing system
22
Digital Cameras, Scanners, etc.
PowerShot A5 Zoom
The Canon PowerShot A5 Zoom
is a stylish digital camera with a
motorized retracting lens system
that allows it to fit easily into a
shirt pocket or briefcase. What’s
more, this digital camera features
a 2.5@wide zoom lens and
810,000-pixel resolution.
23
BUSINESS MACHINES
Business Systems
440,532
436,053
397,272
347,196
OO
perating Environment The worldwide market for facsimile
machines grew in 1998, but economic factors in Japan and the rest
of Asia severely impacted this expansion. A trend seen throughout the year,
particularly in North America and Europe, was an increasing preference for
multifunction peripherals (MFPs) over stand-alone facsimile machines.
Shipments of handheld terminals expanded slightly in Japan, supported by
replacement demand and sales to the financial and distribution industries.
Demand for personal electronic organizers and calculators expanded in
North America and Europe. The document scanner market grew, as a
variety of new products were launched during the year.
368,841
450,000
Sales results:
Business systems
(Millions of yen)
0
94 95 96 97 98
AA
ctivities and Results Our facsimile machine sales in North America rose favorably from the previous year’s
result. To meet customer needs in this competitive market, we introduced the MultiPASS C3500/C5500
(MultiPASS C20/C50 in Europe) for small offices/home offices (SOHOs). In addition to our facsimile technology,
these models incorporate an impressive array of advanced functions, including full-color, photo-quality printing,
copying and scanning. In Europe, we enhanced sales of plain-paper facsimile machines (PPFs) and debuted our
MFPs in new market sectors. Other products that contributed to sales in 1998 were the FAXPHONE B640 (B150 in
Europe), our popular Bubble Jet PPF, and the CFX-L4000 (L300 in Europe), an affordable laser beam model.
Replacement demand in the handheld terminal market and the popularity of the HT-180, which we released in
1997, supported a sales increase in this category. In our desktop calculator activities, we promoted high-value-added
products with printing functions in the U.S. and European markets. In Australia, our promotion of personal electronic
organizers was extremely successful. For the document scanner market, we released the CD-4046, with a built-in
CD-Recordable (CD-R) drive, which was especially popular in the United States.
O
O
utlook for 1999 In the coming year, we will renew efforts to improve our cost competitiveness, mainly by
moving part of our facsimile machine production to Canon Hi-Tech (Thailand) Ltd. We will also continue to
develop innovative products in all categories.
FAXPHONE B640
HT-180
CD-4046
24
Facsimile Machines and Other Business Machines
MultiPASS C5500
The MultiPASS C5500 offers fullcolor printing, copying and scanning, as well as facsimile functions.
Canon made this product easy to
use and maintain by including popin cartridges, easy-to-use software
and the ability to make color copies
without using a computer.
25
AA
164,603
247,766
213,760
OO
perating Environment Unit-based sales of single-lens reflex (SLR)
cameras increased in 1998, though the Japanese and Asian markets
contracted. The market for compact cameras also expanded worldwide, as
increased demand in Europe, North America and Oceania countered slow
shipments in Japan and Asia. Diffusion of cameras for the Advanced Photo
System continued, but the lack of sufficient film development facilities
limited sales in some regions.
177,537
250,000
267,636
CAMERAS
Sales results:
Cameras
(Millions of yen)
0
94 95 96 97 98
ctivities and Results In its SLR operations, Canon released the
EOS-3, which features the world’s largest AF coverage to dramatically
improve picture composition flexibility, making the camera ideal for capturing off-center or moving subjects. This
product sold well, as did the EOS Rebel G (EOS 500N in Europe) and EOS ELANIIE/II (EOS 50E/50 in Europe);
Canon was able to sustain its number one share of the SLR market as a result. We also launched the EOS IX LITE
(EOS IX 7 in Europe), an AF SLR for the Advanced Photo System. For the professional digital
market, we offered the EOS D2000, a high-end digital camera. The strong performance of our
compact cameras was highlighted by the continuing popularity of products for the Advanced
Photo System. Two new models introduced in 1998 were the ELPH 370Z (IXUS Z70 in
Europe), with a 32 zoom function, and the ELPH LT (IXUS M-1 in Europe), a low-end model. ELPH
For markets in which the conventional 35mm film format remains prominent, we began sales of the SURE SHOT
85Zoom (PRIMA Zoom85 in Europe).
OO
utlook for 1999 The fiscal year ahead should see little growth in the SLR market. Canon’s mission in this
environment will be to further strengthen its leading market share. Difficulties will continue in the compactcamera markets of Japan and Asia, so the key will be our performance in Europe and North America. To ensure
our success, we intend to launch strategic products for both the 35mm and Advanced Photo System markets.
EOS Rebel G
EOS D2000
26
ELPH 370Z
SLR and Compact Cameras
EOS-3
The new Canon EOS-3 is a high-end
35mm SLR camera with the world’s
first 45-point area autofocus (AF)
as well as eye-controlled focusing
and a maximum shooting speed
capability of seven frames per
second (fps).
27
Camcorders, Lenses, etc.
Canon’s VISTURA digital video
camcorder is compact and easy
to use, yet it offers superb
performance and features
including powerful optical and
digital zooms, a shift-type optical
image stabilization system, 2.8-in
color LCD and FlexiZone AF/AE.
28
VISTURA
CAMERAS
Camcorders, Lenses, etc.
OO
perating Environment Growth was seen in the primary markets for camcorders despite economic
difficulties around the world. Japan maintained the highest diffusion rate for digital camcorders, followed by
Europe and the United States, respectively. Demand for interchangeable lenses for SLRs was high in Europe and the
United States. No major changes were seen in the binocular market, though demand increased in Europe and the
United States.
AA
ctivities and Results At Canon, the value of overall camcorder sales grew despite a slight drop in unit sales,
primarily because of our gradual and successful shift from analog to digital products. We brought our digital
camcorder lineup to four models with the 1998 introduction of the ZR (MV100 in Europe) and the VISTURA (MV10
in Europe). In addition to a unique horizontal design, the ZR offers excellent image quality, as well as an 112 optical
zoom, 442 digital zoom and an image stabilization system. The VISTURA has a powerful 162 optical zoom, as well
as a 642 digital zoom, a 2.8-inch LCD display, and a new shift-type optical image stabilization
system adapted from the technology used in Canon’s AF EOS lenses. For overseas markets in
which analog camcorders hold the major share, we reinforced our line of 8mm camcorders. In
our lens operations, our introduction of distinctive products, including image stabilization
models, supported a small increase in sales despite slow demand for high-end models.
ZR
Sales of binoculars with image stabilization lenses also increased slightly.
OO
utlook for 1999 Diffusion of digital camcorders will proceed in major world markets, and price competition
will intensify. In this situation, Canon will concentrate on developing and marketing high-quality products with
distinctive features.
Top-of-the-line XL1 MiniDV
camcorder
EF 28–135mm f/3.5–5.6 IS USM
29
Canon’s image stabilization lenses
bring every view into sharp focus.
OPTICAL PRODUCTS
AA
152,737
91,227
124,910
OO
perating Environment Almost every sector of the world semiconductor market contracted in1998, and continuing declines in dynamic
random-access memory (DRAM) prices also hurt industry performance. Even
in North America, where capital investment by semiconductor manufacturers
was strong in1997, market conditions forced some makers to halt DRAM
production. The capital investment environment was especially weak in
Japan and Asia, as most makers recorded losses for the year.
130,964
154,306
150,000
Sales results:
Optical products
(Millions of yen)
0
94 95 96 97 98
ctivities and Results In the DRAM market, expectations are high
that high-precision technologies for large-capacity 256Mb DRAMs and
next-generation microprocessors will revitalize demand. At Canon, we stressed the development of excimer-laser
steppers. We introduced the FPA-3000EX5, a new krypton fluoride (KrF) excimer-laser stepper for the mass
production of 64Mb and 256Mb DRAMs and next-generation multiprocessors. We also released the FPA-5000ES2, a
KrF excimer-laser scanning stepper featuring less than 0.18-micron linewidth patterning, which supports high-volume
semiconductor production on 300-mm silicon wafers. In our operations, we strove to reduce costs and improve
product performance and quality.
O
O
utlook for 1999 The first half of 1999 will see greater difficulties in the semiconductor industry. However, a
recovery in capital investment is anticipated from the second half. Thus, one of our goals for the year will be to
remain flexible and adapt easily to changes in the market. For example, we are focusing on raising the specifications
of our products and reducing shipping times. Further, we will apply ourselves to responding rapidly to customer
needs by shortening development time for new products.
FPA-3000EX5
FPA-3000i5+
MPA-5000
30
Semiconductor Production Equipment
With linewidth patterning precise
to less than 0.18 micron, the
FPA-5000ES2 KrF excimer-laser
scanning stepper supports mass
production of 256Mb DRAMs.
FPA-5000ES2
31
OPTICAL PRODUCTS
Medical and Broadcasting Equipment
OO
perating Environment There were no particularly strong regions for ophthalmic instruments during the year
under review, but the market was relatively active in North America, reflecting the economic situation in this
region. The trend in the X-ray equipment industry continued to shift toward digital systems, while replacement
demand propelled growth in the market for dry laser printers for medical use. As in other product areas, demand
for broadcasting lenses centered on the U.S. and European markets.
AA
ctivities and Results In its ophthalmic instrument operations, Canon achieved an increase in U.S. sales, as it
introduced the CR6-45NM, a new non-mydriatic retinal camera featuring improved specifications compared with
its predecessor. Our X-ray equipment activities were highlighted by the start of sales of Canon’s CXDI-11 X-Ray Digital
Camera at year-end. This revolutionary system provides speed, high-quality image reproduction and networking
capabilities, and is cost-effective and environment-friendly because it does not require film processing. Our sales of
wet laser printers for medical imaging decreased in accordance with the market shift to dry models. On the other
hand, we achieved record sales from our broadcasting lens operations, mainly owing to strong sales in Europe and
the United States. During the year, we released such high-selling products as the J21a27.8B, a compact lens with
high-performance specifications that has been highly evaluated in the industry. The new DIGI SUPER 25xs, a high-end
high-definition television (HDTV) lens offering excellent performance, was also released during the year.
O
O
utlook for 1999 Canon will concentrate on enhancing the competitiveness of its ophthalmic instruments in
1999, specifically its non-mydriatic retinal cameras, tonometers and package products. The X-ray equipment
market is expected to continue shifting toward digital imaging, and Canon will respond by introducing new
equipment in the CXDI X-Ray Digital Camera series and peripheral equipment. In the broadcasting lens area, we
will offer distinctive new products to further expand our leading market share.
CR6-45NM
CXDI-11 X-Ray
Digital Camera
32
J21a@7.8B
FINANCIAL SECTION
TABLE OF CONTENTS
34 FINANCIAL OVERVIEW
46 TEN-YEAR FINANCIAL SUMMARY
48 CONSOLIDATED BALANCE SHEETS
49 CONSOLIDATED STATEMENTS OF INCOME
50 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
51 CONSOLIDATED STATEMENTS OF CASH FLOWS
52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Significant Accounting Policies
54 (2) Financial Statement Translation
55 (3) Foreign Operations
(4) Marketable Securities and Marketable Investments
57 (5) Trade Receivables
58 (6) Inventories
(7) Property, Plant and Equipment
(8) Short-term Loans and Long-term Debt
61 (9) Trade Payables
(10) Employee Retirement and Severance Benefits
63 (11) Income Taxes
66 (12) Common Stock
(13) Legal Reserve and Cash Dividends
(14) Noncash Financing Activities
67 (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
increased 2.0% , to ¥239,513 million (U.S.$2,065
million), while net income decreased 7.8% to
¥109,569 million (U.S.$945 million).
