Form 6-K

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

For the month of .…  

February

  …………………………………………………… ,    

2019    

 
 

CANON INC.

 

 
 

 

(Translation of registrant’s name into English)

 
 

30-2, Shimomaruko 3-Chome, Ohta-ku, Tokyo 146-8501, Japan

 

 
 

 

(Address of principal executive offices)

 

[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F

  X   Form 40-F     

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes

      

No

  X

[If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-………………..


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CANON INC.

 

 

 

  (Registrant)

 

 

Date….

  February 25, 2019      By ……/s/…… Sachiho Tanino………………
                                       (Signature)*

 

 

      Sachiho Tanino

 

      General Manager

 

      Consolidated Accounting Division

 

      Canon Inc.

*Print the name and title of the signing officer under his signature.

The following materials are included.

1. Notice of Convocation of the Ordinary General Meeting of Shareholders for the 118th Business Term


LOGO


To Our Shareholders

 

 

  

 

 

LOGO

   

We are pleased to present our notice of convocation of the Ordinary General Meeting of Shareholders for the 118th Business Term (from January 1, 2018 to December 31, 2018).

 

The world economy in 2018 remained on a path of moderate recovery on the whole supported in part by the steady recovery in the U.S. economy, despite the aggravation of the U.S.-China trade friction and the economic slowdown in China.

 

In such environment, the Canon Group strived to improve business results by implementing measures, for example, to ensure efficiency improvement throughout the entire business process from research and development and production to sales and services under the new business portfolio that combines the existing key businesses such as business machines and cameras with four new businesses: commercial printing, network cameras, medical systems, and industrial equipment.

 

For the 118th Business Term, we were able to achieve an increase in profit through further profitability improvement, although net sales decreased slightly due to the effect of the shrinking of the markets related to our business such as digital cameras.


                       Index        

 

For the term-end dividend, to realize a stable return and actively return profits to shareholders and in appreciation for the ongoing support of our shareholders, we will propose a distribution of 80.00 yen per share at the Ordinary General Meeting of Shareholders for the 118th Business Term. As a result, dividends for this year, when combined with the interim dividend (80.00 yen per share), will be 160.00 yen per share.

 

Despite the growing concerns about expansion of the impact from the U.S.-China trade friction in the world economy in 2019, the Canon Group will make united efforts to continue to pave a path to further growth.

 

We look forward to our shareholders’ continued support and encouragement.

 

March, 2019

 

Chairman &  CEO    FUJIO MITARAI

 

   

 

NOTICE OF CONVOCATION OF

THE ORDINARY GENERAL MEETING

OF SHAREHOLDERS

FOR THE 118TH BUSINESS TERM

 

    

 

P. 3

 

 

 

   

 

LOGO

 

 

 

   

Guidance Notes on the Exercise of Voting Rights

     P. 4  
   

 

REFERENCE DOCUMENTS FOR

GENERAL MEETING OF SHAREHOLDERS

  
   

Propositions:

  
   

Item No.1 -   Dividend from Surplus

     P. 6  
   

Item No.2 -   Election of Six Directors

     P. 7  
   

Item No.3 -   Election of Two Audit & Supervisory Board Members

     P. 11  
   

Item No.4 -   Grant of Bonus to Directors

     P. 14  
   

 

(Materials delivered pursuant to Article 437 and Article 444 of the Corporation Law)

 

   

BUSINESS REPORT

  
   

1. Current Conditions of the Canon Group

     P. 15  
   

2. Shares of the Company

     P. 27  
   

3. Stock Acquisition Rights etc. of the Company

     P. 28  
   

4. Directors and Audit & Supervisory Board Members

     P. 29  
   

5. Accounting Auditor

     P. 31  
   

6. Systems Necessary to Ensure the Properness of Operations

     P. 32  
   

 

CONSOLIDATED FINANCIAL STATEMENTS

  
   

 

Consolidated Balance Sheets

     P. 36  
   

Consolidated Statements of Income

     P. 37  
   

Consolidated Statement of Equity

     P. 38  
   

Notes to Consolidated Financial Statements

     P. 39  
   

 

FINANCIAL STATEMENTS

  
   

Balance Sheets

     P. 42  
   

Statements of Income

     P. 43  
   

Statement of Changes in Net Assets

     P. 44  
   

Notes to Non-Consolidated Financial Statements

     P. 45  
   

 

AUDIT REPORTS

  
   

AUDIT REPORT OF ACCOUNTING AUDITOR

  
   

ON CONSOLIDATED FINANCIAL STATEMENTS

     P. 47  
   

AUDIT REPORT OF ACCOUNTING AUDITOR

     P. 48  
   

AUDIT REPORT OF AUDIT & SUPERVISORY BOARD

 

     P. 49  
   

REFERENCE

  
   

CSR Initiatives

     P. 51  
   

Information for Shareholders

     P. 53  
              
   

The map of the place of the General Meeting of Shareholders

  

            

                         


       
      

Securities Code: 7751

March 4, 2019

 

 

  
  TO OUR SHAREHOLDERS      
       CANON INC.     
      

30-2, Shimomaruko 3-chome,

Ohta-ku, Tokyo

Chairman & CEO Fujio Mitarai

 

 

 

  

NOTICE OF CONVOCATION

OF

THE ORDINARY GENERAL MEETING OF SHAREHOLDERS

FOR THE 118TH BUSINESS TERM

 

 

Notice is hereby given that the Ordinary General Meeting of Shareholders for the 118th Business Term of Canon Inc. (the “Company”) will be held as described below and that you are invited to attend the Meeting.

If you do not expect to attend the Meeting, you may exercise your voting rights in writing or by electromagnetic means (Internet etc.) in accordance with the “Guidance Notes on the Exercise of Voting Rights” (pages 4-5). After reviewing the following Reference Documents for General Meeting of Shareholders, please exercise your voting rights by no later than 5:00 p.m. on March 27 (Wednesday), 2019 (Japan time).

 

 

  

 

    

 

1. DATE AND TIME:

  

 

March 28 (Thursday), 2019 at 10:00 a.m. (Japan time)

     
  

(The reception will commence at 9:00 a.m.)

 

     
          

 

Headquarters of the Company

       
    

2. PLACE:

   30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo        
       

(Please see the map at the end of this notice.)

 

     
    

 

3. MATTERS CONSTITUTING
    THE PURPOSE OF THE
    MEETING

   Matters to be Reported:        
  

1.  Reports on the contents of the Business Report and Consolidated Financial Statements for the 118th Business Term (from January 1, 2018 to December 31, 2018), and reports on the Auditing Results of Accounting Auditor and Audit & Supervisory Board regarding the Consolidated Financial Statements.

 

   
       

 

2.  Reports on the content of the Financial Statements for the 118th Business Term (from January 1, 2018 to December 31, 2018).

   
        Matters to be Resolved upon:    
       

Propositions:

   

                    

       

Item No.1 -         Dividend from Surplus

                        
       

Item No.2 -         Election of Six Directors

   
       

Item No.3 -         Election of Two Audit & Supervisory Board Members

   
       

Item No.4 -         Grant of Bonus to Directors

 

     
       
  

 

•  It would be appreciated if you could come early since the reception desk is expected to be crowded just before the opening of the Meeting.

•  Upon attending the Meeting, please present the enclosed Voting Form to the receptionist at the place of the Meeting.

•  Please note that no gift will be provided at the Meeting. Thank you for your understanding.

•  Any changes in the matters described in Reference Documents for General Meeting of Shareholders, Business Report, Consolidated Financial Statements and Financial Statements will be posted on our website on the Internet (https://global.canon/en/ir/).

 

   

 

3

         


Guidance Notes on the Exercise of Voting Rights

This is to introduce the procedure to exercise voting rights of shareholders of the Company in writing (using the Voting Form) or by electromagnetic means (Internet, etc.).

 

LOGO

 

LOGO

 

4

 


LOGO

To Institutional Investors

The electronic voting platform for institutional investors operated by Investor Communications Japan Inc. is available for institutional investors that have applied to use such platform in advance.

 

 

 

5


REFERENCE DOCUMENTS FOR GENERAL MEETING OF SHAREHOLDERS

Item No.1: Dividend from Surplus

The basic policy of the Company is to provide a stable return and actively return profits to shareholders, mainly in the form of a dividend, taking into consideration medium-term profit forecasts along with planned future investments, cash flow and other factors.

In accordance with the above basic policy, we propose a term-end dividend of 80.00 yen per share, as set forth below.

As we have already paid an interim dividend of 80.00 yen per share, the full-year dividend will be 160.00 yen per share, which is the same amount as the previous term that included payment of a commemorative dividend (10.00 yen per share).

 

 

1. Kind of the dividend property

 

 

 

Cash

 

 

2. Matters regarding allocation of the dividend property and its total amount

 

 

 

80.00 yen per one common share of the Company

Total amount of dividend 86,379,985,840 yen

 

 

3. Effective date of the distribution of the dividend from surplus

 

 

 

March 29, 2019

 

[Reference] Changes in the amount of dividend per share (Yen)

 

 

LOGO

 

LOGO

 

6

 


Item No.2: Election of Six Directors

The terms of office of all of the seven Directors will expire at the end of this Meeting. Accordingly, we propose the election of six Directors.

The Company has a basic policy that the focus of the organizational structure of the Board of Directors is on the Directors that oversee company-wide business strategies or execution and the Directors that oversee multiple business fields or headquarters functions, while an adequate number of at least two or more Independent Outside Directors are appointed in order to secure sound management.

The candidates for Directors, based on this basic policy, are as follows:

 

 

Candidate  

No.  

 

 

 

Name

 

           

 

Current Position, Business in Charge,

etc. at the Company

 

 

 

Board of  

Directors Meeting  

Attendance  

 

 

1  

 

 

 

Fujio Mitarai

 

  LOGO                           

 

Chairman & CEO

 

 

 

100%

(11/11)

 

 

2  

 

 

 

Masaya Maeda

 

  LOGO                           

 

President & COO

 

 

 

100%

(11/11)

 

 

3  

 

 

 

Toshizo Tanaka

 

  LOGO                           

 

Executive Vice President & CFO

Group Executive of Finance & Accounting Headquarters

Group Executive of Public Affairs Headquarters

Group Executive of Facilities Management Headquarters

 

 

 

100%

(11/11)

 

 

4  

 

 

 

Toshio Homma

 

  LOGO                           

 

Executive Vice President & In charge of Office Business

Chief Executive of Office Imaging Products Operations

 

 

 

100%

(11/11)

 

 

5  

 

 

 

Kunitaro Saida

 

 

 

LOGO

 

 

 

Director

 

 

 

100%

(11/11)

 

 

6  

 

 

 

Haruhiko Kato

 

 

 

LOGO

 

 

 

Director

 

 

 

100%

(11/11)

 

Note: The attendance figures above constitute attendance of the Board of Directors meetings by the respective candidates for Directors during the 118th business term.

 

 

 

7            

  


                           

LOGO

 

     

 

Brief personal record, position, business in charge and important concurrent posts

 

 

Fujio Mitarai

 

 

Date of birth

Sep. 23, 1935

 

Number of the Company’s
shares held

130,123 shares

       As of
   

 Apr.  1961:   Entered the Company

   

 Mar.  1981:   Director

   

 Mar.  1985:   Managing Director

   

 Mar.  1989:   Senior Managing & Representative Director

   

 Mar.  1993:   Executive Vice President & Representative Director

   

 Sep.  1995:   President & CEO

   

 Mar.  2006:   Chairman, President & CEO

   

 May  2006:   Chairman & CEO (daihyō torishimariyaku kaichō)

                                                                        

 Mar.  2012:   Chairman & CEO (daihyō torishimariyaku kaicho ken shachō)

     

 Mar.  2016:   Chairman & CEO (daihyō torishimariyaku kaichō) (present)

     

 

 [Important concurrent posts]

            Audit & Supervisory Board Member of The Yomiuri Shimbun Holdings
           

 

     

 

[Reasons for being selected as a candidate]

     

Mr. Fujio Mitarai has supervised the Company’s management as a CEO over the course of many years and has accomplished many things, such as significantly increasing profitability through management reform including production reform, and building a foundation for the transformation of the Company’s business structure for new areas where growth is expected. The Company has selected him as a candidate for Director upon determining that his wealth of expertise and ability related to management, gained from being chairman of Keidanren (“Japan Business Federation”), and holding many important positions in other organizations, are vital to the Company’s management.

 

                           

LOGO

 

                                                                        

 

Brief personal record, position, business in charge and important concurrent posts

 

 

Masaya Maeda

 

 

Date of birth

Oct. 17, 1952

 

Number of the Company’s
shares held

15,200 shares

       As of
   

 Apr.  1975:   Entered the Company

   

 Mar.  2007:   Director

   

 Apr.  2007:   Chief Executive of Image Communication Products Operations

   

 Mar.  2010:   Managing Director

   

 Mar.  2014:   Senior Managing Director

   

 Mar.  2016:   President & COO (present)

   
   
 

 

 

 

[Reasons for being selected as a candidate]

 

Mr. Masaya Maeda has engaged in camera development for many years, and has continually driven the commercialization of digital cameras, boosting their market share to the No. 1 position in the world after late entry to the market. In addition, he accomplished great things in boosting the profitability of the camera business through the enhancement, automation, etc., of production engineering technology and has currently been working on measures centered on the strengthening of existing businesses as a COO. The Company has selected him as a candidate for Director upon determining that his experience and ability for innovation are vital to the Company’s management.

