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C A N O N A N N U A L R E P O R T 2 0 1 6
F i s c a l Y e a r E n d e d D e c e m b e r 3 1 , 2 0 1 6
TA B L E O F C O N T E N T S
Strategy
2 To Our Shareholders
10 Growth Strategy
Business Segment
12 At a Glance
14 Office Business Unit
16 Imaging System Business Unit
18 Industry and Others Business Unit
Corporate Structure 20 Corporate Governance
24 Research & Development
26 Production
28 Sales & Marketing
30 Corporate Social Responsibility
Financial Section
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
53 Consolidated Statements of Cash
Flows
54 Notes to Consolidated Financial
Statements
86 Schedule II Valuation and
Qualifying Accounts
87 Management’s Report on Internal
Control Over Financial Reporting
88 Reports of Independent Registered
Public Accounting Firm
Corporate Data
90 Transfer and Registrar’s Office
90 Shareholder Information
91 Major Consolidated Subsidiaries
Cover Photo:
The photographer in the cover photo
(in the background on the left) is using
an ultra-high-sensitivity Canon ME20F-SH
multi-purpose camera to shoot this scene
(see the thumbnail photo on the bottom left).
The aurora borealis cover was photographed with
a Canon EOS 5D Mark III.
Multi-purpose cameras that feature
Canon ultra-high-sensitivity
sensors enable the capture of
vivid colors even in direly lit scenes
where it would be difficult to see
with the naked eye.
The still frame in the
thumbnail photo was actu-
ally pulled from video shot
with the ME20F-SH.
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)
2016
2015
Change (%)
2016
Net sales
Operating profit
Income before income taxes
¥ 3,401,487
¥ 3,800,271
228,866
355,210
244,651
347,438
Net income attributable to Canon Inc.
150,650
220,209
-10.5
-35.6
-29.6
-31.6
-31.6
-31.6
$ 29,323,164
1,972,983
2,109,060
1,298,707
$
1.19
1.19
¥ 137.95
¥ 201.65
137.95
201.65
¥5,138,529
¥ 4,427,773
+16.1
$ 44,297,664
Net income attributable to Canon Inc.
shareholders per share:
—Basic
—Diluted
Total assets
Canon Inc. shareholders’ equity
¥ 2,783,129
¥ 2,966,415
-6.2
$ 23,992,491
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 JPY116=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December
30, 2016, solely for the convenience of the reader.
Net Sales (Billions of yen)
Net Income Attributable to Canon Inc. (Billions of yen)
4,000
3,000
2,000
1,000
0
300
200
100
0
300
200
100
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Net Income Attributable to Canon Inc.
Shareholders per Share (Yen)
ROE/ROA (%)
12.0
9.0
6.0
3.0
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Basic
Diluted
ROE
ROA
1
CANON ANNUAL REPORT 2016
T O O U R S H A R E H O L D E R S
FUJIO MITARAI
Chairman & CEO
Canon Inc.
2
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon will further promote a grand strategic
transformation by accelerating reforms.
Performance in 2016
to difficulties in procuring components caused by the
2016 Kumamoto Earthquake, along with an ongoing con-
Looking back at the global economy in 2016, recovery in
traction of the market. Meanwhile, sales of organic LED
the United States and Europe slowed down, while growth
(OLED) panel manufacturing equipment grew significantly
in China continued to decelerate. As for the Japanese econ-
against a backdrop of increasing OLED use, primarily in
omy, the pickup in both corporate earnings and capital
smartphones.
investment showed signs of stalling. With regard to cur-
Consequently, along with the negative impact of yen
rency exchange rates, the yen appreciated considerably
appreciation, consolidated net sales for 2016 decreased
throughout the year, and conditions for Canon’s perfor-
10.5% year on year to ¥3,401.5 billion, and the gross profit
mance were extremely challenging.
ratio was 49.2%. Despite a reduction in operating expenses
Looking at each of our main products, sales were strong
of 8.5% year on year, which was partly due to Group-wide
for color office multifunction devices and digital production
efforts to reduce spending, operating profit decreased by
printing systems, while sales of laser printers remained
35.6% to ¥228.9 billion, and net income attributable to
low due to such factors as sluggish economic conditions
Canon Inc. decreased by 31.6% to ¥150.7 billion. Seeking
in emerging countries. New products for interchangeable
to actively provide a stable return to shareholders, we
lens digital cameras were well received in the market. As
decided to distribute a full-year dividend of ¥150.00 per
for digital compact cameras, sales volume declined due
share, which is the same as the record-high dividend we
150
100
50
0
Cash Dividend (Yen)
paid in the previous year.
In 2016, we embarked on Phase V, our new five-year ini-
tiative within the Excellent Global Corporation Plan, which
is guided by the basic policy of “Embracing the challenge of
new growth through a grand strategic transformation.” A
significant event in the first year of Phase V was welcoming
Toshiba Medical Systems Corporation (Toshiba Medical) into
the Canon Group. Toshiba Medical has the broadest prod-
uct portfolio in the diagnostic imaging equipment field and
is the undisputed leader in Japan in sales of medical X-ray
computed tomography (CT) systems. Furthermore, with the
aim of achieving new growth, we have laid a foundation
for our new businesses focused in the areas of commercial
printing, network cameras, healthcare and industrial equip-
2008
2009
2010
2011
2012
2013
2014
2015
2016
ment, where future market expansion is expected.
3
CANON ANNUAL REPORT 2016
Excellent Global Corporation Plan
Phase I
1996–2000
Phase II
2001–2005
Phase III
2006–2010
Phase IV
2011–2015
To strengthen its financial
structure, Canon trans-
formed its mindset to
a focus on total optimiza-
tion and profitability. The
company introduced vari-
ous business innovations,
including the selection
and consolidation of
business areas, and
reform activities in such
areas as production and
development.
Aiming to become No. 1
in all major business
areas, Canon focused on
strengthening product
competitiveness along
with the changing times,
stepping up efforts to
digitize its products. The
company also conducted
structural reforms across
all Canon Group compa-
nies around the world.
Canon moved ahead with
such growth strategies
as enhancing existing
businesses and expanding
into new areas while also
thoroughly implementing
supply chain management
and IT reforms.
Responding to weakness
in the global economy,
Canon revised its
management policy
from a strategy targeting
expansion of scale to a
strategy aimed at further
strengthening its financial
structure. While actively
pursuing M&A activities,
the company restructured
its business at a founda-
tional level to introduce
new growth engines for
future expansion.
Phase V
2016–2020
From Phase I to Phase IV (1996–2015)
Canon launched the Excellent Global Corporation Plan in
to B2B. We subsequently reinforced and expanded our rap-
idly growing network camera business by making Milestone
1996, and has strengthened its management base through
Systems a subsidiary in 2014, followed by Axis in 2015.
each of the plan’s five-year initiatives, from Phase I to
Additionally, Canon Nanotechnologies, formally Molecular
Phase IV.
Imprints, became a subsidiary in 2014, and we are accelerat-
During Phase I, we stressed thorough cash-flow man-
ing the development of next-generation semiconductor man-
agement and significantly boosted productivity through the
ufacturing equipment that uses nanoimprint lithography,
introduction of our cell production system, along with other
which will make it possible to achieve both miniaturization
measures. In Phase II, we stepped up efforts to digitalize our
and cost reductions for semiconductor devices.
copying machines and camera offerings, while building the
As a manufacturer, Canon strives unceasingly to achieve
foundation for a robust financial structure. During Phase III,
production reforms and thorough cost reductions. At the
we actively carried out M&A activities, and welcomed Océ
same time, we stay on top of opportunities to add excellent
to the Group in 2010, clearing the way for a move into the
companies to the Group, in order to shift our focus towards
high-growth-potential commercial printing market.
changing growth markets, with the aim of unlocking new
As the markets for our core businesses—such as cam-
growth potential.
eras and office equipment—were maturing, during Phase
Finally, in the first year of Phase V, Toshiba Medical
IV, which began in 2011, we promoted diversification via
became a subsidiary. This completed our lineup of new busi-
the lateral expansion of our existing businesses—such as the
nesses—namely commercial printing, network cameras,
Cinema EOS System and commercial photo printers—while
healthcare and industrial equipment—that we have been
also accelerating our M&A strategy. In this manner, we set
establishing in preparation for future growth. These busi-
a clear direction for shifting our focus for growth from B2C
nesses are now beginning to produce results.
4
CANON ANNUAL REPORT 2016
STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Phase V (2016–2020)
Key Strategies
2020 Management Targets
1
2
3
4
5
Establish a new production system to achieve
a cost-to-sales ratio of 45%
Net sales
Reinforce and expand new businesses while
creating future businesses
Restructure the global sales network in
accordance with market changes
*Cost-to-sales ratio
Operating profit ratio
Net income ratio
Enhance R&D capabilities through open
innovation
Shareholders’ equity ratio
¥5 trillion
45% or less
15% or more
10% or more
70% or more
Complete the Three Regional Headquarters
management system capturing world dynamism
(Based on exchange rates: US$1 = ¥125 and €1 = ¥135)
* Cost-to-sales ratio refers to the cost of goods sold as a ratio of consoli-
dated sales.
The year 2016 marked the start of Phase V, our latest five-
With advances in the digitalization and modularization of
year initiative within the Excellent Global Corporation Plan.
products, many companies in emerging countries are enter-
As for the economic conditions on which Phase V is based,
ing the market and further accelerating the product com-
in 2016, the global economy experienced its lowest level of
moditization process, which is expected to result in even
overall growth since the financial crisis precipitated by the
more intense competition.
Lehman shock. Growth is expected to remain only moderate
Amid forecasts of such changes in the business environ-
in the coming fiscal year, even with the U.S. economy acting
ment, Canon launched Phase V, guided by the basic pol-
as a driving force. Meanwhile, we believe that two emerging
icy of “Embracing the challenge of new growth through
trends will bring about significant changes to future industry
a grand strategic transformation.” During Phase V, we
structure, the economy and society.
are seeking to further expand the reforms that we pro-
One of these trends is the Internet of Things (IoT), which
moted in Phase IV, and aim to achieve net sales of ¥5 tril-
creates new value through the interconnectedness of a
lion, a cost-to-sales ratio of 45% or less, an operating profit
diverse range of “things” via the Internet, from appliances
ratio of 15% or more, a net income ratio of 10% or more,
and automobiles to factory equipment. Responding to this
and a shareholders’ equity ratio of 70% or more (based on
change means that, even as a manufacturer, we must stop
exchange rates of US$1 = ¥125 and €1 = ¥135) in 2020, the
thinking in terms of individual items and discard the notion
final year of Phase V.
that we will have no troubles with sales as long as we
Concrete explanations regarding the progress of these
develop excellent products. Rather, we need to transform our
strategies thus far, as well as our future course of action, are
business model to combine hardware, software and services,
presented as follows.
and consider the value offered by the system as a whole.
The other trend involves the rise of emerging economies.
5
CANON ANNUAL REPORT 2016 Establish a new production system to
achieve a cost-to-sales ratio of 45%
Strategy
1
Strategy
2
Reinforce and expand new businesses
while creating future businesses
We are enhancing productivity via automated toner cartridge
production.
Canon network cameras are keeping children safe
(Singapore International School, Hong Kong).
The most important activity that will allow our grand trans-
As a measure to shift our business focus to fields where
formation to succeed is reinforcing existing businesses, and
greater growth is anticipated, Canon has accelerated the
the most important target towards achieving this is a cost-
lateral expansion of existing businesses and developed a
to-sales ratio of 45%. We see two aspects to achieving this:
number of derivative businesses, including the Cinema EOS
developing and expanding the market shares of “Dantotsu
System, professional-use video and broadcast equipment
Products” and thoroughly reducing manufacturing costs.
for the age of 4K and 8K and the DreamLabo. We will con-
“Dantotsu Products” refer to breakthrough products that
tinue to reinforce and expand our four promising new busi-
overturn conventional thinking. Through technological inno-
nesses—commercial printing, network cameras, healthcare
vation, we will create products, services and solutions that
and industrial equipment.
not only offer superior price, functionality and performance,
In commercial printing, we are stepping up the develop-
but that also cannot be imitated by other companies, thereby
ment of products that combine the technologies of Canon
securing high profitability.
and Océ, with the aim of full-scale entry into the rapidly
The Techno Wing at Oita Canon, a new R&D facility for
growing markets of package printing (e.g., for product
automation equipment, was completed in 2016 as an initia-
packaging) and high-image-quality color commercial print-
tive to reduce manufacturing costs. We will strengthen the
ing for catalogues and other items.
robot assembly processes even further in the future, as we
In network cameras, Canon welcomed Milestone
move toward complete automation. We will continue to pro-
Systems to the Group in 2014, followed by Axis in 2015,
duce our own key parts and components, and will proac-
and in 2016, we released the first product jointly devel-
tively increase in-house production of such manufacturing
oped by Canon and Axis. Going forward, we will work
equipment. We will also pursue productivity improvements
to enhance image quality through 4K and 8K video, and
by enhancing the functions of our mother plants in Japan
strengthen camera intelligence by leveraging Canon’s
while continuing production at optimal locations worldwide.
image-processing and image-analysis technologies to
6
CANON ANNUAL REPORT 2016
STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Restructure the global sales network in
accordance with market changes
Strategy
3
CEO Fujio Mitarai (right) and COO Masaya Maeda (left) visit
Toshiba Medical Systems Corporation.
Our e-commerce site where customers can purchase products online
wherever they are at all hours has gained traction.
develop market-specific solutions for such areas as urban
Canon is currently executing a major shift to B2B and B2G,
surveillance, airports, and stadiums.
which targets governments and agencies. This requires the
In healthcare, we will provide innovative products and
ability to devise and implement solutions in response to cus-
services worldwide, by combining the product lineup and
tomer demands. To that end, we are strengthening our over-
development capabilities of Toshiba Medical, which joined
seas network functions, including connections with local
the Group in 2016, with Canon’s medical and production
governments, and enhancing coordination between com-
technologies. Furthermore, we will also expand into new
panies. We are concentrating our efforts to establish a
fields, including healthcare IT and such biomedical fields as
structure that is capable of detailed responses to customer
genetic diagnostics.
requests at any time—including after-sales maintenance and
With regard to industrial equipment, strong growth is
service—by training highly-skilled sales engineers who are
expected to continue for Canon Tokki’s organic LED (OLED)
fully equipped with technical knowledge of both hardware
panel manufacturing equipment, thanks to a tailwind from
and software.
advances in IT equipment. Next-generation semiconductor
Additionally, purchasing behavior is diversifying with the
manufacturing equipment that uses nanoimprint lithogra-
spread of the Internet and smartphones, and e-commerce
phy is also expected to contribute to our business perfor-
sales are expanding rapidly, especially in China and the
mance, as our mass production system is almost in order.
United States. In order to respond to these changes, we are
In addition, we will work toward the growth of new busi-
actively pursuing omni-channel marketing, which integrates
nesses, mainly in the B2B domain, including machine vision,
brick-and-mortar and online sales routes.
industrial cameras, CMOS sensors and Canon Electronics’
aerospace business.
7
CANON ANNUAL REPORT 2016
Enhance R&D capabilities through
open innovation
Strategy
4
Strategy
5
Complete the Three Regional
Headquarters management system
capturing world dynamism
Medical research collaboration with a Harvard-affiliated medical insti-
tution (Healthcare Optics Research Lab., Canon U.S.A., United States).
Canon Americas pursues genotyping systems R&D with the aim of
commercialization (Canon BioMedical, United States).
Research and development has always been a priority for
In Phase IV, we made significant progress toward realizing
Canon, resulting in a stream of excellent new products,
our Three Regional Headquarters management system. In
such as digital cameras, that have formed the foundation
Phase V, we will further accelerate this diversification that
of our growth. Recently, markets have undergone structural
leverages the unique features of each region, with the aim
changes in the industries in which Canon operates, includ-
of completing a system capable of capturing the world dyna-
ing cameras and office equipment. In this context, we will
mism of businesses in Japan, the United States and Europe.
promote the selection and concentration of future research
To give an example of a specific initiative, we are carry-
themes, and carry out well-modulated R&D investment,
ing out R&D for genotyping solutions at Canon BioMedical,
bearing in mind the urgency and gravity of the situation. At
which we established in the United States in 2015. Canon
the same time, as innovation continues to accelerate in a
BioMedical launched the research-use-only Novallele geno-
highly uncertain environment, we will actively promote R&D
typing assays, which are being used in cancer and hereditary
by making use of external expertise, when pursuing research
disease research, and will continue to make further contri-
themes that would require enormous amounts of time and
butions to medical progress in the future. Additionally, the
expense if developed independently.
Healthcare Optics Research Laboratory is steadily advancing
Furthermore, we will actively implement the training and
research on ultra-miniature endoscopes and medical robot-
development of software engineers, in light of the growing
ics. In Europe, we are also reinforcing printing solutions
demand for personnel in this area due to the advance of IoT
research centered on Océ.
and AI technologies.
8
CANON ANNUAL REPORT 2016
STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Key Challenges for 2017
In Conclusion
In 2017, the second year of our grand strategic transforma-
2016 was indeed a year befitting the inaugural year of this
tion, we will take on the challenge of expanding our four
five-year initiative that aims to achieve a grand transfor-
new businesses of commercial printing, network cameras,
mation of our business. While this grand transformation is
healthcare and industrial equipment and produce results. So
not something that can be accomplished overnight, all of
our theme for 2017 is “Further promoting a grand strategic
Canon’s divisions will make steady progress toward this goal.
transformation by accelerating reforms,” as we work on the
Moving forward, 2017 is a major milestone for Canon,
following five key challenges.
our 80th anniversary. While a moderate recovery is expected
The first of these is to thoroughly bolster our existing busi-
in the global economy, uncertainty is increasing and the eco-
nesses with the aim of achieving a cost-to-sales ratio of 45%
nomic situation does not allow for optimism. Nevertheless,
by seeking even greater cost reductions and developing
we will accelerate our growth by steadily executing the ini-
“Dantotsu Products” that realize high profitability.
tiatives laid out in Phase V to make this a fitting year for our
The second is to strengthen and grow our new businesses
80th anniversary.
and create future businesses. We will accelerate growth by
We look forward to your continued understanding
focusing on commercial printing, network cameras, health-
and support.
care and industrial equipment.
Our third challenge is to restructure our global sales net-
work. We will focus our efforts on establishing a structure to
expand sales in new B2B businesses through such measures
as training highly-skilled sales engineers. We will also formu-
late global e-commerce strategies to make the most of the
potential for development and expansion of e-commerce.
The fourth is to strengthen R&D through open innovation.
In addition to enhancing R&D efficiency for our existing busi-
nesses and prioritizing investment in promising future fields,
we will carry out strategic R&D by actively pursuing coopera-
tion with external partners.
The fifth is to cultivate global human resources and rein-
vigorate the Canon spirit. To this end, we will work to re-
instill Canon’s enterprising spirit and the San-ji (Three Selfs)*
Spirit, while promoting the development of human resources
that can exert leadership in a global setting.
* San-ji, or the “Three Selfs,” refers to self-motivation (taking initia-
tive and being proactive in all things), self-management (conducting
oneself with responsibility and accountability) and self-awareness
(understanding one’s situation and role in all situations).
Fujio Mitarai
Chairman & CEO
Canon Inc.
9
CANON ANNUAL REPORT 2016
G R O W T H S T R AT E G Y
G R O W T H S T R AT E G Y
G R O W T H S T R AT E G Y
A
CB
A. Toshiba Medical Systems Corporation’s computed tomography is highly regarded around the world for their high image quality and advanced
technologies and have high market shares. B. The Customer Experience Center TOKYO (Canon Inc. Shimomaruko Headquarters, Japan), the
first one built in Asia, is a facility for demo training and data verification using Canon products, in addition to displaying our large commer-
cial printing equipment. C. Canon network cameras installed at a soccer practice field at the Jockey Club Kitchee Centre in Hong Kong.
10
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Accelerating growth in commercial printing, network
cameras, health care and industrial equipment as key
drivers of Canon’s next-generation business.
“Reinforcement and expansion of new businesses while cre-
No. 1 provider in the market for network image solutions, we
ating future businesses” is one of the strategies set out by
are focusing development initiatives on high-performance net-
Canon in Phase V of our Excellent Global Corporation Plan.
work cameras and actively developing video analysis software.
Here we explain our growth strategies in the following four
new businesses: commercial printing, network cameras, the
health care business, and the industrial equipment business.
Health Care
Major progress was seen in the health care field in 2016,
when Toshiba Medical, a leader in the medical equipment
Commercial Printing
Canon welcomed Océ to the Group in 2010. We became the
industry, became a Canon subsidiary. Toshiba Medical has a
broad product portfolio that spans diagnostic X-ray systems,
world’s top printing company both in name and substance
computed tomography (CT), magnetic resonance imaging,
with an extensive product lineup ranging from compact print-
diagnostic ultrasound systems and diagnostic nuclear medi-
ers to large commercial printing equipment. In recent years,
cine systems. In CT systems, Toshiba Medical is the dominant
the borders that had kept the printing market compartmen-
market share leader in Japan and has been steadily increas-
talized according to technologies and products have been
ing its global market share. It also offers cutting-edge medical
disappearing. In response to these changes in the business
imaging solutions and in-vitro diagnostics. By maximizing the
environment, we decided to make a full-fledged entry into the
combined management resources of both companies, Canon
fields of commercial and industrial printing where high growth
aims to solidify its business foundation for health care that
is anticipated. Particularly promising are the markets for pack-
can contribute to the world.
age printing, such as on folding carton, corrugated and labels
as well as color printing with high image quality for catalogs
and other items. Our plan is to nurture commercial printing as
Industrial Equipment
Sales of products such as semiconductor lithography equip-
a major pillar of the next-generation printing business through
ment and panel manufacturing equipment are growing,
efforts including building an organization that will support our
on the tailwind of growth of mobile devices such as smart-
partnership with Océ, in order to establish a solid position in
phones and increase of demand for IoT devices. In particular,
these growth markets.
organic LED (OLED) panel manufacturing equipment made by
Canon Tokki is expected to continue showing strong growth.
