Edgar Filing: CANON INC

e6vk

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of October 2004

CANON INC.

(Translation of registrant’s name into English)

30-2, Shimomaruko 3-Chome, Ohta-ku, Tokyo 146-8501, Japan

(Address of principal executive offices)

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

Form 20-F þ Form 40-F o

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

Yes o No þ

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

TABLE OF CONTENTS


SIGNATURES
CONSOLIDATED RESULTS FOR THE THIRD QUARTER AND THE NINE MONTHS ENDED SEPTEMBER 30, 2004
Operating Results and Financial Conditions

SIGNATURES

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


		CANON INC. (Registrant)
Date October 29, 2004
	By	/s/ Hiroshi Kawashimo (Signature)*
		Hiroshi Kawashimo General Manager, Finance Division Canon Inc.

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

The following material is included.

CONSOLIDATED RESULTS FOR THE THIRD QUARTER AND THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(CANON LOGO)

CONSOLIDATED RESULTS FOR THE THIRD QUARTER AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2004

October 28, 2004

CONSOLIDATED RESULTS FOR THE THIRD QUARTER

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

Actual

Three months

ended

Change (%)

ended

September 30, 2004

September 30, 2003

September 30, 2004

(Unaudited)

Net sales

838,304

767,599

9.2

7,552,288

Operating profit

158,299

125,562

26.1

1,426,117

Income before income taxes and minority interests

162,629

117,336

38.6

1,465,126

Net income

101,780

73,005

39.4

916,937

Earnings per share:

— Basic

114.79

83.03

38.3

1.03

— Diluted

114.62

82.27

39.3

1.03

CONSOLIDATED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004

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

Actual

Projected

Nine months

Year ending

ended,

ended

Change (%)

ended

December 31,

Change (%)

September 30, 2004

September 30, 2003

September 30, 2004

2004

(Unaudited)

Net sales

2,486,724

2,303,187

8.0

22,402,919

3,470,000

8.5

Operating profit

411,675

341,536

20.5

3,708,784

535,000

17.7

Income before income taxes and minority interests

422,603

332,842

27.0

3,807,234

548,000

22.3

Net income

262,556

200,772

30.8

2,365,369

339,000

22.9

Earnings per share:

— Basic

296.70

228.58

29.8

2.67

382.25

21.8

— Diluted

295.80

226.26

30.7

2.66

—

Actual

As of

September 30,

December 31,

Change (%)

September 30,

2004

2003

2004

(Unaudited)

Total assets

3,450,304

3,182,148

8.4

31,083,820

Stockholders’ equity

2,138,967

1,865,545

14.7

19,269,973

Notes: 1.		Canon’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America.
2.		U.S. dollar amounts are translated from yen at the rate of JPY111=U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of September 30, 2004, solely for the convenience of the reader.


Canon Inc.		30-2, Shimomaruko 3-chome, Ohta-ku,
Headquarter office		Tokyo 146-8501, Japan

		Phone: +81-3-3758-2111

- 1 -

Operating Results and Financial Conditions

2004 Third Quarter in Review

Looking back at the global economy in the third quarter of 2004, the U.S. economy displayed growth as employment conditions continued to improve, consumer spending increased modestly, and private sector capital spending continued to grow, fueled by an upturn in corporate earnings. Economic growth in Europe remained moderate through most of the third quarter of 2004 due to sluggish consumer spending resulting from listless employment conditions and a slowdown in export sales, which had been supporting an economic recovery. In Asia, China continued to achieve high economic growth, driven by strong consumer spending and increased capital investment, and other Asian economies were also in recovery mode. In Japan, the economy continued to recover gradually amid increased export sales and capital investment, along with stable consumer spending sustained by improved employment conditions.

As for the markets in which the Canon Group operates, although sales of digital cameras slowed in Japan due to a rising household penetration rate, demand overseas, especially in Europe, continued to grow significantly during the term. While demand for network digital multifunction devices (MFDs) remained strong as the office market moves toward multifunctionality and color, computer peripherals, including printers, struggled amid severe price competition and the shift in demand toward lower priced models offering improved functionality. In the field of optical equipment, capital spending for semiconductor-production equipment recovered strongly owing to such factors as the high rate of capacity utilization by semiconductor manufacturers, and the sustained high price of memory devices resulting from replacement demand for personal computers and the significant growth in demand for digital consumer electronics. Moreover, increased demand for liquid crystal display (LCD) televisions fueled growth in the market for projection aligners, which are used in the production of LCDs. The average value of the yen for the third quarter was ¥109.97 to the U.S. dollar and ¥134.37 to the euro, representing a year-on-year increase of 7% against the U.S. dollar, and a decrease of 2% against the euro.

Amid these conditions, Canon’s consolidated net sales for the third quarter increased by 9.2% from the year-ago period to ¥838.3 billion (U.S.$7,552 million), boosted by a significant rise in sales of digital cameras and color network MFDs, along with a substantial increase in sales of laser beam printers, semiconductor-production equipment and projection aligners used in the production of LCDs. Net income for the third quarter recorded an all-time high of ¥101.8 billion (U.S.$917 million), a year-on-year increase of 39.4%. Despite ongoing production-reform efforts during the term and the timely launch of competitive new products, the gross profit ratio decreased 1.8% from the year ago period to 48.9%, mainly due to severe price competition and the appreciation of the yen against the U.S. dollar. Although R&D expenditures grew by ¥2.3 billion (U.S.$21 million) to ¥59.4 billion (U.S.$535 million) along with increased advertising and sales-promotion spending, selling, general and administrative expenses for the third quarter decreased 4.5% year on year, mainly due to other selling, general and administrative expenses remaining at a lower level than the year-ago period coupled with a ¥13.8 billion (U.S.$124 million) gain realized from the return to the Japanese Government of the substitutional portion of the employees pension funds (EPF) that the company and certain of its subsidiaries in Japan had operated. Consequently, operating profit in the third quarter totaled ¥158.3 billion (U.S.$1,426 million), a substantial year-on-year increase of 26.1%. Other income (deductions) improved by ¥12.6 billion (U.S.$113 million), attributable to a ¥13.3 billion (U.S.$120 million) decrease in currency exchange losses. As a result, income before income taxes and minority interests in the third quarter totaled ¥162.6 billion (U.S.$1,465 million), a year-on-year increase of 38.6%. With an effective tax rate during the quarter of 34.4%, which was 1.4% lower compared with the year before, net income for the third quarter totaled ¥101.8 billion (U.S.$917 million), reaching the ¥100 billion mark for the first time for a quarterly result.

