Canon Inc 6-K, filed Nov 10, 2022
Canon Inc (CAJPY)
About this 6-K
Canon Inc filed this 6-K on November 10, 2022.
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 …. | November |
……………………………………………… , | 2022 |
| 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… |
November 10, 2022 | By....../s/.......... Sachiho Tanino............. | ||||||
| (Signature)* | ||||||||
| Sachiho Tanino General Manager Consolidated Accounting Div. Canon Inc. |
*Print the name and title of the signing officer under his signature.
The following materials are included.
| 1. | Quarterly Report filed with the Japanese government pursuant to the Financial Instruments and Exchange Law of Japan for the third quarter ended September 30, 2022 |
[English summary with full translation of consolidated financial information]
Quarterly Report filed with the Japanese government
pursuant to
the Financial Instruments and Exchange Law of Japan
For the third quarter ended
September 30, 2022
CANON INC.
Tokyo, Japan
CONTENTS
| Page | ||||||
| I |
Corporate Information | |||||
| (1) Consolidated Financial Summary |
2 | |||||
| (2) Description of Business |
2 | |||||
| II |
The Business | |||||
| (1) Risk Factors |
3 | |||||
| (2) Operating Results and Financial Conditions |
3 | |||||
| (3) Significant Business Contracts Entered into in the Third Quarter of Fiscal 2022 |
10 | |||||
| III |
Company Information | |||||
| (1) Shares |
11 | |||||
| (2) Directors and Executive Officers |
13 | |||||
| IV |
Financial Statements | |||||
| (1) Consolidated Financial Statements |
14 | |||||
| (2) Other Information |
52 | |||||
Disclaimer Regarding Forward-Looking Statements
This quarterly report includes forward-looking statements (within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934) concerning Canon Inc. (the “Company”) and its subsidiaries (collectively “Canon”). To the extent that statements in this quarterly report do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on the current assumptions and beliefs of Canon in light of the information currently available to them, and involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause Canon’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. Canon undertakes no obligation to publicly update any forward-looking statements after the date of this quarterly report. Investors are advised to consult any further disclosures by Canon in its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and its other filings.
The risks, uncertainties and other factors referred to above include, but are not limited to, foreign currency exchange rate fluctuations; the uncertainty of Canon’s ability to implement its plans to localize production and other measures to reduce the impact of foreign currency exchange rate fluctuations; uncertainty as to economic conditions in Canon’s major markets; uncertainty of continued demand for Canon’s high-value-added products; Canon’s ability to continue to develop products and to market products that incorporate new technology on a timely basis, are competitively priced, and achieve market acceptance; the possibility of losses resulting from foreign currency transactions designed to reduce financial risks from changes in foreign currency exchange rates; disasters, outages or similar events; and inventory risk due to disruptions in supply chains and shifts in market demand.
1
| I. | Corporate Information |
| (1) | Consolidated Financial Summary |
| Millions of yen (except per share amounts) | ||||||||||||||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
Year ended December 31, 2021 |
||||||||||||||||
| Net sales |
2,874,239 | 2,557,908 | 996,090 | 833,324 | 3,513,357 | |||||||||||||||
| Income before income taxes |
231,969 | 231,147 | 79,076 | 79,326 | 302,706 | |||||||||||||||
| Net income attributable to Canon Inc. |
159,118 | 154,920 | 54,118 | 49,317 | 214,718 | |||||||||||||||
| Comprehensive income (loss) |
480,656 | 267,657 | 105,086 | 46,944 | 406,815 | |||||||||||||||
| Canon Inc. shareholders’ equity |
— | — | 3,122,629 | 2,740,069 | 2,873,773 | |||||||||||||||
| Total equity |
— | — | 3,354,224 | 2,959,150 | 3,098,429 | |||||||||||||||
| Total assets |
— | — | 5,301,056 | 4,752,215 | 4,750,888 | |||||||||||||||
| Net income attributable to Canon Inc. shareholders per share: |
||||||||||||||||||||
| Basic (yen) |
153.70 | 148.16 | 52.90 | 47.16 | 205.35 | |||||||||||||||
| Diluted (yen) |
153.65 | 148.12 | 52.88 | 47.15 | 205.29 | |||||||||||||||
| Canon Inc. shareholders’ equity to total assets (%) |
— | — | 58.9 | 57.7 | 60.5 | |||||||||||||||
| Net cash provided by operating activities |
188,481 | 349,971 | — | — | 451,028 | |||||||||||||||
| Net cash used in investing activities |
(132,350 | ) | (148,351 | ) | — | — | (207,256 | ) | ||||||||||||
| Net cash used in financing activities |
(29,582 | ) | (139,986 | ) | — | — | (267,366 | ) | ||||||||||||
| Cash and cash equivalents at end of period |
— | — | 465,298 | 482,240 | 401,395 | |||||||||||||||
Notes:
| 1. | Canon’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. |
| 2. | Consumption tax is excluded from the stated amount of net sales. |
| (2) | Description of Business |
Canon prepares quarterly consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Financial information presented in sections “II. The Business” is also in conformity with U.S. GAAP.
The Canon Group (consisting of the Company, 332 consolidated subsidiaries, and 9 affiliates accounted for using the equity method, as of September 30, 2022, collectively, the “Group”) is engaged in development, manufacturing, sales, and servicing activities in areas such as printing, imaging, medical, and industrial. No material change in Canon’s business has occurred during the nine months ended September 30, 2022.
No additions or removals of significant group entities have occurred during the nine months ended September 30, 2022.
2
| II. | The Business |
| (1) | Risk Factors |
No new risks have been identified during the nine months ended September 30, 2022. No material changes have been identified pursuant to the risk factors of Canon’s business indicated in the Annual Securities Report (Yukashoken Houkokusho) of the previous fiscal year.
| (2) | Operating Results and Financial Conditions |
Looking back at the third quarter of 2022, the pace of economic recovery slowed amid rising global inflation and interest rates, despite personal consumption underpinned by easing of restrictions on economic activities. In the United States, the economy showed signs of a slowdown due to inflation and tightened financial measures. However, economic recovery continued due to a robust increase in personal consumption. In Europe, the economy slowed down due to increased energy prices and continuous hikes of interest rates in response to the prolonged Ukraine crisis. In China, the speed of recovery of personal consumption declined due to the restrictions implemented under its Zero-COVID strategy again. In other emerging countries, the economy recovered moderately, mainly in India and Southeast Asia. In Japan, in spite of a resurgence of coronavirus disease (“COVID-19”) infections happening amid inflationary pressure caused by depreciation of the yen, the economy continued to recover moderately, mainly in terms of personal consumption resulting from eased restrictions.
In the markets in which Canon operates, demand for office multifunction devices (MFDs) remained firm, while demand for laser printers and inkjet printers declined due to the decreased demand from customers working from home. For cameras, demand remained solid, mainly for mirrorless cameras and lenses. For medical equipment, demand mainly for diagnostic imaging unit products recovered outside Japan, although demand in Japan declined this year due to a drop-off after government spending concluded last year. Demand remained high for semiconductor lithography equipment amid favorable market conditions, while demand for such devices as memory declined. For FPD (Flat Panel Display) lithography equipment, demand tend to decline due to decreased demand from customers working from home amid the COVID-19 pandemic and the current economic slowdown.
The average values of the yen during the third quarter and the first nine months of the year were ¥138.40 and ¥128.26 against the U.S. dollar, respectively, a year-on-year depreciation of approximately ¥28 and year-on-year depreciation of approximately ¥20, and ¥139.40 and ¥136.07 against the euro, respectively, a year-on-year depreciation of approximately ¥10 and year-on-year depreciation of approximately ¥6.
3
| (2) | Operating Results and Financial Conditions (continued) |
[Third quarter results]
Summarized results of the consolidated statements of income for the three months ended September 30, 2022 and September 30, 2021 are as follows:
| Millions of yen (except per share amounts and percentage data) | ||||||||||||
| Three months ended September 30, 2022 |
Change | Three months ended September 30, 2021 |
||||||||||
| Net sales |
996,090 | +19.5 | % | 833,324 | ||||||||
| Gross profit |
451,033 | +16.3 | 387,959 | |||||||||
| Operating expenses |
369,593 | +12.3 | 329,231 | |||||||||
| Operating profit |
81,440 | +38.7 | 58,728 | |||||||||
| Other income (deductions) |
(2,364 | ) | — | 20,598 | ||||||||
| Income before income taxes |
79,076 | -0.3 | 79,326 | |||||||||
| Net income attributable to Canon Inc. |
54,118 | +9.7 | 49,317 | |||||||||
| Net income attributable to Canon Inc. shareholders per share: |
||||||||||||
| Basic |
52.90 | +12.2 | 47.16 | |||||||||
| Diluted |
52.88 | +12.2 | 47.15 | |||||||||
As for the third quarter, despite concerns about the impact of inflation and rising interest rates, sales for mirrorless cameras and network cameras remained solid and sales for office MFDs recovered steadily. Net sales for the third quarter increased by 19.5% year-on-year to ¥996.1 billion due to the price adjustment of products and depreciation of the yen. Gross profit as a percentage of net sales decreased by 1.3 points to 45.3% due to the increase in the ratio of hardware caused by stabilization of production supply including printers, in addition to the increased costs of parts and logistics. However, third-quarter gross profit increased by 16.3% year-on-year to ¥451.0 billion, mainly due to the depreciation of the yen. Operating expenses increased by 12.3% year-on-year to ¥369.6 billion as a result of increased operating expenses denominated in foreign currencies due to the depreciation of the yen. On the other hand, the expense to sales ratio decreased by 2.5 points to 37.1% due to the promotion of efficiency for operations although sales activities increased. As a result, operating profit as a measure of the performance of business activities increased by 38.7% year-on-year to ¥81.4 billion. Other income (deductions) decreased by ¥22.9 billion year-on-year to a loss of ¥2.3 billion, mainly due to deterioration of valuation gains and losses on securities and currency exchange losses from liabilities, incurred by group finance, denominated in foreign currencies, caused by the depreciation of the yen. As a result, although income before income taxes decreased by 0.3% year-on-year to ¥79.1 billion and net income attributable to Canon Inc. increased by 9.7% year-on-year to ¥54.1 billion.
Basic net income attributable to Canon Inc. shareholders per share was ¥52.90 for the third quarter, a year-on-year increase of ¥5.74.
4
| (2) | Operating Results and Financial Conditions (continued) |
[Nine-month results]
Summarized results of the consolidated statements of income for the nine months ended September 30, 2022 and September 30, 2021 are as follows:
| Millions of yen (except per share amounts and percentage data) | ||||||||||||
| Nine months ended September 30, 2022 |
Change | Nine months ended September 30, 2021 |
||||||||||
| Net sales |
2,874,239 | +12.4 | % | 2,557,908 | ||||||||
| Gross profit |
1,309,463 | +10.0 | 1,189,941 | |||||||||
| Operating expenses |
1,053,408 | +7.1 | 983,380 | |||||||||
| Operating profit |
256,055 | +24.0 | 206,561 | |||||||||
| Other income (deductions) |
(24,086 | ) | — | 24,586 | ||||||||
| Income before income taxes |
231,969 | +0.4 | 231,147 | |||||||||
| Net income attributable to Canon Inc. |
159,118 | +2.7 | 154,920 | |||||||||
| Net income attributable to Canon Inc. shareholders per share: |
||||||||||||
| Basic |
153.70 | +3.7 | 148.16 | |||||||||
| Diluted |
153.65 | +3.7 | 148.12 | |||||||||
As for the first nine months, despite the ongoing shortage of semiconductor chips and supply chain disruptions due to lockdowns in China, Canon prioritized product supply by maximizing production, which was achieved by switching to alternative parts and developing business with new component suppliers. Sales for office MFDs recovered steadily and sales for mirrorless cameras and network cameras remained solid. Net sales for the first nine months increased by 12.4% year-on-year to ¥2,874.2 billion due to the price adjustment of products and depreciation of the yen. Gross profit as a percentage of net sales decreased by 0.9 points to 45.6% due to the increase in the ratio of hardware caused by stabilization of production supply including printers, in addition to the increased costs of parts and logistics. However, gross profit increased by 10.0% year-on-year to ¥1,309.5 billion due to the depreciation of the yen mainly. Operating expenses increased by 7.1% year-on-year to ¥1,053.4 billion as a result of increased operating expenses denominated in foreign currencies due to the depreciation of the yen and non-recurring expenses incurred to close a certain production facility, despite a gain on the sales of fixed assets resulting from optimizing a branch office capacity of an overseas sales subsidiary. On the other hand, the expense to sales ratio decreased by 1.7 points to 36.7% due to the promotion of efficiency for operations although sales activities increased. As a result, operating profit as a measure of the performance of business activities increased by 24.0% year-on-year to ¥256.1 billion. Other income (deductions) decreased by ¥48.6 billion year-on-year to a loss of ¥24.1 billion, mainly due to deterioration of valuation gains and losses on securities and currency exchange losses from liabilities, incurred by group finance, denominated in foreign currencies, caused by the depreciation of the yen. As a result, income before income taxes increased by 0.4% to ¥232.0 billion and first nine months net income attributable to Canon Inc. increased by 2.7% to ¥159.1 billion.
