Report of Foreign Issuer (6-k)

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

For the month of ….		October		……………………………………………… ,		2019

 

		CANON INC.
		(Translation of registrant’s name into English)
		30-2, Shimomaruko 3-Chome, Ohta-ku, Tokyo 146-8501, Japan
		(Address of principal executive offices)

[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F		X		Form 40-F

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes				No		X

[If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-....................

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

								CANON INC.
								(Registrant)
Date….		October 28, 2019						By...../s/………Sachiho Tanino………………
								(Signature)*
								Sachiho Tanino
								General Manager
								Consolidated Accounting Div.
								Canon Inc.

*Print the name and title of the signing officer under his signature.

The following materials are included.

1. RESULTS FOR THE THIRD QUARTER AND THE NINE MONTHS ENDED SEPTEMBER 30, 2019

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CONSOLIDATED RESULTS FOR THE THIRD QUARTER AND

THE NINE MONTHS ENDED SEPTEMBER 30, 2019

October 28, 2019

CONSOLIDATED RESULTS FOR THE THIRD QUARTER

(Millions of yen, thousands of U.S. dollars, except per share amounts)  

 

		Actual
		Three months         ended September 30, 2019				Three months         ended September 30, 2018				Change(%)								Three months         ended September 30, 2019
Net sales		¥	869,495			¥	926,498				-				6.2			$	8,050,880
Operating profit			38,445				68,328				-				43.7				355,972
Income before income taxes			47,024				67,050				-				29.9				435,407
Net income attributable to Canon Inc.		¥	26,522			¥	46,258				-				42.7			$	245,574
Net income attributable to Canon Inc. shareholders per share:
- Basic		¥	24.93			¥	42.84				-				41.8			$	0.23
- Diluted			24.93				42.84				-				41.8				0.23
CONSOLIDATED RESULTS FOR THE NINE MONTHS
(Millions of yen, thousands of U.S. dollars, except per share amounts)
		Actual																				Projection
		Nine months ended   September 30, 2019				Nine months ended September 30, 2018				Change(%)								Nine months ended September 30, 2019				Year ending December 31, 2019				Change(%)
Net sales		¥	2,639,830			¥	2,893,597				-				8.8			$	24,442,870			¥	3,625,000				-				8.3
Operating profit			121,998				243,374				-				49.9				1,129,611				188,000				-				45.2
Income before income taxes			144,212				262,930				-				45.2				1,335,296				216,000				-				40.5
Net income attributable to Canon Inc.		¥	92,349			¥	181,041				-				49.0			$	855,083			¥	140,000				-				44.6
Net income attributable to Canon Inc. shareholders per share:
- Basic		¥	86.16			¥	167.67				-				48.6			$	0.80			¥	130.85				-				44.1
- Diluted			86.15				167.66				-				48.6				0.80				130.83				-				44.1
		Actual
		As of September 30, 2019				As of December 31, 2018				Change(%)								As of September 30, 2019
Total assets		¥	4,800,408			¥	4,899,465				-				2.0			$	44,448,222
Canon Inc. shareholders’ equity		¥	2,615,820			¥	2,827,602				-				7.5			$	24,220,556

 

Notes:		1.		Canon’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.
		2.		U.S. dollar amounts are translated from yen at the rate of JPY108=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of September 30, 2019, solely for the convenience of the reader.

 

 

Canon Inc.		30-2, Shimomaruko 3-chome, Ohta-ku,
Headquarter office		Tokyo 146-8501, Japan
		Phone: [phone]

 

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I. Operating Results and Financial Conditions

2019 Third Quarter in Review

Looking back at the global economy in the third quarter of 2019, the U.S. economy continued to grow supported by changes in monetary policy and strong employment conditions. However, signs of a slowdown were mounting, particularly for manufacturing industries. The European economy continued to slow down due to a delay in the recovery of exports, mainly in Germany, as well as the confusion surrounding the U.K.’s impending exit from the EU. The Chinese economy was lagging amid a slide in consumer spending as well as decreasing exports caused by prolonged trade friction with the United States. The economies of other emerging markets also slowed down, centered on countries that rely heavily on foreign demand. In Japan, while employment conditions continued to improve, the economy remained in a state of gradual recovery due mainly to worsening economic conditions for manufacturing industries. As a result, the global economy overall showed signs of a slowdown.