Network Cameras
Axis, with its network camera development capabilities and
Furthermore, with regard to semiconductor manufactur-
ing equipment that uses nanoimprint lithography to achieve
unrivalled sales network, Milestone, which holds the world’s top
both miniaturization and cost reductions for next-genera-
share in video management software, and Canon, with its pre-
tion semiconductor devices, Molecular Imprints (now named
cision optics and sensor technologies for cameras, are each har-
Canon Nanotechnologies), which became a subsidiary in
nessing their strengths in full. In 2016, Canon and Axis released
2014, is pushing ahead with technological development and is
an interchangeable-lens network camera as our first jointly
expected to contribute significantly to results.
developed product. Furthermore, with the aim of becoming the
11
CANON ANNUAL REPORT 2016 AT A G L A N C E
Business Units
Main Products
Outline
Composition of Sales (%)
Net Sales (Billions of yen)
OFFICE
BUSINESS UNIT
Office Multifunction Devices (MFDs)
Digital Production Printing Systems
Laser Multifunction Printers (MFPs)
High Speed Continuous Feed Printers
IMAGING
SYSTEM
BUSINESS UNIT
Interchangeable Lens Digital Cameras
Digital Cinema Cameras
Inkjet Printers
Multimedia Projectors
INDUSTRY AND
OTHERS
BUSINESS UNIT
Semiconductor Lithography Equipment
Digital Radiography Systems
FPD (Flat panel display) Lithography Equipment
Network Cameras
12
• Office Multifunction Devices (MFDs)
• Laser Multifunction Printers (MFPs)
• Laser Printers
• Digital Production Printing Systems
• High Speed Continuous Feed Printers
• Wide-Format Printers
• Document Solutions
• Interchangeable Lens Digital Cameras
• Digital Compact Cameras
• Digital Camcorders
• Digital Cinema Cameras
• Interchangeable Lenses
• Compact Photo Printers
• Inkjet Printers
• Large-Format Inkjet Printers
• Commercial Photo Printers
• Image Scanners
• Multimedia Projectors
• Broadcast Equipment
• Calculators
• Semiconductor Lithography Equipment
• FPD (Flat panel display) Lithography
Equipment
• Digital Radiography Systems
• Diagnostic X-ray Systems
• Computed Tomography
• Magnetic Resonance Imaging
• Diagnostic Ultrasound Systems
• Clinical Chemistry Analyzers
• Ophthalmic Equipment
• Vacuum Thin-film Deposition
Equipment
• Organic LED (OLED) Panel
Manufacturing Equipment
• Die Bonders
• Micromotors
• Network Cameras
• Handy Terminals
• Document Scanners
53.1%
32.2%
17.2%
2,500
2,000
1,500
1,000
500
0
1,500
1,000
500
0
600
500
400
300
200
100
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015 2016
CANON ANNUAL REPORT 2016 Business Units
Main Products
Outline
Composition of Sales (%)
Net Sales (Billions of yen)
STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
In this segment, Canon offers an extensive
range of products with high image quality,
high resolution, and high speed, ranging from
compact printers to large-scale commercial
printing equipment. Leveraging these prod-
ucts, Canon works in close collaboration with
various Group companies and alliance partners
to deliver optimal solutions tailored to match
the customer’s business operations. These
include various document solutions, such as
office document management 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, multimedia
projectors, and inkjet printers. Canon’s digi-
tal cameras, digital camcorders and digital cin-
ema cameras, designed to deliver unparalleled
image quality, have earned particularly high
acclaim worldwide, thanks to in-house devel-
oped lenses, CMOS image sensors, and image
processors. Also widely popular are Canon’s
inkjet printers, which are easy to use and pro-
duce beautiful pictures at high speeds.
Applying optical technologies and image-pro-
cessing technologies amassed over many years,
Canon provides high-value-added products
to a wide range of industries. The Company is
already prominent globally as a manufacturer
of semiconductor lithography equipment and
FPD (flat panel display) lithography equipment.
Moreover, working closely with Group com-
panies, Canon is focusing on healthcare fields
harnessing such products as computed tomog-
raphy and network cameras.
53.1%
32.2%
17.2%
2,500
2,000
1,500
1,000
500
0
1,500
1,000
500
0
600
500
400
300
200
100
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Note: The percentage figures for the three business units presented in the pie charts above do not add up to 100% because “Eliminations,” recorded in
consolidation accounting, were not included in calculation considerations.
13
2012
2013
2014
2015 2016
CANON ANNUAL REPORT 2016 O F F I C E B U S I N E S S U N I T
Widely used in commercial printing and central reprographic departments, Canon digital production printing systems are capable of handling
diverse print content in a variety of paper types and sizes, and of providing quick turnaround of small-lot print jobs.
2016 Review
Canon worked on increasing the profitability of office mul-
Digital production printing systems saw a growth in
sales of the imageRUNNER ADVANCE 8500 series, despite
tifunction devices (MFDs) amid intensifying competition
the shrinking monochrome market, and the imagePRESS
by focusing on winning customers who can be expected
C10000VP series of color models performed strongly.
to produce high print volume. Sales of monochrome mod-
In addition, laser multifunction printers (MFPs) and laser
els remained weak, particularly in Japan, as demand contin-
printers saw drops in both sales volume and revenue, due
ued to shift toward color models. On the other hand, sales
to a contraction of emerging markets mainly in Central and
of the color models were relatively strong. Notably, the new
South America, which led to a sharp decline especially in
imageRUNNER ADVANCE C5500 series of A3 medium- to
monochrome models.
high-speed color machines featuring significantly improved
The Océ VarioPrint i300 sheet-fed inkjet press, a high-
operability, productivity and image quality was well received.
speed commercial printer, posted healthy sales.
The imageRUNNER ADVANCE C3300 series launched in the
These factors, coupled with the negative effect of unfa-
previous year also performed favorably, mainly in China.
vorable currency exchange rates, resulted in consolidated net
14
CANON ANNUAL REPORT 2016
STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Net Sales (Billions of yen)
2,500
2,000
1,500
1,000
500
0
2012
2013
2014
2015
2016
Digital Production Printing System
imagePRESS C10000VP
Office Multifunction Device
imageRUNNER ADVANCE C5560F
Digital Production Printing System Océ VarioPrint i300
sales for the business unit of ¥1,807.8 billion, a year-on-year
ing number of people are using color models and MFPs as
decline of 14.4%.
2017 Initiatives
Demand for color models in the office MFD market is
shared printers, owing to the establishment of network envi-
ronments, and the number of users is predicted to continue
rising. On the other hand, we will rigorously prioritize the
profitability of low-end models, rather than only pursuing
expected to make up for lower demand for monochrome
sales volume.
models and remain in line with that of the previous year
In the commercial printing market, steady demand for
overall. In this context, Canon will pursue even greater sales
small-lot printing and central reprographic departments is
expansion by further enhancing its lineup of color models
expected to continue. Canon will further increase sales of
that realize high image quality with vivid color and improved
light-production models and high-speed printers.
expression, while also offering lower maintenance costs.
We are also improving Océ’s high-speed sheet-fed inkjet
The market for laser printers is also expected to remain at
press to handle various types of paper, aiming for substantial
the same level as that of the previous year. Even so, a grow-
sales growth in this area.
15
CANON ANNUAL REPORT 2016
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
Delivering exceptional image quality and superior mobility, the Cinema EOS System is a prominent presence in the motion picture production
industry. Through even higher resolution and more expressive color gamut, Canon is developing 8K cameras and lenses that can create images
so vivid they seem to come alive on screen.
Photo by LAUSCHSICHT, commissioned by Swiss International Air Lines for “The People behind SWISS” project.
2016 Review
Sales volume for interchangeable lens digital cameras grew
The Cinema EOS System, which is targeted at the motion
picture production industry, bolstered its capacity to handle a
after the rollout of new products, including the flagship SLR
wide range of professional needs with the launch of the EOS
model EOS-1D X Mark II, updated for the first time in four
C700, its top-of-the-line digital cinema camera.
years; the EOS 5D Mark IV full-size camera for advanced
As for broadcasting equipment, demand was strong for
amateurs; and the mirrorless model, the EOS M5, which fea-
models for sports coverage and for HD lenses in China and
tures a built-in EVF (electronic viewfinder). Strong sales of
other countries. Inquiries picked up in Europe and Asia for
these models contributed to the maintenance of Canon’s top
zoom lenses for 4K broadcast cameras employing 2/3-inch
share of the global market.
sensors, and the COMPACT-SERVO lens for large-sensor cam-
Sales volume of digital compact cameras declined due
eras received favorable reviews worldwide.
to difficulties in procuring components caused by the 2016
As for inkjet printers, sales in emerging countries, mainly
Kumamoto Earthquake, along with an ongoing contraction
in Asia, were strong for refillable ink tank models for high vol-
of the market.
ume printing. Newly designed models for home use also per-
16
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Net Sales (Billions of yen)
1,500
1,000
500
0
2012
2013
2014
2015
2016
Interchangeable Lens Digital Camera
EOS-1DX Mark II
Inkjet Printer
imagePROGRAF PRO-4000
Digital Cinema Camera EOS C700
formed well, mainly in Japan. However, overall sales volume
capture a new user segment, using mirrorless cameras as a
declined due to a shrinking market for consumer products.
driver. We will also stimulate demand by further enhancing
In large-format inkjet printers, the new imagePROGRAF
AF and video functions aimed at advanced amateurs.
PRO series models, which target the professional photo and
Meanwhile, the digital compact camera market is
graphic art market, saw robust sales.
expected to take a while longer to bottom out. Canon
As a result of these factors, along with the negative effect of
will continue to focus on cost reductions and sales of high
unfavorable currency exchange rates, consolidated sales for the
added-value models with a view to improving profitability.
business unit decreased 13.3% year on year to ¥1,095.3 billion.
As for inkjet printers, we will concentrate on increasing
2017 Initiatives
Although demand for interchangeable lens digital cameras
sales in emerging countries of refillable ink tank models for
high volume printing. As for the B2B field, we will conduct
sales promotions for the MAXIFY series business models, and
is waning, mainly in developed countries, the situation is
the imagePROGRAF PRO series, which target the professional
improving gradually. In these circumstances, Canon seeks to
photo and graphic art market.
17
CANON ANNUAL REPORT 2016
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 has accelerated development of next-generation semiconductor equipment using nanoimprint lithography that delivers high-resolution
processes at a lower cost. With the aim of a commercial launch soon, Canon seeks to solidify its position in the field of semiconductor
lithography equipment.
2016 Review
In semiconductor lithography equipment, Canon focused on
Also, sales of OLED panel manufacturing equipment sold by
Canon Tokki increased significantly due to brisk capital invest-
sales of products such as the FPA-5550iZ i-line steppers, whose
ment by panel manufacturers for smartphones.
stable quality and operating rate have made them best sellers for
Sales of network cameras also grew, owing to our efforts to
a long period, and the FPA-6300ES6a KrF scanners that boast
boost sales and broaden the product lineup to reflect increas-
the industry’s highest overlay accuracy and high productivity.
ing needs for enhancing marketing and efficiency at production
However, unit sales decreased from the previous year amid the
sites, in addition to disaster-monitoring and crime-prevention
postponement of some capital investments by customers.
functions. Moreover, we launched two software products lever-
Meanwhile, in FPD (Flat panel display) Lithography Equipment,
aging original Canon technology in video content analysis.
unit sales of lithography systems employed in the fabrication
With respect to medical equipment, sales of Canon’s mainstay
of small-to-mid sized panels, such as the MPAsp-E810 series,
digital radiography systems expanded for manufacturers of X-ray
increased in response to growing demand for high-definition
system equipment in China. However, global unit sales remained
organic LED (OLED) displays used in mobile devices.
flat year on year due to intensifying competition and other factors.
18
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Net Sales (Billions of yen)
2012
2013
2014
2015
2016
FPD (Flat panel display) Lithography Equipment MPAsp-E810
600
500
400
300
200
100
0
Network Cameras VB-M50B
Organic LED (OLED) Panel Manufacturing Equipment
As a result of these factors, consolidated net sales for the
equipment, which will sequentially allow it to significantly grow sales.
business unit increased 11.4% year on year to ¥584.7 billion.
In the area of network cameras, in addition to the launch of an
2017 Initiatives
Unit sales of semiconductor lithography equipment are
interchangeable-lens network camera suited for high-resolution
surveillance that was jointly developed by Canon and Axis, Canon
aims to reinforce its lineup by working to enhance its software
expected to remain at the same level as the previous year,
offering. Canon will also focus efforts on camera intelligence, lever-
underpinned by IoT demand. Meanwhile, Canon plans to
aging Canon’s image-processing and image-analysis technologies
increase unit sales of FPD lithography equipment to at least
to develop market-specific solutions.
double the level of the previous year, as the stable quality of
In medical equipment, Toshiba Medical became a subsidiary
high-definition equipment for small-to-mid sized panels has
of Canon at the end of last year. Based on a new growth strat-
become recognized in the market.
egy that centers on Toshiba Medical, Canon aims to exert the
Canon, responding to strong demand, is also establishing a struc-
Group’s comprehensive strengths to provide innovative prod-
ture to expand production of Canon Tokki’s OLED panel production
ucts and high-quality services.
19
CANON ANNUAL REPORT 2016
C O R P O R AT E G O V E R N A N C E
At a monthly meeting of all company executives, the CEO provides updates on earnings progress and important matters to implement in the future
as a way to share crucial information.
Directors and Audit & Supervisory Board Members (as of April 1, 2017)
Representative Director
Chairman & CEO
Fujio Mitarai
Representative Director
President & COO
Masaya Maeda
Representative Director
Executive Vice President & CFO
Toshizo Tanaka
Group Executive of Human Resources Management &
Organization HQ
Group Executive of Facilities Management HQ
Representative Director
Executive Vice President
In charge of Office Business
Toshio Homma
Chief Executive of Office Imaging Products Operations
Representative Director
Executive Vice President & CTO
Shigeyuki Matsumoto
Group Executive of R&D HQ
Directors
Kunitaro Saida (Outside)
Attorney
Haruhiko Kato (Outside)
President & CEO
of Japan Securities Depository Center, Incorporated
Audit & Supervisory Board Members
Makoto Araki
Kazuto Ono
Tadashi Ohe (Outside)
Hiroshi Yoshida (Outside)
Kuniyoshi Kitamura (Outside)
Note: Although this annual report is for FY2016, the above list of Directors and Audit & Supervisory Board members is as of April 1, 2017.
20
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon maintains sound corporate governance
as part of efforts to maximize its shareholders’ value
and become a truly excellent global corporation.
Fundamental Policy Concerning
Corporate Governance
In order to establish a sound corporate governance struc-
Directors are active in decision making and execution, and
under the command and supervision of the Representative
Directors, Executive Officers that are elected through reso-
ture and continuously raise corporate value, Canon believes
lution of the Board of Directors make decisions and execute
that it is essential to improve management transparency and
operations of each business field or function.
strengthen management supervising functions. At the same
Currently, the Board of Directors consists of seven mem-
time, a sense of ethics and mission held by each executive
bers, five Representative Directors from inside Canon and
and employee of Canon is very important in order to achieve
two Outside Directors that qualify as Independent Directors*.
continuous corporate growth and development.
As of April 1, 2017, there will be 38 Executive Officers,
Basic Guidelines on Corporate
Governance
The Company is globally expanding its businesses in vari-
ous business fields, including office equipment, consumer
products, and industrial equipment, and aims to aggressively
expand new business fields in the future. In order to make
including two females and two non-Japanese.
* Independent directors: Stock exchanges in Japan require listed
companies to appoint outside directors and/or outside Audit &
Supervisory Board members and to report their name. Outside
directors and Audit & Supervisory Board members should have
no possible conflict of interests with regular shareholders. People
related to the parent company or major business partners, consul-
tants who receive large remunerations from the company, and their
close relatives cannot be selected as independent directors.
prompt decisions in each business field, and make important
decisions for the entire Canon Group or matters that straddle
Audit & Supervisory Board
As a body which is in charge of the audit of operations,
several business fields from a company-wide perspective and
under the principles of autonomy, which is independent
at the same time secure appropriate decision making and
from the Board of Directors, the Company has full-time
execution of operation, the Company judges the corporate
Audit & Supervisory Board Members that are familiar with
governance structure below to be effective.
the Company’s businesses or its management structure, and
Board of Directors
While the focus of the organizational structure of the Board of
Independent Outside Audit & Supervisory Board Members
that have extensive knowledge in specialized areas such as
law, finance and accounting. The Audit & Supervisory Board,
Directors is on Representative Directors that oversee company-
which is composed of these individuals, cooperates with the
wide business strategies or execution such as the CEO, COO,
Company’s accounting auditors and internal audit division,
CFO, CTO, and Representative Directors or Executive Directors
oversees the status of duty execution of operations and cor-
that oversee multiple business fields or headquarters functions, in
porate assets to secure the soundness of management.
order to secure sound management, two or more Independent
Currently, the Audit & Supervisory Board consists of five
Outside Directors are appointed. The Board of Directors, in accor-
individuals, three of which are Independent Outside Audit
dance with laws and regulations, makes important decisions and
& Supervisory Board Members. In accordance with audit-
supervises the execution of duties by officers.
ing policies and plans decided at Audit & Supervisory Board
Except for the above, the CEO and other Representative
meetings, the Audit & Supervisory Board Members attend
21
CANON ANNUAL REPORT 2016 Board of Directors’ meetings, Corporate Strategy Committee
Directors, and one Independent Outside Audit & Supervisory
meetings, etc., receive reports from directors and employ-
Board Member. At the time Director and Audit & Supervisory
ees, review documents related to important decisions, and
Board Member candidates are nominated and Executive
conducting audits by investigating etc. the situation of busi-
Officers are selected (includes the selection of the successor
nesses and property of the Company and its subsidiaries. In
of chief executive officer), the CEO recommends candidates
this way, the Audit & Supervisory Board plays a role in con-
thereof from among individuals that have been recognized as
ducting strict audits of directors’ execution of duty, including
having met the prescribed requirements, and the Committee
the status of development of the internal control system.
checks the fairness and validity of such recommendation prior
Procedures in the Nomination of
Directors etc.
The Company established the “Nomination and
Remuneration Advisory Committee,” a non-statutory com-
mittee, which consists of the CEO, two Independent Outside
to submission to and deliberation by the Board of Directors.
Additionally, as for the Audit & Supervisory Board Member
candidate, prior to deliberation of the Board of Directors,
consent of the Audit & Supervisory Board shall be acquired.
22
Governance Structure (as of March 30, 2017)Audit & Supervisory Board5 Members(Includes 3 Independent Members)General Meeting of ShareholdersBoard of Directors7 Members(Includes 2 Independent Members)Representative DirectorsCEO and othersAccounting Auditor(Audit Firm)Executive Officers, and each General ManagerCorporate Audit CenterDisclosure CommitteeCorporate Strategy CommitteeRepresentative Directors and Executive Officers with direct control of an organizational divisionElect/DismissElect/DismissApprove/SuperviseInstruct/OrderApprove/SuperviseElect/DismissElect/DismissAuditNomination and Remuneration Advisory Committee(CEO, two Independent Outside Directors, and one Independent Outside Audit & Supervisory Board Member)CooperationFinancial AuditCooperationCooperationReportAuditReportReportReportReportReportInternal AuditConsultConsultReportFinancial Risk ManagementSubcommitteeCompliance SubcommitteeBusiness Risk ManagementSubcommitteeRisk Management CommitteeCooperationReportCANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Corporate Strategy Committee,
Risk Management Committee, and
Disclosure Committee
The Company established the Corporate Strategy
Committee, consisting of Representative Directors and some
Executive Officers. Among items to be decided by the CEO,
the Committee undertakes prior deliberations on impor-
all work processes, audits must be conducted from a spe-
cialized view point and there are plans to increase the num-
ber of members from the current 70 to strengthen auditing
functions.
Accounting Auditor
The Company has an auditing service contract with Ernst &
tant matters pertaining to Canon Group strategies. Outside
Young ShinNihon LLC to audit its financial statements.
Directors and Audit & Supervisory Board members attend
The names and other details of the certified public
Corporate Strategy Committee meetings and are able to
accountants that carried out accounting audit work for the
express their own opinions.
Company are listed below.
Based on a resolution passed by the Board of Directors,
Canon set up the Risk Management Committee, which for-
Certified Public Accountant
Accounting Firm
mulates policy and action proposals regarding improve-
ment of the Canon Group risk management system. The
Risk Management Committee consists of three entities: the
Financial Risk Subcommittee, which is tasked with improv-
Designated Partner,
Engagement
Partner
Yoshihiko Nakatani
Ryo Kayama
Kiyoto Tanaka
Ernst & Young
ShinNihon LLC
ing systems to ensure reliability of financial reporting; the
Notes: 1. Since all partners have fewer than seven years of consec-
Compliance Sub-committee, which is tasked with promot-
ing corporate ethics and improving legal compliance systems;
and the Business Risk Management Sub-committee, which
is charged with improving systems to management overall
business risks, including risks related to product quality and
information leak. The Risk Management Committee verifies
the risk management system and reports the status to the
utive audits, the number of years of consecutive audits
has been omitted.
2. The above audit firm reinforces self-imposed regulations,
employing more stringent rotation rules than those of
various regulations stipulated by law etc., regarding audit
engagements with respect to listed companies.
Auditing assistants that carried out audit work for the
Company: (Certified Public Accountants: 27; Others*: 53)
*Note: Includes individuals that have passed the certified public
CEO and the Board of Directors. In addition, the Disclosure
accountant exam and persons in charge of auditing systems.
Committee was established to undertake deliberations per-
taining to information disclosure, including content and
timing, to ensure important corporate information will be
disclosed in a timely and accurate manner.
Internal Audit Division
The Corporate Audit Center, the Company’s internal audit-
ing arm, as an independent and specialized organization
and in accordance with internal audit rules, conducts audits
of particular themes and evaluations and provides guidance
on such matters as compliance with laws and the internal
control system. Furthermore, audits such as quality, the envi-
ronment, and information security, are conducted by the
Corporate Audit Center in cooperation with each division in
charge. Additionally, based on top management policy, for
San-ji, or the Three Selfs, are: self-motivation (taking the initiative
and being proactive in all things), self-management (conducting
oneself with responsibility and accountability), and self-awareness
(understanding one’s situation and role in all situations). (calligraphy
by Canon’s first president, Takeshi Mitarai)
23
CANON ANNUAL REPORT 2016
R E S E A R C H & D E V E L O P M E N T
A
B
2016 Top Ten U.S. Patent Holders by Company
IBM*
Samsung
Electronics
CANON
Qualcomm
Google
Intel
LG Electronics
Microsoft
Taiwan
Semiconductor
Manufacturing
Sony
2,897
2,835
2,784
2,428
2,398
2,288
2,181
8,088
5,518
3,665
*IBM is an abbreviation for International
Business Machines Corporation.
Source
Preliminary data released by IFI CLAIMS
Patent Services, a U.S. research company
specialized in patent information.
A. Canon continues clinical research at the Kyoto University Hospital to apply photoacoustic tomography to breast cancer screening and diagnosis.
B. Canon’s ultra-high-resolution CMOS sensor captures images where the lettering on an aircraft fuselage about 18 kilometers away is legible.
24
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon is engaged in efforts to discover new
technologies that will help create future businesses.
Strengthening Our Global R&D
Structure
Canon is pursuing globalized diversification of its operations
Initiatives to Establish New Businesses
Canon has a long-term perspective as it concentrates its
efforts on discovering new technologies for the future. At
in the field of R&D. The Company has established the foun-
the same time, the Company is continually bolstering R&D
dation of the Three Regional Headquarters management
activities centered on key parts and key devices. With regard
system that leads to new businesses emerging from Japan,
to CMOS sensors employed in interchangeable lens digi-
the United States, and Europe. We are leveraging the unique
tal cameras and other devices, we are conducting in-house
characteristics and capabilities of each region in activities
development and production of ultra-high-resolution sen-
that range from basic research to applied research.
sors that make it possible to capture images of the letter-
For example, in the United States, Canon BioMedical
ing printed on the body of an aircraft roughly 18 kilometers
is making steady progress in genotyping systems, while
away and ultra-high-sensitivity sensors capable of captur-
Healthcare Optics Research Laboratory is steadily advanc-
ing vivid images in color even with minimal subject illumina-
ing research on ultra-miniature endoscopes and medical
tion, conditions under which subjects would be difficult to
robotics. In Europe, we are reinforcing R&D in business fields
discern with the naked eye. We will explore applications in
mainly in printing solutions centered on Océ, as well as mak-
such fields as astronomical and nature observation, medical
ing further use of existing R&D centers to advance R&D in
research, aviation, and surveillance and security.
new fields.
In the medical field, Canon participates in the Impulsing
Paradigm Change through Disruptive Technologies (ImPACT)
R&D Expenses and Patents
Canon is bolstering R&D activities to enable the ongoing
Program organized by the Cabinet Office of Japan. We are
working on research in photoacoustic tomography that
development of innovative products and services. In the year
enables 3-D imaging of blood vessels using laser illumination
under review, R&D expenses amounted to ¥302.4 billion,
and ultrasonic sensors.
down 8.0%, or ¥26.1 billion, from the previous year. The
Moreover, Canon is combining its material appearance
ratio of R&D expenses to net sales was 8.9%. This focus on
image-processing technology with Océ’s elevated printing
R&D activities has cemented Canon’s high status in the field
technology of UV-curable printers. The aim is to use a printer
of intellectual property. In 2016, Canon was granted 3,665
to faithfully reproduce material appearance characteristics of
patents in the United States, ranking it third in the world
the original object, such as glossiness, surface contours, and
and the top ranked Japanese company for a twelfth consec-
transparency. In line with these activities, we carried out ini-
utive year.
tiatives to create reproductions of rare manuscripts from the
collection of the Vatican Apostolic Library in 2016.