Basic net income attributable to Canon Inc. shareholders per share was ¥153.70 for the first nine months, a year-on-year increase of ¥5.54.
5
| (2) | Operating Results and Financial Conditions (continued) |
Operating results by segment (“business unit”) for the nine months ended September 30, 2022 and September 30, 2021 are as follows:
| Printing Business Unit | Millions of yen (except percentage data) | |||||||||||
| Nine months ended September 30, 2022 |
Change | Nine months ended September 30, 2021 |
||||||||||
| Net sales: |
||||||||||||
| Office |
639,318 | +15.7 | % | 552,689 | ||||||||
| Prosumer |
726,093 | +10.3 | 658,314 | |||||||||
| Production |
254,096 | +24.7 | 203,817 | |||||||||
|
|
|
|
|
|
|
|||||||
| External customers total |
1,619,507 | +14.5 | 1,414,820 | |||||||||
| Intersegment |
4,302 | +27.4 | 3,377 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
1,623,809 | +14.5 | 1,418,197 | |||||||||
| Operating cost and expenses |
1,464,406 | +18.0 | 1,240,922 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating Profit |
159,403 | -10.1 | 177,275 | |||||||||
| Income before income taxes |
169,107 | -7.4 | 182,692 | |||||||||
As for the Printing Business Unit, demand for office MFDs recovered. However, unit sales slightly decreased compared with the previous year due to the shortage of semiconductor chips. Revenue from services and consumables increased moderately compared with the previous year due to the recovery in work in office. As for laser printers and inkjet printers, unit sales increased significantly compared with the previous year due to recovery from stagnant production activities. However, consumables decreased compared with the previous year as demand from customers working from home slowed down. For equipment in the production printing market, sales increased compared with the previous year due to strong sales of the varioPRINT iX series of high-speed cut-sheet color inkjet presses, while revenue from services also increased. These factors resulted in total sales for the business unit of ¥1,623.8 billion, a year-on-year increase of 14.5%, while income before income taxes totaled ¥169.1 billion, a year-on-year decrease of 7.4%, due to the increased costs of parts and logistics and the increase in the ratio of hardware caused by stabilization of production supply.
| Imaging Business Unit | Millions of yen (except percentage data) | |||||||||||
| Nine months ended September 30, 2022 |
Change | Nine months ended September 30, 2021 |
||||||||||
| Net sales: |
||||||||||||
| Cameras |
360,334 | +17.0 | % | 308,057 | ||||||||
| Network cameras and Others |
200,362 | +23.1 | 162,828 | |||||||||
|
|
|
|
|
|
|
|||||||
| External customers total |
560,696 | +19.1 | 470,885 | |||||||||
| Intersegment |
335 | -75.2 | 1,350 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
561,031 | +18.8 | 472,235 | |||||||||
| Operating cost and expenses |
478,688 | +15.2 | 415,450 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating Profit |
82,343 | +45.0 | 56,785 | |||||||||
| Income before income taxes |
83,414 | +47.3 | 56,619 | |||||||||
As for the Imaging Business Unit, unit sales of mirrorless cameras were above those of the same period of the previous year due to continued strong demand for full-frame mirrorless cameras including the EOS R5 and EOS R6 as well as favorable reviews of the new EOS R7 and EOS R10 APS-C-size mirror less cameras. Unit sales of lenses increased owing to strong sales of RF-series interchangeable lenses that expanded the product lineup. As for network cameras, sales increased significantly mainly as a result of strengthening sales activities in response to diversifying market needs in addition to the recovery of products supply. As for professional video production equipment, sales of Cinema EOS-series including the new EOS R5 C, professional video cameras and broadcast lenses, were strong. These factors resulted in total sales for the business unit of ¥561.0 billion, a year-on-year increase of 18.8%, while income before income taxes increased by 47.3% year-on-year to ¥83.4 billion mainly as a result of improved profitability due to an enhanced product mix, despite non-recurring expenses relating to the closing of certain production facility.
6
| (2) | Operating Results and Financial Conditions (continued) |
| Medical Business Unit | Millions of yen (except percentage data) | |||||||||||
| Nine months ended September 30, 2022 |
Change | Nine months ended September 30, 2021 |
||||||||||
| Net sales: |
||||||||||||
| External customers total |
362,240 | +3.0 | % | 351,695 | ||||||||
| Intersegment |
263 | +25.2 | 210 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
362,503 | +3.0 | 351,905 | |||||||||
| Operating cost and expenses |
341,449 | +3.2 | 330,718 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating Profit |
21,054 | -0.6 | 21,187 | |||||||||
| Income before income taxes |
21,621 | -15.9 | 25,722 | |||||||||
As for the Medical Business Unit, demand mainly for diagnostic imaging unit products recovered outside Japan due to a recovery in large investments previously held back due to the COVID-19 pandemic although demand in Japan declined this year due to a drop-off after government spending concluded last year. These factors resulted in total sales for the business unit of ¥362.5 billion, a year-on-year increase of 3.0%, while income before income taxes decreased by 15.9% year-on-year to ¥21.6 billion as a result of the increased costs of parts and logistics.
| Industrial and Other Business Unit | Millions of yen (except percentage data) | |||||||||||
| Nine months ended September 30, 2022 |
Change | Nine months ended September 30, 2021 |
||||||||||
| Net sales: |
||||||||||||
| Lithography equipment |
163.256 | +10.4 | % | 147,844 | ||||||||
| Industrial equipment |
63,019 | -25.2 | 84,267 | |||||||||
| Others |
109,731 | +21.2 | 90,539 | |||||||||
|
|
|
|
|
|
|
|||||||
| External customers total |
336,006 | +4.1 | 322,650 | |||||||||
| Intersegment |
88,055 | +25.2 | 70,348 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
424,061 | +7.9 | 392,998 | |||||||||
| Operating cost and expenses |
380,719 | +3.8 | 366,879 | |||||||||
|
|
|
|
|
|
|
|||||||
| Operating Profit |
43,342 | +65.9 | 26,119 | |||||||||
| Income before income taxes |
44,920 | +70.9 | 26,292 | |||||||||
As for the Industrial and Others Business Unit, regarding semiconductor lithography equipment, unit sales increased compared with the previous year as a result of maximizing production capacity amid strong sales for a wide range of products such as power device and logic. For FPD lithography equipment, unit sales decreased compared with the previous year, when the business unit caught up with delayed equipment installation. For OLED display manufacturing equipment, sales decreased compared with the previous year as panel manufacturers were in the midst of considering investment plans in response to diversifying OLED panel applications. These factors resulted in total sales for the business unit of ¥424.1 billion, a year-on-year increase of 7.9%, while income before income taxes totaled ¥44.9 billion, a year-on-year increase of 70.9% due to cost reduction as a result of mass production of semiconductor lithography equipment and an enhanced product mix.
7
| (2) | Operating Results and Financial Conditions (continued) |
Financial Conditions
| Millions of yen (except percentage data) | ||||||||||||
| September 30, 2022 | Change | December 31, 2021 | ||||||||||
| Total assets |
5,301,056 | +550,168 | 4,750,888 | |||||||||
| Total liabilities |
1,946,832 | +294,373 | 1,652,459 | |||||||||
| Canon Inc. shareholders’ equity |
3,122,629 | +248,856 | 2,873,773 | |||||||||
| Noncontrolling interests |
231,595 | +6,939 | 224,656 | |||||||||
| Total equity |
3,354,224 | +255,795 | 3,098,429 | |||||||||
| Total liabilities and equity |
5,301,056 | +550,168 | 4,750,888 | |||||||||
| Canon Inc. shareholders’ equity as a percentage of total assets |
58.9 | % | -1.6 | 60.5 | % | |||||||
Total assets increased by ¥550.2 billion to ¥5,301.1 billion at September 30, 2022, compared to the end of previous year, mainly due to the increase of cash and cash equivalents and inventories, combined with the impact of the depreciation of the yen. Inventories increased overall mainly due to higher inventory levels of main products for shopping season in fourth quarter. Total liabilities increased by ¥294.4 billion to ¥1,946.9 billion at September 30, 2022 compared to the end of previous year, mainly due to the increase of short-term loans. The balance of total equity increased by ¥255.8 billion to ¥3,354.2 billion at September 30, 2022 compared to the end of previous year, mainly due to the accumulation of retained earnings resulting from the increased net income attributable to Canon Inc. and the increase of accumulated other comprehensive income (loss) resulting from the depreciation of the yen although the payment of dividends to Canon Inc. shareholders and the repurchases of treasury stock decreased total equity. As a result, Canon Inc. shareholders’ equity as a percentage of total assets decreased by 1.6 points to 58.9% compared to the end of the previous year which still remains at a high percentage.
Cash Flows
| Millions of yen | ||||||||||||
| Nine months ended September 30, 2022 |
Change | Nine months ended September 30, 2021 |
||||||||||
| Net cash provided by operating activities |
188,481 | -161,490 | 349,971 | |||||||||
| Net cash used in investing activities |
(132,350 | ) | +16,001 | (148,351 | ) | |||||||
| Free cash flow |
56,131 | -145,489 | 201,620 | |||||||||
| Net cash used in financial activities |
(29,582) | +110,404 | (139,986 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents |
37,354 | +24,432 | 12,922 | |||||||||
| Net change in cash and cash equivalents |
63,903 | -10,653 | 74,556 | |||||||||
| Cash and cash equivalents at beginning of period |
401,395 | -6,289 | 407,684 | |||||||||
| Cash and cash equivalents at end of period |
465,298 | -16,942 | 482,240 | |||||||||
During the first nine months of 2022, cash flow from operating activities decreased by ¥161.5 billion year-on-year to ¥188.5 billion as a result of higher inventory levels as mentioned above in Financial Conditions, and increased payment of income taxes due to increased taxable income. Cash flow used for investing activities decreased by ¥16.0 billion year-on-year to ¥132.4 billion due to the absence of major M&A transaction and the increased sales of fixed assets resulting from optimizing a branch office capacity of an overseas sales subsidiary although capital investment to improve efficiency and productivity continued and purchases of securities increased. Canon defines “free cash flows” as cash flows from operating activities less cash flows from investing activities. Free cash flow totaled ¥56.1 billion, a decrease of ¥145.5 billion compared with that of the previous year.
Cash flow from financing activities, despite an increase in short-term loans, recorded an outlay of ¥29.6 billion mainly due to repurchases of treasury stock and dividend payout, which increased ¥30.4 billion year-on-year.
Owing to these factors, as well as the impact from foreign currency exchange adjustments, cash and cash equivalents increased by ¥63.9 billion to ¥465.3 billion from the end of the previous year.
8
| (2) | Operating Results and Financial Conditions (continued) |
Non-GAAP Financial Measures
Canon has reported its financial results in accordance with U.S. GAAP. In addition, Canon has discussed its results using “free cash flow,” which is a non-GAAP measure.
Canon believes this measure, which takes into consideration its operating and investing activities, is beneficial to an investor’s understanding of its current liquidity and the alternative uses in financing activities.
A reconciliation of this non-GAAP financial measure and the most directly comparable measure calculated and presented in accordance with U.S. GAAP is set forth on the following table.
| Billions of yen | ||||
| Nine months ended September 30, 2022 |
||||
| Net cash provided by operating activities |
188.5 | |||
| Net cash used in investing activities |
(132.4 | ) | ||
|
|
|
|||
| Free cash flow |
56.1 | |||
|
|
|
|||
9
| (2) | Operating Results and Financial Conditions (continued) |
Accounting Estimates and Assumptions
No material changes with respect to accounting estimates and assumptions have occurred during the nine months ended September 30, 2021.
Prioritized Management Issues to be Addressed
No material changes or issues with respect to prioritized business operations and finances have occurred during the nine months ended September 30, 2021.
Research and Development Expenses
Canon’s research and development expenses for the nine months ended September 30, 2022 totaled ¥221.1 billion.
Property, Plant and Equipment
| (1) | Major Property, Plant and Equipment |
There were no significant changes to the status of existing major property, plant and equipment during the nine months ended September 30, 2022.
| (2) | Prospect of Capital Investment in the first nine months of Fiscal 2022 |
There were no completions of new construction of assets plans, which had been in progress as of December 31, 2021, during the nine months ended September 30, 2022.
There were no significant plans relevant to the retirement of property, plant and equipment.
The new construction of property, plant and equipment, which is newly planned during the nine months ended September 30, 2022 is as follows:
| Name and location | Principal activities and products manufactured | |||
| Canon Inc., Tochigi, Japan
|
New production base (Industrial and Others Business Unit) |
| (3) | Significant Business Contracts Entered into in the Third Quarter of Fiscal 2022 |
No material contracts were entered into during the three months ended September 30, 2022.