Basic earnings per share for the quarter was ¥114.79 (U.S.$1.03), a year-on-year increase of ¥31.76 (U.S.$0.29).

- 2 -

Results by Product Segment

In the business machine segment, demand for network digital MFDs, which are grouped in the office imaging products sub-segment, indicates a shift from monochrome to color models, as well as a trend toward higher-end features. Additionally, the Color imageRUNNER C3200/iR C3200N, Canon’s first color offering in the powerful imageRUNNER-series lineup, continued to sell well in both the domestic Japanese and overseas markets. The iR C3100 and the high-end model iR C6800, introduced in Japan in the second half of 2003, were also launched in Europe and the United States in the first half of 2004 and have also been well received in these markets. The iR C3220/iR C3220N and iR C2620/iR C2620N, which succeed the iR C3200, were just released in September and have also been well received. Among monochrome network digital MFDs, such low-end models as the iR1600/2000 series recorded considerable sales increases, while mid-level models, such as the iR2200 series, and high-end models, such as the iR5000 series, also achieved strong sales. Overall, sales of office imaging products for the third quarter realized a year-on-year increase of 2.5%. In the field of computer peripherals, laser beam printers enjoyed a year-on-year increase in unit sales of nearly 15%, with color models showing a significant increase in sales and monochrome systems, particularly personal-use models, also displaying growth. Despite the effects of the yen’s appreciation against the U.S. dollar and a shift in demand toward lower priced models in the monochrome segment, laser beam printer sales substantially increased due to an increase in sales of color models,. Although inkjet printers recorded an approximately 15% increase in unit sales with the i560 and i860 models selling briskly, especially in Japan and Europe, along with the MultiPASS MP360/MP370 high-speed multifunction systems, sales value decreased slightly due to price competition. As a result, despite the effect of appreciation of the yen against US dollar, sales of computer peripherals in the third quarter increased by 9.7%. Sales of business information products, including computers, micrographics and calculators, decreased by 10.1% due to the intentional curtailing of personal computer sales in the domestic market. Collectively, sales of business machines in the third quarter totaled ¥580.0 billion (U.S.$5,225 million), a year-on-year increase of 5.2%. Despite the effects of the stronger yen, the gross profit ratio remained at the year-ago level, supported by cost reduction efforts, and the sales-to-expense ratio declined, resulting in third quarter operating profit of ¥139.6 billion (U.S.$1,258 million) for the business machine segment, a year-on-year increase of 13.8%. In the first quarter of 2004, Canon reclassified information-systems-related sales by subsidiaries to better reflect the product relationship. These sales, which had previously been grouped with “optical and other products,” are now included in the “office imaging products” segment. Accordingly, previous-year sales for each category have been reclassified in line with the change.

Within the camera segment, amid the continued strong demand for digital models worldwide, sales of compact digital cameras showed significant growth, boosted by the launch of eight new PowerShot-series models in the first half. Among the new lineup, the PowerShot S500 Digital ELPH and PowerShot A75 in particular have achieved strong sales while new models released in September have also been well received by the market. Canon’s digital SLR cameras also continued to enjoy robust growth, bolstered by the EOS Digital Rebel, launched in September of last year, and the successor to the EOS 10D, the EOS 20D, which was introduced in September, 2004. As a result, unit sales of digital cameras grew by nearly 50% compared with the year-ago period. In the field of digital video camcorders, new models such as the Optura 500/400, Elura 70/65/60 and Optura 40/30 models achieved favorable sales during the third quarter. Consequently, camera sales overall continued to enjoy growth of 5.9%, achieving total sales of ¥165.0 billion (U.S.$1,486 million). Operating profit for the camera segment decreased 23.1% to ¥29.8 billion (U.S.$268 million), as the gross profit ratio decreased slightly due to the effects of the stronger yen and price competition, along with increased advertising and sales-promotion spending. As a result, the operating profit ratio for the period decreased by 6.8% year-on-year.

In the optical and other products segment, sales of aligners for the production of LCDs realized notable growth as the PC monitor industry continued shifting from CRT to LCD computer displays, and the LCD television market continued to expand. Sales of steppers, used for the production of semiconductors, also increased as investment in semiconductor-production equipment showed a recovery owing to the improved conditions in the semiconductor-device market. As a result, sales for the segment increased by 53.6% to ¥93.3 billion (U.S.$841 million). The operating profit ratio for the segment improved substantially due to the significant growth in unit sales, enabling optical and other products to record an operating profit of ¥10.2 billion (U.S.$92 million), compared with an operating loss of ¥2.9 billion, for the same period of the previous year.

Cash Flow

In the nine months ended September 30, 2004, Canon maintained cash flow from operating activities of ¥387.3 billion (U.S.$3,489 million), a year-on-year increase of ¥60.9 billion (U.S.$548 million), reflecting the

- 3 -

substantial growth in sales and increased cash proceeds from sales, combined with a substantial increase in net income. Capital expenditure totaled ¥219.5 billion (U.S.$1,978 million), which was used mainly to expand production capabilities in both domestic and overseas regions, as well as for development of R&D related infrastructure. Cash flow from investing activities totaled ¥175.1 billion (U.S.$1,578 million). As a result, free cash flow, or cash flow from operating activities minus cash flow from investing activities, totaled positive ¥212.2 billion (U.S.$1,911 million).

Cash flow from financing activities recorded an outlay of ¥90.8 billion (U.S.$818 million), mainly resulting from active efforts to repay loans toward the goal of improving the company’s financial position and an increase in the dividend payout. Consequently, cash and cash equivalents, which totaled ¥812.7 billion (U.S.$7,322 million), representing a ¥122.4 billion (U.S.$1,103 million) increase from the end of the previous year, remained at a high level.

Outlook

Regarding the outlook for the global economy in the fourth quarter and thereafter, although global economic prospects remain uncertain due to rising oil prices, which could adversely affect consumer spending, and exchange rate trends, the global economy is likely to continue its course toward recovery. In the businesses in which Canon is involved, the digital camera market is expected to continue enjoying rapid growth particularly in overseas markets. As for network digital MFDs and laser beam printers, while stable demand is projected for both monochrome and full-color models, severe price competition and shifting demand toward lower priced models is expected to adversely affect sales. Within the semiconductor-production equipment market, while the pace of new orders will probably slow down somewhat, the level of capital investment by semiconductor manufacturers is likely to maintain. In the market for projection aligners used in the production of LCDs, demand for LCD production equipment is also expected to show continued growth.

