CANON ANNUAL REPORT 2017
Fiscal Year Ended December 31, 2017
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TABLE OF CONTENT S
Strategy
1 Financial Highlights
2 To Our Shareholders
9 Growth Strategy
Business Segment/
Corporate Structure
18 At a Glance
20 Research & Development
22 Production
24 Sales & Marketing
26 ESG
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:
Axis network cameras installed
at Malmö station in Sweden
Network cameras that can monitor a wide
area through their advanced zooming func-
tion, watching over people’s safety.
FINAN C IAL HIG HL IGHTS
Millions of yen
(except per share amounts)
Thousands of U.S. dollars
(except per share amounts)
2017
2016
Change (%)
2017
Net sales
Operating profit
Income before income taxes
¥ 4,080,015
¥ 3,401,487
331,479
228,866
353,884
244,651
Net income attributable to Canon Inc.
241,923
150,650
Net income attributable to Canon Inc.
shareholders per share:
—Basic
—Diluted
Total assets
¥ 222.88
¥ 137.95
222.88
137.95
¥5,198,291
¥5,138,529
Canon Inc. shareholders’ equity
¥ 2,870,630
¥ 2,783,129
+19.9
+44.8
+44.6
+60.6
+61.6
+61.6
+1.2
+3.1
$ 36,106,327
2,933,442
3,131,717
2,140,912
$
1.97
1.97
$ 46,002,575
$ 25,403,805
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 JPY113=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December
29, 2017, 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
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Net Income Attributable to Canon Inc.
Shareholders per Share (Yen)
ROE/ROA (%)
10
8
6
4
2
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Basic
Diluted
ROE
ROA
1
CANON ANNUAL REPORT 2017
TO OUR SHARE HOL DERS
FUJIO MITARAI
Chairman & CEO
Canon Inc.
2
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon will further promote a grand strategic
transformation by accelerating reforms.
Performance in 2017
enhanced product lineup. In the Imaging System Business
Unit, although unit sales of interchangeable-lens digital cam-
Looking back at the world in 2017, although politically it was
eras declined slightly and sales of digital compact cameras
an unstable year with unrelenting turmoil and tension, the
were flat year on year, camera sales increased overall due to
global economy as a whole continued to expand moderately
growth in sales of high-value-added products. Sales of inkjet
and stably. Against this backdrop, under our five-year man-
printers maintained the same level as the previous year, as
agement plan, Phase V (2016 - 2020) of the Excellent Global
the trend toward market contraction came to a halt. In the
Corporation Plan, the Canon Group strived to thoroughly
Medical System Business Unit, sales of computed tomography
strengthen the profitability of the existing businesses that
(“CT”) systems and diagnostic ultrasound systems were
support its business foundation by honing our capabilities on
firm due to replacement demand for medical equipment in
all fronts, including product competitiveness and sales capa-
developed countries and growing medical needs in emerg-
bilities. At the same time, we endeavored to strengthen and
ing countries. In the Industry and Others Business Unit, sales
expand our four new businesses: commercial printing, net-
of FPD lithography equipment and Organic LED (“OLED”)
work cameras, healthcare and industrial equipment.
panel manufacturing equipment grew significantly, as de-
Turning to an overview of each business unit, in the Office
mand expanded due to active capital investment by panel
Business Unit, sales of office multifunction devices (“MFDs”)
manufacturers. Sales of network cameras were also robust,
were strong, particularly for color devices, and laser printer
with demand stemming from heightened crime prevention
sales grew thanks to the expanding Chinese market and an
concerns as well as the increasingly diverse application of net-
Cash Dividend (Yen)
work cameras in such fields as marketing support.
Consequently, consolidated net sales for 2017 totaled
¥4.08 trillion (an increase of 19.9% year on year), and the
gross profit ratio was 48.8%. Despite an increase in op-
erating expenses of 15.0% year on year, operating profit
amounted to ¥331.5 billion (an increase of 44.8% year on
year), and net income attributable to Canon Inc. totaled
¥241.9 billion (an increase of 60.6% year on year). We
distributed a record-high full-year dividend of ¥160.00 per
share, comprising the interim dividend (¥75.00 per share)
and the year-end dividend (¥85.00 per share, comprising an
ordinary dividend of ¥75.00 plus a commemorative dividend
of ¥10.00 to mark our 80th anniversary).
2009
2010
2011
2012
2013
2014
2015
2016
2017
3
160
120
80
40
0
CANON ANNUAL REPORT 2017 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
digitalize 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)
to B2B. We subsequently reinforced and expanded our rap-
idly growing network camera business by making Milestone
Canon launched the Excellent Global Corporation Plan in
Systems (“Milestone”) a subsidiary in 2014, followed by
1996, and has strengthened its management base through
Axis Communications (“Axis”) in 2015. Additionally, Canon
each of the plan’s five-year initiatives, from Phase I to Phase IV.
Nanotechnologies, formerly Molecular Imprints, became a
During Phase I, we stressed thorough cash-flow manage-
subsidiary in 2014, and we are accelerating the development
ment and significantly boosted productivity through the
of next-generation semiconductor manufacturing equipment
introduction of our cell production system, along with other
that uses nanoimprint lithography, which will make it possible
measures. In Phase II, we stepped up efforts to digitalize our
to achieve both miniaturization and cost reductions for semi-
copying machines and camera offerings, while building the
conductor devices.
foundation for a robust financial structure. During Phase III,
As a manufacturer, Canon strives unceasingly to achieve
we actively carried out M&A activities, and welcomed Océ to
production reforms and thorough cost reductions. At the
the Group in 2010, clearing the way for a move into the com-
same time, we stay on top of opportunities to add excellent
mercial printing market, which has shown growth potential.
companies to the Group, in order to shift our focus towards
As the markets for our core businesses—such as cameras
changing growth markets, with the aim of unlocking new
and office equipment—were maturing, during Phase IV,
growth potential.
which began in 2011, we promoted diversification via the
lateral expansion of our existing businesses—such as the
Cinema EOS System and commercial photo printers—while
also accelerating our M&A strategy. In this manner, we set
a clear direction for shifting our focus for growth from B2C
4
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Phase V (2016-2020)
Strategy 1
Key Strategies
Establish a new production system to
achieve a cost-of-sales ratio of 45%
1
2
3
4
5
Establish a new production system to achieve a
cost-of-sales ratio of 45%
Reinforce and expand new businesses while
creating future businesses
Restructure the global sales network in
accordance with market changes
Enhance R&D capabilities through open
innovation
Complete the Three Regional Headquarters
management system capturing world dynamism
We are enhancing productivity via automated toner cartridge production.
The year 2016 marked the start of Phase V, our latest five-year
Canon’s foundation is made up of our existing businesses,
initiative within the Excellent Global Corporation Plan. Under
and we must continue to reinforce these businesses within
the basic policy of “Embracing the challenge of new growth
their maturing markets. We are taking a two-pronged ap-
through a grand strategic transformation,” we aim to achieve
proach to achieve this: developing and expanding the market
net sales of ¥5 trillion, a cost-of-sales ratio of 45% or less,
shares of “Dantotsu Products” and thoroughly reducing
an operating profit ratio of 15% or more, a net income ratio
manufacturing costs.
of 10% or more, and a shareholders’ equity ratio of 70% or
“Dantotsu Products” refers to products with extraordinary
more (based on exchange rates of US$1 = ¥125 and €1 = ¥135)
features that cannot be imitated by other companies. In order
in 2020, the final year of Phase V.
to strengthen our product capabilities, Canon will move for-
In 2017, the year in which Canon marked the 80th anni-
ward with development by steadily evolving the technologies
versary of its founding, we worked to thoroughly bolster the
we possess, while accelerating the shift from B2C to B2B in all
profitability of existing businesses, while strengthening and
areas from development to design, procurement, manufactur-
expanding our four new businesses: commercial printing, net-
ing, quality management, logistics, sales and services.
work cameras, healthcare and industrial equipment.
We are engaged in efforts to reduce manufacturing costs in
Explanations regarding the progress of the key strategies of
all processes, including development, design and procurement.
Phase V, as well as our future course of action, are presented
We are actively promoting such measures as the utilization of
as follows.
cutting-edge production and manufacturing technologies—
including automation and robotics—in-house production,
sharing knowhow between businesses and across the Group,
and strengthening collaboration with external entities.
5
CANON ANNUAL REPORT 2017 Strategy 2
Strategy 3
Reinforce and expand new businesses
while creating future businesses
Restructure the global sales network in
accordance with market changes
CEO Fujio Mitarai (middle) listening to the explanation from Canon
Medical President Toshio Takiguchi (left) on the Ultra High-Resolution CT
“Aquilion PrecisionTM” introduced at the International Technical Exhibition
of Medical Imaging 2017 (Japan).
Canon is focusing on e-commerce sites where customers can purchase
products online anywhere at any time.
With the aim of reinforcing and expanding our four new
In order to adapt to our strengthening B2B shift, we are rein-
businesses where greater growth is expected—commercial
forcing our organization to ascertain customer needs from an
printing, network cameras, healthcare and industrial equip-
early stage and present optimal solutions by coordinating the
ment, Canon has steadily achieved results by leveraging
entire process from R&D to production, sales and logistics. As
synergies between Group companies. In commercial printing,
part of such efforts, we are training highly-skilled sales engi-
we are raising our presence by combining the technologies
neers who possess in-depth knowledge of both hardware and
of Canon and Océ. In network cameras, we are collaborating
software and can provide effective consulting.
with Milestone and Axis to accelerate product development.
We are also focusing on responding to the rapidly expand-
We are expanding the breadth of solutions we offer by refin-
ing e-commerce market. In China, where growth has been
ing our image-analysis technologies in addition to camera
especially rapid, we are steadily increasing the e-commerce
performance. In healthcare, we are pursuing further growth
ratio of Canon China’s consumer-oriented business. At Canon
by combining the technologies possessed by Canon with
U.S.A., we are concentrating on providing limited-edition and
those of Canon Medical Systems (“Canon Medical”), which
customized products and strengthening services and support
changed its company name from Toshiba Medical Systems
in order to significantly increase e-commerce sales.
(“TMSC”) as of January 4, 2018. In industrial equipment, we
are striving to achieve thorough cost reductions while estab-
lishing an innovative manufacturing approach with regard
to the manufacturing equipment handled by Canon Tokki,
Canon ANELVA and Canon Machinery.
6
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Strategy 4
Strategy 5
Enhance R&D capabilities through
open innovation
Complete the Three Regional Headquarters
management system capturing world dynamism
Canon engages in medical research collaboration with Harvard-affiliated
medical institutions (Healthcare Optics Research Lab, Canon U.S.A.,
United States)
R&D on high-speed cut-sheet inkjet printers (Océ, Netherlands)
With R&D representing a rising share of expenses in recent
With global headquarters in Japan, the United States and
years, Canon will promote the selection and concentration of
Europe, Canon aims to establish a system that promotes
research themes and carry out more efficient R&D investment.
global development through diversification by leveraging the
In preparation for the coming age of the Internet of Things
unique features of each region.
(“IoT”), we are pursuing open innovation that utilizes external
Canon U.S.A.’s Healthcare Optics Research Laboratory is
expertise and technology as necessary to accelerate the pace
collaborating with Massachusetts General Hospital (“MGH”)
of development. For example, Canon is a partner in a basic
and Brigham and Women’s Hospital (“BWH”), both teaching
research consortium organized by IBM in which we are col-
affiliates of Harvard Medical School, on the development of
laborating on cutting-edge technology programs in such areas
an ultra-miniature endoscope that can make possible direct
as artificial intelligence (“AI”), big data and sensing. Canon
examination and diagnosis in anatomies that have previously
researchers are dispatched to R&D centers in order to acceler-
been inaccessible, as well as a guided needle insertion system
ate the creation of practical applications. We are also engaged
that assists with the insertion of needles in patients by guiding
in joint development programs for photoacoustic tomogra-
a needle to a precise position and depth.
phy in cooperation with Kyoto University and Keio University
In Europe, our collaboration with Océ has enabled us to ex-
and we are continuing to pursue collaboration with industry,
pand the scope of our commercial printing business to cover
government and academic partners in order to accelerate
a variety of fields. Furthermore, many new synergies are being
technological innovation.
created as Canon and Océ integrate our sales networks and
Furthermore, as software becomes increasingly important in
provide various products and services.
bringing out the full potential of a product and for providing
various services, we are training highly-skilled software engi-
neers with a focus on trends in AI and IoT technologies.
7
CANON ANNUAL REPORT 2017 Key Challenges for 2018
In Conclusion
Our basic policy for 2018 is to “Pursue total optimization and
Since launching Phase I of the Excellent Global Corporation
profitability to complete our grand strategic transformation,”
Plan in 1996, Canon has built a strong financial founda-
as we work on the following six key challenges.
tion and successfully weathered the 2008 financial crisis
The first of these is to strengthen our research capabilities in
and numerous other difficulties, including exchange rate
the world’s leading-edge technologies. We aim to strengthen
fluctuations, guided by our commitment to pursuing total
our investigation and analysis abilities to accurately grasp
optimization and profitability. Today, we are in the midst of a
global trends that contribute to our strategic initiatives.
digital revolution in which the dramatic development of IT has
The second is to strengthen our product development
ushered in the age of IoT, known as the fourth industrial revo-
capability. We will accelerate the selection and concentration
lution. We are now confronted with the question of how to
of research themes as well as the pursuit of open innovation.
respond to this profound transformation of society.
In addition to implementing prototype-less design, product
The global economy in 2018 is generally expected to con-
design optimized for robotic assembly and standardized
tinue a trend toward gradual recovery. In that environment,
product platforms, we will also strengthen our software
we will return to a policy of total optimization and profit-
development capability.
ability to take Canon to the next level as an excellent global
The third challenge is to comprehensively reinforce our
corporation.
manufacturing abilities. In addition to building a glob-
We look forward to your continued understanding
ally optimized manufacturing system, we will promote our
and support.
mother plant concept that integrates development, produc-
tion technology and manufacturing. We will also thoroughly
implement cost reduction measures, including for new busi-
nesses, through strengthening in-house production of key
components, generic parts and production equipment.
The fourth is to thoroughly strengthen our strategic pro-
curement functions. In addition to accelerating a global
procurement network, we will promote component sharing,
adoption of generic parts and in-house production.
The fifth is to reform our sales organization to reflect mar-
ket changes. We will enhance the capabilities of our global
sales engineers, bolster local service support systems and opti-
mize such sales channels as e-commerce.
Our sixth challenge is to establish human resource policies
that evolve with changing times. We aim to create a person-
nel system and human resources training system that will
open up diverse career paths.
8
Fujio Mitarai
Chairman & CEO
Canon Inc.
CANON ANNUAL REPORT 2017
G R O W T H
S T R AT E G Y
CANON ANNUAL REPORT 2017
9
COMME RCI AL PR INTING
The Océ VarioPrint i300 sheet-fed inkjet color press, which is a high-speed commercial printer, uses Océ’s unique paper transport technology to achieve stable,
high-speed output. Océ’s proven technologies enable printing on a range of media, including coated paper, to meet diverse needs in commercial printing.
(Customer Experience Center Venlo, Netherlands)
10
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Aiming to become the world’s No. 1
printing company in a commercial printing market that
is becoming increasingly digitized.
The shift in demand towards digital printing
is accelerating
the continuous feed printer, Océ ProStream 1000, aiming
for the growing graphic arts market, where items such as
The commercial printing market, encompassing newspapers,
catalogs demand high image quality. This digital system has
magazines and books, promotional catalogs and flyers, and
attracted attention for providing the same high level of image
transaction printing such as statements and invoices, has
quality and productivity as in offset printing. In April 2017,
long been dominated by offset printing, which offers superb
Canon opened the Customer Experience Center Tokyo at our
quality, low cost, and high speed printing of large-volume
Shimomaruko headquarters. This center, which is the fourth
publications. However, the field of digital printing, which can
large facility worldwide for equipment demonstrations and
print straight from data without the use of plates, has contin-
inspections, allows commercial printing businesses to experi-
ued to expand since the 1990s. In particular, in recent years
ence Canon’s leading digital printing solutions.
the diversification and segmentation of commercial printing
With a wide-ranging product lineup, Canon has been lay-
needs, including production of a broader range of applica-
ing the groundwork to become the world’s No. 1 printing
tions requiring shorter turnaround times, has propelled the
company since its entry into the commercial printing market.
shift to digital printing.
We will continue seeking business growth by further pursu-
Digital printing needs are also growing in the industrial
ing new possibilities in the digital printing market, which
printing market, including printing on non-paper materials
is expected to encompass various fields, including package
such as ceramic, glass, and plastic, as well as 3D printing,
printing and industrial printing, which involves printing on
which involves applying hundreds of layers of ink.
non-paper materials.
To be the world’s No. 1 printing company
Canon made a full-fledged entry into the commercial print-
ing market in 2006, based on the core technologies it had
accumulated in printer development since the development
of the copy machine in the 1960s. In 2010, we welcomed the
Dutch company, Océ into the Canon Group. Océ is a printer
manufacturer with a history spanning 140 years. Its high-
productivity printers are highly regarded for black-and-white
printing jobs in the fields of invoices, direct mail, and pub-
lishing. Océ’s high-speed continuous-feed printers make it a
strong contender in the European and U.S. markets.
Currently, we are generating new synergies for growth,
including the introduction of Océ’s print controller into
Canon’s printing systems. In February 2017, Océ announced
At the Customer Experience Center Tokyo, customers can bring in their
print data and have it verified. (Shimomaruko Headquarters, Canon Inc.,
Japan)
11
CANON ANNUAL REPORT 2017 NETWORK CAMER AS
Canon network cameras play a role in enabling optimal video stream at high resolution and definition 24 hours a day at an aircraft maintenance center.
12
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Responding to demand for network cameras used in
all sorts of settings through rapidly expanding
solutions business
Rapid growth by expanding the scope of
solutions
multiple cameras are coordinated, requires video manage-
ment software that provides centralized management of
The network camera industry continues to expand due to
high-resolution images. In 2014, Canon welcomed Milestone,
rising security concerns worldwide. In the era of the IoT,
the leading provider of video management software for video
network cameras are evolving as a means of visualizing real-
images captured by network cameras, into the Group. Canon
time information based on higher performance cameras and
and Milestone are striving to develop video analysis technolo-
sophistication in image analysis technologies, along with AI
gies. We are also proposing innovative solutions that combine
technologies. As a result, the scope of solutions businesses
Canon’s high-sensitivity, high-resolution differentiated cam-
using network cameras is spreading in all sorts of settings,
eras with image analysis software capable of counting people
including stores and commercial facilities, factories, healthcare
and identifying physical attributes.
and nursing care, sports and other events, and transportation.