In 1998, Canon recorded its fifth consecutive year
of increases in consolidated net sales. Net sales
rose 2.4% to ¥2,826,269 million (U.S.$24,364
million). Income before income taxes also
SUMMARY OF OPERATIONS
(Millions of yen
except per
share amounts)
1998
Net sales
Operating profit
Income before income taxes
Net income
Per share:
Basic
Diluted
¥2,826,269
260,778
239,513
109,569
126.10
123.93
1995
(Thousands of U.S. dollars
except per
share amounts)
1998
+2.4% 2,761,025 +7.9% 2,558,227 `18.1% 2,165,626
–4.8
274,034 +24.0
221,036 `43.7
153,838
+2.0
234,805 +28.5
182,765 `55.9
117,234
–7.8
118,813 +26.2
94,177 `71.1
55,036
$24,364,388
2,248,086
2,064,767
944,560
change
–8.4
–7.9
1997
change
137.73 +23.8
134.60 +25.8
1996
change
111.29 `68.7
106.96 `70.5
65.96
62.73
1.09
1.07
Sales
During 1998, the U.S. economy continued to expand against a
backdrop of increasing domestic demand, and the European
economy continued to improve. In Southeast Asia, the economic
situation remained poor and in Japan the market suffered from
weak consumer spending and concerns over the stability of the
Japanese banking systems.
During this period, the average yen-dollar exchange rate was
approximately ¥131/U.S.$1, reflecting a ¥10 increase in the
average value of the U.S. dollar from that of 1997, while the
average yen-deutsche mark exchange rate fell from
approximately ¥70/DM1 during the previous year to ¥74/DM1.
Using the average 1997 exchange rates for the computation,
1998 net sales would be 2% lower than in 1997.
In 1997, the Southeast Asian economies were experiencing
severe financial problems and in Japan the markets were poor,
with the economy stagnating. The average yen-dollar exchange
rate was approximately ¥121/U.S.$1 in 1997, reflecting a ¥12
increase in the value of the U.S. dollar from that of 1996. The
yen strengthened against the deutsche mark. The average yendeutsche mark exchange rate was approximately ¥70/DM1,
reflecting a ¥2 decrease in the average value of the deutsche
mark versus 1996.
In 1996, even if the favorable effect of the weaker yen was
disregarded, Canon still experienced double-digit growth in many
key businesses. The average yen-dollar exchange rate was
approximately ¥109/U.S.$1 in 1996, reflecting a ¥15 increase in
the value of the U.S. dollar from that of 1995. The yen also
weakened against the deutsche mark. The average yen-deutsche
mark exchange rate was approximately ¥72/DM1, reflecting a ¥6
increase in the average value of the deutsche mark versus 1995.
Earnings
Operating profit decreased 4.8% to ¥260,778 million
(U.S.$2,248 million) or 9.2% of net sales during fiscal 1998.
This compares with 9.9% in 1997 and 8.6% in 1996.
In 1998, the depreciation of the yen positively influenced net
sales by approximately ¥124,000 million (U.S.$1,069 million).
However, the most of this influence was eliminated at the gross
profit level due to price reductions made to increase Canon’s
competitive position in the world markets. The effect of the yen
depreciation plus Canon’s efforts to improve its competitive
position meant that the ratio of gross profit to net sales was
almost static at 44.5% in 1998 compared to 44.6% in 1997.
34
Income before income taxes in 1998 was ¥239,513 million
(U.S.$2,065 million), a 2.0% increase over the previous year,
accounting for 8.5% of net sales. Interest expense decreased by
¥908 million (U.S.$8 million) to ¥28,881 million (U.S.$249
million), mainly due to the repayment of short-term debt. Other
net deductions decreased ¥18,402 million (U.S.$158 million) to
¥4,960 million (U.S.$43 million). The major factor for the
Net income in 1998 was ¥109,569 million (U.S.$945 million),
a 7.8% decrease compared to the previous year, representing a
3.9% return on sales. The ratio of income taxes to income
before income taxes rose by 5.1% to 51.7%. Of this increase,
3.3% was due to the effect of changing Japanese income tax
rates on net deferred tax assets.
Net income in 1997 and 1996 was ¥118,813 million and
¥94,177 million, respectively. Return on sales in 1997 and
1996 was 4.3% and 3.7%, respectively.
R&D expenditure
(Millions of yen)
3.9%
4
150,000
2.5%
125,253
121,273
3.7%
150,085
4.3%
170,793
Return on sales
decrease in other net deductions was a decrease in foreign
exchange losses. In 1998, foreign exchange gains of ¥1,189
million (U.S.$10 million) compare very favorably to foreign
exchange losses in 1997 of ¥11,200 million. In comparison to
1997, the foreign exchange rates in 1998 have been much
more stable. Loss on disposal of property, plant and equipment
during 1998 decreased by ¥1,900 million (U.S.$16 million).
The loss attributable to equity in earnings of affiliated companies
increased by ¥956 million (U.S.$8 million) to net loss of ¥5,238
million (U.S.$45 million).
Income before income taxes in 1997 was ¥234,805 million
accounting for 8.5% of net sales. Interest expense decreased by
¥4,055 million, while foreign exchange losses increased ¥7,140
million due mainly to the devaluation of Asian currencies.
During 1997, equity in earnings of affiliated companies
decreased by ¥5,479 million.
Income before income taxes in 1996 was ¥182,765 million,
representing a 7.1% return on sales. Canon recorded a loss of
¥6,031 million related to the liquidation and sale of affiliated
companies.
176,967
Selling, general and administrative expenses increased 3.9% to
¥996,294 million (U.S.$8,589 million), or 35.3% of net sales,
an increase of 0.6% from the previous year. An increase in R&D
related expenses and other operating expenses incurred to
promote the sales of its products largely accounted for this
increase. R&D expenditures during 1998 increased by 3.6% to
¥176,967 million (U.S.$1,526 million), representing 6.3% of
net sales. This expenditure is seen as essential to Canon’s long
term plans.
In 1997, Canon’s operating profit increased 24.0% to
¥274,034 million. The depreciation of the yen positively
affected net sales by approximately ¥102,800 million.
Approximately 80% of this influence was eliminated at the gross
profit level due to price reductions. The effect of the yen’s
depreciation plus Canon’s efforts to increase sales of highervalue-added products and reduce costs resulted in an improved
ratio of gross profit to net sales in 1997 compared to 1996.
In 1996, Canon’s operating profit increased 43.7% to
¥221,036 million. The depreciation of the yen positively
affected net sales by approximately ¥206,000 million.
Approximately half of this influence was eliminated at the gross
profit level due to price reductions.
1.6%
0
0
94
95
96
97
98
94
95
35
96
97
98
SALES BY PRODUCT
1995
(Thousands of
U.S. dollars)
1998
¥ 896,641 –0.3% 899,205 +9.8% 818,909 `9.4% 748,875
1,064,304 +10.3
964,808 +9.9
878,170`25.0
702,452
397,272 –8.9
436,053 –1.0
440,532`19.4
368,841
2,358,217 +2.5 2,300,066 +7.6 2,137,611`17.4 1,820,168
267,636 +8.0
247,766 +15.9
213,760`20.4
177,537
200,416 –6.0
213,193 +3.1
206,856`23.2
167,921
¥ 2,826,269 +2.4 2,761,025 +7.9 2,558,227`18.1 2,165,626
$ 7,729,664
9,175,034
3,424,759
20,329,457
2,307,207
1,727,724
$24,364,388
(Millions of yen)
1998 change
Business machines:
Copying machines
Business systems
Cameras
Optical and other products
Total
1997
change
1996
change
SALES BY REGION
1995
(Thousands of
U.S. dollars)
1998
¥ 761,776 –11.2% 857,993 +3.5% 828,829`15.5% 717,844
1,005,648 +12.7
891,979 +8.8
819,737`20.3
681,384
850,226 +9.6
775,592 +10.4
702,516`15.5
608,489
208,619 –11.4
235,461 +13.7
207,145`31.2
157,909
¥ 2,826,269 +2.4 2,761,025 +7.9 2,558,227`18.1 2,165,626
$ 6,567,034
8,669,379
7,329,534
1,798,441
$24,364,388
(Millions of yen)
1998 change
Japan
Americas
Europe
Other areas
Total
1997 change
1996 change
SALES BY PRODUCT
Sales of business machines (copying machines, computer
peripherals and business systems) accounted for 83.4% of net
sales and increased 2.5% to ¥2,358,217 million (U.S.$20,329
million) in 1998. In 1997, business machine sales grew 7.6% in
comparison to an increase of 17.4% in 1996.
Sales of copying machines (including digital, color, office and
personal models) decreased by 0.3% to ¥896,641 million
(U.S.$7,730 million) in 1998. The digital and color machines had
good results across most markets with some newer models being
very well received, but consumer perception of older technology
of black and white analogue machines caused reduced demand.
This, combined with the weak domestic market, meant that the
overall result was a reduction in sales.
Sales of copying machines increased in both 1997 and 1996.
Sales of computer peripherals (mainly laser beam and
Bubble Jet printers) continued to grow and increased by 10.3%
to ¥1,064,304 million (U.S.$9,175 million) in 1998. During this
period, overseas demand was particularly strong, easily offsetting
the domestic problems that were experienced. The new laser
beam printers released during the year proved very competitive,
as were the new Bubble Jet printers.
Sales of computer peripherals increased in 1997 and
increased substantially in 1996.
Sales of business systems (including faxes, computers,
electronic typewriters, micrographics, Japanese-language word
processors and calculators) decreased by 8.9% to ¥397,272
million (U.S.$3,425 million) in 1998. This decrease was caused
mainly by a large decrease in domestic sales of computers and
Canon’s withdrawal from the electronic typewriter business during
the year. Facsimile machine sales recorded double-digit growth in
1998. Sales of the MultiPASS series, multifunction faxes that
support color printing, scanning, copying and networking,
contributed to this increase.
Sales of business systems decreased in 1997 but increased
in 1996.
Sales of cameras increased by 8.0% to ¥267,636 million
(U.S.$2,307 million) in 1998. The Advanced Photo System
cameras continued to show increasing sales worldwide. The
growth of sales in 35mm SLR cameras and digital video
camcorders also contributed to the increase. Cameras contributed
9.5% to net sales.
Sales of cameras increased in both 1997 and 1996.
Sales of optical and other products (including steppers and
aligners for semiconductor chip production, broadcasting lenses,
and medical equipment) decreased by 6.0% to ¥200,416 million
(U.S.$1,728 million). Within this group, stepper-related sales were
negatively impacted by restrained capital investments by
semiconductor manufacturers. Optical and other products
contributed 7.1% to net sales.
Sales of optical and other products grew both in 1997 and in
1996.
36
SALES BY REGION
A geographical analysis indicates that net sales increased in
Europe and the Americas, but declined elsewhere.
In Japan, overall sales decreased 11.2%, led by computers
and other business systems. Sales of copying machines, computer
peripherals, cameras and optical and other products also
decreased. Sales in the Americas increased 12.7%. The effect of
the exchange rate of the yen against the U.S. dollar was favorable
in 1998. All product groups managed to increase sales in this market. In Europe also, all product groups managed to increase total
sales, by 9.6%. Laser beam printers contributed significantly to this
increase. The decrease in sales in other areas was mainly led by
falling semiconductor revenue.
In 1997, all areas showed some growth, with Europe
showing double digit-growth. In 1996, sales in Japan, the
Americas, Europe and other areas showed double-digit growth.
market in Japan. In 1997, operating profit for business machines
increased by ¥50,177 million to ¥318,953 million. This increase
was due to a significant sales growth in copying machines, laser
beam and Bubble Jet printers. In 1996, operating profit for
business machines increased by ¥67,374 million to ¥268,776
million. This increase was due to a significant sales growth in laser
beam and Bubble Jet printers.
Operating profit for cameras increased by ¥5,093 million
(U.S.$44 million) to ¥27,207 million (U.S.$235 million) in 1998.
The increased sales of Advanced Photo System and 35mm SLR
cameras and higher-margin digital video camcorders contributed to
this increase. The operating profit ratio improved by 1.3% to
10.2%. In 1997, operating profit for cameras increased by ¥7,483
million to ¥22,114 million. The increased sales of Advanced Photo
System and 35mm cameras contributed to this increase. The operating profit ratio improved by 2.1% to 8.9%. In 1996, sales of
35mm and Advanced Photo System cameras contributed to an
increase in operating profit for cameras, which grew by ¥3,682 million to ¥14,631 million.
Operating profit for optical and other products in 1998
decreased by ¥20,815 million (U.S.$179 million) to ¥4,649 million
(U.S.$40 million), primarily attributable to the semiconductor market decline but also due to the lower margin attainable on the
newer series of aligners and steppers. Operating profit for optical
and other products decreased by ¥1,423 million to ¥25,464 million in 1997 due to the slowdown of the semiconductor market
but increased ¥8,710 million to ¥26,887 million in 1996, reflecting
increased sales of these products.