Although uncertainty surrounds several factors that could affect currency exchange rates, significant changes in rates are not anticipated during the fourth quarter. Accordingly, for the year, the yen is expected to be 6% stronger against the U.S. dollar and 2% weaker against the euro compared with the previous year.

Upon considering the current market and currency exchange environments, the company has revised upward its forecasts for the 2004 fiscal year and now anticipates consolidated net sales of ¥3,470.0 billion (U.S.$31,261 million), consolidated income before income taxes and minority interests of ¥548.0 billion (U.S.$4,937 million), and consolidated net income of ¥339.0 billion (U.S.$3,054 million). The company also projects non-consolidated net sales of ¥2,318.0 billion (U.S.$20,883 million), non-consolidated ordinary profit of ¥384.0 billion (U.S.$3,459 million), and non-consolidated net income of ¥243.0 billion (U.S.$2,189 million). These forecasts assume currency exchange rates of ¥108.00 to the U.S. dollar and ¥132.00 to the euro for the remainder of 2004.

- 4 -

Consolidated Outlook
Fiscal year


	Millions of yen

	Year ending
	December 31, 2004						Year ended
					Change		December 31, 2003		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)

Net sales	¥	3,470,000	¥	3,470,000	¥	—	¥	3,198,072	+	8.5	%
Income before income taxes and minority interests		520,000		548,000		28,000		448,170	+	22.3	%
Net income		320,000		339,000		19,000		275,730	+	22.9	%

Non-Consolidated Outlook
Fiscal year


	Millions of yen

	Year ending
	December 31, 2004						Year ended
					Change		December 31, 2003		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)

Net sales	¥	2,318,000	¥	2,318,000	¥	—	¥	2,023,722	+	14.5	%
Ordinary profit		380,000		384,000		4,000		320,616	+	19.8	%
Net income		238,000		243,000		5,000		228,667	+	6.3	%

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

- 5 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

1.		CONSOLIDATED STATEMENTS OF INCOME

		Results for the third quarter

Thousands of

Millions of yen

U.S. dollars

Three months

ended

September 30, 2004

September 30, 2003

Change (%)

September 30, 2004

(Unaudited)

Net sales

838,304

767,599

9.2

7,552,288

Cost of sales

428,514

378,784

3,860,486

Gross profit

409,790

388,815

5.4

3,691,802

Selling, general and administrative expenses

251,491

263,253

2,265,685

Operating profit

158,299

125,562

26.1

1,426,117

Other income (deductions):

Interest and dividend income

1,690

2,077

15,225

Interest expense

(538

)

(1,005

)

(4,847

)

Other, net

3,178

(9,298

)

28,631

4,330

(8,226

)

39,009

Income before income taxes and minority interests

162,629

117,336

38.6

1,465,126

Income taxes

55,907

41,980

503,667

Income before minority interests

106,722

75,356

961,459

Minority interests

4,942

2,351

44,522

Net income

101,780

73,005

39.4

916,937

Note:

Canon’s comprehensive income consists of net income, change in foreign currency translation adjustments, change in net unrealized gains (losses) on securities, change in minimum pension liability adjustments and change in net gains (losses) on derivative financial instruments. Comprehensive income for the three months ended September 30, 2004 and 2003 were JPY153,874 million (U.S.$1,386,252 thousand) and JPY61,456 million, respectively.

Results for the nine months

Thousands of

Millions of yen

U.S. dollars

Nine months

ended

September 30, 2004

September 30, 2003

Change (%)

September 30, 2004

(Unaudited)

Net sales

2,486,724

2,303,187

8.0

22,402,919

Cost of sales

1,251,167

1,138,498

11,271,775

Gross profit

1,235,557

1,164,689

6.1

11,131,144

Selling, general and administrative expenses

823,882

823,153

7,422,360

Operating profit

411,675

341,536

20.5

3,708,784

Other income (deductions):

Interest and dividend income

4,717

6,707

42,495

Interest expense

(1,976

)

(3,655

)

(17,802

)

Other, net

8,187

(11,746

)

73,757

10,928

(8,694

)

98,450

Income before income taxes and minority interests

422,603

332,842

27.0

3,807,234

Income taxes

148,652

124,781

1,339,207

Income before minority interests

273,951

208,061

2,468,027

Minority interests

11,395

7,289

102,658

Net income

262,556

200,772

30.8

2,365,369

Note:

Canon’s comprehensive income consists of net income, change in foreign currency translation adjustments, change in net unrealized gains (losses) on securities, change in minimum pension liability adjustments and change in net gains (losses) on derivative financial instruments. Comprehensive income for the nine months ended September 30, 2004 and 2003 were JPY314,340 million (U.S.$2,831,892 thousand) and JPY229,046 million, respectively.

- 6 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

2.		DETAILS OF SALES

		Results for the third quarter

Thousands of

Millions of yen

U.S. dollars

Three months

ended

September 30, 2004

September 30, 2003

Change (%)

September 30, 2004

(Unaudited)

Sales by product

Business machines:

Office imaging products

265,590

259,053

2.5

2,392,702

Computer peripherals

287,243

261,830

9.7

2,587,775

Business information products

27,179

30,219

10.1

244,856

580,012

551,102

5.2

5,225,333

Cameras

164,991

155,755

5.9

1,486,405

Optical and other products

93,301

60,742

53.6

840,550

Total

838,304

767,599

9.2

7,552,288

Thousands of

Millions of yen

U.S. dollars

Three months

ended

September 30, 2004

September 30, 2003

Change (%)

September 30, 2004

(Unaudited)

Sales by region

Japan

196,104

189,528

3.5

1,766,703

Overseas:

Americas

254,121

251,499

1.0

2,289,378

Europe

254,844

226,200

12.7

2,295,892

Other areas

133,235

100,372

32.7

1,200,315

642,200

578,071

11.1

5,785,585

Total

838,304

767,599

9.2

7,552,288

Results for the nine months

Thousands of

Millions of yen

U.S. dollars

Nine months

ended

September 30, 2004

September 30, 2003

Change (%)

September 30, 2004

(Unaudited)

Sales by product

Business machines:

Office imaging products

819,838

798,229

2.7

7,385,928

Computer peripherals

817,915

793,092

3.1

7,368,604

Business information products

84,520

94,292

10.4

761,441

1,722,273

1,685,613

2.2

15,515,973

Cameras

512,324

439,556

16.6

4,615,532

Optical and other products

252,127

178,018

41.6

2,271,414

Total

2,486,724

2,303,187

8.0

22,402,919

Thousands of

Millions of yen

U.S. dollars

Nine months

ended

September 30, 2004

September 30, 2003

Change (%)

September 30, 2004

(Unaudited)

Sales by region

Japan

609,866

573,447

6.4

5,494,288

Overseas:

Americas

749,002

762,587

1.8

6,747,766

Europe

770,411

690,719

11.5

6,940,640

Other areas

357,445

276,434

29.3

3,220,225

1,876,858

1,729,740

8.5

16,908,631

Total

2,486,724

2,303,187

8.0

22,402,919


Notes:	Beginning first quarter of 2004, Canon has changed classification of product categories with regards to information system business, which had been classified in “Optical and other products”, to “Business machines (Office imaging products)” in order to better reflect current relation with those products. Accordingly, information for previous fiscal years has been reclassified to conform with the current classification.

