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C A N O N A N N UA L R E P O R T 20 0 2
Fiscal Year Ended December 31, 2002
CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
Coporate Profile
TRANSFER OFFICE AND REGISTRARS
SHAREHOLDERS’ INFORMATION
Canon Inc. (NYSE: CAJ) and the Canon Group develop,
produce and market a wide range of products used in the
home, offices and industry, including business machines,
conventional and digital cameras, lenses, digital video
camcorders, semiconductor production equipment,
television broadcasting lenses and medical equipment.
The Group employs 97,802 people* worldwide.
The operating environment in 2003 remained harsh,
but Canon’s strong product lines and successful
management reformation activities made possible the
third consecutive year of record-breaking consolidated
net income. The Group also made significant progress in
achieving the aims of Phase II of the Excellent Global
Corporation Plan, which commenced in 2001 and will
conclude in 2005.
kyosei,
The Canon Group pursues a variety of environmental
and philanthropic activities under its corporate philosophy
or living and working together for the common
of
good. We are also fulfilling our duties to investors and
society by stressing good corporate governance
throughout our activities.
* As of December 31, 2002
C O N T E N T S
1 Financial Highlights
2 To Our Shareholders
4
9
Canon turns around from a slow first half
to set new consolidated net sales and
net income records
Interview with the President
Fujio Mitarai, Canon Inc.’s president and
CEO, reveals the secrets behind
Canon’s success and provides a look at
future plans
Taking Action in the Century of the
Environment
Highlighting Canon’s environmental
philosophy and recent activities
12 Philanthropic Activities
A look at recent trends in Canon’s social
and cultural support activities
13 Product Group Summary
Product category-specific reports on
results and strategies for the future
14 Business Machines
14 Copying Machines
Canon launches its first color digital
multifunction device (MFD) for the
fast-growing color document business
16 Computer Peripherals
Competitive Bubble Jet printers sell well,
and Canon maintains its leadership of
the global monochrome laser beam
printer market
18 Business Systems
Canon increases sales of ink-jet
multifunction peripherals and prepares
to expand portable data terminal
business globally
20 Cameras
Strong sales achieved for digital cameras
and digital video camcorders, as the
market continues to shift to digital
24 Optical Products
Canon releases the world’s first 100x
zoom television broadcasting lens; sluggish
IT-related demand impacts semiconductor
production equipment sales
27 Financial Section
76 Major Consolidated Subsidiaries
Board of Directors and Corporate
Auditors
77 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
Mizuho Trust & Banking Co., Ltd.
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, Fukuoka, Sapporo,
New York and Frankfurt stock exchanges
American Depositary Receipts (ADRs) are
traded on the New York Stock Exchange.
Shareholders’ annual general meeting:
March 28, 2003, in Tokyo
Other information:
For publications or information, please
contact the Corporate Communications
Center, Canon Inc., Tokyo, or access
Canon´s Website at
www.canon.com
This publication was printed on 70% recycled paper by an
ISO 14001-accredited printer. The inks used, containing
neither VOCs (volatile organic compounds) nor mineral oils,
excel in decomposition and de-inking.
77
PUB. BEP012 0403SZ 19900 Printed in Japan
Financial Highlights
Net sales
Income before cumulative effect of
change in accounting principle
Net income
Earnings per share:
Income before cumulative effect of
change in accounting principle:
Basic
Diluted
Net income:
Basic
Diluted
Total assets
Stockholders’ equity
Millions of yen
(except per share amounts)
Thousands of U.S. dollars
(except per share amounts)
2002
¥2,940,128
2001
2,907,573
190,737
190,737
163,869
167,561
217.56
214.80
187.07
184.55
217.56
214.80
2,942,706
1,591,950
191.29
188.70
2,844,756
1,458,476
2002
$24,501,067
1,589,475
1,589,475
1.81
1.79
1.81
1.79
24,522,550
13,266,250
Note:U.S. dollar amounts in this Annual Report, solely for the convenience of the reader, are translated from yen at the rate of ¥120 = US$1, the approximate
exchange rate on the Tokyo Foreign Exchange Market as of December 30, 2002.
Consolidated net sales
(Millions of yen)
Consolidated net income
(Millions of yen)
Net income per share
(Yen)
Stockholders’ equity
(Millions of yen)
3,000,000
200,000
220
1,600,000
,
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1
To Our Shareholders
Looking back at the global economy in 2002, the U.S. economy began showing signs of an upturn,
but lost momentum in the second half, owing to slow consumer spending and a decline in business
confidence. While European economies recovered moderately, the pace decelerated in some countries
in the region in the latter half of the year. In Asia, the economy of the People’s Republic of China
continued to grow substantially, while other Asian economies sustained modest advances. The
Japanese economy remained stagnant, with no signs of recovery against the backdrop of falling stock
prices and growing uncertainty over prospects for the global economy.
In the Canon Group’s markets, flagging global demand for personal computers (PCs) reduced
sales of IT-related equipment, but the market grew for office-use digital copying machines, particularly
multifunction and color products. The digital camera and digital video camcorder markets continued
to expand worldwide. Price declines in the memory devices market inhibited capital spending for
semiconductor production equipment. The average value of the yen in 2002 was ¥124.73 to the U.S. dollar,
and ¥118.39 to the euro, a depreciation of 3% and 8%, respectively, compared with the previous year.
Despite these conditions, Canon achieved record highs in both consolidated net sales and
net income, and a third consecutive year of sales and profit growth. Consolidated net sales totaled
¥2,940.1 billion (US$24,501 million), a 1.1% increase from the previous year. The gross profit ratio
improved 3.6 percentage points, to 47.6%, mainly reflecting reduced costs through production
reformation activities and shortened lead times for new product development. Operating profit totaled
¥346.4 billion (US$2,886 million), up 22.9%. Net income grew 13.8% to ¥190.7 billion (US$1,589
million), and basic earnings per share were ¥217.56 (US$1.81), an increase of ¥26.27 (US$0.22).
The Board of Directors has proposed a ¥5.00 (US$0.04) increase in the Company’s year-end
dividend, to ¥17.50 (US$0.15). When combined with the interim dividend of ¥12.50 (US$0.10), this
would bring the annual dividend to ¥30.00 (US$0.25) per share.
Results by Product Group
Sales of business machines increased 0.1% to ¥2,226.2 billion (US$18,552 million). Cost-cutting
measures and healthy sales of competitive digital networked monochrome multifunction devices
(MFDs) and Bubble Jet printers contributed to a 22.7% increase in operating profits, to ¥411.0 billion
(US$3,425 million). Sales of business systems, including facsimile machines, personal computers,
micrographics equipment and calculators, fell mainly because of slow demand for PCs in Japan, though
demand for our multifunction facsimile machines was favorable.
Camera sales expanded a robust 27.4%, to ¥485.8 billion (US$4,048 million). Greatly improved
profitability, owing mainly to the rapid rise in sales of digital cameras and digital video camcorders,
coupled with effective cost-cutting measures, boosted operating profit 94.5%, to ¥70.3 billion
(US$586 million). Successive launches of compact digital cameras bolstered Canon’s lineup, but sales of
conventional film cameras continued to slide.
Sales of optical and other products decreased 24.6%, to ¥228.2 billion (US$1,901 million), owing
to a drop in demand for semiconductor production equipment. We also suffered an operating loss of
¥11.7 billion (US$97 million) in this category, following an operating profit of ¥23.9 billion in 2001.
2
Progress toward Becoming an Excellent Global Corporation
In 2002, Canon completed the second year of Phase II of the Excellent Global Corporation Plan.
Among the aims of this five-year management initiative are securing the No.1 position worldwide
in all of our core business areas, strengthening R&D to steadily create high-potential new businesses
and further enhancing our financial position.
Already the global leader in copying machines and laser beam printers, we are expanding
color document handling and developing the print-on-demand (POD) market, as well as systems and
hardware solutions businesses.
Canon introduced the first direct print system of outputting digital photographs without using a
PC, and in 2002 worked with five other companies to propose an industry standard, named PictBridge,
that include products from each manufacturer. We will aggressively introduce compatible products to
take full advantage of this standard, as well as our unique position as a manufacturer of both digital
cameras and photo-quality printers.
In the area of semiconductor production equipment, we aim to enhance our investment in R&D
with the objective of accelerating the development of basic technologies for next-generation products
that will maintain our technological edge over the competition.
Dealing with the Challenges Ahead
We are optimizing production activities globally and establishing
product development functions in the United States and Europe,
a move that will enable our global operations to develop and
manufacture products for sale globally. We are also making progress
toward establishing our Three Regional Headquarters System
by enhancing the functions of our regional marketing headquarters
in the Americas and Europe.
Canon also views environmental concerns as a manage-
ment issue of extreme importance, and we will step up our
efforts in this area, as well.
Although the world economic outlook is uncertain in
2003, Canon is strongly positioned in a range of expanding
markets. By remaining on course toward our goal of
becoming an excellent global corporation, as well as a
leading company in the imaging industry, I am confident
that we will continue adding value to the Canon Group
for stakeholders around the world.
Fujio Mitarai
President and CEO
Canon Inc.
3
Interview with the President
Nurturing the Seeds of Success to
Maintain Momentum
How was the Canon Group able to complete its third consecutive year of record-breaking
results for consolidated net income? And what does the future hold? In this interview,
Fujio Mitarai, president and CEO of Canon Inc., discusses the momentum of management
reformation and the Group´s prospects for future growth.
Strong Financial Foundations Sustain Growth
The origins of Canon´s robust performance during the past three years can be found in a wide range
of programs and activities combining our traditional strengths with the commitment to maintaining
profitable operations throughout the Canon Group. For example, production reformation has allowed
us to significantly reduce costs, which is why we will continue these activities into the future.
In addition, the Canon Group is developing new products more efficiently and
rapidly than ever before. Nearly 60% of the Canon brand products now on the
market were launched within the past two years, which means that we are selling
a large number of products with high profitability. While shortening product
development lead times, we have also dramatically reduced production defects.
These efforts made possible the excellent performance of the Canon Group
in 2002 and sustained an increase in consolidated net income well in advance of
our rise in net sales. Comprehensive cash flow management also made it possible
to bring our ratio of cost of sales to net sales down more than three percentage
points from the 2001 result, raise our stockholders´ equity ratio to 54.1%, from
the previous year´s 51.3%, and improve our debt ratio from 10.4% to 5.0%.
Management Reformation Continues to Deliver Results
The management reformation strategies we introduced in 1996 under Phase I
of the Excellent Global Corporation Plan placed Canon firmly on the path to
profitability. Our Groupwide shift to cell production, which was completed in
2002, eliminated more than 20 kilometers of conveyor belt and dozens of automated storage systems,
freeing large volumes of internal and external floor space. Now that we are well into Phase II of the
Excellent Global Corporation Plan, the spirit of reform is becoming firmly established in the corporate
character of the Canon Group. This is why I am confident that our people will continue to seek
innovative ways to improve our operations and performance to ensure even more favorable results
in 2003 and beyond.
Stockholders´ Equity Ratio
Debt Ratio
46.5 45.9
42.4
38.1 38.6
50
(%)
40
30
20
10
0
54.1
51.3
50
(%)
40
30
20
10
0
28.8 26.5
21.4
17.9
13.8
10.4
5.0
96 97 98 99 00 01 02
96 97 98 99 00 01 02
4
Decreasing Prototype Usage
We have made intensive efforts to lessen our dependency on
prototypes for new products by promoting digital engineering
systems such as 3D computer-aided design (3D-CAD). These
efforts peaked in 2002 when we achieved 100% 3D-CAD
usage in our product development activities Groupwide.
Digital systems allow our engineers to examine every
aspect of new products, fine-tune designs, and resolve
potential problems on computer screens before actual
production begins. Reducing the number of prototypes
we use has helped us slash losses in our production activities, approximately 70% of which are the
result of problems related to product designs.
Using 3D-CAD systems significantly reduces
development lead times.
We have also developed digital engineering systems that allow our engineers to disassemble
their creations on-screen, greatly enhancing processes related to the Life Cycle Assessment (LCA) of
Canon products. In addition to digital engineering, we are working on a variety of innovative factory
automation (FA) technologies to further enhance the cost effectiveness and quality of product
development and manufacturing. The immense volume of data acquired through these activities is
being shared throughout the Group to improve operations.
Managing the Supply Chain
Supply chain management (SCM) is improving the way we
do business by providing Canon Group operations, from
production through sales and marketing, with effective and
up-to-date order and procurement information. Canon Inc.´s
Ami Plant has begun direct delivery operations, under which
certain products ordered by customers are manufactured
completely within the plant, including the installation of
peripheral and optional equipment, and delivered directly to
the point of sale. We continue to expand and enhance our
SCM activities and are devising new methods to succeed in
the increasingly competitive global environment.
Under the direct delivery operation, products are
ready for shipping from the plant to points of sale.
Canon´s U.S. Patent Ranking
The Power of Intellectual Assets
Canon Inc. has ranked among the top three companies
receiving U.S. patents for more than a decade, and in 2002
we rose to second place with almost 1,900 patents for the
year. Intellectual assets are crucial to maintaining the vitality
of our product lines and entering new businesses, which is
why they are a high management priority. Patents play an
important role because they allow us to protect the many
proprietary technologies in our products. A variety of our
patented technologies are licensed to or shared with other
companies, which adds to both our results and the scope of our operations.
2002*
2000
1998
1999
2001
2nd
3rd
3rd
3rd
2nd
Number of patents
1,893
1,877
1,890
1,795
1,928
(Source : U.S. Patent and Trademark Office) * Preliminary count
5
Advancing Business Solutions Capabilities
Canon offers an array of systems solutions, or systems utilizing Canon products with customized
software functions, and we are also making inroads into the field of hardware solutions, created by
designing products according to precise specifications requested by clients.
We have made positive steps in building strong business solutions capabilities. In Japan, Canon
System Solutions Inc. (formerly Sumitomo Metal System Solutions Co., Ltd.) joined the Canon Sales
Group to provide systems integration consulting and services, network system integration services,
and specialized software development.
In the area of hardware solutions, we won a large-scale order to provide color copying machine
systems with distinctive specifications to one of Japan´s largest convenience store networks, while in
the United States we are delivering Bubble Jet printers with specialized print
heads under an ongoing large-scale order from a major corporation. Backed by
our technological expertise and flexible production organization, we intend to
further expand the range of our hardware solutions offerings.
Boosting Our Presence in Asia
The Asian region outside of Japan, particularly the People´s Republic of China,
presents immense business potential for the Canon Group and is central to
our global business and organizational planning. In 2002, we stepped up our
integration of product development, production, marketing, sales and services for
this region under Canon (China) Co., Ltd., which is also building the infrastructure
necessary for a resilient marketing, sales, logistics and service network in China.
As the Chinese market continues to grow, we will direct local marketing efforts to
raising awareness of the Canon brand and taking the lead in such markets as
digital cameras, laser beam printers, ink-jet printers and copying machines.
In regional production, Canon (Suzhou) Inc. in China and Canon Vietnam
Co., Ltd., began full-scale operations during the year. Canon (Suzhou) is set to
Fujio Mitarai announces Canon’s China
strategy at the Canon Expo 2002 in Beijing.
become our principal site for producing imageRUNNER (iR)-series digital MFDs, while Canon Vietnam
primarily manufactures Bubble Jet printers for sale around the world.
Today’s Investment Ensures Tomorrow’s Prosperity
By reducing our dependency on debt, we have freed sufficient capital to invest in new technology development
without relying on debt financing. As a technology-intensive
company, new advances are vital if we are to maintain the
leading edge in highly competitive markets. Following is a
sampling of the major projects under way in the Canon Group.
Adding Device Value
Developing key components and devices in-house is a
primary strategy under Phase II of the Excellent Global
Corporation Plan, and a wide variety of projects are being
undertaken in every area of our business. Several new high-
value-added devices we developed in 2002 have been
Canon (Suzhou) commenced full-scale production of
color digital MFDs in 2002.
6
Interview with the President
employed in products launched during the year. Our newest CMOS sensor,
a full-frame 35mm image sensor for digital cameras, is featured in our
professional-use EOS-1Ds digital single-lens reflex (SLR) camera, which also
provides a stunning 11.1-megapixel resolution. We also developed the Color iR
Controller, an imaging system on a single semiconductor chip that serves as the
core device in our expanding lineup of imageRUNNER (iR) color digital MFDs.
Much of our recent R&D work is concentrated on nanotechnologies, such as
Revolutionary CMOS sensor
for digital SLR cameras
near-field optical technologies with the potential to improve memory media and semiconductor produc-
tion equipment. Nanometer-level technologies pervade a wide array of electronics products people use
everyday, which is why we will continue to pioneer new territory in years to come.
New Color Management Technologies
With more color images transmitted over networks and
output on different kinds of equipment, the need for
high-level color management has grown rapidly.
To respond to this need, Canon has been working on
color management systems for use throughout its product
lines and in color-measuring instruments used in R&D.
This system, based on actual color perception through the
human eye, ensures that images provided by our image
input and output products are expressed under a unified
color scheme. In other words, colors in images from Canon
digital cameras or scanners will be perceived in the same
range, whether they are displayed on-screen or output using a Bubble Jet printer, laser beam printer or
color copying machine, even though the technologies of these products are different.
Image matrix assessment is used to define colors for
the color management database.
We have developed a variety of color management technologies to date and are now continuing
our activities by defining color parameters based on perception differences in various regions. The results
are being incorporated into a database system for color measurement, assessment and simulation
accessible to facilities in the Canon Group. Using these color parameters, our engineers will be able to
ensure that every Canon digital imaging product presents the same high level of color reproduction
quality. Meanwhile, our customers can rest assured that the colors they expect to see will be delivered
by Canon, no matter which of our products they are using.
Corporate Governance for Corporate Health
Several financial scandals in 2002 have fueled debate as to the most appropriate method to ensure
good corporate governance. At Canon, we focus on maintaining high-quality management, as well as on
meeting the requirements of systems used to check financial reporting. Canon´s board members have
all been with the Company for 30 years or more and they have proven their reliability. This is why
Canon has always been proactive in its disclosure practices. We adopted the reporting standards of the
U.S. Securities and Exchange Commission (SEC) in 1969 and provide reports on our consolidated
performance on a quarterly basis. We also hold global conference calls with investors and analysts every
quarter. This stance, which has maintained the confidence of stockholders around the world, is the
foundation of our corporate governance and will remain unchanged.
7
Interview with the President
kyosei
The Engine of Environmental Consciousness
Kyosei:
In line with our corporate philosophy of , or living and working together for the common good, we
have set the environmental objective of leading the manufacturing industry worldwide in terms of using
resources efficiently and preserving the natural environment. We are approaching this goal by reducing
the environmental burden of our operations and facilities, and by designing and developing environmen-
tally conscious products. Production reformation, for example, has helped us significantly reduce CO2
emissions, and we also introduced several products in 2002 with advanced environmental features.
At the same time, we are taking advantage of the know-how we have gained through our long
involvement in environmental preservation to pioneer the field of environmental business, or products
and services that contribute to both the environment and our corporate performance. The foundations
we are building in this area–from our dry ice parts-cleaning system to soil and
groundwater decontamination using photo-functional water–hold the potential to
generate high returns for the environment and the Canon Group in years to come.
Looking Ahead to 2003
While keeping up the pace of management reformation activities, Canon will
maintain efforts to create a resilient global organization. In marketing, we will
actively promote popular new products and build formidable systems and
hardware solutions capabilities. To further strengthen both our products and
profitability, we intend to raise the quality of our digital engineering systems,
develop technologies to enhance production efficiency, and create new key
components and devices.
Predicting trends in the global economy is difficult, which is why Canon is
expecting a challenging year in 2003. Nevertheless, I am confident that we will
continue our record of success by staying true to Canon´s ideals and pursuing the
goals of Phase II of the Excellent Global Corporation Plan.
Fujio Mitarai tries out a new digital camera
during a plant visit.
8
Taking Action in the Century of the Environment
kyosei
For decades, Canon has implemented
environmental activities under its
corporate philosophy of , or
living and working together for the
common good. In April 2001, as the
world entered what many people are
calling the Century of the Environment,
we revised the Canon Environmental
Charter with the goal of redoubling
our efforts to strike a balance between
business aims and the need to protect
our environment for future generations.
To further strengthen the Canon
Group´s environment-related activities,
we have streamlined our internal
In 2001, the start of the Century of the Environment,
Canon revised its environmental management
goals to set the maximization of resource
efficiency as the paramount environmental
objective of the Canon Group.
organization, moving from a network
of committees supporting line organi-
zations to a system of integrated Group-
wide management of our environment
assurance system. This reorganization
culminated in January 2002 with
the establishment of the Global
Environment Promotion Headquarters
in Canon Inc. Individual product group
operations also maintain internal
environment management functions,
while Environment Promotion
committees in the Americas, Europe,
Asia and Oceania handle region-
specific activities.
Since 2001, Canon has employed
an evaluation system to assess the
environmental performance of its
operations. As a result, progress in
carrying out environmental policies
is now a standardized evaluation
used to assess Canon divisions and
facilities around the world.
Backed by a resilient new
organization, the Canon Group will
continue to seek every possible way
to minimize resource and energy
waste by implementing approaches
based on materials flow and cost
accounting systems. We will strive to
make our products more energy effi-
cient and recyclable while eliminat-
ing hazardous substances. In our
facilities, we will reinforce internal
environmental accounting methods
to promote rigorous energy conser-
vation, waste reduction and chemical
substance elimination. Finally, we
will actively disclose information
on our environment-related activities
and their results in an effort to pro-
mote awareness and encourage more
urgent and effective measures both
within and outside the Canon Group.
Environmental Management under Canon’s Corporate Philosophy of
Kyosei
Environment
Maximization of
Resource Efficiency
Contribution to
Recycling-Oriented Society
Management
“Pursuit of Profit”
“Products”
Kyosei
—Contribution to the
Common Good (Canon’s Philosophy)
9
Targeting Environmentally Conscious Products
covering and a coil, which generates heat
via high-frequency electric current. Heat
from the sleeve is rapidly relayed to the
system, reducing warm-up time by up to
90% and radically lowering power require-
ments during operation and in standby
mode. Compact and located close to the
toner on the paper, the IH sleeve also
helps reduce overall printer size.