SEGMENT INFORMATION BY PRODUCT AND
GEOGRAPHIC AREA
The disclosures of segment information by product as required in
Japan for the years ended December 31,1998,1997 and 1996 are
provided on page 38, and the disclosures of segment information
by geographic area as required in Japan for the years ended
December 31,1998,1997 and 1996 are shown on page 39.
Operating profit for business machines decreased by ¥2,268
million (U.S.$20 million) to ¥316,685 million (U.S.$2,730 million)
in 1998. This decrease was mainly due to reduced sales of
copying machines though it was offset somewhat by increased
profitability of laser beam printers and faxes. The operating profit
ratio also decreased 0.5% to 13.4%, again due to the poor
Sales by product
Sales by region
(Millions of yen)
(Millions of yen)
Business machines
Japan
Copying machines
Business systems
Americas
Cameras
Europe
Optical and other products
2,761,025
Other areas
2,826,269
2,761,025
2,558,227
2,826,269
2,558,227
2,500,000
2,500,000
2,165,626
2,165,626
1,933,310
1,933,310
0
0
94
95
96
97
98
94
95
37
96
97
98
SEGMENT INFORMATION BY PRODUCT
Business
machines
Cameras
Optical and
other products
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)
882,599
22,988
41,014
2,826,269
—
2,826,269
2,565,491
260,778
2,720,597
161,787
221,401
1997: Net sales:
Intersegment
Total
Operating profit
Assets
Capital expenditure
¥ 2,300,066
—
2,300,066
1,981,113
¥ 318,953
¥ 1,433,626
102,789
148,834
247,766
—
247,766
225,652
22,114
163,095
9,963
13,953
213,193
—
71,844
(71,844)
285,037
(71,844)
259,573
20,653
25,464
(92,497)
232,436 1,032,770
8,793
18,270
17,097
39,895
2,761,025
—
2,761,025
2,486,991
274,034
2,861,927
139,815
219,779
1996: Net sales:
Intersegment
Total
Operating profit
Assets
Capital expenditure
¥ 2,137,611
—
2,137,611
1,868,835
¥ 268,776
¥ 1,284,682
84,767
106,172
213,760
—
213,760
199,129
14,631
138,717
9,352
12,621
206,856
—
67,190
(67,190)
274,046
(67,190)
247,159
22,068
26,887
(89,258)
185,347 1,009,552
8,457
16,675
21,838
35,726
2,558,227
—
2,558,227
2,337,191
221,036
2,618,298
119,251
176,357
Business
machines
Cameras
$20,329,457
—
20,329,457
17,599,414
$ 2,730,043
$12,398,430
1,010,164
1,285,103
2,307,207
—
2,307,207
2,072,664
234,543
1,378,414
100,819
120,853
(Millions of yen)
(Thousands of U.S. dollars)
1998: Net sales:
Intersegment
Total
Operating profit
Assets
Capital expenditure
Optical and
other products
Corporate and
Eliminations
Corporate and
Eliminations
1,727,724
—
691,198 (691,198)
2,418,922 (691,198)
2,378,845
65,379
40,077 (756,577)
2,067,966 7,608,612
85,560 198,172
149,103 353,569
Consolidated
Consolidated
24,364,388
—
24,364,388
22,116,302
2,248,086
23,453,422
1,394,715
1,908,628
Notes:
1 General corporate expenses of ¥88,064 million (U.S.$759,172 thousand), ¥92,677 million and ¥88,860 million in 1998, 1997 and 1996, respectively, are included
in “Corporate and Eliminations.”
2 Corporate assets of ¥885,131 million (U.S.$7,630,440 thousand), ¥1,034,275 million and ¥1,010,912 million in 1998, 1997 and 1996, 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
1998: Net sales:
Intersegment
Total
Operating profit
Assets
¥ 796,406
1,312,405
2,108,811
1,831,816
276,995
¥1,384,473
1,003,683
21,523
1,025,206
1,002,166
23,040
328,634
841,400
3,126
844,526
820,257
24,269
391,354
184,780
— 2,826,269
198,702 (1,535,756)
—
383,482 (1,535,756) 2,826,269
370,036 (1,458,784) 2,565,491
13,446
(76,972) 260,778
136,843
479,293 2,720,597
1997: Net sales:
Intersegment
Total
Operating profit
Assets
¥ 904,545
1,226,130
2,130,675
1,832,174
298,501
¥ 1,477,052
887,302
17,793
905,095
883,698
21,397
353,027
765,580
3,842
769,422
733,016
36,406
397,824
203,598
— 2,761,025
190,602 (1,438,367)
—
394,200 (1,438,367) 2,761,025
371,221 (1,333,118) 2,486,991
22,979 (105,249) 274,034
165,691
468,333 2,861,927
1996: Net sales:
Intersegment
Total
Operating profit
Assets
¥ 882,959
1,072,290
1,955,249
1,687,865
267,384
¥ 1,295,884
816,909
16,316
833,225
815,895
17,330
274,346
692,934
4,883
697,817
675,470
22,347
350,200
165,425
— 2,558,227
154,943 (1,248,432)
—
320,368 (1,248,432) 2,558,227
306,908 (1,148,947) 2,337,191
13,460
(99,485) 221,036
159,045
538,823 2,618,298
Japan
Americas
Europe
$ 6,865,569
11,313,836
18,179,405
15,791,517
2,387,888
$11,935,112
8,652,440
185,543
8,837,983
8,639,362
198,621
2,833,052
7,253,448
26,949
7,280,397
7,071,182
209,215
3,373,741
1998: Net sales:
Intersegment
Total
Operating profit
Assets
Others
Corporate and
Eliminations
Japan
Others
Corporate and
Eliminations
Consolidated
Consolidated
1,592,931
— 24,364,388
1,712,948 (13,239,276)
—
3,305,879 (13,239,276) 24,364,388
3,189,965 (12,575,724) 22,116,302
115,914 (663,552) 2,248,086
1,179,681 4,131,836 23,453,422
Notes:
1 General corporate expenses of ¥88,064 million (U.S.$759,172 thousand), ¥92,677 million and ¥88,860 million in 1998, 1997 and 1996, respectively, are included
in “Corporate and Eliminations.”
2 Corporate assets of ¥885,131 million (U.S.$7,630,440 thousand), ¥1,034,275 million and ¥1,010,912 million in 1998, 1997 and 1996, respectively, which mainly
consist of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
39
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
each region in local currencies, while the cost of goods sold is
generally in yen. Given Canon’s current structure, appreciation of
the yen has a negative impact on Canon’s net sales and gross
profit ratio. To reduce the financial risks from changes in foreign
exchange rates, Canon utilizes derivative financial instruments
which are comprised principally of forward currency exchange
contracts.
The return on foreign operation sales is usually lower than
domestic operations because foreign operations consist mainly
of marketing activities. The return on foreign operation sales in
1998, 1997 and 1996 was 2.1%, 2.5% and 1.8%,
respectively. This compares with 3.9%, 4.3% and 3.7% on total
operations for such years, respectively.
LIQUIDITY
Cash and cash equivalents in 1998 decreased by ¥147,915
million (U.S.$1,275 million) to ¥499,182 million (U.S.$4,303
million) compared with ¥647,097 million in 1997 and
¥651,746 million in 1996.
Net cash provided by operating activities was ¥246,540
million (U.S.$2,125 million) in 1998 compared with ¥152,634
million in 1997 and ¥240,278 million in 1996. This increase is
attributable mainly to the favorable decreases in inventories and
trade receivables.
Net cash used in investing activities in 1998 increased to
¥215,267 million (U.S.$1,856 million) compared with
¥175,145 million in 1997 and ¥144,804 million in 1996.
Payment for purchase of property, plant and equipment
increased by ¥32,274 million (U.S.$278 million) to ¥193,977
million (U.S.$1,672 million) compared to 1997.
Due to the repayment of short-term loans, net cash
provided by (used in) financing activities in 1998 was
¥(177,862) million (U.S.$(1,533) million), compared to
¥21,440 million in 1997 and ¥(71,350) million in 1996.
Capital expenditure in 1998 amounted to ¥221,401 million
(U.S.$1,909 million) compared with ¥219,779 million in 1997
and ¥176,357 million in 1996. In 1998, major capital
expenditure included the expansion of domestic manufacturing
capacities.
CAPITAL RESOURCES
At December 31, 1998, Canon had outstanding commitments
of approximately ¥34,704 million (U.S.$299 million) to
purchase property, plant and equipment for use in the
ordinary course of its business. Canon anticipates that funds
needed to fulfill these commitments will be generated
internally through operations.
Working capital in 1998 decreased by ¥23,371 million
(U.S.$201 million) to ¥624,036 million (U.S.$5,380 million)
compared with ¥647,407 million in 1997 and ¥552,708
million in 1996.
The working capital ratio (current assets to current liabilities)
for 1998 was 1.60 compared with 1.53 for 1997 and 1.46 for
1996.
Return on assets fell to 3.9% in 1998, compared with 4.3%
in 1997 and 3.7% in 1996. Return on stockholders’ equity
also fell, to 9.8%, in 1998, compared with 11.4% in 1997
and 10.3% in 1996.
Working capital ratio
Return on stockholders’ equity
Capital expenditure
11.4%
2
1.55
1.51
1.46
1.53
1.60
4.1%
0
95
9.8%
6.7%
0
94
10.3%
10
123,560
133,068
176,357
200,000
221,401
219,779
(Millions of yen)
96
97
98
0
94
95
96
40
97
98
94
95
96
97
98
Market Risk Management
Market Risk Exposures
Canon is exposed to market 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.
Equity Price Risk
Canon holds marketable securituies 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 value of such marketable securities and
marketable investments were as follows at December 31, 1998.
Millions of yen
Carrying
Amount Fair Value
Due within one year
Due after one year through
five years
Due after five years
Equity securities
¥ 1,234
Thousands of
U.S. dollars
Carrying
Amount Fair Value
1,223 $ 10,638
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 31,1998, 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 31,1998. 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 1999.
10,543
4,755
1,437
19,496
4,965 40,992 42,802
1,463 12,388 12,612
33,752 168,069 290,966
¥ 26,922
41,403 $232,087 356,923
Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
Average contractual rates
Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
41
Millions of yen
(except average contractual rates)
U.S.$/Yen DM/Yen
Others
Total
¥ 80,296
4,367
121.25
U.S.$/Yen
24,199
714
70.84
794 105,289
(128) 4,953
Thousands of U.S. dollar
DM/Yen
Others
$ 692,207 208,612
37,647
6,155
Total
6,845 907,664
(1,103) 42,699
Interest Rate Risk
Canon’s exposure to market risk for changes in interest rates
relates primarily to its debt obligations. Canon has long-term
debt with both fixed rates and floating rates. Interest rate swaps
may be entered into from time to time by Canon to hedge cash
flows of interests and fair values of debt when determined by
Canon to be appropriate based on market conditions.
The 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, 1998, 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, 1998.
LONG-TERM DEBT (including due within one year)
Average interest
rates
U.S. dollar bonds
Japanese yen notes
Japanese yen convertible debentures
Swiss franc note with warrants
Loans, principally from banks
Total
9.75%
2.29%
1.20%
0.65%
4.53%
(Millions of yen)
Expected maturity date
Total
1999
2000
2001
2002
2003
Thereafter
8,099
109,920
23,125
45,918
59,418
¥ 246,480
8,099
—
—
36,970
21,091
66,160
—
—
9
8,948
17,786
26,743
—
19,920
—
—
10,781
30,701
—
35,000
5,574
—
2,710
43,284
—
10,000
—
—
527
10,527
—
45,000
17,542
—
6,523
69,065
¥
INTEREST RATE SWAP
(Millions of yen)
Notional principal
amount (million)
Average receive
rate
Average pay
rate
Total
1999
2000
2001
2002
2003
Thereafter
¥ 61,000
Sfr
22
US$
498
1.78%
4.63%
6.31%
0.50%
2.06%
5.77%
¥ 61,000
1,821
57,657
1,000
—
19,587
—
847
12,445
40,000
—
25,625
20,000
—
—
—
974
—
—
—
—
LONG-TERM DEBT (including due within one year)
Average interest
rates
U.S. dollar bonds
Japanese yen notes
Japanese yen convertible debentures
Swiss franc note with warrants
Loans, principally from banks
Total
Total
1999
2000
2001
2002
9.75% $ 69,819 69,819
—
—
—
2.29%
947,585
—
— 171,724 301,724
1.20%
199,355
—
78
— 48,052
0.65%
395,845 318,707 77,138
—
—
4.53%
512,224 181,819 153,327 92,940 23,362
$2,124,828 570,345 230,543 264,664 373,138
INTEREST RATE SWAP
2003
Thereafter
—
—
86,206 387,931
— 151,225
—
—
4,544 56,232
90,750 595,388
Notional principal
amount (million)
Average receive
rate
¥ 61,000
Sfr
22
US$
498
1.78%
4.63%
6.31%
Average pay
rate
Total
2002
2003
Thereafter
0.50% $ 525,862
8,621
— 344,827 172,414
2.06%
15,698
—
7,302
—
—
5.77%
497,043 168,853 107,285 220,905
—
1999
—
8,396
—
—
—
—
42
2000
2001
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.