 

                     

 

LOGO

 

8

 


                           
LOGO                                                                         

 

Brief personal record, position, business in charge and important concurrent posts

 

 

Toshizo Tanaka

 

 

Date of birth

Oct. 8, 1940

 

Number of the Company’s

shares held

23,110 shares

       As of
   

 Apr.  1964:   Entered the Company

   

 Mar.  1995:   Director

   

 Mar.  1997:   Managing Director

   

 Mar.  2001:   Senior Managing Director

   

 Mar.  2007:   Executive Vice President & Director

   

 Mar.  2008:   Executive Vice President & CFO (present)

   

 Apr.  2011:   Group Executive of Finance & Accounting Headquarters

   

 Mar.  2014:   Group Executive of Human Resources Management & Organization Headquarters

   

 Apr.  2017:   Group Executive of Facilities Management Headquarters (present)

     

 Mar.  2018:   Group Executive of Public Affairs Headquarters (present)

     

 Apr.  2018:   Group Executive of Finance & Accounting Headquarters (present)

 

 

 

 

[Reasons for being selected as a candidate]

     

Mr. Toshizo Tanaka has contributed greatly to building the Company’s strong financial position while working for many years as CFO. The Company has selected him as a candidate for Director upon determining that his extensive expertise, insight, and wide range of experience, gained from managing overall corporate administration, are vital to the Company’s management.

 

                           
LOGO                                                                         

 

Brief personal record, position, business in charge and important concurrent posts

 

 

Toshio Homma

 

 

Date of birth

Mar. 10, 1949

 

Number of the Company’s

shares held

54,652 shares

       As of
   

 Apr.  1972:   Entered the Company

   

 Jan.  1995:   Senior General Manager of Copying Machine Development Center

   

 Mar.  2003:   Director

   

 Apr.  2003:   Group Executive of Business Promotion Headquarters

   

 Jan.  2007:   Chief Executive of L Printer Products Operations

   

 Mar.  2008:   Managing Director

   

 Mar.  2012:   Senior Managing Director

   

               Group Executive of Procurement Headquarters

     

 Mar.  2016:   Executive Vice President

     

 Apr.  2016:   Chief Executive of Office Imaging Products Operations (present)

     

 Mar.  2017:   Executive Vice President & In charge of Office Business (present)

 

 

 

 

[Reasons for being selected as a candidate]

     

Mr. Toshio Homma accomplished great things in the commercialization of large-format printing systems after being engaged in the development and commercialization of copying machines over the course of many years. Also, he led procurement reform, contributed to creating a structure to support reducing the cost-of-sales ratio, and is currently in charge of and managing the overall printing business including commercial printing as Executive Vice President. The Company has selected him as a candidate for Director upon determining that his broad knowledge and experience are vital to the Company’s management.

 

                     

 

9              

 


                           
LOGO                                                                         

 

Brief personal record, position, business in charge and important concurrent posts

 

 

Kunitaro Saida

 

 

Date of birth

May 4, 1943

 

Number of the Company’s

shares held

5,500 shares

       As of
   

 Apr.   1969:   Appointed as Public Prosecutor

   

 Feb.   2003:   Superintending Prosecutor of Takamatsu High Public Prosecutors Office

   

 Jun.   2004:   Superintending Prosecutor of Hiroshima High Public Prosecutors Office

   

 Aug.   2005:   Superintending Prosecutor of Osaka High Public Prosecutors Office

   

 May   2006:   Retired from Superintending Prosecutor of Osaka High Public Prosecutors Office Registered as an attorney (present)

   

 Jun.   2007:   Audit & Supervisory Board Member of NICHIREI CORPORATION (present)

   

 Jun.   2008:   Director of Sumitomo Osaka Cement Co., Ltd. (present)

   

 Jun.   2010:   Director of HEIWA REAL ESTATE CO., LTD. (present)

     

 Mar.   2014:   Director (present)

     

 

 [Important concurrent posts]

        Attorney
        Audit & Supervisory Board Member of NICHIREI CORPORATION
        Director of Sumitomo Osaka Cement Co., Ltd.
            Director of HEIWA REAL ESTATE CO., LTD.
           

 

     

 

[Reasons for being selected as a candidate]

     

The Company has selected Mr. Kunitaro Saida as a candidate for Outside Director so that the Company’s management may utilize his high-level expertise and wealth of experience gained from his distinguished career as Superintending Prosecutor of High Public Prosecutors Offices (in Takamatsu, Hiroshima and Osaka) and later as an attorney in corporate legal affairs, as well as serving as an Outside Director and an Outside Audit & Supervisory Board Member for other companies.

 

                           
LOGO                                                                         

 

Brief personal record, position, business in charge and important concurrent posts

 

 

Haruhiko Kato

 

 

Date of birth

Jul. 21, 1952

 

Number of the Company’s

shares held

0 shares

       As of
   

 Apr.    1975:   Entered Ministry of Finance

   

 Jul.   2007:   Director-General of Tax Bureau, Ministry of Finance

   

 Jul.   2009:   Commissioner of National Tax Agency

   

 Jul.   2010:   Retired from Commissioner of National Tax Agency

   

 Jan.   2011:   Senior Managing Director of Japan Securities Depository Center, Incorporated

   

Jun.   2011:   President and Chief Executive Officer (daihyō torishimariyaku shachō) of Japan Securities Depository Center, Incorporated

   

 Jun.   2013:   Director of Toyota Motor Corporation

   

 Mar.    2014:   Director (present)

     

Jul.    2015:   President and Chief Executive Officer (daihyō shikkōyaku shachō) of Japan Securities Depository Center, Incorporated (present)

     

 

 [Important concurrent posts]

        President and Chief Executive Officer of Japan Securities Depository Center, Incorporated
           

 

     

 

[Reasons for being selected as a candidate]

     

Mr. Haruhiko Kato has, over many years, had a distinguished career in fiscal operations of the national government as Director-General of Tax Bureau in the Ministry of Finance, and Commissioner of National Tax Agency. The Company has selected him as a candidate for Outside Director so that the Company’s management may utilize his high-level expertise and wealth of experience gained from his managerial experience as President of Japan Securities Depository Center, Incorporated.

 

                     

 

LOGO

 

10

 


 

Notes:

 

1.

 

None of the candidates for the Directors have any special interest in the Company.

 

2.

 

Mr. Kunitaro Saida and Mr. Haruhiko Kato are candidates for Outside Directors defined by Item 7, Paragraph 3, Article 2 of the Enforcement Regulations of the Corporation Law.

 

3.

 

Although Mr. Kunitaro Saida does not have the experience of being involved in the management of a company other than in a position of an outside director or outside audit & supervisory board member, the Company judges that he will appropriately perform his duties as Outside Director due to his corporate legal affairs experience as an attorney.

 

4.

 

Mr. Kunitaro Saida and Mr. Haruhiko Kato will have served as Outside Directors of the Company for five years as of the end of this Meeting.

 

5.

 

The Company has entered into a contract with Mr. Kunitaro Saida and Mr. Haruhiko Kato limiting the amount of their damage compensation liabilities defined in Paragraph 1, Article 423 of the Corporation Law to the limit prescribed by laws and regulations. Should they be elected, the Company will continue the aforementioned contract with them.

 

6.

 

The Company has notified Mr. Kunitaro Saida and Mr. Haruhiko Kato as independent directors to each stock exchange in Japan on which the Company is listed as provided under the regulations of each stock exchange. Should they be elected, the Company will continue to make both of them independent directors. Although the Company has compensated them for their advisory services, the remuneration has not been substantial given that it has amounted to no more than 12 million yen annually, and their contracts in that regard have already expired. Accordingly, the Company judges that their independence is not affected by the aforesaid circumstances.

Additional Note for English Translation:

 

Mr. Fujio Mitarai, Mr. Masaya Maeda, Mr. Toshizo Tanaka and Mr. Toshio Homma are Representative Directors.

Item No.3: Election of Two Audit & Supervisory Board Members

The terms of office of Audit & Supervisory Board Members Mr. Kazuto Ono and Mr. Tadashi Ohe will expire at the end of this Meeting. Accordingly, we propose the election of two Audit & Supervisory Board Members.

The Company has a basic policy to have Audit & Supervisory Board Members that are familiar with the Company’s businesses or its management structure, or that have extensive knowledge in specialized areas such as law, finance and accounting, and internal control. The candidates for Audit & Supervisory Board Members, based on this basic policy, are as follows:

Prior to our proposal of this item, we have already obtained the consent of the Audit & Supervisory Board.

 

 

 

11


                           
LOGO                                                                         

 

Brief personal record, position and important concurrent posts

 

 

Hiroaki Sato

 

 

Date of birth

Jan. 29, 1960

 

Number of the Company’s

shares held

0 shares

       As of
   

 Apr.   1982:     Entered the Company

   

 Feb.  2004:    Senior General Manager of MR Systems Laboratory

   

 Jul.    2014:    Deputy Group Executive of Advanced Information & Real-world Technology Development Group, Digital System Technology Development Headquarters

   

 Jul.    2015:   Deputy Group Executive of Digital System Technology Development Headquarters

   

 Apr.   2018:   Principal Staff Engineer of Digital Business Platform Development Headquarters (present)

   
   
 

 

 

 

[Reasons for being selected as a candidate]

 

Mr. Hiroaki Sato has been engaged for many years since joining the Company in developing image processing technologies, software and system products underpinning digital printers, network cameras and other such products, and has been in charge of managing overall development processes relating to commercialization of numerous product groups. The Company has selected him as a candidate for Audit & Supervisory Board Member premised on the notion that such experience and knowledge will help bring about audits that are more effective.

         
                           
LOGO                                                                          

 

Brief personal record, position and important concurrent posts

 

 

Yutaka Tanaka

 

 

Date of birth

Mar. 11, 1949

 

Number of the Company’s

shares held

0 shares

        As of
   

  Apr.  1975:    Assistant Judge of the Tokyo District Court

   

  Apr.  1986:    Judge of the Tokyo District Court

   

  Apr.  1987:     Instructor of the Legal Training & Research Institute, the Supreme Court of Japan

   

  Apr.  1992:    Judicial Research Official, the Supreme Court of Japan

   

  Apr.  1996:   Resignation as a Judge

   

                   Registered as an attorney (present)

   

  Oct.  2014:   Guest Professor of Keio University Law School (present)

   

 

  [Important concurrent posts]

         Attorney
         Director of Laws & Ordinances Compliance Investigation Office, Financial Services Agency of Japan
 

 

 

 

[Reasons for being selected as a candidate]

 

Mr. Yutaka Tanaka had for many years served as a judge in charge of civil cases, and subsequently has been engaging in corporate legal affairs as an attorney and as a law school professor. The Company has selected him as a candidate for Outside Audit & Supervisory Board Member as it desires to leverage his considerable experience and high level of expert knowledge about legal affairs to further enhance the Company’s auditing system.

         
                     

 

Notes:

 

1.

 

None of the candidates for the Audit & Supervisory Board Members have any special interest in the Company.

 

2.

 

Mr. Yutaka Tanaka is a candidate for Outside Audit & Supervisory Board Member defined by Item 8, Paragraph 3, Article 2 of the Enforcement Regulations of the Corporation Law.

 

3.

 

Although Mr. Yutaka Tanaka does not have the experience of being directly involved in the management of a company, the Company judges that he will appropriately perform his duties as Outside Audit & Supervisory Board Member by utilizing his considerable experience and high level of expert knowledge about legal affairs, as previously noted.

 

4.

 

Should Mr. Yutaka Tanaka be elected to the position of Audit & Supervisory Board Member, the Company will enter into a contract with Mr. Yutaka Tanaka limiting the amount of his damage compensation liabilities defined in Paragraph 1, Article 423 of the Corporation Law to the limit prescribed by laws and regulations.

 

5.

 

Should Mr. Yutaka Tanaka be elected to the position of Audit & Supervisory Board Member, the Company will notify him as an independent audit & supervisory board member to each stock exchange in Japan on which the Company is listed as provided under the regulations of each stock exchange.

 

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[Reference]

“Independence Standards for Independent Directors/Audit and Supervisory Board Members” of the Company.

The Company has established the “Independence Standards for Independent Directors/Audit and Supervisory Board Members” resolved by the Board of Directors with the consent of all Audit and Supervisory Board Members, in order to clarify the standards for ensuring independence of Independent Directors/Audit and Supervisory Board Members of the Company, taking into consideration Japan’s Corporate Governance Code (Principle 4.9) and the independence criteria set by securities exchanges in Japan.

 

Independence Standards for

Independent Directors/Audit and Supervisory Board Members

Canon Inc. deems that a person who satisfies the requirements for Outside Directors/Audit and Supervisory Board Members prescribed by the Corporation Law of Japan, and meets the independence criteria set by securities exchanges in Japan, and does not fall into any of the items below, is an “Independent Director/Audit and Supervisory Board Member” (a person who is independent from the management of Canon Inc. and unlikely to have conflicts of interest with general shareholders).

 

1.

 

A person/organization for which Canon Group (Canon Inc. and its subsidiaries; hereinafter the same) is a major client, or a major client of Canon Group, or an executing person of such organization or client

2.

 

A major lender to Canon Group, or an executing person of such lender

3.

 

A large shareholder of Canon Inc., or an executing person of such shareholder

4.

 

A person/organization receiving large amounts of contributions from Canon Group, or an executing person of such organization

5.

 

A consultant, accounting professional or legal professional who has received a large amount of money or other properties from Canon Group, other than as compensation for being a director/Audit and Supervisory Board Member (if the recipient is a corporation, partnership or any other organization, this item applies to any person belonging to said organization.)

6.

 

A certified public accountant belonging to the audit firm engaged to conduct the statutory audit of Canon Group (including any such accountant to whom this item has applied in the last 3 business years)

7.

 

An executing person of another company in cases where an executing person of Canon Group is an outside director/Audit and Supervisory Board Member of such other company

8.

