Canon 2003 Annual Report Download - page 45

43
RECENT DEVELOPMENTS
On January 1, 2004, Canon Precision Inc. (“Canon Precision”), a
wholly owned subsidiary of Canon Inc., merged with Hirosaki
Precision, Inc. (“Hirosaki Precision”), a wholly owned subsidiary of
Canon Precision. Hirosaki Precision was merged into Canon
Precision, the surviving company. Canon Precision targets the
improved efficiency and specialization of business operations. Since
both Canon Precision and Hirosaki Precision were consolidated
subsidiaries of Canon Inc., the merger has no impact on Canon’s
current or future business results.
On January 1, 2004, Canon N.T.C., Inc. (“Canon N.T.C.”), a
wholly owned subsidiary of Canon Inc., spun off its environmental
business operations into a newly established company, named
“Canon Ecology Industry Inc.” Following the separation, Canon
N.T.C. focused its energies on its semiconductor equipment-related
business and was renamed “Canon Semiconductor Equipment Inc.”
The spin-off was intended to improve efficiency and the
specialization of business operations while facilitating the pursuit of
independent businesses, consistent with Canon’s Excellent Global
Corporation Plan.
LOOKING FORWARD
For Canon, 2004 marks the fourth year of Phase II of its Excellent
Global Corporation Plan (2001-2005), which targets the completion
of structural reforms in 2005. As such, Canon will move forward with
several initiatives designed to ensure that it meets the goals set out
in the plan by 2005, including further efforts to reform its operations,
from R&D and production processes to head-office administrative
operations by simultaneously targeting improved productivity and the
elimination of waste. In the area of development, Canon will target
the further shortening of product-development periods and
improvements in design quality. Canon will also continue to strive to
substantially reduce product development costs by implementing
digital trial production procedures that make it unnecessary to create
prototypes. As for production, Canon will focus its energies on the in-
house production of key components and development of innovative
high-efficiency factory automation equipment to realize even greater
cost reductions. With regard to marketing activities, in addition to
promoting marketing reforms through structural reorganization and
strengthening marketing channels, Canon is also working to expand
and strengthen its solutions business and improve its hardware
solutions offerings through greater customization to better meet
customer needs. Canon also views the protection of the environment
as an essential part of its management activities and will continue to
develop environmentally-conscious products and introduce
resource-recycling systems while actively expanding its green
procurement and purchasing programs.
In the office imaging products market, Canon is gradually
moving from monochrome office imaging products to color office
imaging products in response to market demand. Canon’s response
to this transition will continue to affect its performance in this
market. In the camera market, Canon has experienced a significant
increase in sales of digital cameras due to strong worldwide
demand, which has more than offset the decline in sales of
conventional film cameras. Canon’s ability to respond to trends in
the comparatively young market for digital cameras will continue to
significantly affect the performance of Canon’s camera products.
Pursuant to the enactment of the new law concerning defined
benefit corporate pension plans in Japan, the Company, on March
1, 2003, obtained from the Minister of Health, Labor and Welfare an
exemption from its obligation to pay benefits for future employee
services related to the substitutional portion of the Employees’
Pension Fund which will result in the transfer of the pension
obligation and related assets to the government. The relevant impact
is recognized only on the settlement of the substitutional portion
when the company returns the past benefit obligation to the
government (expected to be sometime in the latter half of 2004). In
fiscal 2003, there has been no effect on Canon’s consolidated
financial statements. The aggregate effect of this separation will be
determined based on the Company’s total pension benefits
obligation as of the date the transfer is completed and the amount of
plan assets required to be transferred. Based on the Company’s
current estimates as to the total amount of such pension benefits
obligation and the amount of plan assets required to be transferred,
management does not presently expect that this separation will have
a significant effect on Canon’s financial condition and results of
operation. However, the final amount of the impact could be
significantly different depending on any change in the amounts of
the pension benefit obligation or plan assets to be transferred.
The foregoing discussion and other disclosure in this item
contains forward-looking statements that reflect management’s
current views with respect to certain future events and financial
performance. Actual results may differ materially from those
projected or implied in the forward-looking statements. Further,
certain forward-looking statements are based upon assumptions of
future events that may not prove to be accurate. The following
important factors could cause actual results to differ materially from
those projected or implied in any forward-looking statements:
exchange rate fluctuations; the uncertainty of Canon’s ability to
implement its plans to localize production and other measures to
reduce the impact of exchange rate fluctuations; uncertainty as to
economic condition, in Canon’s major markets; uncertainty of
continued demand for Canon’s high-value-added products;
uncertainty as to the recovery of computer and related markets;
uncertainty of recovery in demand for Canon’s semiconductor
production equipment; 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 exchange rates; and inventory risk due to shifts in market
demand.