25
CANON ANNUAL REPORT 2016
P R O D U C T I O N
P R O D U C T I O N
A
CB
A. Digital production printing system assembly: We are bolstering the functions of our domestic mother factories, raising the domestic production
ratio of high-end models with high value added. (Toride Plant, Japan) B. We installed one of the largest semi-anechoic chambers in Japan in 2015,
and now conduct verification testing in-house of large products. (Tamagawa Office, Japan) C. With the completion of Oita Canon’s Techno Wing
R&D facility, an R&D base for production automation equipment, we aim to fully automate camera production. (Oita Canon, Japan)
26
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon aims to establish a new production system capable
of generating higher profits while seeking improved
quality based on the manufacturing capabilities.
Establishing a New Production System
to Achieve a Cost-of-sales Ratio of 45%
Canon has always endeavored to innovate production and
Developing Human Resource for
Manufacturing
At Canon, we carry out global human resource training to
development operations to maximize profitability. These
prepare tomorrow’s leaders for success at production sites
efforts include a thorough re-examination of production
around the world. In Japan, honing the skills of employees
processes at our factories worldwide. As a key initiative in
has resulted in such achievements as the seven prizes in four
this effort, we are bringing production back to Japan. We
categories, including the Silver Award at Japan’s National
are promoting a higher ratio of production in the country by
Skills Competition in 2016.
strengthening domestic mother factories through the inte-
gration of design, procurement, production-engineering,
and manufacturing-technology operations.
Canon will further improve productivity by enhancing its
Environmental Friendly Manufacturing;
Enhanced Product Quality
Canon actively seeks to prioritize purchases of environmen-
production engineering technology through initiatives such
tally conscious parts and materials as well as shift to trans-
as in-house production, where Canon develops and pro-
portation modes that have minimal environmental impact.
duces its own parts and materials as well as manufactur-
We also focus on manufacturing initiatives that are friendly
ing equipment; and automation of product assembly using
to the global environment.
technologies such as the Canon-developed Super Machine
The Quality Management Headquarters, which was pre-
Vision. The Techno Wing R&D facility for automation equip-
viously spread across multiple sites, was consolidated into
ment was completed in Japan at Oita Canon in 2016. We
the Tamagawa Office as a way to improve quality. We have
aim to fully automate camera production by 2018. In addi-
introduced cutting-edge facilities and facilities to handle
tion to advanced automation technologies, we will make
large products, and we have put into place a strong quality
use of leading-edge technologies such as IoT, big data, and
system that can swiftly respond to quality standards and cer-
artificial intelligence.
tifications of various countries around the world.
Meanwhile, we are moving ahead with functional special-
ization between Japan and Asia, allocating mass production
of mid-range and low-priced products to our Asian produc-
tion sites in China, Thailand, the Philippines and other coun-
tries. In the Americas and Europe, Canon is making use of
automated production systems to implement localized pro-
duction mainly of consumables such as toner cartridges.
Through these initiatives, Canon aims to achieve a cost-
of-sales ratio of 45%, establishing a new production system
capable of generating higher profits.
27
CANON ANNUAL REPORT 2016 S A L E S & M A R K E T I N G
A
CB
A. Canon EXPO 2016 Shanghai, a traveling exhibition that displays new products and future technologies under the concept of “Closer & Connect,” drew
about 44,000 visitors in its tour of nineteen countries and regions across Asia. B. Canon BioMedical, founded in 2015 by Canon Americas, has launched its first
products, genotyping tests, for genetic research*. *For research use only. Not for use in diagnostic procedures. C. Canon Europe attended a highly successful
drupa 2016, where Canon’s end to end production print solutions were demonstrated and well received, and helped contribute to increased sales in this area.
28
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon reinforces its sales and marketing capabilities
by providing innovative products and advanced solutions
tailored to meet the characteristics of each region.
Japan
Sales in Japan amounted to ¥707.0 billion, or 20.8% of con-
were made to further strengthen our sales channels across
EMEA and increase our solutions portfolio. To expand oper-
solidated net sales.
ations in emerging markets and be closer to our customers,
The market for consumer products proved challenging
new locations were established, including showrooms in
due to a slump in personal consumption and the impact of
Morocco and Qatar and an office in Nigeria. There was also
the Kumamoto Earthquake, among other factors. Canon
a focus on transformation across the organization, with
saw a year-over-year decline in shipments of products for
functional changes implemented to reflect a more
consumers owing to the sluggish market. Although hard-
customer-centric approach.
ware sales stagnated in the B2B field, performance was
strong in the consumables business. In addition, many com-
panies increased their investments in security, resulting in an
Asia and Oceania
Sales in Asia and Oceania amounted to ¥817.4 billion, or
increase in sales in this area for products such as software,
24.0% of consolidated net sales.
peripherals and surveillance cameras.
In China, Canon outlined its plan and vision at Canon EXPO
2016 Shanghai. Canon Singapore acquired three companies
The Americas
Sales in the Americas amounted to ¥963.5 billion, or 28.3%
at the end of 2015, including Canon MailCom Malaysia. (for-
merly Efficient Mailcom.), a leader of transaction printing ser-
of consolidated net sales.
vice provider in Malaysia, with the aim of expanding the B2B
In activities for the office business market, we expanded
business in the South Asia and Southeast Asian markets. In
collaboration with our business solutions companies and com-
Australia, IT solutions company Harbour IT and BPO business
menced business negotiations for a large procurement with
Converga, which have been added to the Canon Group, con-
a major chain supplier for print-for-pay and business services.
tributed to a significant increase in overall sales.
The imaging system business unit received positive feedback
for our technological knowhow and strong support from pho-
tographers and broadcast industry professionals at sports fes-
Composition of Sales by Region
tivals hosted in Latin America. In the health care field, we aim
Asia and Oceania
for further growth in the wake of our equity investment of
T2 Biosystems, a developer of medical diagnostic products.
24.0%
¥817.4 billion
Europe (Europe, Middle East, Africa)
Sales in Europe amounted to ¥913.5 billion, or 26.9% of
consolidated net sales.
Canon in EMEA saw encouraging growth in areas of
the businesses including Pro Print and Solutions & Services
and strong market share in DSLR. Strategic investments
Japan
20.8%
¥707.0 billion
Net Sales
¥3,401.5
billion
The Americas
28.3%
¥963.5 billion
Europe
26.9%
¥913.5 billion
29
CANON ANNUAL REPORT 2016
C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
A
B
Lifecycle CO2 Emissions Improvement Index per Product
100
80
60
40
20
0
New York Yankees. All Rights Reserved
*2008 results set as 100
2008
2009
2010
2011
2012
2013
2014
2015
2016
A. For the Tsuzuri Project, we donated high-resolution facsimiles of sliding door paintings completed over five years to Tenkyuin Temple, conclud-
ing in 2016 the reproduction of 56 paintings in total. B. Canon U.S.A. donated $466,392 as support for the activities of the National Center for
Missing & Exploited Children (NCMEC) on Canon Promotional Night, a social contribution event held at Yankee Stadium.
30
CANON ANNUAL REPORT 2016 STRATEGY
BUSINESS SEGMENT
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon is promoting CSR activities with the aim of
becoming a truly excellent corporation that is admired
and respected the world over.
Canon’s Basic Approach to CSR
Recognizing that its corporate activities are supported by the
The Tsuzuri Project
Canon and the non-profit organization Kyoto Culture
development of society as a whole, Canon contributes to the
Association jointly promote a project called the “Tsuzuri
realization of a better society as a good corporate citizen, effec-
Project” (Official title: Cultural Heritage Inheritance Project).
tively leveraging its advanced technological strengths, global
The aim of the project is to preserve original cultural assets
business deployment, and diverse, specialized human resources.
while making effective use of high-resolution facsimiles of
Environmental Activities
Reducing Lifecycle CO2 Emissions per Product
cultural assets. These facsimiles are created by blending
Canon’s latest digital technology and traditional Japanese
crafts, such as gold leaf craftwork. As a result of the proj-
Canon sets a target of reducing lifecycle CO2 emissions per
ect, original cultural assets can be kept in the more favor-
product by 3% per year to address the issue of climate change.
able environment of museums while facsimiles can be used
This effort falls under its environmental vision Action for Green,
for educational purposes and public exhibits. Since the pro-
established in 2008. Canon has been actively pursuing initia-
gram began in 2007, the cumulative total of reproduced and
tives to reduce CO2 emissions at all product life cycle stages,
donated items has reached 34 (as of March 2017).
from raw materials procurement to production, logistics, prod-
uct use, and recycling. As a result, lifecycle CO2 emissions per
Helping to Bring Home Missing Children in the U.S.
product were reduced by more than 30% from 2008 to 2016,
Since 1997, Canon U.S.A. has supported the activities of the
or 5.5% per year. These efforts earned Canon inclusion on the
National Center for Missing & Exploited Children (NCMEC),
“Climate A List” in 2016 for the first time. The ranking is the
a non-profit organization that works to prevent child kid-
highest given by CDP, an international non-profit organization.
napping and to quickly find and recover missing children.
Social Contribution Activities
Canon conducts wide-ranging social contribution activities in
Canon U.S.A. has provided police and investigative agencies
with over 2,200 pieces of equipment such as digital cam-
eras, scanners, and printers that are essential for distributing
various parts of the world to help create a better society.
photographs and other information about missing children.
Canon Foundation Announces Seventh Grant
including contributions from Canon U.S.A. employees.
Canon raised and donated $466,392 to NCMEC in 2016,
Program Recipients
The Canon Foundation aims to contribute to the ongoing
Assistance for Typhoon-Stricken Areas in Vietnam
prosperity and well-being of mankind. It has offered two
Canon Vietnam and Canon Marketing Vietnam provided
research grant programs, known as the Creation of Industrial
assistance to areas hit by flooding as a result of Typhoon
Infrastructure grant and Pursuit of Ideals grant. For the latter,
Aere in October 2016. Volunteers from Canon Vietnam,
the foundation sought proposals from the public on issues
Canon Marketing Vietnam and other Japanese companies
for research concerning food. In 2016, 17 projects were
visited six communes of Ha Tinh Province and Quang Binh
selected for the seventh research grant program.
Province in Vietnam. They delivered supplies and financial aid
31
CANON ANNUAL REPORT 2016 to 600 households. The Canon Group also donated a total
found to have contributed to funding armed groups in con-
of $13,298, including donations from employees, to the
flict regions as defined by U.S. legislation.
affected areas.
Canon Inc., a U.S. listed company, files a report at the end
of May every year regarding the Company’s status on this
Creative Skills and Storytelling Development for
issue with the U.S. Securities and Exchange Commission.
Young People in EMEA
For the reporting year 2015, an independent assurance
Canon in EMEA offers programs for young people to spark
report made by an independent auditor was included with
their interest in creative and storytelling activities with a view
the Company’s conflict minerals report, which confirmed
to realizing a sustainable society. Canon Europe’s various pro-
that the Canon Group’s activities were compliant with cer-
grams include workshops and exhibitions aimed at empow-
tain international standards. The report is also made available
ering young people, nurturing their creativity and focusing
on Canon’s website. Canon is a member of the Conflict-
on areas such as photography, video and graphic art that are
Free Sourcing Initiative (CFSI), that plays the leading role in
closely related to Canon’s businesses. In 2016, we offered
response to the conflict minerals.
such programs in 12 countries, including Finland, Turkey and
the UK. From 2017 Canon Europe will link the program to
the UN Sustainable Development Goals.
Addressing the Issue of Conflict Minerals
Seeking to ensure that customers can use Canon products
Cultivating Diverse Human Resources
Canon is committed to diversity of human resources. We
welcome people of all types—irrespective of race, gender,
age, customs, and value perceptions—and deploy such dif-
ferences to foster our growth as an organization. Since
with peace of mind, the Canon Group addresses the issue of
2012, we have engaged in in-house projects fostering diver-
conflict minerals.
sity. In 2016, Canon held meetings with Group company
Canon has been conducting full-scale inquiries targeting
presidents at 23 Group companies in Japan organized by the
products produced at manufacturing bases across the entire
VIVID diversity promotion program, where they promoted
Canon Group. As of February 2017, within the scope of the
activities to enable more active roles for women in the work-
responses collected, no specific parts or materials have been
place Group-wide.
C D
C. As part of our young people program, a photography workshop for young people called “All ages are beautiful” was held at Canon Finland.
D. Canon Vietnam and Canon Marketing Vietnam sent relief supplies and money to areas where Typhoon Aere in October 2016 caused flood-
ing and damage.
32
CANON ANNUAL REPORT 2016 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
53 Consolidated Statements of Cash Flows
54 Notes to Consolidated Financial Statements
86 Schedule II Valuation and Qualifying Accounts
87 Management’s Report on Internal Control Over
Financial Reporting
88 Reports of Independent Registered Public
Accounting Firm
33
CANON ANNUAL REPORT 2016 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 opera-
tions. 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, semiconduc-
tor lithography equipment and FPD (Flat panel display) lithog-
raphy equipment. Canon earns revenues primarily from the
manufacture and sale of these products domestically and
internationally. Canon’s basic management policy is to con-
tribute to the prosperity and well-being of the world while
endeavoring to become a truly excellent global corporate
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 2016, the trend of
recovery in the U.S. economy became stronger as employment
conditions and consumer spending progressively improved
from the latter half of the year. In Europe, although the econ-
omy grew moderately, centered on Germany, the outlook for
the region’s economy has grown increasingly uncertain due to
concerns over the UK’s decision to exit the EU and the politi-
cal unrest in Syria. The Chinese economy continued its decel-
eration trend while the economies of emerging countries such
as Russia and Brazil remained stagnant. In Japan, the economy
remained weak due to weak consumer spending. Looking
at the global economy as a whole, although higher growth
than the previous year was expected at the beginning of the
year, the global economy overall experienced its lowest level
of growth since the financial crisis precipitated by Lehman
Brothers’ bankruptcy.
Market environment
As for the markets in which Canon operates amid these con-
ditions, regarding the demand for office MFDs and laser print-
ers, the demand for color models enjoyed strong growth due
to the trend of shifting from monochrome to color machines,
while the demand for monochrome shrunk due to the con-
tinued economic slowdown in emerging countries. As for
cameras, along with the ongoing contraction of the market,
especially for digital compact cameras, the market suffered
from a shortage of components arising from the earthquake in
Kumamoto earlier in the year. Additionally, demand for inkjet
printers continued to decline. Within the Industry and Other
sector, demand for lithography equipment used in the pro-
duction of flat panel displays (“FPDs”) and manufacturing
equipment for organic LED (“OLED”) displays enjoyed
strong growth thanks to active capital investment by panel
manufacturers.
The average value of the yen during the year was ¥108.58
against the U.S. dollar, a year-on-year appreciation of approx-
imately ¥13, and ¥120.25 against the euro, a year-on-year
appreciation of approximately ¥14.
Summary of operations
During 2016, color-model office MFDs achieved higher
growth than the market average, making up for the contin-
ued decline of monochrome models, which led to the same
level of unit sales as the previous year overall. Although the
unit sales of laser printers were below level compared with the
same period of the previous year until the third quarter, due to
the sluggish economic conditions in the emerging countries,
signs of bottoming out started to appear in the fourth quar-
ter. Looking at the interchangeable-lens digital cameras, sales
volume for the year exceeded that of the previous year, sup-
ported by sales of new products, while sales volume for dig-
ital compact cameras declined compared with the previous
year amid the ongoing contraction of the market. Sales vol-
ume for inkjet printers declined for consumer products, while
sales volume of wide format inkjet printers for business use
exceeded the previous year. In contrast, sales of FPD lithog-
raphy equipment and OLED panel manufacturing equipment
increased, boosted by increased capital investment by panel
manufacturers. Consequently, along with the negative impact
of the appreciation of the yen, net sales for the year decreased
10.5% year on year to ¥3,401,487 million. The gross profit
ratio decreased by 1.7 points year on year to 49.2% mainly
due to the negative effect of yen’s appreciation. Despite a
reduction in operating expenses of 8.5% year on year, partly
due to Group-wide efforts to reduce spending, operating
profit decreased by 35.6% to ¥228,866 million. Other income
(deductions) increased by ¥23,557 million due to foreign cur-
rency exchange gains while income before income taxes
decreased by 29.6% year on year to ¥244,651 million and
net income attributable to Canon Inc. decreased by 31.6% to
¥150,650 million.
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 management places
strong emphasis is revenue. The following are some of the KPIs
related to revenue that management considers to be important.
Net sales is one such KPI. Canon derives net sales primar-
ily from the sale of products and, to a lesser extent, provision
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, market acceptance
34
CANON ANNUAL REPORT 2016 for new products, and changes in sales prices. Other factors
involved are market share and market environment. In addi-
tion, management considers the evaluation of net sales by
segment to be important for the purpose of assessing Canon’s
sales performance in various segments, taking 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 development
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 spending in
core technology to sustain Canon’s leading position in its cur-
rent business areas and to exploit opportunities in other mar-
kets. 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 decreas-
ing 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.
The debt to total assets ratio is also one of the KPIs. For a man-
ufacturing company like Canon, it generally takes considerable
time to realize profit from a business due to lead times required
for R&D, manufacturing and sales has to be followed for suc-
cess. Therefore, management believes that it is important to have
sufficient financial strength. Canon will continue to reduce its
dependency on external funds for capital investments in favor of
generating the necessary funds from its own operations.
Canon Inc. shareholders’ equity to total assets ratio is
another KPI for Canon. Canon believes that its shareholders’
equity to total assets ratio measures its long-term sustainabil-
ity. Canon also believes that achieving a high or rising share-
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 sharehold-
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 stable
financial base and, accordingly, a high level of its shareholders’
equity to total assets ratio.
KEY PERFORMANCE INDICATORS
2016
2015
2014
2013
2012
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. shareholders’ equity to total assets ratio
3,401,487
49.2%
8.9%
6.7%
59 days
11.9%
54.2%
3,800,271
50.9%
8.6%
9.3%
47 days
0.0%
67.0%
3,727,252
49.9%
8.3%
9.8%
50 days
0.0%
66.8%
3,731,380
48.2%
8.2%
9.0%
52 days
0.1%
68.6%
3,479,788
47.4%
8.5%
9.3%
57 days
0.1%
65.7%
Note: Inventory turnover measured in days is determined by: Inventory divided by net sales for the previous six months, multiplied by 182.5. The increase of
inventory turnover in 2016 was primarily due to the acquisition of Toshiba Medical Systems Corporation (“TMSC”) on December 19, 2016. If this factor were
excluded, the inventory turnover would show 50 days.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The consolidated financial statements are prepared in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”)
and based on the selection and application of significant account-
ing 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 accounting policies that cur-
rently affect its financial condition and results of operations.
35
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 FINANCIAL OVERVIEW
Revenue recognition
Canon generates revenue principally through the sale of
office and imaging system products, equipment, supplies, and
related services under separate contractual arrangements.
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 transfer
to the customer.
Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and FPD lithography equipment
that are sold with customer acceptance provisions related
to their functionality, is recognized when the equipment is
installed at the customer site and the specific criteria of the
equipment functionality are successfully tested and demon-
strated 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.
Canon also offers separately priced product maintenance con-
tracts for most office products, for which the customer typically
pays a stated base service fee plus a variable amount based on
usage. Revenue from these service maintenance contracts is mea-
sured at the stated amount of the contract and recognized as ser-
vices 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 the related revenue
is recognized ratably over the lease term. When equipment
leases are bundled with product maintenance contracts, rev-
enue 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 discounts,
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 addition, Canon provides
price protection to certain resellers of its products, and records
reductions to sales for the estimated impact of price protec-
tion obligations when announced.
Estimated product warranty costs are recorded at the time
revenue is recognized and are included in selling, general and
administrative expenses. Estimates for accrued product war-
ranty 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.
Allowance for doubtful receivables
Allowance for doubtful receivables is determined using a com-
bination of factors to ensure that Canon’s trade and financ-
ing receivables are not overstated due to uncollectibility. These
factors 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
for example to bankruptcy filings or deterioration in the cus-
tomer’s operating results or financial position. If circumstances
related to customers change, estimates of the recoverability of
receivables are further adjusted.
Valuation of inventories
Inventories are stated at the lower of cost or net realizable
value. Cost is determined by the average method for domes-
tic inventories and principally the first-in, first-out method
for overseas inventories. Net realizable value is the estimated
selling price in the ordinary course of business less the esti-
mated costs of completion and the estimated costs neces-
sary to make a sale. Canon routinely reviews its inventories for
their salability and for indications of obsolescence to deter-
mine if inventories should be written-down to market value.
Judgments and estimates must be made and used in con-
nection with establishing such allowances in any accounting
period. In estimating the net realizable value of its inventories,
Canon considers 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 indi-
cate that the carrying amount of an asset may not be recover-
able. If the carrying amount of the asset exceeds its estimated
undiscounted future cash flows, an impairment charge is recog-
nized in the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Determining the fair value of
the asset involves the use of estimates and assumptions.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated principally by the declining-balance method,
36
CANON ANNUAL REPORT 2016 except for certain assets which are depreciated by the straight-
line method over the estimated useful lives of the assets.
Business combinations
The acquisition is accounted for using the acquisition method
of accounting. The acquisition method of accounting requires
the identification and measurement of all acquired tangible
and intangible assets and assumed liabilities at their respec-
tive fair values, as of the acquisition date. The determina-
tion of the fair value of net assets acquired involves significant
judgment and estimates, such as future cash flow projections,
appropriate discount and capitalization rates and other esti-
mates based on available market information. Estimates of
future cash flows are based on a number of factors includ-
ing operating results, known and anticipated trends, as well as
market and economic conditions. With regard to acquisition
of Toshiba Medical Systems Corporation (“TMSC”), the iden-
tification and measurement of acquired tangible and intangi-
ble assets are still preliminary and subject to change within the
measurement period. For further information, please refer to
Note 7 of the Notes to Consolidated Financial Statements.
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 flows are primarily based on Canon’s
forecast of future growth rates. Estimates of discount rates
are determined based on the weighted average cost of capi-
tal, which considers primarily market and industry data as well
as specific risk factors. Canon has completed its impairment
test in the fourth quarter of 2016 and determined that there
were no reporting units that were at risk of failing the impair-
ment test as the fair value of each reporting unit exceeded its
respective carrying amount. Intangible assets with finite use-
ful lives consist primarily of software, trademarks, patents and
developed technology, license fees and customer relationships,
which are amortized using the straight-line method. The esti-
mated useful lives of software are from 3 years to 5 years,
trademarks are 15 years, patents and developed technology
are from 7 years to 17 years, license fees are 7 years, and cus-
tomer relationships are from 11 years to 20 years, respectively.
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
judgments regarding future profitability may change due to
future market conditions, its ability to continue to successfully
execute its operating restructuring activities and other factors.
Any changes in these factors may require possible recognition
of significant valuation allowances to reduce the net carrying
value of these deferred tax asset balances. When Canon deter-
mines 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 val-
uations. Inherent in these valuations are key assumptions,
including discount rates and expected return on plan assets.
Management must consider current market conditions, includ-
ing changes in interest rates, in selecting these assumptions.
Other assumptions include assumed rate of increase in com-
pensation levels, mortality rate, and withdrawal rate. Changes
in assumptions inherent in the valuation are reasonably likely
to occur from period to period. Actual results that differ
from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect future pension
expenses. While management believes that the assumptions
used are appropriate, the differences may affect employee
retirement and severance benefit costs in the future.