Leading Eco-Design for
Bubble Jet Printers
LCA analysis played a vital role in the
development of Canon’s new i550 and
i850 Bubble Jet printers (to be released
globally in the spring of 2003). Innovations
such as a CPU clock stop/start function in
the logic circuitry helped significantly
reduce power consumption when the
printers are inactive, resulting in power
savings of almost 70%, compared with
their predecessors.
To maximize resource efficiency, we
developed a system to process paper cas-
settes collected from used Canon copying
Canon is implementing thorough Life Cycle Assessment
(LCA), promoting green procurement, developing small-
er and lighter products, enhancing recyclability and
reducing hazardous substances. To promote more envi-
ronmentally conscious products, we are also actively
employing 3D-CAD utilities, which allow our engineers
to examine new designs on-screen, to make products
easier to disassemble for resource recycling and reuse.
Bubble Jet printers realizing both energy
savings and resource efficiency
machines into the raw material for a new
plastic meeting the quality and durability
standards of Underwriters Laboratories
Inc. We also almost completely removed
hazardous lead and chrome from parts.
We plan to utilize these environmentally
friendly technologies throughout the
Bubble Jet printer lineup, and continue
efforts to further improve the eco-design
features of our Bubble Jet printers.
Radically Reducing Warm-Up Time
To lower the power consumed by its color
laser beam printers, Canon has developed
the world’s first color induction-heating
(IH) fixing technology. The IH sleeve con-
sists of a thin metallic film with a rubber
10
Canon’s originally developed color IH fixing
technology radically reduces warm-up time.
Taking a Materials Approach to
Cameras
To reduce hazardous materials, Canon has
adopted lead-free glass in most of its camera
and video camcorder lenses. In addition,
many of the external parts in the ELPH
(IXUS) Advanced Photo System camera
and PowerShot DIGITAL ELPH (DIGITAL
IXUS) digital camera series are made with
aluminum and stainless steel, which are
easy to recycle and reuse. Reducing the
size of these cameras has cut material
requirements, and we have developed
packing materials made from deadwood,
which has no other viable applications.
Canon adopts lead-free lenses in its products.
Business and the Environment Can Coexist
Purifying with Water and Light
Photo-functional water is a Canon innova-
tion with ramifications throughout industry.
This liquid, discovered when acidic elec-
trolyzed (functional) water was exposed to
sunlight, enabled us to develop a safe and
simple method to decompose chlorinated
organic compounds such as trichloroethyl-
ene (TCE) in soil and groundwater on the
sites of production facilities. With this
system, decomposition proceeds under
normal atmospheric temperature and
pressure. Thus, unlike activated carbon
purification systems, incineration is not
required, and dioxins are not released into
Canon applies its technologies and experience to
develop environmental businesses and its environment
assessment system to ensure that facilities are
constructed and operate at the peak of environmental
performance. Activities such as these further our
corporate goals and benefit society as a whole.
the atmosphere. Our system also improves
on other methods that center on the
vaporization of contaminants, which can
cause air pollution. Photo-functional water
is a truly environmentally conscious and safe
technology for decomposing contaminants.
In related activities, we have devel-
oped a simple yet highly effective parts-
cleaning system using dry ice pellets, and
a nontoxic organic lens-cleaning solvent.
Other environmental businesses are in the
making, as we explore the many possibili-
ties made possible by Canon creativity.
Building for the Environment
Canon drafted its environment assurance
standards to clarify its policies and activi-
ties. These standards surpass the laws and
regulations of individual nations, particularly
in terms of emissions into the water and
air, and every Canon production site must
adhere to them. Our commitment is evi-
dent throughout Canon (Suzhou) Inc. in
China and Canon Vietnam Co., Ltd., our
two newest production sites. For example,
to effectively manage water we employed
water tanks that do not rest on floors,
making it easy to detect potential faults
and make repairs before leaks occur.
The new headquarters building of
Canon Inc., which opened in Shimomaruko,
Tokyo, in May 2002, was designed as a
prime example of an environmentally con-
scious workplace. We achieved 100%
recycling/reuse of waste materials during
the construction process, and minimize
environmental impact during day-to-day
operations by using a heat source man-
agement support system to supply energy.
Epoch-making purification of soil and groundwater using light and water
New headquarters building designed with
environmental features
11
Digital Creativity Recognized
The third Canon Digital Creators Contest
was held in 2002 and culminated in an
awards ceremony and exhibition held in
Tokyo in December. This competition,
started in 2000 with the goal of discover-
ing and supporting new talent among the
creators of new generations in digital
visual expression, has continued to grow,
and in 2002 we added four new global
collection sites to accept submissions.
As a result, more than 5,000 works were
received in the Digital Photo (Print),
Digital Graphics/Illustration (Print), Digital
Movie and Web divisions. As a leader in
products and services based on digital
imaging technologies, Canon will continue
philanthropic programs using its products
and support for the creative activities of
digital imaging artists.
Fostering new talent in digital creativity
Philanthropic Activities : Investing in the Future
Focusing on the Clean Earth
Campaign in the Americas
Canon U.S.A., Inc. continued social support
activities under the Clean Earth Campaign.
The Canon National Parks Science
Scholars Program, which awards scholar-
ships to doctoral students researching
conservation and environmental science,
was expanded throughout the Americas in
2002, and awards were presented to
students in Argentina, Canada, Mexico
and the United States. Canon U.S.A. also
renewed its support of Yellowstone
National Park through a grant to the
Yellowstone Park Foundation. Our digital
Canon believes that being a good corporate citizen
means supporting programs that benefit society and
the environment around the world.
Supporting research that benefits society
through programs under Canon U.S.A.’s
Clean Earth Campaign
James Leipnik, Canon Europe’s Chief of
Communications and Corporate Relations
(right), and Paul Steele, WWF International’s
Chief Operating Officer, signing the renewal
©WWF
imaging products and solutions are being
used in a remotely operated visual analy-
sis system used to help protect the park’s
wildlife and create virtual field trips on
Yellowstone’s website.
WWF Partnership Recharged
in Europe
In December, Canon Europe Ltd. renewed
its sponsorship agreement with WWF, the
conservation organization, for a third term.
Under the two-year agreement, Canon
and WWF will continue to raise awareness
of the environment through joint commu-
nications activities, such as audience-
specific educational projects, product and
retail promotions, a unified presence at
trade fairs and events, and internal pro-
grams to boost employee morale. Canon
Europe became WWF’s first Conservation
Partner in 1998. We have since helped
WWF enhance, completely digitize and
make its superb image collection available
online to its offices around the world.
12
Product Group Summary
Sales results
(Millions of yen)
8
3
3
8
3
9
,
4
1
8
1
9
8
,
6
7
9
1
4
8
,
7
5
5
2
7
7
,
Business Machines
Copying Machines
Full-color copying machines
Office copying machines
Personal copying machines
Consumables, etc.
Business Machines
Computer Peripherals
Laser beam printers
Bubble Jet printers
Image scanners
Consumables, etc.
Business Machines
Business Systems
Facsimile machines
Ink-jet multifunction peripherals
Handy Terminals
Document scanners
Personal information equipment, etc.
Cameras
Single-lens reflex (SLR) cameras
Compact cameras
Digital cameras
Video camcorders
LCD projectors
Lenses, etc.
Optical Products
Semiconductor production
equipment
Medical equipment
Digital radiography systems
Broadcasting equipment
Other Products
9
5
3
7
8
7
,
,
1
5
6
8
3
9
6
7
0
1
5
3
,
,
6
2
1
3
7
2
9
6
7
9
0
1
,
,
0
6
7
8
3
0
1
,
6
8
5
1
9
3
,
4
7
4
3
6
2
,
7
5
9
0
3
1
,
,
2
5
3
5
2
0
1
,
,
8
1
4
8
1
0
1
,
,
4
9
9
2
2
0
1
,
,
3
2
3
6
0
3
7
6
3
1
8
3
,
3
7
3
8
0
2
,
9
5
8
,
4
1
3
4
3
2
8
1
3
,
9
4
3
1
7
1
,
9
3
4
9
6
2
,
8
7
7
5
8
4
,
7
3
1
7
3
1
,
69,331
70,915
96,427
94,344
91,018
98
99
00
01
02
13
Share of
Share of
consolidated
consolidated
sales
sales
31.9%
31.9%
34.6%
34.6%
9.2%
9.2%
16.5%
16.5%
4.7%
4.7%
Business Machines
Copying Machines
For the first time, Canon dominates U.S. market for both analog and digital
monochrome copying machines*
In the field of midrange copying machines, digital multifunction devices (MFDs) are meeting the
expanding needs of networked offices around the world, and demand for environmentally conscious
products and business solutions is also growing rapidly. In this situation, Canon reinforced its
imageRUNNER (iR) series, introducing the “i” series of products offering network connectivity as a
standard feature. We also enhanced the features of our digital MFDs in business solutions with document
management system functions such as Universal Send. New digital MFDs offering energy efficiency,
space-saving designs and quiet operation proved popular in Europe and the United States. To fulfill
the diversifying needs of office users, we will continue enhancing our lineup by adding, for example,
more customized and easy-to-upgrade functions.
In high-end digital MFDs, Canon enriched its lineup and increased large-scale orders from major
corporations. Featuring excellent durability, productivity, reliability, cost performance and functions, the
top-of-the-line imageRUNNER 105 (iR105) dominated its market worldwide. We are augmenting
communications links with sales companies to win more major accounts and enhance our competitiveness
in terms of product specifications and costs. Foreseeing a transition in corporations toward downsized
server-based networks, we are rapidly developing new business solutions.
Offices in Japan, in particular, are increasingly using color documents, creating new potential for Canon´s
Color imageRUNNER (Color iR) digital MFDs. In November 2002, we released the imageRUNNERC3200
(iR C3200), a strategic model featuring our new Color iR Controller, which allows us to offer many of the
prime functions of popular monochrome digital MFDs in the imageRUNNER (iR) series. We plan to intro-
duce this model globally in the second quarter of 2003, targeting both office and professional demand.
We will expand our lineup to further reinforce our color document business and drive this fast-growing market.
*Market share figures calculated by Gartner Dataquest
Ikuo Soma, Chief Executive of Office Imaging Products Operations,
Talks about Color Digital MFD Strategy
The imageRUNNER (iR) series of digital MFDs Canon released in 2000,
designed for monochrome output in advanced networked office
environments, continues to sell well around the world. At the heart of
these products is the iR Controller, which employs System-On-Chip (SOC)
technologies to provide cutting-edge functions such as Universal Send.
Efforts to achieve a color digital MFD culminated with our development of
the Color iR Controller and commercialization of the imageRUNNER C3200
(iR C3200). This newest addition to the imageRUNNER series offers
optimal functions for today´s offices, including high-speed processing,
easy color handling, superb print performance and complete compatibility
with imageWARE document management software. I am confident that
the imageRUNNER C3200 will hold the prominent market position as we
build a full lineup of Color imageRUNNER products to solidify Canon´s
No.1 share of the color document handling market worldwide.
14
Full-Color Copying Machines
Office and Personal Copying Machines
Canon’s imageRUNNER C3200 is meeting
growing needs for color documents
in offices with excellent performance,
network connectivity and high-level
document management capabilities.
Sales results:
Business machines
(Millions of yen)
Sales results:
Copying machines
(Millions of yen)
2,300,000
1,000,000
,
2
2
3
2
7
2
2
,
,
6
8
0
7
7
0
2
,
,
0
1
4
0
1
1
2
,
,
9
8
4
3
2
2
2
,
,
5
9
1
6
2
2
2
,
6
7
9
1
4
8
,
9
5
3
7
8
7
,
,
8
3
3
8
3
9
,
4
1
8
1
9
7 8
5
5
2
7
7
,
98 99 00 01 02
98 99 00 01 02
0
0
15
In the market for professional-use full-color copying
machines, Canon strengthened its lineup with offer-
ings such as the CLC5000+ and CLC3900 and held
on to the top market share in America for the 15th
consecutive year. We are also planning products and
services to take advantage of immense potential in
the print-on-demand (POD) market in line with
structural changes in the printing industry toward
multi-lot jobs with shortened schedules.
Canon solidified its leadership of the market for analog
personal-use copying machines in 2002. While a
major competitor withdrew from this business, we
achieved particularly strong sales in emerging markets
such as China and Russia, where we are actively
developing sales channels. Canon is also strengthening
its lineup to take advantage of the shift in America
and other markets toward digital products with multi-
ple functions such as faxing, as well as copying.
Business Machines
Computer Peripherals
Canon expands lineup of Bubble Jet printers featuring its
New “MicroFine Droplet Technology” for photo-quality image output
Although the global market for ink-jet printers continued to shrink from its peak in 2000, the increasing
popularity of digital cameras is sparking demand for printers that can provide photo quality. To take
advantage of this trend, Canon enhanced its lineup of photo-quality Bubble Jet printers with its
New “MicroFine Droplet Technology.” We also maximized production cost-efficiency measures. Our
i550, S520 and S500 midrange Bubble Jet printers were the fastest selling models during the year in
Japan and contributed to overall sales. In marketing activities, we aggressively promoted the direct print
concept, which enables users to connect Canon digital cameras directly to Bubble Jet printers, and
began working with five other camera and computer peripherals manufacturers to establish a standard
direct print system. In line with our global production strategy, we began Bubble Jet printer production
in Vietnam. In 2003, we will further reinforce our photo-quality Bubble Jet printer lineup to take
advantage of demand trends.
Canon dominated the market for monochrome laser beam printers in Japan for the 15th consecutive
year, but demand in this market is shifting toward color output products. To vitalize the market, we are
focusing product development and marketing initiatives providing high performance. By boosting our
lineup of printers in the high-speed 14-page-per-minute (ppm) to 20-ppm range output, we will offer
models to meet needs from personal to office use. Other plans include expanding our presence in Asia,
with an emphasis on China, as well as in Central and South America.
The increasing diffusion of digital cameras and multifunction peripherals is impacting demand for
image scanners in developed markets, but new potential exists in emerging markets such as China
and Eastern Europe. Canon foresees demand centering on two main categories: general-use image
scanners that are easy to use and affordable, and high-end models that stress image resolution and
film scanning. In this environment, Canon will pursue the strategy of precisely matching features and
Teruomi Takahashi, Chief Executive of i Printer Products Operations*,
Talks about Bubble Jet Printer Strategy
Rapid expansion of the digital camera market has accelerated growth in the
digital photography market, especially in the area of printing photographs
at home. In this market, Canon’s strengths lie in its comprehensive lineup
of products with powerful original technologies from image input to
output. We are taking full advantage of the synergies made possible by
these technologies to become No.1 in the digital photography industry. In
addition, we are pursuing technologies that lead to highly distinctive and
appealing products, for example, by improving the functions of our direct
print system, advancing our imaging technologies to achieve the ultimate
in photo quality and expanding our offerings of applications that make
digital photography more convenient and enjoyable. We are also
enhancing the cost and technological competitiveness of Bubble Jet
printers by expanding production in Asian plants outside of Japan and
developing new ultraprecision production technologies in Japan.
* As of December 31, 2002
16
Laser Beam and Bubble Jet Printers
Image Scanners
The printing revolution started by
Canon’s Bubble Jet technologies
continues to progress, as we pioneer
advancements to provide users with
the ultimate in photo-quality output.
Sales results:
Computer peripherals
(Millions of yen)
1,100,000
,
0
6
7
8
3
0
1
,
,
4
9
9
2
2
0
1
,
,
1
5
6
8
3
9
,
2
5
3
5
2
0
1
,
,
8
1
4
8
1
0
1
,
prices with target customer ranges, while improving compatibility with
products such as printers and monitors to enhance competitiveness. We will
expand our offerings of slim-profile, energy-saving image scanners featuring
our originally developed Contact Image Sensor (CIS) and LiDE technologies.
At the high end, we will provide film-compatible high-resolution image
scanners using charge-coupled devices (CCDs). Further, we will adopt the
high-speed USB 2.0 interface throughout our lineup.
0
98 99 00 01 02
17
Business Machines
Business Systems
Canon expertise in a wide range of technologies adds a new dimension
to the field of ink-jet multifunction peripherals
Canon offers a full lineup of laser beam, Bubble Jet and multifunction facsimile machines. In the
laser beam facsimile market, price competition was intense in 2002, especially in Europe and Asia.
We are responding by reducing production costs and implementing other activities to maintain a flexible
pricing structure. In the ink-jet facsimile machine category, where demand is centered on low-priced
products, we face fierce competition in all markets. We also offer ink-jet multifunction peripherals
with printing, copying and scanning functions, which are leading replacement demand for printers and
copying machines. We maintained our leadership of this market in Japan with products precisely
matched to customer needs, while in Europe new monthly sales records were set for two consecutive
month during 2002. In 2003, we will expand our lineup with high-value-added products.
Our activities for Handy Terminal portable data terminals, which center on the Japanese market, included
the launch of the industry´s first model featuring a 2D-code scanner and printer, as well as a reflective
TFT liquid crystal display (LCD) and the Windows ® CE 3.0 operating system. Portable data terminal
operating systems are becoming standardized around the world, which is why Canon is stepping up its
business into international markets. Future product development will center on technologies for wireless
communications and Windows® CE, as well as on creating customizable models.
The market for document scanners is growing steadily, particularly in the area of compact scanners for
group-based document scanning in large organizations. Canon enriched its lineup with the DR-4580U
flatbed and DR-2080C compact sheetfed document scanners, allowing it to enter the lucrative work-
groups market and expand its market share across the board. Demand for color document scanners
is expected to grow, and the primary application of document scanners in general will move toward
document management, form processing and document distribution over networks. In this environment,
we will expand the applications of our products and introduce new types of document scanners.
Canon calculators with built-in printers boasted an approximately 60% market share in the United
States in 2002. While making our current calculators more competitive, we are introducing distinctive
models to open new market categories by adopting a USB interface that lets calculators function as
external 10-keypads for PCs. This strategy will help us increase unit sales and market share while
bringing our calculators into the computer peripherals market. In 2003, new products with value-added
functions will reinforce our lineup. In the electronic dictionary
category, we raised awareness of the Canon brand and expanded
our market share by focusing on high-value-added products in
growing market segments. We will develop our electronic
dictionaries as educational tools to enhance foreign language
vocabulary and pronunciation skills.
Canon’s flexible pricing structure makes possible
affordable laser beam facsimile machines.
18
Facsimile Machines
Ink-Jet Multifunction Peripherals
and Other Business Machines
Canon offers compact and stylish ink-jet
multifunction peripherals with printing,
copying and scanning functions for home
and small office use.
Sales results:
Business systems
(Millions of yen)
400,000
,
6
8
5
1
9
63
7
0
1
5
3
,
9
5
8
4
1
3
,
,
3
2
3
6
0
3
9
3
4
9
6
2
,
0
98 99 00 01 02
19
Cameras
The EOS-1Ds, incorporating the world´s first 11.1-megapixel full-frame 35mm CMOS sensor,
fortifies Canon´s position in the professional-use digital SLR camera market
The global market for digital cameras is growing rapidly, especially in Asia, where the market more than
doubled in 2002. Demand for compact digital cameras centered on 2-megapixel models through
2001, but in 2002 the market shifted to cameras with more powerful sensors. To keep apace of soaring
demand, Canon fortified its lineup with nine new products covering a wide spectrum of user needs,
from affordably priced to high-end models. These efforts propelled Canon to a sales increase significantly
ahead of growth in the market itself, as we captured the top monthly market share in Japan and Europe
several times and remained among the best sellers worldwide.
In the next few years, prices of 2- to 3-megapixel compact digital cameras are likely to fall, but advances
in image resolution and features are anticipated to attract new customers. In this area, we are actively
promoting our direct print concept, which enables users to connect Canon digital cameras with our
dye-sublimation and Bubble Jet printers without a PC. With the establishment of the PictBridge industry
standard for printing directly from digital cameras, we will
introduce a lineup of compatible products to contribute to
the creation of a new digital photography culture.
Although competition escalated in the market for digital
single-lens reflex (SLR) cameras in 2002, Canon was able to
maintain its preeminent position throughout the year, while the
market itself more than doubled in size. Sales of the EOS-1D,
which received a number of awards, advanced owing to the
staging of major sports events during the year. Canon developed
the world´s first full-frame 35mm CMOS sensor with 11.1-
megapixel resolution, and adopted it in the EOS-1Ds.
We continue to advance the technologies of our
highly popular ultracompact digital cameras.
Tsuneji Uchida, Chief Executive of Image Communication Products Operations,
Talks about Digital Camera Strategy
In the Image Communication Products Operations, we have adopted
the business strategy of providing Canon customers with total
imaging solutions, from image input to output, in line with the
evolution of digital photography. We will draw on the know-how and
technologies Canon has amassed in its history of camera development
and production of 150 million cameras to continue enhancing
our digital camera lineup. The first step in our imaging solutions
strategy is promoting the diffusion of direct photo printing, which
lets digital camera users output their photographs without using a PC.
At the same time, we are providing products and services that allow
users to take full advantage of image communication over networks.
As a leader of the digital photography industry, Canon is actively
pursuing a new culture of photography and prosperity for the
industry as a whole.
20
Digital Cameras, SLR Cameras,
Compact Cameras, Lenses,
Video Camcorders and Others
The EOS-1Ds digital SLR camera features
our new CMOS sensor, the first digital
camera sensor in the world to generate
11.1-megapixel images with the same
dimensions as film.
We anticipate that the EOS-1D and EOS-1Ds will dominate the professional-
use digital SLR camera market in 2003. Competition will further intensify in
the digital SLR camera market, but technological innovation should drive even
faster growth in the market itself. Canon will maintain its leadership by
shortening development lead times, staying ahead in technology development,
reducing production costs and reinforcing its sales and support structure.
Growth in the digital camera market has hindered demand for conventional
silver-halide SLR cameras, though Canon kept a firm grip on its worldwide
leadership of this market in 2002. Although the influence of digital camera
demand will expand, we will maintain our market leadership in the Japanese
and Western markets with new products such as the EOS REBEL Ti (EOS
300V), featuring a revolutionary new design emphasizing both operability
and appearance. We will also foster the silver-halide SLR camera markets and
strengthen our sales strategies in Asia, Eastern Europe and South America,
where lasting expansion is foreseen. At the same time, we will attempt to
revitalize the global market by introducing appealing new products.
