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CANON ANNUAL REPORT 2010
Fiscal Year Ended December 31, 2010

Table of contents

  • Page 1
    CANON ANNUAL REPORT 2010 Fiscal Year Ended December 31, 2010

  • Page 2
    ...accordance with U.S. generally accepted accounting principles. 2. U.S. dollar amounts are translated from yen at the rate of JPY81=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December 30, 2010, solely for the convenience of the reader. Net Sales (Millions of yen...

  • Page 3
    CANON ANNUAL REPORT 2010 1 CONTENTS CORPORATE PROFILE Canon develops, manufactures and markets a growing lineup of copying machines, printers, cameras and industrial and other equipment. Through these products, the Company meets growing customer needs that are becoming increasingly diversified ...

  • Page 4
    ... the ranks of the world's top 100 companies in terms of all key performance indicators during the five-year Phase IV of the Excellent Global Corporation Plan. Through the implementation of six key strategies over Phase IV, we aim to achieve consolidated net sales of more than ¥5 trillion by 2015.

  • Page 5
    CANON ANNUAL REPORT 2010 3

  • Page 6
    4 CANON ANNUAL REPORT 2010 2010 Overview The global economy continued on a path toward mild recovery in 2010, supported by growth in China, India and other emerging markets. The U.S. economy continued to recover gradually while Europe showed signs of a turnaround. Although the Japanese economy had...

  • Page 7
    ... line with these strategies, we have set the following targets for 2015, the final year of Phase IV. 2. Developing new business through globalized diversification and establishing the Three Regional Headquarters management system 3. Establishing a world-leading globally optimized production system...

  • Page 8
    ... production printers and large-format inkjet printers while generating greater synergies in marketing by accelerating our solutions business. Turning to the Consumer Business Unit, we will continue to improve the video capabilities of our digital SLR cameras while reinforcing our software offerings...

  • Page 9
    CANON ANNUAL REPORT 2010 7 effective use of the cameras in photo studios and other settings. Also, in response to wide-ranging needs for image output through electrophotographic and inkjet printers, we will enhance and strengthen our product lineups, from personal-use to commercial-use models, by ...

  • Page 10
    8 CANON ANNUAL REPORT 2010 CORPORATE GOVERNANCE Canon maintains sound corporate governance as part of efforts to maximize its stockholders' value and become a truly excellent global corporation. Basic Policy and Corporate Governance Structure Canon recognizes that management supervision ...

  • Page 11
    ...Governance Structure (as of December 31, 2010) Canon Inc. General Meeting of Shareholders Board of Directors Representative Directors Chairman & CEO President & COO Executive Vice President & CFO Executive Committee Corporate Audit Center Headquarters Administrative Divisions Office Business Unit...

  • Page 12
    ... Law of Japan (the "Corporation Law") does not require Japanese companies with a board of corporate auditors such as the Company, to appoint independent directors as members of the board of directors. The NYSE Corporate Governance Rules require non-management directors of U.S. listed companies to...

  • Page 13
    CANON ANNUAL REPORT 2010 11 after receiving reports on information that might need to be disclosed from the person in charge of the disclosure working group at each headquarters. Countering Antisocial Forces Canon has formulated a basic policy stipulating that no Canon Group companies shall ...

  • Page 14
    12 CANON ANNUAL REPORT 2010 EXCELLENT GLOBAL CORPORATION PLAN: PHASE IV

  • Page 15
    CANON ANNUAL REPORT 2010 13 CONTENTS Overview Six Key Strategies for Phase IV 14 15 Photo: Through the Canon-Kyoto University Joint Research Project (CK Project), Canon is advancing R&D for medical imaging systems-one of its next-generation core businesses.

  • Page 16
    ...we will build a Three Regional Headquarters management system with innovation centers based in Japan, the United States and Europe. Under this system, Canon will carry out development and manufacturing activities in each region, and market the resulting products globally. Key Strategies for Phase IV...

  • Page 17
    ... and facilities management service provider Canon's current core businesses include digital cameras, laser printers, office network MFDs, inkjet printers and semiconductor lithography equipment. In these segments, Canon will continue to launch innovative products and expand sales through strategic...

  • Page 18
    ... new business through globalized diversification and establishing the Three Regional Headquarters management system Océ N.V., Canon's new consolidated subsidiary, develops digital production printers. Canon will establish innovation centers not only in Japan but in the United States and Europe...