In preparing its financial statements for 2016, Canon esti-
mated a weighted-average discount rate used to determine
benefit obligations of 0.7% for Japanese plans and 2.2%
for foreign plans and a weighted-average expected long-
term rate of return on plan assets of 3.1% for Japanese
plans and 4.4% for foreign plans. In estimating the dis-
count rate, Canon uses available information about rates
of return on high-quality fixed-income government and cor-
porate bonds currently available and expected to be avail-
able 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
37
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 FINANCIAL OVERVIEW
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 2016, a decrease of 50 basis points in the
discount rate increases the projected benefit obligation by
approximately ¥99,379 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 subse-
quent 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 2016, a change of
50 basis points in the expected long-term rate of return on
plan assets would cause a change of approximately ¥4,462
million in net periodic benefit cost. Canon multiplies manage-
ment’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 rec-
ognition of the difference between this expected return on
plan assets and the actual return on plan assets. The net defer-
ral 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.
Sales
In the current business term, the world economy as a whole
experienced only a moderate recovery due to, among others,
the slowdown in emerging economies. In such an environment,
despite efforts to promote sales of highly-competitive products,
due to the effect of significant appreciation of the yen, Canon’s
consolidated net sales in 2016 totaled ¥3,401,487 million, a
decrease of 10.5% from the previous year.
Overseas operations are significant to Canon’s operating
results and generated 79.2% of total net sales in 2016. 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 currency
fluctuations on operating results, including localization of
manufacturing in some regions along with procuring parts and
materials from overseas suppliers, Canon believes such fluctu-
ations have had and will continue to have a significant effect
on its results of operations.
The average value of the yen during the year was ¥108.58
against the U.S. dollar, a year-on-year appreciation of approxi-
mately ¥13, and ¥120.25 against the euro, a year-on-year appre-
ciation of approximately ¥14. The effects of foreign exchange
rate fluctuations negatively affected net sales by approximately
¥280,434 million in 2016. This unfavorable impact consisted
of approximately ¥144,206 million of unfavorable impact for
the U.S. dollar denominated sales and unfavorable impact of
¥90,308 million for the euro denominated sales, and ¥45,920
million for other foreign currency denominated sales.
38
Millions of yen
2016
change
2015
change
2014
3,401,487
228,866
244,651
150,650
-10.5% 3,800,271
355,210
-35.6%
347,438
-29.6%
220,209
-31.6%
+2.0% 3,727,252
363,489
-2.3%
383,239
-9.3%
254,797
-13.6%
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 2016 and 2015 was 50.8% and 49.1%, respectively.
9
6
3
0
300
200
100
0
400
300
200
100
0
Return on Sales (%)
Sales by Segment (Billions of yen)
Sales by Geographic Area (Billions of yen)
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
Japan
Americas
Europe
Asia and Oceania
Increase in Property,
Plant and Equipment (Billions of yen)
Working Capital Ratio
Return on Canon Inc.
Shareholders’ Equity (%)
5,000
4,000
3,000
2,000
1,000
0
12
9
6
3
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
R&D Expenses (Billions of yen)
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
2012
2013
2014
2015
2016
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
5,000
4,000
3,000
2,000
1,000
0
3.0
2.5
2.0
1.5
1.0
0.5
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
CANON ANNUAL REPORT 2016 Net income attributable to Canon Inc.
As a result, net income attributable to Canon Inc. in 2016
decreased by 31.6% to ¥150,650 million, which represents
4.4% 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.
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
The Imaging System Business Unit mainly includes
Interchangeable lens digital cameras / Digital compact cameras
/ Digital camcorders / Digital cinema cameras / Interchangeable
lenses / Compact photo printers / Inkjet printers / Large-format
inkjet printers / Commercial photo printers / Image scanners /
Multimedia projectors / Broadcast equipment / calculators
The Industry and Others Business Unit mainly includes
Semiconductor lithography equipment / FPD (Flat panel dis-
play) lithography equipment / Digital radiography systems /
Diagnostic X-ray systems / Computed tomography / Magnetic
resonance imaging / Diagnostic ultrasound systems / Clinical
chemistry analyzers / Ophthalmic equipment / Vacuum thin-
film deposition equipment / Organic LED (“OLED”) panel man-
ufacturing equipment / Die bonders / Micromotors / Network
cameras / Handy terminals / Document scanners
Gross profit
Canon’s gross profit in 2016 decreased by 13.5% to
¥1,673,833 million from 2015. The gross profit ratio also
decreased by 1.7 points year on year to 49.2%. The decrease
in the gross profit ratio primarily reflects the negative effect of
appreciation of the yen against other foreign currencies such
as the U.S. dollar and the euro.
Operating expenses
The major components of operating expenses are payroll,
R&D, advertising expenses and other marketing expenses.
Operating expenses decreased 8.5% year on year to
¥1,444,967 million owing to such factors as the decrease in
foreign-currency-denominated operating expenses after con-
version into yen due to the appreciation of the yen, and a
decrease in advertising and other marketing expenses and
R&D expenses.
Operating profit
Operating profit in 2016 decreased 35.6% from 2015 to a
total of ¥228,866 million. The ratio of operating profit to net
sales decreased 2.6 points to 6.7% from 2015.
Other income (deductions)
Other income (deductions) for 2016 was ¥15,785 million,
an increase of ¥23,557 million from 2015 mainly due to a
decrease in foreign currency exchange loss.
Income before income taxes
Income before income taxes in 2016 was ¥244,651 million,
a decrease of 29.6% from 2015, and constituted 7.2% of
net sales.
Income taxes
Provision for income taxes in 2016 decreased by ¥33,424 mil-
lion from 2015. The effective tax rate for 2016 was 33.8%,
which was higher than the statutory tax rate in Japan. This
was mainly due to the effect of reversal of deferred tax assets
derived from changes in tax laws and Japanese tax rates that
took effect in 2016.
Return on Sales (%)
Return on Sales (%)
Sales by Segment (Billions of yen)
Sales by Segment (Billions of yen)
Sales by Geographic Area (Billions of yen)
Sales by Geographic Area (Billions of yen)
9
6
3
0
400
300
200
100
0
9
6
3
0
400
300
200
100
0
200
200
100
100
0
0
5,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
0
0
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
2012
2013
2014
2012
2015
2013
2016
2014
2015
2016
2012
2013
2014
2012
2015
2013
2016
2014
2015
2016
Japan
Americas
Europe
Asia and Oceania
Japan
Americas
Europe
Asia and Oceania
2012
2014
2013
2015
2014
2016
2015
2016
39
5,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
0
0
2013
2012
9
6
3
0
9
6
3
0
Increase in Property,
Increase in Property,
Plant and Equipment (Billions of yen)
Plant and Equipment (Billions of yen)
300
300
Working Capital Ratio
Working Capital Ratio
Return on Canon Inc.
Return on Canon Inc.
Shareholders’ Equity (%)
Shareholders’ Equity (%)
12
12
2012
2013
2014
2012
2015
2013
2016
2014
2015
2016
2012
2013
2014
2012
2015
2013
2016
2014
2015
2016
2012
2013
2014
2012
2015
2013
2016
2014
2015
2016
R&D Expenses (Billions of yen)
R&D Expenses (Billions of yen)
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
2012
2013
2014
2012
2015
2013
2016
2014
2015
2016
2007
2008
2007
2009
2008
2010
2009
2011
2010
2012
2011
2013
2012
2014
2013
2015
2014
2016
2015
2016
3.0
2.5
2.0
1.5
1.0
0.5
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
3.0
2.5
2.0
1.5
1.0
0.5
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 FINANCIAL OVERVIEW
Sales by segment
Within the Office Business Unit, unit sales of office MFDs increased
overall from the previous year thanks to strong sales of color mod-
els, even with the continued decrease in sales of monochrome
models. This growth was supported by steady sales of the color A3
(12”x18”) imageRUNNER ADVANCE C5500-series models, which
were released this year, and the small-office/home-office color
A3 (12”x18”) imageRUNNER C3300-series models, which were
launched in the previous year, along with expanded sales of
imagePRESS C10000VP-series models, which target the production
printing market. Among high-speed continuous-feed printers, unit
sales of the Océ-produced VarioPrint i300, a high-speed sheet-fed
color inkjet press, increased year on year. Although the unit sales of
laser printers had been below level against the same period of the
previous year until the third quarter, due to the sluggish economic
conditions in the emerging countries, unit sales exceeded the same
period of the year at fourth quarter along with a smooth transition
to new models as planned. These factors, coupled with the negative
effect of unfavorable currency exchange rates, resulted in total sales
for the business unit of ¥1,807,819 million, a year-on-year decline of
14.4%, while operating profit totaled ¥169,486 million, a year-on-
year decline of 41.7%.
Within the Imaging System Business Unit, sales volume for inter-
changeable-lens digital cameras grew compared with the previ-
ous year owing to healthy demand for the EOS-1D X mark II and
the EOS 5D mark IV, which were launched this year, and the launch
of a new addition to the Company’s strengthening compact-
system camera lineup, the EOS M5, which features a built-in EVF.
As for digital compact cameras, along with the ongoing con-
traction of the market, sales volume declined amid difficulties in
procuring components due to the earthquake in Kumamoto ear-
lier in the year, with much of the profitability generated by sales
SALES BY SEGMENT
of high-added-value models that deliver high image quality and
zoom capabilities. As for inkjet printers, although sales volume
declined compared with the previous year due to a shrinking mar-
ket for consumer products, sales of models equipped with large-
capacity ink tanks that were launched in the fourth quarter of
2015 experienced healthy demand mainly in emerging countries,
while demand was high mainly in Japan for newly designed mod-
els for home use that were launched in 2016. Additionally, wide
format inkjet printers, new imagePROGRAF PRO-series models,
which target the professional photo and graphic art market, saw
an increase in unit sales. As a result of these factors, along with
the negative effect of unfavorable currency exchange rates, sales
for the business unit decreased by 13.3% to ¥1,095,289 million
while operating profit totaled ¥144,413 million, a year-on-year
decline of 21.3%.
In the Industry and Others Business Unit, unit sales of semiconductor
lithography equipment decreased from the previous year amid the
postponement of some capital investments by customers. As for FPD
lithography equipment, unit sales of lithography systems employed
in the fabrication of mid- and small-size panels increased in response
to growing demand for high-definition OLED displays used in mobile
devices. Also, sales of manufacturing equipment for OLED displays,
which is sold by Canon Tokki, increased amid brisk capital invest-
ment by panel manufacturers. In addition, sales of network cam-
eras increased compared with the previous year thanks to efforts to
strengthen the product lineup. Consequently, sales for the business
unit increased 11.4% year-on-year to ¥584,660 million while operat-
ing profit grew by ¥20,527 million to ¥7,448 million.
Intersegment sales of ¥86,281 million, representing 2.5% of
total sales, are eliminated from total sales for the three seg-
ments, and are described as “Eliminations.”
2016
change
2015
change
2014
Millions of yen
Office
Imaging System
Industry and Others
Eliminations
Total
SALES BY REGION
Japan
Americas
Europe
Asia and Oceania
Total
1,807,819
1,095,289
-14.4%
-13.3%
584,660 +11.4%
(86,281)
—
2,110,816
1,263,835
+1.5%
-5.9%
524,651 +31.6%
(99,031)
—
2,078,732
1,343,194
398,765
(93,439)
3,401,487
-10.5%
3,800,271
+2.0%
3,727,252
Millions of yen
2016
change
2015
change
2014
706,979
963,544
913,523
817,441
-1.0%
-15.8%
-15.0%
-5.7%
714,280
-1.4%
1,144,422 +10.4%
-1.5%
1,074,366
-1.0%
867,203
724,317
1,036,500
1,090,484
875,951
3,401,487
-10.5%
3,800,271 +2.0%
3,727,252
Note: This summary of net sales by geographic area is determined by the location where the product is shipped to the customers.
40
CANON ANNUAL REPORT 2016 Sales by geographic area
Please refer to the table of sales by geographic area in Note 21
of the Notes to Consolidated Financial Statements.
In Japan, net sales decreased 1.0% from the previous year
due to the ongoing contraction of the digital camera market,
especially for digital compact cameras, which reflected a slow
recovery in consumer spending.
In the Americas, net sales decreased 15.8% from the previous
year owing to the negative effect of the yen’s appreciation and
the decline in sales of laser printers, interchangeable-lens digital
cameras and digital compact cameras.
In Europe, net sales decreased 15.0% from the previous year
owing to the negative effect of the yen’s appreciation and the
decline in sales of laser printers.
In Asia and Oceania, despite strong sales of manufacturing
equipment for OLED displays which is sold by Canon Tokki, net
sales decreased by 5.7% from the previous year mainly due to
the negative effect of the yen’s appreciation.
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 cur-
rency 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 geographic
information in Note 21 of the Notes to Consolidated Financial
Statements.
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 2016
decreased by 41.7% from the previous year to ¥169,486 mil-
lion, owing to the negative effect of the yen’s appreciation
along with the decrease in sales of laser printers.
Operating profit for the Imaging System Business Unit in 2016
decreased by 21.3% from the previous year to ¥144,413 mil-
lion, owing to the negative effect of the yen’s appreciation
along with the decrease in sales of compact digital cameras.
Operating profit for the Industry and Others Business Unit in
2016 grew by ¥20,527 million to ¥7,448 million thanks to
strong sales of manufacturing equipment for OLED displays
and network cameras, despite the negative impact of the yen’s
appreciation.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by ¥3,420 million
to ¥630,193 million in fiscal 2016 compared to the previous
year. Canon’s cash and cash equivalents are primarily denomi-
nated in Japanese yen and in U.S. dollars, with the remainder
denominated in other currencies.
Net cash provided by operating activities increased by
¥25,559 million to ¥500,283 million in fiscal 2016 compared
to the previous year thanks to the decrease in working capital.
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 fiscal 2016, cash inflow from cash received from cus-
tomers decreased due to sales deterioration. There were no
significant changes in Canon’s collection rates. Cash outflow
for payments for parts and materials decreased due to efforts
to reduce inventory level. Cash outflow for payments for sell-
ing, general and administrative expenses decreased thanks to
Group-wide efforts to reduce spending those expenses.
Net cash used in investing activities increased by ¥383,506
million to ¥837,125 million in fiscal 2016. This mainly reflects
the acquisition of Toshiba Medical Systems Corporation
(“TMSC”) to solidify Canon’s business foundation for its health
care business within the realm of “safety and security.”
Canon defines “free cash flow” as cash flows from operat-
ing activities less cash flows from investing activities. For fiscal
2016, free cash flow decreased by ¥357,947 million to nega-
tive ¥336,842 million as compared with ¥21,105 million for
fiscal 2015.
Note: “Free cash flow” is non-GAAP measure. Refer to “Non-
GAAP Financial Measures” section for the explanation and the
reconciliation to the reported GAAP measure.
41
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 FINANCIAL OVERVIEW
Canon’s management places importance on cash flow man-
agement and frequently monitors this indicator. Furthermore,
Canon’s management believes that this indicator is significant
in understanding Canon’s current liquidity and the alterna-
tives of use in financing activities because it takes into con-
sideration its operating and investing activities and believes
that such indicator is beneficial to an investor’s understand-
ing. Canon refers to this indicator together with relevant U.S.
GAAP financial measures shown in its consolidated statements
of cash flows and consolidated balance sheets for cash avail-
ability analysis.
Net cash provided in financing activities totaled ¥355,692
million in fiscal 2016, mainly resulting from the long-term
bank borrowing of ¥610,000 million related to the acquisition
of TMSC, the dividend payout and the repayment for short-
term loans. The Company paid dividends in fiscal 2016 of
¥150.00 per share.
Return on Sales (%)
Return on Sales (%)
2012
2013
2014
2015
2016
2012
2013
2014
To the extent Canon relies on external funding for its liquid-
Return on Sales (%)
Sales by Segment (Billions of yen)
Sales by Segment (Billions of yen)
5,000
4,000
5,000
4,000
3,000
5,000
4,000
ity and capital requirements, it generally has access to vari-
9
ous funding sources, including the issuance of additional share
capital, issuance of corporate bond or loans. While Canon
has been able to obtain funding from its traditional financing
6
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.
3
2,000
Office Business Unit
Imaging System
Short-term loans (including the current portion of long-
Business Unit
1,000
term debt) amounted to ¥1,850 million at December 31,
Industry and Others
Business Unit
2016 compared with ¥688 million at December 31, 2015.
Eliminations
Long-term debt (excluding the current portion) amounted to
0
¥611,289 million at December 31, 2016 compared with ¥881
2014
2014
2016
2015
million at December 31, 2015.
2014
2013
2012
2015
2015
2016
2016
2012
2013
2012
2013
2015
3,000
1,000
2,000
3,000
2,000
1,000
0
0
Canon’s long-term debt mainly consists of bank borrowings
and 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 10, 2017, Canon’s debt ratings are: Moody’s:
Aa3 (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 material
amount of its debt. A downgrade in Canon’s credit ratings or
outlook could, however, increase the cost of its borrowings.
Canon’s management policy in recent periods to optimize
inventory levels is intended to maintain an appropriate balance
among relevant imperatives, including minimizing working
capital, avoiding undue exposure to the risk of inventory obso-
lescence, and maintaining the ability to sustain sales despite
the occurrence of unexpected disasters.
Sales by Segment (Billions of yen)
Sales by Geographic Area (Billions of yen)
Reflecting the foregoing circumstances, Canon’s total inven-
5,000
5,000
tory turnover ratios were 59, 47, and 50 days at the end
of the fiscal years 2016, 2015, and 2014, respectively. The
increase of inventory turnover in 2016 was primarily due to
the acquisition of TMSC on December 19, 2016. If this factor
were excluded, the inventory turnover would show 50 days.
3,000
3,000
4,000
4,000
2,000
Increase in property, plant and equipment on an accrual
basis in 2016 amounted to ¥171,597 million compared with
¥195,120 million in 2015 and ¥182,343 million in 2014. For
2017, Canon projects its increase in property, plant and equip-
0
ment will be approximately ¥195,000 million.
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
1,000
1,000
2,000
0
2015
0
2015
Sales by Geographic Area (Billions of yen)
2016
2012
2013
2014
2016
2012
2013
2014
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
1,000
Japan
Americas
Europe
Asia and Oceania
0
Japan
Americas
Europe
Japan
Americas
Europe
Asia and Oceania
Asia and Oceania
Increase in Property,
Plant and Equipment (Billions of yen)
Increase in Property,
Plant and Equipment (Billions of yen)
3.0
Working Capital Ratio
300
200
100
2.5
2.0
1.5
1.0
0.5
Working Capital Ratio
Working Capital Ratio
Return on Canon Inc.
Shareholders’ Equity (%)
Return on Canon Inc.
Shareholders’ Equity (%)
Return on Canon Inc.
Shareholders’ Equity (%)
3.0
2.5
2.0
1.5
1.0
0.5
3.0
2.5
2.0
1.5
1.0
0.5
12
9
6
3
12
9
6
3
2012
2013
2014
2015
2016
2012
2013
2014
0
2015
2016
2012
2013
0
2014
2015
2012
2016
2013
2014
0
2015
2016
2012
2013
2014
0
2015
2016
2012
2013
0
2014
2012
2015
2013
2016
2014
0
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
R&D Expenses (Billions of yen)
R&D Expenses (Billions of yen)
R&D Expenses (Billions of yen)
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
42
400
300
200
100
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2007
2008
2009
2010
2007
2011
2008
2012
2009
2013
2010
2007
2014
2011
2008
2015
2012
2009
2016
2013
2010
2014
2011
2015
2012
2016
2013
2014
2015
2016
Increase in Property,
Plant and Equipment (Billions of yen)
9
6
3
0
300
200
100
0
400
300
200
100
0
9
6
3
0
300
200
100
0
400
300
200
100
0
Sales by Geographic Area (Billions of yen)
5,000
4,000
3,000
2,000
12
9
6
3
0
CANON ANNUAL REPORT 2016 Employer contributions to Canon’s worldwide defined ben-
efit pension plans were ¥14,575 million in 2016, ¥19,565
million in 2015 and ¥22,146 million in 2014. Employer con-
tributions to Canon’s worldwide defined contribution pension
plans were ¥17,603 million in 2016, ¥17,277 million in 2015,
and ¥15,077 million in 2014. In addition, employer contribu-
tions to the multiemployer pension plan of certain subsidiar-
ies were ¥3,482 million in 2016, ¥3,864 million in 2015 and
¥2,815 million in 2014.
Working capital in 2016 decreased by ¥125,471 million
to ¥1,116,379 million, compared with ¥1,241,850 million
in 2015 and ¥1,470,554 million in 2014. Canon believes its
working capital will be sufficient for its requirements for the
foreseeable future. Canon’s capital requirements are primar-
ily dependent 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 lia-
bilities) for 2016 was 2.14 compared to 2.52 for 2015 and to
2.60 for 2014.
Return on assets (net income attributable to Canon Inc.
divided by the average of total assets) was 3.1% in 2016,
compared to 5.0% in 2015 and 5.9% in 2014.
Return on Canon Inc. shareholders’ equity (net income
attributable to Canon Inc. divided by the average of total
Canon Inc. shareholders’ equity) was 5.2% in 2016 compared
with 7.4% in 2015 and 8.7% in 2014.
The debt to total assets ratio was 11.9%, 0.0% and 0.0%
as of December 31, 2016, 2015 and 2014, respectively. Canon
had short-term loans and long-term debt of ¥613,139 million
as of December 31, 2016, ¥1,569 million as of December 31,
2015 and ¥2,166 million as of December 31, 2014.
Non-GAAP Financial Measures
We have reported our financial results in accordance with U.S.
generally accepted accounting principles (“U.S. GAAP”). In
addition, we have discussed our results using the combination
of two GAAP cash flow measures, Net cash provided by oper-
ating activities and Net cash used for investing activities, which
we refer to as “Free Cash Flow” which is non-GAAP measure.
We believe this measure is beneficial to an investor’s under-
standing on Canon’s current liquidity and the alternatives of
use in financing activities because it takes into consideration
its operating and investing activities.
A reconciliation of these non-GAAP financial measures and the
most directly comparable measures calculated and presented in
accordance with GAAP are set forth on the following table.
FREE CASH FLOW
Net cash provided by operating activities
Net cash used in investing activities
Free cash flow
Millions of yen
2016
2015
500,283
(837,125)
474,724
(453,619)
(336,842)
21,105
43
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
FINANCIAL OVERVIEW
OFF-BALANCE SHEET ARRANGEMENTS
As part of its ongoing business, Canon does not participate in
transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities 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 employees,
affiliates and other companies. Canon will have to perform
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 5 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 ¥6,056 million at
December 31, 2016. The carrying amounts of the liabilities
recognized for Canon’s obligations as a guarantor under those
guarantees at December 31, 2016 were insignificant.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following summarizes Canon’s contractual obligations at December 31, 2016.
Millions of yen
Contractual obiligations:
Long-term debt:
Loan from a bank
Capital lease obligations and others
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
610,000
2,538
84,945
—
1,249
26,380
—
1,141
31,816
610,000
148
14,955
—
—
11,794
36,578
119,395
36,578
119,395
—
—
—
—
—
—
—
—
—
Contribution to defined benefit pension plans
22,382
22,382
Total
875,838
205,984
32,957
625,103
11,794
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.
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 primar-
ily based on historical experience, and are affected by ongo-
ing 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, 2016, accrued product warranty costs amounted to
¥13,168 million.
At December 31, 2016, commitments outstanding for the
purchase of property, plant and equipment were approxi-
mately ¥36,578 million, and commitments outstanding for
the purchase of parts and raw materials were approximately
¥119,395 million, both for use in the ordinary course of its
business. Canon anticipates that funds needed to fulfill these
commitments will be generated internally through operations.
During 2017, Canon expects to contribute ¥14,179 million
to its Japanese defined benefit pension plans and ¥8,203 mil-
lion 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.