As for the markets in which Canon operates amid these conditions, demand for office multifunction devices (MFDs) remained at around the same level as the previous year, while demand for laser printers decreased due mainly to the economic slowdown in China. The market for cameras continued to contract and demand for inkjet printers decreased in each region except for Japan. The market for medical equipment recovered in Japan and demand grew moderately in other markets, mainly in developed countries. Within the Industry and Others sector, although customers continued to slow capital investments in industrial equipment, the market for network cameras enjoyed solid growth.

The average values of the yen during the third quarter and the first nine months of the year were ¥107.32 and ¥109.14 against the U.S. dollar, respectively, year-on-year appreciation of approximately ¥4 and the same level as the previous year, and ¥119.27 and ¥122.67 against the euro, respectively, year-on-year appreciation of approximately ¥10 and year-on-year appreciation of approximately ¥8.

During the third quarter, overall unit sales of office MFDs decreased slightly compared with the same period of the previous year owing to the decrease of monochrome-model office MFDs. However, color-model office MFDs exceeded the growth of the market. Unit sales of laser printers decreased compared with the same period of the previous year, due to a slowdown in sales of low-speed models, although sales were strong for new models. While Canon has been working towards expanding sales of mirrorless cameras, unit sales of interchangeable-lens digital cameras decreased compared with the same period of the previous year amid the shrinking market for entry-class models. Looking at inkjet printers, overall unit sales decreased compared with the same period of the previous year due mainly to the slowdown in emerging markets. Sales of medical equipment increased compared with the same period of the previous year, due to solid overseas sales in Europe and some emerging countries, as well as expanded sales in Japan. For industrial equipment, sales of semiconductor lithography equipment and manufacturing equipment for organic LED (OLED) panels decreased compared with the same period of the previous year, due to the prolonged sluggishness of capital investments in semiconductor memory and small- and medium-size display panels. On the other hand, sales of network cameras increased steadily amid an expanding market. Under these conditions, third-quarter net sales decreased by 6.2% year on year to ¥869.5 billion. Net sales for the first nine months of the year decreased by 8.8% year on year to ¥2,639.8 billion. The gross profit ratio dropped by 1.3 points to 44.8% and gross profit decreased by 8.7% year on year to ¥389.9 billion due mainly to the negative effects of currency exchange rates. Operating expenses decreased by 2.0% year on year to ¥351.4 billion, thanks to efforts to thoroughly manage expenses as well as the positive effect of currency exchange rates. As a result, third-quarter operating profit decreased by 43.7% to ¥38.4 billion. Other income (deductions) increased by ¥9.9 billion, while income before income taxes decreased by 29.9% year on year to ¥47.0 billion and net income attributable to Canon Inc. decreased by 42.7% to ¥26.5 billion. Operating profit for the first nine months of the year decreased by 49.9% to ¥122.0 billion while income before income taxes decreased by 45.2% to ¥144.2 billion and net income attributable to Canon Inc. for the first nine months of the year decreased by 49.0% to ¥92.3 billion.

Basic net income attributable to Canon Inc. shareholders per share was ¥24.93 for the third quarter, a year-on-year decrease of ¥17.91, and ¥86.16 for the first nine months, a year-on-year decrease of ¥81.51.

 

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Results by Segment

Looking at Canon’s third-quarter performance by business unit, starting with the Office Business Unit, although there was solid demand for new color models that feature enhanced security functions and the newly launched imagePRESS C910 series which targets the production printing market, unit sales of monochrome-model office MFDs decreased due to the economic slowdown in emerging countries, and overall unit sales of office MFDs decreased slightly compared with the same period of the previous year. As for laser printers, although sales were strong for new models that achieve low power consumption, compact body designs and high productivity, unit sales of hardware decreased compared with the same period of the previous year due mainly to decreasing sales of low-speed models in emerging markets. Sales of consumables also decreased due mainly to the slowdown of the European economy. These factors resulted in total sales for the business unit of ¥413.8 billion, a year-on-year decrease of 3.9%, while income before income taxes decreased by 16.5% year on year to ¥41.6 billion. Sales for the combined first nine months of the year totaled ¥1,267.3 billion, a year-on-year decrease of 5.1%, while income before income taxes totaled ¥132.4 billion, a year-on-year decrease of 20.4%.