Sales results:
Cameras
(Millions of yen)
500,000
8
7
7
5
8
4
,
7
6
3
1
8
3
,
4
3
2
8
1
3
,
,
6
2
1
3
7
2
,
4
7
4
3
6
2
0
98 99 00 01 02
21
Canon is the world’s largest lens manufacturer, offering more than 50 kinds of interchangeable lenses
in the EF series for EOS brand SLR cameras, which we design to maximize the performance of both
digital and silver-halide SLR cameras. In addition, other major products, including lens units and optical
devices for video camcorders, digital cameras and projectors, are highly competitive and strongly evalu-
ated by our many business partners. We are further accelerating R&D to keep apace of rapid change in
the digital age and will provide unique products with state-of-the-art technologies such as Multi-Layer
Diffractive Optical Elements, which enable us to design lighter and smaller lenses.
In the compact cameras segment, Canon advanced its market share globally with the introduction of its
first 155-mm high-zoom product in the SureShot (Prima) series, and the third generation of our highly
popular ELPH (IXUS) series of Advanced Photo System compact cameras. As with our conventional
SLR cameras, we will strive to raise our market share while enhancing sales efforts in emerging markets
with high potential for future growth. The results of efforts to expand our conventional camera market
share with attractive offerings will be seen in new products introduced in 2003 and beyond.
Although the worldwide market for digital video camcorders is expanding on a unit basis, intense
price competition forced the value of the market down in 2002. On the other hand, Canon reported
excellent results for the year. In the extremely competitive entry-level market, we used powerful optical
zoom ratios to distinguish our ZR series (MV500 series) products, and offered PC connection kits as
standard accessories. In the midrange, we launched the popular Optura 200MC (MVX2i), while at
the high end we released the GL2 (XM2), further strengthening our offerings for professional users.
In this field, we are improving our lineup, studying new video recording media and enhancing the
PC connectivity of our products.
Shipments of binoculars with Canon´s image stabilizer increased in 2002, owing mainly to our launch of
the BINOCULARS 8×25 IS, the industry´s smallest and lightest image-stabilizer binoculars at the time
of its release. Our high-end strategy is to use our image stabilizer to introduce highly distinctive products.
On a unit basis, sales of our multimedia projectors outpaced overall growth in the market in 2002.
We introduced the powerful LV-7355, incorporating our industry-leading 1.5x Flex Zoom Lens, yet
compact enough for limited spaces. The market for multimedia projectors is estimated to expand with
new applications in home theater systems and educational institutions, and we will respond with
continuing technology and product innovations.
Canon’s ultracompact cameras for the Advanced
Photo System remain a long-selling hit.
22
Digital Cameras, SLR Cameras,
Compact Cameras, Lenses,
Video Camcorders and Others
In the intensely competitive digital video
camcorder market, Canon offers a
strong product range meeting the needs
of users from general consumers to
professionals.
In our Visual Communications Systems Operations, we launched the VB-C10, which combines the
functions of a Communication Camera and Network Camera Server, in April 2002. In line with this
release, we offered new application software for use in site-monitoring systems over networks, which
contributed to overall sales through the year. Demand was favorable for our VC-C4 Communication
Camera for use in both videoconferencing and remote monitoring systems.
23
Optical Products
Canon participates in a consortium to develop device and related technologies
for next-generation extreme ultraviolet (EUV) lithography systems
Persistent sluggishness in the IT industry worldwide led to a sharp drop in capital investment in semiconductor
production equipment. This situation had a negative impact on demand for steppers, devices that use
photolithography to expose circuit patterns on silicon substrates. On the other hand, because the stepper
market is expected to improve in the next few years, Canon is continuing to invest in new technology
development. In 2002, we released the FPA-5000ES4, a krypton fluoride (KrF) excimer laser scanning
stepper offering high throughput as well as the world´s highest numerical aperture (NA) brightness.
Canon is planning the timely release of new steppers compatible with ultrafine circuit patterns and
offering other specifications corresponding to needs in the marketplace. In addition, we will be working on
device and related technologies to be incorporated in next-generation extreme ultraviolet (EUV) lithogra-
phy systems through the Extreme Ultraviolet Lithography System Development Association (EUVA), a
technology consortium established in Japan with active support from the government and universities.
Expansion of the market for LCD panels drove demand for
mirror-projection mask aligners in Canon´s MPA series.
We became the first company in the industry to market a fifth-
generation mask aligner: the MPA-7500. This award-winning
product was well received and contributed to an improvement
in Canon´s market share. The LCD television market is expected
to continue expanding at a robust pace through 2003, which
we anticipate will boost our mask aligner sales. To keep apace
of trends in the marketplace, we intend to develop products
that accurately reflect user needs for large glass substrates
and high resolution.
Our new mirror-projection mask aligner fueled a
market share increase.
Akira Tajima, Chief Executive of Optical Products Operations,
Talks about Stepper Strategy
The Semiconductor Production Equipment Group, which deals with
ultraprecise technologies at the nanometer level, might be called the
face of technology at Canon. As competition intensifies in our primary
markets, we are pushing ahead toward the goal of becoming the
world´s No.1 provider of steppers. Our basic strategy is to provide
equipment that precisely matches needs in the marketplace on a
timely basis and thereby achieve the top position in our market
worldwide. We are aggressively researching both technologies and
customer needs, accelerating product development and production,
and reinforcing our sales, service and support functions. To maintain
the technological edge, we are also continuing to invest in and speed
up research of technologies that will form the core of next-generation
equipment, such as F2 (fluorine), EB (electron beam) and EUV
(extreme ultraviolet) lithography.
24
Semiconductor Production, Medical and
Broadcasting Equipment
Anticipating a turnaround in demand for
semiconductor production equipment,
Canon is actively developing new steppers
and advanced technologies to expose
ultrahigh-precision circuit patterns.
Sales results:
Optical products
(Millions of yen)
200,000
3
7
3
8
0
2
,
9
4
3
1
7
1
,
7
3
1
7
3
1
,
,
7
5
9
0
3
91
6
7
9
0
1
,
Canon added new products to its line of digital radiography systems in
2002, and now offers a full range of products, including upright, horizontal-
bed and cassette-type models that cover the whole spectrum of X-ray
application. Awareness of our digital radiography systems has grown steadily
since we launched our first model in 1998, and in Japan we hold a dominant
share of this emerging market. However, competition is expanding in line
with the shift in demand from analog products to digital systems. In this
situation, our mission is to emphasize the distinctive properties of our products.
We therefore introduced a compact cassette-type digital radiography
system that greatly enhances digital X-ray flexibility, and focused sales
initiatives on the features and reliability of Canon´s technology.
0
98 99 00 01 02
25
Semiconductor Production, Medical and
Broadcasting Equipment
We see demand for digital radiography systems increasing in small to midsize doctors´ offices and
medical clinics. To take advantage of this, we will offer easy-to-operate systems with high cost-efficiency.
At the same time, we will develop value-added features such as higher sensitivity, X-ray imaging of
moving subjects and systemization using peripheral equipment.
Increased screening for diabetes and growing demand for digital image storage are fueling demand for
digital nonmydriatic retinal cameras around the world. We expanded sales in this category by offering
a new system using our EOS D60 digital SLR camera for greatly improved image resolution. The market
for digital eye examination equipment will continue to grow, but Canon expects price competition to
increase in years to come. For this reason, we are emphasizing digital technologies and cost reduction in
our product development activities.
Canon raised its dominant share of the global market for television broadcasting lenses in 2002.
Sluggishness in the U.S. economy has continued longer than originally expected, but the Chinese
economy is active, and we estimate that growth in the Asian region will remain robust. In 2002, we
introduced the revolutionary DIGISUPER 100 xs, the world´s first television broadcasting lens with a
100x zoom and our Optical Shift Image Stabilizer. Innovative products and technologies such as our
image stabilizer system will distinguish our products and help us maintain our solid market lead.
The CANOBEAM line is Canon´s prime offering in the market for free space optics (FSO) products,
or high-speed, wireless, line-of-sight, point-to-point data transmission systems using optical beam
technologies. With the diffusion of broadband, demand for high-quality content will increase, spurring
strong demand for CANOBEAM products. We are adding value with technological advances including
autotracking, while at the same time we are reducing costs to raise our competitiveness in the corporate
market. We also plan to expand our lineup of applications-specific products and develop our business
among communications carriers.
Our industry-leading 100x-zoom television
broadcasting lens captures all the action.
26
FINANCIAL SECTION
TABLE OF CONTENTS
28 FINANCIAL OVERVIEW
42 TEN-YEAR FINANCIAL SUMMARY
44 CONSOLIDATED BALANCE SHEETS
45 CONSOLIDATED STATEMENTS OF INCOME
46 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
47 CONSOLIDATED STATEMENTS OF CASH FLOWS
48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Significant Accounting Policies
53 (2) Financial Statement Translation
(3) Foreign Operations
54 (4) Marketable Securities and Investments
56 (5) Trade Receivables
(6) Inventories
(7) Property, Plant and Equipment
57 (8) Goodwill and Other Intangible Assets
59 (9) Short-term Loans and Long-term Debt
61 (10) Trade Payables
(11) Employee Retirement and Severance Benefits
63 (12) Income Taxes
66 (13) Common Stock
(14) Legal Reserve and Cash Dividends
(15) Noncash Financing Activities
67 (16) Other Comprehensive Income (Loss)
70 (17) Earnings per Share
71 (18) Derivatives and Hedging Activities
72 (19) Commitments and Contingent Liabilities
73 (20) Disclosures about the Fair Value of Financial Instruments
74 (21) Supplementary Expense Information
75 INDEPENDENT AUDITORS’ REPORT
27
FINANCIAL OVERVIEW
GENERAL
The following discussion and analysis provides information that
management believes to be relevant to understanding Canon’s
consolidated financial condition and result of operations.
References in this discussion to the “Company” are to Canon
Inc. and, unless otherwise indicated, references to the financial
condition or operating results of “Canon” refer to Canon Inc. and
its consolidated subsidiaries.
OVERVIEW
Canon is one of the world’s leading manufacturers of copying
machines, laser beam printers, bubble jet printers, cameras,
steppers and aligners. Canon earns revenues mainly from the
manufacture and sale of these products domestically and
internationally.
On a consolidated basis, Canon divides its businesses into
three product groups: business machines, cameras and optical
and other products.
• The business machine product group includes copying
machines, computer peripherals and business systems.
Copying machines include analog, digital, color and
personal models. Computer peripherals include mainly
laser beam printers, bubble jet printers and scanners.
Business systems include fax machines, micrographic
equipment, personal computers and calculators.
• The camera product group includes cameras, video
camcorders and digital cameras.
• The optical and other products product group
includes steppers for semiconductor chip production and
aligners used in the production of liquid crystal displays,
television broadcasting lenses and medical equipment.
Overseas operations are significant to Canon’s operating
results. Overseas operations generated approximately 73% of
total net sales in fiscal 2002. Such sales are denominated in the
applicable local currency and are subject to fluctuations in the
value of the yen in relation to such other currencies. Despite
efforts to reduce the impact of currency fluctuations on
operating results, including by localizing some manufacturing
and by procuring parts and materials from overseas suppliers,
Canon believes such fluctuations have had and will continue to
have a significant effect on results of operations.
Cost of sales reflects principally the cost of raw materials,
parts and labor used by Canon in the manufacture of its
products. A portion of the raw materials used by Canon is
imported or includes imported materials. Such raw materials are
subject to fluctuations in world market prices and exchange
rates that may affect Canon’s cost of sales. Other components
of cost of sales include depreciation expenses from plants,
maintenance expenses, light and fuel expenses and rent
expenses.
The major components of selling, general and administrative
expenses are payroll, advertising expenses and marketing costs.
7
0
Return on sales
6.5%
5.8%
5.0%
4.0%
2.8%
R&D expenditure
(Millions of yen)
250,000
9
6
6
3
3
2
,
6
1
6
8
1
2
,
2
5
5
4
9
1
,
7
6
9
6
7
1
,
2
2
9
7
7
1
,
98
99
00
01
02
98
99
00
01
02
0
28
CONSOLIDATED RESULT OF OPERATIONS
Fiscal 2002 compared with fiscal 2001
Canon achieved record highs for the company in
both consolidated net sales and net income, and
the third consecutive year of sales and profit
growth, mainly due to a significant rise in sales of
digital cameras and digital video camcorders, and
steady growth in the copying machine product
group. In fiscal 2002, Canon achieved 1.1% growth
in sales, to ¥2,940,128 million (U.S.$24,501 million),
and a 13.8% increase in net income, to ¥190,737
million (U.S.$1,589 million). The improvement in
profit margins in fiscal 2002 was largely
attributable to cost reductions from product
reformation activities and shortened lead times for
bringing new products to market.
SUMMARY OF OPERATIONS
Net sales
Operating profit
Income before income taxes
Income before cumulative effect of
change in accounting principle
Net income
Earnings per share:
(Millions of yen
except per
share amounts)
2002
¥ 2,940,128
2001
change
1999
change
+1.1% 2,907,573 +7.8% 2,696,420 +6.5% 2,530,896
168,344
156,072
281,839 +20.4
281,566 +23.9
234,131 +39.1
227,196 +45.6
change
2000
346,359 +22.9
330,017 +17.2
(Thousands of U.S. dollars
except per
share amounts)
2002
$ 24,501,067
2,886,325
2,750,142
190,737 +16.4
190,737 +13.8
163,869 +22.2
167,561 +25.0
134,088 +90.9
134,088 +90.9
70,234
70,234
1,589,475
1,589,475
Income before cumulative effect of
change in accounting principle:
Basic
Diluted
Net income:
Basic
Diluted
217.56 +16.3
214.80 +16.4
187.07 +21.7
184.55 +21.8
153.66 +90.5
151.51 +90.6
217.56 +13.7
214.80 +13.8
191.29 +24.5
188.70 +24.5
153.66 +90.5
151.51 +90.6
80.66
79.50
80.66
79.50
1.81
1.79
1.81
1.79
Sales
The global economy in 2002 reflected the following trends. The
U.S. economy pointed to signs of an economic upturn at the
beginning of the year, led mainly by progress made in the area
of inventory adjustment. In the second half of the year,
however, the economic recovery in the United States began
losing its momentum, owing to deterioration in consumer
confidence, which resulted in sluggish consumer spending, and
the collapse of several major companies, which led to a decline
in business confidence. While European economies recovered
moderately overall in 2002, the pace of recovery decelerated in
Germany and France during the latter half of the year. In Asia,
China’s economy continued to grow substantially while the
other economies in the region sustained modest growth. The
Japanese economy remained stagnant throughout the year with
no signs of a recovery amid the harsh backdrop of falling stock
prices and growing uncertainty over prospects for a recovery in
the global economy, especially in the United States.
With respect to the markets in which the Canon Group
operates, flagging global demand for personal computers
29
resulted in reduced demand for printers and other IT-related
equipment, while corporate-use digital copying machines,
especially multifunction and color machines, posted favorable
results. The digital camera and digital video camcorder markets
continued to show strong growth in Japan and overseas,
supported by robust demand. In the field of
semiconductor-production equipment, price and volume
declines in the memory device market due to weak sales of
personal computers inhibited a recovery in capital spending by
chip manufacturers. The average value of the yen in 2002 was
¥124.73 to the U.S. dollar, and ¥118.39 to the euro, a
depreciation of 3% and 8%, respectively, compared with the
previous year.
Amid these conditions, Canon recorded 1.1% growth in
sales, to ¥2,940,128 million (U.S.$24,501 million). This growth
reflected increased sales of digital cameras and digital video
camcorders, and steady growth in the copying machine
segment offsetting decline in semiconductor production
equipment and other product lines.
Sales by product
Canon’s sales by product group are summarized as follows:
SALES BY PRODUCT
Business machines:
Copying machines
Computer peripherals
Business systems
Cameras
Optical and other products
Total
(Millions of yen)
2002 change
2001
change
2000
change
1999
1,018,418
269,439 –12.0
¥ 938,338 +5.2% 891,814 +15.4% 772,557 –1.9% 787,359
938,651
–0.7 1,025,352 +0.2 1,022,994 +9.0
351,076
314,859 –10.3
2,226,195 +0.1 2,223,489 +5.4 2,110,410 +1.6 2,077,086
273,126
180,684
¥ 2,940,128 +1.1 2,907,573 +7.8 2,696,420 +6.5 2,530,896
485,778 +27.4
228,155 –24.6
381,367 +19.8
302,717 +13.0
318,234 +16.5
267,776 +48.2
306,323 –2.7
(Thousands of
U.S. dollars)
2002
$ 7,819,483
8,486,817
2,245,325
18,551,625
4,048,150
1,901,292
$24,501,067
Sales of business machines (copying machines, computer
peripherals and business systems), constituting 75.7% of
consolidated net sales, increased 0.1%, to ¥2,226,195 million
(U.S.$18,552 million) in fiscal 2002.
Sales of copying machines (including digital, color, office and
personal models) increased 5.2%, to ¥ 938,338million
(U.S.$7,819 million). In the copying machines sub-segment,
Canon’s imageRUNNER (iR)-series lineup of 16 to 105
copy-per-minute digital networked black-and-white multifunction
copying machines showed steady sales growth in 2002. In
particular, the mid-range iR2200/2800/3300 series and the
high-end iR5000/6000 series, iR7200 and iR105 model
recorded healthy sales during the term. While the color copying
machine market showed some growth during the year,
reflecting the growing acceptance of color office documents,
sales of Canon color copying machines decreased slightly in
2002 due to a decrease in unit sales of high-end models.
Sales by product
(Millions of yen)
Sales by region
(Millions of yen)
Business Machines
Copying machines
Computer peripherals
Business Systems
Cameras
Optical and other products
Japan
Americas
Europe
Other areas
3,000,000
2,907,573
2,940,128
3,000,000
2,907,573
2,940,128
2,736,084
2,696,420
2,530,896
2,736,084
2,696,420
2,530,896
0
0
98
99
00
01
02
98
99
00
01
02
30
Sales of computer peripherals (mainly laser beam printers,
bubble jet printers and scanners) suffered a slight decline of
0.7%, to ¥1,018,418 million (U.S.$8,487 million). While unit
sales of laser beam printers increased in 2002, total sales
slightly decreased due to an overall trend toward sales of lower-
end models and to the strategic reduction of inventory balances
by Canon’s original equipment manufacturing (“OEM”) partner
in the first half of 2002. The introduction of new bubble jet
printer products, such as the BJ S500/300-series lineup and
PIXUS 950i/550i models, contributed to strong sales of bubble
jet printers in the Japanese and U.S. markets. Although unit
sales of bubble jet printers decreased in 2002 compared to the
prior year, total sales increased due to growth in sales of
mid-and high-end models.
Sales of the business systems (including facsimile machines,
personal computers, micrographic equipment and calculators)
decreased 12.0%, to ¥269,439 million (U.S.$2,245 million) in
fiscal 2002. Despite steady sales growth of facsimile machines,
particularly multifunction models, Canon was not able to
overcome the negative impact of declining personal computer
sales in Japan.
Sales of cameras increased 27.4%, to ¥485,778 million
(U.S.$4,048 million). Demand for digital cameras continued to
be strong worldwide, with the successive launches of new
compact PowerShot-series and IXY DIGITAL-series models
bolstering Canon’s lineup and contributing to a significant
increase in sales. Also well received by the market were the EOS
D60 and EOS-1Ds digital SLR models, which were introduced
last year as well. As a result, the unit sales for digital cameras
nearly doubled the amount of last year. In contrast, sales of
conventional film cameras continued to slip in 2002 amid the
increasing popularity of digital models and price competition.
Sales of digital video camcorders continued to show substantial
growth, supported by the introduction of new ZR-series, Elura-
series and Optura-series models. Consequently, camera sales
overall enjoyed double-digit 27.4% growth in 2002.
SALES BY REGION
(Millions of yen)
Sales of optical and other products (including steppers for
semiconductor chip production, aligners for liquid crystal
displays, TV broadcasting lenses, medical equipment and digital
radiography systems) decreased 24.6%, to ¥ 228,155 million
(U.S.$1,901 million) , mainly due to a decrease in unit sales of
steppers for semiconductor chip production. The decrease is
attributable to a drop in demand for semiconductor-production
equipment, reflecting restrained capital spending by memory
device manufacturers. Sales of optical and other products
constituted 7.8% of consolidated net sales in fiscal 2002, which
decreased 2.6% compared with fiscal 2001.
Sales by region
Net sales in fiscal 2002 increased in the Americas, Europe and
other areas, but decreased in Japan.
In Japan, net sales decreased by 11.5% in fiscal 2002.
Sales of personal computers and semiconductor production
equipment declined due to a decrease in the number of units
sold. In the Americas net sales slightly increased by 0.4% on a
local currency basis. This is mainly attributable to increased sales
of digital cameras and digital video camcorders, and partially
offset the negative impact of a decline in laser beam printer
sales due to the strategic reduction of inventory balances by
Canon’s OEM partner. The depreciation of the yen resulted in a
2.9% increase in sales in the Americas related to the translation
of U.S. dollar sales to Japanese yen. In Europe, net sales
decreased by 1.3% on a local currency basis. Sales growth in
digital cameras offset sales declines in semiconductors
production equipment and bubble jet printers. After accounting
for the depreciation of the yen, net sales in Europe increased
6.3% in fiscal 2002.
Sales in other areas increased 16.5% in fiscal 2002,
reflecting significant overall sales growth, particularly in digital
cameras and digital video camcorders.
A summary of net sales by region is provided below:
Japan
Americas
Europe
Other areas
Total
2002 change
2001 change
1999
¥ 732,551 –11.5% 827,288 +6.1% 779,366 +8.5% 718,513
864,781
737,140
210,462
¥ 2,940,128 +1.1 2,907,573 +7.8 2,696,420 +6.5 2,530,896
1,010,166 +2.9
857,167 +6.3
340,244 +16.5
982,104 +10.4
806,104 +6.4
292,077 +8.4
889,764 +2.9
757,942 +2.8
269,348 +28.0
2000 change
Note: This summary of net sales by region of destination is determined by the location of the customer.
31
(Thousands of
U.S. dollars)
2002
$ 6,104,592
8,418,050
7,143,058
2,835,367
$24,501,067
Earnings
Operating profit in fiscal 2002 totaled ¥346,359 million
(U.S.$2,886 million), an increase of 22.9% from the previous
year. Operating profit in fiscal 2002 was 11.8% of net sales,
compared with 9.7% in fiscal 2001.