44
CANON ANNUAL REPORT 2016
Japan
Americas
Europe
Asia and Oceania
2012
2013
2014
2015
2016
5,000
4,000
3,000
2,000
1,000
0
12
9
6
3
0
Return on Canon Inc.
Shareholders’ Equity (%)
2012
2013
2014
2015
2016
Return on Sales (%)
Sales by Segment (Billions of yen)
Sales by Geographic Area (Billions of yen)
9
6
5,000
4,000
3,000
3
RESEARCH AND DEVELOPMENT, PATENTS AND
LICENSES
Canon has started its 5-year management plan, the Excellent
Global Corporation Plan Phase V (“Phase V”) from the year
2016. In Phase V, our slogan is “Embrace the challenge of new
growth through a grand strategic transformation” and there
are three key strategies related to R&D:
2014
2015
2012
2013
2016
0
• Establish a new production system to achieve a cost-of-sales
ratio of 45%;
• Reinforce and expand new businesses while creating
future businesses; and
• Enhance R&D capabilities through open innovation.
Canon has been striving to implement the three R&D related
strategies as follows:
• Establish a new production system to achieve a cost-of-
Increase in Property,
Plant and Equipment (Billions of yen)
sales ratio of 45%: Strengthen domestic mother factories
by integrating design, procurement, production engi-
neering and manufacturing technology operations while
pursuing total cost reduction by advancing production
engineering capabilities with more sophisticated robots
and next-generation technologies such as the IoT, big
data and artificial intelligence.
300
• Reinforce and expand new businesses while creating
200
100
future businesses: Create and expand new businesses by
accelerating the horizontal expansion of existing busi-
ness with the exploration of new application possibility of
Canon’s technologies into new fields. Also, invest inten-
sively on the R&D of promising businesses areas such as
commercial printing, network cameras and life sciences
while actively taking advantage of M&A to accelerate the
early expansion of these businesses.
2014
2015
2012
2013
2016
0
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
2,000
0
1,000
In the “ImPACT” (Impulsing Paradigm Change through
Disruptive Technologies) program led by the Japanese gov-
ernment, Canon’s “Innovative Visualization Technology to
Lead to Creation of a New Growth Industry” was selected
as one of the R&D programs in the year 2014, and we are
aiming to develop medical inspection equipment with the
physically-noninvasive and -nondestructive imaging technol-
ogy. Additionally, Canon is currently working on collabora-
tive research with Massachusetts General Hospital (“MGH”)
and Brigham and Women’s Hospital (“BWH”) to develop bio-
medical optical imaging and medical robotics technologies
at the Healthcare Optics Research Laboratory in Cambridge,
Massachusetts, founded in 2013.
2014
2013
2016
2015
2012
Canon has developed a comprehensive imaging simula-
tion system covering all image formation processes includ-
ing optics, mechanics, sensor, and image processing, ahead of
its competitors. With the simulation system, Canon has suc-
ceeded in further reducing the need for prototypes, lowering
costs and shortening product development lead times.
Working Capital Ratio
3.0
Canon’s consolidated R&D expenses were ¥302,376 million
2.5
in 2016, ¥328,500 million in 2015 and ¥308,979 million in
2014. The ratios of R&D expenses to the consolidated total net
sales for 2016, 2015 and 2014 were 8.9%, 8.6% and 8.3%,
respectively.
2.0
1.5
0.5
Canon believes that new products protected by the robust
patent portfolio will not easily allow competitors to compete
with them, and will give them an advantage in establishing
standards in the market and industry.
1.0
Canon obtained the third greatest number of private sector
patents in 2016, according to the United States patent annual
0
list, released by IFI CLAIMS® Patent Services.
2014
2016
2012
2013
2015
• Enhance R&D capabilities through open innovation:
Construct a more open R&D system that proactively
leverages external technologies and knowledge to accel-
erate and improve efficiency of the R&D. Especially in our
fundamental research and development, Canon is pro-
moting joint and contract research with various partners
including universities, research institutes, and startups
around the world.
MARKET RISK EXPOSURES
Canon is exposed to market risks, including changes in foreign
currency exchange rates, interest rates and prices of market-
able securities and investments. In order to hedge the risks of
changes in foreign currency exchange rates, Canon uses deriv-
ative financial instruments.
R&D Expenses (Billions of yen)
400
300
200
100
0
2012
2013
2014
2015
2016
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.
8,000
7,000
Common Stock Price Range (Tokyo Stock Exchange) (Yen)
6,000
5,000
4,000
3,000
2,000
1,000
0
2007
2008
2009
2010
2011
2012
45
2013
2014
2015
2016
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 FINANCIAL OVERVIEW
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, 2016.
Available-for-sale securities
Debt securities
Due after five years
Fund trusts
Equity securities
Millions of yen
Cost
Fair value
320
85
19,026
19,431
498
86
42,444
43,028
Foreign currency exchange rate and
interest rate risk
Canon operates internationally, exposing it to the risk of
changes in foreign currency exchange rates. Derivative finan-
cial 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 cur-
rency exchange rate risk by continually monitoring changes
in the exposures and by evaluating hedging opportunities.
Canon does not hold or issue derivative financial instruments
for trading purposes. Canon is also exposed to credit-related
losses in the event of non-performance by counterparties to
derivative financial instruments, but it is not expected that
any counterparties will fail to meet their obligations. Most
of the counterparties are internationally recognized financial
institutions and selected by Canon taking into account their
financial condition, and contracts are diversified across a num-
ber 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 currency
exchange exposures principally from the exchange of U.S. dol-
lars and euros into Japanese yen. These contracts are primar-
ily 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, 2016. All of the foreign exchange contracts described in the following table
have a contractual maturity date in 2017.
Millions of yen
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
213,018
(4,599)
131,440
(3,803)
27,186
(1,074)
371,644
(9,476)
38,392
612
979
(16)
7,370
74
46,741
670
Canon expects that fair value changes and cash flows resulting
from reasonable near-term changes in interest rates will be imma-
terial. 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 instruments des-
ignated as cash flow hedges, including foreign currency 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 such 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 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 fore-
casted intercompany sales occur and its maturity date are recog-
nized in earnings and not considered hedge ineffectiveness.
The amount of the hedging ineffectiveness was not material
for the years ended December 31, 2016, 2015 and 2014. The
amounts of net losses excluded from the assessment of hedge
effectiveness (time value component) which was recorded in
other income (deductions) was ¥311 million, ¥131 million and
¥145 million for the years ended December 31, 2016, 2015 and
2014, 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 con-
tracts are recorded in earnings immediately.
46
CANON ANNUAL REPORT 2016 LOOKING FORWARD
Although the IMF is projecting a modest pickup in the global
economy in 2017, political and economic circumstances are
expected to remain highly uncertain.
In the businesses in which Canon is involved, among office
MFDs, demand for color models makes up for the market con-
traction of monochrome models and demand is expected to
remain in line with that of the previous year overall. Although
demand for laser printers is expected to remain at the same
level as that for the previous year, demand for color models
and laser multifunction models with high potential consum-
able sales is expected to increase. As for interchangeable-lens
digital cameras, although demand is waning mainly in devel-
oped countries, the sluggish demand condition is improving
gradually, which is expected to bottom out. Projections for dig-
ital compact cameras indicate continued market contraction,
centered mainly on low-priced models. With regard to inkjet
printers, demand is expected to continue declining mainly for
consumer models. Looking at industrial equipment, within the
semiconductor lithography equipment segment, the market is
expected to remain at the same level as the previous year while
the outlook for FPD lithography equipment and OLED display
manufacturing equipment points to continued active capital
investment by panel manufacturers. The network camera mar-
ket is also expected to grow in response to increasing market-
ing and production site efficiency-enhancing needs, in addition
to disaster monitoring and crime prevention functions.
Amid these conditions, 2017 marks not only the second
year of Phase V of the Excellent Global Corporation Plan, but
also Canon’s 80th anniversary. To ensure that 2017 is a year
befitting this milestone, Canon is addressing the following key
challenges under the theme “Further promoting grand strate-
gic transformation by accelerating reforms.”
at its disposal in order to create market-specific solutions.
As for healthcare, Canon will formulate new growth strat-
egies, built around TMSC, and will exert the Group’s com-
prehensive strength to provide innovative products and
high-quality services on a global scale. For industrial equip-
ment, such as IC lithography equipment that utilizes nano-
imprint lithography, Canon will formulate new business
strategies to pioneer a “fourth industrial revolution” driven
by artificial intelligence and IoT.
Restructure the global sales network
In the B2B sphere, success or failure is determined by the
capacity to devise and implement solutions. In addition to
training highly skilled sales engineers with a breadth of techni-
cal knowledge spanning both hardware and software, Canon
will establish a sales structure with networks that expand to
corporations and governments. Additionally, Canon will for-
mulate global sales strategies that take full advantage of the
expansion and development of e-commerce.
Strengthen R&D through open innovation
Canon will enhance R&D efficiency in existing business
fields and be selective in investment in promising new
fields. On top of this, aiming to establish and expand ser-
vice businesses, Canon will train software engineers,
develop systems and accelerate the establishment of an
external cooperation system.
Cultivate global human resources and reinvigorate
the Canon spirit
An enterprising spirit and the San-ji (Three Selfs) Spirit of
self-motivation, self-management, and self-awareness, have
been basic components of Canon’s corporate DNA since its
foundation. Canon is now working to re-instill these values
as we promote the development of human resources that
are able to exert leadership in a global environment.
Thoroughly bolster existing business
In order to successfully transform its business structure,
Canon will work to improve profitability by reinforcing
the existing businesses that will support this transforma-
tion. Specifically, Canon will accelerate the development of
“Dantotsu Products,” which are products with unique appeal
and strengths that realize high profitability thanks to their dif-
ficulty to imitate. At the same time, Canon will advance such
initiatives as automation, in-house production, and procure-
ment reform, in order to achieve a cost-of-sales ratio of 45%.
Additionally, Canon will expand its business domains, develop-
ing new business models in response to the internet of things
(“IoT”) and cloud environments.
Strengthen and grow new businesses and create
future businesses
For commercial printing, with the aim of becoming a com-
prehensive printing company, Canon will accelerate prod-
uct development in order to make a full-scale entry into the
fast-growing package printing market. Regarding network
cameras, Canon will work to strengthen camera intelli-
gence, by not only improving image quality, but leverag-
ing the image-processing and image-analytics technologies
Forward looking statements
The foregoing discussion and other disclosure in this report con-
tains forward-looking statements that reflect management’s cur-
rent views with respect to certain future events and financial
performance. Actual results may differ materially from those pro-
jected or implied in the forward-looking statements. Further, cer-
tain forward-looking statements are based upon assumptions
of future events that may not prove to be accurate. The follow-
ing important factors could cause actual results to differ mate-
rially from those projected or implied in any forward-looking
statements: foreign currency exchange rate fluctuations; the
uncertainty of Canon’s ability 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 abil-
ity to continue to develop products and to market products that
incorporate new technology on a timely basis, are competitively
priced, and achieve market acceptance; the possibility of losses
resulting from foreign currency transactions designed to reduce
financial risks from changes in foreign currency exchange rates;
and inventory risk due to shifts in market demand.
47
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
9
6
3
0
300
200
100
0
400
300
200
100
0
2012
2013
2014
2015
2016
Increase in Property,
Plant and Equipment (Billions of yen)
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Return on Sales (%)
Sales by Segment (Billions of yen)
Sales by Geographic Area (Billions of yen)
5,000
4,000
3,000
2,000
1,000
0
TEN-YEAR FINANCIAL SUMMARY
Office Business Unit
Imaging System
Business Unit
Industry and Others
Business Unit
Eliminations
5,000
4,000
3,000
2,000
1,000
Millions of yen (except per share amounts)
2016
2015
2014
2014
2015
2016
2012
Net sales:
2013
Domestic
Overseas
Total
Percentage of previous year
0
706,979
2,694,508
3,401,487
89.5%
2014
2012
2013
714,280
3,085,991
3,800,271
102.0%
2016
2015
724,317
3,002,935
3,727,252
99.9%
Net income attributable to Canon Inc.
Percentage of sales
150,650
220,209
254,797
4.4%
5.8%
6.8%
Japan
Americas
2013
Europe
Asia and Oceania
715,863
3,015,517
3,731,380
107.2%
230,483
6.2%
86,398
306,324
223,158
188,826
1,448
2,910,262
4,242,710
2012
2011
2010
2009
2008
2007
2016
Thousands of U.S. dollars
(except per share amounts)
720,286
2,759,502
3,479,788
694,450
2,862,983
3,557,433
695,749
3,011,152
3,706,901
702,344
2,506,857
3,209,201
868,280
3,225,881
4,094,161
947,587
3,533,759
4,481,346
97.8%
96.0%
115.5%
78.4%
91.4%
107.8%
$ 6,094,647
23,228,517
29,323,164
89.5%
224,564
248,630
246,603
131,647
309,148
488,332
1,298,707
6.5%
7.0%
6.7%
4.1%
7.6%
10.9%
4.4%
83,134
296,464
211,973
270,457
2,117
2,598,026
3,955,503
81,232
307,800
210,179
226,869
3,368
2,551,132
3,930,727
94,794
315,817
232,327
158,976
4,131
2,645,782
3,983,820
78,009
304,600
277,399
216,128
4,912
2,688,109
3,847,557
112,810
374,025
304,622
361,988
8,423
2,659,792
3,969,934
246.21
246.20
110.00
5,820
2,215
132,429
368,261
309,815
428,549
506,095
2,606,690
1,716,664
1,479,284
8,680
$ 5,269,733
2,922,336
4,512,625
23,992,491
44,297,664
377.59
377.53
110.00
7,450
5,190
$
1.19
1.19
1.29
31.52
23.97
201.65
201.65
2013
150.00
2012
2014
229.03
229.03
2016
150.00
2015
4,539
3,402
4,045
2,889
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
106.64
106.64
110.00
4,070
2,115
80,907
328,500
223,759
195,120
Return on Canon Inc.
Shareholders’ Equity (%)
79,765
308,979
213,739
182,343
881
2,966,415
4,427,773
1,148
2,978,184
4,460,618
Advertising
Research and development expenses
Depreciation of property, plant and equipment
Increase in property, plant and equipment
Working Capital Ratio
3.0
2.5
2.0
Long-term debt, excluding current installments
Canon Inc. shareholders’ equity
Total assets
1.5
Per share data:
Net income attributable to Canon Inc.
1.0
shareholders per share:
0.5
Basic
0
Diluted
2012
Dividend per share
Stock price:
2014
2013
High
Low
2015
2016
12
9
6
3
0
58,707
302,376
199,133
171,597
611,289
2,783,129
5,138,529
137.95
137.95
150.00
3,656
2,780
Average number of common shares in thousands
Number of employees
1,092,071
197,673
1,092,018
189,571
1,112,510
191,889
1,147,934
194,151
1,173,648
196,968
1,215,832
198,307
1,234,817
197,386
1,234,482
168,879
1,255,626
166,980
1,293,296
131,352
R&D Expenses (Billions of yen)
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
48
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
CANON ANNUAL REPORT 2016
Millions of yen (except per share amounts)
Thousands of U.S. dollars
(except per share amounts)
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2016
Net sales:
Domestic
Overseas
Total
Percentage of previous year
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. shareholders’ equity
Net income attributable to Canon Inc.
shareholders per share:
Total assets
Per share data:
Dividend per share
Stock price:
Basic
Diluted
High
Low
706,979
2,694,508
3,401,487
714,280
3,085,991
3,800,271
724,317
3,002,935
3,727,252
715,863
3,015,517
3,731,380
89.5%
102.0%
99.9%
107.2%
720,286
2,759,502
3,479,788
694,450
2,862,983
3,557,433
97.8%
96.0%
695,749
3,011,152
3,706,901
115.5%
702,344
2,506,857
3,209,201
868,280
3,225,881
4,094,161
78.4%
91.4%
Net income attributable to Canon Inc.
150,650
220,209
254,797
230,483
224,564
248,630
246,603
131,647
309,148
Percentage of sales
4.4%
5.8%
6.8%
6.2%
6.5%
7.0%
6.7%
4.1%
7.6%
58,707
302,376
199,133
171,597
611,289
2,783,129
5,138,529
80,907
328,500
223,759
195,120
881
2,966,415
4,427,773
79,765
308,979
213,739
182,343
1,148
2,978,184
4,460,618
86,398
306,324
223,158
188,826
1,448
2,910,262
4,242,710
83,134
296,464
211,973
270,457
2,117
2,598,026
3,955,503
81,232
307,800
210,179
226,869
3,368
2,551,132
3,930,727
94,794
315,817
232,327
158,976
4,131
2,645,782
3,983,820
78,009
304,600
277,399
216,128
4,912
2,688,109
3,847,557
137.95
137.95
150.00
3,656
2,780
201.65
201.65
150.00
4,539
3,402
229.03
229.03
150.00
4,045
2,889
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
106.64
106.64
110.00
4,070
2,115
112,810
374,025
304,622
361,988
8,423
2,659,792
3,969,934
246.21
246.20
110.00
5,820
2,215
947,587
3,533,759
4,481,346
107.8%
488,332
10.9%
132,429
368,261
309,815
428,549
$ 6,094,647
23,228,517
29,323,164
89.5%
1,298,707
4.4%
506,095
2,606,690
1,716,664
1,479,284
8,680
2,922,336
4,512,625
$ 5,269,733
23,992,491
44,297,664
377.59
377.53
110.00
7,450
5,190
$
1.19
1.19
1.29
31.52
23.97
Average number of common shares in thousands
Number of employees
1,092,071
197,673
1,092,018
189,571
1,112,510
191,889
1,147,934
194,151
1,173,648
196,968
1,215,832
198,307
1,234,817
197,386
1,234,482
168,879
1,255,626
166,980
1,293,296
131,352
Note: U.S. dollar amounts are translated from yen at the rate of U.S.$1 = JPY116, the approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 30, 2016.
49
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
CONSOLIDATED BALANCE SHEETS
Canon Inc. and Subsidiaries
December 31, 2016 and 2015
ASSETS
Current assets:
Cash and cash equivalents (Note 1)
Short-term investments (Note 2)
Trade receivables, net (Note 3)
Inventories (Note 4)
Prepaid expenses and other current assets (Notes 6, 12 and 17)
Total current assets
Noncurrent receivables (Note 18)
Investments (Note 2)
Property, plant and equipment, net (Notes 5 and 6)
Intangible assets, net (Notes 7 and 8)
Goodwill (Notes 7 and 8)
Other assets (Notes 6, 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 1, 5, 12 and 17)
Total current liabilities
Long-term debt, excluding current installments (Notes 9 and 19)
Accrued pension and severance cost (Note 11)
Other noncurrent liabilities (Notes 7 and 12)
Total liabilities
Commitments and contingent liabilities (Note 18)
Equity:
Canon Inc. shareholders’ equity:
Common stock
Authorized 3,000,000,000 shares; issued 1,333,763,464 shares in 2016 and 2015
Additional paid-in capital
Legal reserve (Note 13)
Retained earnings (Note 13)
Accumulated other comprehensive income (loss) (Note 14)
Treasury stock, at cost; 241,695,310 shares in 2016 and 241,690,840 shares in 2015
Total Canon Inc. shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
50
Millions of yen
2016
2015
630,193
3,206
641,458
560,736
264,155
2,099,748
29,297
73,680
1,194,976
446,268
936,424
358,136
633,613
20,651
588,001
501,895
313,019
2,057,179
29,476
67,862
1,219,652
241,208
478,943
333,453
5,138,529
4,427,773
1,850
372,269
30,514
304,901
273,835
983,369
611,289
407,200
142,049
688
278,255
47,431
317,653
171,302
815,329
881
296,262
130,838
2,143,907
1,243,310
174,762
401,385
66,558
3,350,728
(199,881)
(1,010,423)
2,783,129
211,493
174,762
401,358
65,289
3,365,158
(29,742)
(1,010,410)
2,966,415
218,048
2,994,622
3,184,463
5,138,529
4,427,773
CANON ANNUAL REPORT 2016
CONSOLIDATED STATEMENTS OF INCOME
Canon Inc. and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Net sales
Cost of sales (Notes 5, 8, 11 and 18)
Gross profit
Operating expenses (Notes 1, 5, 8, 11 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, 2 and 17)
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. shareholders per share (Note 16):
Basic
Diluted
Cash dividends per share
See accompanying Notes to Consolidated Financial Statements.
Millions of yen
2016
2015
2014
3,401,487
1,727,654
1,673,833
3,800,271
1,865,887
1,934,384
3,727,252
1,865,780
1,861,472
1,142,591
302,376
1,250,674
328,500
1,189,004
308,979
1,444,967
1,579,174
1,497,983
228,866
355,210
363,489
4,762
(1,061)
12,084
15,785
5,501
(584)
(12,689)
7,906
(500)
12,344
(7,772)
19,750
244,651
347,438
383,239
82,681
116,105
118,000
161,970
231,333
265,239
11,320
11,124
10,442
150,650
220,209
254,797
Yen
137.95
137.95
150.00
201.65
201.65
150.00
229.03
229.03
150.00
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Canon Inc. and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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 (loss)
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to Canon Inc.
See accompanying Notes to Consolidated Financial Statements.
Millions of yen
2016
2015
2014
161,970
231,333
265,239
(107,666)
997
(2,948)
(70,355)
(55,504)
2,010
2,785
(6,543)
143,834
2,524
(195)
(37,985)
(179,972)
(57,252)
108,178
(18,002)
1,745
174,081
11,973
373,417
9,666
(19,747)
162,108
363,751
51
CANON ANNUAL REPORT 2016
CONSOLIDATED STATEMENTS OF EQUITY
Canon Inc. and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
Common
stock
Additional
paid-in
capital
Legal
reserve
Retained
earnings
Millions of yen
Accumulated
other
comprehensive
income (loss)
Total
Canon Inc.
shareholders’
equity
Treasury
stock
Noncontrolling
interests
Total
equity
Balance at December 31, 2013
174,762
402,029
63,091 3,212,692
(80,646) (861,666) 2,910,262
156,515 3,066,777
Equity transactions with noncontrolling
interests and other
Dividends to Canon Inc. shareholders
Dividends 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
(420)
216
(22)
(226)
(658)
(145,790)
1,508
(1,508)
(145,790)
—
(2,949)
(884)
(145,790)
(2,949)
—
254,797
254,797
10,442 265,239
142,813
2,301
(195)
(35,965)
142,813
1,021 143,834
2,301
223
2,524
(195)
(35,965)
—
(2,020)
(195)
(37,985)
363,751
9,666 373,417
Repurchases and reissuance of treasury stock
(46)
(15)
(149,752)
(149,813)
(149,813)
Balance at December 31, 2014
174,762
401,563
64,599 3,320,392
28,286 (1,011,418) 2,978,184
162,574 3,140,758
Equity transactions with noncontrolling
interests and other
Dividends to Canon Inc. shareholders
Dividends to noncontrolling interests
Acquisition of subsidiaries
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
(29)
73
(174,711)
44
(174,711)
690
(690)
—
(29,627)
(3,958)
77,086
(29,583)
(174,711)
(3,958)
77,086
—
220,209
220,209
11,124 231,333
(57,592)
1,509
2,785
(4,803)
(57,592)
2,088
(55,504)
1,509
501
2,010
2,785
(4,803)
—
(1,740)
2,785
(6,543)
162,108
11,973 174,081
Repurchases and reissuance of treasury stock
(176)
(42)
1,008
790
790
Balance at December 31, 2015
174,762
401,358
65,289 3,365,158
(29,742) (1,010,410) 2,966,415
218,048 3,184,463
Equity transactions with noncontrolling
interests and other
Dividends to Canon Inc. shareholders
Dividends to noncontrolling interests
Acquisition of subsidiaries
Transfer to legal reserve
Comprehensive income:
Net income
Other comprehensive income (loss),
net of tax (Note 14):
27
258
(163,810)
285
(163,810)
1,269
(1,269)
—
(5,270)
(4,077)
1,047
(4,985)
(163,810)
(4,077)
1,047
—
150,650
150,650
11,320 161,970
Foreign currency translation adjustments
(101,257)
(101,257)
(6,409) (107,666)
Net unrealized gains and losses
on securities
Net gains and losses
on derivative instruments
Pension liability adjustments
Total comprehensive income (loss)
Repurchases and reissuance of treasury stock
1,196
(2,924)
(67,412)
1,196
(199)
997
(2,924)
(67,412)
(24)
(2,943)
(2,948)
(70,355)
(19,747)
1,745
(18,002)
(1)
(13)
(14)
(14)
Balance at December 31, 2016
174,762
401,385
66,558 3,350,728
(199,881) (1,010,423) 2,783,129
211,493 2,994,622
See accompanying Notes to Consolidated Financial Statements.