Canon’s aim is to provide innovative network imaging
Becoming an innovative network imaging
solutions company
solutions that integrate Axis’s network image processing tech-
nology and Milestone’s video management technology with
Canon’s proprietary imaging technology. Network cameras are
Based on the camera and camcorder technologies Canon
evolving for a growing range of applications that will support
has cultivated since our foundation, we have been producing
a safe and secure future.
the cameras for the purpose of security and surveillance. We
formally established our network camera business in 2013,
and welcomed Axis into the Group in 2015. An outstanding
range of network image processing technologies enables Axis
to offer solutions to more than 90,000 partner companies in
180 countries and regions. Canon and Axis collaborate in the
areas of product development, service, and support, while
striving to improve efficiency, and in April 2017 we launched
our first jointly developed product, the AXIS Q1659 inter-
changeable-lens network camera. The AXIS Q1659 employs
eight different interchangeable lenses for EOS-series cameras,
ranging from wide-angle to telephoto, which can be used
to satisfy a wide range of monitoring needs in environments
such as airports and stadiums.
Taking maximum advantage of network cameras, in which
Axis network cameras protect the safety of people in Yokohama, one of
the largest cities in Japan.
13
CANON ANNUAL REPORT 2017 HEALTHCAR E
Canon Medical’s 320-row detector, Aquilion ONETM, which achieves wide-area, high-speed imaging with low radiation exposure and high image quality, is widely
used for the diagnosis of cerebral aneurysms and cancer. (Fujita Health University Hospital, Japan)
14
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Expanding our healthcare business centered on
Canon Medical
Dramatically growing healthcare industry
due to population growth and aging societies
Canon Medical holds the top market share position in Japan
and maintains high market share globally. In April 2017,
The healthcare industry, which comprises the field of health,
Canon Medical carried out the domestic launch of Aquilion
including health promotion, disease prevention, and nursing
PrecisionTM, a high-precision CT scanner that delivers substan-
care, and the field of medicine, including testing, diagnosis,
tially higher resolution than ever before. In the future, through
treatment, and rehabilitation, represents a growing market
synergies generated from the strengths of Canon and Canon
driven by the growing global population and the aging of
Medical in manufacturing technology and sales networks, we
societies. This market is expected to expand dramatically,
will aim to create new value in medical care.
increasing from ¥16 trillion in 2013 to ¥37 trillion in 2030
The Healthcare Optics Research Lab at Canon U.S.A. has
in Japan, and from ¥163 trillion to ¥525 trillion overseas.
been steadily pursuing research on ultra-miniature endo-
According to the Ministry of Economy, Trade and Industry, the
scopes and medical robotics, including a needle guidance
global market for medical equipment continues to grow at
system, based on open innovation.
a rate of 8% per year, and is expected to be worth approxi-
Through synergies with Canon Medical and integrated
mately $450 billion (roughly ¥50 trillion) in 2018.
medical operations spanning from R&D to sales in the United
States, we will continue to provide total solutions for the
needs of today’s medical facilities and better healthcare for
the future.
Expanding the scope of our healthcare
business
Canon entered the healthcare business in 1940 with the devel-
opment of Japan’s first indirect X-ray camera. Since that time,
we have continued to support new areas of advanced medical
care through the development of products such as digital radi-
ography equipment and ophthalmic equipment, based on our
proprietary optical and image processing technologies.
In 2016, Canon welcomed TMSC, a leading manufacturer
of medical equipment, into the Group, and in January 2018
changed the company’s name to Canon Medical. Canon
Medical has a broad product portfolio that spans diagnostic
X-ray systems, X-ray computed tomography (“CT”) systems,
magnetic resonance imaging (“MRI”) systems, diagnostic
ultrasound systems, diagnostic nuclear medicine systems,
and medical sample testing systems. In the CT market,
Research has been pursued on the needle guidance system, which
assists physicians to insert a needle accurately into the targeted location
of internal organ. (Healthcare Optics Research Lab, Canon U.S.A.,
United States)
15
CANON ANNUAL REPORT 2017 INDU ST RI AL E QUIPMENT
Canon Tokki produces OLED panel manufacturing equipment with unrivalled technology required for advanced manufacturing equipment, including vacuum
evaporation equipment for depositing organic materials onto panel substrates and automated supply lines for glass substrates. Canon Tokki continues to be the
industry leader.
16
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Seeking new growth with industrial equipment that
support manufacturing and achieve innovation
Industrial equipment enters a new era of
growth in the fourth industrial revolution
meet the needs of the times, based on its proprietary ultra-
high vacuum technology and thin-film deposition technology.
With the arrival of the fourth industrial revolution, the indus-
Canon Machinery boasts the top domestic market share for
trial equipment field has entered a new era of growth in areas
its die bonders, a device which attaches dies (individual semi-
such as semiconductor manufacturing equipment and organic
conductor chips printed with circuits) to substrates. In 2017,
LED (“OLED”) panel manufacturing equipment. In particular,
Canon Machinery began expanding its Malaysia plant in order
demand for OLED panels is growing rapidly for devices such
to strengthen its production system by further enhancing
as smartphones and TVs, due to advantages such as thinness,
production capacity. Canon Machinery develops and produces
light weight, low power consumption, and ability to produce
customized automation and labor-saving equipment, such as
vibrant colors. Expectations are high for OLED panels in terms
automotive component assembly equipment and assembly
of applications, including the capability to be bent, and in the
equipment for secondary batteries for electric vehicles, which
future, folded.
are expected to see rapid growth in the future.
Leading the industry in OLED panel
manufacturing equipment
Canon, together with Canon Tokki, Canon ANELVA, and
Canon Machinery, will continue to aim for high growth in
the industrial equipment field by leveraging group synergies
Canon supports the growth of manufacturing and industry
through collaboration in areas such as manufacturing
by applying proprietary technologies that we have developed
technology, procurement, and personnel support.
over many years to the creation of industrial equipment.
Canon Tokki, Canon ANELVA, and Canon Machinery play
key roles in meeting the needs of a wide range of industries,
from semiconductor manufacturing equipment to OLED panel
manufacturing equipment.
Canon Tokki’s OLED panel manufacturing equipment leads
the industry, setting the standard worldwide. In 2017, we sig-
nificantly increased production of OLED panel manufacturing
equipment due to a rapid increase in demand for OLED panels
used in smartphones. Orders were so strong we were nearly
unable to keep up. This contributed significantly to substantial
sales growth in industrial equipment in 2017.
Canon ANELVA engages in the development, manufactur-
ing, and sales of vacuum thin-film deposition equipment that
In order to meet the needs of miniaturized semiconductor devices, Canon
ANELVA is proceeding with the development of sputtering equipment
based on thin-film deposition technologies.
17
CANON ANNUAL REPORT 2017 OFFICE BUSINESS UNIT
Composition of Sales (%)
Office multifunction devices (MFDs)
Laser multifunction printers (MFPs)
45.7%
Main Products
• Office multifunction devices (MFDs)
• Laser multifunction printers (MFPs)
• Laser printers
• Digital production printing systems
• High speed continuous feed printers
• Wide-format printers
• Document solutions
Digital production printing systems
High speed continuous feed printers
IMAGING SYSTEM BUSINESS UNIT
Composition of Sales (%)
27.8%
Main Products
• 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
Interchangeable-lens digital cameras
—Digital SLR cameras
Interchangeable-lens digital cameras
—Compact-system cameras
Inkjet printers
Large format inkjet printers
18
CANON ANNUAL REPORT 2017AT A GLANCE STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Composition of Sales (%)
MEDICAL SYSTEM BUSINESS UNIT
10.7%
Main Products
• Diagnostic X-ray systems
• Computed tomography
• Magnetic resonance imaging
• Diagnostic ultrasound systems
• Clinical chemistry analyzers
• Digital radiography systems
• Ophthalmic equipment
Composition of Sales (%)
17.9%
Main Products
• Semiconductor lithography equipment
• FPD (Flat panel display) lithography
equipment
• Vacuum thin-film deposition equipment
• Organic LED (OLED) panel manufacturing
equipment
• Die bonders
• Micromotors
• Network cameras
• Handy terminals
• Document scanners
Computed tomography
Magnetic resonance imaging
Diagnostic ultrasound systems
Digital radiography systems
INDUSTRY AND OTHERS
BUSINESS UNIT
Semiconductor lithography equipment
FPD (Flat panel display) lithography equipment
Organic LED (OLED) panel manufacturing equipment
Network cameras
Note: The percentage figures for the four 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.
19
CANON ANNUAL REPORT 2017 RE SE AR CH & D EV ELOPMEN T
A
B
2017 Top Ten U.S. Patent Holders by Company
IBM*
Samsung
Electronics
CANON
Intel
LG Electronics
Qualcomm
Google
Microsoft Technology
Licensing
Taiwan Semiconductor
Manufacturing
Samsung
Display
3,285
3,023
2,701
2,628
2,457
2,441
2,425
2,273
9,043
5,837
*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. Our photoacoustic tomography (“PAT”), which can capture 3-D images of blood vessels in a human hand, for example, is expected to be applied to diagnostic
imaging. Clinical research for PAT technology is currently being carried out in collaboration with Kyoto University and Keio University. (Kyoto University, Japan)
B. CE-SAT-I, a microsatellite developed by Canon Electronics, was loaded on a rocket launched by the Indian Space Research Organization (“ISRO”). (Satish
Dhawan Space Center, India)
20
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon is engaged in efforts to discover
new technologies that will help create future businesses
R&D Expenses and Patents
blood vessels using a pulse laser and ultrasonic sensors, with-
Canon is bolstering R&D activities to enable the ongoing
out the use of X-rays or contrast agents. In the healthcare field,
development of innovative products and services. In the year
where further growth is expected, TMSC was welcomed into
under review, R&D expenses amounted to ¥330.1 billion, up
the Canon Group in 2016. In addition to introducing Canon’s
9.2%, or ¥27.7 billion, from the previous year. The ratio of
advanced production technologies, including precision design
R&D expenses to net sales was 8.1%.
and microfabrication technologies, to the new company, we
This focus on R&D activities has cemented Canon’s high
will use our original high-speed X-ray imaging sensors and
status in the field of intellectual property. In 2017, Canon was
new technologies such as PAT to develop highly innovative
granted 3,285 patents in the United States, ranking it third in
next-generation medical equipment.
the world and the top ranked Japanese company for a thir-
Free Viewpoint Video System
teenth consecutive year.
Canon is developing its Free Viewpoint Video System, a
new visual solution that incorporates the optical and sensor
Initiatives to Establish New Businesses
technologies cultivated by the Company over many years.
Canon has a long-term perspective as it concentrates its ef-
The system comprises several high-resolution cameras set up
forts on discovering new technologies for the future.
around a stadium, which are connected to a network and
CMOS Sensors
controlled via software to capture a game from multiple view-
Canon is conducting in-house development and production
points. The video is rendered as high-resolution 3-D spatial
of CMOS sensors, a key device in interchangeable-lens digital
data. By achieving a new video experience that gives users a
cameras. We are developing our proprietary ultra-high-
sense that they are really at a sporting event, etc., Canon is
resolution 250 megapixel CMOS sensors that make it possible
expanding the boundaries of visual expression and contribut-
to capture images of the lettering printed on the body of an air-
ing to the development of video culture.
plane roughly 18 kilometers away and ultra-high-sensitivity 35
Space Exploration
mm full-frame CMOS sensors capable of capturing vivid images
Canon is also conducting proprietary development in fields
in color even in extreme low-light conditions. We anticipate
related to space exploration. As a participant in the Thirty
various applications for security, dashboard cameras, healthcare
Meter Telescope (“TMT”) project to build an extremely large
and space observation. We are also developing global shutter-
telescope in Hawaii, Canon is involved in processing of the
equipped CMOS sensor that can capture distortion-free images
primary mirror, which demands an exceptional level of preci-
even when shooting fast-moving objects. We are putting in
sion. Meanwhile, Canon Electronics has used its technologies
place a system for external sales to industrial fields.
originally cultivated for cameras and printers to develop a
Photoacoustic Tomography
proprietary microsatellite, which was mounted on a rocket
Canon participates in the Impulsing Paradigm Change through
launched by the Indian Space Research Organization (“ISRO”)
Disruptive Technologies (“ImPACT”) Program organized by the
in 2017. Images captured by the camera attached to the micro-
Cabinet Office of Japan. We are working on research in photo-
satellite are expected to provide valuable information in a wide
acoustic tomography (“PAT”) that can capture 3-D images of
range of areas including agriculture and disaster response.
21
CANON ANNUAL REPORT 2017 PR ODUC TION
A
B
C
A. In inkjet printer production, Canon seeks to raise the bar in high-quality product manufacturing while striving to improve production efficiency. (Canon Hi-Tech
(Thailand), Thailand) B. With one of the largest semi-anechoic chambers in Japan, Canon conducts certification testing on large-scale products such as commercial
printing systems using in-house facilities. (Tamagawa Office, Canon Inc., Japan) C. At Japan’s National Skills Competition in 2017, our technicians entered the
Mechatronics category. Canon has won prizes in this technical contest for thirteen successive years since 2005.
22
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Canon aims to establish a new production system that
achieves a cost-of-sales ratio of 45% through
the evolution of our manufacturing capabilities
Globally Optimized Production
Human Resources for Manufacturing
Canon has established a globally optimized production sys-
Canon provides human resource training to nurture the
tem in which we determine production locations based on a
skills of employees at our production sites worldwide. Our
comprehensive analysis of costs, taxes, logistics, procurement,
programs teach manufacturing techniques and craftsman-
labor and other factors. In Japan, we are promoting automa-
ship—including hands-on practice—and educate employees
tion technology in order to increase production. In the United
with leadership potential in Canon management methods.
States and Europe, we are accelerating the localized produc-
To hone the technical skills of our employees in Japan, we
tion of consumables. And in labor intensive manufacturing
participate in Japan’s National Skills Competition. The spirit
sites, we are boosting productivity by honing our employees’
of challenge that we cultivate through such activities can be
skills. We aim to maximize the strengths of each region to
found at Canon manufacturing sites around the world.
produce high-quality products.
To advance our manufacturing, Canon honors our most
Automation and In-house Production
nize employees who have contributed to Canon production
Seeking to produce original products, Canon actively pro-
through their skills and knowledge of assembly and com-
motes in-house production of key devices and components
ponent processing. These employees are awarded the title
such as CMOS sensors, manufacturing equipment such as
Meister. Employees who display transcendent skills earn the
skilled technicians. At our factories worldwide, we recog-
automated assembly machines and high-precision processing
title Master Craftsman.
machines, as well as molding dies. To produce high-quality
products at efficient costs, we strive to maintain highly reliable
automated production lines. We have been introducing fully
Environmentally Friendly Manufacturing;
Enhanced Product Quality
automated production for toner cartridges. Now we are pur-
From product design and development, to production, logistics,
suing full automation for the manufacturing of our cameras,
product use and recycling, throughout the product’s lifecycle in
too. In 2016, we established the Techno Wing R&D facility at
all areas of our business, Canon is engaged in manufacturing ini-
Oita Canon, as a hub for pursuing superior manufacturing
tiatives that are friendly to the global environment and minimize
and product technologies. Our aim is to fully automate manu-
environmental impact.
facturing of digital cameras.
Canon has established a quality management system that
Furthermore, Miyazaki Canon has decided to establish a
combines the requirements of ISO9001, an international quality
new production site for digital cameras, which is scheduled
management standard, with work mechanisms unique to Canon
to begin operations in 2019. By applying the full-automation
to ensure that our products are safe, can be enjoyed with peace
technology developed at the Techno Wing to the new facility
of mind, and provide satisfaction to our customers. In addition to
in Miyazaki and other production sites, we aim to establish a
thoroughly implementing operations in accordance with quality
highly efficient manufacturing system.
standards, certifications, and related laws and regulations of various
countries around the world, we carry out strict evaluations using
cutting-edge testing facilities that are at the forefront of the industry.
23
CANON ANNUAL REPORT 2017 SALES & M ARKETING
A
B
C
A. The Océ Colorado 1640 printer, built on Canon UV gel technology, proved to be one of the star digital innovations of the FESPA 2017, pulling in large crowds
to hourly demonstrations. B. The recently established “Professional Technology & Support Center” in Burbank provides comprehensive support services for video
production equipment professionals. C. Activity exhibited at industry events with an eye to expand B2B business. Canon China displayed at a business exhibition
for government institutions in Beijing.
24
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Accelerating growth in commercial printing,
network cameras, healthcare and industrial equipment
as key drivers of Canon’s next-generation business
Japan
printer for the signage and graphics industry. To further ex-
Sales in Japan amounted to ¥884.8 billion, or 21.7% of con-
pand operations in emerging markets, a new innovation centre
solidated net sales.
was opened in Dubai to help foster local talent and business.
Performance was strong for products including hardware
We continued structural reform efforts and also made a lot of
such as MFPs, consumables, and IT solutions as capital invest-
progress in furthering our customer-centric approach.
ment by companies in Japan picked up. In the security business,
sales of surveillance cameras, software and other products con-
Asia and Oceania
tinued to increase. In industrial equipment, sales and service of
Sales in Asia and Oceania amounted to ¥1,059.3 billion, or
equipment for semiconductor manufacturers were favorable,
26.0% of consolidated net sales.
backed by brisk investment by customers. Regarding products
As an Asia-wide initiative, we are promoting expansion of
for consumers, while sales of mirrorless cameras were up, sales
B2B business with the launch of a project aimed at strength-
of inkjet printers declined due to a shrinking market.
ening the sales and brand of copiers and commercial printers.
The Americas
Six of our sales companies in Asia marked anniversaries in
2017, including the 20th anniversary of Canon China and
Sales in the Americas amounted to ¥1,107.5 billion, or 27.1%
the 45th anniversary of Canon Hongkong. Commemorative
of consolidated net sales.
events and sales promotion activities were held in many areas.
In the office equipment market, we reinforced our sales
The efforts contributed to an increase in sales in the Asia
network by developing a system that can better support and
region. In Oceania, Harbour IT and Converga, which have
manage our approximately 400 dealers across the Americas.
recently joined the Canon Group, conducted cross-selling to
We also brought together our comprehensive support and
approach each other’s customers.
services for professional video-production equipment at a
strategic hub in Burbank, California, near Hollywood. We also
began offering our “Next Day” repair services for professional
Composition of Sales by Region
photographers, the first initiative of its kind for the industry,
and it was met with a favorable response.
Europe (Europe, Middle East, Africa)
Sales in Europe amounted to ¥1,028.4 billion, or 25.2% of
consolidated net sales.
Canon in EMEA maintained their leading position in Imaging
System thanks to solid sales of interchangeable-lens cameras.
Additionally, through strategic acquisitions, we strengthened
the imaging ecosystem for consumers. In the B2B area, we
enhanced business through the launch of a new wide-format
Asia and Oceania
26.0%
¥1,059.3 billion
Japan
21.7%
¥884.8 billion
Net Sales
¥4,080.0
billion
The Americas
27.1%
¥1,107.5 billion
Europe
25.2%
¥1,028.4 billion
25
CANON ANNUAL REPORT 2017 ESG
ESG
Environment
Social
E
S
G
Governance
In recent years, the ethical role of corporations has increased
with the ideals laid out in the Sustainable Development Goals
in importance amid wide-ranging societal expectations and
(“SDGs”) adopted by the United Nations in 2015. As members
responsibilities. Canon adopted kyosei as its corporate phi-
of society, high expectations are being placed on corporations.
losophy in 1988, and since then we have worked to fulfill our
Accordingly, we will contribute to society by leveraging our
responsibilities to society and build solid relationships not only
technological capabilities to create new value, resolve social
with our customers and business partners, but also with coun-
issues, and engage in activities to preserve and protect the
tries, communities, nature, and the global environment. The
global environment, while continuing to be a company that
approach we take with our corporate philosophy harmonizes
always gives due consideration to people and society.