  • Page 19
    ...of toner cartridges. With this, Canon has achieved toner cartridge supply chain management (SCM) in the United States, handling all the processes locally, from production and sales to collection and recycling. The establishment of a globally optimized production system is predicated on the promotion...

  • Page 20
    ... REPORT 2010 4. Comprehensively reinforcing global sales capabilities Canon is diversifying service operations in China while expanding its after-sales service bases there through the establishment of Quick Service Stations. Economic growth centers are shifting from Europe and the United States...

  • Page 21
    ... burden even further. Exterior part of inkjet printer power supply unit made from recycled materials 6. Imparting a corporate culture, and cultivating human resources befitting a truly excellent global company Amid the dramatic changes of the times, Canon places high value on its San-ji...

  • Page 22
    20 CANON ANNUAL REPORT 2010 CORPORATE FUNCTIONS

  • Page 23
    ... Research & Development Production Sales & Marketing Corporate Social Responsibility 22 24 26 28 Photo: In the Americas, Canon is leading the development of solutionsbased business products with its imageRUNNER ADVANCE series. (Left: A FedEx Office Print and Ship Center in the United States)

  • Page 24
    ...2010, Canon was granted 2,543* patents in the United States. * Source: U.S. Patent and Trademark Office. Calculated based upon publicly disclosed weekly totals Reinforcing Core Technologies Canon continues to strengthen R&D for key components and devices. In CMOS sensors-a key component of digital...

  • Page 25
    ..., Océ will play an important role in our R&D globalization. In line with its Three Regional Headquarters management system, Canon aims to expand its R&D bases in Japan, the United States and Europe to launch R&D projects in new business areas. Through the strengthening of its R&D structure, it will...

  • Page 26
    ...still a major market. With the start of such production, Canon Virginia has created a toner cartridge business model that completes the entire process, from production and sales to collection and recycling, within the United States. Improving Productivity In addition to improving cell production ef...

  • Page 27
    .... As part of these reforms, Canon has established a centralized production management system, the introduction of which was completed as planned at 26 production bases in 2010. This system allows our production bases to share purchase-order information provided by sales companies in real time. Thus...

  • Page 28
    ... systems have enabled Canon to immediately gather inventory information and deliver products to customers in a more timely manner. Canon plans to establish a solutions business subsidiary in 2011. This subsidiary will develop and sell solutions combining digital cameras, printers, medical equipment...

  • Page 29
    ... clients from wide-ranging fields. From 2009, Canon Europe headquarters assumed sales responsibility for large accounts, including electronics retail stores and Internet marketing operators, which had previously been handled by sales companies in individual countries. In 2010, the number of these...

  • Page 30
    ... CANON ANNUAL REPORT 2010 C ORPORATE SOCIAL RESPONSIBILITY Canon strives to fulfill its social responsibility through environmental measures and social and cultural activities to help bring the world closer to achieving kyosei. Through the Canon-Green Library for Kids initiative, Canon Singapore...

  • Page 31
    ... minerals was included in the Act, requiring publicly listed companies in the United States to report and make public in the near future the use of so-called "conï¬,ict minerals" in their products. Toner cartridge Eyes on Yellowstone, an education and research program funded by Canon U.S.A. Inc.

  • Page 32
    30 CANON ANNUAL REPORT 2010 Participants of the Canon PhotoMarathon Asia 2010, held in Singapore, took photos to submit to a photo contest. Canon has begun investigations into whether or not the raw materials the Company purchases for use in its products include conï¬,ict minerals. Additionally, ...

  • Page 33
    ... the world. To nurture such human resources, Canon started intensive training of local managerial staff on a global scale in 2010 using highly qualified in-house trainers. Through localized training programs, Canon is bolstering its global production structure and workforce. Volunteer Day at Canon...

  • Page 34
    32 CANON ANNUAL REPORT 2010 BUSINESS UNITS

  • Page 35
    ...-color copying machines • Laser printers • Large format inkjet printers • Digital production printers Consumer Business Unit 53.6% 38 • Digital SLR cameras • Compact digital cameras • Interchangeable lenses • Digital video camcorders • Inkjet multifunction peripherals • Single...

  • Page 36
    34 CANON ANNUAL REPORT 2010 O FFICE BUSINESS UNIT Photo: Thanks to its excellent office network MFD performance and unparalleled user-friendliness, the imageRUNNER ADVANCE series has been introduced in an elementary school in Chicago, the United States.

