C A N O N A N N U A L R E P O R T 2 0 1 3
F i s c a l Ye a r E n d e d D e c e m b e r 3 1 , 2 0 1 3
F I N A N C I A L H I G H L I G H T S
Millions of yen
(except per share amounts)
Thousands of U.S. dollars
(except per share amounts)
2012
Change (%)
Net sales
Operating profit
Income before income taxes
Net income attributable to Canon Inc.
Net income attributable to Canon Inc.
stockholders per share:
—Basic
—Diluted
Total assets
Canon Inc. stockholders’ equity
2013
¥ 3,731,380
337,277
347,604
230,483
¥ 3,479,788
323,856
342,557
224,564
¥ 200.78
¥
191.34
200.78
¥ 4,242,710
¥ 2,910,262
191.34
¥ 3,955,503
¥ 2,598,026
+7.2
+4.1
+1.5
+2.6
+4.9
+4.9
+7.3
+12.0
2013
$ 35,536,952
3,212,162
3,310,514
2,195,076
$
1.91
1.91
$ 40,406,762
$ 27,716,781
Notes:
1. Canon’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.
2. U.S. dollar amounts are translated from yen at the rate of JPY105=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 2013, solely for the convenience of the reader.
4,000,000
3,000,000
2,000,000
1,000,000
0
300.00
200.00
100.00
0.00
Net Sales
(Millions of yen)
3,209,201
3,706,901
3,557,433
3,479,788
3,731,380
Net Income Attributable to Canon Inc.
(Millions of yen)
246,603
248,630
224,564
230,483
131,647
300,000
200,000
100,000
0
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Net Income Attributable to Canon Inc.
Stockholders per Share
(Yen)
ROE/ROA
(%)
204.49 204.48
200.78 200.78
199.71
199.70
191.34 191.34
106.64
106.64
9.2
9.6
6.3
6.3
8.7
5.7
8.4
5.6
10.0
8.0
6.0
4.0
0
4.9
3.4
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Basic
Diluted
ROE
ROA
01
CO RPORAT E P R OF ILE
T A B L E O F C O N T E N T S
Canon develops, manufactures and markets a growing lineup of
STRATEGY
02 TO OUR STOCKHOLDERS
copying machines, printers, cameras and industrial and other
equipment. Through these products, the Company meets grow-
ing customer needs that are becoming increasingly diversified and
sophisticated. Today, the Canon brand is recognized and trusted
throughout the world.
BUSINESS
SEGMENT
10 AT A GLANCE
12 OFFICE BUSINESS UNIT
In 1996, Canon launched its Excellent Global Corporation Plan
14 IMAGING SYSTEM BUSINESS UNIT
with the aim of becoming a company worthy of admiration and
16 INDUSTRY AND OTHERS BUSINESS UNIT
respect the world over. Currently, the Company is working to achieve
18 2013 TOPICS
the overwhelming No. 1 position in its existing core businesses
and expand related and peripheral businesses by strengthening its
advanced solutions business, centered on innovative products, and
through other measures. At the same time, Canon is nurturing its
operations in the fields of medical equipment and industrial equip-
ment, the latter including intelligent robots, to establish new core
businesses. The Company is working to fulfill its responsibilities to
investors and society, emphasizing sound corporate governance and
stepping up the implementation of activities that contribute to envi-
ronmental and social sustainability.
CO RPORAT E P HIL OSOP HY: Kyosei
Canon’s corporate philosophy is kyosei.
It conveys our dedication to seeing all people, regardless of cul-
ture, customs, language or race, harmoniously living and working
together in happiness into the future. Unfortunately, current factors
related to economies, resources and the environment make realiz-
ing kyosei difficult.
Canon strives to eliminate these factors through corporate activ-
ities rooted in kyosei. Truly global companies must foster good
relations with customers and communities, as well as with govern-
ments, regions and the environment as part of their fulfillment of
social responsibilities.
CORPORATE
STRUCTURE
20 CORPORATE GOVERNANCE
24 RESEARCH & DEVELOPMENT
FINANCIAL
SECTION
26 PRODUCTION
28 SALES & MARKETING
30 CORPORATE SOCIAL RESPONSIBILITY
34 FINANCIAL OVERVIEW
48 TEN-YEAR FINANCIAL SUMMARY
50 CONSOLIDATED BALANCE SHEETS
51 CONSOLIDATED STATEMENTS OF
INCOME
51 CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
52 CONSOLIDATED STATEMENTS OF
EQUITY
54 CONSOLIDATED STATEMENTS OF
CASH FLOWS
55 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
93 MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
94 REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
For this reason, Canon’s goal is to contribute to global prosperity
and the well-being of mankind as we continue our efforts to bring
CORPORATE
DATA
96 TRANSFER AND REGISTRAR’S OFFICE
96 STOCKHOLDER INFORMATION
the world closer to achieving kyosei.
CO RPORAT E GOAL
Canon sees itself growing and prospering over the next 100, and
even 200, years. Toward this end, the Company has been promot-
ing its Excellent Global Corporation Plan, launching Phase IV of
the initiative in 2011. Building on the financial strengths that the
Company has continuously reinforced through the implementation
of the plan, Canon aims to join the ranks of the world’s top 100 com-
panies in terms of major management indicators.
97 MAJOR CONSOLIDATED SUBSIDIARIES
Cover Photo:
The Cinema EOS System Its ultra-high-sensitivity 4K camera
succeeded in capturing the world’s-fi rst video of the comet
ISON from the International Space Station. (The picture is a
concept image.)
02
STRATEGY
Business Segment
Corporate Structure
Financial Section
Corporate Data
T O O U R S T O C K H O L D E R S
Fujio Mitarai
Chairman & CEO
Canon Inc.
TO OUR STOCKHOLDERS
03
At Canon, we believe that change is progress and transformation
is advancement. With this in mind, we will ride the wave of
economic recovery and carry out further reforms in order to return
Canon to a path of growth.
Performance in 2013
In 2013, conditions in the world economy remained
item deserving of special attention is our gross profit
very challenging despite initial expectations of recovery.
ratio, the most important performance indicator for com-
Although the U.S. and Japanese economies headed toward
panies in the manufacturing sector, which, at 48.2%, sur-
moderate recoveries in the latter half of the year, economic
passed that of the previous year despite the challenging
stagnation in Europe remained unabated while China and
business conditions we faced.
other emerging nations faced slowdowns in growth. As for
Over the five years since the collapse of Lehman Brothers,
exchange rates, the yen depreciated significantly, reflect-
the contraction of the world economy has posed extremely
ing a correction of its historically high value against the
serious challenges for global companies like Canon.
U.S. dollar and the euro during the previous several years.
Regardless of these challenges, Canon has generated aver-
Supported by the effects of the weak yen, we contin-
age annual net income in excess of ¥200 billion for a cumu-
ued striving to boost the appeal of Canon products as
lative total of more than ¥1 trillion over the period. We
well as maintain and improve our sound financial posi-
have also maintained a very healthy financial position with
tion while working relentlessly to enhance productivity
year-end cash and cash equivalents of around ¥790 billion,
and reduce costs. Accordingly, we achieved year-on-year
the equivalent of approximately 2.4 months of net sales.
sales and profit growth for the first time in three years.
Moreover, our stockholders’ equity ratio rose 2.9 points to
In 2013, our office multifunction devices (MFDs) and
68.6%. Among Fortune 500 companies as of the end of 2013,
laser printers performed well and we enjoyed increased
this places Canon among the top 10 in the world.
sales of inkjet printers thanks to an expanded lineup
In addition, during these five years, Canon has actively
of new products. Also, despite the decline in unit sales
made large-scale investments, including the acquisition
of compact digital cameras due mainly to the prolifera-
of Océ, while executing share buybacks totaling some
tion of smartphones, we were able to maintain our No.
¥350 billion. We have pursued a rigorous cash flow man-
1 global market share in terms of sales volume for both
agement approach aimed at maintaining a robust finan-
compact digital cameras and interchangeable-lens digital
cial position while solidifying our preparations for the
cameras. As a result, consolidated net sales for the year
future. This has enabled us to protect jobs and generate
amounted to ¥3,731.4 billion, up 7.2% from the previous
abundant cash reserves. In this way, despite the adverse
year. Moreover, a rigorous Groupwide effort to lower oper-
conditions we faced in 2013, we declared an annual cash
ating expenses, together with an improved gross profit
dividend of ¥130.00 per share, the same level as 2012
ratio, led to operating profit of ¥337.3 billion, an increase
of 4.1% from the previous year.
(which included a commemorative dividend that we
issued to commemorate our 75th anniversary), underscor-
Having just summed up our performance in 2013, one
ing our stable, yet proactive shareholder return policy.
04
STRATEGY
Business Segment
Corporate Structure
Financial Section
Corporate Data
Excellent Global Corporation Plan
Canon launched the Excellent Global Corporation Plan
our copying machine and camera offerings, laying
in 1996 and, over the nearly 20 years since it was intro-
the groundwork for the successes that we enjoy today
duced, we have reinforced our business foundation
while also enabling us to become an essentially debt-
through the Plan’s various phases.
free company.
During Phase I (1996—2000), we focused on shifting
During Phase III (2006—2010), we sought to expand
from nonconsolidated business management to consol-
Canon’s business scope, broadening our businesses in
idated business management while stressing the impor-
the printing and medical equipment fields while actively
tance of total optimization over partial optimization,
carrying out M&A activities.
and of profit over sales. By emphasizing the importance
And in 2011, under the slogan “Aiming for the Summit:
of cash-flow management and comprehensively elimi-
Speed & Sound Growth,” we embarked on Phase IV, span-
nating waste, we were able to reduce our debt by more
ning the five-year period through 2015. Focusing on the
than half while also significantly increasing productiv-
six key strategies explained below, Phase IV calls for pro-
ity through the introduction of the cell production sys-
active, quick reforms ahead of the dramatically chang-
tem and other measures.
ing times along with the achievement of sound business
In Phase II (2001—2005), we focused on reinforcing
growth through the further expansion of our corporate
Canon’s product competitiveness. We fully digitalized
scale while maintaining high profitability.
The Excellent Global Corporation Plan
Phase I 1996–2000
Phase II 2001–2005
Phase III 2006–2010
Phase IV 2011–2015
Strengthened our
financial structure by
thoroughly eliminating
wastefulness, with pro-
duction reforms playing
a major role, based on
changing our mindset
with a focus on total
optimization and profit-
ability.
Recognized the need
for digitalization and
raised product competi-
tiveness by enhancing
our development infra-
structure and reinforc-
ing key components.
Strove to achieve
“Sound Growth,” seek-
ing high growth levels
by establishing new
businesses while raising
the profitability of exist-
ing businesses. With
the global economy
plunging into the global
recession, shifted
direction towards
“improving the quality
of management.”
Set up
an even stronger
financial structure
and increased
momentum
towards
a dramatic
leap forward
from now.
Tackle again the chal-
lenge of achieving
“Sound Growth”
through timely change
in advance of changes
in the times.
Slogan:
“Aiming for the Summit:
Speed & Sound
Growth”
TO OUR STOCKHOLDERS
05
Strategy 1
Achieving the overwhelming No. 1 position in all core businesses and
expanding related and peripheral businesses
In 2013, within the office MFD segment, we enhanced
share of global sales volume through the launch of high-
our color machine lineup centered on the imageRUN-
value-added models incorporating large image sensors
NER ADVANCE series while also promptly responding to
and other advanced features that distinguish our products
the solutions needs of offices utilizing cloud computing
from smartphones. Furthermore, an ultrahigh-sensitivity
and other new network environments. Also, decisively
4K cinema camera from our Cinema EOS System lineup
acting on the market shift from offset to digital print-
was used to successfully capture the world’s first video
ing, we have bolstered our commercial printing business
of the comet ISON from the International Space Station,
through the integration of Océ. Furthermore, we posted
an achievement that added to the praise our Cinema EOS
an increase in sales volume of inkjet printers through the
System has already garnered.
introduction of new products offering enhanced support
Within the industrial equipment segment, we will
for cloud services and launched new large-format print-
expedite the development of flat-panel-display lithogra-
ers that have enabled us to capture several major orders.
phy systems used to produce high-resolution panels for
We also worked to expand sales of our DreamLabo com-
smartphones and other mobile devices, as well as next-
mercial photo printer.
generation semiconductor lithography systems incorpo-
As for interchangeable-lens digital cameras, Canon
rating nanoimprint lithography technology supporting
retained the No. 1 share worldwide in terms of unit sales
the miniaturization of electronic features. In these ways,
on the back of solid performances by new products tar-
we will solidify our position in the lithography equip-
geting advanced-amateur users. And within the compact
ment sector.
digital camera segment, we also maintained our No. 1
Achieving the Overwhelming No.1 Position
Expand Existing Businesses
Cloud
Network
Compatibility
Alliance
Smartphone
Convenience
Expand Related and Peripheral Businesses
Cinema EOS
System
DreamLabo
Océ
The Cinema EOS System combines a compact, lightweight body with
easy-to-use functions and an attractive low price is widely used in
motion picture production.
06
STRATEGY
Business Segment
Corporate Structure
Financial Section
Corporate Data
Strategy 2
Developing new business through globalized diversification and
establishing the Three Regional Headquarters management system
For Canon, realizing sustainable future growth while
Europe, is finally beginning to take shape.
competing against some of the world’s leading compa-
With regard to medical equipment, we are already
nies would prove difficult if we focused on innovation
expanding shipments of our mainstay digital radiogra-
from Japan alone. For this reason, we have been mak-
phy systems while in the industrial equipment segment
ing rapid progress in establishing our Three Regional
we look forward to growing our network camera system
Headquarters management system. In Japan, one of the
business. The market for network cameras and camera
three regions, we have entered the clinical evaluation
systems is expected to grow by more than 20% annually,
stage for a photoacoustic mammography device capa-
potentially surpassing ¥1 trillion in the future.
ble of the early detection of breast cancer. In the United
Our MR (mixed reality) system, which merges the real
States, Canon Virginia, Inc. plans to commence produc-
and virtual worlds in real time, has also earned high
tion in 2015 of a DNA diagnostic system developed by
marks from automakers, construction companies, univer-
Canon U.S. Life Sciences, Inc. And in Europe, with Océ
sities and other research institutions. We are also focus-
as a member of the Canon Group, we have designated
ing our energies on commercializing a high-definition
their facilities as the development base for high-speed
4K-resolution display for professional use that comple-
printers. Through this allocation, the globally diver-
ments our Cinema EOS System, as well as Super Machine
sified structure that we envision, with new businesses
Vision technology that would be used as “robotic eyes” in
emerging continuously from Japan, North America and
production processes.
Photoacoustic Mammography captures images of blood vessels around
tumorous tissue using laser radiation. If realized, it would enable nearly
pain-free exams without exposure to X-rays.
The Professional Use Display realizes faithful color reproduction, high
resolution and high-contrast performance, equipped with an image
engine for display use developed by Canon and meets professionals’
advanced video production needs.
TO OUR STOCKHOLDERS
07
Strategy 3
Establishing a world-leading globally optimized production system
As part of our cost-reduction efforts, Canon is focusing on
production. In the Americas and Europe as well, we will
boosting in-house production and promoting automation.
take advantage of automated production systems, mainly
With respect to increasing in-house production, we
for consumables, to realize localized production. By
are identifying parts that account for high total pur-
shortening the distance from factory to market, we will
chasing costs with the aim of bringing the production
be able to deliver products to consumers in a timely man-
of these items in-house. In 2013, for example, Canon
ner while reducing transportation costs and inventory in
Hi-Tech (Thailand) Ltd. began manufacturing printed cir-
transit. In Asia, in addition to working to disperse the risk
cuit boards and, in the future, we also intend to expand
posed by concentrating production in a single location,
in-house production to Canon Prachinburi (Thailand) Ltd.
we will enhance employee welfare programs and train-
and Canon Vietnam Co., Ltd.
ing systems to improve worker retention levels and raise
As for our efforts to promote automation, in 2013 we
productivity. In accordance with this strategy, in 2013 we
began deploying robots for the assembly of select EF lens
established new companies in Thailand, the Philippines
units at our Utsunomiya Plant in Japan. As we realize
and Brazil, which have launched production of MFDs,
additional enhancements for these systems to raise pro-
laser printers and digital cameras, respectively, in addi-
duction capacity, we will further hone our automation
tion to other products.
technologies to make possible the automated assembly of
Based on a comprehensive evaluation of such factors as
cameras and lens bodies. In accordance with our produc-
foreign exchange fluctuations, wages, taxation systems,
tion strategy for the future, in Japan, in addition to man-
infrastructure and country risk, Canon will continue
ufacturing high-value-added products, we will make use
striving to build a globally optimized production system
of our automation technologies to maintain and expand
from the perspective of total optimization.
Accelerate Cost Reduction by Expansion of New Production Sites
(cid:115)(cid:0)(cid:35)(cid:65)(cid:78)(cid:79)(cid:78)(cid:0)(cid:48)(cid:82)(cid:65)(cid:67)(cid:72)(cid:73)(cid:78)(cid:66)(cid:85)(cid:82)(cid:73)(cid:0)(cid:8)(cid:52)(cid:72)(cid:65)(cid:73)(cid:76)(cid:65)(cid:78)(cid:68)(cid:9)
(cid:0) (cid:8)(cid:47)(cid:70)(cid:70)(cid:73)(cid:67)(cid:69)(cid:0)(cid:45)(cid:38)(cid:36)(cid:83)(cid:9)
Major Production Sites
New Production Sites
(cid:115)(cid:0)(cid:35)(cid:65)(cid:78)(cid:79)(cid:78)(cid:0)(cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:45)(cid:65)(cid:67)(cid:72)(cid:73)(cid:78)(cid:69)(cid:83)
(cid:0) (cid:8)(cid:48)(cid:72)(cid:73)(cid:76)(cid:73)(cid:80)(cid:80)(cid:73)(cid:78)(cid:69)(cid:83)(cid:9)(cid:0)(cid:8)(cid:44)(cid:65)(cid:83)(cid:69)(cid:82)(cid:0)(cid:80)(cid:82)(cid:73)(cid:78)(cid:84)(cid:69)(cid:82)(cid:83)(cid:9)
(cid:115)(cid:0)(cid:0)(cid:35)(cid:65)(cid:78)(cid:79)(cid:78)(cid:0)(cid:41)(cid:78)(cid:68)(cid:222)(cid:83)(cid:84)(cid:82)(cid:73)(cid:65)(cid:0)(cid:68)(cid:69)(cid:0)(cid:45)(cid:65)(cid:78)(cid:65)(cid:85)(cid:83)(cid:0)
(cid:0) (cid:8)(cid:34)(cid:82)(cid:65)(cid:90)(cid:73)(cid:76)(cid:9)(cid:0)(cid:8)(cid:36)(cid:73)(cid:71)(cid:73)(cid:84)(cid:65)(cid:76)(cid:0)(cid:67)(cid:65)(cid:77)(cid:69)(cid:82)(cid:65)(cid:83)(cid:9)
08
STRATEGY
Business Segment
Corporate Structure
Financial Section
Corporate Data
Strategy 4
Comprehensively reinforcing
global sales capabilities
Building the foundations of
Strategy 5
an environmentally advanced
corporation
As we see the economic scale of emerging nations, espe-
In addition to fulfilling our social responsibilities to the
cially across Asia, exceeding that of developed countries, we
natural environment, Canon aims to be a company that
are expanding and upgrading our sales networks and prod-
actively achieves corporate growth while protecting the
uct lineups in accordance with the situation in each coun-
environment. As we strive to raise the performance of
try. In China, in the roughly 350 cities with a population of
our products, we develop energy-saving technologies and
one million or more, we are working to swiftly bolster our
materials with low environmental burden to minimize
office equipment through the establishment of branches
our environmental impact and cut carbon dioxide emis-
and offices. In India, we plan to increase the number of
sions. In 2013, we focused our energies on developing
Canon-brand retail stores we have been rolling out in South
and promoting MFDs with exceptional environmental
and Southeast Asia from the current 108 locations to 300 by
performance, successfully achieving a year-on-year reduc-
2015, and will continue opening stores in other countries as
tion in averaged life-cycle CO2 emissions per product that
well. In Brazil, meanwhile, we began local production of com-
exceeded our 3% target.
pact digital cameras in 2013, while in Russia we are making
Additionally, in 1990, we launched our toner cartridge
efforts to strengthen our sales capabilities. Additionally,
collection and recycling program and now carry out the
in Africa, we have established Canon Kenya Limited.
localized recycling of cartridges in Japan, the United
As for developed countries, we are working to expand
States, China and France. In 1996, we also started a collec-
our market share by reinforcing online sales initiatives
tion service in Japan for used ink cartridges, and this pro-
in the consumer segment, and enhancing our ability to
gram has since been expanded to include Asia, Oceania,
respond to mass procurement orders from global clients
North America and Europe.
in the office segment.
Canon established Canon Kenya in January 2013 to capture demand in
the fast-growing markets of eastern Africa and enhance its marketing
and support structure.
Canon recycles ink cartridges to minimize waste, collecting ink car-
tridges in ways that are convenient for customers and reusing recov-
ered materials.
TO OUR STOCKHOLDERS
09
Strategy 6
Imparting a corporate culture,
and cultivating human
resources befitting a truly
excellent global company
In Conclusion
The global economic map is undergoing a major trans-
The global economy seems to have bottomed out in
formation in the wake of rapid advances in globalization
2013 and is expected to recover moderately in 2014
and networking. In order to ensure that Canon develops
despite uncertainty about economic trends in emerg-
as a truly excellent global company worthy of admira-
ing countries.
tion and respect for 100, and even 200, years, we must
We have bolstered our defenses through the
have an exceptional global workforce capable of not only
challenges we have faced while diligently making
winning in the face of global competition but also deliv-
preparations to go on the offensive when the oppor-
ering innovation.
tunity arises. In 2014, we aim to generate year-on-year
At Canon sales companies around the world we
increases in both sales and profit under a basic policy
already have many locally hired employees in upper man-
focusing on further reforms aimed at returning Canon
agement positions. In Europe, our largest regional mar-
to a growth track.
ket, the presidents of all of our sales companies are from
We have consistently transformed ourselves ahead
the region. We will continue endeavoring to acknowl-
of dramatic changes in the times and business environ-
edge and respond flexibly to the diversified value per-
ment, creating products that were the first of their kind
spectives of local communities, respecting their cultures
in the world and that were No. 1 in their industries.
and customs. At the same time, we will foster and impart
Canon’s history is a history of embracing challenges,
Canon’s corporate culture of continuously embracing the
and we believe that change is progress and transforma-
challenge of innovation while nurturing global human
tion is advancement. We will call on our enterprising
resources who can excel on the world stage.
spirit and the San-Ji (“Three Selfs”) Spirit that have been
a part of our company since its founding, taking the ini-
tiative to transform ourselves once again and return to a
path of growth.
We look forward to your continued understanding
and support.
Fujio Mitarai
Chairman & CEO
Canon Inc.
Managers from Group companies worldwide gather at the Canon Global
Management Institute in Japan to study corporate strategies and engage
in cross-cultural exchanges.
10
Strategy
BUSINESS SEGMENT
Corporate Structure
Financial Section
Corporate Data
A T A G L A N C E
Business Units
Main Products
OF FICE
BU SI NES S
UN IT
Office Multifunction Devices (MFDs)
Digital Production Printing Systems
Laser Printers
High Speed Continuous Feed Printers
IMA GI NG
SY ST EM
BU SI NES S
UN IT
IN D USTRY
A ND
OTHER S
BU SI NES S
UN IT
Interchangeable Lens Digital
Cameras
Digital Camcorders
Inkjet Printers
Broadcast Equipment
Flat Panel Display (FPD) Lithography
Equipment
Digital Radiography Systems
Semiconductor Lithography Equipment
Network Cameras
(cid:129)Office Multifunction Devices
(MFDs)
(cid:129)Laser Multifunction Printers
(MFPs)
(cid:129)Laser Printers
(cid:129)Digital Production Printing
Systems
(cid:129)High Speed Continuous Feed
Printers
(cid:129)Wide-Format Printers
(cid:129)Document Solution
(cid:129)Interchangeable Lens Digital
Cameras
(cid:129)Digital Compact Cameras
(cid:129)Digital Camcorders
(cid:129)Digital Cinema Cameras
(cid:129)Interchangeable Lenses
(cid:129)Inkjet Printers
(cid:129)Large-Format Inkjet Printers
(cid:129)Commercial Photo Printers
(cid:129)Image Scanners
(cid:129)Multimedia Projectors
(cid:129)Broadcast Equipment
(cid:129)Calculators
(cid:129)Semiconductor Lithography
Equipment
(cid:129)Flat Panel Display (FPD)
Lithography Equipment
(cid:129)Digital Radiography Systems
(cid:129)Ophthalmic Equipment
(cid:129)Vacuum Thin-Film Deposition
Equipment
(cid:129)Organic LED (OLED) Panel
Manufacturing Equipment
(cid:129)Die Bonders
(cid:129)Micromotors
(cid:129)Network Cameras
(cid:129)Handy Terminals
(cid:129)Document Scanners
AT A GLANCE
11
Outline
Composition of Sales (%)
Net Sales (Millions of yen)
In this segment, Canon offers a comprehen-
sive range of multifunction devices (MFDs),
printers, and other equipment featuring high
image quality, high resolution, and high speed.
Leveraging these products, Canon works in
close collaboration with various Group com-
panies and alliance partners to deliver opti-
mal solutions tailored to match the customer’s
business operations. These include various doc-
ument solutions, such as office document man-
agement and the output of records. At the same
time, the Company provides top-quality services
and support in a swift and reliable manner.
Canon’s offerings in this segment include digi-
tal cameras, digital camcorders, digital cinema
cameras, interchangeable lenses, inkjet print-
ers, and calculators. Canon’s digital cameras,
digital camcorders and digital cinema cameras,
designed to deliver unparalleled image quality,
have earned particularly high acclaim world-
wide, thanks to in-house developed lenses,
CMOS image sensors, and image processors.
Also widely popular are Canon’s inkjet print-
ers, which are easy to use and produce beauti-
ful pictures at high speeds.
Applying optical technologies and image-
processing technologies amassed over many
years, Canon provides high-value-added prod-
ucts to a wide range of industries. The Company
is already prominent globally as a manufac-
turer of flat panel display (FPD) lithography
equipment and semiconductor lithography
equipment. In addition, Canon is focusing on
the medical equipment field - one of its next
generation core businesses. The Company is
aggressively promoting sales of its cutting-
edge digital radiography systems and ophthal-
mic equipment, which employ Canon’s highly
regarded medical imaging technologies.
53.6%
38.8%
1,987,269
1,917,943
2,000,073
1,645,076
1,757,575
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2009 2010 2011 2012 2013
1,500,000
1,391,327
1,448,938
1,405,971
1,301,160
1,312,044
1,000,000
500,000
0
500,000
2009 2010 2011 2012 2013
432,958 420,863
407,840
400,000
357,998
374,870
10.0%
300,000
200,000
100,000
0
2009 2010 2011 2012 2013
Note: The percentage figures for the three business units presented in the pie charts above do not add up to 100% because “Eliminations,” used in
consolidated accounting, were not included in calculation considerations.
12
Strategy
BUSINESS SEGMENT
Corporate Structure
Financial Section
Corporate Data
O F F I C E B U S I N E S S U N I T
Canon has expanded the functions of its offi ce multifunction devices, which realize enhanced coordination with IT systems and are compatible with
various types of system application software, offering an optimal usage environment for all sorts of document-related tasks.
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Net Sales
(Millions of yen)
1,917,943
2,000,073
1,757,575
2013 Review
Amid the moderately growing market for office multi-
function devices (MFDs), driven mainly by color mod-
els, we worked to increase sales in the area of MFDs
and to expand the lineup of next-generation models
of the imageRUNNER ADVANCE series with improved
performance and increased functions. Our sales in the
Americas struggled somewhat, whereas our unit sales
in Japan, where demand was firm throughout the year,
increased steadily. Moreover, sales performance in Europe
and China was as strong as that of 2012. As a result, our
office MFD sales outperformed the year 2012. While sales
of color machines were generally robust in all geographic
regions, sales of the imageRUNNER ADVANCE C5200 and
2011
2012
2013
C2200 series were particularly strong.
Digital production printing systems delivered solid
sales performance in Asia and Oceania. The growth
in unit sales of the imagePRESS C7010VP series in the
Americas, in addition to orders received from large cus-
tomers in Japan, contributed to the overall sales growth.
OFFICE BUSINESS UNIT
13
The imageRUNNER ADVANCE C2200
Series features models with improved
operability, productivity and security that
are designed to maximize ease of use.
The imagePRESS C7010VP delivers high-
image-quality, high-precision printing that
rivals offset printing, with a printing speed
of up to 70 ppm for both color and mono-
chrome output.
The Océ ColorStream 3000 Twin Series
are high-speed, continuous-feed commer-
cial printers for applications requiring high
speed and high quality such as the printing
of invoices, direct mail, etc. as demanded
by the data print services (DPS) market.
As for Canon’s laser multifunction printers (MFPs) and
in the solutions business. Canon will further improve
laser printers for small to mid-sized businesses, unit sales
image quality and other areas to become the over-
of color machines in the Americas and Europe increased,
whelming industry leader. We will also strengthen our
while overall unit sales surpassed the year of 2012.
market competitiveness by launching models powered
In the area of OEM-brand laser multifunction print-
by a new engine that delivers major cost-reduction bene-
ers and laser printers, both unit sales and sales revenue
fits. To achieve growth in emerging markets, we will tar-
rose from the previous year as orders from OEM custom-
get steady increases in market share by working in close
ers increased owing to the expansion of the market size
cooperation with Canon Finetech Inc., our consolidated
for laser multifunction printers in the second half of
subsidiary, and our sales companies.
the year.
In the production printing market, we will seize the
Sales of high speed, continuous feed printers man-
market trend of shift from offset printing to digital
ufactured by Océ were strong particularly for the Océ
printing, with the aim of securing the No. 1 position
ColorStream 3000 Twin series.
in the commercial printing sector. We will also further
As a result of the above, sales for this business unit
penetrate the package printing market in order to grow
increased by 13.8% from the previous year, amounted to
our business.
¥2,000.1 billion on a consolidated basis.
With respect to laser printers, we will work to main-
2014 Initiatives
The market for MFDs is regaining strength, underpinned
by upgraded product lineups and improved conditions
tain and improve our overwhelming No. 1 market posi-
tion by launching powerful products that offer great
competitive advantages.
14
Strategy
BUSINESS SEGMENT
Corporate Structure
Financial Section
Corporate Data
I M A G I N G S Y S T E M B U S I N E S S U N I T
Canon’s digital SLR cameras, which use groundbreaking technology such as proprietary lenses, CMOS image sensors, and image processors, lead the
world with their high image quality and contribute to sales.