 

An immediate family member (spouse and a relative within the second degree of kinship) of any of the persons listed in each of items 1 to 7; provided, however that the persons to whom this is applicable shall be limited to key executing persons such as directors, executive officers of companies and partners of advisory firms

(Notes)

*

 

In item 1, “major” means in cases where the total amount (for any business year during the last 3 business years) of transactions between Canon Group and such client exceeds 1% of the consolidated sales of Canon Group or such client.

*

 

In item 2, “major” means in cases where the debt outstanding exceeds 1% of the consolidated total assets of Canon Inc. for any business year during the last 3 business years.

*

 

In item 3, “a large shareholder” means a shareholder who directly or indirectly holds 5% or more of the total voting rights of Canon Inc.

*

 

In item 4, “a large amount” means in cases where the total amount of contributions exceeds JPY 12 million (in cases where the recipient is an individual) or 1% of the annual gross income of such recipient (in cases where the recipient is an organization), for any business year during the last 3 business years of Canon Inc.

*

 

In items 1 to 4 and 7, an “executing person” means an executive director, executive officer and employee including manager (in items 1 to 4, including a person to whom this item has applied in any business year during the last 3 business years).

*

 

In item 5, “a large amount” means in cases where the total amount of money or other properties received by said consultant, etc., exceeds JPY 12 million (in cases where the recipient is a person) or 1% of the annual gross sales of such consultant, etc. (in cases where the recipient is an organization), for any business year during the last 3 business years of Canon Inc.

 

 

 

13


Item No.4: Grant of Bonus to Directors

It is proposed that bonus be granted to the five Directors excluding Outside Directors as of the end of this term, in appreciation of their services during this business term, which totals 113,400,000 yen considering the business results for this business term and the members to be granted, etc.

 

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(Materials delivered pursuant to Article 437 and Article 444 of the Corporation Law)

BUSINESS REPORT (From January 1, 2018 to December 31, 2018)

1. Current Conditions of the Canon Group

(1) Business Progress and Results

 

General Business Conditions

 

The world economy during the 118th Business Term (from January 1, 2018 to December 31, 2018) can be summarized as follows: The U.S. economy was generally strong and the Europe also continued to recover at a moderate pace. On the other hand, the Chinese economy slowed down in the second half of the term. The Japanese economy continued to recover at a moderate pace supported in part by various policies of the government. Uncertainty increased in summer and thereafter concerns about slowdown in the world economy spread due to the U.S.-China trade friction and the political situation in various countries. As for exchange rates, the yen was slightly stronger against the U.S. dollar, but slightly weaker against the euro as compared with the previous term.

Under the five-year management plan, Phase V (2016-2020) of our “Excellent Global Corporation Plan,” the Canon Group promoted the strengthening of a grand strategic transformation of the business structure and constructed a new business platform with the inclusion of the four new businesses: commercial printing, network cameras, medical systems, and industrial equipment. Under this new platform, in the 118th Business Term, the Canon Group actively implemented key strategies such as “strengthen our product development capability,” “thoroughly strengthen our manufacturing prowess,” “thoroughly strengthen procurement capabilities,” and “reform sales organizations to correspond to market changes.”

 

 

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Product design using 3D-CAD

 

    

 

Inkjet printer production (Canon Hi-Tech (Thailand) Ltd.)

 

 

 

 

15


Turning to the overview of each business unit, in the Office Business Unit, unit sales of office multifunction devices (MFDs), particularly color machines, increased as demand for such products increase in emerging markets. Regarding sales of laser printers, although sales of the main units were strong, sales of consumable supplies remained flat compared with the previous term. The Imaging System Business Unit continued to face the shrinking of the digital camera market and sales of both interchangeable lens cameras and compact cameras declined considerably. As for inkjet printers, sales of large format printers were strong, but unit sales of consumer products dropped due to the effect of the market shrinkage. The Medical System Business Unit achieved an increase in sales despite weak sales in the Japanese market as demand in the overseas markets, particularly emerging markets, expanded. In the Industry and Others Business Unit, despite a slowdown in the sales of FPD lithography equipment and Organic LED (OLED) panel manufacturing equipment, there was a significant growth in sales units of semiconductor lithography equipment. Meanwhile, sales of network cameras were steady on the back of market expansion.

As a result of the above, consolidated net sales for this term was 3,951.9 billion yen (down 3.1% from the previous term). Although, consolidated income before income taxes was 362.9 billion yen (up 2.5% from the previous term). Consolidated net income attributable to Canon Inc. was 252.8 billion yen (up 4.5% from the previous term).

 

 

 

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Production of digital cameras using automated equipment   Presentation on procurement policy for suppliers, first held in 2018

 

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Highlights of Results

 

  ·  

During this term, the world economy seemingly mounted a gradual recovery on the whole, yet decelerated in the latter half largely due to adverse effects of trade friction. In such an environment, although each of Canon Group’s businesses endeavored to expand sales particularly with respect to new products, consolidated net sales decreased by 3.1% compared with the previous term largely due to adverse effect of a shrinking market for cameras.

  ·  

Meanwhile, consolidated net income attributable to Canon Inc. increased by 4.5% from the previous term as a result of efforts taken to improve profitability which involved shifting to high value-added products and engaging in ongoing group-wide efforts to reduce costs.

 

 

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 Notes:

  1.  

Some business that had been disclosed as being included in the Office Business Unit in previous business reports are presented in the Industry and Others Business Unit in this Business Report. The same restatement has been applied in relation to the previous terms.

  2.  

The totals do not amount to 100% because the consolidated sales of each business unit include the sales relating to intersegment transactions.

 

 

 

17


Business Conditions by Operations

Office Business Unit

 

In the office MFDs area, unit sales increased from the previous term, led by A3 color machines that can be connected with external cloud services and the imageRUNNER C3020 series, which continued to deliver strong sales results particularly in emerging markets.

Concerning large-size multifunction devices for commercial printing, unit sales of color machines such as the imagePRESS C10000VP series increased. However, sales of large-size printing devices such as high-speed sheet-fed inkjet press, decreased slightly from the previous term.

Sales of laser multifunction printers (MFPs) and laser printers increased mainly due to the sales growth of new products designed to deliver high productivity in addition to power saving and smaller size. As a result of the above, on a consolidated basis, sales for this business unit increased by 0.1% to 1,807.3 billion yen in comparison to the previous term.

 

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Imaging System Business Unit

 

In digital cameras, the market overall continued to shrink despite solid sales for the new mirrorless cameras EOS R and EOS Kiss M, and although unit sales of interchangeable lens cameras stayed firm with a top share in the market, overall revenue decreased significantly from the previous term.

As for inkjet printers, although unit sales of models with large-capacity ink tanks increased in emerging countries, overall unit sales decreased mainly due to the effect of the market shrinkage in developed countries.

Sales of large format inkjet printers were strong due to the high reputation of some of the products in the market including the imagePROGRAF TX series, which are suitable for printing CAD drawings and poster production.

As a result of the above, on a consolidated basis, sales for this business unit decreased by 11.3% to 1,008.2 billion yen in comparison to the previous term.

 

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19


Medical System Business Unit

 

In the area of computed tomography (CT) systems, the Canon Group firmly maintained the leading market share in the Japanese market and Aquilion Precision, which is equipped with the latest AI-based image reconstruction technology AiCE, received high praise from medical institutions. In addition, sales of Vantage Orian, which delivers one of the highest image quality in the industry and is the magnetic resonance imaging (MRI) system marketed under the first Canon brand, and a next-generation diagnostic X-ray system Alphenix increased particularly in the U.S. As for diagnostic ultrasound systems, a new product Aplio i series received favorable market responses particularly in Europe.

Despite the delay in capital investment by medical institutions caused by the revision of medical treatment fees in Japan, as sales in the overseas markets generally remained firm throughout the year, on a consolidated basis, sales for this business unit increased by 0.3% to 437.6 billion yen in comparison to the previous term.

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Industry and Others Business Unit

 

In the semiconductor lithography equipment segment, on the back of increases in demand for DRAM and flash memory and the diversification of semiconductor devices due to the spread of IoT, sales of FPA-6300ES6a and FPA-5550iZ2, which offer further productivity improvement, were strong.

Sales of FPD lithography equipment and OLED panel manufacturing equipment decreased over the full year as capital investment by panel manufacturers in the second half of the term entered an adjustment phase.

Amid continued market expansion, Axis, which handles network cameras, achieved a significant growth in sales.

As a result of the above, on a consolidated basis, sales for this business unit increased by 1.6% to 805.2 billion yen in comparison to the previous term.

 

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21


(2) Facilities Investment

The investment in facilities by the Canon Group during this term totaled 159.4 billion yen (63.0 billion yen by the Company), which are mainly as follows:

 

Main facilities completed during this term

 

Canon Inc.:

    

   New Training Building

  

   (Headquarters Operations)

  

   Location: Ohta-ku, Tokyo, Japan

  

   Date of Completion: July, 2018

  

Main facilities under construction for establishment / expansion as of the end of this term

 

Miyazaki Canon Inc.:

  

Oita Canon Inc.:

   New Production Base       New Production Base of Oita Plant
   (Imaging System Business Unit)       (Imaging System Business Unit)
   Location: Koyu-gun, Miyazaki Pref., Japan       Location: Oita-shi, Oita Pref., Japan
    *To be leased to Miyazaki Canon Inc. by the Company        *To be leased to Oita Canon Inc. by the Company

(3) Business Challenges and Countermeasures

The Canon Group has been making steady progress in achieving grand strategic transformation of its business structure under Phase V of its “Excellent Global Corporation Plan.” In so doing, we aim to swiftly address rapid changes taking place in the business environment, particularly in terms of rapid evolution of artificial intelligence and other technologies in addition to prevailing political and economic turmoil, and to furthermore develop a robust corporate disposition poised for ongoing growth.

The Canon Group recognizes the 119th Business Term as a year for achieving transformation into an enterprise wielding high productivity on par with other excellent global corporations in every field of business ranging from R&D to production, sales and service, underpinned by a new business portfolio containing four additional new business areas. Accordingly, we will work to address the following key challenges under the theme, “Accelerate Grand Strategic Transformation to achieve fundamental improvements in productivity.”

1. Revitalizing existing businesses

 

 

We will promote efforts to strengthen development of DANTOTSU products that overwhelm competitors, making extensive use of cloud, AI and IoT technologies.

 

We will enhance assembly automation by turning out product designs suitable to automation, and promote in-house production of equipment and key parts throughout the Group.

 

We will make quality and cost improvements by strengthening procurement functions and collaborating with suppliers, and promote in-house production and standardization of parts.

 

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2. Bolstering and expanding new businesses

 

 

In commercial printing, our aims involve drawing up comprehensive strategy for all printing-related businesses, building platforms for the commercial printing business centered on Océ, and establishing product structures geared to high-resolution and high-mix, small-lot printing.

 

With network cameras, we will enhance and upgrade related software, and promote expansion into a wide range of fields beyond crime prevention and disaster monitoring applications.

 

In the medical field, we will enhance our product strengths and sales capabilities with respect to diagnostic equipment, and will explore possibilities for expanding our business into areas besides diagnostic equipment.

 

With industrial equipment, we will accelerate development of next-generation OLED panel manufacturing equipment and promote development of new industrial equipment.

3. Reforming R&D operation in anticipation of industrial and social changes

 

 

We will take an approach to the theme of development, grouped into areas of initiatives related to enhancing existing businesses, initiatives aiming to commercialize opportunities in the near future, and initiatives over the medium to long term. Accordingly, we will strive to improve development productivity by forming a development framework that is tailored to each initiative.

 

We will expand and enhance our worldwide research into start-up companies that have substantial potential for growth drawing on their cutting-edge technologies and new business models.

(4) Status of Assets and Earnings

 

           
 

114th Business Term

(Jan. 1, 2014-Dec. 31, 2014)

115th Business Term

(Jan. 1, 2015-Dec. 31, 2015)

116th Business Term

(Jan. 1, 2016-Dec. 31, 2016)

117th Business Term

(Jan. 1, 2017-Dec. 31, 2017)

118th Business Term

(Jan. 1, 2018-Dec. 31, 2018)

 

Net Sales

(100 millions of yen)

 

37,273 38,003 34,015 40,800 39,519

 

Income before Income Taxes

(100 millions of yen)

 

  3,832   3,474   2,447   3,539   3,629

 

Net Income Attributable to Canon Inc.

(100 millions of yen)

 

  2,548   2,202   1,507   2,419   2,528

 

Basic Net Income Attributable to Canon Inc.

Shareholders Per Share

(yen)

 

229.03 201.65 137.95 222.88 234.09

 

Total Assets

(100 millions of yen)

 

44,606 44,278 51,385 51,983 48,995

 

Total Canon Inc. Shareholders’ Equity

(100 millions of yen)

 

29,782 29,664 27,831 28,706 28,276

Notes:

  1.  

Canon’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.

  2.  

Basic net income attributable to Canon Inc. shareholders per share is calculated based on the weighted average number of outstanding shares during the term.

 

 

 

23


(5) Main Activities

Canon Group is engaged in the development, manufacture and sales of the following products.

 

 

Operations

 

 

 

Main Products

 

    

  Office Business Unit

 

 

Office Multifunction Devices (MFDs), Laser Multifunction Printers (MFPs), Laser Printers, Digital Continuous Feed Presses, Digital Sheet-Fed Presses, 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 (CT) Systems, Magnetic Resonance Imaging (MRI) Systems, Diagnostic Ultrasound Systems, Clinical Chemistry Analyzers, Ophthalmic Equipment

 

   

  Industry and Others

  Business Unit

 

 

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

 

   

(6) Employees

 

 

Consolidated

 

          (Breakdown by Operation)

 

           
   

 

Number of Employees

 

       

Office Business Unit

 

Imaging System

Business Unit

 

Medical System

Business Unit

 

Industry and Others 

Business Unit

  Corporate
195,056 persons  

 

(Decrease of 2,720 persons

from the previous term)

 

 
            

 

    95,052 persons    

 

 

 

    53,049 persons    

 

 

 

    11,759 persons    

 

 

 

 

    26,763 persons    

 

 

 

      8,433 persons    

 

             

 

Non-Consolidated

 

                           
             

 

Number of Employees

 

               
25,891 persons  

 

(Decrease of 184 persons  

from the previous term)

 

           

(7) Major Lenders

 

 

Lenders

 

  

 

 

 

 

Funds Borrowed     

 

 

 

 

 

Mizuho Bank, Ltd.    