10
| III. | Company Information |
| (1) | Shares |
Total number of authorized shares is 3,000,000,000 shares. The common stock of Canon is listed on the Tokyo, Nagoya, Fukuoka, Sapporo and New York Stock Exchanges. Total issued shares are as follows:
| As of September 30, 2022 |
||||
| Total number of issued shares |
1,333,763,464 | |||
Stock Acquisition Rights
| (1) | Stock options |
Not applicable.
| (2) | Other stock acquisition rights |
Not applicable.
Exercise status of bonds with share subscription rights containing an adjustable exercise price clause
Not applicable.
Change in Issued Shares, Common Stock and Additional Paid in Capital
| Change during this quarter | As of September 30, 2022 | |||||||
| Issued Shares (Number of shares) |
— | 1,333,763,464 | ||||||
| Common Stock (Millions of yen) |
— | 174,762 | ||||||
| Additional Paid-in Capital (Millions of yen) |
— | 306,288 | ||||||
Major Shareholders
Not applicable.
11
| (1) | Shares (continued) |
Voting Rights
The information provided below is based on the latest register of shareholders as of June 30, 2022.
| As of June 30, 2022 | ||||||||
| Classification |
Number of shares (shares) |
Number of voting rights (units) |
||||||
| Shares without voting rights |
— | — | ||||||
| Shares with restricted voting rights (Treasury stock, etc.) |
— | — | ||||||
| Shares with restricted voting rights (Others) |
— | — | ||||||
| Shares with full voting rights (Treasury stock, etc.) |
303,616,600 | — | ||||||
| Shares with full voting rights (Others) |
1,028,825,500 | 10,288,255 | ||||||
| Fractional unit shares (Note) |
1,321,364 | — | ||||||
| Total number of issued shares |
1,333,763,464 | — | ||||||
| Total voting rights held by all shareholders |
— | 10,288,255 | ||||||
Note:
In “Fractional unit shares” under “Number of shares,” 46 shares of treasury stock are included.
Treasury Stock, etc.
| Number of shares owned (Number of shares) |
Number of shares owned / Number of shares issued |
|||||||
| Canon Inc. |
303,616,600 | 22.76 | % | |||||
|
|
|
|
|
|||||
| Total |
303,616,800 | 22.76 | % | |||||
12
| (2) | Directors and Executive Officers |
There were no changes in Directors and Audit & Supervisory Board Members, and their functions between the filing date of the Annual Securities Report (Yukashoken Houkokusho) for the fiscal year ended December 31, 2021 and the end of this quarter.
There were no changes in members of executive officers between the filing date of the Annual Securities Report (Yukashoken Houkokusho) for the fiscal year ended December 31, 2021 and the end of this quarter.
Changes in functions of executive officers are below:
Isao Kobayashi (Executive Officer: Senior Vice President of Canon U.S.A., Inc.)
Seymour Liebman (Senior Managing Executive Officer: Executive Vice President of Canon U.S.A., Inc.)
The Number of Directors and Executive Officers by Gender
Males: 50, Females: 2 (Females account for 3.8% of the total.)
The total number consisted of 10 Directors or Corporate Auditors and 42 Executive Officers as of September 30, 2022.
13
| IV. | Financial Statements (Unaudited) |
| (1) | Consolidated Financial Statements |
Index of Consolidated Financial Statements of Canon Inc. and Subsidiaries:
| Page | ||||
| Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 |
15 | |||
| Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2022 and 2021 |
17 | |||
| Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2022 and 2021 |
19 | |||
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 |
21 | |||
| Notes to Consolidated Financial Statements |
22 | |||
14
CANON INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents (Notes 17 and 18) |
465,298 | 401,395 | ||||||
| Short-term investments (Notes 2 and 17) |
12,216 | 3,377 | ||||||
| Trade receivables (Note 3) |
572,810 | 522,432 | ||||||
| Inventories (Note 4) |
883,897 | 650,568 | ||||||
| Prepaid expenses and other current assets (Notes 6, 11, 13 and 17) |
376,297 | 314,489 | ||||||
| Allowance for credit losses (Notes 3 and 6) |
(15,928 | ) | (13,916 | ) | ||||
|
|
|
|
|
|||||
| Total current assets |
2,294,590 | 1,878,345 | ||||||
|
|
|
|
|
|||||
| Noncurrent receivables (Note 15) |
13,528 | 16,388 | ||||||
| Investments (Notes 2 and 17) |
60,378 | 60,967 | ||||||
| Property, plant and equipment, net (Note 5) |
1,056,175 | 1,041,403 | ||||||
| Operating lease right-of-use assets (Note 14) |
110,367 | 95,791 | ||||||
| Intangible assets, net |
293,625 | 301,793 | ||||||
| Goodwill |
987,032 | 953,850 | ||||||
| Other assets (Note 6) |
488,636 | 404,720 | ||||||
| Allowance for credit losses (Note 6) |
(3,275 | ) | (2,369 | ) | ||||
|
|
|
|
|
|||||
| Total assets |
5,301,056 | 4,750,888 | ||||||
|
|
|
|
|
|||||
15
CANON INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited) (continued)
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Liabilities and equity |
||||||||
| Current liabilities: |
||||||||
| Short-term loans and current portion of long-term debt (Notes 8 and 16) |
242,789 | 44,891 | ||||||
| Short-term loans related to financial services |
41,500 | 42,300 | ||||||
| Other short-term loans and current portion of long-term debt |
201,289 | 2,591 | ||||||
| Trade payables (Note 7) |
392,999 | 338,604 | ||||||
| Accrued income taxes |
32,849 | 43,081 | ||||||
| Accrued expenses (Note 15) |
375,429 | 323,929 | ||||||
| Current operating lease liabilities (Note 14) |
33,036 | 30,945 | ||||||
| Other current liabilities (Notes 11, 13 and 17) |
262,349 | 279,383 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
1,339,451 | 1,060,833 | ||||||
| Long-term debt, excluding current installments (Notes 8 and 16) |
180,315 | 179,750 | ||||||
| Accrued pension and severance cost |
239,227 | 248,467 | ||||||
| Noncurrent operating lease liabilities (Note 14) |
77,219 | 65,385 | ||||||
| Other noncurrent liabilities (Note 11) |
110,620 | 98,024 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
1,946,832 | 1,652,459 | ||||||
| Equity: |
||||||||
| Canon Inc. shareholders’ equity (Note 9): |
||||||||
| Common stock |
174,762 | 174,762 | ||||||
| (Number of authorized shares) |
(3,000,000,000 | ) | (3,000,000,000 | ) | ||||
| (Number of issued shares) |
(1,333,763,464 | ) | (1,333,763,464 | ) | ||||
| Additional paid-in capital |
404,838 | 403,119 | ||||||
| Legal reserve |
64,491 | 68,015 | ||||||
| Retained earnings |
3,579,910 | 3,538,037 | ||||||
| Accumulated other comprehensive income (loss) (Note 10) |
156,987 | (151,794 | ) | |||||
| Treasury stock, at cost |
(1,258,359 | ) | (1,158,366 | ) | ||||
| (Number of shares) |
(318,249,191 | ) | (287,991,705 | ) | ||||
|
|
|
|
|
|||||
| Total Canon Inc. shareholders’ equity |
3,122,629 | 2,873,773 | ||||||
| Noncontrolling interests (Note 9) |
231,595 | 224,656 | ||||||
|
|
|
|
|
|||||
| Total equity (Note 9) |
3,354,224 | 3,098,429 | ||||||
|
|
|
|
|
|||||
| Total liabilities and equity |
5,301,056 | 4,750,888 | ||||||
|
|
|
|
|
|||||
16
CANON INC. AND SUBSIDIARIES
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Consolidated Statements of Income
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Net sales (Notes 6, 10, 11 and 13): |
||||||||
| Products and Equipment |
2,290,449 | 2,040,201 | ||||||
| Services |
583,790 | 517,707 | ||||||
|
|
|
|
|
|||||
| 2,874,239 | 2,557,908 | |||||||
| Cost of sales (Notes 14 and 18): |
||||||||
| Products and Equipment |
1,290,688 | 1,122,750 | ||||||
| Services |
274,088 | 245,217 | ||||||
|
|
|
|
|
|||||
| 1,564,776 | 1,367,967 | |||||||
|
|
|
|
|
|||||
| Gross profit |
1,309,463 | 1,189,941 | ||||||
| Operating expenses: |
||||||||
| Selling, general and administrative expenses (Notes 10, 14 and 18) |
832,335 | 772,370 | ||||||
| Research and development expenses |
221,073 | 211,010 | ||||||
|
|
|
|
|
|||||
| 1,053,408 | 983,380 | |||||||
|
|
|
|
|
|||||
| Operating profit |
256,055 | 206,561 | ||||||
| Other income (deductions): |
||||||||
| Interest and dividend income |
3,167 | 1,519 | ||||||
| Interest expense |
(737 | ) | (442 | ) | ||||
| Other, net (Notes 2, 10, 13 and 18) |
(26,516 | ) | 23,509 | |||||
|
|
|
|
|
|||||
| (24,086 | ) | 24,586 | ||||||
|
|
|
|
|
|||||
| Income before income taxes |
231,969 | 231,147 | ||||||
| Income taxes |
61,962 | 63,734 | ||||||
|
|
|
|
|
|||||
| Consolidated net income |
170,007 | 167,413 | ||||||
| Less: Net income attributable to noncontrolling interests |
10,889 | 12,493 | ||||||
|
|
|
|
|
|||||
| Net income attributable to Canon Inc. |
159,118 | 154,920 | ||||||
|
|
|
|
|
|||||
| Yen | Yen | |||||||
| Net income attributable to Canon Inc. shareholders per share (Note 12): |
||||||||
| Basic |
153.70 | 148.16 | ||||||
| Diluted |
153.65 | 148.12 | ||||||
17
CANON INC. AND SUBSIDIARIES
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (continued)
Consolidated Statements of Comprehensive Income (Loss)
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Consolidated net income |
170,007 | 167,413 | ||||||
| Other comprehensive income (loss), net of tax (Note 10): |
||||||||
| Foreign currency translation adjustments |
309,018 | 80,433 | ||||||
| Net unrealized gains and losses on securities |
(21 | ) | — | |||||
| Net gains and losses on derivative instruments |
(1,867 | ) | (324 | ) | ||||
| Pension liability adjustments |
3,519 | 20,135 | ||||||
|
|
|
|
|
|||||
| 310,649 | 100,244 | |||||||
|
|
|
|
|
|||||
| Comprehensive income (loss) (Note 9) |
480,656 | 267,657 | ||||||
| Less: Comprehensive income attributable to noncontrolling interests |
12,757 | 13,653 | ||||||
|
|
|
|
|
|||||
| Comprehensive income (loss) attributable to Canon Inc. |
467,899 | 254,004 | ||||||
|
|
|
|
|
|||||
18
CANON INC. AND SUBSIDIARIES
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (continued)
Consolidated Statements of Income
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Net sales (Notes 6, 10, 11 and 13): |
||||||||
| Products and Equipment |
793,367 | 660,135 | ||||||
| Services |
202,723 | 173,189 | ||||||
|
|
|
|
|
|||||
| 996,090 | 833,324 | |||||||
| Cost of sales (Notes 14 and 18): |
||||||||
| Products and Equipment |
450,569 | 361,809 | ||||||
| Services |
94,488 | 83,556 | ||||||
|
|
|
|
|
|||||
| 545,057 | 445,365 | |||||||
|
|
|
|
|
|||||
| Gross profit |
451,033 | 387,959 | ||||||
| Operating expenses: |
||||||||
| Selling, general and administrative expenses (Notes 10, 14 and 18) |
294,576 | 256,531 | ||||||
| Research and development expenses |
75,017 | 72,700 | ||||||
|
|
|
|
|
|||||
| 369,593 | 329,231 | |||||||
|
|
|
|
|
|||||
| Operating profit |
81,440 | 58,728 | ||||||
| Other income (deductions): |
||||||||
| Interest and dividend income |
1,542 | 482 | ||||||
| Interest expense |
(207 | ) | (94 | ) | ||||
| Other, net (Notes 2, 10, 13 and 18) |
(3,699 | ) | 20,210 | |||||
|
|
|
|
|
|||||
| (2,364 | ) | 20,598 | ||||||
|
|
|
|
|
|||||
| Income before income taxes |
79,076 | 79,326 | ||||||
| Income taxes |
21,827 | 25,001 | ||||||
|
|
|
|
|
|||||
| Consolidated net income |
57,249 | 54,325 | ||||||
| Less: Net income attributable to noncontrolling interests |
3,131 | 5,008 | ||||||
|
|
|
|
|
|||||
| Net income attributable to Canon Inc. |
54,118 | 49,317 | ||||||
|
|
|
|
|
|||||
| Yen | Yen | |||||||
| Net income attributable to Canon Inc. shareholders per share (Note 12): |
||||||||
| Basic |
52.90 | 47.16 | ||||||
| Diluted |
52.88 | 47.15 | ||||||
19
CANON INC. AND SUBSIDIARIES
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (continued)
Consolidated Statements of Comprehensive Income (Loss)
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Consolidated net income |
57,249 | 54,325 | ||||||
| Other comprehensive income (loss), net of tax (Note 10): |
||||||||
| Foreign currency translation adjustments |
42,987 | (7,584 | ) | |||||
| Net unrealized gains and losses on securities |
(21 | ) | — | |||||
| Net gains and losses on derivative instruments |
617 | 321 | ||||||
| Pension liability adjustments |
4,254 | (118 | ) | |||||
|
|
|
|
|
|||||
| 47,837 | (7,381 | ) | ||||||
|
|
|
|
|
|||||
| Comprehensive income (loss) (Note 9) |
105,086 | 46,944 | ||||||
| Less: Comprehensive income attributable to noncontrolling interests |
3,965 | 5,235 | ||||||
|
|
|
|
|
|||||
| Comprehensive income (loss) attributable to Canon Inc. |
101,121 | 41,709 | ||||||
|
|
|
|
|
|||||
20
CANON INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Cash flows from operating activities: | ||||||||
| Consolidated net income |
170,007 | 167,413 | ||||||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
166,225 | 161,372 | ||||||
| (Gain) loss on disposal of fixed assets |
(9,549 | ) | 6,185 | |||||
| Deferred income taxes |
(6,081 | ) | 2,170 | |||||
| Decrease in trade receivables |
8,399 | 95,423 | ||||||
| Increase in inventories |
(153,886 | ) | (54,239 | ) | ||||
| Increase in trade payables |
75,275 | 33,550 | ||||||
| (Decrease) increase in accrued income taxes |
(12,740 | ) | 24,503 | |||||
| Increase in accrued expenses |
20,144 | 5,359 | ||||||
| Decrease in accrued pension and severance cost |
(29,442 | ) | (31,928 | ) | ||||
| Other, net (Note 14) |