In fiscal 2002, the depreciation of the yen increased net
sales by approximately ¥93,300 million (U.S.$778 million) and
increased cost of sales by approximately ¥15,300 million
(U.S.$128 million). Canon’s gross profit ratio during the year
improved 3.6% to 47.6%. This improvement in gross profit
margins reflects the positive effects of research and
development (“R&D”) reformation activities, such as 3D
computer-aided design (“3D-CAD”). These activities have
significantly shortened product-development lead times and
thus made it possible to launch competitive new products in
succession, which has supported favorable pricing. Gross profit
margins have also benefited from reductions achieved through
continued production-reformation activities, and the lower value
of the yen.
Selling, general and administrative expenses rose 5.5% from
the previous year and amounted to ¥1,053,672 million
(U.S.$8,781 million). An increase in R&D expenditures and
advertising and marketing costs, largely accounted for this rise.
Canon maintains a high level of R&D expenditure to strengthen
its R&D capabilities. R&D expenditures rose 6.9% from the
previous year to ¥233,669 million (U.S.$1,947 million),
resulting from increased R&D activities of cameras and optical
and other products.
The disclosures of segment information by product as
required in Japan for the years ended December 31, 2002 are
provided on page 33, and fiscal 2001 and of segment
information by geographic area as required in Japan for the
years ended December 31, 2002 and fiscal 2001 are shown
on page 34.
Operating profit for business machines in fiscal 2002
increased ¥76,098 million (U.S.$634 million) to ¥411,016
million (U.S.$3,425 million). Operating profit ratio also improved
by 3.4% to 18.5%. Sales of business machines overall
remained at approximately the same level as for the previous
year, increasing by 0.1% to ¥2,226,195 million (U.S.$18,552
million). Cost-cutting measures, however, along with healthy
sales of price-competitive mid-range and high-end copying
machines and bubble jet printers favorably affected the
operating profit ratio. As a result, operating profit for the
business machine segment increased by 22.7%.
Operating profit for cameras increased ¥34,146 million
(U.S.$285 million) to ¥70,290 million (U.S.$586 million).
Greatly improved profitability for camera products, realized
through the rapid rise in sales of digital cameras and digital
video camcorders coupled with effective cost-cutting measures
and a decline in the price of electronic components, boosted
operating profit in the camera segment by 94.5%.
Optical and other products, which recorded an operating
profit of ¥23,850 million in 2001, suffered operating losses of
¥11,652 million (U.S.$97 million) in 2002 mainly due to a
24.6% decrease sales of semiconductor production equipment,
reflecting restrained capital spending by memory device
manufacturers.
Income before income taxes in fiscal 2002 was ¥330,017
million (U.S.$2,750 million), a 17.2% increase from fiscal 2001,
and constituted 11.2% of net sales.
In the area of other income and expenses, the promotion of
cash flow management has bolstered Canon’s financial strength,
evidenced by an improvement in net interest income of ¥3,551
million (U.S.$30 million) compared with the previous year,
achieving a positive figure in this category for the first time.
Currency exchange losses, however, increased by ¥8,667
million (U.S.$72 million) to ¥23,468 million (U.S.$196 million)
while securities contributed to the Company’s retirement benefit
trust in the previous year contributed to a ¥15,536 million gain.
Consequently, non-operating income and expenses worsened
by ¥16,069 million (U.S.$134 million) from the previous year.
Net income in fiscal 2002 totaled ¥190,737 million
(U.S.$1,589 million), an increase of 13.8% from the previous
year. This amount represents a 6.5% return on net sales.
Income taxes as a percent of income before income taxes
remained at approximately the same level as for the previous
year, decreasing by 0.1% to 40.8%.
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
each region in local currencies, while the cost of goods sold is
generally in yen. Given Canon’s current operating structure,
appreciation of the yen has a negative impact on net sales and
the gross profit ratio. To reduce the financial risks from changes
in foreign exchange rates, Canon utilizes derivative financial
instruments, which are comprised principally of forward currency
exchange contracts.
The return on foreign operation sales is usually lower than
domestic operations because foreign operations consist mainly
of marketing activities. Marketing activities are generally less
profitable than production activities, which are mainly conducted
by the Company and its domestic subsidiaries. The returns on
foreign operation sales in fiscal 2002, 2001 and 2000 were
2.7%, 1.6% and 2.0%, respectively. This compares with return
of 6.5%, 5.8% and 5.0% on total operations for the respective
years.
32
SEGMENT INFORMATION BY PRODUCT
(Millions of yen)
2002: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
Depreciation and amortization
Capital expenditure
2001: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
Depreciation and amortization
Capital expenditure
2000: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
Depreciation and amortization
Capital expenditure
(Thousands of U.S. dollars)
2002: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
Depreciation and amortization
Capital expenditure
Business
machines
Cameras
Optical and
other products
Corporate and
Eliminations
Consolidated
¥ 2,226,915
—
2,226,915
1,815,179
¥ 411,016
¥ 1,296,829
106,865
104,877
¥ 2,223,489
—
2,223,489
1,888,571
¥
334,918
¥ 1,280,949
105,907
121,333
¥ 2,110,410
—
2,110,410
1,801,226
309,184
¥
¥ 1,324,369
101,557
105,171
485,778
—
485,778
415,488
70,290
263,532
14,118
15,627
381,367
—
381,367
345,223
36,144
215,173
12,745
16,871
318,234
—
318,234
285,841
32,393
207,069
14,480
15,559
—
228,155
(139,608)
139,608
(139,608)
367,763
(16,313)
379,415
(123,295)
(11,652)
338,377 1,043,968
24,460
54,431
19,817
23,767
302,717
116,748
419,465
395,615
23,850
361,799
15,291
36,057
267,776
126,947
394,723
384,075
10,648
332,229
13,019
20,509
—
(116,748)
(116,748)
(3,675)
(113,073)
986,835
18,357
33,413
—
(126,947)
(126,947)
(8,853)
(118,094)
968,458
17,421
29,747
2,940,128
—
2,940,128
2,593,769
346,359
2,942,706
165,260
198,702
2,907,573
—
2,907,573
2,625,734
281,839
2,844,756
152,300
207,674
2,696,420
—
2,696,420
2,462,289
234,131
2,832,125
146,477
170,986
Business
machines
Cameras
Optical and
other products
Corporate and
Eliminations
Consolidated
—
— 1,163,400 (1,163,400)
$18,551,625 4,048,150 1,901,292
— 24,501,067
—
18,551,625 4,048,150 3,064,692 (1,163,400) 24,501,067
(135,942) 21,614,742
15,126,492 3,462,400 3,161,792
2,886,325
(97,100)(1,027,458)
585,750
$ 3,425,133
24,522,550
$10,806,908 2,196,100 2,819,808 8,699,734
1,377,167
203,833
1,655,850
453,592
117,650
130,225
890,542
873,975
165,142
198,058
Notes:
1 General corporate expenses of ¥123,193 million (U.S.$1,026,608 thousand) and ¥113,128 million in the years ended December 31, 2002 and 2001, respectively,
are included in “Corporate and Eliminations.”
2 Corporate assets of ¥1,044,036 million (U.S.$8,700,300 thousand) and ¥986,801 million as of December 31, 2002 and 2001, respectively, which mainly consist
of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
33
SEGMENT INFORMATION BY GEOGRAPHIC AREA
(Millions of yen)
2002: Net sales:
Japan
Americas
Europe
Others
Corporate and
Eliminations
Consolidated
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
¥ 789,066
1,475,091
2,264,157
1,867,817
396,340
¥1,485,238
1,007,572
9,791
1,017,363
969,542
47,821
346,021
2001: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
¥ 858,580
1,378,031
2,236,611
1,893,448
343,163
¥ 1,376,939
983,561
17,475
1,001,036
969,630
31,406
346,046
2000: Net sales:
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
¥ 832,297
1,345,983
2,178,280
1,886,472
309,808
¥ 1,482,335
889,377
11,748
901,125
871,298
29,827
353,919
852,931
4,639
857,570
836,341
21,229
460,521
805,243
2,449
807,692
806,495
1,197
423,295
753,979
3,782
757,761
742,576
15,185
407,258
— 2,940,128
290,559
426,914 (1,916,435)
—
717,473 (1,916,435) 2,940,128
699,420 (1,779,351) 2,593,769
346,359
(137,084)
448,538 2,942,706
18,053
202,388
— 2,907,573
260,189
299,410 (1,697,365)
—
559,599 (1,697,365) 2,907,573
546,291 (1,590,130) 2,625,734
(107,235)
281,839
2,844,756
523,923
13,308
174,553
— 2,696,420
220,767
246,024 (1,607,537)
—
466,791 (1,607,537) 2,696,420
456,278 (1,476,335) 2,462,289
(131,202)
234,131
2,832,125
429,884
10,513
158,729
(Thousands of U.S. dollars)
2002: Net sales:
Japan
Americas
Europe
Others
Corporate and
Eliminations
Consolidated
Unaffiliated customers
Intersegment
Total
Operating cost and expenses
Operating profit
Assets
$ 6,575,550
12,292,425
18,867,975
15,565,142
3,302,833
$12,376,983
8,396,433
81,592
8,478,025
8,079,517
398,508
2,883,508
7,107,759
38,658
7,146,417
6,969,508
176,909
3,837,675
— 24,501,067
2,421,325
—
3,557,617 (15,970,292)
5,978,942 (15,970,292) 24,501,067
5,828,501 (14,827,926) 21,614,742
150,441 (1,142,366) 2,886,325
3,737,817 24,522,550
1,686,567
Notes:
1 General corporate expenses of ¥123,193 million (U.S.$1,026,608 thousand) and ¥113,128 million in the years ended December 31, 2002 and 2001, respectively,
are included in “Corporate and Eliminations.”
2 Corporate assets of ¥1,044,036 million (U.S.$8,700,300 thousand) and ¥986,801 million as of December 31, 2002 and 2001, respectively, which mainly consist
of cash and cash equivalents, marketable securities and corporate properties, are included in “Corporate and Eliminations.”
3 Segment information by geographic area is determined by the location of Canon or its relevant subsidiary.
34
LIQUIDITY
Cash and cash equivalents in fiscal 2002 increased ¥15,037
million (U.S.$125 million) to ¥521,271 million (U.S.$4,344
million), compared with ¥506,234 million in 2001 and
¥493,962 million in 2000. Canon’s cash and cash equivalents
are typically denominated in Japanese yen, with the remainder
denominated in foreign currencies such as the U.S. dollar.
Cash flow from operating activities in 2002 increased by
¥143,198 million (U.S.$1,193 million) to ¥448,950 million
(U.S.$3,741 million), compared with ¥305,752 million in 2001
and ¥346,616 million in 2000, mainly due to an increase in net
income and a significant increase of trade payables. Trade
receivables and trade payables both decreased in 2001 and
increased in 2002. The effect of change in trade payables,
however, was larger than the effect of change in trade
receivables since the payment terms are generally longer than
the collection terms, and as a result contributed to the increase
in net operating cash flows.
Net cash used in investing activities, which mainly consists
of capital expenditure, for 2002 was ¥230,220 million
(U.S.$1,919 million), compared with ¥192,592 million in 2001
and ¥212,804 million in 2000. For fiscal 2002, the amount
includes payment of ¥21,204 million (U.S.$177 million) for the
purchase of outstanding stock of Canon System and Support
Inc., Canon N.T.C., Inc., and Canon (Schweiz) AG from their
minority shareholders to realize full ownership of the three
subsidiaries. Capital expenditures in 2003 are projected to be
roughly comparable to those in 2002.
Net cash used in financing activities for 2002 amounted to
¥183,714 million (U.S.$1,531 million), mainly as a result of
repayment of short-term loans to improve Canon’s financial
position, accompanied by the redemption of bonds, compared
to ¥121,228 million in 2001 and ¥100,597 million in 2000.
Canon seeks to meet its liquidity and capital requirements
principally with cash flow from operations and, to a lesser extent,
with short-term loans and long-term debt. Consistent with this
objective, Canon has recently begun to reduce its reliance on
external funding for capital investments in favor of relying upon
internally generated cash flows. This approach is supplemented
with group-wide treasury and cash management activities
undertaken at the parent company level. Canon believes that its
working capital is sufficient for its present requirements.
To the extent Canon relies on external funding for its
liquidity and capital requirements, it generally has access to
various funding sources, including issuance additional share
capital, long-term debt or by borrowing in the short-term market.
While Canon has been able to obtain funding from its traditional
financing sources and from the capital markets, and believes it
will continue to be able to do so in the future, there can be no
assurance that adverse economic or other conditions will not
affect Canon’s liquidity or long-term funding in the future.
Short-term loans (including current portion of long-term
loans) amounted to ¥66,754 million (U.S.$556 million) at
December 31, 2002 compared to ¥200,104 million at
December 31, 2001. Long-term debt (excluding current
portion) amounted to ¥81,349 million (U.S.$678 million) at
December 31, 2002 compared to ¥95,526 million at
December 31, 2001.
Substantially all of Canon’s short-term loans consist of
borrowings from banks under uncommitted lines of credit.
Canon’s long-term debt generally consists of secured or partially
secured term loans from banks, bearing interest at floating rates,
as well as fixed rate notes and convertible debentures issued in
the domestic market with original maturities of five to fifteen years.
Like most other Japanese companies, Canon does not
maintain committed bank credit lines. Canon and other
Japanese companies have relied for liquidity in part upon
relationships with institutional lenders, particularly Japanese
commercial banks. The Company has uncommitted bank
overdraft facilities of approximately ¥1,323 million with its
principal commercial banks.
CAPITAL RESOURCES
Capital expenditure in 2002 amounted to ¥198,702 million
(U.S.$1,656 million) compared with ¥207,674 million in 2001
and ¥170,986 million in 2000. In 2002, capital expenditures
were mainly used for the construction of the Company’s
headquarters facilities and a new factory for manufacturing
copying machines in Suzhou, China.
Working capital in 2002 increased ¥127,023 million
(U.S.$1,059 million), to ¥903,134 million (U.S.$7,526 million),
compared with ¥776,111 million in 2001 and ¥696,609
million in 2000. The increase was primarily attributable to the
decrease of short-term loans. Canon believes its working capital
will be sufficient for its requirements for the foreseeable future.
Canon’s capital requirements are primarily dependent on
management’s business plans regarding the levels and timing
of capital expenditures and investments.
The working capital ratio (current assets to current
liabilities) for 2002 was 2.13, compared to 1.91 for 2001 and
1.71 for 2000.
Return on assets rose to 6.6% in 2002, compared to 5.9%
in 2001 and 4.9% in 2000. This increase was due mainly to
increased net income. Return on stockholders’ equity also
rose to 12.5% in 2002, compared with 12.2% in 2001 and
10.7% in 2000.
The debt ratio (total debt to total assets) declined to 5.0% in
2002 from 10.4% in 2001, which reflects Canon’s financial
policy to reduce debt.
35
Off-balance sheet arrangements
As part of its ongoing business, Canon does not participate in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities, which would
have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited
purposes.
Contractual obligations and Commercial
commitments
Canon’s management believes that current financial resources,
cash generated from operations and Canon’s potential capacity
for additional debt and/or equity financing will be sufficient to
fund current and future capital requirements.
The following summarizes Canon’s contractual obligations at
December 31, 2002.
Contractual Obligations:
Short-term Debt
Long-term Debt
Operating Leases
Total
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Payments Due By Period
(Millions of yen)
¥ 66,754
100,355
36,690
¥ 203,799
66,754
19,006
10,033
95,793
—
47,418
12,469
59,887
—
11,479
8,096
19,575
—
22,452
6,092
28,544
Canon does not have any rating downgrade triggers that
would accelerate the maturity of a material amount of our debt.
A downgrade in our credit rating could however increase the
cost of our borrowings.
Canon provides short-term (generally less than one year)
warranties against defects in materials and workmanship on
most of our consumer products. A liability for the estimated
product warranty related cost is established at the time revenue
is recognized and is included in accrued expenses. Estimates for
accrued product warranty cost are primarily based on historical
experience, and are affected by ongoing product failure rates,
specific product class failures outside of the baseline experience,
material usage and service delivery costs incurred in correcting a
product failure.
Canon provides guarantees to third parties of bank loans of
its employees, affiliated and other companies. For each
guarantee provided, Canon would have to perform under the
guarantee, if they default on a payment within the contract
periods of 1 year to 30 years for the employees with housing
loans and of 1 year to 15 years for the affiliated and other
companies. The maximum amount of undiscounted payments
Canon would have to make in the event of default is ¥49,919
million (U.S.$416 million) at December 31, 2002. The carrying
amounts of the liabilities recognized for Canon’s obligations as a
guarantor under those guarantees are insignificant. Certain of
those guarantees secured by guarantees issued to Canon by
other parties amounted to ¥1,094 million (U.S.$9 million) at
December 31, 2002. Canon Inc. and its consolidated
Capital expenditure
(Millions of yen)
200,000
1
0
4
1
2
2
,
4
7
6
7
0
2
,
2
0
7
8
9
1
,
6
8
3
0
0
2
,
6
8
9
0
7
1
,
0
Working capital ratio
Return on stochholder's equity
2.13
1.91
12
12.2%
12.5%
1.70
1.71
1.60
10.7%
9.7%
6.0%
0
2
0
98
99
00
01
02
98
99
00
01
02
98
99
00
01
02
36
Global diversification drives Canon’s activities in the
individual regions such as the United States, Europe, and Asia to
develop original products and promote business.
Canon had R&D expenditures of ¥233,669 million
(U.S.$1,947 million) in fiscal 2002, ¥218,616 million in fiscal
2001 and ¥194,552 million in fiscal 2000. The ratio of R&D
expenditure to total net sales for the past three years were
7.9%, 7.5% and 7.2%, respectively.
Canon seeks to produce new products that are protected by
patents and to establish a standard in a market in order to
enhance its predominance. The United States Patent and
Trademark Office (USPTO) announced that Canon secured the
number-two spot for private sector patents received in 2002.
The achievement marks Canon’s 11th consecutive year in the
top three patent-receiving organizations.
MARKET RISK EXPOSURES
Canon is exposed to market risks, 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.
Equity price risk
Canon holds marketable securities included in current assets for
short-term investment. In general, highly-liquid and low-risk
instruments are preferred in the portfolio. Marketable
investments included in noncurrent assets are held as
longer-term investments. Canon does not hold marketable
securities and investments for trading purposes.
Maturities and fair values of such marketable securities and
investments were as follows at December 31, 2002.
Due within one year
Due after one year through
five years
Due after five years
Equity securities
Millions of yen
Cost
Fair Value
Thousands of
U.S. dollars
Cost
Fair Value
¥
6,068
6,190 $ 50,567
51,583
545
7,276
6,457
608
7,051
8,076
4,542
60,633
53,808
5,067
58,758
67,300
¥ 20,346
21,925 $169,550 182,708
subsidiaries provide guarantees to third parties of certain
obligations of their consolidated subsidiaries. At December 31,
2002, these guarantees amounted to ¥23,634 million
(U.S.$197 million). To a lesser extent, consolidated subsidiaries
provide guarantees to third parties of obligations of other
consolidated subsidiaries. All intercompany guarantees are
eliminated in consolidation and therefore are not reflected in
the above figure.
At December 31, 2002, Canon had outstanding
commitments of approximately ¥29,539 million (U.S.$246
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.
RESEARCH AND DEVELOPMENT, PATENTS AND
LICENSES
Canon is now in Phase II of its Excellent Global Corporation
Plan, which started in 2001 and will end in 2005. The
management plan aims to guide Canon to the No.1 position
worldwide in all core business areas, to build on its R&D
capabilities, to continually create new businesses and to further
strengthen its financial position.
As a direction to take for Canon’s R&D, we formulated the
“Canon Over IP” concept, in which we intend to connect our
digital products to the Internet and lay the foundations for
Internet-businesses for the future.
Canon has R&D centers worldwide, including the one in the
U.S., that closely collaborate in their R&D activities. Some
regional R&D centers conduct basic research into technology,
and others apply their expertise to develop new products and
businesses. The Canon Research Center in Japan, for example,
develops basic and advanced technologies for future businesses
in a time frame of five to ten years while other centers in Japan
develop key components, environment-conscious technologies,
next-generation displays, and electronic devices.
R&D activities at Canon Inc. are structured in the following 5
organizations.
• Core Technology Development Headquarters (where
component engineering and base technology R&D, such
as in new materials, nanotechnology and production
engineering, is conducted)
• Platform Technology Development Headquarters (where
platform technologies for digital network device R&D is
conducted)
• Device Technology Development Headquarters (where
key device R&D, such as for semiconductor devices, is
conducted)
• Display Development Headquarters (where display devices
R&D is conducted)
• Ecology Research Center (where solar cell battery R&D is
conducted)
37
Foreign exchange rates and interest rates risk
Canon operates internationally and is therefore exposed to the
risk of changes in foreign exchange rates and interest rates.
Canon and certain of its subsidiaries utilize various derivative
financial instruments, principally foreign exchange contracts and
interest rate swaps, to reduce these risks. Canon assesses the
risks of foreign currency exchange and interest rates by
continually monitoring changes in its exposure to these risks and
by evaluating hedging opportunities. Canon does not hold or
issue derivative financial instruments for trading purposes.
Canon is also exposed to credit-related losses in the event of
non-performance by counterparties to derivative financial
instruments, but it is not expected that any counterparties will
fail to meet their obligations, because most of the counterparties
are internationally recognized financial institutions and the
contracts are diversified among a number of major financial
institutions.
The major manufacturing bases of Canon are located in
Japan and Asia. The sales generated from overseas are mainly
denominated in U.S. dollar or Euro. Therefore, Canon’s
international operations expose Canon to the risk of changes in
foreign currency exchange rate. To manage foreign exchange
exposure from sales in foreign currencies such as U.S. dollars
and Euro, Canon enters into foreign exchange contracts, which it
uses to manage certain foreign currency exchange exposures
principally from the exchange of U.S. dollar and Euro into
Japanese yen. These contracts are primarily used to hedge the
foreign currency exposure of forecasted intercompany sales,
which are denominated in foreign currencies. In accordance
with Canon’s policy, a specific portion of foreign currency
exposure resulting from forecasted intercompany sales are
hedged using foreign exchange contracts, which principally
mature within three months.
The following table provides information about Canon’s
major derivative financial instruments related to foreign currency
exchange transactions existing at December 31, 2002 together
with the related weighted average contractual exchange rates at
December 31, 2002. All of the foreign exchange contracts
described in the following table have a contractual maturity date
in 2003.