YEAR 2000
The Year 2000 (Y2K) issue has arisen because many computer
hardware and software systems and “embedded microchips” in
items such as business machines, plant and machinery,
elevators, telecommunication and security systems may not
work correctly, or at all, when trying to process items relating to
the Y2K and beyond. This could be especially true of older items
produced before this problem was recognized. So for Canon
there is a twofold impact.
It means that Canon must prepare for Y2K within its product
range, working towards having all offered products be Y2K
compliant, and assisting existing customers, where possible, with
any Y2K concerns they may have regarding Canon products.
It also means that Canon must assess its business
infrastructure to ensure that any Y2K issues are resolved before
they become a problem. This includes assessing its own
computer systems, manufacturing facilities, physical facilities,
and liaising with major customers, suppliers (of both materials
and services, such as outsourcing) and business partners on
their Y2K readiness.
Canon’s compliance program consists of four phases :
1 Assessment: The process of validating all systems. Are they
Y2K compliant?
2 Remediation: Correcting systems that are not Y2K
compliant.
3 Testing: Ensuring corrections have the required effect.
4 Implementation: Using the corrected system.
43
a) Canon’s state of readiness
Canon has formed a Y2K committee that is responsible for coordinating all aspects of the Y2K preparations of Canon on a
group wide basis. This committee is made up of senior
managers and reports to the Board of Directors of Canon Inc. on
a regular basis concerning Canon’s Y2K preparedness.
As regards Canon products, most products now sold by
Canon are Y2K compliant, with work continuing to bring the
remaining products into Y2K compliance. The latest information
concerning Y2K readiness of Canon products is available at the
website of each of the regional sales subsidiaries.
As regards Canon itself, a full assessment of its (and its
subsidiaries’) systems and facilites is now underway, with the
majority of major critical systems already having been assessed,
corrected, tested, and implemented.
For Canon Inc.’s main Information Systems, all Y2K
compliance work is scheduled to be completed by the end of
March 1999. As for the main subsidiaries, the Y2K committee is
receiving regular reports from local management regarding their
Y2K preparedness.
Embedded microchip systems are now being assessed, and
are currently in various stages ranging from 2 to 4. These
systems are nevertheless expected to be fully compliant by
September 1999.
The remaining systems are currently in various stages ranging
from 2 to 4. However, all critical systems are expected to be fully
compliant by June 1999, having gone through all four stages of
the compliance program. Canon estimates that currently 80% of
these major critical systems are now compliant.
An assessment process of some major customers, suppliers
and business partners is now underway to ascertain their Y2K
readiness. This process, which is being carried out mostly by
way of questionnaires, is scheduled to be completed by June—
September 1999, at which time an assessment of their Y2K
readiness will be made by Canon, and contingency plans
created if considered necessary.
b.) The costs to Canon to address this issue
There are various costs to Canon in preparing for the Y2K. There
are information technology (IT) costs, such as the correction of
hardware and software systems, hiring consultants and Y2K
solution providers. Similarly, there are costs associated with nonIT items, i.e. items with embedded microchips. With these
items, it is often the case that these items cannot be repaired,
but must be replaced instead.
The costs are management’s best estimates of the actual
additional expenditure incurred or to be incurred in relation to
Y2K compliance, but the actual results could differ materially
from these estimates.
The remediation process of Canon’s main Information
Systems is being performed internally. These internal costs are
difficult for Canon to estimate to any degree of accuracy and so
would have limited usefulness. Therefore, only the external
costs paid or expected to be paid for remediation of Information
Systems have been calculated. For periods up to and including
1998, the total external costs were ¥1,200 million ($10 million)
and for 1999, the estimated costs are ¥400 million ($3 million).
For all other areas of costs concerning Y2K readiness, Canon
does not believe these costs to be significant.
No major IT projects were significantly delayed or canceled
due to the additional IT resources allocated to Y2K compliance.
c.) The risks to Canon of Y2K
Due to the enormous number of uncertainties surrounding Y2K,
there are numerous risks to Canon, some of which can be
managed by Canon, and some of which cannot.
As a result of its compliance program, Canon expects to
have identified most of the risks under its control and to have
implemented programs to address those risks by June—
September 1999. Most work regarding Y2K compliance is
expected to completed by September 1999. Again, this
completion date is management’s best estimate, with the actual
completion dates possibly varying considerably.
Areas outside its control include utilities, third parties, market
fluctuations caused by Y2K issues.
Though some third parties (such as major customers,
suppliers and business partners) will have been consulted and
evaluated as to their Y2K readiness, given the inherent
uncertainties surrounding Y2K issues, the success of any of
these third parties in addressing their Y2K issues cannot be
guaranteed by Canon. The failure of any of these could result in
the disruption of Canon’s business, possibly causing additional
expense to Canon.
The most likely worst case scenario would be the failure of a
critical supplier (of parts or energy) to fulfill its commitments to
Canon due to Y2K problems. In such case Canon would be
forced to use alternate suppliers at short notice (if available),
which may mean having to pay a premium for those supplies.
This situation may or may not have a material effect upon
Canon’s operating results, liquidity and financial position.
While Canon is doing all it can to assist customers in
preparing for Y2K, it does not believe it is legally responsible for
any costs incurred by customers related to ensuring their Y2K
capability.
Overall, the management of Canon believes that, due to the
nature of its products, and it’s compliance program, Y2K issues
will not have a material effect upon its operating results, liquidity
and financial position. However, due to the uncertainties
involved when dealing with Y2K , Canon recognizes the need to
remain vigilant for Y2K issues across its business. Despite the
belief of management, it is possible that Y2K events may indeed
cause material detrimental effects to Canon’s operating results,
liquidity and financial position.
d.) Canon’s contingency plans
Due to Canon’s compliance program and ongoing consultation
with major customers, suppliers and business partners, no
contingency plans have yet been prepared. However, it is
intended that these will be prepared by the end of June 1999.
THE EURO
From January 1, 1999, the Euro became a legal currency for
non-cash transactions. Eleven of the fifteen member countries
of the European Union have agreed to adopt the Euro as their
common legal currency from that date.
The Euro, from that date, can be traded on foreign exchange
markets around the world and may also be used for business
transactions. (The participating currencies, such as the French
franc and Deutschmark, may also be used until December 31,
2001. After this date and on or before July 1, 2002, the countries
involved will withdraw their national notes and coins from
circulation, using the Euro exclusively from then on.)
The use of a common currency, the Euro, may well lead to
increased price transparency across those participating European
countries, possibly resulting in price harmonization at the lower
average price for products sold in certain markets. However,
different sales tax regimes and different customer product and
marketing preferences across and within these countries may
reduce the extent of any harmonization that would otherwise
take place.
44
CANON AND THE EURO
A Euro working group has been established to look at all aspects
of the Euro, both from an internal systems/logistics point of
view and from an external market/competition point of view.
This issue may well have a long-term impact on Canon’s
European operations, including exports to Europe, and is being
addressed accordingly.
From January 1, 1999, most of the Canon companies
located in the countries involved will be phasing in the use of
the Euro in their business activities, with all Canon intercompany
transactions in these countries now being denominated in the
Euro. These changes have required and will require changes to
Canon’s information systems, which may entail costs and
business disruptions, though no significant such costs or
disruptions have been encountered to date.
Euro participating countries currently account for
approximately 25% of Canon’s total revenue. The impact of the
Euro on Canon’s business operations in Europe will be
significant. Canon believes that the Euro will, over time, increase
price competition for Canon’s products across Europe due to
cross-border price transparency. The competition will be offset
somewhat by new business opportunities and efficiencies.
Canon is not, however, able to estimate the net long-term
impact of the introduction of the Euro on Canon.
By reducing the number of European currencies, the Euro
may reduce Canon’s exposure to foreign exchange risk.
Conversely, any movement in the value of the Euro against the
yen may have a greater impact than the movement of any of
the individual participating currencies alone would have had.
Contracts, which were originally denominated in a currency
that has been converted to the Euro, will continue to be legally
enforceable.
Canon estimates that the costs incurred in preparation for
the Euro were immaterial and that any future costs in relation to
the Euro will also be immaterial. No contingency plans have
been prepared as none are currently considered necessary.
To date, the introduction of the Euro has progressed without
any major problems for Canon companies.
LOOKING FORWARD
In 1999, the Japanese economy is expected to remain relatively
weak, though the government has announced numerous
measures, such as infusion of public money to Japan’s major
banks at the end of March 1999, that it is hoped will improve
the domestic economic outlook. As for expected economic
activities overseas, Canon believes that the U.S. and European
45
economies will remain stable with the introduction of the Euro
assisting in this. In Southeast Asia, economies are beginning to
show signs of recovery, with stability improving. Capital spending
by semiconductor manufacturers worldwide is expected to
remain stagnant in the first half but some improvement is
expected in the second half of the year. Competition in the
SOHO and consumer markets is expected to remain strong.
As over 70% of all Canon’s products are distributed
overseas and a large percentage of these products are
manufactured at plants in Japan, fluctuation of foreign exchange
rates of yen against U.S.$ or other currencies have a significant
impact on Canon’s operating results. Under such circumstances,
Canon intends to upgrade and make more effective use of its
management resources through the continuing globalization of
the Canon group under Canon’s Excellent Global Corporation
Plan. Canon seeks further improvement of the quality and
efficiency of R&D, production and sales bases and relocating
such bases to their optimum sites in Japan or overseas. Through
such activities, Canon intends to work toward improving its
business foundation.
The foregoing discussion in “Financial Overview” contains
forward-looking statements which reflect management’s current
views with respect to certain future events and financial
performance. Actual results may differ materially from those
projected or implied in the forward-looking statements. Further,
certain forward-looking statements are based upon assumptions
of future events which may not prove to be accurate. The
following important factors could cause actual results to differ
materially from those projected or implied in any forwardlooking statements: Y2K preparations and Canon’s ability or
otherwise to be Y2K compliant on a timely basis, and the effects
of Y2K on third parties, exchange rate fluctuations and the effect
of the Euro on these fluctuations; the uncertainty of Canon’s
ability to implement its plans to localize production and other
measures to reduce the impact of exchange rate fluctuations;
uncertainty of the economic growth in Canon’s major markets;
uncertainty of continued demand for Canon’s higher-valueadded products; uncertainty in the continued growth of the
personal computer and related markets; Canon’s ability to
continue to develop products and to market products that
incorporate new technology on a timely basis, are competitively
priced and achieve market acceptance; the possibility of losses
resulting from foreign currency transactions designed to reduce
financial risks from changes in foreign exchange rates; and
inventory risk due to shifts in market demand.