52
CANON ANNUAL REPORT 2016
CONSOLIDATED STATEMENTS OF CASH FLOWS
Canon Inc. and Subsidiaries
Years ended December 31, 2016, 2015 and 2014
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
Equity in earnings of affiliated companies
Deferred income taxes
(Increase) decrease in trade receivables
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
Millions of yen
2016
2015
2014
161,970
231,333
265,239
250,096
5,203
(890)
7,188
(4,155)
6,156
56,844
(16,456)
(5,256)
5,489
34,094
273,327
7,975
(447)
4,672
22,720
14,249
(17,288)
(8,731)
(25,529)
4,622
(32,179)
263,480
12,429
(478)
8,929
9,323
59,004
(24,620)
3,586
11,124
(6,305)
(17,784)
Net cash provided by operating activities
500,283
474,724
583,927
Cash flows from investing activities:
Purchases of fixed assets (Note 5)
Proceeds from sale of fixed assets (Note 5)
Purchases of available-for-sale securities
Proceeds from sale and maturity of available-for-sale securities
(Increase) decrease in time deposits, net
Acquisitions of businesses, net of cash acquired (Note 7)
Purchases of other investments
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt (Note 9)
Repayments of long-term debt (Note 9)
Decrease in short-term loans, net (Note 9)
Purchases of noncontrolling interests
Dividends paid
Repurchases and reissuance of treasury stock
Other, net
(206,971)
6,177
(84)
1,181
15,414
(649,570)
(4,460)
1,188
(252,948)
3,824
(98)
804
47,665
(251,534)
(1,220)
(112)
(218,362)
3,994
(311)
2,606
(14,223)
(54,772)
—
11,770
(837,125)
(453,619)
(269,298)
610,552
(856)
(80,580)
(4,993)
(163,810)
(14)
(4,607)
717
(1,350)
—
(29,570)
(174,711)
790
(6,078)
1,377
(2,152)
(54)
—
(145,790)
(149,813)
(4,454)
Net cash provided by (used in) financing activities
355,692
(210,202)
(300,886)
Effect of exchange rate changes on cash and cash equivalents
(22,270)
(21,870)
41,928
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.
(3,420)
(210,967)
55,671
633,613
844,580
788,909
630,193
633,613
844,580
738
76,714
653
117,643
462
111,819
53
CANON ANNUAL REPORT 2016
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, digital compact cam-
eras, digital camcorders, digital cinema cameras, interchangeable
lenses, compact photo printers, inkjet printers, large-format ink-
jet printers, commercial photo printers, image scanners, multi-
media projectors, broadcast equipment and calculators. Industry
and other products consist mainly of semiconductor lithogra-
phy equipment, FPD (Flat panel display) lithography equipment,
digital radiography systems, diagnostic X-ray systems, computed
tomography, magnetic resonance imaging, diagnostic ultrasound
systems, clinical chemistry analyzers, ophthalmic equipment,
vacuum thin-film deposition equipment, organic LED (“OLED”)
panel manufacturing equipment, die bonders, micromotors, net-
work cameras, handy terminals and document scanners. Canon’s
consolidated net sales for the years ended December 31, 2016,
2015 and 2014 were distributed as follows: the Office Business
Unit 53.1%, 55.5% and 55.8%, the Imaging System Business
Unit 32.2%, 33.3% and 36.0%, the Industry and Others
Business Unit 17.2%, 13.8% and 10.7%, and elimination
between segments 2.5%, 2.6% and 2.5%, respectively. These
percentages were computed by dividing segment net sales,
including intersegment sales, by consolidated 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 subsidiaries
are responsible for marketing and distribution, and primarily
sell to retail dealers in their geographic area. 79.2%, 81.2%
and 80.6% of consolidated net sales for the years ended
December 31, 2016, 2015 and 2014 were generated out-
side Japan, with 28.3%, 30.1% and 27.8% in the Americas,
26.9%, 28.3% and 29.3% in Europe, and 24.0%, 22.8% and
23.5% in Asia and Oceania, respectively.
Canon sells laser printers on an OEM basis to HP Inc.; such
sales constituted 14.8%, 17.8% and 17.4% of consolidated net
sales for the years ended December 31, 2016, 2015 and 2014,
respectively, and are included in the Office Business Unit.
Canon’s manufacturing operations are conducted primarily
at 30 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.
On December 19, 2016, Canon acquired all the ordinary
shares of Toshiba Medical Systems Corporation (“TMSC”),
one of the leading global companies in the medical equip-
ment industry, and consolidated TMSC. Further information is
described in Note 7.
(b) Basis of Presentation
The Company and its domestic subsidiaries maintain their
books of account in conformity with financial accounting stan-
dards 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 incorpo-
rated in the accompanying consolidated financial statements
to conform with U.S. generally accepted accounting principles
(“U.S. 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, inventories, long-lived
assets, goodwill and other intangible assets with indefi-
nite useful lives, environmental liabilities, deferred tax assets,
uncertain tax positions and employee retirement and sever-
ance 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 were net losses of ¥2 million and ¥22,149 million for
the years ended December 31, 2016 and 2015, respectively,
and a net gain of ¥2,628 million for the year ended December
31, 2014.
54
CANON ANNUAL REPORT 2016 (f) Cash Equivalents
All highly liquid investments acquired with original maturi-
ties of three months or less are considered to be cash equiv-
alents. Certain debt securities with original maturities of less
than three months, classified as available-for-sale securities of
¥30,500 million and ¥80,870 million at December 31, 2016
and 2015, respectively, are included in cash and cash equiva-
lents 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 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.
Canon does not hold any held-to-maturity securities.
Available-for-sale securities are regularly reviewed for other-
than-temporary declines in the carrying amount based on cri-
teria that include the length of time and the extent to which
the market value has been less than cost, the financial condi-
tion and near-term prospects of the issuer and Canon’s intent
and ability to retain the investment for a period of time suf-
ficient to allow for any anticipated recovery in market value.
For debt securities for which the declines are deemed to be
other-than-temporary and there is no intent to sell, impair-
ments 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 recog-
nized 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 con-
trolling 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 significant 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 fac-
tors, 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 net realizable
value. Cost is determined by the average method for domestic
inventories and principally by the first-in, first-out method for
overseas 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 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
55
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Intangible assets with finite useful lives consist primarily
of software, trademarks, patents and developed technology,
license fees and customer relationships, which are amortized
using the straight-line method. The estimated useful lives of
software are from 3 years to 5 years, trademarks are 15 years,
patents and developed technology are from 7 years to 17
years, license fees are 7 years, and customer relationships are
from 11 years to 20 years, respectively. Certain costs incurred
in connection with developing or obtaining internal-use soft-
ware 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 estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and lia-
bilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to tax-
able income in the years in which those temporary 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 posi-
tions when it is more likely than not, based on the technical mer-
its, that the tax positions will be sustained upon examination
by the tax authorities. Benefits from tax positions that meet the
more-likely-than-not recognition threshold 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.
Shareholders per Share
Basic net income attributable to Canon Inc. shareholders
per share is computed by dividing net income attributable
to Canon Inc. by the weighted-average number of com-
mon shares outstanding during each year. Diluted net income
attributable to Canon Inc. shareholders 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 arrangements.
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 transfer
to the customer.
Canon also offers separately priced product maintenance con-
tracts for most office products, for which the customer typically
pays a stated base service fee plus a variable amount based on
usage. Revenue from these service maintenance contracts is mea-
sured at the stated amount of the contract and recognized as ser-
vices 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 rec-
ognized 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 deliverables generally
include equipment, financing and executory costs, while non-
lease deliverables generally consist of product maintenance
contracts and supplies.
Revenue from sales of optical equipment, such as semicon-
ductor lithography equipment and FPD lithography equipment
that are sold with customer acceptance provisions related to their
functionality, is recognized when the equipment is installed at the
customer site and the specific criteria of the equipment function-
ality are successfully tested and demonstrated by Canon. Service
56
CANON ANNUAL REPORT 2016
revenue is derived primarily from separately priced product main-
tenance contracts on equipment sold to customers and is mea-
sured 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 amounts received in advance from custom-
ers in excess of revenue recognized primarily for sales of opti-
cal equipment and product maintenance contracts as deferred
revenue until the revenue recognition criteria are satisfied.
Deferred revenue were ¥102,298 million and ¥51,390 mil-
lion at December 31, 2016 and 2015, respectively, and are
included in other current liabilities in the accompanying con-
solidated balance sheets.
Canon records estimated reductions to sales at the time of
sale for sales incentive programs including product discounts,
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 current information.
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 governmen-
tal authorities are excluded from revenues in the consolidated
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 ¥58,707 million, ¥80,907 million and ¥79,765
million for the years ended December 31, 2016, 2015 and
2014, respectively.
(t) Shipping and Handling Costs
Shipping and handling costs totaled ¥44,296 million, ¥52,504
million and ¥49,576 million for the years ended December 31,
2016, 2015 and 2014, respectively, and are included in selling,
general and administrative expenses in the consolidated state-
ments 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 lia-
bilities 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 relation-
ships between hedging instruments and hedged items, as well
as its risk-management objective and strategy for undertaking
various 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 comprehen-
sive 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 issuing
guarantees.
(w) Recently Issued Accounting Guidance
In November 2015, the Financial Accounting Standards Board
(“FASB”) issued an amendment which requires deferred tax
assets and liabilities be classified as noncurrent in the con-
solidated balance sheets. Canon early adopted this amended
guidance from the quarter beginning January 1, 2016, on a
prospective basis, and prior periods were not retrospectively
adjusted. Canon’s current deferred tax assets were ¥55,108
million and current deferred tax liabilities were ¥2,682 million
as of December 31, 2015.
In July 2015, the FASB issued an amendment which requires
an entity to measure inventory at the lower of cost and net real-
izable value. Net realizable value is the estimated selling prices in
the ordinary course of business, less reasonably predictable costs
of completion, disposal, and transportation. Canon early adopted
this amended guidance from the quarter beginning April 1, 2016.
This adoption did not have a material impact on its consolidated
results of operations and financial condition.
57
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2014, the FASB issued a new accounting standard
related to revenue from contracts with customers. This standard
requires an entity to recognize revenue when promised goods or
services are transferred to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. This standard was origi-
nally planned to be effective for annual reporting periods begin-
ning after December 15, 2016, however, in August 2015, the
FASB issued an accounting standard update for a one-year defer-
ral of the effective date. Early adoption as of the original effective
date is permitted. This standard may be applied retrospectively
to each prior reporting period presented or retrospectively with
the cumulative effect of initially applying this standard recognized
at the date of initial application. In March 2016, the FASB issued
an accounting standard update which clarifies the implementa-
tion guidance for principal versus agent considerations. In April
2016, the FASB issued an accounting standard update which
clarifies guidance related to identifying performance obligations
and licensing implementation guidance. In May 2016, the FASB
issued an accounting standard update which amends guidance
in the new standard on transition, collectibility, noncash consid-
eration and the presentation of sales and other similar taxes. In
December 2016, the FASB issued an accounting standard update
which amends guidance in the new standard on disclosure of
performance obligations, provisions for losses on certain types
of contracts, scoping, and other areas. These standard updates
have the same effective date as the original standard. Canon cur-
rently plans to apply the modified retrospective method of adop-
tion from the quarter beginning January 1, 2018. While Canon
currently does not expect the adoption of this standard to have a
material impact on the timing of revenue recognition, the adop-
tion of this standard is expected to result in change in allocation
of revenue between goods and services in Office Business Unit
and Industry and Others Business Unit on its consolidated state-
ments of income. From consolidated balance sheets perspective,
the reclassification between receivable and refund liability for vari-
able consideration in Office Business Unit and Imaging System
Business Unit may results in the increase of total assets and total
liabilities. However, evaluation is still ongoing and it could result
in additional impacts on its consolidated results of operations and
financial condition.
In January 2016, the FASB issued an amendment which
addresses certain aspects of recognition, measurement, pre-
sentation, and disclosure of financial instruments. This guid-
ance includes the requirement that equity investments be
measured at fair value with changes in the fair value recog-
nized in net income. This guidance is effective for annual
reporting periods beginning after December 15, 2017, and
early adoption is permitted for certain provisions. Canon is
currently evaluating the adoption date and the effect that the
adoption of this guidance will have on its consolidated results
of operations and financial condition.
In February 2016, the FASB issued an amendment which
requires lessees to recognize most leases on their balance
sheets but recognize expenses on their income statements in a
manner similar to current guidance. For lessors, the guidance
modifies the classification criteria and the accounting for sales-
type and direct financing leases. This guidance is effective for
annual reporting periods beginning after December 15, 2018,
and early adoption is permitted. Canon is currently evaluat-
ing the adoption date and the effect that the adoption of this
guidance will have on its consolidated results of operations
and financial condition.
In October 2016, the FASB issued an amendment which
requires an entity to recognize the income tax consequences
of an intra-entity transfer of an asset other than inventory
when the transfer occurs. Consequently, the amendments in
this guidance eliminate the exception for an intra-entity trans-
fer of an asset other than inventory. Two common examples
of assets included in the scope of this guidance are intellec-
tual property and property, plant, and equipment. This guid-
ance is effective for annual reporting periods beginning after
December 15, 2017, and early adoption is permitted. The
amendments in this guidance should be applied on a modi-
fied retrospective basis through a cumulative effect adjustment
directly to retained earnings as of the beginning of the period
of adoption. Canon is currently evaluating the adoption date
and the effect that the adoption of this guidance will have on
its consolidated results of operations and financial condition.
58
CANON ANNUAL REPORT 2016 2. INVESTMENTS
The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities included in
investments by major security type at December 31, 2016 and 2015 are as follows:
December 31
Millions of yen
2016: Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
Millions of yen
2015: Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
Cost
277
43
85
19,026
19,431
Cost
298
6
63
20,461
20,828
Gross unrealized
holding gains
Gross unrealized
holding losses
Fair value
—
188
1
23,439
23,628
8
2
—
21
31
269
229
86
42,444
43,028
Gross unrealized
holding gains
Gross unrealized
holding losses
Fair value
—
195
1
23,482
23,678
11
—
—
1,094
1,105
287
201
64
42,849
43,401
Maturities of available-for-sale debt securities included in investments in the accompanying consolidated balance sheets are as
follows at December 31, 2016:
Due after five years
Millions of yen
Cost
320
320
Fair value
498
498
Gross realized gains were ¥750 million, ¥329 million and
¥2,540 million for the years ended December 31, 2016, 2015
and 2014, respectively. Gross realized losses, including write-
downs for impairments that were other-than-temporary, were
¥1,032 million, ¥31 million and ¥31 million for the years
ended December 31, 2016, 2015 and 2014, respectively.
At December 31, 2016, substantially all of the available-for-
sale securities with unrealized losses had been in a continuous
unrealized loss position for less than twelve months.
Time deposits with original maturities of more than three
months were ¥3,206 million and ¥20,651 million at December
31, 2016 and 2015, respectively, and were included in short-term
investments in the accompanying consolidated balance sheets.
Aggregate cost of non-marketable equity securities
accounted for under the cost method totaled ¥7,800 million
and ¥2,570 million at December 31, 2016 and 2015, respec-
tively. These investments were not evaluated for impairment at
December 31, 2016 and 2015, respectively, because (a) Canon
did not estimate the fair value of those investments as it was
not practicable to estimate the fair value of the investments
and (b) Canon did not identify any events or changes in cir-
cumstances 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 ¥21,514 million and ¥20,415 million at
December 31, 2016 and 2015, respectively. Canon’s share of the
net earnings in affiliated companies accounted for by the equity
method, included in other income (deductions), were earnings of
¥890 million, ¥447 million and ¥478 million for the years ended
December 31, 2016, 2015 and 2014 respectively.
59
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. TRADE RECEIVABLES
Trade receivables are summarized as follows:
December 31
Notes
Accounts
Less allowance for doubtful receivables
4. INVENTORIES
Inventories are summarized as follows:
December 31
Finished goods
Work in process
Raw materials
Millions of yen
2016
28,811
623,722
652,533
(11,075)
641,458
2015
17,614
582,464
600,078
(12,077)
588,001
Millions of yen
2016
373,337
143,298
44,101
560,736
2015
357,115
130,258
14,522
501,895
5. 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
2016
2015
283,893
1,656,087
1,778,552
54,786
3,773,318
(2,578,342)
282,786
1,632,604
1,813,116
61,952
3,790,458
(2,570,806)
1,194,976
1,219,652
Depreciation expenses for the years ended December 31,
2016, 2015 and 2014 were ¥199,133 million, ¥223,759 mil-
lion and ¥213,739 million, respectively.
Amounts due for purchases of property, plant and equip-
ment were ¥31,318 million and ¥30,789 million at December
31, 2016 and 2015, respectively, and are included in other
current liabilities in the accompanying consolidated balance
sheets. Fixed assets presented in the consolidated statements
of cash flows include property, plant and equipment and
intangible assets.
60
CANON ANNUAL REPORT 2016
6. FINANCE RECEIVABLES AND OPERATING LEASES
Finance receivables represent financing leases which consist
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
Millions of yen
Total minimum lease payments receivable
Unguaranteed residual values
Executory costs
Unearned income
Less allowance for credit losses
Less current portion
2016
306,766
14,776
(34)
(30,288)
291,220
(2,325)
288,895
(105,308)
183,587
2015
318,066
14,271
(888)
(31,920)
299,529
(2,878)
296,651
(109,220)
187,431
The activity in the allowance for credit losses is as follows:
Years ended December 31
Millions of yen
Balance at beginning of year
Charge-offs
Provision
Translation adjustments and other
Balance at end of year
2016
2,878
(978)
398
27
2,325
2015
6,276
(1,343)
55
(2,110)
2,878
Canon has policies in place to ensure that its products are
sold to customers with an appropriate credit history, and con-
tinuously monitors its customers’ credit quality based on infor-
mation including length of period in arrears, macroeconomic
conditions, initiation of legal proceedings against custom-
ers and bankruptcy filings. The allowance for credit losses of
finance receivables are evaluated collectively based on histori-
cal experience of credit losses. An additional reserve for indi-
vidual accounts is recorded when Canon becomes aware of a
customer’s inability to meet its financial obligations, such as in
the case of bankruptcy filings. Finance receivables which are
past due or individually evaluated for impairment at December
31, 2016 and 2015 are not significant.
The cost of equipment leased to customers under oper-
ating leases included in property, plant and equipment, net
at December 31, 2016 and 2015 was ¥97,890 million and
¥108,746 million, respectively. Accumulated depreciation on
equipment under operating leases at December 31, 2016 and
2015 was ¥75,997 million and ¥82,916 million, respectively.
The following is a schedule by year of the future minimum lease payments to be received under financing leases and noncan-
celable operating leases at December 31, 2016.
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
Millions of yen
Financing leases
Operating leases
117,728
87,627
58,364
31,422
10,986
639
306,766
7,226
3,894
2,185
994
409
41
14,749
61
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ACQUISITIONS
On March 17, 2016, Canon entered into a Shares and Other
Securities Transfer Agreement with Toshiba Corporation and
acquired the share options for consideration of cash to acquire
all the ordinary shares of Toshiba Medical Systems Corporation
(“TMSC”), which is exercisable upon the clearances of nec-
essary competition regulatory authorities. As such clear-
ances were obtained, Canon exercised the share options and
acquired all the ordinary shares of TMSC on December 19,
2016. The acquisition date was December 19, 2016 and the
purchase price was ¥665,498 million, which approximates the
fair value at that date.
The acquisition was accounted for using the acquisi-
tion method of accounting. Acquisition-related costs were
expensed as incurred and were not material.
Under Phase V of the Excellent Global Corporation Plan, a five-
year initiative that Canon has been implementing since 2016,
“embracing the challenge of new growth through a grand strate-
gic transformation” has been set as a basic policy. With regard to
“strengthening and growing new businesses, and creating future
businesses,” a particularly important strategy, Canon intends to
develop a health care business within the realm of “safety and
security,” as a next-generation pillar of growth.
TMSC is one of the leading global companies in the medical
equipment industry. Within the field of medical X-ray com-
puted tomography (“CT”) systems in particular, TMSC is the
overwhelming market share leader in Japan and has been
steadily increasing its global market share. By maximizing the
combination of both companies’ management resources,
Canon aims to solidify its business foundation for health care
that can contribute to the world.
The following table summarizes the preliminary purchase
price allocation which was based on estimated fair values of
the assets acquired and liabilities assumed at acquisition date.
Since the acquisition date of TMSC was near the balance
sheet date, and TMSC is composed of various entities located
around the world, the purchase price allocation is still prelimi-
nary. The estimates and assumptions are subject to change as
Canon obtains additional information for the estimates within
the measurement period. The primary areas of the preliminary
allocation of the fair value of consideration transferred that
are not yet finalized relate to the fair values of certain tangi-
ble and intangible assets acquired and the residual goodwill.
Specifically, certain underlying analyses for customer relation-
ships, and patents and developed technology were based on
overall estimates rather than detail information for each of the
individual operations.
Cash and cash equivalents
Other current assets
Intangible assets
Other noncurrent assets
Total assets acquired
Current liabilities
Noncurrent liabilities
Total liabilities assumed
Noncontrolling interest
Net identifiable assets acquired
Goodwill
Net assets acquired
Millions of yen
25,301
169,545
227,500
42,975
465,321
199,223
92,231
291,454
1,047
172,820
492,678
665,498
Intangible assets acquired, which are subject to amortization,
consist of customer relationships of ¥155,200 million, and pat-
ents and developed technology of ¥72,300 million. Canon has
preliminarily estimated the amortization period for the customer
relationships, and patents and developed technology to be 15 - 20
years and 10 years, respectively. The weighted average amortiza-
tion period for all intangible assets is approximately 15 years.
Goodwill recorded is attributable primarily to expected syn-
ergies from combining operations of TMSC and Canon, such
as accelerating entry into new fields, further improvement in
quality through shared production technology and expanding
business domains through the enhancement of R&D capabili-
ties. None of the goodwill is expected to be deductible for tax
purposes.
The amounts of net sales of TMSC since the acquisition date
included in the Canon’s consolidated statement of income for
the year ended December 31, 2016 were ¥13,582 million. The
amounts of net income of TMSC included in the Canon’s con-
solidated statement of income were not material.
62
CANON ANNUAL REPORT 2016
The unaudited pro forma net sales for the years ended
December 31, 2016 and 2015 as if TMSC had been included
in Canon’s consolidated statements of income from the begin-
ning of the year ended December 31, 2015 were ¥3,806,667
million and ¥4,224,181 million, respectively. Pro forma net
income was not disclosed because the impact on Canon’s con-
solidated statements of income was not material.
Canon acquired businesses other than that described above
during the year ended December 31, 2016 that were not
material to its consolidated financial statements.