  • Page 37
    ... managed services for printing and other IT equipment. In 2011, the Office Business Unit aims to outpace market growth. Thus we will continue to strengthen imageRUNNER ADVANCE lineups and sales activities for our cloud business while expanding our solutions business. In digital production printers...

  • Page 38
    36 CANON ANNUAL REPORT 2010 2010 Review-OFFICE BUSINESS UNIT Net sales in the Office Business Unit totaled ¥1,987.3 billion, increasing 20.8% year 3,000,000 on year, despite the slow recovery in the production 2,246,609 printing market. Global 1,987,269 2,000,000 demand for office network 1,645...

  • Page 39
    ...ANNUAL REPORT 2010 37 imageRUNNER ADVANCE C5051 imagePROGRAF iPF6350 cooperation with Group companies has allowed Canon to acquire new solutions business accounts. The Asian market for large-format inkjet printers continued to grow, contributing to a substantial increase in sales volume. In 2010...

  • Page 40
    38 CANON ANNUAL REPORT 2010 C ONSUMER BUSINESS UNIT Photo: The EOS 60D is an advanced-amateur digital SLR camera that offers superior features, such as the Vari-angle Clear View LCD monitor, which provides enhanced monitor articulation, and excellent video capabilities, which have earned high ...

  • Page 41
    ... HS SYSTEM enhances image quality in low-light conditions. The uniqueness and superiority of these cameras helped Canon secure its leading market position. In digital SLR cameras, Canon enhanced the mid-range and high-end products. Sales volume expanded in each market, increasing Canon's share. The...

  • Page 42
    40 CANON ANNUAL REPORT 2010 2010 Review-CONSUMER BUSINESS UNIT Net sales in the Consumer Business Unit grew 6.9% year on year to ¥1,391.3 billion. 1,500,000 1,456,075 1,391,327 Sales steadily expanded for 1,301,160 digital SLR cameras, digital compact cameras, inkjet 1,000,000 printers and other ...

  • Page 43
    ...broadcasting lens. The HD image stability of this new product earned high acclaim among video professionals. In inkjet printers, supported by overall market recovery and by sales growth, particularly in Asia, sales volume expanded compared with 2009. In the United States, the PIXMA MX870 for home of...

  • Page 44
    42 CANON ANNUAL REPORT 2010 I NDUSTRY AND OTHERS BUSINESS UNIT Photo: Canon's LCD lithography equipment for eighth-generation mirror projection aligners provides not only excellent productivity, but also speedy installation, contributing to customers' strategic LCD panel production.

  • Page 45
    ...2011, the LCD lithography equipment market in China is expected to grow further as an increasing number of LCD panel manufacturers are accelerating local production. In response, Canon will strengthen sales activities and systems to provide support and other services. The Company plans to launch LCD...

  • Page 46
    ... digital radiography systems, the market for static X-ray imaging systems expanded, especially in China. Meanwhile, released in 2009, the CXDI-55C/55G ï¬,at panel detector saw increased sales in Japan, Europe and the United States. (Millions of yen) Sales Results In ophthalmic equipment, sales of...

  • Page 47
    ... and Concentrations of Credit Risk ...99 Fair Value Measurements ...100 Supplemental Cash Flow Information ...102 Segment Information Subsequent Event ...106 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING ...107 REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...108

  • Page 48
    ... equipment. Canon earns revenues primarily from the manufacture and sale of these products domestically and internationally. Canon's basic management policy is to contribute to the prosperity and well-being of the world while endeavoring to become a truly excellent global corporate group targeting...

  • Page 49
    ... times in order to promptly recover related product expenses by strengthening supply chain management. Canon's management seeks to meet its liquidity and capital requirements primarily with cash ï¬,ow from operations. Management also seeks debt-free operations. For a manufacturing company like Canon...

  • Page 50
    ... unit of accounting. Otherwise, revenue is deferred until the undelivered elements are fulfilled and accounted for as a single unit of accounting. Canon records estimated reductions to sales at the time of sale for sales incentive programs including product discounts, customer promotions and volume...

  • Page 51
    ... expected long-term rate of return on plan assets of 3.6% for Japanese plans and 6.1% for foreign plans. In estimating the discount rate, Canon uses available information about rates of return on high-quality fixed-income governmental and corporate bonds currently available and expected...

