Edgar Filing: CANON INC

CANON INC.

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 April , 2005

CANON INC.

(Translation of registrant’s name into English)

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

(Address of principal executive offices)

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

Form 20-F X Form 40-F

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

Yes No X

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

TABLE OF CONTENTS


SIGNATURES
CONSOLIDATED RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2005
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 April 28, 2005	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 materials are included.

1. Consolidated Results For The First Quarter Ended March 31, 2005

(CANON LOGO)

April 27, 2005

CONSOLIDATED RESULTS FOR
THE FIRST QUARTER ENDED MARCH 31, 2005

CONSOLIDATED RESULTS

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

Actual

Projected

Three months

ended

Year ending

March 31, 2005

March 31, 2004

Change(%)

March 31, 2005

December 31, 2005

Change(%)

(Unaudited)

Net sales

843,367

798,052

+5.7

7,881,935

3,650,000

+5.3

Operating profit

143,282

133,523

+7.3

1,339,084

584,000

+7.4

Income before income taxes and minority interests

149,451

135,862

+10.0

1,396,738

593,000

+7.4

Net income

93,057

84,280

+10.4

869,692

367,000

+6.9

Net income per share:

- Basic

104.93

95.50

+9.9

0.98

413.79

+6.7

- Diluted

104.79

95.02

+10.3

0.98

—

Actual

As of

March 31, 2005

December 31, 2004

Change(%)

March 31, 2005

(Unaudited)

Total assets

3,566,130

3,587,021

-0.6

33,328,318

Stockholders’ equity

2,276,986

2,209,896

+3.0

21,280,243

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 JPY107 = U.S.$1, the approximate exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2005, solely for the convenience of the reader.



Canon Inc. Headquarter office		30-2, Shimomaruko 3-chome, Ohta-ku, Tokyo 146-8501, Japan Phone: +81-3-3758-2111

- 1 -

Operating Results and Financial Conditions

2005 First Quarter in Review

Looking back at the global economy in the first quarter of 2005, despite worldwide concern over the economic impact of high crude oil prices and escalating costs of raw materials, economic growth was fairly steady during the term. In the United States, employment conditions continued to show improvement while consumer spending and corporate capital expenditure remain healthy, which helped fuel the ongoing trend of gradual expansion. In Europe, the effects of such factors as the growing value of the euro and high crude oil prices has resulted in an economic slowdown in the region that has continued since the second half of last year, although there are signs of improvement in business-related capital expenditure. As for Asia, China continued to realize high growth, mainly through exports, in spite of the economic tightening policy implemented in the latter half of last year, and other Asian economies also enjoyed generally favorable performances. In Japan, while such indicators as consumer spending, employment conditions, and corporate capital expenditure were somewhat lacking in intensity, the economy realized modest growth, pointing to a general trend toward recovery.

As for the markets in which the Canon Group operates, within the camera segment demand for single-lens-reflex (SLR) digital cameras continued to grow significantly during the term. Although sales of compact digital cameras leveled off in Japan, they remained strong in overseas markets to realize healthy growth overall. As for network digital multifunction devices (MFDs), demand in the business market shifted toward increasing multifunctionality, speed and color capability, supporting strong sales, while price competition intensified among lower-speed models. Although sales of computer peripherals, including printers, grew for both monochrome and color models, the segment suffered amid severe price competition and a shift in demand toward high-performance low-priced machines. In the optical equipment segment, although demand for steppers, used in the production of semiconductors, has been tapering off since the second half of last year, back-orders remained during the quarter and sales grew steadily. 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 quarter was ¥104.58 to the U.S. dollar and ¥137.04 to the euro, representing a year-on-year increase of almost 3% against the U.S. dollar, and a decrease of a little over 2% against the euro.

Amid these conditions, Canon’s consolidated net sales for the first quarter increased by 5.7% from the year-ago period to ¥843.4 billion (U.S.$7,882 million), boosted by a favorable rise in sales of digital SLR cameras and color network MFDs, along with a substantial increase in sales of semiconductor-production equipment. Net income for the quarter was ¥93.1 billion (U.S.$870 million), a year-on-year increase of 10.4%. The results mark the eleventh consecutive quarter of year-on-year sales and profit growth, beginning with the third quarter of 2002. Canon’s gross profit ratio for the quarter was 48.6%, a decline of 1.0 point from the 49.6% ratio recorded in the first quarter of 2004. Although production-reform efforts continued during the term, the decline in the gross profit ratio was mainly caused by a combination of such factors as increases in the prices of crude oil and raw materials and severe price competition among consumer products. Owing to a substantial increase in sales, however, gross profit increased by 3.6% to ¥409.7 billion (U.S.$3,829 million). While R&D expenditures and other spending grew during the first quarter, the increase in selling, general and administrative expenses for the period was limited to ¥4.4 billion (U.S.$42 million), representing a year-on-year increase of 1.7%. Consequently, operating profit in the first quarter totaled ¥143.3 billion (U.S.$1,339 million), a substantial year-on-year increase of 7.3%. Other income (deductions) improved by ¥3.8 billion (U.S.$36 million) mainly due to an increase in currency exchange gains on foreign-currency-denominated trade receivables. As a result, income before income taxes and minority interests in the first quarter totaled ¥149.5 billion (U.S.$1,397 million), a year-on-year increase of 10.0%. The effective tax rate during the quarter was 0.7 points lower compared with the previous year due to such factors as the introduction of the corporation size-based enterprise tax in Japan, which reduced the statutory tax rate from 42% to 40%. Consequently, net income for the first quarter of 2005 totaled ¥93.1 billion (U.S.$870 million).