Net Sales
(Millions of yen)
1,405,971
1,448,938
1,312,044
2011
2012
2013
1,500,000
1,200,000
900,000
600,000
300,000
0
2013 Review
As for interchangeable lens digital cameras area, although
the market environment was difficult amid economic
slowdowns in Europe and China, certain models such as
EOS 5D Mark III and EOS Rebel T3i (EOS 600D in some
areas) maintained strong performance. We also strived to
increase sales by further expanding the product lineup
including the launch of EOS 70D, which is equipped with
an innovative AF technology called Dual Pixel CMOS AF,
as well as EOS Rebel T5i (EOS 700D in some areas) and
non-reflex camera EOS M2. As a result, although unit
sales of interchangeable lens digital cameras were down
from the previous year, we maintained our No.1 market
share position in worldwide unit sales.
As for digital compact cameras, although total sales
volume declined due to the market slowdown and the
increasing popularity of smartphones, sales volume
increased from the previous year for high-added-value
models incorporating features that differentiate them
from smartphones, such as large-size image sensors.
In the area of digital camcorders, we focused on the
sales expansion of high value added products amid stag-
nation in global demand.
IMAGING SYSTEM BUSINESS UNIT
15
The EOS 70D, a digital SLR camera for ad-
vanced amateurs, features Canon’s newly
developed Dual Pixel CMOS AF autofocus
technology that provides signifi cantly im-
proved AF performance during Live View
shooting and when shooting movies.
The PIXMA MG7100 Series is designed for
easy printing of photos and web pages
even from smartphones or tablet PCs.
The imagePROGRAF iPF9400, a 60 inch
large-format inkjet printer equipped with
a 12-color ink system for the graphic arts
industry, achieves high image quality,
improved smooth color reproduction and
boosted productivity.
Broadcast equipment delivered solid sales performance
video recording functions, on top of basic performance.
on the back of rising demand in emerging economies
As for digital compact cameras, we will address the needs
particularly China and the Middle East. Sales of DIGISUPER
of people seeking to capture more beautiful images by
95 and other field lenses for live sports broadcasts were
developing revolutionary products and applications
brisk on a global basis.
offering functions and enjoyment that smartphones can-
As for inkjet printers, the overall market shrank as Asian
not deliver.
and other emerging economies rapidly lost momentum.
Through its Cinema EOS System, Canon will strive to
However, we launched new products designed to meet
become the top player in the motion picture industry.
customer needs including PIXMA MG7100 series with
To this end, we will proactively address the needs of the
improved cloud functions and smartphone compatibility
news reporting and television content production mar-
while making sales expansion efforts for each model. As
kets, while offering solutions that incorporate peripheral
a result, our inkjet printer sales increased, supported also
equipment and 4K-resolution commercial-use displays.
by the increase in sales volume of consumables. In addi-
In inkjet printers, we will target further expansion of
tion, sales of both large-format inkjet printers and related
market share by pursuing Canon’s advantages, includ-
consumables increased.
ing connectivity with cameras, while also reinforcing
As a result of these efforts, sales for this business unit
our cloud-related capabilities. In addition, Canon will
increased by 3.1% from the previous year to ¥1,448.9 bil-
undertake active sales promotion for its DreamLabo
lion on a consolidated basis.
commercial photo printers, such as web-based services
2014 Initiatives
In the market for interchangeable lens digital cameras,
As for large-format inkjet printers, we will expand and
upgrade our lineup and step up sales of systems that
Canon will concentrate on introducing highly appealing
deploy our color-matching technologies, with the aim
products that excel against the competition in terms of
of expanding overall sales.
offering photo merchandise with high image quality.
16
Strategy
BUSINESS SEGMENT
Corporate Structure
Financial Section
Corporate Data
I N D U S T R Y A N D O T H E R S B U S I N E S S U N I T
Canon contributes to raising the bar for ophthalmic diagnosis precision through imaging technologies we have developed over the years. As we continue
to focus on better image quality in a more compact design, we are always expanding our lineup of ophthalmic equipment in areas such as OCT devices
capable of 3D scanning to support the diagnosis of retinal disorders that can lead to vision loss.
Net Sales
(Millions of yen)
420,863
407,840
374,870
2011
2012
2013
500,000
400,000
300,000
200,000
100,000
0
2013 Review
In relation to semiconductor lithography equipment,
capital investment for memory devices was heading for
recovery in the second half of the year after prolonged
weakness. As a result, sales of FPA-5550iZ i-line steppers,
which have been highly trusted for many years for their
stable quality and operating rate, and FPA-6300ES6a KrF
scanners, which have been received well due to high pro-
ductivity, increased.
As for flat panel display (FPD) lithography equipment,
as demand for high-resolution displays was increasing and
the pace of increase in the use of liquid crystal display tele-
visions in emerging economies was accelerating, invest-
ment in equipment used to manufacture large-sized panels
started to show signs of recovery, and sales increased.
In medical equipment, new orders for portable prod-
ucts and new products equipped with non-generator con-
nection mode contributed to sales increase in the area
of digital radiography systems. In the area of ophthalmic
equipment, sales of retinal cameras, measuring instru-
ments and other products were strong. As a result, unit
sales in both areas increased significantly.
As for network cameras, amid the trend for more
INDUSTRY AND OTHERS BUSINESS UNIT
17
The FPA-5550iZ is an i-line stepper employ-
ing the FPA-5500 platform with proven
high performance and reliability, which
enables high throughput such as short
exposure time through a high-acceleration
wafer stage.
The CR-2 Plus AF is a digital non-mydriatic
retinal camera with fundus auto-fl uorescence
photography mode, and features four auto-
matic functions, auto-fundus, auto-focus,
auto-capture and automatic exposure func-
tion, for easier and faster eye examinations.
The Network Camera lineup offers advanced-
function models, capable in various situa-
tions, including a palm-sized full HD-model
and a model for low-light conditions,
which demonstrates its ability to monitor
at night.
digitization and larger numbers of pixels and corre-
systems, we will emphasize wireless connectivity and
sponding market expansion, we streamlined our busi-
dynamic imaging, and in ophthalmic equipment we
ness organization to enable us to speedily respond to
will focus on high-value-added offerings, such as optical
such developments, while promoting the sales particu-
coherence tomography (OCT) devices.
larly those of full HD compatible products. As a result, in
In addition, Canon will target mass production of DNA
the area of high image quality products, our sales grew at
diagnostic systems. We will also promote clinical evalu-
a higher pace than the market.
ation into photoacoustic mammography technologies to
Sales of document scanners manufactured by Canon
enable swifter detection and more accurate diagnoses of
Electronics Inc. increased, helped by brisk sales in the
breast cancer than before.
Americas and Europe.
In the optical product field, Canon will work to
Sales of semiconductor film deposition equipment
enhance its technological capabilities in next-generation
manufactured by Canon ANELVA Corporation, organic
semiconductor lithography equipment in order to cap-
LED (OLED) panel manufacturing equipment manufac-
ture a large market share in the future. We will also target
tured by Canon Tokki Corporation, and FA systems and
the No. 1 market position in FPD lithography equipment
semiconductor manufacturing equipment manufactured
by launching new products to follow our high-definition
by Canon Machinery Inc. were all sluggish due to the weak
two-micron models.
appetite for capital investment by corporate customers.
The market for network cameras is expected to grow
As a result of the above, sales for this business unit
20% or higher annually in the future. In response, Canon
decreased by 8.1% on a consolidated basis to ¥374.9 billion.
will seek the most effective customers among the broad
2014 Initiatives
Canon will strive to establish a solid foundation for its
medical equipment business. In digital radiography
range of potential users, from governments to conve-
nience stores, with the aim of building a solid track
record of our solutions.
18
Strategy
BUSINESS SEGMENT
Corporate Structure
Financial Section
Corporate Data
2 0 1 3 T O P I C S
OFFICE
BUSINESS UNIT
imageRUNNER ADVANCE Series Receive EPEAT
Gold Rating
In the new digital imaging equipment category of EPEAT®, eight models
in Canon’s imageRUNNER ADVANCE series received an EPEAT Gold rating,
the highest level of registration*. EPEAT is an environmental rating system,
established to develop markets and encourage sales for greener electron-
ics. Its approval is a prerequisite of the U.S. federal offices’ procurement.
To be added to the EPEAT registry, an imaging device must meet at least
33 required environmental performance criteria, including reduction or
elimination of toxic substances and energy conservation features. Products
may achieve higher ratings by meeting some or all of 26 additional optional
criteria. Gold qualification signifies that a product meets all required cri-
teria and at least 75% of optional criteria. Canon will actively embrace
EPEAT-related initiatives, inform consumers of environmental criteria as
well as measure and reduce environmental impacts. At the same time, we
will deliver products that meet environmental standards.
* As of December 31, 2013. For more information, please refer to the EPEAT website
(http://www.epeat.net)
imageRUNNER ADVANCE C9280 PRO,
EPEAT Gold rated
IMAGING SYSTEM
BUSINESS UNIT
Cinema EOS System Captures Video of
Comet ISON
On November 23, 2013, an ultra-high-sensitivity 4K camera was used to success-
fully capture video of the comet ISON from the International Space Station.
In a world-first achievement, Canon’s Cinema EOS System was used to record
the astronomical phenomenon. ISON was unique in that, among the many
large comets that have passed through the solar system in recent years, none
had traveled so close to the sun and thus be readily observable from earth.
Accordingly, expectations were high that ISON would provide earthbound star-
gazers with a rare performance that would not likely be repeated anytime soon.
After the video was shot, however, the comet is believed to have largely broken
up and evaporated, meaning that it will no longer be visible in the night sky.
The clear video images of the rare comet captured by the Cinema EOS System,
therefore, will likely prove of high value to the scientific community.
Having already earned plaudits from Hollywood professionals and others
working in the motion picture production industry, the Cinema EOS System’s
latest out-of-this-world achievement raises the realm of imaging expression to
an all-new height.
Cinema EOS System equipment was
used to capture video of the comet ISON
2013 TOPICS
19
IMAGING SYSTEM
BUSINESS UNIT
New Canon PIXMA MG7100 Series Delivers
Enhanced Connectivity to Cloud Services as well
as Smartphones and Tablet Devices
Canon launched its PIXMA MG7100 series of inkjet printers, which sup-
port the New PIXMA Cloud Link to allow accessing directly from smart-
phones and tablet devices. New PIXMA Cloud Link enables access to various
cloud services for printing from SNS (Social Networking Service) sites and
online photo-sharing and storage-service sites, as well as Canon-original
print content. Users can easily print out photos and documents stored in
cloud-based services. The new PIXMA Print application for smartphones
and tablet devices enables easy operation when away from home via an
Internet connection.
For high printing quality, our six-color ink system incorporates dye-
based ink for vivid and beautiful photos, which realizes rich expression
and color stability resulted from using gray ink, and pigment-based black
ink for clear, easy-to-read texts in documents.
PIXMA MG7100 series
*Color variations may differ by region.
INDUSTRY AND
OTHERS BUSINESS
UNIT
Expanding the CXDI Wireless Digital Radiography
Systems Lineup
Canon has been expanding and upgrading its lineup of digital radiog-
raphy (DR) systems, which can be used for imaging various body parts
from limbs to abdomen, chest and head. We focus on wireless models
that capture images without a connection with an X-ray generator. The
Canon CXDI-701C Wireless DR system, featuring a non generator connec-
tion mode, was released in 2013.
Compared with conventional analogue technologies, DR systems are
able to display preview images much more quickly. Due to its high effi-
ciency, DR systems are becoming increasingly widespread in the medi-
cal field. Moreover, models with the non generator connection mode do
not need to synchronize signals with an X-ray generator, thus provid-
CXDI Wireless Series
ing them more freedom and versatility to their image-capture process.
Furthermore, such devices can be easily integrated into existing X-ray sys-
tems without making significant changes to their configurations.
DR systems employ a scintillator that converts X-rays into visible light, and a flat-panel sensor
to directly pick up the light to generate an image, enabling images to be displayed instantly.
20
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
C O R P O R A T E G O V E R N A N C E
Canon maintains sound corporate gover-
nance as part of efforts to maximize its
stockholders’ value and become a truly ex-
cellent global corporation.
Basic Policy and Corporate
Governance Structure
Canon recognizes that management supervision functions
and management transparency are vital to strengthening
its corporate governance and further raising corporate
value. Canon’s basic governance structure comprises the
General Meeting of Shareholders, the Board of Directors
and the Audit & Supervisory Board. Furthermore, the
Executive Committee and management committees are
dedicated to addressing key issues. All of these bodies
work together to ensure the appropriate management of
the Group through an internal auditing structure under-
pinned by the Corporate Audit Center and an information
disclosure system for management activities.
Board of Directors
Important business matters are discussed and ratified
during meetings of the Board of Directors and Executive
Committee. As of March 28, 2014, the board consisted of
19 directors, including two outside directors. In order to
At a monthly meeting of all company executives, CEO provides updates
on earnings progress and important matters to implement in the future
as a way to share crucial information.
facilitate more practical and efficient decision making,
the board is mostly composed of internal directors who
have well-developed knowledge of the Company’s affairs.
In addition, Canon has outside directors so as to take var-
ious opinions on their broad experiences and insight in
their respective fields of expertise in management’s
decision-making process.
Executive Officer System
Canon is endeavoring to realize more flexible and
efficient management operations by maintaining an
appropriately sized organization of directors and pro-
moting capable human resources with accumulated
executive knowledge across specific business areas.
Executive officers are appointed and dismissed by the
Directors and Audit & Supervisory Board Members (as of April 1, 2014)
Chairman & CEO
Fujio Mitarai
Executive Vice President & CFO
Toshizo Tanaka
Group Executive, Finance & Accounting Headquarters
Group Executive, Facilities Management Headquarters
Group Executive, Human Resources Management &
Organization Headquarters
Executive Vice President & CTO
Toshiaki Ikoma
Group Executive, Corporate R&D
Group Executive, Medical Equipment Group
Senior Managing Directors
Yoroku Adachi
Chairman & CEO, Canon U.S.A., Inc.
Yasuo Mitsuhashi
Chief Executive, Peripheral Products Operations
Shigeyuki Matsumoto
Group Executive, Device Technology Development
Headquarters
Toshio Homma
Group Executive, Procurement Headquarters
Hideki Ozawa
President & CEO, Canon (China) Co., Ltd.
Masaya Maeda
Chief Executive, Image Communication Products Operations
Directors
Yasuhiro Tani
Group Executive, Digital System Technology Development
Headquarters
Kenichi Nagasawa
Group Executive, Corporate Intellectual Property & Legal
Headquarters
Naoji Otsuka
Chief Executive, Inkjet Products Operations
Masanori Yamada
Group Executive, Network Visual Solution Business
Promotion Headquarters
Aitake Wakiya
Deputy Group Executive, Finance & Accounting
Headquarters
Kazuto Ono
Group Executive, Corporate Planning Development
Headquarters
Akiyoshi Kimura
Chief Executive, Office Imaging Products Operations
Eiji Osanai
Group Executive, Production Engineering Headquarters
Kunitaro Saida (Outside)
Attorney
Haruhiko Kato (Outside)
President & CEO of Japan Securities Depository Center, Inc.
Audit & Supervisory Board Members
Kengo Uramoto
Makoto Araki
Tadashi Ohe (Outside)
Osami Yoshida (Outside)
Kuniyoshi Kitamura (Outside)
CORPORATE GOVERNANCE
21
Governance Structure (as of April 1, 2014)
Canon Inc.
General Meeting of Shareholders
Board of Directors
Audit & Supervisory Board
Representative Directors
Chairman & CEO
Executive Committee
Management Strategy Committee
Executive Vice President & CFO
New Business Development Committee
Executive Vice President & CTO
Corporate Ethics and Compliance Committee
Internal Control Committee
Disclosure Committee
Executive Officers
Subsidiaries & Affiliates
Corporate Audit Center
Headquarters Administrative Divisions
Office Business Unit
Imaging System Business Unit
Industry and Others Business Unit
Marketing Subsidiaries & Affiliates
Manufacturing Subsidiaries & Affiliates
R&D Subsidiaries & Affiliates
Board of Directors and have a term of office of one year.
The number of executive officers was 17 as of April 1, 2014.
Audit & Supervisory Board
Canon has five members on the Audit & Supervisory
Board, including three outside corporate auditors who
have no personal, capital or business affiliations with the
Company. Audit & Supervisory Board members’ duties
include attending meetings of the Board of Directors and
of the Executive Committee, listening to business reports
from directors, carefully examining documents related to
important decisions and conducting strict audits of the
Group’s business and assets. Audit & Supervisory Board
members also work closely with our independent regis-
tered public accounting firm and the Corporate Audit
Center. Canon has notified the stock exchanges in Tokyo,
Nagoya, Fukuoka and Sapporo of the designation of out-
side directors and members of the Audit & Supervisory
Board as independent directors and auditors, as provided
under the regulations of the stock exchanges.
Internal Audits
The Corporate Audit Center—the Company’s internal
auditing arm—as a separate dedicated organization con-
ducts audits and evaluations and provides guidance on
every business without exception, including the Group
companies in Japan and abroad, in line with the internal
audit guidelines. It reports the auditing results directly to
the Audit & Supervisory Board, the management top, to
improve operations. As of March 28, 2014, the Center had
71 members, and will enhance the structure to reinforce
the auditing functions.
Internal Control Committee
In response to the Sarbanes-Oxley Act, including Section
404, which came into force during 2006, Canon contin-
ues to reinforce internal control systems and implement
appropriate measures. The Internal Control Committee
is responsible for Groupwide internal controls, including
securing credibility of financial reporting.
In order to strengthen internal controls, Canon con-
ducts comprehensive evaluations of internal controls
across areas that include accounting, management over-
sight, legal compliance, IT systems and the promotion of
corporate ethics. As of December 31, 2013, internal con-
trol over financial reporting has been assessed as effective
by management and our independent registered public
accounting firm. (Please refer to pages 93 and 95.)
Compliance
Shortly after its founding, Canon established the San-ji
(“Three Selfs”) Sprit principles: “self-motivation,” or taking
At Group companies worldwide, employees carry with them compli-
ance cards.
22
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
the initiative and being proactive in all things; “self-man-
agement,” or conducting oneself responsibly and being
accountable for all one’s actions; and “self-awareness,”
or understanding one’s situation and role in it. In 2001,
Canon established the Canon Group Code of Conduct,
inspired by the above Three Selfs. The Code has been
translated into 13 languages from Japanese and each
Group company makes efforts to enforce the Code.
Detailed policies and measures concerning the com-
pliance activities of Canon are decided at the Corporate
Ethics and Compliance Committee. With management by
the Compliance Office, these policies and measures are
mainly carried out by compliance leaders at each head-
quarters and Group company.
Disclosure
Canon makes every effort to disclose information on its
management and business strategies as well as its per-
formance results to all stakeholders in an accurate, fair
and timely manner. To this end, Canon holds regular
briefings and posts the latest information on its website
together with a broad range of disclosure materials.
Canon has formulated its own Disclosure Guidelines and
established the Disclosure Committee, which makes deci-
sions regarding information disclosure, including neces-
sity, content and timing. The Disclosure Committee makes
such decisions after receiving reports on information that
might need to be disclosed from the person in charge of the
disclosure working group at each headquarters.
Signifi cant Differences in Corporate Governance Practices between Canon and U.S. Companies Listed on the NYSE
Section 303A of the New York Stock Exchange (the “NYSE”) Listed
Company Manual (the “Manual”) provides that companies listed
on the NYSE must comply with certain corporate governance
standards. However, foreign private issuers whose shares have
been listed on the NYSE, such as Canon Inc. (the “Company”), are
permitted, with certain exceptions, to follow the laws and prac-
tices of their home country in place of the corporate governance
practices stipulated under the Manual. In such circumstances,
the foreign private issuer is required to disclose the significant
differences between the corporate governance practices under
Section 303A of the Manual and those required in Japan. A sum-
mary of these differences as they apply to the Company is pro-
vided below.
1. Directors
Currently, the Company’s board of directors does not have
any director who could be regarded as an “independent direc-
tor” under the NYSE Corporate Governance Rules for U.S. listed
companies. Unlike the NYSE Corporate Governance Rules, the
Corporation Law of Japan (the “Corporation Law”) does not
require Japanese companies with the Audit & Supervisory Board
such as the Company, to appoint independent directors as mem-
bers of the board of directors. The NYSE Corporate Governance
Rules require non-management directors of U.S. listed compa-
nies to meet at regularly scheduled executive sessions with-
out the presence of management. Unlike the NYSE Corporate
Governance Rules, however, the Corporation Law does not
require companies to implement an internal corporate organ
or committee comprised solely of independent directors. Thus,
the Company’s board of directors currently does not include any
non-management directors.
The Company currently has two outside directors under the
Corporation Law. Under the Corporation Law, an “outside” direc-
tor is any person who is not, and was not at any time during the
past, an executive director (a director who engages in the execu-
tion of business), executive officer, manager or employee of the
Company or its subsidiaries. Such qualifications for an “outside”
director are different from the director independence require-
ments under the NYSE Corporate Governance Rules.
In addition, pursuant to the regulations of the Japanese
stock exchanges, the Company is required to have one or more
“independent director(s)/audit & supervisory board member(s),”
defined under the relevant regulations of the Japanese stock
exchanges as “outside directors” or “outside audit & supervi-
sory board members” (as defined under the Corporation Law),
who are unlikely to have any conflicts of interests with the
Company’s general shareholders. Each of the outside directors of
the Company satisfies the “independent director/audit & super-
visory board member” requirements under the regulations of
the Japanese stock exchanges. The definition of “independent
director/audit & supervisory board member” is different from
that of the definition of independent director under the NYSE
Corporate Governance Rules.
2. Committees
Under the Corporation Law, the Company may choose to:
(i) have an audit committee, nomination committee and com-
pensation committee and abolish the post of the Audit &
Supervisory Board Members; or
(ii) have the Audit & Supervisory Board.
The Company has elected to have the Audit & Supervisory
Board, whose duties include monitoring and reviewing the
management and reporting the results of these activities to the
shareholders or board of directors of the Company. While the
NYSE Corporate Governance Rules provide that U.S. listed com-
panies must have an audit committee, nominating committee
and compensation committee, each composed entirely of inde-
pendent directors, the Corporation Law does not require com-
panies to have specified committees, including those that are
responsible for director nomination, corporate governance and
executive compensation.
The Company’s board of directors nominates candidates
for directorships and submits a proposal at the general meet-
ing of shareholders for shareholder approval. Pursuant to the
CORPORATE GOVERNANCE
23
Countering Antisocial Forces
Canon has formulated a basic policy stipulating that no
Canon Group company shall maintain relationships of any
kind with antisocial forces that represent a threat to social
order and security. To uphold this basic policy, Canon has
established a department dedicated to activities aimed at
countering such parties while reinforcing cooperative ties
with applicable public authorities. In addition, Canon’s
Employment Regulations include a clause prohibiting
such relationships, and the Company continues to step up
efforts to ensure strict employee adherence.
Risk Management
As Canon pursues business expansion in various fields on
a global scale, the business and other risks to which it
may be exposed continue to diversify. With the goal of
eliminating such risks altogether, while honoring the
trust placed in it by its stakeholders, Canon works dili-
gently to avoid or minimize its exposure, to this end
assigning specifically designated management commit-
tees to address key issues.
In particular, the Executive Committee and various
management committees engage in careful discussions
regarding significant risk factors. The Corporate Audit
Center preemptively identifies risk factors through audit
activities. Also, Canon formulates in-house rules to guard
against those risks and, in accordance with the policies
formulated by the Internal Control Committee, strives to
identify and assess relevant risks associated with individ-
ual business processes.
Corporation Law, the shareholders then vote to elect directors at
the meeting. The Corporation Law requires that the total amount
or calculation method of compensation for directors and Audit
& Supervisory Board Members be determined by a resolution
of the general meeting of shareholders respectively, unless the
amount or calculation method is provided under the Articles of
Incorporation. As the Articles of Incorporation of the Company
do not provide an amount or calculation method, the amount
of compensation for the directors and the Audit & Supervisory
Board Members of the Company is determined by a resolution
of the general meeting of shareholders. The allotment of com-
pensation for each director from the total amount of compensa-
tion is determined by the Company’s board of directors, and the
allotment of compensation to each Audit & Supervisory Board
Member is determined by consultation among the Company’s
Audit & Supervisory Board Members.
3. Audit Committee
The Company avails itself of paragraph (c)(3) of Rule 10A-3 of
the Security Exchange Act, which provides that a foreign pri-
vate issuer which has established the Audit & Supervisory Board
shall be exempt from the audit committee requirements, sub-
ject to certain requirements which continue to be applicable
under Rule 10A-3.
Pursuant to the requirements of the Corporation Law, the
shareholders elect the Audit & Supervisory Board Members by
resolution of a general meeting of shareholders. The Company
currently has five Audit & Supervisory Board Members, although
the minimum number of Audit & Supervisory Board Members
required pursuant to the Corporation Law is three.
Unlike the NYSE Corporate Governance Rules, Japanese laws
and regulations, including the Corporation Law, do not require
the Audit & Supervisory Board Members to be experts in account-
ing or to have any other area of expertise. Under the Corporation
Law, the Audit & Supervisory Board may determine the auditing
policies and methods for investigating the business and assets of
a Company, and may resolve other matters concerning the exe-
cution of the Audit & Supervisory Board Member’s duties. The
Audit & Supervisory Board prepares auditors’ reports and may
veto a proposal for the nomination of the Audit & Supervisory
Board Members, accounting auditors and the determination of
the amount of compensation for the accounting auditors put
forward by the board of directors.
Under the Corporation Law, the half or more of a company’s
Audit & Supervisory Board Members must be “outside” Audit &
Supervisory Board Members. These are individuals who are pro-
hibited to have ever been a director, executive officer, manager,
or employee of the Company or its subsidiaries. The Company’s
current Audit & Supervisory Board Member system meets these
requirements. In addition, pursuant to the regulations of the
Japanese stock exchanges, the Company is required to have one or
more “independent director(s) or independent Audit & Supervisory
Board Member(s)” which terms are defined under the relevant reg-
ulations of the Japanese stock exchanges as “outside directors” or
“outside Audit & Supervisory Board Members” (each of which terms
is defined under the Corporation Law) who are unlikely to have any
conflict of interests with shareholders of the Company.
Among the five members on the Company’s board of auditors,
three are outside Audit & Supervisory Board Members. In addition,
all such three outside Audit & Supervisory Board Members are
also qualified as independent Audit & Supervisory Board Members
under the regulations of the Japanese stock exchanges.
The qualifications for an “outside” or “independent” Audit
& Supervisory Board Member under the Corporation Law or the
regulations of the Japanese stock exchanges are different from
the audit committee independence requirement under the
NYSE Corporate Governance Rules.
4. Shareholder Approval of Equity Compensation Plans
The NYSE Corporate Governance Rules require that sharehold-
ers be given the opportunity to vote on all equity compensation
plans and any material revisions of such plans, with certain
limited exceptions. Under the Corporation Law, a Company is
required to obtain shareholder approval regarding the stock
options to be issued to directors and Audit & Supervisory Board
Members as part of remuneration of directors and Audit &
Supervisory Board Members.
24
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
R E S E A R C H & D E V E L O P M E N T
The computational imaging technology combines two techniques: a technique of acquiring subject fi elds information (images, 3D shapes, motions
and materials of objects in them) and another technique of reconstruction new images based on the information. Canon is continuously working to
realize new visual expression.
Seeking new possibilities, Canon is estab-
lishing an R&D structure spanning Japan,
the United States and Europe under the
Three Regional Headquarters management
system. At the same time, Canon will de-
velop the medical and industrial fi elds into
new business pillars.
2013 Top Ten U.S. Patent Holders by Company
IBM*
Samsung Electronics
CANON
Sony
Microsoft
Panasonic
Toshiba
Hon Hai Precision
Industry
QUALCOMM
LG Electronics
6,809
4,676
3,817
3,098
2,660
2,601
2,416
2,279
2,103
1,947
* IBM is an abbreviation for International Business Machines Corporation.
Source: U.S. Department of Commerce; based on weekly total numbers
Upgrading Our Global R&D Structure
Canon’s growth to date has been attributable to employ-
ing strong technologies to develop competitive products,
mainly in Japan, and then disseminating those offer-
ings around the world. Going forward, the Company will
expand and upgrade its R&D organizations in the United
States and Europe, laying the foundation for the Three
Regional Headquarters system that Canon envisions.
In the United States, Canon will set up centers to pur-
sue activities ranging from research into fundamental
technologies in healthcare and other new business fields
to the application of cutting-edge technologies. In Europe,
we will step up R&D in new business fields, spearheaded by
existing R&D facilities.
R&D Expenses and Patents
Canon is bolstering R&D activities to enable the ongoing
development of innovative products and services. In the
year under review, R&D expenses amounted to ¥306.3 bil-
lion, up 3.3%, or ¥9.9 billion, from the previous year. The
ratio of R&D expenses to net sales was 8.2%. By segment,
the Company allocated ¥105.2 billion (34.3% of total R&D
expenses) to the Office Business Unit, ¥84.4 billion (27.6%)
to the Imaging System Business Unit, and ¥25.7 billion
(8.4%) to the Industry and Others Business Unit. Basic R&D
expenses not allocated to specific business units amounted
to ¥91.0 billion (29.7%). This focus on R&D activities has
RESEARCH & DEVELOPMENT
25
Canon built a super high-sensitivity, 35 mm full-frame
CMOS sensor prototype that can capture images of
things not visible to the naked eye and has demonstrated
its capability in exceptionally low-brightness shooting.
Canon has integrated high-precision machine vision
technology with information technology to develop
intelligent robots that think and act on their own
accord. This is one of many areas in which Canon has
applied these technologies.
cemented Canon’s high status in the field of intellectual
property. In 2013, Canon was granted 3,817 patents in the
United States, ranking it third in the world and the top-
ranked Japanese company for a ninth consecutive year.
Reinforcing Core Technologies
Canon is concentrating efforts on pre-competitive fields,
involving research that can take more than ten years. At
the same time, the Company is continually bolstering
activities centered on key parts and key devices in order
to enhance the competitiveness of its products. In 2013,
Canon successfully developed a high-sensitivity 35 mm
full-frame CMOS sensor exclusively for Full HD video cap-
ture. The current limit for recording video of astral bodies
with a commonly used electron-multiplying CCD sensor is
magnitude-6 stars (equivalent to the visual capabilities of
the naked eye). By comparison, the high-sensitivity CMOS
sensor was able to capture video images of faint stars with
magnitudes of 8.5 and higher.* In addition to astronomi-
cal and natural observation, Canon is looking into apply-
ing this CMOS sensor to medical research purposes as well
as surveillance and crime-prevention equipment. Through
the further development of innovative CMOS sensors,
Canon aims to expand the realm of photographic possibili-
ties while cultivating the world of visual expression.
* The brightness of a star decreases 2.5-times with each numerical
increase in magnitude.
Medical and Industrial Equipment
Canon is working to establish two new business pillars:
medical equipment and industrial equipment.
In medical devices, for some years Canon has been
involved in the “CK Project” in collaboration with Kyoto
University. Under the project, two of our technologies are
currently at the clinical evaluation stage. One relates to a
photoacoustic mammography device capable of diagnosing
breast cancer more accurately than before, with minimal
bodily impact during examination. The other relates to adap-
tive optics scanning laser ophthalmoscopy (AO-SLO), which
contributes to the examination of the retina at the cellular
level and the early detection of lifestyle-related diseases.