TEN-YEAR FINANCIAL SUMMARY
(Millions of yen except per share amounts)
1998
1997
1996
1995
761,776
2,064,493
2,826,269
857,993
1,903,032
2,761,025
828,829
1,729,398
2,558,227
717,844
1,447,782
2,165,626
102.4%
107.9
118.1
112.0
Net income
Percentage of sales
109,569
3.9%
118,813
4.3
94,177
3.7
55,036
2.5
Advertising
Research and development
Depreciation
Capital expenditure
76,911
176,967
159,888
221,401
75,800
170,793
137,777
219,779
68,354
150,085
117,263
176,357
53,033
125,253
104,474
123,560
180,320
1,148,078
2,720,597
226,889
1,099,010
2,861,927
192,254
981,868
2,618,298
298,055
849,674
2,461,225
126.10
123.93
17.00
137.73
134.60
17.00
111.29
106.96
15.00
65.96
62.73
13.00
3,400
1,930
3,820
2,280
2,630
1,780
1,940
1,230
868,916
79,799
862,664
78,767
846,224
75,628
834,329
72,280
Net sales:
Domestic
Overseas
Total
Percentage of
previous year
¥
Long-term debt
Stockholders’ equity
Total assets
Per share data:
Net income:
Basic
Diluted
Cash dividends declared
Stock price:
High
Low
Average number of common shares in thousands
Number of employees
Common stock price range
(Yen)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
89
90
91
92
93
94
95
96
97
46
98
1994
1993
1992
1991
1990
1989
(Thousands of U.S. dollars
except per share amounts)
1998
634,797
1,298,513
1,933,310
573,094
1,263,040
1,836,134
572,734
1,341,684
1,914,418
580,786
1,288,138
1,868,924
508,747
1,219,201
1,727,948
413,854
937,063
1,350,917
$ 6,567,034
17,797,354
24,364,388
105.3
95.9
102.4
108.2
127.9
122.1
102.4
31,024
1.6
21,102
1.1
35,621
1.9
51,419
2.8
61,408
3.6
38,293
2.8
944,560
3.9
44,698
121,273
103,304
133,068
42,468
104,191
100,631
151,808
57,723
100,521
96,376
149,014
70,486
95,740
88,361
168,743
72,234
86,008
78,351
137,298
54,394
75,566
64,861
107,290
663,026
1,525,578
1,378,345
1,908,629
311,002
781,156
2,226,855
430,285
721,411
2,165,370
285,377
708,454
2,163,291
316,258
669,340
2,097,664
262,886
617,566
1,827,945
277,556
550,841
1,636,380
1,554,483
9,897,224
23,453,422
38.50
35.84
12.50
27.01
26.76
12.50
47.09
46.46
12.50
68.67
64.65
12.50
82.83
78.29
12.50
54.93
50.16
11.93
1.09
1.07
0.15
1,820
1,530
1,560
1,270
1,470
1,200
1,660
1,200
1,960
1,200
2,040
1,236
29.3
16.6
805,897
67,672
781,261
64,535
756,497
64,512
748,822
62,700
741,352
54,381
697,182
44,401
Notes:
1. All net income per share amounts have been restated to conform with
Statement of Financial Accounting Standards No. 128.
2. Information prior to 1991 is prepared in conformity with Accounting Principles
Board Opinion No. 11.
3. Canon has not applied Statement of Financial Accounting Standards No. 115 in
accounting for certain investments in debt and equity securities.
4. U.S. dollar amounts are translated from yen at the rate of ¥116=U.S.$1, the
approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 1998.
47
CANON INC. AND SUBSIDIARIES
December 31, 1998 and 1997
CONSOLIDATED BALANCE SHEETS
Thousands of
U.S. dollars (note 2)
Millions of yen
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities (notes 4 and 8)
Trade receivables (notes 5 and 8)
Inventories (notes 6 and 8)
Prepaid expenses and other current assets (notes 4 and 11)
Total current assets
Noncurrent receivables and restricted funds (note 18)
Investments (notes 4 and 8)
Net property, plant and equipment (notes 7 and 8)
Other assets (notes 4, 10 and 11)
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans (note 8)
Trade payables (note 9)
Income taxes (note 11)
Accrued expenses
Other current liabilities (notes 4 and 11)
Total current liabilities
Long-term debt, excluding current installments (note 8)
Accrued pension and severance cost (note 10)
Other noncurrent liabilities (notes 4 and 11)
Total liabilities
Minority interests (note 4)
Stockholders’ equity (note 4):
Common stock of ¥50 ($0.43) par value.
Authorized 2,000,000,000 shares;
issued and outstanding 870,305,870 shares in 1998
and 866,798,934 shares in 1997 (notes 8 and 12)
Additional paid-in capital (notes 8 and 12)
Legal reserve (note 13)
Retained earnings (notes 11 and 13)
Accumulated other comprehensive income (loss) (notes 10, 11 and 15)
Total stockholders’ equity
Commitments and contingent liabilities (note 18)
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
48
1998
1997
1998
¥ 499,182
6,956
412,375
549,257
197,626
1,665,396
50,309
69,245
742,312
193,335
¥2,720,597
647,097
12,022
445,208
564,775
208,638
1,877,740
56,840
66,989
697,244
163,114
2,861,927
$ 4,303,293
59,966
3,554,957
4,734,974
1,703,672
14,356,862
433,698
596,940
6,399,241
1,666,681
$23,453,422
¥ 403,332
401,527
61,328
127,905
47,268
1,041,360
180,320
132,818
12,211
1,366,709
205,810
535,703
457,497
61,497
126,148
49,488
1,230,333
226,889
88,529
15,504
1,561,255
201,662
$ 3,477,000
3,461,440
528,690
1,102,629
407,482
8,977,241
1,554,483
1,144,983
105,267
11,781,974
1,774,224
163,033
160,411
375,913
372,398
31,396
28,467
682,663
592,268
(104,927)
(54,534)
1,148,078 1,099,010
¥2,720,597
2,861,927
1,405,457
3,240,629
270,655
5,885,026
(904,543)
9,897,224
$23,453,422
Years ended December 31, 1998, 1997 and 1996
CONSOLIDATED STATEMENTS OF INCOME
Thousands of
Millions of yen
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Other income (deductions):
Interest and dividend income
Interest expense
Other, net
1998
1997
1996
1998
¥2,826,269
1,569,197
1,257,072
996,294
260,778
2,761,025
1,528,364
1,232,661
958,627
274,034
2,558,227
1,465,437
1,092,790
871,754
221,036
$24,364,388
13,527,560
10,836,828
8,588,742
2,248,086
12,576
(28,881)
(4,960)
(21,265)
239,513
13,922
(29,789)
(23,362)
(39,229)
234,805
12,972
(33,844)
(17,399)
(38,271)
182,765
108,414
(248,974)
(42,759)
(183,319)
2,064,767
123,843
115,670
109,364
125,441
80,636
102,129
1,067,612
997,155
6,101
¥ 109,569
6,628
118,813
7,952
94,177
52,595
944,560
Income before income taxes and minority interests
Income taxes (note 11)
Income before minority interests
Minority interests
Net income
Yen
$
Net income per share (notes 1(p) and 16):
Basic
Diluted
¥
126.10
123.93
137.73
134.60
111.29
106.96
$
1.09
1.07
Dividends per common share (note 13)
¥
17.00
17.00
15.00
$
0.15
49
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Thousands of
Millions of yen
1998
Common stock:
Balance at beginning of year
¥ 160,411
Conversion of convertible debt (notes 12 and 14)
2,622
Balance at end of year
163,033
Additional paid-in capital:
372,398
Conversion of convertible debt (notes 12 and 14)
2,612
Increase arising from issuance of subsidiaries’
common stock, conversion of convertible debt and
exercise of warrants of subsidiaries and other transfers
903
375,913
Legal reserve:
28,467
Transfers from retained earnings (note 13)
2,934
Transfers to minority interests arising from issuance of subsidiaries’
common stock, conversion of convertible debt and exercise
of warrants of subsidiaries and other transfers
(5)
31,396
Retained earnings:
592,268
Net income for the year
109,569
Cash dividends (note 13)
(15,619)
Transfers to legal reserve (note 13)
(2,934)
Transfers from (to) minority interests arising from issuance of
subsidiaries’ common stock, conversion of convertible debt
and exercise of warrants of subsidiaries and other transfers
(621)
682,663
Accumulated other comprehensive income (loss):
(notes 10, 11 and 15)
(54,534)
Other comprehensive income (loss) for the year,
net of tax
(50,393)
(104,927)
Total stockholders’ equity (note 4)
¥1,148,078
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 (note 4)
109,569
(50,393)
¥ 59,176
50
1997
1996
1998
150,565
9,846
160,411
137,645
12,920
150,565
$1,382,853
22,604
1,405,457
359,011
9,779
344,631
12,964
3,210,328
22,517
3,608
372,398
1,416
359,011
7,784
3,240,629
26,770
1,728
26,703
1,423
245,405
25,293
(31)
28,467
(1,356)
26,770
(43)
270,655
489,617
118,813
(13,727)
(1,728)
406,820
94,177
(11,136)
(1,423)
5,105,759
944,560
(134,647)
(25,293)
(707)
592,268
1,179
489,617
(5,353)
5,885,026
(44,095)
(66,125)
(470,121)
(10,439)
(54,534)
1,099,010
22,030
(44,095)
981,868
(434,422)
(904,543)
$9,897,224
118,813
94,177
(10,439)
108,374
22,030
116,207
944,560
(434,422)
$ 510,138
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of
Millions of yen
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of property and equipment
Deferred income taxes
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in income taxes
Increase in accrued expenses
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Payment for purchase of property,
plant and equipment
Proceeds from sale of property,
plant and equipment
Payment for purchase of marketable securities
Proceeds from sale of marketable securities
Payment for purchase of investments
Other
Net cash used in investing activities
Cash flows from financing activities (note 14):
Proceeds from long-term debt
Repayment of long-term debt
Increase (decrease) in short-term loans
Dividends paid (note 13)
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest
Income taxes
51
1998
1997
1996
1998
¥109,569
118,813
94,177
$ 944,560
161,787
6,631
1,941
1,640
15,737
(46,636)
607
9,386
(14,122)
246,540
139,815
8,289
(9,618)
(66,975)
(43,895)
31,527
(12,459)
12,962
(25,825)
152,634
119,251
9,235
(32,333)
2,578
10,183
(17,637)
23,618
14,824
16,382
240,278
1,394,715
57,164
16,733
14,138
135,664
(402,034)
5,232
80,914
(121,741)
2,125,345
(193,977)
(161,703)
(156,018)
(1,672,216)
3,404
(5,386)
9,439
(28,111)
(636)
(215,267)
4,330
(8,635)
5,145
(6,797)
(7,485)
(175,145)
6,789
(3,556)
11,251
(2,730)
(540)
(144,804)
29,345
(46,431)
81,371
(242,336)
(5,483)
(1,855,750)
34,903
(29,458)
(167,295)
(15,619)
(393)
(177,862)
70,768
(98,693)
51,030
(13,727)
12,062
21,440
28,987
(109,095)
10,806
(11,136)
9,088
(71,350)
300,888
(253,948)
(1,442,198)
(134,647)
(3,388)
(1,533,293)
(1,326)
(147,915)
647,097
¥499,182
(3,578)
(4,649)
651,746
647,097
5,458
29,582
622,164
651,746
(11,431)
(1,275,129)
5,578,422
$4,303,293
¥ 21,083
121,295
27,120
131,441
33,334
89,351
$ 181,750
1,045,647
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Significant
Accounting Policies
(a) Description of Business
The Company and subsidiaries (collectively “Canon”) is a hightechnology oriented company which operates globally and has
numerous core businesses. Originally a 35mm camera maker,
Canon is now one of the world’s leading manufacturers in other
fields, such as copying machines and computer peripherals,
mainly laser beam and bubble jet printers. Canon’s products also
include business systems such as faxes, computers, electronic
typewriters, micrographics, Japanese-language word processors
and calculators. Canon’s camera business consists mainly of SLR
cameras, compact cameras and video camcorders. Optical
related products include steppers and aligners used in semiconductor chip production, broadcasting lenses and medical equipment. Canon’s sales in 1998 were distributed as follows: copying machines-32%, computer peripherals-37%, business systems-14%, cameras-10%, and optical and other products-7%.
Sales are made principally under the Canon brand name,
almost entirely through sales subsidiaries. These subsidiaries are
responsible for marketing and distribution and primarily sell to
retail dealers in their geographical area. Approximately 72% of
consolidated net sales in 1998 were generated outside Japan,
with 35% in Americas, 30% in Europe and 7% in other areas.
Canon’s manufacturing operations are conducted primarily
at 15 plants in Japan and 13 overseas plants which are located
in the United States, Germany, France, United Kingdom, Taiwan,
China, Malaysia, Thailand, and Mexico.
Canon sells laser beam printers on an OEM basis to
Hewlett-Packard Co.; such sales constituted approximately 20%
of consolidated sales for the year ended December 31, 1998.
Canon believes it is highly unlikely that it would lose such OEM
business in the near term.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with financial accounting
standards of Japan. Foreign subsidiaries maintain their books in
conformity with financial accounting standards of the countries
of their domicile.