Millions of yen
(except average contractual rates)
Forwards to sell foreign currencies: U.S.$/Yen
euro/Yen
Others
Total
Contract amounts
Estimated fair value
Average contractual rates
¥
262,408 138,443
(3,124)
122.15
4,388
122.48
21,945 422,796
1,490
226
Forwards to sell foreign currencies: U.S.$/Yen
Thousands of U.S. dollars
euro/Yen
Others
Total
Contract amounts
Estimated fair value
$ 2,186,733 1,153,692
(26,033)
36,567
182,875 3,523,300
12,417
1,883
Canon’s exposure to the market risk of changes in interest
rates relates primarily to its debt obligations. Fixed-rate debt
obligations expose Canon to variability in their fair values due to
changes in interest rates. To manage the variability in the fair
values caused by interest rate changes, Canon enters into
interest rate swaps when it is determined to be appropriate
based on market conditions. Interest rate swaps change
fixed-rate debt obligations to variable-rate debt obligations by
entering into receive-fixed, pay-variable interest rate swaps. The
hedging relationship between interest rate swaps and hedged
debt obligations is highly effective in achieving offsetting
changes in fair values resulting from interest rate risk.
The information about Canon’s derivative financial
instruments and other financial instruments that are sensitive to
changes in interest rates are shown on page 39. 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, 2002 together with the related weighted average
contractual interest rates at December 31, 2002.
38
LONG-TERM DEBT (including due within one year)
Average interest
rates
2.31% ¥
Total
2004
55,000 10,000 20,000
2003
Expected maturity date
2005
5,000
2006
2007
Thereafter
— 10,000 10,000
(Millions of yen)
Estimated
Fair Value
58,043
1.26%
2.09%
15,031
30,324
5,149
6,325
¥ 100,355 19,006 30,944 16,474
—
9,006 10,944
—
44,445
—
1,217
30,086
1,217 10,262 22,452 132,574
9,882
2,570
—
262
Japanese yen notes
Japanese yen convertible
debentures
Loans, principally from banks
Total
INTEREST RATE SWAP
Notional principal
amount (million)
180
¥
467
US$
10
Euro
Average receive
rate
1.48%
3.75%
3.37%
Average pay
rate
1.39% ¥
1.38%
4.09%
Total
180
56,019
1,251
Expected maturity date
2004
—
2003
180
2005
—
6,278 19,504 30,237
—
1,251
—
2006
—
—
—
2007
—
—
—
Thereafter
—
—
—
(Millions of yen)
Estimated
Fair Value
1
(1,136)
(13)
LONG-TERM DEBT (including due within one year)
(Thousands of U.S. dollars)
Average interest
rates
2005
2.31% $ 458,334 83,333 166,668 41,667
2004
2003
Total
2006
2007
Thereafter
— 83,333 83,333 483,691
Estimated
Fair Value
Expected maturity date
1.26%
2.09%
—
—
125,258
252,700 75,050 91,200 52,708 10,142
— 82,350 370,375
2,183 21,417 250,717
$ 836,292 158,383 257,868 137,283 10,142 85,516 187,100 1,104,783
— 42,908
Japanese yen notes
Japanese yen convertible
debentures
Loans, principally from banks
Total
INTEREST RATE SWAP
Notional principal
amount (million)
180
¥
467
US$
10
Euro
Average receive
rate
1.48%
3.75%
3.37%
Average pay
rate
1.39% $
1.38%
4.09%
Expected maturity date
2003
1,500
Total
1,500
2005
—
466,825 52,317 162,533 251,975
—
10,425 10,425
2004
—
—
2006
—
—
—
(Thousands of U.S. dollars)
2007
—
—
—
Thereafter
—
—
—
Estimated
Fair Value
8
(9,467)
(108)
Notes: All long-term debt is fixed rate except loans, principally from banks which include both fixed and floating rate debt.
Derivative financial instruments designated as fair value
hedges principally relate to interest rate swaps associated with
fixed rate debt obligations. Changes in fair values of the hedged
debt obligations and derivative instruments designated as fair
value hedges of these debt obligations are recognized in other
income (deductions). There is no hedging ineffectiveness or net
gains or losses excluded from the assessment of hedge
effectiveness for the year ended December 31, 2002 as the
critical terms of the interest rate swaps match the terms of the
hedged debt obligations.
Changes in the fair value of foreign exchange contracts
designated and qualifying as cash flow hedges of forecasted
intercompany sales are reported in accumulated other
comprehensive income (loss). These amounts are subsequently
reclassified into earnings through other income (deductions) in
the same period as the hedged items affect earnings. All the
accumulated other comprehensive income (loss) at end of year
are substantially expected to be recognized in earnings over the
next twelve months. Canon excludes the time value component
of the hedging instruments from the assessment of hedge
effectiveness.
Canon has entered into certain foreign exchange contracts,
which do not meet the hedging criteria of SFAS 133 and 138.
Canon records these foreign exchange contracts on the balance
sheet at fair value. The changes in fair values are recorded in
earnings immediately. The national amounts of those foreign
exchange contracts were ¥362,276 million (U.S.$3,019 million)
and ¥202,932 million at December 31, 2002 and 2001.
39
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States, and based on the selection and application of
significant accounting policies, which require management to
make significant estimates and assumptions. Canon believes
that the following are some of the more critical judgment areas
in the application of its accounting policies that currently affect
its financial condition and results of operations.
Valuation of 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. Market value is the estimated selling price in the
ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make a sale.
Canon routinely reviews its inventories for their salability and for
indications of obsolescence to determine if inventories should
be written-down to market value. Judgments and estimates
must be made and used in connection with establishing such
allowances in any accounting period. In estimating the market
value of its inventories, Canon considers the age of the
inventories and the likelihood of spoilage or changes in market
demand for its inventories.
Environmental liabilities
Canon is subject to liability for the investigation and clean-up of
environmental contamination at each of the properties that
Canon owns or operates, as well as at certain properties Canon
formerly owned or operated. Canon employs extensive internal
environmental protection programs that focus on preventive
measures. Canon conducts environmental assessments for a
number of its locations and operating facilities. If Canon was to
be held responsible for damages in any future litigation or
proceedings, such costs may not be covered by insurance and
may be material. The liability for environmental remediation and
other environmental costs is accrued when it is considered
probable and costs can be reasonably estimated.
Collectibility of Receivables
Canon is required to estimate the collectibility of its notes
receivable and accounts receivable. A considerable amount of
judgment is required in assessing the ultimate realization of
these receivables including the current creditworthiness of each
customer taking into account business conditions, turnover of
receivables and financial positions for significant customers.
Significant changes in required reserves have been recorded in
recent periods and may occur in the future depending on
financial status of customers under the current environment. In
case financial quality of customers becomes worse, reserves for
each customer will increase and will adversely affect net income.
Deferred Tax Assets
Canon currently has significant deferred tax assets, which are
subject to periodic recoverability assessments. Realization of
Canon’s deferred tax assets is principally dependent upon its
achievement of projected future taxable income. Canon’s
judgments regarding future profitability may change due to future
market conditions, its ability to continue to successfully execute
its operating restructuring activities and other factors. These
changes, if any, may require possible recognition of significant
valuation allowance to these deferred tax asset balances. In case
Canon considers deferred tax assets may not recover,
unrecoverable amounts should be included in income taxes in
the statements of income and may adversely affect net income.
Recoverability of long-lived assets and
identifiable intangibles
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
changes 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 exceeds 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. The determination of estimated
future net cash flows involves significant judgments. Changes in
strategy and/or market conditions could significantly impact
these judgments and require impairment of recorded asset
balances that may adversely affect net income.
Employee retirement and severance benefit plan
Canon has significant employee retirement and severance
benefit costs and credits which are developed from actuarial
valuations. Inherent in these valuations are key assumptions
including discount rates and expected return on plan assets.
Canon is required to consider current market conditions,
including changes in interest rates, in selecting these
assumptions. Changes in the related employee retirement and
severance benefit costs or credits may occur in the future in
addition to changes resulting from fluctuations in Canon’s
related headcount due to changes in the assumptions. Changes
in assumptions will affect Canon’s financial figures. Decrease of
discount rates leads to increase of actuarial pension benefit
obligations that could lead to an increase in amortization cost
through amortization of actuarial gain or loss, and vice versa.
Increase of expected return on plan assets may decrease net
periodic benefit cost through increase of expected return
amount while the difference with actual fair value of those
assets could affect adversely net income in the following years,
and vice versa.
40
LOOKING FORWARD
For Canon, 2003 marks the halfway point of Phase II of its
Excellent Global Corporation Plan (2001-2005), which targets
the completion of structural reforms in 2005. As such, Canon
will move forward with several initiatives designed to ensure the
meeting of the goals set out in the plan by 2005, including
further operating-reformation efforts, from R&D and production
processes to head-office administrative operations,
simultaneously targeting improved productivity and the
elimination of waste. Particularly in the area of development,
Canon will target the further shortening of product-development
periods and improvements in design quality, and will strive to
substantially reduce product development costs through the
implementation of digital trial production procedures that do
away with the need to create prototypes. As for production,
energies will be focused on the in-house production of key
components and innovative high-efficiency factory automation
equipment to realize even greater cost reductions. With regard
to marketing activities, in addition to promoting marketing
reformation through the structural reorganization of marketing
activities and strengthening of marketing channels, Canon is also
working to expand and strengthen its solutions business
together with improving hardware solutions offerings through
greater customization to better meet customer needs. Canon
also views the protection of the environment as an essential
part of its management activities and will continue to develop
environmentally conscious products and introduce
resource-recycling systems while actively expanding its green
procurement and purchasing programs.
Canon sells laser beam printers on OEM basis to Hewlett-
Packard Company (“HP”). During the year ended December 31,
2002, such sales constituted approximately 21% of
consolidated net sales.
In May 2002, HP announced that it completed its merger
transaction with Compaq Computer Corporation. Canon
believes that this merger will not directly affect in an adverse
and material way Canon’s OEM business. However, Canon’s
operating results could be significantly and adversely affected if
HP’s management decides not to continue its OEM business
relationship with Canon.
On November 20, 2002, Canon Inc. and Canon Sales Co.,
Inc (“Canon Sales”) have entered into an agreement to transfer
all of the shares of Canon N.T.C., Inc. (“Canon N.T.C.”), a wholly
owned subsidiary of Canon Sales, from Canon Sales to Canon
Inc. following the completion of the corporate separation of two
Canon N.T.C. operations divisions. In accordance with the
restructuring initiative for the Canon Sales Group announced on
May 17 2002, Canon N.T.C.’s marketing operations will be spun
off and merged with Canon System & Support Inc. and its real
estate operations will be spun off into a newly established
property management company, effective April 1, 2003.
Following the corporate spin-offs, Canon N.T.C.’s operations will
41
focus on development and manufacturing activities, after which,
during the second quarter of 2003, all of Canon N.T.C.’s shares
will be transferred from Canon Sales to Canon Inc.. Canon
N.T.C. is already consolidated subsidiaries of Canon Inc., and
accordingly the merger is expected to have no impact on
Canon’s future business results.
On November 21, 2002, Canon Sales executed a definitive
agreement to acquire all of the shares of Sumitomo Metal
System Solutions Co. Ltd. from Sumitomo Metal Industries, Ltd.
for approximately ¥12,478 million (U.S.$104 million). On
January 10, 2003, the acquisition of Sumitomo Metal System
Solutions Co. Ltd. was completed and its name was changed to
Canon System Solutions Inc. The new company is expected to
play a starring role of expanding IT business in Canon Sales
group, which believes the key pillar of business expansion in the
future is in the IT service field. The impact of the acquisition on
Canon’s consolidated financial statement is not expected to be
material.
On January 1, 2003, Canon Aptex Inc. and Copyer Co.,Ltd.
merged, and changed its name to Canon Finetech Inc, following
resolutions by their respective board of directors’ meetings. By
the merger of both companies, the new company expects to
enhance its corporate disposition by restructuring its corporate
bases, by building an efficient organization and by reinforcing its
product development and its cost competitiveness. Both
companies are already consolidated subsidiaries of Canon Inc.,
and accordingly the merger has no impact on Canon’s future
business results.
The foregoing discussion in Financial Overview contains
forward-looking statements that reflect management’s current
views with respect to certain future events and financial
performance. Actual results may differ materially from those
projected or implied in the forward-looking statements. Further,
certain forward-looking statements are based upon assumptions
of future events that may not prove to be accurate. The
following important factors could cause actual results to differ
materially from those projected or implied in any forward-
looking statements: exchange rate fluctuations; the uncertainty
of Canon’s ability to implement its plans to localize production
and other measures to reduce the impact of exchange rate
fluctuations; uncertainty as to economic condition, in Canon’s
major markets; uncertainty of continued demand for Canon’s
high-value-added products; uncertainty as to the recovery of
computer and related markets; uncertainty of recovery in
demand for Canon’s semiconductor production equipment;
Canon’s ability to continue to develop products and to market
products that incorporate new technology on a timely basis, are
competitively priced and achieve market acceptance; the
possibility of losses resulting from foreign currency transactions
designed to reduce financial risks from changes in foreign
exchange rates; and inventory risk due to shifts in market
demand.
TEN-YEAR FINANCIAL SUMMARY
(Millions of yen except per share amounts)
Net sales:
Domestic
Overseas
Total
Percentage of
previous year
Net income
Percentage of sales
Advertising
Research and development
Depreciation of property, plant and equipment
Capital expenditure
Long-term debt, excluding current installments
Stockholders’ equity
Total assets
Per share data:
2002
2001
2000
1999
¥
732,551
2,207,577
2,940,128
827,288
2,080,285
2,907,573
779,366
1,917,054
2,696,420
718,513
1,812,383
2,530,896
101.1%
190,737
6.5%
71,725
233,669
158,469
198,702
107.8
106.5
167,561
5.8
66,837
218,616
147,286
207,674
134,088
5.0
67,840
194,552
144,043
170,986
92.5
70,234
2.8
67,544
177,922
155,682
200,386
81,349
1,591,950
2,942,706
95,526
1,458,476
2,844,756
142,925
1,298,914
2,832,125
165,277
1,202,003
2,587,532
Income before cumulative effect of change in accounting principle:
Basic
Diluted
Net income:
Basic
Diluted
Cash dividends declared
Stock price:
High
Low
217.56
214.80
217.56
214.80
30.00
5,250
3,620
187.07
184.55
191.29
188.70
25.00
5,330
3,150
153.66
151.51
153.66
151.51
21.00
5,620
3,400
80.66
79.50
80.66
79.50
17.00
4,200
2,170
Average number of common shares in thousands
Number of employees
876,716
97,802
875,960
93,620
872,606
86,673
870,699
81,009
Common stock price range
(Yen)
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
93 94 95 96 97 98 99 00 01 02
42
1998
1997
1996
1995
1994
1993
(Thousands of U.S. dollars
except per share amounts)
2002
725,063
2,011,021
2,736,084
811,455
1,858,079
2,669,534
784,917
1,687,920
2,472,837
677,692
1,408,186
2,085,878
596,564
1,266,160
1,862,724
536,853
1,236,308
1,773,161
$ 6,104,592
18,396,475
24,501,067
102.5
108.0
109,569
4.0
76,911
176,967
159,888
221,401
118,813
4.5
75,800
170,793
137,777
219,779
118.6
94,177
3.8
68,354
150,085
117,263
176,357
112.0
55,036
2.6
53,033
125,253
104,474
123,560
105.1
31,024
1.7
44,698
121,273
103,304
133,068
95.6
21,102
1.2
42,468
104,191
100,631
151,808
180,320
1,155,520
2,728,329
226,889
1,109,511
2,872,779
192,254
1,007,434
2,644,452
298,055
880,150
2,506,152
311,002
808,985
2,270,010
430,285
721,411
2,165,370
126.10
123.93
126.10
123.93
17.00
3,400
1,930
137.73
134.60
137.73
134.60
17.00
3,820
2,280
111.29
106.96
111.29
106.96
15.00
2,630
1,780
65.96
62.73
65.96
62.73
13.00
1,940
1,230
38.50
35.84
38.50
35.84
12.50
1,820
1,530
27.01
26.76
27.01
26.76
12.50
1,560
1,270
868,916
79,799
862,664
78,767
846,224
75,628
834,329
72,280
805,897
67,672
781,261
64,535
101.1
1,589,475
6.5
597,708
1,947,242
1,320,575
1,655,850
677,908
13,266,250
24,522,550
1.81
1.79
1.81
1.79
0.25
43.75
30.17
Notes: U.S. dollar amounts are translated from yen at the rate of ¥120 = U.S.$1,
the approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 2002.
43
CANON INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
ASSETS
Current assets:
Cash and cash equivalents (note 9)
Marketable securities (note 4)
Trade receivables (notes 5 and 9)
Inventories (notes 6 and 9)
Prepaid expenses and other current assets (note 12)
Total current assets
Noncurrent receivables (note 19)
Investments (note 4)
Net property, plant and equipment (notes 7 and 9)
Other assets (notes 8, 11 and 12)
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans (note 9)
Trade payables (note 10)
Income taxes (note 12)
Accrued expenses (note 19)
Other current liabilities (note 12)
Total current liabilities
Long-term debt, excluding current installments (note 9)
Accrued pension and severance cost (note 11)
Other noncurrent liabilities (note 12)
Total liabilities
Minority interests
Stockholders’ equity:
Common stock
Authorized 2,000,000,000 shares;
issued 879,136,244 shares in 2002
and 876,282,332 shares in 2001 (notes 9 and 13)
Additional paid-in capital (notes 9 and 13)
Legal reserve (note 14)
Retained earnings (notes 12 and 14)
Accumulated other comprehensive income (loss)
(notes 4, 11, 12, 16 and 18)
Treasury stock, at cost 1,373,557 shares in 2002 and
69,889 shares in 2001
Total stockholders’ equity
Commitments and contingent liabilities (note 19)
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
Millions of yen
2002
2001
¥ 521,271
7,255
498,587
432,251
245,610
1,704,974
20,568
64,037
830,304
322,823
¥ 2,942,706
¥
66,754
408,464
80,169
154,621
91,832
801,840
81,349
285,129
26,193
1,194,511
156,245
506,234
4,772
456,635
448,300
214,353
1,630,294
21,125
66,168
821,125
306,044
2,844,756
200,104
354,446
65,324
157,335
76,974
854,183
95,526
237,537
17,645
1,204,891
181,389
Thousands of
U.S. dollars (note 2)
2002
$ 4,343,925
60,458
4,154,892
3,602,092
2,046,750
14,208,117
171,400
533,642
6,919,200
2,690,191
$24,522,550
$
556,283
3,403,867
668,075
1,288,508
765,267
6,682,000
677,908
2,376,075
218,275
9,954,258
1,302,042
167,242
394,088
38,803
1,164,445
165,287
392,456
38,330
997,848
1,393,683
3,284,067
323,359
9,703,708
(166,467)
(135,168)
(1,387,225)
(6,161)
1,591,950
(277)
1,458,476
(51,342)
13,266,250
¥ 2,942,706
2,844,756
$24,522,550
44
CANON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2002, 2001 and 2000
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Other income (deductions):
Interest and dividend income
Interest expense
Other, net
Income before income taxes and minority interests
Income taxes (note 12)
Income before minority interests
2002
¥ 2,940,128
1,540,097
1,400,031
1,053,672
346,359
Millions of yen
2001
2,907,573
1,626,959
1,280,614
998,775
281,839
2000
2,696,420
1,577,461
1,118,959
884,828
234,131
9,198
(6,788)
(18,752)
(16,342)
330,017
134,703
195,314
9,571
(10,712)
868
(273)
281,566
11,428
(15,018)
(3,345)
(6,935)
227,196
115,154
166,412
87,197
139,999
Thousands of
U.S. dollars (note 2)
2002
$ 24,501,067
12,834,142
11,666,925
8,780,600
2,886,325
76,650
(56,567)
(156,266)
(136,183)
2,750,142
1,122,525
1,627,617
Minority interests
4,577
2,543
5,911
38,142
Income before cumulative effect of change in
accounting principle
Cumulative effect of change in accounting principle, net of
tax (note 1(r))
Net income
190,737
163,869
134,088
1,589,475
—
¥ 190,737
3,692
167,561
—
134,088
—
$ 1,589,475
Yen
U.S. dollars (note 2)
Earnings per share (notes 1(t) and 17):
Basic:
Income before cumulative effect of change
in accounting principle
Cumulative effect of change in accounting principle
Net income
Diluted:
Income before cumulative effect of change
in accounting principle
Cumulative effect of change in accounting principle
Net income
Dividends per common share (note 14)
See accompanying notes to consolidated financial statements.
¥
¥
¥
217.56
—
217.56
214.80
—
214.80
187.07
4.22
191.29
184.55
4.15
188.70
153.66
—
153.66
151.51
—
151.51
30.00
25.00
21.00
$
$
$
1.81
—
1.81
1.79
—
1.79
0.25
45
CANON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2002, 2001 and 2000
Millions of yen
Thousands of
U.S. dollars (note 2)
2002
2001
2000
2002
Common stock:
Balance at beginning of year
Conversion of convertible debt (notes 13 and 15)
Share issued for acquisition of minority interest
¥ 165,287
1,955
(notes 13 and 15)
Balance at end of year
Additional paid-in capital:
Balance at beginning of year
Conversion of convertible debt and other (notes 13 and 15)
Share issued for acquisition of minority interest
(notes 13 and 15)
Capital transactions by consolidated subsidiaries
Balance at end of year
Legal reserve:
Balance at beginning of year
Transfers from retained earnings (note 14)
Other
Balance at end of year
Retained earnings:
Balance at beginning of year
Net income for the year
Cash dividends (note 14)
Transfers to legal reserve (note 14)
Balance at end of year
Accumulated other comprehensive income (loss)
(notes 4, 11, 12, 16 and 18):
Balance at beginning of year
Other comprehensive income (loss) for the year,
net of tax
Balance at end of year
Treasury stock:
Balance of begining of year
Purchase
Balance at end of year
Total stockholders’ equity
Disclosure of comprehensive income:
Net income for the year
Other comprehensive income (loss) for the year,
net of tax (note 16)
Total comprehensive income for the year
See accompanying notes to consolidated financial statements.