Furthermore, Canon is developing DNA diagnostic sys-
tems using Canon’s unique technologies, including our
expertise in CMOS sensor and inkjet methodologies, at
our U.S. R&D Center. We aim to start the production from
2015 at Canon Virginia. If realized, the equipment will be
the first Canon product born in the U.S.
In the industrial equipment field, Canon is working to
develop intelligent robots and other systems through cutting-
edge application technologies by integrating high-precision
machine vision technology with information technology
that operates as the brains of robotic systems. Canon is pro-
ceeding with R&D of these application technologies with
a view to use them beyond intelligent robots in fields like
risk prediction and the support and care of senior citizens.
26
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
P R O D U C T I O N
Canon works to maintain and expand production, using our automation technologies while manufacturing high-value-added products in Japan. (the
Utsunomiya Plant, Japan)
In addition to establishing a globally op-
timized production system, Canon seeks
improved quality and productivity by put-
ting a priority on conducting production
operations itself to ensure the progress of
its manufacturing expertise.
Establishing a Globally Optimized
Production System
Canon aims to establish a globally optimized produc-
tion system that identifies the most suitable locations
for the production of individual products based on a
comprehensive assessment of various considerations.
These factors include cost, taxation, logistics, the ease
of parts procurement, and the workforce in each coun-
try and region. An optimized system will lead to addi-
tional improvements in productivity for the entire
Belief in “Internal Production”
Canon Group.
In-House
Production
Automation
Man-Machine
Cell
(cid:115)(cid:0)(cid:35)(cid:79)(cid:83)(cid:84)(cid:0)(cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:115)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)
(cid:0) (cid:36)(cid:73)(cid:70)(cid:70)(cid:69)(cid:82)(cid:69)(cid:78)(cid:84)(cid:73)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:115)(cid:0)(cid:52)(cid:69)(cid:67)(cid:72)(cid:78)(cid:79)(cid:76)(cid:79)(cid:71)(cid:89)
(cid:0) (cid:48)(cid:82)(cid:79)(cid:84)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:115)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:0) (cid:38)(cid:76)(cid:69)(cid:88)(cid:73)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)
(cid:115)(cid:0)(cid:44)(cid:69)(cid:65)(cid:68)(cid:0)(cid:52)(cid:73)(cid:77)(cid:69)
(cid:0) (cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:115)(cid:0)(cid:49)(cid:85)(cid:65)(cid:76)(cid:73)(cid:84)(cid:89)
(cid:0) (cid:41)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)
(cid:115)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:0) (cid:37)(cid:70)(cid:70)(cid:73)(cid:67)(cid:73)(cid:69)(cid:78)(cid:67)(cid:89)
(cid:0) (cid:41)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)
(cid:115)(cid:0)(cid:44)(cid:79)(cid:67)(cid:65)(cid:76)(cid:73)(cid:90)(cid:69)(cid:68)
(cid:0) (cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:115)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:0) (cid:37)(cid:70)(cid:70)(cid:73)(cid:67)(cid:73)(cid:69)(cid:78)(cid:67)(cid:89)
(cid:0) (cid:41)(cid:77)(cid:80)(cid:82)(cid:79)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)
(cid:115)(cid:0)(cid:35)(cid:79)(cid:83)(cid:84)(cid:0)(cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:0) (cid:70)(cid:82)(cid:79)(cid:77)(cid:0)(cid:36)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)
(cid:0) (cid:48)(cid:72)(cid:65)(cid:83)(cid:69)
(cid:115)(cid:0)(cid:44)(cid:69)(cid:65)(cid:68)(cid:0)(cid:52)(cid:73)(cid:77)(cid:69)
(cid:0) (cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)
(cid:115)(cid:0)(cid:38)(cid:85)(cid:82)(cid:84)(cid:72)(cid:69)(cid:82)
(cid:0) (cid:33)(cid:85)(cid:84)(cid:79)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)
Internal Production
In Thailand, Philippines, and Brazil, three manufac-
turing subsidiaries started operations in 2013. In this
way, we are reinforcing our production system globally to
meet growing demand for our products.
Improving Productivity
Canon continues to expedite production in optimal
locations. At the same time, by putting a priority on
conducting production operations in-house, we proceed
to raise quality and reduce costs through progress in
manufacturing by making full use of the expertise and
insights of individual workers engaged in production.
To this end, the Company has adopted a cell production
PRODUCTION
27
“Man-machine cells” production systems integrate
processes where robots excel with processes that can
only be performed by people to sharply enhance the
productivity of cell production systems, enabling fur-
ther improvement in quality and productivity. (Canon
Hi-tech (Thailand) Ltd.)
Canon promotes local production for local consumption,
mainly of consumables, using automation. We work to
lower transport costs and reduce in-transit shipments
and inventories as well as to enhance speed-to-market
timeliness by shortening the distance to key markets.
(Canon Virginia, Inc.)
system—an approach that fully utilizes the creativity of
Meanwhile, by implementing IT innovations that link
individual workers. Canon continues to improve produc-
development, design, production, logistics, and sales
tivity by making efforts to increase production efficien-
and seek to achieve further efficiencies, Canon aims to
cies in cell production while rolling out “man-machine
establish advanced supply chain management that is
cell” production systems that integrate manual and
capable of withstanding fluctuations in demand.
automated processes.
For some time, Canon has prioritized in-house man-
ufacturing, especially of image sensors and other key
parts. At present, we are broadening this strategy to
Environmental Friendly Manufacturing;
Enhanced Product Quality
In addition to efforts aimed at boosting productivity,
include molds and production equipment, as well as
Canon promotes manufacturing operations that are
automation of production itself. In the United States,
friendly to the global environment while striving to
for example, we have implemented a business model for
improve overall product quality. With respect to man-
toner cartridges that incorporates everything from auto-
ufacturing, we prioritize purchases of environmen-
mated production to sales, collection, and recycling in
tally friendly products and parts and actively shift to
the region of consumption of our products, and we plan
transportation modes that have minimal environmen-
to apply this model in Europe as well. In Japan, more-
tal impact. To offer customers products that are safe
over, we introduced automated equipment in part of the
while also providing trust and satisfaction, we imple-
assembly process for interchangeable lenses for digital
ment stringent quality control measures at every pro-
SLR cameras, which requires a high degree of precision,
cess, from planning, development, procurement, and
in 2013. In addition to creating high-value-added prod-
production to sales and after-sales service, based on our
ucts, Canon will expedite efforts to raise productivity in
basic concept of quality, “no trouble, no claims.”
order to strengthen the cost-competitiveness of manu-
facturing products in Japan.
28
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
S A L E S & M A R K E T I N G
Canon (China) Co., Ltd. has held “Canon Grand Fairs,” targeting the market of the country’s 1.3 billion consumers including general consumers, to
further spread and improve the Canon brand. The fi rst fair was run in September 2012 and until March 2014 it was carried out in Beijing, Chengdu
and Guangzhou.
Canon reinforces its sales and marketing ca-
pabilities by providing innovative products
and advanced solutions tailored to meet the
characteristics of each region.
Composition of Sales by Region
Asia and Oceania 22.3%
¥831.1 billion
The Americas 28.4%
¥1,059.5 billion
Net Sales
¥3,731.4
billion
Japan 19.2%
¥715.9 billion
Europe 30.1%
¥1,124.9 billion
General Review
In all existing core businesses, Canon is strengthening its
sales, marketing, and service capabilities by responding
to actual conditions based on analyses of the features of
each region.
In 2013, Canon sought to enhance its sales organiza-
tion in China and cultivate that market further. We also
focused on upgrading our sales networks in India, Russia,
South America, and other emerging markets.
In the office equipment sector, we reinforced our
solutions capabilities centered on the imageRUNNER
ADVANCE series while further strengthening our busi-
ness targeting the commercial printing sector through
the integration of Océ. We also reinforced the Global
Major Account activities to provide worldwide support
for elite clients developing their operations globally.
For consumers, we worked to boost sales by launching
products tailored to the market needs of specific coun-
tries and regions.
Japan
In the year under review, sales in Japan amounted to ¥715.9
billion, equivalent to 19.2% of consolidated net sales.
Thanks to proactive marketing, Canon maintained its
No.1 position in the interchangeable lens digital cam-
era market, with record-high shipments of both cameras
SALES & MARKETING
29
With the completion of a new headquarters with total
fl oor space of 65,000 m2, Canon U.S.A., Inc. has been
transformed from a regional marketing company into a
developer, manufacturer and marketer of products not
available in Japan, and is going to create new value.
Canon installed a Camera Service Center during IAAF
World Championships Moscow 2013, providing world
class service and technical support for professional
photographers behind the scenes.
and lenses. We also made full use of the Nishi-Tokyo Data
Center, which opened in 2012 and features state-of-the
art facilities and security systems. In addition to stepping
up data center services, we focused on expanding other
outsourcing offerings, including cloud services aimed at
enhancing competitiveness and addressing managerial
problems and system administration services to support
stable operation of systems.
The Americas
Sales in the Americas came to ¥1,059.5 billion, 28.4% of
consolidated net sales.
For Canon Americas, 2013 was a year for upgrading
its capabilities, in which we completed construction
of our regional headquarters building in Melville, New
York, and we commenced operations at a camera produc-
tion facility in Brazil, our first manufacturing foray into
South America. We also established Canon Solutions
America, Inc. and completed integration of the sales net-
works for Canon and Océ products. Now, we have a con-
tinuous system from product sales to solutions services
and after-sales support. This provided a major impetus
to cross-selling of various offerings, including office
multifunction devices, production printers, and large-
format printers.
Europe (Europe, Middle East, Africa)
In Europe sales amounted to ¥1,124.9 billion (30.1% of
consolidated net sales).
In 2013, under challenging economic circumstances,
Canon Europe maintained and increased market share in
key segments such as cameras, consumer inkjet and pro-
duction printing.
Canon’s acquisition of Belgium-based solutions spe-
cialist I.R.I.S. Group in 2013 was an important milestone
in the strategy to accelerate growth in services and solu-
tions. New Canon-Océ cross-selling opportunities with
Canon Business Services also contributed to growth.
Canon Europe strengthened its sales and marketing
functions in emerging markets, with increased presence
in Africa.
Asia and Oceania
In 2013, sales in Asia and Oceania amounted to ¥831.1 bil-
lion, 22.3% of consolidated net sales.
Canon China held the Canon Grand Fair in Chengdu
to further improve the company’s brand image in the
Midwestern market that has future growth potential.
In South and Southeast Asia, we promoted establishing
Canon “Image Square” brand retail stores and opened the
108th outlet in India and the second one in Vietnam.
In Oceania, we stepped up sales in New Zealand and
worked to expand our solutions business.
30
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y
Canon Vietnam Co., Ltd. continues the Canon Friendship School Chain Project. A program designed to establish educational environments for chil-
dren living in economically disadvantaged areas. We are building new schools, enlarging or renovating old schools and furnishing them with donated
desks, chairs, book shelves, and other items.
Canon is promoting CSR activities with the
aim of becoming a truly excellent global
corporation that is admired and respected
the world over.
Canon Virginia, having acquired Responsible
Recycling (R2) certifi cation, is evidence of Canon’s
dedication as a company to managing products
across their lifecycle from production through to
collecting and recycling.
Canon’s Basic Approach to CSR
Canon recognizes that its corporate activities are sup-
ported by the development of society as a whole, and con-
tributes to the realization of a better society as a good
corporate citizen, effectively leveraging its advanced tech-
nological strengths, global business deployment, and
diverse, specialized human resources.
Environmental Activities
In 2013, Canon Virginia was named as the first manu-
facturer to achieve Responsible Recycling Practices for
Electronics Recyclers (R2) certification.
The United States Environmental Protection Agency
(EPA) was involved in establishing the R2 private indus-
try inspection system. Moreover, eight models in Canon’s
imageRUNNER ADVANCE series received an EPEAT® Gold
rating, the highest level of registration, in digital imag-
ing equipment category, which was set up in 2013*. An
approval from the environmental rating system is a pre-
requisite of the federal offices’ procurement.
The U.S. government promotes safer and more effective
recycling of electrical and electronic equipment by using
R2-accredited recyclers. To be registered under EPEAT, man-
ufacturers must entrust the recycling of all its used prod-
ucts to R2 or other-accredited recyclers. Canon Virginia
will implement ever more effective recycling measures
CORPORATE SOCIAL RESPONSIBILITY
31
Canon Europe, as a WWF (World Wide Fund for Nature)
Conservation Partner, is working to provide a range
of support that goes beyond its participation in Arctic
expedition, such as sponsoring the WWF-Canon Global
Photo Network. ©Alexey Ebel/WWF-Canon
The “Eyes on Yellowstone” program releases videos of
wildlife in their natural environment online. These vid-
eos are used to educate children around the world.
as a recycler for the Group, while Canon will expedite to
manage the lifecycle of its products, from development to
recycling, within the Group.
Social Contribution Activities
Canon conducts wide-ranging social contribution activi-
ties in all parts of the world, as a “good corporate citizen.”
* For more details, please see page 18.
WWF
Canon Europe is a Conservation Imaging Partner of the
World Wide Fund for Nature (WWF) and supports its
activities such as projects that raise awareness of climate
change in the Arctic.
In 2013, Alexey Ebel, a Russian professional wildlife
photographer, accompanied a team of WWF experts and
scientists on the Laptev Sea expedition sponsored by
Canon. He dedicated his time to documenting the Arctic
environment during the expedition to raise awareness of
the need for protection. Canon and WWF share the hope
that the power of images will expose the state of the envi-
ronment in the rapidly changing Arctic landscape.
Wildlife Protection in Yellowstone National Park
Canon U.S.A. supports “Eyes on Yellowstone,” an edu-
cational and research program to manage and protect
endangered wildlife species and promote education at
Yellowstone National Park. Canon’s imaging equipment
has been used to monitor the lives of animals, create a
video library, and gather information since 1995.
Canon Foundation Announces Fourth Grant
Program Recipients
The Canon Foundation aims to contribute to the ongo-
ing prosperity and well-being of mankind. It has offered
two research grant programs, known as the Creation
of Industrial Infrastructure grant and Pursuit of Ideals
grant. In 2013, 16 projects were selected for the fourth
research grant program.
The Tsuzuri Project
Canon and the non-profit organization Kyoto Culture
Association jointly promote a project called the “Tsuzuri
Project” (Official title: Cultural Heritage Inheritance
Project.) The aim of the project is to preserve original cul-
tural assets while maximizing the effective use of high-
resolution facsimiles of cultural assets. These facsimiles
are created by blending Canon’s latest digital technology
and traditional Japanese crafts, such as gold leaf craft-
work. As a result of the project, original cultural assets
can be kept in the more favorable environment of muse-
ums while copies can be used for educational purposes
and public exhibits. Since the program began in 2007, the
32
Strategy
Business Segment
CORPORATE STRUCTURE
Financial Section
Corporate Data
In 2013, the Tsuzuri Project created high-resolution fac-
similes of eight sliding doors owned by the Tenkyu-in
Temple, a subtemple of the Myoshinji Temple, and
donated them to the Tenkyu-in Temple. (Above: sliding
doors with a picture of a tiger in a bamboo grove)
Without regard to national origin, race, and other matters
of background, Canon hires, trains, and promotes per-
sonnel that can excel as a member of a global enterprise
so that it can grow sustainability as a global company.
cumulative total of reproduced and donated items has
reached 27 (as of March 2013.)
Canon Image Bridge
“Canon Image Bridge” is a social contribution initiative
launched in 2013 to cover the entire Asian region. It follows
the “Image Light of Hope” project in China spearheaded
by Canon China since 2008. In the new initiative, Canon
China and other members of the Canon Asia Marketing
Group will serve as a bridge linking elementary and mid-
dle school children in various nations and regions of Asia
via exchange cards. These cards are composed of photo-
graphs taken by children and words of their impressions.
Canon collects the exchange cards and distributes them to
children throughout Asia to foster cross-cultural commu-
nication. In 2013, around 4,200 children from 134 schools
took part in this photo exchange project.
Addressing the Issue of
Conflict Minerals
Seeking to ensure that customers can use Canon prod-
ucts with peace of mind, the Canon Group works together
with business partners and industry entities to address
the issue of conflict minerals.
Since 2012, Canon has held briefing sessions for domestic
and overseas business partners at 16 locations to gain their
understanding of the issue and request cooperation with
related inquiries and, since 2013, the Company has been con-
ducting full-scale investigations targeting products produced
at manufacturing bases across the entire Canon Group.
Although tracing the complicated supply chain to
confirm the origins of four types of metals used in prod-
ucts is no easy task, the Company has newly constructed a
conflict minerals information management system and is
accumulating essential data to enable the verification of
conflict-free minerals at the parts and materials level.
Based on procedures performed through February
2014, no specific parts or materials have been found
that have funded armed groups in conflict regions as
defined by U.S. legislation. Because, however, there
remain many parts and materials for which the smelters
located upstream in the supply chain have not been iden-
tified, Canon continues working to increase the accuracy
of inquiries and determine whether the supply chain is
conflict-free.
In accordance with the U.S. Dodd-Frank Wall Street
Reform and Consumer Protection Act, Canon will report
to the U.S. Securities and Exchange Commission by the
end of May 2014 on the progress the Canon Group is mak-
ing to address the conflict minerals issue and also disclose
the information on the Company’s website.
Cultivating Diverse Human Resources
Canon works constantly to foster global human resources
capable of performing on the world stage, by taking
advantage of international training programs and the
like. Given our priority to keep production in-house, it is
important for us to cultivate personnel with world-class
skills and expertise on a global scale. In 2013, we contin-
uously pursued initiatives geared specifically towards
programs focused on developing local instructors at our
manufacturing subsidiaries in Southeast Asia and China.
FINANCIAL SECTION
33
F I N A N C I A L S E C T I O N
T A B L E O F C O N T E N T S
34
FINANCIAL OVERVIEW
48
TEN-YEAR FINANCIAL SUMMARY
50 CONSOLIDATED BALANCE SHEETS
51 CONSOLIDATED STATEMENTS OF INCOME
51 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
52 CONSOLIDATED STATEMENTS OF EQUITY
54 CONSOLIDATED STATEMENTS OF CASH FLOWS
55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
93 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
94 REPORTS OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
34
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
FINANCIAL OVERVIEW
GENERAL
The following discussion and analysis provides information
that management believes to be relevant to understanding
Canon’s consolidated financial condition and results of oper-
ations. 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 plain
paper copying machines, office multifunction devices
(“MFDs”), laser printers, cameras, inkjet printers, semicon-
ductor lithography equipment and flat panel display (“FPD”)
lithography equipment. Canon earns revenues primarily
from the manufacture and sale of these products domesti-
cally and internationally. Canon’s basic management policy
is to contribute to the prosperity and well-being of the world
while endeavoring to become a truly excellent global corpo-
rate group targeting continued growth and development.
Canon divides its businesses into three segments: the
Office Business Unit, the Imaging System Business Unit, and
the Industry and Others Business Unit.
Economic environment
Looking back at the global economy in 2013, although the
U.S. and Japanese economies began heading toward moder-
ate recoveries during the latter half of the year, the economic
downturn in Europe continued to drag on while the econo-
mies of emerging countries such as China faced slowdowns.
As such, contrary to expectations at the beginning of the year,
the global economy remained stagnant. As for exchange rates,
the correction of the historic high value of the yen continued,
with a trend toward a weaker yen growing increasingly clear.
Market environment
As for the markets in which Canon operates amid these con-
ditions, owing to the economic slowdown, flat demand led
to a continuation of the harsh business environment espe-
cially for consumer products. Among MFDs, color models
continued to drive growth while demand for laser printers
realized a turnaround toward recovery. Although demand
for interchangeable-lens digital cameras continued to show
strong growth in Japan, demand overseas fell short of the pre-
vious year’s level as the economic rebound in such markets as
Europe and China takes longer than expected. As for digital
compact cameras, demand continued to shrink in both devel-
oped countries as well as emerging markets. Overall market
demand for inkjet printers, hit by the prolonged economic
downturn, also declined in all major markets. In the industry
and others sector, a rebound in capital investment for mem-
ory devices led to a pickup in demand for semiconductor
lithography equipment in the latter half of the year, while
demand for lithography equipment used in the production
of FPDs showed healthy market growth for mid- and small-
size panels used mainly in smartphones and tablet PCs, and a
modest recovery for large-size panels.
The average value of the yen during the year was ¥97.84
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥18, and ¥130.01 against the euro, a year-on-year
depreciation of approximately ¥27.
Summary of operations
Despite the decline in demand for digital compact cameras
and industrial equipment, net sales for the year increased
7.2% to ¥3,731.4 billion (U.S.$35,537 million) from the pre-
vious year. This was realized through the steady demands
for MFDs and laser printers, along with an increase in sales
of inkjet printers, made possible through sales-promotion
efforts despite the harsh conditions posed by the shrinking
inkjet printer market, as well as the positive effects of favor-
able currency exchange rates. The gross profit ratio rose 0.8
points year on year to 48.2% thanks to the effects of ongoing
cost-cutting efforts along with the depreciation of the yen.
Despite an increase in foreign-currency-denominated operat-
ing expenses after conversion into yen due to the depreciation
of the yen, Group-wide efforts to thoroughly reduce spending
contributed to limiting the increase in operating expenses to
just ¥1,461.1 billion (U.S.$13,916 million), an increase of 10.2%
year on year. Consequently, operating profit increased by 4.1%
to ¥337.3 billion (U.S.$3,212 million). Other income decreased
by ¥8.4 billion (U.S.$80 million) due to foreign currency
exchange losses while income before income taxes increased
by 1.5% year on year to ¥347.6 billion (U.S.$3,311 million). Net
income attributable to Canon Inc. increased by 2.6% to ¥230.5
billion (U.S.$2,195 million). Accordingly, Canon achieved
increases in both sales and profit.
Key performance indicators
The following are the key performance indicators (“KPIs”)
that Canon uses in managing its business. The changes from
year to year in these KPIs are set forth in the table shown on
page 35.
Revenues
As Canon pursues the goal to become a truly excellent
global company, one indicator upon which Canon’s manage-
ment places strong emphasis is revenue. The following are
some of the KPIs related to revenue that management con-
siders to be important.
FINANCIAL OVERVIEW
35
Net sales is one such KPI. Canon derives net sales primarily
from the sale of products and, to a much lesser extent, pro-
vision of services associated with its products. Sales vary
depending on such factors as product demand, the number
and size of transactions within the reporting period, mar-
ket acceptance for new products, and changes in sales prices.
Other factors involved are market share and market environ-
ment. In addition, management considers the evaluation
of net sales by segment to be important for the purpose of
assessing Canon’s sales performance in various segments, tak-
ing into account recent market trends.
Gross profit ratio (ratio of gross profit to net sales) is
another KPI for Canon. Through its reforms of product devel-
opment, Canon has been striving to shorten product develop-
ment lead times in order to launch new, competitively priced
products at a faster pace. Furthermore, Canon has further
achieved cost reductions through enhancement of efficiency
in its production. Canon believes that these achievements
have contributed to improving Canon’s gross profit ratio, and
will continue pursuing the curtailment of product develop-
ment lead times and reductions of production costs.
Operating profit ratio (ratio of operating profit to net sales)
and R&D expense to net sales ratio are considered to be KPIs
by Canon. Canon is focusing on two areas for improvement.
Canon is striving to control and reduce its selling, general
and administrative expenses as its first key point. Secondly,
Canon’s R&D policy is designed to maintain adequate spend-
ing in core technology to sustain Canon’s leading position
in its current business areas and to exploit opportunities in
other markets. Canon believes such investments will create
the basis for future success in its business and operations.
Cash flow management
Canon also places significant emphasis on cash flow manage-
ment. The following are the KPIs relating to cash flow man-
agement that Canon’s management believes to be important.
Inventory turnover measured in days is a KPI because
it measures the efficiency of supply chain management.
Inventories have inherent risks of becoming obsolete, physi-
cally damaged or otherwise decreasing significantly in value,
which may adversely affect Canon’s operating results. To mit-
igate these risks, management believes that it is crucial to
continue reducing work-in-process inventories by decreasing
production lead times in order to promptly recover related
product expenses, while balancing risks of supply chain dis-
ruptions by optimizing finished goods inventories in order to
avoid losing potential sales opportunities.
Canon’s management seeks to meet its liquidity and capi-
tal requirements primarily with cash flow from operations.
Management also seeks debt-free operations. For a manu-
facturing company like Canon, it generally takes consider-
able time to realize profit from a business due to lead times
required for R&D, manufacturing and sales has to be fol-
lowed for success. Therefore, management believes that it is
important to have sufficient financial strength so that the
Company does not have to rely on external funds. Canon
has continued to reduce its dependency on external funds
for capital investments in favor of generating the necessary
funds from its own operations.
Canon Inc. stockholders’ equity to total assets ratio is
another KPI for Canon. Canon believes that its stockholders’
equity to total assets ratio measures its long-term sustainabil-
ity. Canon also believes that achieving a high or rising stock-
holders’ equity ratio indicates that Canon has maintained a
strong financial position or further improved its ability to
fund debt obligations and other unexpected expenses. In the
long-term, Canon’s management believes a high stockhold-
ers’ equity ratio will enable the company to maintain a high
level of stable investments for its future operations and devel-
opment. As Canon puts strong emphasis on its R&D activities,
management believes that it is important to maintain a sta-
ble financial base and, accordingly, a high level of its stock-
holders’ equity to total assets ratio.
KEY PERFORMANCE INDICATORS
Net sales (Millions of yen)
Gross profit to net sales ratio
R&D expense to net sales ratio
Operating profit to net sales ratio
Inventory turnover measured in days
Debt to total assets ratio
Canon Inc. stockholders’ equity to total assets ratio
2013
2012
2011
2010
2009
¥3,731,380 ¥3,479,788
47.4%
8.5%
9.3%
57 days
0.1%
65.7%
48.2%
8.2%
9.0%
52 days
0.1%
68.6%
¥3,557,433
48.8%
8.7%
10.6%
46 days
0.3%
64.9%
¥3,706,901
48.1%
8.5%
10.5%
35 days
0.3%
66.4%
¥3,209,201
44.5%
9.5%
6.8%
39 days
0.3%
69.9%
Note: Inventory turnover measured in days; Inventory divided by net sales for the previous six months, multiplied by 182.5.
36
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
The consolidated financial statements are prepared in accor-
dance with U.S. generally accepted accounting principles
(“GAAP”) and based on the selection and application of sig-
nificant accounting policies which require management to
make significant estimates and assumptions. These estimates
and assumptions include future market conditions, net sales
growth rate, gross margin and discount rate. Though Canon
believes that the estimates and assumptions are reasonable,
actual future results may differ from these estimates and
assumptions. Canon believes that the following are the more
critical judgment areas in the application of its account-
ing policies that currently affect its financial condition and
results of operations.
Revenue recognition
Canon generates revenue principally through the sale of
office and imaging system products, equipment, supplies,
and related services under separate contractual arrange-
ments. Canon recognizes revenue when persuasive evidence
of an arrangement exists, delivery has occurred and title and
risk of loss have been transferred to the customer or services
have been rendered, the sales price is fixed or determinable,
and collectibility is probable.
Revenue from sales of office products, such as office MFDs
and laser printers, and imaging system products, such as digi-
tal cameras and inkjet printers, is recognized upon shipment
or delivery, depending upon when title and risk of loss trans-
fer to the customer.
Revenue from sales of optical equipment, such as semi-
conductor lithography equipment and FPD lithography
equipment that are sold with customer acceptance provi-
sions related to their functionality, is recognized when the
equipment is installed at the customer site and the spe-
cific criteria of the equipment functionality are success-
fully tested and demonstrated by Canon. Service revenue is
derived primarily from separately priced product mainte-
nance contracts on equipment sold to customers and is mea-
sured at the stated amount of the contract and recognized
as services are provided.
Canon also offers separately priced product mainte-
nance contracts for most office products, for which the cus-
tomer typically pays a stated base service fee plus a variable
amount based on usage. Revenue from these service main-
tenance contracts is measured at the stated amount of the
contract and recognized as services are provided and vari-
able amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-financing leases
are accounted for as operating leases and the related revenue
is recognized ratably over the lease term. When equipment
leases are bundled with product maintenance contracts, reve-
nue is first allocated considering the relative fair value of the
lease and non-lease deliverables based upon the estimated rel-
ative fair values of each element. Lease deliverables generally
include equipment, financing and executory costs, while non-
lease deliverables generally consist of product maintenance
contracts and supplies.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative selling
price if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulfilled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time
of sale for sales incentive programs including product dis-
counts, customer promotions and volume-based rebates.
Estimated reductions to sales are based upon historical
trends and other known factors at the time of sale. In addi-
tion, Canon provides price protection to certain resellers of
its products, and records reductions to sales for the estimated
impact of price protection obligations when announced. In
2011, the sales incentive program accrual were quite diffi-
cult to estimate compared to prior years because of the sig-
nificant fluctuation in consumer product supplies from our
manufacturing facilities, due to the earthquake in Japan and
the flooding in Thailand. Although Canon utilized available
data to produce its best estimate of promotion payments to
be claimed in 2012, actual claims in 2012 were not as high as
Canon had estimated. Moreover, in recent years, as a result
of the market conditions and customer preferences, usage of
incentive programs has shifted from mail-in rebates to instant
rebates. Accordingly, the historical data relating to mail-in-
rebates could not be used to determine instant rebates. Given
the limited experience with instant rebates, this led Canon to
maintain its estimated accruals for a longer period of time.
As 2012 progressed and new information became available,
Canon reviewed the 2011 accrual balance in order to deter-
mine whether the accrual needed to be revised during 2012.
By using new additional statistical information and gathering
sales and inventory data from customers. Canon was able to
revise its estimates.
Estimated product warranty costs are recorded at the
time revenue is recognized and are included in selling, gen-
eral and administrative expenses. Estimates for accrued prod-
uct warranty costs are based on historical experience, and
are affected by ongoing product failure rates, specific prod-
uct class failures outside of the baseline experience, material
usage and service delivery costs incurred in correcting a prod-
uct failure.
Allowance for doubtful receivables
Allowance for doubtful receivables is determined using a com-
bination of factors to ensure that Canon’s trade and financing
receivables are not overstated due to uncollectibility. These fac-
tors include the length of time receivables are past due, the
credit quality of customers, macroeconomic conditions and
historical experience. Also, Canon records specific reserves for
individual accounts when Canon becomes aware of a custom-
er’s inability to meet its financial obligations to Canon, due
FINANCIAL OVERVIEW
37
for example to bankruptcy filings or deterioration in the
customer’s operating results or financial position. If circum-
stances related to customers change, estimates of the recov-
erability of receivables are further adjusted.
Valuation of inventories
Inventories are stated at the lower of cost or market value.
Cost is determined by the average method for domestic inven-
tories and principally the first-in, first-out method for over-
seas 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 salabil-
ity and for indications of obsolescence to determine if inven-
tories 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 consid-
ers the age of the inventories and the likelihood of spoilage or
changes in market demand for its inventories.
Impairment of long-lived assets
Long-lived assets, such as property, plant and equipment, and
acquired 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. If the carrying amount of the asset exceeds its
estimated undiscounted future cash flows, an impairment
charge is recognized in the amount by which the carry-
ing amount of the asset exceeds the fair value of the asset.