 

 

  

 

 

 

 

                         216.0 billion yen    

 

 

 

 

 

MUFG Bank, Ltd.    

 

  

 

 

 

 

                         144.0 billion yen    

 

 

 

 

 

 

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(8) Principal Subsidiaries

Subsidiaries

 

Company Name Capital Stock

 

    Ratio of Voting Rights    
of the Company (%)

 

Main Activities

Canon Marketing Japan Inc.

 

 

 

 

73,303    

millions of yen    

 

 

 

 

 

  58.5  

Domestic sale of business machines, cameras, etc.

Canon Electronics Inc.

 

 

 

 

4,969    

millions of yen    

 

 

 

 

 

  55.3  

Manufacture and sale of information related equipment and precision machinery units for cameras

Oita Canon Inc.

 

 

 

 

80    

millions of yen    

 

 

 

 

 

              100.0  

Manufacture of cameras

Canon U.S.A., Inc.

 

 

 

 

204,355    

thousands of U.S.$    

 

 

 

 

 

  100.0  

Sale of business machines, cameras, etc. in the Americas

Canon Europa N.V.

 

 

 

 

360,021    

thousands of Euro    

 

 

 

 

 

  100.0  

Sale of business machines, cameras, etc. in Europe

Canon Singapore Pte. Ltd.

 

 

 

 

7,000    

thousands of Singapore $    

 

 

 

 

 

  100.0  

Sale of business machines, cameras, etc. in Southeast Asia

Canon Vietnam Co., Ltd.

 

 

 

 

94,000    

thousands of U.S.$    

 

 

 

 

 

  100.0  

Manufacture of inkjet printers and laser printers

Canon Medical Systems Corporation

 

 

 

 

20,700    

millions of yen    

 

 

 

 

 

  100.0  

Development, manufacture, and sale of medical equipment

Canon Medical Systems USA, Inc.

 

 

 

 

262,250    

thousands of U.S.$    

 

 

 

 

 

  100.0  

Sale of medical equipment in the Americas

 

Notes:

  1.  

The ratios of the Company’s voting rights in Canon Marketing Japan Inc., Canon Europa N.V., Canon Medical Systems Corporation, and Canon Medical Systems USA, Inc. are calculated together with the number of voting rights held by subsidiaries of the Company.

  2.  

The status of the specified wholly-owned subsidiary as of the end of this term was as follows:

   

Name of specified wholly-owned subsidiary: Canon Medical Systems Corporation

   

Address of specified wholly-owned subsidiary: 1385 Shimoishigami, Otawara-shi, Tochigi Pref., JAPAN

   

Book value of shares of specified wholly-owned subsidiary at the Company and its wholly-owned subsidiaries: 665,498 million yen

   

Amount of total assets of the Company: 2,997,395 million yen

Consolidated Status

The number of consolidated subsidiaries was 379, and the number of affiliated companies accounted for by the equity method was 8 as of the end of this term.

(9) Canon Group Global Network

 

Major Domestic Bases

 

         

 

Canon Inc.

  

 

R&D, Manufacturing and Marketing

  

 

Manufacturing

  Headquarters [Tokyo]

  

Canon Electronics Inc. [Saitama Pref.]

  

Oita Canon Inc. [Oita Pref.]

  Kawasaki Office [Kanagawa Pref.]

  

Canon Finetech Nisca Inc. [Saitama Pref.]

  

Nagasaki Canon Inc. [Nagasaki Pref.]

  Ayase Plant [Kanagawa Pref.]

  

Canon Precision Inc. [Aomori Pref.]

  

Canon Chemicals Inc. [Ibaraki Pref.]

  Hiratsuka Plant [Kanagawa Pref.]

  

Canon Components, Inc. [Saitama Pref.]

  

Oita Canon Materials Inc. [Oita Pref.]

  Oita Plant [Oita Pref.]

  

Canon ANELVA Corporation [Kanagawa Pref.]

  

Fukushima Canon Inc. [Fukushima Pref.]

  Tamagawa Office [Kanagawa Pref.]

  

Canon Machinery Inc. [Shiga Pref.]

  

Nagahama Canon Inc. [Shiga Pref.]

  Kosugi Office [Kanagawa Pref.]

  Toride Plant [Ibaraki Pref.]

  Fuji-Susono Research Park [Shizuoka Pref.]

  Yako Office [Kanagawa Pref.]

  Utsunomiya Office [Tochigi Pref.]

  Ami Plant [Ibaraki Pref.]

  

Canon Tokki Corporation [Niigata Pref.]

  

Miyazaki Canon Inc. [Miyazaki Pref.]

  

Canon Medical Systems Corporation [Tochigi Pref.]

  

 

Marketing

     

Canon Marketing Japan Inc. [Tokyo]

     

Canon System & Support Inc. [Tokyo]

     

 

R&D

     

Canon IT Solutions Inc. [Tokyo]

     

 

 

 

25


Major Overseas Bases

 

    

 

Americas

Marketing

Canon U.S.A., Inc. [U.S.A.]

Canon Canada Inc. [Canada]

Canon Mexicana, S.de R.L. de C.V. [Mexico]

Canon do Brasil Indústria e Comércio Limitada [Brazil]

Canon Chile, S.A. [Chile]

Canon Medical Systems USA, Inc. [U.S.A.]

 

Manufacturing

Canon Virginia, Inc. [U.S.A.]

 

R&D

Canon Nanotechnologies, Inc. [U.S.A.]

 

Europe, Middle East, Africa

Marketing

Canon Europa N.V. [Netherlands]

Canon Europe Ltd. [U.K.]

Canon (UK) Ltd. [U.K.]

Canon France S.A.S. [France]

Canon Deutschland GmbH [Germany]

Canon Ru LLC [Russia]

Canon Middle East FZ-LLC [U.A.E.]

Canon South Africa (Pty) Ltd. [South Africa]

 

Manufacturing

Canon Giessen GmbH [Germany]

Canon Bretagne S.A.S. [France]

 

R&D

Canon Research Centre France S.A.S. [France]

 

R&D, Manufacturing and Marketing

Océ Holding B.V. [Netherlands]

Axis AB [Sweden]

  

 

Asia, Oceania

Marketing

Canon (China) Co., Ltd. [China]

Canon Hongkong Co., Ltd. [Hong Kong]

Canon Korea Consumer Imaging Inc. [South Korea]

Canon Singapore Pte. Ltd. [Singapore]

Canon India Pvt. Ltd. [India]

Canon Australia Pty. Ltd. [Australia]

 

Manufacturing

Canon Dalian Business Machines, Inc. [China]

Canon Zhuhai, Inc. [China]

Canon Zhongshan Business Machines Co., Ltd. [China]

Canon (Suzhou) Inc. [China]

Canon Inc., Taiwan [Taiwan]

Canon Hi-Tech (Thailand) Ltd. [Thailand]

Canon Vietnam Co., Ltd. [Vietnam]

Canon Opto (Malaysia) Sdn.Bhd. [Malaysia]

 

R&D

Canon Information Systems Research Australia Pty. Ltd. [Australia]

 

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2. Shares of the Company

 

Number of Shares Issuable            3,000,000,000 shares

Issued Shares, Capital Stock, Number of Shareholders

 

       
    

 

 

 

 

      As of the end of the      
Previous Term

 

 

 
 

 

  

 

 

 

 

  Change during This Term  

 

 

 

 

  

 

 

 

 

    As of the end of This Term  

 

 

 

 

     

 

Issued Shares (share)

 

  

 

 

 

 

1,333,763,464

 

 

 

 

  

 

 

 

 

0

 

 

 

 

  

 

 

 

 

1,333,763,464

 

 

 

 

     

 

Capital Stock (yen)

 

  

 

 

 

 

174,761,797,475

 

 

 

 

  

 

 

 

 

0

 

 

 

 

  

 

 

 

 

174,761,797,475

 

 

 

 

     

 

Number of Shareholders (person)

 

  

 

 

 

 

327,820

 

 

 

 

  

 

 

 

 

Increase of 75,482

 

 

 

 

  

 

 

 

 

403,302

 

 

 

 

Shareholding Ratio by Category

 

 

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Major Shareholders (Top ten shareholders)

 

     
Name of Shareholders  

 

        Number of Shares Held        
(thousands of shares)

 

 

 

        Shareholding Ratio        

        (%)        

 

 

 

The Master Trust Bank of Japan, Ltd. (Trust Account)

 

 

 

92,066

 

 

 

8.5

 

     

 

Japan Trustee Services Bank, Ltd. (Trust Account)

 

 

 

54,304

 

 

 

5.0

 

 

 

The Dai-ichi Life Insurance Company, Limited

 

 

 

28,685

 

 

 

2.7

 

     

 

Barclays Securities Japan Limited

 

 

 

26,000

 

 

 

2.4

 

 

 

Mizuho Bank, Ltd.

 

 

 

22,558

 

 

 

2.1

 

     

 

Japan Trustee Services Bank, Ltd. (Trust Account 5)

 

 

 

21,122

 

 

 

2.0

 

     

 

State Street Bank West Client - Treaty 505234

 

 

 

20,700

 

 

 

1.9

 

 

 

OBAYASHI CORPORATION

 

 

 

16,527

 

 

 

1.5

 

     

 

Moxley and Co. LLC

 

 

 

16,460

 

 

 

1.5

 

     

 

JPMorgan Chase Bank, N.A. 385151

 

 

 

15,603

 

 

 

1.4

 

 

Notes:

  1.  

Shareholding ratio is calculated by deducting the number of treasury shares (254,013 thousand shares) from total shares issued.

  2.  

With respect to The Dai-ichi Life Insurance Company, Limited, in addition to the above, there are 6,180 thousand shares of the Company’s stock included in trust property relating to retirement benefit trust.

  3.  

With respect to Mizuho Bank, Ltd., in addition to the above, there are 9,057 thousand shares of the Company’s stock included in trust property relating to retirement benefit trust.

 

 

 

27


3. Stock Acquisition Rights etc. of the Company

Stock Acquisition Rights etc. Delivered as Compensation for Execution of Duties That Are Held by the Directors of the Company as of the End of This Term

 

 

Name    

 

 

Number  

of Stock  

Acquisition  

Rights  

 

 

Class and Number of   

Shares to Be Acquired   

 

 

Price to Be Paid In   

(per Stock Acquisition   

Right)   

 

 

Exercise Price   

(per Share)   

 

 

Exercise Period    

 

 

Number of  
Holders  

 

 

Stock Acquisition  

Rights issued in  

May of 2018  

 

 

296  

 

 

Common stock  

29,600 shares  

 

 

294,800 yen  

 

 

1 yen  

 

 

May 2, 2018 to  

May 1, 2048  

 

 

5 persons  

 

Note: The Stock Acquisition Rights above are not allotted to Outside Directors and Audit & Supervisory Board Members.

Stock Acquisition Rights etc. Delivered During This Term to the Executive Officers of the Company as Compensation for Execution of Duties

 

 

Name    

 

 

Number  

of Stock  

Acquisition  

Rights  

 

 

Class and Number of   

Shares to Be Acquired   

 

 

Price to Be Paid In   

(per Stock Acquisition   

Right)   

 

 

Exercise Price   

(per Share)   

 

Exercise Period    

 

 

Number of  
Grantees  

 

 

Stock Acquisition  

Rights issued in  

May of 2018  

 

 

444  

 

 

Common stock  

44,400 shares  

 

 

294,800 yen  

 

 

1 yen  

 

 

May 2, 2018 to  

May 1, 2048  

 

 

28 persons  

 

Main Conditions for the Exercise of Stock Acquisition Rights Above

In principle,

 

  (i)

those to whom stock acquisition rights are allotted (the “Holder(s)”) shall be entitled to exercise all the stock acquisition rights together within 10 days (in case the last day is not a business day, the following business day) from the day immediately following the day when they cease to hold any position as a Director or an Executive Officer of the Company, and

  (ii)

in the event that the Company recognizes any violation of laws and regulations, misconduct of the duties, act conflicting with the duty of due care or duty of loyalty, or any other act equivalent thereto of the Holder, the Company may limit, subject to a resolution by the Board of Directors of the Company, the number of offered stock acquisition rights that may be exercised by such Holder.

 

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4. Directors and Audit & Supervisory Board Members

(1) Directors and Audit & Supervisory Board Members

 

 

Position

 

 

 

Name

 

 

 

Business in Charge or Important Concurrent Posts

 

Chairman

  Fujio Mitarai  

 

CEO

Audit & Supervisory Board Member of The Yomiuri Shimbun Holdings

 

President

 

 

Masaya Maeda

 

 

 

COO

 

Executive Vice President

  Toshizo Tanaka  

 

CFO

Group Executive of Finance & Accounting Headquarters,

Group Executive of Public Affairs Headquarters,

Group Executive of Facilities Management Headquarters

 

Executive Vice President

  Toshio Homma  

 

In charge of Office Business

Chief Executive of Office Imaging Products Operations

 

 

Executive Vice President

 

 

 

Shigeyuki Matsumoto

 

 

 

CTO

Group Executive of R&D Headquarters

 

Director

  Kunitaro Saida  

 

Attorney, Audit & Supervisory Board Member of NICHIREI CORPORATION, Director of Sumitomo Osaka Cement Co., Ltd., Director of HEIWA REAL ESTATE CO., LTD.