  • Page 52
    ... in sales of laser printers among office products, continued robust sales of such consumer products as digital SLR cameras, the increase in sales within the Industry and Other Business Unit, and the effects of consolidation arising from corporate acquisitions, such as Océ N.V. ("Océ"). Canon made...

  • Page 53
    ...-use copying machines /Laser printers / Large format inkjet printers/ Digital production printers • The Consumer Business Unit mainly includes Digital SLR cameras / Compact digital cameras / Interchangeable lenses / Digital video camcorders / Inkjet multifunction peripherals / Single function...

  • Page 54
    ... sales of digital SLR cameras. A summary of net sales by geographic area is provided below. Operating profit by segment Please refer to the table of segment information in Note 24 of the Notes to Consolidated Financial Statements. Operating profit for the Office Business Unit in fiscal 2010...

  • Page 55
    ... 31, 2010 compared with ¥4,912 million at December 31, 2009. Canon's long-term debt (excluding the current portion) mainly consists of lease obligations. In order to facilitate access to global capital markets, Canon obtains credit ratings from two rating agencies: Moody's Investors Services, Inc...

  • Page 56
    54 CANON ANNUAL REPORT 2010 property, plant and equipment was due to limiting investment to necessary facilities. For fiscal 2011, Canon projects its increase in property, plant and equipment will be approximately ¥260,000 million (U.S.$3,210 million). Employer contributions to Canon's worldwide...

  • Page 57
    ... 31, 2010. Payments due by period Millions of yen Total Less than 1 year 1-3 years 3-5 years More than 5 years Contractual obligations: Long-term debt: Capital lease obligations Other long-term debt Operating lease obligations Purchase commitments for: Property, plant and equipment Parts and raw...

  • Page 58
    ... an overwhelming No.1 position worldwide in all current core businesses; • Expand operations through diversification; • Identify new business domains and accumulate necessary technological capabilities; and • Establish new production system to sustain global competitiveness. Canon has been...

  • Page 59
    ... rates and prices of marketable securities and investments. In order to hedge the risks of changes in foreign currency exchange rates, Canon uses derivative financial instruments. Equity price risk Canon holds marketable securities included in current assets, which consist generally of highly...

  • Page 60
    58 CANON ANNUAL REPORT 2010 The following table provides information about Canon's major derivative financial instruments related to foreign currency exchange transactions existing at December 31, 2010. All of Millions of yen the foreign exchange contracts described in the following table have a...

  • Page 61
    ... have pursued aggressive pricing strategies to establish market share. Canon is promoting technological development in order to provide competitive products in all segments with a focus on bringing new and improved offerings to market in a well-timed manner. The large format printer market shrank in...

  • Page 62
    ... selling in increasing numbers. Canon is working to expand sales of its powerful lineup of products to meet a wide range of user needs with even greater added value and seeks to differentiate itself from the competition based on its high-quality HD image technology concept. The business application...

  • Page 63
    ...expanding competitive lineup of products to gain the market acceptance. Canon acquired Optopol Technology in 2010 and plans to use Optopol Technology as a development and production center. In 2010, sales of Optopol's OCT technology in Japan, Europe and the United States contributed to our net sales...

  • Page 64
    ... attributable to Canon Inc. Percentage of sales Advertising Research and development expenses Depreciation of property, plant and equipment Increase in property, plant and equipment Long-term debt, excluding current installments Canon Inc. stockholders' equity Total assets Per share data: Income...

  • Page 65
    ....80 39.57 Notes: 1. U.S. dollar amounts are translated from yen at the rate of U.S.$1 = JPY81, the approximate exchange rate on the Tokyo Foreign Exchange Market as of December 30, 2010. 2. The Company made a three-for-two stock split on July 1, 2006. The average number of common shares and the per...

  • Page 66
    64 CANON ANNUAL REPORT 2010 CONSOLIDATED BALANCE SHEETS CANON INC. AND SUBSIDIARIES DECEMBER 31, 2010 AND 2009 Thousands of U.S. dollars (Note 2) 2010 Millions of yen ASSETS Current assets: Cash and cash equivalents (Note 1) Short-term investments (Note 3) Trade receivables, net (Note 4) ...