Determining the fair value of the asset involves the use of esti-
mates and assumptions.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated principally by the declining-balance method,
except for certain assets which are depreciated by the straight-
line method over the estimated useful lives of the assets.
Goodwill and other intangible assets
Goodwill and other intangible assets with indefinite useful
lives are not amortized, but are instead tested for impairment
annually in the fourth quarter of each year, or more frequently
if indicators of potential impairment exist. Canon performs its
impairment test of goodwill using the two-step approach at
the reporting unit level, which is one level below the oper-
ating segment level. All goodwill is assigned to the report-
ing unit or units that benefit from the synergies arising from
each business combination. If the carrying amount assigned
to the reporting unit exceeds the fair value of the reporting
unit, Canon performs the second step to measure an impair-
ment charge in the amount by which the carrying amount
of a reporting unit’s goodwill exceeds its implied fair value.
Fair value of a reporting unit is determined primarily based
on the discounted cash flow analysis which involves estimates
of projected future cash flows and discount rates. Estimates
of projected future cash flow are primarily based on Canon’s
forecast of future growth rates. Estimates of discount rates
are determined based on the weighted average cost of capital,
which considers primarily market and industry data as well as
specific risk factors. Intangible assets with finite useful lives
consist primarily of software, license fees, patented technolo-
gies and customer relationships. Software and license fees are
amortized using the straight-line method over the estimated
useful lives, which range from 3 years to 5 years for software
and 5 years to 10 years for license fees. Patented technologies
are amortized using the straight-line method principally over
the estimated useful life of 3 years. Customer relationships
are amortized principally using the declining-balance method
over the estimated useful life of 5 years.
Income tax uncertainties
Canon considers many factors when evaluating and estimat-
ing income tax uncertainties. These factors include an evalua-
tion of the technical merits of the tax positions as well as the
amounts and probabilities of the outcomes that could be real-
ized upon settlement. The actual resolutions of those uncer-
tainties will inevitably differ from those estimates, and such
differences may be material to the financial statements.
Valuation of 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 judg-
ments regarding future profitability may change due to future
market conditions, its ability to continue to successfully exe-
cute its operating restructuring activities and other factors.
Any changes in these factors may require possible recognition
of significant valuation allowances to reduce the net carry-
ing value of these deferred tax asset balances. When Canon
determines that certain deferred tax assets may not be recover-
able, the amounts, which may not be realized, are charged to
income tax expense and will adversely affect net income.
Employee retirement and severance benefit plans
Canon has significant employee retirement and severance
benefit obligations that are recognized based on actuarial
valuations. Inherent in these valuations are key assump-
tions, including discount rates and expected return on plan
assets. Management must consider current market condi-
tions, including changes in interest rates, in selecting these
assumptions. Other assumptions include assumed rate of
increase in compensation levels, mortality rate, and with-
drawal rate. Changes in assumptions inherent in the valu-
ation are reasonably likely to occur from period to period.
Actual results that differ from the assumptions are accumu-
lated and amortized over future periods and, therefore, gen-
erally affect future pension expenses. While management
believes that the assumptions used are appropriate, the dif-
ferences may affect employee retirement and severance ben-
efit costs in the future.
In preparing its financial statements for 2013, Canon esti-
mated a weighted-average discount rate used to determine
38
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
benefit obligations of 1.6% for Japanese plans and 3.8% for
foreign plans and a weighted-average expected long-term
rate of return on plan assets of 3.1% for Japanese plans and
5.2% for foreign plans. In estimating the discount rate,
Canon uses available information about rates of return on
high-quality fixed-income government and corporate bonds
currently available and expected to be available during
the period to the maturity of the pension benefits. Canon
establishes the expected long-term rate of return on plan
assets based on management’s expectations of the long-
term return of the various plan asset categories in which it
invests. Management develops expectations with respect to
each plan asset category based on actual historical returns
and its current expectations for future returns.
Decreases in discount rates lead to increases in actuarial
pension benefit obligations which, in turn, could lead to an
increase in service cost and amortization cost through amor-
tization of actuarial gain or loss, a decrease in interest cost,
and vice versa. For 2013, a decrease of 50 basis points in the
discount rate increases the projected benefit obligation by
approximately ¥97,589 million (U.S.$929 million). The net
effect of changes in the discount rate, as well as the net effect
of other changes in actuarial assumptions and experience, is
deferred until subsequent periods.
Decreases in expected returns on plan assets may increase
net periodic benefit cost by decreasing the expected return
amounts, while differences between expected value and
actual fair value of those assets could affect pension expense
in the following years, and vice versa. For 2013, a change of
50 basis points in the expected long-term rate of return on
plan assets would cause a change of approximately ¥4,713
million (U.S.$45 million) in net periodic benefit cost. Canon
multiplies management’s expected long-term rate of return
on plan assets by the value of its plan assets to arrive at the
expected return on plan assets that is included in pension
expense. Canon defers recognition of the difference between
this expected return on plan assets and the actual return on
plan assets. The net deferral affects future pension expense.
Canon recognizes the funded status (i.e., the difference
between the fair value of plan assets and the projected bene-
fit obligations) of its pension plans in its consolidated balance
sheets, with a corresponding adjustment to accumulated
other comprehensive income (loss), net of tax.
CONSOLIDATED RESULTS OF OPERATIONS
SUMMARY OF OPERATIONS
Net sales
Operating profit
Income before income taxes
Net income attributable to Canon Inc.
Millions of yen
2013
¥3,731,380
337,277
347,604
230,483
change
+7.2%
+4.1%
+1.5%
+2.6%
2012
change
2011
¥3,479,788
323,856
342,557
224,564
-2.2%
-14.3%
-8.5%
-9.7%
¥3,557,433
378,071
374,524
248,630
Thousands of
U.S. dollars
2013
$35,536,952
3,212,162
3,310,514
2,195,076
Sales
Canon’s consolidated net sales in 2013 totaled ¥3,731,380 mil-
lion (U.S.$35,537 million), representing a 7.2% increase from
the previous year. This was realized through steady demands
for MFDs and laser printers, along with an increase in sales of
inkjet printers as well as the positive effects of favorable cur-
rency exchange rates, despite the decline in demand for digi-
tal compact cameras and industrial equipment.
Overseas operations are significant to Canon’s operating
results and generated 80.8% of total net sales in 2013. Such
sales are denominated in the applicable local currency and
are subject to fluctuations in the value of the yen relative to
those currencies. Despite efforts to reduce the impact of cur-
rency fluctuations on operating results, including localiza-
tion of manufacturing in some regions along with procuring
parts and materials from overseas suppliers, Canon believes
such fluctuations have had and will continue to have a signif-
icant effect on its results of operations.
The average value of the yen during the year was ¥97.84
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥18, and ¥130.01 against the euro, a year-on-year
depreciation of approximately ¥27. The effects of foreign
exchange rate fluctuations positively affected net sales by
approximately ¥514,000 million (U.S.$4,895 million) in 2013.
This favorable impact consisted of approximately ¥257,000
million (U.S.$2,448 million) for the U.S. dollar denominated
sales, ¥193,600 million (U.S.$1,844 million) for the euro
denominated sales and ¥63,400 million (U.S.$604 million) for
other foreign currency denominated sales.
Return on Sales
(%)
7.0
6.7
6.5
6.2
9
6
3
0
4.1
2009
2010
2011
2012
2013
FINANCIAL OVERVIEW
39
Cost of sales
Cost of sales principally reflects 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. Many of these raw
materials are subject to fluctuations in world market prices
accompanied by fluctuations in foreign exchange rates that
may affect Canon’s cost of sales. Other components of cost of
sales include depreciation expenses, maintenance expenses,
light and fuel expenses, and rent expenses. The ratio of cost
of sales to net sales for 2013 and 2012 was 51.8% and 52.6%,
respectively.
Income before income taxes
Income before income taxes in 2013 was ¥347,604 million
(U.S.$3,311 million), an increase of 1.5% from 2012, and con-
stituted 9.3% of net sales.
Income taxes
Provision for income taxes in 2013 decreased by ¥2,024 mil-
lion (U.S.$19 million) from 2012. The effective tax rate dur-
ing 2013 remained consistent with 2012. The effective tax
rate for 2013 was 31.1%, which was lower than the statutory
tax rate in Japan. This was mainly due to the tax credit for
R&D expenses.
Gross profit
Canon’s gross profit in 2013 increased by 9.0% to ¥1,798,421
million (U.S.$17,128 million) from 2012. The gross profit ratio
also increased by 0.8 points year on year to 48.2%. The growth
of gross profit ratio was achieved due to the cost reductions
and production innovation along with the positive effects of
the depreciation of the yen.
Operating expenses
The major components of operating expenses are payroll,
R&D, advertising expenses and other marketing expenses.
Despite group-wide efforts to thoroughly reduce spending,
total operating expenses increased by 10.2% to ¥1,461,144 mil-
lion (U.S.$13,916 million) in 2013 mainly due to the negative
effect of depreciation of the yen.
Operating profit
Operating profit in 2013 increased 4.1% to a total of ¥337,277
million (U.S.$3,212 million) from 2012. The ratio of operating
profit to net sales decreased 0.3% to 9.0% from 2012.
Other income (deductions)
Other income (deductions) for 2013 decreased ¥8,374 million
(U.S.$80 million) to ¥10,327 million (U.S.$98 million), owing
primarily to foreign currency exchange losses.
Net income attributable to Canon Inc.
As a result, net income attributable to Canon Inc. in 2013
increased by 2.6% to ¥230,483 million (U.S.$2,195 million),
which represents 6.2% of net sales.
Segment information
Canon divides its businesses into three segments: the Office
Business Unit, the Imaging System Business Unit and the
Industry and Others Business Unit.
(cid:129)The Office Business Unit mainly includes Office multifunc-
tion devices (MFDs) / Laser multifunction printers (MFPs) /
Laser printers / Digital production printing systems / High
speed continuous feed printers / Wide-format printers /
Document solutions
(cid:129)The Imaging System Business Unit mainly includes
Interchangeable lens digital cameras / Digital compact
cameras / Digital camcorders / Digital cinema cameras /
Interchangeable lenses / Inkjet printers / Large-format ink-
jet printers / Commercial photo printers / Image scanners /
Multimedia projectors / Broadcast equipment / Calculators
(cid:129)The Industry and Others Business Unit mainly includes
Semiconductor lithography equipment / Flat panel display
(FPD) lithography equipment / Digital radiography systems /
Ophthalmic equipment / Vacuum thin-film deposition equip-
ment / Organic LED (OLED) panel manufacturing equipment /
Die bonders / Micromotors / Network cameras / Handy termi-
nals / Document scanners
Sales by Segment
(Millions of yen)
Sales by Geographic Area
(Millions of yen)
3,731,380
3,706,901
3,479,788
3,557,433
3,209,201
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
3,706,901
3,731,380
3,557,433
3,479,788
3,209,201
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Japan
Americas
Europe
Asia and Oceania
40
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Sales by segment
Please refer to the table of sales by segment in Note 21 of the Notes to Consolidated Financial Statements.
Canon’s sales by segment are summarized as follows:
SALES BY SEGMENT
Office
Imaging System
Industry and Others
Eliminations
Total
2013
¥2,000,073
1,448,938
374,870
(92,501)
¥3,731,380
change
+13.8%
+3.1%
-8.1%
—
+7.2%
Millions of yen
2012
change
2011
¥1,757,575
1,405,971
407,840
(91,598)
¥3,479,788
-8.4%
+7.2%
-3.1%
—
-2.2%
¥1,917,943
1,312,044
420,863
(93,417)
¥3,557,433
Thousands of
U.S. dollars
2013
$19,048,314
13,799,410
3,570,190
(880,962)
$35,536,952
Within the Office Business Unit, as for office MFDs, sales of
color models increased from 2012 led by the imageRUNNER
ADVANCE C5200/C2200 series. Results for high speed contin-
uous feed printers and wide-format printers, sales of the Océ
ColorStream 3000 series showed solid growth. With regard
to laser printers, laser multifunction models recorded strong
growth contributing to a year-on-year increase in sales vol-
ume. As a result, sales for the business unit totaled ¥2,000.1
billion (U.S.$19,048 million) in 2013, an increase of 13.8%
year on year, while operating profit totaled ¥266.9 billion
(U.S.$2,542 million), increasing 31.1%.
Within the Imaging System Business Unit, interchangeable-
lens digital cameras maintained their top market share despite
the challenging environment, which was marked by a drop
in demand in Europe and China due to the economic down-
turn, although demand in Japan continued to expand. In par-
ticular, the EOS 5D Mark III and 70D advanced-amateur-model
digital SLR cameras continued to realize healthy growth.
Furthermore, in Japan, the new entry-level EOS Digital Rebel
SL1 and T5i cameras proved popular. As for digital compact
cameras, although total sales volume declined due to the mar-
ket slowdown and the increasing popularity of smartphones,
sales volume increased from 2012 for high-added-value mod-
els incorporating features that differentiate them from smart-
phones, such as large-size image sensors and models like
the PowerShot SX50 HS and SX510 HS, which feature high-
magnification zoom lenses. With regard to inkjet printers,
despite the harsh market environment due to the rapid fall
in demand in emerging markets, sales volume showed solid
growth thanks to efforts to boost sales through the introduc-
tion of new products offering enhanced support for cloud
services. As a result, sales for the business unit increased by
3.1% to ¥1,448.9 billion (U.S.$13,799 million) in 2013, while
operating profit totaled ¥203.8 billion (U.S.$1,941 million), a
decrease of 3.1%.
In the Industry and Others Business Unit, within semiconduc-
tor lithography equipment, despite an increase in sales volume
for memory devices in the latter half of the year 2013 fueled
by renewed investment in capital expenditure by memory
manufacturers, sales volumes for the year decreased slightly
owing to restrained capital expenditure in the first half. As for
FPD lithography equipment, sales volume remained the same
as for the previous year amid the recovery in investment for
large-size panels. With respect to medical equipment, sales vol-
ume for Canon’s mainstay digital radiography systems steadily
increased. Consequently, sales for the business unit totaled
¥374.9 billion (U.S.$3,570 million) in 2013, a decrease of 8.1%
year on year, while operating profit recorded a loss of ¥25.3 bil-
lion (U.S.$241 million), declining by ¥31.2 billion (U.S.$298 mil-
lion) from 2012.
Intersegment sales of ¥92,501 million (U.S.$880,962 million),
representing 2.4% of total sales, are eliminated from total sales
for the three segments, and are described as “Eliminations.”
Sales by geographic area
Please refer to the table of sales by geographic area in Note 21
of the Notes to Consolidated Financial Statements.
A geographical analysis indicates that net sales in 2013
increased in all areas except Japan.
In Japan, sales slightly decreased in 2013 due to the slow-
down in the Industry and Others Business, although the
interchangeable-lens digital cameras continued to expand.
In the Americas, despite the decline in sales of digital com-
pact cameras from the previous year due to the significant
slowdown in the market, increased sales of inkjet printers
including consumable supplies, along with the depreciation
of the yen against the U.S. dollar, caused sales to increase by
12.7% in 2013.
In Europe, although sales of interchangeable lens digital
cameras declined due to shifting to low-end models as well as
declining sales of digital compact cameras owing to shrinking
market, amid increasing uncertainty in European economy
sales of inkjet printers and MFDs showed steady sales growth.
As a result, along with the effect of depreciation of the yen,
sales increased by 10.9% in 2013.
In Asia and Oceania, sales of interchangeable lens digital
cameras, which have been an engine for solid growth in Asia
and Oceania, showed a slowdown in growth. In addition sales
of digital compact cameras and laser printers faced harsh con-
ditions. Inkjet printers including consumable supplies, on
the other hand, showed steady sales growth. Reflecting these
factors and the effect of depreciation of the yen, net sales
increased by 3.2% in 2013.
FINANCIAL OVERVIEW
41
A summary of net sales by geographic area is provided below.
SALES BY REGION
Japan
Americas
Europe
Asia and Oceania
Total
2013
¥ 715,863
1,059,501
1,124,929
831,087
¥ 3,731,380
change
-0.6%
+12.7%
+10.9%
+3.2%
+7.2%
Millions of yen
2012
change
2011
¥ 720,286
939,873
1,014,038
805,591
¥3,479,788
+3.7%
-2.3%
-8.9%
+2.2%
-2.2%
¥ 694,450
961,955
1,113,065
787,963
¥ 3,557,433
Thousands of
U.S. dollars
2013
$ 6,817,743
10,090,486
10,713,609
7,915,114
$35,536,952
Note: This summary of net sales by geographic area is determined by the location where the product is shipped to the customers.
Operating profit by segment
Please refer to the table of segment information in Note 21 of
the Notes to Consolidated Financial Statements.
Operating profit for the Office Business Unit in 2013
increased by ¥63,330 million (U.S.$603 million) to ¥266,908
million (U.S.$2,542 million). This increase resulted from the
sales increase.
Operating profit for the Imaging System Business Unit
in 2013 decreased by ¥6,524 million (U.S.$62 million) to
¥203,794 million (U.S.$1,941 million). This decrease resulted
primarily from the increase in expense due to depreciation
of the yen.
Operating profit for the Industry and Others Business Unit
in 2013 declined by ¥31,241 million (U.S.$298 million), largely
owing to the decrease in sales.
FOREIGN OPERATIONS AND FOREIGN
CURRENCY TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
various regions in local currencies, while the cost of sales 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 consist principally of forward
currency exchange contracts.
The operating profit on foreign operation sales is usually
lower than that from domestic operations because foreign
operations consist mainly of marketing activities. Marketing
activities are generally less profitable than production activ-
ities, which are mainly conducted by the Company and
its domestic subsidiaries. Please refer to the table of geo-
graphic information in Note 21 of the Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
C a s h a n d c a s h e qu i v a l e n t s i n 2 013 i n c r e a s e d by
¥122,231 million (U.S.$1,164 million) to ¥788,909 million
(U.S.$7,513 million), compared with ¥666,678 million in
2012 and ¥773,227 million in 2011. Canon’s cash and cash
equivalents are typically denominated both in Japanese
yen and in U.S. dollars, with the remainder denominated
in foreign currencies.
Net cash provided by operating activities in 2013 increased
by ¥123,565 million (U.S.$1,177 million) from the previous
year to ¥507,642 million (U.S.$4,835 million). Cash flow from
operating activities consisted of the following key compo-
nents: the major component of Canon’s cash inflow is cash
received from customers, and the major components of
Canon’s cash outflow are payments for parts and materials,
selling, general and administrative expenses, R&D expenses
and income taxes.
For 2013, cash inflow from cash received from customers
increased due to the increase in sales. There were no signif-
icant changes in Canon’s collection rates. Cash outflow for
payments for parts and materials decreased, as a result of our
efforts to decrease inventory. Cash outflow for payments for
selling, general and administrative expenses increased due
to the impact of Japanese Yen on operating expenses denom-
inated in foreign currencies. On the other hand, operation
expenses in local currency base declined due to cost reduc-
tion activities of group companies. Cash outflow for income
taxes increased due to the increase in taxable income.
Net cash used in investing activities in 2013 was ¥250,212
million (U.S.$2,383 million), increasing by ¥37,472 million
(U.S.$357 million) from ¥212,740 million in 2012, due to the
increasing amount of time deposits included in short-term
investments. Purchases of fixed assets were focused on items
relevant to new products.
Canon defines “free cash flow” by deducting cash flows
from investing activities from cash flows from operating
activities. For 2013, free cash flow totaled ¥257,430 million
(U.S.$2,452 million) as compared with ¥171,337 million for
2012. Canon’s management recognizes that constant and
intensive investment in facilities and R&D is required to
maintain and strengthen the competitiveness of its prod-
ucts. Canon’s management seeks to meet its capital require-
ments with cash flow principally earned from its operations.
Therefore, its capital resources are primarily sourced from
internally generated funds.
Accordingly, Canon has included information with regard
to free cash flow, as its management frequently monitors this
indicator, and believes that such indicator is beneficial to
42
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
the understanding of investors. Furthermore, Canon’s man-
agement believes that this indicator is significant in under-
standing Canon’s current liquidity and the alternatives uses
in financing activities because it takes into consideration its
operating and investing activities. Canon refers to this indi-
cator together with relevant U.S. GAAP financial measures
shown in its consolidated statements of cash flows and con-
solidated balance sheets for cash availability analysis.
Net cash used in financing activities totaled ¥222,181
million (U.S.$2,116 million) in 2013, mainly resulting from
repurchase of treasury stock of ¥50,007 million (U.S.$476
million), and dividends of ¥155,627 million (U.S.$1,482
million). The Company paid dividends in 2013 of ¥135.00
per share.
To the extent Canon relies on external funding for its
liquidity and capital requirements, it generally has access to
various funding sources, including the issuance of additional
share capital, long-term debt or short-term loans. While Canon
has been able to obtain funding from its traditional financing
sources and from the capital markets, and believes it will con-
tinue to be able to do so in the future, there can be no assur-
ance that adverse economic or other conditions will not affect
Canon’s liquidity or long-term funding in the future.
Short-term loans (including the current portion of
long-term debt) amounted to ¥1,299 million (U.S.$12 mil-
lion) at December 31, 2013 compared with ¥1,866 million
at December 31, 2012. Long-term debt (excluding the cur-
rent portion) amounted to ¥1,448 million (U.S.$14 mil-
lion) at December 31, 2013 compared with ¥2,117 million at
December 31, 2012.
Canon’s long-term debt mainly consists of lease obligations.
In order to facilitate access to global capital markets, Canon
obtains credit ratings from two rating agencies: Moody’s
Investors Services, Inc. (“Moody’s”) and Standard and Poor’s
Ratings Services (“S&P”). In addition, Canon maintains a rating
from Rating and Investment Information, Inc. (“R&I”), a rating
agency in Japan, for access to the Japanese capital market.
As of March 14, 2014, Canon’s debt ratings are: Moody’s:
Aa1 (long-term); S&P: AA (long-term), A-1+ (short-term); and
R&I: AA+ (long-term). Canon does not have any rating down-
grade triggers that would accelerate the maturity of a mate-
rial amount of its debt. A downgrade in Canon’s credit ratings
or outlook could, however, increase the cost of its borrowings.
Following the natural disasters which occurred in 2011,
Canon determined that its concerted focus on decreasing
levels of total inventory, even for competitive and strong-
selling products, had resulted in shortages of finished
goods, adversely affecting its ability to capitalize on selling
opportunities. As a consequence, Canon re-evaluated its pri-
orities for targeting levels of finished goods inventory, and
decided on a new management policy to increase levels of
finished goods inventories at sales locations as a buffer in
order to increase its resilience in response to unexpected
natural or man-made disasters and consequent production
line stoppages. Canon’s initiative in recent periods to opti-
mize inventory levels is intended to maintain an appropriate
balance among relevant imperatives, including minimiz-
ing working capital, avoiding undue exposure to the risk of
inventory obsolescence, and maintaining the ability to sus-
tain sales despite the occurrence of unexpected disasters.
Ref lecting the foregoing circumstances, Canon’s total
inventory turnover ratios were 52, 57, and 46 days at the
end of the years 2013, 2012, and 2011, respectively and the
increases over the last three years are in line with Canon’s
expectations and its revised inventory management policy.
Increase in property, plant and equipment on an accrual
basis in 2013 amounted to ¥188,826 million (U.S.$1,798 mil-
lion) compared with ¥270,457 million in 2012 and ¥226,869
million in 2011. For 2014, Canon projects its increase in prop-
erty, plant and equipment will be approximately ¥210,000
million (U.S.$2,000 million).
Employer contributions to Canon’s worldwide defined ben-
efit pension plans were ¥48,515 million (U.S.$462 million)
in 2013, ¥30,421 million in 2012, and ¥30,510 million in
2011. In addition, employer contributions to Canon’s world-
wide defined contribution pension plans were ¥14,383 mil-
lion (U.S.$137 million) in 2013, ¥13,021 million in 2012, and
¥12,511 million in 2011.
Increase in Property,
Plant and Equipment
(Millions of yen)
270,457
216,128
226,869
188,826
158,976
300,000
200,000
100,000
0
3.0
2.5
2.0
1.5
1.0
0.5
0
Working Capital Ratio
Return on Canon Inc.
Stockholders’ Equity
(%)
2.57
2.41
2.47
2.69
2.38
9.6
9.2
8.7
8.4
12
9
6
3
0
4.9
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
FINANCIAL OVERVIEW
43
Working capital in 2013 increased by ¥199,814 million
(U.S.$1,903 million), to ¥1,437,635 million (U.S.$13,692
million), compared with ¥1,237,821 million in 2012 and
¥1,259,457 million in 2011. Canon believes its working capi-
tal will be sufficient for its requirements for the foreseeable
future. Canon’s capital requirements are primarily depen-
dent on management’s business plans regarding the levels
and timing of purchases of fixed assets and investments. The
working capital ratio (ratio of current assets to current liabil-
ities) for 2013 was 2.69 compared to 2.47 for 2012 and to 2.41
for 2011.
Return on assets (net income attributable to Canon Inc.
divided by the average of total assets) was 5.6% in 2013, com-
pared to 5.7% in 2012 and 6.3% in 2011.
Return on Canon Inc. stockholders’ equity (net income
attributable to Canon Inc. divided by the average of total
Canon Inc. stockholders’ equity) was 8.4% in 2013 compared
with 8.7% in 2012 and 9.6% in 2011.
The debt to total assets ratio was 0.1%, 0.1% and 0.3% as of
December 31, 2013, 2012 and 2011, respectively. Canon had
short-term loans and long-term debt of ¥2,747 million (U.S.$26
million) as of December 31, 2013, ¥3,983 million as of December
31, 2012 and ¥11,711 million as of December 31, 2011.
OFF-BALANCE SHEET ARRANGEMENTS
As part of its ongoing business, Canon does not participate
in transactions that generate relationships with unconsol-
idated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose
entities established for the purpose of facilitating off-
balance sheet arrangements or other contractually narrow
or limited purposes.
Canon provides guarantees for bank loans of its employ-
ees, affiliates and other companies. Canon will have to per-
form under a guarantee if the borrower defaults on a payment
within the contract periods of 1 year to 30 years in the case of
employees with housing loans, and 1 year to 10 years in the case
of affiliates and other companies. The maximum amount of
undiscounted payments Canon would have had to make in the
event of default by all borrowers was ¥12,315 million (U.S.$117
million) at December 31, 2013. The carrying amounts of the lia-
bilities recognized for Canon’s obligations as a guarantor under
those guarantees at December 31, 2013 were insignificant.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following summarizes Canon’s contractual obligations at December 31, 2013.
Contribution to defined benefit pension plans
Total
20,649
¥ 219,538
20,649
¥150,549
Note: The table does not include provisions for uncertain tax positions and related accrued interest and penalties, as the specific timing of future payments related
to these obligations cannot be projected with reasonable certainty. See Note 12, Income Taxes in the Notes to Consolidated Financial Statements for further
details. Contribution to defined benefit pension plans reflects the expected amount only for the next fiscal year, since contributions beyond the next fiscal
year are not currently determinable due to uncertainties related to changes in actuarial assumptions, returns on plan assets and changes to plan membership.
Millions of yen
Contractual obiligations:
Long-term debt:
Capital lease obligations
Other long-term debt
Operating lease obligations
Purchase commitments for:
Property, plant and equipment
Parts and raw materials
Other long-term liabilities:
Thousands of U.S. dollars
Contractual obiligations:
Long-term debt:
Capital lease obligations
Other long-term debt
Operating lease obligations
Purchase commitments for:
Property, plant and equipment
Parts and raw materials
Other long-term liabilities:
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Payments due by period
¥
2,482
211
96,064
26,218
73,914
¥
1,213
32
28,523
¥ 1,098
101
37,915
¥
171
48
16,446
¥
—
30
13,180
26,218
73,914
—
—
—
—
—
—
—
—
—
¥39,114
¥16,665
¥13,210
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Payments due by period
$
23,637
2,010
914,895
$
11,552
305
271,648
$ 10,457
962
361,096
$
1,628
458
156,628
$
—
285
125,523
249,695
703,943
249,695
703,943
—
—
—
—
—
—
—
—
—
$ 372,515
$ 158,714
$ 125,808
Contribution to defined benefit pension plans
Total
196,657
$2,090,837
196,657
$1,433,800
44
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Canon provides warranties of generally less than one year
against defects in materials and workmanship on most of
its consumer products. Estimated product warranty related
costs are established at the time revenue are recognized and
are included in selling, general and administrative expenses.
Estimates for accrued product warranty costs 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. As of December
31, 2013, accrued product warranty costs amounted to
¥10,890 million (U.S.$104 million).
At December 31, 2013, commitments outstanding for the
purchase of property, plant and equipment were approxi-
mately ¥26,218 million (U.S.$250 million), and commitments
outstanding for the purchase of parts and raw materials were
approximately ¥73,914 million (U.S.$704 million), both for
use in the ordinary course of its business. Canon anticipates
that funds needed to fulfill these commitments will be gener-
ated internally through operations.
During 2014, Canon expects to contribute ¥13,589 mil-
lion (U.S.$129 million) to its Japanese defined benefit pen-
sion plans and ¥7,060 million (U.S.$67 million) to its foreign
defined benefit pension plans.
Canon’s management believes that current financial
resources, cash generated from operations and Canon’s poten-
tial capacity for additional debt and/or equity financing will
be sufficient to fund current and future capital requirements.
RESEARCH AND DEVELOPMENT, PATENTS AND
LICENSES
Year 2013 marks the third year of the Excellent Global
Corporation Plan, its 5-year (2011-2015) management plan.
The slogan of the fourth phase (“Phase IV”) is “Aiming for the
Summit—Speed & Sound Growth” and there are three core
strategies related to R&D:
(cid:129) Achieve the overwhelming No.1 position in all core busi-
nesses and expand related and peripheral businesses;
(cid:129) Develop new business through globalized diversification
and establish the Three Regional Headquarters manage-
ment system; and
(cid:129) Build the foundations of an environmentally advanced
corporation.
Canon has been striving to implement the three R&D
related strategies as follows:
(cid:129) Achieve the overwhelming No.1 position in all core busi-
nesses and expand related and peripheral businesses:
Continue to introduce competitive products through
innovation and aim at gaining profit through solutions
and services.
(cid:129) Develop new business through globalized diversification
and establish the Three Regional Headquarters manage-
ment system: Reinforce the businesses of commercial
printing sector, medical imaging sector, industrial equip-
ment sector and security and safety sector to develop
into Canon’s new pillars. Seek talents in Japan, US, and
Europe to foster promising technologies and enhance
R&D capabilities in global-scale dimensions by enabling
product development in specialized area of each region,
with actively utilizing M&A.
(cid:129) Build the foundations of an environmentally advanced
corporation: Focus on energy- and resource-conserving
technologies to create products with the highest environ-
mental performance.
Canon is pursuing collaboration among the government,
industry and academia, and has strengthened relationships
with universities and other research institutes worldwide,
such as Kyoto University, Tokyo Institute of Technology, Osaka
University, Stanford University, the University of Arizona,
and the New Energy and Industrial Technology Development
Organization to assist with fundamental research and to
develop cutting-edge technologies. Additionally, Canon
is currently working on a collaborative research with
Massachusetts General Hospital (MGH) and Brigham and
Women’s Hospital (BWH) to develop biomedical optical imag-
ing and medical robotics technologies at the Healthcare
Optics Research Laboratory in Cambridge, Massachusetts,
founded in June of 2013.