164,796
491
—
165,287
391,939
517
—
—
392,456
35,584
2,746
—
38,330
163,969
668
159
164,796
376,848
661
14,430
—
391,939
33,518
2,066
—
35,584
—
167,242
392,456
1,953
1,052
(1,373)
394,088
38,330
477
(4)
38,803
997,848
190,737
(23,663)
(477)
1,164,445
853,177
167,561
(20,144)
(2,746)
997,848
735,975
134,088
(14,820)
(2,066)
853,177
$ 1,377,392
16,291
—
1,393,683
3,270,467
16,275
8,767
(11,442)
3,284,067
319,417
3,975
(33)
323,359
8,315,400
1,589,475
(197,192)
(3,975)
9,703,708
(135,168)
(146,582)
(108,307)
(1,126,400)
(31,299)
(166,467)
11,414
(135,168)
(38,275)
(146,582)
(260,825)
(1,387,225)
(277)
(5,844)
(6,161)
¥ 1,591,950
—
(277)
(277)
1,458,476
—
—
—
1,298,914
(2,308)
(49,034)
(51,342)
$13,266,250
¥ 190,737
167,561
134,088
$ 1,589,475
(31,299)
¥ 159,438
11,414
178,975
(38,275)
95,813
(260,825)
$ 1,328,650
46
CANON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Loss on disposal of property, plant and equipment
Gain on securities contributed to retirement benefit trust
(notes 4 and 11)
Deferred income taxes
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase in income taxes
Increase in accrued expenses
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditure
Proceeds from sale of property, plant and equipment
Payment for purchase of available-for-sale securities
Proceeds from sale of available-for-sale securities
Payment for purchase of other investments
Other
Net cash used in investing activities
Cash flows from financing activities (note 15):
Proceeds from long-term debt
Repayment of long-term debt
Decrease in short-term loans
Dividends paid (note 14)
Payment for purchase of treasury stock
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and
cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest
Income taxes
See accompanying notes to consolidated financial statements.
2002
¥ 190,737
Millions of yen
2001
167,561
2000
134,088
Thousands of
U.S. dollars (note 2)
2002
$ 1,589,475
165,260
13,137
152,300
20,323
146,477
14,080
—
(1,788)
(47,077)
14,029
64,040
14,935
12,901
22,776
448,950
(198,702)
11,971
(2,751)
1,099
(30,331)
(11,506)
(230,220)
10,609
(60,690)
(101,125)
(23,663)
(5,884)
(2,961)
(183,714)
(15,536)
2,172
47,844
73,858
(161,157)
10,561
2,177
5,649
305,752
(207,674)
10,224
(9,225)
9,473
(2,452)
7,062
(192,592)
7,417
(40,423)
(64,292)
(20,144)
(277)
(3,509)
(121,228)
(19,979)
15,037
506,234
¥ 521,271
20,340
12,272
493,962
506,234
—
(10,280)
(52,751)
(27,884)
100,588
6,917
21,343
14,038
346,616
(170,986)
5,752
(3,082)
2,428
(14,702)
(32,214)
(212,804)
17,358
(32,529)
(67,923)
(14,820)
—
(2,683)
(100,597)
(19,706)
13,509
480,453
493,962
1,377,167
109,475
—
(14,900)
(392,308)
116,908
533,667
124,458
107,508
189,800
3,741,250
(1,655,850)
99,758
(22,925)
9,158
(252,758)
(95,883)
(1,918,500)
88,408
(505,750)
(842,708)
(197,192)
(49,033)
(24,675)
(1,530,950)
(166,492)
125,308
4,218,617
$ 4,343,925
¥
6,890
121,556
10,722
102,421
14,860
90,560
$
57,417
1,012,967
47
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Significant
Accounting Policies
(a) Description of Business
The Company and subsidiaries (collectively “Canon”) is a
high-technology oriented company which operates globally and
has numerous core businesses. Originally a 35mm camera
maker, Canon is now one of the world’s leading manufacturers
in other fields, such as copying machines and computer
peripherals, mainly laser beam and bubble jet printers. Canon’s
products also include business systems such as faxes,
computers, micrographics and calculators. Canon’s camera
business consists mainly of SLR cameras, compact cameras,
digital 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 the year ended December 31, 2002 were
distributed as follows: copying machines-32%, computer
peripherals-35%, business systems-9%, cameras-16%, and
optical and other products-8%.
Sales are made principally under the Canon brand name,
almost entirely through sales subsidiaries. These subsidiaries are
responsible for marketing and distribution and primarily sell to
retail dealers in their geographical area. Approximately 73% of
consolidated net sales in the year ended December 31, 2002
were generated outside Japan, with 34% in the Americas, 29%
in Europe and 10% in other areas.
Canon’s manufacturing operations are conducted primarily
at 17 plants in Japan and 14 overseas plants which are located
in the United States, Germany, France, Taiwan, China, Malaysia,
Thailand, and Vietnam.
Canon sells laser beam printers on an OEM basis to
Hewlett-Packard Co.; such sales constituted approximately 21%
of consolidated sales for the year ended December 31, 2002.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with financial accounting
standards of Japan. Foreign subsidiaries maintain their books in
conformity with financial accounting standards of the countries
of their domicile.
The accompanying consolidated financial statements reflect
the adjustments which management believes are necessary to
conform them with accounting principles generally accepted in
the United States of America.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its majority owned subsidiaries 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. Gains and losses
resulting from translation of financial statements are excluded
from the consolidated statement of income and are reported in
other comprehensive income (loss). Income and expense items
are translated at the average exchange rates prevailing during
the year. Gains and losses resulting from other foreign currency
transactions are included in other income (deductions).
(f) Marketable Securities and Investments
Canon classifies its debt and equity securities into one of three
categories: trading, available-for-sale, or held-to-maturity
securities. Trading securities are bought and held principally for
the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which Canon has the ability and
intent to hold the security until maturity. All securities not
included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or
discounts. Unrealized holding gains and losses on trading
securities are included in earnings. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a
separate component of other comprehensive income until
realized.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined principally by the average method for domestic
inventories and the first-in, first-out method for overseas
inventories.
48
(h) Investments in Affiliated Companies
Of the investments in affiliated companies owned 20% to 50%,
certain investments are accounted for on the equity basis and
the others are carried at cost. Canon’s equity in undistributed
earnings of the latter companies is not significant.
Canon’s share of the net earnings (loss) of companies
carried at equity, included in other income (deductions), and
dividends received from those companies for the years ended
December 31, 2002, 2001 and 2000 are as follows:
Millions of yen
2002
2001
Net earnings (loss)
Dividends received
¥ (3,521)
664
(1,845)
401
Thousands of
U.S. dollars
2002
$ (29,342)
5,533
2000
10,817
67
(i) Impairment of Long-Lived Assets
In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144
(“SFAS 144”), “Accounting for the Impairment or Disposal of
Long-Lived Assets”. SFAS 144 provides a single accounting
model for long-lived assets to be disposed of. SFAS 144 also
changes the criteria for classifying an asset as held for sale; and
broadens the scope of businesses to be disposed of that qualify
for reporting as discontinued operations and changes the timing
of recognizing losses on such operations. Canon adopted SFAS
144 on January 1, 2002. The adoption of SFAS 144 did not
have a material affect on Canon’s consolidated financial position
and results of operations.
In accordance with SFAS 144, long-lived assets, such as
property, plant, and equipment, and purchased intangibles
subject to amortization, 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 estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of would be separately presented in the
balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset
and liability sections of the balance sheet.
Prior to the adoption of SFAS 144, Canon accounted for
long-lived assets in accordance with Statement of Financial
Accounting Standards No. 121 (“SFAS 121”), “Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of”.
49
(j) Depreciation
Depreciation is calculated principally by the declining-balance
method over the estimated useful lives of the assets. The
depreciation period ranges from 3 years to 60 years for
buildings and 2 years to 20 years for machinery and equipment.
(k) Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141 (“SFAS
141”), “Business Combinations”, and Statement of Financial
Accounting Standards No. 142 (“SFAS 142”), “Goodwill and
Other Intangible Assets”. SFAS 141 requires that the purchase
method of accounting be used for all business combinations
completed after June 30, 2001. SFAS 141 also specifies the
types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those
acquired intangible assets that are required to be included in
goodwill. SFAS 142 requires that goodwill no longer be
amortized, but instead tested for impairment at least annually.
SFAS 142 also requires recognized intangible assets be
amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS 144. Any
recognized intangible asset determined to have an indefinite
useful life is not to be amortized, but instead tested for
impairment until its life is determined to no longer be indefinite.
Canon adopted the provision of SFAS 141 and SFAS 142
on January 1, 2002. In connection with the transitional goodwill
impairment evaluation, SFAS 142 required Canon to perform an
assessment of whether there was an indication that goodwill is
impaired as of the date of adoption. To accomplish this, Canon
was required to identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to
those reporting units as of January 1, 2002. Canon was required
to determine the fair value of each reporting unit and compare it
to the carrying amount of the reporting unit within six months of
January 1, 2002. To the extent the carrying amount of a
reporting unit exceeded the fair value of the reporting unit,
Canon would be required to perform the second step of the
transitional impairment test, as this is an indication that the
reporting unit goodwill may be impaired. The second step was
required for three reporting units. In this step, Canon compared
the implied fair values of the reporting units goodwill with the
carrying amounts of the reporting units goodwill, both of which
were measured as of the date of adoption. The implied fair
values of goodwill were determined by allocating the fair values
of the reporting units to all of the assets (recognized and
unrecognized) and liabilities of the reporting units in a manner
similar to a purchase price allocation, in accordance with SFAS
141. The residual fair value after this allocation was the implied
fair values of the reporting units goodwill. Canon recognized
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
impairment losses amounting to ¥503 million ($4,192
thousand) in the year ended December 31, 2002 since the
carrying amounts of the reporting units goodwill exceeded their
implied fair values.
Prior to the adoption of SFAS 142, goodwill was amortized
on a straight-line basis over the expected periods to be
benefited and assessed for recoverability by determining
whether the amortization of the goodwill balance over its
remaining life could be recovered through undiscounted future
operating cash flows of the acquired operation. All other
intangible assets were amortized on a straight-line basis over the
expected periods to be benefited. The amount of goodwill and
other intangible asset impairment, if any, was measured based
on projected discounted future operating cash flows using a
discount rate reflecting the Canon’s average cost of funds.
(l) 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.
(m) Product Warranties
A liability for the estimated product warranty related cost is
established at the time revenue is recognized and is included in
accrued expenses. Estimates for accrued product warranty cost
are primarily based on historical experience, and are affected by
ongoing product failure rates, specific product class failures
outside of the baseline experience, material usage and service
delivery costs incurred in correcting a product failure.
(n) 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 11).
(o) Revenue Recognition
Canon recognizes revenue when persuasive evidence of an
arrangement including title transfer exists, delivery has occurred,
the sales price is fixed or determinable, and collectibility is
probable. These criteria are met for mass-merchandising
products such as printers and cameras at the time when the
product is received by the customer based on the free-on-board
destination sales terms, and for products with acceptance
provisions such as steppers at the time when the product is
received by the customer and the specific criteria of the product
is demonstrated by Canon with only certain inconsequential or
perfunctory work left to be performed by the customer.
(p) Research and Development and Advertising
The costs of research and development and advertising are
expensed as incurred.
(q) Shipping and Handling Costs
Shipping and handling costs totaled ¥39,170 million ($326,417
thousand), ¥33,835 million and ¥31,633 million for the years
ended December 31, 2002, 2001 and 2000, respectively, and
are included in selling, general and administrative expenses in
the consolidated statements of income.
(r) Derivative Financial Instruments
On January 1, 2001, Canon adopted Statement of Financial
Accounting Standards No. 133 (“SFAS 133”), “Accounting for
Derivative Instruments and Hedging Activities” and No. 138
(“SFAS 138”), “Accounting for Certain Derivative Instruments
and Certain Hedging Activities, an amendment of FASB
Statement No. 133”. Both standards establish accounting and
reporting standards for derivative instruments and for hedging
activities, and require that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure
those instruments at fair value.
All derivatives are recognized on the consolidated balance
sheet at their fair value. On the date the derivative contract is
entered into, Canon designates the derivative as either a hedge
of the fair value of a recognized asset or liability or of an
unrecognized firm commitment (“fair value” hedge), a hedge of
a forecasted transaction or the variability of cash flows to be
received or paid related to a recognized asset or liability (“cash
flow” hedge), a foreign-currency fair-value or cash-flow hedge
(“foreign currency” hedge), or a hedge of a net investment in a
foreign operation. Canon formally documents all relationships
between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various
hedge transactions. This process includes linking all derivatives
that are designated as fair-value, cash-flow, or foreign-currency
hedges to specific assets and liabilities on the consolidated
50
because it is probable that a forecasted transaction will not
occur, Canon continues to carry the derivative on the
consolidated balance sheet at its fair value, and gains and losses
that were accumulated in other comprehensive income (loss)
are recognized immediately in earnings. In all other situations in
which hedge accounting is discontinued, Canon continues to
carry the derivative at its fair value on the consolidated balance
sheet, and recognizes any changes in its fair value in earnings.
Canon also uses certain derivative financial instruments
which do not meet the hedging criteria of SFAS 133 and 138.
Canon records these derivative financial instruments on the
balance sheet at fair value. The changes in fair values are
recorded in earnings immediately.
The cumulative effect adjustment upon the adoption of
SFAS 133 and 138 on January 1, 2001, net of the related
income tax effect, resulted in an increase to net income of
approximately ¥3,692 million and a decrease to other
comprehensive income (loss) of approximately ¥2,401 million.
Prior to the adoption of SFAS 133 and 138, derivative
financial instruments that were designated and effective to
hedge forecasted transactions for which there was no firm
commitment were marked to market, and gains and losses on
such derivatives were recorded in other income (deductions).
Foreign currency derivative financial instruments generally
qualified for hedge accounting if their maturity dates
corresponded to hedged existing assets and liabilities
denominated in foreign currencies, and gains and losses on
such derivative financial instruments were recognized and
recorded in other income (deductions) at end of year and at
settlement, as were the offsetting foreign exchange losses and
gains on the hedged items. Gains and losses on the hedging
derivative financial instruments that were designated and
effective as hedges of firm commitments were deferred and
recognized in income when the sale of the hedged items
occurred. Amounts receivable or payable under derivative
financial instruments used to manage interest rate risks arising
from financial assets and liabilities were recognized as a
component of interest income or expense of such related
underlying assets or liabilities.
(s) 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.
balance sheet or to specific firm commitments or forecasted
transactions. Canon also formally assesses, both at the hedge’s
inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items. When it is
determined that a derivative is not highly effective as a hedge or
that it has ceased to be a highly effective hedge, Canon
discontinues hedge accounting prospectively.
Changes in the fair value of a derivative that is highly
effective and that is designated and qualifies as a fair-value
hedge, along with the loss or gain on the hedged asset or
liability or unrecognized firm commitment of the hedged item
that is attributable to the hedged risk are recorded in earnings.
Changes in the fair value of a derivative that is highly effective
and that is designated and qualifies as a cash-flow hedge are
recorded in other comprehensive income (loss), until earnings
are affected by the variability in cash flows of the designated
hedged item. Changes in the fair value of derivatives that are
highly effective as hedges and that are designated and qualify as
foreign-currency hedges are recorded in either earnings or other
comprehensive income (loss), depending on whether the
hedge transaction is a fair-value hedge or a cash-flow hedge.
However, if a derivative is used as a hedge of a net investment
in a foreign operation, its changes in fair value, to the extent
effective as a hedge, are recorded in the cumulative translation
adjustments account within other comprehensive income (loss).
Canon discontinues hedge accounting prospectively when it
is determined that the derivative is no longer effective in
offsetting changes in the fair value or cash flows of the hedged
item, the derivative expires or is sold, terminated, or exercised,
the derivative is dedesignated as a hedging instrument, because
it is unlikely that a forecasted transaction will occur, a hedged
firm commitment no longer meets the definition of a firm
commitment, or management determines that designation of
the derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued because it is
determined that the derivative no longer qualifies as an effective
fair-value hedge, Canon continues to carry the derivative on the
consolidated balance sheet at its fair value, and no longer
adjusts the hedged asset or liability for changes in fair value.
The adjustment of the carrying amount of the hedged asset or
liability is accounted for in the same manner as other
components of the carrying amount of that asset or liability.
When hedge accounting is discontinued because the hedged
item no longer meets the definition of a firm commitment,
Canon continues to carry the derivative on the consolidated
balance sheet at its fair value, removes any asset or liability that
was recorded pursuant to recognition of the firm commitment
from the consolidated balance sheet and recognizes any gain or
loss in earnings. When hedge accounting is discontinued
51
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(t) Earnings per Share
Basic earnings per share have been computed by dividing net
income available to common stockholders by the
weighted-average number of common shares outstanding
during each year. Diluted earnings 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).
(u) Use of Estimates
The preparation of the consolidated financial statements
requires management of Canon to make a number of estimates
and assumptions relating to the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the period.
Significant items subject to such estimates and assumptions
include valuation allowances for receivables, inventories and
deferred tax assets; impairment of long-lived assets;
environmental liabilities; valuation of derivative instruments; and
assets and obligations related to employee benefits. Actual
results could differ from those estimates.
(v) New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 143 (“SFAS 143”),
“Accounting for Asset Retirement Obligations”. SFAS 143 applies
to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived
asset, except for certain obligations of lessees. SFAS 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset and subsequently allocated to
expense over the asset’s useful life. Canon adopted the
provisions of SFAS 143 on January 1, 2003. The adoption of
SFAS 143 did not have a material effect on Canon’s
consolidated financial position and results of operations.
In June 2002, the Financial Accounting Standards Board
issued Financial Accounting Standards No. 146 (“SFAS 146”),
“Accounting for Costs Associated with Exit or Disposal Activities”.
SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities. It nullifies Emerging
Issues Task Force Issue No. 94-3 (“EITF 94-3”), “Liability
Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)”. The principal difference between SFAS 146
and EITF 94-3 relates to the recognition of a liability for a cost
associated with an exit or disposal activity. SFAS 146 requires
that a liability be recognized for those costs only when the
liability is incurred, that is, when it meets the definition of a
liability in the conceptual framework of the Financial Accounting
Standards Board. SFAS 146 also establishes fair value as the
objective for initial measurement of liabilities related to exit or
disposal activities. Canon adopted the provision of SFAS 146 for
exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS 146 did not have a material effect
on Canon’s consolidated financial position and results of
operations.
In November 2002, the Financial Accounting Standard
Board also issued FASB Interpretation No. 45 (“FIN 45”),
“Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, as interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34”. FIN 45 requires
that a liability be recorded in the guarantor’s balance sheet upon
issuance of a guarantee. In addition, FIN 45 requires disclosures
about the guarantees that an entity has issued, including a
rollforward of the entity’s product warranty liabilities. Canon
adopted the recognition provisions of FIN 45 prospectively to
guarantees issued after December 31, 2002. The disclosure
provisions of FIN 45 are effective for consolidated financial
statements as of December 31, 2002. The adoption of FIN 45
did not have a material effect on Canon’s consolidated financial
position and results of operations.
In January 2003, the Emerging Issues Task Force also
reached a final consensus on Issue 03-2 (“EITF 03-2”),
“Accounting for the Transfer to the Japanese Government of the
Substitutional Portion of Employee Pension Fund Liabilities”.
EITF 03-2 addresses accounting for a transfer to the Japanese
government of a substitutional portion of an Employees’
Pension Fund plan (“EPF”) which is a defined benefit pension
plan established under the Welfare Pension Insurance Law. EITF
03-2 requires employers to account for the entire separation
process of a substitutional portion from an entire plan (including
a corporate portion) upon completion of the transfer to the
government of the substitutional portion of the benefit
obligation and related plan assets as the culmination of a series
of steps in a single settlement transaction. Under this approach,
the difference between the fair value of the obligation and the
assets required to be transferred to the government should be
accounted for and separately disclosed as a subsidy. On March
1, 2003, subsequent to the date of the independent auditors’
report, the applications, which were submitted by the Company
and Canon Sales, Inc., the domestic consolidated subsidiary, for
52
approval on February 14, 2003, were approved by the
government for an exemption from the obligation to pay
benefits for future employee service related to the substitutional
portion. Management plans to submit another application for
separation of the remaining substitutional portion (that is, the
benefit obligation related to past services). After Canon’s
applications are approved by the government, the remaining
benefit obligation of the substitutional portion (that amount
earned by past services) as well as the related
government-specified portion of the plan assets of the EPF will
be transferred to the government. The effect on Canon’s
consolidated financial statements of the transfer has not yet
been determined.
(w) Reclassification
Certain reclassification have been made to the prior years’
consolidated financial statements to conform the presentation
used for the year ended December 31, 2002.
(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
¥120 = U.S. $1, the approximate exchange rate prevailing on
the Tokyo Foreign Exchange Market on December 30, 2002.
This translation should not be construed as a representation that
the amounts shown could be converted into United States
dollars at such rate.
