Canon 2009 Annual Report Download - page 53

51
FOREIGN OPERATIONS AND FOREIGN CURRENCY
TRANSACTIONS
Canon’s marketing activities are performed by subsidiaries in
various regions in local currencies, while the cost of sales is gen-
erally in yen. Given Canon’s current operating structure, appreci-
ation of the yen has a negative impact on net sales and the
gross profi t ratio. To reduce the fi nancial risks from changes in
foreign exchange rates, Canon utilizes derivative fi nancial instru-
ments, which are comprised principally of forward currency
exchange contracts.
The operating profi t on foreign operation sales is usually
lower than that from domestic operations because foreign oper-
ations consist mainly of marketing activities. Marketing activities
are generally less profi table than production activities, which are
mainly conducted by the Company and its domestic subsidiaries.
Please refer to the table of geographic information in Note 22 of
the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents in fi scal 2009 increased by
¥115,838 million (U.S.$1,259 million) to ¥795,034 million
(U.S.$8,642 million), compared with ¥679,196 million in fi scal
2008 and ¥944,463 million in fi scal 2007. Canon’s cash and
cash equivalents are typically denominated both in Japanese yen
and in U.S. dollar, with the remainder denominated in foreign
currencies.
Net cash provided by operating activities in fi scal 2009
decreased slightly by ¥5,449 million (U.S.$59 million) from the
previous year to ¥611,235 million (U.S.$6,644 million), as a result
of the substantial progress achieved in inventory-reduction efforts.
Cash fl ow from operating activities consisted of the following key
components: the major component of Canon’s cash infl ow is cash
received from customers, and the major components of Canon’s
cash outfl ow are payments for parts and materials, selling, gener-
al and administrative expenses, and income taxes.
For fi scal 2009, cash infl ow from cash received from custom-
ers decreased, due to the decrease in net sales. There were no
signifi cant changes in Canon’s collection rates. Cash outfl ow for
payments for parts and materials also decreased, as a result of a
decrease in net sales and cost reductions. Cost reductions refl ect
a decline in unit prices of parts and raw materials, as well as a
streamlining of the process of using these parts and materials
through promoting effi ciency in operations. Cash outfl ow for
payments for selling, general and administrative expenses
decreased as a result of cost-cutting efforts. Cash outfl ow for
payments of income taxes decreased, due to the decrease in
taxable income.
Net cash used in investing activities in fi scal 2009 was
¥370,244 million (U.S.$4,024 million), compared with ¥472,480
million in fi scal 2008 and ¥432,485 million in fi scal 2007, con-
sisting primarily of purchases of fi xed assets. The purchases of
fi xed assets, which totaled ¥327,983 million (U.S.$3,565 million)
in fi scal 2009, were focused on items relevant to introducing
new products.
Canon defi nes “free cash fl ow” by deducting the cash fl ows
from investing activities from the cash fl ows of operating
activities. For fi scal 2009, free cash fl ow totaled ¥240,991 mil-
lion (U.S.$2,619 million) as compared with ¥144,204 million for
fi scal 2008. Canon’s management recognizes that constant and
intensive investment in facilities and R&D is required to maintain
and strengthen the competitiveness of its products. Canon’s
management seeks to meet its capital requirements with cash
fl ow principally earned from its operations, therefore, the capital
resources are primarily sourced from internally generated funds.
Accordingly, Canon has included the information with regard to
free cash fl ow as its management frequently monitors this indi-
cator, and believes that such indicator is benefi cial to the under-
standing of investors. Furthermore, Canon’s management
believes that this indicator is signifi cant in understanding
Canon’s current liquidity and the alternatives of use in fi nancing
activities because it takes into consideration its operating and
investing activities. Canon refers to this indicator together with
relevant U.S. GAAP fi nancial measures shown in its consolidated
statements of cash fl ows and consolidated balance sheets for
cash availability analysis.
Net cash used in fi nancing activities totaled ¥142,379 million
(U.S.$1,548 million) in fi scal 2009, mainly resulting from the div-
idend payout of ¥135,793 million (U.S.$1,476 million). The
Company paid dividends in fi scal 2009 of ¥110.00 (U.S.$1.20)
per share, the same dividend amount as the prior year on a local
currency basis.
Canon has completed a tender offer for the issued and out-
standing ordinary shares of Océ N.V. (listed on the NYSE
Euronext in Amsterdam, “Océ”) on March 9, 2010 and made
Océ a consolidated subsidiary, in order to create the overall No.1
presence in the printing industry. Including this and other invest-
ments, Canon seeks to meet its capital requirements principally
with cash fl ow from operations, although Canon expects net
cash provided by operating activities in fi scal 2010 to decline. In
response to this expectation, Canon is currently endeavoring to
optimize the level of capital investments, by further raising the
effi ciency of its investments and focusing investments on select-
ed material items. This approach is supplemented with group-
wide treasury and cash management activities undertaken at the
parent company level.
To the extent Canon relies on external funding for its liquidi-
ty and capital requirements, it generally has access to various
funding sources, including the issuance of additional share capi-
tal, long-term debt or short-term loans. While Canon has been
able to obtain funding from its traditional fi nancing 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 current portion of long-term
debt) amounted to ¥4,869 million (U.S.$53 million) at December
31, 2009 compared with ¥5,540 million at December 31, 2008.
Long-term debt (excluding current portion) amounted to ¥4,912
million (U.S.$53 million) at December 31, 2009 compared with
¥8,423 million at December 31, 2008.
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