(39,871 | ) | (59,837 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
188,481 | 349,971 | ||||||
|
|
|
|
|
|||||
| Cash flows from investing activities: |
||||||||
| Purchases of fixed assets (Note 5) |
(132,251 | ) | (123,095 | ) | ||||
| Proceeds from sale of fixed assets (Note 5) |
14,316 | 2,102 | ||||||
| Proceeds from maturity of held to maturity securities |
2,151 | — | ||||||
| Purchases of securities |
(20,053 | ) | (1,633 | ) | ||||
| Proceeds from sale and maturity of securities |
6,518 | 1,707 | ||||||
| Acquisitions of businesses, net of cash acquired |
(5,890 | ) | (29,072 | ) | ||||
| Other, net |
2,859 | 1,640 | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(132,350 | ) | (148,351 | ) | ||||
|
|
|
|
|
|||||
| Cash flows from financing activities: |
||||||||
| Repayments of long-term debt |
(1,546 | ) | (47,518 | ) | ||||
| Decrease in short-term loans related to financial services, net (Notes 1 and 8) |
(800 | ) | (800 | ) | ||||
| Increase (decrease) in other short-term loans, net (Notes 1 and 8) |
197,840 | (82 | ) | |||||
| Dividends paid |
(119,326 | ) | (88,891 | ) | ||||
| Repurchases and reissuance of treasury stock, net |
(100,012 | ) | (14 | ) | ||||
| Other, net |
(5,738 | ) | (2,681 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(29,582 | ) | (139,986 | ) | ||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
37,354 | 12,922 | ||||||
|
|
|
|
|
|||||
| Net change in cash and cash equivalents |
63,903 | 74,556 | ||||||
| Cash and cash equivalents at beginning of period | 401,395 | 407,684 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of period | 465,298 | 482,240 | ||||||
|
|
|
|
|
|||||
| Supplemental disclosure for cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest |
657 | 426 | ||||||
| Income taxes |
91,607 | 49,543 | ||||||
21
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
| (1) | Basis of Presentation and Significant Accounting Policies |
| (a) | Basis of Presentation |
The Company issued convertible debentures in the United States in May 1969 and established a program in which its American Depositary Receipts (ADRs) are traded in the U.S. over-the-counter market. Since then, under the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934, as amended, the Company has prepared its annual consolidated financial statements in accordance with U.S. GAAP and filed them with the U.S. Securities and Exchange Commission on Form 20-F. The Company’s ADRs were listed on the NYSE in September 2000 after being quoted on NASDAQ from February 1972 to September 2000.
Canon’s quarterly consolidated financial statements are prepared in accordance with the recognition and measurement criteria of U.S. GAAP. Certain footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
Canon has changed the presentation of “Short-term loans related to financial services” separated from “Short-term loans and current portion of long-term debt” in the consolidated balance sheets from the fourth quarter of 2021. Further, Canon has separated the presentation of “Increase (Decrease) in short-term loans related to financial services, net” from “Increase (Decrease) in short-term loans, net” and included the presentation of “Increase (Decrease) in short-term loans, net” in the consolidated statements of cash flows. These changes were made to enhance the presentation of the Company’s short-term borrowings for the users of the consolidated financial statements. To conform with the change in the presentation, the consolidated statement of cash flows for the nine months ended September 30, 2021 has been reclassified.
The number of consolidated subsidiaries and affiliated companies that were accounted for by the equity method as of September 30, 2022 and December 31, 2021 are summarized as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Consolidated subsidiaries |
332 | 329 | ||||||
| Affiliated companies |
9 | 10 | ||||||
|
|
|
|
|
|||||
| Total |
341 | 339 | ||||||
| (b) | Principles of Consolidation |
The quarterly consolidated financial statements include the accounts of the Company, its majority owned subsidiaries and those variable interest entities where the Company or its consolidated subsidiaries are the primary beneficiaries. All material intercompany balances and transactions have been eliminated.
| (c) | Recent Accounting Guidance |
In November 2021, Accounting Standards Update (“ASU”) No. 2021-10, “Disclosures by Business Entities about Government Assistance”-ASC 832 (“Government Assistance”), was issued by the Financial Accounting Standards Board (“FASB”). The standard requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The disclosures shall include; (1) information about natures of the transactions and related accounting policies used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and (3) significant terms and conditions of the transactions, including commitments and contingencies. The standard is effective for annual reporting periods beginning after December 15, 2021. Canon is currently evaluating the effect that the adoption of the standard will have on its disclosure information. Canon does not expect the adoption of the standard will have a material effect on its consolidated results of operation and financial condition.
22
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
In October 2021, ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”-ASC 805 (“Business Combinations”), was issued by FASB. The standard requires us to apply ASC 606 “Revenue from Contracts with Customers” to recognize and measure contract assets and contract liabilities acquired in a business combination. The standard is effective for interim and annual reporting periods beginning after December 15, 2022. Early application is permitted. Canon is currently evaluating the adoption date and the effect that the adoption of the standard will have on its consolidated results of operations and financial condition.
In March 2022, ASU No. 2022-02, “Troubled Debt Restructurings and Vintage Disclosures”-ASC 326 (“Credit Losses”), was issued by FASB. The standard requires us to expand disclosures for certain loan re-financings and restructurings, and requires current-period gross write-offs by year of origination for financing receivables and net investments in leases. The standard is effective for interim and annual reporting periods beginning after December 15, 2022. Early application is permitted. Canon is currently evaluating the adoption date and the effect that the adoption of the standard will have on its consolidated results of operations and financial condition.
23
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (2) | Investments |
There were no held-to-maturity debt securities as of September 30, 2022. Held-to-maturity debt securities included in short-term investments in the accompanying consolidated balance sheet were ¥2,164 million at December 31, 2021.
The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities included in short-term investments and investments by major security type at September 30, 2022 as follows:
| Millions of yen | ||||||||||||||||
| September 30, 2022 | ||||||||||||||||
| Cost | Gross unrealized holding gains |
Gross unrealized holding losses |
Fair value | |||||||||||||
| Current: |
||||||||||||||||
| Corporate bonds |
9,875 | 31 | 11 | 9,895 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Noncurrent: |
||||||||||||||||
| Corporate bonds |
3,941 | — | 55 | 3,886 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 13,816 | 31 | 66 | 13,781 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
There were no available-for-sale debt securities included in short-term investments and investments at December 31, 2021.
Maturities of available-for-sale securities included in short-term investments and investments in the accompanying consolidated balance sheets at September 30, 2022 are as follows:
| Millions of yen | ||||
| Fair value | ||||
| Due within one year |
9,895 | |||
| Due after one year through five years |
3,886 | |||
|
|
|
|||
| Total |
13,781 | |||
|
|
|
|||
24
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (2) | Investments (continued) |
The unrealized and realized gains and losses related to equity securities for the nine months and three months ended September 30, 2022 and 2021 are as follows:
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Net gains and (losses) recognized during the period on equity securities |
(6,451 | ) | 12,863 | |||||
| Less: Net gains and (losses) recognized during the period on equity securities sold during the period |
61 | 468 | ||||||
|
|
|
|
|
|||||
| Unrealized gains and (losses) recognized during the period on equity securities still held at September 30 |
(6,512 | ) | 12,395 | |||||
|
|
|
|
|
|||||
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Net gains and (losses) recognized during the period on equity securities |
(1,219 | ) | 10,781 | |||||
| Less: Net gains and (losses) recognized during the period on equity securities sold during the period |
83 | 428 | ||||||
|
|
|
|
|
|||||
| Unrealized gains and (losses) recognized during the period on equity securities still held at September 30 |
(1,302 | ) | 10,353 | |||||
|
|
|
|
|
|||||
The carrying amount of non-marketable equity securities without readily determinable fair value totaled ¥7,241 million and ¥6,661 million at September 30, 2022 and December 31, 2021, respectively. The impairment or other adjustments resulting from observable price changes recorded during the nine months ended September 30, 2022 and 2021 were not material.
Time deposits with original maturities of more than three months are ¥2,321 million and ¥1,213 million at September 30, 2022 and December 31, 2021, respectively, and are included in short-term investments in the accompanying consolidated balance sheets.
25
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (3) | Trade Receivables |
Trade receivables are summarized as follows:
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Notes |
26,665 | 28,616 | ||||||
| Accounts |
546,145 | 493,816 | ||||||
|
|
|
|
|
|||||
| Trade receivables |
572,810 | 522,432 | ||||||
| Allowance for credit losses |
(14,153 | ) | (12,494 | ) | ||||
|
|
|
|
|
|||||
| 558,657 | 509,938 | |||||||
|
|
|
|
|
|||||
| (4) | Inventories |
Inventories are summarized as follows:
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Finished goods |
545,455 | 395,381 | ||||||
| Work in process |
272,033 | 199,153 | ||||||
| Raw materials |
66,409 | 56,034 | ||||||
|
|
|
|
|
|||||
| 883,897 | 650,568 | |||||||
|
|
|
|
|
|||||
| (5) | Property, Plant and Equipment, net |
Property, plant and equipment are stated at cost less accumulated depreciation and are summarized as follows:
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Land |
280,915 | 276,306 | ||||||
| Buildings |
1,782,441 | 1,728,811 | ||||||
| Machinery and equipment |
1,939,105 | 1,849,271 | ||||||
| Construction in progress |
56,932 | 43,283 | ||||||
| Finance lease right-of-use assets |
7,916 | 6,533 | ||||||
|
|
|
|
|
|||||
| Cost |
4,067,309 | 3,904,204 | ||||||
| Less: accumulated depreciation |
(3,011,134 | ) | (2,862,801 | ) | ||||
|
|
|
|
|
|||||
| Property, plant and equipment, net |
1,056,175 | 1,041,403 | ||||||
|
|
|
|
|
|||||
Fixed assets presented in the consolidated statements of cash flows includes property, plant and equipment and intangible assets.
26
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (6) | Lessor Accounting |
Lease income is included in Products and Equipment sales in the accompanying consolidated statements of income. Supplemental income statement information is as follows:
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Lease income – sales-type and direct financing leases |
||||||||
| Revenue at lease commencement |
81,902 | 63,070 | ||||||
| Interest income on lease receivables |
15,222 | 13,246 | ||||||
|
|
|
|
|
|||||
| Sales-type and direct financing leases income total |
97,124 | 76,316 | ||||||
|
|
|
|
|
|||||
| Lease income – operating leases |
25,199 | 19,984 | ||||||
| Variable lease income |
3,861 | 3,795 | ||||||
|
|
|
|
|
|||||
| Total lease income |
126,184 | 100,095 | ||||||
|
|
|
|
|
|||||
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Lease income – sales-type and direct financing leases |
||||||||
| Revenue at lease commencement |
30,932 | 19,631 | ||||||
| Interest income on lease receivables |
5,493 | 4,422 | ||||||
|
|
|
|
|
|||||
| Sales-type and direct financing leases income total |
36,425 | 24,053 | ||||||
|
|
|
|
|
|||||
| Lease income – operating leases |
9,740 | 6,348 | ||||||
| Variable lease income |
1,558 | 2,310 | ||||||
|
|
|
|
|
|||||
| Total lease income |
47,723 | 32,711 | ||||||
|
|
|
|
|
|||||
Allowance for Credit Losses
Finance receivables represent financing leases, which consist of sales-type leases and direct financing leases. These receivables typically have terms ranging from 1 year to 8 years. Finance receivables are ¥424,700 million and ¥346,624 million at September 30, 2022 and December 31, 2021, respectively.
