Our

Challenges
A n n u a l
R e p o r t

2011for the year ended December 31, 2011

Profile

the global Canon group is active in a wide spectrum of businessfields in over 180 countries. as part of the Canon group, theCanon Marketing Japan group integrates sales, service andmarketing for Canon products in the Japanese market.
“Beyond CANON, Beyond JAPAN”̶under this vision for
the future evolution of the Canon Marketing Japan group, we
will diversify beyond Canon while continuing to make Canonthe nucleus of our activities, and we will expand our horizons
beyond Japan while still making Japan our main focus.
under our strategy for sustainable growth, we will bringglobal perspectives to the task of supplying our customers with
optimal services and high-added value solutions. our core assets
for this customer-focused approach to growth will be thepowerful management resources of the Canon Marketing Japan
group and Canon inc.

Contents

02

03

04

08

10

12

Our
Operations

To Our Stockholders
and Stakeholders

A Message fromthe President

Helping Customers
Be Creative

Developing
New Business

Segment Review
and Strategies

20

21

22

24

27

63

Sustainable
Management

Environmental
Management

Corporate
GovernanceManagement
SystemFinancial
SectionCorporate
DataEmbracing the

Challengeof multi-way communication

Continual dialog with customers is the key to our ability
to provide solutions that truly meet customer needs. We
work closely with Canon Inc. and make a vital contribution
to the Canon Group’s manufacturing operations by
ensuring that customer input is fed back to those working
in research, development and production.

Canon Inc.

Canon
Marketing
Japan
Group

Customers

Canon Marketing Japan Inc.

01

Our Operations

The strength of Canon products and the capacity of the Canon Marketing Japan Group to offer
solutions will be the core drivers for our evolution into a service creation group capable ofcontinually providing original added value in the global business arena.
Performance

PerformanceAt ¥325.1 billion, net sales were 5.1% below
the previous yearʼs level. However, operating
income was substantially higher year on year at¥3.5 billion, thanks to cost-cutting efforts.

Net sales declined by 6.6% year on year to¥124.5 billion. However, there was a moderate
improvement in the operating loss, which was
reduced to ¥3.1 billion.

Major Products

Major Products

Major companies /organizations- Canon Marketing Japan Inc.
Business Solutions Company- Canon System & Support Inc.
- SHOWA INFORMATION SYSTEMS CO., LTD.
- OCE JAPAN CORPORATION- Canon Print Square Inc.

- System integration services- Embedded software- Solutions- Infrastructure and outsourcing- IT products

IT
S- Canon Marketing Japan Inc.
IT Product Promotion
Headquarters- Canon MJ IT Group Holdings Inc.
- Canon IT Solutions Inc.
- Canon Software Inc.
- Edifist Learning Inc.
- other 9 companies

o
s
ion

Bus
ine
ss

ns
tio
u
l
o

Major companies /organizations

lut

S

Canon
Marketing Japan
Group

ial
str
Indu

Business Segments

Eq

uip
me
nt

rI
ma
gin
g

- Business-use multifunctional
products- Laser printers- Commercial printing systems- Maintenance services- Large-sized ink-jet printers- Projectors and other products

me
u
s
Con

Performance

Performance

Net sales more than doubled compared with the previous
yearʼs result to ¥27.0 billion. However, there was littlechange in operating loss, which remained at ¥0.3 billion.

Net sales were 14.8% lower year on year at ¥182.1 billion.
Operating income declined by 13.3% to ¥8.5 billion.

Major Products

Major Products- Industrial equipment- Medical equipment- Broadcasting equipment

Major companies /organizations- Canon Marketing Japan Inc.
Industrial Equipment Sales
Headquarters- ELK CORPORATION- other 2 companies

Note: The result for 2011 have been recalculated to reflect a segment change in 2012

02 Canon Marketing Japan Inc.

- Compact digital cameras- Digital single-lens reﬂex cameras- Digital video cameras- Ink-jet printers- Compact photo printers- Calculators and other products

Major companies /organizations- Canon Marketing Japan Inc.
Consumer Imaging Company- Canon Customer Support Inc.
- Canon Field Assist Inc.
- withPhoto Inc.

Note: The result for 2011 have been recalculated to reflect a segment change in 2012

To Our Stockholders and Stakeholders“FY2011 was a very
difficult year on many
levels. However, the Canon
Marketing Japan Groupmade its best efforts tomeet every challenge andnever abandoned its goals.”
ChairmanHaruo Murase (on left)

President Masami Kawasaki (on right)

In 2011, Canon Marketing Japan Inc. (Canon MJ), as wellas our shareholders and stakeholders, had to cope with thewide-ranging consequences of a series of events that no one
could have predicted. As a result of the Great East Japan
Earthquake that struck on March 11, 2011, we were forced
to announce changes to our financial forecasts on April 21
for FY2011 (the year ended December 31, 2011), which we
had previously announced on January 26. October brought
another disaster in the form of ﬂooding in Thailand. This
had a serious impact on Canonʼs manufacturing operations,causing major disruptions to supplies of digital cameras,
which are a key product category. There were also severe
problems with supplies of ink-jet printers during the criticalyear-end marketing season.

We responded to this challenging business environment
by adjusting product supply plans, reviewing costs andexpenses and implementing strategic marketing activities
based on our Three-Year Management Plan. ultimately wewere able to achieve net income in excess of our initial target.
Canon MJ is currently working toward Long-Term
Management Objectives covering the period between the years
ending December 2011 and December 2015. While we cannever predict with certainty what challenges may arise, we willcontinue to move forward steadily with our medium- and longterm growth strategies, never losing sight of our goals for 2015.
We are determined to achieve continuing growth inpartnership with our shareholders and stakeholders, and welook forward to your continuing support and understanding.

Financial forecasts for the year ended December 2011

(Billions of yen)

Announced January 26

Announced April 21

Final Results

685

633

632.4

operating income

9

0

8.4

net income

4

(1.9)

6.8

net sales

Canon Marketing Japan Inc.

03

A Message from the President

Accepting the

Challengein our long-term management objectives“our consolidated net income for the year ended December
2011 was 82% higher than the previous yearʼs result. thisgrowth was achieved despite the many challenges that we
encountered during the year, including product shortages
resulting from the great east Japan earthquake and the ﬂoods
in thailand, and a decline in consumer conﬁdence caused by
the high yen and the european credit crisis.”

President

Masami Kawasaki

Our business environment in 2011 was affectedby extreme events that could not have been
anticipated at the start of the year. However, we
continued to move forward resolutely toward therealization of the three basic strategies defined in
our Three-Year Management Plan for the period
from FY2011 to FY2013.
Consolidated net sales were 6.2% below theprevious yearʼs level at ¥632.4 billion, but we wereable to improve our gross profit margin by expanding
sales of high-added value products. We also reduced
selling, general and administrative expenses,
including advertising budgets. As a result of these
efforts, consolidated operating income increased by
9.1% year on year to ¥8.4 billion, while consolidated
net income was 81.6% higher at ¥6.8 billion.
04 Canon Marketing Japan Inc.

Canon MJ is involved in four business segments:
Business Solutions, IT Solutions, Consumer Imaging
and Industrial Equipment. Segment data showthat net sales in the Industrial Equipment were
substantially higher year on year, in part becauseof the conversion of ELK CORPORATION into a
consolidated subsidiary. However, sales were lower
in the other three segments.
Operating income from the Business
Solutions segment was 53.0% higher year on
year, while the result for the Industrial Equipment
segment was similar to the previous yearʼs figure.
The figure for the Consumer Imaging segment
was 14.7% lower. The operating loss in the IT
Solutions segment was reduced by ¥0.6 billion.

Financial Highlights
Thousands of
U.S. dollars (Note 1)

Millions of yen

FOR THE YEAR:
Net sales
Operating income
Income (loss) before income taxes andminority interests
Net income (loss)

2011

2010

2009

2008

2011

¥ 632,419
8,442¥ 674,159
7,736¥ 686,615
6,297¥ 827,487
25,416$ 8,107,936
108,231

10,972

8,584

(595)

22,229140,667

6,764

3,724

(4,343)

11,186

86,718447,765
250,671448,592
246,680449,607
246,829484,937
255,220

5,740,577
3,213,731

AT YEAR-END:
Total assets
Total stockholdersʼ equity
PER SHARE OF COMMON STOCK:Net income (loss) (Note 2)
Cash dividends (Note 3)
Stockholdersʼ equity

U.S. dollars (Note 1)

Yen

¥

49.30
20.00
1,827.25

¥

26.70
20.00
1,798.16¥(31.62)
20.00
1,797.31

¥

78.63
40.00
1,858.39

$

0.63
0.26
23.43

Notes: 1. The figures have been presented in u.S. dollars by translating all Japanese yen amounts at ¥78 to u.S.$1, the prevailing exchange rate as of December 31, 2011.
2. Net income (loss) per share is based on the weighted average number of shares of common stock outstanding during the respective fiscal years.
3. Cash dividends per share are the amounts applicable to the respective fiscal years, including dividends to be paid after the end of the year.

One of our priority strategies for the ThreeYear Management Plan covering the period from
FY2011 to FY2013 is to achieve top market sharesfor Canon products. In FY2011, we maintained
Canonʼs leadership in the digital SLR camera
market, but Canon slipped into second place in the
ink-jet printer market, in part because of productshortages. We aim to maintain Canonʼs number
one position in key product markets, or to reclaimthat status as quickly as possible.
One of the key goals identified in the ThreeYear Management Plan is the evolution of Canon
MJ into a service company. To realize this goal, we
will need to create innovative IT-based solutions
that offer high added value, and integrate ourcapacity to provide strong product value andoriginal solutions in all business domains.
In the area of IT services, we introduced aseries of new cloud-type services in FY2011.

We also commenced construction of a new data
center, which is scheduled to open in the fall of
2012. In the consumer imaging category, we
launched a new web-based service based on
the use of photography to enhance customer
satisfaction and create new demand. A key
achievement in relation to business diversification
was the announcement of our entry into thecommercial photo printer market. We also
strengthened our commercial printing businessby converting OCE JAPAN CORPORATION and
SHOWA INFORMATION SYSTEMS CO., LTD. toconsolidated subsidiaries. The conversion of ELKCORPORATION into a consolidated subsidiaryfurther strengthened and expanded our activities
in the medical equipment business. We also
made steady progress in other areas, including
the announcement of our full-scale entry into the
motion picture production equipment market.

Introducing the New Three-Year Management Plan (FY2012–FY2014)
Three Basic Policies under the Three Year Management Plan (FY2012–FY2014)

1. We will strengthen our collaboration with the global Canon group and further enhance thesolutions capabilities of the Canon MJ group, so as to achieve overwhelming leadership for
Canon products and establish them as no. 1 in terms of world market shares.
2. We will use the core competencies and know-how of the Canon group and the Canon MJ
group to create original solutions with high added value.
3. We will contribute to the global Canon group by moving forward with the complete
revamping of the business model based on the “Beyond Canon, Beyond Japan” concepts.
Canon Marketing Japan Inc.

05

Priority Strategies for the Long-Term Management Objectives

1. expand the market shares of Canon products
2. Diversify business3. evolve into a service company
4. Further group management innovation “Beyond Canon, Beyond Japan”
Numerical Targets for FY2015¥850 billion or higher

net sales
operating income (margin)¥42.5 billion (5%)¥185 or higher

income per share
Beyond Canon ratio (note a)30%

Beyond Japan ratio (note B)

10%

Note A: Sales of products purchased externally and sales of original services as a percentage of total net sales
Note B: Overseas sales and sales of imported goods as a percentage of total net sales

our Long-term Management objectives remain unchanged, including ourdetermination to achieve new growth through business creation. We are determined
to evolve into a service creation group capable of realizing our core philosophy offocusing on customer needs from a global perspective.
The Canon MJ Group remains fundamentallycommitted to its basic goals of achieving growth
and the expansion of corporate value over the
medium- to long-term future. Our efforts to achieve
the Long-Term Management Objectives for theperiod from FY2011 to FY2015 and our targets forthe final year of that period are guided by a ThreeYear Management Plan, which is updated each year
under a rolling review process to reﬂect changes inthe business environment.
No one could have predicted the changes that
affected the business environment in FY2011,
and we cannot rule out further changes in theyears ahead. However, we are determined to adapt
appropriately and ﬂexibly to change so that we canmove forward to achieve our targets for FY2015,
the final year of the period covered by the LongTerm Management Objectives.

We will continue to work toward the realization of the Long-term Management
objectives by pursuing the three basic strategies of the three-Year Management
plan. We will also move forward on the achievement of top market shares for
Canon products, the evolution of Canon MJ as a service company, and businessdiversiﬁcation, as expressed in the “Beyond Canon” concept.
In FY2012, we face a number of downside risk
factors, including the persistently high value of the
yen and the deceleration of the world economy due
to the debt crisis in Europe. On the positive side,
the post-earthquake reconstruction process isgenerating demand in Japan, and product supplies
are expected to return to normal following theresumption of production operations in Japan and
Thailand. Based on these forecasts, the Canon
06 Canon Marketing Japan Inc.

MJ Group will continue to move forward resolutely
toward the achievement of targets for FY2015
through the implementation of the Three-YearManagement Plan for FY2012-2014.
Our priority strategies under the current
Three Year Management Plan are as stated below.
Details of our tactics can be found in the individual
segment sections.

A Message from the President

Business Solutions

IT Solutions■ Increase earning
performance in the
document segment■ Implement structuralreform to improve
profitability■ Expand the
production printing
business■ Strengthen andexpand of outsourcing
business

Consumer Imaging

Industrial Equipment■ Pursue total No. 1
strategy■ Expand industrial
equipment business■ Strengthen and grownew businesses■ Aggressively expand
medical equipment
business■ Pursue active
global businessdevelopment

FY2012 performance forecasts and future investment plans look ahead.
We regard FY2012 as a year in which we will
move forward toward the achievement of ourgoals for FY2015 by watering the seeds that wehave already planted and sowing new seeds forthe period beyond FY2015.
Many uncertainties still cloud the outlook forthe business environment. However, we have set
targets for FY2012 of consolidated net sales of¥717 billion, consolidated operating income of¥12 billion, and consolidated net income of ¥7billion. Our plans for the period from FY2012 toFY2014 call for investment cash ﬂows of ¥100
billion based on three-year operating cash ﬂowsof ¥85.5 billion. We plan to undertake strategic
investments in M&A, cloud IT infrastructure, data
centers and new business areas. With an equity
ratio of 56.0% and in-hand cash ﬂows of ¥102.4
billion at the end of FY2011, our financial position
remains sound.

growth strategies based on medium- and long-term perspectives,
for sustained growth in shareholder value.
Long-term perspectives have consistently guided
the management policies of the Canon MJ Group.
That is why we have made the fulfillment of ourcorporate social responsibilities as a memberof the global community a core element in our
approach to sustainable management. Whilefocusing on medium- to long-term growth, we
also recognize the distribution of income toshareholders as our most important priority. Ourbasic dividend policy calls for the maintenanceof stable dividends, and we aim to achieve a
consolidated payout ratio of about 30%. In linewith our commitment to dividend stability, we
have set the annual dividend for the current yearat ¥20 per share, which represents a payout ratioof 40.6%.
We hope that shareholders and investors willcontinue to support the management policies andbusiness approach of Canon MJ, so that we canmove forward together to achieve long-term growth.

Canon MJʼs strong commitment to CSR is reﬂected in our
inclusion in FTSE4Good and MS-SRI.

Canon Marketing Japan Inc.

07

Overcoming

Under the slogan “Enjoy! Photo & Movie,” we offer
consumers new ideas for photographic enjoyment
based on our extensive range of products andservices. We also share customer feedback
with Canon Inc. for use in the development andproduction of new high-added-value products
and services as part of our continuing quest forleadership in terms of market share.

Challenge
to be the No. 1 company incustomer satisfaction and market share

08 Canon Marketing Japan Inc.

Important
Memories

Marketing efforts
centering on the entrylevel EOS Kiss X5
helped Canon maintainits position as theleading manufacturer ofdigital single-lens reﬂex
cameras on an annual
sales basis.

Canon MJ will continue to supply
products to meet a wide variety of
consumer needs, including digitalstill and video cameras capableof creating vivid records of happy,
emotion-filled moments, and easyto-use printers that allow users
to edit and print their images andvideos.

Maintaining No. 1
Share in Digital Cameras

Photography
Enjoyment
The “withPhoto” web services were created to enhanceusersʼ enjoyment of photography in their lifestyles.
There are services and functions for a wide range oflifestyle situations, including travel and family life.

Creative
Expression
The PHOTOPRESSO service provides a simple way
for users to order beautifully bound and finishedphoto books resembling commercial publications.

Fast
Response

As part of our commitment to customer
satisfaction, we offer many ways to accessafter-purchase services, including service
centers and online support pages.

Customers
First
Canon Marketing Japan Inc.

09

Meeting the

Our goals under the “Beyond CANON, Beyond
JAPAN” concept are to increase sales by atleast ¥100 billion over the 2010 result throughdiversification, and to raise the service businessratio (sales of non-hardware products, excluding
consumables, as a percentage of total net sales)to 45% by 2015. We will drive our evolution into
a service-creation business group by carefully
nurturing each of the seeds that we have planted
as the basis for business diversification and our
evolution as a service company.

Challengeof new-business development
in a competitive global environment

10 Canon Marketing Japan Inc.

GrowthExpanding theMedical Equipment
BusinessStrengthening the

Our aim in acquiring ELK CORPORATION as aconsolidated subsidiary in June 2011 was toexpand sales through cross-selling of Canon
medical products and ELK products. We arealso committed to the dynamic expansion of the
medical business, including the start-up of new
businesses and global marketing of ELK products.

Commercial
Printing Business
In June 2011, we completed the acquisition of OCE
JAPAN CORPORATION as a wholly owned subsidiary
and SHOWA INFORMATION SYSTEMS CO., LTD. as aconsolidated subsidiary. These two companies give us
access to powerful marketing and service organizations
and excellent customer bases. We will use these assets
to expand our commercial printing business, including
equipment sales.

Commercial Imaging
Equipment Business
In November 2011, we signaled our full-scale
entry into the video production equipment
market, which includes motion pictures and TV
commercials, with the announcement of the
CINEMA EOS SYSTEM.

Overseas
Operations
In March 2012, we established Canon
Advanced Technologies Taiwan Inc. The
creation of this Taiwan-based company,
which will be involved in the marketingof semiconductor fabrication, inspection
and measurement systems, represents
a new step toward the development ofour global business activities.

A next-generation data
center scheduled tocommence service
provision in October
2012 will be the corefacility for our efforts to
expand our outsourcing
business.

Business Process
Outsourcing and Cloud
Services

Canon Marketing Japan Inc.

11

Segment Review and Strategies

Business Solutions(Billions of yen)49%

Performance(Years ending December 31)

net sales

2012

2010

2011

342.5

325.1

352.0

2.3

3.5

3.5

operating income(Forecast)% of
net sales

Key Strategies

Performance and Key Trends

We will expand the number of pages printed by expanding
MIF (Machines in field) for office multifunction products
and laser printers.

Office Multifunction Products (MFPs)
Sales of office multifunction products (MFPs) were
substantially lower in the first half of the year becauseof shortages, stemming from the Great East Japan
Earthquake, of the ﬂagship imageRuNNER ADVANCE
5000 and imageRuNNER ADVANCE 2000 series.
Second-half sales exceeded the result for the same
period in the previous year, thanks to the recovery of
product supplies and increased sales. However, thetotal for the whole year was lower year on year.

We aim to improve the productivity of the document businessby reducing the number of sales and service personnel byaround 10% from the FY2010 level by FY2014. We also aim
to achieve sustained improvement in earning performance by
creating stock-type businesses in this segment.
We aim to achieve sales of ¥60 billion from the commercial
printing business in FY2015 through strategies that include
the maximization of synergy benefits with our groupcompanies, OCE JAPAN CORPORATION and SHOWAINFORMATION SYSTEMS CO., LTD., and the expansion ofsales of digital commercial printing equipment andlarge-format printers.

Last year, following the major earthquake
and tsunami disaster, the entire Canon MJ
organization united to expand sales activities,
and ultimately achieved income growth.
Our challenge in the current year is tosurpass last year’s income result. We areworking to expand sales of equipment,
especially MFPs, while also intensifying
our efforts to reduce costs.

12 Canon Marketing Japan Inc.

Laser Printers
Factors contributing to a year-on-year increase inlaser printer shipments included the expansion of
special commercial applications, and the closing ofmajor deals. However, sales were lower because of
an increase in the percentage of low-priced products.

imagePRESS C7010VP

imageRUNNER ADVANCE C2030F

Satera LBP8630

This printer combines all of Canonʼsunique digital photography technology tocreate high-quality, high-resolution output
for all needs, from commercial printing tocorporate in-house publishing.

The most compact, space-saving color
system yet produced, this model features
a highly intuitive user interface and avariety of personalization options.

Capable of printing 37 pages a minute,
this environment-friendly A3 monochromelaser printer is ideal for smaller offices.

Large-Format Ink-jet Printers
Sales of large-format printers capable of printing on
A1 paper remained strong, especially in the CAD andposter printing markets.
Maintenance Services, Document Services
Despite steady demand for printing, sales ofmaintenance services failed to reach the previous
yearʼs level because of lower unit prices. The
profitability of this business improved, however,
because of sustained efforts to reduce costs.
Net sales from the Business Solutions segment in
FY2011 amounted to ¥325.1 billion, a year on year
decline of 5.1%. However, operating income wassubstantially higher than previous yearʼs result at¥3.5 billion because of cost-cutting efforts.

Outlook for FY2012
The Business Solutions segment is one of the corebusiness areas that support the earnings of theCanon MJ Group. By establishing and strengthening
our position in the markets for office MFPs and laser
printers, which are our ﬂagship product categories,
we will help to maintain the number one status of
the Canon brand. In the commercial printing area,
we will take full advantage of synergies with OCE
JAPAN CORPORATION and SHOWA INFORMATIONSYSTEMS CO., LTD., which became part of theCanon MJ Group last year, to drive the expansion of
our commercial printer business.
The targets for this segment in FY2012 are
net sales of ¥352.0 billion and operating income of¥3.5 billion.

Measures and Developments
Counter-Attack in the MFP and
Laser Printer Markets
We aim to expand sales of MFPs by improving oursolutions proposal capabilities. We also aim to use
synergies with OCE JAPAN CORPORATION and
SHOWA INFORMATION SYSTEMS CO., LTD. which
joined the Canon MJ Group last year, to drive major
growth in sales of production equipment.
Improving Productivity in the Document BusinessIn the area of maintenance services, we willcontinue our efforts to improve both profitability
and customer satisfaction by introducing Internetbased remote management systems, expanding IT
support services for small and medium offices, andreducing staffing levels.
Canon Marketing Japan Inc.

13

Segment Review and Strategies

IT Solutions(Billions of yen)19%

Performance

2012

2010

2011

net sales

133.3

124.5

134.9

operating income

(3.7)

(3.1)

(1.3)

(Years ending December 31)(Forecast)% of
net sales

Key Strategies

Performance and Key Trends

We aim to achieve an operating margin of 4.7% in FY2014
by restructuring and consolidating the Group’s organizations
and business sites, and by reducing personnel by around
8% from the FY2010 level by FY2014.

Business conditions for the IT Solutions segment
remained generally difficult. users continued toreduce and postpone IT investment because of theeffects of the earthquake and the persistently highvalue of the yen.

We aim to increase the contribution from stock-type IT
service businesses, such as high-added-value cloudservices, system operating services and business process
outsourcing, to at least 29% by FY2015. The core facility
for these activities will be a next-generation data center
that will begin to provide services in October 2012.

SI Service Business
There was firm demand for individual systemdevelopment for financial institutions and companies
in the distribution and service industries. However,demand for embedded software development was slow.

We will work with the Canon Group and overseas
companies in the global Canon Group to expand thecontribution from global business activities in thissegment to at least 15% by FY2015.

Solutions Business
We recorded firm trends in the area of security
solutions, but orders for integrated backbone
systems (ERP) and backbone system migration werelower year on year.

Multiple natural disasters, combined withthe high yen and other factors, resulted inslow investment in information technology
last year. This situation was reflected inour business results. In the current year,
we are determined to achieve a V-shaped
recovery trend by implementing decisive
restructuring measures.

14 Canon Marketing Japan Inc.

Remote Operation Center
We provide advanced system operating services and data center services
Our priority in this market was the development of new
demandto ensurethat our customersʼ systems can be used with optimal safety
based on the appeal of the superb high-resolution images
throughout their lifecycles. We also offer a full range of support for
created by our cameras, especially the iVIS HFM43system/41 cameras
installation and operation, including ITO and BPO services.
with the high-performance HD CMOSPROOur priority in Our
thishigh-quality, one-stop system operations and management
market was the development of new demand basedserviceson the are available 24/365 to meet customer needs throughout theappeal of the superb high-resolution images
lifecycles of their systems.

Infrastructure Outsourcing Business
There was firm demand for infrastructure-related
development services, such as network storage, andmaintenance services.
IT Products Business
Sales were lower year on year because of aslowdown in the business PC market and a major
review of trading in unprofitable products.
Net sales in this segment were 6.6% lower year
on year at ¥124.5 billion. The operating loss wasmoderately lower than in the previous year at¥3.1 billion.

Measures and Developments
Improving Earning Potential throughGroup Restructuring
Through its IT Solution segment, the Canon MJ
Group owns 12 consolidated subsidiaries (as ofJanuary 2012), including one Chinese subsidiary.
We have formulated a program to restructure andconsolidate duplicated activities among thesesubsidiaries, and to centralize head office andmanagement functions that are duplicated within
the Group. In FY2012, we will implement measures
to reduce costs, including the consolidation of 11
business sites belonging to eight companies into
three sites. Work force restructuring measures
will also be implemented to reduce the number of
employees by approximately 8% from the FY2010
level by FY2014. Through these measures, we aim
to achieve an operating margin of 4.7% in FY2014.

Reinforcement and Expansion of
Outsourcing BusinessA next-generation data center scheduled tocommence service provision in October 2012 willplay a core role in the reinforcement of our system
operating services, cloud services and businessprocess outsourcing (BPO) services as part of ourefforts to increase the contribution from stock-type
IT services to the IT solutions business. Our target
is to increase this contribution to at least 29% by
FY2015.
Dynamic Expansion of
Global Business Activities
We will raise the Beyond JAPAN ratio to at least
15% by providing support for the internal systems ofcompanies in the global Canon Group, by developing
global business activities in collaboration with
the Canon Group, and by expanding our solutions
business activities targeting Japanese and local
companies in Asia.

Outlook for FY2012
We will work steadily to improve project profitability
and reduce costs through restructuring, while alsobuilding the outsourcing business into a core partof our income base for the medium- to long-term
future. Our performance forecasts for this segment
in FY2012 are net sales of ¥134.9 billion and an
operating loss of ¥1.3 billion.

Canon Marketing Japan Inc.

15

Segment Review and Strategies

Consumer Imaging(Billions of yen)27%

Performance(Years ending December 31)

net sales

2012

2010

2011

213.8

182.1

212.5

9.8

8.5

9.3

operating income(Forecast)% of
net sales

Note: The results for 2011 have been recalculated to reﬂect a segment change in 2012.

Key Strategies

Performance and Key Trends

We will work to build number one market shares for key
Canon products while also enhancing customer satisfaction.

This segment was seriously affected by productshortages resulting from the Great East Japan
Earthquake in March and the October ﬂoods inThailand.

We aim to achieve net sales of ¥10 billion from thecommercial imaging equipment business in FY2015,
primarily in the motion picture and production markets andthe broadcasting industry.
We will develop and expand service businesses, including
new content businesses based on the provision of ideas for
new photography-linked lifestyles.

Digital SLR Cameras
In volume terms, sales of digital SLR cameras
fell below the previous yearʼs level. However, we
maintained our top share in the domestic market
thanks to marketing efforts centering on the EOS Kiss
X5, which was launched in March 2011.
Compact Digital Cameras
Total shipments in the domestic market for compact
digital cameras were substantially lower year on year.
We launched a number of new high-resolution, highquality models with high unit prices, including the IXYLast year we were seriously affected by theearthquake, flooding in Thailand and otherevents. This year we are keen to make up
for lost time by deploying new products
at a faster-than-normal pace and securing
number-one positions in existing businessareas. Another priority is the early start-up
and reinforcement of our new commercial
imaging equipment business.

16 Canon Marketing Japan Inc.

EOS Kiss X5

IXY 600F

PIXUS MG6230

This high-performance entry-level digital
SLR camera combines an 18-megapixel
CMOS sensor with the DIGIC4 imaging
engine. It is packed with features to makephotography easy and fun, including fully
automatic shooting and video recording.

Features of this compact digital camera
include the HS System for optimized
shooting in low-light situations, theMulti-Scene IS advanced camera-shakecorrection system, and an 8x opticalzoom lens.

In addition to wireless LAN support, the“Intelligent Touch” system and a silent
mode, this printer also has the ability toprint cloud-based photographs and data
without using a computer.

600F in September 2011 and the PowerShot S100 in
December. However, the earthquake in Japan and theﬂoods in Thailand inevitably affected the market, andsales volumes were lower year on year.
Digital Video Cameras
Our priority in this market was the development of
new demand based on the appeal of the superb
high-resolution images created by our cameras,
especially the iVIS HFM43/41 cameras with thehigh-performance HD CMOSPRO CMOS sensor.
Ink-jet Printers
Strong consumer and business demand helped tomaintain a healthy trend in shipment volumes until
September. However, problems caused by the ﬂoods
in Thailand had a serious impact on sales during thepeak demand season in November and December.

Recovery in the Ink-jet Printer Category
Ink-jet printer sales in FY2011 were severely
affected by the ﬂoods in Thailand. In FY2012, weare planning much larger shipments than in FY2011.
Sales of consumables are expected to be similar to
the figures for FY2011.
Full-Scale Entry into the Motion Picture Production
Equipment Market
In November 2011, we launched the CINEMAEOS SYSTEM, which is designed to capture highquality images. In January 2012, we transferred
the commercial imaging equipment business fromthe Industrial Equipment segment to the Consumer
Imaging segment.

Net sales in the Consumer Imaging segment
were 14.8% lower year on year at ¥182.1 billion.
Operating income declined by 13.3% to ¥8.5 billion.

New Photography-Linked Lifestyle Ideas
In August 2011, we launched the “withPhoto” webservices, which support the use of photographs for awide range of purposes. Targeted toward individual
users, the system includes photo storage andprocessing services.

Measures and Developments

Outlook for FY2012

Aiming for a Number-One Market Share in
the Digital Camera Market
We will combine the aggressive introduction of new
digital SLR cameras and exchangeable lenses with
optimized marketing targeted toward specific user
profiles. Our priority in the compact digital camera
category will be the marketing of products withhigh-added-value features, such as high sensitivity,
resolution and zoom capabilities. Our goal is tomaintain or restore Canonʼs position as number one
in terms of market share in each product category.

The core mission for the Consumer Imaging segment
is to establish key Canon brand products as leaders
in terms of market share while also strengthening ourcommitment to user needs. By aggressively launching
new products and implementing effective marketingstrategies, we aim to achieve net sales of ¥212.5
billion and operating income of ¥9.3 billion.

Canon Marketing Japan Inc.

17

Segment Review and Strategies

Industrial Equipment(Billions of yen)

5%

Performance

2012

2010

2011

net sales

13.4

27.0

39.1

operating income

（0.2）

（0.3）

0.1

(Years ending December 31)(Forecast)% of
net sales

Note: The results for 2011 have been recalculated to reﬂect a segment change in 2012.

Key Strategies

Performance and Key Trends

We will expand sales of equipment for various markets,
including the semiconductor and LED industries, and establish
new businesses targeting the environmental sector.

Industrial Equipment
Semiconductor manufacturers were generally
hesitant about investment in facilities and equipment.
However, firm trends in some areas of the industry
helped to maintain strong sales of semiconductor
fabrication equipment and wafer inspection systems,with the result that sales of industrial equipment
were substantially higher year on year.

We aim to increase medical-related sales to ¥60 billion by
FY2015 through the expansion of group synergies and thedevelopment and reinforcement of the medical solutions
business.

Medical Equipment
Shipments of digital X-ray systems increased, butunit prices continued to fall under pressure fromescalating competition. In addition, shipments ofophthalmological equipment were lower year on
year. Despite these trends, the total sales of medical
equipment were dramatically higher year on year

Three year planning identifies the industrial
equipment segment as having the highest
potential growth rate. To build a platform
for steady growth, last year we added ELKCORPORATION to the group, and this year
we will establish a subsidiary in Taiwan.
We are determined to pursue sustained
expansion of this business.

18 Canon Marketing Japan Inc.

CXDI-70C Wireless

ES-700

Mattson Helios

This is Canonʼs first wireless X-ray
imaging device*. For enhanced
usability, data can be transferred
wirelessly to a computer.

ELQuEST CORPORATIONʼs high-speed,
low-temperature hydrogen peroxide gas
sterilizer can reliably sterilize complex
shapes and cavities, even packaging,by gasifying hydrogen peroxide at themolecular level.

Manufactured by Mattson Technology, theHelios is a high-performance, low costof-ownership lamp annealing system thatprovides optimal solutions for advanced
300mm mass-production needs.

* The battery and charger are shown at left.

thanks to the conversion of ELK CORPORATION into
a consolidated subsidiary in June.
Broadcasting and Imaging Equipment
There was a significant increase in sales, especiallyof security and other types of monitoring cameras.
This resulted from a resurgence of capital
investment by broadcasting companies.
As a result of these factors, net sales in the Industrial
Equipment segment doubled year on year to ¥27.0
billion. However, the operating loss was similar to theprevious yearʼs result at ¥0.3 billion.

Measures and Developments
Acquisition of ELK CORPORATION
In June 2011, ELK CORPORATION became aconsolidated subsidiary. We aim to achieve major sales
growth by expanding sales of both Canon and ELK
products, and by expanding new businesses madepossible by collaboration between Canon and ELK.
Development and Reinforcement ofMedical-Related Group Companies
We will move quickly to establish and develop
a medical solutions business by strengthening
our capacity to propose new concepts relating to
medical systems.

In March 2012, we took a new step toward thedevelopment of our global business activities withthe establishment of Canon Advanced Technologies
Taiwan Inc. This Taiwan-based company will be
involved in the marketing of semiconductor fabrication,
inspection and measurement systems.

Outlook for FY2012
We expect sales of industrial equipment, including
imported equipment, to exceed the previous yearʼs
result. This prediction reﬂects continuing firm
trends in capital investment in some parts of thesemiconductor industry, as well as strong demand
for semiconductor fabrication, inspection andmeasurement systems.
Sales of medical equipment are expected to besignificantly higher, not only because of increased
sales of new and existing products thanks tocollaboration with ELK CORPORATION , but also
because of the expansion of ELK CORPORATIONʼshealthcare-related activities, which include sales ofcompounding and sterilization equipment.
From FY2012 onwards, the commercial
imaging equipment business will be part of theConsumer Imaging Segment.
Based on these factors, we expect this segment
to yield a positive income result in FY2012. Our net
sales target is ¥39.1 billion.

Enhancing Marketing in the Semiconductor
Equipment Market
The semiconductor and LED industries are promisingmarkets for Canon. We aim to achieve sales growth in
this area through increased transactions in fabrication,
inspection and measurement systems.
Canon Marketing Japan Inc.

19

Sustainable Management

CSR Activities

Earning the Trust of People and Society
We see CSR as an integral part of our marketing activities. We believe that CSR consistsof listening to the needs and wishes of a wide range of stakeholders, including customers,
shareholders, investors, business partners, employees, communities and the global environment,
and working in good faith to respond to those needs and wishes.

Kyosei ̶Translated as “living and working together for the common good,” this single Japaneseword encapsulates the corporate philosophy of the global Canon Group. We aim to earn the trustof all people and of society through activities based on this philosophy and guided by our “Three
Selfs” spirit, which calls for self-motivation, self-managment and self-awareness.

Philosophy

Customer Focus
Philosophy Brings Full
CSR Participation

CSR AwarenessOur participatory approach to CSR is based on the
sharing of the Canon MJ Groupʼs CSR philosophy
and values by all employees, and on a commitment
to accurate knowledge. Our efforts to foster CSR
awareness in our employees are coordinated by the
CSR Promotion Division.

— CSR is Marketing —The “Three Selfs” Spirit
CSR Awareness

Shared Philosophy:
The “Three Selfs” Spirit

Our “Three Selfs” spirit is a code of conduct that
dates back to the founding of Canon and is part ofour corporate DNA. The code states that employees
should take an active approach to every situation(self-motivation), maintain self-control (selfmanagement) and be fully aware of their position,role and situation (self-awareness). The Three Selfs
spirit is the foundation for our CSR activities.

United Nations Global Compact
In December 2009, Canon MJ signed the uN Global Compact. under this initiative,
companies commit themselves to universal principles relating to human rights, labor
standards, the environment and the prevention of corruption. The underlying principle
is that companies should work to solve global problems through responsible corporate
activities. By reﬂecting this principle in our business activities, we will contribute to
the realization of a better and more sustainable society.

20 Canon Marketing Japan Inc.

Environmental Management

We are continually strengthening our environmental management infrastructure
through improvements to our environmental vision and management systems.
our goal is to reduce environmental loads resulting from our own businessactivities and the activities of our customers and society.

Environmental Vision̶Future Forest 2015

Green Ratio Target Achieved in 2010

Based on the Canon Groupʼs “Action for Green”
environmental vision, the “Future Forest 2015”
concept embodies the environmental vision for theCanon MJ Group. Our commitment to the Kyosei
philosophy is reﬂected in our determination tocontribute to the creation of a society capable ofachieving afﬂuence while living in harmony with theglobal environment, including respect forbiodiversity and all life on the planet, and thepreservation of forests and traditional communities
for future generations.
We will achieve these goals by maximizing ourresource efficiency to reduce the amount of
resources used in our business activities, and byworking with society and our customers to reduce
environmental loads through the use of the
products and IT solutions that we provide.

In 2010, we achieved a dramatic reduction in theabsolute quantity of CO2 emissions resulting from
our activities by further intensifying efforts to cut
energy consumption in our office and logistics
operations. We also significantly expanded ourcontribution to the reduction of CO2 emissions byhelping our customers to cut emissions. One of theways in which we achieved this was throughexpanded sales of the new imageRuNNERADVANCE. As a result of these efforts, our Green
Ratio in 2010 was 1:2.9. Our Green Ratio target of
1:2 or higher for 2015 takes into account the
opening of a new data center in 2012.

Green Ratio for 2010: 1:2.9

Setting the Green Ratio Target
In addition to the reduction of CO2 emissions
from the business sites and logistics activitiesof the Canon MJ Group, we also help ourcustomers to reduce their CO2 emissions. Our
target for the Green Ratio, which we define as
the ratio between our emissions and those of
our customers, is that our contribution to the
reduction of CO2 emissions by our customers
should be at least 100,000 tons and at least
double our own CO2 emissions.

Target for CO2 Reduction
Our contribution to the reduction of CO2 emissions at customersʼ
business sites will be at least 100,000 tons per year and at
least double the level of our own CO2 emissions.
Positive effect on global environment

2007 actual

2015 target
Green
Ratio

Contribution tocustomersʼ CO2
reductions

83,895 tons

±049,305 tons

100,000 tons
or higher

Double or
higher1

CO2 emissions ofCanon MJ Group

Negative impact on global environment

Canon Marketing Japan Inc.

21

Corporate GovernanceCorporate Governance Organization(As of March 28, 2012)

General Stockholdersʼ Meeting
Appointment / Dismissal
Audits

7 Directors
Board of Directors

5 Corporate Auditors
Board of Corporate Auditors

Management Committee

Cooperation

Internal Auditors
OfficeCSR Committee

Appointment / Dismissal
Cooperation

Auditing ofaccounts

Cooperation

Auditing Company

Appointment / Dismissal

Internal
auditsInternal Controls Evaluation Committee

AdviceGroup Companies
Staff Managers

Basic Stance on Corporate Governance

Board of Directors

We recognize that sustainable growth in corporate
value requires ongoing improvement in such areas
as management transparency and the monitoring of
progress toward management targets. This is
reﬂected in our wide-ranging initiatives tostrengthen corporate governance.

There are now seven directors, including one
outside director. By limiting the term of office fordirectors to one year, we have created amanagement structure capable of adapting quickly
to changes in the business environment. Important
decisions are made by the Board of Directors,
which normally meets once a month, and at
Management Committee meetings attended by the
directors of Canon MJ and the presidents of key
subsidiaries.
On March 29, 2011, we introduced an
executive officer system. The purpose of the new
system is to speed up management decisionmaking in the Canon MJ Group by separating
management decision-making from executivefunctions and reducing the number of directors. It
also clarifies responsibility for the performance ofbusiness operations and strengthens executive
systems.

The Corporate Governance Structure
In addition to the Board of Directors and the Boardof Corporate Auditors, our corporate governancestructure also includes an internal auditing system.
We have also established a range of committees,
including the CSR Committee, the Disclosure
Committee and the Internal Controls Evaluation
Committee, to implement policies across the entire
organization.

22 Canon Marketing Japan Inc.

Lawyers/
Licensed Tax Accountants

Disclosure Committee

Board of Directors and Corporate Auditors

Board ofDirectors

ChairmanPresident

Director

Director

Director

Haruo Murase

Masami Kawasaki

Koji Ashizawa

Osamu Sasaki

Yo Shibasaki

Director

Outside Director

Masahiro Sakata

Ikuo Soma

Corporate Auditor

Corporate Auditor

Outside Corporate Auditor

Outside Corporate Auditor

Outside Corporate Auditor

Taiji Miyazaki

Tetsuo Yoshida

Hiroshi Kawashimo

Kuniyoshi Kitamura

Kengo Uramoto

Board ofCorporate
Auditors

Board of Corporate Auditors
There are five corporate auditors, of whom three
are appointed from outside of the Company. The
Board of Corporate Auditors sets audit policies andallocates responsibilities to the auditors, who
conduct stringent audits in accordance with thosepolicies. Specific activities include attending Board
meetings, interviewing directors and examining
documents containing important Board resolutions.
The corporate auditors also monitor the Companyʼsoperations and assets.

Internal Auditors OfficeInternal audits are conducted by the Internal
Auditors Office, an independent specialist unit that
also assesses and advises Canon MJ and its
subsidiaries on legal compliance, the effectivenessof processes, internal control systems andinformation security. The Internal Auditors Office

works in coordination with similar units establishedin major subsidiaries. The Canon MJ Group has 52
audit staff members.

Auditing of Accounts
Canon MJʼs accounts are audited under an audit
agreement with Ernst & Young ShinNihon LLC.
There are no special interests between Canon MJ
and this audit corporation, nor are any operating
officers of the audit corporation involved in the
conduct of internal audits of Canon MJ. To ensurethat involvement is limited to specific periods, theaudit corporation rotates operating officers who
have been involved in audits of any company formore than seven years.

Canon Marketing Japan Inc.

23

Management Systems

raising the value of the Canon MJ groupʼs corporate brand is an ongoingpriority. We do this by maintaining high standards of corporate ethics
group-wide, and by developing structures capable of responding to avariety of management risks.

Compliance
For the Canon MJ Group, compliance is not simply
a matter of obeying laws and regulations. We definecompliance as obedience to regulatory
requirements and social rules, a commitment tosocial justice, and continuing efforts to meet the
expectations of society. Our compliance activities
are designed to encourage high ethical values andrespect for the law in individual employees throughawareness activities, employee education andorganizational activities.
To raise awareness of the Canon Group Code of
Conduct, all employees and officers of Canon
Marketing Japan carry
Compliance Cards.
Printed on these cards
are the Three Selfs spirit
and compliance tests
that can be used byindividuals to checktheir own conduct.

Canon MJ Compliance Activities• Messages from senior management• Canon Group Code of Conduct• Compliance Cards• Awareness training

Awareness
activities

Employeeeducation• Distribution of complianceinformation (weekly)• Business ethics handbook• Compliance web education(once yearly)

Organizational
activities• Compliance meetings (twice yearly)• Compliance awareness surveys(once yearly)• “Speak up” system• Linkage with personnel evaluation

Internal Controls

Risk Management

Chaired by the President, the Internal Controls
Evaluation Committee consists of officials
representing corporate departments andsubsidiaries. Its task is to develop internal control
systems for the entire Canon MJ Group.
Canon Inc., which is listed on the New York
Stock Exchange, has adopted systems that comply
with the Sarbanes-Oxley Act, a u.S. law designed
to improve corporate governance. As a member ofthe global Canon Group, Canon MJ has also applied
global perspectives by establishing systems basedon the same standards.

The Canon MJ Group has taken steps to ensure thecontinuity of its business activities in the event of a major
earthquake, an inﬂuenza outbreak or other contingencies
that could impact on its activities. These initiatives arecoordinated by the BCM1 Expert Committee.
In July 2007, we established the BCP2 Expert
Committee as a subsidiary organization of theManagement Committee tasked with developing,
maintaining and managing business continuity
management systems. Renamed the BCM Expert
Committee in fiscal 2009, its activities include
deliberations on BCP policies for the entire Canon
MJ Group.
1 BCM: Business continuity management
2 BCP: Business continuity plan

24 Canon Marketing Japan Inc.

Information Security

Major Objectives

The Canon MJ Group regards the reinforcement of
information security as part of its responsibilities
toward the creation of a more secure society, andas essential to meeting customersʼ expectations inline with our Customer Focus philosophy.
Our efforts follow two central themes:
Reinforcing the group-level information security
infrastructure by improving uniformity andefficiency, and improving the security, reliability andefficiency of the processes through which we
provide value to customers.
Through continuous monitoring and evaluation,
we strive to identify factors that hinder or contributeto better information security, a process that we
also use to upgrade our services to customers andour IT solutions.

1. Implement uniform management systems
group-wide, and improve efficiency
2. Optimization of common group measures andmeasures linked to business characteristics
3. Develop human resources in the area of
information security
4. Active information disclosure about information
security activities
5. Provide peace of mind and security to customers
・Improve information security in processes that provide
value to customers
・Help resolve customersʼ information security issues

Enhancing Customer Satisfaction
High-quality information security solutions(products, services)

Consideration for information security and the protectionof personal information in service maintenanceImproving the Information Security of the Canon MJ Group
Alleviation of factors that hinder the
improvement of customer satisfaction throughbetter handling of information assets

Reinforcement of information
security governance

ReportImprovement of information security
in relation to processes that provide
value to customers

Reinforcement of information security management

DirectEvaluate

Plan
Act

MonitorImprovement of uniformity and efficiency
Optimization of measures according tobusiness characteristics

Expansion of factors that help improvecustomer satisfaction through better
handling of information assets

Reinforcement of group-level
information security infrastructure

ISMS1
PMS2

Do

Check

Active utilization of the Groupʼs products
Accumulation and feedback ofapplication expertise

Creation of a Secure Society

1 ISMS: Information security management systems
2 PMS: Personal information protection management systems

Canon Marketing Japan Inc.

25

Quality Management
under our basic product safety policy, we maintainquality management and quality- and risk-control
systems designed to ensure that customers can use
our high-quality products and services in safety andwith confidence.
All products, services and support provided tocustomers are guaranteed to meet the same Canon
Quality standards as Canon products. We arecontinually working to improve customer satisfaction
through the development and implementation of ourquality management system (QMS).
In addition to product safety, we also regard
product and service quality as important targets forrisk management. We have established a Quality andProduct Liability Expert Committee under thejurisdiction of the Management Committee. Its task
is to ensure an appropriate and timely response in
the unlikely event of a contingency concerning
products or services supplied to customers.

Disclosure Policy
The task of the Disclosure Committee is to makeprompt decisions concerning important corporate
information, including the identification of
information for which timely disclosure is required,and decisions concerning the content and timing of
disclosure. To ensure that information can begathered promptly, disclosure officers have been

appointed in each department and subsidiary. As
part of our Investor Relations activities, Canon MJ
holds briefings on medium-term planning, quarterly
results briefings and business briefings. We also
distribute timely, accurate information continually via
websites and other channels.

Third-Party Evaluations
Canon MJ actively discloses information that is ofparticular interest to stockholders and investors. We
also actively cooperate in surveys by SRI evaluation
agencies and other organizations. The recognition
we receive for our CSR initiatives includes ourcontinuing inclusion in the FTSE4Good index.
Morningstar, Inc. has consistently included
Canon MJ in the MS-SRI, the first socially
responsible stock index in Japan, which consists of
150 Japanese companies selected for their superior
CSR performance.

Canon MJʼs strong
commitment to CSR isreﬂected in our inclusion in
FTSE4Good and MS-SRI.

Relationship with Canon Inc.
Canon MJ is a subsidiary of Canon Inc., which owns
55.3% of Canon MJ stock (as of December 31,2011). This percentage figure excludes Canon MJʼstreasury stock holdings. With these holdings, theownership percentage for Canon Inc. would be
50.1%. Canon MJ has the near-exclusive right to sell
products (excluding semiconductor and LCD
lithography systems) manufactured by Canon Inc.
under the Canon brand in Japan. In fiscal 2011, ourpurchases from Canon Inc. amounted to ¥235.3
billion (uS$3,016.3 million*), or 66.7% of our totalpurchases.
Because of this relationship, a major shift inthe management policies or business activities ofCanon Inc. could have a significant impact on thebusiness activities, performance and financial
position of the Canon MJ Group.

*The figures have been presented in u.S. dollars by translating all Japanese yen amounts at ¥78 to u.S.$1,
the prevailing exchange rate as of December 31, 2011.

26 Canon Marketing Japan Inc.

Financial Section
Contents

28

30

32

34

35

Ten-Year Consolidated
Financial Summary

Financial
Review

Consolidated
Balance Sheets

Consolidated Statementsof IncomeConsolidated Statement ofComprehensive Income

36

37

38

62

Consolidated Statementsof Changes in Net Assets

Consolidated Statementsof Cash Flows

Notes to Consolidated
Financial Statements

Report ofIndependent Auditors

Canon Marketing Japan Inc.

27

Ten-Year Consolidated Financial Summary
Canon Marketing Japan Inc. and Consolidated Subsidiaries
Years ended December 31

Millions of yen

2011

2010

2009

2008

¥ 632,419
8,442
10,972
6,764¥ 674,159
7,736
8,584
3,724

¥ 686,615
6,297
(595)
(4,343)¥ 827,487
25,41622,22911,186447,765
250,671448,592
246,680449,607
246,829484,937
255,220

8,716(12,108)(3,811)
102,373

35,186(13,012)(8,171)
109,575

18,144(25,834)(4,324)
95,575

41,122(28,967)(21,738)
107,589

FOR THE YEAR:
Net sales
Operating income
Income (loss) before income taxes and minority interests
Net income (loss)
AT YEAR-END:
Total assets
Total stockholdersʼ equity (Note 5)
CASH FLOWS:
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Cash and cash equivalents

Yen

PER SHARE OF COMMON STOCK:

49.30
20.00
1,827.25

Net income (loss) (Note 2)

26.70
20.00
1,798.16¥

Cash dividends (Notes 3 and 4)
Stockholdersʼ equity (Note 5)¥¥(31.62)
20.00
1,797.31

78.63
40.00
1,858.39¥

Notes: 1. The figures have been presented in U.S. dollars by translating all Japanese yen amounts at ¥78 to U.S.$1, the prevailing exchange rate as of December 31, 2011.
2. Net income (loss) per share is based on the weighted average number of shares of common stock outstanding during the respective fiscal years.
3. Cash dividends per share are the amounts applicable to the respective fiscal years, including dividends to be paid after the end of the year.
4. Year-end cash dividends applicable to the year ended December 31, 2005 include a ¥2.00 bonus dividend reflecting record-high consolidated net sales, operating income
and net income.

Return on Sales (ROS)Net Sales

Working Capital(Billions of yen/%)

ROS(Billions of yen/Times)

757

816 822

696

867

905
827
687 674

2.2 2.2
1.9
1.5

Current Assets
Current Liabilities
Current Ratio

345
325

632

362
335

328
302 302 302
2.0

1.7 1.7 1.7 1.7 1.7

1.8

1.9

221 2250.6

0.5

198 196
175

28 Canon Marketing Japan Inc.

247

260 266 255

247 247 251

7.4 7.6
6.4
5.4
4.3

212 220 214
184
154 157

3.2
151

-0.6

FY’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

234

2.0

1.1

0.9

Total Stockholders’ Equity
ROE(Billions of yen/%)374 369

1.9

1.4

Total Stockholders’Equity and ROE

1.5

2.7

1.6

-1.7

FY’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

FY’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

2005

2004

2003

2002

2011

¥ 905,137
36,88635,452
20,033¥ 867,172
33,91932,96718,807¥ 821,948
29,72327,086
15,358¥ 815,511
29,274
20,186
12,364¥ 757,033
16,987
20,4387,043¥ 695,585
10,885
6,873
3,436$ 8,107,936
108,231
140,667
86,718526,125
266,086

526,578
260,367

513,335
247,244482,337
234,158

495,396
225,317495,298
220,797

5,740,577
3,213,731

47,214(21,912)(16,345)
117,206

18,094(19,217)(6,126)108,248

36,985(17,887)(4,311)
115,504

22,053(7,963)(39,045)
98,844

23,671(16,258)(20,305)
123,815

36,275(26,869)(13,889)
136,448111,743(155,231)(48,859)
1,312,474
U.S. dollars(Note 1)Yen

¥ 134.84
40.00
1,817.59¥ 125.64
36.00
1,739.50¥ 101.78
28.00
1,650.52

81.78
22.00
1,562.23

¥

¥

46.24
18.00
1,496.74

22.96
18.00
1,464.43¥$ 0.630.26
23.43

5. Total stockholdersʼ equity in the above table represents the total of stockholdersʼ equity and valuation and translation adjustments in the consolidated balance sheets. This isdue to the adoption of an accounting standard for the presentation of net assets in the balance sheet effective the year ended December 31, 2006, which requires former
stockholdersʼ equity and minority interests to be presented as net assets, and net assets to be classified as stockholdersʼ equity, valuation and translation adjustments andminority interests.

Total Assets andTotal Stockholders’Equity Ratio

Total Assets
Total Stockholders’Equity Ratio

Net Income (Loss)(Billions of yen)
20.0(Billions of yen/%)495 49518.8
513

527 526

482

15.4

485
450 449 448

12.4
11.2

44.6 45.5

48.5 48.2 49.4

50.6 52.6

54.9 55.0

56.0
7.0

6.8
3.7

3.4
-4.3

FY’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

FY’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11

Canon Marketing Japan Inc.

29

Financial Review

Business Performance
Net Sales
Product shortages and reduced demand resulting from theGreat East Japan Earthquake and flooding in Thailand had aserious impact on business performance in the year ended
December 31, 2011. Consolidated net sales were 6.2%
lower year on year at ¥632,419 million.
Segment Information
In the Business Solutions segment, shipments of officemultifunctional products (MFPs) were affected by earthquakerelated product shortages in the first half of the year.
However, the supply situation subsequently improved, andshipments in the second half exceeded the total for the same
period in the previous fiscal year. In addition to Canon
products, our marketing activities in the wide-format andproduction printing category also promoted commercial
printers manufactured by Océ N.V. However, it was notpossible to offset the sales decline in the first half, and total
sales were lower year on year. Despite increased shipments,
laser printer sales declined because of an increased
percentage of low-end products in the sales mix. Sales of
toner cartridges were also lower due to the effects of
cost-cutting and electricity saving measures that reduced
office equipment use. However, marketing initiatives werereflected in strong sales of large-format inkjet printers.
Despite strong demand for printing, sales of MFP
maintenance services decreased year on year due to lower
unit prices. The performance of Canon System & Support
Inc., a member of the Canon MJ group, was affected in thefirst half by product shortages and reduced demand resulting
from the earthquake. Dynamic marketing efforts brought a
swift recovery, but this was not enough to compensate forthe decline in revenues, and sales were lower year on year.
Total consolidated net sales in the Business Solutions
segment were 5.1% lower year on year at ¥325,137 million.
The newly designated IT Solutions segment is composedof four business areas: systems integration service, solutions,infrastructure/outsourcing and IT products.
The sales contribution from the systems integration (SI)service business was lower year on year, despite results
close to the previous fiscal yearʼs level in the area ofindividual systems development. Reasons for the decline
included continuing adverse conditions in the embedded
software development market. However, net sales were

30 Canon Marketing Japan Inc.

marginally higher after adjustment for the effects ofaccounting changes, including a change in the accounting
policy concerning earnings from order-made software.
In the solutions area, firm trends continued in a numberof areas, including security solutions, but sales were lower
year on year because of a downturn in solutions projects,
including ERP and migration.
Sales in the infrastructure/outsourcing area were higher
year on year. This reflects firm trends in sales ofinfrastructure development services, including network
storage, and maintenance services.
In the IT products category, sales were lower year on
year because of challenging conditions in the business PC
market, and major changes to the way unprofitable products
are handled.
These trends were reflected in total consolidated net
sales for the IT Solutions segment, which were 6.6% below
the previous fiscal yearʼs level at ¥124,472 million.
In the Consumer Imaging segment, sales of digital
single-lens reflex (SLR) cameras began to recover in Julyafter product supply problems stemming from the March
earthquake were resolved. However, sales were also affectedby flooding in Thailand, and sales were lower year on year.
Despite this, Canon MJ maintained a leadership in position
terms of market share. Reduced shipments of camera bodies
also resulted in lower sales of exchangeable lenses. Sales ofcompact digital cameras declined year on year due to theeffects of the earthquake in Japan and floods in Thailand,and sales of digital video cameras were also lower. There
was a substantial decline in sales of inkjet printers due to
product supply problems caused by the Thailand flooding, but
trends in sales of consumables remained firm because of asurge of shipments driven by high seasonal demand in the
year-end period.
Total consolidated net sales in the Consumer Imaging
segment amounted to ¥179,504 million, a year-on-year
decline of 16.1%.
In the Industrial Equipment segment, sales of imported
equipment and other items were substantially higher year on
year because of strong demand for inspection and measuring
equipment. In the medical equipment category, shipments ofdigital radiography systems increased, but sales were lower
because of a continual decline in unit prices driven bycompetition from other suppliers. While shipments ofophthalmological equipment were lower year on year, net
sales rose because of the contribution from ELKCORPORATION, which became a consolidated subsidiary on
June 15, 2011.
In the broadcast and imaging equipment category, there wassubstantial year-on-year sales growth resulting from buoyant
investment in security and other types of monitoring cameras.
Total consolidated net sales in the Industrial Equipment
segment were 121.7% higher year on year at ¥29,610 million.

IncomeOperating income was 9.1% higher year on year at ¥8,442
million. This increase was attributable to an improvement in
the ratio of gross profit to sales resulting from increased
sales of high-added-value products, and to the reduction of
selling, general and administrative expenses, including
advertising and sales promotion costs. Despite the applicationof the accounting standard for asset retirement obligations
and the inclusion of disaster-related losses, consolidated net
income was 81.6% higher year on year at ¥6,764 million
because of other income items, including negative goodwill
resulting from the acquisition of ELK CORPORATION and
SHOWA INFORMATION SYSTEMS CO., LTD. as consolidated
subsidiaries. Net income per share was ¥49.30, comparedwith ¥26.70 in the previous fiscal year. The annual dividend
per share was ¥20.00.

Financial Position
Current assets increased by ¥185 million year on year to¥301,878 million. The main changes were a ¥7,202 million
reduction in cash and cash equivalents, a ¥4,140 million
increase in notes and accounts receivable, and a ¥5,801
million increase in inventories.
Fixed assets declined by ¥1,012 million year on year to¥145,887 million. This resulted mainly from a ¥2,599 million
reduction in software, a ¥1,854 million reduction in deferred tax
assets, and a ¥2,295 million increase in construction in progress.
Current liabilities were reduced by ¥6,156 million year
on year to ¥151,091 million. The main reasons for thischange were a ¥3,370 million reduction in accrued income
taxes, and a ¥2,919 million reduction in accrued expenses.
Despite a ¥1,383 million reduction in deferred tax
liabilities, long-term liabilities increased by ¥869 million year
on year to ¥45,367 million, mainly because of a ¥753 million

increase in the allowance for employeesʼ retirement benefits,
and a ¥565 million increase in long-term debt resulting froman increase in the number of consolidated subsidiaries.
Net assets increased by ¥4,460 million year on year to¥251,307 million, mainly because of a ¥4,019 million
increase in retained earnings, reflecting a ¥6,764 million
increase in net income and a ¥2,744 million decrease individend payments.
On this basis, total assets declined by ¥827 million year
on year to ¥447,765 million. Return on equity (ROE) was
2.7%, compared with 1.5% in the previous fiscal year, andthe stockholdersʼ equity ratio increased from 55.0% to
56.0%. Net assets per share reached ¥1,827.25, comparedwith ¥1,798.16 in the previous fiscal year.

Cash Flows
Cash and cash equivalents as of December 31, 2011
amounted to ¥102,373 million, a reduction of ¥7,202
million from the position at the end of the previous fiscal year.
Net cash provided by operating activities amounted to¥8,716 million, compared with ¥35,186 million in theprevious fiscal year. In addition to income before income taxes
and minority interests of ¥10,972 million, the main factors
were a ¥15,332 million in depreciation and amortization, a¥9,781 million decrease in accounts payable, ¥6,592 million
in income taxes paid, and a ¥2,164 million increase ininventories.
Net cash used in investing activities amounted to¥12,108 million, compared with ¥13,012 million in theprevious fiscal year. The main component was expenditures of¥11,977 million for the acquisition of property, plant andequipment.
Net cash used in financing activities amounted to¥3,811 million, compared with ¥8,171 million in theprevious fiscal year. The main items were dividend paymentsof ¥2,810 million, and ¥603 million for the repayment offinance lease obligations.

Canon Marketing Japan Inc.

31

Consolidated Balance Sheets
Canon Marketing Japan Inc. and Consolidated Subsidiaries
December 31 , 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2011

2010

2011

¥ 102,373
123,027
20
26,333
4,410
40,028
5,902(215)
301,878¥ 109,575
118,887
1,000
20,532
4,930
40,001
7,278(510)
301,693$ 1,312,474
1,577,269
256
337,60356,538513,180
75,667(2,756)3,870,231

36,83373,858166
19,632
23,4022,180
2,799
158,870(66,942)
91,92835,08470,167
13
16,604
22,6691,710
504
146,751(60,624)
86,127472,218
946,897
2,128
251,692
300,026
27,94935,8852,036,795(858,231)
1,178,564

524
19,258253317
83
20,435

1,430
21,85756
288
106
23,737

6,718
246,897
3,244
4,064
1,064
261,987

4,084
30
7,858
19,021
2,977(446)
33,524¥ 447,765

4,134
15
8,624
20,8753,716(329)
37,035¥ 448,592

52,359385
100,743
243,859
38,167(5,718)429,795$ 5,740,577

CURRENT ASSETS:
Cash and cash equivalents (Notes 9 and 10)
Notes and accounts receivable (Note 9)
Short-term investments in securities (Notes 9 and 10)
Inventories (Note 5)
Deferred tax assets (Note 13)
Short-term loans receivable (Note 9)
Other current assets
Allowance for doubtful receivables
Total current assets
PROPERTY, PLANT AND EQUIPMENT:Land (Note 3)
Buildings and structures (Note 3)
Machinery and vehicles (Note 8)
Furniture and fixtures (Note 8)
Rental assets
Lease assets
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
INTANGIBLE ASSETS:
Goodwill (Note 2)
Software (Note 8)
Lease assets
Utilization rights
Other intangible assets
Total intangible assets
INVESTMENTS AND OTHER ASSETS:
Investments in securities (Notes 3, 9 and 10)
Long-term loans receivable
Lease deposits (Note 17)
Deferred tax assets (Note 13)
Other investments
Allowance for doubtful receivables
Total investments and other assets
Total assets

32 Canon Marketing Japan Inc.

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS

2011

2010

2011

¥ 100,047¥ 102,850$ 1,282,654

605
1,616
1,115
1,685
2,208
21,4704,386
17,959151,091

432
̶
̶
5,055
2,607
24,3894,273
17,641

7,756
20,71814,295
21,60228,308275,256
56,231
230,244
1,937,064

CURRENT LIABILITIES:
Notes and accounts payable (Notes 3 and 9)
Lease obligations (Note 18)
Short-term loans payable (Notes 3 and 18)
Current portion of bonds payable (Note 19)
Accrued income taxes (Note 13)
Consumption taxes payable
Accrued expenses
Reserves
Other current liabilities
Total current liabilities

157,247

LONG-TERM LIABILITIES:
Bonds payable (Note 19)
Long-term loans payable (Notes 3 and 18)
Lease obligations (Note 18)
Deferred tax liabilities (Note 13)
Deferred tax liabilities for land revaluation (Note 13)
Allowance for employeesʼ retirement benefits (Notes 2 and 11)
Allowance for long-term continuous service rewards (Note 2)
Allowance for directorsʼ andcorporate auditorsʼ retirement benefits (Note 2)
Other long-term liabilities
Total long-term liabilities

̶

60
565
1,153
639
31
37,259
918

1,069
2,022
̶
36,506
916

769
7,244
14,781
8,192
398
477,680
11,769907

801

11,6283,835
45,3673,184
44,49849,167
581,628

73,30382,820116,933(22,190)73,30382,820112,914(22,192)

939,782
1,061,795
1,499,141(284,487)̶

CONTINGENT LIABILITIES (Note 4)
NET ASSETS (Note 2):
STOCKHOLDERSʼ EQUITY (Note 20):
Common stock:
Authorized ̶ 299,500,000 shares;
Issued ̶ 151,079,972 shares in 2011 and 2010
Capital surplus
Retained earnings
Treasury stock
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized loss on available-for-sale securities

(62)

(47)

(795)

Foreign currency translation adjustments

(133)

(118)

(1,705)

Total accumulated other comprehensive income

(195)

(165)

(2,500)636,
251 307¥ 447,765

167
246,847¥ 448,592

3,221,885

MINORITY INTERESTS
Total net assets
Total liabilities and net assets

8,154$ 5,740,577• See accompanying notes to consolidated financial statements.

Canon Marketing Japan Inc.

33

Consolidated Statements of Income
Canon Marketing Japan Inc. and Consolidated Subsidiaries
Years ended December 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

2011

2010

2011

¥ 632,419
409,527
222,892
214,450
8,442¥ 674,159
446,616
227,543
219,807
7,736$ 8,107,936
5,250,346
2,857,590
2,749,359
108,231

421
(89)
622
1
4,492
(484)
12
(426)
(286)
(36)
(503)
475
(992)

466
(36)
597
4
̶
(493)
212
(313)
(45)
(207)
(70)
̶
̶

5,397
(1,141)7,974
1357,590(6,205)154(5,461)(3,667)(462)(6,449)6,090(12,718)

Loss on adjustment for changes of accounting standard
for asset retirement obligations(1,173)

̶(15,038)

Gain on transfer of business

̶
496
2,530
10,972

400
333
848
8,584

̶
6,359
32,436140,667

3,234
971
4,205
6,767
3
6,764

5,097
(326)
4,771
3,813
89
3,724

41,461
12,44953,91086,75739
86,718NET SALESCOST OF SALES
Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Insurance income
Gain on sales of noncurrent assets
Gain on negative goodwill
Loss on impairment of fixed assets
Gain on sales of investments in securities
Loss on sales and disposal of property and equipment
Loss on devaluation of investments in securities
Loss on cancellation of lease contracts
Office transfer expenses
Gain on bad debts recovered
Loss on disaster

Other, net
Income before income taxes and minority interests
INCOME TAXES (Note 13):
Current
DeferredIncome before minority interests
MINORITY INTERESTS
Net income

¥

¥

$

U.S. dollars(Note 1)Yen

PER SHARE OF COMMON STOCK (Note 2):
Net income
Cash dividends applicable to the year
• See accompanying notes to consolidated financial statements.

34 Canon Marketing Japan Inc.

¥ 49.30¥ 20.00¥ 26.70¥ 20.00$ 0.63$ 0.26

Consolidated Statement of Comprehensive Income
Canon Marketing Japan Inc. and Consolidated Subsidiaries
Year ended December 31, 2011

Millions of yen

INCOME BEFORE MINORITY INTERESTS

Thousands of
U.S. dollars (Note 1)

2011

2011

¥ 6,767$ 86,757

(17)
(0)
(17)
(34)

(218)
(0)
(218)
(436)

¥ 6,733$ 86,321¥ 6,734(1)$ 86,334(13)

OTHER COMPREHENSIVE INCOME
Net unrealized loss on available-for-sale-securities
Deferred loss on hedges
Foreign currency translation adjustments
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to
Owners of the parent
Minority interests• See accompanying notes to consolidated financial statements.

Canon Marketing Japan Inc.

35

Consolidated Statements of Changes in Net Assets
Canon Marketing Japan Inc. and Consolidated Subsidiaries
Years ended December 31 , 2011 and 2010

Millions of yen
Accumulated othercomprehensive income

Stockholdersʼ equity
Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net unrealized
loss onavailable-for-salesecurities

Foreigncurrencytranslation
adjustments

BALANCE AT DECEMBER 31, 2009 151,079,972
Net income
Cash dividends
Purchase of treasury stock
Disposition of treasury stock
Changes due to share exchange
Contributions to employee welfare
pension fund
Other, net¥ 73,303¥ 83,289¥ 115,153
3,724(2,789)¥ (24,759)¥ (117)¥ (40)

0
(469)

(1)
(3,173)BALANCE AT DECEMBER 31, 2010 151,079,972
Net income
Cash dividends
Purchase of treasury stock
Disposition of treasury stock
Other, net
BALANCE AT DECEMBER 31, 2011 151,079,972¥ 73,303

Minority
interests

Total
net assets¥ 4,046¥ 250,875
3,724(2,789)(5,003)2
̶

(5,003)
3
7,567(3,925)(0)¥ 73,303¥ 82,820¥ 82,820¥ 112,914
6,764(2,744)(0)¥ (22,192)

(1)

(1)
3

¥ 116,933¥ (22,190)

70¥ (47)(78)¥ (118)

¥

45
167

(15)
¥ (62)(15)¥ (133)

¥

469
636

37
¥ 246,847
6,764(2,744)(1)
2439¥ 251,307

Thousands of U.S. dollars (Note 1)
Accumulated othercomprehensive income

Stockholdersʼ equity

Commonstock

BALANCE AT DECEMBER 31, 2010
Net income
Cash dividends
Purchase of treasury stock
Disposition of treasury stock
Other, net
BALANCE AT DECEMBER 31, 2011

Retainedearnings

Treasurystock$ 939,782 $ 1,061,795 $ 1,447,615 $ (284,513)
86,718(35,179)
(13)
(13)
39
$ 939,782 $ 1,061,795 $ 1,499,141 $ (284,487)• See accompanying notes to consolidated financial statements.

36 Canon Marketing Japan Inc.

Capitalsurplus

Net unrealized
loss onavailable-for-salesecurities

Foreigncurrencytranslation
adjustments$ (603)$ (1,513)(192)$ (795)(192)$ (1,705)

Minority
interests

Total
net assets$ 2,141 $ 3,164,704
86,718(35,179)
(13)
26
6,013
5,629
$ 8,154 $ 3,221,885

Consolidated Statements of Cash Flows
Canon Marketing Japan Inc. and Consolidated Subsidiaries
Years ended December 31 , 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Depreciation and amortization
Loss on impairment of fixed assets
Loss on disaster
Amortization of goodwill
Increase (decrease) in allowance for doubtful receivables
Gain on negative goodwill
Increase (decrease) in allowance for employeesʼ retirement benefits
Allowance for directorsʼ andcorporate auditorsʼ retirement benefits, net
Interest and dividend income
Interest expense
Loss (gain) on sales andretirement of property, plant and equipment, net
Loss (gain) on transfer of business
Loss (gain) on sales of investment securities
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Other, net
Sub-totalInterest and dividends received
Interest paid
Income taxes received (paid)
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchases of intangible assets
Payments for purchases of investments in securities
Proceeds from sales of investments in securities
Payments for purchases of investments in
subsidiaries resulting in changes in scope of consolidation
Net decrease (increase) in short-term loans receivable
Decrease (increase) in time deposits
Proceeds from transfer of business
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:Net Increase (decrease) in short-term loans payable
Repayments of finance lease obligations
Payments for purchases of treasury stock
Dividends paid
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

2010

2011

8,584

$ 140,667

15,332
484
992
906
(335)
(4,492)(652)

13,739
493
̶
905
(222)
̶
(326)

196,564
6,205
12,718
11,615(4,295)(57,590)(8,359)

(64)

(43)

(821)

(421)
89

(466)
36

(5,397)
1,141

293

309

3,756

̶
182
4,983
(2,164)(9,781)(1,357)
14,967430(89)(6,592)
8,716

(400)
(212)
6,901
3,927
(3,594)
2,639
32,270
478
(36)
2,474
35,186

̶
2,333
63,885(27,744)(125,397)(17,397)
191,884
5,513(1,141)(84,513)111,743

1,000(11,977)
1,600(3,625)
(19)
317

386
(11,489)646(5,238)(232)
520

12,820(153,551)
20,513(46,474)
(244)
4,064

(418)

̶

(5,359)

13
1,000
̶
1
(12,108)

0
̶
1,777
618
(13,012)167
12,820̶
13(155,231)

(350)
(603)
(2)
(2,810)(46)(3,811)
1(7,202)
109,575¥ 102,373

̶(313)(5,003)(2,857)2(8,171)(3)
14,00095,575¥ 109,575(4,486)(7,731)(26)(36,026)(590)(48,859)13(92,334)
1,404,808$ 1,312,474¥ 10,972¥• See accompanying notes to consolidated financial statements.

Canon Marketing Japan Inc.

37

Notes to Consolidated Financial Statements

1

Basis of Presentation ofConsolidated Financial Statements

method. The carrying amount in the balance sheet is calculated withconsideration of write-downs due to decreased profitability.

The accompanying consolidated financial statements of Canon Marketing(e) Property, Plant and Equipment

Japan Inc. (the “Company”) and its consolidated subsidiaries (the “Group”)

Property, plant and equipment are stated at cost. Depreciation isare prepared on the basis of accounting principles generally accepted incomputed by the declining-balance method for property and equipment,

Japan, which are different in certain respects as to application and disclosure

with the exception of items that are depreciated by the straight-line

requirements of International Financial Reporting Standards, and are compiled

method at rates based on the estimated useful lives of the respectivefrom the consolidated financial statements prepared by the Company asassets. These items are buildings purchased on or after April 1, 1998

required by the Financial Instruments and Exchange Law of Japan.

(exclusive of furniture and fixtures), all buildings and structures of the

The U.S. dollar amounts are included solely for convenience of theCompanyʼs Makuhari office, all property and equipment of certain

reader and are stated, as a matter of arithmetical computation only, at theconsolidated subsidiaries, and rental assets in the Business Solutions

exchange rate of ¥78=U.S.$1, the rate prevailing at December 31,

segment. The useful lives are as follows: buildings, mainly 50 years;

2011. These translations should not be construed as representations thatfurniture and fixtures, mainly five years; and rental assets, mainly three

the Japanese yen amounts actually represent, or have been or could beyears. Normal repairs and maintenance, including minor renewals andconverted into U.S. dollars at that or any other rate.

improvements, are charged to income as incurred.
In accordance with the amendment to the Corporation Tax Law, from2

Summary of
Signiﬁcant Accounting Policies

the first accounting period after the fiscal year in which fixed assets
acquired on or before March 31, 2007 reach 5% of their acquisition
value under the application of methods of depreciation based on the(a) Principles of Consolidation

preamendment Corporation Tax Law, the Company shall apply straight-

The accompanying consolidated financial statements for the year

line depreciation over a period of five years to the difference between theended December 31, 2011 include the accounts of the Company

amount equivalent to 5% of the acquisition value of the fixed assets

and all of its 27 (21 in 2010) subsidiaries. Investments inacquired on or before March 31, 2007 and the memorandum value (1nonconsolidated subsidiaries and affiliated companies are accountedyen) of those assets. The resulting amount will be recorded underfor by the equity method.

depreciation and amortization in the accounts.

All intercompany accounts and transactions are eliminatedin consolidation.
The excess of acquisition costs over net assets acquired is amortized
generally over five years.

(f) Allowance for Employeesʼ Retirement Benefits
In order to provide for employeesʼ retirement benefits, the Company andits consolidated subsidiaries provide liability for employeesʼ retirement
benefits in an amount calculated based on the estimated projected benefit(b) Cash Equivalents
For purposes of the consolidated statements of cash flows, theobligation and plan assets at the end of the fiscal year.
Unrecognized prior service cost is amortized by the straight-line

Company and its consolidated subsidiaries consider all highly liquid

method over the average service period of the eligible employees

investments, including securities, time deposits and certificates ofremaining at the time when it arose. Unrecognized actuarial gain or

deposit, all of which mature or become due within three months of theloss is amortized from the fiscal year following the year in which it

date of acquisition, to be cash equivalents.

arose, by the straight-line method over the average service period of
the eligible employees remaining.

(c) Securities
The held-to-maturity debt securities are stated at amortized cost.

(g) Leases

Available-for-sale marketable securities are stated at fair market

Leased assets under finance lease contracts are depreciated by thevalue, with unrealized gain or loss, net of the applicable taxes, reported asstraight-line method over their respective lease contract term with zeroa separate component of net assets. Available-for-sale marketable

residual value.

securities whose fair value is not readily determinable are stated at cost
determined by the moving-average method.

Leased assets under finance lease contracts that do not deem totransfer ownership to the lessee and were entered into before January 1,

2009 when the latest accounting standards for lease transactions were(d) Inventories

adopted are accounted for as operating leases.

Merchandise and service parts are valued at cost determined by the monthly
moving-average method. The carrying amount in the balance sheet is(h) Allowance for Doubtful Receivables

calculated with consideration of write-downs due to decreased profitability.

An allowance for doubtful receivables is provided in the amount required toWork in process is valued at cost determined by the specificcover possible losses on collection. It is determined by adding individually

identification method.
Supplies are valued at cost determined by the last-purchase price38 Canon Marketing Japan Inc.

estimated uncollectible amounts for specific items to an amount based on
the actual rate of uncollected receivables of the Group in prior years.

(i) Income Taxes

The system grants vacations and pays rewards at fixed intervals in order

Deferred tax assets and liabilities are recorded to reflect the impact of

to refresh the minds and bodies of these employees and enable them totemporary differences between assets and liabilities recognized forwork with new vigor in the future.

financial reporting purposes and such amounts recognized for tax
statutory rate of income taxes to the temporary differences.

(p) Recognition of Revenues and Expenses and Recognition
of Revenue from Customized Software Development(j) Translation of Foreign Currency Accounts

2011, the percentage-of-completion method is applied in cases where

All short-term and long-term monetary receivables and payables

the outcomes of such contracts can be estimated reliably. When the

denominated in foreign currencies are translated into Japanese yen at thepercentage-of-completion method is applied, the percentage ofcurrent exchange rates in effect at the balance sheet date. The foreigncompletion at the end of the fiscal year is determined based on actual

exchange gains and losses on translation are recognized in thecosts incurred and estimated total contract costs. For all other contracts,

accompanying consolidated statements of income.

the completed-contract method is applied.

purposes. These deferred taxes are measured by applying the normal

For software development contracts in progress as of December 31,(k) Foreign Currency Financial Statements(q) Additional Information

The balance sheet accounts and revenue and expense accounts of the<Reclassification of cost of sales and selling, general andadministrative expenses>

foreign subsidiaries are translated into Japanese yen at the current
exchange rates except for the components of net assets excluding
minority interests which are translated at their historical exchange rates.
(l) Per Share Amounts of Common Stock
Net income per share is calculated using net income available to holdersof common stock, and the weighted average number of shares of common
stock outstanding for the period.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicable to therespective fiscal years, including dividends to be paid after the end of therespective fiscal years.
(m) Bonuses to Directors
The estimated amount payable for the next round of directorsʼ bonuses,
which are classed as expenses for the current year, has been included in
the accounts for the current fiscal year.

Until the previous fiscal year, expenses incurred for the call center
business and the service center business operated by a consolidated
subsidiary were accounted for as cost of sales. Effective the year ended
December 31, 2011, these expenses are included in selling, general andadministrative expenses due to their increased materiality.
As a result of this reclassification, cost of sales for the year ended
December 31, 2011 decreased by ¥5,030 million ($64,487 thousand)compared to with the amount that would have been recognized under theprevious classification. However, since selling, general and administrative
expenses increased by the same amount, this reclassification had no
impact on operating income or income before income taxes and minority
interests for the year ended December 31, 2011.
<Adoption of consolidated taxation system>

In September 2011, the Company and certain consolidated subsidiaries
submitted the application for approval of consolidated taxation. The
application was subsequently approved and a consolidated taxation
system will be adopted starting from the fiscal year ended December 31,(n) Allowance for Directorsʼ and Corporate Auditorsʼ
Retirement Benefits

2012. Accordingly, effective the year ended December 31, 2011, the

The Company and its consolidated subsidiaries pay lump-sum retirement

Company and certain of its consolidated subsidiaries have adopted the tax

benefits to directors and corporate auditors, the amounts of which are

effect accounting on the premise of consolidated taxation, in compliancedetermined in accordance with the Companyʼs and its consolidatedwith “Practical Solution on Tentative Treatment of Tax Effect Accounting

subsidiariesʼ internal regulations. Also, in accordance with the Companyʼsunder Consolidated Taxation System (Part 1)” (Accounting Standards

and its consolidated subsidiariesʼ internal regulations, a reserve isBoard of Japan (ASBJ) Practical Issues Tax Force (PITF) No. 5, revised

provided for such benefits at the amount that would be required to be paid

March 18, 2011) and “Practical Solution on Tentative Treatment of Tax

if all directors and corporate auditors retired at the end of the fiscal year.

Effect Accounting under Consolidated Taxation System (Part 2)” (ASBJ
PITF No. 7, revised June 30, 2010).

(o) Allowance for Long-Term Continuous Service Rewards
In order to set aside money for payment of rewards to employees who<Presentation of Comprehensive Income>have given long-term continuous service determined in accordance

Effective the year ended December 31, 2011, the Company has adopted

with the Companyʼs internal regulations, we book allowance forthe “Accounting Standard for Presentation of Comprehensive Income”

long-term continuous service rewards based on the amount we(ASBJ Statement No. 25, issued June 30, 2010). The amounts of

expect to pay in the future.

“accumulated other comprehensive income” and “total accumulated other

The Company and some of its subsidiaries have established internal

comprehensive income” for the previous fiscal year represent “valuation

regulations related to the Refresh and Vacation System for employees who

and translation adjustments” and “total valuation and translation

have been very diligent and have given long-term and continuous service.

adjustments,” respectively.

Canon Marketing Japan Inc.

39

3

Assets Pledged
as Collateral

Assets pledged as collateral for deferred payments of customs duties as of December 31, 2011 and 2010 were as follows:(1) Pledged assets
Thousands of
U.S. dollars (Note 1)

Millions of yen

Land
Buildings
Investments in securities2011¥ 2,136513
164¥ 2,813

2010
̶
̶
̶
̶

2011
$ 27,385
6,577
2,102
$ 36,064(2) Liabilities secured by the above assets
Thousands of
U.S. dollars (Note 1)

Millions of yen

Accounts payable
Short-term loans payable
Long-term loans payable

4

2011
¥ 620
555
326
¥ 1,501

2010
̶
̶
̶
̶

2011
$ 7,949
7,115
4,180$ 19,244

Contingent
Liabilities

Contingent liabilities at December 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Joint and several guarantee on lease payment of two customers
Guarantees for employeesʼ housing loans

5

2011
¥ 129
¥ 85

2010
̶
¥ 97

2011
$ 1,654
1,090

Inventories

Inventories at December 31, 2011 and 2010 were composed of the following:Thousands of
U.S. dollars (Note 1)

Millions of yen

Merchandise
Service parts
Work in progress
Supplies
Other

2011
¥ 22,012
2,690
438
1,023
170
¥ 26,333

2010¥ 16,448
2,557
1,116
411
̶
¥ 20,532

2011$ 282,205
34,487
5,615
13,1162,180$ 337,603

Note: For the software development contracts from which contract losses are expected, the inventory relating to such contracts and relevant reserves for contract losses do not offset
each other and have been recorded in gross amounts in current assets and current liabilities, respectively. Out of inventories, ¥59 million ($756 thousand) for work in progress
relates to software development contracts for which losses are expected and corresponds to the reserve for contract losses.

40 Canon Marketing Japan Inc.

6

Other Comprehensive
Income

The following table presents components of other comprehensive income for the year ended December 31, 2010:
Millions of yen

2010
70
(84)
¥ (14)¥Net unrealized loss on available-for-sale-securities
Foreign currency translation adjustments
Total other comprehensive loss
Total comprehensive income attributable to:Comprehensive income attributable to owners of the parent
Comprehensive income attributable to minority interests
Total

7

¥ 3,71684¥ 3,800

Consolidated Statements of
Changes in Net Assets

Current Fiscal Year (from January 1, 2011 to December 31, 2011)
1. Matters pertaining to the types and total number of shares issued and the types and number of shares of treasury stock
End of the previous fiscal year
(Thousands of shares)

Issued stock
Common stock
Total
Treasury stock
Common stock
Total

Increase(Thousands of shares)

Decrease(Thousands of shares)

End of the current fiscal year
(Thousands of shares)

151,080
151,080̶̶̶̶

151,080
151,080

13,896
13,8961
1

2
2

13,895
13,895

Notes: 1. The increase of 1 thousand shares of treasury stock was due to the purchase of fractional stock.
2. The decrease of 2 thousand shares of treasury stock was due to the sale of fractional stock.

2. Matters regarding dividends(1) Payment of dividends
Total dividends(Millions of yen)

Dividend per share(Yen)

Common stock¥ 1,372

Common stock¥ 1,372

Resolution

Type of stock

March 29, 2011
General stockholdersʼ meeting
July 21, 2011
Board of Directorsʼ meeting

Base date

Date effective¥ 10

December 31, 2010

March 30, 2011

¥ 10

June 30, 2011

August 26, 2011

(2) Dividends for which the base date falls within the current fiscal year and the date effective is in the following fiscal year
Resolution

March 28, 2012
General stockholdersʼmeetingType of stock

Funds used to pay
the dividend

Common stock

Retained earnings

Total dividends(Millions of yen)

Dividend per share(Yen)¥ 1,372¥ 10

Base date

Date effective

December 31, 2011 March 29, 2012

Previous Fiscal Year (from January 1, 2010 to December 31, 2010)
1. Matters pertaining to the types and total number of shares issued and the types and number of shares of treasury stock
End of the previous fiscal year
(Thousands of shares)

Issued stock
Common stock
Total
Treasury stock
Common stock
Total

Increase(Thousands of shares)

Decrease(Thousands of shares)

End of the current fiscal year
(Thousands of shares)

151,080
151,080̶̶̶̶

151,080
151,080

13,74813,748

4,351
4,351

4,203
4,203

13,896
13,896

Notes: 1. The increase of 4,351 thousand shares of treasury stock consists of an increase of 4,349 thousand shares due to the purchase through the market, and 2 thousand shares
due to the purchase of fractional stock.
2. The decrease of 4,203 thousand shares of treasury stock consists of a decrease of 4,201 thousand shares due to a share-for-share exchange, and 2 thousand shares due tothe sale of fractional stock.

Canon Marketing Japan Inc.

41

2. Matters regarding dividends(1) Payment of dividends
Resolution

Total dividends(Millions of yen)

Dividend per share(Yen)

Common stock¥ 1,373

Common stock¥ 1,415Type of stock

March 26, 2010
General stockholdersʼ meeting
July 26, 2010
Board of Directorsʼ meeting

Base date

Date effective¥ 10

December 31, 2009

March 29, 2010

¥ 10

June 30, 2010

August 27, 2010

(2) Dividends for which the base date falls within the current fiscal year and the date effective is in the following fiscal year
Resolution

March 29, 2011
General stockholdersʼmeeting

8Type of stock

Funds used to pay
the dividend

Common stock

Retained earnings

Total dividends(Millions of yen)

Dividend per share(Yen)¥ 1,372¥ 10

Base date

Date effective

December 31,
2010

March 30, 2011

Leases(a) Finance Leases
Lease payments for finance leases excluding subleases, except for the lease agreements which stipulate the transfer of ownership of the leased property
to the Company and its consolidated subsidiaries, were ¥2,009 million ($25,756 thousand) and ¥2,495 million for the years ended December 31,
2011 and 2010, respectively.
(As Lessee)
Future minimum lease payments subsequent to December 31, 2011 and 2010 are summarized as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Future minimum lease payments:
Within one year
Thereafter

2011

2010

2011

¥ 478
121
¥ 599

¥ 2,063583¥ 2,646$ 6,128
1,551$ 7,679

Future minimum lease payments included the following subleases:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Future minimum lease payments:
Within one year
Thereafter

42 Canon Marketing Japan Inc.

2011

2010

2011

¥ 19
3
¥ 22

¥ 38
22
¥ 60

$ 244
38
$ 282

The following pro forma amounts represent acquisition cost, accumulated depreciation and amortization, and net book value of leased property as ofDecember 31, 2011 and 2010, excluding subleases:
Thousands of
U.S. dollars (Note 1)

Millions of yen

2011
Acquisition cost:
Machinery and vehicles
Furniture and fixtures
SoftwareAccumulated depreciation and amortization:
Machinery and vehicles
Furniture and fixtures
Software
Net book value:
Machinery and vehicles
Furniture and fixtures
Software

2010

2011

¥

67
6,298
206
¥ 6,571

¥

22
8,662
283
¥ 8,967859
80,744
2,641$ 84,244

¥

55
5,767
172
¥ 5,994

¥

17
6,161
203
¥ 6,381705
73,9362,205$ 76,846

12
531
34
¥ 577

¥

5
2,501
80
¥ 2,586

154
6,807
436
$ 7,397

¥

$

$

$

(As Lessor)
Future minimum lease payments, which consist of subleases subsequent to December 31, 2011 and 2010, are summarized as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Future minimum lease payments:
Within one year
Thereafter

2011

2010

2011

¥ 19
3
¥ 22

¥ 38
23
¥ 61

$ 244
38
$ 282

(b) Operating Leases (Non-cancelable)(As Lessee)
Thousands of
U.S. dollars (Note 1)

Millions of yen

Future minimum lease payments:
Within one year
Thereafter

9

2011

2010

2011

̶
̶
̶

¥ 16
̶
¥ 16

̶
̶
̶

Financial
Instruments

Current Fiscal Year (from January 1, 2011 to December 31, 2011) and Previous Fiscal Year (from January 1, 2010 to December 31, 2010)
1. Information on financial instruments(1) Policies for financial instruments
The Group invest their surplus funds only in highly secure financial instruments, and mostly take advantage of the group finance system to procure funds. The
Group also utilizes derivative transactions solely to hedge future risks of exchange rate and interest rate fluctuations, but not for speculative purposes.
(2) Types and risks of financial instruments and systems to control those risks
Operating receivables, consisting of notes and accounts receivable, are exposed to credit risks of customers. The Group strives to mitigate these risks bystrict credit control utilizing credit information provided by external credit agencies, as well as by credit insurance and other risk-hedging means.
Short-term loans receivable are mainly the loans to the parent company by the Company, rendered in compliance with the internal regulations forinvestment and management of funds.
Short-term investments in securities and investments in securities consist primarily of held-to-maturity debt securities and equity securities issued bybusiness counterparties of the Group, and are exposed to market price fluctuation risk. Regarding this risk, the Group periodically monitors the fair values ofthe securities and the financial condition of their issuers i.e., business counterparties. In addition, for securities other than held-to-maturity debt securities,
the Group continuously reviews the status of security holdings, taking market conditions and relationships with business counterparties into consideration.

Canon Marketing Japan Inc.

43

Operating payables, consisting of notes and accounts payable, are mainly those due within six months.
The counterparties of derivative transactions are domestic financial institutions with a high credit rating, and derivative transactions are believed to
be exposed to very little default risk of the counterparties.
(3) Supplementary explanation on fair values of financial instruments
The 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. Such values may vary depending on different assumptions, as variables are factored into the calculation of such values.

2. Fair values of financial instruments
The book values of financial instruments in the consolidated balance sheets as of December 31, 2011 and 2010, their fair values, and the differences
between the two are as follows. The table below, however, excludes the financial instruments whose fair values are considered extremely difficult to assess(see Note 2).
Millions of yen

2011Book value(1) Cash and deposits(2) Notes and accounts receivable(3) Short-term investments in securities and investments in securities(4) Short-term loans receivable
Total assets(5) Notes and accounts payable
Total liabilities
Derivative transactions

Fair value¥ 19,304
123,027
86,79240,028¥ 269,151
100,047¥ 100,047¥(2)

Difference¥ 19,304
123,027
86,79240,028¥ 269,151
100,047¥ 100,047
¥
(2)

̶
̶
¥ (0)
̶
¥ (0)
̶
̶
̶

Note: The amounts for derivative transactions shown above are the net of assets and liabilities. Liabilities are shown in parentheses.
Millions of yen

2010
Book value(1) Cash and deposits(2) Notes and accounts receivable(3) Short-term investments in securities and investments in securities(4) Short-term loans receivable
Total assets(5) Notes and accounts payable
Total liabilities¥ 15,975
118,887
97,92140,001¥ 272,784
102,850¥ 102,850

Fair value

Difference

̶
̶
¥ 1
̶
¥ 1
̶
̶

¥ 15,975
118,887
97,92240,001¥ 272,785
102,850¥ 102,850
Thousands of U.S. dollars (Note 1)

2011(1) Cash and deposits(2) Notes and accounts receivable(3) Short-term investments in securities and investments in securities(4) Short-term loans receivable
Total assets(5) Notes and accounts payable
Total liabilities
Derivative transactions

Book value

Fair value$ 247,487
1,577,269
1,112,718
513,180$ 3,450,654
1,282,654$ 1,282,654$(26)$ 247,487
1,577,269
1,112,718
513,180$ 3,450,654
1,282,654$ 1,282,654$(26)

Difference

̶
̶
$ (0)
̶
$ (0)
̶
̶
̶

Notes: 1. Calculation methods of fair values of financial instruments and other matters relating to securities are as below;
Assets(1) Cash and deposits, (2) notes and accounts receivable, and (4) short-term loans receivable
The book values of these assets are used as their fair values, since they are to be settled in the short term and accordingly their fair values
approximate their book values.
(3) Short-term investments in securities and investments in securities
The fair values of equity securities are based on the prices at the security exchanges, and those of debt securities are based on the prices at the
security exchanges or quotations obtained from counterparty financial institutions. Details of securities by holding objectives are described in Note
10 Securities.

44 Canon Marketing Japan Inc.

Liabilities(5) Notes and accounts payable
The book values of these liabilities are used as their fair values, since they are to be settled in the short term and accordingly their fair values
approximate their book values.
Derivative transactions
The fair values of interest rate swap transactions are based on quotations obtained from counterparty financial institutions.

2. The book values of financial instruments whose fair values are considered extremely difficult to assess are as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

2011

2010

Category

2011

Book value

¥ 288
¥ 224

Unlisted equity securities
Investments in partnerships

¥ 617
¥ 196

$ 3,692$ 2,872

These financial instruments are not included in (3) short-term investments in securities and investments in securities in the preceding table of fairvalues, since they do not have market prices and therefore assessment of their fair values is considered to be extremely difficult.

3. The redemption schedule of monetary claims and securities with maturities as of December 31, 2011 and 2010 is summarized as follows:
Millions of yen

2011
Due after 1 year
but within 5 years

Due within 1 year

Cash and deposits
Notes and accounts receivable
Short-term investments in securities andinvestments in securities
Held-to-maturity debt securities(1) Corporate bonds(2) Other
Short-term loans receivable
Total

Due after 5 years
but within 10 years

Due after 10 years¥ 19,304
123,027

̶
̶

̶
̶

̶
̶

̶

̶

̶

̶

̶
83,22040,028¥ 265,579

̶
10
̶
¥ 10

100
103
̶
¥ 203

̶
̶
̶
̶

Millions of yen

2010
Due after 1 year
but within 5 years

Due within 1 year

Cash and deposits
Notes and accounts receivable
Short-term investments in securities andinvestments in securities
Held-to-maturity debt securities(1) Corporate bonds(2) Other
Short-term loans receivable
Total

Due after 5 years
but within 10 years

Due after 10 years¥ 15,975
118,887

̶
̶

̶
̶

̶
̶

̶

̶

̶

̶

1,000
93,60040,001¥ 269,463

̶
̶
̶
̶

̶
̶
̶
̶

̶
̶
̶
̶

Thousands of U.S. dollars (Note 1)

2011
Due after 1 year
but within 5 years

Due within 1 year

Cash and deposits
Notes and accounts receivable
Short-term investments in securities andinvestments in securities
Held-to-maturity debt securities(1) Corporate bonds(2) Other
Short-term loans receivable
Total

Due after 5 years
but within 10 years

Due after 10 years$ 247,487
1,577,269

̶
̶

̶
̶

̶
̶

̶

̶

̶

̶

̶
1,066,923
513,180$ 3,404,859

̶
128
̶
$ 128

1,282
1,321
̶
$ 2,603̶̶̶̶

Canon Marketing Japan Inc.

45

10 Securities
Securities held by the Company and its consolidated subsidiaries as of December 31, 2011 and 2010 were classified and included in the following accounts:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Securities classified as:
Available-for-sale:
Investments in securities
Held-to-maturity:
Cash and cash equivalents
Short-term investments in securities
Investments in securities

2011

2010

2011

¥ 3,871¥ 4,134$

83,20020
213
83,433¥ 87,304

93,6001,000
̶
94,600¥ 98,734

1,066,667
256
2,731
1,069,654$ 1,119,282

49,628The carrying amounts and aggregate fair values of investments in securities at December 31, 2011 and 2010 were as follows:
Millions of yen

2011Book value

Securities classified as:
Held-to-maturity:
Corporate bonds
Other

¥ 203
30
¥ 233

Unrealized gains

Unrealized losses

¥ 1
̶
¥ 1

¥ (1)
̶
¥ (1)

Fair value

¥ 203
30
¥ 233

Millions of yen

2011
Cost

Securities classified as:
Available-for-sale:
Equity securities
Other¥ 3,473153¥ 3,626

Unrealized gains

Unrealized losses

¥ 429
3
¥ 432

¥ (694)(5)¥ (699)Fair value¥ 3,208151¥ 3,359

Millions of yen

2010
Book value

Securities classified as:
Held-to-maturity:
Corporate bonds¥ 1,000¥ 1,000

Unrealized gains

Unrealized losses

̶
̶

¥1
¥1

Fair value¥ 1,001¥ 1,001

Millions of yen

2010
Cost

Securities classified as:
Available-for-sale:
Equity securities
Other

46 Canon Marketing Japan Inc.

¥ 3,57311¥ 3,584

Unrealized gains

¥ 523
̶
¥ 523

Unrealized losses¥ (785)(1)¥ (786)

Fair value¥ 3,31110¥ 3,321

Thousands of U.S. dollars (Note 1)

2011
Book value

Securities classified as:
Held-to-maturity:
Corporate bonds
Other

Unrealized gains$ 2,603384$ 2,987

Unrealized losses

$ 13
̶
$ 13

Fair value$ (13)
̶$ (13)$ 2,603384$ 2,987

Thousands of U.S. dollars (Note 1)

2011
Cost

Securities classified as:
Available-for-sale:
Equity securities
Other

Unrealized gains$ 44,526
1,961$ 46,487

Unrealized losses$ 5,50038$ 5,538

Fair value$ (8,898)(64)$ (8,962)$ 41,128
1,936$ 43,064

Available-for-sale and held-to-maturity securities whose fair values are not readily determinable as of December 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

2011
Available-for-sale:
Equity securities
Investments in investment partnerships
Held-to-maturity:
Certificates of deposit
Commercial paper

¥

288
224

83,200̶¥ 83,712

2011

2010

¥

617
196

92,6001,000¥ 94,413

$

3,692
2,872

1,066,667
̶$ 1,073,231

Employeesʼ Retirement and
11 Severance
Beneﬁts
The Company has a defined contribution pension plan, a pension plan with a market-based variable accumulation rate (quasi-cash balance plan), and a
lump-sum severance payment plan, and its domestic consolidated subsidiaries have defined benefit corporate pension plans, tax-qualified retirement
pension plans and lump-sum severance payment plans.
The liability for employeesʼ retirement benefits as of December 31, 2011 and 2010 consisted of the following:Thousands of
U.S. dollars (Note 1)

Millions of yen

Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial loss
Unrecognized prior service cost
Prepaid pension cost
Allowance for employeesʼ retirement benefits2011¥ 173,070(122,048)(39,227)
25,288176¥ 37,2592010¥ 160,696(121,578)(32,412)29,549251¥ 36,5062011$ 2,218,846(1,564,718)(502,910)
324,205
2,256$ (477,679)

The components of net periodic benefit costs for the years ended December 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Other
Net periodic benefit costs

2011¥ 6,584
3,233(3,829)(4,261)4,014
1,380¥ 7,1212010¥ 6,173
3,472(3,802)(3,864)2,849
1,394¥ 6,2222011$ 84,410
41,449(49,090)(54,628)
51,462
17,692$ 91,295

Canon Marketing Japan Inc.

47

Assumptions used in accounting for the above plans for the years ended December 31, 2011 and 2010 were principally as follows:

2011
1.3 - 2.1%
1.0 - 3.4%
5-14 years
5-14 years

Discount rate
Expected rates of return on plan assets
Amortization period of prior service cost
Recognition period of actuarial loss

2010
1.4 - 2.1%
1.0 - 3.4%
10-14 years
10-14 years

Option12 Stock
Plans
Current Fiscal Year (from January 1, 2011 to December 31, 2011)
1. Description of stock option plans, number of stock options and changes in number of stock options(1) Description of stock option plans
SHOWA INFORMATION SYSTEMS CO., LTD.
2003 Stock Option Plan

Type and number of recipients
Number of stock options by type of stock to be issued (Note)
Grant date
Vesting requirements
Service period
Exercisable period

Directors of the subsidiary 8
Employees of the subsidiary 133
Common stock 320,000
September 29, 2003
Unspecified
Unspecified
From April 1, 2005 to March 31, 2012

Note: The number of stock options is expressed based on the number of shares to be issued upon exercise.

(2) Number of stock options and changes in number of stock options
The following tables are based on the stock options which existed as of December 31, 2011. The number of stock options is expressed based on thenumber of shares to be issued upon exercise.
q Number of stock options
SHOWA INFORMATION SYSTEMS CO., LTD.
2003 Stock Option Plan

Nonvested:
As of December 31, 2010
GrantedForfeited
VestedAs of December 31, 2011
Vested:As of December 31, 2010
VestedExercised
Forfeited
As of December 31, 2011

̶
̶
̶
̶
̶
̶
̶
̶
̶
219,000

Note: The above table shows the outstanding number of stock options only, since SHOWA INFORMATION SYSTEMS CO., LTD. became aconsolidated subsidiary of the Company as of the current fiscal year-end.

w Per unit information
SHOWA INFORMATION SYSTEMS CO., LTD.
2003 Stock Option Plan

Exercise price (Yen)
Average stock price on exercise (Yen)Fair value per unit (as of grant date) (Yen)

48 Canon Marketing Japan Inc.

412
̶
̶

13 Income
Taxes
The normal statutory rate of income taxes was approximately 40.0% for the years ended December 31, 2011 and 2010.
The effective tax rate for the year ended December 31, 2010, differed from the normal statutory tax rate following the adoption of tax-effectaccounting for the reasons outlined in the table below. For the year ended December 31, 2011, the difference between the normal statutory tax rate
(40.0%) and the effective tax rate following the adoption of tax-effect accounting (38.3%) was 1.7 percentage points. Since this difference falls within
5% of the normal statutory tax rate, a breakdown of related items has been omitted.

2010
40.0%
6.9%
4.4%
4.1%
2.8%
(0.6)%(2.0)%
55.6%

Normal statutory tax rate
Change in valuation allowance
Per-capita levy of inhabitants taxes
Amortization of goodwill
Entertainment and other expenses permanently not deductible for tax purposes
Dividend income not taxable
Other
Effective tax rate following the adoption of tax-effect accounting

The effects of significant temporary differences, which resulted in deferred tax assets and liabilities as of December 31, 2011 and 2010, wereas follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

2011
DEFERRED TAX ASSETS:
Loss on disposal and devaluation of inventories
Accrued business tax and business office tax
Accrued bonuses to employees
Excess amortization of software
Loss on impairment of fixed assets
Excess depreciation of fixed assets
Allowance for doubtful receivables
Allowance for employeesʼ retirement benefits
Loss on devaluation of investments in securities
Loss carried forward
Other
Gross deferred tax assets
Less: valuation allowance
Total deferred tax assets
DEFERRED TAX LIABILITIES:Net unrealized loss on available-for-sale securities
Deferred capital gain
Other
Total deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities for land revaluation

2010

2011

¥

535
403
1,468
4,776
284
649
29
13,622
831
3,564
4,581
30,742(5,941)¥ 24,801

¥

334
658
1,256
5,201
723
639
66
14,666
1,524
1,871
4,349
31,287(5,470)¥ 25,817

6,859
5,166
18,821
61,231
3,641
8,321
372
174,641
10,65445,69258,730394,128(76,166)$ 317,962

122
1,876
42
2,040
¥ 22,792
¥
31

¥

69
1,933
31
2,033
¥ 23,784
̶

1,564
24,051
539
26,154$ 292,205
$
398

¥

$

$

(Additional Information)
The “Act to Partially Amend the Income Tax Act and Other Acts in Order to Promote the Construction of Tax Systems in Response to Changes in the
Economic and Social Structure” (Act No. 114 of 2011) and the “Act on Special Measures for Assurance of Financial Resources Necessary to Implement
Measures for Reconstruction after the Great East Japan Earthquake” (Act No. 117 of 2011) were promulgated on December 2, 2011. These acts willalter corporate income tax rates effective from fiscal years beginning on or after April 1, 2012.
Accordingly, the corporate tax rate imposed on the company shall be amended from the fiscal year beginning on or after April 1, 2012. Under the
new amendments, the Japanese statutory corporate tax rate of 40%, which has been applied to the calculation of deferred tax assets and liabilities, shallbe lowered to 38% for temporary differences expected to reverse during the period from the fiscal year starting January 1, 2013 to the fiscal year startingfrom January 1, 2015. Furthermore, as for temporary differences expected to reverse from fiscal years starting January 1, 2016, the Japanese statutory
corporate tax rate of 35% shall be applied.
As a result of this change, net deferred tax assets (deferred tax assets minus deferred tax liabilities) as of December 31, 2011 decreased by¥1,121 million ($14,372 thousand), and deferred income taxes and net unrealized loss on available-for-sale securities for the fiscal year ended
December 31, 2011 increased by ¥1,115 million ($14,295 thousand) and ¥7 million ($90 thousand), respectively.

Canon Marketing Japan Inc.

49

14 Segment
Information
Current Fiscal Year (from January 1, 2011 to December 31, 2011)
1. Segment information(1) Description of reportable segments
Reportable segments are constituent units of the Group for which separate financial information is available and they are subject to periodic reviews by
the Board of Directors to determine the allocation of management resources and assess their respective operating results.
The Company has four reportable segments, Business Solutions, IT Solutions, Consumer Imaging and Industrial Equipment, all of which are
determined based on the organizational structure of the Group and include companies of the Group.
Major companies and organizations in each segment
Reportable segments

Business Solutions

IT Solutions

Consumer Imaging

Industrial Equipment

Major companies / organizations

Canon Marketing Japan Inc.
Business Solutions Company
Canon System & Support Inc.
SHOWA INFORMATION SYSTEMS CO., LTD.
OCE JAPAN CORPORATION
Canon Print Square Inc.
Canon Marketing Japan Inc.
IT Product Promotion Headquarters
Canon MJ IT Group Holdings Inc.
Canon IT Solutions Inc.
Canon Software Inc.
Edifist Learning Inc.
other 9 companies
Canon Marketing Japan Inc.
Consumer Imaging Company
Canon Customer Support Inc.
Canon Field Assist Inc.
withPhoto Inc.
Canon Marketing Japan Inc.
Industrial Equipment Sales Headquarters
ELK CORPORATION
other 2 companies

Major companies and organizations in each segment
Reportable segments

Major products / services

Business Solutions

Business-use multifunctional products, print-on-demand (POD) digitalpresses, personal-use plain-paper copiers, laser printers, large format
inkjet printers, office-use facsimiles, liquid crystal projectors, document
scanners, color cardprinters, color label printers, teleconference system,
network cameras, service and support

IT Solutions

System integration, embedded software, infrastructure & operation,
solution & software products, computer devices, network devices

Consumer Imaging

Digital cameras, interchangeable lenses, digital video cameras, ink-jet
printers, compact photo printers, personal-use scanners, electronic
dictionaries, calculators

Industrial Equipment

Semiconductor manufacturing equipment, medical equipment (digital
X-ray cameras, ophthalmic equipment), medical system, healthcare
related product, broadcasting equipment(2) Methods of measurement for sales, segment income (loss), assets, and other items for reportable segments
Accounting methods for reportable segments are the same as the accounting methods described in Note 2 Summary of significant accounting policies.
Segment income (loss) is measured based on the amount of operating income. Intersegment sales and transfers are based on market prices.

50 Canon Marketing Japan Inc.

(3) Information by reportable segment for the years ended December 31, 2011 and 2010 was as follows:
Millions of yen

2011Year ended or as of December 31,
Reportable Segments

Net sales:
External customers
Intersegment
Total
Segment income (loss)
Segment assets
Other items:
Depreciation and amortization
Amortization of goodwill
Changes in the amount ofproperty, plant and equipment
and intangible assets

Other

Total

Adjustments

Consolidated

Business
Solutions

IT Solutions

Consumer
ImagingIndustrial
Equipment¥ 325,137
̶¥ 325,137¥ 3,489¥ 147,928¥ 97,941
26,531¥ 124,472¥ (3,073)¥ 55,294¥ 179,504
̶¥ 179,504¥ 8,388¥ 62,556¥ 29,610
̶¥ 29,610¥ (246)¥ 23,545

227
̶
¥ 227
¥ (116)¥ 12,300

9,842
7

2,627
899

2,104
̶

575
̶

184
̶

15,332906

̶̶

15,332
906

6,767

5,259

1,584

472

2,103

16,185

̶

16,185¥¥ 632,419
̶
26,531 ¥ (26,531)¥ 658,950(26,531)¥ 8,442̶¥ 301,623 ¥ 146,142¥ 632,419
̶¥ 632,419¥ 8,442¥ 447,765

Notes: 1. “Other” represents operating segments which are not included in the reportable segments, and includes operations such as the shared-services business.
2. Major items of adjustments of segment assets are surplus operating funds (cash, cash equivalents and short-term investments in securities) of the Company and assets ofadministrative departments, totaling ¥146,142 million.
3. Segment income (loss) corresponds to operating income stated on the consolidated statement of income.

Millions of yen

2010

Year ended or as of December 31,
Reportable Segments
Business
Solutions

Net sales:
External customers¥ 342,458
Intersegment
̶Total¥ 342,458
Segment income (loss)¥ 2,281
Segment assets¥ 141,053
Other items:
Depreciation and amortization
9,727
Amortization of goodwill
7
Changes in the amount ofproperty, plant and equipment
8,620
and intangible assets

IT Solutions

Consumer
ImagingIndustrial
Equipment

Other

Total

Adjustments

Consolidated¥ 104,280
28,970¥ 133,250¥ (3,697)¥ 55,341¥ 213,836
̶¥ 213,836¥ 9,834¥ 73,451¥ 13,354̶¥ 13,354¥ (245)¥ 8,532¥ 231 ¥ 674,159
̶
28,970¥ 231 ¥ 703,129¥ (437) ¥ 7,736¥ 9,811 ¥ 288,188

̶¥ (28,970)(28,970)̶
¥ 160,404¥ 674,159
̶¥ 674,159¥ 7,736¥ 448,592

1,682
898

1,855
̶

326
̶

149
̶

13,739905

̶̶

13,739
905

7,203

1,335

201

637

17,996

̶

17,996

Notes: 1. “Other” represents operating segments which are not included in the reportable segments, and includes operations such as the shared-services business.
2. Major items of adjustments of segment assets are surplus operating funds (cash, cash equivalents and short-term investments in securities) of the Company and assets ofadministrative departments, totaling ¥160,404 million.
3. Segment income (loss) corresponds to operating income stated on the consolidated statement of income.

Thousands of U.S. dollars (Note 1)

2011

Year ended or as of December 31,
Reportable Segments
Business
Solutions

IT Solutions

Consumer
ImagingIndustrial
Equipment

Other

Total

Adjustments

Consolidated

Net sales:
External customers$ 4,168,423 $ 1,255,654 $ 2,301,333 $ 379,616 $ 2,910 $ 8,107,936
̶ $ 8,107,936Intersegment
̶
̶
̶
̶
̶
340,141
340,141 $ (340,141)
Total$ 4,168,423 $ 1,595,795 $ 2,301,333 $ 379,616 $ 2,910 $ 8,448,077(340,141) $ 8,107,936
Segment income (loss)$ 44,731 $ (39,397) $ 107,538 $ (3,154) $ (1,487) $ 108,231
̶ $ 108,231
Segment assets$ 1,896,513 $ 708,898 $ 802,000 $ 301,859 $ 157,692 $ 3,866,962 $ 1,873,615 $ 5,740,577
Other items:
Depreciation and amortization̶
126,180
33,67926,974
7,372
2,359
196,564
196,564
Amortization of goodwill
̶
̶
̶
̶
90
11,525
11,615
11,615
Changes in the amount ofproperty, plant and equipment
̶
86,75667,423
20,308
6,051
26,962
207,500
207,500
and intangible assets

Canon Marketing Japan Inc.

51

2. Related information(1) Information by product and service
Disclosure of information by product and service is omitted since the segment information contains the same information.
(2) Information by geographical area
q Sales
Disclosure of information on sales by geographical area is omitted since sales to domestic external customers accounts for more than 90% ofconsolidated net sales.
w Property, plant and equipment
Disclosure of information on property, plant and equipment by geographical area is omitted since the amount of domestic property, plant andequipment accounts for more than 90% of total property, plant and equipment recorded on the consolidated balance sheet.
(3) Information by major customers
Disclosure of information by major customers is omitted since no customer accounts for 10% or more of consolidated net sales.

3. Information on impairment loss on property, plant and equipment by reportable segment
Millions of yen

2011Year ended December 31,
Reportable Segments
Business
Solutions

Impairment loss

¥ 156

IT Solutions¥ 140

Consumer
Imaging¥ 44

Industrial
Equipment

Other

¥ 144

Total

̶

Adjustments

Consolidated

̶

¥ 484

Adjustments

Consolidated

̶

¥ 493

Adjustments

Consolidated̶$ 6,205

Adjustments

Consolidated

̶
̶

¥ 906
¥ 524

Adjustments

Consolidated

̶
̶

¥ 905
¥ 1,430¥ 484

Note: “Other” represents operating segments which are not included in the reportable segments and includes operations such as the shared-services business.
Millions of yen

2010

Year ended December 31,
Reportable Segments
Business
Solutions

Impairment loss̶

IT Solutions

Consumer
Imaging̶¥0Industrial
Equipment

̶

Other

Total

¥ 493

¥ 493

Thousands of U.S. dollars (Note 1)

2011

Year ended December 31,
Reportable Segments

Impairment loss

Business
Solutions

IT Solutions$ 2,000$ 1,795

Consumer
Imaging$ 564

Industrial
Equipment

Other$ 1,846

Total

̶$ 6,205

4. Information on amortization and balance of goodwill by reportable segment
Millions of yen

2011Year ended or as of December 31,
Reportable Segments
Business
Solutions

Amortization of goodwill
Goodwill at December 31, 2011

¥7
¥1

IT Solutions

Consumer
Imaging

¥ 899
¥ 523

̶
̶

Industrial
Equipment

Other

̶
̶

Total

̶
̶

¥ 906
¥ 524

Millions of yen

2010

Year ended or as of December 31,
Reportable Segments
Business
Solutions

Amortization of goodwill
Goodwill at December 31, 2010

52 Canon Marketing Japan Inc.

¥7
¥8

IT Solutions¥ 898¥ 1,422

Consumer
Imaging̶̶Industrial
Equipment

̶
̶

Other

Total

̶
̶

¥ 905
¥ 1,430

Thousands of U.S. dollars (Note 1)

2011

Year ended or as of December 31,
Reportable Segments
Business
Solutions

Amortization of goodwill
Goodwill at December 31, 2011

Consumer
Imaging

IT Solutions

$ 90
$ 13

$ 11,525$ 6,705

̶
̶

Other

Industrial
Equipment

̶
̶

Total

̶
̶

Adjustments

Consolidated̶̶$ 11,615$ 6,718$ 11,615$ 6,718

5. Information on gain on negative goodwill by reportable segment
Current Fiscal Year (from January 1, 2011 to December 31, 2011)
The Company acquired shares of ELK CORPORATION, Océ-Japan Corporation and SHOWA INFORMATION SYSTEMS CO., LTD., resulting in these companies
becoming consolidated subsidiaries, and ¥4,492 million ($57,590 thousand) of negative goodwill was recognized. The negative goodwill was recorded as
an other income (gain on negative goodwill) for the current fiscal year, but was not allocated to individual reportable segments.
Previous Fiscal Year (from January 1, 2010 to December 31, 2010)
No relevant information to be reported.
(Additional Information)
Effective the year ended December 31, 2011, the Company adopted the “Accounting Standard for Disclosures about Segments of an Enterprise andRelated information” (ASBJ Statement No. 17, revised March 27, 2009) and “Guidance on the Accounting Standard for Disclosures about Segments ofan Enterprise and Related information” (ASBJ Guidance No. 20, issued March 21, 2008).
Previous Fiscal Year (from January 1, 2010 to December 31, 2010)(a) Business segment information
Millions of yen

2010

Year ended or as of December 31,

Net sales:
External customers
Intersegment
Total
Operating expenses
Operating income (loss)
Total assets
Depreciation and amortization
Loss on impairment of fixed assets
Capital expenditures

Business Solutions

Consumer Equipment

Industrial Equipment

Total

Corporate andeliminations

Consolidated¥ 440,732
̶
440,732
441,599¥(867)¥ 205,158
11,463493
16,315¥ 219,781
̶219,781210,597¥ 9,184¥ 74,126
1,922
̶
1,457

¥ 13,646
̶
13,646
14,227¥ (581)¥ 8,688355
̶
224¥ 674,159
̶
674,159
666,423¥ 7,736¥ 287,972
13,740493
17,996̶̶̶̶̶¥ 160,620
̶̶̶¥ 674,159
̶
674,159
666,423¥ 7,736¥ 448,592
13,740493
17,996(b) Geographic segment information
As international sales of the Company and its consolidated subsidiaries for the year ended December 31, 2010 constituted less than 10% of consolidated
net sales, geographic segment information has not been disclosed.
(c) Overseas sales
Overseas sales amounted to less than 10% of consolidated net sales for the year ended December 31, 2010. For this reason, overseas sales have notbeen disclosed.

Canon Marketing Japan Inc.

53

with
15 Transactions
Afﬁliated Companies
Current Fiscal Year (from January 1, 2011 to December 31, 2011)
Parent company and major corporate stockholders, etc.
Category

Name ofcompany,etc.

ParentCanon Inc.
company

Percentage
possession of
voting rights(Ownership)(%)

Related contents

Capital orinvestment
Address
capital(Millions of yen)

Business
contents or
occupation

Ohta-ku,¥ 174,762
Tokyo

Manufactureand sale ofbusiness(Ownership) Two holdequipment,
Direct 55.3% concurrent
consumerIndirect 0.0% positions
equipment,
and industrial
equipment

Board
members
holding
concurrent
positionsContents oftransactions

Businessrelationships

Purchases of
products
Manufactureof products
sold by
Canon MJ

Operatingtransactions

Transaction
amount(Millions of yen)

Subject

Balance at endof fiscal year
(Millions of yen)

¥ 235,276

Accounts
payable¥ 69,824

4,697

Accounts
receivableand others¥ 1,959¥ 40,000

Short-term
loans¥ 40,000

Sales ofbusiness
equipment and ¥consumables,
etc.

Non-operating Loans oftransactions capital

Note: Transaction amounts do not include sales tax, etc., and the balance of credit and debt includes sales tax, etc.

Transaction conditions and policies for deciding transaction conditions, etc.
(1) Purchases of products are decided based on price negotiations each fiscal year, after considering market prices and the affiliated companyʼs
proposals regarding desired prices.
(2) Sales of business equipment and consumables, etc. are subject to similar conditions as general transactions.
(3) With regard to loans of capital, interest rates on loans are decided rationally after considering market interest rates. Furthermore, collateral is
not accepted.
Previous Fiscal Year (from January 1, 2010 to December 31, 2010)
Parent company and major corporate stockholders, etc.
Category

Name ofcompany,etc.

ParentCanon Inc.
company

Percentage
possession of
voting rights(Ownership)(%)

Related contents

Capital orinvestment
Address
capital(Millions of yen)

Business
contents or
occupation

Ohta-ku,Tokyo

Manufactureand sale ofbusiness(Ownership) Two holdequipment,
Direct 55.3% concurrent
consumerIndirect 0.0% positions
equipment,
and industrial
equipment¥174,762

Board
members
holding
concurrent
positionsContents oftransactions

Businessrelationships

Purchases of
products
Manufactureof products
sold by
Canon MJ

Operatingtransactions

Transaction
amount(Millions of yen)

Subject

Balance at endof fiscal year
(Millions of yen)

¥ 267,952

Accounts
payable¥ 78,498

8,183

Accounts
receivableand others¥ 3,819¥ 40,000

Short-term
loans¥ 40,000

Sales ofbusiness
equipment and ¥consumables,
etc.

Non-operating Loans oftransactions capital

Note: Transaction amounts do not include sales tax, etc., and the balance of credit and debt includes sales tax, etc.

Transaction conditions and policies for deciding transaction conditions, etc.
(1) Purchases of products are decided based on price negotiations each fiscal year, after considering market prices and the affiliated companyʼs
proposals regarding desired prices.
(2) Sales of business equipment and consumables, etc. are subject to similar conditions as general transactions.
(3) With regard to loans of capital, interest rates on loans are decided rationally after considering market interest rates. Furthermore, collateral is
not accepted.

54 Canon Marketing Japan Inc.

16 Business
Combinations
Current Fiscal Year (from January 1, 2011 to December 31, 2011)
Business Combination through Acquisition
Acquisition of ELK CORPORATION
1. Name and business activities of the acquired company, principal reasons for business combination, date of business combination, legal form ofbusiness combination, name of company after business combination, percentage of voting rights acquired, and principal reasons for determining theacquiring company(1) Name and business activities of the acquired company
Name: ELK CORPORATIONBusiness activities: Sales and production of medical supplies and medical equipment(2) Principal reasons for business combination
ELK CORPORATION has fostered know-how in the medical field and developed its own sales channels. It also has its own sales methods based on themarket-in approach, which considers needs of customers and users first, and reflects them in the development and market introduction of products,
both in-house and with the cooperation of manufacturers. The Company concluded that both companies should aim at development and growth in a
direction that will result in joint enhancement of corporate value, by organically harmonizing ELK CORPORATIONʼs strengths as “a creative trading
company” and the Groupʼs resources, and strengthening functions of the medical imaging business, healthcare business, infection control business,overseas business, and customer support.
(3) Date of business combination
June 15, 2011(4) Legal form of business combination
Acquisition of shares(5) Name of company after business combination
Unchanged(6) Percentage of voting rights acquired
100.00%(7) Principal reasons for determining the acquiring company
Since the Company delivered the consideration of the acquired shares which consisted of cash only, the Company is determined as the acquiring company.

2. Period of the acquired companyʼs financial results included in the consolidated financial statements
From April 1, 2011 to December 31, 2011
3. Acquisition cost of the acquired company and its breakdown
Consideration paid for the acquisition¥3,796 million ($48,666 thousand)Expenses directly required for the acquisition¥213 million ($2,731 thousand)Acquisition cost
¥4,009 million ($51,397 thousand)4. Amount and cause of gain on negative goodwill(1) Amount of gain on negative goodwill incurred¥2,482 million ($31,821 thousand)(2) Cause of gain on negative goodwill
The net amount of acquired assets and liabilities exceeded the acquisition cost of the acquired shares and was recognized as gain on negative goodwill.

5. Amounts of assets and liabilities acquired on the day of business combination
Current assets¥11,520 million ($147,692 thousand)Non-current assets¥5,976 million ($76,616 thousand)Total assets¥17,496 million ($224,308 thousand)Current liabilities¥6,528 million ($83,693 thousand)Long-term liabilities¥4,467 million ($57,269 thousand)Total liabilities¥10,995 million ($140,962 thousand)Canon Marketing Japan Inc.

55

6. Estimated impact on the consolidated statement of income for the current fiscal year assuming that the business combination had been completed
on the commencement date of the fiscal year
Net sales¥11,316 million ($145,077 thousand)Operating income¥223 million ($2,859 thousand)Net income¥184 million ($2,359 thousand)(Calculation method of estimated amounts)
The above estimated amounts were calculated based on the amounts of consolidated net sales and income of ELK CORPORATION from January
1, 2011 to March 31, 2011.
The above estimated amounts have not been audited.
Business Combination through Acquisition
Acquisition of SHOWA INFORMATION SYSTEMS CO., LTD.
1. Name and business activities of the acquired company, principal reasons of business combination, date of business combination, legal form ofbusiness combination, name of company after business combination, percentage of voting rights acquired, and principal reasons for determining theacquiring company(1) Name and business activities of the acquired company
Name: SHOWA INFORMATION SYSTEMS CO., LTD.
Business activities: Development and sales of high-speed kanji information processing and other systems(2) Principal reasons of business combination
The Company concluded that the strengthened capital ties with SHOWA INFORMATION SYSTEMS CO., LTD., as well as early establishment of an
operating structure based on a firm alliance to utilize management resources of both companies, will benefit business expansion in the production
market, and eventually enhancement of corporate value and sustainable growth of both companies.
(3) Date of business combination
December 28, 2011(4) Legal form of business combination
Acquisition of shares(5) Name of company after business combination
Unchanged(6) Percentage of voting rights acquired
Percentage share of voting rights owned before business combination
Percentage share of voting rights additionally acquired
Percentage share of voting rights after acquisition

0.20%
90.58%
90.78%(7) Principal reasons for determining the acquiring company
Since the Company delivered the consideration of the acquired shares, which consisted of cash only, the Company is determined to be theacquiring company.

2. Period of the acquired companyʼs financial results included in the consolidated financial statements
The consolidated statement of income for current fiscal year does not include the financial results of SHOWA INFORMATION SYSTEMS CO., LTD.
3. Acquisition cost of the acquired company and its breakdown
Consideration of the acquisition
Fair value as of the day of business combination of common stock of SHOWA INFORMATION SYSTEMS CO., LTD.
owned before the business combination¥5 million ($64 thousand)Fair value of common stock of SHOWA INFORMATION SYSTEMS CO., LTD.
acquired on the day of business combination¥2,164 million ($27,744 thousand)Expenses directly required for the acquisition¥94 million ($1,205 thousand)Acquisition cost
¥2,263 million ($29,013 thousand)
4. Difference between the acquisition cost of the acquired company and the total of each acquisition transaction amount
Gain on step acquisition¥2 million ($26 thousand)
5. Amount and cause of gain on negative goodwill(1) Amount of gain on negative goodwill incurred¥1,980 million ($25,385 thousand)

56 Canon Marketing Japan Inc.

(2) Cause of gain on negative goodwill
The net amount of acquired assets and liabilities exceeded the acquisition cost of the acquired shares, and the exceeding amount was recognized asgain on negative goodwill.

6. Amounts of assets and liabilities acquired on the day of business combination
Current assets¥7,361 million ($94,372 thousand)Non-current assets¥1,816 million ($23,282 thousand)Total assets¥9,177 million ($117,654 thousand)Current liabilities¥3,202 million ($41,051 thousand)Long-term liabilities¥1,282 million ($16,436 thousand)Total liabilities¥4,484 million ($57,487 thousand)
7. Allocation of acquisition cost
Since the allocation of acquisition cost has not been completed as of the current fiscal year-end, the acquisition was temporarily accounted for basedon the reasonable information available on that date.
8. Estimated impact on the consolidated statement of income for the current fiscal year assuming that the business combination had been completed
on January 1, 2011.
Net sales¥10,428 million ($133,692 thousand)Operating income¥23 million ($295 thousand)Net loss¥247 million ($3,167 thousand)(Calculation method of estimated amounts)
The above estimated amounts were calculated based on the amounts of net sales and income of SHOWA INFORMATION SYSTEMS CO., LTD. fromJanuary 1, 2011 to December 31, 2011.
The above estimated amounts have not been audited.
Previous Fiscal Year (from January 1, 2010 to December 31, 2010)
Business Transfer
1. Name of the company to which the business was transferred, content of transferred business, principal reasons, the date, and outline of the business
transfer including its legal form
(1) Name of the company to which the business was transferred
Canon Inc.
(2) Content of transferred business
Semiconductor equipment business of the Company(3) Principal reasons of business transfer
The Companyʼs activities in the area of semiconductor equipment involved sales, service and support, primarily in relation to lithography equipment
for semiconductors and LCD substrates. The business of the Company in this area was transferred to Canon Inc., the parent company, because of theneed for the Canon Group to establish an integrated structure covering all stages from development and design through to manufacture, sales, service
and support, in order to respond flexibly in the rapidly changing market for semiconductor equipment.
(4) Date of business transfer
January 1, 2010(5) Outline of the business transfer including its legal form
Business transfer for which the consideration received consisted of cash only

2. Outline of accounting procedures applied(1) Amount of transferred profit and loss
¥400 million(2) Book values and principal assets and liabilities relating to the transferred businessMillions of yen

Current assets
Fixed assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities¥ 1,371713¥ 2,084
¥ 42
665
¥ 707

Canon Marketing Japan Inc.

57

(3) Business segment in which transferred business had been included
Industrial equipment(4) Estimated amounts of profit and loss attributable to the transferred business recorded in the consolidated statement of income for the fiscal year
ended December 31, 2010
Net sales¥ ̶million
Operating income¥ ̶million
Transaction under Common Control
1. Name and business activities of merger parties(1) Merging company (sole parent company after share-for-share exchange)
Name: Canon Marketing Japan Inc.
Business activities: Marketing of business equipment, consumer equipment and industrial equipment, and provision of related solutions(2) Merged company (wholly-owned subsidiary after share-for-share exchange)
Name: Canon Software Inc.
Business activities: Provision of information services, sales of information processing equipment and related software

2. Legal form of merger
Share-for-share exchange
3. Name of company after merger
Unchanged
4. Outline of the merger including its purpose
A share-for-share exchange was implemented as of May 1, 2010, resulting in the acquisition of Canon Software Inc. as a wholly-owned subsidiaryof the Company. The purpose of the merger was to accelerate the development of the IT Solutions Business as a core business segment, and create
the capacity to provide services of higher quality to customers by realizing optimal use of the technology and expertise accumulated by Canon Software
Inc. within the Group.
5. Outline of accounting procedures applied
The merger was accounted for as a transaction under common control, generating no goodwill, under the provisions of the “Accounting Standard forBusiness Combinations” (ASBJ Statement No. 21, revised on December 26, 2008) and the “Implementation Guidance on Accounting Standard forBusiness Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10, revised on December 26, 2008).
6. Details of additional acquisition of shares of the subsidiary(1) Details of the acquisition cost
Common stock of the Company¥3,925 million
Acquisition cost
¥3,925 million(2) Share exchange ratio by type of shares, calculation method of share exchange ratio, number of shares granted, and valuation of the shares granted
1) Type of shares and share exchange ratio
Type of shares: Common stock
Name of company

Canon Marketing Japan Inc.
Canon Software Inc.

Share exchange ratio

10.432) Calculation method of share exchange ratio
Each company has been analyzed using the market share price method, comparisons with similar listed companies and the discounted cash flow
method. The results of all three analyses were taken into account in the calculation of the share exchange ratio.
3) Number of shares granted
4,201,096 shares
4) Valuation of the shares granted¥3,925 million

58 Canon Marketing Japan Inc.

Retirement
17 Asset
Obligations
Current Fiscal Year (from January 1, 2011 to December 31, 2011)
The Group recognizes restoration obligations under real estate rental agreements of buildings and other real estates as asset retirement obligations.
Instead of recognizing liabilities, the Group reasonably estimates the uncollectible amount of lease deposits relating to the real estate rental
agreements, and accounts for the portion of such estimated amount attributable to the current fiscal year as an expense.
The outstanding balance of lease deposits as of December 31, 2011 includes ¥2,045 million ($26,218 thousand) considered uncollectible.
<Change in Accounting Standards>
Effective the year ended December 31, 2011, the Company has adopted the “Accounting Standard for Asset Retirement Obligations” (ASBJ
Statement No. 18, issued March 31, 2008) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance No. 21,
issued March 31, 2008).
As a result of this change, operating income and income before income taxes and minority interests for the fiscal year ended December 31, 2011
decreased by ¥288 million ($3,692 thousand) and ¥1,462 million ($18,744 thousand), respectively.

Obligations, Short-Term Loans Payable,
18 Lease
Long-Term Loans Payable and Deposits
Lease obligations, short-term loans payable, long-term loans payable and deposits at December 31, 2011 and 2010 consisted of the following:
Average interest rate

Lease obligations
Current portion of lease obligations
Short-Term loans payable
Long-Term loans payable
Deposits

1.6%
1.5%
0.0%

Thousands of
U.S. dollars (Note 1)

Millions of yen

2011¥ 1,758605¥ 1,153
1,616
565
3,341
¥ 6,6752010¥ 1,501(432)¥ 1,069̶̶
3,069¥ 4,1382011$ 22,538
7,756$ 14,782
20,718
7,244
42,833$ 85,577

19 Bonds
PayableBonds payable at December 31, 2011 and 2010 consisted of the following:Thousands of
U.S. dollars (Note 1)

Millions of yen

Unsecured 1.4% corporate bonds due through August 2012
Unsecured 0.8% corporate bonds due through February 2013
Total

2011
¥ 1,019156¥ 1,175

2010
̶
̶
̶

2011
$ 13,064
2,000$ 15,064

Note: Both bonds payable were issued by ELK CORPORATION.

20 Stockholdersʼ
EquityThe Corporate Law of Japan went into effect on May 1, 2006, replacing the Commercial Code. It is applicable to events or transactions of companies inJapan occurring on or after May 1, 2006 and for fiscal years ending on or after May 1, 2006.
The Corporate Law stipulates that the amounts actually paid in or provided in consideration for newly issued stock shall be recorded as common
stock. However, it also allows 50% or less of such amounts to be recorded as additional paid-in capital.
Under the Corporate Law, a company that meets certain criteria can establish its Articles of Incorporation so that dividends can be paid to its existing
stockholders by resolution of the Board of Directors, without requiring the approval of a resolution at a general stockholdersʼ meeting. The Company has
met said criteria and amended its Articles of Incorporation at the annual general stockholdersʼ meeting for fiscal 2006. The Corporate Law provides thatan amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (otherthan the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve
equals 25% of the common stock account. However, such appropriation cannot be made if the aggregate amount of the legal reserve exceeds 25% ofcommon stock (i.e. the aggregate amount of the Companyʼs legal reserve has already reached 25% of its common stock).

Canon Marketing Japan Inc.

59

21 Subsequent
Events(Subsequent to Current Fiscal Year, from January 1 to December 31, 2011)
Conclusion of Share for Exchange Agreement
At meetings held on January 26, 2012, the Boards of Directors of the Company and SHOWA INFORMATION SYSTEMS CO., LTD. resolved to
implement a share exchange with a view to make SHOWA INFORMATION SYSTEMS CO., LTD. a wholly owned subsidiary of the Company. A shareexchange agreement was concluded as of the same day.
(1) Name and business activities of merger parties
q Merging company (sole parent company after share exchange)
Name: Canon Marketing Japan Inc.
Business activities: Marketing of business equipment, consumer equipment and industrial equipment, and provision of related solutions
w Merged company (wholly owned subsidiary after share exchange)
Name: SHOWA INFORMATION SYSTEMS CO., LTD.
Business activities: Development and sales of high-speed kanji-character processing and other systems(2) Legal form of business combination
Share exchange(3) Name of company after business combination
Unchanged(4) Outline of transaction including its purpose
A share exchange will be implemented, resulting in the acquisition of SHOWA INFORMATION SYSTEMS CO., LTD. as a wholly owned subsidiaryof the Company. The purpose of this share exchange is to create and realize business synergies by integrating the business operations of thetwo companies.
(5) Date of share exchange
May 1, 2012 (effective date)(6) Items relating to additional acquisition of shares of the subsidiaryq Acquisition cost
Acquisition cost of shares: To be determinedw Share exchange ratio by type of shares, calculation method of share exchange ratio, number of shares granted, and valuation of the shares granted
1. Type of shares and share exchange ratio
Type of shares: Common stock
Name of company

Canon Marketing Japan Inc.
SHOWA INFORMATION SYSTEMS CO., LTD.

Share exchange ratio

1
0.22

2. Calculation method of share exchange ratio
Each company has been analyzed using the market share price method, comparisons with similar listed companies and discounted cash flow
method. The results of all three analyses were taken into account in the calculation of the share exchange ratio.
3. Number of shares granted
252,495 shares (tentative)
4. Valuation of the shares granted
To be determined(7) Amounts, cause and amortization method of goodwill (or negative goodwill) to be incurred
The amount, cause and amortization method of goodwill (or negative goodwill) to be incurred due to the share exchange have not been determined
as of the date of this report.

60 Canon Marketing Japan Inc.

(Subsequent to Previous Fiscal Year, from January 1 to December 31, 2010)
Damage Resulting from the Great East Japan Earthquake
The Group suffered damage to inventories and equipment in some of its buildings as a result of the Great East Japan Earthquake that occurred on
March 11, 2011.
(1) Level of damageq Human impact
The safety of all Group employees has been confirmed, and there was no significant human impact.
w Status of business sites, etc.
Merchandise at distribution centers in Tohoku and Kanto suffered some damage including breakage as a result of falling. The buildings and otherfacilities also suffered some partial damage.
(2) Amount of losses
The amount of loss is currently being calculated, and the amount has not yet been determined.
(3) Significant effects of the disaster on business activities, etc.
In addition to the damage listed above, business activities could also be affected by the partial suspension of operations by Canon, Inc. and its
production subsidiaries, as well as damage suffered by customers and business partners in the affected area.

Canon Marketing Japan Inc.

61

Report of Independent Auditors

62 Canon Marketing Japan Inc.

Corporate Data

Headquarters

Number of Employees

Canon S Tower, 16-6, Konan 2-chome,
Minato-ku, Tokyo 108-8011, Japan

Consolidated: 18,861
Non-consolidated: 5,244(As of December 31, 2011)

Date of Establishment
February 1, 1968

Capital Stock¥73,303,082,757

Stock

Main Locations of Operations
Headquarters, Makuhari office and branches(Sapporo, Sendai, Nagoya, Osaka, Hiroshima
and Fukuoka)(As of April 1, 2012)

151,079,972 shares

Stock Listing
Canon Marketing Japan Inc.ʼs common
stock is traded on the First Section of theTokyo Stock Exchange.

Major Stockholders
Name of stockholder

Canon Inc.
Canon Marketing Japan Inc.
Canon Marketing Japan Group Employee Stock Ownership Association
Japan Trustee Services Bank, Ltd. (Trust Account)
The Master Trust Bank of Japan, Ltd.
The Bank Of New York, Treaty JASDEC AccountCanon Marketing Japan Group Business Partner Stock Ownership Association
State Street Bank and Trust Company
Mizuho Bank, Ltd.
NORTHERN TRUST CO AVFC RE NORTHERN TRUST GUERNSEY NON TREATY CLIENTS

Number of shares held
(thousands)

Percentage of ownership(%)

75,70813,895
6,766
2,812
2,735
2,567
1,209
1,183
1,001
968

50.11
9.20
4.48
1.86
1.81
1.70
0.80
0.79
0.66
0.64

Canon MJ Investor Relations Website
Canon MJ maintains a comprehensive Investor Relations website to further
facilitate communication with stockholders. The website contains:• News for investors• IR calendar• Financial results and other financial information• Information on the Three-Year Management Plan (fiscal year 2012–2014)• Stock information• Annual reports

http://cweb.canon.jp/eng/ir/
Canon Marketing Japan Inc.

63

Canon Marketing Japan Inc.
Headquarters
Canon S Tower, 16-6, Konan 2-chome,
Minato-ku, Tokyo 108-8011, Japan
Canon Marketing Japan Website(Investor Relations)
http://cweb.canon.jp/eng/ir/

This annual report was printed on theCanon imagePRESS C7000VP high-speed,
high-resolution printer.