On April 15, 2015, the Company acquired 76.1% of the
issued shares of Axis AB (“Axis”), a Sweden-based company
listed on Nasdaq Stockholm, a global leader in the network
video solution industry, primarily through a public cash ten-
der offer for consideration of ¥244,725 million. In addition,
the Company acquired 9.0% of the issued shares of Axis from
noncontrolling shareholders primarily through an additional
public cash tender offer. As a result, the Company’s aggregate
interest represents 85.1% of the issued shares of Axis. The fair
value of the 23.9% noncontrolling interest in Axis of ¥77,086
million was measured based on Axis’s common stock price on
the acquisition date.
The acquisition was accounted for using the acquisi-
tion method of accounting. Acquisition-related costs were
expensed as incurred and were not material.
The Company views its network surveillance camera busi-
ness as a promising new business area for Canon. Canon aims
to provide advanced and high-performance network solu-
tions to its customers and improve its product competitiveness
through the acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at acquisition date.
Current assets
Intangible assets
Goodwill
Other noncurrent assets
Non-current assets
Total assets acquired
Total liabilities assumed
Net assets acquired
Millions of yen
31,365
60,992
259,863
2,053
322,908
354,273
32,462
321,811
Intangible assets acquired, which are subject to amortiza-
tion, consist of trademarks of ¥42,880 million, patents and
developed technology of ¥17,823 million and software of
¥289 million. Canon has estimated the amortization period
for the trademarks, patents and developed technology, and
software to be 15 years, 7 years and 5 years, respectively. The
weighted average amortization period for all intangible assets
is approximately 13 years.
Goodwill recorded is attributable primarily to expected syn-
ergies from combining operations of Axis and Canon. None
of the goodwill is expected to be deductible for tax purposes.
The goodwill is assigned primarily to the Industry and Others
Business Unit for impairment testing.
The amounts of net sales of Axis since the acquisition date
included in the Canon’s consolidated statement of income for
the year ended December 31, 2015 were ¥72,602 million. The
amounts of net income of Axis included in the Canon’s consol-
idated statement of income were not material.
Pro forma results of operations were not disclosed because
the effect on the Canon’s consolidated statement of income
was not material.
Canon acquired businesses other than that described above
during the year ended December 31, 2015 that were not
material to its consolidated financial statements.
63
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets subject to amortization acquired during the year
ended December 31, 2016, including those recorded from busi-
nesses acquired, totaled ¥266,325 million, which primarily consist
of customer relationships of ¥155,997 million, patents and devel-
oped technology of ¥73,451 million and software of ¥36,054
million. The weighted average amortization periods for intangi-
ble assets in total acquired during the year ended December 31,
2016 are approximately 14 years. The weighted average amor-
tization periods for customer relationships, patents and devel-
oped technology and software acquired during the year ended
December 31, 2016 are approximately 15 - 20 years, 10 years
and 5 years, respectively.
Intangible assets subject to amortization acquired during the
year ended December 31, 2015, including those recorded from
businesses acquired, totaled ¥113,216 million, which primarily
consist of trademarks of ¥42,949 million, software of ¥39,817
million, and patents and developed technology of ¥18,083 mil-
lion. The weighted average amortization periods for intangi-
ble assets in total acquired during the year ended December 31,
2015 are approximately 9 years. The weighted average amortiza-
tion periods for trademarks, software, and patents and developed
technology acquired during the year ended December 31, 2015
are approximately 15 years, 5 years and 7 years, respectively.
The components of intangible assets subject to amortization at December 31, 2016 and 2015 were as follows:
December 31
Millions of yen
Software
Customer relationships
Patents and developed technology
Trademarks
License fees
Other
2016
2015
Gross carrying
amount
Accumulated
amortization
Gross carrying
amount
Accumulated
amortization
313,599
172,234
106,250
44,704
15,561
17,713
670,061
193,785
11,146
16,272
5,610
6,756
8,250
241,819
308,348
17,159
39,685
49,861
15,669
17,070
447,792
181,972
10,173
16,123
2,952
5,617
7,690
224,527
Aggregate amortization expense for the years ended
December 31, 2016, 2015 and 2014 was ¥50,963 million,
¥49,568 million and ¥49,741 million, respectively. Estimated
amortization expense for intangible assets currently held for
the next five years ending December 31 is ¥60,474 million
in 2017, ¥53,031 million in 2018, ¥42,624 million in 2019,
¥34,079 million in 2020, and ¥28,817 million in 2021.
Intangible assets not subject to amortization other than
goodwill at December 31, 2016 and 2015 were ¥18,026 mil-
lion and ¥17,943 million, respectively, which primarily consist
of in-process research and development recorded from busi-
nesses acquired.
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 for the years ended December 31, 2016 and 2015 were as follows:
Years ended December 31
Millions of yen
2016: Balance at beginning of year
Goodwill acquired during the year
Translation adjustments and other
Office
142,551
863
(7,158)
Imaging
System
Industry and
Others
Unallocated*1
Total
53,474
—
282,918
4,589
(4,440)
(29,051)
—
492,678
—
478,943
498,130
(40,649)
Balance at end of year
136,256
49,034
258,456
492,678
936,424
Millions of yen
2015: Balance at beginning of year
Goodwill acquired during the year
Translation adjustments and other
Office
145,335
10,373
(13,157)
Imaging
System
Industry and
Others
Unallocated
Total
21,780
31,367
327
44,221
228,827
9,870
—
—
—
211,336
270,567
(2,960)
Balance at end of year
142,551
53,474
282,918
—
478,943
*1 Canon has not completed the allocation of goodwill to the segments for impairment testing which is attributable to the acquisition of TMSC as of December 31, 2016.
64
CANON ANNUAL REPORT 2016
9. SHORT-TERM LOANS AND LONG-TERM DEBT
Short-term loans consisting of bank borrowings at December 31, 2016 and 2015 were ¥601 million and ¥26 million, respectively.
Long-term debt consisted of the following:
December 31
Millions of yen
Loan from a bank; bearing interest of 0.13% at December 31, 2016*1
Capital lease obligations and others
Less current portion
2016
610,000
2,538
612,538
(1,249)
611,289
2015
—
1,543
1,543
(662)
881
*1 On March 15, 2016, Canon entered into a provisional borrowing agreement with a bank which matures in 2017 for acquiring TMSC. On January 31, 2017,
Canon refinanced this borrowing to the unsecured loans by credit facilities expiring in December 2021. The loans under the credit facilities are ¥610,000 million
at a floating interest (0.04% as of January 31, 2017). As a result, this borrowing was classified as long-term debt in the accompanying Consolidated Balance
Sheet as of December 31, 2016.
The aggregate annual maturities of long-term debt outstanding at December 31, 2016 were as follows:
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
Millions of yen
1,249
736
405
125
610,023
—
612,538
Both short-term and long-term bank loans are primarily made
under general agreements which provide that security and guar-
antees for present and future indebtedness will be given upon
request of the bank, and that the bank shall have the right to off-
set cash deposits against obligations that have become due or, in
the event of default, against all obligations due to the bank.
10. TRADE PAYABLES
Trade payables are summarized as follows:
December 31
Notes
Accounts
Millions of yen
2016
2015
38,073
334,196
16,706
261,549
372,269
278,255
65
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. EMPLOYEE RETIREMENT AND SEVERANCE BENEFITS
The Company and certain of its subsidiaries have contributory
and noncontributory defined benefit pension plans covering
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 contri-
bution pension plans covering substantially all of their employees.
Effective January 1, 2014, defined benefit pension plans of
certain subsidiaries in the Netherlands were terminated, and the
related plan assets and obligations were transferred to a multiem-
ployer pension plan for the industry in which these subsidiaries
operate. As a result, the Company recorded a gain on curtail-
ments and settlements of ¥9,370 million in selling, general and
administrative expenses in the consolidated statement of income
for the year ended December 31, 2014.
The following tables include the provisional financial impact
related to the acquisition of TMSC, which was acquired during
the year ended December 31, 2016. TMSC participates in Toshiba
Corporate Pension Fund and the establishment of the new pen-
sion plan is currently in progress. The Company calculated the
projected benefit obligations based on the current benefit level of
Toshiba Corporate Pension Fund and included proportional share
of the plan assets of TMSC in the following tables. These obliga-
tions and plan assets are expected to be reasonable estimates of
the impact of creating the new plan.
Obligations and funded status
Reconciliations of beginning and ending balances of the projected benefit obligations and the fair value of the plan assets are as follows:
December 31
Change in benefit obligations:
Projected benefit obligations at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gain) loss
Benefits paid
Acquisition
Plan amendments
Foreign currency exchange rate changes
Projected 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
Acquisition
Foreign currency exchange rate changes
Fair value of plan assets at end of year
Funded status at end of year
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2016
2015
781,350
29,367
8,238
—
45,778
(25,032)
71,040
(4,734)
—
906,007
760,331
30,009
8,008
—
7,481
(24,479)
—
—
—
781,350
349,680
6,816
8,792
1,594
55,629
(6,268)
21,285
—
(45,442)
392,086
364,662
7,760
10,572
1,830
(5,534)
(6,795)
—
(2,655)
(20,160)
349,680
626,575
12,145
7,304
—
(21,782)
43,194
—
667,436
(238,571)
622,121
17,541
8,701
—
(21,788)
—
—
626,575
(154,775)
217,870
18,276
7,271
1,594
(6,268)
14,972
(28,776)
224,939
(167,147)
221,421
21
10,864
1,830
(6,795)
—
(9,471)
217,870
(131,810)
Amounts recognized in the consolidated balance sheets at December 31, 2016 and 2015 are as follows:
December 31
Other assets
Accrued expenses
Accrued pension and severance cost
66
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2016
2015
976
—
(239,547) (155,589)
(238,571) (154,775)
814
—
1,346
(840)
9,986
(1,123)
(167,653) (140,673)
(167,147) (131,810)
CANON ANNUAL REPORT 2016
Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2016 and 2015 before the effect of
income taxes are as follows:
December 31
Actuarial loss
Prior service credit
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2016
2015
251,078
(71,439)
208,946
(79,935)
116,930
(2,652)
71,750
(2,567)
179,639
129,011
114,278
69,183
The accumulated benefit obligation for all defined benefit plans was as follows:
December 31
Accumulated benefit obligation
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2016
2015
869,355
740,545
377,004
338,160
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
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
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2016
2015
905,975
666,428
777,458
621,869
390,942
222,449
346,749
204,953
867,706
664,586
731,537
615,963
375,860
222,449
331,351
200,891
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, 2016, 2015 and 2014 consisted of the following components:
Years ended December 31
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of actuarial loss
(Gain) loss on curtailments and settlements
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2014
2016
2015
2014
29,367 30,009 26,445 6,816 7,760 6,801
8,238 8,008 10,772 8,792 10,572 10,654
(10,012) (11,857) (10,637)
(19,443) (19,579) (18,018)
(13,230) (12,592) (12,800)
(61)
10,944 10,402 10,023 2,185 3,839 1,698
— (9,370)
—
(145)
85
—
—
—
15,876 16,248 16,422 7,866 10,169
(915)
67
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended
December 31, 2016, 2015 and 2014 are summarized as follows:
Years ended December 31
Current year actuarial (gain) loss
Current year prior service credit
Amortization of actuarial loss
Amortization of prior service credit
Curtailments and settlements
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2016
2015
2014
2016
2015
2014
53,076
(4,734)
(10,944)
13,230
—
9,519
—
(10,402)
12,592
—
33,800
—
(10,023)
12,800
—
47,365
—
(2,185)
(85)
—
6,302
(2,655)
(3,839)
145
—
37,366
—
(1,698)
61
(16,725)
50,628
11,709
36,577
45,095
(47)
19,004
The estimated prior service credit and actuarial loss for the defined benefit pension plans that will be amortized from accumu-
lated 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 Millions of yen
(13,163)
13,852
43
5,765
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
2016
0.7%
2.6%
2015
1.1%
3.0%
2016
2.2%
2.1%
2015
3.0%
2.0%
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
Japanese plans
Foreign plans
2016
2015
2014
2016
2015
2014
1.1% 1.1% 1.6%
3.0% 3.0% 3.0%
3.1% 3.1% 3.1%
3.0% 2.9% 3.9%
2.0% 2.0% 2.3%
4.4% 5.6% 4.9%
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 formu-
lates 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 securities,
and approximately 25% is invested in other investment vehi-
cles, primarily consisting of investments in life insurance com-
pany general accounts.
68
CANON ANNUAL REPORT 2016
Outside Japan, investment policies vary by country, but the
long-term investment objectives and strategies remain con-
sistent. Canon’s model portfolio for foreign plans has been
developed as follows: approximately 40% is invested in equity
securities, approximately 30% is invested in debt securities,
and approximately 30% is invested in other investment vehi-
cles, 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 compa-
nies, and appropriately diversified investments by type of indus-
try and other relevant factors. The debt securities 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 repay-
ment dates, and has appropriately 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 companies include a guaranteed interest rate and
return of capital. With respect to investments in foreign invest-
ment vehicles, Canon has investigated the stability of the under-
lying governments 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.
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, 2016 and 2015, by asset category, are as follows:
December 31, 2016
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
46,630
7,902
—
—
— 133,023
— 46,630
—
7,902
— 133,023
—
22,680
—
—
— 62,641
—
—
— 22,680
— 62,641
—
99,157
—
1,317
— 14,298
— 121,066
— 99,157
—
1,317
— 14,298
— 121,066
—
11,558
—
2,577
— 19,989
— 22,296
— 11,558
—
2,577
— 19,989
— 22,296
— 13,612
— 13,612
—
—
—
—
— 128,220
— 128,220
—
6,898
—
6,898
— 102,127
84 102,211
— 76,276
24 76,300
153,689 513,663
84 667,436
34,238 190,677
24 224,939
December 31, 2015
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)
Foreign companies
Pooled funds (f)
Debt securities:
Government bonds (g)
Municipal bonds
Corporate bonds
Pooled funds (h)
Mortgage backed securities
(and other asset backed
securities)
Life insurance company
general accounts
Other assets
49,847
3,287
—
—
— 125,850
— 49,847
—
3,287
— 125,850
—
18,661
—
—
— 66,296
—
—
— 18,661
— 66,296
—
142,015
—
1,248
— 13,532
— 120,364
— 142,015
—
1,248
— 13,532
— 120,364
—
48
—
2,587
— 21,009
— 34,564
48
—
—
2,587
— 21,009
— 34,564
— 10,462
— 10,462
—
137
—
137
— 125,759
— 125,759
—
6,190
—
6,190
— 33,432
779 34,211
— 68,378
— 68,378
195,149 430,647
779 626,575
18,709 199,161
— 217,870
69
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts of
¥187 million.
(b) These funds invest in listed equity securities consisting of
approximately 25% Japanese companies and 75% foreign
companies for Japanese plans, and mainly foreign companies
for foreign plans.
(c) This class includes approximately 85% Japanese government
bonds and 15% foreign government bonds for Japanese plans,
and mainly foreign government bonds for foreign plans.
(d) These funds invest in approximately 25% Japanese government
bonds, 50% foreign government bonds, 5% Japanese munici-
pal bonds, and 20% corporate bonds for Japanese plans. These
funds invest in approximately 70% foreign government bonds
and 30% 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
¥325 million.
(f) These funds invest in listed equity securities consisting of
approximately 25% Japanese companies and 75% foreign
companies for Japanese plans, and mainly foreign companies
for foreign plans.
(g) This class includes approximately 85% Japanese government
bonds and 15% foreign government bonds for Japanese plans,
and mainly foreign government bonds for foreign plans.
(h) These funds invest in approximately 25% Japanese government
bonds, 50% foreign government bonds, 5% Japanese munici-
pal bonds, and 20% corporate bonds for Japanese plans. These
funds invest in approximately 75% foreign government bonds
and 25% 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 neces-
sarily indicate the risks or ratings of the assets.
Level 1 assets are comprised principally of equity securities and
government bonds, which are valued using unadjusted quoted
market prices in active markets with sufficient volume and fre-
quency of transactions. Level 2 assets are comprised principally of
pooled funds that invest in equity and debt securities, corporate
bonds, investments in life insurance company general accounts
and other assets. Pooled funds are valued at their net asset val-
ues that are calculated by the sponsor of the fund and have daily
liquidity. Corporate bonds are valued using quoted prices for iden-
tical assets in markets that are not active. Investments in life insur-
ance company general accounts are valued at conversion value.
Other assets are comprised principally of interest bearing cash and
hedge funds.
The fair value of Level 3 assets, consisting of hedge funds, was
¥108 million and ¥779 million at December 31, 2016 and 2015,
respectively. Amounts of actual returns on, and purchases and sales
of, these assets during the years ended December 31, 2016 and
2015 were not significant.
The fair values of plan assets by each asset category of
TMSC are calculated based on a pro-rata basis of total plan
assets of Toshiba Corporate Pension Fund.
Contributions
Canon expects to contribute ¥14,179 million to its Japanese defined benefit pension plans and ¥8,203 million to its foreign
defined benefit pension plans for the year ending December 31, 2017.
Estimated future benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year ending December 31:
2017
2018
2019
2020
2021
2022–2026
Japanese plans
Foreign plans
Millions of yen
Millions of yen
30,021
32,431
33,936
34,833
36,715
203,010
9,549
9,920
10,070
10,460
10,905
61,681
Multiemployer pension plans
The amounts of cost recognized for the multiemployer pen-
sion plans primarily in the Netherlands for the years ended
December 31, 2016, 2015 and 2014 were ¥3,482 million,
¥3,864 million and ¥2,815 million, respectively. The mul-
tiemployer pension plan in which the subsidiaries in the
Netherlands participated was 96% funded as of December 31,
2015. The collective bargaining agreements have no expiration
date. Canon is not liable for other participating employers’
obligations under the terms and conditions of the agreements.
Defined contribution plans
The amounts of cost recognized for the defined contribution pen-
sion plans of the Company and certain of its subsidiaries for the
years ended December 31, 2016, 2015 and 2014 were ¥17,603
million, ¥17,277 million and ¥15,077 million, respectively.
70
CANON ANNUAL REPORT 2016
12. INCOME TAXES
Domestic and foreign components of income before income taxes and the current and deferred income tax expense attributable
to such income are summarized as follows:
Years ended December 31
2016: Income before income taxes
Income taxes:
Current
Deferred
Japanese
135,131
47,687
4,126
51,813
Millions of yen
Foreign
109,520
27,806
3,062
30,868
Total
244,651
75,493
7,188
82,681
2015: Income before income taxes
228,871
118,567
347,438
Income taxes:
Current
Deferred
80,020
3,414
83,434
31,413
1,258
32,671
111,433
4,672
116,105
2014: Income before income taxes
277,041
106,198
383,239
Income taxes:
Current
Deferred
83,221
6,796
90,017
25,850
2,133
27,983
109,071
8,929
118,000
The Company and its domestic subsidiaries are subject to
a number of income taxes, which, in the aggregate, rep-
resent a statutory income tax rate of approximately 33%,
35% and 38% for the years ended December 31, 2016,
2015 and 2014, respectively.
The statutory income tax rate utilized for deferred tax assets
and liabilities which are expected to be settled or realized in
the periods from January 1, 2017 is approximately 31%. The
adjustments of deferred tax assets and liabilities for amend-
ments to the Japanese tax regulations which have been
reflected in income taxes in the consolidated statements of
income for the years ended December 31, 2016 and 2015
were ¥3,498 million and ¥6,456 million, respectively.
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
2016
33.0%
2015
35.0%
2014
38.0%
0.8
(3.0)
(3.0)
(0.8)
1.4
5.4
0.8
(2.9)
(4.8)
(0.4)
1.9
3.8
0.7
(3.7)
(5.0)
(0.5)
0.8
0.5
Effective income tax rate
33.8%
33.4%
30.8%
71
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred income tax assets and liabilities are included in the accompanying consolidated balance sheets under the follow-
ing captions:
December 31
Prepaid expenses and other current assets
Other assets
Other current liabilities
Other noncurrent liabilities
Millions of yen
2016
—
149,866
—
(108,429)
41,437
2015
55,108
113,687
(2,682)
(96,243)
69,870
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31,
2016 and 2015 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
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax assets
Millions of yen
2016
2015
15,387
1,835
108,781
5,998
26,519
31,316
29,167
33,782
252,785
(26,687)
226,098
(9,450)
(7,321)
(4,449)
(47,802)
—
(85,888)
(29,751)
(184,661)
41,437
15,298
3,293
77,420
6,906
24,281
39,881
33,526
33,808
234,413
(32,931)
201,482
(10,400)
(7,354)
(4,974)
(54,280)
(1,104)
(21,106)
(32,394)
(131,612)
69,870
The net changes in the total valuation allowance were a
decrease of ¥6,244 million and ¥4,567 million for the years ended
December 31, 2016 and 2015, respectively, and an increase of
¥2,443 million for the year ended December 31, 2014.
Based upon the level of historical taxable income and
projections for future taxable income over the periods which
the net deductible temporary differences are expected to
reverse, management believes it is more likely than not that
Canon will realize the benefits of these deferred tax assets, net
of the existing valuation allowance, at December 31, 2016.
72
CANON ANNUAL REPORT 2016
At December 31, 2016, Canon had net operating losses which can be carried forward for income tax purposes of ¥175,404
million to reduce future taxable income. Periods available to reduce future taxable income vary in each tax jurisdiction and gener-
ally 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
2,150
22,314
57,302
56,547
37,091
175,404
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 ¥26,474
million for a portion of undistributed earnings of foreign sub-
sidiaries that arose for the year ended December 31, 2016 and
prior years because Canon currently does not expect to have such
amounts distributed or paid as dividends to the Company in the
foreseeable future. Deferred tax liabilities will be recognized when
Canon expects that it will realize those undistributed earnings in
a taxable manner, such as through receipt of dividends or sale of
the investments. At December 31, 2016, such undistributed earn-
ings of these subsidiaries were ¥935,913 million.
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
2016
6,056
2,741
—
(665)
(370)
(444)
7,318
Millions of yen
2015
6,431
2,174
165
(1,180)
(505)
(1,029)
6,056
2014
6,201
1,649
216
(114)
(1,808)
287
6,431
The total amounts of unrecognized tax benefits that would
reduce the effective tax rate, if recognized, were ¥7,318 million
and ¥6,056 million at December 31, 2016 and 2015, 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 lit-
igation could affect the effective tax rate in a future period. Based
on each of the items of which Canon is aware at December 31,
2016, 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 pen-
alties accrued at December 31, 2016 and 2015, and interest and
penalties included in income taxes for the years ended December
31, 2016, 2015 and 2014 were not significant.
Canon files income tax returns in Japan and various foreign
tax jurisdictions. In Japan, Canon is no longer subject to regu-
lar income tax examinations by the tax authority for years before
2015. Canon is also no longer subject to a transfer pricing exami-
nation by the tax authority for years before 2015. In other major
foreign tax jurisdictions, including the United States and the
Netherlands, Canon is no longer subject to income tax examina-
tions by tax authorities for years before 2007 with few exceptions.
The tax authorities are currently conducting income tax examina-
tions of Canon’s income tax returns for years after 2006 in major
foreign tax jurisdictions.
73
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 reso-
lution of the shareholders. Certain foreign subsidiaries are also
required to appropriate their earnings to legal reserves under
the laws of their respective countries.
Cash dividends and appropriations to the legal reserve
charged to retained earnings for the years ended December
31, 2016, 2015 and 2014 represent dividends paid out during
14. OTHER COMPREHENSIVE INCOME (LOSS)
those years and the related appropriations to the legal reserve.
Retained earnings at December 31, 2016 did not reflect cur-
rent year-end dividends in the amount of ¥81,905 million which
were approved by the shareholders in March 2017.
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 ¥940,000 million at December 31, 2016.
Retained earnings at December 31, 2016 included
Canon’s equity in undistributed earnings of affiliated compa-
nies accounted for by the equity method in the amount of
¥17,804 million.
Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014 are as follows:
Millions of yen
Balance at December 31, 2013
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, 2014
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, 2015
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, 2016
Foreign
currency translation
adjustments
Unrealized gains
and losses
on securities
Gains and
losses on
derivative instruments
Pension
liability
adjustments
Total
1,734
10
142,813
—
142,823
144,557
10,242
(2,408)
(90,214)
(80,646)
3
—
(35)
(22)
3,933
(1,632)
2,304
12,546
(2,204)
(47,840)
96,702
2,009
(195)
(2,603)
11,875
(36,000)
(126,214)
12,252
108,932
28,286
73
—
—
—
73
(57,592)
1,691
(256)
(6,155)
(62,312)
—
(57,519)
87,038
(182)
1,509
14,055
3,041
2,785
182
1,352
(4,803)
(131,017)
4,211
(58,028)
(29,742)
259
—
—
(1)
258
(101,350)
93
(100,998)
(13,960)
814
382
1,196
15,251
938
(67,511)
(167,109)
(3,862)
(2,924)
(2,742)
99
(67,413)
(198,430)
(3,288)
(170,139)
(199,881)
74
CANON ANNUAL REPORT 2016
Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and
2014 are as follows:
Years ended December 31
Foreign currency translation adjustments
Unrealized gains and losses on securities
Gains and losses on derivative instruments
Pension liability adjustments
Amount reclassified from accumulated other comprehen-
sive income (loss)*1
Millions of yen
2016
2015
2014
Affected line items in consolidated
statements of income
139
(46)
93
—
93
282
(94)
188
194
382
(5,890)
2,049
(3,841)
(21)
(3,862)
(16)
164
148
(49)
99
—
—
—
—
—
(298)
104
(194)
12
(182)
4,217
(1,180)
3,037
4
3,041
1,504
(175)
1,329
— Other, net
— Income taxes
— Consolidated net income
—
Net income attributable to noncontrolling
interests
— Net income attributable to Canon Inc.
(2,509) Other, net
879
Income taxes
(1,630) Consolidated net income
Net income attributable to noncontrolling
interests
(2)
(1,632) Net income attributable to Canon Inc.
3,260 Other, net
(1,248)
2,012
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
(3)
2,009
15,585
(3,710)
11,875
23
—
1,352
11,875
Net income attributable to Canon Inc.
Total amount reclassified, net of
tax and noncontrolling interests
(3,288)
4,211
12,252
*1 Amounts in parentheses indicate gains in consolidated statements of income.
75
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2016:
Foreign currency translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net unrealized gains and losses on securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
Net change during the year
Net 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)
2015:
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)
2014:
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)
76
Before-tax
amount
(108,280)
139
(108,141)
1,184
282
1,466
1,619
(5,890)
(4,271)
Millions of yen
Tax (expense)
or benefit
521
(46)
475
(375)
(94)
(469)
(726)
2,049
1,323
(95,707)
(16)
(95,723)
(206,669)
25,204
164
25,368
26,697
Net-of-tax
amount
(107,759)
93
(107,666)
809
188
997
893
(3,841)
(2,948)
(70,503)
148
(70,355)
(179,972)
(56,054)
550
(55,504)
3,249
(298)
2,951
52
4,217
4,269
(13,166)
1,504
(11,662)
(60,496)
(1,045)
104
(941)
(304)
(1,180)
(1,484)
5,294
(175)
5,119
3,244
2,204
(194)
2,010
(252)
3,037
2,785
(7,872)
1,329
(6,543)
(57,252)
144,826
(992)
143,834
6,379
(2,509)
3,870
(3,309)
3,260
(49)
(2,225)
879
(1,346)
1,102
(1,248)
(146)
4,154
(1,630)
2,524
(2,207)
2,012
(195)
(71,166)
15,585
(55,581)
93,066
21,306
(3,710)
17,596
15,112
(49,860)
11,875
(37,985)
108,178
CANON ANNUAL REPORT 2016
15. STOCK-BASED COMPENSATION
On May 1, 2011, based on the approval of the shareholders,
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 exercisable period. The grant-date fair value per share of
the stock options granted during the year ended December
31, 2011 was ¥772.
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 exercisable period. The grant-date fair value per share of
the stock options granted during the year ended December
31, 2010 was ¥988.
The compensation cost recognized for these stock options for
On May 1, 2010, based on the approval of the shareholders,
the years ended December 31, 2016, 2015 and 2014 was nil.
A summary of option activity under the stock option plans as of and for the years ended December 31, 2016, 2015 and 2014
is presented below:
Outstanding at January 1, 2014
Exercised
Forfeited/Expired
Outstanding at December 31, 2014
Exercised
Forfeited/Expired
Outstanding at December 31, 2015
Exercised
Forfeited/Expired
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Weighted-
average
exercise price
Weighted-average
remaining
contractual
term
Aggregate
intrinsic value
Shares
2,657,400
(67,200)
(728,400)
1,861,800
(249,600)
(316,200)
1,296,000
—
(693,000)
Yen
4,245
3,287
4,869
4,036
3,311
3,678
4,263
—
4,500
Year
Millions of yen
1.0
28
0.7
248
0.4
—
603,000
3,990
603,000
3,990
0.2
0.2
—
—
At December 31, 2016, all outstanding option awards were vested.
The total fair value of shares vested during the years ended December 31, 2016, 2015 and 2014 was nil. Cash received from the
exercise of stock options for the years ended December 31, 2016, 2015 and 2014 was nil, ¥826 million and ¥221 million, respectively.
77
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. NET INCOME ATTRIBUTABLE TO CANON INC. SHAREHOLDERS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted net income attributable to Canon Inc. shareholders per
share computations is as follows:
Years ended December 31
Millions of yen
2016
2015
2014
Net income attributable to Canon Inc.
150,650
220,209
254,797
Average common shares outstanding
Effect of dilutive securities:
Stock options
Number of shares
1,092,070,680
1,092,017,955
1,112,509,931
—
34,931
4,393
Diluted common shares outstanding
1,092,070,680
1,092,052,886
1,112,514,324
Net income attributable to Canon Inc. shareholders per share:
Basic
Diluted
137.95
137.95
Yen
201.65
201.65
229.03
229.03
The computation of diluted net income attributable to Canon Inc. shareholders per share for the year ended December 31,
2016 excludes outstanding stock options because the effect would be anti-dilutive. The computation of diluted net income
attributable to Canon Inc. shareholders per share for the years ended December 31, 2015 and 2014 excludes certain outstanding
stock options because the effect would be anti-dilutive.
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 foreign
exchange contracts utilized by the Company and certain of
its subsidiaries to reduce the risk. Canon assesses foreign cur-
rency exchange rate risk by continually monitoring changes
in the exposures and by evaluating hedging opportunities.
Canon does not hold or issue derivative financial instruments
for trading purposes. Canon is also exposed to credit-related
losses in the event of non-performance by counterparties to
derivative financial instruments, but it is not expected that any
counterparties will fail to meet their obligations. Most of the
counterparties are internationally recognized financial institu-
tions and selected by Canon taking into account their finan-
cial condition, 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.
78
CANON ANNUAL REPORT 2016
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 fluctuations in
foreign currency exchange rates associated with certain 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, 2016 and 2015 are set forth below:
December 31
To sell foreign currencies
To buy foreign currencies
Millions of yen
2016
2015
371,644
228,053
46,741
37,540
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 balance
sheets at December 31, 2016 and 2015.
Derivatives designated as hedging instruments
December 31
Balance sheet location
2016
2015
Fair value
Millions of yen
Assets:
Foreign exchange contracts
Liabilities:
Foreign exchange contracts
Prepaid expenses and other current assets
19
373
Other current liabilities
1,913
534
Derivatives not designated as hedging instruments
December 31
Balance sheet location
2016
2015
Fair value
Millions of yen
Assets:
Foreign exchange contracts
Liabilities:
Foreign exchange contracts
Prepaid expenses and other current assets
567
1,112
Other current liabilities
7,479
90
79
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2016, 2015 and 2014.
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
2016: Foreign exchange
contracts
2015: Foreign exchange
contracts
2014: Foreign exchange
contracts
1,619
Other, net
5,890
Other, net
(311)
52
Other, net
(4,217)
Other, net
(3,309)
Other, net
(3,260)
Other, net
(131)
(145)
Derivatives not designated as hedging instruments
Years ended December 31
Gain (loss) recognized in income on derivative
Foreign exchange contracts
Location
Other, net
2016
7,018
Millions of yen
2015
1,099
2014
(21,728)
18. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
At December 31, 2016, commitments outstanding for the pur-
chase of property, plant and equipment approximated ¥36,578
million, and commitments outstanding for the purchase of parts
and raw materials approximated ¥119,395 million.
Canon occupies sales offices and other facilities under lease
arrangements accounted for as operating leases. Deposits
made under such arrangements aggregated ¥13,128 million
and ¥13,561 million at December 31, 2016 and 2015, respec-
tively, and are included in noncurrent receivables in the accom-
panying consolidated balance sheets. Rental expenses under
such operating lease arrangements amounted to ¥42,714 mil-
lion, ¥46,483 million and ¥43,215 million for the years ended
December 31, 2016, 2015 and 2014, 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, 2016 are as follows:
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
Total future minimum lease payments
80
Millions of yen
26,380
18,273
13,543
8,544
6,411
11,794
84,945
CANON ANNUAL REPORT 2016
Guarantees
Canon provides guarantees for bank loans of its employees,
affiliates and other companies. The guarantees for the employ-
ees 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 payment
within the contract periods of 1 year to 30 years, in the case
of employees with housing loans, and 1 year to 5 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 ¥6,056 million at December 31, 2016.
The carrying amounts of the liabilities recognized for Canon’s
obligations as a guarantor under those guarantees at December
31, 2016 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 costs for the years ended December 31,
2016 and 2015 are summarized as follows:
Years ended December 31
Millions of yen
Balance at beginning of year
Additions
Utilization
Other
Balance at end of year
2016
14,014
15,403
(12,759)
(3,490)
13,168
2015
11,564
18,942
(12,404)
(4,088)
14,014
Legal proceedings
Canon is involved in various claims and legal actions arising
in the ordinary course of business. Canon has recorded pro-
visions for liabilities when it is probable that liabilities have
been incurred and the amount of loss can be reasonably esti-
mated. Canon reviews these provisions at least quarterly and
adjusts these provisions to reflect the impact of the negotia-
tions, settlements, rulings, advice of legal counsel and other
information and events pertaining to a particular case. Based
on its experience, although litigation is inherently unpre-
dictable, Canon believes that any damage amounts claimed
in outstanding matters are not a meaningful indicator of
Canon’s potential liability. In the opinion of management, any
reasonably possible range of losses from outstanding matters
would not have a material adverse effect on Canon’s consoli-
dated financial position, results of operations, or cash flows.
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, 2016 and 2015 are set forth below. The following
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 and derivative instruments which are disclosed in Note 2 and Note 17, respectively.
December 31
Long-term debt, including current installments
Millions of yen
2016
2015
Carrying
amount
Estimated
fair value
Carrying
amount
(612,538)
(612,668)
(1,543)
Estimated
fair value
(1,507)
81
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 flows associated with each instrument discounted using
current market borrowing rates for similar debt instruments
of comparable maturity. The levels are more fully described in
Note 20.
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 subjective in nature
and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Concentrations of credit risk
At December 31, 2016 and 2015, one customer accounted
for approximately 12% and 15% of consolidated trade receiv-
ables, respectively. Although Canon does not expect that the
customer will fail to meet its obligations, Canon is potentially
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 measure-
ment date. A three-level fair value hierarchy that prioritizes the
inputs used to measure fair value is as follows:
Level 1— Inputs are quoted prices in active markets for identi-
cal 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 principally
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 drivers
are unobservable, which reflect the reporting entity’s
own assumptions about the assumptions that mar-
ket participants would use in establishing a price.
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, 2016 and 2015.
December 31
Millions of yen
2016: 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
Level 3
Total
—
30,500
269
—
12
42,444
—
42,725
—
—
—
229
74
—
586
31,389
9,392
9,392
—
—
—
—
—
—
—
—
—
30,500
269
229
86
42,444
586
74,114
9,392
9,392
82
CANON ANNUAL REPORT 2016
Millions of yen
2015: 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
Level 3
Total
—
80,870
287
—
12
42,849
—
43,148
—
—
—
201
52
—
1,485
82,608
624
624
—
—
—
—
—
—
—
—
—
80,870
287
201
64
42,849
1,485
125,756
624
624
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 fre-
quency of transactions. Level 2 cash and cash equivalents are
valued based on market approach, using quoted prices for
identical assets in markets that are not active. Level 3 invest-
ments are mainly comprised of corporate bonds, which are val-
ued based on cost approach, using unobservable inputs as the
market for the assets was not active at the measurement date.
Derivative financial instruments are comprised of foreign
exchange contracts. Level 2 derivatives are valued using quotes
obtained from counterparties or third parties, which are peri-
odically 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 year ended December 31, 2015. There are no changes in Level 3 assets measured on a recurring basis for the year
ended December 31, 2016.
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
2015
474
—
22
(496)
—
Assets and liabilities measured at fair value on a nonrecurring basis
During the years ended December 31, 2016 and 2015, there were no circumstances that required any significant assets or liabilities to
be measured at fair value on a nonrecurring 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 printing
systems / High speed continuous feed printers / Wide-format
printers / Document solutions
83
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Imaging System Business Unit:
Interchangeable lens digital cameras / Digital compact
cameras / Digital camcorders / Digital cinema cameras /
Interchangeable lenses / Compact photo printers / Inkjet
printers / Large-format inkjet printers / Commercial photo
printers / Image scanners / Multimedia projectors / Broadcast
equipment / Calculators
Industry and Others Business Unit:
Semiconductor lithography equipment / FPD (Flat panel dis-
play) lithography equipment / Digital radiography systems /
Diagnostic X-ray Systems / Computed Tomography / Magnetic
Resonance Imaging / Diagnostic Ultrasound Systems / Clinical
Chemistry Analyzers / Ophthalmic equipment / Vacuum thin-
film deposition equipment / Organic LED (OLED) panel manu-
facturing 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 poli-
cies in Note 1. Canon evaluates performance of, and allocates
resources to, each segment based on operating profit.
Information about operating results and assets for each segment as of and for the years ended December 31, 2016, 2015 and
2014 is as follows:
Millions of yen
2016: Net sales:
External customers
Intersegment
Total
Operating cost and expenses
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
2015: Net sales:
External customers
Intersegment
Total
Operating cost and expenses
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
2014: Net sales:
External customers
Intersegment
Total
Operating cost and expenses
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
Office
1,804,862
2,957
1,807,819
1,638,333
169,486
961,749
78,319
72,189
2,108,246
2,570
2,110,816
1,820,230
290,586
1,020,758
86,206
73,819
2,075,788
2,944
2,078,732
1,786,675
292,057
1,025,499
87,058
69,704
Imaging
System
Industry and
Others
Corporate and
eliminations
1,094,291
998
1,095,289
950,876
144,413
391,661
47,386
25,564
1,262,667
1,168
1,263,835
1,080,396
183,439
452,283
52,070
38,337
1,342,501
693
1,343,194
1,148,593
194,601
517,524
53,912
31,124
502,334
82,326
584,660
577,212
7,448
545,210
41,053
29,346
429,358
95,293
524,651
537,730
(13,079)
332,252
45,064
24,241
308,963
89,802
398,765
420,566
(21,801)
342,695
37,544
15,976
—
(86,281)
(86,281)
6,200
(92,481)
3,239,909
83,338
81,280
—
(99,031)
(99,031)
6,705
(105,736)
2,622,480
89,987
106,733
—
(93,439)
(93,439)
7,929
(101,368)
2,574,900
84,966
107,956
Consolidated
3,401,487
—
3,401,487
3,172,621
228,866
5,138,529
250,096
208,379
3,800,271
—
3,800,271
3,445,061
355,210
4,427,773
273,327
243,130
3,727,252
—
3,727,252
3,363,763
363,489
4,460,618
263,480
224,760
84
CANON ANNUAL REPORT 2016
Intersegment sales are recorded at the same prices used in
transactions with third parties. Expenses not directly associated
with specific segments are allocated based on the most rea-
sonable measures applicable. Corporate expenses include cer-
tain corporate research and development expenses. Segment
assets are based on those directly associated with each seg-
ment. Corporate assets primarily consist of cash and cash
equivalents, investments, deferred tax assets, goodwill and
corporate properties. Capital expenditures represent the addi-
tions to property, plant and equipment and intangible assets
measured on an accrual basis.
Operating results of TMSC for the year ended December
31, 2016 and assets of TMSC other than corporate assets
at December 31, 2016 are included in Industry and Others
Business Unit based on preliminary assessment.
Information about product sales to external customers by business unit for the years ended December 31, 2016, 2015 and
2014 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
Millions of yen
2016
2015
2014
289,532
386,193
664,846
464,291
328,061
421,209
857,369
501,607
322,398
401,447
862,000
489,943
1,804,862
2,108,246
2,075,788
666,868
329,066
98,357
782,623
362,663
117,381
861,196
366,946
114,359
1,094,291
1,262,667
1,342,501
121,090
381,244
123,887
305,471
90,395
218,568
502,334
429,358
308,963
3,401,487
3,800,271
3,727,252
Information by major geographic area as of and for the years ended December 31, 2016, 2015 and 2014 is as follows:
Net sales:
Japan
Americas
Europe
Asia and Oceania
Total
Long-lived assets:
Japan
Americas
Europe
Asia and Oceania
Total
Millions of yen
2016
2015
2014
706,979
963,544
913,523
817,441
714,280
1,144,422
1,074,366
867,203
724,317
1,036,500
1,090,484
875,951
3,401,487
3,800,271
3,727,252
1,163,374
147,129
166,734
164,007
937,716
150,105
183,451
189,588
950,719
157,748
127,700
210,650
1,641,244
1,460,860
1,446,817
85
STRATEGYBUSINESS SEGMENTCORPORATE STRUCTUREFINANCIAL SECTIONCORPORATE DATACANON ANNUAL REPORT 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS / SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
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 busi-
ness in any individual country in which its sales in that coun-
try exceed 10% of consolidated net sales. Net sales in the
United States were ¥884,083 million, ¥1,047,838 million and
¥938,411 million for the years ended December 31, 2016,
2015 and 2014, respectively.
Long-lived assets represent property, plant and equipment
and intangible assets for each geographic area.
In addition to the disclosure requirements under Topic 280,
Canon has disclosed the segment information based on the
location of Canon Inc. and its subsidiaries. Results from a sur-
vey of a representative sample of financial statement users,
however, indicated that they consider the latter to be less use-
ful than sales information based on the location where the
product is shipped to customers, which is disclosed separately.
For this reason, Canon decided to discontinue the disclosure
of geographical segment information based on the location of
Canon Inc. and its subsidiaries from this year, in order to avoid
the risk of confusing users due to disclosing two similar types
of geographical information and make disclosure more concise
and transparent.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31
Millions of yen
2016: Allowance for doubtful receivables
Trade receivables
Finance receivables
2015: Allowance for doubtful receivables
Trade receivables
Finance receivables
2014: Allowance for doubtful receivables
Trade receivables
Finance receivables
Balance at
beginning of period
Addition-charged
to income
Deduction bad debts
written off
Translation
adjustments and other
Balance at
end of period
12,077
2,878
12,122
6,276
12,730
7,323
1,460
398
2,180
55
878
154
(1,824)
(978)
(1,745)
(1,343)
(2,236)
(1,171)
(638)
27
(480)
(2,110)
750
(30)
11,075
2,325
12,077
2,878
12,122
6,276
86
CANON ANNUAL REPORT 2016
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Canon is responsible for establishing and maintaining adequate internal control over financial reporting.
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 gener-
ally 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 rea-
sonable 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 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, 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.
Canon’s management excluded from its assessment of the effectiveness of Canon’s internal control over financial reporting
as of December 31, 2016, an assessment of internal control over financial reporting of Toshiba Medical Systems Corporation
(“TMSC”), which became a wholly-owned subsidiary of Canon on December 19, 2016. TMSC had total assets of 251.4 bil-
lion yen and net sales of 13.6 billion yen for the period from December 19, 2016 to December 31, 2016 that were reflected in
Canon’s consolidated financial statements as of and for the fiscal year ended December 31, 2016.
Canon’s management assessed the effectiveness of internal control over financial reporting as of December 31, 2016. In making
this assessment, management used the criteria established in internal Control –Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).
Based on its assessment, management concluded that, as of December 31, 2016, Canon’s internal control over financial report-
ing 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 effec-
tiveness of Canon’s internal control over financial reporting.
87
CANON ANNUAL REPORT 2016 REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Canon Inc.
We have audited the accompanying consolidated balance sheets of Canon Inc. and subsidiaries as of December 31, 2016 and 2015, 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, 2016. Our audits also included the schedule of valuation and qualifying accounts (the “schedule”). These financial
statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these finan-
cial statements and schedule 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 management, 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, 2016 and 2015, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
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, 2016, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated March 30, 2017 expressed an unqualified opinion thereon.
March 30, 2017
88
CANON ANNUAL REPORT 2016 REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Canon Inc.
We have audited Canon Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria estab-
lished in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 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 accom-
panying 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 finan-
cial 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 effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. 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 reliability 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 gener-
ally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authori-
zations of management and directors of the company; and (3) provide 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 con-
ditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of
and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Toshiba Medical
Systems Corporation, which is included in the 2016 consolidated financial statements of Canon Inc. and subsidiaries and constituted
251.4 billion yen of total assets as of December 31, 2016 and 13.6 billion yen of net sales for the year then ended. Our audit of inter-
nal control over financial reporting of Canon Inc. and subsidiaries also did not include an evaluation of the internal control over financial
reporting of Toshiba Medical Systems Corporation.
In our opinion, Canon Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the con-
solidated balance sheets of Canon Inc. and subsidiaries as of December 31, 2016 and 2015, 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, 2016, and our
report dated March 30, 2017 expressed an unqualified opinion thereon.
March 30, 2017
89
CANON ANNUAL REPORT 2016 TRANSFER AND
REGISTRAR’S OFFICE
SHAREHOLDER
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 Shareholders
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 30, 2017, in Tokyo
Further Information:
For publications or information, please contact the
Public Affairs Headquarters, Canon Inc., Tokyo,
or access Canon’s Website at
global.canon/en
90
CANON ANNUAL REPORT 2016 MAJOR CONSOLIDATED SUBSIDIARIES
(As of December 31, 2016)
Marketing & Other
Canon Marketing Japan Inc.
Canon System and Support Inc.
Canon Software Inc.
Canon IT Solutions Inc.
TOSHIBA AMERICA MEDICAL SYSTEMS, INC.
Canon U.S.A., Inc.
Canon Canada Inc.
Canon Solutions America, Inc.
Canon Financial Services, Inc.
TOSHIBA MEDICAL SYSTEMS EUROPE B.V.
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 Italia S.p.A.
Canon (China) Co., Ltd.
Canon Hongkong Co., Ltd.
Canon Singapore Pte. Ltd.
Canon India Pvt. Ltd.
Canon Australia Pty. Ltd.
Manufacturing
Canon Precision Inc.
Fukushima Canon Inc.
TOSHIBA MEDICAL SYSTEMS CORPORATION
TOSHIBA ELECTRON TUBES & DEVICES CO., LTD.
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.
Axis Communications AB
Océ-Technologies B.V.
Océ Printing Systems G.m.b.H.
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 Prachinburi (Thailand) Ltd.
Canon Business Machines (Philippines), Inc.
Canon Opto (Malaysia) Sdn. Bhd.
Research & Development
Canon Research Centre France S.A.S.
Canon Information Systems Research Australia Pty. Ltd.
91
CANON ANNUAL REPORT 2016 C
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CANON INC.
30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
©Canon Inc. 2017 PUB.BEP026-02 0417