Environment:
Social:
Governance:
Canon’s Approach
Canon’s Approach
Canon’s Approach
Based on the Canon Environmental
Vision, Canon is working to reduce envi-
ronmental burden throughout the entire
product lifecycle, from procurement of
raw materials and parts to collection
and recycling of used products, in an
effort to realize a society that promotes
both enriched lifestyles and the global
environment.
Canon makes sincere efforts to engage
in corporate social responsibilities, in-
cluding product safety, human rights,
labor management, and accountable
procurement activities. In addition, as
a good corporate citizen, we promote
efforts such as disaster relief and sup-
port for culture, and also work to resolve
social issues through our technology and
business activities.
Canon maintains sound corporate gov-
ernance as part of efforts to maximize its
shareholders’ value and become a truly
excellent global corporation.
Key Activities
Key Activities
Key Activities
• Contributing to a Low-Carbon Society
• Promoting Diversity
• Contributing to a Circular Economy
• Addressing the Issue of Conflict
• Eliminating Hazardous Substances and
Minerals
Preventing Pollution
• Supporting Art and Culture
• Board of Directors, Audit & Supervisory
Board, Non-statutory Committees
• Constructive Dialogue with
Shareholders
• Contributing to a Society in Harmony
with Nature
For details, please refer to the Canon Sustainability Report.
http://global.canon/en/csr/report/index.html
26
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
ENVIRONMENT
Canon is implementing the Canon Bird
Branch Project, which examines the cycle of
life by focusing on birds as a symbol of the
ecosystem pyramid. The Shimomaruko Forest,
a lush expanse of green space occupying
about 30% of Canon’s headquarters site in
Tokyo, plays host to bird watching parties,
research studies, and ecosystem monitoring
events as part of this project.
Canon’s Toride Plant, Susono Plant, and
Kawasaki Office, as well as Oita Canon’s Oita
Plant and Canon Research Centre France are
also engaged in these efforts, expanding the
activities globally.
Canon is working towards the goal of achieving a 3%-per-
year improvement in lifecycle CO2 emissions per product.
Eliminating Hazardous Substances and
Preventing Pollution
From 2008 to 2017, we have achieved an average improve-
Canon strictly manages chemical substances in products in
ment of around 5% per year.
line with Canon Green Procurement Standards, as well as
Contributing to a Low-Carbon Society
proactive contributions to the establishment of international
Canon has been promoting improvements in CO2 efficiency at
frameworks for the appropriate management of chemical
those used in manufacturing processes. Additionally, we make
all stages of the product lifecycle: manufacture of raw materi-
substances in the supply chain.
als and parts, operational site activities, logistics and customer
use of products.
Contributing to a Society in Harmony with
Nature
Contributing to a Circular Economy
Based on the Canon Biodiversity Policy, Canon is promoting
In order to achieve more efficient use of resources, Canon
conservation and protection activities around the world. One
pursues advanced resource circulation through product-
such activity is the Canon Bird Branch Project, which encour-
to-product recycling, and is carrying out remanufacturing
ages consideration of “the Cycle of Life” by focusing on birds
of multifunction devices and closed-loop recycling of toner
as a symbol of the top of the local ecosystem pyramid.
cartridges. We are also actively promoting initiatives such as
designing more compact products.
27
CANON ANNUAL REPORT 2017 ESG
SOCIAL
The Tsuzuri Project has been creating high-resolution reproductions such as “Tatars Playing Polo and
Hunting” attributed to Kano Soshu (photo, top) and “Landscape of the Four Seasons” by Shikibu
Terutada. The two original pieces have been stored at the Asian Art Museum of San Francisco, and with
the museum’s cooperation, the reproductions were finished and donated to the Kyoto National Museum
in June 2017. The Project brings high-resolution facsimiles of Japanese cultural assets, that have been
sent overseas, back to Japan and it donates reproductions to art museums, shrines, and temples, where
they are displayed to the public, and at schools as living educational aids for teaching history. In such
ways, the Project provides people with opportunities to experience Japan’s outstanding art and culture
firsthand.
Promoting Diversity
on the Company’s website. Canon is a member of the
Canon is committed to diversity of human resources. We wel-
Responsible Minerals Initiative (“RMI”), an international
come people of all types—irrespective of race, gender, age,
program that plays a leading role in response to the issue of
customs, and value perceptions—and deploy such differences
conflict minerals, and continues to support industry activities.
to foster our growth as an organization. Since 2012, we have
engaged in in-house projects fostering diversity. In 2017,
Supporting the Arts and Culture
Canon held meetings with Group company presidents at 24
As a company that contributes to the development of visual
Group companies in Japan organized by the VIVID diversity
culture, Canon engages in activities to foster the richness of
promotion program, where they promoted activities to enable
human feelings and emotions. In 2007, Canon and the Kyoto
more active roles for women in the workplace Group-wide.
Culture Association (“NPO”) launched the Tsuzuri Project (of-
Addressing the Issue of Conflict Minerals
This initiative combines Canon’s latest digital technologies
Seeking to ensure that customers can use Canon products
with traditional Japanese craft techniques to create high-reso-
with peace of mind, Canon conducts inquiries into conflict
lution reproductions of Japanese cultural assets and use them
minerals every year and discloses its findings to the U.S.
effectively. As of March 2018, 35 works have been donated.
ficially known as the Cultural Heritage Inheritance Project).
Securities and Exchange Commission and publishes them
28
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
GOVERNANCE
At a monthly company-wide meeting of executive officers, the CEO provides updates on earnings progress and important matters to implement in the
future as a way to share crucial information.
Fundamental Policy
business fields, including office equipment, consumer products,
In order to establish a sound corporate governance structure
medical equipment, and industrial equipment, and aims to ag-
and continuously raise corporate value, Canon believes that
gressively expand into new business fields in the future. In order
it is essential to improve management transparency and
to make prompt decisions in each business field, and make
strengthen management supervising functions. At the same
important decisions for the entire Canon Group or matters that
time, a sense of ethics and mission held by each executive and
straddle several business fields from a company-wide perspec-
employee of Canon is very important in order to achieve con-
tive and at the same time secure appropriate decision making
tinuous corporate growth and development. Details of Canon
and execution of operation, the Company judges the corporate
Inc.’s corporate governance structure are available on the
governance structure below to be effective.
Company’s official website under “an overview of Corporate
Board of Directors
Governance at Canon Inc.”
While the focus of the organizational structure of the Board of
(http://global.canon/en/ir/strategies/governance.html).
Directors is on Representative Directors that oversee Company-
Governance Structure
Fundamental Policy
wide business strategies or execution such as the CEO, COO,
CFO, CTO, and Representative Directors or Executive Directors
that oversee multiple business fields or headquarters functions, in
The Company is globally expanding its businesses in various
order to secure sound management, two or more Independent
29
CANON ANNUAL REPORT 2017 ESG
GOVERNANCE
Outside Directors are appointed. The Board of Directors, in accor-
Independent Outside Audit & Supervisory Board Members
dance with laws and regulations, makes important decisions and
that have extensive knowledge in specialized areas such as
supervises the execution of duties by officers.
law, finance and accounting. The Audit & Supervisory Board,
Except for the above, the CEO and other Representative
which is composed of these individuals, cooperates with the
Directors are active in decision making and execution, and
Company’s accounting auditors and internal audit division,
under the command and supervision of the Representative
oversees the status of duty execution of operations and cor-
Directors, Executive Officers that are elected through resolu-
porate assets to secure the soundness of management.
tion of the Board of Directors make decisions and execute
The Audit & Supervisory Board consists of five individuals,
operations of each business field or function.
three of which are Independent Outside Audit & Supervisory
The Board of Directors consists of seven members, five
Board Members. In accordance with auditing policies and
Representative Directors from inside Canon and two Outside
plans decided at Audit & Supervisory Board meetings,
Directors that qualify as Independent Directors*. As of April
the Audit & Supervisory Board Members attend Board of
1, 2018, there will be 36 Executive Officers, including two fe-
Directors’ meetings, Corporate Strategy Committee meetings,
males and one non-Japanese.
etc., receive reports from directors and employees, review
* Independent directors: Stock exchanges in Japan require listed companies to appoint out-
side 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 busi-
ness partners, consultants who receive large remunerations from the company, and their
close relatives cannot be selected as independent directors.
Audit & Supervisory Board
documents related to important decisions, and conduct audits
by investigating etc. the situation of businesses and property
of the Company and its subsidiaries. In this way, the Audit
& Supervisory Board conducts strict audits of directors’ ex-
ecution of duty, including the status of development of the
As a body which is in charge of the audit of operations,
internal control system.
under the principles of autonomy, which is independent
Procedures in the Nomination of Directors etc.
from the Board of Directors, the Company has full-time
The Company established the “Nomination and Remuneration
Audit & Supervisory Board Members that are familiar with
Advisory Committee,” a non-statutory committee, which
the Company’s businesses or its management structure, and
consists of the CEO, two Independent Outside Directors, and
Directors and Audit & Supervisory Board Members (as of April 1, 2018)
Representative Director
Chairman & CEO
Fujio Mitarai
Representative Director
President & COO
Masaya Maeda
Representative Director
Executive Vice President & CFO
Toshizo Tanaka
Group Executive of Finance & Accounting Headquarters
Group Executive of Public Affairs Headquarters
Group Executive of Facilities Management Headquarters
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 Headquarters
Directors
Kunitaro Saida (Outside)
Attorney
Haruhiko Kato (Outside)
President & CEO
of Japan Securities Depository Center,
Incorporated
Audit & Supervisory Board Members
Kazuto Ono
Masaaki Nakamura
Tadashi Ohe (Outside)
Hiroshi Yoshida (Outside)
Koichi Kashimoto (Outside)
Note: Although this annual report is for FY2017, the above list of Directors and Audit & Supervisory Board members is as of April 1, 2018.
30
CANON ANNUAL REPORT 2017 STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
one Independent Outside Audit & Supervisory Board Member.
Corporate Strategy Committee, Risk Management
At the time Director and Audit & Supervisory Board Member
Committee, and Disclosure Committee
candidates are nominated and Executive Officers are selected
The Company established the Corporate Strategy Committee,
(includes the selection of the successor of chief executive of-
consisting of Representative Directors and some Executive
ficer), the CEO recommends candidates thereof from among
Officers. Among items to be decided by the CEO, the
individuals that have been recognized as having met the pre-
Committee undertakes prior deliberations on important mat-
scribed requirements, and the Committee checks the fairness
ters pertaining to Canon Group strategies. Outside Directors
and validity of such recommendation prior to submission to
and Audit & Supervisory Board Members attend Corporate
and deliberation by the Board of Directors. Additionally, as
Strategy Committee meetings and are able to express their
for Audit & Supervisory Board Member candidates, prior to
own opinions.
deliberation of the Board of Directors, consent of the Audit &
Based on a resolution passed by the Board of Directors,
Supervisory Board shall be acquired.
Canon set up the Risk Management Committee, which
31
Governance Structure (as of March 29, 2018)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 divisionNomination and Remuneration Advisory Committee(CEO, two Independent Outside Directors, and one Independent Outside Audit & Supervisory Board Member)Financial Risk ManagementSubcommitteeCompliance SubcommitteeBusiness Risk ManagementSubcommitteeRisk Management CommitteeElect/DismissElect/DismissApprove/SuperviseInstruct/OrderApprove/SuperviseElect/DismissElect/DismissAuditCooperationFinancial AuditCooperationCooperationReportAuditReportReportReportReportReportInternal AuditConsultConsultReportCooperationReportCANON ANNUAL REPORT 2017 ESG
GOVERNANCE
formulates policy and action proposals regarding improve-
dialogue with shareholders through an ordinary general
ment of the Canon Group risk management system. The
meeting of shareholders, corporate strategy conferences,
Risk Management Committee consists of three entities: the
financial results conferences, and interviews with major insti-
Financial Risk Management Subcommittee, which is tasked
tutional investors.
with improving systems to ensure reliability of financial re-
The Structure to Promote Dialogue
porting; the Compliance Subcommittee, which is tasked with
Finance & accounting (Investor Relations (“IR”)), legal affairs,
promoting corporate ethics and improving legal compliance
corporate communications are responsible for working to-
systems; and the Business Risk Management Subcommittee,
gether and promoting dialogue. The Executive Vice President
which is charged with improving systems to manage overall
& CFO oversees the entire structure to promote dialogue.
business risks, including risks related to product quality and
For analysts and institutional investors, the CEO hosts a
information leak.
corporate strategy conference at the beginning of the year.
The Risk Management Committee verifies the risk manage-
Other than this, the CFO hosts quarterly financial results con-
ment system’s improvement and implementation and reports
ferences. For individual investors, conferences are held when
the status to the CEO and the Board of Directors.
appropriate and on Canon’s official website, specific pages
In addition, the Disclosure Committee was established to
containing information about corporate strategy, financial
undertake deliberations pertaining to information disclosure,
results, and financial data etc. have been set up using descrip-
including content and timing, to ensure important corporate
tions that are easy to understand.
information will be disclosed in a timely and accurate manner.
Additionally, Canon works for dialogue with domestic and
Internal Audit Division
overseas analysts and institutional investors, arranging inter-
The Corporate Audit Center, the Company’s internal audit-
view opportunities appropriately. For detail, see “an overview
ing arm, as an independent and specialized organization and
of Corporate Governance at Canon Inc.”
in accordance with internal audit rules, conducts audits and
As for the opinions or demands that are obtained through
evaluations and provides guidance on such matters as compli-
dialogue with shareholders, accordingly, the department in
ance with laws and the internal control system. Furthermore,
charge reports to the CFO and the CFO will report important
the Corporate Audit Center is primarily responsible for audits
ones to the CEO or the Board of Directors.
covering such areas as quality, the environment, and informa-
Controlling Insider Information
tion security, and conducts them in collaboration with the
Canon has set the “Rules on Prevention of Insider Trading,”
divisions in charge. Additionally, based on senior executive
which makes thorough control of undisclosed material informa-
management policy, for all work processes, audits must be
tion and provides the procedure of information disclosure.
conducted from a specialized viewpoint and there are plans
to increase the number of members from the current 70 to
strengthen auditing functions.
Constructive Dialogue with Shareholders
Policy
For sustainable growth and to help improve corporate value
over a mid- to long-term perspective, Canon has constructive
32
CANON ANNUAL REPORT 2017 FINANCIAL SECTION
TABLE OF CO NTENTS
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
CANON ANNUAL REPORT 2017
33
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, medical
equipment, semiconductor lithography equipment and FPD
(Flat panel display) lithography equipment. Canon earns reve-
nues primarily from the manufacture and sale of these products
domestically and internationally. Canon’s basic management
policy is to contribute to the prosperity and well-being of the
world while endeavoring to become a truly excellent global
corporate group targeting continued growth and development.
Canon divides its businesses into four segments: the Office
Business Unit, the Imaging System Business Unit, the Medical
System Business Unit which was newly established in 2017 and
the Industry and Others Business Unit.
Economic environment
Looking back at the global economy in 2017, the U.S. econ-
omy continued to grow steadily as employment conditions
and corporate earnings improved. In Europe, the economy
remained stable as unemployment rates decreased and capi-
tal investment increased due to strong exports. The Chinese
economy rallied due to public investments while the econo-
mies of emerging countries realized moderate recovery as the
economies of Russia and Brazil bottomed out owing to the ris-
ing price of natural resources. In Japan, corporate earnings
improved and consumer spending showed signs of recovery.
As a result, the global economy overall continued to recover
more robustly than was expected at the beginning of the year.
Market environment
As for the markets in which Canon operates amid these con-
ditions, demand for office multifunction devices (“MFDs”)
and laser printers remained at around the same level as the
previous year. While demand for cameras shrank moder-
ately, demand for inkjet printers increased from the previous
year with the economies recovering in emerging countries.
Additionally, there was solid demand for medical equipment,
mainly outside of Japan. Within the Industry and Others sec-
tor, demand for FPD (Flat panel display) lithography equipment
and manufacturing equipment for organic LED (“OLED”) pan-
els enjoyed strong growth and the demand for network cam-
era also enjoyed solid growth.
The average value of the yen during the year was ¥112.13
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥4, and ¥126.69 against the euro, a year-on-year
depreciation of approximately ¥6.
Summary of operations
During 2017, unit sales of office MFDs increased compared
with the previous year due to the expanded sales of color
models. Additionally, unit sales of laser printers increased com-
pared with the previous year, supported by the steady sales
of newly launched models, as demand recovered in emerg-
ing countries. While unit sales of interchangeable-lens digi-
tal cameras decreased compared with the previous year, unit
sales of digital compact cameras remained at around the
same level amid the shrinking market, owing to increased
sales of high-value-added models. Looking at inkjet printers,
unit sales increased compared with the previous year, thanks
to such factors as strong sales of newly launched home-use
models and refillable ink tank models for emerging countries.
Additionally, sales of semiconductor lithography equipment,
FPD lithography equipment, and manufacturing equipment
for OLED panels exceeded those of the previous year, thanks
to favorable market conditions, and sales of network cameras
increased steadily in response to the growing market. Under
these conditions, along with the impact of acquiring TMSC,
net sales for the year increased by 19.9% year on year to
¥4,080,015 million. Although the gross profit ratio decreased
by 0.4 points to 48.8% due to the effect of the product mix,
gross profit increased by 19.0% year on year to ¥1,992,691
million, thanks to such factors as the increase in sales and con-
tinuous cost reduction efforts. Operating expenses increased
by 15.0% year on year, mainly due to impairment loss on
goodwill of commercial printing business in Office Business
Unit and the impact of acquiring TMSC. As a result, operating
profit increased by 44.8% to ¥331,479 million. Other income
(deductions) increased by ¥6,620 million mainly due to gain
on securities contributed to retirement benefit trust and for-
eign currency exchange losses while income before income
taxes increased by 44.6% year on year to ¥353,884 million
and net income attributable to Canon Inc. increased by 60.6%
to ¥241,923 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.
Net sales and profit ratio
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
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
34
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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 mea-
sures the efficiency of supply chain management. Inventories
have inherent risks of becoming obsolete, physically damaged
or otherwise decreasing significantly in value, which may
adversely affect Canon’s operating results. To mitigate these
risks, management believes that it is crucial to continue reduc-
ing work-in-process inventories by decreasing production lead
times in order to promptly recover related product expenses,
while balancing risks of supply chain disruptions by optimiz-
ing finished goods inventories in order to avoid losing poten-
tial 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
2017
2016
2015
2014
2013
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
4,080,015
48.8%
8.1%
8.1%
49 days
10.2%
55.2%
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%
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 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 accor-
dance with U.S. generally accepted accounting principles (“U.S.