Within the Imaging System Business Unit, unit sales of interchangeable-lens digital cameras decreased compared with the same period of previous year due to continuing market contraction, centered on entry-class models. However, unit sales of mirrorless cameras increased, owing to solid demand for new models equipped with full-frame sensors launched in the second half of the previous year as well as solid demand for affordably priced models. For inkjet printers, although unit sales in Japan increased compared with the same period of the previous year, unit sales decreased overall compared with the same period of the previous year mainly due to the slowdown in emerging markets affected by the sluggish economy. As a result, sales for the business unit decreased by 13.9% to ¥189.2 billion year on year, while income before income taxes decreased by 57.8% year on year to ¥10.4 billion. Sales for the combined first nine months of the year totaled ¥570.2 billion, a year-on-year decrease of 16.5%, while income before income taxes totaled ¥28.8 billion, a year-on-year decrease of 67.3%.

Within the Medical System Business Unit, sales of newly launched computed tomography (CT) systems and diagnostic ultrasound systems were strong amid the recovery of overall demand in Japan. Sales of CT systems intended to enhance the product line-up were strong in overseas markets, particularly in Europe. As a result, sales for the business unit increased by 5.9% to ¥113.9 billion year on year, while income before income taxes increased by 17.2% to ¥9.5 billion year on year. Mainly due to a decrease in both sales and profit for the first quarter, sales for the combined first nine months of the year totaled ¥328.5 billion, a year-on-year increase of 2.9%, while income before income taxes totaled ¥19.5 billion, a year-on-year decrease of 5.1%.

For the Industry and Others Business Unit, although investments in semiconductor lithography equipment for image sensors were strong, investments for memory devices remained at a low level. Sales of FPD lithography equipment and OLED panel manufacturing equipment decreased compared with the same period of the previous year due to the continued restraint of investments in the smartphone market. Sales of network cameras were strong, particularly for Axis, amid increasing market demand due to diversifying market needs and replacement demand. Consequently, sales for the business unit decreased by 10.5% to ¥176.2 billion year on year, while income before income taxes decreased by 75.5% year on year to ¥2.7 billion. Sales for the combined first nine months of the year totaled ¥545.1 billion, a year-on-year decrease of 14.1%, while income before income taxes totaled ¥14.8 billion, a year-on-year decrease of 69.4%.

 

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Cash Flow

During the first nine months of 2019, cash flow from operating activities totaled ¥194.5 billion, an increase of ¥0.8 billion compared with the same period of the previous year, owing mainly to improvements in working capital, despite a decrease of profit. Cash flow used in investing activities increased by ¥21.4 billion year on year to ¥157.8 billion mainly due to an increase in investment in production equipment. Accordingly, free cash flow totaled positive ¥36.7 billion, a decrease of ¥20.6 billion compared with the same period of the previous year.

Despite an increase of short-term loans, cash flow used in financing activities recorded an outlay of ¥96.4 billion, mainly owing to the dividend payout and the repurchasing of treasury stock.

Owing to these factors, as well as the impact from foreign currency translation adjustments, cash and cash equivalents decreased by ¥72.3 billion to ¥448.3 billion from the end of the previous year.

Outlook

As for the outlook from the fourth quarter onwards, despite being underpinned by changes in monetary policy and favorable employment conditions, the U.S. economy is expected to slow down due to bearish conditions for manufacturing industries. The pace of recovery of the European economy is expected to slow down due to a prolonged recovery for exports as well as uncertainty surrounding the U.K.’s exit of the EU. The Chinese economy shows clear signs of a slowdown, particularly for manufacturing industries, due to prolonged trade friction with the United States, and the growth rate for emerging countries is expected to decline. With regard to the Japanese economy, the outlook indicates a trend of steady growth supported by relief measures to reduce the impact of an increase of consumption tax and solid domestic demand based on favorable employment conditions. Looking at the global economy, there are concerns of further economic slowdown occurring due to such phenomena as long-drawn-out trade friction between China and the United States and rising political instability.