	1.	The primary products included in each of the product segments are as follows:
		Business machines:
		Office imaging products : Office network digital multifunction devices (MFDs) / Color network digital MFDs / Office copying machines / Personal-use copying machines / Full-color copying machines / etc.
		Computer peripherals : Laser beam printers / Single function inkjet printers / Inkjet multifunction peripherals / Image scanners / etc.
		Business information products : Computer information systems / Micrographic equipment / Personal information products / etc.




		Cameras : SLR cameras / Compact cameras / Digital cameras / Digital video camcorders / etc.




		Optical and other products : Semiconductor production equipment / Mirror projection mask aligners for LCD panels / Broadcasting equipment / Medical equipment / Components / etc.
	2.	The principal countries and regions included in each regional category are as follows:
		Americas: United States of America, Canada, Latin America / Europe: England, Germany, France, Netherlands /
		Other Areas: Asian regions, China, Oceania

- 7 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

3.		SEGMENT INFORMATION BY PRODUCT

		Results for the third quarter


									Thousands of
	Millions of yen								U.S. dollars
	Three months			Three months					Three months
	ended			ended					ended
	September 30, 2004			September 30, 2004			Change (%)		September 30, 2004

	(Unaudited)			(Unaudited)					(Unaudited)
Business machines
Net sales:
Unaffiliated customers	¥	580,012		¥	551,102		+	5.2	$	5,225,333
Intersegment		—			—			—		—

Total		580,012			551,102		+	5.2		5,225,333

Operating cost and expenses		440,411			428,405		+	2.8		3,967,666

Operating profit		139,601			122,697		+	13.8		1,257,667

Cameras
Net sales:
Unaffiliated customers	¥	164,991		¥	155,755		+	5.9	$	1,486,405
Intersegment		—			—			—		—

Total		164,991			155,755		+	5.9		1,486,405

Operating cost and expenses		135,221			117,060		+	15.5		1,218,207

Operating profit		29,770			38,695		-	23.1		268,198

Optical and other products
Net sales:
Unaffiliated customers	¥	93,301		¥	60,742		+	53.6	$	840,550
Intersegment		36,857			35,056		+	5.1		332,045

Total		130,158			95,798		+	35.9		1,172,595

Operating cost and expenses		119,929			98,686		+	21.5		1,080,442

Operating profit		10,229			(2,888	)		—		92,153

Corporate and Eliminations
Net sales:
Unaffiliated customers	¥	—		¥	—			—	$	—
Intersegment		(36,857	)		(35,056	)		—		(332,045	)

Total		(36,857	)		(35,056	)		—		(332,045	)

Operating cost and expenses		(15,556	)		(2,114	)		—		(140,144	)

Operating profit		(21,301	)		(32,942	)		—		(191,901	)

Consolidated
Net sales:
Unaffiliated customers	¥	838,304		¥	767,599		+	9.2	$	7,552,288
Intersegment		—			—			—		—

Total		838,304			767,599		+	9.2		7,552,288

Operating cost and expenses		680,005			642,037		+	5.9		6,126,171

Operating profit		158,299			125,562		+	26.1		1,426,117

Notes: 1.

Beginning first quarter of 2004, Canon has changed classification of product categories with regards to information system business, which had been classified in “Optical and other products”, to “Business machines (Office imaging products)” in order to better reflect current relation with those products. Accordingly, information for previous fiscal years has been reclassified to conform with the current classification.

General corporate expenses of JPY21,301 million (U.S.$191,901 thousand) and JPY32,961 million in the three months ended September 30, 2004 and 2003, respectively, are included in “Corporate and Eliminations.” For the three months ended September 30, 2004, a gain of JPY13,769 million (U.S.$124,045 thousand) is also included, which relates to the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities.

-8-

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

Results for the nine months


									Thousands of
	Millions of yen								U.S. dollars
	Nine months			Nine months					Nine months
	ended			ended					ended
	September 30,			September 30,					September 30,
	2004			2003			Change (%)		2004
	(Unaudited)			(Unaudited)					(Unaudited)
Business machines
Net sales:
Unaffiliated customers	¥	1,722,273		¥	1,685,613		+	2.2	$	15,515,973
Intersegment		—			—			—		—

Total		1,722,273			1,685,613		+	2.2		15,515,973

Operating cost and expenses		1,333,911			1,326,472		+	0.6		12,017,216

Operating profit		388,362			359,141		+	8.1		3,498,757

Cameras
Net sales:
Unaffiliated customers	¥	512,324		¥	439,556		+	16.6	$	4,615,532
Intersegment		—			—			—		—

Total		512,324			439,556		+	16.6		4,615,532

Operating cost and expenses		421,123			351,067		+	20.0		3,793,901

Operating profit		91,201			88,489		+	3.1		821,631

Optical and other products
Net sales:
Unaffiliated customers	¥	252,127		¥	178,018		+	41.6	$	2,271,414
Intersegment		102,413			104,110		-	1.6		922,640

Total		354,540			282,128		+	25.7		3,194,054

Operating cost and expenses		329,152			285,192		+	15.4		2,965,333

Operating profit		25,388			(3,064	)		—		228,721

Corporate and Eliminations
Net sales:
Unaffiliated customers	¥	—		¥	—			—	$	—
Intersegment		(102,413	)		(104,110	)		—		(922,640	)

Total		(102,413	)		(104,110	)		—		(922,640	)

Operating cost and expenses		(9,137	)		(1,080	)		—		(82,315	)

Operating profit		(93,276	)		(103,030	)		—		(840,325	)

Consolidated
Net sales:
Unaffiliated customers	¥	2,486,724		¥	2,303,187		+	8.0	$	22,402,919
Intersegment		—			—			—		—

Total		2,486,724			2,303,187		+	8.0		22,402,919

Operating cost and expenses		2,075,049			1,961,651		+	5.8		18,694,135

Operating profit		411,675			341,536		+	20.5		3,708,784

Notes: 1.

General corporate expenses of JPY93,346 million (U.S.$840,955 thousand) and JPY103,069 million in the nine months ended September 30, 2004 and 2003, respectively, are included in “Corporate and Eliminations.” For the nine months ended September 30, 2004, a gain of JPY13,769 million (U.S.$124,045 thousand) is also included, which relates to the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities.

- 9 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

CONSOLIDATED BALANCE SHEETS


										Thousands of
	Millions of yen									U.S. dollars
	As of			As of						As of
	September 30,			December 31,						September 30,
	2004			2003			Change			2004
	(Unaudited)									(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	¥	812,745		¥	690,298		¥	122,447		$	7,322,027
Marketable securities		1,407			1,324			83			12,676
Trade receivables		544,051			539,006			5,045			4,901,360
Inventories		537,733			444,244			93,489			4,844,441
Prepaid expenses and other current assets		255,124			255,905			(781	)		2,298,415

Total current assets		2,151,060			1,930,777			220,283			19,378,919
Noncurrent receivables		14,837			16,543			(1,706	)		133,667
Investments		70,115			78,912			(8,797	)		631,667
Property, plant and equipment, net		933,640			846,433			87,207			8,411,171
Other assets		280,652			309,483			(28,831	)		2,528,396

Total assets	¥	3,450,304		¥	3,182,148		¥	268,156		$	31,083,820

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans	¥	21,089		¥	39,136		¥	(18,047	)	$	189,991
Trade payables		489,698			391,181			98,517			4,411,694
Income taxes		70,768			83,064			(12,296	)		637,550
Accrued expenses		209,676			193,657			16,019			1,888,973
Other current liabilities		121,312			120,265			1,047			1,092,900

Total current liabilities		912,543			827,303			85,240			8,221,108
Long-term debt, excluding current installments		29,161			59,260			(30,099	)		262,712
Accrued pension and severance cost		154,291			238,001			(83,710	)		1,390,009
Other noncurrent liabilities		40,088			30,843			9,245			361,153

Total liabilities		1,136,083			1,155,407			(19,324	)		10,234,982

Minority interests		175,254			161,196			14,058			1,578,865
Stockholders’ equity:
Common stock		173,855			168,892			4,963			1,566,261
Additional paid-in capital		401,764			396,939			4,825			3,619,496
Retained earnings		1,660,046			1,450,440			209,606			14,955,369
Accumulated other comprehensive income (loss)		(91,491	)		(143,275	)		51,784			(824,243	)
Treasury stock		(5,207	)		(7,451	)		2,244			(46,910	)

Total stockholders’ equity		2,138,967			1,865,545			273,422			19,269,973

Total liabilities and stockholders’ equity	¥	3,450,304		¥	3,182,148		¥	268,156		$	31,083,820

Thousands of

Millions of yen

U.S. dollars

As of

September 30,

December 31,

September 30,

2004

2003

2004

(Unaudited)

Allowance for doubtful receivables

13,316

14,423

119,964

Accumulated depreciation

1,170,241

1,118,183

10,542,712

Accumulated other comprehensive income (loss):

Foreign currency translation adjustments

(65,614

)

(83,801

)

(591,117

)

Net unrealized gains (losses) on securities

5,088

6,784

45,838

Minimum pension liability adjustments

(30,025

)

(65,961

)

(270,496

)

Net gains (losses) on derivative financial instruments

(940

)

(297

)

(8,468

)

- 10 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

5.		CONSOLIDATED STATEMENTS OF CASH FLOWS

		Results for the nine months


							Thousands of
	Millions of yen						U.S. dollars
	Nine months			Nine months			Nine months
	ended			ended			ended
	September 30,			September 30,			September 30,
	2004			2003			2004
	(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	¥	262,556		¥	200,772		$	2,365,369
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		137,126			131,068			1,235,369
Loss on disposal of property, plant and equipment		7,974			8,796			71,838
Deferred income taxes		13,241			(5,510	)		119,288
Decrease in trade receivables		7,617			17,875			68,622
Increase in inventories		(83,678	)		(64,613	)		(753,856	)
Increase in trade payables		92,632			20,897			834,523
Decrease in income taxes		(12,984	)		(10,927	)		(116,973	)
Increase in accrued expenses		9,028			27,422			81,333
Increase (decrease) in accrued pension and severance cost		(14,606	)		17,606			(131,586	)
Other, net		(31,614	)		(16,944	)		(284,810	)

Net cash provided by operating activities		387,292			326,442			3,489,117
Cash flows from investing activities:
Capital expenditure		(219,540	)		(150,119	)		(1,977,838	)
Proceeds from sale of property, plant and equipment		4,397			6,175			39,613
Payment for purchase of available-for-sale securities		(98	)		(714	)		(883	)
Proceeds from sale of available-for-sale securities		9,733			6,959			87,685
Payment for purchase of other investments		(707	)		(24,310	)		(6,369	)
Other		31,110			2,092			280,270

Net cash used in investing activities		(175,105	)		(159,917	)		(1,577,522	)
Cash flows from financing activities:
Proceeds from long-term debt		635			3,344			5,721
Repayment of long-term debt		(32,079	)		(30,182	)		(289,000	)
Decrease in short-term loans		(1,535	)		(35,906	)		(13,829	)
Dividends paid		(52,950	)		(28,538	)		(477,027	)
Other		(4,848	)		(2,893	)		(43,676	)

Net cash used in financing activities		(90,777	)		(94,175	)		(817,811	)
Effect of exchange rate changes on cash and cash equivalents		1,037			(8,399	)		9,342

Net increase in cash and cash equivalents		122,447			63,951			1,103,126
Cash and cash equivalents at beginning of period		690,298			521,271			6,218,901

Cash and cash equivalents at end of period	¥	812,745		¥	585,222		$	7,322,027

-11-

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

6.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(1)		NUMBER OF GROUP COMPANIES


	September 30, 2004		December 31, 2003		Change
Subsidiaries		196		198		(2	)
Affiliates		17		19		(2	)

Total		213		217		(4	)

CHANGES IN GROUP OF ENTITIES


Subsidiaries

	Addition:	7 Companies

	Removal:	9 Companies

Affiliates (Carried at Equity Basis)

	Removal:	2 Companies

(2)		SIGNIFICANT ACCOUNTING POLICIES

		The accompanying consolidated financial statements reflect the adjustments which management believes are necessary to conform them with accounting principles generally accepted in the United States of America, except for the segment information, as required by Statement of Financial Accounting Standards No.131, “Disclosures about Segments of an Enterprise and Related Information.”

		We have engaged Ernst & Young ShinNihon to complete a review of the consolidated financial statements as of and for nine months ended September 30, 2004, in accordance with Statement of Auditing Standards No.100, “Interim Financial Information”, established by the American Institute of Certified Public Accountants.

Employee Retirement and Severance Benefits

Canon has been adopting Statement of Financial Accounting Standards No.87, “Employer’s Accounting for Pensions.” The Company and certain of its domestic subsidiaries obtained approvals from government for the exemption for the return of past benefits obligation through July 2004, and transferred the substitutional portion of the benefits obligations related to past service and the related portion of the plan assets of Employees Pension Funds to the government. The Company and certain of its domestic subsidiaries recognized a gain of JPY13,769 million (U.S.$124,045 thousand) in selling, general and administrative expenses for the year ended September 30, 2004.

-12-

CONSOLIDATED FINANCIAL RESULTS FOR
THE THIRD QUARTER ENDED SEPTEMBER 30, 2004

SUPPLEMENTARY REPORT

TABLE OF CONTENTS


		PAGE
1.	SALES BY REGION AND PRODUCT		S1
2.	SEGMENT INFORMATION BY PRODUCT		S2
3.	OTHER INCOME / DEDUCTIONS		S2
4.	SALES COMPOSITION BY PRODUCT		S3
5.	SALES GROWTH IN LOCAL CURRENCY		S3
6.	P&L SUMMARY (4th Quarter 2004/Projection)		S4
7.	PROFITABILITY		S4
8.	IMPACT OF FOREIGN EXCHANGE RATES		S4
9.	STATEMENTS OF CASH FLOWS		S4
10.	R&D EXPENDITURE		S5
11.	CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION		S5
12.	INVENTORIES		S5
13.	DEBT RATIO		S5
14.	OVERSEAS PRODUCTION RATIO		S5
15.	NUMBER OF EMPLOYEES		S5

Canon Inc.

1. SALES BY REGION AND PRODUCT


													(Millions of yen)
	2004						2003						Change year over year
	3rd quarter		4th quarter		Year		3rd quarter		4th quarter		Year		3rd quarter			4th quarter			Year
			(P)		(P)
Japan
Business machines		138,521		172,369		602,600		134,054		163,297		587,807		+3.3	%		+5.6	%		+2.5	%

Office imaging products		82,520		88,649		338,000		75,370		83,232		316,156		+9.5	%		+6.5	%		+6.9	%
Computer peripherals		35,551		61,411		178,300		35,426		59,083		175,680		+0.4	%		+3.9	%		+1.5	%
Business information products		20,450		22,309		86,300		23,258		20,982		95,971		-12.1	%		+6.3	%		-10.1	%

Cameras		29,168		44,286		132,300		28,376		36,869		112,027		+2.8	%		+20.1	%		+18.1	%
Optical and other products		28,415		31,779		123,400		27,098		27,787		101,566		+4.9	%		+14.4	%		+21.5	%

Total		196,104		248,434		858,300		189,528		227,953		801,400		+3.5	%		+9.0	%		+7.1	%

Overseas
Business machines		441,491		468,358		1,760,400		417,048		445,890		1,706,993		+5.9	%		+5.0	%		+3.1	%

Office imaging products		183,070		204,813		775,300		183,683		200,534		765,839		-0.3	%		+2.1	%		+1.2	%
Computer peripherals		251,692		254,874		955,900		226,404		237,137		913,632		+11.2	%		+7.5	%		+4.6	%
Business information products		6,729		8,671		29,200		6,961		8,219		27,522		-3.3	%		+5.5	%		+6.1	%

Cameras		135,823		218,390		642,700		127,379		177,115		541,513		+6.6	%		+23.3	%		+18.7	%
Optical and other products		64,886		48,094		208,600		33,644		43,927		148,166		+92.9	%		+9.5	%		+40.8	%

Total		642,200		734,842		2,611,700		578,071		666,932		2,396,672		+11.1	%		+10.2	%		+9.0	%

Americas
Business machines		190,549		189,455		745,700		189,818		191,464		771,983		+0.4	%		-1.0	%		-3.4	%

Office imaging products		85,051		88,580		349,600		92,592		93,509		369,795		-8.1	%		-5.3	%		-5.5	%
Computer peripherals		102,008		96,654		381,700		93,774		94,085		388,022		+8.8	%		+2.7	%		-1.6	%
Business information products		3,490		4,221		14,400		3,452		3,870		14,166		+1.1	%		+9.1	%		+1.7	%

Cameras		53,515		95,408		263,100		55,203		84,686		245,019		-3.1	%		+12.7	%		+7.4	%
Optical and other products		10,057		7,835		32,900		6,478		6,429		28,164		+55.2	%		+21.9	%		+16.8	%

Total		254,121		292,698		1,041,700		251,499		282,579		1,045,166		+1.0	%		+3.6	%		-0.3	%

Europe
Business machines		191,143		219,491		786,200		168,229		202,931		724,227		+13.6	%		+8.2	%		+8.6	%

Office imaging products		77,717		98,146		348,000		71,383		90,327		325,905		+8.9	%		+8.7	%		+6.8	%
Computer peripherals		110,845		117,663		426,200		94,046		108,882		387,662		+17.9	%		+8.1	%		+9.9	%
Business information products		2,581		3,682		12,000		2,800		3,722		10,660		-7.8	%		-1.1	%		+12.6	%

Cameras		58,684		92,254		280,100		51,881		68,254		219,219		+13.1	%		+35.2	%		+27.8	%
Optical and other products		5,017		6,944		22,800		6,090		7,138		25,596		-17.6	%		-2.7	%		-10.9	%

Total		254,844		318,689		1,089,100		226,200		278,323		969,042		+12.7	%		+14.5	%		+12.4	%

Other areas
Business machines		59,799		59,412		228,500		59,001		51,495		210,783		+1.4	%		+15.4	%		+8.4	%

Office imaging products		20,302		18,087		77,700		19,708		16,698		70,139		+3.0	%		+8.3	%		+10.8	%
Computer peripherals		38,839		40,557		148,000		38,584		34,170		137,948		+0.7	%		+18.7	%		+7.3	%
Business information products		658		768		2,800		709		627		2,696		-7.2	%		+22.5	%		+3.9	%

Cameras		23,624		30,728		99,500		20,295		24,175		77,275		+16.4	%		+27.1	%		+28.8	%
Optical and other products		49,812		33,315		152,900		21,076		30,360		94,406		+136.3	%		+9.7	%		+62.0	%