The activities in the allowance for credit losses are as follows:
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Balance at beginning of period |
3,791 | 3,068 | ||||||
| Write-offs |
(1,689 | ) | (1,232 | ) | ||||
| Provision |
1,518 | 1,376 | ||||||
| Translation adjustments and other |
1,430 | 431 | ||||||
|
|
|
|
|
|||||
| Balance at end of period |
5,050 | 3,643 | ||||||
|
|
|
|
|
|||||
27
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (6) | Lessor Accounting (continued) |
Canon has policies in place to ensure that its products are sold to customers with an appropriate credit history, and continuously monitors its customers’ credit quality based on information including length of period in arrears, macroeconomic conditions, initiation of legal proceedings against customers and bankruptcy filings. The allowance for credit losses of finance receivables is evaluated collectively based on historical experiences of credit losses and reasonable and supportable forecasts. An additional reserve for individual accounts is recorded when Canon becomes aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings. Finance receivables which are past due or individually evaluated for impairment at September 30, 2022 and December 31, 2021 are not significant.
Information about transferring finance receivables
Canon has syndication arrangements to sell its entire interests in finance receivables to the third-party financial institutions. The transactions under the arrangements are accounted for as sales in accordance with ASC 860 “Transfers and Servicing.” There were no significant transfers of finance receivables for the nine months ended September 30, 2022 and 2021. The amount that remained uncollected was ¥17,716 million and ¥23,984 million at September 30, 2022 and December 31, 2021, respectively. Cash proceeds from the transactions are included in other, net under the cash flow from operating activities in the consolidated statement of cash flows. Canon continues to provide collection and administrative services for the financial institutions. The amount associated with the servicing liability measured at fair value was not significant at September 30, 2022 and December 31, 2021. Canon also retains limited recourse obligations which cover credit defaults. The recourse obligations were not significant at September 30, 2022 and December 31, 2021.
| (7) | Trade Payables |
Trade payables are summarized as follows:
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Notes |
87,465 | 82,243 | ||||||
| Accounts |
305,534 | 256,361 | ||||||
|
|
|
|
|
|||||
| 392,999 | 338,604 | |||||||
|
|
|
|
|
|||||
| (8) | Short-Term Loans and Long-Term Debt |
Short-term loans related to financial services are external loans held by Canon’s lease subsidiaries for the purpose of financing its customers through loans. Short-term loans related to financial services consisting of bank borrowings at September 30, 2022 and December 31, 2021 were ¥41,500 million and ¥42,300 million, and other short-term loans consisting of bank borrowings were ¥200,026 million and ¥1,301 million, respectively.
Canon has revolving credit facilities expiring in December 2023. The outstanding loans under the credit facilities are ¥174,000 million at a floating interest of 0.22% and Canon has no unused credit facilities as of September 30, 2022.
28
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (9) | Equity |
The changes in the carrying amounts of total equity, equity attributable to Canon Inc. shareholders and equity attributable to noncontrolling interests in the consolidated balance sheets for the nine months ended September 30, 2022 and 2021 are as follows:
| 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 |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
| Balance at December 31, 2021 |
174,762 | 403,119 | 68,015 | 3,538,037 | (151,794 | ) | (1,158,366 | ) | 2,873,773 | 224,656 | 3,098,429 | |||||||||||||||||||||||||
| Equity transactions with noncontrolling interests and other |
298 | (4,538 | ) | 4,535 | 295 | 320 | 615 | |||||||||||||||||||||||||||||
| Dividends to Canon Inc. shareholders (115.00 yen per share) |
(119,326 | ) | (119,326 | ) | (119,326 | ) | ||||||||||||||||||||||||||||||
| Dividends to noncontrolling interests |
(6,138 | ) | (6,138 | ) | ||||||||||||||||||||||||||||||||
| Transfer to legal reserve |
1,432 | 1,014 | (2,446 | ) | — | — | ||||||||||||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||||||||
| Net income |
159,118 | 159,118 | 10,889 | 170,007 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
307,209 | 307,209 | 1,809 | 309,018 | ||||||||||||||||||||||||||||||||
| Net unrealized gains and losses on securities |
(21 | ) | (21 | ) | (21 | ) | ||||||||||||||||||||||||||||||
| Net gains and losses on derivative instruments |
(1,902 | ) | (1,902 | ) | 35 | (1,867 | ) | |||||||||||||||||||||||||||||
| Pension liability adjustments |
3,495 | 3,495 | 24 | 3,519 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total comprehensive income (loss) |
467,899 | 12,757 | 480,656 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Repurchases and reissuance of treasury stock |
(11 | ) | (8 | ) | (99,993 | ) | (100,012 | ) | (100,012 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at September 30, 2022 |
174,762 | 404,838 | 64,491 | 3,579,910 | 156,987 | (1,258,359 | ) | 3,122,629 | 231,595 | 3,354,224 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| 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 |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
| Balance at December 31, 2020 |
174,762 | 404,620 | 69,436 | 3,409,371 | (324,789 | ) | (1,158,369 | ) | 2,575,031 | 209,010 | 2,784,041 | |||||||||||||||||||||||||
| Equity transactions with noncontrolling interests and other |
(61 | ) | (61 | ) | 1,599 | 1,538 | ||||||||||||||||||||||||||||||
| Dividends to Canon Inc. shareholders (85.00 yen per share) |
(88,891 | ) | (88,891 | ) | (88,891 | ) | ||||||||||||||||||||||||||||||
| Dividends to noncontrolling interests |
(5,181 | ) | (5,181 | ) | ||||||||||||||||||||||||||||||||
| Transfer to legal reserve |
(766 | ) | 766 | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||||||||
| Net income |
154,920 | 154,920 | 12,493 | 167,413 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
79,409 | 79,409 | 1,024 | 80,433 | ||||||||||||||||||||||||||||||||
| Net unrealized gains and losses on securities |
— | — | — | |||||||||||||||||||||||||||||||||
| Net gains and losses on derivative instruments |
(347 | ) | (347 | ) | 23 | (324 | ) | |||||||||||||||||||||||||||||
| Pension liability adjustments |
20,022 | 20,022 | 113 | 20,135 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total comprehensive income (loss) |
254,004 | 13,653 | 267,657 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Repurchases and reissuance of treasury stock |
(10 | ) | (11 | ) | 7 | (14 | ) | (14 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at September 30, 2021 |
174,762 | 404,549 | 68,670 | 3,476,155 | (225,705 | ) | (1,158,362 | ) | 2,740,069 | 219,081 | 2,959,150 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
29
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (9) | Equity (continued) |
The changes in the carrying amounts of total equity, equity attributable to Canon Inc. shareholders and equity attributable to noncontrolling interests in the consolidated balance sheets for the three months ended September 30, 2022 and 2021 are as follows:
| 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 |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
| Balance at Jun 30, 2022 |
174,762 | 404,843 | 69,004 | 3,583,088 | 109,984 | (1,208,355 | ) | 3,133,326 | 230,425 | 3,363,751 | ||||||||||||||||||||||||||
| Equity transactions with noncontrolling interests and other |
(5 | ) | (4,538 | ) | 4,538 | (5 | ) | 14 | 9 | |||||||||||||||||||||||||||
| Dividends to Canon Inc. shareholders (60.00 yen per share) |
(61,809 | ) | (61,809 | ) | (61,809 | ) | ||||||||||||||||||||||||||||||
| Dividends to noncontrolling interests |
(2,809 | ) | (2,809 | ) | ||||||||||||||||||||||||||||||||
| Transfer to legal reserve |
25 | (25 | ) | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||||||||
| Net income |
54,118 | 54,118 | 3,131 | 57,249 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
42,166 | 42,166 | 821 | 42,987 | ||||||||||||||||||||||||||||||||
| Net unrealized gains and losses on securities |
(21 | ) | (21 | ) | (21 | ) | ||||||||||||||||||||||||||||||
| Net gains and losses on derivative instruments |
612 | 612 | 5 | 617 | ||||||||||||||||||||||||||||||||
| Pension liability adjustments |
4,246 | 4,246 | 8 | 4,254 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total comprehensive income (loss) |
101,121 | 3,965 | 105,086 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Repurchases and reissuance of treasury stock |
(50,004 | ) | (50,004 | ) | (50,004 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at September 30, 2022 |
174,762 | 404,838 | 64,491 | 3,579,910 | 156,987 | (1,258,359 | ) | 3,122,629 | 231,595 | 3,354,224 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| 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 |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||
| Balance at Jun 30, 2021 |
174,762 | 404,549 | 68,656 | 3,473,914 | (218,097 | ) | (1,158,359 | ) | 2,745,425 | 215,922 | 2,961,347 | |||||||||||||||||||||||||
| Equity transactions with noncontrolling interests and other |
||||||||||||||||||||||||||||||||||||
| Dividends to Canon Inc. shareholders (45.00 yen per share) |
(47,060 | ) | (47,060 | ) | (47,060 | ) | ||||||||||||||||||||||||||||||
| Dividends to noncontrolling interests |
(2,076 | ) | (2,076 | ) | ||||||||||||||||||||||||||||||||
| Transfer to legal reserve |
14 | (14 | ) | — | — | |||||||||||||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||||||||||
| Net income |
49,317 | 49,317 | 5,008 | 54,325 | ||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax |
||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
(7,767 | ) | (7,767 | ) | 183 | (7,584 | ) | |||||||||||||||||||||||||||||
| Net unrealized gains and losses on securities |
— | — | — | |||||||||||||||||||||||||||||||||
| Net gains and losses on derivative instruments |
315 | 315 | 6 | 321 | ||||||||||||||||||||||||||||||||
| Pension liability adjustments |
(156 | ) | (156 | ) | 38 | (118 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total comprehensive income (loss) |
41,709 | 5,235 | 46,944 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Repurchases and reissuance of treasury stock |
(2 | ) | (3 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Balance at September 30, 2021 |
174,762 | 404,549 | 68,670 | 3,476,155 | (225,705 | ) | (1,158,362 | ) | 2,740,069 | 219,081 | 2,959,150 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
30
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (10) | Other Comprehensive Income (Loss) |
Changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 and 2021 are as follows:
| Millions of yen | ||||||||||||||||||||
| Foreign currency translation adjustments |
Net unrealized gains and losses on securities |
Gains and losses on derivative instruments |
Pension liability adjustments |
Total | ||||||||||||||||
| Balance at December 31, 2021 |
5,519 | — | (894 | ) | (156,419 | ) | (151,794 | ) | ||||||||||||
| Other comprehensive income (loss) before reclassifications |
311,268 | (28 | ) | (7,055 | ) | 1,864 | 306,049 | |||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) |
(4,059 | ) | 7 | 5,153 | 1,631 | 2,732 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net change during the period |
307,209 | (21 | ) | (1,902 | ) | 3,495 | 308,781 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance at September 30, 2022 |
312,728 | (21 | ) | (2,796 | ) | (152,924 | ) | 156,987 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Millions of yen | ||||||||||||||||||||
| Foreign currency translation adjustments |
Net unrealized gains and losses on securities |
Gains and losses on derivative instruments |
Pension liability adjustments |
Total | ||||||||||||||||
| Balance at December 31, 2020 |
(113,646 | ) | — | 100 | (211,243 | ) | (324,789 | ) | ||||||||||||
| Other comprehensive income (loss) before reclassifications |
80,107 | — | (2,334 | ) | 16,510 | 94,283 | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) |
(698 | ) | — | 1,987 | 3,512 | 4,801 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net change during the period |
79,409 | — | (347 | ) | 20,022 | 99,084 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance at September 30, 2021 |
(34,237 | ) | — | (247 | ) | (191,221 | ) | (225,705 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
31
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (10) | Other Comprehensive Income (Loss) (continued) |
Reclassifications out of accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 and 2021 are as follows:
| Millions of yen | ||||||||||
| Amount reclassified from accumulated other comprehensive income (loss)* | ||||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
Affected line items in consolidated statements of income | ||||||||
| Foreign currency translation adjustments |
(5,883 | ) | (1,012 | ) | Selling, general and administrative expenses | |||||
| 1,824 | 314 | Income taxes | ||||||||
|
|
|
|
|
|||||||
| (4,059 | ) | (698 | ) | Consolidated net income | ||||||
| — | — | Net income attributable to noncontrolling interests | ||||||||
| (4,059 | ) | (698 | ) | Net income attributable to Canon Inc. | ||||||
|
|
|
|
|
|||||||
| Net unrealized gains and losses on securities |
9 | — | Other, net | |||||||
| (2 | ) | — | Income taxes | |||||||
|
|
|
|
|
|||||||
| 7 | — | Consolidated net income | ||||||||
| — | — | Net income attributable to noncontrolling interests | ||||||||
| 7 | — | Net income attributable to Canon Inc. | ||||||||
|
|
|
|
|
|||||||
| Gains and losses on derivative instruments |
7,060 | 2,843 | Net sales | |||||||
| (1,963 | ) | (856 | ) | Income taxes | ||||||
|
|
|
|
|
|||||||
| 5,097 | 1,987 | Consolidated net income | ||||||||
| 56 | — | Net income attributable to noncontrolling interests | ||||||||
| 5,153 | 1,987 | Net income attributable to Canon Inc. | ||||||||
|
|
|
|
|
|||||||
| Pension liability adjustments |
2,460 | 5,349 | Other, net | |||||||
| (451 | ) | (1,213 | ) | Income taxes | ||||||
|
|
|
|
|
|||||||
| 2,009 | 4,136 | Consolidated net income | ||||||||
| (378 | ) | (624 | ) | Net income attributable to noncontrolling interests | ||||||
| 1,631 | 3,512 | Net income attributable to Canon Inc. | ||||||||
|
|
|
|
|
|||||||
| Total amount reclassified, net of tax and noncontrolling interests |
2,732 | 4,801 | ||||||||
|
|
|
|
|
|||||||
* Increase (decrease) of amounts indicate losses (gains) in the consolidated statements of income.