Basic net income per share for the quarter was ¥104.93 (U.S.$0.98), a year-on-year increase of ¥9.43 (U.S.$0.09).

- 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 machines to color models, as well as a trend toward higher-end features. Additionally, amid color network digital MFDs, the iRC3220/iRC3100 continued to sell well and recorded considerable sales increases in both Japan and Europe. The company strengthened its lineup of monochrome network digital MFDs with the Japanese-market launch in March of the high-end office-use iR5570/6570 models, while the low-end and mid-range office-use iR2270/2870/3570/4570 models enjoyed healthy sales. These efforts resulted in only a minor year-on-year decrease in unit sales of monochrome network digital MFDs amid the shift in market demand toward office color. Overall, sales of office imaging products for the quarter realized a year-on-year increase of 2.1%. In the field of computer peripherals, laser beam printers enjoyed a year-on-year increase in unit sales of nearly 30%, with both monochrome systems, particularly personal-use models, and color models achieving growth. Sales in value terms also increased despite the effect of the shift in market demand toward lower priced models. Inkjet printers recorded a unit sales increase of approximately 14%, with the PIXMA iP3000 and iP4000 models selling briskly, especially in Japan and Europe, and high-speed multifunctional systems increasing unit sales, while sales in terms of value increased slightly. As a result, sales of computer peripherals for the quarter realized a year-on-year increase of 12.1%. Sales of business information products decreased by 10.4% due to the intentional curtailing of personal computer sales in the domestic Japanese market. Collectively, sales of business machines in the quarter totaled ¥593.6 billion (U.S.$5,547 million), a year-on-year increase of 6.1%. Operating profit for the quarter totaled ¥140.8 billion (U.S.$1,316 million), a year-on-year increase of 13.0%, supported by such factors as an increase in sales and the achievement of cost reductions realized through the integration manufacturing and development operations.

Within the camera segment, digital SLR cameras continued to enjoy robust growth, bolstered by particularly strong sales of the EOS DIGITAL REBEL XT launched in March, which has also led to expanded sales of interchangeable lenses. The introduction of several new compact-model digital cameras—the PowerShot SD500, PowerShot SD400, PowerShot A520 and PowerShot A510—also fueled sales growth. In the field of digital video camcorders, newly introduced models such as the Optura 60, Elura 90, and ZR100 recorded strong performances. Additionally, the REALiS SX50 LCD projector, which was launched last November, contributed to an increase in sales. As a result, overall camera sales for the first quarter increased by 1.7% from the year-ago period to ¥159.9 billion (U.S.$1,494 million). Despite cost-cutting efforts aimed at containing the negative impact of severe price competition, operating profit for the camera segment decreased year-on-year by 18.4% to ¥23.8 billion (U.S.$223 million).

In the optical and other products segment, aligners, for the production of LCDs, and steppers, for the production of semiconductors, continued to sell well. As a result, first-quarter sales for the segment totaled ¥89.9 billion (U.S.$840 million), a year-on-year increase of 10.3%. Operating profit for the segment grew year-on-year by 7.9% to ¥12.7 billion (U.S.$118 million), boosted by an increase in sales volume.

Cash Flow

In the first quarter of 2005, although Canon maintained cash flow from operating activities of ¥76.7 billion (U.S.$717 million), reflecting the substantial growth in sales and increased cash proceeds from sales, combined with an increase in net income, the figure represents a year-on-year decrease of ¥28.4 billion (U.S.$265 million) due to the increased corporate tax payment accompanying the increase in profit. Capital expenditure totaled ¥92.6 billion (U.S.$865 million), which was used mainly to expand production capabilities in both domestic and overseas regions, as well as to bolster the company’s R&D-related infrastructure. Cash flow from investing activities totaled ¥97.6 billion (U.S.$912 million). As a result, free cash flow, or cash flow from operating activities minus cash flow from investing activities, totaled negative ¥20.9 billion (U.S.$195 million).

Cash flow from financing activities recorded an outlay of ¥37.5 billion (U.S.$350 million), mainly resulting from an increase in the dividend payout of ¥4.7 billion (U.S.$44 million) over the previous year. Consequently, cash and cash equivalents, which totaled ¥837.1 billion (U.S.$7,824 million), although representing a ¥50.6 billion (U.S.$473 million) decrease from the end of the previous year, remained at a high level.

- 3 -

Outlook

Regarding the outlook for the global economy in the second quarter and thereafter, although global economic prospects remain uncertain due to the increasing prices of crude oil and raw materials, and concern over the revaluation of the Chinese yuan, the global economy is likely to continue its course toward modest recovery.