  • Page 67
    CANON ANNUAL REPORT 2010 65 CONSOLIDATED STATEMENTS OF INCOME CANON INC. AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 Thousands of U.S. dollars (Note 2) 2010 2010 Millions of yen 2009 2008 Net sales Cost of sales (Notes 6, 9, 12 and 20) Gross profit Operating expenses (Notes ...

  • Page 68
    66 CANON ANNUAL REPORT 2010 CONSOLIDATED STATEMENTS OF EQUITY CANON INC. AND SUBSIDIARIES Millions of yen Additional paid-in capital Accumulated other comprehensive income (loss) Total Canon Inc. stockholders' equity Common stock Legal reserve Retained earnings Treasury stock Noncontrolling ...

  • Page 69
    CANON ANNUAL REPORT 2010 67 Thousands of U.S. dollars (Note 2) Additional paid-in capital Accumulated other comprehensive income (loss) Total Canon Inc. stockholders' equity Common stock Legal reserve Retained earnings Treasury stock Noncontrolling interests Total equity Balance at December...

  • Page 70
    ...276,193 Loss on disposal of property, plant and equipment 21,120 Impairment loss of fixed assets (Note 6) 1,288 Impairment loss of investments 23,330 Equity in (earnings) losses of affiliated companies (10,471) Deferred income taxes 29,381 (Increase) decrease in trade receivables (6,671) (Increase...

  • Page 71
    ... net sales for the years ended December 31, 2010, 2009 and 2008, respectively, and are included in the Office Business Unit. Canon's manufacturing operations are conducted primarily at 26 plants in Japan and 19 overseas plants which are located in countries or regions such as the United States...

  • Page 72
    ...CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES equity securities, investments in affiliated companies and nonmarketable equity securities. Canon reports investments with maturities of less than one year as short-term investments. Canon...

  • Page 73
    ...is recognized when the equipment is installed at the customer site and the specific criteria of the equipment functionality are successfully tested and demonstrated by Canon. Service revenue is derived primarily from separately priced product maintenance contracts on equipment sold to customers and...

  • Page 74
    72 CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES price protection to certain resellers of its products, and records reductions to sales for the estimated impact of price protection obligations when announced. Estimated product warranty...

  • Page 75
    CANON ANNUAL REPORT 2010 73 2. Basis of Financial Statement Translation The consolidated financial statements presented herein are expressed in Japanese yen and, solely for the convenience of the reader, have been translated into United States dollars at the rate of ¥81 = U.S.$1, the approximate...

  • Page 76
    74 CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES December 31 Thousands of U.S. dollars Cost Gross unrealized holding gains Gross unrealized holding losses Fair value 2010: Current: Government bonds Corporate bonds Noncurrent: ...

  • Page 77
    ...,444 $4,750,333 6. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and are summarized as follows: December 31 Millions of yen 2010 2009 Thousands of U.S. dollars 2010 Land Buildings Machinery and equipment Construction in progress Less...

  • Page 78
    ...receivables represent financing leases which consist of sales-type leases and direct-financing leases resulting from the marketing of Canon's and complementary third-party products primarily in foreign countries. These receivables typically have December 31 Millions of yen 2010 2009 terms ranging...

  • Page 79
    ... debt and Â¥22,936 million ($283,160 thousand) of Océ's existing United States Private Placement notes, which are included in decrease in short-term loans in the consolidated statement of cash ï¬,ows. Océ is engaged in research and development, manufacture and sale of document management systems...

  • Page 80
    ... ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at acquisition date. Thousands of U.S. dollars Millions of yen Current assets Property...

  • Page 81
    CANON ANNUAL REPORT 2010 79 2010 Thousands of U.S. dollars Gross carrying amount Accumulated amortization Software Customer relationships Patented technologies License fees Other $2,472,161 464,654 313,889 272,938 206,000 $3,729,642 $1,348,148 149,469 115,765 178,222 57,297 $1,...

  • Page 82
    ... 12,506 101,815 114,321 (63,321) $ 51,000 The aggregate annual maturities of long-term debt outstanding at December 31, 2010 were as follows: Year ending December 31: Millions of yen Thousands of U.S. dollars 2011 2012 2013 2014 2015 Thereafter ¥5,129 1,799 1,062 833 322 115 ¥9,260 $ 63,321 22...