 

Director

  Haruhiko Kato  

 

President and CEO of Japan Securities Depository Center, Incorporated

 

 

Audit & Supervisory Board Member

 

 

 

Kazuto Ono

 

   

 

Audit & Supervisory Board Member

 

 

 

Masaaki Nakamura*

 

   

Audit & Supervisory Board Member

  Tadashi Ohe  

 

Attorney, Audit & Supervisory Board Member of Marui Group Co., Ltd., Director of Nissan Chemical Corporation

 

 

Audit & Supervisory Board Member

 

 

 

Hiroshi Yoshida

 

 

 

Certified Public Accountant

 

 

Audit & Supervisory Board Member

 

 

 

Koichi Kashimoto*

 

   

 

Notes:

  1.   Audit & Supervisory Board Members with “*” were newly elected at the Ordinary General Meeting of Shareholders for the 117th Business Term held on March 29, 2018, and assumed their office.
  2.   Directors Mr. Kunitaro Saida and Mr. Haruhiko Kato are Outside Directors defined by Item 15, Article 2 of the Corporation Law of Japan. Also, the Company has notified the above Outside Directors as independent directors to each stock exchange in Japan on which the Company is listed as provided under the regulations of each stock exchange.
  3.   Audit & Supervisory Board Members Mr. Tadashi Ohe, Mr. Hiroshi Yoshida and Mr. Koichi Kashimoto are Outside Audit & Supervisory Board Members defined by Item 16, Article 2 of the Corporation Law of Japan. Also, the Company has notified the above Outside Audit & Supervisory Board Members as independent auditors to each stock exchange in Japan on which the Company is listed as provided under the regulations of each stock exchange.
  4.   Audit & Supervisory Board Member Mr. Hiroshi Yoshida is qualified as a Certified Public Accountant and has a wealth of expertise in finance and accounting.
Additional Note for English Translation: Mr. Fujio Mitarai, Mr. Masaya Maeda, Mr. Toshizo Tanaka, Mr. Toshio Homma and Mr. Shigeyuki Matsumoto are Representative Directors.

(2) Remuneration and Other Amounts to Directors and Audit & Supervisory Board Members

 

Category of Position  

Number of Directors and    
Audit & Supervisory    
Board Members    

(persons)    

 

 

  Remuneration and Other Amounts by Classification    

(millions of yen)    

 

 

Remuneration and    

Other Amounts    

(millions of yen)    

  Basic Remuneration       Bonus      

 

Stock-Type Compensation    

Stock Options    

 

 

  Directors

 

 

 

7

 

 

 

833

 

 

 

113

 

 

 

88

 

 

 

1,034

 

 

    of which, Outside Directors

 

 

 

2

 

 

 

  48

 

 

 

–  

 

 

 

  –  

 

 

 

     48

 

 

  Audit & Supervisory Board Members

 

 

 

7

 

 

 

111

 

 

 

–  

 

 

 

  –  

 

 

 

   111

 

 

    of which, Outside Audit & Supervisory Board Members

 

 

 

4

 

 

 

  59

 

 

 

–  

 

 

 

  –  

 

 

 

     59

 

 

Notes:

  1.   The above numbers of Audit & Supervisory Board Members include two Audit & Supervisory Board Members (one of those two is an Outside Audit & Supervisory Board Member) who have retired at the conclusion of the Ordinary General Meeting of Shareholders for the 117th Business Term held on March 29, 2018.
  2.   “Bonus” represents the accrued director’s bonuses for this term.
  3.   In the column Stock-Type Compensation Stock Options, expenses for this term are presented.

 

 

 

29


(3) Outside Directors and Outside Audit & Supervisory Board Members

Relation Between Important Organization of Concurrent Posts and the Company

 

 

Name

 

 

 

Concurrent Post

 

 

 

Organization of Concurrent Post

 

 

 

Relation with the Company

 

Kunitaro Saida

 

 

Outside Audit & Supervisory Board Member

 

 

 

NICHIREI CORPORATION

 

 

 

No special relation

 

 

 

Outside Director

 

 

 

Sumitomo Osaka Cement Co., Ltd.

 

 

 

No special relation

 

 

 

Outside Director

 

 

 

HEIWA REAL ESTATE CO., LTD.

 

 

 

No special relation

 

 

Haruhiko Kato

 

 

President and CEO

 

 

 

Japan Securities Depository Center, Incorporated

 

 

 

No special relation

 

 

Tadashi Ohe

 

 

Outside Audit & Supervisory Board Member

 

 

 

Marui Group Co., Ltd.

 

 

 

No special relation

 

 

 

Outside Director

 

 

 

Nissan Chemical Corporation

 

 

 

No special relation

 

Principal Activities

 

     

 

Name

 

 

 

Principal Activities

 

    

 

Kunitaro Saida,

Outside Director

 

 

 

Attended all 11 of Board of Directors meetings held during this term, and provided input based on his experience and insight in the legal profession when necessary.

 

   

 

Haruhiko Kato,

Outside Director

 

 

 

Attended all 11 of Board of Directors meetings held during this term, and provided input based on his experience and insight in public finance, etc. when necessary.

 

   

 

Tadashi Ohe,

Outside Audit & Supervisory Board Member

 

 

 

 

Attended 10 out of 11 of Board of Directors meetings and all 21 of Audit & Supervisory Board meetings held during this term, and provided input based on his experience and insight as a legal expert when necessary.

 

   

Hiroshi Yoshida,

Outside Audit & Supervisory Board Member

 

 

Attended all 11 of Board of Directors meetings and all 21 of Audit & Supervisory Board meetings held during this term, and provided input based on his experience and insight as a Certified Public Accountant when necessary.

 

   

 

Koichi Kashimoto,

Outside Audit & Supervisory Board Member

 

 

 

Attended all 8 of Board of Directors meetings and all 16 of Audit & Supervisory Board meetings held during this term subsequent to his assumption of office in March 2018, and provided input based on his insight in business management when necessary.

 

   

Outline of Contracts for Limitation of Liability

Pursuant to the provision of Paragraph 1, Article 427 of the Corporation Law, the Company has entered into a contract with Outside Directors and Outside Audit & Supervisory Board Members which sets forth the limitation on their damage compensation liabilities resulting from negligence of the Director’s or Audit & Supervisory Board Member’s duty. The amount of the limitation on the damage compensation liabilities under the said contract shall be the amount provided by laws or ordinances.

 

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5. Accounting Auditor

(1) Name of Accounting Auditor

Ernst & Young ShinNihon LLC

 

Note:

 

On July 1, 2018, Ernst & Young ShinNihon LLC changed its Japanese corporate name from ShinNihon Yugen Sekinin Kansa Hojin to EY ShinNihon Yugen Sekinin Kansa Hojin but left its English name unchanged.

(2) Remuneration and Other Amounts to Accounting Auditor for This Term

 

          

 

Amount    

 

 

  (i)

 

 

   Remuneration and other amounts payable by the Company for the services defined in Paragraph 1, Article 2 of the Certified Public Accountants Act

 

      665 million yen    

 

  (ii)

 

 

   Total amount of cash and other financial benefits payable by the Company and its subsidiaries to the Accounting Auditor

 

   1,189 million yen    

 

Notes:    1.   

In the audit agreement between the Company and the Accounting Auditor, remuneration amounts are determined on a lump-sum without breakdown into a separate remuneration amount for auditing in accordance with the Corporation Law and in accordance with the Financial Instruments and Exchange Law. Accordingly, the amounts shown in (i) above represent total amounts of remuneration and other amounts for both of these auditing services.

   2.   

The Company pays remuneration to the Accounting Auditor for their advisory services in addition to the services defined in Paragraph 1, Article 2 of the Certified Public Accountants Act.

   3.   

Among the Company’s principal subsidiaries, Canon U.S.A., Inc., Canon Singapore Pte. Ltd. and Canon Medical Systems USA, Inc. are audited by Ernst & Young LLP, Canon Europa N.V. is audited by Ernst & Young Accountants LLP, and Canon Vietnam Co., Ltd. is audited by Ernst & Young Vietnam Limited.

   4.   

Reason that the Audit & Supervisory Board reached an agreement regarding the remuneration to Accounting Auditor:

The Audit & Supervisory Board has received necessary documents and reports from the Directors, related internal divisions, and the Accounting Auditor, as well as performing monitoring in accordance with the Sarbanes-Oxley Act of 2002, Article 202, in addition to confirming the audit plan, status of the performed audit for the previous term, and that the estimated remuneration is appropriate for the term. As a result, the Audit & Supervisory Board reached an agreement regarding the remuneration to Accounting Auditor, upon judging it to be a rational level for maintaining and improving audit quality.

(3) Policy Regarding Decision to Either Dismiss or Not Reappoint Accounting Auditor

The Audit & Supervisory Board, by unanimous agreement, as needed, will dismiss the Accounting Auditor when confirmed that the Accounting Auditor falls under any Item of Paragraph 1, Article 340 of the Corporation Law.

In addition to the above, should anything occur to negatively impact the qualifications or independence of the Accounting Auditor, making it unlikely that the Accounting Auditor will be able to properly perform an audit, the Audit & Supervisory Board will decide the contents of the item to be proposed at a General Meeting of Shareholders regarding the dismissal or refusal of reappointment of the Accounting Auditor.

 

 

 

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6. Systems Necessary to Ensure the Properness of Operations

The content of the resolution of the Board of Directors regarding the systems necessary to ensure the properness of the Company’s operations (basic policy) as well as the outline of activities for the aforementioned systems, are as follows:

 

 

 

 

 

Basic Policy Regarding Systems Necessary to Ensure the Properness of Operations (the “Internal Control System”)

 

 

Content of Basic Policy Resolution

To ensure the properness of operations and to work for continuous improvement in corporate value, Canon Inc. (the “Company”) and the enterprises consisting of the Company and its subsidiaries (the “Canon Group”), shall foster a sound corporate culture based on the Spirit of “Three Selfs” (Self-motivation, Self-management, and Self-awareness) – guiding principles dating back to the founding of the Company. The Canon Group shall also work to foster a law-abiding awareness through the “Canon Group Code of Conduct.” Furthermore, the Canon Group shall firmly strive to ensure management transparency through clearly defined approval processes and authorities of the CEO and Chief/Group Executives of the Company as well as executive officers of each subsidiary of the Company.

 

   
 

 

1.

 

 

System for Compliance
(Item 6, Paragraph 4, Article 362 of the Corporation Law, and Item 4, Paragraph 1, Article 100 of the Enforcement Regulations of the Corporation Law)

 

 

Content of Basic Policy Resolution

 
   

(1).

 

The Board of Directors, in accordance with regulations prescribed by the Board of Directors (the “Regulations of the Board of Directors”), shall make decisions on important Canon Group managerial matters after careful deliberation. Additionally, the Board of Directors shall have representative directors, executive directors and executive officers (collectively the “Officers”) give reports regarding their execution of duties.

 
   

(2).

 

The Board of Directors shall thoroughly instill compliance awareness through training and other programs geared towards new employees, managers, and newly-appointed board members and executive officers, utilizing the “Canon Group Code of Conduct,” prescribed by the Board of Directors as a standard to be adhered to in the execution of duties.

 
   

(3).

 

As a part of the Company’s risk management system, the Company shall put in place business procedures/checking systems that prevent violation of laws and regulations and the Company’s articles of incorporation in the course of daily business. It shall also maintain a compliance education system.

 
     

(4).

 

The internal audit division of the Company, which has the authority to audit the execution of duties by Officers and employees, shall also conduct audits regarding the status of compliance with laws and regulations and the Company’s articles of incorporation.

 
     

(5).

 

If an act that violates laws and regulations, or the Company’s articles of incorporation is discovered in the Canon Group, employees have the ability to anonymously report such fact to any director or officer, including outside directors and outside Audit & Supervisory Board Members by means of a whistleblowing system. Additionally, the Company shall prohibit any disadvantageous treatment of any whistleblower.

 

   
     

 

Outline of Activities

 
     

(1).

 

During the current business term, 11 Board of Directors meetings were held. At these meetings, in addition to deliberating and deciding on important matters, the Board of Directors received reports from Officers in charge of major divisions concerning the execution of business.

 
     

(2).

 

In addition to implementing compliance training that follows the Canon Group Code of Conduct, the Company established “Compliance Week”, an event held once every six months to provide an opportunity for discussion on familiar risks of law-and-regulation violations by each respective workplace.

 
     

(3).

 

The activity is described in (1), Outline of Activities, 2 below.

 
     

(4).

 

Supported by about 80 personnel, the internal audit division conducts audits of each division and subsidiary including in its scope of inquiry not only compliance but also the usefulness and efficiency of operations and matters concerning information security. The results of these audits are then reported to the CEO and the Audit & Supervisory Board, and when necessary, proposals for improvement are given.

 
           

(5).

 

The rules on use of the whistleblowing system, including the explicit prohibition of the disadvantageous treatment of whistleblowers, are disseminated via the intranets of the Company, along with information on the contact counter for reporting internal problems. In the current business term, there were no whistleblower reports relating to serious violations of laws and regulations, or the like.

 

   

 

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2.

 

 

System for Risk Management (Item 2, Paragraph 1, Article 100 of the Enforcement Regulations of the Corporation Law)

 

 

Content of Basic Policy Resolution

   
   

(1).