32
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (10) | Other Comprehensive Income (Loss) (continued) |
Reclassifications out of accumulated other comprehensive income (loss) for the three months ended September 30, 2022 and 2021 are as follows:
| Millions of yen | ||||||||||
| Amount reclassified from accumulated other comprehensive income (loss)* | ||||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
Affected line items in consolidated statements of income | ||||||||
| Foreign currency translation adjustments |
(5,883 | ) | (1,012 | ) | Selling, general and administrative expenses | |||||
| 1,824 | 314 | Income taxes | ||||||||
|
|
|
|
|
|||||||
| (4,059 | ) | (698 | ) | Consolidated net income | ||||||
| — | — | Net income attributable to noncontrolling interests | ||||||||
| (4,059 | ) | (698 | ) | Net income attributable to Canon Inc. | ||||||
|
|
|
|
|
|||||||
| Net unrealized gains and losses on securities |
9 | — | Other, net | |||||||
| (2 | ) | — | Income taxes | |||||||
|
|
|
|
|
|||||||
| 7 | — | Consolidated net income | ||||||||
| — | — | Net income attributable to noncontrolling interests | ||||||||
| 7 | — | Net income attributable to Canon Inc. | ||||||||
|
|
|
|
|
|||||||
| Gains and losses on derivative instruments |
3,787 | 1,065 | Net sales | |||||||
| (1,049 | ) | (314 | ) | Income taxes | ||||||
|
|
|
|
|
|||||||
| 2,738 | 751 | Consolidated net income | ||||||||
| 40 | 6 | Net income attributable to noncontrolling interests | ||||||||
|
|
|
|
|
|||||||
| 2,778 | 757 | Net income attributable to Canon Inc. | ||||||||
|
|
|
|
|
|||||||
| Pension liability adjustments |
820 | 1,555 | Other, net | |||||||
| (150 | ) | (357 | ) | Income taxes | ||||||
|
|
|
|
|
|||||||
| 670 | 1,198 | Consolidated net income | ||||||||
| (125 | ) | (210 | ) | Net income attributable to noncontrolling interests | ||||||
|
|
|
|
|
|||||||
| 545 | 988 | Net income attributable to Canon Inc. | ||||||||
|
|
|
|
|
|||||||
| Total amount reclassified, net of tax and noncontrolling interests |
(729 | ) | 1,047 | |||||||
|
|
|
|
|
|||||||
* Increase (decrease) of amounts indicate losses (gains) in the consolidated statements of income.
33
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (11) | Revenue |
Canon recognizes contract assets primarily for unbilled receivables mainly arising from services contracts for the products of the Printing Business Unit. Contract assets are reclassified to trade receivables when they are billed under the terms of the contract. The difference between the opening and closing balances of contract assets primarily results from the timing difference of Canon’s performance and billing to customers. Contract assets at September 30, 2022 and December 31, 2021 were ¥39,835 million and ¥44,722 million respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets.
Canon typically bills to the customer when the performance obligation is satisfied and collects the payment in relatively short term except for certain maintenance service of the products of the Printing Business Unit and the Medical Business Unit and certain industrial equipment for which Canon occasionally receives the payment in advance from customers. The amount received in excess of revenue recognized is recorded as deferred revenue until the performance obligation for distinct goods or services are satisfied. Deferred revenue at September 30, 2022 and December 31, 2021 were ¥148,888 million and ¥132,087 million, respectively, and are included in other current liabilities and other non-current liabilities in the accompanying consolidated balance sheets. Revenue recognized for the nine months ended September 30, 2022, which had been included in the deferred revenue balance at December 31, 2021, was ¥103,269 million.
Remaining performance obligations for products and equipment at September 30, 2022 primarily arise from the sales of certain industrial equipment, amounting to ¥142,786 million, 72% of which is expected to be recognized as revenue within one year, 24% is within two years and remaining 4% is within three years. Disclosure of remaining performance obligations is not required for the majority of service since the related revenue is recognized on an as billed basis applying the right to invoice practical expedient or is generated from the contracts with original expected duration of less than one year. The portion of fixed maintenance service contract for the products of the Printing Business Unit and the Medical Business Unit with original expected duration of more than one year is approximately 13% of total service revenue and the average remaining period for these fixed contracts as of September 30, 2022 is about two years.
Disaggregated revenues by business unit, product and geographic area are described in Note 19.
34
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (12) | Net Income Attributable to Canon Inc. Shareholders per Share |
Reconciliations of the numerators and denominators of basic and diluted net income attributable to Canon Inc. shareholders per share computations for the nine months ended September 30, 2022 and 2021 are as follows:
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Net income attributable to Canon Inc. |
159,118 | 154,920 | ||||||
| Diluted net income attributable to Canon Inc. |
159,115 | 154,918 | ||||||
| Number of shares | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Average common shares outstanding |
1,035,225,840 | 1,045,632,929 | ||||||
| Effect of dilutive securities: |
||||||||
| Stock options |
329,670 | 273,957 | ||||||
|
|
|
|
|
|||||
| Diluted common shares outstanding |
1,035,555,510 | 1,045,906,886 | ||||||
|
|
|
|
|
|||||
| Yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Net income attributable to Canon Inc. shareholders per share: |
||||||||
| Basic |
153.70 | 148.16 | ||||||
| Diluted |
153.65 | 148.12 | ||||||
Reconciliations of the numerators and denominators of basic and diluted net income attributable to Canon Inc. shareholders per share computations for the three months ended September 30, 2022 and 2021 are as follows:
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Net income attributable to Canon Inc. |
54,118 | 49,317 | ||||||
| Diluted net income attributable to Canon Inc. |
54,117 | 49,316 | ||||||
| Number of shares | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Average common shares outstanding |
1,023,041,561 | 1,045,633,285 | ||||||
| Effect of dilutive securities: |
||||||||
| Stock options |
350,492 | 286,390 | ||||||
|
|
|
|
|
|||||
| Diluted common shares outstanding |
1,023,392,053 | 1,045,919,675 | ||||||
|
|
|
|
|
|||||
| Yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Net income attributable to Canon Inc. shareholders per share: |
||||||||
| Basic |
52.90 | 47.16 | ||||||
| Diluted |
52.88 | 47.15 | ||||||
During the nine and three months ended September 30, 2022 and 2021, there were dilutive effects from the stock options granted by the Company.
35
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (13) | Derivatives and Hedging Activities |
Risk management policy
Canon operates internationally, exposing it to the risk of changes in foreign currency exchange rates. Derivative financial instruments are comprised principally of foreign exchange contracts utilized by the Company and certain of its subsidiaries to reduce the risk. Canon assesses foreign currency exchange rate risk by continually monitoring changes in the exposures and by evaluating hedging opportunities. Canon does not hold or issue derivative financial instruments for speculative purposes. Canon is also exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but it is not expected that any counterparties will fail to meet their obligations. Most of the counterparties are internationally recognized financial institutions and selected by Canon taking into account their financial condition, and contracts are diversified across a number of major financial institutions.
Foreign currency exchange rate risk management
Canon’s international operations expose Canon to the risk of changes in foreign currency exchange rates. Canon uses foreign exchange contracts to manage certain foreign currency exchange exposures principally from the exchange of U.S. dollars and euros into yen. These contracts are primarily used to hedge the foreign currency exposure of forecasted intercompany sales and intercompany trade receivables that are denominated in foreign currencies. In accordance with Canon’s policy, a specific portion of foreign currency exposure resulting from forecasted intercompany sales is hedged using foreign exchange contracts which principally mature within three months.
Cash flow hedge
Changes in the fair value of derivative financial instruments designated as cash flow hedges, including foreign exchange contracts associated with forecasted intercompany sales, are reported in accumulated other comprehensive income (loss). These amounts are subsequently reclassified into earnings in the same period as the hedged items affect earnings. Substantially all amounts recorded in accumulated other comprehensive income (loss) as of September 30, 2022 are expected to be recognized in net sales over the next twelve months. Changes in the fair value of a foreign exchange contract for the period between the date that the forecasted intercompany sales occur and its maturity date are recognized in earnings.
Derivatives not designated as hedges
Canon has entered into certain foreign exchange contracts to primarily offset the earnings impact related to fluctuations in foreign currency exchange rates associated with certain assets denominated in foreign currencies. Although these foreign exchange contracts have not been designated as hedges as required in order to apply hedge accounting, the contracts are effective from an economic perspective. The changes in the fair value of these contracts are recorded in earnings immediately.
36
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (13) | Derivatives and Hedging Activities (continued) |
Contract amounts of foreign exchange contracts at September 30, 2022 and December 31, 2021 are set forth below:
| Millions of yen | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| To sell foreign currencies |
201,315 | 169,392 | ||||||
| To buy foreign currencies |
31,568 | 27,453 | ||||||
Fair value of derivative instruments in the consolidated balance sheets
The following tables present Canon’s derivative instruments measured at gross fair value as reflected in the consolidated balance sheets at September 30, 2022 and December 31, 2021.
Derivatives designated as hedging instruments
| Millions of yen |
||||||||||
| Balance sheet location |
Fair value | |||||||||
| September 30, 2022 | December 31, 2021 | |||||||||
| Assets: |
||||||||||
| Foreign exchange contracts |
Prepaid expenses and other current assets | 166 | 42 | |||||||
| Liabilities: |
||||||||||
| Foreign exchange contracts |
Other current liabilities | 2,862 | 777 | |||||||
Derivatives not designated as hedging instruments
| Millions of yen |
||||||||||
| Balance sheet location |
Fair value | |||||||||
| September 30, 2022 | December 31, 2021 | |||||||||
| Assets: |
||||||||||
| Foreign exchange contracts |
Prepaid expenses and other current assets | 529 | 23 | |||||||
| Liabilities: |
||||||||||
| Foreign exchange contracts |
Other current liabilities | 3,457 | 1,342 | |||||||
37
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (13) | Derivatives and Hedging Activities (continued) |
Effect of derivative instruments in the consolidated statements of income
The following tables present the effect of Canon’s derivative instruments in the consolidated statements of income for the nine and three months ended September 30, 2022 and 2021.