In the businesses in which Canon is involved, sales of office MFDs are expected to be slightly below level compared with the previous year, supported by the solid demand for color models. Demand for laser printers is expected to remain below that of the previous year due to prolonged economic slowdown. As for interchangeable-lens digital cameras, although demand for entry-class models is expected to continue to shrink, demand for mirrorless cameras is expected to grow steadily, particularly for advanced amateur models, including those equipped with full-frame sensors. Projections indicate the overall inkjet printer market is expected to continue to shrink. As for the medical equipment market, although capital expenditure for medical equipment is expected to be postponed in emerging markets due to sluggish economic conditions, demand is expected to continue growing in developed markets. For semiconductor lithography equipment, the market is expected to improve as the price of memory products shows signs of bottoming out. For OLED panel manufacturing equipment, capital investment in small- and medium-size display panels is expected to recover. As for network cameras, the market is expected to continue expanding due mainly to the increasing demand for enhanced security and replacement demand from users shifting from analogue to digital models.

With regard to currency exchange rates for the fourth quarter onwards, on which Canon’s performance outlook is based, Canon anticipates exchange rates of ¥105 to the U.S. dollar and ¥117 to the euro, representing appreciation of approximately ¥2 against the U.S. dollar and appreciation of approximately ¥9 against the euro as the annual average rates of the previous year.

Despite the persistently harsh business environment, upon taking into consideration the effect of new products, the continuous expansion of new businesses—including medical equipment and network cameras—and the trend of recovery seen in Canon’s third-quarter performance from the first half, Canon projects full-year consolidated net sales in 2019 of ¥3,625.0 billion, a year-on-year decrease of 8.3%; operating profit of ¥188.0 billion, a year-on-year decrease of 45.2%; income before income taxes of ¥216.0 billion, a year-on-year decrease of 40.5%; and net income attributable to Canon Inc. of ¥140.0 billion, a year-on-year decrease of 44.6%.

 

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Consolidated Outlook

 

Fiscal year		Millions of yen
		Year ending December 31, 2019								Change				Year ended December 31, 2018				Change (%)
		Previous Outlook (A)				Revised Outlook (B)				(B - A)				Results (C)				(B - C) / C
Net sales			3,745,000				3,625,000				(120,000	)			3,951,937				-8.3%
Operating profit			215,000				188,000				(27,000	)			342,952				-45.2%
Income before income taxes			240,000				216,000				(24,000	)			362,892				-40.5%
Net income attributable to Canon Inc.			160,000				140,000				(20,000	)			252,755				-44.6%

 

This document contains forward-looking statements with respect to future results, performance and achievements that are subject to risk and uncertainties and reflect management’s views and assumptions formed by available information. All statements other than statements of historical fact are statements that could be considered forward-looking statements. When used in this document, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project” or “should” and similar expressions, as they relate to Canon, are intended to identify forward-looking statements. Many factors could cause the actual results, performance or achievements of Canon to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by Canon’s targeted customers, inability to meet efficiency and cost reduction objectives, changes in business strategy and various other factors, both referenced and not referenced in this document. A detailed description of these and other risk factors is included in Canon’s annual report on Form 20-F, which is on file with the United States Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. Canon does not intend or assume any obligation to update these forward-looking statements.

 

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED

II. Financial Statements

1. CONSOLIDATED BALANCE SHEETS

 