Canon has fully introduced 3D-CAD systems across the
Canon Group, boosting R&D efficiency to curtail product
development times and costs. Moreover, Canon enhanced and
evolved its simulation, measurement, and analysis technol-
ogies by establishing leading-edge facilities, including one
of Japan’s highest-performance cluster computers. As such,
Canon has succeeded in further reducing the need for pro-
totypes, dramatically lowering costs and shortening product
development lead times.
Canon’s consolidated R&D expenses were ¥306,324 mil-
lion (U.S.$2,917 million) in 2013, ¥296,464 million in 2012
and ¥307,800 million in 2011. The ratios of R&D expenses to
the consolidated total net sales for 2013, 2012 and 2011 were
8.2%, 8.5% and 8.7%, respectively.
Canon believes that new products protected by patents
will not easily allow competitors to compete with them, and
will give them an advantage in establishing standards in the
market and industry.
Canon obtained the third greatest number of private sec-
tor patents in 2013, according to the United States patent
annual list, released by IFI CLAIMS® Patent Services.
R&D Expenses
(Millions of yen)
400,000
300,000
304,600
315,817
307,800
306,324
296,464
200,000
100,000
0
2009
2010
2011
2012
2013
FINANCIAL OVERVIEW
45
MARKET RISK EXPOSURES
Canon is exposed to market risks, including changes in for-
eign currency exchange rates, interest rates and prices of mar-
ketable securities and investments. In order to hedge the risks
of changes in foreign currency exchange rates, Canon uses
derivative financial instruments.
Equity price risk
Canon holds marketable securities included in current assets,
which consist generally of highly-liquid and low-risk instru-
ments. Investments included in noncurrent assets are held as
long-term investments. Canon does not hold marketable secu-
rities and investments for trading purposes.
Maturities and fair values of such marketable securities and investments with original maturities of more than three
months, all of which were classified as available-for-sale securities, were as follows at December 31, 2013.
Available-for-sale securities
Debt securities
Due within one year
Due after one year through five years
Due after five years
Fund trusts
Equity securities
Millions of yen
Thousands of U.S. dollars
Cost
Fair value
Cost
Fair value
¥
—
10
819
68
18,112
¥19,009
¥
—
10
778
68
34,536
¥35,392
$
—
95
7,800
648
172,495
$ 181,038
$
—
95
7,409
648
328,915
$ 337,067
Foreign currency exchange rate and
interest rate risk
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates. Derivative
financial instruments are comprised principally of foreign
currency exchange contracts utilized by the Company and
certain of its subsidiaries to reduce the risk. Canon assesses
foreign currency exchange rate risk by continually moni-
toring changes in the exposures and by evaluating hedging
opportunities. Canon does not hold or issue derivative finan-
cial 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. Most of the counterparties are internationally
recognized financial institutions and selected by Canon tak-
ing into account their financial condition, and contracts are
diversified across a number of major financial institutions.
Canon’s international operations expose Canon to the risk
of changes in foreign currency exchange rates. Canon uses
foreign exchange contracts to manage certain foreign cur-
rency exchange exposures principally from the exchange
of U.S. dollars and euros into Japanese yen. These contracts
are primarily used to hedge the foreign currency exposure
of forecasted intercompany sales and intercompany trade
receivables 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, 2013. All of the foreign exchange contracts described in the following table
have a contractual maturity date in 2014.
Millions of yen
Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
Forwards to buy foreign currencies:
Contract amounts
Estimated fair value
Thousands of U.S. dollars
Forwards to sell foreign currencies:
Contract amounts
Estimated fair value
Forwards to buy foreign currencies:
Contract amounts
Estimated fair value
U.S.$
Euro
Others
Total
¥198,039
(7,299)
¥147,729
(6,795)
¥28,931
(598)
¥374,699
(14,692)
¥ 40,844
(27)
¥ 3,882
28
¥
—
—
¥ 44,726
1
U.S.$
Euro
Others
Total
$1,886,086
(69,514)
$1,406,943
(64,714)
$275,533
(5,696)
$3,568,562
(139,924)
$ 388,991
(257)
$
36,971
267
$
—
—
$ 425,962
10
46
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
All of Canon’s long-term debt is fixed rate debt. Canon
expects that fair value changes and cash f lows resulting
from reasonable near-term changes in interest rates will be
immaterial. Accordingly, Canon believes interest rate risk is
insignificant. See also Note 9 of the Notes to Consolidated
Financial Statements.
Changes in the fair value of derivative financial instru-
ments designated as cash f low hedges, including foreign
currency exchange contracts associated with forecasted
intercompany sales, are reported in accumulated other
comprehensive income (loss). These amounts are subse-
quently reclassified into earnings through other income
(deductions) in the same period as the hedged items affect
earnings. Substantially all such amounts recorded in accu-
mulated other comprehensive income (loss) at year-end are
expected to be recognized in earnings over the next twelve
months. Canon excludes the time value component from
the assessment of hedge effectiveness. Changes in the fair
value of a foreign currency exchange contract for the period
between the date that the forecasted intercompany sales
occur and its maturity date are recognized in earnings and
not considered hedge ineffectiveness.
The amount of the hedging ineffectiveness was not mate-
rial for the years ended December 31, 2013, 2012 and 2011.
The amounts of net losses excluded from the assessment
of hedge effectiveness (time value component) which was
recorded in other income (deductions) was ¥111 million
(U.S.$1 million), ¥221 million and ¥457 million for the years
ended December 31, 2013, 2012 and 2011, respectively.
Canon has entered into certain foreign currency exchange
contracts to manage its foreign currency exposures. These for-
eign currency exchange contracts have not been designated
as hedges. Accordingly, the changes in fair values of these
contracts are recorded in earnings immediately.
LOOKING FORWARD
As for the outlook in 2014, there are signs of brightness
among developed countries with steady economic growth in
the U.S. and Japan, and the European economy expected to
realize a turnaround toward recovery. Although uncertain-
ties remain in emerging countries such as China, since they
are expected to maintain their course of moderate expansion,
the global economy, having bottomed out in 2013, is also
expected to realize a moderate recovery.
The year 2014 represents the fourth year of Phase IV (2011–
2015) of the Excellent Global Corporation Plan. The Canon
Group will work in unity, taking steps to realize sound busi-
ness growth and overcome challenges to firmly return to a
path of growth.
In order to achieve its targets, Canon will implement var-
ious measures under a basic policy of carrying out further
reforms in order to return to the growth track.
(cid:129) Bolstering Strengths of Existing Core Businesses by
Creating Outstanding Hit Products
Canon aims to improve its market share for existing core
businesses, developing appealing products that outper-
form the competition, not only in terms of basic per-
formance, but also cost and usability. At the same time,
Canon will strengthen the development of businesses
derived from existing core businesses.
(cid:129) Securely Launch and Steadily Expand New Businesses
Canon will work to accelerate the business expansion of
network camera systems for which significant growth
is expected. The Company will also focus on strengthen-
ing its business foundation for 4K reference displays and
mixed-reality systems, while also concentrating on the
commercialization of Super Machine Vision. In the medi-
cal field, Canon aims to realize the early launch of DNA
diagnostic systems.
(cid:129) Holistically Developing Global Sales Forces
In emerging markets, Canon will work to expand sales
networks and enhance product lineups in accordance
with conditions in each country. In developed countries,
in addition to boosting the Company’s ability to respond
to Internet-based and other direct-order sales, Canon will
strengthen its response to the centralized purchasing
practices used by global corporations when procuring
office products.
(cid:129) Optimizing the Global Production System
Based on such factors as changes in local conditions in
each country, Canon will work to realize the optimized
global allocation of its production assets. The Company
will also work to maintain or expand its production in
Japan through automation, while also accelerating local-
ized production of mainly consumables in the Americas
and Europe through automated production systems.
FINANCIAL OVERVIEW
47
(cid:129) Exploring a New Dimension of Cost Reductions
Canon will strive to further accelerate procurement
reforms as well as expand in-house production and
promote automation. Additionally, the Company will
work to significantly reduce product development times
and achieve cost savings, promoting prototype-less pro-
duction through the utilization of its super computer.
Furthermore, it will move forward with the fundamen-
tal reform of manufacturing through the utilization of
3D printers.
In addition to the above, in order to return to a path of
growth in the face of the dramatically changing business
environment, Canon will select and concentrate on techno-
logical themes that will open the way to the future, further
enhance product quality management, effectively make use
of the Company’s workforce, and carry out reforms such as
thoroughly strengthening information security.
Forward looking statements
The foregoing discussion and other disclosure in this report
contains forward-looking statements that reflect manage-
ment’s current views with respect to certain future events
and financial performance. Actual results may differ materi-
ally 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: foreign currency
exchange rate fluctuations; the uncertainty of Canon’s abil-
ity to implement its plans to localize production and other
measures to reduce the impact of foreign currency exchange
rate fluctuations; uncertainty as to economic conditions in
Canon’s major markets; uncertainty of continued demand
for Canon’s high-value-added products; Canon’s ability to
continue to develop products and to market products that
incorporate new technology on a timely basis, are competi-
tively priced, and achieve market acceptance; the possibil-
ity of losses resulting from foreign currency transactions
designed to reduce financial risks from changes in foreign
currency exchange rates; and inventory risk due to shifts in
market demand.
48
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
TEN-YEAR FINANCIAL SUMMARY
Net sales:
Domestic
Overseas
Total
Percentage of previous year
Net income attributable to Canon Inc.
Percentage of sales
Advertising
Research and development expenses
Depreciation of property, plant and equipment
Increase in property, plant and equipment
Long-term debt, excluding current installments
Canon Inc. stockholders’ equity
Total assets
Per share data:
Net income attributable to Canon Inc.
stockholders per share:
Basic
Diluted
Dividend per share
Stock price:
High
Low
Millions of yen (except per share amounts)
2013
2012
2011
2010
¥ 715,863
3,015,517
3,731,380
107.2%
¥ 720,286
2,759,502
3,479,788
97.8%
¥ 694,450
2,862,983
3,557,433
96.0%
¥ 695,749
3,011,152
3,706,901
115.5%
230,483
6.2%
86,398
306,324
223,158
188,826
224,564
6.5%
248,630
7.0%
246,603
6.7%
83,134
296,464
211,973
270,457
81,232
307,800
210,179
226,869
94,794
315,817
232,327
158,976
¥
1,448
2,910,262
4,242,710
¥
2,117
2,598,026
3,955,503
¥
3,368
2,551,132
3,930,727
¥
4,131
2,645,782
3,983,820
¥
¥
200.78
200.78
130.00
4,115
2,913
191.34
191.34
130.00
4,015
2,308
¥
204.49
204.48
120.00
4,280
3,220
¥
199.71
199.70
120.00
4,520
3,205
Average number of common shares in thousands
Number of employees
1,147,934
194,151
1,173,648
196,968
1,215,832
198,307
1,234,817
197,386
Common Stock Price Range (Tokyo Stock Exchange)
(Yen)
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TEN-YEAR FINANCIAL SUMMARY
49
2009
2008
2007
2006
2005
2004
¥ 702,344
2,506,857
3,209,201
78.4%
¥ 868,280
3,225,881
4,094,161
91.4%
¥ 947,587
3,533,759
4,481,346
107.8%
¥ 932,290
3,224,469
4,156,759
110.7%
¥ 856,205
2,897,986
3,754,191
108.3%
¥ 849,734
2,618,119
3,467,853
108.4%
131,647
4.1%
309,148
7.6%
488,332
10.9%
455,325
11.0%
384,096
10.2%
343,344
9.9%
78,009
304,600
277,399
216,128
112,810
374,025
304,622
361,988
132,429
368,261
309,815
428,549
116,809
308,307
235,804
379,657
106,250
286,476
205,727
383,784
111,770
275,300
174,397
318,730
Thousands of U.S. dollars
(except per share amounts)
2013
$ 6,817,743
28,719,209
35,536,952
107.2%
2,195,076
6.2%
822,838
2,917,371
2,125,314
1,798,343
¥
4,912
2,688,109
3,847,557
¥
8,423
2,659,792
3,969,934
¥
8,680
2,922,336
4,512,625
¥
15,789
2,986,606
4,521,915
¥
27,082
2,604,682
4,043,553
¥
28,651
2,209,896
3,587,021
$
13,790
27,716,781
40,406,762
¥
106.64
106.64
110.00
4,070
2,115
¥
246.21
246.20
110.00
5,820
2,215
¥
377.59
377.53
110.00
7,450
5,190
¥
341.95
341.84
83.33
6,780
4,567
¥
288.63
288.36
66.67
4,780
3,460
¥
258.53
257.85
43.33
3,880
3,273
$
1.91
1.91
1.24
39.19
27.74
1,234,482
168,879
1,255,626
166,980
1,293,296
131,352
1,331,542
118,499
1,330,761
115,583
1,328,048
108,257
Notes:
1. U.S. dollar amounts are translated from yen at the rate of U.S.$1 = JPY105, the approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 2013.
2. The Company made a three-for-two stock split on July 1, 2006. The average number of common shares and the per share data for the periods prior to the
stock split have been adjusted to reflect the stock split.
50
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
CONSOLIDATED BALANCE SHEETS
Canon Inc. and Subsidiaries
December 31, 2013 and 2012
ASSETS
Current assets:
Cash and cash equivalents (Note 1)
Short-term investments (Note 3)
Trade receivables, net (Note 4)
Inventories (Note 5)
Prepaid expenses and other current assets (Notes 7, 12 and 17)
Total current assets
Noncurrent receivables (Note 18)
Investments (Note 3)
Property, plant and equipment, net (Notes 6 and 7)
Intangible assets, net (Note 8)
Other assets (Notes 7, 8, 11 and 12)
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Short-term loans and current portion of long-term debt (Note 9)
Trade payables (Note 10)
Accrued income taxes (Note 12)
Accrued expenses (Notes 11 and 18)
Other current liabilities (Notes 6, 12 and 17)
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
Commitments and contingent liabilities (Note 18)
Equity:
Canon Inc. stockholders’ equity:
Common stock
Authorized 3,000,000,000 shares;
issued 1,333,763,464 shares in 2013 and 2012
Additional paid-in capital
Legal reserve (Note 13)
Retained earnings (Note 13)
Accumulated other comprehensive income (loss) (Note 14)
Treasury stock, at cost; 196,764,060 shares in 2013 and
180,972,173 shares in 2012
Total Canon Inc. stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
Millions of yen
2013
2012
Thousands of
U.S. dollars (Note 2)
2013
¥ 788,909
47,914
608,741
553,773
286,605
2,285,942
19,276
70,358
1,278,730
145,075
443,329
¥ 4,242,710
¥
1,299
307,157
53,196
315,536
171,119
848,307
1,448
229,664
96,514
1,175,933
¥ 666,678
28,322
573,375
551,623
262,258
2,082,256
19,702
56,617
1,260,364
135,736
400,828
¥ 3,955,503
¥
1,866
325,235
60,057
291,348
165,929
844,435
2,117
272,131
82,518
1,201,201
174,762
402,029
63,091
3,212,692
(80,646)
(861,666)
2,910,262
156,515
3,066,777
¥ 4,242,710
174,762
401,547
61,663
3,138,976
(367,249)
(811,673)
2,598,026
156,276
2,754,302
¥ 3,955,503
$ 7,513,419
456,324
5,797,533
5,274,029
2,729,571
21,770,876
183,581
670,076
12,178,381
1,381,667
4,222,181
$ 40,406,762
12,371
$
2,925,305
506,629
3,005,105
1,629,704
8,079,114
13,790
2,187,276
919,182
11,199,362
1,664,400
3,828,848
600,867
30,597,067
(768,057)
(8,206,344)
27,716,781
1,490,619
29,207,400
$ 40,406,762
CONSOLIDATED BALANCE SHEETS / CONSOLIDATED STATEMENTS OF INCOME /
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
51
CONSOLIDATED STATEMENTS OF INCOME
Canon Inc. and Subsidiaries
Years ended December 31, 2013, 2012 and 2011
Millions of yen
Net sales
Cost of sales (Notes 6, 8, 11 and 18)
Gross profit
Operating expenses (Notes 1, 6, 8, 11, 15 and 18):
Selling, general and administrative expenses
Research and development expenses
Operating profit
Other income (deductions):
Interest and dividend income
Interest expense
Other, net (Notes 1, 3, 17 and 20)
Income before income taxes
Income taxes (Note 12)
Consolidated net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Canon Inc.
Net income attributable to Canon Inc. stockholders
per share (Note 16):
Basic
Diluted
Cash dividends per share
See accompanying Notes to Consolidated Financial Statements.
2013
2012
¥ 3,731,380 ¥ 3,479,788 ¥ 3,557,433
1,820,670
1,736,763
1,932,959
1,798,421
1,829,822
1,649,966
2011
1,154,820
306,324
1,461,144
337,277
1,029,646
296,464
1,326,110
323,856
1,050,892
307,800
1,358,692
378,071
6,579
(550)
4,298
10,327
347,604
108,088
239,516
6,792
(1,022)
12,931
18,701
342,557
8,432
(988)
(10,991)
(3,547)
374,524
110,112
232,445
120,415
254,109
9,033
5,479
¥ 230,483 ¥ 224,564 ¥ 248,630
7,881
Thousands of
U.S. dollars (Note 2)
2013
$ 35,536,952
18,409,133
17,127,819
10,998,286
2,917,371
13,915,657
3,212,162
62,657
(5,238)
40,933
98,352
3,310,514
1,029,409
2,281,105
86,029
$ 2,195,076
Yen
U.S. dollars (Note 2)
¥ 200.78 ¥
200.78
130.00
191.34 ¥ 204.49
204.48
191.34
120.00
130.00
$
1.91
1.91
1.24
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Canon Inc. and Subsidiaries
Years ended December 31, 2013, 2012 and 2011
Consolidated net income
Other comprehensive income (loss), net of tax (Note 14):
Foreign currency translation adjustments
Net unrealized gains and losses on securities
Net gains and losses on derivative instruments
Pension liability adjustments
Comprehensive income
Less: Comprehensive income attributable to
noncontrolling interests
Comprehensive income attributable to Canon Inc.
See accompanying Notes to Consolidated Financial Statements.
Millions of yen
2012
2011
¥ 232,445
¥ 254,109
Thousands of
U.S. dollars (Note 2)
2013
$ 2,281,105
133,735
3,265
(4,880)
(12,787)
119,333
351,778
(54,086)
(2,116)
(449)
(38,377)
(95,028)
159,081
10,824
¥ 340,954
1,765
¥ 157,316
2,395,962
62,971
19,581
311,133
2,789,647
5,070,752
139,885
$ 4,930,867
2013
¥ 239,516
251,576
6,612
2,056
32,669
292,913
532,429
14,688
¥ 517,741
52
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
CONSOLIDATED STATEMENTS OF EQUITY
Canon Inc. and Subsidiaries
Millions of yen
Balance at December 31, 2010
Equity transactions with noncontrolling
interests and other
Dividends paid to Canon Inc. stockholders
Dividends paid to noncontrolling interests
Transfer to legal reserve
Comprehensive income:
Net income
Other comprehensive income (loss),
net of tax (Note 14):
Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses
on derivative instruments
Pension liability adjustments
Total comprehensive income
Repurchase of treasury stock, net
Balance at December 31, 2011
Equity transactions with noncontrolling
interests and other
Dividends paid to Canon Inc. stockholders
Dividends paid to noncontrolling interests
Transfer to legal reserve
Comprehensive income:
Net income
Other comprehensive income (loss),
net of tax (Note 14):
Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses
on derivative instruments
Pension liability adjustments
Total comprehensive income
Repurchase of treasury stock, net
Balance at December 31, 2012
Equity transactions with noncontrolling
interests and other
Dividends to Canon Inc. stockholders
Dividends to noncontrolling interests
Transfer to legal reserve
Comprehensive income:
Net income
Other comprehensive income,
net of tax (Note 14):
Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses
on derivative instruments
Pension liability adjustments
Total comprehensive income
Repurchase of treasury stock, net
Balance at December 31, 2013
Accumulated
other
comprehensive
Legal
income (loss)
reserve
¥ 174,762 ¥ 400,425 ¥ 57,930 ¥ 2,965,237 ¥ (390,459)
Additional
paid-in
capital
Common
stock
Retained
earnings
Treasury
stock
¥ (562,113)
Total
Canon Inc.
stockholders’
equity
Noncontrolling
interests
¥ 2,645,782 ¥ 163,855 ¥ 2,809,637
Total
equity
1,193
(609)
(152,784)
1,074
(1,074)
584
(247)
(152,784)
(2,838)
—
337
(152,784)
(2,838)
—
248,630
248,630
5,479
254,109
(53,251)
(2,017)
(462)
(35,584)
(46)
(102)
174,762
401,572
59,004 3,059,298 (481,773)
(99,618)
(661,731)
(53,251)
(835)
(54,086)
(2,017)
(99)
(2,116)
(462)
(35,584)
157,316
(99,766)
2,551,132
13
(2,793)
1,765
(449)
(38,377)
159,081
(99,766)
162,535 2,713,667
(16)
152
(1,866)
(1,730)
(13,591)
(142,362)
2,659
(2,659)
(142,362)
—
(3,492)
(15,321)
(142,362)
(3,492)
—
224,564
224,564
7,881
232,445
132,704
132,704
1,031
133,735
3,148
(4,882)
(14,580)
(9)
(17)
(149,942)
3,148
117
3,265
(4,882)
(14,580)
340,954
(149,968)
2
1,793
10,824
(4,880)
(12,787)
351,778
(149,968)
156,276 2,754,302
174,762
401,547
61,663 3,138,976 (367,249) (811,673) 2,598,026
489
295
(655)
129
(11,182)
(155,627)
1,428
(1,428)
(155,627)
—
(3,267)
(11,053)
(155,627)
(3,267)
—
230,483
230,483
9,033
239,516
249,791
249,791
1,785
251,576
6,097
2,056
29,314
¥ 174,762 ¥ 402,029 ¥ 63,091 ¥ 3,212,692 ¥
(80,646)
(7)
(7)
6,097
515
6,612
2,056
32,669
532,429
(50,007)
¥ (861,666) ¥ 2,910,262 ¥ 156,515 ¥ 3,066,777
2,056
29,314
517,741
(50,007)
—
3,355
14,688
(49,993)
CONSOLIDATED STATEMENTS OF EQUITY
53
Thousands of U.S. dollars (Note 2)
Accumulated
other
comprehensive
income (loss)
$ 1,664,400 $ 3,824,257 $ 587,267 $ 29,895,010 $ (3,497,610) $ (7,730,219) $ 24,743,105 $ 1,488,343 $ 26,231,448
Total
Canon Inc.
stockholders’
equity
Additional
paid-in
capital
Noncontrolling
interests
Common
stock
Treasury
stock
Retained
earnings
Legal
reserve
Total
equity
4,657
2,809
(6,238)
1,228
(106,495)
(1,482,162)
13,600
(13,600)
(1,482,162)
—
(31,114)
(105,267)
(1,482,162)
(31,114)
—
2,195,076
2,195,076
86,029 2,281,105
2,378,962
2,378,962
17,000 2,395,962
58,067
58,067
4,904
62,971
$ 1,664,400 $ 3,828,848 $ 600,867 $ 30,597,067 $
(66)
(66)
19,581
279,181
19,581
311,133
139,885 5,070,752
(476,257)
(476,257)
(768,057) $ (8,206,344) $ 27,716,781 $ 1,490,619 $ 29,207,400
19,581
279,181
4,930,867
—
31,952
(476,125)
Balance at December 31, 2012
Equity transactions with noncontrolling
interests and other
Dividends to Canon Inc. stockholders
Dividends to noncontrolling interests
Transfer to legal reserve
Comprehensive income:
Net income
Other comprehensive income,
net of tax (Note 14):
Foreign currency translation
adjustments
Net unrealized gains and losses
on securities
Net gains and losses
on derivative instruments
Pension liability adjustments
Total comprehensive income
Repurchase of treasury stock, net
Balance at December 31, 2013
See accompanying Notes to Consolidated Financial Statements.
54
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
CONSOLIDATED STATEMENTS OF CASH FLOWS
Canon Inc. and Subsidiaries
Years ended December 31, 2013, 2012 and 2011
Cash flows from operating activities:
Consolidated net income
Adjustments to reconcile consolidated net income to
net cash provided by operating activities:
Depreciation and amortization
Loss on disposal of fixed assets
Impairment loss of fixed assets
Impairment loss of investments
Equity in (earnings) losses of affiliated companies
Deferred income taxes
Decrease in trade receivables
(Increase) decrease in inventories
Increase (decrease) in trade payables
Increase (decrease) in accrued income taxes
Increase (decrease) in accrued expenses
Increase (decrease) in accrued (prepaid) pension and
severance cost
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of fixed assets (Note 6)
Proceeds from sale of fixed assets (Note 6)
Purchases of available-for-sale securities
Proceeds from sale and maturity of
available-for-sale securities
(Increase) decrease in time deposits, net
Acquisitions of subsidiaries, net of cash acquired
Purchases of other investments
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Increase (decrease) in short-term loans, net
Dividends paid
Repurchases of treasury stock, net
Other, net
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
Supplemental disclosure for cash flow information:
Cash paid during the year for:
Interest
Income taxes
See accompanying Notes to Consolidated Financial Statements.
Millions of yen
2013
2012
2011
Thousands of
U.S. dollars (Note 2)
2013
¥ 239,516
¥ 232,445
¥ 254,109
$ 2,281,105
275,173
10,638
—
39
664
16,791
45,040
85,577
(108,622)
(9,432)
(15,635)
(15,568)
(16,539)
507,642
(233,175)
1,763
(5,771)
4,528
(12,483)
(4,914)
(296)
136
(250,212)
1,483
(2,334)
(547)
(155,627)
(50,007)
(15,149)
(222,181)
86,982
122,231
666,678
¥ 788,909
258,133
11,242
7
1,527
(610)
7,487
5,030
(24,805)
(102,293)
12,427
(30,089)
261,343
8,937
598
8,130
7,368
29,129
9,991
(109,983)
35,766
(25,653)
8,938
5,515
8,061
384,077
(2,315)
(16,796)
469,562
(316,211)
4,861
(417)
(238,129)
3,273
(2,160)
344
103,137
(704)
(796)
(2,954)
(212,740)
614
(3,732)
(5,055)
(142,362)
(149,968)
(19,236)
(319,739)
41,853
(106,549)
773,227
¥ 666,678
1,934
(34,111)
29
(373)
12,994
(256,543)
725
(4,670)
2,466
(152,784)
(99,766)
(3,484)
(257,513)
(22,858)
(67,352)
840,579
¥ 773,227
2,620,695
101,314
—
371
6,324
159,914
428,952
815,019
(1,034,495)
(89,829)
(148,905)
(148,267)
(157,512)
4,834,686
(2,220,714)
16,790
(54,962)
43,124
(118,886)
(46,800)
(2,819)
1,296
(2,382,971)
14,124
(22,229)
(5,210)
(1,482,162)
(476,257)
(144,276)
(2,116,010)
828,400
1,164,105
6,349,314
$ 7,513,419
500
¥
108,950
¥
1,084
98,096
914
¥
120,696
4,762
$
1,037,619
CONSOLIDATED STATEMENTS OF CASH FLOWS / NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Canon Inc. and Subsidiaries
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Canon Inc. (the “Company”) and subsidiaries (collectively
“Canon”) is one of the world’s leading manufacturers in such
fields as office products, imaging system products and indus-
try and other products. Office products consist mainly of
office multifunction devices (“MFDs”), laser multifunction
printers (“MFPs”), laser printers, digital production printing
systems, high speed continuous feed printers, wide-format
printers and document solutions. Imaging system products
consist mainly of interchangeable lens digital cameras, digi-
tal compact cameras, digital camcorders, digital cinema cam-
eras, interchangeable lenses, inkjet printers, large-format
inkjet printers, commercial photo printers, image scanners,
multimedia projectors, broadcast equipment and calculators.
Industry and other products consist mainly of semiconduc-
tor lithography equipment, flat panel display (“FPD”) lithog-
raphy equipment, digital radiography systems, ophthalmic
equipment, vacuum thin-film deposition equipment, organic
LED (“OLED”) panel manufacturing equipment, die bond-
ers, micromotors, network cameras, handy terminals and
document scanners. Canon’s consolidated net sales for the
years ended December 31, 2013, 2012 and 2011 were distrib-
uted as follows: the Office Business Unit 53.6%, 50.5% and
53.9%, the Imaging System Business Unit 38.8%, 40.4% and
36.9%, the Industry and Others Business Unit 10.0%, 11.7%
and 11.8%, and elimination between segments 2.4%, 2.6% and
2.6%, respectively. These percentages were computed by divid-
ing segment net sales, including intersegment sales, by con-
solidated net sales, based on the segment operating results
described in Note 21.
Sales are made principally under the Canon brand name,
almost entirely through sales subsidiaries. These subsidiar-
ies are responsible for marketing and distribution, and pri-
marily sell to retail dealers in their geographic area. 80.8%,
79.3% and 80.5% of consolidated net sales for the years ended
December 31, 2013, 2012 and 2011 were generated outside
Japan, with 28.4%, 27.0% and 27.0% in the Americas, 30.1%,
29.1% and 31.3% in Europe, and 22.3%, 23.2% and 22.2% in
Asia and Oceania, respectively.
Canon sells laser printers on an OEM basis to Hewlett-
Packard Company; such sales constituted 17.6%, 17.0% and
19.3% of consolidated net sales for the years ended December
31, 2013, 2012 and 2011, respectively, and are included in the
Office Business Unit.
Canon’s manufacturing operations are conducted pri-
marily at 28 plants in Japan and 18 overseas plants which
are located in countries or regions such as the United States,
Germany, France, the Netherlands, Taiwan, China, Malaysia,
Thailand, Vietnam and Philippines.
(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
of account in conformity with financial accounting standards
of the countries of their domicile.
Certain adjustments and reclassifications have been incor-
porated in the accompanying consolidated financial state-
ments to conform with U.S. generally accepted accounting
principles (“GAAP”). These adjustments were not recorded in
the statutory books of account.
(c) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company, its majority owned subsidiaries and those vari-
able interest entities where the Company or its consolidated
subsidiaries are the primary beneficiaries. All significant inter-
company balances and transactions have been eliminated.
(d) Use of Estimates
The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the consolidated financial state-
ments and the reported amounts of revenues and expenses
during the period. Significant estimates and assumptions are
reflected in valuation and disclosure of revenue recognition,
allowance for doubtful receivables, valuation of inventories,
impairment of long-lived assets, environmental liabilities,
valuation of deferred tax assets, uncertain tax positions and
employee retirement and severance benefit obligations.
Actual results could differ materially from those estimates.
(e) Translation of Foreign Currencies
Assets and liabilities of the Company’s subsidiaries located
outside Japan with functional currencies other than Japanese
yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items
are translated at the average exchange rates prevailing during
the year. Gains and losses resulting from translation of finan-
cial statements are excluded from earnings and are reported
in other comprehensive income (loss).