GAAP”) and based on the selection and application of signifi-
cant accounting policies which require management to make
significant estimates and assumptions. These estimates and
assumptions include future market conditions, net sales growth
rate, gross margin and discount rate. Though Canon believes
that the estimates and assumptions are reasonable, actual
future results may differ from these estimates and assumptions.
Canon believes that the following are the more critical judg-
ment areas in the application of its accounting policies that cur-
rently affect its financial condition and results of operations.
Revenue recognition
Canon generates revenue principally through the sale of
office, imaging system and medical system products, equip-
ment, supplies, and related services under separate contractual
CANON ANNUAL REPORT 2017
35
FINANCIAL OVERVIEW
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 deter-
minable, 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
contracts for most office products, for which the customer typi-
cally pays a stated base service fee plus a variable amount based
on usage. Revenue from these service maintenance contracts is
measured at the stated amount of the contract and recognized
as services are provided and variable amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-financing leases are
accounted for as operating leases and related revenue is 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 equipment that are sold with cus-
tomer acceptance provisions related to their functionality
including optical equipment such as semiconductor lithogra-
phy equipment and FPD lithography equipment, and certain
medical equipment such as computed tomography and mag-
netic resonance imaging, is recognized when the equipment
is installed at the customer site and the specific criteria of the
equipment functionality are successfully tested. Service reve-
nue is derived primarily from separately priced product main-
tenance contracts on the equipment sold to customers and
is measured at the stated amount of the contract and recog-
nized as services are provided.
For all other arrangements with multiple elements, Canon
allocates revenue to each element based on its relative selling
price if such element meets the criteria for treatment as a sep-
arate unit of accounting. Otherwise, revenue is deferred until
the undelivered elements are fulfilled and accounted for as a
single unit of accounting.
Canon records estimated reductions to sales at the time of
sale for sales incentive programs including product 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,
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
36
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
of accounting. The acquisition method of accounting requires
the identification and measurement of all acquired tangible
and intangible assets and assumed liabilities at their respective
fair values, as of the acquisition date. The determination of the
fair value of net assets acquired involves significant judgment
and estimates, such as future cash flow projections, appro-
priate discount and capitalization rates and other estimates
based on available market information. Estimates of future
cash flows are based on a number of factors including oper-
ating results, known and anticipated trends, as well as market
and economic conditions.
Goodwill and other intangible assets
Goodwill and other intangible assets with indefinite use-
ful lives are not amortized, but are instead tested for impair-
ment annually in the fourth quarter of each year, or more
frequently if indicators of potential impairment exist. All good-
will is assigned to the reporting 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 recognizes an impair-
ment charge in an amount equal to that excess, limited to
the total amount of goodwill allocated to that reporting unit.
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 2017 and recognized an impair-
ment charge for the commercial printing business included
in Office Business Unit for the amount by which the carrying
amount exceeded the reporting unit’s fair value. For further
information, please refer to Notes 8 and 20 of the Notes to
Consolidated Financial Statements. The fair values of remain-
ing reporting units exceeded its respective carrying amount,
and thus no other impairment charges were recognized as
a result of 2017 impairment test. However, since goodwill
attributed to Medical System Business Unit and network cam-
era business included in Industry and Others Business Unit
were resulted from recent acquisitions, fair values in excess
of reported carrying values as a percentage are relatively low.
As a result, a future reduction more than expected in cash
flows of the related business, could trigger an impairment. The
goodwill related to these reporting units are ¥499,915 million
and ¥235,172 million, respectively. Intangible assets with finite
useful lives consist primarily of software, trademarks, patents
and developed technology, license fees and customer relation-
ships, which are amortized using the straight-line method. The
estimated useful lives of software are from 3 years to 6 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 15 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 2017, Canon esti-
mated a weighted-average discount rate used to determine
benefit obligations of 0.6% 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
4.2% for foreign plans. In estimating the discount rate, Canon
uses available information about rates of return on high-qual-
ity fixed-income government and corporate bonds currently
available and expected to be available during the period to
the maturity of the pension benefits. Canon establishes the
expected long-term rate of return on plan assets based on
management’s expectations of the long-term return of the
various plan asset categories in which it invests. Management
develops expectations with respect to each plan asset category
based on actual historical returns and its current expectations
for future returns.
CANON ANNUAL REPORT 2017
37
FINANCIAL OVERVIEW
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 2017, a decrease of 50 basis points in the
discount rate increases the projected benefit obligation by
approximately ¥101,964 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 2017, a change of
50 basis points in the expected long-term rate of return on
plan assets would cause a change of approximately ¥4,948
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.
Recently Issued Accounting Guidance
Please refer to Note 1 of the Notes to Consolidated Financial
Statements.
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
continued to recover more robustly than was expected at the
beginning of the year. In such an environment, due to efforts
to promote sales of newly launched models and high-value-
added models, along with the impact of acquiring TMSC,
Canon’s consolidated net sales in 2017 totaled ¥4,080,015
million, an increase of 19.9% from the previous year.
Overseas operations are significant to Canon’s operating
results and generated 78.3% of total net sales in 2017. 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 ¥112.13
against the U.S. dollar, a year-on-year depreciation of approx-
imately ¥4, and ¥126.69 against the euro, a year-on-year
depreciation of approximately ¥6. The effects of foreign
exchange rate fluctuations positively affected net sales by
approximately ¥96,224 million in 2017. This favorable impact
consisted of approximately ¥42,467 million of favorable impact
38
CANON ANNUAL REPORT 2017
Millions of yen
2017
change
2016
change
2015
4,080,015 +19.9% 3,401,487
228,866
244,651
150,650
331,479 +44.8%
353,884 +44.6%
241,923 +60.6%
-10.5% 3,800,271
355,210
-35.6%
-29.6%
347,438
220,209
-31.6%
for the U.S. dollar denominated sales and favorable impact of
¥42,950 million for the euro denominated sales, and ¥10,807
million for other foreign currency denominated sales.
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
Return on Sales (%)
9
6
3
0
2013
2014
2015
2016
2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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 ratios of cost of sales to net
sales for 2017 and 2016 were 51.2% and 50.8%, respectively.
Gross profit
Canon’s gross profit in 2017 increased by 19.0% to ¥1,992,691
million from 2016. The gross profit ratio also decreased by 0.4
points year on year to 48.8%. The decrease in the gross profit
ratio is primarily due to the effect of product mix.
Operating expenses
The major components of operating expenses are payroll,
R&D, advertising expenses and other marketing expenses.
Operating expenses increased 15.0% year on year to
¥1,661,212 million owing to such factors as the increase in
foreign-currency-denominated operating expenses after con-
version into yen due to the depreciation of the yen, the impact
of acquiring TMSC, and the impact of recognizing impairment
losses on goodwill.
Operating profit
Operating profit in 2017 increased 44.8% from 2016 to a
total of ¥331,479 million. The ratio of operating profit to net
sales increased 1.4 points to 8.1% from 2016.
Other income (deductions)
Other income (deductions) for 2017 was ¥22,405 million, an
increase of ¥6,620 million from 2016 mainly due to gain on
securities contributed to retirement benefit trust which was
partially offset by foreign currency exchange losses.
Income before income taxes
Income before income taxes in 2017 was ¥353,884 million, an
increase of 44.6% from 2016, and constituted 8.7% of net sales.
Income taxes
Income taxes in 2017 increased by ¥15,343 million from 2016.
The effective tax rate for 2017 was 27.7%, which was lower
than the statutory tax rate in Japan. This was mainly due to the
effect of reversal of deferred tax liabilities derived from US tax
reform in 2017 and the tax credit for R&D expenses which were
partially offset by the impact of impairment losses on goodwill.
Net income attributable to Canon Inc.
As a result, net income attributable to Canon Inc. in 2017
increased by 60.6% to ¥241,923 million, which represents
5.9% of net sales.
Segment information
Canon divides its businesses into four segments: the Office
Business Unit, the Imaging System Business Unit, the Medical
System Business Unit which was newly established in 2017, 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 Medical System Business Unit mainly includes
Digital radiography systems / Diagnostic X-ray systems /
Computed tomography / Magnetic resonance imaging /
Diagnostic ultrasound systems / Clinical chemistry analyzers
/ Ophthalmic equipment
The Industry and Others Business Unit mainly includes
Semiconductor lithography equipment / FPD (Flat panel dis-
play) lithography equipment / Vacuum thin-film deposition
equipment / Organic LED (OLED) panel manufacturing equip-
ment / Die bonders / Micromotors / Network cameras / Handy
terminals / Document scanners
Sales by Segment (Billions of yen)
Sales by Geographic Area (Billions of yen)
5,000
4,000
3,000
2,000
1,000
0
Office Business Unit
Imaging System
Business Unit
Medical System
Business Unit
Industry and Others
Business Unit
Eliminations
2013
2014
2015
2016
2017
5,000
4,000
3,000
2,000
1,000
0
Japan
Americas
Europe
Asia and Oceania
2013
2014
2015
2016
2017
CANON ANNUAL REPORT 2017
39
FINANCIAL OVERVIEW
Sales by segment
Within the Office Business Unit, unit sales of office MFDs
increased from the previous year and achieved higher growth
than the market average, supported by steady sales of next-
generation color models designed to strengthen the product
lineup such as the newly launched color A3 (12”x18”) imag-
eRUNNER ADVANCE C3500 series for small- and medium-size
offices. Among high-speed continuous-feed printers, unit sales
of the Océ-produced VarioPrint i300, a high-speed sheet-fed
color inkjet press that offers superior low-running-cost perfor-
mance, increased. As for laser printers, sales of both hardware
and consumables increased from the previous year, supported
by steady sales of new models that achieve low power con-
sumption and compact body designs. These factors resulted
in total sales for the business unit of ¥1,865,928 million, a
year-on-year increase of 3.2%, while operating profit totaled
¥180,648 million, a year-on-year increase of 6.6%.
Within the Imaging System Business Unit, while the pace
of decline in demand for interchangeable-lens digital cam-
eras is gradually decelerating, the sales of the advanced-ama-
teur-models —including the EOS 6D Mark II—enjoyed solid
demand, allowing Canon to maintain the top share, mainly
in the United States, Europe, and Japan. As for compact-sys-
tem cameras, the advanced-amateur-model EOS M6 and the
entry-level EOS M100 enjoyed strong demand. As for digi-
tal compact cameras, amid the shrinking market, unit sales
remained at the same level as the previous year, supported
by the increased sales of such high-value-added models as
the newly launched G9 X Mark II—part of the high-image-
quality PowerShot G-series lineup. As for inkjet printers, the
newly designed home-use TS-series, refillable ink tank mod-
els targeting emerging countries and the imagePROGRAF PRO
series of large format inkjet printer targeting the professional
photo and graphic art markets enjoyed strong demand, result-
ing in unit sales increasing from the previous year. As a result,
sales for the business unit increased by 3.7% year on year to
¥1,136,188 million, while operating profit totaled ¥175,913
million, a year-on-year increase of 21.8%.
Within the Medical System Business Unit, TMSC’s com-
puted tomography (“CT”) products increased the sales and
maintained the top share in the Japanese market thanks to
the solid sales of the newly launched Aquilion Precision CT
scanner, which delivers the industry’s highest level of high-res-
olution imaging. As for diagnostic ultrasound systems, sale of
the Aplio i-series, which delivers proprietary high-resolution
imaging technology, remained firm. As a result, sales for the
business unit totaled ¥436,187 million, while operating profit
totaled ¥22,505 million.
In the Industry and Others Business Unit, unit sales of semi-
conductor lithography equipment increased from the previ-
ous year as a result of increasing demand for memory devices
used in data centers. Additionally, sales of FPD lithography
equipment and manufacturing equipment for OLED pan-
els increased significantly in response to continued grow-
ing demand for high-definition OLED displays used in mobile
devices. As for network cameras, amid increasing market
demand, Axis enjoyed solid sales, resulting in a considerable
sales increase compared with the previous year. Consequently,
sales for the business unit increased by 25.2% year on year
to ¥731,704 million, while operating profit grew by ¥49,340
SALES BY SEGMENT
Office
Imaging System
Medical System
Industry and Others
Eliminations
Total
SALES BY REGION
Japan
Americas
Europe
Asia and Oceania
Total
2017
change
2016
change
2015
Millions of yen
+3.2%
+3.7%
1,865,928
1,136,188
436,187
731,704 +25.2%
(89,992)
—
—
1,807,819
1,095,289
-14.4%
-13.3%
— —
584,660 +11.4%
(86,281) —
2,110,816
1,263,835
—
524,651
(99,031)
4,080,015 +19.9%
3,401,487
-10.5%
3,800,271
Millions of yen
2017
change
2016
change
2015
884,828 +25.2%
1,107,515 +14.9%
1,028,415 +12.6%
1,059,257 +29.6%
706,979
963,544
913,523
817,441
-1.0%
-15.8%
-15.0%
-5.7%
714,280
1,144,422
1,074,366
867,203
4,080,015 +19.9%
3,401,487
-10.5%
3,800,271
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 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
million from the previous year to ¥56,788 million.
Intersegment sales of ¥89,992 million, representing 2.2%
of total sales, are eliminated from total sales for the four seg-
ments, and are described as “Eliminations”.
Sales by geographic area
Please refer to the table of sales by geographic area in Note 21
of the Notes to Consolidated Financial Statements.
In Japan, net sales increased 25.2% from the previous year
mainly due to the impact of acquiring TMSC.
In the Americas, net sales increased 14.9% from the previ-
ous year due to the impact of acquiring TMSC, solid sales of
network cameras and the positive effects of favorable currency
exchange rates.
In Europe, net sales increased 12.6% from the previous
year due to the impact of acquiring TMSC, solid sales of net-
work cameras and the positive effects of favorable currency
exchange rates.
In Asia and Oceania, net sales increased by 29.6% from the
previous year due to the impact of acquiring TMSC and strong
sales of manufacturing equipment for OLED displays which is
sold by Canon Tokki and manufacturing equipment for FPD
(Flat panel display).
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 2017
increased by 6.6% from the previous year to ¥180,648 mil-
lion, owing to the positive effects of favorable currency
exchange rates.
Operating profit for the Imaging System Business Unit in
2017 increased by 21.8% from the previous year to ¥175,913
million, owing to the improvement in profitability from the
sales shift to high-added-value models in cameras, along with
the positive effects of favorable currency exchange rates.
Operating profit for the Medical System Business Unit,
which was newly established from this year, was ¥22,505 mil-
lion in 2017.
Operating profit for the Industry and Others Business Unit
in 2017 grew by ¥49,340 million to ¥56,788 million thanks
to strong sales of manufacturing equipment for OLED displays
and network cameras.
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 activities,
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by ¥91,621 million
to ¥721,814 million in fiscal 2017 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
¥90,274 million to ¥590,557 million in fiscal 2017 compared
to the previous year thanks to the increase in net income. The
major component of Canon’s cash inflow is cash received from
customers, and the major components of Canon’s cash out-
flow are payments for parts and materials, selling, general and
administrative expenses, R&D expenses and income taxes.
For fiscal 2017, cash inflow from cash received from custom-
ers increased thanks to sales growth. There were no significant
changes in Canon’s collection rates. Cash outflow for pay-
ments for parts and materials, selling, general and administra-
tive expenses and R&D expenses increased mainly due to sales
growth. Cash outflow for payments for income taxes decreased
thanks to a decrease in taxable income in fiscal 2016.
Net cash used in investing activities decreased by ¥672,115
million to ¥165,010 million in fiscal 2017. This mainly reflects
the acquisition of TMSC in fiscal 2016.
Canon defines “free cash flow” as cash flows from operat-
ing activities less cash flows from investing activities. For fiscal
2017, free cash flow increased by ¥762,389 million to positive
¥425,547 million as compared with negative ¥336,842 million
for fiscal 2016.
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.
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 negative
¥340,464 million in fiscal 2017, mainly resulting from the div-
idend payout of ¥162,887 million, the repayment for long-
term loans of ¥126,578 million and the acquisition of own
shares in ¥50,036 million. The Company paid dividends in fis-
cal 2017 of ¥160.00 per share.
CANON ANNUAL REPORT 2017
41
FINANCIAL OVERVIEW
To the extent Canon relies on external funding for its liquid-
ity and capital requirements, it generally has access to vari-
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
sources and from the capital markets, and believes it will con-
tinue to be able to do so in the future, there can be no assur-
ance that adverse economic or other conditions will not affect
Canon’s liquidity or long-term funding in the future.
Short-term loans (including the current portion of long-
term debt) increased to ¥39,328 million at December 31,
2017 compared with ¥1,850 million at December 31, 2016,
which was mainly due to a new consolidation of subsidiary.
Long-term debt (excluding the current portion) amounted
to ¥493,238 million at December 31, 2017 compared with
¥611,289 million at December 31, 2016 thanks to the repay-
ment for long-term loans.
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 9, 2018, 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.
Reflecting the foregoing circumstances, Canon’s total inven-
tory turnover ratios were 49, 59, and 47 days at the end
of the fiscal years 2017, 2016, and 2015, 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.
Increase in property, plant and equipment on an accrual
basis in 2017 amounted to ¥147,542 million compared with
¥171,597 million in 2016 and ¥195,120 million in 2015. For
2018, Canon projects its increase in property, plant and equip-
ment will be approximately ¥200,000 million.
Employer contributions to Canon’s worldwide defined ben-
efit pension plans were ¥50,628 million in 2017, ¥14,575
million in 2016 and ¥19,565 million in 2015. Employer con-
tributions to Canon’s worldwide defined contribution pension
plans were ¥18,979 million in 2017, ¥17,603 million in 2016,
and ¥17,277 million in 2015. In addition, employer contribu-
tions to the multiemployer pension plan of certain subsidiar-
ies were ¥4,165 million in 2017, ¥3,482 million in 2016 and
¥3,864 million in 2015.
Working capital in 2017 increased by ¥6,790 million to
¥1,123,169 million, compared with ¥1,116,379 million in
2016 and ¥1,241,850 million in 2015. 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 2017 was 2.01 compared to 2.14 for 2016 and to
2.52 for 2015.
Return on assets (net income attributable to Canon Inc.
divided by the average of total assets) was 4.7% in 2017,
compared to 3.1% in 2016 and 5.0% in 2015.
Return on Canon Inc. shareholders’ equity (net income
attributable to Canon Inc. divided by the average of total
Canon Inc. shareholders’ equity) was 8.6% in 2017 compared
with 5.2% in 2016 and 7.4% in 2015.
Increase in Property,
Plant and Equipment (Billions of yen)
Working Capital Ratio
Return on Canon Inc.
Shareholders’ Equity (%)
300
200
100
0
3.0
2.5
2.0
1.5
1.0
0.5
0
12
9
6
3
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
42
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
The debt to total assets ratios were 10.2%, 11.9% and 0.0%
as of December 31, 2017, 2016 and 2015, respectively. Canon
had short-term loans and long-term debt of ¥532,566 million
as of December 31, 2017, ¥613,139 million as of December 31,
2016 and ¥1,569 million as of December 31, 2015.