The accompanying consolidated financial statements reflect
the adjustments which management believes are necessary to
conform them with United States generally accepted accounting
principles except for Statement of Financial Accounting
Standards No. 115, “Accounting for Certain Investments in Debt
and Equity Securities” (see note 4).
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
Canon after elimination of all significant intercompany balances
and transactions.
(d) Cash Equivalents
For purposes of the statements of cash flows, Canon considers
all highly-liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
(e) Translation of Foreign Currencies
Foreign currency financial statements have been translated in
accordance with Statement of Financial Accounting Standards
No. 52 (“SFAS 52”), “Foreign Currency Translation”. Under SFAS
52, assets and liabilities of the Company’s subsidiaries located
outside Japan are translated into Japanese yen at the rates of
exchange in effect at the balance sheet date. Income and
expense items are translated at the average exchange rates
prevailing during the year. Gains and losses resulting from
translation of financial statements, including gains and losses
from hedging and intercompany transactions, net of related
taxes, are 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
Marketable securities and marketable investments held for
temporary and long-term investment purposes are classified as
current assets and included in investments, respectively, and are
carried predominantly at the lower of cost or market. The cost of
such securities sold is based on the average cost (see note 4).
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is determined principally by the average method for domestic inventories and the first-in, first-out method for overseas inventories.
(h) Investments in Affiliated Companies
Of the investments in affiliated companies owned 20% to 50%,
certain investments are accounted for on the equity basis and
the others are carried at cost. Canon’s equity in undistributed
earnings of the latter companies is not significant.
Canon’s share of the net earnings (loss) of companies
carried at equity, included in other income (deductions), and
dividends received from those companies for the years 1998,
1997 and 1996 are as follows:
Millions of yen
1998
1997
Net earnings (loss)
Dividends received
52
¥ (5,238)
188
(4,282)
30
1996
Thousands of
U.S. dollars
1998
1,197
25
$ (45,155)
1,621
(i) Depreciation
Depreciation is calculated principally by the declining-balance
method over the estimated useful lives of the assets.
(j) Goodwill
The excess of cost over underlying equity at acquisition dates of
investments in subsidiaries and affiliated companies is being
amortized principally over 10 years.
(k) Income Taxes
Canon accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 (“SFAS 109”),
“Accounting for Income Taxes”. Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(l) Employee Retirement and Severance Benefits
The Company and certain of its subsidiaries have various
employee retirement and severance defined benefit plans
covering substantially all employees who meet eligibility
requirements (see note 10).
Canon adopted Statement of Financial Accounting Standards
No. 132 (“SFAS 132”), “Employers’ Disclosures about Pensions
and Other Postretirement Benefits” in the year ended
December 31, 1998. SFAS 132 revises employers’ disclosures
about pension and other postretirement benefit plans. SFAS
132 does not change the recognition or measurement of those
plans and will not affect Canon’s consolidated financial position
and results of operations. All prior years disclosures have been
restated to conform with the provisions of SFAS 132.
(m) Advertising
The costs of advertising are expensed as incurred.
53
(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).
(o) Issuance of Stock by Subsidiaries
The change in the Company’s proportionate share of subsidiary
equity resulting from issuance of stock by the subsidiaries is
accounted for as an equity transaction.
(p) Net income per Share
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).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(q) Use of Estimates
Management of Canon has made a number of estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(r) Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
Canon’s long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest
charges) expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(s) Comprehensive Income
Canon adopted Statement of Financial Accounting Standards
No. 130 (“SFAS 130”), “Reporting Comprehensive Income”
from the year beginning January 1, 1998 except for the effects
on comprehensive income of Canon’s departure from the
provisions of Statement of Financial Accounting Standards No.
115, “Accounting for Certain Investments in Debt and Equity
Securities” (see note 4). Comprehensive income consists of net
income, change in foreign currency translation adjustments and
change in minimum pension liability adjustments, and is
included in the consolidated statements of stockholders’ equity.
SFAS 130 requires only additional disclosures in the
consolidated financial statements and does not affect Canon’s
consolidated financial position and results of operations. Prior
years consolidated financial statements have been reclassified to
conform with the provisions of SFAS 130.
(t) New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (“SFAS
133”), “Accounting for Derivative Instruments and Hedging
Activities”. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities.
SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure
those instruments at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income (loss), depending on whether a
derivative is designated as part of a hedge transaction and the
type of hedge transaction. The ineffective portion of all hedges
will be recognized in earnings. Canon will adopt SFAS 133 for
the year beginning January 1, 2000. Currently, the effect on
Canon’s consolidated financial statements of adopting SFAS 133
has not been determined.
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position 98-1 (“SOP
98-1”), “Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use”. SOP 98-1 provides
guidance on when costs for internal use computer software
should be capitalized or expensed as incurred and is effective
for fiscal years beginning after December 15, 1998. Canon is in
the process of evaluating SOP 98-1.
(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
¥116 = U.S.$1, the approximate exchange rate prevailing on the
Tokyo Foreign Exchange Market on December 30, 1998. This
translation should not be construed as a representation that the
amounts shown could be converted into United States dollars at
such rate.
54
(3) Foreign Operations
summarized as follows:
Amounts included in the consolidated financial statements
relating to subsidiaries operating in foreign countries are
Total assets
Net assets
Net sales
Net income
(4) Marketable Securities and
Marketable Investments
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 (“SFAS
115”), “Accounting for Certain Investments in Debt and Equity
Securities” requiring that certain investments in debt and equity
securities be classified as held-to-maturity, trading, or availablefor-sale securities. Those classified as available-for-sale would be
reported at fair value with unrealized gains and losses, net of
related taxes, excluded from earnings and included in other comprehensive income (loss) until realized. SFAS 115 would have
been effective for Canon in the year ended December 31, 1994.
Canon and approximately thirty other Japanese registrants
that file their consolidated financial statements with both the
United States Securities and Exchange Commission (“SEC”) and
Japan’s Ministry of Finance (“MOF”) are permitted to file with
1998
Millions of yen
1997
1996
Thousands of
U.S. dollars
1998
¥ 987,828
364,623
2,029,863
42,505
1,109,388
358,122
1,856,480
47,073
962,375
311,420
1,675,268
30,803
$ 8,515,759
3,143,302
17,498,819
366,422
the MOF consolidated financial statements prepared in
accordance with United States generally accepted accounting
principles (“U.S. GAAP”). Canon and certain other such
Japanese registrants were concerned as to comparability to
financial statements prepared in accordance with financial
accounting standards of Japan where such debt and equity
securities are reported at historical cost.
In August 1993, the SEC ruled that it would accept U.S.
GAAP filings by Canon and other Japanese registrants that do
not follow the provisions of SFAS 115 but that provide
information required by SFAS 115 in a note to the consolidated
financial statements.
The effects on balance sheet items of Canon’s departure
from the provisions of SFAS 115 as of December 31, 1998 and
1997 are summarized as follows:
Millions of yen
1998
1997
Thousands of
U.S. dollars
1998
Stockholders’ equity as reported
Net increase in the carrying amount of:
Marketable securities
Noncurrent investments
Net decrease in deferred tax assets and increase in deferred tax liabilities:
Current deferred tax assets
Noncurrent deferred tax assets
Current deferred tax liabilities
Noncurrent deferred tax liabilities
Net increase in minority interests
¥1,148,078
1,099,010
$9,897,224
514
13,967
714
21,238
4,431
120,405
(193)
(6,556)
(34)
(17)
(239)
7,442
(346)
(10,754)
(13)
(86)
(252)
10,501
(1,664)
(56,517)
(293)
(147)
(2,060)
64,155
Stockholders’ equity in accordance with U.S. GAAP
¥1,155,520
If the provisions of SFAS 115 had been applied, comprehensive
income for the years 1998, 1997 and 1996 would have been
55
1,109,511
$9,961,379
¥56,117 million ($483,767 thousand), ¥93,309 million and
¥111,297 million, respectively.
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,
1998 and 1997 are as follows:
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair Value
553
2,845
443
1,973
1,142
¥6,956
8
167
12
45
282
514
—
—
—
—
—
—
561
3,012
455
2,018
1,424
7,470
¥
206
1,174
188
44
18,354
¥19,966
4
42
—
—
13,974
14,020
—
—
53
—
—
53
210
1,216
135
44
32,328
33,933
¥
—
198
—
84
432
714
—
—
—
—
—
—
472
6,436
418
3,478
1,932
12,736
¥
—
2
—
4
21,267
21,273
—
—
35
—
—
35
168
216
185
132
42,114
42,815
Carrying
Amount
(Millions of yen)
1998: Current:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
Noncurrent:
Available-for-sale:
Fund trusts
Equity securities
1997: Current:
Available-for-sale:
Fund trusts
Equity securities
¥
472
6,238
418
3,394
1,500
¥12,022
Noncurrent:
Available-for-sale:
Fund trusts
Equity securities
168
214
220
128
20,847
¥21,577
56
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Fair Value
1998: Current:
Available-for-sale:
Japanese and foreign governmental bond securities $ 4,767
24,526
3,819
Fund trusts
17,009
Equity securities
9,845
$ 59,966
69
1,440
103
388
2,431
4,431
—
—
—
—
—
—
4,836
25,966
3,922
17,397
12,276
64,397
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities $ 1,776
10,121
1,621
Fund trusts
379
Equity securities
158,224
$172,121
34
362
—
—
120,466
120,862
—
—
457
—
—
457
1,810
10,483
1,164
379
278,690
292,526
Carrying
Amount
Net unrealized gain on available-for-sale securities, net of
related taxes and minority interests, decreased by ¥3,059
million ($26,371 thousand), ¥15,065 million and ¥4,910
million in 1998, 1997 and 1996, respectively.
Maturities of marketable securities and marketable
investments classified as available-for-sale were as follows at
December 31, 1998:
Thousands of
U.S. dollars
Carrying
Amount
Fair Value
Millions of yen
Carrying
Amount
Fair Value
Due within one year
Due after one year through five years
Due after five years
Equity securities
¥ 1,234
4,755
1,437
19,496
¥26,922
Proceeds from sale of available-for-sale securities were
¥9,439 million ($81,345 thousand), ¥5,145 million and
¥11,251 million in 1998, 1997 and 1996, respectively.
1,223
4,965
1,463
33,752
41,403
$ 10,638
40,992
12,388
168,069
$232,087
10,543
42,802
12,612
290,966
356,923
Realized gains and losses during the years 1998, 1997 and
1996 were insignificant.
(5) Trade Receivables
Trade receivables are summarized as follows:
1997
Thousands of
U.S. dollars
1998
45,852
415,353
15,997
445,208
$ 340,681
3,355,957
141,681
$ 3,554,957
Millions of yen
1998
¥ 39,519
389,291
16,435
¥ 412,375
Notes
Accounts
Less allowance for doubtful receivables
57
(6) Inventories
Inventories comprised the following:
1997
Thousands of
U.S. dollars
1998
401,997
143,388
19,390
564,775
$ 3,426,371
1,169,879
138,724
$ 4,734,974
Millions of yen
1998
¥
Finished goods
Work in process
Raw materials
¥
397,459
135,706
16,092
549,257
(7) Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and are summarized as follows:
1997
Thousands of
U.S. dollars
1998
117,670
109,386
571,513
550,588
873,345
803,379
48,557
30,974
1,611,085 1,494,327
868,773
797,083
¥ 742,312
697,244
$ 1,014,396
4,926,836
7,528,836
418,595
13,888,663
7,489,422
$ 6,399,241
Millions of yen
1998
Land
Buildings
Machinery and equipment
Construction in progress
¥
Less accumulated depreciation
(8) Short-term Loans and Long-term Debt
Short-term loans consisted of the following:
Millions of yen
1998
¥
Bank borrowings
Commercial paper
Acceptances payable by foreign subsidiaries
Long-term debt due within one year
¥
The weighted average interest rates on short-term loans
outstanding at December 31, 1998 and 1997 were 5.14% and
5.80%, respectively.
At December 31, 1998, unused short-term credit facilities
for issuance of commercial paper amounted to ¥46,986 million
($405,052 thousand).
98,465
—
238,707
66,160
403,332
Thousands of
U.S. dollars
1998
1997
85,921
4,870
419,274
25,638
535,703
$
848,836
—
2,057,819
570,345
$ 3,477,000
A substantial portion of the acceptances payable by foreign
subsidiaries was secured by the subsidiaries’ inventories and
trade receivables.