  • Page 83
    ...of the plan assets are as follows: Years ended December 31 Japanese plans Millions of yen 2010 2009 Thousands of U.S. dollars 2010 Foreign plans Millions of yen 2010 2009 Thousands of U.S. dollars 2010 Change in benefit obligations: Benefit obligations at beginning of year ¥ 551,320 Service cost...

  • Page 84
    82 CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES Amounts recognized in the consolidated balance sheets at December 31, 2010 and 2009 are as follows: December 31 Japanese plans Millions of yen 2010 2009 Thousands of U.S. dollars 2010 ...

  • Page 85
    ... 31 Japanese plans Millions of yen 2010 2009 2008 Thousands of U.S. dollars 2010 2010 Foreign plans Millions of yen 2009 2008 Thousands of U.S. dollars 2010 Service cost Interest cost Expected return on plan assets Amortization of net transition obligation Amortization of prior service credit...

  • Page 86
    ...life insurance company general accounts. Outside Japan, investment policies vary by country, but the long-term investment objectives and strategies remain consistent. However, Canon's model portfolio for foreign plans has been developed as follows: approximately 40% is invested in equity securities...

  • Page 87
    ... are as follows: December 31, 2010 Japanese plans Level 1 Level 2 Level 3 Total Level 1 Millions of yen Foreign plans Level 2 Level 3 Total Equity securities: Japanese companies (a) Foreign companies Pooled funds (b) Debt securities: Government bonds (c) Municipal bonds Corporate bonds Pooled funds...

  • Page 88
    86 CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES December 31, 2010 Japanese plans Level 1 Level 2 Level 3 Thousands of U.S. dollars Foreign plans Total Level 1 Level 2 Level 3 Total Equity securities: Japanese companies (a) $619,469 ...

  • Page 89
    ... benefit payments, which reï¬,ect expected future service, as appropriate, are expected to be paid: Year ending December 31: Japanese plans Millions of yen Thousands of U.S. dollars Foreign plans Millions of yen Thousands of U.S. dollars 2011 2012 2013 2014 2015 2016-2020 Â¥ 14,442 15,397 16...

  • Page 90
    88 CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES The Company and its domestic subsidiaries are subject to a number of income taxes, which, in the aggregate, represent a statutory income tax rate of approximately 40% for the years ended...

  • Page 91
    CANON ANNUAL REPORT 2010 89 The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 2010 and 2009 are presented below: December 31 Millions of yen 2010 2009 Thousands of U.S. dollars 2010 Deferred tax assets: Inventories ...

  • Page 92
    ...a transfer pricing examination for years after 2003. In other major foreign tax jurisdictions, including the United States and Netherlands, Canon is no longer subject to income tax examinations by tax authorities for years before 2004 with few exceptions. The tax authorities are currently conducting...

  • Page 93
    CANON ANNUAL REPORT 2010 91 15. Legal Reserve and Retained Earnings The Corporation Law of Japan provides that an amount equal to 10% of distributions from retained earnings paid by the Company and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required...

  • Page 94
    ...CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON...Millions of yen Tax (expense) or benefit Net-of-tax amount 2010... (2,089) (1,333) (886) (2,219) (119) 1,068 949 1,891 (632) 1,259 ¥ (2,100) ¥ 5,893 6,992 (3,101) 3,891 (9,248) 7,688 (1,560) 39,233 2,073 41,306 ¥...

  • Page 95
    ... cost recognized for these stock options for the years ended December 31, 2010, 2009 and 2008 was ¥643 million ($7,938 thousand), ¥564 million and ¥246 million, respectively, and is included in selling, general and administrative expenses in the consolidated statements of income. The fair...

  • Page 96
    94 CANON ANNUAL REPORT 2010 A summary of option activity under the stock option plans as of and for the years ended December 31, 2010, 2009 and 2008 is presented below: Weightedaverage remaining contractual term Year Shares Weighted-average exercise price Yen U.S. dollars Aggregate intrinsic ...

  • Page 97
    ... per share for the year ended December 31, 2010 excludes certain outstanding stock options because the effect would be anti-dilutive. 19. Derivatives and Hedging Activities Risk management policy Canon operates internationally, exposing it to the risk of changes in foreign currency exchange rates...

  • Page 98
    ...as hedging instruments December 31 Millions of yen Balance sheet location 2010 2009 Fair value Thousands of U.S. dollars 2010 Assets: Foreign exchange contracts Liabilities: Foreign exchange contracts Prepaid expenses and other current assets Other current liabilities ¥2,487 426 ¥ - 644 $ 30...