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 compa-
rable 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
2017
2016
590,557
500,283
(165,010)
(837,125)
425,547
(336,842)
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 its employees, affiliates and
other companies. The guarantees for the employees are prin-
cipally made for their housing loans. The guarantees for affili-
ates and other companies are made for their lease obligations
and bank loans to ensure that those companies operate with
less financial risk.
Canon would have to perform under a guarantee if the bor-
rower defaults on a payment within the contract terms. The
contract terms are 1 year to 30 years in case of employees
with housing loans, and 1 year to 7 years in case of affiliates
and other companies with lease obligations and bank loans.
The maximum amount of undiscounted payments Canon
would have had to make in the event of default is ¥6,059 mil-
lion at December 31, 2017. The carrying amounts of the liabil-
ities recognized for Canon’s obligations as a guarantor under
those guarantees at December 31, 2017 were not significant.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following summarizes Canon’s contractual obligations at December 31, 2017.
Millions of yen
Contractual obiligations:
Long-term debt:
Loan from the banks
Other debt
Operating lease obligations
Purchase commitments for:
Property, plant and equipment
Parts and raw materials
Other long-term liabilities:
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Payments due by period
490,000
9,168
111,502
—
5,930
28,414
—
2,776
37,622
490,000
390
22,495
—
72
22,971
36,199
135,649
36,199
135,649
—
—
—
—
—
—
—
—
—
Contribution to defined benefit pension plans
36,750
36,750
Total
819,268
242,942
40,398
512,885
23,043
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 ANNUAL REPORT 2017
43
FINANCIAL OVERVIEW
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, 2017 accrued product warranty costs amounted to
¥17,452 million.
At December 31, 2017, commitments outstanding for the
purchase of property, plant and equipment were approxi-
mately ¥36,199 million, and commitments outstanding for
the purchase of parts and raw materials were approximately
¥135,649 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 2018, Canon expects to contribute ¥14,447 million
to its Japanese defined benefit pension plans and ¥22,303 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.
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:
(cid:129) Establish a new production system to achieve a cost-of-
sales ratio of 45%;
(cid:129) Reinforce and expand new businesses while creating
future businesses; and
(cid:129) Enhance R&D capabilities through open innovation.
Canon has been striving to implement the three R&D related
strategies as follows:
(cid:129) Establish a new production system to achieve a cost-of-
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.
(cid:129) Reinforce and expand new businesses while creating
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
44
CANON ANNUAL REPORT 2017
while actively taking advantage of M&A to accelerate the
early expansion of these businesses.
(cid:129) Enhance R&D capabilities through open innovation:
Construct a more open R&D system that proactively lever-
ages external technologies and knowledge to accelerate and
improve efficiency of the R&D. Especially in our fundamen-
tal research and development, Canon is promoting joint and
contract research with various partners including universi-
ties, research institutes, and startups around the world.
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. Also, TMSC and the
University of Bordeaux has started a joint research on ultra-
high-resolution MRI technologies.
Canon has developed simulation systems covering compre-
hensive image processing including optical design, mechanical
noise analysis, and thermal air flow analysis. With these simu-
lation systems, Canon has succeeded in further reducing the
need for prototypes, lowering costs and shortening product
development lead times.
Canon’s consolidated R&D expenses were ¥330,053 mil-
lion in 2017, ¥302,376 million in 2016 and ¥328,500 million
in 2015. The ratios of R&D expenses to the consolidated total
net sales for 2017, 2016 and 2015 were 8.1%, 8.9% and
8.6%, respectively.
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
R&D Expenses (Billions of yen)
400
300
200
100
0
2013
2014
2015
2016
2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
standards in the market and industry.
Canon obtained the third greatest number of private sector
patents in 2017, according to the United States patent annual
list, released by IFI CLAIMS® Patent Services.
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.
Equity price risk
Canon holds marketable securities included in current assets,
which consist generally of highly-liquid and low-risk instru-
ments. Investments included in noncurrent assets are held as
long-term investments. Canon does not hold marketable secu-
rities and investments for trading purposes.
Maturities and fair values of such marketable securities and investments with original maturities of more than three months, all
of which were classified as available-for-sale securities, were as follows at December 31, 2017.
Available-for-sale securities
Debt securities
Due within one year
Due after one year through five years
Due after five years
Fund trusts
Equity securities
Millions of yen
Cost
Fair value
1,222
605
340
122
10,965
13,254
1,222
605
506
124
20,901
23,358
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.
CANON ANNUAL REPORT 2017
45
FINANCIAL OVERVIEW
The following table provides information about Canon’s major derivative financial instruments related to foreign currency
exchange transactions existing at December 31, 2017. All of the foreign exchange contracts described in the following table
have a contractual maturity date in 2018.
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
119,128
61
127,449
(1,720)
25,986
(426)
272,563
(2,085)
38,775
(448)
2,399
(187)
4,994
5
46,168
(630)
Canon expects that fair value changes and cash flows result-
ing from reasonable near-term changes in interest rates will
be immaterial. Accordingly, Canon believes interest rate risk
is insignificant. See also Note 9 of the Notes to Consolidated
Financial Statements.
Changes in the fair value of derivative financial instruments
designated as cash flow hedges, including foreign currency
exchange contracts associated with forecasted intercom-
pany sales, are reported in accumulated other comprehen-
sive 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 comprehen-
sive 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 cur-
rency exchange contract for the period between the date
that the forecasted intercompany sales occur and its matu-
rity date are recognized in earnings and not considered hedge
ineffectiveness.
The amount of the hedging ineffectiveness was not material
for the years ended December 31, 2017, 2016 and 2015. The
amounts of net losses excluded from the assessment of hedge
effectiveness (time value component) which was recorded in
other income (deductions) were ¥332 million, ¥311 million
and ¥131 million for the years ended December 31, 2017,
2016 and 2015, 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.
LOOKING FORWARD
Under the corporate philosophy of kyosei—living and work-
ing together for the common good—Canon’s basic manage-
ment policy is to contribute to the prosperity and well-being of
the world while endeavoring to become a truly excellent global
corporation targeting continued growth and development.
Based on this basic management policy, Canon launched
the Excellent Global Corporation Plan in 1996 and, from Phase
I through to Phase IV, has worked to strengthen its manage-
ment base and improve corporate value. In 2016, under the
slogan “Embracing the challenge of new growth through a
grand strategic transformation,” Canon embarked on a new
five-year initiative: Phase V of the Excellent Global Corporation
Plan. Under this plan, Canon aims to facilitate growth through
structural transformation by reinforcing existing businesses
and taking steps to cultivate and strengthen new businesses.
Despite the growing concerns about geopolitical risks, the
world economy is expected to continue achieving moderate
growth in 2018.
In the businesses in which Canon is involved, for office
MFDs, demand for color models is expected to grow mod-
erately and make up for the contraction of the market for
monochrome models, leading to the same level of demand
overall compared with the previous year. Looking at the laser
printer market, although the demand in developed countries
is expected to decrease, demand in emerging countries con-
tinues to recover, resulting in overall demand remaining at
the same level as the previous year. For interchangeable-lens
digital cameras, demand is expected to decrease moderately.
Projections for digital compact cameras indicate continued
market contraction, centered mainly on low-priced mod-
els, despite solid demand for high-value-added models. With
regard to inkjet printers, demand is expected to continue to
exceed that of the previous year. As for the medical equip-
ment market, demand is expected to remain firm in response
to replacement demand for medical equipment in developed
countries, increasing medical needs associated with popula-
tion growth in emerging countries and changes in the prev-
alence of diseases. Looking at industrial equipment, within
the semiconductor lithography equipment segment, the mar-
ket is expected to enjoy healthy growth due to the increase in
demand for memory devices used in data centers and mobile
devices. The outlook for FPD lithography equipment and OLED
panel manufacturing equipment points to continued active
capital investment by panel manufacturers, which is expected
to increase demand. The network camera market is also
expected to grow in response to the increasing use of network
cameras for diverse applications in such areas as marketing
support in addition to disaster monitoring and crime preven-
tion applications.
46
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Reform sales organizations to correspond to
market changes
Cultivate global sales engineers essential for B2B busi-
nesses such as commercial printing and network camera,
and while striving to enhance the capabilities of these sales
engineers, work to strengthen local service support systems
with a focus on sales companies. Carry out the optimiza-
tion of sales channels to correspond to changes in product
and market landscapes, such as adapting to e-commerce.
Establish a human resource management system that
adapts to the changing times
Build a human resource development system, a personnel
system that enables a wide range of career paths that are in
step with changes in the business environment and times.
Forward looking statements
The foregoing discussion and other disclosure in this report
contains forward-looking statements that reflect manage-
ment’s current views with respect to certain future events and
financial performance. Actual results may differ materially
from those projected or implied in the forward-looking state-
ments. Further, certain forward-looking statements are based
upon assumptions of future events that may not prove to be
accurate. The following important factors could cause actual
results to differ materially from those projected or implied in
any forward-looking statements: foreign currency exchange
rate fluctuations; the uncertainty of Canon’s ability to imple-
ment its plans to localize production and other measures to
reduce the impact of foreign currency exchange rate fluctua-
tions; uncertainty as to economic conditions in Canon’s major
markets; uncertainty of continued demand for Canon’s high-
value-added products; Canon’s ability to continue to develop
products and to market products that incorporate new tech-
nology on a timely basis, are competitively priced, and achieve
market acceptance; the possibility of losses resulting from for-
eign currency transactions designed to reduce financial risks
from changes in foreign currency exchange rates; and inven-
tory risk due to shifts in market demand.
Amid these conditions, 2018 marks the year of accelerated
progress toward the target “to achieve net sales of 5.0 tril-
lion yen” under Phase V (2016 - 2020) of “Excellent Global
Corporation Plan” with the new business portfolio includ-
ing the four new business areas (commercial printing, net-
work cameras, healthcare, and industrial equipment), and will
work to address the following key challenges under the theme
of “Pursue total optimization and prioritize profits to com-
plete our grand strategic transformation.” Canon will once
again return to the slogans of “total optimization” and “focus
on profit,” which Canon have upheld since 1996, and review
everything from scratch based on them aiming to raise the
level of the overall management one step higher.
Strengthen capability to research
leading-edge technology
Strengthen research and analysis functions that contrib-
ute to the expansion of strategic initiatives that response
to changing times and rapid and constant innovation.
Comprehensively strengthen capability to research not only
global leading-edge technology, but also political, eco-
nomic, industrial, social and other areas.
Strengthen product development capability
Focus resources in areas that hold future promise, promot-
ing even more strictly the selection and concentration of
development themes. Efficiently accelerate technological
development through collaboration and the use of exter-
nal research institutes, and start-up enterprises. Further
improve quality, cost, and delivery, promoting such initia-
tives as elimination of prototypes by improving simulation
technology, optimal designs for robot assembly, and the
sharing of product platforms. Enhance software develop-
ment capability and work to obtain the optimal balance
between outsourcing and in-house production.
Comprehensively strengthen manufacturing prowess
Accelerate reduction in the production cost ratio of new
businesses. Establish an advanced and efficient produc-
tion system that brings together, development, produc-
tion engineering, and manufacturing, and strongly promote
the expansion of this via the “mother factory” concept.
Thoroughly pursue cost reduction, expanding the in-house
production of production equipment and parts that are
shared among various products in addition to key compo-
nents. Construct a globally optimized manufacturing sys-
tem, which enables monitoring of costs in real time by
country and region. Eradicate waste in product develop-
ment stage, having product development and quality orga-
nizations work in unison.
Comprehensively strengthen strategic
procurement function
Further strengthen and accelerate cooperation with world-
wide suppliers in the global procurement network developed
so far. Promote in-house production of parts and materials
and realize cost reduction by promoting standardization of
parts and adoption of general-purpose components.
CANON ANNUAL REPORT 2017
47
TEN-YEAR FINANCIAL SUMMARY
Net sales:
Domestic
Overseas
Total
Percentage of previous year
Millions of yen (except per share amounts)
2017
2016
2015
2014
884,828
3,195,187
4,080,015
119.9%
706,979
2,694,508
3,401,487
89.5%
714,280
3,085,991
3,800,271
102.0%
724,317
3,002,935
3,727,252
99.9%
Net income attributable to Canon Inc.
Percentage of sales
241,923
150,650
220,209
5.9%
4.4%
5.8%
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
Total assets
Per share data:
Net income attributable to Canon Inc.
shareholders per share:
Basic
Diluted
Dividend per share
Stock price
High
Low
61,207
330,053
189,712
147,542
493,238
2,870,630
5,198,291
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
254,797
6.8%
79,765
308,979
213,739
182,343
1,148
2,978,184
4,460,618
222.88
222.88
160.00
4,472
3,218
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
Average number of common shares in thousands
Number of employees
1,085,439
197,776
1,092,071
197,673
1,092,018
189,571
1,112,510
191,889
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
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
48
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
2013
2012
2011
2010
2009
2008
2017
Thousands of U.S. dollars
(except per share amounts)
715,863
3,015,517
3,731,380
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
78.4%
230,483
224,564
248,630
246,603
131,647
6.2%
6.5%
7.0%
6.7%
4.1%
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
868,280
3,225,881
4,094,161
91.4%
309,148
7.6%
112,810
374,025
304,622
361,988
$ 7,830,336
28,275,991
36,106,327
119.9%
2,140,912
5.9%
541,655
2,920,823
1,678,867
1,305,681
8,423
2,659,792
3,969,934
$ 4,364,938
25,403,805
46,002,575
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
246.21
246.20
110.00
5,820
2,215
$
1.97
1.97
1.42
39.58
28.48
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
Notes: U.S. dollar amounts are translated from yen at the rate of U.S.$1 = JPY113, the approximate exchange rate on the Tokyo Foreign Exchange Market as of
December 29, 2017.
CANON ANNUAL REPORT 2017
49
CONSOLIDATED BALANCE SHEETS
Canon Inc. and Subsidiaries
December 31, 2017 and 2016
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 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, 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 (Note 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 2017 and 2016
Additional paid-in capital
Legal reserve (Note 13)
Retained earnings (Note 13)
Accumulated other comprehensive income (loss) (Note 14)
Treasury stock, at cost; 254,007,681shares in 2017 and 241,695,310 shares in 2016
Total Canon Inc. shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
50
CANON ANNUAL REPORT 2017
Millions of yen
2017
2016
721,814
1,965
650,872
570,033
287,965
2,232,649
35,444
48,320
1,126,620
420,972
936,722
397,564
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
5,198,291
5,138,529
39,328
380,654
77,501
330,188
281,809
1,109,480
493,238
365,582
133,816
1,850
372,269
30,514
304,901
273,835
983,369
611,289
407,200
142,049
2,102,116
2,143,907
174,762
401,386
66,879
3,429,312
(143,228)
(1,058,481)
2,870,630
225,545
174,762
401,385
66,558
3,350,728
(199,881)
(1,010,423)
2,783,129
211,493
3,096,175
2,994,622
5,198,291
5,138,529
CONSOLIDATED STATEMENTS OF INCOME
Canon Inc. and Subsidiaries
Years ended December 31, 2017, 2016 and 2015
Net sales
Cost of sales (Notes 5, 8, 11 and 18)
Gross profit
Operating expenses (Notes 1, 5, 8, 11, 18 and 20):
Selling, general and administrative expenses
Research and development expenses
Impairment losses on goodwill
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
2017
2016
2015
4,080,015
2,087,324
1,992,691
3,401,487
1,727,654
1,673,833
3,800,271
1,865,887
1,934,384
1,297,247
330,053
33,912
1,142,591
302,376
—
1,250,674
328,500
—
1,661,212
1,444,967
1,579,174
331,479
228,866
355,210
6,012
(818)
17,211
4,762
(1,061)
12,084
5,501
(584)
(12,689)
22,405
15,785
(7,772)
353,884
244,651
347,438
98,024
82,681
116,105
255,860
161,970
231,333
13,937
11,320
11,124
241,923
150,650
220,209
Yen
222.88
222.88
160.00
137.95
137.95
150.00
201.65
201.65
150.00
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Canon Inc. and Subsidiaries
Years ended December 31, 2017, 2016 and 2015
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
2017
2016
2015
255,860
161,970
231,333
47,090
(9,362)
2,588
21,207
(107,666)
997
(2,948)
(70,355)
(55,504)
2,010
2,785
(6,543)
61,523
(179,972)
(57,252)
317,383
18,807
(18,002)
1,745
174,081
11,973
298,576
(19,747)
162,108
CANON ANNUAL REPORT 2017
51
CONSOLIDATED STATEMENTS OF EQUITY
Canon Inc. and Subsidiaries
Years ended December 31, 2017, 2016 and 2015
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, 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
44
(29,627)
(174,711)
(174,711)
690
(690)
—
(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
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 (loss)
Repurchases of treasury stock
Reissuance of treasury stock
1
(162,887)
1
(162,887)
321
(321)
—
(1)
—
(162,887)
(4,814)
60
—
(4,814)
60
241,923
241,923
13,937 255,860
44,168
(9,767)
2,562
19,690
44,168
2,922
47,090
(9,767)
405
(9,362)
2,562
19,690
26
1,517
2,588
21,207
298,576
18,807 317,383
(50,036)
(50,036)
(131)
1,978
1,847
(50,036)
1,847
Balance at December 31, 2017
174,762
401,386
66,879 3,429,312
(143,228) (1,058,481) 2,870,630
225,545 3,096,175
See accompanying Notes to Consolidated Financial Statements.
52
CANON ANNUAL REPORT 2017
CONSOLIDATED STATEMENTS OF CASH FLOWS
Canon Inc. and Subsidiaries
Years ended December 31, 2017, 2016 and 2015
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
Impairment losses on goodwill (Notes 8 and 20)
Gain on securities contributed to retirement benefit trust (Note 2)
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 in accrued (prepaid) pension and severance cost
Other, net
Millions of yen
2017
2016
2015
255,860
161,970
231,333
261,881
6,935
(1,196)
33,912
(17,836)
(17,603)
3,563
2,967
4,951
46,296
18,503
522
(8,198)
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)
Net cash provided by operating activities
590,557
500,283
474,724
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
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)
Increase (decrease) in short-term loans, net (Note 9)
Purchases of noncontrolling interests
Dividends paid
Repurchases and reissuance of treasury stock
Other, net
(189,484)
26,444
(2,220)
970
3,373
(6,557)
(928)
3,392
(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)
(165,010)
(837,125)
(453,619)
1,570
(126,578)
5,628
—
(162,887)
(50,034)
(8,163)
610,552
(856)
(80,580)
(4,993)
(163,810)
(14)
(4,607)
717
(1,350)
—
(29,570)
(174,711)
790
(6,078)
Net cash provided by (used in) financing activities
(340,464)
355,692
(210,202)
Effect of exchange rate changes on cash and cash equivalents
6,538
(22,270)
(21,870)
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.