		Millions of yen
		As of     September 30, 2019				As of     December 31, 2018				Change
ASSETS
Current assets:
Cash and cash equivalents			448,315				520,645				(72,330)
Short-term investments			1,743				956				787
Trade receivables, net			515,702				612,953				(97,251)
Inventories			634,292				611,281				23,011
Prepaid expenses and other current assets			304,164				304,346				(182)
Total current assets			1,904,216				2,050,181				(145,965)
Noncurrent receivables			16,879				18,230				(1,351)
Investments			47,252				42,556				4,696
Property, plant and equipment, net			1,081,714				1,090,992				(9,278)
Operating lease right-of-use assets			114,530				-				114,530
Intangible assets, net			351,070				391,021				(39,951)
Goodwill			873,855				908,511				(34,656)
Other assets			410,892				397,974				12,918
Total assets			4,800,408				4,899,465				(99,057)
LIABILITIES AND EQUITY
Current liabilities:
Short-term loans and current portion of long-term debt			169,682				38,527				131,155
Trade payables			315,578				352,489				(36,911)
Accrued income taxes			24,050				41,264				(17,214)
Accrued expenses			316,883				321,137				(4,254)
Current operating lease liabilities			30,198				-				30,198
Other current liabilities			221,581				276,237				(54,656)
Total current liabilities			1,077,972				1,029,654				48,318
Long-term debt, excluding current installments			363,377				361,962				1,415
Accrued pension and severance cost			360,127				382,789				(22,662)
Noncurrent operating lease liabilities			84,288				-				84,288
Other noncurrent liabilities			103,344				107,147				(3,803)
Total liabilities			1,989,108				1,881,552				107,556
Equity:
Canon Inc. shareholders’ equity:
Common stock			174,762				174,762				-
Additional paid-in capital			404,641				404,389				252
Legal reserve			67,499				67,116				383
Retained earnings			3,429,510				3,508,908				(79,398)
Accumulated other comprehensive income (loss)			(352,099)				(269,071)				(83,028)
Treasury stock, at cost			(1,108,493)				(1,058,502)				(49,991)
Total Canon Inc. shareholders’ equity			2,615,820				2,827,602				(211,782)
Noncontrolling interests			195,480				190,311				5,169
Total equity			2,811,300				3,017,913				(206,613)
Total liabilities and equity			4,800,408				4,899,465				(99,057)
		Millions of yen
		As of September 30, 2019				As of December 31, 2018
Notes:
1. Allowance for doubtful receivables			9,831				11,477
2. Accumulated depreciation			2,697,715				2,671,922
3. Accumulated other comprehensive income (loss):
Foreign currency translation adjustments			(149,597)				(63,815)
Net unrealized gains and losses on securities			-				-
Net gains and losses on derivative instruments			(119)				308
Pension liability adjustments			(202,383)				(205,564)

 

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED      

2. CONSOLIDATED STATEMENTS OF INCOME AND

      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

Consolidated statements of income
Results for the third quarter		Millions of yen
		Three months ended      September 30, 2019				Three months ended      September 30, 2018				Change(%)
Net sales			869,495				926,498			-			6.2
Cost of sales			479,619				499,466
Gross profit			389,876				427,032			-			8.7
Operating expenses:
Selling, general and administrative expenses			277,624				281,302
Research and development expenses			73,807				77,402
			351,431				358,704
Operating profit			38,445				68,328			-			43.7
Other income (deductions):
Interest and dividend income			1,349				1,935
Interest expense			(275)				(239)
Other, net			7,505				(2,974)
			8,579				(1,278)
Income before income taxes			47,024				67,050			-			29.9
Income taxes			16,202				17,114
Consolidated net income			30,822				49,936
Less: Net income attributable to noncontrolling interests			4,300				3,678
Net income attributable to Canon Inc.			26,522				46,258			-			42.7
Results for the nine months		Millions of yen
		Nine months ended September 30, 2019				Nine months ended September 30, 2018				Change(%)
Net sales			2,639,830				2,893,597			-			8.8
Cost of sales			1,453,192				1,547,320
Gross profit			1,186,638				1,346,277			-			11.9
Operating expenses:
Selling, general and administrative expenses			842,451				870,347
Research and development expenses			222,189				232,556
			1,064,640				1,102,903
Operating profit			121,998				243,374			-			49.9
Other income (deductions):
Interest and dividend income			4,266				5,430
Interest expense			(811)				(653)
Other, net			18,759				14,779
			22,214				19,556
Income before income taxes			144,212				262,930			-			45.2
Income taxes			41,332				71,946
Consolidated net income			102,880				190,984
Less: Net income attributable to noncontrolling interests			10,531				9,943
Net income attributable to Canon Inc.			92,349				181,041			-			49.0

 

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED      

 