Gains and losses resulting from foreign currency transac-
tions, including foreign exchange contracts, and translation
of assets and liabilities denominated in foreign currencies are
included in other income (deductions) in the consolidated
statements of income. Foreign currency exchange gains and
losses was a net loss of ¥1,992 million ($18,971 thousand) for
the year ended December 31, 2013, a net gain of ¥9,130 million
56
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
for the year ended December 31, 2012 and a net loss of ¥3,287
million for the year ended December 31, 2011, respectively.
(f) Cash Equivalents
All highly liquid investments acquired with original maturi-
ties of three months or less are considered to be cash equiva-
lents. Certain debt securities with original maturities of less
than three months, classified as available-for-sale securities of
¥183,078 million ($1,743,600 thousand) and ¥141,729 million
at December 31, 2013 and 2012, respectively, are included in
cash and cash equivalents in the consolidated balance sheets.
(g) Investments
Investments consist primarily of time deposits with original
maturities of more than three months, debt and marketable
equity securities, investments in affiliated companies and non-
marketable equity securities. Canon reports investments with
maturities of less than one year as short-term investments.
Canon classifies investments in debt and marketable equity
securities as available-for-sale or held-to-maturity securities.
Canon does not hold any trading securities, which are bought
and held primarily for the purpose of sale in the near term.
Available-for-sale securities are recorded at fair value. Fair
value is determined based on quoted market prices, projected
discounted cash flows or other valuation techniques as appro-
priate. Unrealized holding gains and losses, net of the related
tax effect, are reported as a separate component of accumu-
lated other comprehensive income (loss) until realized. Held-
to-maturity securities are recorded at amortized cost, adjusted
for amortization of premiums and accretion of discounts.
Available-for-sale and held-to-maturity securities are reg-
ularly reviewed for other-than-temporary declines in the
carrying amount based on criteria that include the length
of time and the extent to which the market value has been
less than cost, the financial condition and near-term pros-
pects of the issuer and Canon’s intent and ability to retain
the investment for a period of time sufficient to allow for
any anticipated recovery in market value. For debt securi-
ties for which the declines are deemed to be other-than-
temporary and there is no intent to sell, impairments are
separated into the amount related to credit loss, which is
recognized in earnings, and the amount related to all other
factors, which is recognized in other comprehensive income
(loss). For debt securities for which the declines are deemed
to be other-than-temporary and there is an intent to sell,
impairments in their entirety are recognized in earnings.
For equity securities for which the declines are deemed to
be other-than-temporary, impairments in their entirety are
recognized in earnings. Canon recognizes an impairment
loss to the extent by which the cost basis of the investment
exceeds the fair value of the investment.
Realized gains and losses are determined by the average
cost method and reflected in earnings.
Investments in affiliated companies over which Canon
has the ability to exercise significant influence, but does not
hold a controlling financial interest, are accounted for by the
equity method.
Non-marketable equity securities in companies over
which Canon does not have the ability to exercise signifi-
cant influence are stated at cost and reviewed periodically
for impairment.
(h) Allowance for Doubtful Receivables
Allowance for doubtful trade and finance receivables is main-
tained for all customers based on a combination of factors,
including aging analysis, macroeconomic conditions and
historical experience. An additional reserve for individual
accounts is recorded when Canon becomes aware of a cus-
tomer’s inability to meet its financial obligations, such as in
the case of bankruptcy filings. If circumstances related to cus-
tomers change, estimates of the recoverability of receivables
would be further adjusted. When all collection options are
exhausted including legal recourse, the accounts or portions
thereof are deemed to be uncollectable and charged against
the allowance.
(i) Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined by the average method for domestic inven-
tories and principally by the first-in, first-out method for over-
seas inventories.
(j) Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment,
and acquired intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in cir-
cumstances 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
the asset and the estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount
of the asset exceeds its estimated undiscounted future cash
flows, an impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the fair value
of the asset. Assets to be disposed of by sale are reported at the
lower of the carrying amount or fair value less costs to sell,
and are no longer depreciated.
(k) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated principally by the declining-balance method,
except for certain assets which are depreciated by the straight-
line method over the estimated useful lives of the assets.
The depreciation period ranges from 3 years to 60 years for
buildings and 1 year to 20 years for machinery and equipment.
Assets leased to others under operating leases are stated
at cost and depreciated to the estimated residual value of the
assets by the straight-line method over the lease term, gener-
ally from 2 years to 5 years.
(l) Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite use-
ful lives are not amortized, but are instead tested for impair-
ment annually in the fourth quarter of each year, or more
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
57
frequently if indicators of potential impairment exist.
Canon performs its impairment test of goodwill using the
two-step approach at the reporting unit level, which is one
level below the operating segment level. All goodwill is
assigned to the reporting unit or units that benefit from the
synergies arising from each business combination. If the car-
rying amount assigned to the reporting unit exceeds the fair
value of the reporting unit, Canon performs the second step
to measure an impairment charge in the amount by which
the carrying amount of a reporting unit’s goodwill exceeds
its implied fair value.
Intangible assets with finite useful lives consist primar-
ily of software, license fees, patented technologies and cus-
tomer relationships. Software and license fees are amortized
using the straight-line method over the estimated useful lives,
which range from 3 years to 5 years for software and 5 years to
10 years for license fees. Patented technologies are amortized
using the straight-line method principally over the estimated
useful life of 3 years. Customer relationships are amortized
principally using the declining-balance method over the esti-
mated useful life of 5 years. Certain costs incurred in connec-
tion with developing or obtaining internal-use software are
capitalized. These costs consist primarily of payments made
to third parties and the salaries of employees working on
such software development. Costs incurred in connection
with developing internal-use software are capitalized at the
application development stage. In addition, Canon develops
or obtains certain software to be sold where related costs are
capitalized after establishment of technological feasibility.
(m) Environmental Liabilities
Liabilities for environmental remediation and other environ-
mental costs are accrued when environmental assessments or
remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information
develops or circumstances change. Costs of future obligations
are not discounted to their present values.
(n) Income Taxes
Deferred tax assets and liabilities are recognized for the esti-
mated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and oper-
ating 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 tem-
porary differences are expected to be recovered or settled.
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. Canon records a valuation allowance to
reduce the deferred tax assets to the amount that is more
likely than not realizable.
Canon recognizes the financial statement effects of tax
positions when it is more likely than not, based on the tech-
nical merits, that the tax positions will be sustained upon
examination by the tax authorities. Benefits from tax posi-
tions that meet the more-likely-than-not recognition thresh-
old are measured at the largest amount of benefit that is
greater than 50% likely of being realized upon settlement.
Interest and penalties accrued related to unrecognized tax
benefits are included in income taxes in the consolidated
statements of income.
(o) Stock-Based Compensation
Canon measures stock-based compensation cost at the grant
date, based on the fair value of the award, and recognizes the
cost on a straight-line basis over the requisite service period,
which is the vesting period.
(p) Net Income Attributable to Canon Inc.
Stockholders per Share
Basic net income attributable to Canon Inc. stockholders
per share is computed by dividing net income attributable
to Canon Inc. by the weighted-average number of common
shares outstanding during each year. Diluted net income
attributable to Canon Inc. stockholders per share includes the
effect from potential issuances of common stock based on the
assumptions that all stock options were exercised.
(q) Revenue Recognition
Canon generates revenue principally through the sale of
office and imaging system products, equipment, supplies,
and related services under separate contractual arrange-
ments. Canon recognizes revenue when persuasive evidence
of an arrangement exists, delivery has occurred and title and
risk of loss have been transferred to the customer or services
have been rendered, the sales price is fixed or determinable,
and collectibility is probable.
Revenue from sales of office products, such as office MFDs
and laser printers, and imaging system products, such as digi-
tal cameras and inkjet printers, is recognized upon shipment
or delivery, depending upon when title and risk of loss trans-
fer to the customer.
Canon also offers separately priced product maintenance
contracts for most office products, for which the customer typi-
cally pays a stated base service fee plus a variable amount based
on usage. Revenue from these service maintenance contracts is
measured at the stated amount of the contract and recognized
as services are provided and variable amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-financing leases
are accounted for as operating leases and related revenue
is recognized ratably over the lease term. When equipment
leases are bundled with product maintenance contracts,
revenue is allocated based upon the estimated relative fair
value of the lease and non-lease deliverables. Lease deliver-
ables generally include equipment, financing and executory
costs, while non-lease deliverables generally consist of prod-
uct maintenance contracts and supplies.
Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and FPD lithography equip-
58
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
ment that are sold with customer acceptance provisions
related to their functionality, is recognized when the equip-
ment is installed at the customer site and the specific criteria
of the equipment functionality are successfully tested and dem-
onstrated by Canon. Service revenue is derived primarily from
separately priced product maintenance contracts on equip-
ment sold to customers and is measured at the stated amount
of the contract and recognized as services are provided.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative selling
price if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulfilled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time
of sale for sales incentive programs including product dis-
counts, customer promotions and volume-based rebates.
Estimated reductions to sales are based upon historical trends
and other known factors at the time of sale. Canon regularly
adjusts its estimates each period in the ordinary course of
establishing sales incentive program accruals based on cur-
rent information. During the year ended December 31, 2012,
Canon revised its estimates for sales incentive program accru-
als based on new information which was not available at the
time that the accrual was established due to unique circum-
stances, such as the earthquake in Japan and the flooding
in Thailand that occurred in 2011 as well as a recent shift in
usage of incentive programs from mail-in rebates to instant
rebates. This change in estimate caused an increase in net
income attributable to Canon Inc. of ¥10,785 million, and
an increase in basic and diluted net income attributable to
Canon Inc. stockholders per share of ¥9.19 each. During the
years ended December 31, 2013 and 2011, such adjustments
were not significant. Canon also provides price protection
to certain resellers of its products, and records reductions to
sales for the estimated impact of price protection obligations
when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general
and administrative expenses in the consolidated statements
of income. Estimates for accrued product warranty costs are
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.
Taxes collected from customers and remitted to govern-
mental authorities are excluded from revenues in the consoli-
dated statements of income.
(r) Research and Development Costs
Research and development costs are expensed as incurred.
(s) Advertising Costs
Advertising costs are expensed as incurred. Advertising
expenses were ¥86,398 million ($822,838 thousand), ¥83,134
million and ¥81,232 million for the years ended December 31,
2013, 2012 and 2011, respectively.
(t) Shipping and Handling Costs
Shipping and handling costs totaled ¥47,460 million
($452,000 thousand), ¥38,499 million and ¥43,308 million
for the years ended December 31, 2013, 2012 and 2011, respec-
tively, and are included in selling, general and administrative
expenses in the consolidated statements of income.
(u) Derivative Financial Instruments
All derivatives are recognized at fair value and are included in
prepaid expenses and other current assets, or other current
liabilities in the consolidated balance sheets.
Canon uses and designates certain derivatives as 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). Canon formally documents all relationships
between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking vari-
ous hedge 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 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 designated and quali-
fies as a cash flow hedge are recorded in other comprehensive
income (loss), until earnings are affected by the variability in
cash flows of the hedged item. Gains and losses from hedg-
ing ineffectiveness are included in other income (deductions).
Gains and losses related to the components of hedging instru-
ments excluded from the assessment of hedge effectiveness
are included in other income (deductions).
Canon also uses certain derivative financial instruments
which are not designated as hedges. The changes in fair val-
ues of these derivative financial instruments are immediately
recorded in earnings.
Canon classifies cash flows from derivatives as cash flows
from operating activities in the consolidated statements of
cash flows.
(v) Guarantees
Canon recognizes, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issu-
ing guarantees.
(w) Recently Issued Accounting Guidance
In February 2013, the FASB issued an amendment which
requires entities to provide information about the amounts
reclassified out of accumulated other comprehensive income
by component, and to present, either on the face of the state-
ment where net income is presented or in the notes, sig-
nificant amounts reclassified out of accumulated other
comprehensive income by the respective line items of net
income. Canon adopted this amended guidance from the
quarter beginning January 1, 2013. This adoption did not
have a material impact on Canon’s consolidated results of
operations and financial condition. See Note 14 of the Notes
to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
59
2. BASIS OF FINANCIAL STATEMENT TRANSLATION
The consolidated financial statements presented herein are
expressed in Japanese yen and, solely for the convenience
of the reader, have been translated into United States dol-
lars at the rate of ¥105 = U.S.$1, the approximate exchange
rate prevailing on the Tokyo Foreign Exchange Market on
December 30, 2013. This translation should not be con-
strued as a representation that the amounts shown could be
converted into United States dollars at such rate.
3. INVESTMENTS
The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities
included in short-term investments and investments by major security type at December 31, 2013 and 2012 were as follows:
December 31
Millions of yen
2013: Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
Millions of yen
2012: Current:
Corporate bonds
Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
Thousands of U.S. dollars
2013: Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
Cost
Gross unrealized
holding gains
Gross unrealized
holding losses
¥
338
¥
491
68
18,112
¥ 19,009
—
16
—
16,450
¥ 16,466
¥ 31
26
—
26
¥ 83
Cost
Gross unrealized
holding gains
Gross unrealized
holding losses
¥
30
¥
—
¥
181
590
1,192
14,866
¥ 16,829
¥
—
—
43
7,033
¥ 7,076
¥ —
¥ —
30
1
564
¥ 595
Cost
Gross unrealized
holding gains
Gross unrealized
holding losses
$ 3,219
$
4,676
648
172,495
$ 181,038
—
152
—
156,667
$ 156,819
$ 296
247
—
247
$ 790
Fair value
¥
307
481
68
34,536
¥ 35,392
Fair value
¥
30
¥
181
560
1,234
21,335
¥ 23,310
Fair value
$ 2,923
4,581
648
328,915
$ 337,067
60
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Maturities of available-for-sale debt securities included in investments in the accompanying consolidated balance sheets
were as follows at December 31, 2013:
December 31
Millions of yen
Thousands of U.S. dollars
Due within one year
Due after one year through five years
Due after five years
Cost
¥ —
10
819
¥ 829
Fair value
¥ —
10
778
¥ 788
Cost
$ —
95
7,800
$ 7,895
Fair value
$ —
95
7,409
$ 7,504
Gross realized gains were ¥2,360 million ($22,476 thou-
sand), ¥238 million and ¥204 million for the years ended
December 31, 2013, 2012 and 2011, respectively. Gross real-
ized losses, including write-downs for impairments that were
other-than-temporary, were ¥2 million ($19 thousand), ¥1,545
million and ¥4,281 million for the years ended December 31,
2013, 2012 and 2011, respectively.
At December 31, 2013, substantially all of the available-for-
sale securities with unrealized losses had been in a continu-
ous unrealized loss position for less than twelve months.
Time deposits with original maturities of more than three
months are ¥47,914 million ($456,324 thousand) and ¥28,292
million at December 31, 2013 and 2012, respectively, and are
included in short-term investments in the accompanying con-
solidated balance sheets.
Aggregate cost of non-marketable equity securities
accounted for under the cost method totaled ¥14,794 mil-
lion ($140,895 thousand) and ¥14,808 million at December
31, 2013 and 2012, respectively. These investments were not
evaluated for impairment at December 31, 2013 and 2012,
respectively, because (a) Canon did not estimate the fair
value of those investments as it was not practicable to esti-
mate the fair value of the investments and (b) Canon did
not identify any events or changes in circumstances that
might have had significant adverse effects on the fair value
of those investments.
Investments in affiliated companies accounted for by the
equity method amounted to ¥18,937 million ($180,352 thou-
sand) and ¥17,345 million at December 31, 2013 and 2012,
respectively. Canon’s share of the net earnings (losses) in affili-
ated companies accounted for by the equity method, included
in other income (deductions), were losses of ¥664 million
($6,324 thousand), earnings of ¥610 million and losses of
¥7,368 million for the years ended December 31, 2013, 2012
and 2011, respectively.
4. TRADE RECEIVABLES
Trade receivables are summarized as follows:
December 31
Notes
Accounts
Less allowance for doubtful receivables
Millions of yen
2013
¥ 15,461
606,010
621,471
(12,730)
¥ 608,741
2012
¥ 17,207
569,138
586,345
(12,970)
¥ 573,375
Thousands of
U.S. dollars
2013
$ 147,247
5,771,524
5,918,771
(121,238)
$ 5,797,533
5. INVENTORIES
Inventories are summarized as follows:
December 31
Finished goods
Work in process
Raw materials
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
61
Millions of yen
2013
¥ 406,443
128,120
19,210
¥553,773
2012
¥ 391,194
139,923
20,506
¥ 551,623
Thousands of
U.S. dollars
2013
$ 3,870,886
1,220,191
182,952
$ 5,274,029
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and are summarized as follows:
December 31
Land
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Millions of yen
Thousands of
U.S. dollars
2013
2012
¥ 272,233
$ 2,690,324
1,447,838
1,586,827
112,919
3,419,817
(2,159,453)
¥ 1,260,364
14,952,610
16,534,352
701,381
34,878,667
(22,700,286)
$ 12,178,381
2013
¥ 282,484
1,570,024
1,736,107
73,645
3,662,260
(2,383,530)
¥ 1,278,730
Depreciation expenses for the years ended December 31,
2013, 2012 and 2011 were ¥223,158 million ($2,125,314 thou-
sand), ¥211,973 million and ¥210,179 million, respectively.
Amounts due for purchases of property, plant and equip-
ment were ¥33,585 million ($319,857 thousand) and ¥38,893
million at December 31, 2013 and 2012, respectively, and
are included in other current liabilities in the accompany-
ing consolidated balance sheets. Fixed assets presented in
the consolidated statements of cash flows include property,
plant and equipment and intangible assets.
62
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
7. FINANCE RECEIVABLES AND OPERATING LEASES
Finance receivables represent financing leases which con-
sist of sales-type leases and direct-financing leases resulting
from the sales of Canon’s and complementary third-party
products primarily in foreign countries. These receivables
typically have terms ranging from 1 year to 6 years.
The components of the finance receivables, which are included in prepaid expenses and other current assets, and other
assets in the accompanying consolidated balance sheets, are as follows:
December 31
Total minimum lease payments receivable
Unguaranteed residual values
Executory costs
Unearned income
Less allowance for credit losses
Less current portion
The activity in the allowance for credit losses is as follows:
Years ended December 31
Balance at beginning of year
Charge-offs
Provision
Other
Balance at end of year
Millions of yen
2013
¥ 278,621
9,566
(2,184)
(29,875)
256,128
(7,323)
248,805
(91,025)
¥ 157,780
2012
¥ 231,221
8,863
(2,598)
(27,521)
209,965
(6,908)
203,057
(74,168)
¥ 128,889
Millions of yen
2013
¥ 6,908
(1,278)
212
1,481
¥ 7,323
2012
¥ 7,039
(1,304)
1,922
(749)
¥ 6,908
Thousands of
U.S. dollars
2013
$ 2,653,533
91,105
(20,800)
(284,524)
2,439,314
(69,743)
2,369,571
(866,904)
$ 1,502,667
Thousands of
U.S. dollars
2013
$ 65,790
(12,171)
2,019
14,105
$ 69,743
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
63
Canon has policies in place to ensure that its products
are sold to customers with an appropriate credit history,
and continuously monitors its customers’ credit quality
based on information including length of period in arrears,
macroeconomic conditions, initiation of legal proceedings
against customers and bankruptcy filings. The allowance for
credit losses of finance receivables are evaluated collectively
based on historical experience of credit losses. An additional
reserve for individual accounts is recorded when Canon
becomes aware of a customer’s inability to meet its finan-
cial obligations, such as in the case of bankruptcy filings.
Finance receivables which are past due or individually eval-
uated for impairment at December 31, 2013 and 2012 are
not significant.
The cost of equipment leased to customers under operat-
ing leases included in property, plant and equipment, net at
December 31, 2013 and 2012 was ¥103,403 million ($984,790
thousand) and ¥80,186 million, respectively. Accumulated
depreciation on equipment under operating leases at
December 31, 2013 and 2012 was ¥78,821 million ($750,676
thousand) and ¥58,433 million, respectively.
The following is a schedule by year of the future minimum lease payments to be received under financing leases and non-
cancelable operating leases at December 31, 2013.
Year ending December 31:
Millions of yen
Thousands of U.S. dollars
2014
2015
2016
2017
2018
Thereafter
Financing leases
Operating leases
Financing leases
Operating leases
¥ 109,408
82,900
51,963
25,423
8,427
500
¥ 7,639
4,154
2,148
1,070
309
419
$ 1,041,981
789,524
494,886
242,124
80,257
4,761
$ 72,752
39,562
20,457
10,190
2,943
3,991
¥ 278,621
¥ 15,739
$ 2,653,533
$ 149,895
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets subject to amortization acquired during the
years ended December 31, 2013 and 2012 totaled ¥42,630 mil-
lion ($406,000 thousand) and ¥34,196 million, which primarily
consist of software of ¥37,419 million ($356,371 thousand) and
¥33,985 million, respectively. The weighted average amortiza-
tion periods for intangible assets in total acquired during the
years ended December 31, 2013 and 2012 are approximately 4
years. The weighted average amortization periods for software
acquired during the years ended December 31, 2013 and 2012
are approximately 4 years.
The components of intangible assets subject to amortization at December 31, 2013 and 2012 were as follows:
December 31
Millions of yen
Software
Customer relationships
Patented technologies
License fees
Other
December 31
Thousands of U.S. dollars
Software
Customer relationships
Patented technologies
License fees
Other
2013
2012
Gross carrying
amount
¥ 225,894
39,615
25,900
20,142
22,776
¥ 334,327
Accumulated
amortization
¥ 131,875
26,938
19,028
14,573
9,382
¥ 201,796
Gross carrying
amount
¥ 271,425
50,792
29,067
13,194
32,319
¥ 396,797
Gross carrying
amount
$ 2,585,000
483,733
276,829
125,657
307,800
$ 3,779,019
Accumulated
amortization
¥ 167,411
39,957
24,027
7,902
16,094
¥ 255,391
Accumulated
amortization
$ 1,594,390
380,543
228,829
75,257
153,276
$ 2,432,295
2013
64
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Aggregate amortization expense for the years ended
December 31, 2013, 2012 and 2011 was ¥52,015 million
($495,381 thousand), ¥46,160 million and ¥51,164 million,
respectively. Estimated amortization expense for intangible
assets currently held for the next five years ending December
31 is ¥46,573 million ($443,552 thousand) in 2014, ¥31,898
million ($303,790 thousand) in 2015, ¥21,241 million
($202,295 thousand) in 2016, ¥12,464 million ($118,705 thou-
sand) in 2017, and ¥7,371 million ($70,200 thousand) in 2018.
Intangible assets not subject to amortization other than
goodwill at December 31, 2013 and 2012 were not significant.
For management reporting purposes, goodwill is not allo-
cated to the segments. Goodwill has been allocated to its
respective segment for impairment testing.
The changes in the carrying amount of goodwill by segment, which is included in other assets in the consolidated balance
sheets, for the years ended December 31, 2013 and 2012 were as follows:
Years ended December 31
Millions of yen
2013: Balance at beginning of year
Goodwill acquired during the year
Translation adjustments and other
Balance at end of year
Millions of yen
2012: Balance at beginning of year
Goodwill acquired during the year
Translation adjustments and other
Balance at end of year
Thousands of U.S. dollars
2013: Balance at beginning of year
Goodwill acquired during the year
Translation adjustments and other
Balance at end of year
Office
¥ 111,348
4,083
23,981
¥ 139,412
Office
¥ 102,060
—
9,288
¥ 111,348
Office
$ 1,060,457
38,886
228,390
$ 1,327,733
Imaging
System
¥ 12,674
—
1,203
¥ 13,877
Imaging
System
¥ 12,088
—
586
¥ 12,674
Imaging
System
$ 120,705
—
11,457
$ 132,162
Industry and
Others
¥ 6,821
—
1,530
¥ 8,351
Industry and
Others
¥ 4,873
961
987
¥ 6,821
Industry and
Others
$ 64,962
—
14,572
$ 79,534
Total
¥ 130,843
4,083
26,714
¥ 161,640
Total
¥ 119,021
961
10,861
¥ 130,843
Total
$ 1,246,124
38,886
254,419
$ 1,539,429
9. SHORT-TERM LOANS AND LONG-TERM DEBT
Short-term loans consisting of bank borrowings at December 31, 2013 and 2012 were ¥54 million ($514 thousand) and ¥319
million, respectively. The weighted average interest rates on short-term loans outstanding at December 31, 2013 and 2012 were
3.75% and 4.00%, respectively.
Long-term debt consisted of the following:
December 31
Loans, principally from banks, maturing in installments through
2024; bearing weighted average interest of 1.15% and 1.94% at
December 31, 2013 and 2012, respectively
Capital lease obligations
Less current portion
Millions of yen
2013
2012
¥ 211
2,482
2,693
(1,245)
¥ 1,448
¥ 132
3,532
3,664
(1,547)
¥ 2,117
Thousands of
U.S. dollars
2013
$ 2,010
23,637
25,647
(11,857)
$ 13,790
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
65
The aggregate annual maturities of long-term debt outstanding at December 31, 2013 were as follows:
Year ending December 31:
2014
2015
2016
2017
2018
Thereafter
Millions of yen
¥ 1,245
880
319
171
48
30
Thousands of
U.S. dollars
$ 11,857
8,381
3,038
1,629
457
285
¥ 2,693
$ 25,647
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 obliga-
tions due to the bank.
10. TRADE PAYABLES
Trade payables are summarized as follows:
December 31
Notes
Accounts
Millions of yen
2013
¥ 8,005
299,152
¥ 307,157
2012
¥ 11,971
313,264
¥ 325,235
Thousands of
U.S. dollars
2013
$
76,238
2,849,067
$ 2,925,305
66
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
11. EMPLOYEE RETIREMENT AND SEVERANCE BENEFITS
The Company and certain of its subsidiaries have contribu-
tory and noncontributory defined benefit pension plans cov-
ering substantially all of their employees. Benefits payable
under the plans are based on employee earnings and years of
service. The Company and certain of its subsidiaries also have
defined contribution pension plans covering substantially
all of their employees.
The amounts of cost recognized for the defined contribu-
tion pension plans of the Company and certain of its subsid-
iaries for the years ended December 31, 2013, 2012 and 2011
were ¥14,383 million ($136,981 thousand), ¥13,021 million
and ¥12,511 million, respectively.
Obligations and funded status
Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows:
December 31
Japanese plans
Foreign plans
Change in benefit obligations:
Benefit obligations at beginning of year ¥ 651,520 ¥ 626,924
25,738
Service cost
Thousands of
U.S. dollars
2013
$ 6,204,952
247,667
111,000
Millions of yen
2013
2012
Millions of yen
2013
2012
11,788
26,005
11,655
—
14,959
(19,297)
—
—
684,842 651,520
6,049
(18,979)
—
—
—
¥ 364,609 ¥ 262,130
5,884
9,448
14,299
2,617
8,981
(9,415)
—
142,466
(183,780)
13,176
2,315
45,145
(10,407)
—
(2,868)
—
— 98,901
46,366
486,572 364,609
6,522,305
Interest cost
Plan participants’ contributions
Actuarial loss
Benefits paid
Curtailments and settlements
Foreign currency exchange rate changes
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
Settlements
Foreign currency exchange rate changes
Fair value of plan assets at end of year
Funded status at end of year
803,638
188,667
—
(168,076)
25,290
249,534 192,033
20,640
28,705
2,617
(9,106)
2,315
7,832
(9,825)
495,452 448,736
4,718,590
41,593
22,589
84,382
19,810
—
(17,648)
—
—
581,996 495,452
¥ (102,846) ¥ (156,068)
(17,466)
—
—
—
—
(2,656)
—
— 70,793
31,889
360,527 249,534
¥ (126,045)
¥ (115,075)
5,542,819
$ (979,486)
3,433,590
$ (1,200,429)
Thousands of
U.S. dollars
2013
$ 3,472,467
89,981
136,181
24,924
85,534
(89,668)
(27,314)
941,914
4,634,019
2,376,514
196,571
273,381
24,924
(86,724)
(25,295)
674,219
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
67
Amounts recognized in the consolidated balance sheets at December 31, 2013 and 2012 are as follows:
December 31
Japanese plans
Foreign plans
Other assets
Accrued expenses
Accrued pension and severance cost
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
Millions of yen
2013
¥
559 ¥
—
(103,405) (156,068)
¥ (102,846) ¥ (156,068)
— $
—
5,323
¥
—
1,106 ¥
(892)
(984,809)
(126,259)
$ (979,486)
¥ (126,045)
(116,063)
¥ (115,075)
2012
1,371
(383)
Thousands of
U.S. dollars
2013
$
10,533
(8,495)
(1,202,467)
$ (1,200,429)
Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2013 and 2012 before the effect of
income taxes are as follows:
December 31
Japanese plans
Foreign plans
Actuarial loss
Prior service credit
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
¥ 186,052 ¥ 253,748
(117,633)
¥ 80,725 ¥ 136,115
(105,327)
$ 1,771,924
(1,003,114)
$ 768,810
¥ 50,344
(118)
¥ 50,226
¥ 50,417
$ 479,467
(261)
(1,124)
¥ 50,156
$ 478,343
The accumulated benefit obligation for all defined benefit plans was as follows:
December 31
Japanese plans
Foreign plans
Accumulated benefit obligation
¥ 631,887 ¥ 620,589
$ 6,017,971
¥ 464,195 ¥ 328,736
$ 4,420,905
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
The projected benefit obligations and the fair value of plan assets for the pension plans with projected benefit obligations in
excess of plan assets, and the accumulated benefit obligations and the fair value of plan assets for the pension plans with accu-
mulated benefit obligations in excess of plan assets are as follows:
December 31
Japanese plans
Foreign plans
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
Millions of yen
2013
2012
Thousands of
U.S. dollars
2013
Plans with projected benefit obligations
in excess of plan assets:
Projected benefit obligations
Fair value of plan assets
Plans with accumulated benefit
obligations in excess of plan assets:
Accumulated benefit obligations
Fair value of plan assets
¥ 676,308 ¥ 651,520
495,452
572,903
$ 6,441,028
5,456,219
¥ 485,466 ¥ 360,742
244,296
358,315
$ 4,623,486
3,412,524
¥ 611,602 ¥ 615,551
489,929
560,093
$ 5,824,781
5,334,219
¥ 463,089 ¥ 324,869
244,296
358,315
$ 4,410,371
3,412,524
68
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Components of net periodic benefit cost and other amounts recognized in other comprehensive
income (loss)
Net periodic benefit cost for Canon’s employee retirement and severance defined benefit plans for the years ended December
31, 2013, 2012 and 2011 consisted of the following components:
Years ended December 31
Japanese plans
Foreign plans
Millions of yen
2013
2012
2011
Thousands of
U.S. dollars
2013
Millions of yen
2013
2012
2011
Service cost
Interest cost
Expected return on plan assets
Amortization of net transition
obligation
Amortization of prior service
credit
Amortization of actuarial loss
Loss on curtailments and
settlements
¥ 26,005 ¥ 25,738 ¥ 25,875 $ 247,667 ¥ 9,448 ¥ 5,884 ¥ 5,756
12,748
111,000
11,788
13,176
11,655
(15,273)
12,354
(16,485)
(13,791)
(145,458)
14,299
(13,949)
(11,806)
(12,112)
—
—
722
—
—
—
—
—
(12,306)
13,546
(13,079)
16,277
(13,674)
14,462
(117,200)
129,010
(143)
2,005
(116)
1,351
(93)
621
(1,362)
19,095
—
—
—
—
146
—
—
1,390
¥ 23,627 ¥ 26,933 ¥ 23,254 $ 225,019 ¥ 11,806 ¥ 8,489 ¥ 6,920
$ 112,438
Thousands of
U.S. dollars
2013
$ 89,981
136,181
(132,847)
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended
December 31, 2013, 2012 and 2011 are summarized as follows:
Years ended December 31
Japanese plans
Foreign plans
Current year actuarial (gain) loss
Amortization of actuarial loss
Prior service credit due
to amendments
Amortization of
prior service credit
Amortization of
net transition obligation
Curtailments and settlements
Millions of yen
2013
2012
2011
Thousands of
U.S. dollars
2013
¥ (54,150) ¥ (21,753) ¥ 48,615 $ (515,714)
(129,010)
(13,546) (16,277) (14,462)
Millions of yen
2013
2012
2011
Thousands of
U.S. dollars
2013
¥ 2,290 ¥ 31,661 ¥ 13,649 $ 21,810
(19,095)
(2,005)
(1,351)
(621)
—
—
(1,913)
—
—
—
—
—
12,306 13,079 13,674 117,200
143
116
93
1,362
—
—
—
—
¥ (55,390) ¥ (24,951) ¥ 45,192 $ (527,524)
—
(722)
—
—
—
(358)
—
—
—
—
—
(3,409)
¥
70 ¥ 30,426 ¥ 13,121 $
668
The estimated prior service credit and actuarial loss for the defined benefit pension plans that will be amortized from
accumulated other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follows:
Prior service credit
Actuarial loss
Japanese plans
Foreign plans
Millions of yen
Thousands of
U.S. dollars
Millions of yen
Thousands of
U.S. dollars
¥ (12,801)
$ (121,914)
¥
(51)
$
(486)
9,989
95,133
1,800
17,143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
69
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
December 31
Discount rate
Assumed rate of increase in future compensation levels
Japanese plans
Foreign plans
2013
1.6%
3.0%
2012
1.8%
3.0%
2013
3.8%
2.3%
2012
3.6%
2.2%
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Years ended December 31
Discount rate
Assumed rate of increase in future compensation levels
Expected long-term rate of return on plan assets
Canon determines the expected long-term rate of return
based on the expected long-term return of the various asset
categories in which it invests. Canon considers the current
expectations for future returns and the actual historical
returns of each plan asset category.