91,621
(3,420)
(210,967)
630,193
633,613
844,580
721,814
630,193
633,613
1,026
71,473
738
76,714
653
117,643
CANON ANNUAL REPORT 2017
53
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, medical
system products and industry and other products. Office prod-
ucts consist mainly of office multifunction devices (“MFDs”),
laser multifunction printers (“MFPs”), laser printers, digital pro-
duction printing systems, high speed continuous feed print-
ers, wide-format printers and document solutions. Imaging
system products consist mainly of interchangeable-lens digi-
tal cameras, digital compact cameras, digital camcorders, dig-
ital cinema cameras, interchangeable lenses, compact photo
printers, inkjet printers, large format inkjet printers, commer-
cial photo printers, image scanners, multimedia projectors,
broadcast equipment and calculators. Medical system prod-
ucts consist mainly of digital radiography systems, diagnos-
tic X-ray systems, computed tomography, magnetic resonance
imaging, diagnostic ultrasound systems, clinical chemistry ana-
lyzers and ophthalmic equipment. Industry and other prod-
ucts consist mainly of semiconductor lithography equipment,
FPD (Flat panel display) lithography equipment, vacuum thin-
film deposition equipment, organic LED (“OLED”) panel man-
ufacturing equipment, die bonders, micromotors, network
cameras, handy terminals and document scanners. 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 deal-
ers in their geographic area. Further segment information is
described in Note 21.
Canon sells laser printers on an OEM basis to HP Inc.; such
sales constituted 13.1%, 14.8% and 17.8% of consolidated
net sales for the years ended December 31, 2017, 2016 and
2015, 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.
(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
variable interest entities where the Company or its consoli-
dated subsidiaries are the primary beneficiaries. All significant
intercompany 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 accounts including: rev-
enue recognition, allowance for doubtful receivables, inven-
tories, long-lived assets, goodwill and other intangible assets
with indefinite useful lives, environmental liabilities, deferred
tax assets, uncertain tax positions and employee retirement
and severance benefit obligations. Actual results could differ
materially from those estimates.
(e) Translation of Foreign Currencies
Assets and liabilities of the Company’s subsidiaries located
outside Japan with functional currencies other than Japanese
yen are translated into Japanese yen at the rates of exchange
in effect at the balance sheet date. Income and expense items
are translated at the average exchange rates prevailing during
the year. Gains and losses resulting from translation of finan-
cial statements are excluded from earnings and are reported in
other comprehensive income (loss).
Gains and losses resulting from foreign currency trans-
actions, including foreign exchange contracts, and transla-
tion of assets and liabilities denominated in foreign currencies
are included in other income (deductions) in the consoli-
dated statements of income. Foreign currency exchange gains
and losses were net losses of ¥9,775 million, ¥2 million and
¥22,149 million for the years ended December 31, 2017,
2016 and 2015, respectively.
(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
¥70,500 million and ¥30,500 million at December 31, 2017
and 2016, 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
54
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
securities as available-for-sale securities. Canon does not hold any
trading securities which are bought and held primarily for the pur-
pose of sale in the near term, or any held-to-maturity securities.
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.
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. All goodwill is
assigned to the reporting unit or units that benefit from the
synergies arising from each business combination. If the car-
rying amount assigned to the reporting unit exceeds the fair
value of the reporting unit, Canon recognizes an impairment
charge in an amount equal to that excess, limited to the total
amount of goodwill allocated to that reporting unit.
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 6 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 15 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.
CANON ANNUAL REPORT 2017
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(m) Environmental Liabilities
Liabilities for environmental remediation and other environ-
mental costs are accrued when environmental assessments or
remedial efforts are probable and the costs can be reasonably
estimated. Such liabilities are adjusted as further information
develops or circumstances change. Costs of future obligations
are not discounted to their present values.
(n) Income Taxes
Deferred tax assets and liabilities are recognized for the esti-
mated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and oper-
ating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those tem-
porary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Canon records a valuation allowance
to reduce the deferred tax assets to the amount that is more
likely than not realizable.
Canon recognizes the financial statement effects of tax posi-
tions when it is more likely than not, based on the technical
merits, that the tax positions will be sustained upon exami-
nation by the tax authorities. Benefits from tax positions that
meet the more-likely-than-not recognition threshold are mea-
sured 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, imaging system and medical system products, equip-
ment, 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 collectability 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
contracts for most office products, for which the customer typi-
cally pays a stated base service fee plus a variable amount based
on usage. Revenue from these service maintenance contracts is
measured at the stated amount of the contract and recognized
as services are provided and variable amounts are earned.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Income on sales-
type leases and direct-financing leases is recognized over the
life of each respective lease using the interest method. Leases
not qualifying as sales-type leases or direct-financing leases are
accounted for as operating leases and related revenue is 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 equipment that are sold with cus-
tomer acceptance provisions related to their functionality
including optical equipment such as semiconductor lithogra-
phy equipment and FPD lithography equipment, and certain
medical equipment such as computed tomography and mag-
netic resonance imaging, is recognized when the equipment
is installed at the customer site and the specific criteria of the
equipment functionality are successfully tested. Service reve-
nue is derived primarily from separately priced product main-
tenance contracts on the equipment sold to customers and
is measured at the stated amount of the contract and recog-
nized 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 ¥125,965 million and ¥102,298 mil-
lion at December 31, 2017 and 2016, 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
56
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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 ¥61,207 million, ¥58,707 million and ¥80,907
million for the years ended December 31, 2017, 2016 and
2015, respectively.
(t) Shipping and Handling Costs
Shipping and handling costs totaled ¥52,953 million, ¥44,296
million and ¥52,504 million for the years ended December 31,
2017, 2016 and 2015, 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 effec-
tive 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
qualifies as a cash flow hedge are recorded in other compre-
hensive income (loss), until earnings are affected by the vari-
ability in cash flows of the hedged item. Gains and losses from
hedging ineffectiveness are included in other income (deduc-
tions). Gains and losses related to the components of hedging
instruments excluded from the assessment of hedge effective-
ness are included in other income (deductions).
Canon also uses certain derivative financial instruments
which are not designated as hedges. The changes in fair val-
ues of these derivative financial instruments are immediately
recorded in earnings.
Canon classifies cash flows from derivatives as cash flows from
operating activities in the consolidated statements of cash flows.
(v) Guarantees
Canon recognizes, at the inception of a guarantee, a liability
for the fair value of the obligation it has undertaken in issu-
ing guarantees.
(w) Recently Issued Accounting Guidance
In January 2017, the Financial Accounting Standards Board
(“FASB”) issued an amendment which eliminates the second
step from the impairment test of goodwill. This amendment
requires the entity to recognize an impairment charge for the
amount by which the carrying amount exceeds the fair value
of reporting unit; however, the impairment charge is limited to
the amount of goodwill allocated to that reporting unit. Canon
early adopted this amended guidance from the impairment test
performed after January 1, 2017.
In May 2014, the FASB issued a new accounting standard
related to revenue from contracts with customers, as amended.
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 is effective for Canon from the quarter begin-
ning January 1, 2018. Canon will apply the modified retrospec-
tive method of adoption to contracts that are not completed
as of the adoption. While Canon currently does not expect the
adoption of this standard to have a material impact on revenue
recognition pattern of each performance obligation, the adop-
tion of this standard is expected to result in changes in alloca-
tion of transaction prices between goods and services primarily
in Office Business Unit. Canon is in the process of finalizing the
assessment of the effect from the adoption and related adjust-
ments. Also, in the course of the adoption of the guidance,
Canon has reconsidered the scope of performance obligations
related to services, and as a result, Canon will separately dis-
close revenues and costs of services from those of products and
equipment from the quarter beginning January 1, 2018. In this
context, certain costs related to service will be also reclassified
from operating expenses to cost of sales.
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 that do
not result in consolidation and are not accounted for under the
equity method be measured at fair value with changes in the
fair value recognized in net income. This guidance is effective
for Canon from the first quarter beginning January 1, 2018,
and Canon will recognize a cumulative-effect adjustment to
CANON ANNUAL REPORT 2017
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
retained earnings of ¥5,343 million as of January 1, 2018 for
the after-tax unrealized gains of available-for-sale equity secu-
rities previously recognized in accumulated other comprehen-
sive income.
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 man-
ner similar to current guidance. For lessors, the guidance modi-
fies the classification criteria and the accounting for sales-type
and direct financing leases. The new guidance is required to be
applied with a modified retrospective approach. The guidance is
effective for annual reporting periods beginning after December
15, 2018, and early adoption is permitted. Canon currently
plans to adopt the guidance from the quarter beginning after
January 1, 2019. The adoption of the guidance is expected to
have an impact on its consolidated balance sheet by recognizing
right-of-use assets and lease liabilities for non-cancelable oper-
ating leases. Canon is currently evaluating the effect that the
adoption of the 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 guid-
ance eliminate the exception for an intra-entity transfer of an
asset other than inventory. Two common examples of assets
included in the scope of this guidance are intellectual property
and property, plant, and equipment. The amendments in this
guidance should be applied on a modified retrospective basis
through a cumulative effect adjustment directly to retained
earnings as of the beginning of the period of adoption. This
guidance is effective for Canon from the quarter beginning
January 1, 2018. Canon does not expect the adoption of this
guidance to have a material impact on its consolidated results
of operation and financial condition.
In March 2017, the FASB issued an amendment which
requires an entity to disaggregate the service cost component
from the other components of net benefit cost and report the
service cost component in the same line item or items as other
compensation costs arising from services rendered by the per-
tinent employees during the period. The other components
of net benefit cost are required to be presented in the income
statement separately from the service cost component, such as
in other income (deductions). The amendments also allow only
the service cost component to be eligible for capitalization
(for example, as a cost of internally manufactured inventory).
The amendments in this guidance should be applied retro-
spectively for the presentation of the service cost component
and the other components of net benefit cost, and prospec-
tively for the capitalization of the service cost component of
net benefit cost. This guidance is effective for Canon from the
quarter beginning January 1, 2018 and the adoption of this
standard will result in the decrease in operating profit and the
increase in other income of ¥9,874 million, ¥12,441 million
and ¥11,352 million for the years ended December 31, 2017,
2016 and 2015, respectively.
In August 2017, the FASB issued an amendment which
amends existing guidance to simplify the application of the
hedge accounting in certain situations and enable an entity to
better portray the economic results of an entity’s risk manage-
ment activities in its financial statements. This guidance elimi-
nates the requirement to separately measure and report hedge
ineffectiveness, and requires an entity to present the earnings
effect of the hedging instrument in the same income state-
ment line item which the earnings effect of the hedged item is
reported. This guidance is effective for annual reporting periods
beginning after December 15, 2018, and early adoption is per-
mitted. Canon is currently evaluating the adoption date and the
effect that the adoption of this guidance will have on its consol-
idated results of operations and financial condition.
2. INVESTMENTS
The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities included in
short-term investments and investments by major security type at December 31, 2017 and 2016 are as follows:
December 31
Millions of yen
2017: Current:
Corporate bonds
Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
58
CANON ANNUAL REPORT 2017
Cost
1,222
1,222
305
640
122
10,965
12,032
Gross unrealized
holding gains
Gross unrealized
holding losses
—
—
—
182
2
11,612
11,796
—
—
16
—
—
1,676
1,692
Fair value
1,222
1,222
289
822
124
20,901
22,136
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Millions of yen
2016: Noncurrent:
Government bonds
Corporate bonds
Fund trusts
Equity securities
Cost
277
43
85
19,026
19,431
Gross unrealized
holding gains
Gross unrealized
holding losses
—
188
1
23,439
23,628
8
2
—
21
31
Fair value
269
229
86
42,444
43,028
Maturities of available-for-sale debt securities included in short-term investments and investments in the accompanying consol-
idated balance sheets are as follows at December 31, 2017:
Due within one year
Due after one year through five years
Due after five years
Millions of yen
Cost
1,222
605
340
2,167
Fair value
1,222
605
506
2,333
During the year ended December 31, 2017, Canon con-
tributed certain marketable equity securities, not including
those of its subsidiaries and affiliated companies, to an estab-
lished employee retirement benefit trust, with no cash pro-
ceeds there on. The fair value of those securities at the time of
contribution was ¥30,473 million. Upon contribution of those
available-for-sale securities, the unrealized gains amounting
to ¥17,836 million were realized and were included in “Other,
net” in the consolidated statements of income.
Gross realized gains were ¥18,514 million, ¥750 million
and ¥329 million for the years ended December 31, 2017,
2016 and 2015, respectively. Gross realized losses, including
write-downs for impairments that were other-than-temporary,
were ¥42 million, ¥1,032 million and ¥31 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
At December 31, 2017, 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 ¥743 million and ¥3,206 million at December 31,
2017 and 2016, 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 ¥3,760 million
and ¥7,800 million at December 31, 2017 and 2016, respec-
tively. These investments were not evaluated for impairment at
December 31, 2017 and 2016, 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 ¥20,496 million and ¥21,514
million at December 31, 2017 and 2016, respectively. Canon’s
share of the net earnings in affiliated companies accounted
for by the equity method, included in other income (deduc-
tions), were earnings of ¥1,196 million, ¥890 million and
¥447 million for the years ended December 31, 2017, 2016
and 2015 respectively.
3. TRADE RECEIVABLES
Trade receivables are summarized as follows:
December 31
Notes
Accounts
Less allowance for doubtful receivables
Millions of yen
2017
37,077
627,173
664,250
(13,378)
650,872
2016
28,811
623,722
652,533
(11,075)
641,458
CANON ANNUAL REPORT 2017
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
Inventories are summarized as follows:
December 31
Finished goods
Work in process
Raw materials
Millions of yen
2017
377,632
144,251
48,150
570,033
2016
373,337
143,298
44,101
560,736
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
2017
274,551
1,638,202
1,804,982
46,940
3,764,675
(2,638,055)
1,126,620
2016
283,893
1,656,087
1,778,552
54,786
3,773,318
(2,578,342)
1,194,976
Depreciation expenses for the years ended December 31,
2017, 2016 and 2015 were ¥189,712 million, ¥199,133 mil-
lion and ¥223,759 million, respectively.
Amounts due for purchases of property, plant and equip-
ment were ¥23,432 million and ¥31,318 million at December
31, 2017 and 2016, 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.
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.
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
60
CANON ANNUAL REPORT 2017
2017
361,686
15,055
(2,216)
(32,286)
342,239
(2,681)
339,558
(120,186)
219,372
2016
306,766
14,776
(34)
(30,288)
291,220
(2,325)
288,895
(105,308)
183,587
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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
2017
2,325
(1,523)
1,436
443
2,681
2016
2,878
(978)
398
27
2,325
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, 2017 and 2016 are not significant.
The cost of equipment leased to customers under oper-
ating leases included in property, plant and equipment, net
at December 31, 2017 and 2016 was ¥103,078 million and
¥97,890 million, respectively. Accumulated depreciation on
equipment under operating leases at December 31, 2017 and
2016 was ¥78,307 million and ¥75,997 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, 2017.
Year ending December 31:
2018
2019
2020
2021
2022
Thereafter
7. ACQUISITIONS
Millions of yen
Financing leases
134,020
102,203
69,180
38,264
14,819
3,200
361,686
Operating leases
8,580
4,446
2,636
1,347
401
34
17,444
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 strategic 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 med-
ical equipment industry. Within the field of medical X-ray
computed tomography systems in particular, TMSC is the over-
whelming market share leader in Japan and has been steadily
increasing its global market share. By maximizing the com-
bination of both companies’ management resources, Canon
aims to solidify its business foundation for health care that can
contribute to the world.
The purchase price allocation was based on estimated fair
values of the assets acquired and liabilities assumed at acqui-
sition date. Since the acquisition date of TMSC was near the
balance sheet date in 2016, and TMSC is composed of vari-
ous entities located around the world, the purchase price allo-
cation was preliminary at December 31, 2016. The purchase
price allocation was finalized in the fourth quarter of 2017.
The certain underlying inputs for inventories and intangible
assets have been updated during the measurement period.
CANON ANNUAL REPORT 2017
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at acquisition date.
Millions of yen
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
Preliminary
25,301
169,545
227,500
42,975
465,321
199,223
92,231
291,454
1,047
172,820
492,678
665,498
Measurement
Period
Adjustment
—
(1,962)
627
—
(1,335)
(877)
(1,049)
(1,926)
—
591
(591)
—
Final
25,301
167,583
228,127
42,975
463,986
198,346
91,182
289,528
1,047
173,411
492,087
665,498
Intangible assets acquired, which are subject to amortiza-
tion, mainly consist of customer relationships of ¥143,600 mil-
lion, and patents and developed technology of ¥73,000 million.
Canon has estimated the amortization period for the customer
relationships, and patents and developed technology to be 15
years and 10 years, respectively. The weighted average amorti-
zation period for all intangible assets is approximately 13 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 capabil-
ities. 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.
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 statement 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 years ended December 31, 2017 and 2016 that
were not material to its consolidated financial statements.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets subject to amortization acquired during the
year ended December 31, 2017, including those recorded
from businesses acquired, totaled ¥35,112 million, which pri-
marily consist of software of ¥33,437 million and customer
relationships of ¥1,203 million. The weighted average amorti-
zation periods for intangible assets in total acquired during the
year ended December 31, 2017 are approximately 5 years. The
weighted average amortization periods for software and cus-
tomer relationships acquired during the year ended December
31, 2017 are approximately 5 years and 8 years, respectively.
Intangible assets subject to amortization acquired during
the year ended December 31, 2016, including those recorded
from businesses acquired, totaled ¥266,325 million, which pri-
marily consist of customer relationships of ¥155,997 million,
patents and developed technology of ¥73,451 million and
software of ¥36,054 million. The weighted average amortiza-
tion periods for intangible assets in total acquired during the
year ended December 31, 2016 are approximately 14 years.
The weighted average amortization periods for customer
relationships, patents and developed technology and soft-
ware acquired during the year ended December 31, 2016 are
approximately 15 - 20 years, 10 years and 5 years, respectively.
62
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
The components of intangible assets subject to amortization at December 31, 2017 and 2016 were as follows:
December 31
Millions of yen
Software
Customer relationships
Patents and developed technology
Trademarks
License fees
Other
2017
2016
Gross carrying
amount
342,322
162,832
121,886
48,823
13,565
18,592
708,020
Accumulated
amortization
217,654
22,463
27,085
9,890
6,375
8,136
291,603
Gross carrying
amount
313,599
172,234
106,250
44,704
15,561
17,713
670,061
Accumulated
amortization
193,785
11,146
16,272
5,610
6,756
8,250
241,819
Aggregate amortization expense for the years ended
December 31, 2017, 2016 and 2015 was ¥72,169 million,
¥50,963 million and ¥49,568 million, respectively. Estimated
amortization expense for intangible assets currently held for
the next five years ending December 31 is ¥67,791 million
in 2018, ¥57,214 million in 2019, ¥45,435 million in 2020,
¥37,265 million in 2021, and ¥30,805 million in 2022.
Intangible assets not subject to amortization other than
goodwill at December 31, 2017 were not significant.