(3) Foreign Operations
Amounts included in the consolidated financial statements
relating to subsidiaries operating in foreign countries are
summarized as follows:
Total assets
Net assets
Net sales
Net income
2002
¥ 1,238,800
518,927
2,151,062
58,883
Millions of yen
2001
1,074,856
482,986
2,048,993
31,903
2000
1,016,908
381,553
1,864,123
37,519
Thousands of
U.S. dollars
2002
$ 10,323,333
4,324,392
17,925,517
490,692
53
CANON INC. AND SUBSIDIARIES
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) Marketable Securities and Investments
Marketable securities and investments include available-for-sale
securities. The cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for such securities by
major security type at December 31, 2002 and 2001 were as
follows:
(Millions of yen)
2002: Current:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
(Millions of yen)
2001: Current:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Bank debt securities
Equity securities
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities
Corporate debt securities
Fund trusts
Equity securities
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
2
44
—
90
—
136
7
67
—
—
2,628
2,702
Gross
Unrealized
Holding
Gains
—
59
—
2
61
—
267
82
5,635
5,984
—
14
—
—
129
143
—
43
—
193
880
1,116
Gross
Unrealized
Holding
Losses
—
—
—
66
66
—
—
2
646
648
Fair Value
61
5,728
91
310
1,065
7,255
227
5,173
150
2,109
7,011
14,670
Fair Value
55
3,682
91
944
4,772
201
5,820
1,971
11,419
19,411
Cost
¥
59
5,698
91
220
1,194
¥ 7,262
¥
220
5,149
150
2,302
5,263
¥13,084
Cost
¥
55
3,623
91
1,008
¥ 4,777
¥
201
5,553
1,891
6,430
¥ 14,075
54
(Thousands of U.S. dollars)
2002: Current:
Available-for-sale:
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Cost
Japanese and foreign governmental bond securities $
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
492
47,484
758
1,833
9,950
$ 60,517
Noncurrent:
Available-for-sale:
Japanese and foreign governmental bond securities $
Corporate debt securities
Bank debt securities
Fund trusts
Equity securities
1,833
42,909
1,250
19,183
43,858
$109,033
16
367
—
750
—
1,133
59
558
—
—
21,900
22,517
—
117
—
—
1,075
1,192
—
359
—
1,608
7,333
9,300
Fair Value
508
47,734
758
2,583
8,875
60,458
1,892
43,108
1,250
17,575
58,425
122,250
Net unrealized gains on available-for-sale securities, net of
2000, respectively.
related taxes and minority interests, decreased by ¥1,732
million ($14,433 thousand), ¥13,603 million and ¥34,532
million in the years ended December 31, 2002, 2001 and
Maturities of marketable securities and investments
classified as available-for-sale at December 31, 2002 were as
follows:
Due within one year
Due after one year through five years
Due after five years
Equity securities
Millions of yen
Cost
¥ 6,068
545
7,276
6,457
¥20,346
Fair Value
6,190
608
7,051
8,076
21,925
Thousands of
U.S. dollars
Cost
$ 50,567
4,542
60,633
53,808
$169,550
Fair Value
51,583
5,067
58,758
67,300
182,708
Proceeds from sale of available-for-sale securities were
¥1,099 million ($9,158 thousand), ¥9,473 million and ¥2,428
million in the years ended December 31, 2002, 2001 and
2000, respectively.
In June 2001, Canon contributed certain marketable equity
securities, not including those of its subsidiaries and affiliated
companies, to an established employee retirement benefit trust,
with no cash proceeds thereon. The fair value of those securities
at the time of contribution was ¥38,954 million. Upon
contribution of those available-for-sale securities, the net
unrealized gains amounting to ¥15,536 million were realized
and were accounted for as “Other, net” in the consolidated
statements of income.
Realized gains and losses during the years ended December
31, 2002 and 2000 were insignificant.
55
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) Trade Receivables
Trade receivables are summarized as follows:
Notes
Accounts
Less allowance for doubtful receivables
(6) Inventories
Inventories comprised the following:
Finished goods
Work in process
Raw materials
(7) Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and are summarized as follows:
Land
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
¥
Millions of yen
2002
26,456
484,162
510,618
12,031
¥ 498,587
2001
43,563
424,163
467,726
11,091
456,635
Thousands of
U.S. dollars
$
2002
220,467
4,034,683
4,255,150
100,258
$ 4,154,892
Millions of yen
2002
¥ 288,592
127,769
15,890
¥ 432,251
2001
323,910
106,255
18,135
448,300
Thousands of
U.S. dollars
2002
$ 2,404,933
1,064,742
132,417
$ 3,602,092
Millions of yen
2002
¥ 167,848
743,473
962,037
34,640
1,907,998
1,077,694
¥ 830,304
2001
157,251
691,661
936,281
61,039
1,846,232
1,025,107
821,125
Thousands of
U.S. dollars
2002
$ 1,398,733
6,195,608
8,016,975
288,667
15,899,983
8,980,783
$ 6,919,200
56
(8) Goodwill and Other Intangible Assets
The components of acquired intangible assets excluding
goodwill at December 31, 2002 and January 1, 2002 were as
follows:
(Millions of yen)
Intangible assets subject to amortization:
Software
Other
Total
(Thousands of U.S. dollars)
Intangible assets subject to amortization:
Software
Other
Total
As of December 31, 2002
Gross Carrying
Amount
Accumulated
Amortization
As of January 1, 2002
Gross Carrying
Amount
Accumulated
Amortization
¥106,664
3,233
¥109,897
74,971
1,106
76,077
¥ 94,505
3,341
¥ 97,846
67,097
1,088
68,185
As of December 31, 2002
Gross Carrying
Amount
Accumulated
Amortization
$ 888,867
26,941
$ 915,808
624,758
9,217
633,975
Intangible assets not subject to amortization at December
31, 2002 and January 1, 2002 were insignificant.
Aggregate amortization expense for the year ended
December 31, 2002 is ¥6,288 million ($52,400 thousand).
Estimated amortization expense for the next five years ending
December 31 is: ¥9,807 million ($81,725 thousand) in 2003,
¥9,219 million ($76,825 thousand) in 2004, ¥6,131 million
($51,092 thousand) in 2005, ¥3,233 million ($26,942
thousand) in 2006, and ¥1,669 million ($13,908 thousand) in
2007.
The changes in the carrying amount of goodwill for the year
ended December 31, 2002 were as follows:
Balance at beginning of year
Goodwill acquired during the year
Impairment losses
Translation adjustment
Balance at end of year
Millions of yen
2002
13,375
806
(503)
(38)
13,640
¥
¥
Thousands of
U.S. dollars
2002
111,458
6,717
(4,192)
(316)
113,667
¥
¥
Due to a continuing negative trend in the business systems
industries and semiconductor related market, operating profit
and cash flows were lower than expected. In the year ended
December 31, 2002, under the continuing negative trend, the
majority of goodwill impairment loss of ¥503 million ($4,192
thousand) was recognized from the business system and optical
and other products reporting units since the carrying amounts of
the reporting units were greater than the fair value of the
reporting units (as determined using the expected present value
of future cash flows) and the carrying amounts of the reporting
units goodwill exceeded the implied fair value of that goodwill.
57
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Reconciliation of “Income before cumulative effect of
change in accounting principle” and “Earnings per share before
cumulative effect of change in accounting principle” to the
amounts adjusted for the exclusion of goodwill amortization for
the years ended December 31, 2002, 2001 and 2000 are as
follows:
Income before cumulative effect of change in
accounting principle:
Reported income before cumulative effect of
change in accounting principle
Add back: goodwill amortization (net of tax)
Adjusted income before cumulative effect of
change in accounting principle
Basic earnings per share before cumulative
effect of change in accounting principle:
Reported income before cumulative effect of
change in accounting principle
Add back: goodwill amortization (net of tax)
Adjusted income before cumulative effect of
change in accounting principle
Diluted earnings per share before cumulative
effect of change in accounting principle:
Reported income before cumulative effect of
change in accounting principle:
Add back: goodwill amortizaion (net of tax)
Adjusted income before cumulative effect of
change in accounting principle
Millions of yen
Thousands of
U.S. dollars
2002
2001
2000
2002
¥ 190,737
—
163,869
968
134,088
555
$ 1,589,475
—
¥ 190,737
164,837
134,643
$ 1,589,475
yen
2002
2001
2000
U.S. dollars
2002
¥
217.56
—
187.07
1.11
153.66
0.64
¥
217.56
188.18
154.30
¥
214.80
—
184.55
1.08
151.51
0.62
¥
214.80
185.63
152.13
$
$
$
$
1.81
—
1.81
1.79
—
1.79
58
(9) Short-term Loans and Long-term Debt
Short-term loans consisted of the following:
Bank borrowings
Acceptances payable by foreign subsidiaries
Long-term debt due within one year
Millions of yen
2002
47,742
6
19,006
66,754
¥
¥
2001
62,103
84,253
53,748
200,104
Thousands of
U.S. dollars
2002
397,850
50
158,383
556,283
$
$
The weighted average interest rates on short-term loans
outstanding at December 31, 2002 and 2001 were 2.58% and
2.76%, respectively.
At December 31, 2002, unused short-term credit facilities
for issuance of commercial paper amounted to ¥59,950 million
($499,583 thousand).
A substantial portion of the acceptances payable by foreign
subsidiaries was secured by the subsidiaries’ inventories and
trade receivables.
Long-term debt consisted of the following:
Loans, principally from banks, maturing in installments through 2030;
bearing weighted average interest of 2.09% and 3.93% at December 31,
2002 and 2001, respectively, partially secured by mortgage of property,
plant and equipment
2-1/20% Japanese yen notes, due 2002
2-3/5% Japanese yen notes, due 2002
1-7/50% Japanese yen notes, due 2002
1-3/5% Japanese yen notes, due 2002
2-3/10% Japanese yen notes, due 2003
1-53/100% Japanese yen notes, due 2003
2-23/40% Japanese yen notes, due 2004
2-1/40% Japanese yen notes, due 2004
1-22/25% Japanese yen notes, due 2005
2-19/20% Japanese yen notes, due 2007
2-27/100% Japanese yen notes, due 2008
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
Less amount due within one year
Millions of yen
2002
2001
Thousands of
U.S. dollars
2002
¥ 30,324
—
—
—
—
5,000
5,000
10,000
10,000
5,000
10,000
10,000
—
5,149
9,882
100,355
19,006
¥ 81,349
37,850
5,000
20,479
2,000
10,000
5,000
5,000
10,000
10,000
5,000
10,000
10,000
3,825
5,172
9,948
149,274
53,748
95,526
$
$
252,700
—
—
—
—
41,667
41,667
83,333
83,333
41,667
83,333
83,333
—
42,908
82,350
836,291
158,383
677,908
59
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The aggregate annual maturities of long-term debt
outstanding at December 31, 2002 were as follows:
2003
2004
2005
2006
2007
Later years
Millions
of yen
¥ 19,006
30,944
16,474
1,217
10,262
22,452
¥ 100,355
Thousands of
U.S. dollars
$ 158,383
257,866
137,283
10,142
85,517
187,100
$ 836,291
Property, plant and equipment with a book value at
December 31, 2002 of ¥9,416 million ($78,467 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 1-2/10% Japanese yen convertible debentures due
2005 are currently convertible into approximately 3,440,000
shares of common stock at a conversion price of ¥1,497.00
($12.48) per share. The debentures are redeemable at the
option of the Company between January 1, 2003 and
December 31, 2004 at premiums ranging from 2% to 1%,
and at par thereafter, or, dependent on a particular
circumstance, at par.
The 1-3/10% Japanese yen convertible debentures due
2008 are currently convertible into approximately 6,601,000
shares of common stock at a conversion price of ¥1,497.00
($12.48) per share. The debentures are redeemable at the
option of the Company between January 1, 2003 and
December 31, 2007 at premiums ranging from 5% to 1%,
and at par thereafter, or, dependent on a particular
circumstance, at par.
60
(10) Trade Payables
Trade payables are summarized as follows:
Notes
Accounts
Millions of yen
2002
¥ 62,894
345,570
¥ 408,464
2001
86,432
268,014
354,446
Thousands of
U.S. dollars
2002
$ 524,117
2,879,750
$ 3,403,867
(11) 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 plans mainly represent the
Employees’ Pension Fund plans (“EPFs”), composed of the
substitutional portions based on the pay-related part of the old
age pension benefits prescribed by the Welfare Pension
Insurance Law in Japan and the corporate portions based on
contributory defined benefit pension arrangements established
at the discretion of the Company and its subsidiaries.
Service cost — benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Net amortization
Weighted-average assumptions:
Discount rate
Assumed rate of increase in future compensation levels
Expected long-term rate of return on plan assets
Management considers that substitutional portions of the EPFs,
which are administered by a board of trustees composed of
management and labor representatives, represent welfare
pension plans carried on behalf of the Japanese government.
These contributory and noncontributory plans are funded in
conformity with the funding requirements of applicable
Japanese governmental regulations.
Net periodic benefit cost for Canon’s employee retirement
and severance defined benefit plans for the years ended
December 31, 2002, 2001 and 2000 consisted of the
following components:
2002
¥ 39,206
19,270
(14,523)
11,841
¥ 55,794
Millions of yen
2001
36,553
20,341
(13,636)
8,755
52,013
2.7%
3.4%
3.5%
2.7%
3.3%
3.5%
2000
31,712
16,512
(9,834)
5,016
43,406
3.0%
2.1%
4.0%
Thousands of
U.S. dollars
2002
$ 326,717
160,583
(121,025)
98,675
$ 464,950
61
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Reconciliations of beginning and ending balances of the benefit
obligations and the fair value of the plan assets are as follows:
Change in benefit obligations:
Benefit obligations at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss (gain)
Benefits paid
Other
Benefit obligations at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Other
Fair value of plan assets at end of year
Funded status
Unrecognized actuarial loss
Unrecognized prior service cost
Unrecognized net transition obligation being recognized over 22 years
Net amount recognized
Amounts recognized in the consolidated balance sheets consist of:
Prepaid pension cost
Accrued pension and serverance cost
Intangible assets
Accumulated other comprehensive income (loss), gross of tax
Net amount recognized
Millions of yen
2002
2001
¥ 718,091
39,206
19,270
3,825
—
(1,916)
(13,019)
995
766,452
429,483
(33,813)
33,661
3,825
(13,019)
1,505
421,642
(344,810)
329,240
(52,773)
4,988
¥ (63,355)
¥
2,664
(285,129)
144
218,966
¥ (63,355)
614,187
36,553
20,341
3,517
(56,664)
69,352
(9,816)
40,621
718,091
338,223
(34,942)
89,626
3,517
(9,816)
42,875
429,483
(288,608)
295,664
(56,664)
5,333
(44,275)
1,394
(237,537)
—
191,868
(44,275)
Thousands of
U.S. dollars
2002
$ 5,984,092
326,717
160,583
31,875
—
(15,967)
(108,492)
8,292
6,387,100
3,579,025
(281,775)
280,508
31,875
(108,492)
12,542
3,513,683
(2,873,417)
2,743,667
(439,775)
41,567
$ (527,958)
$
22,200
(2,376,075)
1,200
1,824,717
$ (527,958)
Employer contributions for the year ended December 31,
2001 include contribution of equity securities to an employee
pension trust. The fair value of those securities at the time of
contribution was ¥38,954 million.
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plans
with accumulated benefit obligations in excess of plan assets
were ¥709,881 million ($5,915,675 thousand), ¥650,339
million ($5,419,492 thousand) and ¥369,777 million
($3,081,475 thousand) as of December 31, 2002.
Directors and certain employees are not covered by the
programs described above. Benefits paid to such persons and
meritorious service payments are charged to income as paid,
since amounts vary with circumstances, and it is therefore not
practicable to compute the liability for future payments.
62
(12) Income Taxes
Total income taxes were allocated as follows:
Income before income taxes and minority interests
Stockholders’ equity — accumulated other comprehensive
income (loss):
Foreign currency translation adjustments
Net unrealized gains and losses on securities
Net losses on derivative instruments
Minimum pension liability adjustments
2002
¥ 134,703
Millions of yen
2001
115,154
2,387
(1,188)
1,513
(10,680)
¥ 126,735
(684)
(11,692)
(1,755)
(26,592)
74,431
2000
87,197
1,387
(25,457)
—
(19,365)
43,762
Thousands of
U.S. dollars
2002
$ 1,122,525
19,892
(9,900)
12,608
(89,000)
$ 1,056,125
Domestic and foreign components of income before
income taxes and minority interests (“Income before income
taxes”), and the current and deferred income tax expense
(benefit) attributable to such income before income taxes are
summarized as follows:
2002: Income before income taxes
Income taxes:
Current
Deferred
2001: Income before income taxes
Income taxes:
Current
Deferred
2000: Income before income taxes
Income taxes:
Current
Deferred
2002: Income before income taxes
Income taxes:
Current
Deferred
Japanese
¥ 237,677
¥ 109,102
(7,212)
¥ 101,890
¥ 230,456
¥ 95,664
(1,738)
¥ 93,926
¥ 166,074
¥ 78,832
(14,584)
¥ 64,248
Millions of yen
Foreign
92,340
27,389
5,424
32,813
51,110
17,318
3,910
21,228
61,122
18,645
4,304
22,949
Total
330,017
136,491
(1,788)
134,703
281,566
112,982
2,172
115,154
227,196
97,477
(10,280)
87,197
Thousands of U.S. dollars
Japanese
$ 1,980,642
$ 909,183
(60,100)
$ 849,083
Foreign
769,500
228,242
45,200
273,442
Total
2,750,142
1,137,425
(14,900)
1,122,525
63
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company and its domestic subsidiaries are subject to a
number of taxes based on income, which in the aggregate
resulted in a normal tax rate of approximately 42.0%.
A reconciliation of the Japanese normal income tax rate and
the effective income tax rate as a percentage of income before
income taxes is as follows:
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
Other
Effective income tax rate
Net deferred income tax assets and liabilities are reflected
on the accompanying consolidated balance sheets under the
following captions:
Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities
2002
42.0%
0.5
0.2
(2.5)
(1.6)
2.2
40.8%
2001
42.0%
1.4
0.9
(2.0)
(2.1)
0.7
40.9%
2000
42.0%
0.9
0.9
(1.9)
(1.3)
(2.2)
38.4%
Millions of yen
2002
¥ 85,379
170,673
(1,213)
(16,120)
¥ 238,719
2001
82,951
160,821
(1,517)
(10,234)
232,021
Thousands of
U.S. dollars
$
2002
711,491
1,422,275
(10,108)
(134,333)
$ 1,989,325
64
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2002 and 2001 are presented
below:
Millions of yen
2002
2001
¥ 55,806
6,794
42,253
97,454
3,375
21,215
14,699
6,119
42,269
289,984
9,683
280,301
(2,540)
(141)
(1,132)
(10,563)
(400)
(26,806)
(41,582)
¥ 238,719
49,754
6,146
39,941
87,524
3,715
23,067
13,828
8,989
52,647
285,611
12,875
272,736
(3,028)
(205)
(990)
(5,472)
(2,247)
(28,773)
(40,715)
232,021
Thousands of
U.S. dollars
2002
$
465,050
56,617
352,108
812,117
28,125
176,792
122,492
50,992
352,241
2,416,534
80,692
2,335,842
(21,167)
(1,175)
(9,433)
(88,025)
(3,333)
(223,384)
(346,517)
$ 1,989,325
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 ¥34,534 million ($287,783 thousand) for the
portion of undistributed earnings of foreign subsidiaries that
arose in the year ended December 31, 2002 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, 2002,
such undistributed earnings of these subsidiaries were
approximately ¥373,724 million ($3,114,367 thousand).
Deferred tax assets:
Inventories — intercompany profits and write-downs
Accrued business tax
Accrued pension and severance cost
Minimum pension liability adjustments
Property, plant and equipment — intercompany profits
Research and development — costs capitalized for tax purposes
Depreciation
Net operating losses carried forward
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Land including deferred gain on sale
Unamortized debt issuance cost
Accounts receivable — allowance for doubtful accounts
Undistributed earnings of foreign subsidiaries and
affiliated companies
Net unrealized gains on securities
Other
Total gross deferred tax liabilities
Net deferred tax assets
The valuation allowance for deferred tax assets as of January
1, 2001 was ¥6,367 million. The net change in the total
valuation allowance for the years ended December 31, 2002
and 2001 was a decrease of ¥3,192 million ($26,600
thousand) and an increase of ¥6,508 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, 2002.
At December 31, 2002, Canon had net operating losses
carried forward for income tax purposes of approximately
¥17,291 million ($144,092 thousand) which were available to
reduce future income taxes, if any. Approximately ¥16,929
million ($141,075 thousand) of the operating losses expire
through 2007 while the remainder have an indefinite carry
forward period.
65
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) Common Stock
During the years ended December 31, 2002, 2001 and 2000,
the Company issued 2,853,912 shares, 655,309 shares and
4,071,325 shares of common stock, respectively. The issuance
of 243,360 shares during the year ended December 31, 2002
was in connection with the acquisition of the outstanding
minority ownership interest of 37% of Canon Components, Inc.
The acquisition of the minority interest was consummated on
May 1, 2002, whereby Canon Components Inc. became a
wholly-owned subsidiary of the Company. The issuance of
3,176,373 shares during the year ended December 31, 2000
was in connection with the acquisition of the outstanding
(14) Legal Reserve and Cash Dividends
The Japanese Commercial Code, amended effective on October
1, 2001, provides that an amount equal to at least 10% of
appropriations paid in cash be appropriated as a legal reserve
until an aggregated amount of additional paid-in capital and the
legal reserve equals 25% of common stock. Certain foreign
subsidiaries are also required to appropriate their earnings to
legal reserves under the laws of the respective countries.
Canon’s equity in retained earnings or deficit of affiliated
companies owned 20% to 50% accounted for on the equity
basis aggregating positive ¥6,535 million ($54,458 thousand) at
December 31, 2002 is included in retained earnings.
Cash dividends and appropriations to the legal reserve
charged to retained earnings during the years ended December
31, 2002, 2001 and 2000 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 dividend for the second half year of
¥17.50 ($0.15) per share, aggregating ¥15,361 million
minority ownership interest of Canon Chemicals Inc. The
acquisition of the minority interest was consummated on
November 7, 2000, whereby Canon Chemicals Inc. became a
wholly-owned subsidiary of the Company. The remaining
issuance of the shares of the Company was in connection with
conversion of convertible debt. Conversion into common stock
of convertible debt issued subsequent to October 1, 1982 was
accounted for 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.
($128,008 thousand), subsequently proposed by the Board of
Directors in respect of the year ended December 31, 2002.
Cash dividends per common share are computed based on
dividends declared with respect to earnings for the periods.
The amount 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 accounting principles generally
accepted in the United States of America, 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. The amount available for dividends in the
Company’s nonconsolidated books of account under the
Japanese Commercial Code amounted to ¥746,101 million
($6,217,508 thousand) at December 31, 2002.
(15) Noncash Financing Activities
In the years ended December 31, 2002, 2001 and 2000,
common stock and additional paid-in capital arising from
conversion of convertible debt amounted to ¥3,908 million
($32,567 thousand), ¥981 million and ¥1,335 million,
respectively.
As a result of the acquisition of the outstanding minority
ownership interest of Canon Components Inc. during the year
ended December 31, 2002, goodwill classified as other assets
and additional paid-in capital increased by ¥795 million ($6,625
thousand) and ¥1,052 million ($8,767 thousand), respectively,
and also minority interests decreased by ¥257 million ($2,142
thousand).
As a result of the acquisition of the outstanding minority
ownership interest of Canon Chemicals Inc. during the year
ended December 31, 2000, goodwill classified as other assets,
common stock and additional paid-in capital increased by
¥4,116 million, ¥159 million and ¥14,430 million, respectively,
and also minority interests decreased by ¥10,473 million.