In the businesses in which Canon is involved, demand for digital SLR cameras is expected to continue enjoying robust growth while the compact digital-camera market, primarily overseas, is also expected to continue expanding. Competition in the MFD market will likely intensify with the introduction of increasingly advanced features in network digital MFDs to support solution businesses, and the launch of new color digital network MFD models in response to growing market demand for color multifunction office systems. As for laser beam printers, while stable demand is projected to fuel increased unit sales of full-color models, severe price competition and shifting demand toward lower-priced models is expected to continue. Within the semiconductor-production equipment market, despite the slowdown in capital expenditure by semiconductor manufacturers and a leveling off of market growth, demand for projection aligners is expected to remain strong.

The company has revised upward its forecasts for the 2005 fiscal year and now anticipates consolidated net sales of ¥3,650.0 billion (U.S.$34,112 million), consolidated income before income taxes and minority interests of ¥593.0 billion (U.S.$5,542 million), and consolidated net income of ¥367.0 billion (U.S.$3,430 million). The company also projects non-consolidated net sales of ¥2,460.0 billion (U.S.$22,991 million), non-consolidated ordinary profit of ¥427.0 billion (U.S.$3,991 million), and non-consolidated net income of ¥270.0 billion (U.S.$2,523 million). Although uncertainty surrounds several factors that could affect currency exchange rates, significant changes in rates are not anticipated. The yen is expected to be slightly stronger against the U.S. dollar and maintain the same level against the euro compared with previous year. Accordingly, the company’s forecasts for the remainder of 2005 are based on currency exchange assumptions of ¥105.00 to the U.S dollar and ¥135.00 to the euro.

- 4 -

Consolidated Outlook


1st Half	Millions of yen
	Six months ending
	June 30, 2005				Change		Six months ended June 30, 2004		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	1,725,000	¥	1,745,000	¥	20,000	¥	1,648,420		+5.9	%
Income before income taxes and minority interests		270,000		283,000		13,000		259,974		+8.9	%
Net income		167,000		175,000		8,000		160,776		+8.8	%


Fiscal year	Millions of yen
	Year ending
	December 31, 2005				Change		Year ended December 31, 2004		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	3,630,000	¥	3,650,000	¥	20,000	¥	3,467,853		+5.3	%
Income before income taxes and minority interests		580,000		593,000		13,000		552,116		+7.4	%
Net income		359,000		367,000		8,000		343,344		+6.9	%

Non-consolidated Outlook


1st Half	Millions of yen
	Six months ending
	June 30, 2005				Change		Six months ended June 30, 2004		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	1,160,000	¥	1,180,000	¥	20,000	¥	1,078,553		+9.4	%
Ordinary profit		200,000		210,000		10,000		197,671		+6.2	%
Net income		128,000		135,000		7,000		127,036		+6.3	%


Fiscal year	Millions of yen
	Year ending
	December 31, 2005				Change		Year ended December 31, 2004		Change (%)
	Previous Outlook (A)		Revised Outlook (B)		(B - A)		Results (C)		(B / C)
Net sales	¥	2,440,000	¥	2,460,000	¥	20,000	¥	2,278,374		+8.0	%
Ordinary profit		417,000		427,000		10,000		396,250		+7.8	%
Net income		263,000		270,000		7,000		249,251		+8.3	%

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

CONSOLIDATED STATEMENTS OF INCOME

Thousands of

Millions of yen

U.S. dollars

Three months

ended

March 31, 2005

March 31, 2004

Change(%)

March 31, 2005

(Unaudited)

Net sales

843,367

798,052

+5.7

7,881,935

Cost of sales

433,703

402,595

4,053,299

Gross profit

409,664

395,457

+3.6

3,828,636

Selling, general and administrative expenses

266,382

261,934

2,489,552

Operating profit

143,282

133,523

+7.3

1,339,084

Other income (deductions):

Interest and dividend income

2,681

1,308

25,056

Interest expense

(468

)

(771

)

(4,374

)

Other, net

3,956

1,802

36,972

6,169

2,339

57,654

Income before income taxes and minority interests

149,451

135,862

+10.0

1,396,738

Income taxes

52,394

48,591

489,663

Income before minority interests

97,057

87,271

907,075

Minority interests

4,000

2,991

37,383

Net income

93,057

84,280

+10.4

869,692

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 net gains (losses) on derivative financial instruments and change in minimum pension liability adjustments. Comprehensive income for the three months ended March 31, 2005 and 2004 were JPY102,525 million (U.S.$958,178 thousand) and JPY73,839 million, respectively.

DETAILS OF SALES

Thousands of

Sales by product

Millions of yen

U.S. dollars

Three months

ended

March 31, 2005

March 31, 2004

Change(%)

March 31, 2005

(Unaudited)

Business machines:

Office imaging products

275,083

269,310

+2.1

2,570,869

Computer peripherals

292,292

260,782

+12.1

2,731,701

Business information products

26,179

29,222

-10.4

244,664

593,554

559,314

+6.1

5,547,234

Cameras

159,911

157,225

+1.7

1,494,495

Optical and other products

89,902

81,513

+10.3

840,206

Total

843,367

798,052

+5.7

7,881,935

Thousands of

Sales by region

Millions of yen

U.S. dollars

Three months

ended

March 31, 2005

March 31, 2004

Change(%)

March 31, 2005

(Unaudited)

Japan

208,094

201,112

+3.5

1,944,804

Overseas:

Americas

248,723

237,578

+4.7

2,324,514

Europe

257,336

247,375

+4.0

2,405,009

Other areas

129,214

111,987

+15.4

1,207,608

635,273

596,940

+6.4

5,937,131

Total

843,367

798,052

+5.7

7,881,935


Notes:	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

- 6 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

SEGMENT INFORMATION BY PRODUCT

Thousands of

Millions of yen

U.S. dollars

Three months

ended

March 31, 2005

March 31, 2004

Change(%)

March 31, 2005

(Unaudited)

Business Machines

Net sales:

Unaffiliated customers

593,554

559,314

+6.1

5,547,234

Intersegment

—

Total

593,554

559,314

+6.1

5,547,234

Operating cost and expenses

452,726

434,720

+4.1

4,231,084

Operating profit

140,828

124,594

+13.0

1,316,150

Cameras

Net sales:

Unaffiliated customers

159,911

157,225

+1.7

1,494,495

Intersegment

—

Total

159,911

157,225

+1.7

1,494,495

Operating cost and expenses

136,096

128,030

+6.3

1,271,925

Operating profit

23,815

29,195

-18.4

222,570

Optical and other products

Net sales:

Unaffiliated customers

89,902

81,513

+10.3

840,206

Intersegment

35,181

30,698

+14.6

328,794

Total

125,083

112,211

+11.5

1,169,000

Operating cost and expenses

112,404

100,464

+11.9

1,050,505

Operating profit

12,679

11,747

+7.9

118,495

Corporate and Eliminations

Net sales:

Unaffiliated customers

—

Intersegment

(35,181

)

(30,698

)

—

(328,794

)

Total

(35,181

)

(30,698

)

—

(328,794

)

Operating cost and expenses

(1,141

)

1,315

—

(10,663

)

Operating profit

(34,040

)

(32,013

)

—

(318,131

)

Consolidated

Net sales:

Unaffiliated customers

843,367

798,052

+5.7

7,881,935

Intersegment

—

Total

843,367

798,052

+5.7

7,881,935

Operating cost and expenses

700,085

664,529

+5.4

6,542,851

Operating profit

143,282

133,523

+7.3

1,339,084

Note:

General corporate expenses of JPY34,039 million (U.S.$318,121 thousand) and JPY32,083 million in the three months ended March 31, 2005 and 2004, respectively, are included in “Corporate and Eliminations.”

- 7 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

CONSOLIDATED BALANCE SHEETS


										Thousands of
	Millions of yen									U.S. dollars
	As of			As of						As of
	March 31, 2005			December 31, 2004			Change			March 31, 2005
	(Unaudited)									(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	¥	837,147		¥	887,774		¥	(50,627	)	$	7,823,804
Marketable securities		3,280			1,554			1,726			30,654
Trade receivables, net		542,034			602,790			(60,756	)		5,065,738
Inventories		516,193			489,128			27,065			4,824,234
Prepaid expenses and other current assets		262,194			250,906			11,288			2,450,411

Total current assets		2,160,848			2,232,152			(71,304	)		20,194,841
Noncurrent receivables		14,803			14,567			236			138,346
Investments		100,703			97,461			3,242			941,150
Property, plant and equipment, net		1,007,586			961,714			45,872			9,416,692
Other assets		282,190			281,127			1,063			2,637,289

Total assets	¥	3,566,130		¥	3,587,021		¥	(20,891	)	$	33,328,318

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans and current portion of long- term debt	¥	11,615		¥	9,879		¥	1,736		$	108,551
Trade payables		446,803			465,396			(18,593	)		4,175,729
Income taxes		51,878			105,565			(53,687	)		484,841
Accrued expenses		211,501			205,296			6,205			1,976,645
Other current liabilities		176,871			197,029			(20,158	)		1,653,000

Total current liabilities		898,668			983,165			(84,497	)		8,398,766
Long-term debt, excluding current installments		26,299			28,651			(2,352	)		245,785
Accrued pension and severance cost		127,577			132,522			(4,945	)		1,192,308
Other noncurrent liabilities		47,217			45,993			1,224			441,281

Total liabilities		1,099,761			1,190,331			(90,570	)		10,278,140

Minority interests		189,383			186,794			2,589			1,769,935
Stockholders’ equity:
Common stock		173,913			173,864			49			1,625,355
Additional paid-in capital		401,798			401,773			25			3,755,121
Retained earnings		1,798,416			1,740,834			57,582			16,807,626
Accumulated other comprehensive income (loss)		(91,844	)		(101,312	)		9,468			(858,355	)
Treasury stock		(5,297	)		(5,263	)		(34	)		(49,504	)

Total stockholders’ equity		2,276,986			2,209,896			67,090			21,280,243

Total liabilities and stockholders’ equity	¥	3,566,130		¥	3,587,021		¥	(20,891	)	$	33,328,318

Thousands of

Millions of yen

U.S. dollars

As of

March 31, 2005

December 31, 2004

March 31, 2005

(Unaudited)

Allowance for doubtful receivables

11,431

11,657

106,832

Accumulated depreciation

1,165,757

1,173,305

10,894,925

Accumulated other comprehensive income (loss):

Foreign currency translation adjustments

(70,372

)

(79,751

)

(657,682

)

Net unrealized gains (losses) on securities

7,916

7,470

73,981

Net gains (losses) on derivative financial instruments

(1,374

)

(693

)

(12,841

)

Minimum pension liability adjustments

(28,014

)

(28,338

)

(261,813

)

- 8 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

CONSOLIDATED STATEMENTS OF CASH FLOWS


							Thousands of
	Millions of yen						U.S. dollars
	Three months			Three months			Three months
	ended			ended			ended
	March 31, 2005			March 31, 2004			March 31, 2005
	(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	¥	93,057		¥	84,280		$	869,692
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		46,631			44,486			435,804
Loss on disposal of property, plant and equipment		1,580			2,751			14,766
Deferred income taxes		2,163			1,586			20,215
Decrease in trade receivables		61,465			15,863			574,439
Increase in inventories		(22,620	)		(29,854	)		(211,402	)
Increase (decrease) in trade payables		(4,460	)		34,651			(41,682	)
Decrease in income taxes		(53,712	)		(28,214	)		(501,981	)
Increase in accrued expenses		931			114			8,701
Decrease in accrued pension and severance cost		(4,245	)		(2,907	)		(39,673	)
Other, net		(44,101	)		(17,693	)		(412,159	)

Net cash provided by operating activities		76,689			105,063			716,720
Cash flows from investing activities:
Purchases of property, plant and equipment		(92,594	)		(56,908	)		(865,364	)
Proceeds from sale of property, plant and equipment		5,040			1,390			47,103
Purchases of available-for-sale securities		(2,464	)		(411	)		(23,028	)
Proceeds from sale of available-for-sale securities		417			6,083			3,897
Purchases of other investments		(4,194	)		(513	)		(39,196	)
Other, net		(3,783	)		471			(35,356	)

Net cash used in investing activities		(97,578	)		(49,888	)		(911,944	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		147			106			1,374
Repayment of long-term debt		(2,075	)		(22,381	)		(19,393	)
Increase (decrease) in short-term loans		1,445			(1,304	)		13,505
Dividends paid		(35,475	)		(30,791	)		(331,542	)
Other, net		(1,508	)		(1,805	)		(14,094	)

Net cash used in financing activities		(37,466	)		(56,175	)		(350,150	)
Effect of exchange rate changes on cash and cash equivalents		7,728			(5,832	)		72,224

Net decrease in cash and cash equivalents		(50,627	)		(6,832	)		(473,150	)
Cash and cash equivalents at beginning of period		887,774			690,298			8,296,954

Cash and cash equivalents at end of period	¥	837,147		¥	683,466		$	7,823,804

- 9 -

CANON INC. AND SUBSIDIARIES

CONSOLIDATED

6.		BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(1)		NUMBER OF GROUP COMPANIES


	March 31, 2005		December 31, 2004		Change
Subsidiaries		184		184		—
Affiliates		16		17		(1	)

Total		200		201		(1	)

CHANGES IN GROUP OF ENTITIES


Subsidiaries
Addition:		2 companies
Removal:		2 companies
Affiliates (Carried at Equity Basis)
Removal:		1 company

(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.”

7.		OTHER

		We have engaged Ernst & Young ShinNihon to complete a review of the consolidated financial statements as of and for three months ended March 31, 2005, in accordance with Statement of Auditing Standards No.100, “Interim Financial Information”, established by the American Institute of Certified Public Accountants.

- 10 -

CONSOLIDATED FINANCIAL RESULTS FOR
THE FIRST QUARTER ENDED MARCH 31, 2005

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 (2nd Quarter 2005/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.

SALES BY REGION AND PRODUCT


	(Millions of yen)
	2005						2004						Change year over year
	1st quarter		2nd quarter		Year		1st quarter		2nd quarter		Year		1st quarter			2nd quarter			Year
			(P)		(P)
Japan
Business machines		153,968		156,632		636,900		144,502		147,208		602,772		+6.6	%		+6.4	%		+5.7	%

Office imaging products		95,563		93,437		376,400		82,909		83,922		336,214		+15.3	%		+11.3	%		+12.0	%
Computer peripherals		39,377		47,023		194,100		39,011		42,327		178,783		+0.9	%		+11.1	%		+8.6	%
Business information products		19,028		16,172		66,400		22,582		20,959		87,775		-15.7	%		-22.8	%		-24.4	%

Cameras		26,583		36,117		137,400		26,914		31,932		124,403		-1.2	%		+13.1	%		+10.4	%

Optical and other products		27,543		26,457		99,500		29,696		33,510		122,559		-7.3	%		-21.0	%		-18.8	%

Total		208,094		219,206		873,800		201,112		212,650		849,734		+3.5	%		+3.1	%		+2.8	%

Overseas
Business machines		439,586		458,014		1,880,500		414,812		435,739		1,785,181		+6.0	%		+5.1	%		+5.3	%

Office imaging products		179,520		205,680		796,000		186,401		201,016		784,758		-3.7	%		+2.3	%		+1.4	%
Computer peripherals		252,915		244,085		1,052,100		221,771		227,563		971,131		+14.0	%		+7.3	%		+8.3	%
Business information products		7,151		8,249		32,400		6,640		7,160		29,292		+7.7	%		+15.2	%		+10.6	%

Cameras		133,328		164,172		660,800		130,311		158,176		638,676		+2.3	%		+3.8	%		+3.5	%

Optical and other products		62,359		60,241		234,900		51,817		43,803		194,262		+20.3	%		+37.5	%		+20.9	%

Total		635,273		682,427		2,776,200		596,940		637,718		2,618,119		+6.4	%		+7.0	%		+6.0	%

Americas
Business machines		187,548		185,052		771,000		178,655		187,041		762,592		+5.0	%		-1.1	%		+1.1	%

Office imaging products		76,866		88,234		342,100		85,281		90,688		355,375		-9.9	%		-2.7	%		-3.7	%
Computer peripherals		107,126		93,374		414,000		90,190		92,848		392,800		+18.8	%		+0.6	%		+5.4	%
Business information products		3,556		3,444		14,900		3,184		3,505		14,417		+11.7	%		-1.7	%		+3.4	%

Cameras		52,037		61,963		259,800		51,541		62,636		262,873		+1.0	%		-1.1	%		-1.2	%

Optical and other products		9,138		9,262		37,100		7,382		7,626		33,960		+23.8	%		+21.5	%		+9.2	%

Total		248,723		256,277		1,067,900		237,578		257,303		1,059,425		+4.7	%		-0.4	%		+0.8	%

Europe
Business machines		193,422		210,178		855,700		184,783		190,783		794,601		+4.7	%		+10.2	%		+7.7	%

Office imaging products		82,557		96,543		370,100		82,196		89,941		350,644		+0.4	%		+7.3	%		+5.5	%
Computer peripherals		107,902		109,598		471,000		99,795		97,897		431,742		+8.1	%		+12.0	%		+9.1	%
Business information products		2,963		4,037		14,600		2,792		2,945		12,215		+6.1	%		+37.1	%		+19.5	%

Cameras		57,331		75,469		289,300		56,832		72,330		277,307		+0.9	%		+4.3	%		+4.3	%

Optical and other products		6,583		4,617		22,500		5,760		5,079		21,387		+14.3	%		-9.1	%		+5.2	%

Total		257,336		290,264		1,167,500		247,375		268,192		1,093,295		+4.0	%		+8.2	%		+6.8	%

Other areas
Business machines		58,616		62,784		253,800		51,374		57,915		227,988		+14.1	%		+8.4	%		+11.3	%

Office imaging products		20,097		20,903		83,800		18,924		20,387		78,739		+6.2	%		+2.5	%		+6.4	%
Computer peripherals		37,887		41,113		167,100		31,786		36,818		146,589		+19.2	%		+11.7	%		+14.0	%
Business information products		632		768		2,900		664		710		2,660		-4.8	%		+8.2	%		+9.0	%

Cameras		23,960		26,740		111,700		21,938		23,210		98,496		+9.2	%		+15.2	%		+13.4	%

Optical and other products		46,638		46,362		175,300		38,675		31,098		138,915		+20.6	%		+49.1	%		+26.2	%

Total		129,214		135,886		540,800		111,987		112,223		465,399		+15.4	%		+21.1	%		+16.2	%

Total
Business machines		593,554		614,646		2,517,400		559,314		582,947		2,387,953		+6.1	%		+5.4	%		+5.4	%

Office imaging products		275,083		299,117		1,172,400		269,310		284,938		1,120,972		+2.1	%		+5.0	%		+4.6	%
Computer peripherals		292,292		291,108		1,246,200		260,782		269,890		1,149,914		+12.1	%		+7.9	%		+8.4	%
Business information products		26,179		24,421		98,800		29,222		28,119		117,067		-10.4	%		-13.2	%		-15.6	%

Cameras		159,911		200,289		798,200		157,225		190,108		763,079		+1.7	%		+5.4	%		+4.6	%

Optical and other products		89,902		86,698		334,400		81,513		77,313		316,821		+10.3	%		+12.1	%		+5.5	%

Total		843,367		901,633		3,650,000		798,052		850,368		3,467,853		+5.7	%		+6.0	%		+5.3	%

(P)=Projection

- S1 -

Canon Inc.

SEGMENT INFORMATION BY PRODUCT


	(Millions of yen)
	2005									2004									Change year over year
	1st quarter			2nd quarter (P)			Year (P)			1st quarter			2nd quarter			Year			1st quarter			2nd quarter			Year
Business machines
Unaffiliated customers		593,554			614,646			2,517,400			559,314			582,947			2,387,953			+6.1	%		+5.4	%		+5.4	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		593,554			614,646			2,517,400			559,314			582,947			2,387,953			+6.1	%		+5.4	%		+5.4	%

Operating profit		140,828			139,672			600,300			124,594			124,167			521,084			+13.0	%		+12.5	%		+15.2	%
% of sales		23.7	%		22.7	%		23.8	%		22.3	%		21.3	%		21.8	%		—			—			—

Cameras
Unaffiliated customers		159,911			200,289			798,200			157,225			190,108			763,079			+1.7	%		+5.4	%		+4.6	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		159,911			200,289			798,200			157,225			190,108			763,079			+1.7	%		+5.4	%		+4.6	%

Operating profit		23,815			29,885			124,700			29,195			32,236			130,798			-18.4	%		-7.3	%		-4.7	%
% of sales		14.9	%		14.9	%		15.6	%		18.6	%		17.0	%		17.1	%		—			—			—

Optical and other products
Unaffiliated customers		89,902			86,698			334,400			81,513			77,313			316,821			+10.3	%		+12.1	%		+5.5	%
Intersegment		35,181			37,219			149,500			30,698			34,858			138,419			+14.6	%		+6.8	%		+8.0	%

Total sales		125,083			123,917			483,900			112,211			112,171			455,240			+11.5	%		+10.5	%		+6.3	%

Operating profit		12,679			10,621			30,700			11,747			3,412			28,832			+7.9	%		+211.3	%		+6.5	%
% of sales		10.1	%		8.6	%		6.3	%		10.5	%		3.0	%		6.3	%		—			—			—

Corporate and Eliminations
Unaffiliated customers		—			—			—			—			—			—			—			—			—
Intersegment		-35,181			-37,219			-149,500			-30,698			-34,858			-138,419			—			—			—

Total sales		-35,181			-37,219			-149,500			-30,698			-34,858			-138,419			—			—			—

Operating profit		-34,040			-47,460			-171,700			-32,013			-39,962			-136,921			—			—			—

Consolidated
Unaffiliated customers		843,367			901,633			3,650,000			798,052			850,368			3,467,853			+5.7	%		+6.0	%		+5.3	%
Intersegment		—			—			—			—			—			—			—			—			—

Total sales		843,367			901,633			3,650,000			798,052			850,368			3,467,853			+5.7	%		+6.0	%		+5.3	%

Operating profit		143,282			132,718			584,000			133,523			119,853			543,793			+7.3	%		+10.7	%		+7.4	%
% of sales		17.0	%		14.7	%		16.0	%		16.7	%		14.1	%		15.7	%		—			—			—

(P)=Projection

OTHER INCOME / DEDUCTIONS


	(Millions of yen)
	2005						2004						Change year over year
	1st quarter		2nd quarter (P)		Year (P)		1st quarter		2nd quarter		Year		1st quarter		2nd quarter		Year
Interest & dividend, net		2,213		2,587		9,000		537		1,052		4,362		+1,676		+1,535		+4,638
Forex gain / loss		741		-4,041		-11,200		-4,415		-745		-17,800		+5,156		-3,296		+6,600
Equity earnings / loss of affiliated companies		1,153		647		2,400		106		685		1,921		+1,047		-38		+479
Others, net		2,062		1,638		8,800		6,111		3,267		19,840		-4,049		-1,629		-11,040

Total		6,169		831		9,000		2,339		4,259		8,323		+3,830		-3,428		+677

(P)=Projection

- S2 -

Canon Inc.

SALES COMPOSITION BY PRODUCT


	2005									2004
	1st quarter			2nd quarter(P)			Year(P)			1st quarter			2nd quarter			Year
Office imaging products
Monochrome copying machines		57	%		57	%		57	%		63	%		63	%		62	%
Digital*		96	%		—			—			92	%		94	%		95	%
Analog*		4	%		—			—			8	%		6	%		5	%
Color copying machines		26	%		27	%		27	%		23	%		24	%		24	%
Others		17	%		16	%		16	%		14	%		13	%		14	%
Computer peripherals
Laser beam printers		73	%		69	%		69	%		69	%		71	%		71	%
Inkjet printers (includes inkjet MFPs)		25	%		30	%		30	%		28	%		27	%		27	%
Others		2	%		1	%		1	%		3	%		2	%		2	%
Business information products
Personal computers		72	%		67	%		67	%		76	%		74	%		74	%
Others		28	%		33	%		33	%		24	%		26	%		26	%
Cameras
Film cameras / Lenses		15	%		15	%		14	%		17	%		17	%		16	%
Digital cameras		72	%		70	%		71	%		68	%		67	%		69	%
Video cameras		13	%		15	%		15	%		15	%		16	%		15	%
Optical and other products
Semiconductor production equipment		69	%		66	%		64	%		65	%		64	%		63	%
Others		31	%		34	%		36	%		35	%		36	%		37	%

(P)=Projection

Among office-use monochrome copying machines (hardware only)

SALES GROWTH IN LOCAL CURRENCY


	2005
	1st quarter			2nd quarter(P)			Year(P)
Business machines
Japan		+6.6	%		+6.4	%		+5.7	%
Overseas		+7.0	%		+7.1	%		+7.0	%