Plan assets
Canon’s investment policies are designed to ensure adequate
plan assets are available to provide future payments of pen-
sion benefits to eligible participants. Taking into account
the expected long-term rate of return on plan assets, Canon
formulates a “model” portfolio comprised of the optimal
combination of equity securities and debt securities. Plan
assets are invested in individual equity and debt securities
using the guidelines of the “model” portfolio in order to
produce a total return that will match the expected return
on a mid-term to long-term basis. Canon evaluates the gap
between expected return and actual return of invested plan
assets on an annual basis to determine if such differences
necessitate a revision in the formulation of the “model”
portfolio. Canon revises the “model” portfolio when and
to the extent considered necessary to achieve the expected
long-term rate of return on plan assets.
Canon’s model portfolio for Japanese plans consists of
three major components: approximately 20% is invested in
equity securities, approximately 55% is invested in debt secu-
rities, and approximately 25% is invested in other investment
vehicles, primarily consisting of investments in life insurance
company general accounts.
Japanese plans
Foreign plans
2013
1.8%
3.0%
3.1%
2012
1.9%
3.0%
3.1%
2011
2.1%
3.0%
3.6%
2013
3.6%
2.2%
5.2%
2012
4.6%
2.4%
5.4%
2011
4.9%
2.9%
5.7%
Outside Japan, investment policies vary by country, but
the long-term investment objectives and strategies remain
consistent. Canon’s model portfolio for foreign plans has
been developed as follows: approximately 30% is invested in
equity securities, approximately 50% is invested in debt secu-
rities, and approximately 20% is invested in other invest-
ment vehicles, primarily consisting of investments in real
estate assets.
The equity securities are selected primarily from stocks
that are listed on the securities exchanges. Prior to investing,
Canon has investigated the business condition of the investee
companies, and appropriately diversified investments by
type of industry and other relevant factors. The debt securi-
ties are selected primarily from government bonds, public
debt instruments, and corporate bonds. Prior to investing,
Canon has investigated the quality of the issue, including
rating, interest rate, and repayment dates, and has appropri-
ately diversified the investments. Pooled funds are selected
using strategies consistent with the equity and debt securities
described above. As for investments in life insurance company
general accounts, the contracts with the insurance compa-
nies include a guaranteed interest rate and return of capital.
With respect to investments in foreign investment vehicles,
Canon has investigated the stability of the underlying gov-
ernments and economies, the market characteristics such as
settlement systems and the taxation systems. For each such
investment, Canon has selected the appropriate investment
country and currency.
70
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
The three levels of input used to measure fair value are more fully described in Note 20. The fair values of Canon’s pension
plan assets at December 31, 2013 and 2012, by asset category, are as follows:
December 31, 2013
Millions of yen
Japanese plans
Foreign plans
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Equity securities:
Japanese companies (a)
Foreign companies
Pooled funds (b)
Debt securities:
Government bonds (c)
Municipal bonds
Corporate bonds
Pooled funds (d)
Mortgage backed securities
(and other asset backed
securities)
Life insurance company
general accounts
Other assets
¥ 51,159 ¥
10,347
—
—
¥ — ¥ 51,159
¥
— ¥
—
10,347
43,681
—
—
—
145,417
—
145,417
— 104,933
124,800
—
—
124,800
44,192
—
—
1,027
—
1,027
—
10,543
—
10,543
—
101,583
—
101,583
—
2,246
— 32,921
—
57,518
¥ —
—
—
—
—
—
—
¥
—
43,681
104,933
44,192
2,246
32,921
57,518
—
9,569
—
9,569
—
5,098
—
5,098
—
—
109,097
17,636
—
818
109,097
18,454
— 15,420
— 54,518
¥ 186,306 ¥ 394,872
¥ 818 ¥ 581,996
¥ 87,873 ¥ 272,654
—
—
¥ —
15,420
54,518
¥ 360,527
December 31, 2012
Millions of yen
Japanese plans
Foreign plans
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Equity securities:
Japanese companies (e)
¥ 34,387 ¥
— ¥
— ¥ 34,387
¥
— ¥
Foreign companies
6,560
—
—
6,560
13,149
—
—
Pooled funds (f)
Debt securities:
—
99,631
—
99,631
—
60,142
Government bonds (g)
20,301
—
—
20,301
4,345
—
—
1,064
8,425
—
—
1,064
8,425
—
—
—
192,386
—
192,386
—
128,647
¥ —
—
—
—
—
—
—
¥
—
13,149
60,142
4,345
21
—
128,647
—
21
—
—
8,400
—
8,400
—
236
—
236
—
—
113,179
9,813
—
1,306
113,179
11,119
—
—
1,857
41,137
¥ 61,248 ¥ 432,898 ¥ 1,306 ¥ 495,452 ¥ 17,494 ¥ 232,040
—
—
¥ —
1,857
41,137
¥ 249,534
Municipal bonds
Corporate bonds
Pooled funds (h)
Mortgage backed securities
(and other asset backed
securities)
Life insurance company
general accounts
Other assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
71
December 31, 2013
Thousands of U.S. dollars
Japanese plans
Foreign plans
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Equity securities:
Japanese companies (a)
Foreign companies
Pooled funds (b)
Debt securities:
Government bonds (c)
Municipal bonds
Corporate bonds
Pooled funds (d)
Mortgage backed securities
(and other asset backed
securities)
Life insurance company
general accounts
Other assets
$ 487,229 $
98,543
—
—
$ — $ 487,229 $
— $
—
98,543 416,010
—
—
— 1,384,924
—
1,384,924
— 999,363
1,188,571
—
—
1,188,571 420,876
—
—
—
—
9,781
—
9,781
—
21,390
100,410
—
100,410
— 313,533
967,457
—
967,457
— 547,790
$ —
—
—
—
—
—
—
$
—
416,010
999,363
420,876
21,390
313,533
547,790
—
91,133
—
91,133
—
48,552
—
48,552
— 1,039,019
167,962
—
—
7,790
1,039,019
175,752
— 146,857
— 519,219
$ 1,774,343 $ 3,760,686
$ 7,790 $ 5,542,819 $ 836,886 $ 2,596,704
—
—
$ —
146,857
519,219
$ 3,433,590
(a) The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts
of ¥572 million ($5,448 thousand).
(b) These funds invest in listed equity securities consisting of
approximately 25% Japanese companies and 75% foreign
companies for Japanese plans, and mainly foreign com-
panies for foreign plans.
(c) This class includes approximately 85% Japanese gov-
ernment bonds and 15% foreign government bonds for
Japanese plans, and mainly foreign government bonds
for foreign plans.
(d) These funds invest in approximately 30% Japanese gov-
ernment bonds, 50% foreign government bonds, 5%
Japanese municipal bonds, and 15% corporate bonds for
Japanese plans. These funds invest in approximately 85%
foreign government bonds and 15% corporate bonds for
foreign plans.
(e) The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts
of ¥565 million.
(f) These funds invest in listed equity securities consisting of
approximately 20% Japanese companies and 80% foreign
companies for Japanese plans, and mainly foreign com-
panies for foreign plans.
(g) This class includes approximately 30% Japanese gov-
ernment bonds and 70% foreign government bonds for
Japanese plans, and mainly foreign government bonds
for foreign plans.
(h) These funds invest in approximately 65% Japanese gov-
ernment bonds, 25% foreign government bonds, 5%
Japanese municipal bonds, and 5% corporate bonds for
Japanese plans. These funds invest in approximately 30%
foreign government bonds and 70% corporate bonds for
foreign plans.
Each level into which assets are categorized is based on
inputs used to measure the fair value of the assets, and does
not necessarily indicate the risks or ratings of the assets.
Level 1 assets are comprised principally of equity securi-
ties and government bonds, which are valued using unad-
justed quoted market prices in active markets with sufficient
volume and frequency of transactions. Level 2 assets are com-
prised principally of pooled funds that invest in equity and
debt securities, corporate bonds and investments in life insur-
ance company general accounts. Pooled funds are valued at
their net asset values that are calculated by the sponsor of
the fund and have daily liquidity. Corporate bonds are val-
ued using quoted prices for identical assets in markets that
are not active. Investments in life insurance company general
accounts are valued at conversion value.
The fair value of Level 3 assets, consisting of hedge funds,
was ¥818 million ($7,790 thousand) and ¥1,306 million
at December 31, 2013 and 2012, respectively. Amounts of
actual returns on, and purchases and sales of, these assets
during the years ended December 31, 2013 and 2012 were
not significant.
72
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Contributions
Canon expects to contribute ¥13,589 million ($129,419 thousand) to its Japanese defined benefit pension plans and ¥7,060
million ($67,238 thousand) to its foreign defined benefit pension plans for the year ending December 31, 2014.
Estimated future benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year ending December 31:
Japanese plans
Foreign plans
2014
2015
2016
2017
2018
2019–2023
12. INCOME TAXES
Millions of yen
¥ 16,846
18,489
20,242
21,713
23,688
153,224
Thousands of
U.S. dollars
$ 160,438
176,086
192,781
206,790
225,600
1,459,276
Millions of yen
¥ 11,782
11,417
12,144
12,713
13,322
78,655
Thousands of
U.S. dollars
$ 112,210
108,733
115,657
121,076
126,876
749,095
Domestic and foreign components of income before income taxes and the current and deferred income tax expense (benefit)
attributable to such income are summarized as follows:
Years ended December 31
2013: Income before income taxes
Income taxes:
Current
Deferred
Japanese
¥ 251,351
¥ 75,134
4,005
¥ 79,139
Millions of yen
Foreign
¥ 96,253
¥ 16,163
12,786
¥ 28,949
Total
¥ 347,604
¥ 91,297
16,791
¥ 108,088
2012: Income before income taxes
¥ 257,640
¥ 84,917
¥ 342,557
Income taxes:
Current
Deferred
¥ 73,573
13,900
¥ 87,473
¥ 29,052
(6,413)
¥ 22,639
¥ 102,625
7,487
¥ 110,112
2011: Income before income taxes
¥ 287,592
¥ 86,932
¥ 374,524
Income taxes:
Current
Deferred
2013: Income before income taxes
Income taxes:
Current
Deferred
¥ 67,671
21,047
¥ 88,718
¥ 23,615
8,082
¥ 31,697
¥ 91,286
29,129
¥ 120,415
Thousands of U.S. dollars
Japanese
$ 2,393,819
Foreign
$ 916,695
Total
$ 3,310,514
$ 715,562
38,143
$ 753,705
$ 153,933
121,771
$ 275,704
$ 869,495
159,914
$ 1,029,409
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
73
The Company and its domestic subsidiaries are subject to
a number of income taxes, which, in the aggregate, repre-
sent a statutory income tax rate of approximately 38% for the
year ended December 31, 2013 and approximately 40% for
the years ended December 31, 2012 and 2011, respectively.
Amendments to the Japanese tax regulations were
enacted into law on November 30, 2011. As a result of
these amendments, the statutory income tax rate has been
reduced from approximately 40% to 38% effective from
the year ended December 31, 2013, and will be reduced
to approximately 35% effective from the year ending
December 31, 2016. Consequently, the statutory income tax
rate utilized for deferred tax assets and liabilities which
were or are expected to be settled or realized in the period
from January 1, 2013 to December 31, 2015 is approximately
38% and for periods subsequent to December 31, 2015 the
rate is approximately 35%. The adjustments of deferred
tax assets and liabilities for this change in the tax rate
amounted to ¥6,599 million and were reflected in income
taxes in the consolidated statement of income for the year
ended December 31, 2011.
A reconciliation of the Japanese statutory income tax rate and the effective income tax rate as a percentage of income
before income taxes is as follows:
Years ended December 31
Japanese statutory income tax rate
Increase (reduction) in income taxes resulting from:
Expenses not deductible for tax purposes
Income of foreign subsidiaries taxed at lower than
Japanese statutory tax rate
Tax credit for research and development expenses
Change in valuation allowance
Effect of enacted changes in tax laws and rates on Japanese tax
Other
Effective income tax rate
2013
38.0%
0.9
(3.3)
(5.4)
0.2
—
0.7
31.1%
2012
40.0%
0.8
(4.3)
(5.7)
(1.7)
—
3.0
2011
40.0%
0.6
(4.3)
(3.9)
(0.5)
1.8
(1.5)
32.1%
32.2%
Net deferred income tax assets and liabilities are included in the accompanying consolidated balance sheets under the fol-
lowing captions:
December 31
Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities
Millions of yen
2013
¥ 61,902
103,539
(3,621)
(63,129)
¥ 98,691
2012
¥ 62,358
121,934
(2,662)
(44,712)
¥ 136,918
Thousands of
U.S. dollars
2013
$ 589,543
986,086
(34,486)
(601,229)
$ 939,914
74
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December
31, 2013 and 2012 are presented below:
December 31
Deferred tax assets:
Inventories
Accrued business tax
Accrued pension and severance cost
Research and development—costs capitalized for tax purposes
Property, plant and equipment
Accrued expenses
Net operating losses carried forward
Other
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Undistributed earnings of foreign subsidiaries
Net unrealized gains on securities
Tax deductible reserve
Financing lease revenue
Prepaid pension and severance cost
Other
Total deferred tax liabilities
Net deferred tax assets
Millions of yen
2013
2012
¥ 12,988
4,448
59,964
10,978
26,626
37,153
38,439
44,482
235,078
(35,055)
200,023
(10,876)
(5,740)
(6,160)
(50,605)
(671)
(27,280)
(101,332)
¥ 98,691
¥ 13,040
4,754
86,442
12,658
28,780
36,528
32,494
41,366
256,062
(32,167)
223,895
(8,235)
(2,437)
(6,417)
(41,417)
(1,073)
(27,398)
(86,977)
¥ 136,918
Thousands of
U.S. dollars
2013
$ 123,695
42,362
571,086
104,552
253,581
353,838
366,086
423,638
2,238,838
(333,857)
1,904,981
(103,581)
(54,667)
(58,667)
(481,952)
(6,390)
(259,810)
(965,067)
$ 939,914
The net changes in the total valuation allowance were an
increase of ¥2,888 million ($27,505 thousand) for the year
ended December 31, 2013, and decreases of ¥1,621 million
and ¥1,519 million for the years ended December 31, 2012
and 2011, respectively.
Based upon the level of historical taxable income and pro-
jections 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 that Canon
will realize the benefits of these deferred tax assets, net of the
existing valuation allowance, at December 31, 2013.
At December 31, 2013, Canon had net operating losses
which can be carried forward for income tax purposes of
¥167,138 million ($1,591,790 thousand) to reduce future tax-
able income.
Periods available to reduce future taxable income vary in each tax jurisdiction and generally range from one year to an
indefinite period as follows:
Within one year
After one year through five years
After five years through ten years
After ten years through twenty years
Indefinite period
Total
Millions of yen
¥ 1,453
23,656
46,346
62,054
33,629
¥ 167,138
Thousands of
U.S. dollars
$ 13,838
225,295
441,390
590,990
320,277
$ 1,591,790
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
75
Income taxes have not been accrued on undistributed
earnings of domestic subsidiaries as the tax law provides a
means by which the dividends from a domestic subsidiary
can be received tax free.
Canon has not recognized deferred tax liabilities of
¥29,833 million ($284,124 thousand) for a portion of undis-
tributed earnings of foreign subsidiaries that arose for the
year ended December 31, 2013 and prior years because
Canon currently does not expect to have such amounts dis-
tributed or paid as dividends to the Company in the foresee-
able future. Deferred tax liabilities will be recognized when
Canon expects that it will realize those undistributed earn-
ings in a taxable manner, such as through receipt of divi-
dends or sale of the investments. At December 31, 2013, such
undistributed earnings of these subsidiaries were ¥939,460
million ($8,947,238 thousand).
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years ended December 31
Balance at beginning of year
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements with tax authorities
Other
Balance at end of year
2013
¥ 7,711
312
388
(3,141)
(347)
1,278
¥ 6,201
Millions of yen
2012
¥ 2,933
869
4,903
(1,546)
(41)
593
¥ 7,711
2011
¥ 6,035
149
431
(2,139)
(1,264)
(279)
¥ 2,933
Thousands of
U.S. dollars
2013
$ 73,438
2,971
3,695
(29,914)
(3,305)
12,172
$ 59,057
The total amounts of unrecognized tax benefits that
would reduce the effective tax rate, if recognized, are ¥6,201
million ($59,057 thousand) and ¥7,711 million at December
31, 2013 and 2012, respectively.
Although Canon believes its estimates and assumptions
of unrecognized tax benefits are reasonable, uncertainty
regarding the final determination of tax audit settlements
and any related litigation could affect the effective tax rate
in the future period. Based on each of the items of which
Canon is aware at December 31, 2013, no significant changes
to the unrecognized tax benefits are expected within the
next twelve months.
Canon recognizes interest and penalties accrued related
to unrecognized tax benefits in income taxes. Both interest
and penalties accrued at December 31, 2013 and 2012, and
interest and penalties included in income taxes for the years
ended December 31, 2013, 2012 and 2011 are not significant.
Canon files income tax returns in Japan and various for-
eign tax jurisdictions. In Japan, Canon is no longer subject
to regular income tax examinations by the tax authority
for years before 2012. While there has been no specific indi-
cation by the tax authority that Canon will be subject to
a transfer pricing examination in the near future, the tax
authority could conduct a transfer pricing examination for
years after 2006. In other major foreign tax jurisdictions,
including the United States and the Netherlands, Canon is
no longer subject to income tax examinations by tax author-
ities for years before 2006 with few exceptions. The tax
authorities are currently conducting income tax examina-
tions of Canon’s income tax returns for years after 2005 in
major foreign tax jurisdictions.
76
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
13. LEGAL RESERVE AND RETAINED EARNINGS
The Corporation Law of Japan provides that an amount equal
to 10% of distributions from retained earnings paid by the
Company and its Japanese subsidiaries be appropriated as a
legal reserve. No further appropriations are required when
the total amount of the additional paid-in capital and the
legal reserve equals 25% of their respective stated capital. The
Corporation Law of Japan also provides that additional paid-
in capital and legal reserve are available for appropriations
by the resolution of the stockholders. Certain foreign subsid-
iaries are also required to appropriate their earnings to legal
reserves under the laws of the respective countries.
Cash dividends and appropriations to the legal reserve
charged to retained earnings for the years ended December
31, 2013, 2012 and 2011 represent dividends paid out dur-
ing those years and the related appropriations to the legal
14. OTHER COMPREHENSIVE INCOME (LOSS)
reserve. Retained earnings at December 31, 2013 did not
reflect current year-end dividends in the amount of ¥73,905
million ($703,857 thousand) which were approved by the
stockholders in March 2014.
The amount available for dividends under the Corporation
Law of Japan is based on the amount recorded in the
Company’s nonconsolidated books of account in accordance
with financial accounting standards of Japan. Such amount
was ¥1,055,590 million ($10,053,238 thousand) at December
31, 2013.
Retained earnings at December 31, 2013 included Canon’s
equity in undistributed earnings of affiliated companies
accounted for by the equity method in the amount of ¥16,423
million ($156,410 thousand).
Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2012 and 2011 are as follows:
Millions of yen
Foreign
currency translation
adjustments
Unrealized gains
and losses
on securities
Gains and
losses on
derivative instruments
Pension
liability
adjustments
Total
Balance at December 31, 2010
¥ (325,612)
¥ 3,020
¥ 917
¥ (68,784)
¥ (390,459)
Adjustments for the year
Balance at December 31, 2011
Adjustments for the year
(53,251)
(378,863)
131,129
(2,017)
1,003
3,143
Balance at December 31, 2012
¥ (247,734)
¥ 4,146
(462)
455
(4,917)
¥ (4,462)
(35,584)
(104,368)
(14,831)
¥ (119,199)
(91,314)
(481,773)
114,524
¥ (367,249)
Changes in accumulated other comprehensive income (loss) for the year ended December 31, 2013 are as follows:
Millions of yen
Balance at December 31, 2012
Equity transactions with
noncontrolling interests and other
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income (loss)
Net change during the year
Balance at December 31, 2013
Foreign
currency translation
adjustments
Unrealized gains
and losses
on securities
Gains and
losses on
derivative instruments
Pension
liability
adjustments
Total
¥ (247,734)
¥ 4,146
¥ (4,462)
¥ (119,199)
¥ (367,249)
(323)
(1)
(2)
(329)
(655)
249,791
7,449
(7,551)
27,153
276,842
—
249,468
¥
1,734
(1,352)
6,096
¥ 10,242
9,607
2,054
¥ (2,408)
2,161
28,985
¥ (90,214)
10,416
286,603
¥ (80,646)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
77
Thousands of U.S. dollars
Foreign
currency translation
adjustments
Unrealized gains
and losses
on securities
Gains and
losses on
derivative instruments
Pension
liability
adjustments
Total
Balance at December 31, 2012
$ (2,359,372)
$ 39,486
$ (42,495)
$ (1,135,229)
$ (3,497,610)
Equity transactions with
noncontrolling interests and other
(3,076)
(10)
(19)
(3,133)
(6,238)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from
accumulated other comprehensive
income (loss)
Net change during the year
Balance at December 31, 2013
2,378,962
70,943
(71,914)
258,600
2,636,591
—
2,375,886
$
16,514
(12,876)
58,057
$ 97,543
91,495
19,562
20,581
99,200
276,048
2,729,553
$ (22,933)
$
(859,181)
$
(768,057)
Reclassifications out of accumulated other comprehensive income (loss) for the year ended December 31, 2013 are as follows:
Year ended December 31, 2013
Amount reclassified from accumulated
other comprehensive income (loss)*1
Unrealized gains and losses on
securities
Gains and losses on derivative
instruments
Pension liability adjustments
Millions of yen
¥ (2,358)
613
(1,745)
393
(1,352)
15,387
(5,780)
9,607
—
9,607
3,460
(1,037)
2,423
(262)
2,161
Thousands of
U.S. dollars
$ (22,457)
5,838
(16,619)
3,743
(12,876)
146,543
(55,048)
91,495
—
91,495
32,952
(9,876)
23,076
(2,495)
20,581
Affected line items in consolidated
statements of income
Other, net
Income taxes
Consolidated net income
Net income attributable to noncontrolling
interests
Net income attributable to Canon Inc.
Other, net
Income taxes
Consolidated net income
Net income attributable to noncontrolling
interests
Net income attributable to Canon Inc.
See Note 11
Income taxes
Consolidated net income
Net income attributable to noncontrolling
interests
Net income attributable to Canon Inc.
Total amount reclassified, net of
tax and noncontrolling interests
¥ 10,416
$ 99,200
*1 Amounts in parentheses indicate gains in consolidated statements of income.
78
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments, including
amounts attributable to noncontrolling interests, are as follows:
Years ended December 31
2013:
Foreign currency translation adjustments
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 gains and losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)
2012:
Foreign currency translation adjustments
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 gains and losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)
2011:
Foreign currency translation adjustments
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 gains and losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)
Before-tax
amount
Millions of yen
Tax (expense)
or benefit
Net-of-tax
amount
¥ 253,707
¥ (2,131)
¥ 251,576
12,669
(2,358)
10,311
(12,145)
15,387
3,242
51,860
3,460
55,320
¥ 322,580
(4,312)
613
(3,699)
4,594
(5,780)
(1,186)
(21,614)
(1,037)
(22,651)
¥ (29,667)
8,357
(1,745)
6,612
(7,551)
9,607
2,056
30,246
2,423
32,669
¥ 292,913
¥ 134,930
¥ (1,195)
¥ 133,735
3,418
1,307
4,725
(10,647)
2,440
(8,207)
(13,888)
4,433
(9,455)
¥ 121,993
(1,004)
(456)
(1,460)
4,041
(714)
3,327
(1,738)
(1,594)
(3,332)
¥ (2,660)
2,414
851
3,265
(6,606)
1,726
(4,880)
(15,626)
2,839
(12,787)
¥ 119,333
¥ (53,839)
¥
(247)
¥ (54,086)
(7,571)
4,077
(3,494)
4,221
(5,006)
(785)
(59,928)
2,038
(57,890)
¥ (116,008)
3,010
(1,632)
1,378
(1,708)
2,044
336
20,252
(739)
19,513
¥ 20,980
(4,561)
2,445
(2,116)
2,513
(2,962)
(449)
(39,676)
1,299
(38,377)
¥ (95,028)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
79
Years ended December 31
2013:
Foreign currency translation adjustments
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 gains and losses on derivative instruments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Pension liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Other comprehensive income (loss)
Thousands of U.S. dollars
Before-tax
amount
Tax (expense)
or benefit
Net-of-tax
amount
$ 2,416,257
$ (20,295)
$ 2,395,962
120,657
(22,457)
98,200
(115,667)
146,543
30,876
493,904
32,952
526,856
$ 3,072,189
(41,067)
5,838
(35,229)
43,753
(55,048)
(11,295)
79,590
(16,619)
62,971
(71,914)
91,495
19,581
(205,847)
(9,876)
(215,723)
$ (282,542)
288,057
23,076
311,133
$ 2,789,647
15. STOCK-BASED COMPENSATION
On May 1, 2011, based on the approval of the stockholders,
the Company granted stock options to its directors, execu-
tive officers and certain employees to acquire 912,000 shares
of common stock. These option awards vest after two years
of continued service beginning on the grant date and have a
four year contractual term. The grant-date fair value per share
of the stock options granted during the year ended December
31, 2011 was ¥772.
On May 1, 2010, based on the approval of the stockhold-
ers, the Company granted stock options to its directors, execu-
tive officers and certain employees to acquire 890,000 shares
of common stock. These option awards vest after two years
of continued service beginning on the grant date and have a
four year contractual term. The grant-date fair value per share
of the stock options granted during the year ended December
31, 2010 was ¥988.
On May 1, 2009, based on the approval of the stockhold-
ers, the Company granted stock options to its directors, execu-
tive officers and certain employees to acquire 954,000 shares
of common stock. These option awards vest after two years
of continued service beginning on the grant date and have a
four year contractual term. The grant-date fair value per share
of the stock options granted during the year ended December
31, 2009 was ¥699.
On May 1, 2008, based on the approval of the stockhold-
ers, the Company granted stock options to its directors, execu-
tive officers and certain employees to acquire 592,000 shares
of common stock. These option awards vest after two years
of continued service beginning on the grant date and have a
four year contractual term. The grant-date fair value per share
of the stock options granted during the year ended December
31, 2008 was ¥1,247.
The compensation cost recognized for these stock options
for the years ended December 31, 2013, 2012 and 2011 was
¥95 million ($905 thousand), ¥364 million and ¥748 million,
respectively, and is included in selling, general and adminis-
trative expenses in the consolidated statements of income.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model that
incorporates the assumptions presented below:
Year ended December 31
Expected term of option (in years)
Expected volatility
Dividend yield
Risk-free interest rate
2011
4.0
36.44%
3.16%
0.44%
80
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
A summary of option activity under the stock option plans as of and for the years ended December 31, 2013, 2012 and
2011 is presented below:
Shares
Weighted-average
exercise price
Yen
U.S. dollars
Weighted-average
remaining
contractual
term
Aggregate
intrinsic value
Year
2.5
Millions of yen
¥ 722
Thousands of
U.S. dollars
Outstanding at January 1, 2011
2,220,000
¥ 4,354
Granted
Exercised
Forfeited
912,000
(65,800)
(24,000)
Outstanding at December 31, 2011
3,042,200
Exercised
Forfeited
Outstanding at December 31, 2012
Exercised
Forfeited
Outstanding at December 31, 2013
Exercisable at December 31, 2013
(10,800)
(305,000)
2,726,400
(8,600)
(60,400)
2,657,400
2,657,400
3,990
3,287
4,282
4,268
3,287
4,493
4,247
3,287
4,461
¥ 4,245
¥ 4,245
At December 31, 2013, all outstanding option awards were vested.
2.0
88
1.6
37
$ 31.30
42.49
$ 40.43
$ 40.43
1.0
1.0
¥ 28
¥ 28
$ 267
$ 267
A summary of the status of the Company’s nonvested shares at December 31, 2013, and changes during the year ended
December 31, 2013, is presented below:
Year ended December 31, 2013
Shares
Weighted-average
grant-date fair value
Nonvested at beginning of year
Vested
Forfeited
Nonvested at end of year
738,000
(738,000)
—
—
Yen
¥ 772
772
—
—
U.S. dollars
$ 7.35
7.35
—
—
The total fair value of shares vested during the years ended
December 31, 2013, 2012 and 2011 was ¥570 million ($5,429
thousand), ¥848 million and ¥547 million, respectively. Cash
received from the exercise of stock options for the years ended
December 31, 2013, 2012 and 2011 was ¥28 million ($267
thousand), ¥35 million and ¥216 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
81
16. NET INCOME ATTRIBUTABLE TO CANON INC. STOCKHOLDERS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted net income attributable to Canon Inc. stockhold-
ers per share computations is as follows:
Years ended December 31
Net income attributable to Canon Inc.