58
Long-term debt consisted of the following:
Millions of yen
1998
Loans, principally from banks, maturing in installments through 2028;
bearing weighted average interest of 4.53% and 4.87% at December 31,
1998 and 1997, respectively, partially secured by mortgage of property,
plant and equipment and marketable securities
9-3/4% U.S. dollar bonds, due 1999
2-7/20% Japanese yen notes, due 2001
5/8%–3/4% Swiss franc notes with warrants
issued by subsidiaries, due 1999–2000:
Principal amount
Less unamortized discount
1% Japanese yen convertible debentures, due 2002
1-2/10% Japanese yen convertible debentures, due 2005
1-3/10% Japanese yen convertible debentures, due 2008
Other
Less amount due within one year
59
1997
¥ 59,418
8,099
19,920
5,000
20,000
10,000
5,000
5,000
10,000
10,000
5,000
10,000
10,000
78,072
9,107
19,920
5,000
20,000
10,000
5,000
—
10,000
10,000
—
10,000
—
47,427
1,509
45,918
5,574
6,178
11,364
9
246,480
66,160
¥ 180,320
50,227
3,149
47,078
6,291
7,963
14,072
24
252,527
25,638
226,889
Thousands of
U.S. dollars
1998
$
512,224
69,819
171,724
43,103
172,414
86,207
43,103
43,103
86,207
86,207
43,103
86,207
86,207
408,853
13,008
395,845
48,052
53,259
97,966
78
2,124,828
570,345
$ 1,554,483
The aggregate annual maturities of long-term debt
outstanding at December 31, 1998 were as follows:
1999
2000
2001
2002
2003
Later years
Millions
of yen
Thousands of
U.S. dollars
¥ 66,160
26,743
30,701
43,284
10,527
69,065
¥ 246,480
$ 570,345
230,543
264,664
373,138
90,750
595,388
$ 2,124,828
Property, plant and equipment with a book value at
December 31, 1998 of ¥20,438 million ($176,190 thousand)
were mortgaged to secure long-term debt.
As is customary in Japan, both short-term and long-term
bank loans are made under general agreements which provide
that security and guarantees for present and future
indebtedness will be given upon request of the bank, and that
the bank shall have the right to offset cash deposits against
obligations that have become due or, in the event of default,
against all obligations due the bank. Long-term agreements with
lenders other than banks also generally provide that Canon
must give additional security upon request of the lender.
The 1% Japanese yen convertible debentures due 2002 are
currently convertible into approximately 3,723,000 shares of
common stock at a conversion price of ¥1,497.00 ($12.91) per
share. The debentures are redeemable at the option of the
Company between January 1, 1999 and December 31, 2001
at premiums ranging from 3% to 1%, and at par thereafter, or,
dependent on a particular circumstance, at par.
The 1-2/10% Japanese yen convertible debentures due
2005 are currently convertible into approximately 4,127,000
shares of common stock at a conversion price of ¥1,497.00
($12.91) per share. The debentures are redeemable at the
option of the Company between January 1, 2000 and December
31, 2004 at premiums ranging from 5% to 1%, and at par thereafter, or, dependent on a particular circumstance, at par.
The 1-3/10% Japanese yen convertible debentures due
2008 are currently convertible into approximately 7,591,000
shares of common stock at a conversion price of ¥1,497.00
($12.91) 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.
60
(9) Trade Payables
Trade payables are summarized as follows:
1997
Thousands of
U.S. dollars
1998
198,697
258,800
457,497
$1,371,586
2,089,854
$3,461,440
Millions of yen
1998
¥159,104
242,423
¥401,527
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 1998, 1997 and 1996
consisted of the following components:
1998
¥ 25,307
14,360
(11,510)
4,244
¥32,401
Service cost — benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Net amortization and deferral
61
Millions of yen
1997
21,228
13,123
(8,539)
2,655
28,467
1996
17,747
11,899
(7,406)
1,679
23,919
Thousands of
U.S. dollars
1998
$ 218,164
123,793
(99,224)
36,586
$ 279,319
The Company and its domestic subsidiaries are subject to a
number of taxes based on income, which in the aggregate
resulted in a normal tax rate of approximately 51.0 % in 1998,
1997 and 1996.
Amendments to Japanese tax regulations were enacted into
law on March 31, 1998. As a result of these amendments, the
normal income tax rate is to be reduced from approximately
51.0% to 47.0% effective from Canon’s fiscal year beginning
January 1, 1999. Current income taxes were calculated at the
rate of 51.0% in effect for the year ended December 31, 1998.
Deferred income tax assets and liabilities as of December 31,
1998 were measured at a rate of principally 47.0%. The effect
of the income tax rate reduction on deferred income tax
balances as of December 31, 1998 is presented below.
The significant components of deferred income tax expense
(benefit) attributable to income before income taxes are as follows:
1998
Deferred tax expense (exclusive of the effects of
other components listed below)
Adjustments to deferred tax assets and liabilities
for enacted changes in tax laws and rates
Decrease in the beginning-of-the-year balance of
the valuation allowance for deferred tax assets
A reconciliation of the Japanese normal income tax rate and
the effective income tax rate as a percentage of income before
¥ (5,638)
8,014
(435)
¥ 1,941
Millions of yen
1997
Thousands of
U.S. dollars
1998
1996
(9,674)
$ (48,603)
(31,051)
491
69,086
(854)
(435)
(9,618)
(3,750)
$ 16,733
(428)
(32,333)
income taxes is as follows:
1998
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
1997
1996
51.0%
51.0%
51.0%
0.9
0.3
(5.7)
(0.8)
3.3
2.7
51.7%
1.2
0.5
(5.7)
(1.6)
0.1
1.1
46.6%
2.4
1.2
(5.4)
(2.4)
0.5
(3.2)
44.1%
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
1998
¥ 86,933
85,677
(1,087)
(6,385)
¥ 165,138
Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities
62
1997
94,572
65,819
(1,158)
(6,940)
152,293
1998
$ 749,422
738,595
(9,371)
(55,043)
$1,423,603
Reconciliations of beginning and ending balances of the benefit
obligations and the fair value of the plan assets are as follows:
Millions of yen
1998
Change in benefit obligations:
Benefit obligations at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial loss
Benefits paid
Foreign currency translation
Benefit obligations at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized actuarial loss
Unrecognized net transition obligation being recognized over 22 years
Net amount recognized
Adjustments to recognize minimum liability:
Intangible assets
Amount included in accumulated other comprehensive income (loss),
gross of tax
Accrued pension and severance cost recognized in
the consolidated balance sheets
Actuarial present value of accumulated benefit obligations at end of year
Actuarial assumptions:
Discount rate
Assumed rate of increase in future compensation levels
Expected long-term rate on plan assets
Directors and certain employees are not covered by the
programs described above. Benefits paid to such persons and
meritorious service payments are charged to income as paid,
1997
Thousands of
U.S. dollars
1998
¥396,838
25,307
14,360
3,333
56,392
(5,070)
(58)
491,102
323,133
21,228
13,123
2,595
41,615
(4,819)
(37)
396,838
$3,421,017
218,164
123,793
28,733
486,138
(43,707)
(500)
4,233,638
239,338
11,394
21,718
3,333
(5,070)
270,713
220,389
(166,254)
(6,369)
47,766
218,006
5,916
17,640
2,595
(4,819)
239,338
157,500
(113,644)
(6,714)
37,142
2,063,259
98,224
187,224
28,733
(43,707)
2,333,733
1,899,905
(1,433,224)
(54,905)
411,776
6,369
6,714
54,905
78,683
85,052
44,673
51,387
678,302
733,207
¥132,818
¥403,531
88,529
327,867
$1,144,983
$3,478,716
3.00%
4.00%
5.00%
3.50%
4.00%
4.00%
since amounts vary with circumstances, and it is therefore not
practicable to compute the liability for future payments.
63
(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
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
1998
Millions of yen
1997
1996
Thousands of
U.S. dollars
1998
¥ 123,843
109,364
80,636
$1,067,612
(674)
(17,345)
¥ 105,824
(3)
(15,126)
94,235
(154)
(7,657)
72,825
(5,810)
(149,526)
$ 912,276
(benefit) attributable to such income before income taxes are
summarized as follows:
Millions of yen
Japanese
Foreign
Total
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
Income taxes:
Current
Deferred
¥ 160,543
74,262
234,805
¥ 90,293
(6,999)
¥ 83,294
28,689
(2,619)
26,070
118,982
(9,618)
109,364
¥ 130,350
52,415
182,765
¥ 87,616
(27,352)
¥ 60,264
25,353
(4,981)
20,372
112,969
(32,333)
80,636
Income taxes:
Current
Deferred
Income taxes:
Current
Deferred
64
Japanese
Foreign
Total
$1,485,371
579,396
2,064,767
$ 839,974
29,767
$ 869,741
210,905
(13,034)
197,871
1,050,879
16,733
1,067,612
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1997 are presented
below:
1997
Thousands of
U.S. dollars
1998
74,036
5,125
16,854
22,783
6,123
19,011
7,666
29,401
180,999
4,990
176,009
$ 525,810
48,724
177,362
318,802
58,707
182,957
75,026
266,172
1,653,560
40,707
1,612,853
Millions of yen
1998
Deferred tax assets:
Inventories — intercompany profits and write-downs
Accrued business tax
Accrued pension and severance cost
Property, plant and equipment — intercompany profits
Research and development — costs capitalized for tax purposes
Depreciation
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Land including deferred gain on sale
Unamortized debt issuance cost
Accounts receivable — allowance for doubtful accounts
Undistributed earnings of foreign subsidiaries and
affiliated companies
Other
Total gross deferred tax liabilities
Net deferred tax assets
The valuation allowance for deferred tax assets as of January
1, 1997 was ¥5,061 million. The net change in the total
valuation allowance for the years ended December 31, 1998
and 1997 was a decrease of ¥268 million ($2,310 thousand)
and ¥71 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, 1998.
At December 31, 1998, Canon had net operating losses
carried forward for income tax purposes of approximately
¥11,127 million ($121,871 thousand) which were available to
reduce future income taxes, if any. Approximately ¥4,741 million
($67,345 thousand) of the operating losses expire through 2007
while the remainder have an indefinite carryforward period.
65
¥ 60,994
5,652
20,574
36,981
6,810
21,223
8,703
30,876
191,813
4,722
187,091
(4,446)
(587)
(4,449)
(5,239)
(812)
(4,167)
(38,328)
(5,060)
(38,353)
(4,880)
(7,591)
(21,953)
¥165,138
(6,156)
(7,342)
(23,716)
152,293
(42,069)
(65,440)
(189,250)
$1,423,603
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 ¥29,006 million ($250,052 thousand) for the
portion of undistributed earnings of foreign subsidiaries and
affiliated companies that arose in 1998 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, 1998, such undistributed
earnings of these subsidiaries and affiliated companies were
approximately ¥270,723 million ($2,333,819 thousand).
(12) Common Stock
During 1998, 1997 and 1996, the Company issued 3,506,936
shares, 13,184,712 shares and 17,371,630 shares,
respectively, of common stock in connection with conversion of
convertible debt. Conversion into common stock of convertible
debt issued subsequent to October 1, 1982 and exercise of
(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 negative ¥2,774 million ($23,914 thousand) at
December 31, 1998 is included in retained earnings.
Cash dividends and appropriations to the legal reserve
charged to retained earnings during the years 1998, 1997 and
1996 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 ¥8.50 ($0.073) per
share, aggregating ¥7,398 million ($63,776 thousand),
(14) Noncash Financing Activities
In 1998, 1997 and 1996, common stock issued and additional
paid-in capital arising from conversion of convertible debt
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.
subsequently proposed by the Board of Directors in respect of
the year ended December 31, 1998, 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 ¥478,836 million ($4,127,897
thousand) at December 31, 1998.
amounted to ¥5,234 million ($45,121 thousand), ¥19,625
million and ¥25,884 million, respectively.