66
(16) Other Comprehensive Income (Loss)
Change in accumulated other comprehensive income (loss) is
as follows:
Foreign currency translation adjustments:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Net unrealized gains and losses on securities:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Net losses on derivative instruments:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Minimum pension liability adjustments:
Balance at beginning of year
Adjustments for the year
Balance at end of year
Millions of yen
Thousands of
U.S. dollars
2002
2001
2000
2002
¥ (52,660)
(15,864)
(68,524)
(104,149)
51,489
(52,660)
(127,148)
22,999
(104,149)
$ (438,833)
(132,200)
(571,033)
564
(1,732)
(1,168)
(2,423)
2,089
(334)
(80,649)
(15,792)
(96,441)
14,167
(13,603)
564
—
(2,423)
(2,423)
(56,600)
(24,049)
(80,649)
48,699
(34,532)
14,167
—
—
—
(29,858)
(26,742)
(56,600)
4,700
(14,433)
(9,733)
(20,191)
17,408
(2,783)
(672,076)
(131,600)
(803,676)
Total accumulated other comprehensive income (loss):
Balance at beginning of year
Adjustments for the year
Balance at end of year
(135,168)
(31,299)
¥ (166,467)
(146,582)
11,414
(135,168)
(108,307)
(38,275)
(146,582)
(1,126,400)
(260,825)
$ (1,387,225)
67
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Tax effects allocated to each component of other
comprehensive income (loss) and reclassification
adjustments are as follows:
2002:
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Minimum pension liability adjustments
Other comprehensive income (loss)
2001:
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Minimum pension liability adjustments
Other comprehensive income (loss)
2000:
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Minimum pension liability adjustments
Other comprehensive income (loss)
68
Before-tax
amount
Millions of yen
Tax (expense)
or benefit
Net-of-tax
amount
¥ (13,521)
44
(13,477)
(2,331)
(589)
(2,920)
(1,052)
4,654
3,602
(26,472)
¥ (39,267)
¥ 50,823
(18)
50,805
(8,434)
(16,861)
(25,295)
(11,146)
6,968
(4,178)
(50,641)
¥ (29,309)
¥ 25,581
(1,195)
24,386
(57,484)
(2,505)
(59,989)
(46,107)
¥ (81,710)
(2,908)
521
(2,387)
872
316
1,188
442
(1,955)
(1,513)
10,680
7,968
684
—
684
4,535
7,157
11,692
4,681
(2,926)
1,755
26,592
40,723
(1,392)
5
(1,387)
24,409
1,048
25,457
19,365
43,435
(16,429)
565
(15,864)
(1,459)
(273)
(1,732)
(610)
2,699
2,089
(15,792)
(31,299)
51,507
(18)
51,489
(3,899)
(9,704)
(13,603)
(6,465)
4,042
(2,423)
(24,049)
11,414
24,189
(1,190)
22,999
(33,075)
(1,457)
(34,532)
(26,742)
(38,275)
2002:
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Minimum pension liability adjustments
Other comprehensive income (loss)
Thousands of U.S. dollars
Before-tax
amount
Tax (expense)
or benefit
Net-of-tax
amount
$ (112,675)
367
(112,308)
(19,425)
(4,908)
(24,333)
(8,767)
38,783
30,016
(220,600)
$ (327,225)
(24,233)
4,341
(19,892)
7,267
2,633
9,900
3,683
(16,291)
(12,608)
89,000
66,400
(136,908)
4,708
(132,200)
(12,158)
(2,275)
(14,433)
(5,084)
22,492
17,408
(131,600)
(260,825)
69
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) Earnings per Share
A reconciliation of the numerators and denominators of basic
and diluted earnings per share for “Income before cumulative
effect of change in accounting principle” computations is as
follows:
Millions of yen
Thousands of
U.S. dollars
2002
2001
2000
2002
Income before cumulative effect of change
in accounting principle
Effect of dilutive securities:
1% Japanese yen convertible debentures,
due 2002
1-2/10% Japanese yen convertible
debentures, due 2005
1-3/10% Japanese yen convertible
debentures, due 2008
Diluted income before cumulative effect of
change in accounting principle
Average common shares outstanding
Effect of dilutive securities:
1% Japanese yen convertible debentures,
due 2002
1-2/10% Japanese yen convertible
debentures, due 2005
1-3/10% Japanese yen convertible
debentures, due 2008
Other
¥
190,737
163,869
134,088
$ 1,589,475
26
48
91
40
48
91
45
50
91
217
400
758
¥
190,902
164,048
134,274
$ 1,590,850
876,716,443
Number of shares
875,960,380
872,606,481
1,952,315
2,859,462
3,322,850
3,446,071
3,461,229
3,629,772
6,624,428
—
6,646,369
—
6,687,888
3,937
Diluted common shares outstanding
888,739,257
888,927,440
886,250,928
Earnings per share before cumulative effect of
change in accounting principle:
Basic
Diluted
¥
217.56
214.80
187.07
184.55
153.66
151.51
$
1.81
1.79
Yen
U.S. dollars
The computation of diluted net income per share for the year
ended December 31, 2001 uses the same average common
shares outstanding used for the computation of diluted net
income per share before cumulative effect of accounting change,
and reflects the effect of dilutive securities in diluted net income.
70
Fair value hedge
Derivative financial instruments designated as fair value hedges
principally relate to interest rate swaps associated with fixed rate
debt obligations. Changes in fair values of the hedged debt
obligations and derivative instruments designated as fair value
hedges of these debt obligations are recognized in other
income (deductions). There is no hedging ineffectiveness or net
gains or losses excluded from the assessment of hedge
effectiveness for the years ended December 31, 2002 and
2001 as the critical terms of the interest rate swaps match the
terms of the hedged debt obligations.
Cash flow hedge
Changes in the fair value of foreign exchange contracts
designated and qualifying as cash flow hedges of forecasted
intercompany sales are reported in accumulated other
comprehensive income (loss). These amounts are subsequently
reclassified into earnings through other income (deductions) in
the same period as the hedged items affect earnings. All the
accumulated other comprehensive income (loss) at end of year
are substantially expected to be recognized in earnings over the
next twelve months. Canon excludes the time value component
of the hedging instruments from the assessment of hedge
effectiveness.
The effective portions of changes in the fair value of foreign
exchange contracts designated as cash flow hedges and reported
in accumulated other comprehensive income (loss), net of the
related tax effect, are losses of ¥610 million ($5,084 thousand)
and ¥6,465 million for the years ended December 31, 2002 and
2001. The amounts which were reclassified out of accumulated
other comprehensive income (loss) into other income
(deductions), net of the related tax effect, are net losses of
¥2,699 million ($22,492 thousand) and ¥4,042 million for the
years ended December 31, 2002 and 2001. The amounts of the
hedging ineffectiveness is not material for the years ended
December 31, 2002 and 2001. The sum of the amount of net
gains or losses excluded from the assessment of hedge
effectiveness which are also recorded in other income
(deductions), net of the related tax effect, are net gains of ¥668
million ($5,567 thousand) and ¥1,907 million for the years
ended December 31, 2002 and 2001.
(18) Derivatives and Hedging Activities
Risk management policy
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 assesses foreign currency exchange rate risk and
interest rate risk by continually monitoring changes in these
exposures and by evaluating hedging opportunities. Canon does
not hold or issue derivative financial instruments for trading
purposes. Canon is also exposed to credit-related losses in the
event of non-performance by counterparties to derivative
financial instruments, but it is not expected that any
counterparties will fail to meet their obligations, because most of
the counterparties are internationally recognized financial
institutions and contracts are diversified into a number of major
financial institutions.
Foreign currency exchange rate risk management
The major manufacturing bases of Canon are located in Japan
and Asia. The sales generated from overseas are mainly
denominated in U.S. dollar or Euro. Therefore, Canon’s
international operations expose Canon to the risk of changes in
foreign currency. Canon uses foreign exchange contracts to
manage certain foreign currency exchange exposures principally
from the exchange of U.S. dollar and Euro into Japanese yen.
These contracts are primarily used to hedge the foreign currency
exposure of forecasted intercompany sales which are
denominated in foreign currencies. In accordance with Canon’s
policy, a specific portion of foreign currency exposure resulting
from forecasted intercompany sales are hedged using foreign
exchange contracts which principally mature within three
months.
Interest rate risk management
Canon’s exposure to the market risk of changes in interest rates
relates primarily to its debt obligations. The fixed-rate debt
obligations expose Canon to variability in their fair values due to
change in interest rates. To manage the variability in the fair
values caused by interest rate changes, Canon enters into
interest rate swaps, when it is determined to be appropriate
based on market conditions. The interest rate swaps change the
fixed-rate debt obligations to variable-rate debt obligations by
entering into receive-fixed, pay-variable interest rate swaps. The
hedging relationship between the interest rate swaps and its
hedged debt obligations is highly effective in achieving offsetting
changes in fair values resulting from interest rate risk.
71
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Canon has entered into certain foreign exchange contracts
which do not meet the hedging criteria of SFAS 133 and 138.
Canon records these foreign exchange contracts on the balance
sheet at fair value. The changes in fair values are recorded in
earnings immediately. The notional amounts of those foreign
exchange contracts were ¥362,276 million ($3,018,967
thousand) and ¥202,932 million at December 31, 2002 and
2001.
Canon has entered into certain interest rate swap agreements
which do not meet the hedging criteria of SFAS 133 and 138.
Canon records these interest rate swap agreements on the
balance sheet at fair value. The changes in fair values are
recorded in earnings immediately. The notional amounts of those
interest rate swap agreements were ¥57,270 million ($477,250
thousand) and ¥62,788 million at December 31, 2002 and
2001. Canon recognized net losses related to those interest rate
swaps in the amount of ¥1,738 million ($14,483 thousand) and
¥2,521 million for the years ended December 31, 2002 and
2001 and classified such amount in other income (deductions).
Contract amounts of foreign exchange contracts and interest
rate swaps at December 31, 2002 and 2001 are set forth below:
2002:
To sell foreign currencies
To buy foreign currencies
Receive-fixed interest rate swaps
Pay-fixed interest rate swaps
2001:
To sell foreign currencies
To buy foreign currencies
Receive-fixed interest rate swaps
Pay-fixed interest rate swaps
2002:
To sell foreign currencies
To buy foreign currencies
Receive-fixed interest rate swaps
Pay-fixed interest rate swaps
U.S. dollars
Euro
Other
Total
Millions of yen
¥ 262,408
3,586
—
56,019
¥ 117,810
11,554
—
62,788
138,631
2,307
—
1,251
115,475
1,593
—
—
21,757
759
180
—
17,603
596
21,548
—
422,796
6,652
180
57,270
250,888
13,743
21,548
62,788
U.S. dollars
Thousands of U.S. dollars
Other
Euro
Total
$ 2,186,733
29,883
—
466,825
1,155,259
19,225
—
10,425
181,308
6,325
1,500
—
3,523,300
55,433
1,500
477,250
(19) Commitments and Contingent Liabilities
Canon provides guarantees to third parties of bank loans of its
employees, affiliated and other companies. The guarantees for
the employees are principally made for their housing loans. The
guarantees for the affiliated and other companies are made to
ensure that those companies operate with less risk of finance.
For each guarantee provided, Canon would have to perform
under the guarantee, if they default on a payment within the
contract periods of 1 year to 30 years for the employees with
housing loans and of 1 year to 15 years for the affiliated and
other companies. The maximum amount of undiscounted
payments Canon would have to make in the event of default is
¥49,919 million ($415,992 thousand) at December 31, 2002.
The carrying amounts of the liabilities recognized for Canon’s
obligations as a guarantor under those guarantees at December
31, 2002 were insignificant. Certain of those guarantees
secured by guarantees issued to Canon by other parties
amounted to ¥1,094 million ($9,117 thousand) at December
31, 2002.
Canon Inc. and its consolidated subsidiaries provide
guarantees to third parties of certain obligations of their
consolidated subsidiaries. At December 31, 2002, these
guarantees amounted to ¥23,634 million ($196,950
thousand). To a lesser extent, consolidated subsidiaries provide
guarantees to third parties of obligations of other consolidated
subsidiaries. All intercompany guarantees are eliminated in
consolidation and therefore are not reflected in the above figure.
72
Canon also issues contractual product warranties under which it
generally guarantees the performance of products delivered and
services rendered for a certain period or term. Change in
accrued product warranty cost for the year ended December 31,
2002 is summarized as follows:
Balance at beginning of year
Addition
Utilization
Other
Balance at end of year
Millions
of yen
¥ 7,038
8,351
(7,763)
(110)
¥ 7,516
Thousands of
U.S. dollars
$ 58,650
69,592
(64,692)
(917)
$ 62,633
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
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.
At December 31, 2002, commitments outstanding for the
purchase of property, plant and equipment approximated
¥29,539 million ($246,158 thousand).
Canon occupies sales offices and other facilities under lease
arrangements accounted for as operating leases. Deposits made
under such arrangements aggregated ¥18,133 million
($151,108 thousand) and ¥18,700 million at December 31,
2002 and 2001, respectively, and are reflected in noncurrent
receivables on the accompanying consolidated balance sheets.
Canon is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on Canon’s consolidated financial
position, results of operations, or cash flows.
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, 2002 are
as follows:
Year ending December 31:
2003
2004
2005
2006
2007
Later years
Total future minimum
lease payments
Millions
of yen
¥ 10,490
7,315
5,798
4,511
4,065
6,472
Thousands of
U.S. dollars
$ 87,417
60,958
48,317
37,592
33,875
53,933
¥ 38,651
$ 322,092
(20) 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
The fair values of Canon’s noncurrent receivables 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, 2002 and 2001
totaled ¥20,568 million ($171,400 thousand) and ¥21,125
million, respectively, which approximate fair values because of
their short duration.
73
CANON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The estimated fair values of Canon’s financial instruments at
December 31, 2002 and 2001 are summarized as follows:
Nonderivatives:
Assets:
Marketable securities and
Investments
Liabilities:
Millions of yen
2002
2001
Thousands of
U.S. dollars
2002
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
¥ 41,285
41,285
38,061
38,061
$
344,042
344,042
Long-term debt, including current installments
(100,355) (132,574) (149,274) (189,577)
(836,292)
(1,104,783)
Derivatives relating to:
Forecasted intercompany
sales transactions:
Assets
Liabilities
Trade receivables:
Assets
Liabilities
Long-term debt,
including current installments:
Interest rate swaps:
Assets
Liabilities
808
(622)
808
(622)
—
(4,402)
—
(4,402)
6,733
(5,183)
6,733
(5,183)
3,851
(2,938)
3,851
(2,938)
493
(9,191)
493
(9,191)
32,092
(24,483)
32,092
(24,483)
1
(1,149)
1
(1,149)
575
(1,463)
575
(1,463)
8
(9,575)
8
(9,575)
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instruments. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(21) Supplementary Expense Information
Research and development
Depreciation of property, plant and equipment
Rent
Advertising
Exchange losses
2002
¥ 233,669
158,469
44,195
71,725
23,468
Millions of yen
2001
218,616
147,286
47,558
66,837
14,801
2000
194,552
144,043
42,963
67,840
20,195
Thousands of
U.S. dollars
2002
$ 1,947,242
1,320,575
368,292
597,708
195,567
74
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders
Canon Inc.:
We have audited the accompanying consolidated balance sheets (expressed in yen) of Canon Inc. and subsidiaries as
of December 31, 2002 and 2001, 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, 2002. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
The segment information required to be disclosed in financial statements under accounting principles generally
accepted in the United States of America is not presented in the accompanying consolidated financial statements.
Foreign issuers are currently exempted from such disclosure requirement in Securities Exchange Act filings with the
United States Securities and Exchange Commission.
In our opinion, except for the omission of the segment information as discussed in the third paragraph of this
report, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Canon Inc. and subsidiaries at December 31, 2002 and 2001, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in note 1 of the notes to the consolidated financial statements, Canon Inc. and subsidiaries changed
their method of accounting for derivative instruments and hedging activities in the year beginning January 1, 2001.
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
January 28, 2003
75
MAJOR CONSOLIDATED SUBSIDIARIES
(As of December 31, 2002)
BOARD OF DIRECTORS
AND CORPORATE AUDITORS
(As of December 31, 2002)
MANUFACTURING
Canon Electronics Inc.
Canon Aptex Inc.
Copyer Co., Ltd.
Canon N.T.C., Inc.
Canon Components, Inc.
Nisca Corporation
Canon Chemicals Inc.
Canon Precision Inc.
Oita Canon Inc.
Nagahama Canon Inc.
Oita Canon Materials Inc.
Optron, Inc.
Ueno Canon Materials Inc.
Canon Virginia, Inc.
South Tech, Inc.
Custom Integrated Technology, Inc.
Industrial Resource Technologies, Inc.
Canon Giessen GmbH
Canon Bretagne S.A.S.
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.
Canon Vietnam Co., Ltd.
Canon (Suzhou) Inc.
Canon Zhongshan Business Machines
Co., Ltd.
RESEARCH & DEVELOPMENT
Canon Development Americas, Inc.
Canon Research Centre Europe Ltd.
Canon Research Centre France S.A.S.
Canon Information Systems
Research Australia Pty. Ltd.
Beijing Pecan Information System Co., Ltd.
President & CEO
Fujio Mitarai
Senior Managing Directors
Ichiro Endo
Yukio Yamashita
Toshizo Tanaka
Managing Directors
Takashi Saito
Yusuke Emura
Kinya Uchida
Akira Tajima
Nobuyoshi Tanaka
Tsuneji Uchida
Junji Ichikawa
Hajime Tsuruoka
Directors
Toru Takahashi
Muneo Adachi
Teruomi Takahashi
Hironori Yamamoto
Akiyoshi Moroe
Kunio Watanabe
Ikuo Soma
Yoroku Adachi
Yasuo Mitsuhashi
Corporate Auditors
Kohtaro Miyagi
Masaharu Aono
Tadashi Ohe
Tetsuo Yoshizawa
MARKETING & OTHER
Canon Sales Co., Inc.
Canon System and Support Inc.
Canon Software Inc.
Canon U.S.A., Inc.
Canon Canada, Inc.
Canon Mexicana, S. de R.L. de C.V.
Canon Latin America, Inc.
Canon do Brasil Indústria e Comércio Limitada
Canon Chile, S.A.
Canon Panama, S.A.
Canon Argentina, S.A.
Canon Business Solution — Central, Inc.
Canon Business Solution — West, Inc.
Canon Business Solution — Southeast, Inc.
Canon Business Solution — Northeast, Inc.
Canon Financial Services, Inc.
Canon Information Technology Service, Inc.
Canon Europa N.V.
Canon Europe Ltd.
Canon (UK) Ltd.
Canon Deutschland GmbH
Canon France S.A.
Canon Communication & Image France S.A.
Canon Italia S.p.A.
Canon España S.A.
Canon S.A.
Canon Nederland N.V.
Canon Belgium N.V./S.A.
Canon (Schweiz) AG
Canon Gesellschaft m.b.H.
Canon Svenska AB
Canon Oy
Canon North-East Oy
Canon Norge A.S.
Cannon CEE GmbH
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 (China) Co., Ltd.
Canon Marketing (Singapore) Pte. Ltd.
Canon Marketing (Malaysia) Sdn. Bhd.
Canon Marketing (Thailand) Co., Ltd.
Canon Marketing (Hong Kong) Co., Ltd.
Canon Semiconductor Engineering
Korea Inc.
Canon Semiconductor Equipment
Taiwan Inc.
76
Coporate Profile
TRANSFER OFFICE AND REGISTRARS
SHAREHOLDERS’ INFORMATION
Canon Inc. (NYSE: CAJ) and the Canon Group develop,
produce and market a wide range of products used in the
home, offices and industry, including business machines,
conventional and digital cameras, lenses, digital video
camcorders, semiconductor production equipment,
television broadcasting lenses and medical equipment.
The Group employs 97,802 people* worldwide.
The operating environment in 2003 remained harsh,
but Canon’s strong product lines and successful
management reformation activities made possible the
third consecutive year of record-breaking consolidated
net income. The Group also made significant progress in
achieving the aims of Phase II of the Excellent Global
Corporation Plan, which commenced in 2001 and will
conclude in 2005.
kyosei,
The Canon Group pursues a variety of environmental
and philanthropic activities under its corporate philosophy
or living and working together for the common
of
good. We are also fulfilling our duties to investors and
society by stressing good corporate governance
throughout our activities.
* As of December 31, 2002
C O N T E N T S
1 Financial Highlights
2 To Our Shareholders
4
9
Canon turns around from a slow first half
to set new consolidated net sales and
net income records
Interview with the President
Fujio Mitarai, Canon Inc.’s president and
CEO, reveals the secrets behind
Canon’s success and provides a look at
future plans
Taking Action in the Century of the
Environment
Highlighting Canon’s environmental
philosophy and recent activities
12 Philanthropic Activities
A look at recent trends in Canon’s social
and cultural support activities
13 Product Group Summary
Product category-specific reports on
results and strategies for the future
14 Business Machines
14 Copying Machines
Canon launches its first color digital
multifunction device (MFD) for the
fast-growing color document business
16 Computer Peripherals
Competitive Bubble Jet printers sell well,
and Canon maintains its leadership of
the global monochrome laser beam
printer market
18 Business Systems
Canon increases sales of ink-jet
multifunction peripherals and prepares
to expand portable data terminal
business globally
20 Cameras
Strong sales achieved for digital cameras
and digital video camcorders, as the
market continues to shift to digital
24 Optical Products
Canon releases the world’s first 100x
zoom television broadcasting lens; sluggish
IT-related demand impacts semiconductor
production equipment sales
27 Financial Section
76 Major Consolidated Subsidiaries
Board of Directors and Corporate
Auditors
77 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
Mizuho Trust & Banking Co., Ltd.
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, Fukuoka, Sapporo,
New York and Frankfurt stock exchanges
American Depositary Receipts (ADRs) are
traded on the New York Stock Exchange.
Shareholders’ annual general meeting:
March 28, 2003, in Tokyo
Other information:
For publications or information, please
contact the Corporate Communications
Center, Canon Inc., Tokyo, or access
Canon´s Website at
www.canon.com
This publication was printed on 70% recycled paper by an
ISO 14001-accredited printer. The inks used, containing
neither VOCs (volatile organic compounds) nor mineral oils,
excel in decomposition and de-inking.
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PUB. BEP012 0403SZ 19900 Printed in Japan
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C A N O N A N N UA L R E P O R T 20 0 2
Fiscal Year Ended December 31, 2002
CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan