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 ….		November		……………………………………………… ,		2022

 

		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-....................

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.

 

 

Date…		November 10, 2022						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.	Quarterly Report filed with the Japanese government pursuant to the Financial Instruments and Exchange Law of Japan for the third quarter ended September 30, 2022

[English summary with full translation of consolidated financial information]

Quarterly Report filed with the Japanese government

pursuant to

the Financial Instruments and Exchange Law of Japan

For the third quarter ended

September 30, 2022

 

CANON INC.

Tokyo, Japan

CONTENTS

 

				Page
I		Corporate Information
		(1)   Consolidated Financial Summary			2
		(2)   Description of Business			2
II		The Business
		(1)   Risk Factors			3
		(2)   Operating Results and Financial Conditions			3
		(3)   Significant Business Contracts Entered into in the Third Quarter of Fiscal 2022			10
III		Company Information
		(1)   Shares			11
		(2)   Directors and Executive Officers			13
IV		Financial Statements
		(1)   Consolidated Financial Statements			14
		(2)   Other Information			52

Disclaimer Regarding Forward-Looking Statements

This quarterly report includes forward-looking statements (within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934) concerning Canon Inc. (the “Company”) and its subsidiaries (collectively “Canon”). To the extent that statements in this quarterly report do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on the current assumptions and beliefs of Canon in light of the information currently available to them, and involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause Canon’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. Canon undertakes no obligation to publicly update any forward-looking statements after the date of this quarterly report. Investors are advised to consult any further disclosures by Canon in its subsequent filings with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and its other filings.

The risks, uncertainties and other factors referred to above include, but are not limited to, foreign currency exchange rate fluctuations; the uncertainty of Canon’s ability to implement its plans to localize production and other measures to reduce the impact of foreign currency exchange rate fluctuations; uncertainty as to economic conditions in Canon’s major markets; uncertainty of continued demand for Canon’s high-value-added products; Canon’s ability to continue to develop products and to market products that incorporate new technology on a timely basis, are competitively priced, and achieve market acceptance; the possibility of losses resulting from foreign currency transactions designed to reduce financial risks from changes in foreign currency exchange rates; disasters, outages or similar events; and inventory risk due to disruptions in supply chains and shifts in market demand.

 

1

I.	Corporate Information

 

(1)	Consolidated Financial Summary

 

		Millions of yen (except per share amounts)
		Nine months ended September 30, 2022				Nine months ended September 30, 2021				Three months ended September 30, 2022				Three months ended September 30, 2021				Year ended December 31, 2021
Net sales			2,874,239				2,557,908				996,090				833,324				3,513,357
Income before income taxes			231,969				231,147				79,076				79,326				302,706
Net income attributable to Canon Inc.			159,118				154,920				54,118				49,317				214,718
Comprehensive income (loss)			480,656				267,657				105,086				46,944				406,815
Canon Inc. shareholders’ equity			—				—				3,122,629				2,740,069				2,873,773
Total equity			—				—				3,354,224				2,959,150				3,098,429
Total assets			—				—				5,301,056				4,752,215				4,750,888
Net income attributable to Canon Inc. shareholders per share:
Basic (yen)			153.70				148.16				52.90				47.16				205.35
Diluted (yen)			153.65				148.12				52.88				47.15				205.29
Canon Inc. shareholders’ equity to total assets (%)			—				—				58.9				57.7				60.5
Net cash provided by operating activities			188,481				349,971				—				—				451,028
Net cash used in investing activities			(132,350	)			(148,351	)			—				—				(207,256	)
Net cash used in financing activities			(29,582	)			(139,986	)			—				—				(267,366	)
Cash and cash equivalents at end of period			—				—				465,298				482,240				401,395

Notes:

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

2.	Consumption tax is excluded from the stated amount of net sales.

 

(2)	Description of Business

Canon prepares quarterly consolidated financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Financial information presented in sections “II. The Business” is also in conformity with U.S. GAAP.

The Canon Group (consisting of the Company, 332 consolidated subsidiaries, and 9 affiliates accounted for using the equity method, as of September 30, 2022, collectively, the “Group”) is engaged in development, manufacturing, sales, and servicing activities in areas such as printing, imaging, medical, and industrial. No material change in Canon’s business has occurred during the nine months ended September 30, 2022.

No additions or removals of significant group entities have occurred during the nine months ended September 30, 2022.

 

2

II.	The Business

 

(1)	Risk Factors

No new risks have been identified during the nine months ended September 30, 2022. No material changes have been identified pursuant to the risk factors of Canon’s business indicated in the Annual Securities Report (Yukashoken Houkokusho) of the previous fiscal year.

 

(2)	Operating Results and Financial Conditions

Looking back at the third quarter of 2022, the pace of economic recovery slowed amid rising global inflation and interest rates, despite personal consumption underpinned by easing of restrictions on economic activities. In the United States, the economy showed signs of a slowdown due to inflation and tightened financial measures. However, economic recovery continued due to a robust increase in personal consumption. In Europe, the economy slowed down due to increased energy prices and continuous hikes of interest rates in response to the prolonged Ukraine crisis. In China, the speed of recovery of personal consumption declined due to the restrictions implemented under its Zero-COVID strategy again. In other emerging countries, the economy recovered moderately, mainly in India and Southeast Asia. In Japan, in spite of a resurgence of coronavirus disease (“COVID-19”) infections happening amid inflationary pressure caused by depreciation of the yen, the economy continued to recover moderately, mainly in terms of personal consumption resulting from eased restrictions.

In the markets in which Canon operates, demand for office multifunction devices (MFDs) remained firm, while demand for laser printers and inkjet printers declined due to the decreased demand from customers working from home. For cameras, demand remained solid, mainly for mirrorless cameras and lenses. For medical equipment, demand mainly for diagnostic imaging unit products recovered outside Japan, although demand in Japan declined this year due to a drop-off after government spending concluded last year. Demand remained high for semiconductor lithography equipment amid favorable market conditions, while demand for such devices as memory declined. For FPD (Flat Panel Display) lithography equipment, demand tend to decline due to decreased demand from customers working from home amid the COVID-19 pandemic and the current economic slowdown.

The average values of the yen during the third quarter and the first nine months of the year were ¥138.40 and ¥128.26 against the U.S. dollar, respectively, a year-on-year depreciation of approximately ¥28 and year-on-year depreciation of approximately ¥20, and ¥139.40 and ¥136.07 against the euro, respectively, a year-on-year depreciation of approximately ¥10 and year-on-year depreciation of approximately ¥6.

 

3

(2)	Operating Results and Financial Conditions (continued)

[Third quarter results]

Summarized results of the consolidated statements of income for the three months ended September 30, 2022 and September 30, 2021 are as follows:

 

As for the third quarter, despite concerns about the impact of inflation and rising interest rates, sales for mirrorless cameras and network cameras remained solid and sales for office MFDs recovered steadily. Net sales for the third quarter increased by 19.5% year-on-year to ¥996.1 billion due to the price adjustment of products and depreciation of the yen. Gross profit as a percentage of net sales decreased by 1.3 points to 45.3% due to the increase in the ratio of hardware caused by stabilization of production supply including printers, in addition to the increased costs of parts and logistics. However, third-quarter gross profit increased by 16.3% year-on-year to ¥451.0 billion, mainly due to the depreciation of the yen. Operating expenses increased by 12.3% year-on-year to ¥369.6 billion as a result of increased operating expenses denominated in foreign currencies due to the depreciation of the yen. On the other hand, the expense to sales ratio decreased by 2.5 points to 37.1% due to the promotion of efficiency for operations although sales activities increased. As a result, operating profit as a measure of the performance of business activities increased by 38.7% year-on-year to ¥81.4 billion. Other income (deductions) decreased by ¥22.9 billion year-on-year to a loss of ¥2.3 billion, mainly due to deterioration of valuation gains and losses on securities and currency exchange losses from liabilities, incurred by group finance, denominated in foreign currencies, caused by the depreciation of the yen. As a result, although income before income taxes decreased by 0.3% year-on-year to ¥79.1 billion and net income attributable to Canon Inc. increased by 9.7% year-on-year to ¥54.1 billion.

Basic net income attributable to Canon Inc. shareholders per share was ¥52.90 for the third quarter, a year-on-year increase of ¥5.74.

 

4

(2)	Operating Results and Financial Conditions (continued)

[Nine-month results]

Summarized results of the consolidated statements of income for the nine months ended September 30, 2022 and September 30, 2021 are as follows:

 

As for the first nine months, despite the ongoing shortage of semiconductor chips and supply chain disruptions due to lockdowns in China, Canon prioritized product supply by maximizing production, which was achieved by switching to alternative parts and developing business with new component suppliers. Sales for office MFDs recovered steadily and sales for mirrorless cameras and network cameras remained solid. Net sales for the first nine months increased by 12.4% year-on-year to ¥2,874.2 billion due to the price adjustment of products and depreciation of the yen. Gross profit as a percentage of net sales decreased by 0.9 points to 45.6% due to the increase in the ratio of hardware caused by stabilization of production supply including printers, in addition to the increased costs of parts and logistics. However, gross profit increased by 10.0% year-on-year to ¥1,309.5 billion due to the depreciation of the yen mainly. Operating expenses increased by 7.1% year-on-year to ¥1,053.4 billion as a result of increased operating expenses denominated in foreign currencies due to the depreciation of the yen and non-recurring expenses incurred to close a certain production facility, despite a gain on the sales of fixed assets resulting from optimizing a branch office capacity of an overseas sales subsidiary. On the other hand, the expense to sales ratio decreased by 1.7 points to 36.7% due to the promotion of efficiency for operations although sales activities increased. As a result, operating profit as a measure of the performance of business activities increased by 24.0% year-on-year to ¥256.1 billion. Other income (deductions) decreased by ¥48.6 billion year-on-year to a loss of ¥24.1 billion, mainly due to deterioration of valuation gains and losses on securities and currency exchange losses from liabilities, incurred by group finance, denominated in foreign currencies, caused by the depreciation of the yen. As a result, income before income taxes increased by 0.4% to ¥232.0 billion and first nine months net income attributable to Canon Inc. increased by 2.7% to ¥159.1 billion.

Basic net income attributable to Canon Inc. shareholders per share was ¥153.70 for the first nine months, a year-on-year increase of ¥5.54.

 

5

(2)	Operating Results and Financial Conditions (continued)

Operating results by segment (“business unit”) for the nine months ended September 30, 2022 and September 30, 2021 are as follows:

 

Printing Business Unit		Millions of yen (except percentage data)
		Nine months ended   September 30, 2022				Change				Nine months ended   September 30, 2021
Net sales:
Office			639,318				+15.7	%			552,689
Prosumer			726,093				+10.3				658,314
Production			254,096				+24.7				203,817
External customers total			1,619,507				+14.5				1,414,820
Intersegment			4,302				+27.4				3,377
Total			1,623,809				+14.5				1,418,197
Operating cost and expenses			1,464,406				+18.0				1,240,922
Operating Profit			159,403				-10.1				177,275
Income before income taxes			169,107				-7.4				182,692

As for the Printing Business Unit, demand for office MFDs recovered. However, unit sales slightly decreased compared with the previous year due to the shortage of semiconductor chips. Revenue from services and consumables increased moderately compared with the previous year due to the recovery in work in office. As for laser printers and inkjet printers, unit sales increased significantly compared with the previous year due to recovery from stagnant production activities. However, consumables decreased compared with the previous year as demand from customers working from home slowed down. For equipment in the production printing market, sales increased compared with the previous year due to strong sales of the varioPRINT iX series of high-speed cut-sheet color inkjet presses, while revenue from services also increased. These factors resulted in total sales for the business unit of ¥1,623.8 billion, a year-on-year increase of 14.5%, while income before income taxes totaled ¥169.1 billion, a year-on-year decrease of 7.4%, due to the increased costs of parts and logistics and the increase in the ratio of hardware caused by stabilization of production supply.

 

Imaging Business Unit		Millions of yen (except percentage data)
		Nine months ended   September 30, 2022				Change				Nine months ended   September 30, 2021
Net sales:
Cameras			360,334				+17.0	%			308,057
Network cameras and Others			200,362				+23.1				162,828
External customers total			560,696				+19.1				470,885
Intersegment			335				-75.2				1,350
Total			561,031				+18.8				472,235
Operating cost and expenses			478,688				+15.2				415,450
Operating Profit			82,343				+45.0				56,785
Income before income taxes			83,414				+47.3				56,619

As for the Imaging Business Unit, unit sales of mirrorless cameras were above those of the same period of the previous year due to continued strong demand for full-frame mirrorless cameras including the EOS R5 and EOS R6 as well as favorable reviews of the new EOS R7 and EOS R10 APS-C-size mirror less cameras. Unit sales of lenses increased owing to strong sales of RF-series interchangeable lenses that expanded the product lineup. As for network cameras, sales increased significantly mainly as a result of strengthening sales activities in response to diversifying market needs in addition to the recovery of products supply. As for professional video production equipment, sales of Cinema EOS-series including the new EOS R5 C, professional video cameras and broadcast lenses, were strong. These factors resulted in total sales for the business unit of ¥561.0 billion, a year-on-year increase of 18.8%, while income before income taxes increased by 47.3% year-on-year to ¥83.4 billion mainly as a result of improved profitability due to an enhanced product mix, despite non-recurring expenses relating to the closing of certain production facility.

 

6

(2)	Operating Results and Financial Conditions (continued)

 

Medical Business Unit		Millions of yen (except percentage data)
		Nine months ended   September 30, 2022				Change				Nine months ended   September 30, 2021
Net sales:
External customers total			362,240				+3.0	%			351,695
Intersegment			263				+25.2				210
Total			362,503				+3.0				351,905
Operating cost and expenses			341,449				+3.2				330,718
Operating Profit			21,054				-0.6				21,187
Income before income taxes			21,621				-15.9				25,722

As for the Medical Business Unit, demand mainly for diagnostic imaging unit products recovered outside Japan due to a recovery in large investments previously held back due to the COVID-19 pandemic although demand in Japan declined this year due to a drop-off after government spending concluded last year. These factors resulted in total sales for the business unit of ¥362.5 billion, a year-on-year increase of 3.0%, while income before income taxes decreased by 15.9% year-on-year to ¥21.6 billion as a result of the increased costs of parts and logistics.

 

Industrial and Other Business Unit		Millions of yen (except percentage data)
		Nine months ended   September 30, 2022				Change				Nine months ended   September 30, 2021
Net sales:
Lithography equipment			163.256				+10.4	%			147,844
Industrial equipment			63,019				-25.2				84,267
Others			109,731				+21.2				90,539
External customers total			336,006				+4.1				322,650
Intersegment			88,055				+25.2				70,348
Total			424,061				+7.9				392,998
Operating cost and expenses			380,719				+3.8				366,879
Operating Profit			43,342				+65.9				26,119
Income before income taxes			44,920				+70.9				26,292

As for the Industrial and Others Business Unit, regarding semiconductor lithography equipment, unit sales increased compared with the previous year as a result of maximizing production capacity amid strong sales for a wide range of products such as power device and logic. For FPD lithography equipment, unit sales decreased compared with the previous year, when the business unit caught up with delayed equipment installation. For OLED display manufacturing equipment, sales decreased compared with the previous year as panel manufacturers were in the midst of considering investment plans in response to diversifying OLED panel applications. These factors resulted in total sales for the business unit of ¥424.1 billion, a year-on-year increase of 7.9%, while income before income taxes totaled ¥44.9 billion, a year-on-year increase of 70.9% due to cost reduction as a result of mass production of semiconductor lithography equipment and an enhanced product mix.

 

7

(2)	Operating Results and Financial Conditions (continued)

Financial Conditions

 

		Millions of yen (except percentage data)
		September 30, 2022				Change				December 31, 2021
Total assets			5,301,056				+550,168				4,750,888
Total liabilities			1,946,832				+294,373				1,652,459
Canon Inc. shareholders’ equity			3,122,629				+248,856				2,873,773
Noncontrolling interests			231,595				+6,939				224,656
Total equity			3,354,224				+255,795				3,098,429
Total liabilities and equity			5,301,056				+550,168				4,750,888
Canon Inc. shareholders’ equity as a percentage of total assets			58.9	%			-1.6				60.5	%

Total assets increased by ¥550.2 billion to ¥5,301.1 billion at September 30, 2022, compared to the end of previous year, mainly due to the increase of cash and cash equivalents and inventories, combined with the impact of the depreciation of the yen. Inventories increased overall mainly due to higher inventory levels of main products for shopping season in fourth quarter. Total liabilities increased by ¥294.4 billion to ¥1,946.9 billion at September 30, 2022 compared to the end of previous year, mainly due to the increase of short-term loans. The balance of total equity increased by ¥255.8 billion to ¥3,354.2 billion at September 30, 2022 compared to the end of previous year, mainly due to the accumulation of retained earnings resulting from the increased net income attributable to Canon Inc. and the increase of accumulated other comprehensive income (loss) resulting from the depreciation of the yen although the payment of dividends to Canon Inc. shareholders and the repurchases of treasury stock decreased total equity. As a result, Canon Inc. shareholders’ equity as a percentage of total assets decreased by 1.6 points to 58.9% compared to the end of the previous year which still remains at a high percentage.

Cash Flows

 

		Millions of yen
		Nine months ended   September 30, 2022				Change				Nine months ended   September 30, 2021
Net cash provided by operating activities			188,481				-161,490				349,971
Net cash used in investing activities			(132,350	)			+16,001				(148,351	)
Free cash flow			56,131				-145,489				201,620
Net cash used in financial activities			(29,582)				+110,404				(139,986	)
Effect of exchange rate changes on cash and cash equivalents			37,354				+24,432				12,922
Net change in cash and cash equivalents			63,903				-10,653				74,556
Cash and cash equivalents at beginning of period			401,395				-6,289				407,684
Cash and cash equivalents at end of period			465,298				-16,942				482,240

During the first nine months of 2022, cash flow from operating activities decreased by ¥161.5 billion year-on-year to ¥188.5 billion as a result of higher inventory levels as mentioned above in Financial Conditions, and increased payment of income taxes due to increased taxable income. Cash flow used for investing activities decreased by ¥16.0 billion year-on-year to ¥132.4 billion due to the absence of major M&A transaction and the increased sales of fixed assets resulting from optimizing a branch office capacity of an overseas sales subsidiary although capital investment to improve efficiency and productivity continued and purchases of securities increased. Canon defines “free cash flows” as cash flows from operating activities less cash flows from investing activities. Free cash flow totaled ¥56.1 billion, a decrease of ¥145.5 billion compared with that of the previous year.

Cash flow from financing activities, despite an increase in short-term loans, recorded an outlay of ¥29.6 billion mainly due to repurchases of treasury stock and dividend payout, which increased ¥30.4 billion year-on-year.

Owing to these factors, as well as the impact from foreign currency exchange adjustments, cash and cash equivalents increased by ¥63.9 billion to ¥465.3 billion from the end of the previous year.

 

8

(2)	Operating Results and Financial Conditions (continued)

Non-GAAP Financial Measures

Canon has reported its financial results in accordance with U.S. GAAP. In addition, Canon has discussed its results using “free cash flow,” which is a non-GAAP measure.

Canon believes this measure, which takes into consideration its operating and investing activities, is beneficial to an investor’s understanding of its current liquidity and the alternative uses in financing activities.

A reconciliation of this non-GAAP financial measure and the most directly comparable measure calculated and presented in accordance with U.S. GAAP is set forth on the following table.

 

		Billions of yen
		Nine months ended September 30, 2022
Net cash provided by operating activities			188.5
Net cash used in investing activities			(132.4	)
Free cash flow			56.1

 

9

(2)	Operating Results and Financial Conditions (continued)

Accounting Estimates and Assumptions

No material changes with respect to accounting estimates and assumptions have occurred during the nine months ended September 30, 2021.

Prioritized Management Issues to be Addressed

No material changes or issues with respect to prioritized business operations and finances have occurred during the nine months ended September 30, 2021.

Research and Development Expenses

Canon’s research and development expenses for the nine months ended September 30, 2022 totaled ¥221.1 billion.

Property, Plant and Equipment

 

(1)

Major Property, Plant and Equipment

There were no significant changes to the status of existing major property, plant and equipment during the nine months ended September 30, 2022.

 

(2)

Prospect of Capital Investment in the first nine months of Fiscal 2022

There were no completions of new construction of assets plans, which had been in progress as of December 31, 2021, during the nine months ended September 30, 2022.

There were no significant plans relevant to the retirement of property, plant and equipment.

The new construction of property, plant and equipment, which is newly planned during the nine months ended September 30, 2022 is as follows:

 

 

(3)	Significant Business Contracts Entered into in the Third Quarter of Fiscal 2022

No material contracts were entered into during the three months ended September 30, 2022.

 

10

III.	Company Information

 

(1)

Shares

Total number of authorized shares is 3,000,000,000 shares. The common stock of Canon is listed on the Tokyo, Nagoya, Fukuoka, Sapporo and New York Stock Exchanges. Total issued shares are as follows:

 

		As of  September 30, 2022
Total number of issued shares			1,333,763,464

Stock Acquisition Rights

 

(1)	Stock options

Not applicable.

 

(2)	Other stock acquisition rights

Not applicable.

Exercise status of bonds with share subscription rights containing an adjustable exercise price clause

Not applicable.

Change in Issued Shares, Common Stock and Additional Paid in Capital

 

		Change during this quarter				As of September 30, 2022
Issued Shares (Number of shares)			—				1,333,763,464
Common Stock (Millions of yen)			—				174,762
Additional Paid-in Capital (Millions of yen)			—				306,288

Major Shareholders

Not applicable.

 

11

(1)	Shares (continued)

Voting Rights

The information provided below is based on the latest register of shareholders as of June 30, 2022.

 

		As of June 30, 2022
Classification		Number of shares (shares)				Number of voting rights (units)
Shares without voting rights			—				—
Shares with restricted voting rights (Treasury stock, etc.)			—				—
Shares with restricted voting rights (Others)			—				—
Shares with full voting rights (Treasury stock, etc.)			303,616,600				—
Shares with full voting rights (Others)			1,028,825,500				10,288,255
Fractional unit shares (Note)			1,321,364				—
Total number of issued shares			1,333,763,464				—
Total voting rights held by all shareholders			—				10,288,255

Note:

In “Fractional unit shares” under “Number of shares,” 46 shares of treasury stock are included.

Treasury Stock, etc.

 

		Number of shares owned (Number of shares)				Number of shares owned / Number of shares issued
Canon Inc.			303,616,600				22.76	%
Total			303,616,800				22.76	%

 

12

(2)	Directors and Executive Officers

There were no changes in Directors and Audit & Supervisory Board Members, and their functions between the filing date of the Annual Securities Report (Yukashoken Houkokusho) for the fiscal year ended December 31, 2021 and the end of this quarter.

There were no changes in members of executive officers between the filing date of the Annual Securities Report (Yukashoken Houkokusho) for the fiscal year ended December 31, 2021 and the end of this quarter.

Changes in functions of executive officers are below:

Isao Kobayashi                     (Executive Officer: Senior Vice President of Canon U.S.A., Inc.)

Seymour Liebman                (Senior Managing Executive Officer: Executive Vice President of Canon U.S.A., Inc.)

The Number of Directors and Executive Officers by Gender

Males: 50, Females: 2 (Females account for 3.8% of the total.)

The total number consisted of 10 Directors or Corporate Auditors and 42 Executive Officers as of September 30, 2022.

 

13

IV.	Financial Statements (Unaudited)

 

(1)	Consolidated Financial Statements

Index of Consolidated Financial Statements of Canon Inc. and Subsidiaries:

 

		Page
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			15
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2022 and 2021			17
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2022 and 2021			19
Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021			21
Notes to Consolidated Financial Statements			22

 

14

CANON INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

 

		Millions of yen
		September 30, 2022				December 31, 2021
Assets
Current assets:
Cash and cash equivalents (Notes 17 and 18)			465,298				401,395
Short-term investments (Notes 2 and 17)			12,216				3,377
Trade receivables (Note 3)			572,810				522,432
Inventories (Note 4)			883,897				650,568
Prepaid expenses and other current assets (Notes 6, 11, 13 and 17)			376,297				314,489
Allowance for credit losses (Notes 3 and 6)			(15,928	)			(13,916	)
Total current assets			2,294,590				1,878,345
Noncurrent receivables (Note 15)			13,528				16,388
Investments (Notes 2 and 17)			60,378				60,967
Property, plant and equipment, net (Note 5)			1,056,175				1,041,403
Operating lease right-of-use assets (Note 14)			110,367				95,791
Intangible assets, net			293,625				301,793
Goodwill			987,032				953,850
Other assets (Note 6)			488,636				404,720
Allowance for credit losses (Note 6)			(3,275	)			(2,369	)
Total assets			5,301,056				4,750,888

 

15

CANON INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited) (continued)

 

		Millions of yen
		September 30, 2022				December 31, 2021
Liabilities and equity
Current liabilities:
Short-term loans and current portion of long-term debt (Notes 8 and 16)			242,789				44,891
Short-term loans related to financial services			41,500				42,300
Other short-term loans and current portion of long-term debt			201,289				2,591
Trade payables (Note 7)			392,999				338,604
Accrued income taxes			32,849				43,081
Accrued expenses (Note 15)			375,429				323,929
Current operating lease liabilities (Note 14)			33,036				30,945
Other current liabilities (Notes 11, 13 and 17)			262,349				279,383
Total current liabilities			1,339,451				1,060,833
Long-term debt, excluding current installments (Notes 8 and 16)			180,315				179,750
Accrued pension and severance cost			239,227				248,467
Noncurrent operating lease liabilities (Note 14)			77,219				65,385
Other noncurrent liabilities (Note 11)			110,620				98,024
Total liabilities			1,946,832				1,652,459
Equity:
Canon Inc. shareholders’ equity (Note 9):
Common stock			174,762				174,762
(Number of authorized shares)			(3,000,000,000	)			(3,000,000,000	)
(Number of issued shares)			(1,333,763,464	)			(1,333,763,464	)
Additional paid-in capital			404,838				403,119
Legal reserve			64,491				68,015
Retained earnings			3,579,910				3,538,037
Accumulated other comprehensive income (loss) (Note 10)			156,987				(151,794	)
Treasury stock, at cost			(1,258,359	)			(1,158,366	)
(Number of shares)			(318,249,191	)			(287,991,705	)
Total Canon Inc. shareholders’ equity			3,122,629				2,873,773
Noncontrolling interests (Note 9)			231,595				224,656
Total equity (Note 9)			3,354,224				3,098,429
Total liabilities and equity			5,301,056				4,750,888

 

16

CANON INC. AND SUBSIDIARIES

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Consolidated Statements of Income

 

		Millions of yen
		Nine months ended September 30, 2022				Nine months ended September 30, 2021
Net sales (Notes 6, 10, 11 and 13):
Products and Equipment			2,290,449				2,040,201
Services			583,790				517,707
			2,874,239				2,557,908
Cost of sales (Notes 14 and 18):
Products and Equipment			1,290,688				1,122,750
Services			274,088				245,217
			1,564,776				1,367,967
Gross profit			1,309,463				1,189,941
Operating expenses:
Selling, general and administrative expenses (Notes 10, 14 and 18)			832,335				772,370
Research and development expenses			221,073				211,010
			1,053,408				983,380
Operating profit			256,055				206,561
Other income (deductions):
Interest and dividend income			3,167				1,519
Interest expense			(737	)			(442	)
Other, net (Notes 2, 10, 13 and 18)			(26,516	)			23,509
			(24,086	)			24,586
Income before income taxes			231,969				231,147
Income taxes			61,962				63,734
Consolidated net income			170,007				167,413
Less: Net income attributable to noncontrolling interests			10,889				12,493
Net income attributable to Canon Inc.			159,118				154,920
		Yen				Yen
Net income attributable to Canon Inc. shareholders per share (Note 12):
Basic			153.70				148.16
Diluted			153.65				148.12

 

17

CANON INC. AND SUBSIDIARIES

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (continued)

Consolidated Statements of Comprehensive Income (Loss)

 

		Millions of yen
		Nine months ended September 30, 2022				Nine months ended September 30, 2021
Consolidated net income			170,007				167,413
Other comprehensive income (loss), net of tax (Note 10):
Foreign currency translation adjustments			309,018				80,433
Net unrealized gains and losses on securities			(21	)			—
Net gains and losses on derivative instruments			(1,867	)			(324	)
Pension liability adjustments			3,519				20,135
			310,649				100,244
Comprehensive income (loss) (Note 9)			480,656				267,657
Less: Comprehensive income attributable to noncontrolling interests			12,757				13,653
Comprehensive income (loss) attributable to Canon Inc.			467,899				254,004

 

18

CANON INC. AND SUBSIDIARIES

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (continued)

Consolidated Statements of Income

 

		Millions of yen
		Three months ended September 30, 2022				Three months ended September 30, 2021
Net sales (Notes 6, 10, 11 and 13):
Products and Equipment			793,367				660,135
Services			202,723				173,189
			996,090				833,324
Cost of sales (Notes 14 and 18):
Products and Equipment			450,569				361,809
Services			94,488				83,556
			545,057				445,365
Gross profit			451,033				387,959
Operating expenses:
Selling, general and administrative expenses (Notes 10, 14 and 18)			294,576				256,531
Research and development expenses			75,017				72,700
			369,593				329,231
Operating profit			81,440				58,728
Other income (deductions):
Interest and dividend income			1,542				482
Interest expense			(207	)			(94	)
Other, net (Notes 2, 10, 13 and 18)			(3,699	)			20,210
			(2,364	)			20,598
Income before income taxes			79,076				79,326
Income taxes			21,827				25,001
Consolidated net income			57,249				54,325
Less: Net income attributable to noncontrolling interests			3,131				5,008
Net income attributable to Canon Inc.			54,118				49,317
		Yen				Yen
Net income attributable to Canon Inc. shareholders per share (Note 12):
Basic			52.90				47.16
Diluted			52.88				47.15

 

19

CANON INC. AND SUBSIDIARIES

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (continued)

Consolidated Statements of Comprehensive Income (Loss)

 

		Millions of yen
		Three months ended September 30, 2022				Three months ended September 30, 2021
Consolidated net income			57,249				54,325
Other comprehensive income (loss), net of tax (Note 10):
Foreign currency translation adjustments			42,987				(7,584	)
Net unrealized gains and losses on securities			(21	)			—
Net gains and losses on derivative instruments			617				321
Pension liability adjustments			4,254				(118	)
			47,837				(7,381	)
Comprehensive income (loss) (Note 9)			105,086				46,944
Less: Comprehensive income attributable to noncontrolling interests			3,965				5,235
Comprehensive income (loss) attributable to Canon Inc.			101,121				41,709

 

20

CANON INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

 

		Millions of yen
		Nine months ended September 30, 2022				Nine months ended September 30, 2021
Cash flows from operating activities:
Consolidated net income			170,007				167,413
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization			166,225				161,372
(Gain) loss on disposal of fixed assets			(9,549	)			6,185
Deferred income taxes			(6,081	)			2,170
Decrease in trade receivables			8,399				95,423
Increase in inventories			(153,886	)			(54,239	)
Increase in trade payables			75,275				33,550
(Decrease) increase in accrued income taxes			(12,740	)			24,503
Increase in accrued expenses			20,144				5,359
Decrease in accrued pension and severance cost			(29,442	)			(31,928	)
Other, net (Note 14)			(39,871	)			(59,837	)
Net cash provided by operating activities			188,481				349,971
Cash flows from investing activities:
Purchases of fixed assets (Note 5)			(132,251	)			(123,095	)
Proceeds from sale of fixed assets (Note 5)			14,316				2,102
Proceeds from maturity of held to maturity securities			2,151				—
Purchases of securities			(20,053	)			(1,633	)
Proceeds from sale and maturity of securities			6,518				1,707
Acquisitions of businesses, net of cash acquired			(5,890	)			(29,072	)
Other, net			2,859				1,640
Net cash used in investing activities			(132,350	)			(148,351	)
Cash flows from financing activities:
Repayments of long-term debt			(1,546	)			(47,518	)
Decrease in short-term loans related to financial services, net (Notes 1 and 8)			(800	)			(800	)
Increase (decrease) in other short-term loans, net (Notes 1 and 8)			197,840				(82	)
Dividends paid			(119,326	)			(88,891	)
Repurchases and reissuance of treasury stock, net			(100,012	)			(14	)
Other, net			(5,738	)			(2,681	)
Net cash used in financing activities			(29,582	)			(139,986	)
Effect of exchange rate changes on cash and cash equivalents			37,354				12,922
Net change in cash and cash equivalents			63,903				74,556
Cash and cash equivalents at beginning of period			401,395				407,684
Cash and cash equivalents at end of period			465,298				482,240
Supplemental disclosure for cash flow information:
Cash paid during the period for:
Interest			657				426
Income taxes			91,607				49,543

 

21

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(1)	Basis of Presentation and Significant Accounting Policies

 

(a)

Basis of Presentation

The Company issued convertible debentures in the United States in May 1969 and established a program in which its American Depositary Receipts (ADRs) are traded in the U.S. over-the-counter market. Since then, under the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934, as amended, the Company has prepared its annual consolidated financial statements in accordance with U.S. GAAP and filed them with the U.S. Securities and Exchange Commission on Form 20-F. The Company’s ADRs were listed on the NYSE in September 2000 after being quoted on NASDAQ from February 1972 to September 2000.

Canon’s quarterly consolidated financial statements are prepared in accordance with the recognition and measurement criteria of U.S. GAAP. Certain footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.

Canon has changed the presentation of “Short-term loans related to financial services” separated from “Short-term loans and current portion of long-term debt” in the consolidated balance sheets from the fourth quarter of 2021. Further, Canon has separated the presentation of “Increase (Decrease) in short-term loans related to financial services, net” from “Increase (Decrease) in short-term loans, net” and included the presentation of “Increase (Decrease) in short-term loans, net” in the consolidated statements of cash flows. These changes were made to enhance the presentation of the Company’s short-term borrowings for the users of the consolidated financial statements. To conform with the change in the presentation, the consolidated statement of cash flows for the nine months ended September 30, 2021 has been reclassified.

The number of consolidated subsidiaries and affiliated companies that were accounted for by the equity method as of September 30, 2022 and December 31, 2021 are summarized as follows:

 

		September 30, 2022				December 31, 2021
Consolidated subsidiaries			332				329
Affiliated companies			9				10
Total			341				339

 

(b)

Principles of Consolidation

The quarterly consolidated financial statements include the accounts of the Company, its majority owned subsidiaries and those variable interest entities where the Company or its consolidated subsidiaries are the primary beneficiaries. All material intercompany balances and transactions have been eliminated.

 

(c)

Recent Accounting Guidance

In November 2021, Accounting Standards Update (“ASU”) No. 2021-10, “Disclosures by Business Entities about Government Assistance”-ASC 832 (“Government Assistance”), was issued by the Financial Accounting Standards Board (“FASB”). The standard requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The disclosures shall include; (1) information about natures of the transactions and related accounting policies used to account for the transactions, (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and (3) significant terms and conditions of the transactions, including commitments and contingencies. The standard is effective for annual reporting periods beginning after December 15, 2021. Canon is currently evaluating the effect that the adoption of the standard will have on its disclosure information. Canon does not expect the adoption of the standard will have a material effect on its consolidated results of operation and financial condition.

 

22

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

 

In October 2021, ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”-ASC 805 (“Business Combinations”), was issued by FASB. The standard requires us to apply ASC 606 “Revenue from Contracts with Customers” to recognize and measure contract assets and contract liabilities acquired in a business combination. The standard is effective for interim and annual reporting periods beginning after December 15, 2022. Early application is permitted. Canon is currently evaluating the adoption date and the effect that the adoption of the standard will have on its consolidated results of operations and financial condition.

In March 2022, ASU No. 2022-02, “Troubled Debt Restructurings and Vintage Disclosures”-ASC 326 (“Credit Losses”), was issued by FASB. The standard requires us to expand disclosures for certain loan re-financings and restructurings, and requires current-period gross write-offs by year of origination for financing receivables and net investments in leases. The standard is effective for interim and annual reporting periods beginning after December 15, 2022. Early application is permitted. Canon is currently evaluating the adoption date and the effect that the adoption of the standard will have on its consolidated results of operations and financial condition.

 

23

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

 

(2)	Investments

There were no held-to-maturity debt securities as of September 30, 2022. Held-to-maturity debt securities included in short-term investments in the accompanying consolidated balance sheet were ¥2,164 million at December 31, 2021.

The cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities included in short-term investments and investments by major security type at September 30, 2022 as follows:

 

		Millions of yen
		September 30, 2022
		Cost				Gross unrealized holding gains				Gross unrealized holding losses				Fair value
Current:
Corporate bonds			9,875				31				11				9,895
Noncurrent:
Corporate bonds			3,941				—				55				3,886
			13,816				31				66				13,781

There were no available-for-sale debt securities included in short-term investments and investments at December 31, 2021.

Maturities of available-for-sale securities included in short-term investments and investments in the accompanying consolidated balance sheets at September 30, 2022 are as follows:

 

		Millions of yen
		Fair value
Due within one year			9,895
Due after one year through five years			3,886
Total			13,781

 

24

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

 

(2)	Investments (continued)

 

The unrealized and realized gains and losses related to equity securities for the nine months and three months ended September 30, 2022 and 2021 are as follows:

 

		Millions of yen
		Nine months ended September 30, 2022				Nine months ended September 30, 2021
Net gains and (losses) recognized during the period on equity securities			(6,451	)			12,863
Less: Net gains and (losses) recognized during the period on equity securities sold during the period			61				468
Unrealized gains and (losses) recognized during the period on equity securities still held at September 30			(6,512	)			12,395
		Millions of yen
		Three months ended September 30, 2022				Three months ended September 30, 2021
Net gains and (losses) recognized during the period on equity securities			(1,219	)			10,781
Less: Net gains and (losses) recognized during the period on equity securities sold during the period			83				428
Unrealized gains and (losses) recognized during the period on equity securities still held at September 30			(1,302	)			10,353

The carrying amount of non-marketable equity securities without readily determinable fair value totaled ¥7,241 million and ¥6,661 million at September 30, 2022 and December 31, 2021, respectively. The impairment or other adjustments resulting from observable price changes recorded during the nine months ended September 30, 2022 and 2021 were not material.

Time deposits with original maturities of more than three months are ¥2,321 million and ¥1,213 million at September 30, 2022 and December 31, 2021, respectively, and are included in short-term investments in the accompanying consolidated balance sheets.

 

25

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

 

(3)	Trade Receivables

Trade receivables are summarized as follows:

 

		Millions of yen
		September 30, 2022				December 31, 2021
Notes			26,665				28,616
Accounts			546,145				493,816
Trade receivables			572,810				522,432
Allowance for credit losses			(14,153	)			(12,494	)
			558,657				509,938

 

(4)	Inventories

Inventories are summarized as follows:

 

		Millions of yen
		September 30, 2022				December 31, 2021
Finished goods			545,455				395,381
Work in process			272,033				199,153
Raw materials			66,409				56,034
			883,897				650,568

 

(5)	Property, Plant and Equipment, net

Property, plant and equipment are stated at cost less accumulated depreciation and are summarized as follows:

 

		Millions of yen
		September 30, 2022				December 31, 2021
Land			280,915				276,306
Buildings			1,782,441				1,728,811
Machinery and equipment			1,939,105				1,849,271
Construction in progress			56,932				43,283
Finance lease right-of-use assets			7,916				6,533
Cost			4,067,309				3,904,204
Less: accumulated depreciation			(3,011,134	)			(2,862,801	)
Property, plant and equipment, net			1,056,175				1,041,403

Fixed assets presented in the consolidated statements of cash flows includes property, plant and equipment and intangible assets.

 

26

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

 

(6)	Lessor Accounting

Lease income is included in Products and Equipment sales in the accompanying consolidated statements of income. Supplemental income statement information is as follows:

 

		Millions of yen
		Nine months ended September 30, 2022				Nine months ended September 30, 2021
Lease income – sales-type and direct financing leases
Revenue at lease commencement			81,902				63,070
Interest income on lease receivables			15,222				13,246
Sales-type and direct financing leases income total			97,124				76,316
Lease income – operating leases			25,199				19,984
Variable lease income			3,861				3,795
Total lease income			126,184				100,095
		Millions of yen
		Three months ended September 30, 2022				Three months ended September 30, 2021
Lease income – sales-type and direct financing leases
Revenue at lease commencement			30,932				19,631
Interest income on lease receivables			5,493				4,422
Sales-type and direct financing leases income total			36,425				24,053
Lease income – operating leases			9,740				6,348
Variable lease income			1,558				2,310
Total lease income			47,723				32,711

Allowance for Credit Losses

Finance receivables represent financing leases, which consist of sales-type leases and direct financing leases. These receivables typically have terms ranging from 1 year to 8 years. Finance receivables are ¥424,700 million and ¥346,624 million at September 30, 2022 and December 31, 2021, respectively.

The activities in the allowance for credit losses are as follows:

 

		Millions of yen
		Nine months ended September 30, 2022				Nine months ended September 30, 2021
Balance at beginning of period			3,791				3,068
Write-offs			(1,689	)			(1,232	)
Provision			1,518				1,376
Translation adjustments and other			1,430				431
Balance at end of period			5,050				3,643

 

27

CANON INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

 

(6)	Lessor Accounting (continued)

 

Canon has policies in place to ensure that its products are sold to customers with an appropriate credit history, and continuously monitors its customers’ credit quality based on information including length of period in arrears, macroeconomic conditions, initiation of legal proceedings against customers and bankruptcy filings. The allowance for credit losses of finance receivables is evaluated collectively based on historical experiences of credit losses and reasonable and supportable forecasts. An additional reserve for individual accounts is recorded when Canon becomes aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings. Finance receivables which are past due or individually evaluated for impairment at September 30, 2022 and December 31, 2021 are not significant.

Information about transferring finance receivables

Canon has syndication arrangements to sell its entire interests in finance receivables to the third-party financial institutions. The transactions under the arrangements are accounted for as sales in accordance with ASC 860 “Transfers and Servicing.” There were no significant transfers of finance receivables for the nine months ended September 30, 2022 and 2021. The amount that remained uncollected was ¥17,716 million and ¥23,984 million at September 30, 2022 and December 31, 2021, respectively. Cash proceeds from the transactions are included in other, net under the cash flow from operating activities in the consolidated statement of cash flows. Canon continues to provide collection and administrative services for the financial institutions. The amount associated with the servicing liability measured at fair value was not significant at September 30, 2022 and December 31, 2021. Canon also retains limited recourse obligations which cover credit defaults. The recourse obligations were not significant at September 30, 2022 and December 31, 2021.

 

(7)	Trade Payables

Trade payables are summarized as follows:

 

		Millions of yen
		September 30, 2022				December 31, 2021
Notes			87,465				82,243
Accounts			305,534				256,361
			392,999				338,604

 

(8)	Short-Term Loans and Long-Term Debt

Short-term loans related to financial services are external loans held by Canon’s lease subsidiaries for the purpose of financing its customers through loans. Short-term loans related to financial services consisting of bank borrowings at September 30, 2022 and December 31, 2021 were ¥41,500 million and ¥42,300 million, and other short-term loans consisting of bank borrowings were ¥200,026 million and ¥1,301 million, respectively.

Canon has revolving credit facilities expiring in December 2023. The outstanding loans under the credit facilities are ¥174,000 million at a floating interest of 0.22% and Canon has no unused credit facilities as of September 30, 2022.

 

28