Consolidated statements of comprehensive income
Results for the third quarter		Millions of yen
		Three months ended      September 30, 2019				Three months ended      September 30, 2018				Change(%)
Consolidated net income			30,822				49,936			-		38.3
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments			(32,032)				55,307
Net unrealized gains and losses on securities			-				-
Net gains and losses on derivative instruments			(405)				(300)
Pension liability adjustments			850				2,669
			(31,587)				57,676
Comprehensive income (loss)			(765)				107,612					-
Less: Comprehensive income (loss) attributable to noncontrolling interests			4,314				6,008
Comprehensive income (loss) attributable to Canon Inc.			(5,079)				101,604					-
Results for the nine months		Millions of yen
		Nine months ended September 30, 2019				Nine months ended September 30, 2018				Change(%)
Consolidated net income			102,880				190,984			-		46.1
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments			(86,203)				(35,328)
Net unrealized gains and losses on securities			-				(141)
Net gains and losses on derivative instruments			(305)				(670)
Pension liability adjustments			3,527				2,450
			(82,981)				(33,689)
Comprehensive income (loss)			19,899				157,295			-		87.3
Less: Comprehensive income (loss) attributable to noncontrolling interests			10,456				6,980
Comprehensive income (loss) attributable to Canon Inc.			9,443				150,315			-		93.7

 

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED
3. DETAILS OF SALES
Results for the third quarter		Millions of yen
Sales by business unit		Three months ended     September 30, 2019				Three months ended     September 30, 2018				Change(%)
Office			413,752				430,353				-				3.9
Imaging System			189,174				219,667				-				13.9
Medical System			113,937				107,638				+				5.9
Industry and Others			176,245				196,927				-				10.5
Eliminations			(23,613)				(28,087)								-
Total			869,495				926,498				-				6.2
		Millions of yen
Sales by region		Three months ended     September 30, 2019				Three months ended     September 30, 2018				Change(%)
Japan			227,816				205,349				+				10.9
Overseas:
Americas			249,399				259,314				-				3.8
Europe			199,874				228,652				-				12.6
Asia and Oceania			192,406				233,183				-				17.5
			641,679				721,149				-				11.0
Total			869,495				926,498				-				6.2
Results for the nine months		Millions of yen
Sales by business unit		Nine months ended     September 30, 2019				Nine months ended     September 30, 2018				Change(%)
Office			1,267,255				1,335,729				-				5.1
Imaging System			570,177				683,213				-				16.5
Medical System			328,500				319,391				+				2.9
Industry and Others			545,052				634,491				-				14.1
Eliminations			(71,154)				(79,227)								-
Total			2,639,830				2,893,597				-				8.8
		Millions of yen
Sales by region		Nine months ended     September 30, 2019				Nine months ended     September 30, 2018				Change(%)
Japan			657,922				633,803				+				3.8
Overseas:
Americas			745,835				770,875				-				3.2
Europe			638,622				735,259				-				13.1
Asia and Oceania			597,451				753,660				-				20.7
			1,981,908				2,259,794				-				12.3
Total			2,639,830				2,893,597				-				8.8

*Based on the realignment of Canon’s internal reporting and management structure, from the beginning of the first quarter of 2019, Canon has reclassified certain businesses from Imaging System Business Unit to Industry and Others Business Unit. Net sales for the three months ended September 30, 2018 and the nine months ended September 30, 2018 also have been restated.

 

Notes: 1. The primary products included in each of the segments are as follows:
Office Business Unit :
Office multifunction devices (MFDs) / Laser multifunction printers (MFPs) / Laser printers / Digital continuous feed presses / Digital sheet-fed presses / Wide-format printers / Document solutions
Imaging System Business Unit :
Interchangeable-lens digital cameras / Digital compact cameras / Interchangeable lenses / Compact photo printers / Inkjet printers / Large format inkjet printers / Commercial photo printers / Image scanners / Calculators
Medical System Business Unit :
Digital radiography systems / Diagnostic X-ray systems / Computed tomography (CT) systems / Magnetic resonance imaging (MRI) systems / Diagnostic ultrasound systems / Clinical chemistry analyzers / Ophthalmic equipment
Industry and Others Business Unit :
Semiconductor lithography equipment / FPD (Flat panel display) lithography equipment / Vacuum thin-film deposition equipment / Organic LED (OLED) panel manufacturing equipment / Die bonders / Network cameras / Digital camcorders / Digital cinema cameras / Multimedia projectors / Broadcast equipment / Micromotors / Handy terminals / Document scanners