2013
¥ 230,483
Millions of yen
2012
2011
¥ 224,564
¥ 248,630
Thousands of
U.S. dollars
2013
$ 2,195,076
Average common shares outstanding
1,147,933,835
1,173,647,835
1,215,832,419
Number of shares
Effect of dilutive securities:
Stock options
Diluted common shares outstanding
8,466
1,147,942,301
20,574
60,552
1,173,668,409
1,215,892,971
Net income attributable to Canon Inc.
stockholders per share:
Basic
Diluted
Yen
U.S. dollars
¥ 200.78
200.78
¥ 191.34
191.34
¥ 204.49
204.48
$ 1.91
1.91
The computation of diluted net income attributable to Canon Inc. stockholders per share for the years ended December
31, 2013, 2012 and 2011 excludes certain outstanding stock options because the effect would be anti-dilutive.
82
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
17. DERIVATIVES AND HEDGING ACTIVITIES
Risk management policy
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates. Derivative
financial instruments are comprised principally of for-
eign exchange contracts utilized by the Company and cer-
tain of its subsidiaries to reduce the risk. Canon assesses
foreign currency exchange rate risk by continually moni-
toring changes in the exposures and by evaluating hedg-
ing 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-per-
formance by counterparties to derivative financial instru-
ments, but it is not expected that any counterparties will
fail to meet their obligations. Most of the counterparties
are internationally recognized financial institutions and
selected by Canon taking into account their financial con-
dition, and contracts are diversified across a number of
major financial institutions.
Foreign currency exchange rate risk management
Canon’s international operations expose Canon to the risk
of changes in foreign currency exchange rates. Canon uses
foreign exchange contracts to manage certain foreign cur-
rency exchange exposures principally from the exchange
of U.S. dollars and euros into Japanese yen. These contracts
are primarily used to hedge the foreign currency exposure
of forecasted intercompany sales and intercompany trade
receivables that 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.
Cash flow hedge
Changes in the fair value of derivative financial instruments
designated as cash flow hedges, including foreign exchange
contracts associated with 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. Substantially all amounts
recorded in accumulated other comprehensive income (loss)
at year-end are expected to be recognized in earnings over
the next twelve months. Canon excludes the time value com-
ponent from the assessment of hedge effectiveness. Changes
in the fair value of a foreign exchange contract for the
period between the date that the forecasted intercompany
sales occur and its maturity date are recognized in earnings
and not considered hedge ineffectiveness.
Derivatives not designated as hedges
Canon has entered into certain foreign exchange contracts
to primarily offset the earnings impact related to fluctua-
tions in foreign currency exchange rates associated with cer-
tain assets denominated in foreign currencies. Although
these foreign exchange contracts have not been designated
as hedges as required in order to apply hedge accounting,
the contracts are effective from an economic perspective.
The changes in the fair value of these contracts are recorded
in earnings immediately.
Contract amounts of foreign exchange contracts at December 31, 2013 and 2012 are set forth below:
December 31
To sell foreign currencies
To buy foreign currencies
Millions of yen
2013
¥ 374,699
44,726
2012
¥ 420,272
66,563
Thousands of
U.S. dollars
2013
$ 3,568,562
425,962
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
83
Fair value of derivative instruments in the consolidated balance sheets
The following tables present Canon’s derivative instruments measured at gross fair value as reflected in the consolidated bal-
ance sheets at December 31, 2013 and 2012.
Derivatives designated as hedging instruments
December 31
Fair value
Millions of yen
Balance sheet location
2013
2012
Assets:
Foreign exchange contracts
Liabilities:
Prepaid expenses and
other current assets
¥ 44
Foreign exchange contracts
Other current liabilities
2,267
Derivatives not designated as hedging instruments
December 31
¥ 443
4,472
Fair value
Millions of yen
Balance sheet location
2013
2012
Thousands of
U.S. dollars
2013
$
419
21,590
Thousands of
U.S. dollars
2013
Assets:
Foreign exchange contracts
Liabilities:
Prepaid expenses and
other current assets
¥ 210
¥ 388
$ 2,000
Foreign exchange contracts
Other current liabilities
12,678
21,021
120,743
Effect of derivative instruments in the consolidated statements of income
The following tables present the effect of Canon’s derivative instruments in the consolidated statements of income for the years
ended December 31, 2013, 2012 and 2011.
Derivatives in cash flow hedging relationships
Years ended December 31
Gain (loss) recognized
in OCI (effective portion)
Gain (loss) reclassified from
accumulated OCI into income
(effective portion)
Gain (loss) recognized in income
(ineffective portion and amount excluded
from effectiveness testing)
Millions of yen
Amount
Location
Amount
Location
Amount
2013: Foreign exchange
contracts
2012: Foreign exchange
contracts
2011: Foreign exchange
contracts
Thousands of U.S. dollars
2013: Foreign exchange
contracts
¥ 3,242
Other, net
¥ (15,387)
Other, net
¥ (111)
(8,207)
Other, net
(2,440)
Other, net
(785)
Other, net
5,006
Other, net
(221)
(457)
$30,876
Other, net
$ (146,543)
Other, net
$ (1,057)
84
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Derivatives not designated as hedging instruments
Years ended December 31
Gain (loss) recognized in income on derivative
Foreign exchange contracts
Other, net
Location
2013
¥(61,787)
Millions of yen
2012
¥(30,602)
2011
¥11,168
Thousands of
U.S. dollars
2013
$(588,448)
18. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
At December 31, 2013, commitments outstanding for the
purchase of property, plant and equipment approximated
¥26,218 million ($249,695 thousand), and commitments
outstanding for the purchase of parts and raw materials
approximated ¥73,914 million ($703,943 thousand).
Canon occupies sales offices and other facilities under
lease arrangements accounted for as operating leases.
Deposits made under such arrangements aggregated
¥13,448 million ($128,076 thousand) and ¥13,313 million at
December 31, 2013 and 2012, respectively, and are included
in noncurrent receivables in the accompanying consoli-
dated balance sheets. Rental expenses under such operating
lease arrangements amounted to ¥44,562 million ($424,400
thousand), ¥40,273 million and ¥38,167 million for the
years ended December 31, 2013, 2012 and 2011, respectively.
Future minimum lease payments required under noncancelable operating leases that have initial or remaining lease
terms in excess of one year at December 31, 2013 are as follows:
Year ending December 31:
2014
2015
2016
2017
2018
Thereafter
Total future minimum lease payments
Millions of yen
¥ 28,523
20,337
17,578
10,046
6,400
13,180
¥ 96,064
Thousands of
U.S. dollars
$ 271,648
193,686
167,410
95,676
60,952
125,523
$ 914,895
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
85
Guarantees
Canon provides guarantees for bank loans of its employ-
ees, affiliates and other companies. The guarantees for the
employees are principally made for their housing loans. The
guarantees of loans of its affiliates and other companies
are made to ensure that those companies operate with less
financial risk.
For each guarantee provided, Canon would have to per-
form under a guarantee if the borrower defaults on a pay-
ment within the contract periods of 1 year to 30 years, in
the case of employees with housing loans, and of 1 year to
10 years, in the case of affiliates and other companies. The
maximum amount of undiscounted payments Canon would
have had to make in the event of default is ¥12,315 million
($117,286 thousand) at December 31, 2013. The carrying
amounts of the liabilities recognized for Canon’s obligations
as a guarantor under those guarantees at December 31, 2013
were not significant.
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.
Changes in accrued product warranty cost for the years ended December 31, 2013 and 2012 are summarized as follows:
Years ended December 31
Balance at beginning of year
Addition
Utilization
Other
Balance at end of year
Millions of yen
2013
¥ 12,163
13,467
(12,922)
(1,818)
¥ 10,890
2012
¥ 11,691
13,553
(12,503)
(578)
¥ 12,163
Thousands of
U.S. dollars
2013
$ 115,838
128,257
(123,067)
(17,314)
$ 103,714
Legal proceedings
Canon is involved in various claims and legal actions aris-
ing in the ordinary course of business. Canon has recorded
provisions for liabilities when it is probable that liabilities
have been incurred and the amount of loss can be reason-
ably estimated. Canon reviews these provisions at least quar-
terly and adjusts these provisions to reflect the impact of
the negotiations, settlements, rulings, advice of legal coun-
sel and other information and events pertaining to a
particular case. Based on its experience, although litigation
is inherently unpredictable, Canon believes that any damage
amounts claimed in outstanding matters are not a mean-
ingful indicator of Canon’s potential liability. In the opin-
ion of management, any reasonably possible range of losses
from outstanding matters would not have a material adverse
effect on Canon’s consolidated financial position, results of
operations, or cash flows.
86
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
19. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS
OF CREDIT RISK
Fair value of financial instruments
The estimated fair values of Canon’s financial instruments at December 31, 2013 and 2012 are set forth below. The follow-
ing summary excludes cash and cash equivalents, trade receivables, finance receivables, noncurrent receivables, short-term
loans, trade payables and accrued expenses for which fair values approximate their carrying amounts. The summary also
excludes investments which are disclosed in Note 3.
December 31
Millions of yen
Thousands of U.S. dollars
2013
2012
2013
Long-term debt, including current installments ¥ (2,693)
Foreign exchange contracts:
Carrying
amount
Estimated
fair value
¥ (2,693)
Carrying
amount
Estimated
fair value
¥ (3,664)
¥ (3,654)
Carrying
amount
$ (25,647)
Estimated
fair value
$ (25,647)
Assets
Liabilities
254
254
(14,945)
(14,945)
831
831
(25,493)
(25,493)
2,419
2,419
(142,333)
(142,333)
The following methods and assumptions are used to esti-
mate the fair value in the above table.
Long-term debt
Canon’s long-term debt instruments are classified as Level
2 instruments and valued based on the present value of
future cash f lows associated with each instrument dis-
counted using current market borrowing rates for similar
debt instruments of comparable maturity. The levels are
more fully described in Note 20.
Foreign exchange contracts
The fair values of foreign exchange contracts are measured
based on the market price obtained from financial institutions.
Limitations of fair value estimates
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 subjec-
tive in nature and involve uncertainties and matters of sig-
nificant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect
the estimates.
Concentrations of credit risk
At December 31, 2013 and 2012, one customer accounted
for approximately 15% and 18% of consolidated trade receiv-
ables, respectively. Although Canon does not expect that the
customer will fail to meet its obligations, Canon is poten-
tially exposed to concentrations of credit risk if the customer
failed to perform according to the terms of the contracts.
20. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset
or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an
orderly transaction between market participants at the mea-
surement date. A three-level fair value hierarchy that priori-
tizes the inputs used to measure fair value is as follows:
Level 1— Inputs are quoted prices in active markets for iden-
tical assets or liabilities.
Level 2— Inputs are quoted prices for similar assets or liabil-
ities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that
are observable, and inputs that are derived princi-
pally from or corroborated by observable market
data by correlation or other means.
Level 3— Inputs are derived from valuation techniques in
which one or more significant inputs or value driv-
ers are unobservable, which reflect the reporting
entity’s own assumptions about the assumptions
that market participants would use in establishing
a price.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
87
Assets and liabilities measured at fair value on a recurring basis
The following tables present Canon’s assets and liabilities that are measured at fair value on a recurring basis consistent with the
fair value hierarchy at December 31, 2013 and 2012.
December 31
Millions of yen
2013: Assets:
Cash and cash equivalents
Available-for-sale (noncurrent):
Government bonds
Corporate bonds
Fund trusts
Equity securities
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
Millions of yen
2012: Assets:
Cash and cash equivalents
Available-for-sale (current):
Corporate bonds
Available-for-sale (noncurrent):
Government bonds
Corporate bonds
Fund trusts
Equity securities
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
December 31
Thousands of U.S. dollars
2013: Assets:
Cash and cash equivalents
Available-for-sale (noncurrent):
Government bonds
Corporate bonds
Fund trusts
Equity securities
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
Level 1
Level 2
¥
—
¥ 183,078
307
—
11
34,536
—
¥ 34,854
¥
¥
—
—
—
141
57
—
254
¥ 183,530
¥ 14,945
¥ 14,945
Level 3
¥ —
—
340
—
—
—
¥ 340
¥ —
¥ —
Total
¥ 183,078
307
481
68
34,536
254
¥ 218,724
¥ 14,945
¥ 14,945
Level 1
Level 2
Level 3
Total
¥
—
¥141,729
¥ —
¥141,729
30
181
—
159
21,335
—
—
—
116
1,075
—
831
¥ 21,705
¥ 143,751
¥
¥
—
—
¥ 25,493
¥ 25,493
—
—
444
—
—
—
¥ 444
¥ —
¥ —
30
181
560
1,234
21,335
831
¥165,900
¥ 25,493
¥ 25,493
Level 1
Level 2
Level 3
Total
$
—
$1,743,600
$ —
$1,743,600
2,923
—
105
328,915
—
—
1,343
543
—
2,419
—
3,238
—
—
—
2,923
4,581
648
328,915
2,419
$ 331,943
$1,747,905
$ 3,238
$ 2,083,086
$
$
—
—
$ 142,333
$ 142,333
$ —
$ —
$ 142,333
$ 142,333
88
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Level 1 investments are comprised principally of Japanese
equity securities, which are valued using an unadjusted
quoted market price in active markets with sufficient volume
and frequency of transactions. Level 2 cash and cash equiv-
alents are valued based on market approach, using quoted
prices for identical assets in markets that are not active. Level
3 investments are mainly comprised of corporate bonds,
which are valued based on cost approach, using unobservable
inputs as the market for the assets was not active at the mea-
surement date.
Derivative financial instruments are comprised of for-
eign exchange contracts. Level 2 derivatives are valued using
quotes obtained from counterparties or third parties, which
are periodically validated by pricing models using observable
market inputs, such as foreign currency exchange rates and
interest rates, based on market approach.
The following table presents the changes in Level 3 assets measured on a recurring basis, consisting primarily of corporate
bonds, for the years ended December 31, 2013 and 2012.
Years ended December 31
Balance at beginning of year
Total gains or losses (realized or unrealized):
Included in earnings
Included in other comprehensive income (loss)
Purchases, issuances, and settlements
Balance at end of year
Millions of yen
2013
¥ 444
1
36
(141)
¥ 340
2012
¥ 454
3
2
(15)
¥ 444
Thousands of
U.S. dollars
2013
$ 4,229
9
343
(1,343)
$ 3,238
Gains and losses included in earnings are mainly related
to corporate bonds still held at December 31, 2013 and 2012,
and are reported in “Other, net” in the consolidated state-
ments of income.
Assets and liabilities measured at fair value on a
nonrecurring basis
During the years ended December 31, 2013 and 2012, there
were no circumstances that required any significant assets
or liabilities to be measured at fair value on a nonrecur-
ring basis.
21. SEGMENT INFORMATION
Canon operates its business in three segments: the Office
Business Unit, the Imaging System Business Unit, and the
Industry and Others Business Unit, which are based on the
organizational structure and information reviewed by Canon’s
management to evaluate results and allocate resources.
The primary products included in each segment are
as follows:
Office Business Unit:
Office multifunction devices (MFDs) / Laser multifunction
printers (MFPs) / Laser printers / Digital production print-
ing systems / High speed continuous feed printers / Wide-
format printers / Document solutions
Imaging System Business Unit:
Interchangeable lens digital cameras / Digital compact
cameras / Digital camcorders / Digital cinema cameras /
Interchangeable lenses / Inkjet printers / Large-format ink-
jet printers / Commercial photo printers / Image scanners /
Multimedia projectors / Broadcast equipment / Calculators
Industry and Others Business Unit:
Semiconductor lithography equipment / Flat panel dis-
play (FPD) lithography equipment / Digital radiography
systems / Ophthalmic equipment / Vacuum thin-film
deposition equipment / Organic LED (OLED) panel man-
ufacturing equipment / Die bonders / Micromotors /
Network cameras / Handy terminals / Document scanners
The accounting policies of the segments are substantially
the same as those described in the significant accounting pol-
icies in Note 1. Canon evaluates performance of, and allocates
resources to, each segment based on operating profit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
89
Information about operating results and assets for each segment as of and for the years ended December 31, 2013, 2012
Office
Imaging
System
Industry and
Others
Corporate and
eliminations
Consolidated
¥ 1,993,898
¥ 1,448,186
¥ 289,296
¥
—
¥ 3,731,380
and 2011 is as follows:
Millions of yen
2013: Net sales:
External customers
Intersegment
Total
Operating cost and expenses
Operating profit (loss)
Total assets
Depreciation and amortization
Capital expenditures
6,175
2,000,073
1,733,165
¥ 266,908
¥ 954,803
88,344
54,644
752
1,448,938
1,245,144
¥ 203,794
¥ 584,856
56,564
44,112
2012: Net sales:
External customers
¥ 1,751,960
¥ 1,404,394
Intersegment
Total
Operating cost and expenses
Operating profit
Total assets
5,615
1,757,575
1,553,997
¥ 203,578
¥ 927,543
Depreciation and amortization
77,660
Capital expenditures
58,402
1,577
1,405,971
1,195,653
¥ 210,318
¥ 614,328
53,664
58,142
2011: Net sales:
External customers
¥ 1,912,112
¥ 1,311,023
Intersegment
Total
Operating cost and expenses
Operating profit
Total assets
5,831
1,917,943
1,658,678
¥ 259,265
¥ 907,433
Depreciation and amortization
93,196
Capital expenditures
53,888
1,021
1,312,044
1,100,750
¥ 211,294
¥ 452,809
45,609
48,192
85,574
374,870
400,201
¥ (25,331)
¥ 328,202
37,072
27,040
¥ 323,434
84,406
407,840
401,930
¥ 5,910
¥ 337,899
34,264
44,086
¥ 334,298
86,565
420,863
396,563
¥ 24,300
¥ 362,638
29,685
37,648
(92,501)
(92,501)
15,593
¥ (108,094)
¥ 2,374,849
93,193
101,682
—
3,731,380
3,394,103
¥ 337,277
¥ 4,242,710
275,173
227,478
¥
—
¥ 3,479,788
(91,598)
(91,598)
4,352
—
3,479,788
3,155,932
¥
(95,950)
¥ 323,856
¥ 2,075,733
¥ 3,955,503
92,545
146,031
258,133
306,661
¥
—
¥ 3,557,433
(93,417)
(93,417)
23,371
—
3,557,433
3,179,362
¥ (116,788)
¥ 378,071
¥ 2,207,847
¥ 3,930,727
92,853
122,753
261,343
262,481
Thousands of U.S. dollars
2013: Net sales:
Office
Imaging
System
Industry and
Others
Corporate and
eliminations
Consolidated
External customers
Intersegment
Total
Operating cost and expenses
Operating profit (loss)
$ 18,989,504
$ 13,792,248
$ 2,755,200
$
—
$ 35,536,952
58,810
19,048,314
16,506,333
7,162
13,799,410
11,858,514
814,990
3,570,190
3,811,438
(880,962)
(880,962)
148,505
—
35,536,952
32,324,790
$ 2,541,981
$ 1,940,896
$ (241,248)
$ (1,029,467)
$ 3,212,162
Total assets
Depreciation and amortization
Capital expenditures
$ 9,093,362
$ 5,570,057
$ 3,125,733
$ 22,617,610
$ 40,406,762
841,371
520,419
538,705
420,114
353,067
257,524
887,552
968,400
2,620,695
2,166,457
90
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
Intersegment sales are recorded at the same prices used in
transactions with third parties. Expenses not directly associ-
ated with specific segments are allocated based on the most
reasonable measures applicable. Corporate expenses include
certain corporate research and development expenses.
Segment assets are based on those directly associated with
each segment. Corporate assets primarily consist of cash and
cash equivalents, investments, deferred tax assets, goodwill
and corporate properties. Capital expenditures represent the
additions to property, plant and equipment and intangible
assets measured on an accrual basis.
In 2013, based on the realignment of Canon’s inter-
nal reporting structure, certain financial assets have been
transferred from Corporate to the Office Business Unit.
Corresponding amounts of total assets as of December 31,
2012 and 2011 have been reclassified to conform with the
current year presentation.
Information about product sales to external customers by business unit for the years ended December 31, 2013, 2012 and
2011 is as follows:
Years ended December 31
Office
Monochrome copiers
Color copiers
Printers
Others
Total
Imaging System
Cameras
Inkjet printers
Others
Total
Industry and Others
Lithography equipment
Others
Total
Consolidated
2013
Millions of yen
2012
2011
¥ 312,973
¥ 274,021
¥ 276,225
381,848
841,436
457,641
1,993,898
973,517
363,070
111,599
1,448,186
62,116
227,180
289,296
¥ 3,731,380
324,851
766,382
386,706
1,751,960
322,321
902,756
410,810
1,912,112
990,549
928,047
312,429
101,416
315,526
67,450
1,404,394
1,311,023
62,892
260,542
323,434
¥ 3,479,788
81,556
252,742
334,298
¥ 3,557,433
Thousands of
U.S. dollars
2013
$ 2,980,695
3,636,648
8,013,676
4,358,485
18,989,504
9,271,590
3,457,810
1,062,848
13,792,248
591,581
2,163,619
2,755,200
$ 35,536,952
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
91
Information by major geographic area as of and for the years ended December 31, 2013, 2012 and 2011 is as follows:
Net sales:
Japan
Americas
Europe
Asia and Oceania
Total
Long-lived assets:
Japan
Americas
Europe
Asia and Oceania
Total
2013
¥ 715,863
1,059,501
1,124,929
831,087
¥ 3,731,380
¥ 984,231
131,660
111,609
196,305
¥ 1,423,805
Millions of yen
2012
¥ 720,286
939,873
1,014,038
805,591
2011
¥ 694,450
961,955
1,113,065
787,963
¥ 3,479,788
¥ 3,557,433
¥ 1,032,598
¥ 1,070,412
112,163
91,904
159,435
85,824
83,296
89,334
¥ 1,396,100
¥ 1,328,866
Thousands of
U.S. dollars
2013
$ 6,817,743
10,090,486
10,713,609
7,915,114
$ 35,536,952
$ 9,373,629
1,253,905
1,062,943
1,869,571
$13,560,048
Net sales are attributed to areas based on the location
where the product is shipped to the customers. Other than
in Japan and the United States, Canon does not conduct
business in any individual country in which its sales in that
country exceed 10% of consolidated net sales. Net sales in
the United States were ¥960,213 million ($9,144,886 thou-
sand), ¥763,870 million and ¥779,652 million for the years
ended December 31, 2013, 2012 and 2011, respectively.
Long-lived assets represent property, plant and equip-
ment and intangible assets for each geographic area.
92
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
The following information is based on the location of the Company and its subsidiaries as of and for the years ended
December 31, 2013, 2012 and 2011. In addition to the disclosure requirements under U.S. GAAP, Canon discloses this infor-
mation in order to provide financial statements users with useful information.
Millions of yen
2013: Net sales:
External customers
Intersegment
Total
Japan
Americas
Europe
Asia and
Oceania
Corporate and
eliminations
Consolidated
¥ 797,501 ¥ 1,056,096 ¥ 1,124,603 ¥ 753,180 ¥
— ¥ 3,731,380
1,855,181
11,774
53,281
881,765
(2,802,001)
—
2,652,682
1,067,870
1,177,884
1,634,945
(2,802,001)
3,731,380
Operating cost and expenses
2,326,351
1,043,487
1,171,357
1,574,125
(2,721,217)
3,394,103
Operating profit
Total assets
2012: Net sales:
¥ 326,331 ¥
24,383 ¥
6,527 ¥
60,820 ¥
(80,784) ¥ 337,277
¥ 1,152,398 ¥ 447,039 ¥ 496,549 ¥ 631,827 ¥ 1,514,897 ¥ 4,242,710
External customers
¥ 834,406 ¥ 932,987 ¥ 1,010,922 ¥ 701,473 ¥
— ¥ 3,479,788
Intersegment
Total
1,829,834
23,767
5,650
781,836
(2,641,087)
—
2,664,240
956,754
1,016,572
1,483,309
(2,641,087)
3,479,788
Operating cost and expenses
2,336,536
937,111
972,585
1,437,527
(2,527,827)
3,155,932
Operating profit
Total assets
¥ 327,704 ¥
19,643 ¥ 43,987 ¥ 45,782 ¥
(113,260) ¥ 323,856
¥ 1,206,702 ¥ 339,918 ¥ 457,592 ¥ 548,583 ¥ 1,402,708 ¥ 3,955,503
2011: Net sales:
External customers
¥ 807,883
¥ 952,833 ¥ 1,109,256 ¥ 687,461 ¥
— ¥ 3,557,433
Intersegment
Total
1,873,157
16,217
4,681
744,179
(2,638,234)
—
2,681,040
969,050
1,113,937
1,431,640
(2,638,234)
3,557,433
Operating cost and expenses
2,273,336
948,593
1,069,489
1,388,580
(2,500,636)
3,179,362
Operating profit
Total assets
¥ 407,704
¥ 20,457 ¥ 44,448 ¥ 43,060 ¥
(137,598) ¥ 378,071
¥ 1,236,468
¥ 250,131 ¥ 427,030 ¥ 442,263 ¥ 1,574,835 ¥ 3,930,727
Thousands of U.S. dollars
2013: Net sales:
External customers
Intersegment
Total
Japan
Americas
Europe
Asia and
Oceania
Corporate and
eliminations
Consolidated
$ 7,595,248 $ 10,058,057 $ 10,710,505 $ 7,173,142 $
— $ 35,536,952
17,668,390
112,133
507,438
8,397,763 (26,685,724)
—
25,263,638
10,170,190
11,217,943
15,570,905 (26,685,724) 35,536,952
Operating cost and expenses
22,155,724
9,937,971
11,155,781
14,991,667 (25,916,353) 32,324,790
Operating profit
Total assets
$ 3,107,914 $ 232,219 $
62,162 $ 579,238 $
(769,371) $ 3,212,162
$ 10,975,219 $ 4,257,514 $ 4,729,038 $ 6,017,400 $ 14,427,591 $ 40,406,762
22. SUBSEQUENT EVENT
On February 18, 2014, the Board of Directors of the Company
approved and implemented a plan to repurchase up to 18 mil-
lion shares of the Company’s common stock at a cost of up
to ¥50,000 million ($476,190 thousand) for the period from
February 19, 2014 to April 4, 2014. Such repurchases are
intended to improve capital efficiency and ensure flexible
capital strategy. Common stock repurchased in the Tokyo
Stock Exchange between February 19, 2014 and March 4, 2014
under the aforementioned plan was 15,957,600 shares at a
cost of ¥50,000 million ($476,190 thousand).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS /
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
93
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Canon is responsible for establishing and maintaining adequate internal control over financial report-
ing. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of
1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal
financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to
the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) pro-
vide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Canon’s management assessed the effectiveness of internal control over financial reporting as of December 31, 2013. In mak-
ing this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (1992 framework) (the “COSO criteria”).
Based on its assessment, management concluded that, as of December 31, 2013, Canon’s internal control over financial
reporting was effective based on the COSO criteria.
Canon’s independent registered public accounting firm, Ernst & Young ShinNihon LLC, has issued an audit report on the
effectiveness of Canon’s internal control over financial reporting.
94
Strategy
Business Segment
Corporate Structure
FINANCIAL SECTION
Corporate Data
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Canon Inc.
We have audited the accompanying consolidated balance sheets of Canon Inc. and subsidiaries as of December 31, 2013 and 2012,
and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the
period ended December 31, 2013, all expressed in Japanese yen. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
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 man-
agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Canon Inc. and subsidiaries at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Canon
Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 frame-
work) and our report dated March 28, 2014 expressed an unqualified opinion thereon.
We have also recomputed the translation of the consolidated financial statements as of and for the year ended December 31, 2013
into United States dollars. In our opinion, the consolidated financial statements expressed in Japanese yen have been translated into
United States dollars on the basis described in Note 2.
March 28, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
95
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Canon Inc.
We have audited Canon Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria estab-
lished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) (the COSO criteria). Canon Inc. and subsidiaries’ management is responsible for maintaining effective internal con-
trol over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effective-
ness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circum-
stances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabil-
ity of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assur-
ance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Canon Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consoli-
dated balance sheets of Canon Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income,
comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2013, all expressed in Japanese
yen, and our report dated March 28, 2014 expressed an unqualified opinion thereon.
March 28, 2014
96
Strategy
Business Segment
Corporate Structure
Financial Section
CORPORATE DATA
TRANSFER AND
REGISTRAR’S OFFICE
STOCKHOLDER
INFORMATION
Canon Inc.
30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
Stock Exchange Listings:
Tokyo, Nagoya, Fukuoka, Sapporo and New York
stock exchanges
Manager of the Register of Stockholders
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
JPMorgan Chase Bank, N.A.
1 Chase Manhattan Plaza, Floor 58, New York, N.Y.
10005-1401, U.S.A.
American Depositary Receipts are traded on the New York
Stock Exchange (CAJ).
Ordinary General Meeting of Shareholders:
March 28, 2014, in Tokyo
Further Information:
For publications or information, please contact the
Public Affairs Headquarters, Canon Inc., Tokyo,
or access Canon’s Website at
www.canon.com
TRANSFER AND REGISTRAR’S OFFICE / STOCKHOLDER INFORMATION / MAJOR CONSOLIDATED SUBSIDIARIES
97
MAJOR CONSOLIDATED SUBSIDIARIES
(As of December 31, 2013)
Marketing & Other
Canon Marketing Japan Inc.
Canon System and Support Inc.
Canon Software Inc.
Canon IT Solutions Inc.
Canon U.S.A., Inc.
Canon Canada Inc.
Canon Solutions America, Inc.
Canon Latin America, Inc.
Canon Europa N.V.
Canon Europe Ltd.
Canon Ru LLC
Canon (UK) Ltd.
Canon Deutschland GmbH
Canon (Schweiz) AG
Canon Nederland N.V.
Canon France S.A.S.
Canon Middle East FZ-LLC
Canon (China) Co., Ltd.
Canon Hongkong Co., Ltd.
Canon Singapore Pte. Ltd.
Canon Australia Pty. Ltd.
Manufacturing
Canon Precision Inc.
Fukushima Canon Inc.
Canon Chemicals Inc.
Canon Components, Inc.
Canon Electronics Inc.
Canon Finetech Inc.
Nisca Corporation
Canon Tokki Corporation
Canon ANELVA Corporation
Nagahama Canon Inc.
Canon Machinery Inc.
Oita Canon Materials Inc.
Oita Canon Inc.
Nagasaki Canon Inc.
Canon Virginia, Inc.
Canon Bretagne S.A.S.
Océ-Technologies B.V.
OPTOPOL Technology Sp. z o.o.
Canon Dalian Business Machines, Inc.
Canon (Suzhou) Inc.
Canon Zhongshan Business Machines Co., Ltd.
Canon Zhuhai, Inc.
Canon Inc., Taiwan
Canon Vietnam Co., Ltd.
Canon Hi-Tech (Thailand) Ltd.
Canon Opto (Malaysia) Sdn. Bhd.
Research & Development
Canon Research Centre France S.A.S.
Canon Information Systems Research Australia Pty. Ltd.
CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
©Canon Inc. 2014 PUB.BEP023-01 0414