Canon 2008 Annual Report Download - page 56

54
intensive investment in facilities and R&D is re
q
uired to maintain
and strengthen the competitiveness of its products. Canon’s
management seeks to meet its capital requirements with cash
fl
ow principall
y
earned
f
rom its operations, there
f
ore, our capital
resources are primaril
y
sourced
f
rom internall
y
g
enerated
f
unds.
Accordingly, Canon has included the information with regard
to free cash fl ow as its management frequently monitors this
indicator
,
and believes that such indicator is bene
fi
cial to the
understandin
g
o
f
investors. Furthermore, Canon’s mana
g
ement
believes that this indicator is si
g
nifi cant in understandin
g
Canon’s
current liquidity and the alternatives of use in fi nancing activities
because it takes into consideration its operating and investing
activities. Canon re
f
ers to this indicator to
g
ether with relevant
U.S. GAAP
fi
nancial measures shown in its consolidated state
-
m
e
n
ts
o
f
cas
h fl
o
w
s
a
n
d
co
n
so
li
dated
ba
l
a
n
ce
s
h
eets
f
o
r
cas
h
availability analysis
.
Net cash used in
fi
nancing activities totaled ¥277,565 million
(U.S.
$
3,050 million) in fi scal 2008, mainl
y
resultin
g
from the
¥100,000 million (U.S.$1,099 million) purchase of treasur
y
stock
with the aim of improving capital effi ciency and ensuring a fl exible
capital strategy in addition to the dividend payout o
f
¥145,000
million (U.S.
$
1,593 million). The Compan
y
paid dividends in
fi scal 2008 of ¥110.00 (U.S.
$
1.21) per share, the same dividend
amount as t
h
e prior year on a
l
oca
l
currency
b
asis
.
Canon seeks to meet its capital requirements principally
with cash
fl
ow
f
rom operations although Canon expects net cash
provided b
y
operatin
g
activities in
fi
scal 2009 is likel
y
to decline.
In response to t
h
is expectation, Canon is current
ly
en
d
eavorin
g
to optimize the level of capital investments, by further raising
the e
ffi
ciency o
f
its investments and
f
ocusing investments on
selected material items. Consistent with this ob
j
ective, Canon
continued to reduce its reliance on external
f
undin
g
f
or capital
investments in favor of relying upon internally generated cash
fl ows. This approach is supplemented with group-wide treasury
and cash management activities undertaken at the parent
compan
y
level
.
To the extent Canon relies on external fundin
g
for its liquidit
y
and capital requirements, it generally has access to various funding
sources, including the issuance of additional share capital, long
-
term debt or short-term loans. While Canon has been able to
obtain
f
undin
g
f
rom its traditional
fi
nancin
g
sources and
f
rom the
ca
p
ita
l
mar
k
ets, an
d
b
e
l
ieves it wi
ll
continue to
b
e a
bl
e to
d
o so
in the future, there can be no assurance that adverse economic
or other conditions will not a
ff
ect Canon’s liquidity or long-term
f
undin
g
in the
f
uture
.
Short-term loans (includin
g
current portion of lon
g
-term
debt
)
amounted to ¥5,540 million
(
U.S.$61 million
)
at December
31, 2008 compared to ¥18,317 million at December 31, 2007.
Lon
g
-term debt (excludin
g
current portion) amounted to ¥8,423
million (U.S.
$
93 million) at December 31, 2008 compared to
¥8,680 mi
ll
ion at Decem
b
er 31, 2007
.
Canon’s long-term debt
(
excluding current portion
)
generally
consists o
f
lease obligations
.
In order to
f
acilitate access to
g
lobal capital markets, Canon
obtains credit ratin
g
s from two ratin
g
a
g
encies: Mood
y
’s Investors
Services, Inc.
(
“Moody’s”
)
and Standard and Poor’s Rating
Services (“S&P”). In addition, Canon maintains a ratin
g
from
Rating and Investment Information, Inc. (“R&I”), a rating agency
in Japan, for access to the Japanese capital market
.
As o
f
Februar
y
27, 2009, Canon’s debt ratin
g
s are: Mood
y
’s:
Aa1 (lon
g
-term); S&P: AA (lon
g
-term), A-1+ (short-term); and
R&I: AA+ (long-term). Canon does not have any rating down
-
grade triggers that would accelerate the maturity of a material
amount o
f
its debt. A downgrade in Canon’s credit ratings or
outlook could, however, increase the cost o
f
its borrowin
g
s.
Increase in property, p
l
ant an
d
equipment
o
n
a
n
acc
r
ual
basis in fi scal 2008 amounted to ¥361,988 million
(
U.S.$3,978
million) compared with ¥428,549 million in
fi
scal 2007 and
¥379
,
657 million in
fi
scal 2006. In
fi
scal 2008
,
increase in
property, plant and equipment was mainly used to reinforce
p
roduction and achieve cost reductions. For fi scal 2009, Canon
projects its increase in property, plant and equipment will be
approximatel
y
¥315,000 million (U.S.
$
3,462 million)
.
Emp
l
oyer contri
b
ution
s
to
Ca
n
o
n’
s
w
o
rl
d
wi
de
de
fi n
ed
be
n
e
fi
t
pension plans were ¥23,033 million (U.S.
$
253 million) in fi scal
2008
,
¥21
,
720 million in
fi
scal 2007
,
¥44
,
981 million in
fi
scal
2006. In a
dd
ition, emp
l
o
y
er contri
b
utions to Canon’s wor
ld
wi
d
e
defi ned contribution
p
ension
p
lans were ¥10,840 million
(
U.S.$119 million
)
in fi scal 2008, ¥10,262 million in fi scal 2007,
and ¥6
,
233 million in
fi
scal 2006
.
500,000
400,000
300,000
200,000
100,000
0
04 05 06 07 08
Increase in Property,
Plant and Equipment
(Millions of yen)
361,988
318,730
383,784 379,657
428,549