 

The Company established the Risk Management Committee in accordance with the “Regulations of Risk Management” prescribed by the Board of Directors. This Committee shall develop various measures with regard to improving the risk management system. These measures include the system for grasping any significant risks (violation of laws and regulations, inappropriate financial reporting, quality issues, work-related injuries, disasters etc.) that the Canon Group may face in the course of business. Additionally, in accordance with any action plan that is approved by the Board of Directors, this Committee shall evaluate the status of improvement and implementation of the risk management system and report its findings to the CEO and the Board of Directors.

 
   

(2).

 

The Company established the Corporate Strategy Committee in accordance with the “Regulations of the Corporate Strategy Committee” prescribed by the Board of Directors. Even if the authority to decide certain items is delegated from the Board of the Directors to the CEO, the Committee shall carefully deliberate those items in cases that are considered particularly important.

 

   
     

 

Outline of Activities

     

(1).

 

Established under the Risk Management Committee are the following three subcommittees: the Financial Risk Management Subcommittee, which is in charge of improving systems to ensure the reliability of financial reporting, the Compliance Subcommittee, which is in charge of improving systems to ensure compliance of corporate ethics and major laws and regulations, and the Business Risk Management Subcommittee, which is in charge of improving systems to manage quality risks, information leakage risks and other significant business risks. These subcommittees carried out evaluation based on their respective roles of the status of improvement and implementation of Canon Group’s risk management system in accordance with Canon Group Basic Policy on the Development of Risk Management System for 2018 stipulated by the Board of Directors. The result of such evaluation did not discover any major flaws in the system and the Risk Management Committee reported this to the CEO and the Board of Directors.

 
           

(2).

 

The Corporate Strategy Committee was held 9 times in the current business term. In addition to the Officers in charge of executing business operations, the Outside Directors and Audit & Supervisory Board Members also attended, as necessary, and provided opinions.

 

   
 

 

3.

 

 

System for Efficient Execution of Duties
(Item 3, Paragraph 1, Article 100 of the Enforcement Regulations of the Corporation Law)

 

 

Content of Basic Policy Resolution

   

(1).

 

Based on regulations regarding the division of duties and administrative authorities prescribed by the Board of Directors, the CEO and other Officers shall execute shared duties under the supervision and direction of the CEO.

 
   

(2).

 

The CEO shall formulate 5-year management goals (the “Excellent Global Corporation Plan”) and 3-year priority measures, contained in mid-term management plans. Based upon these plans, the CEO shall manage operations from a unified group approach.

 

   
     

 

Outline of Activities

     

(1).

 

The CEO and other Officers execute the duties allocated to them in accordance with the related regulations.

 
           

(2).

 

The CEO decides on a mid-term management plan, which is decided based on close discussions with Officers of the Company and the executive officers of the major subsidiaries in Japan and overseas, and ensures the cohesion of the Group’s corporate management.

 

   

 

 

 

33


   

 

4.

 

 

System for Group Management
(Item 5, Paragraph 1, Article 100 of the Enforcement Regulations of the Corporation Law)

 

 

Content of Basic Policy Resolution

   

The Company strengthens the internal control system of the Canon Group by requiring subsidiaries to follow the respective items:

 
   

(a).

 

to obtain prior approval from the Company or report to the Company important decisions in accordance with the “Regulations of Group Companies Management,” prescribed by the Board of Directors of the Company,

 
     

(b).

 

to grasp significant risks that the subsidiary may face in the course of business and to verify and evaluate the status of improvement and implementation of the risk management system and report their findings to the Company in accordance with the “Regulations of Risk Management”,

 
     

(c).

 

to design an appropriate organization under the governing law of incorporation and to clearly define approval processes and authorities of executive officers,

 
     

(d).

 

in addition to thoroughly instilling compliance awareness through the Canon Group Code of Conduct, to put in place business procedures/checking systems that prevent violation of laws and regulations and subsidiaries’ articles of incorporation in the course of daily business and prepare a compliance education system as a part of the subsidiary’s risk management system, and

 
     

(e).

 

 

to establish a whistleblowing system and prohibit any disadvantageous treatment of any whistleblower.

 

   
     

 

Outline of Activities

   

(a).

 

The Company received reports from subsidiaries and provided prior approval to subsidiaries in accordance with the “Regulations of Group Companies Management”.

 
   

(b).

 

In order to conduct evaluation of the status of improvement and implementation of the risk management system described in (1), Content of Basic Policy Resolution, 2 above, the subsidiaries being evaluated implemented evaluation of the respective targeted risks.

 
     

(c).

 

Each subsidiary performs, as appropriate, a review of the appropriateness of organizational design, and approval criteria and processes in accordance with the applicable laws and regulations and the nature of business and other factors.

 
     

(d).

 

In addition to the activities of (1), Outline of Activities, 2 above, each subsidiary conducts training and discussion as necessary and ensures utmost compliance.

 
           

(e).

 

Each company establishes a whistleblowing system and totally prohibits any disadvantageous treatment of any whistleblower.

 

   
 

 

5.

 

 

System for Storing and Managing Information
(Item 1, Paragraph 1, Article 100 of the Enforcement Regulations of the Corporation Law)

 

 

Content of Basic Policy Resolution

   

Information related to the execution of duties of Officers, including meeting minutes of the Board of Directors and settlement documents, shall be maintained and managed by respective divisions in charge of such management in accordance with laws and regulations, the “Regulations of the Board of Directors,” and other related rules. Directors, Audit & Supervisory Board Members, and members of the internal audit division have the ability to inspect this information at anytime.

 

   
       

 

Outline of Activities

       

Whenever deemed necessary, Directors, Audit & Supervisory Board Members and members of the internal audit division peruse or obtain copies of meeting minutes of the Board of Directors and the Corporate Strategy Committee, and other records such as settlement documents of the CEO.

 

   

 

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6.

 

 

System for Auditing by Audit & Supervisory Board Members (Paragraph 3, Article 100 of the Enforcement Regulations of the Corporation Law)

 

 

Content of Basic Policy Resolution

   

(1).

 

The Company established and assigns dedicated full-time employees of an appropriate number to the Office of Audit & Supervisory Board Members. The Office of Audit & Supervisory Board Members is established as an independent entity that is outside the control of Officers. Any change in dedicated full-time employee personnel shall require the prior consent of the Audit & Supervisory Board.

 
     

(2).

 

Audit & Supervisory Board Members shall grasp the execution of duties by Officers, attending not only meetings of the Board of Directors, but also other important meetings such as meetings of the Corporate Strategy Committee and Risk Management Committee.

 
     

(3).

 

The administrative divisions of the headquarters, such as human resources, finance & accounting, and legal affairs, shall hold meetings with Audit & Supervisory Board Members and report on the execution of duties in a timely manner. Additionally, if any material breach of laws and regulations occurs, the relevant division shall immediately report this to Audit & Supervisory Board Members.

 
     

(4).

 

Audit & Supervisory Board Members shall have accounting auditors periodically give reports.

 
     

(5).

 

Audit & Supervisory Board Members shall hold periodic meetings with counterparts of domestic subsidiaries of the Company and work to improve the auditing system from a unified group perspective by sharing information. Additionally, Audit & Supervisory Board Members shall grasp the execution of duties by Officers of subsidiaries, sharing responsibility for the auditing of major subsidiaries in and outside Japan.

 
     

(6).

 

The Company prohibits any disadvantageous treatment of any person that reports to Audit & Supervisory Board Members. The Company also seeks its subsidiaries to prohibit any disadvantageous treatment.

 
     

(7).

 

The Audit & Supervisory Board shall draw up an annual audit plan and an annual budget covering the audit of the Company and its subsidiaries. And the Company shall secure necessary funds for the annual budget. When an outlay outside the budget is incurred, due to a special audit etc., the expense shall be reimbursed by the Company.

 

   
     

 

Outline of Activities

   

(1).

 

The Company established the Office of Audit & Supervisory Board Members to be independent from the directives and commands of Officers and it assigns dedicated full-time employee(s). If necessary, Audit & Supervisory Board Members may give an order for an investigation to the administrative divisions etc. of the headquarters.

 
     

(2).

 

Audit & Supervisory Board Members, including Outside Audit & Supervisory Board Members, in addition to attending almost all the Board of Directors meetings, also attend the Corporate Strategy Committee meetings and the Risk Management Committee as necessary.

 
     

(3).

 

The managers in charge of the administrative divisions of the headquarters, in principle meet with full-time Audit & Supervisory Board Members monthly and report the status of execution of duties. In addition, the internal audit division reports the results of audits to the CEO and Audit & Supervisory Board Members.

 
     

(4).

 

Audit & Supervisory Board Members, in addition to periodically receiving reports from the Accounting Auditor on the results of the audit of the business term in accordance with laws and regulations, they also hold hearings with the Accounting Auditor to inquire on the status of audits as necessary.

 
     

(5).

 

Audit & Supervisory Board Members, as necessary, held meetings with audit & supervisory board members of domestic subsidiaries and shared information. In addition, at the time of visiting audits at subsidiaries, Audit & Supervisory Board Members received reports from the Directors of subsidiaries and shared information with audit & supervisory board members of the subsidiaries.

 
     

(6).

 

In addition to (5), Outline of Activities, 1 above, information is disseminated concerning the prohibition of disadvantageous treatment of any person that reports to Audit & Supervisory Board Members.

 
           

(7).

 

In the current business term, there were no shortfalls in the budget allocated for the implementation of audits in accordance with the audit plan.

 

   

 

 

 

 

35


CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Balance Sheets

     (Millions of yen)  
     

 

    As of Dec. 31,       
2018   

 

    

 

    As of Dec. 31,    
2017

 

 

 

ASSETS

     

Current assets:

     

Cash and cash equivalents

     520,645        721,814  

Short-term investments

     956        1,965  

Trade receivables, net

     612,953        650,872  

Inventories

     611,281        570,033  

Prepaid expenses and other current assets

 

    

 

304,346

 

 

 

    

 

287,965

 

 

 

Total current assets

     2,050,181        2,232,649  

Noncurrent receivables

     18,230        35,444  

Investments

     42,556        48,320  
Property, plant and equipment, net      1,090,992        1,126,620  

Intangible assets, net

     391,021        420,972  

Goodwill

     908,511        936,722  

Other assets

     397,974        397,564  

    

    

     

    

     

    

     

    

    

     

    

    

     

    

    

     

    

     

    

    

    

     

    

     

    

     

    

     

    

     

    

 

     
     

Total assets

 

    

 

4,899,465

 

 

 

    

 

5,198,291

 

 

 

 

     

 

    As of Dec. 31,       
2018   

 

    

 

    As of Dec. 31,    
2017

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term loans and current portion of long-term debt

     38,527        39,328  

Trade payables

     352,489        380,654  

Accrued income taxes

     41,264        77,501  

Accrued expenses

     321,137        330,188  

Other current liabilities

    

 

276,237

 

 

 

    

 

281,809

 

 

 

Total current liabilities

     1,029,654        1,109,480  
Long-term debt, excluding current installments      361,962        493,238  
Accrued pension and severance cost      382,789        365,582  

Other noncurrent liabilities

 

    

 

107,147

 

 

 

    

 

133,816

 

 

 

Total liabilities

     1,881,552        2,102,116  
Commitments and contingent liabilities      

Equity:

     
Canon Inc. shareholders’ equity:      

Common stock

     174,762        174,762  

[Authorized shares] (share)

     [3,000,000,000      [3,000,000,000

[Issued shares] (share)

     [1,333,763,464      [1,333,763,464

Additional paid-in capital

     404,389        401,386  

Legal reserve

     67,116        66,879  

Retained earnings

     3,508,908        3,429,312  

Accumulated other comprehensive income (loss)

     (269,071      (143,228

Treasury stock, at cost

     (1,058,502      (1,058,481

[Treasury shares] (share)

 

    

 

[254,013,641

 

 

    

 

[254,007,681

 

 

Total Canon Inc. shareholders’ equity      2,827,602        2,870,630  

Noncontrolling interests

 

    

 

190,311

 

 

 

    

 

225,545

 

 

 

 

Total equity

 

  

 

 

 

 

3,017,913

 

 

 

 

  

 

 

 

 

3,096,175

 

 

 

 

Total liabilities and equity

 

    

 

4,899,465

 

 

 

    

 

5,198,291

 

 

 

 

 

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36

 


Consolidated Statements of Income

  (Millions of yen)

 

     

 

Year ended
    Dec. 31, 2018    

 

   

Year ended

    Dec. 31, 2017    

 

 

 

Net sales

  

 

 

 

3,951,937

 

 

 

 

 

 

4,080,015

 

 

Cost of sales

 

    

 

2,116,383

 

 

 

   

 

2,089,461

 

 

 

   

Gross profit

     1,835,554       1,990,554  

Operating expenses:

    
   

Selling, general and administrative expenses

     1,176,760       1,301,666  
   

Research and development expenses

     315,842       333,371  
   

Impairment losses on goodwill

 

    

 

-

 

 

 

   

 

33,912

 

 

 

       
            

 

 

 

 

1,492,602

 

 

 

 

 

 

 

 

 

1,668,949

 

 

 

 

   

Operating profit

     342,952       321,605  

Other income (deductions):

    
   

Interest and dividend income

     6,604       6,012  
   

Interest expense

     (797     (818)  
   

Other, net

 

    

 

14,133

 

 

 

   

 

27,085

 

 

 

     
            

 

 

 

 

19,940

 

 

 

 

 

 

 

 

 

32,279

 

 

 

 

   

Income before income taxes

     362,892       353,884  

Income taxes

 

    

 

96,150

 

 

 

   

 

98,024

 

 

 

   

Consolidated net income

     266,742       255,860  

Less: Net income attributable to noncontrolling interests

 

    

 

13,987

 

 

 

   

 

13,937

 

 

 

       

Net income attributable to Canon Inc.