Total		133,235		123,455		480,900		100,372		106,030		382,464		+32.7	%		+16.4	%		+25.7	%

Total
Business machines		580,012		640,727		2,363,000		551,102		609,187		2,294,800		+5.2	%		+5.2	%		+3.0	%

Office imaging products		265,590		293,462		1,113,300		259,053		283,766		1,081,995		+2.5	%		+3.4	%		+2.9	%
Computer peripherals		287,243		316,285		1,134,200		261,830		296,220		1,089,312		+9.7	%		+6.8	%		+4.1	%
Business information products		27,179		30,980		115,500		30,219		29,201		123,493		-10.1	%		+6.1	%		-6.5	%

Cameras		164,991		262,676		775,000		155,755		213,984		653,540		+5.9	%		+22.8	%		+18.6	%
Optical and other products		93,301		79,873		332,000		60,742		71,714		249,732		+53.6	%		+11.4	%		+32.9	%

Total		838,304		983,276		3,470,000		767,599		894,885		3,198,072		+9.2	%		+9.9	%		+8.5	%

(P)=Projection

(Note)

From the 1st quarter of 2004, Canon changed the classification of product categories with regard to its information system business, which had been classified in “Optical and other products”, to “Business machines (Office imaging products)” in order to better reflect current relation with those products. Accordingly, information for the year 2003 has been reclassified to conform with the current classification.

- S1 -

Canon Inc.

SEGMENT INFORMATION BY PRODUCT


	(Millions of yen)
	2004									2003									Change year over year
	3rd quarter			4th quarter			Year			3rd quarter			4th quarter			Year			3rd quarter			4th quarter			Year
				(P)			(P)
Business machines
Unaffiliated customers		580,012			640,727			2,363,000			551,102			609,187			2,294,800			+5.2	%		+5.2	%		+3.0	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		580,012			640,727			2,363,000			551,102			609,187			2,294,800			+5.2	%		+5.2	%		+3.0	%

Operating profit		139,601			135,938			524,300			122,697			126,424			485,565			+13.8	%		+7.5	%		+8.0	%
% of sales		24.1	%		21.2	%		22.2	%		22.3	%		20.8	%		21.2	%		—			—			—

Cameras
Unaffiliated customers		164,991			262,676			775,000			155,755			213,984			653,540			+5.9	%		+22.8	%		+18.6	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		164,991			262,676			775,000			155,755			213,984			653,540			+5.9	%		+22.8	%		+18.6	%

Operating profit		29,770			45,999			137,200			38,695			37,829			126,318			-23.1	%		+21.6	%		+8.6	%
% of sales		18.0	%		17.5	%		17.7	%		24.8	%		17.7	%		19.3	%		—			—			—

Optical and other products
Unaffiliated customers		93,301			79,873			332,000			60,742			71,714			249,732			+53.6	%		+11.4	%		+32.9	%
Intersegment		36,857			33,987			136,400			35,056			28,279			132,389			+5.1	%		+20.2	%		+3.0	%

Total sales		130,158			113,860			468,400			95,798			99,993			382,121			+35.9	%		+13.9	%		+22.6	%

Operating profit		10,229			-2,688			22,700			-2,888			-6,819			-9,883			—			—			—
% of sales		7.9	%		-2.4	%		4.8	%		-3.0	%		-6.8	%		-2.6	%		—			—			—

Corporate and Eliminations
Unaffiliated customers		—			—			—			—			—			—			—			—			—
Intersegment		-36,857			-33,987			-136,400			-35,056			-28,279			-132,389			—			—			—

Total sales		-36,857			-33,987			-136,400			-35,056			-28,279			-132,389			—			—			—

Operating profit		-21,301			-55,924			-149,200			-32,942			-44,546			-147,576			—			—			—

Consolidated
Unaffiliated customers		838,304			983,276			3,470,000			767,599			894,885			3,198,072			+9.2	%		+9.9	%		+8.5	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		838,304			983,276			3,470,000			767,599			894,885			3,198,072			+9.2	%		+9.9	%		+8.5	%

Operating profit		158,299			123,325			535,000			125,562			112,888			454,424			+26.1	%		+9.2	%		+17.7	%
% of sales		18.9	%		12.5	%		15.4	%		16.4	%		12.6	%		14.2	%		—			—			—

(P)=Projection

3. OTHER INCOME / DEDUCTIONS


	(Millions of yen)
	2004						2003						Change year over year
	3rd quarter		4th quarter		Year		3rd quarter		4th quarter		Year		3rd quarter		4th quarter		Year
			(P)		(P)
Interest & dividend, net		1,152		1,059		3,800		1,072		1,605		4,657		+80		-546		-857
Forex gain / loss		-1,200		-5,440		-11,800		-14,545		-3,000		-20,311		+13,345		-2,440		+8,511
Equity earnings / loss of affiliated companies		23		286		1,100		375		545		-1,124		-352		-259		+2,224
Others, net		4,355		6,167		19,900		4,872		3,290		10,524		-517		+2,877		+9,376

Total		4,330		2,072		13,000		-8,226		2,440		-6,254		+12,556		-368		+19,254

(P)=Projection

(Note)

- S2 -

Canon Inc.

4. SALES COMPOSITION BY PRODUCT


	2004									2003
	3rd quarter			4th quarter			Year			3rd quarter			4th quarter			Year
				(P)			(P)
Office imaging products
Monochrome copying machines		61	%		60	%		62	%		66	%		64	%		67	%
Digital*		95	%		—			—			94	%		94	%		93	%
Analog*		5	%		—			—			6	%		6	%		7	%
Color copying machines		25	%		26	%		24	%		20	%		22	%		20	%
Others		14	%		14	%		14	%		14	%		14	%		13	%
Computer peripherals
Laser beam printers		75	%		67	%		71	%		72	%		65	%		70	%
Inkjet printers (includes inkjet MFPs)		23	%		31	%		27	%		26	%		32	%		27	%
Others		2	%		2	%		2	%		2	%		3	%		3	%
Business information products
Personal computers		74	%		71	%		74	%		77	%		73	%		76	%
Others		26	%		29	%		26	%		23	%		27	%		24	%
Cameras
Film cameras / Lenses		16	%		13	%		15	%		22	%		18	%		21	%
Digital cameras		68	%		72	%		69	%		60	%		65	%		61	%
Video camcorders		16	%		15	%		16	%		18	%		17	%		18	%
Optical and other products
Semiconductor production equipment		70	%		60	%		65	%		53	%		56	%		54	%
Others		30	%		40	%		35	%		47	%		44	%		46	%

(P)=Projection

Among office-use monochrome copying machines (hardware only)