Total		+6.9	%		+6.9	%		+6.7	%

Cameras
Japan		-1.2	%		+13.1	%		+10.4	%
Overseas		+2.8	%		+5.0	%		+4.7	%

Total		+2.1	%		+6.4	%		+5.7	%

Optical and other products
Japan		-7.3	%		-21.0	%		-18.8	%
Overseas		+20.1	%		+36.4	%		+20.1	%

Total		+10.1	%		+11.5	%		+5.0	%

Total
Japan		+3.5	%		+3.1	%		+2.8	%
Overseas		+7.2	%		+8.6	%		+7.4	%
Americas		+7.5	%		+4.0	%		+3.9	%
Europe		+2.6	%		+7.2	%		+6.8	%
Other areas		+16.7	%		+22.3	%		+17.0	%

Total		+6.3	%		+7.2	%		+6.3	%

(P)=Projection

- S3 -

Canon Inc.

P&L SUMMARY (2nd Quarter 2005/Projection)


	(Millions of yen)
	2005		2004
					Change
	2nd quarter(P)		2nd quarter		year over year
Net sales		901,633		850,368		+6.0	%
Operating profit		132,718		119,853		+10.7	%
Income before income taxes and minority interests		133,549		124,112		+7.6	%
Net income		81,943		76,496		+7.1	%

(P)=Projection

PROFITABILITY


	2005						2004
	1st quarter			Year(P)			1st quarter			Year
ROE		16.6	%		15.5	%		17.8	%		16.8	%
ROA		10.4	%		9.8	%		10.6	%		10.1	%

(P)=Projection

IMPACT OF FOREIGN EXCHANGE RATES

(1)

Exchange rates


	(Yen)
	2005						2004
	1st quarter		2nd-4th quarter(P)		Year(P)		1st quarter		Year
Yen/US$		104.58		105.00		104.90		107.43		108.12
Yen/Euro		137.04		135.00		135.44		134.02		134.57

(P)=Projection

(2)

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


	(Billions of yen)
	2005
	1st quarter		Year(P)
US$		-6.4		-39.4
Euro		+3.9		+5.3
Other currencies		+0.2		+4.2

Total		-2.3		-29.9

(P)=Projection

(3)

Impact of foreign exchange rates per yen


	(Billions of yen)
	2005
	2nd-4th quarter(P)
On sales
US$		10.0
Euro		5.3
On operating profit
US$		5.5
Euro		3.9

(P)=Projection

STATEMENTS OF CASH FLOWS


	(Millions of yen)
	2005				2004
	1st quarter		Year(P)		1st quarter		Year
Net cash provided by operating activities
Net income		93,057		367,000		84,280		343,344
Depreciation and amortization		46,631		210,000		44,486		192,692
Other, net		-62,999		58,000		-23,703		25,493

Total		76,689		635,000		105,063		561,529

Net cash used in investing activities		-97,578		-420,000		-49,888		-252,967
Free cash flow		-20,889		215,000		55,175		308,562
Net cash provided by (used in) financing activities		-37,466		-70,300		-56,175		-102,268
Effect of exchange rate changes on cash & cash equivalents		7,728		1,100		-5,832		-8,818
Net change in cash and cash equivalents		-50,627		145,800		-6,832		197,476
Cash and cash equivalents at end of each period		837,147		1,033,600		683,466		887,774

(P)=Projection

- S4 -

Canon Inc.

10.

R&D EXPENDITURE


	(Millions of yen)
	2005						2004
	1st quarter			Year(P)			1st quarter			Year
Business machines		25,012			—			26,044			120,916
Cameras		9,452			—			8,158			35,549
Optical and other products		24,705			—			23,326			118,835

Total		59,169			300,000			57,528			275,300

% of sales		7.0	%		8.2	%		7.2	%		7.9	%

(P)=Projection

11.

CAPITAL EXPENDITURE & DEPRECIATION AND AMORTIZATION


	(Millions of yen)
	2005				2004
	1st quarter		Year(P)		1st quarter		Year
Capital expenditure		91,776		375,000		54,749		318,730
Depreciation and amortization		46,631		210,000		44,486		192,692

(P)=Projection

12.

INVENTORIES

(1)

Inventories


	(Millions of yen)
	2005		2004
	Mar.31		Dec.31		Difference
Business machines		272,955		244,050		+28,905
Cameras		99,904		90,620		+9,284
Optical and other products		143,334		154,458		-11,124

Total		516,193		489,128		+27,065

(2)

Inventories/Sales*


	(Days)
	2005		2004
	Mar.31		Dec.31		Difference
Business machines		40		36		+4
Cameras		44		40		+4
Optical and other products		169		178		-9

Total		52		49		+3

*Index based on the previous six months sales.

13.

DEBT RATIO


	2005			2004
	Mar.31			Dec.31			Difference
Total debt / Total assets		1.1	%		1.1	%		0.0	%

14.

OVERSEAS PRODUCTION RATIO


	2005			2004
	1st quarter			Year
Overseas production ratio		44	%		42	%

15.

NUMBER OF EMPLOYEES


	2005		2004
	Mar.31		Dec.31		Difference
Japan		45,601		46,103		-502
Overseas		61,986		62,154		-168

Total		107,587		108,257		-670

- S5 -

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