Intangible assets not subject to amortization other than good-
will at December 31, 2016 were ¥18,026 million, which
primarily consist of in-process research and development
recorded from businesses 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, 2017 and 2016 were as follows:
Years ended December 31
Millions of yen
2017: Balance at beginning of
year
Goodwill acquired
during the year
Transfer*1
Impairment loss*2
Translation adjustments
and other
Balance at end of year
Years ended December 31
Millions of yen
2016: Balance at beginning of
Office
Imaging
System
Medical
System
Industry and
Others
Unallocated*1
Total
136,256
49,034
—
258,456
492,678
936,424
857
—
(33,912)
236
—
—
—
499,855
—
2,394
(7,177)
—
—
(492,678)
—
3,487
—
(33,912)
9,855
113,056
3,291
52,561
60
499,915
17,517
271,190
—
—
30,723
936,722
Office
Imaging
System
Medical
System
Industry and
Others
Unallocated*1
Total
year
142,551
53,474
—
282,918
—
478,943
Goodwill acquired
during the year
Translation adjustments
and other
Balance at end of year
863
—
(7,158)
136,256
(4,440)
49,034
—
—
—
4,589
492,678
498,130
(29,051)
258,456
—
492,678
(40,649)
936,424
*1 Canon did not complete the allocation of goodwill to the segments for impairment testing which was attributable to the acquisition of TMSC as of December
31, 2016. Based on the realignment of Canon’s internal reporting and management structure, Canon newly established Medical System Business Unit effec-
tive at the beginning of the second quarter of 2017. Goodwill related to TMSC as well as goodwill related to certain medical business which was previously
included in Industry and Others Business Unit have been transferred to Medical System Business Unit.
*2 After entering the commercial printing business through the acquisition of Océ N.V. in 2010, the market environment surrounding this business has become
significantly competitive and rapid technological changes have required increasing investments into R&D. These factors resulted in lower operating margin
than expected, which led to the decline in the estimated fair value of this business which was determined based on the income approach. As the result of the
annual goodwill impairment test as of October 1, 2017, it was determined that the estimated fair value of commercial printing business was less than its carry-
ing value of the reporting unit. Based on the accounting policy described in Note 1, Canon recognized an impairment charge of ¥33,912 million representing
the excess of the carrying amount over the reporting unit’s fair value.
CANON ANNUAL REPORT 2017
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. SHORT-TERM LOANS AND LONG-TERM DEBT
Short-term loans consisting of bank borrowings at December 31, 2017 and 2016 were ¥33,398 million and ¥601 million, respec-
tively. The weighted average interest rate on short-term borrowings outstanding at December 31, 2017 was 0.52%.
Long-term debt consisted of the following:
December 31
Loan from the banks; bearing interest of 0.06% at December 31, 2017
and 0.13% at December 31, 2016*1
Other debt*2
Less current portion
Millions of yen
2017
2016
490,000
9,168
499,168
(5,930)
610,000
2,538
612,538
(1,249)
493,238
611,289
*1 On January 31, 2017, Canon entered into the unsecured revolving credit facility contracts expiring in December 2021 in order to refinance the bank term loan
which was due in 2017. Canon prepaid ¥120,000 million of the loan with cash flows generated during the year. The outstanding loans under the credit facili-
ties are ¥490,000 million at a floating interest of 0.06% and Canon has no unused credit facilities as of December 31, 2017.
*2 The other debt consisted of term-loans and capital lease obligations as of December 31, 2017 and 2016.
The aggregate annual maturities of long-term debt outstanding at December 31, 2017 were as follows:
Year ending December 31:
2018
2019
2020
2021
2022
Thereafter
Millions of yen
5,930
2,372
404
490,342
48
72
499,168
Both short-term and long-term bank loans are primarily
made under general agreements which provide that security
and guarantees for present and future indebtedness will be
given upon request of the bank, and that the bank shall have
the right to offset cash deposits against obligations that have
become due or, in the event of default, against all obligations
due to the bank.
10. TRADE PAYABLES
Trade payables are summarized as follows:
December 31
Notes
Accounts
64
CANON ANNUAL REPORT 2017
Millions of yen
2017
2016
81,002
299,652
38,073
334,196
380,654
372,269
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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.
TMSC temporarily participates in Toshiba Corporate Pension
Fund. However, it is not allowed to permanently continue to
participate in the fund as a result of the acquisition by Canon.
In addition, Canon is required to maintain an equivalent level
of pension benefit and therefore plans to establish a new
pension plan in 2018. Canon calculated the projected bene-
fit obligations based on the benefit level of Toshiba Corporate
Pension Fund at December 31, 2017 and 2016, and included
proportional share of the plan assets of TMSC to which they
have legal right in the following tables. These obligations 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
Curtailments and settlements
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
Settlements
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
2017
2016
2017
2016
906,007
30,889
5,689
—
11,112
(29,020)
4,239
1,149
(435)
—
929,630
781,350
29,367
8,238
—
45,778
(25,032)
71,040
(4,734)
—
—
906,007
392,086
6,962
8,691
1,644
(1,760)
(7,884)
—
(1,069)
—
24,909
423,579
349,680
6,816
8,792
1,594
55,629
(6,268)
21,285
—
—
(45,442)
392,086
667,436
47,376
43,468
—
(23,967)
1,223
(23)
—
735,513
(194,117)
626,575
12,145
7,304
—
(21,782)
43,194
—
—
667,436
(238,571)
224,939
14,262
7,160
1,644
(7,884)
—
—
13,899
254,020
(169,559)
217,870
18,276
7,271
1,594
(6,268)
14,972
—
(28,776)
224,939
(167,147)
Employer contributions for the year ended December 31, 2017 include contribution of equity securities to a retirement benefit
trust. The fair value of those securities at the time of contribution was ¥30,473 million.
Amounts recognized in the consolidated balance sheets at December 31, 2017 and 2016 are as follows:
December 31
Other assets
Accrued expenses
Accrued pension and severance cost
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2017
2016
2017
2016
1,695
—
(195,812) (239,547)
(194,117) (238,571)
976
—
1,215
(1,004)
1,346
(840)
(169,770) (167,653)
(169,559) (167,147)
CANON ANNUAL REPORT 2017
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 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
2017
2016
2017
2016
221,106
(57,430)
251,078
(71,439)
105,883
(3,638)
116,930
(2,652)
163,676
179,639
102,245
114,278
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
2017
2016
2017
2016
894,329
869,355
402,390
377,004
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
2017
2016
2017
2016
924,536
728,724
905,975
666,428
420,383
249,609
390,942
222,449
889,652
728,724
867,706
664,586
394,840
245,247
375,860
222,449
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, 2017, 2016 and 2015 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
66
CANON ANNUAL REPORT 2017
Japanese plans
Millions of yen
Foreign plans
Millions of yen
2017
2016
2015
2017
2016
2015
30,889 29,367 30,009 6,962 6,816 7,760
5,689 8,238 8,008 8,691 8,792 10,572
(10,722) (10,012) (11,857)
(20,493) (19,443) (19,579)
(12,860) (13,230) (12,592)
(145)
14,220 10,944 10,402 5,747 2,185 3,839
—
—
(83)
(63)
85
—
—
—
17,382 15,876 16,248 10,595 7,866 10,169
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended
December 31, 2017, 2016 and 2015 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
2017
2016
2015
2017
2016
2015
(15,771) 53,076 9,519 (5,300) 47,365 6,302
1,149 (4,734)
— (2,655)
(5,747) (2,185) (3,839)
(14,220) (10,944) (10,402)
12,860 13,230 12,592
145
—
—
— (1,069)
(85)
—
83
—
19
—
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:
(15,963) 50,628 11,709 (12,033) 45,095
(47)
Prior service credit
Actuarial loss
Japanese plans
Foreign plans
Millions of yen Millions of yen
(12,727)
11,821
(52)
4,466
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
2017
0.6%
2.6%
2016
0.7%
2.6%
2017
2.2%
1.8%
2016
2.2%
2.1%
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
2017
2016
2015
2017
2016
2015
0.7% 1.1% 1.1%
2.6% 3.0% 3.0%
3.1% 3.1% 3.1%
2.2% 3.0% 2.9%
2.1% 2.0% 2.0%
4.2% 4.4% 5.6%
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 for-
mulates a “model” portfolio comprised of the optimal com-
bination 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 25% is invested in equity
securities, approximately 50% 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.
CANON ANNUAL REPORT 2017
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 25% is invested in debt securities,
and approximately 35% 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 investi-
gated the quality of the issue, including rating, interest rate,
and repayment dates, and has appropriately diversified the
investments. Pooled funds are selected using strategies con-
sistent 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 guaran-
teed interest rate and return of capital. With respect to invest-
ments in foreign investment vehicles, Canon has investigated
the stability of the underlying governments and economies, the
market characteristics such as settlement systems and the taxa-
tion 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, 2017 and 2016, by asset category, are as follows:
December 31, 2017
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
83,765
8,261
—
—
— 164,946
— 83,765
—
8,261
— 164,946
—
32,240
—
—
— 73,968
—
—
— 32,240
— 73,968
—
138,092
—
1,166
— 15,246
— 130,507
— 138,092
—
1,166
— 15,246
— 130,507
—
9,343
—
2,901
— 22,045
— 25,821
9,343
—
—
2,901
— 22,045
— 25,821
(and other asset backed securities)
Life insurance company
general accounts
Other assets
Investment measured at net asset value
—
8,076
—
8,076
—
3
—
3
— 126,985
— 126,985
—
8,683
—
8,683
— 43,070
—
—
— 43,070
— 15,399
— 73,320
—
—
— 73,320
5,696
—
230,118 489,996
— 735,513
41,583 206,741
— 254,020
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 (e)
Foreign companies
Pooled funds (f)
Debt securities:
Government bonds (g)
Municipal bonds
Corporate bonds
Pooled funds (h)
Mortgage backed securities
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
(and other asset backed securities)
Life insurance company
general accounts
Other assets
Investment measured at net asset value
— 13,612
— 13,612
—
—
—
—
— 128,220
— 128,220
—
6,898
—
6,898
— 90,637
—
—
— 90,637
— 11,574
— 71,358
—
—
24 71,382
4,918
—
68
CANON ANNUAL REPORT 2017
153,689 502,173
— 667,436
34,238 185,759
24 224,939
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
(a) The plan’s equity securities include common stock of the
Company and certain of its subsidiaries in the amounts of
¥381 million.
(b) These funds invest in listed equity securities consisting of
approximately 30% Japanese companies and 70% foreign
companies for Japanese plans, and mainly foreign compa-
nies for foreign plans.
(c) This class includes approximately 90% Japanese govern-
ment bonds and 10% foreign government bonds for
Japanese plans, and mainly foreign government bonds for
foreign plans.
(d) These funds invest in approximately 30% Japanese govern-
ment bonds, 45% foreign government bonds, 5% Japanese
municipal bonds, and 20% corporate bonds for Japanese
plans. These funds invest in approximately 70% foreign gov-
ernment 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
¥187 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 compa-
nies for foreign plans.
(g) This class includes approximately 85% Japanese govern-
ment 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 municipal bonds, and 20% corporate bonds for
Japanese plans. These funds invest in approximately 70%
foreign government bonds and 30% corporate bonds for
foreign plans.
Each level into which assets are categorized is based on
inputs used to measure the fair value of the assets, and does
not necessarily indicate the risks or ratings of the assets.
Level 1 assets are comprised principally of equity securities
and government bonds, which are valued using unadjusted
quoted market prices in active markets with sufficient volume
and frequency of transactions. Level 2 assets are comprised
principally of pooled funds that invest in equity and debt secu-
rities, corporate bonds, investments in life insurance company
general accounts and other assets. Pooled funds are valued
at their net asset values that are calculated by the sponsor of
the fund and have daily liquidity. Corporate bonds are valued
using quoted prices for identical assets in markets that are not
active. Investments in life insurance company general accounts
are valued at conversion value. Other assets are comprised
principally of interest bearing cash and hedge funds.
Amounts of actual returns on, and purchases and sales of,
Level 3 assets during the years ended December 31, 2017 and
2016 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 ¥14,447 million to its Japanese defined benefit pension plans and ¥22,303 million to its foreign
defined benefit pension plans for the year ending December 31, 2018.
Estimated future benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year ending December 31:
2018
2019
2020
2021
2022
2023–2027
Japanese plans
Foreign plans
Millions of yen
Millions of yen
33,137
34,534
36,631
38,470
41,900
218,317
10,599
10,743
11,250
11,986
12,666
71,944
Multiemployer pension plans
The amounts of cost recognized for the multiemployer pen-
sion plans primarily in the Netherlands for the years ended
December 31, 2017, 2016 and 2015 were ¥4,165 million,
¥3,482 million and ¥3,864 million, respectively. The mul-
tiemployer pension plan in which the subsidiaries in the
Netherlands participated was 96% funded as of December 31,
2016. 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 contribu-
tion pension plans of the Company and certain of its sub-
sidiaries for the years ended December 31, 2017, 2016 and
2015 were ¥18,979 million, ¥17,603 million and ¥17,277
million, respectively.
CANON ANNUAL REPORT 2017
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
2017: Income before income taxes
Income taxes:
Current
Deferred
Japanese
276,149
80,225
(7,453)
72,772
Millions of yen
Foreign
77,735
35,402
(10,150)
25,252
Total
353,884
115,627
(17,603)
98,024
2016: Income before income taxes
135,131
109,520
244,651
Income taxes:
Current
Deferred
47,687
4,126
51,813
27,806
3,062
30,868
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
The Company and its domestic subsidiaries are subject to
a number of income taxes, which, in the aggregate, repre-
sent a statutory income tax rate of approximately 31%, 33%
and 35% for the years ended December 31, 2017, 2016 and
2015, 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.
The Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted
in the U.S. on December 22, 2017. Due to the Act, the fed-
eral corporate income tax rate in the U.S. is reduced from
35% to 21% from the fiscal year commencing on January 1,
2018. The adjustment to deferred tax assets and liabilities for
the tax rate change was tax benefit of ¥14,563 million for the
year ended December 31, 2017. The impacts related to other
changes from the Act are not material.
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
Effect of enacted changes in U.S. tax laws
Other
2017
31.0%
2016
33.0%
2015
35.0%
3.7
(2.1)
(4.8)
1.7
—
(3.6)
1.8
0.8
(3.0)
(3.0)
(0.8)
1.4
—
5.4
0.8
(2.9)
(4.8)
(0.4)
1.9
—
3.8
Effective income tax rate
27.7%
33.8%
33.4%
* Expenses not deductible for tax purposes for the year ended December 31, 2017 primarily consist of impairment losses on goodwill.
70
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Net deferred income tax assets and liabilities are included in the accompanying consolidated balance sheets under the follow-
ing captions:
December 31
Other assets
Other noncurrent liabilities
Millions of yen
2017
150,854
(90,010)
2016
149,866
(108,429)
60,844
41,437
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31,
2017 and 2016 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
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax assets
Millions of yen
2017
2016
11,921
4,705
98,114
5,383
33,488
30,126
29,006
38,526
251,269
(30,783)
220,486
(9,859)
(1,815)
(4,396)
(38,287)
(74,377)
(30,908)
(159,642)
60,844
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
The net changes in the total valuation allowance were an
increase of ¥4,096 million for the year ended December, 2017
and a decrease of ¥6,244 million and ¥4,567 million for the
years ended December 31, 2016 and 2015, respectively.
Based on 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 valuation allowance, at December 31, 2017.
At December 31, 2017, Canon had net operating losses which can be carried forward for income tax purposes of ¥185,637
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
654
38,641
39,278
52,250
54,814
185,637
CANON ANNUAL REPORT 2017
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes have not been accrued on undistributed earn-
ings 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
¥27,361 million for a portion of undistributed earnings of
foreign subsidiaries of ¥961,735 million as of December 31,
2017 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 recog-
nized when Canon expects that it will realize those undistrib-
uted earnings in a taxable manner, such as through receipt of
dividends or sale of the investments.
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
2017
7,318
2,956
250
(915)
—
673
10,282
Millions of yen
2016
6,056
2,741
—
(665)
(370)
(444)
7,318
2015
6,431
2,174
165
(1,180)
(505)
(1,029)
6,056
The total amounts of unrecognized tax benefits that
would reduce the effective tax rate, if recognized, were
¥10,282 million and ¥7,318 million at December 31, 2017
and 2016, respectively.
Although Canon believes its estimates and assumptions of
unrecognized tax benefits are reasonable, uncertainty regard-
ing the final determination of tax examination settlements
and any related litigation could affect the effective tax rate in
a future period. Based on each of the items of which Canon
is aware at December 31, 2017, 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 inter-
est and penalties accrued at December 31, 2017 and 2016,
and interest and penalties included in income taxes for the
years ended December 31, 2017, 2016 and 2015 were not
significant.
Canon files income tax returns in Japan and various foreign
tax jurisdictions. In Japan, Canon is no longer subject to reg-
ular income tax examinations by the tax authority for years
before 2017 with few exceptions. Canon is also no longer
subject to a transfer pricing examination by the tax author-
ity for years before 2017 with few exceptions. In other major
foreign tax jurisdictions, including the United States and
the Netherlands, Canon is no longer subject to income tax
examinations by tax authorities for years before 2007 with
few exceptions. The tax authorities are currently conducting
income tax examinations of Canon’s income tax returns for
years after 2006 in major foreign tax jurisdictions.
72
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
13. LEGAL RESERVE AND RETAINED EARNINGS
The Corporation Law of Japan provides that an amount equal
to 10% of distributions from retained earnings paid by the
Company and its Japanese subsidiaries be appropriated as a
legal reserve. No further appropriations are required when the
total amount of the additional paid-in capital and the legal
reserve equals 25% of their respective stated capital. The
Corporation Law of Japan also provides that additional paid-
in capital and legal reserve are available for appropriations by
resolution 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, 2017, 2016 and 2015 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, 2017 did not reflect cur-
rent year-end dividends in the amount of ¥91,779 million
which were approved by the shareholders in March 2018.
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 ¥953,952 million at December 31, 2017.
Retained earnings at December 31, 2017 included
Canon’s equity in undistributed earnings of affiliated compa-
nies accounted for by the equity method in the amount of
¥17,139 million.
Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015 are as follows:
Millions of yen
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
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, 2017
Foreign
currency translation
adjustments
Unrealized gains
and losses
on securities
Gains and
losses on
derivative instruments
Pension
liability
adjustments
Total
144,557
12,546
(2,603)
(126,214)
28,286
73
—
—
—
73
(57,592)
—
(57,519)
87,038
1,691
(182)
1,509
14,055
(256)
(6,155)
(62,312)
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)
—
—
—
—
—
44,184
2,813
(1,452)
14,785
60,330
(16)
(12,580)
44,168
30,208
(9,767)
5,484
4,014
2,562
(180)
4,905
19,690
(178,740)
(3,677)
56,653
(143,228)
CANON ANNUAL REPORT 2017
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2016 and
2015 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
2017
2016
2015
Affected line items in consolidated
statements of income
(39)
12
(27)
11
(16)
(18,472)
5,727
(12,745)
165
(12,580)
5,772
(1,732)
4,040
(26)
4,014
7,005
(1,832)
5,173
(268)
4,905
139
(46)
93
—
93
282
(94)
188
194
382
(5,890)
2,049
(3,841)
(21)
(3,862)
(16)
164
148
(49)
99
— Other, net
— Income taxes
— Consolidated net income
—
Net income attributable to noncontrolling
interests
— Net income attributable to Canon Inc.