 

    

 

252,755

 

 

 

   

 

241,923

 

 

 

 

 

 

 

 

 

Notes to Consolidated Balance Sheet
<Notes to Consolidated Balance Sheet as of December 31, 2018>
1.   Allowance for doubtful receivables:   11,477 million yen
2.   Accumulated depreciation:   2,671,922 million yen
3.  

Accumulated other comprehensive income (loss) includes foreign currency translation adjustments, net unrealized gains and losses on securities, net gains and losses on derivative financial instruments and pension liability adjustments.

4.   Collateral assets:   125 million yen
5.   Guarantee obligations for bank loans and others:   4,458 million yen
<Note to Per Share Information as of December 31, 2018>
  Canon Inc. shareholders’ equity per share   2,618.76 yen
Note to Consolidated Statement of Income
<Note to Per Share Information for the year ended December 31, 2018>
  Net income attributable to Canon Inc. shareholders per share
    Basic   234.09 yen
    Diluted   234.08 yen

 

 

 

 

37


Consolidated Statement of Equity

 

   

(Millions of yen)

 

 
   

 

 

 

  Common  
stock

 

 
 

 

 

 

 

  Additional  
paid-in
capital

 

 
 
 

 

 

 

 

Legal
    reserve    

 

 
 

 

 

 

 

Retained
  earnings  

 

 
 

 

 

 


 

 

Accumulated
other
  comprehensive  
income (loss)

 

 

 
 
 
 

 

 

 

 

 

  Treasury  

stock

 

 

 

 

 

 



 

 

Total

Canon Inc.
  shareholders’  
equity

 

 

 

 
 
 

 

 

 

 

 

  Noncontrolling  
interests

 

 
 

 

 

 

 

  Total equity  

 

 

 

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  

 

Cumulative effects of accounting standard update—
adoption of ASU No.2014-09

 

                            (106                     (106     (76     (182

 

Cumulative effects of accounting standard update—
adoption of ASU No. 2016-01

 

                            5,343      
(5,343

            -       -       -  

 

Equity transactions with noncontrolling interests and other

 

            3,003                       (4,200             (1,197     (36,518     (37,715

 

Dividends to Canon Inc. shareholders

 

                            (178,159                     (178,159             (178,159

 

Dividends to noncontrolling interests

 

                                                            (5,558     (5,558

 

Transfers to legal reserve

 

                    237       (237                     -               -  

 

Comprehensive income:

 

                                                                       
     

 

Net income

 

                            252,755                       252,755       13,987       266,742  
   

 

Other comprehensive income (loss), net of tax:

 

                                                                       

   

       

 

Foreign currency translation adjustments

 

                                    (89,823             (89,823     (3,323     (93,146
       

 

Net unrealized gains and losses on securities 

 

                                    (141             (141     -       (141
       

 

Net gains and losses on derivative instruments

 

                                    488               488       -       488  
       

 

Pension liability adjustments

 

                                    (26,824             (26,824     (3,746     (30,570

 

Total comprehensive income (loss)

 

                                                    136,455       6,918       143,373  

 

Repurchases of treasury stock

 

                                            (25     (25             (25

 

Reissuance of treasury stock

 

          0         4       4         4  

 

Balance at December 31, 2018

 

    174,762       404,389       67,116       3,508,908       (269,071     (1,058,502     2,827,602       190,311       3,017,913  

 

LOGO

 

38

 


Notes to Consolidated Financial Statements

 

<Notes to Basic Significant Matters Regarding Preparation of Consolidated Financial Statements>

Significant Accounting Policies

1. Group Position

The number of consolidated subsidiaries was 379, and the number of affiliated companies accounted for by the equity method was 8 as of December 31, 2018.

2. Basis of Presentation

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) pursuant to the provision of paragraph 1, Article 120-3 of the Company Accounting Regulations. However, certain disclosures required under US GAAP are omitted pursuant to the provision of the latter part of paragraph 1, Article 120, as applied mutatis mutandis pursuant to paragraph 3, Article 120-3.

3. Cash Equivalents

All highly liquid investments acquired with an original maturity of three months or less are considered to be cash equivalents.

4. Translation of Foreign Currencies

Assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the balance sheet date. Exchange differences are charged or credited to income. Assets and liabilities of subsidiaries located outside Japan are translated into Japanese yen at the rates of exchange in effect at the balance sheet date and income and expense items are translated at the average exchange rates prevailing during the year. The resulting translation adjustments are reported in other comprehensive income (loss).

5. 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 the first-in, first-out method for overseas inventories.

6. Investments

Canon accounts for its equity investments that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes in the fair value recognized in net income. Realized gains and losses are determined on the average cost method.

7. Property, Plant and Equipment

Property, plant and equipment are depreciated principally by the declining-balance method.

8. Goodwill and Other Intangible Assets

Goodwill and other intangible assets with indefinite useful lives are not amortized, but are instead tested for impairment at least annually in the fourth quarter of each year, or more frequently if indicators of potential impairment exist. Intangible assets with finite useful lives are amortized over the respective estimated useful lives. Software, patents and developed technology, and customer relationships are amortized using the straight-line method over the estimated useful lives, which range primarily from 3 years to 7 years for software, 7 years to 17 years for patents and developed technology and 11 years to 15 years for customer relationships.

9. Impairment of Long-Lived Assets

Long-lived assets, such as property, plant and equipment, and acquired intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

10. Basis of Recording Allowances

(Allowance for doubtful receivables)

An allowance for doubtful receivables is provided based on credit loss history and an evaluation of any specific doubtful receivables.

(Accrued pension and severance cost)

Pension and severance cost is accrued based on the projected benefit obligations and the fair value of plan assets at the balance sheet date. Unrecognized actuarial loss is recognized by amortizing a portion in excess of a corridor (i.e., 10% of the greater of the projected benefit obligations or the fair value of plan assets) using the straight-line method over the average remaining service period of employees. Unrecognized prior service cost or credit is amortized using the straight-line method over the average remaining service period of employees.

11. Taxes Collected from Customers

Taxes collected from customers and remitted to governmental authorities are excluded from revenues, cost and expenses in consolidated statements of income.

 

 

 

 

39


12. 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.

13. 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 by the weighted-average number of common shares outstanding during each year. Diluted net income attributable to Canon Inc. shareholders per share includes the effect from potential issuance of common stock based on the assumption that all stock options were exercised.

<Notes to Changes in Accounting Policies>

In May 2014, the Financial Accounting Standards Board (“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. Canon adopted this guidance from the fiscal year. Canon applied the modified retrospective method of adoption to contracts that were not completed as of the adoption. The cumulative-effects to the retained earnings and the impact on the consolidated result of operations in the fiscal year from the adoption of this standard were not material. In addition, in conjunction with the adoption of this standard, Canon has reconsidered the scope of performance obligations related to services, and as a result, certain costs related to service were also reclassified from operating expenses to cost of sales. The reclassified amount for the fiscal year was ¥115,700 million.

In January 2016, the FASB issued an amendment which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This guidance 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. Canon adopted this guidance from the fiscal year, and Canon recognized a cumulative-effect adjustment to retained earnings of ¥5,343 million as of January 1, 2018 for the after-tax unrealized gains of available-for-sale equity securities previously recognized in accumulated other comprehensive income.

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 pertinent 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 retrospectively for the presentation of the service cost component and the other components of net benefit cost, and prospectively for the capitalization of the service cost component of net benefit cost. Canon adopted this guidance from the fiscal year and the adoption of this standard resulted in the decrease in operating profit and the increase in other income of ¥9,874 million and ¥16,684 million for the fiscal years ended December 31, 2017 and 2018, respectively.

<Notes to Financial Instruments>

1. Status of Financial Instruments

Canon invests in highly safe and short-term financial instruments.

Canon has certain financial instruments such as trade receivables and securities. Canon reduces the customer credit risk related to trade receivables in accordance with its credit management policy. At December 31, 2018, a major customer accounted for approximately 12% of consolidated trade receivables. Securities consist primarily of equity securities of the companies with which Canon has a business relationship. Derivative financial instruments are comprised principally of foreign exchange contracts to reduce the risk. Canon does not hold or issue derivative financial instruments for trading and speculative purposes.

2. Fair Value of Financial Instruments

The estimated fair values of Canon’s financial instruments as of December 31, 2018 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 following summary excludes non-marketable equity securities without readily determinable fair value at cost (balance sheet amount ¥4,629 million).

 

 

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40

 


(Millions of yen)

     Carrying 
amount
     Estimated 
fair value
     Difference   

Securities

    15,455         15,455         -     

Long-term debt, including current portion

    (364,602)        (364,570)        32     

Foreign exchange contracts:

     

      Assets

    3,143         3,143         -     

      Liabilities

    (766)        (766)        -     

The following methods and assumptions are used to estimate the fair value in the above table.

Securities

Securities are recorded at fair value.

Long-term debt

The fair values of Canon’s long-term debt instruments are 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.

Foreign exchange contracts

The fair values of foreign exchange contracts are measured 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.

<Note to Real Estate for Rent and Others>

There was no significant item.

<Note to Revenue Recognition>

Canon generates revenue principally through the sale of office, imaging system and medical system products, industrial equipment, supplies and related services under separate contractual arrangements. Revenue is recognized when, or as, control of promised goods or services transfers to customers in an amount that reflects the consideration to which Canon expects to be entitled in exchange for transferring these goods or services. Revenue from sales of office products and imaging system products is recognized upon shipment or delivery, depending upon when the customer obtains controls of these products. Revenue from sales of equipment that are sold with customer acceptance provisions related to their functionality including optical equipment and certain medical equipment is recognized when the equipment is installed at the customer site and the agreed-upon specifications are objectively satisfied. In addition, service revenue primarily generated from maintenance service contract is recognized on overtime as it satisfies the underlying performance obligation.

 

 

 

 

41


FINANCIAL STATEMENTS

Balance Sheets

    

 

As of Dec. 31,
2018

 

   

 

As of Dec. 31,
2017

 

 

 

ASSETS

                      

Current assets

    789,592       894,879  

Cash and deposits

    54,600       98,704  

Notes receivable

    722       3,934  

Accounts receivable

    394,949       458,010  

Finished goods

    90,279       84,616  

Work in process

    78,382       68,536  

Raw materials and supplies

    7,485       8,355  

Short-term loans receivable

    89,818       94,333  

Other current assets

    73,357       78,391  

Fixed assets

    2,207,803       2,191,487  

Property, plant and equipment, net

    598,198       611,753  

Buildings

    350,183       375,290  

Machinery

    45,628       51,651  

Vehicles

    377       222  

Tools and equipment

    14,604       13,962  

Land

    148,863       148,757  

Construction in progress

    38,543       21,871  

Intangible fixed assets

    19,270       23,188  

Software

    18,727       22,532  

Other intangibles

    543       656  

Investments and other assets

    1,590,335       1,556,546  

Investment securities

    5,321       9,882  

Investments in affiliated companies

    1,514,058       1,465,209  

Long-term pre-paid expenses

    15,049       13,430  

Prepaid pension cost

    3,156       -  

Deferred tax assets-noncurrent

    49,853       54,050  

Guarantees

    484       508  

Other noncurrent assets

    2500       13,544  

Allowance for doubtful receivables-noncurrent

 

   

 

(86

 

 

   

 

(77

 

 

     

 

Total assets

 

 

 

 

 

 

2,997,395

 

 

 

 

 

 

 

 

 

3,086,366

 

 

 

 

(Millions of yen)

 

    

 

As of Dec. 31,
2018

 

   

 

As of Dec. 31,
2017

 

 

 

LIABILITIES AND NET ASSETS

                      

Current liabilities

    1,123,318       1,109,095  

Notes payable

    367       419  

Electronically recorded obligations-operating

    30,057       31,352  

Accounts payable

    296,304       277,141  

Short-term loans payable

    655,540       620,495  

Other payables

    45,648       28,335  

Accrued expenses

    36,936       38,719  

Accrued income taxes

    8,932       47,960  

Deposits

    8,627       10,045  

Accrued warranty expenses

    4,959       3,657  

Accrued bonuses for employees

    4,832       5,777  

Accrued directors’ bonuses

    113       112  

Other current liabilities

    31,003       45,083  

Noncurrent liabilities

    384,762       516,907  

Long-term loans payable

    360,000       490,000  

Accrued pension and severance cost

    20,430       22,706  

Reserve for environmental provision

    1,312       1,375  

Accrued long service rewards for employees

    1,498       1,558  

Other noncurrent liabilities

 

   

 

1,522

 

 

 

   

 

1,268

 

 

 

     

Total liabilities

 

   

 

1,508,080

 

 

 

   

 

1,626,002

 

 

 

Shareholders’ equity

    1,487,857       1,457,117  

Common stock

    174,762       174,762  

Capital surplus

    306,288       306,288  

Additional paid-in capital

    306,288       306,288  

Retained earnings

    2,065,309       2,034,548  

Legal reserve

    22,114       22,114  

Other retained earnings

    2,043,195       2,012,434  

Reserve for special depreciation

    50       94  

Reserve for deferral of capital gain on property

    3,887       3,998  

Special reserves

    1,249,928       1,249,928  

Retained earnings brought forward

    789,330       758,414  

Treasury stock

    (1,058,502     (1,058,481
Valuation and translation adjustments     1,240       3,247  

Net unrealized gains (losses) on securities

    840       3,462  

Net deferred gains (losses) on hedges

    400       (215

Subscription rights to shares

 

   

 

218

 

 

 

   

 

-

 

 

 

Total net assets

 

   

 

1,489,315

 

 

 

   

 

1,460,364

 

 

 

     

 

Total liabilities and net assets

 

 

 

 

 

 

2,997,395

 

 

 

 

 

 

 

 

 

3,086,366

 

 

 

 

 

 

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42

 


Statements of Income

 

  

(Millions of yen)

 

    

 