2. The principal countries and regions included in each regional category are as follows:
Americas: United States of America, Canada, Latin America
Europe: United Kingdom, Germany, France, Netherlands, European countries, Middle East and Africa
Asia and Oceania: China, Asian countries, Australia

 

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED 

4. CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Millions of yen
		Nine months ended     September 30, 2019				Nine months ended     September 30, 2018
Cash flows from operating activities:
Consolidated net income			102,880				190,984
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization			178,514				185,921
Loss on disposal of fixed assets			4,271				3,136
Deferred income taxes			(8,504)				(11,173)
Decrease in trade receivables			76,967				26,609
Increase in inventories			(42,366)				(98,084)
Decrease in trade payables			(28,295)				(64)
Decrease in accrued income taxes			(16,501)				(48,456)
Increase in accrued expenses			8,892				6,788
Decrease in accrued (prepaid) pension and severance cost			(8,515)				(15,752)
Other, net			(72,831)				(46,202)
Net cash provided by operating activities			194,512				193,707
Cash flows from investing activities:
Purchases of fixed assets			(151,941)				(131,899)
Proceeds from sale of fixed assets			120				8,556
Purchases of securities			(4,228)				(2,075)
Proceeds from sale and maturity of securities			761				1,485
(Increase) decrease in time deposits, net			(1,516)				550
Acquisitions of businesses, net of cash acquired			(1,716)				(13,346)
Other, net			675				275
Net cash used in investing activities			(157,845)				(136,454)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			-				211
Repayments of long-term debt			(2,410)				(54,828)
Increase in short-term loans, net			132,657				1,172
Dividends paid			(171,481)				(178,159)
Repurchases and reissuance of treasury stock, net			(50,009)				(15)
Other, net			(5,195)				(3,675)
Net cash used in financing activities			(96,438)				(235,294)
Effect of exchange rate changes on cash and cash equivalents			(12,559)				(8,539)
Net change in cash and cash equivalents			(72,330)				(186,580)
Cash and cash equivalents at beginning of period			520,645				721,814
Cash and cash equivalents at end of period			448,315				535,234

 

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED

5. NOTE FOR GOING CONCERN ASSUMPTION

     Not applicable.

6. SIGNIFICANT CHANGES IN CANON INC. SHAREHOLDERS’ EQUITY

     None.

7. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

Canon’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.

Recently Issued Accounting Guidance

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) Section A – Leases: Amendments to the FASB Accounting Standards Codification, which requires lessees to recognize most leases on their balance sheets but recognize expenses on their income statements in a manner similar to the previous guidance. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. The FASB also modified the definition of lease. Additionally, this guidance expands qualitative and quantitative disclosures related to lease. This guidance is effective for annual reporting periods beginning after December 15, 2018. Canon applied the guidance from the quarter beginning January 1, 2019. Canon applied the package of practical expedients that allows us not to reassess whether any existing contracts at or expired contracts prior to the adoption date are or contain leases, lease classification and whether initial direct costs qualify for capitalization, in addition to short term lease exception. Canon also adopted the transition method which no restatement of comparative periods and no reassessment of land easements not previously accounted for as a lease that exist at or expired prior to the adoption date are required. The right of use assets for operating leases recognized at January 1, 2019 was ¥125,649 million. The corresponding lease liabilities were also recognized. The adoption of this guidance did not have a material impact on its consolidated results of operation.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends existing guidance to simplify the application of the hedge accounting in certain situations and enables an entity to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness, and requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. Canon adopted this guidance from the quarter beginning January 1, 2019 with the modified retrospective method through a cumulative effect adjustment directly to retained earnings as of the beginning of the period. Gains and losses resulting from derivative financial instruments designated as cash flow hedges associated with forecasted intercompany sales, which were previously included in other income (deductions) in the consolidated statements of income are included in net sales after the adoption of this guidance. The adoption of this guidance did not have a material impact on its consolidated results of operation and financial condition.

 

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