5. SALES GROWTH IN LOCAL CURRENCY


	2004
	3rd quarter			4th quarter			Year
				(P)			(P)
Business machines
Japan	+	3.3	%	+	5.6	%	+	2.5	%
Overseas	+	9.9	%	+	4.9	%	+	6.6	%

Total	+	8.3	%	+	5.1	%	+	5.6	%

Cameras
Japan	+	2.8	%	+	20.1	%	+	18.1	%
Overseas	+	9.5	%	+	22.9	%	+	21.5	%

Total	+	8.3	%	+	22.4	%	+	20.9	%

Optical and other products
Japan	+	4.9	%	+	14.4	%	+	21.5	%
Overseas	+	99.1	%	+	9.4	%	+	44.6	%

Total	+	57.1	%	+	11.3	%	+	35.2	%

Total
Japan	+	3.5	%	+	9.0	%	+	7.1	%
Overseas	+	15.0	%	+	10.0	%	+	12.3	%
Americas	+	8.0	%	+	4.5	%	+	6.0	%
Europe	+	12.6	%	+	12.8	%	+	12.2	%
Other areas	+	38.1	%	+	17.2	%	+	30.1	%

Total	+	12.2	%	+	9.7	%	+	11.0	%

(P)=Projection

(Note)

From the 1st quarter of 2004, Canon changed the classification of product categories with regard to its information system business, which had been classified in “Optical and other products”, to “Business machines(Office imaging products)” in order to better reflect current relation with those products. Accordingly, information for the year 2003 has been reclassified to conform with the current classification.

- S3 -

Canon Inc.

6. P&L SUMMARY (4th Quarter 2004/Projection)


	(Millions of yen)
	2004		2003		Change
	4th quarter(P)		4th quarter		year over year
Net sales		983,276		894,885		+9.9	%
Operating profit		123,325		112,888		+9.2	%
Income before income taxes and minority interests		125,397		115,328		+8.7	%
Net income		76,444		74,958		+2.0	%

(P)=Projection

7. PROFITABILITY


	2004						2003
	3rd quarter			Year(P)			3rd quarter			Year
ROE		19.6	%		16.7	%		16.5	%		15.9	%
ROA		12.0	%		10.2	%		9.4	%		9.0	%

(P)=Projection

8. IMPACT OF FOREIGN EXCHANGE RATES

(1) Exchange rates


	(Yen)
	2004						2003
	3rd quarter		4th quarter(P)		Year(P)		3rd quarter		4th quarter		Year
Yen/US$		109.97		108.00		108.76		117.54		108.92		115.61
Yen/Euro		134.37		132.00		133.08		132.07		129.47		131.02

(P)=Projection

(2) Impact of foreign exchange rates on sales (Year over year)


		(Billions of yen)
		2004
		3rd quarter		4th quarter(P)		Year(P)
US$		-	18.9	-	3.2	-	76.0
Euro		+	3.3	+	5.0	+	13.6
Other currencies		-	1.0	-	0.2	-	0.5

	Total	-	16.6	+	1.6	-	62.9

(P)=Projection

(3) Impact of foreign exchange rates per yen


		(Billions of yen)
		2004
		4th quarter(P)
On sales
	US$		3.4
	Euro		2.0
On operating profit
	US$		1.7
	Euro		1.5

(P)=Projection

9. STATEMENTS OF CASH FLOWS


	(Millions of yen)
	2004				2003
	3rd quarter		Year(P)		3rd quarter		Year
Net cash provided by operating activities
Net income		101,780		339,000		73,005		275,730
Depreciation and amortization		49,746		186,000		45,974		183,604
Other, net	-	62,061		25,000	-	20,837		6,315

Total		89,465		550,000		98,142		465,649

Net cash used in investing activities	-	65,185	-	290,000	-	48,589	-	199,948
Free cash flow		24,280		260,000		49,553		265,701
Net cash provided by (used in) financing activities	-	26,451	-	99,400	-	47,487	-	102,039
Effect of exchange rate changes on cash & cash equivalents		3,695	-	15,298	-	7,974		5,365
Net increase in cash and cash equivalents		1,524		145,302	-	5,908		169,027
Cash and cash equivalents at end of each period		812,745		835,600		585,222		690,298

(P)=Projection

- S4 -

Canon Inc.

10. R&D EXPENDITURE


	(Millions of yen)
	2004									2003
	3rd quarter			4th quarter(P)			Year(P)			3rd quarter			4th quarter			Year
Business machines		25,908			—			—			25,049			36,141			119,975
Cameras		8,458			—			—			7,277			8,882			31,687
Optical and other products		25,054			—			—			24,773			31,286			107,478

Total		59,420			83,218			275,000			57,099			76,309			259,140

% of sales		7.1	%		8.5	%		7.9	%		7.4	%		8.5	%		8.1	%

(P)=Projection

11. CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION


	(Millions of yen)
	2004						2003
	3rd quarter		4th quarter(P)		Year(P)		3rd quarter		4th quarter		Year
Capital expenditure		85,784		80,460		300,000		40,326		59,919		210,038
Depreciation and amortization		49,746		48,874		186,000		45,974		52,536		183,604

(P)=Projection

12. INVENTORIES

(1) Inventories

(Millions of yen)

2004

2003

Sep. 30

Dec. 31

Difference

Business machines

269,762

241,477

+28,285

Cameras

123,699

64,043

+59,656

Optical and other products

144,272

138,724

+5,548

Total

537,733

444,244

+93,489

(2) Inventories/Sales*


	(Days)
	2004		2003
	Sep.30		Dec.31		Difference
Business machines		42		38		+4
Cameras		64		32		+32
Optical and other products		154		191		-37

Total		58		49		+9

Index based on the previous six months sales.

13. DEBT RATIO


	2004			2003
	Sep.30			Dec.31			Difference
Total debt / Total assets		1.5	%		3.1	%		-1.6	%

14. OVERSEAS PRODUCTION RATIO


	2004			2003
	1st-3rd quarter			Year
Overseas production ratio		43	%		42	%

15. NUMBER OF EMPLOYEES


	2004		2003
	Sep.30		Dec.31		Difference
Japan		46,071		45,380	+	691
Overseas		62,483		57,187	+	5,296

Total		108,554		102,567	+	5,987



		(Note)

		From the 1st quarter of 2004, Canon changed the classification of product categories with regard to its information system business, which had been classified in “Optical and other products”, to “Business machines(Office imaging products)” in order to better reflect current relation with those products. Accordingly, information for the year 2003 has been reclassified to conform with the current classification.

- S5 -

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents