(Documents provided in accordance with Articles 437 and 444 of the Companies Act of Japan)

B U S I N E S S
R E P O R T
r y 1 , 20 18 to(JDanuae c e m b e r 3 1 , 2 0 1 8)

1. Current Conditions of Canon Marketing Japan and its consolidated subsidiaries (the“Group”)(1) Business Progress and Achievement■General Business Conditions
Looking back at the Japanese economy over this Year, although firms tended to increase
their IT investment and other capital investment, consumer sentiment appeared stuck in thedoldrums.
Against this economic backdrop, we recorded net sales of ¥621,591 million (down 1.7% fromthe previous year) due to the unexpectedly weaker demand of digital SLR cameras and inkjet
printers, which offset growth in areas such as IT solutions and industrial equipment.
In terms of income meanwhile, we posted operating income of ¥28,941 million (down 4.8%)
and ordinary income of ¥30,519 million (down 3.1%) due to lower sales of highly profitableproducts, however profit attributable to owners of parent came to ¥20,826 million (up 0.7%).
For realization of the basic policies under Long-Term Management Objectives Phase III, we
made the transition from an organizational framework based on products to a neworganizational framework based on markets and customers from January 1, 2018. As a resultof this change, starting from this fiscal year under review, we changed our reportablesegments from Business Solutions, IT Solutions, Imaging Systems and Industrial/Medical toConsumers, Enterprise, Area and Professional.
Year-on-year increases or decreases contained in this Business Report are calculated basedon a comparison with the previous fiscal year’s data restated to reflect the new reportablesegments.
■ Business Conditions by Segment
Consumers
In the fiscal year under review, sales of mirrorless cameras increased mainly due to sales of
EOS Kiss M, the first mirrorless camera under the Kiss series acquiring the position of thebest-selling mirrorless camera position in Japan, and the launch of EOS R, our first fullframe mirrorless camera with new RF lenses. However, sales of digital interchangeable lenscameras declined overall due to the shift from digital SLR cameras to mirrorless cameras andweak demand under the impact of market contraction. Sales of compact digital cameras also
registered decline caused by a shrinking market.
Inkjet printer sales fell due to market decline reflecting the decreased use of the New
Year’s card, despite strong sales of business inkjet printers. Sales of ink cartridges also
decreased owing to reduction in printing volumes associated with the falling number ofMachine in Field.
Sales of IT products increased thanks to strong sales of products as such as gaming
computers and mobile batteries.
As a result, net sales in this segment totaled ¥150,244 million (down 9.6% from theprevious year), with operating income coming in at ¥7,333 million (down 42.1%).

1

Enterprise
In the fiscal year under review, business with credit card companies and securities firms
was driven by large-scale SI projects, and we also performed solidly in form design-related
solutions for life insurance companies and cloud systems designed to increase the efficiency
of investigation operations for non-life insurance companies. Meanwhile, in business withbanks, sales increased, mainly due to the receipt of new orders for BPO projects to reduce
workload in trust operations.
Business for the manufacturing industry was driven by production management systemprojects for electrical manufacturers and large-scale office construction projects for chemical
manufacturers and migration projects due to system upgrades were also strong, contributing
to higher sales.
Business with the distribution industry was mainly driven by document management
system projects for airlines, and the receipt of orders for large projects involving office MFPs
also contributed to higher sales.
In the education fields, where universities are our main customers, sales fell slightly,
mainly reflecting the absence of large projects received the previous year despite orders
received for multiple projects using in Campus, which provides IT platforms such as oncampus information transmission systems and learning management systems.
Meanwhile, Canon IT Solutions Inc. performed strongly in data center services, which arehighly rated due to the high performance of facilities and the high quality of operations,security solutions including ESET and the automotive embedded software business, inaddition to the sector-specific solutions outlined above.
As for sales of office MFPs in this segment, sales to customers such as megabanks andlarge distribution firms increased. Meanwhile, sales of laser printers decreased due to falling
selling prices despite an increase in shipments mainly due to large projects for life insurancecompanies.
As a result, net sales in this segment totaled ¥187,717 million (up 5.7% from the previousyear), with operating income coming in at ¥9,609 million (up 24.3%).

Area
In the fiscal year under review, sales of IT products increased, reflecting the replacementof business computers, and various types of IT introduction support and maintenanceservices also performed strongly. Meanwhile, HOME, an IT support cloud computing service
for small-to-medium-sized custormers, and ESET antivirus software also continued to sell
well and sales from IT solutions business increased. However, shipments of mainstay
hardware products such as office MFPs and laser printers were weak, causing sales to fallslightly.
As a result, net sales in this segment totaled ¥255,910 million (down 0.8% from theprevious year), with operating income coming in at ¥13,027 million (up 14.0%).

Professional(Professional Printing)Sales fell due to weak performances in high-speed cut-sheet printers and high-speed
continuous feed printers.

2

(Industrial)
Sales increased due to solid performances of products such as semiconductor manufacturing
equipment, inspection and measurement equipment and industrial components.
(Health Care)
Sales declined, reflecting a weak performance in modality projects for hospitals, amongst
others, despite growth in areas such as medical information systems and ophthalmic
instruments.
(Visual Solutions)
Business with broadcasters was brisk thanks to a rise in demand associated with thelaunch of 4K and 8K satellite TV broadcasts. However, sales of network cameras declined,causing sales to remain mostly flat.
As a result, this segment recorded net sales of ¥52,447 million (down 3.1% from theprevious year) and an operating loss of ¥937 million (operating loss of ¥1,869 million in theprevious year).
(2) Capital Expenditures
The capital expenditures by the Group during this fiscal year totaled ¥8,453 million, which
are mainly as rented assets, tools, fixtures and fittings, and ancillary facilities at our NishiTokyo Data Center.
(3) Issues to be Addressed
We expect the Japanese economy to continue its mild recovery. However, we also expect that
future prospects will continue to be unclear due to uncertainty about the outcome of tradeissues and overseas economies, the impact of fluctuations in financial and capital markets, andother factors.
Against this economic backdrop, our top priority as the Group is to build on our various
strengths, including our strong customer base, our range of highly competitive Canon products,
and our IT capabilities, to expand our business domain even further. To achieve that, we havemade it our Group Mission under our Long-Term Management Objectives Phase III (2016 to2020) to “help resolve social issues with advanced imaging & IT solutions,” and are committed
to expanding our business based on our Group Vision; “the Canon Marketing Japan Group
understands its customers and grows with its customers.”
Under our Three-Year Management Plan 2019 to 2021 starting this fiscal year, we will focus
on six basic strategies.
(i)
Achieve profitable growth in expanding market areas(ii)
Raise productivity in Canon’s existing businesses including cameras, MFPs andprinters(iii)
Implement structure reforms to rebuild business portfolio(iv)
Use alliances and M&A to enter new areas, expand operations, and supplement
capabilities(v)
Implement organizational, personnel and Human Resources strategies for achieving
sustainable business expansion(vi)
Reduce SG&A expenses through radical cost structure reforms
Within the context of (i) above, we plan to focus on the rapidly growing IT solutions market
and use IT solutions to propel our future growth. Specific strategies in the IT solutions
business are as follows.

31. Raise productivity and expand operations in SI services businessWe will make effective use of customer base to expand business-specific solutions. We willseek to shift away from contract-based system development to proposal-based developmentusing packaged software and service provision-based SI.
2. Increase added value in IT infrastructure services
We will seek to increase profitability by creating projects that encompass added value
services such as system monitoring and security operations, with Nishi-Tokyo Data Centerplaying a central role.
3. Expand IT solutions business with small-to-medium-sized custormers
We will become an “IT concierge,” fulfilling the role of IT officer for small-to-medium-sizedcustormers, which is the Group’s largest customer base, and we will strengthen marketingof solutions built around security products. We will also share the knowhow developed inthis field with business partner channels and make this knowhow a pillar for the growth of
the Group’s IT solutions business.
4. Leverage IT to expand BPO services
We consolidated the BPO businesses of Group companies to establish the BPO Management
Center. We will establish business-specific BPO models based on an intimate knowledge ofevery type of business and provide services with high levels of expertise and productivity.
5. Ensure SEs and professional human resources
We will seek to expand SEs and human resources with expertise in each business area toaccelerate achievement of a growth scenario in the IT solutions business.
We will endeavor to expand our operations and enhance business performance by promoting
these priority strategies.

4(4) Status of Assets and Earnings■Consolidated

Net Sales(Millions of yen)
Operating income(Millions of yen)
Ordinary income(Millions of yen)
Profit attributable toowners of parent(Millions of yen)
Profit attributable toowners of parent per
share (yen)Total Assets(Millions of yen)
Net Assets(Millions of yen)

47th Fiscal
Year

48th Fiscal
Year49th Fiscal
Year50th Fiscal
Year

51st Fiscal
Year659,432

646,002629,313632,189

621,591

25,087

26,647

27,67630,40628,941

26,55328,04028,71731,491

30,51916,03015,67018,161

20,67920,826

123.62120.84140.06

159.48160.61

479,747

486,502497,727

510,832

498,790

270,352

277,438

280,919

297,522

303,570（Jan.1, 2014 （Jan.1, 2015 （Jan.1, 2016 （Jan.1, 2017 （Jan.1, 2018
～
～
～
～
～
Dec.31, 2014） Dec.31, 2015） Dec.31, 2016） Dec.31, 2017） Dec.31, 2018）

Note: Profit attributable to owners of parent per share is calculated based on the weighted average numberof outstanding shares during the year.

(5) Main Business
Segment

Major Products / Services

Consumers

Provision of digital cameras, inkjet printers and other products andservices to individual customers

Enterprise

Provision of Canon input-output devices and solutions to large enterprises
to help solve sector-specific management issues

Area

Provision of Canon input-output devices and solutions to small-tomedium-sized custormers throughout Japan to help solve management
issues faced by customers
Provision of solutions to customers in specialist areas(Professional Printing)
Provision of high-speed continuous feed printers and high-speed cut-sheet
printers mainly to printing industry

Professional(Industrial)
Provision of semiconductor manufacturing systems, inspection andmeasuring devices and other industrial solutions mainly to semiconductor
manufacturers and other electronic device manufacturers(Health Care)
Provision of various types of modalities and IT systems and solutions
combining both to medical institutions and provision of dispensing
equipment, IT systems and other solutions to pharmacies(Visual Solutions)
Provision of network camera solutions for monitoring and commercial
applications and commercial imaging equipment to broadcasters5(6) Main location of operations■The Company
Headquarters (Tokyo)
Konan Office (Tokyo)
Makuhari Office (Chiba)

Sapporo Branch (Hokkaido)
Sendai Branch (Miyagi)
Nagoya Branch (Aichi)
Osaka Branch (Osaka)
Hiroshima Branch (Hiroshima)
Fukuoka Branch (Fukuoka)■Principal Subsidiaries
Canon IT Solutions Inc.
Canon System & Support Inc.
Canon Production Printing Systems Inc.
Canon Lifecare Solutions Inc.

(Tokyo)(Tokyo)(Tokyo)(Tokyo)(7) Employees■Consolidated
Number of Employees

Change from the end of the previous year

17,282persons

Decrease of 365 persons from the previous year

Segment

Number of Employees

Change from the end of the previous year

Consumers

566 persons

Increase of 103 persons from the previous year

Enterprise

5,161 persons

Decrease of 79 persons from the previous yearArea

6,345 persons

Decrease of 628 persons from the previous year

Professional

1,416 persons

Decrease of 298 persons from the previous yearOther

3,794 persons

Increase of 537 persons from the previous year

Note: The segment figures for the period in end of the previous year represent the results of recalculation inaccordance with the definition of new segments that applies to the period under review.

(8) Parent Company and Principal Subsidiaries■Parent Company
ParentCompany
Name

Location

Activities

Development andproduction in the
Ohta-kufield of the office,Canon Inc.
Tokyo imaging
systems
andindustrial
equipment

Number of
Voting Rights(Ratio of
Voting Rights)

Relation with the Company

757,086(58.5%)The Company is comprehensively conducting
to sales, services and marketing of the
products manufactured by the Parent
Company in the Japan market.

■Matters about the transactions with Parent Company, etc.
The Company holds the exclusive right to sell within Japan all products, excluding
semiconductor exposure devices and liquid crystal substrate exposure devices, manufactured
by Parent Company under the Canon brand.
In purchasing such products, the terms are negotiated and determined for each year bypresenting the preferred prices from the Company taking into account market prices.
The Company sells consumables for office equipment to the Parent Company based on thesame terms as regular transactions.
The Company lends funds to the Parent Company by the interest rates determinedreasonably taking into account market rates.

6

Thus, the board of directors assesses that the Company is conducting business activities
and making management decisions based on the Company’s own management judgments,
certain independence from the Parent Company is secured, and the Company’s profit is notharmed in the transactions with the Parent company.
■Principal Subsidiaries
Company Name

Capital Stock(millions ofyen)

Ratio of Voting
Rights of theCompany(%)

Canon IT Solutions Inc.

3,617

100.0

Canon System & Support Inc.

4,561

100.0

Canon Production Printing
Systems Inc.

2,744

100.0

Canon Lifecare Solutions Inc.

2,533

100.0

Business
SI and consulting, IT service anddevelopment and sale of various
softwares

Consulting,sales,
supportandmaintenanceservicesforCanon
products and the IT solutions of othercompanies

Sales of high-speed continuous feed
printers,
high-speed
cut
sheet
printers
andconsumables,
maintenance service, and printing
service, etc.
Salesofmedicalequipment,
healthcare related equipment andconsumables and medical image
systems■Consolidated Status
1. The number of consolidated subsidiaries was 20.
2. The Company took over business belonging to the Facility Management Services
Department of Canon Business Support Inc. by way of absorption-type merger effective
April 1, 2018.

7

2.

Status of Shares of the Company(1) Total number of shares authorized
299,500,000 shares(2) Total number of issued shares, Capital stock, Number of shareholders

Total number of issued
shares (shares)
Capital stock (yen)Number of shareholders(persons)

As of the end of the
Change during This Year
Previous YearAs of the end of ThisYear

151,079,972―

151,079,972

73,303,082,757―

73,303,082,757

11,188

Increase of 1,218

12,406(3) Major shareholders
Name of shareholders
Canon Inc.
Canon Marketing Japan Group Employee Stock
Ownership Association
The Master Trust Bank of Japan, Ltd.
(Trust account)
Japan Trustee Services Bank, Ltd. (Trust account)
THE BANK OF NEW YORK,TR EATY JASDECACCOUNTSTATE STREET BANK AND TRUSTCOMPANY 505001
Canon Marketing Japan Group Business
Partner Stock Ownership Association
Japan Trustee Services Bank, Ltd.
(Trust account5)
BNYMSANV RE BNYMIL RE LFMORANT WRIGHTNIPPON YIELD FUND
Mizuho Bank, Ltd.

Number of shares
held(thousands of shares)
75,708

Shareholding ratio
(%)
58.4

5,705

4.4

3,250

2.5

2,243

1.7

1,890

1.5

1,646

1.3

1,157

0.9

1,102

0.9

1,050

0.8

1,001

0.8

Note: 1. The Company possesses 21,412,840 shares of its treasury shares (14.2% of the total number ofissued shares).
2. The shareholding ratio is calculated by deducting the number of treasury shares from the total
number of issued shares.

(4) Shareholding ratio by category
Securities
companies
1.1%
Financial
institutions
9.9%

Other domestic companies
51.2%

8

Foreigncompanies,
etc.
11.9%

Individuals
and others
11.7%

Treasuryshares
14.2%

3.

Status of Directors and Audit & Supervisory Board Members(1) Directors and Audit & Supervisory Board Members
Position

President &Representative
D i r e c t o r
E x e c u t i v e
P r e s i d e n t
Representative
D i r e c t o r
Senior ViceP r e s i d e n t

NameBusiness in Charge or Important Concurrent Posts

Masahiro Sakata

YutakaUsui

Director SeniorVice President

Y o s h i y u k i
M a t s u s a k a

Director SeniorVice President

Masachika Adachi

Director ViceP r e s i d e n t
D i r e c t o r
D i r e c t o r
A u d i t&
Supervisory
Board Member
A u d i t&
Supervisory
Board Member
A u d i t&
Supervisory
Board Member
A u d i t&
Supervisory
Board Member
A u d i t&
Supervisory
Board Member

Director in charge of Group CSR, Group general affairs
and personnel affairs, Group legal affairs and intellectual
property, Group procurement and Group logistics
Director in charge of Video Solutions Co-creation Project,
Group planning and Group communication
Vice Director of Marketing Headquarters
Director of Consumer Business Unit
Director in charge of Group ITS and IT Platform
Functional Unit
Director of Enterprise Business Unit
President & Representative Director of Canon IT
Solutions Inc.

Shiro Hamada

Director in charge of Group accounting and Group audits

Akio Dobashi

Outside Director of Maeda Corporation

Yoshio Osawa
Masahiro Shimizu
Shinichi Inoue
Kunihiko Tedo
Nobuyasu Kusumi
Shigeo Hasegawa（注）1．Director Mr. Yoshio Osawa and Audit & Supervisory Board Member Mr. Shinichi Inoue wereappointed at the 50th Ordinary General Meeting of Shareholders held on March 28, 2018 and eachof them assumed office.
2. Directors Mr. Akio Dabashi and Mr. Yoshio Osawa are Outside Directors.
3. Audit & Supervisory Board Members Mr. Kunihiko Tedo, Mr. Nobuyasu Kusumi and Mr. Shigeo
Hasegawa are Outside Audit & Supervisory Board Members.
4. The Company has notified Directors Mr. Akio Dobashi and Mr. Yoshio Osawa as independent
directors and Audit & Supervisory Board Members Mr. Nobuyasu Kusumi and Mr. Shigeo
Hasegawa as independent Audit & Supervisory Board Members to Tokyo Stock Exchange, Inc. on
which the Company is listed as provided under the regulations of Tokyo Stock Exchange, Inc.
5. Audit & Supervisory Board Member Mr. Masahiro Shimizu has accounting experience in the
Company for many years and has a wealth of expertise in finance and accounting.
6. Audit & Supervisory Board Member Mr. Kunihiko Tedo is has accounting experience in Canon
Inc., our parent company, for many years and has a wealth of expertise in finance and accounting.
7. Audit & Supervisory Board Member Mr. Shigeo Hasegawa is qualified as a Certified Public
Accountant and has a wealth of expertise in finance and accounting.
8. The Company has entered into contracts, in accordance with the Articles of Incorporation, with
the Outside Director and the Audit & Supervisory Board Members to limit their liabilities tocompensate damages under Paragraph 1, Article 423 of the Companies Act of Japan, to the limitof amount set forth in the Paragraph 1, Article 425 of the Companies Act of Japan.

9(2) Remuneration to Directors and Audit & Supervisory Board Members
Directors
11 persons ¥375 million
Audit & Supervisory Board Members 6 persons ¥107 million
Notes:1. The total amount of remuneration paid to 3 Outside Directors and 3 Outside Audit &Supervisory Board Members is ¥80 million.
2. The above number of persons includes four directors and one Audit & Supervisory Board
Member who retired from office at the end of the 50th Ordinary General Meeting of
Shareholders held on March 28, 2018.
3. Directors’ remuneration include provision for directors’ bonuses for this fiscal year in theamount of ¥40 million.

(3) Status of Outside Director and Outside Audit & Supervisory Board Members■Relation Between Important Organization of Concurrent Post and the Company
Concurrent
Relation with The
Name
Organization of Concurrent Post
Post
Company
Akio Dobashi
OutsideMaeda Corporation
No special relation(Outside Director)
Director■Principal Activities
Name
Principal Activities
Attended all 15 Board of Directors meetings held during this fiscal year,
Akio Dobashi
and provided input based on his experience and knowledge in the field of(Outside Director)
corporate management.
Attended all 10 of the 15 Board of Directors meetings held after heYoshio Osawa
assumed the post and provided input based on his experience and(Outside Director)
knowledge in the field of corporate management.
Kunihiko Tedo
Attended all of 15 Board of Directors meetings and all of 18 Audit &(Outside Audit &Supervisory Board meetings held during this fiscal year, and provided
Supervisory Board
input based on his experience and knowledge in the field of accounting.
Member)Nobuyasu Kusumi Attended all of 15 Board of Directors meetings and all of 18 Audit &(Outside Audit & Supervisory Board meetings held during this fiscal year, and provided
Supervisory Board input based on his experience and knowledge in the field of corporate
Member)management.
Shigeo Hasegawa Attended all of 15 Board of Directors meetings and all of 18 Audit &(Outside Audit & Supervisory Board meetings held during this fiscal year, and provided
Supervisory Board input based on his insight as a Certified Public Accountant when
Member)necessary.

10

4.

Status of Accounting Auditor(1) Name of Accounting Auditor
Ernst & Young ShinNihon LLC(2) Remuneration and Other Amounts to Accounting Auditor for This fiscal year
Amount(i) Remuneration and other amounts payable by the Company for theservices defined in Paragraph 1, Article 2 of the Certified Public
Accountants Act(ii) Total amount of cash and other financial benefits payable by theGroup to the Accounting Auditor

111 million (yen)
189 million (yen)Notes: 1. In the audit agreement between the Company and the Accounting Auditor, remuneration
amounts are determined on a lump-sum without breakdown into a separate remuneration
amount for auditing in accordance with the Companies Act and in accordance with the Financial
Instruments and Exchange Act. Accordingly, the amounts shown in (i) above represent total
amounts of remuneration and other amounts for both of these auditing services.
2. The Company pays consideration to accounting auditors for work concerning agreed upon
procedures other than the work specified in Article 2, Paragraph 1 of the Certified Public
Accountings Act.
3. Reason that the Audit & Supervisory Board reached an agreement regarding the remuneration
to Accounting Auditor:
The Audit & Supervisory Board has received necessary documents and reports from the
Directors, related internal divisions, and the Accounting Auditor, in addition to confirming theaudit plan, status of the performed audit for the previous year, and the estimated remuneration
for this fiscal year. As a result, the Audit & Supervisory Board reached an agreement regarding
the remuneration to Accounting Auditor, upon judging it to be a rational level for maintaining
and improving audit quality.

(3) Policy Regarding Decision on Either Dismissal or Non-Reappointment of the Accounting
Auditor
The Audit & Supervisory Board, by unanimous agreement, as needed, will dismiss the
Accounting Auditor when confirmed that the Accounting Auditor falls under any Item of
Paragraph 1, Article 340 of the Companies Act.
In addition to the above, should anything occur to negatively impact the qualifications or
independence of the Accounting Auditor, making it unlikely that the Accounting Auditor
will be able to properly perform an audit, the Audit & Supervisory Board will decide thecontents of the item to be proposed at a General Meeting of Shareholders regarding thedismissal or non-reappointment of the Accounting Auditor.

115. Systems for Ensuring Appropriateness of Business Operations and Outline of
Implementation Activities
The content of the resolution of the Board of Directors regarding the systems necessary toensure the appropriateness of the Company’s operations (basic policy) as well as the outlineof implementation activities for the aforementioned systems, are as follows:
Systems for Ensuring
Content of Basic Policy Resolution
Appropriateness of Operations
To ensure the appropriateness of operations and to work
(the “Internal Control System”)
for continuous improvement in corporate value, Canon
Marketing Japan Inc. (the “Company”) and theenterprises consisting of the Company and its
consolidated subsidiaries (the “Group”), shall foster asound corporate culture based on the Spirit of “Three Self”(Self-motivation, Self-management, and Self-awareness) –guiding principles of Canon Group (Canon Inc., parent
company of the Company, and its subsidiaries). The
Group shall also work to foster a law-abiding awarenessthrough the “Canon Group Code of Conduct.”
Furthermore, the Group shall firmly strive to ensure
management transparency through clearly defined
approval processes of important matters of the Group.
1. System for Compliance (Item Content of Basic Policy Resolution
6, Paragraph 4, Article 362 of the (1) The Board of Directors, in accordance with regulationsprescribed by the Board of Directors (the “Regulations
Companies Act of Japan (the“Companies Act”), and Item 4,of the Board of Directors”), shall make decisions on
Paragraph 1, Article 100 of theimportant the Group managerial matters after careful
deliberation. Additionally, the Board of Directors shall
Enforcement Regulations of theCompanies Act)
have representative directors, executive directors andexecutive officers (collectively the “Officers”) givereports regarding their execution of duties.
(2) The Company shall thoroughly instill complianceawareness through training and other programs
geared towards new employees, managers, and newlyappointed board members and executive officers,
utilizing the “Canon Group Code of Conduct,” as astandard to be adhered to in the execution of duties.
(3) As a part of the Company’s risk management system,
the Company shall put in place businessprocedures/checking systems that prevent violation oflaws and regulations and the Company’s articles ofincorporation in the course of daily business. It shallalso maintain a compliance education system.
(4) The internal audit office of the Company, which has
the authority to audit all executions of duties, shallalso conduct audits regarding the status of compliancewith laws and regulations and the Company’s articles
of incorporation.
(5) If an act that violates laws and regulations, or theCompany’s articles of incorporation is discovered in
the Group, employees have the ability to report suchfact by means of a whistleblowing system.
Additionally, the Company shall prohibit any
disadvantageous treatment of any whistleblower.

12

2. System for Risk Management(Item 2, Paragraph 1, Article 100of the Enforcement Regulationsof the Companies Act)

Outline of Implementation Activities(1) During this year, 15 Board of Directors meetings
were held. At these meetings, in addition todeliberating and deciding on important matters, theBoard of Directors received reports from Directors incharge of major divisions concerning the execution ofbusiness.
(2) In addition to implementing compliance training that
follows the “Canon Group Code of Conduct,” theCompany held Compliance Meeting, an event held
once every six months to discuss on familiar risks oflaw-and-regulation violations by each respective
workplace.
(3) The activity is described in 2 Outline of
Implementation Activities, (1) below.
(4) The internal audit office conducts audits of eachdivision and the Group for various themes. The
results of these audits have been then reported to the
President, Directors in charge of major divisions andAudit & Supervisory Board Member, and whennecessary, proposals for improvement are given.
(5) The rules on use of the whistleblowing system,
theexplicitprohibition
oftheincludingdisadvantageous treatment of whistleblowers, aredisseminated via the intranets of the Company, alongwith information on the contact counter for reportinginternal problems. In this year, there were no
whistleblower reports relating to serious violations oflaws and regulations, or the like.
Content of Basic Policy Resolution(1) The Company shall conduct various measures withregard to improving the risk management system inaccordance with the regulations regarding risk
management. These measures include the system forgrasping any significant risks (violation of laws andregulations, misstatement of financial reporting,quality issues, work-related injuries, disasters, etc.)that the Group may face in the course of business.
Additionally, the Company shall evaluate the status
of design and implementation of the risk
management system and report its findings to theBoard of Directors.
(2) TheCompany
establishedtheManagement
Committee, and the Committee shall carefully
deliberate items in case it is considered importanteven if items are not submitted to the Board of the
Directors.
Outline of Implementation Activities(1) The Group categorized the risks which may causesignificant impact on the Group into 3 risks ofFinancial risk, Compliance risk and Business risk, in
accordancewiththe“Regulations
of
Risk

13

3. System for Efficient Executionof Duties (Item 3, Paragraph 1,
Article 100 of the Enforcement
Regulations of the Companies
Act)

4.System for Group Management(Item 5, Paragraph 1, Article 100of the Enforcement Regulationsof the Companies Act)Management.” The Group conducted various
measures with regard to the risk management system.
Additionally, the Company evaluated the status ofdesign and implementation of the risk management
system and reported its findings to the Board of
Directors, based on the activity plan of this year
approved by the Board of Directors.
(2) The Management Committee was held 12 times inthis year, and important matters were deliberated. In
addition to the Directors in charge of executing
business operations, Audit & Supervisory Board
Members also attended, as necessary, and provided
their opinions.
Content of Basic Policy Resolution(1) Based on regulations regarding approval processes ofimportant matters and the division of duties adopted
by the Board of Directors, the Directors and otherofficers shall execute shared duties under thesupervision and direction of the President.
(2) TheCompany
shallformulateLong-Term
Management Objectives as 5-year management goals
and 3-year priority measures, contained in Mid-Term
Management Plan(Three-Year Management Plan) at
its Management Committee. Based upon these plans,
the Company shall manage operations from a unified
group approach.
Outline of Implementation Activities(1) The Officers have executed the duties allocated tothem in accordance with the related rules.
(2) The Company decides on a mid-term management
plan and the necessary measures, which is decided
based on discussions such as held at the Management
Committee attended by the Officers of the Company
and the executive officers of the major subsidiaries,and ensures the cohesion of the Group's corporate
management.
Content of Basic Policy Resolution
The Company strengthens the internal control system byrequiring subsidiaries to follow the respective items:a) to obtain prior approval from the Company or report to
the Company important decisions in accordance withthe “Regulations of Important Matters Approval ofCanon MJ Group Companies,” prescribed by the Boardof Directors,b) to grasp significant risks that the subsidiary may facein the course of business and to verify and evaluate thestatus of design and implementation of the risk
management system and report their findings to theCompany in accordance with the regulations regarding
risk management,c) to design an appropriate organization under thegoverning law of incorporation and to clearly define14

5. System for Storing andManaging Information (Item 1,
Paragraph 1, Article 100 of the
Enforcement Regulations of theCompanies Act)

6. System for Auditing by Audit& Supervisory Board Members(Paragraph 3, Article 100 of theapproval processes and authorities of executive officers,d) in addition to thoroughly instilling complianceawareness through the “Canon Group Code of Conduct,”
to put in place business procedures/checking systems
that prevent violation of laws and regulations andsubsidiaries’ articles of incorporation in the course ofdaily business and prepare a compliance education
system as a part of subsidiaries’ risk management
system, ande) to establish a whistleblowing system and prohibit any
disadvantageous treatment of any whistleblower.
Outline of Implementation Activitiesa) The Company received reports from the Group orprovided prior approval in accordance with the“Regulations of Important Matters Approval of Canon
MJ Group Companies.”b) In order to conduct evaluation of the status of design
and implementation of the risk management systemdescribed in 2 Content of Basic Policy Resolution, (1)above, the Group being evaluated implemented
evaluation of the respective targeted risks.
c) The Group performs, as appropriate, a review of theappropriateness of organizational design, and approval
criteria and processes in accordance with the applicablelaws and regulations and the nature of business andother factors.
d) In addition to the activities of 2 Outline of
Implementation Activities, (1) above, the Groupestablishes places for training and discussion asnecessary and ensures utmost compliance.
e) The Group establishes an in-house hotline system andtotally prohibits any disadvantageous treatment of any
whistleblower.
Content of Basic Policy Resolution
Information related to the execution of duties of Officers,
including meeting minutes of the Board of Directors andapproval documents, shall be maintained and managed byrespective divisions in charge of such management inaccordance with laws and regulations, the “Regulations of
the Board of Directors,” and other related rules. Directors
and Audit & Supervisory Board Members have the ability
to inspect this information at any time.
Outline of Implementation Activities
Whenever deemed necessary, Directors, Audit &Supervisory Board Members and members of the internal
audit office inspect or obtain copies of minutes of theBoard of Directors meeting, minutes of the Management
Committee, and other records such as approvals by the
President.
Content of Basic Policy Resolution(1) Although the Company does not assign a dedicatedfull-time employee or set an organization to assist the15

Enforcement Regulations of theCompanies Act)

duties of Audit & Supervisory Board Members, theinternal audit office, the legal division and otherdivisions will consult and assign an employee to assist
the works of Audit & Supervisory Board Members (the“Assisting Employee”), on matters requested by Audit& Supervisory Board Members. The Assisting
Employee shall give priority to execute the duties
requested by Audit & Supervisory Board Members.
Any change in the Assisting Employee shall require
the prior consultation of the Audit & Supervisory
Board.
(2) Audit & Supervisory Board Members shall grasp the
execution of duties by Director and other officers, byattending not only meetings of the Board of Directors,
but also other important meetings such as meetings ofthe Management Committee.
(3) The administrative divisions of the headquarters,such as human resources, finance & accounting, andlegal affairs, shall hold meetings with Audit &Supervisory Board Members and report on theexecution of duties in a timely manner. Additionally, if
any material breach of laws and regulations occurs,
the relevant division shall immediately report this to
Audit & Supervisory Board Members.
(4) Audit & Supervisory Board Members shall be reported
from accounting auditors periodically and uponnecessity.
(5) Audit & Supervisory Board Members shall holdperiodic meetings with counterparts of domestic
subsidiaries and work to improve the auditing systemfrom a unified group perspective by sharing
information. Additionally, Audit & Supervisory Board
Members shall grasp the execution of duties byDirectors and other officers of subsidiaries, byauditing major subsidiaries in and outside Japan asnecessary.
(6) The Company prohibits any disadvantageous
treatment of any person that reports to Audit &Supervisory Board Members. The Company also seeks
its subsidiaries to prohibit any disadvantageous
treatment.
(7) For expenses that are required in the execution of the
Audit & Supervisory Board Members duties, theyshall be borne by the Company as requested by the
Audit & Supervisory Board Members.
Outline of Implementation Activities(1) The Company assigned the Assisting Employee fromthe legal division, and the Assisting Employee
executed the duties as requested by Audit &Supervisory Board Members. Change to the Assisting
Employee, were decided upon prior consultation with
the Audit & Supervisory Board.

16

(2) Audit & Supervisory Board Members, including
Outside Audit & Supervisory Board Members,
attended Board of Directors meetings and important
meetings such as the Management Committee
meetings, and the executive officers meetings.
(3) The administrative divisions of the headquarters held
periodic meetings with the Audit & Supervisory Board
Members, and reported the status of execution ofbusiness operations. In addition, the internal audit
office reported the results of audits to not only the
President but to Directors in charge of major divisions
and Audit & Supervisory Board as well.
(4) Audit & Supervisory Board Members, in addition toperiodically receiving reports from the Accounting
Auditor on the results of the audit of this year inaccordance with laws and regulations, they also holdhearings with the Accounting Auditor to inquire on
the status of audits as necessary.
(5) Audit & Supervisory Board Members, as necessary,held meetings with audit & supervisory board
members of domestic subsidiaries and exchanged
information. In addition, Audit & Supervisory Board
Members audited the major subsidiaries.
(6) In addition to 1 Outline of Activities, (5) above, theCompany did not treat any person that reported to
Audit&
Supervisory
Board
Members
disadvantageously.
(7) In this year, there were no situations of shortfalls inthe budget allocated for the implementation of auditsin accordance with the audit plan.

6.

Policy Regarding Decision of Dividends from Surplus, etc.
The Company made its basis policy, with respect to profit distribution, in the Three-YearManagement Plan 2019 to 2021 to pay the dividends based on a consolidated payout ratio of
30% taking into consideration comprehensively the medium-term profit plan, investment
plan, and cash flows to be generated.
As to the dividends for this fiscal year, the Company plans to pay a year-end dividends of
35 yen per share, totaling 60 yen per share (consolidated payout ratio of 37.4%) as a full-year
dividends together with the interim dividends (25 yen per share).
―――――――――――――――――――――――――――――――――――――――――――――――

Note: The amount and the number of shares described in this report are rounded down to the nearest numberof the units indicated. Profit attributable to owners of parent per share are rounded off to two decimal
places.

17

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets（Millions of yen, amounts less than one million yen are rounded down）
As of

As of

As of

As of

Dec. 31, 2018

Dec. 31, 2017

Dec. 31, 2018

Dec. 31, 2017

■ Assets
Current assets■ Liabilities
387,244397,506 Current liabilities

129,903

157,398

Cash and deposits

65,071

66,479Notes and accounts payable

75,831

100,940

Notes and accounts receivable

117,041

125,626

Short-term loans payable－

147

Securities

70,50070,500

Lease obligations

100

125

Merchandise and finished goods

31,182

32,076

Accrued expenses

16,67618,168Work in process

1,191

958

Accrued income taxes

6,967

6,289

647

836

Consumption taxes payable

4,063

4,586

Deferred tax assets

3,895

4,062

Provision for bonuses

3,437

3,443

Short-term loans receivable

90,01490,014

Provision for directors' bonuses

79

128

Other

7,792

7,050

Provision for product warranties

447

487

(91)

(98)

Provision for loss on order received

147

132

Other

22,151

22,949Raw materials and supplies

Allowance for doubtful receivables

111,545

113,325

Property, plant and equipment

71,98775,090 Non-current liabilities

Buildings and structures, net

28,65730,825112

251

Furniture and fixtures, net

3,059

3,732

Allowance for long-term continuous service rewards

1,019

961

Rental assets, net

10,842

11,058Net defined benefit liabilities

59,88749,604

Land

28,91829,016

Other

4,264

4,743

63

116
195,220

213,310301,113

Non-current assets

Machinery, equipment and vehicles, net

Lease assets, net
Construction in progress
Intangible assets
Software65,31755,911

Lease obligations

116

163

Deferred tax liabilities

29

438

333

89

5,265

5,485

Total liabilities

4,940

5,153

■ Net assets

12 Shareholders' equity

314,156

316

5

316

Capital stock

73,30373,3032

2

Capital surplus

82,82082,820Investments and other assets

34,29232,750Retained earnings

189,957

176,911

Investments in securities

7,985

9,027

Treasury stock(31,924)(31,921)Long-term loans receivable36

29 Accumulated other comprehensive Income(11,129)(4,081)

Net defined benefit asset

304

404

2,518

3,159

Deferred tax assets

19,143

16,203

Deferred gains or losses hedges

1

6

Lease deposits

4,423

4,880

Foreign currency translation adjustments

75

98

Other

2,832

2,532

Remeasurements of defined benefit plants(13,725)(7,345)

Allowance for doubtful receivables(432)(327) Non-controlling interests

542

490

Total net assets

303,570

297,522

Total liabilities and net assets

498,790

510,832

Lease assets
Right of using facilities
Other

Total assets

498,790

Valuation difference on available-for-sale securities

510,83218

Consolidated Statements of Income(Millions of yen, amounts less than one million yen are rounded down)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income
Insurance income
Gain on investments in partnership
Other
Non-operating expenses
Interest expenses
Foreign exchange losses
Other
Ordinary income
Extraordinary income
Gain on sales of noncurrent assets
Gain on sales of investments in securities
Gain on sales of shares of subsidiaries and associates
Other
Extraordinary losses
Loss on sales and disposal of noncurrent assets
Impairment loss
Loss on disaster
Loss on valuation of investments in securities
Special extra retirement payments
Expenses for restructuring of business bases
Other
Profit before income taxes
Income taxes-current
Income taxes-deferred
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

19

From January 1, 2018 From January 1, 2017
to December 31, 2018 to December 31, 2017
621,591
632,189
403,417
408,417
218,173
223,771
189,231
193,365
28,94130,406
1,807
1,328
197
165
153
121
547
549
－
494
413
493
229
244
12
12
－
11
216
220
30,51931,491
830
1,482
126
879
489
539
－
214
－
63
641
2,054
311
898
15
1,033
－
64
158
5
－
100
57
4
34
13
30,70830,918
9,893
9,950
(77)
272
20,893
20,69566
1520,826
20,679NON-CONSOLIDATED FINANCIAL STATEMENTS

Non-Consolidated Balance Sheets(Millions of yen, amounts less than one million yen are rounded down)
As of

As of

As of

As of

Dec. 31, 2018

Dec. 31, 2017

Dec. 31, 2018

Dec. 31, 2017

168,781

186,721■ Assets
Current assets■ Liabilities
354,053358,772 Current liabilities

Cash and deposits

55,07250,644

Electronically recorded obligations

1,800

1,859

Notes receivable

2,409

2,684

Accounts payable

71,52996,874

56,10047,000Electronically recorded monetary claims

8,811

9,470

Short-term loans payable

Accounts receivable

89,772

97,701

Lease obligations

Securities

70,50070,500

Merchandise and finished goods

27

51

Accounts payable - other

2,317

2,766

25,99927,057

Accrued expenses

13,897

14,890Work in process

74

69

Accrued Income taxes

5,617

5,037

Raw materials and supplies

529

655

Consumption taxes payable

1,754

2,530

Advance payment - trade

1,799

1,615

Advances received

10,452

9,977

Prepaid expenses

589

600

Deposits received

3,228

3,518

Deferred tax assets

2,586

2,734

Provision for bonuses

1,571

1,672

Short-term loans receivable

90,40090,643

Provision for directors' bonuses

40

78

Accounts receivable - other

4,848

3,904

Provision for product warranties

444

465

33,182

2

8

Other

729

698

Allowance for doubtful receivables(72)(216) Non-current liabilities

34,282

Lease obligations

5

33

29,25027,957

Forward exchange contracts

Non-current assets

141,531145,018

Provision for retirement benefits

54,87948,554

Allowance for long-term continuous service rewards

Buildings

13,764

12,593Other

Structures

494

500

Machinery

112

127

Furniture and fixtures

1,740

2,551

Total liabilities

Rental assets

10,84011,038■ Net assets

Land

27,901

21,675 Shareholders' equity

Property, plant and equipment

638

565

4,387

4,625

203,064

219,903

290,593

281,416

Lease assets

2466

Capital stock

73,30373,303

Intangible assets

4,204

4,265

Capital surplus

85,20485,204

4,091

4,147

Legal capital surplus

85,19885,198

1

7

Other capital surplus

5

5

110

110

164,013

154,834

SoftwareLease assets
Right of using facilities
Other
Investments and other assets

Retained earnings

0－

Legal retained earnings

2,853

2,853

82,447

92,198Other retained earnings

161,160

151,980
81,700Investments in securities

5,928

7,414

General reserve

81,700Shares of subsidiaries and associates

63,69671,010Retained earnings brought forward

79,46070,280299

202(31,928)(31,924)

Claims provable in bankruptcy, claims provable in rehabilitation and other661

Long-term prepaid expenses

599 Valuation and translation adjustments

8,958

Deferred tax assets

2,470
2,464

1

6

Total net assets

292,521283,887

Total liabilities and net assets

495,585

503,790

Valuation difference on available-for-sale securities
Deferred gains or losses hedges

Lease deposits

1,927

2,198

1,307

1,279

Allowance for doubtful receivables

(331)

(224)

495,585

503,790

20

1,927
1,926

9,718

Other

Total assets

Treasury stockNon-Consolidated Statements of Income(Millions of yen, amounts less than one million yen are rounded down)
From January 1, 2018 From January 1, 2017
to December 31, 2018 to December 31, 2017
Net sales

475,741

489,105

Cost of sales

343,063349,582

Gross profit

132,677

139,522

Selling, general and administrative expenses

116,528

119,753

Operating income

16,14819,768Non-operating income

3,672

5,508

Interest income

166

162

Dividend income

2,078

4,618

Insurance income

541

542

Gain on investments in partnership

494

－

Other

391

183

Non-operating expenses

205

395

Interest expenses

49

39

Share related expenses

55

56

Foreign exchange losses

－

23

Other

101

275

Ordinary income

19,61524,881

Extraordinary income

3,334

502

4

8

Gain on sales of investments in securities

489

493

Gain on extinguishment of tie-in shares

2,659

－

180

－

Gain on sales of noncurrent assets

Gain on sales of shares of subsidiaries and associates
Extraordinary losses

620

713

Loss on sales and disposal of noncurrent assets

147

701

Impairment losses

14－

Loss on disaster

51－

Loss on valuation of investments in securities

158

5

Bad debts written off of subsidiaries and associates

247

－

2

6

Income before income taxes

22,32824,670

Income taxes-current

5,621

6,094

Income taxes-deferred

(252)

435

16,95918,141

Other

Profit21

AUDIT REPORTS
AUDIT REPORT OF ACCOUNTING AUDITOR ON CONSOLIDATED FINANCIAL STATEMENTS(TRANSLATION)
Report of Independent Auditors
February 7, 2019
The Board of Directors
Canon Marketing Japan Inc.
Ernst & Young ShinNihon LLC
Sayaka Shimura
Certified Public Accountant
Designated and Engagement Partner
Keiichi Wakimoto
Certified Public Accountant
Designated and Engagement Partner
Mamoru Wakino
Certified Public Accountant
Designated and Engagement Partner
Pursuant to Paragraph 4, Article 444 of the Companies Act, we have audited the accompanying consolidated
financial statements, which comprise the consolidated balance sheet, the consolidated statement of income, theconsolidated statement of changes in net assets and the notes to the consolidated financial statements of Canon
Marketing Japan Inc. (the “Company”) applicable to the fiscal year from January 1, through December 31, 2018.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with the accounting principles generally accepted in Japan, and for designing and operating suchinternal control as management determines is necessary to enable the preparation and fair presentation of theconsolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion from an independent perspective on these consolidated financial
statements based on our audit. We conducted our audit in accordance with auditing standards generally acceptedin Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. The purpose of an audit of
the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal
control, but in making these risk assessments the auditor considers internal controls relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit proceduresthat are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting
policies used, the method of their application, and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, thefinancial position and results of operations of the Canon Marketing Japan Group, which consisted of theCompany and consolidated subsidiaries, applicable to the fiscal year ended December 31, 2018 in conformity withthe accounting principles generally accepted in Japan.
Conflicts of Interest
We have no interest in the Company which should be disclosed in compliance with the Certified Public
Accountants Act.

22

AUDIT REPORT OF ACCOUNTING AUDITOR ON NON-CONSOLIDATED FINANCIAL STATEMENTS(TRANSLATION)
Report of Independent Auditors
February 7, 2019
The Board of Directors
Canon Marketing Japan Inc.
Ernst & Young ShinNihon LLC
Sayaka Shimura
Certified Public Accountant
Designated and Engagement Partner
Keiichi Wakimoto
Certified Public Accountant
Designated and Engagement Partner
Mamoru Wakino
Certified Public Accountant
Designated and Engagement Partner
Pursuant to Item 1, Paragraph 2, Article 436 of the Companies Act, we have audited the accompanying
non-consolidated financial statements, which comprise the non-consolidated balance sheet, the non-consolidated
statement of income, the non-consolidated statement of changes in net assets, the notes to the non-consolidated
financial statements, and the related supplementary schedules of Canon Marketing Japan Inc. (the “Company”)
applicable to the 51st fiscal year from January 1, 2018 through December 31, 2018.
Management’s Responsibility for the Financial Statements and the Related Supplementary Schedules
Management is responsible for the preparation and fair presentation of these non-consolidated financial
statements and the related supplementary schedules in accordance with accounting principles generally acceptedin Japan, and for designing and operating such internal control as management determines is necessary to enable
the preparation and fair presentation of the financial statements and the related supplementary schedules thatare free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion from an independent perspective on these non-consolidated financial
statements and the related supplementary schedules based on our audit. We conducted our audit in accordancewith auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and the related supplementary schedules
are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements and the related supplementary schedules. The proceduresselected depend on the auditors’
judgment, including the assessment of the risks of material misstatement of the financial statements and therelated supplementary schedules, whether due to fraud or error. The purpose of an audit of the non-consolidated
financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but in making
these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fairpresentation of the non-consolidated financial statements and the related supplementary schedules in order todesign audit procedures that are appropriate in the circumstances. An audit also includes evaluating theappropriateness of accounting policies used, the method of their application, and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements andthe related supplementary schedules.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OpinionIn our opinion, the non-consolidated financial statements and the related supplementary schedules referred toabove present fairly, in all material respects, the financial position and results of operations of Canon Marketing
Japan Inc. applicable to the 51st fiscal year ended December 31, 2018 in conformity with accounting principles
generally accepted in Japan.
Conflicts of Interest
We have no interest in the Company which should be disclosed in compliance with the Certified Public
Accountants Act.

23

AUDIT & SUPERVISORY BOARD’S REPORT
Audit Report
We, Audit & Supervisory Board has discussed and prepared this Audit Report based on
the audit reports prepared by each of the Audit & Supervisory Board Members
pertaining to the conduct of duties by the Directors of Canon Marketing Japan Inc.
during the 51st fiscal year from January l, 2018 to December 31, 2018, and reports asfollows.
1. Methods and Substance of Audit by Audit & Supervisory Board Members and Audit& Supervisory Board(1) We decided on the auditing policies and the allocation of work duties, etc., received areport on the auditing work performed and the results from each Audit &Supervisory Board Member, and received a report on the status of the work
executed from the Directors and the Independent Auditor and requested their
explanations as necessary.
(2) While confirming to the auditing standards as decided by us, the auditing policies
and the allocation of duties, etc., each Audit & Supervisory Board Member
endeavored to facilitate mutual understanding with the Directors, the internal
audit office and other employees, etc. to collect information and improve theauditing environment. Our audit procedures were as follows.
i)

We attended the meetings of the Board of Directors and other important
meetings, received reports on the status of the work executed from the Directors
and the employees and requested their explanations as necessary, inspectedmaterial internal decision-making documents, etc., and investigated the statusof the operations and assets of the headquarters and major business sites. In
addition, with respect to the subsidiaries, we communicated and exchanged
information with the Directors and Audit & Supervisory Board Members of thesubsidiaries, and received reports on business from the subsidiaries asnecessary.

ii) The following systems (Internal Control System) were determined by a Board of
Directors’ resolution and designed based on this resolution. We periodicallyreceived reports from the Directors, employees and others, requested
explanations as necessary regarding the design and implementation of theInternal Control Systems, and expressed opinions on the substance of the24decisions made by the Board of Directors with regard to the Internal Control
Systems.
(a) A system for ensuring that the performance of duties by the Directors
complies with the applicable laws and regulations and Articles ofIncorporation.
(b) A system for ensuring the Directors’ performance of the adequate operationsof Canon Marketing Japan Group, which consists of the Company and its
subsidiaries as stipulated under Article 100, paragraphs l and 3 of theOrdinance for Enforcement of the Companies Act.
iii) We examined the contents of the matters considered and the assessment andreasons detailed in this Business Report for the transactions with the Parent
Company under Article 118 of the Ordinance for Enforcement of the Companies
Act, taking into account the status of the deliberations of the Board of Directors,
etc.
iv) We monitored and verified whether the independence of the Accounting
Auditor was maintained and whether an appropriate audit was being
undertaken, received reports from the Accounting Auditor on the status ofoperations, and requested explanations as necessary. We also received reports
from the Accounting Auditor stating that the necessary systems for ensuring
the appropriate execution of operations (pursuant to Article 131 of the Rules ofCorporate Accounting) were duly developed in line with the Quality Control
Standards for Auditing (issued by the Business Accounting Council on October28, 2005), and other relevant standards, and requested explanations asnecessary.
Based on the above procedures, we examined the Business Report and its
supplementary schedules, the non-consolidated financial statements for the relevant
fiscal year (the balance sheets, the statements of income, the statement of changes inequity and the notes to the non-consolidated financial statements) and their
supplementary schedules as well as the consolidated financial statements for the
relevant fiscal year (the consolidated balance sheets, the consolidated statements ofincome, the consolidated statements of changes in equity and the notes to theconsolidated financial statements).

25

2. Results of Audit(1) Results of examination of the Business Report, etc.
a) In our opinion, the business report and its supplementary schedules conformity
with the applicable laws and regulations of Japan and the Articles ofIncorporation of the Company and fairly present the state of the Company’s
affairs;b) We have found no misconduct or material fact constituting a violation of any
applicable laws and regulations of Japan or the Articles of Incorporations inconnection with the Directors’ performance of their duties; andc) In our opinion, the substance of the decisions made by the Board of Directors withregard to the Internal Control Systems is appropriate. Furthermore, we found nomatters that require noting with regard to the description in the Business Report
and the Directors’ performance of their duties in connection with the relevantinternal control systems; andd) With respect to the transactions with the Parent Company, etc. that are describedin this Business Report, we have found no matters that require noting with regard
to the matters considered by Board of Directors and the Board of Directors’
assessment and factors that might be adverse to the Company’s interests.
(2) Results of examination of the financial statements and their supplementaryschedules
In our opinion, the auditing methods used and the conclusions reached by the
Accounting Auditor, Ernst Young ShinNihon LLC, are appropriate.
(3) Results of examination of the consolidated financial statements
In our opinion, the auditing methods used and the conclusions reached by the
Independent Auditor, Ernst Young ShinNihon LLC, are appropriate.
February 8, 2019

Audit & Supervisory Board, Canon Marketing Japan Inc.
Audit & Supervisory Board Member (full time) Masahiro Shimizu
Audit & Supervisory Board Member (full time) Shinichi Inoue
Audit & Supervisory Board Member (full time) Kunihiko Tedo
(Outside Audit & Supervisory Board Member)
Audit & Supervisory Board Member (full time) Nobuyasu Kusumi(Outside Audit & Supervisory Board Member)
Audit & Supervisory Board Member Shigeo Hasegawa(Outside Audit & Supervisory Board Member)

26

Consolidated Statement of Changes in Net Assets(from January 1, 2018 to December 31, 2018)(Millions of yen, amounts less than one million yen are rounded down)
Shareholders' equity
Capitalstock
Balance at beginning of current period

Capitalsurplus

Total
Treasury stock shareholders’equityRetainedearnings

73,30382,820176,911(31,921)‐301,113‐(7,780)‐(7,780)Changes of items during period
Dividends of surplus
Profit attributable to owners of parent‐‐

20,826‐

20,826

Purchase of treasury stock

‐

‐

‐

(3)

(3)

Disposal of treasury stock

‐

0

‐

0

0

Profit attributable to non-controlling interests

‐

‐

‐

‐

‐

Dividends paid to non-controlling interests

‐

‐

‐

‐

‐

Net changes of items other than shareholders' equity

‐

‐

‐

‐

‐

‐

0

13,046(3)

13,04373,30382,820189,957(31,924)

314,156

Total changes of items during period
Balance at end of current period

Accumulated other comprehensive income
Valuationdifferenceonavailablefor-salesecurities

Deferred
gains orlosses onhedgesRemeasurements ofdefinedbenefitplans

Foreigncurrencytranslation
adjustments

Total
accumulated
othercomprehensive
incomeNoncontrollinginterests

Total Net
Assets

3,159

6

98

(7,345)(4,081)

490

Dividends of surplus

‐

‐

‐

‐

‐

‐

(7,780)

Profit attributable to owners of parent

‐

‐

‐

‐

‐

‐

20,826

Purchase of treasury stock

‐

‐

‐

‐

‐

‐

(3)

Disposal of treasury stock

‐

‐

‐

‐

‐

‐

0

Profit attributable to non-controlling interests

‐

‐

‐

‐

‐

66

66

Balance at beginning of current period

297,522

Changes of items during period

‐

‐

‐

‐

‐

(11)

(11)

(640)

(4)

(23)

(6,379)(7,047)(3)(7,050)Total changes of items during period

(640)

(4)

(23)

(6,379)(7,047)51

6,047

Balance at end of current period

2,518

1

75

(13,725)(11,129)542

303,570

Dividends paid to non-controlling interests
Net changes of items other than shareholders' equity

27

Notes to Consolidated Financial Statements(Notes on important items forming the basis of consolidated financial statements)
1. Scope of consolidation(1) Consolidated subsidiaries・・・・・・・
20
Major consolidated subsidiaries・・・
Canon IT Solutions Inc, Canon System & Support Inc.,
Canon Production Printing Systems Inc.,
Canon Lifecare Solutions Inc.
(2) Non-consolidated subsidiaries・・・・・

None

2. Application of equity method(1) Affiliates subject to equity method・・・

None(2) Affiliates not subject to equity method・・

None

3. Fiscal years for consolidated subsidiaries
The closing date for consolidated subsidiaries is the same as all other consolidated closing dates.
4. Accounting policies(1) Valuation standards and methods for key assets(i) Securities
Held-to-maturity securities・・・・・
Amortized cost method (straight-line method)
Other securities
Securities with market value・・・
Market value method, based on market price on last day of fiscal
year, etc.
(Valuation differences included in total net assets, cost of products
sold calculated based on moving-average method)
Securities with no market value・・
At cost based on moving-average method(ii) Inventory assets
Merchandise ・・・・・・・ At cost based on monthly moving-average method(Carrying amounts on balance sheet calculated to include write-downs due todecreased profitability)
Repair parts・・・・・・・ At cost based on monthly moving-average method(Carrying amounts on balance sheet calculated to include write-downs due todecreased profitability)
Work in process・・・・・・ At cost based on specific identification method
Supplies・・・・・・・・・ Last-purchase price method(Carrying amounts on balance sheet calculated to include write-downs due todecreased profitability)28

(2) Method of depreciation for key depreciable assets(i) Property, plant and equipment(Excluding Lease assets, net)・・ Based on declining-balance method
Rental assets and assets of selected consolidates subsidiaries, are depreciatedby the straight-line method.
Buildings acquired on or after April 1, 1998 (excluding furniture andfixtures), and related furniture, fixtures and structures acquired on or after
April 1, 2016, are depreciated by the straight-line method.
Useful lives are as follows:
Buildings
Five years to seventy-five years
Furniture and fixtures
Two years to twenty years
Rental assets
Three years(ii) Intangible assets(Excluding Lease assets, net)・・Based on straight-line method
Marketable software is depreciated by a larger amount of the depreciation
based on the estimated sales quantity or the estimated sales revenue or thestraight-line depreciation based on the estimated effective duration of sales(up to three years).
In-house software is depreciated by the straight-line method based on thelength of in-house durability (five years).
(iii) Lease assets, net

・・・・・・・

Lease assets are depreciated by the straight-line method based on
their useful life, which is lease period, with zero residual value.

(3) Standards for recording key allowances(i) Allowance for doubtful receivable・・・・・・・・To cover possible losses on collection, general accounts receivable
are calculated based on the actual rate of uncollected receivables,and doubtful account receivables based on individually estimateduncollectible amounts for specific items.
(ii) Provision for bonuses・・・・・・・・ The estimated amount payable is recorded for the next round of
employees’ bonuses, which are classed as liability for the current
year, based on actual payments for the previous round of bonuses.
(iii) Provision for directors’ bonuses・・・・ The estimated amount payable is recorded for the next round of
directors’ bonuses, which are classed as liability for the current
year.
(iv) Provision for product warranties・・・・ Costs arising from a one-year free warranty contract for consumer
products are recorded based on the actual cost of free repairs. To
cover payment of free program maintenance and repairs forselected consolidated subsidiaries, the estimated amount of future
costs is recorded based on actual figures for previous years.
(v) Provision for loss on order received・・・ The estimated amount of losses from the next fiscal year onwards
is recorded for ongoing development projects based on software
service contracts, in cases that are expected to result in a loss inthe future (as of the end of the current year) and in which it ispossible to reasonably estimate the relevant losses, in order tocover losses on orders received.

29

(vi) Allowance for long-term continuous service rewards・・・・ The estimated amount payable is recorded inorder to cover payment of rewards toemployees in accordance with internal
regulations on long-term continuous service.
(4) Accounting methods for retirement benefits(i) Method of aligning estimated retirement benefits・・・・・・ Retirement benefit obligations are calculated
based on standard benefit calculation formula,to align the estimated amount of retirement
benefits with the relevant period as of the endof the current consolidated accounting year.
(ii) Method of recording actuarial differences and prior service costs・・Prior service costs are generally expensed
using the straight-line method based on
the average remaining years of service
for the relevant employee at the time ofincurring costs. Actuarial differences are
generally expensed from the following
consolidated accounting year, using thestraight-line method based on the averageremaining years of service for the
relevant employee at the time ofincurring costs.
selected
consolidated
subsidiaries,(iii) Using simplified methods for small companies, etc.・・・ For
simplified methods are applied in order tocalculate retirement benefit liabilities and costs.
This entails listing retirement benefit
obligations as the amount payable in retirement
benefits at the end of the year, based on therelevant company’s circumstances.
(5) Standards for recording key revenue and expenses
Standards for recording revenue from customized software development・・The percentage-of-completion
method is applied to contracts in progress, and whose outcomes can be reliably estimated, as of the end of thecurrent consolidated accounting year, based on the percentage of completion (the cost-to-cost method is used toestimate rate of progression). The completed contracts method is used for other contracts.
(6) Key hedge accounting methods(i) Hedge accounting method・・・・・Appropriation accounting is applied to foreign currency denominated payables
subject to forward exchange contracts in line with accounting requirements.
(ii) Hedging instrument and subject
Hedging instrument・・・・・ Forward exchange contracts
Subject of hedging・・・・・ Foreign currency denominated payables(iii) Hedging policy・・・・・・・ Measures are taken to hedge against the risk of cash flow fluctuations due toexchange rate fluctuations in the future, in relation to foreseeable foreign
currency denominated payables up to a certain amount.
(iv) Method of evaluating effectiveness of hedging・・ For forward exchange contracts, the same amount isappropriated on the same date in the same currency, in
accordance with the company’s hedging policy. The
effectiveness is not evaluated on the date of settlement ofaccounts because it is guaranteed to correlate withsubsequent exchange rate fluctuations.

30

(7) Method of amortization of goodwill and amortization period
As a rule, the straight-line method is used for amortization of goodwill over the period in which goodwill is
expected to take effect.
(8) Other important items forming the basis of consolidated financial statements(i) Accounting methods for consumption tax, etc.・・・ The before-tax method is used for consumption tax, etc.
(ii) Application of the consolidated tax system・・・・ For itself and selected consolidated subsidiaries, thecompany applies the consolidated tax system, with itself
as the consolidated tax parent company.
(Notes on consolidated balance sheets)
1. Accumulated depreciation on property, plant and equipment
2. Guarantee liabilities
Guarantees for employees’ housing loans

66,045 million yen

9 million yen(Notes to consolidated statements of changes in equity)
1. Type and total number of issued shares as of end of current year
2. Dividends paid from retained earnings during the current year
Total
Type of
Dividends per
Resolution
dividends
share
share (yen)(million yen)March 28, 2018
GeneralCommon
4,538
35
share
shareholders’meeting
July 25, 2018
Board ofCommon3,241
25
Directors’sharemeeting

Common share

151,079,972 shares

Base date

Date effective

December 31,
2017

March 29, 2018

June 30, 2018

August 27, 2018

3. Dividends for which the base date falls within the current year, and the date effective in the following year
Funds used
Total
Dividends
Type oftodividends
Base date
Date effective
Discussion
per
share
pay
(millionshare (yen)dividends
yen)March 27, 2019
GeneralDecember 31,
CommonRetained
4,538
35
March 28, 2019
shareholders’shareearnings
2018
meeting31

(Notes on financial instruments)
1. Status of financial instruments(1) Policies for financial instruments
As the Group, we limit asset management to financial instruments characterized as very safe, and believe that
financing should mainly be conducted through the use of group funds whenever necessary. We enter into
derivative transactions to hedge against foreign exchange fluctuation risks, but have a policy of not engaging in
speculative transactions.
(2) Details of financial instruments, risks, and systems to control risks
Operating receivables, consisting of notes and accounts receivable, are exposed to customer credit risks. We aim
to mitigate such risks through strict credit control, based on credit data provided by external credit agencies, andthrough credit insurance and other risk-hedging measures.
Short-term loans receivable are mainly loans to the parent company, provided in accordance with internal
regulations on investment and management of funds.
Securities and investments in securities consist primarily of held-to-maturity debt securities and shares incompanies with business ties to the Group, and are exposed to market price fluctuation risks. To counter such risks,
we regularly monitor fair values and the financial condition of companies issuing shares (business counterparties).
For securities other than held-to-maturity debt securities, we continuously review the status of our holdings, taking
into consideration market conditions and relationships with business counterparties.
Trade payables, consisting of notes and accounts payable, are mainly those due within six months.
Derivative transactions consist of forward exchange contracts to hedge against the risk of fluctuations in foreign
currency denominated trade payables. With regard to hedge accounting, notes on important items forming thebasis for compiling the aforementioned consolidated accounting documents are outlined under “4. Accounting
policies (6) Key hedge accounting methods.”(3) Supplementary explanation of fair values of financial instruments
Fair values of financial instruments include not only values based on market quotations, but also values calculated
on a theoretical basis in cases where market quotations are not available. Values may vary depending on different
assumptions, due to the fact that variables are factored into the calculation of such values.

32

2. Fair values of financial instruments
Book values on consolidated balance sheets as of December 31, 2018, their corresponding fair values, and thedifference between the two are as follows.
Book value on
Fair value
Difference
consolidated balance(million yen)(million yen)sheets (million yen)
(1) Cash and deposits

65,07165,071―(2) Notes and accounts receivable

117,041

117,041―(3) Securities and investments in securities

76,89976,899―(4) Short-term loans receivable

90,01490,014―

349,027

349,027―75,83175,831―75,83175,831―

Total assets(5) Notes and accounts payable
Total liabilities(*) 1. Calculation methods for fair values of financial instruments, and other details relating to securities
Assets(1) Cash and deposits, (2) Notes and accounts receivable, and (4) Short-term loans receivable
Book values are used as the fair values of these assets, because they are to be settled in the short term,
meaning that their fair values approximate their book values.
(3) Securities and investments in securities
Fair values of equity securities are based on prices at security exchanges. Fair values of debt securities
are based on prices at security exchanges or quotations obtained from counterparty financial institutions.
Liabilities(5) Notes and accounts payable
Book values are used as the fair values of these liabilities, because they are to be settled in the short term,
meaning that their fair values approximate their book values.
2. As it can be extremely difficult to assess the fair value of unlisted share or funds from investment partnerships(book value on consolidated balance sheets: 1,586 million yen), because they do not have a market value, they
are not included in “(3) Securities and investments in securities and investments in securities” above.
(Notes on rented and other real estate)
No notes are required due to the low level of importance.
(Notes on information per share)
1. Net assets per share
2. Profit attributable to owners of parent per share

2,336.97 yen
160.61 yen

33

Non-Consolidated Statement of Changes in Net Assets(from January 1, 2018 to December 31, 2018)(Millions of yen, amounts less than one million yen are rounded down)
Shareholders' equity
Capital surplus
Capitalstock

Balance at beginning of current period

Legalcapitalsurplus73,303Retained earnings

Other
capitalsurplus85,198Total
capitalsurplusLegalretainedearnings

585,2042,853

Changes of items during period
Dividends of surplus

‐

‐

‐

‐

‐

Profit

‐

‐

‐

‐

‐

Purchase of treasury stock

‐

‐

‐

‐

‐

Disposal of treasury stock

‐

‐

0

0

‐

Net changes of items other than shareholders' equity

‐

‐

‐

‐

‐

‐

‐

0

0

‐

73,30385,1985

85,204

2,853

Total changes of items during period
Balance at end of current period

Shareholders' equity
Retained earnings
Other retained earnings
Retainedearnings
brought
forwardGeneralreserve
Balance at beginning of current period

81,700Treasury stock

Total Shareholders'equity154,834(31,924)

281,416

Total retained
earnings

70,280Changes of items during period
Dividends of surplus‐(7,780)(7,780)‐(7,780)

Profit‐16,95916,959‐16,959Purchase of treasury stock

‐

‐

‐

(3)

(3)

Disposal of treasury stock

‐

‐

‐

0

0

Net changes of items other than shareholders' equity

‐

‐

‐

‐

‐

Total changes of items during period
Balance at end of current period

‐

9,179

9,179

(3)

9,176

81,70079,460

164,01331,928290,593

Valuation and translation adjustments

Valuationdifference on
available-for-salesecurities

Balance at beginning of current period

Total valuationandtranslation
adjustments

Deferred
gains orlosses onhedgesTotal Net
Assets

2,464

6

2,470

283,887

Dividends of surplus

‐

‐

‐

(7,780)

Profit‐‐‐16,959(3)

Changes of items during period

Purchase of treasury stock

‐

‐

‐

Disposal of treasury stock

‐

‐

‐

0

(538)

(4)

(542)

(542)

Total changes of items during period

(538)

(4)

(542)

8,633

Balance at end of current period

1,926

1

1,927

292,521

Net changes of items other than shareholders' equity

34

Notes to Non-Consolidated Financial Statements(Notes regarding key accounting policies)
1. Asset valuation standards and methods(1) Valuation standards and methods for securities
Held-to-maturity securities・・・・・・
Shares in subsidiaries and affiliates・・
Other securities
Securities with market value・・・・・

Amortized cost method (straight-line method)
At cost based on moving average method

Market value method, based on market price on last day of fiscal
year, etc. (valuation differences included in total net assets, cost of
products sold calculated based on moving-average method)
Securities with no market value・・・・・ At cost based on moving average method(2) Valuation standards and methods for inventory assets
Merchandise・・・・・・・・・・ At cost based on monthly moving-average method(Carrying amounts on balance sheet calculated to include write-downs due todecreased profitability)
Repair parts・・・・・・・・・・ At cost based on monthly moving-average method(Carrying amounts on balance sheet calculated to include write-downs due todecreased profitability)
Work in process・・・・・・・・ At cost based on specific identification method
Supplies・・・・・・・・・・・ Last-purchase price method(Carrying amounts on balance sheet calculated to include write-downs due todecreased profitability)
2. Method of depreciation for long-term assets(1) Property, plant and equipment(Excluding Lease assets)・・・・・ Based on declining-balance method
Rental assets are depreciated by the straight-line method.
Buildings acquired on or after April 1, 1998 (excluding furniture andfixtures), and related furniture, fixtures and structures acquired on or after
April 1, 2016, are depreciated by the straight-line method.
Useful lives are as follows:
Buildings
Five years to seventy-five year
Furniture and fixtures Two years to twenty years
Rental assets
Three years(2) Intangible fixed assets(Excluding Lease assets)・・・・・(3) Lease assets

・・・・・・・・

Based on straight-line method
Marketable software is depreciated by a larger amount of the depreciation
based on the estimated sales quantity or the estimated sales revenue or thestraight-line depreciation based on the estimated effective duration of sales(up to three years). In-house software is depreciated by the straight-line
method based on the length of in-house durability (five years).
Lease assets are depreciated by the straight-line method based on their usefullife, which is lease period, with zero residual value.

35

3. Standards for recording allowances(1) Allowance for doubtful receivables・・ To cover possible losses on collection, general accounts receivable arecalculated based on the actual rate of uncollected receivables, and doubtful
account receivables based on individually estimated uncollectible amounts
for specific items.
(2) Provision for bonuses・・・・・・・ The estimated amount payable is recorded for the next round of employees’
bonuses, which are classed as liability for the current year, based on actual
payments for the previous round of bonuses.
(3) Provision for directors’ bonuses・・・ The estimated amount payable is recorded for the next round of directors’
bonuses, which are classed as liability for the current year.
(4) Provision for product warranties・・・ Costs arising from a one-year free warranty contract for consumer products
are recorded based on the actual cost of free repairs.
(5) Provision for losses on orders received・・The estimated amount of losses from the next fiscal year onwards is recorded
for ongoing development projects based on software service contracts, incases that are expected to result in a loss in the future (as of the current fiscal
year) and in which it is possible to reasonably estimate the relevant losses, inorder to cover losses on orders received.
(6) Provision for retirement benefits・・・ The estimated amount of benefit obligations and pension assets as of the endof the current fiscal year is recorded in order to cover retirement benefits
payable to employees.
Retirement benefit obligations are calculated based on standard benefit
calculation formula, to align the estimated amount of retirement benefits withthe relevant period as of the end of the current fiscal year. Prior service costs
are expensed using the straight-line method based on the average remaining
years of service for the relevant employee at the time of incurring costs.
Actuarial differences are expensed from the following fiscal year, using thestraight-line method based on the average remaining years of service for the
relevant employee at the time of incurring costs.
(7) Allowance for long-term continuous service rewards・・・ The estimated amount payable is recorded in order tocover payment of rewards to employees in accordancewith internal regulations on long-term continuous service.
4. Standards for recording revenue and expenses
Standards for recording revenue from customized
software development・・・・
The percentage-of-completion method is applied to contracts in progress, andwhose outcomes can be reliably estimated, as of the end of the current fiscal
year, based on the percentage of completion (the cost-to-cost method is used
to estimate rate of progression). The completed contracts method is used forother contracts.
5. Key hedge accounting methods(1) Hedge accounting method・・・・・・ Appropriation accounting is applied to foreign currency denominatedpayables subject to forward exchange contracts in line with accounting
requirements.
(2) Hedging instrument and subject
Hedging instrument・・・・・・・ Forward exchange contracts
Subject of hedging・・・・・・・ Foreign currency denominated payables

36

Measures are taken to hedge against the risk of cash flow fluctuations due toexchange rate fluctuations in the future, in relation to foreseeable foreign
currency denominated payables up to a certain amount.
(4) Method of evaluating effectiveness of hedging・・・For forward exchange contracts, the same amount is appropriatedon the same date in the same currency, in accordance with thecompany’s hedging policy. The effectiveness is not evaluated on
the date of settlement of accounts because it is guaranteed tocorrelate with subsequent exchange rate fluctuations.

(3) Hedging policy・・・・・・・・・

6. Other important items forming the basis of financial statements(1) Accounting methods for consumption tax, etc.・・・The before-tax method is used for consumption tax, etc.
(2) Application of the consolidated tax system・・・・ The company applies the consolidated tax system.
(3) Retirement benefit accounting・・・ Different methods of accounting are used for unrecognized actuarial
differences and unrecognized prior service costs in relation to retirement
benefits, as opposed to accounting methods used for consolidated financial
statements.

(Notes on balance sheets)
1. Accumulated depreciation on property, plant and equipment
2. Guarantee liabilities
Guarantees for employees’ housing loans
3. Receivables from and payable from affiliates
Short-term monetary receivables
Short-term monetary payables
Long-term monetary receivables
Long-term monetary payables

109,812 million yen
110,377 million yen
38 million yen
416 million yen(Notes on statements of income)Transactions with affiliates
Net sales
Purchasing
Other business transactions
Non-business transactions

56,654 million yen
249,742 million yen
3,953 million yen
2,450 million yen(Notes on statement of changes in equity)
Type and total of treasury stock owned as of end of current fiscal year

Common share

37

54,097 million yen
9 million yen

21,412,840 shares

(Notes on tax allocation)
1. Breakdown of main causes of deferred tax assets and liabilities(1) Current assets/liabilities
Deferred tax assets
Sales promotion costs
Provision for bonuses
Loss on disposal or sale of inventory assets
Accrued enterprise tax and business office tax
Provision for product warranties
Other
Total deferred tax assets
Deferred tax liabilities
Deferred gains or losses on hedges
Total deferred tax liabilities
Net deferred tax assets

892 million yen
539 million yen
388 million yen
366 million yen
137 million yen
262 million yen
2,587 million yen

0 million yen
0 million yen
2,586 million yen(2) Non-current assets/liabilities
Deferred tax assets
Allowance for retirement benefits
Additions to deemed dividends
Over-depreciation of property, plant and equipment
Loss on valuation of investment securities
Over-depreciation of software
Allowance for long-term continuous service rewards
Allowance for asset retirement obligations
Allowance for doubtful receivables
Other
Subtotal deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Reserve for advanced depreciation of non-current assets
Net unrealized gain on securities
Total deferred tax liabilities
Net deferred tax assets

38

9,116 million yen
1,212 million yen
831 million yen
625 million yen
474 million yen
198 million yen
139 million yen
112 million yen
344 million yen
13,055 million yen(1,951) million yen
11,103 million yen

1,279 million yen
865 million yen
2,145 million yen
8,958 million yen

(Notes on transactions with related parties)
1. Parent company and major corporate shareholders, etc.
Category

Name ofcompany orindividual

Location

Capital orinvestment(millionyen)

Business
activities
or job title

Voting rights(or ownership)(%)

Relationshipwith concerned
party

Nature of transactions

Purchase ofDevelopment

merchandise

andParentCanon Inc.

Ohta-ku,Tokyo

174,761

198,404(*1)

production

company

Value oftransaction(million yen)for the(Ownership in

Production

office,the company)of theimaging

Direct: 58.5

company’ssystems andIndirect: 0.0

merchandise

Business

Heading

Accounts
payableYear-endbalance(million yen)

42,069

Sale ofconsumables forofficeAccounts
6,830

receivable,

2,381

other

equipment, etc.
(*2)

industrial
equipment
Non-businesssectors, etc.

Provision offunds (*3)

Short-term
‐

loans

90,000receivable

Of the above figures, “value of transaction” does not include consumption tax, etc. The balance of receivables andpayables on the other hand does include consumption tax, etc.
Terms of transactions and policy for determining terms, etc.
(*1) When purchasing merchandise, the company sets out its preferred price, taking into account market prices,and then enters into price negotiations to determine a final price for the relevant period.
(*2) Sales of consumables for office equipment are based on the same terms as regular transactions.
(*3) When lending funds, a reasonable loan rate is determined by taking into account market rates. There is noprovision for security.

39

2. Subsidiaries, etc.
Category

Name ofcompany orindividual

Location

Capital orinvestment(millionyen)

Business
activities
or job title

Voting rights(or ownership)(%)

Relationshipwith concerned
party

Nature of transactions

Value oftransaction(millionyen)

HeadingYear-endbalance(millionyen)

SI andconsulting,
Canon IT
Subsidiary

SolutionsInc.

IT service
Shinagawa-ku,
Tokyo

3,617

and
development
and sale ofProduction(Ownership in
the company)
Direct: 100.0

variousof thecompany’s
merchandiseNon-business

Provision offunds (*3)

Short-term
6,900

loans

17,900payableConcurrent
Officers: 3

software
Payment ofservicecharges forofficeof a solution,equipment,
Sale of thesale, support

Canon
Subsidiary

Consultation

System &Minato-ku,

Support

Tokyo

Inc.

4,561

Business

Accounts
payable

5,750

etc.

and

(Ownership incompany’s

maintenancethe company)

merchandise

Sale ofservice,

Direct: 100.0

Concurrent

consumables

mainly for

32,342(*1)

Officers: 2

for officeCanonequipment,

products

etc. (*2)

Non-business

Provision offunds (*3)

Accounts
45,205receivable,

12,921otherShort-term
3,600

loans

32,200payableOf the above figures, “value of transaction” does not include consumption tax, etc. The balance of receivables andpayables on the other hand does include consumption tax, etc.
Terms of transactions and policy for determining terms, etc.
(*1) When making payment of service charges for office equipment, prices are determined through negotiation,
based on the price calculated by the company.
(*2) When selling consumables for office equipment, prices are determined through negotiation, based on theprice calculated by the company.
(*3) When lending funds, a reasonable loan rate is determined by taking into account market rates. There is noprovision for security.
(Notes on information per share)
1. Net assets per share
2. Net income per share

2,255.94 yen
130.79 yen

40