(298) Other, net
104
Income taxes
(194) Consolidated net income
Net income attributable to noncontrolling
interests
12
(182) Net income attributable to Canon Inc.
4,217 Other, net
(1,180)
3,037
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
4
3,041
1,504
(175)
1,329
23
1,352
Net income attributable to Canon Inc.
Total amount reclassified, net of
tax and noncontrolling interests
(3,677)
(3,288)
4,211
*1 Amounts in parentheses indicate gains in consolidated statements of income.
74
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments, including
amounts attributable to noncontrolling interests, are as follows:
Years ended December 31
2017:
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)
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)
Before-tax
amount
47,825
(39)
47,786
5,100
(18,472)
(13,372)
(2,080)
5,772
3,692
20,991
7,005
27,996
66,102
(108,280)
139
(108,141)
1,184
282
1,466
1,619
(5,890)
(4,271)
Millions of yen
Tax (expense)
or benefit
(708)
12
(696)
(1,717)
5,727
4,010
628
(1,732)
(1,104)
(4,957)
(1,832)
(6,789)
(4,579)
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
47,117
(27)
47,090
3,383
(12,745)
(9,362)
(1,452)
4,040
2,588
16,034
5,173
21,207
61,523
(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)
CANON ANNUAL REPORT 2017
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2017, 2016 and 2015 was nil.
A summary of option activity under the stock option plans as of and for the years ended December 31, 2017, 2016 and 2015 is
presented below:
Outstanding at January 1, 2015
Exercised
Forfeited/Expired
Outstanding at December 31, 2015
Exercised
Forfeited/Expired
Outstanding at December 31, 2016
Exercised
Forfeited/Expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Weighted-
average
exercise price
Weighted-average
remaining
contractual
term
Aggregate
intrinsic value
Shares
1,861,800
(249,600)
(316,200)
1,296,000
—
(693,000)
603,000
—
(603,000)
Yen
4,036
3,311
3,678
4,263
—
4,500
3,990
—
3,990
Year
Millions of yen
0.7
248
0.4
—
0.2
—
—
—
—
—
—
—
Cash received from the exercise of stock options for the years ended December 31, 2017 and 2016 were nil, and 2015 was
¥826 million, respectively.
76
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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
2017
2016
2015
Net income attributable to Canon Inc.
241,923
150,650
220,209
Average common shares outstanding
Effect of dilutive securities:
Stock options
Number of shares
1,085,439,370
1,092,070,680
1,092,017,955
—
—
34,931
Diluted common shares outstanding
1,085,439,370
1,092,070,680
1,092,052,886
Net income attributable to Canon Inc. shareholders per share:
Basic
Diluted
222.88
222.88
Yen
137.95
137.95
201.65
201.65
The computation of diluted net income attributable to Canon Inc. shareholders per share for the years ended December 31,
2017 and 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 year ended December 31, 2015 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 finan-
cial instruments are comprised principally of foreign exchange
contracts utilized by the Company and certain of its subsid-
iaries to reduce the risk. Canon assesses foreign currency
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 trad-
ing 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 counter-
parties will fail to meet their obligations. Most of the counter-
parties are internationally recognized financial institutions and
selected by Canon taking into account their financial condi-
tion, 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 for-
eign 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 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.
CANON ANNUAL REPORT 2017
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 earn-
ings 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, 2017 and 2016 are set forth below:
December 31
To sell foreign currencies
To buy foreign currencies
Millions of yen
2017
2016
272,563
371,644
46,168
46,741
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, 2017 and 2016.
Derivatives designated as hedging instruments
December 31
Balance sheet location
2017
2016
Fair value
Millions of yen
Assets:
Foreign exchange contracts
Liabilities:
Foreign exchange contracts
Prepaid expenses and other current assets
255
19
Other current liabilities
367
1,913
Derivatives not designated as hedging instruments
December 31
Balance sheet location
2017
2016
Fair value
Millions of yen
Assets:
Foreign exchange contracts
Liabilities:
Foreign exchange contracts
Prepaid expenses and other current assets
289
567
Other current liabilities
2,892
7,479
78
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
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, 2017, 2016 and 2015.
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
2017: Foreign exchange
contracts
2016: Foreign exchange
contracts
2015: Foreign exchange
contracts
(2,080)
Other, net
(5,772)
Other, net
(332)
1,619
Other, net
5,890
Other, net
52
Other, net
(4,217)
Other, net
(311)
(131)
Derivatives not designated as hedging instruments
Years ended December 31
Gain (loss) recognized in income on derivative
Foreign exchange contracts
Location
2017
Other, net
(7,932)
Millions of yen
2016
7,018
2015
1,099
18. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
At December 31, 2017, commitments outstanding for the pur-
chase of property, plant and equipment approximated ¥36,199
million, and commitments outstanding for the purchase of
parts and raw materials approximated ¥135,649 million.
Canon occupies sales offices and other facilities under lease
arrangements accounted for as operating leases. Deposits
made under such arrangements aggregated ¥13,740 million
and ¥13,128 million at December 31, 2017 and 2016, respec-
tively, and are included in noncurrent receivables in the accom-
panying consolidated balance sheets. Rental expenses of
cancelable and noncancelable operating leases amounted to
¥47,619 million, ¥42,714 million and ¥46,483 million for the
years ended December 31, 2017, 2016 and 2015, 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, 2017 are as follows:
Year ending December 31:
2018
2019
2020
2021
2022
Thereafter
Total future minimum lease payments
Millions of yen
28,414
21,437
16,185
12,721
9,774
22,971
111,502
CANON ANNUAL REPORT 2017
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Guarantees
Canon provides guarantees for its employees, affiliates and
other companies. The guarantees for the employees are prin-
cipally made for their housing loans. The guarantees for affili-
ates and other companies are made for their lease obligations
and bank loans to ensure that those companies operate with
less financial risk.
Canon would have to perform under a guarantee if the bor-
rower defaults on a payment within the contract terms. The
contract terms are 1 year to 30 years in case of employees
with housing loans, and 1 year to 7 years in case of affiliates
and other companies with lease obligations and bank loans.
The maximum amount of undiscounted payments Canon
would have had to make in the event of default is ¥6,059 mil-
lion at December 31, 2017. The carrying amounts of the liabil-
ities recognized for Canon’s obligations as a guarantor under
those guarantees at December 31, 2017 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,
2017 and 2016 are summarized as follows:
Years ended December 31
Millions of yen
Balance at beginning of year
Additions
Utilization
Other
Balance at end of year
2017
13,168
18,893
(12,957)
(1,652)
17,452
2016
14,014
15,403
(12,759)
(3,490)
13,168
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 unpredict-
able, 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 reason-
ably possible range of losses from outstanding matters would
not have a material adverse effect on Canon’s consolidated
financial position, results of operations, or cash flows.
80
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
19. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF
CREDIT RISK
Fair value of financial instruments
The estimated fair values of Canon’s financial instruments at December 31, 2017 and 2016 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
Millions of yen
2017
2016
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
Long-term debt, including current installments
(499,168)
(499,126)
(612,538)
(612,668)
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, 2017 and 2016, one customer accounted
for approximately 8% and 12% 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.
CANON ANNUAL REPORT 2017
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2017 and 2016.
December 31
Millions of yen
2017: Assets:
Cash and cash equivalents
Available-for-sale (current):
Corporate bonds
Available-for-sale (noncurrent):
Government bonds
Corporate bonds
Fund trusts
Equity securities
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
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
—
70,500
1,222
—
289
605
13
20,901
—
23,030
—
—
—
217
111
—
544
71,372
3,259
3,259
—
—
—
—
—
—
—
—
—
—
70,500
1,222
289
822
124
20,901
544
94,402
3,259
3,259
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
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.
Derivative financial instruments are comprised of for-
eign exchange contracts. Level 2 derivatives are valued using
quotes obtained from counterparties or third parties, which
are periodically validated by pricing models using observable
market inputs, such as foreign currency exchange rates and
interest rates, based on market approach.
Assets and liabilities measured at fair value on a nonrecurring basis
The following table presents the Canon’s asset that was measured at fair value on a nonrecurring basis consistent with the fair value
hierarchy and related impairment charge recognized during the year ended December 31, 2017. There were no assets or liabilities to be
measured at fair value on a nonrecurring basis during the year ended December 31, 2016.
Year ended December 31, 2017
Millions of yen
2017: Asset:
Goodwill
82
CANON ANNUAL REPORT 2017
Total loss
Level 1
Level 2
Level 3
Total
(33,912)
—
—
29,370
29,370
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Goodwill was classified as Level 3 items and valued
based on an income approach using unobservable inputs.
Canon performed the annual goodwill impairment test as of
October 1, 2017, which indicated that the fair value of the
reporting unit was less than its carrying value. Canon recog-
nized the impairment charge for the amount representing
the excess of the carrying amount over the reporting unit’s
fair value. The fair value for the reporting unit was mea-
sured based on the discounted cash flow method with 6.0%
of weighted average cost of capital and estimated future
cash flows. Future cash flows are based on management’s
estimates of projected revenues, gross profits, operating
expenses, a long-term growth rate, taking into consideration
industry trends and market conditions.
21. SEGMENT INFORMATION
Canon operates its business in four segments: the Office
Business Unit, the Imaging System Business Unit, the Medical
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.
Based on the realignment of Canon’s internal reporting
and management structure, Canon newly established Medical
System Business Unit effective at the beginning of the second
quarter of 2017, and certain businesses included in Industry
and Others Business Unit have been reclassified. Operating
results for the year ended December 31, 2017 have been
reclassified and for the years ended December 31, 2016 and
2015 were not restated since they were not material. Total
assets for the year ended December 31, 2016 have been
restated and for the year ended December 31, 2015 were not
restated since they were not material.
The primary products included in each segment are as
follows:
Office Business Unit:
Office multifunction devices (MFDs) / Laser multifunction print-
ers (MFPs) / Laser printers / Digital production printing systems
/ High speed continuous feed printers / Wide-format printers /
Document solutions
Imaging System Business Unit:
Interchangeable-lens digital cameras / Digital compact cameras
/ Digital camcorders / Digital cinema cameras / Interchangeable
lenses / Compact photo printers / Inkjet printers / Large format
inkjet printers / Commercial photo printers / Image scanners /
Multimedia projectors / Broadcast equipment / Calculators
Medical System Business Unit:
Digital radiography systems / Diagnostic X-ray systems /
Computed tomography / Magnetic resonance imaging /
Diagnostic ultrasound systems / Clinical chemistry analyzers /
Ophthalmic equipment
Industry and Others Business Unit:
Semiconductor lithography equipment / FPD (Flat panel dis-
play) lithography equipment / Vacuum thin-film deposition
equipment / Organic LED (OLED) panel manufacturing equip-
ment / 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.
CANON ANNUAL REPORT 2017
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about operating results and assets for each segment as of and for the years ended December 31, 2017, 2016 and
2015 is as follows:
Millions of yen
2017: Net sales:
Office
Imaging
System
Medical
System
Industry and
Others
Corporate and
eliminations
Consolidated
External customers
Intersegment
Total
Operating cost and expenses
1,863,688
2,240
1,865,928
1,685,280
1,135,584
604
1,136,188
960,275
434,985
1,202
436,187
413,682
645,758
85,946
731,704
674,916
—
(89,992)
(89,992)
14,383
4,080,015
—
4,080,015
3,748,536
Operating profit
180,648
175,913
22,505
56,788
(104,375)
331,479
Total assets
Depreciation and amortization
Impairment losses on goodwill
Capital expenditures
962,006
74,377
33,912
47,653
387,088
41,695
—
28,508
238,824
5,212
—
8,963
360,271
37,705
—
15,736
3,250,102
102,892
—
80,529
5,198,291
261,881
33,912
181,389
2016: Net sales:
External customers
Intersegment
Total
Operating cost and expenses
Operating profit
1,804,862
2,957
1,807,819
1,638,333
1,094,291
998
1,095,289
950,876
169,486
144,413
—
—
—
—
—
502,334
82,326
584,660
577,212
—
(86,281)
(86,281)
6,200
3,401,487
—
3,401,487
3,172,621
7,448
(92,481)
228,866
Total assets
Depreciation and amortization
Capital expenditures
961,749
78,319
72,189
391,661
47,386
25,564
204,755
—
—
340,455
41,053
29,346
3,239,909
83,338
81,280
5,138,529
250,096
208,379
2015: Net sales:
External customers
Intersegment
Total
Operating cost and expenses
Operating profit
Total assets
Depreciation and amortization
Capital expenditures
2,108,246
2,570
2,110,816
1,820,230
1,262,667
1,168
1,263,835
1,080,396
290,586
183,439
1,020,758
86,206
73,819
452,283
52,070
38,337
—
—
—
—
—
—
—
—
429,358
95,293
524,651
537,730
—
(99,031)
(99,031)
6,705
3,800,271
—
3,800,271
3,445,061
(13,079)
(105,736)
355,210
332,252
45,064
24,241
2,622,480
89,987
106,733
4,427,773
273,327
243,130
Intersegment sales are recorded at the same prices used
in transactions with third parties. Expenses not directly asso-
ciated with specific segments are allocated based on the
most reasonable measures applicable. Corporate expenses
include certain corporate research and development expenses.
Amortization costs of identified intangible assets resulting
from the purchase price allocation of TMSC are also included
in corporate expenses. Segment assets are based on those
directly associated with each segment. Corporate assets pri-
marily consist of cash and cash equivalents, investments,
deferred tax assets, goodwill, identified intangible assets from
acquisitions and corporate properties. Capital expenditures
represent the additions to property, plant and equipment and
intangible assets measured on an accrual basis.
84
CANON ANNUAL REPORT 2017
STRATEGY
BUSINESS SEGMENT/
CORPORATE STRUCTURE
FINANCIAL SECTION
CORPORATE DATA
Information about product sales to external customers by business unit for the years ended December 31, 2017, 2016 and
2015 is as follows:
Years ended December 31
Office
Monochrome copiers
Color copiers
Printers
Others
Total
Imaging System
Cameras
Inkjet printers
Others
Total
Medical System
Diagnostic equipment
Industry and Others
Lithography equipment
Others
Total
Consolidated
Millions of yen
2017
2016
2015
287,823
405,576
702,491
467,798
289,532
386,193
664,846
464,291
328,061
421,209
857,369
501,607
1,863,688
1,804,862
2,108,246
702,598
333,721
99,265
666,868
329,066
98,357
782,623
362,663
117,381
1,135,584
1,094,291
1,262,667
434,985
—
—
193,113
452,645
121,090
381,244
123,887
305,471
645,758
502,334
429,358
4,080,015
3,401,487
3,800,271
Information by major geographic area as of and for the years ended December 31, 2017, 2016 and 2015 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
2017
2016
2015
884,828
1,107,515
1,028,415
1,059,257
706,979
963,544
913,523
817,441
714,280
1,144,422
1,074,366
867,203
4,080,015
3,401,487
3,800,271
1,081,522
141,937
174,889
149,244
1,163,374
147,129
166,734
164,007
937,716
150,105
183,451
189,588
1,547,592
1,641,244
1,460,860
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 ¥1,022,305 million, ¥884,083 million and
¥1,047,838 million for the years ended December 31, 2017,
2016 and 2015, respectively.
Long-lived assets represent property, plant and equipment
and intangible assets for each geographic area.
CANON ANNUAL REPORT 2017
85
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31
Millions of yen
2017: Allowance for doubtful receivables
Trade receivables
Finance receivables
2016: Allowance for doubtful receivables
Trade receivables
Finance receivables
2015: 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
11,075
2,325
12,077
2,878
12,122
6,276
3,574
1,436
1,460
398
2,180
55
(1,787)
(1,523)
(1,824)
(978)
(1,745)
(1,343)
516
443
(638)
27
(480)
(2,110)
13,378
2,681
11,075
2,325
12,077
2,878
86
CANON ANNUAL REPORT 2017
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 assessed the effectiveness of internal control over financial reporting as of December 31, 2017. 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, 2017, 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. This report appears in Item 18.
During 2017, Toshiba Medical Systems Corporation (“TMSC”) (Canon Medical Systems Corporation as of January 4, 2018) which
Canon acquired in 2016 was integrated into the Canon’s internal control over financial reporting. Canon assessed the effective-
ness of internal control over financial reporting of TMSC as of December 31, 2017. There are no other changes in Canon’s inter-
nal control over financial reporting that occurred during the period covered by this Annual Report that has materially affected, or
is reasonably likely to materially affect, its internal control over financial reporting.
CANON ANNUAL REPORT 2017
87
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Canon Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Canon Inc. and subsidiaries (the Company) as of December 31, 2017
and 2016, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in
the period ended December 31, 2017, and the related notes and schedule of valuation and qualifying accounts (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of December 31, 2017, 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 29, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regard-
ing the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and sig-
nificant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor for SEC reporting purposes since 2004, and as its Japanese statutory auditor since 1978.
March 29, 2018
88
CANON ANNUAL REPORT 2017
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Canon Inc.
Opinion on Internal Control over Financial Reporting
We have audited Canon Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017, 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). In our opinion, Canon Inc. and subsidiaries (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of income,
comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes
and schedule of valuation and qualifying accounts and our report dated March 29, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
March 29, 2018
CANON ANNUAL REPORT 2017
89
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.
4 New York Plaza Floor 12, New York, NY 10004, USA
American Depositary Receipts are traded on the New York
Stock Exchange (CAJ).
Ordinary General Meeting of Shareholders:
March 29, 2018, 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 2017
MAJOR CONSOLIDATED SUBSIDIARIES
(As of December 31, 2017)
Manufacturing
Canon Precision Inc.
Fukushima Canon Inc.
Toshiba Medical Systems Corporation
Marketing & Other
Canon Marketing Japan Inc.
Canon System and Support Inc.
Canon IT Solutions Inc.
Toshiba Electron Tubes & Devices Co., Ltd.
Toshiba Medical Finance Co., Ltd.
Canon Chemicals Inc.
Canon Components, Inc.
Canon Electronics Inc.
Canon Finetech Nisca Inc.
Canon Tokki Corporation
Canon ANELVA Corporation
Nagahama Canon Inc.
Canon Machinery Inc.
Oita Canon Materials Inc.
Oita Canon Inc.
Nagasaki Canon Inc.
Miyazaki Canon Inc.
Canon Virginia, Inc.
Canon Bretagne S.A.S.
Axis Communications AB
Océ-Technologies B.V.
Canon U.S.A., Inc.
Canon Canada Inc.
Canon Solutions America, Inc.
Canon Financial Services, Inc.
Toshiba America Medical Systems, Inc.
Axis AB
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.
Océ Printing Systems G.m.b.H. & Co. KG
Toshiba Medical Systems Europe B.V.
Canon (China) Co., Ltd.
Canon Hongkong Co., Ltd.
Canon Singapore Pte. Ltd.
Canon India Pvt. Ltd.
Canon Australia Pty. Ltd.
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.
Toshiba Medical Systems Manufacturing Asia Sdn. Bhd.
Research & Development
Canon Research Centre France S.A.S.
Canon Information Systems Research Australia Pty. Ltd.
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CANON INC.
30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan
©Canon Inc. 2018 PUB.BEP027-01 0418