Derivatives in cash flow hedging relationships
| Millions of yen | ||||||||||||
| Nine months ended September 30, 2022 |
Gain (loss) recognized in OCI |
Gain (loss) reclassified from accumulated OCI into income |
||||||||||
| Amount | Location | Amount | ||||||||||
| Foreign exchange contracts |
(9,543 | ) | Net sales | (7,060 | ) | |||||||
| Millions of yen | ||||||||||||
| Nine months ended September 30, 2021 |
Gain (loss) recognized in OCI |
Gain (loss) reclassified from accumulated OCI into income |
||||||||||
| Amount | Location | Amount | ||||||||||
| Foreign exchange contracts |
(3,229 | ) | Net sales | (2,843 | ) | |||||||
| Millions of yen | ||||||||||||
| Three months ended September 30, 2022 |
Gain (loss) recognized in OCI |
Gain (loss) reclassified from accumulated OCI into income |
||||||||||
| Amount | Location | Amount | ||||||||||
| Foreign exchange contracts |
(2,785 | ) | Net sales | (3,787 | ) | |||||||
| Millions of yen | ||||||||||||
| Three months ended September 30, 2021 |
Gain (loss) recognized in OCI |
Gain (loss) reclassified from accumulated OCI into income |
||||||||||
| Amount | Location | Amount | ||||||||||
| Foreign exchange contracts |
(573 | ) | Net sales | (1,065 | ) | |||||||
38
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (13) | Derivatives and Hedging Activities (continued) |
Effect of derivative instruments in the consolidated statements of income (continued)
Derivatives not designated as hedging instruments
| Millions of yen | ||||||||||
| Nine months ended September 30, 2022 |
Gain (loss) recognized in income on derivative |
|||||||||
| Location | Amount | |||||||||
| Foreign exchange contracts |
Other, net | (15,526 | ) | |||||||
| Millions of yen | ||||||||||
| Nine months ended September 30, 2021 |
Gain (loss) recognized in income on derivative |
|||||||||
| Location | Amount | |||||||||
| Foreign exchange contracts |
Other, net | (3,803 | ) | |||||||
| Millions of yen | ||||||||||
| Three months ended September 30, 2022 |
Gain (loss) recognized in income on derivative |
|||||||||
| Location | Amount | |||||||||
| Foreign exchange contracts |
Other, net | (1,843 | ) | |||||||
| Millions of yen | ||||||||||
| Three months ended September 30, 2021 |
Gain (loss) recognized in income on derivative |
|||||||||
| Location | Amount | |||||||||
| Foreign exchange contracts |
Other, net | 807 | ||||||||
39
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (14) | Lessee Accounting |
Lease costs are included in cost of sales or selling general and administrative expenses in the accompanying consolidated statements of income. Supplemental income statement information is as follows:
| Millions of yen | ||||||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||||||
| Operating lease cost |
33,837 | 29,672 | ||||||||||
| Short-term lease cost |
11,261 | 10,435 | ||||||||||
| Other lease cost |
159 | 37 | ||||||||||
|
|
|
|
|
|||||||||
| Total |
45,257 | 40,144 | ||||||||||
|
|
|
|
|
|||||||||
| Millions of yen | ||||||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||||||
| Operating lease cost |
11,363 | 9,641 | ||||||||||
| Short-term lease cost |
4,234 | 3,559 | ||||||||||
| Other lease cost |
102 | (18 | ) | |||||||||
|
|
|
|
|
|||||||||
| Total |
15,699 | 13,182 | ||||||||||
|
|
|
|
|
|||||||||
Operating lease cash flow
Supplemental cash flow information is as follows.
| Millions of yen | ||||||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||||||
| Cash paid for amount included in the measurement of lease liabilities |
||||||||||||
| Operating cash flows from operating leases |
33,819 | 29,623 | ||||||||||
|
|
|
|
|
|||||||||
| Noncash activity - Rights of use assets obtained in exchange for lease liabilities |
||||||||||||
| Operating leases |
35,644 | 12,577 | ||||||||||
|
|
|
|
|
|||||||||
Maturity Analysis
The following is a schedule by year of the future minimum lease payments under operating leases at September 30, 2022.
| Millions of yen | ||||
| Within one year |
34,877 | |||
| Two years |
26,187 | |||
| Three years |
17,048 | |||
| Four years |
12,823 | |||
| Five years |
9,290 | |||
| Thereafter |
13,906 | |||
|
|
|
|||
| Total future minimum lease payments |
114,131 | |||
| Less Imputed Interest |
(3,876 | ) | ||
|
|
|
|||
| Total |
110,255 | |||
|
|
|
|||
40
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (15) | Commitments and Contingent Liabilities |
Commitments
As of September 30, 2022, commitments outstanding for the purchase of property, plant and equipment approximated ¥92,765 million, and commitments outstanding for the purchase of parts and raw materials approximated ¥316,024 million.
Guarantees
Canon occupies sales offices and other facilities under lease arrangements accounted for as operating leases. Deposits mainly for restoration made under such arrangements aggregated ¥10,255 million and ¥10,812 million at September 30, 2022 and December 31, 2021, respectively, and are included in noncurrent receivables in the accompanying consolidated balance sheets.
Canon provides guarantees for its employees, affiliates and other companies. The guarantees for the employees are principally made for their housing loans. The guarantees for affiliates and other companies are made for their lease obligations and bank loans to facilitate financing.
Canon would have to perform under a guarantee if the borrower defaults on a payment within the contract terms. The contract terms are 1 year to 15 years in case of employees with housing loans, and 1 year to 6 years in case of affiliates and other companies with lease obligations and bank loans. The maximum amount of undiscounted payments Canon would have had to make in the event of default is ¥1,783 million at September 30, 2022. The carrying amounts of the liabilities recognized for Canon’s obligations as a guarantor under those guarantees at September 30, 2022 were not significant.
Canon also offers assurance-type warranties under which it generally guarantees the performance of products delivered and services rendered for a certain period or term. Estimated product warranty costs are recorded at the time revenue is recognized and are included in selling, general and administrative expenses in the accompanying consolidated statements of income. Estimates for accrued product warranty costs are based on historical experience. Accrued product warranty costs are included in accrued expenses in the accompanying consolidated balance sheets and changes in accrued product warranty cost for the nine months ended September 30, 2022 and 2021 are summarized as follows:
Nine months ended September 30, 2022
| Millions of yen | ||||
| Balance at December 31, 2021 |
16,949 | |||
| Addition |
14,382 | |||
| Utilization |
(12,406 | ) | ||
| Other |
(348 | ) | ||
|
|
|
|||
| Balance at September 30, 2022 |
18,577 | |||
|
|
|
|||
Nine months ended September 30, 2021
| Millions of yen | ||||
| Balance at December 31, 2020 |
14,300 | |||
| Addition |
11,889 | |||
| Utilization |
(9,734 | ) | ||
| Other |
(829 | ) | ||
|
|
|
|||
| Balance at September 30, 2021 |
15,626 | |||
|
|
|
|||
41
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (15) | Commitments and Contingent Liabilities (continued) |
Legal proceedings
Canon is involved in various claims and legal actions arising in the ordinary course of business. Canon has recorded provisions for liabilities when it is probable that liabilities have been incurred and the amount of loss can be reasonably estimated. Canon reviews these provisions at least quarterly and adjusts these provisions to reflect the impact of the negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Based on its experience, although litigation is inherently unpredictable, Canon believes that any damage amounts claimed in outstanding matters are not a meaningful indicator of Canon’s potential liability. In the opinion of management, any reasonably possible range of losses from outstanding matters would not have a material adverse effect on Canon’s consolidated financial position, results of operations, or cash flows.
| (16) | Disclosures about the Fair Value of Financial Instruments and Concentrations of Credit Risk |
Fair value of financial instruments
The estimated fair values of Canon’s financial instruments at September 30, 2022 and December 31, 2021 are set forth below. The following summary excludes cash and cash equivalents, trade receivables, noncurrent receivables, short-term loans, trade payables and accrued expenses, and the fair values of these instruments approximate their carrying amounts. The summary also excludes investments and derivative instruments which are disclosed in Note 2 and Note 17, and Note 13, respectively.
| Millions of yen | ||||||||||||||||
| September 30, 2022 | December 31, 2021 | |||||||||||||||
| Carrying amount |
Estimated fair value |
Carrying amount |
Estimated fair value |
|||||||||||||
| Long-term debt, including current installments |
(177,438 | ) | (177,256 | ) | (177,410 | ) | (177,343 | ) | ||||||||
The following methods and assumptions are used to estimate the fair value in the above table.
Long-term debt
Canon’s long-term debt instruments are classified as Level 2 instruments and valued based on the present value of future cash flows associated with each instrument discounted using current market borrowing rates for similar debt instruments of comparable maturity. The levels are more fully described in Note 17.
Limitations of fair value estimates
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Concentrations of credit risk
No single customer accounted for more than 10 percent of consolidated trade receivables as of September 30, 2022 and December 31, 2021.
42
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (17) | Fair Value Measurements |
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is as follows:
| Level 1 - | Inputs are quoted prices in active markets for identical assets or liabilities. | |
| Level 2 - | Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| Level 3 - | Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable, which reflect the reporting entity’s own assumptions about the assumptions that market participants would use in establishing a price. |
Assets and liabilities measured at fair value on a recurring basis
The following tables present Canon’s assets and liabilities that are measured at fair value on a recurring basis consistent with the fair value hierarchy at September 30, 2022 and December 31, 2021.
| Millions of yen | ||||||||||||||||
| September 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: |
||||||||||||||||
| Cash and cash equivalents |
— | 2,450 | — | 2,450 | ||||||||||||
| Short-term investments: |
||||||||||||||||
|
Available-for-sale: |
||||||||||||||||
| Corporate bonds |
— | 9,895 | — | 9,895 | ||||||||||||
| Investments: |
||||||||||||||||
|
Available-for-sale: |
||||||||||||||||
| Corporate bonds |
— | 3,886 | — | 3,886 | ||||||||||||
| Fund trusts and others |
306 | 436 | — | 742 | ||||||||||||
| Equity securities |
21,523 | — | — | 21,523 | ||||||||||||
| Prepaid expenses and other current assets: |
||||||||||||||||
| Derivatives |
— | 695 | — | 695 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
21,829 | 17,362 | — | 39,191 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Other current liabilities: |
||||||||||||||||
| Derivatives |
— | 6,319 | — | 6,319 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
— | 6,319 | — | 6,319 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
43
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (17) | Fair Value Measurements (continued) |
| Millions of yen | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: |
||||||||||||||||
| Cash and cash equivalents |
— | 500 | — | 500 | ||||||||||||
| Short-term investments: |
||||||||||||||||
|
Available-for-sale: |
||||||||||||||||
| Corporate bonds |
— | — | — | — | ||||||||||||
| Investments: |
||||||||||||||||
|
Available-for-sale: |
||||||||||||||||
| Corporate bonds |
— | — | — | — | ||||||||||||
| Fund trusts and others |
281 | 328 | — | 609 | ||||||||||||
| Equity securities |
28,640 | — | — | 28,640 | ||||||||||||
| Prepaid expenses and other current assets: |
||||||||||||||||
| Derivatives |
— | 65 | — | 65 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
28,921 | 893 | — | 29,814 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Liabilities: |
||||||||||||||||
| Other current liabilities: |
||||||||||||||||
| Derivatives |
— | 2,119 | — | 2,119 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities |
— | 2,119 | — | 2,119 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Level 1 investments are comprised principally of Japanese equity securities, which are valued using an unadjusted quoted market price in active markets with sufficient volume and frequency of transactions. Level 2 assets and liabilities are comprised principally of corporate bonds included in cash and cash equivalents, investments or short-term investments, and derivatives. Corporate bonds included in cash and cash equivalents, and investments or short-term investments are valued using quoted prices for identical assets in markets that are not active or quotes obtained from counterparties or third parties.
Derivative financial instruments are comprised of foreign exchange contracts and valued using quotes obtained from counterparties or third parties, which are periodically validated by pricing models using observable market inputs, such as foreign currency exchange rates and interest rates, based on market approach.
Assets and liabilities measured at fair value on a nonrecurring basis
During the nine months ended September 30, 2022 and 2021, there were no circumstances that required any significant assets or liabilities to be measured at fair value on a nonrecurring basis.
44
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (18) | Supplemental Information |
Foreign Currency Exchange Gains and Losses
Gains and losses resulting from foreign currency transactions, including foreign exchange contracts, and translation of assets and liabilities denominated in foreign currencies are included in other, net of other income (deductions) in the consolidated statements of income. Foreign currency exchange gains and losses were net losses of ¥47,078 million and ¥14,384 million for the nine months ended September 30, 2022 and 2021, respectively, and were net losses of ¥10,006 million and ¥740 million for the three months ended September 30, 2022 and 2021, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were ¥29,130 million and ¥24,493 million for the nine months ended September 30, 2022 and 2021, respectively, and were ¥11,062 million and ¥9,424 million for the three months ended September 30, 2022 and 2021, respectively, and are included in selling, general and administrative expenses in the consolidated statements of income.
Shipping and Handling Costs
Shipping and handling costs totaled ¥43,940 million and ¥39,141 million for the nine months ended September 30, 2022 and 2021, respectively, and were ¥16,081 million and ¥12,783 million for the three months ended September 30, 2022 and 2021, respectively, and are included in selling, general and administrative expenses in the consolidated statements of income.
