Canon 2003 Annual Report Download - page 38

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(U.S.$954 million) in fiscal 2003, mainly resulting from Canon’s
active efforts to repay short-term loans and long-term debts
towards the goal of improving the Company’s financial position,
including the redemption of ¥10,000 million (U.S.$93 million) in
debentures.
Canon seeks to meet its liquidity and capital requirements
principally with cash flow from operations and, to a lesser extent,
with short-term loans and long-term debt. Consistent with this
objective, Canon continued to reduce its reliance on external
funding for capital investments in favor of relying upon internally
generated cash flows. This approach is supplemented with group-
wide treasury and cash management activities undertaken at the
parent company level. Canon believes that its working capital is
sufficient for its present requirements.
To the extent Canon relies on external funding for its liquidity
and capital requirements, it generally has access to various
funding sources, including issuance of additional share capital,
long-term debt or short-term loans. While Canon has been able to
obtain funding from its traditional financing sources and from the
capital markets, and believes it will continue to be able to do so in
the future, there can be no assurance that adverse economic or
other conditions will not affect Canon’s liquidity or long-term
funding in the future.
Short-term loans (including the current portions of long-term
loans) amounted to ¥39,136 million (U.S.$366 million) at
December 31, 2003 compared to ¥66,754 million at December
31, 2002. Long-term debt (excluding their current portions)
amounted to ¥59,260 million (U.S.$554 million) at December 31,
2003 compared to ¥81,349 million at December 31, 2002.
Substantially all of Canon’s short-term loans consist of
borrowings from banks under uncommitted lines of credit. Canon’s
long-term debt generally consists of secured or partially-secured
term loans from banks, bearing interest at floating rates, as well as
fixed rate-notes and convertible debentures which Canon has
issued in the domestic market with original maturities of five to
fifteen years.
In order to facilitate access to global capital markets, Canon
obtains credit ratings from two rating agencies, Moody’s Investors
Services, Inc. (“Moody’s”) and Standard and Poor’s Rating
Services (“S&P”). In addition, Canon maintains a rating from
Rating and Investment Information, Inc. (“R&I”), a rating agency in
Japan, for access to the Japanese capital market.
As of March 3, 2004, Canon’s debt ratings are: Moody’s: Aa3
(long-term); S&P: AA (long-term, outlook: stable), A-1+ (short-
term); and R&I: AA+ (long-term). Canon does not have any rating
downgrade triggers that would accelerate the maturity of a material
amount of its debt. A downgrade in Canon’s credit ratings or
outlook could, however, increase the cost of its borrowings.
CAPITAL RESOURCES
Capital expenditure in fiscal 2003 amounted to ¥210,038 million
(U.S.$1,963 million) compared with ¥198,702 million in fiscal
2002 and ¥207,674 million in fiscal 2001. In 2003, capital
expenditures were mainly used for next-generation new technology
devices for aligners and steppers, construction of facilities in the
Company’s consolidated subsidiaries, and expansion of production
capabilities in Japan and overseas. In addition, Canon has been
continually investing in tools and dies for business machines, in
which the amount invested is generally the same each year. For
fiscal 2004, Canon projects its capital expenditure will be
approximately ¥300,000 million (U.S.$2,804 million). The capital
expenditure includes an investment in a new technology
development center in Kanagawa, Japan, and a new plant in Oita,
Japan for digital camera production, reflecting the worldwide
increase in demand.
Employer contributions to Canon’s worldwide defined benefit
pension plans were ¥29,944 million (U.S.$280 million) in fiscal
2003, ¥33,661 million in fiscal 2002, ¥89,626 million in fiscal
2001. Employer contributions were greater in fiscal 2001 because
they included an additional trust fund of cash and equity securities
in the amount of ¥58,954 million in addition to typical employer
contributions. During fiscal 2004, Canon expects to make cash
contributions of approximately ¥40,044 million (U.S.$374 million)
to its domestic defined benefit pension plans, which would be an
increase of 34.0% from ¥29,879 million (U.S.$279 million) in
fiscal 2003. This expected increase is primarily the result of an
anticipated increase in the Company’s cash contributions to
replenish the shortage of a reserve for the Company’s pension.
Working capital in fiscal 2003 increased ¥200,340 million
(U.S.$1,872 million), to ¥1,103,474 million (U.S.$10,313 million),
99 00 01 02 03
Capital expenditure
(Millions of yen)
200,000
0
200,386
170,986
207,674
198,702
210,038