66
(15)Other Comprehensive Income (Loss)
Change in accumulated other comprehensive income
(loss) is as follows:
1998
Foreign currency translation adjustments:
¥ (32,644)
Adjustments for the year
(33,728)
(66,372)
Minimum pension liability adjustments:
(21,890)
(16,665)
(38,555)
Total accumulated other comprehensive income (loss):
(54,534)
(50,393)
¥ (104,927)
67
Millions of yen
1997
1996
Thousands of
U.S. dollars
1998
(36,739)
4,095
(32,644)
(66,125)
29,386
(36,739)
$ (281,414)
(290,758)
(572,172)
(7,356)
(14,534)
(21,890)
—
(7,356)
(7,356)
(188,707)
(143,664)
(332,371)
(44,095)
(10,439)
(54,534)
(66,125)
22,030
(44,095)
(470,121)
(434,422)
$ (904,543)
Tax effects allocated to each component of other
comprehensive income (loss) and reclassification
adjustments are as follows:
Millions of yen
Before-tax
amount
1998:
Other comprehensive income (loss)
1997:
Tax (expense)
or benefit
¥ (34,402)
(34,010)
¥ (68,412)
674
17,345
18,019
(33,728)
(16,665)
(50,393)
¥
3
15,126
15,129
4,095
(14,534)
(10,439)
4,092
(29,660)
¥ (25,568)
1996:
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-of-tax
amount
¥ 27,549
154
27,703
1,683
—
1,683
29,232
(15,013)
¥ 14,219
154
7,657
7,811
29,386
(7,356)
22,030
Before-tax
amount
1998:
$ (296,568)
(293,190)
$ (589,758)
68
Tax (expense)
or benefit
5,810
149,526
155,336
Net-of-tax
amount
(290,758)
(143,664)
(434,422)
(16)Net Income per Share
A reconciliation of the numerators and denominators of
the basic and diluted net income per share computations is as
follows:
Net income available to common stockholders
Effect of dilutive securities:
1% Japanese yen convertible debentures,
due 2002
1-2/10% Japanese yen convertible
debentures, due 2005
Other
Diluted net income
¥
¥
Thousands of
U.S. dollars
1998
1998
Millions of yen
1997
1996
109,569
118,813
94,177
43
96
112
371
59
112
162
508
108
(2)
109,777
205
(3)
119,223
289
3
94,743
$
$
944,560
931
(17)
946,353
Number of shares
Average common shares outstanding
Dilutive effect of:
1% Japanese yen convertible debentures,
due 2002
Other
Diluted common shares outstanding
868,915,888
862,664,129
846,223,709
3,991,367
5,687,040
9,689,045
4,609,783
6,722,111
11,112,225
8,220,954
25,427
885,763,419
10,599,248
90,902
885,763,430
18,475,794
262,697
885,763,470
Yen
Net income per share:
Basic
Diluted
¥
126.10
123.93
69
137.73
134.60
U.S. dollars
111.29
106.96
$
1.09
1.07
(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, 1998 and 1997 are set forth below:
1997
Thousands of
U.S. dollars
1998
52,699
52,514
87,114
15,126
$ 907,664
467,431
787,750
250,853
Millions of yen
1998
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, 1998, commitments outstanding for the
purchase of property, plant and equipment approximated
¥34,704 million ($299,172 thousand). Contingent liabilities for
guarantees of bank loans to employees and to affiliated and
other companies amounted to approximately ¥72,237 million
($622,733 thousand).
Canon occupies sales offices and other facilities under lease
arrangements accounted for as operating leases. Deposits made
under such arrangements aggregated ¥23,754 million
($204,776 thousand) and ¥28,317 million at December 31,
1998 and 1997, respectively, and are reflected in noncurrent
receivables and restricted funds on the accompanying
consolidated balance sheets.
¥105,289
54,222
91,379
29,099
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, 1998 mature between 1999 and 2003.
Future minimum lease payments required under
noncancellable operating leases that have initial or remaining
lease terms in excess of one year as of December 31, 1998 are:
Year ending December 31:
1999
2000
2001
2002
2003
Later years
Total future minimum
lease payments
70
Millions
of yen
Thousands of
U.S. dollars
¥ 13,295
10,061
7,292
5,860
5,913
14,274
$114,612
86,733
62,862
50,517
50,974
123,052
¥ 56,695
$488,750
(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,
1998 and 1997 totaled ¥50,309 million ($433,698 thousand)
and ¥56,840 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.
The estimated fair values of Canon’s financial instruments at
December 31, 1998 and 1997 are summarized as follows:
Thousands of
U.S. dollars
1998
Carrying
Estimated
Amount
Fair Value
Millions of yen
1998
Carrying
Estimated
Amount
Fair Value
1997
Carrying
Estimated
Amount
Fair Value
Nonderivatives:
Assets:
Marketable securities and
Investments
¥ 36,921
51,402
42,724
64,676
Liabilities:
Long-term debt, including current installments
(246,480) (271,476) (252,527) (283,513)
Derivatives relating to:
Trade receivables and anticipated
sales transactions:
Assets
4,786
5,076
66
68
Liabilities
(342)
(123)
(1,148)
(952)
Long-term debt,
including current installments:
Foreign exchange contracts:
Assets
446
666
710
1,169
Liabilities
(1,904) (1,768)
—
—
Interest rate swaps:
Assets
811
2,957
885
3,717
Liabilities
(119)
(634)
(111)
(628)
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
$
318,284
443,121
(2,124,828) (2,340,310)
41,259
(2,948)
43,759
(1,060)
3,845
(16,414)
5,741
(15,241)
6,991
(1,026)
25,491
(5,466)
nature 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
1998
Research and development
Depreciation of property, plant and equipment
Rent
Advertising
Exchange loss (gain)
¥176,967
159,888
53,923
76,911
(1,189)
72
Millions of yen
1997
1996
170,793
137,777
55,227
75,800
11,200
150,085
117,263
51,767
68,354
4,060
Thousands of
U.S. dollars
1998
$1,525,578
1,378,345
464,853
663,026
(10,250)
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, 1998 and 1997, 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, 1998. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
Canon Inc. and subsidiaries have not applied Statement of Financial Accounting Standards No. 115 (“SFAS 115”)
in accounting for certain investments in debt and equity securities but have provided the disclosures required by SFAS
115. The effects on the consolidated financial statements of not adopting SFAS 115 are summarized in note 4 of the
notes to consolidated financial statements.
The segment information required to be disclosed in financial statements under United States generally accepted
accounting principles is not presented in the accompanying consolidated financial statements. Foreign issuers are
currently exempted from such disclosure requirement in Securities Exchange Act filings with the United States
Securities and Exchange Commission.
In our opinion, except for the effects of the departure from SFAS 115 in accounting for certain investments in debt
and equity securities, as discussed in the third paragraph of this report, and except for the omission of the segment
information, as discussed in the preceding paragraph, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Canon Inc. and subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years in the three-year period ended December
31, 1998, in conformity with United States generally accepted accounting principles.
The accompanying consolidated financial statements have been translated into United States dollars solely for the
convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial
statements expressed in yen have been translated into United States dollars on the basis set forth in note 2 of the
notes to consolidated financial statements.
Tokyo, Japan
February 8, 1999
73
MAJOR CONSOLIDATED SUBSIDIARIES
BOARD OF DIRECTORS
AND CORPORATE AUDITORS
(As of December 31, 1998)
(As of December 31, 1998)
MANUFACTURING
Canon Electronics Inc.
Copyer Co., Ltd.
Nippon Typewriter Co., Ltd.
Canon Aptex Inc.
Canon Components, Inc.
Canon Chemicals Inc.
Canon Precision Inc.
Oita Canon Inc.
Nagahama Canon Inc.
Oita Canon Materials Inc.
Optron, Inc.
Canon Virginia, Inc.
South Tech, Inc.
Custom Integrated Technology, Inc.
Industrial Resource Technologies, Inc.
Canon Business Machines, Inc.
Canon Giessen GmbH
Canon Bretagne S.A.
Canon Manufacturing U.K. Ltd.
Canon Inc., Taiwan
Canon Opto (Malaysia) Sdn. Bhd.
Canon Dalian Business Machines, Inc.
Canon Zhuhai, Inc.
Tianjin Canon Co., Ltd.
Guang-Dong United Optical Instrument
Co., Ltd.
Canon Hi-Tech (Thailand) Ltd.
Canon Engineering (Thailand) Ltd.
Canon Electronic Business Machines
(H.K.) Co., Ltd.
Canon Engineering Singapore Pte. Ltd.
Canon Engineering Hong Kong Co., Ltd.
RESEARCH & DEVELOPMENT
Canon Research Center America, Inc.
Canon Information Systems, Inc.
Canon Research Centre Europe Ltd.
Canon Research Centre France S.A.
Canon Information Systems
Research Australia Pty. Ltd.
Beijing PeCan Information System Co., Ltd.
MARKETING
Canon Sales Co., Inc.
Canon Copyer Sales Co., Ltd.
Canon Software Inc.
Canon U.S.A., Inc.
Canon Computer Systems, Inc.
Canon Canada, Inc.
Canon Mexicana, S. de R.L. de C.V.
Canon Latin America, Inc.
Canon do Brasil Indústria e Comércio Limitada
Canon Chile, S.A.
Canon Panama, S.A.
Canon Argentina, S.A.
Ambassador Business Solutions, Inc.
Astro Business Solutions, Inc.
Affiliated Business Solutions, Inc.
MCS Business Solutions, Inc.
Canon Financial Services, Inc.
Canon Europa N.V.
Canon U.K. Ltd.
Canon Deutschland GmbH
Canon Euro-Photo Handelsgesellschaft m.b.H.
Canon France S.A.
Canon Photo Vidéo France S.A.
Canon Italia S.p.A.
Canon España S.A.
Canon S.A.
Canon Benelux N.V.
Canon Benelux N.V./S.A.
Canon (Schweiz) AG
Canon Gesellschaft m.b.H.
Canon Svenska AB
Canon Oy
Canon North-East Oy
Canon Norge A.S.
CEE Canon East Europe Vertriebsgesellschaft
m.b.H.
Canon Systems Management Europe Ltd.
Canon Australia Pty. Ltd.
Canon New Zealand Ltd.
Canon Finance Australia Ltd.
Canon Finance New Zealand Ltd.
Canon Singapore Pte. Ltd.
Canon Hongkong Co., Ltd.
Canon Marketing Services Pte. Ltd.
Canon Marketing (Malaysia) Sdn. Bhd.
Canon Marketing (Thailand) Co., Ltd.
Canon Semiconductor Engineering
Korea Inc.
Canon Semiconductor Equipment
Taiwan Inc.
74
Honorary Chairman of the Board
Ryuzaburo Kaku
President & C.E.O.
Fujio Mitarai
Senior Managing Director
Giichi Marushima
Managing Directors
Ryozo Hirako
Takashi Kitamura
Hajime Katayama
Ichiro Endo
Hisashi Sakamaki
Haruo Murase
Takashi Saito
Yukio Yamashita
Masashi Kiuchi
Toshizo Tanaka
Director Adviser
Hiroshi Tanaka
Directors
Hideharu Takemoto
Toru Takahashi
Yusuke Emura
Nobuyoshi Tanaka
Kinya Uchida
Akira Tajima
Kohtaro Miyagi
Tsuneji Uchida
Junji Ichikawa
Muneo Adachi
Hajime Tsuruoka
Corporate Auditors
Shuichi Ishizuki
Takenori Matsuoka
Tadashi Ohe
Tetsuo Yoshizawa
TRANSFER OFFICE AND REGISTRARS
SHAREHOLDERS’ INFORMATION
Canon Inc.
30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo
146-8501, Japan
Transfer Office for Common Stock in Japan
The Yasuda Trust and Banking Company, Limited
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670,
Japan
Depositary and Agent with Respect to
American Depositary Receipts for Common
Shares
Morgan Guaranty Trust Company of New York
60 Wall Street, New York, N.Y. 10260-0060,
U.S.A.
Depositaries and Agents with Respect to
Global Bearer Certificates for Common
Shares
Deutsche Börse Clearing AG Börsenplatz 7-11
60313 Frankfurt am Main, Germany
Deutsche Bank AG, U+I/Emissionsfolgegeschäfte,
Taunusanlage12, 60325 Frankfurt am Main,
Germany
Stock exchange listings:
Tokyo, Osaka, Nagoya, Kyoto, Fukuoka,
Niigata, Sapporo and Frankfurt stock
exchanges
PRINTED ON RECYCLED PAPER
American Depositary Receipts (ADRs) are
traded on the Nasdaq Stock Market.
Shareholders’ annual general meeting:
March 30, 1999, in Tokyo
Other information:
Other publications of general interest are
available, including a company profile called
the Canon
Canon Story
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. BEP008 0399P14
Printed in Japan
CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan

ctivities and Results

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