Components of Net Periodic Benefit Cost
Net periodic benefit cost for Canon’s employee retirement and severance defined benefit plans for the nine months ended September 30, 2022 and 2021 consisted of the following components:
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Service cost |
23,871 | 24,444 | ||||||
| Interest cost |
9,500 | 8,510 | ||||||
| Expected return on plan assets |
(29,979 | ) | (27,266 | ) | ||||
| Amortization of prior service credit |
(6,197 | ) | (6,447 | ) | ||||
| Amortization of actuarial loss |
8,643 | 11,796 | ||||||
| Curtailments and settlements |
(622 | ) | — | |||||
|
|
|
|
|
|||||
| 5,216 | 11,037 | |||||||
|
|
|
|
|
|||||
45
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (18) | Supplemental Information (continued) |
Net periodic benefit cost for Canon’s employee retirement and severance defined benefit plans for the three months ended September 30, 2022 and 2021 consisted of the following components:
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Service cost |
8,003 | 8,019 | ||||||
| Interest cost |
3,198 | 2,909 | ||||||
| Expected return on plan assets |
(10,093 | ) | (9,219 | ) | ||||
| Amortization of prior service credit |
(2,080 | ) | (2,255 | ) | ||||
| Amortization of actuarial loss |
2,902 | 3,810 | ||||||
| Curtailments and settlements |
15 | — | ||||||
|
|
|
|
|
|||||
| 1,945 | 3,264 | |||||||
|
|
|
|
|
|||||
Service cost component of net periodic benefit cost for Canon’s employee retirement and severance defined benefit plans is included in cost of sales and operating expenses in the consolidated statements of income. The components other than the service cost component are included in other, net of other income (deductions) in the consolidated statements of income.
Cash Equivalents
Certain debt securities with original maturities of three months or less of ¥2,450 million and ¥500 million at September 30, 2022 and December 31, 2021, respectively, are included in cash and cash equivalents in the consolidated balance sheets. Fair value for these securities approximates their cost.
46
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (19) | Segment Information |
Canon operates its business in four segments: the Printing Business Unit, the Imaging Business Unit, the Medical Business Unit, and the Industrial and Others Business Unit, which are based on the organizational structure and information reviewed by Canon’s management to evaluate results and allocate resources.
The primary products included in each segment are as follows:
| Printing Business Unit: | Office multifunction devices (MFDs) / Document solutions/ Laser multifunction printers (MFPs) / Laser printers /Inkjet printers / Image scanners / Calculators / Digital continuous feed presses / Digital sheet-fed presses / Large format printers | |
| Imaging Business Unit: | Interchangeable-lens digital cameras / Interchangeable lenses / Digital compact cameras / Compact photo printers / Network cameras / Video management software / Video content analytics software / Digital camcorders / Digital cinema cameras / Broadcast equipment / Multimedia projectors | |
| Medical Business Unit: | Computed tomography (CT) systems / Diagnostic ultrasound systems / Diagnostic X-ray systems / Magnetic resonance imaging (MRI) systems / Clinical chemistry analyzers / Digital radiography systems / Ophthalmic equipment | |
| Industrial and Others Business Unit: | Semiconductor lithography equipment / FPD (Flat panel display) lithography equipment / OLED display manufacturing equipment / Vacuum thin-film deposition equipment / Die bonders / Handy terminals / Document scanners | |
The accounting policies of the segments are substantially the same as the accounting policies used in Canon’s quarterly consolidated financial statements. Canon evaluates performance of, and allocates resources to, each segment based on income before income taxes.
47
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (19) | Segment Information (continued) |
Information about operating results for each segment for the nine months ended September 30, 2022 and 2021 is as follows:
| Millions of yen | ||||||||||||||||||||||||
| Printing | Imaging | Medical | Industrial and Others |
Corporate and eliminations |
Consolidated | |||||||||||||||||||
| 2022: |
||||||||||||||||||||||||
| Net sales: |
||||||||||||||||||||||||
| External customers |
1,619,507 | 560,696 | 362,240 | 336,006 | (4,210 | ) | 2,874,239 | |||||||||||||||||
| Intersegment |
4,302 | 335 | 263 | 88,055 | (92,955 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
1,623,809 | 561,031 | 362,503 | 424,061 | (97,165 | ) | 2,874,239 | |||||||||||||||||
| Operating cost and expenses |
1,464,406 | 478,688 | 341,449 | 380,719 | (47,078 | ) | 2,618,184 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating profit |
159,403 | 82,343 | 21,054 | 43,342 | (50,087 | ) | 256,055 | |||||||||||||||||
| Other income (deductions) |
9,704 | 1,071 | 567 | 1,578 | (37,006 | ) | (24,086 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before income taxes |
169,107 | 83,414 | 21,621 | 44,920 | (87,093 | ) | 231,969 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 2021: |
||||||||||||||||||||||||
| Net sales: |
||||||||||||||||||||||||
| External customers |
1,414,820 | 470,855 | 351,695 | 322,650 | (2,142 | ) | 2,557,908 | |||||||||||||||||
| Intersegment |
3,377 | 1,350 | 210 | 70,348 | (75,285 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
1,418,197 | 472,235 | 351,905 | 392,998 | (77,427 | ) | 2,557,908 | |||||||||||||||||
| Operating cost and expenses |
1,240,922 | 415,450 | 330,718 | 366,879 | (2,622 | ) | 2,351,347 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating profit |
177,275 | 56,785 | 21,187 | 26,119 | (74,805 | ) | 206,561 | |||||||||||||||||
| Other income (deductions) |
5,417 | (166 | ) | 4,535 | 173 | 14,627 | 24,586 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before income taxes |
182,692 | 56,519 | 25,722 | 26,292 | (60,178 | ) | 231,147 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
48
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (19) | Segment Information (continued) |
Information about operating results for each segment for the three months ended September 30, 2022 and 2021 is as follows:
| Millions of yen | ||||||||||||||||||||||||
| Printing | Imaging | Medical | Industrial and Others |
Corporate and eliminations |
Consolidated | |||||||||||||||||||
| 2022: |
||||||||||||||||||||||||
| Net sales: |
||||||||||||||||||||||||
| External customers |
549,668 | 202,848 | 126,006 | 119,905 | (2,337 | ) | 996,090 | |||||||||||||||||
| Intersegment |
1,827 | 85 | 68 | 34,641 | (36,621 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
551,495 | 202,933 | 126,074 | 154,546 | (38,958 | ) | 996,090 | |||||||||||||||||
| Operating cost and expenses |
510,924 | 166,318 | 119,642 | 138,518 | (20,752 | ) | 914,650 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating profit |
40,571 | 36,615 | 6,432 | 16,028 | (18,206 | ) | 81,440 | |||||||||||||||||
| Other income (deductions) |
2,944 | 190 | 169 | 274 | (5,941 | ) | (2,364 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before income taxes |
43,515 | 36,805 | 6,601 | 16,302 | (24,147 | ) | 79,076 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 2021: |
||||||||||||||||||||||||
| Net sales: |
||||||||||||||||||||||||
| External customers |
458,033 | 153,315 | 115,634 | 107,090 | (748 | ) | 833,324 | |||||||||||||||||
| Intersegment |
1,168 | 469 | 80 | 23,291 | (25,008 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
459,201 | 153,784 | 115,714 | 130,381 | (25,756 | ) | 833,324 | |||||||||||||||||
| Operating cost and expenses |
398,900 | 136,045 | 109,731 | 128,906 | 1,014 | 774,596 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating profit |
60,301 | 17,739 | 5,983 | 1,475 | (26,770 | ) | 58,728 | |||||||||||||||||
| Other income (deductions) |
1,753 | (53 | ) | 4,196 | 17 | 14,685 | 20,598 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income before income taxes |
62,054 | 17,686 | 10,179 | 1,492 | (12,085 | ) | 79,326 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Intersegment sales are recorded at the same prices used in transactions with third parties. Expenses not directly associated with specific segments are allocated based on the most reasonable measures applicable. Corporate expenses include certain corporate research and development expenses. Amortization costs of identified intangible assets resulting from the purchase price allocation of Toshiba Medical Systems Corporation (currently, Canon Medical Systems Corporation) are also included in corporate expenses.
49
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (19) | Segment Information (continued) |
Information about sales by product and service to external customers by business unit for the nine months ended September 30, 2022 and 2021 is as follows:
| Millions of yen | ||||||||
| Nine months ended September 30, 2022 |
Nine months ended September 30, 2021 |
|||||||
| Printing |
||||||||
| Office multifunction devices |
405,028 | 349,596 | ||||||
| Office others |
234,290 | 203,093 | ||||||
|
|
|
|
|
|||||
| Office |
639,318 | 552,689 | ||||||
| Laser printers |
474,844 | 413,251 | ||||||
| Inkjet printers and Others |
251,249 | 245,063 | ||||||
|
|
|
|
|
|||||
| Prosumer |
726,093 | 658,314 | ||||||
| Production |
254,096 | 203,817 | ||||||
|
|
|
|
|
|||||
| Total |
1,619,507 | 1,414,820 | ||||||
| Imaging |
||||||||
| Cameras |
360,334 | 308,057 | ||||||
| Network cameras and Others |
200,362 | 162,828 | ||||||
|
|
|
|
|
|||||
| Total |
560,696 | 470,885 | ||||||
| Medical |
||||||||
| Diagnostic equipment |
362,240 | 351,695 | ||||||
|
|
|
|
|
|||||
| Industrial and Others |
||||||||
| Lithography equipment |
163,256 | 147,844 | ||||||
| Industrial equipment |
63,019 | 84,267 | ||||||
| Others |
109,731 | 90,539 | ||||||
|
|
|
|
|
|||||
| Total |
336,006 | 322,650 | ||||||
|
|
|
|
|
|||||
| Corporate |
(4,210 | ) | (2,142 | ) | ||||
|
|
|
|
|
|||||
| Consolidated |
2,874,239 | 2,557,908 | ||||||
|
|
|
|
|
|||||
50
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (19) | Segment Information (continued) |
Information about sales by product and service to external customers by business unit for the three months ended September 30, 2022 and 2021 is as follows:
| Millions of yen | ||||||||
| Three months ended September 30, 2022 |
Three months ended September 30, 2021 |
|||||||
| Printing |
||||||||
| Office multifunction devices |
150,240 | 107,344 | ||||||
| Office others |
78,952 | 66,781 | ||||||
|
|
|
|
|
|||||
| Office |
229,192 | 174,125 | ||||||
| Laser printers |
150,131 | 136,373 | ||||||
| Inkjet printers and Others |
77,437 | 78,413 | ||||||
|
|
|
|
|
|||||
| Prosumer |
227,568 | 214,786 | ||||||
| Production |
92,908 | 69,122 | ||||||
|
|
|
|
|
|||||
| Total |
549,668 | 458,033 | ||||||
| Imaging |
||||||||
| Cameras |
132,064 | 100,152 | ||||||
| Network cameras and Others |
70,784 | 53,163 | ||||||
|
|
|
|
|
|||||
| Total |
202,848 | 153,315 | ||||||
| Medical |
||||||||
| Diagnostic equipment |
126,006 | 115,634 | ||||||
|
|
|
|
|
|||||
| Industrial and Others |
||||||||
| Lithography equipment |
64,468 | 52,439 | ||||||
| Industrial equipment |
20,410 | 26,642 | ||||||
| Others |
35,027 | 28,009 | ||||||
|
|
|
|
|
|||||
| Total |
119,905 | 107,090 | ||||||
|
|
|
|
|
|||||
| Corporate |
(2,337 | ) | (748 | ) | ||||
|
|
|
|
|
|||||
| Consolidated |
996,090 | 833,324 | ||||||
|
|
|
|
|
|||||
51
CANON INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited) (continued)
| (19) | Segment Information (continued) |
Information by major geographic area for the nine months ended September 30, 2022 and 2021 is as follows:
| Millions of yen | ||||||||||||||||||||
| Japan | Americas | Europe | Asia and Oceania |
Total | ||||||||||||||||
| 2022: |
||||||||||||||||||||
| Net sales: |
627,576 | 893,993 | 720,649 | 632,021 | 2,874,239 | |||||||||||||||
| 2021: |
||||||||||||||||||||
| Net sales: |
602,013 | 710,299 | 652,584 | 593,012 | 2,557,908 | |||||||||||||||
Information by major geographic area for the three months ended September 30, 2022 and 2021 is as follows:
| Millions of yen | ||||||||||||||||||||
| Japan | Americas | Europe | Asia and Oceania |
Total | ||||||||||||||||
| 2022: |
||||||||||||||||||||
| Net sales: |
201,091 | 311,553 | 251,981 | 231,465 | 996,090 | |||||||||||||||
| 2021: |
||||||||||||||||||||
| Net sales: |
186,435 | 244,611 | 206,069 | 196,209 | 833,324 | |||||||||||||||
Net sales are attributed to areas based on the location where the product is shipped to the customers.
| (2) | Other Information |
The Board of Directors approved an interim cash dividend at the meeting held on July 26, 2022 as below:
1. Total amount of interim cash dividends:
61,809 million yen
2. Amount of an interim cash dividend per share:
60 yen
3. Payment date:
August 26, 2022
Note:
The interim dividend was paid to registered shareholders as of June 30, 2022.
52