  • Page 99
    ... derivative Millions of yen Location 2010 2009 Thousands of U.S. dollars 2010 Foreign exchange contracts Other, net ¥50,794 ¥(8,638) $627,086 20. Commitments and Contingent Liabilities Commitments At December 31, 2010, commitments outstanding for the purchase of property, plant and equipment...

  • Page 100
    ... of copyrighted materials, against the companies importing and distributing these digital products. VG Wort filed a lawsuit in January 2006 against Canon seeking payment of copyright levies on single-function printers, and the court of first instance in Düsseldorf ruled in favor of the claim by...

  • Page 101
    ...amounts. The summary also excludes investments which are disclosed in Note 3. Millions of yen 2009 Estimated fair value Carrying amount Thousand of U.S. dollars 2010 Estimated fair value Long-term debt, including current installments Foreign exchange contracts: Assets Liabilities ¥ (9,260) 11,950...

  • Page 102
    100 CANON ANNUAL REPORT 2010 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CANON INC. AND SUBSIDIARIES 22. 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 ...

  • Page 103
    CANON ANNUAL REPORT 2010 101 Thousands of U.S. dollars Level 1 Level 2 Level 3 Total 2010: Assets: Cash and cash equivalents Available-for-sale (current): Government bonds Corporate bonds Available-for-sale (noncurrent): Government bonds Corporate bonds Fund trusts Equity securities ...

  • Page 104
    ... machines / Laser printers / Large format inkjet printers / Digital production printers Consumer Business Unit: Digital SLR cameras / Compact digital cameras / Interchangeable lenses / Digital video camcorders / Inkjet multifunction peripherals / Single function inkjet printers / Image scanners...

  • Page 105
    CANON ANNUAL REPORT 2010 103 Information about operating results and assets for each segment as of and for the years ended December 31, 2010, 2009 and 2008 is as follows: Millions of yen Office Consumer Industry and Others Corporate and eliminations Consolidated 2010: Net sales: External ...

  • Page 106
    ... to property, plant and equipment and intangible assets measured on an accrual basis. Information by major geographic area as of and for the years ended December 31, 2010, 2009 and 2008 is as follows: Thousands of U.S. dollars 2008 2010 Millions of yen 2010 2009 Net sales: Japan Americas Europe...

  • Page 107
    ... GAAP , Canon discloses this information as supplemental information based on the disclosure requirements of the Japanese Financial Instruments and Exchange Law. Asia and Oceania Corporate and eliminations Millions of yen Japan Americas Europe Consolidated 2010: Net sales: External customers...

  • Page 108
    ... warehouses of the Company and Canon Marketing Japan Inc., a sales subsidiary, located in Northeastern Japan sustained damage to inventories. Production operations have been suspended at certain plants of the Company and its manufacturing subsidiaries and Canon is currently taking action to...

  • Page 109
    CANON ANNUAL REPORT 2010 107 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Canon is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) ...

  • Page 110
    ... 31, 2010, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Canon Inc. and subsidiaries' internal control over financial reporting as of December 31, 2010, based...

  • Page 111
    CANON ANNUAL REPORT 2010 109 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young ShinNihon LLC Hibiya Kokusai Bldg. 2-2-3 Uchisaiwai-cho Chiyoda-ku, Tokyo, Japan 100-0011 Tel : +81 3 3503 1191 Fax: +81 3 3503 1277 The Board of Directors and Stockholders of Canon Inc. We have ...

  • Page 112
    ... Receipts are traded on the New York Stock Exchange (CAJ). Ordinary General Meeting of Shareholders: March 30, 2011, in Tokyo Further Information: For publications or information, please contact the Corporate Communications Center, Canon Inc., Tokyo, or access Canon's Website at www.canon.com

  • Page 113
    .... Canon Information Technology (Beijing) Co., Ltd. Canon (Suzhou) System Software Inc. Canon i-tech Inc. MARKETING & OTHER Canon Marketing Japan Inc. Canon System and Support Inc. Canon IT Solutions Inc. Canon Software Inc. e-System Corporation ASPAC Inc. Canon U.S.A., Inc. Canon Canada, Inc. Canon...

  • Page 114
    CANON INC. 30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan PUB. BEP020 0411N9.6 Printed in Japan