CAJFF Canon Inc (PK)

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.

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

The following materials are included.

CONSOLIDATED RESULTS FOR THE FOURTH QUARTER

AND THE FISCAL YEAR ENDED DECEMBER 31, 2019

January 29, 2020

I. Operating Results and Financial Conditions

2019 in Review

Looking back at the global economy in 2019, the U.S. economy continued to grow thanks to solid consumer spending based on the strong employment environment and changes in monetary policy, despite signs of a slowdown in manufacturing industries. The European economy was soft amid sluggish exports and concerns over the U.K. leaving the EU. As for the Chinese economy, despite holding discussions with the United States on trades and reaching an agreement in the first stage, the rate of economic growth dropped due to decreases in exports and capital investment caused by prolonged trade friction with the United States. As for other emerging markets, economic growth slowed due to sluggish external demand and weak pricing of natural resources. In Japan, while the employment situation remained strong, the economic recovery was modest due to a drop in manufacturing activity caused by sluggish external demand. On a global basis, the economic slowdown continued.

Amid these conditions, in the markets in which Canon operates, demand for office multifunction devices (MFDs) was in line with the previous year, despite solid demand for color models, and due to lower demand for monochrome models. As for laser printers, demand decreased due to the impact of economic slowdowns in China and other countries. The market for cameras continued to shrink. Demand for inkjet printers continued to shrink in developed markets and remained sluggish in emerging markets due to economic slowdowns. On the other hand, although demand for medical equipment continued to recover in Japan, overall demand was in line with the previous year, mainly owing to currency depreciation and economic slowdowns in some emerging markets. While customers continued efforts to restrain capital investment in the industrial equipment market, demand for network cameras continued to expand.

The average value of the yen for the year was ¥109.03 against the U.S. dollar, a year-on-year appreciation of approximately ¥1, and ¥122.03 against the euro, a year-on-year appreciation of approximately ¥8.

In 2019, overall unit sales of office MFDs increased slightly compared with the previous year, despite a decline in monochrome models, and thanks to market exceeding growth in color models. As for laser printers, although sales for new models were strong, overall unit sales decreased compared with the previous year, due to slowdowns in sales of low-speed models. While Canon firmly maintained the top market share position, overall unit sales of interchangeable-lens digital cameras decreased compared with the previous year, owing to the shrinking market. Looking at inkjet printers, despite expanding sales of refillable ink tank models, overall unit sales decreased compared with the previous year. With regard to medical equipment, although domestic sales remained solid thanks to a strengthened product lineup, worldwide sales grew only slightly due to a first-quarter slowdown in overseas sales. As for industrial equipment, sales of lithography equipment and OLED panels manufacturing equipment decreased compared with the previous year due to efforts to restrain capital investment in semiconductor memory and small- and medium-size display panels. On the other hand, sales of network cameras increased steadily thanks to their broadening use in various areas. Under these conditions, net sales for the year decreased by 9.1% year on year to ¥3,593.3 billion. In addition, the gross profit ratio dropped by 1.6 points to 44.8%. Operating expenses decreased by 3.8% year on year to ¥1,435.4 billion, thanks to the pursuit of cost efficiencies in Canon as well as positive effects of currency exchange fluctuation. As a result, operating profit decreased by 49.1% to ¥174.7 billion. Other income (deductions) increased by ¥1.1 billion, mainly due to currency exchange gains and losses compared with the previous year, while income before income taxes decreased by 46.1% year on year to ¥195.7 billion and net income attributable to Canon Inc. decreased by 50.5% to ¥125.1 billion.

Basic net income attributable to Canon Inc. shareholders per share was ¥116.93 for the year, a year-on-year decrease of ¥117.16.

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Results by Segment

Looking at Canon’s full year performance by business unit, in the Office Business Unit, demand for office MFDs was strong for new next-generation color models that feature enhanced security functions. Sales of monochrome models, however, declined due to the impact of economic slowdowns in emerging markets. In the production printing market, sales of a new compact model offering high-speed and high-volume printing steadily increased. As a result, overall unit sales of MFDs increased slightly compared with the previous year. As for laser printers, despite strong demand for new models that offer low energy consumption, compact body designs, and high productivity, overall unit sales decreased compared with the previous year due to decreasing sales of low-speed models, mainly in China where the economic slowdown continued. Sales of consumables decreased, mainly due to the economic slowdown in Europe. These factors resulted in total sales for the business unit of ¥1,702.6 billion, a year-on-year decrease of 5.8%, while income before income taxes decreased by 23.9% year on year to ¥174.3 billion.

Looking at the Imaging System Business Unit, sales of the new interchangeable-lens digital cameras for advanced amateur DSLRs enjoyed solid growth. Also, in the growing full-frame mirrorless camera market, Canon benefited from sales of new models launched in the second half of the previous year and the beginning of this year. However, the interchangeable-lens digital cameras market continued to shrink mainly for entry-level models and overall unit sales decreased compared with the previous year. As for inkjet printers, despite efforts to enhance the lineup in refillable ink tank models, overall unit sales decreased compared with the previous year, mainly affected by the sluggish economy in emerging markets. As a result, sales for the business unit decreased by 16.8% year on year to ¥807.4 billion, while income before income taxes decreased by 62.1% year on year to ¥49.7 billion.

As for the Medical System Business Unit, despite domestic sales increased steadily thanks to a recovery of demand and series of newly launched products, sales in Europe remained sluggish in the first quarter. As a result, sales for the business unit increased by 0.2% year on year to ¥438.5 billion, while income before income taxes decreased by 7.4% year on year to ¥27.3 billion due to effects of currency exchange fluctuation.

As for the Industry and Others Business Unit, although capital investment towards semiconductor devices relevant to IoT business remained solid, capital investment towards memory devices was restrained because of the deterioration in the market. Additionally, as for FPD lithography equipment and OLED panels manufacturing equipment, sales decreased compared with the previous year as capital investment for small- and medium-size panels entered into a phase of adjustment. On the other hand, sales of network cameras increased reflecting the growth of Axis and the contribution of relevant software, driven by the market’s continued expansion based on diversifying market needs and replacement demand. Consequently, sales for the business unit decreased by 12.5% year on year to ¥737.9 billion, while income before income taxes decreased by 73.1% year on year to ¥15.6 billion.

Cash Flow

During 2019, cash flow from operating activities decreased by ¥6.8 billion year on year to ¥358.5 billion due to a decrease in profit, despite working capital improved mainly through inventory reduction. Cash flow used in investing activities increased by ¥33.0 billion year on year to ¥228.6 billion mainly due to an increase in acquisitions of fixed assets. Accordingly, free cash flow totaled positive ¥129.9 billion, a decrease of ¥39.8 billion compared with the corresponding year-ago period.

Cash flow used in financing activities recorded an outlay of ¥232.6 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 ¥107.8 billion to ¥412.8 billion from the end of the previous year.

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Outlook

As for the outlook for 2020, with regard to the U.S. economy, as the strong employment environment, easing monetary policy, and bottoming out of manufacturing industry business sentiment due to waning concerns over U.S.-China trade friction are assumed, modest growth is expected to continue. For the European economy, while consumer spending is expected to remain firm and exports are expected to pick up, mainly due to problems with the U.K. leaving the EU, only a moderate recovery is expected. The Chinese economy is expected to bottom out, despite being affected by U.S.-China trade friction and thanks to measures taken by the government. As external demand recovers, the growth of emerging markets is expected to remain solid. With regard to the Japanese economy, thanks to the strong employment environment and government measures to reduce the impact of the consumption tax hike, modest growth is expected to continue. Looking at the global economy, while a modest recovery is expected, uncertainty is increasing due to growing geopolitical risks and concerns of a relapse in U.S.-China trade friction.

In the markets in which Canon operates, overall demand of office MFDs is expected to increase slightly thanks to solid demand for color models. Demand for laser printers, however, is expected to be below that of last year as only a modest economic recovery is expected. As for interchangeable-lens digital cameras, although demand for entry-level models is expected to continue to shrink, demand for mirrorless cameras is expected to remain firm, particularly for advanced amateur models, including models with full-frame sensors. Demand for inkjet printers is expected to recover moderately, mainly in emerging markets. As for medical equipment, solid demand is expected thanks, in part, to expanding demand in emerging markets to improve medical infrastructure. With regard to semiconductor lithography equipment, capital investment is recovering because the price of memory devices has bottomed out. As for FPD lithography equipment and OLED panels manufacturing equipment, a gradual rise in capital investment in small- and medium-size display panels is expected, as is continued solid investment into high-resolution, large-size display panels. As for network cameras, continued market expansion is expected due to growing demand for security and diversification in the way network cameras are being used.

With regard to currency exchange rates on which Canon bases its performance outlook, Canon anticipates exchange rates of ¥108 to the U.S. dollar and ¥120 to the euro, representing appreciation of approximately ¥1 against the U.S. dollar and appreciation of approximately ¥2 against the euro compared with the annual average rates of the previous year.

Even in the increasingly uncertain business environment and upon taking into consideration the launch of competitive new products and a further strengthening of new businesses, such as medical equipment and network cameras, Canon projects full-year consolidated net sales in 2020 of ¥3,700.0 billion, a year-on-year increase of 3.0%; operating profit of ¥230.0 billion, a year-on-year increase of 31.7%; income before income taxes of ¥245.0 billion, a year-on-year increase of 25.2%; and net income attributable to Canon Inc. of ¥160.0 billion, a year-on-year increase of 27.9%.

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II. Basic Concept Regarding the Selection of Accounting Standards

Canon is listed on the New York Stock Exchange and, since registering its American Depositary Receipts on the OTC (over-the-counter) market in 1969, has prepared its consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) over the long term.

Canon has continued to adopt U.S. GAAP in order to maintain the continuity of financial statements from the past and to maintain international comparability.

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CANON INC. AND SUBSIDIARIES

CONSOLIDATED

3. DETAILS OF SALES

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