Year ended
Dec. 31, 2018

 

   

 

Year ended
Dec. 31, 2017

 

 
     

 

 Net sales

 

 

 

 

1,822,782

 

 

 

 

 

 

1,930,064

 

 

Cost of sales

 

   

 

1,299,705

 

 

 

   

 

1,340,251

 

 

 

 

 Gross profit

 

 

 

 

523,077

 

 

 

 

 

 

589,813

 

 

Selling, general and administrative expenses

 

   

 

391,417

 

 

 

   

 

410,363

 

 

 

 

 Operating profit

 

 

 

 

 

 

131,660

 

 

 

 

 

 

 

 

 

179,450

 

 

 

 

 

 Other income

 

 

 

 

152,023

 

 

 

 

 

 

118,023

 

 

 

Interest income

 

 

 

 

2,072

 

 

 

 

 

 

1,281

 

 

Dividend income

    115,031       83,400  

Rental income

    25,574       27,637  

Miscellaneous income

    9,346       5,705  

 Other expenses

    35,053       36,111  

Interest expense

    5,424       4,026  

Depreciation of rental assets

    22,489       24,426  

Foreign exchange loss

    622       3,796  

Miscellaneous loss

 

   

 

6,518

 

 

 

   

 

3,863

 

 

 

 

 Ordinary profit

 

 

 

 

 

 

248,630

 

 

 

 

 

 

 

 

 

261,362

 

 

 

 

 Non-ordinary income

    330       15,099  

Gain on sales of fixed assets

    123       701  

Gain on sales of investment securities

    207       100  

Gain on reversal of subscription rights to shares

    -       466  

Gain on securities contributed to retirement benefit trust

    -       13,832  

 Non-ordinary loss

    3,250       2,892  

Loss on sales and disposal of fixed assets

    2,278       2,892  

Loss on sales investment securities

    26       -  

Loss on valuation of investment securities

 

   

 

946

 

 

 

   

 

-

 

 

 

 

 Income before income taxes

 

 

 

 

245,710

 

 

 

 

 

 

273,569

 

 

Income taxes - Current

    31,677       49,287  

- Deferred

 

   

 

5,112

 

 

 

   

 

(747

 

 

 

 Net income

 

 

 

 

 

 

208,921

 

 

 

 

 

 

 

 

 

225,029

 

 

 

 

 

 

 

 

 

 

Notes to Balance Sheet

 

<Notes to Balance Sheet as of December 31, 2018>

 

1. Accumulated depreciation of property, plant and equipment

 

       1,484,557 million yen  

2.

 

Guarantees

  
 

Mortgage bank loans for employees

     1,847 million yen  

3.

 

Receivable and Payable for affiliated companies

  
 

Receivables

     494,506 million yen  
 

Payables

     943,969 million yen  

4.

 

Plan assets in the retirement benefit trust that are offset with the accrued pension and severance cost are as follows:

 

 

Severance pay plan

 

 

Accrued pension and

serverance cost before

deduction of plan assets

36,298 million yen

  

 

 

 

 

      Plan assets in the

retirement benefit trust

 

15,868 million yen

 

 

 

 

 

5.

 

Plan assets in the retirement benefit trust that are added to the prepaid pension cost are as follows:

 

Corporate pension plan

 

 

Accrued pension and

serverance cost before

deduction of plan assets

35,988 million yen

  

 

 

 

 

      Plan assets in the

retirement benefit trust

 

39,144 million yen

 

 

 

 

 

<Note to Per Share Information as of December 31, 2018>

 

 

  Net assets per share

     1,379.11 yen  
Notes to Statement of Income   
<Notes to Statement of Income for the year ended December 31, 2018>

 

 

Transactions with affiliated companies

  
 

Sales

     1,647,217 million yen  
 

Purchase

     1,268,833 million yen  

    

 

Other transactions

     154,644 million yen  
<Note to Per Share Information for the year ended December 31, 2018>

 

 

  Net income per share

     193.49 yen  
 

 

 

 

43


Statement of Changes in Net Assets

   (Millions of yen)

 

               Shareholders’ equity            

   Valuation and 

   translation adjustments 

   

 

   Subscription  

   rights to  

   shares  

   

 

   Total  

   net  

   assets  

 
           

 

   Common  

   stock  

 

       Capital 
   surplus 
    Retained earnings    

 

   Treasury  

   stock  

   

 

   Total  

   shareholders’  

   equity  

   

   Net  

   unrealized  

   gains  

   (losses)  

   on  

   securities  

 

   

   Net  

   deferred  

   gains  

   (losses)  

   on hedges  

 

 
           

   Additional  

   paid-in  

   capital  

   

   Legal  

   reserve  

    Other retained earnings  
           

   Reserve  

   for  

   special  

   depreciation  

   

   Reserve for  

   deferral of  

   capital gain  

   on property  

   

   Special  

   reserves  

   

   Retained  

   earnings  

   brought  

   forward  

 

Balance at the beginning of current period

    174,762       306,288       22,114       94       3,998       1,249,928       758,414       (1,058,481     1,457,117       3,462       (215     -       1,460,364  

Changes of items during the period

                         
    Transfer to reserve for special depreciation                             1                       (1             -                               -  
    Reversal of reserve for special depreciation                             (45                     45               -                               -  
    Transfer to reserve for deferral of capital gain on property                                     29               (29             -                               -  
    Reversal of reserve for deferral of capital gain on property                                     (140             140               -                               -  
    Dividends paid                                                     (178,159             (178,159                             (178,159
    Net income                                                     208,921               208,921                               208,921  
    Purchase of treasury stock                                                             (25     (25                             (25
    Disposal of treasury stock                                                     (1     4       3                               3  
        Net changes of items other than shareholders’ equity                                                                     -       (2,622     615       218       (1,789

 

Total changes of items during the period

 

    -       -       -       (44     (111     -       30,916       (21     30,740       (2,622     615       218       28,951  

 

Balance at the end of current period

 

    174,762       306,288       22,114       50       3,887       1,249,928       789,330       (1,058,502     1,487,857       840       400       218       1,489,315  

 

<Notes to Statement of Changes in Net Assets>        
1. Number of issued shares as of December 31, 2018        1,333,763,464 shares        
2. Classes and shares of treasury stock

 

      

(Shares)

 

 

Classes of stock

 

 Balance at the beginning  

 of current period 

   Increase     Decrease     Balance at the end of
current period 
 

Common stock

  254,007,681   6,875   915   254,013,641

(Reason for change)

The increase of 6,875 shares reflects the purchase of shares less-than-one-unit, requested by shareholders.

The decrease of 915 shares reflects the sale of shares less-than-one-unit, requested by shareholders.

3. Payment for dividends

(1) Amount of dividends paid

 

  Decision                  Classes of stock                

Cash dividend

(Millions of yen)

 

Dividend per share

(yen)

  Record date   Effective date    
 

March 29, 2018 Ordinary general meeting of shareholders  

 

  Common stock   91,779   85.00   December 31, 2017   March 30, 2018    
 

July 26, 2018 Board of directors’ meeting

 

  Common stock   86,380   80.00   June 30, 2018   August 27, 2018    
 

 

(2) Dividends whose record date is included in the current fiscal year and effective date is after the current fiscal year-end.    

 

 
 

Scheduled

  Classes of stock   Cash dividend
(Millions of yen)
  A source of dividend   Dividend per share
(yen)
  Record date   Effective date  
 

March 28, 2019 Ordinary general meeting of shareholders  

 

  Common stock   86,380   Retained earnings   80.00   December 31, 2018   March 29, 2019  

4. Number of treasury shares for exercisable stock options as of December 31, 2018

    Common stock 74,000 shares

 

LOGO

 

44

 


Notes to Non-Consolidated Financial Statements

<Notes to Significant Accounting Policies>

 

1.

Valuation of Securities

 

  (1)

Securities of subsidiaries and affiliates----stated at cost based on the moving average method.

  (2)

Other securities:

    

Securities with quotation----stated at fair value (unrealized holdings gains and losses are reported in net assets, when sold, the cost is based on the moving average method).

    

Securities without quotation----stated at cost based on the moving average method.

 

2.

Valuation of Inventories

 

  (1)

Finished goods; work in process----valued at cost based on the periodic average method (amount shown in the balance sheet is devaluated due to decline in profitability).

  (2)

Raw materials and supplies----valued at cost based on the moving average method (amount shown in the balance sheet is devaluated due to decline in profitability).

 

3.

Depreciation Method of Fixed Assets

 

  (1)

Property, plant and equipment (excluding lease assets)----calculated by the declining-balance method. For buildings (excluding fixtures) acquired on or after April 1, 1998, depreciation is calculated by the straight-line method.

  (2)

Intangible fixed assets----calculated by the straight-line method. With regard to software for sale, calculated based on the estimated marketable period in consideration of marketing plan etc. of the relevant products (3 years), and with regard to internal-use software, calculated based on the estimated useful period in the Company (5 years).

  (3)

Lease assets---calculated by the straight-line method. The engaged lease period is determined as the useful life of each lease asset.

 

4.

Basis of Recording Allowances

 

  (1)

Allowance for doubtful receivables----provided as general provision for uncollectible receivables.

    

------General accounts

    

Allowances are provided using a rate determined by credit loss history.

    

------Allowance for accounts considered to be uncollectible and accounts in bankruptcy filing are provided for individual estimated uncollectible amount, primarily determined based on the respective customer’s financial conditions.

  (2)

Accrued warranty expenses----provided as general provision for product after-sales service expenses and no charge repair cost on an estimated amount based on the historical performance.

  (3)

Accrued bonuses for employees----provided as general provision for bonus to employees for this term based on an amount expected to pay.

  (4)

Accrued directors’ bonuses----provided as general provision for bonus to directors for this term based on an amount expected to pay.

  (5)

Accrued pension and severance cost----provided as general provision for employee retirement and severance benefits based on projected benefits obligation and expected plan asset. Prior service cost and actuarial variance are amortized by the straight-line method over the average remaining service periods of employees.

  (6)

Reserve for environmental provision----provided as general provision for the future environmental-related cost, such as construction costs to prevent the proliferation of soil pollution, and also clean up costs of hazardous substances based on the related regulations.

  (7)

Accrued long service rewards for employees----provided as general provision for reward for employees in accordance with management policy for long service employees for this term based on an amount expected to pay.

 

5.

Hedge Accounting

 

  (1)

Hedge accounting----Deferral hedge accounting has been applied.

  (2)

Hedging instrument and hedged items

    

Hedging instrument----derivative transaction (foreign exchange contract)

    

Hedged items----accounts receivables denominated in foreign currency for forecasted transaction.

  (3)

Hedge policy----Derivative financial instruments are comprised principally of foreign exchange contracts to manage currency risk. The Company does not hold derivative financial instrument for trading purpose.

  (4)

Assessment of hedge effectiveness----As the substantial terms of hedging instruments and of hedged items are the same, the fluctuations of foreign currency exchange rates are offset by each other at the hedge’s inception and on an ongoing basis. Hedge effectiveness is assessed by verifying those relationships.

 

6.

Notes to Others

 

  (1)

Consumption Taxes----excluded from the statements of income and are accumulated in other receivables or other payables.

  (2)

Consolidated Taxation System----applied

<Note to Change in Accounting Policies>

The Company has adopted “Accounting Standards for Revenue Recognition” (ASBJ statement No.29 issued on March 30, 2018) and “Implementation Guidance for Accounting Standards for Revenue Recognition” (ASBJ Guidance No.30 issued on March 30, 2018) from the fiscal year ended December 31, 2018. 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. The adoption had no cumulative effect to the retained earnings and had no impact on its result of operations and financial condition.

<Note to Change in Presentation>

(Change due to early adoption of “Partial Amendments to Accounting Standard for Tax Effect Accounting”)

As “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No.28 issued on February 16, 2018) became applicable to the financial statements from the fiscal year ended December 31, 2018, the Company has adopted “Partial Amendments to Accounting Standard for Tax Effect Accounting” from the current fiscal year. Accordingly, changes have been made to the classification, whereby deferred tax assets are presented in the investments and other assets.

 

 

 

 

45


<Notes to Deferred Income Tax>

Major Items of Deferred Tax Assets and Liabilities

(Deferred tax assets)

 
     Accrued pension and severance cost   15,950 million yen
     Investments in subsidiaries   6,407 million yen
     Loss on valuation of inventories   1,797 million yen
     Outstanding enterprise tax   848 million yen
     Depreciation of fixed assets in
 excess of limit
  10,088 million yen
     Loss on impairment of fixed assets   433 million yen
     Excess in amortization of software   6,688 million yen
   

 Amortization of deferred charges in

 excess of limit

  9,068 million yen
   

 Other

 

 

11,390 million yen

 

     Subtotal deferred tax assets   62,669 million yen
   

 Valuation reserve

 

 

(8,383) million yen

 

     Total deferred tax assets   54,286 million yen

(Deferred tax liabilities)

 
     Reserve for special depreciation   (22) million yen
     Reserve for deferral of capital gain on
 property
  (1,706) million yen
     Prepaid pension cost   (963) million yen
   

 Other

 

 

(1,742) million yen

 

   

 Total deferred tax liabilities

 

 

(4,433) million yen

 

     Net deferred tax assets   49,853 million yen

<Notes to Transaction with Related Parties>

 

   (Millions of yen) 

 

 

 

  Nature     

 

 

 

Company  

name  

 

 

 

Ratio of voting   

rights held by   

the Company   

 

 

 

Relationship  

with the  

Company  

 

 

 

Transaction   details  

 

 

 

Transaction   amount  

 

 

 

Item  

 

 

 

Balance as of       December 31,       2018      

 

 
  Subsidiary   Canon Marketing Japan Inc.  

(Possession)

Direct:
 &